[Senate Hearing 108-207]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-207
 
                     NOMINATION OF JOSHUA B. BOLTEN
=======================================================================


                                HEARING

                               before the


                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                 ON THE

 NOMINATION OF JOSHUA B. BOLTEN, TO BE DIRECTOR, OFFICE OF MANAGEMENT 
                               AND BUDGET

                               __________

                             JUNE 25, 2003

                               __________

      Printed for the use of the Committee on Governmental Affairs






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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Deleware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas
              Michael D. Bopp, Staff Director and Counsel
                    Johanna L. Hardy, Senior Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                   Susan E. Propper, Minority Counsel
           Jennifer E. Hamilton, Minority Research Assistant
                      Amy B. Newhouse, Chief Clerk















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Akaka................................................     2
    Senator Voinovich............................................     3
    Senator Lautenberg...........................................     4
    Senator Sununu...............................................     5
    Senator Durbin...............................................     6
    Senator Coleman..............................................     7
    Senator Stevens..............................................    20
    Senator Fitzgerald...........................................    27
    Senator Carper...............................................    29
    Senator Pryor................................................    35
    Senator Levin................................................    38

                               WITNESSES
                        Wednesday, June 25, 2003

Hon. Jon S. Corzine, a U.S. Senator from the State of New Jersey.     8
Joshua B. Bolten, to be Director, Office of Management and Budget     9

                     Alphabetical List of Witnesses

Bolten, Joshua B.:
    Testimony....................................................     9
    Biographical and professional information requested of 
      nominees...................................................    45
    Pre-hearing questionnaire and responses for the Record.......    53
Corzine, Hon. Jon S.:
    Testimony....................................................     8

                                Appendix

Letter from Thomas J. Donohue, President and Chief Executive 
  Officer, Chamber of Commerce of the United States of America, 
  dated June 25, 2003, supporting the nomination of Mr. Bolten...   146
Post-Hearing Questions for Joshua Bolten from:
    Senator Collins..............................................   147
    Senator Lieberman............................................   149
    Senator Akaka................................................   155
    Senator Levin................................................   156
Additional question for Mr. Bolten submitted for the record by 
  Senator Levin..................................................   157















                     NOMINATION OF JOSHUA B. BOLTEN

                              ----------                              


                        WEDNESDAY, JUNE 25, 2003

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:32 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Stevens, Voinovich, Coleman, 
Specter, Bennett, Fitzgerald, Sununu, Levin, Akaka, Durbin, 
Carper, Lautenberg, and Pryor.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order. Good 
morning.
    Today, the Committee on Governmental Affairs is holding a 
hearing to consider the nomination of Joshua Bolten to be the 
Director of the Office of Management and Budget, one of the 
most important positions in the Federal Government. Most people 
know OMB as the agency that oversees the preparation of the 
President's budget and its administration by Executive Branch 
agencies. OMB, however, also has a variety of other 
responsibilities. Most notably, it oversees financial 
management, Federal procurement, information and regulatory 
policies in all executive agencies. As such it plays a broader 
role than virtually any other agency in the Federal Government.
    While OMB's budget functions are important, so too are its 
management responsibilities. Over the years this Committee has 
received countless reports from Inspectors General and the 
General Accounting Office that highlight programs at high risk 
for mismanagement, waste, fraud, and abuse. Ensuring that 
agencies are properly managed is crucial to seeing that 
taxpayer money is wisely spent and that the missions of each 
agency are carried out efficiently and effectively.
    I applaud President Bush for placing far more emphasis on 
management issues than have previous administrations. For 
example, the President has developed an aggressive Management 
Agenda to ensure that management issues are of high priority. 
As part of this Management Agenda OMB is responsible for 
assessing agencies' performance in five key areas: Financial 
management, human resources, e-Government, competitive 
sourcing, and linking budget to performance.
    The administration is also beginning to link management and 
budget issues through its Program Assessment Rating Tool, also 
known as PART. PART is intended to hold agencies more 
accountable and ensure that they are operating efficiently by 
identifying the strengths and weaknesses in their programs.
    In overseeing these management responsibilities as well as 
the preparation and implementation of the President's budget, 
Mr. Bolten will face many challenges if confirmed for this 
critical post. I am very pleased personally that he has agreed 
to serve in this important position for which he is very well 
qualified. His extensive experience in both the public and 
private sectors provides him with the background he will need 
as the Director of OMB. Mr. Bolten also possesses the extensive 
knowledge, extraordinary intelligence, and perhaps most 
important, the patience and persistence needed to be a 
successful OMB Director.
    I would now like to turn to Senator Akaka for any opening 
remarks that he might have.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Madam Chairman. I join 
you in welcoming our nominee, Mr. Bolten, and his mother as 
well.
    It is every President's prerogative to implement management 
proposals like, as you mentioned, Madam Chairman, PART, the 
Program Assessment Rating Tool or the Management Scorecard. I 
believe that management proposals should not make worse the 
challenges that we seek to correct.
    A good example of my concern is the recent demand on 
employees at the National Institutes of Health to sign and 
return within a day an addendum to their performance plan 
contract. The addendum included the objective of completing 
``the fiscal year 2003 competitive sourcing program.'' 
Circulation of this form, reportedly without explanation, 
created widespread confusion and even fear among some 
employees.
    The incident raises a question as to why there are such 
missteps at a time when NIH is seeking to hire young 
researchers and scientists. Unfortunately this example is 
indicative of what I see as a disregard for the government's 
most valuable asset--its workforce. The insistence on numerical 
targets for contracting out work regardless of an agency's 
needs does not evoke an employee friendly work environment.
    I urge you to re-examine what type of work the 
administration views as inherently governmental, and work with 
employees to allay their fears.
    Federal contracting policies should be fair to Federal 
workers, be transparent, and be in the best interest of the 
public. Agency efforts to address challenges in recruitment and 
retention should not be undercut by numerical targets that 
simply eliminate jobs.
    In closing, let me touch on the budget aspect of your new 
appointment, Mr. Bolten. I urge you to focus like a laser on 
the debt burden we are bequeathing to our children, and with 
that I wish you well in your work.
    As you may know, the Congressional Budget Office estimates 
the on-budget deficit to exceed $400 billion in fiscal year 
2003. This amount includes Social Security with the budget. If 
Social Security is off-budget as it should be, the actual 
deficit would approach $600 billion, or 5.5 percent of the 
gross domestic product. In 2001, there was a budget surplus. 
With the President's current budget there would still be a 
budget deficit in 2013.
    Mr. Bolten, I look forward to your testimony and I want you 
to know that I may not be here long in this meeting because I 
have a markup that I have to attend, but I will stay as long as 
I can.
    Thank you very much, Madam Chairman.
    Chairman Collins. Thank you, Senator. Senator Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Madam Chairman. I would like 
to extend my warm welcome to Josh Bolten, and I am glad that 
your mother is here and another young lady. Is that your 
sister? It is a special day, I am sure, in your family's 
history.
    I recently had the pleasure of meeting Mr. Bolten to 
discuss his vision for the roles and responsibilities of the 
Director of Office of Management and Budget, and I find him to 
be eminently qualified for that job. If confirmed, Mr. Bolten, 
you will enter OMB at a very crucial time. The departures of 
Mitch Daniels' deputy director, Nancy Dorn, deputy director for 
management, Mark Everson, have left OMB without a cohesive 
management team to oversee the Federal Government's policies, 
procedures and programs. However, with your nomination and Clay 
Johnson's recent confirmation I am hopeful the new leadership 
team will provide the necessary amount of continuity, energy, 
and pragmatism to OMB's management and budget roles.
    Mr. Bolten, three of my goals when I came to Washington 
were to balance the budget, pay down debt, and change the 
culture of the Federal workforce. If you are confirmed as OMB 
Director you will have a key role in each of these issues. I 
have always believed that if you have your finances in order 
and you have good people, you have a successful business. As 
OMB Director you will be involved in the biggest business that 
we have in our country.
    In the past decade, fiscal conservatives have worked very 
hard to return the Federal Government to a balanced budget. For 
a short time after hand-to-hand combat--and I was here during 
that hand-to-hand combat--we met our goal for 2 years. In 1999, 
we had a real on-budget surplus of about $1 billion and then in 
2000 we had one of about $87 billion. It is the first time that 
we did not use Social Security to operate the Federal 
Government.
    Unfortunately, our success in balancing the budget was 
short-lived. In the blink of an eye we returned to spending the 
Social Security surplus and running large budget deficits. 
Today, instead of reducing our $6.2 trillion national debt, we 
are expanding it. In 2001, we had an on-budget deficit of $33 
billion. In 2002, we suffered an on-budget deficit of $314 
billion, and CBO now projects that we are going to have a 
unified budget deficit in 2004 and 2005 of over $400 billion. 
And as Senator Akaka just pointed out, if you add in Social 
Security we are close to about $600 billion borrowing to run 
the Federal Government.
    In addition to the budget process, the Federal Government 
has been experiencing a different type of deficit for too long, 
one of human capital. For the first 4\1/2\ years of my term I 
have offered solutions to the government's human capital 
crisis. Last year, with the administration's support we 
successfully amended the homeland security legislation to 
include several provisions that are helping the Federal 
Government recruit and retain the best and brightest candidates 
possible.
    However, Congress alone cannot solve the human capital 
crisis. Therefore, I was grateful that the President took a 
proactive interest in the issue of making strategic human 
capital management the first of his five governmentwide 
management initiatives. It is terrific and I commend the 
President and the administration for their foresight and 
leadership on this issue.
    Overall, I believe the administration is making progress in 
implementing the President's management agenda. I hope Mr. 
Bolten will continue the legacy left by Mitch Daniels by 
serving as the President's advocate and leader on 
governmentwide management reform.
    I am, however, troubled that the administration's 
competitive sourcing initiative is causing unease within the 
Federal workforce. In fact on July 24th I will hold a 
Subcommittee hearing to examine the past, present, and future 
of the administration's competitive sourcing initiative. I am 
interested to learn how you would manage the program if you 
were confirmed.
    Madam Chairman, I believe Mr. Bolten possesses the 
qualities and skills necessary to be an effective director of 
OMB and hope we can move him through the process as soon as 
possible.
    Chairman Collins. Thank you, Senator. Senator Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you, Madam Chairman. Welcome to 
Josh Bolten, and my friend and colleague, Senator Jon Corzine. 
The two of you seem to have an affinity of sorts; background. I 
think Jon Corzine worked for Josh Bolten; is that right, Josh? 
[Laughter.]
    Reverse order.
    I had the opportunity to meet Josh Bolten some days ago, 
and while there are issues that we do not agree on, and I think 
that his focus on trade-related activities is very important--
but I really believe that having gone to school in New Jersey 
he will be a quick learn. We do welcome him here.
    I am sure he will handle himself very well, if all goes as 
planned and he is confirmed as the director of OMB. He knows 
his way around Washington having been here for some time, and 
we congratulate you for being nominated for this post. Your 
family, I understand, is with you and we also congratulate them 
for having such a talented member of the family here.
    I want to make just a couple of quick points. First, on a 
parochial matter, I look forward to getting Mr. Bolten's on-
the-record commitment to try to give us a hand, work with New 
Jersey, with Governor McGrevey and other New Jersey officials 
on our State's PAAD waiver. The PAAD program in New Jersey 
works quite well. It is a prescription drug program designed to 
help those who are at the 160 percent of the poverty level or 
less. It has been paid for out of New Jersey funds for many 
years. What we are looking for now is a waiver--not uncommon, 
by the way--to be able to use other Federal funds at no 
increase in cost to the Federal Government for the program 
because of the emergency nature of the cash flow right now. But 
with New Jersey picking up, continuing to pick up its share of 
the obligation that we have set out to provide. So I would 
hope, Mr. Bolten, that you will be able to look at that. It has 
been quickly moved in a couple of other States, so we would ask 
your attention to that.
    Second, I want to modestly remind the nominee that I had a 
very good vote last week on the privatization, the potential 
privatization of the air traffic control function. We won 56 to 
41 to prevent the President from privatizing air traffic 
control functions. It is not modest at all to say so, but we 
had a lot of thoughtful Republicans join a lot of thoughtful 
Democrats and put this into place. So we are not happy about 
the suggestion that there could be an attempt to privatize FAA. 
I consider that like a fifth branch of the military and they 
have such a wonderful safety record there that we do not want 
to disturb it.
    Last, I want to find out whether or not a report that was 
commissioned by the former Treasury Secretary, Secretary 
O'Neill, indicating that the future Federal budget deficits 
could total $44 trillion, I want to know whether or not that 
report is prevented from being made public. It should be made 
public, and we would like to have some understanding about 
where it is and what it is.
    I said before that was final. This is final. I would hope 
that if confirmed, Mr. Bolten, that we are going to have a good 
working relationship with the Congress. It was not quite what 
we would like to see it in the last administrator, but we 
believe that we can achieve that with you. As long as we are 
open and straight with one another, having done the work that 
you have done in the past--I looked at it carefully. I know you 
have got broad shoulders. You just may have to exercise them 
occasionally, but other than that we will try, as you see, with 
Senator Voinovich and the Chairman, Senator Collins, this is 
going to be among your easier places to be.
    But we look forward to working with you and believe that 
you are going to have a distinguished record with OMB. If we 
disagree on an issue, we want to work to resolve, as much as 
practical, the issue, and get on with the business of 
government.
    Thank you very much.
    Chairman Collins. Thank you, Senator.
    We are following the early bird rule today, so I will call 
on Senator Sununu next.

              OPENING STATEMENT OF SENATOR SUNUNU

    Senator Sununu. Thank you, Madam Chairman. Having only been 
here for 6 months I do not know a great deal about the Senate, 
but I know as a potential nominee you should probably be a 
little bit nervous when a Senator says, ``This will be easy. Do 
not worry.'' [Laughter.]
    As I came into the hearing, you might have noticed a flash 
of excitement. For a minute I thought you had talked Senator 
Corzine into taking the position in your stead. [Laughter.]
    I say that only half jokingly. I think that the position of 
Budget Director is the toughest job in Washington. You have one 
boss and 535 critics, but as tough as that role may be, I think 
the President has made a great choice. Josh Bolten has 
tremendous qualifications, and experience in finance and 
budget. He has a great depth of understanding of the policy 
issues that we deal with, and more than just understanding the 
nuances of policy, an ability to understand the budget 
implications of policy, which is absolutely critical.
    Moreover, you have experience in the White House in the 
administration, and the White House is a difficult place to 
work. It is a large organization in and of itself, and 
understanding how to work through issues and problems and 
decisions that need to be made as a budget director is valuable 
experience to have.
    I think we are very fortunate to have such a qualified 
nominee. I do not think you need a lecture about the state of 
the budget. You have been dealing with these issues, at least 
in a peripheral way, now for several years. We have a challenge 
I think everyone understands, to try to control Federal 
spending, get the economy moving, and strengthen revenue 
collections. Those are going to be recurring themes not just 
this year, but I think for the next 2 to 5 years as we try to 
bring our budget back to a balance.
    Thank you, Madam Chairman .
    Chairman Collins. Thank you. Senator Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thanks a lot, Madam Chairman.
    Mr. Bolten, welcome, and you could not come with higher 
recommendation than the presence of your former business 
colleague and friend, Senator Jon Corzine, who has talked to me 
personally about his respect for you, and that ranks very high 
with me, and I am happy that you are here today.
    I assume that before you came here today they had you 
review a lot of things in preparation for the penetrating 
questions which Senators are known to ask, and you perhaps had 
a chance to take a look at the statements made by your 
predecessor, Mitch Daniels, when he sought this job. We asked 
Mr. Daniels, ``What challenges currently face the OMB?'' A very 
broad question. It is interesting what he told us, January 16, 
2001, ``I view the greatest challenge for OMB is the 
development and management of the Federal budget during a 
period of record budget surpluses.'' He went on to say, ``I 
think it is imperative to ensure taxpayers' dollars are spent 
efficiently, and programs are increased due to some high 
priority and that is simply due to the availability of funds.''
    My, what a difference 2\1/2\ years make. You are now in a 
position where you come to this job facing the largest deficits 
perhaps in our Nation's history, and we of course are concerned 
about what happened in 2\1/2\ years, what economic policy did 
we follow that failed to revive the economy and drove us so 
deeply into debt. I am interested because you have been close 
to the opinion makers and decisionmakers in the White House 
during that period of time, whether there was any voice in the 
room sitting with the President at any point in time that said, 
``You know, this is not working, these tax cuts are not 
working.'' Clearly that voice did not prevail in the 
conversation because the President followed one massive tax cut 
with another one, and still we have record unemployment, the 
highest deficits in our history, and frankly, a state of the 
economy which is of very great concern, and one that will 
absolutely, I think, influence your job at OMB more than 
anything else. I think your hands have been tied. I think you 
are being given a very difficult job with your hands tied, with 
the tax cut taking money out of the Treasury, with the needs 
for national defense and national security, the demands there 
that will be met and will be spent by Congress. What is left is 
very limited. The President cannot fund his own education 
program. No Child Left Behind has become an unfunded mandate in 
my State as it has in many other States. And time and again we 
are finding, whether it is prescription drugs or health care, 
or homeland security, or veterans' medical, the money is not 
there, the money is gone. It went by way of tax cuts, primarily 
to the wealthiest people in this country.
    I am interested, as you tell us about your experience that 
leads to this, in finding out whether there was any voice in 
the room speaking to the President at any point over the last 
2\1/2\ years, saying this is not working, because clearly the 
facts tell us it has not worked. What Mitch Daniels faced were 
grand surpluses and the need to impose discipline, and what you 
face are massive deficits and the absolute imperative to put 
discipline into that process. It is a tough job. I believe you 
are up to it. I am anxious to hear what you have seen and heard 
in the White House in the last 2\1/2\ years that can give us 
some comfort that reason has at least been suggested, if not 
prevailed.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you. Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Madam Chairman. I look forward 
to voting for this nomination, to moving it forward very 
quickly. Clearly, Josh Bolten contains the skill, the talent, 
the intellectual capacity, the experience that is necessary to 
do a very tough job.
    I echo the changing reality by my colleague from Illinois. 
Less than 9 months after Mitch Daniels' statement we were hit 
with September 11, and subsequent to that we were hit with 
WorldCom, Tyco, Enron, and a great unstabilizing impact on 
confidence in the economy, and I think we have made progress. 
But you do have perhaps one of the toughest jobs in Washington. 
Somebody has to hold the line. I would not like to lecture 
here, but to reiterate that this President is a compassionate 
conservative, and I think we have to keep that in mind, and so 
as OMB does the things that it does, clearly and hopefully not 
in a mechanistic, formalistic way, but taking into 
consideration the human impact on some of the decisions that 
are made.
    Then finally, I looked at your comments and noted in answer 
to one of the questions you talked about the important task 
going forward as to return the economy to strong growth and 
healthy job creation, which will begin to move the government's 
finances back into balance. Clearly, tax cuts, trade policy and 
the like are important.
    So I think you bring the skills and the talents to the 
table at a very difficult time. The world has changed since 
Mitch Daniels came before us a couple years ago, but I think we 
are up to the task and I think you are the right guy to do it.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you, Senator.
    It is now a great pleasure to welcome our colleague from 
New Jersey, Senator Corzine, for his introduction of the 
nominee.

TESTIMONY OF HON. JON S. CORZINE, A U.S. SENATOR FROM THE STATE 
                         OF NEW JERSEY

    Senator Corzine. Thank you, Madam Chairman, and colleagues 
of the Committee. It is good to be here with you today. I am 
particularly pleased in the role that I am playing because I 
enthusiastically support the nomination of Josh Bolten to be 
the Director of OMB.
    As you may know, Madam Chairman, Josh was a trusted 
colleague in the private sector for a number of years. He 
almost became my Chief of Staff before he so abruptly chose an 
alternative career path with a then-aspiring governor, high-
aspiration governor from Texas. Accepting graciously that 
slight, I maintain a sincere respect for Josh Bolten's judgment 
and consider him a close friend.
    That said, my support of his nomination is not based on 
friendship. It is knowing Josh as a man of uncommon common 
sense, intelligence, integrity, and I think he is an 
outstanding leader, and I think he will do an outstanding job 
as the Director of OMB. I think most people who know him would 
share that view. While at Goldman, Sachs he was rightly 
respected for his intellect, work ethic, modesty and skills as 
a manager. Speaking for myself, I relied on him heavily in 
almost every way, except when I was asking someone to write my 
political speeches. In that case we sometimes had to part ways. 
From all indications, he has done a similarly outstanding job 
for the President including writing political speeches. I am 
confident that he will do a great job at the OMB.
    To be a good OMB Director, you have to get your hands 
dirty, you have to get into the details of a lot of issues and 
understanding of the program. Josh is an individual that is 
both willing to do that, has exhibited that, understands the 
intricacies of policy, and I know he will do an outstanding 
job.
    To be a good OMB Director, you also need to maintain an 
effective working relationship with the Congress and with 
colleagues in the administration and the White House. Josh will 
excel at this, in my view, because he believes in treating 
everyone with respect, and because he knows not just how to 
pursue an agenda, but to listen and learn from others. In that 
regard I hope you were listening to Senator Lautenberg on the 
PAAD waiver for New Jersey.
    To be a good OMB Director, you need to be a good manager, 
and I know from personal experience that Josh is. He is well 
organized and he knows how to get the best out of other people.
    And finally, to be a good OMB Director, you need to be able 
to communicate about complex policy issues with a broad range 
of players, including all of us sometimes difficult folks on 
the Hill, but most certainly with the public.
    Lest I be accused of killing Josh with kindness, let me 
assure my Republican friends that Josh and I have very 
different views on some matters of policy. That was true in our 
Goldman, Sachs days, and will be true in the future, I am sure. 
But while we will surely see things from different 
perspectives, Josh is the kind of person who can be someone who 
can disagree with you without being disagreeable, and I think 
that will serve the administration and the public very well in 
one of the toughest jobs in Washington.
    In sum, Madam Chairman, I cannot imagine a better choice 
President Bush could have made for OMB Director. I am proud to 
call Josh Bolten a friend. I am confident he will do an 
outstanding job not only for the President, but for our Nation, 
and I hope the Committee will give his nomination fast, 
favorable consideration to go forward. Thank you.
    Chairman Collins. Thank you very much, Senator, for your 
comments. It is very helpful to know of your personal 
experience in working with the nominee, and we very much 
appreciate your taking the time to introduce him today. We 
would be happy to excuse you at this point if you would like, 
or you are welcome to stay by his side and whisper in his ear.
    Senator Corzine. I think he is going to do OK.
    Chairman Collins. Mr. Bolten has filed responses to a 
biographical and financial questionnaire, answered prehearing 
questions submitted by the Committee, and has had his financial 
statements reviewed by the Office of Government Ethics. Without 
objection, this information will be made a part of the hearing 
record, with the exception of the financial data, which are on 
file and available for public inspection in the Committee 
offices.
    Our Committee rules require that all witnesses at 
nomination hearings give their testimony under oath, so, Mr. 
Bolten, I would ask that you stand and raise your right hand.
    Do you swear that the testimony you are about to give to 
the Committee will be the truth, the whole truth and nothing 
but the truth, so help you, God?
    Mr. Bolten. I do.
    Chairman Collins. Mr. Bolten, I would like to give you the 
opportunity to introduce any family members or other special 
people to you who are here today.

   TESTIMONY OF JOSHUA B. BOLTEN, TO BE DIRECTOR, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Bolten. Madam Chairman, I have with me my mom, whose 
80th birthday we will be celebrating in just a few weeks, and 
my sister Susannah, and my friend Lindsey Kozberg. I am very 
proud to have them all here, and I thank you for welcoming 
them.
    Chairman Collins. We welcome them. We are glad to have them 
here as well. Mr. Bolten, I would now like to ask you to 
proceed with any statement that you would like to make to the 
Committee.
    Mr. Bolten. Thank you, Madam Chairman and Members of the 
Committee. I appreciate the opportunity to be here this 
morning, and I am deeply honored to come before you as the 
President's nominee to be the Director of the Office of 
Management and Budget. I will, for the record, put my thanks in 
to Senator Corzine, who was generous as an employer, and even 
more generous with his kind words, and I was proud to call him 
boss, and I am now proud to call him friend.
    Madam Chairman, I've spent most of my career in public 
service, and I've been fortunate to have a wide array of 
extraordinary experiences in that service. For someone who 
takes great pride in public service, there may be no better or 
rewarding job than OMB Director. Helping to prepare the budget 
of the United States is an unparalleled opportunity to see that 
the Nation's priorities are carried out completely and 
faithfully. The Federal Budget and the spending bills that 
follow represent a shared conclusion on how much of the 
people's money the government will spend and for what purposes. 
These are critical judgments, as Madam Chairman, you and other 
Members have noted, and the American people depend on all of us 
to get them right.
    Equally important is the other part of OMB's mandate, 
Federal management. OMB has the responsibility to make sure 
that our government delivers on its promises, gets the most out 
of its resources and puts the great talents of Federal 
employees to good use.
    Madam Chairman, you and other Members of this Committee 
have shown strong leadership on the management agenda, and I 
look forward to working with you to make this agenda successful 
in every way.
    Since being nominated I've heard from many knowledgeable 
people, and I think virtually every Member of this Committee, 
that being the Director of OMB is not the easiest job in 
government. This is true in the best of times, and it is 
certainly true in our challenging times. Yet I believe that the 
President's program, as reflected in his budget, is very well 
designed to meet the Nation's greatest challenges. Those 
challenges are strengthening our economy, securing our 
homeland, and winning the war on terror. If confirmed, I will 
give full effort to serving these great goals and will do so, 
as the President has directed me, with a watchful eye on the 
people's money.
    In preparing to take on the role of OMB Director and its 
challenges, I've been greatly encouraged by two discoveries. 
First is the people of OMB. They perform some of the toughest 
jobs in government with the highest, the very highest level of 
professionalism and dedication. Second is the goodwill of so 
many Members of Congress, beginning, Madam Chairman, with 
Members of this Committee, and extending to your able staff. My 
own service on the Senate Finance Committee staff roughly 15 
years ago, that experience gave me an early appreciation and 
respect for the role of Congress both in enacting laws and in 
overseeing their implementation.
    We may, as some Members have noted, Senator Corzine noted, 
we may have differences. They may be large. But they need not 
be partisan or bitter, and I hope they never will be. You have 
my commitment, Madam Chairman, that if confirmed I will work 
closely with this Committee and with the entire Congress as we 
fulfill our shared responsibilities for the American people.
    Thank you again for this opportunity to appear. I look 
forward to your questions.
    Chairman Collins. Thank you, Mr. Bolten.
    I am going to begin the questioning with standard questions 
that we ask of all nominees for the record. First, is there 
anything that you are aware of in your background which might 
present a conflict of interest with the duties of the office to 
which you have been nominated?
    Mr. Bolten. No.
    Chairman Collins. Second, do you know of anything personal 
or otherwise that would in any way prevent you from fully and 
honorably discharging the responsibilities of the office to 
which you have been nominated?
    Mr. Bolten. No.
    Chairman Collins. And third, do you agree without 
reservation to respond to any reasonable summons to appear and 
testify before any duly constituted Committee of Congress if 
you are confirmed?
    Mr. Bolten. I do.
    Chairman Collins. You passed that first round with flying 
colors. [Laughter.]
    We are now going to start a round of questions of 8 minutes 
each.
    Mr. Bolten, OMB is responsible for overseeing the financial 
management of Federal agencies and Federal programs. Many of us 
were very concerned and disturbed to learn recently that 
accounting problems have plagued the Corporation for National 
and Community Service, and the result has been that the 
projections for the AmeriCorps program show that there will be 
severe reductions in the number of volunteers for fiscal year 
2003, and this is going to occur, unless we remedy the problem, 
despite the fact that the President has identified this program 
as a priority, and that it has strong support among Members of 
Congress. Congress attempted to correct these financial 
management problems by passing the Strengthen the AmeriCorps 
Programs Act last week, but nevertheless, past errors will 
cause my home State of Maine to cut its number of volunteers 
from 160 last year to only 20 in the next fiscal year, and I 
think that is true of everybody sitting on this panel. Our 
States are all experiencing these significant cutbacks.
    How will OMB work with the Congress and the Corporation to 
minimize the impact of these financial management problems? 
They should not have occurred in the first place, but they 
certainly should not be allowed to decimate a program that has 
been working very well and is a presidential as well as a 
congressional priority.
    Mr. Bolten. Madam Chairman, that is indeed a high 
presidential priority and the President has put great emphasis 
on his support for AmeriCorps and for the other programs that 
are under the aegis of the Corporation for National Community 
Service, and that is an issue on which I want to work with you 
and the other Members very closely to see what we can do.
    There was a serious financial management problem, an 
accounting problem that has persisted for many years within the 
AmeriCorps program that has undermined its ability to meet its 
financial obligations. When that was discovered by the folks 
over at AmeriCorps, by the financial manager there last year, 
she took very rapid steps to solve the problem. The Congress 
stepped in helpfully in supplemental appropriations earlier 
this year to fill some of the gap that was created by that 
problem. But we were not able to take it all the way. The 
President's request for AmeriCorps and other CNCS entities was 
not fully met in the appropriations bills that were passed 
earlier this year. We are very hopeful that we will be able to 
get full funding as we go forward, including all of the 
President's requests in the 2004 budget. I want to work very 
closely with you on getting that full funding going forward, 
and then doing everything we can possibly in the interim to 
ensure that we get as many people serving in AmeriCorps and the 
other important volunteer agencies as possible.
    Chairman Collins. There has been a great deal of discussion 
recently about high energy prices and the impact on our 
economy. Alan Greenspan, for example, recently testified about 
his concern over the high price of natural gas as one of the 
key challenges facing our economy. There is another side of 
energy prices, however, beyond this macro view, and that is the 
challenges that many of our low income families face during 
cold winter months in simply keeping warm, particularly in 
areas of the country like the Northeast, which are heavily 
reliant on home heating oil. Every year we have a tussle with 
OMB to get the emergency LIHEAP, the Low Income Heating 
Assistance Program, monies released in time.
    Would you commit to working with those of us who are 
concerned about prompt funding of the LIHEAP program to, (A) 
ensure that the President's budget adequately funds this 
program, and (B) that we do not keep experiencing these delays 
in releasing the emergency funds?
    Mr. Bolten. I will make that commitment, Madam Chairman. 
The President's budget this year requests a total of about $2 
billion for the LIHEAP program, $300 million of that in 
contingency money that we can use to meet those urgent needs 
that you spoke about, and you do have my commitment that as we 
see urgent needs come up, we will work with you to ensure that 
we get that money out promptly to the people who need it.
    Chairman Collins. I have a second question I want to ask 
you about the LIHEAP program. That is, the community action 
agencies in Maine that administer the program tell me that 
there is a far more efficient way to administer the LIHEAP 
program, and that would be if we advance funded it so that you 
would have to have double funding for 1 year in order for this 
to happen. But that way the funding would be received in the 
summer months and it could be distributed so that people could 
fill their oil tanks when prices are lower. There is a 
significant difference usually in the cost of home heating oil 
in the summer months versus the winter months. By taking the 
same amount of money but disbursing it in the summer months, 
the community action agencies would be able to help a far 
greater number of people, or give a larger benefit level.
    I realize that you cannot commit today to changing the way 
the program is structured, but would you be willing to work 
with us to take a look at the efficiencies that would be 
brought about by having an advance appropriation to change the 
funding cycle for this program so that the money would go 
further and be able to either help more people or provide a 
greater monthly benefit?
    Mr. Bolten. It is an interesting idea, Madam Chairman. I 
would be glad to work with you on it. I have not heard about it 
before, but it sounds like it may hold both some promise and 
peril, and we'll see if we can capture the promise and avoid 
the peril.
    Chairman Collins. We see only promise. We will help you on 
that.
    Finally, on my round of questions, I want to ask you a 
procurement question. As you may know, the Senate recently 
adopted an amendment that Senator Talent and I offered, and 
Senator Levin supported as well, that dealt with the issue of 
contract bundling by the Department of Defense. What we are 
finding is that small businesses are finding it increasingly 
difficult to bid on Federal contracts because contracting 
officers are bundling the requirements for contracts together 
into one large contract that is beyond the scope or means of a 
smaller company to bid on. If the requirements in that contract 
were broken out in a logical manner, it would expand the number 
of businesses in the United States that could bid on the 
contract, and thus help the Federal Government to get a better 
price, perhaps better quality.
    Now, procurement officials tend to resist breaking up these 
contracts because it is obviously easier for them to administer 
one giant contract and leave it to the prime contractor to 
subcontract certain parts of it, but if you look at it from the 
perspective of the taxpayer getting the best value and the 
desirability of having as broad a contractor base as possible, 
the advantages of breaking out contracts requirements become 
obvious.
    Will you work with us to try to implement through the 
Office of Federal Procurement Policy within the OMB, policies 
that will discourage unnecessary bundling of contracts?
    Mr. Bolten. I will, Madam Chairman, and the issue you've 
raised is a priority for the President. He has recognized for 
many years that perhaps the best way to promote small business, 
minority-owned, women-owned businesses is to ensure that the 
contract that they are bidding for are not so large that they 
are simply out of the game. So the President very much supports 
the initiative that you have pursued and I know the OMB's 
Office of Federal Procurement is putting in place some programs 
to ensure that when agencies do bundling, they have met a 
variety of criteria that justify the bundling in that 
particular case because I think we are in full agreement with 
you that the bundling should not be permitted unless it is 
necessary in that particular case. So we will look forward to 
working with you on the implementation of that.
    Chairman Collins. Thank you. Senator Lautenberg.
    Senator Lautenberg. Thank you very much, Madam Chairman.
    Mr. Bolten, you had a hint of what might be coming from me 
in my other remarks, and I want to continue the discussion 
about our Pharmacy Plus Program. We in New Jersey have been in 
negotiation with CMS and OMB since March 2002, and Section 1, 
it is 1115, waiver of the pharmacy plus. One of the questions I 
was anxious to ask today on behalf of the people in my State 
who need and depend on the assistance provided by the PAAD 
program, if you as OMB Director will make the effort to work 
with us to reach a speedy conclusion on the matter of this 
waiver, and I would like to know that you will keep me informed 
about the progress of this situation as it goes.
    As an example, Wisconsin applied about the same time as New 
Jersey did for this waiver, and their approval was developed in 
July 2002, so I would like to know that we can count on you to 
take a good look at it, and again, keep us in touch.
    Mr. Bolten. Senator, not being at OMB at this point, I have 
had no involvement in the waiver, but I'll be glad to work with 
you if confirmed.
    Senator Lautenberg. I am sure you are aware of the report 
commissioned by then Treasury Secretary Paul O'Neill, showed 
the United States facing Federal deficits of more than $44 
trillion, and there was extensive reporting by the Financial 
Times of London, and they talk about the administration 
choosing not to disclose the findings of the report during a 
time when Congress and the administration were negotiating the 
10-year, $350 billion tax cut. How do you feel about disclosing 
this kind of information? Is the public, the Congress entitled 
to know what is expected from inside the financial structure of 
the White House?
    Mr. Bolten. Sure, Senator, the public is entitled to know 
what the government's views are about what is coming down the 
road at us in our budget situation. I have not seen the report 
you've referred to. I know of it. But what I can tell you is 
that this administration, for the first time, has taken on very 
explicitly precisely the issue that is addressed in that 
report, which is the massive unfunded liability that we face in 
our entitlement programs. One of the chapters of the budget 
that the President put out at the beginning of this year, the 
2004 budget, explicitly addresses some estimates that the 
administration has made and some economists have made about the 
size of that unfunded liability. I understand that this report 
uses different methodology, taking out estimates infinitely, 
and it attaches a higher number to it. We can discuss what the 
right methodology for putting the number on the size of the 
unfunded liability in their entitlements is, but I don't think 
we really need to do that to have the discussion. The number is 
huge, whether it's $17 trillion or $47 trillion, and it's a 
problem that we need to work together to address.
    Senator Lautenberg. Enormous consequences in my mind, 
whether it is $17 or $47, but is one of those unfunded 
liabilities a tax cut promise that the President made? Because 
that one got funded in a hurry, and we are seeing it now as, I 
hope, will not be an annual or biannual process. Is that one of 
the liabilities that you would pair off against the other, 
unfunded against other unfunded liabilities?
    Mr. Bolten. No, sir, the President's and the tax cuts 
enacted by this Congress are not part of the unfunded liability 
problem we face. The problem we face is the obligations that we 
as a society have undertaken mostly through Medicare, Medicaid 
and Social Security, for which we are not setting aside 
sufficient money to cover. The tax cuts are a more short-term 
measure, designed to get this economy going again. The deficits 
we face in the short run, hopefully not the long run, the 
deficits we face in the short run are by historical standards 
relatively within the range of past practice. They are large. 
They are larger than we want them to be, but they are not the 
problem we face with the huge unfunded liability coming down 
the road. They are, by my judgment, part of the solution to 
getting this economy back on to the kind of growth that this 
economy needs, which is ultimately the solution for the 
government to bring its budget back into balance now.
    Senator Lautenberg. I do not want to be unfair with you 
because we are talking about some things that occurred in the 
past, but I would like to feel that we have some understanding 
about what the public is entitled to hear and when they are 
entitled to hear it. I believe in lots of sunshine even though 
we rarely see it around here, but the fact is that I am hoping 
that we are going to be able to count on you in that regard. I 
ask you here, are you committed at this point, or have you been 
encouraged to think about the next tax cut during your early 
tenure on the job?
    Mr. Bolten. I have not, Senator. I have been involved, 
obviously, in the discussions on the tax cuts that the 
President has proposed over the last few years. The President, 
at this point, has no plans for a future tax cut beyond those 
that are already contained in his budget, some of which are 
still pending before the Congress. And my expectation is that 
the judgment about whether any further tax cuts are needed will 
be made based on a cold-eyed view of the economic situation. 
And whether a further tax cut is needed I think will be known 
when we know better how the economy is doing.
    Senator Lautenberg. You might guess, I see the glass as 
half full, and I am concerned about the quick evidence that we 
have seen. Having been the senior Democrat on Budget before I 
left in early 2001, where we were beginning to ride a very 
comfortable surplus train, and suddenly this has turned around 
and we are developing massive budget deficits, very 
disappointing, and I am not including the war. I am one of 
those who believe that that action was necessary, and I commend 
the President and our military for having it done in very 
competent fashion.
    One last question if I may, Madam Chairman. I want to ask 
Mr. Bolten if you are familiar with the A-76 outsourcing 
program?
    Mr. Bolten. I have become familiar with the President's 
competitive sourcing initiative, yes, sir.
    Senator Lautenberg. And that is combined with the 
President's agenda to privatize Federal jobs and job functions 
that might create too much pressure on agencies at this time to 
identify functions as commercial or attempt to contract out.
    One example of those, and I think it is perhaps the most 
egregious for all kinds of reasons, not including the generic 
reason, but is the air traffic control privatization. Again, I 
want to be fair with you. Have you seen enough of that to 
comment on whether or not that is a program that you think is 
advisable at this time?
    Mr. Bolten. I do not have enough information, Senator, but 
I can tell you that it would be my commitment to ensure that 
the President's competitive sourcing initiative is implemented 
in a way to ensure that the only jobs that we attempt to 
competitively source would be those that are inherently 
commercial in nature.
    Senator Lautenberg. Thanks, Madam Chairman. Thanks, Mr. 
Bolten. Good luck.
    Mr. Bolten. Thank you, sir.
    Chairman Collins. Thank you.
    Senator Sununu. I'm sorry. Senator Voinovich first. Thank 
you.
    Senator Voinovich. Thank you. I would like to comment on 
the Chairman's remarks to you. The AmeriCorps situation is a 
problem in Ohio. It is a very good program. The private sector 
is supporting it much more than I ever thought they would, and 
I think we need $200 million if it is somewhere to be found to 
take care of this problem. You are aware of it, and I know the 
President supports it. Anything you can do to help switch 
AmeriCorps would be greatly appreciated.
    Mr. Bolten. I agree, Senator, we're in a difficult spot 
because we do not have the money in the budget for 2003 that we 
would like to have for the program. It's an extraordinarily 
successful and important program from the President's 
initiative. If confirmed, I will do what I can to assist for 
this year. More importantly, I think, or just as importantly, I 
want to look forward to make sure that we make sure that 
program gets the resources it needs going forward.
    Senator Voinovich. Great. Again, too often I do not think 
the Office of Management and Budget ties up other policies in 
the Federal Government that cause problems like the LIHEAP 
program. In other words, we must provide LIHEAP funding to 
those in need because the cost of oil, and the cost of gas is 
so high. It seems to me that when some of these things come up, 
that you ought to emphasize that we need to get, for example, 
Clear Skies passed so that we have a more diversified source of 
energy to keep us from relying on natural gas, which could 
drive up the heating costs of people all over this country. 
Furthermore, finding natural gas has become a priority with 
Alan Greenspan, and that we need an energy policy in this 
country, that opens up more sources of natural gas. Too often 
we do not tie the two together so people only hear about it 
from the environmental groups, but we never connect up some of 
these policies with the down side of, for example, cuts to the 
LIHEAP program. Have you given any consideration to looking at 
how some of these things work and working with some of your 
colleagues so people can make the connect?
    Mr. Bolten. I have, Senator, and I would be pleased to work 
with you on that if I am confirmed as Director. I think those 
are very important connections to make, and the energy 
legislation that is now pending before the Senate I think is a 
good place to start, as well as, as you mentioned, Senator, the 
President's Clear Skies initiative.
    Senator Voinovich. And I think the fact that you worked in 
the White House policy shop, makes you more qualified to start 
connecting up the dots for the American people.
    Mr. Bolten. I hope so, Senator.
    Senator Voinovich. One thing I have noticed about the 
current budget and budgets of the past is they really seem to 
ignore the infrastructure needs of this country. For example, 
if you look at water and sewers, we are talking $50 billion 
during the next 5 years, and the amount of money in the 2004 
budget was less than what was in the budget before that. 
Unfortunately, we have resorted to borrowing money from the 
Highway Trust Fund to pay for new road construction and 
existing road maintenance. It seems that people are reluctant 
to look at the fact that we may need more gas tax dollars in 
order to do the job that we need to have a decent highway 
system. My State, for example, is the ``Just in Time State,'' 
and the highways affect our economy. The role of the Army Corps 
of Engineers, has expanded into environmental restoration, and 
their budget has been cut. They have operation and management 
costs that have expanded astronomically every year. It seems 
like no one is paying attention to the infrastructure needs of 
this country. They seem to be taking back seats, and it is 
particularly disconcerting because of the fact that we have all 
these Federal mandates on local governments. At one time the 
Federal Government pitched in, for example, for sewers. Now it 
is a loan program.
    Would you like to comment on that? Why is it that there 
seem to be no appreciation of these infrastructure needs that 
we have got for the country?
    Mr. Bolten. Senator, I'll be glad to work with you on the 
infrastructure issues. They are important. Obviously, the 
infrastructure is central to how our economy operates. We need 
to make sure it's sound. There are, at the same time, many 
competing priorities in the budget, as Senator Stevens knows 
better than anyone, and my first sense is that the President's 
budget as presented in 2004 does meet many of the 
infrastructure needs that we have. The highway proposal that 
the President put out earlier this year is, I recall, roughly a 
20 percent increase over previous highway funding. There are 
demands for a great deal more highway funding, but the 
administration's view is that given the many priorities that we 
have in the budget, that's what we have available to deal with 
the infrastructure, the highway infrastructure priority, and I 
do not expect the administration to be supportive of a gas tax 
increase to try to expand the base there.
    Senator Voinovich. Well, the truth of the matter in the 
highway area is that the new program will get us back another 
few years, and it will take us until 2007 to recover. This 
demands your full attention and I hope you look into it.
    Mr. Bolten. I will look at it with you, Senator.
    Senator Voinovich. And I know GAO is working on a big study 
on infrastructure needs of this country.
    As you know, the House included significant personnel 
reforms in their version of the National Defense Authorization 
Act, and although the full Senate Committee--we did not get a 
chance to participate because the Parliamentarian decided it 
was not a germane issue. So I worked with Chairman Collins and 
Senator Levin, on a bipartisan level, to come up with an 
alternative to Secretary Rumsfeld's proposal. We are very 
concerned that our bill is given consideration by the 
Conference Committee. We would also like to see the 
administration be involved in this as well. One of the concerns 
that we have is that the original bill from the Department of 
Defense cut out the Office of Personnel Management. We believe 
the Office of Personnel Management should be involved in the 
establishment of a new DoD personnel system as they are with 
the Homeland Security Department. We think that they should be 
involved with this new proposal in terms of personnel 
flexibility, which changes Title 5. Are you familiar with this 
issue?
    Mr. Bolten. Roughly familiar, and I will become more 
familiar if confirmed. I will take a close look at that. I do 
know that Secretary Rumsfeld and OPM Director James had an 
opportunity to address this, and came to the conclusion that 
the right thing to do for the Defense Department was to let 
them establish the flexibilities through their own system, and 
that, it seems to me, offers them an opportunity to actually 
structure the personnel system within our defense community in 
a way that is going to make it possible for Secretary Rumsfeld 
to pursue the major transformation of our modern military that 
he would like to see accomplished.
    Senator Voinovich. We feel that OPM should to be involved, 
and we have seen their non-involvement in the Transportation 
Security Administration. A debacle we had over there is 
evidence that they ought to be involved in these issues.
    Thank you.
    Mr. Bolten. Thank you, Senator.
    Chairman Collins. Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    Mr. Bolten, as you know, OMB's Statistical Policy Directive 
15 was revised in 1997. It governs the racial and ethnic data 
collection by Federal agencies. Native Hawaiians were 
disaggregated from Asian-Pacific Island category at that time, 
and a new category, Native Hawaiians and Other Pacific 
Islanders, was created. Agencies were given until January 1, 
2003 to make all existing record keeping and reporting 
requirements consistent with its standard. If confirmed, I am 
asking you what will you do to ensure a full implementation of 
Directive 15?
    Mr. Bolten. Senator, I'm aware of Directive 15 and your 
leadership in putting it into place. It is a sound directive 
and knowing of your interest particularly and your kindness to 
my mom, I will be keeping an especially close eye on the 
enforcement of that directive, which I am told is being 
observed by the various agencies, and you have my commitment 
that if confirmed as Director, I will ensure that it is 
strictly observed by various agencies to whom it applies.
    Senator Akaka. Thank you. GAO is studying this issue for 
me. Let me ask another question.
    Sound government contracting relies on transparency and 
accountability. In your response to prehearing questions you 
stated that, ``agencies should take into account that some 
commercial practices will lack the degree of transparency that 
the public rightfully expects of Federal agencies.'' Could you 
please clarify what that means? Do you believe the practices of 
contractors should be less transparent than Federal workers in 
public/private competitions?
    Mr. Bolten. No, Senator, I don't. I do think that as we 
move toward competitive sourcing in some areas agencies need to 
take in account that private contractors may not yet be as 
familiar as they should be with the transparency requirements 
of government, but then I think what that means is that it is 
contingent upon those of us involved in promoting a competitive 
sourcing agenda to ensure that the private contractors are 
brought up to speed on whatever transparency requirements we 
may have within the government, just as we need to make sure 
that where the public employees are competing for an inherently 
commercial function, that they are brought up to standard on 
knowing how to bid for a contract because that, on the other 
side of the coin, is an unfamiliar area to many public sector 
employees.
    I think the important part here, Senator, is that we ensure 
that there is a level playing field of competition, where we've 
decided that a function is inherently commercial and 
appropriate for review as to be competitively sourced. We make 
sure that there is a fair competition between the public sector 
and the private sector.
    Senator Akaka. Thank you. OMB had a hard and fast deadline 
for agencies to complete outsourcing goals by September 30 of 
this year. At the same time, the Office of Federal Procurement 
Policy has repeatedly advised agencies to spend more time on 
front-end planning before initiating a public/private 
competition. This is an important point since, with the 
exception of the Department of Defense, most agencies have 
little or no experience with these competitions. Now OMB has 
extended its deadline to July 2004. My question is: Why has 
this deadline been extended nearly a year?
    Mr. Bolten. Well, partly for the reasons that I was just 
talking about, which is that I think we need to make sure that 
as we ask for competition to be brought to some of these 
inherently commercial functions, we make sure that all sides 
are ready to do that, and as I said, so that there is a level 
playing field of competition. If the agencies need more time to 
have their personnel trained in the proper functioning of a 
competitive bidding process, if the employees need an 
opportunity to come up to speed on how to do a proper 
commercial bid, then we should be flexible in giving the time 
to do that, because the one thing we don't want to do is give 
the bum's rush here and have a competition done on an unfair 
basis. What we want to do is get the most efficiency possible 
out of the taxpayers dollar and we want to do that on a fair 
basis to both public employees and private sector employees.
    Senator Akaka. I am sure Senator Voinovich would be 
interested in this question, so let me ask you, will there be 
funds for training?
    Mr. Bolten. Funds for training within the agencies?
    Senator Akaka. Yes.
    Mr. Bolten. I don't know precisely what the budget is, but 
I expect that the administration would undertake to ensure that 
agencies have the proper training necessary to conduct a good 
competitive bidding process.
    Senator Akaka. There are serious concerns over OMB's 
revision to Circular A-76. The revision removes cost as the 
driving factor in deciding whether Federal work should be 
outsourced. As a result, Federal jobs may be eliminated if the 
work can be performed more efficiently in house. The revision 
allows agencies to outsource Federal work without giving 
Federal employees a chance to compete for their jobs. My final 
question is how will you ensure that OMB's revised regulations 
are fair to Federal workers and enhance government efficiency?
    Mr. Bolten. Senator, I'll be glad to work with you as we 
implement the regulations. We do want to make sure they're 
fair. We do want to make sure that we are getting the most 
efficient use of the taxpayers' dollar, and that we are doing 
that in a way that does not unjustifiably disadvantage any 
party in the competition. So I'll look forward to working with 
you on it. I know how sensitive an issue it is to many of your 
constituents and other Members of this Committee. We will pay 
attention.
    Senator Akaka. Thank you very much, Mr. Bolten, for your 
response, and I wish you well.
    Mr. Bolten. Thank you, Senator.
    Senator Akaka. Thank you, Madam Chairman.
    Chairman Collins. Thank you, Senator.
    Senator Stevens, Senator Sununu has agreed to defer to you. 
Always a wise move, to defer to the Chairman of the 
Appropriations Committee.

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. Thank you very much, and I apologize to my 
colleagues.
    I welcome you in your new position, and I think you have 
eminent qualifications. As I told you in our personal 
conversation, I hope you do not throw away Mitch's flak jacket. 
You will need it before we are through.
    Mr. Bolten. I'm wearing it now, Senator.
    Senator Stevens. I do want to ask you a few questions 
though that relate to not only my role here in this Committee, 
but in appropriations. First here in this. I am working with 
the Chairman on the revision of the DoD suggested changes in 
the civilian personnel procedures. I would urge you to go back 
and look at the Gaither report in 1958, and see what President 
Eisenhower sought for then-Secretary McElroy, and changes in 
defense procedures, both in hiring and in concentration of 
power in the Secretary of Defense. To the great credit of the 
CNO at that time, Artie Burke, he convinced Congress not to 
follow the President's recommendations totally. It was enacted 
in 1958, but the concentration of power in the Secretary was 
not approved by Congress, and I hope that this Committee will 
see to it that it is not approved this time. I do think that 
there is an absolute necessity for having a senior executive 
service that reaches throughout the government. My feeling 
about the Department's recommendations that have been sent up 
here for change in civilian procedures is that it would destroy 
many of the things that many of us have worked for years on, 
and that is for a fact a senior executive service that knows 
that it has the protection of law, and knows that any member of 
that senior executive service is qualified to serve in any 
department of the government. I would urge you to check that 
out, and hope that it does not turn into a battle between your 
office and us here on this Committee.
    With regard to the Appropriations Committee, I do not know 
how to even ask questions about this, but I hope that you 
realize that the gimmicks in the budget this year have placed 
severe restrictions on the Senate. Take bioshield, for 
instance. Bioshield has just been approved as an addition to 
the budget by the House, and as it does that the provision in 
the budget resolution says that their top line for budget 
authority and outlays is automatically increased. When it comes 
over here, the budget resolution gimmick says the authorizing 
committee has the increase in budget authority, but we do not 
get the increase in outlays. Automatically an enormous battle 
between your position and mine, and I do believe that we have 
to put you on notice that we are not going to approve bioshield 
under those circumstances. You are going to have to give us 
either a budget waiver or something, because unless you do, I 
have to take the money out of other subcommittees to fund 
bioshield. This budget is replete with those little gimmicks.
    Another one is that there is a cap put on the Senate for 
2003. We cannot change the 2003 amounts. That does not apply to 
the House. It just applies to the Senate, and puts a cap on the 
budget for 2003. But guess what? There was never a budget 
resolution for 2003. Under the circumstances if we want to 
rearrange some 2003 money in order to meet some of the 
requirements for 2004, such as bioshield, I am faced with a 60-
vote point of order there too.
    I really think that we need to also take a look at 
veterans' care. Veterans' care now, even if I fund the budget 
resolution, which is woefully short, we are a billion and a 
half short in outlays. Why? Because they limited us in outlays.
    I am going to serve notice on you and on the Senate that 
next year we are not going to get that kind of a gimmicky 
resolution. I am going to oppose the budget resolution if they 
attempt to do that again. I would urge you to study it, because 
it automatically creates friction between your office and the 
Senate Appropriations Committee, and we cannot cut below what 
we have got now, MILCON, you name what it is, the subcommittee 
is woefully short to meet the conditions that exist in this 
country following Afghanistan and Iraq on the heels of Bosnia 
and Kosovo, particularly in defense and in other areas of the 
government.
    I want you to know I welcome you here, and I am without 
question going to vote for your confirmation, but I want to 
urge you to use some of your distinguished background as a law 
professor to help us get some of your people on the management 
side to follow the law. We have had so many disputes with the 
Congress because the agencies think they can go around the law 
and not comply with the law with regard to the appropriations 
process in particular, and we have to put restrictions in the 
appropriations bills in order to assure compliance with 
existing law. I do not think we should have to do that. I hope 
that you will help us in that regard.
    My main question to you is, have you had a chance yet to 
take a look at this 2004 budget and how it is being handled?
    Mr. Bolten. Yes, sir, I am beginning to become educated in 
it.
    Senator Stevens. I do not want to pin you down here at a 
confirmation hearing, but as I indicated, there are some real 
wrinkles in this one, and I do not think we ought to be put in 
a position where we are automatically in conflict, although I 
will wear my Hulk tie to tell you when I am ready for battle, 
OK? I really think we should try to avoid those battles and I 
welcome your background in order to try and achieve that goal.
    Madam Chairman, I thank you for the time. I am too fed up 
right now with problems that I know you do not have the answers 
to, and neither do I, but I would hope that you are aware of 
those problems and will work with us to try and solve them. 
Thank you very much.
    Chairman Collins. Thank you, Senator.
    Mr. Bolten. Madam Chairman, if I may make a comment to 
Chairman Stevens, I am with you all the way. I am familiar with 
some of the problems you have raised, not all of them. I have 
become familiar with the sorts of tensions and conflicts that 
are created when we do put gimmicks into the budget. I would 
like to work with you to keep those to a minimum, particularly 
on something like the bioshield initiative which is so 
important. If confirmed I would like to work with you 
immediately to ensure that we properly fund bioshield without 
having to unnecessarily take that money away from other 
committees. I do not think that was the intent from the 
beginning, and I know that when we use a variety of budget 
gimmicks in the resolutions, that we put ourselves in positions 
where we end up in unnecessary conflict. I am very much looking 
forward to working with you to avoid that.
    Senator Stevens. I do hope you will do that, and I do hope 
that we can find some way to look at the problems ahead of 
time, for instance, FEMA. We are short on money for FEMA right 
now.
    Mr. Bolten. Yes, sir.
    Senator Stevens. And we need a budget, something on 
request. But I know why you are not sending it to us. We have 
got several others along the line too. Somehow or other we have 
to set up some kind of reserve for those supplementals that are 
coming if we do not get an amendment from you on the budget. 
And under the budget resolution, as it stands right now, even 
if you send a supplemental, my top line is still what it is 
now. That is the difficulty.
    Mr. Bolten. Understood, sir.
    Senator Stevens. Thank you very much.
    Mr. Bolten. Thank you, Senator.
    Chairman Collins. Thank you, Senator. Senator Durbin.
    Senator Durbin. Thank you, Madam Chairman.
    Mr. Bolten, I am sure as you look into the responsibilities 
and authority of the Office of Management and Budget, you will 
find some surprises. I certainly did. After September 11, I 
focused on one issue, and I said everybody has a specialty. My 
specialty is going to be in a field that I know almost nothing 
about, and that is information technology. At my age and with 
my experience, I rely on the youngest people in my office to 
give me advice on information technology.
    But I did know this: Our oversight of the Federal Bureau of 
Investigation disclosed that as of September 11, the 
information technology in that agency was archaic, 
embarrassingly archaic. And there was little or no 
communication between the information technology of the FBI, 
the Immigration and Naturalization Service, all of the obvious 
agencies.
    So, had anyone really come up with the names of the 19 
terrorists on September 11 and tried to transfer them from INS 
to the FBI or to the Federal Aviation Administration, it was 
possible to do by telephone or fax or hand carrying. So I said, 
well, I am going to go after this. I really took this right up 
the chain. I started with Bob Mueller at the FBI, whom I 
respect greatly, Attorney General Ashcroft, Vice President 
Cheney, even to the President. And every one of them said, 
``Why, certainly. We need to modernize this architecture of 
computers and we need to have interoperability.'' I love those 
terms.
    Then I was stopped in my tracks by OMB. Mitch Daniels and 
the OMB said, ``Stop, Senator. Stop, Mr. President. This is our 
job. We have the management responsibility when it comes to 
this kind of architecture for information technology.'' When 
the Homeland Security bill came before this Committee, I tried 
to push for a Manhattan Project, to try to really accelerate 
the development of the very best information technology to 
fight the war on terrorism. Tom Ridge said, ``It is a great 
idea. It is a force multiplier.'' But time and again I was 
stopped by OMB, that said, ``Our people have that 
responsibility. Stay away.'' And they prevailed.
    That is some indication of the power of your agency, and 
your power once you become the head of this agency as I am sure 
you will. But also the responsibility. I do not expect you at 
this moment, unless you can surprise me, to give me a long 
discourse about what has been done at OMB and what will be 
done. But I would like to ask you this. Within 30 days after 
your confirmation, would you be kind enough to report to me so 
I can share with the Members of this Committee exactly what has 
happened? I know great strides have been made at the FBI and a 
few other agencies, but the idea of getting all of our agencies 
to communicate with one another, to share this information, to 
protect America, turns out to be part of your say in this new 
role.
    I do not know if you want to comment on that, but I just 
wanted to vent if you do not mind.
    Mr. Bolten. Thank you for venting, Senator. I do know that 
Director Mueller has made extraordinary progress at the FBI----
    Senator Durbin. Yes, he has.
    Mr. Bolten [continuing]. In increasing interoperability and 
all the other buzz words that basically mean that they have 
radically improved their ability to collect and disseminate the 
information that we have within the government from the people 
who have it to the people who need it, and only the people who 
need it.
    I think you have probably seen some presentation from him.
    Senator Durbin. I have.
    Mr. Bolten. Which is very impressive about the progress 
we've made.
    Senator Durbin. It is impressive.
    Mr. Bolten. So I am anxious that if placed in this position 
of responsibility to be able to encourage that kind of 
innovation across the government. I will be happy to bring 
several very knowledgeable e-Government experts that we have at 
OMB with me to come visit you sometime in the next 30 days 
after I am confirmed. I am not sure that I will understand 
everything they say, but my expectation is that you will.
    Senator Durbin. That is fair enough.
    Mr. Bolten. And I am hopeful that you will be impressed by 
it.
    Senator Durbin. That is fair enough. The thing that struck 
me though was that the territorial imperative at OMB was so 
strong that it stopped all of this effort that we were focusing 
on, and it is that same territorial imperative at each of these 
agencies that excludes communication and dialogue that is 
essential for our security. So I hope that when you look at the 
management of this you can help me in developing that.
    Mr. Bolten. Here's an important point about the role of 
OMB, and that is that one of the reasons why we find ourselves 
often without interoperability is that agencies go off and do 
their own things. OMB's unique strength is that it can look out 
across the whole government and give direction so that the 
agencies are able to be consistent to cooperate with each 
other, not just on IT but on all sorts of policies. So my 
territorial imperative as Director would be to ensure that we 
get that kind of consistency, but that we empower the agencies 
to do the right thing and upgrade their IT systems in a way 
that I think you should be happy with.
    Senator Durbin. Let me ask you this question. In my 
introduction I talked about Mitch Daniels' statement to this 
Committee when he sought this post 2\1/2\ years ago. His 
biggest worry is what to do with these surpluses, what are we 
going to do with them? And here we are 2\1/2\ years later in a 
totally different world. It has been turned upside down from 
your point of view. It now is not a record surplus, it is a 
record deficit. It now is not an expanding economy, it is an 
economy that has lost over 2 million jobs in the last 2\1/2\ 
years.
    I would like to go to my opening statement. Was there a 
point in time where you sat in a meeting with the President 
where anyone questioned the idea of tax cuts as part of the 
Bush economic policy, as to whether this was working?
    Mr. Bolten. Let me go back even a little bit farther in 
your statement, Senator. At the time that $5.6 trillion 
surpluses were projected, I think we now know in hindsight that 
the projections were wrong. It is not that our situation has 
changed so radically in the last few years, it is that our 
understanding of what the reality is has changed so radically. 
When this President came into office at the beginning of 2001, 
the economy was already entering into a recession. The stock 
market had peaked a full year before that. Government revenues 
were declining. When the President-elect met with business 
leaders in Austin in January 2001, before his inauguration, the 
word from all of those business leaders unanimously was, we 
have hit a wall. The economy is dropping off of a cliff and 
it's accelerating. The business people varied in their 
assessments only by when they hit the wall. Some had said 
earlier in 2000, some said later in 2000. All of them had the 
same message for the President. This is why the President came 
into office with a conviction that it would be very important 
for any number of reasons to get the economy going again.
    The advice, the unanimous advice of economists, whose 
opinions I respect, has been that the policy best fashioned to 
get the economy going again was precisely the kind of policy 
that was pursued in the tax cuts of 2001, 2002 and 2003. Give 
the people, give the businesses back some of their own money so 
that they can invest in job creation and ensure that the 
economy is robust.
    Senator Durbin. So I take it from your statement that you 
have no misgivings about the Bush economic policy, about the 
latest statements about record unemployment rates over the last 
years, the fact that we are now knocking on the door of the 
biggest deficit as a percent of GDP that we have seen in some 
50 years? None of this is giving you any pause as to whether or 
not you ought to step back and say: Maybe we were not on the 
right track here. Maybe there is something we have missed in 
terms of getting this economy moving again. You are still a 
true believer, no misgivings?
    Mr. Bolten. Senator, I share the President's concerns about 
our deficit situation, and especially about the unemployment 
situation that we now face. Too many people are looking for 
jobs, unable to find them. The economy, although we have pulled 
ourselves out of the recession we had when the President 
entered into office in 2001, is not growing nearly as fast as 
it should be, particularly to generate the jobs we need. But I 
have no misgivings about the policies that the President 
pursued to try to correct that situation. On the contrary, I 
would say those policies were precisely designed to address the 
problem we have on both the deficit side and on the jobs and 
economic side. And the problem was, has been, economic growth 
that is too slow, too anemic. The solution for that is in fact 
to give people and businesses back some of their money so that 
they can invest and make the economy grow.
    Senator Durbin. If I might ask one last question. So are 
more tax cuts your recipe now for economic recovery?
    Mr. Bolten. No, sir. While you were out of the room I was 
asked whether I had been instructed or had in mind any 
particular tax plan. The answer is no. I think the judgment 
about what further the economy might need, needs to be made 
based on an assessment of where the economy stands. Our 
economists right now, particularly given the tax cuts in 2001 
and 2003, are projecting a return to at least moderate growth 
by the second half of this year above the 3 percent margin, 
which is where I think most of, if not all of, the blue chip 
economists are. So we believe that we have taken the right kind 
of steps to get the economy back on track, but we will need to 
reassess toward the end of the year, and I hope I will be able 
to persuade you that if we need more measures, that we can get 
the support of the Congress to pursue them.
    Chairman Collins. I am going to turn to Senator Sununu 
because we just started a vote and I want to give him an 
opportunity to question before we break.
    Senator Sununu. Thank you, Madam Chairman.
    As I indicated in my opening statement, Mr. Bolten, it is 
nice to have someone with such strong qualifications, such 
great experience in policy, budget matters and in the 
administration, and I think someone with the temperament for 
the job. It was hard to tell, and I do not know him that well, 
but I think Senator Stevens likes you. [Laughter.]
    But so often the problem is we have nominees----
    Mr. Bolten. Senator, if I could get that in writing, back 
home that will be a huge help. [Laughter.]
    Senator Sununu. We have nominees come forward, and they 
have the qualifications and they have the experience and they 
have the temperament for the job. As policy makers, we are 
excited to see that. But we are not sure if they are going to 
be in a position, or if they are close enough to members of the 
administration to have the kind of access and the kind of 
influence, frankly, to have the ear of the President on policy 
matters that are important. That can be a very real concern. 
You can imagine my relief today when I saw in the paper that 
Democrats see Bolten as the key to Bush's inner sanctum. I 
think it is terrific that we have someone with such strong 
bipartisan support that is obviously going to be in a position 
to make a difference, and to be an advocate for budget policies 
and economic policies. I am not especially surprised that the 
President has chosen someone that supports his approach to 
economic growth and opportunity to run the budget office. That 
is not a stunner to me. And I am sure you are going to be an 
advocate for policies that you think are right, but also an 
honest broker when it comes to making budget decisions.
    Let me also note that I am not stunned, but pleased, that 
you were willing to complete the 100 pages of questions and 
answers that we have been provided. I think there were 
something like 75 pages from the Committee, and another 20 
pages or so from Senator Lieberman, that cover all matters of 
budget policy. So I will not go into the detail that those 
questions go into because that would only be redundant.
    I would like you to talk broadly about the recent growth in 
Federal spending that we have seen, specifically the growth in 
discretionary spending that has been proposed by the President 
for the 2004 budget. Perhaps you can provide some relative 
comparison to previous years growth in discretionary spending, 
and talk a little bit about what kind of a growth level you see 
as being sustainable. I happen to believe that controlling the 
growth of spending is very important to moving back toward a 
balanced budget, and that will not happen. Even if we are 
successful in 1 year, it has to be sustained over a period of 
time. So talk about that level. What level needs to be 
sustained to help us balance the budget?
    Mr. Bolten. Senator, thank you. The President's 2004 budget 
contained a growth in discretionary spending of roughly 4 
percent, which is about the expected growth in the income of an 
average family, and the President chose that rough amount 
because he thinks that, at least in the current times it is a 
pretty good measure of how rapidly the Federal budget ought to 
be growing. It is a moderate amount, but it should be plenty of 
room to accommodate all of the priorities we have, given the 
competing priorities that we have because we absolutely must 
provide what is necessary to protect the homeland and ensure 
that we can effectively prosecute the war on terror. Those are 
must do's. They are part of the discretionary budget, but those 
are not discretionary obligations of the Federal Government.
    That then leaves us with the discretionary part of the 
budget that is unrelated to Homeland Security and defense, 
about half of $800 billion that is in the discretionary budget. 
And I agree with you completely that if we are going to bring 
this government back on a path toward a balanced budget, we 
need to be sure that we are showing as much restraint as 
possible in the growth of that number. I believe we can do it.
    The most important prerequisite to doing that, I believe, 
is to ensure that this economy is actually on a path back to 
growth.
    The collapse in government revenues from income tax 
receipts is actually the principal reason why we find ourselves 
in the deficit situation we do this year. The radical decline 
in receipts from capital gains tax, from income tax that 
accompanied the collapse in the stock market, and in general 
economic activity, is why, for example, in 2002 we found 
ourselves in a deficit situation that had previously been 
projected to be a surplus. So I think the most important things 
we can do are first, on the side of the discretionary budget, 
ensure that we are very carefully allocating our resources and 
ensuring substantial restraint, and on the other hand putting 
in place policies like the President's tax cuts, that are well 
designed to ensure robust economic growth.
    Senator Sununu. Could I ask you to comment on the one or 
two most important management reforms or management initiatives 
that the OMB will be working on in the next 12 months?
    Mr. Bolten. I feel I'm a little bit at peril by 
highlighting one or two of leaving some child behind, and 
likely to, if confirmed, enter into the job having disappointed 
many of the people at OMB. The President's management agenda, 
as Chairman Collins outlined at the outset, includes five very 
broad categories, all of which are important. Human capital 
development, competitive sourcing, integration of budget and 
management processes, sound financial management, and--Chairman 
Collins, help me out. I think I have missed----
    Chairman Collins. E-Government.
    Mr. Bolten. E-Government, that I was discussing with 
Senator Durbin, is the fifth one.
    All of those are important priorities. If I may come back 
to you after I have had some experience in the job and let you 
know which I think holds the greatest promise for the greatest 
progress over the next year, I would like to do that. Right now 
I will identify all of them as key priorities of the 
administration and of OMB, and I would gratefully receive your 
counsel on where you think we ought to be putting our effort in 
the year ahead.
    Senator Sununu. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Thank you.
    We are in the midst, unfortunately, of three roll call 
votes. Senator Fitzgerald, would you like to begin your 
questions now or after the recess?

            OPENING STATEMENT OF SENATOR FITZGERALD

    Senator Fitzgerald. I will begin it with a few remarks, 
then vote, and I would start my questioning when I come back.
    I want to congratulate the Chairman for having this 
hearing. I think Mr. Bolten clearly has superior credentials. 
He has been a success in almost everything he has done in life, 
and he has a distinguished academic background. He has been a 
success in law and in business and in government, and I think 
he will make a very good Director of the OMB.
    I do have some questions when we get back. I am hopeful 
that we could move the nomination rapidly through the Senate 
because with the appropriations process getting well under way, 
I think it would be unfortunate if the administration did not 
have an OMB Director in place as we go forward this summer 
before the recess.
    So I will resume questioning when we get back.
    Thank you, Madam Chairman. And if I could ask leave to have 
my opening statement included in the record, I will not read it 
now.
    Chairman Collins. Without objection.
    [The prepared statement of Senator Fitzgerald follows:]
            OPENING PREPARED STATEMENT OF SENATOR FITZGERALD
    Thank you, Chairman Collins, I would like to welcome our witness 
today, Mr. Joshua B. Bolten, whom President Bush has nominated to be 
the Director of the Office of Management and Budget (OMB).
    Mr. Bolten, the President has selected you for one of the most 
important positions in our government, and I congratulate you on your 
nomination.
    As the Chairman of the Governmental Affairs subcommittee on 
Financial Management, the Budget, and International Security, I have a 
special interest in ensuring that Federal agencies receive independent 
audits and in making our government more accountable to the taxpayers.
    Fiscal mismanagement by Federal agencies costs taxpayers billions 
of dollars each year. In the area of erroneous payments by Federal 
agencies, the General Accounting Office has reported that the problem 
is so pervasive, that the actual extent of improper payments 
government-wide is unknown. GAO also reported that the total amount of 
improper payments could be more than $35 billion.
    Another area of extensive government waste is the misuse of 
government credit cards by agency employees. Last Wednesday, 
Comptroller General David Walker testified before the House Budget 
Committee that the GAO and a number of Inspectors General have 
identified improper and fraudulent use of government credit cards in 
the Departments of Agriculture, Education, Defense, Housing and Urban 
Development, Interior, and the Federal Aviation Administration. On 
April 16, 2003, the GAO reported that it had documented in HUD alone 
millions of dollars in improper or questionable purchase card 
transactions by agency employees.
    In fact, I was pleased to read in this morning's Washington Post 
that Secretary Abraham has ordered an extensive overhaul of the Energy 
Department's nuclear laboratories, in large part due to government 
waste involving the misuse of credit cards and missing equipment.
    Therefore, it is imperative that the new OMB Director exercise 
strong leadership, implement rigorous standards, and hold agencies 
accountable to ensure each agency is practicing sound financial 
management.
    To help strengthen this process, I sponsored the Accountability of 
Tax Dollars Act of 2002, which President Bush signed into law last 
November. This new law expanded the audit requirement of the Chief 
Financial Officers Act to cover all Executive Branch agencies, while 
providing authority to OMB to exempt certain agencies with budgets 
under $25 million. This provision requires agencies to prepare 
financial statements and to subject those statements for review by 
independent auditors. The agencies must then submit their audited 
financial statements to Congress and the administration for close 
scrutiny.
    During today's proceedings, I look forward to hearing from Mr. 
Bolten about his views regarding OMB's role in implementing the 
Accountability of Tax Dollars Act. I also look forward to hearing about 
his vision and the leadership role he will play in OMB to improve 
financial management in government agencies.
    As I mentioned in the beginning of my statement, Mr. Bolten has 
been nominated to one of the most important positions in the Federal 
Government. As Congress begins to consider the appropriations bills for 
Fiscal Year 2004, I believe it is vitally important for the Office of 
Management and Budget to have a Senate-confirmed director as 
expeditiously as possible. Therefore, it is my hope that this Committee 
will act promptly on this nomination.
    Thank you, Chairman Collins.

    Chairman Collins. We are going to recess for, 
unfortunately, 25 minutes because we have three stacked votes. 
I know that Senator Levin and Senator Pryor, in addition to 
Senator Fitzgerald, have additional questions. So while you may 
have been encouraged by the lessening of people here, you still 
have others that are eager to question you. So we will be in 
recess for 25 minutes.
    I do want to say in response to Senator Fitzgerald's 
comment, that it is my intent to mark up this nomination 
tomorrow in the hopes of clearing it by the full Senate before 
we depart for the July 4th recess.
    Mr. Bolten. I appreciate that very much, Madam Chairman. 
Thank you.
    Chairman Collins. We are in recess for 25 minutes.
    [Recess.]
    Chairman Collins. The hearing will come back to order.
    I am pleased at this time to call upon the distinguished 
Senator from Delaware for any questions he may have.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Madam Chairman.
    Mr. Bolten, welcome. Delighted to see you today.
    Madam Chairman, Mr. Bolten was good enough to come by and 
visit with me as I suspect he did most of the Members of the 
Committee a week or two ago, and we had the opportunity to walk 
all over the Hart Building, up and down, and to get to know 
each other a little bit better. It is easy to see why the 
President has confidence in him and would submit his name for 
this nomination.
    About 2\1/2\ years ago, we sat, I think, in this same room, 
and Mitch Daniels sat at that same table, and we had the 
opportunity to talk with him as a nominee for head of OMB, to 
talk with him about his view of the world, and the budget, and 
our finances as a country. I was pleased, especially pleased, 
when he assured us that the concerns that I expressed about the 
level of our national debt, together with some of our other 
unfunded liabilities were concerns that he shared. My staff was 
actually good enough to dredge up some of the quotes that he 
made. He promised to give, and this is a quote, ``a very high 
priority to debt reduction.'' And he spoke of the great window 
of opportunity that we had. You may recall that window at the 
time, and due to the great surpluses that the new 
administration was inheriting from the old administration, and 
gave us a chance to deal with some long-term challenges 
including the time when my generation, the baby boomers, will 
start later in this decade, early in the next decade.
    He noted that if we let the opportunity pass us by, it 
would make addressing those challenges--and I will quote again. 
He said, ``A much more painful and severe process.'' Needless 
to say, I have been disappointed, sorely disappointed with the 
direction of our budget policy since that day. Not only have we 
let this window of opportunity pass us by, but we have 
succeeded in--notice I say ``we''--have succeeded in 
transforming what might have been the most enviable fiscal 
position of any Nation on earth into a situation in which we 
will now, this year I am told, have the largest budget deficit 
in the history of the world, the largest budget deficit in the 
history of the world. That is hard to believe, but I am told 
that is true.
    I am one of those Democrats who actually likes to cut 
taxes, and when the President came to Delaware in early spring 
of 2001, we talked about tax policy, and he was putting 
together his proposal to submit to the Congress at the time. 
And I said, ``I like to cut taxes too. When I was Governor of 
Delaware, we cut taxes 7 out of 8 years, but we also balanced 
the budget in 8 years, and we managed to get ourselves the best 
credit rating, Triple A credit rating for the first time in the 
history of our State.'' I will not go into all the ways we cut 
taxes, but we basically cut in half State incomes taxes for a 
typical middle class family, cut them in half, State personal 
income taxes. Delaware used to have the top marginal personal 
income tax rate in the country, 19.8 percent, when Pete Dupont 
became Governor in 1977. When I left as Governor, it was 5.95 
percent, and we still balanced the budget and ended up with 
reducing our debt and getting a better credit rating.
    This administration has significantly reduced Federal 
revenues and done so with the acquiescence of the Congress. I 
think four-fifths of the budget today, however, is comprised of 
about 4 or 5 areas. One is defense. Another is entitlement 
spending, and a third is interest on the national debt. I do 
not know if this is true, but I believe it is. I think we spend 
today about 19, 20 percent of GDP to run the government. I 
think we spend about 7 percent of GDP for Medicare, Medicaid 
and Social Security. By the time that my generation is in full 
retirement, about 25 years from now, I believe that we will be 
spending about 15 percent of GDP just for Medicare, Social 
Security and Medicaid.
    What we are leaving for our kids is not something that I 
feel good about. I do not think any of us could feel good about 
this kind of legacy. It is sort of like, we will take the tax 
cuts now. We will take the health care and prescription drug 
program now. And by the way, to our sons and daughters, we will 
let you pay for it. I thought the best line of the President's 
State of the Union message was when he talked about how we 
should not pass on to the next generations the challenges that 
we could address today. I thought that was a great line. But 
really, we are passing on a big part of what we ought to be 
doing today, to those who follow us, as our children and our 
grandchildren.
    I want to really come back to--with that as pretext, I want 
to come back just to share with you some of the concerns I 
shared with Mitch Daniels, 2, 2\1/2\ years ago. He said all the 
right words, and we are where we are today and we do not have a 
budget deficit just because of any one administration, any one 
person, or any one policy. I realize it is more complicated 
than that. But sure would love it if we had a Budget Director 
who did not just talk a good game and say the right words about 
being concerned about the budget deficit, but who actually 
would help us address the policies and take on the policies 
that we need to. We can squeeze domestic discretionary spending 
all we want. That is not going to solve this problem. It has to 
be broader than that.
    The last thing I will say, and then I will turn it over 
just for comments, if you will, to Mr. Bolten. Somebody told me 
the other day, Madam Chairman--are you on the Armed Services 
Committee?
    Chairman Collins. I am.
    Senator Carper. Somebody told me the other day we spend 
more money on defense now than the next 18 nations combined. Is 
that true?
    Chairman Collins. You have to ask the nominee.
    Senator Carper. The next 18 nations combined.
    Mr. Bolten. Thanks. [Laughter.]
    Senator Carper. And we are all interested in strong 
security, strong national defense, and I say as an old Naval 
flight officer, war veteran, if that is true, that is stunning.
    Any kind of initial response to those observations, those 
reflections?
    Mr. Bolten. Senator, thank you, and thank you for the 
opportunity to visit with you. I did enjoy our tour around the 
Hart Building, which was nostalgic for me, Madam Chairman. We 
even, through the Senator's good offices, had an opportunity to 
barge in on the office that I used to occupy on the second 
floor of the Hart Building, which but for the presence of the 
Senator, would have been, had the Capitol Police called.
    I want to thank you for that opportunity, Senator, and I 
enjoyed our conversation.
    Senator Carper. They still had, like written on one of the 
doors, like you could barely see it, like it was in pencil or 
pen, it said, ``For a good time call Josh Bolten.'' [Laughter.]
    Senator Carper. That was probably about 20 years old.
    Mr. Bolten. Yes.
    Senator Carper. You could still just barely make it out. By 
the way, anybody here from your family here with you?
    Mr. Bolten. Yes, sir.
    Senator Carper. Who is here?
    Mr. Bolten. My mom and my sister are both here.
    Senator Carper. Which one is which?
    Mr. Bolten. My mom is the one who will be celebrating her 
80th birthday in a few weeks.
    Senator Carper. I was just with my mom in Kentucky this 
past weekend. She is 80-years-old as well. So happy birthday. 
And your sister? Welcome aboard. You did a good job with this 
one I think, both of you.
    Mr. Bolten. Senator, first I want to commend your tax 
cutting fervor. I hope we will be able to work together should 
further tax cuts be necessary at some point, or appropriate at 
some point. I also want to share and commend your concern about 
the long-term budget situation that we face, that is driven 
principally by entitlements. I think you were exactly right 
when you said that we can squeeze discretionary spending all we 
want, but that's not going to address the real, fundamental, 
long-term problem, which is the tidal wave of unfunded 
entitlement liabilities that is coming at us far out in the 
future. And I share your conviction that it's the 
responsibility of this generation to try to address those 
problems for future generations, and I look forward to working, 
Madam Chairman, with you, the rest of the Committee and other 
Members of Congress on how to address those problems.
    Now, as to the remarks that you referred to by my 
predecessor, Mitch Daniels, who in my judgment was a terrific 
Budget Director and an extraordinary person. His words I think 
remain true today, that we do need to address these problems. 
Even when it appeared that we were on the cusp of massive 
surpluses, budget surpluses, these problems were coming. Now 
though it is clear that those surpluses never existed, that the 
5.6 trillion or whatever was estimated at the time of Mitch 
Daniels' appearance before this Committee 2\1/2\ years ago. 
Now, that it is clear that surplus never existed, it is all the 
more important that we act with great caution to control our 
discretionary spending as best we can.
    And we had discussed earlier, Madam Chairman, some of the 
measures we might take to do that and to ensure that on the 
discretionary side of the budget we do all we can to control 
it. On the defense portion of the budget, it is large. I don't 
know if it's larger than the next 18 countries combined. I 
would be surprised if it were that large, but----
    Senator Carper. The next time you have a chance to be 
before us, I will try to remember to ask that question.
    Mr. Bolten. I will prepare myself as soon as this hearing 
is over, with the correct data on that. It is certainly true 
that America is far out ahead of the rest of the world in 
defense spending and in defense capability, and it is critical 
that we remain there for our own national security and to 
ensure that the United States fulfills its role as the world's 
super power in helping to promote peace and end the threat of 
terror around the world. So that portion of the budget, I think 
we will agree, is one that is discretionary in name, but not 
discretionary in function. We must meet our national security 
obligations and we must meet our obligations to protect the 
homeland.
    So that leaves a relatively small part of the discretionary 
budget over which we have some control on a year-by-year basis, 
and I am anxious to work with the Members of Congress to ensure 
that we are observing strict discipline in that category.
    The other thing we can do in the short run is ensure that 
we have a robust economy, because at the time that you spoke to 
Mitch Daniels, it was before September 11, it was before the 
corporate scandals that persisted through much of the 1990's, 
came to light, and caused some collapse of confidence both on 
Wall Street and in the markets. It was before the President 
launched the war on terror in Afghanistan and in Iraq. And 
perhaps most important, it was before that there was a full 
realization of how weak the economy that we were entering was 
actually going to be. There were clear signs that the economy 
was going to be much weaker than was reflected in those 
optimistic $5.6 trillion surplus projections. That was not a 
good idea of how weak the economy has been, and in fact, 
subsequent projections, almost semiannually, have been, even 
when conservative, have underestimated the weakness in the 
economy and the corresponding falloff in government revenues 
that was going to come with that.
    When you spoke with Mitch Daniels we were anticipating 
large budget surpluses, largely based on a tremendous increase 
in government income tax revenues coming in. The reason why in 
the next year, in 2002, we had the budget deficit we did was 
principally the result of a radical falloff in government 
revenues, in income to the government from capital gains taxes 
and from income taxes.
    The most important thing I think we can do in the short run 
is to try to restore us to a sustainable budget position, to 
get the economy moving again. Beyond that, even if restoring 
the deficits were not important, it's very important that we 
provide jobs for the people who want jobs, and I believe that 
the President's tax cuts that have been enacted by this 
Congress in 2001, 2002 and 2003, have been precisely well 
designed to try to put us back on that track.
    Senator Carper. My time is expired. If there is another 
round, I would welcome the chance to ask another question or 
two. Thank you. I think for the record--you mentioned, if I 
could, you said that those surpluses never existed. But 
actually they did exist, we actually had a surplus or two, 
maybe three----
    Mr. Bolten. Yes, there were modest budget surpluses 
immediately in those years. What I was referring to was the 
projection of a $5.6 trillion surplus over----
    Senator Carper. We went from 1968 to roughly 1998 without 
ever balancing the budget, and then we did it, I think, two or 
three times in a row. Thank you.
    Chairman Collins. Senator Fitzgerald.
    Senator Fitzgerald. Thank you, Madam Chairman.
    Mr. Bolten, in January of this year, the National 
Commission on the Public Service, known as the Volcker 
Commission, released its report called ``Urgent Business for 
America: Revitalizing the Federal Government for the 21st 
Century.'' One of the report's major findings was the extent to 
which there is an enormous amount of duplication and overlap in 
government agencies. The report cited some specific examples, 
including 50 homeless assistance programs administered by 8 
agencies; 90 early childhood programs in 11 agencies and 20 
different offices; 40 job training programs administered by 7 
agencies; and 342 economic development related programs 
administered by 13 different cabinet departments.
    What do you think about the Volcker Commission's findings 
on overlap in government agencies and programs?
    Mr. Bolten. I have not read the Volcker Commission study. I 
will look forward to doing so and to addressing it with you in 
greater detail. I can say that I do view it as a central 
function of the Office of Management and Budget, to be looking 
precisely for those kinds of opportunities that are highlighted 
in the report, to consolidate government efforts and to focus 
our efforts on those programs that are actually well designed 
to achieve the objective.
    We have in place now something that Chairman Collins 
described very well at the outset of the hearing, called the 
PART process, the performance assessment--performance--I don't 
know. Chairman, can you help me out again?
    Chairman Collins. PART, just call it PART, rating tool.
    Mr. Bolten. Anyway, it is the tool by which the Office of 
Management and Budget looks at individual programs and 
determines where there are clear goals set out for that 
program, whether it is meeting its goals, and whether it is 
being appropriately managed. So far the administration has done 
about 20 percent of the reviewable programs that are out there. 
That was done in the past budget cycle. In this budget cycle, a 
cumulative additional 20 percent----
    Senator Fitzgerald. Has the OMB recommended any programs 
for elimination based on a finding of ineffectiveness?
    Mr. Bolten. I don't know whether the connection has been, 
but it seems to me it should create opportunities precisely for 
that, and that as we look at those programs, and as we evaluate 
their effectiveness, there is also an opportunity to look 
across programs that are--once we have been able to do a 
complete canvas of the programs in government--and say that 
these 20 programs are all headed toward the same objective. 
Let's see which ones are actually doing well at meeting the 
objective, and let's move the resources away from the ones that 
are ineffective and move them toward the ones that are 
effective. I think that's central to the role of the Office of 
Management and Budget, and I look forward to working with this 
Committee on those issues.
    Senator Fitzgerald. I, for one, stand ready to help you 
with any initiatives you undertake at the executive level. I 
think your leadership could be very important in this regard, 
enhancing the programs that are effective, and dismantling or 
recommending the dismantling of programs that are ineffective. 
But also please take a look at that overlap that the Volcker 
Commission cited, because it seems to me that we are probably 
wasting an enormous amount of taxpayer resources by duplicating 
our efforts in so many different ways.
    I would like to ask you a few questions about the Chief 
Financial Officers Act, and I want to compliment your 
predecessor, Mitch Daniels, on the improvements that were made 
in terms of the 24 government agencies that are required by the 
Chief Financial Officers Act of 1990 to get annual financial 
audits. Prior to 1990 there were no audit requirements, which 
is really incredible if you think about it. Prior to Mitch 
Daniels' term most of those agencies were not getting clean 
audits from their auditors, but under Mitch Daniels, in 
February of this year, OMB announced that a record 21 of the 24 
CFO Act agencies submitted unqualified financial audits. In 
other words, the accountants were not qualifying their audit 
reports. But OMB reported that one agency, the U.S. Agency for 
International Development, USAID, received a qualified audit, 
and two agencies, the Small Business Administration and the 
Defense Department--the Defense Department takes up a lot of 
our government spending--they received not qualified audits, 
but they received disclaimers of opinions all together. That 
means that the auditors are not really able to make heads or 
tails out of their books, and so they could not comment at all 
on the meaningfulness of their financial reports.
    I would be interested to know what steps you might plan on 
taking to try and get the Department of Defense and the Small 
Business Administration to urge them to get their books and 
records in order? We could be wasting billions of dollars. 
Money could be misappropriated. We would not know about it. It 
could be stolen. We would not know about it because their books 
and records are not in good enough shape to express any opinion 
on them.
    Do you have any thoughts on what you might be able to do to 
move those departments forward in this area?
    Mr. Bolten. These are huge and longstanding problems, and 
it is one of the issues that the President identified early on 
in his administration as a top management priority, which is to 
get the financial management in the individual agencies right. 
There has been an enormous amount of progress made. You cited 
some of it. I know that for the first time in its history the 
Department of Agriculture has a clean audit as well, and it 
will be a high priority of mine, and especially a high priority 
of the recently-confirmed Deputy Director for Management, Clay 
Johnson, to see that we extend the good news throughout the 
government. We have a lot of challenges in doing that. These 
are not problems that have popped up overnight.
    Senator Fitzgerald. Have you thought about creating any 
internal rewards or carrots and sticks within your budgeting? I 
have noticed that agencies that receive a clean audit do not 
really get a reward, and the ones that go on year after year 
getting negative audits or qualified opinions or disclaimers of 
opinion receive no penalty. Their budgets are not cut. Have you 
ever thought about calling some of these directors in and 
saying, hey, we cannot be entrusting you with all this money if 
you cannot get clean audits?
    Mr. Bolten. We will be glad to think about additional 
sticks and carrots. What I can tell you is that the spotlight 
that the President's management agenda and the scorecard have 
put on agency practices is in itself, has been in itself, a 
pretty powerful carrot and stick. I've had the privilege of 
being present when the President meets with a lot of his 
cabinet officers just to review their agenda, which he does 
periodically. And rare is the cabinet officer who does not 
either brag about having gotten a good mark on one of these new 
scorecard measures or a PART review, or does not complain about 
having gotten an unfairly bad mark. And the principal takes 
note. The President asks about the scorecard, and I know the 
cabinet officers take it very seriously. So I think the 
spotlight itself has provided a very powerful carrot and stick, 
and I am looking forward to working with you to maybe increase 
the wattage of the spotlight, because that may be the most 
powerful tool we have.
    Senator Fitzgerald. Just one final question. I know my time 
has expired. We passed another law last year, the 
Accountability of Tax Dollars Act, that extended the CFO Act to 
all Federal agencies with budgets over $25 million, and I 
believe that is going to add this audit requirement to 78 
agencies.
    I understand in December of last year Mitch Daniels sent a 
memorandum to those 78 agencies outlining their obligations 
under the new act. But in his memorandum he indicated that he 
was invoking the waiver provisions in the act, and was waiving 
the act's new requirements during the initial transition period 
of 2002, when that law was passed.
    Are you able to inform the Committee today of whether any 
of the 78 agencies may have requested a waiver for 2003, and 
are you able to tell the Committee today how many of the 78 
agencies you expect to meet the new requirements of that act 
this fiscal year?
    Mr. Bolten. I'm not, Senator, but if confirmed, I will 
provide you an answer to that as promptly as possible.
    Senator Fitzgerald. I would urge you to be tough on them 
and try and get them all to comply.
    And I want to welcome your sister and your mother here to 
this Committee too. They should be very proud of you, and I 
wish them well also. Thank you very much.
    Mr. Bolten. Thank you, Senator.
    Chairman Collins. Thank you, Senator. Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Madam Chairman.
    Mr. Bolten, let us talk some dollars and cents here real 
quick, and I will try to leave plenty of time for Senator Levin 
to ask questions.
    In response to written questions you said, ``Our current 
deficit, as measured as a percentage of gross domestic product, 
is not large by historical standards and is manageable within 
the overall context of our economy.'' I believe it was last 
week the CBO came out with a projection that we would be at 
$400 billion in deficit for this fiscal year. Do you agree with 
that projection, by the way?
    Mr. Bolten. What I can tell you is that the latest 
projection in the President's budget, which goes all the way 
back to January or February, has a $300 billion projection. But 
since then there have been further degradation in the 
expectation about the economic growth. There has been an 
omnibus bill, there has been a supplemental and so on, some 
additional tax cuts. My expectation is that $300 billion number 
is low.
    Senator Pryor. Do you think it will be about $400 billion?
    Mr. Bolten. I don't know what it will be. OMB will release 
a mid-session review this summer, so fairly shortly, that will 
update our own projections.
    Senator Pryor. But as part of your statement there, you 
said that you look at the gross domestic product, and that is 
an interesting point, because obviously one way to look at a 
deficit is based on a percentage of GDP, but it seems to me 
that is only one aspect of the deficit, because the most 
important aspect of a debt is how are you going to pay it back. 
And at this point, what I see our government doing is going 
further and further and further into debt, and larger deficits 
every year. In other words, I do not know what it was last 
year, $200 and some odd billion. This year it is going to be 
$400 billion, maybe more. Next year, I am scared to know what 
the projection will be for next year.
    But do you agree with me that GDP is one thing to look at, 
but also how we pay the debt back is equally important, maybe 
more important than GDP percentage?
    Mr. Bolten. Well, absolutely, how we're going to repay the 
debt is important. The burden of the debt, I think, is properly 
measured as a percentage of GDP, just as if you were taking out 
a mortgage, you would take out a mortgage roughly appropriate 
to your income and----
    Senator Pryor. Wait a minute though. GDP is not our income. 
GDP is the gross domestic product. Our income is the revenues 
that we take in.
    Mr. Bolten. Understood, Senator, but the measure of how 
much of a burden on this society that the deficit we may run 
will impose, I think is dictated by how well the economy 
overall is doing. The deficits we have now are I think too 
large. We need to bring them down. By historical measure, even 
a 4 percent of GDP deficit figure is not way out of line with 
historical precedent.
    What we do need to worry about is the addition that is 
adding to the public debt, as you are concerned, because in the 
long run a great buildup in public debt or an expectation that 
there will be a great buildup in public debt, can ultimately 
lead to rising interest rates, which is where the problem comes 
back and bites us today in the economy. So far we haven't seen 
that. In this period of rising deficits, we have seen declining 
interest rates, in fact, to almost historic lows in both short 
term and long term rates.
    So right now we don't see the bite from the deficits we are 
running, and that's why I used the word manageable in the 
written response to the questions, but I think you're 
absolutely right, it is something we need to be concerned 
about, and we need to be particularly concerned about getting 
control of our long term budget situation with respect to the 
massive unfunded liabilities that are coming at us in our 
entitlement programs.
    Senator Pryor. I am glad you mentioned unfunded liability 
because in your opening statement you refer to that, and a 
couple times in questioning you refer to that. It seems to me--
and I would like to hear your thoughts on this--our debt load, 
not as a percentage of GDP, but as a percentage of our Federal 
budget, is increasing fairly dramatically every year. It eats 
into our ability to meet our responsibilities, whether it is 
Social Security, Medicare, Medicaid, whatever it may be.
    Now, do you agree with that, that it is eating into our 
ability to meet our responsibilities?
    Mr. Bolten. I think they're actually severable problems 
here. Our immediate deficit is a problem of how we're doing on 
our current accounts, and it seems to me that these are the 
kinds of deficits we are running now, while too high, are 
manageable within our current means. What is much more 
difficult to address, it seems to me, is the longer term 
picture of looking out several decades and ensuring that we are 
properly structuring our programs and setting aside enough 
money to meet all the liabilities currently unfunded that we 
see coming at us with entitlements. In the short run I think 
the best answer for us is to have a strong and growing economy 
that will restore the revenue base that has been so badly 
eroded recently, and that will be, I think, a big help in 
bringing us toward balance in the short run. But even taking 
care of that short run problem doesn't take care of the long 
run entitlement problem that I know you share a great concern 
about.
    Senator Pryor. Yes. I am very concerned about that. I just 
sense that it is going to be harder and harder for us to meet 
our responsibilities over time. You can look in the future, the 
not-too-distant future, and see a train wreck about to happen.
    Back on the percentage of GDP, etc., how large do you 
believe the deficit can get as a percentage of GDP before it 
becomes unacceptable? Is there a magic percentage--not magic--
but is there a percentage that in your mind, where it has just 
gotten too large?
    Mr. Bolten. I have posed precisely that question to a 
number of economists whose opinions I respect, I did not get an 
answer, and so I won't have an answer for you either. What I 
can say is that the size of deficits we are currently running, 
while a matter of concern, don't reach the level of alarm that 
it's likely to have a long term detrimental effect on our 
economic situation either today or in the future. If that were 
true, I think we would be seeing it in the interest rates, and 
we're seeing precisely the opposite in lower interest rates.
    Senator Pryor. I understand that there is also Fed policy 
there that is driving interest rates lower at the same time, so 
we will see how that works out.
    But let me ask two last questions really, and that is, when 
you look at a budget, any kind of budget, it does not matter if 
it is a household budget or the Federal Government's budget, 
you really look at two things. That is, how much money you are 
taking in and how much money you are spending. I would like to 
hear your thoughts and your recommendations to the Congress, if 
you are ready to talk about those, about what spending we 
should cut.
    Also I would like to hear your thoughts about if you think 
a tax increase would ever be necessary in the future.
    Mr. Bolten. Taking the second part of the question first, 
Senator, I do not foresee either the need or the propriety of a 
tax increase as we look forward. I think the tax cuts that have 
been put in place have been precisely the right kind of remedy 
for the situation we were in, and my expectation is that any 
sort of tax increase will actually cause a contraction in the 
economic growth that really is our best prospect for getting 
back to a sound budgetary basis.
    As to the spending cuts, I am not ready today to discuss 
those with you. I will be ready at some point if confirmed and 
have had a chance to dig in with the very able staff of OMB. My 
expectation is that in the 2005 budget the President presents, 
we will be presenting some cuts in budgets that will 
undoubtedly have controversy in some portion of the Congress, 
and I look forward to soliciting your support for achieving 
some of the cuts that may be necessary for us to do the kind of 
fiscal restraint in the short run that I think you and I will 
both agree is necessary.
    Senator Pryor. Madam Chairman, I would like to thank you 
and thank the witness. Just in parting, I would encourage you, 
Mr. Bolten, to take to heart the comments of Senator Stevens 
and Senator Voinovich. Both of them are very respected not just 
within this institution but all over the government and I think 
they make very valid points about our budget and some of our 
spending priorities. So I would encourage to always keep their 
comments in mind.
    Mr. Bolten. I will. Thank you, Senator.
    Chairman Collins. Thank you, Senator. Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Madam Chairman.
    Welcome to you, Mr. Bolten, and congratulations. You are 
well qualified for the position to which you have been 
nominated. We commend you on it. I obviously have a lot of 
questions, a number of differences in terms of the economic 
approach that you take, but nonetheless, you are clearly well 
qualified for the position, and we look forward to an early 
confirmation.
    I would like to talk to you about dynamic scoring first, as 
to how reliable it is. I gather you, in general, support 
dynamic scoring?
    Mr. Bolten. As a principle, yes.
    Senator Levin. It is supposed to provide a more complete 
picture of the budget effects of tax and spending proposals, 
but a good number of experts, perhaps most, believe that 
dynamic scoring, as practiced today at least, is inaccurate and 
unreliable. The Congressional Budget office last year asserted 
that dynamic scoring would pose intractable problems. Those are 
their words. And to my knowledge, there is no consensus that 
exists among economists to start to implement dynamic scoring. 
It relies on a number of highly subjective elements, including 
predictions of future interest rates, monetary policies, fiscal 
policies, business cycles, and labor supplies, among other 
matters. There also of course is a risk of dynamic scoring 
being manipulated to arrive at a desired result.
    Do you plan on employing more dynamic scoring as head of 
OMB?
    Mr. Bolten. Senator, I didn't hear anything that I disagree 
with in what you have just said. Our economists internally say 
the same thing, that the science of dynamic scoring is at this 
point insufficiently advanced. There's been a lot of terrific 
work done, I'm told, to advance the science, if it can be 
called that, of trying to estimate what sort of macroeconomic 
effects are going to result from a specific change in either 
revenue or spending policy, and I think it's very important 
that we try to do that, because as the administration 
evaluates, and as you, the Members of the Congress evaluate a 
change in policy, I think you ought to have before you the best 
information possible about what sort of economic effects that 
change in policy is going to have. Today's relatively static 
analysis does not capture that. So as a matter of principle, I 
do support trying to advance toward the point at which we will 
have science that at least some critical mass of economists can 
agree is sufficient for us to change the way we score things.
    Senator Levin. And until we get to that point?
    Mr. Bolten. For the time being, I know of no plans to shift 
over our system. I do intend, Senator, to be working on this 
issue with other colleagues in the administration, and hope to 
be coming to you shortly with mechanisms for dynamic scoring 
that we can all agree actually accurately capture what is 
likely to be happening in the economy.
    Senator Levin. That would go both to tax and spending 
proposals if you do that?
    Mr. Bolten. Yes, sir.
    Senator Levin. The CBO recently undertook a dynamic scoring 
analysis of the President's latest tax cut proposals, and found 
small supply side impacts, sometimes positive, sometimes 
negative, with an overall negligible effect on the economy. The 
Joint Committee on Taxation undertook a dynamic scoring 
analysis of $550 billion worth of tax cuts in a House of 
Representatives' proposal. It found some short term stimulus to 
the economy, but also, ``The positive business investment 
incentives arising from the tax policy are eventually likely to 
be outweighed by the reduction in national savings due to 
increasing Federal Government deficits.'' And four of the five 
Joint Tax dynamic scoring models predicted a drop in GDP 
between 2009 and 2013, while the other model remained constant.
    So these dynamic scores predict pretty anemic results for 
those years, and yet I think you said that is just precisely 
the right kind of remedy, that tax cuts are the right kind of 
remedy. It does not sound to me like it is much of a remedy at 
all, even according to some dynamic scoring models. Are you 
familiar with those models and their application to the tax 
cuts? And do you disagree with their assessments?
    Mr. Bolten. I do disagree with their assessments, and I 
think a lot of other economic analysts do, and I know that many 
of the best analysts on Wall Street also disagree with those 
analyses. They do see very positive effects coming from the tax 
cuts in the overall economy, and I think they, many of them 
have been able to model greatly enhanced--well, greatly may be 
in the eye of the beholder--but substantially enhanced economic 
performance out of this economy as a result of those tax cuts.
    So I feel very strongly that we have taken precisely the 
right kind of measures so far, and hopefully they will put us 
back on a path toward robust economic growth that we need to 
get people jobs in this economy and bring government revenues 
up.
    Senator Levin. I guess my specific question is, are you 
familiar with those five Joint Tax Committee scoring models?
    Mr. Bolten. I know of them.
    Senator Levin. Have you seen that particular analysis?
    Mr. Bolten. I know of them, Senator. I have not read them.
    Senator Levin. We are back in a deep deficit ditch, and I 
heard some of your testimony here this morning including your 
answers to Senator Pryor's questions, and I have been concerned 
for a long time about the direction that we are heading in 
terms of deficits, and I do not find any really strong feeling 
about the problem of deficits in the administration. I wish I 
did. I think it is very untraditional in terms of conservative 
economic policy, to be this casual about deficits, as I sense 
this administration is--$400 billion becomes manageable all of 
a sudden. Is $500 billion manageable?
    Mr. Bolten. Senator, I don't want to put a number on what's 
manageable. I think the manageability of our current deficits 
is in fact reflected in what we are seeing in short- and 
especially long-term interest rates, and those have been 
declining while the deficits are going up. I think that is 
strong evidence that we are not causing harm to the economy 
with the size of deficits we are running.
    Senator Levin. It also could be evidence of a very anemic 
economy where nobody is investing.
    Mr. Bolten. It undoubtedly is evidence of that as well. I 
would not describe the administration's attitude toward the 
deficits, however, as casual. There are at this moment some 
higher priorities. Bringing the deficits down is a very high 
priority of the President. Returning our budget to balance is a 
very high priority of the President. But over the last couple 
of years we have had higher priorities, and those include 
protecting the homeland, winning the war on terror, and 
restoring this economy in the short run to the kind of growth 
that will actually make it possible to bring us back to 
balance.
    Senator Levin. Since Senator Stevens said that you are 
going to need Mitch Daniels' flak jacket, let me ask you 
whether you agree with what Mitch Daniels said less than 2 
years ago, that we were awash in money, we were just awash in 
money. Do you think this Nation is awash in money any more?
    Mr. Bolten. I think Mitch was referring to the projected 
surplus of, at the time I think it was $5.6 trillion.
    Senator Levin. It was.
    Mr. Bolten. We clearly are not in that kind of situation 
today and I believe we were not in that situation then. It is a 
testament more to the inaccuracy of projection models than 
anything else. But even at the time that Mitch was testifying 
here, 2\1/2\ years ago, the economy was already entering into 
recession, and government revenues were declining. I do not 
believe that we were at the time awash in surplus money. We 
clearly are not now, and that is a situation we need to 
address.
    Senator Levin. It is just not that the Nation is awash in 
money. He said, ``But it's going to be.'' Doesn't sound like 
anything close to deficit hawks or a conservative approach to 
me. That kind of a projection is the basis for reducing 
revenues, surely has contributed to the deficit. Now, you have 
mentioned other things which have contributed to the deficit 
too, which they have. But surely, tax cuts have contributed to 
the deficit, at least according to the Congressional Budget 
office. Would you not agree with that?
    Mr. Bolten. I do agree that certainly in the short run, the 
tax cuts have contributed to the deficit. That is actually part 
of their purposes, is to get some money out to the people who 
need it to spend and invest. But I go back to the priorities, 
which include getting this economy going again, which I think 
the tax cuts have been very well designed to accomplish, to 
bring us out of the recession that was at the doorstep when the 
President entered office, and to restore the economy toward the 
robust growth that will make it possible to bring the budget 
deficits down in the future.
    Senator Levin. Like Mitch Daniels' projection of the 
future, whether or not these tax cuts in fact have that effect, 
we will know soon enough. But I am afraid that your optimism 
about the effect of tax cuts runs directly counter at least to 
our Joint Tax Committee's assessment, which is that they are 
negligible in terms of producing any kind of economic growth. 
That is a bipartisan Joint Tax Committee. That is not a 
partisan comment at all.
    Mr. Bolten. Understood, Senator, and I trust that I will 
have the opportunity to come back before you and show that the 
expectations that I have reflected and those of many other 
government officials and economists are the accurate ones, and 
that we will be headed back toward growth toward the end of 
this year.
    Senator Levin. Well, we sure hope that that is the case. We 
look forward to your coming back in either case, whether your 
predictions are accurate or not.
    My time is up. I have a few additional questions, but my 
time is up this round.
    Chairman Collins. Thank you, Senator Levin.
    I would like to thank Mr. Bolten for appearing before the 
Committee today----
    Senator Levin. I can submit them----
    Chairman Collins. Would you like another couple minutes?
    Senator Levin. Yes, if that would be all right.
    Chairman Collins. OK.
    Senator Levin. I should not have assumed there would be 
another round. I apologize, Madam Chairman.
    Just one other question about the personnel system. I guess 
two questions. One is the financial management problems that 
Senator Fitzgerald mentioned. The ability to address them, 
particularly in the Department of Defense, is going to depend 
on whether or not you can put financial management systems in 
place with appropriate controls. That is what the key is in the 
DoD. This has been a longstanding problem, long before this 
administration. But it needs to be addressed.
    I wonder, Madam Chairman, if we could perhaps lay down a 
challenge to our new OMB Director, to give us perhaps by the 
end of the year, since you are talking about spotlights, give 
us by the end of the year your projection as to how we are 
going to make some progress in the financial management in the 
DoD so that we can get it auditable. Would that be reasonable 
to ask? This goes on year after year after year at the 
Department of Defense. Is that doable, is that practical, by 
the end of the year to give us a roadmap towards auditability 
for the Department of Defense?
    Mr. Bolten. Senator, in a sense I think we're already doing 
that and will do it when we release our scorecard.
    Senator Levin. Then you could perhaps give it to us now 
then. That would be fine. If you think that roadmap exists now, 
if you could just give us that for the record, that would be 
terrific.
    Mr. Bolten. Senator, I'm not in a position to do that, 
certainly not currently being the Director. I'm not in the 
position to do that. But I do know that it will be the focus of 
intensive review as we prepare our 2005 budget submission that 
will come to you in February of this coming year, and that we 
will have a very sharp focus on the management practices 
throughout the government, including the Department of Defense, 
and will be able to show you a scorecard of how we think they 
are doing, and address the measures that we think are going to 
be needed to make the score better.
    Senator Levin. That budget submission will be adequate in 
terms of timing, if you can include it in that.
    Mr. Bolten. Thank you, Senator.
    Senator Levin. And the last question would be, Dr. Chu, who 
is in the Department of Defense, has stated that if the 
Department of Defense moves 300,000 members of the uniform 
military into war fighting tasks, that there is no constraint 
to preclude the Department from hiring 300,000 new civilians to 
replace them. Will you ensure that in fact there is no 
constraint. He was talking about OMB. He said there is no 
constraint from OMB. Will you ensure that there is no 
constraint on the ability of the Department of Defense to hire 
new civilians to fulfill the functions that were previously 
performed by members of the uniform military?
    Mr. Bolten. Senator, I am not entirely sure of the 
implications, but my instinct is to say yes, but if I may come 
back to you with a direct response on that.
    Senator Levin. That would be great.
    Mr. Bolten. For the record. The one thing I would say is 
that if the question is, does OMB impose FTE, full time 
equivalent ceilings, my understanding is that OMB does not now 
do that, and that the constraint on the Department of Defense 
would be their overall budget, and that it is within those 
budgetary limits that the Defense Department would have to 
operate in terms of its new hiring.
    Senator Levin. You can give us a more complete answer then 
for the record as to whether there are any constraints on FTEs, 
full time equivalents, taking the place of uniform military 
people inside the Department of Defense.
    Mr. Bolten. I will do that.
    Senator Levin. That will be great, and thank you very much, 
and congratulations.
    Mr. Bolten. Thank you, Senator.
    Chairman Collins. Thank you, Senator Levin.
    Mr. Bolten, I think it is a sign of how important the 
position is for which you have been nominated that we have had 
13 Senators here today to ask you questions.
    We do look forward to working with you. I am confident that 
we will be able to move your nomination fairly expeditiously, 
and I appreciate your being here today.
    I also want to thank you for your willingness to serve in 
this very difficult position. It is probably the most difficult 
position in the entire Federal Government in many ways. But 
surely, it is also one of the most significant. Your commitment 
to public service means a great deal, and impresses me greatly, 
and I think we are very fortunate that you are willing to 
accept this further responsibility.
    So we look forward to working with you. Without objection, 
the record will remain open until 5 p.m. today for the 
submission of any additional materials for the record. It is my 
hope that the Committee will be able to report out your 
nomination tomorrow, and have it cleared by the full Senate 
before we adjourn. In that regard I want to acknowledge the 
efforts of Senators and staff on both sides of the aisle, as 
well as your efforts to reply quickly to the voluminous number 
of questions that were submitted to you.
    Chairman Collins. This hearing is now adjourned.
    [Whereupon, at 1 p.m., the Committee was adjourned.]
                            A P P E N D I X

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