[Senate Hearing 108-332]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-332

                   NOMINATION OF ADMIRAL JAMES M. LOY

=======================================================================


                                HEARING

                               before the


                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                 ON THE

 NOMINATION OF ADMIRAL JAMES M. LOY TO BE DEPUTY SECRETARY OF HOMELAND 
                                SECURITY

                               __________

                           NOVEMBER 18, 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 Chief Counsel
                    Johanna L. Hardy, Senior Counsel
              Tim Raducha-Grace, Professional Staff Member
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                   Holly A. Idelson, 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 Stevens..............................................     3
    Senator Akaka................................................     5
    Senator Carper...............................................     6
    Senator Lautenberg...........................................     7
Prepared statement:
    Senator Durbin...............................................    25

                               WITNESSES
                       Tuesday, November 18, 2003

Hon. Daniel K. Inouye, a U.S. Senator from the State of Hawaii...     4
Admiral James M. Loy to be Deputy Secretary of Homeland Security.     9

                     Alphabetical List of Witnesses

Inouye, Hon. Daniel K.:
    Testimony....................................................     4
    Prepared statement...........................................    25
Loy, Admiral James M.:
    Testimony....................................................     9
    Prepared statement...........................................    27
    Biographical and professional information requested of 
      nominees...................................................    30
    Pre-hearing questionnaire and responses for the Record.......    39
    Post-hearing questions and responses for the Record from:
      Senator Collins............................................   162
      Senator Lieberman..........................................   181
      Senator Durbin.............................................   184
      Senator Lautenberg.........................................   186
      Senator Specter............................................   193

                                APPENDIX

Letter from Admiral Loy, dated Feb. 23, 2004, with a correction 
  for a factual error contained in response to pre-hearing 
  question No. 63................................................   194

 
                   NOMINATION OF ADMIRAL JAMES M. LOY

                              ----------                              


                       TUESDAY, NOVEMBER 18, 2003

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:32 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Stevens, Akaka, Carper, and 
Lautenberg.

              OPENING STATEMENT OF SENATOR COLLINS

    Chairman Collins. The Committee will come to order. Today 
the Committee on Governmental Affairs will consider the 
nomination of Admiral James Loy to be the Deputy Secretary of 
the Department of Homeland Security, the No. 2 post in this 
important Department.
    We are fast approaching the first anniversary of the 
Homeland Security Act which established the new Department. 
Integrating 22 Federal agencies was necessary to enhance the 
security of the United States and the safety of its people in 
this environment of global terrorism. But unifying 22 agencies 
and more than 170,000 employees is an extraordinary challenge. 
Secretary Ridge and his team are to be commended for their 
tireless efforts on what is a monumental undertaking.
    But there is a seat at the helm that is now empty and I can 
think of no finer person to fill it than the nominee who is 
before us today. Admiral Loy, you have spent 40 years on the 
front lines of homeland security. In 1998, during your Commerce 
Committee hearing to be the commandant of the Coast Guard, 
Senator Inouye remarked, ``you are to be commended for the 
decades of superb service you have given to your country. You 
have gotten this nomination the old-fashioned way--you have 
earned it.'' You have certainly earned this one, too.
    Helping to run this enormous new Department will take all 
of your skills, dedication, and savvy. The Department of 
Homeland Security has to address an endless number of threats 
and issues each and every day, yet it must be able to balance 
security concerns with the need to preserve our American way of 
life.
    My home State of Maine shares more than 600 miles of border 
with Canada making border security issues especially important 
to me. The people, communities, and businesses on both sides of 
the border depend upon each other for friendship, mutual aid, 
and economic success. Many families, including my own, have 
relatives on both sides of the border and the ease of crossing 
has allowed them in the past to maintain strong family ties. I 
understand and certainly support the efforts that the United 
States is making to improve border security at home, but as the 
Department moves forward on policies that tighten border 
security it must also take into consideration the social and 
economic ramifications of any changes.
    Admiral Loy, should you be confirmed, as I believe you will 
be, the Committee will also support your efforts to improve the 
level of preparedness in every community. This Committee has 
held hearings and approved legislation to strengthen homeland 
security grant programs, to put cutting edge counterterrorism 
technologies in the hands of local law enforcement, and to 
strengthen American seaports against a terrorist attack. We 
must make certain that our communities receive a long-term, 
steady stream of funding to prevent a future terrorist attack 
and to respond should the worst occur.
    The Committee has already approved legislation that I 
introduced that provides a solid baseline of funding to each 
State but that allocates the majority of the funding, more than 
60 percent, to States based on the individual circumstances of 
risk, threat, and vulnerability. We hope that you will work 
with the Committee to ensure that this legislation is enacted 
into law next year.
    I also appreciate your efforts to improve coordination 
within the Department and with other agencies. The Department's 
efforts to set up a single website for many homeland security 
grant programs is a step in the right direction. In addition, 
however, we need to reduce paperwork, standardize equipment and 
training standards, and coordinate emergency preparedness 
plans. If confirmed, I hope that you will work with this 
Committee to forge a bipartisan consensus on all of these 
issues, and I trust that you will let us know promptly if you 
need more tools or resources to help our States, communities, 
and first responders.
    Finally, let me comment on your outstanding 38-year career 
in the Coast Guard. When the new Department of Homeland 
Security was first being debated Senator Stevens and I joined 
forces to ensure that the Coast Guard's vital traditional 
missions, such as search and rescue, were not compromised as 
the Coast Guard took on additional homeland security 
responsibilities. I am confident that given your long career in 
the Coast Guard you will ensure that both the letter and the 
spirit of the Stevens-Collins amendment are followed.
    Perfect timing; the Senator from Alaska has come in.
    In short, we are very pleased to have you here today and I 
look forward to hearing the introduction of you, the formal 
introduction by two of our most esteemed colleagues. I would 
first call upon the--now you are each pointing at the other.
    Senator Stevens. He is senior.
    Chairman Collins. I will call on the distinguished senior 
Senator from Hawaii. I want to tell you that I had a big debate 
with my staff over whom I should call upon first, the President 
pro tempore or the senior member, and it was a toss-up. So 
since Senator Stevens has suggested I proceed with the 
distinguished Senator from Hawaii, I am going to follow his 
advice, which is always sound. Senator Inouye.
    Senator Inouye. Madam Chairman, I very seldom disagree with 
my brother but he is the President pro tempore, and most 
importantly, this day is his birthday.
    Chairman Collins. That is true and we hope to celebrate 
that later today.
    Senator Inouye. If you want this nomination to go through, 
you had better get the octogenarian---- [Laughter.]
    Chairman Collins. Senator Stevens, I think the 
distinguished Senator has yielded to you.
    Senator Stevens. Thank you very much, Madam Chairman.
    Chairman Collins. We welcome you.

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. It is a privilege to be here with you and 
to introduce Admiral Loy to our Committee. He has had a long 
and distinguished record of public service. You may have 
already stated this, his career spans over 30 years with the 
Coast Guard. He graduated from the Coast Guard Academy in 1964 
and came through the ranks to be the commandant in May 1998.
    Now my State has a unique relationship with the Coast 
Guard. We have more than half the coastline of the United 
States, 6,640 miles of coastline. That literally makes us 
stewards of the coastline longer than all 48 States combined. 
We have the Coast Guard's largest base on Kodiak Island. I had 
some experience with that when I was a brand new Senator. 
Senator Nixon wanted to close the Kodiak Naval Station and we 
thought it was a place that should have some presence. I went 
to the Coast Guard and asked them to come visit Kodiak and was 
able to convince them to move a small station there. They have 
since learned that that is the place from which we can guard 
the Pacific and all its resources for the United States.
    I got to know Admiral Loy well when he served as 
commandant. During his tenure he led the Coast Guard's effort 
to rebuild and restore readiness, he rebuilt the Coast Guard's 
workforce to authorized levels, improved retention and prepared 
the Coast Guard to fulfill its future duties and 
responsibilities. He also made sure the Coast Guard had the 
resources it needed to protect our coastline and our maritime 
boundary of Alaska, which is so important to all of us. Over 
half of the fishery resources in the United States are in the 
north Pacific, and the Admiral has had a commitment and a 
dedication to protect those resources.
    When our Nation needed Admiral Loy's expertise to secure 
our transportation systems after September 11, he answered the 
call to service and assumed a newly-created post of Deputy 
Undersecretary of Transportation for Security. In 2003, he 
became the administrator of the Transportation Security 
Administration and assumed the critical task of securing every 
facet of our Nation's transportation system. Admiral Loy 
successfully led TSA through the transition into the Department 
of Homeland Security, and furthered his agency's dedication to 
security while improving public outreach and customer service.
    I do believe that I know of no man more qualified to take 
over this position than Admiral Loy. He has completed enormous 
tasks as though they were small tasks, and I think the 
Committee would agree, the Admiral's experience and dedication 
will serve him well as the second in command at the Department 
of Homeland Security. I know of no greater honor than to ask 
the Committee to move very quickly on this nomination.
    Thank you very much.
    Chairman Collins. Thank you very much, Senator Stevens. 
Senator Inouye.
    Senator Inouye. Madam Chairman, I thank you very much. I 
wish to ask for your permission to have my statement made part 
of the record.
    Chairman Collins. Without objection.

 TESTIMONY OF SENATOR DANIEL K. INOUYE,\1\ A U.S. SENATOR FROM 
                      THE STATE OF HAWAII

    Senator Inouye. As my distinguished friend from Alaska 
indicated, he has the longest coastline. The State of Hawaii is 
surrounded by water. We have all the services on our islands, 
but the most favorite service is the Coast Guard. It saves more 
lives. We are surrounded by fishermen all the time, men who go 
out and surf, and without the Coast Guard we would have crise 
every day. Thanks to them, our families are happy, people are 
happy.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Inouye appears in the 
Appendix on page 25
---------------------------------------------------------------------------
    Admiral Loy has had a long and distinguished tenure with 
the Coast Guard. He has been commandant for 4 years. He has led 
the Coast Guard through one of the most significant periods of 
transformation in the history of that service. He has improved 
the readiness of the operation. He is preparing for the future. 
For many, many years they could not maintain their recruitment 
level. He has exceeded that. He has exceeded in retention, and 
he has ensured the personnel were properly supported by the 
finest equipment possible. He has had the training and the 
background and experience that we sorely need in this new 
position.
    So I am most pleased and proud to join Senator Stevens in 
commending Admiral Loy to you.
    Senator Stevens. Could I just add something, Madam 
Chairman?
    Chairman Collins. Senator Stevens.
    Senator Stevens. In my State, the Coast Guard operates 
helicopters that fly over barren seas and barren areas that are 
one-fifth the size of the United States. His people deliver 
babies, they pick up stranded people from ice floes, they 
patrol to see that the foreign fleets do not come into our 
shores, and they are really great neighbors. I think the fact 
that we have this nomination before us today demonstrates the 
wisdom of the battle that you and I fought that you were 
speaking of when I came in the room. But now, by having Admiral 
Loy in the position he is going to assume, it shows to everyone 
that that commitment is a real commitment, to make sure the 
Coast Guard will survive and be really compatible with the 
whole concept of homeland security.
    So I really welcome this nomination and the assurance it 
gives those of us who had some fear about putting the Coast 
Guard in this new Department. I hope you will move the 
nomination quickly. Thank you very much.
    Chairman Collins. Thank you very much. I know that both 
Senators have other engagements and I am going to give you the 
opportunity to depart the Committee. But I want to thank you 
both for taking the time to be here and to endorse this 
nominee. Your endorsement means a great deal.
    Senator Inouye. Thank you very much, Madam Chairman.
    Chairman Collins. I would now like to call on the other 
distinguished Senator from Hawaii, Senator Akaka, for his 
opening comments.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Madam Chairman.
    Admiral Loy, you come before this Committee with high 
recommendations from two colleagues whose opinions I respect 
tremendously, my good friends Senators Stevens and Senator 
Inouye. I thank you for being here this afternoon, and I thank 
you for your visit with me earlier today.
    Admiral Loy, as Administrator of the Transportation 
Security Administration and the former Commandant of the Coast 
Guard, you have served your country well. As was mentioned, you 
were in the Coast Guard some 40 years. You understand firsthand 
the unique challenges faced by the Department of Homeland 
Security, and the experience you have had in the Coast Guard 
certainly will make a huge difference in securing our country.
    To be effective, policies within the Department must 
address the specific homeland security needs of each State and 
municipality. The State of Hawaii is over 2,500 miles from Los 
Angeles and is accessible only by plane or ship. It takes 5\1/
2\ hours to fly from the mainland and 4\1/2\ days by sea. This 
distance makes mutual aid from mainland States or from other 
Pacific jurisdictions unfeasible. Hawaii is home to 53,600 
military personnel and hosts about 160,000 tourists on any 
given day. I have joined with Senator Collins to ensure that 
first responder funding covers all who reside in a State 
including military and tourist populations. I look forward to 
working with you to ensure that this priority is addressed in 
first responder allocations.
    As the head of TSA, you serve on the DHS human resource 
system design team which has forwarded its recommendation for a 
new personnel system to DHS Secretary Ridge and OPM Director 
James. I expect you to foster an environment of inclusion that 
brings together the different talents of Federal workers and 
the different cultures of agencies included in this new 
Department. Your experience tells me that you will.
    As we protect America by reorganizing the Federal 
Government we cannot overlook the fundamental rights of Federal 
employees. Union representation, collective bargaining, and 
appeal rights whistleblower protections are all critical 
elements of a strong and stable workforce. The rights of 
Federal workers complement our ability to safeguard the 
country.
    Our goal is to protect the Nation. The key to attaining 
this goal is skilled and highly motivated employees and capable 
leadership. If the imposition of a new personnel system results 
in a demoralized workforce and accelerated retirement by 
skilled workers, then the question needs to be asked, is our 
Nation's security at risk?
    There will soon be new personnel systems for the largest 
Federal agency, the Department of Defense, and the third 
largest, the Department of Homeland Security, which will bring 
massive changes to those personnel essential to our national 
security. Any changes have to be looked at more seriously, and 
I want your commitment to work with me to ensure that we 
protect the rights and benefits of our Federal workforce. Much 
of the debate has focused on union rights. I, for one, believe 
that a modern and agile workforce is not incompatible with 
collective bargaining.
    Admiral Loy, you have an immense task before you. I commend 
you for accepting the responsibilities of this position, and I 
know you will continue to make significant contributions to 
protecting the people of our great country. I consider you as a 
tremendous plus for what we are doing to secure our country.
    Thank you very much, Madam Chairman.
    Chairman Collins. Thank you Senator. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Madam Chairman. Earlier, Admiral 
Loy, when Senator Stevens and Senator Inouye were jockeying, 
debating about who was going to go first and Senator Inouye 
mentioned that it was Senator Stevens' 80th birthday today, I 
thought the person at that table who really receives the best 
gift is you. To be introduced by either of them at a 
confirmation hearing is a great honor.
    Admiral Loy. Indeed.
    Senator Carper. To be introduced by not one but by both of 
them is really quite extraordinary.
    As an old Navy guy for 23 years active and reserve duty and 
someone who served for 10 years on the Coast Guard Subcommittee 
in the House of Representatives before I was elected governor, 
I just want to express my thanks to you for your service to our 
country, my great respect for the Coast Guard for the good they 
do in Delaware and the Delaware Bay, the Delaware River, and 
the Atlantic Ocean not far from where we live.
    I am grateful for the work that you have done in leading 
TSA within this new Department over the last couple of years. 
And I appreciate the chance to have sat down with you and to 
have spoken earlier today about some issues and when we get 
into questions I hope to be able to revisit a couple of those. 
I will just mention them again.
    One of those was the issue of the funding formula for first 
responders that Senator Collins and I have worked on. I would 
like to discuss that with you a bit more. Among the 
responsibilities that TSA has is not only aviation security and 
important transit security but also rail security and I would 
like to revisit that with you, if I might.
    Finally, I would like to talk a bit more about the concerns 
that have been expressed to us by port workers. The Port of 
Wilmington--and I know you have heard these from workers in 
other ports--employs some people who have had problems with the 
law and have some criminal violations on their records. They 
have gone straight. They have become law-abiding citizens and 
contributing members of our society, and a number of them have, 
I think, real concerns about their future as breadwinners for 
themselves and for their families. I would like to have a 
chance to delve into that with you as well. We will have a 
chance for that here shortly.
    I want to thank you again for your service to our country 
and for your family to be willing to share you with the rest of 
us.
    Admiral Loy. Thank you, sir.
    Chairman Collins. Thank you very much, Senator. Senator 
Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you, Madam Chairman. My respect 
for holding this hearing and dealing with this complicated 
problem of having a nominee about whom there is virtually no 
controversy. It is not usual that we do these things.
    But also, I always think about New Jersey and its 
relatively enormous coastline for the landmass that we have. 
Then we get Hawaii and Alaska. Ain't nothing there but water. 
But the fact that you have enjoyed the universal respect, and I 
might even say, Admiral James Loy, the affection of people you 
work with, because it is not just a pleasing personality. You 
have taken to your tasks very well.
    Few have had the rich experience that Admiral Loy has had. 
To come to this fairly complicated job, having been with the 
Coast Guard, and commandant, I think it equips you particularly 
well because for a relatively small agency they have more 
responsibilities, the Coast Guard. And it is constantly 
enlarging the responsibilities without commensurately enlarging 
the budget. The Coast Guard has, I think, performed miracles. 
When you think of all the duties they have, everything from 
ship manifests, to pollution control, to illegal refugee 
movements, the drug enforcement, to picking people off the high 
seas, and to contributing as well to being a good neighbor to 
make sure that things operate well.
    We are very fortunate in the State of New Jersey to have 
the Coast Guard training base there. Admiral Loy and I had a 
fair amount of contact in his days as the Coast Guard 
commandant and it was always a pleasure to see him and to hear 
from others who served with and for him, the respect that he 
enjoyed.
    Having said all those nice things now I want to get down to 
the nub of some things that we are going to have to be 
concerned about. One of them was mentioned by our friend from 
Delaware, and from Hawaii as well. I served as the commissioner 
of the Port Authority before I came to the U.S. Senate so I 
know quite a bit about how the port operates, its importance to 
our economy, its vulnerability to terrorism.
    By the way I mentioned, Admiral Loy, yesterday we had a 
chance to chat, to see a couple of Coast Guardsmen out there 
post-September 11. The Hudson River compared to the Atlantic 
Ocean may not look like a place that you have got to worry 
about, but there is an awful lot of ship traffic, a lot of 
turbulence in that river because of the ship traffic. Out there 
in a rubber dinghy with a machine gun mounted, making sure that 
they did whatever they could to protect us and to protect the 
commerce that goes through the harbor. The Coast Guard 
estimated that they needed $963 million this year and $4.4 
billion over the next 10 years to make our ports safe. I hope 
that Admiral Loy, in his new post, can pry that money loose.
    The question of first responder grants, for me a particular 
concern in the State of New Jersey was that our State and our 
neighboring State New York, suffered the most on September 11 
directly. We are ranked near the bottom per capita when the 
money was doled out. Some of that stems from a faulty 
allocation formula embedded in the USA Patriot Act, but to his 
credit Secretary Ridge has acknowledged problems with the 
formula and we still need to fix that.
    There is another element that concerns me and that is our 
color-coded threat system. It does not do much, and if we do 
not scrap it altogether, we need to revamp it considerably. 
Because to issue threats that have no support or no advice as 
to what you do, where do you go? I have had these silly calls. 
I think they are silly because I believe that we are doing 
largely what is necessary. But when a threat comes out and I 
get calls in our office, dare we go to New York City now; or 
dare we go here; or dare I take my kids on vacation, it is not 
the way to do things. It just alarms everybody without offering 
any solution.
    Another problem that I am concerned about is with the air 
marshals. Now I am concerned that the principal security 
inspectors are allowing flight attendants to take home study 
courses as part of their security training, but more concerned 
about what is happening to our Federal air marshal program. It 
is up, is it down, with regard to budget cuts and so-called 
cross-training with Customs agents. I am not quite sure what 
the intentions are. At one point they said they would get rid 
of them. Then I saw they were bringing them back. I think we 
ought to firm up that program. It is a very important 
protection that we afford the flying public, and we want to 
make certain that that is manned to the proper degree.
    Last, the new threats that seem to arise. Whenever you 
think you are working on the things that really count you find 
out that there is another leak in the dike, and this one is 
surface to air missiles. A year ago this month the world saw 
the SAM attack on the Israeli jet in Mombasa, Kenya. And more 
recently, a sting operation in the port of New Jersey, port of 
Newark, we revealed an attempted to smuggle SAMS into the port. 
They were almost boastful about how they got into it. The 
prosecution was there and it will be taken care of, but the 
fellow who they caught with this was determined to create a 
structure, an organization to bring these things in on a 
regular basis. How devastating. So these weapons may present 
the biggest terror threat to commercial airliners and I want to 
know what the administration is prepared to do to address it.
    Madam Chairman, I will spare you the time and the 
Committee. Those are a few of my concerns, raising them, I want 
to suggest that we have to go further to make our country safer 
against the scourge of international terrorism. But I think 
Admiral Loy is equal to the task and I look forward to 
confirming him as I know others do as well. We wish him well in 
this very important task.
    Admiral Loy. Thank you, sir.
    Chairman Collins. Thank you, Senator.
    Admiral Loy has filed responses to a biographical and 
financial questionnaire, answered prehearing questions 
submitted by the Committee, and had his financial statements 
reviewed by the Office of Government Ethics. Without objection, 
this information will be made part of the hearing record with 
the exception of the financial data which are on file and 
available for public inspection in the Committee's offices.
    Admiral our Committee rules require that all witnesses at 
nomination hearings give their testimony under oath, so if you 
will please stand and raise your right hand.
    [Witness sworn.]
    Admiral Loy, do you have a prepared statement that you 
would like to give at this time?
    Admiral Loy. I have a prepared written statement, ma'am. If 
I could submit it for the record, I would appreciate that, and 
just provide perhaps a couple moments of oral comments.
    Chairman Collins. It will be included in full.

TESTIMONY OF ADMIRAL JAMES M. LOY,\1\ TO BE DEPUTY SECRETARY OF 
       HOMELAND SECURITY, DEPARTMENT OF HOMELAND SECURITY

    Admiral Loy. Good afternoon, Senator Collins and Senator 
Akaka, and all Members of the Committee. Thank you for 
scheduling this hearing so quickly and giving me the 
opportunity to appear before you today. I also want to thank 
Senator Stevens and Senator Inouye for their kindness in 
sponsoring my nomination today. Both represent to me the 
epitome of public service and our work together for many years 
on Coast Guard issues really now represents a foundation of 
capability our Nation needs to secure our homeland.
---------------------------------------------------------------------------
    \1\ The prepared statement of Admiral Loy appears in the Appendix 
on page 00.
---------------------------------------------------------------------------
    I am honored that President Bush has nominated me to serve 
alongside my good friend and fellow Pennsylvanian, Secretary 
Tom Ridge, as the Deputy Secretary of Homeland Security, and if 
confirmed I will do my utmost to serve the President and the 
Secretary in protecting our homeland from acts of terrorism, as 
we also maintain our way of life and all the freedoms that we 
enjoy as Americans, and to preserve and expand our national 
economy all at the same time; a difficult set of challenges.
    I have the singular experience of having led the two 
largest organizations that comprise the Department of Homeland 
Security, the Transportation Security Administration and U.S. 
Coast Guard. Together they include approximately 100,000 
dedicated men and women, more than half the DHS workforce. This 
gives me a unique perspective, I believe, on the challenges we 
face in molding the Department into a fresh, cohesive agency. 
If you will, having looked from the bottom up, I will be able 
to bring those thoughts and lessons learned into the dialogue 
of the leadership of the Department. I hope that perspective 
will be valuable as we move forward together.
    Madam Chairman, with your permission I would like to just 
mention four quick things that I think are important to the 
fundamental success of this new Department, this new adventure 
called the Department of Homeland Security.
    First, information sharing and analysis. If this Department 
is to succeed we must build the capability to collect, to 
share, to analyze and to distribute the intelligence and 
information sets necessary to secure the homeland. I think this 
will be very different from anything that we have ever been 
expected to do in the past. We must design, if you will, a 
common information picture such that all gathered information 
is available to analyze, that all analyzed information becomes 
actionable products, and that all those products gain 
distribution to those who can best put them to use to secure 
America.
    Second, the notion of critical infrastructure must become 
the product of criticality assessment on one hand, 
vulnerability assessment on the second, threat assessment on 
the third, and then very real, methodical risk management as a 
fourth dimension of how to grapple with this challenge of 
identifying and securing the critical infrastructure of our 
homeland.
    Third, this Department must become the model Cabinet-level 
agency for the 21st Century. We have every opportunity to do 
that. Organizational excellence must become the norm across the 
board in all our operating agencies as well as in our support 
structure. We must demonstrate with solid metrics that we are 
doing our work efficiently, effectively, and with an eye to the 
good stewardship of the taxpayer's dollar.
    Fourth, we must accept the challenge offered by the 
national homeland security strategy and interpreted boldly and 
widely for the American public, and especially for our 
workforce at DHS. That means each of us entrusted with 
positions of leadership must be bold and directive and 
methodical as we set goals, as we optimize objectives and 
design systems to accomplish the departmental mission. And 
second but simultaneously, to build the cultural norms expected 
in a high-performing organization.
    I spent all my professional life in one such organization 
where the core values of honor and respect and devotion to 
their duty meant something visceral and real to every sailor in 
that organization. We are working hard now to build that same 
culture at the Transportation Security Administration, and it 
must also be done at DHS. I look forward to taking on that 
challenge with Secretary Ridge.
    Last, I offer the simple notion that we are all in this 
together. Our strategies and plans must be open to all of those 
with good ideas. Our reach must include State, tribal, and 
local and private sector players. Securing the homeland is an 
obligation now for every citizen of this great Nation. The 
events of September 11 show that terrorists draw no 
distinctions between military targets and civilian office 
buildings. This is a gravely different security environment 
that we are living in post-September 11. It calls for creative 
thinking, diligent research, and a collective commitment to 
hold the edge and to keep complacency at bay, because indeed I 
believe to some degree it was complacency that got us into 
trouble over the decade post-1989 after the fall of the wall 
and after the dissolution of the Soviet empire took away that 
single superpower that we were vying with.
    I am very aware of the seriousness and the importance of 
the challenge and opportunity that President Bush and Secretary 
Ridge have entrusted to me, and if confirmed I pledge to bring 
tirelessly whatever I have learned to the task.
    Thank you again for your sensitivity to the scheduling of 
this hearing and I look forward to your questions.
    Chairman Collins. Thank you, Admiral Loy. I am going to 
start my questions with three standard questions that are posed 
of all nominees. First, is there anything 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?
    Admiral Loy. No, ma'am.
    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?
    Admiral Loy. No, ma'am.
    Chairman Collins. Finally, 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?
    Admiral Loy. I do so pledge.
    Chairman Collins. Thank you. We will now start with the 
first round of questions limited to 7 minutes each. I would ask 
my colleagues to help me with the time limit and we will do a 
second round if needed.
    Admiral Loy, in my opening statement I raised the issue of 
border security, which is one of the greatest challenges facing 
DHS. Each year the United States legally admits millions of 
non-citizens through our borders. In Maine, some 4.6 million 
cars and trucks cross over the border from Canada each year. 
That is a lot of traffic and obviously the Department is very 
concerned about opportunities for terrorists to exploit 
weaknesses in border security.
    But there was a flip side to the coin. For many Maine 
residents who live less than an hour's drive from the Canadian 
border, traveling back and forth between Maine and Canada is a 
way of life. Family members live across the border from one 
another, businesses in one country depend upon suppliers and 
customers from the other in order to survive. Sometimes the 
border in Maine literally runs through a neighborhood, or on 
one side of the street it is Canada, on the other side it is 
the United States.
    Last year, to try to tighten border security, the 
Department eliminated the Form 1 and the port pass programs 
which allowed American residents to use unmanned border 
crossings 24 hours a day. This was very important to a lot of 
the residents living in remote areas of my State who depended 
upon those two programs for access to medical and religious 
services, family events, social activities, the grocery store, 
the hospital which are on the other side of the border. I would 
like to give you an example to illustrate the problems that the 
elimination of those programs have caused in my State.
    There is a small border community in Quebec called St. 
Pamphile. On the U.S. side of the border there is no 
development, only miles and miles of woods that produce timber 
for processing at the mills in Quebec. But there are some Maine 
families who live on the U.S. side of the border and they 
depend upon services in Canada. Everything they need from the 
grocery store to the hospital to the church is on the Canadian 
side, including emergency services. The problem is that once 
that program was eliminated and the gates were locked, the 
residents on the Maine side of the border are essentially 
prohibited from crossing the border after 5 o'clock. They 
cannot go at all on Sunday because the gates are locked.
    This is a real problem. The residents are very frustrated 
by this. They are obviously law-abiding American citizens. They 
would be the first to point out any suspicious character in 
their midst. This has changed their entire way of life.
    I think ultimately technology is going to be the answer to 
this problem where we can have some sort of biometric passcard 
and perhaps remote cameras to check out who is crossing. But in 
the meantime this is creating tremendous hardship in this one 
community for the 50 or so residents who live on the American 
side. But it is a problem for other remote border communities 
in Maine too.
    I would ask that you make a commitment to work with me to 
try to come up with a solution that meets the need for tighter 
border security while at the same time acknowledging the fact 
that these individuals who are law abiding, who have lived here 
their entire lives in some cases, now find that their movements 
are greatly restricted. They would have to drive an 
extraordinarily long distance to get to the next manned border 
crossing. We have been working with the Department on this but 
we have yet to be able to come up with a solution.
    Admiral Loy. Madam Chairman, I am happy to pledge to work 
with you in trying to find a better solution to the 
circumstances you describe. I think this dual goal set that you 
just described so well of security on one hand but holding onto 
that way of life that has become so critical to people just a 
couple hundred yards or just a mile or so away are legitimate 
challenges that we have to find better ways to deal with.
    I think the smart border accord that has been a very 
fundamental exchange between Canada and the United States at 
the diplomatic level, and Secretary Ridge and Minister Manley 
have literally, each month since about 18 months ago, looked 
carefully at a list of about 30 objectives that they have to 
make such things happen better between the two countries. I 
even think that further down the road there is a likelihood of 
a notion referred to as a North American initiative where the 
real borders we are concerned about are the borders that 
circumvent the entire continent, let alone those that are 
binational in nature between Canada and the United States, and 
between Mexico and the United States on the southwest border as 
well.
    I do believe that there are technological possibilities 
that can help us with this on the other end of the timeframe, 
and at the same time reinforce the legitimate concerns that we 
do have for our own borders. Whether there are hours that we 
can play with here in terms of the openness of those border 
crossings, I will be happy to take back to the Department and 
review there the concerns that you have expressed to me and 
work with you to see if we can find a better answer.
    Chairman Collins. Thank you. I appreciate that commitment.
    Earlier this year, the Committee held a hearing that 
focused on the threat to our Nation's ports which I view as one 
of our greatest vulnerabilities. I have a series of questions I 
want to ask you about that but in the interest of time let me 
cite one particular concern. In June, I wrote to Secretary 
Ridge to express my concern about the Department's proposal to 
allocate some of the money that had been designated for port 
security by Congress for other purposes. I was pleased in 
response to the concerns that many of us raised that that 
decision was reversed.
    As we anticipate a third round of port security grant 
announcements I am pleased to hear that the TSA is poised to 
distribute $105 million that is still left over. But once again 
there are these rumors that the Department only plans to 
release a portion of the 2004 funding in this round. I would 
like you to address that. I think it is imperative that we make 
a real effort to upgrade security at our ports.
    Admiral Loy. I could not agree with you more, ma'am, as my 
immediate last 8 months in uniform were all about maritime 
security design efforts in the wake of September 11. Port 
security has been something that is of great personal interest 
to me as well. You are referring, of course, last year to 
enormous and very consequential budget challenges that we had 
to fight our way through at the Transportation Security 
Administration and to whom those dollars for port security 
grants had been appropriated for distribution. In the spend 
plans over the course of that year where literally at the 364th 
day of that fiscal year I as the administrator for TSA, was 
still looking for an approved spend plan for that fiscal year. 
That was the nature of the challenges that we had to actually, 
potentially reprogram funds from purpose A to purpose B just to 
get through the fiscal year.
    I think it was all about what has classically been the case 
historically in our country, in the wake of a tragedy when the 
Congress passes a piece of legislation and the administration 
tries to figure out how to execute that piece of legislation, 
and sticker shock sinks in, and then we literally work a couple 
budget cycles to find out the true job description and the 
resource base necessary to do that work. We are still grappling 
with that at TSA as this year plays out as well.
    But with respect directly to the port security grants, as 
you know, all of them were in fact reissued for fiscal year 
2003. The $105 million you speak of is actually the monies that 
were in the supplemental from the previous year that really 
were round two but are becoming round three. This distinction 
that you are making between $75 million and all of the $125 
million set aside in fiscal 2004, this is the reasoning behind 
why we are edging it at $75 million at the moment.
    The application process for the third round of grants was 
to the point where we had about $1 billion worth of requests 
coming in. I am very proud of the process that we have 
designed. There was local review with the harbor safety 
committees involved in how to make sure that the applications 
going forward were rated in such a fashion that all of the 
players in that locale would see the value of that application. 
Then there was a regional review and finally a leadership 
review at the top between MARAD, the Coast Guard and TSA.
    When we categorized them, they fell into logical categories 
of one, two, and three, and this $75 million worth of the 2004 
appropriation will simply enable us to fund all those who we 
rated in category one. Then the balance of the $50 million will 
become available to another round of port security grants on 
into the fiscal year. That is the intention at the moment and 
no mischief afoot here as it relates to potentially trying to 
reprogram these dollars.
    Chairman Collins. Thank you. Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    Let me begin my round of questioning by affirming that 
collective bargaining rights are compatible with national 
security. Providing Federal employees with a meaningful voice 
in the workplace is a smart business practice that will enable 
any agency the ability to attract and retain a motivated 
workforce. The Homeland Security Act requires that the 
Department must, ``ensure that employees may organize, bargain 
collectively, and participate through labor organizations of 
their own choosing in decisions which affect them, subject to 
any exclusion from coverage or limitation on negotiability 
established by law.''
    Admiral Loy, how will you determine whether DHS employees 
may bargain collectively?
    Admiral Loy. Senator, the plan for which this new HR system 
will be designed has gotten to a point where it is just about 
to be offered to the Secretary for his decisions. We have been, 
I believe, extraordinarily inclusive in the process to date in 
terms of making certain that voices were heard from the 
workforce through focus groups, town hall meetings that were 
held around the country, and where in the holding of those 
meetings it was not a management representative that went out 
and held a meeting and then brought whatever information back. 
But rather it was teams composed of those members of the design 
team that had been assigned, including their union 
representation from the three unions that represent Federal 
workers in the Department of Homeland Security.
    I was asked to be a member of the senior review committee 
by Secretary Ridge in my position as the TSA administrator, as 
were a number of other senior players in the Department: The 
director of the Secret Service and the Commissioner of BCP. All 
of us met for several days, listening carefully to the work 
that the design team had put together, and our colleagues at 
that table included the presidents of the three respective 
unions as well. So the voices have been heard very inclusively 
to this particular point in time. Just 2 weeks ago an 
opportunity was provided again to the three union presidents to 
meet personally with Director James at OPM and Secretary Ridge 
at DHS to have those two people hear what the concerns may be 
of the respective union representatives having been a part of 
this process all the way from the beginning.
    As you know, the legislation restricts us to actually 
grapple with about four or five key elements of any HR system, 
those being pay and compensation, performance management, 
adverse actions and appeals, and labor relations. Those are the 
areas that the new design effort will be allowed to grapple 
with, leaving in place all those enormously important things 
that have become part and parcel of American labor relations 
over the years, including whistleblower protections and merit 
foundations, respecting inclusiveness, all those things that we 
want very much to be part of the system.
    The next challenge, sir, is to have the Secretary hear out 
his design team with those areas in mind. We want that to be an 
inclusive process as well so that workers as well as their 
representatives from the three unions are part of the team that 
continues to do the design work once the Secretary has made his 
judgments about the new system. So I am very pleased with where 
we are so far, sir, and commit to you and to the Committee that 
we will meet the specs that have been outlined for us in the 
law.
    Senator Akaka. Thank you. I also have a question regarding 
the DHS Bureau of Immigration and Customs Enforcement known as 
BICE. In response to questions my staff raised with the 
director of operations at BICE last summer, I understood that 
BICE planned to conduct a review of its June 9 reorganization 
and would brief Congress after 90 days. To date we have not 
received this briefing. Do you know the status of the review?
    Admiral Loy. Senator Akaka, as I sit here I do not know the 
status of the review but I will be happy to take that back as a 
question from the dais and find out where that review is at the 
moment and get information back to you quickly.
    Senator Akaka. Thank you. During testimony before this 
Committee a couple of months ago, the Office of Domestic 
Preparedness Director stressed that communities should improve 
their States' homeland security by working together to combine 
resources across State lines. However, unlike all States but 
Alaska, external assistance from the U.S. mainland is not 
immediately available to Hawaii. As deputy secretary how would 
you ensure that any regional approach fully addresses Hawaii's 
homeland security?
    Admiral Loy. I think we have to understand, Senator Akaka, 
what is our fundamental goal. Our fundamental goal is to make 
certain that the people of all 50 States are cared for properly 
with respect to the design work associated with our homeland 
security goals. Any kind of regional notion that makes very 
good sense, for example, in the region of Pennsylvania, New 
York, and New Jersey where they all come together, there are 
regional issues there that can be very well served by mutual 
effort between and among those States.
    The notion of regionalization, however, must never fail to 
include the State of Hawaii simply because geographically it is 
not attached to what would logically be a region. It may be a 
region of its own. To that end, sir, we will absolutely commit 
to ensuring that Hawaii as a State and the people of Hawaii are 
dealt with in the very same supportive fashion, whatever the 
Federal programs might be, that would get to other States in a 
regional sense.
    Senator Akaka. Thank you. My time has expired, Madam 
Chairman.
    Chairman Collins. Thank you, Senator. Senator Carper.
    Senator Carper. Thank you, Madam Chairman.
    Admiral, I telegraphed earlier the three issues I wanted to 
explore with you. Before I do that let me just ask on a more 
personal note to talk about values, the values on which your 
leadership is founded. You mentioned a couple of those in the 
course of your earlier remarks--honor, respect, and so forth. 
When I was privileged to be governor for my State we tried to 
build an administration based on four or five core values: 
Figure out the right thing to do; do it. Just be committed to 
excellence in all things. Golden rule, treat other people the 
way we want to be treated. Never give up. I believe when things 
go well to give the credit to other people. When things go 
badly, accept the blame. I always seek to surround myself with 
people smarter than me.
    Admiral Loy. Which is easy for me, sir.
    Senator Carper. When I was in the National Governors 
Association--I have actually mentioned this to at least Senator 
Collins before. The National Governors Association, when you 
are elected as a new governor you got assigned a mentor, 
somebody who is already a governor, and usually within the same 
party. I was assigned Tom Ridge. I had been elected in 1992 
Governor of Delaware and in 1994 he was elected Governor of 
Pennsylvania. He and I were friends and had been friends since 
our days in the House of Representatives in 1982. But as his 
mentor I sought to instill in him the kinds of values that I 
just alluded to earlier. One of those was to always surround 
himself with people smarter than him. I guess I would just ask 
at the start, would you characterize yourself as smarter?
    Admiral Loy. Than Governor Ridge? I would not go there in a 
heartbeat, sir, but I thank you for the opportunity. 
[Laughter.]
    Senator Carper. Talk to us about your core values.
    Admiral Loy. Yes, sir. All of those that you mentioned are, 
I think, enormously important. I believe that there must become 
an ethos in an organization that allows individual 
accomplishment to feed the well-being of the organization and, 
therefore, the accomplishment of its mission.
    I was privileged to be the chief of the personnel shop in 
the Coast Guard back in the early 1990's and one of the things 
we initiated was a leadership development program that I 
believe is now second to none anywhere in the Federal 
Government. It is housed at the Coast Guard Academy where it 
recognizes the contribution of not only the senior leaders in 
terms of officers but breeds in the cadet corps, the future 
leaders of that organization, the great strengths of the chief 
petty officers and the young petty officers that make a 
difference in the bowels of any organization; those kids on the 
hangar deck, those kids that are taking that 47-footer out in 
that terrible storm to pull off that rescue.
    I believe there are fundamentals to all of us, whether that 
is a Western ethic or whether it is one fundamentally just 
based on those things that, in my case, I was so fortunate to 
be brought up to value by my parents, and by scoutmasters and 
people who cared for my well-being as a young person and did 
whatever was necessary to make sure I did not fail to learn 
those lessons.
    This is not something that is rhetoric for me. This is 
something that I believe in very deeply and try hard to 
instill, just in a couple phrases, what might be of value to 
the rest of the organization. At TSA our values are not honor, 
respect, and devotion to duty, which are the values of the 
Coast Guard. And you may know what they may be for the Navy, or 
you know what they may be for the Marine Corps.
    But at TSA I felt it was incredibly important for us to 
have integrity, innovation and teamwork as our values because 
what we were doing for the Nation became an opportunity to 
breathe life into those words so every screener at every 
airport, every supervisor looking out for the well-being of 
those screeners took seriously the ethic associated with a 
couple of simple words that could become so meaningful if 
allowed to be broadcast widely to the organization at large. I 
look forward to an opportunity to find that cultural foundation 
in DHS and broadcast it widely.
    Senator Carper. I think you are going to have that 
opportunity. Let us talk about rail security for a bit, if we 
could. We are mindful every time we go through an airport or 
ride on an airplane of the work that TSA has done under your 
leadership with respect to making air travel safer. We are 
aware at the Port of Wilmington, and other ports, of the work 
that has been done to make our ports and the shipping of goods 
in and out of those ports less hazardous. I understand that the 
Department of Homeland Security is working on, I think it is 
called the national transportation security plan. I think it is 
going to be released sometime maybe the middle of next year. 
Any idea how this plan will address freight rail as well as 
passenger rail security?
    Admiral Loy. Yes, sir. We are working hard at TSA to build 
a national transportation system security plan, recognizing 
that it is a puzzle piece that has to first and foremost fit 
into the larger puzzle that the Secretary is responsible for in 
the other 12 economic sectors and four asset categories that 
are outlined in the national homeland security strategy. So as 
that big puzzle goes together I am obligated as the TSA 
administrator to make certain that the transportation piece 
fits well there, because there are intersector challenges.
    I have been to, I do not know how many tabletop exercises 
over the last 2 years where the focus may be on a chemical 
plant security scenario, or a nuclear scenario, or a scenario 
even dealing with something like banking, or food and 
agriculture kinds of challenges. What is invariably the case is 
that the transportation sector gets involved in that tabletop 
exercise because whatever might be accomplished to either 
respond to or restore the well-being of the Nation in that 
process requires transportation in order to get that done. So 
there is an intersector kind of connectivity there that the 
Secretary has to be aware of as he composes that bigger puzzle.
    My piece, however it is shaped to fit into the Secretary's 
bigger puzzle, is also a complex one made up of aviation, 
maritime, rail, highway, transit systems, pipelines, those 
elements of the transportation sector that have to also fit 
together. There are intermodal challenges there. That container 
that comes from sea and gets on a train and eventually on a 
truck to go to Iowa City has to be recognized as an intermodal 
challenge with respect to the security of whatever is in that 
container.
    So the national transportation system security plan will be 
the opportunity to talk about standard-setting, vulnerability 
assessments, mitigation strategies, and compliance means by 
which we can comfortably fit the transportation puzzle together 
such that it fits well into Secretary Ridge's greater 
challenge.
    As to rail, sir, it is not a matter of waiting for the next 
6 months or whatever. We have been doing a lot of very good and 
worthwhile outreach to the rail industry already. There have 
been critical asset inventories taken of rail infrastructure 
across the country. Amtrak, and the American Association of 
Railroads, and the Federal Rail Administration, and DOT and TSA 
have worked together on those projects. Amtrak and class one 
rails, the bigger rail services, have developed an information 
sharing center, ISAC, Information Sharing and Analysis Center 
that affords a chance to send information to them for 
distribution to the industry, and gather information from the 
industry through the ISAC back into the TSA so we can share it 
with the intelligence and information aggregation process that 
I think is so critical to what we are doing in this new 
Department.
    So whether it is the notion of learning from the rail 
industry that it is not about prevention exclusively, but it is 
perhaps also about restoration. I took a train ride to 
Wilmington from Washington.
    Senator Carper. Great ride, is it not?
    Admiral Loy. Yes, sir, it is. But I was given the chance to 
sit up there in the front cab with this wonderful, crotchety 
old guy who had been driving that route for years, and he 
helped me understand that it was not necessarily about 
prevention in the rail business. Yes, prevention at the 
terminals and those things are needed. But he asked me things 
like, Admiral, have you seen a police officer? Have you seen a 
fence? Have you seen a camera? Have you seen any of those kinds 
of things along this--he was talking about 50 miles out of 
Washington, but referring to thousands of miles of rail line 
across the country, railbed across the country. He made it 
clear to me that restoration is the fundamental reality in the 
rail business that is different than other elements of the 
transportation sector. So it literally reshaped my thinking in 
putting a strategic plan together for the transportation 
sector.
    So we have done some very good things. AAR, American 
Association of Railroads, is a marvelously impacting trade 
association for that industry and have been terrific in coming 
to the plate and helping us figure those things out.
    Senator Carper. Good. My time has expired. If I could just 
add a closing statement, Madam Chairman.
    Chairman Collins. Certainly.
    Senator Carper. Just keep in mind, Admiral, as you and your 
team work on this transportation system security plan, keep in 
mind that more people take the train today between Washington 
and New York than will fly on all the airlines combined, that 
during the course of this day hundreds of thousands of people 
will be in those tunnels underneath some of the waterways that 
we were talking about earlier going in and out of New York, and 
that at any one time during the day there are more people in 
those tunnels than in, I think, seven 747 aircraft.
    Senator Collins and I have worked trying to come up with a 
funding formula for first responder legislation. I will not get 
into that any more. We have discussed that and we welcome your 
input. Last, just keep in mind, please, going forward the 
people who work in our ports, and sometimes in hard labor 
positions, a lot of physical labor positions, people who have 
made mistakes in their past, who have a criminal record, who 
have gone on and made something out of their lives. So make 
sure that as we attempt to provide for better security at our 
ports and introducing this identification card program that we 
do not needlessly put at risk their livelihood and their 
ability to make a way for themselves and their families.
    Admiral Loy. Absolutely, sir.
    Senator Carper. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Thank you. Admiral, another challenge 
facing the Department is striking the right balance between 
privacy concerns and security. Recently, the Department's chief 
privacy officer began an investigation of the role, if any, the 
TSA personnel may have played in assisting an Army contractor, 
Torch Concepts, in obtaining personal data from passenger 
records on over one million customers of Jet Blue Airways. I am 
sure you are familiar with that case.
    Admiral Loy. Yes, ma'am.
    Chairman Collins. First, do you know yet whether any TSA 
personnel were involved in encouraging Jet Blue to provide this 
private data on its customers to the DOD for the research 
project or to the contractor?
    Admiral Loy. Madam Chairman, my understanding is that if 
there was TSA involvement, it was the bringing of the two 
together, not with respect to what might actually occur once 
they got together. But it was almost an invitation kind of 
thing, and an association kind of thing where Jet Blue and the 
contractor were introduced, if you will, to each other by TSA 
but without any value judgments on the part of the TSA 
personnel.
    We are looking at that very carefully and I would probably 
be remiss in trying to speculate what might end up at the other 
end of the investigation that is underway, but the important 
thing here to me is to have it become that lesson that 
reinforces, as Jet Blue found out in this instance, that having 
violated their own privacy gameplan and rules and regulations 
that they had in place in the company, they got burned at the 
other of the day. And properly so, I might add.
    At the other end of our day at the Federal level, for 
example, in our Computer Assisted Passenger Pre-screening 
System, CAPPS-II, the privacy implications of that system must 
be inviolate at the other end of the day with respect to our 
concerns for probably six or seven areas that are properly 
challenging us to make sure we got it right before there is any 
switch turned on, so to speak, with this new system. This new 
system is going to be probably one of the most important 
projects we finish and put on the line for our country with 
respect to the security of the aviation system.
    Having said that, we should never turn that switch on until 
those privacy concerns about effectiveness, about redress 
opportunities, about appeal rights, about mission creep, about 
all those issues that are enormously important to the privacy 
community are properly dealt with. The Congress has made that 
quite clear. In our appropriation bill this year there are 
eight areas that we are obliged to work with GAO on and return 
by February 15 in order to continue the testing of the system 
that will prove its effectiveness after February 15. We are on 
track to do that and I hold that as one of our most important 
chores.
    Chairman Collins. I appreciate that update and your 
assurance that before the CAPPS-II system goes into effect that 
there will be a lot of thought given to the appropriate 
safeguards that need to be included. I think it is also 
important that those safeguards be in effect during the testing 
of the system because it is going to be difficult to test the 
system without access to the same kind of real world passenger 
data, that got Jet Blue in trouble. I would also ask you to 
keep that in mind as you proceed.
    Admiral Loy. Yes, ma'am. It is not only the domestic side 
of the house, but there are very real issues associated with 
international PNR data, passenger name record data that are 
challenges to us at the moment that we have to get through 
before we can make the system viable.
    Chairman Collins. I would like to turn just quickly to an 
issue that both Senator Stevens and I raised, and that is the 
role of the Coast Guard. As you know, Senator Stevens and I 
worked hard to get language in the authorization for the 
Department of Homeland Security to ensure that the traditional 
mission of the Coast Guard would not be jeopardized as it took 
on new and expanded responsibilities for homeland security. 
Just last month Maine suffered the loss of four more fishermen 
at sea who were on the Candy B II. That has been a real tragedy 
for our State and the Coast Guard's search and rescue mission. 
The search and recovery mission in some cases is just so 
critical to my State.
    Could you give us an update of your assessment on how well 
the Coast Guard is doing in this new post-September 11 
environment, whether it does have sufficient resources to take 
on these new responsibilities without compromising its vital 
traditional missions?
    Admiral Loy. As you might imagine, I am very personally 
invested in what I know to be perhaps the greatest attribute 
that organization brings to our country, and that is the 
flexibility to go from almost crisis to crisis on any given 
day, but to go from where the Nation needs it best on day two 
to where the Nation needs it best on day three.
    For example, on September 10, 2001 we were spending in the 
Coast Guard somewhere around 3 or 4 percent of our appropriated 
capability operationally on what I would call classic homeland 
security activity. Two days later we were spending about 53 
percent of our appropriated capability on what became the 
crisis of the moment for our Nation. I think that is the good 
news and the bad news.
    The good news is that it is yet again a demonstration of 
the flexibility of that organization to go where the Nation 
needs it. The challenge is how quickly can you return to 
whatever you perceive normalcy to be the day before the 
tragedy. I think with this particular tragedy, that old 
normalcy we will never see again. So our challenge is to 
provide the resources necessary to this service to find that 
new normalcy where heightened address of homeland security 
realities are there as well as the continued service in 
fisheries and counternarcotics and all the other missions that 
are operationally dependent--or the Coast Guard is the provider 
of those services for our country.
    One of the most important projects in that regard is the 
Integrated Deepwater System project which offers the 
modernization of that service's offshore capability. That 
modernization will provide the Coast Guard the wherewithal to 
do better search and rescue, to do better national defense, to 
do better homeland security, to do better fisheries, to do 
better everything that it does in that environment 50 miles or 
more offshore, and be interconnected with the coastal realities 
that are so much a part of our homeland security missions 
today.
    I spoke with Admiral Collins just last week for the first 
formal time in getting ready--that rookie that took over after 
I left my job. He is doing a marvelous job with the 
organization and has been in fact supported by the Congress 
very well, I believe, in the last two budget cycles to provide 
him the tools to do this new homeland security job while he 
continues to provide those services that America has come to 
count on the Coast Guard to provide.
    Chairman Collins. Before I yield to my colleague I just 
want to indicate to you that Senator Lieberman and I recently 
wrote to the OMB Director suggesting that the deep water 
project be accelerated and funded over 10 years rather than 20 
years. It actually saves money in the long term and you get the 
capability. But I will not put you on the spot by asking you 
whether you would support that change.
    Senator Akaka. But you could, Senator. [Laughter.]
    Thank you very much, Madam Chairman. I would like to ask 
about FEMA. The Department of Homeland Security now includes 
FEMA, which among its many responsibilities administers natural 
disaster mitigation grants. This multitasking has raised 
concerns that FEMA's emphasis on terrorism may result in a 
lower priority for natural disaster mitigation.
    My question is, will you work to ensure that natural 
disaster mitigation grants, which Hawaii and so many other 
States rely upon, are not shortchanged as the result of FEMA's 
move to the Department of Homeland Security?
    Admiral Loy. Indeed, I will, sir. One of the chores the 
Secretary had asked of me about 6 or 7 months ago was to take 
on the responsibility to design the new national response plan 
and the national incident management system for our country. It 
is an all-hazards plan. So the notion of whether it is a 
tsunami on its way to, God forbid, some island in Hawaii, or 
fires in the west of our country, or hurricanes as they go by, 
those natural disasters of the past are every bit spoken for in 
the design work of this new national response plan and national 
incident management system.
    Furthermore, I think we are enormously proud of what FEMA 
has been able to do in just this past year in the new 
Department in responding to the fires in California, as well as 
the hurricanes that have gone by.
    In California, I know that Mike Brown was out there 
personally day in and day out, and within 24 hours of the State 
being recognized for relief was actually writing checks to 
California State individuals for the challenges that they had 
undertaken through the course of the fires. So I feel very good 
about demonstrated behavior already and the planned inclusion 
of all hazards, including those that you described, sir, is 
very much a part of the Secretary's intention.
    Senator Akaka. The General Accounting Office added the 
consolidation of the Department of Homeland Security to its 
high risk list this year, partially as a result of the existing 
management challenges of entities included in the Department. 
At the same time, the Department is subject to the President's 
management agenda which includes competitive sourcing as one of 
its five components.
    My question is, given the challenges of consolidation do 
you believe that contracting out goals are appropriate for the 
Department? If so, why?
    Admiral Loy. I certainly believe that the notion that there 
are skills and competencies that have been honed to a higher 
level in the private sector compared to the Federal sector is a 
legitimate thing for us to address and sort our way through. On 
those occasions where the American public can be served better 
by outsourced functionality we should be about the business of 
doing that. That is, as you say, sir, very much a part of the 
President's management agenda which has four or five other 
aspects to it which we are equally zealous about taking on.
    So the idea of making certain as we contemplate where some 
function is accomplished for the American public and being very 
methodical about the checks necessary to make those decisions 
methodically as well is part and parcel of the review process 
that gets us the answers to those on a one-at-a-time basis. It 
is not a blanket that is going to be strewn across the whole 
array of functions of the Federal Government. But where those 
things can be done better, I believe we serve the American 
public better by outsourcing them appropriately.
    Senator Akaka. I want to thank you very much for your 
responses, and I feel that we are so fortunate to have you in 
this position. You know that the government is setting new 
milestones and seeking flexibilities in governance in light of 
challenges that we never faced before. So it is going to be 
tough going and as far as I am concerned you are the man for 
it.
    Admiral Loy. Thank you, sir.
    Senator Akaka. Thank you very much, Madam Chairman.
    Chairman Collins. Thank, you, Senator.
    Admiral I am just going to ask you one more question and 
then submit some additional questions on port security and 
other issues for the record. My final question for you has to 
do with the allocation of homeland security grant funds to 
first responders and to States and communities.
    As I mentioned, this Committee has unanimously reported 
legislation that would make changes in the funding formula, but 
we would continue to provide a stream of money to each and 
every State because every State has homeland security concerns 
and vulnerabilities. I feel strongly we need to bring every 
State up to a minimum level before we could ever discontinue 
that funding stream. I often remind people that when you think 
of the State of Maine you think what a safe State it is, but in 
fact two of the hijackers on September 11 started in Portland, 
Maine. We are a State with an extensive coastline. We are a 
border State. That is why it is important that we provide some 
funding to every State and then look at specific threats, not 
just allocate on the basis of population which may not have a 
correlation to the vulnerabilities and threats.
    Do you agree with that general approach? I am not asking 
you to endorse specific funding levels or percentages, but that 
each State should receive a certain amount of funding?
    Admiral Loy. Indeed I do. I think so, for the moment at 
least, until we can be much more sophisticated in how we would 
develop an algorithm that would take into account each and 
every State's requirements. When I got into this TSA position 
someone told me that when you have been to one airport, you 
have been to one airport. So the notion that the 450 airports 
that I would have to grapple with, each of them has a unique 
set of challenges. I believe our 50 States are like that in a 
way. When you have been to one State, you have been to one 
State.
    The point there is that I do believe until we can reach a 
more sophisticated algorithm that would take that into 
consideration our default position for the moment must be a 
threshold level of funding for all States. Then it is an 
already sophisticated notion as to how you then distribute the 
rest. In my opening comments I tried to articulate criticality 
assessments, vulnerability assessments, and then this challenge 
of truly understanding what is being threatened, by whom and 
how, and what is the risk management that you are going to use 
to deal with that.
    With respect to the balance of the distribution, I believe 
it should probably be around population density in some fashion 
because that represents a targeting value to the bad guys. We 
know that is the case. But I also believe that the inventory of 
critical infrastructure, however that is deemed in that State, 
should be part and parcel of the thinking in that algorithm. 
Then just what do we know from the intelligence going by that 
suggests that critical infrastructure, that population density 
is on the bad guys' targeting list for this year's grants as 
they go by. So criticality, vulnerability, the real sense of 
the threat, and then the judgment about how to manage the risk 
associated with that package, that becomes the means by which 
we distribute the balance of the funds.
    I think in there somewhere is both support for your notion 
at the moment and a challenge to us to think our way through a 
better algorithm, if it is out there, for the distribution in 
the future.
    Chairman Collins. I want to thank you for your testimony 
today, and I want to join Senator Akaka and my colleagues in 
thanking you for your willingness to serve in this 
extraordinarily vital post. You are taking on a huge 
responsibility and we are very grateful that you are willing to 
step forward. With your background not only in the Coast Guard 
but as head of TSA, I really cannot think of a better candidate 
for this position, so we very much appreciate your willingness 
to serve.
    It is my hope that the Committee will be able to act 
expeditiously on your nomination and that we can have the full 
Senate move to confirm you before we adjourn for the year, 
which I hope will be sooner rather that later.
    Without objection, the hearing will be kept open until 10 
a.m. tomorrow morning for the submission of any additional 
written questions or statements for the record. This hearing is 
now adjourned.
    [Whereupon at 4 p.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              

              PREPARED OPENING STATEMENT OF SENATOR DURBIN

    Madam Chairman, I am pleased that the Committee is considering the 
nomination of James M. Loy to be the Deputy Secretary of the Department 
of Homeland Security.
    Admiral Loy has devoted his entire career--spanning nearly four 
decades--in service to our country. I commend his willingness to accept 
yet another challenge.
    James Loy brings a refreshing sense of enthusiasm to the task 
ahead, along with expertise as a tested manager. The breadth and depth 
of his working knowledge of Departmental programs, as well as the 
challenges it faces, will serve him well. The American public will be 
ably served with his leadership and vision at the helm, working side-
by-side with Secretary Ridge.
    I know from our conversation last week the tremendous respect that 
Admiral Loy has for the dedicated efforts of the 170,000 Homeland 
Security Department employees who vigilantly protect our citizens, gird 
our borders and domestic infrastructure, and thwart terrorism on 
American soil. I certainly share those sentiments, and trust that, in 
assuming this new post, he will routinely engage that workforce as an 
essential partner in accomplishing the Department's mission.
    I enjoyed the opportunity to meet with Admiral Loy last week to 
discuss several issues facing Illinois communities relating to 
transportation security, specifically passenger screening delays facing 
the Central Illinois Regional Airport and Chicago Midway Airport. I 
appreciated his interest and his offer to respond to those concerns, 
and look forward to their prompt resolution.
    I wish Admiral Loy fair winds and calm seas in this new assignment, 
and pledge my support for his expeditious confirmation.
    Thank you, Madam Chairman.

                               __________

              OPENING PREPARED STATEMENT OF SENATOR INOUYE

    I am pleased to be here today to introduce Admiral James Loy, who 
has been nominated to be Deputy Secretary of the Department of Homeland 
Security. His long career in public service has prepared him well for 
this new challenge.
    Admiral Loy wore the uniform of our Nation for more than 40 years 
as a commissioned officer serving in the United States Coast Guard. 
Admiral Loy began his career at the U.S. Coast Guard Academy, where 
every cadet learns the creed, ``Who lives here reveres honor, honors 
duty.'' Admiral Loy not only learned the creed, but has also lived by 
that creed throughout his career.
    Admiral Loy's long and distinguished tenure with the Coast Guard 
culminated with four years of service as Commandant. He led the Coast 
Guard through one of the most significant periods of transformation in 
the history of that venerable service, improving its readiness for the 
operations of today, and preparing for those of the future. After years 
of less than optimal recruitment levels, he rebuilt the Coast Guard's 
workforce to authorized levels and improved retention. Then, to ensure 
that these personnel were properly supported with the finest equipment 
possible, he oversaw the initial phase of the Integrated Deepwater 
System acquisition project, a systematic modernization of U.S. Coast 
Guard ships, aircraft, and sensors. This reinvigorated Coast Guard 
stands ready to fulfill its mission of protecting our marine 
environment and those that operate within it.
    Admiral Loy's administrative experience will serve our Nation well 
in the Department of Homeland Security. As Chief of Staff to the Coast 
Guard, Admiral Loy redesigned the headquarters management structure. He 
also worked to focus the Coast Guard's planning and budgeting process 
on performance and results. His administrative skills were put to good 
use when he took over at the newly created Transportation Security 
Administration (TSA). Under his leadership, the TSA met every major 
deadline required to increase the safety and security of the American 
public traveling our Nation's airways. This expertise will be a 
valuable addition to the Department which has been working to integrate 
many different agencies to serve our homeland defense.
    I am confident Admiral Loy will continue to serve our Nation in the 
same exemplary manner he always has. I support his nomination to be 
Deputy Undersecretary of the Department of Homeland Security fully and 
without reservation.

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