[Senate Hearing 109-908]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-908
 
                   NOMINATION OF STEPHEN S. McMILLIN

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                 ON THE

 NOMINATION OF STEPHEN S. McMILLIN TO BE DEPUTY DIRECTOR OF THE OFFICE 
                        OF MANAGEMENT AND BUDGET


                               __________

                             JULY 13, 2006

                               __________

        Available via http://www.access.gpo.gov/congress/senate

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND 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
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
            Jennifer A. Hemingway, Professional Staff Member
             Michael L. Alexander, Minority Staff Director
         Adam R. Sedgewick, Minority Professional Staff Member
                  Trina Driessnack Tyrer, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Bennett..............................................     7
Prepared statements:
    Senator Lieberman............................................    11
    Senator Stevens..............................................    12

                                WITNESS
                        Thursday, July 13, 2006

Stephen S. McMillin to be Deputy Director, Office of Management 
  and Budget:
    Testimony....................................................     3
    Prepared statement...........................................    13
    Biographical and professional information....................    15
    Responses to pre-hearing questions...........................    20
    Letter from U.S. Office of Government Ethics.................    49
    Responses to post-hearing questions from Senator Collins.....    50
    Responses to post-hearing questions from Senator Lieberman...    54



                   NOMINATION OF STEPHEN S. MCMILLIN

                              ----------                              


                        THURSDAY, JULY 13, 2006

                                       U.S. Senate,
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 4:18 p.m., in 
room 342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins and Bennett.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    First, let me apologize to the nominee and those present 
today for the long delay in convening this hearing. Just as we 
were about to begin the hearing, the Senate began a series of 
roll call votes. The fourth one is underway right now and that 
is the cause of the delay. But rather than postpone the hearing 
to next week, I thought it was important that we try to 
complete it today, so my apologies to the nominee.
    Today, the Committee will consider the nomination of Steve 
McMillin to be the Deputy Director of the Office of Management 
and Budget (OMB). A key mission of the OMB is to assist the 
President in preparing the Federal budget and to oversee its 
execution by Executive Branch agencies. In carrying out this 
mission, OMB evaluates the effectiveness of the Agency 
programs, assesses competing funding demands, and sets 
priorities. The Deputy Director plays a central role in 
carrying out these missions.
    This is a demanding job at any time. It is especially 
demanding in a time of spending imperatives and revenue 
constraints. Despite the strong growth in Federal revenues this 
year, the Federal budget remains under considerable pressure. 
Some of this pressure can be attributed to the war on terrorism 
and to unprecedented natural disasters, like Hurricane Katrina. 
But even without these factors, our Nation faces an ongoing 
structural deficit that will become an increasing challenge in 
the coming years.
    While the Administration's latest estimates are that the 
Federal deficit will decline to $127 billion by the year 2011, 
total debt is expected to increase to more than $11 trillion 
that same year. As alarming as this figure is, this level of 
debt will be reached even before the retirement of much of the 
baby-boom generation, which will present our Nation with its 
most serious challenge yet in funding Social Security, 
Medicare, and other entitlement programs.
    Our Nation's economy has always shown a remarkable ability 
to absorb shocks and to overcome even the gravest of 
challenges. The growth we have seen since the attacks on our 
country on September 11 is a striking demonstration of this 
resiliency. That attack deepened the economic downturn we were 
experiencing at the time, but since the recovery began, our 
economy has added 5.3 million jobs, 2 million in the past year 
alone.
    The strong growth we are now experiencing is yet another 
sign of the fundamental health of our economy. Earlier this 
week, the Administration predicted that by the end of 2006, the 
GDP will expand by 3.5 percent, above the historical average, 
and unemployment will fall to 4.7 percent, below the historical 
average. This growth has boosted tax revenues by nearly $250 
billion above last year's levels, helping to produce a deficit 
considerably smaller than the Administration projected just 6 
months ago--good news indeed.
    While this is excellent news, our long-term forecasts 
remain clouded by the implications of the retirement of the 
baby-boom generation. We must be mindful that the slightest 
slowdown in our economic growth rate can present us with an 
even greater budget challenge than we are predicting today.
    Given all the extraordinary budget issues we face, never 
before has it been more important to have experienced, 
competent, dedicated leadership at OMB. OMB has able leaders in 
Rob Portman and Clay Johnson. It is important that this Deputy 
Director position is filled with a similarly strong candidate.
    Our nominee, I am pleased to say, appears to have the 
experience and qualifications to be an effective deputy. Since 
November 2005, Steve McMillin has served as the Deputy 
Assistant to the President and Advisor to the Chief of Staff. 
Before joining the White House, he served as Associate Director 
for General Government Programs for OMB. Prior to joining the 
Administration, Mr. McMillin served on the staff of the Senate 
Committee on Banking, Housing, and Urban Affairs for 3 years 
and on the staff of Senator Phil Gramm for 9 years.
    I should add that Senator Gramm called me personally to 
indicate his support for this nominee, describing him as 
``brilliant and principled,'' high praise, indeed.
    I welcome Mr. McMillin to the Committee, and I look forward 
to his testimony and answers to the questions today.
    I know that Senator Hutchison hoped to be here to introduce 
the nominee. Because of the unexpected votes this afternoon, 
she is unable to join us at this time, but her endorsement does 
carry great weight with the Committee.
    Mr. McMillin has filed the responses to a biographical and 
financial questionnaire, answered pre-hearing 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 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.
    Our Committee rules require that all witnesses at 
nomination hearings give their testimony under oath, so Mr. 
McMillin, if you will please stand and raise your right hand so 
I can administer the oath. Do you swear that the testimony you 
are about to give will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. McMillin. I do.
    Chairman Collins. Please be seated.
    Mr. McMillin, it looks to me as if you have family members 
present, and I would invite you to introduce them to the 
Committee at this time.

  TESTIMONY OF STEPHEN S. McMILLIN,\1\ TO BE DEPUTY DIRECTOR, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. McMillin. Thank you, Madam Chairman. First, my wife, 
Dawn McMillin.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. McMillin appears in the Appendix 
on page 13.
---------------------------------------------------------------------------
    Chairman Collins. Hello.
    Mr. McMillin. And then our two sons, Spencer and Christian.
    Chairman Collins. We want to particularly thank the boys 
for their patience. I am sure it was hard waiting almost 2 
hours to see your father, but this is a very important position 
that the President has selected him for, so that is a pretty 
big deal, and we are glad to have you here. We welcome your 
wife, as well.
    Mr. McMillin. We made quite a few paper airplanes 
downstairs. [Laughter.]
    Chairman Collins. Mr. McMillin, I would invite you to 
proceed with your statement.
    Mr. McMillin. Thank you, Madam Chairman, and thank you for 
recognizing my family. Obviously, those of us in public service 
couldn't do the things we do without their help, love, and 
support. I am forever in their debt for all they have done for 
me in the past and all they will do for me during my time at 
OMB.
    I am also grateful that Senator Hutchison was willing to 
come and introduce me before the Committee. Unfortunately, she 
couldn't make it, but I spent enough time here in the Senate to 
know that predicting votes and keeping a schedule in the 
afternoon is sometimes a bit of a challenge, but I thank you 
for pressing ahead with the hearing nevertheless.
    Chairman Collins, I want to thank you, Senator Lieberman, 
who also could not attend, and the Members of the Committee for 
the opportunity to appear today. If I am confirmed as Deputy 
Director of OMB, I will be assisting Director Portman in 
dealing with many challenging issues facing the Administration 
and the Congress. OMB has a unique role in American Government, 
with responsibilities that cover a broad range of policy, 
fiscal, and management issues. OMB's most visible role is the 
preparation of the President's annual budget request, but 
throughout the year, OMB supports the President and his 
Administration in a variety of ways. If confirmed, I will work 
closely with Members of Congress and this Committee from both 
parties to ensure that we are addressing the tough issues on 
behalf of the American people and to ensure that their tax 
dollars are spent wisely.
    As you are aware, Madam Chairman, I began my government 
service here in the Senate many years ago, serving as an aide 
to Senator Phil Gramm and to the Senate Banking Committee. In 
my nearly 12 years of service, I developed a deep love and 
respect for the history, traditions, and principles embodied in 
this great institution. In the Senate, everyone's opinion 
counts. Everyone has a right to be heard, sometimes to be heard 
at great length. And everyone has a right to put forward their 
ideas and have them considered by their colleagues. This is a 
reflection of the fact that no one person, Administration, 
Committee, or party has a monopoly on wisdom or good ideas, and 
it is through dialogue and working together that truly great 
achievements are often possible.
    I know this Committee is particularly concerned with many 
of the management issues faced by OMB. In my view, good 
management and responsible budgeting are inseparable. When I 
first joined OMB in late 2001 as an Associate Director, I was 
struck by the strong concern and emphasis placed on management 
issues throughout the Administration. If confirmed, I look 
forward to working with the Members of this Committee to ensure 
continued progress on the President's management agenda and the 
execution of OMB's important management responsibilities.
    Madam Chairman, you made reference to the new figures 
released earlier this week through the mid-session review, some 
of the strong economic performance we have seen lately. I won't 
repeat all of those facts. I will observe, as you have, that to 
make continued progress on this deficit, we need to continue 
the policies that helped create the strong economic performance 
and we need to continue our combined efforts to restrain 
spending. Working together, Congress and the President have 
reduced the growth of non-discretionary spending every year the 
President has been in office, and last year, Congress passed 
bills that actually cut this type of spending. And earlier this 
year, Congress passed the first spending reconciliation bill in 
nearly a decade.
    In the near term, budget process reforms and tools like the 
line-item veto can help us control spending growth, eliminate 
wasteful spending items, and improve accountability. I am 
encouraged that the House has already passed the line-item veto 
with a strong bipartisan vote, and that the Senate is actively 
engaged in considering budget process reform, including the 
line-item veto.
    In the long term, as you mentioned, our major entitlement 
programs are projected to grow faster than inflation, faster 
than GDP, and faster than our economy's ability to sustain 
them. Millions of our citizens rely on these important 
programs, and we have a responsibility to preserve them for 
future generations. To do so will require sound and innovative 
reforms, and if confirmed, I would welcome your input, that of 
your colleagues, and your advice on how we can best achieve 
them.
    Again, I appreciate the Committee's consideration of my 
nomination. I look forward to answering any questions you may 
have.
    Chairman Collins. Thank you for your statement.
    I am going to begin my questioning this afternoon with 
three standard questions that we ask 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 
for which you have been nominated?
    Mr. McMillin. Madam Chairman, as I earlier informed the 
Committee in writing, due to my wife's employment with American 
Airlines, if confirmed, I would recuse myself as appropriate 
from matters dealing with American. Other than that, there are 
no such issues.
    Chairman Collins. Thank you. Second, do you know of 
anything, personal or otherwise, that would in any way prevent 
you from fully and honorably discharging the responsibilities 
of this office?
    Mr. McMillin. No.
    Chairman Collins. 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. McMillin. Yes.
    Chairman Collins. I would now like to turn to some policy 
issues. I have had the opportunity to meet with you previously. 
I will try not to duplicate all of those questions.
    I want to talk to you this afternoon about the role that 
OMB could play to help cut down on the incidence of waste, 
fraud, and abuse in the Federal Government. This Committee has 
held many oversight hearings that have documented hundreds of 
millions of dollars--in the case of Hurricane Katrina, over $2 
billion in wasted funds, whether the waste was due to outright 
fraud or whether it was poor contracting decisions that caused 
the taxpayers to pay more than they should for goods and 
services.
    What do you see as OMB's role in helping to curb the 
wasteful spending of taxpayer dollars?
    Mr. McMillin. Madam Chairman, I believe one of OMB's most 
critical functions is to be the watchdog of the Federal 
Government on those types of questions. I believe that one of 
the best things OMB can do in leading efforts to deal with 
waste, fraud, and abuse is to ensure that government-wide, we 
improve the quality and capability of the financial control 
systems we have at our agencies. Many times, and I think 
Hurricane Katrina is an excellent example, the relative lack of 
sophistication of those systems has made it difficult for CFOs 
and those responsible in the agencies to get a good feel for 
where the dollars are going and whether they are being 
obligated in an appropriate fashion until it is too late.
    Second, the Deputy Director of Management plays a critical 
role as the head of the IG community across the agencies. It is 
very easy, I have learned, in the Executive Branch to come to a 
view that an IG perhaps is not part of the team--someone who is 
perhaps antagonistic to the agency.
    I think it is a mistake to fall into that kind of trap. If 
you are going to have an independent IG community, clearly, 
they are going to need to be able to speak their minds freely 
on occasion, criticize the leadership of our agencies. We need 
to recognize that they have important duties to perform. They 
have a perspective and expertise that the folks charged with 
running the programs themselves don't have. I have seen a 
number of examples in various agencies where the IG has been 
seen as a resource who can help the agency perform better, not 
just in terms of financial management and dealing with waste, 
fraud, and abuse, but also in exploring the effectiveness of 
programs and making sure that they can achieve better results 
on behalf of the American people.
    Chairman Collins. What do you see as the relationship 
between the Deputy Director and the Deputy Director for 
Management? Do you see your role as being exclusively on the 
budget side of OMB or also as having responsibility for some of 
the management of the Executive Branch--management policies, I 
should say?
    Mr. McMillin. I view the role of the Deputy Director as a 
true deputy for the entire agency. That means that, if 
confirmed, I would need to be attuned to not just the budget 
and policy-related issues, but also the entire scope of OMB's 
management responsibilities and how those are integrated with 
the budget and policy side. Obviously, the Congress in creating 
the Deputy Director for Management position wanted to have a 
senior person dedicated to those questions full time, and 
certainly Clay Johnson is a very effective and capable Deputy 
Director for Management, and like any manager in any 
organization, I think Director Portman and I, if confirmed, 
will continue to look to Mr. Johnson to provide the leadership 
in that area, but certainly not to simply cede responsibility 
or just leave him off unattended to the side. The issues that 
Clay is responsible for are very much the responsibility of the 
Deputy Director and the Director, as well.
    Chairman Collins. Every 2 years, the Government 
Accountability Office issues a list of programs or systems in 
the Federal Government that it views as being at high risk. By 
high risk, the GAO means that these programs or systems are 
either at high risk of failing or they are excessively 
vulnerable to waste, fraud, and abuse. Some of the systems, and 
programs have been on the list for a decade. What do you think 
OMB's role ought to be when it comes to improving the 
performance and reducing the vulnerability of programs or 
systems on the high-risk list?
    Mr. McMillin. I think there is an opportunity for OMB to 
form a partnership of sorts with the GAO on addressing programs 
on the high-risk list. GAO is another good example of an agency 
with a very important job to do, where it is important that we 
not view criticism as antagonism, but rather an opportunity to 
understand the challenges we face in some of these difficult 
programs and find some new ideas for solutions.
    I personally would hate to see an Executive Branch that was 
so timid that we didn't take on a few high-risk projects from 
time to time. It is certainly helpful to ensure that both GAO 
and OMB provide a heightened level of focus on the 
implementation of those programs and systems and it requires 
the input of a variety of things that OMB can bring to the 
table. In some cases, that means using the statutory management 
offices as a resource to share best practices with some of the 
agencies that are working on these systems. In some cases, it 
means the budget side of the House has got to enforce some 
discipline when the planning or execution of a program is not 
proceeding as it should be.
    One of the worst things we can do, having identified a 
high-risk program, is to basically continue pouring money into 
it, hoping that will solve the problems when we may or may not 
have the right plans and management oversight in place to make 
sure that they are a success.
    Chairman Collins. I would really encourage you to tackle 
that list. It is unacceptable to have programs and systems 
listed year after year on the high-risk list, to have GAO point 
to these programs as being at risk of failure or excessively 
vulnerable to waste, fraud, and abuse, and yet no one does 
anything to improve the management of these programs. I think 
that is a really obvious list to start with. This Committee has 
held hearings on some of the programs to try to get the 
attention of agency leadership. But I really believe OMB could 
play a critical role in helping us to get programs off the 
high-risk list due to improved management.
    Mr. McMillin. That is excellent advice.
    Chairman Collins. Senator Bennett.

              OPENING STATEMENT OF SENATOR BENNETT

    Senator Bennett. Thank you very much, Madam Chairman. I 
thought we would have a bigger attendance after the vote. I 
came down before the vote and found out it was postponed.
    I am old enough, Mr. McMillin, to remember when it was the 
Bureau of the Budget, and it was during the Nixon 
Administration that it got renamed the Office of Management and 
Budget, but the ``M'' has been honored in the breach and the 
``B'' has continued to dominate. The change of name hasn't 
changed the function nearly as much as perhaps it should.
    I simply add my voice to that of the Chairman to say the 
more attention we can pay to the management side, the ``M'' in 
OMB, and make that name change a reality--now I am overstating 
the case, but we always do that in Congress. We are in the 
business of overstating. I do recognize that there are a lot of 
good things that have gone on on the management side, but I 
think the Chairman's emphasis on focusing on management and not 
just the creation of a budget is very well placed. I would 
encourage you in your position to do what you can to look at 
the management challenges.
    I have been a supporter of the idea that we have a 2-year 
budget, which would mean you would have more time. It would 
probably mean we would have a few more supplementals, but it 
would presumably mean you would have more time in a 2-year 
congressional cycle to focus on some of these management issues 
rather than being constantly consumed with having to put 
together next year's budget.
    I congratulate you on your willingness to serve. These are 
not glamorous kinds of positions, but they are absolutely vital 
to the function of government, and we are grateful to you for 
your willingness to accept this assignment.
    Mr. McMillin. Thank you, Senator.
    Senator Bennett. Thank you.
    Chairman Collins. Thank you, Senator.
    As Senator Bennett was talking, I was thinking about how we 
often are penny-wise and pound-foolish in our approach to the 
budget. There are programs that would benefit from a greater 
up-front investment that would end up saving you a great deal 
of money in the long run. I want to give you three examples.
    One we discussed during your courtesy call and that is the 
Low-Income Heating Assistance Program, known as LIHEAP. If we 
were to fund this program so that the money were available in 
the Northeast in the summer months, you would be able to 
stretch the dollars further because the price of home heating 
oil is less in the summer months than at the height of the 
winter. Yet this funding is usually not released until there is 
an emergency situation at the height of the winter when prices 
are the highest.
    The second example is the Deepwater program, an ambitious 
and much-needed recapitalization of the Coast Guard's assets. 
The Coast Guard has one of the oldest fleets in the world. Its 
cutters are aging. Its helicopters and planes are frequently 
down for maintenance. There is a commitment by the 
Administration to rebuild its assets, but it is a commitment 
that the Administration has proposed lengthening over a 20-year 
period. I have had studies done that indicate that if you were 
to recapitalize the Coast Guard over a 10-year period instead, 
not only would you give the Coast Guard the assets it 
desperately needs much sooner, but you would also literally 
save billions of dollars.
    The third example is in naval shipbuilding. In this case, 
we have uneconomical production rates. You see this with other 
defense systems, as well. There isn't a question of not needing 
more ships, but for budget reasons, funding plans are stretched 
out, and as a result, we are underfunding shipbuilding. The end 
result is that the shipbuilding yards cannot plan their work 
effectively--and the Federal Government ends up paying far more 
per ship than it would if we had a more economical production 
line.
    What can we do to encourage a more long-term view to 
budgeting, realizing that in some cases, an investment up front 
can save you literally billions of dollars later?
    Mr. McMillin. Well, Madam Chairman, it often strikes me 
that as we are budgeting, especially in the discretionary side 
of the account, there often is a tendency to basically look at 
last year's level and do percentage adjustments to it. As you 
extend that sort of mathematical parsing of one big top-line 
allocation down into individual programs and accounts, it often 
can be hard for managers of a relatively small program to see 
how significant capital investments are possible, much less 
advisable, when they look at some of their near-term 
operational requirements.
    I think it is up to folks like OMB and the senior levels of 
agencies--you look at DOD in particular with an annual base 
budget of well over $400 billion now--and it should be possible 
as we are doing our long-term planning in the defense area and 
some other areas, as well, to be able to step back and say that 
this particular capital investment is in the Nation's interest. 
It is appropriate for us to deviate from the everybody gets 3 
percent, everybody gets 1 percent type of approach that I 
believe budgeting can sometimes slip into. So identifying those 
opportunities up front, ensuring consistent top-level focus 
throughout OMB, and then working with the senior levels at the 
agencies, I think that is probably our best opportunity to 
prioritize those types of investments.
    Chairman Collins. You talked in your opening statement 
about the need for a line-item veto to give the President 
additional tools to control spending. Some of us are concerned 
about altering the balance of power, if you will, between the 
Executive and the Legislative Branches. What is your response 
to that concern?
    Mr. McMillin. Well, Senator, the version of the line-item 
veto proposed by the President and under consideration in the 
Congress now is significantly different from the one given to 
President Clinton back in the 1990s. That version exercised by 
President Clinton did not require any further review by the 
Legislative Branch. It was simply a unilateral act by the 
Executive Branch.
    In this case, the line-item veto we are talking about would 
allow the President to send up a series of rescission 
proposals, which the Congress would consider under expedited 
procedures. While there is some diminution of the right of any 
individual member to amend, delay, or block that particular 
legislation, it is not a unique situation. There are a variety 
of situations, whether the Congressional Review Act or Trade 
Promotion Authority, things of that nature, where Congress has 
chosen to enact expedited procedures for the consideration of 
important matters. And so in this case, there is an opportunity 
for Congress to speak after the President has made a proposal 
and I think it represents an appropriate respect for Congress' 
prerogatives.
    Chairman Collins. Senator Bennett.
    Senator Bennett. Thank you, Madam Chairman.
    I supported the line-item veto that we gave to President 
Clinton, and he disillusioned me really fast. When I saw how it 
was used, I stood up on the floor of the Senate and said, ``I 
hereby withdraw my support.'' I was delighted when the Supreme 
Court struck it down. So I am willing to look at the details of 
this. I won't say automatically no, but I remember the 
statement of Pat Moynihan, who probably served more Presidents 
than any Member of the Senate in history, starting with John F. 
Kennedy, Lyndon Johnson and Richard Nixon, Gerald Ford, and 
then he came to the Senate. He said if Lyndon Johnson had had 
the line-item veto, he would have been an emperor, and we don't 
want to run that risk.
    I will look at the details of what you are presenting, but 
I think it is appropriate that you raise that, Madam Chairman.
    Chairman Collins. Thank you, Senator.
    Mr. McMillin, your family has had to wait a very long time 
today so I am going to ask you just one more question so that 
they can get home before it gets too late, and then I will be 
submitting the remainder of my questions for you to answer for 
the record.
    We have talked about the line-item veto as being a budget 
tool. Another budget tool that Congress had at one point was 
what is known as PAYGO rules, the pay-as-you-go rules. Those 
are budget enforcement policies. I know you are familiar with 
them from your time in the Senate. I also asked you a pre-
hearing question about this.
    With respect to the application of PAYGO rules, I have 
consistently supported rules that would apply equally to new 
tax cuts and to new entitlement spending. The Administration, 
however, has a different view and contends that PAYGO rules 
should not apply to the tax side of the ledger. In your answers 
to the questions submitted to you prior to the hearing, you 
indicated agreement with the Administration's position.
    If we are truly serious about regaining control of the 
budget, why wouldn't we want to apply PAYGO rules to both sides 
of the ledger, both the spending and the revenue side?
    Mr. McMillin. Well, Madam Chairman, as I understand the 
facts that informed the Administration's position on this, we 
are in a situation where revenues are now and are projected to 
be going forward at approximately the historical level as a 
share of GDP, a little over 18 percent. As we look at the long-
term projections going forward, we see that spending, in 
particular driven by entitlement growth, is projected to grow 
substantially as a share of the economy. In that sense, I think 
it is appropriate perhaps to apply further scrutiny on the 
spending side, but I agree with you, we should not ignore the 
revenue side of the equation.
    In my opinion, Section 311 of the Budget Act provides the 
Congress a good opportunity for exercising that kind of 
discipline. In the budget resolution, the Congress, a majority 
of the House and the Senate, can agree upon an aggregate level 
of revenues that legislation should not cause the Federal 
Government to go below. That decision can be made in the 
context of an overall budget so that we can decide what type of 
revenues we need consistent with our fiscal goals. Then as 
individual legislation is proposed, Section 311 imposes that 
super-majority hurdle on proposals that would take our revenue 
below that level.
    So there is certainly a need for discipline on both sides 
of the equation. I think some of the reluctance on PAYGO also 
derives from the baseline rules, which in some cases treat 
taxes in particular, the 2001-2003 tax cuts that the President 
proposed and the Congress enacted, the baseline treats those a 
little bit differently than they do some spending programs. 
Many spending programs are assumed in the baseline to go on 
forever even if that is not current law. So then the question 
becomes in enforcing a PAYGO requirement, proposals need to be 
offset compared to what? So that is the basis of my view there.
    Chairman Collins. Thank you. I want to thank you for 
appearing before the Committee today and for your patience and 
that of your family. I will be submitting additional questions 
for the record. I don't think that the absence of my colleagues 
indicates a lack of interest in your nomination but rather many 
competing demands this afternoon. I do expect that we may have 
some other questions submitted for the record. Without 
objection, the record will be kept open until 5 p.m. tomorrow 
for the submission of any written questions or statements for 
the record.
    Again, Mr. McMillin, I want to thank you for being here 
today, for your willingness to serve. It does require a great 
sacrifice on the part of your family, so I want to thank them, 
as well.
    This hearing is now adjourned.
    [Whereupon, at 4:57 p.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR LIEBERMAN

    Thank you, Madam Chairman, and welcome, Mr. McMillin. I 
congratulate you on your nomination as Deputy Director of the Office of 
Management and Budget.
    Your previous experience at OMB as Associate Director for General 
Government Programs from 2001 to 2005 should help prepare you for your 
new post.
    Before his confirmation as head of OMB, your new boss Rob Portman 
promised ``to work closely with Congress on a bipartisan basis'' as we 
try to get our exploding Federal deficit under control.
    As Deputy Director of OMB, I would hold you to the same promise.
    President Bush has said: ``A budget is more than a collection of 
numbers. A budget is a reflection of a Nation's priorities, its needs 
and its promise.''
    I agree, but would add: A budget must also be about delivering on 
those priorities . . . those needs . . . those promises, or else it 
really is just a collection of numbers without meaning or mission.
    Your job will be to assist Director Portman in helping the 
President prepare the budget and execute it across 14 cabinet agencies 
and more than 100 executive agencies, boards, and commissions.
    You will be part of the team that recommends where every dollar of 
our budget is spent, how each agency's programs are managed, and that 
oversees the review of vital rules for public health and safety, worker 
safety, and environmental protection.
    I have concerns about how these responsibilities have been carried 
out for the last 5 years.
    Let's start with the budget. If we are going to get our fiscal 
house in order, everything has to be on the table, not just entitlement 
programs and discretionary spending, but our tax policies as well.
    We recently passed a $70 billion tax package that showers tax 
breaks on the Nation's wealthiest, who don't need the help, the oil 
industry, which is enjoying record profits, and increases the already 
enormous national debt, placing a hidden tax on our children and 
grandchildren.
    This also leads to a lack of resources to adequately fund vital 
programs most of us agree are essential to our Nation's priorities, 
needs, and promise.
    For example, I supported No Child Left Behind because I want to 
ensure a high-quality education for all of our students, regardless of 
income. I believed it was important to try new ideas. But these ideas 
demanded additional resources.
    We have not delivered those resources. Under the President's 
budget, the NCLB shortfall will be $15.4 billion next year. As a 
result, the Title I budgets of most school districts across the country 
will be frozen or cut.
    In Connecticut, 122 out of 166 school districts will see Title I 
cuts this year. That is wrong.
    I fear we are about to repeat the underfunding mistake of No Child 
Left Behind with the President's recently announced ``National Strategy 
for Pandemic Influenza Implementation Plan.'' That plan relies heavily 
on States and localities to carry the burden. But experts tell me these 
State and local programs are significantly underfunded.
    Second, Homeland Security also needs more help. Yet, whenever I 
challenged the Administration's budget for homeland security, officials 
countered by citing how much spending has grown in recent years.
    Of course it has grown! We were caught unprepared on September 11, 
2001. The question is not whether we are spending more, but whether we 
are spending enough to meet the government's fundamental obligation to 
protect its citizens.
    Too often, the answer is no. We are shortchanging port security, 
interoperable communications, bioterror preparedness, and more.
    And as we have learned all too painfully with Hurricane Katrina, we 
are shortchanging preparedness for catastrophic natural disasters, as 
well as terrorist attacks.
    Finally, on an important matter of budget process, we are now more 
than 3 years into the wars in Iraq and Afghanistan.
    There is no good reason why the costs of these engagements are 
still being handled in separate supplemental budget requests.
    This approach harms us in two ways.
    First, it hides the true costs of our defense by putting a large 
part of the costs off budget. That reduces the scrutiny and discipline 
our defense budgeting needs and adds to the bill our children must pay.
    Second, it also encourages our military to put core programs into 
the supplemental. When--not if--the supplementals come to an end, those 
programs will be unsustainable.
    I do not agree that the costs of Iraq and Afghanistan are 
unknowable and that we can't budget for them.
    I do agree that a budget is a statement of our priorities, needs, 
and promises. But without proper funding in the beginning--and good 
execution afterward--it is just numbers with no meaning or mission.
    And that means it fails the American people.
    Thank you, Madam Chairman.
                               __________

                 PREPARED STATEMENT OF SENATOR STEVENS

    Mr. McMillin, in FY 2003 and FY 2005, Congress--at my request--
appropriated a total of $5 million to the Tribal Partnership Program. 
It was our intention that this funding would go to the Alaska Village 
Erosion Tribal Partnership. This partnership was set up to assist the 
U.S. Army Corps of Engineers in prioritizing the needs of 184 Alaska 
villages that have been severely damaged by coastal erosion. This joint 
effort--which is known as the erosion baseline study--is an essential 
part of our efforts to address the erosion crisis in our Alaska 
villages.
    In June, I learned that the Corps of Engineers had reprogrammed 
$2.168 million of this funding to projects outside of the Alaska 
District. I sent a letter to Secretary Woodley, Assistant Secretary for 
Public Works at the U.S. Department of the Army. I told Secretary 
Woodley that I believe it is improper for the Corps to take funding 
away from this vital project. I also told him it is unacceptable to 
continually expect me to restore funding to address this urgent 
situation. Reprogramming is an important tool which the Corps can use 
to move projects forward. However, in this case, their decision to 
reprogram has had the opposite effect--it has ground the erosion 
baseline study of our villages to a halt.
    One hundred eighty four of our State's villages have been seriously 
impacted by coastal erosion and flooding. Four villages are in imminent 
danger and must relocate. The Corps and the Administration are well 
aware of this dire situation. Yet, the President's budget this year did 
not include any funding to address coastal erosion in our State.
    The coastal erosion crisis in our villages warrants support from 
OMB. The citizens of rural Alaska deserve the same attention and 
concern as those impacted by Hurricanes Katrina and Rita. When entire 
communities are forced to relocate due to erosion, it should be a 
funding priority.
    I intend to oppose this nomination as a protest against OMB. OMB 
must recognize the plight of our villages, which have been severely 
damaged by storms and some of which have been declared national 
disaster areas by the President. It is my hope that by opposing this 
nomination, OMB will finally take the erosion crisis in our villages 
seriously and provide the funding needed.
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