    [Senate Hearing 110-620]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 110-620

                       NOMINATION OF HON. JAMES A. NUSSLE

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                   HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                     ON THE

    NOMINATION OF HON. JAMES A. NUSSLE TO BE DIRECTOR, OFFICE OF MANAGEMENT
                                   AND BUDGET

                                   __________

                                 JULY 24, 2007

                                   __________

            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

                   JOSEPH I. LIEBERMAN, Connecticut, Chairman
    CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
    DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
    THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
    MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
    MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
    BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
    CLAIRE MCCASKILL, Missouri           JOHN WARNER, Virginia
    JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                      Michael L. Alexander, Staff Director
                       Lawrence B. Novey, Senior Counsel
                      Kristine V. Lam, Research Assistant
         Brandon L. Milhorn, Minority Staff Director and Chief Counsel
            Amy L. Hall, Minority Director for Governmental Affairs
                       Jennifer L. Tarr, Minority Counsel
                      Trina Driessnack Tyrer, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Lieberman............................................     1
        Senator Collins..............................................     3
        Senator Levin................................................    15
        Senator Warner...............................................    17
        Senator Carper...............................................    19
        Senator Sununu...............................................    22
        Senator Tester...............................................    25
        Senator Voinovich............................................    28
        Senator Akaka................................................    31
        Senator Coleman..............................................    33
        Senator McCaskill............................................    35
    Prepared statement:
        Senator Obama................................................    43

                                   WITNESSES
                             Tuesday, July 24, 2007

    Hon. Chuck Grassley, a U.S. Senator from the State of Iowa.......     4
    Hon. Tom Harkin, a U.S. Senator from the State of Iowa...........     6
    Hon. James A. Nussle to be Director, Office of Management and
      Budget:
        Testimony....................................................     8
        Prepared statement...........................................    44
        Letter from U.S. Office of Government Ethics.................    46
        Biographical and professional information....................    47
        Responses to pre-hearing questions...........................    54
        Responses to post-hearing questions..........................   107

                       NOMINATION OF HON. JAMES A. NUSSLE

                                  ----------

                             TUESDAY, JULY 24, 2007

                                         U.S. Senate,
                               Committee on Homeland Security
                                      and Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:01 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Joseph I.
    Lieberman, Chairman of the Committee, presiding.
        Present: Senators Lieberman, Levin, Akaka, Carper,
    McCaskill, Tester, Collins, Voinovich, Coleman, Warner, and
    Sununu.

                OPENING STATEMENT OF CHAIRMAN LIEBERMAN

        Chairman Lieberman. Good morning, and welcome to the
    hearing. Today we are going to consider the nomination of the
    Hon. James Nussle to be Director of the Office of Management
    and Budget.
        The Senate will apparently have two or perhaps three roll
    call votes at around 10:30 a.m., so I hope that we can get
    through the opening statements by Senator Collins and me, and
    then perhaps go to the introductions and your opening
    statement, and then recess when the votes occur.
        But we welcome you here, Congressman Nussle. Your
    nomination comes at a moment of particular budgetary peril for
    the Administration and for Congress. In less than 3 months, we
    must enact 12 appropriations bills to fund the vital functions
    of the Federal Government for the fiscal year beginning October
    1, 2007, that would enable the government to continue to do
    everything from providing for the common defense to educating
    our children, from securing the homeland to providing health
    care for those who cannot themselves afford it, and from taking
    care of our veterans to enabling the agencies responsible, for
    instance, for food safety to do their protective work.
        In other words, these are actions of government that the
    American people depend on, and they are enabled, they only
    happen if we pass these appropriations bills. So we have a lot
    of work to do for our country in a short time, and it can only
    be done if we work together.
        That is why I am troubled by some of the budgetary rhetoric
    emanating at this moment from the White House. It is not
    surprising, obviously, that the President believes in the
    budget he submitted to Congress. That is his responsibility
    and, of course, his right. But I think to threaten vetoes at
    this point of any appropriations bills that in any way exceed
    the Administration's top line does not in the first instance
    respect the responsibility and right of Congress to reach its
    own budgetary conclusions. It also, I fear, sets us up for
    another round of political posturing and mudslinging that could
    shut down parts of our government and definitely will further
    push down the rapidly plummeting opinion the American people
    have of all of us who were sent to Washington to work for them.
        And what will this fight be over? The difference between
    the $933 billion discretionary spending level recommended by
    the President for fiscal year 2008 and the $953 billion top-
    line recommendation for discretionary spending set in the
    budget resolution that passed both Houses of Congress. That is
    a $20 billion difference--equal to 2 percent of the
    discretionary spending of the Federal Government for next year,
    and a small fraction of 1 percent of the overall $2.9 trillion
    spending that the Federal Government will do next year.
        It is not to say that $20 billion is not a real difference.
    It is. But it is, in my opinion, one that is not so great in
    either size or substance that it should imperil the operations
    of our government for the fiscal year that will begin on
    October 1.
        I grew up in Connecticut and was greatly influenced by
    then-Governor of Connecticut Abraham A. Ribicoff, who became a
    Senator, in fact, became Chairman of this Committee for a
    period of time. He was a real mentor, and I remember in his
    first term as Governor--I was very young and not following it
    at the time. This I know from history, of course. He was a
    Democrat, and he had a legislature controlled by Republicans.
    And he gave a famous State of the State speech in which he
    described what he called ``the integrity of compromise,'' that
    there are differences of opinion that are sincerely taken, but
    we can never get to a point where we think that compromise--not
    compromise of real principle, but compromise of the positions
    we start with to find common ground--somehow lacks integrity.
    In fact, it is the very essence of government.
        If you will allow me a brief additional moment of
    parochialism, the founding generation of Americans, as we all
    know, had a major disagreement about how to constitute the
    Congress and how to reflect the balance between States of large
    population and small population. This was resolved by what is
    known and has been known ever since as the ``Connecticut
    Compromise'' because two of the Connecticut delegates to the
    Constitutional Convention, Sherman and Ellsworth, which created
    the Senate--which still obviously exists to this day--with two
    Senators from every State regardless of the population and a
    House which reflects population.
        So compromise was honored at the outset of our government
    and has sustained it since, and I think that spirit is what we
    need in the months ahead immediately. You are stepping right
    into a tough situation. You fortunately come to it with very
    broad experience, generally in government but also particularly
    in budgetary matters, having served as chairman of the House
    Budget Committee from 2001 to 2006 and on the House Ways and
    Means Committee for several years.
        The challenges that confront the next Director of OMB, I
    think, will require not only technical and fiscal experience
    and expertise, which you have, but they will also require you
    to use some skills that I know from those who served with you
    that you also showed you had in Congress, which is to serve as
    a bridge builder, a credible intermediary, that obviously you
    have a responsibility to represent the Administration that has
    asked you to take on this significant responsibility, but to do
    so in a way that helps take all of us above political conflict
    to find common ground, to forge the kinds of compromises,
    honorable compromises, that will make our Federal Government
    work better for our country and our people. It is in that
    spirit of respect and challenge that I welcome you here today
    and thank you for your willingness to take on this
    responsibility.
        Senator Collins.

                  OPENING STATEMENT OF SENATOR COLLINS

        Senator Collins. Thank you, Mr. Chairman.
        Mr. Chairman, your discussion of the Connecticut Compromise
    brings to mind another famous historical compromise in 1820,
    the Missouri-Maine Compromise, which brought in Missouri as a
    slave State, and Maine, of course, as a free State. But in the
    interest of time, that will be the end of my digression on
    American history and famous compromises throughout the ages.
    [Laughter.]
        I am pleased to welcome Representative Nussle to the
    Committee. His congressional service, particularly as chairman
    of the House Budget Committee, has given him a solid
    understanding of the budget, the legislative process, and, I
    hope, the importance of good relations between the Executive
    Branch and Congress.
        Close cooperation, as the Chairman indicated, will be
    essential as we address the enormous budget deficit and as we
    confront the looming structural deficit born of baby-boom
    demographics and unfunded entitlement obligations. Finding a
    mix of fiscal policies that will honor commitments and meet
    vital needs without throttling economic growth will be a huge
    challenge.
        Following PAYGO rule discipline for entitlement spending
    increases and for additional tax cuts will create a powerful
    tool for budget restraint, yet in my view it is unfortunate
    that the President opposes this tool. This is a subject that I
    intend to explore with Representative Nussle today.
        As recognized in the President's Management Agenda in 2001,
    another tool for meeting the challenge is to improve the
    management and performance of the Federal Government. The
    Management Scorecard for each Federal agency indicates that,
    for most agencies, the weak spot is financial management. Poor
    financial management translates into billions of dollars lost
    to wasteful practices, excessive sole-source contracting, and
    outright fraud.
        In particular, I would welcome the nominee's thoughts on
    how we can best improve Federal contracting procedures. Four
    colleagues--the Chairman, Senators Carper, Coleman, and
    McCaskill--are cosponsors of the Accountability in Government
    Contracting Act that I introduced earlier this year to increase
    competition and transparency in the contracting process and to
    promote a better trained acquisition workforce.
        We must also take care that fiscally driven management
    initiatives do not undermine government's fundamental
    obligation to protect the American people. Reductions in
    homeland security grants to State and local governments, as
    well as the President's proposed cuts in port security and
    infrastructure protection funding, are troubling trends.
        I look forward to hearing the nominee's views of what he
    sees as the top management challenges, what might improve
    agencies' financial management scores, and, most of all, what
    can be done to achieve the political consensus necessary to
    tackle the fiscal imbalance in the Federal budget.
        Thank you, Mr. Chairman.
        Chairman Liberman. Thank you, Senator Collins.
        The Committee is honored to have with us Senators Grassley
    and Harkin to introduce Congressman Nussle. Senator Grassley,
    we welcome you and look forward to your statement now.

    TESTIMONY OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE
                                OF IOWA

        Senator Grassley. Thank you, and I would appreciate both my
    off-the-cuff remarks as well as my statement be printed in the
    record.
        Chairman Lieberman. Without objection, so ordered.
        Senator Grassley. Thank you. Thanks to both you and Senator
    Collins for your leadership here in entertaining this
    nomination, and I notice you are very ecumenical on this
    Committee how you sit Republicans among Democrats. The public
    would be shocked if they saw that.
        This is a very important nomination, and I am sure I am
    going to say some things that will embarrass Congressman
    Nussle, but I think they are important so you know of our
    relationship. When I was running for the Senate the first time,
    he was a student at Luther College, and he drove me around in
    his old Ford to help me get elected, so I feel some obligation
    to him for his early support of my candidacy.
        Second, I have five children, and they all hated politics
    because I spent so much time at it. So I always thought, well,
    it would be nice to have somebody like me in the U.S. Senate.
    So when he ran for the Congress, I backed him, and I considered
    him kind of a little Grassley. And I made that point very clear
    when I was at breakfasts for him in what was then the 3rd
    District of Iowa. But I think he has grown to be a very
    qualified public servant, and I am proud that I worked for him,
    as I hope he is proud that he worked for me that first time.
        He has come to Washington, then, following some of those
    principles he campaigned on--to be a wise steward of taxpayers'
    money. Very early in his congressional career, he took that
    responsibility very seriously. I think he worked hard to ferret
    out wasteful and unnecessary Federal spending, and if
    confirmed, and for the President, not for himself, I think he
    would continue that same thing as OMB Director.
        Being chairman of the House Budget Committee puts you in
    the middle of budgeting, so you understand it. I think that he
    followed on his early Senate career as one example working hard
    for the Deficit Reduction Act of 2005, in which he worked to
    save the taxpayers $40 billion.
        He also understands that the Federal budget process can be
    improved, and I think he demonstrated that by chairing the
    bipartisan task force in the late 1990s, developing a
    bipartisan initiative that is obviously not law, but he worked
    with one of our colleagues now, then-Congressman Ben Cardin, to
    do that.
        With this project, he demonstrated his ability to work
    across the aisle and develop bipartisan projects, and that is
    going to be very important. As the President has one opinion,
    Congress might have another opinion. He is the go-between who
    is going to have to bring common sense to both extremes, and I
    think he can do that. And I think maybe the bipartisanship is
    shown also by the fact that now Chairman Spratt but then
    Ranking Member Spratt intends to testify before the Senate
    Budget Committee in support.
        Given Congressman Nussle's experience, knowledge, and
    commitment to public service, I think it is very fitting that
    the President nominated him, and I think you are going to find
    a very highly qualified candidate as he responds to your
    questions here and you become better acquainted with him. And
    if there is anything you want to know that I have not told you
    about his other-than-public life, I can discuss that with you,
    too.
        Chairman Lieberman. In open session.
        Senator Grassley. In open session.
        [The prepared statement of Senator Grassley follows:]

                      PREPARED STATEMENT SENATOR GRASSLEY

        Mr. Chairman, I'm pleased to have the opportunity to introduce my
    former Congressman and former Chairman of the House Budget Committee.
        Thank you, Chairman Lieberman, for holding a hearing on this
    important nomination.
        I've known Jim Nussle for nearly 30 years. I first met him when, as
    a college student, he drove me around the State of Iowa as I campaigned
    for my first run for the United States Senate in 1980.
        Jim Nussle was elected to the U.S. House in 1991, at the age of 30.
    Congressman Nussle quickly rose through the ranks to chair a committee
    and he excelled in that leadership position.
        One thing Congressman Nussle and I share is our strong belief that
    we here in Washington hold a great responsibility to be wise stewards
    of the taxpayers' money. He took very seriously this responsibility
    early in his Congressional career.
        Few worked as hard to ferret out wasteful and unnecessary Federal
    spending as Congressman Nussle. If confirmed, I'm certain he'll
    continue to be one of the taxpayers' best advocates.
        As Chairman of the House Budget Committee, Jim Nussle didn't just
    focus on the short-term goals. He looked down the road at the long-term
    challenges. An example is the Deficit Reduction Act. With Jim Nussle's
    leadership at the Budget Committee, this was an important first step in
    reforming our entitlement spending. This step saved taxpayers nearly
    $40 billion over 5 years.
        Jim Nussle also understands that the Federal budget process can be
    improved. He chaired a bipartisan task force in the late 1990s, and
    developed a bipartisan initiative--the Comprehensive Budget Process
    Reform Act in 1998--with then-Congressman Ben Cardin. With this
    project, he demonstrated his ability to work across the aisle and
    develop a bipartisan product.
        This respect for the other side continued during his time as Budget
    Chairman. Chairman Spratt intends to testify to this effect later this
    week at a hearing of the Senate Budget Committee.
        Given Congressman Nussle's experience, knowledge, and commitment to
    public service, it is fitting that he's been nominated to be the
    Director of the Office of Management and Budget. Jim Nussle is a highly
    qualified candidate for this post in the President's cabinet. He knows
    the budget; he knows Congress; and he is a decent and honorable public
    servant.
        Jim Nussle has my respect, my trust, and my confidence. I hope this
    Committee will see fit to favorably report his nomination so the full
    Senate may act prior to the August recess.

        Chairman Lieberman. Thanks very much, Senator Grassley, and
    I cannot help but comment that this little Grassley has grown
    to be a mighty Nussle. [Laughter.]
        Senator Harkin. Interesting play on words.
        Chairman Lieberman. Senator Harkin, thanks very much for
    being here.

    TESTIMONY OF HON. TOM HARKIN, A U.S. SENATOR FROM THE STATE OF
                                  IOWA

        Senator Harkin. Thank you, Mr. Chairman, Senator Collins,
    other Members of the Committee. I am pleased to join with my
    senior colleague from Iowa in introducing Congressman Jim
    Nussle to this Committee, and as I am sure Members of the
    Committee already appreciate, Congressman Nussle is superbly
    qualified to take on the job of the Director of the Office of
    Management and Budget.
        First elected to represent Iowa's 1st Congressional
    District in 1990, he served for eight terms; joined the House
    Budget Committee in January 1995, elected Chairman in January
    2001, a position he served in for the next 6 years. Congressman
    Nussle is a recognized and well-respected, genuine expert on
    the budget and a master of the budgeting process.
        Now, I have known Congressman Nussle and I have worked with
    him--and against him--for 16 years, and I can tell you, in
    those 16 years of my running and his running, I have searched
    my memory, never once can I think of any one time when Jim
    Nussle ever in my campaigns or others ever did anything
    untoward or underhanded or even anything bordering on the
    unethical. He is a tough campaigner. Don't get me wrong. He is
    a tough guy. But you know where he is coming from, and he is
    always aboveboard. He is a skilled and savvy operator. He is a
    very hard worker. Again, I can attest to that. He is a straight
    shooter whose word is his bond and who can be counted on to
    follow through with the commitments he makes. As Chairman of
    the Budget Committee, he reached out to majority and minority
    members, gave everyone a very fair hearing.
        In addition, Congressman Nussle will bring to the job an
    impressive array of political skills. I think I can attest to
    that, too. He is accessible. He is an excellent communicator.
    He is a formidable advocate for the causes he believes in. And
    if I can be a little bit parochial here, the things that we
    have agreed on and have fought very hard for in the past are
    things that help rural America. Here is a great spokesman and
    advocate for people who live in small towns and rural America,
    our farm families all over the country, not just Iowa. He has
    been a strong supporter of agriculture for all the years he has
    been here. And, again, maybe I am speaking a little bit
    parochially here, but we do not have a lot of clout--well,
    except for Senator Grassley and a few others around here. In
    agriculture, in the Congress, our numbers have dwindled. But
    Congressman Nussle always made sure that he watched out for and
    made sure that in the budgets that came through that our farm
    families and people that live in small towns, Senator Warner,
    were represented in those budget debates.
        One other thing that I have admired Congressman Nussle for
    in the past in his budget work is his support for renewable
    energy. All the things that we have to do to become energy
    independent in this country, and it is not just ethanol, it is
    everything else. Whether it is wind energy, all these other
    things, Congressman Nussle has been really in the forefront of
    that fight.
        I think we need someone like that as the head of the Budget
    Committee who really can see the future and see what we need in
    terms of renewable energy.
        So I will just close by saying that as members of different
    political parties, Jim Nussle and I have often disagreed on
    principles and priorities. That is the way it ought to be. But
    in Jim Nussle, the President has chosen a person of exceptional
    intelligence, competence, and experience. I urge the Committee
    Members to send his nomination to the full Senate with a
    positive recommendation, and I hope we can act on it before we
    leave for the August break.
        Thank you very much, Mr. Chairman.
        [The prepared statement of Senator Harkin follows:]

                      PREPARED STATEMENT OF SENATOR HARKIN

        Mr. Chairman, I am pleased to join with my senior colleague from
    Iowa in introducing Congressman Jim Nussle to the Committee.
        As I'm sure Members of the Committee already appreciate,
    Congressman Nussle is superbly qualified to take on the job of Director
    of the Office of Management and Budget. He was first elected to
    represent Iowa's First Congressional District in 1990, and served for
    eight terms. He joined the House Budget Committee in January 1995, and
    was elected chairman in January 2001--a position he served in for the
    next 6 years. Congressman Nussle is a genuine expert on the budget, and
    a master of the budgeting process.
        I have known Jim Nussle, and worked with him, for more than 16
    years. And I can tell you that he is a skilled and savvy operator. He
    is a straight-shooter whose word is his bond, and who can be counted on
    to follow through with the commitments he makes. As chairman of the
    Budget Committee, he reached out to majority and minority members, and
    gave everyone a hearing.
        In addition, Congressman Nussle will bring to the job an impressive
    array of political skills. He is accessible. He is an excellent
    communicator. And he is a formidable advocate for the causes he
    believes in.
        As members of different political parties, Congressman Nussle and I
    have often disagreed on principles and priorities. But, in Jim Nussle,
    the President has chosen a person of exceptional intelligence,
    competence, and experience. I urge Committee Members to send his
    nomination to the full Senate with a positive recommendation.

        Chairman Lieberman. Thank you, Senator Harkin.
        Congressman Nussle, it obviously speaks very well of you
    that Senator Grassley and Senator Harkin have both been here to
    introduce you. I thank them both. Obviously, I know they are
    both very busy, so we thank them for their presence, and feel
    free to leave at any time that your schedule requires you to.
    Thank you.
        Congressman Nussle 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 a part of the hearing record with
    the exception of the financial data, which are on file and
    available for public inspection in the Committee offices
    according to the Committee's custom.
        Our Committee rules require that all witnesses at
    nomination hearings give their testimony under oath.
    Congressman Nussle, would you please stand and raise your right
    hand? Do you swear that the testimony you are about to give the
    Committee will be the truth, the whole truth, and nothing but
    the truth, so help you, God?
        Mr. Nussle. I do.
        Chairman Lieberman. Thank you very much. Please be seated,
    and please proceed with your statement, including we invite you
    to introduce any members of your family who are here.

    TESTIMONY OF HON. JAMES A. NUSSLE \1\ TO BE DIRECTOR, OFFICE OF
                         MANAGEMENT AND BUDGET

        Mr. Nussle. Well, Mr. Chairman and Ranking Member Collins
    and Senators, thank you so much for the opportunity to be here
    today and for the introduction. I appreciate the opportunity to
    testify and to be considered. I want to thank you both for the
    time that you have given me in these past weeks for personal
    conversations, as well as a number of Members on this Committee
    and throughout the Senate. I appreciate the advice and counsel.
    The Chairman spoke very eloquently about the challenge that we
    find ourselves in, and I can report to each one of you that it
    was a challenge that was felt in a bipartisan way in every
    conversation that I had.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Nussle appears in the Appendix on
    page 44.
    ---------------------------------------------------------------------------
        Many nominees are given the luxury of coming before you at
    possibly calmer times in our history and during the cycle. This
    is not one of those times. Judging from the rhetoric, picking
    up the newspaper, I understand that. But I also enjoy a
    challenge. I am an optimist. I am someone who likes to dive
    right in and tackle tough problems. And I am very interested in
    doing that on behalf of the President and also with, I believe,
    a unique understanding of not only the budget process but maybe
    more importantly how Congress works.
        I will not suggest to you, as I have told you in private,
    that I understand the Senate possibly as well as I understand
    the House. Former colleagues that have served with me in the
    House that have come over to the Senate have reported back that
    it is a little different in the Senate. So it is one of those
    parts of the job that I hope to continue to learn with your
    advice and counsel. But I very much look forward to continuing
    our dialogue, our discussions, and our meetings on a regular
    basis.
        I also want to thank my two home-state Senators. First, my
    ``Dad,'' Senator Grassley. It is funny--he told that story on
    the campaign trail when he was campaigning for me about the
    fact that he had hoped that a son--and it is a story that has
    tickled me ever since. He is not always that way when we have
    disagreements, I will say, but he treats me very respectfully
    and has always been there as a mentor, and I appreciate that.
        And Senator Harkin, wow, I wish he was here for me to say
    thank you again in public, because he is right. Many of us are
    not going to agree on every single thing, but there is a way to
    do it. And the Chairman mentioned, I think so well, and it is
    this whole notion--we hear about you can disagree without being
    disagreeable. And, boy, we need that. We really need that,
    because we are passionate about what we believe. Each and every
    one of us come with backgrounds, philosophies, upbringing,
    principles that we fought hard to get here. We wouldn't be here
    if we did not have that. But there is a way to do it, and as
    the Chairman spoke of compromise, we do not have an Iowa
    Compromise in history that I can think of, and we probably,
    like many people from Missouri, are accused of being stubborn.
    There is a song about Iowa being stubborn and sometimes that
    precedes us. But it is passion. It is not partisanship; it is
    passion. And I think you can be passionate without having
    necessarily to be partisan in the negative sense of that word.
    And I believe I can do that.
        So I thank Senator Harkin for the tone that he set that
    suggests that even though Senator Harkin and I have had our
    differences on public policy, we are able to sit next to each
    other and have this kind of discussion and discourse. And I am
    proud of the service that they have provided our State.
        I would also like to thank your staff, Mr. Chairman and
    Ranking Member Collins. They interviewed me this past week, and
    I enjoyed that session. I have a feeling they were not as tough
    on me as you all will be, but it was a good beginning to the
    relationship that I know is a unique one between OMB and this
    Committee. And I look forward to that continuing.
        Also, if I may, Mr. Chairman, I want to thank the OMB
    staff. You do not know--at least I did not know when I accepted
    the President's invitation for nomination--what happens next.
    And some may think that what happens next is you come before
    the Committee. There are a number of preparation sessions; they
    provide briefings. I have no doubt I have so much more to
    learn, but they have done an excellent job, and I want to thank
    them for their professionalism. OMB, the staff at OMB, as I
    have always heard, has a great reputation. I want to continue
    to build on that, Mr. Chairman. I can speak for so many public
    officials who interact with them, and I just want to say thank
    you.
        You are right, I have family here today. My wife, Karen, is
    here, and I want to thank her for her support. She stands by me
    with grace. It cannot be easy to do that. As we all know who
    have spouses who deal with our public service, that is a
    challenge. But she does it with an inordinate amount of grace
    and understanding and patience, and I am very blessed to have
    her by my side.
        As I stated when the President nominated me, Mr. Chairman,
    I feel truly humbled and privileged at this opportunity. If
    confirmed, I look forward to helping to develop the policies
    that will help keep us on the path to balance, keep our economy
    growing, address some of the biggest budget challenges that
    many of us discussed at our meetings in private--about
    entitlement spending growing at an unsustainable rate,
    Medicare, Medicaid, Social Security--huge out-year challenges
    that we are not tackling yet, but that we need to tackle if we
    are going to be serious.
        If I should be confirmed by the Senate, I intend to work
    every day, wake up every morning to try to deal with these
    challenges as straightforward as possible and honor the
    responsibilities the President has nominated me to and that I
    hope you will place upon me.
        I also have to tell you that it feels good to be back in
    Congress. It was in these halls that I learned some really
    amazing things. I have learned some very valuable lessons and
    met some incredible people and formed friendships that will
    last a lifetime. My very first Chairman is in the room here
    today, Chairman Carper, who I served with in the House on the
    Banking Committee when I was detailed to that Committee. I
    remember when then-Minority Leader Bob Michel called me up and
    said, ``You have to serve on the Banking Committee,'' but it
    was a pleasure serving with Chairman Carper.
        And my first Vice Chairman is in the room here today,
    Senator John Sununu. And Senator Sununu and I forged a
    friendship after we actually competed for the job. I don't know
    how it is, but----
        Senator Sununu. It was not very close. [Laughter.]
        Mr. Nussle. There are days, I have to say, where I wish you
    would have won, Senator. But I appreciate that friendship.
        I really do appreciate the chance to follow in the
    footsteps of Rob Portman and Josh Bolten and so many others who
    have demonstrated an ability to not only be a professional
    advocate and representative of the President, but to do so with
    grace and dignity, to be able to reach across party lines, and
    to forge and continue to forge relationships here on the Hill.
        As I was trying to think of how to present this today, I
    cannot help but flash back to a time that Senator Grassley was
    mentioning when I was a student 30 years ago at Luther College
    and a political science class, and my professor, Joan Thompson,
    who is now a professor up in Pennsylvania, decided that during
    our Introduction to Congress class, she was going to teach us
    about the Federal budget process. And I have to tell you, at
    that time I thought to myself, ``When in the world am I ever
    going to find this information useful at all? Do I really need
    to know this stuff about the budget?''
        And what I learned, as you all know, is that the budget
    process interweaves everything we do--you do, I used to do--on
    Capitol Hill, and it is an important part of everything that we
    do.
        I got hooked in this class on the budget, and I will have
    to admit it, I am a budget wonk. I love the budget, the budget
    process, and everything about it that goes along with it. But
    never in a million years as a 19-year-old college student at
    Luther in Decorah, Iowa, would I have thought I would be
    sitting here today, let alone having been chosen by my peers to
    serve on the House Budget Committee and to be chairman, and I
    am honored by that. It is truly an awesome thought for me, and
    I hope my daughter, Sarah, and son, Mark, who are teenagers,
    learn a lesson from this, as well as many other students, who
    sometimes I hear, when they say, ``Why do I have to know
    this?'' My story, I suppose, is a lesson of listening and
    learning even at times when you do not know exactly why you are
    doing it because you really do not know where life is going to
    take you.
        Listening and learning has been something that I have
    always taken very much to heart in my 16 years as I was blessed
    to represent Iowa in the House of Representatives. I believe we
    all govern better when we listen and learn from not only each
    other, but the people that we represent.
        Should I be confirmed by the Senate, I intend to continue
    that philosophy that my parents first taught me was important
    and that the people of Iowa really cemented for me, that
    listening, learning, teamwork, and honesty are paramount.
        Mr. Chairman and Ranking Member Collins and Members of the
    Committee, I am eager to answer your questions and the
    Committee's questions, and I very much look forward to
    continuing to work with you, and I ask for consideration in my
    nomination.
        Chairman Lieberman. Thank you very much, Mr. Nussle, for
    that outstanding opening statement.
        I am going to start my questioning with the standard
    questions we ask all nominees. Incidentally, it strikes me, as
    I heard your statement, that you are starting with a kind of
    unfair advantage with this Committee based on your past
    experience with Senators Carper and Sununu, and the fact that
    you have our former Staff Director, Michael Bopp, advising you
    as to what each of us will do.
        Mr. Nussle. Please do not hold any of that against me.
        Chairman Lieberman. I am going to start with the standard
    questions that we ask all nominees.
        First, is there anything that you are aware of in your
    background that might present a conflict of interest with the
    duties of the office to which you have been nominated?
        Mr. Nussle. No, sir.
        Chairman Lieberman. Do you know of anything personal or
    otherwise that would in any way prevent you from fully and
    honorably discharging the responsibilities of the office to
    which you have been nominated?
        Mr. Nussle. No, sir.
        Chairman Lieberman. 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. Nussle. Yes, sir.
        Chairman Lieberman. We are going to start with the first
    round of questions limited to 6 minutes each. The vote
    apparently will not go off until around 10:40 a.m., so
    hopefully we will have some time for a few Senators to ask
    questions.
        Let me begin with the short-term challenge and what may
    become a crisis that you will step into if you are confirmed.
    What is your view of how to negotiate our way, your way,
    through the difference of opinion between the President and the
    congressional majority on the top-line spending so that, in
    fact, we can keep our government functioning?
        Mr. Nussle. Mr. Chairman, we have been through these
    challenges before. While we are in a new challenge and it may
    seem daunting given the fact that we have, as I understand it,
    27 legislative days before the end of the fiscal year, given
    the August recess and other impediments that I am sure will be
    there to success, as I said in my opening statement, I am an
    optimist. I believe that while there are two speeding trains
    heading at each other--I have always been amazed--none of us
    has ever seen a real train wreck, but we always refer to it as
    a train wreck around here as part of the end of the cycle.
    There is one, as you said, that was going at $953 billion, I
    believe you said, and one that is heading at $922 billion, and
    they are heading at each other.
        Chairman Lieberman. Nine hundred thirty-three billion.
        Mr. Nussle. Excuse me; $933 billion. The sooner that these
    two trains can get onto a side track, the sooner you have
    someone who is in place at OMB who can wake up every day to not
    only work with the President but also work with you to build
    that side track--the sooner that happens, Mr. Chairman, I
    believe the better.
        Exactly how we are going to build that, I have learned also
    in my time as Budget Chairman that you sometimes do not always
    see that clearly, exactly how it is going to come about until
    possibly later in the session.
        But the one thing that we do know, the one thing that is
    almost always clear, is that failure is never the final answer.
    Our country must endure. The Federal Government will continue.
    We need to be able to solve this problem. And I believe it is
    my role, if confirmed by you and the Senate, to do just that,
    to wake up every day to figure out how we can avoid that kind
    of final collision that, while it will not be the final answer,
    will be a very challenging one for all of us, let alone for the
    American people to watch.
        Chairman Lieberman. I appreciate what you have said. Let me
    ask you this specific question: Will you remain open in pursuit
    of an agreement to continue the functioning of our government,
    which is what the public expects from us, to advising the
    President to compromise in any way on spending levels to avoid,
    for instance, a shutdown of the government?
        Mr. Nussle. You asked me if I would remain open. The answer
    is yes, sir.
        Chairman Lieberman. I appreciate that, and I----
        Mr. Nussle. If I may add to that, though. As you know, it
    is a new role, and I have been told this by others that have
    come forward that used to be Congressmen or Senators, that had
    been in that position where you were your own boss.
        Chairman Lieberman. Yes.
        Mr. Nussle. I will have a new boss, and certainly my first
    duty is to uphold the Constitution. But I also know that anyone
    who sits in this chair from the Administration has to report
    back and has to follow the decisions made by that Chief
    Executive. I also know I will need to and intend to do that as
    well. But, yes, sir, I will remain open, and I need to remain
    open if we are going to have the conversations we are going to
    need to have in not only those next 27 days but beyond. We have
    much more work to do than just finishing the end of this fiscal
    year. That is job one. But we have much more to do that we need
    to be able to do together.
        Chairman Lieberman. Let me ask you a big question, and you
    only have about 2 minutes of my time to answer, but it is a
    beginning. So I have asked you a question about the short term.
    In some sense, for you as OMB Director, the long term is going
    to be 18 months for the remaining time of this Administration.
    You referred to the long-term imbalances particularly in
    entitlement programs that jeopardize what our country has
    promised the baby boomers and those who follow them.
        What initiatives do you contemplate during the 18-month
    period to deal with those long-term imbalances?
        Mr. Nussle. If confirmed, Mr. Chairman, I intend to
    continue to be a voice in the Administration that we need to
    continue to break our pick on that rock. It is one, as you know
    from past experience, that may not be solved in 18 months. It
    may not be solved in a comprehensive way in one fell swoop. But
    it needs to be dealt with, if nothing else, with downpayments
    on a regular basis. It is the reason why I, as Budget Chairman,
    tried every year to have a small reconciliation for us to at
    least begin the conversation of reform. And I believe Congress
    and the President should get in that habit together to work on
    small downpayments. If nothing else--and you know these numbers
    better than I do, but 2017 for Social Security, as an example,
    used to sound like a long time away. It is 10 years; 2017 is
    when we stop taking in enough money in the payroll tax to pay
    the benefits for Social Security. That used to sound like a
    long way off. It is 10 years.
        And so we have to begin that process, and while many
    proposals on both sides have been rejected, I suppose, we need
    to keep trying. And I hope to be an advocate in the
    Administration and on behalf of the President for that.
        Chairman Lieberman. I appreciate the answer, and I will
    just conclude by saying, as you said, that the problems, the
    entitlement balances long term are too big and we took too long
    to get to this place we are at to solve them in the next year
    and a half. But as this term of this President ends with you as
    his OMB Director, I think you do have an opportunity to start
    some things that will lead to a solution, perhaps beginning
    some institutional processes, bipartisan, to work us in that
    direction and maybe turn some recommendations over to the
    incoming administration. So I thank you for your commitment to
    do that.
        Senator Collins.
        Senator Collins. Thank you, Mr. Chairman.
        Congressman, I am very impressed with the support that you
    have received today from Senator Harkin and also from Chairman
    Spratt with whom you have worked so closely over the years, and
    they both have attested to your ability to work across party
    lines. You do have some critics, however, who suggest that you
    are simply too partisan for a job that requires extensive
    outreach to Congress.
        I want to start my questioning today by giving you the
    opportunity to respond to those charges.
        Mr. Nussle. Well, first of all, Senator, I appreciate the
    opportunity to do that, but let me suggest that probably all of
    us from time to time could have those charges leveled at us,
    particularly when you are given the role of leading a charge on
    probably one of the most partisan things that we do around
    here, and that is the budget.
        We have never passed a bipartisan budget. We have passed
    bipartisan agreements at the end of the year, omnibus plans,
    funding agreements, things like that. But the very first thing
    we do in Congress, to my frustration and I know to many of
    yours, is the budget, where we break up into shirts versus
    skins, Republicans versus Democrats, and we form these two
    teams, and we go at each other on the priorities. And as the
    Chairman said, sometimes we argue about 2 percent here and 1
    percent there, and maybe just a variation on a reform measure.
    But it would seem like we would never be able to come together
    at the beginning of the year, but at the end of the year
    somehow we find the ability to do that.
        My role, fortunately--and I appreciated the role--was to
    not only gain the consensus of my colleagues in the House, but
    also to present that. And oftentimes that is presented in a way
    that seems very passionate, as I said in my opening statement,
    but often perceived to be partisan.
        I believe that the way I would like to be judged is not
    only by how you battle each other on the floor and during
    debates like that when passions certainly can sometimes even
    get the best of you, but it is also how you conduct yourself
    behind closed doors and with colleagues and honoring agreements
    and working together to find consensus when that becomes the
    opportunity. And I believe I have done that as well.
        So I confess to being a passionate person. Sometimes that
    is perceived to be partisan. But it is never intended to be.
        Senator Collins. Thank you. I now would like to turn to an
    issue that is very important to my constituents, and that is
    the Low-Income Home Energy Assistance Program (LIHEAP). If you
    look back at the hearing records for OMB Directors, you will
    find that I raised this issue with every single one of them.
        If we would release the funding for the LIHEAP program
    during the summer months, we would allow it to serve far more
    people because the cost of home heating oil, for example, is
    lower in the summer months than during the height of the
    winter.
        Now, last year, shortly after he was confirmed, Director
    Portman in response to my concern raised at his nomination
    hearing released $80 million in unspent fiscal year 2006
    emergency LIHEAP funds for the purpose of providing a limited
    summer fill program. And it was a huge success. It allowed us
    to help more of our neediest citizens before the winter months
    hit.
        Now, currently there is about $200 million in fiscal year
    2007 emergency LIHEAP funds. It would be extremely beneficial,
    not only to my constituents but to others throughout this
    country who rely on this important program, if the funding were
    released now. I am asking: Would you be willing to take a look
    at the issue of releasing advance funding to see if at least
    some of that $200 million in unspent emergency funding could be
    used to help those who are really struggling with the high cost
    of energy to heat their homes?
        Mr. Nussle. Yes, Senator Collins. If I am confirmed by the
    Senate, I would be very pleased to not only take a look at it,
    but to work with you to try to address this. My understanding,
    again, because of our knowledge of your concern in this area
    and your leadership in this area, is that the Director is
    looking at that actively even this summer. But I do not have
    that information about what he is doing any more than I am able
    to until I am confirmed. But I would be honored to be able to
    work with you on that, and, yes, I would be interested in
    talking to you about that further.
        Senator Collins. Thank you. Let me now very quickly switch
    to another issue. A mission of OMB's that is not well known is
    the responsibilities that OMB has for providing guidance to
    agencies for the security of private information that agencies
    collect, whether it is birth dates or addresses or Social
    Security numbers. And in the last year, we have seen a number
    of very troubling breaches where private information of our
    citizens has been lost, stolen, or inadvertently released by
    Federal agencies.
        What do you plan to do, if you are confirmed, to ensure
    that individuals' sensitive, private information is better
    protected than it is now?
        Mr. Nussle. Well, Senator, if I am confirmed, I will be
    working with the administrator of E-Government that, as you
    know, is part of OMB to ensure that this information is
    secured. It is troubling to me, as well, as I hear of those
    kinds of reports. I cannot speak to them specifically, not
    having been in the position yet. But I understand and would
    take it very seriously as the role of the Director to work with
    those agencies, to ensure that this information is protected. I
    know that is part of the role of the legislation that has been
    passed, and I know that is an important issue for this
    Committee. And I would work with you and other Committee
    Members to ensure that this mission is carried forward to
    success.
        Senator Collins. Thank you.
        Chairman Lieberman. Thanks very much, Senator Collins.
        I have just been informed, in the spirit of the Senate and
    the tempo of the Senate, that the votes will now not occur
    until 12:20 p.m. So we can actually have a hearing here.
        Senator Levin, your turn.
        Senator Levin. Thank you, Mr. Chairman, and let me add my
    welcome, Congressman Nussle.
        Mr. Nussle. Thank you.

                   OPENING STATEMENT OF SENATOR LEVIN

        Senator Levin. As Chairman of this Committee's Permanent
    Subcommittee on Investigations and formerly as its Ranking
    Member, we have spent a great deal of time looking at what is
    called the ``tax gap,'' which the IRS has estimated to be about
    $350 billion. That is the gap each year between the amount of
    taxes owed and the amount collected.
        One of the sources of that tax gap is abusive tax shelters,
    and these are the illegitimate ones that have no economic
    substance other than to attempt to provide large tax benefits
    to the individuals that are using them. And so we end up with
    people not paying their fair share of taxes, usually upper-
    income folks, and the rest of us then have to pick up the
    burden.
        Can you tell us your position in terms of going after these
    abusive tax shelters? Have you supported that effort in the
    House? And, generally, what is your position?
        Mr. Nussle. I have, Senator. As you know, it has been an
    issue that has come to the forefront more recently. But during
    my time as Budget Chairman, it was an area that we did look
    into and continue to be concerned about. And I would not only
    work with Treasury but also with you, if I am confirmed, to do
    what we can to ensure that we are collecting the taxes that are
    due.
        Let me say further, if I may, that I am someone who was a
    proponent of looking at our entire Tax Code for comprehensive
    reform. I believe that we should consider reforming our entire
    Tax Code, and as part of that, I believe we can and have the
    opportunity to take a look at all of these different areas that
    you are suggesting as part of that comprehensive reform.
        So yes, sir, I think it is an important issue that we
    should and I would be happy to work with you to sink our teeth
    into.
        Senator Levin. Thank you. We have lost 3 million
    manufacturing jobs in this country in the last 6 years. I know
    that you, by reputation and by the introductions today, have a
    special sensitivity for rural areas, and that is great. We need
    to do that wherever those rural areas are. But in the area of
    manufacturing, we have lost 3 million jobs without much of a
    peep from this Administration.
        Other countries support their industry. They partner with
    their industry. Our companies are not competing with companies
    overseas. They are competing with countries that support their
    industries.
        Have you taken a position on a couple of programs that are
    important in terms of manufacturing? One is called the Advanced
    Technology Partnership, and the other one is called the
    Manufacturing Extension Partnership. Have you supported those
    programs in the House?
        Mr. Nussle. Honestly, I would have to look back in my
    record, Senator, to give you an accurate answer. I am not sure
    what my record would be on that.
        Senator Levin. Do you believe there is a very important
    vigorous role that is essential for the Federal Government in
    terms of support of manufacturing in America?
        Mr. Nussle. Yes, sir, and please do not let the name
    ``rural'' disguise the fact that Iowa has a number of small
    rural companies and also some pretty large manufacturers as
    well. We lost just recently Maytag, as an example, in Iowa and
    over the years have had some enormous challenges with John
    Deere, as an example. So we have some small and large
    manufacturers. I am very sensitive to that, represented those
    areas in my district. I believe in order for us to be
    competitive, one of the areas, as we were just talking, is our
    Tax Code, because one thing that we have always prided
    ourselves on in this country is that we have an arm's-length
    relationship with those businesses. Some countries are very
    overt in their partnerships with those companies. We try and
    take an arm's-length relationship with them.
        But one of the ways that we can ensure that they are
    competitive is through our Tax Code, and I believe that is an
    area that should be ripe for discussion and for proposals
    within comprehensive tax reform.
        Senator Levin. The OMB's Office of Information and
    Regulatory Affairs, OIRA, has as its primary job the review of
    draft agency rules before they are published. They are
    published for public comment before they are adopted. Under the
    existing Executive Order, the process of those rules and their
    consideration during the drafting process is supposed to be a
    transparent one, and the current Executive Order says that it
    must be disclosed to the public those changes in the regulatory
    action that were made at the suggestion or recommendation of
    OIRA. In other words, the relationship between the agencies and
    OIRA is a critical one.
        But OIRA has now circumvented the Executive Order by
    establishing a process of informally reviewing--the word
    ``informally'' being the key one--agency-proposed rules before
    the proposed rule is formally presented to OIRA.
        Now, changes that are made because of these informal
    reviews are not disclosed to the public, although the Executive
    Order does not make a distinction between changes based on
    formal presentation or informal presentation by an agency to
    OIRA. It says ``changes that are made at the recommendation or
    suggestion'' are supposed to be disclosed to the public.
        Will you see to it that the Executive Order's spirit as
    well as its letter is maintained and that changes that are
    proposed, recommended, or result from conversations between the
    agencies and OIRA are disclosed to the public?
        Mr. Nussle. Senator, if confirmed, I will take a look at
    that. I have been made aware that this is an area of concern,
    and it is a challenging area because, of course, you need to
    have something to look at. And until a regulation is formally
    presented, until there is a regulation to discuss, it may be
    difficult--and I think we are going to have to talk to counsel
    to understand exactly how that process works--to know when that
    Executive Order formally kicks in.
        I am not sure I am in a good position, having not held the
    job yet, to do more than say I am aware of the challenge. I am
    for transparency. I believe that our processes should be
    transparent. My understanding is that there is a new website
    where these regulations are posted so that we have better
    transparency for the general public as well as you and the
    staff as to how these regulations are promulgated. The
    Executive Order in and of itself commands transparency that was
    not there prior to the last two Administrations.
        So we are working to become more transparent. That would be
    my endeavor. I would be happy to work with you, if I am
    confirmed, to ensure that continues. But to jump into the
    middle of that legal, should I say, interpretation at this
    point without having had the job, I think, would be a challenge
    for me.
        Senator Levin. Thank you. Thank you, Mr. Chairman.
        Chairman Lieberman. Thanks, Senator Levin. Senator Warner.

                  OPENING STATEMENT OF SENATOR WARNER

        Senator Warner. Thank you, Mr. Chairman.
        We welcome, as American citizens, your willingness to
    return to public life and have your family accept the long
    hours and heavy burdens of the office to which you are about to
    be confirmed.
        Mr. Nussle. I did not tell her about that. Don't----
    [Laughter.]
        Senator Warner. Well, I could give a little advice having
    been in a position comparable in my past years. All the
    decisions made after 8 p.m. are usually reviewed and reversed
    in the morning. [Laughter.]
        So get him home.
        My dear friend here Carl Levin and I came to the Senate
    together 29 years ago and joined the Armed Services Committee,
    and since that time the distinguished Chairman has become a
    member of the committee, Ranking Member Collins, and Senator
    Akaka, so there are at least five of us on this Committee that
    have the privilege to be on that historic and great committee.
        But we have watched here under the Administration of
    President Bush the repeated necessity--I will use that word for
    the moment, ``necessity''--to have a major part of our defense
    expenditures processed quickly by the Appropriations Committee
    and passed on to the President.
        That just does not work. It does not work for the benefit
    of the men and women of the armed forces, the overall
    programming, the long-term programming. The Armed Services
    Committee is an authorizing Committee. It is there for a
    specific purpose. The Appropriations Committee is to make
    allocations, important decisions as to the quantum of money for
    the various programs that we authorize.
        We have extensive hearings going into all aspects of
    defense spending, and predicated on our findings in those
    hearings are the decisions made to authorize or not authorize
    or to authorize at levels that we deem appropriate.
        It has gotten to a point where it has almost broken down,
    and I am not faulting the appropriators. This burden, in a
    sense, has been cast upon them.
        I would like to have your views--fortunately, you have been
    in the Congress, and you understand the difference between an
    authorizing committee and an appropriations committee--and what
    steps you will take hopefully to correct the major departure
    from the historic way the Congress of the United States has
    handled this all-important budget for our national defense.
        Mr. Nussle. Well, Senator, first of all, for you to ask my
    advice on this matter honors me because there is no one that I
    am aware of that is any stronger advocate and has more
    expertise when it comes to defense matters. And so I am honored
    that you would even ask me the question.
        Let me suggest that this is an area where my passions may
    have spilled over, maybe even in a nonpartisan way. I believe I
    was the first Republican, and certainly the only Chairman that
    I am aware of, that criticized the Administration for the
    method by which it has funded the war going back to the very
    beginning of that war and suggested that appropriation by
    supplemental after supplemental after supplemental is part of
    the challenge that not only our overall budget has but that we
    have seen continue as a challenge for giving the kind of
    predictability you spoke of for our men and women in harm's
    way.
        If confirmed, I will continue to be a strong voice even if
    that is to the disagreement of others within the Administration
    that I believe that, as much as possible, this needs to be
    budgeted. That is what a budget is. It is a plan. It is
    indicating what your priorities are. It is indicating how long
    that challenge or that opportunity may be out there. It is
    recognizing the costs not only from a fiscal standpoint, but it
    is recognizing how it is balanced within those priorities. And
    I wanted to see that built into the Administration's plan.
        The good news--and I am certainly not willing to take any
    credit for this because there were many who have joined in that
    chorus on both sides of the aisle in a bipartisan way--is that
    the Administration now does that to a much better job than it
    did in year one, two, and three of the war. This year, as an
    example, it does build that into the budget, and it does not
    only build in the supplemental into the budget, but also
    recognizes certain out-year obligations.
        But we could do a far better job, and Senator, I think the
    challenge between authorizers and appropriators is one that,
    while I would wish you and I would be able to change, is a
    natural tension that has been there for quite some time within
    the Congress. Sometimes that tension is good. It provides
    oversight. It provides for the kinds of debate and discourse
    that needs to occur within very challenging areas, such as
    homeland security, such as defense. They are paramount
    responsibilities of the Federal Government.
        But other times it can be very problematic where an
    authorizing Committee comes in at a very high level of
    spending, and then when the appropriators do not match it,
    there is confusion over, well, wait a minute, wasn't there
    supposed to be a little extra money there?
        So it is a natural tendency----
        Senator Warner. I am fully familiar with that. That has
    always been a historic part of the disagreement between the two
    Committees. But it is this constant enormity of these
    supplementals that come through without even a glimpse by those
    of us who spend our whole time on defense. Appropriations
    scatters itself over all the issues before the Congress.
        Mr. Nussle. Well, sir, I share that concern. I have been an
    advocate, as I know you have, in that regard. I may not win
    every battle that I wage, but when I believe in something, I
    will be glad to tell you that, and I will be glad to tell
    colleagues on the other side of the aisle, or my boss.
        Senator Warner. Well, there may be some means by which on a
    supplemental the authorizers could take a quick look at it--not
    hold it up, but a quick look--to give its views before it went
    on to the Appropriations Committee.
        Thank you very much. Good luck.
        Mr. Nussle. Thank you. Yes, sir.
        Chairman Lieberman. Thank you very much, Senator Warner.
        Senator Akaka was next, but he had to leave, so Senator
    Carper.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. Thanks very much.
        Welcome, Congressman Nussle, it is good to see you, and we
    are delighted that you are before us today.
        I would say to my colleagues, I came to the House of
    Representatives in 1982 following the election that November,
    and a member of our freshman class was John Spratt, who, as we
    know, has been working with Congressman Nussle for some time on
    the Budget Committee in the House.
        I do not know about the rest of you, but when I am trying
    to find out whether to hire somebody, one of the things that my
    staff and I always like to do is call folks, on the Q.T., who
    have worked with the particular candidate and just say, well,
    what do you think, what was this man or woman like to work
    with. And I took advantage of my friendship of long standing
    with John Spratt, just to call him and say, ``Talk to me about
    Jim Nussle. What was he like to work with? What was he like to
    serve with? Talk to me about his intellect, his honesty, his
    ability to keep a promise.'' And I would just share with all of
    you, as I am sure Congressman Spratt will share with the Budget
    Committee, his high regard for Jim Nussle and his belief that
    he will serve ably in this post. It was a pleasure to serve
    with him in the House as a member, and I was privileged to be
    among the folks that served with him on the Banking Committee.
        I want to really ask you to comment on three things. First,
    I want to go back to, I guess it was, 1995 and 1996 when there
    was a meltdown in the budget process. The Federal Government
    came to a halt. We had a President of one party; we had a
    Congress with the majority of the other party. And let me just
    ask what lessons do we take from that experience--not a very
    good experience for any of us. But what lessons do we take from
    that experience and how can we avert that today when we have a
    President of one party and a Congress with a majority of the
    opposite party?
        Mr. Nussle. Well, as the Senator knows, you were governor,
    I believe, at that time, but I was here for that, and I guess a
    couple of lessons.
        First of all, it wasn't the final answer, and the one thing
    that we know about it is that it certainly is one of the
    chapters in the challenge, but it is not the final answer. Even
    when there is a breakdown, there needs to continue to be the
    kind of communications and conversation, debate, discussion
    that needs to occur to find a solution. That would be lesson
    No. 1.
        Lesson No. 2 is that we need to start earlier, and every
    one of my reform proposals that I have put forth has always
    tried to force earlier conversations about what we know is
    going to be a problem. On day one, when the President came out
    with $933 billion, I can tell you if the Chairman is as able as
    I know he is, Kent Conrad and John Spratt, I know they knew
    that was going to be a difficult budget. And by the same token,
    the President was put on pretty early alert when the budgets
    were passed at $953 billion. So there was an early warning
    signal that we had a problem.
        Since then there has not been the kind of communications
    that needs to, I believe, go on. Part of it is because there
    have been a number of other very challenging subjects that have
    come up. But early communication, which is why I am stressing
    the need to, with only 27 legislative days left in the fiscal
    year, have someone who wakes up every day and goes to OMB and
    works on this problem on behalf of the President, as well as
    recognizing the sensibilities of what's happening here on the
    Hill, I think, is vitally important if we are going to find
    that answer.
        Senator Carper. Alright. Thank you. I want to return and
    visit just very briefly with you a matter we touched on when
    you were kind enough to visit with me. One of my focuses in my
    6 years that I have been here has been how do we provide cost-
    effective airlift in the 21st Century for our country. And we
    do that with a combination of airlift and sealift. Most of the
    cargo that we move around the world to support our troops we do
    with ships. Most of the people that we move around the world,
    our military personnel, we do it with aircraft. Roughly half
    the folks go on commercial aircraft and half the folks go on
    military aircraft.
        I talk about an air bridge that includes C-5s, that
    includes C-17s, that includes C-130s. We are operating
    currently with a game plan going forward of eventually flying
    190 C-17s, a wonderful aircraft. We are just getting a new
    squadron of them in the Dover Air Force Base. We are also
    calling for--the Department of Defense is calling for 110 C-5s,
    and then a bunch of C-130s to supplement those aircraft.
        About 2 or 3 years ago, the Congress passed legislation
    that said, before we retire additional C-5s, we want to make
    sure that a modernization effort is underway to fully modernize
    the aircraft--new engines, new hydraulics, 70 new systems in
    all, new cockpits--we want to make sure that we have the
    opportunity to update, fully modernize three aircraft, flight-
    test them for 18 months, and evaluate them before we decide
    whether or not to retire any additional aircraft.
        This is probably something you have not given a lot of
    thought to, but I want you to keep your eye on this ball, and I
    would just ask that you do that as we go forward.
        Mr. Nussle. I appreciated the conversation we had, Senator,
    and I would be very happy to work with you on this issue. I
    thought your arguments were very compelling. But you are right,
    I do not have a lot of independent information about that, but
    I would be very happy to work with you because I know it is a
    concern to you.
        Senator Carper. Thank you. The last thing I want to say in
    the few seconds that are remaining, we are going through a time
    in our country--and one of our colleagues has already
    mentioned, I think Senator Levin, the loss of 3 million
    manufacturing jobs. We are seeing a diminution, almost a scary
    diminution, of our manufacturing base with respect to
    automobiles.
        One of the things that several of us--Senator Voinovich and
    myself, Senator Levin and others on the Committee--have focused
    on is how do we, on the one hand, reduce our reliance on
    foreign oil, how do we reduce the emission of harmful stuff
    into the air, and how do we maintain a manufacturing base,
    including an automotive manufacturing base.
        As I see it, there are several roles that the Federal
    Government can and should take. One of those is R&D
    investments, including investments in new battery technology,
    to make available the creation of plug-in hybrid vehicles that
    will enable us to compete around the world; second, using the
    government's purchasing power to help commercialize new
    technologies and advance the technology business, both on the
    civilian side and on the defense side. Maybe a third is to use
    tax policy to incentivize folks to buy more energy-efficient
    vehicles in this country and to reduce our reliance on foreign
    oil, to clean up our air, and to try to make sure we have a
    manufacturing basis.
        Your thoughts on those three roles: Again, R&D investments,
    including new battery technology; using the Federal
    Government's purchasing power to help commercialize new
    technology; and, lastly, a tax policy to help incentivize
    people to buy more energy-efficient vehicles.
        Mr. Nussle. Well, Senator, I know of your leadership in
    these areas, and I agree with all three. If I may be permitted
    to add one more in addition to that, I would add education, and
    I understand that the States take the primary lead with regard
    to education, but science education and entrepreneurial
    mentoring, if you will, because we need to create not only the
    jobs of the future, but we also need to create the job creators
    of the future if we are going to be successful. And certainly
    within that atmosphere that you are creating, with energy
    policy, with R&D through a more competitive tax policy, we have
    to make sure that our young people, and others, through non-
    traditional ways are constantly learning and keeping up with
    the skills they are going to need to be able to not only take
    those jobs but create those jobs.
        Senator Carper. Thanks very much, and good luck.
        Mr. Nussle. Thank you.
        Senator Carper. Thanks, Mr. Chairman.
        Chairman Lieberman. Thank you, Senator Carper.
        Just for the information of my colleagues, the order in
    terms of arrival is Senators Sununu, Tester, Voinovich, and
    Coleman.
        Senator Sununu.

                  OPENING STATEMENT OF SENATOR SUNUNU

        Senator Sununu. Thank you, Mr. Chairman, and it is great to
    see Mr. Nussle here. I am only a little bit disappointed that
    he brought up our campaign to be Budget Chairman, although that
    probably worked out very well for both of us. He did a great
    job at the Budget Committee, and obviously the next year was
    the year that I ran for the Senate, and I was very pleased to
    be assigned to this Committee, Mr. Chairman.
        I want to make a few observations about this process, and
    then I have a question about the ``M'' in OMB, the management
    responsibilities in oversight and what you hope to bring to the
    agency from that perspective.
        Both you and a few of the Senators, who have already
    spoken, I think made some important points, but they really
    should be emphasized because, despite the support you may have
    here, any nomination can be a little bit challenging. A lot was
    made of bipartisanship. Bipartisanship is important. In the
    legislative process, we look for bipartisan relationships
    because they might help us to enact legislation more quickly.
        But as was pointed out, whether we like it or not, the way
    the 1974 Budget Act was written, it created a very partisan
    process. I think this Committee probably ought to look at why
    that is and what the shortcomings of the 1974 Budget Act are.
    Because if we are frustrated by the partisanship of that
    process, then we need to look at the law because that is
    largely what drove it. Under Democrats or Republicans, the
    budget process has been extremely partisan, and that is
    certainly not Jim Nussle's fault.
        In fact, I think the point we have to look at is in a
    partisan environment, what are the characteristics that we
    really want in a leader. Whether it is the leader of OMB or
    leader in any other part of the Executive or Legislative
    Branch, we want professionalism, we want civility, we want
    integrity, and we want credibility. And if we listen to Senator
    Harkin, Senator Grassley, and their personal experiences, and
    Congressman Spratt, with whom I was pleased to work with in the
    House on a lot of partisan matters, those are the
    characteristics that Mr. Nussle has brought to his job in the
    House and I know he will bring to OMB.
        So I think it is at least as important as we talk about
    those characteristics of professionalism, civility, and
    integrity as we ask the question of what kind of a job Mr.
    Nussle will do at OMB.
        And as a corollary to that, if someone does not think that
    Mr. Nussle has those characteristics or has not exhibited them
    to the extent that they might have liked to have seen in the
    past, I hope they will be up front, honest, and professional
    about describing those instances where Mr. Nussle may have
    fallen short. And I will say to date what I have heard mostly
    from the few voices that have provided some criticism is
    phrases like people have said to me that they felt Mr. Nussle
    was ``a little confrontational at times,'' or ``I heard that
    someone said that they had a problem with him.''
        Well, that is not appropriate. It is simply not appropriate
    to criticize someone's performance by repeating rumors or
    secondhand information that you may or may not have heard from
    someone else. If someone has a criticism, I hope that they will
    absolutely be public and give Mr. Nussle the opportunity to
    deal with that very directly, as I know he always has. Whether
    Republican or Democrat, as we have heard, if you have had a
    disagreement with him, he is happy to talk to you about it
    directly and honestly, and that is what professionalism,
    civility, and credibility is all about.
        Finally, on matters of policy, it is important that we
    bring up policy initiatives that we care about as senators or
    House members in dealing with the Director of OMB. But I do
    hope that a disagreement on a particular vote or a particular
    issue is not a requisite for not supporting the nominee.
    Otherwise--not that any of us harbor any aspirations to ever be
    nominated by any executive to any position, but if disagreement
    on one vote one time is a reason to vote against a nominee,
    none of us are going anywhere.
        So I think this is a terrific nominee from personal
    experience, but also observing from afar the work that Mr.
    Nussle has done in his past. And as I said, I want to come back
    to this issue of management. There is responsibility for
    financial management within OMB, for transparency issues and
    accountability, for the financial systems that other
    departments and agencies bring. I want to give you an
    opportunity to talk about one or two areas that you think we
    can really improve the way the Executive Branch goes about day-
    to-day management and oversight and accountability on the
    financial management side.
        Mr. Nussle. Well, Senator, first let me say thank you for
    your comments, and I, too, while I have observed people on the
    other side who have disagreed with me from time to time, cannot
    think of a time where I have ever questioned their motives.
    They sincerely disagree, and they sincerely and very
    passionately disagree with me on issues. That does not mean
    they are partisan. That means they have passionate
    disagreement. And that is healthy for our system. In some
    countries, that spills out into the streets. Thankfully it only
    spills into a committee room now and then, and sometimes to the
    floor. And while we find that distasteful, it is better left
    there than on the street.
        With regard to management, I have had a chance to be
    briefed on a number of these, and I would be very interested,
    if I am confirmed, to work with you and others on this
    Committee who I know are very concerned about the ``M'' in OMB,
    and appropriately so. The three that I observed and have asked
    questions about maybe more intensely than others:
        First, the fact that in the next 10 years, 60 percent of
    our Federal workforce will be eligible for retirement. We are
    going to lose a lot of good people to retirement, appropriately
    so. How do we replace them? How do we find the kind of quality
    individuals who are willing to be in public service and serve
    the needs of our country, our communities, and our
    constituents?
        Second, keeping up with technology. The whole E-Government
    office that is part of OMB has a monstrous task; $66 billion is
    the number I was told that the Federal Government is purchasing
    and has under its control, assets involving information
    technology. It is a daunting task, and if you are in a small
    business in Iowa just trying to keep up with the advances in
    technology, it is hard enough. Trying to do it as a Federal
    Government with $66 billion plus in your ledger for financing,
    making sure they communicate, making sure they are adequate,
    making sure they are doing the things you wanted them to do,
    all of that is very important.
        The third is financial management in general. I remember
    one of my very first hearings on the Budget Committee, a
    hearing about some of the financial management challenges at
    the Defense Department, as an example, and others where we are
    just not able to do an audit. People find money all the time.
    They find that they lost money all the time. I picked up the
    paper the other day, and dead farmers are getting farm
    payments. We pick up the paper, and we find that ice is shipped
    some place away from Hurricane Katrina and melted at taxpayers'
    expense, according to the GAO report. I mean, we find this all
    the time, and we wonder why can't we do a better job of
    managing those billions, let alone the nickels and dimes that
    go around.
        So those are the three big management challenges, and they
    involve enormous sums of money. We will argue and debate and
    discuss and hopefully come to a conclusion over this 2 percent.
    But I can tell you, we probably and unfortunately waste more
    than that in the Federal Government just this year alone. And
    the President's budget has a number of areas that I have been
    informed about that work on these improper payments, and there
    has been some savings--I believe $9 billion just in the last 2
    years have been saved through some reforms in improper
    payments. But much more work needs to be done there, and so
    those would be the three huge management challenges, I would
    say, that confront the next Director, and I hope I am confirmed
    to be able to take those on and tackle them.
        Senator Sununu. Thank you, Mr. Chairman.
        Chairman Lieberman. Thanks, Senator Sununu. I was thinking
    as Senator Sununu was raising the question of the allegations
    of your partisanship, some say from your record in the House
    you were quite bipartisan. Others say you were quite partisan,
    and they cite a single incident. So I think to make the record
    of this hearing complete, I should ask you, if confirmed,
    whether you pledge never to put a paper bag over your head
    again. [Laughter.]
        Mr. Nussle. Mr. Chairman, everyone is--at least I have
    always thought everyone is allowed at least one freshman
    mistake. It is one of those incidents that--I am proud of the
    fact that it rooted out what was, I think, a bipartisan
    scandal. It was not a partisan scandal.
        Chairman Lieberman. Right.
        Mr. Nussle. It actually was a bipartisan scandal. But I
    believe I can safely commit to you, Mr. Chairman, that I will
    not be doing that.
        Chairman Lieberman. That is very reassuring. [Laughter.]
        Not just to the Committee, but I am sure to the
    Administration.
        Mr. Nussle. And to my family as well, I would have to say.
        Chairman Lieberman. Thank you very much. Senator Tester.

                  OPENING STATEMENT OF SENATOR TESTER

        Senator Tester. Thank you, Mr. Chairman. I want to thank
    Jim Nussle for being here today.
        I appreciate your comment on Senator Warner's question
    about the war in Iraq being funded not through the regular
    budget process but through supplementals and how you would
    fight to make sure that changes back. At least that is what I
    heard you say.
        Mr. Nussle. Yes, sir.
        Senator Tester. And I would be interested to know, just on
    a side note, if you could tell me why it was done that way. It
    does not make any sense. You were chairman of the Budget
    Committee in the House for most of the time that was going on.
    Why did they go the supplemental route? I could see it maybe
    the first year, but 4 years out, 5 years out?
        Mr. Nussle. Senator, I can only give you the answers that I
    was given at the time and that you have probably been given as
    well, and I will not dwell on them except to say most of the
    reason for having a supplemental ever is because during the
    normal budget process, something could not have been budgeted
    for. It was an emergency. But let me get to why I was
    frustrated.
        Senator Tester. Sure.
        Mr. Nussle. But that is the argument that is always made:
    We do not know how much it is going to cost; we do not know
    what the exigency will be; we do not know what challenges will
    lay out there.
        But it was never zero. The challenge I saw was they would
    fail to fund it in the year, and then in the out-years pretend
    as though they were not going to be there. And that was
    frustrating to me.
        So I agree with you that at least there ought to be some
    acknowledgment, and that is what was not there until this year.
    Finally, there has been, I think, some good work in
    acknowledging that challenge.
        Senator Tester. Well, I appreciate your leadership in
    pushing that forward to make sure it is done right in the
    regular budget.
        On veterans, there has been a lot of talk about the funding
    for veterans. There has been a lot of talk about the needs in
    the Veterans Administration with Operation Iraqi Freedom and
    Enduring Freedom, the war in Afghanistan, on and on, disability
    claims, health care. The list goes on and on.
        Your perspective? Where are we at? Are we headed in the
    right direction as far as veterans benefits and the allocation
    of the dollars? And is it getting to the veterans on the
    ground? Are we moving in the right direction?
        Mr. Nussle. Well, Senator, in a bipartisan way, together
    with members of my committee, I never saw a President's budget
    that we were not willing to plus up a little bit for the
    veterans because of their service. This was true during the
    Clinton Administration; it was true during the Bush
    Administration. It will probably be true for a time to come. We
    need to honor their service. We need to make sure that their
    benefits are paid. We need to make sure that they have adequate
    access to those services.
        But I also believe we should constantly look at ways to
    deliver those services that recognize a changing world. I
    represented a rural area, and you, obviously, probably
    represent one of the most rural areas in the country. And
    access to veterans' services is challenging.
        We came up with this clinic system as an example where
    outpatient clinics could be put forth. Those are bipartisan
    discussions as a way to be able to serve veterans in a new way
    than maybe the outdated ways that were done during the 1960s
    and 1970s. We need to constantly look at reforming the system
    to make sure those dollars are delivered to the veterans.
        Senator Tester. I appreciate that, and I appreciate your
    commitment to the people who served, making sure they get the
    benefits that are owed.
        Native Americans, the trust responsibility, the fact that
    we had a hearing in the Indian Affairs Committee not long ago
    where a person from the Bureau of Indian Affairs (BIA) said,
    ``I have to choose between allocating dollars to abused
    children and roads.'' And the question is, there has been a lot
    of funding, whether it is Indian health, whether it is roads,
    whether it is social services, where a lot of those funds have
    been reduced.
        What is your perspective? Do you think that is reasonable?
    Do you think that the BIA is accountable enough? What is your
    perspective on that budget? And do you think it needs to be
    bumped up or maintained?
        Mr. Nussle. Senator, this is an area in which I have to
    admit not having a lot of personal knowledge during my time in
    Congress, but I would commit to listening to you and working
    with you to understand the challenge that not only you have but
    that Native Americans have throughout our country. So let me
    commit to doing that rather than try to fumble through a guess.
        Senator Tester. Outstanding. You talked about a path to
    balance the mandatory spending. I assume you are talking about
    Social Security and Medicare in particular. What are your
    suggestions? What are you going to advocate?
        Mr. Nussle. Well, it is not so much balance; it is
    recognizing that the amount of revenue that has been obligated
    for those amounts are either running out or we know they are
    inadequate. They are unfunded in the out-years. As I say, we
    have 10 years to solve Social Security. We probably do not even
    have that.
        Senator Tester. Undeniable. What would you advocate?
        Mr. Nussle. I think at this point in time the proposals are
    imperfect on both sides. Both sides have rejected proposals
    that the other sides have come up with. More than anything
    else, we need to continue this conversation. We cannot just
    assume that we will wait for the calm of a non-election year.
    As you and I both know, it is always an election year, it
    seems, and if we are waiting for that calm, my guess is that
    calm will never come. We need to recognize the storm and get to
    work, at least talking to one another, all of us, about the
    kind of proposals that could work to solve that problem.
        Senator Tester. OK. Well, I certainly appreciate it, and I
    think the priorities of listening, learning, teamwork, and
    honesty are good foundations to work off.
        I am new to this body at the Federal level. You were Budget
    Chairman from 2001 to 2007. The national debt has increased
    from $5.8 trillion in 2001 to $9 trillion, about a 50- percent
    increase.
        You were chairman of the Budget Committee in the House. You
    had Republican comrades in the Senate, a Republican
    administration. Can you explain how we have had a 50-percent
    increase in our national debt under folks who claim to be
    fiscally conservative?
        Mr. Nussle. Well, Senator Tester, let me just recount for
    you--and this is probably why I like a challenge. I was elected
    at a time when we had the dot-com bubble burst; we had the
    corporate scandals that put shivers into the marketplace; we
    had the attacks of September 11 during one of my very first
    months as Chairman; we had the emergency spending that came
    after that; of course, the war on terror; Hurricanes Katrina
    and Rita. And the list goes on and on, and that drove up
    enormous amounts of spending.
        I will tell you, though, that one of my very first
    experiences, in addition to submitting a budget, was to work
    together with Republicans and Democrats in the aftermath of
    September 11 to respond. And I can tell you, there was never a
    brighter moment, even though it was deficit, even though it was
    a struggle, even though people had differences of opinion, we
    came together in a bipartisan budget way that people forget
    about and responded. And I think it was one of the foundations
    that has kept our country moving in a positive direction, which
    would have been a gut punch to other countries that they would
    have never gotten up from.
        Senator Tester. And I appreciate that, by the way. I think
    just a closing comment and then I will shut it down because I
    know my time has run out. But on my farm, I look at income and
    I look at expenses. I just don't look at expenses. I look at
    income, too. And the fact that income tax has been static for
    the last 7 years tells me something is going on there, either
    that the schedule is flawed or we do not have the kind of
    growth we need or we have reduced our ability to get those
    funds.
        But I do know one thing. If I continue to increase my debt
    by 50 percent over 5 or 6 years--you know this, too, coming
    from Iowa--you are not going to be in business long. And my
    concern is for our kids and our grandkids in this country.
        I want to thank you very much for being here. I want to
    thank you very much for making your answers as concise as
    possible. And I appreciate your candidness.
        Mr. Nussle. I look forward to working with you. Thank you.
        Senator Tester. Thank you.
        Chairman Lieberman. Thank you, Senator Tester. Senator
    Voinovich.

                 OPENING STATEMENT OF SENATOR VOINOVICH

        Senator Voinovich. Thank you, Mr. Chairman. I ask unanimous
    consent that my statement be made part of the record.
        Chairman Lieberman. Without objection.
        [The prepared statement of Senator Voinovich follows:]

                    PREPARED STATEMENT OF SENATOR VOINOVICH

        Good morning. I would like thank the Chairman for this Committee's
    timely consideration of the nomination of Jim Nussle to be the Director
    of the Office of Management and Budget (OMB). I had the privilege of
    meeting with Mr. Nussle last week and was impressed with his
    understanding of the fundamental issues facing our nation. If
    confirmed, Mr. Nussle would come to this position as our nation faces
    some of the most daunting financial challenges in its history.
        I arrived in Washington in 1999, and in the eight short years
    since, our national debt has increased by over 50 percent from $5.6
    trillion to a staggering $8.7 trillion. It represents 67 percent of the
    GDP--the worst number in 50 years. This means that each man, woman, and
    child in the United States owes $29,000 of the federal government's
    debt. And yet, these numbers pale in comparison with the budget
    problems looming in our future as the Baby Boom generation begins to
    retire 161 days from now, on January 1, 2008. Reality is setting in
    that this is not just a far-off prediction. It's a growing storm on the
    horizon that threatens to overwhelm our economy if we do not act now.
        In today's dollars, we face a long-term fiscal imbalance of $50
    trillion; that's such a big number it's hard for any of us to even
    grasp, but it works out to $440,000 for every household in the United
    States. When I warned of our fiscal problems last year, the fiscal gap
    was $46 trillion, or $405,000 per household. In just that one year, our
    future debt obligations have grown by $35,000 per household. Every year
    that we wait and do nothing, this debt continues to grow. Just six
    years ago, the fiscal gap was ``only''--and I put the word ``only'' in
    quotes--$175,000 for every household, less than half of what it is
    today. This is not a can we can kick down the road.
        What is of growing concern to me is that 55 percent of the
    privately owned national debt is held by foreign creditors--mostly
    foreign central banks. That's up from 35 percent just five years ago.
    Foreign creditors--including China and OPEC--provided more than 80
    percent of the funds the United States has borrowed since 2001,
    according to the Wall Street Journal. Borrowing hundreds of billions of
    dollars from foreign governments puts not only our future economy, but
    also our national security, at risk. It is critical that we ensure that
    countries that hold our debt do not control our future.
        Mr. Chairman, we cannot continue to ignore the fiscal crisis
    confronting our nation. The Comptroller General of the United States
    has been participating in a series of fiscal wake up tour events--
    including one in Columbus, Ohio, that Mr. Nussle's predecessor, Rob
    Portman, attended; and another in Cincinnati that I helped organize--to
    discuss with Americans the real state of the nation's fiscal health. I
    share the Comptroller General's concern, which is why I have partnered
    with Representative Frank Wolf to introduce the SAFE Commission Act.
    The SAFE Commission would establish a bipartisan commission to propose
    tax and entitlement reforms. Congress would be forced to consider those
    proposals under fast-track procedures similar to BRAC or trade
    promotion authority.
        Furthermore, I believe Mr. Nussle and I agree that for a long time,
    the M in OMB had been forgotten. Under strong leadership from Deputy
    Director Clay Johnson, I believe this Administration has brought much
    needed focus to management. Of particular interest to me are the
    challenges confronting the federal government in recruiting and
    retaining the world class workforce necessary to lead this nation
    through the 21st Century. OMB has a partner in this endeavor with
    Director Linda Springer at the Office of Personnel Management. In
    addition, during the last two and a half years, I have been working
    with OMB and the Government Accountability Office (GAO), and various
    federal departments, including the Department of Defense, to address
    GAO's High Risk list. The High Risk list identifies federal programs
    that are highly vulnerable to waste, fraud, abuse, or mismanagement. In
    developing partnerships among all involved, the government has crafted
    a strategic plan for all but one of the 21 programs identified on the
    High Risk list. Mr. Nussle, as Director of the Office of Management and
    Budget, I would expect you to continue this partnership, ensure
    resources are available to address problem areas, and hold departments
    accountable for progress.
        A great challenge in government is for organizations to retain
    appointees in key leadership positions. As executive branch agencies
    begin to prepare for the 2009 budget cycle, I hope Congresses
    recognizes the need for a Director of Management and Budget to be in
    place to communicate funding priorities through the government and to
    the Congress.
        Thank you.

        Senator Voinovich. Mr. Nussle, thank you very much for
    taking time out of your schedule to visit with me in my office.
    You have come to Washington to continue your public service at
    a very important time for our President and also for our
    country.
        As you know, I am very interested in management, and one of
    the things that you ought to know is that the agency you have
    been nominated to lead, the Office of Management and Budget,
    ranks very low on the President's Management Agenda. Are you
    aware of that?
        Mr. Nussle. I am.
        Senator Voinovich. Yes, OMB received red marks on all
    categories but one where it received a yellow rating, and I
    hope that this something you will focus on during your term.
        This Committee has worked hard to re-establish the ``M'' in
    OMB. I think about management in terms of working harder and
    smarter and doing more with less. I think about having the
    right people with the right knowledge and skills at the right
    place and time, and also being able to recruit, retain, and
    reward workers. I believe Clay Johnson has done a pretty good
    job in this area, but there is still a whole lot more that
    needs to be done. I would hope that you would particularly look
    at the need to reform our security clearance process, which has
    been on GAO's high-risk list for a long time. I would also call
    your attention to the work that Senator Akaka and I have done
    on the issue of supply chain management. It looks like maybe we
    are going to make some progress there. And what I hope you will
    do is look at the high-risk list, review the strategic plan
    that Clay Johnson has put together, and then make sure there
    are adequate performance metrics in place.
        In addition, I would like you to look at whether we need a
    Chief Management Officer (CMO) for certain agencies. I would
    like to see one in the Department of Homeland Security. DHS
    continues to face numerous challenges as it merges 22 agencies
    and more than 200,000 employees. DHS will remain a mess unless
    we have somebody who is going to pay attention to management.
        I believe the Defense Department is another agency that
    would benefit from a CMO where I think maybe we need someone
    with a 5-year term to ensure the Department's business
    transformation finally gets done.
        I also, as you know, have been interested in tax reform and
    in entitlement reform. I remain very disappointed in the
    Administration that they did nothing with the report that came
    back from the Breaux-Mack Commission.
        As you know, Congressman Frank Wolf and I also have
    introduced legislation, the SAFE Commission Act, to try to put
    a BRAC process in place to do tax and entitlement reform. I
    would like your opinion on the possibility of advancing reform
    in either of these areas. The alternative minimum tax (AMT)
    needs to be dealt with.
        How do you feel about these issues? Will you be an advocate
    in the Administration for tax reform?
        Mr. Nussle. Senator, I happen to believe that the
    alternative minimum tax may very well be the fuel that could
    help us with this project that you and I have visited about in
    private as well, and that is on reforming the Tax Code. It
    unfortunately never seems to have the critical mass behind it
    that it needs in order for the engine to start running toward
    reform. But AMT is probably one of the more challenging issues,
    budget issues, tax issues, that all of us are grappling with.
    And it is possible--I am suggesting that this could be the fuel
    that fuels that.
        So, yes, sir, I will be an advocate for comprehensive tax
    reform, to work on that with the Secretary of the Treasury,
    whom I also know is interested in that, or I have been told
    that and have read that, as well as a number of Members of
    Congress on both sides of the aisle who recognize, as Senator
    Levin suggested, that competitiveness is at issue, and so many
    others that recognize that our Tax Code is broken and needs to
    be overhauled.
        So, yes, sir, I would be an advocate and would enjoy, if I
    am confirmed, working with you on not only the tax reform
    issue, but also, knowing of your interest in the management
    area, any help we can get from you and others to help us push
    through continuing management successes and improvements I
    think would also be important for this Administration.
        Senator Voinovich. Well, I can tell you that in terms of
    tax reform, we have not really been encouraged. Your
    predecessor and I talked about it over and over again, and I
    know he was very interested in it. I think if you want to do
    something that is relevant at the end for the American people,
    at least get started with tax reform. It is so needed today.
    Everybody that you talk to says we have to do it. And I think
    that this Administration as part of their legacy could lay the
    groundwork for real reform.
        I think that would resonate with the American people, and
    it would be so important, I think, as part of this President's
    legacy to this country.
        Mr. Nussle. Thank you. As I say, I would be happy to work
    with you on that. I happen to agree. One of the things I have
    learned in my 16 years in Congress is that oftentimes you need
    a little extra push, a little gas for the engine, so to speak.
    The engine of reform does not always run on its own. It needs a
    little fuel, and sometimes that fuel is negative reaction from
    our constituents. I do not know of one that could be any more
    negative than the AMT, and it may very well be the engine's
    fuel that we need to help push this forward.
        So I would be honored, if confirmed, to work with you and
    others on that project.
        Senator Voinovich. By the way, Breaux-Mack included AMT
    reform. Thank you.
        Chairman Lieberman. That is true. Thanks very much, Senator
    Voinovich.
        I would like to ask the indulgence of Senator Coleman and
    Senator McCaskill. Senator Akaka was here earlier and had to go
    to another committee, so he did not get his round of questions.
    I would like to call on Senator Akaka now.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman.
        It is good to have you here, Congressman Nussle. I also
    want to welcome your wife, Karen, to this hearing. I know how
    important a role she plays in all that you do.
        I understand that you were a part of the 2000 White House
    political transition team. However, from a management
    perspective, preparing for goverment-wide departmental
    transitions, which will occur in just 18 months, is an even
    bigger task, especially at DHS. Do you have any plans to have
    OMB begin laying the groundwork to ensure that agencies are
    prepared to carry on management initiatives into the next
    administration?
        Mr. Nussle. Thank you, Senator. I do not have any specific
    plans today that I can report to you. Having had an opportunity
    to be briefed on the part of the staff, Clay Johnson, and
    others who are working in this area, the management legacy is
    one that will be carried on, in part because of the bipartisan
    support it enjoys on Capitol Hill as much as anything.
        I believe that the next administration will ignore the
    management piece of OMB at their peril. I think it is smart
    from a business standpoint. I think it is smart from a
    budgetary standpoint. I think it is smart from a political
    standpoint. How embarrassing is it to pick up the newspaper and
    hear of waste, fraud, and abuse within your administration? And
    so ignoring this peril of managing these resources, I think,
    would be to the detriment of any administration, and having the
    backing of yourself and so many others with regard to the ``M''
    in OMB, I think, will be a legacy that will live on almost
    regardless of who takes the directorship or who takes the
    Presidency.
        Senator Akaka. In many of your pre-hearing questions,
    Congressman, you focused on budgetary issues, with little
    emphasis on management. What do you see as the relationship
    between OMB's dual roles of directing management and
    formulating a budget?
        Mr. Nussle. Management is how you get it done. You are so
    right. The dollars are what usually grabs the headlines. The
    dollars are usually what we fight about and where we oftentimes
    see problems come up. But it really can be alleviated with
    better management.
        As I was saying before to a previous question, we are
    talking about a potential challenge in ending this fiscal year
    and beginning a new one over $20 billion--please do not
    misunderstand me, that is a lot of money. I am not suggesting
    it is not. But we have more than $20 billion that have been
    identified in overpayments in the Federal Government that
    through better management needs to be dealt with, needs to be
    alleviated, needs to be eliminated, and those resources
    redirected to either the appropriate parties or be plowed back
    into savings that can go to help reduce the deficit and pay
    down our debt.
        So I believe the management side of this equation is very
    important. The ``M'' comes before the ``B,'' and everybody who
    is in business recognizes that you cannot be successful in your
    business or in your personal life if you do not manage those
    resources properly.
        Senator Akaka. You are very correct on that. Many of the
    problems we have relating to fraud and waste are usually due to
    poor management. This is something that would be your
    responsibility if confirmed.
        I would like to ask one final question. Under current rules
    for contracting for services, contractors can be hired to
    develop, manage, and even oversee other contracts or
    contractors. At a hearing last week, Comptroller General David
    Walker said that it was time to redefine what we should
    consider inherently governmental functions.
        Do you think that the Federal Government relies too much on
    contractors?
        Mr. Nussle. It is a fair question, Senator, and I am not
    sure in the aggregate I am able to answer that, if it is too
    much or not enough. But I would say that you are correct--at
    least I agree with you that there should be a concern about
    particularly contractors managing contractors managing
    contractors in some instances it has been, as I understand it.
    I saw that question in the hearing packet that was sent to me,
    this is an area that we have talked about in my briefing, and I
    am told that this is an area that is not intended as anything
    but an inherently governmental role, meaning overseeing
    taxpayers' dollars, the spending of those dollars, the
    management of contractors, where contractors are appropriate.
    That management is inherently governmental.
        I am not confirmed yet. I cannot negotiate with you what
    that definition would be. But let me say to you, Senator, that
    I believe that to be an inherently governmental role, and I
    would be happy to work with you, if I am confirmed, to make
    sure that definition is clear so that in our oversight from OMB
    of contracts, my responsibility and role is clear in making
    sure that there is oversight of those contracts.
        Senator Akaka. Well, thank you very much. I really
    appreciate your responses.
        Thank you, Mr. Chairman.
        [The prepared statement of Senator Akaka follows:]
                      PREPARED STATEMENT OF SENATOR AKAKA
        I would like to welcome Congressman Nussle and his family to this
    hearing. With the fiscal and management challenges facing our nation,
    finding someone capable of strong leadership and a spirit of
    cooperation is essential for heading the Office of Management and
    Budget.
        With a budget approaching 1 trillion dollars, on top of a spiraling
    national debt, it is only natural that the Office of Management and
    budget focus on the ``B'' in OMB. However, the management
    responsibilities of the Director of OMB are every bit as important. In
    fact, government management is tied very closely with the budgetary
    powers wielded by OMB.
        There are now 27 areas on the Government Accountability Office's
    High Risk List, which are indicators of programs across the government
    at risk for waste, fraud or abuse. Almost all of these areas are tied
    directly to poor management at the agencies.
        It is the responsibility of OMB to set guidance for the Federal
    Government to ensure sound management. The Federal Government now faces
    weaknesses in contracting management, human capital management, and
    financial management. As Chairman of the Oversight of Government
    Management subcommittee, I have witnessed first hand how a failure to
    manage effectively can waste taxpayer dollars and harm government
    missions.
        I understand that the nominee has little experience in management.
    I look forward to hearing how he intends to address management issues
    effectively in light of this inexperience.
        I am also greatly concerned over the budgetary crisis this country
    now faces. While you will face more questions on this on Thursday
    before the Budget Committee, budgetary issues are also of very great
    importance to this committee.
        The Federal dollar continues to be stretched to meet the needs of
    the wars in Iraq and Afghanistan, the Global War on Terror, the
    continuing aftermath of the 2005 hurricane season, and our other
    domestic priorities. At the same time, this Administration has
    attempted to push through tax cut after tax cut.
        Adding over $200 billion a year to the national debt is simply not
    sustainable. This heavy burden should not and cannot be laid at the
    feet of our children and our grandchildren. I am hopeful that Congress
    has finally started to right the fiscal course, which I have not been
    satisfied with throughout the current Administration.
        However, the Administration has threatened to veto many of the
    spending bills that Congress intends to pass in the coming months. This
    Administration must understand that in a divided government, it is
    essential that we all work together. It is my hope that whoever is at
    the helm of OMB will understand this imperative and work cooperatively
    with Congress on spending.

        Chairman Lieberman. Thanks very much, Senator Akaka.
    Senator Coleman.

                  OPENING STATEMENT OF SENATOR COLEMAN

        Senator Coleman. Thank you, Mr. Chairman. I want to start
    off by saying I am very pleased the President has nominated
    Representative Nussle for this position. I think he brings the
    expertise and he brings leadership. I think he brings the
    judgment that we need at this time. And so I look forward to
    supporting this nomination.
        I just want to respond to a comment my colleague from
    Montana raised and asked about, which is how did we get in this
    deficit situation with folks who are supposed to be firm
    against deficits. I could respond by saying, well, when I was
    in the majority I voted against a trillion dollars of
    additional spending by my friends on the other side. I could
    say that right now the deficit is only 1.5 percent of the
    overall economy, the 40-year average is 2.4 percent. I could
    say a lot of things.
        I am reminded of the ``Pogo'' cartoon that said, ``We have
    seen the enemy and it is us.'' The reality is--you are going to
    be in a position where there are programs that are important to
    us that you are going to come in and recommend spending less
    than we want to spend. I have had battles with OMB over
    community development block grants (CDBG). You have been a
    champion of that during your time in the House.
        I say that because--I have also used the position as
    Chairman of the Permanent Subcommittee on Investigations to
    fight waste, fraud, and abuse--significant waste, fraud, and
    abuse. I want to make sure that we do not bring green eyeshades
    to the equation, that there are things that we invest in, like
    community development block grants (CDBG), that then promote
    economic growth in our communities.
        And so as we go through this process--and we could play
    political football one way or the other. But I am not looking
    for an answer on this because I know you have been there. You
    have been in the trenches. But there are those things that do
    generate growth, that are investment, that are infrastructure,
    and I hope we do not forget that.
        When you were talking about the ``M'' in management, the
    second piece was technology. Congress passed the Federal
    Information Security Management Act in 2002, and it focused on
    cyber security. I believe Federal agencies scored an average of
    C-minus in the last year's information security card. This is a
    critical issue. This is a national security issue.
        Can you tell me as Director of OMB what you would do
    differently to address cyber security? I do not want the FISMA
    thing to be simply seen as a patchwork responding to a report.
    I think we need a real commitment to cyber security; otherwise
    we will pay a very big price. Can we hold agencies more
    accountable? Can we do more things with the private sector? Do
    we need additional resources? I would love your perspective on
    that issue.
        Mr. Nussle. Senator, all of those answers that you just
    gave or particular potential alternatives may be correct, and I
    am not in a position, having not held the position of OMB
    Director, to be able to maybe give you enough wisdom or advice
    on exactly how that should be dealt with. But let me suggest to
    you, if I am confirmed, I am certainly much more in tune to
    that than I was as House Budget Chairman, not only how much
    responsibility lays within OMB, but how much the Director has
    to be personally committed to that.
        I am still learning the role, I would have to suggest, and
    so I may not be clear on all of the ways that I can apply
    pressure. But I would suggest that, first and foremost, I need
    to work with those different department heads, secretaries,
    agency administrators, etc., to ensure they understand--I
    believe they do, but how we can ensure that the resources that
    have been allocated deal with those challenges, work with
    Congress to make sure that we provide the kind of oversight and
    lessons learned, best practices, so that when there is an
    agency or a department that goes in one direction it should
    not, we can quickly snap that back and learn from that
    experience and move in a more positive direction.
        So I would commit, if I am confirmed, to work with you on
    this issue and to work with our E-Government Office to ensure
    that this is a commitment that is held throughout the
    government.
        Senator Coleman. My concern is that this becomes more than
    a paperwork drill. We had the VA reporting stolen external
    drive hardware impacting 26 million veterans. I think Commerce,
    Agriculture, and TSA have all reported incidents. I just think
    it is important.
        And then a last comment about technology. One of the
    comments I have heard from a number of agencies has been the
    difficulty in meeting--when we did the Hurricane Katrina
    hearing, we had a situation where FEMA said they knew stuff was
    in the pipeline, but they did not know where it was. And my
    comment was, ``Why don't you call FedEx?'' I mean, the 21st
    Century, you should not be losing anything today. You should
    know where it is. And the response has come back a number of
    times of the difficulty in getting IT personnel, the level of
    expertise, in the Federal Government. The problem is that
    consumers really expect us to operate like the private sector
    does. They put the bank card in the ATM machine, and they get
    money out right away all over the world. And I have heard this
    from a number of agencies that it is difficult to get the level
    of talent, and so when the GAO says you need to come back with
    a change in 2003, they are still looking at getting it done in
    2006 and 2008, and maybe later.
        So I raise that again, without looking for an answer right
    now, to simply raise the issue that in the end these are things
    that will make us cost-effective, that will make us safer, and
    apparently we are facing some grave challenges in getting the
    talent and moving forward at the level of the private sector.
    It really should not be way ahead of government on these
    things.
        Mr. Nussle. Well, thank you, Senator. It is the reason I
    made my comment to Senator Sununu that I did. I think it is one
    of the most important management challenges that OMB has, and
    that is the fact that we are losing--it is not only
    recruitment, but we are losing the ones that are experienced,
    too. So there are both sides to that coin, and so I appreciate
    that, and I appreciate your highlighting that with me. And if
    confirmed, I would be glad to work with you on that challenge.
        Senator Coleman. Thank you. Thank you, Mr. Chairman.
        Chairman Lieberman. Thank you, Senator Coleman. Senator
    McCaskill, welcome.

                 OPENING STATEMENT OF SENATOR MCCASKILL

        Senator McCaskill. Thank you, Senator Lieberman.
        Thank you, Mr. Nussle, for being here today. My colleague
    from Montana talked about the deficits under the watch of
    President Bush and the Republican-led Congress. I would like to
    talk about earmarks.
        It is unbelievable to me the growth in earmarking in the
    last decade. In 2005, when President Bush traveled to Illinois
    to sign the highway bill into law, it contained more earmarks
    in one piece of legislation than the entire history of the
    Highway Trust Fund going back to 1956. So in one stroke of the
    pen, the President enacted more--including the Bridge to
    Nowhere, which was later pulled out after people figured out it
    was in there. But there was lots of other stuff in there.
        In 1995, when the Republicans took over Congress, there had
    never been up until that point an earmark in the Labor, Health
    and Human Services appropriation bill, and look at it now.
        Just this year, the Republican Party in the House has
    requested 10,000 earmarks in this budget. And the President is
    now making noise--this is the big irony. You talk about
    hypocrisy. The President is now making noise about earmarks,
    and he has been earmarking at a record pace for a President.
        I understand that people in Congress want to fund special
    projects at home. I think they incorrectly believe that most of
    their constituents want them to. I think they are wrong. I
    think most of their constituents want them to have the
    discipline to not participate. And, by the way, it has gotten
    to the point, as you well know, Congressman, that there was a
    spread sheet in the back room. I mean, this is a spread sheet.
    People are going in a back room, and you are told, ``You get
    this much money. Tell us what you want.'' And that is it, and
    then it got in the bill.
        Now, you were here as that process really took root. And I
    am not saying that Democrats aren't doing the same thing. This
    is a nonpartisan criticism.
        As the Chairman of OMB, what can you do to say the emperor
    wears no clothes? I mean, the idea that now we are talking
    about vetoing appropriation bills because of earmarks? Give me
    a break. I mean, he signed a thousand of them with all kinds of
    earmarks, and yet never said a word about earmarking. And it
    has become this political football, which, frankly, there are a
    few Republicans who do not participate in the earmark process.
    You probably know who they are. There are not that many of
    them. There are even fewer, probably, Democrats who do not
    participate in the earmark process. I am going to try to be one
    of them. I had over 300 groups come to my office saying they
    had been promised earmarks by my predecessor.
        Now, how are we going to get a handle on this? How are we
    going to push everyone away from the trough? Because this is
    not only bad budgeting, it is bad management.
        Mr. Nussle. Senator, I recall even my own thoughts in that
    regard, and the challenge, of course, comes up when those 300
    constituent groups come to your office and they tell you that--
    and I do not have knowledge in this instance--the last person
    they talked to, the last Senator they spoke to, or your
    neighboring district Congressman promised them the same
    earmarks, why aren't you supporting Iowa, or Missouri, whatever
    it might be?
        So you are right, it is not only the pressure that comes
    from within the Congress, but it is also the pressure that
    comes from home when they don't quite understand why they can
    get the same commitment from someone else in the delegation.
    And I think all of that is runaway.
        I would say what I tried to do--and I do not come to this
    with clean hands. I am not suggesting I do. If you got that
    impression from me, I will admit to the fact that I cheerfully
    attempted to get earmarks for my district and was successful
    and issued press releases hoping to take a little credit for
    that.
        But what I will say is that I did suggest during that same
    period of time, those 2 years, those two cycles when I was
    House Budget Committee Chairman where this became an issue,
    that we stop the practice for everyone, that we have a
    moratorium on any new earmarks. I did not want to prejudge,
    let's say, an earmark that someone had gotten that had gone
    through the process and had been approved. But I said no new
    ones, let's just have a moratorium, and even that was not
    acceptable.
        So I do not come to this with clean hands. I also do not
    come to this with a certain amount of success in doing that.
    But we have to start somewhere, and I believe the most
    important part of what the President has put out there is one
    other area that you did not mention that I would just throw out
    for your consideration, and that is transparency.
        The one thing that I believe your earmarks and my earmarks
    should be able to withstand is the light of day, whether it is
    the light of day from our constituents or maybe more
    importantly the light of day from our members and colleagues
    that we serve with. Too often, I think the challenges with
    earmarks are the ones that no one ever saw, the ones that were
    dropped in at the last moment, the ones that seemed to go to
    certain members of committees or certain people with fancy
    titles. That is where people get frustrated, or at least I got
    frustrated as a member.
        So I would think that the transparency of the goals the
    President has laid out is the most important goal that we need
    to live within, and if we do that, I think that transparency,
    that disinfectant of the light of day will solve much of this
    challenge.
        Senator McCaskill. Are you willing to advocate that the
    President make all of his earmarks transparent as he submits a
    budget?
        Mr. Nussle. Yes, ma'am, and----
        Senator McCaskill. Because frankly, Congress looks like
    pikers in this budget compared to the President in terms of how
    many earmarks are in it.
        Mr. Nussle. Well, if I may offer to you, the one difference
    that I would suggest to you is that, of course, the President
    has to put all of that on the table in the budget to start
    with. So if you want to call it an earmark, I certainly respect
    that. But you know it is there. The difference, as I was
    saying, that I think is frustrating to people is they do not
    see them.
        Senator McCaskill. Well, but sometimes you cannot tell it
    is there, though. I mean, you know that knowledge is power, and
    you know the reason this process has grown and there has been
    no accountability is because--and frankly, I have been critical
    of some of my colleagues on my side of the aisle. The idea that
    we need to vet earmarks internally--I will tell you who are the
    best people to vet earmarks. It is the public. That is the best
    vetting of earmarks. It is not Chairman Obey and it is not a
    committee--it is not a subcommittee chairman of an
    Appropriations Committee in the Senate. It is the public. And
    if the President is willing to put his name with specificity on
    projects that this is one he wants, then I think the public
    can--and I do not care whether it is a Democrat or Republican
    President. I think you are right. I think that would go a long
    way because, frankly, some of this stuff people are going to be
    embarrassed to put their name on. And so I think that might
    help.
        Then just briefly, if I could, Mr. Chairman, just one more
    question. Besides the earmark issue, noncompetitiveness. There
    was $200 billion in noncompetitive contracts in our government,
    which is more than 10 times the amount of earmarks. We have
    seen a growth in noncompetitiveness in terms of contracts in
    this Administration unlike any other.
        What will you do, if confirmed as OMB Director, to reverse
    the very dangerous trend, which is the worst kind of management
    you could ever have in a public body, of letting all of these
    contracts without competition?
        Mr. Nussle. If I may first just say one thing for the
    record, I am told by a note that was passed to me that the
    President has not specifically threatened a veto based on
    earmarks. I am not interested in arguing. I know what your
    point is, and I respect it.
        Senator McCaskill. The politics has already started on
    this.
        Mr. Nussle. I understand.
        Senator McCaskill. And it is all of a sudden the Democrats
    are the big bad boys in spending, which is just nuts.
        Mr. Nussle. All I am saying is I do not think any specific
    threat has been made based on that.
        Senator McCaskill. OK.
        Mr. Nussle. But I take your comment very sincerely, and I
    appreciate it.
        As far as the contracting goes, I, too, have been
    frustrated by some of that, and I have done some research on it
    to learn a little bit about why the government does these sole-
    source contracting or contracts that are not competed for.
    There are some situations where, because of an emergency,
    because of the exigency of getting a job done, you have to do
    it that way quick, and go get it done. The other, of course, is
    that there are some instances where there is only one source
    that makes a particular product or provides a particular
    service. Those are maybe rare, but they do happen, and there
    are reasons why that would occur.
        I think the goal here should be even in those instances
    where that might be the first order of business, we should look
    to constantly work toward a more competitive model. And so when
    you ask me what I would do, I would say to the gentlelady, if I
    have the opportunity to be confirmed, I will take that very
    much as a priority that we need to work toward a more
    competitive model and do so across the board where that is
    available, and that it should be transparent so that oversight
    not only on the part of the Administration through OMB as well
    as the primary contracting agency can provide oversight, but so
    that you can provide oversight as a Member of the Senate.
        So both of those need to be part of the commitment that I
    make, and I am happy to work on that with you.
        Senator McCaskill. OK. Thank you very much. Thank you, Mr.
    Chairman.
        Chairman Lieberman. Thank you, Senator McCaskill.
        Mr. Nussle, you have been excellent and given good
    responses. I am going to exercise the prerogative of the Chair
    and ask you a few more questions.
        Mr. Nussle. Please.
        Chairman Lieberman. The first is on defense spending and
    defense budgeting. It seems to me--and it is there in the
    numbers--that one of the most significant reasons why we have
    added to the Federal debt over the last 5-plus years is that we
    have increased spending on defense and homeland security post-
    September 11.
        Personally, I am on record as having said and still
    believing that I wish we had adopted a special war on terrorism
    tax at the outset post-September 11 to both fund increases in
    spending that were necessitated for homeland security and also
    particularly after we got into the wars in Afghanistan and
    Iraq, which have been very costly, and that we had asked as
    effectively as we could every American to pay something
    according to their tax bracket.
        But that has not happened. Defense spending has,
    nonetheless, increased necessarily quite significantly, and yet
    I think on the facts there is a very compelling argument to be
    made that we are still not spending enough.
        I can tell you as a member of the Armed Services Committee
    that the service chiefs presented to us more than $50 billion
    of what they consider to be unfunded priorities. These are not
    just ``it would be nice if I could have them.'' These generally
    fall into the category of ``I really need them and the troops
    need them, but it is not within the budget limits that you have
    given me,'' either in the President's budget or in the
    congressional budget resolution.
        Now, as you know, some Members of Congress in both parties
    have looked at possibly tying defense spending to a percentage
    of the GDP on the argument, which is a factual argument, that
    we are spending significantly less as a percentage of GDP on
    defense now than we did certainly during Vietnam, which was
    about twice as high a percentage. Korea was extremely high,
    much higher. We are at about 4 to 5 percent--now closer to 4
    percent, probably; Vietnam was over 9 percent; Korea was 13
    percent; and, of course, the Second World War was over 33
    percent at one point.
        So I know that in the questioning with the Committee staff
    you rejected that kind of tie to a fixed percentage of GDP. I
    wanted to ask you to speak a little bit about defense spending,
    whether you think, in fact, there are priority needs that are
    being unmet, and if you don't accept the goal of getting to a
    certain percentage of GDP, what is the metric, what is the
    standard that, as the Director of OMB, you would apply to
    defense spending?
        Mr. Nussle. Well, first of all, Senator, it is the most
    important priority of our government to maintain our freedom,
    and so we should take this very seriously. And I think it is
    illustrative to compare it to GDP because GDP is one
    denominator that we can use to compare a number of things,
    whether it is health care costs, defense, or taxes. I think it
    is a good measure. But the reason I saw it as maybe too
    imperfect was it seems to me to be arbitrary to tie it to a
    number and take the prerogative either away from the Commander-
    in-Chief in determining whether it should be higher or lower
    or, for that matter, from the Congress in its Article I
    responsibility of the power of the purse to make that decision,
    again, outside of that arbitrary match to GDP.
        Second, GDP is hard to measure. In fact, I should not say
    it is hard to measure, it is awkward in that you will get a new
    GDP number here shortly, and the number, let's say, will come
    out with growth at 2 percent. And then it is adjusted 6 months
    later, and adjusted after that, either up or down, imperfectly
    making it a match to use as a denominator here.
        Finally, you asked me the direct question, are there needs
    that are being unmet? Yes, sir, I am sure there are. There are
    also areas where money is being wasted and not accounted for. I
    am sure they are there as well. And it is a constant pressure
    or tension on both sides that I think we need to grapple with.
    When you say what will be my metrics, obviously the Commander-
    in-Chief's judgment and that of the Secretary of Defense in
    concert with the authorizing committees will be an important
    measure in determining what those priorities should be. I will
    do my best to balance those priorities with all of the rest in
    making my recommendations to the President. I do not have a
    magic bullet metrics I can whip out for you and say this is
    exactly how it is going to be measured. But I would end where I
    started, and that is, it is the most important thing we do, and
    that is providing for the security of our country.
        Chairman Lieberman. On that we agree. I want to talk
    briefly about PAYGO. As you know, one of the ideas in
    legislative statutory proposals we had for a considerable
    period of time through the 1990s is PAYGO, that anytime you
    raise spending or cut taxes, you have to cover that so that we
    do not go into deficit. And I gather from the staff interview
    that you support PAYGO for spending but not for cuts in taxes,
    and that the reason--and you correct me if I am wrong--is that
    you believe tax cuts pay for themselves. There are obviously a
    lot of reasons to adopt tax cuts, either because they are fair
    or because they stimulate some other general activity that is
    good for the country. But where is the evidence, if I am
    quoting you correctly, that they pay for themselves?
        Mr. Nussle. Well, that quote was one of those passionate
    moments where we were debating tax policy, and I would, if I
    may, rephrase it slightly. There are some tax cuts that are
    much more dynamic in their economic effect in stimulating the
    economy and bringing more revenue into the Federal Government
    than others. That is not true across the board. If I made that
    blanket statement, it was in error.
        Having said that, though, the whole notion of PAYGO, as you
    know, Senator, is a congressional rule. The President has come
    out against PAYGO. My position on PAYGO has generally been
    negative. But I will tell you, I have entertained the
    possibility of extending PAYGO within a comprehensive model. If
    you looked at the proposed legislation that I drafted together
    with Ben Cardin in a bipartisan way, we actually extended PAYGO
    as part of a comprehensive model.
        What I see as problematic is when you use PAYGO almost as a
    way to try to get Congress to do what it might normally not be
    in favor of doing. It is a political speed bump to a process
    which is political, small ``p''--meaning if the Congress works
    its will and decides to reduce taxes, as it did, I believe, in
    a couple of instances throughout the 1990s when PAYGO was in
    effect, PAYGO was waived.
        So PAYGO is there as a speed bump. We know it is there.
    Whether or not we spring over the top of it or allow it to stop
    the vehicle in motion is still a political decision. And that
    is why I found it to be imperfect as a way to determine whether
    or not legislation ought to be considered.
        Within an overall comprehensive reform package, I would
    keep an open mind with you, Senator, as we would possibly
    consider that; not to prejudge that, but I believe it is a
    spending challenge that we face in our country more so than
    ensuring more revenue is coming into the Federal Government.
        Chairman Lieberman. OK. Last question, and this takes me
    back to the beginning, and I present you with this
    hypothetical, but it is in all likelihood a probable scenario:
    that appropriations bills begin to be passed, and one reaches
    the President which takes us, by the projections, over the $933
    billion that he has in his budget as the top line for domestic
    discretionary spending, so he vetoes it.
        As OMB Director, what do you do next?
        Mr. Nussle. Well, and your question presupposes what I
    stated to begin with as well, and that is, that is not the
    final answer. It cannot be. Our government must continue. Our
    country must be successful, and in order to do that, the
    Congress and the President must work together to work out their
    differences. And I would hope that we do not get to that first
    scenario. The first veto is what we need to avoid.
        There is always this comment about the fact that the
    President never vetoed these bills in the past, and I would
    just relate that one of the reasons why I believe that is
    true--and I cannot speak for the President or read his mind--is
    that during those times, even when there was Democratic control
    of the Senate during my time as Budget Chairman, we held the
    line in the 302(a) number to the discretionary number in the
    President's budget. It was awkward, it was challenging. We had
    fights, we had discussions, we had debates. People were not
    exactly satisfied, but we always held to that number.
        The challenge this year that we have is that the President
    is suggesting that this number is being breached, and I believe
    that is the reason why Rob Portman has made the suggestions he
    has made to the President about vetoing it.
        We are going to have to work through that, and I do not
    have a silver-bullet answer for you on exactly where that is
    going to end up. But I know, as I said to start with, it has to
    begin with conversation and communication in the 27 legislative
    days that we have remaining. And you have been very considerate
    to me, not only in working through this process with your staff
    and questions, but in meeting with me and giving me a timely
    hearing. I appreciate that because I know that, as I say,
    having watched this process, I believe one of the things that
    could help is having a Director in place that wakes up every
    day and works to resolve this.
        Chairman Lieberman. Well, I thank you for the answer. That
    is exactly the challenge that you are going to have, and I
    think your background in Congress, and particularly some of the
    bipartisan work you did, will enable you to take action that
    will avoid crises that are unnecessary and, most of all, that
    will allow us to dispatch our responsibility to the people of
    our country.
        So I thank you for your testimony today, for your
    willingness to accept this responsibility, for your wife's
    willingness to be supportive of you as you do that.
        The record, without objection, for this hearing will be
    kept open until 12 noon tomorrow for the submission of any
    written questions or statements. In the meantime, I thank you
    again and look forward to working with you.
        The hearing is adjourned.
        [Whereupon, at 12:13 p.m., the Committee was adjourned.]

                                A P P E N D I X

                                  ----------

                      PREPARED STATEMENT OF SENATOR OBAMA

        The position of Director of the Office of Management and Budget is
    critical to the effective running of our government. On issues of
    fiscal policy, regulatory compliance, and government management, the
    Director of OMB must work with all Executive Branch departments and
    agencies, the White House, and Congress to ensure adequate and
    transparent budgets, satisfactory compliance, and the effective and
    responsive performance of government functions.
        I approach this nomination, like all nominations, with an open mind
    because I believe a President should generally get the benefit of the
    doubt in assembling his or her cabinet. The nomination process is not
    the best place either for petty political squabbles or major
    substantive debates. Our duty to advise and consent on nominations
    requires us to judge the competence and qualifications of nominees and
    to ensure that they have the character and commitment to uphold our
    Constitution and respect their role within it. Basically, will a
    nominee be an asset or an obstacle to the important work the American
    people expect us to be doing?
        It seems to me that a successful Director of OMB needs good policy
    judgment and political sense, integrity, and effective working
    relations with leaders in Congress. I believe that a successful
    Director also needs to prefer evidence to ideology, collaboration over
    confrontation, and concern for the common good over special interests.
        Congressman Nussle comes to us with a significant amount of Federal
    budget experience. He is not new to the political debates of the annual
    budget process and not unaware of the steps involved and compromises
    required in getting from the President's Budget Proposal to a
    Concurrent Resolution by both houses of Congress to Conference
    Committee Reports on the various Appropriations bills. He understands
    the tasks that will confront him if he is confirmed.
        Whether or not Rep. Nussle has the appropriate appreciation for the
    regulatory and management functions of the job and whether his budget
    experience demonstrates the capacity to effectively perform the key
    functions of the job are the questions that will be probed today by the
    Homeland Security and Government Affairs Committee and on Thursday by
    the Budget Committee.
        I had the opportunity to submit some questions to Rep. Nussle prior
    to the hearing and I have just a few more questions that I'd ask
    unanimous consent to submit today for the record. I look forward to
    reviewing his answers to my questions and the questions of my
    colleagues before reaching a conclusion on this nomination.

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