[Senate Hearing 111-549]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-549
 
                     NOMINATION OF PETER R. ORSZAG

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

NOMINATION OF PETER R. ORSZAG TO BE DIRECTOR, OFFICE OF MANAGEMENT AND 
                                 BUDGET

                            JANUARY 14, 2009

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

                       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              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado

                  Michael L. Alexander, Staff Director
                   Lawrence B. Novey, Senior Counsel
               Kristine V. Lam, Professional Staff Member
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                   Jennifer L. Tarr, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     5
    Senator Levin................................................    17
    Senator Akaka................................................    21
    Senator Tester...............................................    23
    Senator Voinovich............................................    27
    Senator Carper...............................................    29
    Senator Landrieu.............................................    32
    Senator McCaskill............................................    35

                               WITNESSES
                      Wednesday, January 14, 2009

Hon. John M. Spratt Jr., a Representative in Congress from the 
  State of South Carolina........................................     8
Hon. Paul Ryan, a Representative in Congress from the State of 
  Wisconsin......................................................     8
Peter R. Orszag to be Director, Office of Management and Budget..    10

                     Alphabetical List of Witnesses

Orszag, Peter R.:
    Testimony....................................................    10
    Prepared statement...........................................    46
    Biographical and financial information with attachments......    51
    Responses to pre-hearing questions...........................    85
    Letter from the Office of Government Ethics with an 
      attachment.................................................   143
    Responses to post-hearing questions for the Record...........   145
Ryan, Hon. Paul:
    Testimony....................................................     8
Spratt, Hon. John M., Jr.:
    Testimony....................................................     8
    Prepared statement...........................................    41

                                APPENDIX

Chart titled ``Civil Works Capital Investment as a Percentage of 
  GDP,'' submitted for the Record by Senator Landrieu............   169


                     NOMINATION OF PETER R. ORSZAG

                              ----------                              


                      WEDNESDAY, JANUARY 14, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:03 p.m., in 
room 342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Levin, Akaka, Carper, Pryor, 
Landrieu, McCaskill, Tester, Collins, Voinovich, and Coburn.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good afternoon and welcome to our 
hearing today. Today, we are going to hold two hearings back-
to-back for the nominees to lead the Office of Management and 
Budget (OMB). First, we will consider the nomination of Peter 
R. Orszag to be Director of OMB. That child of yours, I would 
say, is absolutely adorable. I am going to give you a moment 
later on to introduce him. But I would say as a parent and now 
a grandparent, I am greatly admiring of his posture. He is 
sitting right up there. [Laughter.]
    Senator Levin. He is embarrassing the rest of us.
    Chairman Lieberman. After Mr. Orszag, immediately after, we 
will hear the nomination separately of Robert L. Nabors to be 
Deputy Director.
    At this point, I would welcome both of you. We are happy to 
have you with us today, and thank you for your service to our 
country and your willingness to serve once again.
    These nominations come at a time of unprecedented budgetary 
and economic peril for our Nation beyond even the normal for 
the Office of Management and Budget and those who lead it. The 
economy, after all, is facing a painful recession at the same 
time our government faces massive budget deficits. In response, 
the incoming Obama Administration is putting together a major 
economic recovery and reinvestment package, developing plans to 
achieve long-term budget stability, and at the same time 
instituting an ambitious program to improve performance and 
reduce the cost of government.
    Those are difficult, important, and enormous undertakings, 
and OMB must be a leader in all of them. So the two of you have 
your work cut out for you.
    Dr. Orszag, with your extensive experience in budget and 
public policy, you are well qualified to assume the big 
responsibilities of the position to which you have been 
nominated. Your government experience includes nearly 2 years 
as Director of the Congressional Budget Office (CBO) and 
several years as a Senior Economic Advisor in the Clinton White 
House. You have also held prominent academic and private-sector 
positions in a wide range of economic and policy areas.
    The Director of OMB is a key member of the President's 
economic team, helping the President prepare and execute the 
budget across 14 Cabinet departments and more than 100 
executive agencies, boards, and commissions. The OMB Director 
recommends how to spend every tax dollar, oversees the 
management of every Federal Government agency program, and 
reviews rules, every rule, really, but rules, I mention by 
example, vital to our public health, worker safety, 
environmental protection, and regulation of our financial 
institutions.
    If confirmed as OMB Director, you will be overseeing more 
new government money being spent more rapidly than I think we 
have ever experienced in our history. The stimulus package that 
the new Administration is putting together, between $750 and 
$800 billion, dwarfs the size of the budgets of most of the 
countries in the world and if enacted would be more than eight 
times the size of the annual budget of our largest State, 
California.
    So I look forward to hearing from both of you today about 
the measures you intend to take to ensure that these enormous 
sums that will be spent quickly will also be spent wisely and 
responsibly.
    Beyond the immediate crisis, we face long-term fiscal 
imbalances that have been rising for years while we here in 
Congress and in the Executive Branch, as well, have acted as if 
they were not there. Now, the moment of truth, and I hope the 
moment of responsibility, has arrived.
    Last week, the Congressional Budget Office projected a $1.2 
trillion national deficit in fiscal year 2009, this year, and a 
cumulative deficit of over $3 trillion over 10 years. These 
numbers don't even take into account the cost of the stimulus 
package that I have just talked about or the long-term costs of 
rising health care and Social Security expenditures beyond the 
10-year budget window.
    Mr. Orszag, in both academia and government, you have been 
a leader in identifying and analyzing the major long-term 
budgetary challenges of our time, so I am eager to hear this 
afternoon your thoughts on how the new Administration can move 
our country with Congress toward fiscal responsibility.
    For decades, we have depended on the willingness of our 
trading partners to subsidize our consumer and government 
deficits. The result has been large trade deficits and a 
gradual transfer of wealth from the United States to foreign 
countries, notably China and countries in the Middle East. Over 
the long term and perhaps shorter than that now, this is not 
just undesirable, it is unsustainable. I want to know how you 
would begin to right these imbalances, both at the governmental 
and macro-economic levels.
    The OMB Director, I presume and hope, will also be a key 
player in helping to strengthen what we all agree now is our 
fragmented and inadequate financial regulatory structure to 
prevent the type of meltdown we are now experiencing from 
happening again. Failure of our regulatory agencies to police 
Wall Street adequately has certainly contributed mightily to 
the current national economic crisis.
    I personally believe that rather than adding layers of 
regulation to the patchwork that already exists, real reform 
must begin by clearing the table of the entire existing Federal 
framework of financial governance so that we can begin by 
building a new regulatory system that really will protect 
America's investors, institutions, consumers, and economy. On 
this, too, I look forward to hearing your views today.
    Oversight of Federal acquisition of goods and services is 
another increasingly important responsibility of the OMB 
Director. Federal purchasing has exceeded $400 billion for the 
past several years, and OMB must wring every possible 
efficiency out of the contracting process.
    Finally, the OMB Director has critical responsibilities to 
guide implementation of information technology and e-Government 
across the Federal Government. I personally am excited that the 
President-Elect has big plans to use technology to increase 
public accessibility to government and government 
accountability. This Committee has done extensive work in 
authorizing e-Government legislation, and we look forward to 
working with you to help this shared vision become a reality.
    So we have a lot of ground to cover today. It is important, 
critical ground, and, of course, a lot of important work to do 
together in the years ahead. I, for one, look forward to it. 
Thank you.
    [The opening prepared statement of Senator Lieberman 
follows:]

            OPENING PREPARED STATEMENT OF SENATOR LIEBERMAN

    Good afternoon. Today we hold two back-to-back hearings for the 
nominees to lead the Office of Management and Budget. First, we will 
consider the nomination of Peter R. Orszag to be Director of OMB, and 
immediately afterward, we will consider the nomination of Robert L. 
Nabors to be Deputy Director.
    Dr. Orszag and Mr. Nabors, I welcome you both. We're happy to have 
you with us today and thank you for your service to our country.
    These nominations come at a time of unprecedented budgetary and 
economic peril for the nation, which means challenge beyond even the 
normal for OMB and those who will lead it. The economy is facing a 
painful recession at the same time our government faces massive budget 
deficits. In response, the incoming Administration is putting together 
a major recovery package, developing plans to achieve long-term budget 
stability, and at the same time instituting an ambitious process to 
improve performance and reduce costs of government. Those are difficult 
and critically important undertakings, and OMB must be a leader in all 
of them. So the two of you have your work cut out for you.
    Dr. Orszag, with your extensive experience in budget and public 
policy, you are well qualified to assume the big responsibilities of 
the position to which you have been nominated. Your government 
experience includes nearly two years as director of the Congressional 
Budget Office and several years as a senior economic advisor in the 
Clinton White House. You have also held prominent academic and private-
sector positions in a wide range of economic and policy areas.
    The Director of OMB is a key member of the President's economic 
team, helping the President prepare and execute the budget across 14 
cabinet departments and more than 100 executive agencies, boards, and 
commissions. The OMB Director recommends how to spend every tax dollar, 
oversees the management of every Federal Government agency program, and 
reviews rules vital to the public health, worker safety, environmental 
protection, and regulation of our financial institutions.
    I do not believe I am overstating the gravity of the situation to 
say that we are at a defining moment in our history. GDP is falling and 
unemployment is rising. In the last year, America's stock markets and 
housing sector have lost more than $12 trillion in value. Consumers are 
not spending, banks are not lending, manufacturing plants are closing 
down, and icons of American industry--such as General Motors and 
Chrysler--are on the brink of bankruptcy. Over half a million workers 
lost their jobs in December, bringing the total jobs lost in 2008 to 
2.6 million. The national unemployment rate is 7.2 percent and rising. 
Most economists now predict that the current downturn will be the worst 
since the Great Depression.
    The incoming Administration has adopted an aggressive and activist 
approach to jumpstart the economy based on an economic recovery and 
reinvestment program which will inject a massive increase in demand for 
goods and services--a demand that would come from the government 
through public works spending, and from consumers and businesses 
through tax relief. The price tag of $800 billion or more is jaw 
dropping, unprecedented, and, in this case, necessary.
    If confirmed as OMB Director, you will therefore be overseeing 
government spending like none we have ever witnessed. The stimulus 
package alone dwarfs the size of most nations' budgets and, if enacted, 
it would be more than eight times the size of the annual budget of our 
largest State--California. I look forward to hearing from both of you 
today about the measures you intend to take to ensure the maximum 
benefit for our people and our economy.
    Beyond the immediate crisis, we face long-term fiscal imbalances 
that have been rising for years, while we have acted as if they were 
not there. Now, the moment of truth and responsibility has arrived. 
Last week, the Congressional Budget Office projected a $1.2 trillion 
national deficit in fiscal year 2009 and a cumulative deficit of over 
$3 trillion over 10 years. And these numbers don't even take into 
account the cost of the stimulus package or the long-term costs of 
rising health care and Social Security expenditures beyond the 10-year 
budget window. In both academia and government, Mr. Orszag, you have 
been a leader in identifying and analyzing the major long-term 
budgetary challenges of our time, so I am eager to hear your thoughts 
on how the new Administration can move our country, with Congress, 
toward fiscal responsibility.
    For decades, we have depended on the willingness of our trading 
partners to subsidize our consumer and government deficits. The result 
has been large trade deficits and a gradual transfer of wealth from the 
United States to foreign nations, notably China and the Middle East. 
Over the long term, and perhaps now in the short term, this is not just 
undesirable, it is unsustainable. I want to know how you would 
recommend we begin to right these imbalances, both at the governmental 
and macro-economic levels.
    The OMB Director will also be a key player in helping to strengthen 
what we all agree is our fragmented financial regulatory structure to 
prevent the type of financial melt-down we are now experiencing from 
happening again. The failure of our regulatory agencies to police Wall 
Street adequately has contributed mightily to the current crisis. I 
personally believe that rather than adding layers of regulation to the 
patchwork that already exists, real reform must begin by clearing the 
table of the entire Federal framework of financial governance so we can 
build a new regulatory system that will work to protect America's 
investors and institutions. The OMB Director will have an important 
voice in any substantial reorganization of the financial regulatory 
structure, and so I would like to hear your views on what should be 
done.
    Oversight of Federal acquisition of goods and services is another 
increasingly important responsibility of the OMB Director. Federal 
purchasing has exceeded $400 billion a year for the past several years, 
and OMB must wring every possible efficiency out of the contracting 
process. We simply cannot afford the cost overruns or wasteful spending 
that we too often see. The government's increased reliance on 
contractors has created a need for more sophisticated and demanding 
management across agencies on a range of complex issues, including 
oversight of contractor performance, safeguards against conflicts of 
interest, prohibitions on contractors performing inherently 
governmental work, and the replenishment of the acquisition workforce.
    Finally, the OMB Director has critical responsibilities to guide 
implementation of information technology and e-Government across the 
Federal Government. I personally am excited that the President elect 
has big plans to use technology to increase accessibility and 
accountability. This Committee has done extensive work in authorizing 
e-Government legislation, and I look forward to working with you to 
help this shared vision become a reality.
    We have a lot of important ground we must cover today, and a lot of 
critically important work we must do together in the years ahead.

    Senator Lieberman. Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. The fact that our 
opening statements are so similar does not indicate collusion 
but just the fact that there is bipartisan concern about the 
issues that you raise.
    As you indicated, seldom have nominees for the Director and 
Deputy Director of the Office of Management and Budget come 
before this Committee at a more critical time. The Federal 
budget is under tremendous stress from the impact of a deep 
recession and the costs of rescue and stimulus packages. 
Spiraling entitlement costs are driving long-term budgetary 
imbalances. And the next few years will also see the cresting 
waves of baby boom retirements with enormous effects on Social 
Security and Medicare expenditures as well as on our own 
Federal workforce.
    Pointing to these trends and to the estimated $1.2 trillion 
deficit for the current fiscal year, the President-Elect has 
prudently warned that unless strong measures are taken, the 
outlook is for ``red ink for as far as the eye can see.'' Our 
Nation's public debt has reached $6.3 trillion, about 45 
percent of our gross domestic product (GDP). According to the 
CBO, Federal spending will climb to an astonishing 25 percent 
of GDP this year, more than at any time in American history 
outside of World War II, and I know given our nominee's 
background that he will not contest those CBO figures in this 
case.
    With a stimulus package worth another perhaps $800 billion, 
our Nation's debt as a percentage of GDP could rise to 60 
percent, the highest level since World War II. That is, of 
course, an unacceptable and unsustainable scenario in the long-
term for our government, for the economy, and for the families 
and business owners who pay the government's bills.
    OMB will be the leading player as the incoming 
Administration formulates policy to deal with the grim present 
and an uncertain future. OMB will also be an indispensable link 
to Congress as the Executive and Legislative Branches work 
toward consensus on finding a sustainable path forward.
    Dr. Orszag comes before the Committee with an impressive 
set of skills and experiences. As the former Director of the 
CBO, he is very familiar with the Legislative Branch as well as 
with the intricacies of the budgets and policy analysis.
    I take special interest in several issues for which the OMB 
Director is a key player. The overriding concern, of course, is 
the Federal budget. Dr. Orszag has already indicated that the 
economy and stimulus measures portend a near-term rise in the 
deficit. But as he knows and as we have heard from former 
Comptroller General, David Walker, and other experts, the 
outlays in recent years and the growth of unfunded entitlements 
are unsustainable.
    This recession will not last forever, so we desperately 
need a realistic plan to avoid having the Federal budget become 
an enormous drag on opportunities for job growth and higher 
personal income, for people's ability to decide what to do with 
their own money. And let me add that the public expects from 
the next Administration far better oversight and aggressive 
stewardship of the Troubled Asset Relief Program (TARP) and of 
any future economic recovery packages.
    Another major OMB responsibility falls under the general 
heading of Executive Branch management. This Committee has 
repeatedly documented a voluminous, shocking waste of taxpayer 
dollars by the Federal Government in virtually every program 
and department. Many of these examples have arisen in the realm 
of government contracting. Our Committee has successfully 
passed important reform legislation to improve the Federal 
acquisition process, but additional reforms, particularly the 
revitalization of the Federal acquisition workforce, must be 
high on OMB's list of targets for critical improvements.
    Effectiveness and equity are other key management concerns. 
Homeland Security grants, for example, are essential to ensure 
that every State can achieve a baseline level of readiness and 
response capability for both manmade and natural disasters. OMB 
needs to examine budget plans carefully to ensure that they are 
consistent with that goal.
    Other special concerns, which the nominee has recognized in 
his responses to our pre-hearing questions, include 
transparency in government operations, an issue of vital 
importance, I know, to Dr. Coburn and to many on this panel; 
metrics for agency performance, so we actually can measure and 
evaluate more effectively; closer attention to the Government 
Accountability Office (GAO) High-Risk List; and the need to 
tackle escalating costs of health care and entitlement 
programs.
    Today, the Committee will also consider the nominee for one 
of the Deputy Directors at OMB, Robert Nabors. I look forward 
to learning more about his background, particularly his 
experience as a program examiner at OMB during the Clinton 
Administration. That past OMB service included oversight of a 
previous census, and this Committee is painfully aware of the 
failures, particularly in the area of technology and planning 
for the upcoming census.
    Our exploration today with both nominees of the financial 
and management hurdles facing the Federal Government makes this 
a critically important hearing.
    Thank you, Mr. Chairman.
    [The opening prepared statement of Senator Collins 
follows:]

             OPENING PREPARED STATEMENT OF SENATOR COLLINS

    Seldom have nominees for director and deputy director of the Office 
of Management and Budget come before this Committee at a more critical 
time.
    The Federal budget is under tremendous stress from the impacts of a 
deep recession, and the costs of rescue and stimulus packages. 
Spiraling entitlement costs are driving long-term budgetary imbalances. 
And the next few years will also see the cresting waves of Baby Boom 
retirements, with enormous impacts on Social Security and Medicare 
expenditures, as well as on our Federal workforce.
    Pointing to these trends and to the estimated $1.2 trillion deficit 
for the current fiscal year, the President-Elect has prudently warned 
that unless strong measures are taken, the outlook is for ``red ink as 
far as the eye can see.''
    Our Nation's public debt has reached $6.3 trillion--about 45 
percent of gross domestic product. According to the Congressional 
Budget Office, Federal spending will climb to an astonishing 25 percent 
of GDP this year--more than any time in American history outside of 
World War II. With a stimulus package worth another $800 billion or 
more, our Nation's debt as a percentage of GDP could rise to 60 
percent, the highest level since World War II. That is, of course, an 
unacceptable and unsustainable scenario for the government, for the 
economy, and for the households and business owners who pay the 
government's bills.
    OMB will be the leading player as the incoming administration 
formulates policy to deal with a grim present and uncertain future. OMB 
will also be an indispensable link to Congress as the Executive and 
Legislative branches work toward consensus on a sustainable path 
forward.
    Dr. Orszag comes before the Committee with an impressive set of 
skills and experiences. As a former director of the non-partisan 
Congressional Budget Office, he is familiar with the legislative 
branch, as well as with the intricacies of budgets and policy analysis. 
His earlier service as an economic advisor, as a scholar, and as a 
consultant has given him other important perspectives that will prove 
valuable if confirmed as OMB director.
    I take special interest in several issues for which the OMB 
Director is a key player.
    The overriding concern, of course, is the Federal budget. Dr. 
Orszag has already indicated that the economy and stimulus measures 
portend a near-term rise in the deficit. But as he knows--and as we 
have heard from former Comptroller General David Walker and other 
experts--recent years' outlays and the growth of unfunded entitlements 
are unsustainable.
    The recession will not last forever, so we desperately need a 
realistic plan to avoid having the Federal budget become a mammoth drag 
on opportunities for job growth and higher personal income--and for 
people's ability to decide what to do with their own money. And let me 
add that the public expects far better oversight of the Troubled Asset 
Relief Program and of any future economic-recovery package.
    Another major OMB responsibility falls under the general heading of 
Executive Branch management. This Committee has documented a voluminous 
record of shocking waste of taxpayer dollars by the Federal Government 
in virtually every program and department.
    Many of these examples have arisen in the realm of contracting. 
This Committee has successfully passed legislation to improve the 
Federal acquisition process, but additional reforms, including 
revitalization of the Federal acquisition workforce, must be high on 
OMB's list of targets for critical improvements.
    Effectiveness and equity are other key management concerns. 
Homeland Security Grants, for example, are essential to ensure that 
every state can achieve a baseline level of readiness and response 
capability for natural or man-made disasters. OMB needs to examine 
budget plans carefully to ensure that they consistently support our 
Nation's first responders and help achieve our national goal for all-
hazards emergency preparedness.
    Other special concerns--which Dr. Orszag recognizes in responses to 
pre-hearing questions--include transparency in government operations, 
metrics for agency performance, close attention to GAO's High-Risk 
List, and the need to tackle the escalating costs of health care.
    Today the Committee will also consider the nominee for one of the 
deputy directors at OMB, Robert Nabors.
    I look forward to learning more about Mr. Nabors' background, 
particularly his experience as a program examiner at OMB during the 
Clinton Administration. That past OMB service included oversight of a 
previous Census and of agency technology investments, both areas of 
considerable concern today.
    Our exploration with these nominees of the financial and management 
hurdles facing the Federal Government makes this a critically important 
hearing. Thank you, Mr. Chairman.

    Chairman Lieberman. Thanks very much, Senator Collins.
    We are really honored to have with us today to introduce 
Mr. Orszag, Congressman John Spratt, Congressman Paul Ryan, the 
Chairman and Ranking Member, respectively, of the House Budget 
Committee. I gather that a vote has gone off in the House, so I 
want to let you two go forward. Speak as long or short as time 
allows, and then we will understand if you depart. But your 
presence is appreciated.

 TESTIMONY OF HON. JOHN M. SPRATT JR.,\1\ A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF SOUTH CAROLINA

    Mr. Spratt. Mr. Chairman, what I will do is read the 
opening paragraph and the concluding paragraph and submit my 
testimony for the record, with your consent.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Spratt appears in the Appendix on 
page 41.
---------------------------------------------------------------------------
    Chairman Lieberman. That is a good precedent for this 
Committee. [Laughter.]
    Mr. Spratt. Given the questions you outlined for Mr. 
Orszag, I don't think we need to be here anyway because I think 
you will be occupied for the rest of the afternoon.
    Chairman Lieberman, Ranking Member Collins, and Members of 
the Homeland Security Committee, thank you for allowing me to 
testify on behalf of Peter Orszag for Director of OMB.
    As I told the Budget Committee earlier this week, had the 
choice been mine, Peter Orszag is exactly the person I would 
have chosen for OMB, and indeed, 2 years ago, when the 
nomination for the Directorship of CBO was ours, Senator Conrad 
and I picked Peter Orszag, and let me tell you, he has 
fulfilled or exceeded our expectations in every way.
    Mr. Chairman, our economy is in recession, but this is not 
your garden-variety business cycle recession, and there is no 
off-the-shelf traditional solution for us to turn to. In times 
like these, we need our best and our brightest, and Peter 
Orszag fills that bill. He has the skills, the temperament, the 
intelligence, and the experience needed at OMB.
    I urge his confirmation and hope it will come swiftly 
because the work to be done at OMB is already laid out, which 
includes next year's budget coming on the heels of this year's 
stimulus bill. He has enough to do for us to confirm him as 
swiftly as possible and put him to work, where I know he will 
be an enormous help to the Government of the United States.
    I, without qualification and with the highest 
recommendation, recommend him for this post.
    Chairman Lieberman. Thanks very much, Congressman Spratt.
    Congressman Ryan.

TESTIMONY OF HON. PAUL RYAN, A REPRESENTATIVE IN CONGRESS FROM 
                     THE STATE OF WISCONSIN

    Mr. Ryan. Chairman Lieberman, Ranking Member Collins, it is 
a pleasure for me to be here, as well, with Mr. Spratt to 
support Mr. Orszag's nomination.
    The three of us have spent a lot of time together over the 
last 2 years, and I always enjoy the fact that when you 
typically have a witness, usually they put a glass of water in 
front of you. With him, we put a pitcher of Diet Coke in front 
of him. [Laughter.]
    Mr. Ryan. He is a high-octane, high-energy individual.
    One of the reasons why I am here to support his nomination 
is because of how he conducted himself and how he ran the CBO 
over the last 2 years. We budgeters really expect great 
integrity, fairness, and impartiality from the Congressional 
Budget Office. That is exactly the kind of leadership he 
provided to the CBO.
    While Mr. Orszag and I may come from and have different 
economic philosophies and doctrines, we have great respect for 
one another. This is a job at a time when we have the largest 
economic challenges in a generation, arguably the greatest 
fiscal challenges in the history of our Nation, and we need 
somebody to hit the ground running. He will not miss a beat on 
that.
    And I have every expectation and confidence that he will 
bring that sense of integrity in the numbers, that sense of 
impartiality to this new job. He is going from a job as an 
impartial referee to a job as an advocate for a particular 
Administration. And while I have concerns with the fiscal 
direction of this Administration on some levels, I have much 
more comfort. I am very pleased that he is going to be over 
there as the Director of the OMB.
    So it is with those thoughts in mind that I am here also to 
offer my support for his nomination.
    Chairman Lieberman. Thanks very much, Congressman Ryan.
    The presence of both of you means a lot to us, as I know it 
does to Mr. Orszag, so please feel free to go back and vote, 
and thanks for your attendance here.
    Mr. Spratt. Thank you, Mr. Chairman.
    Chairman Lieberman. All the best.
    Mr. Orszag has filed responses to a biographical and 
financial questionnaire, answered pre-hearing questions 
submitted by the Committee, and had his financial statements 
reviewed by the Office of Government Ethics. Without objection, 
this information will be part of the hearing record, with the 
exception of the financial data, which is on file and available 
for public inspection in the Committee offices.
    Our Committee rules require that all witnesses at 
nomination hearings give their testimony under oath. Mr. 
Orszag, would you please stand and raise your right hand.
    Do you swear that the testimony you are about to give to 
the Committee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Orszag. I do.
    Chairman Lieberman. Thank you very much. Please be seated.
    Mr. Orszag, we have previously referred to at least one 
member of your family who is here. If there are others, family 
or friends you would like to introduce, this is a good time.
    Mr. Orszag. Yes. In addition to my son, Joshua, I would 
also like to introduce my significant other, Claire. Joshua has 
joined me at the witness table. [Laughter.]
    Chairman Lieberman. You are welcome to call on Joshua.
    Senator Carper. Should we ask him to take an oath? 
[Laughter.]
    Senator Levin. Representative Ryan thinks you are high 
octane. He should meet your son.
    Mr. Orszag. Yes, I have to keep up with him.
    Chairman Lieberman. That is true.
    Before we proceed with your statement, and I promise you 
that this is the last time I will do this in public, but it is 
too irresistible for me. In the interest of full disclosure, 
Mr. Orszag, having taken the oath, I want to disclose a 
relationship that the two of us have.
    His mother grew up in Stamford, Connecticut, in the 
neighborhood of my mother, where my family grew up. Both Peter 
and I have found out from his mother and mine, different 
generations, that her father, Peter's grandfather, courted my 
mother when they were both teenagers living in the same 
neighborhood. And to give you a sense of what the courtship was 
like in those days, my mother remembers--he has passed away 
now, but she remembers your grandfather with great warmth--that 
he used to come over and help my mom, who was one of six 
children in a family whose father had died very early, do the 
family wash. A good man. [Laughter.]
    Undoubtedly, with a genetic interest in budgetary control 
and thrift, but anyway, now that is over and I have gotten that 
out----
    Senator Collins. Now the questions are going to come. 
[Laughter.]
    Chairman Lieberman. Please proceed with your statement at 
this time.

 TESTIMONY PETER R. ORSZAG,\1\ TO BE DIRECTOR, U.S. OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Orszag. Thank you very much. Senator Lieberman, Senator 
Collins, and Members of the Committee, I am honored to come 
before you as President-Elect Obama's nominee for Director of 
the Office of Management and Budget.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Orszag appears in the Appendix on 
page 46.
---------------------------------------------------------------------------
    I would also like to thank Mr. Spratt and Mr. Ryan for 
their introductions. As Director of the Congressional Budget 
Office, I worked to establish good relationships with members 
of both parties, and I hope to continue that spirit of 
bipartisanship if I am confirmed as Director of OMB.
    It is a momentous time to be holding this hearing. In the 
short-run, we face the worst economic crisis since the Great 
Depression, with job losses of more than 2.5 million over the 
last year and projected job losses of 3 to 4 million more over 
the coming year unless we act and act aggressively. Over the 
medium- to long-run, we face the prospect of daunting fiscal 
deficits that reflect an unsustainable course that the Federal 
budget is on.
    But what I want to spend most of my time with you on this 
morning is government performance. I am particularly pleased to 
be before this Committee because I believe that government 
performance and budget must be one. Government performance must 
be reflected in our budgetary priorities, and then the results 
of improved performance will yield benefits to the budget. So 
if I am confirmed, I would seek an OMB Version 2.0 where those 
two arms of the agency are better integrated and you see a more 
unified whole between performance and budgeting.
    Most of the performance issues the government faces today 
have developed over decades and will take time to address, but 
there is an urgency to begin now. We need to be open to new 
ideas and new ways of doing things. Improving performance 
overall requires not only sustained focus, but also a better 
set of metrics. After all, it is hard to change what you can't 
see or measure. Significant improvements to the existing 
performance management system are both possible and necessary.
    Let me touch briefly on several areas in which we can do 
better, many of which have already been discussed.
    First, procurement and contracting. The dollar value of 
Federal contracts has more than doubled over the past 8 years 
to more than $400 billion in 2007, but the number of qualified 
contract officers has remained flat at about 28,000. Given that 
disjuncture, it is not surprising that problems have arisen, 
especially at the Department of Defense. In addition to 
reviewing the use of no-bid, cost-plus, and interagency 
contract vehicles, we must improve the quality and quantity of 
the Federal acquisition workforce, and I am pleased that OMB is 
already working with the Federal Acquisition Institute to do 
this.
    We also need to use technology to create more transparency 
around procurement and contracting. Current vehicles, such as 
USAspending.gov, suffer from a lack of timely and accurate data 
and a presentation that is not seen as engaging enough to 
attract widespread visits. Technology can be a great way to 
create transparency that will spur competition and help 
identify problems.
    We also need to clarify what is and what is not an 
inherently governmental function, a line that has become too 
blurred in recent years. The use of contractors has grown 
dramatically, and the result is often that we are depleting the 
core skills of government agencies.
    That leads me to the second topic of human capital. Central 
to any effort to improve the performance of Federal programs 
has to be a strategy to restore the prestige to and increase 
the capacity of our Federal workforce. Over the next decade, 
roughly 60 percent of the Federal Government's 1.6 million 
white-collar employees and 90 percent of the 6,000 Federal 
executives will be eligible to retire. To mitigate and offset 
these expected retirements, we need to take a number of 
actions, including perhaps most importantly, as President-Elect 
Obama has said, making government cool again. We need to 
dramatically improve the Federal hiring process, and we need to 
provide more opportunities for civil servants to rise to 
policy-level offices so that they can aspire to seeing the 
results of their hard work in promotions.
    A third key topic is information technology (IT). The 
government currently spends $70 billion in non-classified 
information technology and perhaps another $20 to $30 billion 
in the intelligence community on information technology. On the 
one hand, IT investments can provide much better transparency 
and provide a platform for more extensive interaction with the 
American public. On the other hand, historically, IT 
investments have not been well integrated into the budget 
process and have often not been aligned with agency missions. 
They also need stronger management and auditing. Major IT 
projects have a poor track record in government.
    We also need to promote better cyber security. The number 
of threats continues to grow and represents risk to both key 
financial and other infrastructure, as well as data. If 
confirmed, I look forward to renewing OMB's commitment to cyber 
security through the comprehensive National Cyber Security 
Initiative and other efforts.
    A fourth key topic is financial management. Improper 
payments in programs such as Medicare, disability, and the tax 
code amount to perhaps $70 billion a year. These significant 
opportunities should be pursued vigorously. I have already 
heard about the results that have resulted from recovery 
auditing and other steps, and I think those are promising 
measures that we should be exploring more aggressively. In 
addition to paying more attention to the problem and recovery 
auditing, we can create stronger incentives for enforcement in 
the first place.
    We also must improve the management of the Federal 
Government's real property holdings. The Federal Government 
owns 1.2 billion structures valued at more than $1.5 trillion. 
Ten percent of these facilities are either under-used or empty. 
That is unacceptable. We need to more aggressively pursue 
opportunities for disposition and terminating inefficient 
leases so that we can better manage the Federal Government's 
own portfolio of real properties.
    Finally, we need to reexamine how we can best protect 
public health, the environment, and public safety through the 
regulatory process. I am pleased that the President-Elect has 
announced his intention to nominate Cass Sunstein, one of the 
Nation's leading law professors and thinkers and a specialist 
on regulation, to run the office within OMB responsible for 
coordinating regulatory policy.
    With that, Mr. Chairman, let me just reaffirm my commitment 
to working in a bipartisan manner with all of you, if I am 
confirmed, to tackle the very important challenges that we as a 
Nation face. Thank you very much.
    Chairman Lieberman. Thanks, Mr. Orszag. That was a very 
thoughtful and practical opening statement. In all the years I 
have been on this Committee, we always say that the ``M'' in 
OMB is often not given enough attention. That is the management 
part of the job. Some Administrations do better, some not so 
good. I appreciate your focus on it right from the beginning. 
Maybe it is time to change it to the Office of Performance and 
Budgeting.
    Mr. Orszag. That would be OK by me. We can talk more about 
that.
    Chairman Lieberman. Let me start my questioning with----
    Mr. Orszag. OPM. There already is one. [Laughter.]
    Chairman Lieberman [continuing]. The standard questions we 
ask of all nominees. First, is there anything 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. Orszag. No.
    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. Orszag. No.
    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. Orszag. Yes.
    Chairman Lieberman. Thank you. We are going to start with a 
first round of 7 minutes for questions. I appreciate the number 
of Members of the Committee here, which speaks to the interest, 
of course, in your nomination.
    Let me ask you a couple of questions that relate to the 
immediate challenge we face, and that is the condition of our 
economy and the recommended Economic Recovery and Reinvestment 
Act. We have heard a lot of back-and-forth debate about whether 
the proposed Obama Administration stimulus package is big 
enough or whether it is too big. I wanted to ask you to comment 
on that and also, in your role as an economist, help us to 
reach an informed judgment about how we can reach a reasonable 
conclusion about what size stimulus is the right size to help 
us out of our current economic crisis.
    Mr. Orszag. Well, let me just begin by noting that in the 
current economic environment, which is highly unusual, the key 
impediment to economic growth--and this is not normal, normally 
other conditions apply--is how much demand for goods and 
services that firms and other entities could produce. That is 
the key issue. The gap between how much the economy could 
produce and how much it is currently producing is estimated to 
be about $1 trillion now per year. That is lost income of about 
$12,000 a year for a family of four, on average. So it is that 
huge GDP gap that is at the heart of why we need to act, and it 
is reflected in lost jobs and lost income.
    Now, that perspective may suggest a very large number for 
an economic recovery plan, and in fact, there are academic 
economists who are suggesting numbers that are much larger than 
what is under discussion in the policy process because they 
look at numbers like $1 trillion a year over 2 years or so and 
you get very large numbers. That is one perspective.
    The second perspective is let us look at all of the 
specific policy proposals that you can put together that 
immediately add to aggregate demand in an effective way, that 
have relatively high bang for the buck, and you add those all 
up together. And there is some tension because you cannot get a 
collection of policies that add up to anything close to numbers 
that are commensurate to the GDP gap. So you then have a 
judgment call. Where do you cut off the package, balancing the 
macro-economic risk against the fiscal condition that we are in 
and the declining bang for the buck that comes as you go down 
the list of possible initiatives or interventions.
    Chairman Lieberman. The macro-economic risk of the growing 
long-term debt, you mean?
    Mr. Orszag. No, let us say that you only came up with $150 
billion of economic recovery spending.
    Chairman Lieberman. OK.
    Mr. Orszag. You are then leaving a GDP gap that could be 
$800 or $900 billion, a very large gap. You are assuming a very 
significant gap.
    Chairman Lieberman. Right. That gap.
    Mr. Orszag. It is the judgment of the economic policy team 
that the incoming Administration has put together that it is 
worth tolerating some slippage, that is some things that might 
not spend out immediately over the next 3 or 6 months, given 
the severity of the economic downturn and the projected length 
of the economic downturn, especially if those things then lead 
to investments that will improve long-term economic 
performance.
    So there is this balancing act between getting money out 
the door quickly and addressing the macro-economic risk, and 
when you start to loosen up on that a little bit in terms of 
things that may not fully spend out over 6 months, are you at 
least getting something that you sort of wanted anyway?
    Chairman Lieberman. That is a helpful beginning.
    Just as a point of clarification, when we are talking about 
the total size of the stimulus or Economic Recovery and 
Reinvestment Act, $750 billion, $800 billion, are we talking 
about a 2-year period of time for spending it out?
    Mr. Orszag. That is correct.
    Chairman Lieberman. So that if you go with that $1 trillion 
deficit in demand, reaching the potential in the economy, we 
are talking about $2 trillion over 2 years.
    Mr. Orszag. Correct.
    Chairman Lieberman. But we are trying to figure out also 
what the multiplier effects are of every dollar we spend.
    Mr. Orszag. That is correct, also.
    Chairman Lieberman. This is another point of discussion 
here on the Hill, as you know, which is the balance in the 
economic stimulus package between spending and tax cuts, in 
simplistic terms. There are obviously some people who feel that 
tax cuts do not bring much of a return. Spending is the way to 
go. The Obama Administration is clearly moving in a different 
direction, a more balanced package. Give us your justification 
for that.
    Mr. Orszag. Well, if you just look at bang for the buck, so 
in terms of immediately adding to aggregate demand, I think 
there is widespread agreement among economists that the highest 
bang for the buck is direct Federal Government spending on 
infrastructure or on real goods and services.
    One layer below that is assistance to States because that 
avoids laying off of teachers and other steps that State and 
local governments would take in the absence of assistance.
    And then in general, one layer below that are tax 
provisions, and the reason tax provisions are somewhat less 
effective, at least from a short-term stimulus perspective, is 
that part of the money is saved rather than spent. So you 
provide a dollar in tax relief. Part of that is saved rather 
than consumed, and the result then is that you do not get a 
full dollar added to aggregate demand.
    However, and the reason there is some balance is if you 
look down the individual items of Federal Government spending 
that you could get out the door quickly, there is a limit to 
that. So again, if you face a GDP gap of $2 trillion over 2 
years, you are either going to stop at things that have the 
maximum bang for the buck and then assume a very substantial 
macro-economic risk, or you are going to include in the package 
things like State fiscal relief and tax relief that provide 
some macro-economic benefit but might have slightly lower bang 
for the buck.
    Chairman Lieberman. Let me ask you a final question in this 
round. The President-Elect has spoken about the need for and 
promised the American people that there would be oversight of 
this money. This is a lot of money to spend quickly----
    Mr. Orszag. It is a lot of money.
    Chairman Lieberman [continuing]. And the risk of waste or 
even fraud becomes higher. Are there specific mechanisms that 
you have in mind for doing this, or is it just going to be put 
through the regular OMB process?
    Mr. Orszag. No. We are thinking of special oversight and 
auditing processes for this. So I will give you two examples.
    Chairman Lieberman. OK.
    Mr. Orszag. We plan to create a website that will contain 
information about the contracts and include PDFs or contracts 
themselves and also financial information about the contracts--
--
    Chairman Lieberman. Define PDFs.
    Mr. Orszag. Sorry, an electronic document that is posted on 
the Internet so the public can see the contract----
    Chairman Lieberman. Right.
    Mr. Orszag [continuing]. On the web. One of the 
difficulties in existing Federal financial management payment 
flows is that the time between when a contract is signed and 
when the information shows up on Federal Government websites is 
so long that we didn't want to allow that time lapse to occur. 
So we would propose that the contract officer, when you sign 
the contract, would be required to go to a simple web-based 
portal and fill out a simple template basically to create a 
faster flow of information, at least at an aggregate level, on 
specific contracts, post the contract so you see that 
information, too.
    In addition to those kinds of steps, we would favor 
creating a special board, an oversight board composed of the 
Inspectors General of the relevant departments and chaired by 
the Chief Performance Officer that would review problems and 
that would conduct regular meetings to examine specific 
problems that might be identified, for example, by folks who 
are looking at that website and saying, wait a minute. That 
doesn't look right.
    Chairman Lieberman. That is great, very reassuring. Thank 
you. Senator Collins.
    Senator Collins. Thank you.
    Dr. Orszag, I mentioned in my opening statement my concern 
not only about our current economic crisis, but the long-term 
spiraling, troubling increase in the public debt. The Peterson 
Foundation headed by the former Comptroller General, David 
Walker, recently noted that America now owes more than its 
citizens are worth, a startling way of focusing our attention 
on the growth in the Federal debt.
    Many people have proposed a bipartisan commission that 
would tackle the issue of entitlement reform. All of us know in 
Washington and throughout the country that the current 
structure of Social Security and Medicare is simply not 
sustainable in the long term.
    Do you agree that entitlement reform is an issue that the 
new Administration must tackle, and do you support the creation 
of an outside commission to come back to Congress with specific 
reforms?
    Mr. Orszag. Let me answer it very directly. First, the 
Federal budget is on an unsustainable course, and the course 
that we are on needs to be rectified as we emerge from the 
current downturn or we will face a fiscal crisis at a time that 
is difficult to predict. That fiscal imbalance is driven mostly 
by rising health care costs, and I think there are huge 
opportunities to improve the efficiency of the health care 
system to reduce cost without harming health outcomes reflected 
in the fact that we have huge variations across parts of the 
United States in costs per beneficiary that are not correlated 
with and that do not reflect better outcomes in the higher-cost 
areas.
    With regard to the process, I will also say I think our 
existing system does not deal well with gradual long-term 
problems, and you can look across a variety of areas. Our 
system seems to respond to crises and not to gradual long-term 
problems like rising health care costs, like a gradually 
growing fiscal gap, like climate change and other gradual 
problems. That opens up the possibility of changes in the 
process, and there are a variety that have been discussed. One, 
Senators Conrad and Gregg have a proposal----
    Senator Collins. Yes.
    Mr. Orszag [continuing]. For a long-term fiscal commission. 
Senator Baucus has a proposal that focuses more on how health 
care decisions are made. And I think those process changes are 
things that we are carefully examining, and I just come back 
again to the conclusion that the existing system is not working 
very well and therefore some changes would seem warranted.
    Senator Collins. I recognize that the new Administration 
needs to get past the current fiscal crisis, but I assume from 
your comments that you do recognize the long-term budget 
imbalance and the threat to our long-term economy and that the 
Administration is committed to tackling those budget issues, as 
well.
    Mr. Orszag. And let me be more specific. If I am confirmed, 
I will be part of the process that puts together the fiscal 
year 2010 budget, which will be released in mid- to late-
February, and perhaps, actually, Mr. Chairman, if I could just 
say a general caveat, ``if I am confirmed'' for all questions 
so that I do not have to keep repeating that and just assume it 
is implicit in my answers.
    Chairman Lieberman. Without objection.
    Mr. Orszag. Thank you.
    Senator Collins. We will assume that appropriate caveat.
    Turning now to the economic stimulus package, you mentioned 
in response to Senator Lieberman your intention to have some 
sort of State fiscal relief included in the package. As you 
know from our conversations, I support that, as well. There are 
some who have suggested, however, that while helping States in 
order to prevent layoffs and budget cuts that might exacerbate 
the recession is appropriate now, that should be structured in 
terms of loans rather than grants. What is your opinion on 
that?
    Mr. Orszag. I think there are two issues that need to be 
examined with regard to that thought. The first is that for 
many States, such loans would face the same sorts of 
constraints as debt issuance and other borrowing that they 
undertake, and so for many States, it is actually not that easy 
to engage in such credit transactions.
    The second point, though, is we have to be clear about what 
we are trying to accomplish through that State fiscal relief. 
If it is to avoid layoffs and to help the macro economy, which 
is what I believe is the case, rather than just pure 
benevolence--it is not just benevolence, there is a macro-
economic imperative--that would also in my mind, at least, 
raise questions about the loan approach as opposed to a grant 
approach.
    So I understand the theory, the case behind the idea, but I 
guess there are both practical and then a sort of philosophical 
question that arises with regard to whether it would impede the 
macro-economic impact that you are trying to achieve through 
that assistance.
    Senator Collins. I think the concern is while we recognize 
the need to help States, you do not want to be creating a 
situation where States in good times are spending too much 
money growing their programs too much with the knowledge that 
Uncle Sam will come along and bail them out in the bad times, 
and thus they are reaching unsustainable levels of spending.
    Mr. Orszag. Yes, and I think that is a legitimate concern. 
I appreciate the concern.
    Senator Collins. Many of us have also advocated a 
significant portion of the stimulus package be devoted to 
infrastructure spending. There is a backlog in the State of 
Maine and virtually every State of shovel-ready transportation 
projects, and the reason I am for that kind of spending is it 
not only creates good jobs, but it leaves communities with 
lasting assets that they really need.
    I think, however, we need to look beyond just the 
transportation sector. There are other kinds of investments 
that are needed, and of particular interest to this Committee 
are the land ports of entry. The U.S. Customs and Border 
Protection faces significant infrastructure challenges. Some of 
the land ports of entry are over 70 years old. There has been 
increased traffic volume, security requirements. In my State, 
there are three ports of entry that are on the list but have 
been waiting for funding for quite some time. Are you looking 
beyond the transportation infrastructure at such needs as the 
land ports of entry, military construction? There are a lot of 
projects in the queue.
    Mr. Orszag. Yes, and with respect to the ports of entry 
question in particular, I have had discussions with Governor 
Janet Napolitano on precisely that topic and explored the 
possibility of funding as part of an economic recovery plan to 
speed investments in the land ports of entry.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks very much, Senator Collins.
    We will go to the other Members of the Committee, as is our 
rule, in order of arrival. Just for the information of Members, 
the order I have as kept by the Clerk is Senators Levin, 
Tester, Akaka, Coburn, Voinovich, Carper, Landrieu, and Pryor.
    Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Mr. Chairman, and we welcome 
Peter Orszag. You are going to make a great OMB Director. We 
welcome your family and particularly your son, who has been 
trying to look interested during this last hour and has done 
very well.
    I want to pick up this idea about TARP and the conditions 
and the assurances that are going to be provided as part of the 
second half of the program, which were not there for the first 
half. The failure to do that on the first half has created a 
real credibility problem about the use of $350 billion of 
taxpayers' money. So I want to ask you what is reasonable for 
us to expect in terms of assurances on the second half before 
we vote on it. I will be writing a letter to Larry Summers 
about this and hoping to get an answer on this by the morning 
before we vote.
    Is it reasonable for us to expect that TARP recipients are 
going to be required by the Treasury to track and report their 
use of TARP funds?
    Mr. Orszag. I know that the incoming Administration is 
committed to a heightened transparency and accountability. I 
can't commit, given that is more of a Treasury responsibility.
    Senator Levin. Should we not be able to expect that we will 
be told by recipients how they spent those funds and that will 
be reported publicly, just the way the contract is going to be 
on the web? And by the way, I commend you for that. It has 
taken the threat of a subpoena to get the current Treasury 
Department to produce the documents, which should be made 
public, are public documents, and involve public funds. Senator 
Collins and I have been involved in that go-around with them, 
and hopefully these documents are coming in today. We do that 
as the Permanent Subcommittee on Investigations, not on behalf 
of the full Committee, which, of course, would involve the good 
offices of our Chairman.
    So should we not reasonably expect that the recipients of 
TARP funds would be required to report on their use of TARP 
funds?
    Mr. Orszag. It seems to me like that is the kind of change 
that the incoming Administration will be looking at and 
examining. It seems reasonable to me, but again, I am not----
    Senator Levin. I understand.
    Mr. Orszag [continuing]. The official responsible for that 
program.
    Senator Levin. Would it be reasonable for you, in your 
judgment, for us to expect a requirement that TARP recipients 
provide agreed-to benchmarks which need to be met relative to 
the use of those funds?
    Mr. Orszag. I think I am going to be repeating my answer--
--
    Senator Levin. That is fair enough. That is a good enough 
answer.
    Mr. Orszag. OK.
    Senator Levin. If you think that is reasonable, that is 
good enough. We will use that argument.
    Mr. Orszag. Again, I want to respect the work that the 
Treasury and Mr. Summers and others are doing. It seems to me 
like those are questions that are better directed to them than 
me.
    Senator Levin. Well, they will be directed.
    Mr. Orszag. OK.
    Senator Levin. It is also appropriate that we ask you 
whether you think this would be a reasonable requirement.
    Mr. Orszag. It does not seem unreasonable to me, but again, 
I am not the official responsible.
    Senator Levin. Would the same answer be forthcoming as to 
whether or not it is reasonable that Congress be assured that 
banks receiving these funds would extend credit with those 
funds to a reasonable extent?
    Mr. Orszag. That again seems reasonable to me with the 
caveats that we have already discussed.
    Senator Levin. All right. Would that answer also be 
accurate relative to the use of a reasonable portion of those 
funds for mitigating foreclosures on residential mortgages?
    Mr. Orszag. Yes, and I know that is something specifically 
that the incoming Administration would like to explore.
    Senator Levin. All right. Finally, what about a written 
viability plan? We required the auto manufacturers to give us 
those plans, and that was proper. Should we not require at 
least the major recipients of these funds, the TARP funds, the 
other recipients, such as the banks that receive significant 
funds, to provide those same kind of viability plans?
    Mr. Orszag. Again, with the caveat that especially in the 
financial sector, things may sometimes move very rapidly, and 
with the caveat about timeliness and also that it is not really 
my jurisdiction, it doesn't seem unreasonable to me.
    Senator Levin. All right. Thank you. As you know, Dr. 
Orszag, the Permanent Subcommittee on Investigations, which I 
chair, has spent a lot of time looking at offshore tax havens.
    Mr. Orszag. Yes.
    Senator Levin. These secrecy havens whose use has denied 
our Treasury the funds that could be as much perhaps as $100 
billion. That was one estimate, which we have been using at the 
Permanent Subcommittee on Investigations. When we met last 
week, I shared with you a copy of a bill, which had been 
cosponsored by then-Senator Obama and Senator Coleman, so it is 
a bipartisan bill, but even more significantly has the 
imprimatur of the President-Elect.
    Mr. Orszag. Yes.
    Senator Levin. The purpose of the bill is to shut down the 
offshore tax abuses. Have you had a chance to review the bill, 
and whether you have had that chance or not, what do you think 
about our cracking down on the use of those tax havens? We 
can't stop them from existing, but we sure as heck ought to do 
what we can to stop taxpayers who owe the Treasury money from 
using those tax havens. Could you give us your thoughts on that 
issue?
    Mr. Orszag. There is no question in my mind that increased 
enforcement and better enforcement of the tax code is a 
beneficial thing that we need to be more aggressively pursuing, 
including international transactions.
    Senator Levin. Does that include specifically going after 
these secrecy jurisdictions that American citizens, including 
individuals and corporations, have been utilizing to avoid 
paying their taxes?
    Mr. Orszag. Again, that is aligned with the overall 
objective of improving the enforcement of the tax code. I do 
not want to comment specifically on exactly which provisions 
are most auspicious given that, again, that is not my 
jurisdiction.
    Senator Levin. All right. Relative to that question, and 
this goes to the issue of scoring, we take initiatives, or try 
to around here, to enforce our tax laws, and you very properly 
have gone in very accurately and, I think, thoroughly and 
effectively have gone through the measures that are going to be 
before us to try to get this economy going again. That 
testimony is very helpful.
    But one of the things that is overlooked because it will 
take a little more time than doing this in the next couple of 
weeks is tax enforcement.
    Mr. Orszag. Yes.
    Senator Levin. We talk about tax cuts as a stimulus, direct 
expenditures as a stimulus, but in terms of reducing the impact 
on our deficits, which is a concern of all of us, one of the 
things that has to be considered is surely enforcing the tax 
laws which exist.
    When we try to put money in for collection, and the payback 
is about $4 to every $1 that we put in there, roughly, it is 
scored as an expenditure instead of a revenue. You have 
personal experience with that from CBO. Is there some way where 
you have that kind of investment in increasing revenue through 
tax enforcement that instead of having a cost, which makes it 
more difficult for us to get that adopted because it is scored, 
we could change that in some way, at least relative to the 
direct revenue raising which would result from an expenditure?
    Mr. Orszag. Let me first again say, I think improved 
enforcement of the tax code is not only an important fiscal 
issue, but it is just important as a civic question, that 
American citizens should expect that their fellow citizens are 
paying their fair share and complying with and that there is 
full enforcement of the tax code.
    That having been said, you have identified one of the 
possible reasons we do not have as much enforcement as might be 
optimal. Those scoring rules have developed over a long period 
of time. They exist for technical reasons. I do see them in 
some cases as an impediment to effective enforcement, so I 
would like to explore ways in which they possibly could be 
changed, working with the Budget Committees and other 
budgeters, and cognizant of the fact that they have developed 
for a reason, but nonetheless do seem to me to be an impediment 
to enforcement not only in this area, but in Medicare and other 
areas. And given that we should improve enforcement, I think we 
should be looking at incentives for the agencies to do better 
and incentives for you all to provide more resources to that 
activity.
    Senator Levin. Well, we thank you and congratulate you. I 
think you will make a terrific OMB Director.
    Mr. Orszag. Thank you.
    Senator Levin. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Levin. One of the great 
mental exercises for witnesses before this Committee is to 
handle Senator Levin's questions. You did pretty well.
    Mr. Orszag. Did I succeed?
    Chairman Lieberman. You did pretty well.
    Senator Levin. Too well on the first set. [Laughter.]
    Chairman Lieberman. Senator Akaka is next. Senator Akaka, I 
want to say, along with Senator Voinovich, as you probably 
know, Dr. Orszag, going to something you mentioned in your 
opening statement, have done truly extraordinary, largely 
unsung work on behalf of human capital improvement and 
management of our Federal Government. So with that, I am happy 
to call on Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you. Thank you very much, Mr. 
Chairman. I want to thank you for your leadership of this 
Committee. I have really enjoyed my work with Senator Voinovich 
over the years. We have worked together so well trying to bring 
about some good changes.
    Let me welcome you, Dr. Orszag, and also Joshua, your son.
    Mr. Orszag. Could I just point out, he used to call the CBO 
the Congressional Boring Office? [Laughter.]
    We need to come up with a new name for OMB.
    Senator Akaka. Well, thank you very much for being here.
    In my role as Chairman of the Oversight of Government 
Management Subcommittee, I am very concerned about the 
management challenges facing the incoming Administration. It is 
more important than ever for the Office of Management and 
Budget to focus on better management and not only budgetary 
issues. I have taken your statement of providing better 
government performance as a step ahead, past management, and I 
am thinking that government performance means that there is 
management and there is accountability that brings on better 
performance.
    The Government Accountability Office has identified about 
27 issues and programs that are high risk for waste, fraud, or 
abuse due to poor management. OMB will be critical to 
addressing these management issues as well as several other 
issues throughout the government. I have been especially 
worried about contracting management at agencies and human 
capital planning.
    Mr. Orszag. Yes.
    Senator Akaka. I have also been very focused on ensuring 
that the Federal Government protects Americans' personal 
privacy, where OMB must play a critical role.
    So I look forward to working with you and your team on this 
in the future.
    But before I move on to my questions, Mr. Chairman, I ask 
that my full statement be placed in and made a part of the 
record.
    Senator Lieberman. Without objection, so ordered.
    [The opening prepared statement of Senator Akaka follows:]

              OPENING PREPARED STATEMENT OF SENATOR AKAKA

    I would like to welcome Dr. Peter Orszag to this hearing. With the 
fiscal and management challenges facing our nation, finding capable and 
strong individuals to lead the Office of Management and Budget (OMB) in 
the next Administration is critical. I am very pleased that the 
President-elect has recognized this and announced this nomination so 
early.
    With a budget deficit predicted to be over one trillion dollars 
next year adding to the already trillions of dollars in debt, it is 
only natural that the Office of Management and Budget focus on the 
``B'' in OMB. While budget and management are closely linked, it is 
important that OMB also keep a close focus on the unique management 
challenges currently facing agencies throughout the Federal Government.
    The Government Accountability Office has placed 27 programs and 
management issues on its High Risk List, which identifies areas at risk 
for waste, fraud, or abuse. Better management practices would 
significantly aid in addressing almost every one of these cases.
    As Chairman of the Subcommittee on Oversight of Government 
Management, over the past several years I have witnessed how poor 
management has compromised taxpayer dollars and harmed government 
missions. I will continue to closely work with the incoming OMB 
leadership to address weaknesses in government management.
    I believe that it is time that the Federal Government reexamine the 
Privacy Act and make needed updates to reflect the changing times. 
Stronger and more consistent protection of personally identifiable 
information is needed at agencies. OMB can play a vital role in that by 
providing for strong centralized leadership in setting privacy policy 
for all agencies.
    The Federal Government also faces a looming workforce crisis as 
many Federal employees prepare for retirement in the coming years. If 
we do not begin to form strategies to recruit, train, and retain an 
outstanding Federal workforce, agencies face a brain drain and will be 
forced to rely even more heavily on Federal contractors to perform 
vital agency functions.
    I am especially concerned about contract management. Procurement 
and contracting management have been lacking for years, yet the money 
spent on contracting has exploded. Stronger oversight by Federal 
agencies and better training of contract specialists and project 
managers are needed, especially in the civilian agencies. Again, OMB 
can play a strong role in demanding better outcomes by all agencies.
    Finally, I want to say a word about security clearance reform, 
which has been one of my Subcommittee's most important oversight 
projects since 2004. Senator Voinovich and I have worked with OMB, and 
now the Department of Defense and the Director of National 
Intelligence, to press for modernization of this outdated clearance 
framework. Much progress has been made, and as I indicated to the 
outgoing OMB leadership, I will continue to press for the needed 
reforms in the upcoming administration.
    I want to again thank the nominees for appearing here today and 
taking our questions. I am eager to start working with the new Office 
of Management and Budget to improve the performance and management of 
the Federal Government. In these unprecedented and difficult economic 
times, it is important to assure the American people that their 
government is using wise management to spend their dollars effectively 
while avoiding waste, fraud, and abuse.
    Thank you, Mr. Chairman.

    Senator Akaka. Dr. Orszag, several large acquisition 
projects at the Department of Homeland Security, including 
SBInet and the Coast Guard's Deepwater project, have 
experienced significant contracting problems and cost overruns. 
Despite repeated problems with contract management at agencies 
in recent years, OMB has not played an active role in most 
large contracting decisions or policy. Instead, contracting 
problems have been handled at the agency level.
    What are your plans to enhance OMB's role in contracting 
decisions and oversight at agencies?
    Mr. Orszag. Again, coming back to the basic issue, which is 
that acquisition procurement has doubled since 2000, the number 
of acquisition officers has stayed flat, it is not surprising 
to me that agencies are struggling in overseeing their 
procurement budgets.
    In addition to that, there is not sufficient scoping out of 
procurement tasking ahead of time, and then there is not 
sufficient auditing and oversight as the project proceeds. 
Again, not surprising that you run into trouble in the middle 
of even long-term procurement projects.
    It is absolutely OMB's responsibility to provide oversight 
and guidance on procurement issues. We have a statutory office, 
as you know, that is dedicated to that topic. I know that it 
has already started to work actively to increase the number of 
acquisition officers because I do think that is one of the key 
steps that is required in fixing this problem, and without 
that, you are going to be tilting at windmills. That is 
necessary, but not sufficient. If we had more acquisition 
officers, we would have more ability to mitigate some of these 
problems, but you need to do more than that.
    We need, again, to address better scoping out of projects 
and then monitor them as they go along, and OMB plays a key 
role in that process, in part through the budget process, which 
is to say we can use the budget process to make sure that we 
are providing leverage when there are problems to fix them.
    Senator Akaka. Is one of the problems staffing?
    Mr. Orszag. At OMB or out in the agencies?
    Senator Akaka. Well, anywhere----
    Mr. Orszag. I think in acquisition, if you double the 
procurement budget and the number of procurement officers stays 
flat, then unless you think the productivity of those officers 
has doubled over the same period of time somehow magically, it 
is not surprising that things get sloppy and problems arise. So 
absolutely, staffing is one of the key steps, and this is an 
area, coming back to enforcement--I mean, you might not think 
of it exactly as enforcement--where some increased costs will 
actually save money. By constraining acquisition officers, we 
are being penny-wise and pound-foolish because you might save a 
little bit on human capital costs, but you are losing a lot in 
terms of cost overruns and other problems in the procurement 
budget.
    Senator Akaka. Dr. Orszag, as you are aware, I am very 
concerned about protecting the privacy of Americans' personally 
identifiable information. In particular, I have been a strong 
advocate of enforcing current privacy laws at agencies and 
strengthening areas that may be weak. Currently, different 
agencies have widely differing programs in place to protect 
privacy.
    At the Department of Homeland Security, this Committee 
ensured that a robust privacy office was established, and I 
have been impressed by the work that they do. However, many 
agencies do not provide such comprehensive and focused 
attention to privacy.
    Do you believe that OMB should serve as a strong 
government-wide advocate to ensure that all agencies are 
implementing the Privacy Act correctly, and if so, how do you 
anticipate OMB fulfilling that mission?
    Mr. Orszag. First, yes, privacy is absolutely crucial, 
especially as information technology advances. Protecting the 
information that is contained in various Federal databases and 
other IT structures is crucially important to all of us.
    Questions have arisen--for example, when IT investments are 
made, the agencies are supposed to conduct privacy impact 
assessments. Those are done, and my understanding is they are 
not as rigorous and they are not as rigorously applied as could 
be the case, so we could improve there. Questions have arisen 
with regard to OMB's structure and whether we should have a 
Chief Privacy Officer internally at OMB like occurred during 
the 1990s, and that would be something that I would want to 
look at very carefully.
    But I can tell you that the importance of the privacy 
issue, whether it is lodged with the e-Government administrator 
or the head of OIRA or a Chief Privacy Officer, has to be at 
the top of our thinking as information technology evolves.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Senator Akaka.
    Senator Tester, you are next, and then Senator Voinovich.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Thank you, Mr. Chairman. I appreciate that.
    First of all, thanks for being here, Mr. Orszag. I 
particularly appreciate your boots.
    Mr. Orszag. Thank you.
    Senator Tester. Is that regular attire for you?
    Mr. Orszag. It is a subtle act of rebellion, yes.
    Senator Tester. OK, good.
    Chairman Lieberman. They didn't wear them on Hawthorne 
Street in Stamford.
    Mr. Orszag. Exactly. [Laughter.]
    Senator Tester. I wear them every day, so maybe I rebel 
every day.
    Could you talk about some of the methods that you plan on 
using to gauge Federal programs' effectiveness?
    Mr. Orszag. Yes, and let me talk to the performance metric 
system in particular. There currently is a system, the Program 
Assessment Rating Tool (PART) system, that had been designed 
and is in use. It is not particularly effective for two 
reasons. One is, frankly, most Federal officials do not even 
know about it. I just read a study that something under a 
quarter of senior Federal Government officials have even heard 
of PART, and then of those who are knowledgeable about it, most 
do not use it--there is a lot of going through the motions of 
filling out forms without as much impact as it could have, and 
I think that is for two reasons. First, it was developed 
without consultation with the Congress and with the agencies, 
and second, it is too focused on process rather than outcomes.
    So let me give you a specific example. We were talking 
about tax enforcement before. The PART process for tax 
enforcement measures the number of audits. That is great, but 
it is not what we really care about. What we really care about 
is the tax gap or the error rate or the compliance rate.
    So my view is we should be focusing our metric system on 
that ultimate outcome and not what we are doing to get there, 
and then let the agencies focus on how to get there. I would 
like to see a performance metric system that tells the Treasury 
Department and the IRS, hit this compliance rate for the tax 
code. You are going to have lots of internal measures that you 
need to use from a process, whether it is audit rates, risk, 
this, that, and other things, to hit it, but do not just tell 
me what your audit rate is because I do not really care about 
that. I care about what the tax compliance rate is.
    As I said earlier, it is really hard to do anything if you 
do not measure it because you do not know what you are trying 
to change and where you are going. I think it is crucially 
important, again, if I am confirmed, that we revamp and revise. 
The PART system is something that could be built upon, but it 
needs to be revamped in consultation with you all and with the 
agencies to be something that they have bought into and they 
will actually use and that is more outcome measured.
    Senator Tester. You have a number of years of experience. 
Do you have any programs in mind for termination?
    Mr. Orszag. The President-Elect will be releasing a budget 
and economic overview in mid- to late-February, and that will 
contain some program eliminations, yes.
    Senator Tester. Are you willing to----
    Mr. Orszag. No.
    Senator Tester. No. [Laughter.]
    You have to ask.
    Mr. Orszag. Yes.
    Senator Tester. On expiring tax cuts, President-Elect Obama 
has talked about them a lot during the campaign. Can you tell 
us which ones he is going to keep, which ones he is going to 
let expire?
    Mr. Orszag. The President-Elect, during the campaign, made 
a series of specific statements about tax provisions under 
$250,000, and I, at this point, see no reason that has changed 
in any way, and I haven't heard any discussion of any change in 
that.
    Senator Tester. Do you want to talk about TARP funds any 
more or just Department of Treasury----
    Mr. Orszag. No, thank you.
    Senator Tester. You do not want to?
    Mr. Orszag. Not really, but I will. [Laughter.]
    Senator Tester. Well, we will see.
    Mr. Orszag. OK. [Laughter.]
    Senator Tester. Can you give me any additional details--and 
you have seen the Summers letter--beyond the Summers letter on 
how the funds will be spent differently in this batch than it 
was in the first $350 billion, even though I am not sure 
anybody can tell us how the first $350 billion was spent to 
begin with?
    Mr. Orszag. No. Again, I think that is a question for Mr. 
Summers----
    Senator Tester. OK.
    Mr. Orszag [continuing]. And the Treasury Secretary 
Designate.
    Senator Tester. OK. Debt limit.
    Mr. Orszag. Yes.
    Senator Tester. Big issue, something that I am very 
concerned about, and not for me but far more for my kids and 
grandkids. Where does the debt fall into our choices in 
critical areas, like health care, for example? I mean, what are 
your recommendations going to be when we are talking about 
trying to tackle a problem as complex and as costly as health 
care in this country, weighing in the issues of the debt?
    Mr. Orszag. Let me talk specifically about health care 
because it really is the key to our fiscal future. For example, 
on our current path, if health care costs grow at the same rate 
over the next four decades as they did over the past four 
decades, Medicare and Medicaid are going to go from 5 percent 
of GDP to 20 percent by 2050. Twenty percent of GDP is the 
entire size of the Federal Government today. That is basically 
the whole ballgame.
    I think there are huge opportunities to reduce costs 
because if you look across parts of the United States--for 
example, if you look at the last 6 months of life at the UCLA 
Medical Center versus the Mayo Clinic, at the UCLA Medical 
Center, Medicare beneficiaries on average cost $50,000 a year, 
at the Mayo Clinic, $25,000 a year, twice as much at the UCLA 
Medical Center. There is no improved quality at the UCLA 
Medical Center. In fact, quality indicators suggest that the 
Mayo Clinic does better. All that happens is you have more 
tests, you see more specialists, you spend more days in the 
hospital at the UCLA Medical Center. Across regions in the 
United States, across hospitals within a region, across doctors 
within a hospital, we see those kinds of variations with the 
higher cost not correlating with better outcomes.
    To tackle it, we need dramatically expanded health 
information technology to get the data on what works and what 
doesn't. We need to examine through comparative effectiveness 
research what works and what doesn't. We have to provide 
financial incentives for better care rather than more care. 
Currently, we have incentives for more care. Guess what we get? 
And then we need prevention and healthy living. And I think all 
of those components will lead to a new health care system that 
will be much more efficient and that will be key not only to 
addressing our long-term fiscal problem, but also helping State 
governments and, frankly, helping workers because workers' 
take-home pay is now being reduced to a degree that is under-
appreciated and unnecessarily large because of the high costs 
of health care to their employers.
    Senator Tester. So what you are saying is, in health care 
as long as we are talking about it, the policy decisions that 
you would advocate would actually reduce the debt?
    Mr. Orszag. Over time, what would happen is instead of 
going to 20 percent of GDP in Medicare and Medicaid, you would 
be bending that curve. The key to our fiscal future is bending 
that health care curve. It wouldn't necessarily reduce the debt 
relative to where it is today, but it would avoid an 
unsustainable explosion in that debt.
    Senator Tester. I have to let you go because I am down to 
15 seconds, but the other side of that coin is that when you 
are advising us on what decisions we should be making, what 
impact is that debt going to have on your recommendations? 
None?
    Mr. Orszag. Oh, no. The reason that I would suggest we need 
to tackle the medium-term budget problem and health care costs 
over the long term is precisely that debt is--the growth in 
debt that would ensue would be unsustainable and a huge 
problem, and let me actually comment on that for a second.
    In the current environment, in the current economic crisis, 
we are in a highly unusual position in which we can issue 
substantial amounts of Federal debt at very low interest rates 
because investors have full confidence in Treasury securities, 
as they should. If we do not act, however, over the medium- to 
long-term to bend the curve on health care costs, if we allow 
deficits to grow and grow and grow and debt to increase 
exponentially, at some point, investors will no longer have 
that confidence. And if we were ever to face an economic crisis 
like we do today without that full confidence of investors, we 
would have much less maneuvering room to do various steps 
because we wouldn't be able to issue huge amounts of debt on an 
emergency basis.
    That is only one of many reasons, in addition to our kids 
and grandkids, that we need to avoid this fiscal path that we 
are on over the medium- to long-term.
    Senator Tester. Just one thing, and this is a very easy 
question to ask. When do we need to start addressing the health 
care issues? Six months? A year? Three months?
    Mr. Orszag. Five years ago.
    Senator Tester. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Tester. Very good 
round of questions.
    Senator Voinovich is next. Senator Voinovich, when you were 
out of the room, I thanked you and Senator Akaka for the 
extraordinary work you have done on human capital management, 
which reminds me that somebody told me long ago that people are 
always praising one another in Washington, but you know 
somebody really means it when you are praised when you are not 
in the room. [Laughter.]
    In your case, I really do mean it----
    Senator Voinovich. Thank you.
    Chairman Lieberman [continuing]. And I say that because you 
have announced your decision to retire in 2 years. We are going 
to miss you, but you made a great contribution, but you have 2 
years to make even greater contributions, so with that, I am 
happy to call on you.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you very much. Thanks for your 
nice words. Senator Akaka and I have worked together as a great 
team over a long period of time.
    Mr. Orszag, I am glad that you are willing to take this 
job. As you know, over the last 5 or 6 years, I have tried to 
get elected officials to enact tax reform and entitlement 
reform. The Bush Administration said they would work with 
Senator Max Baucus on tax reform. Nothing happened. Then 
Congressman Frank Wolf and I put together the Saving America's 
Future Economy Act, or SAFE Act. Then we came up with the 
Bipartisan Task Force Responsible Fiscal Action Act.
    Last year, I was trying to get everyone to agree on the 
language of the 16-member commission so that the new 
Administration could get going on it.
    Now, what I would like to know is this. Is this 
Administration going to do something about tax reform and 
entitlement reform because when I approached the issue of the 
commission with Kent Conrad, he said, ``I am getting push-back 
from the Administration.'' When I talk with the House members, 
they say they are getting push-back from the Administration.
    Is the Administration going to go forward and do something 
about tax and entitlement reform? And I want you to know this. 
Most of us believe that if you do not have this type of 
commission with fast track procedures, I do not think it will 
ever happen. And a lot of people will not participate because 
they will think, why should I bother with this when I know I am 
not going to get a vote after all the hard work that I have 
done? What is this Administration going to do?
    Mr. Orszag. The President-Elect has stated that it is his 
intention that we will address entitlement reform. I spoke 
earlier about the fact that the existing process doesn't seem 
to work so well either on the long-term budget process or on 
health care specifically. I think working with you and 
exploring the best way of adopting a process change, whether it 
is the Conrad-Gregg Commission or other commissions or whether 
it is the Baucus Health Board idea, is something that you 
should expect from me if I am confirmed.
    Senator Voinovich. Good. That is great to hear. The other 
thing is, and this is a pet peeve with me and I am going on the 
Appropriations Committee, I asked the other Administration to 
make a case of why it is important for Congress to pass 
appropriations on time, and I hope you agree that it is a 
wonderful thing. That would be the greatest gift that we could 
probably give the Obama Administration, is to get our 
appropriations done on time and not have what we are going 
through with the continuing resolutions. How do you feel about 
that?
    Mr. Orszag. That would be a wonderful gift, yes.
    Senator Voinovich. Good. Now I'd like to discuss the GAO 
High-Risk List. Senator Collins and I and all of us have been 
working on the High-Risk List. We got a lot of cooperation from 
Clay Johnson, who worked with GAO and agencies to put together 
strategic plans on how to get the stuff off the list. Are you 
familiar with those plans?
    Mr. Orszag. Yes, and I have them in my book.
    Senator Voinovich. And you are going to make that kind of a 
strategic plan part of their budget submission to try to make 
sure that this happens?
    Mr. Orszag. That is one approach that I think can be 
effective. The Chief Performance Officer that the President-
Elect has identified is going to be very focused on--let me 
step back. One of the key things I think we need to do, and the 
High-Risk List is an example of that, is not just diffuse our 
focus across a whole variety of things but to the extent we can 
focus on the biggest problems, just on a risk-based assessment, 
and the High-Risk List does that. Focusing on those areas makes 
a lot of sense to me.
    Senator Voinovich. There are two areas that Senator Akaka 
and I have been working on really hard. One is security 
clearance reform. Are you familiar with it?
    Mr. Orszag. Yes, and still my understanding is only, if 
memory serves, something like half of the relevant workforce 
has gone through that process.
    Senator Voinovich. Well, it improved it a bit----
    Mr. Orszag. Yes.
    Senator Voinovich [continuing]. But they have come up with 
a new proposal, and I would really appreciate your looking at 
what they put together.
    Mr. Orszag. Yes.
    Senator Voinovich. The other one that we have been working 
on is supply chain management.
    Mr. Orszag. Yes.
    Senator Voinovich. And Ken Krieg was working on it over in 
the Defense Department. I would like you to look at where they 
are to just see if we can continue to complete reform of our 
supply chain processes. Former Secretary Donald Rumsfeld said 
we could save $27 billion a year. So I would really like you to 
look at it.
    The other thing is that we provided a Deputy Secretary for 
Management, or Chief Management Officer, for the Department of 
Homeland Security (DHS). I do not know if you know Paul 
Schneider or not. We think that there ought to maybe be a term. 
We tried to get it done over in the Defense Department, but we 
have more work to do. It seems to me that places like Defense, 
where you have real management problems, and Homeland 
Security--Secretary Janet Napolitano, we talked with her, and 
she seems good, but it is still screwed up.
    The point is, have you thought about transformation and how 
to make sure that it gets done because people get tied up with 
other things. It takes their mind off of it, and they do not 
get it done.
    Mr. Orszag. Yes, and in fact, that is a broader theme, 
which is on many of these performance issues, it requires 
sustained focus, even when the cameras are not here, day after 
day, to get it done because this is not just a snap-your-
fingers kind of thing.
    And let me just return for a second to the background 
issue. All agencies now, my understanding is, do have in place 
a procedure for issuing personal identity verification 
credentials, and 52 percent of Federal employees have gone 
through the required background checks.
    Senator Voinovich. Right, but I am just talking about new 
security clearances and the many backlogs.
    Mr. Orszag. Oh, and the time involved. Yes.
    Senator Voinovich. When Gordon England was confirmed, he 
had to go through another security clearance process.
    Mr. Orszag. As someone who has just recently gone through 
multiple security clearances, I am very sympathetic to that 
thought.
    Senator Voinovich. Well, I would really like you to look at 
it because I think we have made some progress, and I think if 
you would stay on top of that reform, we might be able to take 
that off the list.
    Mr. Orszag. OK.
    Senator Voinovich. Thank you.
    Mr. Orszag. Thank you.
    Chairman Lieberman. Thank you, Senator Voinovich. Senator 
Carper.
    Senator Carper. Thank you, Mr. Chairman.
    Is it Mr. Orszag or Dr. Orszag? Which do you prefer?
    Mr. Orszag. Whatever you would like. It has been pointed 
out to me that when people call me ``Doctor,'' I am not the 
right kind of doctor and that I do not have the authority to 
issue prescriptions.
    Senator Landrieu. And his son told him he was boring.
    Mr. Orszag. Yes, so I am having a rough day. [Laughter.]
    Chairman Lieberman. How about Dr. O?
    Mr. Orszag. Dr. O. [Laughter.]
    Yesterday, I was told to become Dr. No.
    Senator Carper. We already have one of those.
    Mr. Orszag. There you go.
    Senator Carper. I do not know if we can handle two. 
[Laughter.]
    Senator Carper. Well, Dr. O, whoever you are, we are glad 
you are here. Thank you for taking this on.
    Mr. Orszag. Thank you.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. You were good enough to come by and spend 
some time with me yesterday, and I appreciate that very much. 
One of the issues I raised with you was when Governor Voinovich 
was governor, I suspect he had line-item veto power. I had 
line-item veto power as governor, as well. I think line-item 
veto power, frankly, is a little bit oversold in terms of its 
utility to make big differences in budget deficits, like when 
we are looking at the ones we have right now. Having said that, 
I think it can be a helpful tool to have in one's toolbox.
    During the Clinton Administration, the Congress passed and 
President Clinton signed legislation, it was not a 
constitutional amendment, it was a statutory change that 
provided for enhanced rescission powers for the President, as 
you may recall, and it was not just for spending, but I think 
it also dealt with revenues. I think it may have dealt with 
entitlements, too. And the Supreme Court knocked it down. They 
said it wasn't constitutional, and I am embarrassed to say I 
cannot tell you exactly why. But it required, in this case, the 
President to sign an appropriations bill, send a rescission, if 
you wanted to send a rescission, to the Congress, and the 
Congress needed, I think, a two-thirds vote in both the House 
and Senate in order to defeat the rescission. Otherwise, it 
took effect. But they had to vote. That was knocked down as 
unconstitutional by the Court.
    When I was in my last term in the House, we authored 
legislation and said, let us take a little different approach. 
What it called for was what I describe as a 2-year test drive 
that would say the President could sign an appropriations bill 
and then send a rescission message to the Congress, House and 
Senate, but we would have to vote on it. We could vote it down, 
and a simple majority in either the House or Senate would 
defeat it. We restricted somewhat the ability of the President 
to rescind spending. If programs were fully authorized, he 
could rescind them more than 25 percent of the authorized 
spending, and if the programs were not authorized, there was no 
restriction. He could rescind up to 100 percent of those.
    And after 2 years, the bill we passed in the House by a 3-1 
margin, the power went away unless it was renewed. It 
sunsetted. And that was in case it served to create an 
imbalance between the authority of the Congress, Legislative 
versus the Executive Branch, in terms of spending. It passed 3-
1, came over to the Senate. It died in the Senate, and it did 
not become law. And then subsequently, in the Clinton 
Administration several years later, they passed the legislation 
that I described. It was deemed unconstitutional.
    We have reintroduced the legislation. Senator Collins, who 
is not here, is a cosponsor, and I think Senator Bayh, Senator 
Snowe, and others joined us in the last Congress. We are going 
to brush it off, dust it off, and reintroduce it this time. Do 
you have any advice for us as we attempt to put something like 
this in place, again, as a tool. I am not going to suggest it 
is going to turn a $1 trillion deficit into half of that, but 
it can be one of the tools in the President's tool box. Any 
advice for us as we try to cobble together something that is 
responsible and maybe constitutional?
    Mr. Orszag. Well, this is a topic that I know the 
President-Elect had spoken about during the campaign. I am also 
aware of concern among some of your colleagues about the 
balance between the Legislative and Executive Branches.
    Senator Carper. And they should have that concern.
    Mr. Orszag. And again, if I am confirmed, I would look 
forward to discussing it with you further and providing perhaps 
technical advice that we might be able to provide.
    Senator Carper. Do you recall why the legislation that 
President Clinton signed was deemed unconstitutional?
    Mr. Orszag. I think it reflects the balance between the 
Executive and the Legislative Branches and the respective roles 
of the two that are defined in the Constitution.
    Senator Carper. What we did in the last Congress in 
reintroducing the legislation, we made it not a 2-year test 
drive, but a 4-year test drive, and if it were abused, we have 
an opportunity not to restore that authority.
    If you get confirmed, and I hear you might, then we will 
hopefully have the opportunity to talk about this further and 
you can give us some advice, technical assistance, if you will.
    Mr. Orszag. Terrific.
    Senator Carper. Talk just a little bit about improper 
payments, and we talked about it the other day and you have 
mentioned it, I think, today. One of the things that Senator 
Coburn and I have focused on a bit is improper payments and 
updating the Federal law and trying to make sure, first of all, 
that agencies simply fess up when they have made improper 
payments and tell us what they have done, and for the most 
part, most agencies now do that. The government-wide improper 
payments total has gone to about $70 billion as of last year.
    Mr. Orszag. Yes.
    Senator Carper. I think Medicare Part D is not reported. I 
think maybe parts of Homeland Security do not report. But for 
the most part, agencies are reporting.
    It is good that they are reporting. Most of those improper 
payments are, as you know, overpayments, and I am not sure that 
we do a very good job of going after the money and doing what 
are called post-audit recoveries. Although in Medicare, now for 
3 years, I think, we have done post-audit recoveries for 
Medicare in three States, and we have gotten almost nothing 
back the first year, a little bit back the second year, and I 
think about $600 million back in the third year, just with 
three States. So there is real money there to be recovered.
    But what are your thoughts on improper payments, especially 
post-audit recoveries and how we might use them going forward.
    Mr. Orszag. Well, again, as I mentioned in my opening 
statement, I think those are a promising tool. You are right 
that implicit in your question is that while additional 
reporting might be beneficial, we need to start focusing on 
actually getting at the money that has been reported and 
reducing that $70 billion figure. The step that you mentioned 
is one possibility and should be explored. Again, more 
enforcement resources is also part of the solution here.
    Senator Carper. All right.
    Mr. Orszag. But a core principle that the right amount 
should go to the right person at the right time should be a 
bedrock principle that we apply throughout the Federal 
Government.
    Senator Carper. A sort of related issue is surplus 
property. As you know, we have a lot of Federal property that 
we do not use. We pay utilities on it. We insure it. We have to 
do all kinds of things to maintain it, heat it, cool it, 
utilities and so forth. We spend a lot of money for it. We do 
not do a very good job identifying those surplus properties and 
retiring them, allowing agencies to dispose of them.
    One of the reasons, I am convinced, is that we do not allow 
agencies to participate in the proceeds----
    Mr. Orszag. Yes.
    Senator Carper. If you have a building and you get $100 for 
it, agencies get nothing for it, for the most part--there are 
some exceptions to that.
    With respect to improper payments and post-audit recovery, 
I wonder if one of the reasons why we do not do a very good job 
of going after and getting that money is there is not a real 
financial incentive for the agencies to go after the money, to 
allow them to keep it for some good purpose.
    Would you talk about both of those in the context of the 
incentives, please? Thanks.
    Mr. Orszag. Well, first, with regard to real property, yes, 
a few agencies have retention authority. They can basically 
keep the proceeds, but many agencies do not, and that impedes 
their incentives to dispose of or efficiently manage the 
property that they are using.
    More broadly, there is evidence from other examples. For 
example, there is evidence that when local law enforcement 
agencies were able to keep some of the proceeds from captured 
stolen goods or what have you, there was improved enforcement 
that resulted. I think it is just a natural observation that if 
people do not have adequate incentives to do the right thing, 
they often do not do it. So it is at least worth exploring, 
returning to the earlier discussion that occurred, the 
incentives on both the Legislative side and on the Executive 
side for improved enforcement.
    Let me go broader again. Improved enforcement is going to 
require the sustained focus that we were talking about before. 
It is also going to require resources. I think it is also going 
to require thinking creatively about the incentives that we are 
creating and whether we can improve them and strengthen them 
because this is a problem that has always existed and the 
thought that we are going to get rid of it immediately is 
unrealistic. But surely we can do better, and examining why we 
haven't done better in the past is part of the solution.
    Senator Carper. Mr. Chairman, do you think I have used 
enough time?
    Chairman Lieberman. You used it, and you used it well.
    Senator Carper. Thank you, sir.
    Chairman Lieberman. Did I give the right answer?
    Senator Carper. That was great.
    Chairman Lieberman. Thanks, Senator Carper. Senator 
Landrieu.

             OPENING STATEMENT OF SENATOR LANDRIEU

    Senator Landrieu. Thank you. Mr. Orszag, I think you are 
truly an excellent nominee for this position. You come with all 
the academic essentials, but more than that, you come with the 
right kind of set of experiences to do this job, which is, I 
think, going to be one of the toughest jobs in any 
Administration, but particularly for this new President. I know 
that he is going to come to rely on your expertise, as we are, 
to help us through this very difficult time and to set a course 
for fiscal responsibility.
    I have just three specific questions. One, I want to start 
by agreeing with your assessment that one of the first things 
that we should do to get a handle on our long-range fiscal 
situation is to focus on health care. I read an article the 
other day that said we do not have a health care system. We 
have a disease management system that is badly broken and 
flawed, and we need to quickly get to a health care system in 
America, an efficient one, in order not only to do what our 
citizens are expecting us to do, but to basically get a handle 
on the finances that are wholly unsustainable.
    So we have worked very closely together on some various 
approaches, and Ron Wyden and others have a bipartisan group, 
so I think you are right on and just want to encourage you and 
look forward to working with you on that.
    Mr. Orszag. Senator, if I could just note----
    Senator Landrieu. Go ahead.
    Mr. Orszag. If you think we have a health care system, that 
may be right until you try to change it, and then all of a 
sudden we have a system that cannot be changed. It is 
absolutely crucial, and I do not want to eat up any time, but I 
do want to emphasize one of the primary reasons that I was 
interested in this job is to help Tom Daschle and the rest of 
the Administration tackle health care costs.
    Senator Landrieu. And I want to say I think you are exactly 
right. It is a little unusual for an OMB Director, but you are 
going to be an unusual OMB Director because you actually 
understand what is running up the cost in the government and 
where you have to focus your time and resources, and that is an 
area that we have to get right. So I just want to say how 
pleased I am.
    But specifically, two things that are right before us. On 
the stimulus package, and it goes with your idea, which I just 
want to quote from your own document, you say, ``I am looking 
forward to, or we will launch a pilot program with individual 
agencies to serve as demonstration projects through which we 
can test our approaches to improve effectiveness, efficiency, 
share best practices, and further improve performance.''
    We can do that actually right now in the stimulus package 
with approximately $3.5 billion of money that has already been 
appropriated, which if we could shake loose from a bureaucracy 
that is not functioning could actually do two things at once: 
Create hundreds, if not thousands, of jobs in an area that has 
been devastated by natural disaster and save the Federal 
Government money by not requiring additional funding.
    So on the stimulus package, I want to know if you would be 
open to this idea if we could present to you some real evidence 
as to why there are billions of dollars that are tied up and 
how just some language change would free that money up and 
create jobs. Would you be open to receive this, and do you 
understand what I am pointing to relative to the billions of 
dollars that are caught in this pipeline between Washington and 
the Gulf Coast area?
    Mr. Orszag. I am absolutely open. Again, if I am confirmed, 
I am going to be open to receiving all of your ideas because I 
think we need to be reexamining what we are doing.
    Senator Landrieu. And just for the interest of the press, I 
am going to give this to them in more detail, but it is 
specifically Circular A-87 that states a cost is reasonable if 
in its nature and amount it does not exceed that which would be 
incurred by a prudent person under the circumstances prevailing 
at the time the decision was made. That is very reasonable.
    The Federal Emergency Management Agency (FEMA) right now is 
not operating under this circular that is mandated by this 
government. I will not go into the details, but just let me 
give you one example. FEMA today refuses to reimburse 
communities if they fail to traverse floodwaters in an insecure 
communication dead zone to turn on a humidifier the day after 
the hurricane. If you did not traverse through four feet of 
water to turn on a humidifier in your house underwater, they 
are claiming that you did not do everything you reasonably 
could, so they will not reimburse you.
    I could give you a list of things. We are looking for a 
person like you with common sense that will simply apply the 
current law, free up this money, and get people back to work.
    I have only another minute, so let me bring your attention 
to this chart.\1\ This is a chart, Mr. Chairman and Members, 
that we really have to focus on. It is a chart from 1929 to the 
present time of the level of spending relative to Corps of 
Engineers investments in this country relative to the gross 
national product. When you get to 2007, way down at the end, 
the last dot, or 2005, Mr. Chairman, that is when the levees 
broke in New Orleans because that is what starts happening when 
you under-invest significantly over time in a dangerous way in 
core infrastructure.
---------------------------------------------------------------------------
    \1\ The chart submitted by Senator Landrieu appears in the Appendix 
on page 169.
---------------------------------------------------------------------------
    Now, we hear a lot about highways. We hear about land 
ports. We hear a little bit about water ports. But if you ask 
Senator Murray and Senator Cantwell about this last weekend 
when they went home, what they heard about was dikes and levees 
because all over this country these levees do not exist or they 
are breaking, or the dikes are nonexistent or they are 
flooding--issues extraordinaire of which we, of course, are in 
ground zero.
    While health care is truly a need, could you comment just 
briefly on your understanding of the current status of Corps of 
Engineers infrastructure spending relative to the GDP and maybe 
perhaps some creative ways that we can begin to reverse this 
obviously dangerous trend for the United States of America?
    Mr. Orszag. Senator, I know this is an issue that has 
arisen with regard to the Economic Recovery Act and whether 
there are specific projects through the Corps of Engineers that 
could be accelerated as one tangible example of the attention 
or concern that surrounds this area of activity.
    Senator Landrieu. I would appreciate your continued focus 
on this and this Committee because we have an obligation to try 
to prevent disasters when we can. Now, we can't always predict 
terrorist attacks, although we are trying to do a better job.
    But we must certainly, Mr. Chairman, even though we are not 
an appropriations committee, ring the alarm bell. I think this 
graph is an alarm bell about the gross and dangerous under-
investment and how we can reverse it.
    I have some suggestions, but I think we need to be 
attentive to the $120 billion that it cost this government 
because we failed to put up a few billion dollars to get the 
levees straight in the first place. It broke and basically cost 
the government $120 billion. So when we think about saving 
money, this would be a good place to start. Thank you.
    Chairman Lieberman. Thanks very much, Senator Landrieu. I 
appreciate what you said. I agree with it, and I thank you for 
your advocacy, not only for the Gulf Coast, but for learning 
the lessons from Hurricane Katrina so that we can protect other 
parts of America from anything like that.
    Senator McCaskill, thanks for being here.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you very much.
    I first want to thank you and your family for your 
willingness to embark on this endeavor. There is no question 
with your background that you are not in this for the money, 
and there is no question, given the position you have taken, 
that you are not in it for the glory. So if it isn't money or 
glory, it is something much more noble, and I congratulate you 
and your family for your willingness to do it.
    I know that you and the Chairman visited a little bit about 
contracting reform, and you and I have talked about contracting 
reform. It is an area that I think we have some real ground to 
plow in terms of money savings.
    I want to spend just a couple of minutes on the Inspector 
General (IG) community overall. The Chairman and the Ranking 
Member and others on this Committee have helped. We did a bill 
that I think strengthens the independence of the IG community 
in terms of allowing their budgets to be transparent, that is, 
we can see how much they are requesting and whether or not the 
agency is working with them, and allowing them their own legal 
counsel.
    I first want to ask about the IG community, about the 
report that was prepared concerning all the recommendations 
that have been allowed to languish and what kind of sense of 
urgency do you see within OMB about looking at this low-hanging 
fruit, documented with good factual basis for the 
recommendations, ways that we can begin to at least make a 
downpayment to the American people that we are worried about 
the way we are spending their money.
    Mr. Orszag. I am personally aware of that list of IG 
recommendations, and again, if confirmed, we are going to make 
sure that the Cabinet Secretary-designees, or hopefully at that 
point the Cabinet Secretaries, are also aware of the IG 
recommendations in their areas and that they are attentive to 
those recommendations because at least from a cursory look, 
there does seem to be issues that need to be addressed, and OMB 
plays a crucial role, as you know, in chairing an interagency 
group of IGs, so we are a natural place for a lot of that 
activity to occur.
    Senator McCaskill. The council that was codified in the 
bill and that your Deputy Director serves on is a great place 
for you guys to push from the inside because, frankly, we 
haven't had a lot of help from the inside. In fact, in many 
agencies, the IGs have been ostracized with no support. In 
fact, in some agencies, we have received reports, whistleblower 
reports, after we have said that they have to do their own 
budget, they have lost the administrative support of their 
agency in preparing their budget, which, of course, was not the 
idea behind the bill.
    Mr. Orszag. Right.
    Senator McCaskill. It was not that they were supposed to 
become self-sufficient in terms of administrative support. As 
we look at the stimulus, has there been any thought given to 
the resources of the oversight committee because of the 
enormous amount of money that is going to be expended? It is 
unrealistic that we are going to grow spending so exponentially 
in some of these agencies and expect the GAO and the IG 
community to do the job they really need to do because the 
scary part about spending a lot of money at once is that is 
usually when things get sloppy because it does not feel like 
the money is quite as precious. I am curious if you all have 
thought about putting in the stimulus package additional 
resources for the IG community and GAO.
    Mr. Orszag. There has been significant thought given to 
program integrity funding and also, as was mentioned before, a 
special oversight board comprising the IGs and chaired by the 
Chief Performance Officer specifically on this topic that will 
hold regular meetings to identify and examine problems, in 
addition to a special website that will have information about 
the contracts so that we would be transparent about what is 
happening and information through whistleblower and other 
mechanisms could be fed back into the IG community and that 
oversight board.
    Senator McCaskill. I think that is great. I would stress 
that I think that the best whistleblowers are the employees of 
GAO and the IG, especially if you look at the responsibilities 
of GAO and the amount of money they generate. Some IGs are 
better than others in terms of how much money they generate for 
every dollar we spend. But all of them make money for us. They 
are all money makers. It seems to me that we are needing some 
money makers around this place right now, so I am hoping that 
you all look at actually staff levels within GAO and these IG 
departments as you look at the stimulus.
    Earmarking, obviously, it is something that has become a 
lightning rod in many ways. Has there been discussion about the 
Bush Executive Order and how you all are going to handle the 
Executive Order as it relates to earmarking?
    Mr. Orszag. Two things. First, we are reviewing all 
Executive Orders for their appropriateness for a new 
Administration.
    Second, with regard to earmarks, the President-Elect has 
stated that he is quite concerned about the issue and would 
like earmarks reduced. My understanding is that the Chairmen of 
the House Appropriations Committee and the Senate 
Appropriations Committee have reached an agreement that has 
been publicly released on reducing earmarks to 50 percent of 
their level from 2006, if I remember correctly, and that is 
certainly a step in the right direction.
    Senator McCaskill. One other piece of legislation that has 
not been introduced yet but that I will be introducing is 
looking at whether or not at this juncture in our government we 
can afford any earmarking to private or not-for-profit 
entities. Can we really afford at this point to be earmarking 
to private endeavors when we have so much that needs to be done 
in the public sector? I would just ask that you all, as you are 
considering your earmark policy going forward, look at the 
amount of money that is being spent by the Federal Government 
in the private sector through earmarking as opposed to some 
process that involves competitive grants.
    And finally, on competitive grants, as someone who has not 
done earmarking and who has spent a lot of time encouraging 
people into competitive grants and talking to my constituents 
about the competitive grant process, imagine my horror when I 
learned that a program in my State that had competed for a 
grant and had gotten one of the highest scores for the grant 
was not considered for the grant because the agency that was 
doing the competitive grants decided they were going to pick 
someone that had not even applied. In other words, it was not a 
competitive grant. It was bureaucracy earmarking under the 
guise of a competitive grant. And by the way, the amount of 
time and resources that agencies take to prepare grants is a 
significant expenditure of public dollars.
    So I wanted to put on your radar this notion of, from your 
position, talking about the process of competitive grants and 
how there is nothing, frankly, that is more susceptible to 
undermining this idea that we pay attention to how we spend our 
money than calling something a competitive grant that is just a 
good-old-boy or good-old-girl system.
    So I wanted to put that on your radar. I know you have 
hardly anything on your radar right now, but I thought I would 
add another small thing to it because I think it is something 
that is very important. We have had a lot of growth in 
competitive grants. We have to make sure that the process is 
rigorous.
    Thank you very much, and welcome.
    Mr. Orszag. Thank you.
    Chairman Lieberman. Thanks very much, Senator McCaskill.
    I think Senator Collins and I will each ask one question, 
and then I will let you go. We want to get to Mr. Nabors. 
Chairman Obey is here. Like Elvis, he is in the building. He is 
actually in the room, I believe. I compared Chairman Obey to 
Elvis because you can never say too many positive things about 
the Chairman of the Appropriations Committee here in Congress. 
We welcome Dave Obey.
    Very briefly, if I can, and if you want to take this under 
advisement, this sort of combines the tax cut with the TARP 
functions. I had a suggestion from someone that it might be 
constructive to allow investors who buy deeply discounted 
mortgage-backed securities to treat income, return of principal 
on these investments, as capital gain rather than ordinary 
income. Obviously, that would make it a lower tax. The argument 
is that would encourage investment. Private investment in those 
mortgage-backed securities would help shore up mortgage values 
and reduce the pressure on the Federal Government to buy the 
assets directly through TARP or the Federal Reserve.
    I wonder if you have heard that idea and whether or not you 
have an impression of whether it makes sense.
    Mr. Orszag. I would again refer to the Treasury folks, and 
I am sure they could follow up with you. I guess the only thing 
I would say is the tax code generally treats debt instruments, 
like mortgage-backed securities, in a particular way----
    Chairman Lieberman. Right.
    Mr. Orszag [continuing]. And equity investments are what 
get capital gains treatment----
    Chairman Lieberman. Correct.
    Mr. Orszag [continuing]. So that would be an unusual----
    Chairman Lieberman. It would be a change.
    Mr. Orszag. It would be a change that may be difficult to 
limit with creative financial engineering to the instrument 
that you think you are targeting.
    Chairman Lieberman. Thank you. Senator Collins.
    Senator Collins. Thank you. The Federal Government will 
spend more than $70 billion in this fiscal year on information 
technology projects. OMB consistently identifies more than $1 
billion worth of these IT projects as poorly planned and/or 
poorly performing, usually both. The number of investments that 
the Federal Government is making each year in IT continues to 
grow, yet the problems continue to grow, as well. We have had 
enormous failures in IT projects at the FBI, at the Census 
Bureau. The list goes on and on. And OMB is responsible under 
the Cohen-Clinger Act for overseeing the major IT investments.
    How do you propose that OMB exercise better oversight to 
get these IT contracts back on track?
    Mr. Orszag. I think there are several steps, and one of the 
issues that I am examining is whether the e-Government 
administrator is a sufficient staffing internal resource or 
whether we also could use a Chief Information Officer 
internally at OMB.
    As you noted, we have a variety of statutory 
responsibilities, not only in the Clinger-Cohen Act, but under 
the e-Government Act, etc. I would identify a few things.
    First, I think the IT investments need to be better aligned 
with agency budgets. Currently, the Exhibit 300s, which are the 
way that IT budgeting occurs, are sort of in their own world, 
agency by agency, not aligned with the non-IT part of the 
budget process. Those need to come together to ensure better 
alignment of IT and what you are trying to accomplish with the 
IT.
    And then we come back to this general theme, which we have 
discussed previously, that there is simply not enough oversight 
and auditing of performance throughout not just IT investments, 
but throughout many other areas of what we are doing, and that 
requires sustained focus. So coming back to a theme that we 
touched upon before, and if I am confirmed, this will require 
regular work with this Committee and the Chief Performance 
Officer on an ongoing basis in order to get real results 
because it is not going to happen overnight and it is not going 
to happen by snapping our fingers.
    Senator Collins. That is true, and this Committee approved 
at the end of the last session some very important legislation 
that would provide additional reporting to the appropriate 
committees of Congress as well as to OMB that I encourage you 
to take a look at.
    I have been very impressed with your answers today. I do 
want to tell you the Chairman at the beginning asked three 
routine questions that we ask every nominee. I would be remiss 
in my capacity as the Ranking Minority Member if I did not tell 
you that the Minority Members of this Committee also expect 
that you will be responsive to our requests for information as 
well.
    Mr. Orszag. Absolutely.
    Senator Collins. Ninety-nine percent of the time, 
fortunately, on this Committee, those requests are going to be 
joint, but thank you, and thank you, Mr. Chairman.
    Mr. Orszag. It makes it even easier.
    Chairman Lieberman. Amen. Thanks very much, Mr. Orszag. To 
use Senator Collins' words, just to show how bipartisan we are, 
your testimony has been quite impressive. We look forward to 
working with you.
    I would actually like to explore the possibility that we 
might get together informally on a regular basis without a 
public hearing context but just to talk about projects that we 
are working on that overlap, and I hope you will be willing to 
do that.
    Mr. Orszag. I would look forward to it.
    Chairman Lieberman. Thank you very much.
    Without objection, the record will be kept open until 12 
noon tomorrow for the submission of any written questions or 
statements for the record. We are doing it on that short of 
time frame because we want very much to have this critical 
nomination and that of your deputy be ready for Senate action, 
hopefully unanimously by consent, as soon after President Obama 
takes office next Tuesday as is possible.
    Mr. Orszag. Thank you.
    Chairman Lieberman. Thank you very much, and with that, we 
will adjourn this hearing and immediately reconvene for Mr. 
Nabors.
    [Whereupon, at 3:56 p.m., the Committee was adjourned.]


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