[Senate Hearing 112-]
[From the U.S. Government Publishing Office]



 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2012

                              ----------                              


                         TUESDAY, APRIL 5, 2011

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:10 a.m. in room SD-138, Dirksen 
Senate Office Building, Hon. Richard J. Durbin (chairman) 
presiding.
    Present: Senators Durbin, Lautenberg, Moran, and Kirk.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. TIMOTHY F. GEITHNER, SECRETARY


             opening statement of senator richard j. durbin


    Senator Durbin. Good morning. I'm pleased to convene this 
hearing of the Appropriations Subcommittee on Financial 
Services and General Government, the first in a series of 
hearings we're going to have this spring as we embark on the 
2012 appropriations bills.
    I want to welcome my Ranking Member, Senator Jerry Moran of 
Kansas. Welcome in your new position here.
    Senator Moran. Thank you.
    Senator Durbin. I am looking forward to working with you.
    And, of course, my colleague from Illinois, Senator Mark 
Kirk--we've both worked together on many things.
    And let me start with an apology to the Secretary and to my 
colleagues, but it's all the President's fault. He decided, at 
the last minute, to call in the leaders, including Senator 
Reid, and I had the responsibility of opening the Senate. So, I 
apologize to all of those who are in attendance.
    Today, we're going to examine the fiscal year 2012 funding 
request for the Department of the Treasury. While the Treasury 
programs funded in our appropriations bill include the Internal 
Revenue Service (IRS) and the Community Development Financial 
Institutions Fund (CDFI), we're planning to look at those two 
agencies separately. We'll save questions on those for focused 
hearings.
    The Treasury programs we're going to talk about today are 
programs which deliver a generous return on investment to 
taxpayers. I'd like to illustrate a few examples.
    Before any coalition planes were in the sky over Libya, the 
Department of the Treasury's Office of Foreign Assets Control 
had frozen $32 billion in Libyan assets. That's $32 billion 
that Muammar Gaddafi can't use to pay mercenaries, gas up his 
tanks, or purchase weapons to kill his own people.
    The Treasury's Financial Crimes Enforcement Network 
(FinCEN), tracks the financial paper trail when a criminal 
tries to steal your identity, cash out the equity in your home, 
or skim your credit card. And again, when that criminal tries 
to wire your money abroad, blow your money on blackjack, or 
even flee the country with a pocketful of diamonds, it's the 
Treasury's FinCEN that follows the money to make sure crime 
doesn't pay for terrorists, financiers, organized crime, 
narcotics traffickers, Ponzi scheme operators, and loan 
modification scammers.
    The Treasury's Financial Management Service ensures that 
Social Security payments make their way to seniors, that 
benefit payments make their way to our disabled veterans, and, 
as many of you may be looking forward to, that tax refunds make 
their way to taxpayers.
    The Treasury employs a professional cadre of staff who 
forecast economic indicators and analyze market conditions in 
order to monitor risk building up in our financial system and 
promote not just an economic recovery, but sustainable economic 
growth.
    The Treasury's special inspector general (IG) for the 
Troubled Asset Relief Program (TARP) works diligently to root 
out fraud and abuse in that program and provide transparency. 
Last year alone, the IG saved $555 million in taxpayer dollars 
that would have otherwise been lost to fraud. The office 
continues to work, this year, on 153 criminal and civil 
investigations that they actively pursue.
    To continue all these activities in 2012, the Treasury 
requests spending authority of $1.39 billion. The request is 
actually a net decrease of $18 million, or 1\1/2\ percent, 
compared to both the fiscal year 2010 enacted level and the 
fiscal year 2011 continuing resolution level that we're 
currently operating under.
    I'm glad to see a restrained budget proposal, though I 
have--I'm concerned about some of the proposed cuts. There are 
several that have come to my attention. The Treasury proposes 
to scale back local law enforcement access to data on 
suspicious financial transactions. There's also a proposal to 
discontinue funding for law enforcement pursuing criminal 
activity related to alcohol and tobacco. We'll discuss those 
today.
    In addition to these ongoing duties, the Treasury is 
shepherding the creation of the Bureau of Consumer Financial 
Protection (CFPB). For too long, consumers have struggled to 
navigate financial products fraught with hidden fees, bait and 
switch terms, and other complex features that even experts have 
difficulty understanding. The CFPB will operate with a simple 
mission: to empower consumers with the information they need to 
make financial decisions for themselves and their families.


                           prepared statement


    Since the day I introduced the first bill to create this 
bureau, Wall Street has fought it and tried to undermine it. In 
fact, with the help of some in the House, Wall Street is 
attempting to limit spending by this Bureau to barely half of 
what it needs to get started. It's not a surprise that Wall 
Street is balking at the CFPB starting up. Fully informed 
consumers will make markets more competitive, eliminating the 
ability of banks, lenders, and mortgage brokers to profit from 
sheer confusion. We're going to work to make sure this agency 
has what it needs to start working for consumers from the 
start.
    I look forward to discussing these and other issues with 
the Secretary.
    And I now turn to my ranking member, Senator Moran, for any 
opening remarks.
    [The statement follows:]
            Prepared Statement of Senator Richard J. Durbin
    Good morning. I am pleased to convene this hearing of the 
Appropriations Subcommittee on Financial Services and General 
Government, the first in a series of hearings I am planning this spring 
as we embark on developing our 2012 appropriations bill.
    I welcome my ranking member, Senator Jerry Moran, and other 
colleagues who have joined me on the dais today. I also welcome 
Treasury Secretary Timothy F. Geithner to the hearing.
    Today we will examine the fiscal year 2012 funding request for the 
Department of the Treasury. While the Treasury programs funded in our 
appropriations bill include the Internal Revenue Service (IRS) and the 
Community Development Financial Institutions (CDFI) Fund, we're 
planning to look at these two agencies in depth in separate hearings 
scheduled over the next several weeks. We'll save questions on the IRS 
and CDFI for those focused hearings.
    The Treasury programs we'll examine today deliver a generous return 
on investment to taxpayers. I would like to illustrate a few examples 
of how Treasury programs provide taxpayers with the best bang for their 
buck:
    Before any coalition planes were in the sky over Libya, Treasury's 
Office of Foreign Assets Control froze $32 billion in Libyan assets. 
That's $32 billion that Muammar Gaddafi can not use to pay mercenaries, 
gas up his tanks, or purchase weapons to fight his own people.
    Treasury's Financial Crimes Enforcement Network (FinCEN) tracks the 
financial paper trail when a criminal tries to steal your identity, 
cash out the equity in your home, or skim your credit card, and again 
when that criminal tries to wire your money abroad, blow your money on 
blackjack, or even flee the country with a pocket full of diamonds. 
It's Treasury's FinCEN that follows the money to make sure crime 
doesn't pay for terrorist financiers, organized crime, narcotics 
traffickers, Ponzi scheme operators, and loan modification scammers.
    Treasury's Financial Management Service ensures that Social 
Security payments make their way to our seniors, that benefit payments 
make their way to our disabled veterans, and--as many of you may be 
looking forward to--that tax refunds make their way to taxpayers.
    Treasury employs a professional cadre of staff who forecast 
economic indicators and analyze market conditions in order to monitor 
risks building up in our financial system and promote not just an 
economic recovery, but sustainable economic growth and global 
competitiveness.
    Treasury's Special Inspector General for Troubled Asset Relief 
Program (TARP) works diligently to root out fraud and abuse in the TARP 
program and provides transparency of a complicated program. Last year 
alone, the inspector General saved $555 million in taxpayer dollars 
that would have otherwise been lost to fraud. The office continues its 
work this year with 153 criminal and civil investigations it is 
actively pursuing.
    Treasury's Alcohol and Tobacco Tax and Trade Bureau collects more 
than $24 billion in taxes on alcohol and tobacco every year with a 
budget of just $103 million. The agency combats tax evasion, keeps 
illegal tobacco and alcohol products off the shelves, and ensures 
alcohol products are labeled properly and advertised appropriately. 
Every time you open a beer, a bottle of wine, or a bottle of spirits, 
you can trust the label because Treasury has ensured the safety of that 
product.
    To continue all of these activities in 2012, Treasury requests 
spending authority of $1.39 billion. The request is actually a net 
decrease of $18 million, or 1.5 percent, compared to both the fiscal 
year 2010 enacted level and the fiscal year 2011 continuing resolution 
level we are currently operating under.
    While I'm glad to see a restrained budget proposal, I have some 
concerns about a few of the proposed cuts. Let me talk about a couple 
of them. Treasury proposes to scale back local law enforcement access 
to data on suspicious financial transactions. Treasury also proposes to 
discontinue funding for law enforcement pursuing criminal activity 
related to alcohol and tobacco. I look forward to discussing those 
proposals in more detail today.
    In addition to these ongoing duties, Treasury is shepherding the 
creation of the Consumer Financial Protection Bureau (CFPB), known as 
the CFPB. For too long, consumers have struggled to navigate financial 
products fraught with hidden fees, bait-and-switch terms, and other 
complex features that even experts have difficulty understanding. The 
CFPB will operate with a simple mission--to empower consumers with the 
information they need to make financial decisions for themselves and 
their families.
    Since the day I introduced the first bill to create such a bureau, 
Wall Street has fought to defeat and undermine it. In fact, with the 
House Republicans' help, Wall Street is attempting to limit spending by 
that agency to just half of what it needs to get started. It's not a 
surprise Wall Street is balking at the CFPB starting up--fully informed 
consumers will make markets more competitive, eliminating the ability 
of banks, lenders, and mortgage brokers to profit from sheer confusion.
    We're going to work to make sure this agency has what it needs to 
start working for consumers right from the start.
    I look forward to discussing these and other issues with you. I now 
turn to my Ranking Member, Senator Moran, for any remarks that he would 
like to make.

                    STATEMENT OF SENATOR JERRY MORAN

    Senator Moran. Mr. Chairman, thank you very much.
    Secretary Geithner, welcome.
    Today marks my first opportunity to sit in this new role as 
Ranking Member of the Financial Services and General Government 
Subcommittee, and I appreciate the opportunity to serve on the 
Appropriations Committee, particularly given its very important 
role in providing oversight over all discretionary spending.
    I look forward to working with you, Mr. Chairman, as we 
review this budget, and others, and make certain that our 
agencies have the opportunity to explain their story and we 
reach the right agreement in regard to spending levels.
    Mr. Secretary, you have many, many challenges, and your 
responsibilities are great, and they include, in my view, 
reinvigorating bank lending to consumers and small businesses, 
stabilizing the housing market, and encouraging sustainable 
economic growth. Most importantly, you must promote this 
economic growth at a time in which the long-term financial 
security of the United States is one that is burdened by 
unprecedented debt.
    Our country faces enormous fiscal challenges which, left 
unchecked, will have a disastrous impact upon the future of our 
Nation. For too long, members of both political parties have 
ignored this growing fiscal crisis and allowed our country to 
live well beyond its means.
    Americans are looking for leadership in Washington to 
confront the problems we face today and not to push them on to 
future generations. Oftentimes, the debate about Government 
spending is seen as a philosophical, academic, another 
political discussion, a partisan issue; but, in my view, the 
truth is that out-of-control borrowing and spending has very 
real consequences upon the everyday lives of Americans. We are 
facing a turning point in our country's history and can no 
longer avoid these difficult decisions.
    Mr. Secretary, I know that you're fully aware of the crisis 
we are facing, and I hope that we can work together to right 
the ship. The Congress needs a partner in the administration if 
we are to enact any meaningful changes or reforms.
    In my remaining few moments, I want to address another 
problem hampering our economic recovery: the uncertainty coming 
out of Washington, DC. regarding bank regulations and bank 
regulators. You and I had a conversation about this at a joint 
hearing when I was a Member of the House. And unfortunately, I 
don't think things have changed. We have reached a sad point in 
America when small-town banks are unwilling or unable to lend 
to small-town businesses. This sort of relationship banking 
played no role in the fiscal crisis we just experienced, and I 
feel strongly that, once we correct this trend, we will see a 
recovery take hold.
    I hear, from many Kansas bankers, that the most serious 
reason for their inability to lend to creditworthy borrowers in 
the community--in their community--is the fear of bank 
examiners' unwarranted scrutiny and the increasing cost of 
unnecessary regulations. Time and time again, I hear from 
bankers, like I heard this morning, Ken Domer, of Spearville, 
Kansas, who, in his 30 years experience as a banker, has never 
experienced such an unprecedented examination process like what 
has been ongoing recently. I hope that you will work with me to 
find solutions to this circumstance.
    Finally, I am requesting your thoughts--Senator Durbin 
mentioned the CFPB--I intend to introduce legislation today 
that would reform the structure of the CFPB by subjecting it to 
an appropriations process and replacing the single-director 
structure with a five-person commission, similar to the 
Securities and Exchange Commission, Commodity Futures Trading 
Commission, and a host of other Federal agencies. While my 
concerns with Dodd-Frank extend beyond the structure of the 
CFPB, this legislation, I believe, is a good first step to 
making sure the Congress has the necessary oversight of such a 
powerful agency.
    Secretary Geithner, the Department of the Treasury plays an 
important role in managing the Federal Government's finances 
and attempting to reinvigorate our economy, and I stand ready 
to work with you to address the challenges, and look forward to 
working with you and Senator Durbin and my other colleagues on 
this subcommittee to find common-sense solutions to address our 
mounting fiscal crisis.
    Senator Moran. I thank the Chairman and welcome Secretary 
Geithner.
    Senator Durbin. Thank you, Senator Moran.
    Mr. Secretary, you have the floor.

             SUMMARY STATEMENT OF HON. TIMOTHY F. GEITHNER

    Secretary Geithner. Thank you, Chairman Durbin, Senator 
Moran, and members of the subcommittee. Thank you for letting 
me come up here today and talk to you. And I appreciate both 
your opening statements.
    We're here to talk about the Treasury budget, which, at 
first glance, may not seem central to the broad questions we're 
debating about how to strengthen the economy and restore fiscal 
sustainability. But, I want to spend a few minutes at the 
beginning just highlighting what's at stake.
    As you know, the Treasury plays a key role in a range of 
important programs to help strengthen economic growth. We play 
a central role in designing and administering a powerful set of 
tax incentives to encourage business investment and capital 
spending, investment in small, high-growth, start-up companies, 
make it easier for families to afford college. We play a 
central role in the evolving debate about how to design a 
better means for financing infrastructure across the country, 
in setting up a series of very important programs to help 
facilitate small business lending and credit growth, the new 
market tax credit, the CDFI program. We play a very important 
role helping expand United States exports, not just through our 
work with China, to encourage them to appreciate their currency 
more rapidly, but broader efforts to help us to establish a 
more level playing field for American companies. Obviously, 
we're playing a central role in helping repair the damage 
caused by the crisis to the housing market. And we're working 
to design a better corporate tax system that can help 
strengthen incentives for investment in the United States.
    Second, beyond these broad questions about economic growth, 
of course, we're playing a critical role in helping reform our 
national financial system. We chair the council established by 
the Congress for financial stability. We're helping work to 
wind down the government-sponsored enterprises' fixed housing 
finance system established by the CFPB, bring oversight to 
derivatives markets, all as part of a broad strategy working 
with countries around the world to make sure that U.S. firms 
face a level playing field as we strengthen these basic 
constraints on risk taking and leverage.
    The Treasury plays a key role, as the Chairman said, in 
help protecting our national security through administering our 
terrorist financing sanctions programs, not just with Iran and 
North Korea, but, as the Chairman said, most notably and 
recently, Libya.
    The Treasury, as you know, is responsible for raising the 
resources required to fund the obligations the Congress has 
established for the Government and for helping Americans meet 
their obligations as citizens. Every $1 we spend at the IRS 
helps generate nearly $5 in tax revenue. Every $1 we cut in 
enforcement through the IRS will increase our future budget 
deficits, add to our debt, and increase the risk that Americans 
who pay their taxes, pay more than their fair share of the 
burden.
    Now, we carry out these responsibilities with a very tight, 
efficient use of taxpayer resources, a very lean and talented, 
dedicated staff of professionals at the Treasury. You know, 
it's a remarkable achievement that, in a $14 trillion economy 
at a time of severe economic and financial crisis, enormous 
economic challenges here and from around the world, that the 
entire main Treasury staff, what we call the departmental 
offices, is about the size of a tax department at one of 
America's single iconic corporations.
    We play a lead role in the executive branch in helping find 
ways to save resources. Let me just cite two examples that are 
highlighted in my testimony.
    Within the Treasury, we've identified, in our last three 
budget requests, more than $1 billion in savings by 
consolidating functions and helping bring the Government 
payment system into the modern era by shifting to electronic 
processing of payments, paperless transactions. And with very 
careful management of the emergency programs established by the 
Congress to resolve our financial crisis, we have helped save 
hundreds of billions of dollars of taxpayer resources through 
the careful management of those investments. As you know, our 
overall investments in the banking system alone are likely to 
generate a very substantial profit to the American taxpayer, 
estimated, today, in the range of $20 billion.
    Now, the President and the congressional leadership are 
meeting this morning on the budget for this year. Of course, 
we're 6 months into the year now. House Republicans outlined, 
this morning, a proposed strategy for how we reduce our 
deficits over the long term. A group of bipartisan Senators are 
working hard to reach agreement on a comprehensive, multiyear 
set of reforms to put us on a path back to living within our 
means as a country.
    So, I want to just conclude by emphasizing how important it 
is that we reach a bipartisan agreement on how to restore 
fiscal sustainability by reducing spending where we can, but 
still investing in the types of reforms, like education, that 
are essential to our economic future, and by enabling us to 
meet our commitments to our seniors and those less fortunate 
Americans.
    The economy is healing, job creation is accelerating, 
businesses are investing, but we have a long way to go to heal 
the damage caused by this crisis, and we face enormous 
challenges, including from--countries new competitors around 
the world. So, I think all of us in Washington have a 
responsibility to demonstrate that we can solve these problems, 
not just talk about them.

                           PREPARED STATEMENT

    So, I look forward to working with you, and I appreciate 
very much your support for the exceptionally talented and 
professional staff of the Treasury that carry out such an 
enormously complicated set of responsibilities.
    [The statement follows:]
               Prepared Statement of Timothy F. Geithner
    Chairman Durbin, Ranking Member Moran, members of the subcommittee, 
thank you for the opportunity to testify about the President's fiscal 
year 2012 budget for the Department of the Treasury.
    The Congress has given the Treasury a very broad mission, with 
responsibilities that touch many aspects of the lives of Americans.
    The Treasury is responsible for raising the resources necessary to 
fund critical Government functions, from national defense to protecting 
national parks. As the Government's financial manager, we process 
payments on a daily basis of almost $100 billion, including Social 
Security payments to 54 million Americans each month. We design and 
deliver tax credits to help support business investment and help 
families finance a college education. We design and enforce the 
financial sanctions necessary to prevent the spread of nuclear weapons 
and the finance of terrorism.
    The Treasury plays an important role in helping shape the 
President's overall economic policies. Our lead policy responsibilities 
include tax policy, international economic policy, and the stability of 
the U.S. financial system, which is the focus of the recently 
established Financial Stability Oversight Council that I chair.
    Unlike most Federal agencies, the Treasury's annually appropriated 
budget is about people more than programs, with most of the resources 
we seek from the Congress directed to supporting the talented public 
servants charged with these important economic and financial 
responsibilities. Salaries and operating costs make up 96 percent of 
our budget, and most of the rest is for investments in technology they 
require to function.
    In the President's budget for fiscal year 2012, the administration 
requested slightly more than $14 billion, $13.3 billion of which is for 
the Internal Revenue Service (IRS). This request includes efficiency 
savings and program reductions across all Treasury bureaus, as well as 
a number of targeted investments to allow us to better address some of 
the most important economic challenges facing the United States.
    Let me begin by summarizing the core economic and financial 
priorities that shape this budget request.
                     strengthening economic growth
    As we work to strengthen the economy and help get more Americans 
back to work, we are responsible for a range of initiatives designed to 
help support business investment.
    As part of the Small Business Jobs Act of 2010, the Treasury is 
implementing two new programs--the Small Business Lending Fund and the 
State Small Business Credit Initiative--designed to improve access to 
capital for small businesses.
    We are working to encourage private sector investment in start-ups 
and small businesses operating in moderate and low-income communities 
through investments in the Community Development Financial Institutions 
Fund and the New Markets Tax Credit Program.
         assisting homeowners and repairing the housing market
    In the face of the worst housing crisis in a generation, the 
Treasury plays an important role in the Government's programs to 
prevent avoidable foreclosures and support the continued repair of the 
housing market.
    The Treasury's Home Affordable Modification Program (HAMP), which 
is one of several critical homeownership assistance programs under our 
Making Home Affordable initiative, has helped more than 630,000 
families stay in their homes. By setting affordability standards and 
providing a framework for homeowner assistance that the private sector 
can follow, HAMP has also driven industry improvements that have 
resulted in 2 million additional modifications outside the program. We 
continue to refine and strengthen our housing programs and are taking 
additional steps to help ensure Americans are better served by their 
mortgage companies, including publishing a quarterly compliance 
scorecard for each of the 10 largest HAMP servicers and requiring all 
Making Home Affordable participating servicers to assign a single point 
of contact to each homeowner requesting a HAMP modification.
    Another key priority is comprehensive housing finance reform. In 
February, the administration laid out a plan to wind down Fannie Mae 
and Freddie Mac and reform our Nation's housing finance system. We look 
forward to working with the Congress in the coming months to develop 
legislation that will help create a safer and more stable housing 
finance market.
               repair and reform of the financial system
    Our programs to help strengthen and reform the financial system 
have made very substantial progress, but we still face a number of 
challenges ahead.
    The financial recovery bank programs under the investment portion 
of the Troubled Assets Relief Program (TARP) are now estimated to 
provide a substantial positive return to the taxpayer. On March 30, we 
announced that TARP's bank programs officially turned a profit. Moving 
forward, we're working to exit our remaining investments and continue 
recovering taxpayer dollars. Ultimately, we expect TARP's bank programs 
will produce a lifetime profit of nearly $20 billion.
    We are also continuing to work in cooperation with the Federal 
Housing Finance Agency to protect taxpayers and reduce the ultimate 
cost of the Government's support for the housing market through the 
Government Sponsored Enterprises (GSEs). In the President's fiscal year 
2012 budget, the net cost of rescuing Fannie Mae and Freddie Mac is 
projected to drop by 44 percent from $131 billion today to $73 billion 
over the next 10 years as those companies continue to pay back 
dividends on the Government's investment. In fact, in each of the last 
two quarters, the net cost of the Government's investment in Fannie Mae 
and Freddie Mac has declined, because those firms have paid more back 
in dividends than they have requested in new funding.
    We are helping shape the rules to implement the comprehensive 
reforms to the financial system passed by the Congress last year, 
including stronger protections for consumers and tougher limits on 
risk-taking by banks. These reforms will help make our financial system 
more secure and protect the American taxpayer, but to be effective we 
need to fully fund their implementation and enforcement.
                               tax reform
    The President has proposed to reform our corporate tax system to 
make America more competitive.
    We look forward to working with Members of Congress and the 
business community to design a comprehensive, revenue neutral reform of 
the corporate tax system that would lower tax rates, eliminate special 
tax breaks, and encourage investment in the United States.
    promoting u.s. economic and national security interests globally
    The Treasury plays a critical role in helping advance U.S. economic 
interests abroad and protecting against foreign threats to our economic 
and financial security. Our request sustains the Department's 
investment in counterterrorism and financial crime programs. This 
includes funding for implementing targeted economic sanctions against 
foreign threats to the United States and stopping the flow of money to 
terrorist organizations and their support networks.
            improving the efficiency of government services
    As we pursue these core priorities, we are working to deliver 
savings, program reductions, and improvements in the overall efficiency 
of government. As a result of these savings, our budget requests for 
fiscal year 2012 in five accounts are below the fiscal year 2010 
enacted levels, and in three accounts are below the fiscal year 2008 
enacted levels.
Taxpayer Services and Tax Enforcement
    The customer service and enforcement programs at the IRS provide 
one of the best values in the Federal Government. Every $1 invested in 
IRS yields nearly $5 in increased revenue from noncompliant taxpayers. 
The targeted investments in this budget request are expected to produce 
more than $1.3 billion in additional annual revenue once fully 
implemented in fiscal year 2014.
    In fiscal year 2010, the IRS enforcement efforts brought in $57.6 
billion in additional tax revenues. This is a 53 percent increase in 
enforcement revenue since 2003 and a clear example that the investment 
in the IRS over the past few years is producing significant returns.
    Over the last decade there have been nearly 4,500 changes to the 
tax law, providing IRS with a challenging and constantly changing 
business environment. Despite this fact, service levels have increased 
and each year the IRS has delivered a successful filing season.
    The IRS continues to implement information programs and online 
applications to help taxpayers find and understand information. Use of 
the popular IRS Web tool, ``Where's My Refund.com'' has nearly tripled 
since 2006 to 67 million users. This modernization has not only helped 
improve IRS' daily interactions with taxpayers but has also provided 
the platform for significant productivity increases in IRS operations.
    Today, we receive nearly 100 million tax returns electronically 
each year. In the past these returns would have been opened, sorted, 
and transcribed manually. Last year, nearly 70 percent of individual 
tax returns were filed electronically compared to a mere 10 percent 15 
years ago. The efficiency savings have allowed us to consolidate 10 
submission processing sites into six and reduce the need for manual 
submission processing jobs. We will repurpose an additional processing 
site later this year.
    Our information technology modernization effort will decrease the 
time it takes to process and post-taxpayer information from 2 weeks to 
1 day, allowing the IRS to issue faster refunds and customer service 
representatives to answer taxpayer questions based on more up-to-date 
information.
The Treasury's Electronic Payments Initiatives
    Modernizing processes and reducing waste are key components not 
only of the IRS portion of the Treasury's budget but also of our 
overall efforts to make sure the Department operates more efficiently 
and effectively.
    The Treasury now makes 82 percent of its payments electronically. 
We are taking action to further increase electronic payments. Effective 
May 2011, all newly enrolled Federal beneficiaries will receive 
payments electronically. By March 2013, we plan to move all existing 
beneficiaries to electronic payment.
    Productivity increases have already allowed the Financial 
Management Service to repurpose the Austin, Texas payment center as a 
debt collection center. Debt collection efforts last year alone totaled 
more than $4 billion, a 41 percent increase over fiscal year 2000.
    Automation of our debt financing functions has allowed the Bureau 
of Public Debt to decrease staffing by more than 20 percent over the 
last 5 years. Additionally, we transitioned to an entirely electronic 
process for issuing payroll savings bonds earlier this year.
    We are working to further automate debt financing.
    In early 2012, we will no longer issue over-the-counter paper 
savings bonds. Instead, we will focus on supporting electronic means to 
issue bonds to individuals, reducing the cost of staffing, postage, 
paper forms, and processing fees.
    Overall, these efforts to increase the Treasury's paperless 
transactions with the public are expected to produce more than $500 
million in cost savings and efficiencies over the next 5 years. These 
savings, which include reductions in personnel and facilities costs, 
will create a more efficient Department and allow us to increase the 
quality of the services we provide.
Reducing Fraud and Improper Payments
    The Treasury will also expand upon and maintain the 
administration's VerifyPayment.gov portal to prevent ineligible 
recipients from receiving payments from the Federal Government. The 
Treasury will also continue to improve the management of the delinquent 
debt portfolio by implementing reforms that will increase collection of 
delinquent tax and nontax debt, including child support, by more than 
$5 billion over the next 10 years.
Overall Improvements in Efficiency
    The Treasury will cut the number of data centers we currently 
maintain by one-third by 2015, resulting in significant dollar and 
energy consumption savings.
    These overall savings build on substantial improvements over the 
last 2 years.
    The Treasury's fiscal year 2009, fiscal year 2010, and fiscal year 
2011 budgets collectively included a total of more than $1 billion in 
savings and offsets. The Treasury's fiscal year 2012 budget alone 
identifies nearly $1 billion in savings, including $336 million in 
direct cost savings and efficiencies and $630 million in offsets 
primarily from assets seized as a result of violations of U.S. 
sanctions.
    These savings allow us to finance some very important investments. 
Any substantial cut to the IRS budget will hurt revenue collection and 
service to taxpayers, resulting in unanswered phone calls and letters. 
Cuts to the remaining Treasury responsibilities would weaken our 
ability to support reforms that are critical to economic recovery and 
repair of the financial system. Cuts to the Community Development 
Financial Institutions Fund program would limit our ability to attract 
private investment to communities hit hardest by the economic crisis.
    To carry out the Treasury's responsibilities, we need to be able to 
retain and support the dedicated public servants that make up the 
career staff of the Treasury and its Bureaus.
    These are a very talented group of people, working extremely hard 
in the face of the most challenging economic and financial problems in 
many decades. They have played a vital role in helping restore economic 
growth and a measure of financial stability.
    I look forward to working with you to ensure we continue to attract 
and retain a diverse, highly skilled workforce that delivers enhanced 
results for the American public.

    Senator Durbin. Thank you, Mr. Secretary.
    I've been notified by the staff that Senator Lautenberg has 
an opening statement. And I'll extend the same courtesy to 
Senator Kirk, if he would like to make one.

                STATEMENT OF SENATOR FRANK R. LAUTENBERG

    Senator Lautenberg. Thanks, Mr. Chairman.
    Little could be more important than to view where it is 
that we are and where it is we're going.
    Welcome, Secretary Geithner.
    We learned, last week, that that the Nation's jobless rate 
hit a 2-year low in March, another sign that the economy is 
continuing its slow but steady recovery.
    And if I may add a personal note here, the company I ran 
before I came here is the company that releases the labor 
statistics that we see, a company called ADP. Yesterday, I'll 
take another moment of personal privilege--we said goodbye to 
my--to the founder of ADP--a partner, a humble man who worked 
very hard and created a company that today has 45,000 
employees. We did it from nothing--nothing to help us along 
except our intelligence and our muscle. And I'm not sure that I 
provided much of the intelligence.
    Right now, we've got to help Americans get back to work. 
That's got to be our top priority. And that's why I was pleased 
to see President Obama's budget call for critical investments 
we need to spark job creation. But, we can't make those 
investments if we don't start paying more attention to the 
revenue side in the Government's ledger. I was a CEO for many 
years, and I know that you can't run a company, or a country, 
without revenues. No matter how much you cut expenses, if you 
don't increase the revenues, you're headed for disaster.
    And that's why I voted, last year, to end the Bush tax cuts 
for the top 2 percent of wage earners. Windfalls for the 
wealthy don't create jobs, reduce the deficit, or help us 
invest in our future. And I urge President Obama to keep the 
commitment in his budget to let the Bush tax cuts for the 
wealthy expire at the end of 2012, because if the wealthiest 
among us don't pay their fair share, we'll be denying children 
and grandchildren the future that they deserve.
    The President's budget also funds the landmark Wall Street 
reforms that we passed last year. This new law will protect our 
economy from the kind of meltdown we suffered through in 2008. 
And that's why I'm deeply concerned that the Tea Party 
Republican plan to cut funding for reform is in place. If the 
Republicans--Tea Party Republicans succeed, Wall Street could 
return to its reckless ways, which will threaten our economic 
recovery and undermine our ability to create jobs.
    We also need to strengthen investment in our Nation's 
infrastructure by repairing crumbling roads and bridges and 
building much needed new projects like high-speed rail. 
Construction of a 21st century rail system will make it easier 
for people to get where they need to go, improve our 
environment, and spark job creation.
    President Obama has proposed creating an infrastructure 
bank to invest in products that will--projects that will get 
America moving. And I look forward to hearing your commentary, 
Mr. Secretary.
    I'm also eager to hear from the Secretary about how we can 
make taxes fairer, keep Wall Street in check, and accelerate 
our economic recovery.
    Senator Lautenberg. And I thank you, Mr. Chairman.
    Senator Durbin. Thanks, Senator Lautenberg.
    Senator Kirk.
    Senator Kirk. No opening statement, thank you.
    Senator Durbin. Thanks a lot, Senator Kirk.

             FINANCIAL MANAGEMENT DURING BUDGET UNCERTAINTY

    Mr. Secretary, before we get to important policy and budget 
questions, I have to address the issue of crisis management. We 
have been lurching from short-term continuing resolution to 
short-term continuing resolution. And I would like to ask you 
if you would tell me what impact this has had on the management 
of your agency and operations.
    Second, we are now starting to have very active discussions 
among Senators about what to do if the Government shuts down 
after Friday--how many staff will still be around, whether 
anyone will answer the phones, whether there will be a skeletal 
staff or more. And I'd like to know what your preparations have 
been at the Department of the Treasury, and what services might 
be affected, from your Department, when it comes to that.
    The final question is larger than the first two, and that 
is: Around the corner is another looming crisis, which you 
spoke to yesterday, and that is the extension of the debt 
ceiling. Some Senators have already come to the floor and said, 
flat out, ``We don't care. We're not going to vote for an 
extension of the debt ceiling.'' Please tell us what the impact 
of failing to extend the debt ceiling would be on the American 
economy.
    Three very simple questions.
    Secretary Geithner. Mr. Chairman, thank you. Very 
consequential questions.
    The Office of Management and Budget (OMB) has been 
coordinating the work of the executive branch in preparing for 
a shutdown. I think the Director of the Office of Management 
and Budget, Jack Lew, sent to the agencies, yesterday, a set of 
detailed guidance for how they would manage through, what 
critical services they would have to retain, would be 
permitted, under the law, to retain, and which they could no 
longer function with. I just want to emphasize that, confidence 
is very important to economic recoveries. There are a lot of 
things happening in the world today that carry some risk to the 
global economy and financial system. It is very important that 
we in Washington demonstrate that we are going to be doing 
things that are going to help reinforce confidence, support 
recovery. And part of that requires making sure that Government 
can carry out its critical functions. And those functions would 
be impaired during a shutdown.
    We would be happy to brief your staff in more detail on 
exactly what would happen for the critical functions we're 
responsible for at the Treasury, but let me just say, they're 
very material.
    Now, you're right, of course, to highlight the fact that to 
say it again, if we force the Government to live week by week 
now, more than 6 months into the fiscal year, we risk 
undermining the recovery now underway. And I think our first 
obligation to the American people, given the trauma still 
caused by this crisis and the depth of the damage we still 
face, is to make sure we're doing everything we can to ensure 
that we're reinforcing business confidence, helping get more 
Americans back to work, repairing the damage caused by the 
crisis--a shutdown will get in the way of that, of course.
    Now, you're right to say that, in the next several weeks, 
the Congress will run out of room. Under the debt limit, it 
will be forced to raise the basic debt limit. You asked the 
question, ``What happens if we do not? If the Congress does not 
raise the debt limit?'' As I said in my recent letters, and as 
all my predecessors have said, the consequences of that would 
be catastrophic to the United States. Default by the United 
States would precipitate a crisis worse than the one we just 
went through. I think it would make the crisis we went through 
look modest in comparison. It would force us, of course, to cut 
payments to military, cut critical payments to our seniors. And 
it would be a reckless, irresponsible act of this country. I 
find it inconceivable that the Congress would not act to 
increase the limit.
    I welcome that all the leaders of both parties, in both 
houses of Congress, have reaffirmed the importance of making 
sure that this country, the United States of America, will meet 
its obligations. Of course, that requires the Congress to act 
in a timely manner to increase the limit.
    If we take no additional actions, we face that--we run out 
of room on May 16. There are a series of measures my 
predecessors have used in the past, that the Congress has 
authorized, that would give the Congress a little bit more 
time, but those measures don't buy us nearly as much time as 
they did in the past, because our debt and deficits are so 
large now. So, they will buy us an additional few weeks if the 
Congress doesn't act.
    Now, of course, even resorting to those measures does 
create some risk of adding to uncertainty in the markets. So, 
you don't--you'd rather us not do that. But, we'll do 
everything we can to make sure that we meet our obligations, 
and, of course, encourage the Congress to act in a timely 
manner.

                 DEBT CEILING AND ECONOMIC CONSEQUENCES

    Senator Durbin. Let me ask you this question, Mr. 
Secretary. The United States Dollar is viewed as the most 
credible global currency, and if we default and don't extend 
our debt ceiling, what impact could this have on the reputation 
of the dollar and our economy?
    Secretary Geithner. Again, it would be catastrophic. If you 
call into question the willingness of the Government of the 
United States to meet its obligations, you will shake the basic 
foundations of the entire global financial system. It is 
inconceivable that America would do that. And I'm--of course, 
I'm totally confident that the Congress will act to avoid that.
    But, you know, again, to think about it in a direct sense, 
what it does is, it will raise, dramatically, the borrowing 
cost, permanently, for all Americans. Every business, for a 
very long period of time, would raise a much higher cost of 
borrowing. Every family would raise a higher cost of borrowing. 
Unemployment would rise dramatically. Thousands, if not 
hundreds of thousands, of businesses would fail. And, of 
course, you would shake the confidence of the world in U.S. 
financial assets and treasuries. It would be a deeply 
irresponsible act. Again, inconceivable.
    Senator Durbin. Thank you.
    Senator Moran.
    Senator Moran. Mr. Chairman, thank you.
    Mr. Secretary, I appreciate your exhortation about the 
necessity of raising the debt ceiling, and the consequences 
that you describe would occur. I also would welcome you and the 
administration raising the same kind of concerns in describing 
the scenario that will occur if we do not get our debt under 
control. There are consequences to the value of the dollar, to 
the standard of living, to inflation. And I very much, again, 
would encourage the administration to join with the Congress--
Republicans and Democrats--to find a path toward a long, 
sustainable reduction in our national debt. There are bad 
consequences--you certainly described one scenario of events, 
but there's another scenario that will come if we do not 
respond appropriately, responsibly, to the ever increasing 
debt.

               TAX REFORM AND CFPB FUNDING AND STRUCTURE

    One of the things we can do, in addition to cutting 
spending, is to get a tax code in place that is fair, that 
treats American business and individual taxpayers in a way that 
makes sense in a global economy and, again, would--I'd be 
interested in hearing what the Treasury Department is doing in 
regard to the so called grand plan for tax reform, or major 
modifications in our tax code.
    I'm learning from Senator Durbin to ask all my questions at 
the very beginning, so that the clock is on your time, not 
mine.
    And finally, a much more specific one. I indicated, in my 
opening statement, that I'm introducing legislation today in 
regard to the board of the CFPB. And I'd like your view as to 
the appropriations process. You're funding that--the Federal 
Reserve is funding that today. I'd like to see greater 
oversight by the Congress in regard to the appropriation 
process--a five-person commission or board, as compared to an 
individual. And then, perhaps most importantly, can you tell 
what the administration's timeline is for submitting a 
nomination to the Senate for the person to head that bureau?
    Secretary Geithner. Excellent questions. Thank you for 
raising them.
    Of course, you're absolutely right that it is critically 
important, as I said in my opening statement, that the Congress 
come together, on a bipartisan basis, and lock in a set of 
multiyear reforms that put us back on a path to living within 
our means as a country. That's very important to future 
economic growth. There is no alternative to doing that. It's 
very important. If we don't do that, you're right, you would 
put at risk future economic growth. And we need to come 
together. We can't keep putting it off indefinitely.
    You have before you a--not just a process under way by a 
group of bipartisan Senators, but looking at a comprehensive 
plan that the fiscal commission which Senator Durbin served on, 
which is a very comprehensive, very balanced, reasonable 
starting point for discussion. You know, this is not beyond our 
capacity, as a country, to solve. In fact, if you look at how 
the world views the United States today, the world investors 
are very confident we're going to solve this problem. But we 
have to earn that confidence. We have to justify that 
confidence. And that requires us acting. And you're right to 
emphasize it. I completely agree with you.
    You asked about tax reform. I think it's inevitable that 
the Congress and the administration come together and reform, 
comprehensively, the U.S. tax code, not just for individuals, 
but for corporations. You have a very compelling model for 
doing that, in the Commission's proposal--a lot of merits in 
that basic approach, which is to broaden the base and use some 
of the savings from broadening the base to lower rates and 
lower future deficits. We are--as I said in my opening 
statement, we are designing a corporate tax reform that's 
comprehensive, that would lower the statutory corporate rate 
very substantially, and pay for that by reducing or eliminating 
a set of special preferences for individual industries and 
activities of the United States. We think that's absolutely 
necessary to improve incentives for investment in the United 
States. And we're hopeful that we're going to be able to work 
with the Congress on doing that, perhaps ahead of the 
comprehensive reform of the individual code, which is likely to 
come--I think it's going to have to come in the next few years.
    And again, that's very important, because we want to do 
everything we can to make it more likely that American 
companies build their next plant in the United States and that 
foreign companies build their next plant here, too. And tax 
incentives are important to that.
    Senator Moran. Mr. Secretary, in addition to the National 
Commission on Fiscal Responsibility and Reform, does the 
administration--is there a plan in the works on corporate tax?
    Secretary Geithner. Yes. We have been working on a 
comprehensive proposal to help get the process in the Congress 
moving. And we've been consulting closely with your colleagues 
on the tax-writing committees about how to design that, and 
with the business community. And I'm actually quite optimistic 
we're going to be able to start that process with a very strong 
pro-investment, pro-growth, pro-competitiveness proposal.
    Now, it, of course, is going to have to be revenue neutral, 
given the broader fiscal challenges we face, but I think we can 
do that.
    Now, you raised a set of important questions about the 
CFPB. I can't answer your last question, which is, ``How soon 
are we going to nominate?'' But, of course, it's very important 
that we nominate and confirm a director, because the full 
authorities the Congress gave this bureau do not come into 
place until we have a confirmed director. Some happen in 
advance of a confirmed director, but not all. And so, 
obviously, we'd like to do that. We're consulting with the 
Congress. We want to nominate somebody who can be confirmed. 
That is why it's taking us a little bit of time. As you know, 
it's been a challenge for us to find--to confirm a number of 
positions for important financial responsibilities.
    You said you were going to propose legislation to establish 
a different set of checks and balances on the bureau. And, of 
course, I understand that motivation. But, I believe, as you 
would suspect, that the Congress, having considered a range of 
alternative models, came up with a very good model that 
combines strong authority and independence with a set of very 
powerful checks and balances. The most powerful of those in 
this structure are that the decisions of this bureau are 
subject to review and approval by the Council of Financial 
Supervisors and Regulators that the Congress established. That 
creates, in some ways, a stronger set of checks and balances 
than I think exists for many other financial regulators, 
independent or not; and I think the Congress got that balance 
right.
    Again, of course, if you look at what happened in our 
country in this crisis, you saw really appalling, unforgivable 
failures in consumer protection. It is very important that we 
fix that. And I think the Congress, you know, thinking about it 
for a long time, a lot of difficult debates, came up with a 
good balance.
    Senator Moran. If I could follow up, Mr. Chairman? Thank 
you.
    Can you think of any downside to not having a director 
confirmed by the operation date in July? Is that--
    Secretary Geithner. Absolutely. You know, what happens at 
what we call the transfer date, which is a date where the 
authority that exists among existing Federal agencies for 
consumer protection is transferred to this new bureau. You 
know, that responsibility is shared among, I think, seven 
different Federal agencies. So, we're going to centralize that, 
consolidate that. But, there are other authorities to write 
rules that only take effect when there's a confirmed director.
    And now let me tell you about the consequences of that 
delay. I think one of the biggest problems we had in our system 
was, we held banks to a set of standards, no similar standards 
established for entities that provide consumer finance, lent to 
individuals without protection. So, what happened over time is, 
a lot of that basic business of consumer finance moved outside 
the banking system to nonbank financial institutions that were 
not supervised adequately. And that created, of course, 
appalling vulnerability to fraud and predation for individuals, 
but it also created this huge unfairness for banks-- for 
community banks, as well. So, one of the most important things 
the Congress did is to say, ``We're going to establish a level 
playing field across banks and nonbanks so that the business 
can't just shift to where there's no regulation. And if we 
delay, we starve funding or delay full powers for the agency, 
then you're going to be putting banks at a disadvantage again. 
And they're going to face again the possibility of having that 
business competed away by entities that aren't subject to 
oversight and supervision. So, that would be an unfortunate 
consequence of delay.
    Senator Durbin. Senator Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman.

             ECONOMIC CONSEQUENCES OF A GOVERNMENT SHUTDOWN

    Mr. Secretary, might a consequence of a shutdown result in 
an inflationary reaction?
    Secretary Geithner. I think that's an excellent question. 
And I don't think I would frame that as the most significant 
risk. I think the most significant risk is that you leave 
entities that are doing vital things, not just supporting 
Americans in combat, not just making payments to seniors, 
providing benefit checks that Americans depend on for their 
living, processing tax returns--you put those things at risk. 
The risk is, for a long period of time, you create uncertainty, 
and that could slow momentum of recovery. So, I would think--
not about a risk that we accelerate inflation so much as what 
we do is, we take a little bit of the momentum, the wind, out 
of the recovery, and therefore slow the pace of getting more 
Americans back to work.

                            BUSH'S TAX CUTS

    Senator Lautenberg. House Republicans claim that cutting 
programs like Head Start and medical research is going to solve 
the deficit problem. But, they refuse to look at the revenue 
side of things. I mentioned that earlier. And how important is 
it to, for instance, let the Bush tax cuts for the wealthy 
expire at the end of next year to help to eliminate the budget 
deficit?
    Secretary Geithner. It's critically important. I'll give 
you an example of how to--if the Congress extends those tax 
cuts that go to 2 percent of the most fortunate Americans in 
the country, we have to go borrow $1 trillion over 10 years. 
It's those, plus the estate tax exemptions. We cannot afford to 
do that. It is not a responsible act of Government, of asking 
my successors to go out and borrow $1 trillion over 10 years to 
finance tax cuts for the richest 2 percent of Americans. We 
cannot afford it. There's no credible case for doing it.
    And you cannot restore fiscal sustainability--you cannot 
restore a modicum of balance to our fiscal position and still 
preserve our capacity to invest in things critical to U.S. 
economic growth and critical to our commitments to our seniors 
if you sustain those tax cuts that we cannot afford.

                     FUNDING FOR WALL STREET REFORM

    Senator Lautenberg. The administration's budget calls for 
increased funding for agencies implementing the Wall Street 
reform law. House Republicans failed in their attempts to block 
this historic law. So, they proposed, instead, to cut the 
funding for these agencies. In your capacity--you're head of 
the Financial Stability Oversight Council--what effect might 
these proposed cuts have on Wall Street reforms and our ability 
to prevent another financial crisis?
    Secretary Geithner. Well, I think you said it right. 
Those--the cuts are designed to starve those agencies of the 
ability--deny them the ability to enforce a set of basic, 
sensible protections for consumers and investors. And if they 
were passed, they will have that effect.
    I'm confident they won't pass, because we think it would be 
irresponsible to pass them. But, if they did pass--become law--
they would have that effect of depriving us of the ability to 
fix what we got so devastatingly wrong, at enormous cost to the 
American people, a financial crisis, you know, without recent 
precedent, enormous damage to the country. And so, I think it's 
very important the Congress equip the executive branch and the 
regulatory agencies with the resources and the people we need 
to enforce those basic, sensible rules of the game.

                           SANCTIONS ON LIBYA

    Senator Lautenberg. Mr. Secretary, yesterday you lifted the 
sanctions against former Libyan Foreign Minister Moussa Koussa, 
a man who's been linked to numerous terrorist attacks, 
including Pan Am 103, which killed 270 people, 189 of whom were 
Americans. In your consultation with Secretary Clinton 
regarding lifting these sanctions, did you discuss what other 
levers might be available to be sure that he's held accountable 
for these crimes?
    Secretary Geithner. I know my colleagues in the national 
security community have discussed that, and I'd be happy to 
talk to them, pass on your concern and question, and ask them 
to come talk to you about how we can be responsive to your 
concern.

                           DEFICIT REDUCTION

    Senator Lautenberg. What would the estimate be of the 
revenues needed to help us stabilize things and continue 
looking to improvements in our economy?
    Secretary Geithner. Well, the central question we face is 
how to get the deficits down to a level where we put our 
national debt, as a share of the economy, on a declining path. 
You have to first stabilize it at an acceptable level, and then 
you have to start to reduce it. And that requires we get our 
fiscal deficits down to a level below 3 percent of the gross 
domestic product. That's a level at which our revenues and our 
commitments, apart from interest, are in balance.
    Now, to do that--we proposed, in our budget, a way to do 
that. You have, in the Commission proposal, a more ambitious 
way to do that. But, that provides--both those examples provide 
a package a balanced package of tax reforms and reductions in 
spending and our commitments that would achieve that measure of 
balance without putting at risk future economic growth, without 
causing material damage to the economy. Those are things we 
can--changes we can afford to make, changes that we can accept. 
And both those examples give you a measure of what you want to 
do to make sure you have a balanced package.
    Again, the challenge is not to just reduce the deficit. The 
challenge is to do it in a way that doesn't hurt future 
economic growth and hurt investment in the United States, is 
fair to the American people--judged as fair as--the American 
people. And that requires you do it in a balanced, 
comprehensive way. I think it's within our capacity to do, as a 
Nation. I think this is something we should make sure we let 
Americans know, because they're uncertain about this, that this 
is something we can do at acceptable costs, with time for 
people to adjust.
    Senator Lautenberg. Well said, Mr. Secretary. Thank you.
    Senator Durbin. Senator Kirk.
    Senator Kirk. Thank you.

             FUNDING FOR TREASURY'S INTERNATIONAL PROGRAMS

    I want to turn to your budget request. You requested a 4 
percent increase. And a couple of accounts stood out. There's a 
request for $3.4 billion for the Treasury international 
programs, which was a 58 percent increase more than fiscal year 
2011. And then food security accounts was a 1,027 percent 
increase request in your budget. And debt relief was a 336 
percent increase in your budget. Can you review, quickly?
    Secretary Geithner. Absolutely. You know, usually I testify 
separately on the international piece of our budget. The 
Treasury piece of the--what's called the foreign assistance 
budget is about 5 percent of the total foreign assistance 
budget. And our piece, the piece we're responsible for, is for 
funding the institutions, like the World Bank, the 
international financial institutions. And in those 
institutions, we get enormous leverage for every $1 of taxpayer 
resources.
    The specific request you refer to includes a variety of 
commitments that the Government of the United States made in 
the past, under Republican and Democratic administrations, and 
a set of new commitments targeted in areas where we think 
there's the highest return to our basic national security and 
economic interests.
    I'll give you an example. In food security, what we've 
proposed to do is to help seed a multilateral fund to help 
support improvements in agricultural productivity and 
investment in developing countries, because, of course, the 
enormous challenges of poverty in those countries. But, that's 
also an example where there's a very high return to American 
technology and American innovation, because we're the most 
productive farmers in the world.
    I'd be happy to talk in more detail to you and your staff 
about that. But, it's worth noting, we're 5 percent of the 
foreign assistance budget, but our resources in that 5 percent 
leverage multiple dollars, both by bringing other people to the 
table and borrowing. And so, the total resources that 5 percent 
supports is more than one-and-a-half times the entire 150 
account budget.
    So, as we figure out how we reduce spending and reduce our 
deficits--and we're going to have to reduce spending--we want 
to make sure we're preserving things where we have the biggest 
bang for the buck, the biggest improvement, the biggest return 
on the marginal dollar taxpayer resources. And that's what our 
request provides.
    Senator Kirk. I'm worried--we have appropriated money that 
apparently is going directly to the Islamic Republic of Iran 
under your administration, meaning that the Treasury Department 
manages our relationship with the International Bank for 
Reconstruction and Development (IBRD), International Finance 
Corporation (IFC), and Multilateral Investment Guarantee Agency 
(MIGA). The IBRD has a $344 million unexpended balance to Iran. 
Since we own 16.8 percent of the bank, that's 58 million United 
States dollars that would be provided to Iran. The IFC--$17 
million, since we own 24 percent. That's 4 million U.S. dollars 
from the taxpayer. The MIGA are going to provide $127 million 
to Iran. We own 18.5 percent of that. It's a total of $85 
million, direct from the U.S. taxpayer. And I understand these 
payments are made directly to the Finance Ministry of the 
Islamic Republic of Iran. Is that about right?
    Secretary Geithner. Senator, you and I are in the same 
exact place in this, we oppose lending by the World Bank and 
its entities to Iran. We have opposed them for a long period of 
time. And the last loans that were approved by the World Bank 
board were approved in 2005.
    Senator Kirk. I guess what I'm talking about is, you 
haven't cut these checks yet, but you're about to.
    Secretary Geithner. Well, I'm not sure which checks you're 
referring to. Again, there----
    Senator Kirk. These are 2005 loans----
    Secretary Geithner. Yes, 2005 loans. That's the last time 
the World Bank approved a loan. We opposed----
    Senator Kirk. Yes.
    Secretary Geithner [continuing]. That loan then----
    Senator Kirk. No, but I what I'm saying is----
    Secretary Geithner [continuing]. And fought against it over 
that period of time, and, of course, as you know, working very, 
very hard to dramatically tighten the financial sanctions on 
Iran now----
    Senator Kirk. Yes.
    Secretary Geithner [continuing]. With substantial success.
    Senator Kirk. Let me just say, you do not have substantial 
success. I have written you a classified annex, and I hope you 
read it, a very--before you testify again, on this subject, I 
hope you read that very carefully.
    Secretary Geithner. Of course I would. And again, I'd be 
happy--I know that you--I know you care a lot about these 
issues, as we do. And I'd be happy to talk to you in more 
detail about it. But, I will say again that the financial 
sanctions programs that my colleagues have helped us design, in 
cooperation with the national security community, have resulted 
in a dramatic, incredibly powerful tightening of the basic 
economic sanctions on the Government of Iran.
    Senator Kirk. With all----
    Secretary Geithner. It's very important we do that.
    Senator Kirk. With all due respect----
    Secretary Geithner [continuing]. And we will continue----
    Senator Kirk. I urge you------
    Secretary Geithner [continuing]. To look for ways to 
tighten it further.
    Senator Kirk. Before you testify before the Congress again 
and make a statement like that, I would absolutely urge you to 
review the record.
    Secretary Geithner. And again--and we're happy to work with 
you and your colleagues in ways to go further. And we--of 
course, this job requires a relentless focus, because, when we 
tighten something here, what happens is, over time, unless you 
stay on it, it--the stuff will shift gradually; people get 
around it. So, it requires relentless focus. Happy to talk to 
you in more detail about it.

                    FEDERAL DEBT AND ECONOMIC CRISIS

    Senator Kirk. In March, the U.S. Government raised a net of 
$128 billion and it spent a net of $1.05 trillion, meaning your 
spending-to-raising ratio was--you spent $8 for every $1 that 
you raised. You covered it by borrowing $786 billion and 
reducing your cash balance $72 billion, to an ending balance, 
for the U.S. Government, of $118 billion in the bank. Is that 
your estimate of how your March went?
    Secretary Geithner. Well, I'd have to check those numbers. 
But, keep going. Go ahead. I'll be happy to----
    Senator Kirk. So, Erskine Bowles, yesterday, testified 
before the House that we are facing the most predictable 
economic crisis in history. Would you agree with him?
    Secretary Geithner. I agree that our long-term fiscal 
challenges are an imperative for the country to solve, as I 
said before, in response to Senator Moran's questions. And I 
agree it's very important we do it. Of course, we have lots of 
other challenges, too. Our challenge is how to--it's to do that 
in a way that doesn't hurt the recovery, hurt the economy, hurt 
our long-term strength and competitiveness.
    Senator Kirk. I'll ask the last question. If you were the 
Chinese, would you lend us another trillion?
    Secretary Geithner. Of course. Let me just repeat something 
I said before. The world still views the United States and the 
American political system as up to the challenge of delivering 
reforms that make our economy stronger and our fiscal position 
more sustainable. If you look at what we pay to borrow today, 
there's still enormous confidence around the world in the 
capacity of this political system, people in Washington, coming 
together and solving these problems, because we've always done 
it in the past. But, we have to earn that confidence every day. 
And that's why these efforts underway, including the ones that 
Senator Durbin was part of in the Fiscal Commission, are so 
important. And it's important, again, that the Congress find a 
way to come together and lock in comprehensive restraints that 
reduce those long-term deficits. It's completely within our 
capacity to do, and we have to make sure we justify that 
confidence that you see in markets every day now.
    Senator Kirk. Thank you, Mr. Chairman.
    Senator Durbin. Thank you, Senator.

                           WALL STREET REFORM

    Mr. Secretary, before joining the administration, you were 
in New York, at the Federal Reserve, and in the eye of the 
storm as this recession came upon us. You witnessed, and 
participated in, discussions that led to an effort to save 
financial institutions from ruin. And I think, by most 
standards, the fact that the money has been repaid to our 
Government--the TARP money--with interest, in most instances, 
is an indication of recovery among those financial 
institutions.
    The purpose of Wall Street reform was to make certain we 
never had to walk that road again. We had to make sure that we 
put in place oversight and regulation so that the excesses 
which led to our recession were not repeated.
    Since passage of that legislation, there has been a steady 
effort by Wall Street to undo that Wall Street reform. We've 
seen it in many aspects. I'm not going to raise the issue, but 
I'm battling an issue over interchange fees, you may have heard 
of. And clearly, when it comes to the consumer financial 
responsibility effort, there is an effort to slow down that 
implementation, or stop it.
    As you step back and look at the banking industry, from the 
darkest days, beginning this recession, until today, I see 
profit reports which suggest that most are doing quite well. Is 
there any indication that you can point to of weakness in our 
financial institutions that has been brought on by too much 
Government regulation and oversight?
    Secretary Geithner. Let me say a few things in response to 
that. I think the U.S. financial system, as a whole, is in a 
dramatically stronger position today than it was in the years 
running up to the crisis, not just from the depths of the 
crisis, but relative to where it was before the crisis. There's 
much more capital in the banking system, much less leverage. 
The weakest parts of the system have been washed away by the 
crisis, appropriately so. And I think what we have left is much 
stronger.
    The challenges we face in the financial system today are--
as Senator Moran referred to, is, community banks across the 
country, who got themselves too exposed to commercial real 
estate are still facing a lot of challenges. And that's hurting 
their small business customers. And, as you know, the housing 
finance market is still deeply damaged, really at the early 
stage of--just the beginning of repairing that basic challenge. 
So, we've got a lot of challenge to go.
    But, I believe these reforms are absolutely essential to 
the basic health of the American private sector, are absolutely 
essential to credibility of the American financial system, 
globally, when we ask people to invest in the United States, 
absolutely essential to the ability of this financial system to 
take the savings of Americans and channel them to people that 
have an idea and want to build a growing company. And we have 
to make sure that we meet the basic challenge of the 
legislation in designing sensible rules. They have to have a 
balance. You know, they have to preserve competition, some 
measure of efficiency, a loss of dynamism, innovation. But, we 
have to do a dramatically better job of protecting the economy, 
protecting the innocent, protecting investors and consumers 
from the kind of abuses we felt.
    And I think our biggest challenges now are to make sure 
those reforms get designed well, they're allowed to take 
effect, they're administered by people who have the resources 
and the independence and the authority to carry out those 
responsibilities, not subject to political influence. And we're 
at the early stage of that process of implementation.

                           FORECLOSURE CRISIS

    Senator Durbin. Mr. Secretary, yesterday I went to an 
opening of a housing project in Lawndale, which is on the west 
side of Chicago. Coincidentally, it was the same location where 
Dr. Martin Luther King stayed when he lived in Chicago for a 
short period of time. And they were quite proud of the fact 
that they have 45 units. The CDFI had a lot to do with it. And 
as I went to this ribbon cutting, I drove through the 
neighborhood. And I will tell you that virtually every third 
home was boarded up with plywood, indicating it was in 
foreclosure and not currently occupied. It strikes me that this 
is still an unresolved issue--and you've alluded to it--about 
the value of real estate in America and our housing crisis.
    Can we really expect a solid recovery of this economy 
unless or until we mark-to-market and understand what the true 
value of real estate is? With so many Americans facing the 
prospect of being under water in their own personal debt on 
their homes, are we delaying the inevitable of facing a 
resolution of this crisis?
    Secretary Geithner. I don't think so. It's important that 
we not do that. I think you're absolutely right to remind 
everybody that the housing market in the United States is still 
in crisis. It's not just in California, Florida, Nevada, and 
Arizona, the states--most affected by the rise in prices and 
the collapse in prices of construction. But, it's in cities 
across the country. And there are still millions more Americans 
at risk of losing their homes.
    There are two really important things that we have to do in 
the near term to reduce--to address that problem and help 
repair it. One is, we have to get the economy stronger. Really 
the only way, and the most powerful way, to make sure that you 
bring the market back to a reasonable level, protect the value 
of people's homes, reduce the risk of foreclosure, is to get 
more Americans back to work, make sure incomes are growing. 
Overwhelmingly, that's going to dominate the outcomes.
    But, it's also very important that we continue to make sure 
that we use all the tools we have to make sure that servicers 
and banks are giving people a chance to stay in their homes if 
they can afford to do that. Now, the programs we have, have 
reached millions of Americans, but there's millions more at 
risk. And we want to make sure we do everything we can to make 
sure that, again, people who have--who, given a chance, can 
afford to stay in their home, have that basic chance. Doing 
those two things are important.
    But, again, the most important thing is to make sure 
everything we do is motivated today by the challenge of getting 
the economy stronger, more Americans back to work. That's the 
best thing we can do for those communities still caught up in 
all the trauma. And it is going to take several more years, 
under the best of circumstances, to heal that pain, still.
    Senator Durbin. I'm over time, but I'm just going to say, 
very briefly--2 years ago, I addressed the bankruptcy code as a 
way to have some reckoning in this process so that banks would 
know, if they were about to foreclose, or pushed forward 
foreclosure, leading to bankruptcy, that, ultimately, there 
would be a bankruptcy judge who would have the power to change 
the terms of the mortgage and keep the people in their homes. 
It was fought by the financial institutions. It wasn't 
enthusiastically supported by the administration. And it 
failed. And here we are today in a situation where I cannot 
reconcile, in my mind, how a bank believes that foreclosing on 
a home, boarding it up, letting the weeds grow in the front 
yard and the vandals come in and rip out all the copper 
plumbing until it reaches the point that it becomes a burned 
out, hollow building and has to be torn down is in the best 
interest of the banks, let alone the country and the 
neighborhood. That, to me, is what's happening over and over 
again. I lived through this in my hometown of East St. Louis, 
Illinois, and it looks like Dresden, after the bombing, for all 
the vacant land that's there. And I'm seeing it happen in 
Chicago. I'm seeing it happen in King County, Illinois. And I 
see no end in sight.
    I know we've tried. I understand what you're saying, ``the 
overall economy is part of it,'' but I don't believe we have 
addressed the responsibility of the financial institutions in 
this situation.
    Secretary Geithner. I--well, I just want to associate 
myself with something very important in this context. You've 
said it for a long time--is that the servicers have done a 
really terrible job of helping fix and repair and heal and help 
people through a mess that they helped contribute to. And they 
are not putting enough resources in this effort. They are not 
doing a good enough job of helping homeowners navigate through 
a very complicated, difficult process. They have to do a better 
job. And, as you know, we're involved in a series of efforts 
that try to bring more force to a more rapid resolution of 
those problems.
    Senator Durbin. I would say to you, in closing, Mr. 
Secretary, on this subject, we have given them a lot of 
carrots. It's time to find a stick.
    Senator Moran.
    Senator Moran. Mr. Chairman, thank you.

                          BANKING REGULATIONS

    Let me follow up on a topic that--a path you started down.
    When Senator Durbin describes that neighborhood with the 
boarded up houses, it brings me back to the value of community 
banking, in which I--just my commonsense human nature tells me 
there is a different reaction--if you're the banker who is 
lending to the house down the street, down the road, you have a 
lot of care and compassion for your community, and you drive by 
that house every day; you're going to have a response of trying 
to figure out, ``How do we get this house back in some owner's 
hands?'' And I--again, it gives me the opportunity to reiterate 
what I said in my opening statement, that--and the reason 
this--the real estate aspect of this is so prevalent in my mind 
is, I've had numerous bankers, a half a dozen, tell me that 
with new regulations, they no longer are making home loans. I 
think this is a terrible, sad circumstance, in our country, 
when your hometown banker says, ``It's no longer worth the 
regulatory cost, the fingerprinting of my employees, to make a 
loan to somebody who lives in our town.''
    In Kansas and much of Illinois, we have large rural 
communities--and we have large areas of rural communities in 
which our bankers know their community very well. And the idea 
that you can't go to your hometown banker and get a home loan 
is trouble--is hugely troublesome to me.
    Also, a conversation I had with one of our regional 
bankers, who was telling me, for the first time in their bank's 
history, instead of the bank--the regional bank calling a 
community bank, saying, ``We're interested in buying your 
bank,'' it's now the community bankers who are calling the 
regional banks, saying, ``I can't afford this anymore.'' The 
regulatory costs have to spread among such a large group of 
borrowers--a larger asset base, that we're seeing, in my view, 
the demise of something that is very important to the life of a 
community; that's the local financial institution. And while, 
if that occurs as a result of market forces, that's one thing 
to me. But, if that occurs because we have an over-regulated 
lack-of-commonsense regulatory scheme, we ought to be able to 
fix that problem.
    Secretary Geithner. I agree with you. And let me just 
associate myself with your central point. One of the great 
strengths of this financial system is that we have not just 
some of the largest, strongest, most innovative global 
financial companies, but we have 8,000 small community banks 
that provide a level of diversity, responsiveness, customer 
service care that is a huge asset for the country. And we want 
to make sure we do everything we can to sustain it.
    And I do not believe that is at risk in any meaningful 
sense. In fact, the financial reforms that the Congress passed 
went the extra mile to make sure that institutions that were 
not part of the problem, did not cause the problem, were not 
subject to a greater burden from these reforms. They're largely 
protected from the additional regulations, which are really 
designed to get at the largest, most risky institutions and 
risky practices.
    Now, what--most of what you're seeing happen in the 
community banks today is the result of the fact that a number 
of them--not all of them--got themselves too exposed to 
commercial real estate and risk. And what you saw--what you've 
seen is, bank examiners, who got a little bit caught by excess 
in parts of the country, as they do in every crisis, they're 
over-correcting now. And the burden you hear banks across the 
country express concern about is the concern that examiners now 
are becoming too aggressive and making it harder for them to do 
things that are economically sensible loans to viable 
customers. And that's a very important thing to try to 
counterbalance and resist.
    The Chairman of the Federal Reserve, the Chairman of the 
Federal Deposit Insurance Corporation, our bank supervisors, 
are aware of this problem and they have been working to try to 
mitigate it. They're independent of the Treasury. I should say, 
I can't control what they do in this context. But, I know 
they're concerned about it, too.
    But, I hear what you hear, too, which is, across the 
country, community banks still say that ``We're getting a 
little bit too much heat from our examiners at a time when we 
want to increase lending.'' And we want to make sure we can 
help counteract that.
    Now, the Congress did pass a very well-designed set of 
programs to help banks--community banks--get access to capital 
to help support lending and help give more resources to State 
small business credit programs across the country, which we're 
doing. And that will help a little bit, too, because not all 
these banks can go out and raise capital now, even the ones 
that have viable businesses. And so, we think that's a good, 
sensible response.
    But, I do agree with your concern. And I am, personally, 
completely committed to make sure that we preserve that great 
strength of diversity of a banking system that has thousands 
and thousands of small community banks operating on Main 
Streets, trying to do a better job and meet the needs of their 
customers.
    Senator Moran. Well, I'm never quite certain as to 
whether--how much of the problem is additional regulation, how 
much of it is additional enforcement or--and, in part, is just 
the uncertainty of the enforcement: What is coming next?
    Secretary Geithner. Yes.
    Senator Moran. So, there's a reluctance to lend money. And 
I have had this conversation with you previously, and with 
Chairman Bernanke, and with Sheila Bair. We've been down the 
line. Everybody is sympathetic, and yet the problem continues. 
And I would say--and I'm not necessarily here advocating for my 
bankers; I'm here advocating for what I think is important to 
the economy in putting people to work is banks that can make 
loans. In communities across our country, across Kansas, access 
to credit is a determining factor as to whether or not you're 
going to grow or expand your business. And we have a reluctance 
on the part of bankers, because of the regulatory burden or 
uncertainty or enforcement that is making it very difficult for 
those things to occur. And I don't know whether you would have 
somebody at--again, the OTC is firewalled----
    Secretary Geithner. Yes.
    Senator Moran.--I guess it's part of the Treasury, but 
not--you don't have direct. But, it would be great to have 
somebody who would ultimately sit down with community bankers 
and their customers and say--because I get this, as you would--
as I'm doing to you, people do this to me--``Fight bureaucracy. 
Fight paperwork. Get rid of the unnecessary burden.'' It's very 
hard to fight the word ``bureaucracy.'' But, if we can have the 
specific examples of the rules and regulations or the 
enforcement action that make no sense, we can address those 
individually, as compared to the big picture of, you know, 
fighting the bureaucrat.
    So, if you have suggestions of who I could get in a room 
with bankers and their customers, to see if there are the 
individual items of regulation, or the regulators that are not 
following the protocols of the exam process, so we can get some 
certainty back into this process.
    Secretary Geithner. Happy to work with you on that. And I 
think you're right to call attention to it. And I would point 
out that if you look at the broad measures of what businesses 
report, in terms of credit terms and availability, and if you 
look at the very broad measures of access to credit to 
businesses, price of credit, lending terms they face is--it's 
now starting to improve; not as soon as we'd like, not as 
quickly as we'd like, but much faster than credit, for example, 
of consumer--or somebody who wants to borrow to finance a house 
is improving. And that's encouraging, but we want to reinforce 
it. And I think we have a long way to go.
    Senator Moran. Mr. Secretary, I have one additional 
question that I'd like to ask you personally, if you can--if I 
can catch you, for a few moments, after this hearing.
    Secretary Geithner. Sure.
    Senator Moran. Thank you.
    Senator Durbin. Senator Lautenberg.

              FUNDING TO FIGHT ILLEGAL TOBACCO TRAFFICKING

    Senator Lautenberg. Mr. Secretary, it's estimated, by the 
Treasury, that Federal revenue lost due to illegal tobacco 
trafficking may reach as high as $4\1/2\ billion annually. Now, 
the Congress provided $3 million this year for the Alcohol and 
Tobacco Tax and Trade Bureau to hire agents and improve 
enforcement efforts. However, the President's budget, next 
year, would eliminate these positions. Now, without filling 
these jobs, how will the Treasury have the resources it needs 
to carry out effective tobacco taxing?
    Secretary Geithner. Senator, I know this is important to 
you, and I'm aware of your concern. And I'd like to try to work 
with you to see if we can address it.
    And let me tell you a little bit of what's guiding our 
judgment. You know, we're finding, across the board, that 
we're--you know, we're having to do more with less. Where we 
have limited enforcement resources, we're trying to make sure 
we devote them to where we have the highest return, in terms of 
revenues and other objectives the Congress gives us. And so, 
that's forced us to cut back in some areas. This is an example.
    I know why you're concerned about it, because it makes it 
easier for people to evade these things. That erodes the 
revenue base of States. And so, I think it's important, in this 
context. I'd be happy to work with you on this.
    We do have a lot of--because of what the Congress enabled 
us to do the last 2 years--we have a lot enforcement efforts 
underway which we think have some deterrent value. But, 
obviously, we want to do as much as we can with the few 
resources we can. And I'd be happy to work with you on how best 
we can do that.
    Senator Lautenberg. So, we need the people to get the job 
done.
    Secretary Geithner. We do. Absolutely. And what we did is 
to--temporarily, is, we used those resources to use IRS agents 
to help them in a separate, and they're doing a lot of 
important things----
    Senator Lautenberg. That imposes an extra burden on those 
who have the audits to do, and----
    Secretary Geithner. It does. And, you know, as you've seen, 
there are some people who want to cut the IRS resources, too. 
But, again, what we want to do is to make sure that, with the 
resources you give us, we allocate them to where they have the 
highest possible return. And I know why this is important to 
you.

                      INFRASTRUCTURE BANK PROPOSAL

    Senator Lautenberg. Yes. The administration has recommended 
an infrastructure bank to fund transportation projects of 
national significance. Now, at a time when budgets are 
stretched so thin, how would the administration's proposal 
focus Federal dollars to maximize our country's economic 
competitiveness?
    Secretary Geithner. Well, as you know, we face a huge long-
term infrastructure deficit that puts enormous burden--it hurts 
the competitiveness of American businesses by raising the cost 
of doing business, bringing their products to market. And so, 
as you think about the long-term challenge we face, we have to 
find a way to finance, responsibly, much higher levels of 
infrastructure across the country.
    We believe an infrastructure bank or fund is--should be 
part of the solution. It can't be the entire solution. And what 
it does is give us the chance to get better use of limited 
taxpayer resources to borrow from the market and bring private 
capital alongside what the Government does directly so get--we 
get more power, more bang, more ammunition behind these 
financing projects.
    And there's a lot of interest in this in the Congress, as I 
know how--you've been a big supporter of this. There are some 
new ideas in the Congress, too. And we'd like to work with you 
and your colleagues to figure out how we get something done.
    Again, one of the most important things we can do to help 
get more Americans back to work, to help increase employment 
opportunities for people most affected by the crisis, in 
construction, for example, and for our long-term 
competitiveness, is to invest substantially more in 
infrastructure projects that have a high return over time. And 
we cannot do that adequately through the traditional mechanisms 
the Congress has used to fund, for example, transportation 
budgets.
    Senator Lautenberg. Will we hear some of what might be 
considered, in the near future, so that we can get on with 
this?
    Secretary Geithner. Yes. We're--again, we've--have a series 
of detailed proposals we've been modifying as a way to get more 
support in the Congress. And there's a bunch of new ideas on 
the Hill that we want to work with you on. And again, I think 
this is something that we should be able to do. It's not a 
partisan issue. It's traditionally had a lot of bipartisan 
support. And it's a good, efficient use of taxpayer resources.

                         CORPORATE TAX HOLIDAY

    Senator Lautenberg. Well, some companies are pushing for a 
tax holiday if they repatriate income that's currently invested 
overseas. These companies believe that it's going to--that it 
will boost the U.S. economy, create jobs. I'm skeptical about 
it, but some have suggested that a tax holiday may make sense 
in the larger context of corporate tax reform. How do you feel 
about that kind of proposal?
    Secretary Geithner. That's something we would not consider 
outside the context of corporate tax reform, because--for the 
reasons you said, on the basis of how it's been--of the 
experience in the past. It's a--well, I won't say--I'll say it 
directly--it has not produced an increase in investment, job 
creation. And it's expensive. So, we would not support it 
outside the context of corporate tax reform. But, in the 
context of comprehensive corporate tax reform, we think there 
may be a way to try and do that in a way that would be 
responsive to these broader interests of trying to get more of 
those resources held overseas, to bring them back. But, not 
outside of that context----
    Senator Lautenberg. No, because it's believed that, by 
keeping these companies from bringing back the income that 
they've earned, that we're not only losing revenues, but we're 
also increasing competition within--for jobs within our own 
country.
    Secretary Geithner. That's right. That's why it's a very 
good idea to try to do comprehensive reform that lowers the 
statutory rate, broadens the base, and again, improves the 
incentives for people to bring back those resources and invest 
more in the United States. And that's what our reforms--we're 
going to try and do. And you'll see, in that proposal, that 
we're going to try to find a way to be responsive to that 
broader interest. Again, what we want to do is improve 
incentives for people investing more of those resources here in 
the United States.

                          FUNDING FOR THE CFPB

    Senator Lautenberg. Our colleagues on the other side of the 
aisle have proposed to cut the new CFPB's budget this year to 
$80 million. The CFPB estimates that we'll need approximately 
$143 million to do its job. If the House Republicans get their 
way, how is that going to affect the CFPB's ability to start up 
and fulfill its mission of protecting consumers?
    Secretary Geithner. Well, again, the purpose of those cuts 
are to starve this entity of the resources it needs to get 
going. And what that will do is put at risk--I gave one example 
to Senator Moran, but I'll repeat that and tell you another 
one. What the--the most important priorities of this bureau 
from day one are to simplify and improve disclosure for people 
who want to get a loan to buy a house or to borrow against 
their credit card. And providing more simple disclosure, so 
people understand how to borrow responsibly, can shop for a 
better deal, is an overwhelmingly sensible simple objective. 
You will delay--make it harder for the agency to do that. The 
other thing that would make it harder to do, if you starve it 
of resources, is--as I said to Senator Moran, is, you'll leave 
banks with an unlevel playing field, where they're competing 
against nonbank finance companies, without constraint, who 
might be trying to take advantage of their customers in that 
context. That's not good for banks or for consumers. Those are 
two examples of what you put at risk.
    Senator Lautenberg. Thanks, Mr. Secretary.
    Thanks, Mr. Chairman.

                  FINANCIAL CRIMES ENFORCEMENT NETWORK

    Senator Durbin. Mr. Secretary, in my opening statement, I 
mentioned the Financial Crimes Enforcement Network, which--I 
don't know if many people follow it, but FinCEN, as it's known, 
collects red flags on suspicious financial transactions from 
banks and other financial entities. Hundreds of Federal, State, 
and other local law enforcement agencies access this data to 
track the financial paper trail of criminal financial activity, 
including terrorist financing, organized crime, and drug 
trafficking.
    In many places, like Chicago and New York City, local law 
enforcement entities have direct access to this data. In fact, 
in Illinois, 75 users ran more than 20,000 searches on the 
FinCEN database in 2010.
    Under the Treasury proposal for next year's budget, all 
those searches would have to funnel through just two staffers 
at the State level. The Treasury would save $1.3 million with 
the proposed cuts in this agency. It seems to me that FinCEN 
has a significant role in dealing with the use of our financial 
network by wrongdoers: criminals, drug traffickers, would be 
terrorists. This proposed cut seems to me to be penny-wise and 
pound foolish. Can you comment?
    Secretary Geithner. Yes, Mr. Chairman. Thank you for 
raising this. And I understand your concerns. And we will work 
with you to try to mitigate that effect.
    And you're right, and I appreciate very much what you said 
in your opening statement, about the important role FinCEN 
provides, as a whole. And, of course, we're always looking for 
ways to make sure that we're directing them to things that can 
have the maximum positive impact in reducing the ability of 
people to take advantage of our financial system, in this case. 
And this is one example.
    Now, you're concerned about the effect this would have on 
local law enforcement officials, particularly in the really 
major cities' largest law enforcement operations in the 
country; and I am optimistic we can find a way to try to 
address those concerns. Of course, in our proposal, we're 
preserving direct access for them to the resources of FinCEN. 
But, I understand your concerns, and I think we can work with 
you to try to mitigate those.
    Senator Durbin. Senator Moran.
    Senator Moran. Mr. Chairman, thank you.

                             IRAN SANCTIONS

    I'm not exactly sure--Mr. Kirk--I think his conversation 
with you is--was about the World Bank. I did want to make 
certain that you understand the importance of enforcement--
strict and strong enforcement--of the Comprehensive Iran 
Sanctions and Accountability Act that the Congress passed 
several years ago. And I assume that you would tell us that 
you're taking your job very seriously.
    Secretary Geithner. Absolutely. We are taking it very 
seriously. And again, we had a very powerful program. The law 
the Congress passed gave us much more power. And it's had a 
dramatic impact on our capacity to make sure that other 
countries around the world joined us in tightening the 
constraints on the Government of Iran.
    But, as Senator Kirk reminded us, and as I said, this is an 
ongoing challenge, and it requires a relentless focus to try to 
make sure you catch every opportunity for evasion, and stay on 
it. And again, we've got some incredibly talented people with a 
great record in this area. And we work every day to try to make 
sure we can do a better job. And the Congress gave us much more 
powerful tools.
    Senator Moran. There's no additional--there's no need for 
additional--authority, statutory authority, or--you have the 
tools that you need?
    Secretary Geithner. I don't think so. I think our big 
challenge, as you know, is to try to get other countries to 
come with us. You know, we don't do material business, really, 
now, and--but much of the rest of the world does. And so, what 
we've been successful doing with these new powers is to tighten 
the net by getting other countries to come with us. But, you 
know, we've got some more work to do not that front.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Lautenberg. Mr. Chairman, thank you.
    Mr. Secretary, thank you for your consideration.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
            Questions Submitted by Senator Richard J. Durbin
    Question. The Appropriations Subcommittee on Financial Services and 
General Government maintains jurisdiction over the annual 
appropriations for the Office of Foreign Assets Control (OFAC), a 
Department of the Treasury office dedicated to administering and 
enforcing economic and trade sanctions. On February 25, 2011, President 
Obama signed an Executive order freezing Libyan assets in United States 
banks, significantly limiting Muammar Gaddafi's ability to access funds 
to support attacks on his own people. The Washington Post reported that 
OFAC quickly identified $32 billion in Libyan assets and that United 
States banks began freezing funds within minutes of the Executive order 
going into place.
    What authority does Treasury have to freeze foreign assets when 
there is a threat of a humanitarian and/or national security crisis? 
How is this decision made?
    Answer. In issuing an Executive order imposing economic sanctions, 
the President generally invokes the authority of the International 
Emergency Economic Powers Act, and declares a national emergency to 
deal with a particular threat to the national security, foreign policy, 
or economy of the United States. Treasury's OFAC then acts under 
delegated Presidential national emergency powers to implement 
provisions of the Executive order, which can include blocking targeted 
assets under U.S. jurisdiction.
    Question. How is OFAC ensuring that U.S. financial institutions are 
complying with the directive to freeze Gaddafi's assets? What are the 
consequences of noncompliance?
    Answer. OFAC uses a variety of tools to ensure compliance by U.S. 
financial institutions. In the case of a new sanctions program, OFAC 
immediately posts notice of the sanctions' legal requirements via 
several electronic means to the United States and international 
financial community. By law, holders of blocked assets must report to 
Treasury within 10 days after blocking assets, although they typically 
will report major blockings within 2 to 4 days. OFAC has the authority 
to impose civil penalties if appropriate. OFAC also works very closely 
with Federal and State financial regulators, which require financial 
institutions to maintain adequate programs to ensure compliance with 
OFAC regulations. OFAC is actively engaged with U.S. financial 
institutions to address implementation issues and it may issue 
subpoenas to obtain information when there is an indication that a 
financial institution has failed to act properly.
    Question. What happens to these funds after they are frozen? Will 
they be made available to the Libyan people when the political 
situation is stabilized in that country?
    Answer. In taking action to block Libyan Government assets under 
the President's Executive order, the United States has protected those 
assets from misappropriation by the Gaddafi regime, and is depriving 
the regime of the use of those assets for its ongoing campaign of 
violence against the Libyan people. On July 15, 2011, the United States 
recognized the Transitional National Council (TNC) as the legitimate 
governing authority for Libya. To assist the TNC and the Libyan people 
during this time of transition, we are working with the State 
Department to make a portion of the frozen assets available to the TNC 
as soon as possible. We are keenly focused on the humanitarian and 
other essential needs of the Libyan people, and we are working closely 
with our international partners to address those needs. To that end, on 
August 25, the United Nations Security Council's Libya Sanctions 
Committee agreed to a United States ``extraordinary expenses'' request 
facilitating the issuance of United States licenses to authorize the 
release of up to $1.5 billion in Libyan assets for humanitarian and 
other essential needs. Consistent with TNC instructions and State 
Department guidance, we have authorized the release of funds for 
humanitarian and other urgent needs. These efforts are being negotiated 
carefully to provide for adequate oversight and transparency in how the 
funds will be used. Going forward, we will continue to work closely 
with the State Department, the TNC and our international partners to 
determine an appropriate plan for releasing assets in light of the 
situation on the ground as it evolves. While we seek to provide the TNC 
with the resources necessary to address humanitarian and other 
essential needs, we also will work with the State Department, the TNC 
and our international partners to continue safeguarding these assets 
for the Libyan people in a manner consistent with our United Nations 
obligations.
    Question. The Comprehensive Iran Sanctions, Accountability, and 
Divestment Act of 2010 (Public Law 111-195) tightened economic 
sanctions on Iran in response to its nuclear weapons program, focusing 
in particular on Iran's petroleum industry. The administration has also 
taken steps through the Treasury Department and the United Nations 
Security Council to tighten sanctions even further against Iran.
    In 2010, The New York Times reported that over the last decade, the 
Federal Government awarded more than $107 billion in contract payments, 
grants, and other benefits to foreign and multinational American 
companies while they were doing business in Iran--including nearly $15 
billion paid to companies that defied United States sanctions law by 
making large investments that helped Iran develop its oil and gas 
reserves.
    What steps has Treasury taken to enforce these sanctions, 
especially with regard to recipients of Federal funds? What further 
steps does Treasury plan to take?
    Answer. Treasury's Office of Terrorism and Financial Intelligence 
has been engaged in an aggressive campaign to implement the 
Comprehensive Iran Sanctions, Accountability, and Divestment Act of 
2010 (CISADA), reaching out to countries around the world through 
travel and correspondence.
    Treasury's outreach on CISADA has had a tremendous effect, and the 
great majority of financial institutions with which we have engaged 
have chosen to close their correspondent accounts with United States-
designated, Iranian-linked financial institutions, thus shutting down 
avenues that Iran's designated banks had relied upon to engage in 
financial activities.
    Treasury aggressively implements and enforces sanctions against 
entities and individuals subject to such sanctions. Since the adoption 
of United Nations Security Council Resolution 1929 in June 2010, 
Treasury has designated dozens of Iranian entities and individuals for 
involvement in Iran's proliferation-related activities or for being 
responsible for human rights abuses in Iran. Actions taken pursuant to 
Executive Order 13382, which targets WMD proliferation networks and 
their supporters, have included designations of affiliates of the 
Islamic Revolutionary Guard Corps and the Islamic Republic of Iran 
Shipping Lines; Tidewater, an Iranian port operator; entities 
subordinate to Iran's Aerospace Industries Organization; and additional 
Iranian-linked financial institutions, including Europaisch-Iranische 
Handelsbank, Post Bank of Iran, Bank Refah, and the Bank of Industry 
and Mine, bringing the total number of designated Iranian-linked 
financial institutions to 21. Treasury also continues to work with 
international partners to implement robust international sanctions on 
Iran so that Iran feels pressure not only from U.S. actions but also 
from increasing isolation from the international financial system.
    On September 28, 2010, the President signed Executive Order 13553, 
authorizing the freezing of assets of officials of the Government of 
Iran or persons acting on behalf of the Government of Iran who are 
responsible for or complicit in, or responsible for ordering, 
controlling, or otherwise directing, the commission of serious human 
rights abuses against persons in Iran or Iranian citizens or residents, 
among others. The Annex to Executive Order 13553 listed eight 
Government of Iran officials for their involvement in human rights 
abuses. Treasury has since designated additional Government of Iran 
officials for their involvement in serious human rights abuses.
    The State Department enforces the energy-related provisions of the 
Iran Sanctions Act, as amended by CISADA, and as a result, I must defer 
to the State Department on questions regarding the energy-related 
sanctions.
    Question. Over the last decade, the Treasury Department has granted 
nearly 10,000 licenses for commerce involving countries listed as state 
sponsors of terrorism--using loopholes for humanitarian and 
agricultural aid to sell items such as cigarettes, chewing gum, hot 
sauces, weight loss remedies, and even sports rehabilitation equipment 
for the institute that trains Iran's Olympic athletes.
    What steps has Treasury taken to ensure that only agricultural and 
humanitarian goods are waived into countries such as Iran? What more 
can be done?
    Answer. Under the Trade Sanctions Reform and Export Enhancement Act 
of 2000 (TSRA), Congress requires Treasury to grant licenses to U.S. 
companies seeking to export agricultural commodities, medicines, and 
medical devices to certain sanctioned countries. By the terms of the 
statute, OFAC is limited in its ability to deny licenses for goods that 
fall within the categories as defined in the statute. For example, TSRA 
takes its definition of ``agricultural commodities'' from section 102 
of the Agricultural Trade Act of 1978 (7 U.S.C. 5602). In interpreting 
the definition of ``agricultural commodities,'' Treasury looks to the 
Department of Agriculture, which is better equipped to determine what 
qualifies under the definition. Similarly, TSRA relies on section 201 
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321) to define 
medicine and medical devices. Circumstances for denying TSRA licenses 
include when the importing entity ``promote[s] international 
terrorism'' or when it is unlawful to export to an entity that is 
subject to any restriction for its involvement in weapons of mass 
destruction or missile proliferation.
    Question. When United States companies attempt to do business in 
Africa, they are often at a disadvantage due to competition from 
foreign governments who operate outside of the Organisation for 
Economic Co-operation and Development arrangement, notably the Chinese. 
Often African buyers prefer the quality of American products but are 
attracted to the inexpensive, flexible concessional financing offered 
by the Chinese and others. United States companies complain that United 
States Government tools to level the playing field in the face of these 
Chinese tactics, including Export-Import Bank's War Chest, are too 
restrictive.
    What steps has Treasury taken to level the playing field in 
overseas markets for United States companies facing Chinese 
concessional financing and other tactics?
    Answer. China's accession to the international arrangement that 
disciplines the provision of official export credits, thereby 
subjecting China's export credit and tied aid activity to clear 
financing and transparency rules, is a top priority for the 
administration. Senior Treasury offices and I have raised this issue 
with our Chinese counterparts, and, at the recent May Strategic and 
Economic Dialogue meetings, the United States and China ``recognize[d] 
the importance of transparency and fairness in providing export 
credits'' and ``agree[d] to exchange views on the importance of the 
export credit system.'' We will continue to engage the Chinese on this 
important issue.
    The Ex-Im Bank War Chest is available to match tied aid that 
violates the international rules or that is a threat to long-run U.S. 
market share/access in emerging markets. Separate from the War Chest, 
Ex-Im also has the legal authority to match Chinese export credits, 
whether or not they are consistent with the international rules. This 
authority was recently used in a Pakistan rail transaction, where Ex-Im 
provided matching financing to a United States company competing 
against a Chinese company with Chinese Government financing that did 
not conform to international standards and practices.
    Question. The Treasury Department is 1 of 20 U.S. Government 
agencies represented on the Trade Promotion Coordinating Committee. 
What is the Treasury Department currently doing to coordinate and boost 
American export promotion and financing operations?
    Answer. In addition to Treasury's general efforts to support the 
administration's work to increase exports, Treasury is responsible for 
promoting balanced and strong growth in the global economy through the 
G-20 Financial Ministers' process and other appropriate mechanisms.
    Treasury has advocated for a rebalancing of global demand, which is 
an essential part of achieving a strong and long-lasting global 
economic recovery. Faster domestic demand growth abroad, particularly 
by countries with trade surpluses, will enable countries with trade 
deficits to boost their exports, and narrow or eliminate their current 
account deficits. A more evenly balanced global economy will contribute 
to a more sustainable global recovery.
    Question. In addition to Treasury's role, which executive agency 
should and which, if any, is leading the interagency process on this 
effort?
    Answer. The President's National Export Initiative is being 
coordinated by the Commerce Department under the umbrella of the Trade 
Promotion Coordinating Committee.
                            domestic finance
    Question. In January 2011, news reports raised concerns about 
several banks that were found to have taken advantage of servicemembers 
by overcharging for mortgages and improperly starting foreclosure 
proceedings. These banks violated the Servicemembers Civil Relief Act 
(SCRA) and added financial stress to the already stressful lives of 
military families. JP Morgan Chase alone sent refunds to 4,000 
servicemembers who were overcharged for mortgages or against whom the 
company improperly started foreclosure proceedings. JP Morgan Chase 
admitted that it overcharged military personnel on their mortgages and 
wrongfully foreclosed on 14 active-duty families, despite SCRA and its 
prohibition on foreclosures against servicemembers.
    What can the Treasury Department do to prevent violations of SCRA 
from happening in the future, including wrongful foreclosures and 
violations of the mortgage interest cap?
    How can Treasury promote proper training on Servicemembers Civil 
Relief Act (SCRA)?
    Answer. The Office of Servicemember Affairs (OSA), located within 
the Consumer Financial Protection Bureau (CFPB), will play an important 
role in educating servicemembers on the protections afforded by the , 
as well as ensuring that any SCRA-related complaints filed with the 
CFPB are handled in an efficient and timely manner. Although the 
Department of Justice (DOJ) and the prudential regulators enforce the 
statute, the CFPB will help raise awareness of the law and its 
protections, both within the military community and within the 
financial community. To that end, the OSA recently signed a joint 
Statement of Principles with the Judge Advocate Generals of the Army, 
Navy, Air Force, Marine Corps and Coast Guard, and will work with them 
and the DOJ on this mission. After alleged violations of the SCRA came 
to light earlier this year, Holly Petraeus, Assistant Director for the 
OSA, wrote a letter to the CEOs of the Nation's 25 largest banks, 
asking them to review their policies and procedures to ensure that they 
were complying with the SCRA. Assistant Director Petraeus has also been 
engaging the military community across the country to raise awareness 
of the unique financial protections available to military families, 
including those afforded by the SCRA.
                                 ______
                                 
               Questions Submitted by Senator Ben Nelson
                            domestic finance
    Question. I continue to hear from both banks and home builders in 
Nebraska that examiners are turning regulatory guidance on commercial 
real estate (CRE) lending into hard caps.
    For example, it's my understanding that community banks are being 
told they can't give home builders loans because the bank has reached 
its 100 percent of capital threshold on construction loans. This cap is 
being enforced in areas of high housing demand. Builders still can't 
get a loan. Is it true that regulators are not allowing these loans to 
be made to creditworthy builder borrowers with viable projects because 
a bank has reached the 100 percent of capital CRE threshold?
    Answer. Treasury does not regulate community banks. However, 
Treasury does have a policy interest in ensuring that banks continue to 
provide credit to small businesses, including home builders, consistent 
with safety and soundness, in order to support economic recovery and 
market stability.
    Policy guidance issued jointly by Federal banking regulatory 
agencies in 2006 \1\ set supervisory criteria for significant CRE 
concentration:
---------------------------------------------------------------------------
    \1\  See, e.g., FDIC FIL-104-2006, Commercial Real Estate Lending 
(Joint Guidance), December 12, 2006.
---------------------------------------------------------------------------
  --total reported loans for construction, land development, and other 
        land (often called for acquisition, construction, and 
        development [ACD]) represent 100 percent or more of the 
        institution's total capital; or
  --total commercial real estate loans as defined in the Guidance 
        represent 300 percent or more of the institution's total 
        capital and the outstanding balance of the institution's CRE 
        loan portfolio has increased 50 percent or more during the 
        prior 36 months.
    These criteria are explicitly intended neither as limits nor safe 
harbors, but rather as preliminary steps to identify institutions that 
may have CDE concentration risks, and this policy remains in effect. 
The policy states that the effectiveness of an institution's risk 
management practices will be a key component of the supervisory 
evaluation of the institution's CRE concentrations. Examiners will 
engage in a dialogue with the institution's management to assess CRE 
exposure levels and risk management practices. Institutions that have 
experienced recent, significant growth in CRE lending will receive 
closer supervisory review than those that have demonstrated a 
successful track record of managing the risks in CRE concentrations.
    In recent years many banks did exceed these concentration criteria 
and encountered financial difficulties. Some of these banks are no 
longer in business. Troubled banks are subject to stringent regulatory 
restrictions based on each bank's circumstances. It is our 
understanding that very few banks are currently above, at or near the 
100 percent ACD benchmark.
    While it is regulatory policy to encourage prudent lending, 
including to small home builders, such credit may be more challenging 
to obtain now than previously. Among other factors, some lenders have 
tightened their own credit standards, some builders have less financial 
strength, lower property values provide less collateral, and housing 
market conditions remain weak or fragile in many areas.
    Question. I continue to hear from home builders in Nebraska that 
they are unable to obtain financing to build homes for qualified home 
buyers. These builders are typically small businesses building 25 or 
fewer homes a year that rely primarily on commercial banks and thrifts 
as their primary source of construction loan financing.
    A common complaint I hear from such builders is that overly 
restrictive actions by Federal banking regulators and examiners go well 
beyond the steps needed to ensure safety and soundness. Have your 
institutions noted any specific regulatory obstacles to your ability to 
lend to small businesses including home builders?
    Answer. Treasury does not regulate community banks. However, 
Treasury does have a policy interest in ensuring that banks continue to 
provide credit to small businesses, including home builders, consistent 
with safety and soundness, in order to support economic recovery and 
market stability.
    Policy guidance issued jointly by Federal banking regulatory 
agencies in 2006 \1\ set supervisory criteria for significant CRE 
concentration:
  --total reported loans for construction, land development, and other 
        land (often called for acquisition, construction, and 
        development [ACD]) represent 100 percent or more of the 
        institution's total capital; or
  --total commercial real estate loans as defined in the Guidance 
        represent 300 percent or more of the institution's total 
        capital and the outstanding balance of the institution's CRE 
        loan portfolio has increased 50 percent or more during the 
        prior 36 months.
    These criteria are explicitly intended neither as limits nor safe 
harbors, but rather as preliminary steps to identify institutions that 
may have CDE concentration risks, and this policy remains in effect. 
The policy states that the effectiveness of an institution's risk 
management practices will be a key component of the supervisory 
evaluation of the institution's CRE concentrations. Examiners will 
engage in a dialogue with the institution's management to assess CRE 
exposure levels and risk management practices. Institutions that have 
experienced recent, significant growth in CRE lending will receive 
closer supervisory review than those that have demonstrated a 
successful track record of managing the risks in CRE concentrations.
    In recent years many banks did exceed these concentration criteria 
and encountered financial difficulties. Some of these banks are no 
longer in business. Troubled banks are subject to stringent regulatory 
restrictions based on each bank's circumstances. It is our 
understanding that very few banks are currently above, at or near the 
100 percent ACD benchmark.
    While it is regulatory policy to encourage prudent lending, 
including to small home builders, such credit may be more challenging 
to obtain now than previously. Among other factors, some lenders have 
tightened their own credit standards, some builders have less financial 
strength, lower property values provide less collateral, and housing 
market conditions remain weak or fragile in many areas.
    Question. It is my understanding that through economic sanctions 
the United States has been able to freeze nearly $33 billion in Libyan 
assets. I understand that other nations have been able to freeze Libyan 
assets as well.
    How will the United States and NATO dispense with these frozen 
assets?
    Answer. As of June 15, approximately $37 billion of cash and 
securities under U.S. jurisdiction have been blocked pursuant to 
Executive Order 13566. This amount includes assets of the Central Bank 
of Libya and the Libyan Investment Authority, among others. In taking 
action against Libyan Government assets under the President's Executive 
order, the United States has protected those assets from 
misappropriation by Colonel Muammar Gaddafi and his associates and 
deprived the Gaddafi regime of the use of those assets for its ongoing 
campaign of violence against the Libyan people. On July 15, 2011, the 
United States recognized the Transitional National Council (TNC) as the 
legitimate governing authority for Libya. To assist the TNC and the 
Libyan people during this time of transition, we are working with the 
State Department to make a portion of the frozen assets available to 
the TNC as soon as possible. We are keenly focused on the humanitarian 
and other essential needs of the Libyan people, and we are working 
closely with our international partners to address those needs. To that 
end, on August 25, the United Nations Security Council's Libya 
Sanctions Committee agreed to a United States ``extraordinary 
expenses'' request facilitating the issuance of United States licenses 
to authorize the release of up to $1.5 billion in Libyan assets for 
humanitarian and other essential needs. Consistent with TNC 
instructions and State Department guidance, we have authorized the 
release of funds for humanitarian and other urgent needs. These efforts 
are being negotiated carefully to provide for adequate oversight and 
transparency in how the funds will be used. Going forward, we will 
continue to work closely with the State Department, the TNC and our 
international partners to determine an appropriate plan for releasing 
assets in light of the situation on the ground as it evolves. While we 
seek to provide the TNC with the resources necessary to address 
humanitarian and other essential needs, we also will work with the 
State Department, the TNC and our international partners to continue 
safeguarding these assets for the Libyan people in a manner consistent 
with our United Nations obligations.
    Question. Is there a precedent for how to dispense with such 
assets?
    Will Treasury coordinate with the Department of State in this 
process?
    Is there any consideration to use these funds to either offset 
military operations in Libya or to help rebuild Libya in the aftermath 
of the current conflict?
    Answer. While we do not have a precedent for making funds available 
on this scale, consistent with TNC instructions and State Department 
guidance, we have authorized the release of funds for humanitarian and 
other urgent needs. Treasury is coordinating with the State Department 
regarding U.S. efforts to make a portion of the frozen assets blocked 
pursuant to Executive Order 13566 available to the TNC as soon as 
possible. The funds are not being considered as a means to offset 
military operations, but would be used to address humanitarian and 
other essential needs, as well as support the Libyan people as they 
chart a democratic, prosperous, and secure future for their country.
    Question. To date, what has been discussed and what is possible 
regarding the use of these funds?
    Does Treasury anticipate needing any new authorities to handle 
these assets?
    If new authorities aren't required, what existing authorities will 
be used to dispense with these funds?
    Is there anything that Congress can do to facilitate proper 
disposal of these assets?
    Answer. As of June 15, approximately $37 billion of cash and 
securities under U.S. jurisdiction have been blocked pursuant to 
Executive Order 13566. This amount includes assets of the Central Bank 
of Libya and the Libyan Investment Authority, among others. In taking 
action against Libyan Government assets under the President's Executive 
order, the United States has protected those assets from 
misappropriation by Colonel Muammar Gaddafi and his associates and 
deprived the Gaddafi regime of the use of those assets for its ongoing 
campaign of violence against the Libyan people. On July 15, 2011, the 
United States recognized the Transitional National Council (TNC) as the 
legitimate governing authority for Libya. To assist the TNC and the 
Libyan people during this time of transition, we are working with the 
State Department to make a portion of the frozen assets available to 
the TNC as soon as possible. We are keenly focused on the humanitarian 
and other essential needs of the Libyan people, and we are working 
closely with our international partners to address those needs. To that 
end, on August 25, the United Nations Security Council's Libya 
Sanctions Committee agreed to a United States ``extraordinary 
expenses'' request facilitating the issuance of United States licenses 
to authorize the release of up to $1.5 billion in Libyan assets for 
humanitarian and other essential needs. Consistent with TNC 
instructions and State Department guidance, we have authorized the 
release of funds for humanitarian and other urgent needs. These efforts 
are being negotiated carefully to provide for adequate oversight and 
transparency in how the funds will be used. Going forward, we will 
continue to work closely with the State Department, the TNC and our 
international partners to determine an appropriate plan for releasing 
assets in light of the situation on the ground as it evolves. While we 
seek to provide the TNC with the resources necessary to address 
humanitarian and other essential needs, we also will work with the 
State Department, the TNC and our international partners to continue 
safeguarding these assets for the Libyan people in a manner consistent 
with our United Nations obligations.
                                 ______
                                 
               Questions Submitted by Senator Jerry Moran
    Question. There is an aerospace industry issue which has come to my 
attention that I'd like to get your thoughts on. It is in reference to 
trade finance and our ability to provide defensive competitive matching 
in instances of Government financing from the official export credit 
agencies of other countries. I understand that this is a looming issue 
for aircraft manufacturers and I further understand that the 
administration has at its disposal an existing provision in U.S. law 
(section 1912 of the Export-Import Bank Act Amendments of 1978) that 
could be used to address this competitive situation. It appears to me 
that the Congress instituted a competitive matching tool for these 
exact circumstances--one of its supporters, Senator Adlai Stevenson, 
stated very clearly on the Senate floor during debate: ``The 
[Section's] purpose . . . is not to declare or to accelerate a credit 
war. Its purpose is to put the United States in a position to end a 
credit war.'' And, on the House side, Representative Hannaford 
declared: ``These circumstances demand an appropriate response from our 
own government. The Export-Import Bank can and should be the instrument 
of our response.''
    Does the administration have any intentions to deploy this tool in 
the fight against such lending practices in support of the aerospace 
industry and its hundreds of thousands of workers, as well as for all 
U.S. industries who are or will be facing similar competitions in the 
near-future.
    Answer. Section 1912 is a provision that allows Treasury to 
authorize Ex-Im Bank to provide matching financing when it determines 
that foreign noncompetitive official export credits are being offered 
into the United States that are inconsistent with certain standstills, 
arrangements or practices. Upon receipt of information that foreign 
noncompetitive official exports are being offered, Treasury would 
initiate an inquiry as to whether the statutory criteria under section 
1912--which would be fact specific and depend on the scope of an 
individual case--have been met.
                            domestic finance
    Question. Recognizing the distinct differences between large 
banking institutions and insurance companies with small bank 
subsidiaries, Congress included language in the Dodd-Frank Act stating 
the Volcker Rule should ``appropriately accommodate the business of 
insurance.'' Is it your understanding that these provisions allow for 
insurance companies to continue to sponsor and invest in private equity 
pursuant to this insurance exception? Do you anticipate any further 
clarification of this question in any proposed rule?
    Answer. The Volcker Rule includes specific provisions to 
accommodate the business of insurance. Only two types of insurance 
companies are subject to the Volcker Rule:
  --insurance companies that are affiliates of insured banks or 
        thrifts; and
  --non-bank financial companies supervised by the Federal Reserve 
        Board.
    Under the Volcker Rule, activity for the general account is 
permitted if the activity is already in compliance with State insurance 
investment law, regulation, and guidance; and the appropriate Federal 
banking agencies, after consultation with the Financial Stability 
Oversight Council and the relevant State insurance commissioners, have 
not jointly determined that such investment laws, regulations, and 
written guidance are insufficient to protect the safety and soundness 
of the banking entity, or of the financial stability of the United 
States. These permitted activities are subject to a prudential 
``backstop'' that prohibits such activity if it would result in a 
material conflict of interest, material exposure to high-risk assets or 
high-risk trading strategies, a threat to the safety and soundness of 
the banking entity, or a threat to the financial stability of the 
United States.
    The rulemaking agencies are currently drafting the regulations that 
will implement the Volcker Rule and it is likely that a forthcoming 
Notice of Proposed Rulemaking will further clarify this accommodation 
of the business of insurance.
    Question. As you are aware, the Dodd-Frank Act allows for an 
insurance expert to serve on the Financial Stability Oversight Council 
(FSOC). When do you think the President will have a nominee for that 
position, and do you expect that the nomination will be submitted 
before any regulations that may affect the insurance industry are voted 
on by the FSOC?
    Answer. The FSOC is progressing in a prudent and informed way in 
its decisionmaking, and is relying on the considerable expertise 
already extant among its members to ensure that it benefits from a wide 
variety of views.
    On June 27, 2011, the President nominated Mr. Roy Woodall as the 
independent member of the FSOC. Mr. Woodall brings extensive experience 
and insurance expertise to the FSOC. He served as the Senior Insurance 
Policy Analyst at the Department of the Treasury from 2002 to 2011, and 
has served as President of the National Association of Life Companies 
and former Commissioner of Insurance for the Commonwealth of Kentucky 
over the span of his distinguished career.
    The FSOC also benefits from the service of Mr. John Huff, the 
Director of the Missouri Department of Insurance, Financial 
Institutions and Professional Registration, who was selected as a 
member by the State insurance commissioners. Mr. Huff offers a breadth 
of knowledge and the important perspective of the primary functional 
insurance regulators.
    Secretary Geithner has appointed Mr. Michael McRaith as the 
director of the Federal Insurance Office (FIO). Mr. McRaith, who joined 
the FIO as director in June 2011, was previously the director of the 
Illinois Department of Insurance. He brings significant experience and 
judgment to the FIO and as a member of the FSOC.
              consumer financial protection bureau (cfpb)
    Question. Can you please describe for me how the CFPB's budget will 
be audited upon its standing up in July of this year? Who will perform 
the audits and how will the results of the audits be made public?
    Answer. The CFPB is required to have two independent audits in 
2011. The first is an audit of the financial transactions of the 
Bureau, which is being performed by the Comptroller General of the 
United States. Under the Dodd-Frank Act, the Comptroller General shall 
submit to the Congress a report of this audit, which is typically made 
available to the public on the Web site of the Government 
Accountability Office. The CFPB is also required to order an annual 
independent audit of the CFPB's operations and budget under section 
1016A of the Department of Defense and Full-Year Continuing 
Appropriation Act of 2011. The CFPB will publish its audited financial 
statements and the annual independent audit on its Web site.
                                 ______
                                 
                Questions Submitted by Senator Mark Kirk
                            domestic finance
    Question. In a recent conversation with Chicago's City Treasurer, 
she reminded me that a downgrade in U.S. debt would not only effect 
borrowing by the Federal Government, but would cascade down to the 
States. Keeping last week's downgrade of Spain's and Greece's debt in 
mind, I believe that the Federal Government's fiscal discipline 
initiatives will both help States control their interest costs and 
prove that the United States continues to be a model for the rest of 
the world. How can the United States demonstrate national and global 
leadership for spending reforms and debt reduction?
    Answer. Addressing the challenges we face in the short term to 
revive our economy and in the long-term economic path to growth 
requires fiscal responsibility. We need to reduce annual deficits, now 
roughly 10 percent of GDP, to the point where the overall debt burden 
begins to fall as a share of the economy. This must be a multi-year 
process, with cuts phased in over time, so as not to risk our economy 
as it emerges from the recession.
    Our objective is to build a bipartisan consensus on a 
comprehensive, and balanced fiscal reform plan. We must reduce 
Government spending while financing productive investments in areas 
critical to future economic growth, along with generating more revenue 
and reducing the rate of growth in spending on health care and 
retirement security.
    We must take a balanced approach that includes shared sacrifice in 
order for our Government to live within its means. I remain optimistic 
that we can address our fiscal challenges in a bipartisan manner that 
sets an example for the world, renews investor confidence, and 
demonstrates to the American people that we can work together to 
improve the well-being of our economy and our country.
    Question. On January 21, the Treasury's official blog wrote that, 
``Adopting a policy that payments to investors should take precedence 
over other U.S. legal obligations would merely be default by another 
name, since the world would recognize it as a failure by the U.S. to 
stand behind its commitments.'' If a State fails to make timely 
payments of obligations, for example, if it delays payment of Federal 
education funds to local schools, would the State be considered in 
default under your definition? If failure to stand behind commitments 
would constitute a default for a State government, what responsibility 
would Treasury have to stand behind a State's legal obligations?
    Answer. Where a State has a legal obligation to make payments at a 
specified time, nonpayment would be recognized by investors and others 
as a failure by that State to meet its commitments. The resulting 
damage to that State's creditworthiness would likely be severe. 
However, Treasury does not have a general responsibility to stand 
behind a State's legal obligations.
    Question. I would like to ask you about a State that has been 
becoming more of a rogue player on the international stage--Argentina. 
At least one member of the House has asked for review of Argentina's 
GSP status. There have been reports that Argentina has discussed 
overlooking Iranian ties to terrorists' attacks on Argentina's soil in 
order to get some economic concessions. All of this is going on while 
the Republic of Argentina has been negotiating with the Paris Club to 
repay the $9 billion in debt that resulted from Argentina's 2001 
sovereign debt default. Of this $9 billion, about $360 million is owed 
to the United States. Private U.S. creditors are still owed $3.5 
billion--nearly 10 times as much as the debt the U.S. Government is 
seeking to recover. Currently, Argentina holds more than $54 billion in 
foreign reserves. What is Treasury's office of International Affairs 
doing to recover these funds, which Argentina is clearly able to pay? 
What is the message that we send to Argentina and other States by 
allowing it to get away with incendiary economic behavior?
    Answer. I can assure you that the Treasury Department is carefully 
monitoring several problem areas associated with Argentina's conduct 
toward United States investors and unfulfilled obligations to 
international agreements and institutions. We are pressing the 
Government of Argentina to uphold its international commitments as a 
member of the G-20, International Centre for Settlement of Investment 
Disputes, International Monetary Fund (IMF), and other multilateral 
fora, and normalize relations with its creditors. Specifically, with 
regard to the Paris Club, the Treasury Department has sought and will 
continue to seek full repayment from Argentina on behalf of U.S. 
taxpayers.
    Question. The President's budget claims Treasury's funding 
``Enables the implementation of critical reforms to the U.S. financial 
regulatory system through support for the Dodd-Frank Wall Street 
Reform.'' What safeguards and oversight exist to ensure that this 
funding is used effectively and that the new programs implemented under 
Dodd-Frank are being used effectively and efficiently? I am advocating 
a set a principles based on quantitative metrics to use in evaluating 
appropriations bills that can measure Dodd-Frank's effectiveness:
  --Programs must be subject to rigorous performance evaluation 
        requirements and oversight/enforcement that includes 
        quantitative metrics and goals;
  --New regulatory measures must not duplicate existing ones; and
  --Programs that cannot minimize fraud and abuse should not be 
        considered for expanded funding.
    Answer. On January 18, 2011, President Obama issued Executive Order 
13563, ``Improving Regulation and Regulatory Review,'' directing 
executive agencies to streamline and simplify regulations, seeking to 
ensure cost-effective, evidence-based regulations that are compatible 
with economic growth, innovation, job creation, and competitiveness.
    On July 11, 2011, he also issued Executive Order 13579, 
``Regulation and Independent Regulatory Agencies,'' which calls upon 
independent agencies, to the extent permitted by law, to comply with 
provisions of Executive Order 13563. This includes the Executive Order 
13563 provision that asks agencies to develop a plan under which the 
agency will periodically review its existing significant regulations to 
determine whether any such regulations should be modified, streamlined, 
expanded, or repealed so as to make the agency's regulatory program 
more effective or less burdensome in achieving the regulatory 
objectives. The implementation of Dodd-Frank provides financial 
regulators with both an opportunity and a responsibility to implement 
the most efficient and effective rules for the financial system, to 
avoid duplicative or conflicting rules, and to eliminate those that are 
outdated.
    Question. What is the status of Treasury investigations into 
additional violations of the Iran Sanctions Act of 1996 (ISA) and the 
2010 Comprehensive Iran Sanctions, Accountability, and Divestment Act 
(CISADA)? How many companies and/or banks is the Treasury Department 
currently investigating for violations of the ISA and CISADA? Can you 
provide a timeframe of when additional designations are to be expected?
    Answer. As a matter of longstanding policy, Treasury does not 
comment on any possible or pending investigations, including possible 
sanctions. Accordingly, it would not be appropriate for me to comment 
on any particular financial institutions that may be under 
investigation until a final determination has been made regarding 
sanctions.
    Since the enactment of CISADA on July 1, 2010, and the publication 
of the Iranian Financial Sanctions Regulations on August 16, 2010, 
Treasury has been engaged in an aggressive campaign, involving dozens 
of foreign countries and scores of financial institutions, to explain 
the choice put to foreign financial institutions by CISADA between 
continued direct access to the United States financial system or 
continued involvement with Iran's proliferation efforts, its support 
for terrorism, and sanctioned Iranian-linked parties such as United 
States-designated banks and the Islamic Revolutionary Guard Corps. The 
response to Treasury's outreach has had a tremendous effect, and the 
great majority of financial institutions with which we have engaged 
have chosen to close their correspondent accounts with United States-
designated, Iranian-linked financial institutions, thus closing off 
avenues that Iran's designated banks had relied upon to engage in 
financial activities. CISADA, in short, has proven to be a very 
powerful tool to further isolate and pressure Iran. Nonetheless, 
Treasury has concerns that a limited number of foreign financial 
institutions may be continuing to engage in activities that could 
result in a finding under CISADA. We are actively investigating those 
situations.
    The State Department is responsible for implementing the Iran 
Sanctions Act and the energy-related provisions of CISADA, and as a 
result, I must defer to the State Department questions regarding the 
energy-related sanctions.
    Question. Given that Spain appears like the next domino to fall in 
the European sovereign debt crisis, are you concerned that additional 
United States taxpayer funds may be required to support the IMF? Since 
the Congressional Research Service (CRS) estimates that Spain may need 
more than $500 billion for international bailout, do you anticipate 
that the IMF will need to utilize and/or expand the recently activated 
New Arrangements to Borrow (NAB), to which the United States has 
pledged more than $100 billion to date?
    Answer. The IMF has sufficient resources at this time to meet its 
members' needs for balance of payments support.
    With the activation of the NAB in April, IMF resources currently 
available for new lending programs total almost $400 billion.
    Currently, no additional Eurozone members are requesting IMF 
support. It is important to keep in mind that the bulk of the financing 
for European crisis countries has been provided by Europe, and that in 
these cases the IMF typically has only provided about one-third of the 
total financial support.
    Question. On March 29, out of profound concern that the 
administration is not fully and faithfully enforcing CISADA, Senators 
Kyl, Lieberman, and I sent an unclassified letter to Secretary Clinton 
and to you with a 54-page classified annex detailing additional 
sanctions violations of which we are aware. Can you commit to a date 
when we can expect a response to this letter?
    Answer. In addition to the unclassified response letter sent on May 
2, my staff provided a classified briefing on CISADA matters on May 19.
    Question. As you know, section 104 of CISADA ``urges the President, 
in the strongest terms, to consider immediately using the authority of 
the President to impose sanctions on the Central Bank of Iran.'' 
According to CRS, authorities for such a designation ``could include 
section 311 of the USA PATRIOT Act (31 U.S.C. 5318A), which authorizes 
designation of foreign banks as ``of primary money laundering 
concern.'' Do you plan to impose sanctions on the Central Bank of Iran 
(CBI)?
    Answer. United States financial institutions are prohibited, with 
very limited exceptions, from doing any business directly or indirectly 
with all Iranian banks, including the CBI. Treasury recognizes that 
section 104 of CISADA urges us to consider imposing sanctions on CBI, 
and along with our colleagues in the administration, has been 
considering a range of possible actions. This follows on several years 
of intense focus by Treasury on the CBI. We have, for example, 
highlighted our concerns regarding the CBI's conduct in FinCEN 
advisories on two occasions. Treasury also has noted previously that 
the CBI and Iranian commercial banks have requested that their names be 
removed from global transactions to make it more difficult for 
intermediary financial institutions to determine the true parties in 
the transaction, and we remain concerned that the CBI may be 
facilitating transactions for sanctioned Iranian banks. That said, 
designating a central bank would be a very significant step, with 
ramifications that may well extend far beyond a similar action against 
a commercial bank. For such an action to have the desired effect, it is 
essential that we obtain the cooperation of our allies to ensure that 
it increases the pressure on Iran. We continue to monitor the 
activities of the CBI and to work closely with our allies on the full 
range of pressures we can bring to bear on Iran.

                          SUBCOMMITTEE RECESS

    Senator Durbin. Thank you, Senator Moran.
    And thank you, Mr. Secretary.
    The record of this hearing remains open for a period of 1 
week, until noon on Tuesday, April 12. Subcommittee members may 
submit statements or questions for the Secretary to consider.
    And this hearing of the subcommittee stands recessed.
    [Whereupon, at 11:25 a.m., Tuesday, April 5, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


              MATERIAL SUBMITTED SUBSEQUENT TO THE HEARING

    [Clerk's Note.--The following testimony(ies) were received 
subsequent to the hearing for inclusion in the record.]
Prepared Statement of PolicyLink, The Food Trust, and The Reinvestment 
                                  Fund
    Chairman and distinguished Senators of the subcommittee, thank you 
for the opportunity to share our support for a Healthy Food Financing 
Initiative (HFFI). PolicyLink is a national research and action 
institute advancing economic and social equity by Lifting Up What 
Works; The Food Trust is a nonprofit organization working to ensure 
that everyone has access to affordable, nutritious food; and The 
Reinvestment Fund is a Community Development Financial Institution 
(CDFI) that creates wealth and opportunity for low-wealth people and 
places through the promotion of socially and environmentally 
responsible development.
    Our three organizations, along with a diverse coalition of 
stakeholders, which includes representatives from the grocery industry, 
health, civil rights, agriculture and the community development finance 
community, support the creation of HFFI to address the problem of 
``food deserts'' in urban and rural areas across the Nation. This 
problem can be solved in many communities using a successful model that 
is underway in the State of Pennsylvania and is now being replicated 
throughout the country.
    HFFI is a program worthy of investment as it promotes health, 
creates jobs, and sparks economic development. HFFI will provide loan 
and grant financing to attract grocery stores and other fresh food 
retail to underserved urban, suburban, and rural areas, and renovate 
and expand existing stores so they can provide the healthy foods that 
communities want and need. Over time, with continued investment, HFFI 
could solve the problem of food deserts in urban and rural communities 
across the country.
    For decades, low-income communities, particularly communities of 
color, have suffered from a lack of access to healthy, fresh food. USDA 
research determined that more than 23.5 million Americans are living in 
communities without access to high-quality, fresh food. Studies 
repeatedly show that residents of many low-income neighborhoods must 
travel long distances for healthy food, or rely on corner stores and 
fast food outlets offering high-fat, high-sugar foods. For instance, a 
recent multistate study found that low-income census tracts had half as 
many supermarkets as wealthy tracts, and four times as many smaller 
grocery stores. Another multistate study found that 8 percent of 
African Americans live in a tract with a supermarket, compared to 31 
percent of whites. Nationally, low-income ZIP codes have 30 percent 
more convenience stores, which tend to lack healthy food, than middle 
income ZIP codes.
    And, a nationwide analysis found there are 418 rural food desert 
counties where all residents live more than 10 miles from a supermarket 
or a supercenter--this is 20 percent of rural counties. In rural 
communities, inadequate transportation can be a particular challenge. 
In Mississippi, which has the highest obesity rate of any State, more 
than 70 percent of food stamp eligible households travel more than 30 
miles to reach a supermarket. Adults living in rural Mississippi food 
desert counties are 23 percent less likely to consume the recommended 
fruits and vegetables than those in counties that have supermarkets, 
controlling for age, sex, race, and education.
    Controlling for population density, rural areas have fewer food 
retailers of any types compared to urban areas, and only 14 percent the 
number of chain supermarkets. For instance, in New Mexico, rural 
residents have access to fewer grocery stores than urban residents, pay 
more for comparable items, and have less selection. The same market 
basket of groceries costs $85 for rural residents versus $55 for urban 
residents.
    The results of this lack of healthy food options are grim--these 
communities have significantly higher rates of obesity, diabetes, and 
other related health issues. Over the past decade, obesity rates have 
more than doubled in children and tripled in adolescents. In 2010, 
PolicyLink and The Food Trust conducted a review of more than 130 
studies on the issue of access to healthy food and found a direct 
correlation between diet-related diseases and access. A California 
study found that obesity and diabetes rates were 20 percent higher for 
those living in the least healthy ``food environments.'' In 
Indianapolis, a study found that BMI values corresponded with access to 
supermarkets and fast food restaurants. Researchers estimated that 
adding a new grocery store to a high-poverty neighborhood translates 
into a 3-pound weight decrease.
    Fortunately, changing access changes eating habits. For every 
additional supermarket in a census tract, produce consumption increases 
32 percent for African Americans and 11 percent for whites, according 
to a multistate study. A survey of produce availability in New Orleans' 
small neighborhood stores found that for each additional meter of shelf 
space devoted to fresh vegetables, residents eat an additional .35 
servings per day. In fact, of 14 studies that examine food access and 
consumption of healthy foods, all but one of them found a correlation 
between greater access and better eating behaviors. This is also true 
for food stamp recipients. Proximity to a supermarket was found to be 
associated with increased fruit and vegetable consumption.
    The problems associated with lack of access go beyond health. Low-
income communities are cut off from all the economic development 
benefits that come with a local grocery store: the creation of steady 
jobs at decent wages and the sparking of complementary retail stores 
and services nearby. Grocery stores operate as important economic 
anchors for communities, providing a vital service and bringing 
customers that can also support other nearby business. Securing new or 
improved local grocery stores can improve local economies and create 
jobs.
    President Barack Obama's proposed fiscal year 2012 budget includes 
a proposal to invest $330 million, including $250 million in New 
Markets Tax Credits, in a national HFFI. Specifically, the Initiative 
would provide:
  --$35 million through USDA's Office of the Secretary, with additional 
        ``other funds of Rural Development and the Agricultural 
        Marketing Service available to support the USDA's portion of 
        the Healthy Food Financing Initiative'';
  --$25 million through the Treasury Department's CDFI Fund
  --$20 million through Health and Human Services
  --$250 million through the Treasury Department's New Markets Tax 
        Credits Program.
    An HFFI would attract investment in underserved communities by 
providing critical loan and grant financing. These one-time resources 
will help fresh food retailers overcome the higher initial barriers to 
entry into underserved, low-income urban and rural communities, and 
would also support renovation and expansion of existing stores so they 
can provide the healthy foods that communities want and need. The 
program would be flexible and comprehensive enough to support 
innovations in healthy food retailing and to assist retailers with 
different aspects of the store development and renovation process.
    Grocery industry representatives find that there are obstacles to 
grocery store development in underserved low-income communities, but 
also that those obstacles can be overcome. The development process for 
building a new grocery store is lengthy and complex, and retailers 
often find that stores in low-income communities have high start-up 
costs, appropriate sites are hard to find, and securing financing is 
difficult. Grocery operators in both urban and rural areas cite lack of 
access to flexible financing as one of the top barriers hindering the 
development of stores in underserved areas.
    HFFI is modeled after the successful Pennsylvania Fresh Food 
Financing Initiative (FFFI), a public/private partnership launched in 
2004. Using a State investment of $30 million, the program has led to:
  --projects totaling more than $190 million;
  --88 stores built or renovated in underserved communities in urban 
        and rural areas across the State;
  --improved access to healthy food for more than 400,000 residents;
  --more than 5,000 jobs created or retained;
  --increased local tax revenues; and
  --much-needed additional economic development in these communities.
    Stores range from full-service 70,000 square foot supermarkets to 
900 square foot food shops; and from traditional grocery stores to 
farmers' markets, cooperatives, and corner stores selling healthy food. 
Approximately two-thirds of the projects were in rural areas and small 
towns with the remainder in urban areas.
    HFFI is a viable, effective, and economically sustainable solution 
to the problem of limited access to healthy foods. It can bring triple 
bottom-line benefits, achieving multiple goals: reducing health 
disparities and improving the health of families and children; creating 
jobs; and, stimulating local economic development in low-income 
communities.
    HFFI would incorporate the key components that allowed the 
Pennsylvania program to be so effective at attracting private dollars, 
garnering the commitment of store operators, getting fresh food retail 
stores and markets successfully developed, and stimulating local 
economies.
    The Pennsylvania FFFI has been cited as an innovative model by the 
U.S. Centers for Disease Control and Prevention; the National 
Conference of State Legislatures; Harvard's Kennedy School of 
Government; and the National Governors Association. There is 
significant momentum in many States and cities across the country to 
address the lack of grocery access in underserved communities. Several 
States and/or cities are in the process of replicating the successful 
Pennsylvania FFFI Program, and many others have begun to examine the 
needs and opportunities in their communities. For example:
  --The State of New York has launched the Healthy Food, Healthy 
        Communities Initiative, a business financing program to 
        encourage supermarket and other fresh food retail investment in 
        underserved areas throughout the State that will provide loans 
        and grants to eligible projects. New York City has launched a 
        complementary FRESH Program that will encourage supermarket 
        development through tax and zoning incentives and a single 
        point of access to city government for supermarket operators.
  --The City of New Orleans recently launched the Fresh Food Retailer 
        Initiative Program (FFRI) that will provide direct financial 
        assistance to retail businesses by awarding forgivable and/or 
        low-interest loans to grocery stores and other fresh food 
        retailers.
  --The California Endowment, NCB Capital Impact, and other community, 
        supermarket industry, and government partners have been working 
        to create a supermarket financing program in California that is 
        expected to be launched in the first half of 2011.
    A national HFFI could amplify the impact in each of these States 
and leverage the work already underway to ensure swift implementation. 
Moreover, a national HFFI would ensure that all State and communities 
could solve their food desert problems with new stores and other 
healthy food retail projects.
    In the midst of our current economic downturn, the need for a 
comprehensive Federal policy to address the lack of fresh food access 
in low-income is critical. We urge the subcommittee to support full 
funding for a Healthy Food Financing Initiative, for the benefit of 
communities across the Nation. Thank you for the opportunity to share 
our perspectives with you today.
