[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                     ONE HUNDRED THIRTEENTH CONGRESS
                             SECOND SESSION
                                ________
       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                    ANDER CRENSHAW, Florida, Chairman
 MARIO DIAZ-BALART, Florida         JOSE E. SERRANO, New York
 TOM GRAVES, Georgia                MIKE QUIGLEY, Illinois
 KEVIN YODER, Kansas                MARCY KAPTUR, Ohio
 STEVE WOMACK, Arkansas             ED PASTOR, Arizona        
 JAIME HERRERA BEUTLER, Washington  
 MARK E. AMODEI, Nevada             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
              John Martens, Winnie Chang, Kelly Hitchcock,
                     Ariana Sarar, and Amy Cushing,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Federal Communications Commission................................    1
 Securities and Exchange Commission...............................  109
 Office of Management and Budget..................................  189

                                   S

                                ________

         Printed for the use of the Committee on Appropriations

 PART 5--FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                                  2015
                                                                      ?

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                     ONE HUNDRED THIRTEENTH CONGRESS
                             SECOND SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                    ANDER CRENSHAW, Florida, Chairman
 MARIO DIAZ-BALART, Florida         JOSE E. SERRANO, New York
 TOM GRAVES, Georgia                MIKE QUIGLEY, Illinois
 KEVIN YODER, Kansas                MARCY KAPTUR, Ohio
 STEVE WOMACK, Arkansas             ED PASTOR, Arizona        
 JAIME HERRERA BEUTLER, Washington  
 MARK E. AMODEI, Nevada             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
              John Martens, Winnie Chang, Kelly Hitchcock,
                     Ariana Sarar, and Amy Cushing,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Federal Communications Commission................................    1
 Securities and Exchange Commission...............................  109
 Office of Management and Budget..................................  189

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 88-192                     WASHINGTON : 2014

                                  COMMITTEE ON APPROPRIATIONS

                    HAROLD ROGERS, Kentucky, Chairman
 
 FRANK R. WOLF, Virginia            NITA M. LOWEY, New York
 JACK KINGSTON, Georgia             MARCY KAPTUR, Ohio
 RODNEY P. FRELINGHUYSEN, New JerseyPETER J. VISCLOSKY, Indiana
 TOM LATHAM, Iowa                   JOSE E. SERRANO, New York
 ROBERT B. ADERHOLT, Alabama        ROSA L. DeLAURO, Connecticut
 KAY GRANGER, Texas                 JAMES P. MORAN, Virginia
 MICHAEL K. SIMPSON, Idaho          ED PASTOR, Arizona
 JOHN ABNEY CULBERSON, Texas        DAVID E. PRICE, North Carolina
 ANDER CRENSHAW, Florida            LUCILLE ROYBAL-ALLARD, California
 JOHN R. CARTER, Texas              SAM FARR, California
 KEN CALVERT, California            CHAKA FATTAH, Pennsylvania
 TOM COLE, Oklahoma                 SANFORD D. BISHOP, Jr., Georgia
 MARIO DIAZ-BALART, Florida         BARBARA LEE, California
 CHARLES W. DENT, Pennsylvania      ADAM B. SCHIFF, California
 TOM GRAVES, Georgia                MICHAEL M. HONDA, California
 KEVIN YODER, Kansas                BETTY McCOLLUM, Minnesota
 STEVE WOMACK, Arkansas             TIM RYAN, Ohio
 ALAN NUNNELEE, Mississippi         DEBBIE WASSERMAN SCHULTZ, Florida
 JEFF FORTENBERRY, Nebraska         HENRY CUELLAR, Texas
 THOMAS J. ROONEY, Florida          CHELLIE PINGREE, Maine
 CHARLES J. FLEISCHMANN, Tennessee  MIKE QUIGLEY, Illinois
 JAIME HERRERA BEUTLER, Washington  WILLIAM L. OWENS, New York         
 DAVID P. JOYCE, Ohio               
 DAVID G. VALADAO, California       
 ANDY HARRIS, Maryland              
 MARTHA ROBY, Alabama               
 MARK E. AMODEI, Nevada             
 CHRIS STEWART, Utah                
                                    
               William E. Smith, Clerk and Staff Director

                                  (ii)

    Statement Submitted by Senator Christopher J. Loeak, Chairman, 
  Kwajalein Negotiation Commission, on Behalf of Kwajalein Landowners

    My name is Christopher J. Loeak, Chairman of the Kwajalein 
Negotiation Commission. I appreciate the opportunity to present the 
views of the KNC today.
    Recently I submitted testimony to the House International Relations 
Committee regarding the views of the KNC on the proposed agreement 
between the United States and the RMI with respect to a new Military 
Use and Operating Rights Agreement. I append that statement to the one 
that I submit to you today.
    The position of the KNC on the proposed MUORA can be summarized by 
the following points:
     The compensation amounts for landowners of Kwajalein are 
insufficient to provide for the long-term benefit of the people of 
Kwajalein. The amount of compensation for the people of Kwajalein must 
be at least $19.1 million in 2004 fully indexed for inflation.
     The term of the agreement is insufficient and must be made 
longer to adequately plan for the use of Kwajalein for our people. 
Although the U.S. portrays this agreement as an agreement of over 50 
years duration, it only guarantees use of Kwajalein for seven years 
beyond 2016. Thus the agreement is only a 7-year extension with a 
series of 1-year options to terminate, leaving the landowners in a 
state of suspended animation for years to come. This term is far worse 
than the present 15-year term in the present MUORA.
     The Landowners will not sign a new Land Use Agreement 
until and unless acceptable changes are made to the MUORA to address 
these deficiencies. The 7-year extension of the MUORA as proposed is 
legally insufficient and cannot be implemented.
    Thank you for this opportunity and you can be sure that we will 
pursue every opportunity to reach an acceptable agreement through the 
constitutional processes of our respective governments.
                                 ______
                                 

    Statement Submitted by Senator Christopher J. Loeak, Chairman, 
  Kwajalein Negotiation Commission, on Behalf of Kwajalein Landowners

    My name is Christopher J. Loeak, Chairman of the Kwajalein 
Negotiation Commission. I appreciate the opportunity to present the 
views of the KNC today.
    Besides being Chairman of the KNC, I have been a Senator in the 
Nitijela representing the Atoll of Ailinglaplap since 1985.
    I am also a major landowner on Kwajalein Atoll.
    Mr. Chairman, I am honored to present the following statement on 
behalf of the people of Kwajalein and I would like to express my 
appreciation and sincere thanks to you and the members of this House 
International Relations Committee for giving me the opportunity to do 
so.

               ABOUT THE KWAJALEIN NEGOTIATION COMMISSION

    I represent the Kwajalein Negotiation Commission (KNC), an 
organization established in October 2001 by the people of Kwajalein to 
represent them in the Compact renegotiations. The KNC is an 
unprecedented alliance of the traditional leaders of Kwajalein whose 
purpose is to provide an opportunity for the U.S. to enter into a long-
term relationship guaranteeing secure and uninterrupted use of 
Kwajalein. The divisions within the local traditional leadership that 
marred the entry into the first Compact have been put aside in the 
interest of this relationship. As you know, compact renegotiation 
discussions between the U.S. Government and the Government of the 
Republic of the Marshall Islands (RMI) were finalized in January of 
this year.
    The fast Compact was negotiated when RMI was still a territory. 
Many provisions were accepted by RMI in the interest of achieving self-
government as early as possible and sometimes to the detriment of its 
regional or individual island atoll interests. The Kwajalein people in 
this context accepted agreements pertaining to Kwajalein, even though 
the agreements were not completely satisfactory to the people. Indeed, 
in the plebiscite on the Compact in 1982, the people of Kwajalein 
overwhelmingly voted to reject adoption of the Compact (the Compact was 
nonetheless approved by the RMI by a close margin).
    The KNC was formed in large part in order to adequately represent 
the interests of the people in this regard to ensure that any agreement 
reached would be equitable and in the interests of the people at large.
    Part of the Compact agreement reached in January of this year 
between the RMI and the U.S. Government included a new agreement on the 
Military Use and Operating Rights Agreement, otherwise known as the 
MUORA. The KNC opposes the new agreement as presently structured and we 
are asking Congress to either change the agreement to include 
additional compensation for landowners or postpone approval of the 
MUORA until a satisfactory agreement can be reached between all the 
parties.

            THE MILITARY USE AND OPERATING RIGHTS AGREEMENT

    The current Military Use and Operating Rights Agreement (MUORA) 
governing Kwajalein expires in 2016. Some argue that the U.S. already 
has rights to Kwajalein until 2016 and therefore no new agreement 
should be negotiated before expiration of that agreement. The people of 
Kwajalein honor the right of the U.S. to Kwajalein until 2016. However, 
as other matters in the Compact are brought up for discussion or 
modification, it is only fitting that the most important component of 
that agreement, namely U.S. defense rights in the Marshall Islands, be 
revisited. We believe this exercise to be of mutual interest and 
benefit because it can eliminate those aspects of the first Compact 
that are unfair to the landowners while at the same time guarantee the 
long-term access that the U.S. seeks. A mere extension would perpetuate 
the existing hardships and inequities and would ignore the lessons 
learned in the first fifteen years of the Compact.
    Any extension of the MUORA beyond 2016 requires the approval of the 
people of Kwajalein as stipulated by our Constitution. Moreover, any 
change to the MUORA that would extend the use of Kwajalein by the 
United States beyond 2016 requires that a new Land Use Agreement 
(``LUA'') be implemented between the RMI and Kwajalein Landowners. 
Accordingly, the new MUORA agreement cannot be implemented without a 
new LUA.
    The KNC rejects the notion that the execution of a new LUA is 
exclusively an internal matter between the national government of the 
RMI and the landowners of Kwajalein. Although we understand that it is 
the position of the United States that the U.S. negotiates ``sovereign 
to sovereign'' and that it must respect the nationally recognized and 
duly chosen representatives of the people of the RMI, the United States 
always takes into account the practical considerations that exist in a 
country when implementing new agreements. For example, in 1982 the U.S. 
required that the original LUA be implemented before the U.S. 
Government agreed to the present MUORA in force between our 
governments.
    The point has been made that if the people of Kwajalein have an 
issue with the MUORA we should take it up with our own government in 
the RMI and that we do not have standing to petition the Congress for 
changes to the agreement. This type of thinking is not credible and 
belies the reality of the process in which we are all now engaged. The 
RMI in fact is petitioning the Congress for changes to the new Compact 
in the areas of infrastructure, inflation, FEMA and other areas. In 
1982, Congress legislated changes to the negotiated Compact that 
increased coverage for the RMI on programs related to FEMA, Education, 
and other items. The issue of increased compensation to Kwajalein is 
but one in a number of issues to be addressed by the Congress.
    The United States and the RMI recognized the importance of securing 
the participation of the KNC in the negotiations when we were invited 
to participate in several negotiating sessions between the U.S. and the 
RMI. However, when the meaningful bargaining began between the parties, 
the KNC was excluded from negotiations. The reasons for this exclusion 
are unclear to us. We were left with the proposition of ``take it or 
leave it''. Accordingly, we have made it absolutely clear that we will 
not support execution of a new LUA until such time as the new MUORA 
reflects a fair and equitable deal for the people of Kwajalein.

            THE INADEQUACIES OF THE RECENTLY ANNOUNCED MUORA

The term
    The KNC opposes the recently announced MUORA proposal because it 
does not adequately provide for the long-term needs of the people of 
Kwajalein. When these negotiations started, the KNC proposed a 50-year 
long-term lease of Kwajalein. We believe that a 50-year commitment on 
behalf of both of our governments is in our mutual self-interests. 
However, the new MUORA falls short of this commitment. While the new 
MUORA purports to be a 50-year extension from 2017 until 2066, with a 
possible 20-year extension beyond that, in reality the new MUORA is a 
7-year extension, since the U.S. can exercise a termination notice in 
2016 that could terminate the MUORA by 2023. After 2023, the agreement 
is essentially a year-to-year lease, since the termination notice right 
can be exercised in any year after 2016. Accordingly, the KNC, on 
behalf of the people of Kwajalein, must consider the social and 
financial implications of a termination of the MUORA at a date as soon 
as 2023, notwithstanding that the U.S. has falsely described this lease 
as long-term.
    The people of Kwajalein have consistently expressed their 
commitment to providing the U.S. full access to Kwajalein and they 
hereby reaffirm this commitment. However, it is also their position 
that a piecemeal approach is not a satisfactory arrangement to either 
side. Our proposal for a 50-year lease would give the U.S. advantage of 
long-term security enabling substantial investments in its missile 
defense program while the people of Kwajalein will have the advantage 
of economic security. Short-term options do not provide either and in 
fact will leave our people in a state of suspended animation, severely 
limiting the ability of determining an appropriate development program 
for Kwajalein.

The compensation amounts
    When the KNC joined negotiations with the RMI and the U.S. in the 
early fall of 2002, the RMI and the KNC proposed a joint package based 
upon an 8-point comprehensive formula that addressed the totality of 
programs that affect the use of Kwajalein by the U.S. Included in the 
proposal were provisions dealing with the MUORA Term, Kwajalein 
Landowners Compensation, Taxation, a Kwajalein Landowners Trust Fund, 
Kwajalein Impact funding, Ebeye Special Needs, Early Termination, and 
the SOFA. These items were linked together and the adequacy of funding 
for one of the provisions affected the adequacy of funding for the 
other.
    With respect to the Kwajalein Landowner Compensation amount, the 
Kwajalein Landowners proposed a funding index supported by economic and 
population indexes that were intended to reflect the inflation indexed 
value of the compensation amounts in the original MUORA supplemented by 
population growth. This amount, $19.1 million in 2004, was economically 
supported and justified by data.
    In the negotiations, one-by-one the United States whittled away at 
the 8-point proposal and isolated each part of the package so that the 
negotiations appeared to be progressing towards agreement upon items of 
the package without respecting the interplay between theprovisions 
themselves. For instance, the proposal to allow the FM to tax 
expatriate workers at Kwajalein at the prevailing national rate of 
taxation (an increase from 5% to 12%) was intended to ameliorate a tax 
subsidy to the U.S., while at the same time, providing a means of 
providing a growth-oriented revenue source to the RMI for landowner 
funding. Notwithstanding this basic right of national sovereignty, the 
U.S. rejected any increase in taxation amounts, even to the national 
rate, depriving the RMI government of its most effective means of 
raising revenue to pay for the welfare of its people. We know of no 
other example where the United States enjoys such a tax subsidy to the 
disparity and detriment of another country. And this agreement locks in 
this subsidy for the entirety of the term of the MUORA!
    At the same time, the U.S. offered amounts for landowner 
compensation that were below inflation adjusted amounts and were 
offered without economic rational or justification other than that they 
were above what is presently offered in the present MUORA. In the final 
offer by the U.S., a $15 million base was offered beginning in 2004 as 
landowner compensation. On an inflation basis, this amount represents a 
degradation of 60% of the value that the landowner's compensation 
amount achieved in 1979. Accordingly, it was no surprise that the KNC 
rejected the U.S. offer on Landowner funding as inadequate, 
particularly since the U.S. would not offer an alternative means of 
achieving landowner compensation through taxation.

The lack of a Landowner's Trust Fund
    A basic tenet of the philosophy of the landowners in formulating 
their proposal for a long-term lease of Kwajalein was that the term and 
the amount of funding for landowner's compensation be sufficient to 
provide for the long-term needs of the people of Kwajalein. The U.S. 
government states that the new MUORA is a billion-plus deal that will 
last until 2086. But as I have already described, the agreement is 
actually a short-term extension until 2023 with the possibility that 
the U.S. may decide to stay longer. In effect it is an agreement until 
2023 with a series of rolling annual 1-year options to terminate if and 
when the U.S. chooses to leave after 2023.
    Under these circumstances, the landowners are concerned that the 
compensation amounts provided in the new MUORA be sufficient that a 
corpus of funds be retained that would provide annual income to 
landowners sufficient to replace the compensation payment if and when 
the U.S. departs. At the $19.1 million level (in 2004), the landowners 
offered to voluntarily contribute 10% of the annual compensation amount 
into a trust fund for this purpose. This amount was to be matched by a 
contribution from the RMI through tax receipts.
    The present MUORA offer does not meet the objectives of the people 
of Kwajalein in this regard and must be rejected as insufficient to pay 
for our long-term needs.
    As we have stated time and again, the people of Kwajalein are 
committed to long-term access to Kwajalein on the basis of an equitable 
arrangement between both parties. If the U.S. and the people of 
Kwajalein cannot reach an acceptable arrangement at this time, however, 
we would prefer to postpone our discussion related to extension of the 
lease beyond 2016 to another time. It is far preferable to us to delay 
our talks to the alternative of having to debate a deal that we 
consider is unfair and inequitable and which cannot be implemented. Put 
another way, the present circumstances will breed division and 
opposition in our country.
    If on the other hand the U.S. prefers to close out the Kwajalein 
Reagan Test Site in 2016, then it should be prepared to discuss now the 
terms of that closure including resettlement, restoration, re-
adaptation, and rehabilitation. Environmental clean up and the planting 
of crops will take at least 7 years and therefore planning and 
agreements cannot wait until 2016. It is the preference of the 
landowners that the U.S. remains in Kwajalein, keeping with our mutual 
defense agreement. However, should the U.S. plans demand otherwise, 
then we should all face up to that possibility by carefully and 
adequately planning for it.

                                SUMMARY

    In conclusion, the leadership and people of Kwajalein wish to 
reaffirm their full support for the U.S. military activities in 
Kwajalein atoll and hope to continue their friendship and cooperation 
with the United States. At the same time, we are hopeful that through 
changes to the new MUORA we will achieve a fair and just arrangement 
for the continued use of Kwajalein. We have formulated several 
alternatives as a basis for changing the new MUORA that can lead to 
implementation of a new LUA. Indeed, there are many inconsistencies, 
other than the Kwajalein land use issue, contained in the draft compact 
which may very well justify delaying the approval of this agreement for 
one year. This would allow time for both sides to resolve differences 
which if allowed to remain in present form will only foment division 
within our country and undermine the foundation of our unique 
relationship. I make these observations not only as a Kwajalein 
landowner but also as a member of the Nitijela. We thank the Committee 
for this opportunity and look forward to working with our negotiators 
to reach an agreement that will gain early approval by both the U.S. 
and the RMI in accordance with their Constitutional processes.
                                                                      ?

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                     ONE HUNDRED THIRTEENTH CONGRESS
                             SECOND SESSION
                                ________
       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                    ANDER CRENSHAW, Florida, Chairman
 MARIO DIAZ-BALART, Florida         JOSE E. SERRANO, New York
 TOM GRAVES, Georgia                MIKE QUIGLEY, Illinois
 KEVIN YODER, Kansas                MARCY KAPTUR, Ohio
 STEVE WOMACK, Arkansas             ED PASTOR, Arizona        
 JAIME HERRERA BEUTLER, Washington  
 MARK E. AMODEI, Nevada             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
              John Martens, Winnie Chang, Kelly Hitchcock,
                     Ariana Sarar, and Amy Cushing,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Federal Communications Commission................................    1
 Securities and Exchange Commission...............................  109
 Office of Management and Budget..................................  189

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
 PART 5--FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                                  2015
                                                                      ?
?

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                     ONE HUNDRED THIRTEENTH CONGRESS
                             SECOND SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                    ANDER CRENSHAW, Florida, Chairman
 MARIO DIAZ-BALART, Florida         JOSE E. SERRANO, New York
 TOM GRAVES, Georgia                MIKE QUIGLEY, Illinois
 KEVIN YODER, Kansas                MARCY KAPTUR, Ohio
 STEVE WOMACK, Arkansas             ED PASTOR, Arizona        
 JAIME HERRERA BEUTLER, Washington  
 MARK E. AMODEI, Nevada             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
              John Martens, Winnie Chang, Kelly Hitchcock,
                     Ariana Sarar, and Amy Cushing,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 Federal Communications Commission................................    1
 Securities and Exchange Commission...............................  109
 Office of Management and Budget..................................  189

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 88-192                     WASHINGTON : 2014

                                  COMMITTEE ON APPROPRIATIONS

                    HAROLD ROGERS, Kentucky, Chairman

 FRANK R. WOLF, Virginia            NITA M. LOWEY, New York
 JACK KINGSTON, Georgia             MARCY KAPTUR, Ohio
 RODNEY P. FRELINGHUYSEN, New JerseyPETER J. VISCLOSKY, Indiana
 TOM LATHAM, Iowa                   JOSE E. SERRANO, New York
 ROBERT B. ADERHOLT, Alabama        ROSA L. DeLAURO, Connecticut
 KAY GRANGER, Texas                 JAMES P. MORAN, Virginia
 MICHAEL K. SIMPSON, Idaho          ED PASTOR, Arizona
 JOHN ABNEY CULBERSON, Texas        DAVID E. PRICE, North Carolina
 ANDER CRENSHAW, Florida            LUCILLE ROYBAL-ALLARD, California
 JOHN R. CARTER, Texas              SAM FARR, California
 KEN CALVERT, California            CHAKA FATTAH, Pennsylvania
 TOM COLE, Oklahoma                 SANFORD D. BISHOP, Jr., Georgia
 MARIO DIAZ-BALART, Florida         BARBARA LEE, California
 CHARLES W. DENT, Pennsylvania      ADAM B. SCHIFF, California
 TOM GRAVES, Georgia                MICHAEL M. HONDA, California
 KEVIN YODER, Kansas                BETTY McCOLLUM, Minnesota
 STEVE WOMACK, Arkansas             TIM RYAN, Ohio
 ALAN NUNNELEE, Mississippi         DEBBIE WASSERMAN SCHULTZ, Florida
 JEFF FORTENBERRY, Nebraska         HENRY CUELLAR, Texas
 THOMAS J. ROONEY, Florida          CHELLIE PINGREE, Maine
 CHARLES J. FLEISCHMANN, Tennessee  MIKE QUIGLEY, Illinois
 JAIME HERRERA BEUTLER, Washington  WILLIAM L. OWENS, New York        
 DAVID P. JOYCE, Ohio               
 DAVID G. VALADAO, California       
 ANDY HARRIS, Maryland              
 MARTHA ROBY, Alabama               
 MARK E. AMODEI, Nevada             
 CHRIS STEWART, Utah                
                                    
               William E. Smith, Clerk and Staff Director

                                  (ii)


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015

                              ----------                              --
--------

                                           Tuesday, March 25, 2014.

                   FEDERAL COMMUNICATIONS COMMISSION

                               WITNESSES

TOM WHEELER, CHAIRMAN
AJIT PAI, COMMISSIONER
    Mr. Crenshaw. I want to welcome our witnesses, Chairman Tom 
Wheeler and Commissioner Ajit Pai for the committee today. This 
is the first time both of you have appeared before our 
subcommittee, so I want to welcome you and thank you for being 
here today.
    The focus of today's hearing is the FCC's fiscal year 2015 
budget request. Your request is for a $35 million, or a 10.5 
percent, increase over the current level. And while the FCC is 
funded by fees, these are fees directly passed on to consumers 
so I believe that Congressional oversight is an important check 
on the Commission's activities.
    Learning that the Commission, prior to your arrival, had 
planned to spend money on an inappropriate study outside the 
agency's jurisdiction on newsroom operations, leads me to think 
that perhaps the Commission has more money than it really 
needs.
    While we understand that you may have some funding needs in 
order to keep up with the ever-changing technology landscape, 
we expect you to look at your current spending first before 
coming to us for increases. As you both know, the Middle Class 
Tax Relief and Job Creation Act of 2012 provided the FCC with 
the authority to conduct spectrum incentive auctions, and this 
is in itself a complicated process. It is expected to raise 
over $25 billion in revenue, as well as create a nationwide 
communications network for first responders. So these auctions 
will be quite a task for the FCC to implement and I look 
forward to hearing more about the development of these auctions 
and how we are moving forward.
    Given today's technological and competitive landscape, my 
interest in seeing a leaner, more efficient, and a more 
transparent FCC has not diminished.
    Chairman Wheeler, I hope you can take serious the 
committee's request to review your organizational structure, to 
reform and reorganize the FCC to more appropriately reflect the 
Commission's current role, and to keep up with the pace of 
technology in the industries that you regulate. This committee 
is committed to fiscal responsibility and we take that charge 
seriously. We expect all the agencies that are under our 
jurisdiction to operate as efficiently and effectively as you 
can and that includes the FCC.
    The industries and services that the FCC regulates are 
crucial, critical to American communications and businesses. 
These technologies are advancing at an ever-quickening pace, 
and the FCC must keep up while not deterring or stifling 
competition and innovation.
    Over-regulation hurts American businesses and markets. The 
FCC should consider the impact of its regulations and should 
employ rigorous, cost-benefit analysis in its rulemakings 
wherever possible. I look forward to discussing these important 
issues with you all today and there is much to discuss.
    So, again, thank you for being here today. I look forward 
to your testimony. And now I will turn to Ranking Member 
Serrano for any remarks he might have.
    Mr. Serrano. Thank you, Mr. Chairman. I would like to join 
you in welcoming Chairman Wheeler and Commissioner Pai before 
the subcommittee. Both of you are testifying before this 
subcommittee for the first time, so we will try not to be too 
hard on you. Besides, we are too close to be angry.
    Technology places an ever-growing role in the lives of most 
Americans. People increasingly depend upon television, radio, 
satellite, and Internet service to connect with others to 
better understand the world and to expand their economic 
opportunities. And from ensuring consumer access to the 
Internet to promoting media diversity, the FCC is the primary 
regulator ensuring fair access to and fair play within every 
aspect of our wide variety of communications methods.
    As technology rapidly changes, it is important that the FCC 
be able to continue to meet these responsibilities and that is 
why we are here to discuss your budget request today.
    Given those broad and growing responsibilities, it is not 
surprising to see that you are requesting additional resources 
for fiscal year 2015. Your budget request is approximately $36 
million higher than the funding level you received in fiscal 
year 2014. I look forward to discussing how you will prioritize 
this money and how we can better understand the various 
increases in light of your goals to protect consumers and 
ensure the integrity of the public airwaves.
    One area of particular interest to me is some of the 
problems that have cropped up with regard to the growing use of 
smartphones. As smartphones become common in our society, their 
use has been accompanied by a steep rise in the number of 
thefts of these devices. Unfortunately, while some steps have 
been taken by the FCC and others, not enough has been done to 
deter smartphone theft, which can be lucrative both here and 
abroad.
    I recently proposed legislation to require all smartphone 
manufacturers and service providers to make, I hate the word, a 
kill switch available to consumers which will allow individuals 
to render their smartphones completely useless if taken from 
them and would eliminate any incentive to steal these devices. 
I will give you an example. In New York City I think 40 percent 
of crime now is related to the stealing of a smartphone. I 
think 20-something attorney generals, including New York's, 
have come forward and said that this is a serious issue, one 
that we have to address. I hope to get your thoughts on this 
issue and on what more needs to be done in this area to protect 
consumers.
    Once again, we welcome you, and I must say that this is one 
of those hearings, notwithstanding our starting hour, that I 
take very seriously because I am a technology user. I have 
every iPad you can think of. I have every smartphone you can 
think of. I am not ashamed as a member of Congress to say that 
I watch TV. You know, most members of Congress say they only 
watch CNN or Fox and nothing else. I admit that I watch the 
Westerns channel and everything else. I listen to the radio. I 
have satellite radio in both cities. And so I take seriously 
what you do and what chances you have to better the quality of 
service that you provide the American people, understanding 
always that the airwaves belong to the American people.
    And, Mr. Chairman, lastly, years ago I was very strong on 
the issue of when the FCC was going after some broadcasters for 
the way in which they conducted their programming. And I said 
at that time, All you have got to do is turn Howard Stern off. 
If you do not like it do not get upset, just turn it off. And I 
am a big believer in that freedom of expression even if it 
upsets someone. So thank you and thank you for being here with 
us.
    Mr. Crenshaw. Thank you, and now I turn to Chairman 
Wheeler. We will make your written statement part of the record 
and if you would limit your remarks to about five minutes that 
would be great.
    Mr. Wheeler. Great. Thank you very much, Mr. Chairman, Mr. 
Serrano. As you both have pointed out, this is my first time 
presenting a budget before an Appropriations Subcommittee. It 
is not my first time presenting a budget, however. And what I 
thought might make some sense would be if I revert to form 
today as during my days as a businessman and just kind of hit 
the issues that I think are important that we ought to be 
paying attention to in this budget.
    You were absolutely right, Mr. Chairman. This is a $35 
million increase. This is a 10 percent increase. This is 
serious money. You have the right to take a serious and hard 
look at it because it demands explanation.
    The increases break into approximately thirds. About one-
third is for technology upgrades, which is a cost-saving and 
efficiency-increasing expenditure. About one-third is for 
Universal Service Fund reform, which is expanded enforcement 
and new rules. And about the final third is for two things. 
One, it is inflation, salary, benefits, mandatory things that 
we have to do and we are required to do. And the other is the 
movement of the broadband map from NTIA's responsibility to the 
FCC's responsibility and how we pay for it. So let me see if I 
can unpack each of those just very quickly.
    For information technology, $13.5 million is our request. 
Our IT is old. It is inefficient and is insecure. Forty percent 
of our IT systems are more than 10 years old. This means that 
for many of them there is no vendor support. And they are 
costly to maintain. We have, amazingly I discovered when I came 
in, 207 different computer systems for an agency of 1,725 
people. There is not a business in America that would put up 
with that. Our systems are incompatible. They cannot talk to 
each other. And they are highly inefficient. And worst of all, 
they are insecure.
    I would be happy to go into more detail about that in a 
non-public setting, but there are serious challenges that we 
have. Thirteen million dollars, as you point out, Mr. Chairman, 
is a lot of money but the reality here is if we do not spend 
that now we will spend that in the next two years in the baling 
wire and glue that we have to use to hold the existing systems 
together.
    The second issue, Universal Service Fund reform, is about a 
$10.8 million expenditure. We oversee an $8.4 billion Universal 
Service Fund program that is going through significant change 
that brings sizeable challenges with it. The Lifeline Program 
has been abused. We will save $160 million this year through 
eliminating unqualified recipients. Companies, not just 
consumers, have been involved in this. We need to beef up 
enforcement. If you talk to the Enforcement Bureau folks, my 
line from day one has been, I want heads on pikes. And we need 
enforcement capability that we do not have.
    The high-cost, rural part of universal service, we are 
shifting from voice to broadband. We are running some trials in 
rural areas to help accomplish that, as well. The resources of 
our Wireline Computation Bureau are constrained and pulled in 
other directions, not the least of which is overseeing the 
transition to all IP networks, which is a key component of 
this. And we do not have the resources there.
    And finally, the E-Rate Program, the third part of the 
Universal Service Fund, is an 18-year-old program built around 
18-year-old priorities that is not focused on the priority of 
broadband delivery to schools and libraries. It needs 
redirection. It needs cost-efficiency. And we are in the midst 
of developing new rules to accomplish that.
    But let me talk a little bit about management here. We need 
more muscular enforcement of what is going on in the Universal 
Service Fund. I am starting up a strike force to focus on 
waste, fraud, and abuse. We have today 25 FTEs for enforcement 
and an $8.4 billion program. I do not think it is sufficient to 
do the job. We need more muscular enforcement. We need 
investigators. We need auditors. We need financial enforcement. 
It is not just more lawyers. We need people who are out there 
and can make sure that the program is being administered 
efficiently and we need to spread them throughout the agency: 
in the Enforcement Bureau, in the Office of Managing Director, 
in the Office of the Inspector General, and in the Wireline 
Bureau.
    The last leg, the last third, as I said, there is $5.7 
million for mandated personnel pay, benefits, obligations and 
about $3 million for the broadband map that NTIA used to pay 
for.
    Finally, Mr. Chairman, two quick notes. As you noted, the 
agency pays for itself through fees. And also as you noted, 
this is a huge growth area for the economy. We are trying to 
bring to regulation, we are trying to wean from regulation, the 
idea that the regulator knows best. We are trying to encourage 
competition as a force that regulates the marketplace, to 
protect competition, to expand competition. And we are trying 
to have a regulatory policy that reflects that when there is 
competition there is less need for regulation. And we also have 
the responsibility to make sure that we are providing stability 
for those who make the investment in the capital, for those 
that create jobs, and that we are fulfilling the consumer 
protection obligations that the Congress has laid down for us.
    I take your admonition about our responsibility for fiscal 
responsibility very seriously and look forward to discussing it 
more with you.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T8192A.001
    
    [GRAPHIC] [TIFF OMITTED] T8192A.002
    
    [GRAPHIC] [TIFF OMITTED] T8192A.003
    
    [GRAPHIC] [TIFF OMITTED] T8192A.004
    
    [GRAPHIC] [TIFF OMITTED] T8192A.005
    
    Mr. Crenshaw. Well thank you very much. Commissioner Pai, 
would you like to make an opening statement?
    Mr. Pai. I would, Mr. Chairman, that would be great.
    Mr. Crenshaw. The floor is yours.
    Mr. Pai. Chairman Crenshaw, Ranking Member Serrano, and 
members of the subcommittee, thank you very much for inviting 
me to testify here today. I expect and welcome your questions 
about the budget-specific nature of this hearing in the 
colloquy, but today in my opening statement I would like to 
focus on two very important policy issues before the FCC. 
First, the incentive auction and second E-rate reform.
    First the incentive auction. Given this subcommittee's 
focus on appropriations, it is worth noting that the FCC is one 
of the few agencies in the U.S. government that can generate a 
profit for the government. Between 2005, and 2008, for 
instance, the FCC held spectrum auctions that raised over $33 
billion that was devoted to the deficit reduction. The 
commission's auction program has not always turned a profit. 
From January 2009 until December of 2013, the FCC raised a 
paltry $72 million in auction revenue. Indeed, when you account 
for the commission's spending on auctions our auctions program 
actually lost money during those five years.
    In 2012, Congress tasked the FCC with pushing new spectrum 
into the commercial marketplace and raising at least $27.95 
billion for national priorities. Specifically, the Spectrum Act 
targeted more than $20 billion for deficit reduction and $7 
billion for the build-out of a nationwide, interoperable, 
public safety broadband network. Now that build-out makes good 
on a recommendation, a long-standing one, from the 9/11 
Commission, that first responders need interoperable 
communication systems in times of disaster. The Spectrum Act 
also set aside up to $135 million for state and local public 
safety officials, up to $300 million for the research and 
development of wireless public safety communications, and up to 
$115 million for the deployment of next-generation 911.
    Now the broadcast incentive auction will be the 
commission's best opportunity to hit that $27.95 billion 
target. Now at this point, my greatest worry about the 
incentive auction is about participation. In order for the 
incentive auction to be successful, we will need robust 
participation, both by broadcasters and by wireless companies. 
And that in turn means avoiding unwise policy choices that will 
deter participation in both the reverse and the forward 
auctions respectively. My own position on the reverse auction 
is simple. Prices paid to broadcasters for their spectrum 
should be determined by the market. The commission should not 
set those prices by administrative fiat.
    On the forward auction, the commission should not limit the 
carrier's ability to participate, such as by setting a spectrum 
cap. The result of doing that would be less spectrum for mobile 
broadband and less funding for national priorities, a higher 
budget deficit, and an increased chance of a failed auction. 
Under the law we have only one option, which is success, 
because we only have one chance to get it right.
    The second issue I would like to discuss briefly is the 
Universal Service Fund's $2.4 billion schools and libraries 
program, better known as E-Rate. Now in many ways, E-Rate has 
been a success. Just last year, for instance, 87 percent of 
educators responding to an independent survey reported that 
they had ``adequate bandwidth for robust instructional needs'' 
in all or most classrooms on a school campus.
    But E-Rate also has had its share of difficulties. The 
application process for one is so complicated that the majority 
of the Universal Service Fund's entire administrative cost is 
focused on E-Rate. Many schools and libraries feel compelled to 
hire outside consultants to manage all the complexities. Others 
do not even bother applying at all. Services like paging are 
prioritized over next-generation services like connecting 
classrooms. Money is wasted.
    One Brooklyn school, for instance, has received millions of 
dollars in E-Rate funding even though it does not allow its 
students to access the Internet. And there is no meaningful 
transparency with respect to either the amount or the impact of 
E-Rate funding.
    To solve these problems I have proposed a student-centered 
E-Rate program. This means an upfront allocation of funding and 
a matching requirement so that schools and libraries know in 
advance how much money they can spend and have strong 
incentives to spend it wisely. This means simplifying the 
application process. This means targeting funding at next-
generation technologies while still letting local schools set 
their own priorities. This means making all funding and 
spending decisions accessible on a central website.
    My proposal would reduce administrative costs and in its 
first year alone a student-centered approach would provide an 
extra $1 billion for next-generation services, all without 
collecting an extra dime from the American people. Accordingly, 
my view is that we should not increase the E-Rate Program's 
budget. And under no circumstances should we do so without 
finding corresponding savings elsewhere in the Universal 
Service Fund. We cannot ask Americans to pay even more on their 
monthly phone bills, especially when the median household 
income in this country is now lower than it was in 2007.
    Finally, I should note that while all commissioners are 
asked to vote on a budget proposed by the chairman and 
submitted to the Office of Management and Budget, I have not 
been asked to participate in the development of our agency's 
budget request. With that context in mind, I will do my best to 
respond to any questions you may have.
    Also, Chairman Crenshaw and Ranking Member Serrano, thank 
you once again for inviting us to testify. I look forward to 
your questions and to working with you in the days to come.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T8192A.006
    
    [GRAPHIC] [TIFF OMITTED] T8192A.007
    
    [GRAPHIC] [TIFF OMITTED] T8192A.008
    
    [GRAPHIC] [TIFF OMITTED] T8192A.009
    
    [GRAPHIC] [TIFF OMITTED] T8192A.010
    
    [GRAPHIC] [TIFF OMITTED] T8192A.011
    
    [GRAPHIC] [TIFF OMITTED] T8192A.012
    
    [GRAPHIC] [TIFF OMITTED] T8192A.013
    
    [GRAPHIC] [TIFF OMITTED] T8192A.014
    
    [GRAPHIC] [TIFF OMITTED] T8192A.015
    
    [GRAPHIC] [TIFF OMITTED] T8192A.016
    
    [GRAPHIC] [TIFF OMITTED] T8192A.017
    
    [GRAPHIC] [TIFF OMITTED] T8192A.018
    
    [GRAPHIC] [TIFF OMITTED] T8192A.019
    
    [GRAPHIC] [TIFF OMITTED] T8192A.020
    
    Mr. Crenshaw. Well, thank you very much and as we get into 
the questions we are going to observe what we call the five-
minute rule. I will recognize Members in order of seniority if 
they were here when the meeting started. Then the latecomers 
will be recognized in order of their late-coming and we will go 
back and forth from side to side.
    Let me start by just reiterating what Commissioner Pai 
said. He was not involved in putting the budget together. That 
is something the chairman does from his office. But he will 
have a perspective and so if people want to ask him or Chairman 
Wheeler about budget items, certainly feel free to do that.
    I would like to start by just saying that Chairman Wheeler, 
you came out of the private sector. You had a lot of experience 
and probably bring a fresh approach to a lot of the issues that 
will come before your Commission. You and I talked a little bit 
about how you balance regulation, both from inside and outside. 
You have become somewhat famous for your famous seesaw. So 
maybe you could tell the subcommittee a little bit about your 
view of that seesaw as it relates to regulation.
    Mr. Wheeler. Thank you, Mr. Chairman. Yes, and you have got 
the movement down really well. It is a simple concept. If we 
are existing in an area where there is competition that is 
watching out for consumers and the marketplace, then there is 
less need for the agency to do things. But the important thing 
is to recognize that the seesaw goes both ways. Our 
responsibility is how do we encourage this? In a period where 
there is so much rapid change in technology, we need to 
recognize that we are not as smart as the Internet. We should 
not be trying to second-guess it. We should be facilitating 
competition. We should be protecting competition where it 
already exists. I talked in my testimony about how we are 
trying to wean ourselves from the old regulatory model that the 
regulator knows best and that is the approach that we are on.
    Mr. Crenshaw. Well, when you talk about the 10 percent 
increase you outline, I appreciate that. As it relates to the 
regulatory aspect, did you find any places where you could save 
money where maybe not as much regulation might be needed, 
because bureaucracies tend to just say, ``I will take whatever 
I had last year and I will add onto it.'' And one of the things 
that I think you probably learned in the private sector is that 
sometimes it is good to make sure you are spending the money in 
the right places to start with before you ask for more. So I am 
just curious, did you find any areas that you might be able to 
save money?
    Mr. Wheeler. One of the hardest adjustments in coming to 
this job is the inflexibility that you have in allocations. So 
you have got 70 percent of our S&E budget being people. In 
business you can deal with employees in a way that you cannot 
in the government. So what you do is you end up moving people 
around as priorities shift. And what I can assure you is that 
priorities are constantly shifting because of the new realities 
in the marketplace. And one day you are over here worrying 
about narrow band spectrum activities and you get through that, 
which was a huge undertaking, and you have got to pull those 
people off to go over and plug this dike. And it is a constant 
situation of doing that.
    [The information follows:]

    Mr. Wheeler. It is also important to note that the 
Commission is at a 30 year low for FTEs and we have almost 
halved our contractors since 2011. Our staff includes highly 
credentialed and experienced technologists, engineers, 
economists, attorneys and para-professionals. We detail and 
move people as needed to different bureaus and task forces, but 
we are still working below the staffing levels necessary to 
carry out our core mission, especially with regard to USF and 
IT.

    Mr. Crenshaw. So you are looking at that. That is good. Let 
me just ask Commissioner Pai the same kind of question, 
recognizing that it is the Office of the Chairman that really 
puts together the budget, but when you look at the way the FCC 
is working, does it look like the budget is as lean as it could 
be, are there areas that you have observed, without being a 
part of putting the budget together, that there could be some 
savings?
    Mr. Pai. Mr. Chairman, I do think that there are 
programmatic efficiencies that the FCC could wring out of the 
system, some on our own and some frankly with Congress' help. 
To give you an example of the former, my own E-Rate proposal 
would dramatically reduce the administrative costs that the FCC 
has to spend because it would simplify the application process. 
So all the hundreds and thousands of forms that we have to 
monitor, that schools and libraries across the country have to 
submit, we could dramatically simplify that with my approach.
    Mr. Wheeler. And we need to simplify it for the schools and 
libraries that are applying as well because of the fact that we 
have created this structure that does not work for them, 
either.
    Mr. Pai. Exactly. And I completely agree with my colleague 
because what we found is a lot of schools and libraries do not 
even bother seeking these funds because the process is so 
complicated. With respect to the latter category, costs we 
could save if we had Congress' help, a great example is the FCC 
Consolidated Reporting Act. Right now FCC staff, and I can say 
this because I used to be one of them, spend a lot of time 
compiling, reviewing, and submitting reports to Congress on an 
individual basis and this takes up a lot of staff resources. 
With the passage of the Consolidated Reporting Act, we could 
submit to Congress a single book, essentially detailing all of 
the facets of the communications industry. That would save us a 
lot of resources and frankly would be better for Congress, as 
well. You would have a one-stop shop where you could go for all 
the facts that you need to discharge your legislative 
responsibilities. Those are just two examples, but we would be 
happy to go into further detail.
    Mr. Crenshaw. Well, thank you very much. Let me turn to Mr. 
Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. I seem to get the 
sense that you both agree that changes need to take place but 
you do not agree on how the changes or what changes need to 
take place, at least that is what I am getting from this 
conversation here.
    The FCC is one of the few agencies that touches just about 
every American. I mean, who does not have a phone or a TV set 
or a radio, and so on? And so, I would like to see wherever 
possible, and I am the Ranking Member, I am not the Chairman, 
but I think I speak for him also in saying that we would like 
to see a more united front in telling us how and what role we 
should play. It is not simply for us to say, You are spending 
too much money, which I must remind people the $35.5 million 
increase is fee-funded and does not increase the deficit at 
all. So they are not asking us directly for money. But I would 
like to see, if I can be a mediator here, more of a joint 
effort in telling us how we can help you. And you can start off 
by talking about my personal bill, the Smartphone Theft Bill.
    Now, does your information, Commissioner, say that that 
crime has gone up in the country? And in our bill, which is put 
together with the assistance of Attorney General Schneiderman 
in New York, we leave it up to the manufacturers to use the 
technology that they have available. We do not say you must do 
it this way or you must do it that way, and they have the 
ability to do it. Number one, have those crimes continued to go 
up, is that an issue that either one of you or both of you are 
concerned about? And secondly, can, in fact, Congress not waste 
time in telling manufacturers to Use what you have available to 
make sure this does not happen anymore.
    Mr. Wheeler. So thank you, Mr. Serrano. Let me take both 
parts of that. I agree with you about the importance of a 
commission that is working together, and Ajit and I actually 
checked this before coming here, Ajit and I have agreed on 90 
percent of the votes taken at the FCC since I have arrived. 
Sure, we disagree on some issues. We disagree on some major 
issues, and I think that is what makes the commission stronger; 
and the other part about it is that at some point in time we 
have to sit down and decide. I think that my job as chairman is 
to help push decisions, and when you can have an environment 
where you have got 90 percent of the time you are agreeing, and 
10 percent of the time you are not, and when you are moving 
into decisions, I think the commission is better for that.
    Now, let me talk specifically about your bill. I agree it 
is a problem. I agree it is growing. I just had a meeting, 
interestingly enough, with my counterpart, the director of 
communications in Colombia who was talking to me about the 
great problems they have. It is not drugs any more. It is cell 
phones, and how do we work together on this. And the kill 
switch is an idea that is right in concept but with problems in 
implementation which I think can be solved. I mean I am a guy 
that came out of the technology business. So I believe in 
technology to solve things. I mean the problem is that I lose 
my cell phone; I think it has been stolen; I call and they kill 
it, which means they fry the innards. I find it in the seat of 
the couch two days later. My phone is shot. There has got to be 
a way of overcoming that problem.
    Mr. Serrano. But when you are in the subway, because I do 
not want to knock my city, but if somebody rips it off of you, 
you know you did not lose it in the couch.
    Mr. Wheeler. So, you have got to be able to deal with both 
situations. I am on the phone later this week with--I will not 
say who it is, but a major figure in the production of devices 
that have redefined the way in which we use mobile devices, and 
this is my topic with him: What can we do?
    Mr. Serrano. Does it have a fruit attached to it?
    Mr. Wheeler. It has a fruit attached to it, and you are 
very perceptive, sir. This is one of my topics. We have got to 
solve this, and I think one of the jobs, and I think this is 
something that Ajit and I agree, again, another one of these 
places that we agree, is that it is not just true that thou 
shalt regulate, but it is also true that we have a bully 
pulpit. And I think we have got a responsibility as a bully 
pulpit. He has been doing a great job with hotel safety from 
his bully pulpit. We are going to try and move on this. As I 
say, I am talking to folks about it. But I understand your 
issue and it is a legitimate issue.
    Mr. Crenshaw. Maybe just quickly, Mr. Pai.
    Mr. Pai. Sure, I appreciate the question, and the chairman 
has eloquently stated the rationale behind some of the 
legislation that you have talked about. I do want to say that 
by and large we do agree on a lot of issues. I want to lay down 
a marker now, however there is one issue we are never going to 
agree. He is never going to root for the University of Kansas. 
I will never root for Ohio State. Nonetheless.
    Mr. Wheeler. I will stipulate to that, sir.
    Mr. Pai. I do agree on the power of something he said in 
his answer, and that is the power of technology to solve 
problems. That is where we unite. Technology has the ability to 
cross borders, to cross cultures, and to really solve problems 
that hitherto have been unsolvable. Now, we might disagree 
about how we get there, but I never question his love of 
country, his care for the agency, his knowledge about the 
issues, and his determination to meet what he believes to be in 
the public interest. And my own view of regulation is a little 
bit different. I of course think generally speaking that it 
should meet three criteria: be consistent with the statute, the 
cost should always be outweighed by the benefits, and, finally, 
it should be restrained in recognition of the fact that these 
are very dynamic markets. But as he said, nine times out of 10 
we tend to agree. And that I think heralds well for the course 
of our dialogue going forward.
    Mr. Crenshaw. Thank you.
    Mr. Serrano. Just very briefly, Mr. Chairman, I was just 
informed by the good people who are always smarter than I am 
and more prepared back here, that our legislation allows for 
technology, which exists already, not to fry it as you said, 
but actually to bring it back to life in a certain way, but 
only by the owner, and not by anyone else.
    Mr. Wheeler. I do not want to have a hearing on this, but I 
understand that point, and the challenge becomes how do you 
prevent that from being hacked. There are solutions. We have 
got to find those solutions. That is why I am talking to these 
folks and saying, Let's go find them.
    Mr. Crenshaw. Thank you. Mr. Womack.
    Mr. Womack. It is refreshing to know that the two of you 
can agree on a lot of things, with the exception of rooting for 
each other's team. I am assuming that one of you will not be 
rooting for Dayton, and the other one will not be rooting for 
Stanford in the context of the NCAA Basketball Tournament. But 
I want to join in congratulating you on your positions and 
welcoming you to the committee.
    I want to go to cyber first. While examining the budget 
request, observed a surprisingly strong emphasis on improving 
cyber security. The proposed improvements include storage 
expansion, big data cyber security analytics, cyber security 
metrics, among other things. Can you expand on the commission's 
goals of these programs, both in the near term and over the 
long haul?
    Mr. Wheeler. Okay. Yes, and I would be happy to go into 
more detail without cameras.
    Mr. Womack. Absolutely.
    Mr. Wheeler. We are on the edge of the DHS minimum 
standards for what is expected for a federal agency for 
security. We need to fix that. You just ran through the things 
we want to put in place to address that. If we are charged with 
responsibility for the networks of America and everybody keeps 
saying, ``those networks have to be secure, well we better be 
secure in what we are doing. So as you point out, using big 
data to do tests in real time on security, I mean security has 
moved so far past white lists, and black lists, and firewalls. 
How do you use big data for real time security? How do you make 
sure that you have got networks in place that themselves are 
secure, and that the equipment is secure, and that you are not 
using software programs that themselves are so easily hackable. 
When you are using 10 year old equipment, this is kind of per 
se that it is an invitation to hack, but I would be happy to 
talk a lot more about it. Cyber security has to start at home 
and it has to start with us.
    [The information follows:]

    Mr. Wheeler. The Commission's IT request is $12.5 million. 
The cyber security efforts include IT storage expansion, Big 
Data Cyber security Analytics, Cyber security authorization, 
admission and education, cyber security metrics and 
modernization of the aging IT systems. Under IT storage 
expansion, the Commission will expand the tiered enterprise 
storage solution to include off-site backup and replication 
technologies--this will lead to improved disaster recovery and 
COOP capabilities. Current big data technology includes massive 
data repositories, cloud technology and the use of unstructured 
data. Big data will present options that automate capabilities, 
reduce analyst burdens and improve the ability to quickly 
perform functions. In addition to improved authorization 
techniques to ensure security with virtualized computers and 
additional education for internal uses, the Commission also 
must commit to a global modernization of aging IT systems to 
ensure that they can resist outside attacks.

    Mr. Crenshaw. Mr. Pai.
    Mr. Pai. Congressman, with respect to internal systems that 
are used by the FCC, I agree that cyber security is critical. 
Under the law the FCC's authority with respect to cyber 
security is relatively narrow, and so I see the FCC's role in 
the overall public dialogue about cyber security as being more 
of a supporting one. I think other executive branch and 
independent agencies might be better placed to take a leading 
role when it comes to that important issue.
    Mr. Womack. How do you work with other agencies?
    Mr. Wheeler. We are part of an interagency working group on 
this. We also are the home of multi-stakeholder processes, 
which goes in exact point to what the chairman was talking 
about, is how do you get the people themselves to worry about 
it, rather than walking in and saying, I am smarter than you 
and here is how I am going to do it. So for instance, we have 
what is called CSRIC, which is a working group on security and 
reliability of networks. That includes all the major network 
providers, all of the major suppliers. They have come out with 
voluntary standards to address the BOTNET issue with standards 
on DHS security, with standards on router security, that they 
all did voluntarily, sitting around a table that we asked them 
to come to. We have now asked them to help develop metrics. You 
have got to understand, okay, are we meeting the goals, because 
that allows you to say, Okay, then I need to zig, or zag to do 
that. To use this same kind of a process, we've initiated the 
multi-stakeholder process to address other issues that may be 
arising in cyber, but doing it in a way where we are bringing 
the industry in, and we are the convening force. We are saying, 
Okay, what do you think we need to work on? How do we work on 
it? Let's come to conclusions on it.
    Mr. Womack. Good. I know I am about out of time. I will 
yield back on this round.
    Mr. Crenshaw. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman. Gentlemen, thank you 
for your service. In my district and obviously in the country 
there have been incidents that bring about the need for the 
implementation of positive train control as quickly as 
possible. It is a difficult enough issue for the rail industry 
to meet, in the timeframe that has been given, and the cost 
that are involved, but we are learning of other issues which 
makes this even more difficult. You all play a role with the 
poles that are going to be involved with transmitting this 
information, and while I hear that, you know, they are going to 
be able to get done within the timeframe needed for a hearing 
otherwise, it is sometimes you single one can take three to 
four months. How does this work out where we meet both these 
deadlines? Yes.
    Mr. Pai. Are you asking me?
    Mr. Quigley. Yes.
    Mr. Pai. Well, Congressman, I think it is a critical issue, 
and I think that the FCC's general focus on speeding the 
deployment of wireless infrastructure really hits home, when it 
comes to the positive train control question.
    Recently as the chairman can elaborate, the Wireless 
Telecommunications Bureau issued a public notice involving 
trying to streamline this process to identify what some of the 
roadblocks are, and in a nutshell I am hopeful that in the 
coming weeks and months you will find a much speedier process 
that would allow the industry to deploy in a manner that 
satisfies both the statute and the interests of your 
constituents.
    Mr. Quigley. Both hearing it is taking three to five 
months.
    Mr. Wheeler. Yes, there are two components to PTC. One is 
spectrum and how you have to have the spectrum to be able to do 
that, and we have facilitated the transfer of spectrum, the 
licensing of the spectrum, and I think that you would hear from 
the railroad folks that that has been quite a success.
    On the tens of thousands of poles that have to be put along 
railroad tracks, there is a statutory requirement that we have 
to consult with the Native American tribes on the placement of 
any such poles. It is been true of every cellular tower ever 
put up. That I think was never really factored into the 
thinking on this, but there is a clear statutory requirement.
    I think also that the railroad industry was not mindful of 
that until recently, and in fact went out and put thousands of 
poles in without this kind of approval and then realized oh my 
golly, we have to do it. Everybody has been in a scramble to do 
these things.
    Here's what we have done. So, we have convened two meetings 
thus far with the various tribal groups and the railroads, to 
sit down and develop an expedited batch processing. Frankly 
they just were not structured for the kinds of tens of 
thousands of requests that are coming in. It used to be, okay, 
here is this pole in this area, one at a time kind of thing. 
So, we have got a batch processing structure in place, and so 
what we are trying to do is two things. One, we are trying to 
expedite the process, and two, we are trying to be true to the 
statute that we are mandated to enforce. And it is crucial that 
we have the rapid deployment of PTC, period.
    Mr. Quigley. Well there is another issue, and I appreciate 
your response from both of you, but for communal rails in urban 
areas like mine, like Metra, there is an additional issue of 
the extraordinarily high cost associated with the purchase of 
broad spectrum that has going to have to take place there. Is 
there something you are considering that will help along these 
lines to assist these rail industries across the country, the 
industries like Metra?
    Mr. Wheeler. So, my understanding is that a group of these 
freight railroads got together and acquired spectrum, and that 
that spectrum is now being shared with metro and others, and 
that we have been working to facilitate the necessary license 
transfers, et cetera. If there is another situation and we are 
not aware, I would be happy to get on top of it.
    Mr. Quigley. We will get back to you on that.
    Mr. Wheeler. Great.
    Mr. Quigley. Thank you both for your answers.
    Mr. Crenshaw. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman. Gentlemen, thank you 
for being here, and just listening to the discussion today. I 
can only imagine how difficult it is, the broadness of the 
issues from railroads to cellular communications and spectrum.
    Mr. Chairman, quickly about a proposed, I guess, rule that 
has going to be changed here or I guess taking effect at the 
end of March, dealing with JSAs. I know the intent of the 
commission is to provide more diversity to be in the 
marketplace, and there seems to be a lot of disagreement that 
that might not be the desired outcome, and in fact it might 
have an adverse effect on diversity in the marketplace. Do you 
sense that this rule change will provide more minority 
ownership of stations and broadcasting, or less minority 
ownership?
    Mr. Wheeler. More. Let me give you a couple of statistics. 
In 2006, there were 19 African American TV stations in this 
country; today there are four. During that period, there was an 
explosion, a tripling of the number of these JSA waivers, and 
let's just make sure that we define what is going on here and 
what happens in a JSA waiver. The commission approves a waiver 
from its rule that says there can be only one owner per 
television station per market.
    What has happened is, as there has been this explosion in 
JSAs, it has enabled the companies that are the base companies 
for that, that have the agreement with other stations, to buy 
stations at a price that frankly is higher than would be 
otherwise available for an independent entrepreneur to come in 
and buy it, because they have these economies of scale. And so 
the issue about JSAs is that JSAs are a way around the 
commission's longstanding rules, and that they have been done 
in an off-the-record, nontransparent manner over the years.
    What we are going to be proposing at the end of the month 
is that it be made transparent, that you need to establish why 
it is that this JSA is in the public interest, and that we 
believe that one of the results, this is not the main purpose, 
but one of the results will be an opening up of broadcast 
licensees for minorities, women, small entrepreneurs, because 
they are currently being sucked off the market. This is one 
place that is not part of the 90 percent.
    Mr. Graves. Just for clarification for record, you said in 
2006, there were 19 minority owned JSA.
    Mr. Wheeler. Television broadcasters.
    Mr. Graves. And today?
    Mr. Wheeler. Four.
    Mr. Graves. Four.
    Mr. Wheeler. And three of those four are existing under 
JSAs.
    Mr. Graves. And if I could get Commissioner Pai's thoughts 
on that. Do you agree? Will it provide more or less minority 
ownership of broadcasting?
    Mr. Pai. This proposal, if adopted, will result in less 
minority and female ownership of broadcast properties. Anecdote 
and then data: the general manager of WLOO, Pervis Parker, in 
Jackson, Mississippi, sat on my chair in my office and told me 
point blank that without the cost efficiencies in the JSA that 
he is involved in with WDBD allows him, he would have to hire 
his own sales staff. He would have to stop gathering as much 
news, and long term he worried that the entire station would 
have to go under. WLOO simply does not have the cost structure 
that allows them to employ their own sales force, and if you 
think about it, any business, especially one in the 
broadcasting industry has certain fixed costs. It cannot avoid 
those costs.
    If the JSA allows a small entrepreneur like Mr. Parker to 
spread some of those costs among other parties while still 
retaining the independence of his own news and entertainment 
operation, that is a good thing. That helps minority 
entrepreneurs across the board.
    With respect to data, Mr. Parker is not alone. Forty-three 
percent of broadcast television stations owned by women operate 
under JSAs. As my colleague has pointed out, 75 percent of 
African American owned broadcast television stations operate 
under JSAs. To me it strains credulity to suggest that you 
could take away those efficiencies, predominantly in smaller 
and medium sized markets where you are not getting the huge 
revenues that you might get in a New York or a Los Angeles, and 
it is the hope to have diversity embodied in this industry. It 
is simply not going to happen given the current economic 
environment.
    Mr. Graves. Mr. Chairman, if I could ask one follow-up 
here, because there is disagreement between you two on this, 
and I know the rule is taking effect at the end of the month. I 
mean is this something that the commission has had an 
opportunity to vote on and have an open dialogue and debate 
over?
    Mr. Wheeler. We are voting on it at the end of the month.
    Mr. Graves. It is taking place when?
    Mr. Wheeler. End of the month, 31st, the vote takes place.
    Mr. Graves. Yeah, okay, and the rule takes effect?
    Mr. Wheeler. Well, there are two parts to it. One is a rule 
that will then follow and the other is a notice for proposed 
rulemaking, which will solicit comments.
    Mr. Graves. I see, I see.
    Mr. Wheeler. I need to be clear. There is a danger. If we 
are going to talk anecdotes, we can talk anecdotes, because the 
difficulty is that the bad practices often hide behind the 
skirts of good people. The reality that we are facing here is 
the JSAs are being used to circumvent the commission's rules. 
And if we are going to name anecdotes, let's talk about the 
anecdote where one broadcaster buys a station, realizes that it 
is in either a conflict situation because they can not have it, 
gives it to his mother, and then agrees to operate it, and 
takes all of the cash from it. And then buys another station, 
gives it to his former financial manager, and takes all the 
revenue from that.
    We have a situation where public company broadcasters are 
saying to the SEC, ``we have control of these stations,'' and 
saying to the FCC, ``Oh no, that is a different company.'' What 
we are trying to accomplish here is transparency, openness, a 
common set of rules, and indeed a waiver process that will make 
sure that the examples that Ajit gave get taken care of, while 
at the same time we are being faithful to our rules and our 
process.
    Mr. Crenshaw. We will have time to come back to this. Each 
of you all got one anecdote.
    Mr. Wheeler. I have got more.
    Mr. Crenshaw. I mean Mr. Wheeler's was more complicated, 
but let me call on Mr. Amodei.
    Mr. Amodei. Thank you, Mr. Chairman. I know we think that 
being here today, I do not expect to come out of our five 
minutes speed dating process, here in the next few minutes. So, 
but I expect to follow-up off the record with you.
    Anyhow I represent an area that has largely rural. It used 
to be the whole state of Nevada minus Las Vegas, now it is 
about half of what it used to be. I have got to tell you, my 
rural folks whether they are broadcasters or carriers are 
scared to death. They are scared to death because they do not 
think that while we are talking about things for the majority 
of the population that we should, that there is a lot of 
protection for folks who are still over the air folks in those 
rural areas in a backup context, in terms of how that has going 
to be handled, and even the carriers in terms of the cell 
carriers in those same areas. When you talk about getting rid 
of spectrum in that area, all well and good, but do we have 
some sort of safety net for them?
    I want to highlight that for both of you in terms of, you 
know, what is going on with the rural. Just off the top of your 
head, does the FCC have an office or something that is kind of 
focused on rural service in both of these contexts, that we 
could use as a point of contact, or is it something where the 
same folks are trying to handle things all across the board? 
Whether it is packaging for broadcast, sale of spectrum for 
purposes of communications, how do you handle that internally?
    Mr. Crenshaw. You want to do it?
    Mr. Pai. Sure, listen, there is no particular office that 
is focused on rural issues, but I can tell you that a lot of 
people, myself included, are. I come from a rural area myself 
and I have visited everywhere from my hometown to small towns 
of 60 and less.
    Mr. Amodei. Well, with all due respect, Kansas is a pretty 
big state compared to Nevada, but go ahead.
    Mr. Pai. That is right.
    Mr. Amodei. They made a movie about somebody there, 
Dorothy, and her dog.
    Mr. Pai. Right, 75 years ago this year. But I think rural 
issues pop up in all sorts of different contexts, and so in the 
wireless context for example, one of the things I have been 
focusing on is trying to make more infrastructure available in 
rural areas, where you might not necessarily see a business 
case for doing so. On the wireline side, I have tried to focus 
on getting the U.S. to assume more standalone support for 
broadband, so that some of these rural companies can deploy.
    Mr. Amodei. We will be back in touch with you specifically 
just to get an update on that, so we can get into a little more 
specifics, and I appreciate that. Also, there is an issue in 
terms of, and once again, it has to do with billing for 
communications carriers in terms of, hey, you want to make sure 
the folks from big places like Kansas are not getting their 
service in Nevada because they can get a better deal, and I get 
that. I do also have a concern that it appears, and I hope I am 
wrong, it appears that that is being done kind of without any 
regard for what the state public utilities commission processes 
are and stuff like that to where it is like; I do not know 
whether I want to say that has a major charm school faux pas or 
whatever. Is there anything that prohibits the FCC from saying, 
This is where you need to end up, but you can go through these 
processes so they at least feel like they have had the benefit 
of their communications public utilities regulation processes 
at the state level before you get there?
    Mr. Wheeler. Yeah, and we actually have joint boards that 
work with the National Association of Regulatory Utility 
Commissioners in identifying issues that need to be addressed, 
and how do you address them together, and who does what.
    Mr. Amodei. So that has something we can follow up with?
    Mr. Wheeler. Absolutely.
    [The information follows:]

    Mr. Wheeler. The Commission has always recognized that 
universal service is a joint federal-state partnership, and has 
recommended various issues to the Federal-State Joint Board on 
Universal Service over the years. The Federal-State Joint Board 
on Universal Service was established in March 1996, to make 
recommendations to implement the universal service provisions 
of the 1996 Telecommunications Act. The Joint Board is 
comprised of FCC Commissioners, State Utility Commissioners, 
and a consumer advocate representative. State members are 
nominated by the state commission or the governor, and 
appointed by the FCC. There is also a Federal-State Joint Board 
on Jurisdictional Separations and a Federal-State Joint 
Conference on Advanced Telecommunications Services, with 
different responsibilities. The National Association of 
Regulatory Utility Commissioners (NARUC) is the national 
association representing the State Public Service Commissioners 
who regulate utility services, including telecommunications. 
The Commission regularly solicits input from the states on 
rural and universal service issues, in particular through 
NARUC, and Commission staff interact regularly with our state 
colleagues.

    Mr. Amodei. They will be some ongoing discussion on how 
that works.
    Mr. Pai. Yes, if I could add a quick comment to that, so 
this rate floor issue that you are discussing was adopted in 
2011, before the chairman and I got to the FCC.
    Mr. Amodei. A lot of stuff that Congress did before I got 
here. I can appreciate that.
    Mr. Pai. I have spoken out against it because in some areas 
it will increase the rates that rural Americans pay by up to 46 
percent, without saving a single dollar for the universal 
service fund. So, I hope that we reevaluate that policy.
    Mr. Wheeler. So let me just be clear. I did not realize 
that was the specific issue you wanted to talk about, 
Congressman.
    Mr. Amodei. Probably a poor question, but go ahead.
    Mr. Wheeler. And so as Ajit just said, this is something we 
both inherited that was a unanimous vote of the commission that 
was following through on the statutory instructions from the 
Congress that said, ``there must be reasonable comparability 
between urban and suburban rates, and rural rates. So the 
commission and as I said--by a unanimous vote of the 
commission--developed an algorithm. What that algorithm 
determined was what the commissioner just said, a difference 
where there are subsidies going not to the high cost of 
building, not just to the high cost of building in rural areas, 
but there are subsidies going from urban suburban consumers to 
rural consumers to lower their actual bills.
    The law says that they have to be reasonably comparable. 
The question becomes the implementation. We put this out for 
comment. Comments are due on Monday. I am going to be proposing 
that we do a couple of things. One, we need to be moving the 
effective date on this to provide more time for people to get 
ready; and two, we need to be thinking about how do we phase it 
in, so there is not sticker shock in this. But we have got a 
statutory mandate as to what we are supposed to do. I think our 
challenge is how do we make sure adjustments have a big impact.
    Mr. Amodei. I appreciate that, and I see my time is up. And 
I do not disagree with the purpose at all, and I will yield 
back Mr. Chairman. I would just say that you do not have a 
mandate to ignore state regulatory processes when you 
accomplish the federal mandate into the extent that you can 
accommodate those that would be a nice thing for the federal 
government to endeavor to do in this context.
    Thank you, Mr. Chairman, I yield back.
    Mr. Crenshaw. Thank you. Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman, commissioners, Mr. 
Chairman, thank you for joining us today, a special welcome to 
a fellow Kansan, from God's country out there near Parsons 
where I grew up.
    Mr. Pai. Objectively spoken, sir.
    Mr. Yoder. Yeah, I understand, sure, very good. I 
appreciate that, and certainly as a Jayhawk you want a lot of 
jocks where you want a lot of respect on this side. So, doing 
well so far. Thank you both for coming. Thanks for your work 
and service, as we debate about what our priorities are as a 
country, as we debate our priorities within the FCC budget, 
certainly our job is to help support those programs and things 
that have the greatest amount of support, and we think are 
consistent with our values as a country.
    I know one of the sort of more controversial issues that 
has come up in recent months is related to the multi-market 
study of critical information needs, and I thought for the 
benefit of the committee, you might give us a little bit of 
background on how we got to this point, and certainly we have 
limited agenda in terms of what the FCC can accomplish each 
year. Dollars are scarce and so clearly this got to be a top 
agenda item, and I guess the chairman I guess asked how we got 
to this point what the methodology was, what the theory was? 
What you were aiming at? Why was it eliminated? You both might 
speak to the thoughts on that. Was this a division on the SEC? 
And then going forward, what does the future look like in terms 
of the objectives that were originally attempted to be 
achieved? Are those objectives going to be achieved in a 
different way?
    I think what we all want on either side of the aisle is 
protection of free speech and to ensure that our federal 
government is not in a position where they may be putting 
pressure on our media entities to portray the news in a certain 
way, which we certainly would hope would not be the aim or goal 
of any of our agencies.
    Mr. Wheeler. And we identify entirely with. The act 
requires us to do occasional studies on the critical 
information needs of various segments of the economy. It is 
something that commissions have done, whether they are 
republicans or democrats sitting at the head of it.
    When I came in, I discovered that there had been a decision 
made to move ahead on one of these and that there had been some 
concerns raised about some of the specific questions that seem 
to tend towards asking for news judgments. And I raised 
questions about that. We subsequently heard from the Energy and 
Commerce Committee about it. And I asked that those questions 
be removed from the survey.
    Subsequent to that, Mr. Pai wrote an op-ed piece in the 
Wall Street Journal and this became a cause celeb despite the 
fact that the questions were out. I took the whole thing and 
shut it down, the whole survey. I mean I think it really became 
the dog that did not bark because (a) the questions were taken 
out and then (b) it was shut down. The reason that they were 
taken out is that we have a strong, and I can assure you, I 
have a strong sense of the appropriate role of the federal 
government in news rooms, period.
    Mr. Pai. Period end of answer or period end of sentence? 
Congressman, my position is pretty simple. The government does 
not belong in the newsrooms of America; government-funded 
researchers do not belong in the newsrooms of America asking 
questions such as, What is your news philosophy? Have you ever 
been asked to cover a certain story, but been told by 
management that you should not do so?
    Not only are those questions inappropriate as a matter of 
constitutional principles, they are inappropriate and 
completely irrelevant to our duty under Section 257 to report 
on barriers that entrepreneurs and small businesses face. There 
is no relation whatsoever.
    Moreover, if the goal, as stated by some who supported the 
study, is to increase minority participation in the broadcast 
business. I am chock full of ideas. I was the first one to come 
out over a year and a half ago and support increased foreign 
investment in the broadcast business.
    I have been out front talking about the need for a media 
incubator to allow women and minorities and others the 
opportunity to enter this business. I have been up front in 
saying and I championed a revitalization of our AM radio rules. 
Historically, one part of the communications industry where 
minorities have disproportionately been represented in terms of 
ownership. There are a lot of ways to actually take action on 
this issue without devoting up to a million dollars to a public 
health researcher that apparently has no expertise whatsoever 
in FCC related issues. And so I applaud the chairman for 
stopping the study. I look forward to working with him and my 
other colleagues to focus on what really matters the value 
underlying Section 257, which is to get new entrants into this 
business.
    Mr. Yoder. Well, I appreciate both of your answers and I 
think if this was in the study at one point, certainly there 
was a lack of acknowledgment that it was a problem at the start 
and I applaud chairman and commissioner for both of your 
efforts to move us forward. Obviously, we have to continue to 
be vigilant in this regard because if it was thought of as a 
good idea at one point, it does not mean that someone is not 
going to say well, let's just ask it in a different way or try 
to get to this in a different manner. I think we have to 
continue to be vigilant and I appreciate both of your efforts 
to ensure the FCC's role is one that respects the right of free 
speech in the country, thank you.
    Mr. Crenshaw. Thank you Ms. Herrera Beutler.
    Ms. Herrera Beutler. Thanks Mr. Chairman and thank you both 
for being here. I apologize. I was actually in another 
appropriations subcommittee. I have got a lot of work going on 
these days. Following up on Mr. Amodei brought up and he raised 
about the issue of the urban rate floor.
    Commissioner Wheeler, what I am really interested in is our 
details regarding the data that the commission used to 
determine the urban rate floor, specifically, the data and the 
methodology used. As was said a lot of folks in my area are 
still struggling especially the rural areas. And I want to know 
more specifically how the commission determined this rate 
because a 46 percent increase in their phone bill, in my view 
is not leveling the playing field. I think it is putting an 
unfair pressure on folks who have the least ability to pay.
    And I think, I would say Commissioner Pai, you definitely, 
I think hit the nail on the head in your statement on the URF 
and I would love you to expand on that if there is still 
remaining time.
    Mr. Wheeler. Sure. One, we are statutorily required to do 
it; two, before either one of us arrived, the commission came 
up with an algorithm, which I will be happy to get to you. I 
can not cite it to you. And it produced these results. Seeing 
these results, your response is a legitimate response. I must 
say, we have a statutory responsibility. We had a unanimous 
vote of the commission to use this algorithm; it produced this 
result.
    The question becomes what is the best way to stick with our 
statutory responsibility and to cause as little impact as 
possible? And that was why I am going to be proposing that one, 
we move the date out; and two, that we have a phase-in process. 
So, that it is not bam, a 46 percent sticker shock hit, but you 
move it out over time.
    There are parties, including in the industries, who are 
opposed to that; that has not been my position though. And as 
the chairman of the commission, that is what I intend to 
propose.
    Ms. Herrera Beutler. I understand that if you put data, 
information into an algorithm, it is going to pop out 
something. I guess what I would like to know is the data that 
went into it and I want to know the validity and the quality of 
that data.
    Mr. Wheeler. Like I said I will be happy to get that for 
you.
    Ms. Herrera Beutler. Sounds good.
    [The information follows:]

    Mr. Wheeler. The FCC conducted a survey of the fixed voice 
and broadband service rates offered to consumers in urban 
areas. The FCC is using the survey data to determine the local 
voice rate floor and reasonable comparability benchmarks for 
fixed voice and broadband rates for universal service purposes 
in accordance with the November 2011 USF/ICC Transformation 
Order. The data is available on the FCC's website at: http://
www.fcc.gov/encyclopedia/urban-rate-survey-data. The form and 
content of the Urban Rate Survey for fixed voice services was 
adopted in an Order released in April 2013. That Order 
concluded that the urban rate survey would be conducted from a 
statistically valid sample of fixed terrestrial voice providers 
drawn from 2010 Census urban areas and urban clusters within 
Metropolitan Statistical Areas. The Urban Rate Survey asked for 
voice service rates from a sample of service providers. To 
determine which voice providers to sample, the Wireline 
Competition Bureau (Bureau) relied on data collected via FCC 
Form 477, which is a biannual voice and broadband data 
collection. The Bureau used the U.S. Census Bureau's definition 
of urban to determine what areas were eligible for the survey 
and then defined as the sample pool any fixed terrestrial voice 
service provider that operated in these areas.

    Mr. Pai. I would simply add that we do have a statutory 
responsibility with respect to comparability, but that gives 
the FCC a lot of discretion. And I think if you ask the average 
person, well if people in Washington pay $21 and people in 
Parsons, Kansas, who receive telephone services from a company 
that gets USF support pay $14, do you think it makes sense for 
the people in Parsons to suddenly pay $21? I do not think many 
people would agree that that is very fair and certainly not 
consistent with the overall promise of the statute that 
universal service should mean just that, that everyone has 
access to telecommunications services.
    I do hope we revisit that decision and try to, not just 
focus on the data and the algorithm, but the entire concept of 
what it means for these services to be comparable.
    Mr. Wheeler. You know the joy of being chairman is that you 
get all of these on your desk. The Universal Service Fund 
statutorily exists for the purpose of off-setting high 
construction costs so that rural consumers can have equivalent 
pricing. That is a transfer from urban, suburban consumers to 
rural companies on behalf of rural consumers.
    What this study identified, and your question about the 
inputs is spot on, but what the study identified was that there 
is a transfer from urban and suburban consumers, not just to 
companies to offset their higher costs, but to subsidize rural 
consumers. That is not provided for in the law. And so my 
challenge is being incredibly sensitive to the point you raise 
about the impact on real people, but how do we obey the law and 
mitigate the impact on people. And that has been what I am 
trying to work towards.
    Ms. Herrera Beutler. Thank you.
    Mr. Crenshaw. Thank you. I think we have time for another 
round of questions, if people have more questions. I would like 
to ask one question to start with. We talked about it earlier. 
Chairman Wheeler, you have been involved in the 
telecommunications industry and now you are head of an agency 
that regulates that industry. And sometimes people's 
perspective changes when you go from being regulated to being 
the regulator, so I would like to ask you when you were in the 
private sector, can you give me an example of one or two 
complaints you might have had about the FCC when you were not 
the chairman?
    Mr. Wheeler. Yes, sir, two things. One, I think my 
philosophy in the chair, as chairman, is based upon what I 
learned in business and that is that competition is the root of 
everything. Competition encourages investment, competition 
protects consumers, and competition is the goal that ought to 
be primary.
    The thing that business people hate more than anything else 
is uncertainty. It is not knowing what the rules are. When an 
agency is not decisive in terms of saying, like it or not, here 
are the rules. We are not going to run away from tough 
decisions. People get paid a lot of money to figure out how to 
exist within the rules--just tell me what the rules are.
    My goal has been one, how to be competition driven. How to 
have competition as the goal and two, how to make sure that we 
do not keep competitors in limbo and that means you have to 
make decisions.
    Mr. Crenshaw. Now, the second part of my question is, 
having outlined those criticisms and complaints, how do you 
plan to address those now that you are the chairman?
    Mr. Wheeler. So, I hope that in the first five months of my 
chairmanship, we have demonstrated that we are going to make 
decisions and that we are pro competition and that we believe 
in the regulatory seesaw. And I hope to keep pursuing that kind 
of a path.
    Mr. Crenshaw. Mr. Pai, can you comment on that because you 
mentioned it in your written statement, and you talked about 
the JSA and the controversy there. As I recall there is a new 
rule and I think you mentioned in your testimony that there are 
some things that are statutory requirements that the Commission 
had not done yet. One of the things has to do with ownership, 
which I guess the quadrennial review addresses that I think is 
required, and yet had not been done yet.
    I would like you to comment on that. Maybe first comment on 
what we talked about and what you observe that the Commission 
is doing to address the complaints that the Chairman talked 
about. And then second, touch on your view of new rules versus 
statutorily-required things to do.
    Mr. Pai. Sure. Thanks for the question, Mr. Chairman. I 
agree 100 percent with the chairman that uncertainty is one of 
the things that frustrates businesses most and I certainly 
defer to him in his 29 years. He has accumulated vast expertise 
on the private sector.
    Mr. Wheeler. I was going to say, where is your math?
    Mr. Pai. But speaking for myself, two of the things that I 
have found in my somewhat shorter time in public service are 
number one, beware of industries and companies seeking the 
regulation of rivals. A lot of companies would support a 
particular regulation probably entirely because it would 
disadvantage some of their rivals. We see it in non-FCC related 
context from Uber to Tesla to food trucks in Washington; we see 
it all the time at the FCC. Number two: be restrained about 
regulation of dynamic markets.
    I can tell you when I first got into this industry, 1998 in 
the Department of Justice, the hot issue considered to be the 
burning issue of all time was whether to let local telephone 
companies into the long distance business. A few years later we 
were told in the context of a merger of AOL and Time Warner, 
that if we allowed the merger to be consummated, AOL would have 
a strangle hold on the instant messenger business. A few years 
later we were told that MySpace needed to be scrutinized 
because they would have a dominating foothold in the social 
media industry.
    What I have come to understand through this position is 
that markets change and ideally, regulations would be tailored 
to the marketplace as it is, not as regulators would wish it to 
be or, you know as it might end up being, they think it might 
end up being in a few years. Things go in unexpected 
directions.
    Just before the hearing, the chairman and I were talking 
about the fact that the iPhone, a platform for innovation that 
we now take for granted, did not even exist a few years ago and 
now we see all sorts of applications and services being 
delivered on that platform.
    The lesson I take is that regulators should be modest. 
Certainly they should stay within the constructs of the 
statute, but more importantly, I think they should have a sense 
of restraint because consumers benefit the best when the 
marketplace is left generally unfettered from government 
intervention.
    If there is an anti-competitive actor or particular 
competitive harm, then we have a role to step in and play, but 
otherwise we would do well when we regulate a little bit more 
modestly.
    With respect to your question about media ownership, as I 
pointed out in my testimony, Congress charges us to reevaluate 
our media ownership rules every four years. We still have not 
completed the 2010 quadrennial, long before the chairman and I 
got there. Needless to say, some of these rules have not been 
updated since 1975. They are screaming out for updates. I 
support pro-competitive regulations that reflect the 
marketplace as it is, as opposed to the way it might have been 
in 1975. And I would hope that my colleagues agree with me on 
that score.
    Mr. Crenshaw. Well, thank you for that. And I would hope 
you all would talk about that as a Commission because so often 
agencies pick and choose what they do and do not do and I am 
sure there are probably reasons why things happen slower or 
faster. But this is something to bear in mind as you seek to 
restructure the agency, bring it up to date, do all those kind 
of things. I think that would be something to consider doing. 
Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. You know about the 
study, I understand why some of our colleagues, especially from 
the majority party, would be concerned about an intrusion or a 
lack of freedom of the press and so on. Then there is the other 
side of the story. As an elected official, I know I will never 
get a positive story. That is just not the way it works. You 
read about Benjamin Franklin and all those guys and they never 
got a positive story either.
    As a Latino, I would like to know at times how people 
decide to pick what stories they put forth and why it seems 
that there are so many negative stories and very few positive 
stories about what we do on a daily basis, like any other 
community. You know we are no different than any other 
community.
    I find myself, and this is really going to sound like a 
politician, agreeing with both of you because I do not want 
intrusion. I do not want the government to tell people what 
they must print and what they must put on the air.
    Then I also say as we said, you know growing up in the 
public housing project, give me a break. Why does it always 
have to be so negative? And so, I wonder if you could comment 
in your new-found unity that I found today if there is a middle 
ground where we cannot intrude, where we can get my colleagues 
on the other side not to say that it is a violation of freedom 
of speech or freedom of the press, but at the same time find 
out why some groups are treated in a certain way and some 
groups do not play a role at all in any positive source.
    Mr. Wheeler. So, you wrote the article. Do you want to 
respond?
    Mr. Pai. You are the chairman.
    Mr. Wheeler. Mr. Serrano, I think that the information is 
needed. The question is what is the impact of a survey that 
arrives with a federal eagle on it? So, I would hope that we 
will see academics, we will see foundations, and we will see 
groups such as that conducting these kind of surveys. 
Basically, I think the question you raise is entirely 
appropriate. And I think that Mr. Yoder's question about the 
role of a federal agency in that is legitimate as well.
    Mr. Serrano. We have been agreeing a lot lately.
    Mr. Wheeler. And so here we are, we are all agreeing.
    Mr. Serrano. Yoder and I agreeing a lot lately, which 
worries me to death.
    Mr. Wheeler. But there are solutions and not all solutions 
reside in the federal government.
    Mr. Serrano. Right, right. So, how do we get to protect 
those who do not get a chance to be seen properly?
    Mr. Pai. Congressman, I am certainly sensitive to that 
issue. I can tell you that growing up in a small town in Kansas 
in the late 1970s, early 1980s, it never even occurred to me 
that someone like me could be an FCC commissioner; frankly 
could even be a lawyer. Everyone in my family was a doctor or 
an engineer or something of the sort. I never saw from the 
popular media anything depicting Indian Americans as 
participating in American public life in the way that they are 
now. It is important for us to make sure that the media 
landscape represents all Americans.
    The question is how do you get there? And so my own view is 
that nothing, certainly from the FCC or from the law itself 
prevents anybody from studying these issues, from talking about 
them, from publicizing gaps in coverage or poor coverage as you 
might say. But when it comes to the government, there is a 
special limitation on what we are able to do. It is not just 
what we are permitted to do, but the mere appearance of what we 
might be doing to others raises constitutional concerns. I 
think that with this particular study, you saw a lot of the 
concern being raised.
    I will say I feel like I personally represent both of your 
polls. I was born in New York and raised in Kansas and so I am 
quite confident we can come together on this as well as many 
other issues.
    Mr. Serrano. He is a New Yorker. Let me, can I just ask one 
more question?
    Mr. Pai. Certainly.
    Mr. Serrano. Let me ask one more question and I do hope 
that we reach a middle ground because we need to have that 
information. The last point on that would be yes, government 
should not intrude, but in this area it is different because 
those airwaves do not belong to the government, they belong to 
the people and everybody knowing that. If you are lucky enough 
to get an air wave to transmit, I think you have a 
responsibility to be fair to all the people that you are 
reaching, or ignoring, or whatever. Let me just talk to you 
very quickly about the JSAs.
    Your claim that JSAs support minority, Commissioner Pai, 
support minority ownership is undermined by the fact that 
nearly every minority media group, including the Minority Media 
and Telecommunications Council, National Association of Black 
Journalists, and the National Hispanic Media Coalition, and 
public interest groups decry, these arrangements as harmful to 
promoting a diversity of voices. They claim JSAs and the 
consolidation they allowed denied them ownership opportunities 
and resulted in the loss of jobs. How do you explain this 
difference of opinion between those advocacy groups who do this 
job on a daily basis and you?
    Mr. Pai. Mr. Serrano, I work well with many of those 
advocacy groups on a regular basis, but all I can tell you is 
what the facts on the ground are. In my home state of Kansas, 
for example, a JSA between two Wichita stations allows 
Entravision, a Univision affiliate, to provide the only Spanish 
language news in the entire state of Kansas. Without the JSA 
they have told me point blank that news goes away.
    Mr. Wheeler. We need one clarification, just to be clear 
here. There is nothing in what we are doing that would make 
that go away.
    Mr. Pai. We hope. Wall Street has spoken. You have seen the 
tanking of broadcasting stocks in recent weeks in anticipation.
    Mr. Wheeler. That is a whole different issue. Are we 
talking about encouraging minority voices or protecting Wall 
Street barons?
    Mr. Pai. Well, never having spent any time in the industry, 
I certainly do not shill for them. But the point is access to 
capital is the lifeblood of a lot of these broadcasters. If 
they do not have the capital, they either cut back on what they 
are doing or they go dark altogether. A lot of broadcasting 
companies across the country have told me that these have been 
pro-competitive arrangements that have allowed them to do 
things that otherwise they cannot do.
    Similarly across the border in Joplin, Missouri, a JSA 
between Nexstar and Mission Broadcasting has allowed those 
stations to save $3.5 million in costs. They have poured some 
of those costs into better news programming and they have 
poured some of it into Doppler radar.
    When the tornado hit Joplin, Missouri in 2011, I would 
vouch that a number of lives were saved precisely because they 
had those cost savings. My point is, not necessarily that I 
think the chairman is acting in bad faith, I would never 
obviously believe that. What I do think is that if his concern 
is correct that you have a bucket of apples and there are a few 
bad ones in there, let's pluck out the bad apples. Let's not 
throw the entire bucket away saying this is an anti-competitive 
arrangement that was meant to circumvent the FCC's rules. I 
certainly would never advocate that.
    Mr. Wheeler. The reality is we are trying to deal with a 
situation where, and as I have said before, there are people 
hiding behind the skirts of good people. There is no way, 
shape, or form that the kinds of positive things that you have 
been talking about here will not be allowed under the process 
going forward. But the decision has to be made in public, on 
the record transparently with a known set of rules because what 
used to happen, is that broadcast attorneys would go and meet 
with the media bureau of the FCC, they would sit there and say, 
Okay, now what do we have to do to get this through?
    What we have done is say, We want this to be out in the 
open and we want there to be a known set of rules. And that 
when there are these situations, which I stipulate to, we want 
those to continue as well. We do not want the people that are 
doing a good job getting the Spanish language into Kansas to be 
the excuse why others have an opportunity to flaunt the rules 
established by the commission on the basis of the instructions 
from the Congress.
    Mr. Crenshaw. We will give you the last word. I sound like 
I am on television, last word.
    Mr. Pai. A quick word. So, I think it is all too easy to 
say that the waiver process the FCC is about to adopt will 
allow the good ones through and keep the bad ones out. But 
point number one, this goes to certainty. How is any 
broadcaster, who is not involved in a JSA, supposed to know in 
advance whether or not the FCC is going to approve one or not.
    Mr. Wheeler. They did not before.
    Mr. Pai. Now they will not know until, except on a case-by-
case basis.
    Mr. Wheeler. They did not before until they sat down and 
started dealing with the same kind of situation.
    Mr. Crenshaw. He is going to wrap it up, Mr. Chairman.
    Mr. Serrano. Just when I had them getting along.
    Mr. Pai. No, number two, I do not think that the fortunes 
of broadcasters that are involved in a JSA should depend on a 
temporary femoral majority of politically appointed FCC 
commissioners. It should be based on the facts on the ground. 
And if the facts on the ground identify particular bad apples, 
let's address those problems discreetly without changing the 
overall rule structure and then setting up an inchoate waiver 
process where people have to come in individually and hope that 
they can get relief from the FCC.
    Mr. Crenshaw. Thank you.
    Mr. Wheeler. I will follow your instruction.
    Mr. Crenshaw. Unless Mr. Graves wants to ask you all to 
keep going. I am just going to ask Mr. Graves to ask a 
question.
    Mr. Graves. Well, the topic left with me last time and I 
want to point out what I appreciate here and that there is a 
debate, there is a dialogue, and it is very respectful, and 
there is two different opinions. I think coming into this 
meeting today, there was the understanding that this was going 
to be a rule that takes place without a lot of open discussion 
or debate or without potentially even a vote from the 
commission. Maybe there is some confusion in the industry. 
There is a lot of uncertainty. You have had some anecdotes in 
which individuals say they would lose potentially their station 
or the ability to connect with those whom they are trying to 
share their information with. I haven't heard you provide an 
anecdote in which it would advocate, or advance, or give 
additional licenses or broadcasting in areas with minority 
ownership either.
    I think there are different opinions and I hope that the 
process that moves forward continues an open and robust and 
maybe slow down the process a little bit to make sure that all 
voices are heard because there is clearly some division here in 
what the outcome is.
    Mr. Wheeler. Thank you, Mr. Graves.
    Mr. Graves. Chairman, I hope you will take that into 
consideration. One thought that was on my mind and I would like 
both of your opinion on this because in my district I have 
heard a lot about it. And it was a few weeks ago that it was 
announced that the U.S. would relinquish control of the 
Internet. It is something that I think we see as a space where 
a lot of enterprise takes place. There is a lot of freedom of 
expression. We talk about freedom of speech.
    Then you have the United Nation's Secretary General 
praising this decision from the administration and I guess it 
is the Department of Commerce and not, I guess moving forward 
with signing a contract in 2015. Is this something that each of 
you support? Is this the right direction moving forward for the 
department? I know it is not your agency or department, but 
there is an overlap of some sort and I think you have already 
made some comments on the record previously. So, commissioner I 
know you have probably spoken, Mr. Chairman?
    Mr. Pai. Sure. I think that as I said in my statement that 
the multi-stakeholder model of Internet governance has worked 
tremendously well over the past several years. Whenever there 
are changes to that model, we are going to suggest that there 
could be risks. I think it is critical as we move forward that 
there is rigorous scrutiny from this body, as well as many 
others, to make sure that that model preserves. Whatever the 
next model is going to be, if there is one, it preserves the 
Internet freedom we have come to enjoy. And that comes into 
particularly sharp relief when you consider some of the things 
going on around the world, from Turkey banning Twitter, to 
Russia blocking particular websites.
    A recent Pew study suggesting that overwhelming majorities 
of people, not governments, but people in developing countries 
want there to be a free Internet. I think it is critical for 
the United States to make sure that the multi-stakeholder 
model, which has yielded so many benefits, continues into the 
future.
    Mr. Graves. Thank you.
    Mr. Wheeler. I think we agree on the importance of the 
multi-stakeholder model. I think we also both agree that we are 
grateful that this is not on our plate. We have enough things 
that we can wrestle with, but you know it is interesting that 
this was used by other countries of the world, as an example of 
American control over the Internet and therefore why they had 
to restrict Internet freedoms in their country.
    These two responses are indicative of the decisions that 
you all have to make every day, that we have to make, that 
here, Commissioner Pai is saying it hurts Internet freedom, if 
you do this. On the other hand, countries at WCIT in Dubai and 
other International events, like the one coming up this next 
month in Rio are arguing that America's role in this, in ICANN 
is the basis for why they themselves can not trust the Internet 
and have to get in and do it themselves. That is the challenge 
that we all face.
    In a dynamic situation like the Internet, as Commissioner 
Pai said, the multi-stakeholder process has proven itself to be 
far smarter than people like us. My understanding is that this 
is allowing the multi-stakeholder process to work.
    Mr. Graves. Well, my hope would be that this decision that 
has being made by the department does not lead to less freedom 
on the Internet for our citizens whatsoever and I suspect that 
is your same feelings as well.
    Looking long term, you talk about multi-state stakeholders, 
the United Nations is certainly very supportive of this, which 
causes concern as you can imagine with some. Do you sense that 
this will diminish the freedom of American's access to the 
Internet, and sites on the Internet, or use of the Internet?
    Mr. Wheeler. I have a hard time jumping to that conclusion, 
sir.
    Mr. Graves. But you can not rule it out.
    Mr. Wheeler. I do not see the connection points. How this 
would affect American's access to the Internet. In fact, I 
think as I said, what it does is it opens the door for removing 
an argument to deny others in the world access to the Internet. 
I agree with you that the Internet is an incredibly powerful 
force that must remain open on this side of the Atlantic, and 
Pacific, and other sites as well.
    Mr. Pai. I certainly hope that this does not portend 
diminishing of Internet freedom for Americans or frankly for 
anyone around the world. It is an unprecedented platform for 
innovation and democratization and it would be a tremendous 
shame for everybody if that went away, thank you.
    Mr. Crenshaw. Thank you. Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman. On that note the idea 
that the Internet has been such an inspiration for creativity 
and innovation in the country and the opportunities it is given 
for communication and entrepreneurship has been unprecedented. 
I guess I would like to know in that vein, does the Internet 
need FCC regulation? In light of the United States Court of 
Appeals decision tossing out the FCC's Net Neutrality rules, 
does the FCC tend to go around the Court of Appeals in some 
manner or is it going to abandon this effort going forward?
    What does the future look like under this agreed to premise 
that it seems like everybody is on the same table here that we 
want to keep the Internet free and open. Is it free and open 
because of FCC regulation or in spite of it? What does the 
future look like as the FCC attempts to expand its role in this 
area because it gives great concern to many of us that once the 
FCC gets engaged in this effort, then it begins to have impacts 
on what is already such a great opportunity for freedom and 
creativity. Why do we need the FCC in this world? And what does 
the future look like once it gets in it?
    Mr. Wheeler. An open Internet is essential to an open 
economy, to an open government, to the things that we have all 
been talking about here. I am a big history buff. I think that 
you start looking at today and tomorrow by looking at 
yesterday. The history of networks has been how do you use 
networks to shut things down? The way AT&T was built was on the 
basis of Theodore Vail saying to independent telephone 
companies, Hey, I have got these long lines here, and unless 
you sell out to me, you are not going to be able to get on.
    The Internet is not a thing. The Internet is a connection 
of other networks, of multiple networks and we need to make 
sure that those kind of connections continue to exist and that 
there is openness in the ability to use the Internet.
    I would say one thing, Mr. Yoder, the court was very 
explicit in saying that the FCC had jurisdiction over the 
operation of the Internet based on Section 706. I am sorry, 
based on the openness of the Internet. We are not trying to get 
into the operation of the Internet. I want to be real clear 
about that, but on the openness of the Internet based on 
Section 706. What I have announced that I will propose is that 
we go back and follow the court's direction on how that should 
be achieved. The court clearly laid out in its opinion how that 
could be done and we intend to follow that.
    The interesting thing is that immediately after the court 
decision--which threw out two of the three specific rules, but 
said you have authority to fix the rules this way or that--
immediately after that I got calls from the CEOs of the major 
Internet service providers, all the household names that we all 
talk about, telephone companies, cable companies saying, ``do 
not worry, we intend to stick with the rules, even though the 
rules are not in place.''
    The question then becomes one that demonstrates that they 
are not burdensome, but at the same point in time, you need to 
go back to this issue of certainty because well, I have got a 
voluntary agreement by four guys over here, but nobody else 
over there really has to stick with that. And so how do you 
come up with certainty that obeys what the court has said and 
puts forward a structure that the carriers themselves have said 
they can live with that keeps the Internet open--and that is 
what we are going to do.
    Mr. Pai. Congressman, everyone believes in an open Internet 
and so the four freedoms that then Chairman Powell endorsed 
over a decade ago, freedom of consumers to choose content that 
they wish to view that was lawful, the freedom to use devices 
of their choice as long as it did not harm the network, the 
freedom to know what some of these practices were in terms of 
network management, et cetera. All of these principles existed 
and were vindicated prior to the adoption of any so-called net 
neutrality or open Internet rules.
    The Internet was open before the FCC took action in this 
area and I would dare say that assuming the FCC prioritizes 
what it should prioritize, which is removing barriers to 
infrastructure investment, that will continue to be the case 
tomorrow.
    My own view is the net neutrality debate has been a 
solution in search of a problem. And so I think it is also a 
distraction from what I think is the higher priority, which is 
removing barriers. I would also add tying it back to the 
discussion we just had on international Internet governance, it 
is increasingly difficult for us to say on an international 
stage that governments should not have a role in regulating the 
Internet, whether it is operations or openness or what have 
you. When at home there are strident voices saying that we 
should classify all broadband Internet access as essentially a 
utility, like the electric company or like the railroads. That 
would deter an investment that would increase government 
regulation, and that would increase the difficulty of some of 
these multi-billion dollar investment decisions that companies 
have to make.
    In short, it would increase uncertainty to the detriment of 
consumers. And so I hope that whatever the course the FCC 
decides to chart in years to come, it is mindful of the fact 
that businesses have to invest based on a regulatory 
environment that is certain and the direction that the debate 
could go is one that would not lend itself to that.
    Mr. Crenshaw. Well, before we wrap things up, Mr. Serrano 
has a brief comment.
    Mr. Serrano. Thank you, Mr. Chairman. I have a TV watcher's 
question which is on the minds of most Americans, but no one 
gets a chance to ask like I do. ME-TV, COZI TV, Antenna TV, 
they were the results of what action taken by the FCC? Was that 
the transition to digital? Was that the spectrum or all of the 
above? Or how do those channels show up?
    Mr. Wheeler. Well, those are digital channels that are 
existing on cable networks and other distribution facilities 
such as the Internet.
    Mr. Serrano. But they are owned by?
    Mr. Wheeler. Well, ME, I guess, is owned by Fox, and that 
is a digital television transition.
    Mr. Serrano. COZI, I think, is owned by NBC. Because in New 
York, for instance, at 7:00, they go to the NBC news, then they 
switch back to their own programming.
    Mr. Wheeler. Kind of Like MSNBC does.
    Mr. Serrano. Just one last point: why are some channels 4.1 
or 4.2 or something like that?
    Mr. Wheeler. That is what the digital television transition 
did, where you have channel 4 and then you have other channels 
that now can fit inside that spectrum.
    Mr. Serrano. Okay. And that's what this is?
    Mr. Wheeler. On some of them. I can't generalize, 
Congressman, for all of them.
    [The information follows:]

    Mr. Wheeler. Antenna TV, COZI TV and ME-TV are digital 
multicast networks which became available after the digital 
television transition. Local television stations air these 
networks as a digital multicast channels, usually on a .2 or .3 
channel depending on the city and the station. In addition to 
being available over-the-air, most major cable companies carry 
local affiliate feeds of these channels. Launched in 2011, 
Antenna TV is owned and operated by Tribune Broadcasting and 
originates from facilities at WGN-TV in Chicago. COZI TV is 
owned by NBC. ME-TV stands for Memorable Entertainment 
Television and is owned by Weigel Broadcasting and distributed 
by Metro-Goldwyn-Mayer.

    Mr. Crenshaw. I think if he pulls out his TV Guide, you 
will probably figure it out. You do not get the TV Guide? Do 
they still make that?
    Mr. Serrano. It is an app now. There is an app for 
everything. It is something that pops up. I watch--and people 
have asked, Where are those channels coming from?
    Mr. Pai. Congressman, as the father of two children under 
three I am not familiar with television since, say, August of 
2011. I am not quite sure of the answer to some of your 
questions.
    Mr. Serrano. Thank you so much.
    Mr. Crenshaw. Well, let me just thank you both for being 
here today and for your candid testimony. I think you each 
bring a great perspective that helps us. And remember: we have 
a role to play. We are not using taxpayer dollars, but we are 
using money that is ultimately extracted from consumers.
    When we talk about regulation, we start out talking about 
that seesaw, and generally speaking when agencies say, I want 
more money, that means they are going to do more regulation. 
That does not necessarily have to be true, but I think smart 
regulation and reasonable regulation is necessary. As you work 
on that seesaw, keep in mind that it tilts both ways. We have 
talked so much about creativity and innovation, the competition 
that drives so many things that you all see. We would hope that 
you keep that in mind as you make the rules that impact so many 
people.
    So thank you again for being here. This meeting is 
adjourned.

[GRAPHIC] [TIFF OMITTED] T8192A.021

[GRAPHIC] [TIFF OMITTED] T8192A.022

[GRAPHIC] [TIFF OMITTED] T8192A.023

[GRAPHIC] [TIFF OMITTED] T8192A.024

[GRAPHIC] [TIFF OMITTED] T8192A.025

[GRAPHIC] [TIFF OMITTED] T8192A.026

[GRAPHIC] [TIFF OMITTED] T8192A.027

[GRAPHIC] [TIFF OMITTED] T8192A.028

[GRAPHIC] [TIFF OMITTED] T8192A.029

[GRAPHIC] [TIFF OMITTED] T8192A.030

[GRAPHIC] [TIFF OMITTED] T8192A.031

[GRAPHIC] [TIFF OMITTED] T8192A.032

[GRAPHIC] [TIFF OMITTED] T8192A.033

[GRAPHIC] [TIFF OMITTED] T8192A.034

[GRAPHIC] [TIFF OMITTED] T8192A.035

[GRAPHIC] [TIFF OMITTED] T8192A.036

[GRAPHIC] [TIFF OMITTED] T8192A.037

[GRAPHIC] [TIFF OMITTED] T8192A.038

[GRAPHIC] [TIFF OMITTED] T8192A.039

[GRAPHIC] [TIFF OMITTED] T8192A.040

[GRAPHIC] [TIFF OMITTED] T8192A.041

[GRAPHIC] [TIFF OMITTED] T8192A.042

[GRAPHIC] [TIFF OMITTED] T8192A.043

[GRAPHIC] [TIFF OMITTED] T8192A.044

[GRAPHIC] [TIFF OMITTED] T8192A.045

[GRAPHIC] [TIFF OMITTED] T8192A.046

[GRAPHIC] [TIFF OMITTED] T8192A.047

[GRAPHIC] [TIFF OMITTED] T8192A.048

[GRAPHIC] [TIFF OMITTED] T8192A.049

[GRAPHIC] [TIFF OMITTED] T8192A.050

[GRAPHIC] [TIFF OMITTED] T8192A.051

[GRAPHIC] [TIFF OMITTED] T8192A.052

[GRAPHIC] [TIFF OMITTED] T8192A.053

[GRAPHIC] [TIFF OMITTED] T8192A.054

[GRAPHIC] [TIFF OMITTED] T8192A.055

[GRAPHIC] [TIFF OMITTED] T8192A.056

[GRAPHIC] [TIFF OMITTED] T8192A.057

[GRAPHIC] [TIFF OMITTED] T8192A.058

[GRAPHIC] [TIFF OMITTED] T8192A.059

[GRAPHIC] [TIFF OMITTED] T8192A.060

[GRAPHIC] [TIFF OMITTED] T8192A.061

[GRAPHIC] [TIFF OMITTED] T8192A.062

[GRAPHIC] [TIFF OMITTED] T8192A.063

[GRAPHIC] [TIFF OMITTED] T8192A.064

[GRAPHIC] [TIFF OMITTED] T8192A.065

[GRAPHIC] [TIFF OMITTED] T8192A.066

[GRAPHIC] [TIFF OMITTED] T8192A.067

[GRAPHIC] [TIFF OMITTED] T8192A.068

[GRAPHIC] [TIFF OMITTED] T8192A.069

[GRAPHIC] [TIFF OMITTED] T8192A.070

[GRAPHIC] [TIFF OMITTED] T8192A.071

[GRAPHIC] [TIFF OMITTED] T8192A.072

[GRAPHIC] [TIFF OMITTED] T8192A.073

[GRAPHIC] [TIFF OMITTED] T8192A.074

[GRAPHIC] [TIFF OMITTED] T8192A.075

[GRAPHIC] [TIFF OMITTED] T8192A.076

                                            Tuesday, April 1, 2014.

                   SECURITIES AND EXCHANGE COMMISSION

                                WITNESS

MARY JO WHITE, CHAIR, U.S. SECURITIES AND EXCHANGE COMMISSION
    Mr. Crenshaw. The hearing will come to order.
    I want to welcome our witness, SEC Chair Mary Jo White. 
Thank you for being here today to testify before our 
subcommittee.
    The Securities and Exchange Commission has a uniquely 
important job of maintaining fair and efficient securities 
markets, encouraging capital formation, and protecting 
investors. This is not an easy task, but it is a critical part 
of keeping our economy thriving.
    For fiscal year 2015, the SEC is asking for a $350 million, 
or 26 percent, increase over last year's funding level. This is 
an especially large increase for any agency, and while the SEC 
is funded by fees, I believe congressional oversight over your 
budget is an important check on the Commission's activities.
    What we want from the SEC is a securities regulator who is 
both capable and economical. It is easy to argue that money 
will solve all the problems in the world, but we expect to see 
results before appropriating additional dollars.
    Last year, the House included bill language fully funding 
the Office of Economic and Risk Analysis. I am anxious to hear 
about how you are using that funding to hire more economists in 
order to increase the cost-benefit analysis performed during 
the SEC rulemaking process.
    In addition, I am interested to hear your thoughts on the 
municipal advisory rule, which the SEC released early this 
year. I am concerned that it might be regulatory overreach in 
an area that could benefit from more competition and not less.
    American investors and all those who use the U.S. Security 
markets deserve to know that there is a cop on the beat who is 
protecting our markets. The Commission has had embarrassing and 
damaging inspections and enforcement lapses in the past, such 
as the failure to catch the Madoff and Stanford Ponzi schemes, 
as well as lapses in management, best practices, and due 
diligence, such as the Constitution Center lease debacle, the 
improper destruction of documents, and material weaknesses in 
the Commission's financial statements. With the increases that 
Congress has given the SEC over the past decade, there can be 
no more excuses.
    Chair White, your fiscal year 2015 budget request asks for 
increases in almost every office and division across the SEC, 
including an overall request of 467 new FTEs. We have heard the 
claim that the SEC needs increased staffing and funding to get 
through the Dodd-Frank mandated rulemakings; however, the 
staffing and funding levels at the SEC cannot exponentially 
increase forever. This is not an efficient use of your funds, 
nor will it protect American investors. I am eager to hear how 
the SEC plans to judiciously use its funding in key areas in 
order to best leverage its expertise and capabilities to 
protect our capital markets and investors and facilitate the 
overall growth of capital.
    So thank you again for being here today. I look forward to 
your testimony.
    And now I would like to recognize Ranking Member Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. I join you in also 
welcoming Chair White back before the subcommittee to testify 
on the fiscal year 2015 budget request for the Securities and 
Exchange Commission.
    Last year when we spoke, Chair White, you were just 
settling into your new position. Now, with almost a year of 
service in this new position, I have been heartened by what I 
have seen in many areas.
    I appreciate that, as a former prosecutor, you have taken a 
tough line on wrongdoers by moving to require more admissions 
of guilt in settlements. You have also made Dodd-Frank 
implementation an ongoing priority and have moved the ball 
forward on some of the law's most important and complicated 
provisions.
    All that said, you cannot continue to protect investors and 
to make sure that our financial system is secure without 
sufficient resources. For all the important compromises that 
were reached in last December's appropriations bill, I think we 
did fall short of the mark in providing the necessary funding 
for the SEC.
    I am concerned about the impact this funding level is 
having on the Commission currently, and I believe that more 
needs to be done in fiscal year 2015, which brings us to your 
request today.
    Your request of $1.7 billion in fiscal year 2015 allows the 
SEC to keep pace with the growing markets you oversee, the 
increasingly complex transactions that take place, and the 
expanded role you play in the wake of the financial crisis. 
Without a significant increase from the fiscal year 2014 
funding level for the SEC, we are sending a signal that market 
actors should not expect consequences for risky, unethical, and 
illegal behavior. And I think that should be extremely 
troubling for all of us.
    At this point, we all know the consequences of an SEC that 
is underfunded and unable, or unwilling in past 
administrations, to oversee Federal securities laws. Our 
markets suffer, our investors suffer, our taxpayers suffer, 
and, ultimately, our Nation suffers. We need a strong cop on 
the beat for Wall Street to ensure that we have strong 
protections in place and to deter future misconduct. I take 
your request for additional resources seriously, and I hope my 
colleagues will, as well.
    Chair White, once again, welcome. And I look forward to 
your testimony.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you, Mr. Serrano.
    And now I would like to recognize the ranking member of the 
full committee, Mrs. Lowey.
    Mrs. Lowey. Thank you very much, Mr. Chair. And welcome. I 
would like to certainly thank Chairman Crenshaw, Ranking Member 
Serrano for holding this hearing.
    And it is a delight--welcome, Chair Mary Jo White--for 
testifying before us today. And we thank you for your agreeing 
to serve this great country of ours. We know how important the 
responsibility you have is.
    Madam Chair, you come before us with a budget request for 
fiscal year 2015 of $1.7 billion, which would support the SEC's 
responsibilities as well as the hiring of an additional 639 
employees. These additional positions would help the SEC to 
examine investment advisors, enhance its core investigative 
functions, continue improvements in technology to keep up with 
the changing markets.
    Year after year, the SEC's budget authority has been kept 
below what is needed to meet demand and the needs of our 
increasingly global economy. In fact, the Republican majority 
kept the SEC budget at more than $300 million below the 
President's request in fiscal year 2014. This approach is 
nonsense. The SEC is entirely fee-funded, and, as such, 
providing adequate funding authority will not take a dime of 
U.S. Taxpayer dollars, nor will it have any impact on the 
deficit or the debt.
    I worry that the Republican majority's budget restrictions 
on the SEC are purposely intended to make it more difficult for 
the SEC to do its job. By robbing the SEC of its needed 
funding, the Republican majority is making it more likely that 
fraud will go undetected and that investors will be left at 
risk. And when this occurs, they will use that opportunity as a 
way to deny future funding. It is a cynical and unnecessary 
cycle.
    For our economy to succeed, investors need faith in the 
ability of the regulator to do its job. These misguided budget 
restrictions only harm the ability of the SEC to succeed.
    I look forward to discussing the importance of the SEC's 
budget request in a moment, and I thank you again for appearing 
before us.
    Mr. Crenshaw. Thank you.
    I would like to now recognize Chair White for your opening 
statement. Your written statement will be made part of the 
record, and if you could keep your remarks to about 5 minutes, 
that will give us more time for questions.
    Please.
    Ms. White. Thank you very much.
    Chairman Crenshaw, Ranking Members Lowey and Serrano, and 
members of the subcommittee, thank you for inviting me to 
testify in support of the President's fiscal year 2015 budget 
request for the Securities and Exchange Commission.
    Now, more than ever, investors and our markets need a 
strong, vigilant, and adequately resourced SEC. From fiscal 
year 2001 to fiscal year 2014, trading volume in the equity 
markets more than doubled to a projected $71 trillion. The 
complexity of financial products and the speed with which they 
are traded increased exponentially. Assets under management of 
mutual funds grew by 131 percent to $14.8 trillion, and assets 
under management of investment advisors jumped almost 200 
percent to $55 trillion.
    Today, there are over 25,000 SEC registrants, including 
broker-dealers, clearing agents, transfer agents, credit rating 
agencies, exchanges, and others. During this time of 
unprecedented growth and change in our markets, the SEC has 
also been given new and significant responsibilities for over-
the-counter derivatives, private fund advisers, municipal 
advisors, crowd funding portals, and more.
    The President's $1.7 billion budget request would enable 
the SEC to address critical core priorities, including 
enhancing examination coverage for investment advisers and 
other key entities who deal with retail and institutional 
investors; protecting investors by expanding our enforcement 
program's investigative capabilities and strengthening our 
ability to litigate against wrongdoers; leveraging technology 
to make our operations more efficient and to improve our 
ability to identify a variety of market risks, including 
emerging frauds.
    As you know and have alluded to in your opening remarks, 
the SEC's funding is deficit-neutral, which means the amount 
Congress appropriates does not impact the deficit, the funding 
available for other agencies, or count against caps in the 
congressional budget framework.
    Nonetheless, I fully recognize my responsibility to be an 
effective and prudent steward of the funds we are appropriated 
and to pursue only those things we need to advance our mission. 
I believe our accomplishments this past year should give 
Congress and the public confidence that we will do so.
    While certainly more remains to be done, since my arrival 
in April 2013, the Commission has adopted or proposed more than 
20 significant rulemakings, including many mandated by the 
Dodd-Frank and JOBS Acts, across the regulatory spectrum of our 
jurisdiction.
    We are also now more aggressively enforcing the securities 
laws, requiring for the first time admissions to hold certain 
wrongdoers more publicly accountable and obtaining orders for 
penalties and disgorgement of $3.4 billion in fiscal year 2013, 
the highest in the agency's history.
    And we have taken a data-driven, disciplined approach to 
addressing complex market structure issues, such as high-
frequency trading and dark pools, implementing a powerful new 
analytical tool called MIDAS.
    This budget request would permit the SEC to increase its 
examination coverage of investment advisers, who everyday 
investors are increasingly turning to for investment assistance 
for retirement and family needs. While the SEC has made the 
most of its limited resources, we nevertheless were able to 
examine only 9 percent of registered investment advisers in 
fiscal 2013. As a point of reference, in 2001 the SEC had 19 
examiners per trillion dollars in investment adviser assets 
under management; today we have only 8. More coverage is 
plainly needed, as the industry itself has acknowledged.
    Very importantly, this budget request would also allow us 
to better leverage technology across the agency to support a 
number of key initiatives, including EDGAR modernization, a 
multiyear effort to simplify the financial reporting process 
for public companies and other filers; completion of the 
enterprise data warehouse and additional analytical tools which 
will allow us to organize, integrate, and analyze large amounts 
of data for improved risk analysis and fraud detection; 
enhancements to the Tips, Complaints, and Referrals System to 
maximize our ability to move quickly to act on the high volume 
of tips that we receive; information security to upgrade tools 
and processes, responding to the ever-increasing cyber and 
other security threats; and modernization of SEC.gov to make 
one of the most widely used Federal Government Web sites more 
informative for investors and public companies.
    This budget request also allows us to continue augmenting 
our Division of Economic and Risk Analysis by adding financial 
economists and other experts to assist with economic analysis 
in rulemaking, risk-based selection for investigations and 
examinations, and structured data initiatives.
    I firmly believe that the funding we are seeking is fully 
justified by our important and growing responsibilities to 
investors, companies, and the markets. Your support will allow 
us to better fulfill our mission and to build on the 
significant progress the agency has achieved, which I am 
committed to continuing and enhancing.
    I am happy to answer your questions. Thank you.
    Mr. Crenshaw. Thank you very much.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T8192A.077
    
    [GRAPHIC] [TIFF OMITTED] T8192A.078
    
    [GRAPHIC] [TIFF OMITTED] T8192A.079
    
    [GRAPHIC] [TIFF OMITTED] T8192A.080
    
    [GRAPHIC] [TIFF OMITTED] T8192A.081
    
    [GRAPHIC] [TIFF OMITTED] T8192A.082
    
    [GRAPHIC] [TIFF OMITTED] T8192A.083
    
    [GRAPHIC] [TIFF OMITTED] T8192A.084
    
    [GRAPHIC] [TIFF OMITTED] T8192A.085
    
    [GRAPHIC] [TIFF OMITTED] T8192A.086
    
    [GRAPHIC] [TIFF OMITTED] T8192A.087
    
    [GRAPHIC] [TIFF OMITTED] T8192A.088
    
    [GRAPHIC] [TIFF OMITTED] T8192A.089
    
    [GRAPHIC] [TIFF OMITTED] T8192A.090
    
    [GRAPHIC] [TIFF OMITTED] T8192A.091
    
    Mr. Crenshaw. Let me start by asking a couple questions 
about efficiency. One of the things that I think most of us are 
aware of, is the funding for the SEC, I think, in the last 
decade has increased about 66 percent. And if you go back to 
2001, from that point until now, the funding has increased 
about 220 percent.
    So, over the years, there has been a lot of money spent by 
the SEC, and, as has been pointed out by everyone, that it is a 
fee-funded agency, but we take our oversight responsibility 
seriously. We are trying to make sure that, whether it is 
taxpayers' dollars or fee-driven money, that it is spent 
effectively and efficiently.
    Last year, when the SEC asked for a 26 percent increase, 
you had been on the job a month, but now you have been on the 
job a year, and your view is that you need another 27 percent 
increase.
    So, when you talk a lot about the importance of technology, 
let me just ask you, can you point to some of the savings that 
you have been able to leverage due to this technology and this 
analytical capability? Is that something you have been working 
on? Could you tell us a little bit how you have been working on 
that side of the equation?
    Ms. White. Yes. And this is done really throughout the 
agency, but I specifically work with our chief operating 
officer on savings throughout the agency, whether it is driven 
by investments in technology, which it often is, or wherever 
else, in the agency. To the extent we get more efficient, 
obviously, there are cost savings that are measured, really, 
under different metrics.
    And I can give you two examples. We saved $6 million a 
year, including for this year, from consolidating our 
operations center. It is now all in headquarters. So we will 
save $6 million in fiscal 2015 and $6 million, going forward 
for a number of years. We also achieved $18 million in cost 
avoidance by our investment in technology to really improve our 
data infrastructure, enhancing various of our processes, making 
maintenance less required. And so those are two examples.
    But I take very seriously, Chairman Crenshaw, that with the 
funding that we do get, and then obviously I have made my I 
hope impassioned plea for, we certainly do need that funding 
for me to do and the agency to do its job responsibly. But part 
of that very important, serious responsibility is also to 
effect cost savings with these moneys, and we are doing that 
and fully committed to doing it.
    Mr. Crenshaw. Thank you.
    Now, the one other thing that I have noticed is that you 
have a pretty large amount of carryover funding from previous 
years. I think the quarterly report says that the balance was 
$112 million. So that was last year, when you were subject to 
the sequester, and that fenced off $66 million, or about 5 
percent of your appropriation. And this carryover still amounts 
to about 8 percent of your total appropriations level.
    So you take that with the fact that you have access to this 
$100 million mandatory reserve fund and you can spend up to 
$100 million per year. I know that you always talk about 
additional resources and certain constraints, but could you 
tell us why you have such a high carryover balance?
    Ms. White. We have, as you know, no-year funds, so we are 
actually able to carry over balances if we don't spend it in 
that year.
    And, Chairman Crenshaw, it is a product, in my view, of 
responsible financial planning. We basically, because of the 
continuing resolution, spent very conservatively in early 2013, 
so that is some of it.
    We also tried very hard to hire in our new positions when 
we do get appropriated funds very wisely. So we are hiring the 
right people to do the job most effectively and efficiently. 
The fact we have the no-year funds allows us to do that.
    And I think about $30 million of that is also from, again, 
I think, very good financial management by our folks, which is 
from de-obligating moneys that were committed on closed-out 
contracts.
    And these moneys are, I will say--and I have spent a lot of 
time on this--very much taken into consideration in terms of 
the request we are making.
    Mr. Crenshaw. Now, at the end of 2014, do you expect to 
have a carryover balance?
    Ms. White. You know, I can't answer that as I sit here. 
Certainly, we are committed to and we have actually enhanced 
our HR function so that we will be able to hire more 
efficiently as well as continue to hire prudently. And so that 
is where a lot of that expense comes from.
    But we do think in terms of the request that we have made 
in 2015 that we would be able, if granted those funds, to hire 
in those positions. Again, we want to be prudent about those 
hires, but we do think we can do that, yes, sir.
    Mr. Crenshaw. Well, thank you very much.
    We are going to go to questions among the committee 
members, and we will observe the 5-minute rule. People will be 
recognized by seniority if they were here when the meeting 
started. The latecomers will be recognized in the order of 
which they arrived.
    We will actually make a special concession for our ranking 
member, Mrs. Lowey, and call on her for the next round of 
questions.
    Mrs. Lowey. You are very kind. Because, unfortunately, 
there are several hearings going on at the same time. Thank you 
very much.
    Madam Chair, in fiscal year 2013, due to budget 
constraints, the SEC examined only about 9 percent of 
registered investment advisers. Over the past decade, the 
number of investment advisers has increased by 40 percent, and 
the assets under management by these very advisers has more 
than doubled to $55 trillion. And yet funding for the SEC has 
not kept up with the need.
    The overwhelming majority of investment advisers work with 
their clients's best interests in mind, helping them save for 
retirement, making smart investments, but, like every 
profession, there are always bad apples. And I am sure we could 
all agree that examining 9 percent of investment advisers is 
much too low.
    If only 9 percent of investment advisers are examined per 
year, how does the SEC prioritize examinations? Why are these 
exams important to mom-and-pop investors? And how can investors 
have faith in the market if 40 percent of investment advisers 
have never been examined?
    Ms. White. There is no question that this is a stark 
example of the extreme challenge presented by our current level 
of funding. It is elsewhere throughout our functions, but in 
this investment adviser space, what we do with our limited 
resources is to obviously try to apply them as wisely as we 
can. We do risk-based assessments of where we should go based 
on various parameters--the size of the investment adviser, 
rates of return, recidivism, kinds of products.
    I have also instructed our examiners in our national exam 
program that I don't want to be absent from the smaller spaces 
either, because that is where more and more retail investors, 
in particular, are relying on investment advisers to tell them 
what to do with their retirement money, with their money for 
their children's educations. They cannot afford to lose these 
moneys.
    And they are also helped by every exam we do, not only at 
the smaller level but the ones that we do of the larger 
investment advisers, as well, because their pension funds, you 
know, tend to be managed by those larger investment advisers.
    And just as another data point of concern--I mean, I have 
to say it exactly that way--we do find issues when we do these 
examinations. Seventy-five to 80 percent of our exams across 
our registrants receive a deficiency letter of some kind, 35 to 
42 percent of those have a significant deficiency finding, 
which means basically a finding by our staff that there is 
either harm to a customer or client or a significant risk of 
harm to a customer or client or some kind of recidivism.
    A good thing that happens when we examine, just in terms of 
value return for the exams we do, 86 to 93 percent of the 
investment advisers we do examine and find a problem with will 
tell us represent that they have remediated those problems. We 
obviously test it down the road. About 15 percent of the 
findings are actually referred to enforcement.
    We also return value. Actually, when we visit an investment 
adviser and we find a problem with fees that may have been 
overcharged or misallocated, they voluntarily will return them 
to investors as a result of our exam.
    So it is a critical function that we just must find a way. 
And we are obviously, I believe, using our resources very 
wisely to get greater coverage.
    Mrs. Lowey. Following up on that, the news often carries 
stories of the large frauds, and justifiably so, but what we 
don't hear day-to-day are the stories of working class families 
being targeted and taken advantage of by fraud.
    What trends has the SEC noticed in security frauds? How 
would the budget request help meet the investigatory and 
enforcement needs to combat these frauds?
    Ms. White. A large part of our budget request is directed 
directly to trying to meet our examination and enforcement 
needs so that we can better protect investors.
    What we are seeing in enforcement, we clearly still have 
cases of various kinds against very prominent Wall Street 
firms. There is a rise in microcap frauds, which can impact the 
retail investor quite particularly and quite significantly.
    We see a rise in affinity frauds, which are some of the 
most galling kinds of securities violations that one can come 
across, which is essentially frauds directed at victim 
investors, based on race, religion, age, or status such as 
whether they are veterans. And it is something we have been 
very aggressive about in order to be able to, you know, meet 
these, really, crimes that are occurring against our retail 
investors.
    There is an uptick really across our range of enforcement 
priorities: financial reporting frauds, various kinds of market 
abuses, insider trading, market integrity issues with respect 
to some of the exchanges, FCPA. So it really is across the 
board. We obviously try, again, to use our resources in the 
wisest way we can to go to priority areas.
    Mrs. Lowey. Just lastly, Mr. Chairman, I just wanted to 
mention one other issue which has concerned me greatly, and I 
have been part of many briefings focused on this issue, and 
that is the whole cyber attacks.
    Companies have a responsibility to their shareholders. I 
know that, in the past, when companies should have made 
security breaches public, which could have helped prevent 
future breaches conducted in a similar manner, that rather than 
sharing this information, companies have kept it private, 
leaving many more at risk.
    I do think investors have the right to know if companies 
that they are invested in have been the victim of cyber attacks 
so that they can ensure the steps are taken to prevent and 
mitigate future criminal actions.
    So if you can just comment briefly. Should companies that 
report with the SEC be required to disclose cyber attacks? And 
when you meet with private-sector partners, what resources do 
they need from the government to help effectively manage cyber 
threats? And how can the SEC encourage information-sharing?
    This has been a major issue, and I don't know that we are 
making much breakthrough in it. If you could just----
    Ms. White. I share your concerns about how serious and 
long-term this threat is, really across the issues, not only 
the impact on investors but to our economy, to our national 
security, no question about that.
    We actually held a roundtable last week on cybersecurity 
really to emphasize that, and not only with respect to our 
registrants and public companies, but to bring together the 
various government agencies who are charged with dealing with 
the cyber threat--to talk about, among other issues, the 
coordination among the government agencies. The Department of 
Homeland Security, for example, which is a national security 
agency, is, in effect, the coordinating agency among the 
Federal agencies.
    And the emphasis there, which is so critical, is that we 
must have a public-private partnership on this. I think the 
government needs to do better at sharing information with the 
private sector if they get requisite security clearances.
    In terms of disclosure by public companies, just to commend 
the staff of the SEC, in 2011 the staff of the SEC actually put 
out guidance to public companies regarding their obligations to 
disclose cyber risks and cyber incidents if they were material, 
which, of course, is the basis to our disclosure regime.
    It has been, I think, regarded as very helpful guidance. 
The staff has followed up on that, too, to see if the 
disclosures have improved. We think they have improved, but it 
is a continuing process and priority.
    Mrs. Lowey. Thank you.
    And thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Womack.
    Mr. Womack. Thank you, Mr. Chairman.
    Chair White, as I am sure you are aware, I, along with my 
colleagues, many of whom are on this dais and others on the 
Financial Services Committee, sent you a letter asking for an 
update on actions by the SEC after the proxy advisory firm 
roundtable back in December. And, as you know, two such firms, 
one of which is in the process of being sold, control about 97 
percent of that market and actually become, kind of, de facto 
corporate governance standard bearers in the United States.
    These firms have obvious conflicts of interest, and their 
services sometimes don't necessarily reflect their fiduciary 
responsibility to their clients. So is it safe to assume that 
the SEC hosted the roundtable because it recognizes that we 
have problems there?
    Ms. White. We hosted the roundtable--which, by the way, I 
thought was quite constructive and there were actually, I 
think, more areas of agreement than we might have expected 
before we called the roundtable. I would make two upfront 
points.
    I mean, one, I think the proxy advisory firms are quite 
important to our proxy system and engagement of shareholders 
with the companies they own. But there is also no question that 
a number of concerns and issues have been raised, including 
whether the disclosures that they are actually required to 
make, have been adequate on conflicts of interest. So there was 
a lot of dialogue about that.
    There was also dialogue about the fiduciary duty that 
investment advisers have when they actually retain a proxy 
advisory firm, because the investment advisers have a fiduciary 
duty and they retain that fiduciary duty. So that brings with 
it certain duties to make sure that the proxy advisory firm is 
discharging the service they are providing for the investment 
advisory firm as well and so forth.
    I can say, I have actually received quite recently, 
following that roundtable, recommendations from our staff, 
primarily in Corporation Finance and Investment Management, as 
to what steps, if any, what action, if any, the SEC should take 
following that roundtable on those issues. I expect in fairly 
short order to be discussing that with my fellow commissioners.
    Mr. Womack. In your opinion, were there broad areas of 
agreement on improving the transparency?
    Ms. White. I think there was agreement, at least at that 
roundtable, and I think probably more broadly than just at the 
roundtable, that in terms of some of the disclosures of 
conflicts of interest, in particular, that there was room for 
improvement there.
    Interestingly, the Chamber has actually put out a best 
practices guide on this, if I might call it that, which I think 
has also spurred very useful dialogue both before and after 
that roundtable.
    So I think one of the positive things that came out of that 
roundtable is that the various interested parties are 
continuing to discuss issues that divide them a bit, to try to 
close that gap and really make the process work better. I think 
that is very healthy, as well.
    Mr. Womack. It is my understanding that these firms are 
relying on SEC staff guidance in choosing not to disclose 
conflicts of interest. Do you share my concerns that the 
Commission is effectively encouraging these firms to withhold 
this information?
    Ms. White. The answer is no and I don't think that actually 
came out as--certainly not as an area of agreement at the 
roundtable.
    I think, from the point of view of the SEC, we want to be 
sure there is clarity on those issues. And so, to the extent 
that questions have been raised about that, we want to make 
sure that there is perfect clarity. And we obviously pay--you 
know, we would like to pay a lot of attention to, whether it is 
guidance or one of our rules, what impact it is having. So that 
is one of the topics we will be considering as we go forward.
    Mr. Womack. Is the Commission reviewing the Egan-Jones no-
action letters that allow for the conflicts to occur unchecked?
    Ms. White. Well, again, I think I have described the 
status, which is I have gotten the recommendation from the 
staff as to what action, if any, should be taken--
    Mr. Womack. When would you expect action?
    Ms. White. Well, I would expect to be in discussion with my 
commission and my commissioners about next steps, in pretty 
short order, within a matter of weeks, I think.
    Mr. Womack. Okay. Thank you, Madam Chair.
    Mr. Crenshaw. Thank you.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    One of the things you are going to continue to hear and we 
continue to hear here from a group of folks, in the majority 
party especially, is about cuts, cuts, cuts, cuts in the budget 
in general. And I don't think we pay attention, at times, to 
the ramification of those cuts.
    So my question to you is, are you confident that the 
meltdown caused by Wall Street in 2008 won't happen again, 
especially if Congress continues to cut? Or do you think that 
there are mechanisms in place or is there a balance of both 
resources for oversight and mechanisms in place that can, in 
fact, stop us from a meltdown like we had in 2008?
    Ms. White. Without making, perhaps, predictions I can't 
make, at least categorically, certainly the actions and 
initiatives, including the legislative initiatives, that we 
have taken since the crisis are designed to prevent that.
    And there has been a lot of progress on that. I think the 
regulatory agencies are doing their respective jobs a lot 
better. They are more focused on systemic-risk issues. They are 
working better with each other.
    One of the big mistakes we could make, though, is falling 
into any kind of complacency about the possibility of a 
repetition of any kind of event even near to what we faced 
during the financial crisis. The SEC, I think, is a very 
important agency to be sure it is not underresourced so that it 
can do its job to prevent risks from actually materializing in 
the ways that they should not and can be prevented.
    I think one of the other mistakes we should not make is 
that, when we have a reform like, we now, which I think is very 
positive, regulate the over-the-counter derivatives market--
that we are able to implement those rules that we have adopted 
or are in the process of adopting. So resources for 
implementation of these reforms is critical. And I do worry 
that we may be underresourced for that task, and I think that 
would be a mistake.
    Mr. Serrano. Now, let's assume for a second that I was 
wrong with my opening part of the statement and that we, in 
fact, come up with more funding for the SEC. What areas would 
you like to see where more enforcement should take place?
    Ms. White. I think as, you know, broad enforcement as we 
can bring to bear is what our responsibility is. Let me be a 
little clearer about that. I think we need to be acting and 
sending very strong messages of deterrence across market 
participants. We need not to be neglecting the smaller 
violations, because smaller violations can become bigger 
violations. On the exam side, I think we have to, again, be 
focused on and broadly covering problems before they actually 
materialize into serious enforcement issues.
    So if we were to get sufficient funding--and, clearly, what 
we are asking for in fiscal year 2015, we asked for 126 new 
positions in enforcement and some technology that will help us 
be smarter in detecting fraud sooner. That will help us also 
when we get tips in--we get 15,000 tips in a year--to not only 
take them in in the right way but analyze them in the right 
way, analyze them quickly, and get them out to, you know, our 
investigative staff, to really jump on them when they occur. 
Then what we can do is try to act before the money is all gone 
in a very serious fraud. We can try to freeze assets, we can 
try to suspend trading. And we do that to good ends.
    So across the band of our enforcement functions is where I 
would apply those resources.
    Mr. Serrano. Now, have the number of SEC enforcement 
actions dropped recently? And if so, was this the function of 
the sequester, or are there other dynamics going on, such as 
the complexity of cases or ongoing investigations?
    Ms. White. We brought, actually--and I think, again, the 
numbers don't tell the whole story, and that is very important 
always to emphasize, because we brought very high-quality, very 
complex cases not only this past year but, certainly, I think, 
for a number of years. We brought, in numbers, 686 enforcement 
actions in this past fiscal year, compared to, I think, 734 in 
the prior year, so that is a 48-case difference.
    It is hard to tease out the effect of sequester, 
specifically on that. I think the 686 cases we brought was 
really a very robust, strong effort by enforcement. Sequester 
and the budget limitations certainly impacted us elsewhere in 
enforcement and across the agency.
    Mr. Serrano. I have to tell you something, Mr. Chairman. I 
don't know if I asked a great question or a bad question, but 
half the audience left as I was asking that question.
    Ms. White. It was probably my answer.
    Mr. Serrano. I have no idea what that is about, but 
something is going on here that makes me nervous. So I will 
just stop right here, Mr. Chairman.
    Mr. Crenshaw. Why don't you ask another question and we 
will clear out the room?
    Thank you.
    Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman.
    I just want to make sure that I understood you, Chairman 
Crenshaw, when you talked about that the SEC's budget has 
increased 220 percent since 2001 and, I believe, two-thirds, 66 
percent, in the last decade.
    And the reason I wanted to just repeat what you said is 
because I think only in D.C. is a 220 percent increase, you 
know, since 2001 is considered a cut. I just thought that was 
illustrative of, kind of, some of the issues that we deal with 
here in Washington, that I think the American people would have 
to differ on whether that is a cut or not, and I don't think it 
is.
    Madam Chairwoman, thank you for being here.
    Let me throw out a couple of related issues to you in 
regards to the implementation of the municipal advisory 
provisions of Dodd-Frank, which, now, many banks--and I am 
really particularly concerned about community banks. They are 
having some difficulty determining whether they need to or they 
don't need to register with the SEC as municipal advisors.
    And it is no secret that community banks have long provided 
financial services to local municipalities, and yet very few of 
them have ever had to previously register with the SEC. And now 
I understand that the staff of the SEC is working to develop a 
set of facts that would assist banks, fortunately, in 
determining whether registration is necessary.
    Now, the deadline for that evaluation, to evaluate their 
situation and decide whether or not to register--and, by the 
way, which also would be potentially whether or not they could 
continue to provide their services to municipalities--is, I 
believe, coming up on July 1st.
    Any idea, can you estimate for the subcommittee, let us 
know when those facts, which I think would be very helpful, 
will be available to guide the community banks?
    Ms. White. I can't give you a specific timeframe. The staff 
did put out in January FAQs, staff guidance on a number of 
issues in that space and who is to register and under what 
circumstances. It sounds like from your question that those 
FAQs may not have fully answered the question that you are 
posing now.
    The staff has since--and, by the way, we also actually put 
off, in effect, the effective date until July, it was actually 
in January, to give the industry and potential folks who might 
need to register more time to, dialogue with the staff. That is 
going on as we speak and has been since before January when the 
FAQs were put out and also afterwards.
    So, you know, I think it is anticipated we will put out 
additional guidance on some of the additional questions that 
have been raised before the July effective date, but I can't 
give you a precise time.
    Mr. Diaz-Balart. It would be great if, once the staff has a 
better idea, if they could just let us know, let our staff 
know.
    Ms. White. We will.
    Mr. Diaz-Balart. And then, also, kind of a related thing 
about the rulemaking. The Municipal Securities Rulemaking Board 
has proposed a rule for, again, municipal advisors that may--
could force, I should say, some banks, including the community 
banks and some regional banks, to choose between, we are being 
told, between providing advisory services or traditional 
banking services, whether it is deposits or taking loan money 
or whatever, to State and local municipalities.
    And I understand that the proposed rule, there is a new 
fiduciary duty which would impose, I believe--that says any 
entity providing advisory services could not act as a principal 
in providing other financial services.
    Now, the concern is that, obviously, some local 
municipalities have long looked at banks to provide both 
banking services and also advisory services. And yet my 
understanding is, under that rule, that banks would have to 
choose which one of the two. And I may be wrong, which is why I 
am kind of throwing it out there. So if that is true, then, 
some local school boards or town counsels would have to, kind 
of, decide which one of the two and, frankly, may even have to 
break long-existing relationships that have worked for them.
    So if that rule, and if I am accurate about what I believe 
to be the case, if it is submitted in that way, will the SEC 
attempt to make the rule workable to prevent this disruption, 
this potential unnecessary disruption, in many relationships 
that might affect a lot of municipalities and school boards?
    And to, you know, kind of, throw a pun out there--because, 
hopefully, if they like their bank, they should be able to keep 
it. You know, if you like your bank, you should be able to keep 
it. So, hopefully, that rule will take that into consideration.
    Any thoughts on that? And if, in fact, that rule does come 
out, would you be willing to work with banks and municipalities 
to make sure that they don't face that?
    Ms. White. Again, it sounds like what you are describing 
implicates MSRB rules----
    Mr. Diaz-Balart. Yes.
    Ms. White [continuing]. That will come to the Commission. 
And, if it comes to the Commission for approval, obviously, we 
will, focus on all aspects of it.
    I will say, I may need to get back to you with whatever 
additional information I can provide specifically----
    Mr. Diaz-Balart. Great.
    Ms. White [continuing]. That is responsive at this stage. I 
am not sure there is any additional information I can supply.
    I will say that when the MSRB and the SEC considers any 
rulemaking, I mean, you look very, very closely at the economic 
impacts of those rules, the cost-benefit analysis the chairman 
was alluding to in his opening statement. That is a very 
critical aspect of all of our rulemaking.
    And so, you know, I can't really speak more specifically 
today to that point, but maybe I will be able to supply some 
additional information.
    Mr. Diaz-Balart. Right, because the rule hasn't come out 
yet, as far as we know.
    Ms. White. Right.
    Mr. Diaz-Balart. But if it does come out, that is when it 
gets interesting for you.
    Ms. White. Yeah, no, no, it is--and, also, if we pass on 
and, you know, I can't get ahead of that train.
    Mr. Diaz-Balart. Right.
    Ms. White. Okay.
    Mr. Diaz-Balart. Thank you.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    Welcome, Madam Chair.
    As you know, the SEC requires public companies to report 
their financial statements in XBRL structured data format. 
Unfortunately, the SEC doesn't necessarily enforce the quality 
of that data. And what we are hearing from many is that that 
renders it virtually useless for them, that the trust that is 
needed to trust this data to make critical decisions is tough 
to rely upon.
    Can you update us on your efforts to enforce the quality of 
these submissions for public companies?
    Ms. White. Yes. Let me just say, and as you know, the 
Commission actually began to require that certain financial 
information be filed in the XBRL format with the largest 
issuers, actually, in 2009. And then, over the next 4 years, 
the requirement was phased in for the midsized and the smaller 
filers, basically allowing them more time to, sort of, adjust 
to the new requirements, which do have some complexity to them.
    This actually also allowed the larger and more 
sophisticated companies to assist in the market's development 
of software tools to meet these obligations, provided some, you 
know, additional time for diversification of the support 
community that you really need to assist filers in tagging 
their data.
    Over the last 5 years, we have actually seen, from our 
staff's perspective, an improvement in the quality of data as 
filers have become more familiar with the process and, frankly, 
as the number of vendors actually providing the support 
services has increased.
    We still believe there is room for further improvement, 
nevertheless. And our Office of Risk Assessment and Interactive 
Data, which is actually within our Division of Economic and 
Risk Analysis, continues to be a resource for both issuers and 
vendors with questions about filing XBRL. We have gotten a lot 
of positive feedback on that.
    And staff in our divisions, in not only the Division of 
Economic and Risk Analysis but also Corporation Finance, have 
actively participated really in trying to educate the XBRL 
filer community on how to actually, you know, be able to do 
this more easily.
    And we are basically continuing to evaluate, ways to 
enhance the usefulness of XBRL and, again, try to give specific 
guidance--because I know it has been needed and asked for by 
those who must file. So that is the current status of it.
    Mr. Quigley. And what would it take? I mean, the data is 
important; the reason we have them file is important. What 
would it take, besides guidance and education, to let them know 
that you are serious about this, there is too much at stake to 
get bad information?
    Ms. White. Again, I think we have, particularly in the 
last, year-plus, been sending a very, I believe, strong 
message. Maybe not strong enough, from your question. And I 
will look into it, immediately, actually.
    But, really, having our Division of Economic and Risk 
Analysis as a resource, on these issues, I think, really has 
helped significantly. But I will see whether there is more we 
can't do.
    Mr. Quigley. Well, I certainly appreciate that. If you 
could get back to the committee----
    Ms. White. Yes.
    Mr. Quigley  [continuing]. We would certainly appreciate 
it.
    Let me hop over to the JOBS Act.
    Mr. Chairman, I think I am correct that every member of 
this subcommittee voted for the JOBS Act. I think it passed 390 
to 23--not something that happens every day here.
    But, you know, there has been some delay and some slow 
progress in implementing all the rules here. Can you give us an 
update on where the SEC is on that process?
    Ms. White. Yes. And, as I said before I was confirmed and I 
have said after I was confirmed, about a year ago now, that one 
of my immediate top priorities was to implement, you know, both 
the Dodd-Frank Act and the JOBS Act rulemaking mandates given 
to the SEC.
    We did in July, this past July obviously, lift the ban on 
general solicitation. We also at the same time, same day 
actually, adopted the disqualification of bad actors from that 
new market. That is actually a Dodd-Frank provision, but very 
important that they went together.
    We have proposed the crowdfunding rules. We have proposed 
Reg A-Plus. The comment period, I think, has just closed in 
February on the crowdfunding proposal and in March, actually, 
with respect to, as we refer to it, Reg A-Plus.
    We have some additional JOBS Act rulemakings to do. Some of 
them are really, kind of, conforming our regulations to what 
are already statutory mandates. But we are quite focused on 
getting them done.
    Mr. Quigley. Anything else close to being finalized?
    Ms. White. Well, once the comment period closes, I, at 
least--let me say it this way: They are all priorities for 
2014.
    Mr. Quigley. Okay. Thank you.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman.
    Commissioner, welcome. Thank you for--Madam Chair--thank 
you for joining us today.
    Last year, as you may recall, the Appropriations Committee 
considered an amendment and adopted it on a bipartisan basis 
that would have required the SEC and the CFTC to develop a 
single rule as to how they apply the cross-border application 
of swaps and derivatives regulations.
    I think as we have all said repeatedly, it just seems like 
good government to have the SEC and the CFTC on the same page 
and have one standard when dealing with a single marketplace on 
how that market is being treated when regulated. Yet, the CFTC 
and SEC, I believe, have chosen not to issue a joint rule or a 
rule that is similar in nature.
    And so my questions are: Can you let the committee know 
what differences, if any, still exist between the SEC's 
proposed cross-border regime and the one that has been 
implemented by the CFTC?
    Can you let the committee know what steps the SEC may have 
taken during the past year to ensure consistent application of 
Dodd-Frank's rules to transnational swaps and security-based 
swaps?
    And then, as you know, your European counterparts have been 
highly critical of the approach that has been taken by former 
Chairman Gensler of the CFTC and that they had chosen to take 
him when Chairman Gensler was there. Will you commit to us that 
you will work as collaboratively as possible with international 
regulators to ensure that the U.S. Has a cross-border 
regulatory approach that works for the global market and 
doesn't disadvantage U.S. Companies relative to their foreign 
competitors?
    Ms. White. I certainly can give you that commitment. And, 
really, since I have first arrived, I have been not only in 
dialogue with the CFTC at the principal level, including with 
Acting Chair Mark Wetjen now and then presumably his successor, 
if confirmed, Tim Massad, about this, as well as former 
Chairman Gensler and our international counterparts.
    I guess I would say several things.
    I think there are more similarities in our proposed rules 
and the CFTC rules than there are differences and we have been 
working to close gaps.
    We are really entering our adoption phase in 2014 at the 
SEC. One of the specific sets of questions that we posed in our 
cross-border proposal was precisely about the importance of 
consistency, because we recognize that to be important. We are 
not actually obligated to do a joint rule, so it is not a joint 
rulemaking in a technical sense, but we certainly recognize the 
importance of consistency.
    And so, we will be, working and are working with CFTC and 
our foreign counterparts, you know, on that aspect of these 
rulemakings. To some degree, we have the benefit of what has 
gone before, in terms of what is needed to, close the remaining 
gaps there.
    I am not suggesting they will be identical, at the end of 
the day. The markets are somewhat different, so there may be, 
some differences. I think a couple of differences I would cite 
that are still there between SEC and CFTC are, how we go about 
defining a U.S. Person and the approach to substituted 
compliance.
    But, in substance, we are much more in sync than we are not 
in sync, and we are going to continue to work on the 
differences.
    Mr. Yoder. Well, and I would say the ``U.S. Person'' 
difference is pretty significant in terms of ones that are 
remaining.
    Ms. White. Yes.
    Mr. Yoder. And, frankly, when the Appropriations Committee 
addressed that issue last year in full committee, that was one 
of the thrusts behind why I think the committee chose to take 
it up, is that we have the SEC and CFTC defining who a U.S. 
Person is differently. You know, that is a real problem for, 
you know, certainty in the markets and predictability.
    And I think we are all concerned, and I am sure you are, as 
well, about the, really, backlash we received from European 
treasury secretaries and folks about the CFTC's rules. SEC has 
been much, I think, clearer and better in their approach, and 
we just hope that they will follow your lead and that you will 
continue to provide leadership to help them work together.
    I understand the SEC, I think--and my colleague, Mr. Diaz-
Balart, was discussing the muni-bonds issue, I guess. I 
understand the SEC is close to finalizing a rule that would 
regulate money market mutual funds. There are concerns that 
further regulations would particularly harm State and local 
governments by increasing their borrowing costs and shrinking 
the market for municipal bonds.
    What steps are you taking to ensure that any final rule 
does not negatively impact municipal financing?
    Ms. White. Again, you know, we focus very carefully on all 
impacts of the rule. I mean, clearly, we have gotten a number 
of comments since we proposed the money market fund rules, I 
think it was last--last June.
    Whether, in effect, the muni funds should be exempted like 
the government funds are is a major comment that we have 
received. And the staff has been quite focused on that, as have 
our economists, in particular, in our Division of Economic and 
Risk Analysis.
    I can't be more specific as to where we are on this, you 
know, the specifics, because it is something that is currently 
in discussion between the staff and the Commission.
    Mr. Yoder. All right. Thank you, Madam Chair.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Chairwoman White, thank you for joining us. It is good to 
see you again. And I can only imagine how difficult it has been 
over the last year, your first year, to balance the difficult 
task of consumer protection and free markets in investing and 
responsibility. And then you combine that with the laws that we 
pass and ask you to enforce, and the difficulty in doing that, 
and I know you are doing your best that you can.
    I really appreciated your comments a minute ago when you 
referenced the economic analysis. That is very important as you 
consider rules that you are going to adopt. And it seems of 
late one of the most highly concerning rules right now is the 
Volcker Rule, as you are well aware.
    And in an effort to, sort of, work with the authorizing 
committee some, we would have an interest, I guess, as a 
subcommittee here, as to the response you gave them to their 
letter when they asked about the economic analysis. And I guess 
in the letter it referenced that it had not been performed and 
yet you were moving forward with the rule, which was in 
violation of the law, and they had asked for a response to 
that.
    Were you able to provide that response to them? And if you 
had, could we get a copy of that, as well?
    Ms. White. Sure. I would be happy to give you the response. 
We did respond to that.
    I mean, first, I would say we did--and the agencies, again, 
did not have to do a joint rulemaking on this but did actually 
act jointly on this. And there was economic analysis done, 
which is reflected, actually, throughout the rule on various 
issues. And comments came in, raising economic-impact issues, 
and the final rule actually was quite responsive to a number of 
major issues.
    What we did not do, given the context of the joint dynamic 
of the rulemaking, was apply our guidance and no other agency 
applied a specific agency procedure to the rulemaking. So I 
think that is what that reference is.
    We basically, as a legal matter, we adopted under the Bank 
Holding Company Act, which, as you know, doesn't have the same 
requirements as our SEC acts do with respect to various other 
factors we take into account.
    But, as I say, the main point is economic analysis was very 
much a part of that rulemaking but not per our specific one 
agency guidance.
    Mr. Graves. Did the economic analysis that you provide 
comply with, in essence, the judge's ruling--and I, sort of, 
have the reference here that the case was the Chamber of 
Commerce v. the SEC, when the court indicated that an adequate 
economic analysis had not actually occurred. And, in fact, it 
was said, ``And its failure to apprise itself--and, hence, the 
public and the Congress--of the economic consequences of a 
proposed regulation makes promulgation of the rule arbitrary 
and capricious and not in accordance with law.''
    So I guess it meets what the court's request is, as well?
    Ms. White. Well, you never know until a court tells you, I 
think, what it meets, but----
    Mr. Graves. Well, they made it pretty clear there.
    Ms. White. But I think the references and the opinion were 
to various requirements under the securities laws, which are 
really statutory requirements. Again, this particular rule was 
adopted under the Bank Holding Company Act, which has different 
provisions in it.
    Mr. Graves. Okay.
    And if I could ask just another quick question, I have here 
that the SEC claims that there is an interagency working group 
that is tasked with the coordination, I guess, of some other--
and this is, again, referencing something that the authorizing 
committee had sent you--but a working group that is working 
together on some of these, I guess, supposed rules and such.
    Can you share with us who is a part of that working group 
and when they have met, how many times they have met, and such?
    Ms. White. I can't give you a precise number on how many 
times they have met. I mean, essentially, there is staff, 
senior staff, from all of the adopting agencies, so that means 
the Federal Reserve Board, CFTC, SEC, FDIC, OCC. I think I got 
everybody in there. And they meet quite frequently in person. 
They also meet by telephonic conference call when issues arise.
    They have been focused on issues of interpretation. They 
have been focused on compliance issues that are to come, 
enforcement issues that are to come. And, again, I think there 
is a real recognition of the importance, even though not 
required, to act consistently and as jointly as possible. And 
that is, I know, one of the, you know, major concerns that has 
been raised since the rule.
    Mr. Graves. Right. It is an amazing rule, and I know it is 
going to have an impact. And I would hope that this working 
group adopts some metrics to share with everyone so that 
everybody knows what they are working towards and that there is 
no ambiguity moving forward.
    But thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    I think we have time for another round of questions, if 
folks have other questions, and I will start.
    Madam Chair, it has been brought up a couple times, the 
whole rulemaking about municipal advisors. And, in fact, I 
wrote you a letter some time ago that the rule that came out 
defining ``municipal advisor'' was so broad that, for instance, 
if an issuer, whether it is a school board or a nonprofit 
hospital, somebody that was going to issue debt, and a broker-
dealer came in and said, I have a great idea, here is a way you 
can refinance your debt, or here is a new way to finance your 
debt that can save you a lot of money--I think, initially, when 
the rule came out, if an underwriting firm, a broker-dealer, 
came in and said, here is a great idea, then the issuer would 
be precluded from hiring that entity that came up with the good 
idea to actually underwrite the deal, because somehow they 
became a financial advisor as opposed to an underwriter.
    And then I understand that some clarification came out so 
that if you walked in with a great idea and said, I am actually 
an underwriter, but here is an idea--now, do you know, has it 
been clarified? If somebody came with that idea, would they be 
able to underwrite the deal that they brought in and said, here 
is a way to save money? Do you know yet where that 
interpretation has gone?
    Ms. White. I think that--and I believe, if I remember your 
letter--and maybe my response actually came before we actually 
had issued those FAQs and staff guidance. And, clearly, we 
addressed, that kind of, questioning the range of the 
underwriter exemption and also what could be done and could not 
be done without necessarily triggering the registration 
requirements. But I don't know if the precise issue has been 
covered.
    I can say that, since we did that staff guidance, we 
actually have not really gotten, much continuing complaint or 
interest in that set of issues from the broker-dealers. But, it 
doesn't necessarily mean it is solved. I would have to see. But 
we addressed a pretty full range of issues in those FAQs that 
came out in January.
    Clearly, you can't just do anything and not trigger the 
registration requirements. I mean, the guidance is not that 
broad. But it did clarify in a number of areas, so it may have 
met that concern. I would be happy to be more specific and give 
you a more specific response on that.
    And I will say again, as I did in an answer to an earlier 
question, that the staff continues to dialogue with those 
affected by the rule to see whether there are other areas where 
we need to give further clarification.
    Mr. Crenshaw. Great. Well, I think that is important, 
because I think everybody would agree that we need regulation, 
it needs to be reasonable and not burdensome and not have an 
unintended consequence.
    And in a situation like that, you have a pretty competitive 
marketplace, and also you have some pretty sophisticated 
issuers, whether it is a school board or whether it is a 
nonprofit hospital or a county commission, and you always have 
to ask yourself, what is their responsibility? They are the 
ones that are making this decision. And while you want to be 
reasonable in your regulation, you can't oversee and protect 
everybody all the time from themselves. I mean, some people 
make bad decisions and some people make good decisions, and the 
government can't always step in and make sure that everybody is 
being protected from themselves.
    So I appreciate the fact that the Commission is aware of 
that. And as you try to write these rules and regulations, that 
you can work with the folks that are impacted by this--that is 
what economic analysis is all about.
    I want to ask you, too, it has been brought up, about the 
whole money market fund reform. That has been kicking around 
for some time now. And I guess you are close to promulgating 
those rules.
    I think we all have to recognize that we want to make sure 
that any kind of reforms don't decrease liquidity or cause 
rates to go up or increase costs. So we put some language, as 
you might recall, in last year's bill that said here are some 
thoughts that you should consider when you are reforming the 
money market funds.
    I think one of the commissioners has come up with an idea 
that you could either have the floating-rate debt or you could 
have some sort of redemption penalty--it was like an investor 
choice model.
    Do you know where all that is? You touched on that. Are we 
close to seeing the proposed rules? And have you taken into 
consideration some of the different alternatives?
    Ms. White. We certainly--and, again, we are in the active 
stages of discussion towards adoption. I can't give you a 
specific, you know, timetable on that.
    I am familiar with the alternative that you referenced, 
which has been part of the discussion. I mean, again, I think 
our proposal, which I think was a robust proposal, basically 
had two alternatives--the fees and gates, the floating NAV for 
prime institutional--or could be done in combination.
    We got a lot of comments, a lot of points of view on the 
proposal, which we have considered, you know, very seriously. 
Again, we did some reforms in 2010 that I think made the money 
market funds more resilient, but we are focused on preventing 
that redemption run risk in times of stress that occurred 
during the financial crisis.
    So we want our proposal to be robust, very robust. And the 
proposal certainly was. I expect the adopted rules to be 
robust, as well. But we are considering all of the ideas and 
impacts and clearly also are sensitive to, not damaging 
gratuitously the product.
    Mr. Crenshaw. Great. Thank you very much.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Before I ask a couple of questions, I wanted to comment on 
something you just said, because I think you put in a nutshell 
part of what I am concerned about--and I am not saying you are 
agreeing with me, but part of what you hear from this side 
about resources and about enforcement.
    You are right, government can't be in everybody's lives, 
telling them what to do. But when an individual or a couple of 
individuals are making decisions that affect a whole lot of 
people, such as happened in 2008, where there was a national 
meltdown that then had an effect worldwide, then that kind of 
involvement, that kind of enforcement by government, that kind 
of interference, if you will, by government is totally proper, 
in my opinion, to make sure it doesn't happen again.
    And that is what we are talking about here. At least the 
comments I make whenever I say, you know, we need more 
enforcement, that is to make sure that what happened then 
doesn't happen again. Because those folks were not making 
decisions that affected them only; they made decisions that 
affected a lot of people, and we are still suffering from it in 
so many ways.
    Mr. Crenshaw. I would only say, when we talk about 
municipal securities, if a school board in New York issued $5 
million in debt and they made a bad decision----
    Mr. Serrano. Right.
    Mr. Crenshaw [continuing]. I don't think that is what 
caused the world economy to almost collapse. But I think, in 
the broad sense, I agree with you----
    Mr. Serrano. Right.
    Mr. Crenshaw [continuing]. And what you are saying.
    Mr. Serrano. Thank you. Thank you, Mr. Chairman.
    Madam Chair, there has been a lot of press lately about 
high-frequency trading. Are you concerned about these 
practices? Does the SEC have the resources to keep up with 
these new technologies?
    Ms. White. I think----
    Mr. Serrano. It seems that every time you have a solution 
to a problem, a new one comes up, right?
    Ms. White. Well, you have to be vigilant--which is why we 
need sufficient resources. But you have to be ahead of the 
market as much as you can. And, clearly, the marketplace is 
vibrant, it is evolving and constantly changing. So, it is very 
important, obviously, for the SEC to be on top of that.
    And I think I said, actually, before I was confirmed that 
one of my immediate priorities for the SEC, in addition to 
implementing the congressionally mandated rulemakings and 
strengthening enforcement, was to make sure that the SEC had 
thoroughly reviewed, really, the range of market structure 
issues, equity market structure issues, and then decided what, 
if any, you know, changes should be made.
    Our approach at the SEC on these issues is to be data-
driven and disciplined to determine where high-frequency 
traders fit into the range of market quality issues, to look 
into all the questions that have been raised, and then to take 
appropriate action if changes are needed.
    Now, clearly, we are focused at the SEC and have been for, 
you know, quite some time on any unlawful trading practices of 
high-frequency trading firms, really, of any of our market 
participants. And that is a very important focus of our 
enforcement and examination program.
    We currently have, I can't talk about specifics, but a 
number of ongoing investigations regarding various market 
integrity and structure issues, including high-frequency 
traders and automated trading. So we are very much focused on, 
you know, any abuses in that space.
    On the policy side, questions have been raised there, 
should any of the rules be changed. And, again, our approach 
there is very data-driven, very disciplined. Our experts in 
trading and markets are, very much involved in this issue, very 
much on top of these issues.
    And I think, you have to sort, separate out, what are the 
questions you are asking there. I mean, for example, there are 
many market metrics that show that high-frequency traders, 
provide greater liquidity, they reduce costs, they lead to 
better prices. There is another school of thought----
    Mr. Serrano. Right.
    Ms. White [continuing]. However, that raises various 
concerns about unfairness, the lack of a level playing field, 
what is the real value added. So, I think people would agree 
that there are advantages of speed, but what is the impact of 
the advantages of speed? Is it harmful? Is it not harmful? Who 
does it harm, if it harms?
    But these are all, you know, issues that we are very much 
reviewing intensively and on top of.
    Mr. Serrano. Let me ask you one more question, then, Ms. 
Chairman. Your request of $1.7 billion will support 639 new 
positions. You are requesting 126 new positions in enforcement, 
316 in compliance, and 25 each in corporate finance, trading 
and markets, and investment management.
    Can you explain what function these will serve and why they 
are needed? Will they put you more in line with how other 
financial regulators are staffed?
    Ms. White. We still won't actually be in line with the 
other financial regulators', staff. But what we are asking 
for--and, again, we really have tried to be very surgical about 
our needs here, and I think particularly with the requests for 
the additional examiners and the additional enforcement 
staffing. They are critically needed to carry out our 
responsibilities. And we have talked a fair amount about the 
investment advisers and frequency of examination there, so I 
think I don't need to, say more about that.
    On the enforcement side, we are also keeping up with a 
very, complex, fast-moving market. We need to know what Wall 
Street knows and, how they may be trying to come in between 
some of the rules so that we can, be right there on the 
enforcement side.
    Mr. Serrano. Oh, they wouldn't do that, would they?
    Ms. White. No, of course not, right?
    Mr. Serrano. Right.
    Ms. White. So, those are--and one of the other things that 
I think has been an emphasis, certainly in enforcement, and 
certainly is my emphasis in enforcement, is to focus very 
closely on responsible individuals as well as institutions.
    Mr. Serrano. Sure.
    Ms. White. So we have an increased focus on responsible 
individuals. That, one would assume, and has to some degree 
already, led to more litigation, more trials. Individuals tend 
to contest more than companies do. And so some of those 
resources in enforcement are really to enhance our litigation 
capacity, which I think is extraordinarily important to a 
strong enforcement presence.
    Mr. Serrano. Thank you.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Womack.
    Mr. Womack. Thank you.
    A lot has been said already about the MSRB and the 
rulemaking for municipal advisors. The problem is, not 
everybody has said it. So let me associate my remarks with 
those of Mr. Diaz-Balart and our chairman.
    And, basically, from the context of I was a mayor for 12 
years, issued a lot of debt, had a lot of great ideas presented 
to me by people, and so I think my overriding concern is that 
we don't do anything that--I recognize, as my friend, Mr. 
Serrano, has said, that there is a place for legitimate 
regulation to protect those people that make decisions that 
affect a whole lot of other people, which we certainly did. But 
there has to be a careful balance in there that we don't 
disincentivize companies, people representing companies, that 
have workable ideas.
    We saw a lot of this when we saw interest rates going down 
and a whole lot of issuers capitalizing on the fact that they 
could restructure, do some second-lien bonds, those kinds of 
things, and really maximize the value, leverage their potential 
with a lot of capital investment.
    So I just want to make sure that we are not going to do 
something that is going to take away the incentive for these 
advisory-type folks to be able to give us the proper advice 
because of some rule that may prevent them from being able to 
participate in the issuance of the debt.
    Ms. White. Well, it is a balance, but, obviously, the need 
for the rules was a provision of Dodd-Frank. I mean, that 
marketplace certainly has enforcement investor protection 
issues that we are responsive to, even apart from the 
registration requirements.
    But I think if you look between our proposal and what we 
adopted--I am not saying you agree with everything that is in 
the adopted rules there--that I think we very carefully, looked 
at how broad should that rule be, who should it apply to, to 
what activities should it apply to, and, again, considered, the 
impacts on municipalities and really across the board.
    And, we are continuing, as I have said, to dialogue about 
issues that still remain subject to interpretation and concern.
    Mr. Womack. And very quickly, on your budget, to kind of 
pick up on something that Mr. Serrano said just a few minutes 
ago--and I couldn't agree more that there is a need to protect 
people that make decisions that affect larger groups of people. 
But as it concerns the new hires, can you quantify the amount 
of resources that you are currently using to examine private 
fund advisors?
    I am asking because investors in those funds generally are 
well-off--millionaires, billionaires. And I get the need to 
make sure that private funds are above board, but my bigger 
concern are the retail investors. In my opinion, we should 
spend more time protecting the mom-and-pop retail investors who 
may not be as sophisticated when it comes to investing.
    So walk me through that scenario.
    Ms. White. Well, I think that investors across the board 
are entitled to protection, and the SEC is their advocate. I 
mean, I certainly don't exempt anyone from, my thinking on 
that. It is very important.
    And I think, plainly, you have particular concerns for--
heightened concerns for retail investors, particularly if they 
are not advised at all or advised by either a dishonest advisor 
or not an able advisor.
    But I think, again, the registration of advisors to private 
funds is something that, we have the authority in the Dodd-
Frank act to do that. My sense is, our examination staff's 
sense is that, we have tried to target our resources. We have 
done some presence exams, which are not the same as full-blown 
exams, not as resource-intensive in the beginning, on some of 
this space. But we have found significant issues where we have 
gone, particularly with respect to allocation of fees and so 
forth.
    So I think there is, a need for resources in that space. We 
want to be smart about it. We certainly, do not want to 
compromise protection of retail investors. As I think I said 
earlier, though, you also have the phenomenon of, the larger 
investment advisors that are responsible, nevertheless, for the 
pension funds of the retail investors, so you have that 
indirect benefit.
    Mr. Womack. And, very quickly, of 600-and-some-odd 
employees if this budget were approved that you would hire, can 
you break those down as to who goes where, where your 
priorities would be insofar as the allocation of those 
resources?
    Ms. White. I don't know if I can be more specific than--I 
mean, you have the number for, how many would be, in exam, 
which was about 240----
    Mr. Womack. 316?
    Ms. White [continuing]. I think. 316 is the total. I think 
the difference, the delta there, is for broker-dealers and 
other registrants. So where it is most, frankly, desperately 
needed is in the investment adviser space.
    In terms of, sort of, how they would be deployed across, 
various kinds of investment advisers, I mean, that is something 
that, to a large degree, will be driven--I may be able to give 
you more specific information in a follow-up--by our, risk-
based assessment of where the biggest concerns are, the biggest 
needs are, and, again, trying to make certain that we are not 
absent from the smallest spaces as a part of that, too. Because 
you might not trip, a risk-based metric in the smallest of the 
investment advisers. So we want to make sure we are there, as 
well.
    Mr. Womack. Madam Chair, thank you so much.
    I am out of time. I yield back.
    Mr. Crenshaw. Thank you.
    Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman.
    Madam Chair, my colleague, Mr. Womack, mentioned earlier in 
his questioning the proxy advisory firms, and I agree with the 
concerns he has raised.
    Last week, Commissioner Gallagher gave a speech that 
addressed broader concerns around the proxy process. It does 
seem that some of the Commission's rules around this process 
are outdated, in need of updating. No one wants to interfere 
with shareholders, who have legitimate points, from placing 
proposals to their fellow shareholders, but when we examine who 
we are making many of these submissions, it feels we have 
ventured from the original goals of the proxy process.
    Consistent with Commissioner Gallagher's speech, do you 
believe that the Commission should revisit the resubmission 
thresholds and the holding period requirements?
    Ms. White. I think that--and I know the proposal you are 
referencing. I think we call it, in part, the proxy plumbing 
proposal.
    And, I think it has a number of issues in it, including the 
proxy advisory firm issue that we were discussing, and I think 
the issues are important to investors and important to 
companies. And by that, I mean there is a range of issues, I 
mean, not just the period of time that should be applied in 
terms of purchases and so forth.
    I think that that whole set of issues is one that certainly 
has my attention. We obviously are trying to prioritize a lot 
of rulemakings there, but it contains a number of important 
issues, I think.
    Mr. Yoder. One of the issues we raised last year and was 
subject of debate before this committee and has some strong 
bipartisan support is legislation moving through Congress 
called the Email Privacy Act. Myself and Mr. Graves, along with 
a bipartisan group of Congress men and women, have cosponsored 
this bill, I think most people on this subcommittee. And it 
responds to concerns that have been raised about the IRS, the 
SEC, and a number of our regulatory agencies, that they are 
engaging in a practice of reading electronic correspondence of 
Americans without the due process of achieving a warrant or 
showing probable cause for reviewing those emails.
    The SEC has, I think, admitted to this practice. And I 
think it has come under some concern from a lot of Americans 
that the Federal Government would treat somehow electronic 
correspondence different than paper correspondence. The paper 
documents on our desk versus the, you know, file folders 
contained in our email accounts all seem to probably have 
Fourth Amendment protections.
    This legislation is gaining a lot of steam in the House. 
And I guess my question for you is, is the SEC engaging in the 
practice of reading emails or other electronic correspondence 
of Americans without a warrant?
    Ms. White. And I think we had this conversation last year--
--
    Mr. Yoder. We did, yes.
    Ms. White [continuing]. As I recall. And we certainly 
aren't reading emails live, which I think was part of our 
discussion last year.
    What the SEC has--and we are not a criminal law enforcement 
agency, so we don't have the authority to get a criminal 
warrant. So that is one point.
    What we do have--and, essentially, there is a long line of 
established Supreme Court cases--we have the administrative 
subpoena power, as do most civil law enforcement agencies in 
one form or another, that can be used to ask a subscriber for 
their emails or ask a third party, who may have documents, 
emails, including an ISP, you know, for those emails.
    So that is the authority the SEC has. A subpoena is very 
different than, seizing something as you might when you need to 
have a warrant in a typical case. The practice that the SEC has 
always followed with these is to, if they are subpoenaing the 
ISP, which I think is the area of interest, to give notice, to 
the subscriber, who then has the opportunity to contest that 
subpoena if they so desire.
    I understand the privacy concerns. I think we talked about 
that last year, as well. I think there are a number of 
different accommodations that can be made to actually heighten 
the privacy protections.
    What concerns me, as the head of a, in part, large part, I 
suppose, law enforcement agency, is that we not put out of 
reach of lawful process--and, again, it is a process that gives 
notice and opportunity to be heard--what is often sometimes the 
only or critical evidence of a serious securities fraud. I 
think you can balance the two. We are certainly, happy to 
discuss exactly how to do that. And we use that authority, I 
think, quite judiciously, but it is extremely important to law 
enforcement.
    Mr. Yoder. Which, clearly, your point is that you are not 
conducting law enforcement, you are conducting administrative 
review, you are conducting subpoena--I mean, if you are going 
to go forward with law enforcement, you are not looking at 
criminal sanctions on folks. And we believe just very strongly 
that that process needs to be one that protects the Fourth 
Amendment rights of every American.
    And there is this sense that we get from not only 
statements of the IRS that has blatantly said Americans do not 
have an expectation of privacy when it comes to their email, 
there is a sense that these subpoenas that are being issued--so 
we are not even talking about warrants--administrative 
subpoenas that are being issued don't give due process, don't 
give notice, which you have described as protections for those, 
that these are being taken without notice to the subscriber. 
And that is one of the chief concerns that has driven the 
interest in fixing this.
    And so I would love to see your comments or thoughts on, I 
think it is, House Resolution 1852 to know what the SEC would 
amend or change about that to allow you to continue to carry 
out your functions while protecting the Fourth Amendment rights 
of our constituents, who are, frankly, alarmed at just the 
intrusions of privacy that go on every day at this government, 
particularly when it comes to electronic correspondence, that 
somehow, perceived to be in the bureaucracy of this vast town, 
that the Fourth Amendment doesn't apply there like it applies 
everywhere else.
    I know you have stated here you believe it does and you are 
respecting that in your efforts, but I think we have some 
disagreements about how that is being administered. And I would 
love to see your thoughts on how our bill could go forward to 
protect Americans with your input.
    Ms. White. Happy to do that.
    And, again, I would just say that I do think, you know, 
that civil law enforcement--and I do call it law enforcement, 
because I think that is what it is--is extraordinarily 
important. I also think the privacy interests that you are 
referencing are extraordinarily important, too.
    And I think the way the SEC has done this, satisfies those 
requirements, or should. But, again, I think there are any 
number of ways to do this, and we are very open to, talking 
about other measures, as well.
    Mr. Yoder. Thank you, Madam Chair.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Madam Chair, again.
    And appreciate the gentleman's leadership on that issue. 
Very important to everyone, not just one side of the aisle or 
the other. It is really for everyone. And I appreciate your 
interest in trying to work with us on that.
    If I could quickly, just to go back to the previous 
comments and questions I had earlier in relation to the 
interagency working group and such, and you referenced, you 
said there were senior individuals of those five agencies, is 
it possible for us to get a list of those, I mean, to our 
office at some point? I know you said you couldn't recall off 
the top of your head who the individuals might be or the 
meetings times or places.
    Ms. White. I don't see any reason why those names couldn't 
be provided.
    Mr. Graves. Good. Thank you. And----
    Ms. White. Someone may tell me there is a reason, but I 
don't know it as I sit here.
    Mr. Graves. That happens to me oftentimes, too.
    And then, next, just thinking about a lot of confusion with 
the different agencies being involved and a lot of concern in 
the marketplace, is it possible that one agency might have some 
input or send out a letter or request to work within the 
rulemaking process one way and another agency maybe have 
different correspondence otherwise?
    If I could ask, is it safe for the marketplace to assume--
or could you assure the marketplace that if they receive 
correspondence from any of those five that has a specific 
request on how to operate within the rulemaking process and 
such, that it is consistent amongst all of them and they 
shouldn't expect something different from another agency, as it 
relates to the Volcker Rule?
    Ms. White. I think--and I don't want to overstate the 
assurance, but let me say two things.
    I mean, one, I think that the marketplace should know--I 
mean, they know who their primary regulator is, and so I think 
addressing questions to the primary regulator is the best way 
to go.
    I can also say that all of the agencies are very focused on 
talking about and being as consistent as possible in terms of 
their, you know, approach on interpretations and other issues. 
And that is something that, again, I think, just as I think it 
was critically important to the rulemaking that it be jointly 
done, it is certainly critically important as we go forward on 
implementation that that happen.
    I don't want to guarantee somebody can't get a letter from 
someone that, hasn't taken it before the group, but the 
objective of that group on any issues of significance is to 
discuss them first. It could be you could have--and this is 
what everybody is worried about--you could have ultimately a 
difference in point of view, and then that would create, the 
inconsistency you are concerned about.
    Mr. Graves. Right. And I think, really, I am thinking about 
the reporting requirements, you know, that----
    Ms. White. The metrics, yes.
    Mr. Graves [continuing]. Someone in the marketplace may 
have oversight with different agencies, and the OCC sends them 
one reporting requirement for the same rule and potentially the 
FDIC or another agency sends them another, that as much 
consistency and continuity is better for the marketplace during 
this development time and the new rule being implemented. So 
anything you could do to reassure us as a committee that that 
is occurring----
    Ms. White. Yes.
    Mr. Graves [continuing]. Because, ultimately, we get the 
calls that say, hey, what am I doing, which----
    Ms. White. Yes.
    Mr. Graves [continuing]. Letter do I go by?
    And then, lastly, I would just like to get your thoughts on 
the future of the market with the collateralized loan 
obligations. What do you see the future there? Because there is 
a lot of concern with the Volcker Rule and the implications on 
that market.
    Ms. White. Yes. And that is an issue, on the CLOs, that 
really has been, in this interagency working group but has the 
attention of the principals of the agencies, as well. It is one 
of those that, as we speak, we are very focused on. So I can't 
tell you how it comes out, but it is something that we are, 
very focused on.
    Mr. Graves. So it is safe to say that the interagency 
working group is looking at this, that it is--you don't see 
CLOs being banned in the future at all, in totality?
    Ms. White. You know, I think the question is, how do you 
interpret the provisions with respect to the CLOs. So I don't 
want to get ahead of the group on this.
    Mr. Graves. I understand. And I guess you know a lot of 
industry really relies on that opportunity, so I appreciate how 
that working group is looking into this and understands that 
importance.
    Thank you.
    Mr. Crenshaw. Thank you.
    I don't think there are any more questions. We want to 
thank you for your testimony today.
    I hope you can appreciate, that we are all concerned that 
we have the right kind of regulation. That is a tough job. And 
I think there is also a concern that we want to do everything 
we can to do those jobs efficiently and effectively.
    Last year, when we fully funded the Division of Economics 
and Risk Analysis--I hope that that is helping to do more cost-
benefit analysis of the rules that you are putting out. I know 
that all these Dodd-Frank rules are going to require more 
people, and then you have to ask yourself, what do you do with 
all the people after all the rules are written?
    And that is where I think the IT that you talk about, 
upgrading those areas, hopefully can be leveraged into doing a 
lot--like when we talked initially about how only 9 percent of 
the investment advisors are being looked at. You would hope 
that somehow the IT, the money that is being spent there, would 
help doing that job.
    So we recognize you have a tough job, and we appreciate the 
hard work that you are doing. And we thank you for being here 
today.
    Ms. White. Thank you.
    Mr. Chairman, could I just say one----
    Mr. Crenshaw. Sure.
    Ms. White. In terms of the Dodd-Frank and the JOBS Act 
rulemakings, I mean, I think, in terms of resources going 
forward, that is really a matter of implementing those rules. 
It is not as if we are going to have lots of people, sort of, 
freed up from writing the rules. I mean, so that is factored 
into the request, though.
    Mr. Crenshaw. Gotcha.
    Ms. White. Okay.
    Mr. Crenshaw. Well, thank you so much.
    Ms. White. Thank you.
    Mr. Crenshaw. The meeting is adjourned.

    [GRAPHIC] [TIFF OMITTED] T8192A.092
    
    [GRAPHIC] [TIFF OMITTED] T8192A.093
    
    [GRAPHIC] [TIFF OMITTED] T8192A.094
    
    [GRAPHIC] [TIFF OMITTED] T8192A.095
    
    [GRAPHIC] [TIFF OMITTED] T8192A.096
    
    [GRAPHIC] [TIFF OMITTED] T8192A.097
    
    [GRAPHIC] [TIFF OMITTED] T8192A.098
    
    [GRAPHIC] [TIFF OMITTED] T8192A.099
    
    [GRAPHIC] [TIFF OMITTED] T8192A.100
    
    [GRAPHIC] [TIFF OMITTED] T8192A.101
    
    [GRAPHIC] [TIFF OMITTED] T8192A.102
    
    [GRAPHIC] [TIFF OMITTED] T8192A.103
    
    [GRAPHIC] [TIFF OMITTED] T8192A.104
    
    [GRAPHIC] [TIFF OMITTED] T8192A.105
    
    [GRAPHIC] [TIFF OMITTED] T8192A.106
    
    [GRAPHIC] [TIFF OMITTED] T8192A.107
    
    [GRAPHIC] [TIFF OMITTED] T8192A.108
    
    [GRAPHIC] [TIFF OMITTED] T8192A.109
    
    [GRAPHIC] [TIFF OMITTED] T8192A.110
    
    [GRAPHIC] [TIFF OMITTED] T8192A.111
    
    [GRAPHIC] [TIFF OMITTED] T8192A.112
    
    [GRAPHIC] [TIFF OMITTED] T8192A.113
    
    [GRAPHIC] [TIFF OMITTED] T8192A.114
    
    [GRAPHIC] [TIFF OMITTED] T8192A.115
    
    [GRAPHIC] [TIFF OMITTED] T8192A.116
    
    [GRAPHIC] [TIFF OMITTED] T8192A.117
    
    [GRAPHIC] [TIFF OMITTED] T8192A.118
    
    [GRAPHIC] [TIFF OMITTED] T8192A.119
    
    [GRAPHIC] [TIFF OMITTED] T8192A.120
    
    [GRAPHIC] [TIFF OMITTED] T8192A.121
    
    [GRAPHIC] [TIFF OMITTED] T8192A.122
    
    [GRAPHIC] [TIFF OMITTED] T8192A.123
    
    [GRAPHIC] [TIFF OMITTED] T8192A.124
    
    [GRAPHIC] [TIFF OMITTED] T8192A.125
    
    [GRAPHIC] [TIFF OMITTED] T8192A.126
    
                                          Wednesday, April 9, 2014.

                    OFFICE OF MANAGEMENT AND BUDGET

                                WITNESS

SYLVIA MATHEWS BURWELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
    Mr. Crenshaw. Okay, the hearing will come to order.
    Director Burwell, we want to welcome you to our hearing 
today. OMB has a significant responsibility in assisting the 
President, and that is any President, Democrat or Republican, 
in the development and execution of their policies. In meeting 
with this responsibility, OMB develops the budget requests, 
coordinates management, legislative, regulatory, financial, 
procurement and other proposals to make sure that the Federal 
agencies' practices are good for the country and consistent 
with the Administration's objectives. OMB does this with fewer 
than 500 people.
    The purpose of today's hearing is to discuss OMB's 
appropriation request. Since OMB is the Agency that prepares 
the budget request for the entire Federal Government, we will 
also want to discuss some of the important policies and 
assumptions in the President's overall request for fiscal year 
2015.
    I know you are pleased that the deficit dropped to 4.1 
percent of GDP last year, but we have to remember the deficit 
is also higher than it has ever been under any other 
Administration, and last year, maybe the year before, it 
exceeded 100 percent of GDP, and it looks like it is going to 
continue to stay there for the rest of this Administration. So 
it would have been nice to do a little bit more to help reduce 
spending.
    Now, the mandatory spending proposed in your budget is 
estimated to grow from $2.5 trillion in 2014 to $3.6 trillion 
in 2019. That includes over $750 million in gross interest 
payments on the debt in fiscal year 2019, and that is more than 
the entire defense appropriations bill. I think it would be 
best if the Administration could propose some mandatory 
spending reforms that would rein in more of this spending. So I 
urge you to work with the Budget Committee and the authorizing 
committees to implement responsible mandatory reforms. As an 
appropriator who has implemented spending reductions since 
2011, we want to encourage you to make progress on the 
mandatory side.
    I was a little concerned that the budget request was 
submitted late. We are 6 years into the Obama Administration, 
and the budget request is still late. I know that the fiscal 
year 2014 appropriations process didn't finish until January, 
but the Ryan-Murray agreement provided fiscal year 2015 top 
line appropriations to use in December, and the request was 
still late. So I hope next year's budget is submitted on time.
    Regarding your appropriations, I am a little concerned that 
you still are asking for an increase in your operating account. 
These are difficult fiscal times and most Americans want to see 
their Nation's leaders lead by example. Between 2010 and 2014, 
total discretionary spending has been reduced by 13 percent. 
During the same time period, the House Members' office budgets 
have been reduced by 16 percent, but OMB's operating budget has 
only been reduced by a little over 3 percent.
    So I know that you have a lot to do and your staff have a 
lot to do, but, again, I would love to see more leadership, 
leadership by example. That is why we reduced the Members' 
budgets by 16 percent. Our constituents don't ask us to do 16 
percent less work. We just have to find a way to do all our 
work, and we do it with existing resources.
    Regarding your request for a $12 million increase in the IT 
oversight and reform, I appreciate the fact that the 
Administration has made efforts to improve the use of IT 
resources. You are doing cloud computing and data entry 
consolidation and other efforts. But I would like to understand 
how the healthcare.gov failed to launch successfully and maybe 
how we can make sure those don't happen in the future.
    We may not always agree on budget policies, and I have 
raised some concerns with your budget request. But I do 
recognize the challenge that you face, and the Committee 
appreciates your hard work and all the hard work that is done 
by OMB. So we look forward to hearing your testimony.
    Now I would like to turn to Ranking Member, Mr. Serrano.
    Mr. Serrano. Thank you. And, by the way, I know why it 
didn't launch the way we wanted. They should have gone to a 
college dorm and gotten a couple of kids, and they would have 
done it right away with no problem.
    Thank you, Mr. Chairman. I also would like to welcome our 
Director of OMB. OMB is the Agency in charge of ensuring that 
our government operates in an efficient, fair and responsive 
manner. Your role in developing the budget and managing Agency 
performance and coordinating regulatory action places you at 
the core of how our government operates. Because of this, your 
budget request, while somewhat small compared to other agencies 
under our jurisdiction, has a wide-ranging impact. Your request 
for this year includes a small increase to help ensure you have 
the personnel needed to meet these various responsibilities.
    It should be noted that the President's fiscal year 2015 
budget prepared with your counsel stands in stark contrast to 
Representative Ryan's Republican budget. The Republican budget 
fails to create jobs while slashing critical parts of the 
Nation's social safety net, such as Medicaid, which is cut $732 
billion over 10 years, and SNAP, otherwise known as food 
stamps, which is cut by $125 billion. On the other hand, the 
Administration's budget request creates a strategic plan that 
makes investments in the American people, their livelihoods and 
their welfare. I commend OMB for your role in these efforts.
    OMB also plays a vital role in coordinating our 
government's policies with regard to Federal employees, 
contracting and procurement. Because of the sequester over the 
past few years, the size of the Federal workforce has shrunk. 
We must make sure that even in tough budget times, we are 
working to protect those people who do such important work on 
behalf of the American people. And when we use contract 
workers, it is important that we hold those contractors to the 
highest standards of fairness and equality. That is why I was 
heartened by the President's recent Executive Order to raise 
the minimum wage for all new contracts signed by the Federal 
Government and yesterday's Executive Orders to help eliminate 
gender-based pay disparities among government contractors.
    I am also interested in your efforts to promote data-driven 
innovation, DDI, in fiscal year 2015. As the coordinator for 
DDI activities, OMB is partnering with leaders in States, 
localities, foundations and research organizations to help 
ensure good policy making through data-driven analysis. This is 
important work, and as with every Federal Agency, I want to 
encourage OMB to work with leaders, officials and entities in 
the Territories as part of these efforts as well as in the 
States, of course.
    OMB's mission parallels the responsibilities of the 
Appropriations Committee, examining the effectiveness of 
Federal programs and creating a budget that reflects our 
Nation's priorities. I hope that we can have an honest 
conversation about OMB's challenges and what this Subcommittee 
can do to partner with your agency to ensure the successful 
completion of both of our missions.
    Thank you for your service and for appearing in front of 
this Subcommittee today, and I look forward to a productive 
discussion.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Director Burwell, we will turn it over to 
you. We will make your written statement part of the record. If 
you could limit your oral testimony to about 5 minutes, that 
would be helpful. The floor is yours.
    Ms. Burwell. Will do. Thank you.
    Mr. Chairman, Ranking Member Serrano and Members of the 
Subcommittee, I want to thank you for the opportunity to 
present the President's fiscal year 2015 budget for the Office 
of Management and Budget. I want to begin by thanking this 
Subcommittee for all the work on the Consolidated 
Appropriations Act of 2014, an important step to returning to 
the appropriations process and regular order. Today I will 
discuss the President's fiscal year 2015 budget request for OMB 
and our work in the management, budget and regulatory spheres, 
work that this Subcommittee is deeply familiar with.
    First, through the budget development process, support of 
the appropriations process and ongoing management and oversight 
of Agency budgets, OMB drives high quality execution of the 
Nation's fiscal policy and management of critical government 
functions.
    Secondly, by working with more than 100 Agencies throughout 
the Federal Government, OMB aims to improve overall management 
and deliver impact through improved efficiency, productivity 
and quality of critical government services. For example, we 
are encouraging and expanding strategic sourcing, our effort 
for the Federal Government's buying power to save on essential 
purposes. These efforts have saved over $300 million since 
2010.
    In the regulatory space, OMB's work protects the health, 
safety and environment of Americans while promoting economic 
growth, job creation and innovation. The regulations that OMB 
has reviewed over the past 5 years are expected to have an 
overall value of $200 billion annually when implemented. And at 
the same time, the Administration has also focused on 
streamlining, modernizing or repealing regulations on the books 
that impose unnecessary burdens or costs.
    This regulatory retrospective review, or look-back, has 
resulted in over 500 initiatives that the agencies are pursuing 
to reduce costs, simplify the system and eliminate redundancy 
and inconsistency with $10 billion in savings already in the 
near term and more to come in the future.
    OMB's budget request is designed to deliver against these 
core missions while supporting our expanding role in a number 
of key priority areas that the Congress has called on OMB to 
take on, including implementation the Budget Control Act, 
supporting performance management through the Government 
Performance and Results Modernization Act, ensuring improved 
financial management and transparency and accountability under 
the Federal Funding Accountability and Transparency Act, and 
supporting new contracting spending and security requirements 
under the National Defense Authorization Act.
    As this Committee knows well, even while OMB has taken on a 
number of new functions and responsibilities in recent years, 
our funding and staffing levels have been significantly 
constrained. As a result of sequestration, OMB employees were 
required to take 8 furlough days last year. That is the most of 
any agency in the Federal Government. The budget request would 
bring OMB back up to staffing levels comparable to 2009, though 
well below staffing levels of recent years. This is a critical 
investment with large returns in the form of improved program 
management, budgetary savings, smarter regulations, important 
outcomes that the administration, Congress and the American 
people look to OMB to deliver.
    Thank you for the opportunity to testify today. I look 
forward to continuing to work closely with the Subcommittee on 
our shared priorities for OMB and supporting the Committee's 
efforts moving forward on the fiscal year 2015 appropriations. 
I would be pleased to answer any questions you have.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T8192A.127
    
    [GRAPHIC] [TIFF OMITTED] T8192A.128
    
    [GRAPHIC] [TIFF OMITTED] T8192A.129
    
    [GRAPHIC] [TIFF OMITTED] T8192A.130
    
    [GRAPHIC] [TIFF OMITTED] T8192A.131
    
    [GRAPHIC] [TIFF OMITTED] T8192A.132
    
    Mr. Crenshaw. Thank you very much.
    We will have questions, and I think we will try and observe 
the 5-minute rule, so Members can keep that in mind. There is a 
little light that will help the Members to remember the 5-
minute rule.
    So let me just make sure you know one of the most important 
things you do is submit the budget for the Federal Government 
and when you submit it late, it makes everything else get 
behind, and we are all trying to get back to regular order, and 
we are doing a pretty good job this year. I just want to be 
sure you understand that it is due the first Monday in 
February, right?
    Ms. Burwell. Absolutely, and I respect those deadlines. The 
mid-session review since I became OMB Director we delivered a 
week earlier. In addition to meeting the top line, in order to 
do the work that an Appropriations Committee, we actually 
needed the appropriation level. Seven weeks and one day from 
the date on which we got those numbers, because we received the 
numbers the same day they were posted for Members to see in 
terms of the vote, we put out a budget.
    So we take that very seriously. We wanted to get these 
numbers up as quickly as possible. We took what is a 3 and a 
half month process and did it in 7 weeks. I take deadlines 
extremely seriously and continue to work to meet them. I want 
to work as part of a team to return to regular order.
    Mr. Crenshaw. Great. And so, next year, we are going to 
work to have them right on time.
    Ms. Burwell. I am excited to see all appropriations bills 
delivered to us on October 1st, and we will be there.
    Mr. Crenshaw. Great.
    Let me just ask you about your request this year. I know 
that last year, I think there was money to add 40 new staff 
members. I think this year you proposed another 25 in your 
budget. Maybe if that is not right, you can tell me. You are 
requesting a little bit over 4.5 percent increase this year, 
and I know you have lots of responsibilities. But other 
agencies that you oversee when you submit their budget, some of 
those programs are cut for different reasons.
    So tell us how you go about, I know you have a lot to do, 
how do you decide what areas in the other parts of government 
aren't going to be funded as much as last year and how do you 
decide that you need just a little bit more each year?
    Ms. Burwell. So I know this Committee knows the constraints 
of the 2015 levels and you all understand that while we have 
some of the sequester buyback, it is still a very tight level, 
and as we went through the entire budget process, it was 
difficult to make the tradeoffs and decisions that we made. And 
I take very seriously your point in your opening statement 
about leading by example and want to do that.
    In the case of OMB and the decision that we made in terms 
of the dollars and the amounts, you are correct, we have a $4.2 
million increase that is a 4.6 percent increase on our budget. 
From the period of 2010 to the present, OMB has had a 9 percent 
decrease in constant dollars in its budget. With regard to our 
FTEs, that translates to 11 percent, because OMB is only 
people. We don't really have anything else to cut. We don't 
do--there aren't grants. We don't do a lot of mailings. We 
don't do anything. We are people. So that is a deeper cut.
    At the same time, during that same time period, CBO has 
increased by 9 percent. And while the functions are different 
in terms of, as you articulated, we do execution, post-passage 
of legislation, our colleagues there have seen increases.
    When we think about--I listed some of the things that 
Congress has asked us to do in addition. Since I was here 
before, take for instance GPRA, GPRA modernization. In GPRA, 
the first Government Performance Results Act, what we saw was 
18 mentions of OMB. In the current one there were 40 mentions 
of OMB. Right now, we have taken the over 2,000 pages that were 
on different Web sites and brought that together in one forum. 
We have set cross-agency priorities. So across the board, the 
functions that OMB has been doing have been continuing to 
expand.
    In addition as I look and make decisions, OMB went in some 
of the ratings of the Federal employee survey, which I take 
seriously as I try and manage an institution, we went from 3rd 
to 34th in a number of ratings. And I think that is a 
combination of things that have happened over a period of 
years. And what we want to do is make sure we are able to serve 
and deliver both for the Administration and the Congress and 
the American people.
    Mr. Crenshaw. Thank you.
    Mr. Serrano.
    Mr. Serrano. Thank you so much, Mr. Chairman.
    You have been here now almost a year, but you served as 
Deputy Director there during the Clinton administration. Can 
your give us an impression of the agency and its employees and 
what changes you have seen from the time you were there as 
Deputy Director and now in your new role?
    Ms. Burwell. A couple of changes that I have observed in 
the year, and probably one thing that I didn't completely 
recognize as I was coming back to take the job, and that is the 
strain that has been put on our career staff. And career staff, 
as you reflect, that is career staff for any administration, 
Democrat or Republican. And that strain in terms of what it has 
meant to have the hiring freezes, the pay freezes, the 
furloughs that occurred for the team. My first day at OMB last 
year was an alternative furlough day. And what all that means 
at the same time is the uncertainty.
    We like regular order. We like to do the budget on a 
timetable. But if we don't have the numbers, we are trying to 
guess, trying to scramble. The implementation of sequester last 
year, all of these things have contributed to what I think is 
an additional strain on the organization.
    The other thing that I have seen is, and I think this is a 
positive thing that we should do, and that has been a greater 
expansion of the management responsibilities that have been 
given by the Congress to OMB. That is an area, which I am sure 
we are going to talk about today, from information technology 
to the performance management, and the idea it is one of the 
first times in implementing the GPRA modernization that we have 
cross-agency priorities and Agency priorities that are printed 
as part of the budget. So we get that alignment of goals and 
money and we start bringing those things together.
    Mr. Serrano. Now, you have practically answered my second 
question, which was the effect of sequestration and the 
shutdown, and we have been asking all the agencies this and you 
told us really. But in your case, or in the case of your 
agency, our understanding is that morale is very low at OMB and 
that it has been for a while, and your agency has rated low in 
job satisfaction surveys. What do you think accounts for that, 
and what are you doing to fix it?
    Ms. Burwell. So a number of things----
    Mr. Serrano. We have so many different agencies that face 
so many difficulties, and then you wonder why this one is the 
one that gets rated lowest. What is the issue?
    Ms. Burwell. A couple of different things. One, I think 
because we are all people, any of the cuts, as other agencies 
have attempted to manage during fiscal constraints, they have 
been able to change other things. Other Departments actually 
have a larger ability, whether that is through their grant-
making, their conference spending has been cut, travel has been 
cut. OMB does a very limited amount of that. So the only places 
we cut are people.
    At the same time, the dramatic uncertainty that occurs. 
When I first started, we thought we would have 10 furlough 
days. We were able to manage it down to 8. But that dramatic 
uncertainty and people not being paid for those days.
    The other thing is handling all of these things. Sequester 
is a very difficult thing to handle and manage Department by 
Department. It has never been done and done in this way, and I 
am sure I am going to get some questions and actually 
conversations about why sequester was applied. Applying 
something like that, doing all the work to help the agencies do 
it, helping all the agencies during shutdown. While they are 
making the decisions, they consult with us in terms of are they 
breaking the Antideficiency Act.
    The other thing is we will have to weigh all training and 
development. And just like you all going back to your 
districts, that is how you learn what is going on. When we 
can't have an examiner go and visit at least some semblance of 
the work, the programmatic work they are doing, that inhibits 
their ability to do their job, and that is the type of thing 
that I think is affecting morale. And that is why we have the 
money for training and development in the budget. That is one 
of the increases you see in our numbers.
    Mr. Serrano. So the answer to what are you doing to fix it 
is you are trying to get us not to do those things again----
    Ms. Burwell. And our budget.
    Mr. Serrano. That added to it, and having a budget on time.
    You are requesting money funding for a paid summer intern 
program. Could you explain why that is needed, and who those 
interns would be?
    Ms. Burwell. So the paid intern program is something that I 
think is actually very important to recruiting high quality 
people. In 1985, I was a Lyndon Baines Johnson intern here on 
the House side, Cannon 252, Congressman Nick Joe Rahall. I 
wouldn't have been able to do the program had I not had some 
type of pay. I worked at the beginning of the summer at another 
job and at the end to make it all work in terms of what I 
needed to do.
    These paid internships I think are a very important part of 
making sure that the people that we get in the Federal 
Government are not just people who can afford to not work, be 
paid for a summer. So in my own personal case, I think it is 
extremely important to build the institution and to recruit in 
a high quality way that is actually cost-efficient. This is an 
important program.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Director, good to see you. I know you and I have had some 
conversations. I think it would help the Committee here, the 
panel, to learn a little bit about the process you are working 
through, because I think many Members in the House have 
struggled with some of the decisions that have come forward. 
And for the panel's sake, in this case, I will be speaking 
about the Savannah Harbor Expansion Project, where it was 
authorized in 1999, has had bipartisan support in State for 
that entire period of time. And through the budget agreement of 
last year, it was provided for and then even in the Omnibus as 
well, and then OMB sort of made a decision to hold until we 
understand WRDA passes, gets through its final stages here.
    So, Director, could you just explain to us your thinking 
and why a hold is in place at this point, why the Corps is not 
allowed to proceed until WRDA passes and how that impacts other 
projects, because I know there is a tremendous backlog? There 
is a lot you are dealing with, and I want to commend you on 
what you are trying to do to bring fiscal responsibility to 
this place. So if you don't mind, I would appreciate that.
    Ms. Burwell. I would be happy to. I would be happy to. I 
first want to say the Savannah project is a great one. It is an 
important one economically from a macroeconomic perspective for 
the Nation. It is important for the region itself. It is 
something that we support and are excited to see come to 
fruition.
    The issue in terms of where we are in the process for this 
project actually has to do with the basics of fiscal 
responsibility, and it has to do with the fact that when 
projects have been a certain period of time and have certain 
cost increases, and often that occurs because it has been a 
while since the original authorization, that you see cost 
increases occur in these projects.
    When that occurs, we believe that the Congress needs to 
speak again in terms of authorization, and that is why we 
believe this project needs to go to WRDA, go through and be 
passed as part of what you all choose. This is a place where we 
work with the Congress, both in terms of the priorities and the 
fiscal responsibility. And so I am clear about that.
    The backlog in Army Corps projects is $60 billion. That is 
how much we already have approved in starts and everything 
going. While this is a terrific project, if one makes the 
exception that this does not have to have the reauthorization, 
there are many other projects, and I think some of you may know 
them that have very, very high percentage increases in costs, 
and without some mechanism of control, the issues of fiscal 
responsibility.
    So this is very tough because this is, as I have said, a 
very worthy effort. But in trying to maintain some control, 
this is why we have made the judgments we have made. We are 
excited to see WRDA passed. We are working hard, as you and I 
have discussed, to try and figure out, are there ways to speed 
once that happens? But we do believe we need to work with the 
Congress on the question of starts and controlling Army Corps 
spending. And it is a very, very difficult thing because these 
things are important in people's States and districts, and we 
recognize that.
    Mr. Graves. Thank you.
    And if you could maybe expand upon that, too, just to help 
us understand how we as a Congress, as a House, need to be 
thinking and processing. Assuming there is a project where 
expenses have gone up, no fault of their own, it has just been 
time, maybe it is various reports, requirements that Congress 
has imposed on it as well.
    At what point should reauthorization be sought? And I am 
speaking for any project out there, should Members be mindful 
of. I think that would be helpful to know that so that we are 
all looking ahead and preparing. Because I imagine some of 
these that you mentioned in the backlog are probably quite old, 
probably date pre-1999, I would imagine.
    Ms. Burwell. So, with regard, I think the Army Corps has a 
set formula actually that determines when a project meets that 
standard and needs reauthorization.
    I think one of the things that is also helpful is because 
the authorization process and the appropriations process of 
things are not always completely aligned, the question of the 
information that I just shared in terms of the backlog isn't 
always presented as you are doing authorizations. And I think 
it is important to connect the two as it will be very important 
and many great things are going to be done hopefully in WRDA. 
But making sure that everyone is actually clear that what you 
are actually voting on is a certain amount of spending is the 
other thing that I think is a helpful part of the process, 
because otherwise, it doesn't happen until the back end that it 
all gets added up. So I think that is important. And the Army 
Corps has a set number that when these projects need to be 
reauthorized.
    Mr. Graves. Thank you for your support of the project. You 
have been very supportive. I know the President has been, the 
Vice President as well, and our Georgia delegation entirely. 
And you are right, it is regional. It is not about Georgia, 
quite frankly. It is regional. Assuming WRDA does pass, as it 
is written currently and from the House and the Senate 
perspective, what should the Corps expect next from OMB? A 
direction to move forward?
    Ms. Burwell. The Corps' processes are what happens is also 
related to the guidance we receive from the Congress with 
regard to new starts in fiscal year 2014. So at the next stage, 
what we will have to do is review how the new start language 
that we were given as part of the fiscal year 2014 
appropriation process interacts with the approval and 
authorization in WRDA, and we will look to find ways to work 
with the Congress on that issue. But that will be a constraint 
that we may face.
    Mr. Graves. Thank you.
    Mr. Crenshaw. Thank you.
    Mr. Quigley.
    Mr. Quigley. Thank you, Mr. Chairman.
    Director, thank you for your service. I know OMB works very 
hard on transparency issues, but I want to talk about an aspect 
that perhaps we can all improve, that we can do better on, the 
lobbyist reporting with OIRA. GAO's recent testimony and some 
reports talked about how some of the lobbyists disclosure 
issues could be improved upon by OIRA. Have you contemplated 
this, or is there action taking place right now within OIRA to 
your knowledge?
    Ms. Burwell. With regard to the transparency issue, we 
always do believe we can do better. Right now in terms of what 
currently occurs is any time a rule is within OIRA and there is 
any meeting or contact, that meeting is publicly recorded, the 
attendees at that meeting are publicly recorded, and if there 
is any paper delivered as part of that process in terms of 
stating a position, that becomes a part of the public record. 
So in an effort to try to make those things public, that is our 
effort today.
    Mr. Quigley. But are you aware of the GAO testimony 
recently and some of their reports analyzing perhaps some 
shortcomings, as they describe them, of OIRA's reporting along 
the lobbyist reporting lines?
    Ms. Burwell. I have not seen the specifics of shortcomings 
with regard to lobbyist reporting, so I am not familiar with 
the specific issue that GAO has raised.
    Mr. Quigley. We will pass that along and if you could take 
a look at that and get back to the Committee, we would 
appreciate it.
    Ms. Burwell. I would be happy to.
    Mr. Quigley. The other aspects of transparency, you have a 
lot of data on the central Web site now and you have made 
extraordinary efforts making this all accessible. But some of 
the budget summaries and numbers, why we need this part of 
budgets, is still scattered across a number of government Web 
sites. These justifications are not always available in, as a 
term of art, searchable sortable formats. Many are in formats, 
such as PDF, that are hard for third parties to easily pull the 
data information out of that.
    So are you aware of this issue, and what is OMB doing to 
try to make one location, one place, a usable format for all of 
this information?
    Ms. Burwell. So I think the question of CJas, or 
congressional justification to Appropriations Committees, has 
been an evolutionary process, and some of that transparency has 
increased in terms of even getting things up on the Agency Web 
sites in terms of how they do it. One of the things is that 
each Subcommittee, actually each Department works with their 
own Appropriations Committee, and part of the standardization 
has to do with different committees have different demands in 
terms of what they believe will help them do the job.
    So as we think it through this process, I think what we 
need to do is understand, what are the needs of the committees, 
and how can we meet those? And are the committees in a place 
where they are willing to agree on a standardized process or 
approach, and how we can think about doing some of that 
standardization to get to what you are suggesting in terms of 
something that could be overall?
    So it is an issue that I think we need to work closely with 
the Congress, because in its initial form, the congressional 
justifications are about serving the Appropriations Committee. 
I think that should be something that is, you know, it is 
publicly posted on many of the agencies' Web sites, but we need 
to think through if there can be further standardization.
    Mr. Quigley. So how much of the issue is the disparate type 
of information you are getting, or the fact that you are 
working with different Subcommittees?
    Ms. Burwell. It would be both because we do not tell the 
agencies, here is how you do your--we would work the agencies 
on their congressional justification, but at the programmatic 
level, they are much closer to it and they do it. I think they 
tend to want to work very closely with their committees so that 
they are providing the accurate information. So it is a 
combination of both things, the need that different Departments 
are producing different information, but it is also that they 
are working with different committees.
    Mr. Quigley. Mr. Chairman, I look forward to working with 
the Committee on this and the full Committee as a whole with 
the Administration on this.
    Thank you so much.
    I yield back.
    Mr. Crenshaw. Thank you.
    Mr. Diaz-Balart.
    Mr. Diaz-Balart. Mr. Chairman, thank you very much.
    First, again, thank you again for being here, and I must 
say on a personal level, Mr. Speaker--Mr. Chairman. I keep 
promoting you, which is a good thing.
    Mr. Serrano. Don't start a rumor here.
    Mr. Diaz-Balart. Right. Exactly.
    Let me start this all over again. Mr. Speaker, President 
and Chairman.
    Again, on a personal note, it is an Administration that 
even the press has dubbed as one of the most closed. I will 
tell you, you have been very accessible, and I think that is 
very important; it is helpful. So I want to first thank you for 
that. I think that leads to good working environments. So, 
again, I just want to bring that out here publicly.
    Ms. Burwell. Thank you.
    Mr. Diaz-Balart. Thank you for that. I don't want to--the 
Chairman has already talked about some specific issues. Let me 
talk about more of the budget recommendation. At a time when, 
according to the CBO, revenue collection will exceed its 40-
year average level, which is a good thing obviously--that is a 
good sign--but yet the Administration is still proposing some 
revenue increases, i.e., you know, revenue, tax, whatever you 
want to call it, revenue increases.
    And the question is--and in the conversation that you and I 
had, we talked about a little bit I think one of the 
disappointments, and I think we had a very positive 
conversation, is the fact that we don't see the Administration 
really tackling, leading on tackling really the driver of our 
debt, which is the mandatory portion of the budget. So even 
though the revenues are going to be at a record level and even 
though you have revenue increases in the President's--the 
President has revenue increases, my understanding is that it 
doesn't balance for at least a long, long time, and I don't 
know if it ever balances.
    So the question is this: After 10 years, if we were to 
embark on that budget, what would be the actual debt held by 
the public and also how about the unfunded liabilities? When 
you look at mandatory, actually, do you have those numbers? If 
you don't have them now, I would suspect you have those on the 
top of your head.
    Ms. Burwell. Some of those. Let's start with the publicly 
held debt to GDP ratio. Currently, the number is about 74 
percent, and in our budgets, by the end of the cycle, you get a 
decline, a stabilizing and declining debt to GDP ratio, and our 
numbers show it to be 69. So you do see what is a declining 
debt to GDP ratio. And I do think that is a very important 
point because I am fortunate to have had the opportunity to 
actually work on balanced budgets.
    When I was at OMB before, I have worked on three of the 
four balanced budgets that we as a country have had in decades, 
so it is something, obviously, I think can be important. But I 
think the broader fiscal picture, a balanced budget is one 
piece of the picture and can be a measure and a tool, but I 
think what is more what I focus on more is the debt to GDP. But 
what is most important is economic growth and jobs and 
opportunity. And I think what we hope is that the budget that 
we have created is a budget that puts us on the right 
trajectory for now.
    So, right now, and I think even in the Chairman's remarks, 
the idea of further discretionary change right now is 
contractionary and can harm our growth, both in the short and 
the long term, with things like investments and infrastructure.
    Then the question is how one goes about handling those 
long-term entitlement issues that you just raised. And when you 
look at the drivers of those long-term entitlement issues, they 
are basically twofold. The first one is the issue of health 
care costs, and the second one is our demographics as a Nation.
    And then you come to how you address. And in our budget, 
what we try to do is build on what is already built in, which 
is the Congressional Budget Office, since the Affordable Care 
Act was passed in 2010, its 2014 through 2020 numbers, which 
was the window they had at that time, has a $900 billion 
decrease in health care costs. And while all that is not 
attributable to the Affordable Care Act, there are other 
structural changes that cause that, we start to see that 
declining. We see controlling health care cost numbers. And 
then we have an additional $400 billion in health care savings 
that is in our budget.
    In addition, we believe that the issue, when you start 
thinking about those demographic issues, that is part of why 
immigration is so important, because when the Congressional 
Budget Office went to look at that, the questions of increasing 
the labor force was a very important part of what contributed 
to the economic health.
    So that is how we put together the pieces. The issue of 
revenue, we believe that even with the cuts, and it is $5.3 
trillion over the period, that is how much there is in cuts and 
spending and deficit reduction if you look at our budget from 
the 2011 period. But two-to-one is the ratio of cuts to revenue 
in that, and we just believe you can't get the numbers to work 
without some of these revenue changes.
    Mr. Diaz-Balart. I am out of time.
    Thank you, Mr. Chairman.
    Mr. Crenshaw. Thank you.
    Mr. Womack.
    Mr. Womack. Thank you, Mr. Chairman.
    And Ms. Burwell, it is great to see you again. I want to 
associate myself with the remarks of my colleague Mr. Diaz-
Balart, who talked about your openness and your willingness to 
be a dance partner with us. We have been going stag to this 
dance for quite some time now, and it is really, really good to 
have the relationship that we have with you.
    But as a matter of disclosure, it should be noted that she 
was once a constituent of mine, so I would expect that out of 
her.
    I have said this in a number of hearings, that when you 
look at the Federal Government in the totality of the Federal 
Government, there are a lot of inefficiencies. I mean, we just 
see them all the time. This government just is terribly 
inefficient in a lot of ways and has been under lots of 
different Presidents, in my strong opinion.
    Before you came to OMB, you were the president of the Wal-
Mart Foundation. Now, there is a difference between the 
foundation and the company itself, but the cultures are very 
similar. And you know what the culture is there. It is very 
efficient, among the most efficient, which would explain why it 
is the biggest company in revenues in the world between, well, 
one day to the next, but with another big company.
    Is there not a way that this Federal Government can do a 
better job of asking the private sector, the Wal-Marts of the 
world, who are experts at creating efficiency, how could we do 
a better job of asking our private sector companies to help us 
through these processes?
    Ms. Burwell. So I think in the management efforts and the 
management agenda that I mention in my written testimony, 
turning to some of these private sector practices is exactly 
what we should and need to do. For instance, in the area of 
shared services and the idea that what we should do is you find 
a place that does it best in the government and most 
efficiently, and then you have them do it. So certain financial 
functions, HUD is actually going to turn to Treasury because 
they are more efficient and more effective.
    So that is one of the things that the private sector does 
and that I had the opportunity to see when I worked at a place 
that believed in EDLP and EDLC, every day low cost and every 
day low price, and those two things come together as you think 
about it.
    Another specific example that I believe we can do more and 
more of is strategic sourcing. So the question of making sure 
that the pencil that is bought or the pen that is bought at the 
Department of Agriculture, if that is the lowest cost value, 
then at the Department of Veterans Affairs, they should be 
getting that deal, too. So strategic sourcing, where you look 
across the Federal Government. And we have already started 
saving money by doing that. But those are two very specific 
examples. And I think there are any number of others. And what 
we need to do is take those practices and move them as much as 
we can into the Federal Government.
    Mr. Womack. You have already mentioned in your testimony 
that you were a Deputy Director of OMB when there were balanced 
budgets under the Clinton Administration, and I give you credit 
for that. I am sure there were times that you thought, you know 
what, I am just the Deputy Director. If I was Director, by 
golly, this is what I would do.
    So here is your softball question. Now that you are the 
Director, having experience in balancing the budget, how can 
you take that experience now as Director and help this 
Administration get to balance again?
    Ms. Burwell. I think there are a couple of things, and they 
have been touched on in a number of different places. I think 
one point actually is relationship, and that is getting us to 
the point where we all have enough relationships, and I think 
that is what got us to the place where we have deals and pieces 
of things. We are not all going to get everything we want, but 
if we can, build that. So that is one of the reasons in the 
role and the outreach that I do is because I think that is an 
important part.
    The other thing that I think is an important thing now that 
I am Director and want to do and think is important is focusing 
on the M, the management. And while as Director of OMB I think, 
you know, I love the budget side, I love the appropriations 
process, I think it is extremely important; I also think it has 
to be integrated with the management. As you can hear through 
these specific examples, I spend a lot of time on the M because 
I think that is a place where we make government more efficient 
and effective in terms of what we deliver for the American 
people.
    The last thing, in terms of what I believe, is building a 
strong institution. Because as you can hear in the question we 
just discussed, it is a very tough policy issue on a thing like 
Savannah, which I think is terrific, but trying to keep some 
semblance of fiscal responsibility. So building strong teams, 
teams that are great analytically and that can support you in 
kind of showing you the issues to help you make decisions that 
are tough.
    Mr. Womack. I want to thank you again for the openness you 
bring to the table, the fact that you are willing to have a 
dialogue with us. I congratulate you for that and look forward 
to our future dialogues. Thank you so much.
    Mr. Crenshaw. Thank you.
    Ms. Herrera Beutler.
    Ms. Herrera Beutler. Thank you, Mr. Chairman.
    And thank you, Ms. Burwell, for reaching out. I know we 
weren't able to connect, but I really appreciate your efforts.
    I wanted to bring up the Army Corps in a little different 
angle than was previously brought up. The Administration did 
voice their support for infrastructure in boosting U.S. 
Exports, Washington State being a very trade dependent State 
and we have a lot of ports and aging infrastructure in our 
region. But the President's fiscal year 2015 request didn't 
actually--it actually reduced funding for the Corps by about a 
billion under the 2014 enacted levels. And when I think about 
our jetties and other things, it is the equivalent of seven 
Katrinas a year hit the jetties at the mouth of the Columbia 
River. That is quite a beating they take. As you can imagine, 
they are crumbling, and it is incredibly important to the 
fourth largest inland waterway system that transports $1 
billion worth of agricultural products down and out.
    One way we can address this is Congress needs to step up 
and put money here. I believe in that. Another way we can 
address this is we can fully spend the Harbor Maintenance Trust 
Fund, and that is something that you all have more input into. 
And I wanted to see if you could explain why the Administration 
hasn't necessarily addressed some of the local and critical 
infrastructure needs for our ports and our waterways.
    I am mostly interested in small ports and maintenance. We 
have spent a lot of money in deepening the Columbia River 
channel. Now the silt is pouring into the ports along the way. 
So we don't want those last 20 years of work to be for naught. 
I was hoping you could speak to that.
    Ms. Burwell. So a couple of things. One is in the 
infrastructure space, and I think infrastructure is broadly 
defined, and that is from ports to our roads to our critical 
infrastructure with regard to airports, next generation 
airports, to making sure that there is funding actually for 
veterans hospitals in terms of that core infrastructure. Across 
the board, in the budget, we have put funding in for those 
things. In addition, with regard to the roads and that part of 
infrastructure that is more Department of Transportation 
related, we have said we would use the one time revenues from 
changes in corporate taxation to do that, to see if we can find 
a place where we can come together.
    Ms. Herrera Beutler. I apologize. I am specifically 
speaking of the Harbor Maintenance Trust Fund, fully utilizing 
the trust fund.
    Ms. Burwell. With regard to the question of how exactly the 
ports and those decisions on a port-by-port basis are made, 
those are made by the Army Corps, generally speaking, and they 
use a set of criteria. So the Army Corps generally makes the 
decisions with regard to which ports are funded, and they do 
that on a basis that has to do with tonnage coming through and 
a number of other criteria.
    Ms. Herrera Beutler. Absolutely. I guess from your 
perspective, maybe speak to the difference between the billion 
dollar cut in the President's budget for the Corps.
    Ms. Burwell. With regard to that, there were difficult 
choices, as was reflected in the opening statement of the 
Chairman, and we did have to make difficult choices. And in 
making those choices, that was a place where we had to make the 
choices that we made. What we have done though is emphasized 
the importance of ports within that context, though. So there 
is the question of the overall Army Corps funding.
    Ms. Herrera Beutler. And you are familiar with the Harbor 
Maintenance Trust Fund and how it is not getting fully spent?
    Ms. Burwell. The question of it not getting fully spent is 
the part that I am happy to get back to you on. In terms of the 
question of it not getting fully spent is something that would 
be an issue.
    Ms. Herrera Beutler. Perhaps it would be an area where we 
can look at, and I urge you to see if there are more ways to 
fully spend the money. It is taxed basically for people who use 
the ports, and they are begging us to use that money then for 
maintenance, recognizing the backlog we have everywhere else. 
And that is something that perhaps you can be helpful with.
    Ms. Burwell. I would be happy to. I think probably because 
of the inflow doesn't occur through the process. So I will 
follow up.
    Ms. Herrera Beutler. Can I bring up another? So flooding 
and flood risk management specifically in Lewis County in my 
district, they have had an authorization and years of Army 
Corps look and study and so on and so forth. It is I-5. It is 
this area around I-5 in Lewis, so it is between Vancouver and 
Seattle. Did you live on the west side of the State? You 
probably did.
    Ms. Burwell. Yes, I lived--I was in Seattle, so, yes. I 
have driven down to go to Portland, so I think I am on the road 
right now that you are talking about in my mind.
    Ms. Herrera Beutler. Exactly. We are hoping moving forward, 
and we will provide you with more information, we are working 
with the Corps, that OMB and the President will provide a nod 
to this in his budget next go-around. It is an issue that the 
Corps has committed to helping with, but we have had a lot of 
bumps along the road.
    The budget--the Governor has convened a group in that area 
to put together the proposals that they want and need that will 
both protect I-5 and protect the region from flooding risk, and 
it is something we are going to need help from your office in 
promoting in the fiscal year 2016 budget. So I guess I will 
just leave you with that.
    Ms. Burwell. Thank you. And I look forward to getting some 
more information about that specific that would be helpful.
    Mr. Crenshaw. Thank you.
    Ms. Kaptur.
    Ms. Kaptur. Yes. Thank you, so much, Mr. Chairman.
    I am sorry I had conflicts and couldn't be here for the 
formal testimony. But I welcome Director Burwell here today. 
Thank you for your service to our country now and in former 
years as well.
    In that regard, I wanted to ask you in terms of your budget 
request this year, if you were to compare the size of the 
Federal budget today and our population as a country to the 
earlier period in which you served and you look at the staffing 
levels of OMB today, what observation did you make when you 
arrived back?
    Ms. Burwell. So we talked a little bit about it, but in 
specific terms, when I was at OMB before we had 516 people, and 
that was with the fewer responsibilities. And we have discussed 
some of those that the Congress has asked that I think are 
important, because many of them are about management, program 
management, actually direct management of the government and 
that sort of thing, I think they are important 
responsibilities. But the number has gone from 516 down to we 
have been in the 450-460 range. And both in 2014 and why we are 
asking for the request in 2015 is to try and bring us back part 
of the way, certainly not to the numbers that we saw in that 
time.
    But in terms of this question of the size of the government 
and the size of different things, as one thinks about the 
percentage of GDP that our discretionary spending represents, 
if we are at the 2016 sequester levels, it will be the lowest 
that we have seen since basically it was recorded, which is the 
end of the Eisenhower Administration in terms of that spending 
as a percentage of GDP, to give you some levels of comparison.
    Ms. Kaptur. Thank you. Thank you for placing that on the 
record.
    Let me ask you, one of the biggest issues that we have been 
facing with the Department of Defense and the Department of 
Veterans Affairs is the electronic records sharing issue. 
Whatever you can do to dislodge the stalemate will be most 
appreciated. OMB seems to have a way, an ability, an uncanny 
ability to make things happen.
    This has been--everyone on the DOD committees, everybody on 
the VA committees up here, is completely frustrated, especially 
with the Department of Defense. I say why don't we just hire 
the Department of Veterans Affairs? Let them take care of it. 
But somehow we have got to get these records seamless, and we 
are having real difficulty doing that. So for the electronic 
medical records and their symmetry, we would hope that OMB 
might be able to help us out.
    Ms. Burwell. Information technology is a space that I think 
you see in our budget that we are asking for additional funds. 
To give you a sense of the numbers, the Federal Government 
spends $78 billion on IT on an annual basis, and we are asking, 
it would be $20 million for us to do that oversight and 
management. I hear the frustration with this issue. It is 
something that we will engage with and are engaged with.
    Ms. Kaptur. Thank you.
    We notice that the agencies seem to be spending less on IT 
now than at the beginning of the Administration. Can you tell 
us more about how OMB is working to improve government programs 
and operations to maximize the government's return on its 
technology investments?
    Ms. Burwell. Yes. Thanks to this Committee and the 
Congress, there were funds that were put in to do IT oversight. 
As part of that effort, in terms of that IT work, much of that 
work at this point has saved $2.1 billion, and it comes in a 
number of different forms. It comes in data consolidation--
consolidation of data centers so we have fewer of those. It 
comes in the form of reviewing projects that go and have 
problems and that we get in and try and create further savings.
    So that is a report we do on a regular basis to the 
Congress, and we have seen that savings and we are 
appreciative, and that is part of why we are asking for 
funding. Because while we have been able to do very well on 
efficiency, better costs, clearly, October shows us we weren't 
very good on effectiveness, and that is the next frontier that 
we think we want to work on at OMB.
    Ms. Kaptur. Thank you.
    Finally, I just wanted to make the observation and 
recommendation that some of your budget examiners take a look 
at, especially the policy examiners, take a look at the 
different Federal Departments and ways in which revenue that 
they recover, whether it is asset recovery on the drug side, 
whether it is IRS agents working very hard to collect taxes, 
whether it is the FBI or an Inspector General doing something 
that brings revenue back. Right now what happens is they don't 
get any reward. It all goes back to the general fund. The 
Agency, the Department doesn't get rewarded, and the individual 
doesn't get rewarded. I am saying, what is the incentive?
    So if there is anyway through the channels that you operate 
in you can offer performance credit to those who are actually 
doing an exceptional job of recovery, I think that would be a 
very constructive way in which to move. You probably have your 
own organizations you have to work with that are out there on 
the executive side. But it just seems to me that we are missing 
the boat here in not rewarding outstanding performance. If a 
team does something really extraordinary, it seems to me we 
can't knock at Wall Street's door hard enough. And if there is 
a team over at FBI that does a really good job, by golly, we 
ought to incentivize them to do more. Thank you very much for 
your testimony.
    Ms. Burwell. Thank you.
    Mr. Crenshaw. Mr. Yoder.
    Mr. Yoder. Thank you, Mr. Chairman.
    Director Burwell, thank you for joining us today. I 
appreciate your dialogue and openness, as others have remarked. 
I want to discuss some of the comments that my colleague Mr. 
Diaz-Balart brought up regarding the deficit and the national 
debt. It is $17 trillion. It has gotten to a point where many 
Americans, it is even hard to understand what that means to our 
future, what compounding debt and interest means going forward 
as we continue to pay off the excess of previous Congresses, 
and then we continue to overspend every Congress following.
    Budgets are submitted from the Administration. They don't 
really have an end point where the budget would balance, much 
less ever pay off the debt. So I think a lot of Americans just 
ask us if we are going to borrow money that we have to have a 
plan on how we are going to pay it back. It seems pretty 
simple. We have to do that in our personal lives. Government 
should have to do that.
    It seems to set a really bad precedent for our country that 
this town and this culture has sort of become indifferent to 
this. Since it has always been it, it is sort of part of the 
culture. And I know you have experience working when we had 
some balanced budgets. I think in the last 50 years, the budget 
has been balanced maybe six times.
    So both parties got us in this mess. So rather than maybe 
point the finger at one party, let's say that this town, both 
parties have been irresponsible with tax dollars in at least 
balancing our budgets.
    But there is precedent for the two parties working together 
to solve these problems, and you were part of several years in 
a row where you had a Republican House and Senate and a 
Democratic Administration and they found a way to put together 
a balanced budget. And we had some good revenue coming in; 
there were some unique circumstances. But at least it is a 
shining light in the darkness maybe of how we can get to some 
solutions in this town. So I am eager to work with you on how 
we get there.
    Mr. Diaz-Balart sort of questioned what our debt looks like 
going forward. I have seen estimates by the CBO that we may 
borrow another $8 trillion over the next decade. I can't find a 
constituent that wants to see us do that. So when we have an 
entire set of constituents in every one of our districts that 
says that is an unacceptable outcome, yet that is the path we 
are headed down. We have $3 trillion in new tax revenue coming 
into this Congress, to this town over the next 10 years from a 
variety of tax increases that have occurred, yet we always get 
back to more revenue, more revenue, more tax increases, more 
tax increases. And Mr. Diaz-Balart was heading down this path.
    You talked about growth as being a key part of this 
solution, and I think we would all agree that a rising tide 
that lifts all boats helps this country, brings in revenue. But 
we can't increase spending with that. So we need lids on 
spending so that when revenue comes in, we know that we can 
reduce the debt as part of that.
    But I guess I am more interested in your long-term 
solutions. I think we can debate about what to do this year. 
But as we ignore the long-term problems, they get worse and 
worse. And I noted that the Social Security trustees, the 
Treasury Secretary, Kathleen Sebelius and others who are on 
this say lawmakers should address the financial challenges 
facing Social Security and Medicare as soon as possible. Taking 
action sooner than later will leave more options and more time 
available to phase in changes so the public has adequate time 
to prepare.
    I note that in 1962, we spent 14 percent of our budget on 
entitlements. Today we spend 47 percent of our budget on 
entitlements. In 2030, we are expected to spend 61 percent on 
entitlements. So not only is that an unsustainable amount of 
revenue, we couldn't bring in enough tax dollars to sustain 
that, it also crowds out education spending, research spending 
cancer research, transportation spending, things that are 
important to both sides of the aisle.
    I note the President has a responsibility and I think the 
statute says if there is a Medicare funding warning made in a 
year, the President shall submit to Congress within the 15-day 
period, beginning on the date of the budget submission to 
Congress under subsection A for the preceding year, proposed 
legislation to respond to such warning.
    Has there been a warning? Has the President responded to 
that? And if you agree that short-term--that there is sort of 
an understanding that short-term reductions is one topic, what 
are our long-term solutions? How do we fix this problem, 
particularly when it comes to entitlements?
    Ms. Burwell. So the entitlement issue, I think, is the one 
that we need to focus on and we have discussed a bit. I think 
the real question, though, is how one goes about addressing 
that entitlement problem. It is a problem. We want the deficits 
to come down, but what are the alternative choices, and what 
paths do you put things on? You are absolutely right.
    I have had the opportunity to actually work. We created a 
Social Security lockbox so that those moneys would not be 
spent. That was in the last forum when we got to balance so 
that that money actually went to deficit reduction, but it 
extended the life of the trusts, you know, to your point about 
those things.
    So I think the real question is what path we agree on that 
downward trajectory of spending in the entitlement space, and I 
know there have been many criticisms of the Administration with 
regard to our Medicare Advantage changes in terms of Medicare 
changes. When we look at what we see in the proposal of the 
Ryan budget, it is about the specifics in the space, and what 
we believe is we put forward specifics that take us on that 
right trajectory.
    We need to also continue to do the steps that promote 
overall cost containment. We have seen healthcare costs slow. 
That is important for the Federal Government and the deficit, 
but it is also important for the private sector.
    So I think the question is, what do you want as the slope 
of that line of decline on entitlements, and what are you 
willing to do to do it? And I think we were hopeful last year 
the Administration put forward in its budget actually a deal, 
which was a very unusual budget construct. It embedded what 
people refer to as the Boehner deal. That isn't what got us 
there. Clearly we weren't able to do that in terms of all of us 
coming together in a bipartisan fashion.
    What we are hopeful this year is that our expression of the 
vision of what we think is the right way, that we can end up 
this is how we believe we should do it, and here are the 
specifics of how we do it. If there are conversations that 
others want to have, we welcome them about better ways than we 
have and what we have proposed. But we believe we have the 
right slope and the right slope for economic growth, because 
while I think that many Americans are definitely interested in 
these issues of can you balance, how do you spend, I have had 
to tighten my belt over the last years in terms of the 
difficult economic situation, I think they are also interested 
in jobs and growth, and figuring out what tools we use to make 
sure that we are continuing on that trajectory is an important 
part of fitting all the pieces together.
    Mr. Crenshaw. Thank you.
    We have got time for a couple more questions. I would like 
to start that by asking two questions. One is about we talked 
about IT, information technology, and as you know, in 2012 this 
Subcommittee started appropriating money to OMB to oversee and 
reform some of the information technology, and I think most 
people would say there have been a lot of good things that have 
happened. And when you mentioned $78 billion spent on IT, I 
think at one time it might have been 80 billion----
    Ms. Burwell. Eighty.
    Mr. Crenshaw [continuing]. So there has been some savings, 
and that is all well and good.
    I guess the question becomes when you look at the rollout 
of the healthcare.gov that you hopefully were overseeing, and 
you would have to say it didn't work out all that well, was 
that something that you were kind of trying to oversee, because 
it was trying to coordinate a lot of different agencies, 
together? Do you know what happened, learn any lessons about--
as you look ahead to see how you can coordinate all the IT, 
were there some lessons learned there?
    Ms. Burwell. So one of the things that I think did work is 
the portfolio stat process is a process that came of this 
funding, and it was a part of the IT process, which is a 
process of when you see a problem, how you put in a SWAT team 
to solve, and that part in terms of the problem occurred, the 
team goes in, a team of highly specialized individuals, to work 
in a focused and concentrated way to get the site to the place 
where it is functioning.
    In terms of some of the things that we have learned and 
that we are going to act upon----
    Mr. Crenshaw. Did the SWAT team step in on this one or step 
in too late?
    Ms. Burwell. At the point at which we knew something was 
wrong, and that obviously is after October 1 when we all knew 
something was wrong.
    With regard to some of the lessons learned as you review 
this, and these are things that we are focused on, and that is 
what the money in the budget is about, one of the things that 
wasn't working well is the business owner and the IT owner. And 
this happens in the private sector as well. People go--IT 
people fix it, and the business owner doesn't engage. The two 
have to engage together. So it is not just usually an IT 
problem, it is also about, how is it going to work? How should 
it work for the customer and that the business owner 
understands better? So getting a closer connection between the 
IT people and the business ownership, issue one.
    Issue two----
    Mr. Crenshaw. But that is not a money issue, is it?
    Ms. Burwell. No. Some of these are management issues. But 
the way in which you get it to happen, and that is what this 
money is for, is to create a team of best practices. We don't 
want to create this all over the government. We believe there 
should be a centralized place with the skills and best 
practices that then apply to different places in the 
government. So you don't create it all over the government, but 
these people are the people that help you do three things.
    The other thing is historically, and this has to do with 
procurement in the Federal Government, we have kind of done a 
waterfall approach instead of a more iterative approach, which 
is important to IT, because in IT you need to take shorter 
bites. Things change. You need to test and try, test and try 
and redo. We weren't doing enough of that.
    The last thing is end-to-end accountability, from point A 
to point B.
    And those are three things that we want to work on, and the 
ways we want to do it are we want to focus on best people 
working on IT, best partners, because sometimes it is about the 
partner, and that is often, not always, but sometimes private 
sector. And then the third element is best procedures.
    There are complexities in the system that sometimes make it 
hard to get number two and number one, because some people 
don't want to come and work because they are like you don't do 
this in an iterative fashion, you do it in a waterfall, and I 
as an IT person am not used to doing that. Or trying to get the 
best companies, it is too hard.
    And so just a week ago, GSA started something called FBO 
Open. What it is is a process where we can better source, and 
people can gain information. They can open the PDFs--to Mr. 
Quigley's conversation about search, you can open the PDFs, and 
so people who are high-tech firms who want to see if there are 
contracts they might want to do, they are able to search that 
better, so we may be able to track better players.
    And so there are a number of things that we need to do 
across the board to do that in terms of the problems identified 
and the key goals we are going to work against.
    Mr. Crenshaw. Sounds like a lot of those are management, 
and I know you have asked for an extra $12 million to be added 
to the $8 million. That is $20 million. That is a pretty big 
increase.
    Ms. Burwell. It is people.
    Mr. Crenshaw. A lot of times when you talk about IT, when 
you say $80 billion or $78 billion, people go crazy, because 
every agency says, if you just give me some more money for IT, 
then everything will be working right, and it doesn't always 
seem to do that. So we will look at that funding request, but I 
appreciate the fact that you are looking at the way people 
operate, and their efficiencies, and the way they manage their 
time and energy and things like that, because I think that is 
part of the problem as well.
    Ms. Burwell. Right. And part of that is, I think, having 
the people to go in and do the examinations at the front end. 
What has happened with the IT money we have gotten, it is, you 
know, about consolidations, data center consolidations, a 
number of things that are important, or coming in at the 
problem like we did in October, and in portfolios we tended to 
do that. You can save a lot of money that way, and we do that, 
but I think we can do a much better job both with efficiency, 
better spending of the taxpayer dollars, but also 
effectiveness. One of the things we need to do is make sure 
that these technologies deliver for the customer. That 
customer-facing element, whether it is a private-sector 
business or an individual who wants to get their veterans 
benefits, we need to work to make that work better.
    Mr. Crenshaw. Thank you.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    You know, just a little while ago I said to myself, in the 
final round I will speak about IT, and it seems that everybody 
had the same thing in mind because that is where we went.
    And then it dawned on me something, and I say this with all 
due respect to the majority party. There are Members of the 
majority party who have been in a cost-cutting mood for the 
last couple of years, and all you hear from them is cut, cut, 
cut the budget. But IT presents a unique challenge. We could 
give you a bundle of money now, and in a year and a half from 
now, half of that equipment you bought is obsolete, or the 
programs are obsolete.
    And so we talk about entitlements, for instance, and how 
they keep growing, or how they are going to be around for a 
while no matter how much you cut them. I don't think we 
factored in yet in our mentality in the House, or in the Senate 
for that matter, the fact that IT costs are here to stay.
    When I first came to Congress, it was all about paper 
records somewhere in Tennessee or in Iowa, somewhere. That is 
not true any longer. Everything now is somewhere on a computer, 
whether that is good or bad.
    Then after 9/11 you got into the issue of cyber attacks and 
the fear of people doing a number on you and getting 
information that they shouldn't have, and then your personal 
privacy came in, although that is another issue not necessarily 
tied to you.
    So my question to you is can we ever reach, again, to 
satisfy folks who want to cut the budget, a neutral point in 
the IT area, when it seems that anything we do for you changes 
in a couple of years? I mean, you even see it in what we have 
at home. With all due respect to Apple, which is great, you 
notice every time they turn out a new gadget, the charger is 
different, and you have to go buy a new charger. So breaking 
that down, that is breaking it down to its lowest denominator. 
But at your level there are chargers that are different. There 
are programs that are different. Will you be able to say, for 
instance, to Mr. Yoder and Mr. Graves or the Chairman, we are 
at a level field now and we don't need any more money for IT 
for a while, we are all set? I don't think that will happen.
    Ms. Burwell. I think embedded is actually an important 
concept. Being at OMB, I think about what is fundamental that 
has changed that 5, 10 years from now that we need to be 
thinking about, and it is in the space of information 
technology. Information technology is going to continue to be 
something that both provides opportunity for cost savings in 
times, but also provides exposure as well. And the cyber 
security, I think, is extremely important in the space.
    Whether or not we will ever get to a level where we don't 
need more--I think IT spending in the Federal Government has 
gone down. It was 80 down to 78, and that is through better 
management. There probably are diminishing returns and 
investments that we should be doing that we are not doing in 
terms of certain types of things we need to advance.
    But to your point of how we think about that, that concept 
of capturing flexibility is a little bit of the waterfall 
versus the iterative. And another example I would give is this 
year one of the things that was done, cloud computing is 
something that is important to use, but I am sure you can 
understand, to your point about cyber security, we have to be 
very careful. And for any department, they would go to a cloud 
computer, and they would have to go through a bunch of 
different certifications because we need to make sure the 
Federal Government is safe.
    Having said that, what we did was we basically created a 
situation if a company goes and meets certain standards, and 
you are the Department of Agriculture, and they met the 
standards overall, then if the Department of Veterans Affairs 
wants to use it and they have been certified, we create that 
efficiency.
    Cloud computing is also a way that we don't take on a ton 
of that capital expenditure in the case that you are saying, 
the charger, and we try and create flexibility that we can use. 
I think this is going to be a place that, you are right, we are 
going to focus on for a long time. I am hopeful we can continue 
to find cost savings, but we also have to increase 
effectiveness.
    Mr. Serrano. I have been around here long enough to 
remember, for instance, Y2K, and how we felt the world was 
going to come to an end at midnight, strictly at midnight. Of 
course, people forgot that midnight is not in the same place at 
the same time everywhere in the world, but that was the fear. 
And nobody will really know, unless someone writes a book about 
it someday, whether it was Congress' involvement that drove 
that--I mean, that is all we spoke about. I remember in those 
days we would have a hearing, Mr. Chairman, and the first 
person would ask, what is going to happen with Y2K? Are you 
ready for it?
    Ms. Burwell. Are you compliant?
    Mr. Serrano. Everybody was terrified of it, and that was 
the question, right? That was the only question of a hearing to 
start off. And we got through that.
    But this is not going away. This is the way of the present; 
it is not the way of the future. So I suspect that at as we 
look towards expenditures, government expenditures, in our 
desire to bring about balanced budgets and so on, that this 
particular area will continue to cost us loads of money for a 
long, long time, especially as we get into the area of other 
countries that can never match up to us militarily or 
otherwise, but can with a computer and a cyber attack.
    So I just put that out for a thought because it is a whole 
new world, and maybe we can find a charger that fits all.
    Thank you so much, and thank you for your service.
    Mr. Crenshaw. Like every other aspect of government, I 
think it is not so much how much you spend, but how you spend 
the money you spend, so we have to keep that in mind.
    Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    And I always enjoy Mr. Serrano's comments. I try to never 
take your questions--I didn't mention IT or cuts for that 
matter. But we do have a role----
    Mr. Serrano. It was on your mind.
    Mr. Graves. It was on my mind, yeah.
    But I will say for the Director's credit, they have 
operated with a lot less personnel than previously. You have 
mentioned, what, 2009 levels in essence, a lot of furloughs, 
and so, you know, we have to somewhat commend agencies and 
departments when they embrace the cuts or reductions and 
operate as well as they can, and they have certainly done a 
good job here, and I want to thank you for that.
    It is not easy for anyone to have to go through what we 
have been through, and I think back on the State of Georgia, 
and, you know, teachers have been--the education system has 
been through the same strains, and furloughs have been there, 
and everyone working together is always the best way forward.
    In thinking in that vein just a little bit, you have 
referenced regular order and getting back to that, and that is 
something we all embrace here in this Committee. Do you have 
any recommendations, just looking ahead from a budget process 
perspective, because it seems like we are--we are pushed as 
appropriators into a window that you can't quite accomplish 
what you are tasked to do because of where we might receive the 
budget request from the Administration or even for that part 
our own budget passing the House or the Senate, and the window 
seems to be narrowing over time. Do you have recommendations? 
You have an extensive resume of being part of a lot of 
successful areas and such. What would you suggest from a 
process perspective that we can make it through?
    Ms. Burwell. So I thought a little bit about it, but it is 
interesting, because at the core it is about forcing the 
decisionmaking. And so I think the most fundamental question is 
how we get to a place where the decisionmaking and the choices 
and the tradeoffs can be made, and the committee process is 
actually a very important part of that.
    And so the question is would a process change or a 
structural change in the process change that empowerment of the 
committee process, because, to your point, to get the work done 
and to get the choices, your colleagues depend on you all to 
know more than anybody else about this topic.
    What has been missing in the past year is when you do 
continuing resolutions, and that you don't have a budget 
process actually where we have a hearing and we actually have a 
conversation, as we are today, about--you know, we can differ 
on different points, but we don't have the opportunity to talk 
about the issues or the importance of something big that is 
coming down, like IT.
    And so on the process front, I don't know that a process 
change will fix that, and it is a little more--it is 
interesting, because I have thought about it, and I actually 
think it is actually more a question that you all will be able 
to answer than I would be able to answer because I think you 
have a better sense of what is preventing the process from 
getting to the point where the Committee makes choices, because 
these are tradeoffs. We can all talk about our single issues, 
but when you, the Committee, have to review, and you have a 
number of different pieces in your bill that are complicated, 
and you have an allocation, that is when the choices get made, 
and that is how it happens, and that has not been working. So 
the question I have is what would help and support that 
process? That is on the nondefense discretionary and defense 
discretionary side. The mandatory is another issue.
    Mr. Graves. Yeah, I think that is a question for all of us, 
and Mr. Yoder has been putting together some working groups to 
sort of think through this, because our goal is to work through 
each bill in a very deliberative manner, to debate what our 
preferences and priorities as minority and majority parties, 
and try to avoid the continuing resolution scenario or the 
large bill all packed together.
    And we see what happened ultimately was while it is good 
that we have a 2-year budget agreement and such, when it 
happened in the omnibus, then your budget is a little bit later 
than normal, which shortens our window to accomplish for the 
fiscal year. So it is how can we get the gyration correct. 
Right now we just seem to be out of whack a little bit. But 
thank you for your thoughts on that.
    Mr. Crenshaw. Thank you.
    Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    I have a question about the management side of your 
operation. In trying to make the best use of the precious 
taxpayer dollars, to pay the costs of war that we have borne 
now for over a decade, and the gigantic Wall Street-induced 
recession which caused a level of employment not seen since the 
Great Recession, the costs of digging out of all of that and 
the total collapse of this economy have been extraordinary, and 
we have to pay those bills.
    Meanwhile there are those who suggest, well, the way--you 
know, you cut it out of seniors or you cut it out of hungry 
children, and some of us choose not to make those choices.
    So really my question goes to, on the management side, do 
you have a mechanism to look at certain cost drivers of 
programs and suggest alternatives to them? For example, at the 
U.S. Department of Agriculture in the invasive species account, 
in the last 15 years, if you were to look at those carefully, 
you would be amazed at what has happened. The American people 
are paying for the unaccounted costs of free trade. Emerald ash 
borer has eaten through ash trees all across the Midwest, to 
name just one species and one tree. It is costing a boatload to 
try to replant, to get our Forest Service involved in some of 
that, to try to remediate all the problems associated with just 
that particular creature.
    Right here in Virginia, the stink bug. People are selling 
their homes. Came in on Chinese packing crates. The 
perpetrators came in on cardboard. Who is paying the cost for 
remediation? Local governments, State governments, and the 
Federal Government, research projects, try to get rid of these 
things. That account has just ballooned and from a few million 
dollars to in the billions.
    That is a cost driver. What are we going to do about it? 
The answer isn't to have uninspected material that comes over 
the border or to place a fee on those places that have shipped 
in product that has truly caused great harm here. That's one 
account.
    One can look at areas of our country that have had repeated 
disasters, coastal areas for example, areas that have been 
flooded. And, you know, we pass flood insurance, or we do this 
and that, and then the communities go back and rebuild in a 
place that climate change--forget climate change if you don't 
believe in it; look at the record--where homes simply can't 
withstand the weather, and yet we are asked to pay to rebuild. 
HUD has asked for money, and EDA has asked for money. So this 
repeated disaster-prone account, whatever we want to call it, 
if you put it all together, the increasing costs because of 
people behaving in very irrational ways.
    Another arena deals with intelligence. For many years we 
had the CIA. Some people liked it; some people didn't like it. 
It performed an important function, but now we have the DIA and 
we have JSOC. And if you look at some of these accounts and 
what is happening to them, you will go, why do they each have 
duplicative systems in a given area?
    So my question really is you can look across the government 
and look at what I call cost drivers that have a solution, but 
we can't seem to get clarity on how to get there. I think we 
could save a lot of money, and I would only encourage you to 
perhaps ask your examiners to pinpoint some of those accounts 
and to look at them very carefully.
    Ms. Burwell. I do think that there are a number of areas 
where we can think through how do we get to a better place with 
regard to these issues, and the examiners do watch them and 
bring them up as part of our review process is when you start 
to see them. One specifically that actually is in the budget 
that this Committee would probably be very interested in is the 
Civilian Real Property Committee that would--there is property 
that is in excess and not used in the Federal Government and, 
you know, as an example of what you are talking about, but 
one's ability to get rid of that property, you know, because 
it, to be honest, is district by district, is very difficult. 
And so you need a process where everyone buys in, and that 
there is an up-or-down vote so that it is owned by all, and 
people don't have to. So we look for these places and then try 
to move them forward.
    Yesterday the GAO testified on the cuts and consolidations, 
the cuts report that is a duplication report, and the good news 
is that actually in the last few years, we have found a couple 
areas where we actually have made progress. And so the list has 
gone from 200 down, and that is actually because we have gotten 
some of those savings.
    And so I think it is a matter of identifying them and then 
finding the way that we can work together, because almost any 
of the issues, and even the ones that you mentioned--I am sure 
you all are very familiar with the flood bill that was recently 
voted on, and so there are obviously different points of view 
about some of the issues you raised. But I think if we can 
identify them and then start to work them, but I agree with 
you. I think there are a number of places, and we do need to 
keep track. And some of the things that increase, you have to 
get to the bottom of why. And some of the things in terms of 
why there are things in two places, ask the question. Sometimes 
it is a legitimate answer, and sometimes it is not.
    Ms. Kaptur. Thank you very much.
    Mr. Crenshaw. Thank you.
    Mr. Yoder.
    Mr. Yoder. Director Burwell, I actually want to dovetail a 
little bit off of my colleague Ms. Kaptur's comments in that I 
think one of the challenges we face is that--and correct me if 
I'm wrong--but we don't have the type of ability to know what 
real property the Federal Government owns, where it is, what it 
is costing the taxpayers in a centralized spot where a 
constituent could go and search areas of the country and know 
what the Federal Government owns.
    I mentioned this to the GSA when they came before a 
Committee. They are actually working on a database in response 
to some of our concerns, and that is just such a small sliver 
of our property. If we can't account for what we own, how could 
we ever properly manage our assets? And so I think that is an 
area where we are going to have to--and if you have proposals, 
we need to fix that problem to keep the Federal Government 
accountable to taxpayers.
    I want to go back to the conversation we were having about 
the national debt, and long term versus short term. We are 
looking out not only 5, 10 years, but 30, 40 years because of 
the demographics you raised as well, challenges that our 
country is going to be facing. And I guess the House is going 
to consider budgets this week. They are going to consider the 
President's budget, I believe. They are going to consider the 
House budget. They are going to consider other options, the 
different coalitions and caucuses.
    In terms of the President's budget, the House budget, I 
think, that is going to go forward balances within a 10-year 
window. When does the President's budget balance?
    Ms. Burwell. The President's budget balances in the 
outyears. And as I said earlier, it is not because we at this 
point in time believe in the 10-year window. That is not the 
objective or goal.
    Mr. Yoder. I understand that. You say in the outyears. Does 
the President's budget ever balance?
    Ms. Burwell. Yes, it does.
    Mr. Yoder. What year?
    Ms. Burwell. I would have to go, but as I said, because we 
don't focus on it as the budget number. I am happy to get the 
year.
    Mr. Yoder. I understand, but we are focusing on longer 
term. I am trying to get away from the short term. I think this 
Congress and this city spends too much time focused on 1, 2, 3, 
even the 10-year window. I mean, we are looking at where are we 
going with the entitlement programs over the next decade, the 
next two decades, the next three decades. And so if the 
policies we are pursuing don't balance within 10 years, I am 
assuming the President's budget doesn't balance within the next 
decade?
    Ms. Burwell. That is correct.
    Mr. Yoder. Okay. So it doesn't balance within the next 
decade. The House budget does. I guess we need some certainty 
if we carry these policies out, does this budget ever balance? 
Because my theory is since we have never run balanced budgets 
in this town, that that culture has gotten to the point where 
the Administration--and Republican Administrations may do this 
as well--that we are not even submitting budgets that ever 
balance. And so I would love for you to let us know when we 
could expect the President's proposal to balance.
    There was another question I asked in an earlier dialogue 
regarding the Medicare warning. And my question was regarding 
the Federal statute that says if there is a Medicare funding 
warning made in a year, the President shall submit to Congress, 
within the 15-day period beginning on the date of the budget 
submission to Congress under subsection A for the succeeding 
year, proposed legislation to respond to such warning. Has a 
Medicare funding warning been issued, and has the President 
issued proposed legislation to respond to such warning in 
accordance with Federal statutes?
    Ms. Burwell. I would leave the first question in detail to 
my colleagues that are the Medicare trustees, Secretary 
Sebelius and Secretary Lew. But, yes, warning. And we consider 
our budget our proposal for how to handle the Medicare issues. 
That is what we believe is our proposal, in terms of responding 
to the second part of your question.
    Mr. Yoder. You think that meets the statutory requirement?
    Ms. Burwell. Yes, we do, and we believe we follow the Bush 
Administration's interpretation of that statutory requirement.
    Mr. Yoder. Which could also be incorrect.
    I think the idea is that the way the statute reads is that 
after a budget submission, there is a separate proposal related 
to the Medicare funding warning.
    We can argue, I guess, if it is within the budget or not, 
but it gets back to my fundamental point we were having in our 
last dialogue. My question really was what are the long-term 
entitlement solutions, Medicare, Social Security solutions? And 
your response was, I think, one of which we hear a lot from the 
Administration, which is we have got to find balance, we have 
got to figure out the slope we are on.
    The House has put together a proposal. They call it premium 
support. It really came out of the Clinton White House in some 
form or another. Alice Rivlin and others who were part of the 
Administration you were in talked about the idea of Medicare 
Advantage for all. It had bipartisan support. It may not be the 
answer. It is something the House is going to consider again.
    What is the approach of the Administration; what are 
specific proposals related to response of that Medicare 
warning? So if they are in the budget, what are the specific 
Medicare fixes that the Administration has put forward in 
response to that statutory obligation?
    Ms. Burwell. So we have a number of proposals that add up 
to about $400 billion, and those proposals include things from 
making sure that we address what we believe are excessive and 
overpayments that--actually things that have even been written 
about as recently as yesterday with regard to things that have 
been recommended by issues by the GAO and MedPAC as well. They 
address those kinds of issues. They try and put in structural 
reforms that create the incentives for types of delivery that 
will then result in further savings when people are incented to 
deliver impact, and so putting certain constraints on funding. 
So there are a number of different proposals that add up to 
$400 billion in our budget.
    I guess I would also say I think it is about the choices 
that we make. With regard to the premium support issues and the 
proposal that is part of the Ryan budget, when one looks at 
that, one sees that for traditional Medicare, that you will 
increase premiums between $800 and $1,500. In the CBO report, 
it is pretty clear. You are going to make a choice between 
increasing premiums or savings. You can't actually do both.
    And so I think the question then becomes what specifics. 
And so if the choices are about those kinds of premium 
increases--and there are numbers that say you could do this 
possibly without increasing premiums, but when do you that, you 
don't get the savings. And then the question is is so what 
actually is the plan in terms of Medicare, specific Medicare 
proposals, that will result in those kinds of savings?
    Mr. Yoder. I guess I would just submit that the response of 
the Administration, albeit maybe well intentioned, does not 
respond to the Medicare funding warning in a way that would 
actually fix the problem. And I know there is a lot of risk 
that goes in with the courage to address these issues, and I 
understand that, and people in both parties get beaten up in 
the House and Senate for taking that sort of courageous stand. 
Both parties have done it, and both parties don't do it. So it 
is not a partisan attack other than to say in order to solve 
this problem, we are going to need strong leadership from the 
President to be able to respond to these warnings in a way that 
actually fixes the problem.
    And I understand you are saying overpayments, and everyone 
is going to agree on that and certain things, but the warnings 
and the statement from the trustees that say lawmakers should 
address the financial challenges facing Social Security and 
Medicare as soon as possible, taking action sooner than later 
will leave more options on the table and more time available to 
phase in changes so the public has adequate time to prepare. I 
just wish the Administration would be willing to do that and 
provide the leadership.
    And with that, Mr. Chairman, I will yield back.
    Mr. Crenshaw. Thank you. And I think we want to all work 
together.
    Let me ask one last question. We worked together when we 
passed the omnibus spending bill in January, and it shows you 
that when we get together, we can work together.
    But I want to ask you a question about executive authority, 
because it is concerning sometimes that when we do work 
together, and then if you hear the President say, well, if it 
doesn't work out exactly the way I would like it to work out, 
then I can issue an Executive Order. Some people say where does 
he get that authority? And you are kind of working in the White 
House every day. Does the OMB get involved in deciding what 
laws to enforce or not enforce; like with some of the 
affordable health care, the decision to delay things, is that 
something OMB gets involved in?
    Ms. Burwell. Our role is in our statutory areas, and so in 
the space of regulation or in the spaces when--IRS regulations 
don't come through OMB. That was something that was a decision, 
and a memorandum was written during the Reagan years, and so we 
follow what has been protocol since then.
    Mr. Crenshaw. Do you know who in the Administration makes 
those decisions? The reason I ask that is because that impacts 
spending and revenue, and I want to--sometimes when those 
changes get made, whether it is an Executive Order, an 
extension, whatever you want to call it, that has to impact in 
some way, shape or form the revenues and expenditures that are 
taking place. So that is part of what your job is to keep track 
of that. I wonder, that is why I ask that question, who makes 
that decision?
    Ms. Burwell. I think it varies in terms of which thing one 
is talking about. In terms of the issues of data collection, in 
terms of some of the things that were announced this week, and 
in terms of the issue of what data a Federal contractor will 
keep and show, data transparency, you know, that is something 
that the Department of Labor will implement, because if 
anything is going to relate to Federal contractors, because 
contracting is a part of what OMB does, those things do come 
through. So it depends on which area or----
    Mr. Crenshaw. But when it does impact either the revenue or 
spending side, is that something somebody tries--I guess like 
some of the health care changes, when you change some of the 
mandates that are going to impact somehow overall spending, 
somebody keeps track of that?
    Ms. Burwell. Yes, and in those spaces we are consulted. OMB 
is consulted, and our health team is consulted in spaces that 
impact in that space, sort of the Executive Orders or those 
sorts of things, and that is why I think it depends on an 
issue-by-issue basis where it will come in and have contact 
with OMB. When the Department of Labor is asked to do a 
rulemaking, that will come in through OIRA. With regard to some 
of the kinds of changes you are talking about, that is 
sometimes done in consultation with the health team depending 
on what it is and where it is coming from. The IRS makes its 
decisions on----
    Mr. Crenshaw. I just wanted to be sure somebody's keeping 
track.
    Ms. Burwell. The puts and takes with regard to the dollar 
shift.
    Mr. Crenshaw. Got you.
    Mr. Serrano.
    Mr. Serrano. Thank you.
    I just have one last question that came to mind. The more I 
hear about what problems we face in the future, the more I am 
convinced that we have to do something about immigration reform 
and put everybody out of the shadows and get them paying taxes 
and so on. We talk about what is going to happen in the next 
decades. Well, we would know under immigration reform that at 
least, at least 11 million people, not to mention the children, 
would be forced to do the right thing, which now they may not 
be doing not only because some of them want to get away with 
something, but because they can't openly or publicly say, I am 
here, and I am working, and I am paying taxes.
    So my question to you is, how far off do you think all the 
estimates are--you know, everybody has an estimate on how much 
it would bring into the economy if we did immigration reform? I 
have even seen, you know, $160 billion over a couple of years 
mentioned. Does OMB get into that, into trying to find out what 
the real numbers could be if we were able to do immigration 
reform?
    Ms. Burwell. As part of our budget, we have used CBO's 
estimates. So we have used the CBO estimates that exist, and 
that is where we--you know, we have based our numbers on CBO's.
    Mr. Serrano. And CBO believes that the numbers are huge, 
right?
    Ms. Burwell. Yes. And CBO analyzed the particular title, 
and I think this is what you are referring to, is when you have 
that increase in the labor force, that is something that 
positively impacts our GDP and a number of things in our 
Nation. And so that is a specific title in the bill, and so 
when CBO scored it, that is what it was, and so we use that as 
the basis for what is in our budget.
    Mr. Serrano. This is just sort of an aside immigration 
comment. I have found out that there are Members of Congress, 
in some cases on both sides of the aisle, who have two concerns 
with what we, some of us, propose. One is you broke the law 
coming into the country; we shouldn't reward you for that. And 
then there is the unfortunate political issue of, well, in the 
case of Latinos, for instance, they will all be Democrats.
    Well, this will probably cause me a lot of trouble, but 
once you get immigration off the table, you will be surprised 
how some people are more conservative than you think they are, 
but as long as immigration is on the table, they will lean one 
way only because they see one group supporting them on 
immigration.
    I can't predict what Latinos will be like as voters once 
this issue is off the table. I suspect they will be like all 
other Americans. I mean, didn't Hawaii and Alaska come in at 
the same time, because we were certain Hawaii was going to be 
Republican, Alaska Democrat? Tell that to Don Young. It didn't 
work that way.
    But anyway, thank you for your service, and thank you, Mr. 
Chairman, for the time allotted, the extra time.
    Mr. Crenshaw. Thank you.
    Mr. Yoder, do you have any further questions?
    Mr. Yoder. We will stay at rest there. Thank you, Mr. 
Chairman.
    Mr. Crenshaw. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Mr. Crenshaw. Well, once again, thank you so much for being 
here today. I know you have got a big job and a tough job, and 
we want to work together with you any way we can to help keep 
things on the right track. Thank you very much.
    Ms. Burwell. Thank you, Mr. Chairman.

    [GRAPHIC] [TIFF OMITTED] T8192A.133
    
    [GRAPHIC] [TIFF OMITTED] T8192A.134
    
    [GRAPHIC] [TIFF OMITTED] T8192A.135
    
    [GRAPHIC] [TIFF OMITTED] T8192A.136
    
    [GRAPHIC] [TIFF OMITTED] T8192A.137
    
    [GRAPHIC] [TIFF OMITTED] T8192A.138
    
    [GRAPHIC] [TIFF OMITTED] T8192A.139
    
    [GRAPHIC] [TIFF OMITTED] T8192A.140
    
    [GRAPHIC] [TIFF OMITTED] T8192A.141
    
    [GRAPHIC] [TIFF OMITTED] T8192A.142
    
    [GRAPHIC] [TIFF OMITTED] T8192A.143
    


                           W I T N E S S E S

                              ----------                              
                                                                   Page
Burwell, S. M....................................................   189
Pai, Ajit........................................................     1
Wheeler, Tom.....................................................     1
White, M. J......................................................   109
