    [Senate Hearing 113-667]
    [From the U.S. Government Publishing Office]

                                                         S.Hrg. 113-667

                    NOMINATION OF THE HON. SHAUN L. S.
                    DONOVAN, OF NEW YORK, TO BE DI-
                    RECTOR OF OFFICE OF MANAGEMENT
                    AND BUDGET

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

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                              UNITED STATES SENATE

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   ----------

             June 11, 2014--NOMINATION OF THE HONORABLE SHAUN L. S.
               DONOVAN, OF NEW YORK, TO BE DIRECTOR OF OFFICE OF MAN-
               AGEMENT AND BUDGET

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                            COMMITTEE ON THE BUDGET

                       PATTY MURRAY, Washington, Chairman

    RON WYDEN, Oregon                    JEFF SESSIONS, Alabama
    DEBBIE STABENOW, Michigan            CHARLES E. GRASSLEY, Iowa
    BERNARD SANDERS, Vermont             MICHAEL ENZI, Wyoming
    SHELDON WHITEHOUSE, Rhode Island     MIKE CRAPO, Idaho
    MARK R. WARNER, Virginia             LINDSEY O. GRAHAM, South Carolina
    JEFF MERKLEY, Oregon                 ROB PORTMAN, Ohio
    CHRISTOPHER A. COONS, Delaware       PAT TOOMEY, Pennslyvanna
    TAMMY BALDWIN, Wisconsin             RON JOHNSON, Wisconsin
    TIM KAINE, Virginia                  KELLY AYOTTE, New Hampshire
    ANGUS S. KING, Jr., Maine            ROGER F. WICKER, Mississippi

                    Evan T. Schatz, Majority Staff Director

                      eric Euland, Minority Staff Director

                                      (ii)

                                C O N T E N T S

                                   __________

                                    HEARING

                                                                       Page
    June 11, 2014--Nomination of the Honorable Shaun L. S. Donovan,
      of New York, to be Director of Office of Management and Budget.     1

                        STATEMENTS BY COMMITTEE MEMBERS

    Chairman Patty Murray............................................     1
    Ranking Member Jeff Sessions.....................................     4

                                   WITNESSES

    Donovan, Shaun, of New York, Nominee to be Deputy Director of the
      Office of Management and Budget................................     7

                                    REDACTED

    Statement of Biographical and Financial Information Requested of
      Presidential Nominee Shaun L. S. Donovan to be Director of the
      Office of Management and Budget................................    38

    ANSWERS TO QUESTIONS PRESENTED TO SHAUN L. S. DONOVAN BEFORE NOMINATION

     ANSWERS TO QUESTIONS PRESENTED TO SHAUN L. S. DONOVAN AFTER NOMINATION

    THE NOMINATION OF THE HONORABLE SHAUN L.S. DONOVAN, Of NEW YORK, TO BE
                DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

                                  ----------

                            WEDNESDAY, JUNE 11, 2014

                                  United States Senate,
                                       Committee on the Budget,
                                                       Washington, D.C.
        The Committee met, pursuant to notice, at 2:02 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Patty Murray,
    Chairman of the Committee, presiding.
        Present: Senators Murray, Wyden, Nelson, Whitehouse, Coons,
    Kaine, King, Sessions, Johnson, and Wicker.
        Staff Present: Evan T. Schatz, Majority Staff Director; and
    Eric Ueland, Minority Staff Director.

                  OPENING STATEMENT OF CHAIRMAN MURRAY

        Chairman Murray. Good afternoon. This hearing will come to
    order. I want to welcome everybody and thank my Ranking Member,
    Senator Sessions, and all of our colleagues who are joining us
    and will be joining us today.
        We are here this afternoon to consider President Obama's
    nomination of Housing and Urban Development Secretary Shaun
    Donovan to the position of Director of the Office of Management
    and Budget.
        Thank you so much, Mr. Secretary, for joining us here
    today. I also do want to acknowledge the tremendous
    contributions of your family--your wife, Liza; your sons Lucas
    and Milo, who I know have been an incredible source of support
    for you today. And I understand they sat through the hearing
    this morning for you. That double duty requiring them to sit
    here behind you today would be more than a dad should ask if
    you want Father's Day to be good for you. So tell them thank
    you for all of us. I know that all of us could not do our
    public service jobs without the support of our families, so
    tell them thank you on behalf of all of us.
        I also want to take a moment to recognize the work of
    former OMB Director and now Secretary of Health and Human
    Services Sylvia Burwell. She was a fantastic partner and leader
    of the OMB during a very demanding year. President Obama made a
    great choice in nominating Sylvia for her new role and bringing
    her leadership and skill to the Department of Health and Human
    Services. And he made an equally strong choice in nominating
    Secretary Donovan to take over at OMB.
        Secretary Donovan, I am really glad to have the opportunity
    to speak with you now about how your experience has prepared
    you for new role. And I look forward to hearing your thoughts
    on some of the budget challenges we are going to need to
    address in the future.
        I know Secretary Donovan very well. We have worked together
    very closely over the last 5 years. And throughout that time,
    it has been very clear to me that he is focused first and
    foremost on strengthening our middle class by expanding
    opportunity for families and communities.
        Secretary Donovan was sworn in at the Department of Housing
    and Urban Development in January of 2009--as the fallout from
    the financial crisis caused millions of families across our
    country to lose their homes and their financial security.
        Faced with almost unprecedented circumstances, Secretary
    Donovan led HUD through the complex process of stabilizing the
    housing market.
        Secretary Donovan took steps to keep responsible families
    in their homes and has reinforced the agency's role in
    providing access to affordable housing and building strong,
    sustainable neighborhoods. And he worked in a bipartisan
    manner--including with members of our Committee such as
    Senators Warner and Crapo--to rethink how the Nation continues
    to have a strong, durable, and affordable housing market going
    forward.
        So while more work remains, the Nation has come a long way
    under his leadership.
        Secretary Donovan has been a highly effective and
    responsive partner to those of us in Congress when it comes to
    disaster relief--an area that transcends party lines.
        Over his tenure, he fought to make sure that every
    community hit hard by a natural disaster has the resources to
    get back on its feet and come back stronger than before.
        Nowhere was this more apparent than in the wake of
    Hurricane Sandy, when President Obama created the Hurricane
    Sandy Rebuilding Task Force and appointed Secretary Donovan as
    Chair.
        Working together on these challenges, I know firsthand that
    Secretary Donovan confronted each one with a cool head, a deep
    commitment to service, and--as he has said himself--a lot of
    spreadsheets.
        I am confident he will bring each of those strengths--and
    many more--to the Office of Management and Budget. He is taking
    on this new role at a critical time, because although we have
    made progress--which I will discuss--there is a lot more to do.
        Our fiscal outlook has improved significantly in the near
    term. Since 2010, we have passed legislation now reducing our
    deficit by $3.3 trillion--most of the way toward the bipartisan
    goal of $4 trillion that was laid out by Simpson-Bowles. We
    have stabilized the deficit as a share of the economy over the
    next few years. And the deficit for this fiscal year is
    expected to be less than a third of what the Congressional
    Budget Office projected it would be 5 years ago.
        But we still face serious debt challenges in the coming
    decades that we will need to address. The 2-year budget
    agreement that Chairman Ryan and I reached was a step in the
    right direction. It moved us away from the dysfunction that has
    defined Congress over the past few years. It prevented another
    unnecessary Government shutdown. It sent a strong signal that
    there is bipartisan support for replacing the automatic cuts
    from sequestration, which are scheduled to kick in again in
    2016. And it laid out a blueprint for future negotiations over
    budget levels.
        But, all that said, our deal was only a step. And as we
    look toward fiscal year 2016, it is critical that we come
    together to build on it. I am confident that Secretary Donovan
    will be an invaluable partner in this effort, because I know
    that, just like his predecessor at OMB, when Secretary Donovan
    sees a problem, the question he asks is: ``How can we fix this
    in a way that does the most to help families and communities
    get ahead?''
        This question is absolutely central to the challenges we
    face when it comes to the budget. It is true that the long-term
    debt is a threat to our economy, but a poorly educated
    workforce, inadequate infrastructure, and dampened innovation
    are just as much of a threat, both to our economy and to our
    workers and families seeking more opportunity.
        So we need to make sure we are investing appropriately in
    those areas. And that means for fiscal year 2016, we are going
    to need to find a way, again, to roll back sequestration and
    replace it with responsible, balanced deficit reduction.
        I am confident we can get this done, because the Bipartisan
    Budget Act proved that neither side is willing to accept
    sequestration as the status quo.
        I believe we can reach an agreement that ensures we are
    making smart choices and investing in priorities that we know
    will pay off in a more economically competitive workforce and
    country.
        But as we all know, the work does not stop at solving the
    next fiscal year. Far from it.
        To ensure the programs and services we currently benefit
    from are there for future generations, we absolutely need to
    reach a larger agreement that addresses the true drivers of our
    debt and sets us on a fiscally responsible path--not just for a
    few years but for the long haul.
        We all know Democrats and Republicans have fundamental
    differences about how to get that done. But I strongly believe
    that if each side comes to the table ready to make a few tough
    choices to reach a compromise; if, like Chairman Ryan and I did
    during the budget negotiations last year, we take the time to
    build trust and focus on reaching a deal rather than winning
    the news cycle, we can deliver that kind of deal for the
    American people.
        Confronting the two challenges that I have just laid out--
    making critical investments in jobs and opportunity and
    tackling our long-term budget challenges--would do an enormous
    amount for families and workers across the country, right now
    and for decades to come.
        And because these goals are so important, I am very hopeful
    that Secretary Donovan's confirmation process will be a smooth
    and efficient one.
        We saw last year how critical it is to have a strong leader
    in place at the Office of Management and Budget. With Secretary
    Burwell already settling in now at HHS, there is every reason
    to move quickly and ensure the new OMB Director can get to
    work.
        So, Secretary Donovan, I want to thank you again for being
    here, for joining us today, and being willing to take on this
    new challenge. And I also again just personally want to thank
    you for all the work you have done already on the part of our
    families and communities across the country.
        With that, I will turn to Senator Sessions for his opening
    remarks.

                 OPENING STATEMENT OF SENATOR SESSIONS

        Senator Sessions. Thank you, Madam Chairman, and I am a
    little disappointed to hear you say that you are going to come
    back again next year and break the Budget Control Act limits
    that we agreed to just in January. But that is the danger we
    have here, Mr. Secretary. There is so much pressure to spend,
    to spend, to spend, and simply the Nation has got to rise up to
    that and be responsible in the actions that we take.
        So we thank you for being with us. We miss your family, but
    we understand, and look forward to questions today. But I would
    note that your appointment is somewhat unexpected since
    Director Burwell has only been there about 13 months. And so we
    really need some stability and strength in that office.
        You will get a fair hearing. I will carefully consider your
    record and your testimony today in reaching my decision about
    whether to support your confirmation.
        The Director of the Office of Management and Budget is one
    of the most critical positions in our Government, entrusted
    with overseeing our massive Federal budget during a time of
    great financial danger. The President is the Chief Executive,
    and the OMB Director is the chief executive for management for
    the President, and he must show integrity, efficiency, and
    productivity in all that you do.
        Only weeks ago, the Director of the Congressional Budget
    Office reaffirmed in testimony that we are on an unsustainable
    path financially and face the risk of a fiscal crisis as a
    result of our debt. So whoever holds this job must be one of
    the toughest, strongest, most disciplined managers we have in
    America. So that is the question before us today: Is Mr.
    Donovan that man?
        The fact is that OMB has consistently failed to meet many
    of its most basic obligations. Time and again, OMB has missed
    deadlines, ignored legal requirements, violated congressional
    spending caps, and misrepresented, really, financial data
    submitted to Congress. So that is why I feel that we must
    carefully examine Mr. Donovan's qualifications.
        All of us have a deep responsibility to the American people
    for every dollar, every expenditure, every program that we
    fund. I must, therefore, express some concerns about Mr.
    Donovan's time at the Department of Housing and Urban
    Development.
        First, HUD has never been known as the best-run agency in
    Washington. During his time at HUD--Mr. Donovan's only real
    management experience has been at HUD during that time. But
    there is nothing in his track record there or anywhere else
    demonstrating a strong commitment to the financial discipline,
    a particular skill in managing taxpayers' dollars, or a passion
    for saving money. To my knowledge, Mr. Donovan has nothing in
    his background that would suggest he has either a desire or a
    plan to confront our fast-rising entitlement programs that are
    so near insolvency.
        Indeed, Mr. Donovan's time at HUD was marred by a series of
    Inspector General reports raising questions about his
    management of even this small Department. One would want to see
    a sterling record, I think, of saving taxpayers' dollars,
    finding new efficiencies, streamlining Government.
        But the record shows some concerning failures in regards to
    the American Recently and Reinforcement Act. The Inspector
    General of HUD, your own Inspector General, found, ``HUD did
    not enforce the reporting requirements of this Section 3
    program for ARRA public housing capital fund recipients.
    Specifically, HUD failed to collect Section 3 summary reports
    from all housing authorities by the required deadline and
    verify their accuracy and did not sanction housing authorities
    that failed to submit the required reporting information. As a
    result, 1,650 housing authorities did not provide HUD and the
    general public with the adequate employment and contracting
    information.''
        The Inspector General provided this summary of HUD's record
    with the Homeless Prevention and Rapid Rehousing Program. They
    said this in another report: ``Community advocates did not
    properly administer its Supportive Housing Program and ARRA
    grant funds. Specifically, it did not: one, ensure that
    Supportive Housing Program funds were used for eligible
    activities; two, maintain documentation to support required
    match contributions. It also failed to maintain a financial
    management system that separately tracked the source and
    application of ARRA funds and lacked sufficient documentation
    to support the allocation of operating costs.''
        The Inspector General further questioned the quality of the
    data provided about the $800 billion stimulus package. ``Our
    limited review of the jobs data and calculations of the five
    selected HUD recipients disclosed inconsistencies in the
    methodology of counting the quarterly hours worked and various
    discrepancies between the hours recorded on time and payroll
    records and the hours included in Section 1512 reporting. We
    question the accuracy of the job calculations and in some
    instances the accuracy of the data used in these
    calculations.'' Another criticism.
        The Inspector General also conducted a review of HUD's
    toll-free phone lines. These are lines you are supposed to be
    able to call to get information about HUD programs that
    citizens can use. The summary of that report explains, ``We
    conducted an evaluation of HUD's toll-free lines. Our review
    disclosed that HUD could not determine, one, whether the toll-
    free phone lines were functioning at an optimal level; and,
    two, the level of service provided to its customers. We also
    identified numbers that were either disconnected and not HUD
    numbers that were advertised on HUD's website.''
        In its report on the multifamily project refinances, the
    Inspector General, your Inspector General, found, ``HUD did not
    have adequate controls to ensure that all Section 202
    refinancing resulted in economical and efficient outcomes.
    Specifically, one, HUD did not ensure that at least half the
    debt service savings that resulted from refinancing were used
    to benefit tenants or reduce housing assistance payments; two,
    consistent accountability for the debt service savings was not
    always maintained; three, some refinancings were processed for
    projects that had negative debt service ratings which resulted
    in higher debt service costs than before the refinancing. These
    deficiencies were due to HUD's lack of adequate oversight and
    inconsistent nationwide policy implementation regarding debt
    service savings realized from Section 202 financing activities.
    As a result, millions of dollars in debt service savings were
    not properly accounted for and available. The savings may not
    have been used to benefit tenants or for the reduction of
    housing assistance payments. And some refinanced projects ended
    up costing HUD additional housing assistance payments because
    of the additional cost of debt service.'' Pretty significant
    criticism.
        So this apparent record of failure to manage is ironic
    given Mr. Donovan's faith in Government. Now, I know you
    believe in Government. You said once, ``I would never believe
    that the private sector, left to its own devices, is the best
    possible solution. I am in Government because of the role of
    Government in setting rules and working in partnership with the
    private sector.''
        Well, we want to work with the private sector, but we know
    that Government must be efficient and productive and well run,
    or it will fail to meet the minimum requirements.
        So, Madam Chairman, I thank you for the opportunity of
    doing this, having this hearing. We need to go through it. You
    are seeking an exceedingly important job, Mr. Donovan. There
    have been problems in HUD, have been for a number of years. You
    have been there quite a number of years. I do not know that we
    have seen yet the commitment, the dedication, the drive, the
    real imperative to get this Government under control, whether
    we see it at the Veterans Administration, whether we see it at
    HUD, as we talked about, whether we see it at HHS with regard
    to the surge of illegal immigrants into the country, all in
    large part due to ineffective management.
        Thank you, Madam Chairman.
        Chairman Murray. Under the rules of the Committee, nominees
    are required to testify under oath. So, Secretary Donovan,
    would you please rise with me so I can administer the oath? Do
    you swear the testimony that you will give to the Senate Budget
    Committee will be the truth, the whole truth, and nothing but
    the truth?
        Secretary Donovan. I do.
        Chairman Murray. If asked to do so and if given reasonable
    notice, will you agree to appear before this Committee in the
    future and answer any questions that members of this Committee
    might have?
        Secretary Donovan. Yes.
        Chairman Murray. Please be seated.
        Secretary Donovan. Thank you.
        Chairman Murray. Okay. We will now have a chance to hear
    from Secretary Donovan, and then members will have the
    opportunity to ask him questions. And, again, Mr. Secretary,
    thank you so much for the job you have done and for your
    willingness to take on this critically important task for all
    of us. Go ahead.

    TESTIMONY OF THE HONORABLE SHAUN L.S. DONOVAN, OF NEW YORK, TO
              BE DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET

        Secretary Donovan. Thank you, Chairman Murray, Ranking
    Member Sessions, and members of the Committee for welcoming me
    today. It is a privilege to be considered by this Committee as
    the President's nominee to be Director of the Office of
    Management and Budget.
        I also want to say thank my wife, Liza, and my two sons,
    Milo and Lucas. In public service, the biggest burdens and
    sacrifices often fall on our families. So I deeply appreciate
    their continued support as I seek to take on this new
    challenge.
        I am also grateful to President Obama for nominating me. I
    continue to be honored and humbled by the confidence he has
    shown in me.
        Finally, I want to thank the members of the Committee and
    their staffs for meeting with me over the last few weeks and
    for sharing your insights. If I am confirmed, I very much look
    forward to continuing our conversations.
        I recognize, as you said, Chairman, that Secretary Burwell
    set a high bar for OMB Directors going forward--both with her
    strong leadership and her efforts to maintain solid
    relationships with Congress. If confirmed, I would look forward
    to picking up where Secretary Burwell left off by engaging with
    you and your colleagues to achieve common goals, to meet
    deadlines, and to work with Congress to restore regular order.
        During my time as the Secretary of the Department of
    Housing and Urban Development, I worked closely with you, Madam
    Chairman, and I want to thank you for all your leadership in so
    many areas. I worked tirelessly with you to ensure that the
    Federal Government is doing its part to help the American
    people secure safe and affordable housing. Homes are the center
    of every person's life. They play a key role in shaping safe
    neighborhoods, good schools, solid businesses, and ultimately a
    strong economy.
        For the past 5-1/2 years, HUD has been creative in helping
    families obtain this key part of the American Dream and, during
    these tough fiscal times, has done so in a fiscally responsible
    fashion. Working with colleagues from across the
    administration, we have helped millions of families fight off
    foreclosure, reduced the number of veterans experiencing
    homelessness by 24 percent in the last 3 years--and I want to
    thank you in particular, Chairman, for your leadership in that
    area--revitalized distressed neighborhoods, and helped
    communities hit by natural disaster rebuild stronger than
    before. Through all this work, I have seen firsthand how
    critical the Federal budget process is and how it makes an
    impact on the people we serve. The Federal budget is not just
    numbers on a page. It is a reflection of our values, and it is
    important to our future.
        I believe the President's Budget shows a responsible path
    forward for the Nation. It creates jobs and lays a foundation
    for growth by investing in infrastructure, research, and
    manufacturing. It expands opportunity by ensuring health care
    is affordable and reliable, expanding access to housing,
    investing in job training and preschool, and providing pro-work
    tax cuts. And it ensures our long-term fiscal strength by
    fixing our broken immigration system and addressing the primary
    drivers of long-term debt and deficits, health care cost
    growth, and inadequate revenues to meet the needs of our aging
    population.
        Over the last 5 years, the deficit has been cut in half as
    a share of the economy, the largest sustained period of deficit
    reduction since World War II. Our Nation can continue this
    progress while focusing on the critical goals of accelerating
    economic growth, creating jobs, and expanding opportunity for
    all Americans.
        I would like to briefly outline my priorities, if I am
    confirmed as Director.
        First, if confirmed, I look forward to working with
    Congress to continue the important progress made on the Budget
    over the past year. The Bipartisan Budget Act and Consolidated
    Appropriations Act for 2014 were good first steps in moving
    beyond the manufactured crises of the past few years and
    providing some measure of relief from the damaging cuts caused
    by sequestration. But there is more that we must do to invest
    in our economy, create jobs, and promote national security,
    while continuing to promote fiscal stability by addressing the
    key drivers of our long-term debt and deficits.
        Second, I want to acknowledge the critical management side
    of OMB's responsibilities. I would work to advance the
    President's Management Agenda, which is focused on making the
    Federal Government more efficient, effective, and supportive of
    economic growth. Under the President's leadership, the
    administration is working to improve key citizen-and business-
    facing transactions with Federal agencies. It is working to
    increase the quality and value in core Government operations
    and enhance productivity to achieve cost savings for the
    American taxpayer. It is working to open Federal Government
    assets to the public, including data from federally funded
    research, to create a platform for innovation and job creation.
    And it is working to unlock the potential of the Federal
    workforce and build the workforce we need for tomorrow by
    investing in training and ensuring agencies can hire the best
    talent from all segments of society.
        Third, it is critical that OMB's Office of Information and
    Regulatory Affairs continue the administration's regulatory
    focus on maintaining a balance between protecting the health,
    welfare, and safety of Americans and promoting economic growth,
    job creation, competitiveness, and innovation. And I would seek
    to continue the President's successful regulatory retrospective
    review, or regulatory ``lookback,'' where the administration is
    streamlining, modifying, or repealing regulations to reduce
    unnecessary burdens and costs.
        Finally, I want to note what a particular honor it would be
    for me to serve as the head of OMB. OMB plays a unique and
    critical role in the functioning of the Federal Government. As
    HUD Secretary, I have worked closely with OMB's leadership,
    including Deputy Directors Brian Deese and Beth Cobert, and I
    have seen the outstanding contributions made by the talented
    men and women who work throughout the institution.
        To give just one example, in my role as Chair of the
    Hurricane Sandy Rebuilding Task Force, I saw the tireless
    efforts made by OMB staff, many of them long-serving career
    employees, as they worked literally night and day for weeks and
    even months to ensure that disaster relief was delivered
    swiftly, fairly, and responsibly. It was OMB employees who had
    the expertise, knowledge, and governmentwide perspective to
    help coordinate the effort and make sure it was done right.
        Again, I want to thank the President for giving me this
    opportunity and the Committee for considering my nomination. I
    look forward to answering any questions you may have. Thank
    you.
        [The prepared statement of Secretary Donovan follows:]
        Chairman Murray. Thank you very much, Mrs.
        As head of a major Department over the last 5 years, you
    got a fair amount of experience with OMB, and I would guess not
    all of it has been pleasant given the tough budget environment
    that we have all been working in. But more than most, I think
    you understand OMB and the role it plays within the budget
    process. And as I mentioned in my opening statement, you have
    also had to grapple with a number of tough fiscal issues over
    the last several years, including taking office in the midst of
    that very devastating housing and financial crisis and, again,
    as you just mentioned, overseeing the Federal response and
    recovery efforts following Hurricane Sandy.
        So I wanted to start off by asking how you see the
    experiences of your last few years as having helped you prepare
    now for what will be your next major challenge as head of the
    OMB and the President's point person on the budget.
        Secretary Donovan. Madam Chair, first of all, the most
    significant crisis that we faced in this country when we took
    office was in our housing market, and as you know, FHA was at
    the center of that storm. Not only were we faced with helping
    keep families in their homes and helping recover from that
    crisis, but we were also facing the potential for a significant
    loss to the taxpayers at FHA as well.
        And so I worked very, very closely with agencies across the
    Federal Government, particularly with the Treasury Department
    and with the National Economic Council as well as others, many
    independent agencies, and one of the things I am proudest of is
    that we were able not only to help the housing market recover--
    independent economists who said the housing collapse would have
    been 25 percent worse had it not been for FHA--but today FHA is
    not only making the highest-quality loans in its history, but
    is actually returning billions of dollars to taxpayers each
    year with the new loans that it makes, as you well know from
    your leadership of our Appropriations Committee.
        Much of that has been done in partnership with GAO and
    other agencies that have made recommendations that we followed
    to improve the way that we manage FHA with a $1 trillion
    portfolio. It is a significant, significant challenge.
        Beyond that, what I would say is my management experience
    not only here but for 5 previous years under Mayor Bloomberg
    leading the housing agency in New York, working closely with
    OMB in New York City, but also my work in the private sector
    leading companies that were involved in housing and real
    estate, it is, I believe, an important set of experiences that
    help me understand, particularly in tough fiscal times, how we
    work with the private sector to leverage critical private
    capital and investments in things that we may not be able to
    afford with direct Government spending. And that is a
    partnership that I intend to leverage at OMB, should I be
    confirmed.
        Chairman Murray. Okay. I know from many of our discussions
    that you share my belief that lurching from crisis to crisis
    over the past few years and the lack of budget certainty has
    really hurt our economy and families and communities, and that
    was really why it was so important to me that Chairman Ryan and
    I do sit down together and reach an agreement on a 2-year
    Bipartisan Budget Act.
        As an administrator, you have some firsthand experience
    with the harmful impacts that are caused by political
    brinksmanship and dysfunction from within one agency or trying
    to fulfill its responsibilities. Can you comment on the
    importance today of having a 2-year budget agreement over the
    last year instead of having uncertainty and crisis management?
        Secretary Donovan. Well, Senator, let me just say thank you
    on behalf of all of us in the administration, but thank you as
    a citizen of the country as well. It was an absolutely critical
    step to help us begin to restore regular order in our budgeting
    process. And as you well know from your direct experience of
    our budget, not only did sequestration mean that more than
    100,000 families lost vouchers across the country and that
    families who had finally gotten off our streets were turned
    back out to the streets because of those cuts; but, ironically,
    we actually ended up spending more money in certain programs as
    a result of sequestration because of the lack of ability to
    plan and execute efficiently.
        In some cases, we had to cut back on oversight or other key
    functions because of the dramatic cuts in sequestration that
    led to the potential for higher costs in the long run, not to
    mention the highest costs, for example, as you know, when a
    homeless person is turned back out on the streets, they are
    going to end up in shelters, emergency rooms that are actually
    more expensive to the experience than permanent housing.
        And so there are many ways that restoring regular order not
    only is better for the people in communities we serve, but
    actually helps us to plan and find smart ways to reduce the
    cost of Government rather than lurching from crisis to crisis.
        Chairman Murray. Thank you very much, and I do want to
    mention one parochial issue that is extremely important to me
    within the budget, and that is the Environmental Management
    Program. We talked about it when you came to my office. That is
    the program that funds defense environmental cleanup at the
    Hanford site in my home State of Washington and other sites
    across the country. It is really important to me and my
    constituents and to our country.
        I have been very clear with the administration that we have
    to provide the necessary funding. We have legal and moral
    obligations to clean that waste up. It is a legacy waste from
    the Manhattan Project and Cold War efforts, and I am deeply
    concerned about the fiscal year 2015 budget request which cut
    EM by $135 million, kind of foreshadowing what we might be
    seeing coming.
        This is really unacceptable. We have to make sure that
    annual budgets for the EM program will allow the Federal
    Government to keep the commitments that have been made to thee
    communities, like the Tri-Cities in my home States. We keep
    doing these shortsighted budgets year to year, and it is not
    sustainable. We have to clean up these environmental disasters
    and waste sites from past wars, and I would just like your
    commitment to work with me, the Department of Energy, to
    develop a long-term, comprehensive plan to deal with this,
    because we keep losing sight of it in the short-term budget
    crises.
        Secretary Donovan. Senator, should I be confirmed, I look
    forward to working with you on this to make sure we have a
    long-term perspective on this issue.
        Chairman Murray. Thank you very much.
        Senator Sessions?
        Senator Sessions. Thank you.
        Well, Mr. Secretary, you were talking about the largest
    debt reduction in history. Perhaps that is so in real numbers.
    But I have got to tell you, the highest deficit in the 8 years
    prior to President Obama taking office was $476 billion. The
    first year in office, he was over $1 trillion, over one
    thousand billion dollars. And for four consecutive years, we
    had deficits of over $1 trillion a year, a thousand billion.
        And so we are back on the path, or soon, showing growing
    deficits, according to CBO, and they say we are not on a
    sustainable path. So I just want to tell you, you have taken a
    tough job. This is not all fixed. This deficit financial
    situation in America is nowhere close to being fixed. We have
    not dealt with entitlements. We have not dealt with growth in
    spending and a whole lot of programs. And we are going to see
    the largest surge in interest we have ever seen from $220
    billion last year to over $800 billion 10 years from today--
    $650 billion or so a year in extra interest we have got to find
    money to pay before we fund anything else in Government.
        So I have got a chart that I just want to put up for you. I
    do not know if you can see that, but it shows in 2013, we had a
    total gross debt of $16.7 trillion. Can you read what the gross
    debt will be in 2024, projected gross debt?
        Secretary Donovan. Very small numbers, Senator. It looks
    like about $25 trillion?
        Senator Sessions. Yes, 24.9. So that indicates that we will
    be expected to add to the debt of the United States in the next
    10-year budget window $8 trillion. So this was the table
    submitted by OMB, your predecessor, President Obama's
    administration. So, in your view, is increasing the debt by $8
    trillion over the next 10 years, an average of $800 billion a
    year in added debt, is that a sustainable path?
        Secretary Donovan. Senator, first of all, I believe these
    are the gross debt numbers. I think the more important figure
    we should be looking at is the debt held by the public, and
    particularly, you know, most budget experts look at it relative
    to the size of GDP. And I think the important thing, whether it
    is CBO or in the President's own calculations, OMB's, we agree
    that the President's budget would reduce the deficit by more
    than $1 trillion over that 10-year window compared to current
    law. And--
        Senator Sessions. Well, we just have--
        Secretary Donovan. --so I would agree with you--
        Senator Sessions. --a couple of minutes left in my question
    time. I understand the difference in gross and public debt.
    This is gross, but the proportion is basically the same. I have
    checked those numbers too. They increase at the same rate. CBO
    says we are not on a sustainable path. Do you content that this
    is? Or do you believe if you take this office you need to look
    for ways to improve our financial situation and not average
    $800 billion a year in debt?
        Secretary Donovan. Senator, I agree with your statement
    that we are not done by any means, that we still need to take
    critical steps. We have over the last few years, on a
    bipartisan basis, reached more than $3 trillion of deficit
    reduction. The President's budget would take that over $5
    trillion. But ultimately the critical drivers of that debt and
    deficit, I hope we would agree, are long-term increases in
    health care costs and also the demographic changes that we have
    coming in this country that mean that we will have more seniors
    retiring and that we need to keep our promises to seniors.
        Senator Sessions. Well, I agree. So we have made promises
    in Medicare, and we have made promises in Social Security. Both
    of those programs are on a path that cannot be sustained. We
    are not going to be able to honor those promises at the current
    rate.
        Now you are taking on this August position, perhaps the
    most important position in the entire Government. Do you have
    any plans, have you expressed previous to this day any idea how
    to put Social Security and Medicare on a sound footing?
        Secretary Donovan. Well, certainly there has been a great
    deal of focus on what do we do about the rising costs of--
        Senator Sessions. Well, have you expressed--
        Secretary Donovan. --Medicare.
        Senator Sessions. First, have you expressed any? In other
    words, have you studied this and over any period of time have
    you laid out any ideas about how to fix Social Security and
    Medicare?
        Secretary Donovan. So, first of all, I believe strongly
    that the reforms that we have begun to see in medical care are
    a very important step forward. CBO--
        Senator Sessions. Just first, I just want to ask that
    simple question. Have you previous to this day laid out any
    plans that you have how to fix these programs? Just yes or no.
    Have you laid out any plan?
        Secretary Donovan. I am not sure what you mean, Senator, by
    ``laid out plans.''
        Senator Sessions. Well, have you expressed any ideas? Have
    you written any articles? Have you done anything in a specific
    way to fix those programs?
        Secretary Donovan. I have worked extensively on the ways
    that we can make sure in housing and a range of other economic
    areas that we are growing our economy and dealing with long-
    term challenges.
        Senator Sessions. Well, I would just take it that you have
    not, unless you submit something for the record. I would
    appreciate just a simple answer. You have not written on it.
    You are taking an important job, and you do not bring any
    previous commitment to fixing these programs, which is a lack,
    I think, in the nominee.
        Thank you, Madam Chairman.
        Chairman Murray. Senator King.
        Senator King. Thank you, Madam Chair.
        Mr. Donovan, are you willing to be the most hated person in
    Washington?
        [Laughter.]
        Senator King. I ask that question somewhat--
        Secretary Donovan. I am not taking the job to be popular,
    Senator.
        Senator King. Well, that was the right answer. In looking
    back over the historical sweep of the last 50, 60, or 70 years,
    I think one of the problems that has gotten us into the mess
    that we are in was, historically, Presidents were the enforcers
    of the budget, and the Congress always wanted to spend more,
    and the President was the guy who said you have got to eat your
    spinach. In fact, I remember the term ``sequester'' was
    invented during the Nixon administration when I worked here.
    Somewhere--I think it was during the Reagan administration--
    Presidents joined the party, if you will, and that is when
    spending really started to go through the roof, and we have had
    persistent deficits, except, as you know, for a couple of years
    in the latter part of the Clinton administration.
        You have got to be the guy that says no, and it is not--and
    I think that is an important--the President has to be the one
    that enforces budget constraint, I think, because the tendency
    is always to spend more. It is always more fun to spend than it
    is to tax, and that had led us into this very unsustainable
    position. So I hope you will take my question seriously, that
    you are not going to be--if you are doing your job, you are not
    going to be popular.
        Second question: Interest. And Senator Sessions was talking
    about this. I am gravely worried about interest, and the
    problem is we are in a wonderland of 2 percent interest that is
    not going to last forever. Would you agree with that?
        Secretary Donovan. I do agree.
        Senator King. So when interest rates go up, if they go up
    just to 5 percent, which is about where they were historically,
    we are talking about $850 billion a year in interest, which is
    larger than the defense budget. It would be one of the largest
    expenditures. It is dead money. It is not buying us anything.
    The only thing it is buying is railroads and airports and roads
    for China and other places that hold our debt.
        And, by the way, I do not agree, the distinction between
    gross debt and public debt. Most people I know--as you know,
    the $5 trillion that is not public debt is owed to the Social
    Security Trust Fund. Most people I know that are getting Social
    Security benefits want checks, not IOUs. And interest has to be
    paid on that money. So I really think $17 trillion is the right
    number.
        In any case, if we do not do something about this now when
    we are in the world of 2 percent interest, it is going to be
    too late when it is 5 or 6 percent, because all fiscal hell is
    going to break loose around here. Talk to me about trying to
    help us to find some solutions to this debt problem now rather
    than when it is too late.
        Here is another way to put it in perspective. A 1-percent
    increase in interest is more than twice--is not quite twice as
    much as the sequester. We are all talking about how bad the
    sequester is. The sequester was $91 billion last--proposed to
    be $91 billion. A 1-percent increase in interest is $170
    billion. Help me figure out how you are going to help us get
    out of this hole, because we have got to start now--this is the
    good times compared with what it is going to be when interest
    rates go up.
        Secretary Donovan. Yes, so as I was starting to say before,
    Senator, I hope we would all agree that the fundamental
    challenges have been around health care costs--
        Senator King. I completely agree.
        Secretary Donovan. --and the long-term demographic changes
    that we are seeing in our country. I think the good news here,
    if there is good news, is that we are starting to see some real
    changes on the medical cost side. We have health care costs
    that are rising at the slowest rate now they have in more than
    50 years. And, in fact, CBO just in terms of what we will spend
    between now and 2020, they have lowered their projections by
    $900 billion given the changes that we have seen over the last
    few years in health care costs. So I think we have got to build
    on those. And as you know, just like interest, those compound,
    right? If we have a lower rate this year and a lower rate next
    year, we get double benefit from that in terms of--
        Senator King. And I think you will agree with me that the
    way to deal with that health care cost issue is to try to deal
    with it globally, not just shift the Federal health care bill
    to seniors or to the States or somewhere else. It has got to be
    across the board.
        Secretary Donovan. I agree, and this is the reason why in
    the President's budget this year there is $400 billion of
    additional savings in Medicare and Medicaid, but also a real
    focus on how do we change the system--accountable care
    organizations, a range of other approaches, the Innovation
    Center that I think can contribute to changes that are not just
    about shifting but actually getting better care for lower
    dollars.
        Obviously, that is not the only thing we should talk about.
    There is also wasteful spending in our Tax Code that we ought
    to be looking at, and other areas, but I think that is the
    center of the long-term challenge.
        Senator King. Well, you have talked about demographic
    changes. The reality, I take it, that you are alluding to is
    that the aging of the population is going to put more demands
    on things like Social Security and Medicare, and it is
    unrealistic to think that past revenue percentages of GDP will
    suffice given those changes. Is that your testimony?
        Secretary Donovan. That is definitely part of it. And,
    look, the President's has laid out principles for Social
    Security reform. I would certainly argue that Social Security
    is not as significant a driver of long-term deficits because in
    the later years in the decade, it actually sort of smoothes out
    because of the demographic changes as the effects of the baby
    boom start to play out later. But, clearly, that is something
    that we need to deal with in the longer run as well.
        Senator King. A final short question. Would you be willing
    to consider the idea of a biennial budget--in effect, we just
    had one--as a more efficient way to do our budgeting here? I am
    a former Governor. Others are. We do it in our State. Most
    States have biennial budgets. Is that something you think we
    should look at?
        Secretary Donovan. And, again, I would pay tribute to the
    Chairman here for helping to bring us back toward regular
    order. I think biennial budgeting is an idea worth exploring
    further. If I were confirmed, I would certainly want to talk to
    you more about it. There are a number of benefits that I could
    see. I think there are some real reasonable questions about
    whether it might require more supplementals or others. But as I
    said, I think it is an idea worth exploring.
        Senator King. Thank you. And I was delighted to hear you
    emphasize OIRA in your opening statement. Do not forget that.
        Secretary Donovan. Very important.
        Senator King. Thank you, Madam Chair.
        Chairman Murray. Senator Johnson.
        Senator Johnson. Thank you, Madam Chair.
        Secretary Donovan, welcome. I appreciate you spending some
    time in my office. As I indicated in the office, I want to talk
    during the testimony here about Social Security and Medicare.
    Let us first start with Medicare. I am assuming you had a
    chance to kind of bone up on the issues.
        Secretary Donovan. I did, and I appreciated our
    conversation and your PowerPoint, which I have spent some real
    time looking through and thinking about.
        Senator Johnson. Not everybody does.
        So having studied this, are you aware of the fact that in
    the President's 2015 budget Medicare will run a deficit; in
    other words, it will pay out more in benefits than it takes in
    in the payroll tax to the tune of about $4.3 trillion? Does
    that sound about right to you?
        Secretary Donovan. I do not have those numbers in front of
    me.
        Senator Johnson. It is about $3 trillion in revenue, about
    $7.3 trillion in benefits, so it is about $4.2 trillion. Over
    30 years, are you aware that, according to CBO, their alternate
    fiscal scenario, Medicare will pay out $35 trillion more in
    benefits than it takes in in the payroll tax? Is that--
        Secretary Donovan. Again, I do not have those numbers in
    front of me, but as I was just referring to--
        Senator Johnson. So let us stipulate that those are correct
    numbers, and they are. Do you believe that is a program,
    Medicare, that requires more than modest reforms?
        Secretary Donovan. I am not sure what your definition of
    ``modest'' would be. I just talked about the fact that--
        Senator Johnson. That is what President--
        Secretary Donovan. --it requires reform.
        Senator Johnson. That is what President Obama has
    repeatedly said, Medicare just require modest reforms. Don't
    you think that program requires far more than just modest
    reforms?
        Secretary Donovan. Senator, as I just mentioned, with
    changes in medical costs, we can have huge impacts, $900
    billion in savings that--
        Senator Johnson. Again, 35--
        Secretary Donovan. --CBO estimates.
        Senator Johnson. $35 trillion, so just kind of look at the
    alternate fiscal scenario, and we will take a look at that.
        If you would put up on the screen--I have got a couple
    quotes from an Office of Management and Budget report, the 2010
    Analytical Perspective, page 345. I just wanted to read through
    this and get your reaction. They are talking about the Social
    Security Trust Fund that right now has $2.77 trillion of U.S.
    Government bonds, and OMB's own report says, ``These balances
    are available for future benefit payments and other trust fund
    expenditures, but only in a bookkeeping sense. The holdings of
    the trust fund are not assets of the Government as a whole that
    can be drawn down in the future to fund benefits. Instead, they
    are claims on the Treasury.''
        Next: ``The existence of large trust fund balances,
    therefore, does not by itself increase the Government's ability
    to pay benefits. Put differently, these trust fund balances are
    assets of the program agencies and corresponding liabilities of
    the Treasury''--and here is the punch line--``netting to
    zero.''
        Do you agree with what OMB in its 2010 publication stated
    about the trust fund, that you have an asset in the trust fund
    offset by a liability netting to zero for the Federal
    Government?
        Secretary Donovan. So, Senator, first of all, I think it is
    very important that seniors understand that those obligations
    are full faith--
        Senator Johnson. Please, just answer--
        Secretary Donovan. Full faith and credit--
        Senator Johnson. Do you agree with this statement in OMB's
    own publication that the trust fund is an asset offset by a
    liability netting to zero value to the Federal Government? By
    the way, CBO Director Elmendorf did, Federal--
        Secretary Donovan. Senator, if I could finish, I would just
    say--as I said, we spent time talking about this. I looked
    through the materials that you got to me. I thought they were
    very helpful.
        Senator Johnson. Okay. I have limited here, so--
        Secretary Donovan. I understand. It is important for
    seniors to understand those are full faith and credit
    obligations of the U.S. Government, that they are real
    obligations, and even if--
        Senator Johnson. What is your--
        Secretary Donovan. If I could just--
        Senator Johnson. No, because I--
        Secretary Donovan. Even--even if those are--they are
    offsetting, I believe, based on the what I have done since we
    met, that the trust fund is a useful tool for the American
    people and seniors to understand transparently--
        Senator Johnson. No, let--
        Secretary Donovan. --the long-term costs--
        Senator Johnson. Again, I am running out of time.
        Secretary Donovan. --of Social Security.
        Senator Johnson. The trust fund is a useful tool for
    showing how much the Federal Government has spent of seniors'
    money, about $2.77 trillion. It is gone. It has no value to the
    Federal Government. So how are we going to fund Social Security
    because it is going to run--again, do you understand these
    numbers? In the next decade, it will be about a $1.5 trillion
    deficit; a decade after that, about $4.7 trillion, according to
    CBO. So about $6 trillion of deficits. How is a trust fund that
    has no value to the Federal Government going to fund Social
    Security over the next 20 years? How does that work? And,
    again, not from a bookkeeping convention, but how do you
    actually fund Social Security for the next 20 years?
        Secretary Donovan. The actuaries recently published, they
    believe that the trust fund is solvent through 2033, and I
    agree, as I said earlier, that--and the President has put
    forward principles for Social Security reform. We need to move
    forward in the long run to make sure--
        Senator Johnson. Where do we get--
        Secretary Donovan. --those reforms--
        Senator Johnson. Where do we get the money to redeem the
    bonds, when the Social Security Trust Fund comes to the
    Treasury and says, okay, redeem these bonds to fund benefits,
    where does the money come from?
        Secretary Donovan. The money comes from contributions
    that--
        Senator Johnson. No, no, no.
        Secretary Donovan. --people are paying in--
        Senator Johnson. Because--no. The only reason they redeem
    the bonds is because the payroll tax is not covering the
    benefits. So they redeem the bonds at the Treasury. Where does
    the Treasury get the money to redeem the bonds?
        Secretary Donovan. Senator, there--
        Senator Johnson. It is a pretty simple question. Where does
    the--
        Secretary Donovan. If you look--
        Senator Johnson. --Treasury get the money to redeem the
    bonds when payroll taxes do not cover the benefits, which is
    happening today? Where does the Treasury get the money to pay
    that--
        Secretary Donovan. If you look at the way the trust fund is
    constructed, there are payments coming in, which--
        Senator Johnson. No, again--no, answer the question. Where
    does--
        Secretary Donovan. There is--there is--
        Senator Johnson. Where does the--answer the question. Where
    does the Treasury get the money to redeem the bonds from the
    trust fund? Where does the Treasury get the money? Very simple
    question, particularly if you are going to be Director of OMB.
    Where does the Treasury get the money to redeem its liability
    on those bonds?
        Secretary Donovan. In order to make the--you are asking how
    do we--
        Senator Johnson. Correct--
        Secretary Donovan. --make payments to beneficiaries of
    Social Security?
        Senator Johnson. No, I am asking how the Treasury makes
    good on the U.S. Government bonds that the trust fund presents
    to it when payroll taxes do not cover the benefits, which is
    going to happen to the tune of about $6 trillion over the next
    20 years. Where does the Treasury Department get the money to
    redeem the bonds?
        Secretary Donovan. So the--
        Senator Johnson. Do you really not know?
        Secretary Donovan. There are--there are sources for Social
    Security which include the payments that are made into the
    system each year, the interest that is available, and any
    deficits beyond that would have to be financed. That is--those
    are the--
        Senator Johnson. That is all--so what does the Treasury do?
    They float additional Government bonds or they have to increase
    taxes, correct?
        Chairman Murray. Senator Johnson, we are way over time.
        Senator Johnson. Well, it is only 2 minutes, but whatever.
    Thank you, Madam Chair. Thank you, Mr. Secretary.
        Chairman Murray. Thank you very much.
        Senator Whitehouse?
        Senator Whitehouse. Mr. Secretary, welcome. We have had
    some discussion on this before, but I wanted to run a couple of
    topics by you in the public forum. I think we have touched on
    the one that I am most persistent about in this Committee, and
    that is, lowering health care costs through delivery system
    reform. I agree absolutely with Senator King's principle that
    you have to solve the health care problem in the health care
    system. If you solve the health care problem just in Medicare
    by burden shifting, you actually probably raise the costs of
    the health care system rather than helping and imperil a lot of
    other people at the expense of making the Medicare dollars look
    nominally better on the books of the Federal Government.
        So my first urge to you is please look at health care as a
    system reform, looking at the national health care system,
    which has appalling numbers in terms of how inefficient it is
    at providing health care, and creates an enormous opportunity
    for reform in ways that actually improve the quality of health
    care for Americans. It is a win-win proposition. And my great
    frustration with the administration is that, although it goes
    in the right direction in this area and it has very talented
    people working very hard to go in the right direction in this
    area, it has set no meaningful benchmarks for itself as to
    where it is going to be in 4 years, where it is going to be in
    10 years, where the Government should be in solving this
    problem. And I think you and I both believe that we all work
    better when we are working towards an identified, accountable
    goal of some kind. And certainly big government bureaucracies
    work better when they have a real target, and it is not just,
    ``Well, we tried hard, sir, to bend the health care cost
    curve.''
        So what can you tell me about your commitment to seeing
    that there are some actual metrics out there showing where is
    this Government's commitment to go at taking advantage of the
    huge health care opportunity we have and reducing the
    inordinate amount of waste and excess cost and, frankly, poor
    care for patients in our system?
        Secretary Donovan. Senator, I enjoyed our conversation
    about this, and as I think you have heard in the prior
    discussion, this is obviously an area where, if I am confirmed,
    I would be very focused. I do think we are making progress.
        As I understand more specifically your question, it seems
    to me it is about how do we actually potentially score these
    savings, and--
        Senator Whitehouse. More than just score, because scoring
    has a technical significance in this room.
        Secretary Donovan. Yes.
        Senator Whitehouse. And it is limited by actuarial precepts
    that prevent you from scoring things that you can actually
    probably make a pretty safe bet will save money. So it is
    really more than just about technical scoring. It is about goal
    setting, and it is about setting really specific goals, not
    just something as mushy as bending the health care cost curve,
    but a dollar amount, a date by which it is going to be
    achieved, and some limitations to make sure that people did not
    cheat and take it away out of benefits and take it away in cost
    shifting rather than in real reform.
        Secretary Donovan. Yes. Well, generally speaking, I am a
    big believer in setting goals and making those targets a
    management tool. I think there are some challenges around how
    do we actually score, based on my experience with health care,
    of how we score these. But what I would like to do is, should I
    be confirmed, sit down with you quickly and talk through a
    little bit more of exactly what you are looking for here.
        Senator Whitehouse. Bear in mind that, with the personnel
    shifts that have happened in the course of this conversation, I
    am on my third Groundhog Day starting on this, and my patience
    is wearing a bit thin because this is a problem we actually
    absolutely need to solve, and if this administration goes out
    the door in a couple years without having solved it, there are
    still going to be a lot of people in this building who are
    going to have to clean up that mess and who are going to have
    to fix that problem. We have to get this done, and we have to
    get it done now.
        Secretary Donovan. I hear your impatience, Senator.
        Senator Whitehouse. The other thing is cyber. We are being
    attacked in unprecedented ways, and every day a new technique
    emerges to attack our businesses, to attack our infrastructure,
    to attack our national security. And I would like to have the
    chance to sit down with you and have you bring OMB into a
    conversation about what our cyber defenses need to look at in
    the out-years.
        I will tell you that, from everybody I have talked to in
    the administration, they are so busy fighting off this battle
    day to day that there is not long-term planning being done. And
    OMB is the right place to organize all the different agency--it
    is spread across many, many agencies--to start thinking about
    what our defense should look like 4 years out, 8 years out,
    again, being prepared for the future.
        Secretary Donovan. I look forward to that conversation.
        Senator Whitehouse. Very well. Thank you, sir. Good luck to
    you.
        Secretary Donovan. Thanks.
        Chairman Murray. Senator Kaine.
        Senator Kaine. Thank you, Madam Chairwoman, and thank you,
    Mr. Donovan, for your service. I congratulate you on your
    nomination.
        Just a couple of points. The return to regular budgetary
    order is something that I am passionate about. Maybe coming out
    of a local and State government background, that gives me a
    particular passion. And both the executive and the legislative
    do not have much to brag about on that score in recent years,
    but I do think we are taking steps back. I think the
    Chairwoman's work with Chairman Ryan on trying to come out of a
    shutdown with a meaningful budget conference and a meaningful
    2-year budget document was very salutary. Both sides had to
    give. That is the way these things happen.
        One of the things that the administration can do that will
    make it better is be timely in the submission of budgets. The
    Obama track record has generally been pretty poor on that. Last
    year, I think you kind of got it passed because we were so late
    with the budget and so late with the appropriations bills, and
    we had done a 2-year budget anyway, so the 2015 budget
    submission was a little bit odd, that I think being late was
    somewhat understandable, but generally before 2014, more often
    than not, budgets were late, even quite late.
        And I think that it was not a competence issue because OMB
    has been directed by extremely competent people. My read of it
    is it is kind of a little bit of an indifference, like, ``Eh,
    it is not that important; we can be a little bit late. Why does
    it matter?''
        We are in a time where returning to order is important, I
    think. I think it sends a message about seriousness of purpose.
    I think it sends a message about you can rely on us and you
    ought to be able to rely on the Executive and Congress on these
    matters.
        And so the first thing I would just like to ask you is your
    philosophy about regular budgetary order, not just in terms of
    what we need to do, and we have got some cleaning up we need to
    do, but the administration's philosophy on trying to follow the
    basic rules set out in the 1974 Budget Act and why it is
    important to follow those rules.
        Secretary Donovan. Well, I think you heard earlier,
    Senator, the very direct impact that the sort of manufactured
    crises, sequestration, all that we have been through the last
    few years has had on real people in communities that we have
    served at HUD, but also, ironically, in making it harder for us
    to plan and making it more expensive to execute in many of our
    programs.
        So I would applaud the work that has been done on the
    Bipartisan Budget Act, and anything that we can do to get back
    to regular order I think is a very important step. You have my
    commitment that I will do whatever I can on that front.
        I will tell you, from where I have sat, the tension--we put
    together a budget, you were talking about this past year, in 71
    days, and the tension has been between doing a budget that
    reflects the very latest reality of what has happened in
    Congress versus getting it done more quickly. And so that has
    been the tension that we felt on our side, is, you know, taking
    the time to actually reflect the latest agreements that have
    been made in the most current budget year to get a budget that
    is accurate versus, you know, trying to meet deadlines when the
    processes run late.
        So I really do hope that we can work together effectively
    on that, and I do hope--
        Senator Kaine. Can you see any reason, sitting here today,
    June 11, 2014, why the administration's budget should not be
    filed timely in the February date that is specified in the
    Budget Act?
        Secretary Donovan. I guess just to expand on my comment a
    moment ago, the concern, I guess, would be do we get budget
    bills done in regular order this year. If we end up with a CR
    that runs into January, let us say, the choice that we would be
    faced with is putting together a budget that is based on
    assumptions about what 2015 looks like versus waiting to get
    actual numbers for 2015. That is the tension that I am talking
    about.
        And so obviously you have my commitment to communicate
    fully and openly with the Committee to try to be as helpful as
    we can, but ultimately the difficulty for the Executive is if
    we do not have a clear blueprint of what 2015 looks like, if we
    are living with appropriations bills that are, you know, CRs,
    that just makes it harder to meet the February deadline,
    obviously.
        You have my commitment that I will do whatever I can on my
    side. This is a real--a plea that we continue the progress that
    you have been making towards getting back to regular order.
        Senator Kaine. Yes. The only thing I would say about it is
    if you look at the structure of the act, the structure of the
    act starts with the executive submission, and, you know, the
    idea of blaming, well, we could not do the executive submission
    because of something that happened in the previous year, the
    whole process starts with the executive submission. And then
    there is a set of time deadlines and, you know, we are supposed
    to act in Committee by March, and then they are supposed to, by
    April--you know, and I recognize that we have slipped on our
    side. I would just point out that if the executive starts off
    slipping, it kind of sends the message--and we kind of absorb
    it, too--that it is okay to slip, and we end up with all of our
    planners internally and, probably more importantly, the private
    sector, you know, getting less and less confidence in the
    enterprise. This regular order stuff is pretty important.
        Secretary Donovan. Very important.
        Senator Kaine. And I trust your commitment to it.
        Let me ask a second question. The ``M'' in OMB is often
    under-done, in my view. You have been a Cabinet Secretary. What
    are some management innovation initiatives during your time at
    HUD that you are proud of to give us an idea about how you
    might approach the management side of the OMB job?
        Secretary Donovan. I appreciate you asking that, Senator,
    and I would say not only do I believe the ``M'' side is
    incredibly important, but I think connecting the ``M'' side to
    the ``B'' side, because, frankly, one of the most important
    ways that we can make Government more effective and save money
    is by doing better on the management side. So a few things I
    would mention.
        One is I believe very deeply that--I often say to my team,
    too often we do not know what success looks like in Government,
    and so it is really defining success and making it measurable
    by metrics, and then tracking the heck out of it. And so I
    created something called ``HUDStat'' at HUD, which, you know,
    the CompStat model from New York, I did this when I was in New
    York as well. But I personally led every one of those meetings
    across 5 years where we picked a few critical goals, we
    actually set them across agencies, so veterans' homelessness is
    a good example where we shared it with VA. We set the same
    target, put our data systems together. We have been able to
    reduce veterans' homelessness by 24 percent over the last 3
    years, and I give a lot of--a lot of the reason, I think, is
    because we really focused on evidence and metrics.
        Second, I think there is a lot that we can do to do a
    better job to move toward what we call shared services. HUD is
    actually pursuing the largest shared services effort across the
    whole Federal Government. We are moving our entire financial
    systems over to a system at Treasury, which will mean that we
    will save money, we will get better financial systems, and we
    will have the project done faster than we would if we had
    pursued what was underway when I arrived. That is a very, very
    important area as well.
        I am also a big believer--
        Chairman Murray. Mr. Secretary, he is way over his--
        Secretary Donovan. Sorry. You can tell I am passionate
    about this. I could have kept going. But thank you.
        Chairman Murray. Thank you.
        Senator Wyden?
        Senator Wyden. Thank you, Madam Chair.
        Mr. Secretary, I very much share Chair Murray's views about
    your qualifications. I am looking forward to supporting you.
        Secretary Donovan. Thank you.
        Senator Wyden. A few questions, if I might. A couple of
    weeks ago, I was at Gowen Field in Idaho where Oregon's
    National Guard members have been training for some very
    dangerous missions in Afghanistan. And as I visited with them--
    we had lunch--some helicopters flew over the air base, and
    several of the soldiers said, ``Ron, do not let them take those
    helicopters away from us. We very much need that for us to
    carry out the mission of the Guard.''
        As I think you are aware--we talked about it in the
    office--the Army has a proposal to transfer 192 helicopters
    from the Guard to active duty, in effect taking those
    helicopters away that the soldiers were so concerned about.
        There is an effort to make sure that, before that is done,
    there would be an independent panel of experts to look at the
    aviation restructuring proposal before the Army moves ahead.
        Can you let me know whether you will support that? Because
    that is extremely important to the Guard in the Pacific
    Northwest. Senator Murray has many members of the Guard as
    well. Can you get back to me and let me know your position on
    that?
        Secretary Donovan. Senator, I cannot give you a commitment
    today.
        Senator Wyden. Right.
        Secretary Donovan. I need, obviously, if I am confirmed, to
    get up to speed on it. But you have my commitment that I will
    work with the team at OMB as quickly as possible to get back to
    you.
        Senator Wyden. Very good. Just get back to me and let me
    know whether you can support that.
        Second is the fire situation. As you know, the fires came
    earlier this year. They are getting hotter. They are getting
    bigger. They know no geographical lines and just move across
    Federal and State and private lands. And over the last few
    days, Bend, Oregon, got a huge scare when the Two Bulls fire
    got dangerously close to the city and they had evacuations.
        On Monday, the administration alerted the appropriators
    that fire suppression budgets for the year exceed available
    funding, and the Forest Service anticipates having to transfer
    $350 million to $800 million this year.
        Senator Crapo and I have a bipartisan proposal to treat the
    worst 1 percent of fires like the disasters that they are. The
    administration has supported the proposal. I need you to get up
    to speed on that so that you can be a vocal advocate for that
    proposal. Can we get a commitment to do that?
        Secretary Donovan. You have my commitment I will work with
    you. In fact, this is an area where, given my work on disaster,
    what I have seen is that smart investments in mitigation, for
    every dollar we save $4 down the road. This seems to me like a
    proposal that would not only help make sure we are responding
    to disasters within the cap with this cap proposal we have, but
    also would allow us to invest in the smart things that will
    reduce the risk of forest fires going forward. So I look
    forward to working with you on it.
        Senator Wyden. Thank you. The third area that I have a
    great concern about--the Chair has done very good work as
    well--is the transportation area. The Finance Committee is
    shortly going to have to deal with this huge crunch that we are
    facing in terms of transportation funds with the July 17th date
    of, in effect, the fund being in a position to not be able to
    pay the bills.
        I have said as part of a bipartisan effort to get the
    funding we need, both for the short term and the long term, we
    are going to try to find ways to streamline the permitting
    process for transportation. I need you to get back to us very
    quickly on what OMB's ideas are for streamlining the permitting
    process for transportation. Can you commit to getting back to
    us shortly on that?
        Secretary Donovan. Absolutely, and I think there has been
    very good work done on this already. I have been very involved
    in it in the Sandy rebuilding process because of all the
    infrastructure investments that we have made, and I look
    forward to talking to you more about it.
        Senator Wyden. And we will need something really in the
    next 10 days from OMB. I know you are, in effect, in this sort
    of state of suspended animation, but because we really have to
    get this transportation issue resolved before the August
    recess--and it is certainly my hope that you will be confirmed
    before the August recess--I really need to hear from OMB within
    10 days. So if you can, with the staff that are available, help
    with that, that would be great.
        The last point is a follow-up. I care very deeply about
    moving health care in America away from this volume-driven fee-
    for-service kind of system, and we made some headway,
    obviously, in the Affordable Care Act with the ACOs. But we
    still have a long way to go, and nothing will help more than
    moving this dysfunctional Medicare reimbursement system, the
    SGR system, away from fee-for-service.
        Your soon-to-be colleague Sylvia Burwell indicated in the
    Finance Committee that she would work with us to repeal and
    replace this flawed Medicare reimbursement system this year.
    Can you agree to work with your colleague--
        Secretary Donovan. I would reaffirm what was in the
    President's budget, that we are committed to fiscally
    responsible reform on that issue.
        Senator Wyden. Very good.
        Thank you, Madam Chair.
        Chairman Murray. Thank you very much. I do want to thank
    all of our colleagues for their participation and cooperation,
    and I especially want to thank you, Secretary Donovan, for your
    willingness to continue serving the Nation and to take on this
    important assignment. This Committee greatly appreciates the
    sacrifice of you and your family.
        Senator Sessions. Could I ask a few more questions, Madam
    Chairman? I think it is a very important issue. I do not like
    to drag out hearings, but this is an important appointment, and
    I would like to give him a chance to answer something that just
    came to my attention, actually, during the hearing.
        So, Mr. Donovan, I see there is a May 30th report from the
    Inspector General--are you aware of it?--dealing with the Anti-
    Deficiency Act?
        Secretary Donovan. I think I may be aware of the one you
    are talking about. I do not have it front of me, obviously.
        Senator Sessions. All right. It is May 30th, and I was
    really rather shocked by it. It says in the introduction--this
    is your own Inspector General: ``Specifically, the U.S.
    Department of Housing and Urban Development incorrectly used
    more than $620,000 in Office of Public and Indian Housing and
    Office of Federal Housing Commissioner personnel compensation
    funds to pay the salary of a senior adviser to the HUD
    Secretary.'' You. ``Additionally, HUD paid more than the
    agreement allowed to this individual and made payments without
    an agreement in place.'' And the Inspector General, of course,
    notes that Congress has the power of the purse. It violates the
    Anti-Deficiency Act for an agency or department head in the
    Government to spend money on something not appropriated by
    Congress. You are aware of that, are you not?
        Secretary Donovan. Yes.
        Senator Sessions. And it goes on to say the employee served
    as an adviser to you, the Secretary; therefore, HUD's
    reimbursement to Community Builders Inc. should have been made
    from the Office of the Secretary's Executive Direction account.
    And, in addition, it appears that this is a sore spot for some
    years with HUD. Back in 2010, the House of Representatives did
    a report that said senior advisers to the Secretary should be
    funded directly through the Office of the Secretary. And the
    Inspector General--they go on to say, ``To date''--this was in
    2011--``HUD has not even tried to address these problems and,
    thus, the Committee has no faith in HUD's ability to
    appropriately staff its operations.''
        And so here, again, after these problems with the House,
    you have now spent $620,000, taking it from some other account
    that you apparently are not authorized to take it from, to some
    personal adviser for you, even without a contract, even without
    the appropriations provided for by law. Do you have any
    response to that? You are about to--you are seeking the
    appointment of the position in Government more than any other
    position that should discipline and maintain integrity by all
    Cabinet officers, of which you are now one.
        Secretary Donovan. Senator, first of all, I would invite
    you to reach out to our Inspector General and talk to him
    further about this. This is a potential issue that the
    Inspector General has asked us to look into. It is an
    accounting matter in terms of which source of salaries and
    expense dollars an employee is paid out of. I was not directly
    involved or aware of how this employee was paid. And it is
    something that we are looking into right now and we are working
    closely with the Inspector General on.
        Senator Sessions. Well, you would agree that if it has not
    been funded, appropriated for your office, you are not entitled
    to take money from some other program of HUD and spend it to
    hire, at $620,000 apparently, some personal assistant to
    yourself?
        Secretary Donovan. Again, Senator, this is a matter of how
    we account for salaries and expense dollars within the agency.
    It is an issue that we are working closely with the Inspector
    General to determine if it was done appropriately, and that
    review is ongoing.
        Senator Sessions. Well, I just have to tell you, people in
    this Government need to follow the law. I do not know how it is
    that we are at a point where people think they can do whatever
    they want to with the taxpayers' money and not enforce plain
    law, do what they want to in agencies and departments. And the
    Office of Management and Budget is an absolute enforcement of
    integrity in the system. And I am troubled at how this
    continued to go on at your Department, even after the House
    apparently complained about it several years before.
        You have to start managing--you know, you have to--Cabinet
    Secretaries have to manage their departments. You have that
    responsibility. You cannot just always push it off on somebody
    else. And when you--so I would like more explanation from you,
    what you knew about this, and we would look forward to it.
        Do you have any other explanations you might share with us?
        Secretary Donovan. Senator, I would go farther than that. I
    would invite you to talk directly to my Inspector General and
    to get his own view on whether I have been responsive to issues
    that he has found and whether we have worked closely together
    to try to make HUD a better Department.
        Senator Sessions. Well, I would like to know how it
    happened, what you knew about it, and if it was in violation of
    the law, why you should be promoted if you are not willing to
    follow the law in your own Department. But I would offer it for
    the record, Madam Chairman, this Inspector General report from
    the Department of Housing and Urban Development.
        Chairman Murray. Thank you.
        Senator Wicker has come in, and I am going to allow him to
    ask his questions before we close here.
        Senator Wicker. Thank you very much, Madam Chair, and I
    will be brief.
        I just wanted to come in and say that I am highly inclined
    to be supportive of this nomination. I suspect that his views
    on budgeting are considerably different from mine. That is
    because his candidate won the Presidential election and mine
    did not.
        But that being the case, I have appreciated the fact that
    Secretary Donovan has been so responsive as HUD Secretary to
    situations which have arisen in my home State. I remember 3
    years ago--it was almost exactly 3 years ago--Mr. Secretary,
    when a devastating tornado hit Smithville, Mississippi, and
    Secretary Donovan came down within days with two other members
    of the administration, showed real concern, showed real
    responsiveness, and worked with us on a nonpartisan basis to
    help bring that community back. I am so grateful for that, and
    the people of northeast Mississippi, Mr. Secretary, are so
    grateful for that.
        And then I absolutely would be remiss if I did not thank
    you, Mr. Secretary, for your heroic effort and the work you
    have done on the Port of Gulfport restoration project. It takes
    a long time sometimes for compliance to be done at the State,
    local, and Federal levels, and this action plan was approved in
    2007. Following a site visit in August of 2012, the Community
    Planning and Development Division completed its compliance
    assessment and stated the project was in compliance with regard
    to requirements concerning jobs, concerning contracting,
    benefitting low-income individuals and businesses.
        And then after that, a misunderstanding arose because of
    another division of HUD conducting what I think some people
    refer to as a ``desk audit'' without a site visit and without a
    formal complaint or any other indication of compliance,
    notified us that we were not in compliance. And, Madam Chair,
    it was the Secretary that came in, worked with a Republican
    Governor in Mississippi, with the Mississippi Development
    Authority, and got into the details of this, and helped us to
    show that, in fact, we were in compliance, and resulted in a
    success story for people who want a job on the gulf coast of
    Mississippi and who would hope and aspire that this port would
    be the great engine of economic activity that we believe it is.
        So, Mr. Secretary, with your assistance, this issue was
    resolved. We were quite worried about it for a long time, and
    since working with us for almost a year now and resolving it in
    favor of going forward there, your office has given us
    technical assistance, and we appreciate that.
        I hope you will convey to your successor at HUD the
    importance of this project to the rebuilding of--the continued,
    longstanding rebuilding of Mississippi's coastal economy. And
    we have worked on it together on behalf of average workers and
    average Americans who want nothing more than to have a job at a
    first-class, state-of-the-art port. So thank you very much.
        Thank you, Madam Chair.
        Secretary Donovan. Thank you, Senator.
        Chairman Murray. Thank you, Senator. And I echo your
    experience with the Secretary. I have worked very closely with
    him, and he is a hands-on problem solver, and I think he will
    do a great job at his next assignment. So thank you very much.
    And, again, thank you for the participation of all the Senators
    here today.
        I want to remind all of our colleagues, because this is an
    afternoon hearing, additional statements and questions for the
    record will be due in by noon tomorrow to be signed and
    submitted to the chief clerk.
        Also, I just want to say for the information of all our
    colleagues, it is my intention to move the Secretary's
    nomination as expeditiously as possible. I will be talking with
    Senator Sessions about that. I want members to know that I plan
    on doing it as soon as possible. As Senator Wyden indicated a
    moment ago, it is extremely important we have somebody in this
    position to work with as we face the challenges that are in
    front of us.
        So thank you again, Mr. Secretary, and with that this
    hearing is adjourned.
        Secretary Donovan. Thank you.

        [Whereupon, at 3:25 p.m., the Committee was adjourned.]

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