[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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