[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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