    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

        FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2019
    _____________________________________________________________________________
    _____________________________________________________________________________

                                     HEARINGS

                                     BEFORE A

                               SUBCOMMITTEE OF THE

                           COMMITTEE ON APPROPRIATIONS

                             HOUSE OF REPRESENTATIVES

                          ONE HUNDRED FIFTEENTH CONGRESS

                                  SECOND SESSION

                                   _________

            SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT

                          TOM GRAVES, Georgia, Chairman

      KEVIN YODER, Kansas                     MIKE QUIGLEY, Illinois
      JAIME HERRERA BEUTLER, Washington       JOSE E. SERRANO, New York
      MARK E. AMODEI, Nevada                  MATT CARTWRIGHT, Pennsylvania
      CHRIS STEWART, Utah                     SANFORD D. BISHOP, Jr., Georgia
      DAVID YOUNG, Iowa
      JOHN R. MOOLENAAR, Michigan

      NOTE: Under committee rules, Mr. Frelinghuysen, as chairman of the
    full committee, and Mrs. Lowey, as ranking minority member of the full
    committee, are authorized to sit as members of all subcommittees.

                    Dena Baron, Ariana Sarar, Marybeth Nassif,
                          Brent Baglien, and Brad Allen
                                Subcommittee Staff

                                   _________

                                      PART 5

                                                                       Page
      Department of the Treasury...................................       1
      Internal Revenue Service.....................................      37
      General Services Administration..............................      65
      The Judiciary................................................      91
      Office of Management and Budget..............................     149
      Members' Day.................................................     193
      Securities and Exchange Commission...........................     213
      Federal Communications Commission............................     249

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                                       ______

                         U.S. GOVERNMENT PUBLISHING OFFICE

    32-599                    WASHINGTON : 2018

                          COMMITTEE ON APPROPRIATIONS

                                    ----------
                 RODNEY P. FRELINGHUYSEN, New Jersey, Chairman

      HAROLD ROGERS, Kentucky \1\               NITA M. LOWEY, New York
      ROBERT B. ADERHOLT, Alabama               MARCY KAPTUR, Ohio
      KAY GRANGER, Texas                        PETER J. VISCLOSKY, Indiana
      MICHAEL K. SIMPSON, Idaho                 JOSE E. SERRANO, New York
      JOHN ABNEY CULBERSON, Texas               ROSA L. DeLAURO, Connecticut
      JOHN R. CARTER, Texas                     DAVID E. PRICE, North Carolina
      KEN CALVERT, California                   LUCILLE ROYBAL-ALLARD, California
      TOM COLE, Oklahoma                        SANFORD D. BISHOP, Jr., Georgia
      MARIO DIAZ-BALART, Florida                BARBARA LEE, California
      CHARLES W. DENT, Pennsylvania             BETTY McCOLLUM, Minnesota
      TOM GRAVES, Georgia                       TIM RYAN, Ohio
      KEVIN YODER, Kansas                       C.A. DUTCH RUPPERSBERGER, Maryland
      STEVE WOMACK, Arkansas                    DEBBIE WASSERMAN SCHULTZ, Florida
      JEFF FORTENBERRY, Nebraska                HENRY CUELLAR, Texas
      THOMAS J. ROONEY, Florida                 CHELLIE PINGREE, Maine
      CHARLES J. FLEISCHMANN, Tennessee         MIKE QUIGLEY, Illinois
      JAIME HERRERA BEUTLER, Washington         DEREK KILMER, Washington
      DAVID P. JOYCE, Ohio                      MATT CARTWRIGHT, Pennsylvania
      DAVID G. VALADAO, California              GRACE MENG, New York
      ANDY HARRIS, Maryland                     MARK POCAN, Wisconsin
      MARTHA ROBY, Alabama                      KATHERINE M. CLARK, Massachusetts
      MARK E. AMODEI, Nevada                    PETE AGUILAR, California
      CHRIS STEWART, Utah
      DAVID YOUNG, Iowa
      EVAN H. JENKINS, West Virginia
      STEVEN M. PALAZZO, Mississippi
      DAN NEWHOUSE, Washington
      JOHN R. MOOLENAAR, Michigan
      SCOTT TAYLOR, Virginia.
      ----------
      \1\ Chairman Emeritus

                         Nancy Fox, Clerk and Staff Director

                                       (ii)

       FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2019

                                  ----------

                                                Tuesday, March 6, 2018.

                    UNITED STATES DEPARTMENT OF THE TREASURY

                                    WITNESS

    HON. STEVEN T. MNUCHIN, SECRETARY, UNITED STATES DEPARTMENT OF THE
        TREASURY
        Mr. Graves. Good morning, Mr. Secretary.
        Secretary Mnuchin. Good morning.
        Mr. Graves. Thank you for joining us. We welcome you today
    to this hearing and look forward to hearing from you and
    discussing the Department's budget request that I know you have
    taken a lot of time to prepare, as well as some of the economic
    assumptions in the policies, including the President's overall
    request for the fiscal year of 2019.
        Before we get into the details of your budget request, I
    would like to just take a quick moment to look back over this
    past year, because 2017 has been a year of accomplishments,
    great accomplishments, and that couldn't have happened without
    the support and the leadership of the President and the
    administration, including yourself, Mr. Secretary, and we want
    to thank you for that. Because after years of high unemployment
    and stagnant wages, hardworking Americans finally saw the
    economy start booming again in 2017. Unemployment is now at a
    17-year low. Almost 2 million new jobs were created in the last
    13 months, and for us, that means 2 million of our constituents
    today are working that weren't working as of January in 2017.
        Wages are growing at nearly 3 percent, and according to the
    Department of Labor, this is the fastest growth in almost a
    decade. Manufacturing expanded in January at nearly the fastest
    pace since 2004, and small business optimism is at its highest
    level since Ronald Reagan was President. And this just didn't
    happen by accident. It happened because Congress and the
    administration worked together to reform the Tax Code for the
    first time in more than three decades. It happened because we
    slashed nearly 1,500 unnecessary rules and regulations,
    lightening the load of small businesses all across this
    country, and it happened because we freed businesses, both big
    and small, to grow and to thrive once again.
        So, Secretary Mnuchin, I know you played an important part
    in this success, so I just want to say thank you. Thank you for
    your hard work and for your commitment to making America reach
    these milestones that we have now seen over 2017.
        But now on to your budget request. As you look ahead, we
    know that your next year's request for the IRS is at $11.5
    billion, which includes program integrity cap adjustments of
    $362 million. In addition to this request, the IRS is seeking
    another $397 million to implement the Tax Cuts & Jobs Act over
    the next 2 fiscal years.
        Now this request includes $159 million for the Office of
    Terrorism and Financial Intelligence. And this is a $36 million
    increase from last year. This office has the dual purpose of
    safeguarding our financial system against illicit use and
    protecting our citizens from national security threats. And
    today, there is no problem more urgent than the serious threat
    posed by North Korea.
        The Treasury's budget is proposing $15 million in 2019 to
    isolate North Korea's regime, in addition to the supplemental
    request of $15.5 million for 2018. Now, this funding will allow
    Treasury to hire additional intelligence analysts and maximize
    economic pressure against North Korea and its enablers, so we
    will look forward to hearing more about that as you give your
    testimony later.
        The Secretary's budget today also proposes $17.5 million to
    support a terrorism financing targeting center in Saudi Arabia,
    which is a collaboration with the six Gulf Cooperation Council
    countries, and counters the financing of terrorism. This
    funding is in addition to the $9.5 million request in this
    year's supplemental.
        Now, I am curious to learn how Treasury plans to use this
    funding and carry out these initiatives, and I know you have a
    plan for that, and we would like to hear that today. Another
    important topic to me and this administration is cybersecurity.
    Your budget includes $25 million for Treasury wide
    cybersecurity investments. This account was established in our
    most recent government funding bill to strengthen Treasury's
    cybersecurity posture, and mitigate threats to the U.S.
    financial infrastructure. Cybersecurity is of critical
    importance to our national security, and I hope to hear from
    you today, Mr. Secretary, on how the Treasury is going to use
    these resources that were recently provided to protect against
    and to respond quickly to some of the cyber threats that you
    see and we face as a Nation.
        But before wrapping up my opening remarks here, I want to
    take a moment to commend the Senate Banking Committee and their
    chairman, Mike Crapo, for his bipartisan efforts to move the
    Economic Growth Regulatory Relief and Consumer Protection Act,
    which is a major regulatory reform bill.
        And as you know, our Financial Services Appropriations bill
    last year included many of these similar provisions that the
    Senate is now moving through their body.
        So I am curious to hear your thoughts on the Senate package
    and how that compares to what we have passed as a committee, as
    well, and for your thoughts on its potential for a final
    passage, and should we include some of those provisions in our
    2018 final bill here that we are working through the House.
        So, Secretary Mnuchin, thank you again. Thank you for your
    good work over the last year. Thank you for joining us today
    and taking time to share with us about your budget request, and
    we will all look forward to hearing from your testimony in a
    moment. And now, let me turn to my ranking member here, Mr.
    Quigley, from Illinois, for any remarks he may have.
        Mr. Quigley. Thank you, Mr. Chairman. I look forward to
    working with you over the upcoming fiscal year 2019
    appropriations season, and anticipate additional spirited
    discussions as we begin our hearing. Also, I would like to
    welcome the Treasury Secretary back to our committee. As I have
    said in the past, the vital role that the Treasury Department
    plays in both the domestic and global economy cannot be
    overstated. Not only do you and your Department oversee the
    Federal Government's ability to collect trillions in revenue
    and finance government operations, but you are also charged
    with investigating and protecting our financial system from the
    illicit and criminal activities, as well as carrying out
    sanctions used to deter hostile actions from foreign actors.
        But again, this year, the Treasury budget request before us
    would slash various programs that will help us--will make us
    less effective, less efficient and more vulnerable to outside
    risk. After almost a decade of cuts nearing $1 billion, leading
    to a loss of more than 17,000 employees, the IRS would suffer a
    $100 million reduction in this request. In order to meet this
    new funding level, the IRS would need to reduce staffing
    further by 6,000. These cutbacks would come from critical areas
    such as taxpayer services enforcement.
        It is hard to imagine why this administration would want to
    weaken the IRS and give taxpayers less resources right after
    passing a complex tax bill. After strong bipartisan support
    from Congress, I was also deeply troubled by the
    administration's refusal to back off its request to eliminate
    the Community Development Financial Institution Fund.
        CDFI plays a vital role in spurring both economic growth
    and revitalization in our most underserved and neglected
    communities. There are numerous other cuts to the Department
    that are harmful as well, including questionable reductions to
    cybersecurity enhancement at a time when hacking and identity
    theft are at an all-time high, and a premature 57 percent cut
    to the Special Inspector General for TARP, which is still
    charged with auditing the $38 billion in open TARP programs
    that will last until 2023.
        But I also want to quickly highlight one area, in
    particular, that I find concerning. Under the Terrorism From
    Financial Intelligence Program only four additional employees
    are budgeted for Russia-related sanction activities. That
    compares to 69 additional employees budgeted for North Korean
    activities. While I strongly agree that we must take seriously
    the North Korean threat to our national security, and provide
    TFI with the necessary tools to counter North Korean
    aggression, when placed side by side with a request for Russian
    activities, the obvious lack of urgency is quite stark.
        Taken together with other actions, or lack thereof, from
    the Treasury Department on the Russian threat, it shows an
    administration that does not prioritize the security of our
    elections, or punishing those who wish to harm our democracy. I
    look forward to discussing these and other issues with you
    today. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley, and now I would like to
    take the opportunity to recognize the chairman of the full
    committee, Mr. Frelinghuysen, with any opening remarks, and
    thank you for your great service. This may be your last time
    visiting with Mr. Mnuchin in a committee hearing.
        The Chairman. Perhaps in a hearing, but perhaps in another
    venue, as well. Thank you, Mr. Chairman, for the time. I also
    want to thank Secretary Mnuchin for appearing before your
    committee. Again, we look forward to your testimony in hearing
    your frank and candid views on a wide number of issues.
        As I say at every hearing, the power of the purse lies in
    this building. It is the constitutional duty of Congress to
    make spending decisions on the dollars you collect on behalf of
    the people we represent at home. We try to do our best in that
    regard. We intend to adequately fund important programs,
    including yours, while working to reduce and eliminate waste
    and duplication. With these priorities in mind, the committee
    and the full committee and the full House of Representatives
    passed the Fiscal Year 2018 Financial Services and General
    Government Appropriations bill last September. We continue to
    work with the Senate, our Senate colleagues to finish those
    bills, and to send a bill to the President for his signature.
        And I look forward, while she is not here, to continuing my
    work with our ranking member, Mrs. Lowey, and certainly with
    Mr. Quigley, to rapidly move the fiscal year 2019
    Appropriations bill forward, as well.
        I have long held, and I believe it is even more important
    now than ever before, we cannot take a step back from our
    responsibilities on the world stage. Like the chairman, I was
    pleased to read in your request a proposed increase in funding
    for the Office of Terrorism and Financial Intelligence and
    their activities to protect the U.S. and international
    financial systems, along with countering networks that support
    terrorists and rogue regimes.
        As we face increased threats from North Korea, Iran, and
    Russia, it is imperative we have the tools to respond to their
    aggression with maximum economic pressure. As you well know,
    Mr. Secretary, the United States and our allies around the
    globe are facing constant pressure from China and its expanding
    sphere of influence. While I note your Department's recent
    actions against a Chinese bank facilitating North Korean money
    laundering and sanctions evasion, I would like to hear, and I
    think all of us would this morning, how the Department is
    positioned to respond to China's every attempt to subvert and
    weaken our financial system.
        I have been doing some travelling lately, and have
    familiarized myself with the One Belt, One Road. It is not only
    a physical development that should alarm us, but they are also
    snagging a lot of different countries and putting them in a
    position which makes them beholden to the Chinese leadership,
    and I think that should be of concern to us. Of course, as a
    debtor nation, we should be mindful that a lot of those nations
    in Southeast Asia and around the world now find themselves in
    debt to the Chinese, and that debt is a political debt as well
    as a financial debt. But we look forward to hearing your
    testimony and thank you for the good work you have been doing
    on behalf of our Nation. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Chairman, and thanks for your
    leadership in getting this bill and all 11 others through the
    House last year. And hearing your call, we are glad to have
    with us the ranking member of the full committee Mrs. Lowey
    with us, and I recognize you for any opening remarks you may
    have.
        Mrs. Lowey. Thank you, Mr. Chairman. I would like to thank
    Chairman Graves and Ranking Member Quigley for holding this
    hearing, and Secretary Mnuchin, welcome. Thank you for being
    here this morning.
        Mr. Secretary, your fiscal year 2019 budget request, as you
    know, I am sure you know, would harm taxpayers by slashing IRS
    funding by $100 million, and stall Federal investments in
    economic development by eliminating all discretionary grant
    programs in the Community Development Financial Institutions
    Fund.
        Under your budget, the IRS would not have enough manpower
    to catch bad actors, ranging from those who cheat on their
    taxes to those who perpetuate identity theft scams that prey on
    the elderly and nonnative English speaking populations. It is
    not just enforcement that we need to be concerned about, it is
    also taxpayer services.
        In her 2017 annual report to Congress, taxpayer advocate
    Nina Olson identified the IRS limited telephone service as one
    of the most serious problems facing taxpayers. She wrote,
    ``Because of the IRS' archaic telephone technology and
    operations, taxpayers face long wait times with the worry that
    the IRS's telephone assisters will not be able to answer their
    questions if they are able to get through,'' yet your budget
    cuts the IRS by $100 million.
        This is all the more important as the Republican tax scam,
    which was rushed into law last year that has created a great
    deal of confusion, taxpayers are turning to the IRS for
    clarity, and just not getting it. This has been a particular
    issue in high cost-of-living areas, like New York. When you
    testified before this committee last year, I made clear how
    unwelcome any reductions to the State and local tax deductions
    would be in tax reform. Less than a year later, a deduction
    that 45 percent of my constituents take at an average of
    $26,000 has been slashed beyond recognition. I am sure you are
    aware of that. I think you are still a New Yorker, so I am sure
    you are aware of it, and I am sure you hear this from your
    friends and neighbors.
        The impact of this scam is so disastrous that I have called
    on the IRS to accept prepayments of 2018 State and local taxes
    that many New Yorkers made in 2017. At least 17,000 taxpayers
    paid some portion of their 2018 taxes in advance at an
    estimated $51 million. I hope that you and the IRS will at
    least give this break to families that will be hurt by the new
    tax policy for years to come. But quite frankly, I am concerned
    that your proposed budget cuts will make it harder for the IRS
    to assist my constituents.
        Let me be clear, capping the SALT deduction at $10,000
    targets residents of high cost States, like New York and
    California, which you know all too well. In 2015 alone, New
    York sent $48 billion more in taxes than it received. Senator
    Moynihan, the late Senator Moynihan, stressed that over and
    over again. Simply put, the new tax law is a scam that unfairly
    takes money from the pockets of hard-working families living in
    States that send more money to the Federal Government than we
    get back in Federal investment.
        One bright spot of your budget is the increase for the
    Office of Terrorism and Financial Intelligence of $36 million.
    This is an essential number, and an essential service, and I
    look forward to working with you. This is essential to
    combating terrorist financing, and other national security
    threats, and I am really pleased it is included.
        Mr. Secretary, I trust that you are aware of just how
    influential your position is, and I am disappointed by some of
    the distractions surrounding your tenure. It is my hope that
    going forward, you will respect the taxpayers I represent in
    New York by acting as a good steward of their dollars, both in
    policies you implement, and your actual use of them. I look
    forward to a productive discussion this afternoon, and to
    working to serve the best interests of the American taxpayer.
    Thank you for appearing before us.
        Mr. Graves. Thank you, Mrs. Lowey. Mr. Secretary, thanks
    again for joining us, and now we welcome any opening statement
    you may have, and as you can imagine there will be a few
    questions following that from each of the members here, but
    thank you again, and we look forward to hearing from you.
        Secretary Mnuchin. Good. Thank you very much. Chairman
    Graves, Ranking Member Quigley, and members of this
    subcommittee, it is good to be here with you today to discuss
    the President's budget and the priorities for the Treasury
    Department. Today, I would like to highlight the
    administration's priorities of protecting America's financial
    system and national security in implementing the historic Tax
    Cuts & Jobs Act.
        The President's 2019 budget request increased resources for
    the Office of Terrorism and Financial Intelligence and the
    Financial Crimes Enforcement Network. This will be used to
    economically isolate rogue regimes in North Korea and fund the
    new terrorist financing targeting center in Saudi Arabia.
        It will allow us to implement the Countering America's
    Adversaries Through Sanctions Act, including funding for our
    Russia and Iran programs, and counter illicit financial
    networks. We are aggressively targeting terrorist
    organizations, transnational crime organizations, proliferators
    of weapons of mass destruction, and other threats.
        As the importance of our economic tools continue to
    escalate, we need additional funding to enhance the
    administration's efforts and implement congressional
    priorities. This budget also provides for Treasury-wide
    cybersecurity protection. As I previously noted before this
    subcommittee, protecting both Treasury and the financial system
    from cyber attacks is critical for our Nation's financial
    stability. These attacks not only have the potential to affect
    financial markets and the broader economy, they implicate our
    national security as well.
        In particular, I want to highlight this Cybersecurity
    Enhancement Account. This initiative makes proactive and
    strategic investments in enterprise-wide cybersecurity
    capabilities. These capabilities will ensure the Treasury is
    better prepared to defend against cyber attacks, and respond
    appropriately when such attacks occur.
        I would also like to highlight two of the administration's
    priorities for the 2018 Appropriations bill. The Tax Cut & Jobs
    Act included hundreds of provisions that will provide tax cuts
    for middle income families and make American business more
    competitive. Implementing the tax law will require a great deal
    of work in 2018 and 2019. Accordingly, the IRS will need $397
    million in order to carry out this critical mandate. The
    administration is also requesting $25 million above the
    President's 2018 budget for TFI to fund the Terrorist Financing
    Targeting Center and to immediately deploy additional resources
    to counter posed threats by North Korea.
        Mr. Quigley, let me just comment on one of the things that
    you raised in your opening statement, which was the allocation
    between Russia and North Korea money in the request. Let me
    acknowledge that I was very, very involved in the top line
    request for the money. I always think of this as we have the
    ability to move these resources around, so I just want to
    comment that the allocation that is in the proposed budget is
    an oversight; it does not reflect my current thinking of the
    resources we would put in towards Russia, and at the time that
    this was raised to me, we had already printed this, so I want
    to acknowledge what you have said.
        The policies in the President's budget will foster economic
    growth, set our country on a sound fiscal path in the long-
    term, and carry out the administration's commitment to
    protecting national security of the United States.
        Thank you very much.
        [The information follows:]

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        Mr. Graves. Well, thank you, Mr. Secretary, and if you
    could, for a moment, just, I am going to just ask one or two
    questions as it relates to tax reform and the positive impacts
    that you see. We have heard today that there is a lot of
    concern about the impacts on the IRS. Could you address the
    impacts of tax reform on the average American and small
    businesses, and the positive impacts that you have noticed so
    far and what you expect to see in the days ahead?
        Secretary Mnuchin. Well, as you know, we are early in the
    process of implementing this, but I think we have been very
    pleased with the reaction so far. Our first priority was to
    make sure that the withholding tables were updated to reflect
    many middle class Americans getting tax cuts so that they saw
    that in their paychecks in February.
        We have also now released a withholding tax calculator to
    allow taxpayers to actually check the calculations themselves.
    We are also very pleased by close to 400 companies that have
    announced one-time bonuses or raises, so we are very pleased
    with what has gone on so far, but there is a lot of work at the
    IRS to implement this.
        Mr. Graves. As far as the impact on the average American
    family, there have been a lot of numbers thrown around as to
    the average family could expect to see more resources at home
    or in their paycheck as a result of tax reform. What is your
    latest figure that the average family can expect this year as a
    result of the passage and signing of this bill?
        Secretary Mnuchin. Sure. So the average family will see a
    direct reflect of a few thousand dollars, and on top of that,
    we expect over time that wages will increase close to $4,000.
    So it is quite a significant impact.
        Mr. Graves. And then as far as small businesses?
        Secretary Mnuchin. Small businesses now have the lowest tax
    rates since the 1930s. In particular, the ability for them to
    automatically expense capital investment we are already seeing
    the impact on that in the growth in that sector.
        Mr. Graves. That is great. Thank you. Thank you for your
    work on that. And now I would like to turn to Mr. Quigley for
    any questions he may have.
        Mr. Quigley. Thank you, Mr. Chairman. Mr. Secretary, last
    August we passed a pretty strong law in response to the Russian
    interference in our elections. This administration is refusing
    to follow through on its implementation, claiming the passage
    of the law itself is enough to deter businesses from dealing
    with Russia. Probably not. Regardless of how the President
    personally feels about the sanctions, or the fight he put up
    toward its passage, he signed them into law, and is obligated
    to act.
        By doing nothing, the President is effectively telling the
    world that there are no consequences for attacking our
    democratic process. I am a member of the Intel Committee as
    well, and I was there when Mr. Comey said ``the Russians will
    be back.'' At this point we are not prepared, and we are
    sending a message to them that it was OK. So the only piece of
    the sanctions bill that is being completed is, frankly, a
    laughable report on Russian oligarchs not nearly enough.
        So will this administration fully implement the Russian
    sanctions mandated by Congress?
        Secretary Mnuchin. Mr. Quigley, as I have testified before,
    I fully assure you that we will implement them. Last week, I
    gave the Senate a classified briefing on the report and where
    we are on sanctions. I would be more than happy to meet with
    members of the House to also do a classified briefing. There is
    an enormous amount of work that has gone into the report, the
    classified version with the intel community. As I have said, I
    expect, in the next several weeks, we will be moving forward
    with sanctions on Russia as a result of the act, so I can
    assure you that both in my discussions with the President, he
    is fully supportive of the work we are doing, and we have a
    large team working on it as we speak.
        Mr. Quigley. So the sanctions from the entire bill will be
    enforced?
        Secretary Mnuchin. Absolutely.
        Mr. Quigley. So is this, in your mind, contra to the
    President saying that we don't need to do this? I mean, I read
    you the quote. Has he changed his mind?
        Secretary Mnuchin. Again, I can tell you in recent
    conversations with the President, he is fully supportive of the
    work we are doing. As I said, there will be sanctions that come
    out. The Treasury Department is responsible for the sanctions
    on the political figures and the oligarchs. We are working with
    the State Department on the sanctions as it relates to other
    areas of industry.
        Mr. Quigley. Understand our confusion. The President at
    different times has said this is a hoax. It may not have been
    the Russians, it could have been a big guy in Jersey that did
    this. He has also said we are not going to enforce this. So,
    now, instead of the President announcing this, we have you, in
    a classified setting, telling people, Oh, we are, and today
    announcing that we are. So you can understand why we would
    question this and wonder. And why does it have to be a
    classified setting as to the fact that there are going to be
    sanctions, and why can't the President make that announcement?
        Secretary Mnuchin. Again, I have said in multiple
    unclassified settings, including today, including at the White
    House press room that sanctions are coming. Again, I am happy
    to explain the process. There is an enormous amount of work
    that goes into building each one of these packages from intel
    work to legal work. As I have said, the President is completely
    supportive of us moving forward with this.
        Mr. Quigley. You can also understand our concern when the
    numbers I brought out that you--and I appreciate your
    addressing them saying that the disparate number of resources
    based on targeted toward North Korea versus Iran, I took that
    to mean that you were going to look at that and make it right,
    for lack of a better word.
        Secretary Mnuchin. I added that into my opening statement
    because I wanted to acknowledge that that does not reflect my
    view of the relative resources, and as I have said, I always
    look at--we have a number of resources in TFI, and we actively
    move them around. So it is the same people that work on Russia,
    Venezuela, North Korea, and Iran. We constantly reprioritize,
    so the relative number that was put into the budget does not
    reflect my current thinking of the allocation.
        Mr. Quigley. And at some point, can you tell us the
    resources that you are going to spend on North Korea, Iran,
    Russia, Venezuela and all the other countries that we are
    concerned about? And Russia, in previous sanctions, as it
    relates to Ukraine?
        Secretary Mnuchin. Again, we had a very large amount of
    sanctions on Russia that we did last year that we did under our
    Ukrainian authorities. We will continue to use those
    authorities, as well as the new authorities, and, again, I can
    assure you the reason why we want more resources at TFI is
    because we firmly believe, and the President believes, that
    sanctions do work. We have seen this in North Korea. There is
    no question in my mind, a big part of the reason why they are
    coming to the table now and talking about negotiating is
    because our sanctions have had significant economic impact on
    their economy.
        Mr. Quigley. And I appreciate this dialogue, and, Mr.
    Chairman, I look forward to perhaps having a discussion where
    we can go into more details, because I went to Cyprus for a
    reason. There is a reason the Russians are laundering money
    there, and if folks can launder money and get around our futile
    efforts and lack of resources to look at it, it is not just
    what the Russians did, it is the real threat from Iran, from
    North Korea, as you know, counterterrorism because if they can
    get around sanctions by money laundering, we are much, much
    less safe. Thank you, Mr. Chairman.
        Secretary Mnuchin. I agree with you, Mr. Quigley.
        Mr. Graves. Mr. Yoder, and then Mr. Cartwright.
        Mr. Yoder. Thank you, Mr. Chairman. Mr. Secretary, welcome
    to the committee. I want to associate my remarks with those of
    the chairman related to the value of tax reform and its impact
    on constituents in our districts. Over the last few weeks, like
    many of my colleagues, I have been going around my community
    meeting with small businesses, talking to workers from, you
    know, blue-collar workers and checkout clerks at places like
    Home Depot or Walmart, you know, real Americans that are
    working hourly jobs who are talking about the bonuses they
    received, or the greater withholding in their--less withholding
    in their paycheck that they are getting a bigger paycheck, I
    guess.
        We have also seen the bonuses, salary boosts, benefits like
    family leave that some companies are adding, so, you know,
    workers are really benefiting from the tax reform. And I think
    they are really surprised that Washington actually did
    something to help them. They are used to Washington putting a
    greater burden on them, a greater regulation, a higher tax, and
    so the fact that we rolled that back and it really impacted a
    lot of middle class working class families, I think, has been a
    surprise, particularly with the media disinformation that
    occurred throughout all of that, so thank you for your work to
    implement that. My own district we think about the third
    district of Kansas, a typical family will be receiving a $2,728
    tax cut this year.
        Now the President's budget request projects around 3
    percent economic growth per year over the next decade. The
    goal, the Tax Cuts & Jobs Act, along with other elements of our
    progrowth agenda was to help to get to that number.
        What does that 3 percent do to the economy? What does it do
    to unemployment and job growth? How does it help families at
    home? And are we on track to hit that and are there other
    policy areas that Congress needs to address to get to 3 percent
    or more growth per year?
        Secretary Mnuchin. Well, thank you. We do think we are on
    track to meet that. We have had two quarters of over 3 percent
    growth. There is still some work to get to the long-term
    impact, because we want 3 percent or higher sustained economic
    growth. That will add trillions of dollars to the government,
    and tens of trillions of dollars to the economy. It is a
    combination of tax reform, regulatory relief, and trade
    negotiations, so that is a major focus of ours. As I said, we
    are pleased with the initial results.
        Mr. Yoder. Thank you, and I appreciate you bringing up
    trade, because I would like to ask you a little bit about the
    tariffs discussion that is happening and the recent policies
    that the administration has announced. You know, in Kansas,
    many of my constituents, many of our businesses rely on trade
    and exports. Over 400,000 jobs in Kansas are supported by
    trade, $17 billion in annual exports to help boost our economy.
    And many of my constituents, many of our local businesses, many
    of our farmers believe that tariffs and the potential trade
    wars that could result could inevitably create big challenges
    for Kansas workers and farmers.
        Tariffs on steel and aluminum, for example, are going to
    negatively impact Kansans who work in manufacturing. I have got
    a GM plant in my district with 2,200 people employed, and
    retaliation from our trading partners will also end up hurting
    Kansas farmers and ranchers who are already struggling as they
    try to export wheat, beef, and other agricultural products
    around the world.
        I am concerned that after everything we have done to help
    our constituents through tax reform, that tariffs that the
    President recently announced are going to undermine some of
    these recent gains. Do you share any of these concerns about
    the impact of these tariffs, and do you believe that these
    tariffs will make American businesses more competitive on the
    global market?
        Secretary Mnuchin. So first let me just say, I have
    participated, and we meet on a weekly basis on trade on our
    economic team. These things are discussed very carefully, and
    we are trying to balance different issues. The President is
    personally involved in these decisions. I think on the steel
    and aluminum tariffs, we are trying to balance protecting these
    industries, which are very important, with making sure that we
    don't do undue harm to the economy.
        So as the President just announced, Canada is a very
    significant partner that buys steel and sells steel. To the
    extent that we are successful in renegotiating NAFTA, those
    tariffs will not apply to Mexico and Canada, but we look
    forward to the President releasing the specific details and
    working with other people. We are not looking to get into trade
    wars. We are looking to make sure that U.S. companies can
    compete fairly around the world.
        Mr. Yoder. Well, and that brings to mind the separate trade
    dispute over Chinese washing machines and solar panels. We are
    already seeing retaliation on our sorghum producers in Kansas.
    Kansas sorghum, our farmers produce over half of the U.S.'s
    sorghum supply, so this Chinese retaliatory action poses a
    direct threat to their livelihood at a time when commodity
    prices are already very low.
        So this indicates to me, in a very real-world example, that
    the tariffs on those washing machines and solar panels actually
    led to a retaliation at the detriment of American farmers,
    constituents of the President and mine. Is the President aware,
    and are you aware, Mr. Secretary, that these retaliatory
    measures are already occurring, and is he aware of the
    potential for retaliatory impact to Kansas farmers, should
    other countries retaliate because of the new tariffs on steel
    and aluminum?
        Secretary Mnuchin. Well, as it has been reported in the
    press, I and Director Cohn, Ambassador Lighthizer met with Liu
    He last week, who is now our primary counterpart and an adviser
    to President Xi on trade issues. We had very direct
    discussions. The Chinese understand and agree that the
    objective is to lower the trade deficit. This is something that
    the President is very focused on. I think the good news is that
    President Xi and President Trump have a very close relationship
    and communicate regularly on these issues, but President Trump
    has been very clear. We want to make sure that U.S. companies
    have the same ability to do business in China as Chinese
    companies have here.
        Mr. Yoder. Thank you, Mr. Chairman. Thank you, Mr.
    Secretary.
        Mr. Graves. Mr. Cartwright, and then Mr. Stewart.
        Mr. Cartwright. Thank you, Mr. Chairman. Thank you for
    being with us, Mr. Secretary. I want to follow up the
    discussion on trade a little bit. You have indicated recently
    the administration is considering reentering negotiations on
    the Trans-Pacific Partnership, and I do have a lot of
    constituents in my district in northeastern Pennsylvania who
    were seriously harmed from the impact of trade agreements like
    NAFTA. If the administration plans to go back into TPP talks,
    what specifically are you going to do to ensure that American
    workers come out as winners from any new trade pact?
    Specifically, will you fight to protect improved labor and
    environmental standards from the other trading countries with
    actual enforcement mechanisms?
        Secretary Mnuchin. So let me just comment that, you know,
    our priority at the moment is to renegotiate NAFTA and to focus
    on our trade relationship with China and have fair and balanced
    trade with China.
        When the President was at Davos, he did say that he would
    consider going back into TPP if we could renegotiate the deal,
    and I think that is something that I have had some discussions
    with my counterpart. I would say we are not in active
    negotiations with that at the moment, nor is that the priority.
    But again, I think it is a willingness on the President's part
    to say we want the best deals for American companies to be
    treated fairly. If we can do it bilaterally, that is our
    preference. If we can enter multilateral agreements under the
    right terms, we will consider that as well.
        Mr. Cartwright. All right. Now I want to shift gears. You
    recently spoke at UCLA regarding a number of issues, including
    the White House's economic agenda, and the obligation that you
    personally feel toward helping working families. The
    administration's tax plan that you have been talking about, has
    been touted as an example of that. As we are seeing that tax
    plan take effect, and you talked about it earlier, it appears
    that only a small percentage of the $150 billion tax windfall
    is going to workers, while the majority is going to
    shareholders. In fact, you mentioned that--you cited 400
    companies that have announced one-time bonuses or raises. Gosh,
    if we only include traditional C corporations, there are 1.7
    million of them in the United States. My math is that means 400
    divided by 1.7 million is three-tenths of 1 percent, meaning
    99.7 percent of traditional C corporations are not on your list
    of 400 companies announcing one-time bonuses or raises.
        According to a report recently by JUST Capital, only 6
    percent of the $150 billion tax windfall ends up in the pockets
    of employees. Sixty percent ends up in shareholder dividends.
    Now, 80 percent of stock value in this country is owned by the
    wealthiest 10 percent of Americans. In November of 2016, you
    pledged that any tax plan would not give an absolute tax cut to
    the wealthiest Americans. That has subsequently been dubbed the
    ``Mnuchin Rule.'' I think the last time you testified here, you
    said, Well, that is not really a rule. But here is the
    question: As the Secretary of the Treasury, what are you going
    to do in the future to make sure the working families of
    America get a fair shake?
        Secretary Mnuchin. Well, thank you, and I think you raised
    some very good points. I do not agree with necessarily the
    numbers that you have referenced. We believe that the majority
    of the benefits in the tax bill will go to the middle class,
    and will go to companies that will pass on those benefits to
    the middle class. So our primary objective on the tax bill was
    make U.S. businesses competitive. We have had a worldwide
    system that if you deferred the tax, left trillions of dollars
    offshore, we wanted to fix that. We wanted to have a
    competitive tax rate for both big business and small business,
    which we did, and we believe that those will be passed on to
    workers. So we cited the number, and I realize there is
    different people who cite different things. We believe that it
    will be over 70 percent of the tax burden is borne by the
    worker, and that will be passed on.
        Just briefly I just want to clarify this so, yes, I did say
    originally, it was the President's objective that there was not
    going to be a reduction on the top end. That was never a
    pledge. That was our objective, OK. I was not the one who named
    the Mnuchin Rule it was Senator Wyden who dubbed it the
    ``Mnuchin Rule,'' and we worked very closely with the House and
    Senate as we designed this, to get what we thought was a
    competitive tax bill for our businesses and for the middle
    class.
        Mr. Cartwright. Last question, Secretary Mnuchin.
    Obviously, the expected growth from the tax cut is what is
    fueling a lot of what the benefits you are talking about. That
    is what the hope is. My question is, aren't you concerned, or
    are you concerned, about sinking our Nation $1.5 trillion
    deeper into debt, what effect that will have on the national
    growth rate?
        Secretary Mnuchin. Sure. Well, let me just comment. I am
    concerned about the size of the debt. The Nation's debt has
    gone from $10 trillion to $20 trillion in the previous 8 years.
    What I have said before I will repeat. I am comfortable--and,
    again, our assumptions I believe will be correct, but we will
    see--that the tax cuts will pay for themselves. Having said
    that, there are other spending issues. This year it was a big
    priority of the President to get additional funding for the
    military. As a result of getting that passed, there is big
    increases in nonmilitary spending, but I do share your concerns
    about the size of the debt, and the issue of budgets in the
    future.
        Mr. Cartwright. Thank you, sir. I yield back.
        Mr. Graves. Thank you, Mr. Cartwright. Mr. Stewart, and
    then Mr. Serrano.
        Mr. Stewart. Thank you, Mr. Chairman. Mr. Secretary, thank
    you for being with us once again. I am sure you look forward to
    these. You know, I have something I want to talk to you about,
    which is CFIUS. But I want to come back and address some of the
    questions or issues that have been brought up by other members
    of the committee, and elaborate on a few of them if we could. A
    very easy one that I just want to put on the table and allow
    you with clarity to state, and that is, there has been some
    concern over cuts to the IRS budget. Can you assure the
    American people that the IRS will have the manpower that is
    necessary to enforce current law and to collect the taxes that
    are due to the Federal Government?
        Secretary Mnuchin. Sure. Let me just comment. I do not
    always look forward to testifying, but I do look forward to
    coming to this committee because you control important funding
    that we need, so it is always a pleasure to be here.
        Mr. Stewart. We appreciate that.
        Secretary Mnuchin. As it relates to the IRS, I am meeting
    every day with a combined team of the Office of Tax Policy at
    Treasury, and members of the IRS leadership team. It is one of
    my top priorities, making sure we implement the tax plan, which
    impacts literally everything at the IRS from customer service
    to forms to technology. That is why it is so important that we
    get the additional funding for it, and I can just say, look,
    there have been issues at the IRS in the past. We have tried to
    deal with these issues, but the vast majority of the workers at
    the IRS, I think, are incredibly hard working people.
        Mr. Stewart. Mr. Secretary, I want this to be a simple
    answer. Just tell us yes or no, can you enforce the law so we
    collect our taxes?
        Secretary Mnuchin. Yes, we can.
        Mr. Stewart. Thank you. And I just--I want you to say that
    with clarity, because there are some that will say we are
    unable to, and I think that is nonsense. Of course we can. You
    know, I love people to talk about tax reform, and the longer
    our Democratic colleagues talk about it, the better it is for
    us I think, because the American people aren't stupid. And when
    80 or 90 percent of them look at their--look at their earnings,
    and actually see that they are making more money now than they
    were a year ago and when they see the economic growth--again,
    you can call it a scam, and I love Mrs. Lowey, she is one of my
    favorite people in Congress. I wish she wouldn't have left
    because I would like to say that to her, but you can call it a
    scam, but the American people aren't dumb, and they can see
    whether this is benefiting them or whether it is not.
        And the fact is, is that 80 or 90 percent of them it is,
    but I think your point about--you know, we have two elements to
    this: One is that they are getting a tax refund, they are
    getting more money, they are able to keep more of their money,
    but I think the more important thing is what you said in your
    opening statement, and that is that the economy is growing. You
    said it is something like $4,000 for an average family. Can
    you, very quickly, help connect the dots for members of this
    committee and other Americans why this tax reform leads to
    economic growth? And then I am going ask my second question,
    because I want you to try and divide this up in the 2 minutes
    we have left. I am concerned about CFIUS. As a member of the
    Intel Committee, we have very real concerns about how that
    plays out from an intelligence and from a security concern. Are
    you willing to work with us to support some reforms in the
    CFIUS process that would address some of those national
    security concerns that we have?
        Secretary Mnuchin. Yes, so on the first part, you know, we
    fundamentally believe we can get to 3 percent economic growth.
    The single most important issue is to create growth in the
    economy. The tax bill is the center stage on that and that
    critical to the growth.
        In regards to CFIUS, I share your concerns with the current
    CFIUS. There is limitations. We have been working with the
    Senate on the FIRRMA bill. We look forward to working with you,
    as well. We need additional resources for CFIUS with new
    controls, expanded controls. So that is a top priority for us
    working with Congress.
        Mr. Stewart. And in the minute we have left, can we
    balance--and tell me, and I don't know if you can address it
    here, maybe this isn't is the right forum, but can we balance
    our strategic economic concerns, and that is, when we partner
    and when we have the free flow of information and capital
    across borders, et cetera, that is generally a good thing, but
    we have to do it knowledgeably and recognizing that we have to
    protect our security, and also protect, I think, strategically,
    our economic interests. Can we do both of those, and what
    reforms would you suggest would help us to do that regarding
    CFIUS?
        Secretary Mnuchin. I believe we can, and I look forward to
    working with you and your staff on the specific reforms and
    some of the shortfalls.
        Mr. Stewart. OK. Thank you, Mr. Secretary. Thank you, and
    Mr. Chairman, I yield back.
        Mr. Graves. Thank you, Mr. Stewart. Mr. Serrano, and then
    Mr. Young.
        Mr. Serrano. Thank you, Mr. Chairman. Secretary, thank you
    for being here. As you know, Puerto Rico has gone through an
    unprecedented humanitarian crisis because of two Category 4
    hurricanes that struck the island 6 months ago. As a result,
    Puerto Rico has lost tax revenues and even had to lend $300
    million to PREPA, the island's electric utility. The Governor
    of Puerto Rico has informed us, that the Treasury Department
    has yet to approve the community disaster loan, which was
    approved by Congress last October, and that Treasury is only
    offering $2.06 billion out of a possible $4.7 billion, so I
    have a couple of questions. My first one is, mindful that the
    78 municipalities are submitting separate CDL applications, why
    is Treasury only offering a fraction of the amount approved by
    Congress? And why has Treasury taken so long in approving the
    CDL loan?
        Secretary Mnuchin. Well, thank you for asking that
    question, and I share your concerns of obviously the impact
    that this has had on the economy there.
        So first of all, let me just clear up certain issues.
    Within the overall bill, there was money that can be allocated
    to Puerto Rico. Not the entire bill was allocated to Puerto
    Rico, so that is number one. There are restrictions as to what
    can be allocated.
        Number two, which has been misreported in the press, we
    have given the Governor and the committee a term sheet, so we
    are prepared to move forward with documents. We have been doing
    that. We have documents in front of them. They are asking for
    certain things, but we stand ready to lend them the money. We
    are also monitoring their cash balances on a weekly basis, and
    as part of my commitment to this I am actually going to stop in
    Puerto Rico on the way back from the G20 Finance Ministers
    Meeting to see the damage and make sure that the money is
    getting there quickly. So we are working with them, and I can
    assure you we have a team at Treasury that stands ready to lend
    them money right away. We are not holding this up.
        Mr. Serrano. Now, what is the main holdup, though? I mean,
    it is being held up. You are saying you are not holding it up.
        Secretary Mnuchin. Again, I would be happy to sit down with
    your staff and talk about this privately. There are things that
    they--they are asking for more, but I do not want to go into
    what the negotiation here is in this setting, but I can tell
    you there are documents that are in front of them that we are
    ready to lend, A; and, B, we are monitoring their cash flows to
    make sure that they have the necessary funds.
        Mr. Serrano. Well, I hope we can get that money flowing as
    soon as possible, and feel free to share with us when you wish
    what the problems may be because maybe we can be helpful with
    you.
        Secretary Mnuchin. Thank you.
        Mr. Serrano. And, you know, with the government on the
    island.
        Most CDL loans have historically been forgiven by the
    Federal Government. Why is Treasury more concerned with
    imposing stringent terms on the loan than in forgiving CDL
    debt, something that is very concerning in light of Puerto
    Rico's precarious financial situation?
        Secretary Mnuchin. We are not making any decisions today
    whether they will be forgiven or they will not be forgiven.
    What we are focused on is, as I said, making sure that they
    have access to the funds, and we are prepared and ready to lend
    to them now.
        Mr. Serrano. So you are prepared to lend to them now, and
    you will make at a later date the decision whether these loans
    will be forgiven or not? I mean, this is historically something
    that has been done. This is not--wouldn't be something that you
    would be called out for in the press or anywhere for doing. It
    has been done before often.
        Secretary Mnuchin. Again, we are happy to follow up with
    you and your staff and talk through the specifics of that and
    get your views.
        Mr. Serrano. OK. There seems to be a lot of, I wouldn't
    call it secrecy, but a lot of things you can't say in public
    about the dealings of Treasury with Puerto Rico. I hope that
    that secrecy or inability to say these things in public does
    not continue to hold up the funds.
        Secretary Mnuchin. There is no secrecy. What I am being
    very clear on, and let me be perfectly clear, we have documents
    in front of them that we are prepared to lend. I think it would
    be inappropriate in this forum, there are changes that they
    want to these documents. I think it would be inappropriate for
    me to go through that level of detail. There are no secrets.
    Again, we are ready to fund to them now. There are things that
    they are asking for that is holding this up. But let me assure
    you, we are monitoring their cash balances, and as I have said
    to you as function of the importance of this I am actually
    stopping in Puerto Rico on the way back from my trip to the
    G20.
        Mr. Serrano. So in 2 seconds, the headline for today's
    meeting, and my question is, are you ready to lend now?
        Secretary Mnuchin. Absolutely. Money is ready.
        Mr. Serrano. Thank you.
        Mr. Graves. Thank you, Mr. Serrano. Mr. Young has stepped
    out for a moment, so we will go to Mr. Moolenaar, and then Mr.
    Amodei.
        Mr. Moolenaar. Thank you, Mr. Chairman, and good morning,
    Mr. Secretary, and thanks for joining us today for your
    testimony. My guest for the State of the Union was a gentleman
    from Clare, Michigan, Mr. Greg Rynearson, and I believe you had
    the chance to meet him before the speech that night. He is a
    former police officer, who, along with eight of his former
    colleagues on the force, saved the local bakery and doughnut
    shop from closing, and now nearly a decade later, they have
    worked hard, grown their business, and it is really an American
    success story.
        They are excited about tax reform. They say it is going to
    help their business. They recently announced plans to open a
    new store in our State. And another company in my district, a
    printing company with two locations, announced bonuses are
    being paid to their employees' retirement accounts. And so all
    of this, as you would agree, is good news: higher wages;
    bonuses; better benefits; helping the hard-working people in
    our State keep more of their hard-earned money, and that is
    always a good thing. I want to compliment you, because Treasury
    turned around very quickly the implementation of the
    withholding rate that passed as part of tax reform, and your
    budget asked for $397 million to help implement this new law.
        And I am wondering, how much of it will go towards
    improving better service for those who need help from the IRS,
    for example, hiring employees to answer phone calls of
    concerned constituents, and I am sure you are already getting
    calls already, but how much of it will go towards improved
    service in that way?
        Secretary Mnuchin. Sure. Thank you. So, first of all, that
    request is a 2-year request, but that is money we need ASAP to
    implement this. A lot of it will go to service, some of it
    directly, where we will hire more people to answer the phones,
    particularly during the peak of tax filing season. A lot of it
    will go to technology that will help interact and everything
    else. It was commented earlier, we have antiquated telephone
    systems. We want to modernize the technology so we can provide
    better customer service. We need to update all the forms to
    reflect the simpler ability to file, so there is--a lot of this
    money will help directly and indirectly. That is a major focus
    of ours.
        Mr. Moolenaar. Thank you. And if I can shift gears a minute
    and talk about the question of sanctions that we have been
    discussing. Your Department is asking for increased funding for
    the implementation of sanctions on hostile nations, including
    Russia, North Korea, and Iran, and I am pleased to hear that
    you are implementing those sanctions and want to encourage you
    to move swiftly and decisively because I agree with you, I do
    think those sanctions in the case of North Korea, as you
    mentioned, are bringing them to the table and have been
    effective.
        Your Department is monitoring financial transactions all
    over the world, and has the incredible task of identifying and
    dismantling threats to our country's financial system,
    including cyber attacks. I am wondering which countries and
    organizations are launching the most attacks on our financial
    system, and what is the cost of these attacks to Americans?
        Secretary Mnuchin. So, again, let me just first comment on
    the sanctions. We just released, 2 weeks ago, the largest
    package of sanctions that we have ever had on North Korea, so
    as you know, North Korea has been our number one priority. We
    are now reallocating a bunch of these resources for Russia
    sanctions, which are going to come out very shortly. On cyber
    and on the banks, again, we are constantly taking in lots of
    information from the banks, big data dumps to look at illicit
    activity.
        In regards to cyber, I am not comfortable mentioning which
    countries specifically, but I am pretty sure you know the
    highlighted ones, and we are very focused on this.
        Mr. Moolenaar. And do you need increased funding to prevent
    these attacks? Is that something we are going to see more of in
    the future?
        Secretary Mnuchin. It is.
        Mr. Moolenaar. OK. And then another question I had is how
    can we improve information sharing with Department of State and
    other agencies to make sure sanctions are imposed effectively?
    It seems that there are a number of departments, agencies
    involved in this process, and what can we do to improve the
    communication there?
        Secretary Mnuchin. I actually think that works very well. I
    would say, first of all, through the NSC, we meet on a regular
    basis, multi times a week we are in communication.
        Any of our sanctions do go through, whether we are doing
    them or not, they do go through what we call an interagency
    clearing process of both getting the Intel declassified and
    then seeking consent of State and others. So I think this
    process is working very well, both through the NSC coordinated
    process as well as direct conversations between myself,
    Secretary Tillerson, and our staff.
        I also have regular meetings with Director Pompeo and other
    members of the National Security/Intel areas, because we could
    not do our work without what they do.
        Mr. Moolenaar. Thank you very much.
        Mr. Graves. Mr. Amodei, then Mr. Young. And then if there
    are additional questions, we will alternate between both sides,
    based on seniority down the dais here.
        Mr. Amodei.
        Mr. Amodei. Thanks, Mr. Chairman.
        Good morning, Mr. Secretary.
        Secretary Mnuchin. Good morning.
        Mr. Amodei. Real quick first, CFPB. I had seen in some of
    your earlier ruminations that, first of all, CFPB. Let's just
    say you were interested in the concept of a five-person board.
    And I know you guys are doing the best you can with Mick
    Mulvaney kind of filling in, but your thoughts changed on going
    to a five-person board for governing that outfit?
        Secretary Mnuchin. No, my thoughts have not changed. I
    think that, one, it should be subject to appropriations. I see
    no reason why that agency should be off balance sheet. And two,
    I do support the concept of a board to oversee it.
        Mr. Amodei. OK, great. Thank you.
        The second thing is a little more pedestrian, but
    nonetheless, and I think we had let your staff know. It is
    like, hey, I don't want to talk to him about this in the
    appropriations hearing, but we are kind of where we were before
    that.
        I had a request from a constituent who is entitled to some
    payments out of the Guam World War II Act, World War II claims
    fund. And so she had contacted our office, because she had been
    pursuing this through Representative Bordallo's office, who had
    sent Treasury Department, 2 months after you were sworn in last
    year, a letter asking about some interpretations. And that
    letter was in April, and she sent it to you and to Interior
    Insular Affairs, and Interior sent her back a response on the
    11th.
        So we contacted your office 2, 3 months ago and said, hey,
    you know, what is the deal on this letter? And we have
    contacted them about three times. And so I am not going to
    spend a lot of time on it. And rather than going through the
    gee whiz and all that other sort of stuff, my request is, can
    you send somebody from your Department under your supervision
    to my office to give us a briefing on this and whatever the
    response is to the letter that Representative Bordallo has been
    waiting for for over a year?
        Secretary Mnuchin. Absolutely. That will happen tomorrow,
    whenever is convenient. It is unacceptable that we have not
    responded to you. I can tell you I have met with them several
    times on this issue. We want to get it resolved. It is a little
    bit of a complicated issue, but it is unacceptable we haven't
    been responsive to you. So we will, whether tomorrow or the
    next day, whenever is convenient for you, we will have people
    come over.
        Mr. Amodei. Thank you. Good morning.
        And I yield back, Mr. Chairman.
        Secretary Mnuchin. Thank you.
        Mr. Graves. Thank you.
        All right. Let's see. Mr. Young, do you have any questions
    for us down there? Then we will start over.
        Mr. Young. Thank you, Mr. Chairman.
        Welcome, Mr. Secretary.
        Secretary Mnuchin. Thank you.
        Mr. Young. I was just out in the hallway talking to a
    farmer from Iowa, and he says there is not a day on the farm
    where a farmer doesn't touch steel. The agricultural industry
    and everyday farmer are worried about these tariffs on aluminum
    and steel. How much do you know about the proposed tariffs?
        Secretary Mnuchin. I know a lot about the proposed tariffs.
    I can tell you the President loves farmers and the agricultural
    community.
        Mr. Young. It doesn't seem so with some of the policies
    that are coming out. And there is great concern with folks in
    the heartland and concerns as well with retaliation and what
    that may mean to our economy. We have seen that the Tax Cuts
    and Jobs Act was great. We are really feeling the benefits of
    that. And there is a fear out there that any kind of a
    potential trade war or retaliation could really blunt the
    positive effects with the economy from the Tax Cuts and Jobs
    Act. Can you comment on that? Are you concerned at all with
    that?
        Secretary Mnuchin. Again, I am well aware of the fears of
    trade wars. I can tell you I have had very specific
    conversations with several of my counterparts. We are trying to
    deal with this on a case-by-case basis. The President is very
    involved in this. Again, I look forward to having the details,
    the exact details of this released. We are trying to get it out
    as quickly as we can this week.
        Again, I think when people see this, again, I want to be
    clear that the President does want to make sure we protect the
    steel and aluminum industry. He does understand the potential
    impacts it has on the economy, and I think we have a way of
    managing through this.
        Mr. Young. So when the President's team was going through
    this and deciding whether or not to issue tariffs on aluminum
    and steel, did they meet with the stakeholders out there who
    could potentially be impacted by this? Did they meet with the
    agricultural leaders on this?
        Secretary Mnuchin. I can assure you that the Secretary of
    Agriculture has had significant input into these discussions. I
    can assure you that Director Cohn and myself have received lots
    of feedback on all these issues, and we are balancing the
    various issues.
        Mr. Young. So you are supportive of the President's move on
    the tariffs on aluminum and steel?
        Secretary Mnuchin. I am supportive of them. I am supportive
    of the mechanism as the President has announced, and I look
    forward to him announcing the specific details; that in the
    case of Canada and Mexico, our objective is to have a new
    NAFTA. Once we do that, which I am cautiously optimistic on,
    the tariffs will not apply to them.
        Mr. Young. And regarding NAFTA, I certainly welcome the
    relooking at NAFTA and making sure that it is enforced and
    modernized. I would just urge that the administration not scrap
    NAFTA altogether. That would be devastating to the American
    economy, let alone the agricultural economy. And I thank you
    for being here.
        I yield.
        Mr. Graves. Thank you, Mr. Young.
        Mr. Secretary, I think you have a few more minutes with us.
    We have some remaining questions. I know I have a couple, and
    then we will see if Mr. Quigley and others do.
        You have in the past referred to the Senate bipartisan
    regulatory reform bill as a balanced and thoughtful approach,
    and you have called on both chambers to move that bill through.
    There are many--I guess most of the components of the Senate
    bill, there are similarities with what we passed in the House
    CHOICE Act, of which this committee included basically the
    entirety of the CHOICE Act in our 2018 appropriations bill. And
    as we are wrapping up that final discussion, we are finding
    there are some similarities of a common thread of some of the
    Senate bill that is in our proposal.
        Can you give us a little bit of your thoughts about the
    Senate bill provisions and your prospects for how that may move
    through the Senate, the House, or a conference, and whether or
    not we should include those provisions in our final 2018
    conference bill?
        Secretary Mnuchin. Sure. Well, let me just first say I meet
    with Chairman Hensarling and Chairman Crapo on a regular basis.
    These are very important issues that we address. I am very
    pleased that things are moving forward in the Senate. I think
    this is very important legislation that strikes the right
    balance, particularly as it relates to community banks and
    regional banks and making sure that they can grow.
        One of the big issues we have is that the top eight banks
    are too big. We need to make sure that community and regional
    banks can grow; they know how to lend. And I look forward to
    working with the members of the committee in the House as this
    moves forward.
        Mr. Graves. Are those provisions you would like to see in
    our 2018 conference bill? Because we have currently included
    those provisions and more, and much more. And I think Chairman
    Hensarling and myself and others would like to see a more
    robust package, understanding where the Senate is. But there is
    a thought that maybe some of those should be included in our
    Financial Services appropriations bill as well, including CFPB,
    as you referenced earlier.
        Secretary Mnuchin. Look, you know my views on CFPB. I look
    forward to working with the House and the Senate on these
    issues. I think the most important issue is that we do get a
    bipartisan bill passed, that we need these changes and we need
    it to help the economy and our banks.
        Mr. Graves. OK, thank you.
        And then as it relates to the Terrorism Financing Targeting
    Center, you and I have had some good discussions about that.
    What is the administration's vision for the Center? If you
    could just sort of describe that to us in a little bit more
    detail today.
        Secretary Mnuchin. Sure. Well, this is one of my major
    priorities. I went to Saudi Arabia last summer to launch it. We
    have three buildings there that the Saudis have provided to us.
    We need to make sure we now have the appropriate staffing.
        One of the buildings is designed specifically for us. We
    need to build out our necessary intelligence capabilities. One
    building is a shared building where everybody can come and work
    together. And then another building is for the Gulf countries.
        I have committed to go back every year to make sure that we
    follow through on this. We need to get staff on the ground. The
    idea is to share intelligence and to do joint sanctions, and I
    think these can be very meaningful in our shared goals to stop
    illicit financing and combat terrorism. The money that we will
    spend on this has huge, huge, huge returns in its capabilities.
        Mr. Graves. And with your current request, we will have, I
    guess it is $25 million worth of request. What will the other
    countries be--what would be their involvement or their
    resources that they are including in this?
        Secretary Mnuchin. Again, the Saudis have paid for the
    physical buildings and various aspects there. The other
    countries will be contributing resources of similar amounts. We
    expect all the Gulf states to make a significant commitment to
    this.
        Mr. Graves. That is good. That is something we want to
    hear--that we are not financing this solely ourselves, but we
    have partners.
        Secretary Mnuchin. No, not at all. This is a shared vision.
        Mr. Graves. Thank you, Mr. Secretary.
        Mr. Quigley.
        Mr. Quigley. Thank you, Mr. Chairman.
        Mr. Secretary, I just want to make sure we understand your
    commitment to come back to the committee with the details of
    how you are intending to use resources to enforce the sanctions
    that we spoke of earlier.
        Secretary Mnuchin. Absolutely. We will follow up with you
    on that.
        Mr. Quigley. Thank you.
        We are talking about the tax bill. Let me just throw out a
    few numbers and get your reaction. The independent Joint
    Committee on Taxation estimates that the plan will add $1.5
    trillion to the deficit over the next 10 years. They are saying
    under the best of circumstances, even after accounting for
    economic growth, we are adding a trillion, which pushes back on
    your point that it would, with respect, pay for itself.
        But Goldman Sachs, not exactly a bastion of liberal
    economic thought, concluded that it would add as little as 0.3
    percent to the GDP over the next 2 years and could be slightly
    negative if we trend to the time in 2020 and beyond. The Tax
    Policy Institute--I am sorry, the Tax Policy Center estimates
    that the new tax law will increase GDP by 0.8 percent in 2018,
    but with trends, little effect by the end of the next 10 years.
        So we are talking about a manufactured extraordinary
    addition to the debt crisis with, over time, extraordinarily
    little results to counter that. Your reaction to these pretty
    conservative institutions?
        Secretary Mnuchin. Let me just say I respect different
    people have different views, and the numbers will be clear. I
    think we are beginning to see the numbers, but this is all
    about economic growth.
        Again, the bill scored to a trillion and a half dollars
    static, $500 billion of differences between baseline and
    policy. We look at it as a trillion dollar issue. That is about
    30 basis points of growth is the break even. So we think there
    will be close to 90 basis points of growth, but there is about
    30 or 35 basis points of growth. Although certain things I
    agree with Goldman Sachs on, their research is not one of them.
        Mr. Quigley. I pass this on. Thank you, Mr. Chair.
        Mr. Graves. Thank you.
        I am going to ask a question or two on behalf of my
    colleagues who have stepped out a second.
        On cybersecurity, given a lot of the national security
    threats and implications that we have already discussed in the
    financial sector, a lot of cost associated with that. Can you
    help us understand what Treasury is doing to establish and
    maintain cybersecurity standards across the industry? And then,
    as a former information officer yourself in the finance world,
    what is your impression of the cyber threats in the private
    sector now that you are Treasury Secretary? You have a
    different vantage point today, obviously.
        Secretary Mnuchin. Sure. Well, again, this is something I
    am spending a lot of time on, and it is something we need to
    continue to spend a lot of time on and take seriously, since
    these cyber threats will only increase, not decrease over time.
        Yesterday, I participated in a principals meeting that DHS
    led specifically on cyber. We have responsibility for the
    financial sector. It is something that we take very seriously.
    This is a function of both--it is a private-public partnership.
    The primary responsibility for the financial sector is
    obviously in private companies, but we are working with them
    very closely. We are sharing intelligence with them closely. We
    are also working with the regulators very closely.
        So, through my role on FSOC, I have convened the
    regulators, through the Financial and Banking Information
    Infrastructure Committee (FBIIC) and other areas. We are very
    closely working with all the appropriate regulators and making
    sure we have a coordinated approach to cyber.
        Mr. Graves. Thank you. I understand it is very, very
    complicated.
        Mr. Serrano, do you have any further questions?
        Mr. Serrano. Thank you.
        Let me first say, Mr. Chairman, that I was very nervous for
    a second. Whenever I hear one of my colleagues mention the
    Jones Act, I get nervous because not too many people know that
    there are two Jones Act. One has to do with shipping, and one
    was this week in 1917 Puerto Ricans got American citizenship.
    So I hope they don't make a mistake when they tinker with the
    Jones Act. Don't take away the wrong one, in my case.
        Mr. Secretary, the CDFI Fund has helped entities invest
    billions of dollars in economically underserved areas,
    including in my district in the Bronx, New York. Nevertheless,
    your fiscal year 2019 budget proposes to eliminate all CDFI
    discretionary grant programs. I will be working with my
    colleagues on both sides of the aisle, with all due respect, to
    make sure that that does not happen.
        However, since you propose to eliminate CDFI, how do you
    plan to cover the gap in providing affordable credit and
    investment capital to low-income communities and individuals?
        Secretary Mnuchin. Sure. Well, thank you. First, let me
    just acknowledge that the CDFI funds do provide significant
    benefit to many communities, and I know there is bipartisan
    support. So we look forward to working with you on this.
        The decision to eliminate the CDFI was just a difficult
    decision as we looked at spending priorities across the
    Department and thinking that there are other mechanisms that we
    have and that there are private sector solutions. But, having
    said that, if Congress decides that they want to fund that, we
    will dutifully do that, and we acknowledge there are
    significant benefits.
        Mr. Serrano. Well, that took care of my second question,
    because you do admit publicly, which is a good thing, that it
    has bipartisan support--it always has--and it does a good job.
    And I hope that we can work together on saving the program and
    helping it grow, honestly.
        Mr. Secretary, one last question. You have been quoted as
    saying that cutting personnel from the IRS can actually hurt in
    the collection of revenues. And I have always had to describe
    this concern that every time we cut an agent, we lose money,
    money that could be collected.
        You are cutting thousands, it seems to me. How do you
    balance what you have said in the past and what you are doing
    in the budget? And I understand that some of these decisions
    are not easy to make. You just admitted the CDFI, you were not
    against it, but it was a decision that had to be made. What is
    the problem here?
        Secretary Mnuchin. Well, again, let me just say, you know,
    as we look at the IRS--and let me just commend, as I said, the
    many people at the IRS that do an incredible job collecting our
    revenues. It is an enormous organization, and we are making
    some difficult decisions on funding.
        So, we asked for additional funding. We have also asked for
    an additional $386 million in what we call program integrity
    cap adjustments. I know this is something that Congress has
    been reluctant to give us in the past, but I would encourage
    you to look at. It is a way of us raising additional money that
    can be used appropriately.
        Specifically, in your comment in enforcement, there is no
    question additional people we put in enforcement do yield
    significant benefits in terms of revenue. We have asked for
    correction error authority, which will also simplify things.
        So, again, we are just trying to manage difficult resource
    requirements across the IRS.
        Mr. Serrano. Thank you, Mr. Chairman.
        Mr. Graves. Thank you.
        Mr. Cartwright.
        Mr. Cartwright. Thank you, Mr. Chairman.
        Mr. Secretary, I just want to make sure I am clear on where
    we are at in terms of tariffs on Canadian aluminum and steel.
    Did you say the plan is to exempt Canada from those tariffs?
        Secretary Mnuchin. Again, I want to be careful about going
    into the specifics. The President will be announcing the
    specifics of this later in the week. But what I can confirm,
    and he has mentioned this, to the extent that we reach our
    objective in renegotiating NAFTA, which is the priority, that
    Canada and Mexico will be exempt from those tariffs.
        Mr. Cartwright. OK. And the other thing is, you were
    recently in the news about gun safety legislation. Obviously,
    we had another horrific shooting in Florida. We are at a point
    now in our republic where nine out of ten Americans support
    universal background checks. Eight out of ten Americans support
    banning sales to individuals who are on Federal no-fly lists
    because of being suspected terrorists.
        You were testifying in front of the House Ways and Means
    Committee and you were questioned by Representative John Lewis,
    our colleague, and you said, quote: ``I will say personally I
    think the gun violence, it is a tragedy what we have seen
    yesterday, and I urge Congress to look at these issues.''
        And then later, I think that same day or the day after, a
    Treasury spokesman walked that back. But I want to hear it from
    you, Mr. Secretary. Do you still urge Congress to look at these
    issues and, if so, what is it you are urging us to do?
        Secretary Mnuchin. Okay. Well, first of all, thank you, and
    I am glad I have the opportunity to clarify that. I, like most
    Americans, think that the shooting was obviously a tragedy and
    I think that gun violence is an issue, number one.
        Number two, my comment that we clarified--it was not
    intended to be walking back; it was intended to clarify. When I
    urged Congress to look at these issues, it was a question in
    regards to do we have enough funding for different things on
    gun violence.
        Let me just say this is an area, and although there are
    many things in the government that I focus on and I think I
    have some level of expertise, this is not in my lane. I do not
    have much expertise on this. I do commend the President for
    getting people together and the fact that he is willing to
    address this issue. It is an important issue and, you know,
    that is something that I know he is focused on.
        Mr. Cartwright. To be clear, are you urging us to do
    something?
        Secretary Mnuchin. Again, what I was urging, the question
    was, is there enough money, in that part I was responding to, I
    urged Congress to look at the money issue.
        As it relates to Congress and congressional legislation,
    this is completely out of my line. But, again, I know the
    President has been having active discussions on both sides of
    the aisle and reaching out to people, and this is an area that
    he cares a lot about.
        Mr. Cartwright. So, yes, you were urging us to look at the
    money issue as respects gun safety. What money issue are you
    talking about?
        Secretary Mnuchin. Again, it was a question as to whether
    there was enough money in the budget for gun safety and other
    issues. But, again, I want to acknowledge, like most Americans,
    this is a tragedy, and I am glad that the President is working
    with Congress in looking at these issues.
        Mr. Cartwright. I yield back, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Cartwright.
        I understand Mr. Quigley has no more questions.
        Mr. Serrano, any more questions?
        Mr. Cartwright.
        Mr. Cartwright. No.
        Mr. Graves. Mr. Secretary, thank you again for joining us.
    As you have noted in the past, this is a very thoughtful and
    insightful committee and great questions and concerns about
    budget requests and policy. And I thank you for taking the time
    to join us today, to give us good, complete, and thorough
    answers to the best of your abilities. And we certainly
    understand the limitations of some places in which you can
    discuss and respect that. But I am grateful that you offered
    yourself and your staff to join members in alternate settings
    to help clarify any questions they may have.
        Secretary Mnuchin. Glad to be here.
        Mr. Graves. But thanks again, Mr. Secretary.
        Meeting adjourned.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                             Wednesday, April 11, 2018.

                            INTERNAL REVENUE SERVICE

                                    WITNESS

    DAVID J. KAUTTER, ACTING COMMISSIONER, DEPARTMENT OF TREASURY
        Mr. Graves. Well, good morning. Good morning, everyone. And
    we are going to go ahead and call this meeting to order and we
    look forward to hearing the testimony today from the Acting
    Commissioner, Mr. Kautter. So thanks for joining us, and we
    appreciate your service and willingness to be a part of this
    subcommittee this morning to discuss the IRS budget for 2019.
    And we realize you are testifying before us in this committee
    for the first time, but this is also a very busy time of year
    for you, so thanks for taking the time to be with us.
        Late last year, Congress passed and President Trump signed
    into law the Tax Cuts and Jobs Act. And as a result of this
    historic tax reform legislation, American families are taking
    home more of their hard-earned money. Businesses are expanding
    and confidence in our economy is growing, which means more jobs
    and opportunities for the American people.
        As Mr. Kautter is well aware, implementation of this law
    falls primarily on the IRS, which is why we provided $320
    million for its implementation in last month's government
    funding bill. Specifically, this funding will go toward
    updating 100 different IRS IT systems to accommodate more than
    100 new tax code provision before the next filing season. This
    subcommittee is also committed to providing an additional $77
    million in 2019 to finish the law's implementation. So, I look
    forward to hearing how this implementation is progressing and
    how we can maintain that momentum as we move ahead through this
    year.
        But continuing on to the 2019 budget request that is before
    us, it also includes more than $500 million for Operations
    Support. And I know the Inspector General and the Government
    Accountability Office repeatedly commented on the IRS
    mismanagement of IT projects in the past. From insufficient IT
    work plans to legacy systems that run on software language from
    the 1950s, this mismanagement puts our tax collection
    operations at risk.
        This committee expects better as I know you do as well, Mr.
    Acting Commissioner. So, I look forward to discussing how these
    funds will contribute to the replacement of legacy systems in
    the days ahead, and the positive impact it will have on the
    overall taxpayer's experience.
        Additionally, the IRS is a prime target for cyber and
    identity theft, because of the massive amount of personal
    information it receives and stores. We learned just a little
    while ago that over 2 million attempts any given day are
    against the IRS and that information. In recent years, the IRS
    faced problems from data breaches in some of its e-services
    such as the GET Transcript Identification Protection Pen Apps,
    and the Free Application for Federal Student Aid Form, which as
    we know, is parents with kids going to college as FASFA.
        These breaches allowed cyber criminals to access taxpayer
    information and file fraudulent tax returns. The IRS must
    improve its cyber defenses and do more to protect taxpayer
    data. Similarly, improving a taxpayer's experience is a major
    focus of this subcommittee and has been for the years that we
    have all served on it. In the past two annual appropriations
    bills, we have provided the IRS with targeted funds to improve
    the customer service experience.
        With the 2018 filing season drawing to a close, I am very
    interested in learning what kinds of improvements our
    constituents are experiencing, and what they can look forward
    to this year. But to that end, my top priority on this
    committee and in writing the appropriations bill as we look
    ahead is ensuring that the taxpayer is truly respected. The IRS
    is on the front lines but it does not have the best track
    record. So, I look forward to hearing how our targeted
    investments are making life easier for the taxpayers and
    holding the IRS accountable for bad behavior.
        So, before wrapping up my comments, I want to zoom out our
    focus just for a moment and as we begin to look at the 2019
    bills, and as a subcommittee, not forget the success we had
    last year. We had tremendous success, not only as a
    subcommittee but as a full committee, in defying all the odds
    as we passed all 12 appropriation bills for the first time in
    over a decade and regular order with a lot of minutes, a lot of
    debate, and a lot of discussion.
        So I hope that we have that same commitment this year. All
    of us together, to work together to do the same as we have
    begun our hearing process and hopefully have all our hearings
    done as a subcommittee by the end of the month, and maybe full
    committee next month, and have them all out of the House in
    June. Would not that be great if we could do that? Or early
    July, I would be OK with that.
        That said, Mr. Kautter, thank you again for taking the time
    to meet with us today. I look forward to working with you and
    hearing your testimony. Thank you for your position that you
    have taken here. I know that you have two hats, two jobs that
    you are performing, and I look forward to hearing your
    testimony. But at this moment, I would like to turn to my
    ranking member here, Mr. Quigley from Illinois, for his
    comments.
        Mr. Quigley. Thank you, Mr. Chairman. I share your
    optimism. I know, I am a Cub fan, so I am not sure what that
    means. I want to also join you in welcoming the Acting
    Commissioner for the IRS, David Kautter, to this subcommittee.
    Mr. Kautter, I want to thank you for taking time and look
    forward to listening to your testimony. I am going to keep my
    remarks brief in the interest of allowing sufficient time for
    our witness to share his thoughts in response to the panel's
    questions.
        This hearing comes at an important time as taxpayers
    nationwide prepare to submit a tax return for the 2017 tax
    year. The IRS is tasked with the core Federal responsibility
    for the collection of more than 3 trillion in taxes,
    distributing more than 400 million in refunds and providing
    service to millions of taxpayers in the process. Funding to
    support the IRS's mission constitutes the single largest
    category of spending under this subcommittee's jurisdiction.
    And we take seriously our responsibility to ensure that the
    agency is able to perform its functions in a fair and competent
    manner.
        With this in mind, I was disappointed and surprised to see
    the President's budget request for the IRS in fiscal year 2019
    seeks a reduction in resources for the agency. This comes at a
    time when the national taxpayer advocate has sounded the alarm
    on irresponsible cutbacks to frontline employee training. The
    Inspector General for the Tax Administration is reporting that
    24-hour taxpayer assistance centers, which provide a crucial
    in-person service for many older and rural taxpayers, are
    currently closed during the height of the filing season, due to
    insufficient funds.
        Even more confusing is the fact that for the fiscal year
    during which this administration's new tax law is due for
    implementation, this budget proposes to reduce taxpayer
    services, staffing at the agency by thousands of positions.
    After multiple years of inexcusably long wait times and
    unanswered phone calls, taxpayers finally saw an improvement in
    the level of service delivered last spring during the filing
    season. And yet, for the coming year, when taxpayers face a
    brand new system of rules and systems, your budget request
    promises a drop from 78 percent level of service down to just
    54 percent.
        This year, with the resources appropriate for the IRS by
    Congress, the IRS will make 7,761 staff available in answering
    the toll-free phone line. Your fiscal year 2019 Request will
    cut the number of staff for this purpose to just 6,023
    available to answer the IRS toll-free line. I sure hope that
    you can help us make sense of this during our discussions
    today, and I thank you again, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. I would like to
    recognize the acting commissioner for his testimony. I know you
    have a statement for the record, but feel free to make some
    remarks if you would like to here. And then we will go in to
    some questions that we may have for you. Thank you again for
    joining us, Mr. Kautter.
        Mr. Kautter. Perfect. Thank you, Chairman Graves, Ranking
    Member Quigley, and members of the subcommittee. And thank you
    for the opportunity to discuss the IRS Budget and current
    operations.
        I want to begin by thanking Congress, and especially this
    subcommittee, for providing the IRS with an increase in funding
    for fiscal year 2018 in the Omnibus Budget Bill enacted last
    month. This funding will allow the IRS to continue delivering
    on critical priorities including improving taxpayer service,
    updating our information technology infrastructure, increasing
    cybersecurity, and safeguarding taxpayer data. I also want to
    express my appreciation for the additional $320 million in
    funding to implement the Tax Cuts and Jobs Act and especially
    for the flexibility we were given to shift resources between
    accounts.
        Implementing the new tax law is a critical priority for the
    IRS this year and next. This is the first major tax reform
    legislation in more than 30 years and will require extensive
    work by the IRS. Our goal is to ensure taxpayers and tax
    professionals can understand and navigate the changes made by
    the new law.
        Implementing tax reform is a huge undertaking. We estimate
    the IRS will need to create or revise about 450 tax forms,
    publications, and instructions. We will need to publish
    extensive guidance, including regulations, notices, frequently
    asked questions, and we will need to reprogram about 140 inter-
    related, integrated tax return processing systems to be ready
    for the 2019 filing system.
        So I am extremely grateful that we are receiving this
    additional funding in the early stages of our work on the new
    tax law. It ensures we can start critical implementation
    activities on time, and knowing funding is available through
    next year allows us to let contracts appropriately and have the
    resources needed to test our processing systems in the first
    quarter of Fiscal 2019, shortly before the beginning of the
    next tax filing season. The broad scope of our efforts required
    us to begin our implementation work almost immediately, as soon
    as the law was enacted.
        Our initial steps to implement the new tax law included
    revising the withholding system to take into account the
    various changes by the statute. We have also begun issuing
    guidance including several notices to help corporations begin
    complying with the new transition tax under code section 965.
    Our work to implement the new tax law as continued while we
    have been administering the 2018 filing season. Even with this
    challenge, I am pleased to report that the filing season has
    gone well.
        As of last Friday, April 6, the IRS has received more than
    103 million individual tax returns which is about two-thirds of
    the returns we expect to receive. We have issued more than 79
    million refunds for more than $226 billion. About 80 percent of
    the returns filed so far claimed a refund with the average
    refund totaling about $2,900. These numbers are consistent with
    those for 2017 with the number of returns received up from last
    year by about 150,000, which is about one-tenth of 1 percent.
    The number of returns filed electronically up by about 440,000
    or one-half of 1 percent, and the average size of the refund up
    $13.
        The other major challenge during the filing season was the
    need to implement tax-related provisions in the bipartisan
    budget agreement, enacted in February. This required us to
    reprogram our processing systems to handle the retroactive
    extension through December 31 of this year of more than 30
    individual and business tax benefits that expired at the end of
    2016. It was the first time the IRS had ever been required to
    implement retroactive tax extensions in the middle of a filing
    season.
        Looking ahead, the President's Fiscal 2019 Budget requests
    an appropriation of $11.497 billion for the IRS which is
    $11.135 billion in base resources plus $362 million provided
    through a Program Integrity Cap adjustment. The President's
    budget submission seeks less costly ways of delivering taxpayer
    service and maintaining enforcement using technology, training,
    and internal efficiency. The budget balances competing
    priorities and increases funding to operations support by 6.2
    percent.
        Dedicated funding is needed now to modernize IRS hardware
    and software so that we have the technology needed to run day-
    to-day operations, transform the taxpayer experience, improve
    cybersecurity, and ensure we can continue to safeguard taxpayer
    data. The IRS is subject to 2.5 million attacks on average each
    day, 1 million of which are sophisticated attacks. Some of the
    attacks are efforts to acquire taxpayer data and some are
    efforts to disrupt the functioning of the United States
    government.
        Against this backdrop, it is important to realize that 59
    percent of the IRS hardware and 32 percent of its software is
    obsolete. In regards to taxpayer service, we understand
    Congress' concerns. We are taking steps to improve service on
    our various channels and we look forward to working with
    Congress in this area. I would note that the investments needed
    to improve IRS information technology that I mentioned a moment
    ago are critical to our efforts to improve taxpayer service. It
    is clear that one of the most important things we can do for
    taxpayers is upgrade our IT infrastructure.
        In addition to ensuring adequate funding for the agency,
    Congress can also help the IRS by enacting three pieces of
    legislation that will improve tax administration: renewing
    stream-lined critical pay authority, allowing correction
    procedures for specific errors, and giving IRS authority to
    require minimum qualifications for tax return preparers. These
    provisions, along with the other items highlighted in the
    budget, will help the IRS continue building on its work to
    serve the Nation's taxpayers.
        Chairman Graves, Ranking Member Quigley, and members of the
    subcommittee, that concludes my statement and I would be happy
    to answer any questions.
        [The information follows:]
        Mr. Graves. Thank you, Mr. Kautter. And this morning, we
    have a lot of subcommittees meeting today, so I think over 50
    percent of the appropriations subcommittees are meeting, so we
    will have members come in and out. And I know even some of our
    members here even have other committees they need to join this
    morning.
        So, I am going to defer my questions to a little bit later
    this morning and I think Mr. Quigley has agreed to do the same.
    And with that, we will start with Mr. Moolenaar and then Mr.
    Cartwright will be next with any questions they may have for
    the Acting Commissioner. Mr. Moolenaar, you are recognized.
        Mr. Moolenaar. Thank you, Mr. Chairman. And thank you, Mr.
    Kautter. I appreciate you being here today with us. I wanted to
    follow up with you on some of the issues you have raised on IT
    modernization. You mentioned that more than 59 percent of the
    IRS's hardware is past its useful life and 32 percent of the
    software was behind.
        And so, I just wondered if you could comment in more in-
    depth on what your plan is to ensure that the hardware and
    software are updated. And can you explain why this has
    happened. Because that seems to be a pretty serious problem,
    especially in this era of cybersecurity.
        Mr. Kautter. Sure. Thank you. I think it is important to
    recognize that although 59 percent of the hardware and 32
    percent of software is out of date, the IRS has done a pretty
    good job, in my opinion, over the last several years of
    prioritizing where it spends its money. The core processing
    system for filing and processing tax returns has been
    modernized and updated.
        And that is where a substantial amount of the funding that
    this committee has appropriated to the IRS has gone. The cyber
    defenses around that system have operated fairly well, but
    cyber criminals are constantly evolving and changing their
    approaches and so the IRS spends a substantial amount of money
    trying to ward off those cyber attacks.
        Where a lot of the inefficiency, where a lot of the
    obsolete equipment and software rests, is in the day-to-day
    equipment used by IRS employees. So the laptops, the printers,
    fax machines, and so forth. Last week, we conducted a series of
    four calls with IRS managers.
        And so, as somebody new to the agency--I have been with the
    IRS about 5 months--it was interesting to participate in those
    calls. What I took away from the call, frankly--those four
    calls, we had about 3,000 employees--was a desire on the part
    of people at the IRS to do a good job, to perform at a high
    level, and to carry out their responsibilities for taxpayer
    service.
        The sense of frustration with laptops that might take 2 or
    3 weeks to be repaired, with software, with help support
    questions that took a day or two to be answered, with software
    updates that were not quite working the way they were supposed
    to and interfacing, was one of the most clear messages anybody
    could have received. So, you know, I think when we talk about
    how much is obsolete, it is easy to get concerned that the core
    system is in bad shape. That is not the case. That is in pretty
    good solid shape in my opinion. But a lot of surrounding
    operations is where the challenges are.
        Mr. Moolenaar. So, if I were to summarize, you do not feel
    like taxpayer personal data is at risk because of these
    outdated systems or machines, but maybe in terms of the work
    environment and the frustrations of sort of day-to-day
    operations that that is where the problem lies?
        Mr. Kautter. I think that that is a fair way to state it. I
    do worry about cybersecurity every minute of every day, to tell
    you the truth. And I do worry about hardware that is out of
    date and software. When we say obsolete, what we mean is that
    the software is at least two updates behind.
        Mr. Moolenaar. OK.
        Mr. Kautter. And that worries me. But the core system, we
    are really focused intently on that and I think doing a pretty
    good job.
        Mr. Moolenaar. OK. And then, I wanted to just change
    directions a little bit and talk with you a little bit about
    some of the cryptocurrency or virtual currency that has become
    popular. And my understanding is that in 2017, one Bitcoin
    equaled over $19,000, U.S. dollars. And the most recent IRS
    guidance on existing tax principles applied to transaction
    using virtual currency goes back to 2014. And I am just
    wondering what your plans are, either to update that guidance?
    I understand it is considered property, and do you believe that
    should be updated?
        Mr. Kautter. That is a topic that we are very intently
    focused on. You are exactly right. The latest guidance is 2014.
    We treat cryptocurrency as property, as basically capital asset
    and not as a currency. There are many unanswered questions that
    we are dealing with, with respect to cryptocurrency. There are
    so-called ``forks'' with cryptocurrency where the currency sort
    of divides, and we have a taskforce, we have a group within the
    IRS, focused on those questions.
        The biggest concern we have got, frankly, with
    cryptocurrency, is not just the tax treatment. It is the fact
    that cryptocurrency seems to be a way to evade Federal Income
    Tax. And so, the Criminal Investigation Division is very much
    focused on this. They have got some investigations underway.
    So, it is both issues, both the technical side and then what is
    happening on the tax evasion and avoidance side.
        Mr. Moolenaar. Thank you very much.
        Mr. Kautter. Yes, sir.
        Mr. Moolenaar. Thank you, Mr. Chairman.
        Mr. Graves. Mr. Cartwright and then Mr. Yoder.
        Mr. Cartwright. Thank you, Mr. Chairman. And thanks for
    being here, Mr. Kautter. I appreciate you taking the time and I
    want to talk about a couple of things. The effect of the cuts
    to your administration asked for in The White House Budget. I
    understand the President's proposed funding cuts will have a
    particularly harsh effect as you all implement the new tax
    plan.
        Last year, roughly 25 percent of Americans who attempted to
    contact the IRS could not get through. National taxpayer
    advocate, Nina Olsen, reported to Congress that up to 60
    percent of Americans will not be able to get through during the
    2018 filing season. My question first is: is additional funding
    the only barrier keeping the IRS from better serving the
    American people?
        Mr. Kautter. I would say funding is a key factor. Yes, sir.
        Mr. Cartwright. OK. And other than requesting additional
    funding, what specific steps have you taken to develop or
    implement a plan to deal with that particular issue?
        Mr. Kautter. With the taxpayer service issue?
        Mr. Cartwright. That is right.
        Mr. Kautter.Well, what is actually interesting, I think, is
    that of the calls the IRS receives, only about 5 percent relate
    to the tax law itself. Ninety-five percent relate to account
    questions, refund questions, things like that. We have tried to
    move as much of that online as we can and do it in a user-
    friendly fashion.
        For the taxpayer assistance centers, for example, there are
    363 of those. They will help about 5 million taxpayers this
    year. About half the people that call for an appointment at a
    taxpayer assistance center get their question answered on the
    phone. And so, a lot of the technical assistance for taxpayers,
    we are trying to put out as much as we can in terms of guidance
    on www.IRS.gov. And we are trying to connect forms around the
    country and help tax return preparers get up to speed as well
    as our own people.
        I know, as a 40-year tax practitioner and being on the
    other side of the table from the IRS, taxpayer service from the
    IRS is critically important. I know how important it is and I
    have lived it day in and day out. The choices in the budget
    that have been submitted, it is basically a recognition. Not
    that taxpayer assistance is not important; it is important. It
    is recognition that at 2.5 million cyber attacks a day, we have
    got to make sure that we have got our equipment and our
    software up-to-date and we fend off those attacks.
        Mr. Cartwright. OK. And not to put too fine a point on it,
    the President's budget for fiscal year 2019 asks for 24.5
    million in cuts. You do not want that, am I correct in that?
        Mr. Kautter. I would say the IRS could put to good use any
    money that this subcommittee decides to appropriate.
        Mr. Cartwright. OK.
        Mr. Kautter. We have plenty of use.
        Mr. Cartwright. Another place that money is well-spent is
    on audit staff, right?
        Mr. Kautter. Yes, sir.
        Mr. Cartwright. It is the backbone of our ability to catch
    tax cheats in America, right?
        Mr. Kautter. Yes, sir.
        Mr. Cartwright. Now, there has been a steady decline in
    annual audits and what we have is a new tax plan that really is
    rife with opportunities for tax avoidance that can set the
    stage for significant increases in tax evasion in this country.
    So, my question is first, the IRS has stated in the past that
    increased cuts lead to lower rates of enforcement which results
    in about $5 billion in tax revenue going uncollected each year.
    We continuously make these cuts to taxpayer services, weaken
    tax enforcement, and create more opportunities for evasion
    under these circumstances. Do you believe that we can afford to
    sustain this system of voluntary compliance and keep reducing
    audit staff?
        Mr. Kautter. There is a point, Congressman, at which the
    cuts in enforcement and the reduction in enforcement will have
    a dramatic effect on revenue. I do not know, nor can anybody
    tell us, exactly where that point is. But the audit rate
    overall is down 37 percent over the last 10 years. It is down
    in every single area that we audit but one, which is estate and
    gift tax, which is sort of hard to explain. But in some areas
    the audit rates are down 40, 50 percent and we have been able,
    I think, to manage fairly effectively. I think the agency has
    done a fairly good job but it is at a point where I think we
    need to start focusing on additional resources.
        Mr. Cartwright. All right. And finally, your testimony
    speaks for itself, of course. But instead of the $24.5 million
    in cuts as came out of The White House Budget, what is the
    increase you are looking for?
        Mr. Kautter. Well, we are looking for the additional
    funding for tax reform implementation. And I think we have not,
    at least to my knowledge, Congressman, decided on a specific
    number that we would recommend. So at this point, I am
    supporting the $11.1 billion. I think the Program Integrity Cap
    of $362 million would help a lot. So I think that added to the
    $11.1 base budget would help us quite a bit.
        Mr. Cartwright. Thank you. Mr. Chairman, I yield back.
        Mr. Graves. Thank you, Mr. Cartwright. Mr. Yoder.
        Mr. Yoder. Thank you, Mr. Chairman. Mr. Commissioner,
    thanks for being with the committee today. I appreciate your
    testimony. I want to start by asking you about the minimum
    standards ideas for qualified prepares who provide tax
    services.
        And I know in your testimony, you echoed the President's
    budget request proposal to require that all tax preparers meet
    minimum standards to prove they are qualified preparer
    services, and I think you state that there are around 400,000
    uncredentialed tax preparers in the country. And I guess I
    would like to know what is the impact of that? How does that
    impact our tax collection? How does it affect fraud? How could
    creating a set of minimum standards improve the efficient
    collection of taxes or reduction in fraudulent payments?
        Mr. Kautter. Sure. Thank you, Congressman Yoder, for that
    question. About 56 percent of all returns prepared are prepared
    by paid tax return preparers. There are about 650,000 tax
    return preparers in the country, 400,000 of which, as you point
    out, are uncredentialed, which means they are not attorneys,
    they are not CPAs, and they are not enrolled agents. Our
    experience has been that individuals who are not credentialed
    do not tend to file returns at the same level of accuracy that
    credentialed preparers file.
        We are also concerned that some of those uncredentialed
    preparers engage in fraud and impose burdens on unsuspecting
    taxpayers. It is also expensive from an administrative point of
    view, right? The time that we have to spend chasing people who
    have improper returns where the returns filed that do not match
    the data that we have on hand. And so our experience has been
    that credentialed preparers' returns tend to be of a higher
    caliber and require less effort on the part of the IRS to
    enforce the law.
        Mr. Yoder. And so, one of the solutions that the IRS has
    proposed over the years is to go to this tax preparer
    qualification program.
        Mr. Kautter. Yes, sir.
        Mr. Yoder. Does the IRS currently have statutory authority
    to pursue such a program? And if yes, are you working on
    developing such as system? Do you need changes in law? And can
    you describe for the committee what that tax preparer
    qualification program would look like? How would the preparers'
    qualifications be assessed?
        Mr. Kautter. Sure. In 2011, we attempted to impose or issue
    a tax return preparer program, and it would require certain
    levels of education and competency. That was struck down in
    2014 by the courts. In 2014, we embarked on a volunteer
    education program for tax return preparers which has been very
    modest in its success, so we believe we would need statutory
    authority to issue or provide such a program for tax return
    preparers. So, legislative authority, we believe, is necessary.
        Mr. Yoder. OK. I want to turn our attention to our error
    and fraud rates in general and what we are doing to combat
    that. This is my 8th year on the committee, and with your
    predecessors, I think almost every year we have talked about,
    in particular, the Earned Income Tax error and fraud rate.
        Your agency has stated publicly that between 21 and 26
    percent of all Earned Income Tax credits or claims are paid out
    in error, which is a staggering number for government programs,
    which we know have lots of bureaucracy and waste in everything,
    really, that we try to do at a governmental level. But 21 to 26
    percent fraud or error is really its own league in how
    problematic that is. And that accounts for tens of millions of
    taxpayer dollars that were improperly paid out.
        According to the Treasury Inspector General, as of March 1
    this year, the IRS has already processed 9.4 million returns,
    with $46.9 billion in EITC refunds. In the PATH Act passed by
    Congress in 2015, the IRS is required to hold back EITC refunds
    for returns that trigger additional review. Can you tell the
    committee what percentage of total returns claiming the EITC
    have been flagged for review, what indicators are most common
    for triggering review, and have we made any progress in
    reducing the fraud and error rate in this program?
        Mr. Kautter. Congressman, I do not have the statistics for
    this year yet. We have implemented a series of additional
    filters and screens to try to identify in the EITC program. We
    are focused on it. I think the PATH Act provisions requiring us
    to hold those returns until February 15th has been very
    helpful. I think we will find that that has substantially
    reduced the amount of improper payments. We are in the midst of
    filing season. We have got 6 days to go, and so I can get those
    numbers for you as we have them.
        Mr. Yoder. Well, I know you are quite busy right now, but I
    would love to see those numbers.
        Mr. Kautter. Yes, sir.
        Mr. Yoder. Because we want to see if we are making
    progress. So, if you would follow up with the committee and my
    office, I would really appreciate it.
        Mr. Kautter. It is a serious problem. Yes, sir.
        Mr. Yoder. Thank you, Mr. Commissioner.
        Mr. Kautter. Thank you.
        Mr. Graves. Thank you, Mr. Yoder.
        Mr. Quigley.
        Mr. Quigley. Thank you, Mr. Chairman. Thank you again, Mr.
    Kautter. The National Taxpayer Advocates' 2017 annual report to
    Congress highlighted the implementation of the IRS' private
    debt collection program as one of its most serious problems and
    concerns. The report found that not only is the program failing
    to generate revenue, but also the implementation is
    inconsistent with the law and disproportionately focuses on
    low-income and average working taxpayers.
        Can you give us your take on that report and specific
    actions the department will take in response to the report's
    findings and recommended actions to improve the IRS's private
    debt collections program's oversight and administration?
        Mr. Kautter. Yes, sir. A little bit of background, and we
    are in the process of responding to the Taxpayer Advocates'
    report. Last April, we entered into contracts with four private
    debt collection agencies. Since that time, we have turned over
    about 305,000 accounts for collection. That is about a little
    over $2 billion of outstanding debt that individuals owe. We
    have spent about $45 million so far on getting the program up
    and running, and we have collected about $35 million under the
    program.
        Now, the $45 million represents the total cost of getting
    the program up and running. Part of that cost was we wanted to
    be meticulous in making sure that taxpayer data was
    appropriately secure and that the systems that the various debt
    collections were using were secure. We have also conducted
    onsite visits with each of those debt collection agencies and
    have found that, for the most part, they are acting in
    accordance with IRS regulations and standards. We will go back
    again shortly and do another review of those debt collection
    agencies.
        I understand that this is a very sensitive issue. A large
    number of those accounts that are turned over are accounts that
    are below, say, 250 percent or 400 percent of the poverty
    level, so it is a lot of low-income accounts that are turned
    over. It turns out that when you look at the data for where the
    outstanding debt is, a substantial amount of the outstanding
    debt in that taxpayer group.
        Mr. Quigley. When you turn these accounts over, is there
    sort of a sensitivity or awareness of who you are targeting?
        Mr. Kautter. It is----
        Mr. Quigley. I mean, is there also a balance that you may
    be going after people who just do not have the money?
        Mr. Kautter. Every account that is turned over is an
    account where a taxpayer, we believe, owes the Federal
    Government money. If it turns out that the money cannot be
    collected, we engage in our normal processes, and if we cannot
    collect it, it cannot be collected. But we try to pursue what
    is available under the law and what is expected of us in terms
    of pursuing a balance that is owed the Federal Government.
        Mr. Quigley. How do you compare the effectiveness of what
    they are doing versus--if you can, apples to apples--with how
    you normally collect, go after it from a debt collection point
    of view?
        Mr. Kautter. It is a very similar process, congressman. The
    only accounts that are turned over are accounts that the IRS
    pursued to the full extent of its resources and has concluded
    we just do not have the capability, the resources to pursue the
    account any further. And so, those are the accounts that tend
    to be turned over to the private debt collection agencies.
        Mr. Quigley. Does that mean they are harder to collect?
        Mr. Kautter. They are harder to collect, yes, sir. We have
    tried everything we can before we turn over an account. It is
    not that we just select a group of accounts and turn those
    over. We go through our full array of processes in dealing with
    taxpayers before the account is turned over to a private debt
    collection agency.
        Mr. Quigley. If there is more time, I would go into more
    debt--more concerns on these things. But, you know, we used to
    have concerns about people posing as debt collectors. Has this
    not muddied those waters, where we used to tell them that there
    are not private people doing this, and now there are? So, it is
    harder to advise people who are particularly vulnerable, like
    senior citizens, of how to distinguish this.
        Mr. Kautter. It is. We have tried to put in place processes
    so that it is clear who is acting on behalf of the IRS and who
    is not. Having said that, we have problems across the board
    with individuals trying to impersonate the IRS and basically
    defraud people out of their own money. And those techniques
    continue to evolve.
        This year, there is a technique where somebody will call
    you be on the phone, usually the elderly, claim they are from
    the IRS, claim that an excess refund went into their account,
    and they owe the IRS money. And if they do not pay the IRS the
    money almost immediately, that they will levy on the account.
    And it is not an IRS person; we do not do business that way.
    So, it is a constantly evolving challenge to keep track of the
    ways individuals will try to defraud people out of money and
    using the IRS as its imprimatur.
        Mr. Graves. Thank you, Mr. Quigley. Mr. Young, from Iowa,
    you are recognized.
        Mr. Young. Thank you, Mr. Chairman. And I want to pick up
    on the conversation you were just having with my colleague, Mr.
    Quigley, regarding those scams that are out there. It is April;
    people are doing their taxes. And many times, in their
    interactions with the IRS they realize something is not quite
    right, and maybe their identity has been stolen, or there has
    been some real issue.
        Aside from what you just highlighted with Mr. Quigley, what
    are some of the other kind of IRS-type scams that are out there
    that the American people need to know about? One. And, two, how
    are you informing the American people about these, and how to
    be watchful for them?
        Mr. Kautter. Well, Congressman, whenever we become aware of
    a scam, we immediately issue press releases; we try to get on
    radio; we try to communicate with taxpayers in whatever way
    that is available to us. Sometimes the fraudsters are so
    convincing and so compelling that, no matter what we say,
    people are intimidated into believing the IRS is after them,
    and they are defrauded from their money. So, the scams are
    important for us to focus on.
        And as I said, it would be nice to be more proactive, but
    we end up being reactive, because we do not know where the
    crooks are going until they actually engage in that sort of
    behavior and we hear about it. I think the one area where we
    have made a lot of progress is with respect to taxpayer
    identity theft. And we have worked closely with the tax return
    preparer industry and with state revenue departments. And with
    respect to tax-related identity theft, the reported cases have
    gone down from about 697,000 two years ago to 242,000 at the
    moment.
        We have set up a separate unit within the Wage and
    Investment Division of the IRS to help people who are the
    victims of identity theft. We resolve those cases now; 75
    percent of those cases get resolved with 3 months, maybe 3 to 4
    months, which is about half of the time it used to take. So,
    when we become aware of something that is systemic, we put in
    places processes and procedures to deal with it. And I think we
    have had pretty good success, but it is the continuously
    evolving nature of these scams that is the biggest challenge.
        Mr. Young. There are a lot of them out there, a lot of bad
    people who want to bilk people of their money. I would advocate
    that you highlight somewhere--maybe it is just on your website,
    or have a social media account, Twitter account--you talk about
    issuing a press release about the scams out there. I know you
    probably go beyond that.
        Mr. Kautter. Yes, sir.
        Mr. Young. But highlight those right away on social media,
    what to look out for, those kinds of things. And you say that
    75 percent of those cases of ID theft get resolved. When you
    find the perpetrator, they get sent over to the Department of
    Justice for prosecution. Tell me about that.
        Mr. Kautter. So, there are two aspects, the victim and the
    perpetrator. And the victim is where we set up that separate
    unit, and we get those cases resolved, as I said, 3 to 4
    months--robably closer to 4, as I think about it. We also get
    the Criminal Investigation division of the IRS involved in
    these particular situations. They work very closely with the
    Department of Justice on referrals with respect to prosecution.
        We try to highlight those prosecutions as a deterrent for
    others who would think that they may engage in this sort of
    behavior. And my personal experience is the Criminal
    Investigation division at the IRS is a very effective division.
    They do a very good job. They are very thorough, they are very
    quick, and I have had great confidence in the job they do.
        Mr. Young. So what are the penalties? The people who are
    taking others' identities; are they just getting a fine? I want
    to see them in jail.
        Mr. Kautter. It is. I mean, it depends on the nature of
    what they do, but it could be tax fraud, which could be
    criminal, could be a felony. And we try to prosecute to the
    full extent available under the law.
        Mr. Young. Do you find that the DOJ is cooperating with you
    all in making sure that this is a priority?
        Mr. Kautter. They are. We have a very strong working
    relationship with the Department of Justice, and they are very
    responsive to our needs.
        Mr. Young. Thank you for your testimony and for being here
    today.
        Mr. Kautter. Thank you.
        Mr. Graves. Thank you Mr. Young. I have a couple of
    questions, and then if members have some additional questions
    afterwards, we will continue.
        I wanted to ask you a little bit about the Income
    Verification Express Service. It was something that in a recent
    funding bill, we had some report language directing the IRS to
    write a report on potential automation of the IVES program,
    which is known as data-sharing API. Today, I understand the
    process still involves some paper and fax machines to do some
    of this work. And this is really some important information
    that lenders need to provide more capital to the small
    businesses and such. So, can you give us a little update on how
    a change like this can occur, and hopefully will occur, and
    what the process is for that?
        Mr. Kautter. Sure. Thank you, Mr. Chairman, for that
    question. We have been working with the mortgage industry to
    make sure that the IVES system works in a way that facilitates
    their needs. We have gotten third-factor identification; so,
    username, password, and then a text.
        When we first implemented that, that created some problems
    for the mortgage industry. We worked through that; we have set
    up a working group that is meeting periodically and with the
    managed services industry to make sure that they can get access
    to the information they need, while balancing the risks to
    taxpayer privacy as part of that system.
        There is no right answer to this system. Different people
    would do it different ways. The inspector general would do it
    differently than the way we are currently conducting it. I will
    tell you, I have had some discussions with representatives of
    the mortgage industry, and they are, in fact, looking at
    another alternative to accessing the IRS databases, and we are
    fully supportive of helping them facilitate whatever needs to
    be done to make sure that system works effectively. I think it
    has been working pretty good. We have gotten favorable comments
    back recently.
        Mr. Graves. That is good. Well, is this a process that will
    take some time still? It sounds as if you have begun the
    process and are still working with the industry, but you are
    open to modifications as time goes on.
        Mr. Kautter. That is exactly right. As I said, the industry
    has been looking into another database at another agency which
    they think may serve their purposes, and if that works better
    for them, we will do everything we can to facilitate that. We
    want the system to work. It is that balance between giving
    third parties access to taxpayer information and making sure
    that we do not improperly disclose taxpayer information.
        Mr. Graves. Right. Thank you. We spoke a little bit earlier
    about the new tax reform law that has been implemented, and
    this is going to be a huge challenge, I know, for the IRS in
    its implementation. We have some additional resources to work
    with, and the President signed an additional $320 million for
    that implementation. Can you describe the progress that is
    being made to update--and I know a lot of this is going to be
    IT-related--a lot of your systems to accommodate this new law?
    Because it is going to be tremendous.
        And then, as we move forward, I know that as taxpayers--
    looking to the next 6 days as the filing season comes to a
    close--it will be the last time that the old tax law is being
    used to comply with and going into the new one. And so, I know
    you are taking a lot of steps. You have additional resources.
    But my hope, and maybe you can reassure this for me, that next
    year will be easier from a filing perspective, but also an
    imitation from the IRS's interface with the customer.
        Mr. Kautter. Sure. So, first of all, for the third time,
    thank you again for the $320 million. It is a great benefit,
    and especially the flexibility. The way we plan to spend that
    money: 73 percent of the funds are earmarked; we believe will
    be used for technology. So, updating those 140 integrated tech
    systems that operate the taxpayer filing programs.
        About 19 percent of the funds will go for taxpayer
    education and outreach. We expect probably an additional 4
    million calls as a result of the tax bill, so a significant
    part of the funding will go for outreach, education, and
    seminars for tax return preparers.
        Four percent of the funds will go for forms, instructions,
    and publications, and another 4 percent of the funds will go
    for guidance, regulations, frequently asked questions, and
    other press releases and other guidance. We expect we are going
    to have to update about 450 forms--it could be less than that--
    put forms, publications, and instructions.
        Where things stand; we expect by the end of this month to
    have most, if not all, of the forms for next year drafted. We
    expect to have the instructions for those forms pretty much
    done by the end of May. The plan is to release over the summer
    those forms and instructions for public comment and review. We
    will be working on the publications over the summer as well and
    may release some of those, but we do not often release those
    for comment.
        Starting at the end of April, once we have the forms
    designed, the core forms, the technology piece will start. So,
    we will start in May to revise our programs to incorporate the
    revised forms and instructions. Guidance we are working on
    continuously. There are 79 grants at regulatory authority in
    the bill, not to mention other broader grants that we have.
        We have issued a number of notices. We are working on
    regulations constantly. We hope to have a steady stream of
    guidance in the form of frequently asked questions, notices,
    proposed regulations, and final regulations coming out this
    spring--we have already issued some--but the spring, summer,
    and fall. It will take us a couple of years at least to get
    guidance out on the entire bill.
        I think the two most challenging parts of the bill, from an
    administrative point of view, to implement will be the new
    international provisions and the 20 percent deduction for pass-
    through entities. In both those situations, we are basically
    building new tax regimes that did not exist before, so we have
    gone from a worldwide system of taxing our multinationals to a
    pretty much territorial system. And that is a completely new
    system for the United States.
        It comes with base erosion provisions, which are
    controversial. Some of our international trading partners have
    some concerns with some of those provisions. So, that is an
    enormous part of the challenge. The pass-through provision I
    think is going to be challenging to draft. I think we can do
    it, but I think we will spend inordinate amounts of time on
    those two parts of the law, implementing that.
        Mr. Graves. We have great confidence in you. That is an
    ambitious schedule, and thanks for laying that out. That helps
    us. And I know 6 months ago or so, when you stepped into your
    role here, you probably did not anticipate the challenges that
    lie ahead. Thank you for the progress and laying out the plan
    there. Mr. Quigley?
        Mr. Quigley. Thanks, Mr. Chairman. I just want to follow up
    on that. The original estimate from the IRS was about $495
    million for the cost of implementation. Was that over a period
    of years, or you just settled for $320 million because that is
    what you could get?
        Mr. Kautter. That is a great question. Thank you. So, the
    $495 million was an estimate that was sort of a back-of-the-
    envelope estimate that we came up with, looking at
    implementation of the Tax Reform Act in 1986.
        Now, in 1986 there was no internet; there were no PCs; and
    a large part of the cost of implementing the 1986 Act was
    printing forms. Well, that is a much smaller cost today. So,
    what we did was, after doing that back-of-the-envelope
    calculation, we went back and did a grassroots bill of all the
    forms we thought we had to change, all the instructions, all
    the publications, and try to refine the numbers best we could.
    And what we found was the cost of printing and distributing
    forms had gone down substantially; the internet and the ability
    to communicate technologically dramatically helped our ability
    to reduce the cost in implementing this bill.
        And so, $397 million is a number that has been developed
    from the operating divisions up, and it is fairly detailed. Is
    it perfect? I doubt it. But we did the best we could, and I
    think we will be in pretty good shape with that amount of
    money.
        Mr. Quigley. But it runs into next year's request----
        Mr. Kautter. Oh, yes, yes.
        Mr. Quigley. Which is a downward departure. I am just
    curious: how do those two flush together to allow you to move
    forward?
        Let's say this is enough, and you are absolutely right, to
    do what you need to do and probably can do in 2018. But 5
    percent of the calls that you say that come about the tax law
    now; the decimal point may even move over next year. So, how
    does the fact that you may have enough this year run into next
    year's request?
        Mr. Kautter. Sure. So, we put the budget together before we
    knew what the number was going to be for tax reform
    implementation. And so, that is why, for this year and next
    year, we requested a separate amount of $397 million for tax
    reform implementation, in addition to the $11.1 billion base
    request. So, we have got $320 million that we can use this year
    and next year; our original request was for the $397 million;
    our belief is we still need that additional $77 million. The
    flexibility to use that money over 2 years is really very
    helpful.
        Mr. Quigley. And have you talked to the administration
    about what you just said in terms of what your needs are going
    to be?
        Mr. Kautter. Yes, sir.
        Mr. Quigley. And their reaction?
        Mr. Kautter. Well, the $397 million number that we have
    proposed was developed with full discussion with the Secretary
    of the Treasury. In fact, I meet with the Secretary every day
    on tax reform implementation. And so, he is fully supportive of
    the $397 million number.
        Mr. Quigley. So, this next time year, it is going to be a
    happy-happy, joy-joy discussion, things will have folded under?
    You are going to have enough money, right?
        Mr. Kautter. If we get 397, I think we can do the job. I
    think we can do it.
        Mr. Quigley. Thanks.
        Mr. Kautter. Yes, sir.
        Mr. Graves. And I can say that I have had multiple
    conversations with the Secretary of the Treasury about that
    very same number, and he has full confidence as well. And you
    have an additional role; I know that you work very closely as
    Assistant Secretary to the Treasury of Tax Policy.
        Mr. Kautter. Yes, sir.
        Mr. Graves. Correct? Mr. Amodei has joined us and has a
    question for you.
        Mr. Amodei. Thank you, Mr. Chairman. Mr. Commissioner,
    welcome. And you may not know this, but if you do not, that is
    fine. I can take the answer offline. You know, we hear a lot of
    talk these days about agencies responding to, or not responding
    to, requests for various committees, at least in the House,
    regarding data information for stuff they are looking at.
        As we sit here, are you aware of any outstanding data
    requests from any committees in the House that have not been
    fulfilled? And if you are not, that is fine. But I would just
    like to ask you on the record to kind of check on that and give
    us an answer to say, ``Hey, as far as''--I know some of that
    stuff started quite a while ago in the previous administration,
    but as we are finding out, there is a lot of stuff from the
    previous administration that is still hanging fire. So, I am
    just curious as to, is there anything outstanding where
    information is forthcoming?
        Mr. Kautter. I will follow up on that.
        Mr. Amodei. I appreciate that. I yield back, Mr. Chairman.
        Mr. Kautter. Thanks. Mr. Amodei, I will say, at one point
    in my career, I was a Senate staff person for a member of the
    Senate Finance Committee, and sensitivity to responding to
    Members of Congress and their requests is paramount, in my
    mind.
        Mr. Amodei. And I appreciate that. And it is not the reason
    I get up in the morning, but when you hear that it is an
    extended amount of time, whatever you like, in your business,
    and mine, you do not always like the news, but you think you
    have got a right to know what the information is. So, I
    appreciate it.
        Mr. Kautter. It is a fair point.
        Mr. Amodei. Thank you.
        Mr. Kautter. Thank you.
        Mr. Graves. Easiest question of the day right there. I have
    an additional quick question, and then, Mr. Young, if you have
    a question after that, you are recognized. I guess it was
    earlier this year, and just last month, the Ways and Means
    Committee, one of our subcommittees, released a draft proposal
    called the Taxpayer First Act, and I just want to get your
    thoughts on that.
        Mr. Kautter. Sure.
        Mr. Graves. And if you can share, how does that fit into
    your plan and the IRS's plan moving forward? And any feedback
    as they work through that.
        Mr. Kautter. Sure. We have had discussions with the Ways
    and Means Committee staff as they put that bill together, and
    for the most part, we are supportive of the provisions in that
    bill. I mean, we would have to go through them one by one, but
    for the most part, we think it is pretty constructive.
        I do think there is one provision that seems small but is
    very important to me as someone who has come into the
    government from private practice, and it is the ability to
    allow the IRS to change its structure after consulting with
    Congress. The current structure of the Internal Revenue Service
    was put in place in 1998, so it is 20 years.
        There are not many organizations in the country who have
    had the same operating structure for the last 20 years, and I
    think there are things that can be done to facilitate taxpayer
    service. So, organizational management, the basic thing is that
    structure follows strategy.
        If the strategy is taxpayer assistance, and we are not
    happy with the level of taxpayer assistance at the moment, then
    I think we have to figure out what needs to be done to improve
    that and implement a structure that supports that strategy. And
    other than that, the provisions are fairly straightforward,
    very functional, and I think for the most part pretty sound.
        Mr. Graves. Great, thank you. And I encourage you and your
    staff, the team you are working with--that is encouraging to
    know you have that relationship to give them your thoughts
    there as well. Mr. Young, questions?
        Mr. Young. Thank you. Just one question. My understanding
    is when there is a dispute between the IRS and the taxpayer,
    the IRS will reach out the taxpayer and say, ``There is an
    issue here,'' or sometimes the taxpayer will reach out to the
    IRS and think there may be an issue there with their return or
    something to do with the IRS. And there is an appeals process,
    and they go through that.
        For the taxpayer to get the information they need to have
    everything necessary for the appeal to present their case, they
    have got to go through a FOIA request to the IRS to get the
    information the IRS has that they may be using as an
    information or a tool against them. Do you think that is
    ridiculous? Because I do, and a lot of people do.
        Mr. Kautter. One of the areas that the Ways and Means
    Committee is working on as part of this restructuring bill is
    exactly that.
        Mr. Young. That is the FAST Act?
        Mr. Kautter. Yes, how the appeals process works. And I do
    think there are changes that could be made there that would
    facilitate taxpayer knowledge and assistance and simplify the
    process, frankly, for both the IRS and the taxpayer.
        Mr. Young. So, we have your full endorsement of the
    legislation?
        Mr. Kautter. I did not know that I said that exactly.
        Mr. Young. You did not, but it is good to hear that, just
    internally, you recognize there are ways to improve this for
    the experience for the taxpayer; transparency, accountability,
    and cooperation. It is needed. Thank you for recognizing that.
        Mr. Kautter. I agree, and that is why I think the IRS
    restructuring act can be a catalyst for generating change with
    the agency. So, I think it is a good path to get at, frankly.
        Mr. Young. Thank you for recognizing that there are
    commonsense approaches that we can all agree on. Thank you.
        Mr. Graves. Mr. Kautter, thank you for your thoughtful
    responses to a very thoughtful committee. They have a lot of
    great questions and insights here and hope you see that we look
    forward to working with you. And we want to make sure that you
    are successful, and your agency is successful. Because that
    means our constituents' needs are being met, and that they are
    pleased with their interactions and interface with the IRS,
    which is not always the most pleasant interaction to ever have.
        So, thank you for your willingness to step in as an acting
    commissioner this time in your career. And I know you have
    other responsibilities. It is a busy time of year for you, as
    it is for us. Thanks for your time today in joining us.
        Mr. Kautter. Thank you, Mr. Chairman. Thank you, Mr.
    Quigley.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                               Tuesday, April 17, 2018.

                        GENERAL SERVICES ADMINISTRATION

                                    WITNESS

    EMILY W. MURPHY, ADMINISTRATOR
        Mr. Graves. Good morning, everyone. We will call this
    hearing to order. I would like to welcome the General Services
    Administrator, Emily Murphy, to the hearing today. Glad to have
    you. I know this is your first hearing before our subcommittee,
    but you have been a part of other hearings and you have a great
    distinguished history of being a part of this process. So you
    are no stranger, and we know that, and we look forward to
    spending some time with you this morning.
        Last year, we were on a very abbreviated timeline and we
    expect to do the same this year. We are going to accelerate the
    timeline, and hope to have things done this year in committee
    and the House by early summer.
        You are a part of that process here. I am going to take a
    few minutes to share with you some of my thoughts this morning.
    Mr. Quigley will do the same. We will have some questions for
    you but look forward to hearing your testimony in just a few
    minutes.
        As I reviewed your request, I was pleased to see that you
    included funds to help address the land ports of entry backlog
    that we have all experienced, which is a top priority for many
    of our members, including Martha McSally in Arizona. We heard
    from her several times last year.
        Additionally, this request builds off the IT investments
    that we all made as a subcommittee and full committee in last
    month's government funding bill through the Technology
    Modernization Fund. This is something we heard about from many
    members, including Will Hurd from Texas and the majority
    leader, and members on the other side of the aisle as well.
        Cybersecurity is one of my top priorities. I know it is one
    of Mr. Quigley's top priorities as well. I am interested to
    hear a little bit more from you on how GSA will use these funds
    to secure and improve the efficiency of the IT platforms across
    all the different agencies and different infrastructures we
    have.
        Finally, I want to highlight the committee's commitment to
    shrinking the Federal footprint, which you oversee, and
    divesting the government of unnecessary property that is no
    longer being used. Last month's government funding bill
    established the Public Buildings Reform Board which will help
    dispose of underutilized and unused Federal properties. And we
    would like to hear a little bit more about that today, the
    implementation of it and how those funds will be used.
        With that, I would like to turn it over to Mr. Quigley, the
    ranking member from Illinois, for any comments he may have this
    morning.
        Mr. Quigley. Thank you, Mr. Chairman. And thank you so much
    for being here. We appreciate your work and your service. This
    year, the GSA budget includes significant new spending for
    construction, and repairs, and alterations. I am pleased to see
    the proposal for much needed investment in maintenance and
    improvement projects in light of a massive 1.4 billion backlog
    of projects currently waiting for action.
        I agree with the chairman. I am also interested in learning
    more about the steps you are taking to reduce unused or
    unutilized real property, in particular, how the $31 million
    request to assist agencies with improving their real property
    inventory will be used to modernize the Federal real property
    profile, which has remained unreliable and unusable for far too
    long.
        At the same time--excuse me--I am extremely disappointed
    and confused as to why the GSA scrapped a decades long plan to
    build a new FBI headquarters in the DC metro area. After
    widespread interest by Members of Congress and tens of millions
    already spent to see this project through, GSA has decided to
    instead build a new headquarters on its current site. The
    economic and national security justifications provided by GSA
    remain insufficient, and I am encouraged that the GSA's
    inspector general is investigating this sudden reversal.
        But until the findings are made public, too many questions
    remain unanswered. I also remain troubled by the leasing
    arrangement between GSA and the Trump International Hotel
    located at the Old Post Office Pavilion. This time last year, I
    questioned the then acting administration on possible conflicts
    of interest.
        At that time, we were provided with little clarity into how
    the GSA could have determined that President Trump is not in
    violation of the Trump Hotel lease, despite the fact that the
    President will personally profit from the hotel. Because the
    President overseas both you and the GSA, he effectively became
    landlord and tenant when he was sworn in to office. This, of
    course, is prohibited, since the lease agreement clearly states
    that no elected official of the government of the United States
    shall be admitted to any share or part of this lease or to any
    benefit that may arise therefrom.
        I remain concerned with the lack of transparency in the
    GSA's review of the lease terms, as well as your ability to
    objectively enforce the lease. I look forward to further
    discussing this very important issue with you today. And thank
    you, again, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. Ms. Murphy, it is a
    delight to have you here this morning to be with this
    subcommittee. As you can see, there are a lot of subcommittees
    meeting this morning from our Appropriations Committee, as we
    are on this accelerated time schedule to get our work done. So,
    you may see members come and go throughout the morning.
        At this moment, if you are ready to give some opening
    remarks, know that your full statement is already submitted for
    the record. We look forward to hearing from you this morning
    and offering some questions a little bit later.
        Ms. Murphy. Good morning, Mr. Chairman, Ranking Member
    Quigley, and members of the committee. As the new Administrator
    of GSA, I am grateful for your invitation to testify on the
    President's fiscal year 2019 budget request for the agency.
    GSA's mission is to deliver value and savings in real estate,
    acquisition, technology, and other mission support services
    across government.
        First, I would like to thank the committee for the funding
    provided in fiscal year 2018. The monies appropriated by this
    committee will allow GSA to undertake important projects that
    will improve the security of our Nation's land ports,
    facilitate critical repairs to our public buildings, enable
    agencies to modernize their antiquated IT systems, and enhance
    the effectiveness and efficiency of government through the
    implementation of shared services and smarter acquisition
    strategies.
        For fiscal year 2019, I would like to first highlight our
    support for the Nation's Federal infrastructure. Our public
    buildings serve a critical role in helping agencies conduct
    their missions. They house over 100 agencies across 422
    bureaus, encompassing 371 million rentable square feet.
        GSA has a duty to maintain public buildings and ensure they
    meet modern standards. Unfortunately, our repair backlog is
    over $1.4 billion. With the support of this committee, we have
    an opportunity to change this. For fiscal year 2019, the
    President's budget request is $10.1 billion for the Federal
    Building Fund. Of that amount, GSA is requesting a total of
    $2.2 billion in construction acquisition and repairs and
    alterations to make much needed investments in GSA's owned
    inventory.
        Numerous studies show that housing Federal agencies in
    owned space is better for the American people. For example, the
    fiscal year 2019 request includes $768 million to purchase the
    lease facility that houses the Department of Transportation
    headquarters. This will meet the department's long-term housing
    needs and save lease costs of $49 million per year.
        GSA is also requesting $70 million for the consolidation
    program to better utilize Federal space. Since its inception,
    GSA has funded 78 consolidation projects which, when complete,
    will result in an annual lease cost avoidance of $132 million
    and a space reduction of almost 1.7 million square feet. The
    fiscal year 2019 request allows provides for initiatives to
    make the government's real estate footprint more efficient,
    including funding for implementation of the Federal Assets Sale
    and Transfer Act and GSA's Real Property Utilization and
    Disposal Program.
        In conjunction with the Modernizing Government Technology
    Act, GSA is requesting $210 million for the Technology
    Modernization Fund. The TMF is an important first step in
    changing the way the government manages its IT portfolio. It
    will enhance our ability to protect sensitive data, reduce
    costs, and deliver services to the public. In addition, GSA
    proposes a $6 million investment to support a digital identify
    management pilot. This will improve the security of citizens'
    digital interactions with government agencies.
        To promote an efficient and effective Federal Government,
    the fiscal year 2019 request proposes $50 million to improve
    the Federal Government's ability to recruit and retain top
    talent and reskill the workforce to meet 21st century needs by
    providing one-time funding for targeted workforce initiatives
    across the government. GSA will continue critical government-
    wide policy activities, including supporting coordinated
    regulatory review processes with the agencies in the public,
    managing the government-wide guidance, such as the FAR and the
    Federal Travel Regulations, and delivering important
    information to decisionmakers, including through the Federal
    Real Property Profile.
        The request also provides $2 million for the activities of
    the Office of Shared Solutions and Performance Improvement.
    This will support management in oversight of high-quality,
    high-valued shared services that improve performance and
    efficiency throughout government. As a lead for the Shared
    Services Initiative and the President's Management Agenda, I am
    also pushing all of GSA to identify ways we can better support
    shared services across government.
        The funding that this committee invests in GSA is
    essential. It supports the programs and activities that allow
    agencies to focus and deliver on their core missions. I look
    forward to working in partnership with this committee, thank
    you for the opportunity to appear before you today, and I am
    happy to answer any questions you may have.
        Mr. Graves. Thank you very much. This morning, I want to
    pass on any questions of my own in the beginning and go to Mr.
    Quigley, if he has any questions first. And if not, I would go
    to Mr. Bishop. Mr. Bishop, you are recognized, and then Mr.
    Moolenaar would be next, if he is ready for any questions.
        Mr. Bishop. Thank you very kindly, Mr. Chairman and Mr.
    Ranking Member. And welcome to you, Ms. Murphy. Let me get
    right to it. The Federal Assets Sale and Transfer Act of 2016
    requires GSA to establish a publicly accessible database with
    specific information about each property. And the GSA has
    published a data set with much of the required information.
    However, the data on utilization rates is incomplete, as no
    data is yet available on annual operating costs.
        I would like for you to tell me whether or not GSA has a
    timeline for when the data set will include all of the
    information that is required by the Federal Assets Sale and
    Transfer Act. And secondly, the real property management has
    been on the Government Accountability Office's high-risk list
    since 2003. The ongoing issues identified by GSA is the fact
    that GSA only lists warehouses as unused if they are in the
    process of being disposed.
        As a result, GSA listed as used some warehouses that have
    been vacant for many years. GSA indicated that it was
    developing a guide for strategic warehouse planning that might
    address this concern. Could you tell us whether GSA has
    completed this plan; if not, is there a timeline for the
    completion?
        And the third question is the omnibus for 2018 provided
    $100 million for the Technology Modernization Fund. This is
    less than the $228 million that the administration requested.
    So, I would like for you to address what your priorities will
    be to be funded with the 2018 appropriation.
        Ms. Murphy. Thank you, sir. I appreciate the questions. If
    I could start with your question on the Federal Real Property
    Profile? As required by law, GSA published the first version of
    the data for fiscal year 2016 in December of this year. We
    published the updated data in March of this year. So, we have
    the 2017 data as now available.
        We are working very hard with our agency partners to
    improve the quality of the data. There is a working group right
    now that is working to first improve the search capabilities
    and then we are also looking at providing geolocation data, as
    well as trying to improve the accessibility of the utilization
    rates and the utilization data, because we understand this is
    an important tool for policymakers such as yourself.
        Your second question, I believe, dealt with the issue of
    the high-risk list. And the high-risk list is one of my top
    priorities. I have been meeting with the comptroller general.
    He has been kind enough to agree to meet with me every other
    month, so we can really dig down into these areas. I also hired
    someone who came from an I.G.'s office who is coordinating
    GSA's response to both the management challenges and the high-
    risk list to make sure that we are not seeing those just as a
    paper exercise, but that we are looking at those as systemic
    issues and really looking at them as ways we can improve the
    direction of the agency and live up to our mission of
    delivering value.
        I have to confess that I am not aware of the warehouse
    issue. I would like to take the opportunity to go back to my
    staff and find out an answer for you so that I make sure that I
    give you the correct information. And your third question, I
    believe, dealt with the Technology Modernization Fund.
        And so, in terms of the Technology Modernization Fund,
    first GSA is very grateful for the $100 million that this
    committee arranged to have appropriated as part of the fiscal
    year 18 appropriations bill. And GSA serves as the custodian of
    those funds, and we are a member of the board that makes the
    decisions. The board is meeting once a week now and is
    reviewing all of the plans that agencies have submitted for
    ways that they can address technology modernization
    requirements.
        Specifically, they are looking at technology that can be
    leveraged across agencies, so it is not just a one-time fix. It
    is something that we get long-term return out of. That it is
    not a new issue. It has got to be an identifiable issue that we
    can really address. And we have been working very hard with
    them to establish that criteria.
        Just yesterday, I announced that we have appointed an
    executive director who is going to help coordinate the
    technical reviews of those proposals, as well as the fiscal and
    business reviews of the proposals, to make sure that the
    dollars spent come back with a return on investment, that they
    are able to repay the fund, and continue that cycle of
    reinvesting. That is part of the reason GSA is requesting
    another $220 million this year, as part of our fiscal year 2019
    request. This is the last year that we are authorized to
    request funds for the fund.
        But given that the Federal Government spends about 90
    billion a year on IT and IT services, and we have a
    demonstrated need to do a better job in managing and addressing
    those services, I will give you an example. In GSA, I have 173
    systems that support the Federal Acquisition Service. That is
    down from over 7,000 the last time I served at GSA.
        So, GSA has made an important commitment to reducing those
    systems. However, many of them still use COBOL as the
    underlying programming language. In doing so, that creates the
    number of systems drive processes that create barriers to entry
    for small businesses, which is something I take very seriously.
    But they also create barriers to access for customer agencies
    that want to access our contract vehicles. And more
    importantly, they also drive business processes that are
    outdated and do not best reflect our ability to deliver value
    to taxpayers. So, trying to make sure that we invest in those
    areas and really do a better job at understanding that our
    ultimate customer, the taxpayer, is served is one of my top
    priorities.
        Mr. Bishop. With the Technology Modernization Fund, are you
    prioritizing, also, security measures for your IT?
        Ms. Murphy. GSA is indeed prioritizing security measures.
    We spend about 7 percent of our IT funds on security right now,
    including support for the public key infrastructure across
    agencies. GSA is having action items under half of the
    recommendations to the President in the report on technology
    modernization. We are supporting DHS in its work on helping
    smaller agencies address their cybersecurity initiatives. And
    we are also, through our data center consolidation initiatives,
    not only saving taxpayer dollars but helping agencies improve
    their cybersecurity and their security posture.
        Mr. Bishop. Thank you. Thank you very much, Ms. Murphy.
        Ms. Murphy. Thank you, sir.
        Mr. Graves. Thank you.
        Mr. Moolenaar.
        Mr. Moolenaar. Thank you, Mr. Chairman. Thank you for being
    here, and your testimony. In the last 3 years, this committee
    has funded the construction of 13 Federal courthouses,
    addressing what was a longstanding backlog in courthouse
    construction. However, in the same time, funding was provided
    for only three land ports of entry. And I wondered if you could
    speak to the need for construction funding for our Nation's
    land ports of entry, and is this a priority, as well as how
    closely does GSA work with Customs and Border Patrol on
    identifying project and funding needs for land ports of entry.
        Ms. Murphy. Thank you, Mr. Moolenaar. GSA works very
    closely with CBP. We each year sit down with them; we have a
    list of their ongoing requirements, but each year we sit down
    and try to reprioritize those to make sure that we are
    addressing their most pressing requirements as we are
    formulating our budget requests. This year, I know that we have
    got a request in for funding for the Calexico land port of
    entry for phase 2. I know that last year we were grateful to
    the committee because it did provide funding for two of the
    land ports of entry.
        That said, I know that we have got a backlog on land ports
    of entry. I believe in your district we have got the Sault
    Sainte Marie port of entry, and we are closely monitoring the
    situation there and trying to work with CBP, and hopefully with
    this committee, on ways to address that.
        Mr. Moolenaar. Just on that note, I did last year visit
    Customs and Border Protection's station in Sault Sainte Marie,
    and at that point, it was No. 21 of 71 on DHS's priority list.
    And it is a leased building, an old grocery store built in the
    1950s, with many safety and security insufficiencies. For
    example, asbestos is prevalent throughout the building, there
    is no fire suppression system, and the building did not even
    have smoke detectors until last year. And to my knowledge, the
    lease on this building, which is set to expire in October of
    2018, has yet to be evaluated.
        And I am just wondering, since the building is leased by
    GSA, does GSA or DHS have the responsibility to evaluate the
    safety and security of the building? I just wonder, how does
    GSA ensure that the managed facilities are safe and secure
    working environments?
        Ms. Murphy. Thank you, sir. It is actually a shared
    responsibility between GSA and the Department of Homeland
    Security through the Federal Protective Service. It is actually
    the issue I believe that your colleague Mr. Bishop was asking
    about the GAO high-risk list. This is an area where GAO has
    specifically drawn GSA/DHS's attention to the fact that we need
    to do a better job of coordinating the security assessments
    that the Federal Protective Service, within the Department of
    Homeland Security, does with the work the GSA does on physical
    security, and that is one of my priorities.
        I have met with the Department of Homeland Security about
    ways we can address the issue. I hope to be making progress on
    this, but I understand that, you know, there are substantial
    issues there that we need to address as part of the lease
    renewal. Actually, there is also a wall in Sault Sainte Marie
    that is in a phase of starting to collapse and that we need to
    make sure that is addressed so that it continues to serve its
    important purpose of actually facilitating the border
    crossings.
        Mr. Moolenaar. So, can I use a baseball analogy? Do you
    like baseball?
        Ms. Murphy. I am a Cardinals fan.
        Mr. Moolenaar. You are? OK, good. Well, you will get this.
    So, you know, in baseball, when there is a pop-up fly ball, you
    know, you have got two fielders running to it. One of them has
    to make the call and, you know, not kind of go back and forth.
    And I guess I am wondering, in this case, who ultimately makes
    the call?
        Ms. Murphy. Ultimately, GSA will either award or recompete
    the lease, so that part of it will be our call. The program
    requirements will always be--and whether the building meets
    those program requirements--CBP's call. And I know that that
    sounds like a terribly bureaucratic answer, or perhaps maybe a
    lawyer answer, where I am just pointing back and forth, but
    statutorily, that is how the responsibility has been set up.
    And so, it does require that important level of coordination
    between the two agencies. I actually met with the former Deputy
    Secretary of DHS recently, and this was one of the issues that
    we discussed; how we can do a better job here.
        Mr. Moolenaar. OK. And I appreciate that you brought up
    Sault Sainte Marie, and I would say it is on your radar screen.
        Ms. Murphy. It is.
        Mr. Moolenaar. So, thank you for that. With that, I yield
    back, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Moolenaar.
        Mr. Quigley.
        Mr. Quigley. Thanks, Mr. Chairman. Thank you so much for
    being here and, again, for your service. To your knowledge,
    when did the administration make the decision not to build the
    suburban FBI facility and instead rebuild where it is?
        Ms. Murphy. Thank you, sir. It is my understanding--and,
    again, I was confirmed in December of last year, so I want to
    be clear that I was not involved with many parts of this
    decision, but I am going to try and answer your question as
    fully and completely as possible--that last July the GSA and
    the FBI, working with OMB, reevaluated the lease exchange that
    had previously been proposed for building a new FBI
    headquarters and prioritizing the need that there was a new FBI
    headquarters that is absolutely required.
        EPW, the Environmental Public Works Committee--forgive me--
    asked GSA and the FBI to go back and provide them with a
    report, a plan, on the alternatives, given that it had also
    been 14 years since the original program requirements had been
    developed.
        Mr. Quigley. Before you go there, who briefed you on this
    to catch you up?
        Ms. Murphy. The Commissioner of the Public Building Service
    and some of the individuals within the National Capital Region
    provided me with the details of the history of the program, and
    then I also spoke with the director of the FBI.
        Mr. Quigley. Was anyone else at the White House involved
    with briefing you? Or, to your knowledge, did the President or
    any of the other officials at the White House consult with any
    of these agencies in the decision-making process?
        Ms. Murphy. Sir, the FBI came to me and said that their
    requirements had changed. They no longer required a campus for
    11,000 individuals. They were looking at a campus, and they
    only had a requirement for about 8,300 individuals. And based
    on that, they wanted to put the J. Edgar Hoover site back into
    play. They actually requested that GSA consider renovating the
    building.
        In my conversations with GSA, and then with the FBI, we
    pushed back and did not believe that that was the right answer.
    We thought that the renovation of the building was a point to
    address the setback issues, and, frankly, given that it uses
    something called post-tension cabling to support it, that any
    hardening we tried to do with the building would not be
    successful. And it would be a long-term project that put the
    FBI's mission at risk.
        So, GSA then suggested that instead, if the requirement was
    to stay in proximity to the Department of Justice, and that
    location worked, and it had the infrastructure in place, that
    GSA proposed instead taking the opportunity to demolish the
    current FBI headquarters and rebuild on that site something
    that had the setbacks, that could have hardening, that could
    meet the requirements of the FBI for that new reduced
    headcount.
        Mr. Quigley. But, again, to your knowledge, was the
    President or anyone at the White House involved in those
    discussions, either with your predecessors or people you are
    working with now or yourself?
        Ms. Murphy. Sir, to my knowledge, the direction that we got
    came from the FBI. It was the FBI that directed GSA as to what
    its requirements would be. Given that it is a substantial
    budget request, we coordinated that request with OMB to provide
    for funding, but the requirements were generated by the FBI.
        Mr. Quigley. So, correct me if I am wrong. I am looking at
    a spreadsheet that talks about the differences. Full
    consolidation; new campus--and, again, it shows 11,000 workers,
    but I understand what you are talking about--versus the rebuild
    of 8,300 workers. The rebuild I am showing at $5.180 billion,
    and the new campus at, roughly, a little over $4 billion. Are
    those numbers accurate, to your knowledge?
        Ms. Murphy. Those are not the numbers that I am familiar
    with, and so I am not sure of the spreadsheet you are using. I
    would be happy to have someone come in and walk you through all
    the numbers, though.
        Mr. Quigley. So, what is your understanding of the numbers?
        Ms. Murphy. Between GSA and the FBI, we currently have
    about $700 million that has been appropriated for new
    headquarters. We have requested another $2.2 billion. It was
    first requested as part of the 2018 ad-back through your sister
    subcommittee with CJS last year. This year, we have requested
    instead $200 million to be used as a payment towards a civilian
    building fund that is being proposed as part of the new basis
    for the infrastructure environment; over $2.2 billion.
        Mr. Quigley. I am sorry, I do not mean to interrupt, but I
    am just short on time. I want to take into consideration what
    we are hearing is a $479 million cost for swing space, right?
    Moving everybody out and back in, which has other issues. And
    if we need to go back to the next round, Mr. Chairman, that is
    fine to do this. Does that take into consideration with your
    figures? And also, what is your complete understanding of the
    total cost, new construction versus rebuild?
        Ms. Murphy. I do not have the specific numbers in front of
    me. This is too important for me to get it wrong, so I want to
    make sure I get it right. And I have asked the question
    directly that the numbers that we proposed as part of the 2018
    ad-back and then the $2.2 billion, including the $700 million
    that has already been appropriated, do indeed include the swing
    space for the FBI employees.
        Mr. Quigley. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. I am going to ask a
    couple questions and then go to Mr. Cartwright. Calexico--is
    that the administration's top priority in terms of land ports
    of entry right now?
        Ms. Murphy. That is our top priority for fiscal 2019, sir.
        Mr. Graves. OK. On to construction projects. The
    administration transmitted $3 billion in new construction and
    major repairs requests in the fiscal 2018 addendum to the
    budget request. The funding bill we enacted provided for
    several courthouses and one land port of entry. So, looking
    ahead, in 2019, of all the projects that were not included, how
    do you prioritize those projects in the 2018 addendum and 2019
    request?
        Ms. Murphy. Thank you, sir. As you know, the 2018 addendum
    was formulated at the same time we were formulating the 2019
    request, so it was an interesting balance for the two. But each
    year, we sit down with our partner agencies. We make sure we
    understand their priorities. We have an ongoing list of needs,
    but we each year revisit those needs to make sure that, you
    know, do any of them need to be escalated?
        Can any of them step back in exchange for another? What are
    the current priorities of our customer agencies? And then we
    propose those as part of the President's budget. I do want to
    say thank you for the three courthouses last year and the two
    land ports of entry you provided us. We are very grateful, and
    we have already started getting to work on those.
        Mr. Graves. Thank you. Back to the FBI headquarters, when
    will there be an updated prospectus and justification for the
    requested funding level?
        Ms. Murphy. Sir, I met with the Commissioner of the Public
    Building Service yesterday about the steps that are being taken
    to prepare that. We are working on it. We are working with the
    FBI and OMB on trying to make sure that we are moving forward
    with that.
        Mr. Graves. So, no specific timeline?
        Ms. Murphy. I made a commitment, at one point in time, that
    we were going to meet the deadline for the report that was
    promised by the Deputy Commissioner of the Public Building
    Service in August, and we missed that. And I do not ever want
    to miss another deadline. I take it very seriously. I spent 9
    years as a Hill staffer. When people promise you a deadline,
    you had better be able to back it up. So, I want to make sure
    that we are working on it, and I am happy to give you progress
    reports. I do not want to commit to a specific deadline if I am
    not positive that I can make it.
        Mr. Graves. I understand. Knowing the accelerated timeline
    we are on as a subcommittee and full committee, and the
    questions you have from the ranking member and myself and, I
    imagine, some other members as we look ahead, it is probably
    good to have that report sooner than later.
        Ms. Murphy. Yes, sir.
        Mr. Graves. And then, lastly, before going to Mr.
    Cartwright, in the 2018 funding bill that we just enacted, we
    had $5 million in funding for the Asset Proceeds and Space
    Management Fund. You addressed that earlier in your opening
    comments, because this subcommittee is about reducing the
    footprint of the Federal Government as much as we can and doing
    away with unused properties. Can you just give us a quick
    little update on that?
        How will you use funding that we provided you in 2018? And
    as far as standing up the board, when do you see it up and
    running? When do you expect the fund will begin implementing
    the board's recommendations? When will we begin seeing that
    reduction? There is strong interest, particularly from Mr.
    Denham from California, in this effort here.
        Ms. Murphy. First of all, thank you for the funding as part
    of 2018. We are holding that money. We have worked with the
    Office of Management and Budget to make sure we have all agreed
    upon the criteria that the board will be using, that we have
    got the data in place for them to be assessing.
        We have gone out with two data calls to agencies to make
    sure that they have already gone and identified properties and
    that we are ready as soon as--obviously, the chairman of the
    board needs to be confirmed by the Senate, and the other six
    Members are presidentially appointed in consultation with the
    Speaker of the House and the minority leader, sorry, the Senate
    majority leader and the Senate minority leader. So, as soon as
    those individuals are in place, we are ready to go.
        I think that because we have done so much preparatory work,
    they should be able to hit the ground running. And so, we see
    the, you know, initial funding helping support their initial
    analysis in the contracts, and the additional funds would be to
    do the necessary environmental remediation or adjustments so
    that we can get the full value or we can get the best value for
    those properties that we are auctioning off, or for the
    consolidation efforts that the board is going to be
    undertaking.
        In my confirmation hearings, I had to say that we had 372
    million square feet of office space. I can now say that we have
    371 million square feet of office space, and I want to see that
    number go down. I have been meeting with each of the Cabinet
    Secretaries or their deputies to actually talk to them about
    their utilization rates, so I can get a commitment from the top
    that they are going to work with me to push those numbers down,
    so we can deliver a better value.
        Mr. Graves. Thank you for your work on that. It is not too
    uncommon for us to hear that someone is waiting on the Senate.
    We hear that quite a bit. Mr. Cartwright, and then Mr. Amodei.
        Mr. Cartwright. Thank you, Mr. Chairman, and welcome,
    Administrator Murphy.
        Ms. Murphy. Thank you.
        Mr. Cartwright. On behalf of the subcommittee, I apologize
    for Mr. Moolenaar's using a baseball analogy. For anyone from
    Michigan to represent that they know anything about baseball
    when the Tigers are four and nine is a blatant
    misrepresentation.
        But I wanted to ask you a little bit about the Inspector
    General. Of course, we have inspectors general in the Federal
    Government, and they act as watchdogs over the agencies, and
    GSA is no exception. Right? You guys have an inspector general,
    right? GSA's Inspector General recently issued a report that
    found that last year, GSA followed a new policy for
    communicating with Congress, with us, based on ``oral guidance
    and direction from the White House.'' And you are familiar with
    that report, I take it?
        Ms. Murphy. I am, sir, yes.
        Mr. Cartwright. According to the Inspector General for GSA,
    the new policy prohibited responding to ``oversight'' or
    ``investigative'' congressional inquiries made by Members other
    than chairmen. GSA officials told the IG that the policy was a
    change from GSA's prior practice, and the IG reported, ``GSA
    officials stated that the prior practice had been to process
    all congressional inquiries for a substantive response, while
    sometimes providing redacted responses or more limited
    information to Members than would be provided to chairmen.''
    First, are you familiar with that, and do you agree with that
    characterization?
        Ms. Murphy. Sir, I am familiar with the IG's report, and as
    I mentioned, I have been on the job now for 4 months. One of
    the first things that I did was go back and direct that they
    revise the communications policy to address the IG's concerns
    to make it absolutely clear that whistleblowers and others have
    the right and the obligation to bring forward issues, and that
    no policy at GSA keeps them from doing so.
        I have also used my position as the Administrator to make
    sure that we are responsive to all Members of Congress. And I
    think that if you look at the last 4 months, you will see that
    GSA has been very responsive to any requests we have gotten,
    whether from a chairman, a ranking member, or other Members of
    Congress.
        Mr. Cartwright. I do not mean to interrupt you. Are you
    done?
        Ms. Murphy. Yes, sir.
        Mr. Cartwright. Are you disagreeing with the Inspector
    General's statement about what the policy is?
        Ms. Murphy. I believe that they are referring to a policy
    that was in place last year. I have issued a new policy and
    made it absolutely clear and have also testified to this policy
    in front of the Oversight and Government Reform Committee that
    GSA will be responsive to all Members of Congress.
        Mr. Cartwright. Now, is that a written policy or an oral
    policy?
        Ms. Murphy. There is a written policy that addresses how we
    respond to Members of Congress. I spent 9 years as an Oversight
    staffer. And I had the experience of asking GSA for information
    and not getting my call returned, or not getting the
    information sent back to me, or waiting on a letter, or waiting
    on a report. And when I showed up at GSA, one of my first
    questions was, ``Do I now get the briefing I have been asking
    for?'' So, I do not want to ever put anyone else in that
    position. I want to be as transparent as possible and provide
    you all with the information you need to do your jobs.
        Mr. Cartwright. OK, so that is a change from policy, which
    would have prohibited responding to oversight or investigative
    inquiries. Is that correct?
        Ms. Murphy. I am not sure that I would characterize the
    original policy as prohibiting response, but I wanted to make
    it explicitly clear that GSA responds to requests, yes.
        Mr. Cartwright. Well, that was how the IG characterized the
    prior policy. And you are saying that has changed now.
        Ms. Murphy. And that has changed.
        Mr. Cartwright. OK.
        Ms. Murphy. And I believe if you talk to any of our
    oversight committees, they will tell you we have been trying
    diligently to make sure that we are responsive.
        Mr. Cartwright. The IG reported on May 19, 2017, the White
    House provided GSA's Associate Administrator for the Office of
    Congressional and Intergovernmental Affairs written guidance on
    responding to letters from Members of Congress. Are you
    familiar with that written guidance?
        Ms. Murphy. I am, sir, in that I know that there was an
    additional letter that was provided by Mr. Short to Senator
    Grassley----
        Mr. Cartwright. Well, stay with me.
        Ms. Murphy. OK.
        Mr. Cartwright. I am talking about the May 19, 2017 written
    guidance. Will you provide a copy of that written guidance?
        Ms. Murphy. It is not a GSA document, so I want to make
    sure that I am allowed to provide that. If I am allowed to,
    then we will work to make sure you get it.
        Mr. Cartwright. But you are saying to us today, no matter
    what anybody else says, your office is going to be responsive
    to oversight or investigative inquiries from Congress.
        Ms. Murphy. That is correct. And I believe that Mark Short
    sent a letter to Senator Grassley, explaining that the heads of
    agencies have broad discretion, and I intend to use that
    discretion to be as responsive as possible.
        Mr. Cartwright. Thank you. I yield back, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Cartwright. I think, with Ms.
    Murphy's extensive background on the Hill, she understands the
    importance of communication with each and every office. She has
    got great, great history, and a legacy. Mr. Amodei, and then
    Ms. Herrera Beutler.
        Mr. Amodei. Thank you, Mr. Chairman. Welcome, Madam
    Administrator.
        Ms. Murphy. Thank you, sir.
        Mr. Amodei. I am not going to take much time. I just wanted
    to use our time here today to let you know that I want to get
    on your staff's calendar to get sort of an in-depth briefing on
    the little bit that you do in northern Nevada.
        My understanding is that your holdings consist of a couple
    courthouses and a Federal building that are in kind of the
    urban area of my district. And so, I just kind of want to get
    with them to say, ``OK, here is what we have got. Let's make
    sure we know what we have,'' and then to see what is going on.
        I think your regional office is probably located in San
    Francisco for that area. But to talk about what the plan is, if
    there is any, in terms of how GSA stays nimble in terms of
    those areas where it owns square footage and also is at least
    open-minded to opportunities to upgrade or modernize. Because
    one of them is a fairly new courthouse, which I am sure is
    probably OK; but another Federal building and another older
    courthouse, whether there are asbestos issues in those
    buildings, and the operational type of stuff.
        So, I would like to use that time with your staff to go,
    ``So, what is the usual policy in terms of assessing where our
    properties are, what they are in terms of--I know there is
    square footage and the rental income. But what is the state of
    the building? And then, also, to see what, if any, there is any
    medium- or long-range plan for GSA operations in western
    Nevada, in this instance. So, I am assuming that that is just a
    matter of getting a hold of whoever your liaison is and getting
    with the right folks. And we will come to you.
        Ms. Murphy. Yes, sir. And I believe you are right: We are
    three Federal buildings in the Second District of Nevada. We
    have got a 1995 courthouse, which I think is the largest of the
    properties, in Reno. There is another Federal building in Reno
    as well, and then there is a third building that I believe is
    in Carson City that is smaller. The second building in Reno is
    from 1965, and the other building is, I think, a 1970s
    building.
        So, yes, we do an evaluation of those buildings every year.
    I would be happy to give you an in-depth briefing on how we
    look at them and the long-term strategy as we look at our
    overall portfolio.
        Mr. Amodei. OK, great. Thank you. Thank you, Mr. Chairman.
        Mr. Graves. Ms. Herrera Beutler, and then Mr. Young next.
        Ms. Herrera Beutler. Thank you, Mr. Chairman. Thank you,
    Ms. Murphy, for being here with us. I was happy to see that you
    addressed the Technology Modernization Fund in your opening
    comments. Modernizing our government IT. infrastructure to be
    more secure, more cost-effective, more efficient, more
    streamlined, especially as we expand our digital platforms, is
    critical. I mean, we often compare it to the private sector,
    and it is a challenge.
        Now, I understand you have named the members of the
    Technology Modernization Board and sent initial guidance out to
    eligible agencies. And since we just approved $100 million for
    the Fund in the 2018 Omnibus, I have a few questions. And I
    understand that Mr. Bishop asked about priorities and
    prioritizing security, so I am going to skip to my second
    there. Given your strong mission focus on improving citizen
    services and increasing the effectiveness of government
    operations, how do you anticipate using TMF funds to help
    enhance delivery of citizen services? And is improving mission
    delivery a priority for this TMF funding?
        Ms. Murphy. Thank you very much, Congresswoman. You are not
    going to remember me, but I had the privilege of staffing you
    when you were on the Small Business Committee years ago.
        Ms. Herrera Beutler. Oh, my heavens. Years ago, because I
    am so old now.
        Ms. Murphy. No, no. I think Jessica Wixon was your staffer
    at the time.
        Ms. Herrera Beutler. Yes, she just left. I am
    brokenhearted.
        Ms. Murphy. She was wonderful. I very much enjoyed working
    with you back then.
        Ms. Herrera Beutler. Good.
        Ms. Murphy. So I look forward to the opportunity to do so
    again. GSA appointed the Commissioner of the Federal
    Acquisition Service, Alan Thomas, as GSA's representative.
    There are representatives from other agencies as well that have
    been appointed. Citizen services; GSA is the custodian of the
    Federal Citizen Services Fund, so it is something we take very
    seriously, and we work very hard on.
        Furthermore, since I have come into office, we have created
    a center of excellence that actually focuses on citizen
    services and is working with the U.S. Department of Agriculture
    on how we can improve citizen services for them. I spent some
    time with them, actually, in Kansas City, meeting with farmers
    on the challenges that they are facing in terms of the outdated
    technology that the USDA is using and how we can leverage that.
    I believe that USDA, among others, are going to be submitting
    business cases to the TMF that will allow for the improvement
    of those citizen services. I will give you an example.
        There was one wonderful woman who was a farmer there who
    was telling us the story of her tractors; actually talk to
    satellites and can tell you exactly how many acres have been
    plowed. And then they have to transmit that data, though. They
    have it themselves. When they go to get crop insurance or deal
    with USDA, USDA uses old paper maps that are not nearly as
    accurate. And so, how can we improve that process? We also
    heard about two different offices that require the same data in
    different formats, and both required paper. So, it takes them
    an hour and a half to go each way. So, how can we improve that
    process?
        And I think that there are simple, low-dollar value
    approaches we can work on there, and I think that one of the
    great uses for the Technology Modernization Fund would be to
    invest in citizen services, especially in a way we can leverage
    across other agencies.
        Ms. Herrera Beutler. How often do you find that two or
    three or multiple agencies are requiring different technology
    and in paper form? You know, it is basically conflicting. How
    often do you find that?
        Ms. Murphy. Frequently, actually. And so, I had a
    conversation with one Cabinet Secretary who was telling me
    about a challenge he had where his agency is required to
    receive paperwork that then has to be Fed-Exed back to the
    person who sent it to them, who then has to send it to another
    agency, who then sends it back to them, who then sends it to a
    third agency, who sends it back to them, and asked if we could
    help them come up with a way that we stop, first of all, the
    back-and-forth, which is costing small businesses and our
    citizens a lot of money, but also improve the process and do a
    better job there. It is also a case inside of agencies as well,
    though. I saw a great robotics process automation
    demonstration. I am going to get a little geeky, if that is all
    right.
        Ms. Herrera Beutler. That is fine.
        Ms. Murphy. I saw a great process where a GSA employee, on
    their own initiative, went and figured out a way that they
    could take a process that normally takes an hour and bring it
    down to under 20 seconds. And we are looking to see if this is
    something we can replicate, but if it is, it means I can use my
    contract specialists to be working on higher-value ad, better
    interaction with citizens, better services to other agencies,
    rather than doing paperwork and data entry, which is--I think
    one of the great tenets of the President's management agenda is
    looking at high-value work rather than low-value work, and how
    do we move the talented men and women who work for the Federal
    Government to that high-value work.
        Ms. Herrera Beutler. That is good. I appreciate it. In the
    last 15 seconds, your 2019 budget proposal included a request
    for $210 million for TMF. Given the complexity of kind of what
    you just discussed, and Federal IT needs, and the need to
    modernize, is $210 million sufficient?
        Ms. Murphy. I think so. This is a proof of concept, and
    this is the second and last year we are allowed to ask for
    appropriations under the legislation, so we are asking for the
    $210 million. That would give us a total of $310 million. It is
    a revolving fund; it allows us to go and make targeted
    investments, get the return on those dollars, reinvest them
    into the next set of projects, and have this as a continual
    improvement process.
        It also should highlight areas where we can get
    demonstrable savings, and then agencies can themselves come
    back and ask for additional appropriations as necessary.
        Ms. Herrera Beutler. Got it. All right. I yield back. Thank
    you.
        Mr. Graves. Mr. Young, then Mr. Quigley.
        Mr. Young. Thank you, Mr. Chairman. Administrator, welcome.
        Ms. Murphy. Thank you, sir.
        Mr. Young. I appreciate your pledge to be responsive,
    having been on the other side as a staffer in the oversight
    process. Myself, having been a staffer as well--and regardless
    of who is in the White House, Republican or Democrat, it gets
    frustrating, so I appreciate your pledge to be responsive.
        How do we get a list of all the GSA properties in our
    districts? Is there a magic website somewhere that we have not
    found yet?
        Ms. Murphy. There is. There actually is.
        Mr. Young. This is a great day.
        Ms. Murphy. I am happy to give you that list. I am also
    happy to have someone pull the data for you. There is a Federal
    real property profile database, and for GSA properties, it will
    not only give you a list, but it will actually do geolocation
    for you. So, it will, you know, show you on a map where they
    are as well.
        Mr. Young. So, with those properties, will it tell us how
    long those properties have been under the management of GSA,
    ownership of GSA and the Federal Government?
        Ms. Murphy. I believe. I want to be careful, but I do
    believe that is does have the age of the property as one of the
    factors. For GSA, some of those date back to 1949, when Harry
    Truman signed GSA into being, but some of the properties
    themselves are older than that.
        Mr. Young. What is the process when GSA takes a look at
    that list and says, ``I do not know why we still have that; the
    community and the public may have a need for this''? What is
    that transfer like? What is that process like? How long does it
    take?
        Ms. Murphy. First, to identify the properties, GSA works
    with other Federal agencies, because usually--it is rare that
    it is just GSA occupying a space. It is usually other Federal
    agencies in that space. If those agencies tell us they no
    longer have a need for the space, or we can work with them on
    consolidation so that we can free up that space, we will then
    make it excess.
        Excess property we turn around and we offer to other
    Federal agencies first, and then, if they are not willing to
    purchase the property from GSA, we will then declare it
    surplus. Surplus property; we then go through a screening
    process where we look at whether or not State and local
    governments or qualified nonprofits, especially those helping
    the homeless, are interested in the property.
        Generally, once we have cleared title on the property,
    which can sometimes be very complicated, and dealt with
    environmental issues, it takes us about a year to dispose of
    it, which is one of the reasons I am very grateful that
    Congress, in 2016, passed FASTA, because that gives us the
    opportunity to pilot an expedited disposal, so we can see a
    faster return on those underutilized properties and turn them
    into funds that can actually support ongoing operations.
        Mr. Young. Great. I know the GSA is currently attempting to
    acquire land in Des Moines for a new courthouse. I would just
    urge you--whether it is Des Moines or any other municipality or
    city--with that process, to make sure that you are always
    informing the constituents, the people in those areas, about
    the process, what you are looking at, public comment, those
    kinds of things. Because it did not start out that way with the
    Des Moines courthouse, and we kind of had to rattle some cages
    here with GSA to make sure that the public was being informed
    and that the city was being informed about the process and what
    was being looked at.
        It is just good to build that relationship, to build that
    trust, to make sure people's voices were heard. Not everybody
    may agree with the end result, but they can agree that a
    process went forward that was fair and where people were heard.
    So, I would just urge you to continue to do that or make that a
    policy.
        Ms. Murphy. Sir, one of my four priorities is transparency.
    As I said, ethical leadership, increase in competition,
    reducing duplication, and improving transparency. I want to
    make sure we are as transparent as possible in dealing with
    communities, with stakeholders. I know that there was a meeting
    last week that I believe one of your staffers and many of your
    constituents attended dealing with the courthouse in Des
    Moines, and I look forward to continuing to work with you to
    make sure we get to the right result.
        Mr. Young. Thank you for that. And then, finally, public
    benefit conveyance. There are certain qualifications a State or
    local government and nonprofits must meet for public benefit
    conveyance. Sometimes this is for educational purposes, parks,
    recreation, homelessness assistance, and those kinds of things
    and more. But there was recently a case in the Third District I
    represent where a transportation company was not allowed to
    receive a public benefit conveyance because public
    transportation was not considered a public benefit.
        Can you think of any good reason why that would not
    considered a public benefit, and if you would be opposed to any
    kind of movement to consider public transportation within the
    definition of public benefit? And if you would, could that be
    done internally, or is the onus on Congress to make that fix?
        Ms. Murphy. Sir, I appreciate you bringing it to my
    attention. I would really like to learn more about this and
    where the definition of public benefit came from. Before I make
    any commitment, I want to understand what the statute says----
        Mr. Young. Fair enough. Thank you.
        Ms. Murphy [continuing]. And make sure that I give you a
    complete and thorough answer.
        Mr. Young. We will connect our staffs together.
        Ms. Murphy. I would love to work together, yes. Thank you.
        Mr. Young. Thank you. And I yield back the last--well, I do
    not have any time left. Thank you, Mr. Chairman.
        Mr. Graves. You always have more time. Mr. Quigley, and
    then Mr. Stewart.
        Mr. Quigley. Thanks again, Mr. Chairman. I have got to tell
    you, this question would be a lot easier if you were not so
    nice and apparently conscientious, and I appreciate your
    wanting to get back. But I think these are fair questions, and
    I would at least like your reaction. But I appreciate your
    service, and I want you to know that I think that we need to do
    these things on an ongoing basis, because circumstances change.
        I mean, currently, I believe the President owns about a 77
    percent interest in the Trump hotel lease. That arrangement
    seems to allow the President to invest today's profits into the
    hotel and then receive profits after he leaves office. And
    given who can use that facility, it opens up, if not real, the
    possibility of conflicts. And it can be, I believe, and is a
    conflict of interest for the President to appoint the head of
    an agency tasked with administrating that very lease.
        So, what analysis was done? What analysis goes on on an
    ongoing basis to ensure that the contract with the President
    has not resulted in the President receiving any emoluments from
    foreign governments? And does the GSA have concerns that it may
    be administrating a contract that violates the Constitution?
    Again, not just how it got to that point initially, but what it
    has done since then.
        Ms. Murphy. As you know, sir, last March, a career
    contracting officer made a determination, supported by other
    career lawyers, that the tenant for the Old Post Office was not
    in violation of his lease. Since that time, GSA has cooperated
    with the Inspector General. We have turned over a large number
    of documents for their review so that they can do a review of
    the analysis that took place. There is ongoing litigation that
    is directly addressing the questions you are raising.
        Obviously, we know that GSA is watching those cases very
    closely, and we are looking to a final determination by the
    courts. However, given that there is ongoing litigation, it is
    inappropriate for me to go into, you know, a lot of detail
    about it. We are watching those cases, and we will obviously
    follow any final determinations.
        Mr. Quigley. But the fact that there is ongoing litigation
    does not limit, as you would understand, the responsibility to
    review this on an ongoing basis. You can at least say that you
    are reviewing the practices on an ongoing basis, correct?
        Ms. Murphy. As the Administrator, I am trying to be very
    careful to never put my finger on the scale to weigh one
    contract or another. I believe that it is my job to make sure
    that we have got the right people and the right processes in
    the job; that they are being conducted in a transparent
    process; that if people have concerns with how they are being--
    those processes are being implemented; that they have the
    ability to raise those to their supervisors or as
    whistleblowers; and that we respond to inquiries from
    committees, from Members of Congress; that we also, you know,
    work, you know, with the courts as they are looking at
    important constitutional issues and as they resolve those.
        Mr. Quigley. I understand you referenced the Inspector
    General. But to your knowledge, is there any other process that
    allows you to take this, again, to some other neutral third
    party to review, analyze--someone independent, perhaps, to give
    an opinion?
        Ms. Murphy. For contract administration, we really do not
    have another option that I am aware of. I mean, GSA is
    considered to be the expert on the interpretation of its own
    contracts. That is why we have worked very closely with the
    Inspector General on that. In cases of litigation, obviously,
    we defer to the courts.
        Mr. Quigley. Let me just go back to the FBI headquarters
    for a second.
        Ms. Murphy. Yes, sir.
        Mr. Quigley. And if you cannot answer any of these, these
    would be more--I would be appreciative if you could get back to
    us. The CIA, DIA, NSA, and the Department of Homeland Security;
    they all have their own campuses to mitigate both physical and
    espionage threats.
        As I understand it, the FBI is the only member of the intel
    community with its main campus located in an urban setting that
    does not have a standalone campus, you know. To your knowledge,
    did the FBI discuss this issue with you? Did GSA comment on
    that and raise--did either raise concerns about that? And I
    guess--so I can get all these out in the short period of time--
    what changed since fiscal year 2017 that no longer makes the
    best option to consolidate the FBI in either Maryland or
    Virginia?
        If the FBI decided that this was no longer the best option,
    what was GSA's role in helping to come to that decision? Does
    the GSA not have a role in advising other Federal agencies to
    make the most cost-efficient decision compatible with the
    agency's mission?
        And, finally, can you commit to the committee that the
    FBI's new plan to consolidate in its current location is more
    cost-efficient than the earlier plan to exchange FBI Hoover
    building for a new site in either Virginia or Maryland?
        Ms. Murphy. Sir, I am going to try and answer those
    questions quickly, because I know that I am running over on
    time.
        Mr. Quigley. I am, too.
        Ms. Murphy. All right. So, on the issue of a main campus,
    the FBI told GSA that they considered proximity to their parent
    department, Department of Justice, to be paramount, so that
    they wanted to make sure that they were close to their parent
    organization. They also said that, you know, they wanted to be
    close to transportation, that they had other security
    requirements.
        As to your question as to is it not GSA's job to help them
    inform their requirements: yes, it is. However, GSA does not
    have the expertise to substitute its judgment on matters of
    national security for that of the FBI. What we do have the
    ability to tell them is here are the most cost-efficient and
    cost-effective ways to meet those requirements.
        When the FBI came and told GSA that they believed that
    proximity to the Department of Justice was paramount, that
    changed the calculation. The other item thatchanged the
    calculation was that instead of looking for a requirement to
    accommodate 11,000 employees, they were now looking for an
    option that would accommodate just over 8,000 employees. That
    put the site on Pennsylvania Avenue back in play. There would
    have been no possible way to accommodate 11,000 employees at
    the current J. Edgar Hoover site. However, there is a way to
    accommodate those 8,000 employees at that site.
        I am trying to think if there were other questions that I
    missed, and if there are, I would be happy to get back to you
    on them. Hopefully, that will address your concerns.
        Mr. Graves. You did well. Mr. Stewart, Ms. Herrera Beutler,
    and then Mr. Amodei, and that should wrap us up today.
        Mr. Stewart. Thank you, Chairman. We appreciate your
    patience and understanding. Like everyone, we have got multiple
    hearings and bounce back and forth. Ms. Murphy, thank you for
    being here. It is always fun to read your people's resumes, and
    yours is impressive; 11,600 people is an enormous
    responsibility. I also found it interesting you were one of the
    leaders in a technology startup company, because my question is
    going to lend itself in that direction, if we could.
        I am curious to hear about GSA's efforts to improve the
    information technology, especially on the kind of citizen-
    facing applications. I am older than you; I am older than most
    people in the room, maybe everyone in the room.
        Ms. Herrera Beutler. Not me.
        Mr. Stewart. Yes, I am definitely older than Ms. Herrera
    Beutler, by a lot. You know, people in my age and generation,
    we generally kind of seek face-to-face interactions with
    agencies or with businesses; certainly not true of my kids. You
    know, we text way more than we talk. I would prefer to talk,
    but, you know, it is just easier, and you end up texting all
    day, which I enjoy as well. And when a citizen needs
    interaction with the government, again, we need to consider
    that.
        I saw something interesting, and I think maybe my staff can
    back me up. It might have been an IRS study. But they said that
    a personal interaction was about $54 per interaction versus an
    electronic one was pennies, like 20 or 30 pennies is all.
        Now, last thing, and then I will get to my question. Last
    year, Congress enacted the Modernizing Government Technology
    Act, which I am sure you are familiar with. It appropriated
    certain money--$100 million--and I want to know what you guys
    have done with some of that money. What is the status of TMF
    within GSA? And give us some good news, will you, please?
        Ms. Murphy. Yes, sir. Thank you very much. The
    appropriations for $100 million--we are very grateful to this
    committee that we received those last month. GSA moved quickly.
    The OMB Director appointed the board; I appointed as GSA's
    representative a gentleman named Alan Thomas, who is the
    Commissioner of the Federal Acquisition Service, who has got a
    lot of expertise actually working for a small business that was
    trying to do business with the government, which I thought was
    an important point of context as well as being technologically
    savvy.
        They are in the process right now of reviewing the second
    round of business cases, and they have established criteria. We
    have appointed an executive director to help support some of
    those--in the assessments. We want to make sure that the
    investments that are made with that $100 million deliver
    returns to taxpayers.
        Mr. Stewart. I am going to accelerate your answer, if you
    could.
        Ms. Murphy. Okay.
        Mr. Stewart. So, you are in the process of defining and
    putting a team together to implement, true?
        Ms. Murphy. The team is in place.
        Mr. Stewart. So, give us an idea of what your goal is. I
    mean, what do you envision is going to be different once you
    have been able to design and implement your plans?
        Ms. Murphy. My understanding is the board's criteria are
    that they are looking for investments that will see a positive
    return, so they can repay the fund quickly; that will have
    technology that they can leverage across agencies, so they will
    not just be hitting a specific issue; that will be improving
    the security of the data and the information that is being--and
    that are going to improve citizen services.
        I wanted to comment on your--you were discussing contact
    centers or how we make it possible. One thing GSA is doing
    outside of the Technology Modernization Fund is we are in the
    process of putting in place a new contact center contract for
    other agencies that works with them, and we have also got a
    center of excellence trying to further it, to make it easier
    for individuals to contact the government the way they want to,
    whether it be trying to make sure first that their websites
    have the information available easily and readily so that they
    do not need to call--because if you can avoid a phone call to a
    government agency, that usually makes most people happy.
        But when they do need to contact, can they do it through
    text message, through phone? What is the way that they want to
    reach us, and how do we facilitate that happening, so they get
    the result quickly and that we respect their time? As a small
    business owner, I think you probably know that time is what
    kills everyone in dealing with the government. So, trying to be
    respectful of that.
        Mr. Stewart. Yeah. I appreciate that. And so, bottom line,
    are you optimistic that we are going to have a better
    experience for U.S. citizens on this?
        Ms. Murphy. Oh, yes, I am. And I will tell you another
    reason I am optimistic about it. If you look at the President's
    management agenda, it puts an incredible amount of emphasis on
    the citizen experience and making sure we always put that first
    in all the investments or all the initiatives we are trying to
    pursue.
        Mr. Stewart. And this will take how long?
        Ms. Murphy. The Technology Modernization Fund--we are just
    starting the President's Management Agenda. We have quarterly
    deliverables that are supposed to be accompanied by successes.
    However, it is a 10-year plan with quarterly milestones that,
    each quarter, we come back and we deliver.
        Mr. Stewart. I was loving your answer until I hear the 10-
    year plan part. But----
        Ms. Murphy. I think 10 years is actually--I think you
    should love 10 years, because if we told you we could do it in
    a year, it would not be a candid answer. If we told you that we
    were going to take successes every quarter and build upon those
    and have it be an iterative process, that is a real answer.
        Mr. Stewart. Okay, I can accept that. I appreciate your
    candor. We have already established I am old. I might not even
    be alive in 10 years, but do what you can. Chairman?
        Mr. Graves. Ms. Herrera Beutler, and then Mr. Amodei.
        Ms. Herrera Beutler. Thank you, Mr. Chairman. I am going to
    switch over to transportation. The budget proposes to purchase
    the DOT building headquarters located here in DC. I am
    pointing, because it is that way. Let's see, where are we? Yes.
    It is not too far. We walk by it from time to time.
        Ms. Murphy. Yes, down by the ballpark.
        Ms. Herrera Beutler. Yes, down by the ballpark.
        Ms. Murphy. It is all back to baseball.
        Ms. Herrera Beutler. For $768 million. GSA is currently
    renting the building for about $490 million annually. Two
    questions: Where does GSA prioritize this lease purchase among
    the other construction requests in the Federal budget fund? And
    secondly, are there timing constraints for executing this lease
    purchase, and what are they?
        Ms. Murphy. If I answer the second question first, and
    then----
        Ms. Herrera Beutler. All right.
        Ms. Murphy. There are, indeed, timing constraints. The
    building was a build-to-suit for the Department of
    Transportation. It is a 15-year lease, and we have got a
    purchase option that we can exercise at a fair market value. We
    have to notify the vendor--sorry, the lessor--of our intention
    to exercise that option so that we can achieve the savings.
        If not, we can pay them to extend that option, but that
    again means more cost for taxpayers. So, that is why it is part
    of this year's budget, and that is part of how we prioritized
    the requirement.
        Obviously, the Department of Transportation needs a
    headquarters within the District. We have got a site that meets
    their requirements. Having them move and build a new site is
    not--is going to cost billions of dollars. This will allow us
    to have that property and continue to maintain and invest in it
    for decades to come, so it can be a long-term asset and part of
    the Federal patrimony in terms of our infrastructure.
        Ms. Herrera Beutler. Okay, great. So, in terms of
    prioritization among other construction requests in the
    building fund, it is up there?
        Ms. Murphy. It is. One of our top requests for 2018. I
    think, dare I say, we have got a few other requests in there as
    well--the land port of entry at Calexico is a priority--and so
    all of these together we think are an important--they make a
    comprehensive package request.
        Ms. Herrera Beutler. Got it. Thank you. I yield back.
        Mr. Graves. Thank you, Ms. Herrera Beutler. And for the
    final question, Mr. Amodei is recognized.
        Mr. Amodei. Thanks, Mr. Chairman. Madam Administrator, if
    you could just have your staff figure out which assisted living
    facility Mr. Stewart will be in at that 10-year thing, and if
    you could get him that information----
        Ms. Murphy. We cannot speak to that.
        Mr. Amodei [continuing]. That would be great. I will go
    ahead and pay for that out of my campaign account. Just let me
    know.
        Okay, I want to expand our earlier discussion just a little
    bit. If it could include also, to the extent that your agency
    knows, its lease portfolio in that neck of the woods, I would
    like an idea of that, because that follows on to--I do not know
    if you are aware or not, but if you are, what other agencies
    are not going through you to perhaps lease properties in the
    area? And, obviously, the reason for wanting to know that is
    what is the Federal footprint in a given area?
        I know that your actual ownership footprint is not that
    extensive, which brings to me to the last one. I would like to
    have a discussion with your folks on FASTA and the concept of
    Federal lands bills. And everybody goes, What is he talking
    about? Well, when you are in the West, you are talking about
    the fact that the Federal Government, usually through the
    Department of the Interior--skip the Department of Defense for
    now--owns a heck of a lot of land.
        And there are lands bills that come from time to time, and
    in my district, there are two that are being prepared for the
    counties in both urban areas of the state, which is Washoe
    County, where Reno is, and Clark County, where Las Vegas is.
        And so, when we talk about this appropriations process, and
    it is like, Well, hey, if you want a Federal building or
    whatever, then that costs money, and you have got to go through
    the--I get all that, except that in some instances where there
    may be a Federal estate which can, quite frankly, potentially--
    GSA can be given a piece of land on the perimeter that somebody
    else wants to do something else with that can potentially
    provide some proceeds to do something downtown or wherever
    else. Now, I am fully cognizant of the phrase earmark, but if
    it is not for just one district, or if it is--you know, there
    are ways to do that legitimately without making it that. But I
    suggest that only as something that maybe ought to be looked at
    in terms of providing another funding source for the Federal
    Government consolidating its administrative footprint in areas
    where it operates.
        So, I would like to have that on the table, too, when we
    talk; the lease picture, as well as--has anybody thought about
    the potential application of something like that to use the
    Federal estate to Federal benefit where there is a growth
    issue?
        Ms. Murphy. Thank you, Congressman, and I would be happy to
    make sure we give you all the lease information as well. As you
    know, about half of our square footage at this point in time is
    leased, and so, to get a full picture of what our portfolio is,
    you do have to look at the lease space. We are making every
    effort to move people out of leased space and into Federal
    buildings. I actually met with the GAO, and we are actually
    helping them move all of their offices into Federal buildings
    and consolidate those right now.
        Mr. Amodei. And so, I guess it goes without saying that for
    those buildings that are yours that you lease, you lease them
    at a rate where GSA breaks even or makes money. It is not a
    red-ink proposition for leasing space in a Federal building to
    a Federal agency. Is that correct?
        Ms. Murphy. When we lease space from the private sector, we
    pay the negotiated rent that goes through a prospectus process
    here and is approved by both our authorizing committees and
    ultimately through the appropriations process.
        When we are leasing out space within Federal buildings, we
    do it at commercial rates so that we do break even, and we can
    maintain the building. The exception being things like land
    ports of entry or where there is really not a commercial
    equivalent, where they are so specialized, and we do those at a
    return on investment rate.
        Mr. Amodei. So, potentially expanding your fee hold or
    interest in Federal space is not a money-losing proposition,
    because the user pays whatever the costs are for that.
        Ms. Murphy. I want to be careful, because I have not though
    about this before, and I want to make sure I give you a full
    answer on it. But it is something I would love to talk to you
    about and make sure that we get you the information necessary.
        Mr. Amodei. Fair enough. Thank you. I yield back, Mr.
    Chairman.
        Mr. Graves. Thank you very much. Ms. Murphy, thanks for
    joining us today. It has been a delight to have you, and
    congratulations on making it through your first Appropriations
    Subcommittee hearing. You did very, very well, and we
    appreciate your thoughtful responses to a lot of thoughtful
    questions by the committee members.
        I am looking forward to working with you in the days ahead
    as we finalize this product and move it through the committee
    and through the House floor. Thank you very much, and with
    that, this hearing is adjourned.

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                                             Wednesday, April 18, 2018.

                                 THE JUDICIARY

                                   WITNESSES

    HON. JOHN W. LUNGSTRUM, CHAIR, COMMITTEE ON THE BUDGET OF THE JUDICIAL
        CONFERENCE OF THE UNITED STATES
    HON. JAMES C. DUFF, DIRECTOR, ADMINISTRATIVE OFFICE OF THE UNITED
        STATES COURTS

                      Opening Statement of Chairman Graves

        Mr. Graves. Good afternoon. We will call this hearing to
    order. Today we would like to welcome Judge John Lungstrum.
    Thanks for joining us today and being a part of this hearing.
    As the new chair of the Budget Committee for the Judicial
    Conference, we welcome you to your first hearing.
        I have enjoyed our time together, as we have met
    previously, and I know that you have taken over a role from
    somebody we had dear affection for and that is Judge Gibbons
    who was fantastic. We know that you will fill those shoes very
    well in your tenure as budget chair. Mr. Duff, we welcome you
    back.
        Mr. Duff. Mr. Chairman.
        Mr. Graves. You have been a longstanding participant in
    these hearings and have done a magnificent job, and we
    appreciate your service. I expect today we will have members
    coming and going throughout the day. We have a busy schedule
    for all Members on our 12 subcommittees as we have an
    accelerated process right now to move the appropriations bills
    through the subcommittees and full committee.
        So, as you see members come and go, we will ask you each
    questions throughout the afternoon. We certainly look forward
    to your testimonies and remarks, and if the ranking member has
    any opening remarks, he will be recognized right now.

                  Opening Statement of Ranking Member Quigley

        Mr. Quigley. Thank you, gentlemen. Thank you, Mr. Chairman.
    I would like to join you in welcoming Director Duff back before
    the subcommittee, as well as Judge Lungstrum for his first
    appearance--is that correct?
        Judge Lungstrum. Yes, sir, that is correct.
        Mr. Quigley. Very good. We will keep our remarks brief in
    the interest of allowing sufficient time for questions. And as
    I have said many times, a well-functioning Federal court system
    is a key pillar to our democracy and is fundamental to ensuring
    the constitutional rights of all Americans are not infringed.
        But it cannot properly function without the support of this
    committee. It is crucial that we provide these courts with the
    resources needed to effectively and efficiently perform their
    constitutional duties. As a former practicing lawyer, I
    understood and deeply value the work that you do.
        The recently enacted fiscal year 2018 appropriations bill
    included an increase of $184 million over the prior year's
    discretionary appropriations, and you budget request for the
    fiscal year 2019 continues the work to rebuild and invest in
    the future of our court system.
        In particular, it is my view that the adequate funding of
    the Federal Defender Services Program must be a priority. I was
    pleased that Congress was able to provide a 3 percent increase
    for the program in 2018 and I would like to follow the needs
    closely to be sure that we stay on top of the resource
    requirements.
        I remain a staunch advocate and defender of the work you do
    and will do all I can to ensure that robust funding for the
    judiciary remains a priority. Once again, welcome, and we look
    forward to your testimony. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. Judge, you are
    recognized for any opening comments you may have. We know that
    you have submitted a written statement for the record and we
    have all viewed that.

                      Opening Statement of Judge Lungstrum

        Judge Lungstrum. I will make very brief oral remarks in
    keeping with the thought to save as much time as we can for
    questions.
        Chairman Graves, Ranking Member Quigley, and other members
    of the subcommittee as you may come and go, thank you for the
    opportunity to appear here today with Director Duff to testify
    on the judiciary's fiscal year 2019 budget request.
        In February, I succeeded Judge Gibbons as chair of the
    Judicial Conference's Budget Committee. Judge Gibbons, of
    course, appeared before this panel many times. I look forward
    to working with the subcommittee in my new role.
        In the interest of time, I will make very brief opening
    remarks, highlighting our 2019 funding priorities and our
    ongoing cost-containment efforts in our space and facilities
    program.
        First, and most importantly, I want to thank the
    subcommittee for the 2.7 percent increase we received for 2018
    and the recently enacted omnibus appropriations bill. We are
    particularly grateful for the $10 increase in the daily payment
    to citizens performing Federal jury service, as well as the $6
    increase to the hourly rate paid to private attorneys serving
    as court-appointed defense counsel. We greatly appreciate you
    again making the judiciary a funding priority.
        For 2019, we ask for a 3.2 percent overall increase above
    the 2018 appropriation level that we assumed in building our
    request. We are recalculating our 2019 appropriations
    requirements based on the final enacted 2018 funding and will
    inform the subcommittee of the changes that the recalculation
    will bring about later this month.
        A 2.4 percent increase is necessary to maintain current
    services. The remainder of the request is for targeted
    enhancements for courthouse security and infrastructure costs,
    initiatives in our probation and defender services programs,
    and other priorities.
        We seek funding increases for several security-related
    items, including $5.5 million to begin implementation of a
    multi-year strategy to replace aging building access systems
    and $2 million for additional court security officers to
    improve courthouse security. Our request also includes $12
    million associated with new courthouse construction projects.
    GSA funds the construction of new courthouses, but certain
    telecommunications, security, and other infrastructure expenses
    are the judiciary's responsibility. So, we are requesting funds
    for those also.
        In our probation program, we are requesting $13 million to
    replace the case tracking system which our officers use to
    supervise offenders released from prison and living in the
    community and defendants on pre-trial release. This enhancement
    is much needed and will improve officer and public safety.
        In our defender services program, we seek an additional $2
    million for an additional $6 increase to the hourly rate paid
    to court-appointed private attorneys. The Judicial Conference's
    goal is to attain the full statutory authorized hourly rate of
    $147 and the requested increase would put us within $1 of that
    goal.
        We also seek $3 million to support hiring in federal
    defender offices consistent with recently developed staffing
    formulas. Other enhancements include four additional magistrate
    judges to address workload needs in Puerto Rico, Texas, South
    Dakota, and Georgia, and several other smaller initiatives for
    cybersecurity and training.
        We have a number of cost-containment efforts under way,
    which include those in our space and facilities program, which
    are achieving significant savings. Our space reduction efforts,
    combined with changes to rent pricing policies that were
    negotiated with the GSA, generate judiciary rent savings of
    nearly $80 million annually.
        I discuss these savings in greater detail in my written
    testimony. Thank you again for the opportunity to appear here
    today, and I reiterate that I look forward to working with the
    subcommittee.
        I ask that you make part of the record my statement and the
    statements of the other judiciary entities on whose behalf we
    submit budget requests. That concludes my remarks, and I am
    happy to respond to any questions.

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        Mr. Graves. Great. Thank you, Judge. Before we go to
    questions, we will recognize Director Duff to share any remarks
    he may have. Thank you again, Director.

                       Opening Statement of Director Duff

        Mr. Duff. Thank you, Mr. Chairman and Ranking Member
    Quigley. It is great to be with you and members of the
    subcommittee again today. I am pleased to appear before you and
    to provide also very brief opening remarks. A more detailed
    written statement has also been provided to the subcommittee. I
    first will join the thanks of Judge Lungstrum for our 2018
    appropriations. We are very grateful for that.
        My first task today as Director of the Administrative
    Office of the United States Courts is to present its budget.
    For fiscal year 2019, the A.O. requests $89.9 million, which
    represents current services levels.
        Although there are no new spending initiatives planned for
    fiscal year 2019, our request will provide critical funding to
    sustain the work of the A.O. as it facilitates the judiciary's
    national programs and policymaking processes, and supports
    courts, probation and pre-trial services offices, and Federal
    defender organizations around the country.
        My second task is as secretary of the Judicial Conference
    of the United States and that is to ask for the subcommittee's
    support for a handful of Judicial Conference priorities that
    are beyond the Administrative Office's own budget request and
    extend to the judiciary as a whole.
        The first of these priorities is continued, 1-year
    extensions of eight temporary judgeships whose authorizations
    otherwise would expire in fiscal year 2019. Without these
    extensions, affected districts could lose a critically needed
    judgeship, which will increase caseloads for the remaining
    judges and slow the processing of cases.
        While we continue to hope that the authorizing committees
    will create new permanent judgeships in these districts, we
    respectfully request your assistance in obtaining the necessary
    interim extensions.
        A second Judicial Conference priority for which we are
    seeking the subcommittee's support is the sufficient funding of
    judiciary needs within the budget of the General Services
    Administration. For fiscal year 2019, we request $25.4 million
    for GSA's Capital Security Program. The Capital Security
    Program addresses serious security deficiencies in courthouses
    where renovations are viable alternatives to new construction.
        In addition, we ask that any funds for new courthouse
    construction be applied consistent with the Courthouse Project
    Priorities plan that is in effect at the time the appropriation
    is made.
        We understand that there are many competing demands for the
    funding in your subcommittee's jurisdiction and for that reason
    remain very grateful for your generous and continued support of
    the judiciary's priorities and needs. That support directly
    enables the judiciary to perform its vital constitutional role.
        As always, we hope to retain your confidence and your
    support moving forward through another year of effective
    performance of our duties and careful, efficient stewardship of
    taxpayer resources. That concludes my opening remarks, and I
    would be pleased to answer any questions you may have.

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                               JUDICIAL VACANCIES

        Mr. Graves. Thank you both. I have a few questions, and I
    know Mr. Quigley will as well. When Judge Gibbons was before us
    last time, we had a discussion about judicial vacancies. Can
    you give us an update on what you have seen in terms of the
    filling of these vacancies? It seemed like it was well over 100
    at the time. Has it improved?
        Mr. Duff. Judicial vacancies are being filled in the
    current Congress and the administration. But we are also having
    judges take senior status, which creates new vacancies. We have
    about 140 vacancies at the moment, and it is important that we
    do fill those as best we can.
        Of the 140 vacancies that exist, 68 of those vacancies are
    what we consider emergencies, and that is a determination that
    is made by a couple of formulae. One is having an excess of 700
    cases per judge in a particular district where a judgeship is
    vacant. Another is if there is a greater than 18 months vacancy
    period of time. So, vacancies remain a very important part of
    our agenda and we work to see that they are filled as best we
    can.
        Mr. Graves. We recognize that it is a little bit out of
    your control given the Senate confirmation process. It seems to
    be a little slower than we would like to see right now. How do
    you reflect the vacancies in your budgeting? That has got to be
    a challenge.
        Judge Lungstrum. What we generally do is make an assumption
    based on historical trends. And then, of course, we have to
    adjust if, in fact, there are fewer confirmations than history
    would predict; then, that means we have allowed for too much.
    On the other hand, if there are more, then we go the other
    direction.
        With this number of vacancies, should they, in fact, be
    filled over a short period of time, that would be a budgetary
    pressure because we are not predicting that necessarily based
    on historical figures. So, that higher than usual vacancy
    number could play out as requiring some adjustments in terms of
    how to pay for that.

                                 CYBERSECURITY

        Mr. Graves. Addressing cybersecurity, I think each of you
    referenced it in your statements as one of the pressing issues.
    I think we recognize that and I know Mr. Quigley joins me with
    concerns about those issues throughout all the different
    agencies we oversee in this committee. Can you give us a little
    update on the judiciary and cyber readiness?
        I know we provided, $85 million in the last spending bill.
    There was a new request for $95 million this year. Can you
    justify the new spending? Is it something we should expect each
    year?
        Judge Lungstrum. Let me sort of start with the last part of
    the question and work back. The answer is yes, sadly, because
    the people who are out there trying to engage in activities
    that we do not want to have take place keep developing new
    approaches, new techniques. They try to outsmart whatever
    hardware, software, and behavioral techniques are used to
    defeat them.
        So, our thought is that we are probably going to be looking
    at an ongoing request at about this year's level because it is
    just that complicated an issue. I am not a technology person,
    in terms of my own personal skills and understanding, but the
    best minds that we can find tell us that it is just going to be
    an ongoing consideration. We have to deal with attempting to
    prevent intrusions. We have to deal with recognizing when
    somebody has beaten the firewalls or whatever and deal with the
    problem if that should occur.
        And we have to make sure that the user, both court
    personnel and judges alike, are very sensitive to all of these
    activities. And that simply, both in terms of hiring people and
    in investing in various programs, is an expensive proposition.
    And frankly, I think we are just left with a situation of
    having to come back and continue to ask for a significant
    amount of funding to deal with what is our number one
    administrative priority within the judiciary.
        Mr. Graves. So, as you look at spending this money, it will
    be on people, infrastructure, software. A combination of
    things. We met with GSA earlier this week and they have a
    priority as well government-wide.
        I know our committee has concerns about rebuilding a lot of
    silos that ultimately are not connected, or are not
    communicating, or are not in parity with software versions, or
    modern technology, or abilities. How do you keep parity? And
    how do you work with the GSA as well?
        Judge Lungstrum. Jim, I will defer to you on that.
        Mr. Duff. Sure. And we have additional challenges in that
    we are coordinating among all the districts around the country
    and all the circuits around the country in our efforts. So, it
    is a massive coordination challenge for us. We have devoted
    substantial resources, both in, thankfully, the appropriations
    we have received and the people we have put on the task.
        Trying to stay ahead of those who are trying to break into
    the system is a challenge, not only for us in our branch, but
    for government and business as a whole, as you know. But just
    to give you a sense of that challenge, we have had in fiscal
    year 2018 already 11 million attempted break-ins to the system.
    So, it is, as you have articulated, a challenge. But it is one
    that, as Judge Lungstrum mentioned, is our highest priority in
    the branch.
        Mr. Graves. Great, thank you. Mr. Quigley, you have any
    questions?

                           FEDERAL DEFENDER STAFFING

        Mr. Quigley. Thank you, Mr. Chairman. Thank you again for
    being here. The Federal Defender Program took a hit during
    sequestration. Can you give us an update of where we are now
    and how your fiscal year 2019 request addresses that?
        Judge Lungstrum. Thank you for asking about that because
    that is a subject, I think, that we are very much desirous of
    making sure we get it right with our request, and I think we
    have. The defenders lost a considerable amount of staff during
    the period of sequestration and we have had to work hard to get
    them built back up. And that has largely been accomplished back
    to the pre-sequestration levels.
        With this year's request, we would then put them up to
    approximately 98 percent of their work measurement formula that
    is relatively new to the defenders.
        Mr. Quigley. What percentage of cases do they handle?
        Judge Lungstrum. I cannot give you an accurate number with
    that, compared to Criminal Justice Act (CJA) panel attorneys,
    other than based on my own district. I know in my own district
    it is about a 60/40 split. With the work measurement formula, I
    think we have gotten more people in defenders' offices. So,
    that means that defenders can take cases, other than where
    there is a conflict, to a greater degree than they were able to
    before, which lowers the CJA panel attorney utilization.
        On the other hand, we do not want to keep CJA panel lawyers
    from handling cases too much, diverting cases to the defenders,
    because they need to be able to keep their expertise on those
    cases. So, it is kind of a delicate balance to keep the CJA
    panel attorney numbers as high as possible.
        But I think, generally speaking, the proportion of cases
    handled by the defenders compared to CJA panel lawyers has been
    on the increase over the last couple of years.

                            DAILY JUROR COMPENSATION

        Mr. Quigley. We got an increase in juror pay for 2018 and
    glad to be a part of that. I appreciate my colleagues support
    on that. Just how much has that mattered? I mean, are we able
    to analyze what the impact is in the system for just how much
    jurors are getting paid?
        Judge Lungstrum. I think it is too soon to tell whether, in
    fact, that is going to make an actual difference in terms of
    the rate of jurors who attend rather than try to figure out
    some way not to attend. But I cannot tell you how appreciative
    we are of that increase. $10 does not sound like a lot of
    money, but it has been sitting at this level since 1990 while,
    if it had been adjusted for inflation, they would be making
    closer to $75 a day.
        And so, even though $10 does not get to even a realistic
    number compared to what inflation would be, I think, if nothing
    else, it shows a commitment by all of us, both the judiciary
    and the Congress, to treating citizens well who are spending
    their time making very difficult decisions, only because their
    name came up by a random draw. And in many places, it may be
    only 40 percent of businesses actually help out with jurors
    when they lose pay by virtue of serving.
        So, how it is going to translate into better numbers of
    people showing up? It is too early to tell. But I am convinced
    that it is going to make people feel better. We are trying, and
    I think it is going to make them feel like the experience is a
    better one for it.
        Mr. Quigley. Can you explain, just so we have a public
    understanding of this, how that relates to the grand jury
    situation and how long they sometimes sit?
        Judge Lungstrum. Honestly, the grand jury situation is a
    whole other matter. I mean, as you know as a person that
    practiced law, you can have a jury trial that lasts a day or
    two. You can have a jury trial that lasts months. So, you can
    have that in a jury situation. Almost all grand juries sit for
    as much as 18 months. And they may come in every month or 6
    weeks and take 2 or 3 days of their time. So, how those people
    are able to function with that----
        Mr. Quigley. Do they get paid the same amount?
        Judge Lungstrum. They do. I wish there were another
    approach to that. I have presided over grand juries as a
    district judge a number of times. I have been a district judge
    since 1991. So, I have presided over a number of grand juries.
    And when you select that grand jury, those folks come in and
    you say, ``Congratulations. You are going to get to be with us
    for the next year and a half.'' And you will see a lot of
    people looking like they have just gotten some bad news handed
    to them.
        [Judge Lungstrum submitted the following for the record:]

        Effective May 7, 2018, Federal jurors will be paid a fee of
    $50 for each day of actual attendance at a trial or hearing.
    This amount is set in statute (28 U.S.C. 1871) and, as noted by
    Judge Lungstrom, applies to both petit and grand jurors. The
    statute also provides that petit jurors serving more than 10
    days on a single case or grand jurors serving more than 45 days
    of actual service may be paid an additional $10 per day, at the
    discretion of the presiding judge. For this reason, you may
    find some grand jurors sitting for multiple months and
    receiving higher compensation than other grand or petit jurors
    who are participating in shorter proceedings.

        What is interesting--and this is, I think important not to
    forget--both with trial juries and grand juries, almost always,
    when you talk to them after they finish their service, they
    have felt that it was really worthwhile. Once they get past
    that initial shock, that they are having to do this, having
    done it, they almost always say, ``Wow, this is something I am
    glad I had the chance to do, to participate as part of our
    system.''
        I always explain to the jurors in the voir dire process
    that, in addition to voting, this is one of the times in which
    you are actually exercising that citizen's right and power to
    be part of your governmental structure.
        And by the time it is all over, they are feeling pretty
    good about it. So, I am somewhat reassured that, generally
    speaking, the process is well received. That does not mean it
    is not a hardship or an inconvenience. And I think that is an
    issue.
        Mr. Graves. Mr. Cartwright, you are recognized.

                               WORKPLACE CONDUCT

        Mr. Cartwright. Thank you, Mr. Chairman. Judge Lungstrum,
    thank you for being here. And Director Duff, you too. Director
    Duff, as head of the Federal Judiciary Workplace Conduct
    Working Group----
        Mr. Duff. Yes, sir?
        Mr. Cartwright. I do not want to try to pronounce the
    acronym for that. I trust you can shed some light on some of
    the specific initiatives that you have taken to improve
    reporting procedures for misconduct in the workplace.
        Mr. Duff. Yes, sir.
        Mr. Cartwright. There is an awful lot of talk about that
    lately, and probably rightly so.
        Mr. Duff. Yes.
        Mr. Cartwright. In your letter to Senators Grassley and
    Feinstein, you say that, ``the working group is removing
    barriers to filing complaints.''
        Mr. Duff. Yes, sir.
        Mr. Cartwright. And so, what I am interested in is if you
    can shed some further light on specifically what barriers have
    been removed and can you describe how filing a complaint now
    differs from how filing a complaint was before the working
    group's current initiative?
        Mr. Duff. Thank you for the question, and I am pleased to
    report on the progress of the working group. As you know, I was
    directed by the Chief Justice in his year-end report to put
    together the working group. His year-end report was issued on
    January 1st. We assembled the working group by January 12th. We
    have met as a group. We have eight members--I would say seven
    distinguished members and myself--so totaling eight.
        But we have met three times in person and been in daily
    contact since January 12 with regard to our efforts to analyze
    and improve processes and procedures within our branch of
    government on workplace conduct, complaints, and issues. And we
    have been able to determine where some immediate improvements
    can be made.
        We had an initial challenge of some misunderstanding with
    regard to our confidentiality provisions in our ethics rules
    that were implemented, frankly, in the aftermath of social
    media to preserve confidences within the branch,
    understandably.
        But those had been misinterpreted by some employees and law
    clerks as to prohibiting disclosure of workplace misconduct.
    That was never intended. And so, we have made revisions already
    to the confidentiality provisions in our ethics guidelines for
    our employees and law clerks.
        But there are a number of other areas where we have already
    discovered potential improvements, and we have opened up our
    process of review to employees and law clerks for their
    participation. We have had a lot of feedback directly to our
    working group and within the circuits around the country from
    employees and law clerks as to what those barriers to filing
    complaints might be. This is still an ongoing process; we have
    not finished our work and probably will not. It will be an
    ongoing project because we will want to review the progress
    that we have made.
        But what we have determined, clearly, is that one of the
    barriers to filing is the formality of our complaint process.
    There are really two mechanisms to file a complaint right now.
    One is under the Conduct and Disability Act, which is a
    statutory provision with very detailed requirements to file a
    formal complaint. And the second formalistic complaint process
    is through the employment dispute resolution process. There
    again, it requires a formal complaint. And what we have been
    hearing, and what is supported by all the studies that we have
    examined up to this point, is that employees need and want a
    less formalistic process. The formal complaint process works to
    the extent it is utilized.
        But many employees just want guidance, counseling, and, we
    think, intervention earlier on in the process so that you do
    not need to get to the formal complaint process.
        And so, we are going to create other outlets for employees
    within the branch, both at a national level and throughout the
    circuits. And we have relied on an EEOC study which, I think,
    demonstrates what we have also learned in our process of
    listening to employees and law clerks as to their concerns.
        And the EEOC study, which was an 18-month study of
    workplace conduct in all walks of life--both public and
    private, determined that 75 percent of people who have
    experienced harassment in the workplace never file a report,
    never report it to their superiors never pursue process.
        And that figure is stunning. And so, we took the approach
    of how do you identify those barriers? How do you remove them?
    How do you ensure that our employees have a safe work
    environment and one in which they feel free to complain without
    retaliation?
        Mr. Cartwright. That is where I was going to go. And if the
    chairman will indulge me one more question? I think about the
    close-knit confines of judicial chambers.
        Mr. Duff. Yes, sir.
        Mr. Cartwright. You have a brand-spanking new lawyer out of
    law school: bright-eyed, bushy-tailed, and regards the Federal
    judge that he or she works for as a part of the pantheon of
    demigods and----
        Judge Lungstrum. They are soon disabused of that.
        Mr. Cartwright. But it is such a small, close-knit
    operation that what I wonder is the working group doing
    something to enlarge the protections that an employee has who
    files a complaint, either formal or informal?
        Mr. Duff. Yes. And again, I think providing more options to
    the employees and to the law clerks----
        Mr. Cartwright. I mean protections against retaliation, as
    you mentioned.
        Mr. Duff. Yes. And, actually, those protections exist.
    Within the model employment dispute resolution plan, there is a
    specific provision that prohibits retaliation against those who
    complain.
        Judge Lungstrum. If I could just interject for a second. I
    have been a chief judge and I have been a district judge for a
    long time. And I think one of the points that Jim is trying to
    make is that there is a misunderstanding about confidentiality
    compared to trying to have grievances addressed. Because
    obviously you do not want your law clerk going out to their
    friends and saying, ``Wow, I am working on this case and it
    could well invalidate a patent''--obviously, whatever it might
    happen to be. That has to be strictly confidential. That is
    what the confidentiality thing is all about.
        I do not expect my law clerks to not talk. If they want to
    go out and say I am not a very good judge, that is up to them.
    If they want to go out and say they do not like the fact I am
    bald, then that is fine. We are not hung up on those things.
        At the most pertinent stage of things, I think we recognize
    there are bad apples in any barrel. But I think, by and large,
    we all recognize we are held to very high standards for the
    reasons that you have stated, and that we should be held
    accountable if we violate those standards.
        So, I think once some of this informational situation is
    taken care of so that people understand where things are, I
    believe that will help. Because I think a lot of it is tied up
    in what I have just described.
        Mr. Duff. And I think it is education, too, within our
    branch and with our employees. Many of them were unaware of
    these outlets that already exist.
        Mr. Cartwright. And protections.
        Mr. Duff. And protections. In particular, the protections
    against retaliation. They were simply unaware of them. So, we
    have to elevate and raise the level of training.
        And one of the things we are going to do in the orientation
    process for new employees and new law clerks is have a separate
    session on this topic. It will not be on the same day you are
    getting all your orientation about your insurance coverage,
    where you are inundated with paperwork and it is just added on
    to that. We are going to have a separate day of orientation
    that educates our employees and law clerks as to----
        Mr. Cartwright. Is that new?
        Mr. Duff. Yes, sir. Yes.
        Mr. Cartwright. Thank you. I yield back, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Cartwright. The gentleman from
    Iowa, Mr. Young, is recognized.

                     THE JUDICIARY'S RELATIONSHIP WITH GSA

        Mr. Young. Thank you, Mr. Chairman. James, how are you
    doing? It has been a while. Still a big Wildcat fan?
        Mr. Duff. Oh. Yes, sir.
        Mr. Young. Yeah.
        Mr. Duff. We have Georgia football. We have Loyola
    basketball. We have got it all covered up here today.
        Mr. Young. Nice to see Kansas represent the South.
        Mr. Duff. Do not leave.
        Mr. Young. Well, I see GSA did not make a request for a
    courthouse this year. What is your relationship like with GSA
    and do you feel that we are addressing the judiciary's needs
    for courthouses adequately? Just tell me about your
    relationship with GSA on that.
        Mr. Duff. Thank you for the question. Our relationship with
    GSA is improving. They have challenges. And we have challenges
    with them, certainly in certain pockets of the branch and in
    certain courts.
        But we have been working with them very closely on a
    validation initiative that has recalculated how they determine
    what our rents will be. We have to pay rent to GSA for our
    courthouses. And we have seen great improvement there and a
    willingness on the part of GSA to work with us on that. So, I
    would say that the relationship is improving greatly.
        Mr. Young. Yeah, we were just--the Third District, Des
    Moines, is going to get a new courthouse here soon and GSA has
    been working on that. I just wondered what your involvement was
    on that? Do you have certain specification, the metrics that
    have to be met for the land and the site, and that kind of
    thing?
        Mr. Duff. We do. And we understand that for the courthouse
    in Des Moines, there is progress that is being made with GSA
    and with the city of Des Moines. I know the location of it was
    an issue.
        Mr. Young. An issue that has been corrected simply through
    making sure that there is participation by the folks in the
    Third District. Transparency. A chance to weigh in and just
    have their voices heard. So, thank you for that help.
        Mr. Duff. Yes, sir.

                        COURT SECURITY OFFICER STAFFING

        Mr. Young. I know you are all in your third year of the
    phased implementation of the new court security officer
    staffing standards. My understanding. And I see you have
    requested 35 new CSOs when last year the number was flatlined.
        And I wonder, here with this new request, is this
    sufficient? Are you simply acting within your budget
    constraints? Or are you really pushing for the number that you
    need? Tell me a little bit about that number.
        Judge Lungstrum. Thank you. That is an excellent question.
    When the Marshals Service came to us a few years ago and said
    that they felt that we needed to increase the number of CSOs by
    almost 350, both the Marshals Service and the judiciary
    recognized that that was something that would have to be phased
    in over time. That was not only from a budgetary standpoint,
    but also simply from the standpoint of the ability to bring
    people onboard. It is not that easy to hire a CSO, as it all
    turns out.
        Well, that is kind of what caught up with this zero-out of
    the past round. That was simply catching up with what the
    Marshals Service was able to do to get us to the number of CSOs
    that they could bring onboard.
        Now we believe we are in a position to bring an additional
    amount onboard each year incrementally for the next several
    years to bring us up to 100 percent. We have met about 50
    percent of that goal now, with this request, and over a few
    more years then we will work our way up to 100 percent.
        I think that is reasonable. The need for those CSOs, I
    think, is for forward watch positions to be concerned about
    active shooters or terrorism; for positions in the control
    rooms, particularly in the large courthouses, to monitor
    cameras; and especially positions at the screening lanes.
    Notice, that could be the Rayburn Building today, which had a
    huge long line.
        Well, we have that same situation with courthouses, only a
    lot of those folks coming in maybe are not just here to talk to
    their representatives about what they would like to have going
    on in their district, but some of them are coming in with maybe
    a different mindset. So, it is important to have an adequate
    physical presence in the screening lane. And we have had some
    problems in the past with inadequate staffing of the screening
    lanes.
        But I think the Marshals Service is confident that if we
    continue on pace with this request and keep this request up
    over the next several years--and probably increasing a little
    bit incrementally--we will be fine.
        Thank you for that interest, though, because it is very
    important. Of course, that security is for the public that is
    there on their business, as well as the courthouse staff. It is
    a very important public issue that we are concerned about.
        Mr. Young. Well, unfortunately, we have to worry more and
    more about security in this world. And I wish we did not have
    to do so, but we have to take precautions. Thank you.
        Judge Lungstrum. Yes.
        Mr. Young. Mr. Chairman.
        Mr. Graves. Thank you. And Judge, I wanted to inform you
    that your representative, Mr. Yoden is doing his duties. He is
    actually chairing another subcommittee--his own subcommittee--
    at this moment and was unable to be here.
        Judge Lungstrum. Well, would you please tell him I missed
    seeing him today, and, ``Rock Chalk.'' Would you pass that on
    to him?
        Mr. Graves. I will--I wanted to make sure you knew he was
    working hard on behalf of his constituents.
        Judge Lungstrum. I will report to the people of Kansas that
    Mr. Yoder is doing his job.

          CHANGING ENFORCEMENT PRIORITIES AT THE DEPARTMENT OF JUSTICE

        Mr. Graves. One final thought from me, and maybe you each
    could address. I know the administration has taken a new
    interest in immigration and enforcement policies. How is that
    impacting the judiciary, and your budgeting, and your
    forecasting? How do you account for that? Is it just more court
    time? Maybe just give us a feel for that, what you are
    experiencing.
        Judge Lungstrum. Thank you. That is a very good question.
    As of yet, the impact has not really hit. And that is largely a
    function of how long it has taken to get new U.S. Attorneys in
    place.
        It is amazing how much difference that makes. If you have a
    district that does not have a confirmed U.S. Attorney, they are
    kind of out there just doing whatever they have been doing.
    When they get a new U.S. Attorney in there, that individual
    tends to set an agenda and maybe follow an agenda that is maybe
    being driven from higher up.
        So, we have not seen yet as much of a dramatic increase as
    I think we expected to see or are probably going to see. And it
    is not our practice to budget for something that we think is
    going to happen. We do not want to come to you and say, ``Hey,
    pie in the sky. Give us some money.''
        But if, in fact, enforcement is more aggressive, as the
    administration has indicated it would be, that will affect us
    at all levels. It will run up a need for defenders or for CJA
    panel counsel. It will run up probation office workload. And of
    course, as it is, our five border courts have 75 percent of the
    felony immigration cases and 25 percent of the felony drug
    cases across the country. And this is just in five courts on
    the border.
        But those immigration cases, they affect Chicago. They
    affect Kansas City. I am sure they affect Dalton, Georgia. They
    affect people all over the country because folks do not just
    stop when they get across the border. They come to various
    places. And so, therefore, it can have an impact on the
    workload of judges throughout the United States. But we have
    not seen the impact yet. We just anticipate it.
        Mr. Graves. So, you are prepared and have the ability to
    monitor the pipeline.
        Judge Lungstrum. Absolutely. And it is something we are
    really keeping track of. And if it comes to pass in the next
    year, that would be factored in probably to requests that we
    make.
        Mr. Graves. Great. Thank you for your explanation. Mr.
    Quigley, you are recognized.

                          PANEL ATTORNEY COMPENSATION

        Mr. Quigley. Sure. Well, to finish the thought on how
    different pay matters. We talked about Federal Defenders and
    jurors. But the panel attorney, we got a bump again, six above
    COLA increase in the hourly payrate. Are you able to gut,
    Judge, just how much that pay impacts willingness to
    participate and quality of attorneys? Have you been able to do
    that over recent years?
        Judge Lungstrum. I can do that sort of backwards because I
    cannot tell yet what this actual increase is going to do, other
    than anecdotally in talking to my friends who are CJA panel
    lawyers or people who appear in my court who are CJA panel
    lawyers, who are very grateful. And of course, I tell them it
    is Congress. We have been asking but it is Congress who
    delivered for them. So, they are very appreciative.
        But what we do know is that the survey that was done as
    recently as 2015 showed that over a third of judges had
    encountered difficulty getting lawyers to serve on CJA panel
    appointments. And over half the time that is because of pay
    issues. That same survey reflected that numerous lawyers on the
    CJA panel were indicating they just simply could not afford to
    do it because their regular average hourly rate is really about
    twice of what the panel rate is now. Even with the increase to
    $140 an hour they have average overhead that is maybe more than
    half of that $140 an hour.
        And really, the struggle is this. I know it is great that
    we got that $6 increase. I cannot thank you enough. I would
    like to get that next $6 increase because we need to keep these
    really well-experienced CJA panel lawyers. Being a Federal
    defense lawyer is not just being a good advocate. It is not
    just being Perry Mason, coming into the courtroom, and showing
    that somebody else did it.
        It is being an expert on the intricacies of the sentencing
    laws and various other Federal statutes that are so
    complicated. When I first became a judge, I had been mainly a
    civil practitioner, and I was shocked to see the guideline
    manual. It was like the IRS code. You cannot just be a good
    lawyer and be handed a Federal criminal case and be expected to
    defend it competently.
        So, you need to be experienced and you need to understand
    what is going on. So, we have implemented programs to try to
    bring new lawyers in and train them--with the Second Chair
    program, for example, that we are very active with in our
    district to be able to build up that experienced bench, so to
    speak. So, I think it is very important that we continue to
    fund the CJA panel rate at as close as possible within your
    budgetary constraints to what the law allows because I think
    that benefits everybody. It benefits the public because it is
    in the interest of justice to make sure people have a vigorous
    defense.
        But a lot of times a vigorous defense involves knowing when
    not to have a trial. Or knowing when to resolve something in a
    way that saves time and money for everybody down the line. So,
    in some ways, having really good counsel works to everybody's
    benefit, not just the individual who is being represented. So,
    I do not mean to get up on my high horse here, but I think it
    is a really important point.
        Mr. Quigley. Yes, for me and those who I knew who did a lot
    of this is it was some sense of responsibility to help. But
    none of them are going to make a living.
        Judge Lungstrum. Well, certainly in Chicago they are not,
    and not even in Kansas City, probably.
        Mr. Quigley. If they had time----
        Judge Lungstrum. Right.
        Mr. Quigley [continuing]. All the overhead is there with
    their office and staff. Sort of the logic is the marginal costs
    are not as great as in others. And frankly, especially during
    hard times, there are fewer and fewer people who can just pay
    outright.
        Judge Lungstrum. Right, and there is a pro bono component
    to it, in a sense. As you say, a lot of lawyers do it because
    they think it is a good thing to do. But it is not fair either
    to expect people to come in and devote the quantity of time
    that it takes. You might be appointed to a criminal conspiracy
    trial that takes weeks. Well, okay.
        That means you are not out doing something else. You are
    sitting there in Judge Lungstrum's court. I have had 10 or 12
    defendant trials where the Federal public defender maybe has
    one of those defendants and the other ones are all CJA panel
    lawyers. Well, they are sitting in front of me for weeks at a
    time and that is really all they are able to do.
        Mr. Quigley. Final point, I think it impacts the rest of
    their practice.
        Judge Lungstrum. Yes, it does.
        Mr. Quigley. They are not out getting other people.
        Judge Lungstrum. It does.
        Mr. Quigley. Thank you.
        Mr. Graves. Thank you, Mr. Quigley. I have no further
    questions, and I do not think Mr. Quigley does either. I do
    want to thank both of you. Thank you for joining us today for
    your first hearing before us. Fantastic job.
        I want to thank you for your preparation and your
    thoughtful responses, as well for presenting the budget on
    behalf of the judiciary and how that impacts each of our
    districts in its own unique way. Good to see you. Good to be
    with you today. Thanks for your work. And with that, this
    hearing is adjourned.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                             Wednesday, April 18, 2018.

                        OFFICE OF MANAGEMENT AND BUDGET

                                    WITNESS

    HON. MICK MULVANEY, DIRECTOR
        Mr. Graves. Good morning! We will call this subcommittee to
    order. I would like to welcome today's witness, my good friend
    from South Carolina, OMB Director Mick Mulvaney. The OMB
    Director is always a headline hearing, but this is truly a
    first for us. We also have the Consumer Financial Protection
    Bureau Director with us, testifying before the Appropriations
    Committee.
        So, Director Mulvaney, is this the first Appropriations
    Committee meeting you have attended as the Director of the
    CFPB?
        Mr. Mulvaney. Yes, sir.
        Mr. Graves. We are delighted to have you. Thank you--in any
    capacity, we are always glad to hear from you. We appreciate
    your service, particularly your dual-hat capacity in which you
    serve the administration and our country.
        Before we get to the details of your budget request, I
    would like to point out how far we have come since the last
    time you testified before this subcommittee. 2017 was a great
    year of accomplishments, and I know you played a big role in
    moving the administration's pro-growth vision forward. The
    results are making a real difference for American families, for
    my constituents, and for our constituents across the board
    here.
        For example, unemployment is at a 17-year low; 2.5 million
    new jobs have been created since President Trump took office
    and you took over in your new role. Wages are growing at nearly
    3 percent. That is the fastest growth in almost a decade. Small
    business optimism is at a historic high level. We all know this
    didn't happen by accident. This happened because Congress, the
    administration, yourself, we all worked together to reform the
    Tax Code for the first time in more than three decades. It has
    happened because we slashed nearly 1,500 unnecessary rules and
    regulations. It has happened because we freed businesses, big
    and small, to grow, and to thrive.
        Director Mulvaney, let me just say thank you. Thanks for
    the important role you have played in all of this over the last
    several months.
        Now, on to today's hearing. In addition to your budget
    request, there are a few areas I would like to discuss in a
    little bit more detail, and I know Ranking Member Quigley would
    as well.
        We have all seen the reports of the rescissions package
    from the White House. Overall, I think this is a good tool. It
    is a good idea. I am interested to hear your thoughts as we
    move forward. But I would like to encourage you, as we have
    discussed, to reach out to members of the authorizing
    committees, reach out to members of the Appropriations
    Committee and committees of jurisdiction about the areas under
    consideration. I think you will find great cooperation there.
        I think it is safe to say some Members of Congress have
    many great ideas about where we can continue to save taxpayer
    dollars, and we would all like to hear more about how you plan
    to use this tool and your congressional outreach plan as well.
        Finally, I am curious to hear about your work as the Acting
    Director of CFPB. Prior to your tenure, this agency earned a
    reputation as an unaccountable, unconstitutional Washington
    bureaucracy. I am interested to hear a little bit more about
    your efforts to rein that in and to reform this agency.
        So we look forward to hearing from you this morning. Before
    we hear your testimony, I would like to recognize Ranking
    Member Quigley for any remarks he may have.
        Mr. Quigley. Thanks, Mr. Chairman. Thanks for holding this
    hearing.
        Director Mulvaney, welcome back. This is your second
    appearance before this subcommittee in your capacity as OMB
    Director. Thanks again for making time to be here.
        Obviously, we are primarily here to discuss OMB's request
    for its own budget needs in fiscal 2019, but one of the OMB's
    core responsibilities is the production of the President's
    budget governmentwide. I understand that cheers some and
    disappoints others, but it is clear that the President's budget
    would create an annual deficit of $984 billion in its first
    year. This trend continues in subsequent years, adding up to a
    grand total of $7 trillion over 10 years.
        To make matters worse, the President's budget fails to
    honor the recently passed Bipartisan Budget Act by funding
    agencies at $57 billion below the new nondefense discretionary
    cap.
        It is easy to write off the importance of a category within
    a title of nondefense discretionary, but just so we are all
    clear on this: This category of funding, where your budget cuts
    more than $57 billion below the cap is where one finds
    resources for activities including veterans' programs, law
    enforcement, diplomatic operations, education, research, and in
    fact; this is precisely where the government is poised to
    invest in the very efforts that boost jobs and improve economic
    security. And yet your budget seeks $103 million for OMB, a 2-
    percent increase above 2018, this after your agency received a
    6-percent increase, by far the largest growth in salaries and
    expenses across all the agencies in the entire financial
    services bill.
        By comparison, the salaries and expenses account was cut by
    10 percent for the Department of Treasury, 18 percent for the
    Federal Communications Commission, 2 percent at the Federal
    Trade Commission, 13 percent at GSA, and the list goes on.
        In your testimony, you suggest that your request reflects
    belt-tightening since, compared to 527 FTEs at OMB in 2010,
    your request of 493 is a significant reduction. But that is not
    actually a fair representation.
        While President Obama was in office and you were serving in
    the House, the FTE numbers at OMB dropped to an all-time low of
    457, thanks to the refusal of congressional Republicans to
    provide adequate funding. In fact, you yourself voted for bills
    that would have cut it even below that level. Yet, as of 2018,
    you expect to be back up to 487, fully 30 FTEs above the level
    in 2013 and 2014. And now you are asking for six more FTE.
    Meanwhile, your budget request for other agencies under the
    jurisdiction of this subcommittee includes cut after cut to
    agency administrative budgets and staffing levels. And that is
    just the FSGG subcommittee.
        Director, while you leave $57 billion on the table, which,
    by the way, was passed through Congress on a bipartisan basis
    and signed into law by the President, these are just some of
    the significant activities and functions that are eliminated in
    your budget request: the Legal Services Corporation, the
    National Endowment for the Arts, the National Endowment for the
    Humanities, the Corporation for Public Broadcasting, the Global
    Climate Change Initiative, the Manufacturing Extension
    Partnerships, the Rural Business and Cooperative Services, and
    the Economic Development Commission.
        We look forward to discussing these and other issues with
    you today.
        Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley.
        Director Mulvaney, you are recognized to present your
    testimony, and then we look forward to asking you a few
    questions.
        Mr. Mulvaney. Mr. Chairman, thank you very much, as always,
    for having me.
        Ranking Member Quigley.
        It is good to see all my former colleagues again.
        By the way, to your opening point about have I ever been
    here before as the chairman or the Director of the Bureau of
    Consumer Financial Protection--which, by the way, is the formal
    name of the CFPB. The CFPB technically doesn't exist. We have
    tried to start using BCFP instead of CFPB. It is very difficult
    to do, but the actual name of the agency, the Bureau, is the
    Bureau of Consumer Financial Protection. And no, a Director has
    never been before any Appropriation Committee before because
    the Bureau does not receive appropriations. So I look forward
    to maybe talking about that some today.
        Real briefly. I am not going to read my opening statement.
    You all have seen it. I know we get a chance to talk about it
    at your pleasure. I will point out that we are asking for a
    small increase from 101 to 103, so just under 2 percent, much
    of which is going to be directed to the Office of Information
    and Regulatory Affairs. We can talk about that. We can talk
    about the ITOR budget.
        I do want to raise two specific issues which I do address
    in my opening statements, which I want to draw to your
    attention. Number one is to thank you for what we call the TMF,
    the technology modernization fund. You all put a bunch of money
    in there. We really appreciate that. This is I think a very
    innovative program where we have a group of folks from all over
    the executive branch who get together and essentially we have a
    competitive process where we will pick programs that we think
    might actually work, and we will spend money on those to try
    and update our IT.
        I encourage you folks to continue your oversight of that.
    We would be happy to share information with you. We think it is
    one of the most innovative programs that we have come up with
    together, the administration and the Congress. We look forward
    to keeping you all abreast of the progress there.
        The other is to draw your attention to something that is
    not functioning as well, which is the Federal Building Fund.
    This is the money we use for buildings. It is one of the rare
    things where the name is actually what it is. About $7.2
    billion has been diverted from that in the last several years,
    and we fear that, if that trend continues--and it did continue
    in the omni--that it will start to materially impact our
    ability to maintain the physical infrastructure of the
    government. But that is all in the opening statement.
        The fun part about these hearings for me is that I am
    liable to be asked everything, literally everything. You
    mentioned our fiscal year 2019 budget. Mr. Quigley talked about
    the proposed fiscal year 2018 budget we sent to Congress, and
    in fact, I think we sent two different versions of it because
    of the various pivots and so forth.
        My guess is I will get questions on rescissions, SNAP,
    something called SNPLMA when Mr. Amodei walks in, the Southern
    Nevada Public Land Management Act, and, obviously, the Bureau.
    So all I can tell you is I enjoy it. It is a fascinating
    intellectual pursuit for me to sit here and see what the
    questions are going to be.
        All I can tell you in advance is there is no way to prep
    the entire Federal Government. So it may be that some of my
    answers are ``I don't know; can I get back to you?'' And I look
    forward to working with you folks on getting all your questions
    answered as best as we possibly can.
        With that, I thank you, Mr. Chairman.
        Mr. Graves. Thank you. I have not known you to answer ``I
    don't know'' before. So, if we reach that level, we have dug
    pretty deep today.
        Mr. Mulvaney. I am up-to-date on SNPLMA, I think, when
    Amodei gets here.
        Mr. Graves. Well, I will start with the rescissions. That
    seems to be something in the news of late after the recent
    budget and passage of the spending bill that was signed into
    law by the President. And I think this committee knows that the
    House, the Senate, and the White House were working together to
    come up with the recent budget agreement.
        As you have discussed previously, there is a rescission
    package being presented by the administration. Can you just
    give us an update on that? And, prior to that, let me just say
    for our committee's sake that I think we all recognize this is
    a useful tool. It has been used by administrations going back
    many, many years, but it is not something that we have used
    recently. So it is new, in that respect, and there may be a
    little bit of education here. But I think it is a useful tool,
    especially in conjunction with consultation with the
    authorizing committees and appropriators, so I appreciate you
    bringing forward this tool for more efficiency.
        Mr. Mulvaney. Thank you. It is new, but it is certainly not
    unique. It is new to many of us, myself included, because if
    you have only been here since 2010, you have never done one of
    these things before. Actually, that is not true. If you only
    have been here before 2000, you have never done one before.
        It is part of the 1974 Budget and Impoundment Act. Every
    President that was able to use it--Ford, Carter, Reagan, Bush,
    and Clinton--used them. So Presidents from both parties with
    control of Congress in both parties used rescissions in the
    past. For various reasons, it was not used during the George W.
    Bush administration nor was it used during the Obama
    administration. But there have been I think several thousand
    rescissions sent to the Congress by the White House over the
    course--since the 1974 act was passed into law.
        So, while it is new, since it hasn't been done since 2000,
    it is not at all unusual. In fact, there are a lot of folks out
    there now who are saying that they would never countenance
    voting for one who have actually voted for them in the past,
    which I find interesting.
        The system works very simply, which is that we find things
    either in the omnibus or that are not in the omnibus that we
    just don't think you should spend the money on. That is
    important, by the way. It is not just the matters that were
    addressed in the last spending bill. There is money that has
    been previously appropriated that hasn't been spent yet. These
    are carryover funds, they are zero-year funds, they are
    multiyear funds that we might look at and together say: You
    know what? Even though we thought 4 years ago that was a good
    program to spend some money on, either we don't need to spend
    any more on it or our priorities have changed. And rescissions
    give you the ability to do that.
        So we look forward to working with both the House and the
    Senate to send those down. If we do, the process is
    fascinating. If we send you a rescission package, then the
    spending on whatever we propose is automatically stopped for 45
    days. Then there are various ways for votes to be taken in the
    House and the Senate that bypass the ordinary rules. One-fifth
    of your body can require a vote in the House. One-fifth of the
    body can require a vote in the Senate. And it is a majority
    vote in both bodies. So it is one of those rare things, again,
    under the Budget Act of 1974, as we deal with reconciliation,
    for example, that only requires a simple majority in the
    Senate.
        So it is a fascinating tool, a tool that has been used by
    both parties over the course of the decades, and we look
    forward to working with you, Mr. Chairman, and whoever is
    interested in maybe bringing some sanity to the spending to see
    what we can do together.
        Mr. Graves. Can you give us any sense of timing? Is it one
    package, or is it something that can be done throughout the
    year? Is it tethered to the passage of a spending bill?
        Mr. Mulvaney. No, it is not tethered to the passage of a
    spending bill. The only limitation seems to be that we cannot
    send you the same rescissions twice. We could, I guess, in
    theory, send you a thousand separate rescissions, which we are
    not going to do, but we can send some now, some a month from
    now, some later on in the fall. Again, that just depends on our
    discussions with you folks and our own internal discussions as
    we sit there and try to figure out what would be the
    appropriate things to send down for you folks to consider to
    rescind on spending.
        Mr. Graves. And timing?
        Mr. Mulvaney. Hope to have something here in the next
    couple of weeks. I know that we don't have any big House breaks
    again until the Fourth of July. So it is a chance to do a good
    bit of work, with the House at least, between now and
    summertime.
        Mr. Graves. Great. Thank you.
        Mr. Quigley.
        Mr. Quigley. Thank you, again, Mr. Chairman.
        The appropriation bills passed in 2017 and this year, they
    stated that prior approval from the Appropriations Committee
    must be secured before an agency can reprogram funds for a
    variety of purposes, including creating or reorganizing
    offices, programs, and activities.
        It has come to our attention that at least one agency under
    this subcommittee's jurisdiction initiated a reorganization
    plan that involved the closing of two regional offices without
    notification to the subcommittee and the committee, let alone
    securing approval.
        The agency contended that they had been authorized to
    proceed on account of OMB's approval, but that is not, in my
    mind, what the law stipulates. What is your view on the
    responsibility of agencies to follow the law? We are talking
    about Federal Labor Relations.
        Mr. Mulvaney. Okay. That was my question, is which--because
    that one didn't immediately come to my attention.
        The answer is we follow the law. That is what we do, right.
    I am not familiar with the specific limitation. We are working
    on a governmentwide reorganization, which we have been very
    public on. And I guess, to the extent we have been spending
    time on it, we have been spending money on it. I am not sure
    about the specific closure of the two--is it the Federal Labor
    Relations board offices you are talking about?
        Mr. Quigley. Federal Labor Relations Authority.
        Mr. Mulvaney. Mr. Quigley, I am sorry. Not only am I not
    familiar with it, I have never heard of that. So I will have to
    find out what that is all about.
        Mr. Quigley. They are moving forward with consolidation, is
    the understanding. It is within the appropriations bills that
    there at least must be notification--we believe approval--
    because this is an alteration.
        Mr. Mulvaney. I guess my question, Mr. Quigley, and I don't
    know the answer off the top of my head, is closing an office
    that the agency considers to be surplus, is that technically a
    reorganization?
        Mr. Quigley. Sure.
        Mr. Mulvaney. I don't know the answer----
        Mr. Quigley [continuing]. If you are moving, I think the
    definition of reorganizing, because you are moving people
    around. Let's have this discussion.
        Mr. Mulvaney. I would be happy to.
        Mr. Quigley. If you could get back to us with how you
    believe this constitutes--how this doesn't seem to apply to the
    appropriation bills passed, again, in 2017 and this year. But
    they do state that prior approval from the Appropriations
    Committee must be secured before an agency can reprogram funds
    for a variety of purposes----
        Mr. Mulvaney. We didn't do that, right? We are agreeing we
    didn't do that.
        Mr. Quigley [continuing]. Including creating or
    reorganizing offices, programs, or activities.
        Mr. Mulvaney. Right.
        Mr. Quigley. It seems like it is in that--give us your best
    argument, if not today, then at some point, why this doesn't
    apply.
        Mr. Mulvaney. I will be happy to. Again, off the top of my
    head, I can't imagine that simply closing two offices--I have
    no idea how many offices they have, if it is 2 of 2, or 2 of
    100--how that constitutes a reorganization. Reorganization, Mr.
    Quigley, is something a lot more dramatic than that. We would
    actually move functions, for example. If I have got 100 offices
    and two of them are in areas that are no longer needed, I don't
    think closing those offices constitutes reorganization.
        Mr. Quigley. Well, let's have that discussion.
        Mr. Mulvaney. Happy to.
        Mr. Quigley. Appreciate it.
        In your testimony, you discussed the need for OMB to hire
    staff at OIRA. You are familiar with this?
        Mr. Mulvaney. Yes, sir.
        Mr. Quigley. With tax expertise. I understand that OMB and
    IRS have agreed to a memorandum of understanding that OMB will
    in fact play a role in the development and review of certain
    tax regulations.
        Mr. Mulvaney. Yes, sir.
        Mr. Quigley. I am sort of hoping you can help us understand
    this. Why is it OMB's view that it was necessary to change what
    was a past practice of Treasury having independence in the
    promulgation of tax law regulations? Do you understand the
    distinction?
        Mr. Mulvaney. I don't know what the distinction is. I would
    be happy to explain the memorandum of understanding with
    Treasury and why it leads to the need for the additional
    personnel.
        Mr. Quigley. The point being the IRS already had the
    personnel in place with this expertise, and that is how we did
    it before.
        Mr. Mulvaney. Fair enough. That is how you have done it for
    a period of time.
        Mr. Quigley. The possibility of duplicative actions.
        Mr. Mulvaney. No. In fact, the exact opposite is the truth.
    This goes back to I think it is a memorandum of understanding
    or agreement between Treasury and OMB that dates to the 1980s,
    and what it did is sort of move part of Treasury out of OIRA
    oversight for a variety of reasons. We think, and Treasury
    tended to agree, because, again, we worked very closely with
    Treasury on addressing this situation, that the practice had
    grown beyond the intent of the original memorandum of
    understanding.
        Here is the classic example I use, Mr. Quigley. One of the
    functions of OIRA is the cross-cutting, the cross-agency
    analysis that we do on regulations. If Commerce passes
    something or wants to do a regulation, propose a regulation,
    there may be a circumstance where that impacts, say, I don't
    know, the Department of the Interior. Commerce is not set up to
    sort of share its information with all the other agencies in
    the executive branch. OIRA in OMB performs that function for
    them.
        Treasury is no different. Treasury may be doing something
    that is impacting Commerce, but Treasury is not
    organizationally set up to do that sort of cross-cutting type
    of analysis; OIRA is. And that is what we brought in. And that
    is one of the reasons we were able to reach that understanding
    with Treasury, because I think they acknowledged the value of
    that. Again, this is a voluntary agreement between Treasury and
    OMB.
        Mr. Quigley. Thank you.
        My time is up.
        Mr. Graves. Thank you. Mr. Stewart, and then Mr. Cartwright
    will be next.
        Mr. Stewart. Thank you, Mr. Chairman.
        Mr. Mulvaney, good to see you.
        Mr. Mulvaney. Hey, Chris.
        Mr. Stewart. We are proud of you and the work you are
    doing. You are in the fight. I know it is not easy----
        Mr. Mulvaney. It is fun.
        Mr. Stewart. But you are doing a great job. The chairman
    said he didn't think you would answer any questions with ``I
    don't know.'' Can you tell me, Mr. Mulvaney, when is my
    birthday?
        Mr. Mulvaney. I am going to blame my staff for poor prep
    work on that, Mr. Stewart.
        Mr. Stewart. Mr. Chairman.
        Mr. Mulvaney. I know Mr. Amodei's birthday because he
    doesn't have one. He was sort of just hatched.
        Mr. Graves. I did say I haven't known him to answer that
    way. That is now new.
        Mr. Stewart. Again, Mr. Director, CFPB, BCFP?
        Mr. Mulvaney. BCFP, yes, sir.
        Mr. Stewart. We will try to comply with your new acronym
    for that.
        I think--and I would be surprised if you don't agree with
    me on this--I think it is one the top two or three worst pieces
    of legislation ever written. It is a good illustration of
    something that we have seen, and that is in the heat of the
    moment--don't tell me your staff----
        Mr. Mulvaney. July 15. Interestingly, however, it did not
    put the year. So we saved you that one.
        Mr. Stewart. Thank you. Obviously, it was many, many years
    ago.
        Again, it is a piece of legislation I think that is a great
    example of when we legislate after a crisis, many times we
    overreact. I think the PATRIOT Act is a good example of that.
    Rather than being thoughtful, I think the CFPB and some of the
    other--Dodd-Frank legislation is we overreacted after a very
    emotional and what some people call a crisis. And it was, no
    question, a dramatic event. I think, in those instances, it is
    a good thing to go back and see if we can moderate or improve
    some of this legislation.
        One of the problems many of us have the BCFP is that it is
    not accountable. It is not accountable to Congress. It is not
    accountable to the President. It is not accountable to any
    oversight. It is not accountable to the American people. The
    Director, like yourself, is not elected in any way.
        I know that you have suggested that we can do better on
    that, maybe a five-person bipartisan commission. I believe you
    have suggested that in the past. I would certainly support
    that.
        Share your thoughts on that, will you please, and how we
    can actually implement some of these changes, because if we
    can't do something that is achievable, then we are just
    thinking. What can we do to actually bring accountability to
    this?
        Mr. Mulvaney. I will give you the short answer, because we
    just sent our semiannual report to the House Financial Services
    and the Senate Banking Committee and I encourage you folks, if
    you are curious about that, to take a look. We actually lay out
    the details on four specific proposals.
        I will give you the big one: Please appropriate us.
    Seriously, I just don't get it. I don't get why Republicans and
    Democrats don't agree that maybe the Bureau should be
    appropriated. I just don't understand why you all would
    voluntarily give up that control----
        Mr. Stewart. I couldn't agree with you more.
        Mr. Mulvaney [continuing]. And the insight that comes with
    it, Mr. Stewart. And this is what is important: I testified
    just last week to the House and Senate and reminded them,
    pointed out to them--I am sure for the first time--370 people
    who work for me at the Bureau make more money than you do: 370
    people.
        My guess is you would never know that but for me telling
    you that. You would know that if you put us on appropriations.
        What else? Half of the time of our professional economists
    is spent doing self-directed research on things that can have
    nothing to do with financial services. You all would never know
    that but for me telling you that. But if you put us on
    appropriations, even if you want to spend more, you want to
    spend less, that is not the point; the point is it brings that
    sunshine, and you get to ask questions of what goes on at the
    Bureau that you don't get to ask otherwise.
        I am voluntarily giving it to you because I want to sort of
    open the doors, but if a future Director doesn't want to, he or
    she doesn't have to. In fact, I think I have made news by
    pointing out that I did not have to answer questions. I did not
    have to respond to questions at the Senate or the House the way
    the statute is written right now. The statute can be improved.
    There are a bunch of ways to do it. Putting us on
    appropriations, making us come to this committee, would be the
    best thing you could do.
        Mr. Stewart. I appreciate that. We are glad you are here.
    We are glad you are sharing that information. But the next
    Director might not. I think that is our concern. Once again,
    though, would you address the five-member board? Do you think
    that is a step forward? Is it possible? Would you support that?
        Mr. Mulvaney. I would. It was not in our four things
    because we focused on things that we thought would have more
    immediate--I think doing the five-member commission, which I
    absolutely support, that is not my point--I think that prevents
    some of the dramatic sways in the direction that the Bureau can
    take. All right. I am a different person than the previous
    Director, and he wanted to go this way, and I wanted to go this
    way. All right. I think if you have a five-member commission,
    it sort of reduces the dramatic swings that you might get from
    a single-person Director. I think that is advisable. I think
    that the industry has the right to know what the future holds--
    I think consumers have the right to know what the future
    holds--and not be subject to this wild uncertainty based upon
    who is running the place. So, yes, I absolutely support that
    proposal.
        Mr. Stewart. Thank you, Mr. Mulvaney.
        I will just conclude. My time is nearly up. I imagine or
    try to imagine when this legislation was created, what is it
    that they thought was so sanctified about this board or this
    organization that it could not have any oversight by anyone
    ever?
        Mr. Mulvaney. Elizabeth Warren didn't think that a
    Republican would ever win a Presidency.
        Mr. Stewart. Yeah.
        Well, thank you.
        Mr. Chairman, I yield back.
        Mr. Graves. Mr. Cartwright, and then Mr. Moolenaar.
        Mr. Cartwright. Thank you, Mr. Chairman.
        Mr. Mulvaney, since being placed at the helm of the
    Consumer Financial Protection Bureau, the CFPB, I am troubled
    that you have essentially been working against the work you
    have been entrusted to do because you don't agree with the aim
    of the CFPB.
        For example, you froze hiring. You froze new protections
    going into effect. You froze civil penalty payments for your
    first 30 days. You issued a memo to your staff stating that the
    CFPB will no longer, quote, ``push the envelope,'' unquote. You
    have brought no new actions against financial institutions.
    And, as reported by Reuters, you are dragging your feet on the
    Equifax investigation. In an interview with the Credit Union
    Times in 2014, you described the CFPB as a sick, sad joke. And
    then you reconfirmed those sentiments to Senator Jeff Merkley
    during your OMB confirmation hearings.
        On February 13 of this year, an article that you authored
    appeared in USA Today, and you stated, referencing the CFPB,
    quote: ``If I am going to run a government agency like that, I
    am going to do it with humility toward those we serve,''
    unquote.
        You have changed the CFPB mission statement to focus
    foremost on deregulation. In January, you issued requests for
    information, RFIs, and specifically asked for feedback from
    financial institutions on how they would most like to be
    regulated.
        Can you please clarify for us who it is you serve with
    humility and why it seems consumers' interests--which was the
    point of the CFPB--it seems consumers' interests under your
    tenure have taken a back seat at the Bureau, a bureau created
    to protect them?
        Mr. Mulvaney. I serve the law. I serve the statute. That is
    what I do. That is what a member of the executive branch does:
    I execute the law.
        I can go through these very quickly, if you want to. We
    didn't freeze the Civil Penalty Fund for 3 days. I think we did
    it for about 24 hours just so I could figure out where the
    money was going.
        Mr. Cartwright. Yes, you did. You froze it for 30 days.
        Mr. Mulvaney. No, sir. Actually, I think we made the
    payments right after I was there. I was appointed November 22.
    I think the first checks went out the end of November, the
    first week in December. And I approved them the second or third
    day--first or second day I was there.
        The data collection freeze, I haven't talked about that. We
    do have a cyber problem over there. No new actions. That is a
    true statement. Mr. Cordray didn't make any in his first 6
    months. We have pursued 25, and we have about 100 ongoing
    investigations.
        The Reuters article is just flat out wrong, which anybody
    could look at--could confirm by simply looking at Equifax's 10-
    Qs and 10-Ks.
        My conversations with Mr. Merkley are always a lot of fun.
        The mission statement did not put de-reg first and
    foremost. We simply added it because it is in the statute. The
    statute says we are supposed to look for overly burdensome
    regulations and so forth, and that had never been in the
    mission statement for some reason in the previous
    administration. So we added that to the mission statement
    because it is in law. We serve the law. You all make it; we
    execute it. That is the way it is supposed to be.
        Mr. Cartwright. How are the American people supposed to
    have faith in your ability to lead the CFPB when you are
    actively trying to transform this agency from a watchdog for
    the American consumers into a lapdog for the financial
    institutions they are supposed to regulate?
        Mr. Mulvaney. I have the ability--we have 26--when I took
    over, we had roughly 26 lawsuits ongoing. I had the discretion,
    the absolute discretion, without answering to anybody,
    including you folks, of dismissing all 26 them. I dismissed 1
    because the other 25 I thought were pretty good lawsuits. We
    were actually executing the law, going after bad actors, which
    we will continue to do, under my leadership. That is how you
    convince people back home that we are still taking care of
    consumers.
        Mr. Cartwright. I want to talk about the 3-percent growth
    that you talk about a lot.
        Mr. Mulvaney. Yes, sir.
        Mr. Cartwright. You have said, you have warned Americans
    not to trust headlines bellowing slower growth and a stalling
    economy or projections saying sustained 3 percent growth is
    unreasonable.
        As you know, the CBO, the Federal Reserve, and reputable
    private institutions have stated that 3 percent growth--we all
    want that, we would all love that--but these reputable sources
    have said that should only be expected for the next 1 to 2
    years and that growth will settle at around 1.9 percent for the
    following 8 years.
        Can you tell us specifically why your growth projections
    outstrip CBO, Federal Reserve, and reputable private economic
    institution projections, they are so much higher than these,
    and why the American people should trust you and not these
    reputable sources?
        Mr. Mulvaney. Sure. Because we have been right so far, and
    the CBO has been wrong. That is why they should trust us. The
    CBO said that growth this year--with Obama leaving office and
    us coming in, the CBO said growth this year would be about 1.9
    percent. We are going to be just under 3 already, by the way,
    which is 3 years I think sooner than we thought we would get it
    when we first drafted the budget. So we have been right so far.
        Yes, the CBO has finally found religion and decided that
    the economy is going to grow faster than 1.9 percent this year,
    which is why they raised their projections for this year and
    next year. But then, the year after, they fall back into the
    same mistakes they made before of assuming that 1.9 percent
    growth is the new normal. We absolutely reject that.
        Why do we think it is sustainable? Because we have done a
    lot more than just lower marginal rates. I would argue too, Mr.
    Cartwright, that lowering rates like the Bush administration
    did in the early 2000s, is a short-term boost to the system. It
    is a sugar high. We have done a lot more than that. We have
    changed the fundamental structure of the American economy in
    how we create and tax wealth. It goes well beyond taxes and
    deals with things like our deregulatory policies, our energy
    policies, our trade policies. We think we have actually changed
    the fundamental structure, and that is why we think 3 percent
    growth is sustainable.
        Mr. Cartwright. Mr. Chairman, I yield back.
        Mr. Graves. Mr. Moolenaar and then Mr. Bishop.
        Mr. Moolenaar. Thank you, Mr. Chairman.
        Director Mulvaney, good to see you again.
        Mr. Mulvaney. Mr. Moolenaar, sir.
        Mr. Moolenaar. Last year, we discussed the Soo Locks.
        Mr. Mulvaney. Yes, we did.
        Mr. Moolenaar. As you know, they are in northern Michigan.
    Your office was kind enough to work with us on clearing up a
    couple of issues. That being said, the Soo Locks, specifically
    the Poe Lock, remains a single point of failure in a multi----
        Mr. Mulvaney. Did you just say Poe Lock?
        Mr. Moolenaar. I know. I get a hard time every time I say
    that. It is the Poe Lock.
        Mr. Mulvaney. I am as much Polish as I am anything else. I
    just don't know if I should take that, Mark.
        Mr. Moolenaar. Well, a Homeland Security report dubbed the
    Achilles' heel of the Great Lakes navigation system and the
    North American industrial economy. Nearly 100 percent of our
    domestic supply of iron ore flows through this single lock, and
    a shutdown could cost 11 million Americans their jobs.
        Last year, when we talked about this, you mentioned you had
    recently found out that OMB uses a discount rate of 7 percent
    whereas the Army Corps of Engineers uses a discount rate of
    3.125 percent. In the unique situation we have with the Soo
    Locks, I remain concerned that policy, use, and feasibility
    analysis don't accurately assess or reflect the value and
    national significance of a project, as you know, that could
    significantly change how the project is viewed on paper.
        Since that time, have you been able to determine why those
    two rates are used, and are there any changes that can be made
    that would help improve this process?
        Mr. Mulvaney. It is a historical--I don't think it is
    statutory--it is a historical thing that OMB has used a number
    and the Army Corps has used a different number. We don't really
    think it changes many outcomes because, as long as we look at
    all of our projects at OMB with the same discount rate, it
    doesn't prejudice one program over another.
        We are looking at a bunch of different ways to change the
    way we analyze this, along with the Army Corps, to sort of, for
    example, prioritize non-Federal shares. But I do know that
    there was $28 million for this project in the budget this year,
    which includes $3 million for dredging and $2 million for gate
    repair. So we did take your words to heart last year,
    recognized the importance of this, and look forward to
    continuing to work to improve that infrastructure.
        Mr. Moolenaar. Because it is a 50-year-old piece of
    infrastructure--and I appreciate the maintenance efforts in
    trying to keep it up and running--but I think, in the long
    term, even in the near short term, we are going to have to have
    a new lock there. I just don't see another way around it.
        I think the Assistant Secretary of the Army for Civil
    Works, Mr. James, is planning on taking a trip to the Soo
    Locks. I know he was interested in having someone from OMB go
    along with him to review the project. If that is something you
    could support, I think it would be a big help.
        Mr. Mulvaney. We have done that for several Members of
    Congress in both parties and Governors as well to go out and
    actually physically look at the stuff, because you are right: a
    lot of times there is no substitute for actually going to look
    at stuff on the ground.
        Mr. Moolenaar. Thank you.
        And then another topic we discussed last time was the Great
    Lakes. As you know, the Great Lakes hold nearly 20 percent of
    the world's fresh water and 90 percent--95 percent of our
    Nation's supply of fresh surface water, and drinking water for
    48 million people. They are vital for interstate and
    international economic commerce, bordering two countries.
        Last year, I had asked you about what you saw as the
    Federal role in support of the Great Lakes. I know, in the
    budget, it didn't really reflect too much support. In the
    appropriations process, we have been able to fully fund the
    Great Lakes Restoration Initiative, but I was disappointed to
    see it was a 90-percent cut again.
        I am just wondering if you are able to take a closer look
    at the Great Lakes Restoration Initiative and funding that.
        Mr. Mulvaney. We absolutely will continue to work with you.
    And there are a lot of delegations, obviously, that are
    interested because it does touch seven States or I can't
    remember how many. That 90 percent reduction is actually not as
    much a reduction as the previous year. When I was here last
    year, I was defending a 100-percent reduction. I think one of
    the points that you made was that what was unique to the Great
    Lakes, at least unique in some fashion, was the international
    component and some of the other factors. So we did put I think
    $30 million in the budget proposal. Obviously, the omnibus
    spent more than that. So we will continue to work with you on
    that.
        We continue to have concerns about it, Mr. Moolenaar. Maybe
    the increase that we put in there last year as part of your
    inquiry should just signal our continued willingness to work
    with you folks.
        Mr. Moolenaar. Just one last quick question on the high-
    intensity drug trafficking areas.
        Mr. Mulvaney. Yes, sir.
        Mr. Moolenaar. Do you have a timeline for HIDTA grants and
    programs to be available and what would be the best information
    I could get to law enforcement agencies who might be interested
    in applying?
        Mr. Mulvaney. This is going to be really close to an ``I
    don't know.'' My understanding is that the grants are ongoing.
    Some grant programs fund all at one time. These are ongoing. So
    I don't know the best way to answer your question, but we are
    happy to get you some more details on that.
        Mr. Moolenaar. Thank you.
        Thank you, Mr. Chairman.
        Mr. Graves. Mr. Bishop, and then Mr. Yoder.
        Mr. Bishop. Thank you very much, Mr. Chairman.
        Welcome, Mr. Mulvaney. I have got a couple of questions for
    you. The first one: The President's budget request for fiscal
    year 19 proposes to slow the frequency of step increases and
    install a pay freeze for all employees in fiscal year 2019,
    while increasing performance-based pay for workers in ``mission
    critical'' areas.
        GAO and the Chief Human Capital Officers Council Working
    Group have identified critical skills gaps in cybersecurity,
    auditor, human resources specialists, contract specialists,
    economists, and generally in the science, technology,
    engineering, and mathematics fields.
        Can you tell me what mission critical areas will receive
    the increased pay under the President's budget? Are they the
    same ones that were identified by GAO and the Chief Human
    Capital Officers Council Working Group, and if so, does that
    mean that law enforcement, air traffic controllers, lawyers,
    doctors, nurses, among others, won't receive a pay raise in
    fiscal year 2019 under the proposal?
        And let me just ask a second question quickly. You issued
    the ``Comprehensive Plan for Reforming the Federal Government
    and Reducing the Federal Civilian Workforce'' on April 12,
    2017, and the memorandum lifted the hiring freeze instituted by
    the President on January 23, 2017. In addition, the memorandum
    sets forth steps that the executive branch department and
    agencies were directed to take to fulfill other requirements of
    the hiring freeze memorandum and the March 13 Executive Order
    13781 on reorganizing the executive branch.
        OMB was required to develop an agency reform plan, detail
    agency actions to achieve near- and long-term Federal workforce
    reductions, and outline agency actions to improve employee
    performance.
        What progress has been made on developing the agency reform
    plan, and how will the reports be evaluated and reported, and
    what is the schedule for evaluating the implementation?
        Mr. Mulvaney. Thank you, sir.
        Very quickly, on the first matter, the proposal was rooted
    in data that we had that essentially--I am going to paint with
    a very broad brush here; I would be happy to get more detail in
    a followup, if you like--of the analysis of the way that we
    paid Federal workers seemed to indicate that we overpay at the
    lower levels and underpay at the upper levels.
        Keep in mind, the GS system, which most of you work on--
    folks at the Bureau do not, which is why they can make so much
    more money at the Bureau of Consumer Financial Protection--but
    the GS system was created I think in 1949 and hasn't really
    been dramatically overhauled since, and it has led to a
    situation where we pay entry level more than we probably
    should, but we don't pay the really advanced, experienced
    people as much as we should.
        So, with the proposal, we say: Look, we are going to freeze
    everybody and then put a bunch of money in this pot to try and
    give us the flexibility necessary to reward the people that
    were really performing well.
        Again, I hope we can all agree, with 2 million nondefense
    Federal workers, that some of them might be good at their jobs,
    and some might not be. Yet we come close to paying them pretty
    much the same. There can be improvements there. And that is
    what our proposal was based on.
        As to the re-org, we have made a lot of progress in that,
    and we are hoping to I think roll it out in May, is when it is
    coming out.
        How do we get to that reduction we talked about? One of the
    things we focused on is duplication of services. I am going to
    butcher the numbers here--and I apologize because I didn't
    expect this exact question--I think we have 46 different
    Federal workforce training programs across 16 different
    agencies. That doesn't make much sense, and it probably opens
    the question as to whether or not there is duplication of
    services that could be more efficiently provided.
        And, by the way, we have data on some of them that actually
    work. The apprenticeship program, for example, we have hard
    data that says, if you go into an apprenticeship program, you
    are likely to get a higher paying job than you were if you
    didn't go in the apprenticeship program.
        Most of the programs don't have that type of results-driven
    data. So what we try and do is redirect attention to programs
    that work and consolidate programs that don't.
        Mr. Bishop. I thank you for those answers. On the step
    increases, it seems to me that what you do when you put the
    freeze there and you remove those step increases is you remove
    the incentives to get people to work for the Federal Government
    who are highly skilled or who have hopes of a good career that
    would be remunerative to them and makes it less competitive
    than the private sector.
        Mr. Mulvaney. I absolutely agree, Mr. Bishop. I contrast it
    with this: If you and I go to work at the Department of
    Commerce and we come in the exact same day, have the exact same
    background and you do a great job and I dog it, the tools
    available to our managers to differentiate between our pay are
    extremely limited. And we are trying to fix that. So that we do
    reward folks like you in that circumstance who do good work and
    make it easier to either pay me less or get rid of me if I am
    performing poorly. That is what we are shooting for.
        Mr. Bishop. But, normally, you do performance reviews.
        Mr. Mulvaney. I do that actually at the Bureau. So it is
    not exactly apples to apples because of the way we are
    structured.
        There used to be a five-category performance review, and
    you had to be in the top two to get your step increase or
    whatever we called them at the Bureau. The previous management
    reduced it I think to two, either pass or fail. I think the
    pass rate was 99-point-something percent. So you can
    effectively get to the point where it is a completely
    meaningless review process, and we are trying to avoid that. We
    are trying to reward the folks who do a good job, because that
    is when we can look the taxpayers in the eye and tell them it
    is a good idea.
        Mr. Bishop. You could have gone back to the five-step
    review process.
        Mr. Mulvaney. I am not going to tip my hat. I have a
    collective bargaining agreement with the union. Of course, any
    changes we would make would abide by all of our agreements with
    the third parties and so forth. So, yes, sir, we were going to
    look at ways to run the Bureau more efficiently.
        Mr. Bishop. Thank you. My time is up.
        Mr. Graves. Mr. Yoder and then Mr. Amodei.
        Mr. Yoder. Thank you, Mr. Chairman.
        Director Mulvaney, welcome back to the committee. I note
    the dialogue we have been having this morning about the CFPB
    and some dissatisfaction that some Members of Congress have
    with decisions that you have made at the CFPB.
        This committee has actually been fairly bipartisan in its
    support for putting the CFPB back on budget and even has had
    some bipartisan support for the five-member board. And what I
    would suggest to my colleagues that are dissatisfied with your
    actions is that, if we want an agency that is unaccountable to
    Congress and has been called the most powerful, most
    unaccountable agency ever created in the Federal Government,
    then, depending on who wins the Presidency, you are either
    going to love or hate what the agency does, and there is going
    to be very little consistency, very little predictability, and
    those problems are going to, sort of, to the victor go the
    spoils.
        It would be much smarter for those who proposed a CFPB in
    the first place to work with Republicans to reform it to make
    it an effective, consistent agency.
        So I just sort of leave those comments. I think there are
    real opportunities, and I would encourage my colleagues across
    the aisle. I think we could really work together to reform and
    fix the agency in a way that might make both parties happier.
        Mr. Mulvaney, I want to turn your attention to regulatory
    reform and recall Executive Orders 13771 and 13777. 13777
    directed Federal agencies to create regulatory reform task
    forces. And my first question would be: Have all Federal
    agencies subject to this regulation successfully created their
    regulatory reform task forces? And if not, which agencies, and
    how far away are they from completion?
        Mr. Mulvaney. I think everybody has, Mr. Yoder. If that is
    not the case, we will clarify. I am trying to think off the top
    of my head. Everybody has been in my office with de-reg ideas.
    So I imagine they--I have not asked that specific question. We
    judge them more by their conduct. And they are all working on
    the issue. So I imagine they have put them together, but I can
    clarify that for you.
        Mr. Yoder. That would be helpful. And then my second
    question is on Executive Order 13771 that required Federal
    agencies to identify two existing regulations to eliminate for
    every new regulation that is promulgated by the agencies.
        Are all agencies subject to the executive order currently
    compliant with its requirements? And, if not, do we know which
    agencies aren't complying and what steps are being taken to
    bring them into compliance?
        Mr. Mulvaney. It may be, Mr. Yoder, that individual
    agencies are not compliant right now. Because what we told them
    we would do was look at them on an annualized basis. So we did
    not require them to do two and then one and then two and then
    one. If you wanted to create a new one and then, after the
    fact, get rid of four, that was fine with us. We didn't want to
    micromanage how they did it.
        And keep in mind, sometimes you have to put out a new
    regulation to fix an old regulation. Is that a deregulation or
    not? So it was a gray area there, and we tried to give them the
    flexibility. But they all know, by the end of the year, they
    have to be at the two-to-one.
        The good news is, I think the last time I looked at this,
    writ large, we were 16 to 1 for a while and then 22, 23 to 1
    after that. So we are exceeding those targets without question.
    Whether or not each individual agency is at two-to-one right
    now, I can't tell you.
        Mr. Yoder. Well, I appreciate your work and the work of the
    administration in that regard.
        As we travel our districts and talk to small business
    owners and entrepreneurs and folks that are trying to create
    jobs and grow the economy, they feel palpable reductions in
    weight from the Federal Government on their efforts to create
    this economy. It is noticeable. We hear about it in the
    district.
        I would love to see what numbers your administration is
    churning out in terms of the economic results of that, the
    correlation that we are seeing.
        You know, Americans now, their second biggest line item in
    their budget is the expense of Federal regulation. I don't
    think most Americans realize how pervasive it is in everything
    they do, from buying groceries to buying a house to clothes for
    their children to paying for healthcare expenses.
        So that hidden tax is really a regressive tax, hitting the
    poorest of our constituents the hardest, because it is a much
    bigger portion of their income. And so, when we look at things
    like the Clean Power Plan, one of the things that the left
    conveniently leaves out is who pays for it. Right. The poorest
    of my constituents, which their electric bill is maybe one of
    the biggest bills they pay, are going to pay for that. The
    richest of my constituents, they don't really even notice those
    expenses.
        So these regulatory costs are a critical part of what you
    are doing when it comes to tax reform and the tax cuts that
    many working families in our districts or most working families
    in our district are receiving, but the regulatory reform is one
    that we need to continue to press on.
        Mr. Mulvaney. You make an excellent point. I have often
    told the story--I think you and I have talked about this
    before--everyone tells the story about how, when you wake up in
    the morning and you turn on the lights, you are taxed; you go
    to the refrigerator, you are taxed; you turn the water on, you
    are taxed; you get on your cell phone, you are taxed; you get
    in your car, you are taxed.
        That same thing throughout your entire day can be said
    about you are regulated. That adds additional costs on top of
    the tax.
        To answer your question, I don't think we have got really
    solid data yet on the individual contribution of that, but I
    will point out that the economy turned around before we passed
    the tax bill--before you passed the tax bill. That is in large
    part we think attributed to the deregulatory agenda of the
    administration, things we were able to do before taxes to jump-
    start the economy even before we expected to.
        Mr. Yoder. I can tell you I haven't had many constituents
    come and say: I wish I had a new Federal regulation that came
    from an unaccountable bureaucrat to respond to and which I
    don't have the personnel to handle.
        That conversation has never happened. But I have had, as my
    colleagues will say, hundreds, if not thousands, of
    conversations or contacts from constituents who have said: This
    is making it harder for me to do my job. This is marking it
    harder for us to provide customer service. This means our small
    banks are going to have to close. This means that we may not be
    able to keep our lights on.
        We all, I think, need to agree in a bipartisan way that
    those regulations have a cost on people, and your relief of
    them is helping the economy in many ways maybe more than the
    tax cuts in a way that people don't necessarily recognize. So
    thank you for your work there, and I will yield back my time.
        Mr. Mulvaney. Thank you, sir.
        Mr. Yoder. Mr. Amodei, and then Mr. Young.
        Mr. Amodei. Thanks, Mr. Chairman. Good morning, Mick.
        As you can imagine, my questions might center more on the
    State of residence of the true superstar of the Mulvaney
    family, which is your brother.
        Mr. Mulvaney. He likes to refer to it as Re-yes, not Re-no.
        Mr. Amodei. The short part first. You have----
        Mr. Mulvaney. For those of you who don't know, my brother
    is one of his constituents, which frightens me to death, but
    that is fine.
        Mr. Amodei. Which is a fact that I try to lever every
    chance I get. Thank you for disclosing that, Mr. Director.
        So, for the second year in a row, you have proposed in your
    budget stripping the unappropriated funds in the Southern
    Nevada Public Lands Management Act. I don't want to spend much
    time on it; just that I have, when all else fails, read the
    bill.
        So I would like to ask for a followup in terms of--I get
    balancing the budget and things like that--but what OMB thinks
    is the authority for stripping those funds based upon a reading
    of the act, which says: Here is what you can use the money for.
        I assume that that is something that you are going to have
    to take a look into. And if there is a strong case to be made,
    we think those are available for changing from what the purpose
    stated in the legislation is to put into the Treasury, then we
    would just like kind of citation to that authority.
        Mr. Mulvaney. Yeah. And I don't know if I have to have
    specific statutory authority to propose a rescission, but I
    will speak to your point, which is, listen, we would love to
    work with you. Here is the problem. That money has been sitting
    in that fund for a long time. You all have done some really
    good work. I have got some notes here. I think you spent like
    $3 billion on this program already, which is great; it has
    worked to that point. But there is like $600 billion sitting
    there. And some of it has been sitting there for several years.
    So we would love to work with you on figuring out a way to use
    it properly.
        The one criticism of the plan is that you all have run out
    of good projects. So let's work together to find good projects
    so that you can use the money. If not, we will go back next
    year and ask for it to be rescinded again just because I am not
    in the job of letting $600 billion of money sit around and not
    be well used.
        Mr. Amodei. I appreciate that, and I look forward to that.
    If there is some authority--you say, listen, I think it is
    general authority or whatever it is; I am not suggesting what
    the answer is--but whatever the answer is we would kind of
    appreciate that offline.
        I want to draw your attention to an Interior account that
    deals with the Bureau of Land Management specifically. You and
    I had talked about it, and it is my fault that I haven't
    followed up on it since, but I will with your staff; you gave
    me the name of a person.
        But I want to paint a picture for you, and that is, unlike
    no other State in the Nation, the Bureau of Land Management
    controls the vast, vast supermajority of the State, somewhere
    in the mid-80s. So I try to bring that point home by saying
    this: That State director and his or her six district managers
    control by a factor of 7 much more real estate in the State of
    Nevada than the Governor, the legislature, any county
    commission, and any city council, which means that their jobs
    are very, very important and that we need to have good people
    in there and they need to be staffed.
        Now, I am not a guy who says more money is the answer to
    every problem, but when you talk about a Western State with
    growth issues like that and you have real estate slots that are
    open and other slots on the nonfire side of those budgets that
    have to do with the everyday multiple-use management of that
    Federal estate and it takes years to do routine stuff, it is
    like: Hey, we need to take a look at that.
        And when I see budgets that, quite frankly, talk about
    moving that agency in Nevada back to 2011 levels, I am a little
    disturbed.
        Now I get that we need to separate fire from the nonfire
    stuff, so we will do that already, but I want to let you know
    that I am going to be knocking on the door of your staff to
    say: Hey, if we have got people that are misused, then let's
    get them used directly, but that these kind of continuing
    cuts--and I won't speak for other States, but I will just tell
    you this--Mr. Stewart left--I would love to have control of 25
    percent of the acres in my State. I am at about half of that.
        So what that agency does in managing the Federal estate is
    phenomenally important. So we are going to be coming to you as
    we go through this process. We have done some stuff 10 years--
    we looked back 10 years, we looked at the last year, that sort
    of thing--to try to sensitize OMB as well as the budget folks,
    the Under Secretary for budget purposes at Interior to go: Hey,
    we need to look at what the mission is here. Is it resourced
    properly? Do you need to move existing assets, things like the
    real estate slots?
        As you can imagine the two urban areas of the State, Las
    Vegas and Reno, when those districts' offices are down on staff
    and it takes them 2 years to process a routine right-of-way
    request on an existing right-of-way, that may be some
    organizational issues, but I know when there are empty slots,
    there are also some resource issues.
        So we are going to be kind of coming at you on that. I know
    what the history has been. And by the way, this is not a
    Republican thing. It is bipartisan. I know that State and
    defense are kind of the sexy things, but in my neck of the
    woods, no disrespect, Interior is a phenomenally important
    Federal agency.
        Mr. Mulvaney. Well, I appreciate the work you have done
    with me, including when I was in this Chamber as one of your
    colleagues, on educating somebody from the Southeast, where the
    Federal Government owns almost none of our land--Mr. Graves is
    in the same situation in Georgia. I had no idea that happens.
    That influences things like BLM. It influences PILT, something
    you didn't mention. It influences fire management. So we do
    appreciate you taking the time to get us up to speed on those
    issues. I look forward to continuing to work with you.
        Mr. Amodei. I do, too.
        Mr. Graves. Mr. Young, and then Ms. Herrera Beutler.
        Mr. Young. Thank you, Mr. Chairman. It is good to see you.
        Director, $20 trillion in debt. Both sides are complicit in
    this----
        Mr. Mulvaney. Twenty-one.
        Mr. Young. $21 trillion. Thank you for that, for
    clarifying.
        Mr. Mulvaney. Sorry.
        Mr. Young. It is realistic. It is reality. That is where we
    are. We talk about the next generation, handing that down to
    them. We are probably, what, 10 generations down, what we are
    doing to the future of this country?
        Tough decisions have to be made, primarily by Congress,
    through legislative means, but we need a willing partner at the
    other end of Pennsylvania Avenue as well.
        How are we doing in convincing the President and your
    colleagues in the administration that we need to come to the
    table to really make these tough decisions? And they are going
    to be tough decisions, but we have to make them.
        Mr. Mulvaney. Thank you for that, Mr. Young. I encourage
    you to take a look at the budget--I know you probably have--but
    look specifically at the proposals we have made in mandatory
    spending.
        We come under criticism sometimes because people accuse us
    of not looking at mandatory spending, what some people call
    entitlement programs. And nothing can be further from the
    truth.
        When the President ran, he said he wasn't going to change
    your Social Security or Medicare. And we don't. But we have
    made some really good proposals on how to change, for example,
    Social Security Disability Insurance, how to fix payments in
    Medicare to non-Medicare folks.
        I had no idea until I got in this job that we use Medicare
    money to pay for graduate medical tuition. We use Medicare
    money to pay hospitals for delinquent accounts from folks who
    didn't pay who aren't on Medicare.
        So there are a lot of abuses of the system where money is
    siphoned off into other things. We propose to fix that. Those
    are big things.
        The budget we sent up last year is the largest proposed
    reform of mandatory spending in the history of budgets. So we
    look forward to continuing to do that. Because you are actually
    right: a dollar is a dollar. We have to look for every one that
    we possibly can. You are absolutely right: you can't get $21
    trillion in debt without both parties being complicit.
        We look forward to being part of the solution and working
    with you and the Democrats, if they like, on doing just that.
        Mr. Young. You and the President have a pretty powerful
    bully pulpit, and I would ask you to exercise it on this issue
    as often as you can.
        Mr. Mulvaney. Yes, sir.
        Mr. Young. Regulations. First of all, you talked about your
    budget that you released. Thank you for that. You do it
    annually. It is the law.
        I love the fact that at the end of the budget you have got
    a list of all the folks who worked on the budget. You have got
    their names there. They own it. When we introduce bills and
    amendments, we have to put our names on those bills and
    amendments.
        When it comes to regulations, we talk about the nameless,
    faceless bureaucracy. We don't say that just to say it. It is
    pretty much true. Because when rules and regulations come out,
    nobody signs. The many, many people who work on those and issue
    those, we don't know who they are, because they don't sign
    their name to it.
        I would just ask you again to look at a bill that I
    introduced, H.R. 1460, the Fingerprints Act, which says, under
    any administration, any rule or regulation that comes out, the
    people who work on it and write it, they have got to write
    their name on it and their title. I think that can be--because
    when you do that, when you own something, you are going to
    offer a better product because, if you don't, they know where
    to go. So there is a transparency there, and it is
    accountability, as well.
        I think this is something you all can do administratively,
    if you really took a look at it, and I would ask you just to--
    --
        Mr. Mulvaney. That is a great idea. By the way, thank you
    for the comments about the Office of Management and Budget. I
    would love to take credit for that, but that is a longstanding
    tradition at OMB. I am pretty sure it is not statutory. They
    want to do it. They are proud of the work they do. They are
    just as proud of the work they do for this administration as
    they did for the previous administration. I have got some folks
    who I think who have been here since the Carter administration.
    I know I have had folks there since the Reagan administration.
    They are good bureaucrats. I know that has word has come under
    a lot of pejorative sort of attack, but they are good folks,
    and they take pride in their work. But you are absolutely
    right. There is no reason we could not do that voluntarily at
    every single agency, and I will mention that to the Cabinet.
        Mr. Young. Right. And on the budget, they put their name on
    it because they are proud to own it.
        Mr. Mulvaney. Yes, sir.
        Mr. Young. They want to let people know. So thank you very
    much. Thanks for what you do.
        Mr. Mulvaney. Thank you.
        Mr. Graves. Ms. Herrera Beutler, you are recognized for
    questions.
        Ms. Herrera Beutler. Thank you, Mr. Chairman.
        Thank you for being here.
        A few different things. I do want to associate myself with
    the remarks of the gentleman from Kansas with regard to the
    regulatory reform. This is one of the areas where I agree it is
    not as easy to link the cause and effect, but we know we are
    seeing more economic vitality because we are deregulating,
    period. It is amazing to see. And you are right, that economic
    turnaround started before the Tax Cuts and Jobs Act, although
    now I think you talk about the 3.3-percent projected growth, I
    would add a big part of that is because we then followed on
    with tax reform. And that is why 1.5 percent wasn't good
    enough, at least not for the folks I serve and for the folks
    that the administration is serving. So I am very excited about
    what we are seeing there.
        On the regulatory side, I think I could use your help in a
    few areas. The first one has to do with a bill that we passed--
    Congress passed in 2014. It was bipartisan. It marked more than
    5 years of work by the West Coast Congressional delegation to
    fix problems with regard to West Coast fisheries. We call it
    the REFI Act. I can't tell you what the acronym stands for
    because I never pay attention to acronyms. But the bill was
    bicameral, and it had administrative support.
        What it did was it provided authority needed to refinance
    the commercial fishing loans for fishermen participating in the
    Pacific ground fish fishery. However, as we sit here today, the
    bill is still not enacted.
        So, while CBO noted that the legislation was fully graphic,
    meaning there were no new appropriations required, this is not
    difficult, and they were required to implement under law, OMB,
    under the previous administration, who had input beforehand--
    afterward, just said: Well, no, we are not going to do it. We
    need an additional $10 million, and we need transfer authority
    to refinance the $26 million loan.
        It really--we have not gotten to the bottom of it. It has
    been very, very difficult. So these fishermen are facing very
    high regulatory costs that threaten to drive them out of
    business. While they fish, they have sacrificed--really, we are
    having a real difficult time here.
        In addition to the regulatory costs, these fishermen pay
    the Federal Government another 5 percent off the top every
    single time they land their catch.
        So, Congress passed it, the President signed it into law,
    CBO gave it a zero score, and yet we still cannot seem to get
    it moving. And I wanted to see if you could provide an update
    and you can help me identify someone on your staff to help, if
    there are specific challenges, have someone help us work
    through it.
        Mr. Mulvaney. I have got some notes on it. I don't think it
    answers your specific questions. The person you can call is me.
    By the way, you are supposed to use my new email address at
    OMB; you can't use my old email address. It is very strange. I
    am now subject to FOIA.
        By the way, this goes to all of you. If any of you have
    called me on my old number, I don't--it is John.M.Mulvaney@OMB
    or something like that.
        Anyway, let me know, and we can get on it. I do have some
    notes, but I don't think I am going to be able to
    satisfactorily respond to your question. It may have to do with
    administrative PAYGO, is the first thing that comes to mind.
    But that is not a very satisfying answer. So we can get you
    something in more detail.
        Ms. Herrera Beutler. That would be great. It was something
    I wanted to get to the bottom of. It was something we passed a
    number of years ago.
        The other thing I wanted to bring up, and it had to kind of
    follow along with what Mr. Amodei talked about with regard to
    Federal lands in the West.
        Mr. Mulvaney. Yep.
        Ms. Herrera Beutler. I am glad this is an area where folks
    who maybe don't have as much Federal ownership in their land
    are joining the cause. One of the challenges I have really been
    seeing has to do with our Federal forests--I mean, there are a
    number of challenges--and what seems like an unwillingness of
    local regional directors in certain areas to just help us with
    good ideas.
        So one of my counties is 97 percent owned by the
    government; 85-plus percent is federally owned. When the
    Federal Government came in and said, ``You can't cut down any
    more of these trees, we are going to protect a bird,'' the
    families that depend on this land have really been driven near
    poverty. I mean, police, fire, counties, schools. It is a
    travesty.
        They have had some really good ideas with comanagement
    ideas and with some of the local foresters. We have had great
    ideas. And I just can't get some of the bureaucrats who are
    sitting on top of it even to let us try some innovation.
        And so this is an area where--and I realize you are not
    directly over Interior, but in terms of the budgets that you
    all submit, when you see that there is less revenue coming in
    and you make cuts, part of the reason there is less revenue is
    because of there is an unwillingness to work it in a way that
    is both beneficial to the environment and to the endangered
    American taxpayer.
        So this is an area where I would like to maybe provide more
    information as we move forward and so that I think this can be
    more of a revenue-generator, quite frankly, and so you might
    not need to cut as much when you are looking at the forest
    lands, BLM, Fish and Wildlife. Again, another issue there. I
    think maybe if there is, again, someone on your staff or on
    your team, we could bend their ear. I would like to peel back
    some layers.
        Mr. Mulvaney. We would be happy to talk about it because we
    absolutely agree. There is no reason for folks to know this,
    but when we sent up the supplemental on the forest fires, I
    guess it was last fall, we included a bunch of land management
    reforms because we know that, if you don't fix it, you are just
    going to have the same problems again and again.
        I have talked to Secretary Zinke about this generally.
    There is a lot of stuff he wants to do. There is some stuff he
    can do administratively, but a lot of stuff is going to take
    statutory change. So we look forward to working with you on
    trying to get the necessary legal changes.
        Ms. Herrera Beutler. Absolutely. Tell us what tools you
    need. I have said that to him as well. I know there is a lot
    going on. I know you guys put together the budgets.
        Mr. Mulvaney. Yes, ma'am. You have got it. I look forward
    to doing that with you.
        Ms. Herrera Beutler. I yield back.
        Mr. Graves. Director, we may have a few more questions. I
    think some members still have some interest. I will start off.
        I was intrigued by your comments earlier regarding the CFPB
    and your directorship there and the fact that you are not
    required to appear before the Appropriations Committee. There
    is no oversight. There is no accountability. But you seek that,
    which is against your own self-interest. So I applaud that.
        Mr. Mulvaney. Actually, it is a little deeper than that,
    Mr. Chairman. It is not that I don't have to appear before the
    Appropriation Committees. The statute very specifically says
    that I shall appear before Congress twice a year--twice in the
    House and twice in the Senate, so four times--and that I shall
    appear. That is it.
        Mr. Graves. Not respond, not reply.
        Mr. Mulvaney. If you look at other sections of Dodd-Frank,
    other directors of other agencies and bureaus have to appear
    and testify or appear and answer questions. I just have to
    appear.
        So I would suggest to you, as I suggested to Mr. Hensarling
    and Senator Crapo, that I could have come in, made my
    presentation, kicked back my feet up on the table, twiddled my
    thumbs, and not answered a single question. Obviously, I didn't
    do that. I stayed as long as they wanted to. We didn't even do
    a hard stop.
        But ask yourself in the future: What if a Republican comes
    in? Are you going to be satisfied with that? Or, if a Democrat
    Director comes in, are you all going to be satisfied with that?
        The bill was written very quickly. I can't remember who it
    was who said that bills that we do in response--maybe Mr.
    Stewart--to emergencies are sometimes not our best drafting
    efforts. This thing can be fixed and can be improved, and that
    is one of many, many examples.
        Mr. Graves. I think it is in the best interest of each of
    our constituents to have accountability, whether we like or
    dislike the direction of the agency, to have that oversight,
    that accountability.
        So, assuming that our efforts are successful and that Mr.
    Quigley and I and others can come together and agree in a
    bipartisan fashion that you should be under appropriations, as
    you have personally requested, what would you request in fiscal
    2019? If you were to present your budget to us, what would it
    be?
        Mr. Mulvaney. I think the number we put in was 450 and
    change. We are running it right now at just north of 6. I think
    450 would take us back to 2015 levels. I don't think anybody
    was complaining that the CFPB wasn't doing enough in 2015. I
    think we can run a very effective agency at that level. 485 was
    the number that we asked for in 2019. So someplace in that
    neighborhood would be the request.
        Mr. Graves. Is that something you have seen in statute that
    we could do? Could we write that in this fiscal year 2019
    appropriations bill?
        Mr. Mulvaney. I have not seen anything that says you
    cannot. My guess is because the statute right now--the statute
    contemplates that we take money from the Federal Reserve and
    that, if there is not enough money in that to run the agency,
    then we have the ability to come and ask you for an
    appropriation.
        I see nothing that says you can't appropriate on the front
    end. You all, in fairness, appropriate unauthorized programs
    all the time, even though you are not authorized to do that.
    The State Department hasn't been authorized for two decades I
    think.
        So I think you absolutely have the ability to do it and
    look forward to chatting with you about that.
        Mr. Graves. So it is very possible we could appropriate,
    which would then not require you to draw down from the
    Treasury. You would use those funds as appropriated.
        Mr. Mulvaney. Let's make perfectly clear what the statute
    says. I don't have it in front of me. I am going to get it
    fairly close because I have looked at it more than once: I
    shall, taking into consideration other funds, ask for enough
    money from the Federal Reserve to run the Bureau. If there are
    other funds that are available to me through appropriation,
    that is money that I am completely entitled legally to consider
    in making my request to the Federal Reserve.
        Mr. Graves. Thank you. A different topic. There has been a
    lot of discussion about CRAs, about some previous rule makings.
    Under the previous Director, Mr. Cordray, the CFPB had passed a
    few regulations or had pursued some in the small dollar credit
    area.
        I know there is a CRA by Dennis Ross that has bipartisan
    support in the House, which is rare when it comes to a CRA. I
    know you are familiar with it.
        Can you tell us a little bit about your thoughts about the
    CRA? Is it important that we pass that through the House? Does
    that impact your direction? And what steps are you taking
    currently so we can work in parallel?
        Mr. Mulvaney. I love CRAs. As a bureaucrat, which for
    better or worse is what I am now--I am a member of the
    bureaucracy, I am a member of the executive branch of
    government, I am a bureaucrat, I am one director for one
    bureau, right--clarity is my friend. Clarity, by the way, is
    your friend because, if you leave stuff ambiguous, then I get
    to interpret it. You might like the way I interpret it. You
    might not like the way I interpret it. It would change
    depending on who is sitting in my particular chair.
        You give me clarity. You give the executive branch clarity
    when you pass these CRAs. Not only, by the way, do you--and a
    lot of folks don't realize this--not only do you undue that
    which has been done, but you prevent us from doing it again.
    And that sends a very strong message, which is the legislature
    has spoken, and we will follow the rules. Not only are we
    undoing what you did, don't go do it again.
        That is the type of clarity that I would appreciate, as a
    member of the executive branch, because it allows me to focus
    my attention on stuff that I actually should be working on. If
    you don't want me to work in an area, tell me. And the way you
    do that is by passing a law. That is what a CRA is. We welcome
    more of those, not fewer.
        Mr. Graves. What efforts are you taking internally to
    address this particular issue?
        Mr. Mulvaney. That was the last thing that my predecessor
    passed. In fact, he passed it quite literally on his way out
    the door. And I got there and asked what my options were, and
    they said: Look, it is too late to undo. So we are not going to
    undo it, but it is completely within my discretion and my legal
    ability to give notice that we are going to reconsider the rule
    under the parameters of the Administrative Procedure Act, which
    is exactly what we are going to do. We are going to do notice.
    We are going to comment. We are going to collect data. It may
    be that I come to the same conclusion when reviewing the data
    that my predecessor did. I may come to a different conclusion.
    But we are going to follow the law. We have no preconceived
    notions about what we are going to do, but we are going to do
    it the right way. We are going to do it by the book. And we are
    going to follow the law.
        Mr. Graves. Thank you.
        Mr. Quigley, do you have any further questions?
        Mr. Quigley. Yes, sir. Thank you, Mr. Chairman.
        Thank you, Director.
        As I ask this question, Director, I would like your
    thoughts on the role you think OMB plays in overseeing agency
    resource practices. Purchasing. Okay. Our FSG appropriations
    bill in section 710 stated that the head of any department or
    agency appointed by the President may not obligate or expend
    funds in excess of $5,000 to furnish, redecorate the office, or
    purchase furniture, or make improvements, unless advance notice
    of such furnishing or redecoration is transmitted to the
    Committee on Appropriations.
        Obviously, Monday, the GAO found that the EPA Administrator
    had violated that 2017 omnibus spending bill. We are aware of a
    whistleblower at HUD discussing this, and Secretary Carson has
    been before other subcommittees discussing this. But they don't
    seem to be episodes standing in isolation. What role do you see
    OMB playing in overseeing these functions?
        Mr. Mulvaney. We are actually involved in that process. We
    are aware of the GAO report at HUD. You didn't ask the
    question; we are aware of a similar GAO report at EPA. And we
    will investigate them.
        We take the antideficiency statute very, very seriously. If
    they have been broken, we will follow the rules. We will
    enforce the law, and we will do so in a transparent fashion.
    Mr. Quigley, I am not interested in covering for anybody else.
        Mr. Quigley. Where are you in the process of those
    investigations?
        Mr. Mulvaney. That I don't know. I know we just got the GAO
    thing. I was more prepared about the EPA because we just got
    that report this week. And I know we have not started our
    work--have we started--either we have not or have just started
    our work on that.
        Mr. Quigley. I am sorry. Take your time. On which one?
        Mr. Mulvaney. The EPA report. The GAO report.
        Mr. Quigley. Okay.
        Mr. Mulvaney. I don't know where we are on the HUD one. It
    is a little bit older, so my guess is we are already into that
    one. But I can get back to you on that.
        Mr. Quigley. In your mind, what are the remedies over the
    repercussions as you go forward with this under the rules as
    you see them.
        Mr. Mulvaney. Oh, HUD procurement did not happen? Was it a
    procurement issue?
        Mr. Quigley. I am aware he stopped it.
        Mr. Mulvaney. That is fine. That is why I didn't know about
    HUD. Okay. Again, the antideficiency statute, what is it? It is
    spending money that is not appropriated. Since HUD didn't
    actually spend the money, it doesn't fall under the
    antideficiency statute.
        If we were, let's speak more generally, to define an
    antideficiency statute violation. Technically, it is a criminal
    law. I don't think anybody has ever been charged criminally
    with a violation of the antideficiency statute. But we would
    talk to the lawyers and figure out what the appropriate
    statutory steps are that we are supposed to take. Again, we are
    going to be completely above board on this one. I am not any
    happier about it than you are.
        Mr. Quigley. Is there an education process that you see
    here? I mean, you are obviously in communication with these
    agencies. Is there--are you taking a tack now to put the others
    on notice that they ought to be aware of this, but if not, here
    are the rules?
        Mr. Mulvaney. I think it is a misunderstanding of the role
    of OMB. We don't micromanage every particular expenditure in
    every particular agency. We are involved in the appropriations
    process, in the apportionment process, and so forth.
        But it would not surprise me that something like this could
    happen at HUD or at EPA without us knowing about it. That would
    be very unusual I think for us to know about something. Again,
    a large sum of money, when you consider what was done, but in
    the greater scheme of the government, not something that might
    rise to the level of sharing with the Office of Management and
    Budget.
        Mr. Quigley. I guess, just to be specific, it is not your
    belief that, given what you have seen here and these episodes
    not standing in isolation, does it make sense to let the other
    agencies know that you are concerned about this, and are you
    contemplating that?
        Mr. Mulvaney. Let me answer it this way: Earlier on, we had
    some issues within the administration regarding the use of
    private air travel. And what we did there was, under the
    auspices of the chief of staff, was put out specific rules,
    guidelines, and also bringing to the attention of the folks
    that the rules already exist.
        There are rules on this, just like for me, there are for
    you, in terms of when you can buy business class travel, when I
    can pay for business class travel. There are rules. I think
    they come out of OPM, on when we can do that. To remind people
    of those rules, to clarify those rules, and to the extent the
    administration wants to go further on those rules, which I
    believe we have, to let folks know about that, as well.
        Mr. Quigley. Thank you.
        Thank you, Mr. Chairman.
        Mr. Graves. Mr. Yoder, and then Mr. Cartwright.
        Mr. Yoder. Thank you, Mr. Chairman.
        Director Mulvaney, just a couple of quick questions here.
        I have heard from a number of constituents concerned about
    the Medicare durable medical equipment program, including
    patients who rely on home respiratory therapy in order to
    remain in their homes. Unfortunately, the CMS bidding system
    for durable medical equipment has hindered the ability of
    Medicare patients to access these vital devices.
        I am aware that an interim final rule from CMS that
    addresses this issue is currently at OMB. The rule has been
    pending since August of last year. As you know, Congress
    included report language to accompany the fiscal year 2018
    omnibus urging that the rule is finished.
        Can you share an update on where this rule is in the
    process and how far away from finalization it might be and what
    steps OMB is taking right now to review the rule in a timely
    manner.
        Mr. Mulvaney. I can share with you where it is in the
    process, Mr. Yoder, but because of where it is in the process,
    that is going to be the only answer I can give you, which is it
    is currently under review at the Office of Information and
    Regulatory Affairs. And we do not comment on the process once
    things are at OIRA.
        I will say this: I probably receive more phone calls about
    this than any other rules put together. We are aware of the
    urgency to members of both parties. I am interested in getting
    it out as quickly as we possibly can. That being said, it is a
    fairly complex rule, and it is absolutely critical we get it
    right because of the scope of this one. So I won't be able to
    comment.
        Mr. Yoder. I don't think we can ask for anything more,
    other than you are clearly aware that this is a critical issue
    for a lot of our constituents, and you are going to work on it
    as fast as you can, but do it the right way.
        Mr. Mulvaney. Yes, sir.
        Mr. Yoder. I also wanted to ask you about the Technology
    Modernization Fund, which was created under the Modernizing
    Government Technology Act, which Congress passed last year. I
    was a cosponsor of the legislation.
        The goal of the fund is to allow government agencies to
    invest in technological improvements that can improve their
    services, strengthen cybersecurity, and increase efficiency.
    OMB's budget request includes $210 million for the technology
    modernization fund. The fiscal year 2018 omnibus included a
    funding level of $100 million.
        Your agency released guidance in February with information
    from agencies on how they can apply for these funds. Can you
    just give the committee an update on the process of this
    program, as we know it is in its early stages, and what types
    of projects have applied for the funds and what outcomes are
    you hoping to see from a successful deployment of the TMF?
        Mr. Mulvaney. Actually, I am not going to punt on this, but
    the woman in our office who actually is sort of running it is
    sitting behind me. So I encourage you after the meeting to grab
    her and get the specific details.
        I think we have identified three programs so far.
        So we have heard from nine, and we have not made any final
    decisions on who is going to get that first allocation of
    funds. But the process is--I think you would be satisfied with
    the way the process is working. I encourage you to reach out to
    my office, specifically Ms. Kraninger, who is sitting behind
    me, to get the specific details. We are very excited about the
    stuff that we have seen so far.
        Mr. Yoder. Do you expect greater participation? You have
    nine. Do you view this as something that you are going to see a
    lot of interest in?
        Mr. Mulvaney. Yes, sir.
        Mr. Yoder. That is all I have, Mr. Chairman.
        Thanks, Director Mulvaney. Keep up the good work.
        Mr. Graves. Mr. Cartwright, you are recognized.
        Mr. Cartwright. Thank you, Mr. Chairman.
        Mr. Mulvaney, I want to talk about a couple of things.
    First off is the new tax plan is going to add over a trillion
    dollars to the annual deficit. From your budget, it is pretty
    clear what you are trying to do is graphic the additional
    deficit by cutting programs that are important to the American
    people, programs like Medicaid and SNAP, and completely
    eliminating some programs, such as LIHEAP, the Low-Income
    Heating Assistance Program, which Americans depend on daily.
        Of course, LIHEAP was started by Congress in 1984. So that
    it wasn't just about helping northern climates, we included
    assistance for cooling bills for Americans in warmer climates
    in the South. This is an enormously important program, Mr.
    Mulvaney. The budget that you wrote eliminates LIHEAP.
        I come from a northern climate in northern Pennsylvania.
    Monroe County, Pennsylvania, has 3,495 homes that got LIHEAP
    assistance in the winter of 16-17. Lackawanna County, where
    Scranton is, had 6,573 family homes assisted by LIHEAP. Luzerne
    County, 11,803 homes in that winter were assisted by LIHEAP.
        Do you really mean to cut these people off and leave them
    shivering in their homes?
        Mr. Mulvaney. A couple of different things, Congressman.
    You mentioned that the new tax plan added a trillion dollars
    additional deficit this year. The total deficit is going to be
    roughly that number. So, clearly, the tax plan by itself does
    not account for 100 percent of that. Spending makes up a good
    portion of that.
        Regarding LIHEAP, you are absolutely right: it was started
    in the 1980s. Our understanding is that almost every major
    utility provider in the country now has protections for the
    folks you just mentioned to make sure their utilities are not
    turned off in the wintertime up North and not turned off in the
    summertime down South. So, to a certain extent, the need that
    existed in the 1980s no longer exists.
        Finally, you mentioned a couple thousand people in each of
    your counties. And I absolutely respect that. I represented a
    relatively poor area of South Carolina. You didn't mention I
    think the 11,000 dead people who get LIHEAP.
        So this is a program that screams out for reform. To the
    extent that our budget proposals have drawn attention to that,
    we welcome that, and would love to work with you on either
    fixing it or replacing it with something that actually works.
        Mr. Cartwright. Well, come on. I mean, auditing it and
    making sure that the right people are getting it is a lot
    different from eliminating it. Don't you agree?
        Mr. Mulvaney. Fine.
        Mr. Cartwright. I want to shift gears. I want to talk about
    infrastructure for a moment.
        Mr. Mulvaney. Sure.
        Mr. Cartwright. Your budget addresses the much-talked-about
    infrastructure plan by proposing $200 billion of Federal
    spending, which you believe will spur $1.5 trillion in
    investment from State and local governments and private firms.
    But the bald reality is that many States cannot afford their
    mandated match under your plan for Federal infrastructure
    funding. That would cost States $6.50 for every single Federal
    dollar invested.
        So the question is, do you have a plan for State and local
    government infrastructure investment where they can't afford to
    match the Federal funding and can't attract the attention of
    private investors?
        Mr. Mulvaney. Actually, they are doing it already. State
    and local governments account for about 86 percent I think of
    Federal--excuse me, total infrastructure spending. They are
    doing it already. What we are offering them is a way to
    leverage the money that they are already spending.
        The classic example I give is of a road. Let's say, in your
    State, they cost $100 million, and the State has figured out a
    way to raise $80 million toward that $100 million road. If we
    can kick in at the Federal level the additional $20 million,
    that road will get built. That is a 4-to-1 ratio. That is a
    really good return on Federal money. Your road gets built;
    everybody is happy. So that is one of the fundamental
    underpinnings of the proposal.
        Mr. Cartwright. Mr. Mulvaney, over half of State
    governments saw their revenue fall below projections last year,
    and they are not financially well off enough to match
    government spending the way your infrastructure plan envisions.
        Mr. Mulvaney. Again, they are already spending the money.
        Someone just handed me a note. They are absolutely right
    that the rural portion of the program, which I think is a full
    20 percent, which is $40 billion, is 100 percent Federal.
        Keep in mind--Mr. Cartwright, I apologize. I forget where
    you are from. Is it a rural part of Pennsylvania? Is it a big
    city?
        Mr. Cartwright. Northeastern Pennsylvania.
        Mr. Mulvaney. Anyway, the matching portion of the
    infrastructure, which you have just mentioned, where we
    leverage Federal dollars, is more aimed at the urban areas
    where we can monetize infrastructure. We are talking about
    bridges, toll roads, ports, that type of thing.
        In the more rural areas where I used to represent, you may
    represent, that is 100 percent federally funded. So we
    recognize those realities. Listen, what we are doing now
    doesn't work. And just throwing more money at it doesn't work.
        My guess is you voted for the stimulus package during the
    previous administration. It did not work. We need to figure out
    a way to actually build the stuff that people need, and we
    think we have done an effective way of proposing that.
        Mr. Cartwright. Mr. Chairman, I yield back.
        Mr. Graves. Thank you, Mr. Cartwright.
        Mr. Mulvaney, I have another quick question, Mr. Quigley
    may as well, and our understanding is that the ranking member
    of the full committee is on her way and wanted to ask a
    question.
        Mr. Mulvaney. If it would be possible then before she gets
    here to maybe take a 2-minute break, that would be lovely.
        Mr. Graves. I am happy to do that. Let me give you one
    question to think about during your break with regard to
    CHIMPs----
        Mr. Mulvaney. Goodness gracious.
        Mr. Graves. One of your favorites----
        Mr. Mulvaney. Yes. Everybody's favorite.
        Mr. Graves. I know that you sent up a proposal recently, I
    guess it was just last week, reflecting some changes to the
    2019 budget in regard to CHIMPs. We had a spirited debate about
    CHIMPs previously with the previous funding bill.
        Obviously, I am very supportive of efforts to reduce
    spending and to restore some of the fiscal sanity around here.
    So can you just--we will take a break--but when you come back,
    maybe just share with us a little bit about that.
        Mr. Mulvaney. I appreciate the accommodation. Thank you.
        Mr. Graves. We will take a 2-minute recess.
        [Recess.]
        Mr. Mulvaney. Thank you. I appreciate that, Mr. Chairman.
        Mr. Graves. Always happy to accommodate.
        Mr. Mulvaney. CHIMPs, I remember learning about them when I
    was here, and it is one of those wonderful parts of Washington
    bureau-speak that no one really understands outside of here. In
    fact, most people here don't understand what they are.
        Here is how I explain to the people and why we put them in
    the budget.
        It is hiding spending, right? It is a way for us to spend
    more money than we want to tell people that we are actually
    spending. And I just don't think it is a good practice.
        Did we get rid of all of them in the budget? No. It is
    actually very difficult to do that. Did we look at things like
    the Crime Victims Fund, which I think is the largest CHIMP that
    we use together on an annual basis to sort of move money
    around?
        It is a bad practice. To the extent we can limit it, I
    think we are doing the taxpayer a good service. Not the fund,
    but in terms of the abuse of the CHIMP system. Again, I know we
    are speaking in appropriations language here that no one is
    going to understand, but it is not a good practice, I don't
    think, in terms of how we tell people how much we spend.
        Mr. Graves. As you evaluate these, are you working with
    CBO? And how does CBO look at CHIMPs? How do they score CHIMPs
    reflected as a savings?
        Mr. Mulvaney. They are an graphic towards spending. So I
    think they count them the same way we do. The two systems are
    the same.
        Mr. Graves. Great.
        Mr. Quigley, any questions?
        Mr. Quigley. Thanks again.
        Mr. Mulvaney. Yes, sir.
        Mr. Quigley. We are waiting for our ranking member of the
    full committee to come back and just a couple of questions
    before then.
        As you know, last August, the administration reversed the
    previously approved EEOC collection of pay data, a collection
    that was the product of a 6-year process which included
    multiple lengthy public notice and comment periods. This was
    the pay transparency requirements. The requirement in question
    stated that companies with 100 or more employees report how
    much they pay their workers by race, gender, and ethnicity.
        My understanding is that OMB may review this data
    collection. It is my understanding that OMB may review and
    approve collection of information only if determines that the
    relevant circumstances related to the collection have changed
    or that the burden estimates provided at the time of initial
    submissions were material in error.
        What information, if any, did OMB have to suggest that
    either of these criteria were met and where did that
    information come from?
        Mr. Mulvaney. I don't have the exact figures in front of
    me. Mr. Quigley, I can get them to you. But off the top of my
    head, here is what we do. The reason it comes to OIRA in the
    first place is the Paperwork Reduction Act. My recollection is
    that, previously, the form had I want to say 180 data points on
    it. With the proposed change, it was 1,600 data points on it.
    So a firm would have to fill out 1,600 different pieces of
    information.
        The whole reason it comes to us is to try and reduce
    paperwork. We made the determination that that was not helpful.
    Specifically, when we got into the details of what the
    information was asking, this is what we found.
        I will give you this example. Under the heading of
    healthcare jobs, for example, the form did not differentiate
    between accountants and doctors. So, if you were a male
    accountant and a female doctor and you wanted to use this data
    form to try and determine whether or not genders were being
    paid properly, it would be completely worthless because
    accountants shouldn't make as much as doctors do; doctors
    should make more. This form failed to consider that.
        So there was a Paperwork Reduction Act component. There was
    a substantive component to it. That accounts for the changes
    that we proposed.
        Mr. Quigley. In your mind, was any of the changes
    requiring----
        Mr. Mulvaney. By the way, I want to make clear that those
    numbers--the factor of those numbers is correct; 180 to 1,600
    may be off by a lot, but it is the general concept.
        Mr. Quigley. I understand. I guess the question is, was
    there any data, in your mind, that is not being asked for that
    was asked before that would be pertinent to understanding pay
    disparity issues?
        Mr. Mulvaney. Again, I don't know if that is our call. That
    is up to the agency that promulgates the rules. We review it
    under the Paperwork Reduction Act. They are the ones who
    actually promulgate the rules.
        Mr. Quigley. But the changes that we are talking about that
    you referenced, did it have any diminution in terms of
    collecting data that was pertinent to its purpose?
        Mr. Mulvaney. It certainly had a diminution of value of the
    data. If the whole idea behind the form is to make sure that
    people aren't being discriminated against but the form itself
    actually makes that harder to do, then, yes, I would suggest
    that is a reasonable objection to the form.
        Mr. Quigley. I suspect this is--I am trying to buy a little
    time for our ranking member.
        Mr. Mulvaney. I am happy to wait, by the way.
        Mr. Quigley. Here she is. I appreciate that.
        Mr. Mulvaney. She is the ranking member. I understand how
    it works around here. I am happy to wait.
        Mrs. Lowey. You are so kind to wait. I am embarrassed.
        Mr. Mulvaney. Not at all----
        Mr. Quigley [continuing]. --reading from a cookbook.
        Mr. Mulvaney. Mrs. Lowey, how are you? Always good to see
    you again.
        Mrs. Lowey. Am I on?
        Mr. Graves. Mrs. Lowey, you are recognized at any time you
    are ready to ask a question of the Director.
        Mrs. Lowey. And I do apologize. There are so many hearings
    going on at the same time.
        Mr. Mulvaney. If anybody can understand that, Mrs. Lowey,
    it would be me, since I have been in the same shoes. But I am
    happy to answer your questions.
        Mrs. Lowey. Well, you are very kind, and I thank you.
        Thank you, Mr. Chairman.
        Okay. Director Mulvaney.
        Mr. Mulvaney. Yes, ma'am.
        Mrs. Lowey. I am really baffled by the White House plans to
    submit a rescissions package to Congress seeking deep cuts to
    the bipartisan omnibus spending bill the President just signed
    into law. And I want to emphasize the bipartisan nature of it
    because, when I came to Congress, we used to say there were
    Democrats, Republicans, and appropriators.
        Mr. Mulvaney. We still say that.
        Mrs. Lowey. I say that because there has been real
    cooperation between the Democrats and Republicans on the
    Appropriations Committee.
        In fact, the first media reports on this emerged within
    days of the President's signature, which I find particularly
    outrageous. After all, the White House had plenty of
    opportunity to weigh in during the lengthy negotiations.
        We keep hearing the administration's objection is
    fundamentally about the sum of dollars being allocated toward
    nondefense discretionary funding. This figure, as you know, was
    in the spending agreement and signed into law by the President
    just a few weeks earlier.
        So, I must say, this whole exercise seems to me a bit
    bizarre. We have a responsibility to the American taxpayer to
    provide Federal agencies with regular and certain budgets so
    they can adequately execute their missions in an efficient and
    transparent manner.
        So, by proposing to rescind funds that have just been
    distributed, it seems to me you are causing an even greater
    degree of chaos and confusion for the agencies. It certainly
    isn't a good way to govern.
        In fact, I was just talking to Chairman Frelinghuysen. We
    were talking about the next round. I said: Just give us the
    302(b)s now when we can get it all done earlier.
        So a couple of questions. Was the President aware of the
    details of the spending agreement and omnibus negotiations
    before signing them into law? If so, how can the President
    pretend the compromise was new to him? And if not, why is no
    one in the administration properly briefing the President of
    the United States?
        Mr. Mulvaney. Certainly. Thank you for that question. Let's
    go back to how this happened. Certainly, we knew the top lines.
    We knew the top lines for several months because we had agreed
    to them in the so-called caps deal I think that was in late
    January or early February; I can't remember when it was.
        But, in fairness, Mrs. Lowey, we didn't actually see the
    bill until I think Wednesday night. And you all voted on it on
    Thursday. The details, ma'am, the details are what----
        Mrs. Lowey. It was this big.
        Mr. Mulvaney. It was only 2,000 pages. You didn't hear the
    President complain about the top line numbers. You heard him
    complain about some of the individual line items. So that is
    what rescissions are designed to go after.
        Keep in mind he also said, look, he is signing this because
    he likes part of it, but he said on the day that he signed it
    that there were things he didn't like.
        Rescissions--and I am not familiar with how long you have
    been in Congress, but you may have been around the last time.
    We actually--we used to do rescissions here all the time. Both
    parties did. Presidents of both parties have done rescissions.
    In fact, the first President not to do one was George W. Bush.
    President Obama didn't do one either.
        Rescissions used to be the ordinary course of business
    around here. I think there have been over a thousand passed by
    the House and Senate, passed after other spending bills have
    been passed, usually on a bipartisan basis. Many folks who are
    saying now they don't want to vote for rescissions because it
    undoes an agreement have voted for them in the past.
        It may be that there is money in the rescission that you
    didn't know was in there or that you don't want to spend or
    that you have changed your mind about. There may also be--and
    this is critical, and this doesn't get nearly enough
    attention--money that we will ask to be rescinded, that is not
    in the omni. There are carryover funds to the tune of several
    hundreds of millions dollars, if not more, from previous years
    that we might just say: Look, the need for that money being
    spent is gone. Times have changed. We have new priorities.
    Let's rescind that money.
        So there are a bunch of different ways to look at a
    rescission. I don't think you can look it at through just the
    perspective that you have offered. There is an opportunity here
    to simply revisit it. You may agree with us; you may disagree
    with us. We do that all the time, but we don't think this is
    unusual. We don't think it is something that is unprecedented.
    And we certainly don't think it is something that indicates
    going back on any type of agreement.
        Mrs. Lowey. Well, except for the fact, I would like to
    remind all of us, that the deadline was October 1. That is
    normal procedure, correct?
        Mr. Mulvaney. Yeah. And we compliment the House. You all
    did----
        Mrs. Lowey. A few months after that. It took us a long time
    to get this bill done. And I am not going to say to you that I
    loved every line in the bill, but that is democracy.
        Mr. Mulvaney. Right.
        Mrs. Lowey. I was really so proud of all the--as the
    ranking member, proud of the Democrats and the Republicans,
    because they really worked together in a bipartisan way. And
    remember, what took all the time was getting that top number
    because, unless you have the 302(b)s, you really can't divide
    everything up.
        So, for me, I just wonder, do you really believe that,
    after spending countless hours of precious legislative time
    already this year to keep the government open--and remember, we
    are way past the deadline--that spending more time to unwind
    what Congress finally put to bed is a wise and responsible use
    of congressional and administrative time and money?
        And I also want to say I was honored to be appointed to
    this special committee that is supposed to be figuring out how
    we can operate more effectively and more efficiently. I said in
    our first meeting: Well, if we got our 302(b)s done early
    enough, we would be able to operate more effectively and more
    efficiently.
        So I guess my question to you: Are you planning to consult
    with the committee as you develop the rescission proposal? When
    will Congress be briefed?
        Hopefully, you won't have a rescission proposal, and you
    will take all your great, creative ideas and submit them to the
    committee.
        I know you looked up to see if I was serious about that.
        Mr. Mulvaney. You had a smile on your face as well when you
    said that.
        Mrs. Lowey. Well, you are correct. So I would hope, and I
    am sure all our chair and ranking members, you would give us a
    lot of input as we do the next round and we get the 302(b)'s
    earlier, which I certainly suggested to the chairs, so that we
    can do our work, and we don't have to put a couple of thousand
    page bill on the desk at the end.
        So are you going to consult with the committee as you
    develop the rescission proposal? And when will Congress be
    briefed?
        Mr. Mulvaney. A couple of different things. Thank you. I
    didn't realize you were on that committee. I assume that is the
    Committee on Budget Process Reform, which we absolutely
    welcome.
        We recognize the fact the House actually did its work last
    year. I think you all passed all 12 of your appropriations
    bills. So, when we say there is a problem with Congress passing
    its bills, we know where that problem lies, and it is not in
    this particular room.
        We encourage--I will make that very clear--we encourage
    anything that gets us back to regular order. The President is
    serious in his threat not to sign another omni. I think that
    would be a welcome threat to Members of both parties in this
    Chamber because you all don't want an omni either. As you have
    mentioned, you didn't like the whole thing, and that is the
    nature of compromise, but I think we all agree that omnibuses
    are not--omnibi?--omnibuses are not the way to run a
    government.
        I always laugh when folks ask me about keeping the
    government open because I was in the unusual circumstance
    several months ago of being the one trying to open the
    government with a lot of folks who accused me previously of
    wanting to shut down the government, having those folks being
    the folks who actually voted to shut down the government.
        I don't know how you voted on the CR during the government
    shutdown, but there are a lot of folks who--the roles were
    reversed, so to speak. It is always enjoyable to talk about
    that, to see some of my Democrat friends vote to shut the
    government down.
        We do think it is a good use of time. Again, it was a good
    use of time in previous administrations. We do look forward to
    working with the committees. I have already started to talk
    with the House leadership about this. It is probably too early
    to come to the committee specifically, but we will work with
    you.
        We don't have to, by the way. The law doesn't require us to
    do that. We can just send it to you. If we send it to you, I
    think we can freeze the spending for 45 days. We, actually,
    with a very small group of supporters in the House and Senate,
    can force a vote on the floor. We would much rather work with
    the House on this because we think, again, if we are able to
    find stuff we all agree on--in 2,000 pages, there might be one
    line that you and I both agree should not be in there. And that
    is what rescissions are for. So we do think it is a good use of
    time, and we will certainly get a chance to find out if it is.
        Mrs. Lowey. Mr. Chairman, if I may ask one other the
    question since you were kind enough to wait for me to come back
    from another hearing.
        You have campaigned as a fiscal conservative, Director
    Mulvaney, and you argued for major spending cuts when you were
    first elected to Congress in 2010. In 2013, you even supported
    major budget cuts to graphic the emergency disaster relief
    package passed through areas like mine, which were ravaged by
    Superstorm Sandy.
        However, as OMB Director, you have defended the GOP tax
    scam, despite the fact that the CBO shows it will add $1.8
    trillion to the deficit over the next decade. You defended a
    repeal of the Affordable Care Act, which would reduce health
    insurance coverage nationwide and increase the deficit. And you
    offered a budget which doesn't even attempt to balance.
        I would be interested, if you want to share it with us, why
    have your thoughts on this issue changed so dramatically, and
    we still haven't fully met our obligations to areas recovering
    from natural disasters? In fact, I listen to NPR every morning.
    Maybe your choice of stations is different.
        Mr. Mulvaney. I have listened before, ma'am. That doesn't
    bother me.
        Mrs. Lowey. I am just saying that I was really upset this
    morning because they were talking about Puerto Rico and how the
    electric grid still isn't up, and there are so many homes that
    still are not functioning.
        So I wonder, are tax cuts more valuable to you than relief
    for areas suffering extreme damage after a natural disaster
    strikes?
        Mr. Mulvaney. Let's talk about the tax cuts, and we can
    talk about the supplemental very quickly.
        I saw the CBO report. I would encourage you--we talked
    about this before you were here. I apologize for going over it
    again. But they make some very pessimistic assumptions about
    economic growth, the health of the American economy beyond
    about 2 years. They tell us we are going to go back to the 1.8,
    1.9 percent growth. That accounts for a lot of that $1.8
    trillion deficit you talked about.
        However, I think a lot of folks overlook that if you
    actually look at the revenue flows year by year, by the 10th
    year, even under the CBO numbers, we are generating more money
    than we would have before the tax bill. So the tax bill is
    actually generating new money to the government.
        Even the CBO, with its low assumptions on growth, projects
    that the American economy will be $6 trillion larger at the end
    of that 10-year window than it otherwise would be. That is
    huge. That is bigger than most countries. It is just the
    addition brought on by our policies.
        So we absolutely do defend the tax bill and think it has
    been a tremendous benefit to the American people. Most folks
    are much better off than they were before it, and we are
    welcome to defend that.
        On the Puerto Rico issue, goodness gracious, Mrs. Lowey, I
    think that the total supplemental emergency funding for
    disaster relief was over $100 billion.
        Money has not been the difficulty. I just got handed a
    note: 96 percent of customers have power now. The challenge is
    with the grid that--keep in mind, more people have power now in
    Puerto Rico than had it before the storm. The problem has been
    a structural deficiency down there that predates the storm. You
    and I both know that one of the limitations of disaster relief
    is you are not supposed to let people be better off than they
    were before the storm. We are actually doing that in Puerto
    Rico. They are going to be better off. We are making an
    exception for them.
        So I think I can make the argument we are treating them
    better than we treated the folks who were in New York and New
    Jersey during Superstorm Sandy.
        We look forward to working with you and with Puerto Rico on
    helping them get back on their feet, but I can assure you, in
    my mind, ma'am, the difficulty they are having is not for a
    lack of Federal funding.
        Mrs. Lowey. Well, let me just say to you--and I want to
    thank the chairman again for giving me the opportunity to have
    a discussion--I hope we can have further discussion as we
    approach the new--hopefully, it won't be an omnibus. Hopefully,
    we will be able to do regular order.
        Mr. Mulvaney. It will have to be something other than an
    omnibus because we are not signing one.
        Mrs. Lowey. Well, I am optimistic. Frankly, as I said to
    the chair just yesterday, give us the 302(b)'s now and let's
    know the rules of the road. Once we get the rules of the road,
    then we have to work together, and I hope in a bipartisan way,
    and there can be differences of opinions.
        Certainly, when we finish this bill, there are about, what,
    160 poison bills? Some of them may be perfume to some Members.
    I think they may be poison. We can have differences of opinion,
    but that is what democracy is all about.
        I do hope that, rather than creating a process with
    rescissions today, next week, we can work together on the next
    series--I am careful not to say an omnibus--and put these 12
    bills together in a constructive way, certainly with your
    input, and I hope it will be regular order.
        So, as soon as we get the 302(b)'s, then we know the
    framework, and we can move forward. So thank you very much.
        Thank you, Mr. Chair. I appreciate your waiting.
        Mr. Graves. It was good to have you join us today.
        Director, you will be pleased to know we are on an
    accelerated timetable when it comes to appropriations. We had
    success last year. It was the first time in over 10 years that
    the House passed all 12 appropriations on time--early, in
    fact--3 weeks early. This year, we are going to try to
    accelerate that and have everything out of the House by mid-
    June, early July. So this team here has been working really
    hard. I know your team has been working really hard.
        Mr. Mulvaney. Notice the staff just rolled their eyes at
    that comment.
        Mr. Graves. But we are moving. We are moving quick. We look
    forward to having all of our bills out of committee within the
    month of May.
        Mr. Mulvaney. We appreciate everything you folks could do
    and your staff could do--and we look forward to working with
    you folks--to get back to regular order. Everybody is well
    served by that.
        Mr. Graves. We will work to that end, and we will be
    creative in some of the packages we put together. We refer to
    them as unified appropriations, as we reported all 12 out last
    year in a very open, regular order process in which every
    amendment was considered, and they all went to the Senate to
    sit and be peered at I suppose by the Senators. This year, I
    hope we get to see a little progress from the Senate.
        Let me commend your team. You have got a great team that
    surrounds you. They allowed you to get out of here today
    without saying ``I don't know'' for too long, right?
        Mr. Mulvaney. They even got Stewart's birthday. I mean,
    come on? What are the chances of that?
        Mr. Graves. Very good. We do appreciate your team. They
    have been fantastic to work with. We look forward to working
    with you in the days ahead.
        With that, the meeting is adjourned.

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                                             Wednesday, April 25, 2018.

                FISCAL YEAR 2019 FINANCIAL SERVICES MEMBERS' DAY

        Mr.  Graves. All right. We will call this subcommittee to
    order.
        I want to welcome today some Members from both parties of
    the House to testify about priorities that they have submitted
    to the Financial Services and General Government Committee. We
    are here to hear these priorities. As a subcommittee, we have
    had over 2,000 requests submitted. And today, we have some
    individuals who want to come and present those requests in
    person. That is an increase of 36 percent over last year, which
    I would say is a testimony to this subcommittee and the full
    committee of advocating for the importance of getting
    priorities and ideas and policy into the appropriations
    process, because this is really how you get things done. So I
    am grateful that we have a few folks here today.
        In this hearing, we are going to do a couple of things.
    This is a member-to-member discussion about some of these
    priorities and good communication for us. And also, it shows a
    great example of coordination between Appropriations Committee
    and authorizing committees.
        And so as we take the opportunity to listen to one another
    today, we will give consideration to the Members as they
    present their ideas and have given us some time.
        And I am honored today to have the acting ranking member,
    Mr. Cartwright, join us as well. And he is welcome to commend
    any comments before we start.
        Mr.  Cartwright. Thank you, Mr. Chairman.
        The chairman is normally happy to have me as acting ranking
    member, because this is a role in which I have to behave
    myself.
        I want to say welcome to the Members. You know, they pay us
    to do this, talk to each other and listen to each other. And
    that is what I am here to do.
        So thank you for being here. And I look forward to your
    testimony.
        I yield back, Mr. Chairman.
        Mr.  Graves. Thank you very much, Mr. Cartwright.
        Well, first, I would like to recognize the gentleman from
    Missouri, Mr. Luetkemeyer, who is from the Financial Services
    Committee. He is chairman of the Financial Institutions and
    Consumer Credit Subcommittee on that committee. We will give
    you a moment here to get yourself settled in and get the mic
    set up.
        But, Mr. Luetkemeyer, we know that you have given a full
    testimony of your request, and that has been submitted to the
    committee. And we have all taken time to read that. I look
    forward to hearing your comments and your ideas. But I
    appreciate you taking time to join us, and you are welcome to
    share with us. You have 5 minutes at your disposal there.

       STATEMENT OF HON. BLAINE LUETKEMEYER, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MISSOURI

        Mr.  Luetkemeyer. Thank you, Chairman Graves, and Acting
    Ranking Member Mr. Cartwright. I appreciate your comments.
        My goodness, you certainly have my respect if you have got
    2,000 requests to go through. You have got to have awful good
    staff, or you are going to burn the candle at both ends. So I
    thank you for your service and for all your hard work.
        For millions of customers and small business owners who
    rely on our financial system each and every day, overregulation
    from Washington has meant increased fees, fewer services, and
    diminished access to credit. It has held back both growth and
    opportunity for the American people.
        As chairman of the Financial Services Subcommittee on
    Financial Institutions Consumer Credit, it is a message I hear
    multiple times every day, whether here in Washington, back home
    in Missouri, or traveling through any city or State around our
    great country.
        Through the appropriation's process, the Subcommittee on
    Financial Services and General Government has the ability to
    foster broader availability of credit and promote economic
    freedom. To me, economic freedom is what makes us, this
    country, what it is today.
        Consumer Financial Protection Bureau, CFPB, has buried
    consumers and our economy under an avalanche of regulations. To
    be clear, it is important to guard consumers against
    discriminatory practices. There is no doubt about that. Yet in
    doing so, we must be cautious the enforcement pendulum does not
    swing too far and do too much harm--do more harm than good. For
    these reasons, I respectfully request the subcommittee
    seriously pursue reforms to the CFPB. Chief among them, the
    placing of the Bureau on a regular appropriations schedule.
    Such a move would provide greater accountability and
    transparency at an agency until only very recently was neither
    accountable nor transparent. It is also a move that CFPB's
    Acting Director and our former colleague, Mick Mulvaney, has
    said is essential. He was in our committee last week and made
    this request along with three others as--reforms that he felt
    would be important to make the CFPB work better, to be more
    accountable and transparent.
        CFPB is not the only Federal financial regulator that has
    harmed American consumers and small businesses, in my judgment.
    We should all work to identify ways to end, once and for all,
    Operation Choke Point, the FDIC- and DOJ-led initiative that
    seeks to prohibit legally operating businesses from the
    financial services they need to not only do business, but to
    survive.
        Over the last several years, members of the Financial
    Services Committee and the broader House have expressed broad
    bipartisan concern surrounding Operation Choke Point. The
    underlying problem here is significant. The Federal Government
    should not be able to intimidate financial institutions into
    dropping entire sectors of the economy as customers, based not
    on risk or evidence of wrongdoing, but purely on personal and
    political motivations.
        In October last year, the Financial Services Committee
    passed H.R. 2706, my Financial Institution Consumer Protection
    Act by a vote of 59-1. That same legislation passed the House
    on December 11th, 2017, by a vote of 395-2. This commonsense,
    non-controversial bill would simply ensure that Federal
    financial regulators cannot suggest, request, or order a
    financial institution to terminate a banking relationship
    unless the regulator has material reason beyond reputational
    risk, which, quite frankly, the regulators have yet to tell me
    how they can define.
        This legislation is so non-controversial that the FDIC has
    already used its authority to put the provisions into place.
    For that reason and given that the House overwhelmingly
    approved the measure by a near unanimous vote, I respectfully
    request that the subcommittee consider inclusion of H.R. 2706
    in the upcoming FSGG package.
        I also urge the subcommittee to identify provisions to
    offer targeted regulatory relief to financial institutions.
        Under the leadership of Chairman Hensarling, the Financial
    Services Committee has advanced dozens of bills to offer
    targeted relief to financial firms, banks, and credit unions.
    Where appropriate, I would urge the subcommittee to consider
    inclusion of these provisions into your appropriations
    legislation.
        My colleagues and I stand ready to work with you in order
    to do that. Mr. Chairman, I thank you and the members of the
    subcommittee for your consideration of these ideas and
    opportunity to testify today. I look forward to working in a
    collaborative way on these issues and also working with
    Chairman Hensarling and my colleagues in the Financial Services
    Committee on these efforts to promote economic independence
    across our great Nation.
        With that, Mr. Chairman, I yield back.
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        Mr.  Graves. Thank you, Mr. Chairman. And let me just thank
    you for last year. I know you were a champion in this arena,
    and you have a unique background that lends you to be an expert
    in this area and a champion for the credit markets and for
    making sure that our consumers, our constituents, have access
    to credit.
        So thanks again for bringing these ideas forward. I don't
    have any questions for you.
        Mr. Cartwright, do you have any questions, or Mr. Bishop?
        Mr.  Cartwright. I do not have questions, Mr. Chairman. But
    I want to echo your praise for the member for that fine bill
    you brought up, the Financial Institution Consumer Protection
    Act. I voted for it. And, in fact, only two voted against it.
    So a nice piece of legislation.
        Mr.  Luetkemeyer. And, actually, one of those has
    actually--wished he had voted for it now. He has told me so. It
    is down to one. That is okay. We all make mistakes, right?
        Mr.  Cartwright. Thank you for your testimony today. Thanks
    for good work in Congress.
        Mr.  Luetkemeyer. Thank you.
        Mr.  Graves. Mr. Bishop.
        Mr.  Bishop. Thank you. I have no questions. Thank you for
    your testimony, and I think your points are well taken.
        Mr.  Graves. Thank you, Mr. Luetkemeyer. We look forward to
    doing our best to include some of your concepts, if not all,
    into the process, as we move forward.
        Mr.  Luetkemeyer. I appreciate your consideration, Mr.
    Chairman. Thank you.
        Mr.  Graves. Let's welcome Mr. Young to the hearing.
        Mr. Young, did you have a comment real quick before Mr.
    Luetkemeyer----
        Mr.  Young. It is just a pleasure to be on this committee
    with all of you.
        I yield.
        Mr.  Graves. Thank you for that.
        Next we have Mr. Barr, the gentleman from Kentucky. We
    thank you for joining us. Another member of the Financial
    Services Committee, and another leader on these issues. You
    engaged deeply with this subcommittee last year. We thank you
    for that and look forward to hearing your testimony that you
    have today. And we know that you submitted something for the
    record as well, which has been recorded.
        But the next 5 minutes are yours to use however you wish,
    Mr. Barr. Thank you.

    STATEMENT OF HON. ANDY BARR, A REPRESENTATIVE IN CONGRESS FROM
                         THE STATE OF KENTUCKY

        Mr.  Barr. Thank you, Mr. Chairman and Ranking Member
    Cartwright. Thank you. Good to see all of you all here. Thanks
    for the opportunity for giving me a chance to talk a little bit
    about a couple of ideas for your appropriations bill.
        There is two bills in particular that I believe should earn
    your consideration for inclusion in the 2019 FSGG
    Appropriations package. First, the Taking Account of
    Bureaucratic Spending Act, known affectionally as the TABS Act,
    and the Preserving Access to Manufactured Housing Act.
        As appropriators, you know that one of the most important
    powers of Congress enumerated in the Constitution is the power
    of the purse, which is the most effective tool available to the
    legislative branch to told the executive branch accountable.
    Unfortunately, the Dodd-Frank Act exempts the Consumer
    Financial Protection Bureau from the appropriations process,
    instead allowing the Bureau to grew its funds directly from the
    Federal Reserve subject to an opaque and arbitrary formula.
    This arrangement means that the Bureau will draw about $6.7
    billion over the next decade without the approval of Congress,
    and without any oversight in how that money is spent. Our
    oversight in the House Financial Services Committee has exposed
    some abuses because of this.
        This deprives Congress of its most important oversight
    tool, the power of the purse, which, as Madison wrote in
    Federalist Number 58, may, in fact, be regarded as the most
    complete and effectual weapon with any constitution can arm the
    immediate representatives of the people for obtaining a redress
    of every grievance and for carrying into effect every just and
    salutatory measure.
        The Taking Account of Bureaucrat Spending Act would put an
    end to Bureau extravagances and bureaucratic overreach that
    come at the expense of our constituents by establishing, for
    the first time, Congress' proper oversight of this Federal
    agency.
        Specifically, the bill amends Dodd-Frank to limit the
    authorization of the agency and subjects the Bureau to the
    annual appropriations process. Congress and the American people
    deserve a say in how much taxpayer money the CFPB gets, how it
    spends it, and whether the Bureau is fulfilling congressional
    intent and whether it warrants reauthorization. No more blank
    checks to the CFPB.
        Now, for the second bill. Affordable housing is of critical
    importance to families across the Nation. But today's Federal
    regulations are making access to manufactured housing more
    difficult to obtain. This is particularly concerning,
    considering that 45 percent of current manufactured homeowners
    have an annual household income of less than $30,000, 13
    percent of manufactured homeowners are retirees, and 15 percent
    of owners are unable to work or are disabled.
        To these people and others, manufactured homes offer value
    at a price that can't be beat. The fact that our government has
    regulations in place that stifle their ability to purchase a
    manufactured home is frankly appalling. Earlier this year, a
    hospital worker in Kentucky applied for a loan of $38,500 to
    finance a manufactured home. He had an 8 percent downpayment.
    His monthly income was $2,200 a month, plenty to cover the all-
    in housing cost of $670 per month.
        The payment for his own home would have been less than what
    he was spending on rent, but he was unable to get financing. He
    contacted his local banks and credit unions, but they no longer
    financed manufactured homes.
        So why are the lenders not lending? First, the CFPB has a
    definition of high-cost loan that fails to take into account
    the fact that the fixed costs associated with purchasing a
    house do not change relative to the cost of the housing. In
    other words, points and fees on a $70,000 manufactured home
    will likely be similar to the points and fees on a $400,000
    home. Nonetheless, the current definition discriminates against
    manufactured homes. And the banks, credit unions, and other
    lenders are following the rules set forth by the Bureau.
        Second, the government's definition of loan originator is
    limiting the ability of manufactured housing retailers to help
    potential buyers find the financing they need. Thus, because
    potential borrowers are getting less help in finding potential
    lenders, fewer manufactured homes are being purchased.
        Now, this second issue is included in the bipartisan
    Senate-passed financial services regulatory relief bill, and we
    think and are hopeful that that will ultimately find its way
    into law. But the first problem associated with manufactured
    housing lending, that still is not addressed by that package.
    So we think that that is--that the loan limit issue needs to be
    addressed in the Appropriations bill.
        So, again, the legislation that we are referring to here is
    the Preserving Access to Manufactured Housing Act. It will fix
    these problems. It will make it easier for Americans to afford
    a manufactured home for themselves and their families.
        Inclusion of this bill in the FSGG 2019 appropriations
    package would end the practice of the Federal Government
    protecting people right out of home ownership, and instead,
    more Americans will have access to affordable manufactured
    housing again. We all believe that greater access to affordable
    housing is something that all of us, Republicans and Democrats,
    can agree on.
        And, again, I thank you for the opportunity to speak today,
    and I am more than happy to answer any questions about either
    proposal.
        Thank you, Mr. Chairman.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Graves. Thank you for joining us today. You have been
    steadfast on these issues, and I share your same concerns. We
    had the Director of OMB before us last week in the Financial
    Services Subcommittee and in Appropriations. But for the first
    time ever, we actually had the Director of CFPB before us, and
    he shared some of the same concerns about being under our
    oversight and how currently that is not the case. So I am in
    agreement with you on that, and I think there are members of
    this panel that are as well.
        But thanks for your good work on this.
        Are there any questions from Mr. Cartwright, or comments?
        Mr. Cartwright. I have none.
        Mr. Graves. Mr. Young.
        Mr. Young. No. Just a comment that the longer an agency
    develops a culture where they are not accountable to anybody,
    and that deepens, and they can become renegaded. And the only
    way to draw that back in is to have that oversight, and that is
    Congress. And using their funding as a leverage tool, and that
    is ultimately accountability to the taxpayers as well. And so I
    wholeheartedly support what you are doing with the TABS Act.
        Mr. Barr. Thank you, Mr. Young. Can I respond to that
    really quickly?
        Mr. Young. Yes.
        Mr. Barr. I would say that that should, for all of us, be a
    bipartisan concern. This is not at all a--and it should not be
    a partisan issue. It is really an issue of defending the
    institution of the legislative branch.
        Administrations come and go. Some of us prefer the current
    administration; some of us, maybe on this side of the aisle,
    prefer the previous administration. But in both cases, we had
    abdicated our oversight function to the executive branch to
    basically run itself. Republicans may like what is going on
    with the CFPB right now. Democrats may not. Similarly in the
    previous administration, Republicans may not have liked what
    was going on in the CFPB. Democrats may have actually liked
    what was going on.
        But in either case, we, as the legislative body, should
    have oversight. And I think that is where we can get a
    bipartisan agreement on this reform proposal.
        Thank you.
        Mr. Graves. The gentlemen yields.
        Mr. Cartwright.
        Mr. Cartwright. Mr. Barr, I appreciate your comments and
    your testimony. And everything that you have said, I understand
    it, it makes sense.
        But I guess the larger question I am wondering is, is there
    not a rule for a truly independent body? I mean, we want--and
    there are such bodies, like the Fed, for example. There are
    those who are running around say ``Audit the Fed'' and ``Let's
    get control of the Fed.''
        But I think it is for the very same reason, because of the
    frustration in not being able to control that body. How do you
    feel about that?
        Mr. Barr. Well, I actually support legislation that would
    bring the supervisory regulatory functions of the Fed also
    under congressional appropriations. I believe in independence
    of the Fed, particularly with respect to monetary policy. I
    respect the fact that we have independent regulatory agencies.
        But what makes the CFPB unique is that unlike other
    independent regulators, like the Securities and Exchange
    Commission, for example, this is not a bipartisan commission.
    This entity is a single director accountable to no one, a 5-
    year term. And even the President that appoints the director
    cannot remove this person without cause. So there is
    restrictions on removal power; there is restrictions on
    congressional oversight, because we don't have control over--we
    don't have power of the purse over this entity. And there is
    even limits on judicial review. So there is just a lack of
    checks and balances that our Founding Fathers envisioned with
    any agency.
        Mr. Cartwright. Not to cut you off, but do you think that
    problem arises to the level of a constitutional violation?
        Mr. Barr. I do.
        Mr. Cartwright. Has that been litigated at all?
        Mr. Barr. It has been litigated in a district court. And
    the D.C. district court has actually struck--a judge, a Federal
    judge, struck down the structure of the CFPB as
    unconstitutional. That was appealed. But the question has not
    ultimately been taken under consideration by the U.S. Supreme
    Court.
        My view is, and we all have a responsibility in the
    Congress to assess the constitutionality of the laws that we
    pass.
        Mr. Cartwright. Don't wait for the court.
        Mr. Barr. Not just the courts. My personal view is that the
    structure of this Bureau is unconstitutional. There are such
    entities as independent regulatory agencies that I believe do
    satisfy constitutional scrutiny. I do not believe this one is
    one of those.
        Mr. Graves. Mr. Cartwright, I don't think Mr. Barr is
    advocating for the abolishment of the CFPB, just the oversight
    of it. Many of the other independent agencies are under the
    oversight of Congress through other authorizing committees that
    come and testify. But as the Director pointed out last week, he
    has no legal responsibility to do that other than to appear.
        Mr. Cartwright. He did point that out.
        Mr. Graves. I think Mr. Barr is saying there should be an
    act of responsibility, and the ability to question and give a
    little bit of direction, so----
        Mr. Barr. Right.
        Mr. Graves [continuing]. The gentleman's points are well
    made. Let me see if Mr. Bishop has any questions.
        Mr. Bishop. I have none.
        Mr. Graves. Mr. Barr, thank you very much. We appreciate
    your advocacy here. I think you know last year this same
    provision was carried within this bill, and we will give it the
    same consideration as well this year. I appreciate Mr.
    Cartwright's comment as well.
        Mr. Barr. Thank you.
        Mr. Graves. Next we will have the gentleman from Colorado.
    Mr. Tipton has joined us as well. Mr. Tipton, this is a very
    casual opportunity for you to share a concept with us. We want
    to thank you for bringing this before us. We have had over
    2,000 requests towards this Appropriations Subcommittee bill,
    and yours is one of those. If not, I think you might have made
    a couple of requests as well. We want to thank you for that,
    because you are bringing a unique idea to us, and we want to
    give it full consideration. So thank you for your 5 minutes
    presentation here, and we look forward to hearing from you.

    STATEMENT OF HON. SCOTT R. TIPTON, A REPRESENTATIVE IN CONGRESS
                       FROM THE STATE OF COLORADO

        Mr. Tipton. Well, thank you, Chairman Graves. I want to
    thank the committee as well for this time and, frankly, all
    hard work that you all are doing. I know it is a tough left to
    be able to--actually, to be able to address.
        And I would like to be able to start out by saying that I
    really support the idea of being able to return to regular
    order in the appropriations process. And I am encouraged by the
    work that this committee is doing to be able to get Congress
    back on the right track.
        Our current system of dysfunction on spending measures will
    leave a wealth of uncertainty for our future generations. And I
    firmly believe that the way to be able to mitigate that
    uncertainty is going to be through an open appropriations
    process where all 12 appropriations bills are debated and
    passed. And obviously encourage our Senate counterparts to be
    able to do the same. We must also make sure that we provide
    certainty for the future generations, that their way of life
    will be preserved as well.
        There are two federally funded initiatives that will help
    our communities now and in the future. They are the Community
    Development Financial institutions Fund, and the High Intensity
    Drug Trafficking Area Program.
        The CDFI fund plays a unique role in generating economic
    growth across the United States, and especially in my district
    in Colorado. By fostering and creating and expanding capacities
    of community-based financial institutions that specialize in
    providing affordable credit, capital, and financial services,
    the CDFI fund builds businesses, creates jobs, and revitalizes
    neighborhoods.
        One CDFI-backed institution in Fort Garland, Colorado, for
    example, which is in my district, was able to finance a small
    grocery store in town. While this may not seem like much, to
    many of us, the presence of a grocery store can make a huge
    difference in a rural town.
        Because of the CDFI, I was able to use the funds Healthy
    Food Financing initiative, the small rural community of Fort
    Garland now has significantly improved access to fresh, healthy
    foods. This happened to be a grocery store I had the
    opportunity to be able to tour. A small town. Those couple of
    jobs, couple of part-time jobs, I don't think we can overstate
    in those communities.
        The impact of the CDFI having on those rural communities is
    obviously encouraging to economic growth, and I would encourage
    the committee to continue to support the program, especially as
    it serves to benefit home buyers, small businesses and families
    in communities across our country.
        And I would also like to be able to talk about something
    that is impacting many of our communities across the country in
    terms of drug trafficking. High Intensity Drug Trafficking Area
    program, called HIDTA, is a critical tool, utilized throughout
    the United States by local law enforcement, and officers to be
    able to combat drug trafficking and dealers.
        In my district, the HIDTA has enabled local law enforcement
    officials to yield big results in pursuing drug cartels and
    help control the inflow and movement of illicit substances,
    particularly in Pueblo County. In addition to Pueblo County,
    there are four HIDTA-designated counties in my district: La
    Plata, Mesa, Garfield and Eagle Counties. By expanding the
    resources to these communities, our smaller law enforcement
    agencies receive crucial assistance in combating illicit
    actors.
        In addition, my office is also working to extend the HIDTA
    designation to other counties in the four corners region of
    Colorado to further improve law enforcement's ability to combat
    cartels that are active and well-established in the area.
        The HIDTA program makes our communities safer and helps
    reduce the amount of violent crime that is often associated
    with narcotics activity. I understand that Federal resources
    are limited, and I appreciate your consideration for my request
    for continued funding of both of these programs, programs
    function as an active benefit to our communities in my part of
    Colorado and would encourage your support.
        [The information follows:]

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        Mr. Graves. Thank you, Mr. Tipton. You bring up two very
    important topics. I want to thank you for your commitment to
    small business and investment in local communities, but also
    safe communities.
        The CDFI grants that you referenced represent the number
    one request we receive from all Members, Republican and
    Democratic. In fact, 14 percent of all the requests relate to
    that. So thank you for that. In the top five as well would be
    the safer communities and investments against illegal drug
    distribution and use. So you represent a lot of Congress here
    with your interest today. So you can be assured these will be
    taken into deep consideration as well.
        Mr. Cartwright, any thoughts or comments?
        Mr. Cartwright. No. I want to thank you for appearing
    before us today and for your testimony. I appreciate it.
        Mr. Tipton. Thank you.
        Mr. Graves. Mr. Bishop.
        Mr. Bishop. Likewise, I would like to thank you for your
    testimony. I don't have any questions.
        Mr. Graves. Thank you for joining us today and bringing
    these ideas forward. We spoke before you came in how this is
    great importance for authorizing committees to be working with
    appropriating committee, the Appropriations Committee, to
    advance some of these ideas. So thank you very much.
        Mr. Tipton. Great. Thank you, Chairman.
        Mr. Graves. Thank you.
        And for the subcommittee here, we had another submission, a
    request to attend but who cannot join us because of another
    conflict. I think a markup was scheduled, Mr. Schneider.
        So without objection, we will forego that testimony. But I
    think you have a print of his statement in your material here
    that you are welcome to read. I thank everybody for
    participating today, for the bipartisan feel here of requests
    and also input.
        So with that, and no other members before us, we will
    adjourn.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                              Thursday, April 26, 2018.

                       SECURITIES AND EXCHANGE COMMISSION

                                    WITNESS

    HON. JAY CLAYTON, CHAIRMAN, SECURITY AND EXCHANGE COMMISSION
        Mr. Graves. Well, good morning. We will call the
    subcommittee to order, and we welcome the Securities and
    Exchange Commission Chairman Jay Clayton with us this morning.
    Thanks for joining us and giving us your testimony this
    morning. I know this is your first appearance before this
    subcommittee, so we will look forward to spending some time
    with you.
        Before we discuss the proposed budget request that you
    submitted, I just want you to know a couple of things: that
    this has been an exciting time for our economy, as we have
    watched over the last year and working with the administration
    and with you.
        Congress has enacted the historic tax regulatory reform
    measures that we have seen over this past year, which have
    freed up businesses to grow and to thrive once again. And we
    have seen the results have been in the numbers.
        It has been clear: unemployment is at a 17-year low, 2.5
    million new jobs have been created just in the last 13 months.
    Wages are growing at nearly 3 percent, which is one of the
    fastest growth rates that we have seen in a decade. Small
    business optimism is at an all-time high. And from your perch
    you see that the stock market has reacted positively as well.
        So, in other words, it is a new day for American workers,
    and we are really excited right now to see what is happening
    throughout the economy.
        But we recognize there are still some challenges in the
    modern economy, such as new products in the financial
    technology sector, growing concerns about cybersecurity, and
    the ever-present challenge of keeping the markets open but also
    fair for everyone.
        So, I want to applaud you, Chairman Clayton, for your focus
    on the long-term interests of main street investors, as well as
    your commitment to reducing roadblocks for small businesses, as
    they face so many across our country.
        But you are helping them to secure capital that they need
    to hire, invest, innovate, and deliver economic opportunities
    for all our constituents. So, I was encouraged to see that the
    SEC voted on April 18th to propose a new regulation, what you
    refer to as the regulation best interest standard.
        We look forward to hearing about that this morning. I know
    you want to address that and share with us your direction,
    which is being designed to better protect the financial
    interest of our retail customers all across the country.
        So, as you begin this 90-day public comment period, I look
    forward to hearing more this morning and then, obviously, as
    you follow up with us in the future, about how this is going to
    positively impact our constituents across the country.
        But we are excited to have you today, and once again we
    welcome you, and I am joined by the ranking member here, Mr.
    Quigley from Illinois, who is a great member of this committee
    and has great interests as well in the topic of the day.
        So, Mr. Quigley, it is yours for any opening comments you
    might have.
        Mr. Quigley. Very good. Thank you, Mr. Chairman. Thank you
    for holding this hearing. I would like to join you in welcoming
    SEC Chairman Jay Clayton for his first appearance before this
    subcommittee.
        Chairman Clayton, I want to thank you for taking time to be
    here today. I am pleased to have the opportunity to discuss
    with you the SEC's first fiscal year 2019 budget with you. You
    and I have had the chance to meet in my office on a couple of
    previous occasions, which I appreciate.
        The SEC is responsible for promoting investor protection
    and education, as well as for overseeing the integrity and
    fairness of capital markets. These responsibilities are
    essential so that businesses have access to capital, so they
    can grow, add jobs, and continue to the Nation's economic
    strength.
        The Commission's budget request for fiscal year 2019 is
    just under $1.7 billion, including $37 million to finance a new
    lease procurement for the New York regional office. This amount
    represents a negligible increase to base funding of just $6
    million above the enacted fiscal year 2018 spending.
        While I am glad to see that the budget proposes retaining
    additional spending that Congress provided last year to fortify
    the Commission's cybersecurity infrastructure, I was
    disappointed that your request does not seek to bolster
    resources for enforcement staff to a level I believe is needed.
        After all, the core of the SEC's work is enforcement and
    examination. This is where predatory actors, big and small, are
    caught and punished. Your budget provides for an overall
    staffing level that is 1 percent lower than the current year
    and a steeper 3.5 percent decline in FTP, which we compared to
    2017.
        I am pleased that the request begins to restore positions
    that were lost during the hiring freeze, roughly one quarter
    one, I believe, but frankly, your proposal will still leave the
    enforcement division with dozens fewer staff than when the
    hiring freeze began. Not only do I consider imperative that you
    add enough people to accomplish your mission, but I think we
    also share a focused determination to arm you with the
    resources necessary to prevent criminals from deceiving
    investors trading on inside information and undermining
    competence in our markets. I look forward to hearing your
    testimony and discussing these and other issues with you today.
    Thank you again, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. Mr. Chairman, the
    subcommittee, this morning you will see members come and go.
    This an accelerated appropriations process now, so a lot of
    committee meetings are being assembled simultaneously, and I
    know you understand that.
        So, you will see members come and go throughout the
    morning, but there is great interest in what you are doing at
    the Commission. And, with that, we look forward to any opening
    remarks you may have before we ask you a few questions.
        Mr. Clayton. Thank you. Thank you, Chairman Graves. Thank
    you, Ranking Member Quigley. Members of the committee, I
    appreciate the opportunity to testify before you today about
    the President's fiscal year 2019 budget request for the SEC. On
    behalf of my fellow Commissioners and the 4,500 women and men
    at the SEC, I would like to thank this Committee for its
    support.
        Congress' recent funding for the agency will enable the SEC
    to make significant investments in furtherance of our efforts
    to modernize our information technology infrastructure and
    improve our cybersecurity risk profile. I recognize the vote of
    confidence that you have shown in the SEC, as does our staff.
        I am committed to ensuring that the agency is a prudent
    steward of this appropriation. In my interactions with our
    staff, it is always clear that they recognize and are motivated
    by the fact that tens of millions of Americans are invested in
    our securities markets. The touchstone for the SEC staff is the
    long-term interests of these Americans.
        In turn, we believe serving these interests furthers
    America's interests. Our fiscal year 2019 request of $1.658
    billion for SEC operations will enable the SEC to continue its
    work in a number of areas with a focus on five important
    components that I will highlight in a moment.
        A few threshold matters; first, the request will enable us
    to start lifting our hiring freeze and support 100 new hires to
    address current priority areas.
        Second, the budget request relies on the SEC having
    continued access to the Commission's Reserve Fund to invest in
    information technology improvements, including those related to
    cybersecurity.
        And, third, importantly, the SEC's funding is deficit-
    neutral, and any amount appropriated to the agency will be
    graphic by transaction fees. Let me go through a few areas:
    information technology and cybersecurity.
        With regard to information technology and cybersecurity,
    Congress has enacted the fiscal year 2018 appropriation, and
    our fiscal year 2019 request will allow the SEC to make
    investments to modernize our information technology
    infrastructure and improve our cybersecurity risk profile.
        We will use this funding to advance the implementation of
    our multi-year IT strategic roadmap, including investments in
    cybersecurity resources and the agency's risk management
    capabilities.
        Capital formation: In facilitating capital formation, we
    have made progress, but I believe the SEC can and should do
    more to enhance capital formation in our public and private
    capital markets, and particularly for mid-sized, small, and
    emerging companies.
        Please be assured that, as we develop initiatives aimed at
    promoting access to the capital markets, we will also seek to
    maintain and enhance important investor protections. The
    request also will provide resources for staffing the office of
    the Advocate for Small Business Capital Formation. Turning to
    protecting Main Street investors; protecting Main Street
    investors and preserving their access to investments and
    opportunities is at the heart of the work of numerous offices
    and divisions at the SEC.
        Last week, the Commission voted to issue for public comment
    a comprehensive package designed to address retail investor
    confusion and potential harm in their relationship with
    investment professionals. Our rulemaking package will
    significantly enhance retail investor protection while
    preserving access, in terms of both availability and cost, to a
    variety of types of investment services and investment
    products.
        Our rulemaking is designed to serve our Main Street
    investors, and I hope that we will hear from them during the
    comment process, including in the investor roundtables I
    announced in Atlanta, Denver, Houston, and Miami.
        Enforcement, Compliance, and Examinations: over 50 percent
    of our workforce is devoted to enforcement, compliance, and
    inspections, and our 11 regional offices are primarily devoted
    to these areas. Our Enforcement division is committed to
    protecting our markets and investors, especially from fraud
    that impacts our most vulnerable.
        Our request will allow for critical investments in our
    ability to protect investors by supporting key enforcement
    priorities, including expanding the work of our new Cyber Unit
    and our Retail Strategy Task Force.
        The request will also allow for further advances in our
    examinations of market participants, including investment
    advisers. We increased our examination of investment advisers
    by more than 40 percent in fiscal year 2017 to cover
    approximately 15 percent of all SEC-registered investment
    advisers. But we are continuing to seek improvements, including
    through the use of technology.
        Trading and Markets: our trading markets constantly evolve
    and expand, demanding continuous effort to identify emerging
    issues and risks, and strive to ensure that, as technology
    changes, our regulations drive efficiency, integrity, and
    resilience.
        Our request will allow our Division of Trading and Markets
    to expand the agency's depth of experience in vital areas such
    as equity and fixed-income market structure, analysis of
    clearing agencies, broker-dealers, cybersecurity, and
    electronic trading.
        Leasing: Finally, our request supports our participation in
    the GSA's competitive procurement process for a success or
    lease for our New York Regional Office. As with the SEC's
    headquarters lease, none of these funds will be used for SEC
    operations, and the agency has proposed a mechanism whereby any
    unused portion of these funds would be returned to fee payers.
        In closing, I would like to again thank this Committee for
    its continued support of the SEC, its mission, and its people,
    and I look forward to answering your questions.
        [The prepared statement of Mr. Clayton follows:]
        Mr. Graves. Thank you, Chairman. I know I will have a
    couple of questions, and I am sure the other members will as
    well. And you will find this is a very thoughtful subcommittee.
    They have great questions, and we look forward to hearing your
    responses. The first, from me, is, just going back to something
    you indicated, which was one of your items for your long-term
    agenda, and that was reviewing shareholder engagement in the
    proxy process.
        In fact, in November, you made the comment that the SEC (or
    the Commission) should be lifting the hood and taking a hard
    look at whether the needs of shareholders and companies are
    being met. And so, I appreciate your willingness to do that,
    because we have heard from several companies regarding this
    process, relating to the proxy advisory firms and their
    concerns regarding those.
        So, can you update our committee regarding when the
    Commission will be taking an important first step to address
    this issue and others like that, and reopening the comment file
    on the 2010 proxy plumbing?
        Mr. Clayton. Great, great. The proxy area is an area in
    need of examination, and it is an area in need of at least some
    modernization. You will not see it on my short-term agenda, but
    that does not mean we are not thinking about it. It is on our
    long-term agenda, and some of the things you mention in your
    question are important. The landscape of corporate governance
    has actually changed significantly in the last 5 to 10 years.
    We have a greater concentration of shareholder holdings, we
    have greater access to the proxy from shareholders, we have the
    emergence of proxy advisory firms which have a great deal of
    influence in the voting process. Those are all things we should
    examine.
        With respect to Proxy plumbing, we have had some recent
    matters that have demonstrated what we all believe, and that is
    that our plumbing is out of date. I think, if you looked at
    some of the recent proxy contests and the amount of time that
    it took to resolve them, you would have to reach the same
    conclusion. So, broadly to your question, I am aware of the
    issues, we are looking at them, and I would say stay tuned for
    action.
        Mr. Graves. The difference in short-term, long-term agenda
    timeframes?
        Mr. Clayton. Well, the way the law works on our agenda, we
    have a short-term agenda, which are the things we think we can
    get done this year. This is not something that I think I can
    finish this year. I would say it is a higher priority on my
    long-term agenda.
        Mr. Graves. Fair enough, fair enough. And then you
    reference the comment period and that it is being reopened and
    discussing what we once knew as a fiduciary rule but now is
    being re-discussed as the best interest proposal for our
    constituents.
        And so, if you could just give us a little bit of an update
    on that, and then maybe go into a little bit more depth than
    you did in your opening comments there about how you see this
    process playing out, and what kind of pushback you might
    receive, and what kind of comments related to comments from the
    past.
        How do you see that folding into the future in your plan in
    the upcoming proposed rule?
        Mr. Clayton. OK. There is a lot in this area; let me try
    and get into detail in the time we have. I do not think there
    is any doubt in anyone's mind that action is required in this
    area, and action that coordinates across the various agencies
    that regulate the relationship between an investment
    professional and their client, whether that investment
    professional is an investment adviser or a broker-dealer. We
    have the Department of Labor, we have state securities
    regulators, we have the SEC, we have FINRA, we have state
    insurance regulators, we have banking regulators, all in this
    space.
        I think we all also agree that the duty, whether it is an
    investment adviser or a broker-dealer, owed to a client, should
    match that client's expectations. I think we all also agree
    that the client ought to be able to understand that duty and
    the type of relationship.
        I think we all also agree that that relationship should be
    governed by fiduciary principles. Now, we have called it the
    best interest standard, but I want to be clear. For broker-
    dealers, there are core fiduciary principles embodied in that
    best interest standard. In fact, those fiduciary principles
    are, I believe, the same as the fiduciary principles that are
    embodied in the investment adviser standard.
        So, what have we done? We have recognized that the
    relationship between an investment adviser and their client is
    a different type of relationship than a broker-dealer and their
    client. But we have sought to harmonize the actual duties that
    are owed, recognizing those differences. And I look forward to
    engagement with all groups as we proceed across the rulemaking.
        Mr. Graves. Well, thank you for taking time to examine
    this. I know this has been an area of interest for a lot of
    individuals or broker-dealers or whomever they might be. And
    then what I heard is, you are incorporating some round tables
    as well to get community input and investor input and, I guess,
    industry input. And that is really important in this process,
    so we appreciate your transparency and work in this area and
    continue to move this in the right direction.
        Mr. Quigley. Thank you. May I make one more comment about
    this area? Do you mind?
        Mr. Graves. Yes, sir.
        Mr. Quigley. One of the lucky things about this job is, I
    get to interact with regulators around the world. We should
    never forget that the breadth and scope of participation in our
    markets by the American public is the envy of the world, and we
    should do everything we can to preserve that. Any other country
    would be delighted to have so many individuals investing in
    their capital markets.
        Mr. Graves. Thank you. Thank you for that reminder, Mr.
    Quigley. And then, Mr. Stewart.
        Mr. Quigely. Thank you, Mr. Chairman. And, again, Mr.
    Clayton, I appreciate your being here. And I appreciate your
    opening remarks. I made public pronouncements, and again today,
    talking about the importance of enforcement. I talked about 50
    percent of your staff being involved in this.
        Help me understand some of these issues, though: 2017 saw a
    decline in both the total number of SEC enforcement and actions
    and the amount of penalties assessed. Total penalties imposed
    in 2017 declined from 1.2 billion in 2016 to 832 million, a
    fall of nearly 35 percent.
        But I think, perhaps, more troubling is an outsider's
    perspective of your enforcement actions today could give the
    appearance that your agency is going after smaller fish instead
    of misconduct conducted by bigger fish firms. I understand it
    is more difficult, more challenging, and any of abusers are
    people you should be going after.
        But I would like you, if you can, to explain what appears
    to be a change in enforcement strategy. Georgetown University--
    I am sure you saw this--released a study in November which
    found that cases brought against entities, as opposed to
    individuals, had changed quite substantially.
        A quote she wrote: ``Dropping from 47 percent in the first
    half of 2017, before you became chair, to 34 percent in the
    second half of the fiscal year after you took the helm.''
        The study went on to note that the median fine in settled
    cases was about 110,000 between 2007 and 2013, but in the most
    recent fiscal year SEC, which ended September 30th, that number
    had dropped by more than a third to about $70,000. These would
    be troubling to anyone. Can you help us understand these
    trends?
        Mr. Clayton. Yes, I can, and let me do this. Let me talk
    about those trends, and then let me talk about what statistics
    are appropriate. But accepting those statistics is one that we
    want to talk about.
        There is another statistic that is not in that study and
    actually bothers me about these comparisons. The gestation
    period for our cases is 22-24 months. That means the cases that
    are being reported on in 2017, are, from a median perspective,
    the ones that are were started in 2015. The ones that are
    reported in 2018 are the ones that started in 2016.
        So, those statistics actually reflect, I do not want to say
    exclusively, but for the majority part, enforcement decisions
    that were made before I arrived at the Commission.
        Mr. Quigley. Decisions in terms of who to go after.
        Mr. Clayton. Which cases to bring and how to start them,
    because those statistics are cases that have come for a vote
    and are being resolved. So, on average, they are just about two
    years old from when they were started. So, what the Enforcement
    Division under my leadership has are the cases that started
    when I got there.
        And I will tell you there has been no letup in terms of
    enforcement. We have, you know, a former Southern District of
    New York head of the Commodities and Securities Task Force as
    one of our Co-Directors of Enforcement.
        I retained one of the Acting Co-Directors of Enforcement.
    We have a number of prosecutors who are leading our offices. In
    Chicago, we have just hired Joel Levin, who was a prosecutor in
    Chicago, to come over and run our Chicago Regional Office. So,
    I have no doubt that they are pursuing bad actors.
        As far as, you know, specific actions, I am happy that we
    are pursuing individuals as opposed to entities. I think that
    individual actions have greater deterrence. And this is based
    on my experience.
        When I talk to people in the private sector, and I caution
    them to be careful, I do not point to a particular company. I
    point to an individual. Twenty years later, people still
    remember the individual harms, and it has great deterrent
    effect. They do not remember the company actions.
        Now, I am not saying I am not going after companies.
    Because, you know, if they are wrong; we will. But individual
    deterrence is very important. And just to give you some
    anecdotes that we announced two days ago, the Yahoo! action was
    the first action for failure to disclose a cybersecurity
    breach, and it was resolved with a significant fine for the
    former Yahoo.
        Mr. Quigley. So, to your knowledge, no one in your agency
    has been directed as to any sense of priorities? When they are
    told what to prioritize, is this a uniform analysis? I get that
    an individual can do a tremendous amount of damage.
        Mr. Clayton. Let me put this clearly: there are no big fish
    that should think we are not coming after them if they do
    things wrong.
        Mr. Quigley. My time is up. Thank you, sir.
        Mr. Graves. Thank you, Mr. Quigley. Mr. Stewart, and then
    Mr. Bishop.
        Mr. Stewart. Chairman and Mr. Chairman, welcome. This is
    not my area of expertise, but I do have some questions that I
    think a lot of Americans wonder. And you have experience in
    this, I believe, in some of your previous statements. And it is
    even indicated in your bio that we have here. And that is the
    role of cryptocurrencies. And I know CFTC has indicated that
    they would like to exert authority over them, and they believe
    there are more commodities in currency.
        Let's speak broadly, if we could. I have got to tell you,
    one of my sons invested $17 in a cryptocurrency. He has a
    greater net worth now than I do, or something like that. So,
    this has been a great success story for some people. Do you
    think that the cryptocurrencies provide economic utility?
        Let me ask that, and, if you would, elaborate on some of
    the concerns you have, and then tell us where is the proper
    regulator, and what is a proper regulating scheme that we
    should have in these currencies? Because, you know, there are
    many of them now, and I think sometimes people just do not have
    the information they need to make good decisions.
        Mr. Clayton. Well, I agree with your last comment. And it
    is a complicated area because, as you said, there are different
    types of crypto-assets. Let me try and divide them into two
    areas, and I will try to do this fast. A pure medium of
    exchange; the one that is most often cited is bitcoin. As a
    replacement for currency, that has been determined by most
    people to not be a security.
        Then there are tokens, which are used to finance projects.
    I have been on the record saying there are none that I have
    seen, tokens that are not securities. To the extent that
    something is a security, we should regulate it as a security.
    And our securities regulations are disclosure-based, and people
    should follow those and provide the information that we
    require.
        Mr. Stewart. And let me ask this very quickly. Are they
    clear in how they present themselves, that they are presenting
    themselves as a currency or as a token which is a security?
        Mr. Clayton. No. And this area has grown substantially
    without the usual respect for the law that you would expect to
    see in financial markets. That has happened. I will take this
    any way you want. I mean, I know our time is short. I can talk
    about currencies and regulations of currencies, or the security
    side of it, or try to do both.
        Mr. Stewart. OK, so let me rephrase the question very
    briefly, and we can make this yes or no, because I think the
    answer is yes. I mean, there are some economic utilities in
    these tools. Is that true?
        Mr. Clayton. Undoubtedly. And this technology undoubtedly
    has great promise.
        Mr. Stewart. OK. So, that being the case, where is the
    proper regulator? In the tokens, it would be for you, true?
        Mr. Clayton. Yes.
        Mr. Stewart. In the currency, it would be just the market?
        Mr. Clayton. That is a question that I have highlighted as
    well. To the extent that we do not have jurisdiction, to the
    extent that it is not a security, we need to look at these
    currencies because our laws did not anticipate them. Our laws
    anticipated sovereign-backed currencies. These currencies are
    not sovereign-backed.
        With a sovereign-backed currency, I would argue that the
    need for regulation to give people comfort is less than it is
    for something that is not sovereign-backed. For lots of
    reasons.
        Mr. Stewart. Well, I would maybe conclude with this. And
    that is that many times, when we regulate or when we legislate
    in a moment of crisis, we overkill.
        Mr. Clayton. Yes.
        Mr. Stewart. Dodd-Frank is a great example of it, in my
    mind. In the heat of the moment and the emotion, I think we
    went too far. I would say the Patriot Act, something that is
    more along my area and background. I would say the same thing.
    In the emotion of it, we went too far. And I worry a little bit
    that we have an event, or we have a series of things that draw
    a lot of concern and then we are not prepared on how to respond
    to it and we may not have the best answer.
        So, I would like us to lean into this, rather than wait for
    something that gets people's attention and then we draw upon
    Congress and others to respond to it when we are really not
    prepared. Is that a legitimate concern?
        Mr. Clayton. Not only is it a legitimate point, it is what
    we have been doing at the SEC. In the securities area, we have
    been leaning in, because I have been concerned about two
    things. I am concerned about people being taken and our laws
    not applying. I am also concerned that if we do not do
    anything, our inevitable reaction will make this technology
    less than it would have been.
        Mr. Stewart. Well, thank you, Chairman. My time is up. I
    yield back.
        Mr. Graves. Good questions. Mr. Bishop and Mr. Young.
        Mr. Bishop. Thank you very much. Chairman Clayton, I am
    very intrigued by the discussion on cryptocurrencies. But I
    think that is going to be a great drill for us going forward in
    the future. Let me go back. In the Fiscal Year 2019 Budget
    Justification and Annual Performance Plan, the Commission
    observed that nearly 35 percent of all SEC-registered
    investment advisors have never been examined. And as the
    population of advisors registered with the SEC continues to
    grow, would you please tell us how the Commission plans to fix
    such a problematic regulatory shortfall?
        Mr. Clayton. Well, we have shifted. And I want to
    congratulate our OCIE Division, our inspections and examination
    division, on shifting to a risk-based prioritization of who we
    examine and what areas we examine for using data analytics. The
    statistics you cite, about 35 percent. We are trying to reduce
    that number.
        I will tell you that those are the ones that rank as less
    risky in our analysis. But, we are making efforts to reduce
    that number and we are making efforts to increase the number of
    firms that we examine annually. We went to 15 percent this
    year, which was up 40 percent over the last couple of years.
        Mr. Bishop. Thank you for that. Now, according to a 2017
    GAO report, minorities account for only 20 percent of
    management positions in the financial industry. This is in
    contrast to a general minority population of 40.9 percent. What
    efforts has the SEC taken to help improve this drastic
    disparity? And what steps would you think would be appropriate
    for Congress to take to provide you with the tools to increase
    minority participation?
        Mr. Clayton. Well, my view on this is that efforts around
    diversity and inclusion begin at home. And I am committed to it
    at the SEC. I meet with our OMWI office, the Office of
    Minority, Women, and Inclusion, on a regular basis and this is
    a focus for me. In terms of what Congress should do, I do not
    know if it is my place.
        Mr. Bishop. What tools would you need, if any, that we, in
    the legislative branch, could help you to accomplish that?
        Mr. Clayton. I do not know that that is the role for the
    SEC, in terms of social policy. But, as I said, at the SEC,
    this is a priority for me. As far as how we deal with our
    public companies in that regard, I am all for disclosure, all
    for disclosure of material information.
        As far as micromanaging from the SEC, how people handle
    human capital, that is beyond our current role. I would like to
    see, and I have been clear on this, I would like to see more
    disclosure from public companies on how they think about human
    capital. If you do not mind, can I explain?
        Mr. Bishop. Yes, but you can also indicate to me what your
    level of inclusion is, in terms of your diversity
    representation, minority representation, at the SEC itself.
        Mr. Clayton. At the SEC? We do an annual report on this.
    And we are doing well throughout the agency. We can do better
    in leadership.
        Mr. Bishop. OK.
        Mr. Clayton. To your statistics, we roughly match the U.S.
    population.
        Mr. Bishop. Forty percent?
        Mr. Clayton. I mean, is it exact? I do not have the exact
    numbers in front of me. I can get back to you. But, we do not
    match the U.S. population in leadership at the SEC. And it is a
    priority for me to address that over time.
        Mr. Bishop. Thank you.
        Mr. Clayton. Thank you.
        Mr. Graves. Mr. Bishop. The gentleman from Iowa, Mr. Young
    is recognized. Then, Mr. Cartwright.
        Mr. Young. Thank you, Mr. Chairman. Welcome. The
    cryptocurrency issue is fascinating to a lot of people, kind
    of, watching what is going on. Would you invest in
    cryptocurrencies?
        Mr. Clayton. Well, let me say this.
        Mr. Young. That is not a fair question, I realize.
        Mr. Clayton. One of the unlucky and lucky things about this
    job is, I am not allowed to make investment decisions anymore.
        Mr. Young. That is the answer we were looking for, was it
    not? So, you know, when my counterpart, Mr. Stewart, was
    talking about, you know, leaning in on this or waiting for some
    kind of crisis to happen and Congress jumps in on this and
    tries to solve a problem, which we would probably come back in
    five years and try to readdress, what are your counterparts
    doing in other countries to address this from a regulatory
    standpoint?
        Mr. Clayton. So, this is a developing issue. What are other
    regulators doing to respond to this? If you asked me this
    question 6, 9 months ago, the range of what people are doing or
    not doing, I think, would have been pretty broad. It is
    narrowing. In the currency space, is it a substitute for the
    dollar? The yen? The euro?
        What I have seen is further skepticism around the world as
    to whether the cryptocurrencies will, in fact, be a substitute
    for our traditional sovereign currencies, including whether
    governments will allow cryptocurrencies to be integrated into
    their financial systems. Because our financial systems do not
    only work as mediums of exchange and lending; they do a lot of
    other work, including anti money laundering, preventing
    terrorist financing, you know, those types of things. Also,
    they allow us to affect monetary policy. Governments serve, I
    would say, they hold those rightfully. They hold those
    functions pretty dear. I think around the world, people are
    realizing that they would not want to give up those functions.
        Mr. Young. Well, we will be watching. I know you will be
    watching closely as well. The SEC has yet to finalize all of
    its title 7 rules for security-based swap dealers, unlike the
    CFTC, which has had their registration regime effectively in
    place for about five years, I think, maybe over.
        This lack of finalization has led to some uncertainty in
    the markets and I wonder if you have a timeline for where this
    going? And are you watching what the CFTC has done in trying to
    get rid of some of these duplicative regulatory requirements?
        Mr. Clayton. Yeah. So, do I have a specific timeline that
    would, you know, be precise enough to discuss? No. Do I have an
    initiative? Yes. I am very happy that Commissioner Peirce, who
    joined us recently, has agreed to oversee our efforts to move
    forward with Title VII rulemaking in, what I am going to say
    is, in coordination and, where possible, harmonization with the
    CFTC. What we regulate and they regulate overlaps a great deal,
    but not perfectly. And she is working on overseeing that work
    at the SEC. We have had several bilateral meetings, and I
    expect to see progress in this area.
        Mr. Young. In your SEC budget request for fiscal year 2019,
    there is a strong emphasis on cybersecurity. Is this being done
    from a reactionary standpoint? Or from a proactive standpoint?
        Tell me about what is happening in terms of hacking and
    what you are experiencing. And have there been some
    compromises? And to what level? And I worry about what this
    effect could have on a lot of different things, as well as just
    identify theft and fraud and manipulating, ultimately,
    possibly, the markets.
        Mr. Clayton. Well, there is a lot there. I will talk
    internally at the SEC, to start, both reactionary and
    proactive. When I arrived, I initiated a review of where we
    stand, from a cybersecurity posture. Shortly thereafter, we
    discovered that we had had a prior breach. We have been
    addressing the breach of our EDGAR system.
        Let me say we are addressing that specific issue, but then
    we are looking more broadly across the SEC, in terms of what
    are our vulnerabilities, either addressing them, reducing them,
    or both. And when I say reducing, it goes to one of the points
    you made, which is personally-identifiable information. We have
    done a review of the personally-identifiable information we
    take in and we have actually reduced that.
        We just had a rulemaking the other day that had the support
    of all my Commissioners, and I appreciate their support in this
    area; eliminating PII from our forms where it was not
    necessary.
        Mr. Young. Thank you for being proactive on that, with that
    rulemaking. I would be interested in learning more about that.
    So, thank you for your leadership on that because this is real.
    And we know it is real. And thank you for what you do. I yield.
        Mr. Graves. OK, Mr. Young, Mr. Cartwright, and then Mr.
    Yoder.
        Mr. Cartwright. Thank you, Mr. Chairman. And Chairman
    Clayton, thank you for being here. I know you spent a
    considerable amount of time around Philadelphia, and I hope you
    are an Eagles fan?
        Mr. Clayton. Absolutely.
        Mr. Cartwright. Good, good. I am going to be much nicer to
    you now. Chairman, I want to talk about protecting investors.
    That is what SEC is all about. And I want to talk particularly
    about protecting them when it comes to disclosure of climate
    change risk. I am concerned about SEC's continued lack of
    enforcement of its own 2010 guidance on climate disclosure.
    Investors want and need disclosures of climate risk, but all
    too often they are generic or entirely lacking. Full and
    complete disclosure is going to help investors allocate capital
    efficiently and put pressure on corporations better to manage
    climate risks.
        Now, I know you share this concern. You repeatedly stressed
    the importance of disclosing climate risks when you were at
    Sullivan and Cromwell. And also, while you were representing
    Crude Carriers Corporation, you made sure they included a very
    detailed discussion of climate risks in their IPO.
        When the 2010 guidance was released, the SEC issued around
    50 comment letters to companies that had provided insufficient
    disclosure of climate risk, but it is been years at the SEC
    since they have issued a single letter. In reviewing the
    disclosures, I can tell you that the answer is not that
    suddenly every company is adequately disclosing climate change
    risk.
        So, the question is, how can you explain a near-complete
    lack of evidence of any enforcement of the 2010 guidance? What
    evidence can you provide that you are taking climate risk
    disclosure seriously at the SEC right now?
        Mr. Clayton. Thank you for noting my prior work. We take
    all of our disclosure mandates seriously. We firmly believe
    that investors need to have the information required to make an
    investment decision. I think, if I may, the discussion around
    climate risk disclosure misses some of that point. A disclosure
    should be to your investors and what climate-related issues
    might affect your company.
        Mr. Cartwright. Right.
        Mr. Clayton. And companies should think long and hard about
    that. And that is not a uniform issue. There are many
    industries for which it is not a material risk at all, and
    there are industries for which it is clearly a material risk.
    But it is a risk that depends on many factors outside of the
    control of the company itself, including regulatory actions
    around the world, developments, and what not.
        You know, I am not disagreeing with you. I agree with you
    that this is something that companies and industries need to
    think long and hard about and how to communicate with their
    shareholders. But, I do not think you should take the lack of
    an enforcement actions as somehow indifference from the SEC in
    this area.
        Mr. Cartwright. It is inaction, though. It is not following
    up on the 2010 guidance.
        Mr. Clayton. Let me be clear. If there are cases where
    companies have had adverse effects on their shareholders as a
    result of climate matters and they have not disclosed them, and
    they knew about them, we should be investigating those.
        Mr. Cartwright. Well, let me talk about the Peabody Energy
    case. New York Attorney General investigated Peabody Energy in
    2015 because of their lack of candor in disclosing the risk of
    climate change. When Peabody came to a settlement with the New
    York Attorney General, Peabody then had to revise their SEC
    disclosures. Peabody admitted that concerns about the
    environmental impact of coal combustion could significantly
    affect demand for our products or our securities.
        So, this was something that the SEC disclosure process
    should have caught. The SEC remained silent as the New York AG
    took the lead, took the point, on that issue, investigating
    Peabody's false disclosures. SEC disclosure process needs to
    serve its intended purpose. When a company like Peabody makes
    misleading disclosures, it is disconcerting that SEC is taking
    a backseat to a State Attorney General.
        Do you feel like the SEC failed, proactively, to address
    this disclosure problem by Peabody?
        Mr. Clayton. I am not going to comment on a specific case,
    that would be inappropriate. But let me say this, Mr.
    Cartwright. Let me be absolutely clear on this; I want to
    partner with our state Attorneys General on enforcing our
    securities laws. But, one thing I am concerned about is having
    different disclosure standards at the state level and at the
    Federal level, whether de facto or generally. Let me leave it
    at that.
        Mr. Cartwright. Well, let me follow up with this last
    question. SEC lacks subpoena power. Companies disclose material
    risks to their investors in order to comply with the Federal
    securities laws. But, even if the SEC suspects that a company
    is not fully complying, the corporate finance division at SEC
    does not have the authority to subpoena additional information
    from companies. That is correct, is not it?
        Mr. Clayton. And I think it is good governance. The
    Corporation Finance Division, if they see something they do not
    like, they can refer it to the Enforcement Division, who will
    make a judgment as to whether to pursue it or not.
        Mr. Cartwright. Would not corporate finance be more
    effective if it could subpoena information from companies it
    suspects of withholding or misstating material information in
    their disclosures?
        Mr. Clayton. I do not believe so. I do not believe so. I
    think it is appropriate to have those functions, the
    enforcement function, and the corporation finance function
    separate.
        Mr. Cartwright. That is all I have. I yield back, Mr.
    Chairman.
        Mr. Graves. Thank you, Mr. Cartwright. Mr. Yoder and then
    Mr. Moolenaar.
        Mr. Yoder. Thank you, Mr. Chairman. Chairman Clayton,
    welcome to the committee. I appreciate your testimony this
    morning. As you know, liquidity is very constrained in some
    financial markets. And that constraint of liquidity affects our
    constituents who rely on retirement income, drives up the cost
    of their investment, does not provide them any sort of net
    benefit, but makes their investments less valuable.
        One regulation that is contributing to this constraint is
    that the Federal Reserve requires that banks clearing trades of
    liquidity providers to the market use the current exposure
    method, known as SEM.
        The Fed has acknowledged that SEM is insensitive to risk
    and it undervalues netting benefits and has stated that it
    plans to move away from SEM. However, the Fed plans to do this
    through rulemaking, a process that could take years. As a
    regulator of markets, what impacts do you see stemming from
    constrained liquidity, and what could the longer-term
    consequences be if this problem is not fixed?
        Mr. Clayton. Yeah. Liquidity is one of those difficult
    concepts to get your arms around because it only becomes really
    important when you do not have it and you need it; when you
    want to sell and there is no buyer. Let me say this. I am very
    happy with the coordination that has been present across the
    Federal financial regulators. I speak regularly with Randy
    Quarles and Jay Powell, Chris Giancarlo, and Secretary
    Mnuchin's people at the Treasury about these types of issues.
        And I am concerned about liquidity and whether we have
    sufficient liquidity, particularly in our fixed income markets.
    And I recognize, and we all recognize, that we are moving into
    a different monetary policy situation and that moving in that
    area, we need to be very cognizant of liquidity.
        Mr. Yoder. And I appreciate your leadership in that regard.
    As it relates to SEM, the Fed has acknowledged that it is
    insensitive to risk and it undervalues netting benefits, and it
    plans to move away from it. I think the challenge we see is
    that their intention to do that is going to take a number of
    years. And in the meantime, it tightens liquidity in markets.
        And so, if there are ways to get the Fed to accelerate that
    timeline to fix this, that would seem to be good for our
    constituents, good for investors, good for the markets.
        Mr. Clayton. Yeah. I do not want to get ahead of my
    brethren or comment on that. I will say that we are all focused
    on making sure there is sufficient or increasing liquidity
    without adding risk. That is really the mindset we have to have
    as we go forward.
        Mr. Yoder. All right. Well, I want to put the SEM, this
    issue, on your radar. I also want to ask you about the business
    development companies. They play a vital role in helping small
    businesses access badly needed capital. And these companies
    were created by Congress with bipartisan support. They play an
    important role as an alternative to conventional financing.
        But, in 2006, the SEC finalized its Acquired Fund Fees and
    Expenses rule, the AFFE rule, which required that a fund
    investing in other funds disclose its share of the acquired
    fund's expenses as a separate line item. Many believe this rule
    is incorrectly applied to BDCs and as a result, mutual funds
    and other types of funds overstate their expenses when they
    invest in BDCs.
        And, unlike other investments that a fund may purchase, a
    BDC's market price already reflects its expenses. Therefore,
    many believe the AFFE rule leads to double-counting of a BDC's
    expenses. When the SEC finalized the rule in 2006, it stated
    the regulation would benefit investors, not have an adverse
    impact on capital formation.
        Are you concerned that the AFFE rule has undermined the
    SEC's stated goals of benefiting investors and fostering
    capital formation, through its treatment of BDCs?
        Mr. Clayton. I am aware of this issue and the good points
    made on either side. The point about potential double-counting
    and whether the economics are all baked in or not is a good
    point. The point on the other side, that if you do not
    reference this issue, people are not aware of it, is also a
    good point. We are looking at it. I think--and we will look at
    it in connection with our obligation to promulgate rules in the
    BDC area for leverage as a result of what is going on.
        Mr. Yoder. I think getting your full consideration makes
    sense. You know, when the rule was finalized in 2006, there
    were only 11 BDCs in existence. They have grown significantly
    since then, with around 90 operating today. And, you know,
    REETs are very similar to BDCs, but they are exempted from the
    AFFE rule. So, I hope you will give it your consideration to
    take those factors into account and have the SEC review the
    rule and see if still applies properly today.
        Mr. Clayton. We will. We also recognize the growth in this
    industry. And I recognize that it is an industry that enables
    retail investors to have access to developing companies. And
    that is important to me.
        Mr. Yoder. OK. Thank you, Mr. Chairman.
        Mr. Graves. OK, Mr. Yoder. Mr. Moolenaar and then Ms.
    Herrera Beutler.
        Mr. Moolenaar. Thank you, Mr. Chairman, and welcome,
    Chairman Clayton. Appreciate you being here. I wanted to talk
    with you a little bit about cybersecurity, and I know that is
    an issue you have already talked a little bit about. But, I
    wanted to get your thoughts on, sort of, the role of the SEC,
    what you are doing there.
        But also, in the past, you have authored, or coauthored,
    some articles on cybersecurity and calling on Congress and the
    President to develop kind of a 9/11-type commission on
    cybersecurity and the threat. And I just wondered if you could
    give us your assessment on, kind of, where things stand,
    relative overall on the topic, as well as what you are doing at
    the SEC.
        Mr. Clayton. So, I talked a bit before about what we are
    doing at the SEC and our efforts to uplift our protection but
    also reduce our risk area. And we intend to continue to do
    that. Outward looking, we look at registrants. All public
    companies and their cybersecurity disclosure. And I referenced
    the recent action involving Yahoo.
        What I have not discussed and probably should, is oversight
    of what I will call market utilities, the nodes in our
    financial system that are very critical. One of our jobs is to
    inspect those entities. And including inspecting them for their
    ability to deal with cyber threats and cyber risks. And to your
    point on Federal coordination, we coordinate with other Federal
    regulators who either also oversee those nodes in the system,
    or other nodes that are important to our system. And I am happy
    that as a result of a directive from the White House, that
    coordination has gotten traction, particularly around these
    nodes in our financial system. So, do I feel great? No. I am
    supposed to worry. But I feel good that we are making progress
    in that area.
        Mr. Moolenaar. No, that was my question. Obviously, we are
    never totally secure, but you feel like progress is being made
    and that is encouraging to hear. I did a little research on
    your background. I noticed you were born in Newport News and
    spent time in Philadelphia and were a captain of a basketball
    team. And it kind of reminded me of the Allen Iverson
    trajectory. Have there been a lot of parallels made between
    your basketball and Allen Iverson's?
        Mr. Clayton. I do not like to practice either.
        Mr. Moolenaar. Thank you for that. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Moolenaar. Ms. Herrera Beutler.
        Ms. Herrera Beutler. Thank you, Mr. Chairman. And thank
    you, Chairman Clayton for being here today. Now, I understand
    your office has been reviewing the rules governing broker-
    dealers and advisors under the 1940s Advisors Act. And, in
    fact, I think it was last week, or not too long ago, your
    office solicited public comment on a proposal to modify the
    standard of care that both must provide their clients.
        And I agree. We need consistent principles and, given the
    differences in the business models, I was actually very happy
    to see that you addressed the two groups with a more tailored
    approach instead of a merged, one-size-fits-all solution.
        As you continue to review the various rules and possibly
    even the idea of arbitration, agreements between the investment
    advisors and their customers under Section 921 of the Dodd-
    Frank Act, do you intend to continue to take a tailored
    approach with these two groups?
        Mr. Clayton. The short answer is yes.
        Ms. Herrera Beutler. Great. Because I have another
    question.
        Mr. Clayton. OK.
        Ms. Herrera Beutler. Unless you care to expand?
        Mr. Clayton. No. I appreciate your recognizing that what we
    tried to do was take the investment adviser model, which is
    generally a fee-based, portfolio-based, over time model and
    make sure the principles that we all care about are there, and
    then, the broker-dealer model, which is a transaction-based,
    episodic model, and apply the same principles there. And that
    is what we are trying to do, to match what an investor would
    expect.
        When an investor sits across the table from their financial
    advisor or their broker-dealer, what they would expect them to
    do. And as we go through the comment process, if people want to
    appeal to us at the SEC, I think that is the way they should
    look at it. What would I expect from my investment
    professional? How would I expect them to behave? And our
    standards should match that.
        Ms. Herrera Beutler. Good. Thank you. Second question; the
    SEC's recent fiduciary standard proposal provided guidance that
    the broker-dealer representatives and other financial services
    participants should not use the name adviser. And I agree that
    there is a difference between the various categories. And
    clarifying how they refer to themselves is going to help
    relieve customer confusion.
        Are you planning to provide guidance as to what these
    groups should call themselves to help customers who may be
    confused by new names that these groups may create?
        Mr. Clayton. This is something I want to hear comment on
    very much. One area of clear confusion is, am I dealing with a
    broker or am I dealing with an investment adviser? We want to
    clarify that. The title proposal is just one part of that.
        The relationship summary that would need to be provided to
    retail investors is another part of that. But if people have
    better ideas on how we can make that clear, make it clear from
    the outset, I am all ears.
        Ms. Herrera-Beutler. Great. That is what I needed to know.
    I yield back. Thank you.
        Mr. Graves. Thank you, Ms. Herrera-Beutler. Mr. Chairman,
    if you have a few more minutes with us I know I have a couple
    more questions, and members may as well. I want to just get
    back to cybersecurity for a minute because we made it a
    priority in the 2018 fiscal year spending bill that we passed,
    and the President signed recently, $45 million, I know we
    provided you. Do you anticipate you will need additional funds
    moving into 2019? Or is that sufficient to take care of some of
    the challenges you face?
        Mr. Clayton. Well, I want to say thank you because that
    money, what it enabled us to do was take what we had on tap for
    2019 and move it into 2018. And our 2019 request,
    serendipitously, asked for an additional $45 million for
    cybersecurity over 2017.
        So, basically, what you have done is enabled us to move
    forward what we were planning to do. So, to your question, I
    think we are on our way to meet our strategic plan a little
    sooner. In the area of cybersecurity, you could always spend
    more money, and things can always come up. So, I do not want to
    ever say I am good, but we are satisfied where we are.
        Mr. Graves. Well, I am glad to hear that you were able to
    bring things forward. That means you are accelerating some of
    the protections as well. I mean, we can see that.
        Mr. Clayton. Yes. To be clear, some of the protections, but
    also some of the things we are doing to add efficiencies,
    including in enforcement and whatnot.
        Mr. Graves. We have had conversations in the past about the
    Reserve Fund at the SEC, and we know that you have received
    substantial funding from 2018, but it looks like it is still
    drawing down from the Reserve Fund. Why is that, and what are
    those funds being used for?
        Mr. Clayton. Let's see if I have, I do have the specifics
    on what we use the Reserve Fund for. The majority of it is
    overall business process improvements; long-term upgrading of
    some of our legacy systems, and that includes our EDGAR system.
    So, that is the majority of it, and those are longer-term
    projects, which is what the Reserve Fund was intended for. So,
    basically, projects that go out over several years.
        Mr. Graves. Do you anticipate the unused balance of the
    reserve fund will be part of any rescission package coming from
    the administration?
        Mr. Clayton. I do not know.
        Mr. Graves. OK.
        Mr. Clayton. Let me put it this way.
        Mr. Graves. We will probably know soon, I guess.
        Mr. Clayton. I will know soon, and if it is, I will be
    scrambling a bit, because we need the money.
        Mr. Graves. Well, we will keep that in mind as we are
    formulating the bill here in the next couple of weeks. And
    then, back to the cybersecurity side of it, we are investing a
    lot. You are making a lot of changes. You have private sector
    experience. In your opinion, do you feel like the SEC is now
    secure? I know you had questions about it when you first came
    in. I mean, can you reassure us in the investment community,
    and our investors, and our constituents?
        Mr. Clayton. Anybody who would sit here and would say, ``I
    am 100 percent sure that we are 100 percent secure,'' you
    should look at very skeptically. We are subject to attempted
    penetrations, scans----
        Mr. Graves. Every day, I imagine.
        Mr. Clayton. Every day, as are others. Do I feel like we
    are more cognizant today of the risks and that we are trying to
    address them? Yes, I do. And we have brought in third parties
    to do penetration testing and those types of things. But it is
    a constant battle.
        Mr. Graves. Yeah, that is a fair assessment. And I think we
    all respect and understand that as much as anyone tries to
    secure and protect systems, agencies, personal identities,
    there are those out there that are trying to break in, bust,
    and use new technologies. So, to stay advanced, we are going to
    continue investing.
        We expect you to use it wisely, as you have been, and
    appreciate you doing that. And then, one last question--and Mr.
    Quigley may have some follow up--the Wells Fargo enforcement
    that we read about, can you give us an understanding of how
    much was the enforcement action against Wells Fargo, and where
    do those funds go? How are they utilized? Do they go to restore
    those that might have been injured, or do they go to SEC, or do
    they go to Treasury? How are those funds allocated?
        Mr. Clayton. I will talk generally. I do not want to talk
    about a specific situation. I will talk generally about what
    happens when we either issue a fine or seek restitution. We are
    focused on getting money back to investors. That is our primary
    focus if somebody has been wronged. In terms of a fine that
    goes beyond compensating investors to the extent we can, that
    goes to the Treasury.
        Mr. Graves. Just goes to the Treasury, in general?
        Mr. Clayton. Yeah.
        Mr. Graves. All right.
        Mr. Clayton. That is speaking generally. But that is how we
    look at it.
        Mr. Graves. Thank you, Mr. Chairman. Mr. Quigley.
        Mr. Quigley. Thank you again, Mr. Chairman and Mr.
    Chairman. You reference, following up on the chairman's
    question--the chairman to my left--the rescission, the Reserve
    Fund. This is financed by the registration fees, right? So, if
    used in a rescission, we are really not sending money back to
    the Treasury. We are just not using money that is set aside by
    registration fees, correct?
        Mr. Clayton. For all intents and purposes, our entire
    budget is deficit neutral.
        Mr. Quigley. So, I am just publicly questioning why, if you
    do a rescission, it is to send money back to the Treasury. But
    this is money coming from a different direction. So, I am just
    making a point. You talked about how the Reserve Fund is used.
    Generally, it can be used in what you are doing and using it
    for. It helps you deal with cybersecurity threats, correct?
        Mr. Clayton. Correct.
        Mr. Quigley. And you talked about the fact that if this is
    diminished, I think the word you used was maybe scrambling.
        Mr. Clayton. Right.
        Mr. Quigley. Right. You are more vulnerable.
        Mr. Clayton. I like the amount that we have allocated for
    tech dollars going forward, to the extent it was reduced. I
    might take away from other things to get it back to where it
    was because----
        Mr. Quigley. Sure.
        Mr. Clayton [continuing]. I think we have sharpened our
    pencils on where we should be spending tech dollars. And if I
    lost a fair amount of them, I would want to try and find a way
    to replace them.
        Mr. Quigley. Sharpening pencils is great. I am concerned
    that the administration's budget for 2019 proposes a partial
    rescission already for the IT Reserve Fund for the upcoming
    year and a complete termination of it for the year 2020. Your
    thoughts?
        Mr. Clayton. Well, look, I think I have said before.
    Whether the money comes from the Reserve Fund or it comes from
    some other area, I am somewhat agnostic. I do need an ability
    to plan for the long term. But the total amount, including the
    Reserve Fund that we have asked for, we----
        Mr. Quigley. You need the money.
        Mr. Clayton. Need the money.
        Mr. Quigley. Thank you. Let me just ask about subpoena
    authority. Following the SEC's failure to catch Bernie Madoff,
    Chairman Shapiro made the decision to delegate subpoena
    authority so that senior enforcement staff could initiate
    investigation.
        Mary Jo White inherited and retained this authority. Your
    predecessor, Commissioner Piwowar--I have always pronounced
    this wrong--revoked this authority in February of 2017 during
    his brief tenure as you were going through your Senate
    confirmation, I believe, restoring the requirement that
    subpoenas only be issued by one of the Enforcement Division's
    Co-Directors. Your thoughts on reversing that decision?
        Mr. Clayton. Let me give you the history.
        Mr. Quigley. Sure.
        Mr. Clayton. It used to be a Commission decision to issue a
    subpoena. It went down to the heads of Enforcement, and as you
    noted, out to the regional directors. When I got there, it was
    at the Co-Director level. I analyzed this and said, ``Are we in
    any way, by keeping it at the Co-Director level, inhibiting our
    ability to investigate?''
        Mr. Quigley. If you put these people in place, as you
    talked about, with Mr. Cohen go in there and trust in these
    people and delegating and having more people with this ability?
        Mr. Clayton. I do not know of an instance where someone
    from a region called up and said, ``I would like a formal order
    of authority'' but it has not been granted. I mean, maybe there
    have been, but I have never heard of one. What it does is it
    enables our Co-Directors of Enforcement to know what everybody
    in the region is doing, and I think, enhances coordination.
        So, my question I have asked them, and like your question,
    is a good one. Have we enhanced coordination without in any way
    impeding people's ability to get a subpoena when they need one?
    And the answer is yes.
        Mr. Quigley. In an environment like this, though, taking
    away that authority, does it not send a message to them?
        Mr. Clayton. No.
        Mr. Quigley. Someone could construe this as a lack of
    trust, or a lack of giving them the initiative to do this.
        Mr. Clayton. Well, I feel able to say this and confident in
    saying it. I have been to all of our Regional Offices. I have
    met one-on-one with all of our regional directors. They know
    that I have confidence in them. And I do.
        Mr. Quigley. OK. Thank you.
        Mr. Graves. Thank you, Mr. Quigley. Mr. Yoder has no
    further questions. Mr. Moolenaar.
        Mr. Moolenaar. Thank you, Mr. Chairman. Just really
    quickly, a few things. One is, we talked a little bit about
    what you are doing at the SEC with cybersecurity. We talked a
    little bit about across the different agencies. Is there any
    role with the private sector collaboration that we ought to be
    thinking about?
        Mr. Clayton. In terms of collaboration with the private
    sector, the large financial institutions have spent a
    tremendous amount of money on cybersecurity and have, to my
    mind, very good people. They have been helpful to us in things
    like risk assessment, both as a result of our oversight role
    and on a more informal basis, and I appreciate that. And I hope
    that that dialogue continues and continues across the Federal
    financial regulators as well as DHS.
        Mr. Moolenaar. All right. And then, just looking through
    the strategic plan that was from 2014 to 2018. That was prior
    to you getting there. I know you are working on an updated one.
    This one is still in effect. I just wondered if you would
    comment on some of these strategic goals. One was establishing
    and maintaining an effective regulatory environment. Two was
    foster and enforce compliance with Federal securities laws.
    Three was facilitate access to the information investors need
    to make informed investment decisions.
        And four was enhance the Commission's performance through
    effective alignment and management of human information and
    financial capital. I wonder if you can kind of assess how we
    are doing on those? And as you look forward, are there any of
    these that you are going to bolster or prioritize over other
    ones?
        Mr. Clayton. So, you are right. We are working on a new
    strategic plan. I expect it to be out soon. I have reviewed it
    with my fellow commissioners. The draft has gotten input from
    our various divisions and offices. It embodies many of the
    things that you just cited.
        I would say if there is a shift to note it is this: if an
    American retail investor knew what we knew, how would they want
    us to focus our attention? And a lot of it is already in there.
    But that is the perspective that we have taken in shaping the
    strategic plan that will come out. Do I think we are doing well
    in most of those areas? Yeah. Do I think there is room for
    improvement? Yes. And the new positions we are adding are the
    areas where I think there could be improvement.
        Mr. Moolenaar. Great. Well, thank you, and thank you, Mr.
    Chairman.
        Mr. Graves. Thank you, Mr. Moolenaar. Chairman, thanks for
    joining us today, giving your testimony, and presenting your
    budget request. And we will be working on this in the next
    several days and weeks. And hopefully, out of the subcommittee,
    full committee, and the House, by midsummer is our goal, which
    is aggressive. Will be reached
        But we have to have aggressive goals. We have got a lot to
    do. But we appreciate your responses today and your
    thoroughness in what you are doing at the SEC and look forward
    to seeing you again in the future. With that, this hearing is
    adjourned.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                              Thursday, April 26, 2018.

                       FEDERAL COMMUNICATIONS COMMISSION

                                    WITNESS

    HON. AJIT PAI, CHAIRMAN
        Mr. Graves. Good afternoon. We will call this hearing to
    order. I would like to recognize the Federal Communications
    Commission Chairman, Ajit Pai. Thank you for joining us today.
    I know you are familiar with this subcommittee. You have been a
    participant in many different capacities over the years. We
    thank you for joining us today in your role as chairman.
        The focus of today's hearing is going to be on the FCC's
    2019 budget request--although, like me, I am sure our
    subcommittee members have a few policy items they might want to
    discuss today as you are with us. Before I recognize Ranking
    Member Quigley for his opening remarks, I want to highlight a
    couple of topics that I am personally interested in and would
    love to learn a little bit more about today.
        First, the committee provided $1 billion over the next 2
    years, in the most recent government funding bill, to set the
    stage for the next generation of wireless service for our
    country, such as 5G phone networks, while helping keep local
    television and radio stations on the air, a process known in
    Washington-speak as repack. So, Mr. Chairman, we recognize that
    broadcasters and other entities participated in good faith to
    make sure that the spectrum auction was successful. And we here
    on the Appropriations Committee worked closely with our friends
    on the Authorizing Committee as well, particularly with
    Chairman Greg Walden, who has been a great champion on this
    issue, along with his committee members, to ensure that our
    broadcasters had all the resources necessary to make required
    moves. So, we are certainly interested in hearing about that
    process and the progress that you have made thus far, and what
    you plan to do in the days ahead.
        In addition, I know that rural broadband expansion is one
    of your top priorities with the FCC, and you will find many
    members of this subcommittee have interest in that as well. So,
    we share that same enthusiasm and believe that the deployment
    of broadband in rural and disadvantaged areas is a driver of
    economic development, jobs, and opportunity. We look forward to
    that discussion and hearing about the progress there.
        Finally, I want to commend you for the work that you have
    done to restore internet freedom. It is certainly
    controversial, but nothing that is new to you. You are very
    familiar with the topic and have been a great advocate for
    repealing the net neutrality regulations. You and your fellow
    commissioners engaged in a very transparent, very open, and I
    would say spirited process, letting the American people
    participate in that debate and the proceedings as well, in what
    many would say was an unprecedented fashion. So, thank you for
    that. We know that your work will help ensure that the online
    marketplace continues to be open, and free, and flourish, while
    increasing broadband access for rural and low-income Americans.
    So, we know that will be an issue today that you might want to
    touch on as well.
        But again, we welcome you. We look forward to hearing your
    testimony in a few minutes. And prior to that, I would like to
    recognize Ranking Member Quigley for any opening remarks he
    might have.
        Mr. Quigley. Thank you, Mr. Chairman. Thank you, chairman,
    for being here today. The FCC may have, at one time or another,
    for many folks, just be another alphabet soup agency in the
    sprawling government bureaucracy, but it has become more of a
    household name recently. To me, that either means you have made
    sweeping improvement to the agency, as the chairman seems to
    indicate. Or as other evidence indicates, we have taken a
    series of actions that could impact and disrupt the lives of
    nearly every American, every walk of life and sector in this
    economy.
        It is no secret that you certainly drew a newfound level of
    attention to the agency when you led the charge to roll back
    net neutrality protections. In our 21st century world, equal
    access to all online content is the cornerstone of freely-
    moving communications and commerce. While the Obama era
    protections of net neutrality were not perfect, your efforts to
    eliminate these vital safeguards could cause severe harm to
    consumers, all while stifling innovation and curtailing free
    expression. This is not to mention that the FCC's rollout was
    handled in ways that seemed to violate the American Procedures
    Act and have already spawned numerous State attorneys general
    investigations into wrongdoing.
        If there were people who were not paying attention to the
    FCC after your actions on net neutrality, things may have
    changed when the video of dozens of Sinclair news anchors
    forced to read identical and highly political text went viral
    online in the news media. This, of course, brings us to the
    ongoing review of the proposed merger between Sinclair and
    Tribune Media, which has raised troubling concerns that have
    yet to be cleared up. The FCC has taken numerous actions to
    call into question, sir, your independence in the matter. And
    at the very least, demonstrate that appearance of preferential
    treatment for Sinclair, a broadcasting group with close ties to
    the White House.
        A swift series of FCC actions to ease limits on media
    ownership have cleared almost all restrictions for Sinclair to
    move forward with its merger proposal. An FCC commissioner that
    you served with has even said--and I quote--``Everything the
    FCC has done is custom-built for the business plan of one
    company, and that is Sinclair.'' Taken in context with reported
    meetings between you and your office, the White House
    officials, and Sinclair representatives in a relatively brief
    period of time, these actions reveal a disturbing pattern that
    jeopardizes the independence of the FCC--so much so that you
    yourself are now under an investigation by the FCC's Inspector
    General for improper coordination with Sinclair.
        If approved, Sinclair would control enough local TV
    stations to reach 72 percent of U.S. households, significantly
    harming media diversity and lowering consumer choice. To ease
    mounting antitrust concerns, Sinclair just announced it will
    divest 23 stations in 18 markets. However, Sinclair stretches
    the definition of divestiture under the plan to something
    unrecognizable.
        For example, WGNTV in my home market of Chicago would
    reportedly be sold to the CEO of a Maryland car dealership,
    which is owned by the executive chairman of Sinclair. Sinclair
    would have the option to buy back the station at a later date.
    Under this arrangement, Sinclair would also have control over
    all business decisions made by WGN, without having to claim
    technical ownership.
        While these are stations that currently enter into
    appropriate joint sales and shared service agreements, this
    arrangement makes a mockery out of the FCC's own rules. When
    you combine a media giant cozy with the President and the White
    House, the rolling back of ownership rules for the benefit of
    one company, and a sign-off on dubious ownership agreements,
    you get a recipe for less broadcasting competition, less high-
    quality local content, and less diversity of views.
        In closing, I would just like to add that I am pleased to
    have you in front of the committee today, something we did not
    have the opportunity to do last year. I believe this committee
    has many questions for you today that have been unanswered
    during previous media interviews and public appearances. It is
    worth noting that most of these past appearances have occurred
    with conservative media outlets and friendly audiences. I hope
    if today's meeting goes well, you might consider making
    yourself to a more diverse range of outlets going forward. I
    look forward to hearing your testimony and discussing these and
    other issues with you today. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Quigley. Chairman Pai, thanks
    again for joining us today. Know that members will be coming
    and going a little bit throughout the afternoon with other
    subcommittee meetings. We look forward to having you with us
    today. I know you want to discuss a little bit about your
    budget requests, but you are certainly no stranger to some of
    the policy questions. We look forward to hearing your opening
    remarks at this time.
        Mr. Pai. Well, thank you, sir. Chairman Graves, Ranking
    Member Quigley, members of the subcommittee, thank you for the
    opportunity to present the FCC's fiscal year 2019 budget
    request. We will use the requested funds to achieve our
    critical strategic goals. First, closing the digital divide;
    second, promoting innovation; third, protecting consumers and
    public safety; and fourth, reforming the FCC's processes.
        In fiscal year 2018, we received $322 million, a reduction
    of about 5 percent from 2017, minus the headquarters relocation
    funds. To put that number in perspective, in inflation-adjusted
    terms, our appropriation has declined by over 17 percent since
    fiscal year 2009. These reductions have required the FCC to
    operate more efficiently. Since I became chairman in January of
    2017, we have done just that: cutting costs and accomplishing
    more with less money.
        For example, we have saved a lot of money by closing a
    warehouse where we processed our mail, and instead contracting
    with a vendor that performs this task for many government
    agencies. And by the end of fiscal year 2018, we project that
    the commission's FTE count will have declined by over 10
    percent in just 2 years.
        In light of this, our fiscal year 2019 budget request
    proposes to freeze our FTE count rather than reduce it again. I
    believe that further reductions in staffing next year could
    compromise the commission's ability to accomplish its mission,
    particularly in light of the many additional responsibilities
    that Congress has assigned us in the omnibus appropriations
    bill. Pursuant to this legislation, we must revise our
    application and regulatory fee schedules, amend caller ID
    spoofing rules, complete a rule-making on 911 call location
    accuracy, use the Connect to Health tool to create a map
    overlaying opioid drug abuse with broadband access, and
    coordinate with NTIA and its use of $7.5 million in
    infrastructure funds for broadband mapping. We have also been
    tasked with writing reports for Congress on a variety of
    important topics.
        Now, in our budget request, we are asking for $8.5 million
    for one-time information technology--or IT--investments. Many
    of our IT systems and applications are quite old, and it is
    becoming harder to keep them running. And that is why we are
    seeking funding, to shift from outdated legacy systems and
    applications toward modern, cloud-based solutions. Taking this
    step will save money in the long run, improve resiliency,
    reduce cyber security vulnerabilities, and enhance the services
    that we provide to those we regulate and to the American
    people.
        These IT investments are the main reason why we are
    requesting a slight bump up in appropriations for our regular
    operations in fiscal year 2019, from $322 million to about $333
    million. But even with this modest increase, our fiscal year
    2019 spending level would be identical to the amount authorized
    in the fiscal year 2018 omnibus, and below our fiscal year 2017
    appropriation.
        In our budget request, the FCC's auctions program is
    projected to increase spending slightly, to $112,734,000, from
    the fiscal year 2018 level of $100,150,000, which was a 5
    percent drop from fiscal year 2017. And this is because next
    year we will be busy when it comes to auctions.
        We have two new spectrum auctions scheduled in the 28
    gigahertz and the 24 gigahertz bands that are critical to
    American leadership in 5G, the next general of wireless
    connectivity. And we have much work to do on the post-incentive
    auction repacking process. We need to develop rules for the new
    programs recently approved by Congress to extend funding to
    low-power television stations, and TV translators, and FM radio
    stations that incur costs from the repack. We also have to
    decide how to allocate money for consumer outreach related to
    the repack.
        And by the way, the billion dollars that you appropriated
    for fiscal year 2018 and 2019 for the incentive auction repack
    is already having an important impact. Just last week, we
    enabled full-power television broadcasters to get access to up
    to 92.5 percent of their estimated costs. This boost will make
    it easier for stations to move ahead with post-auction
    construction.
        Finally, despite our budget planning, unforeseen problems
    and disasters can upend our best efforts. For instance, during
    this fiscal year, we have had to use every tool in our toolbox
    to help people on the ground in hurricane-stricken regions, to
    get communications networks up and running, including using
    universal service fund money and experimental licenses. And we
    are not done yet. I have proposed a $750 million Uniendo a
    Puerto Rico Fund--or ``Bringing Puerto Rico Together Fund''--
    and a $204 million Connect USVI Fund for the Virgin Islands, to
    provide more short-term assistance for restoring communications
    networks in the aftermath of Hurricanes Irma and Maria, as well
    as longer-term support for expanding broadband access
    throughout the islands.
        In short, we have accomplished a great deal in the past
    year and will have a full plate next year. And it is the
    appropriation that you provide, along with the hard work of the
    Commission's talented staff, that makes all of this possible.
    And so, I want to thank you for your dedication to helping our
    agency have the resources it needs to serve the public
    interest. I look forward to answering your questions and to
    working with you and your staffs in the time to come.
        Thank you, Mr. Chairman, for your indulgence.
        The information follows:

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        Mr. Graves. Thank you, Chairman Pai. We certainly have your
    prepared statement as well that I know each member has taken
    time to review.
        I wanted to ask you just a little bit about the billion-
    dollar investment that we provided in the last government
    funding bill. Could you give us an overview of the process and
    how much of those resources have been allocated, and are out
    the door. Are the resources provided sufficient for the plan
    that you are putting in place to make sure that everything goes
    smoothly and it is all taken care of?
        Mr. Pai. Thank you for the question, Mr. Chairman. Prior to
    the legislation passing, we had made very strong efforts to
    make sure that the repack was proceeding apace and smoothly.
    There are approximately, I believe, something like 4,554
    licenses that we have allocated, which is a great many of them.
    Additionally, we have been working extensively with
    broadcasters to make sure that we get some of the criteria out
    there for what would constitute compensable funds.
        Thanks to this legislation, as I mentioned in my opening
    statement, we have now been able to increase the allocations
    available for broadcasters. So, now, up to 92.5 percent of
    their costs will be covered. Additionally, we have taken the
    legislation's instruction very seriously, and I have asked our
    incentive auction staff to start looking at ways to implement
    some of the instructions with respect to low-power TV stations,
    and translators, and FM stations--as well as looking at ways to
    promote consumer outreach, as Congress requested.
        So, we are very grateful to Congress on a bipartisan basis
    for extending those resources. And we are committed to making
    sure the incentive auction continues to go smoothly.
        Mr. Graves. Do you think there is sufficient funding for
    the low-power and FM stations?
        Mr. Pai. That is the decision that Congress made, and we
    respect that decision. And thus far, we do not have any reason
    to believe that it is inadequate.
        Mr. Graves. And so, a concern that this committee would
    have, too, is that making sure the reimbursements are for costs
    that would be reasonably incurred. How do you ensure that? What
    is your protocol for that?
        Mr. Pai. That is where we rely heavily on the
    determinations by our expert staff. There are some things, I
    think, that people can agree are reasonably related to the
    repack, and there are costs that we can agree are not. And that
    line-drawing exercise is something that we have to be very
    careful about. Because after all, these are limited funds. And
    we want to make sure that we are only allocating funding to the
    extent that is required under the law.
        Mr. Graves. And one last question related to this. $50
    million was allocated for consumer education. Can you share
    with us how you intend to use that for consumer education? What
    would be your vision for that? I do not know that I have seen a
    chairman in this role travel the country like you have to just
    meet with groups, whether they are students in schools, or
    civic groups, just to talk about what is important when it
    comes to the FCC. So, this $50 million out of your spending
    bill, what type of activities would you envision for it?
        Mr. Pai. Well, first, Mr. Chairman, thank you for the kind
    words. It is one of the great benefits of this job to be able
    to travel around the country and see how people are impacted,
    from Scottsville, Kentucky, to Utuado, Puerto Rico--each of
    those places I visited over the past couple of months.
        With respect to consumer outreach, as I said, we are still
    in the early stages. I have asked our staff to take a look at
    the range of options that are permitted under the law and given
    our resources. And we have some precedents. During the digital
    television transition, of course, we engaged in a very robust
    consumer outreach function. And so, we will be looking to that
    precedent, along with what some of the potential
    vulnerabilities are, in terms of consumer awareness, going
    forward. And we would be happy to keep the committee apprised
    as that effort develops.
        Mr. Graves. That is great. And then, one last thought on a
    different topic. I know we mentioned earlier that rural
    broadband expansion is one of your top priorities. In your
    travels across the country, you have certainly seen the need
    for that. As we go through this year and next year, how do you
    see that rolling out and your vision coming to be?
        Mr. Pai. Thanks for the question. I am very optimistic
    about what the future holds--for the next year in particular--
    for rural broadband. In July, we will be starting our $2
    billion Connect America Fund Phase 2 auction to get fixed
    broadband to unserved parts of the country.
        Hopefully, next year, we will be kicking off the $4.5
    billion Mobility Fund, Phase 2, to get 4G LTE to unserved parts
    of the country. We have done rate of return forms to extend
    $500 million to rural carriers. As I mentioned in my opening
    statement, I have proposed $1 billion for Puerto Rico and the
    Virgin Islands in particular, given some of the challenges they
    have had. And aside from those subsidy programs, we have
    reformed our rules to make it easier for small companies in
    particular to build out the infrastructure in rural America.
        And the reason why it matters is because there are a lot of
    communities across this country that are simply on the wrong
    side of the digital divide. And the Scottsville example is a
    good one. I visited there a couple of weeks ago. Four thousand
    people in the town of Scottsville, not a single pediatrician in
    the entire county. And so, for a long time, the only option for
    a kid who got sick in school was to hope that the school nurse
    could help him or her. Well, now, thanks to a high-speed
    connection between Scottsville, Kentucky and the Vanderbilt
    University's Children's Hospital, they are able to engage in
    telemedicine. Kids are healthier. Parents do not have to take
    time off work. Teachers can focus on teaching. The community is
    healthier.
        And that one anecdote, I think, illustrates the fact that
    this not an academic debate. Rural broadband, broadband
    deployment generally means getting human capital off the shelf
    and empowering Americans to be participants in--rather than
    spectators of--the digital economy.
        Mr. Graves. Great. Thank you. Thanks for your vision there
    and the aggressive rollout. That is amazing. Mr. Quigley, you
    are recognized, and then Mr. Moolenaar.
        Mr. Quigley. Thank you, Mr. Chairman. Mr. Chairman, I
    respect you in the fact that I know you believe that those
    actions are important. And the chairman, I am sure, appreciates
    those kind words.
        There are some times, though, when we disagree, and these
    issues matter. So, I have got to ask these questions. And it
    begins with: have you recused yourself or do you plan on
    recusing yourself from any further actions relating to the
    Sinclair-Tribune merger until the IG investigation has
    concluded?
        Mr. Pai. Congressman, I have been advised by the Office of
    General Counsel that recusal is not required under the
    applicable rules and regulations.
        Mr. Quigley. Is this concerning and after and involved with
    the Inspector General's investigation?
        Mr. Pai. My understanding is that the career ethics
    officials have given general advice with respect to my
    participation in that transaction.
        Mr. Quigley. Are we told how long the IG investigation will
    take place?
        Mr. Pai. To my knowledge, they have not said anything
    publicly about the investigation. I have no knowledge of what
    their timeframe might be. I would refer you to the OIG for any
    answers.
        Mr. Quigley. Did representatives of Sinclair inform you or
    your staff about a proposed merger with Tribune before the
    FCC's vote to reinstate the UHF discount?
        Mr. Pai. They did not. Absolutely not.
        Mr. Quigley. Was there any communication at all before or
    after, involving this merger?
        Mr. Pai. About the merger?
        Mr. Quigley. Yes.
        Mr. Pai. Before they announced it? No. Not at all.
        Mr. Quigley. Nothing whatsoever?
        Mr. Pai. No. I have read about it, I think, in the press,
    as anybody else did.
        Mr. Quigley. Did President Trump or any other officials at
    the White House--the transition team--discuss Sinclair at all
    with you or any of your staff or people who would become your
    staff?
        Mr. Pai. To my knowledge, sir, no. No one ever told me
    about a pending proceeding of any kind.
        Mr. Quigley. Before the inauguration as well?
        Mr. Pai. No. No one.
        Mr. Quigley. After the inauguration?
        Mr. Pai. When I met with the President-elect, no.
        Mr. Quigley. Did anyone ever talk to you from the White
    House, generally, about a proposed Sinclair-Tribune merger with
    you, your staff, anyone else related at all?
        Mr. Pai. Not to my knowledge.
        Mr. Quigley. Has anyone from your staff talked to you about
    this--having told you that they talked with anyone at the White
    House or the administration?
        Mr. Pai. Not that I recall. No.
        Mr. Quigley. Both before and after the announcement of the
    proposed Sinclair-Tribune merger, did any representatives of
    Sinclair discuss with you or your staff changes to the main
    studio rule or local media ownership rules?
        Mr. Pai. I think a number of companies, including that one,
    have suggested over the years that the media ownership rules
    were in need of reform. That is a position I held well before I
    had those discussions.
        Mr. Quigley. But the discussions that Sinclair had, were
    those with you?
        Mr. Pai. When the----
        Mr. Quigley. You said that they and others have.
        Mr. Pai. Right.
        Mr. Quigley. When did Sinclair have these discussions with
    you?
        Mr. Pai. Oh, so, for example: I cannot recall the specific
    date, but I mean, I am aware generally that the media ownership
    rules are outdated; there is a need for reform there, and that
    is consistent with the views I have long-held.
        Mr. Quigley. But when did Sinclair specifically talk to you
    about this?
        Mr. Pai. Well, I do recall--I think it was in 2016, for
    example--that I made a presentation to the general managers of
    some of the Sinclair stations. And one of the points I made was
    that media ownership rules were in need of reform. And I think
    there might have been a couple of questions from some of the
    general managers about that.
        Mr. Quigley. Do you have a record at all of any meetings
    and correspondence that you or your staff have had with
    representatives of Sinclair, including lobbyists and lawyers
    representing Sinclair, since November 6th, 2016?
        Mr. Pai. If we have any such correspondence, it has been
    produced, I understand, in response to FOIA requests.
        Mr. Quigley. In response to FOIA requests from?
        Mr. Pai. From individuals who have requested information.
    In addition, my understanding is we supplied some documents to
    some of your colleagues on the House Energy and Commerce
    Committee as well.
        Mr. Quigley. And are those request up-to-date?
        Mr. Pai. As far as I know, yes.
        Mr. Quigley. And can you provide us with a summary of those
    meetings and copies of that correspondence as well?
        Mr. Pai. I will take a look at what we have and we would be
    happy to work with you on that.
        Mr. Quigley. Now, press reports indicate that the DC
    Circuit Court has expressed skepticism about the FCC's
    authority to reinstate the UHF discount. You are aware of this?
    So, let me ask you: what happens if the FCC approves a
    Sinclair-Tribune merger, which would be unlawful if not for the
    UHF discount reinstatement, and then the court rules against
    it? Will the FCC undo the merger? Can it? Either way, does not
    it make sense to you, sir, that we wait until the court rules
    on your authority before acting on the merger?
        Mr. Pai. Well, congressman, you are talking about two
    clashing hypotheticals. One is what the court might do.
        Mr. Quigley. It is a big deal, though.
        Mr. Pai. Oh, I understand that. But you are talking about
    two clashing hypotheticals. One is what the DC Circuit might
    do, and two is how the FCC might evaluate the company's newly
    issued proposal, which, as you point out in your opening
    statement, was just submitted a couple of days ago. The clock
    on that transaction has been stopped since January. And so, I
    am loath, at this point, to forecast what we might do in the
    event of either of the hypotheticals.
        Mr. Quigley. Could you forecast the timeframe before you
    would approve a merger?
        Mr. Pai. I cannot Congressman, because the clock is
    currently stopped. And as you pointed out, just a couple of
    days ago, they submitted this proposal, which we have not had a
    chance to fully evaluate.
        Mr. Quigley. And I will get into it in a later question,
    but given the magnitude of the court's decision, does it not
    make sense to put off a final decision until they rule?
    Hypothetical or not, given the fact that you would be making
    this decision and then the courts would be ruling against it
    probably shortly thereafter.
        Mr. Pai. Congressman, we will take that factor into
    account. But again, I do not want to forecast or give a
    specific timeframe, given the fact that the clock is currently
    stopped and we have not had a chance to fully evaluate the new
    proposal.
        Mr. Quigley. My time is up.
        Mr. Graves. Thank you, Mr. Quigley. Mr. Moolenaar and then
    Mr. Bishop.
        Mr. Moolenaar. Thank you, Mr. Chairman. Chairman Pai, thank
    you for being here with us today. And I wanted to follow-up on
    some of the questions Chairman Graves was asking about the
    rural broadband. And also, telemedicine is something you have
    been talking about. I just want to emphasize, in my district,
    which is 15 counties in Michigan, rural broadband is a huge
    priority, as well as the telemedicine opportunities. And I want
    to continue to encourage you in that direction.
        If I am speaking to people in our district and leaders in
    different communities who are concerned about these things,
    what message should I be giving them right now, in terms of
    timing, the expectations they can have in this regard?
        Mr. Pai. You can tell them that the FCC's number one
    priority is closing the digital divide, making sure that every
    part of this country is connected with internet access and
    other advanced technologies. Everyone wants internet access by
    yesterday. But nonetheless, we are moving very aggressively--
    the fixed broadband program starting in July, the mobile
    broadband auction starting in 2019. We are moving very
    aggressively, and we are also talking about the value of
    telemedicine in particular. We have teed up some reforms to our
    rural healthcare program to make sure that healthcare providers
    all across the country--but especially in places like your
    district--have the resources that are needed to make sure the
    consumers in your district can take advantage of healthcare
    opportunities that folks in bigger cities do. And this is an
    issue I am really passionate about and we would be happy to
    work with you on it.
        Mr. Moolenaar. Wonderful. Thank you. And then, every day,
    our office receives calls from constituents complaining about
    scam phone calls. It is more than a nuisance. Some of these
    calls pose as everything from IRS agents threatening to arrest
    people, hospitals claiming to need more money to assist a
    relative. Why does not the Do Not Call list filter these out,
    and what can the FCC do to address this problem?
        Mr. Pai. The sad answer to your first question is that the
    scam artists do not respect the Do Not Call List. And so, then,
    it falls to the FCC as well to figure out ways to stop the
    supply, so to speak, of these unwanted robo-calls. And we have
    done that aggressively. For example, we took action last year
    to empower carriers to block spoof calls that are clearly from
    invalid or unassigned phone numbers.
        And we have also engaged technologists and others to come
    up with a call authentication standard--a digital fingerprint,
    as you will--for each phone number. So, if you see a phone
    number on your phone, you will know that it is coming from a
    specific person who has specifically been assigned that number.
    We have also taken aggressive enforcement actions. The largest
    fines proposed in the agency's history have been proposed over
    the last year to go after these robo-callers.
        And I personally have talked to my counterpart at the
    Federal Trade Commission and have spoken with foreign
    counterparts in places like India about the need for
    international cooperation. A lot of these scam calls come from
    abroad. Our jurisdiction does not extend, of course, beyond the
    U.S. border. We need their help. And I am glad to say that my
    counterparts, generally speaking, have been very supportive in
    doing that. This is an all hands on deck effort, and I am
    pleased to say that we are putting all hands on that deck.
        Mr. Moolenaar. OK. Thank you. If I could change course for
    just a minute, I appreciate your working on cleaning up the
    waste, fraud, and abuse in different programs which you have
    authority over. And one of the concerns that has been raised to
    me is regarding the Lifeline program.
        You know, I know, in my district, I believe there are
    almost 26,000 subscribers to Lifeline. There have been concerns
    raised about disruption based on a new proposal that you have
    on a reseller ban and some kind of a cost-sharing co-payer type
    program. And I just wondered if you have done some kind of a
    cost-benefit analysis on this that integrity, and make sure
    that, you know, we are-- but I am hearing these concerns
    raised, and I just wondered if you could speak to that.
        Mr. Pai. Thanks for the question, congressman. I have long
    said that every dollar in the Lifeline program, or any other
    program, that is wasted is a dollar that by definition is
    denied to a consumer who is in need. And that is why I have
    suggested that the FCC needs to prioritize consumers rather
    than the companies that are, you know, occasionally engaging in
    this waste, fraud, and abuse.
        And so, that is part of the reason why, for example, we got
    rid of the port freeze, which essentially prevented Lifeline
    consumers from changing providers for a year, preventing
    consumer choice. That is why we have made clear that the
    Lifeline program should support 3G or higher speeds, as opposed
    to premium WiFi, because some Lifeline consumers told us,
    ``Well, we get these phones, but then we can only use them if
    we have WiFi, which we do not have at home.''
        That is part of the reason why we are taking steps to make
    sure that we, as you pointed out, maintain program integrity.
    We do not want companies, for example, to get multiple
    duplicate subscribers----
        Mr. Moolenaar. Is there some evidence of that kind of fraud
    taking place?
        Mr. Pai. There is. For example, in Michigan we uncovered a
    case in which one company was getting subsidies for 22,000
    subscribers per month. Those subscribers did not exist. And
    that is the kind of thing, again, every dollar that goes to
    somebody who does not exist or is not in need, it cannot go to
    somebody in your district who really does need to help.
        Mr. Moolenaar. Thank you. Thank you, Mr. Chairman.
        Mr. Graves. Thank you, Mr. Moolenaar. Mr. Bishop and then
    Mr. Yoder.
        Mr. Bishop. Thank you very much, Mr. Chairman. Again,
    Chairman Pai, I would like to welcome you. First off, though, I
    would like to take this opportunity to talk about Commissioner
    Mignon Clyburn and her legacy on the Commission. I would like
    to say that Commissioner Clyburn has really been an asset to
    the FCC and that she has done great work in advocating for the
    American people, particularly those who are in greatest need of
    government protection and assistance. She has been a consistent
    and a powerful voice on the commission, and her impending
    departure will be a great loss for everyone.
        It would be unfair to compare anybody's work to hers, but
    to that point, I want to know your thoughts on some of the
    aspects of the issues for which she was such a tireless
    champion. You have consistently opposed the notion that the FCC
    has the authority to determine rate caps for intrastate prison
    calls, which is essential for the rehabilitation of inmates by
    allowing them to feel connected to their families and their
    communities. What do you think that the FCC can do to mitigate
    the predatory practices of the companies charging excessive
    rates for inmates? And will you act on, in any way, on what you
    think the FCC can do?
        Let me just also say that Commissioner Clyburn was an
    advocate for enhanced accessibility for communications for
    individuals with disabilities. Tell us what the plans that the
    FCC has and what your thoughts are, in particular, to ensure
    that these individuals with disabilities are not left behind
    with regard to the rapid and ongoing communication advances.
        And I would like to go back to the Lifeline question, which
    is so very, very important. It assists low-income individuals
    with acquiring telecommunications services, which goes to the
    heart of the purpose of the Universal Service Fund. But the
    proposed ban on Lifeline Wireless resellers--which is a primary
    source of service for Lifeline customers--accounts for up to 8
    million current customers. And the ban is predicated on a GAO
    report that found that 5,500 duplicate Lifeline recipients and
    6,300 deceased individuals, who are receiving subsidies at a
    fraud of 0.16 percent. That is 0.16 percent, and 0.18 percent
    respectively.
        Overall, the improper payment rate for life is well below
    the government-wide average of 4.67 percent. And it outperforms
    many of the other popular government programs. So, would you
    just comment on the justification for such a drastic response
    to the situation and what the FCC plans to do to accommodate
    the millions of people who stand to be disconnected because of
    loss of the subsidy?
        Mr. Pai. Thank you, congressman. You have teed up a few
    questions. So, I will try to get to them in sequence. First,
    with respect to Commissioner Clyburn, I could not agree more.
    She has been a champion of the public interest during her time
    at the Commission. In fact, with the committee's indulgence, I
    would like to introduce into the record a joint op-ed that she
    and I did, perhaps her last of the Commission, in which we
    talked about the power of broadband to help rural cancer
    patients get access to the treatment they need. She and I
    worked together to forge an agreement between the FCC and the
    National Cancer Institute, and I think it is part of her legacy
    that she is promoting telemedicine and connected health as
    something that will help all Americans.
        Additionally, with respect to intrastate inmate calling
    rates, I have consistently said that, unfortunately, the plain
    language of the Communications Act gives the FCC jurisdiction
    over interstate rates, but intrastate rates are a different
    question. And unfortunately, the DC Circuit agreed with that
    interpretation. I understand that there is legislation in
    Congress to reform that system. We would be happy to work with
    you as well as members of the Senate who have expressed
    interest in that question.
        On the interstate side--going back to 2013--I specifically
    proposed a 0.26 cent and 0.19 tiered structure that I thought
    was consistent with the evidence and would have withstood
    judicial review. Going forward, we are still evaluating the
    issue, but we would be happy to work with you on the path
    forward.
        On disabilities, I could not agree with you more. One of
    the great benefits of technology, I think, is now bringing into
    the fold many millions of people who, in a previous analog
    area, might not have had the ability to participate in society.
    So, I am proud, for example, that we have really tried to push
    the availability of things like real-time text, allowing those
    with disabilities, for example, to text each other in real time
    instead of having to send an SMS, wait for a message, and get a
    message back with different reforms to the Telecommunications
    Relay Service and other programs, I think, we are going to
    bring more people disabilities into the connected era.
        Last, with respect to Lifeline, I agree with you. I have
    consistently said that Lifeline is an important tool for
    addressing the digital divide. And we are still taking input on
    some of our proposals from the most recent notice of proposed
    rulemaking. I will simply state in the interim that we have
    recognized the importance of this. I personally visited the
    Navajo Nation recently, and I got to hear firsthand about the
    importance of Lifeline to some of the folks on Tribal lands.
    And that is why we extended the deadline, for example, for
    folks in the Tribal Nation, to be able to continue to enjoy
    some of those benefits. So, these are very important issues
    that you have raised, and I look forward to working with you on
    that.
        Mr. Bishop. Thank you. My time is more than expired, but
    thank you very much.
        Mr. Pai. I am sorry for the long answer.
        Mr. Graves. Thank you, Mr. Bishop. Mr. Yoder and then Mr.
    Cartwright.
        Mr. Yoder. Thank you, Mr. Chairman. Chairman Pai, welcome
    to the committee, and welcome back, and welcome to the
    committee for the first as chairman of the FCC. I think you
    were here before, but maybe you were not actually fully
    confirmed.
        But it is great to have a Kansan in this role. And as a
    fellow Kansan, I know that you are concerned about rural
    broadband. And the chairman has asked about it, as well as
    others today. And I want to ask you a little bit about the
    rural healthcare program. For the past 2 decades, the rural
    healthcare has remained at $400 million per year. But in 2016
    and 2017, demand for this program exceeded the cap, and the FCC
    has rightly proposed adjusting the cap for inflation.
        However, in the meantime, the USAC--which administers the
    program--set the funding request for fiscal year 2017 were $521
    million, above the $400 million cap. And since the cap has not
    been raised, the USAC administered retroactive cuts to the
    program participants. They culled back 15 percent from
    individual participants and 25 percent from those who
    participated as part of a consortium.
        This concerns folks in Kansas because that method of
    calculating the cuts disproportionately affects Kansans where
    the majority of rural healthcare program participants are part
    of a statewide consortium. So, my first question is, why is the
    USAC moving forward with these clawbacks ahead of the
    rulemaking process that would raise the caps for 2017?
        Mr. Pai. Good question, Congressman. So, based on the rules
    that are existence, USAC had to make those determinations. We
    have tried to work with them to ameliorate the impact of those.
    So, for example, once my office saw the trend lines--that
    demand was going to exceed supply in terms of the rural
    healthcare budget--we asked them to use fiscal year 2017 unused
    funds to mitigate the impact of that. And I recognize it is not
    fully mitigating it, but we did what we could, given the
    resources we had.
        Moving forward, in December of 2017, we also took steps to
    give healthcare providers relief by teeing up, as you pointed
    out, a notice of proposed rulemaking to say, prospectively,
    should we revisit what that cap is, recognizing that there have
    been resource constraints in the past. And so, I hope that the
    combination of those two things will help.
        With respect to individual applicants for this consortia,
    this is an important issue. Our thinking was that individual
    healthcare provider facilities do not have the economies of
    scale, the bargaining powers that a larger group, a consortium,
    might have. Additionally, it might be difficult to discern
    which members of a consortia are urban versus rural. This is,
    of course, the rural healthcare program. And so, that was part
    of the rationale there. But we recognized that there are
    important services that the consortia provided as well. And so,
    we hoped that it would consider the notice of proposed
    rulemaking. I believe the comment cycle just recently closed.
    We will take that into account.
        Mr. Yoder. Well, I know, whether it is 15 percent for
    individuals or 25 percent for the consortium, those clawbacks
    are difficult to sustain and impactful. And so, the rulemaking,
    obviously, will fix this, hopefully, going forward, by raising
    those caps. Where is that process? Where are we in that
    timeline?
        Mr. Pai. The comment cycle recently closed. Our staff is
    evaluating the comments we have received. And we hope to make a
    judgment at some point in the near future. I recognize, having
    been to, you know, the KU Med Center in your district, I
    understand some of the great things they are doing. And we want
    to keep promoting that in the time to come.
        Mr. Yoder. OK. Last September, Representative Mark Takano
    and I, as co-chairs of the Congressional Deaf Caucus, sent you
    a letter regarding a petition for rulemaking--we have spoken
    about this before--that was supported by organizations that
    advocate on behalf of the deaf and hard-hearing. The petition
    requested that the FCC promulgate regulations to change the
    contribution methodology for the Telecom Relay Service Fund. As
    you know, the TRS provides vital services to the deaf
    community, but a shrinking revenue base for the fund has
    threatened those services.
        In our letter, we have voiced our hope that the FCC would
    prioritize this issue. And I thank you for responding to the
    letter, in which you stated that the Commission was working to
    conclude its review of this matter as quickly and as equitably
    as possible. I would like to get an update on where you are in
    this situation, where we stand on the issue. And I understand
    that you have been working on a Telecom Relay Service draft
    notice of proposed rulemaking. Can you give us the timeline
    when you expect that it will be issued and out for public
    comment?
        Mr. Pai. Sure. First and foremost, thanks to you and
    Congressman Takano for you interest in this matter. And second,
    I meant what I said in my response, and I am pleased to report
    this morning--or this afternoon, rather--that in the next
    couple of weeks, we hope to circulate that notice of proposed
    rulemaking. Hopefully soon thereafter, my fellow commissioners
    will vote on it and we will be able to hit the ground running
    with that proceeding.
        Mr. Yoder. Great. Thank you for your work there. That means
    a lot to a lot of our constituents who are deaf and hard of
    hearing. And we appreciate your leadership on that. And then,
    lastly, on the repack issue. You know, in fiscal year 2018, we
    included $50 million to cover reimbursable expenses of radio
    broadcasters that are impacted by the TV incentive auto repack.
    There has been some concerns that radio broadcasters facing
    these costs in the earlier phase of the repack lack the
    information they need to adequately plan for the mitigation
    efforts to ensure minimal impact to radio listeners.
        Can you give us a quick update on the rulemaking? And can
    the FCC include the update of its work on the radio repack
    rulemaking in their monthly reports to the committee?
        Mr. Pai. Sure. So, with respect to the first, we have asked
    the staff who are working on the incentive auctions, including
    folks in the media bureau, to take a look at the recent
    legislation and to figure out what steps need to be taken to
    implement that instruction. At this time, I do not have a
    specific timeframe that I can give you. But I can tell you that
    they are working as quickly as they can to make sure that FM
    stations have the certainty they need and that Congress gets
    the information it needs promptly.
        Mr. Yoder. Quickly and equitably as possible, as you say,
    on everything.
        Mr. Pai. Absolutely.
        Mr. Yoder. I appreciate it. Thank you.
        Mr. Graves. Mr. Cartwright and then Mr. Young.
        Mr. Cartwright. Thank you, Mr. Chairman. And Chairman Pai,
    thank you for being here.
        Mr. Pai. Thanks.
        Mr. Cartwright. And I want to talk more about rural
    broadband. One thing that we agree on, on both sides of the
    aisle, is the importance of getting going on this, connecting
    our rural residents to the worldwide Web. Now, you mentioned
    the Connect America Fund. It spent about $4.5 billion last
    year, attempting to expand coverage. And I certainly applaud
    those efforts. But I want to think the Commission could do more
    to promote innovation. And specifically, I am thinking of an
    exciting new technology that would use vacant television
    spectrum--or white space--to deliver broadband to rural areas.
        And now, the real benefit of this model is that utilizing
    it could cut the cost of bridging the digital divide by about
    80 percent, compared to fiber solutions alone. But nationwide
    deployment is impossible until the Commission sets aside
    sufficient TV white space spectrum for wireless unlicensed use
    in every market across the country. What do you think of this?
    Why has this step not been taken? And can you provide a
    timeline of when we might expect the Commission to act on TV
    white space?
        Mr. Pai. Thanks for the question, congressman. And I am
    pleased to see that we have common ground on that issue. It is
    very important, as I know, in Kansas as it is in Pennsylvania.
    With respect to that issue, I have met with Microsoft and some
    of the other entities that are advocating for it. I have
    personally been to South Boston, Virginia, a small town, where
    I got to meet Dylan Harris, who at the time was a high school
    student. He is now a student at Old Dominion University. And he
    told me that he had internet access because of this kind of
    technology and it helped him do his homework in a way he could
    not before.
        Now, I also have to say, though, that we have a low-power
    TV displacement window that is currently open in connection
    with the incentive auction. That window closes, I believe, on
    June 1st. And so, it is premature for me to give you a specific
    timeframe on when the Commission might reach resolution,
    because we do not know what the quantum of LPTV entities might
    be that might also be looking for the use of that spectrum.
        We would be happy to keep you posted as soon as that window
    closes and we get more information. Believe me, when it comes
    to rural broadband, I understand that time is not on the side
    of those folks in Easton, or in Parsons, Kansas, where I am
    from. But we want to make sure we do everything we can as
    quickly as we can.
        Mr. Cartwright. Thank you for that. And I will ask that you
    keep us posted.
        Mr. Pai. Happy to do it.

        The FCC provides updates on all incentive Auctions Actions
    to HAC and SAC on the 23rd day of each month, as per the FY18
    Explanatory Statement.

        Mr. Cartwright. Secondly, Congress recently made what some
    have called a down payment on investing in rural infrastructure
    by adopting a $600 million rural broadband loan/grant pilot
    program, to be administered by the USDA Rural Utilities
    Service.
        Now, with all the work on broadband network currently
    underway, pursuant to USF reforms--Universal Service Fund
    reforms--made by the FCC, how do we ensure that these
    additional infrastructure resources are coordinated with
    assisting programs to prevent duplication of effort and waste
    of money?
        Mr. Pai. That is a great question. And we want to make sure
    that every dollar stretches as far as it can. And that includes
    not duplicating effort. So, we have worked with the U.S.
    Department of Agriculture. I have personally spoken to
    Secretary Perdue several times over the last year. And I was
    just at the Ag Department a week ago to talk about the fact
    that we need to coordinate. I have asked our Wireline
    Competition Bureau--and I think they already have reached out
    to the U.S. Department of Agriculture staff--to make sure that
    we can combine forces. And I have also set up meetings with the
    Rural Utilities Service administrator, who works at the Ag
    Department, of course, to make sure that we are on the same
    page.
        We want Congress to be able to tell its constituents, the
    dollars we allocated in the omnibus are going to go towards
    unserved parts of the country, and there is not going to be a
    single wasted effort or dollar.
        Mr. Cartwright. Now, specifically--not to put too fine a
    point on it--are you at all concerned that the new
    infrastructure funding might overbuild existing USF-supported
    networks or even duplicate construction efforts underway
    through the CAF-II and other programs to deploy networks?
        Mr. Pai. I am not at this point. Again, the Ag Department
    is in the early stages. They are thinking about how to
    structure this program. But one of the things that have
    suggested to me, and I think the clear direction from Congress
    as well, is that we need to work together to make sure that we
    do not encounter that possibility.
        Mr. Cartwright. OK. And now, the omnibus spending bill also
    included some permitting reforms to speed up the process of
    securing easements and rights of way across Federal lands. Now,
    that your Broadband Deployment Advisory Committee--BDAC--had
    produced some recommendations on these issues, what do you see
    as next steps, and what changes would you prioritize?
        Mr. Pai. The Advisory Committee just came out with a few
    recommendations on State and local model codes, for instance.
    And they have identified some other barriers to infrastructure
    investment. And again, I am very grateful to Congress for
    addressing about the Federal lands issue as well.
        On average, it takes twice as long to deploy broadband on
    Federal lands as it does on privately-held land. That is a huge
    barrier in some cases, especially out West. We are looking
    forward to moving forward as quickly as we can on some of those
    recommendations and instructions from Congress. And hereto, I
    would be happy to keep you posted. We have been having a lot of
    balls in the air between the auctions and the regulatory
    reforms, but we are committed to solving those problems as soon
    as we can.
        Mr. Cartwright. Thank you, Chairman Pai. Back to you, Mr.
    Chairman.
        Mr. Pai. Thank you.
        Mr. Graves. Thank you, Mr. Cartwright. Mr. Young? And then,
    Ranking Member Quigley.
        Mr. Young. Thank you, Mr. Chairman. Hello, Mr. Chairman.
        Mr. Pai. Hello.
        Mr. Young. Nice to see you.
        Mr. Pai. You too.
        Mr. Young. Good to be with you. This past February,
    President Trump signed into law a bipartisan bill--a bill I
    introduced--called the Improving Rural Call Quality and
    Reliability Act. This is an issue that is pretty prevalent in
    rural areas where calls are just dropped, or they are not even
    connected, when they are rerouted through rural America.
        Recently, your commission dropped reporting requirements of
    originating providers that helps identify the rates of call
    completion problems. Can you explain to me how the Commission
    will ensure that rural public safety, hazards, businesses,
    families, customers, services are not compromised in the
    absence of these reporting requirements?
        Mr. Pai. Thanks for the question, congressman. First,
    congratulations on the passage of that important legislation.
    It is something that I have heard firsthand, including on the
    ground in Spencer, Iowa, where I heard from the local municipal
    utility how this was a problem that their consumers typically
    blame them for, as opposed to the company that started the
    call.

        As per the FY18 Explanatory Statement, on June 23rd, the
    FCC submitted to the HAC and SAC a Rural Call Completion
    Report.

        With respect to your question, we have taken steps to make
    sure that covered providers--that is, the entity that selects
    the long-distance provider who will carry the call--that they
    monitor the performance of those intermediate providers and
    take remedial steps, if necessary, to correct any problems they
    have. We do not want to see the problems we saw in the past,
    with respect to least-cost routing, where people would just
    pick the cheapest possible route without respect to call
    quality.
        Now, secondly, we have already asked our staff to take a
    look at the rural call completion legislation that you just
    passed and to make sure that we move with all deliberate speed
    to implement it, because we recognize that for too many rural
    consumers and businesses, those calls are dropping too often
    and we do not want that to happen.
        Mr. Young. Well, those quality assurances need to be there,
    and there needs to be some accountability, because folks in the
    rural areas should have just as good coverage and service as
    folks in urban areas, especially when it comes to trying to
    make sure that our rural economy is moving as fast and hard as
    in can. Businesses have to be able to communicate with one
    another in emergency services, families just wanting to talk to
    one another. So, thank you, and we will continue to work on you
    with that.
        I am on the Agriculture Subcommittee as well on this
    Appropriations Committee. And we have got the USDA's RUS--Rural
    Utility Service. Are they the best entity or are you the best
    entity to deal with helping to employ broadband out into rural
    America or anywhere else? And are you doing something in the
    same light, and do we have two different departments doing the
    same thing? Is it duplicative? Are you talking to one another?
    Is this the best use of the taxpayer dollars?
        Mr. Pai. That is a great question. And obviously, Congress
    holds in its hands the authority to make any necessary changes
    that it thinks are appropriate. We do work with them
    extensively. As I said, I have recently met with the Rural
    Utilities Service administrator. I am going to be sitting down
    with him for a more detailed discussion.
        As to whether it makes sense to have multiple agencies
    doing the same thing, I tend to think that our agency would
    take the lead on that, given the fact that we have established
    mechanisms for distributing universal service funding. We are
    the technical experts when it comes to the networks themselves.
    But nonetheless, we are working very well, collaboratively,
    with other agencies, including the RUS, to make sure that we
    are all on the same page here; we are not duplicating effort.
        Mr. Young. Well, I hope it is not duplicative, because
    there are plenty of holes out there that needs filled if you
    are, because there is so many underserved areas, let alone
    unserved areas as well. So, please coordinate in a transparent,
    accountable fashion between one another, and give taxpayers the
    best bang for their buck on this.
        Mr. Pai. Absolutely.
        Mr. Young. We had a hearing, as well, this morning, on the
    Transportation, Housing, Urban Development Subcommittee. And we
    talked about artificial intelligence, autonomous vehicles. Does
    the FCC have any role when it comes to our transportation
    systems and making sure you are working with the systems, that
    everybody is talking to one another, that there is going to be
    safety in the end, and vehicles are talking to one another? And
    wherever this goes, how do we ensure that space is available
    for the communications to make this all work?
        Mr. Pai. Absolutely. As cars become internet-connected
    vehicles--we are a long way from 1980 Caprice Classic with red
    velour trim----
        Mr. Young. That is a classic.
        Mr. Pai. It was for the short time it lasted. But we are
    working collaboratively with other agencies: for example, the
    Department of Transportation. And also internally, we are
    talking about the spectrum needs of industries like the
    automotive industries. We have been looking at a number of
    different bands.
        Early on in my administration, we extended 4 gigahertz
    from, I believe it was 77 to 81 gigahertz--to talk about
    vehicular radars--since, you know, obviously being able to see,
    so to speak, around you is very important in a connected
    environment. So, more and more often, I think, our agencies are
    converging because these industries are converging.
        Mr. Young. I appreciate that and pleased to engage with
    that. And let us know in Congress. We need to know regarding
    that to make this all work. I want to thank you for being here
    today. And we will be in touch with you and your commission
    regarding the rural call quality bill that was passed into law,
    make sure that works for everybody. I yield back, Mr. Chairman.
    Thank you. Thank you.
        Mr. Pai. You bet.
        Mr. Graves. Thank you, Mr. Young. You are a champion for
    rural America each and every time.
        Mr. Young. Can you say that again?
        Mr. Graves. Always the champion down there. Ranking Member
    Quigley, you are recognized, and Mr. Yoder.
        Mr. Quigley. Thanks again, Mr. Chairman. Mr. Chairman, you
    know the history. There is a reason that Congress created a
    statutory cap so that a single large national corporation
    cannot own so many stations that it can control the voices
    reaching more than 39 percent of all U.S. households. We had
    the UHF discount, as we talked about, at the time.
        But you and your own statements, in your mission, you
    eliminate these media outlets. One of the first acts as chair
    was to put the rule back in place. And I think you talked that
    this is a rule that should be in the dustbin of history. But
    now it is back in place. I am concerned that the FCC
    resurrected this antique loophole just to pave the way for more
    consolidation of companies like Sinclair. Can you tell us, is
    there any technical justification, as far as signal strength or
    reach, that the FCC relied on when you reinstated the UHF
    discount loophole?
        Mr. Pai. Congressman, my position on this issue has been
    clear from the beginning. Going back to the previous
    administration, I consistently said that the UHF discount and
    the national cap went in tandem. And to the extent that if you
    got rid of one, one had to consider changes to the other.
        In fact, the previous majority--if you go to the 2016
    order--they explicitly said that the FCC had the authority to
    adjust the national cap. My position has been now, and has
    always been, that we need to consider the two things in tandem.
    I do not take a prejudged view about what the FCC's authority
    should be or how it should exercise that authority. All I am
    simply saying is that that tandem approach is one that I
    believe Congress had in mind.
        Mr. Quigley. But when you first talked about it, it was not
    in tandem. You said the UHF discount should be relegated to the
    history books. It was put in place for technical reasons.
        Mr. Pai. Correct.
        Mr. Quigley. Because the UHF strength was different back
    then. All technology has changed.
        Mr. Pai. Correct.
        Mr. Quigley. So, the reason the rule was put in place was
    not in tandem with something else. It had to do with
    technology. When technology changed, how does that stay in
    tandem with anything?
        Mr. Pai. Because to the extent that getting rid of the
    discount, while technologically justified, would nevertheless
    have a major impact on the national cap, my point was simply--
    --
        Mr. Quigley. Well, we had that cap. But we put the law in
    place for policy reasons. We did not want some corporate giant
    to have control over more than 39 percent. There was an
    exception because of signal strength. Once that changed, how do
    we not go back to the original concern?
        Mr. Pai. But, congressman, that is exactly why I said we
    need to tee this up, which we did in a notice of proposed
    rulemaking. I am one of the few at the Commission who has been
    consistent--in the past administration and this one--in saying,
    number one, that the UHF discount, the technological foundation
    has changed, and number two, that the FCC may have authority
    here to adjust the national cap.
        And so, all we are doing is teeing up the question for
    public input, but I have not said one way or the other what the
    ultimate resolution should be. That is precisely why we are
    engaged in this notice of proposed rulemaking.
        Mr. Quigley. One of your first acts as chair was to put the
    rule back in place.
        Mr. Pai. Correct.
        Mr. Quigley. Because?
        Mr. Pai. Because, again, as I have long said going back to
    the previous administration, a change the UHF discount
    implicates a change in the national cap. And as the previous
    administration found--not just me; the previous FCC majority--
    they determined that the FCC had the authority to adjust the
    national cap. And my point in my 2016 dissent was the
    Commission could not do one without considering changes to the
    other, which it explicitly agreed that it could do, if it
    wanted to.
        Mr. Quigley. You have sufficiently convoluted what is
    simply a way to allow groups like Sinclair to get bigger. Mr.
    Chairman, I would like to introduce into the record a letter to
    the chairman from Senator Cochran. And this is signed by a
    significant number of his partners--not a particularly helpful
    answer, somewhat dismissive, at that--but it will indicate the
    consistency of the measure that I am talking about.
        I still do not understand how the two are not distinct and
    that you have created, through the magic of rhetoric, the
    ability to differentiate that from reality. The fact of the
    matter is, we created this policy law in law for a reason. You
    have creatively found way around that and say, ``We are going
    to do this for different reasons. But the only exception was
    for technology.'' The technology goes back to the old rule and
    the rule should be in place, that stations should not be
    allowed to have more than 39 percent of U.S. households. If you
    approve Sinclair, what are they going to have?
        Mr. Pai. Congressman, I respectfully disagree.
        Mr. Quigley. Seventy-two percent.
        Mr. Pai. Then I would ask, why did Acting Chairwoman
    Clyburn bring up this notice of proposed rulemaking about the
    UHF discount and the national cap back in 2013? I mean, I have
    consistently been on the same page, here. The two go together,
    because getting rid of one implicates the level of the other.
        Mr. Quigley. If it was fit for the dustbin of history, then
    why is not it now?
        Mr. Pai. That is exactly what we are teeing up,
    Congressman. That is the notice of proposed rulemaking. I mean,
    it would be easy to, you know, of course, for any agency, to
    simply say, ``You know the Administrative Procedure Act? Who
    needs it? We will simply rule by fiat.'' That is not how we do
    business. We tee up our proposals. We get public input for
    those proposals.
        Mr. Quigley. What concerns do you have that Sinclair would
    have control over 72 percent of the Nation's market?
        Mr. Pai. That is the one of the issues we have to look at.
        Mr. Quigley. Let me answer. What concerns would you have
    about that?
        Mr. Pai. I cannot prejudge exactly where we are going to
    be.
        Mr. Quigley. All right, any station. What concerns would
    you have? What is your policy belief of a single entity
    controlling more than 39 percent of the U.S. households? At 72
    percent, what concerns would you have?
        Mr. Pai. They are both legal and policy questions that are
    hard to answer.
        Mr. Quigley. What concerns do you have?
        Mr. Pai. With respect to policy, from sort of a quasi-
    antitrust perspective, one wants to make sure that you have a
    competitive marketplace. One does not want any entity to
    consummate a transaction the effect of which would be to harm
    or otherwise impede the public interest. From a legal
    perspective as well, there the question is--as we discussed
    earlier--we want to make sure that we are acting----
        Mr. Quigley. Should any entity have 72 percent?
        Mr. Pai. That is what we have to decide.
        Mr. Quigley. In your mind.
        Mr. Pai. I cannot----
        Mr. Quigley. You get to vote on it.
        Mr. Pai. Exactly. That is part of the reason. We have not
    yet had a chance to----
        Mr. Quigley. Should any entity have 70 percent?
        Mr. Pai. We have not had a chance to evaluate the record,
    congressman. They just submitted the revised proposal two days
    ago. I have not had a chance to----
        Mr. Quigley. You know the law that we passed that dealt
    with 39 percent. What is your belief right now? Should any
    entity have more than 39 percent?
        Mr. Pai. I am not going to prejudge the outcome of a
    rulemaking proceeding which is still pending.
        Mr. Quigley. I am not talking about Sinclair. I am talking
    about any entity.
        Mr. Pai. I am not either. I am talking about the general
    national----
        Mr. Quigley. Should anybody have that much control?
        Mr. Pai. I am talking about the national cap----
        Mr. Quigley. Yes or no? Do you have a thought yourself?
        Mr. Pai. I am not going to prejudge----
        Mr. Quigley. We put you in this spot for these reasons.
        Mr. Pai. To judge the facts, and the facts are still coming
    in. We are still evaluating a pending notice of a proposed
    rulemaking. I cannot tell you in the fifth inning how the ninth
    inning is going to end.
        Mr. Quigley. You are talking about one case. I am talking--
    --
        Mr. Pai. No, I am talking about----
        Mr. Quigley [continuing]. The general sense of what is
    fair. You said there could be policy implications for this.
    What are they, and what is the magic number in your mind right
    now? Do you not have some sense of what is fair, what is right?
        Mr. Pai. This is exactly the point of being a rulemaking
    agency. We do not say in the fifth inning where we are going to
    end up in the ninth inning.
        Mr. Quigley. You consider the laws that are in place now?
        Mr. Pai. Of course. That is the guiding light of everything
    we do.
        Mr. Quigley. The law that is in place now says 39 percent.
        Mr. Pai. That is one of the factors we have to consider.
    Why did the previous FCC majority say we have authority to
    increase that cap?
        Mr. Quigley. Mr. Chairman, I thank you for your indulgence
    and time.
        Mr. Graves. Mr. Cartwright, any questions?
        Mr. Cartwright. Not to beat a dead horse, Mr. Chairman. I
    would like to go back to rural broadband some more. Your
    agency--
        Mr. Pai. I will not stop you.
        Mr. Cartwright. Your agency recently adopted an order that
    put additional resources into the USF high-cost program that
    provides ongoing support for rural networks. And of course,
    this order was most welcome, as many members of Congress,
    particularly those of us that have rural areas, have weighed in
    on the high-cost budget, in recent years as small carriers have
    put off network investments in the face of steep cuts to
    support demanded by the hard cap on the program.
        But if nothing further is done, some rural carriers will
    face significant cuts to support, starting again on July 1st,
    and other carriers still do not have the resources needed to
    accomplish what the cost model was designed to do. So, the
    first question there is, how do we ensure that the high-cost
    program is set up for success over the long term?
        Mr. Pai. Well, that is a great question, congressman, and
    thank you for the kind words about that $500 million plan we
    adopted. I had heard from a number of different carriers--on
    their turf, not in DC--that that budget control mechanism could
    have a serious impact, because these are multiyear investment
    decisions they have to make.
        Going forward, in addition to that $500 million we advanced
    to rate-of-return carriers, we also teed up the possibility of
    two different proposals. One is increasing the amount of money
    that is generally available to rate-of-return carriers. And
    number two, to see whether a further offer of model support
    might be something that would appeal to some of those rate-of-
    return carriers.
        That might be something that gives them more stability, the
    ability to plan out ``OK, for the next 10 years we would like
    to build out. We know for the next 10 years we are going to get
    X amount of dollars from the FCC.'' That is the kind of thing
    that hopefully would give them the certainty that they need to
    build out those networks.
        Mr. Cartwright. OK. And to follow up, I am interested in
    your comments. What further changes are needed for both model
    and nonmodel programs?
        Mr. Pai. Sir, could you repeat the question again?
        Mr. Cartwright. What further changes are needed for both
    model and nonmodel programs?
        Mr. Pai. Further changes? So, with respect to I guess
    nonmodel programs--legacy--that is one of the issues we have
    teed up in this notice of proposed rulemaking. With respect to
    the model programs, we are continuing to hear from a number of
    A-CAM carries about some of the issues they are facing. You
    know, they, too, would like additional funding. That is part of
    what we did in the $500 million program.
        I would be happy to work with you on some of the things we
    are thinking about. It is very much in the weeds, of course, as
    you know, but overall, we want to make sure that either legacy
    or nonlegacy carriers have certainty and have sufficient and
    predictable support, in part because that is what Congress has
    instructed us to do.
        Mr. Cartwright. I want to talk about speeds for a moment.
    My understanding that is in most cases the high-cost program
    requires that recipients deploy 10/1 broadband in rural areas,
    and in some cases the target speeds are even lower. Do you
    think these speeds are sufficient for rural consumers and
    businesses? And are they reasonably comparable to what urban
    Americans enjoy on average?
        Mr. Pai. I want every American, including rural Americans,
    to have access to the highest speeds possible, and that is part
    of the reason why, for example, in our Connect America fund it
    was important to me to support not just 10-megabit-per-second
    service, but also service at a much higher tier.
        In fact, we structured it so that the higher speed you
    offer to rural Americans the more of an advantage you get in
    terms of the reverse auction. In fact, the highest advantage is
    given to those companies that want to provide gigabit broadband
    to rural Americans. That is something I hope puts them on just
    as level a playing field as anybody else.
        Mr. Cartwright. Very good. Thank you, Mr. Chairman. I yield
    back, chairman.
        Mr. Pai. Thank you.
        Mr. Graves. Thank you, Mr. Cartwright. It is my
    understanding Mr. Young has no further questions. I have no
    further questions, and I believe Mr. Quigley has one follow-up
    on another issue.
        Mr. Quigley. Thank you, Mr. Chairman. So, I think I know
    how to get an answer today. I am going to pretend that I am in
    Iowa, in a rural area of beautiful Iowa, which I love. And I do
    not have internet connection because we have not gotten to all
    the issues that we want to on that. And I turn off Sinclair,
    because I do not want to hear a prepaid announcement from
    President Putin, because I have got a robocall, and it is a
    robocall for debt collection by the Federal Government. Now, I
    think I can get an answer.
        We passed the bipartisan budget act of 2015 that addressed
    this issue. The FCC later conducted rulemaking to implement
    that law. And the majority of the Commission voted to adopt
    strong consumer safeguards to make sure consumers were not
    overwhelmed by unwanted calls, and they have to come off their
    porch, drinking lemonade in Iowa, to take that call. Those
    protections just needed a sign-off from OMB to go into effect
    when you took over as FCC chairman.
        Despite the fact that these consumer protections were
    approved by a majority of the Commission, it appears, it seems,
    that you asked OMB to halt its review, stopping the protections
    from going into effect. Can you tell us what, if anything,
    happened in that regard?
        Mr. Pai. Congressman, I am sorry, which regulations are we
    talking about? The TCPA?

        Upon review, it was determined that this series of
    questions on pages 275-276 referred to rules governing federal
    debt collection calls and the TCPA. More specifically, Mr.
    Quigley was asking about the decision to withdraw the request
    for OMB approval of the Commission's 2016 Federal Debt
    Collection Rules (FDCRs) adopted for debts owed to or
    guaranteed by the Federal Government. The rules were adopted
    per the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129
    Stat., amending the TCPA.
        The withdrawal decision referenced by Mr. Quigley was based
    on the existence of an outstanding petition for reconsideration
    alleging a lack of authority under the TCPA. On May 14, 2018,
    the FCC issued a public notice seeking comment on various
    outstanding TCPA issues including the issue referenced by Mr.
    Quigley. This matter remains pending.
        The PN specifically included the following request for
    comments, referencing the FDCRs, the Great Lakes petition for
    reconsideration, and the related Broadnet Declaratory Ruling:
        [W]e seek renewed comment on the pending petition for
    reconsideration of the 2016 Federal Debt Collection Rules,
    filed by Great Lakes Higher Education Corp. et al. Great Lakes
    asks the Commission to reconsider several aspects of the rules,
    including the applicability of the TCPA's limits on calls to
    reassigned wireless numbers. In light of the court's opinion on
    reassigned I numbers, we seek renewed comment on this and other
    issues raised by the petition.
        We also seek comment on the interplay between the Broadnet
    decision and the Budget Act amendments--if a federal contractor
    is not a ``person'' for purposes of the TCPA (as the Commission
    held in Broadnet), would the rules adopted in the 2016 Federal
    Debt Collection Rules even apply to a federal contractor
    collecting a federal debt? Do persons who are not federal
    contractors collect federal debts? Or does the Budget Act
    amendment underlying the 2016 Federal Debt Collection Rules
    undermine the rationale of Broadnet?

        Mr. Quigley. The ones dealing with robocalls for Federal
    debt collection.
        Mr. Pai. To be honest, I am trying to remember. Robocalls
    relating--if I could get back to you on that----
        Mr. Quigley. It was my lead-up to this question that threw
    you off.
        Mr. Pai. Well, I did live for 3 years in Chicago, for what
    it is worth, so I also know--you know, on the South Side, so I
    know Chicago as well.
        Mr. Quigley. You still got robocalls from the Federal
    Government, and we were trying to address that.
        Mr. Pai. I would be happy to get back to you on that. It is
    not coming to my mind immediately.
        Mr. Quigley. None of this rings a bell about the rulemaking
    that came and just needed a sign-off from OMB to go into
    effect? This is when you took over as FCC chairman.
        Mr. Pai. Right.
        Mr. Quigley. How long ago was that, sir?
        Mr. Pai. January 2017. The only 2015 rulemaking I remember
    relating to robocalls or TCPA was the 2015 order that was just
    struck by the DC Circuit.
        Mr. Quigley. Yes, but I am asking, did you have any
    communication in your recollection talking with OMB about
    reviewing that?
        Mr. Pai. I personally do not, no.
        Mr. Quigley. You do not recall that?
        Mr. Pai. No.
        Mr. Quigley. If you do not remember, could you review in
    your records what you--
        Mr. Pai. Yes, I would be happy to do that.
        Mr. Quigley. OK. And if any other recollections on this--
    but you commit to go back and do everything in your power to
    make sure these protections are in place?
        Mr. Pai. Sure. I mean, my vague recollection is that the
    rules were not strong enough, but I would happy to take a look
    at what it was.
        Mr. Quigley. And if you could get back to the committee as
    a whole and give them the best of your recollection what
    exactly took place. Because we would like these protections to
    be put in place, because when I am in my field of dreams I do
    not want to have to rush in the house and answer some annoying
    question from some Federal person trying to get money. Thank
    you so much for your cooperation. It has been great.
        Mr. Graves. Thank you, Mr. Quigley. Chairman, thank you for
    joining us today. I know there have been some pointed
    questions. But I want to thank you for your service. I know you
    have served in the minority capacity on the Commission; you are
    serving in the majority now. You have been under multiple
    administrations. You have been consistent in your viewpoints,
    very open, very transparent, and you are continuing that
    process.
        And I know I speak on behalf of the full subcommittee here
    that your family has endured threats that they should never
    have to endure. And so, we thank you for your service, because
    we know it has not come without sacrifice for you, your wife,
    and your children. But we do dearly thank you, though, for
    joining us today, for your consistency, and for always being
    willing to come before this subcommittee and answer some tough
    questions regardless of the subject matter. Thank you again.
    With that, this hearing is adjourned.
        Mr. Pai. Thank you.
        Information submitted for inclusion in the record follows:

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               W I T N E S S E S

                                  ----------
                                                                       Page

    Barr, Hon. Andy..................................................   199

    Clayton, Hon. Jay................................................   215
        Answers to submitted questions...............................   234

    Duff, Hon. James C...............................................   126

    Kautter, David J.................................................    39
        Answers to submitted questions...............................    55

    Luetkemeyer, Hon. Blaine.........................................   194

    Lungstrum, Hon. John W...........................................    92
        Answers to submitted questions...............................   147

    Mnuchin. Hon. Steven T...........................................     6
        Answers to submitted questions...............................    29

    Mulvaney, Hon. Mick..............................................   151
        Answers to submitted questions...............................   190

    Murphy, Emily W..................................................    67
        Answers to submitted questions...............................    89

    Pai, Ajit........................................................   251

    Schneider, Hon. Brad, submitted statement........................   211

    Tipton, Hon. Scott R.............................................   206

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