[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020
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HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
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SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
MIKE QUIGLEY, Illinois, Chairman
JOSE E. SERRANO, New York
MATT CARTWRIGHT, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
NORMA J. TORRES, California
CHARLIE CRIST, Florida
ANN KIRKPATRICK, Arizona
TOM GRAVES, Georgia
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah
DAVID P. JOYCE, Ohio
NOTE: Under committee rules, Mrs. Lowey, as chairwoman of the full
committee, and Ms. Granger, as ranking minority member of the full
committee, are authorized to sit as members of all subcommittees.
Lisa Molyneaux, Laura Cylke, Elliot Doomes,
Aalok Mehta, Marybeth Nassif, and Parker Van de Water
Subcommittee Staff
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PART 5
Page
Oversight of Financial Services.......
1
Election Security: Ensuring the
Integrity of U.S. Election Systems......
27
Supreme Court of the United States....
75
Treasury's Role in Combating Financial
Crimes..................................
103
Government Services Administration
Oversight...............................
139
Office of Management and Budget.......
199
Members' Day..........................
239
Testimony of Interested Individuals
and Organizations.......................
255
Federal Communications Commission.....
331
Department of the Treasury............
389
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PUBLISHING OFFICE
38-124 WASHINGTON: 2019
COMMITTEE ON APPROPRIATIONS
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NITA M. LOWEY, New York, Chairwoman
MARCY KAPTUR, Ohio
PETER J. VISCLOSKY, Indiana
JOSE E. SERRANO, New York
ROSA L. DeLAURO, Connecticut
DAVID E. PRICE, North Carolina
LUCILLE ROYBAL-ALLARD, California
SANFORD D. BISHOP, Jr., Georgia
BARBARA LEE, California
BETTY McCOLLUM, Minnesota
TIM RYAN, Ohio
C. A. DUTCH RUPPERSBERGER, Maryland
DEBBIE WASSERMAN SCHULTZ, Florida
HENRY CUELLAR, Texas
CHELLIE PINGREE, Maine
MIKE QUIGLEY, Illinois
DEREK KILMER, Washington
MATT CARTWRIGHT, Pennsylvania
GRACE MENG, New York
MARK POCAN, Wisconsin
KATHERINE M. CLARK, Massachusetts
PETE AGUILAR, California
LOIS FRANKEL, Florida
CHERI BUSTOS, Illinois
BONNIE WATSON COLEMAN, New Jersey
BRENDA L. LAWRENCE, Michigan
NORMA J. TORRES, California
CHARLIE CRIST, Florida
ANN KIRKPATRICK, Arizona
ED CASE, Hawaii
KAY GRANGER, Texas
HAROLD ROGERS, Kentucky
ROBERT B. ADERHOLT, Alabama
MICHAEL K. SIMPSON, Idaho
JOHN R. CARTER, Texas
KEN CALVERT, California
TOM COLE, Oklahoma
MARIO DIAZ-BALART, Florida
TOM GRAVES, Georgia
STEVE WOMACK, Arkansas
JEFF FORTENBERRY, Nebraska
CHUCK FLEISCHMANN, Tennessee
JAIME HERRERA BEUTLER, Washington
DAVID P. JOYCE, Ohio
ANDY HARRIS, Maryland
MARTHA ROBY, Alabama
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah
STEVEN M. PALAZZO, Mississippi
DAN NEWHOUSE, Washington
JOHN R. MOOLENAAR, Michigan
JOHN H. RUTHERFORD, Florida
WILL HURD, Texas
Shalanda Young, Clerk and Staff Director
(ii)
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2020
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Tuesday, February 26, 2019.
OVERSIGHT HEARING--FINANCIAL SERVICES
WITNESSES
ANNIE DONOVAN, SENIOR FELLOW, CENTER FOR COMMUNITY INVESTMENT
GRACE FRICKS, PRESIDENT AND CEO, ACCESS TO CAPITAL FOR ENTREPRENEURS,
INC.
BOB JONES, PRESIDENT AND CEO, UNITED BANK
JOE NERI, CEO, IFF
Mr. Quigley. Good morning. The hearing will come to order.
This is the subcommittee's first hearing in the 116th Congress
and my first ever as chairman. So what do I do with this?
[Laughter.]
It has been 8 years.
Before getting started, I would like to acknowledge my
friend, Mr. Graves from Georgia, and thank him for his service
to this subcommittee and for his leadership as chairman in the
previous Congress. And I hope to be as accommodating, as
gracious, as he was.
And I also want to acknowledge that we have several more
returning FSGG veterans, including the chairman of the
Commerce, Justice, and Science Subcommittee and the previous
distinguished chairman of the subcommittee, Mr. Serrano.
Chairman Serrano will also serve as vice chairman of FSGG in
this Congress, and I am grateful for him for assuming that
role.
Also returning is Congressman Bishop, the distinguished
chairman of the Agriculture Subcommittee; Congressman
Cartwright, Congressman Amodei of Nevada, Congressman Stewart
of Utah; and finally we have four new members of the
subcommittee, Representative Norma Torres, Representative Ann
Kirkpatrick, Representative David Joyce, and Representative
Charlie Crist. I look forward to working with each of you on
the priorities of your constituents and finding bipartisan
consensus whenever it is possible.
There is much work to be done on behalf of the American
people and I, for one, am looking forward to a productive
Congress where we can conduct oversight of the agencies under
our jurisdiction and work to find common ground as we set
funding priorities for the Federal Government.
As a matter of housekeeping, we will follow the 5-minute
rule for opening remarks, questions, and comments. Members will
be recognized in order of seniority based on who is seated at
the beginning of the hearing, going back and forth between the
parties. Latecomers will be recognized in the order of their
arrival, going back and forth between the parties.
And at this time I want to welcome our four witnesses to
the subcommittee. With us today we have Ms. Annie Donovan,
Senior Fellow at the Center for Community Investment; Mr. Joe
Neri, CEO of IFF; Mr. Bob Jones, CEO and president of United
Bank; and Ms. Grace Fricks, CEO and president of Access to
Capital for Entrepreneurs.
I appreciate you all taking the time to be with us this
morning, and I am excited to get this hearing underway to
discuss how Community Development Financial Institutions, or
CDFIs, benefit the underserved and low-income communities in
every State as well as the District of Columbia, Guam, and
Puerto Rico. I know my colleague, Mr. Serrano, is always happy
when we hear about programs that support the territories.
I will keep my opening statement brief, but want to remind
my colleagues that for the past two years, the Trump
administration has attempted to eliminate the CDFI Fund by
slashing its funding to a mere $14 million. This is $236
million reduction, which translates to fewer resources to spur
economic growth and revitalization in our most underserved and
neglected communities.
If Congress did not step in to restore funding in both 2018
and 2019, CDFI grant programs would cease to exist in the
future. There would be no funds to create new CDFIs nor
continue CDFI grant awards for financial and technical
assistance, Native Initiatives, increased investment in
distressed communities, disability, and Healthy Food Financing
Initiative programs.
These programs provide access to capital for communities
who otherwise might not be able to create small businesses,
local jobs, affordable housing, community facilities, and
financial education opportunities.
I have a strong suspicion that the current administration
will propose yet again to slash the funding for the coming
fiscal year, and once again it will be up to Congress to weigh
the funding options for this bipartisan program that plays such
an important role in generating economic growth and opportunity
in some of our Nation's most distressed communities.
My colleagues on the other side of the dais know the
importance and value of the CDFI Fund. Indeed, the CDFI Fund
has ranked as one of the top four member-requested programs in
the bill. In fiscal year 2019, the program received 291
requests for increased CDFI funding or report language, and 19
percent of the requests were from my colleagues across the
aisle. I think we all agree on the value of the CDFI Fund.
In fiscal year 2018 alone, the program awardees financed
more than 17,900 businesses and microenterprise loans, financed
nearly 33,600 affordable housing units, and served more than
343,000 individuals with financial literacy or training. I am
hoping that we can all work together this Congress to improve
lives and strengthen communities that are not progressing at
the same pace with other parts of the country.
I look forward to hearing firsthand about each of your
successes and contributions to building stronger communities
and growing jobs across the United States and our territories.
That said, thank you all again for taking time to meet with
us today, and I look forward to hearing your testimony this
morning.
Let me turn now to the ranking member, Mr. Graves, for his
comments.
Mr. Graves. Thank you, Mr. Chairman, and congratulations on
your new role. And I guess might I add, maybe I will be as
accommodating a ranking member as you were. I have learned from
you. You were great to work with. And I look forward to the
many hearings and robust discussions we will have in the days
ahead.
And always good to be with my friend, Mr. Bishop from
Georgia, as well, and have him on this committee. A great
mentor of mine.
Welcome. We are excited to have you. You are before a
really fun committee here. This committee has got a really
diverse jurisdiction that includes funding sanctions
enforcement, tax administration, the White House, Federal
courts, and many regulatory agencies. And it is under this
committee's jurisdiction and leadership, quite frankly, Mr.
Chairman, that we will have the opportunity to help more
families and businesses achieve their dreams. And I think that
is what this conversation is about here today.
But I look forward to working with each and every person on
the committee, and welcome the many new members to the
committee on the majority side. I look forward to working with
everyone there. And then we also have a new member on our side,
Mr. Joyce; he will be a great addition as well.
I want to welcome our witnesses. This is good to have a
hearing such as this today to start off this hearing. I
appreciate each of you. I know it is a commitment of time to
come and be before us. But you are here to educate this
committee on your work, and also those that are watching and
those that are participating online.
But what you do is very important. It is very important for
our economy. It is important for our local communities. And you
provide great opportunities for people living in a lot of
communities throughout our districts.
I want to recognize Ms. Donovan. I appreciate your good
work. As was mentioned, you are a Senior Fellow at the Center
for Community Investment, and you have served as director now
for 4 years, I believe. It has been good to work with you in
the past, and I look forward to working with you and your
expertise in the future.
And Ms. Fricks, good to have you as well. Always good to
have folks from home join us. You are the founder and the CEO
of the Access to Capital for Entrepreneurs; otherwise, as we
call you in Georgia, ACE. And you have done a fantastic job
there.
Mr. Chairman, they serve 68 different communities and
counties in the North Georgia and Atlanta community and areas
since 2000, and have made more than $60 million in loans in
that short 18-19 year span, and created and retained nearly
8,000 jobs for folks in our communities; recently named as the
Financial Services Champion of the Year by the Small Business
Administration's Georgia office. So congratulations on that.
Well-deserved. And I look forward to your testimony.
I also want to recognize a good friend and colleague of Ms.
Fricks who is with us in the audience today, and that is Ms.
Thelma Johnson. Thanks for joining us all the way from
Southwest Georgia; I think you are in Mr. Bishop's district.
And good to have you with us as well. She is the president and
CEO of the Albany Community Together, Incorporated, which has
been since 2002. So really nice to have you. We appreciate your
efforts and what you do in that part of our great State, and
for joining us here today in this hearing.
But with that, Mr. Chairman, that is all I have. I would be
happy to yield back, and look forward to a great hearing today.
Mr. Quigley. Thank you again. I appreciate that. And we
love visiting down in Atlanta. It is a city anyone would want
to live in if it could support a hockey team. [Laughter.]
But you were so kind in discussing Ms. Donovan. We are
going to let her kick things off. And I would remind everyone,
please keep your opening statements to five minutes, which will
allow time for as many questions as possible.
Ms. Donovan. Chairman Quigley, Ranking Member Graves, and
members of the subcommittee, thank you for the opportunity to
speak with you today about the CDFI Fund. As you mentioned, for
the past 4 years I had the honor as serving as the CDFI Fund
director.
CDFIs are private organizations that invest in markets that
lack access to the kinds of safe and affordable financial
services needed to pursue the American dream. CDFIs finance
entrepreneurs; first-time homebuyers; affordable housing for
rent-burdened families; community families such as schools, day
care centers, and health centers; and they offer bank accounts
to unbanked and underbanked people.
In our market economy, capital flows to where it can secure
the highest rate of return for the lowest risk. Communities
that are deemed too risky or not profitable enough are often
bypassed by traditional financial institutions.
But CDFIs correct this market imperfection by using the
tools offered by the CDFI Fund to leverage private sector
investments in low-income communities. For example, for every
$1 of federal investment in the CDFI program, CDFIs leverage
$12 of other investments. In the Capital Magnet Fund, $20 of
investment is leveraged for every $1 of federal funding, and
even higher levels in the Bank Enterprise Award program.
The unique way in which the CDFI Fund supports CDFIs is
essential to their success. Most federal programs that target
low-income communities either distribute funds to State and
local governments according to population-based formulas, like
Community Development Block Grants; or they fund on a project-
by-project basis, usually with stringent rules that make the
funds hard to use at the local level.
By contrast, the CDFI Fund programs are competitive and
make funding available to build the capacity of organizations
rather than investing in projects. The kinds of financial
assistance awards made by the CDFI Fund enhance the financial
strength of CDFIs' balance sheets, which in turn allow CDFIs to
create innovative and flexible products that make hard-to-
finance transactions feasible.
Financial assistance awards act like equity capital but do
not demand high rates of return. This equity-like capital is
rare. CDFIs blend equity-like capital from the CDFI Fund with
conventional financing in ways that fill market gaps and
restore market functionality in distressed places.
As Chairman Quigley mentioned, the current administration
has proposed to eliminate most of the CDFI Fund's programs.
Their argument is that community development finance is now a
mature industry, with ready access to the capital it needs.
This argument does not hold up well under the facts. Though
CDFIs have grown impressively and continue to punch above their
weight, their total assets under management round up to a mere
1 percent of total assets in the financial services sector.
But size is not the only nor the most important way to
measure the demand for CDFIs. For that, we should look at
whether or not access to capital exists at the scale of the
need in economically distressed places. The Urban Institute has
compared capital flows in high poverty versus low poverty
communities.
In a study conducted in Baltimore, Urban found that
investments were fragmented by race, income, and geography. Low
poverty neighborhoods received one and a half times more
investment than high poverty neighborhoods. Census tracts with
more than 85 percent of residents are African American sought
investments that were five times lower than census tracts where
less than 50 percent of the residents are African American.
Nationally, communities with poverty rates of 20 percent or
higher received less than half the investment of communities
with poverty rates of 20 percent or lower. This translates,
according to Urban, into an investment gap of $156 billion
annually. In 2018, total investments made by CDFIs totaled $11
billion, filling only 7 percent of the gap.
Regardless of where they live, all Americans want the same
thing. They want access to good jobs, good schools, healthcare,
affordable places to live, and safe places for their children
to play. To thrive, all communities need access to capital, the
lifeblood of any economy.
As it stands, low-income communities experience wide
disparities in access to capital. CDFIs are addressing the gap,
though the resources available to them are far fewer than what
is needed. If we are to be a Nation where opportunity is truly
available to all, we need institutions like CDFIs.
Chairman Quigley, Ranking Member Graves, and members of the
subcommittee, that concludes my statement. I look forward to
taking your questions.
Mr. Quigley. Thank you, Ms. Donovan.
I would now like to recognize Mr. Neri for his testimony.
Mr. Neri. Chairman Quigley, Ranking Member Graves, IFF is a
Midwest-focused nonprofit CDFI loan fund which helps nonprofits
serving low-income communities to plan, finance, and build
facilities they depend on to provide critical services
essential to strong communities.
My message today is simple. The CDFI Fund proves the old
adage that Washington does not always know best. That is
because the power of the CDFI Fund is that it is not a one-
size-fits-all Washington policy prescription.
Instead, its flexible grants put capital into the hands of
the local problem-solvers best equipped to find solutions to
local challenges, allows them to use those resources to raise
additional capital, and permits them to recycle and redeploy
those funds to confront new challenges.
IFF has been fortunate to be one of the first CDFIs to
receive a grant in 1996 and since, multiple other program
grants in Healthy Foods financing, Capital Magnet and
disability funds, as well as New Markets Tax Credits. For every
$1 we receive from the fund, we borrow an additional $4 from
banks to make loans to nonprofit, helping them to finance
projects that leverage, on the average, an additional $3 in
overall investment.
The result is that every dollar invested in IFF leverages
about $12 in total public-private investment. Moreover, these
dollars remain on our balance sheet permanently. As loans
repay, the dollars are recycled and re-lent, generating capital
into perpetuity.
These grants have been essential to IFF's ability to grow
its balance sheet and expand outside of Illinois--we were the
Illinois Facilities Fund--to serve the entire Midwest, where
today 60 percent of the $350 million loan portfolio now
resides.
The CDFI Fund is the only consistent source of equity
capital available to nonprofit CDFIs to grow. With the fund's
support, IFF has grown its impact substantially. Since 1988, we
have made over 1,700 loans totaling more than $900 million,
which has developed 26 million square feet of nonprofit
facilities, 75,000 jobs, and leveraged $2.9 billion in total
investment.
Now, a fair question might be, given the growth and success
of CDFIs, why should we continue to invest in them? But I think
that IFF's experience in the Midwest exemplifies that there is
still a fundamental need for the financing work that CDFIs do.
Demand for our loans has never been greater. Poverty is
rising and concentrating in suburbs that have limited human
services infrastructure where investment it greatly needed, and
we have so much work to do in our Midwestern rural and urban
communities where real estate values remain depressed and
population losses have continued.
While the fund has promoted the leveraging of bank capital,
the truth is that we have only scratched the surface of deeper
public-private partnerships. We need to deploy beyond simple
leverage and develop much deeper partnerships between banks and
CDFIs and new impact investors and CDFIs.
Finally, there is a huge, lasting public policy benefit to
the vibrant network of CDFIs that the fund has seeded and
grown. I believe that this is one of the fund's most important
accomplishments. Yes, we have invested in CDFIs to make more
loans and serve more communities.
But we have also created a cohort of robust, nimble
financial institutions with strong balance sheets that they can
leverage to raise substantial capital from the private sector,
inject that capital into neglected markets, better manage
risks, and have greater social impact.
This network of CDFIs remains deeply rooted in communities,
and as a result have developed significant on-the-ground
expertise in education, health and human services, healthy food
financing, affordable housing, small business lending, and
other issues.
Local, State, and the Federal Government, along with
philanthropy, consistently partner with us to address critical
public policy issues, which is why the State of Illinois turned
to IFF to create the Illinois Fresh Foods Financing Fund to end
food deserts in our State, and the Kresge and Kellogg
Foundations asked IFF to design the Hope Starts Here early
childhood education program to increase quality of Detroit's
early ed sector.
As I continuously remind my staff, we do not just make
loans. We align capital with justice through a powerful toolbox
of capital, data, policy knowledge, partnerships, and local
execution ability.
Thank you for this opportunity, and I look forward to your
questions.
Mr. Quigley. I would now like to recognize Mr. Jones for
his testimony.
Mr. Jones. Chairman Quigley, Ranking Member Graves, and
members of the subcommittee, good morning. Thank you for
inviting me to discuss the important work of community
development financial institutions. My name is Robert Jones.
I'm the CEO and president of United Bank, based in Atmore,
Alabama, and chairman of UB Community Development, the bank's
CDFI affiliate.
I also serve as chairman of the board of the Community
Development Bankers Association. CDBA is a national trade
association of the banks that are certified as CDFIs. Today
there are 134 certified banks nationwide.
First, I thank the members of this subcommittee for their
longstanding support of the CDFI Fund. We thank you for
maintained $250 million for the fund in fiscal year 2019.
Founded in 1904, United Bank is a $631 million FDIC-insured
bank that was certified as a CDFI in 2010. Our 18 brands
primarily serve counties in Southwest Alabama and Northwest
Florida. Our affiliate, UB Community Development, delivers
credit services across Alabama and the Florida Panhandle.
The region we serve looks much like most of the rural
South. The key drivers of our local economies are
manufacturing, agricultural, and small business. While the cost
of living is lower than other areas in the country, poverty
rates are higher. Alabama ranks sixth in the Nation in poverty,
with a rate of 18.8 percent.
Thanks to the Bank Enterprise Award Fund, United is able to
issue responsible credit and financial services to underserved
customers. A recent analysis found that 90 percent of all BEA
monies go to the lowest income census tracts.
The program helps banks work with financially underserved
customers, but the funding does not come easily and
institutions have to prove that the money generate positive
externalities in the communities we serve. To qualify for our
2018 award, United Bank had to demonstrate that it increased
its total lending in distressed census tracts by $21.1 million
between 2016 and 2017.
BEA is critical for offsetting the cost of running a small-
dollar loan program. Several years ago we used our BEA award to
create our Credit Advantage program, a small-dollar program for
customers with credit scores below 650 or no credit. Borrowers
receive half of the loan amount, and the other half goes into a
savings account that pays a market rate of interest. These
loans encourage saving habits, and they come with financial
literacy training.
Without Credit Advantage, we would not have been able to
help Cassie, a single mother of five who worked two jobs but
still struggled to make ends meet. When Cassie came to United,
she had four payday loans, one of which had an interest rate of
425 percent. We helped her consolidate her payday loans into
one low-interest, small-dollar loan. Today, Cassie is a
homeowner who proudly teaches her children about financial
literacy.
BEA has also enabled United Bank to support small
businesses. In 2018 we provided $70.2 million in small business
lending, and counseled 94 small businesses on planning,
budgeting, and cash management. We have also used the BEA award
to create the Church Street Incubator, an open-format shared
workspace that offers technical assistance to small business
startups.
In fiscal year 2018, banks participating in BEA increased
their investment into high poverty census tracts by nearly $578
million. Last year BEA recipients deployed $3.4 million into
persistent poverty counties, exceeding the CDFI Fund's
congressional mandate.
CDFI programs like BEA meet critical needs in rural and
low-income communities, but demand for these programs far
exceeds funding. I ask that the members of the subcommittee
provide at least $300 million to the CDFI Fund in fiscal year
2020, including at least $35 million for the BEA program.
I thank you for the opportunity to visit with you today,
and look forward to your questions.
Mr. Quigley. Thank you, Mr. Jones.
And last but not least, I would now like to recognize Ms.
Fricks for her testimony. I believe, Mr. Graves, it was your
crack staff that allowed her to get through in a timely basis.
Thank you for that.
Ms. Fricks. Thank you, Chairman Quigley, Ranking Member
Graves, and committee members, for the opportunity to testify
today about CDFIs. I am the founder of Access to Capital for
Entrepreneurs, or ACE. ACE is a CDFI loan fund that specializes
in growing small businesses in metropolitan Atlanta and in
North Georgia, where the beginning of the Southern Appalachian
mountain range begins.
We combine capital with coaching and connections so that
underserved business owners can be successful in creating jobs,
caring for their families, and contributing to their
communities. In 19 years we have loans $60 million to 900
businesses who created or saved 8,000 jobs.
We started quite small, in the back of my house, with a
$50,000 investment from the Appalachian Regional Commission for
a loan pool to help unbanked technical college graduates start
businesses like welding, HVAC, automotive repair. We have been
humbled and I have been humbled to witness ACE grow from a
founder's dream with $50,000 to a critical local resource with
a loan capital pool of $29.6 million in private capital.
I would like to emphasize that CDFIs are public-private
partnerships that, over time, utilize more private capital than
public backing. The CDFI Fund is the number one method to build
a balance sheet so that an organization like ours can leverage
private investment, thus making our organization more self-
reliant.
I want to share two examples of our clients and impact. The
first is in Dahlonega, which is in Lumpkin County. Lumpkin is a
rural mountain county with 33,000 residents. The county seat,
Dahloniga, is home to 7,000 residents. Median income in
Dahlonega is just $33,000, and 30 percent of its residents live
in poverty.
Tourism provides one of the very few economic opportunities
for the area. The reason tourists come there is because of the
original gold rush. You see, Dahlonega is actually derived from
the Cherokee word ``tahlonteca,'' which means ``yellow stone,''
or gold.
In just the last three years, ACE has invested more than
$1.5 million in 11 businesses in Dahlonega. These businesses
include boutique restaurants, a day spa, specialty toy store,
dry cleaner, a wedding venue. Those businesses could not obtain
capital elsewhere and business development services to support
them. We have helped these entrepreneurs capitalize on their
best option for making a living, building successful
businesses, and turning their little town into a destination
spot.
The second example is the Marchen Sagen Academy in Atlanta,
Decatur, Georgia. Shortly after leaving the Navy, Couleen LaGon
found himself homeless and sleeping in a friend's studio. He
used his love of music and production skills to work with a
developing artist, and found himself in a music deal with CeeLo
Green.
A few years later he was inspired to create the academy to
teach children music and production skills. We helped Mr. LaGon
purchase mixing equipment and provided working capital. That
academy has 43 students enrolled and employs 1.5 FTEs plus two
interns.
Today, 85 percent of our lending is in metropolitan
Atlanta. Forty-eight percent of our loans are to African
American business owners, 8 percent to Hispanics, and 48
percent to women.
Nationwide, CDFIs like ACE are investing in some of the
poorest communities in America. These communities are comprised
of working families with extremely low incomes, high rates of
poverty, and unemployment. They lack access to affordable
financial services, and CDFIs step into that gap.
I urge the subcommittee to provide $300 million in funding
for the CDFI Fund. This increase of $50 million would leverage
some $600 million, providing much-needed capital. We are making
a tangible difference serving disinvested urban areas, rural
areas, and areas of persistent poverty left outside the
economic mainstream for decades.
I appreciate the opportunity to share more of our work in
Georgia, and I am happy to answer questions. Thank you so much.
Mr. Quigley. Thank you, Ms. Fricks. I appreciate your
thoughtful testimony, and all our witnesses. And I appreciate
the derivative of the word ``yellow stone.'' Chicago actually
comes from Native Americans who originally lived in the area,
``Chicaqua,'' which means ``striped skunk.'' [Laughter.]
So it is quite the same impact as yellow stone. The other
definition might be a ``smelly onion.'' Really. [Laughter.]
And there is an election there today, and the Windy City
actually does not come from meteorological conditions. Believe
it or not, it is because of our elected officials there. Who
knew.
And out of deference for time, I am going to begin the
questions by deferring to Mr. Bishop. He has to run across the
hall. We all have a lot of hearings scheduled across the
Capitol today. Mr. Bishop?
Mr. Bishop. Thank you very much, Mr. Chairman. I appreciate
your deference and that of the committee in allowing me to go
first. I do have another hearing. But I certainly wanted to be
here to welcome our witnesses, Ms. Donovan, Ms. Fricks, Mr.
Jones, Mr. Neri.
I especially want to give a shout-out to Ms. Fricks, who
brought along with her my friend of longstanding, a church
member and fellow Albanian, Thelma Johnson, who is with Albany
Community Together. Let me just welcome all of you, and we
really appreciate your discussions on the value of the CDFI
program.
According to the Wall Street Journal, between 1995 and 2015
the percent of rural areas and small towns without a local bank
increased from about 12 percent to 32 percent. Ms. Donovan, Ms.
Fricks, the great need of the financing that is provided by
CDFIs for low-income and rural communities continues, as
evidenced by the applicant demand in the fiscal year 2018 CDFI
program round.
The CDFI fund received 700 total applications requesting
about $505 million for financial assistance and technical
assistance awards, healthy food financing initiative awards,
persistent poverty county awards, and disability funds
financial assistance awards. In addition, 124 CDFIs applied for
$218 million for the BEA program. How does this compare to the
amount available in fiscal year 2018 and the demand in previous
years?
And I am going to ask my second question quickly because I
am going to have to run, so you can take note. Ms. Fricks, can
you discuss the impact that Access to Capital for Entrepreneurs
has had in helping black-owned businesses in distressed areas
of Georgia? And had Congress approved the President's fiscal
year 2019 proposal for only $14 million for the CDFI fund, what
impact would that have had in black entrepreneurship in Georgia
and nationwide? And how would it have impacted the racial
wealth disparity that currently exists in the United States?
And let me just say that my district is 50/50 rural/urban.
And as the chair of the agricultural, rural development, FDA
subcommittee of the Appropriations Committee, I have a real
passion for rural economic development and for improving the
quality of life of Americans that live in rural areas.
And so this CDFI Fund and the way that it can be and has in
many instances been utilized to improve that quality of life
and the opportunities there is very impressive. So can I get
you to address those two questions for me, please?
Ms. Donovan. Yes. Let me start with the big picture. I am
pleased to say that CDFIs who are accessing resources from the
CDFI Fund outperform with respect to the allocation of
resources that go to rural areas. So about 15 percent or so of
our population lives in rural areas, and over 20 percent of the
activity with CDFI resources is directed to rural areas.
When you look at persistent poverty, about 6 percent of
America lives in persistent poverty communities, and 18 percent
of CDFIs are headquartered in areas of persistent poverty, and
one-fifth of CDFI investments are going into areas of
persistent poverty.
So I think this is great--this lets us know that the policy
of the way that we certify CDFIs and require them to put at
least 60 percent of their assets in low- and moderate-income
communities and in targeted communities, and the way that we
run the competitions at the CDFI fund, is effective at
targeting resources to the places that need it the most.
I think our biggest problem is, again, back to the scale of
the CDFI sector and the need to grow to a bigger scale.
Mr. Bishop. Ms. Fricks? What impact would the fiscal year
2019 proposal from the administration have had on what you do
and what CDFIs do?
Ms. Fricks. I think I might still be sitting here because
our program, after the recession, also began serving
metropolitan Atlanta. I do not think Dr. Adams-Johnson,
Thelma's, program would be sitting here. There is just an
extreme difference in serving the rural market and serving a
metropolitan market.
When I said that right now, 48 percent of the small
business owners we serve are African American business owners,
that is because of us having offices in Atlanta also. And when
I talked about the amount of private capital that we have been
able to leverage, that is because of having that Atlanta market
as part of ours, where the Albany area in the same amount of
time has maybe done 8- or $9 million worth of loans. And that
is because their less capital. There is less resources there.
And I think you know that in the rural areas, there is an
out-migration of banks. And then Georgia was the number one
state in the country for closing community banks, and that
impacted all of us. We have become, in rural areas, the go-to
for lending. And what you are seeing is more people being
vulnerable to predatory lending when there is no community bank
or CDFI in their area.
Mr. Quigley. Thank you, Ms. Fricks.
Mr. Bishop. Thank you very much. My time is expired.
Mr. Quigley. Thank you all.
Mr. Graves.
Mr. Graves. Just sort of a question that can inform all of
us. And I will ask Ms. Fricks and Mr. Jones as well. And feel
free to respond, too.
But in the Federal Government, oftentimes it is trying to
help communities. And there are a lot of different agencies and
different programs that get established through multiple
administrations or different majorities and such. And I guess
for our perspective, and I know that the request would be--you
mentioned $300 million, and the administration is at a
different spot there.
Can you share with us the difference it makes through the
CDFI program versus the many other programs that are out there
that you might interface with or have to work with, that can
help us understand there is not a duplicative nature or that
this is impactful, that it is needed, and that it is worth that
investment?
Because at some point we will have to make decisions, and
they are tough decisions. It will be, do we put more in this
bucket, this bucket, or this bucket? And so I think that would
help this committee a little bit as we try to make decisions in
the future about I guess spreading out the different finances
we have.
So we can just start, Ms. Fricks, with you. And just help
us understand that a little bit.
Ms. Fricks. I mean, logically, just like you are thinking,
there should be--I think it is what BB&T and SunTrust have
called, in their merger or buyout, synergies, which are really
efficiencies from combining departments.
I think in the best of all possible worlds, that makes some
sense, to do some of that. I can tell you that the CDFI Fund is
the only one--its purpose is to help build balance sheets so
that we can do more using private capital. And some of the
other programs, they have their purpose. USDA is strictly
rural. It is difficult. It is difficult for you.
Mr. Graves. Well, you have given some great success
numbers, statistics here that are fantastic, and I do not know
that we hear those from all agencies or other areas that come
before us. So that is very helpful.
Mr. Jones. Yes.
Mr. Jones. Thank you, Mr. Graves. I probably would speak
specifically to the Bank Enterprise Award, which is unique to
insured depositories. And the beauty of that program is it
gives institutions like ours the flexibility to create products
and deliver unique services into the communities we serve.
The flexibility of the program has not been talked about,
the local delivery with people that are committed and invested
to the local community, identifying specific needs. There is
high accountability to the use of those funds. We have to prove
that we are using them appropriately.
It is unique. It is the only Federal program that is for
for-profit banks. And as Ms. Fricks mentioned, there is a
continuing challenge around the country for a presence of
community banks. In 600 counties in this country, if there were
not a community bank, there would be no financial services
provider there.
And as has been pointed out many times over, to operate
efficiently in this economy, you have to be a part of the
financial mainstream. And the gateway to that is most times
through a community bank by basic financial services, checking
and savings accounts, and as I indicated in the story I told,
how we assist people with no credit experience at all to build
some resiliency. The BEA allows us to do that.
There are unique challenges as an insured depository that
oftentimes--the confluence of regulatory pressures with the
economic pressures that banks experience. The BEA gives us the
latitude to be innovative, to create unique products that
otherwise would not exist, that are really tailored to the most
distressed members of our communities.
The flexibility is important, and that is why we are
advocating for continued support of BEA and increase in its
funding.
Mr. Graves. Thank you.
Mr. Neri. I would like to add that 1 is 12, so $1 of CDFI
Federal dollars becomes $12. So when you make an investment,
when you make those choices around where dollars should go,
remember that if you cut 1, you cut 12. So if you add 1, you
are adding 12. I think the leveraging that CDFIs do in the
marketplace is a really powerful tool.
I think the second piece here is that many of the
challenges that all of the Federal departments work on are
complex. They are interrelated. CDFIs are part of helping
implement those public policy decisions and make those other
programs more efficient and effective, again because they
leverage the private sector to deal with the capital side.
So if you are looking at early education, if you are
looking at fresh foods, if you are looking at the social
determinants of health, there are many factors that go into
working on those challenges and the funding of Federal
programs. CDFIs are the capital fuel to working on those public
policies.
Mr. Quigley. Ms. Donovan, I will start with you. In your
assessment, what is the scale of need that exists for credit
and capital in these distressed communities? What amount are we
missing, if you can assess it?
Ms. Donovan. Yes. Well, the research that is--there is not
a whole lot of research out there. But the research that has
been done by the Urban Institute, I think for the first time,
quantifies the neighborhood of that gap. And their numbers show
$156 billion. And that is the difference between capital that
flows to communities that have poverty rates of 20 percent or
greater versus ones that have poverty rates of 20 percent or
lower.
And the growth in terms of investments that CDFIs are
making in low-income communities is impressive. Even over my
time, over my 4 years at the CDFI Fund, it went from roughly $5
billion to $11 billion. And still, against a gap of $156
billion, that is not much.
So when I hear my colleagues arguing for $300 million, I
would like us to go much higher than that because, again, you
have to look at the scale of the problem. CDFIs are addressing
7 percent of the problem, and doing amazing work, very
effective work. But there is so much more to be done.
And I would just also say that it is not just a matter of
the money, either. CDFIs offer development services alongside
the financing. They partner with local organizations. They
partner with national organizations. They are magnets for
bringing resources, bringing them together, and structuring
them in ways that can be absorbed by the local community that
needs them.
Mr. Quigley. Yes. My second question dealt with that. And
that is, aside from budgetary resources, what else can CDFIS--
what can the fund do to help build the capacity of CDFIs?
Ms. Donovan. Yes. This is very much needed. At the Center
for Community Investment, where I am serving as a Senior Fellow
right now, we refer to this as the capital absorption capacity
of places. So some places, even if you have capital swirling
around, it has to be able to land.
And to do that, you need people on the ground who are able
to do the kinds of work that CDFIs do to organize the demand
side of capital, to make sure that communities can responsibly
take the capital in and use it well. And to do that requires
capacity-building.
And I know during my time as CDFI fund director, we would
get the question about, is it the most effective way to invest
in capacity-building? Because we want the dollars to go
directly into communities. And I think it is important that the
predominance of the funding go directly to CDFIs.
But small and medium-sized CDFIs, and CDFIs in hard-to-
reach places, will tell you that they need the capacity-
building that CDFI Fund offers through the capacity-building
initiative. And 1 to 2 percent of the budget I think is
sufficient to provide that kind of capacity-building.
Mr. Quigley. Do others want to weigh on that? Mr. Jones.
Mr. Jones. I would just echo what Annie was saying. I think
that resources are scarce, obviously, as we have already talked
about. I think that the effective deployment of and one of the
real strengths that the BEA program has, or some of the other
CDFI funds, it puts the money in the hands of local
organizations that have the capacity, the resiliency, and the
connections to make a meaningful impact in those communities in
a way that--just a general allocation of dollars, there is an
accountability.
In the BEA, we must have at least 30 percent in areas of
poverty and 1.5 times the national unemployment rate. So by
definition, those monies are going to the most severely
distressed. So when we look at the types of alliances and
partnerships that have been talked about--one quick example: In
our organization, we have our staff volunteering in the VITA
program, which is a volunteer income tax assistance program.
Since we have been a part of that, we have done 585 tax
returns totaling $670,000 in refunds, of which $218,000 was in
earned income tax credits. In the year 2017 alone, we saved
individuals over $20,000 in tax preparation fees. Those are
hard dollars that have gone directly in the hands of distressed
families in a community that, otherwise, those monies would
have been allocated elsewhere.
That alignment and the ability to use those funds to
provide those programs make a real difference in communities
and families who, frankly, are living paycheck to paycheck. So
it is effective.
Mr. Quigley. I want to go ahead to Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman.
I don't think that, just speaking for myself, when I hear
things like 12 to 1 leverage and stuff like that, I don't know
that in my mind, anyhow, that it is like, well is this a good
program or is it a bad program? Obviously, if it had more
resources I would assume that you would continue to leverage
those and grow those and do good things.
But I am a guy who comes from a State that has had about
eight of these programs awarded or whatever, and I am sitting
there looking at that, comparing it to other States with
similar population or whatever--not that it is apples and
apples--that have been much more successful.
So I guess my question to this panel, as people who have a
lot of experience in this: Is it financial infrastructure? In
other words, do I need to go to the State bankers association
and say, hey, how come--God forbid I say the words ``credit
union'' in here, but them, too, or whatever.
But anyhow, is it like, listen, is there no infrastructure
in the State promoting this? Or is the quality of applications
defective? Or is it just we are not applying? I mean, because I
started to get off on the urban/rural thing, and it sounds like
you guys know how to say and spell rural pretty good.
And so, I mean, help me a little bit in terms of saying,
hey, it is a good program, sounds like it is doing good work.
But what are the indices of that in terms of making that a
tool? Because I have got communities with populations like you
have talked about where the county sheriff is also the
dispatcher and the patrol person.
So that tells you about the health of the community. And by
the way, I think we have got two community banks left in the
whole State, which the bankers tell me they are good things. We
want to preserve them.
So anyhow, whoever feels like taking a whack at it, go
ahead.
Mr. Jones. Sounds like it is right in my wheelhouse. Let me
tell you a quick story; maybe it can speak to exactly what you
are talking about.
Our bank has been around since 1904, so we are not new off
the street. We were certified in 2010. During my career, I
served as the president of the State Bankers Association and
served on the board of the American Bankers Association. I have
been involved in the industry for basically almost 30 years.
I really didn't know about the CDFI Fund or the initiatives
here until we had an opportunity to get certified in 2010. Our
journey since that certification has been one of discovery, and
we have been an ambassador to other financial institutions
because it is a little-understood and not widely-known segment
of the industry. There are 134 banks that are CDFIs.
I think disproportionately, the impact that those
institutions make are significant in the communities they
serve. I can't really speak to why it has not been more widely
known. Annie and I have talked about that. In previous times, I
think that what we are doing in our State--we were amongst the
first to get certified.
We were the first and only to receive New Market tax
credits. We were the first to get a Capital Magnet Fund award.
We were the first to get a USDA Community Facilities grant.
There is more conversation because of the work we are doing,
and I think the more mature this industry becomes--and it is
very new, and particularly in the rural areas. Very early on,
most of these programs were urban-centric. I don't know that,
nationally or otherwise, there was a true understanding of the
challenges in rural America that only now has become a topic of
conversation.
So I would say it is too early to make that determination.
I am optimistic that we will see an expansion of that. That is
part of the mission we have with the CDBA. I think the
performance that we are having and the impact that we are
making--as I visit with members of our delegation, they are
intimately aware of how we are deploying these dollars. We are
accountable to them to report the programs that we are
administering.
So it is making a difference. The State is beginning to
recognize it. So I would say don't judge it too soon. The work
that we do continues to make an impact. And I think the story
grows from there.
Mr. Amodei. Well, and I appreciate it. I am not judging it
too soon. I am just waiting for the day when there is somebody
on the panel from Nevada, which, by the way, does not stand for
some kind of skunk or----
[Laughter.]
Mr. Amodei [continuing]. Some way to say gold without
saying gold. But anyhow, it looks like a tool that is a
legitimate tool.
Ms. Donovan. Yes.
Mr. Amodei. And so----
Ms. Donovan. And so, really, the reason why the CDFI Fund
is as successful as it is in our market economy is because it
takes the principles of the market economy. It is market-
driven. But it presumes that there is a capacity, there is a
baseline level of capacity, at the local leave. And so it
requires that kind of capacity-building.
So the communities that have strong philanthropy,
communities that have a banking sector, that are dedicated to
place and have strong partnerships, that is where--and it is
probably not due to bad applications. It is probably the
capacity at the local level, which is why it is important to
take just a little bit of the budget and put it toward a
capacity-building initiative.
Mr. Amodei. Thank you.
Mr. Jones. And if I can include, just one complementary
comment on that. I would be glad to come to Nevada and talk to
some bankers and help see if we could not get more capacity. I
think one of the issues that regulated institutions have, and
this is something I would encourage the committee to give some
consideration to, regulatorily there are challenges for an
insured depository operating in this challenged space.
So at times, the purposes are at odds with each other. An
alignment between the regulatory structure and the community
development structure can make a meaningful difference in terms
of broader application in deployment of these funds.
Mr. Amodei. Thank you, Mr. Chairman. Thank you. I yield
back.
Mr. Quigley. Thank you. Preliminary research says Nevada
means ``covered in snow.'' So I will take the skunk.
[Laughter.]
Mr. Quigley. Mr. Crist.
Mr. Amodei. Thank you for doing that. [Laughter.]
Mr. Crist. Thank you, Mr. Chairman. I am from Florida. We
are known as the Sunshine State, for the record.
I want to thank you, Mr. Chairman, and thank the witnesses
for being here today. We appreciate your testimony and
educating us further on CDFIs.
I grew up in South St. Petersburg, Florida, a vibrant,
economically developing, majority black neighborhood I am now
humbled to represent here in the United States Congress.
Minority-owned businesses are the bedrock of that community,
businesses like Chief's Creole Cafe on 22nd Street, known as
the Deuces. Carolyn and Elihu Brayboy run that restaurant. It
is all about spicy jambalaya and second chances, second chances
for a neighborhood returning to greatness, and second chances
for the ex-offenders that they employ.
But this great American story would not be possible without
the Community Development Financial Institutions Fund. It was a
CDFI lender that finally said yes when every other traditional
lender would say no. So Ms. Donovan, when it comes to issues
like sustainable development, eliminating food deserts, and
restoring communities, can you quantify what a CDFI would mean
for places like South St. Pete?
Ms. Donovan. Well, that is a challenging question.
Mr. Crist. It is not meant to be.
Ms. Donovan. So for communities like South St. Pete,
absolutely having a CDFI, as you mentioned, there to--like Ms.
Fricks mentioned, in terms of what they are able to do in the
communities that they serve. They were probably able to make
that loan because of the way that their balance sheet is
structured, back to having resources from the CDFI Fund that
allow them to be flexible and to take the risk, and to take the
risk that banks wouldn't take or, I want to add, would not take
a loan.
Because a lot of the power of what CDFIs are doing is
bringing their own resources to the table in a way that allows
the bank to say yes. There very well may have been some bank
resources in that loan that was organized and managed by the
CDFI in order to make that access to capital available.
Mr. Crist. Thank you. On the issue of access to capital, I
am sure that all the panelists agree that when a black
barbershop needs a quick loan to replace a broken chair, the
owner should not have to go to a payday lender. No one else
will say yes. You all agree that that is wrong, I assume?
[Panelists nod affirmatively.]
Mr. Crist. I do, too. And that is why I brought together
lenders and women and minority business owners for an access to
capital fair that we had in my district. We invited lenders of
all shapes and sizes to come and meet entrepreneurs at various
stages of their business development.
Out of all the lenders who showed up, fully half were
CDFIS--Florida Community Loan Fund, Black Business Investment
Fund, Suncoast Credit Union, and the Tampa Bay Black Business
Investment Corporation, to name a few of them.
Mr. Jones, why are CDFIs so excited to provide access to
capital to the women- and minority-owned small businesses that
traditional lenders do not?
Mr. Jones. Well, I think we clearly understand the
importance of small businesses and the impact they can have in
a community. Part of the mission that we have in our CDFI
role--because the challenges in communities are so multi-
faceted that none of us singularly can solve of them. But we
can focus on the parts that we can make the most impact on.
Our experience has been in job creation. As I mentioned in
my opening statement, we operate a small business incubator.
And perhaps the best way to describe how we have helped that
segment that you are most sensitive to is we had a lady that
came to us that had an idea to be a home healthcare provider.
This is not nursing care, but assisted care so someone can
remain in their home.
She had the idea, but did not have a business plan and had
not had the experience to do it. We invited her into our
business incubator, which immediately gave her credibility with
clients that she had an office space and someplace they could
come meet with her. Today she has operated that business and
now has nine employees that are working for her as a result of
us working with her, helping her with some credit startup, and
providing a space, which is critical for credibility for a
small business.
Another story: We had a minority young lady who wanted to
be in the photography and wedding planning business. She had a
great idea and needed the help to get started. We brought her
into the incubator, helped her with a business plan. She is now
operating out of a standalone space downtown and is adding to
her capacity.
So I think there is an opportunity to do that. And the
CDFIs operating in these communities are developing a network,
and within certain communities it is word of mouth more than
anything else that you do. You walk the walk rather than just
say you are going to do these things. And they become the
ambassadors, and I think that opens doors for future
opportunities and changing, in these two cases, the resiliency
of two ladies that now have an operating business.
Mr. Crist. Thank you, sir. Thank you, Mr. Chairman. I yield
back.
Mr. Quigley. Thank you.
Mr. Ranking Member, do you have another question?
Mr. Graves. Just a follow-up. Yes. It is funny. I was
sitting here thinking, Mr. Chairman, that you referenced hockey
in Georgia. But I think Mr. Jones and I and maybe Ms. Fricks,
we appreciate a different Saturday sport in the fall----
[Laughter.]
Mr. Graves [continuing]. That maybe you don't have quite
the same understanding of in your State. SEC football is
amazing. Yes. It is always good to have somebody from the SEC
here as well.
But a quick question. I wanted to drill in just a little
bit on something you were saying a minute ago, Mr. Jones. You
have a community bank that is a full-service community bank,
but also operating a CDFI component as well. And I really don't
know the answers to these questions, so help me walk through
it.
Is there the possibility that the rules and the regulations
are so challenging in the banking industry today--is it
possible that there is a customer that could come to you and
seek a loan in a traditional format, and maybe not qualify it
or not be able to get it or maybe it is too cumbersome or too
expensive, that then they can go to a different office in your
same facility, your same building or branch, and receive the
loan under a CDFI concept?
Mr. Jones. That is an excellent question.
Mr. Graves. And if so, why is that, and how do you smooth
that out?
Mr. Jones. Well, we could spend the rest of today talking
about all the reasons behind it. But let me touch on some very
high-level issues.
True story: Years ago we had a finance company that the
bank operated, and it operated to provide that option that you
just described to people that otherwise could not perhaps meet
the regulatory requirements for a bank loan. There was a rule
change within the regulations which told us that within the
finance company, we had to treat them like bank loans. We had
to close the finance company as a result of that change in
guidance from the regulators. As soon as we closed the finance
company, the payday lenders moved into the void.
As we have gotten into the CDFI space--this is a
conversation that we have openly--we use many other programs to
provide enhancements to those opportunities that might need an
SBA guarantee or an SSBCI. We have a rule in our bank that no
one officer can decline a loan. It takes two. One officer can
make a loan, but they cannot decline a loan.
And we do that for the very purpose of taking a second look
to see if there is something maybe we did not see in the first
application. In the small-dollar program that I mentioned in my
opening comments, our rate of loss is 10 percent, compared to
consumer loans that run around 2 percent.
The BEA allowed us to present those opportunities and
continuation to make those loans to help people build credit
because we all understand, and particularly the members of the
committee, that until you get a credit score and you get into
the mainstream financial system, you are operating off the
grid. And that is a place that is not sustainable to take
advantage of all the opportunities we offer in this country for
homeownership or upward mobility.
So we see that as something critical to what we do. We have
a nonprofit side in our company as well that we fund. We are
beginning to operate and will set up loan funds to provide that
tier of financing to small business or other types of entities
through the nonprofit space as well.
Specific to the community development subsidiary you
mentioned, we set that up as we were successful in winning
awards in the New Markets and other areas to create the ability
to deliver those across the State of Alabama. We have received
two New Markets awards as a result of those applications, $120
million; to date, that has created $165 million worth of
capital investment, and it has sustained or created 3,000 jobs.
And we continue to expand that.
We operating our Capital Magnets, our online tech program,
out of there, which is providing 730 housing units across the
State as well in 14 developments. So it has allowed us to move
from just a traditional community bank, which we still operate
in our traditional counties, to becoming a statewide entity to
move into these census tracts that are most in need in a State
like ours.
So the creation and the opportunity to be a CDFI is
changing many of the communities that we participate in. So I
think it takes a willingness to do it. As I mentioned in my
comments, the regulations often are at odds. And to be able to
navigate that--we often have to educate the regulators to what
it means to be a CDFI. But that is becoming more accommodating.
Mr. Graves. So it is possible that a potential customer
could come in and seek a loan in a traditional format and not
quality, and be redirected?
Mr. Jones. Yes. And we provide some other safety nets in
terms of unsecured lines to our checking accounts, which
provide a $500 safety net if they need that short-term
availability. So absolutely.
Mr. Graves. Has there ever been any concerns--this will be
my last thought on this, Mr. Chairman--of institutions in
essence cherry-picking customers and saying, okay, we will keep
the ones that are more qualified or have a better potential to
pay back, and redirect those others to the CDFI-type program?
Do you ever sense that throughout the community, or a bad
actor, so to speak, taking advantage of that?
Mr. Jones. We often see people seeking the path of least
resistance or available credit, which are not on the most
favorable terms. But I have to tell you, as a banker, some of
the best things you can do for people sometimes is tell them
no. And to just grant credit without an reasonable expectation
of managing it does more harm than good.
But we also provide financial counseling so that if we
can't do it, then we sit down and tell them what they need to
do to improve their situation. And many times that experience
of being told no, then coming back and say, ``Okay, I did this;
now what, and how can I improve my situation?'' And we will put
them into a reloadable prepaid card and help them manage that,
or get them into a checking account, or offer them a small
secured credit card. Now they are beginning to build a
capacity.
Frankly, our country does an abysmal job in training people
how to manage their personal finances. And I see that as a
foundational failing, that until we help people be better
consumers and wiser consumers of credit, this is self-
perpetuating. We will always be fighting this problem.
So the root cause is very, very problematic. So we make a
difference, one person at a time, and that is all that you can
do. And I think that is all every one of us at the table do, is
small steps. But that is how we approach it.
Mr. Graves. Okay, Mr. Chairman. That is great. Thanks.
Mr. Quigley. Thank you.
Mr. Neri, in 2017 CDFI Fund received specific funds to
support programs and projects aimed at assisting individuals
with disabilities. It is relatively new, and congratulations to
IFF for receiving an award to assist individuals with
disabilities.
Can you explain to the subcommittee how IFF is using these
funds, has used these funds, and how you are going to measure
the impact of the funding? And if more CDFI funding were
available, how would you use it?
Mr. Neri. So IFF was actually really incredibly honored to
receive that award, partly because lending to nonprofits
serving people with disabilities began at our inception in
1988. And since then, we have lent over $50 million to
nonprofits serving those persons with disabilities.
We are also one of the founding members of the CDFI
Disabilities Coalition. For us, this work has obviously been
very important, and we concentrate the funding that we have
received from the fund and in the past in two specific areas--
although again, we lend broadly to nonprofits working in that
space--but two focus areas, which are employment for persons
with disabilities--the unemployment rate amongst people with
disabilities is the highest in the Nation--as well as
independent living or housing for persons with disabilities.
Unfortunately, Congressman, we live in a State which does a
horrendous job of creating housing outside of institutions for
people with disabilities. Some examples of our projects like
the loan to Hope Homes Foundation, which is in Representative
Joyce's district, where we help stabilize mortgages for that
organization to do small, community-integrated group homes for
people with developmental disabilities, or our loan to
Paraquad, which is a center for independent living in St.
Louis, where they used our loan to create the only fully
accessible gymnasium and workout center for people with
disabilities in St. Louis, in addition to a restaurant called
Bloom, which employs persons with disabilities, that has
become, actually, a pretty popular spot in St. Louis.
It is also why IFF partnered with Access Living, which is a
center for independent living in Chicago, to create a
subsidiary called Home First which finances, develops, and owns
housing for persons with disabilities coming out of
institutions. And to date, we have about 200-some units at
scattered sites throughout the city, county, and downstate
Illinois that serve persons that were formally in nursing homes
or other types of institutions.
So we are obviously very excited that this fund has allowed
a focus on what is possible in providing capital specifically
in this space, and hope it encourages other nonprofits to begin
to think about how that capital can then advance the issues for
persons with disabilities.
Mr. Quigley. Ms. Donovan and whomever else, 425 percent
interest on a loan--anything else we can do? Can this be used
to create alternatives to payday lending? And recognizing that
it is not a complete evil for many; without payday lending,
they are not going to get their water heater fixed or their car
fixed. So what else can we do to help?
Ms. Donovan. Well, in I believe it was the 2017 budget, the
previous administration put forward a proposal to invest $10
million in the small-dollar loan program, which is authorized
through the Dodd-Frank Act. And I think funding that program
would--in the same way that other programs have shined a light
on activities like disability or healthy food financing, would
allow more resources to be available to fund the work that Mr.
Jones talked about he is doing in his community.
There is a much greater need for that. And so I think
funding that program and directing resources in that way would
increase the amount of activity.
Mr. Quigley. Anyone else?
Mr. Jones. I would like to just expand on it just a minute.
I am aware of the proposal that came out of the Obama
administration with the $10 million request. It was part of
Section 1206 of the Dodd-Frank. And I certainly agree with the
premise that we need to help customers. I mean, it goes without
question. That is exactly what we do.
But I think the $10 million should not be taken out of the
existing funding. It should be in addition to anything else
that the committee considers so that we are looking at an
allocation of those dollars. But I think one of the things that
also has to accompany that, other than just dollars, is like I
mentioned in my previous comments: I would encourage the CDFI
Fund to work in conjunction, particularly for those of us in
the insured depository space with our prudential regulators--I
think the partnership between the alignment of giving
institutions such as CDFI is the flexibility to create products
that can solve this problem, and not run afoul of unintended
consequences of some regulations that are not designed to speak
to the unique needs of this specific community.
Banks are very sensitive to their reputation risk. And in
these types of loans, you can inadvertently do something that
could create an adverse outcome. And you do not want to do that
because you are trying to do good work. So I think an alignment
between the fund and the prudential regulators could create an
opportunity for helping to address the problems that you are
addressing, Mr. Chairman.
The money is important; I think it would be helpful. But
without that collaboration, I am not convinced it would be as
efficient or as effective as it possibly could be. We have to
align the interests because I think we are all wanting to do
the same thing, serve the communities.
And there are unintended consequences. It is like the old
expression, no good deed goes unpunished. And you cannot afford
to do that. And that is why I think sometimes we see a void
created because of that.
Mr. Quigley. Thank you. I want to thank all of you. And
before we conclude, I want to ask unanimous consent to add a
letter from the Credit Union National Association addressed to
myself and the ranking member to the record. No objection.
Thank you.
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Mr. Quigley. I want to thank the Members who participated,
the staff who helped put this together, and of course our
participants. You were extraordinary. This has been very, very
helpful. We look forward to working with you again in the
future.
Anything else, Mr. Ranking Member?
Mr. Graves. No.
Mr. Quigley. Thank you all very much. Have a good day.
Wednesday, February 27, 2019.
OVERSIGHT--ELECTION SECURITY: ENSURING THE INTEGRITY OF U.S. ELECTION
SYSTEMS
WITNESSES
DR. J. ALEX HALDERMAN, PROFESSOR OF COMPUTER SCIENCE AND ENGINEERING
AND DIRECTOR OF THE CENTER FOR COMPUTER SECURITY AND SOCIETY,
UNIVERSITY OF MICHIGAN
HON. ERIC ROSENBACH, CO-DIRECTOR, BELFER CENTER FOR SCIENCE AND
INTERNATIONAL AFFAIRS, HARVARD KENNEDY SCHOOL
STEVEN SANDVOSS, EXECUTIVE DIRECTOR, ILLINOIS STATE BOARD OF ELECTIONS
Mr. Quigley. Good morning. Today's hearing is called to
order. This morning we are here to discuss an issue I feel very
passionate about, and hopefully others here today as well, and
that is protecting our election systems.
For the past two years, I have done my best with others to
sound the alarm about the vulnerabilities of our election
system. We know that in the lead-up to the 2016 elections, the
Russians targeted at least 21 State election systems. We also
know, through confirmation of all 17 intel agencies, that
Russia successfully hacked our democratic process to encourage
voters to elect the President.
But it did not stop in 2016. The Director of National
Intelligence, Dan Coats, warned us that lights were still
blinking red. And sure enough, in 2018 the intel committee saw
similar attempts by Russia and other foreign countries,
including China and Iran, to influence our election process and
promote their strategic interest.
We can be sure that they intend to interfere in the 2020
presidential election. Yet many of the vulnerabilities that
existed in 2016 continue to persist across the country. Our
election infrastructure remains outdated, low tech, and nowhere
near where it needs to be to prevent future intrusions.
In the 2018 elections, 41 States used voting machines that
were over a decade old and susceptible to cyber intrusions and
system crashes. Thirteen States used voting machines that fail
to produce a paper ballot or record, leaving them unable to
conduct meaningful post-election audits.
Thirty-four States used electronic poll boxes in at least
some polling locations, including six States that used them
statewide, which are vulnerable to hackers who can alter or
delete voter registration data. Some of these States are taking
steps to replace their outdated systems, but they lack the
necessary tools and funding. We need to give State and local
election officials the tools they need to adequately defend the
security of our election system.
After an 8-year gap in Federal funding, the fiscal year
2018 Financial Services and General Government Appropriations
Act included $380 million for grants to help States fortify and
protect election systems, and we saw an overwhelming demand for
assistance. Every single State and eligible territory requested
grant funding. And the Election Assistance Commission, EAC, has
disbursed every single dollar of the $380 million.
The EAC is still analyzing how much money the States spent
in the first nine months. But based on initial plans submitted
by the States, we know the States plan to spend more than one-
third of the grant funding on cybersecurity efforts, and more
than one-quarter of the was tagged for new voting equipment.
While a critical first step, it is important to emphasize
that this funding was just a down payment. It represents only a
fraction of the total need across the country to replace
outdated voting equipment and implement cybersecurity and other
protections at the State and local level to ensure our election
system can withstand future attempts of foreign interference.
The last time our electoral process was put into question
post Bush-Gore, this government spent over $3.5 billion to
upgrade our election systems because we treasured the integrity
of our democracy. I hope we still do. I look forward to hearing
from our panel of expert witnesses this morning who can help us
understand the challenges and threats we face and what steps we
should be taking to address them.
Before I turn to our witnesses for their statements, I
would like to recognize ranking member Mr. Graves for his
opening remarks.
Mr. Graves. Thank you, Mr. Chairman. Good morning,
everyone. Good to be with you today.
When we show up to vote on Election Day, Mr. Chairman, I
think we both can agree that we should have the confidence and
guarantee that our votes and our voices are going to be heard.
That means a fair count by local officials and volunteers and
an election that is free from outside influences that aim to
harm our systems.
Maintaining the integrity of our country's elections is
fundamental to our democracy. We should all be on the side of
secure elections. This is not a partisan issue in any way. I
appreciate the chairman holding this hearing today. I think
this is a really important topic for us to discuss.
Now, there are many aspects to election security such as
voter registration systems, voting machines, absentee
balloting, and ensuring that our polling places are safe. In
fact, earlier this month I was pleased that the Department of
Homeland Security, the Office of the Director of National
Intelligence, and the Department of Justice shared that there
was no material impact from foreign interference in our
Nation's elections infrastructure in the recent, 2018 midterm
elections. This is a significant accomplishment.
General Nakasone, the Commander of United States Cyber
Command and the Director of the National Security Agency,
recently testified about efforts to defend the integrity of our
midterm elections. Cyber Command created a persistent presence
in cyberspace to monitor and to disrupt adversaries. They
shared information through DHS with State election officials to
help identify weak spots in our system and to improve threat
warning. I hope these partnerships between the Federal
Government and State and local elections officials continue to
grow.
But it is important that we leave election administering
and oversight responsibilities to the States. What I do not
want to see from this committee or from Congress is a heavy
hand of Federal Government dictating to State and local
officials how to administer their own elections or what
equipment should be used.
Nor do I want to see the Federal Government be the
responsible party for funding States' elections. That is a role
and a responsibility of the State governments, to fund the cost
of voting machines and their administering of their own
elections.
Mr. Chairman, again thank you for holding a hearing on this
important topic, and I look forward to a robust discussion
today.
Mr. Quigley. Thank you, Mr. Graves.
Let me now introduce our distinguished panel that is here
this morning. The Honorable Eric Rosenbach is the co-director
of the Harvard Kennedy School Belfer Center for Science and
International Affairs. Mr. Rosenbach previously served as the
chief of staff for the Pentagon from 2015 to 2017, and
Assistant Secretary of Defense for Global Security, where he
was responsible for leading all aspects of Department's cyber
strategy, policy, and operations.
Dr. J. Alex Halderman is a professor of computer science
and engineering at the University of Michigan, and director of
Michigan's Center for Computer Security and Society. He
conducts research on computer security and privacy, with an
emphasis on problems that broadly impact society and public
policy, including electronic voting, and has conducted multiple
demonstrations on the vulnerability of these systems to
hacking.
Mr. Steven Sandvoss is the executive director of the
Illinois State Board of Elections, where he has served in that
capacity since 2015. He has been with the State Board of
Elections for more than 30 years, so he brings a wealth of
firsthand experience to his testimony today.
I want to thank you all for being here today, and look
forward to your testimony. Without objection, your written
statements will be entered into the record.
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Mr. Quigley. With that in mind, we would like to ask you to
please summarize your opening statement in three minutes.
Mr. Rosenbach, you are now recognized for three minutes for
your opening statement.
Mr. Rosenbach. Thank you, Chairman Quigley, Ranking Member
Graves, for the invitation to join your subcommittee today. It
is an honor to be here to speak to you about our Nation's
cybersecurity and the integrity of our election systems.
Also I would like to thank you for your service, and thank
you for being with such good witnesses, Mr. Sandvoss in
particular. State election officials are on the front lines of
defending democracy, and it has been a pleasure to work with
them over the past several years.
Imagine, if you can, that we discovered during the Cold War
that Soviet intelligence operatives had gained access to
polling places and vote counting machines, and attempted to
change the outcome of our Nation's election. Imagine if Soviet
spies had infiltrated our Nation's newspapers and television
stations and tricked them into publishing false content, and
divided Americans and inflamed political tensions. Would
President Reagan have stood by and debated the threat or would
he have acted?
This should not be a partisan issue, as Congressman Graves
said. Our democracy has been attacked and continues to be
attacked. Now is the time for the country to unify and come
together and act, not after we watch the Russians or the
Iranians or the North Koreans try to disrupt the 2020
presidential election.
As you mentioned, Mr. Chairman, the worldwide threat
assessment highlighted the persistent threat of foreign
interference in the elections in 2020. The assessment assures
us, and I agree, that our adversaries are already planning how
to disrupt the 2020 elections.
With this in mind, I have three areas in which I believe
Congress should focus. And of the three, I will focus on the
first: bolstering domestic defenses and resilience, developing
precise and legal offensive cyber operations, and adopting a
clear public deterrence posture.
First, Congress should authorize and appropriate regular
ongoing federal funding focused on improving the security of
our elections. The $380 million approved by Congress last year
was an extremely important first step. However, the States need
a dependable source of funding to support the cybersecurity and
upkeep of paper-backed electronic voting systems. It should be
very flexible but tied to the NIST framework.
Second, Congress should pass a comprehensive privacy
regulation law that protects Americans' personal data and
information from abuse both by leading tech firms and nation-
state intelligence organizations from Russia and China.
Finally, Congress should also immediately pass regulation
to ensure that online platforms such as Facebook, Twitter, and
YouTube, are not used as tools of foreign influence. Let's be
honest: Facebook's disregard for America's privacy represents a
significant national security vulnerability to our democracy.
If they will not act, you must.
Finally, the two other areas in which I think you should
devote your attention are on developing precise legal options.
As Congressman Graves mentioned, CYBERCOM in particular, if you
read the Washington Post yesterday, has started a more
aggressive posture, which I believe is very important. We
cannot sit back and just take blows.
Finally, the country needs a clear deterrent posture that
shows our adversaries that we will not just be on the receiving
end of these attacks, that we will be more assertive, and that
we will unify as a country.
Thank you, sir, very much.
Mr. Quigley. Thank you, Mr. Rosenbach. You seem to have a
very attentive fan in the audience.
Dr. Halderman.
Mr. Halderman. Chairman Quigley, Ranking Member Graves, and
distinguished members, thank you for the opportunity to address
this urgent matter of national security.
Three years ago America's election infrastructure was
attacked. Hackers targeted voter registration systems, and in
some States had the ability to destroy registration data, which
would have caused chaos at the polls. We were spared only
because attackers chose not to pull the trigger. Next time
things could be much worse because America's voting machines
remain stunningly vulnerable.
I and other computer scientists have found numerous ways
that hackers could sabotage machines and alter election
results, and sophisticated hackers can penetrate them even
though they are not directly connected to the internet.
Last fall Chairman Quigley and Representative Katko invited
me to demonstrate a hack here on Capitol Hill in a mock
election with a voting machine used in 18 States. I remotely
hacked in, stole both Congressmen's votes, and changed who won.
These capabilities are certainly within reach for America's
enemies.
Fortunately, we know how to better defend elections. Paper
ballots, manual risk-limiting audits, and cybersecurity best
practices are a prescription endorsed by the overwhelming
majority of cybersecurity experts and by the national
academies, and favored by a majority of election officials.
Most States have started implementing these defenses using
the $380 million that Congress appropriated last spring. But
many are still struggling to afford replacing their vulnerable
machines. For example, Georgia voted in November using the same
machine that I hacked in front of Chairman Quigley, but it
received only a tiny fraction of the cost to replace them.
Forty-three States use machines that are no longer
manufactured, and 12 States use paperless machines, which are
impossible to secure. This puts the entire Nation at risk.
States and local governments need further Federal
assistance before attackers strike again. The highest priority
should be to eliminate paperless voting and deploy hand-marked
paper ballots, optical scanners, and assistive devices for the
disabled. If provided under the Help America Vote Act, about
$900 million is needed to ensure that all States receive at
least half the necessary funds.
States need this money now, even before stronger equipment
standards are in place. But Congress can at least prohibit
purchasing new machines that lack a robustly auditable paper
ballot.
With your leadership, elections in 2020 and beyond can be
well-secured, and voters will have good reason for confidence.
But if we delay, I fear it is only a matter of time until an
election is disrupted or stolen in a cyber attack.
Thank you, and I look forward to your questions.
Mr. Quigley. Thank you.
Mr. Sandvoss.
Mr. Sandvoss. Good morning. My name is Steve Sandvoss and I
am the executive director of the Illinois State Board of
Elections. I would like to thank Chairman Quigley, Ranking
Member Graves, and the distinguished members of the committee
for giving me this opportunity to speak to you.
As noted by Chairman Quigley and my colleague Dr.
Halderman, in June of 2016 the Illinois State Board of
Elections was a victim of a cyber attack, during which hackers
gained unauthorized access into the voter registration database
maintained by the State Board of Elections. In response to this
attack, measures were immediately undertaken to eliminate the
vulnerability, assess the damage, alert the victims, and beef
up our own cyber defenses.
Following this, the State Board of Elections undertook an
unprecedented effort to secure its voter registration database
as well as other IT-related applications. These efforts were
assisted by the $380 million grant to the States by the EAC, of
which Illinois received $13.2 million. Legislation was then
passed in Illinois requiring the State to create a Cyber
Navigator program.
The Cyber Navigator program is a program that is required
for the jurisdictions to participate in if they are to receive
any Federal money. The first part of the program is the
Illinois Sentry network, which is a State-managed network
delivering network services to government agencies in Illinois.
The goal of the network is to provide the election
authorities with a cleaner and safer internet, and isolating
this network to one under the complete control of the SBE and
the Department of Innovation and Technology ensures that voter
registration data and election authority management operations
never actually flow over the internet. Additionally, this gives
us the ability to provide additional security measures and
monitoring.
The second part is the Cybersecurity Information-Sharing
Program, which in the SBE is overseeing partnership with the
statewide Terrorism and Intelligence Center. The program
involves the research and gathering of information related to
cyber attacks and cyber resiliency, and sharing that
information with both Federal and State stakeholders. Our goal
is to consolidate numerous information sources and, with
feedback from the election authorities, distill it into the
most valuable, actionable information possible.
The third element is Cyber Navigators themselves. Nine
Cyber Navigators are currently on contract to assist the
election authorities by performing onsite risk assessments and
providing resources to ensure election security for 2020 and
beyond.
The Navigators will be offering additional services such as
phishing assessments, penetration testing, and educational
trainings. They will also be performing additional risk
assessments on physical security and best practices in securing
voting equipment.
In addition to the Cyber Navigator program, the State Board
of Elections worked in partnership with the Illinois National
Guard cybersecurity team to provide cyber protection for both
the State Board of Elections and the election authorities
during the 2018 general election. Members of the Guard were
stationed in all regions of the State, at the SBE office, at
the statewide Terrorism Information Center, and at their own
bases to be ready in the event of a cyber attack.
Looking to the future, the State Board believes it is
necessary to maintain this program indefinitely and to expand
it to address the continuing needs of the election authorities.
And in addition, as Dr. Halderman noted, the systems, the
voting systems in the State, are ancient. They are outdated,
need to be replaced. And that would, of course, entail funds to
do so. Those are the immediate goals of the State Board of
Elections and the election community in Illinois. I thank you
for your time in allowing me to speak before you, and I will be
happy to answer any questions you may have. Thank you.
Mr. Quigley. Thank you all.
Let me ask you, as succinctly as you can, we have to
prioritize. Mr. Graves is fond of--and he is accurate in saying
we do not have unlimited resources here. But we want to
prioritize the needs that are out there to protect our election
security.
So I understand we are talking about training. We are
talking about new equipment. We are talking about software.
What exactly, if you could divide your time, do the States
need? And if you could prioritize that to the extent possible,
beginning with you, Mr. Sandvoss.
Mr. Sandvoss. Certainly. I think if you were to ask the
folks in Illinois who actually run the elections, I think they
would all say that replacing the voting equipment is probably
their number one concern and their most immediate need.
Unfortunately, they all recognize that with the current budget
situation, that money is probably not going to be forthcoming
any time soon.
Mr. Quigley. What is it going to cost? We could extrapolate
out for States with equal, different populations. If you are
going to replace all the equipment that needs it in Illinois,
what would it cost?
Mr. Sandvoss. I have been told roughly $175 million.
Mr. Quigley. Okay.
Mr. Bishop. Million or billion?
Mr. Sandvoss. Million. [Laughter.]
Mr. Quigley. Yes. Thank you for that.
Mr. Sandvoss. Machines are expensive. They are not that
expensive.
But the other immediate need, and I think this is more from
our standpoint, is cybersecurity. And I think with the Cyber
Navigator program, we are going in the right direction with it.
The tough part right now is getting all the election
authorities to understand the threat, and I think most of them
do. But again, it is a work in progress.
But once we get them all participating in the program, then
the next step is assessing their vulnerabilities, which is
again a project of the Cyber Navigators, which they are doing
as we speak. But once they come up with their assessments, my
suspicion is that most of the jurisdictions in the State are
going to need extensive improvements to their cyber posture,
and that is going to cost money.
Mr. Quigley. And the training that goes with it.
Mr. Sandvoss. That is correct. Yes.
Mr. Quigley. Okay. Let me move on.
Dr. Halderman.
Mr. Halderman. Thank you. I think the most important
priority is to make sure we have paper ballots and strong
audits in all States. But the biggest impediment to that is
States that still have aging equipment, either that does not
have paper ballots at all or that is very difficult to audit
because of the way it is designed.
Mr. Quigley. And is there a problem with the older
equipment not being able to handle anti-hacking software?
Mr. Halderman. Older equipment in general does not benefit
from the last decade or two of security improvements. Things
have gotten better in security in general. But we still do not
know how to make a machine that is absolutely hack-proof. That
is why we need this other layer of defense that comes from
having a paper trail, paper ballots, and going back and spot-
checking them to make sure the result is right.
Mr. Quigley. Now, you talk about hacking an individual
voting machine. Now, there is a distinction Mr. Sandvoss and
the State has talked to me about, and that is there are States
that electronically communicate results. The machines are
connected to the internet. And I do not believe that is true in
Illinois. Is that correct?
Mr. Sandvoss. The machines themselves are not connected to
the internet, no.
Mr. Quigley. But there are States that have that. Correct?
Mr. Halderman. There are States that transmit results back
over wireless links or over cellular modems that can go over
the internet. But the bigger vulnerability, as I see it, is
what happens before each election, when the machines have to be
programmed with the ballot design from a centralized system.
Mr. Quigley. I see. Okay. Let me move on, if I could.
Mr. Rosenbach. Yes, sir. You said to prioritize. If you are
going to prioritize, there is no way all of the technology
catches up by 2020, which means, from my perspective, you have
to focus on training and exercising to do holistic risk
mitigation.
So up at the Kennedy School, we have had State election
officials several times come for Army-style training exercises
in which we put them through an attack, have them respond, try
to figure out how they can mitigate risk, and do all of those
things.
Mr. Quigley. How does this work? Putting this into
perspective, there are, I have been told, 10,000 entities that
are involved in a Federal election.
Mr. Rosenbach. Yes.
Mr. Quigley. Do we have the capabilities--as you say, the
military-type training--to have those folks train all the way
down the line?
Mr. Rosenbach. Sir, it is a big challenge, but not as big a
challenge as trying to completely replace technical
infrastructure. And so you train the trainer. We have a
training manual. We bring in people from States. They go back
to the State. They run the exercise, train people how to do the
exercise.
It is not perfect. It is certainly not the silver bullet.
But we are just trying to do something that can have the most
immediate impact on trying to mitigate the threat which,
remember, also is about info ops. There is a lot----
Mr. Quigley. Sure.
Mr. Rosenbach. Yes, sir.
Mr. Quigley. And I do want to--and we will be equally fair
with the ranking member in time. But what concerns me is that
we sometimes forget that operating elections smoothly does not
just involve the hostile actors. The fact is, we had recounts
in States this time out that were not allowed to finish because
the election equipment was broken.
Mr. Rosenbach. Yes sir.
Mr. Quigley. The whole democratic process, even if you do
not have the problem of hostile actors, often hinges in trying
to find out who really won an election with how old this
equipment is.
Mr. Rosenbach. Sir, totally correct.
Mr. Quigley. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Let's get back to the topic here. I think we all have
concerns about election outcomes and results. And even outside
of elections, I think we all have concerns about cyber
vulnerabilities. There is no question about that, Mr. Chairman.
Mr. Rosenbach, are you aware of any impact or change of an
election result from the 2016 or 2018 elections as a result of
any kind of cyber attack?
Mr. Rosenbach. No, sir.
Mr. Graves. And so as we have this conversation, let's all
know that there has been no altering of an election outcome.
There is no evidence of that. Mr. Chairman, I know you are part
of another committee that has gone into great detail and depth
on this topic.
But I think the broader conversation is: Do we as a
committee step in and provide States Federal money and tell
States how to spend their money? Or do we provide them guidance
and good counsel and training? I think that is where we are.
We are at the end of an authorization period where it was
just about $4 billion was authorized 10 years ago. We just
provided the $380 million in funding to the States. To the
question about Illinois and their election systems and the
cost, you are spot on, $175 million, because in fact, yesterday
Georgia just passed a budget that included $150 million of
State dollars to change out and upgrade elections equipment. So
States can do it, Mr. Chairman, and I am proud that Mr. Bishop
and I come from a State that is willing to step up and do that.
But as we look ahead, the question I have for everybody
here is: What is the role of the Federal Government in this?
Are we to spend another $4 billion to get 10 years down the
road to find out that we modernized things that we want to
unmodernize again? That is where we are.
It is funny to hear this conversation. We want to go back
to the way things used to be because we spent a lot of money to
get things in a spot to address where we think there might be a
problem, but there have been no problems. So I will leave it
with each of you on that, and we can just start down the table.
I appreciate your three-prong approach there on addressing
some of those problems.
Mr. Rosenbach. Yes, sir. Thank you. So the first point is--
and the role of the government, like I mentioned--is to defend
the Nation. That is why it is not fair to State and local
election officials that they are there just taking the punches
from the Russian Intelligence Service and the GRU. That means
CYBERCOM needs to do something more proactive, as I believe
they have been. We did not do that during the Obama
administration. That was a mistake.
Second of all, I do think it is important for there to be
Federal funding for the States because this is a nation-state
actor. The States are not designed to have cybersecurity to
defend against that threat. It seems fair, with that in mind,
that you give them extra support for cybersecurity-type
defenses.
Sir, I agree with you that----
Mr. Graves. For new equipment or just for assistance in
training, protection, defense, those kinds of things?
Mr. Rosenbach. Honestly, I would leave that to the States.
You are right. It should be the States. Let them decide. There
can be a general framework, but the States should decide what
they need most. But they do need a little help for defending
themselves.
Mr. Graves. As does the rest of the country. All entities
need that same cyber protection.
Mr. Rosenbach. Yes, sir. Yes. That is right. Exactly. And
then just the last point is that--I will leave it there. I do
not want to use up too much time.
Mr. Halderman. The role of government in elections, I
think, is one of providing for the common defense. The problem
we have here is that from an attacker's perspective, they do
not necessarily care what State they are going to strike in so
long as it is one that is going to be able to cause a
difference in a national election outcome, or undermine
confidence in a national outcome.
And therefore, until we bring up the most weakly-protected
States to an adequate level of security, the whole Nation is
going to be at risk.
Mr. Graves. What is the weakest State, in your mind?
Because right now we have heard there is no evidence of an
election result being changed or altered as a result of outside
influences of a cyber attack.
Mr. Halderman. We have been very lucky that our adversaries
have not pulled the trigger. And I think it is excellent that
Georgia is making progress towards replacing its systems.
Georgia has in the past been among the most vulnerable States.
But there are still about 11 States that do not have an
auditable, robust paper trail in place so that if something
happens to the machines, we can go back and check. And I think
that is the most persistent vulnerability.
Mr. Graves. That is preventing them from changing to a new
system. So maybe it is that Congress should require some sort
of auditing. And I think this goes back to your point--you had
three points--that some sort of system that shows that there is
an audit trail or a way to account for election results. Is
that what you are suggesting?
Mr. Halderman. Congressman, I think it would be excellent
if we had a uniform national policy that elections should be
rigorously audited. But I think that having an unfunded mandate
that States purchase perhaps hundreds of millions of dollars in
new equipment in order to comply with that is going to create
problems for many States that are struggling to find the money.
Mr. Quigley. Mr. Cartwright.
Mr. Graves. The gentleman from Illinois might want to----
Mr. Sandvoss. Okay. I will be brief. I just wanted to echo
Mr. Rosenbach's thoughts on the role of the Federal Government
in defending against these types of attacks. When I was on ``60
Minutes,'' I was asked whether I thought it was a fair fight,
Illinois versus the Russians, and especially an agency as small
as ours. And I said it was basically bows and arrows against
the lightning.
We have a good IT department, and our resources have been
well spent. But the fact is, it is just not enough. And I think
that with adequate funding, we can secure our elections even
more. And I think it is vital that we do so. And letting the
States be the primary driver as to where that money goes, I
think, is the most prudent approach. Thank you.
Mr. Graves. Can I just have one quick follow-up? I know we
are talking about elections, and I know you are specifically
talking about voter registration files. That is something we
should all be concerned about. But is the State of Illinois
under cyber threats in any other aspect, any other citizen
information that might be at risk? Any tax information? I know
we are talking about voter information. But it should be a
broader context. Right? And I do not hear that the State is
asking for federal assistance to protect all the other files as
well.
Mr. Sandvoss. We are not aware of any specific systems that
are currently under attack. I think it is more the unknown is
what we are afraid of. We were not expecting a penetration into
our voter database, and hopefully it will not happen again. But
you are right. There are other systems out there that could
very well be vulnerable. And I think it is our job to see that
those are secured as well.
Mr. Quigley. The gentleman is not suggesting that if they
had hacked into the Medicaid files for the State of Illinois
and done it in dozens of States that the States would not be
asking for help from the feds.
Mr. Graves. You never know.
Mr. Quigley. Well, again, just appreciate the level of
sophistication of some at the State and local level in
protecting these vital lists. This is not just elections. I do
think it is a new world, with nation-state attackers attacking
the local levels. But I appreciate that.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. And thank you to
our witnesses for appearing today.
Dr. Halderman, I come from Pennsylvania, where to this day
83 percent of voters are using the paperless direct recording
electronic voting systems, or DREs, direct recording electronic
voting systems. These machines have been called a clear and
present danger by the blue ribbon commission on Pennsylvania's
election security, as well as other experts in the field.
Now, as you noted in your testimony, this is a matter of
the highest priority, these unauditable election machines. You
said there is a plan to move to paper ballots, but that the
costs have slowed the process. I looked at some of your
research, and I found, dating back even to 2011, you found
similar types of paperless voting machines used in India as
particularly vulnerable to hacking. And as you have said, you
have actually come here and demonstrated personally how to hack
these machines.
Here is my question. In lay terms, can you walk us through,
first, what is it that makes DREs particularly vulnerable? And
then secondly, what are the steps somebody or a State actor
would follow if they were intent on manipulating election
results calculated by DREs, and how easy or difficult this
might be to achieve?
Mr. Halderman. I would be happy to, Congressman Cartwright.
And I myself grew up in Pennsylvania, so----
Mr. Cartwright. I knew I liked you despite the Michigan
pedigree.
Mr. Halderman [continuing]. All right. So DREs are
particularly vulnerable because, well, like other kinds of
voting machines, they are computers. And so they are based on
software and hardware that could potentially be compromised in
many different ways.
They are actually much more complex computers than they
look like. You would think they are just a simple touch screen,
but it could be a million lines of computer software that is
powering those machines in the back office systems.
I have studied DREs, including DREs used in Pennsylvania,
since 2006. And for every machine that I have looked at, there
have been ways that an attacker could craft malicious software,
spread it into the machines, and use that to subvert all of the
digital records of the vote the machine stores.
And with a DRE, the entire record, or at least the primary
record of the ballot, is simply a file in a computer's memory.
So if an attacker can tamper with the software, they can change
that file. They can change all the records of the vote and make
the machine produce whatever totals the attacker wants.
And it is not just attacking a single machine in isolation.
Before every election, the DREs have to be programmed with the
ballot design, the rules for counting, et cetera. And that is
produced on a back office system somewhere by the election
vendor or by the county or the State.
If an attacker can hack into those back office systems,
they can spread malicious software to all the DREs programmed
from them. And in the most concentrated, centralized case,
there is one vendor that programs DREs in 2,000 jurisdictions
across 34 States from a central facility.
So that is the risk, that an attacker can get into these
systems, compromise voting machines on a massive scale, and
just disrupt elections or even change results potentially on a
wide enough scale to affect a national result.
Mr. Cartwright. Staying with the paper trail issue for the
moment, do you think that all voting machines having a
verifiable paper trail is enough of a solution to the scenario
you just described? Or is there more than Congress, States, or
local election officials could or should be doing right now to
make sure this never happens?
Mr. Halderman. Well, briefly, it is not enough just to have
a paper trail. We also need to make sure that voters are
checking that paper trail to make sure that it is right and
that election officials are auditing that paper trail to a high
enough level of confidence that we know the election outcome
produced by the computers is not fraudulent.
Mr. Cartwright. If you were advising the State of
Pennsylvania on what to do today to make our election process
more secure, where are the top three things you would recommend
be done immediately to ensure the confidence in our elections?
Mr. Halderman. I would recommend that Pennsylvania, as soon
as possible, replace its out-of-date and paperless machines
with paper ballots and optical scanners, and that Pennsylvania
implement what are called risk limiting audits, which are
random sample-based tests at the end of the election, where
officials look at enough of the ballots to know that the
computer results are right.
Then further improvements to cybersecurity best practices
in the form of things like training, better testing of
equipment, et cetera, would go the rest of the way to ensuring
that elections cannot be sabotaged and results cannot be
disrupted or changed.
Mr. Cartwright. Thank you, sir. I yield back.
Mr. Quigley. Thank you.
Mr. Stewart.
Mr. Stewart. Thank you, Chairman, and to the witnesses. It
has been very informative so far. And I am going to hit on some
things really quickly and kind of go down the line here, if
include.
Mr. Sandvoss, I want to start with you. And this is a
tiny--well, not a tiny thing, but it is a small thing. But
sometimes I think we hear things in here that perhaps witnesses
say, ``Well, I did not say that exactly the way I meant,''
because there is a written record. I want to ask you, and I
think you might clarify.
You said you are not aware of other systems under attack.
We know that they are and you surely know they are. I just want
to give you a chance to say, yes, it is not just the electoral
process or systems under attack. Virtually everything is under
attack by some type of cyber warfare.
Would you agree with that?
Mr. Sandvoss. Yes, I would. And I did not mean to suggest
that all the systems are secured and impregnable.
Mr. Stewart. And I knew you did not. That is why I wanted
to give you a chance to add some clarity to that part of our
conversation.
I was in Moscow in 2016 just before the election. I came
home and I said, ``They are going to mess with our elections.''
I did dozens of interviews. No one really cared. They genuinely
did not care. But I was often asked, ``Well, what are they
trying to do? Do they favor one candidate? Do they want''--and
I said, ``What they want to do is break down our faith in
institutions. They want to break down our faith in democracy.''
And there is no more greater catastrophe that we could
endure than if people actually believed, for legitimate
reasons, that an election, a national election, had been stolen
and that it had been in some way altered by some foreign
entity.
And whoever put this together at FSB or what other
intelligence organization in Russia to do surely got a
promotion out of this because I think it exceeded their wildest
expectations. I do not think they thought that we would be
talking about this three years later and on.
Mr. Quigley and I both sit on the House Permanent Select
Community on Intelligence. We looked at this deeply. We had,
about a year ago, a list of recommendations that I have 22 of
them here that I am going to refer to in just a moment. The
deal with this is something that I think all of us take
seriously. So I want to again go very quickly. And for clarity,
I want to hit this and allow all of you to have a chance to
answer because Mr. Rosenbach, have, but others have not.
I want us to assure the American people of this one thing.
This is an enormous problem. We have to be aggressive in
dealing with it. But I also want them to understand, because
some of them do not, that we do not have evidence of them
altering the outcome of any election. And I want you to say yes
or no, you agree with that.
Mr. Rosenbach, you already have. You said you agree with
that. Mr. Halderman?
Mr. Halderman. Yes. I agree with that.
Mr. Stewart. Okay. And Mr. Sandvoss?
Mr. Sandvoss. I also agree with that, yes.
Mr. Stewart. Okay. Thank you. It is just for clarity.
One other thing that I think is important for people to
recognize, this is not new. This did not just start in 2016 or
2018. We have examples of, for example, Russia interfering with
a Ukranian election where they actually had a news release
predicting the outcome because they manipulated the numbers,
and then they were able to stop it.
And I think it is again important for us to see this is not
something that was just created. In fact, in the fall of the
Berlin Wall, Russian people looked at us as, these Americans
could be our friends, but I do not think Russian leaders did. I
think they always kept the hybrid warfare and all of the
options on the table, and they were active in that.
So now coming to the point, if I could, I think, Mr.
Halderman, you are the one who has been making it. So I was
fascinated with your conversation about your ability to
demonstrate hacking of a system, and did so apparently pretty
easy. If it is that easy, A, why have they not done it? And the
second question is, how can we dissuade them?
Because that is something I have been advocating for for a
long time, not just in the electoral process, but just
dissuading these cyber attacks with more aggressive
repercussions from it. Thoughts on that?
Mr. Halderman. I do not want to give the misimpression that
it is something so easy that anyone could do. But I do think
that manipulating election results at scale is something that
is well within the reach of sophisticated nation-states like
Russia.
Why have they not done it yet? I think they have not done
it yet because they have not seen it as in their interest yet
to cause a disruption that severe to our electoral process. And
that is what scares me, that it is not the technology that is
preventing them or deterring them from causing wider-scale
manipulation. It is that there are limits to their interest.
Mr. Stewart. A political calculation?
Mr. Halderman. I believe so.
Mr. Stewart. So if there are those of us who have been
advocating for a long time that we should have greater
repercussions for some of their cyber intrusions--again, Mr.
Rosenbach, I think you had suggested this in your opening
statement--what would you suggest that might be? And do you
think it would be effective?
Mr. Rosenbach. Yes, sir. I think we are on a path to doing
that with taking more assertive actions, as reported in the
Washington Post yesterday, that CYBERCOM cut off internet
access for the organization that was responsible for this. I
think there needs to be clear attribution, and people at the
most senior levels of government need to say that this type of
activity has happened, that there will be repercussions and
sanctions, military action, and other things.
The one thing that I think is different is the manipulation
of social media is something on a scale and a depth that would
not be able to take place before because of the technology. And
the technology changing has made their ability to influence
much different than it was in the past.
Mr. Stewart. Well, thank you. And to the chairman, I wish I
had another hour, but that would be unkind of me. But it is an
important conversation.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much. And thank you so very much
for all of the work that you do.
I have read all of your testimony, and I am very impressed
with the work that you have done and the questions that my
colleagues have already asked.
I would like to talk about, or ask you to talk about, not
just the voting machines, which I think that you have
adequately discussed that, but the relationship between the
voter registration systems and voting on Election Day so that
the vulnerabilities of poll workers and polling places to
verify that voters are actually registered or not registered,
or registered at a particular precinct or not registered,
which, if certain demographic groups are eliminated or are
wiped from the record, would be prevented from voting when they
appear, and particularly if they are voters who have to rush
back to work who do not have time to do the added verification
for provisional ballots.
What is the implication in terms of the vulnerabilities of
our voter registration systems? I think in Georgia the
Secretary of State's office has a database with all of the
eligible registered voters and the local counties, county
election boards have access to that through--I am not sure if
it is internet, but there is an election connection there.
I think in Illinois your department, your Illinois State
Board of Elections, has a separate pipeline so that you do not
run your data, election data, through the internet. You have
developed a separate system, which makes it more secure. But
most States do not do that.
So can you talk about how we secure that, and the impact on
national elections? The weakest link in that whole thing could
very well determine the outcome in a close election. Can you
just discuss that, the three of you?
Mr. Sandvoss. I will try to address the importance of the
link between voter registration systems and the actual voting
on Election Day. And I think it is a critical link.
Obviously, maintaining an accurate list of the registered
voters is paramount to an efficient, well-run election. I think
where the problem could occur is if a malicious actor were to
mess with the database, whether it is wiping it out or
manipulating it. It could cause catastrophic problems on
Election Day.
Mr. Bishop. So, I mean, the research that you have done,
does it indicate that there are vulnerabilities for doing just
that?
Mr. Sandvoss. Well, our system is an example of a
vulnerability. Now, what the difference is, in Illinois we have
a bottom-up system so that the voters are registered through
the local election officials and then their information is
transmitted up into our database. So theoretically they could
wipe out our database, but elections would still go on because
it is all done at the local level.
If there was an intrusion into the local database, that is
where you would have a problem. And I think this is where the
vulnerability is more acute in Illinois because the defenses
that the local election officials have--in some cases--very
little defense; others, maybe larger counties, have perhaps a
stronger defense--but I think there is where the vulnerability
is.
Now, in Illinois you have same-day registration and you
have provisional voting so that, again hypothetically, if a
county's system was compromised, people would still be able to
vote because----
Mr. Bishop. Let me ask Mr. Halderman if he could--you have
done some looking at the Georgia system in terms of voter
registration, how it relates. What is your observation there?
Mr. Halderman. Yes. Well, Georgia is, I think, a good
example. Potential vulnerabilities shortly before the November
election. There were a number of problems detected with the
Georgia online voter registration system including a simple
attack whereby attackers could potentially manipulate voters'
data.
I think the key to securing voter registration is
monitoring to make sure that attackers are not penetrating the
database coupled with resilience, having mechanisms in place,
especially at the polls, to make sure that if something goes
wrong with the database or the e-poll books, that the election
can continue, including having things like early voting take
some pressure off of Election Day systems and could add to that
resilience.
Mr. Bishop. Again, thank you. My time is just about
expired. I thank you.
Mr. Quigley. Thank you.
Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
Out of the $380 million of the Help America Vote Act grants
that were allocated in 2018, about one-third of the funds would
be spent on cybersecurity, one-third would be spent on new
voting equipment, and about one-third was supposed to be spent
on voter registration systems and other State-specifies
activities.
Mr. Sandvoss, when it comes to purchasing new voting
equipment and improving cybersecurity, how long would you say
it takes to fully implement these measures?
Mr. Sandvoss. Well, in Illinois we have a process where
voting system vendors seek approval from the State Board of
Elections to allow their machines to be in use in Illinois. And
we put them through a rigorous test. They also have to go
through Federal testing as well.
Our testing probably takes--depending on the size of the
election that is being tested, it could take a couple weeks. It
could take over a month. My understanding is some of the
problems happened with the vote testing at the Federal level,
where there were some delays. It took a long time for voting
machines to get the Federal approval necessary to even come to
the State.
It is hard to put an actual beginning and end point to
implementing these systems, I guess, or these qualifications
for the voting systems to actually be in use. Right now we are
still waiting for the Voluntary Voting System Guidelines to be
promulgated by the EAC; once that is done, then voting machine
manufacturers need to test their systems to those standards.
It is going to take a long time, and I cannot guarantee
that it would be done by 2020.
Mr. Joyce. Thank you. It is my understanding that each
State has until 2023, and it will take most States at least 2
to 3 years to use the majority of these funds. I also
understand the first progress report was due to the Election
Assistance Commission only two months ago.
Mr. Chairman, it would seem to me that it would be more
effective to see the financial and progress reports to
determine the effectiveness of each State's approach before
moving forward in allocating additional funds.
Mr. Quigley. I appreciate your thoughts on that. If you
want me to interject or ask questions related to that, that is
certainly up to you. It is your time.
Mr. Joyce. Well, I was just making that point of order.
Mr. Quigley. No. I appreciate that. And if I might, and
certainly giving you the time that you need. So the EAC is
slowing the States down?
Mr. Sandvoss. Well, it was just recently that the two new
appointees were confirmed, and now the EAC has a quorum. So
there was some delay, at least in getting the voting system
standards out.
Mr. Quigley. But your belief, and operating in these
programs on a daily basis, is that training, equipment,
software, and so forth is effective, and it protects your
system. The fact that it may take longer than it should does
not deter your interest?
Mr. Sandvoss. Oh, not at all.
Mr. Joyce. I reclaim my time, Mr. Chairman. With all due
respect, in 2018 Ohio used Help America Vote Act grant funds to
host regional tabletop exercises for election officials.
Mr. Rosenbach, these exercises were modeled after the
crisis simulation organized by the Defending Digital Democracy
project. Can you provide more information on how these types of
events prepare our election officials for our worst case
scenarios?
Mr. Rosenbach. Yes, sir. Thank you for asking about that.
And thank you for having the Ohio folks there. They did a great
job and are real professionals. That is the project that I lead
up at Harvard.
And what we do is we simulate a Russian cyber attack
against the State and local election infrastructure and help
them rehearse how to prepare for that in terms of risk
mitigation steps technically and otherwise; how to respond to
information attacks in the media and in the press, and via
social media, which is what often would happen with the
Russians.
And the reason we do that is along the lines of what Mr.
Sandvoss said--it can take time to get new technical things in
place, and we may not have that time. So we just want to
rehearse, do like you do in the Army where you exercise to
failure, learn from that, then teach someone else to do it, and
try to have all the election officials in Ohio do something and
learn and get better.
Mr. Joyce. What other proactive steps can local election
officials take to ensure personnel are adequately prepared or
trained for these type of scenarios?
Mr. Rosenbach. Yes. These are surprisingly basic things
when it comes to cybersecurity. So it is making sure that they
use the right type of password, making sure that they use
encryption and two-factor authentication, that they have a plan
for what to do if a hack occurs in terms of being resilient.
As many of you said, this is all about trust. And even if
the bad guys attack us and we do go down, if we are able to
demonstrate to the public that we went down and we came back
up, the vote is still viable, you can trust in it, then it also
diminishes the Russians' or the Iranians' desire to try to
attack if they know it is not going to have any impact.
Mr. Joyce. During my time as a county prosecutor, I used to
represent a board of elections. We went to this electronic
system, or the ``egg,'' we called it the egg like an old grade
school test. And you would put it in. We created a back door in
the system so that the coy, in case there was an issue, could
come back into it. Correct?
Mr. Rosenbach. That will happen often. Back doors are not
good cybersecurity practice for encryption or anything else.
Mr. Joyce. Going forward, is there a way to eliminate that
and still allow the system to be operable or have somebody be
able to repair a malfunction without allowing something in?
Mr. Rosenbach. In my experience, there is nothing
electronic that will not have a vulnerability. And that is 20
years working in the intelligence community as a former NSA
person in cyber. But that is why you build in all these other
risk mitigation factors into it and why you do try to update
technology, update software, address vulnerabilities, so that
you make it a lot harder.
Mr. Joyce. And I do not mean to go too far over my time--I
am taking back some of the time that Mr. Chairman had used--but
you really cannot have a back door. You cannot allow the
manufacturer to be able to work on this equipment remotely
without creating an opening for----
Mr. Rosenbach. No, sir. I think back doors are a big
cybersecurity vulnerability. If it were up to me, there would
be no closed proprietary software used on election voting
systems, and we would have a national project in which we
worked on an open source system that would be much cheaper for
the States, much more transparent, and have far fewer
vulnerabilities.
Mr. Joyce. Did HAVA address any of those things?
Mr. Rosenbach. How would it address that?
Mr. Joyce. No. HAVA, or Help America Vote Act.
Mr. Rosenbach. HAVA addresses it right now because it is
replacing and updating old technology which is full of holes
that the bad guys can attack.
Mr. Joyce. But it is true----
Mr. Rosenbach. I do think that is important. But I think we
could find a more----
Mr. Joyce. That problem is--that is 50 separate programs,
though. Correct?
Mr. Rosenbach. Yes, sir. We could find a more innovative
and more cybersecurity-based way to do that that would not be
based on the current vendor-based system right now.
Mr. Joyce. I get it. Thank you, sir. I yield back my time.
Mr. Quigley. No. I understand. And Mr. Joyce raises
interesting points, and important ones. We are just talking
about the States and locals. But the attack that we were
talking about in Illinois was through a vendor. Correct?
Mr. Sandvoss. Actually, the attack in Illinois was not
through a vendor. It was a direct attack into our system using
the online voter registration website portal. It was an SQL
injection.
Mr. Quigley. But there was somebody related to the issue as
it relates to a vendor who had supplied this or something. Is
that--some accurate point? I mean, there has to be--because we
are using vendors toward these points, is that not creating the
vulnerabilities that we may not necessarily be alerted to?
Mr. Sandvoss. That must have been one of the jurisdictions
in Illinois----
Mr. Quigley. Right.
Mr. Sandvoss [continuing]. That involved a vendor, maybe
storing information on the cloud or something to that effect. I
do recall that. But that did not impact our--that was not the
case in the attack on Illinois.
Mr. Quigley. And we are going to get Mrs. Kirkpatrick in a
second. But I will let the other two gentlemen discuss that
issue, if they could.
Mr. Sandvoss. Well, attacks on vendor systems or on
vendors' customers lists, or attacks on vendors' supply chains,
could also compromise equipment used by States throughout the
election process. So the vendors are part of the problem. They
can be part of a solution, too, because somebody does need to
manufacture and service voting equipment. But we need better
standards.
Mr. Rosenbach. I would just say very quickly, the Russians
or other national intel sources regularly try to get in through
vendors to attack the United States Government, Department of
Defense, and would do it in the election system.
Cybersecurity is a cost, a cost center in the private
sector. That means there are not huge incentives for vendors to
devote a lot of investment in the cybersecurity of their
machines and technology unless forced to do so by a contract or
otherwise.
Mr. Quigley. I see.
Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you, Mr. Chairman and Ranking
Member Graves, for having this hearing. I agree with what
Congressman Stewart said, that election security is so
important to our democracy. We have all talked with voters who
believe their vote does not count, and we have seen voter
turnout decrease as a result of that.
In Arizona, we have early voting and we have vote by mail.
And so my question to the panel is: Is that a better system? Is
that a more secure system, voting by mail and having early
voting? And what kind of risks do you see in that system?
Mr. Halderman. Early voting can reduce pressure on Election
Day. That is very positive. It does complicate some of the
technology, but we have ways administratively of dealing with
those complications. One of the most important things is to
make sure that early voting as well is based on a paper ballot
the voter can verify that gets audited after the election.
Vote by mail has pros and cons. On the pro side, it is on a
paper ballot that can, at least in theory, be audited after the
election. On the con side, unfortunately, voters are no longer
voting within the safety of a polling place. And particularly
for the weakest people in society, they could be at risk of
being coerced or having their votes bought or stolen through
the vote by mail process. So there are important tradeoffs
involved.
Mr. Rosenbach. Yes, ma'am. I would just say very quickly, I
am a strong proponent of vote by mail and early voting. What
Dr. Halderman said notwithstanding, if you just look at
participation rates in States like Oregon and Washington State,
they are significantly higher. That is good for democracy. And
there are a lot of people who would not otherwise vote that
will. From a cybersecurity perspective, also clear advantages.
Mr. Sandvoss. I would have to agree with both of my
colleagues on the points that they raised, especially the pros
and cons. I think with mail-in voting, the obvious pro would be
convenience for the voter and perhaps make it easier to do a
random audit, a risk-limiting audit.
On the flip side, we get complaints quite often of people
who get sent applications and then they said they did not
request them, although that is perfectly legal in Illinois. But
it contributes to that general sense of distrust.
It is also possible that without the security of voting in
a polling place, there is no way to ensure that the voter is
voting independently, without coercion. Sometimes a vote by
mail can--or I should say offsite voting--it is a problem in
nursing homes in Illinois, where you get an overzealous
precinct captain who might collect all the ballots and have
improper influence on the way they vote.
So there are negatives, too. But I can certainly see the
positives from an economic standpoint and a convenience
standpoint.
Mrs. Kirkpatrick. Same-day registration is becoming more
and more popular. We do not have it yet in Arizona. But I would
like each of your opinions on same-day registration. Is that a
more secure way to register and vote?
Mr. Sandvoss. I would say that, again, with same-day
registration, it is more like a fail-safe, that if--as Mr.
Bishop had brought up, the point about manipulation of the
voter registration rolls, if such a situation were to occur,
same-day registration would at least allow the person to vote,
which to me is the most important thing, and then you can
straighten out what happened afterwards.
As far as security is concerned, I do not see necessarily,
from a technical standpoint, that being an issue. There may be
an issue, though, related to verifying who the person is. Are
they who they say they are? Because once they cast the ballot,
then that is it. You cannot take it back.
Mrs. Kirkpatrick. Other panelists comments?
Mr. Halderman. Same-day registration can take some of the
pressure off of the polling place operations and the poll books
once again. It can add resilience. It does also require more
technical plumbing to make sure that that process can work. And
it is important that we apply good cybersecurity thinking
there.
But I think the broader point is that election
cybersecurity in general is a problem where we can make a lot
of progress. And things like same-day registration can feed
into improving that.
But I think unlike so many other cyber challenges,
Representative Kirkpatrick, this is a problem where we can
actually solve the problem. It is going to take a little bit of
money, but it is not going to be decades of research. It is not
going to be billions of dollars. We have an opportunity for a
cybersecurity win in election security.
Mrs. Kirkpatrick. Anyone disagree with that?
[No response.]
Mrs. Kirkpatrick. Thank you. I yield back.
Mr. Quigley. Mr. Graves.
Mr. Graves. Mr. Chairman, this is really a great
discussion. I think it is a good opportunity to compliment the
States in navigating a very difficult and challenging process,
and keeping the integrity of the process because there are a
lot of moving parts. I think every State is very, very
different. And there is a lot of--I think we all know from our
own elections--there is a lot of energy in the elections
process from a constituent base and candidate base.
You could probably take this conversation broader, whether
it was the IRS commissioner here or OPM or Treasury, or an SEC
chairman sitting before us. We would probably have a very
similar concern and conversation about what would we do with
the cyber threats out there.
And I think you have brought up something that is
fascinating, probably generally from the gentleman from
Illinois. And that is, what do you do when you are a State that
is being attacked? How do you respond to that? Who do you call?
Who is going to be there to help? And that is the biggest
question to answer, really, quite frankly. How do we provide
that support?
Something I have been a strong advocate for and have
introduced legislation to address, is to allow for active cyber
defense. We are a very passive Nation when it comes to
cybersecurity, meaning we have to be impacted first and then we
can respond.
Mr. Rosenbach, I think you have hinted at that, and the
Federal Government is stepping into that role a little bit. I
think we should enable States to do more of that, and the
private sector as well, whether we are talking the IRS
commissioner or States. Our largest business in our district,
to the smallest business, to the family, who do they call when
they are being impacted or how can they respond? And the answer
is, everybody is vulnerable and left vulnerable.
So Mr. Chairman, as we go forward, I hope we can have a
conversation, you and I and Mr. Stewart and others about how we
can equip Americans and provide tools to be available to not
only States or agencies or the private sector but others, to
actively defend themselves in the cyber realm because this is a
new threat and concern for everybody.
This is a fascinating and great conversation, and I
appreciate all three panelists here.
Mr. Quigley. And I want to give anyone a chance to ask a
second round of questions. And I appreciate that, and I hope
that as a committee we can talk about how HAVA was created. And
Mr. Joyce, you were alluding to that, how this funding works
right now.
The formula allows for consideration of voting age
population. And one of the questions I want to get to is: Is
there a better way to do that based on need or some sort of
competitive analysis on this? And analyzing how well it works,
too, to your point. So I appreciate that, Mr. Ranking Member.
And I guess we go back to the Democrats to a second round
and go to Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
One thing that we have heard multiple times today is this
question: Are you aware of any outcome that was changed in any
American election because of outside interference or hacking or
things like that? And that is a little different from the
question I would ask.
The question I would ask would be: Has any American
election result been changed, whether we are aware of it or
not? And so you think, well, we have been going back and forth
about this lack of audit trails. How do we know? I mean, there
are a lot of close elections that we do not have audit trails
for. Do we know for sure, Mr. Rosenbach?
Mr. Rosenbach. We may not know for sure, but this is, my
gut tells me, working on this stuff for 20 years, watching the
Russians, doing a lot of intel stuff, doing intel oversight,
is: What the Russians did is probably a very small part that we
know of. What we know of is a very small part of what they
actually did.
Any time the Russians have hacked something, including the
Department of Defense, we find one small thing and only later
unravel the greater part. So while we do not know that
definitively, and that is important to say, I do not think we
should solace in that as a fact.
They are very good, they are very aggressive, and they are
probably doing something right now, and may even be in the
infrastructure we have just like they are in the energy grid
and parts of the financial structure as well.
Mr. Cartwright. Well, along those lines, yes, the Russians
are smart and they are aggressive. And they are also really
subtle. So they know if they are going to bollix up one of our
elections in a big way, it is going to cause a big uproar in
this country and really attune everybody that this is an attack
on our national sovereignty by a foreign power.
They are not that dumb. They are going to do subtle things.
What is your take, Dr. Halderman?
Mr. Halderman. I agree with you that they are going to
strike when it is in their interests to strike. And
unfortunately, our technology is not yet there to stop them. I
think 2020 is going to be the bigger prize. It is not
surprising that 2018 was relatively quiet because, as you say,
the attackers do not want to induce an immune response, almost,
that is going to make it harder for them to strike when they
really want to later.
But the unfortunate truth is that although there is no
evidence that votes have been changed through a cyber attack in
this country, there are many places that just are not being
checked because there are not audits in place. There is not a
paper trail in place.
And if you go and ask DHS, for instance, how many voting
machines they brought into a laboratory and did forensics on to
make sure that there was no malicious software inside, I am
pretty sure the answer is going to be zero. So there is a lot
more that we could be doing to look for evidence of an attack.
Mr. Cartwright. Mr. Sandvoss?
Mr. Sandvoss. As far as the question of, has there been an
election that the results have changed and we did not know
about it, obviously we do not have any evidence that here in
Illinois--I am not saying that it is not possible; it certainly
is.
We do have procedures in place to try to prevent that. We
have a pre-election test, a public test, a post-election test.
Our agency selects at random jurisdictions to be tested. The
voting equipment is tested. So there is some assurance that we
could give that the election results are legitimate.
But there are other factors that are beyond our control,
and that is, what at least there is some evidence of is
manipulation through platforms such as social media, which one
could argue the extent that it affects an election. But when
you have fake accounts hitting on hot-button issues that might
influence somebody whether to vote or not, that could have a
subtle effect on an election. And those are harder to defend
against.
And the State Board of Elections cannot order or establish
security procedures by the major social media companies. That
probably would take some sort of Federal legislation.
Mr. Cartwright. Well, I thank you for all of your testimony
today. I yield back, Mr. Chairman.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman. And the point I was
trying to make initially was that we are creating 50 separate
units and we have yet to hear from the last grants that were
issued what the solutions were, or potential solutions. So
before we--I am all for us admitting there is a problem.
But before we advocate for more money, we should certainly
make sure that we are addressing the programs that exist. And
to that extent, in 2016, as I understand, one of the problems
we had was the open lines of communication were lacking between
the Department of Homeland Security and State election
officials.
As a result, they were unprepared to respond to detected
suspicious activity in a timely manner. And I open this up to
all of you. What efforts were made leading into the 2018
election to improve visibility and open lines of communication
to State and local officials?
Mr. Rosenbach. I will just say very briefly I think in 2016
there clearly was a problem of communication between DHS and
the States on this issue. And I have to give credit to the
Department of Homeland Security. In the last several years, it
really has done a good job to double down on that effort, open
lines of communication, pass information, give Secretaries of
State security clearances.
I think all those things are very positive. And it is that
role that the Department of Homeland Security should have that
has gotten much better, too. But I think Mr. Sandvoss can give
a better answer on that part, too.
Mr. Sandvoss. I would say that the Department of Homeland
Security, by its own admission, came up a little short prior to
the 2016 elections with respect to communication. I think since
then--maybe it was a wakeup call; I do not know--but I think
their efforts have certainly improved.
I have been a part of two security briefings that I thought
were worthwhile. They offer all sorts of assistance, free
assistance, to jurisdictions that they need to take advantage
of. I guess if there is one area that we would like perhaps to
see a little more, it would be on-the-ground recovery
assistance in the event of a cyber instance. Have boots on the
ground, so to speak, to respond immediately.
I know there are 50 States that are probably going to be
wanting that kind of assistance, so I could see that being
problematic. But----
Mr. Joyce. In that light, what should the EAC be doing to
prepare for the 2020 election when you are back to a
presidential year and you will have a larger volume of voters?
Mr. Sandvoss. Well, I think one of the things they might
consider doing is kind of what we did in Illinois with our
Cyber Navigator program, have actual Cyber Navigators ready to
go to respond to cyber instances. Have a team assigned to each
State. Just a suggestion.
But I know that we have requested help, and they are very
good at offering assistance. But a lot of times they will
evaluate that, and we are expecting a CERT team to come in, and
they will say, ``Well, it probably could be better handled by
you folks in Illinois,'' as opposed to sending in a Federal
team of Cyber Navigators to address a problem.
And it could be just lack of resources. It could be other
things that I do not know about. I am just--my IT department
tells me that that is probably the one area that they could use
a little more assistance--not that the DHS is not doing a good
job. I think they are, and they have come a long way. But we
all can improve.
Mr. Joyce. I see Dr. Halderman is champing at the bit to
address this, so----
Mr. Halderman. Well, let me just briefly say that I think
DHS has been a big help in providing advice and guidance to
States. They have come a long way since 2016. But I just want
to emphasize that in States that do not yet have equipment with
a paper trail in place, there is no amount of DHS assistance
that is going to bring those States up to a reasonable level of
security. You are just putting lipstick on a pig.
Mr. Joyce. Well, that is a very good point. Then why have
them? Unless we have a secondary trail to audit, why have them?
Mr. Halderman. Why have--excuse me?
Mr. Joyce. Why have a single system? If you do not have a
paper trail, you do not have something to have your check and
balance on, then why would you have a one-source system like
that?
Mr. Halderman. A one-source system? Well, there are States
that have not replaced out-of-date systems that do not have a
paper trail. And there is no good reason today, in 2019, to
have a system that does not use paper ballots.
Mr. Joyce. Well, the optical scanners we use with the old
circle egg thing, at least at the end of the day you have the
machine and you have a paper ballot to match again. I mean, I
do not know why we would invest any money or allow a State to
invest money in a system that just does not work.
You are saying that they have not been upgraded from the
beginning?
Mr. Halderman. That is right. There are States that have
not upgraded those machines from the beginning. Years ago we
did not understand, or at least the broader community around
elections did not have the standards or the data or the
experience to understand how risky it would be to use paperless
voting systems.
But now with nation-state attacks being something you read
about in the newspaper every week, well, we know better than
that. But States need resources. They need to act to replace
that equipment.
Mr. Joyce. Thank you. Go ahead. You were leaning forward.
We will take it. All right.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Mr. Bishop.
Mr. Bishop. Thank you very much. I am still concerned about
a national standard. It seems to me that if every--you got 50
States deciding to use whatever system they deem appropriate.
And if there are some vulnerabilities, as perhaps in Georgia in
2016 or 2018, where there was some indication from Homeland
Security and FBI that our systems were being targeted.
But the elections officials rejected the scrutiny so that
we really do not know if it occurred. And the help from a
robust backup system from the Federal Government was rebuffed,
so we really do not know.
Do you not think that we need to have a national system
that is standardized in spite of the fact there might be some
concerns about overreach so that, for example, if every State
had a system similar to what Illinois has employed--and as I
understand it, you are not completely--you have not done that
with all of your election authorities.
You really experimented with it. You have done only
partial, what, a third, maybe half of them?
Mr. Sandvoss. Actually, currently we have 94 out of our 108
are participating in the program.
Mr. Bishop. Which means that would--and let me ask all
three of you. If every State had a system similar to the one
implemented in Illinois, would that make for a more secure--a
better outcome for our Nation as a whole, particularly with our
national elections?
Mr. Halderman. If every State had a system that had hand-
marked paper ballots, optical scanners, and manual risk-
limiting audits, we would be quite well-protected. And I think
voters could have confidence that any attack on the voting and
tabulation process would be detected and correctable.
I think we do need stronger minimum standards for election
technology and election auditing, just to make sure that we can
bring up the States that are most weakly protected to a
reasonable level. But at the same time we have to acknowledge
and bear in mind that there are important differences between
States and that being overly prescriptive just is not going to
work.
But that core outline of a recipe, having paper ballots and
having audits to a high level of confidence, is something that
every State can do. And making sure that States have the
resources to do it is the new challenge.
Mr. Bishop. Do you think Congress should mandate those
minimum standards?
Mr. Halderman. I do. I think it is important to make sure
that the most weakly protected States are not going to cause a
risk for the entire Nation.
Mr. Bishop. Mr. Rosenbach.
Mr. Rosenbach. Yes, sir. I, in my experience, have found it
very difficult for Congress to mandate certain types of minimum
standards. I think in general in cybersecurity, those standards
tend to change pretty quickly, and it will be more often
effective if you have a risk framework that they should follow
that may be tied to funding so that they move forward that way.
Mr. Bishop. Is a risk framework still the minimum standard?
Mr. Rosenbach. I think that is a very basic place--yes,
that is a very basic place to start. That, I think, would be
appropriate. In terms of the specific system, and maybe I am
misunderstanding you, that could be more difficult because, as
you know, in the history of the--it is very hard for the
government to pick winners.
What I think would be a different approach is that we have
a national project to develop an open source software platform
that is transparent and results in a paper-based audit that is
not based on profit. I am all for people making money, but----
Mr. Bishop. Could we mandate that?
Mr. Rosenbach. I think you could mandate the development of
something like that. You probably could mandate, and then it
would be to the States to figure out how to implement and how
to use as it should be. It should be State-led.
Mr. Bishop. Mr. Sandvoss.
Mr. Sandvoss. Could Congress mandate it? Absolutely. As
director of the election board in Illinois, I am always a
little leery of Federal mandates, especially when they do not
come with Federal funds.
Mr. Bishop. And they are not funded.
Mr. Sandvoss. Exactly, yes.
Mr. Bishop. Because we are in a position to provide the
funds.
Mr. Sandvoss. And believe me, that is one of the reasons I
am here, is to----
[Laughter.]
Mr. Sandvoss [continuing]. To request that. But----
Mr. Bishop. That is what we are supposed to be doing.
Mr. Sandvoss. I agree.
Mr. Bishop. But we want to make sure that the funds that we
provide will be effectively used to get the desired results.
Mr. Sandvoss. Yes. And I think the verdict is still out on
that. I strongly believe that our Cyber Navigator program, if
funded, is going to be successful. I guess we will know better
after the 2020 elections. I am crossing my fingers that we do
not suffer any incidents.
Mr. Halderman. If I may just say, in the absence of
stronger Federal standards, if there are more funds provided, I
think it is really important to make sure that they are not
wasted. And I note that many States do not have any rules that
say counties and localities cannot turn around and use those
Federal dollars to buy more obsolete and vulnerable machines.
That would just be a setback. So absence of greater
standards. Just saying, you have got to have a paper ballot.
Mr. Bishop. So you have got to have standards.
Mr. Graves. Mr. Bishop could you yield just for a moment?
Just for a follow-up?
Mr. Bishop. I will yield, yes.
Mr. Graves. Thank you. My understanding is the Election
Assistance Commission has guidelines. Would you consider those
the types of mandates or guidelines that the gentleman is
requesting? And if so, I understand they are behind a little
bit and the money is available. How do you match up with
guidelines that have not been developed yet? And maybe that
will address what he is asking.
Mr. Bishop. Reclaiming my time, also, are those guidelines
adequate?
Mr. Halderman. Yes. So the EAC does create, under HAVA,
what are known as the Voluntary Voting Systems Guidelines. And
those are in the process of being updated and modernized. They
have not yet been updated and modernized, unfortunately.
In any case, they are voluntary on the States and
relatively weak in their scope. They will not cover processes
like post-election audits that are a critical component of
running a holistically secured election system.
So we need to do more to develop those standards. But in
the meantime, just the high-level bullet in any kind of
standard is going to be: You have got to have a paper ballot
that we can go back and audit.
Mr. Quigley. Let's move on. Thank you, sir.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman. And thank you,
witnesses, for being here today.
As a Floridian and a former governor, I know a little bit
about contested elections. [Laughter.]
In fact, as governor, I made sure that all ballots did in
fact have a paper trail so that we had something to verify
against what we are being told by the electronic machines. I
applaud and support any and all efforts to shore up our
election security, especially through Help America Vote grants.
And Mr. Sandvoss, I would inquire.
My home State of Florida was awarded $19 million in
election security grants. The State then added an additional
mandate that any funds unspent by supervisors of elections at
the end of the 2018 cycle were to be returned to the Florida
Department of State. Basically use it or lose it, if you will.
Do you know of any other States that made such an addendum?
And would you recommend it?
Mr. Sandvoss. I am not aware of any other States that have
made that. And no, I would not recommend that. In Illinois, for
instance, the grant is over a five-year period. And to force
the State through its local officials to spend it quickly as
opposed to wisely, I think, would be the wrong way to go.
We are going to spend probably about $1.2 million of our
grant. But again, we want to keep our Cyber Navigator program
running. And we need funds also to be available; depending on
what they discover through their audits and their assessments,
that takes time. So that would be my opinion on that.
Mr. Crist. Thank you. Can you think of a reason why a State
would add on such a mandate?
Mr. Sandvoss. Offhand, I cannot.
Mr. Crist. Neither can I.
To any of you, what do you think is the greatest security
threat to the 2020 election cycle?
Mr. Rosenbach. I will start, sir. I think the cyber aspect
is very important. But honestly, I am more concerned about a
disinformation campaign via the social media platforms that
undermines trust and confidence in the elections when maybe
there has not even been a successful cyber attack.
And that is where there still is a huge vulnerability. The
social media companies have very grudgingly made very little
progress on addressing threats to their platforms. And just the
idea that the Russian GRU could spread ``disinfo'' about a hack
in State that had not even occurred, a polling place being
closed--those type of things could lead to distrust in our
country that could be, I think, very undermining of trust.
Mr. Crist. So inappropriate propaganda?
Mr. Rosenbach. Yes, sir. All kinds of propaganda--highly
targeted, just like they started to do in the past, continued
to do, and certainly will do.
Mr. Halderman. I agree with Mr. Rosenbach that social media
and disinformation is a big worry. And it is a worry that is
compounded because the social media companies have yet to make
much of their data available to researchers on the outside who
are trying to study cybersecurity and make things stronger.
But again, what keeps me up at night is not the things that
we are going to see, like attacks in social media, but the
things that might happen that we probably will not see if they
happen, which could include attacks that tamper with election
results.
It is one thing for voters to lose confidence because
people are telling them lies. But in fact we cannot tell voters
that we are confident that no votes will be changed in future
elections until we have the election infrastructure secured to
a level where it has resilience and auditability.
Mr. Crist. What is required to do that?
Mr. Halderman. New equipment that is going to be using
hand-marked paper ballots and optical scanning, and rigorous
post-election audits implemented by the States. We are starting
to make some progress there, but there is a long way to do.
Mr. Crist. Thank you.
Mr. Sandvoss. And I would just have to say that I agree
with both of my colleagues as to the threat that was outlined.
Misinformation is out there, and I think it does have a
negative effect on voter attitudes. And it does or could have
the potential for influencing an election.
And by the same token, I think that the voting equipment
vulnerabilities that were mentioned earlier, that is a
legitimate concern as well. And it might not necessarily just
be a situation of a hacker. It could be the machines themselves
are old and they malfunction.
And if it happens on Election Day, a series of machines go
down and you do not have anything to replace it, then you got
problems.
Mr. Crist. Thank you. Thank you, Mr. Chairman. I yield
back.
Mr. Quigley. Thank you.
Ms. Torres.
Ms. Torres. Thank you, Mr. Chairman, and thank you to our
panel for being here today.
Lessons learned from the 2016--obviously, you have talked
extensively about that. Unfortunately, I was not here for some
of that testimony, so I apologize in advance if I ask some of
the same questions.
I agree the Federal Government has to have minimum
standards. And we have to have a basic recipe that our States
should follow. In 2016, I know that several States refused
Federal assistance just to simply scan systems for checks, to
check if they had been compromised in any way. My State of
California did not. They welcomed the Federal Government and
allowed them to scrub and do some of that.
How can we work together, understanding that while the
State of California is this big, other States may not be that
big. So the requirements for them may not be the same. The
threshold that they should be meeting may not be the same. But
we have to have minimum standards and we have to have funding,
I agree, to go with that to avoid potential issues that come
across.
I know that in California, the database was looked at.
There were questions whether if your voter registration was
changed. But I could go online and check if I am still a
Democrat. And I am still a Democrat, so I was happy about that.
I was still registered in my own home. But that was another
concern.
So how do we ensure that not just we are protecting the
vote, but we are also protecting the registration?
Mr. Sandvoss. Well, I can speak for my State. And we
invited the DHS to come in and perform a risk and vulnerability
assessment. I think it was worthwhile. How do States know if
they have vulnerability if it has never been tested? That makes
perfect sense to me.
As far as the cooperation that you spoke of, again I think
that there has been a great improvement in the communication
between the States and the Federal agencies--the EAC, the DHS.
And I would like to obviously see that continue.
As far as having mandatory standards, I can see merit in
that, especially with regard to basic security and perhaps some
sort of auditing requirement as well. I would like to give that
a little bit more thought, and I do not want to speak on behalf
of my board on something like that because they probably have
some ideas as well.
But the standards, I guess the devil is in the details--
what exactly those standards would be. What would be the
consequences for not following them? Would it be incentive-
based or would it be just a flat mandate? Those are questions
that probably need to be asked before going forward.
Ms. Torres. I prefer incentive-based, but I would also like
to see what do those minimum standards look like. What should
they look like?
Mr. Sandvoss. Yes. And that is probably beyond my capacity
because I am not a tech person. So I could not give you a
specific example of what those minimum standards should be. I
just know, just in general, the systems need to be as protected
against manipulation as possible.
And if it involves the risk-limiting audit that Dr.
Halderman here is advocating, maybe that is the way to go. I
have heard a lot of merit to that suggestion. I know in
Illinois we would have to have legislation to implement it, and
we might see that.
Mr. Halderman. So standards can accomplish a lot of things.
And one of the things that they might accomplish is greater
normalization between States that have some of the better
election practices and States that are a little bit farther
behind.
I just want to offer one example of that. Representative
Torres, in 2007 your State, California, brought in election
experts and cybersecurity experts from across the country to do
a thorough review of the computer code for all of the voting
machines used in the State. And I took part in that.
And we documented about a thousand pages of severe
vulnerabilities. And that is all published on the Secretary of
State's website. Even today there are many States that use the
same voting equipment that have not updated the software since
before California's study.
So nation-state attackers do not have to invent new
vulnerabilities. They just have to go read about them on the
California website in order to figure out where to strike. And
that is why there is a role for the Federal Government, to make
sure that we bring up the bottom of the playing field here and
keep everyone protected.
Ms. Torres. Thank you. My time is up so I yield back.
Mr. Quigley. And I appreciate that.
Mr. Graves, anything else?
Mr. Graves. No, sir.
Mr. Quigley. I want to thank those who have participated.
That was excellent. We have a lot of work to do. We appreciate
your assistance today and the work that you will do on an
ongoing basis, and we look forward to working with you as we
move forward.
So thanks to everyone. This meeting is adjourned.
Thursday, March 7, 2019.
SUPREME COURT OF THE UNITED STATES
WITNESSES
HON. SAMUEL ALITO, ASSOCIATE JUSTICE, SUPREME COURT OF THE UNITED
STATES
HON. ELENA KAGAN, ASSOCIATE JUSTICE, SUPREME COURT OF THE UNITED STATES
Mr. Quigley. Good afternoon. This hearing will come to
order.
I sincerely want to thank Justice Alito and Justice Kagan
for taking time out of their busy schedules to join us. I know
it is not every day that I can compare myself to two Supreme
Court Justices, but today both Justices and I have something in
common: This is my first Supreme Court hearing as chairman of
this subcommittee, and I know for both of you, this is the
first time you are testifying before this subcommittee. So I
want to welcome you both.
Additionally, this is the first Supreme Court public
hearing since 2015, and as chairman of this subcommittee, it is
my intent to hold a hearing with the Supreme Court more often
to discuss the resources needed for the highest court and hear
your thoughts regarding America's court system. I think
hearings such as this one are a great way for the public to get
more exposure to our third branch.
Today's hearing provides us with an opportunity to exchange
ideas, discuss pertinent issues, and get a better insight into
the judicial branch. The exchanges between our two branches are
important as each branch plays a distinct role in our
government. While we must collaborate with one another, we must
also preserve appropriate autonomy in judiciary governance,
management, and decisionmaking. Our two branches walk a
delicate line in that we must work together, but remain
separate in order for our democracy to uphold the intentions of
our Founding Fathers.
I would like to thank the Justices for their recent budget
request. I am always impressed with the Court's dedication to
cost containment and desire to save taxpayer dollars, which has
been demonstrated through the Supreme Court's consolidation of
payroll, financial, and HR services, as well as their efforts
to use in-house staff to manage IT projects when possible. This
does not go unnoticed by the subcommittee and is appreciated.
Your mission is critical to the pillars of our Nation, and
we thank you for your judicious and very effective use of the
taxpayers' dollars.
The Supreme Court's fiscal year 2020 request includes
funding for the Supreme Court Justices, employees, as well as
rent, travel, and other expenses. This represents a modest 3.5
percent increase over the fiscal year 2019 budget. I look
forward to hearing from you on what you hope to accomplish in
fiscal year 2020 with this funding.
Taking a step back, Congress provided an increase of $5.6
million for 34 new positions to address security needs. This
was a critical request, and I am pleased that Congress was able
to fund it. The safety of the Justices, as well as those who
work and visit the Supreme Court, should not be at risk. Let's
continue to keep this dialogue on the ongoing security upgrades
and additional resources needed to maintain a secure and
welcoming Supreme Court environment.
I also want to briefly speak about an issue I care strongly
about in providing the American people with more access to the
Supreme Court. As Justice Brandeis famously wrote, ``Sunlight
is said to be the best of disinfectants.''
That statement, while almost cliche now, still rings true.
Whether you are here in Washington or in the comfort of your
home, you can watch Congress and the executive branch in action
on C-SPAN. That is an important part of making our Nation's
legislative and executive branch open and transparent to all
people.
But one government institution remains closed to the public
eye, and that is the Supreme Court. Decisions on major cases,
from Brown v. Board of Education to Bush v. Gore, have
significantly shaped American society and changed history.
Unfortunately, due to practices and policies, we have no video
record of those historic decisions. In 2019, with so much new
and innovative technology at our fingertips, it is time we
should use every tool available to preserve America's judicial
history.
Beyond cameras in the Court, most Americans have no idea
how Supreme Court proceedings even work. I had the opportunity
to be one of the few who got to sit in on the Court proceedings
when I attended oral arguments in the case concerning Chicago's
handgun ban. This is an opportunity that should be available to
all Americans.
In the past, arguments on marriage equality have drawn
substantive crowds, causing people to line up in advance in
order to gain access to the court. It is not unreasonable for
the American people to have an opportunity to hear firsthand
the arguments and opinions that will shape our society for
years to come.
The decision to release same-day audio from certain cases
only highlights the fact that the Supreme Court has the
technological capability to share audio of its proceedings with
the American public.
Lastly, as I said earlier, I think it is important for our
two branches to keep an open dialogue and discuss issues when
necessary and not only once a year or so at a hearing such as
this. So please know we are always happy to meet with you and
discuss your concerns.
So, Justices, we look forward to hearing from you about the
resources that you need to carry out your constitutional
responsibility and we look forward to working with you in
Congress.
Before I turn to our witnesses for their statements, I
would like to recognize the ranking member, Mr. Graves, for his
opening remarks.
Mr. Graves. Thank you, Chairman Quigley.
And welcome, Justices Alito and Kagan. It is good to have
you with us today.
An independent judiciary entrusted to interpret the laws
made by Congress and enforced by the executive branch is
fundamental to fulfilling the Founding Fathers' vision for this
country. Our system of checks and balances ensures government
by and for the people, and we are so thankful for your role in
that system.
As a co-equal branch, it is valuable for each of us to hear
from you today. Outside of the confirmation process, these
hearings are one of the few instances that we get to interact
with your branch of government and have the opportunity to
directly ask questions.
As we work together today to further examine the Court's
needs and operations, I want to thank Chairman Quigley for
assembling this hearing today.
Though the Supreme Court's budget request is not large at
all in comparison to many of the other Federal programs that
this committee will hear about in the weeks ahead, I am pleased
that you are both here to testify, and I also appreciate that
the Court has limited its request for additional resources.
As the Republican Leader of this subcommittee, I am
committed to looking at all our Federal spending through a very
fiscally conservative and thoughtful lens. With the Federal
debt exceeding $22 trillion, it is especially important that we
all work together to take steps to put our fiscal house back in
order, and we are grateful for your effort in that as well.
So keeping that in mind, we will certainly work to make
sure that the Court has the necessary resources to fulfill your
constitutional responsibilities.
Justices Kennedy and Breyer appeared before this committee
several times, and we always appreciated their conversation,
their humor, their dialogue, and certainly the guidance that
they shared with us. And just the same, we look forward to your
testimony today and your insights on the operations of the
Court and are grateful for your appearance before us.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you, sir.
I would like to recognize Ms. Granger, the ranking member
of the full committee, for her testimony.
Ms. Granger. I would like to thank Mr. Quigley and Mr.
Graves for holding this hearing for financial services today on
oversight of the highest court in the land, the U.S. Supreme
Court.
I would like to add my welcome to our witnesses, Justice
Alito and Justice Kagan. It is an honor to have both of you
appear before us.
The Supreme Court is vital to our system of government and
ensuring the survival of our Republic. This has been
particularly evident in recent years as the Court has heard
cases relating to religious liberty, healthcare, and the use of
executive power.
One of the responsibilities the Congress holds is the power
of the purse, and that is why we are here today. I hope to
learn more about the Supreme Court's operation and funding
requirements for the fiscal year 2020. This is a rare and
unique opportunity, as Mr. Graves said, and so we take it very
seriously.
Thank you again.
Thank you, Mr. Chairman.
Mr. Quigley. I want to thank you, Ms. Granger.
I would now like to recognize Justice Alito for his
testimony.
Justice Alito. Chairman Quigley, Ranking Member Graves, and
members of the subcommittee, thank you very much for giving
Justice Kagan and me this opportunity to appear before your
subcommittee to discuss the budget request for fiscal year
2020.
As was mentioned, Justices Kennedy and Breyer appeared here
many times in the past. This is the first appearance for
Justice Kagan and me. We are rookies. And I am sure when I get
back to the Court, I will hear immediately from either Justice
Kennedy or Justice Breyer or perhaps both of them that in all
the times when they appeared here, they never broke any glass
or spilled water. But as I said, we are rookies, so you have to
indulge us a little bit.
In any event, as in past years, our budget request consists
of two parts. We will present the first part of the request
today. This part addresses salaries and expenses of the Court.
The Architect of the Capitol will submit a separate written
statement on the second part of the request, which concerns the
care of the building and the grounds.
Before presenting our fiscal year 2020 request, we would
like to express our appreciation for Congress' approval of our
funding request for fiscal year 2019. We recognize that
Congress and this subcommittee face a difficult task in
allocating a limited amount of available money to fund a wide
range of government activities.
The judiciary's entire budget request is small compared to
the overall Federal budget, representing less than two-tenths
of 1 percent of Federal funding, and the Supreme Court's
request, in turn, represents only about 1 percent of the
judiciary's budget. But although our request is tiny in
relation to the overall budget, we appreciate the value of
every dollar of funding we receive.
We are also grateful for the subcommittee's confidence in
our ability to manage those funds efficiently. We remain fully
committed to prudent fiscal practices.
I should note that our fiscal year 2019 request, following
guidance from the Office of Management and Budget, did not
include funding for the cost of living adjustment for Federal
employees enacted in the most recent appropriations
legislation. That adjustment will likely cost the Court an
additional $1 million annually.
To accommodate that increase, the Court has reduced
spending by revising existing contracts and cutting back on
other discretionary spending. We hope that these cost-cutting
measures will allow us to forgo requests for additional funding
related to the cost of living adjustment.
We do not have the capacity to reduce our mission or reduce
our functions. We have no control, for example, over the number
of petitions for review that are filed each year. Nevertheless,
we continuously seek out ways to make our operations more
efficient.
We would also like to thank the members of the committee
for providing the Court with a substantial amount of additional
funding last year. That was for additional security purposes,
and we are carefully and deliberately putting those funds to
work based on a top-to-bottom review of our current practices
by highly regarded and experienced security experts.
The money you have provided will be used efficiently to
expand and improve our physical security and our cybersecurity.
If we find that additional money is necessary to ensure the
safety of the Justices, Court staff, and many visitors received
in our building every year, we will inform the subcommittee as
soon as possible.
I would be happy to refer members of the subcommittee and
your staff following the hearing to appropriate Court staff if
there is a desire to discuss those security issues in greater
detail.
For fiscal year 2020, the Court is requesting funding only
to cover the continuation of existing activities. We are not
requesting any new programmatic increases. The fiscal year 2020
request is $90 million, consisting of $3 million in mandatory
expenditures and $87 million in discretionary expenditures.
The total request is $3 million higher than the amount
provided in the last fiscal year. Half of this increase is due
to an expected change in agency employer contributions to the
Federal Employees Retirement System pursuant to guidance from
the Office of Management and Budget.
Most of the Court's budget is devoted to personnel costs.
Approximately 80 percent of the total request is for
compensation and benefits of current employees. We have not
requested a new nonsecurity-related position over the last 10
years. Instead, we have successfully utilized existing
personnel to accommodate an increasing workload.
For example, we recently implemented a new electronic case
filing system using our existing budget. The system provides
easy access to all of the Court's case documents, including
briefs, orders, and opinions, without logging in or downloading
additional software, and there is no charge associated with use
of this facility. It has been publicly accessible since 2017
through a link on the Court's website.
By building and maintaining this system in-house with
existing staff, the Court saved 2 million taxpayer dollars.
In addition to accessing all case-related documents, the
public may also use the website to access full transcripts of
oral arguments on the same day they occur and audio of the
arguments by the end of the week in which they take place.
We have also recently revamped the Court's website to make
it more user friendly and to highlight important information,
like the current term calendar and upcoming cases.
As a result, virtually every aspect of the Court's work is
easily accessible to anyone with internet access. Last year, 19
million people visited the Court's website, a 30 percent
increase over the previous year.
The Supreme Court building is also a popular attraction and
forum for civics education here in Washington. The website's
calendar lists the building's public hours and an online daily
schedule of courtroom lectures in which our volunteer docents
explain the history and the role of the Court. Last year,
421,000 people visited the building, and nearly one-third of
those visitors attended one of the free lectures or tours.
Our 2020 request also includes $1.5 million of no-year
funding for regular upgrades to our IT systems, many of which
have multiyear upgrade cycles. The Court reduced the request
for this annual funding in fiscal year 2018 by $500,000, and
the fiscal year 2020 request maintains that reduction.
The annual savings are a direct result of the Court's
transition away from desktop computers to virtual work
stations, which has reduced upgrade and maintenance costs. We
will continue to monitor the no-year fund balance to ensure it
is adequate to meet our long-term needs.
When the public interacts with our judicial system they see
the substantial resources that Congress provides to the
judiciary, whether it is courthouses, libraries, up-to-date
information technology, or the thousands of staff who make the
courts run smoothly and efficiently. The result is that these
observers, along with many others around the world, see a
tangible, powerful example of a Nation committed to the rule of
law.
On behalf of the Chief Justice and the other Associate
Justices of the Court, we would like to extend our sincere
thanks to the members of this subcommittee for your continued
confidence and support.
This concludes our brief summary of our request, and we
would be pleased to respond to any budget-related questions
that the members of the committee may have.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you, Justice Alito. We appreciate it.
You heard me mention in the opening the desire of many to
have Supreme Court video. In the past we have had this debate,
and I have come to the conclusion, clearly, it is your
decision, and I believe in the independence and the autonomy of
a separate branch.
I just want you to know there are a lot of folks who, as
you know, can't get into the Supreme Court to watch these
arguments. In the case I mentioned and a few others, Brown v.
Board of Education, there were historic, brilliant arguments
made that only perhaps a few hundred people could watch in
person.
I know that there are valid reasons to not video Supreme
Court cases, such as behavior change, editing, and so forth. We
flub up a lot here, but we are on C-SPAN, and so our mistakes
are live. And while in a democracy, the trains don't always run
on time, we don't always look our best, and maybe it has a
negative impact.
The last time we had the discussion, it was the anniversary
of the release of ``Mr. Smith Goes to Washington.'' The reason
I bring that up is when that movie was released, it was
screened before an audience which was largely the U.S. Senate,
and they didn't like it. It didn't make us look good. The irony
was it was also screened in Moscow and Berlin, and they made
the decision not to show it in their countries because they
thought it made us look too good. Beauty is in the eyes of the
beholder.
I would just like your thoughts on if there is an evolving
sense within the Court of whether or not to expand to at least
some limited video feeds of the arguments.
Justice Alito. The first thing I think I should say is that
all of my colleagues and I share your interest in making our
proceedings and everything that the Court does as accessible to
the public as we possibly can consistent with the performance
of our paramount function, which is to decide cases in the best
possible way.
I was thinking about this issue of access before coming
over here, and what I am going to say will date me, but what
occurred to me was how much more accessible the Supreme Court
is now than it was when I started out as a lawyer, and even
before that, when I was interested in the work of the Supreme
Court when I was in college and even in high school.
If someone back in those pre-internet days wanted to read
an opinion that was issued by the Court a few years ago, it
wouldn't be that easy to find a library with reports of the
Supreme Court. Certainly the little municipal library where I
grew up didn't have that.
So you would have to find a law library or a big library
that had the U.S. reports or one of the commercial services.
And then if you wanted to take a copy home and read it and
study it, you would have to--you might be able to make what we
called in those days a Xerox copy, by feeding money into a
machine. Now every opinion that we issue is instantly available
on our website.
If you read an article in the paper about a decision that
had just been handed down and you wanted to see exactly what
the Court said, that would be even more difficult. You would
have to find a law library with a subscription service called
U.S. Law Week, and that was an expensive subscription service.
And then you might get a little account of the argument if it
was an important case, and you would be able within about a
week to read the Court's opinion.
Now, if you wanted a transcript, that would be
extraordinarily difficult. You would have to find a very good
law library, and you wouldn't be able to get that for years. If
you wanted to read the parties' briefs, that would also be
extremely difficult.
Now all of that is available free of charge to anybody who
has access to the internet. We issue a transcript of all of our
oral arguments on the day when the argument takes place. It
used to be a few years ago that the person, the Justice asking
a question wasn't identified in the transcript. Now all the
Justices are identified. So you can see exactly what was said,
every single word. And we release the audio of all of our
arguments by the end of the week.
But then we get to the issue on which there is a lot of
interest, and that is televising our arguments. And I recognize
that most people think that our arguments should be televised.
Most of the members of my family think that arguments should be
televised. I used to think they should be televised.
When I was on the Third Circuit, we had the opportunity to
vote on whether we wanted to allow our arguments to be
televised, and I voted in favor of it. But when I got to the
Supreme Court, I saw things differently, and it wasn't because
I was indoctrinated or pressured by my colleagues.
But I came to see and I do believe that allowing the
arguments to be televised would undermine their value to us as
a step in the decisionmaking process. I think that lawyers
would find it irresistible to try to put in a little sound bite
in the hope of being that evening on CNN or FOX or MSNBC or one
of the broadcast networks, and that would detract from the
value of the arguments in the decisionmaking process.
Mr. Quigley. That sort of thing never happens here.
Justice Alito. I recognize times change, and I don't know
what our successors years from now will think, or maybe even
next year. It has been a while since the members of the Court
collectively have discussed this issue, but it has been our
consensus for a while that this would not be--although we want
as much access as possible, we don't want access at the expense
of damaging the decisionmaking process.
Mr. Quigley. Justice Kagan, your thoughts?
Justice Kagan. Thank you very much, Mr. Chairman. And if I
could just thank all of you for the invitation to be here. We
very much appreciate it, Justice Alito and I and the entire
Court.
As to this question, I find it a very difficult question,
and like Justice Alito, my views on this question have somewhat
evolved over time.
And if you will agree to let me get to the place where I
tell you about the cons of cameras, I will start by telling you
about the pros and very much sympathizing with some of the
things that you said, Chairman Quigley. Because I think more
than just transparency for transparency's sake, the good of
having cameras would be that people would see an institution at
work, which I think does its work pretty well.
When I was Solicitor General, one of the jobs of Solicitor
General, in addition to arguing every month, is that you are
always there when members of your office argue. And so the time
I was Solicitor General, I probably sat as a spectator for
about 75 percent of the Supreme Court's arguments, and I was
constantly impressed by how the Court went about its business,
that it was thoughtful and it was probing. And it was obvious
that the Justices really wanted to get things right.
And it is no small benefit if the American public were able
to see that, because faith in institutions of governance is an
incredibly important thing. And for me the greatest positive of
having cameras would be that it would allow the public to see
an institution working thoughtfully and deliberately and very
much trying to get the right answers, all of us together.
But having said that, I will wholeheartedly agree with
Justice Alito that the most important thing is that the
institution continue to function in that way, not that people
see it. If seeing it came at the expense of the way the
institution functioned, that would be a very bad bargain, and I
do worry that cameras might come at that expense.
You know, I think it is a principle of physics, I think,
which is about how when you put the observer, when the observer
comes in, the observed thing changes. And you commented on
Congress, and if you all were given truth serum, I think some
of you might agree that hearings change when cameras are there.
Now, I have to say I think that they might change in the
Court in subtle ways. I don't think all that many people would
grandstand. I hope that my colleagues and I would not do that.
But I think we would filter ourselves in ways that would be
unfortunate.
In other words, the first time you see something on the
evening news which taken out of context suggests something that
you never meant to suggest, suggests that you have an opinion
on some issue that you, in fact, don't have, but that--you
know, when I come into the courtroom, I play devil's advocate.
I probe both sides hard, and I challenge people in ways that
might sound as though I have views on things that I, in fact,
do not, just because that is the best way of really
understanding the pros and cons of a case. And I worry that
that kind of questioning, which I think we all find very
conducive to good decisionmaking, would be damaged if there
were cameras.
So I think, as Justice Alito expressed, I think this is a
hard issue. I think that there are things to be said on both
sides of it. And I do want to emphasize, as he emphasized, that
we haven't spoken about this together as a conference since I
have been at the Court. But I think that there is real value to
being deliberate and to being careful and to not doing things
that we would later regret in terms of how the institution
operates.
And I will say just one last point in addition to all the
things that Justice Alito said about the ways in which we are
transparent. I think that the most crucial way that we are
transparent is that all of our decisions get made with reasons.
In other words, you always know--or almost always--when we make
decisions why we are making them and the views of the various
Justices of the Court. That is the most important thing, far
more important than the arguments, which, in fact, play a very
limited role in our decisionmaking process.
Mr. Quigley. Thank you so much.
Mr. Graves. Mr. Joyce needs to go first.
Mr. Quigley. All right.
Mr. Joyce.
Mr. Graves. He is the Republican leader on the Interior
Committee and will need to leave here momentarily.
Mr. Quigley. Thank you, sir.
Mr. Joyce. Thank you very much for recognizing me out of
turn. And when I am through asking my question and I get up and
leave, it is no disrespect to you. Mr. Amodei is sitting down
there holding court for me so I can get back to mine.
As a former prosecutor and aging trial lawyer, this
appearing before two lions of the Court is probably as good as
it is ever going to get for me.
But I certainly appreciate, Justice Alito, what you were
talking about, the transparency issue, and I appreciate what
you have been doing as far as making the workings of the Court
available to them. But for those of us, the vast majority of us
who will never appear before the Supreme Court, who are down in
the inferior courts, the appellate courts, the bankruptcy
courts, the trial courts, as you know, we are on the PACER
system, and we have to pay money to get those things.
What impact do you think the Supreme Court's making this
available for free has had on the transparency of the Court, if
you will, in allowing people to have some input or be able to
see, without the use of cameras, be able to see into what you
do?
Justice Alito. Well, I hope that the electronic filing and
the other measures that have been taken in recent years will
increase understanding of the work of the Court. Other than
hearing our voices immediately or seeing our faces with our
lips moving, the public can see everything that goes on in the
Court, from the filing of a petition for certiorari until we
issue an opinion deciding a case.
That is a tremendous development, and I think it is good
that all of that is available to the public free of charge,
because we do want the public to understand what we do to the
greatest extent possible.
We also receive a great many visits during the course of
the year from students, ranging from sometimes even elementary
school students to groups of law students, and I think my
colleagues and I like the opportunity to speak to them and to
explain to them what we do, because it is important in a
democracy for the public to understand what all of the
institutions do.
Mr. Joyce. Justice Kagan.
Justice Kagan. I agree with everything Justice Alito said
on that. I mean, the electronic filing system that the Court
has put into place in the last year or two has made, I think,
an enormous difference for people who practice before the
Court, but also people who are just interested in the Court.
And we were able to do it with the appropriations that you gave
us and a tremendous staff that put untold hours into that
project. And so the Justices are very appreciative of that.
Mr. Joyce. Well, I, for one, would disagree with the
chairman in that I don't believe that more visibility and
cameras in the courtroom would be any good. I agree with your
assessment. Just in my limited time here in the House, people
are changed beings when they get in front of the camera and not
all for the good.
But I am certainly interested in the transparency and the
education of the public as to the collegiality of which the
nine of you enjoy, and I think it gets ripped apart at times
when people see 5-4 decisions. It is not an us-against-them
game. It is the work and the hard work that you all put into
it, asking those hard questions. And any way we can get the
public to be able to visualize that without necessarily seeing
it on camera I am all for, and I think the rest of this
committee would be for, is helping you get that accomplished
not only in the Supreme Court, but in the lower courts as well.
Justice Kagan. You know, you put your finger on something,
I think, that we find a little bit frustrating, because we are
a very collegial institution. We like each other quite a lot. I
think people think of the 5-4 decisions as sort of the only
thing we do.
In fact, Justice Alito and I agree with each other far more
often than we disagree with each other. And one of the things I
think as we talk to groups, whether in law schools or
elsewhere, I think all of us try to emphasize this, the extent
to which the Court really functions as a unit.
Of course there are going to be cases in which our
different views about how to do law, how to interpret the
Constitution, put us in opposition to each other. But 40, 50
percent of the time we are unanimous, which is sort of an
amazing thing given that we only take the hardest cases, cases
on which there are splits in the courts below. Another 30 or 35
percent of the time we are split in all kinds of random and
different ways.
So I think it is one of the things that we would like to
make clear to people is how much of what we do does not follow
this stereotype of the perpetually divided Court.
Mr. Joyce. Would you care to respond?
Justice Alito. Well, I agree with what Justice Kagan said,
and it is an aspect of our work that is overlooked,
understandably, because the most controversial cases tend to be
the ones where we are the most closely divided.
We have developed a very open style of debating issues back
and forth among the Justices when there is a majority opinion
and a dissent. We argue the issues robustly, let me put it that
way, and increasingly we don't pull any punches.
And we don't take it personally. When one of my colleagues
attacks my reasoning and says it doesn't make any sense, I
don't take it personally, and I hope that the same is true when
I reciprocate.
But I think sometimes people who read what we write may get
the wrong impression that we are at each other's throats in a
personal sense, and that is certainly not true. And this is not
just something that we say for public consumption. This is the
complete truth.
Mr. Joyce. I yield back my time, but I am all out, Mr.
Chairman. Thank you very much, and thank you for the
opportunity to be here today.
Mr. Quigley. Thank you, sir.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And thank you to our witnesses for appearing today, Justice
Alito, Justice Kagan.
Justice Alito, as the lone Pennsylvanian here on this
panel, it is a pleasure to have a representative of the Third
Circuit here.
It is hard for us to understand those Second Circuit
accents, but it is nice to have you here too, Justice Kagan.
I know I speak for all of us here on the Appropriations
Committee and all of us in Congress when I say that we honor
and fight for the independence of the judiciary. And as part
and parcel of that, we fight for the security of the judiciary,
and I want to talk about that a little bit.
Between fiscal years 2018 and 2019, the Congress approved
$5.6 million for security upgrades and modernization, along
with an additional 34 positions for the Supreme Court. I am
pleased Congress was able to accommodate the request, and rest
assured that we will continue to review and regard security
requests coming from the Supreme Court as a top priority.
The first question is, does the fiscal 2020 Supreme Court
budget properly cover your security needs? Are you getting what
you want?
Justice Alito. We believe that it does. And we cannot
express strongly enough our appreciation for the support that
the committee has given us in the past.
If it turns out that we have additional security needs, we
will take the opportunity to let you know. But my understanding
is that our security people and the outside experts they have
consulted believe that we have the resources now that we need.
Mr. Cartwright. And if you have a dissenting or concurring
opinion, Justice Kagan, you let us know.
Justice Kagan. I will let you know.
Mr. Cartwright. Secondly, regarding the 34 new positions
involving the increase in security funds, are you able to
provide us a status update on those 34 new hires?
Justice Alito. I think most of the positions have been
filled.
Am I correct?
I am sorry. Eight have been hired as of last year. I stand
corrected.
Justice Kagan. We have been taking this quite deliberately.
The Chief Justice hired some security consultants, and those
consultants have been talking to everybody in the building with
a view on these questions, to the police officers themselves,
to the Justices, about how exactly it is we should change some
of the security practices that we follow given that we will
have greater resources. And so we wanted to let that review
process go forward before hiring everybody.
Mr. Cartwright. How long does it take to onboard one of
these new hires, if you know?
Justice Alito. I don't know personally.
Mr. Cartwright. And this is not a pop quiz. You can get
back to us.
Justice Kagan. Many months, I am hearing from behind.
Justice Alito. I should have introduced some of the members
of our staff who came here with us. But this is our marshal,
Pam Talkin, who is in charge of the police force.
So she tells us that it takes many months, and that is
certainly true. They go through standard Federal law
enforcement training before they begin.
Mr. Cartwright. Well, of course, one of the things driving
my questions is this concern about the current political
climate where we have seen a rise in public criticism of not
only courts, but also specific judges. And it is deeply
disturbing to me and I think to all of us to see specific
judges questioned not on intellectual grounds, but on personal
grounds.
Most recently in the news, there was a photo posted online
of District Judge Amy Berman Jackson with a target placed on
her likeness. These are deeply disturbing things to us. And, of
course, she is not a Supreme Court Justice.
But here is the question. Do you believe Congress ought to
consider increasing appropriations for the security needs of
district and circuit court judges in the 2020 budget?
Justice Alito. We are not, I think, fully cognizant of the
security needs at this time of the lower courts. I believe when
you receive testimony regarding the overall Federal judiciary
budget that would be an opportunity for someone who is more
knowledgeable to speak to that.
But certainly, having been a lower court judge, a court of
appeals judge for 15 years, I am very cognizant of the security
needs of judges at those levels.
In some respects there the security threats to them are
more serious than they are to us because district judges, trial
judges at all levels, have much greater contact with members of
the public and are often involved in cases where emotions run
very high. And so many of the instances of unfortunate attacks
on judges have been on trial-level judges.
Mr. Cartwright. I thank you. I yield back.
Mr. Quigley. Thank you.
Ms. Granger.
Ms. Granger. Thank you.
Each year between 6,000 and 8,000 cases are filed with the
Supreme Court. The Court usually hears arguments for 70 to 90
cases.
So Justice Alito, I would ask you, can you tell us how the
Court decides which cases to hear?
Justice Alito. Yes. We have two main criteria, and we
select our cases based on the application of those criteria.
The first and the most important is, is there a
disagreement about a significant legal issue among the lower
courts? This can be a conflict in the decisions of the Federal
courts of appeals or conflicts involving State supreme courts.
What the Constitution means and what the statutes enacted
by Congress mean should be the same everywhere in the country.
The law should not mean one thing in one State or one judicial
circuit and something else in another circuit. So that is the
main thing that we look for.
But we will also take cases that involve what we regard as
an important issue of law that should be decided without any
further delay, without waiting to see whether there will be a
disagreement among the lower courts.
And the best example of that is a situation in which a
statute enacted by Congress is held to be unconstitutional. We
will almost always review that, even if there is no conflict in
the decisions of the lower courts.
Now, there are some other cases that are also very
important and we will take without a conflict. But those are
the two main things that we look for.
Ms. Granger. Thank you.
Justice Kagan, would you say that there are additional
worthy cases that you think should be reviewed?
Justice Kagan. You know, I think all or most of us think
that we probably could handle a few more cases than we
currently do. And in the abstract, I think, we would say: Well,
instead of that 70 cases, why not handle 90?
But then it turns out that even though we all think that,
we don't find 90 cases to take using the criteria that Justice
Alito laid out. But using those criteria, that is about what we
have been coming up with year by year.
It used to be that it was much more. You know, I clerked on
the Court about 30 years ago, and at that time the Court was
handling 140 cases per year, which was too many. I don't think
anybody would want to go back to that.
But there has been a lot of ink spilled about why it is
that the Court's docket has declined. I don't think it is
because the Court has wanted to be at 70. I think, as I said,
in the abstract, I think we all would like to have some more.
But when we apply those criteria, which are the criteria--I
think there is very wide acceptance on the Court that those are
the criteria that we should be using, and when we apply those
criteria, we have ended up, certainly since I have gotten to
the Court, which is almost 10 years ago now, with about that
many cases.
Ms. Granger. Thank you. That is the only question.
I just have one statement, going back to the discussion
about your security. You are very important to us, to the
Nation, the Supreme Court, and so if there is a need for
additional security dollars, I am sure the subcommittee would
be very much in favor of it.
Thank you both for being here.
Justice Kagan. Thank you.
Justice Alito. Thank you.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much.
And let me welcome our distinguished Justices.
Let me ask two questions. I will ask them both, and perhaps
I can expedite time.
The first has to do with law clerk diversity. A fairly
recent National Law Journal study examining Supreme Court
clerks from 2005 to 2017 found that the composition of the
Supreme Court clerks does not even remotely reflect the makeup
of our country. Eighty-five percent of clerks during this
period were White, 9 percent were Asian, 4.1 percent were
Black, and 1.8 percent were Latino.
Clerking on the Supreme Court allows these attorneys to
participate in deliberations that directly influence the
interpretation of our Nation's laws. These decisions impact
hundreds of millions of people in the country and sometimes
across the world. These clerks are often on a fast track to
judgeships, positions in academia, high profile attorney
positions, in and outside of government.
Are you concerned about the potential impacts that can
result from a Court that does not reflect the populace that it
serves? And what, if anything, is the Court doing to address
that issue?
My second question has to do with attacks on the Court.
Last November, Chief Justice Roberts stated that after a number
of attacks on the judiciary by President Trump, quote: ``We do
not have Obama judges or Trump judges, Bush judges or Clinton
judges. We have what is an extraordinary group of dedicated
judges doing their level best to do equal right to those
appearing before them. That independent judiciary is something
we should all be thankful for.''
Do you believe that recent verbal attacks on the judiciary
undermine the ability to interpret the Constitution and laws of
the United States? Do you believe that the recent attacks
undermine the stature, the reputation, and the respect for the
Court, and the strength and the foundations, therefore, of our
democratic system?
Justice Kagan. Congressman Bishop, I will take your first
question.
This is an issue that I believe we take very seriously.
Each of us hires individually, so there is an extent to which
we can't talk for any of our colleagues. But I think that the
Court as a whole certainly pays attention to this issue and
cares about it.
There are many different kinds of diversity. And before I
get to the one that I think you are most concerned about, as I
am, I will just say that we should keep all of them in mind,
not just sort of racial, ethnic, and gender diversity, but
there are criticisms of the Court with respect to its
geographic diversity, with respect to its school diversity.
When I wander around and go to law schools I hear more
questions about the number of clerks that come from just a few
schools than I do almost anything else. All of these are very
important.
With respect to race and gender, I think we are doing
better. I know this. I referred before to the fact that I was a
clerk on the Court a few decades ago, and if you want pathetic
numbers, those were some pathetic numbers.
The numbers are much higher now. I think for women now,
this is our first year where a majority of clerks are women.
And we are doing better on the front of racial diversity as
well. But that is not to say that there isn't a great deal more
to do.
As with most of these issues, sort of the higher you go,
these are real pipeline issues, and the higher you go, the
stronger and firmer and more inclusive the pipeline has to be.
And this is something that I know I thought about a lot when I
was a law school dean. And, in part, to make the Court and its
clerks more diverse, you need very diverse law schools.
You need judges and law firms, because we take our clerks--
certainly they have to come from other appellate judges,
sometimes district judges. More and more they come from law
firms, so that the more inclusive and diverse those
institutions are, the better that pipeline will serve us.
Over time, I am confident that that pipeline will become
more inclusive, more diverse, but that means that we all have
to be working at it, every single one of us, the law firms,
other judges, the law schools, and us.
And maybe the most important thing is for us to use
whatever bully pulpit we have to make clear that this is an
important issue, that diversity in the legal profession is a
matter of real significance, that the legal profession is made
stronger by how diverse and inclusive it is, no profession
fares well if you don't take advantage of the talents and the
perspectives and the experiences of all kinds of different
people, and for us to use this kind of setting and other sorts
of settings to say exactly that and to say that this is an
issue of deep concern.
Mr. Bishop. Mr. Chairman, I think my time has expired
unless the chair would give----
Mr. Quigley. You are correct.
Justice Kagan. Is that because I filibustered?
Mr. Quigley. Well done. You have learned how these cameras
work here.
Mr. Justice, if you could answer Mr. Bishop's question in a
succinct manner, I would appreciate that.
Justice Kagan. As opposed to----
Mr. Quigley. I apologize. I don't mean it that way. I know
everybody wants to get a series of questions in, and I should
have mentioned that at the beginning.
Justice Alito. Yeah, certainly.
Well, I won't add much to what Justice Kagan said about the
first question, about law school, law clerk diversity. There is
the funnel issue.
All of our law clerks, because they serve with us for only
a year and they have to hit the ground running--I will get to
the second question in 1 second--come from a court of appeals
clerkship at one point. They need that for the training.
On the second issue, it is very important, and I do not
want to talk about any particular incident, but in general
terms, I will say this. I think it is extremely important for
all of the members of all three branches of our government to
be accurate and respectful when we are talking about members of
the other branches.
We all have important work to do. We all do our best. We
all make mistakes. There are constitutional procedures for
correcting the mistakes that are made by lower court judges. I
think we all have to be careful, consistent with sort of the
American way of robust public debate to be respectful and
accurate in what we say.
Mr. Bishop. Thank you very much.
Mr. Quigley. Thank you, Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
Mr. Quigley. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
I know you all are keenly aware of all the things that we
are working on every day. I am sure you watch and monitor. And
I say that jokingly.
But there is one thing today that maybe you could comment
on. We have been debating yesterday and today a bill that
rewrites the election laws here in our country, and many would
suggest is unconstitutional. And in some ways the bill itself
admits that in its own criticism of Supreme Court decisions in
the past justifying law changes today.
I am not asking you to comment on the bill itself, but
there is one provision that has a direct impact on the courts,
and I wanted to get your opinion on it. It was added at the
last minute in the Rules Committee without any committee
hearing, but it requires that the Judicial Conference's Code of
Conduct apply to the Supreme Court Justices. I am not sure why
that was added, but is there something we should be concerned
about in the Supreme Court? Is there a code of conduct issue?
Justice Alito. Well, I will try to be succinct.
I know I speak for all of my colleagues in saying that we
take our ethical responsibilities very seriously. We are
committed to behaving in an ethical manner and in a way that it
appears to the public is fully ethical.
We follow the code of conduct that applies to the lower
courts, but we don't regard ourselves as being legally bound by
it. And the reason for that can be found in the structure of
Article III of the Constitution, which says that the judicial
power shall be vested in one Supreme Court and in such inferior
courts as Congress may create.
Now, I was a judge on one of those inferior courts, using
the 18th century terminology, for 15 years. They are not
inferior in the sense of being less talented or less deserving
of respect, but they are subordinate. And I think that it is
inconsistent with the constitutional structure for lower court
judges to be reviewing things done by Supreme Court Justices
for compliance with ethical rules.
So that is the concern about being formally bound by those
ethics rules. And our situation is not exactly the same as that
of the lower court judges, our working life is a little
different.
Mr. Graves. No known misconduct issues. There are only nine
of you. And it is explicit. It is not about clerks or staff or
anything else. It is only Justices. I am curious why somebody
would add this at the last minute.
Justice Kagan. Well, I will just emphasize again what
Justice Alito said in his first remarks, which is we take our
ethical obligations extremely seriously. And we do follow the
code.
The code does not itself answer all questions. Where we
have questions about the code and how it applies, typically we
have a very strong legal office that is well equipped to deal
with issues like this. We consult with them. Maybe we will
consult with our colleagues, or some of them, the Chief Justice
in particular. But all of us take our responsibilities in this
area extremely seriously.
And I agree with Justice Alito about the sort of
constitutional difference between the Supreme Court and the
circuit and district courts. But one thing we are definitely
not different, which is that we follow those guidelines to the
very, very, very best of our ability.
Mr. Graves. Thank you. I never questioned that at all.
Apparently, though, somebody in the majority party does, and I
don't know why. But thank you for answering that.
A quick question on cybersecurity, a big, big concern this
committee has addressed a lot with a lot of the other agencies.
Clearly the Supreme Court has a lot of very important
information that it must protect from cyber attacks.
Is there anything you can speak to on that, just to give us
a little bit of reassurance on the plan or proposal that you
have in place?
Justice Alito. I am very far from being a cyber expert.
Maybe my colleague is. She is younger, and maybe she is more
knowledgeable than I am.
We have a very good IT staff, and they assure us that we
are well protected, and I trust that that is true. But it is
certainly a problem. We don't want individuals to hack into our
system.
Mr. Graves. You most likely have cybersecurity experts on
staff, I would suppose, right?
Justice Alito. We do have people on staff who work on this,
and when they tell us the number of attempts that are made on a
regular basis, it is kind of startling.
Mr. Graves. Alarming? Yes, it is. Thank you.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you very much, Mr. Chairman, for holding
this hearing.
And thank you so much to our Justices for being here.
Indeed, I agree with my colleagues that today is a special
day when two branches of government can come together to talk
about the issues that are pending and important to both of us.
We want to make sure that you have the resources that you need
to carry out your constitutional duties and apply the law
fairly--justice, right, liberty and justice for all--as we
discuss salaries and expenses for the Supreme Court.
We have entered a new era where women are taking their
place in the House of Congress, in the Senate, as clerks, and
as you, yourself, have stated, that you have a large number of
women now that you have hired on. It is important to me as a
female Member of Congress to be able to answer that question
that was asked earlier. How do we know, without an inspector
general, how do we know how many cases of misconduct actually
exist?
And I am not probing as to relating to Justices. But as a
whole, we all have peers, right, how do we know?
Justice Alito. The Chief Justice and the Judicial
Conference have taken this issue very seriously in the last
couple of years, and a working group was formed to examine the
practices of the entire Federal judiciary. And the working
group delivered its report with some very substantive
recommendations, and it is my understanding that those are
being implemented.
I am not aware of particular--of problems on the Supreme
Court itself. But I certainly can assure you that all of the
Justices are aware of this potential problem, and if it were to
come to our attention that there were any problems along these
lines regarding or involving anybody who works in the Supreme
Court building, we would not sit back. We would take action
that is appropriate.
Mrs. Torres. Congress has taken this issue very serious as
of lately because we have had some issues, and Congress has an
Ethics Committee that is made up of Members of Congress. So
while I understand that Chief Justice Roberts and Justice
Breyer have argued in the past that there are two reasons why
there is no process, public process that exists, they argue
that essentially a code of conduct is impossible to enforce on
Justices as there aren't judges that we could bring to the
Supreme Court to replace Justices.
That is what I am bringing out the issue of as with
Congress where we have our own ethics group that is a check and
balance on Members.
Secondly, it was argued that the Code of Conduct created by
the Judicial Conference with Chief Justice Roberts presides
over is only an instrument of the lower courts, and I find
these arguments unconvincing. I think there are messages that
we send to our employees when we don't put forward transparent
policies on how we are going to protect victims and how we are
going to deal with whistleblowers and protect whistleblowers.
I hope that at some point, without disclosing specific
information, that we could have a conversation around this
issue, because it is an important issue not only to our Nation,
but to the world. Women all over the world are finding their
voice, and it cannot stop at the Supreme Court.
Justice Kagan. Well, I do believe that with respect to a
code of judicial conduct, Justice Alito has suggested some of
the reasons why we have reservations about following the same
code that applies to lower court judges.
But for that reason, the Chief Justice is studying the
question of whether to have a code of judicial conduct that is
applicable only to the United States Supreme Court. So that is
something that we have not discussed as a conference yet, and
that has pros and cons, I am sure, but it is something that is
being thought very seriously about.
And then with respect to the sexual assault issue in
particular as it relates to the entire judicial branch, this is
something which I think that the Chief Justice has been really
proactive in getting a wonderful committee together of judges
and circuit executives, court executives.
And the final recommendations, I believe, are going to be
voted on this spring, that the circuit conference is going to
vote on a set of recommendations which do many of the things
that you said, not just make clear what conduct is forbidden,
but also protect against retaliation and make the processes for
reporting very streamlined or much more streamlined than they
have been.
And of particular concern in the judicial branch, I think
that people take seriously the sort of confidentiality of
chambers, but making it quite clear that that confidentiality
gives way when people are reporting sexual misconduct, and so
taking that off the table with respect to these kinds of
allegations.
Mrs. Torres. Thank you very much. I am very interested in
this subject, so if there is anything that I can do to help
move forward, please let our office know.
And I yield back.
Mr. Quigley. Thank you.
Mr. Stewart.
Mr. Stewart. Thank you, Chairman.
Justices, what an honor it is to have you here. I think it
has been a helpful conversation. It is far less contentious
than many of them. And we are grateful for the calm demeanor
that you bring to us.
Justice Kagan. We can start fighting if you want.
Mr. Stewart. It will come.
If you will allow me two very quick observations and a
question. I am not an attorney. I actually was going to go to
law school and very late decided to go in the military. But I
come from a family of attorneys. One of my brothers is a
district court judge and three of my sons are attorneys. One of
them actually, Justice Kagan, is at Harvard and going to law
school there. I am very proud of him. I wondered sometimes why
they chose that career path, but I am, I say, proud of where
they are.
And the second thing is, I want to go back to our
conversation regarding televised remarks. And I want you to
know that I agree with your reservations about that. And I am
someone who understands that the cameras and the openness is a
very important part of Congress, this work that we do.
Mr. Quigley and I both sit on the House Intelligence
Committee. Most of our work is done in a basement without
cameras and without people there that are observing. And I
think we would both tell you that you do have a different
experience when cameras are there, especially if it is an
emotional topic--which, by the way, you all deal with all the
time. Some of them are a little less so, but many of them are
the most contentious issues facing our society right now, and I
can imagine that that would maybe change your process.
Now, if you could, I am going to ask you a question, and I
don't know if you are going to bear with me and feel
comfortable answering it, but I am going to try. And it kind of
builds on what Chairwoman Granger said when she was indicating
6,000 to 8,000 cases before you, of which you select a very
small number, 70 or 80 or 90. And it seems like my concern
would compel that to change and maybe force you to do more.
But my concern is far broader than that, and it is this
thing that we have seen in the recent past, the last half a
generation maybe, of nationwide injunctions that are imposed by
a single district court judge at various locations around our
Nation. They bar the Federal Government from enforcing law or
policy far more reaching than even their own district, and as I
said, by definition it extends to everywhere in the United
States.
And as I was thinking about this and doing a little reading
on it, I mean, you all know this, I didn't, but the first time
it happened was in 1963, 200 years to get to where we had this
kind of precedent, but in the last year alone we have had 22 of
these. And it seems to be an explosive trajectory for our
Federal courts to impose these nationwide injunctions. And I
suppose that compels you to look at many more cases because
those have to be examined.
Could you share your thoughts on that? It concerns me. Does
it concern you? Does it concern the Court? Is this a good thing
for our country? And is there a way to correct it?
Justice Alito. Well, I appreciate your remarks, and this is
an important issue. Some of my colleagues, I believe, have
written on it a little bit in recent years. It is an issue that
is being discussed increasingly in scholarship, and it is an
issue that may come before the Court in the near future.
So I don't think I can say more about that, and certainly
can't suggest how I think we should decide the issue, and
wouldn't be in a position to be able to say that until the
issue came before us and the issue was briefed.
We have had an increase during the last year or so in cases
in which we have been asked to stay injunctions that have been
issued by the district courts. And we have received
applications from the Solicitor General in a number of cases to
grant certiorari before judgment, which would allow us to take
a case directly from a district court, bypassing the court of
appeals. That is a procedure that has always been available,
but it has always been recognized as one to be used quite
sparingly.
I think--I don't think I can go further on that issue.
Mr. Stewart. Justice Kagan, do you want to share any
thoughts?
Justice Kagan. Not really.
Mr. Stewart. I understand. And, of course, not being
completely oblivious, I anticipated that you would be very
cautious in how you responded.
Can I ask for one clarification, and just for my own
knowledge? When we do have these nationwide injunctions, does
that compel you to examine all of those cases or not in every
case?
Justice Alito. They are typically made in connection with a
petition for a writ of certiorari, which is a matter of court
discretion. So we don't have to grant certiorari in any case,
and therefore the application is also discretionary.
Mr. Stewart. Okay. Thank you both.
Mr. Quigley. Thank you.
Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you so much for being here.
Both my husband and I are attorneys, and so is our oldest
son, so we not only read your opinions, we debate them at the
dinner table. And so I appreciate your thoughtful deliberation,
you do take the hardest cases, and your excellence in legal
writing. We, as a family, very much appreciate that.
And, of course, being from Arizona, we are very fond of
former Supreme Court Justice Sandra Day O'Connor. And Justice
Alito, it is a pleasure to hear from you today as her
successor, not replacement, you can't replace Sandra Day
O'Connor.
But thank you again both for being here.
My question involves financial disclosure. Supreme Court
Justices, like all Federal judges, file an annual financial
disclosure report each May. But unlike Members of Congress,
these reports are not posted online. Would you support a change
in policy to online disclosures?
Justice Alito. As a practical matter they are available
online almost as soon as they are released to the public. There
are private groups that request all of the financial disclosure
forms of the Justices as soon as that is possible, and as soon
as they obtain them they put them online. So as a practical
matter, they are already available online and anybody can see
any of our financial disclosure forms.
We follow the procedure that is set out in the Ethics in
Government Act and in the implementing regulations of the
Judicial Conference on this matter, and we have not gone
further, but that is certainly something that we could consider
if there is a real issue. Because they are documents that are
available to the--supposed to be available to the public.
Mrs. Kirkpatrick. And you were talking about the
transparency of your website and the things that you post
there, and that was what sort of prompted my question there.
Justice Alito. Yes.
Mrs. Kirkpatrick. Justice Kagan, anything different?
Justice Kagan. No, I think that is my view, too.
Mrs. Kirkpatrick. Okay.
Again, along the lines of financial disclosure, currently
the Supreme Court Justices are not bound by the STOCK Act,
which requires Members of Congress to post securities
transactions within 45 days. Do you see any reason that Federal
judges, including the Justices, should not be included in such
a measure?
Justice Kagan. You know, I have not looked into that piece
of legislation, so I don't know what is in it. But it would
certainly be something that maybe we would take a look at as to
whether there were some kinds of transactions that some of us
might be participating in that in other branches of government
are being reported and then ours not. I just don't know that to
be the case. But certainly we will take it back with us.
Mrs. Kirkpatrick. Thank you. Thank you. All in the interest
of more transparency.
Justice Alito. We are prohibited by statute from
participating in any case in which we have a financial
interest. So if we own stock in a company that is a party or
related to a party, a subsidiary or a parent, then we are
prohibited from participating in that case. And all of that is
disclosed in our financial disclosure form.
Mrs. Kirkpatrick. Thank you, again. I yield back.
Mr. Quigley. Thank you.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman.
And it is wonderful to have both of you here today. Thank
you for your presence.
I was curious, it has been 4 years, I believe, since a
Justice of the Supreme Court has been before this committee. Do
you think it would be advantageous to have this opportunity on
a more regular basis or do you think this is sufficient?
Justice Kagan. Well, we were talking before the hearing
began with the chairman, and he was suggesting that he would
not think that this is an every year kind of thing, but an
every few years kind of thing.
I hope I am not misrepresenting you, Mr. Chairman.
But we are at your disposal. I agree with the chairman, it
might not be different enough year by year by year, it might be
sort of repetitive. But if you want us to come back in a few
years' time, we would be glad do so.
Mr. Crist. Thank you.
And then my only other question. I was just kind of
curious, I notice that there is discussion of the 2020 Supreme
Court salaries and expenses budget totals $90.4 million and
that 87.7 is for discretionary expenses. Can you elaborate on
what those might be? I am just not aware, that is all.
Justice Alito. Yeah. Mandatory expenses are the salaries of
the Justices that cannot be decreased pursuant to the
Constitution. That is why they are called mandatory. It is
somewhat misleading terminology. But discretionary expenditures
are everything else. And the vast bulk of that consists of the
salaries and benefits for our staff. So the amounts that they
are entitled to in accordance with their pay grade.
Mr. Crist. Is there any per diem or travel expense
allocation?
Justice Alito. There is. Not for us. Most of the members of
our staff don't do a lot of traveling. Our police officers do,
and I assume that there is a per diem for that.
Mr. Crist. Probably when you would travel they would be
need to be with you, I assume.
Justice Alito. That is correct, yes.
Mr. Crist. Thank you very much.
Thank you, Chairman.
Mr. Quigley. Thank you.
I would just ask the ranking member if there is any member
on his side who has a second round of questioning.
Mr. Graves. No, sir.
Mr. Quigley. And I would ask my members as well if someone
has a second round of questions. All right.
There is one thought. There was some curiosity on how the
shutdown impacted the Court. You seem to be up and running with
some ability to move forward. Did that impact you in any way?
Justice Alito. Fortunately, it did not. My understanding is
that we operated during the shutdown using the same pool of
funds as the rest of the judiciary, and those are funds that
are derived from the filing fees that parties are required to
pay in civil cases. So we are permitted to use those for
operating expenses in an emergency such as that. And,
fortunately, there was enough money for us to keep operating
during the shutdown.
Mr. Quigley. Very good.
Justices, do either of you have anything else you would
like to add.
Justice Kagan. Thank you very much for having us.
Mr. Quigley. The ranking member and myself and all members
here, thank you very much for your service and your time today.
Thank you so much.
Justice Alito. Thank you.
Justice Kagan. Thank you.
Tuesday, March 12, 2019.
TREASURY'S ROLE IN COMBATTING FINANCIAL CRIMES
WITNESS
SIGAL MANDELKER, UNDER SECRETARY U.S. DEPARTMENT OF TREASURY
Mr. Quigley. Today's hearing is called to order.
This morning we welcome Sigal Mandelker, the Under
Secretary of Terrorism and Financial Intelligence of the
Department of Treasury.
As a member of the House Select Committee on Intelligence,
I have traveled to countries around the world and had the
benefit of receiving briefings from multiple agencies to
understand the meanings and tactics used by terrorists, drug
traffickers, human smugglers, and other bad actors who threaten
our national security.
One thing I have learned from these briefings is that all
of these criminal organizations have one thing in common. Their
unlawful operations are supported and financed through money
laundering.
Treasury plays a vital, but often overlooked role, in
combatting terrorist financing and money laundering. In
particular, the Office of Terrorism and Financial Intelligence
works to protect the integrity of our financial system using a
variety of tools and authorities.
TFI's activities range from economic and trade sanctions
administered and enforced by the Office of Foreign Assets
Control against targeted foreign countries, terrorists, and
others who seek to do us harm, to the collection and analysis
of intelligence and financial information that can be used by
law enforcement to investigate financial crimes and money
laundering.
The fiscal year 2019 omnibus appropriations included an
increase of $17.2 million above the fiscal year 2018 levels for
TFI. This additional funding supported the newly established
Terrorist Financing Targeting Center, a multilateral effort
between the U.S. and Gulf Cooperation Council countries to
counter terrorist financing and provide a substantial
enhancement to Treasury's programs targeting North Korea.
From the limited information we have so far on the
Department's fiscal year 2020 budget request, I am pleased to
see continued recognition of the important work you do with a
proposal for a modest increase above fiscal year 2019 for TFI
and FinCEN.
Lastly, I would be remiss if I did not take this
opportunity to comment on the recent announcement of Treasury's
intent to divert $601 million from the Treasury Forfeiture Fund
to pay for the construction of physical barriers along the
southern border. These funds are typically used to augment
funding for critical Treasury and Homeland Security operations,
such as IRS criminal investigations, Title III wiretaps, and
electronic crimes task forces.
In fiscal year 2019, Treasury's budget request stated its
intent was to use available funds to support investigations and
other activities to combat money laundering and terrorist
financing. The recent decision to redirect these funds toward
border fencing recklessly undermines the ability of Treasury
and Homeland Security to address known threats against our
financial system and the Nation.
Before I turn to our witness for their statement, I would
like to recognize Mr. Amodei.
Mr. Amodei, do you have a statement on behalf of Mr.
Graves?
Mr. Amodei. Mr. Chairman, thank you.
I want to apologize for my tardiness, and you have covered
it pretty well. So I have no statement on behalf of Mr. Graves.
And I yield back. Thank you.
Mr. Quigley. Thank you so much.
Under Secretary Mandelker, thank you for being here today.
Without objection, your full written testimony will be entered
into the record.
With that in mind, we would ask you to please summarize
your opening statement in 5 minutes.
Ms. Mandelker. Thank you very much, Chairman Quigley and
distinguished members of the subcommittee.
I want to begin by expressing my gratitude for the
committee's strong and continued support for Treasury's Office
of Terrorism and Financial Intelligence. We are very proud to
work closely with the Congress across U.S. national security
and law enforcement agencies and also with our foreign
counterparts to disrupt malign activity and to safeguard and
strengthen the integrity of the U.S. and international
financial system.
It is an honor for me to be the Under Secretary of TFI
during our 15th year. Although TFI itself is a relatively
recent creation, it actually has its roots in the 1940s out of
an effort to prevent Hitler and the Nazis from seizing U.S.-
held assets of countries as the Nazis invaded them.
In a novel use of our tools then, the Treasury Department
officials used the emergency powers of the United States to
freeze those assets. In fact, they were able to freeze billions
of dollars to keep them out of the hands of the Nazis.
Treasury moved swiftly then, and we move swiftly now as we
are constantly working to keep funds out of the hands of
dangerous actors around the world and to change their behavior.
I am humbled to supervise TFI's career officials within
OFAC, FinCEN, the Office of Intelligence and Analysis, and the
Office of Terrorist Financing and Financial Crime, including
the Treasury Executive Office of Asset Forfeiture, or TEOAF.
These dedicated public servants work day in and day out,
often behind the scenes, to keep America safe. They work at an
increasing pace to implement our complex authorities and our
successes are a testament to their skill and dedication.
TFI's economic authorities play an increasingly central
role in countering some of the Nation's most critical national
security and illicit finance threats. This last year has
undoubtedly been one of our most active.
We have reimposed nuclear related sanctions against Iran;
brought maximum pressure against North Korea; targeted major
Russian companies, oligarchs, malicious cyber actors, and many
more; ramped up our efforts worldwide to combat terrorist
financiers and narco traffickers, as well as their networks;
taken unprecedented action to hold human rights abusers and
corrupt actors to account; reinvigorated our work with partners
to strengthen domestic and international anti-money laundering,
countering the financing of terrorism safeguards; among many
other things.
We are also increasing our efforts to share information
with the private sector. We have issued multiple advisories on
issues ranging from corruption in Nicaragua, Venezuela, and
South Sudan to illicit maritime networks, to deceptive
practices that Iran uses, among many more.
With each of these actions, we are strategically
calibrating our economic tools and authorities across our
components, and all of our efforts are underpinned by bilateral
and multilateral engagement with partners, also with civil
society organizations, including efforts that we undertake to
share information with other governments to work together to
disrupt specific threats.
We, again, greatly appreciate the confidence and support of
this committee. As the chair already mentioned, in the last two
budget cycles, our appropriations have continued to increase,
and we are using these funds to ensure that we remain agile and
responsive to a wide range of national security and law
enforcement objectives and that we are innovating and adapting
at a faster pace than our adversaries.
These budget increases are critical to supporting our
workforce and our mission.
Thank you, again, for your support, and I look forward to
answering your questions.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you so much.
We have some members who need to move on to other hearings
as well. So I am going to move forward with others first, and I
would ask, given that consideration, that we observe the 5-
minute rule, and so we ask members and the witness to try to
keep their questions, especially on the first round, to that 5
minutes.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And thank you for being here, Ms. Mandelker.
I want to start with the Financial Crimes Enforcement
Network. It recently made a statement jointly with regulators
of federal depository institutions, encouraging banks to
implement what they call, quote, ``innovative approaches,''
unquote, to meet Bank Secrecy Act and anti-money laundering
compliance requirement, with the goal of better identifying and
reporting money laundering, terrorist financing, and other
illicit financial activity.
Can you provide us examples of some of the innovative
approaches that you are seeing?
Ms. Mandelker. Thank you for that question.
This actually we thought was a very important effort. It is
the first time that you have had all of the Federal banking
agencies along with FinCEN, which is part, of course, of TFI,
coming out with a statement like that, where we are encouraging
innovation.
We have had a number of financial institutions come to us
with innovative ideas. I do not think at this point I am at
liberty to tell you what those are, given what those
discussions are like. But we are happy to come in and talk to
you about it more.
You know, I believe that we are going to be that much
better at the end of the day detecting money laundering,
illicit activity if we give financial institutions the
incentive and the space to engage in all that more
sophisticated activity to detect those crimes.
And we have seen a lot of great innovation coming out of
the financial institutions, and I look forward to seeing more,
in part, as a result of that statement.
Mr. Cartwright. Yes, and I welcome working directly with
you off script.
And you mentioned the participation of depository
institutions, and I want to ask you. What level of
participation are you seeing from banks in conducting pilots
and other innovative approaches?
Ms. Mandelker. So that was, in part, the purpose of the
statement. We want to make sure that financial institutions
have the space to pilot these kinds of innovative approaches
without feeling like they are going to be dinged, so to speak,
in an examination because they have undertaken these kinds of
pilots.
We have actually received great feedback from financial
institutions. This has gotten a lot of attention at senior
levels of the banks because we do have a lot of people in
financial institutions who have a sophisticated background in
how to use financial crime units within their organization to
ferret out that kind of illicit activity.
So, again, we are happy to have a discussion with you,
about what kind of pilots we are seeing because those are, you
know, conversations that we have in confidence with those
financial institutions, and we are in the process of evaluating
those.
I would rather not speak about it here, but happy to have
further conversations, and what I can tell you is there is a
lot of really good work that is happening in the compliance
community to incentivize even more sophisticated work in this
space.
Mr. Cartwright. Good. Yes, let's talk offline on that as
well.
And I want to move to this question of AI. I notice in the
joint statement it is mentioned that some banks are
experimenting with artificial intelligence to strengthen and
enhance compliance measures.
Can you explain as best you can publicly a bit more about
how these types of systems are being used?
Ms. Mandelker. I bring it to the comments I made before,
and again, I am happy to have other conversations with you.
But the bottom line here is that as actors, illicit actors,
are becoming all the more sophisticated in trying to get around
our rules, our laws, we have to be many steps ahead of them.
And so when it comes to whether it is the use of artificial
intelligence or other technology to detect that kind of
activity, we think it is important.
The other effort that a lot of the banks are now
undertaking is they are forming, under an authority that was
pursuant to the Patriot Act, they are forming consortia where
they are actually able in certain circumstances to share
information with one another.
Mr. Cartwright. With each other.
Ms. Mandelker. Yes, exactly. And when you do that, of
course, you can detect a broader pattern of activity, which we
think is a really important development.
And when they do that, not only does it enable them to
harden their networks, but they also provide information back
to us through suspicious activity reports and other reports
that have been crucial in our ability to take down, with law
enforcement, broader networks.
Mr. Cartwright. Well, I am glad to hear that. So one bank
can say, ``Well, we are seeing that, too,'' and that gives
added credence to a particular threat.
Well, I thank you for being here, Secretary.
And I yield back.
Mr. Quigley. Thank you.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Madam Under Secretary, I want to kind of go to the FinCEN
area as well for a minute, and I want to talk about banking and
marijuana.
Not my cup of tea, no pun intended. I understand Schedule 1
is floating around out there, and the Congress has or has not
done or is going to do some things. But I am talking now as
somebody who has reached out and had FinCEN come in for
briefings about, ``Hey. How are you doing this? And what is
going on?'' because we get that federally regulated banks are
sensitive to what FinCEN has to say about things and stuff like
that.
But I am looking, at least in the neighborhood that I
travel in, at a situation where, for instance, let's take a
large national bank that has not had a great couple of years.
So they are really, really conservative on that Schedule 1
stuff, and ``we cannot.'' Okay. I get that.
But then you get another bank who says to the plumber, who
may have done work on rental property for the landlord, which
is leased to somebody who grows or distributes King's X. Okay,
I think. Maybe not okay.
But I want to get right to the point here, which is when
those folks who are operating in States under a privileged
business license, are paying local governments, State
governments, and the Federal Government their taxes in cash,
which are then put in depository institutions, there is no
scrutiny whatsoever.
It is okay to take cash from a licensed marijuana grower if
you are the State of Nevada and you deposit it in pick the name
of the institution, and there are not examination issues. There
are no FinCEN issues. Clearly Schedule 1 prohibited substance
tax revenues, while there is for all of these other things.
So I am not trying to put that all on you because Congress
has to fill a void. I get that, but right now status quo is if
you are a government entity, putting your cash from marijuana
businesses in a Federal depository institution, as near as I
can figure, it is just fine.
Help me. Why are all of the private sector people being
told, ``Figure out a way to launder your money,'' but yet the
government's political subdivisions are saying, ``Pay the IRS
in cash''?
As a matter of fact, some of them are overpaying them and
getting Treasury checks back. So we have essentially laundered
the money for them.
Ms. Mandelker. So I want to make clear what our role is in
this area and what it is not. So, of course, it continues to be
a crime, as you know, under Federal law to engage in certain
activities related to distribution, et cetera, of marijuana.
Nothing that FinCEN does or can do in this area changes
that. That continues to be the state of Federal law.
Mr. Amodei. Understood.
Ms. Mandelker. And in that context, of course, banks have
to make their own decisions about risk-based decisions as we
ask them to do in a variety of circumstances about what they
are and are not willing to bank.
We do not tell them what to bank. They make those decisions
based on a variety of circumstances, including their concerns
about whether or not engaging in certain types of banking is
going to bring regulatory scrutiny on them or, alternatively,
concerns that it may be involved in money laundering or other
illicit activity.
What FinCEN did in 2014 was issue guidance to financial
institutions about the kinds of SARS that they should file
related to guidance. That was in connection with guidance the
Justice Department had put out at that time related to what
they were and were not going to prosecute.
That guidance remains in place. We have not changed it. We
continue to review it, but as you mentioned, this is really
something, I think, that Congress needs to look at because
nothing that we do can or does change what is prohibited under
Federal law.
Mr. Amodei. Okay.
Ms. Mandelker. And of course, it is really----
Mr. Amodei. And I do not mean to cut you off, but my time
is a little limited.
Ms. Mandelker. Sure.
Mr. Amodei. I would like to request a copy of the guidance,
if that is appropriate, from your office to the guidance you
put out in 2014.
And then I would also like to do one follow-up, which is:
has FinCEN done anything in a disciplinary sense against any
banks that are taking deposits for the U.S. Treasury or for any
State treasury or for any local government treasuries in States
that have legalized marijuana?
Ms. Mandelker. So we are happy to provide that guidance. It
is also available on our Website. We can give a copy to you and
to your staff.
What we do with the suspicious activity reporting that
comes in in connection with that activity is we analyze it, of
course, and you know, law enforcement, I think, believes that
that analysis is valuable to them.
We also have to understand that any activity related to
narcotics can also show other illicit activity that we all have
to take----
Mr. Amodei. I appreciate it, Madam Under Secretary.
I will just do one more request before I yield back, which
is: could you please let us know if there have been any SARS
filed by any financial institutions with respect to deposits
made by the Federal Government, any State government, or any
local government?
Do you have in your system any SARS filed for deposits made
by political subdivisions that are affiliated with the
marijuana industry?
Ms. Mandelker. So what I can tell you is, of course, we
have a number of SARS related to the marijuana industry, as we
do in a wide range of activity.
With respect to your specific question, we are happy to get
back to you.
Mr. Amodei. Thank you very much.
I yield back Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
Welcome, Ms. Mandelker.
Ms. Mandelker, on February 28th, 2019, there was an article
in the New York Times that described how Internet companies
like Facebook are planning to roll out new cryptocurrencies
over the next year that are meant to allow users to send money
to contacts on their messaging systems, like Venmo or Paypal
that can move across international borders.
Facebook, for example, is working on a coin that the users
of WhatsApp, which Facebook owns, can send to friends and
family instantly.
Given the reach of Facebook, as well as the current lack of
central authority like a government or a bank regulating them,
what are the potential vulnerabilities of a Facebook coin to
money laundering?
How would it be regulated?
What can be done to make cryptocurrencies less vulnerable
to criminality and scammers?
Does FinCEN or other investigative organizations monitor
public Blockchain that works for potentially illicit
transactions?
And I am going to ask my second question.
One of the preferred methods of money laundering is through
real estate, which can offer stable values or appreciated
values and also anonymity if they are purchased through shell
companies.
Real estate is also functional in that a money launderer
could use the property as a second home or rent it out, earning
income from the investment. Those transactions are also less
subject to scrutiny when they are compared with transactions
related to banks, which have a legal requirement to report
suspicious activities.
What tools do you need to bring these transactions to the
light of day?
Ms. Mandelker. Thank you very much for both questions.
So just starting with the virtual currency aspect, I do not
want to comment on any particular organization's efforts in--
Mr. Bishop. I understand.
Ms. Mandelker [continuing]. The virtual currency space, but
what I can tell you--
Mr. Bishop. My bad.
Ms. Mandelker. No. What I can tell you is that this is a
very heavy effort, a focus of ours.
So among other things, for example, I have a group of
people that stretches across all of my components that is
looking every day at illicit activity related to virtual
currency.
FinCEN actually was one of the first regulators in the
world to look at this issue and take it very seriously, and in
about 2014, FinCEN issued guidance that said that virtual
currency administrators and exchangers are the same as money
transmitters, which effectively meant that they had to have
compliance, AML/CFT compliance programs just like other money
transmitters. They have to have internal controls. They have to
have compliance officers. They have to file suspicious activity
reports.
In fact, we have gotten thousands and thousands of
suspicious activity reports as a result of our efforts.
In addition, what we have been doing systematically with
IRS criminal investigators is examining virtual currency
administrators and exchangers, and we say that any virtual
currency administrator or exchanger, if it transmits currency
through the United States, has to have those kinds of controls,
regardless of whether or not they are headquartered----
Mr. Bishop. Are you enforcing it?
Ms. Mandelker [continuing]. Here in the United States?
So we are. We are examining them in our supervisory role.
We also have brought examination enforcement cases against
certain virtual currency administrators and exchangers.
We also have a very big effort globally to get other
countries to do the same because bad actors are always going to
go to the lowest common denominator.
So this year we hold the presidency of the Financial Action
Task Force, which is the international standard-setting body
for AML/CFT, and one of our three top priorities is to----
Mr. Bishop. I have got 1 minute left.
Ms. Mandelker [continuing]. Encourage other countries to do
the same.
We could talk about this for a long time, but I can tell
you we are tracking it. We are working very closely with law
enforcement to do the same, and it is a very heavy focus for
us.
In terms of your question on real estate, that is also
another area of focus. So you may be aware that we have issued
a number of what we call geographic targeting orders, which is
an authority that we have gotten from Congress that requires in
certain jurisdictions title insurance companies to provide
information to us very specifically to address the problem that
you have identified, which is the use of shell companies to buy
property, real estate, using cash.
Those title insurance companies have to provide reports to
us about who the beneficial owners are, among other areas.
We have also issued an advisory to the real estate sector
to help them identify red flags that they need to be alert to,
to make sure that they are not being used to funnel money. It
is a big effort of ours, and it is going to continue to be.
Mr. Bishop. Thank you very much.
Mr. Quigley. Thank you.
Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
Ms. Mandelker, thank you for being here today.
As you are well aware, opioids are having a epidemic effect
on our States, and I was wondering if you could explain to us
what role the Treasury might have in helping Federal, State and
local prosecutors in trying to figure out the organizations,
one; two, how they are trafficking or laundering their money
through communities and the things that they are doing similar
to what you might have seen in, obviously, the TV shows that
have shown different ways that they are doing it.
But most importantly to me is: what are we doing to counter
the effects of the Chinese importation of fentanyl and
carfentanil, which is the deadliest thing out there today?
Ms. Mandelker. Thank you for your question.
So opioids and illicit narcotics as a general matter is a
very big effort for us. So among other things, we have an
authority under the Kingpin Act, which has been historically
our most active OFAC program, where we have systematically
targeted narcotics traffickers, international narcotics
traffickers and their networks in a variety of different ways.
So we have sanctioned a number of trafficking rings and the
financial infrastructure that supports those trafficking rings
all over the world, including in the last year we sanctioned a
big fentanyl ring out of China.
So we are very focused on the Chinese fentanyl issue and
problem, and we are going to continue to be.
In addition, what we have been able to do when it comes to
understanding those networks and those rings is taking the
information that we have through the BSA and suspicious
activity reporting and otherwise, analyzing the information,
and as appropriate, we share that with our State, local,
Federal partners because we think we bring a particular type of
expertise into how they work and they operate, and sharing that
knowledge base is, we think, of high value.
So we are going to continue to be focused on the opioid
crisis. I think the other piece of it that we have been able to
bring to the table is the work that we do with our foreign
counterparts. So it is often the case that we will take action,
and that action will spur the action of other counterparts in
countries.
We also work very closely with law enforcement in those
countries to take parallel action, to share information with
them as appropriate so that they can use their effective tools
to do the same.
Mr. Joyce. Certainly the seizures that have taken place of
the drug itself is one thing, but as you are well aware, to
really try to stop the program, you have got to seize their
assets and the finances that are moving around.
You know, for one who has been a local prosecutor for 25
years, I was really interested in the sharing aspect because
obviously you are in a position to make that available. When
the Feds. came to me, the first question I would have is,
``What is wrong with this case?'' because if it was good, they
would have taken it in the first place.
But you know, I would like to see more of that sharing
because I think the most important thing we can do is continue
to work as a team on all of those things and try to seize as
many of their assets and break them up accordingly. Because in
seizing those assets and getting them back in the communities
that are being hit by this epidemic, I mean, we are losing
people at too high a rate today.
You know, one thing that is needed is treatment, and that
requires dollars, and so it would be nice if we could continue
to seize those assets.
Any thoughts on how we could get that accomplished?
Ms. Mandelker. I agree with you 100 percent. I am also a
former prosecutor, and I have seen how much more impactful we
can be when we are able to take those kinds of actions because
they hurt people's pocketbook, and that is another
disincentive, so to speak, to engage in that kind of activity.
Again, I think what we bring to the table is, on the FinCEN
side, the information that we are able to share through our
analysis, and then on the OFAC side, it is going after being
able to designate and sanction the financial infrastructure
that supported those networks.
So just in the last year, for example, we had a big case in
Mexico where we did not just go after the known sort of
narcotics traffickers. We went after the companies, the shell
companies that were behind those traffickers. We went after
some very significant, with attention internationally on some
very significant individuals who were helping to be used as a
cover for narcotics rings, and that similarly is going to
continue to be a big effort of ours.
Mr. Joyce. Thank you. Keep up the great work.
And I yield back what no time I have left back, Mr.
Chairman.
Mr. Quigley. Thank you.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman.
And, Deputy Secretary, thank you so much for being with us
today.
My home State of Florida recently legalized medical
marijuana overwhelmingly at the ballot box. Currently our State
is home to 14 lawfully licensed and regulated cannabis
companies.
By 2020, data suggests that the regulated cannabis market
in the State of Florida will be about $880 million. So between
the economic impact and the benefit to seniors, veterans,
persons with certain disabilities, and other conditions, I
think it is safe to say that medical marijuana is extremely
important in my State.
And yet we are currently having no banks, none, to publicly
extend financial services to any of these lawfully licensed and
regulated businesses in Florida, essentially treating them like
criminal enterprises that your office may have to approach.
I guess imagine for a moment that every lawfully licensed
and regulated marijuana business in the State of Florida has
open access to banking, and every dollar of every transaction
was banked, traced, and taxed within our banking system.
Would this give your department more control and oversight
over illicit activities that contribute to the problem of
financial crimes and money laundering?
Ms. Mandelker. Thank you for that question.
What I can tell, what I mentioned before earlier in the
hearing is I think it is important to understand what our role
is in this area and what it is not.
So of course, it is still a Federal crime to engage in
certain activities related to marijuana. Nothing that we do in
this area changes that, and of course, what financial
institutions have to do as a result is make their own risk-
based decisions as to what they do want to bank and what they
do not want to bank.
There are a number of financial institutions actually who
are doing banking in certain respects. I cannot speak to what
is happening specifically in Florida.
In 2013, I said 2014 before, but it was actually in 2014.
Sorry. FinCEN did issue guidance, and that guidance very
specifically identified for financial institutions what their
BSA obligations are relative to the marijuana guidance, and
they did that at the time because the Justice Department had
come out with parallel guidance about what they do, what they
are and what they are not going to prosecute.
That guidance effectively just told financial institutions
or gave them guidance on what kinds of suspicious activity
reports they should file in connection with certain types of
marijuana related activities.
It did not change Federal law. It just provided that kind
of guidance, and that is really the role that we play here. We
do get suspicious activity reporting related to marijuana
business among a wide variety, of course, of other kinds of
activity.
Law enforcement has access to that suspicious activity
reporting as they do across many, many different other areas,
and we will continue to play that role, which is to be a
recipient and analyzer of that kind of data.
But at the beginning and the end of the day I think this is
really a question of what is and what is not permitted under
Federal law.
Mr. Crist. Can you discuss more broadly how the current
lack of banking access may be contributing to the problem of
financial crimes and money laundering and how giving access to
businesses operating legally under State law would help your
office better carry out that work?
Ms. Mandelker. So, Congressman, I am happy to come back and
have a discussion with you about that. We are happy to take
that question and do additional analysis. Some of that may be
law enforcement sensitive, of course, and it is not something I
could share with you today, but we are happy to have further
discussions with you about it.
Mr. Crist. When you do get those reports of suspicious
activity, what do you do with it?
Ms. Mandelker. So our BSA database is actually available to
a wide range of Federal, State, and local law enforcement
officials. So it is not just a matter of what we do with it. It
is also a matter of how Federal, State, and local law
enforcement officials look at and analyze that data.
Mr. Crist. I appreciate that, but you are here today. So
what, if anything, do you do with it when you get it?
Ms. Mandelker. We track the data. In a lot of different
areas we do analysis of the data because we think it is helpful
both to Federal, State, and local law enforcement as they are
investigating money laundering.
Similarly, within TFI generally speaking, we use the BSA
database to support many of our activities. You know, one
thing, of course, in the narcotics area that we are always
looking to see is whether or not the activity is contributing
to other criminal activity, organized crime, and what have you.
So it depends on the data, but we do spend time and effort
analyzing it and using it and providing it to other law
enforcement partners.
Mr. Crist. Thank you.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
I will take a turn.
Let's step back more broadly. Looking at the issue of money
laundering, large foreign banks, if they were to launder money
for a U.S. person or a U.S. entity, what tools do you have in
place and systems that will detect this activity?
How do we even know they are doing this?
Ms. Mandelker. So we have access to a great deal of
information related to banking, banking activity and other
sanctions evasion activity, whether it is information that we
have through the BSA database or information that we have from
law enforcement partners or information that we have vis-a-vis
the intelligence community.
As you know, I have an intelligence agency that sits under
my supervision, and that has been extremely valuable in our
efforts to counter illicit finance all over the world. So we
bring all of that information together. We analyze it, and we
make decisions about what to do with it.
So just as an example, yesterday we sanctioned a Russia-
Venezuela bank in connection with our Venezuela program.
Similarly, we have sanctioned other banks in Russia and
elsewhere, where we have found or detected that they have been
engaged in illicit money laundering and in different programs.
Mr. Quigley. Again, what type of activity would trigger
your awareness of this?
Ms. Mandelker. So it really would be across a wide spectrum
of our programs. So whether it is in connection with North
Korea, whether it is connection with what is happening in
Venezuela, whether it is in connection with illicit activity
that we see in our Iran program in counterterrorism, for
example, among other areas, narco trafficking or what have you.
And I have teams of people in TFI who are focused on very
specific areas, national security areas, law enforcement, narco
trafficking, human rights and corruption.
The other thing that we have been able to do with great
impact is use a tool that FinCEN has under the Patriot Act
called Section 311, and that authority allows us to call out
financial institutions or jurisdictions who are engaged in
money laundering. We say they are primary money laundering
concerns.
And when we do that, there are a variety of different
measures that we can take under that tool that relate to the
ability of those institutions to continue to do business with
the United States, and we have used it to great effect.
So last year, we used the 311 authority to do a rulemaking
in connection with a bank in Latvia where we had seen that
particular bank engage in a wide swath of illicit activity
related to North Korea, related to Russia, related to
elsewhere.
Similarly, actually my first week on the job, we did a 311
action against a Chinese bank that we had found had ferreted a
lot of money illicitly to North Korea.
And those kinds of actions have had wide ranging impact not
only in the particular institution, but they also send a
message, I think, worldwide that the United States is not going
to tolerate that kind of illicit activity, and we are going to
take action where we think is necessary.
Mr. Quigley. Just for the 100 level, how did you detect
that they were doing that?
Ms. Mandelker. It is a combination. It would be a
combination of information that we have through the Bank
Secrecy Act. We also have information that we are able to use
through the intelligence community, among law enforcement,
among other sources.
Mr. Quigley. It is something that typically transferring
money, you are able to detect that?
Ms. Mandelker. We have a lot of tools to detect how
financial institutions are operating.
Mr. Quigley. And it is a new world with all sorts of new
currencies, and how are you able to keep up with encryption and
so forth?
What tools do you have to match what the bad guys are
using?
Ms. Mandelker. So in a very similar way. So as I mentioned
before, we get a lot of reporting from various entities. So,
for example, the virtual currency space, we get reporting, BSA
reporting, from exchangers and administrators. We get
information. We are able to share information.
We also get information from foreign counterparts and
information that we have in partnership with law enforcement
and other national security agencies.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you for being here with us.
I represent California's 35th Congressional District.
Within it, we have seven freight corridors, massive logistics
industry. So it is a fairly targeted area for the Mexican
cartels to move around narcotics.
I am very concerned with the asset forfeiture account. I
know that in previous years the Treasury has sought to maintain
a minimum of 100 to $150 million in the TFF for operating
expenses. This year is at 71. So I am concerned about that
remaining balance and how much would really be available.
My local agencies use asset forfeiture funding to, you
know, work on these major crimes.
I am also concerned with the President's decision to spend
up to $601 million on a border wall, taking that money out of
TFF.
Can you tell me what other law enforcement activities will
not be supported in fiscal year 2019 as a result?
Ms. Mandelker. So in any given year, we have been able to
fund, depending on what is remaining in the Treasury asset
forfeiture fund, we have been able to fund a range of different
kinds of activities. Including actually in a number of areas,
we have actually taken similar steps, which is we have been
able to support other border security related programs.
So as you know, DHS is a very active participant in the
Treasury Forfeiture Fund, and we get requests from CBP, from
HSI to fund certain kinds of programs, and that is what
happened in this instance. We got a request from the Department
of Homeland Security to use a big chunk of the Treasury
Forfeiture Fund in relation to border security.
In many years in the past actually, we have not had those
kinds of funds available either because we did not have as many
inputs into the Treasury asset forfeiture fund----
Mrs. Torres. Was that just surplus?
Ms. Mandelker. And also because there have been a number of
rescissions that Congress has taken to the Treasury asset
forfeiture funds. In certain years, we have actually had
nothing available because of those rescissions or we have had a
minimal amount that we have been able to use in this context.
This year we are actually fortunate that we have a larger
amount of money that we can use for those kinds of projects.
Mrs. Torres. I am going to be keeping a close eye, and I
will probably follow up with you on that because it is a
critical piece of infrastructure that my local jurisdictions
use to deal with human trafficking and drug trafficking within
my district.
The Magnitsky Act in Central America, I am very focused on
the Northern Triangle issues, very corrupt governments in that
area.
I am concerned that out of this, is it 101 people that are
on the list right now under the Magnitsky act? There is only
one person from the Northern Triangle and a total of two from
Central America; is that correct?
Ms. Mandelker. I would have to go back and look at the
actual numbers that we have had. However, we have had a number
of actions against individuals engaged in human rights or
corruption from the general region.
So we take certain actions under the Global Magnitsky Act.
We also have other authorities that we can use to similar
effect. So we have actually designated well over 500
individuals and entities in connection with human rights and
corruption. Many of those have not been under the Global
Magnitsky Act. They have been under other executive orders and
statutes.
Mrs. Torres. In fiscal year 2019, NDA included an amendment
which I authored requiring the State Department to provide
Congress with a list of corrupt elected officials within the
Northern Triangle. That list is almost a month overdue.
I guess the shutdown really had an impact on them. Will you
commit to working with us to ensure that we move forward and
impose the Magnitsky Act on some of these very corrupt
officials that are causing a crisis for us at the southern
border?
Ms. Mandelker. Absolutely. We are happy to do so. What I
can tell you is that we have seen when we use those authorities
in that region and others, it can create real change.
Mrs. Torres. Yes.
Ms. Mandelker. And I am very committed to using these
authorities in that way.
So we are happy to do that and happy to have other
discussions with you about it.
Mrs. Torres. Dealing with the root causes of migration has
been a priority for me, and I hope to work with your office to
continue that work.
Thank you and I yield back.
Ms. Mandelker. Absolutely.
Mr. Quigley. Thank you.
Our members have one more round. Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Madam Under Secretary, to make sure that I understand,
FinCEN does not have prosecutors. You guys are kind of an
administrator. If you get a SAR that you think is a smoking
gun, my words, not yours, you forward that on to the
appropriate people, for instance, at Department of Justice; is
that correct?
Ms. Mandelker. So we do not have prosecutors. We do have
enforcement authorities that we use in connection with
financial institutions that are----
Mr. Amodei. There is that authority, but what can you do to
somebody if you think they are breaking the rules?
Ms. Mandelker. Well, we have authority to take enforcement
action against financial institutions that do not have AML/CFT
internal controls that meet up to our regulatory standards.
Mr. Amodei. So that is an administrative sanction, not in
the nature of petty offense, misdemeanor, felony----
Ms. Mandelker. No, that is exactly right.
Mr. Amodei [continuing]. In Federal court.
Ms. Mandelker. That is right, and the Justice Department
and many other law enforcement agencies have access to the BSA
database. So we maintain the database. It is our responsibility
to make sure it is secure.
We do a lot of analysis of the information that is in the
BSA database, and we work with our law enforcement partners to
analyze that data. We often analyze it and provide that to a
wide range of law enforcement partners.
But it is the Justice Department that would be prosecuting
those cases criminally.
Mr. Amodei. Okay. And so I would like to finish with, and
FinCEN has stopped by my office before to help me understand
some stuff, which as you can tell from my questioning, I am not
doing well with, but not FinCEN's fault, but anyhow, we would
like to follow on.
If I could get after the hearing the contact or the person
to set that up----
Ms. Mandelker. Absolutely.
Mr. Amodei [continuing]. To do that discussion offline, I
would appreciate it.
Thank you very much.
Ms. Mandelker. We are happy to do that.
Mr. Amodei. I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
So our sanctions are important. They are our policy. They
are the effort short of war to get other countries to do what
you want them to do and to punish those who have misbehaved.
But obviously, the countries and individuals we have
sanctioned principally use money laundering as a means to avoid
this. I would like you to talk about how you address this. In
particular, use Russian sanctions as an example of your
efforts.
Ms. Mandelker. So every day we work to make sure that we
are using our sanctions authorities consistent with our
national security and illicit financial priorities, consistent
with what Congress wants to do.
What we always strive to do is to make sure that we are
using the authority to actually carry out a particular
strategic or tactical objective.
So, for example, I will just take the Russian bank that we
designated over the summer in connection with the North Korea
program. So there we saw illicit activity happening through
that particular financial institution. We designated it, and
actually a couple of months later, the Russian government
pulled its license so that it would no longer be operative.
We have also been able to use our authorities in a variety
of different sophisticated ways. So there are many or most of
our sanctions are effectively blocking actions. We designate an
institution or a person. They are no longer able to access the
U.S. financial system.
In areas where we have secondary sanctions authorities,
that has an even greater effect because it puts those banks or
companies to the choice of either doing business with the
United States or not, and it has a spiraling impact and effect.
In the Russia context, we also have a different kind of
tool, which is what we call sectoral sanctions, where in
connection with certain types of industries, in energy,
defense, in finance, we have been able to launch these sectoral
sanctions where we limit their ability to engage in certain
types of debt, among other things.
So we use different tools depending on the program.
Mr. Quigley. I want to talk about the tactics used to evade
sanctions, shell companies, going through other countries. You
sanction XYZ corporation. They transfer all their assets to
ABC, which is then sitting in Cyprus with a corporation with
absolutely no history.
How do you detect that kind of effort and what tactics do
you see the Russians using to avoid these sanctions?
Ms. Mandelker. So really as I mentioned before, we have an
approach of using all source information, whether it is
information that we get through the BSA database. It is
information that we have because we do have an intelligence
agency in TFI, which is unlike any finance ministry in the
world. No one else, as far as I am aware, has the ability to
access that.
Whether it is because we work with foreign partners who
also share information with us, we have become increasingly, I
would say, sophisticated in our abilities to detect the kind of
shell company activity. So when we go after a particular
target, it is often the case that we do not just sanction the
individual. We sanction the financial infrastructure, whether
it is the shell companies, front companies that are being used
to ferret money all over the world.
And by doing so, by OFAC putting those entities on the
list, we make them radioactive all over the world.
The other thing that happens when we designate particular
entities is there is a whole compliance community out there
that takes the names that we put on our list, and they do their
own analysis as they are advising the compliance sector,
whether it is financial institutions or other companies, about
how to keep themselves out of being caught up in the web of
those kinds of shell companies and front companies.
And as an example, you mentioned Cyprus. We have been
working with Cyprus to really push them to keep bad money out
of the country because that has been an historic problem.
Similarly, as I mentioned, the 311 action that we took
where we called out a bank for being a money laundering concern
was in Latvia. So in that instance we were able to identify
this bank in Latvia that had been used to engage in money
laundering in the Russia program, in the North Korea program.
And because we took that action, it actually had a big
impact on the Latvian banking sector and ultimately in Europe,
and what we have seen as a result of not only that action, but
as a result, of course, of some other scandals that have come
out, real reform efforts underway in Europe, which is part of
what we want to do.
You know, we want to work with other counterparts to make
sure that they are not vulnerable to the movement of money,
whether it is illicit movement of money, whether it is coming
from Russia or elsewhere.
Mr. Quigley. Thank you.
Mr. Stewart.
Mr. Stewart. Thank you, Mr. Chairman.
I am sorry I came a little late to the party. Like many
others, we are kind of juggling schedules a little. Thank you.
I am going to start with a proposition and then give you an
opportunity to respond, and I am going to make this simple.
This is just, you know, for people like me, just normal,
everyday, average Americans to try and wrap their head around
something.
Because I think sometimes the narrative is produced which
is not accurate, and let me start with this. I would argue that
this President has been tougher on one of our global
adversaries, Russia, than many Presidents have been now and I
would say in a generation or more, and I will give as evidence
of that.
First, the kinetic weapons to the Ukraine, whereas the
previous administration refused to do that, sent MREs, and
really nothing else.
The reinforcing of NATO, going to NATO and challenging them
to pay their dues, the 2 percent, which is, of course, the
whole purpose of that is to counter Russia's influence in
Eastern Europe and Western Europe.
The missile defense shields throughout Europe; the
European-Russian initiative, again, to build and counter the
Russian influence.
I think even energy policy. I think the most important
sanction we could put on Vladimir Putin is to keep the price of
energy, the price of oil at $50 a barrel, their incredible
reliance on that for foreign currency, including discouraging
Germany and other European nations from being so reliant on
Russian sources of energy.
So on one hand, you have these policies that are enacted
that are meant to counter the influence of Russia. Now, break,
break. The narrative is that this President sometimes is weak
on Russia, and that is created sometimes because of the lifting
of sanctions.
And, you know, a recent example in January with Rusal, the
metal producer.
Help us understand the thinking behind that, that on one
hand, you want to counter them, but you justified lifting these
sanctions so the American people can understand that.
Ms. Mandelker. Sir, I am happy to do so.
So what we had with Rusal, En+, another company called ESE,
these companies were designated purely because this guy, Oleg
Deripaska, who is an oligarch, who we believe is responsible
for a wide range of activity, was designated back in April.
So the way our rules work is if you are an entity that is
50 percent or more owned or, alternatively, controlled by a
designated person or entity, they automatically get on our
list. So that is why those three companies were designated.
Following that set of designations, we engaged in months
and months of negotiations. The companies came in to us with a
delisting petition.
Mr. Stewart. When you say ``the companies,'' who do you
mean? The two entities you----
Ms. Mandelker. Right, exactly, and as well as an individual
who was leading that effort, who is chairman of the holding
company, En+.
So we engaged in months of negotiations, and what we did in
the course of those negotiations is push them into an agreement
whereby the designated person, his ownership fell under 50
percent, and we took a number of very significant and really
unprecedented steps to sever his control of the companies.
Effectively what we were able to negotiate was, among other
things, a Western foothold into those companies. So whereas
before he controlled the boards, among other things. Today half
of the board of the holding company is U.S. or U.K., which is
quite significant when you think about the fact those are major
Russian----
Mr. Stewart. How were those board members selected, those
Western board members, the U.S. or U.K.?
Ms. Mandelker. So those board members were selected by the
company. What we did was we vetted those. So we told the
companies, you know, whether or not a particular board member
would pass our vetting, and the independent board members are
required to sign affidavits effectively that say that they are
not controlled or will not be influenced by this individual.
Mr. Stewart. Are you satisfied that they are independent?
Ms. Mandelker. We are going to continue. What I am
satisfied is that we have very significant and substantial
measures to continue to monitor compliance.
So we inserted into the agreement things we have never done
before in any program, the ability for a great amount of
auditing, a great amount of transparency, and we have signaled
very clearly, much more than a signal, to the companies that if
they do not comply with the terms of what was a very
significant restructuring and very significant corporate
governance changes, then we will take swift action, up to and
including putting them back on our list.
So now you have these boards, again, with the infuse of
Western influence that are on the hook to us, to OFAC, to abide
by the terms of the agreement.
The other thing that we were able effectively to negotiate
was to have a very significant chunk of the shares of the
holding company are now voted by independent U.S. parties.
So I am not aware of any enforcement action, whether by us
or the Justice Department, where we have been able to
effectively negotiate terms, such that a huge chunk is voted by
independent U.S. parties.
Mr. Stewart. Thank you.
Mr. Quigley. Mrs. Torres.
Mrs. Torres. On money laundering and real estate, so we
have the GTO that revealed about the role of money laundering
in real estate. So Los Angeles Metropolitan Area was just added
to that.
Can you talk to me a little bit about that?
Ms. Mandelker. Sure. I am happy to do so.
So we have this tool, again, the geographic targeting
orders which allow us to require, in particular, types of
companies to provide information to us here about the
beneficial owners of shell companies that are used when they
purchase real estate by cash.
And we take that information, and we do a lot of analysis.
We have expanded the GTOs, as you have mentioned, to identify
information from other jurisdictions. We have also lowered the
thresholds of what title insurance companies that are required
to give us this information.
We have lowered the threshold in terms of the dollar value
of the cash transfers, and what we do is we use that
information. We share it with law enforcement. We analyze the
information, and ultimately it informs our thinking on whether
or not we should make regulatory changes.
The other thing that we have done, which I mentioned
before, is that we issued guidance to the real estate sector to
help them identify money laundering in connection with real
estate transactions, and I think that that advisory, likewise,
has been quite helpful.
Mrs. Torres. Is that the principal source?
And how does it impact our current state of the housing
market and rents?
Ms. Mandelker. So I cannot tell you how it impacts the
housing market and rent. We are happy to see if we have
information about that. That is not really what we do.
What it does impact is our ability to understand how real
estate transactions are used in order to identify money
laundering, so illicit activity.
Mrs. Torres. The bigger picture for us in California is we
are continuing working on addressing the issues of
homelessness. We want to make sure that, you know, we are
checking every box, and how are these purchases making a
negative impact into the housing market, and how is it
affecting our constituents?
Ms. Mandelker. So, again, that is not my area of expertise,
but I am happy to go back and see if we have anything about
that.
Mrs. Torres. Thank you.
I yield back.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
Madam Under Secretary, terrorists and international crime
organizations have used different methods in which to avoid
detection by the Treasury. Can you explain the threat posed by
these alternative remittance channels that they have been
using?
Ms. Mandelker. Sure. So we have actually had a number of
actions in which we have gone after money service businesses
and the other money transmitters that have been involved in
helping to funnel money for groups like ISIS, Hezbollah, Al
Qaeda. You name it. We are tracking that kind of activity.
Of course, you know, terrorists are always going to try and
find new and different means and methods to evade detection,
and what I can tell you is that we have a great ability to see
and understand what they are doing, and we work consistently to
try to disrupt that kind of activity, whether it is action that
we take through a sanction, for example, or whether it is
information that we will be able to share with our foreign
counterparts to encourage them to take action.
So one thing, just in the example of ISIS, one thing that
we have been able to do in strong partnership with a number of
other countries is to set up a multilateral body called the
CIFG where we work very closely with a number of other
countries to share information on how ISIS moves its money, to
work collectively to take action with other countries, to help
inform their prosecutors about actions that they should be
taking to keep ISIS and others from being able to transmit that
kind of money, whether it is through money transmitters or in
other means.
Mr. Joyce. And realizing that you cannot really elaborate
on some of this, but to the best that you can answer it, the
Terrorist Financing Targeting Center that your activities, that
you have done on that, and the other question is what methods
are these groups using to obtain these funds they need to push
on to their groups throughout the world.
Ms. Mandelker. So the Terrorist Financing Targeting Center
is a new initiative that we have been very grateful to this
subcommittee to help us fund. It is a partnership with all of
the GCC countries, where we come together both in a center, but
also in other multilateral or bilateral engagement to take
action to disrupt terrorist financing through that region.
So as a result of this, and it is really unprecedented. We
have never had that kind of partnership. We have never been
able, I think, in the past to get all of those countries in one
room to focus on this effort.
So among other things, we have had three rounds of
sanctions that we have taken multilaterally with all of those
countries related to ISIS, related to AQAP, related to
Hezbollah.
The entire GCC with us, for example, designated Hezbollah's
Shura Council, which we thought was a very important effort.
The other thing that we have been able to do, and that was
really one of the objectives of the TFTC, was to do a lot of
capacity building. So we want, you know, many other countries
to have the same kind of tools and methods to detect and
disrupt terrorist financing.
For example, we had a week-long training here in Washington
over the summer with all of those countries. We are doing
another workshop, a 2-day workshop, with those countries.
Later this month, we will be presenting information about
what we are seeing, and other countries will be doing the same.
What we really want that center to do and what we are striving
towards is to use it to root out terrorist financing in the
region, and I think we are making great strides.
We have a long way to go, but this effort has really been
instrumental to our ability to do so.
Mr. Joyce. In raising those funds, is that through drug
sales?
What are the ways that these organizations are raising
their money, if you can explain?
Ms. Mandelker. It is through a wide variety of means. So
without a doubt, there has been criminal activity that has
enabled terrorist financiers to get access to money.
Of course, traditionally we have been able to stop this,
but ISIS, because it had territorial control over certain
regions, had access to oil revenues, right? That is no longer
going to be the case, but they have used extortion. They use
kidnapping. They move money through charitable organizations
that are really fronts for terrorist financing.
They get money from governments. So, you know, the Iranian
regime, of course, has spent hundreds and hundreds of millions
of dollars supporting terrorist activities, terrorist
organizations like Hezbollah, Hamas, and others. So some of it
is state financed, which is more than an outrage.
So we are taking a number of actions with partners in that
region, but also elsewhere to really put pressure to disrupt
that kind of movement of money.
I will give you one example of action that we took.
Mr. Joyce. Please.
Ms. Mandelker. I believe it is in October. So we identified
and disrupted this international network. Part of it you had
Syria, Iran, and Russian companies working in concert to help
move oil, Iranian oil, through Russia to the Assad regime.
You had actors in the Central Bank of Iran that were
helping to facilitate the movement of that money. There was a
company in Iran that had the name ``medical'' and
``pharmaceutical'' in it, as if that is what it was doing. That
was helping to funnel money to a company, bank accounts in
Russia, that then moved money to a subsidiary of the Russian
Ministry of Energy. We designated that subsidiary.
That resulted in enabling oil going to Syria. At the same
time, that same international network, which was led by a
Syrian businessman who is now designated, was able to work to
move hundreds of millions of dollars through certain means
through Syria onwards to Hezbollah and Hamas.
So they operate in a variety of different means. In that
case we call that an oil for terror network, and that is what
we are working every day to try to shut down, not only through
Treasury tools, but in concert with a number of other
interagency and international partners.
Mr. Joyce. Please keep it up. Thank you for your testimony
here today.
Ms. Mandelker. Thank you.
Mr. Joyce. I yield back.
Mr. Quigley. Thank you.
Thank you to the members for participating and the staff
for putting this together.
Madam Under Secretary, thank you so much for participating
and for your service and for all who work with you.
Ms. Mandelker. Thank you. Thank you very much.
Mr. Quigley. The meeting is adjourned.
[Questions and answers submitted for the record follow:]
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Wednesday, March 13, 2019.
GSA OVERSIGHT HEARING
WITNESSES
EMILY W. MURPHY, ADMINISTRATOR, GSA
Mr. Quigley. Good morning. Thank you all for joining us. We
are pleased and we would like to welcome the GSA Administrator,
Emily Murphy, back before the committee this morning.
Today we plan to engage with Administrator Murphy on a
variety of matters, including her past testimony before this
subcommittee, as well as her management of major projects under
GSA purview.
First and foremost is whether the interest of the American
taxpayer are being put first, where they belong, or whether the
personal financial interests of the President are taking
precedence when GSA is making real estate and procurement
decisions. To get to the bottom of this, we will need the
administrator to answer our questions truthfully and
forthrightly about the construction and consolidation of the
new FBI headquarters.
The plan to acquire the new headquarters for the FBI has a
long history. In the 2009 omnibus appropriation bill Congress
directed the GAO to review the security concerns of the J.
Edgar Hoover building and other FBI locations in the National
Capital Region.
In a report issued in November 2011, GAO found that actions
were needed to address concerns with the condition of the FBI
headquarters because the building had become delipidated and
the FBI staff had outgrown the building.
In addressing the concerns raised about the Hoover
Building, GSA and the FBI jointly recognized that consolidating
all the FBI personnel in the Hoover Building and other
locations throughout the region into one modern facility was
the best answer.
GSA expected the new headquarters facility would eliminate
close to 1 million square feet in rentable space, significantly
reduce the need for FBI leased space in the National Capital
Region, and address the serious security concerns raised by the
FBI headquarters being located in downtown D.C.
In 2014, GSA issued a solicitation to interested developers
asking for bids to develop a new FBI campus headquarters, one
of three suburban locations in either Maryland or Virginia,
that would house 10,000 FBI employees. In 2015, GSA identified
a short list of offers and asked for bids for a new FBI campus.
In exchange, the winning bidder would receive the current
Hoover Building site.
On July 11, 2017, GSA canceled a procurement to replace the
FBI headquarters. And in February of 2018, GSA and FBI
presented Congress with a new, revised raze and rebuild plan
for a new FBI building at the existing Hoover location. This
raze and rebuild plan represented abandoning nearly 10 years of
work of moving the FBI to a suburban Washington, D.C. campus.
In addition, the long-term plan to relocate the FBI
headquarters to a suburban location would cost an estimated
$3.57 billion according to the inspector general and would be
offset by $334 million of proceeds from selling the existing
Pennsylvania Avenue site.
In contrast, the plan to keep the Pennsylvania Avenue
property, demolish the existing facility, and construct a new
building would cost an estimated $3.84 billion or $279 million
more than the relocation plan, and it would accommodate 2,300
fewer employees.
Further, the new revised raze and rebuild plan would make
the FBI the only member of the intelligence community to have a
new headquarters in an urban site.
In testimony to Congress back in 2013, the then-Associate
Deputy Director of the FBI stated that although the FBI had
implemented some countermeasures at the Hoover Building to
improve security, these efforts are not a substitute for
relocating FBI headquarters to a location that affords the
ability to provide true security in accordance with interagency
security committee standards.
So what changed? Why would a nearly 10-year project agreed
upon by both GSA and FBI be abandoned for a significantly more
expensive proposal that compromises the safety and security of
FBI personnel?
Interestingly enough, many years before becoming President,
Donald Trump expressed interest in the FBI headquarters moving
out of Washington, D.C. so that he could acquire the land on
Pennsylvania Avenue and redevelop the property which is
directly across from Trump International Hotel.
However, after he was sworn in as President and became
ineligible as a Federal employee to obtain the property, he
reportedly became dead opposed to the government selling the
property. This reversal caused many to question--and rightfully
so--whether the President wanted to protect his financial
interests in Trump Hotel, particularly if another private
developer could obtain the property and compete directly with
the Trump Hotel.
With this in mind, I asked Administrator Murphy last year
at a hearing on April 17, 2018, directly and repeatedly if
President Trump or other White House officials had any
communications with GSA or the FBI about this abrupt and
expensive new decision to keep the FBI at the Hoover location.
Unfortunately, in Ms. Murphy's response, she withheld the
fact that she met twice with White House officials about the
FBI project, both on December 20, 2017, with General Kelly and
OMB Director Mick Mulvaney and on January 24 with the President
himself.
The GSA inspector general later described these omissions
as having left a misleading impression with our subcommittee
that those meetings didn't occur. Ms. Murphy misled us in spite
of the fact that according to the GSA inspector general she had
practiced answering these questions several times while
preparing for the hearing. When the inspector general asked why
Administrator Murphy had misled the committee, she replied that
she did not want to derail the hearing.
Well, let's be clear. We are off the tracks. This committee
demands truthful and forthright answers going forward. Today, I
take it at face value view that Administrator Murphy sure wants
to answer our questions and put last year's hearing behind us,
and we would like to do that.
We want to know why the relocation plan for the FBI changed
dramatically and how it impacts the security of FBI
headquarters and what level of White House involvement there
was in this decision. We want to know why the new plan is more
costly than the previous plan that had been vetted and approved
by Congress.
We also want the questions answered in the followup letter
from October 18, 2018, where I and other Members of Congress
requested a complete timeline of the FBI project and all
documents and communications associated with the FBI
relocation.
So with that said, I look forward to what will hopefully be
an open and truthful discussion today.
Thank you. And I defer to the ranking member, Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Ms. Murphy, good to see you again. Thank you for joining us
today.
When it comes to our Federal Government operations, you
have a tremendous role. In essence, you operate the agency that
is the landlord for all the Federal Government. I know it is a
tremendous task, and you are prepared for this hearing today.
But you also act as an acquisition agent in many respects,
including purchasing the services, supplies, and equipment for
all the agencies. Each year you manage tens of billions of
dollars of hard-earned taxpayer money. This is a great
responsibility, and obviously you are a part of a lot of
conversations, a lot of tremendous decisions.
I did want to from the outset compliment you and what your
agency has done. In your testimony you have identified about $6
billion of savings that you are presenting to this committee,
and that is not something we see often from agencies.
So thank you for doing that, because our Nation faces a
crisis. $22 trillion in debt has amassed, and the deficit
continues to grow. A lot of folks can point a lot of fingers,
but I appreciate the fact that you are willing to come before
us with cost savings measures.
I look forward to your testimony today. I am not one that
believes that you have joined in colluding with the President
or anyone else in any kind of manner to intentionally or
knowingly mislead this committee or any other committee. I
don't see that in your character, in your person. I wouldn't be
one to sit here as well and say my words always come out the
way I intended.
So today is your great opportunity to clarify anything you
may have said in the past, and I look forward to your testimony
this morning.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you, Mr. Graves.
And let the record reflect that it is 10:08 and the word
``collude'' has entered our lexicon this morning. I had it in a
later----
Mr. Graves. It might have been implied before 10:08.
Mr. Quigley. Well, the word itself. And I had it in a later
pool. I thought it would be more like 10:15.
But I can't express enough, I care a lot less about the
testimony last time. We will touch on it. I care a lot more
about how this decision was made. And I know it is a sensitive
topic for you, and I want to give you every opportunity to help
us understand.
But you have to appreciate the fact that 10 years of
planning and work--and a line that you said that--and I would
like you to address this in your opening, you reportedly stated
that the Pennsylvania Avenue location--this is January of
2018--was not GSA's preferred site and a lot of work had gone
into the campus concept. So I just want to know why the abrupt
change and how the apparent cost differentials and safety
issues were addressed and who was involved in those decisions.
So I want you to take your time. We usually tell folks in
the opening, please don't filibuster. Your written statement is
there for the record. But if it is something new and we can
learn from it, take your time and help us understand how we
came to that abrupt change. Please go ahead.
Ms. Murphy. Good morning, Chairman Quigley, Ranking Member
Graves, and members of the subcommittee. Thank you for the
invitation to join you today. I look forward to discussing a
wide range of priorities and programs within GSA, an agency
that supports Federal agencies with their real estate
procurement, IT, and shared services needs.
I am pleased to say, GSA saved the American taxpayer nearly
$7 billion in fiscal year 2018 alone. We look forward to
building on our service and cost-savings success this year and
in the future.
As the Federal Government's primary landlord, GSA manages
more than 368 million square feet of owned and leased space,
housing more than 1 million Federal employees. As part of our
ongoing efforts to be better stewards of taxpayer dollars, last
year GSA's public building service generated more than $1
billion in savings, including over $900 million in cost
avoidance from these transactions through consolidations,
footprint reductions, and longer-term leases.
From office equipment to satellites, GSA's contracting
vehicles help agencies procure $56.7 billion in goods and
services annually. By simplifying and streamlining access to
the Federal marketplace and modernizing procurement systems and
processes, GSA helped agencies save nearly $6 billion in 2018.
The modernization of Federal IT infrastructure and
applications is an important priority for GSA, and our agency
has become a trusted leader and a valued partner in improving
IT across the Federal government.
By expanding shared services across the Federal government,
GSA is improving performance and saving taxpayer money. This
allows agencies to direct more resources towards their core
missions. One example of shared service savings, GSA fleet
provides more than 217,000 vehicles to more than 75 agencies,
delivering a savings of $0.28 per mile when compared to
independent fleet programs.
Before I close, I do want to address the one issue that was
discussed last year in the subcommittee and that you addressed
in your opening remarks, Sir, the FBI headquarters project.
Given the intense interest in this project, I want to be clear:
The FBI made the decision to propose remaining at its current
location.
I wish the FBI were here with me today to explain their
reasoning for doing so, but there was a new FBI director who
joined the agency in August of 2017. And I don't find it at all
surprising that a new leader coming in to run the agency would
want to take a step back, given the fact that the procurement
had just been canceled, and look at the best way to address the
needs that he assessed for his agency moving forward.
Last year I did not mention meeting with the President with
regard to the location decision because to my knowledge then--
and now--the President had no involvement in the FBI's location
decision. The FBI's decision to remain at the current location
was communicated to GSA at a meeting on January 4 of 2018.
Three weeks later, FBI Director Wray, Deputy Attorney
General Rosenstein, Director Mulvaney, General Kelly, and I met
in General Kelly's office and decided to use a demolish-rebuild
approach to construction at the current site. The location
decision had already been made prior to that meeting.
Following that meeting, Wray, Rosenstein, Mulvaney, Kelly,
and I met with the President to discuss the only outstanding
question, how should the project be funded. The FBI has also
testified that it made the decision to remain at the current
location; and I included in my written testimony a recent
statement from the FBI reiterating that it made this decision.
Also after an exhaustive investigation, the GSA IG
determined that my testimony that the FBI made the
determination decision to remain at its current location was
true. I look forward to answering all of your questions on this
matter this morning.
And I also look forward to being able to discuss with you
all of the good things that GSA is trying to do to better serve
American taxpayers and the Federal agencies that it is our core
mission to support.
So thank you very much for the opportunity to be here this
morning.
[The information follows:]
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Mr. Quigley. Thank you.
Let me begin on the cost issue then.
Ms. Murphy. Please.
Mr. Quigley. Because as I read the inspector general
report, Director Wray reportedly said, quote, if the cost
savings between a suburban campus site and the existing site
were similar, his preference was to remain at the Hoover
Building. But, quote, if the campus scenario offered
significant savings, which we now know it does, he was not
opposed to a suburban campus site. Is that your understanding
of Director Wray's understanding and belief at the time?
Ms. Murphy. That was--that is the--yes, that is my
understanding. I am sorry. Do I--yes. That is my understanding
of Director Wray's statement that he was a strong supporter of
remaining at the current location but that if the cost
difference were--if it was a wild cost difference that he would
reconsider.
Mr. Quigley. What is your definition of wild, and is there
a cost difference?
Ms. Murphy. So I think the way the IG did her cost analysis
is one that I would like to, if I may, I would like to explain
why GSA disagrees with it. There are a lot of elements that go
into any, you know, cost buildup, and I would be happy to
provide you with a really detailed briefing. I won't waste your
time going through all of it now.
But I think the key issue where we disagreed is how we
treat the cost--the value of the current location. When the IG
did her analysis, they subtracted from the cost of the campus
the money that would be put toward--that we would receive from
selling the FBI building.
Mr. Quigley. Right.
Ms. Murphy. They did not give a similar credit though to
the--remaining in the current location. And if you think about
it, if you owned a home that was $200,000 and you owned it free
and clear, and you decide that you want to buy a $300,000 home,
just because you can get $200,000 from the sale of your current
home doesn't mean that the new home costs $100,000. The new
home still costs $300,000, it is how you are going to pay for
it.
Mr. Quigley. But it is the net effect on taxpayers. We are
going to get money back one way or another if we sell the
Hoover Building, correct?
Ms. Murphy. Well, again, if you think about the analogy
from the home----
Mr. Quigley. Just let me just--let me just--but answer
that. And I want to give you a chance to respond. We would get
money back. Approximately, what is your ballpark guess of what
we would get back selling the Hoover Building?
Ms. Murphy. The GSA has not released that amount because we
have wanted to protect that as procurement sensitive
information. The IG has stated that they believe that, I think
you quoted in your remarks----
Mr. Quigley. Right.
Ms. Murphy [continuing]. that it was $334 million. GSA's
concern has all along been that we----
Mr. Quigley. It is a pretty good location.
Ms. Murphy. Well, we believe the site is worth far more
than that and that because of the cost--but we are not getting
the full value, that the--because of the way that the prior
lease exchange was structured where we didn't have the full
appropriations, we were going to be taking--your $200,000 home
was going to become a $50,000 home, and so you weren't going to
be recognizing the full value of that first investment you had.
So when we look at how much we are actually going to--it is
going to cost taxpayers, it was still going to cost taxpayers
the same amount to build the campus or to remain--roughly the
same amount to build a campus or to remain in the same place.
There are other factors----
Mr. Quigley. You still haven't explained why the money we
get for selling it doesn't count.
Ms. Murphy. The money we get for selling it isn't money we
can then go and just apply to the new building. And even if it
were, it is an asset the Federal Government has then lost. It
is a valuable piece of land, as you have acknowledged. And at
the end of the day, if we are talking about, you know, a campus
that the FBI doesn't believe meets its requirements and a
headquarters facility that the FBI says does meet its
requirements----
Mr. Quigley. Let me try to get through the cost issues with
you. Were you aware that several officials within GSA thought
that they were understating the cost associating with the newly
revised plan? And this was stated in the inspector general's
report.
Ms. Murphy. I read that in the inspector general's report.
The information that was provided to me with the funding gap
analysis would be continuing to dive into the funding issue and
look at, among other things, what are the relocation costs of
moving employee--the 23 employees--2,300, I am sorry, employees
the FBI has identified it is moving out of the area.
Mr. Quigley. Is that a yes? Were you aware that there were
those in GSA that thought that we were understating the cost of
the raze and rebuild project?
Ms. Murphy. Not at the time I appeared here last year.
Mr. Quigley. Okay. Are you aware of those now?
Ms. Murphy. I am aware of them due to the IG's report, yes.
Mr. Quigley. And did any of these--those who dissented
discuss this with the GSA leadership team now at this point, to
your knowledge?
Ms. Murphy. No one--no. They had not discussed it with me.
The project team that has been working on it has been working
to refine what the cost associated with the project would be.
And they continue to do so.
Mr. Quigley. To your understanding, did this take into
consideration the hardening of the building and all the other
issues that come with being downtown and the only building in
the intelligence community that would be in an urban setting?
Ms. Murphy. So, yes. The security measures were taken into
account. In fact, the numbers that GSA presented in the
February 2018 report included the fit-out cost, which is what
the--usually what GSA comes to appropriations with--in the past
has come with is the cost of building the building, not of all
the things you have to add on it to make it a functional
building.
And in an attempt to be much more transparent as to what
the real costs of the building were, we included in the 2018
report what we thought the additional cost would be. And that--
and the issue with the hardening of the building is indeed the
reason that GSA strongly argued that a remodel of the building
would not be a successful project, that we believe that the
demolish and rebuild, if the FBI wanted to stay on that site
the demolish and rebuild was the approach that we should use.
Mr. Quigley. Is the quote correct that you stood by the
original plan in January--on January 4 of 2018 was not the
preferred site and that a lot of work had gone into the campus
concept, you said this?
Ms. Murphy. So when I met with Director Wray on January 4
of 2018, I presented him with each of the options, including
what we understood at the time was his new preference. And I
spoke--I had a telephone conversation with Director Wray on the
22nd of December of 2017, at which time he told me that he
wanted to remain at the current location. And I asked for the
ability to come over and brief him on what that would mean and
the alternatives.
My concern for--was that by switching from a campus to an
urban--to remaining at the current location, we would have a
lot of trouble getting funding, that we would have trouble
having support from our appropriators, and----
Mr. Quigley. Well, what did you view then--what was your
argument on what the other downsides were besides this, the
fact that there were the capacity for 2,300 fewer employees
that were going to have to be housed someplace else, additional
security requirements downtown?
All the arguments you made in this 10-year plan that
Congress approved to move forward, you must have made some of
those arguments with the director.
Ms. Murphy. So when I met with the director, the decision
had already been made by the FBI independently of GSA that it
was going to reorganize its headquarter structure and move
2,300 employees outside of the National Capital Region, so that
those employees were already off the table as far as the
director was concerned.
Mr. Quigley. And did the director tell you who he had
talked to about this with the White House?
Ms. Murphy. No.
Mr. Quigley. Did you ask him?
Ms. Murphy. No.
Mr. Quigley. Did anyone ever tell you whether the White
House communicated with the director about their preferences as
to this site?
Ms. Murphy. I want to be careful in answering this
question, sir, because I know that there have been questions
about this in the past. I mean, it is longstanding executive
branch practice and privilege not to discuss conversations
between the President, his advisers, between senior advisers--
heads of agencies and senior White House advisers. So I am
going to respectfully decline to answer that question.
Mr. Quigley. Well, are you exerting a privilege?
Ms. Murphy. I am not exerting a privilege because the
privilege belongs to the White House. I am saying that
longstanding--that all my predecessors of either party would
have declined to have a conversation about conversations that I
wasn't even a party to that may or may not have occurred.
Mr. Quigley. Well, I am going to--we will talk a little bit
about that and then I will pass it onto Mr. Graves. The fact of
the matter is the President has not asserted this privilege,
correct?
Ms. Murphy. To the best of my knowledge, no.
Mr. Quigley. Well, he would have had to have told you?
Ms. Murphy. Yes.
Mr. Quigley. It is his privilege.
Ms. Murphy. It is his privilege, no.
Mr. Quigley. So you are asserting a privilege that has--the
President hasn't?
Ms. Murphy. I am not asserting a privilege. I am declining
to answer based on the fact that--first of all, you are asking
me to speculate about conversations I wasn't party to.
Mr. Quigley. I am asking you if you are aware of any.
Ms. Murphy. And going either way, either answering yes or
no to that question would reveal what conversations took place
between agency heads and the President, and it is my
understanding that longstanding executive branch policy and
practices we just don't discuss conversations between the heads
of the agency, the President, and senior White House advisers.
Mr. Quigley. And respectfully, I am asking you to answer
because there has been no assertion of privilege.
Ms. Murphy. And respectfully, I am going to decline, sir.
Mr. Quigley. We will get onto that, but I will let Mr.
Graves continue.
Mr. Graves. Thank you, Mr. Chairman.
I can sense the difficulty in her with this question
because you are asking her to answer a question based on a
conversation that could be hearsay that maybe she heard about
or didn't hear about or others talked about.
In this place, in this city, Mr. Chairman, you know there
are a lot of conversations that people think they heard or
didn't hear or others presume might have been said. In fact,
you are implying that yourself.
Ms. Murphy, it sounds to me like with the chairman's
questioning he accepts your initial opening statement about the
previous hearing we had and how you clarified that, unless he
says something different here a little bit later. So thank you
for doing that.
Tell me about how decisions are made. Is it common practice
that you as the head of GSA tell directors, or Presidents, or
agency heads where they will have a building built or not
built? Is that your job?
Ms. Murphy. Thank you, Congressman.
Usually what GSA does is an agency comes to us and they
say, we have a requirement, and they give us that requirement.
And then GSA works with them to find a suitable approach, and
then we present what we think the answer to that is to our
oversight committees, and they then have the ability to pass
resolutions either agreeing with us or disagreeing with us.
Mr. Graves. So it is common that you receive a preference
from----
Ms. Murphy. We receive requirement----
Mr. Graves [continuing]. Those that are doing their own
research and have their own request?
Ms. Murphy. Yes. And I will be candid, I don't believe that
the GSA administrator gets to dictate to the FBI director what
national security requirements are.
Mr. Graves. Do you know of any time in which a GSA
director, whether yourself or in the past, has ever told
another director no and just said, you are wrong, we are not
going to do that?
Ms. Murphy. I have argued with other directors about
whether I agree with their delineated area, whether I agree
with their requirements, whether I think we can sharpen our
pencils. But I have never told them, no, absolutely no, you may
not.
Mr. Graves. Are you aware of anyone in the past that has
has done that? I can't think of one where there has been that
conflict where FBI or anyone comes forward, or DOT recently
within the last decade, and said we need a new facility and
this is where we need--and this is how much we need and how we
need it and where we need it and a director said no, we are not
going to do that for you, can you?
Ms. Murphy. I can't think of anytime that I have done that,
but I don't want to speculate as to what my predecessors have
done. I am not aware of any such--I can't recall any. But I
don't want to go--I have learned not to speculate at all.
Mr. Graves. That is fine. So let's go back in time to when
all this started. The chairman referenced this is about a 10-
year process we have all been in.
Ms. Murphy. More than, yes.
Mr. Graves. More than ten. You have been with GSA for a
while too in some capacity, so maybe you have heard
conversations in the past about where all this began and where
it came from. So it began maybe in 2004, 2005, 2006, 2007.
Where did it all start? Let's go back to the beginning for a
second.
Ms. Murphy. It was back, you know, beginning of the prior
decade where the FBI was coming and saying that they are--that
the building is falling down and----
Mr. Graves. Right.
Ms. Murphy. If I can give you an example.
Mr. Graves. But then investment and site research began
when, you think, maybe 2007, 2008, 2009?
Ms. Murphy. I think it was 2007, 2008 that they began doing
the work on that. 2009 there was a GAO study. There was another
study in 2011. There has been a lot of work that has gone on
into this.
Mr. Graves. When were the sites identified, the suburban
sites?
Ms. Murphy. The suburban sites were identified in--I
believe it was about 2014 that they had--the final three were
identified. There were more before--prior to that. If I am not
exactly correct of the date, I would love to correct it
afterwards.
Mr. Graves. No, that is fine. I am just asking in general.
I am trying to help the committee with the timeline.
Ms. Murphy. Yes. Yeah.
Mr. Graves. This is not something that happened last year--
--
Ms. Murphy. No.
Mr. Graves [continuing]. That all of a sudden you stepped
in and told the President or anyone else or the President told
you or someone where all this is going.
So the sites were narrowed down to three, that is my
understanding?
Ms. Murphy. That is correct, yes.
Mr. Graves. Is it still three suburban sites, or has it
been narrowed down any further aside from the recommendation
from the FBI director?
Ms. Murphy So when the procurement was canceled in July of
2017, which was before I became the administrator----
Mr. Graves. Right.
Ms. Murphy [continuing]. At that point in time GSA did not
pursue keeping its options on those sites. So we--at this point
in time----
Mr. Graves. Okay. Let's go back to those three sites.
Ms. Murphy. Yes. Okay.
Mr. Graves. Where were those sites?
Ms. Murphy. There were two in Maryland and one in Virginia.
Mr. Graves. And was any one preferred over another from the
previous administration?
Ms. Murphy. I don't know if the previous administration had
a preferred site. I believe it would be inappropriate for me to
have a preference as to if there is going to be a competition,
the competition runs itself.
Mr. Graves. The two Maryland sites.
Ms. Murphy. The GSA administrator should be ambivalent as
to what the outcome is.
Mr. Graves. Are you aware of any conversations prior to you
being in this position where political influence was asserted
and preferences were indicated from Congress?
Ms. Murphy. Yes. The--I am aware that both the Maryland and
Virginia delegations have a strong vested interest in having
the project in their States, yes.
Mr. Graves. And the two Maryland sites, if we were to look
at a congressional map, where would those two Maryland sites
be? Whose congressional district would those be in?
Ms. Murphy. I----
Mr. Graves. Maybe Steny Hoyer's?
Ms. Murphy. Yes, that would be one of them. And the
Virginia site would be in Mr. Connolly's----
Mr. Graves. So both Maryland sites would be Steny Hoyer's?
Ms. Murphy. Yes, they would be.
Mr. Graves. So if I remember right, Steny Hoyer was
majority leader back in 2009 and 2010. Barack Obama was
President. They had the Department of Justice. They are back at
it again now, and Steny Hoyer is the majority leader again. Is
it possible there is some political influence on the other
side?
Ms. Murphy. I would never want to impugn the motives. I am
sure that every Member of Congress is doing what he or she
believes is best for its constituents and the American people,
just as I am trying to do what I believe is best for my
customer agencies and the American people.
Mr. Graves. And you are right to do that. You are being
fair here. Maybe I am not. Maybe the chairman is not with
implications as well. But we could all probably go back and ask
for some research to be done to see if there were any emails or
any phone calls or any pressure by leadership offices of this
body on GSA in the past, and that might make an interesting
investigative report as well.
So, Mr. Chairman, it can cut both ways, I think. But it
would be nice to move forward and allow this committee to
accept the fact that on February 8 a letter was directed to Ms.
Murphy that says after careful consideration the FBI decided
that demolishing and rebuilding the Pennsylvania Avenue
facility best balanced the equities at stake for the
organization.
So it was their request. It was not Ms. Murphy's
conversation with anyone aside from being given this
recommendation by the FBI themselves.
So with that, Mr. Chairman, I will yield back.
Mr. Quigley. I won't ask you if Steny Hoyer owns any
property across from the FBI building or in Maryland a more
direct influence.
And I will reference that when the IG report was released
August 27, 2018, the FBI had not completed the security program
of requirements for raze and rebuild. And we will talk about
privilege again in a second, but for now, Mr. Bishop.
Mr. Bishop. Thank you very much.
I am troubled by what appears to be a lack of regard of the
findings and the determination of the inspector general of your
department as administrator. A neighbor to the FBI building is
the Trump International Hotel Washington on Pennsylvania
Avenue, which is housed in the Old Post Office Building on a
60-year lease from GSA. Of course, the lease contains the
provision that says no U.S. officials should be admitted to any
share or part of this lease or to any benefit that may arise
there from.
In March of 2017, GSA made a determination that the
President--that Trump's presidency does not present a conflict
of interest to the lease. But then on January 16 of 2019, the
GSA Office of Inspector General released a report finding that
the President's business interests in the Old Post Office
raised issues under the Constitution's Emoluments Clauses that
might cause a breach of the lease. But you decided at that time
not to address those issues in connection with management of
the lease, which is your responsibility.
Then the GSA inspector general advised you and GSA to
reconsider the constitutional issues presented by the OPO lease
agreement, and if a violation was found to reconsider your
earlier finding that the President--that President Trump had
not violated the lease agreement. The Emoluments Clause issues,
of course, that is under litigation in Federal court.
But it appears to me that the recommendations of the
inspector general don't carry very much weight with you as
administrator and the folks at GSA. Can you tell me why that is
the case? Most agencies have a great deal of deference to the
recommendations of their inspector general.
But in this instance, it appears that you don't have very
much regard for that. And I might note that this is a neighbor
piece of property to the FBI building that has been the subject
of discussion for most of this hearing.
Ms. Murphy. Thank you, Mr. Bishop. I appreciate the
question because I think there has been a great deal of
confusion as to the January 2019 IG report and what the actual
recommendation is.
If I may, I would like to read the recommendation to you.
It says that we recommend that before continuing to use the
language--meaning the language that the clause is in the
lease--GSA determined the purpose of the interested parties
provision conduct a formal legal review by the Office of
General Counsel that includes consideration of foreign
presidential Emoluments Clauses and revise that language to
avoid ambiguity.
The--GSA accepted that recommendation. I would say that the
entire report, the only recommendation that the Inspector
General's Office gave to GSA was about the prospective use of a
clause in out leases that did not recommend that GSA make any
changes to its current administration of the lease before the
Old Post Office building.
Mr. Bishop. Did you or did GSA consult with the attorney
general with regard to legal advice on that--
Ms. Murphy. So the----
Mr. Bishop [continuing]. Or did you have--the inspector
general obviously had a strong suggestion for you, but did you
seek other legal counsel to get a contrary opinion?
Ms. Murphy. So the decision to not consult with the
Department of Justice before issuing the contracting officer's
letter in March of 2017 was actually made by the prior
administration in December of 2016. That was 2 years before I
was--I am sorry, it was a year before I was confirmed.
GSA has been--and as you know, the topic of the Emoluments
Clause is the subject of litigation. The Department of Justice
has in public pleadings at this time said that there is not an
Emoluments.
Mr. Bishop. Let me just interrupt you. My time is about to
expire, but didn't the IG report criticize your leadership at
GSA for improperly ignoring the constitutional issues there?
Ms. Murphy. They were criticizing the decision to not
consult with the Department of Justice. That decision was made
by the prior administration.
Mr. Bishop. So the answer to my question is yes?
Ms. Murphy. They criticized the Agency's decision but it
was the decision made by the prior administration.
Mr. Bishop. Thank you. My time has expired.
Mr. Quigley. My friend, Mr. Joyce.
Mr. Joyce. Thank you, Chairman Quigley.
Good morning Administrator Murphy.
Ms. Murphy. Good morning, sir.
Mr. Joyce. Let's get down to brass tacks. Was the President
involved in the selection and location for the new FBI
headquarters?
Ms. Murphy. To the best of my knowledge, he was not
involved in the decision for the location.
Mr. Joyce. Did the Trump Hotel influence the decision not
to move the FBI headquarters from its current location?
Ms. Murphy. No. To the best of my knowledge, there was no
discussion at the Trump Hotel involved in the decision on the
location.
Mr. Joyce. Did the IG report on the FBI headquarter
location dispute your testimony last year that the FBI made the
decision to remain on Pennsylvania Avenue?
Ms. Murphy. No. No, sir, it didn't.
Mr. Joyce. What was the January 24 meeting in the Oval
Office about?
Ms. Murphy. It was about how we were going to fund the
FBI--the demolish-rebuild of the FBI location, and it was an
important meeting for GSA because we were proposing a ground-
lease leaseback. The ground-lease leaseback has been a matter
of controversy--I shouldn't say controversy--of debate between
the Office of Management and Budget and GSA for many
administrations now. And the idea that we were going to be able
to use a ground-lease leaseback to expedite construction was
one that was actually very exciting for GSA.
Mr. Joyce. The current status of the FBI headquarters, good
condition? Poor condition? Fair condition?
Ms. Murphy. Sir, to answer your question, last month an 8-
pound block of concrete fell through the ceiling onto an
employee's desk. If it had been--it took out the overhead lamp,
his phone, part of his monitor. If he had been sitting there,
he would have been seriously injured if not killed. We now have
to wall off parts of the building.
I would invite any member of the committee to join me. I am
sure the FBI would be happy to have everyone come over there
and see not just the state of the current building but also
talk about what our plans are for the future.
Mr. Joyce. Is it normal for you to tell the political
appointee, such as Director Wray, where they should go and what
they should do? Or do you act with them in concert? Or how does
that procedure work where you--and you are dealing with
administrators as far as where they want to maintain their
headquarters?
Ms. Murphy. So GSA works with agencies. Agencies give us
the program requirements, and the agencies own that program
requirements. GSA then works with them on a solution that will
meet that requirement. GSA has opinions and we try to influence
the decision, but ultimately we are going to--you know,
especially when it is a matter of national security, we are
going to defer to the FBI director.
Mr. Joyce. This wouldn't be your normal office building
maintaining government employees. There is a certain level of
security necessary that is already in place for the FBI
headquarters where it is?
Ms. Murphy. There is security that is already in place, and
the ability to do a demolish-rebuild lets us put a lot of very
new cutting-edge security features in as well.
Mr. Joyce. How old is the building?
Ms. Murphy. The building was built--I think it is 51 years
old now, sir.
Mr. Joyce. What is the normal lifespan for a building,
governmental building? Now, granted the Capitol is a different
structure, but, you know, something that would take it back to
what, in early 1980s it was built?
Ms. Murphy. No, sir. It was built in the late 1960s.
Mr. Joyce. Oh.
Ms. Murphy. So it is a brutalist structure. The average age
of the GSA own portfolio is 50 years, so about half of our
buildings are older than 50 years, and half are newer than 50
years.
Mr. Joyce. Do you do a benefit-cost analysis on the moving
of an agency versus rebuilding at the--on site?
Ms. Murphy. Yes, sir, we do. And the idea of renovating on
site, really just we were concerned that that was going to--
that the operational risks to the FBI were going to be so high,
as well as the risk to the construction project by moving them
out and then demolishing, rebuilding, and we could get them the
headquarters they need for the 8,300 employees who were going
to remain in the area.
Mr. Joyce. Now, we have gone through a similar cost
analysis with the Smithsonian Institute and Air and Space
Museum, correct?
Ms. Murphy. Well, the Smithsonian is independent of GSA. I
would assume that the individuals who were working on the
Smithsonian project have done that work.
Mr. Joyce. Well, I apologize for that. I thought you were a
party to the discussion, because my understanding a teardown,
rebuild there is $1 billion?
Ms. Murphy. That is my understanding, but the Smithsonian
has some independence from GSA. So they are----
Mr. Joyce. Still $1 billion of taxpayer money.
Ms. Murphy. Still $1 billion, but--yes.
Mr. Joyce. And that was a fairly new building. It is
similar to--again, we talk about the Capitol or the other
buildings that we are in here are older, but they have stronger
bones for lack of a better term.
Ms. Murphy. I would say the GSA headquarters building, for
example, is 101 years old now. And it needs some work, but it
has got really good bones. And so we--we are actually able to--
we are adding another 1,000 employees to the building this
year, so we will be able to really maximize the utilization of
it because it is a very solid building.
It is one of the reasons that last year's budget request I
asked for a lot of money--you know, funds for repair and
alteration work because I think that if we invest in these
buildings and keep them in good shape we don't end up having to
have conversations about do we demolish the building or do we
sell it and need to build a new building.
Mr. Joyce. I am out of time. Thank you, Mr. Chairman.
Mr. Quigley. Certainly.
And before I recognize Mr. Crist, just as you go forward
with your testimony, Madam, you openly discussed and
characterized the January 2018 White House meeting, including
the one with the President. And in your other answers with my
Republican colleagues you seem to be selectively asserting a
privilege that you aren't asserting. So let's hope we can be a
little more consistent.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman.
Good morning, Administrator. It is nice to have you with
us.
Ms. Murphy. Thank you, sir.
Mr. Crist. In 2014 the Government Services Administration
began procurement proceedings for a new FBI campus outside of
Washington, citing the clear financial benefits of a suburban
location. Is that accurate?
Ms. Murphy. That is sir, yes.
Mr. Crist. At some point between now and then the GSA
scrapped the relocate plan in favor of a more expensive plan to
raise J. Edgar Hoover Building and build a new headquarters on
the existing site. You have said that the wishes of the FBI
director were part of that decisionmaking process. Did he share
with you why he wanted to do something that was more expensive?
Ms. Murphy. Sir, and I really wish the FBI director were
here with me to answer these questions because I think he could
do the best job of answering, you know, what his requirements
are. But, yes, we talked about his need to have proximity to
his parent organizations. The FBI is part of the Department of
Justice.
The fact that there are infrastructure concerns that will
make it easier for their employees will also make it easier for
them to secure, to have some--whether it be plumbing,
electricity, that there is a lot of the--the work is already in
place. They talked about the number of meetings that they have
in the area and the transportation costs and the increased cost
to the FBI of being there.
But additionally----
Mr. Crist. Isn't there less traffic outside the District
than coming into it?
Ms. Murphy. Well, I think that their issue would be that
they would still have a large number of meetings in the
District, and so their employees would be constantly commuting
between a campus and their--whoever it is they were meeting
with.
The overall concern though, sir, was, again, it was a brand
new director in August of 2017. So the prior procurement was--
without full appropriations was not financially viable by the
end. It was clear by the end of July of 2017 that it just was
not a viable procurement anymore.
Mr. Crist. But under a previous director----
Ms. Murphy. Under--yes.
Mr. Crist [continuing]. This mission was put into motion to
have this relocation to go outside the District.
Ms. Murphy. Uh-huh.
Mr. Crist. Do you know who that director was?
Ms. Murphy. I would believe it would have been--I believe
it would have been Director Comey, but I am----
Mr. Crist. I think it was Mueller.
Ms. Murphy. Mueller. Sorry.
Mr. Crist. I believe so.
Ms. Murphy. Yes.
Mr. Crist. In weighing the pros and the cons of the two
options, relocate or raze and rebuild, I would like to know
what changed in the almost 10-year run-up to the plan of
relocation, either by you or by the new director in addition to
what you may have already just stated that made it more
attractive to stay on Pennsylvania Avenue?
Ms. Murphy. So the first thing that made it more attractive
was that the FBI's requirement itself changed. They no longer
needed a campus for 10,600 employees. They needed a building
for 8,300 employees. The FBI's decision, which was independent
of GSA and I believe was--already obtained independent funding,
to relocate 2,300 of their own employees changed the calculus.
It put the site on Pennsylvania Avenue back in play. So when
GSA was informed of that that brought the--an owned site back
into contention.
Mr. Crist. So smaller but more expensive was deemed better?
Ms. Murphy. Well, they are just--they are different mission
needs. So the--when the FBI though is saying that the--you
know, having a building there that they could accommodate their
employees in, it wouldn't have--you know, you wouldn't need the
space for a parking garage. You wouldn't need a separate
physical plant. So it is smaller but it is because you don't
need those other things you would need with a campus.
Mr. Crist. All right. Did you have at any time any
knowledge of the President's preference of which of the two
plans he preferred?
Ms. Murphy. So I want to be clear that you are asking me if
I had knowledge of whether the President----
Mr. Crist. Had a preference.
Ms. Murphy. A preference to relocate. Sir, again, I am not
going to--I don't want to speculate, and I don't want to----
Mr. Crist. I am not asking you for speculation.
Ms. Murphy. Please don't read--don't read a yes or no into
this, but I am going to decline to discuss conversations that I
may or may not have had with the President or his advisers.
Mr. Crist. Why?
Ms. Murphy. It is longstanding executive branch practice
and privilege for heads of agencies not to discuss those,
whether they existed or didn't exist.
Mr. Crist. But as pointed out by the chairman, nobody has
asserted a privilege.
Ms. Murphy. No one has asserted a privilege, sir, but that
is--in the same way with attorney-client privilege it is the
client who asserts the privilege, not the attorney.
Mr. Crist. And----
Ms. Murphy. And it wouldn't be me who asserts the
privilege. It would be the White House, and I don't get to make
the decision for the White House.
Mr. Crist. So you were in two meetings with the chief of
staff of the President and the President and the FBI director
on this issue?
Ms. Murphy. So prior to the hearing last year I had been in
one meeting with the President on this issue.
Mr. Crist. And you said that was on cost?
Ms. Murphy. And that was on cost.
Mr. Crist. No discussion of the location of the facility?
Ms. Murphy. I am authorized to discuss what we decided in
that meeting and so--and----
Mr. Crist. Did you decide in that meeting the location?
Ms. Murphy. No. The location had already been decided weeks
before I met with the President, and that was the first time I
ever met the President.
Mr. Crist. By whom?
Ms. Murphy. By the FBI.
Mr. Crist. I think my time is expired. Thank you.
Mr. Quigley. I just want to ask, you were authorized--you
just answered a question you were authorized to--by whom?
Ms. Murphy. Normally that I wouldn't--it would be--
Mr. Quigley. But who authorized you?
Ms. Murphy. White House Counsel's Office said that I could
discuss the fact the meetings existed and what the conclusions
were. The----
Mr. Quigley. All right. I am sorry, we will get into that.
I don't want to delay Mr. Stewart.
Mr. Graves. Mr. Chairman, if I could just----
Mr. Quigley. Certainly, sir.
Mr. Graves [continuing]. Clarify--I believe her answer was
correct on the FBI director at the time, Mr. Crist. Comey took
over in 2013, and Mueller was prior to 2013, 2013 and prior. So
just for clarification of the record.
Mr. Crist. Thank you.
Mr. Quigley. We will put into the record eventually who was
the FBI director at each point in this long process, but I
don't want to delay Mr. Stewart.
Mr. Graves. And maybe who was President at the time in
conversations that took place between then GSA director and----
Mr. Quigley. Those would all be interesting too if somebody
could answer.
Mr. Graves [continuing]. And the majority leaders.
Mr. Quigley. I appreciate that.
Mr. Stewart.
Mr. Stewart. Thank you, Mr. Chairman.
Administrator Murphy, thank you. We have had a chance to
get to know you in your tenure, and I want you to know that
many of us think you are doing a terrific job. It is a
difficult position. And you have had some stuff thrown on your
lap that I don't think was--you didn't expect. But--and I think
we--to use a phrase--beat this dead horse in this hearing
today, and I haven't been here for all of it, but I have been
here for enough to get a sense of where it has gone.
So I want to ask a few clarifying questions and then move
onto something that is important to me and my district, which
matters as well, and allow you to respond, if you could.
And just for clarity, for my own benefit, I understand that
career--and I will emphasize career contracting officials
determine that the tenant of the Old Post Office Building lease
is in compliance with the terms of that lease. Is that true?
Ms. Murphy. That is correct, sir.
Mr. Stewart. And do you believe that these decisions should
be made by career, nonpartisan, nonpolitical, hopefully
unbiased professionals, which is what we are counting on them
to be, and which I think they take pride in being, that they
would be the ones who would determine that versus elected
officials or political appointees?
Ms. Murphy. Yes, sir, I do.
Mr. Stewart. And to a sensitive subject, but someone
questioned your intentions or perhaps accuracy of your words or
testimony before this committee or Congress, I will give you a
chance to answer very simply: Have you been truthful in your
testimony?
Ms. Murphy. Yes, sir, I have. And----
Mr. Stewart. Have you tried to mislead in any way?
Ms. Murphy. No, it was never my intention, and I don't
believe I----
Mr. Stewart. And I believe that.
Ms. Murphy. And I don't believe I did, but----
Mr. Stewart. I don't believe you did either.
And if I could make an extended argument here, and that is,
it is important to keep in mind that when we make accusations
or perhaps insinuate, as we have seen--and not in your case. I
am not talking about you or this committee at all now. I am
talking about more generally.
But we have seen innocent people accused of essentially
treason over the last few years. We are not accusing them of
jaywalking. Innocent people have been accused of treason and
other high crimes with no evidence. And it has had an enormous
impact on their lives. It has broken them financially. It has
ruined their reputations. It has broken in many cases their
professional careers and their families.
And I think it is important that when we make accusations
like that or when we imply things such as that, to remember we
are talking about real people who many of them are serving
honorably and trying to do a good job and that it has impacts
on them personally. And it would perhaps make us careful in how
we respond to them or how we treat the information that may be
before us.
Now, if I could talk to you a little bit about some things
back home. We have some real needs in Salt Lake City, as you
know. I know you are coming out in a few weeks. We hope to
visit with you while you are there.
Ms. Murphy. Look forward to it, sir.
Mr. Stewart. In our courthouses and others, we have had
several earthquakes in my district over the last few weeks. The
renovation of this beautiful courthouse, a historic courthouse,
which is a beautiful building, but it is going to be incredibly
expensive to bring up to code for earthquake standards. Can you
give us your feeling on that and what is the best way forward?
Ms. Murphy. So you are referring to the Moss courthouse,
sir?
Mr. Stewart. Yes, ma'am.
Ms. Murphy. Yes. So my understanding is it currently houses
the tax and the bankruptcy courts, and that it is the top--it
is the, you know, what we consider to be the highest seismic
risk. GSA is going to treat it accordingly. We would need to--
in order to renovate that building we would need to move during
the renovations the judges and the courts out into the Federal
building and into the new courthouse temporarily until we can
complete remediation.
I don't have an exact date of when we would be able to
begin our remediation, but I would like to work with you on
that so we can try and find a way to fund and get that to
happen.
Mr. Stewart. And we look forward to that, and thank you. It
is a boatload of money, to use a technical term.
Ms. Murphy. It is. It is, indeed.
Mr. Stewart. It is almost as much as building the new
courthouse was out there, which we just completed. And we
appreciate your help on that.
And then one thing I will mention quickly, and then we are
going to have to work with you, Ms. Murphy, on this, and that
is our judicial--our courts have already outgrown the
courthouse. There is a floor there that has been set aside--the
sixth floor has been set aside for non-Federal offices.
And we need to work with you to try to clear up some space
for our judges out there right now that some of them--well, all
of them are doubling up on their courtrooms, and it has been a
real issue. And we will reach out to you and try to work with
you on that conflict as well.
Ms. Murphy. I look forward to working with you on it, sir.
Mr. Stewart. Thank you, ma'am.
Ms. Murphy. Thank you.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And thanks for being with us, Administrator Murphy.
I want to clarify some of your testimony. I believe you
have testified that you have spoken to the Office of White
House Counsel about today's testimony. Is that correct?
Ms. Murphy. I received clarification going into--when I met
with the IG last year that I could speak to meetings I had and
the conclusions of those meetings.
Mr. Cartwright. No. No. I am asking you a simple question.
Have you spoken to the Office of White House Counsel prior to
today's testimony about today's testimony? If the answer is no,
that is fine.
Ms. Murphy. I want to be careful, again, sir, because it is
my understanding that it is longstanding executive branch
policy and practice to not discuss what we do deliberatively to
prepare for a hearing.
Mr. Cartwright. Certainly. But we are talking about a
privilege not to disclose the contents of conversations or
communications. I am simply asking you, yes or no, have there
been communications between you and Office of White House
Counsel to prepare for today's testimony?
Ms. Murphy. Again, I am going to respectfully decline to
answer that question because of the deliberative nature.
Mr. Cartwright. Okay. Well, let's delve into that a little
bit. When you say you are declining, I think you said before
that you are declining on the basis of potential executive
privilege being invoked. Am I correct in that?
Ms. Murphy. And, sir, I am a government contracts lawyer
not a constitutional scholar, but, yes, it is my understanding
that no matter the party, no matter the administration that
witnesses don't discuss what they did to prepare, and that
heads of agencies don't discuss what they--conversations they
had or the details of conversations they had with the President
or his senior advisers.
Mr. Cartwright. I am asking you a simple question. Has
anybody at the White House, including White House counsel,
instructed you that they are invoking executive privilege in
any part of your testimony today?
Ms. Murphy. No.
Mr. Cartwright. Okay. So we are talking about a theoretical
invocation of executive privilege here, and I suppose this is
your idea that that may happen. There may be an invocation of
executive privilege from the White House. Is that what it is
about?
Ms. Murphy. I am not speculating as to whether there could
be or couldn't be, or would be or wouldn't be. I am saying that
just historically no administrator, no secretary, no head of an
agency discusses the contents of conversations with--that they
had or didn't have with the President or his senior advisers.
Mr. Cartwright. You are not only declining to discuss the
content of conversations with the White House, you are
declining to tell us whether you even had any conversations
with the White House prior to today's testimony to get you
ready for today's testimony. Am I correct in that?
Ms. Murphy. Yes, sir.
Mr. Cartwright. Okay. But you have said that you have not
been instructed that there is an invocation of executive
privilege. You did tell us that, correct? Correct?
Ms. Murphy. Yes.
Mr. Cartwright. Okay. What about the April 17, 2018,
testimony that you gave us. Same set of questions,
Administrator Murphy, did you have meetings with the White
House to get you ready for the April 17, 2018, testimony?
Ms. Murphy. Sir, again, I want to decline to answer that
question for the same reasons, that----
Mr. Cartwright. All right. And same followup question. Are
you declining on the basis of an executive privilege that
someone actually invoked?
Ms. Murphy. I am declining because it is both deliberative
and that, you know, historically I think that the Department of
Justice has stated that we just don't discuss how we prepare
for hearings.
Mr. Cartwright. And to be precise, again, the same
question, prior to the April 17, 2018, testimony that you gave
us, did anybody at the White House instruct you that they were
invoking executive privilege with respect to any of that
testimony, April 17, 2018?
Ms. Murphy. No. And I hope that when I am declining to
answer these questions, please don't read a yes or no into that
answer. It really is that it is just not mine to discuss.
Mr. Cartwright. But it is a no for that question.
And so the April 17, 2018 testimony, if there were any
refusals to answer based on executive privilege, again, this
was a theoretical executive privilege invocation as opposed to
a real one. Am I correct in that?
Ms. Murphy. I am trying to make the distinction between a
theoretical and real because, again, it is not my privilege. It
is the----
Mr. Cartwright. I don't remember. Did you decline to answer
any of our questions April 17, 2018?
Ms. Murphy. No, sir. I didn't believe that there were any
questions that I needed to decline to answer.
Mr. Cartwright. Okay. But----
Ms. Murphy. I didn't understand the question to be--I
understood the questions that I was being asked to be about the
location decision.
Mr. Cartwright. All right. But you are standing on your
refusal to answer our question about whether you met with
anybody from White House counsel or anybody from the White
House to prepare you for today's testimony. Are you?
Ms. Murphy. I am.
Mr. Cartwright. I yield back, Mr. Chairman.
Mr. Quigley. Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman and Ranking Member,
for holding this hearing.
And thank you for coming to my office, I don't know, last
month or so.
Ms. Murphy. Yes.
Mrs. Torres. As a new member of this committee, I really
appreciate having that time with you. And as I stated to you
during that meeting, I am never going to do a surprise question
to you. I was very clear as to the issues that are important to
me and what I was going to address at today's hearing.
So having said that, I want to ask you if it is common
practice for GSA to not sign agreements?
Ms. Murphy. No.
Mrs. Torres. Okay. So you are----
Ms. Murphy. At least, I hope it is not. I am not aware that
it is. I would be very upset to learn that it was.
Mrs. Torres. Okay. Great. I am happy to hear that.
This GSA agreement with the Park Service about the Post
Office, when was that signed?
Ms. Murphy. So can I--may I give some background on this?
Mrs. Torres. Uh-huh.
Ms. Murphy. I think you are asking me--and I want to be
clear because I learned last time that I need to be really
clear that I understand what the question is. You are asking me
about the clock tower at the Old Post Office----
Mrs. Torres. Yes.
Ms. Murphy [continuing]. And GSA's agreement with the
National Park Service to maintain that. So there was a public
law, it is I believe 98-1, that was enacted in 1983 that
requires GSA to work with the National Park Service to make
sure that the clock tower remains available. GSA pays for that
as a service contract to the National Park Service.
Mrs. Torres. My question was only about the date. When did
GSA sign this contract?
Ms. Murphy. I believe their latest--it is an MOU. I believe
it was signed in late December of 2018.
Mrs. Torres. During the shutdown?
Ms. Murphy. Yes.
Mrs. Torres. During the same shutdown where many national
parks across the U.S. were completely destroyed. When I met
with you, I expressed my frustration over Joshua Tree in
California. That park is a national treasure. It will never
recover, never, never, never recover. It was an incredibly
irresponsible decision to keep that open. I understand that is
not your decision.
But you--I am sure you can imagine how I feel and how my
constituents feel that when they realize that while there was
no staff there to guard those 300-year-old Joshua trees, there
were staff at the clock tower, at the Trump Hotel to ensure
that the visitors of that hotel had a nice place to visit.
Ms. Murphy. So, Congressman, and I understand your concern
with this. GSA during--throughout the entire month of December
did not furlough any of its public building service employees.
We never furloughed any of our general counsel staff. The--so
the decision to continue to--and we funded all of our service
contracts throughout the entire shutdown. There were none that
we did not pay, so we continued to execute and pay those
contracts.
GSA noticed that the clock tower had been shut down. It is
my understanding that my regional office had reached out to the
National Park Service and said GSA was still paying its service
contracts and so still could pay its service contracts.
And there was no interference either from political
appointees, there was no interference from the White House,
there was no interference from the--to the best of my
knowledge, no one from the Trump Hotel even reached out.
Mrs. Torres. So why was there a failure from Lisa Mendleson
to date this contract? Why did she fail to date this contract?
Ms. Murphy. I couldn't tell you, ma'am. I am happy to go
back and find out, you know, and ask why it wasn't dated. I
wasn't aware it wasn't dated until you just mentioned that to
me.
Mrs. Torres. I would like for you to follow up with me----
Ms. Murphy. I would be happy to.
Mrs. Torres [continuing]. On that. As well, if it is common
practice and if it is not common practice, how do you resolve
this issue moving forward to ensure that all employees that are
allowed to sign agreements or contracts follow the direction
and the policy in place.
Ms. Murphy. Ma'am, that is something I take really
seriously. When I was at GSA the first time, I instituted a set
of procurement management reviews where we have individuals go
out and review contract files throughout the course of the year
to make sure that everyone is following the appropriate rules.
And I am going to continue--I am happy to look into this
because I take very seriously that we need to keep our records
in proper order.
Mrs. Torres. Thank you. I yield back. And I am going to
leave this with the clerk so you can have it.
Ms. Murphy. Thank you very much.
Mr. Quigley. Thank you.
Let's do a round two, if we can. It has been discussed in
this hearing that you had discussions with Director Wray about
this, and it is normal that when you are dealing with an agency
that you talk with the agency head about their needs and what
they need out of a facility like this, correct?
Ms. Murphy. Yes, sir.
Mr. Quigley. Okay. Because I--and I read in this, November
2011 GAO and the FBI worked together on this report, and they
talked about moving to a suburban campus because they raised
concerns about the Hoover Building and they jointly recognized
that consolidating all of the FBI and the Hoover Building and
other locations into one facility was the best answer.
The GSA expected the new headquarters facility would
eliminate close to 1 million square feet in rental space,
significantly reduce the need for FBI for leased space, and
address the security--serious security concerns raised by FBI
headquarters being located in downtown D.C.
And they would have--they wouldn't have to find a home for
2,300 other employees someplace else. And it has been our
analysis and in talking with the FBI and being a member of the
Intelligence Committee that the number of FBI personnel hasn't
gone down. It is gone up. So this building has only lasted 51
years, and we get it. It is falling apart.
But what we are talking about is hopefully building
something that will last longer than 50 years, and we would
imagine that the FBI's concerns about our national security
would not dictate having fewer employees.
So at what point did anyone suggest to you what was wrong
and what has changed since 2011 that makes downtown location
safer, a need to galvanize that building, secure it, find home
for more and more employees? Did anyone express to you as you
defended this in early January 2018 why this was incorrect?
Ms. Murphy. So my first conversation with the director was
the 22nd of December of 2017. We did a quick conversation. We
agreed that we would have that meeting. That was--my
understanding though is that in October, November of 2018--of,
I am sorry, of 2017, before I was confirmed, and I wasn't party
to these conversations, that there was some career level
conversation about maybe they wanted to put the J. Edgar Hoover
site back into play.
GSA, when I met with the director, he had already made the
decision that the 2,300 employees were not going to be part--at
least my understanding was the decision was made that the 2,300
employees were no longer part of the requirement. After that
meeting GSA's efforts pivoted into how do we address their--you
know, if their new requirement is to stay at this location, how
do we address that requirement.
So they had come back and believed that--and that I think
contracted with an outside company to look at how could we
address security measures, how could we address the very issues
that you are mentioning, and they have done that independently
of GSA.
Mr. Quigley. And I just want to ask, these 2,300 are going
someplace, and included in the cost has to be wherever the heck
they are going, the fact that there has to be a chair for them
and a desk for them someplace else. Was that included in this
when you are calculating which one of these things was more
efficient?
Ms. Murphy. It was not included in the numbers that we
submitted in January of 2018--I am sorry, in February of 2018.
Mr. Quigley. Or the fact that they will have more employees
as time goes on?
Ms. Murphy. The FBI came to us with what their requirement
was, and, again, as I have stated, it is the FBI that tells us
what the requirement is going to be. So, you know, the FBI's
plan to--they believe they could achieve the consolidation,
they could achieve the safety concerns, and that they no longer
had the need for 10,600 headquarters employees in the D.C.
area. My understanding is they have actually obtained most of
the funding independently of GSA to move those employees
already.
Mr. Quigley. But, as you said, with the money we would get
from a sale the dollars count in someplace. They are not
getting it from some other government. In the end, the money we
get from the sale is U.S. taxpayer dollars, and the money that
they get from someplace else is still U.S. taxpayer dollars. So
if we are comparing the cost of which is more efficient, in the
end it doesn't matter at all where the spigot is. What matters
is the total net differential.
Ms. Murphy. Although at that time we were--when the FBI
came back to us and said the requirement was 8,300, GSA was not
going to build a campus for 10,600 employees if the FBI was
already moving to 2,300 of those employees. So at that point in
time that it was--that money was going to be spent whether we
did a suburban campus or we remained on Pennsylvania Avenue.
Mr. Quigley. Bottom line, why did you defend this in
January, early January of 2018? Why did you defend the suburban
campus?
Ms. Murphy. Honestly, Congressman, I believe that the best
way to get funding for this project was a suburban campus, that
it was going to be the one that it would be easiest to get
support from the Maryland and Virginia delegations to go
forward and get funding for.
Mr. Quigley. But you got this job for a reason. You are a
numbers person. You calculate all this. That had to be
calculated in some of your reasoning. It couldn't have been
just this is the easiest way for us to get the money.
Ms. Murphy. No. It was----
Mr. Quigley. There had to be some other factors that you, a
smart person, would have weighed and said this makes more
sense. And it can't--please don't tell me all your decisions
are politically expedient.
Ms. Murphy. It is not a political expediency question.
Mr. Quigley. So beyond that, why a suburban location in
January?
Ms. Murphy. So when I went and toured the FBI building, I
was incredibly upset to see the conditions under which those
employees were working. There are nets outside the building to
make sure that pieces of facade don't fall and injure or kill
the employees coming to work, pedestrians walking by.
Inside the building they brought out a media cart filled
with pipes that had rusted through. There are parts of the
basement that had collapsed, the parking garage that had
collapsed. My primary concern is getting the FBI headquarters
that meets its requirements. If I--if the way to get that done
and what I believe the fastest path to getting them a
headquarters in January--on January 4 I believe was going to a
campus.
The FBI told me that that no longer met their needs. At
that point then that takes that off the table. So their mission
comes first. My job is to now get--find some way to hopefully
work with you to get them a headquarters that will meet their
requirements. And I would love to have them be part of this
conversation as well.
Mr. Quigley. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Thank you for your responses today.
Mr. Chairman, I wish all the committee members were here
and could understand that a lot of this really predates Ms.
Murphy. I remember prior to her being nominated and sworn in,
we had these same conversations with the previous acting
director at the time, Mr. Horn, and even before that about this
same building and same concept. This is nothing new. It may be
new to the newer members on the committee, but it is certainly
not new to this discussion, debate, and unfortunately, we are
still spending more time on it.
Mr. Chairman, I think we should all respect the idea that
when a new administration comes in, there is new leadership.
Sometimes there is new direction, there are new ideas, there is
new vision, there is a new concept.
And so it is unfair to accuse Ms. Murphy of changing course
and direction when she is just trying to carry out the
direction of the request of a director, a new director who came
in just after she did, who has a different vision for the
Bureau. This may be a fairer conversation for another hearing
with the director of the FBI.
Now, I have visited the facility.
Mr. Quigley. I couldn't agree more.
Mr. Graves. And it is dilapidated. It is falling apart. I
was there just 4 months ago. It is in dire need of demolishing,
and then certainly they need a new facility.
But what I hear is that Director Wray has said, look, we
want to operate differently. We want to deploy more people out
into the field offices and have less people in a centralized
location, but in that centralized location we still need access
to our resources and our intelligence community assets and
friends that we work with, just because there is something
about that synergy that is helpful for national security
purposes.
Maybe we could just totally dismiss this notion that we
have a President's office that is oftentimes criticized by the
other side for poor ideas or lack of direction or incapability
of carrying out a mission when, in fact, what I hear today is
that in some way maybe this President is so conspiring that in
2012 or so he and his family organization put a bid in on a
project that they won in 2013.
They invested millions of dollars to build a facility,
predicting that he would run for office, that he would beat 15
other Republicans and then Hillary Clinton just so he could be
across the street from a building that he didn't want
demolished and sold to a private party. I mean, that is a
pretty far stretch.
Mr. Quigley. I think it is the other way around. Once he
owned it, was he concerned about what was across the street.
Mr. Graves. But so then he must have appointed----
Mr. Quigley. Just the timing is pretty dramatic to shift 10
years of bipartisan support for a project and then all of a
sudden overnight, yeah, maybe not so much.
Mr. Graves. I guess my point is that this predates Ms.
Murphy and this debate predates the President being sworn in.
And you and I have been on this committee for a while. We know
that.
Mr. Quigley. Look, I think a lot of what you are saying is
true. I said at the beginning to Ms. Murphy, I care far less
about the fact that I believe that she misled us by not stating
the obvious about the meetings at the White House and far more
about how this decision was made and whether she thought it was
a good idea, and how her notion of how she thought it was a
good idea in January changed, because just a few weeks later
there was a meal--a meeting at the White House with these folks
and then an email chain shortly thereafter that said, we are
changing direction right after this meeting. So there are
coincidences and then there are coincidences and then there is
commonsense, sir.
Mr. Graves. Reclaiming my time, my point being in some
cases that picture--I don't know who all is in that picture. It
hasn't been shared with the committee----
Mr. Quigley. Well, we will ask.
Mr. Graves. But Director Wray, I imagine, is in that
picture. Is he? Is the director in that picture?
Mr. Quigley. Well, why don't you ask Ms. Murphy.
Ms. Murphy. May I? So in that picture you will see Deputy
Attorney General Rod Rosenstein, sitting next to him is FBI
Director Wray, then there is me, and then I believe Mick
Mulvaney, and General Kelly, and the President. So the FBI and
the Department of Justice were in that meeting. And that
meeting----
Mr. Quigley. Who was there from the FBI and the Department
of Justice? And I will wait until after, but I just want----
Ms. Murphy. No. That is--Director Wray is the director of
the FBI was there, and Deputy Attorney General Rod Rosenstein
was there from the Department of Justice.
Mr. Quigley. I am sorry, sir.
Mr. Graves. No. That is fair.
And so what I am hearing through all this, there has been a
lot of debate and discussion about where the facility should
go, shouldn't go, but there is a part of me that might think
that it is less about the President trying to block a private
entity from building on Pennsylvania Avenue and maybe it is a
little bit more about an FBI director who has a different
vision for the Department and wants to do something different
and he has reasons for that.
And I share that because I have been there. I have met with
some of the career staff at the FBI, and I have asked the
questions because this has been an ongoing topic. And there is
a common thread there. And the people I talked to were not in
that picture. I don't think they have been to the White House.
They are just normal folks. And so maybe we should not pin as
much of this on Ms. Murphy because I think she is trying to do
her job, and it is a big, complex agency she runs.
Mr. Chairman, I will just close with this, because Mr.
Crist brought up a point and was asking questions and Mr.
Cartwright as well. In this letter from the Department of
Justice and the FBI to Ms. Murphy, it says clearly the FBI
decided that demolishing and rebuilding the Pennsylvania Avenue
facility best balanced the equities at stake for the
organization.
It addresses the suburban campus. But it says that
maintaining the current location addresses several equally
significant concerns, including the proximity to FBI partners,
transportation concerns, and reduced land acquisition and
parking cost. Now, that is from the FBI director. I am sorry,
not director, the associate deputy director.
But there was one critical sentence in the end here. It
says, we believe that the construction of a secure
technologically advanced facility in the current location near
mission partners and multiple forms of transit will best meet
the FBI's need. That is from the FBI themselves and not Ms.
Murphy.
With that, I will yield back.
Mr. Quigley. Mr. Crist.
Mr. Crist. Thank you.
Yeah. I just--confused, I guess, because it seemed that--I
think you said for like 10 years this plan to be outside the
District had been pursued.
Ms. Murphy. The prior--yes. The--I believe the plan began
at the end of the Bush administration and throughout the Obama
administration. That was indeed the--that was the plan that GSA
was pursuing.
Mr. Crist. So back as far as 2008?
Ms. Murphy. Yes.
Mr. Crist. Okay. And so the idea for that long period of
time until, I guess, January of last year?
Ms. Murphy. Until January--in my mind, until January--was
when GSA learned was January 4. I believe that records reflect
that the FBI began changing its mind as soon as August of 2017.
Mr. Crist. Okay. So the run-up had been significant?
Ms. Murphy. Yes. But the requirements also changed. So when
GSA and GAO and the FBI----
Mr. Crist. If I might, I have got more questions.
Ms. Murphy. I am so sorry.
Mr. Crist. That is quite all right. That is quite all
right.
So the run-up had been a long time. Apparently a consensus
had been developed that it was smarter and wiser and I guess
you defended that to have the suburban location where other
intelligence facilities after all are based. And then we have a
change of direction where you are going to be able to house
less employees, and it is going to be more expensive to do it
than what the majority of people in a bipartisan way apparently
thought was a better way to go.
And I think what is confusing to some of us at least is if
that thought had been embraced by so many for so long, it is
hard to explain why all of a sudden there is a dramatic change
in the direction of what should be done with the FBI
headquarters, and that is why we are kind of scratching our
heads here. Some of us. Some of us are not.
But that is a frustration, and, you know, that you won't
let us know, you know, who you consulted with, not the content
but even who you consulted with to come before here today is--
that is a little troubling.
Mr. Graves. If the gentleman would yield, I would like to
just comment that this debate predates Ms. Murphy, predates
Christopher Wray. We have had--prior to you being on the
committee many discussions as well, this is nothing new.
Actually, it goes back a couple years, several years.
Mr. Crist. That is exactly my point. It had been in play
for a long time and all of a sudden it got abandoned.
Mr. Graves. There are two different viewpoints and have
been under previous administrations, as well.
Mr. Crist. Well, the point I am trying to make is, and I
think the chairman made it better than me, is that the plan
that is being pursued now, the new direction is to have less
people housed in a contiguous location to look out for the
safety and welfare of the American people and cost them more to
do it. Now, who does that make sense to?
Ms. Murphy. May I respond, sir?
Mr. Crist. Of course you can. It is not a question, but you
may.
Ms. Murphy. Well, you asked what had changed. And, again--
and I don't want to put myself in the FBI director's shoes
because he has far greater insight into the FBI's mission
requirements than I could ever hope to have. And I am grateful
that he is doing that job. But taking----
Mr. Crist. And I want to be clear, I am not attacking you.
Ms. Murphy. No.
Mr. Crist. I am trying to find out why a change in decision
and direction came about. It may or may not have been your
decision. I suspect it wasn't because you were defending the
suburban location.
Ms. Murphy. But----
Mr. Crist. So you don't have to defend this.
Ms. Murphy. But the 2,300 employees that are proposed to
move, it is my understanding that they provide payroll,
administrative, support functions so that they--and that in
looking at how the FBI headquarters staff was functioned, GSA
has its payroll function located in Kansas City. It is still a
headquarters function, but it is in Kansas City and operates
very well there.
We have--so it is not unusual that agencies would have
administrative functions being carried out on behalf of the
agency outside of the District of Columbia.
Mr. Crist. Thank you.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
And while I have found all this to be fascinating if, in
fact, there was some movement of this office, we could have
some lovely land in the 14th District of Ohio on Lake Erie
there that would provide a beautiful setting for the--all
2,300, 5,000, all the employees that would love to come to
Ohio.
But I am also very interested--pardon?
Mr. Quigley. Both of them.
Mr. Joyce. I am very supportive of the streamlining of
certain government systems for efficiency. But I know a number
of my colleagues and I have concerns regarding the suitability
of certain healthcare products being purchased on the e-
commerce portal.
If certain healthcare-related products are not exempt, we
could see unintended consequences for the healthcare facilities
and the patients they treat. Could you give us an update on
GSA's consideration of either a full exemption or a delayed
implementation for healthcare products from the procurement
through commercial e-commerce portals program?
Ms. Murphy. Thank you, Congressman.
And I believe you are referring to the fiscal year 2017, I
believe it was, NDAA directed the GSA administrator to put in
place an e-commerce platform in a portal. GSA submitted its----
Mr. Joyce. Like you didn't have enough on your plate.
Ms. Murphy. This is one of those things where it started
off as an idea when I was working on the Hill as a
congressional staffer, so it has sort of come full circle. I
have been able to watch it evolve and change, and it has been a
fascinating lesson.
But the GSA submitted its first report last March detailing
how we intended to proceed on the project. Our second report is
due this month, and we will hopefully be getting it to you--
getting it to anyone who is interested by the end of this
month. Our plan to proceed though has always been not to look
at things like office supplies first.
GSA's own contracting we delegate responsibility for those
healthcare products to the Veterans Administration believing
that they have better subject matter expertise than that to run
those. So my understanding is that we would be starting
something along the lines of office supplies in any
demonstration or pilot program that we were on.
Mr. Joyce. Well, is it possible that you would wait to
implement this portal for healthcare products after the
programs have been tested for safety and effectiveness?
Ms. Murphy. As I say, it would not be for healthcare--it
wouldn't be for healthcare products as we start it. It would be
for office supplies.
Mr. Joyce. Correct. But, I mean----
Ms. Murphy. And we would start with that and do it as a
proof of concept to make sure that works, and then as we
continue to test and learn and refine potentially add new items
in. So we are not looking to--and we would especially, at least
my inclination would be we would not start with items that we
delegate contract and responsibility to other agencies for. We
would work with things that we had the subject matter expertise
in first.
Mr. Joyce. And that being so, because I know you have got
so much time on your hands to look into these things, but would
you make one that would be healthcare specific then versus
being one of a general portal for all?
Ms. Murphy. So the requirement is that we have multiple
portals, and so that is already our plan is to have multiple
portals. If we get to a point--and, again, this is an iterative
process by which we are going in doing proofs of concepts,
studying what happened, I think that that would be something we
would be very interested in looking at whether that would make
more sense.
One thing we are doing right now though, to make it easier
to buy any item GSA sells, is modernizing our schedules program
and the systems that support that, and then we would be able to
make those tools available to VA, so that would make it easier
for anyone in the Federal Government to contract with those
healthcare supply providers and vendors that have already been
vetted by VA.
Mr. Joyce. Got it.
And I know I have a little bit of time remaining. But I
wanted to let you know that if there is any agency of the
Federal Government that would like to move to the 14th District
of Ohio, we would welcome them with open arms. And our office
would help in the procurement process in making sure that they
are taken care of and their safety needs will be addressed on
the lovely shores of Lake Erie.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Thank you.
I am tempted to ask you if anyone told you how to answer
questions about healthcare products, but I am concerned there
would be some assertion of privilege. I am just kidding.
Mr. Graves brought up----
Mr. Joyce. It is covered by occupation.
Mr. Quigley. Okay, Doctor.
Mr. Graves brought up the first White House meeting and you
mentioned who was there, correct? Was anyone else----
Ms. Murphy. In the picture, I want to be clear, that was
not the first meeting.
Mr. Quigley. I know. But was someone else----
Ms. Murphy. That was the first meeting I ever had with the
President.
Mr. Quigley. Okay.
Ms. Murphy. There was a meeting that preceded that meeting
that day that had all--that had the Deputy Attorney General Rod
Rosenstein, the FBI Director Christopher Wray, the OMB Director
Mick Mulvaney, you know, General Kelly was the chief of staff
at the time, and myself, and that was a discussion of the
demolish-rebuild versus the renovation in place.
So there were--in my mind there were three maybe four
decisions that have taken place in this procurement. There was
the decision in July of 2017 before I was confirmed to
discontinue that procurement that--the prior lease exchange.
There was the decision on the location which was made by
the FBI, in my mind, on the 4th of January of 2018. There was a
decision that was made on what were we going to do on that
site, so were we going to renovate it, are we going to demolish
and rebuild it, and that was made on the 24th by the FBI in a
meeting with----
Mr. Quigley. Okay. But I just want to--I told Mr. Graves we
would just wrap that part up.
So there was a meeting earlier this day at the White House?
Ms. Murphy. Yes.
Mr. Quigley. With the people you just referenced?
Ms. Murphy. Yes.
Mr. Quigley. And this was the second meeting that day?
Ms. Murphy. That was the second meeting that day.
Mr. Quigley. Okay. And that discussion you said before was
just about----
Ms. Murphy. How were we going to pay for it. What we
concluded at that meeting was how we were going to pay for this
project. And we agreed that we were going to use a ground-lease
leaseback and that was a big decision for GSA.
Mr. Quigley. In either of those meetings did you raise any
concerns with abandoning the original relocation plan?
Ms. Murphy. Again, I apologize. Please don't read into this
yes or no, but I can't discuss the contents of the
conversations. I can tell you who was there and what we
concluded.
Mr. Quigley. No, and I get it. And just so I can put that
on the record. For the record, you are going to say--have the
same answer, did anyone overrule and push back about your
concerns, did you receive any directions from the President of
the United States about these issues, your answers are all
going to be the same about all these meetings, correct?
Ms. Murphy. What I can tell you explicitly is that what was
concluded on the January 4 meeting was the location. What was
concluded in the first meeting that did not have the President
in it on January 24 was the how we were going to address the
project that we were going to do a demolish-rebuild. And in the
meeting with the President what we concluded was that we were
going to use a ground-lease leaseback.
Mr. Quigley. And the second White House meeting, which was
a second date, would be June 15, correct?
Ms. Murphy. There was a meeting on June 15 as well, yes.
Mr. Quigley. And who was there for that?
Ms. Murphy. So all of the individuals from the January 24
meeting were there, and then there were additional individuals
who were present as well.
Mr. Quigley. And who were they?
Ms. Murphy. Mark Schwartz was there.
Mr. Quigley. Mark who?
Ms. Murphy. Mark Schwartz was at the time, I believe, the
head of congressional affairs.
Mr. Graves. What year are you speaking of on this June 15
date?
Ms. Murphy. 2018.
Mr. Quigley. It is 2018, right?
Ms. Murphy. Yes.
Mr. Quigley. Okay. I am sorry. And who else?
Ms. Murphy. Don McGahn who was the White House counsel was
there at the time. And I am trying to remember everyone who was
there, and I know I gave a list to the inspector general when
they asked me. And I apologize, sir, it was 9 months ago, and I
am not exact--I know there were other people in the room but I
am not clear. My memory is not great on it.
Mr. Quigley. Okay. And you are not going to answer any
questions about what was discussed but just generally overview,
correct?
Ms. Murphy. I can tell you what was concluded, which was
that we were going--the topic of the meeting was an update on
where we were, and the conclusion was we were to go forward
with the plan as articulated in the February 2018 report.
Mr. Quigley. All right. Look, I respect you have made your
decisions. I disagree with them. We are going to conclude with
that. But general awareness is a different question.
In all that you have been through with this, was any
influence that you were aware of, made, saw, heard, was any
influence brought to bear that would impact this decision based
on what would help the President's personal interest?
Ms. Murphy. None whatsoever.
Mr. Quigley. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
And thank you for your time today. I know these are tough
questions and pointed questions, but you have answered them to
the best of your ability today.
Mr. Chairman, thank you for the way you have conducted the
meeting. You have allowed everybody to have sufficient time,
and the tone has been appropriate.
I would like to submit the letter from the FBI for the
record for the committee.
Mr. Quigley. No objection.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves.
Ms. Murphy, what I hear from you is that in your opinion
the decision about the facility location was made prior to you
being confirmed and sworn in. Is that correct? Did I get the
timeline right?
Ms. Murphy. So I believe that the FBI director was working
on that decision--it was conveyed to me that that was--when I
left the meeting on January 4, it was my understanding that
that was the decision and from that point forward GSA only
worked on, you know, developing plans for how we would rebuild
on that site. And that was within, I think, less than 3 weeks
of my being confirmed after I was confirmed. But----
Mr. Graves. But prior to that----
Ms. Murphy. But my understanding is that the FBI began
working on the idea of----
Mr. Graves. Prior to you being confirmed?
Ms. Murphy. Yes.
Mr. Graves. You mentioned they had stepped away from that.
Ms. Murphy. I believe they actually--they had a contractor
who was going through and looking at designs so that----
Mr. Graves. And who was the FBI director then?
Ms. Murphy. Well, August of 2017 was when Director Wray was
confirmed. So that was----
Mr. Graves. So prior to that the decision, in your mind,
was made. I was trying to walk through the timeline Mr. Quigley
has stated there. There was a summer decision to move away from
the----
Ms. Murphy. There was a summer 2017 decision to terminate
the lease exchange because there simply wasn't enough funding
to go forward with it.
Mr. Graves. Right. Okay.
Ms. Murphy. The--which then sort of--and then within, I
think, 2 to 3 weeks the FBI director was confirmed. So he
became the director at a time when there was the opportunity to
go in and reshape those plans. And he took that opportunity and
began work on what it would mean to stay on that location, on
that site.
Mr. Graves. You are in a tough spot. I know that. And the
chairman has highlighted that from the appropriation side. We
do have oversight and so----
Ms. Murphy. Of course.
Mr. Graves [continuing]. You have been kind to give us as
much time as you have today. I think it is appropriate for us
no matter who is in the White House or who is in certain
offices or majorities in the House and the Senate to recognize
sometimes there is a change of direction when there is a change
of leadership.
In fact, we have noticed that just in the last 2 months. In
the House there are different decisions being made. There is
different direction, different play calls being made from last
year. And that is just part of the nature of the changing of
leadership.
So, Mr. Chairman, it has been a good hearing. I appreciate
the way it has been conducted.
And, Ms. Murphy, thank you for your time today.
Mr. Quigley. And I do need to add, Mrs. Torres ask that we
introduce the interagency agreement between the U.S. General
Services Administration and the U.S. Department of Interior
into the record. So without objection, I would appreciate that.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you so much for being here. I get you
walked into a lot of this. We appreciate your coming back
today. I would just conclude there are coincidences and then
there are things that go beyond commonsense. And we have more
information to uncover.
We are aware that there was--in response to our letter a
document dump, I guess, you might want to describe of 2,500
that we have yet to see, the letter that we sent you asking for
information. So we are going to sort through that and see what
other information still has to come forward. But we appreciate
your sending that and hope that the rest of the requests in
that letter comes soon.
Other than that, we thank you for your participation today
and, again, your service.
Ms. Murphy. Thank you, sir.
[Questions and answers submitted for the record follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Tuesday, March 26, 2019.
OFFICE OF MANAGEMENT AND BUDGET REQUEST FOR FISCAL YEAR 2020
WITNESS
RUSS VOUGHT, ACTING DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
Mr. Quigley. Good morning. Thank you all for joining us
today.
I would like to welcome the Acting Director of the Office
of Management and Budget, Russ Vought.
This is a fitting topic for this subcommittee's first
budget hearing of the year because OMB oversees the
implementation of the President's agenda and prepares the
President's budget.
That budget offers a chance for this Administration to lay
out in detail its vision and priorities for America.
Unfortunately, it is hard to imagine being more frustrated by
what OMB has delivered this year. The budget deeply slashes
programs that support the most vulnerable among us, the sick,
the elderly, the poor, while doubling down on a discredited
economic policy that widens the inequalities in our society.
Overall the budget cuts non-defense discretionary spending
by 9 percent in 2020. To get there, it slashes programs that
working- and middle-class Americans rely on for bare
necessities, like food, transportation, medical care, and
housing.
As justification for these cuts, the budget cites the
pressing need to cut deficits and stabilize the national debt,
conveniently forgetting that the deficits are ballooning right
now because of the tax cuts for the wealthiest.
As a reminder, this Administration has claimed and
continues to claim that its 2017 tax cuts will pay for itself
and more. Yet Goldman Sachs, hardly a liberal bastion,
concluded that it will add as little .3 percent to GDP in 2018
and 2019 and could be slightly negative in 2020 and beyond.
And the nonpartisan Congressional Budget Office has
estimated the tax cut bill will increase the total deficit by
almost $2 trillion over the next 10 years.
To pay for this, the President breaks his promise to the
American people and cuts as much as $1.5 trillion out of
Medicaid and $500 billion from Medicare, while once again
calling for the repeal of the Affordable Care Act.
In short, this budget puts the price of these tax cuts for
the rich squarely on the backs of hard working, regular
Americans, and it gets worse.
The budget relies on gimmicks, false savings, and
unsustainable assumptions to cover up the full impact of its
disastrous policies. For example, the budget makes extremely
unrealistic economic growth assumptions to mitigate the true
impacts of its policies on the deficit. It estimates that the
GDP will grow by roughly 3 percent each and every year over the
next decade.
That is a full percentage point higher than most serious
economic experts believe is possible, and according to the
President's own economic report, that growth is contingent on
even more tax cuts and non-existent increases in infrastructure
spending.
The budget also relies on a so-called 2-penny plan to
further reduce non-defense discretionary spending to 27 percent
below the 2019 level. They hardly can be called a plan. The
budget does not spell out any of the hundreds of hard choices
that would be necessary to cut spending that drastically, and
it is completely unrealistic.
Meanwhile, OMB asks other agencies to make drastic cuts,
but is hardly willing to do so itself. It proposes a cut of
less than 1 percent after accounting for funding it shifts
elsewhere or that are not part of OMB's core responsibilities.
On defense, the budget rejects the longstanding principle
of parity and once again avoids making hard choices. Rather
than making a workable proposal to increase budget caps for
defense and non-defense spending in tandem, the budget uses
sleight of hand to sidestep the issue entirely.
The Administration makes no adjustment to the budget caps.
Instead it proposes, quite unapologetically, to get around them
and bump up defense spending by 5 percent by increasing the
Overseas War Fund to the tune of $100 billion. And I quote Mr.
Mulvaney, ``If appropriations come across with any OCO money
hidden in it, I will do everything I can to strip it. It is a
slush fund and a gimmick, and our own budget called it a
backdoor trick last year,'' Politico, 4/30/2015.
The budget also proposes $5 billion of additional funding
for a border wall that Congress and the majority of the
American people have already rejected.
Despite all of these fantastical growth numbers,
unrealistic cuts, and numerous gimmicks, the Administration
still fails to balance the budget by the end of the decade, a
standard set by Republicans when deficits will still exceed
$200 billion. This budget strays so far from reality, in fact,
that we really have no choice but to disregard it entirely.
We will continue to exercise the power of the purse to
benefit all Americans, even if the Administration does not seem
interested.
Finally, it would be remiss if I did not mention
frustrations by the way OMB has conducted its management and
oversight work. OMB does not just prepare the President's
budget. It clears regulations and testimony and oversees
government-wide policies and initiatives.
Yet this Administration's officials at multiple agencies
have committed repeated and egregious violations of ethics
rules and other government regulations, costing taxpayers
potentially millions of dollars. We do not have enough time to
mention all of the questionable spending decisions appointees
have made on travel, office renovations, and furniture.
We also continue to be concerned about the general lack of
transparency and responsiveness from this Administration on
ethical and budgetary issues. Agencies continue to complain to
us that their reports, testimony, and questions get routinely
stuck in the OMB clearance process. This subcommittee provides
significant budgetary resources to OMB to help address and
improve these and other government-wide policies, and it is
aggravating to only see the problems get worse.
I look forward to discussing these issues in more detail.
Before I turn to the Acting Director, I would like to
recognize Mr. Graves for his opening remarks.
Mr. Graves. Thank you, Mr. Chairman. I always enjoy your
positive and encouraging opening statements.
Mr. Quigley. I learned from the master.
Mr. Graves. You did not let us down today at all.
Well, Acting Director, welcome. I want to thank you for
joining us today, but most importantly, it is your birthday.
Thank you for spending your birthday with us.
That shows where we all are in life. I think I have spent
my birthday here several times, too. But great to have you. I
appreciate your efforts and what you have done with the budget
and your staff.
I know it has taken a lot of work, and I hear the comments
from the chairman here about, you know, his insights into the
budget you have presented, and so I actually look forward to
seeing the budget they present someday, one which I have not
seen presented.
So at least you have taken that first step, and we are
grateful for that. I know it is a lot of hard work, and I have
publicly said, I mean, you have taken a courageous step forward
in what you have presented to us, as Congress, and how you
foresee budgeting in a recommendation to us.
And not only have you done that. You have done it in a way
where some would say your hands were tied just a bit. You know,
you are operating under constraints, and there are budgetary
caps that were adopted by Congress 8 years ago, I believe, and
it was the Congress that said, ``Hey, if you allow us to raise
the debt limit, we promise we will not spend more than these
amounts of dollars over the next several years.''
But each time it seems like it has been raised, and I
appreciate your intent as you looked at this. There is no
anticipation of a cap raise. In fact, you say, ``Congress, that
is your job. If you are going to change the spending levels, do
that, but until then, we will show you how we would recommend
spending dollars under certain constraints we have.''
So thank you for what you have done there. It is clear to
me that you have recognized the national debt is $22 trillion.
It is not something that happened on your watch nor on this
President's watch. In fact, under the previous Administration
the debt doubled or nearly doubled in those short 8 years, and
so it is, in fact, an inherited debt that I would say that you
are trying to manage right now, and you have taken some great
strides forward to show us how we can reduce spending by $2.7
trillion over the next 10 years, which takes a lot of work, and
I applaud the Administration for embracing what we would say is
reality.
I mean, these are bold steps you are showing us and making
some tough choices rather than playing it safe, like many like
to do in this town.
I agree with a lot of parts of what you have presented, and
I look forward to hearing your presentation today, but let me
just point out the investment in our military and national
defense is something that we should all be supportive of and
not critical of in any way. That should be our number one
focus, and I know that has been the Administration's number one
focus all the way down to not only national security from
abroad context, but national security here locally at home on
our border and how the Administration is doing everything
possible within their legal means to make sure our country is
safe.
So let me thank you for that as well, keeping a promise to
secure our border, whether it means building a wall, whether it
means investment in technology, infrastructure, personnel,
whatever it is. You guys have done a fantastic job of staying
at it and not yielding to some of the political whims around
here.
I do want to point out to the chairman that OMB is actually
operating or proposing an operation of less, spending less. I
think you mentioned 1 percent with some money movement, but my
understanding under this budget is there is actually an 11
percent reduction. That is living by example and something that
I think a lot of your agencies are actually looking at.
I think it was a 5 percent mandatory cut in some cases that
you all were looking at all across the board. So thank you for
your willingness to do that.
I just wanted to correctly point out that you are willing
to do more with less and live within the constraints that
Congress has imposed upon the Federal Government in our
spending levels, and you have taken some steps to show us some
bold answers in how it can be done.
I know they are not easy choices, but somebody had to make
them, and I am glad you were there to make those choices for
us.
So I look forward to working with the chairman here as we
go through this hearing and as we put together the
appropriations request in the days ahead.
But, Mr. Vought, again, thanks for being here, and happy
birthday. I look forward to spending some time with you.
Mr. Quigley. Mr. Vought, I did not know. In Jack Benny's
paraphrase, happy 29 again.
We are glad you are here, and we look forward to your
opening statement, keeping in mind, as Mr. Graves would have
always, that we have your official statement on record. So if
you can stay as close to 5 minutes as possible it would be
appreciated.
Mr. Vought. Thank you, Mr. Chairman.
Chairman Quigley, Ranking Member Graves, members of the
subcommittee, I appreciate the opportunity to be here today to
discuss the President's budget request for 2020 for the Office
of Management and Budget, or OMB.
I submitted to you my full opening statement, and I will
just give a brief overview here today.
The full request for OMB is $116.6 million, which is an 11
percent cut from the fiscal year 2019 enacted level. This
reduction demonstrates OMB's own commitment to fiscal
discipline and efficiency as we enforce these same principles
across the executive branch.
Within OMB's request, $101.6 million will support a
staffing level of 477 FTEs. The request reflects a decrease of
$1.4 million and 16 FTEs below the enacted level in 2019.
OMB is also requesting $15 million for the Information
Technology Oversight and Reform Fund, of ITOR, another OMB
account. This is a $13.5 million decrease below the 2019
enacted. To ensure that its important work continues, ITOR
anticipates collecting $3 million in reimbursable funding from
the U.S. Digital Service Agency teams for personnel that USDS
details to those in agencies.
The proposed funding will allow OMB to continue to
modernize and improve government operations and service and
delivery of IT.
On top of the $116.6 million request, OMB is requesting an
additional $400,000 in three FTEs to establish a new office
that will provide government-wide strategic direction on
Federal human capital policy and coordinate personnel policies,
regulations, and procedures for the executive branch.
This request is part of a legislative proposal to reform
the Office of Personnel Management and OMB's human capital
leadership will be in conjunction with OPM's activities that
will be vested within the General Services Administration.
OMB continues to focus on strengthening and improving not
only OMB's organizational effectiveness, but also increasing
the effectiveness of the Federal Government to serve the needs
of the 21st Century.
For example, regulatory reform where OMB reviews tax-
related and similar regulations with the goal of ensuring that
the regulations adhere to core government principles and are
transparent, simple, efficient, and pro-growth, and
implementation of the President's management agenda consistent
with the Administration's reshaping of the American government
reform and reorganization recommendations, which serves as the
cornerstone for a productive, bipartisan dialogue on
structurally realigning the Federal Government to more
effectively operate in this century.
Before I close, I know based on past hearings that there is
a large interest in this subcommittee to discuss the overall
President's [sic] budget request. Similar to President Trump's
previous budgets, the fiscal year 2020 budget was written with
everyday Americans in mind.
This year President Trump directed most agencies to meet a
target of 5 percent reduction to non-defense discretionary
spending. I am proud to report to you that the fiscal year 2020
budget achieves that goal, and OMB has held itself to the same
high standard of fiscal discipline.
The President came to Washington with a commitment to help
get our fiscal house in order and end wasteful spending, and we
believe this President's budget does that.
With that I want to thank you and look forward to your
questions.
[The statement of Russ Vought follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Quigley. Thank you.
Let me begin, sir. Just some policy issues and procedures
within the Administration.
According to recent press reports, senior White House
officials appear to be using WhatsApp to conduct official
government business. First question would be: are you aware of
this?
And does the practice comply with OMB's official guidance
on recordkeeping?
Mr. Vought. I have read in the paper what you have read. I
cannot speak to whether it complies. Obviously, we need to be
doing official government business in areas such as email that
comport with the Federal Records Administration.
I cannot speak to what steps other senior Administration
officials have taken, but I have read the same press reports
that you have.
Mr. Quigley. If you cannot speak to it, with all due
respect, who can?
Is it not OMB's responsibility to manage this from the
overall point of view?
And I understand you cannot officiate every person's
activities, but you set the policy, correct?
Mr. Vought. We do set many of these types of policies. I
know that you mentioned some of the instances of waste, fraud,
and abuse that we have attempted to identify, and whether it
came to private travel or other areas, we do set policies, and
then we expect agencies to take those policies to heart and
align their behavior and practices and work with their
Inspector Generals that are in the enforcement business.
Mr. Quigley. So who can answer the question does WhatsApp
comply with the government policy regarding recordkeeping?
Mr. Vought. I would have to refer you to the various
General Counsel's Offices for the agencies that are within the
executive branch to comply with the laws that are in place.
Mr. Quigley. What law is in place right now as it involves
recordkeeping and the use of WhatsApp, for example?
Even if a person wanted to know, who would they go to?
Mr. Vought. I think first and foremost they would probably
go to the Federal Records Act that requires Federal officials
to keep track of the documents that they are working on, to be
able to preserve an accurate historical record.
Mr. Quigley. Respectfully, let's just say someone, a senior
official at the White House, wants to use WhatsApp. They call
you because apparently, as you say, you set this policy.
Would you then refer them to General Counsel?
I mean, if you set the policy, do you not refer to General
Counsel and others to find out what the law is and then set the
policy?
Mr. Vought. We do. We also work with the General Counsels
to make sure that their staff are complying with the various
laws that are in place.
And I know that the agencies do that. You know, I would
refer you to each one of those agencies to decide as to how
well they are doing and complying. The White House does that as
well through their own White House counsel.
Mr. Quigley. I will just try one more time. What is the
policy? What is your understanding of the policy about using
WhatsApp?
Mr. Vought. To my knowledge----
Mr. Quigley. Or official government work.
Mr. Vought [continuing]. Mr. Chairman, it is to comply with
the laws that are in place, including the Federal Records Act,
to ensure that Federal officials are keeping an historical
record of their documents.
Mr. Quigley. Is it okay to use WhatsApp as an official
record under the guidance of recordkeeping?
Mr. Vought. It should not be used. We should not be using
personal devices for government business. So I think that
answers your question.
You know, there are often times where things come in, and
you have to get it to your device and do as best you possibly
can to comply with the Federal Records Act.
Mr. Quigley. And I want to make it generic. I do not know
for sure if anybody is using WhatsApp. I just want to know,
first, they should not be using a personal device. Second, if
they are using a personal device or an official one, I would
assume that if we were trying to keep records, that they should
not use WhatsApp. Is that not correct?
Mr. Vought. I think that is fair.
Mr. Quigley. Thank you very much.
I refer now to the ranking member, Mr. Graves.
Mr. Graves. Mr. Joyce has another hearing to step into that
he is ranking on. So I would yield some time to him, if you do
not mind. Is that okay?
Mr. Quigley. Yes.
Mr. Graves. Thank you.
Mr. Joyce. Thank you very much for your generosity, Mr.
Ranking Member.
And thank you for being here on your birthday.
And I agree with where Mr. Quigley was going. Certainly as
a former prosecutor, the collection of records and documents
that have been part of your government activity should be
stored someplace, and certainly you should not have like a
Secretary of State acting out and setting up service in their
own home and dealing in instruments of top-notch security, top
clearance security outside that premise.
So it would certainly be something that OMB, if they have
opportunity, should put even stricter guidelines on and make
sure all of the people who have not complied with the law in
the past are held to account for that as well.
There are, speaking of holding people to account, there are
several financial regulators, such as the Office of Financial
Research and Consumer Financial Protection Bureau, whose
operations are outside of the appropriations process. These
agencies do not have to present a budget request to the
Congress, and they receive their funding without annual
congressional action.
Do you believe, sir, that putting CFPB and other financial
regulators in the appropriations process would improve their
accountability to Congress and the taxpayer?
And also, with deficits approaching $1 trillion a year,
would you support reducing the number of agencies whose
operations are considered mandatory and not reviewed each year?
Mr. Vought. Thank you for that question.
And it is something that we think should go through the
appropriations process to the extent that there are agencies
like the CFPB, like the Office of Financial Research. It is
important that we move in a direction, and we do it in 2-year
steps, by 2020 to be able to ensure that this committee and
other subcommittees across the appropriations process get an
opportunity to bring those requests before it and have Congress
actually pass on it.
The appropriations process is something that is very
important. It is an important oversight. Congress has the power
of the purse. To the extent that Congress has delegated its
power of the purse to provide some of these automatic spending
situations, we do not think that is a healthy scenario, and it
is one of the reasons we have tried to reform it.
Mr. Joyce. What progress have we made towards that?
Mr. Vought. Well, we have had proposals in our budgets. We
certainly need Congress to act on our budgets, and we would
love to continue the conversation as to if there are any
particular questions that this committee has on roadblocks that
it sees to moving that in that direction. We would be willing
to have that conversation.
But Congress needs to act.
Mr. Joyce. Once again, we are failing to do our job?
Mr. Vought. We have many proposals that we believe that are
important for this committee and Congress to enact on.
Mr. Joyce. That was a softball for you. [Laughter.]
I know the United States faces many threats, terrorist
organizations, international criminal drug cartels, regimes in
China, Russia, Iran, Venezuela. How does the current
Administration's request for defense spending rebuild our
Nation's security responsibilities?
Mr. Vought. Well, we think it is one of the promises that
this President is keeping with this budget, and we think it is
absolutely vital that in a situation of $22 trillion in debt,
$1 trillion deficits as far as the eye can see, that we do not
take a backseat to anyone in being able to defend the country.
This President came to office promising to rebuild the
military. We think a 5 percent increase for defense is
something that is justified. And we believe that we have put
forward a strategy to be able to continue the defense rebuild
within the current caps.
Mr. Joyce. And what, if any, steps, just because I do not
work in your office and I do not know what you are doing, but I
am sure something is happening; what, if any, steps are being
taken to use the electronic age to reduce and secure and speed
up the way we do transitions?
Let me give you an example. I go to the VA. The VA tells me
that the biggest problem they have in the intake process is
they have to refer the member back to their discipline, whether
it is Army, Navy, get their records, come back to the VA, where
they are then scanned in.
That seems sort of stupid in this day and age, do you not
think?
Mr. Vought. It does sound that way. It is also one of the
reasons we have invested in making sure that health records are
electronic and portable between DOD and VA.
One of the things that the United States Digital Service
does is they spend a lot of time in agencies, such as VA, to be
able to streamline these kinds of processes to make them as
smooth for the consumer as possible.
So that is something that we do get involved with and
working with agencies across the government to do.
Mr. Joyce. With all due respect, sir, these are consumers.
I mean, these are our veterans, and they deserve better
treatment.
Obviously, we know who they are when they are in the
service, and they should be transitioned properly, and that is
something I think we all owe more attention and duty to.
And I do not mean to be rude to get up and leave, but I
have a 10:30 hearing downstairs in Interior, and I appreciate
the chair's indulgence.
Thank you.
Mr. Quigley. Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
And welcome to you, Mr. Vought.
As you may or may not know, I come from a rural district in
Georgia, and I am an avid supporter of USDA's Rural Development
Programs. I also happen to serve as the chair of the
Agriculture Rural Development and FDA and related agencies
subcommittee of the Appropriations Committee.
It was disheartening, very disheartening to see the third
consecutive year a budget that drastically cuts or eliminates
several of the Rural Development Programs. The budget cut Rural
Development by almost 20 percent, and 29 programs are
eliminated.
These programs are vital to communities like mine and are
often the only means to access credit or grant funding. They
help unserved and underserved markets that are often forgotten
or left behind by larger financial institutions. They are not
duplicative of other Federal Government programs because they
are the only ones available.
They create private sector jobs, and they grow economies. I
just believe very strongly that rural America needs to be
protected. There is no reason why a child or a family in rural
America should not have the resources and access to all of the
necessary resources to realize their full potential.
And of course, this budget would undermine that
possibility. So can you tell me why the budget continues to
drastically reduce or eliminate USDA Rural Development
Programs?
And please do not say it is a question of priorities
because serving rural America should we a priority for all of
us.
And I just am very, very upset. And, fortunately, the will
of Congress has not been such as to go along with those drastic
cuts, and I just want to know what is going through the head of
the people over in your agency that would propose such a
drastic cut.
Mr. Vought. Well, we would certainly agree with you on the
importance of rural America. It is something that we have
designed the last three budgets with an eye towards. If you
look at our infrastructure proposal, one of the things that it
speaks to, one of the reasons we wanted to not just be surface
transportation is because we think that there are important
rural needs that can be addressed through infrastructure.
If you look at the broadband funding that we provide within
USDA, that is another attempt to make sure that the needs that
rural American has are being addressed.
To the extent that we reform or eliminate programs, it is
always done with the vantage point that we think that the
programs do not work. I understand there would be a
disagreement with you on that, but it is also something where
we are willing to engage in a conversation about.
Mr. Bishop. Just look at the USDA Reconnect Program. It was
initially funded in the 2018 omnibus at $600 million, and in
the 2019 omnibus provided an additional $550 million. It was
intended by Congress to expand broadband access and facilitate
deployment to unserved and underserved populations, which are
predominantly in rural areas.
And one of the features that makes this an important
improvement over the current USDA broadband loan program would
be to enable the energy to pay our loans with grants and to
make projects financially viable.
Funding projects with both loans and grants would
significantly limit the risk to the Federal Government, but OMB
recently calculated substantive rates for the Reconnection Loan
Grant Program that will make it even more expensive than the
current loan program. This means less money would be available
to connect communities to the world that we all take for
granted.
Tell me why would you do something like that. It just does
not make any sense.
Mr. Vought. Well, we are never trying to take away. When we
calculate loan rates and subsidy rates, what we are trying to
do is get the best estimate that we have at the time.
We believe that we put forward a very healthy request
regarding rural broadband. We think that there is money in the
system, and that needs to be spent wisely over time.
And it is priority for the Administration, and we look
forward to working with you on it.
Mr. Bishop. Well, there are just too many rural communities
that do not have access, and the programs that are designed to
give access are being cut or at least you are attempting to cut
them from the Office of Management and Budget.
And it just makes no sense. You are speaking out of both
sides of your mouth, and I find it very unacceptable.
I yield back.
Mr. Quigley. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
And, you know, I think it is important for all of us on
different subcommittees to understand that what is being
presented to us is a budget request based on a current cap
environment that might not lead to where the Administration's
priorities are. It just leads to the Administration to make
tough decisions.
And so what Mr. Vought has presented to us is a budget
recommendation that abides by current law. I imagine if the cap
were in a different position, then the priorities may be
differently funded as well. So they are having to make
difficult choices.
Just revisiting real quick for the chairman here, my
understanding is that it is not prohibited nor illegal for a
White House official to use a personal device for official
business. It is not recommended, obviously, but it is not
illegal, but it is required that any kind of communication be
documented and relayed to archives and such within 20 days or
so. So just as long as the information is documented.
So there is no prohibition against using any app or no app
on a personal device that I am aware of.
Mr. Quigley. Can I ask a question in response?
If it has to be documented, how could WhatsApp comply with
that?
Mr. Graves. My understanding is screen shots, forwarding
emails, forwarding text messages, things like that. Yes.
Mr. Quigley. The time is yours.
Mr. Graves. Mr. Vought, I am going to give you an
opportunity. I think, as I talked about earlier, that you have
put a lot of work into this. Your team has as well. The
Administration has a vision for our country. You have
recognized the difficulty of the inherited debt that you have
had to embrace.
But you have put together a vision for our country through
this budget recommendation, and that really is a vision, right?
So I am going to give you an opportunity to at least share
with us your vision, the Administration's vision for where you
see where the country can be and go in our economy with the
American people, investments and such like that based on what
has been presented to us.
Because you had presented a really good op-ed that I
recommend to all of the members to read and which I will quote,
you said, ``Annual deficits are on the verge of exceeding $1
trillion each year for the foreseeable future in interest
payments.''
And this is what should be shocking to everybody, that our
interest payments on the national debt are projected to exceed
military spending by 2025, and that is an amazing and
astonishing quote from your op-ed.
But we should recognize that the national debt did double,
nearly double under the previous Administration. So please take
an opportunity to share with us your vision and the
Administration's vision before we get back into, I know, some
more detailed questions.
Mr. Vought. Sure. Thank you, Congressman.
Our vision is to ensure that we can pay off our debt and
deal with our trillion-dollar deficits in the years ahead; that
this is not a way that an ordinary family across the country
does their fiscal business.
We want to get back in the business of balancing our
budget. It is one of the reasons why we do it. We say we are
going to do it within 15 years. It would have been easy to say
that we can never balance, but we do not actually agree with
that.
We want to be able to engage in the conversation about
balance and try to lower our spending.
We also want to be able to continue to ensure that the
American people keep the revenue that is their own, and that
revenues coming into the Federal Government stay at their
historical level of GDP. We do not want the American people to
have to pay more of their hard-earned money to be able to
support the government that we have. And that has been
something that is part of the promises kept.
We also think it is important that Congress needs to get
after its spending problem. We have put forward more spending
reductions than any Administration in history. We have put
forward them from the beginning of the Administration.
This is now the third budget in which we have put forward
more spending reductions than any President's budget in
history.
People talk about mandatory spending. We have put forward
more mandatory spending reforms, reforms and savings proposals,
than any Administration in history.
And so we do believe that this is an important conversation
to have about how we are spending the hardworking people's tax
dollars.
But Congress has the power of the purse, and we need
Congress to act on these proposals.
Mr. Graves. That is a great point. It reminds back, I
guess, in the first couple of months of the Administration. You
presented through at the time, I guess, Director Mulvaney who
was over at OMB a rescissions package of here is a lot of
money, you know, I guess billions of dollars. Was it five, six,
$7 billion that is not going to be spent, has not been spent?
The programs have been fully exhausted, and here is money
sitting here. And my recollection is that Congress' action was
nothing.
Mr. Vought. That is exactly right.
Mr. Graves. Rejected cutting spending of funds that are
just dollars that are sitting there that will not be spent and
cannot be spent.
So I appreciate your boldness with this proposal, and I
think it is important for us, as Congress, to understand this
is an Administration making a recommendation to Congress on a
way to save money in the future and to assist the taxpayers.
And it is really up to us to embrace it or not embrace it,
and as history has shown, we typically do not embrace
reductions in spending.
Mr. Chairman, I yield back.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
And thank you, Mr. Vought, for being here.
In your statement you state that OMB is reducing its budget
by 11 percent below its fiscal year 2019 enacted level and that
this demonstrates its commitment to fiscal discipline and
efficiency as it asks other agencies to make severe cuts; is
that correct?
Mr. Vought. That is correct.
Mrs. Torres. A closer look at the actual budget request
reveals that your statement is misleading at best. In fact,
when comparing apples to apples, the OMB budget request
reflects a cut of just 0.4 percent, below the current level,
nowhere near the 11 percent, as you suggest in your testimony.
It seems to me that you are inflating the extent to which
OMB is trimming its own bottom line by including the proposed
reduction for the U.S. Digital Service, which is not a core
part of OMB's statutory responsibilities.
And in addition, your calculation counts as a cut a
function that you are simply transferring elsewhere. If you are
going to count the $1 million transfer of the intellectual
property enforcement coordinator out of OMB in its own
appropriation, you must also subtract that function from the
figure you are using for comparison purposes.
So, Mr. Vought, is it not more accurate to say that OMB's
budget is really only decreased by $400,000?
Mr. Vought. No. Here is why.
Mrs. Torres. Do you think that it is appropriate for OMB to
ask agencies to make 9 percent cuts, on average, without being
willing to do the same?
Mr. Vought. Congresswoman, we have an 11 percent cut, and
we actually took the challenge from this subcommittee to heart
when we put this budget together to be able to put forth
reductions that we have asked other agencies to do.
The OMB has both accounts, OMB's normal main budget request
and the ITOR Fund. The ITOR Fund does not just fund USDS. It
also funds all of our management responsibilities as it
pertains to financial information and control.
So from the standpoint of OMB, just think of it as two
different accounts all within the OMB banner. We are moving $1
million out of OMB for IPEC, and we are paying for that within
other savings within the larger Executive Office of the
President.
So you are right. If we were saying that we were not going
to absorb that cost with savings elsewhere within the EOP, that
would be double counted. We are not doing that.
But we are saying from the standpoint of OMB, we can find
many, many millions in savings from areas within the USDA that
we think in this environment we need to do less of, and we need
to work with agencies to make sure that we are getting
reimbursed for the essentially consulting services that we are
providing for those agencies.
Mrs. Torres. So OMB received $8 million more in funding
between 2017 and 2019, an 8 percent increase; is that correct?
Mr. Vought. That sounds about right.
Mrs. Torres. So you propose what is essentially flat
funding in the budget request. Does that really demonstrate a
commitment to fiscal discipline within the agency or is that a
case of what is mine is mine and what is yours is negotiable
when it comes to dealing fairly with other agencies?
Mr. Vought. Absolutely not. As I just said, Congressman, we
have two accounts. We have an 11 percent cut for OMB. We reduce
one of those accounts greater than the other account, but those
are fully part of OMB. They are fully part of our
responsibilities.
We do think that from the standpoint of within ITOR where
we can find savings, we have prioritized our statutory
responsibilities under the E-Gov Act, but the work of the
United States Digital Service is very important. They found
about $8 billion in savings for agencies based on their
important work. We want that work to continue.
And that is one of the reasons that we tried to figure out
in this environment how do we structure USDS with reimbursable
agreements so that it is a long-term, sustained way to be able
to do business.
Mrs. Torres. I would like an opportunity to dive more into
those numbers with you to see exactly where you are coming up
with a 9 percent cut.
On another issue, I have introduced the 9-1-1 SAVES Act, a
bipartisan bill that directs OMB to update their classification
for public safety telecommunicators as a protective service
within the standard occupations classification, SOC, catalogue.
The current version of the SOC categorizes public safety
telecommunicators as office and administrative support
occupations, which includes secretaries, office clerks, and
taxicab dispatchers.
Someone who negotiates with someone who is trying to kill
themselves, someone who negotiates with somebody who is holding
someone hostage, I hardly would describe them as something
equal to a secretary or a taxicab dispatcher.
Public safety communicators should be categorized as
protective service occupations, which includes a broad range of
protective occupations, lifeguards, fish and game wardens,
parking enforcement workers, et cetera.
On September 8th, 2016, I sent a letter requesting that
this change be reviewed, and OMB has denied this request to
change the classification. The rationale on this SOC Website
stated, ``The work performed as that of a dispatcher is not of
a first responder.''
As I stated to you, most dispatchers are dealing with
critical incidents at any given time.
Mr. Chairman, I ask for unanimous consent to submit a
letter into the record that I wrote. It is dated September 8th,
2016, asking for OMB to review this classification.
Mr. Quigley. Without objection.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mrs. Torres. Thank you.
And while you may not have been working for the OMB at the
time, can you explain that decision, making the process behind
this response?
Mr. Quigley. Mrs. Torres, I think we can come back. We are
past the time.
Mrs. Torres. Oh, I am sorry.
Mr. Quigley. No problem.
Mrs. Torres. I did not realize. I lost track of my time.
Mr. Quigley. That is all right. We will come back. Thank
you.
Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman.
Mr. Vought, I have got an issue that I would kind of like
the opportunity to speak with your staff as a beginning thing
at some point in time in the relatively near future, and here
it is.
My State is a little unique in that the Department of the
Interior, primarily through the Bureau of Land Management, but
also through the Bureau of Reclamation and then also through
the Forest Service, owns about 85 percent of the State.
Now, I am not here to lament that fact. I am just saying
that is a fact. Regardless of who you are, what you like, what
you do not like, they own most of it.
So at a higher percentage than any other State in the
Nation, the Federal Government has a Federal estate that is a
super majority of the land.
And as we look at this, and as I go through, for instance,
BLM has six district offices that are over that, and as I go
through, and by the way, this is not new. It crosses
Administrations.
But, for instance, I was in the district office in a place
called Winnemucca, which is not a Yiddish swear word. It is
really the name of a town in Nevada.
And they have about 120 people on the books for that BLM
district office in Winnemucca. About a third of those positions
are empty, not positions that somebody fought to have added or
whatever. They are part of their standard here is what it takes
to operate that district office.
That fact is not unusual for all of those offices, all of
those six offices, and it is probably a fact district-wide and
as well as the State office.
But here is my problem. We sit there and say we did not add
positions because somebody is trying to build an empire. These
are consistently on the books.
And then we look at budget, and we go there is consistently
a budget that says you do not have money to fill a third of the
people that somebody thinks you need to run your district in a
State where you own 8-plus acres out of every 10.
You say, ``Well, okay. So what is the problem?''
The problem is, and this Administration has made no secret
of the fact they value the Federal estate and they do not want
to transfer much in lands bills. Okay?
So, on the one hand, it is like we value the Federal estate
and we do not want to be rid of a single acre. On the other
hand, from the historical manpower things that it takes to run
owning and managing those resources, recreation, energy, you
name it, we are a third down the whole time.
And then to add the final piece for your consideration,
where you have just got to chuckle is you go, ``Oh, and by the
way, the money sitting in that account by virtue of the
Southern Nevada Public Lands Management Act,'' which does
resource-related Federal estate things, which turned 20 last
year, ``we are going to strip that to balance the budget.''
Now, I am not going to get into with you whether that is
legal or not or whatever, but it is like so we are taking money
from Federal lands, using it to balance the budget, but we do
not want lands bills, which, by the way, the Southern Nevada
Public Lands Management Act of 20 years sold about 35,000 acres
out of the 56 million-acre Federal estate.
So you are getting my gist here where it is like there are
some serious mixed messages floating around.
So my challenge to you before I go back to Interior,
because we have tried that before, as I sit here and look at
continually cutting budgets for a Federal estate that grows in
value and complexity to make all of those different land uses
work, and at the same time saying, ``By the way, the money you
got from those proceeds we are going to take into not even some
resource-related account. Instead it is just going to go to the
Treasury of the U.S.,'' and you are sitting there going, ``Do
not sell land, but we want the money from the sales, and, oh,
by the way, we do not want to man it.''
Final piece. During the last shutdown when it was time to
say who was key and who was not key, that shutdown started out
with one person in the Bureau of Land Management, who owns two-
thirds of the State. That was the only key person.
And so as we are sitting here looking at the policy and we
are going, ``Wow, you control, that one agency, two-thirds of
the land in the State and yet one person is considered key if
you have that person's cell phone.''
Now, towards the end of the shutdown, that got a little bit
better, but quite frankly, I think it is time for people in
OMB, when you talk about budget, how do you function as a
Federal agency? Well, guess what. Budget is a fairly
significant part of that.
So I want to have that conversation with your folks to say,
``Hey, listen. If it is just all bad news and that is the way
it is, then fine, but I think it would be a good time for a
healthy dose of (a) reality and (b) if you really need those
people to run owning 85 percent of that sixth largest State in
the Nation, we probably ought to fund them.''
I will look forward to our meeting.
Mr. Vought. I would welcome the conversation. I have got
some responses to various of the pieces. I do not have much
time, but I would just say I welcome that conversation, and I
look forward to working with you on those issues.
Mr. Amodei. Thank you.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Acting Director Vought, your budget would slash non-defense
discretionary funds by more than $1 trillion, crippling our
economic and our national security by disinvesting in
education, public health, energy, health care research,
infrastructure, veterans' health care, law enforcement, food
safety, disease prevention and control, and the list goes on
and on.
But I am to focus today on the massive, gargantuan cuts to
Medicare, some half a trillion dollars, or as you have referred
to those cuts yourself previously as savings.
I know you have said the spending will increase in Medicare
year over year, but it will not increase as much as is
scheduled, as if this Administration had not taken a hatchet to
health care.
I have seniors in my hospitals in my district, seniors that
come to Seniors Fairs and talk to me about they are cutting
Medicare. How can this be? The President promised he would
never touch it.
So I have to ask. In calculating these cuts to Medicare,
did you calculate for the fact that health care inflation is
rising faster than general inflation, and the increased need
that would create?
Did you calculate the increase in the aging population,
because of the Baby Boomers, and the growth in Medicare
enrollment?
Did you calculate the effects of these cuts and what those
effects would be on access to care, especially in districts
like mine in Northeastern Pennsylvania where access to care can
often be a life or death issue?
Those are three questions. If you forget one, let me know.
Mr. Vought. I will let you know.
We certain considered all of those factors. We do not cut
Medicare in this budget. Medicare grows every year. The
President has made no structure changes to Medicare in this
budget.
We do have savings in Medicare from things like trying to
lower drug pricing, which I know this Democrat majority has an
interest in trying to work with us on.
Mr. Cartwright. You say ``Democratic'' actually.
Mr. Vought. Sure. We also have proposals to take out of
Medicare certain things that we do not think should be in
Medicare. We do not do away with them. Uncompensated care to
non-Medicare beneficiaries we think is something that should be
provided for. We take it out of the Medicare Trust Fund so that
it does not impact the solvency of that important trust fund,
and we allow it to grow.
Similarly, bad debt is something that in the private
marketplace insurance companies go and make sure that they are
getting the cost sharing of their beneficiaries. We pay for
that at the Federal Government level, and we say instead of
paying 65 percent of those bad debts, we are only going to pay
25 percent of it.
So these are waste, fraud, and abuse. Everyone wants to
kind of malign the notion of waste, fraud, and abuse. We have
identified specific proposals that allow us to save money in
Medicare, push the solvency of the trust fund out 8 years, and
keep the President's commitments.
Mr. Cartwright. Did you calculate the increase in the aging
population? Did you include that in your calculations?
Mr. Vought. We assumed all of the baseline drivers of our
mandatory spending in assessing these proposals. That does not
mean that we did not attempt, particularly in Medicaid, and I
could not tell from your proposal whether you were talking
about Medicare or Medicaid.
Mr. Cartwright. Medicare.
Mr. Vought. On Medicaid, we are growing as well each and
every year.
Mr. Cartwright. Did you calculate for the fact that health
care inflation is rising faster than general inflation?
Mr. Vought. We are aware of that, but are also saying that
the Federal Government's policy----
Mr. Cartwright. That is a yes or no kind of question.
Mr. Vought. Well, it actually is not, Congressman, because
the Federal Government's policies have an impact on how fast
health care expenditures grow. So to the extent that we do not
have policies that allow for States at the Medicaid level to
slow the growth of these important programs, we are also
increasing the rate at which health care spending grows.
So we think that the two are completely in line.
Mr. Cartwright. And did you calculate the effects that
these cuts would have in access to care, especially in
districts like mine where access to care can be a life or death
issue?
Mr. Vought. We considered all of these factors in putting
together our proposals. We do not think that it will have
adverse impacts on the populations that depend on these
proposals.
Mr. Cartwright. And in your world, just so I am clear on
it, taking a half a trillion dollars out of the planned
expenditures is not a cut. I still have to work on that,
grasping that whole concept, Acting Director Vought.
I yield back.
Mr. Quigley. We are going to go to a second round, but
since Mr. Crist has walked in, I want to finish the first round
where everyone gets one shot if that is okay.
Mr. Crist, do you have questions at this point?
Mr. Crist. Yes, Mr. Chairman.
Mr. Quigley. Please go ahead.
Mr. Crist. Thank you very much.
And thank you, sir, for being here today. I appreciate
that.
Do you know who in America depends on Medicare and Social
Security?
Mr. Vought. Seniors.
Mr. Crist. Yes, mostly seniors and disabled individuals,
millions of seniors, the seniors that built this country and
got us to this point.
And let's try if you know who depends upon Medicaid.
Mr. Vought. The elderly, the disabled, pregnant women and
their children. Unfortunately, we are in a situation now where
the populations that Medicaid was designed for get a lower
match than populations it was not designed for.
One of the proposals that we have in this budget is to go
towards a block grant so that States would have more of an
opportunity to design their programs to ensure that the
populations that Medicaid was established for get the care that
they need.
Mr. Crist. Thank you.
I understand that you are here to talk about and defend the
budget request, and I appreciate that you are doing that, but
it is hard for me to understand the Administration breaking a
campaign promise to not cut Medicare and Medicaid and, you
know, Social Security and programs that are so important to
certainly my constituents and I would imagine the constituents
of all of us on this committee.
The proposal is over a trillion-dollar cut in Medicare and
Medicaid. Can you explain that to me?
Mr. Vought. Yes. I would just unpack the numbers in a
different way. We do not cut Medicare or Medicaid. Medicare, we
have $517 billion in savings. Medicare will keep going up.
There are no structural changes to Medicare.
If we make a change to lower drug pricing, that causes a
savings for Medicare because of the fact that the government
pays for the drug bills of seniors.
In Medicaid, one of the things that is important to
understand in the numbers is that we are shifting a lot of the
spending that is currently going into Medicaid into the State
health care block grants, and so the Medicaid number does not
tell the story as much as the combined picture of both Medicaid
and the State health care block grants, at which point we do
have a $271 billion saver, but Medicaid and the State health
care block grants are all going to go up every year if you
compare it to 2018.
Mr. Crist. So reported reductions in Medicare of over $800
billion are not accurate?
Mr. Vought. Those are false because they do not
characterize the reforms that we are doing to take things that
are not rightfully a part of the Medicare Program, take them
out of Medicare Trust Fund and ensure that they grow
separately.
So, for instance, uncompensated care to non-Medicare
beneficiaries, we still fund it. We do not fund it in Medicare,
and so it shows that it is now not in Medicare, and so that the
higher number that you reference does not take into account
some of those reforms where we are doing it elsewhere in the
Federal budget.
Mr. Crist. If it is not in Medicare, where does it go?
Mr. Vought. It still goes to hospitals. It is still
uncompensated care. It grows at a different rate, and it is
part of the other aspects of the Federal Government's spending.
Mr. Crist. So you are representing today that there are no
reductions in Medicare, no reductions in Medicaid, the reports
that we have been provided are inaccurate, and that the
Administration is going to increase Medicare and Medicaid this
year?
Mr. Vought. Yes.
Mr. Crist. To what extent? How much?
Mr. Vought. I do not have the Medicare figures in front of
me or the Medicaid figures, but they are going to be going up
each and every year.
Mr. Crist. You are the head of OMB?
Mr. Vought. I have a lot of numbers at my disposal. I can
get you the numbers on a year-by-year basis as it pertains to
those specific line items.
Mr. Crist. Yes. I would appreciate it if you would
prioritize Medicare and Medicaid.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
We will start a second round. Mr. Graves, we will let you
start.
Mr. Graves. Thank you, Mr. Chairman.
Mr. Vought, you are probably aware one of my emphases or
priorities has been cybersecurity and what are we going to do
to enable and particularly the private sector to actively
defend themselves, as individual.
I feel like that as a country we really do not have good
policy when it comes to this new theater that is out there,
cyber warfare.
In fact, the Cyber Fraud and Abuse Act really has not been
updated in decades, and so I have been putting forward some
bold proposals on how we might address that to allow others to
actively engage outside of the network to help with
attribution, to defend their own network, outside of their
network to use beaconing technology, some other things such as
things such as that.
That is one silo of cybersecurity that is something that I
am very focused on, but then there is the other silo that we
hear about here, and that is the public sector, and each agency
comes before us, and they will say that cyber is a major
concern, and we all know it is, and they are all asking for
unique proposals on funding requests as it relates to
cybersecurity.
Can you just share with us the overall plan as you know it
or how we could best help and assist in not putting together a
patchwork kind of cyber defense system for the Federal
Government?
But what might we do and how can we best help moving
forward as you see it from your perch?
Mr. Vought. Thanks for the question.
It is a priority for this Administration. In terms of
cybersecurity spending, we spend about $15 billion on it. That
is a 5 percent increase.
One of the things our management colleagues have been very
interested in prioritizing is making sure that we have enough
cyber security workers. We have shortages as it pertains to the
number of people that we need in the Federal Government to
fulfill these roles.
So we have been working to come up with different training
programs to make sure that we take people that might have
different skills and then can be reskilled into cybersecurity.
That has been a priority of the President's management agenda.
So I think engaging where the problem is is something that
we would love to continue to work with this committee and you
on and trying to make sure we are doing it from a comprehensive
way as best we possibly can.
Mr. Graves. Sure, and I think there is a lot of overlap,
too, and what I have proposed and I encourage you and your team
to look at, the Active Cyber Defense Certainty Act and just
trying to give some certainty as to what can be done to
actively defend that works.
In that overlap, I feel like the private sector can join
with the public sector, and rather than be dependent on, hoping
somebody else is doing this or somebody else is assisting
somewhere else.
The passive nature in which we sit as a country should be
alarming to everyone, that we are basically in a passive
posture when it comes to cybersecurity and the threats that
exist out there.
So I look forward to working with you and the team on that
because I think that should be a priority that is bipartisan
all the way around.
And then with just a few seconds left here, I want to talk
about the border security plan as proposed in this budget. I
think it is right to come back at this and address this as a
crisis.
And I was a part of the conference committee that worked on
this. We heard the facts. We heard the information in
classified settings, and it was extremely alarming and
disturbing.
And had every member had access to that information, I have
a feeling that the tone might be different because when you
hear from the experts and you hear the true facts and you see
the data, it should be something that we want to address.
So maybe just take, you know, the last 60 seconds here to
tell us about what the upcoming plan is there.
Mr. Vought. Sure. We have put forward what we think is
resources necessary to secure the border to keep the
President's commitment to build the full wall.
The situation has gotten worse on the border. I remember
those very meetings that we would have in December where the
Secretary of Homeland Security was attempting to get Speaker
Pelosi's attention. She was trying to put forward the facts as
we knew them now about the situation on the border.
They have gotten worse. In the first 6 months in terms of
apprehensions, we are going to exceed what we did last year. We
are approaching the same levels that we saw 10 years or so when
apprehensions out there were at their all-time historical high.
Here is the difference. Ten, 15 years ago, those were
apprehensions of single adults that would come across the
border, and then we would typically return them within 48
hours. The difference now is that these migrants are coming
across as families from regions of the world that we do not
have the ability, because of our laws, to just send them back.
And so they end up staying here even when nine times out of
ten they do not have a legal right to stay here because of the
asylum laws that are in place, and as a result, we are saddling
ICE and CBP with their responsibilities, but they do not have
the resources and the facilities to be able to house all of
these individuals.
So it is a crisis. This is an area where we are tired of
being right, and we have put forward a resources request that
we believe is necessary to secure the border, and our hope is
that Congress engages with us on the facts going forward.
Mr. Graves. Thank you.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Continuing a second round, sir, in September of 2017, OMB
issued a memorandum reminding agency heads of existing travel
policies for government officials and requiring the White House
Chief of Staff to approve travel on government-owned, rented,
leased, or chartered aircraft.
The memo also said that OMB is reviewing the existing
guidance on the use of such aircraft. Is the guidance requiring
the White House Chief of Staff to approve travel on government
aircraft still in place?
Mr. Vought. The guidance that we put in place is still in
effect, and we are in the midst of updating that guidance as
well right now.
Mr. Quigley. Well, and I want to get to the update in just
a second, sir.
What does the guidance say when there is a vacancy in the
Chief of Staff at the White House?
Mr. Vought. The Acting Chief of Staff has assumed all the
responsibilities of the Chief of Staff in the same way that as
Acting OMB Director I have assumed all of the responsibilities
of the OMB Director.
So from the standpoint of the Acting Chief of Staff, he is
a detailee from OMB to the Chief of Staff, but he is reviewing.
He makes all of those types of decisions.
Mr. Quigley. Now, has the OMB collected information about
the overall use of such aircraft since the issuance of that
memorandum?
Mr. Vought. I do not believe we have.
Mr. Quigley. Is it possible for you to do so?
Mr. Vought. I am happy to work with the committee and look
into that.
Mr. Quigley. Okay. And you talked about reviewing this
guidance. Where are you in this?
And do you have proposed changes at this time?
Mr. Vought. It is too soon to be able to reveal where we
are headed on that, but we are in the midst of updating that
guidance, and it is part of the deliberative process to work
through that.
Mr. Quigley. This process that you are talking about began
in September of 2017?
Mr. Vought. Yes. I am not sure when we officially began the
update process.
Mr. Quigley. That is sort of a ballpark though, right?
Mr. Vought. It is about the ballpark, yes.
Mr. Quigley. So that is over a year and a half ago,
roughly. Any guess on when you might be completed with that
review and issuance of new guidance?
Mr. Vought. I do not have a date to give the subcommittee
at this point, but we are working on it.
Mr. Quigley. I am going to ask you to hazard a guess just
because it has been a year and a half. The Administration has
about that much time left. Is it going to be done before the
Administration is through with this term?
Mr. Vought. We are working as quickly as we possibly can on
it, sir.
Mr. Quigley. All right. Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Mr. Vought, the chairman commented after my last question
that that was quite a speech leaving you 8 seconds to respond.
Therefore, if you have any thoughts that come to mind based on
that to turn it into an actual potential question, please feel
free to respond regarding the staffing at those Federal land
management agencies as well as the SNPLMA raid thing, and
``raid'' is about as nice of a word, and I have heard the South
Carolina explanation.
So anything new to that would be much appreciated.
Mr. Quigley. And you get an 8 second bubble as well.
Mr. Vought. All right. Thank you, Mr. Chairman.
Mr. Quigley. With the account that you reference, we look
at it there is $600 million in the fund. We have proposed to
rescind $200 million of it. None of the rescissions that we
have identified are geared toward anything that is specifically
allotted for a particular project right now.
Now, I think your point might be you have not accounted for
the fact that new projects may arise, and that is fair. But we
have also had a hard time, at least from our analysis, of
seeing additional new projects that are arriving.
So from our standpoint, $200 million is something that we
could return to taxpayers and not hurt the intent of the
program.
Mr. Amodei. Well, and I appreciate that, except if you look
at the base legislation, it does not allow that.
Mr. Vought. And that is why it is a proposal. It is a
proposal for Congress.
Mr. Amodei. I have got it. I have got it.
Mr. Vought. And it pertains to the shutdown. The length of
the shutdown obviously caused us to update our lapsed plans in
real time to account for the factual situation on the ground.
So I was not aware over the situation with only one BLM
employee working under a lapse. But I know that we were working
with all of the agencies as they were seeing real needs and
then by the law to make it as painless as possible consistent
with the law and engaging in that conversation.
And then as it pertains to the BLM staffing issues, I know
that has been an interest of yours for a long time. I welcome
that conversation. Our reforms to Interior are not designated
to not have BLM fully staffed up.
They are attempting to get at things like the fact that we
want to put a halt on land acquisition and to ensure that the
Federal Government does not own more than 25 percent of the
land in this country.
So that is the intent behind our budget proposal, and we
are certainly willing to work with you.
Mr. Amodei. Well, and I appreciate that, but as you can
appreciate, and they are kind of connected, when you bring an
agency to full stop that is doing land management in a State
that in the Southwest basically competes for fastest growing
State in the Nation for probably a decade or two. They compete
with the Valley of Sun.
And you say, ``No, we are not processing any right-of-way
applications, even though they are an existing right-of-way.
No, we are not doing any of the ESA stuff. We are not updating
any of our resource management plans, our travel management
plans. We are not doing anything for that period of time.''
Then you go back and say, ``Okay. We are back. Well, wait a
minute because we have got to catch up from the shutdown.''
And so all I am saying is if it is going to end up being
the equivalent of a double or triple shutdown by the time they
catch back up, we probably ought to think about that before we
say you are not key.
Because, quite frankly, the shadow that that one month or
whatever it was casts is much longer than a month in an
operations sense and is exacerbated by the fact that you are
staffed at 67 percent of what is on the books.
Thank you, Mr. Chairman, and I yield back.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
Mr. Vought, the President's fiscal year 2020 budget request
once again proposes a pay freeze for Federal employees, despite
low unemployment and Federal law suggesting that employees
receive a 2.6 percent raise before the locality pay is factored
in.
Furthermore, the budget request calls for cuts to employee
pay through increased retirement contributions and reduced
government contributions to employee health care.
As the 35-day government shutdown demonstrated, Federal
employees provide critical services that the American people
rely on every single day. If you want to recruit and retain top
talent, we have to provide employees, at the minimum, with a
pay increase to keep up with the cost of living.
Can you explain why the Administration is working so hard
to harm Federal employee paychecks?
Mr. Vought. We are not, Congressman. We think it is
important to ensure that we have a healthy Federal workforce.
It is one of the priorities of the President's management
agenda.
The type of data that we look at is the fact that if you
look at the Federal employee viewpoint survey, which is
basically a survey of all Federal workers, only 25 percent of
the current Federal workforce thinks that pay has any
connection with performance.
We think that that is the wrong way to be able to align
incentives, and so what we have said is putting forward a
proposal in this budget to give agencies more discretion to be
able to have bonus payments, increased salaries for recruitment
and retention.
What we have rejected is just to do an across-the-board cut
because we think that that is the wrong way to align
incentives.
Mr. Bishop. Well, your budget proposes that agencies use
their performance awards accounts to finance more strategic
workforce award spending and innovative approaches to meeting
critical recruitment, retention, and reskilling needs across
government by using their award funding to reward their most
critical employees with the best performance.
Can you provide some additional details as to which you
mean by this?
Does it mean that only certain occupations will receive pay
increases? An outstanding performance by attorneys, law
enforcement officers, customer service representatives, and
administrative staff, among others would not be recognized?
Mr. Vought. Not necessarily. We would be working with the
agency heads to be able to design plans that would be able to
fill and assure high priority areas are addressed, but also
high performance across the agency are also receiving the kinds
of incentive payments that their merit, their performance had
justified.
And then I would also note that we did not have it in our
2019 budget, but Congress gave these workers an across-the-
board cut or an across-the-board increase in their pay, and so
that is something that is also going to be there for them to
benefit from as well.
Mr. Bishop. Yes, but that certainly was not at the instance
of the Administration.
Mr. Vought. I agree with that.
Mr. Bishop. That was in the wisdom of Congress.
It appears to me from where I sit and from talking with
Federal employees that the Office of Management and Budget is
doing everything that it can to cleverly conceal an effort to
reduce the Federal workforce, therefore having fewer people to
provide the services that the public requires, particularly
those involving the health, safety, and welfare of our people,
particularly in commercial regulations.
It seems to me that all of this is a sleight of hand, if
you will, with mumbo-jumbo justifications for actually cutting
the size of the Federal workforce at the expense of the
benefits of our Federal Government from the benefits that
really should be inuring to the people.
That is just the way that it appears to me, and it seems to
be very disingenuous.
And I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Mr. Vought, on the non-defense side, you have
asked agencies to make a 9 percent cut, plus additional 2
percent cuts year over year under your 2-penny plan. Much of
this is based on the assumption that agencies will grow more
efficient over time.
Does your budget treat the Defense Department similarly?
Mr. Vought. We do not, and I think this would get to a
fundamental difference of visions, that this Administration
believes it is the most critical of priorities of the executive
branch and the Commander-in-Chief to continue to provide the
resources that the Commander-in-Chief needs to rebuild the
military, in addition, from the standpoint of securing the
border.
So from the standpoint of a different path in the out-
years, we do have different paths. We are trying to be able to
pay for that rebuilding of the military and the securing our
border by looking for where we can do less things at the
Federal Government level in the out-years on the non-defense
side.
Mrs. Torres. The Defense Department recently underwent its
first ever auditing process, and only five of the 21 individual
audits checked received a fully passing grade.
Do your estimates account for the potential savings as the
department comes into full audit compliance?
Mr. Vought. We do within the amounts that we have provided.
We do ask Department of Defense to identify savings that can be
transferred to other defense needs. They have already been
doing that to the tune of a couple billion dollars with being
able to change the way they buy things, to make other
efficiencies.
There is a lot of work that needs to be done. I mean, we
will be the first to tell you that, but from the standpoint of
the proposal that we have put forward, we think it is
defensible.
Mrs. Torres. So even though they are not compliant, you
think it is defensible to just continue with growing?
Mr. Vought. Personally, I think it is important to judge
the Administration based on what we found.
Mrs. Torres. I am not talking about the Administration. I
am talking about these agencies, the Defense Department
undergoing its first ever auditing process.
Mr. Vought. Right.
Mrs. Torres. And they were noncompliant.
Mr. Vought. From our standpoint, that was a huge success.
It is something that Congress had asked us to do.
Mrs. Torres. Five out of 21 individual audits checked
received a full passing grade. That is a complete success?
Mr. Vought. A complete success was doing the audit and
beginning the work so that we can make improvements each and
every year to be fully compliant in the years ahead.
Mrs. Torres. How are you going to do that? How are you
going to ensure that the bulk of these individual audits the
next time you audit, and when will you audit them again?
Mr. Vought. We will be doing this on a regular basis.
Mrs. Torres. What does that mean?
Mr. Vought. All I can tell you, Congresswoman, is that the
Department of Defense is very committed to the audit. It has
the support of its top leaders in making sure that this is an
ongoing process, to make sure that they have improvements in
all the key areas.
Mrs. Torres. So since you continue to bring up the border,
I was not going to talk about that, but I want to just reassure
you that some of us have been very focused on working on the
root causes of migration, specifically from the Northern
Triangle.
Unfortunately, we have received very little support from
this Administration at ensuring that we support CICIG for
example in Guatemala, MACCIH in Honduras, and because of that,
the rule of law continues to be ignored.
Democracies should be moving in the right direction, but
they have not. We have chosen to allow them and the presidents
there to continue business as usual in a very corrupt way.
So the current policies that we have in place to deal with
the migrants in our southern border, it is not shocking to me
that people are coming north.
Current policies have put us in a position that we are
liable for the deaths of children, several children, a
transgender individual, people who have been blatantly denied
health care.
So where are you looking at fulfilling the payouts that we
may have to be responsible for?
Mr. Vought. Payouts in terms of what?
Mrs. Torres. In lawsuits.
Mr. Vought. That is something that is in the purview of the
Department of Homeland Security and Department of HHS, but I
would just say that any time we lose a life, it is tragic. It
is something that is----
Mrs. Torres. Any time we lose a life because we deny them
medical health care is criminal.
Mr. Vought. I do not think we have denied anyone health
care.
Mrs. Torres. My time has expired. So I yield back.
Mr. Quigley. Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
All right. Mr. Vought, you and I were talking before about
cuts to Medicare, and one of the things that you said was it is
not really a cut because we are cutting back on the unholy
trinity of waste, fraud, and abuse. I think, and correct me if
I am wrong, I think you said 15 percent was a figure you
attributed to waste, fraud, and abuse?
Mr. Vought. No, I was describing our proposal on bad debt.
Mr. Cartwright. Let's stick with waste, fraud, and abuse.
What would you assign to that?
Mr. Vought. I did not do a percentage for waste, fraud, and
abuse. I was describing one of the proposals that we have in
the budget.
But we have not done a kind of percentage allocation that
is waste, fraud, and abuse.
Mr. Cartwright. Well, you mentioned waste, fraud, and
abuse.
Mr. Vought. I did as it pertains to the specific proposal
on bad debt.
Mr. Cartwright. And so the question is how long have you
known about the waste, fraud, and abuse as pertains to bad
debt?
Mr. Vought. I believe it has been in previous budgets. I
would have to check to see whether it was in our first two
budgets. It was not in our first budget. It may have been in
our second.
It is something that we made an assessment throughout the
year that this is something we wanted to tackle. We do not
always have each and every proposal as they change each and
every year.
Mr. Cartwright. Well, let's talk about that. An assessment
is really an assumption, is it not? You are taking a certain
amount of money that you are assuming is wasted or the subject
of fraud and abuse, and you figure you can cut it out.
And my question is: do you have specific instances of
waste, fraud, and abuse that you can put your finger on?
And if so, why have you not raised the call before this
year about rooting out those wastes of money?
Mr. Vought. Well, (a) we have put forward many different
proposals about waste, fraud, and abuse when we have proposed
historic spending reductions in each and every budget we have
put forward.
As it pertains to the Medicare proposals, we had Medicare
proposals last year. We have them again this year. This
specific proposals that I was referring to gets at trying to
ensure that there is an incentive structure for hospitals to
recoup the cost sharing that beneficiaries are supposed to pay
as opposed to just saying we are going to write it off because
we know that 65 percent of it is going to be paid for by the
Federal Government.
We do not actually say that it should go down to zero. We
think it should go to about 25 percent, and we think that
allows for the fact that hospitals are not going to be able to
recoup all of it, but it does change the incentive so that they
at least try.
Mr. Cartwright. Well, here is why I am asking these
questions, Acting Director Vought. I am very concerned when I
hear this kind of number being attributed to waste, fraud, and
abuse, and I want you to undertake to contact my office when
you can drill down and tell me where you think money is being
wasted, where you think abuse is occurring, and where you think
fraud is occurring. Will you do that?
Mr. Vought. I am happy to, Congressman.
Mr. Cartwright. All right.
Mr. Vought. Just this one proposal would save $38 billion.
So that is real money that we think could actually go to
extending the life of the Medicare Trust Fund.
Mr. Cartwright. Well, in 5 minutes of questioning I do not
think I can get out of you exactly where you think we can save
that. So we need to talk offline about this.
Now, I also wanted to talk about your budget slashes
student loans by more than $200 billion, nutrition assistance
by more than $220 billion, and completely crushes the EPA with
a cut of more than 30 percent.
And I am wondering: did you have a specific calculation
model that you used to come up with those numbers?
Mr. Vought. You asked about three different programs. I am
going to go one by one.
Mr. Cartwright. Exactly.
Mr. Vought. With student loans, we feel like we have a
reform proposal that will benefit any student in the country in
terms of being able to have a single income-driven repayment
plan.
Mr. Cartwright. Is this a new proposal?
Mr. Vought. It is not a new proposal. It has been in
previous budgets.
Mr. Cartwright. What is it called?
Mr. Vought. Single income-driven repayment plan.
Mr. Cartwright. Okay.
Mr. Vought. It allows you to have certainty. There are all
sorts of different programs out there. We are saying that you
pay about 12.5 percent of your discretionary income to be able
to then have after 15 years, you get rid of all your student
loan debts.
For graduate students, that would be 30 years.
Mr. Cartwright. I want to follow up with you about that,
too.
How about your one-third cut to EPA? How did you come up
with that?
Mr. Vought. In an era of trillion-dollar deficits where we
have a $22 trillion national debt, we think that we should make
tough choices in agencies, and to the extent that EPA----
Mr. Cartwright. Well, is it an indiscriminate cut or is it
a targeted cut?
Mr. Vought. To the extent that at EPA we found that they
could do their statutory responsibilities to make sure we have
clean air, clean water, and at the same time ensure that other
discretionary activities are not done or are either done at the
States. We thought that was something that was defensible.
Mr. Cartwright. A subject of robust disagreement, Mr.
Acting Director.
My time is up, and I yield back.
Mr. Quigley. Thank you, sir.
Mr. Crist will wrap up.
Mr. Crist. Thank you, Mr. Chairman.
Acting Director, I wanted to talk to you about FEMA for a
moment. FEMA had recently announced proposed changes to the way
that they calculate flood risk under the National Flood
Insurance Program. I think they call it Risk Rating 2.0.
Rather than using just the broad 100-year flood plain, FEMA
will instead rely on more granular data to calculate the threat
of flooding for each individual home.
I have concerns about the impacts that this could have on
vulnerable communities, including the likelihood that this
could sharply raise rates and send home values plummeting,
exacerbating the existing affordability challenges that many
constituents and millions of other policy holders already face.
However, I can also appreciate FEMA's desire to obtain more
accurate data and share that data with consumers. And while I
take issue with the Administration's method, I think that we
can both probably agree that accurate flood risk data is a good
thing, right?
Mr. Vought. Yes.
Mr. Crist. And I think we can also further agree that flood
plain mapping is a huge part of providing better data.
Mr. Vought. Yes.
Mr. Crist. Yes. So here is the question. I find it
interesting then that the budget request for flood hazard
mapping and risk analysis program cuts the program by 60
percent.
How can you reconcile these cuts with what we just
discussed of trying to improve upon it?
Mr. Vought. I believe it gets to the fact that we think
that it was one-time spending that had already largely been
committed and that we would not need that on a year-to-year
basis.
Mr. Crist. So you are confident that we can go forward,
have better mapping.
Mr. Vought. Yes.
Mr. Crist. And cut 60 percent from it.
Mr. Vought. Yes.
Mr. Crist. Thank you.
Mr. Quigley. Thank you.
Thanks to all who participated. Thank you, Acting Director,
for being here today. We look forward to working with you in
the future.
Take care.
Mr. Vought. Thank you.
[Questions and answers submitted for the record follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wednesday, March 27, 2019.
MEMBERS' DAY
WITNESSES
HON. ABBY FINKENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
IOWA
HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
TEXAS
Mr. Quigley. Welcome to Members' Day. We are officially
beginning. So welcome.
Our first witness is Congresswoman Abby Finkenauer.
Welcome.
----------
WITNESS
HON. ABBY FINKENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
IOWA
Ms. Finkenauer. Thank you.
Well, thank you, Chairman Quigley and Ranking Member
Graves. It means a lot as a freshman to be here and have this
important opportunity to really uplift the issues that are
really important to Iowa and ensure that the voices are heard
of folks all across my State, and then also folks that are
impacted by the subcommittee that I chair on small business.
So as a member of the Small Business Committee, I am also
the chairwoman of Rural Development, Agriculture, Trade, and
Entrepreneurship Subcommittee. And it is incredibly important
to keep elevating these voices on matters affecting small
businesses, which include our farmers and also our
entrepreneurs.
From the Committee's first hearing on the longest shutdown
in our Nation's history to our first subcommittee hearing on
the State Trade and Export Programs, to the STEP Program, we
have heard directly from Iowa and small business owners across
the country about the support they need, what harms their
ability to grow, and then barriers for folks to even start
talking about starting a new business, which is incredibly
important.
You know, one of the things that I have faced and have
heard from folks all across my district is the fact that, you
know, I am 30, and I have friends that I graduated high school
with who maybe have moved away from Iowa, to have to pay off
their student loans and live in Denver. Some live in Austin.
Some live in Minneapolis and would love to be able to come back
home, start a business, and raise their families. They are
getting married, having kids, and want to live next to their
parents and, again, have a good life like the one that I grew
up with in Iowa.
And having access, starting a small business is one way to
do that, and so, again, this is incredibly important to me and
why I want to make sure that we are uplifting these issues.
And what I have found, and again, why I am here, is because
what we know right now is that the initial support to start up
a business and the ongoing mentoring that is needed is how we
actually support the business' growth and find new markets. And
it is vital to our Nation's business and job creation engines.
I know the SBA, Small Business Administration, has numerous
initiatives that help with this, whether it is providing low-
cost or no--assistance or no-cost assistance to help the small
business market find new markets and manage their businesses,
while ensuring competitive access to contracts and provide
capital investments and loans.
You know, I came to Congress, again, with one of my goals
of creating conditions for businesses to succeed in Eastern
Iowa and across the country. SBA's Entrepreneurial Development
Programs, or EDPs, are helping to meet that goal. The suite of
EDP is included in the small business development centers'
microloans and, again, the STEP Program, veteran and women-
owned business centers, and the SCORE Program.
I am happy to be leading our bipartisan Dear Colleague
letter right now with Representatives Dr. Joyce of
Pennsylvania, Murphy of Florida, and Stauber of Minnesota, that
we will be sending to the subcommittee urging robust funding
levels for these programs.
You know, entrepreneurial development programs provide
support to our Nation's small businesses and are key to
increasing the number of young people who want to be
entrepreneurs and develop start-ups. Again, as I said earlier,
this is incredibly important for States like Iowa to grow.
I have heard from young people about the barriers they are
facing as entrepreneurs to retain and attract new talent to
areas like many of the communities in Iowa. We need to invest
in these initiatives and thereby invest in our small business
environment.
Unfortunately, we recently reached a 24-year low in young
Americans starting and owning small businesses. To reverse
these trends, I urge the subcommittee to support strong funding
levels for these entrepreneurial development programs and
continue the momentum of the past increases.
In fiscal year 2018, they were collectively funded at
$247.1 million, and $247.7 million in fiscal year 2019.
Unfortunately, the President's budget proposes a large cut to
these programs that will discourage entrepreneurship at a time
where we cannot afford it.
Small business development centers located in States
nationwide provide critical assistance to small businesses like
marketing and business strategy and export assistance.
Microloans target new and early stage businesses in underserved
markets.
We have got women's and veterans' business centers
supporting aspiring and existing entrepreneurs, including
service-disabled veterans, National Guard and Reserve members,
and military spouses. Women's business centers run evening and
weekend hours to support entrepreneurs working full time.
The State and Trade Export Program, incredibly important
right now, provides States with matching grants to open new
markets and help small business export.
SCORE is engaged with other business owners and executives
as volunteers at 350 chapters who serve as counselors,
advisors, and mentors.
Cuts to these programs are not sustainable, as we look to
grow our economy and support new businesses. We want to signal
to entrepreneurs right now and small businesses, again, in
places like Iowa and across the country that we are looking out
for them.
These are the things I hear in my State of Iowa. They want
common sense and someone who is going to listen to what they
care about and what they need to raise a family and make a
decent living.
I know these entrepreneurial development programs are
important to obviously not just Iowa but communities across the
country, and I again urge you in your intention to increase
this funding to help our entrepreneurs and small businesses.
And I thank you for the opportunity to testify, but before
I am done, I would be remiss if I did not ask you, you know,
while supporting entrepreneurs is very critical, I also have to
ask the committee to please, please pay attention to the
devastating flooding that is happening across the Midwest and
in Iowa.
Our families' homes, farms, and small businesses are
literally under water right now in Iowa, specifically Southwest
Iowa and then parts of my district as well. In Iowa alone the
damage is already estimated over $1.5 billion.
The President over the weekend recognized the seriousness
of the situation, provided an expedited major disaster
declaration, which we are very grateful for, but I do urge the
subcommittee and also the full committee to provide timely
supplemental disaster aid to our flood affected States. It is
desperately needed, and we, again, are very grateful for all of
the support here in Washington.
And I am grateful for the opportunity today to testify in
front of you all, and thank you for your service.
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Mr. Quigley. You mentioned the barriers to entrepreneurs.
Other than being short on capital, are there other things that
they mention to you?
Ms. Finkenauer. There is. You know, we actually had a young
woman from State Center, Iowa. It is one of our small towns in
my district, and she has an Internet business, and so she sells
paper flowers and also wood flowers. They look very real. It is
actually very impressive, all across the country and also
actually internationally as well.
And she is able to do this, and she has a husband who helps
with the children as well. He is disabled, and she is able to
work from home, and she is grateful for that. But the reality
is, given that it is an Internet business, which a lot of young
people are starting up, she needs reliable broadband.
So that is part of it as well. So we need to make sure that
in places like Iowa people have access to Internet, and right
now she has it, but again, it is the reliability factor that
can be an issue. When your business quite literally depends on
it, you know, we have to make sure that we are fixing that and
folks across my State and across the country have that access.
The other thing, you know, it is talking about childcare.
It is talking about paid family leave issues. Working family
issues are also small business issues, and these are things
that, you know, I was passionate about in the State House in
Iowa and continue to be here in Congress as well, and we need
to be looking at this in a holistic way.
Mr. Quigley. Thank you.
Mr. Graves, do you have any questions?
Mr. Graves. I just want to thank you for coming before the
committee.
It was a wonderful presentation, very compelling, but the
fact that you would just take time out of your day to come be
before us and share the concerns that you have from your
district is what this is really all about.
So thankful that you are doing that, and as a former small
business owner myself, I appreciate your insights and your
advocacy for additional small businesses and the opportunity
for individuals to be able to engage and have a dream and see
that out.
And then to the disaster challenges you faced, certainly we
are very supportive of whatever we can do to be helpful, and
you can let everybody know back in the Midwest, Republican and
Democrat alike, that our hearts are with you.
Ms. Finkenauer. Thank you.
Mr. Graves. Thank you.
Mr. Quigley. Thank you so much.
Ms. Finkenauer. I appreciate it. Thank you all.
Mr. Quigley. Thank you so much for your testimony.
Our next witness is Ms. Jackson Lee from Texas.
We are so glad you are here. Thank you.
Wednesday, March 27, 2019.
WITNESS
HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
TEXAS
Ms. Jackson Lee. Mr. Chairman and Ranking Member, I thank
both of you for this time given to members.
I would like to ask unanimous consent for my full statement
to be submitted into the record.
Mr. Quigley. Absolutely.
Ms. Jackson Lee. And I want to speak to certain elements of
your jurisdiction and make mention of another point.
Let me just say that I have always said in my constituency
and coming from Texas, in Houston we are lovers of small
business. They are everywhere we look. Both as I heard the
previous member speak of home businesses, we have those, too.
We have, you know, the barbecue shops or stores on the corner
and hamburger store, and it is not necessarily the brand names.
They are just people who are business entrepreneurs and it
crosses various ethnic groups and certainly age groups.
So the small business development centers are extremely
important to us. I have a number of them in my district and
would encourage the support of that $131 million, but I am
always eager to see in the markup whether or not those dollars
can be increased primarily because they provide a lifeline for
start-ups to know the ABCs of business.
And part of it is finance and part of it is surviving. And
I think one of the most difficult parts for small businesses is
to be able to survive.
So I support that. I also support $20 million for women's
business centers. With more and more women going into business,
many women going into business after retiring from another job,
I think it is extremely important.
I support the $1.15 billion for Federal defenders'
services. The idea, as a member of the Judiciary Committee, for
the Federal defenders' service to provide access to counsel,
other necessary defense services for those who are indigent,
fully funding the defenders' services at the Judiciary request
of $1.06 billion, which is in your appropriations more than
what has been asked for, will help to maintain public
confidence in our commitment to equal justice under the law and
ensures the successful operation of the constitutionally-based
adversary system of justice.
Having the courthouses in my district--the Federal
courthouses--having practiced in the Federal courts, having
seen cases from civil rights or criminal justice cases in the
Federal court, questions of the equal access to education in
the courts now, of course, dealing with the Texas v. Azar case
as it relates to health care; just overall the ability to be
represented in the Federal courts if you happen to be on the
short end of the stick is valuable, and the Federal defenders'
services are enormously valuable.
I support the $20 million for the community volunteer
assistance, income tax assistance. People want to pay their
taxes, but many times are not prepared, do not know how to
prepare their taxes, and I think that is an important
contribution to our revenue.
I support the $9.89 million for tax counseling for the
elderly and, as well, I support the $1.9 million for the Harry
S. Truman Scholarship Foundation. The foundation program
encourages exceptional young men and women to pursue careers in
public service, celebrating its 42nd anniversary, and the
program has seen over 3,000 Truman Scholars go on to serve in
presidential administrations and many of them in various
positions.
As I said, I would like my entire statement to be in the
record, but I do want to make a point as relates to disasters,
and that is Texas has seen its share of disasters, and recently
we know the terrible tornado that saw 23 lives lost in Alabama.
I was listening to Congressman Billy Long, who reminded us of a
tornado when he came to office, that killed 161 people in his
congressional district.
So we know disasters can be devastating, and they can be
economically devastating, devastating to businesses. And so as
we were working to fund the relief for the devastation of
Hurricane Harvey, which hit my district head on, we are still
attempting to recover. One of the things that I attempted to do
and did do, but I was just curious (sic), and that is to set
aside money for small businesses in the form of grants.
And I had wanted the Small Business Administration to
administer it, which they punted and indicated that they do not
know how to give out grants. They do not even know how to give
out loans.
And so, of course, it got into HUD, the community block
grant, which I am unhappy with, because it is under the large
funding pool that is coming under Hurricane Harvey. We modeled
it after the 9/11 disaster where monies were put aside for
businesses.
But I would raise the question that Small Business
Administration needs to be creative, and whatever mechanism
needs to be reviewed, that if this money was set aside for
small businesses, they certainly have the skill set that I
think is more appropriate than the block grant dollars, because
they can make better assessments of these small businesses.
They see them all the time.
This means that the block grant entity in my district that
deals with housing, trying to put people back in housing, put
their lives back together, now has to set up a criteria of
giving these monies to the small businesses.
Mr. Quigley. I just want to understand. You are talking
about disaster money being used in the form of grants for
recovery from small businesses?
Ms. Jackson Lee. The way they formulated the amount that we
secured for small businesses was supported in the disaster
funding.
Mr. Quigley. Okay.
Ms. Jackson Lee. And they put it under community
development block grants.
Mr. Quigley. And you are suggesting instead of that it
should go through?
Ms. Jackson Lee. Small Business, who said they could not do
it because they are only used to loans, and they would rather
not take the grant money.
And I am saying----
Mr. Quigley. So they are more used to doing this sort of
thing, and they know how to do it better.
Ms. Jackson Lee. My opinion, and learn how to do it in a
grant form.
Mr. Quigley. Okay.
Ms. Jackson Lee. But that was their concern, that they do
not give grants. But they know how to judge small businesses,
and I would think they would be a faster, more expedited
process than the process putting in the block grant.
It is now done, but I raise this question--
Mr. Quigley. Sure.
Ms. Jackson Lee [continuing]. As a thought as you look at
the agency.
Mr. Quigley. And finally, on Harvey, your best guess the
experts have on total recovery is complete to the extent it
will or just do not know?
Ms. Jackson Lee. No, we do not know. We are not complete.
We are now using the disaster money. Thank you to all of the
appropriators. We are just receiving it really in the last
couple of months because we had a regulatory snap in terms of
getting the OMB to approve the regulations that had been set by
HUD.
And then we had the shutdown from January 3rd, and there
was no action going forward, and so we, you know, have finally
moved dollars down into the State and into the counties that
need it.
But we had towns that were literally flattened by Hurricane
Harvey, and so they are just coming back online. I think the
housing is the greatest issue, and then, of course, the
infrastructure.
Mr. Quigley. Mr. Graves.
Mr. Graves. I just want to thank you for your valuable
insights and input. It is helpful for us to hear this.
And a lot of what you have discussed we are very supportive
of and have been in the past, but having members who are not on
the committee come before us and to share that support is very,
very helpful.
But thank you for your time today. I know you are
tremendously busy as well.
Thank you.
Mr. Quigley. Thanks for your years of service and your
testimony today. Thank you so much.
Ms. Jackson Lee. Thank you very much for giving us this
time.
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Mr. Quigley. Thank you.
I believe that concludes our witness list for today. We
appreciate all of those involved and those who testified.
This meeting is adjourned.
Wednesday, March 27, 2019.
TESTIMONY OF INTERESTED INDIVIDUALS AND ORGANIZATIONS
Mr. Quigley. Good afternoon. This public witness hearing
will come to order. We are pleased to welcome you all to the
Public Witness Hearing Day. I believe the appropriation process
benefits tremendously from direct civic engagement and input
from stakeholders such as yourselves.
Our public witnesses represent a wide array of backgrounds
and expertise, the important issues covered in the FSGG bill.
These testimonies help us assess the effectiveness and impact
of our work here in Congress, and analyze the best way to serve
our constituents and the country.
Many of the programs and agencies in this bill have a
direct impact on the lives and communities of Americans. The
testimony each of you shares with us today stands to expand
this committee's perspective as we strive to be responsible
stewards of the American tax dollar.
With that, I welcome all of our witnesses to the
subcommittee, and remind them to please limit their remarks to
five minutes.
The ranking member, Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman. Thank you for holding
this Public Witness Hearing. It is great to have the
opportunity to hear from the American people who come before
our committee and share with us what your priorities are. As
the representative body here and being a reflection of the
voices of our districts and constituencies, it is good to have
folks here.
So Mr. Chairman, thanks for doing this, and I am happy to
yield back. And I look forward to the hearing.
Mr. Quigley. Thank you. Our first witness is General Arthur
T. Dean, Chairman and CEO, the Community Anti-Drug Coalition of
America. Please step forward.
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Wednesday, March 27, 2019.
COMMUNITY ANTI-DRUG COALITIONS OF AMERICA
WITNESS
GENERAL ARTHUR T. DEAN, CHAIRMAN AND CEO, COMMUNITY ANTI-DRUG
COALITIONS OF AMERICA (CADCA)
Mr. Dean. Chairman Quigley, Ranking Member Graves, and
other distinguished members of the Finance Services and General
Government Appropriations Subcommittee, I thank you for the
opportunity to testify before you to day on behalf of Community
Anti-Drug Coalitions of America, CADCA, which is a national
association composed of more than 5,000 community coalitions
nationwide.
I have had the honor and the opportunity to serve as
CADCA's CEO and board chair for the last 20 years. CADCA
strongly supports the funding of the DFC program in 2020 at the
highest possible level, at a minimum of $100 million in fiscal
year 2020, which was the final appropriation that the program
had in 2019. And CADCA strongly supports that you let the DFC
program and the HIDTA program remain intact in the Office of
National Drug Control Policy, ONDCP.
We also ask that you include a minimum of $2 million to
continue the National Community Anti-Drug Coalition Institute,
known as the institute, which provides all the specialized
training and required training and technical assistance for the
DFC program.
Additionally, CADCA opposes the President's fiscal year
2020 request to dramatically reduce the salaries and the
expenses in the Office of National Drug Control Policy. We
believe that the proposal will weaken these vital programs and
significantly impact ONDCP's ability to carry out their mission
in an effective and efficient manner.
The DFC program is a tremendous program is a tremendous
example of how a very small investment of Federal funds can
achieve a major impact at the community level. DFC's coalitions
are only provided up to $125,000 a year, and they must provide
a dollar-for-dollar match, cash or in-kind, for every Federal
dollar received.
They must reduce youth substance use through the
involvement of the required 12 sectors in the community that
must be a part of their coalition. In addition, all year one
coalitions are required to go through a yearlong training, and
that training is provided by CADCA's institute and provides
them the necessary training they need to be successful.
ONDCP policy-level oversight has directly caused the DFC
program to obtain exceptional positive results in reducing
rates of all substance use for youth. I know from both my
experience traveling the country as well as the national
evaluation of this program that significant results have been
obtained throughout the country. Just some quick examples.
Chairman Quigley, in your district, the DuPage County
Prevention Team in your district is a great example of a
successful coalition. The leadership there, after four years of
receiving DFC funding and receiving the required yearlong
training from the institute, has obtained the following results
I would like to share with you very quickly.
Past 30-day use reductions in 12th grades from 2014 to
2018: Binge drinking decreased at a rate of 28 percent. Alcohol
use decreased at a rate of 13.3 percent. Perception drug use/
misuse decreased at a rate of 40 percent.
Ranking Member Graves, I want to talk quickly about Floyd
Against Drugs, the DFC-funded coalition in your district
working in Rome, has also achieved some outstanding results as
well. In a very short period of time--I am only talking about a
one-year span, from 2016 to 2017--they have reduced past-month
marijuana use at a rate of 20.6 percent, alcohol use at a rate
of 17.1 percent.
And quickly, the final example I want to share with you is
a county in Kentucky called Carter County. In the early 2000s,
some local school and faith-based leaders noticed that
prescription drug abuse had skyrocketed, and that it had
infiltrated into the school system. They developed a coalition.
They obtained a grant. They were trained by CADCA. And this is
what happened as a result of that.
They reduced 30-day prescription drug use/misuse rates for
8th graders, 10th graders, and 12th graders. The 10th graders'
30-day prevalence decreased from 12 percent in 2006 to 1
percent in 2016. At the same time, college and career readiness
scores rose from 23 percent in 2010 to 76.5 percent, and
graduation rates rose from 81 percent in that county to 98.8.
I submit to you that the Drug-Free Communities Program is
truly the backbone of a successful community-based substance
use prevention. Therefore, we at CADCA strongly recommend that
you keep DFC and HIDTA in ONDCP, and you fund them at the
highest possible level in 2020. And I thank you for the
opportunity to share this information with you, and stand ready
to answer any questions you might have.
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Mr. Quigley. I will start with Ranking Member Graves.
Mr. Graves. Thank you, Mr. Chairman.
General Dean, thanks for being here, and for your
commitment to safer, healthier communities, and for your
investment in young folks' lives.
Mr. Dean. Thank you.
Mr. Graves. I know you have served in so many different
capacities throughout your careers. But that is probably one of
your greatest accomplishments, I imagine, as you have looked
back and you recite some of these statistics.
So thank you for that. Thank you for, as the chairman
pointed out to me, your involvement in the Atlanta community
and the Boy Scouts there.
Mr. Dean. That's correct.
Mr. Graves. So you have done great work. Thank you. Thanks
for being here today. No questions.
Mr. Dean. My pleasure. Thank you very much.
Mr. Quigley. I want to join the Ranking Member in thanking
you for your service for the U.S. Army, the United States of
America, and working to keep our communities drug-free. We are
proud of what you are doing.
We will do our best in this appropriation bills to
appropriately fund the programs that you talked about. Your
testimony is an additional boost to our efforts in
understanding these issues and promoting them and doing the
best we can. So thank you so much for your service. We
appreciate your having been here today.
Mr. Dean. Well, thank you for the opportunity. And it has
been my pleasure. Thank you.
Mr. Quigley. Thank you.
Our next witness is Daniel Schuman, Policy Director, Demand
Progress. Welcome back.
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Wednesday, March 27, 2019.
FEDERAL SPENDING TRANSPARENCY
WITNESS
DANIEL SCHUMAN, POLICY DIRECTOR, DEMAND PROGRESS
Mr. Schuman. It is a pleasure to be back. Mr. Chairman, Mr.
Ranking Member, Representative Torres, thank you for the
opportunity to testify. I am here to discuss Federal spending
transparency, which I know is always of interest to this
committee.
But I actually wanted to start first by commending the
committee for providing the public with this opportunity to
testify. Public witness testimony provides an additional
measure of transparency and accountability as Congress conducts
oversight of the Executive Branch.
Chairman Quigley, I know that transparency is a watchword
for you, and I know for Congressman Graves there can be no
doubt of his dedication to making Congress work better. I would
like to thank you both for that.
Let me briefly turn and outline an issue that would bring
improved transparency and accountability to Federal spending.
Each year Federal agencies submit plain English explaining to
Congress concerning their request for appropriated funds.
Unlike other budget documents, these congressional budget
justifications use language that most people can actually
understand, and they describe in useful detail each agency's
programs and activities so you can actually get a sense of what
they intend to do.
The Office of Management and Budget approves the contents
of these congressional budget justifications because they are
submitted to Congress, and OMB also requires agencies to
publish them online within two weeks of submission.
While this process seemingly would provide for transparency
and accountability, unfortunately it does not. My colleague
Amelia Strauss and I looked at 456 agencies to see whether they
published their congressional budget justifications online.
We found that 21 percent of them did not publish these
justifications online. In addition, 6.1 percent of these
agencies published a justification online for 2018 or for 2019,
but not for both.
Now, OMB does not release the list of all of the agencies
that must make congressional budget justifications. We do not
know if our survey of all 456 agencies counted the right
agencies. But it seems likely that the agencies that published
only one year's justification failed to meet their obligations.
And it is also likely that there are a lot of missing
justifications.
Now, right now there is no way to know which agencies must
publish their congressional budget justifications, and there is
no easy way to know where they can be found. This impedes both
your ability and our ability to understand how agencies intend
to spend these funds.
We suggest a straightforward approach to addressing both of
these problems: OMB, which already approves all Executive
Branch congressional budget justifications, should publish all
of them on OMB's website, right alongside all the other budget
information that they already publish. This is not a new idea;
in fact, it is probably familiar to members of this committee
because you encouraged OMB to publish the congressional budget
justifications on their website in your report language
accompanying the 2018 and 2019 appropriations bills.
And, Mr. Quigley, I remember back in 2014 when you asked
the then-OMB administrator about this issue as well, and at the
time, she was not able to give you a satisfactory answer, which
is why I am back before you again on this topic.
So what we respectfully urge the committee to do is to
require OMB to publish all congressional budget justifications
on their website. Requiring OMB to publish all the
justifications in one place would make it easier for
congressional staff and for the public to find these documents.
It would be an important step towards improving transparency
and accountability around Federal spending.
Now, we submitted draft legislative language in our written
testimony. We hope that you will consider it. And I am very
appreciative of your making the time for me to come and testify
today. So thank you.
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Mr. Quigley. Thank you for being here. Is there another way
this could be done besides putting it on there if the statutes
dictate it? In a perfect world, the justifications would be
where?
Mr. Schuman. On a central website. So either OMB can
publish it alongside all the other budget information they
already publish--because they publish the actual budgeting;
they publish statistics; there is a whole slew of materials
they have on their website. Ideally, this would be right
alongside that.
If you cannot publish it there, the next best place would
probably be to give it to GPO since GPO acts as a repository of
all Federal documents and that would be a reasonable place for
it to exist. Appropriators could do this themselves, like
Congress itself could have a website where you do this type of
work. But it would be harder to do.
OMB is already telling the agencies to publish them online
on their websites, and to go through a process to make sure
that what is published is appropriate. And OMB already has the
final documents. Since they already have it all, it makes
sense, at least from my perspective, for them to publish it
themselves.
Mr. Quigley. And that is why I asked the question. Thank
you.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Daniel, if I heard your testimony correct, which we will
find out in a second here, is it already a requirement that
this be available? Did you say that?
Mr. Schuman. Yes. That's right. OMB requires all of the
agencies to publish the congressional budget justifications on
their websites within two weeks of submitting them to Congress.
So they are already required to be publicly available.
Ironically, OMB is one of the agencies that does not publish
its own congressional budget justification online, which is
kind of an interesting fact.
Mr. Amodei. Thank you for putting it delicately. I yield
back. [Laughter.]
Mr. Quigley. Thank you so much for being here, sir. We
appreciate your work.
Mr. Schuman. My pleasure. Thank you.
Mr. Quigley. Sure. Take care.
Our next witness is Rachel Weintraub, Legislative Director
and General Counsel, Consumer Federation of America.
---------- --
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Wednesday, March 27, 2019.
CONSUMER FEDERATION OF AMERICA
WITNESS
RACHEL WEINTRAUB, LEGISLATIVE DIRECTOR AND GENERAL COUNSEL, CONSUMER
FEDERATION OF AMERICA
Ms. Weintraub. Chairman Quigley and Representative Amodei,
I am Rachel Weintraub, legislative director and general counsel
for Consumer Federation of America. CFA is an association of
nearly 300 nonprofit consumer organizations across the United
States that was founded in 1968 to advance the consumer
interests through education, advocacy, and research.
CFA very much appreciates the opportunity to testify before
you today, and today I will focus primarily on the Consumer
Product Safety Commission, the Consumer Financial Protection
Bureau, and the Securities and Exchange Commission.
CFA strongly urges the House Appropriations Subcommittee on
Financial Services and General Government to significantly
increase funding for the U.S. Consumer Product Safety
Commission in fiscal year 2020, and to reject the include of
any policy riders that would undermine essential protections
for consumers.
The CPSC has a critical mission to protect the public from
risks associated with consumer products, but its funding and
staffing levels are insufficient to carry out the work
necessary to fulfill this mission. The scope of work is
enormous. The CPSC reviews about 8,000 unintentional product-
related death certificates each year, and is aware of at least
15.5 million emergency department-treated injuries per year
associated with consumer products.
In addition, the societal costs of consumer product
incidents amount to more than $1 trillion annually. We urge you
to significantly increase the CPSC's funding above the fiscal
year 2019 enacted level of $127 million.
CPSC's budget is less than its first budget in 1974, when
Congress appropriated $175 million in today's dollars,
accounting for inflation. The agency then had 786 full-time
employees and now has 539 during the current fiscal year.
CPSC's budget also falls short of the general authorization of
appropriations, as pathed in the bipartisan Consumer Product
Safety Improvement Act of 2008.
Under this language, the appropriations level for CPSC in
2014 was authorized to over $136 million. Unfortunately, the
fiscal year 2020 level of $127 million is obviously $9 million
less than that authorization for the CPSC five years earlier.
In Appendix A of the CPSC's fiscal year 2020 performance
budget request to Congress, a list of unfunded priorities
previously submitted by the commission was included. This list
includes pay inflation, non-pay inflation, expansion of data
analysis including exposure surveys and market scans; urgent
care centers' pilot programs; e-commerce, retail reporting; IT
systems; and security, including incremental systems
modernization, which includes an important consumer reporting
disburse, SaferProducts.gov; IT security, and Virginia Graeme
Baker Pool and Spa Safety Act grant program.
The total cost of these unfunded priorities totals $8
million. But the commission needs significantly more resources
to conduct research and finalize rulemaking to address emerging
and documented hazards, and establish necessary mandatory
standards for chronic and acute hazards associated with
consumer products.
The Consumer Financial Protection Bureau has proven itself
to be a transparent, deliberative, and data-driven agency. The
CFPB has worked closely with consumers and the financial
services industry to develop sensible safeguards against
harmful and discriminatory products and practices, has returned
$12.4 billion in relief to more than 31 million harmed
consumers, and the agency's authority, structure, and
independent funding must be preserved.
The CFPB's independent rulemaking authority should not be
limited by establishing an unprecedented congressional review
and approval authority over CFPB rulemakings. This agency is
critical to protecting consumers in the financial marketplace,
and we oppose policy riders that have been proposed in the past
that limit the CFPB's ability to fulfill its consumer
protection mission.
The Securities and Exchange Commission, which is tasked
with overseeing our Nation's capital markets, has had a growing
workload in recent years but has not been provided sufficient
resources to keep pace with that workload.
This is particularly the case with regard to investment
advisor oversight. In addition, funding long-term capital
investments and information technology poses a significant
challenge for the agency, which could and should be addressed
by retaining the SEC's reserve fund.
According to the SEC, its reserve fund has been critically
important in their efforts to keep pace with the rapid
technology advancements occurring in their regulatory areas as
well as meeting the challenges of cybersecurity. Without access
to these funds and the ability to make technology upgrades,
however, the SEC will be at a continued disadvantage relative
to industry. Constantly struggling to detect wrongdoing will
ultimately hinder the agency's ability to protect investors
foster market integrity, and promote capital formation.
Thank you very much for your consideration.
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Mr. Quigley. Thank you. I appreciate your--we appreciate
your testimony.
Focusing on just the Consumer Product Safety Commission for
a moment, I understand the areas that you are talking about of
unfunded priorities. Has your research detailed the type of
workers they have lost that they need most or are short of?
Ms. Weintraub. There is definitely----
Mr. Quigley. Researchers and----
Ms. Weintraub. I think it is across the entire staff. And
there has definitely been a discussion of a brain drain of
knowledgeable, experienced staffers who are leaving, and I
really think it is across their substantive areas.
Mr. Quigley. And to the extent that you are aware, to what
extent do they use outside experts to analyze the information
they are dealing with?
Ms. Weintraub. I think it really depends on their board and
what money they have to contract with others. It does happen,
but depends on the issue and the financial appropriation to
that particular issue.
Mr. Quigley. I appreciate that.
Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chair. I yield back. Oh, Mr.
Chairman--and by the way, thanks for pronouncing my last name
better than I usually do. [Laughter.]
Ms. Weintraub. I listened very carefully. Thank you.
Mr. Quigley. Our next witness is Kel McClanahan, Executive
Director of the National Security Counselors.
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Wednesday, March 27, 2019.
NATIONAL SECURITY COUNSELORS
WITNESS
KEL McCLANAHAN, EXECUTIVE DIRECTOR, NATIONAL SECURITY COUNSELORS
Mr. McClanahan. Thank you for having me here. My firm, NSC,
is a public interest law firm that deals primarily in
information and privacy law and Federal employment law,
especially when it pertains to the intelligence community. I am
here with two relatively narrow asks pertaining to what should
be noncontroversial ideas: Transparency litigation should be
transparent, and Inspectors General should be independent.
On the first issue, I will not explain how the Freedom of
Information Act litigation works in any great detail because I
presume everyone here is familiar with the process. I am here
instead to talk about the exception to the rule. Simply put,
sometimes an agency tells a judge that it cannot prove its case
publicly. In those cases, it attempts to file a declaration ex
parte and in camera so that only the judge can read it and not
the other parties.
There is a time and place for this, but this is greatly
abused and judges almost never deny it. In fact, in my
research, I have only been able to identify three instances
since 1994 where a judge denied one of these motions. In the
worst cases, all that the request receives is a statement from
the agency saying that FOIA is good and FOIA should yield the
relief of documents. And then something like the in camera
declaration submitted with this motion will explain the rest.
In one such case, the judge ruled not only that FBI's in
camera declaration was proper, but that the requester, my
client, did not even deserve a chance to file an opposition
brief because: ``The evidence presented in camera was so
conclusive as to the questions presented that further briefing
and argument was clearly unnecessary.''
Bizarrely, the judge also observed that the unredacted
declaration is the quintessence of bureaucratic obfuscation,
and that he thought of George Orwell ``while attempting to
decipher its meaning.'' Nevertheless, despite this indictment,
he ruled in the FBI's favor.
A preliminary analysis of publicly available FOIA court
dockets since 1994 shows that these filings have steadily
increased over 350 percent in the past 27 years. And yet, as
noted before, I could only find three instances of judges
denying them.
Additionally, my personal experience has shown that
agencies are increasingly including information in these
declarations that does not need to be kept secret, as evidenced
by the fact that I have been able to get redacted versions
through my own FOIA requests.
Many of these filings are historically important and
newsworthy. For instance, I obtained a declaration which had
been sealed since 1982 which provided information about the
NSA's ability to intercept records about the Kennedy
assassination.
But historians and reporters should not have to rely on
someone like me, who has nothing better to do than chase after
these records. These records, which often pertain to
information later released through FOIA, should automatically
become public after a certain time period.
But I am not here to ask for that. Right now we just need
data on the problem. So our ask is simple. Please appropriate
sufficient funds to the Administrative Office of the U.S.
Courts to discount a comprehensive survey of all such in camera
declarations in the last 10 years or so. Find out how many
there are and in what circumstances they are filed, and
anything else relevant to the issue.
And also specify that using this information, the
administrative office should conduct a feasibility study for a
process in which all such declarations would automatically be
filed in the public record after five years or so unless the
agency convinces a court at the time that they warrant
continued secrecy by the automatic declassification review
process for classified documents.
The second issue is pretty simple. Inspectors General are
supposed to be independent, they are often not. This problem
often arises in the context of IT and information access. When
an IG's office relies upon the agency's IT infrastructure, it
creates vulnerabilities and conflicts of interest.
Consider Dan Meyer, the former head of whistleblower
protection at the Intelligence Community Inspector General. CIA
intercepted his emails to and from Senator Grassley for the
simple reason that the ICIG uses CIA email servers, and CIA
claims the right to read anything on a CIA computer ``for
counterintelligence purposes.'' As a result, and operational
office of CIA is given virtually unlimited access to the
confidential whistleblower files of the Inspector General
charged with its oversight.
Contrast this DHS and GSA. DHS OIG possesses its own
dedicated IT staff and has established numerous firewalls and
protocols to ensure that its files cannot be access by non-OIG
personnel. The GSA OIG even has a separate domain, GSAIG.gov.
Same as before, the ask is simple. Congressman Connolly is
already working with the council--can I continue?
Mr. Quigley. Yes.
Mr. McClanahan [continuing]. Is already working with the
Council of the Inspectors General on Integrity and Efficiency
to attempt to survey OIGs to understand whether DHS and GSA are
the norm or if more OIGs are captured like CIA and the ICIG.
But they need support. So we are asking you to appropriate
sufficient funds to allow them to do this, and more
importantly, to prohibit the use of appropriated funds by any
agency to obstruct or refuse to cooperate with this survey.
Thank you.
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Mr. Quigley. Thank you for your testimony and your
suggestions.
Just a detail. You are talking about the fact that these
should automatically become public record unless the agency can
justify this. Obviously, there is a spectrum here of how
important some of this is, and some of this is really important
to keep public--I mean, not public. Correct? You would agree
that there is some information out there that would span more
than five years that is particularly important to keep
classified. Correct?
Mr. McClanahan. Oh, yes, Your Honor--sorry--yes, Chairman.
This is simply--right now questions like this are things that
we would hope the study would----
Mr. Quigley. And who do you think should complete the
study?
Mr. McClanahan. I think the Administrative Office of U.S.
Courts is best placed to it because they have the best
accessibility to the records.
Mr. Quigley. Okay. And has anyone else written on this
besides yourself, or discussed these groups?
Mr. McClanahan. Well----
Mr. Quigley. To the extent you are aware, if you could pass
that on to the committee, we would appreciate it.
Mr. McClanahan. Certainly.
Mr. Quigley. Okay. Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
When you were talking about the hearings and you referred
to the judges at the first part of your testimony, were you
referring to Federal district court judges or administrative
law judges in the Federal system? What judges were you--or
maybe both. I do not know.
Mr. McClanahan. Well, no. Administrative law judges do not
generally play much of a role in FOIA cases. I was talking
about Federal district court judges.
Mr. Amodei. Okay. So the in camera examples that you have
provided the committee, for an example, did those happen in a
Federal district court judge's chambers?
Mr. McClanahan. Well, in a courtroom. But yes, a Federal
district judge did issue the acceptance or the denial of the
motion. And in most cases, actually, the agency does not even
ask leave to file something in camera. It just does it. And if
the judge is pressed on it they generally say, I will allow it,
after the fact.
Mr. Amodei. Okay. Thank you. Thank you, Mr. Chairman.
Mr. Quigley. Thank you. Sir, thank you for your testimony.
Appreciate it.
Mr. McClanahan. Thank you very much.
Mr. Quigley. Our next witness is Bartlett Collins Naylor,
Financial Policy Advocate, Congress Watch, Public Citizen.
It is good to be a public citizen.
Wednesday, March 27, 2019.
FINANCIAL POLICY ADVOCATE, CONGRESS WATCH
WITNESS
BARTLETT COLLINS NAYLOR, FINANCIAL POLICY ADVOCATE, CONGRESS WATCH--
PUBLIC CITIZEN
Mr. Naylor. Mr. Chairman, Member Amodei, thank you for
having me. My name is Bartlett Naylor. I am a Financial Policy
Analyst for Public Citizen. We are a half-century-old group
composed of about 500,000 members and supporters. I am here to
urge you in two categories. One category is things not to do
and one category is things that I urge you to advance on.
And one of them is that this committee has originated
legislation in the past that carried riders that stifled what
we think were important reforms, such as a reform to require
companies under the auspices of the Securities and Exchange
Commission to disclose political spending. It is an initiative
that is supported by something like 1.2 million investors.
This committee has carried a rider that has stifled the IRS
from drawing a bright line around what nonprofits can do in a
political way. It has stifled needed reform at the Consumer
Protection Agency that deals with off-road vehicle safety. We
urge this committee to not carry these riders, to allow these
agencies to continue in these needed areas of reform.
We also urge you to fund the various agencies under your
portfolio to do the jobs that Congress has mandated them to do.
Mr. Chair, you were, earlier in your tenure, overseeing some of
the financial crisis response, TARP and so forth. I think it is
sadly revealing that some of the statutes that you authorized
regarding executive compensation have been left unattended by
the regulators, in particular the Securities and Exchange
Commission.
What caused the crash? Why did bankers crash the global
economy? Well, they were paid to do it. Take two firms, Bear
Stearns and Lehman Brothers. If you count the compensation of
the top five officers of those two companies--that is 10 in
all--over the eight or so years leading to the crash, they were
paid $140 million each--$140 million each.
Both of those firms failed, one in official bankruptcy, one
absorbed with Government funding into another bank. A hundred
and forty million dollars to crash their companies. There are
2,000 people at J.P. Morgan that make more than a million
dollars a year, and those employees are overseeing misconduct,
a rap sheet that fills many pages.
Congress understood that money was the root of the problem,
and it passed a number of provisions in Dodd-Frank, Title IX.
Only a few of them have been implemented. The most important
one have not been. 953 is a simple provision that simply asks
the relationship of the board's decision to make payments to
senior officers and what performance metric they are using.
J.P. Morgan spends roughly 15 pages explaining why Jamie
Dimon deserves $30 million, but nowhere is it concrete. Nowhere
can an investor say, well, I can tell that if the revenue goes
up by this amount or customer base grows this amount, he is
going to be paid. It is simply 15 pages of flattery. What is
needed is that 953(a) and (b) are brought to the finish line.
954 is a clawback. It says that if you actually have
results that are based on fake results, erroneous results, that
that money be clawed back, and that the policy be stated, and
ideally that the public understand that. We do not understand
that as the public or as shareholders.
Wells Fargo has told us they have clawed back some of the
money from some of the people accountable for the misconduct,
but not much of it. J.P. Morgan has explained some of the
clawbacks from the London Whale perpetrators, but not much. So
in other words, even shareholders, even people that own the
company, of when the money is clawed back. And this is not
chump change. This is something like 2 percent of corporate
profits are going to senior pay.
Then finally and most seriously, 956 languishes. That is
the most important provision, that says that there cannot be
excessive payment for inappropriate risk-taking. This has been
languishing at the SEC. Next when Chair Clayton appears before
you, I would urge you to ask him what he is doing about this.
Thank you.
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Mr. Quigley. In your written testimony, you talked a little
about the IRS?
Mr. Naylor. Yes. I am the former chief of investigation for
the Senate Banking Committee, so I am skillful enough to say
that that is an area outside my expertise and I will have to
get back to you with a follow-up question on the bright lines
project. My colleague, Emily Peterson-Cassin, can help you with
that.
Mr. Quigley. Okay. And if you could pass that information
on to the committee in terms of our interests and that, and
getting more input from the public. I appreciate that.
Mr. Naylor. Of course.
Mr. Quigley. Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman. I yield back.
Mr. Quigley. Thank you, sir, for your testimony and for
your work.
Mr. Naylor. Thank you.
Mr. Quigley. Our next witness Jacque Simon, Director of
Policy, American Federation of Government Employees.
----------
Wednesday, March 27, 2019.
AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES
WITNESS
JACQUE SIMON, DIRECTOR OF POLICY, AMERICAN FEDERATION OF GOVERNMENT
EMPLOYEES
Ms. Simon. Thank you for the opportunity to testify. I will
focus on three issues today: Federal pay, the outsourcing of
Federal Government work to private contractors, and the
proposed acquisition of OPM by GSA.
Federal pay is extremely important to Federal employees,
for obvious reasons. But it should be important to everyone
because how Federal employees are paid, as well as how much
Federal employees are paid, is important to the maintenance of
an apolitical civil service.
Opponents of Government and Government employees often hurl
unfounded insults against the Federal pay system. They work
hard to undermine trust in the numbers, and try in various ways
to argue that it needs replacing. The truth is that the Federal
pay system is extremely well-designed, and its only really
problem is that it has never been properly funded.
Federal pay systems share two important characteristics:
They are market-based, and they assign pay according to the
duties and responsibilities of the job, not the characteristics
of the individual who holds the job. As a result, there is very
little discrimination in pay in the Federal Government.
According to the most recent study by OPM, women earn 95.6
percent of what men earn in the Federal Government, and most of
this small 4.4 percent gap is explained by occupational
differences. Among Federal executives, the pay equity gap----
Mr. Quigley. Let me interrupt you and ask you: How does
that compare to the private sector?
Ms. Simon. I do not have data with me from the private
sector, but it something like 56 percent, which is quite
different.
Mr. Quigley. So this better.
Ms. Simon. It is drastically better.
Mr. Quigley. I understand.
Ms. Simon. I was going to tell you that among senior
executives in the Federal Government, the pay equity gap is
just 0.8 percent, even though there are far fewer women in the
SES than men. But I am not here to represent SES.
The market comparability gap, however, is far larger. The
most recent pay agent report, using BLS data, shows the average
pay gap still 33.7 percent. Although you will hear critics say
the Federal pay system is antiquated and rigid, the only
antiquated thing about it is that it does not produce extreme
inequality between the top and the bottom. The rigid part has
no truth to it at all.
The current system was designed to close pay gaps on a
local basis, and thus the law requires the Government to
measure pay gaps by city and provide a two-part pay adjustment
each year: a nationwide ECI adjustment and a localized
adjustment. Once local gaps are closed to within 95 percent of
the market, there would be no more increases in locality pay.
In the years since locality pay was enacted, little
progress has been made in closing local pay gaps. That is why
we are asking Congress for a 3.6 percent increase for 2020 to
help raise Federal salaries so they will be a positive factor
in recruitment and retention.
We ask further that the Federal workers in the skilled
trades who are paid on an hourly basis receive the same
adjustment as their GS coworkers, and that Congress pass
legislation to align the local pay area boundaries between the
two pay systems, the one for salaried and for hourly Federal
workers.
Regarding the Federal Government's process and policy for
outsourcing Government work, we ask that Congress extend the
moratorium on the use of OMB Circular A-76. A-76 sets forth a
cost comparison process for agencies to use prior to deciding
whether to contract out Government work. The flaws of A-76 are
quite serious and include systematic over-counting of in-house
costs.
The moratorium is meant to prod OMB to address the
circular's flaws. But it also requires agencies to inventory
their service contracts so that these enormous costs are no
longer hidden in the budget process. Since neither of these
things have occurred, fiscal prudence dictates that the
moratorium stay in place.
Finally, I would like to address the administration's plan
to abolish OPM and merge most of its operations into GSA. OPM's
policy function would go to the Executive Office the President.
Both of these moves are ill-conceived and potentially
dangerous.
We have seen no analysis of the impact on operations, jobs,
risks, or even costs or benefits. No good rationale is
apparent, but a bad one does come to mind. GSA manages office
space and fleets of vehicles. The administration, in its effort
to degrade the Federal workforce by turning all Federal jobs
into temporary positions with low pay, no rights, and few if
any benefits, seems to see its workers in the same terms as a
fleet of vehicles: Lease them, abuse them, and then dispose and
replace. If you think of it like that, the merger starts to
make a strange kind of sense.
We believe the merger poses a danger to the apolitical
civil service. Moving the policy function of OPM into the White
House is a blatant attempt to politicize the Federal civil
service.
The administration has questioned the political loyalties
of Federal employees, and it has tried to eliminate, restrict,
or otherwise undermine due process and collective bargaining
rights. Abolishing the agency that has primary responsibility
for upholding the merit system facilitates this agenda.
Thanks for the opportunity to testify. I would be happy to
answer any questions you may have.
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Mr. Quigley. Sure. You talked about the moratorium that is
going on that OMB is handling. Are you aware of where OMB is
at, analyzing this, if there seems to be any progress? Has
there been anything made public about that?
Ms. Simon. We have had very little conversation with OMB
recently. And as far as I know, no progress has been made.
Mr. Quigley. And how long has that been----
Ms. Simon. Well, it was last rewritten----
Mr. Quigley. How long has the moratorium been put in place,
again?
Ms. Simon. The moratorium has been in place for----
Mr. Quigley. Roughly?
Ms. Simon. Six years? Eight--six years. About six years.
The last time A-76 was revamped was 1999.
Mr. Quigley. Very good. Thank you.
Ms. Simon. So these laws have been apparent since the
George W. Bush administration, when it was used very heavily.
And in my written statement, I talk to you about the scandal at
the old Walter Reed Medical Center that occurred as a result of
very, very long and expensive A-76 competition.
Mr. Quigley. Thank you. Mr. Amodei.
Mr. Amodei. I yield back.
Mr. Quigley. Thank you. Thank you so much for your
testimony.
Ms. Simon. Thank you.
Our next witness is Sean Moulton, Senior Policy Analyst,
Project on Government Oversight.
I am reading these resumes and there are cum laudes
everywhere. I am reminded of the president of the Cook County
Board once said to me--he was ``thank you, Lord'' getting out
of college. [Laughter.]
Mr. Quigley. Mr. Stroger is well remembered.
Thank you, sir, for being here.
----------
Wednesday, March 27, 2019.
PROJECT ON GOVERNMENT OVERSIGHT
WITNESS
SEAN MOULTON, SENIOR POLICY ANALYST, PROJECT ON GOVERNMENT OVERSIGHT
Mr. Moulton. Thank you for having me. Chairman Quigley,
Member Amodei, I appreciate the opportunity to testify today. I
am a Senior Policy Analyst with the Project on Government
Oversight, which is a nonpartisan, independent watchdog that
investigates and exposes waste, corruption, and abuses of
power.
I am here to talk about steps this subcommittee can take on
two important issues: improving data quality for Federal
spending information collected and posted under the Digital
Accountability and Transparency Act, or DATA Act, and improving
the public availability of work done by Inspectors General.
It is my hope that this subcommittee will require agencies
with poor quality financial data to file improvement plans and
regular progress report; that you will provide dedicated
funding for Oversight.gov, the central repository for Inspector
General reports; and will help create best practices for
posting information about those reports.
The Data Quality Act--sorry, the DATA Act was passed to
significantly expand and improve the Government spending data
available for public examination on USASpending.gov. While this
implementation has moved forward, serious data quality problems
have emerged.
Inspectors General completed audits required under the DATA
Act of agency data submissions in 2017 and revealed widespread
problems. POGO reviewed 41 of these audits, including nine for
Cabinet-level agencies, and discovered that 25 agencies
submitted significantly incomplete information and 30 agencies,
about 75 percent, submitted significantly inaccurate
information.
If the data cannot be relied upon, then the public and
policy-makers cannot use the information to draw conclusions or
make good decisions. As the old saying goes, garbage in,
garbage out. Given many agencies' poor starting point on data
quality, we believe the subcommittee should take three steps.
First, instruct agencies whose IG audits identify
significant data quality problems to file public data quality
improvement plans with the Department of the Treasury, and
regularly report on their progress until data quality issues
are considered resolved.
Second, Treasury should report to the subcommittee on a
semiannual basis on the current data quality efforts by those
agencies and recommendations for any additional steps needed.
Finally, the subcommittee should also encourage the
Inspectors General to continue to audit agency implementation
of the DATA Act until the agencies have sufficiently addressed
any outstanding data quality issues.
The DATA Act audits are just one example of the critical
work that Inspectors General produced, but not all of their
work is so readily accessible to the public or even to
lawmakers. In 2017, the Council of the Inspectors General on
Integrity and Efficiency, or CIGIE, established Oversight.gov
as a central repository for all Federal agency Inspector
General reports, a major step forward for improved
accountability of Inspectors General and for public
accessibility of their work product.
Recently this subcommittee provided its first funding,
dedicated for Oversight.gov, to CIGIE. However, this effort
requires a steady funding stream to continue its operation,
improve functionality, and provide expanded services. We urge
you to continue to support a robust Oversight.gov by providing
at least $1 million in dedicated fiscal year 2020 funding to
CIGIE.
We ask that this support be accompanied by report language
that outlines some of the expectations for how best to use this
funding. Congress should also request that CIGIE articulate
best practices for Inspectors General on the publication and
public notification of reports.
Individual IGs do not have consistent rules for reporting
on and providing access to classified or unclassified but
sensitive reports. Even Congress could remain unaware of a
nonpublic report as there is no consistent method among IGs for
how to make nonpublic reports known to Congress.
The best practices guideline from CIGIE should be modeled
on current practices by the Department of Defense Inspector
General, which publicly posts the topic, the title, and the
report identifier for all of its classified and sensitive
reports.
We have prepared suggested report language to accomplish
all the goals I have mentioned, which I am happy to provide to
the subcommittee. Thank you for the opportunity again to
testify on these important issues, and I am happy to answer any
questions.
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Mr. Quigley. I appreciate your bringing up the DATA Act, a
rare victory for transparency in our world. A little tip of the
hat to Mr. Issa, who was involved, the transparency caucus,
transparency community. And I just encourage you and others in
the community, in terms of making sure as you are talking about
that we move forward appropriately on this, if there are
changes and additions that need to be made, that we move
forward appropriately. Thank you.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman. I yield back.
Mr. Quigley. Thank you so much for your testimony, sir.
Mr. Moulton. Thank you.
Mr. Quigley. Thank you. Our final witness today is Rion
Dennis, Legislative Advocacy Specialist, Americans for
Financial Reform. Thank you, sir.
----------
Wednesday, March 27, 2019.
AMERICANS FOR FINANCIAL REFORM
WITNESS
RION DENNIS, LEGISLATIVE AND ADVOCACY SPECIALIST, AMERICANS FOR
FINANCIAL REFORM
Mr. Dennis. Thank you, Mr. Chairman, thank you, Mr. Amodei,
for the opportunity to testify before you today on behalf of
Americans for Financial Reform. AFR is a coalition of more than
200 National, State, and local organizations who have come
together to advocate for stronger and more effective oversight
of the financial industry. Members of our coalition include
consumer, civil rights, investor, retiree, community, labor,
and faith-based groups.
I would like to focus my testimony on the importance of
keeping poison pill policy riders out of appropriations bills.
Unfortunately, our organization has had the experience of
seeing destructive policy riders affecting financial stability
and informative protection inserted into budget deals in
conference committees or closed-door negotiations.
A particular risk in the area of financial regulation is
that legislation which may seem obscure or technical to non-
experts can have dramatic negative impacts on the financial
system in areas ranging from investor or consumer protection to
protecting the public from another financial meltdown.
This is a particular danger of managing such items of
legislation through the appropriations process, where they are
not fully vetted by the policy subject matter experts in
committees and experts in public interest organizations that
track these matters.
The most dramatic example of this in recent years was in
the 2014 budget deal, when legislation was inserted that
effectively eliminated the so-called swaps push-out provision
in Section 716 of the Dodd-Frank Act. Section 716 placed a
critical firewall between taxpayer-insured deposits and complex
swaps-dealing activities of the kind that helped cause the 2008
crisis.
The Section 716 firewall would have prevented the mingling
of the riskiest kinds of swaps-dealing activities and the
activities of the taxpayer in insured depository banks. Such
activities could still be continued but would have to have been
segregated from deposits and independently funded, a change
that would have prevented big banks from benefitting from
taxpayer subsidies in this segment of their business.
However, Section 716 never went into effect because it was
eliminated in the appropriations process at the behest of major
swaps-dealing banks such as Citigroup and J.P. Morgan, language
effectively gutting this firewall that was placed into the
budget deal.
Press reporting demonstrated that the language placed into
the appropriations bill was actually written by Citibank
lobbyists. Lobbyists had previously tried to pass this
legislation through the normal process but had failed. The
firestorm of negative publicity that ensued what the public
realized that legislation of this significance had been placed
in an appropriations back room demonstrated that they could not
have succeeded without taking advantage of the appropriations
back door.
Unfortunately, this kind of gaming of the appropriations
process was not an isolated incident. Just last year a
provision was inserted into the omnibus to benefit business
development companies, which you can think of as a kind of
private equity fund sold directly to retail investors.
This provision allows BDCs to double their permitted fund
leverage from the current one-to-one level, one dollar of
borrowed money for each dollar of investor equity, to two-to-
one. BDCs are already the beneficiaries of regulatory
exemptions since conventional closed-end mutual funds can only
leverage one-to-two or borrow one dollar per two dollars of
investor equity.
This increase in permitted leverage will boost returns to
the managers of the funds, but represent a massive and
unjustified expansion in risk to ordinary BDC retail investors,
particularly since this fund level leaving in addition to the
leverage that already exists in risky BDC portfolios.
This is not a provision that could have been passed in the
light of day. In fact, the BDC provision was so unjustified on
the face of it that the lobbyists were unable to insert it even
into the highly deregulatory S.2155 legislation, which passed
last year.
AFR considers it critical that the new leadership of this
committee close that back door. It is entirely inappropriate to
insert complex technical provisions that create massive
benefits to industry into a must-pass appropriations process
with limited, if any, debate, public visibility, and expert
vetting of the public interest considerations.
In sum, we urge you to resist adding poison pill financial
services policy riders in any appropriations bill or omnibus
packages passed through this committee. The appropriations
process should not be an opportunity for Wall Street to
supercharge its insider advantages to sneak through dangerous
measures that serve their narrow interests while putting the
financial and economic security of the broader public at risk.
Thank you.
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Mr. Quigley. Thank you, sir. Your message is delivered. I
encourage you and your organization and all others to stay
involved as the process begins for another cycle. We certainly
appreciate your interest.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Mr. Dennis, I hear what you are saying and it is like,
well, so who is not for that? Actually, you probably have a
list. But anyway----
[Laughter.]
Mr. Dennis. I actually do.
Mr. Amodei. In my experience, it is not like there is a
huddle, with most of the members going, ``Okay, how are we
going to upset the policy committees?'' What are we going to
yank from? I mean, there is a rule against, hey, you are
legislating in an appropriations bill.
So absolutely you have cited instances where, hey, guess
what? They legislated in an appropriations bill. But in my
experience, if you are trying to do that, somebody goes, ``Hey,
wait a minute.'' And one of the somebodies is the committee
with the policy jurisdiction.
So the instances you are citing, I am assuming that either
that committee did not say, time out, or the committee said
time out, and leadership time in. Is that correct?
Mr. Dennis. Exactly. Most of the--these, especially last
year, that was put in during the conference committees. It was
after it had passed both houses.
Mr. Amodei. Okay. So I am not going to ask you the hard
question, which is, so is that a Senate problem? Not that they
watch these things so nobody will know I said it. So I guess
the message is there is no cooking like home cooking, huh?
Mr. Dennis. Well, I will say I think now, with the change
of the leadership with this House, I think you all have a much
stronger voice in your negotiations with the Senate. And so we
are just asking that you all use that stronger voice.
Mr. Amodei. Well, and I appreciate that. As a guy closer to
the bottom end, closer to grown level, than up there wherever
the planets travel, I can assure you that I had no voice with
either one. But on that happy note I will yield back, Mr.
Chairman.
Mr. Quigley. And I appreciate that.
Sir, thank you so much for your testimony. And I want to
thank everyone for their testimony today. We appreciate it. And
I again encourage you to stay involved in the process and stay
in touch with all of us.
Before we adjourn, I ask unanimous consent for the written
testimony submitted by our witnesses who appeared today to be
included in the record, and for the following additional
testimonies: Number one, Consumer Reports. Two, Fix the Court.
Three, National Coalition for History. Four, National Congress
of American Indians. Five, National Treasury Employees Union.
And finally, six, Project Management Institute.
Without objection, it shall be. Thank you so much. We are
adjourned.
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Wednesday, April 3, 2019.
FEDERAL COMMUNICATIONS COMMISSION BUDGET HEARING
WITNESSES
AJIT PAI, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION
JESSICA ROSENWORCEL, COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION
Mr. Quigley. The subcommittee meeting will come to order.
Good afternoon. Thank you for joining us today. Sorry for
the delay. This pesky constitutional requirement of voting
always gets in the way, but I would like to welcome Federal
Communications Commission Chairman, Ajit Pai, and Commissioner
Jessica Rosenworcel.
The toughest challenge of the day having been completed, I
am glad to have multiple commissioners here again, unlike
recent years, because this is always an interesting and
impactful hearing. The FCC oversees a sixth of the U.S. economy
and its work touches our lives every day. An FCC decision paved
the way every time we look something up on a smartphone, send a
text message, or use Wi-Fi. In fact, for better or worse, the
FCC is one of those rare agencies that has become a household
name.
For the better. The FCC's work is key to winning the race
for 5G, which is essential for our economy and national
security. The U.S. led the world in 4G because of the winning
playbook the Congress and the FCC developed of opening up new
spectrum bands and letting companies innovate. Former Chairman
Wheeler started us down the path in 5G with the Spectrum
Frontiers Proceeding, which aims to get huge amounts of high-
frequency spectrum onto the market.
Chairman Pai, I know you and Chairman Wheeler didn't always
see eye to eye on many things, but I'm glad to see you
continuing the important work he started with frontiers. We
also appreciate the progress the commission has made on
bipartisan basis on wireless issues, whether by exploring new,
unlicensed options or potentially repurposing mid-band airwaves
for 5G and you know from previous hearings that I had serious
concerns about the proposed merger of Sinclair and Tribune, so
I was glad to see the FCC took the action it did.
Now, for the worse. Unfortunately, the commission continues
to advance policies that tend to favor large industry players
at the expense of consumers and small businesses. We saw it
with the innovation ban. There, the FCC replaced a unique
licensing scheme, carefully crafted to foster innovation and
experimentation, but the more traditional system, favored by
big wireless carriers.
I am also concerned the commission is moving too quickly to
auction spectrum and the 24 gigahertz band. Agencies have
raised significant concerns about the potential impact to
weather radars essential to public safety and national
security. I am disturbed to see the FCC take such a heavy-
handed approach on cell tower siting by preempting the ability
of state and local officials to make decisions in the best
interest of their communities, but nowhere was this more
apparent when the commission decided as one of the first
actions under the Chairman to undo the 2015 net neutrality
order. That was wrong, both on the law and policy. It hurt
small businesses and consumers.
Poll after poll shows overwhelming public support for net
neutrality and I continue to be concerned with the process the
FCC filed to get there. The net neutrality proceeding has been
the subject of numerous controversies and investigations, some
of which are still ongoing. Just a couple weeks ago, the FCC
agreed to pay over $43,000 in attorney's fees over a four-year
request on fraudulent comments and the agency's own IG found
the Chairman made an inaccurate statement about a denial of
service and tech, yet the commission still managed to plow
ahead in just 7 months.
This is a distressing pattern. Time and again, the
commission has fast-tracked proposals favored by industry,
while important consumer issues remain in limbo. It took just
three months after the Chairman took over to reinstate the UHF
Discount, paving the way for more consolidation in the
broadcasting market and the commission deemed most of the
business broadband market competitive after three months as
well. That is roughly $50 billion, part of the economy. Yet,
the FCC has not yet adopted a long-term broadband funding plan
for Puerto Rico and The Virgin Islands that was proposed last
May.
Nowhere has the FCC clarified what rules apply to the sale
of phone tracking data, even after multiple stories about how
easy it is to buy this information. The FCC hasn't finalized a
proposal after a year to prohibit the use of broadband
subsidies to do business with companies that might pose a
national security risk and robo calls have reached crisis
levels. Yet, the FCC is relying on industry to figure out a
system for authenticating calls rather than issuing strong
rules with firm deadlines.
The FCC is reviewing two major mergers. Now, the Spring T-
Mobile deal could harm working families and minorities that
rely on these companies for affordable care cell service, and
Nexstar Tribune is another broadcast merger that once again
could hurt media diversity and choice. The commission's actions
today raise serious concerns about whether the commission will
put consumers ahead of corporations on these and other issues.
Getting this right couldn't be more important. These issues
touch every aspect of our lives. It could undermine the
benefits of broadband and hinder our competitiveness in 5G.
I look forward to discussing in more detail how the
commission can best use its resources.
Mr. Quigley. Before I turn to the witnesses, I would
recognize that playing the role of Ranking Member today for now
is Mr. Amodei, who has informed me that there are no opening
remarks. Is that correct, sir?
Mr. Amodei. That is correct, Mr. Chairman. Thank you for
acknowledging that, and I yield back.
Mr. Quigley. Thank you so much. Thank you. I would now like
to recognize Chairman Pai for his testimony.
Sir?
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Mr. Pai. Thank you, Mr. Chairman. Chairman Quigley, Ranking
Member Amodei, members of the subcommittee, thank you for
inviting me to present the FCC's Fiscal Year 20 Budget Request.
Our OMB designated spending level for fiscal year 20 is
$335,660,000, derived from regulatory fees for regular FCC
operations and an auction spending cap of $132,538,680.
But first, I would like to thank you for providing us with
generous funding in the omnibus as well as permission to
complete internal reorganizations to advance agency reform
efforts. The additional auction funds are allowing us to
implement Congress' expansion of the TV Broadcaster Relocation
Fund to reimburse low-power television, TV translator, and FM
radio stations for costs related to the post-incentive auction
spectrum repack.
We have also been able to establish a dedicated call center
and launch public education campaign to assist consumers who
were affected by the relocation of broadcast stations and we
greatly appreciate your authorization to create the Office of
Economics and Analytics. As a result, we are making great
strides expanding and deepening the use of economic analysis in
our decision-making.
Our budget proposal for next year for operations is
slightly below what we received for fiscal year 19 and our
auction cap is only adjusted upward for inflation, so we will
maintain our FTE level and those 1,448 FTEs during the next
fiscal year will be focusing on four important priorities.
First, we will continue to implement our 5G FAST plan so
that the U.S. continues to lead the world in the next
generation of wireless connectivity. Our plan has three
components, two of which are infrastructure deployment and
regulatory modernization but this afternoon, I would like to
focus on the third: the critical task of pushing more spectrum
into the commercial marketplace.
Our 28 gigahertz auction concluded last month and yielded
about $702 million in gross bids for the U.S. Treasury. Our 24
gigahertz auction is underway and so far has more than doubled
that amount, but more importantly, we are making essential
spectrum available for 5G and we will keep it up.
Later this year, we will hold a single auction of the upper
37, 39, and 47 gigahertz bands. Next year, we will auction mid-
band spectrum in the 3.5 gigahertz band. These auctions will
free up over 5 gigahertz of spectrum for commercial use. Now,
for perspective, that is more spectrum than is currently used
for mobile broadband by all mobile providers in the United
States combined.
Second, we will continue our work to close the digital
divide. Because of the groundbreaking Connect America Fund
phase two reverse auction, we are awarding about $1.5 billion
to over 713,000 homes and businesses nationwide. This
represents $3.5 billion in savings from the $5 billion price we
initially thought would be required to connect these unserved
areas.
Moreover, 99.7 percent of the winning bids will provide
consumers with service of at least 25 megabits per second. We
have also increased funding to provide connectivity to rural
health care institutions and soon, we will offer many small
rural carriers the opportunity to opt into model-based
universal service support, tying greater funding to greater
accountability and increased deployment of high speed
broadband. We also expect to move forward with additional
funding for broadband deployment in Puerto Rico and the U.S.
Virgin Islands and to complete a proceeding to ease the
deployment of fiber for schools and libraries participating in
our ERE Program.
Third. We will continue our work to protect public safety.
Last year, we strengthened wireless emergency alerts, which
play a critical role in notifying Americans when disaster
strikes. We proposed rules to implement Kari's Law. That law
requires multi-line telephone systems which commonly serve
office buildings and hotels to let people dial 911 directly and
it requires the notification of building staff in order to get
first responders inside ASAP and just last month, we proposed
rules to improve our ability to locate wireless 911 callers in
multi-story buildings. In a multi-story building, emergency
personnel need to know a caller's vertical location in order to
provide assistance. Our 911 location accuracy proposal aims to
supply that information and in the year to come, we plan to
adopt final rules here.
Fourth and finally, we will continue to highlight the
importance of a diverse communication sector. For example,
after over two decades of debates, the FCC last year adopted a
broadcast incubator program to encourage employment and
ownership for underrepresented communities. We continue to rely
on our advisory committee for diversity which is focusing among
other things on the lack of representation in Silicon Valley
and we established Supplier Diversity Conferences to ensure the
capital and expertise are matched with talent and ambition.
Let me conclude by thanking the FCC's terrific career staff
for their work advancing the public interest and thank this
committee for the work they do to provide us the resources
necessary to discharge that responsible.
Mr. Amodei. Thank you, Mr. Chairman.
Mr. Quigley. Thank you, Chairman. Committee chair
Rosenworcel. I had it.
Ms. Rosenworcel. Good afternoon, Chairman Quigley, Ranking
Member Amodei, and to the members of the subcommittee, thank
you for the opportunity to appear here today.
As you heard from the start, communications technologies
power about one sixth of our nation's economy and every
American needs access to these technologies to have a fair shot
at 21st century success, and that is why the work of the FCC
matters. It is also why the budget request from the
administration that is before you is so striking. It asks for
less than the $339 million the agency is set to spend in the
current fiscal year, and it is about $4 million less than the
budget level authorized by Congress.
If adopted, it would result in the smallest payroll in
decades at a time when communications technologies loom larger
than ever before in all of our lives. So many people think that
Washington is rigged against them. It saddens me that with this
budget and with the actions of the FCC during the past two
years, it appears they are right. That is because too often,
the FCC has acted at the behest of the corporate forces that
surround it, shortchanging the American people and undermining
our digital future.
This is a problem that requires resources to fix. Plus,
Congress entrusted the FCC with significant new work in the RAY
BAUM'S Act. We have mergers to review, spectrum auctions to
hold, and a tremendous increase in equipment authorizations to
oversee with the growth of 5G wireless and the internet of
things. On top of this, we have a digital divide in this
country we sorely need to address.
I believe budgets are not just about accounting. They are a
statement of values and I believe the four basic values in
communications laws--consumer protection, universal service,
competition, and public safety--need refocus and attention.
First, consumer protection. Consumer protection requires
the FCC to be nimble because the communications industry
changes at a breakneck pace, but our efforts to stem the
growing tide of robo calls have been anything but. At the start
of this administration, American consumers received roughly two
billion robo calls a month. That number now exceeds five
billion a month. That is crazy.
The FCC has responded with a series of fines for bad actors
responsible for robo calls, but according to the Wall Street
Journal last week, the agency has collected no more than a
grand total of $6,790 in fines. That's insane. It is clear the
agency's current approach is not working. It is like trying to
empty the ocean with a teaspoon. We don't have time for that.
So, let me propose three things. First, it's time for the
agency to require in its rules call authentication technology.
Second, I have written the major carriers, calling for them to
make free tools to avoid robo calls available to every
consumer. I think it is time for my colleagues to join me in
this quest. Third, it is time for the agency to create a new
division to focus on robo calls. Robo calls are the largest
single source of consumer complaints at this agency. It is time
for the FCC to organize its work to reflect that.
The second value is universal service and as I said at the
outset, no matter who you are or where you live in this
country, you are going to need access to modern communications
to have a fair shot at 21st century success but the fact of the
matter is that today, millions and millions of Americans lack
access to broadband and it is becoming increasingly clear that
the FCC does not know exactly where they are.
That is unacceptable. The way to fix this mess is to
develop honest and accurate broadband and wireless maps that
detail where service is and is not in every community in this
country. After all, we will never manage problems that we do
not measure.
The third value is competition. Of course, it yields lower
prices and higher quality services, but today, too few American
consumers have any competitive choice for broadband service and
that is one of the reasons why in 2015, the FCC adopted net
neutrality rules. With net neutrality in place, your broadband
provider does not have the right to block websites, throttle
online services, or censor online content, and that sounds good
to me. In fact, it sounds good to most of the American public
because a study from the University of Maryland found that 86
percent of the public supports net neutrality but over my
objection and theirs, the agency rolled back its net neutrality
rules in 2017.
A few weeks ago, I was the only FCC commissioner to sit
through the oral argument at court reviewing the FCC decision
to eradicate net neutrality. What's obvious to me is that some
part of our decision, if not all of it, will be remanded. When
that happens, I don't think the agency should be allowed to
waste another dime of taxpayer money to sustain its flawed
rollback with additional appeals to the courts.
Finally, the fourth value is public safety and to this end,
I believe the FCC needs to update our policies to reflect new
cybersecurity challenges, modernize emergency alerting, and
improve location accuracy with 911 and I worry that our current
budget is not substantial enough to allow for those things.
Now, in closing, I want to make a quick note about 911
operators and offer my support for Congresswoman Torres'
bipartisan work to give 911 operators the regulatory
classification they deserve. Right now, the Office of
Management and Budget classifies them as clerical workers and
it does not reflect the public safety duties they have taken
on.
In closing, thank you, and I look forward to any questions
you may have.
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Mr. Quigley. Thank you. It's as if we had this planned. I'm
going to let Ms. Torres go first because she has to go to the
floor. Thank you.
Mrs. Torres. Thank you so much for your patience, Mr.
Chairman. I do appreciate going first. And Commissioner
Rosenworcel, thank you so much for visiting the 911 center
where I spent 17-and-a-half years of my life working as a 911
dispatcher.
Chairman Pai, I invite you to come. And, trust me, you'll
have a great time with these ladies learning about the work
that they do every single day. 911 Saves Act, I think, is a
critical step in the right direction at ensuring that when we
continue to send more work, more critical work, to these 911
dispatchers, text to 911, video to 911, having to deal with, I
would call it, unimproved location accuracy, we are demanding
so much of them.
Certainly they deserve to be classified as anything other
than taxi cab dispatchers. That is offensive to the nature of
the work that they are doing every single day, and I hope to
get your support on this bill and thank you, Commissioner
Rosenworcel for being one of the first champions to champion
this issue for 911 dispatchers.
Improved 911 location accuracy--let me speak a little bit
around that with my experience. Unregistered phones are a
hazard. They are an incredible hazard for children. We teach
our kids to dial 911 whenever they come across danger and they
do. At my 911 center, we had a call. I did not take that call,
but one of my colleagues did. We think it was a five-year-old
boy. We think it was his mother. All we could do is listen to
the assault in progress.
He was taught to dial 911 when he needed help.
Unfortunately, his cell phone had ran out of minutes. Because
his cell phone was--ran out of minutes, there was no mandate
for that phone company to provide the accurate location
information from where that victim was calling from. So we sat
there and we listened to him cry, scream while he was being
kicked, while he was being slapped, while he was being cursed
at.
To this day, I don't know what happened to that child, but
I will live with that forever. It's a failure of the system
like that where we teach our children--we teach our population
to call 911. And when they do, we are not able to help them. I
think 911 dispatchers are critical to the first responder
communities. Without them answering the phone, you know, you
can't get a police officer, a paramedic or a fire truck to the
scene. So we have to do more to ensure that we are empowering
these individuals with the proper training that they need.
The attrition rate for this group of people is horrific. It
used to be 70 percent at my 911 center until we improved
training and conditions, working conditions, for them. I would
like for you to talk about where you see ensuring that 911
surcharges that are collected at the state level are truly
being utilized not as a--or as a personal checkbook, you know,
to phone companies but the delivery of a 911 call does not stop
at the door of the 911 center. It actually does not stop until
you get the emergency personnel to the location where it's
needed. Would you comment on that, please?
Chairman Pai. Thank you for your comments, Congresswoman,
and for your leadership on these public safety issues. I could
not agree with you more. Having visited public safety answering
points in big cities like New Orleans and NewYork--
Mrs. Torres. Yes.
Chairman Pai [continuing]. And in small towns like rural
West Virginia where a two-woman PSAP literally was the only
thing keeping a community together when floods were ravaging
that center, it is heroic work. And I think often about Tyrell
Morris, who was the head of the New Orleans 911 Call Center,
who told me the story about a dispatcher who was handling a
call that somebody had been shot in a particular neighborhood.
She had to continue handling the call professionally once she
realized her brother was the one who had been shot and killed.
Just think about--because we----
Mrs. Torres. It's not unusual.
Chairman Pai. It's a very common story. And so I'm very
sensitive to the fact that a lot of these dispatchers work
longer shifts. Oftentimes, the shifts are--go from eight hours
to twelve hours to cover the shortages. Many times, it's very
stressful as it is. There are no avenues for them to get some
of the help they need. The training is very difficult.
You have to be trained across a variety of areas. In
addition to that, as you pointed out, the classification for
these workers is not necessarily where it needs to be. And so I
stand four-square behind you on making sure that we heighten
the importance of preserving this public safety system that
we've got, including recognizing the tremendous value the
dispatchers bring to the table.
Mrs. Torres. Thank you. I yield back. Please join me in my
district and tour one of my centers.
Chairman Pai. I would love to do so. Thank you.
Mr. Quigley. Thank you.
Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman. I yield my time to Mr.
Stewart, who has requested it.
Mr. Stewart. No.
Mr. Amodei. Mr. Chairman, I rescind that and yield my time
back to the committee to make up for my lateness, which I
should just be just about back to even by now, huh?
Mr. Quigley. In the interest of going back and forth, Mr.
Stewart?
Mr. Stewart. Thank you to my friend, Mr. Amodei, and to the
chairman for holding and to both of you for being here.
Commissioner, it's good to see you and, Chairman, thank you
too--again to both of you. You can guess what I'm going to ask
about, the Suicide Prevention Hotline number that you and
your--the people that work with you have been so helpful
working on this, working with us on that. We are grateful for
that so a couple questions.
When will the final report be delivered to Congress? As you
know, the legislation required for you to deliver us a report.
Will it include a number recommendation? And, of course, you
know, I'm hoping that it's 611 and that we don't have to share
a number, at least. And then will you, the FCC, move
unilaterally to declare that number? And, sir, if you would
answer those questions, then I would like to follow up, if I
could, with one other concern.
Chairman Pai. Thank you, Congressman Stewart. I appreciate
the hospitality you and Former Senator Hatch gave me to talk
about the importance of this issue, and it's something I
recognize the importance of as well. In terms of timing, we
will meet the statutory deadline of getting that report out. We
have been working with our public safety staff to make sure
that we do. In terms of a number, we've been working with
various stakeholders, taking meetings and the like on the
wisdom of this particular number versus another. We haven't
made a determination on that front because we're still taking
meetings.
And in terms of moving unilaterally, there might be some
concerns where we would like to work through with you, if you
and your staff would like to do so. But we recognize the
importance of this legislation and are on track to implement
the directives that you have given to the FCC.
Mr. Stewart. Well, we appreciate that. I mean, look, it's
dramatic to say--and we hear it often. You know, this
legislation will save lives or, in some cases, the lack of this
legislation will cost lives. But this literally is true. I
mean, this idea that you can have this universal, national, you
know, three-digit number for suicide prevention is such a
necessary thing.
And if I were to ask people in this room, you know, in a
moment of honest and being candid, how many of us have been
impacted either in our family or people that we love, people
close to us, by suicide or attempted suicide? It would be a
startling number. It's many of us, and this is a very helpful
thing for that. And again, we would like to thank you and the
rest of the Commission for working with us on that. Now, a
concern that we have, not only--not only the number--I'm not
sharing the number--is this similar to what has been raised
here, the geolocation. And that is, you know, if I called the
suicide prevention hotline number on my phone here, it would be
routed to Utah and provide me a resource in Utah. Have you
looked at that and considered the importance of geolocation
like they do with the regular 911 call? And can we have that
important option on this as well?
Chairman Pai. Absolutely, Congressman. We have taken a
number of initiatives in terms of geolocation, making sure that
the call actually tracks back to where you are as opposed to
where someone in a 911 call center might think you are. That
disjunction can mean the difference between life and death in
many cases. And so we are working on a number of different
fronts.
For example, we have an initiative to make sure that when
your cell phone--if you're calling from one state and your cell
phone pings a tower in an adjoining state, we are working to
make sure that that 911 call is properly routed to the PSAP to
which you are--that is closest to you, that effectively can
handle your issue. In addition to that, in terms of things like
wireless and emergency alerts and the like, we are moving to
more granularity so that you can get the information that is
necessary for you in an emergency in a way that you can't
currently. And so a variety of different things we are doing on
that front. But the key is to make sure that we can accurately
help our 911 call center takers figure out where you are more
quickly.
Mr. Stewart. Okay. Thank you, Chairman. So then I'm going
to ask, you know, just simply would it be our expectation--
would it be fair to expect that when we implement this three-
digit National Suicide Prevention Hotline number that we would
have geolocation attached to that, and we would know where that
person was actually located?
Chairman Pai. That is certainly a goal that we share. And
so we look forward to working with you to see if that goal can
be incorporated too.
Mr. Stewart. Okay. So it sounds like it may be--may be a
hope. It's a goal, but it's not necessarily a conclusion yet;
is that true?
Chairman Pai. There are some issues of technical
feasibility that we would like to work through and----
Mr. Stewart. Okay.
Chairman Pai [continuing]. Work through with you if that's
possible.
Mr. Stewart. Well, we look forward to working with you on
that because, as you have expressed already, it would be
important to do so. And let me just not necessarily ask a
question but just maybe make a point in the few seconds I have
remaining. You have worked with us. And we appreciate your
prioritizing the low-power TV translators with some additional
funding that we gave you last year.
I come from a very mountainous region. I actually have more
transmitters in my district than any other place in the country
and not a small number, hundreds and hundreds of transmitters
in Utah. And these are rural areas. And, frankly, most of them
rely on local television for their news and information and
weather and other things. So I guess my question to you just
very briefly is, is there sufficient funding, do you think, for
us to assist the lower power translator stations as they go
through this transition.
Chairman Pai. I do believe there is, Congressman. I want to
thank you, the entire Congress, for providing that funding
because there was a gap in the original funding stream that
would have left a lot of your folks out in the cold,
essentially. So we are moving aggressively to use that funding
to benefit some of those low-power translator and FM radio
stations that otherwise wouldn't have been protected. And I
have met with a variety of Utah broadcasters. And we have
developed decisions in order to make sure that they are kept
whole.
Mr. Stewart. And you think we are okay on that funding
then?
Chairman Pai. I do. But if that changes, we will make sure
we contact you.
Mr. Stewart. Please do. Let us know. We want to assist in
that. And, Mr. Amodei, thank you, sir. And, Chairman, thank
you.
Mr. Quigley. Thank you. I think fortuitous that I follow
you in this regard because it's important to win the race to
5G, but it's just as important as an economic issue. It's
crucial to our national security. But as members of the
intelligence committee, the news about potential
vulnerabilities from Chinese equipment is extremely concerning.
So it's important to win, but it's more important to win the
right way by making sure our networks are secure and resilient.
First, Commissioner Rosenworcel, you've mentioned that the
FCC should update its policies to reflect new cybersecurity
challenges. Do you think the FCC is doing enough to address
these security issues, and what else should we be doing?
Ms. Rosenworcel. Thank you for the question. Cybersecurity
has never been more important. We are looking at a future with
billions of devices with the internet of things that can trace
and track us wherever we go. We have got to make sure FCC
policies are wholly up-to-date. We face challenges with
equipment supply chain. We face challenges with spectrum
security, and we are going to have to figure out how to update
our policies. But if I had to identify three things I would
like us to do most, the first is I'd like us to reinstate the
Communication Security Interoperability and Reliability Council
and make it focus on 5G security. I think we have challenges
with supply chain dynamics, and we have to figure out how to
use our resources to fix that.
In addition, the Department of Homeland Security has an
interagency advisory committee on the security of next-
generation networks. The FCC is not present at the table in
that discussion. I think that's an oversight. And as the
nation's regulator that oversees communications networks, we
should fix it.
And finally, the FCC's equipment authorization process
reviews millions and millions of devices every year. We should
figure out how to standardize a certification in that process
that ensures that all sorts of equipment going forward that
require software updates will get them regularly because that
will increase all of our security.
Mr. Quigley. Thank you. Mr. Chairman. A year ago the FCC
proposed to ban the use of universal service fund subsidies to
purchase equipment from certain companies for national security
reasons. Addressing those potential vulnerabilities in our
communication supply chain is essential to ensuring the 5G
networks are not turned into a weapon against the American
people.
Can you explain where that proposal is at this time?
Chairman Pai. Thank you for the question, Mr. Chairman. We
have made that proposal. We have developed a record. We are
working with the National Telecommunications and Information
Association, a component of the Commerce Department, as you
know, to finalize what that proposal will look like in terms of
the agencies responsible for determining which entities might
present a security threat in terms of our ICT networks.
And so we hope to move forward quickly. But we share the
sense of priority that you attach to this issue, and I hear
about it every day, and I discuss it with some of my
counterparts around the world whenever I have a chance.
Mr. Quigley. And let's dig into that. You have been working
with other agencies to press the case with our allies, and as
you just described, talking to our allies. Can you talk a
little bit more about how that is working, the reaction you are
getting?
Chairman Pai. In terms of the interagency cooperation, it
is extremely strong. We have worked very well with our State
Department, for example, Department of Homeland Security,
Cybersecurity and Infrastructure Security Agency, and others to
make sure that we are all on the same page. And we are, about
the need to recognize the importance of security in our own ICT
networks.
Going abroad as well, I have had many discussions with
other countries. And while I am not at liberty to discuss
exactly what is said in those meetings, what I can tell you is
that our counterparts in other countries do recognize the
importance of preserving the security of their own networks and
having a framework to evaluate the risk profile of equipment
and services that is incorporated into 5G networks.
Unlike 4G networks, one of the things that is unique about
5G is, number one, that in terms of the technical standards
that are being set, security is being incorporated at the get-
go, as opposed to 4G, when it was more of an afterthought.
And secondly, they recognize that to the extent that you
lock yourself in, so to speak, with respect to a particular
infrastructure, there may be longer-term risks that have to be
addressed. And so I think those conversations are going very
well, and ultimately we stand united on this issue about the
need to preserve the security of these networks here and
abroad.
Mr. Quigley. Thank you. Mr. Bishop.
Mr. Bishop. Thank you very much, and let me welcome both of
our witnesses today. Let me address this first to Ms.
Rosenworcel, then to Chairman Pai. You can both comment on
this.
As you are likely aware, T-Mobile and Sprint announced a
potential merger on April 29, 2018, which is currently
undergoing a review process at the Justice Department and the
FCC. The day after the merger was announced, nine T-Mobile
executives checked into the Trump Hotel located in the
Government-owned Old Post Office Building here in D.C. And
since then, nearly $200,000 has gone from the coffers of this
international telecommunications company to an organization run
by and benefitting the President and his family.
Reports indicate that T-Mobile's CEO took pains to make his
presence known, that he milled around in the lobby of the
building taking pictures in a conspicuously branded outfit, met
with multiple persons associated with the Trump campaign, and
deleted several old tweets criticizing the Trump Hotel from
2015.
Especially in light of the President's personal
intervention into the previous merger proceedings, I am very
concerned about the conflict of interest or even simply the
appearance of a conflict of interest that such a business
relationship creates.
Is this the way that our country should be conducting its
antitrust policy? Would you please respond to that, both of
you, yes or no and then would you comment on it?
Ms. Rosenworcel. Without getting to the merits of the
underlying transaction, which is presently before us, I will
say that that does not look good. And it leaves me concerned
that this is the way that mergers are taking place in this
country today.
Mr. Quigley. Mr. Pai.
Chairman Pai. Congressman, my decision on this transaction,
as with any transaction that is presented to the Federal
Communications Commission, will be driven by two things and two
things only: the facts and the law, nothing more, nothing less.
Mr. Bishop. Okay. Prison phone calls. In recent years the
FCC has opposed and backed away from implementing rate caps in
intrastate prison calls, which is essential for the rehab of
inmates by allowing them to feel connected to their communities
and their communities.
Can you explain to me why the FCC refuses to mitigate the
predatory practices of companies that are charging excessive
rates to inmates?
Chairman Pai. Thank you for the question, Congressman.
Mr. Bishop. It is my understanding that the FCC did have a
rule in place that had some regulation on that.
Chairman Pai. That is correct, Congressman. Unfortunately--
--
Mr. Bishop. And I would direct it to Ms. Rosenworcel first
and then to you.
Ms. Rosenworcel. There are 2.7 million children in this
country who have a parent in prison. Regular contact with
family and kin is not just good for them, it helps all of us
because it reduces recidivism. But most prisoners and their
families pay as much for a single call as everyone in this room
pays for a monthly unlimited plan.
That is not right. We need to fix it. And the FCC over the
last several years has made several efforts to do so, with
intrastate rates, interstate rates, ancillary fees, site
commissions. Our work has been remanded to us, and it is
distressing that the agency refuses to continue to work on this
problem because rates just keep going up, and it is unfair, and
it is not right.
Mr. Bishop. Now, Chairman Pai.
Chairman Pai. Congressman, my position on this issue is
pretty simple. We need to do everything within our authority to
address this problem. I was the first to point out many years
ago, almost 5 years ago--6 years ago, rather--that there was a
solution in terms of rate caps for interstate fees as well as
ancillary fees that would have survived judicial review.
Unfortunately, the previous FCC disregarded my
recommendation and the results----
Mr. Bishop. Did you say interstate or intrastate?
Chairman Pai. Interstate. Under the law, as the D.C.
Circuit unfortunately held, as you pointed out, we do not have
authority over intrastate fees. That is part of the reason why
I have consistently said let's attack the problem to the extent
that the D.C. Circuit has said we could.
Moreover and number two, I would bring your attention to
the fact that recently, as a result of the FCC staff's very
careful review of a potential transaction between two of the
major players in the Inmate Calling Services field, a net
recommendation--they made a recommendation to me, and I agreed
with that recommendation, to disapprove that transaction
specifically because it would present competitive concerns in
terms of potential price increases.
So this is an issue that we are very sensitive to. And
those parties recently dismissed their application to merge. So
this is an indication of the fact that we look forward to
working with you on this problem to solving the statutory gaps
identified by the D.C. Circuit and to doing the other things
necessary to address an issue that we agree has gone on for far
too long.
Mr. Bishop. Rebuttal?
Ms. Rosenworcel. I appreciated the Chairman acknowledged
that in an effort to combine two of the largest prison pay
phone providers, the agency decided to say no. He is right
about that.
But what I do not believe he is correct about is that we
lack any authority going forward. We can do work on site
commissions, on ancillary fees. We can continue to look to
structure incentives for intrastate rates. We can do better
than just allow the existing system to continue because it is
charging prisoners and their families absolutely usurious
rates.
It is not fair, and it is not right, and we should be
looking for every way we can to fix this problem.
Mr. Bishop. Thank you. My time is expired.
Mr. Quigley. Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you, Mr. Chairman. And thank you,
witnesses, for being here today, and thank you, Commissioner
Rosenworcel, for the opportunity to talk with you yesterday.
We need quality coverage data to ensure that we are
spending Federal funds for broadband wisely.. But companies
have financial incentives that could influence the data
provided. What can the Commission do now to improve the quality
of data collection? Would you support the use of other data or
measurements to help validate and improve the information the
commission collects?
Ms. Rosenworcel. Thank you for the question. We need to
have better broadband maps. I do not care where you live in
this country, we should know if you have service or if you do
not have service because if we do not know that fact, we will
take scarce Federal dollars and we may not necessarily direct
them to the right places.
But right now with the FCC's map, I mean, listen. There was
a Cabinet official who just last month, testifying before the
House, called them ``fake news.'' That is a loaded term, but
there is truth in this. Our maps do not honestly reflect where
service is and is not.
So we are going to have to stop acting like we can do this
all in Washington. We need to start figuring out how
crowdsourcing can be part of this, how the FCC's field offices
can do spot checks, how we can work with universities, how we
can work with postal authorities, anyone who traverses rural
areas, to help us identify where service is and is not.
Because if we know that with precision, we can start
targeting our funds with precision and fixing this problem.
Mrs. Kirkpatrick. I want to ask a question about the
proposed USF cap, again for Commissioner Rosenworcel. Do you
think the FCC can make sufficient progress on addressing
broadband access if it caps the overall USF budget?
Ms. Rosenworcel. The answer is no. We should be doing three
things. First, we should be figuring out where service is and
is not in this country. Second, we should come to Congress with
the price of serving all of those areas that do not presently
have broadband and wireless service. And third, we have to
develop a plan. We are doing this backwards if we are capping
ourselves before we even start the process.
Mrs. Kirkpatrick. I agree with you. Thank you very much.
Commissioner Pai, I have a question for you. You have said
that addressing the digital divide is one of the most important
priorities for the Commission under your leadership. How is
this proposal consistent with that statement?
Chairman Pai. Thank you for the question, Congresswoman.
Each one of the four component programs within the Universal
Service Fund currently has a cap or a budget. And so it is
reasonable then to think about the issue of whether there
should be a cap for the overall Universal Service Fund.
The proposal on the table involves a cap that is
significantly above the current disbursements through the
Universal Service Fund, and in addition, this is an issue that
was very important to one of my colleagues. And so we wanted to
tee up the idea: Should we have this conversation about what
the overall cap should be?
That is in part a way to ensure that there is public
confidence that every single dollar spent through the Universal
Service Fund is going to be spent wisely. This is a measure of
fiscal responsibility that people can know when they are paying
into the fund.
There is a cop on the beat, the FCC, to make sure those
funds go to closing the digital divide to places that I have
visited that are on the wrong side, like Navajo Nation. If you
drive from Phoenix to Flagstaff, you will find many spots where
you cannot get that coverage. We want to change that.
Mrs. Kirkpatrick. A follow-up question on that. Under your
proposal, how will the Commission determine what programs will
not receive additional funding if the cap is breached?
Chairman Pai. That is one of the issues that is teed up in
the notice of proposed rulemaking. And I can assure you that we
will not act on that proposal without soliciting public comment
on it.
Mrs. Kirkpatrick. When do you expect that rulemaking to be
finished?
Chairman Pai. Well, the notice of proposed rulemaking has
not yet been approved, so I cannot forecast how long that
record would take to develop.
Mrs. Kirkpatrick. So we are years away from having that
information in place?
Chairman Pai. I don't know about years. But what I can say
is the NPRM has not yet been approved, and so we cannot
forecast what the record would be.
Mrs. Kirkpatrick. Commissioner Rosenworcel, do you want to
comment on that?
Ms. Rosenworcel. Yes. I think one of the problems here is
that Congress developed several programs for universal
services, programs to support service in rural areas, programs
to support telemedicine, programs to support kids in schools
getting internet, and programs to support low-income
households.
And with a cap like this, we are going to make telemedicine
providers fight with kids in schools for funding. I do not
think that is right.
Mrs. Kirkpatrick. Thank you very much. My time is about to
expire. I yield back.
Mr. Quigley. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman. Good to see each of
you. Just a couple quick questions.
First, on 5G, there is a lot of talk about that. I know you
have addressed it. Maybe you have addressed a timeline, how you
see that developing out. I think you have addressed some of the
threats.
What more can we be doing to assist? I understand you have
a rulemaking process in place about procurement and other
things. But what are some other things we have not asked about
that we should be looking into?
Chairman Pai, I will start with you, and maybe you can just
bring us up to speed. I think we want to make sure we are
providing the necessary resources to keep up with this.
Chairman Pai. Thank you for the question, Congressman, and
I appreciate your longstanding interest, in these issues. I
think one of the things that would be helpful would be to have
additional congressional support for essentially repurposing
spectrum that is not currently used for commercial purposes and
either allocating it for commercial purposes or at least
allowing it to be shared with the commercial sector.
One of the difficulties we have had has been trying to find
out bands that are potentially useful for 5G, low band, mid
band, and high band, and then working with other industry
stakeholders in other public sector agencies to repurpose it.
The second thing, although it is not the first thing that
people think about when they think about 5G, is infrastructure,
about getting those small cells up at scale, about getting the
fiber in the ground that is necessary for us to be able to
carry that 5G traffic back into the core of the network.
And here it would be terrific if Congress could speak with
a unified voice about the need to streamline the process for
regulatory approval. When we are competing against countries
like China, which has a national priority on 5G infrastructure
deployment, it is difficult for private sector entities here
today. We have to jump through Federal, State, local, and over
500 federally recognized tribes in order to get these 5G----
Mr. Graves. So the resources are there?
Chairman Pai. Right.
Mr. Graves. Infrastructure, in order to get it in place,
just needs some regulatory easing.
Chairman Pai. Absolutely. And if I could make one quick
pitch on fiber, in terms of fiber deployment, one of the things
that would be very helpful is filling the gap that currently
exists in the FCC's authority. We have authority over the poles
that are owned by utilities. We do not have jurisdiction over
the poles that are owned by railroads or by municipal
governments.
And that is one of the biggest cost elements to building
out a fiber network, especially if you are a smaller
competitive provider. That gap would be traffic to see filled.
Mr. Graves. Great. Thank you.
Mr. Quigley. Thank you. Would you like to respond as well,
please?
Ms. Rosenworcel. Sure.
Mr. Quigley. Thank you.
Ms. Rosenworcel. It may surprise you, but I think my
colleague actually did a really good job laying out those
things, so I agree.
Mr. Graves. As have you in each response, too.
Ms. Rosenworcel. But I----
Mr. Graves. You have----
Ms. Rosenworcel. But I want to recommend one other thing. I
think Congress should require that we have a spectrum calendar
so we identify to companies, manufacturers, bidders, when we
are going to make airwaves available to market. Right now, we
have a blitz of spectrum bands that are under consideration.
We've got 2.5, 3.5, 3.7 to 4.2, 5.9, 4.9, 6. I mean, I can
just keep on going on. It's like, 10 to 30 of them that are
under active consideration. We should put them on a calendar,
because the entire marketplace, the entire ecosystem would be
more organized, and I think it would result in services getting
to consumers faster.
Mr. Graves. So, is there a timeline--a goal timeline, or is
that what you're suggesting----
Ms. Rosenworcel. I am----
Mr. Graves [continuing]. Should be developed out? Okay.
Ms. Rosenworcel [continuing]. Suggesting it should be
required of this agency.
Mr. Graves. So, there's no goal of 2021, 2022, or 2023 when
it's----
Ms. Rosenworcel. I believe there are goals, but I think
when Congress writes a law and we have to respond to it, we
tend to actually abide by those obligations.
Mr. Graves. Okay, so you need a little motivation it sounds
like. One last quick question. The New York Times today, you
might've seen it, was talking about the pay to track issue
that's developed. You know, cyber and privacy are something
that we've worked on a lot, I've worked on a lot, and as has
the Chairman here, but this indicates that there's a delay in
response from the FCC, and as a result of that, that tracking
is occurring by individuals who will pay for cellular data, or
geopositioning. Help us understand why there's a delay of a
year or so or more. What are the challenges with this? Chairman
Pai.
Chairman Pai. I appreciate it, Congressman. I mean, the
allegation of delay is flatly false. When we got word of this
issue last year, I immediately instructed our staff to initiate
an investigation. They have done that.
I am hamstrung by the fact that I do not comment publicly
on enforcement investigations, other than to say that the FCC's
career staff is actively working on this issue within the
relevant statute of limitations, and that's simply all I can
say.
I understand that it's an issue that has generated a lot of
public interest, but I can tell you that our staff is working
very hard on this issue, and I have to leave it at that.
Ms. Rosenworcel. I'm not totally satisfied with that. I
think people need to know more. Everyone in this room has a
wireless phone in their palm, or their pocket, or their purse,
wherever they go.
And it is disturbing to learn that wireless companies were
selling that data to third-parties who in turn would sell it to
bail bondsmen and any other shady middlemen who could just
purchase for a few hundred dollars your location within a few
hundred meters.
I've asked the agency's enforcement bureau to explain to me
just what we're doing. I've asked for letters of inquiry. They
have refused to share with me information. This is an issue of
national and personal security, and I think that the agency has
to do more than just offer this quiet response.
Mr. Graves. So, you mentioned cell phone, pockets, hands,
is it possible for an individual to turn off their privacy
settings at any given time and their cell phone not be detected
where they are?
Ms. Rosenworcel. No.
Mr. Graves. Is that something that the FCC should address,
or is that possible?
Ms. Rosenworcel. The reality of owning a cell phone that's
on is that as you walk around, it is regularly pinging a tower
nearby in order to ensure that you have continuous service.
Now, the FCC's customer proprietary network information
rules are associated with that, and there are limits on what
can be used if there's information gleaned from your location
when you make a call, but we've got to update things for the
internet of things, because we got to--by the end of the
decade, 50 billion wireless devices all around us that are all
going to be conveying geolocation information. We're behind
things. We need to start developing a plan, and we should be
public about it.
Mr. Graves. So, it's being abused by certain individuals,
or companies?
Ms. Rosenworcel. The opportunities for abuse are
substantial. We need to start figuring out how to develop
better cyber hygiene, and cyber security geolocation practices
for every device, and for everyone.
Mr. Graves. Thank you. Thank you, Mr. Chair.
Mr. Quigley. Thank you, sir.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman. Thank you, Chairman
Pai, and Commissioner Rosenworcel for being here today. We
appreciate your attendance. Commissioner Rosenworcel, as I know
you know, night and day, Americans are being inundated by spam
calls.
It's more than an annoyance, it's an invasion of privacy,
and it's being used to deceive and take advantage of
unsuspecting victims. In fact, experts predict that this year
alone, nearly half, half of all calls, will be spam. What is
the FCC doing about this?
Ms. Rosenworcel. Thank you for the question. As I said in
my opening statement, what's going on with robocalls is insane.
At the start of this administration, there were two billion a
month. It's now up to more than five billion a month. If you
think it's getting worse, it is.
And while the FCC has tried to approach this with a few
fixes and some bad actor fines, the Wall Street Journal last
week said that we've collected less than $7,000 from bad actors
and robocalls. We need to step up our game and make some
changes. We need call authentication technologies that are
required.
I've written every major carrier and ask that they make
free tools available to every consumer to block robocalls. I
hope my colleagues will join me in that quest.
And in addition, I think that it is necessary for us to
reorganize the agency. As John Oliver recently said, 60 percent
of FCC complaints are about robocalls. We should just have a
division to help address those problems, and go after this with
vigor. I feel like the agency should be organized around the
problems that consumers call in and tell us about.
Mr. Crist. What can Congress do to help you?
Ms. Rosenworcel. Congress, I believe the agency has
adequate authority to require call authentication technologies
tomorrow, but we've had an open rule making since 2017 on this
subject, so were you to require it by a firm date, that would
be helpful. I know you've done some work to try to suggest that
we should have contests to come up with better robocalling
technologies. I know the Federal Trade Commission had some a
few years ago, and they produced positive results.
I think you should compel us to reorganize our activity at
the agency to have a division that is dedicated to fighting
robocalls. We don't have that today, and we need it.
Mr. Crist. Did you say in response to my first question
that the FCC only ushered in $7,000 of fines?
Ms. Rosenworcel. A little less than $7,000 according to the
Wall Street Journal. We have assessed over 200 million since
the start of this administration, but I do not believe we've
actually collected on any of that.
Mr. Crist. What's wrong? What's--why isn't that being
collected?
Ms. Rosenworcel. To be clear, the Department of Justice has
these fines referred to them, and it's not that anyone sitting
at this table or my colleague included don't want to see those
individuals fined, but if we proceed with this approach at this
pace we are not going to solve the problem. We need to be far
more aggressive, because what we're doing today is not good
enough. The problem is growing rather than getting better.
Mr. Crist. So, we have laws on the books. We have over $200
million of fines you have sent to the DoJ, and it's not being
pursued?
Ms. Rosenworcel. It's not. It's very hard to collect
against these bad actors. The bottom line is this theory of how
to solve the problem is not working.
Mr. Crist. Right.
Ms. Rosenworcel. We need to be more aggressive and develop
others.
Mr. Crist. Well, thank you. Chairman Pai, I know that the
FCC has a lot on its plate between the roll out of 5G,
addressing rural broadband, as well as spectrum auction. That
is why my bill directs the FCC to lead other agencies in
fighting the scourge of spam calls. Would you find it useful to
have the input of agencies like the Federal Trade Commission,
Department of Justice, DHS, FBI, to name a few, in ending this
plague?
Chairman Pai. Congressman, thank you for the question. I
think that your bill, which I did have a chance to review,
would set a useful marker in terms of establishing inter-agency
coordination.
This is one of the issues that we hear about all the time,
that the Federal Trade Commission's do not call list has not
been effective, and other agencies might have equities here. To
get us all on the same page would be very useful, and my
understanding is that legislation that was passed just today in
the Senate would incorporate some of the core concepts in your
bill. So hopefully, this is not an abstract conversation, but
something that could become a practical reality, and relatively
soon.
Mr. Crist. Great. Thank you, Chairman. And then finally,
Commissioner Rosenworcel, it's come to my attention that the
FCC received a deluge of comments on the net neutrality repeal.
22 million or so, is that correct?
Ms. Rosenworcel. That's correct. The problem is that work
from the state attorneys general have identified that many of
them were fraudulent. As many as nine-and-a-half million
involved stolen identities.
In other words, they took the name and address of someone,
and just wrote to us with their false opinions. These things
were filed in our public document. This is identity theft. We
need to be taking it seriously, because there's fraud that
supported this outcome, and that's a problem, and I regret that
the agency has just turned a blind eye to this identity theft,
but I am relieved to know from press reports that the FBI is
now looking into this, because this is the channel for public
comment. This is how Americans tell Washington what they think
of policies we're pursuing, and the FCC's net neutrality docket
indicated that that channel is flooded with fraud.
Mr. Crist. Thank you both very much. I appreciate it. Thank
you, Mr. Chairman.
Mr. Cartwright. Thank you, Mr. Chairman, and I'd like to
pick up on the last discussion from my colleague from Florida.
Is there any reason to think that stolen identity comments and
rulemaking are limited to the FCC rule making?
Ms. Rosenworcel. No, there's not. The Wall Street Journal
in a substantial investigative piece about a year and a half
ago identified similar problems before the Department of Labor,
the CFPB, as well as the Securities and Exchange Commission,
and there has been some evidence in the press of problems
before the Federal Energy Regulatory Commission. The
Administrative Procedure Act is from 1946.
Mr. Cartwright. Sure.
Ms. Rosenworcel. It's aging.
Mr. Cartwright. Yeah.
Ms. Rosenworcel. It's getting creaky, and in the digital
age, we're going to have to figure out how to make sure that
this channel for public comment in Washington is bolstered, and
more secure, and more open to what people think so that we
don't see this kind of identity theft and fraud going forward.
Mr. Cartwright. Well, that's what I'm talking about. You
know, we're talking about HR1 going after--cleaning up American
democracy, but so many--so many of the rules and regulations
that we operate under here in America were formulated under the
APA, the Administrative Procedures Act, and they depend for
public comment on these--nowadays on the internet for that. So,
that's a huge topic that we really need to wrap our arms
around.
I wanted to ask you, Commissioner Rosenworcel, about
broadband internet for rural places. I represent a couple of
wonderful counties in Pennsylvania, Wayne County and Pike
County, and they're gorgeous places, and places you want to
spend a lot of time with your family at, but they don't have
broadband internet anywhere, and you know, you think about what
that means. It means there are, you know, limited opportunities
that people have to communicate with the outside world compared
to every other place that has those things.
It means limited opportunity for children to learn about
the world through the internet, but maybe worst of all, it
really hampers the ability of areas like this to attract
outside businesses coming in, because outside businesses, who
can choose any place in the world to locate, probably aren't
going to want to locate someplace where the families of the
workers don't want to live there because they can't go online,
unless it's, like, with one bar on their cell phone, which is
what they get in Wayne County. 48 of the 67 counties in
Pennsylvania are considered rural. There are 800,000
Pennsylvanians lacking access to high speed internet, and two-
thirds of them are in rural areas. I appreciate your comments,
Commissioner Rosenworcel about the need for better mapping, and
I couldn't agree more.
You know, people in Wayne and Pike Counties have told me
it's a priority of theirs to get broadband internet access, but
this points to the problem. Laying lines over vast amounts of
territory, lots of land, with relatively few people--that's
what rural territory is--it's just not a profitable proposition
for private sector internet service providers.
Last year, Congress made what some have called a ``down
payment,'' quote unquote, on investing in rural infrastructure,
broadband infrastructure by creating the $600 million reconnect
program to be administered by the USDA Rural Utility Service,
and an additional $550 million was added in the fiscal year
2019 omnibus. With all the work on broadband networks currently
underway pursuant to FCC's universal service programs, how do
we ensure that these additional infrastructure--broadband
infrastructure resources are coordinated with other programs to
prevent duplication of effort, Commissioner Rosenworcel?
Ms. Rosenworcel. Well, thank you for the question. You're
absolutely right. The only way that we are going to get our
bang for the buck is if we coordinate all of these federal
programs. You know, it's a strange fact, but the Department of
Agriculture, which received those funds, is up the street from
the FCC, and yet I fear that we don't regularly have
conversations about what they're doing, and what we're doing,
and if we want to maximize our scarce dollars, we need to do
more of that.
Mr. Cartwright. Now when it comes to helping fund broadband
networks, how do we ensure that investments made leveraging
federal resources won't be outdated and can actually deliver on
the promises being made and the dollars being awarded?
Ms. Rosenworcel. Something that we're going to have to be
mindful of. I can't speak specifically to the Department of
Agricultural Rural Utilities Services' choices, but certainly
the FCC makes choices about its Universal Service Fund, and for
instance, right now mandates that those funds for broadband are
generally used for 25-megabit service. The idea is not to fund
service that is too slow and backward looking, but to try to
fund services that are forward-looking.
Mr. Cartwright. Well, I think you to both of you for
appearing today, and I yield back.
Mr. Quigley. Mr. Graves.
Mr. Graves. Mr. Chairman, just maybe if you can just give
us an update. I know this committee appropriated a billion
dollars over two years to help with the T.V. Broadcaster
Relocation Fund. Can you give us an update? Are we on track, on
schedule? And things going as you expected?
Chairman Pai. I appreciate the question, Congressman. We
are on track so far. We completed phase one successfully. My
recollection is that 193 stations transitioned during what was
called phase one. We're now in the midst of phase two, which is
scheduled to close soon, and we'll have already had 115
stations that have transitioned. In addition to that, we have
taken the authority that you gave us and we have started
establishing a framework for identifying how non-protected
stations, low power T.V., translator and FM radio stations can
get reimbursement through the additional money that you
allocated for this purpose. So in addition to that, you also
allocated money for consumer education, so we set up a call
center dedicated to this purpose. We put out alerts in English
and Spanish. We've additionally created some web content that
people can access on our website if they have questions about
rescanning and the like. So this is one of our top priorities.
I said from my earliest days as commissioner we wanted to make
sure this transition was a smooth one, and thanks in part to
the resources you've given us, I can report to you that as of
today, that transition is, in fact, going well.
Mr. Graves. That's good. I appreciate the entire
commission's work on that. I know that's something the entire
commission is very supportive of. From a reimbursable cost
perspective, do you have a process in place to make sure that
the proper expenses are being reimbursed? Can you help us
understand that, how that works?
Chairman Pai. We do. We don't want it to simply be a case
of anyone can submit paperwork and we immediately send out a
check without looking at it. There are certain categories of
costs, some of which are reimbursable, some of which are not.
At the end of the day we want to make sure that we're able to
report to you that we did not spend a single dollar in this
process on something that more properly should have been the
province of the broadcaster itself. But that core promise of
the incentive auction that we would transition broadcasters and
hold them harmless, they wouldn't have to pay out of their own
pocket for a relocation that was out of their control, that
continues to be the case.
Mr. Graves. Great, thank you. Ms. Rosenworcel, how do you
feel about the program? Going well? Anything else we can be
doing?
Ms. Rosenworcel. You know, I agree with the chairman. I
think it's proceeding thoughtfully. It's a big task.
Mr. Graves. It is.
Ms. Rosenworcel. And we are still in early days so I think
it is incumbent on the agency that if we identify problems
going forward, we come to you and try to identify how to fix
them.
Mr. Graves. Thank you. And I just want to thank the
commission. I know you have a lot of difficult tasks in front
of you, and I know you do the best you can to work together to
find solutions, and this was one in which I think everybody
worked together to help guide us with the proper steps to take.
And even for us, authorizers and appropriators working together
to get to the final product and end was very productive, so
thanks again for joining us today, for your good work, and I
look forward to visiting with you again in the future. Thank
you, Mr. Chairman.
Mr. Quigley. Mr. Bishop.
Mr. Bishop. Thank you. The issues under FCC's jurisdiction,
from spectrum sharing to auction implementation to consumer
protection are becoming more and more complex each and every
year, but it appears as if the Administration is requesting
less funding, particularly than we provided in 2019.
Commissioner Rosenworcel, do you support the funding level for
the commission? If not, where do you believe the commission
needs additional resources?
Ms. Rosenworcel. Thank you for the question, Congressman. I
believe considering that the FCC fully pays for itself through
fees, this funding level is too low. We have the lowest level
of employees in decades at a time when our services that we
oversee are more important in every aspect of civic and
commercial life. If we want to lead the world in 5G service,
run multiple spectrum auctions, manage the scourge of robocalls
and deal with the growing threat of cybersecurity issues, we're
going to need more resources to do that well. And I think that
this budget falls short.
Mr. Bishop. Do you need more fees or you need Congress to
appropriate more funds?
Ms. Rosenworcel. I think we need more employees to carry
out those important tasks.
Mr. Bishop. So we need to fund that. Chairman Pai, do you
believe that the requested funding provides adequate resources
for the commission to continue its ongoing and its planned
work? We have concerns about the state of the commission's
information technology, particular the systems that support
auctions and licensing. Or does the level of requested
resources allow you to upgrade all of your critical systems?
Chariman Pai. Thank you for the question, Congressman. This
level that we have submitted on behalf of Administration, $335
million itself, represents a $13 million-dollar bump from when
I first got into office, and so we do recognize the additional
resources Congress has given.
Mr. Bishop. The question is, is it enough?
Chairman Pai. So in that regard, to the extent that
Congress seeks to allocate additional resources, I can assure
you that we will use them wisely, in part to upgrade those
legacy IT systems.
Mr. Bishop. Do you want more?
Chairman Pai. That's one of the things we'd be happy to
work with you on, Congressman, this number is of course----
Mr. Bishop. I'm asking you, do you want us to appropriate
more than you ask for?
Chairman Pai. Congressman, should you see fit to give us
the $339 million that you gave us in the previous years----
Mr. Quigley. We can do this all day, gentlemen. [Laughter.]
Chairman Pai. But I do want to, in all seriousness, I do
want to assure that whatever number you pick, we will use
wisely.
Mr. Bishop. No, no, I want you to tell me do you need more
money?
Chairman Pai. We would not complain with the level of
funding----
Mr. Bishop. I didn't ask you whether you would complain,
just tell me do you need more resources to do the job that
you're asked to do, that you're required to do?
Chairman Pai. Congressman, I believe----
Mr. Bishop. Effectively.
Chairman Pai [continuing]. We went with the $339 million
that we submitted to OMB. Again, we could discharge additional
responsibilities we've identified.
Mr. Bishop. Thank you, Mr. Chairman. A key part of the
FCC's analysis with regard to net neutrality was the claim that
net neutrality harms investment, yet the evidence supporting
that is not clear. And I asked the executives who said that net
neutrality did not affect their business decisions.
Commissioner Rosenworcel, during the rulemaking process, the
chairman stated that he would only change his mind on net
neutrality if presented with economic analysis that shows
credibly that as infrastructure investment that has increased
dramatically. In your opinion, is that position consistent with
FCC's rulemaking requirements, or is that, in your opinion,
good policy?
Ms. Rosenworcel. I think that the record reflects that
capital expenditures have decreased since the FCC's 2017 net
neutrality rules went in place at the major providers. But I
would also argue that this is a subject that needs peer review.
It's not something where we should simply accept data that's
from the carriers themselves. We need to think thoughtfully
about long-term infrastructure in this country and not just
broadband providers, but the great digital ecosystem. I think
the record reflects that net neutrality rules were no damper on
investment, but I will respect the idea that we have to
continue to watch this issue.
Mr. Bishop. Chairman Pai, the FCC's order dedicated 18
paragraphs discussing the impact of ISPs and only two to
content and service providers. Why did you find that sufficient
given the enormous size of impact on an economy? This committee
recently approved the creation of the new Office of Economics
and Analytics. Will this allow the FCC to conduct independent
economic analysis in cases where economic record is ambiguous
like with net neutrality?
Chairman Pai. Congressman, that's precisely the reason why
we established this office is to centralize that function of
economists and data analysts and others who previously had been
sprinkled throughout the agency, without any workflow
coordination necessarily. They were sometimes left out of the
equation altogether. So we wanted to create a central office
where they have a seat at the policy-making table to tell us
this is what the costs and benefits are, these are the gaps in
the data sets that we've got, these are things we're seeing in
terms of geographic information mapping and the like. And that
way we can make better decision-making at the front end as
opposed to the way it's been done historically.
Mr. Bishop. Ms. Rosenworcel.
Mr. Quigley. Well, we'll see if where timing is, sir, when
we get done with this segment. Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman. So as I look around
probably as the oldest guy in the room, I'm not going to be
talking 5G and 4 triple-S, double-reverse Johnson and all that
other sort of stuff, so if anybody thinks I'm trying to
impersonate a tech person on communications you are mistaken.
With that said, first of all, I want to thank you both
because in the stuff that we've worked out on the Spectrum
Repack and all that other sort of stuff for T.V. stuff through
your chairmanship and the previous chairmanship, your staff has
been very responsive. We want to talk to you about it, what's
going on my neck of the woods, that sort of stuff, and so I
think regardless of where you think we ought to be or what, the
agency has been phenomenally cooperative and a standout in my
experience in eight years here. You didn't always tell me what
I like, but you always responded and told the truth and did it
in a timely manner and worked well. So I want to say thank you.
Then the next thing I want to tell you is this: There are
parts in northern Nevada, and if those people in Wayne County
want to see rural, let me just tell you this, I'll show you
rural and we don't even have trees there it's so rural.
Obviously he's doing some security stuff over there on his
device right now so we won't bother that because that's very
important. But having said that, there are few spots where when
you talk about driving from Phoenix to Flagstaff in Arizona,
it's like I don't want you to do anything to change some of
those spots in Nevada because people go there because there is
no coverage, okay?
The final thing is this: I know we're talking about the
coming, you know, 5G and all that stuff and that's where most
of the future is and that, but in talking with broadcasters in
my neck of the woods, some of that old technology is kind of
the doomsday infrastructure, if you will. We spend a lot, as we
should, to say we want these networks to be as bulletproof as
possible and blah, blah, blah and failsafe and all that, but at
the end of the day, there's that old, you know, I'm not going
to say rabbit ears stuff because I know most people in here
don't remember that, but having said that, it's like I would
like to follow back up with your staff and say, so what are
doing for the doomsday infrastructure. Because it seems to me
that this is such a lucrative target that there's always going
to be people out there trying to defeat you, because online is
such a rich place for wonderful things, but also for evil, and
so you're going to deal with that and I don't envy you a it,
but could you just briefly, it's like is there any thought
going on in all this stuff that's going on there to go, hey,
wait a minute, if that goes down in that region because of
whatever, we can still switch over to those folks that we took
care of when we were repacking spectrum and stuff like that, to
where if we have to, it's like tune your radio to blah, blah,
or turn on to the emergency broadcast network old-style.
Anybody looking at that?
Chairman Pai. Certainly we are, Congressman, we share that
concern. For example, one of the things I do regularly is get
briefed in our classified facility about some of the risks
we're seeing to critical infrastructure and elsewhere, and I'm
sure you get these briefings, too. It's a danger given how open
our society traditionally is and how reliant we are on some of
those kinds of infrastructure. So the other thing we do is work
regularly with federal partners. I personally worked, for
example, with the head of the Cybersecurity and Infrastructure
Security Agency over at DHS. We're coordinating now with the
Federal Energy Regulatory Commission to make sure we're on the
same page in terms of the energy grid. And this is a cross-
cutting effort because all of these industries, from energy to
healthcare, you name it, rely on technology at the end of the
day. So we've got a seat at that table, I can assure you.
Mr. Amodei. Well, if might just briefly, and then Madam
Commissioner, you can--but it's like, listen, especially when
you add the rural element into it, when push comes to shove
sometimes it's the only thing is that old technology sitting on
the mountaintop that gives you something. So that's why it's
something that's kind of floating around in our thought
process.
Ms. Rosenworcel. You know when we have fires in northern
California and floods in Nebraska and Hurricane Sandy, we do
have to remember that most people turn to their broadcasters to
learn what's going on. And when the power goes out, your
phones--they're hard to charge--we've got to be mindful that a
radio with batteries, which feels awfully old school, may be
one of the most important things we all have around----
Mr. Amodei. They're comfortable to some of us.
Ms. Rosenworcel. All right, I'll take old school. But I
think we have to remind ourselves in this digital world that
there are some analog technologies that can continue to help
keep us safe, and we've got to make sure that our systems
protect them.
Mr. Amodei. Thank you both. Thank you, Mr. Chairman.
Mr. Quigley. Mr. Amodei mentions rabbit ears. For those who
don't remember, they were actually on top of your T.V. set.
when you had to walk over and turn the channel. And they were
kind of a small antennae that you would move around, and the
problem with it is that once you touched them you became part
of the antennae, you immediately got new reception. So being
the youngest in the family they would make me just sort of hold
it so they can watch a decent T.V. show.
Mr. Quigley. I don't know how to follow with that, Mr.
Cartwright, but it's up to you. [Laughter.]
Mr. Cartwright. On behalf of the committee, may I think the
Chairman for revealing what life in antiquity was like.
[Laughter.]
Mr. Quigley. Rural Indiana.
Mr. Cartwright. Chairman Pai, you heard Commissioner
Rosenworcel and I talking about mapping, and I wanted to give
you a chance to weigh in. The shortcomings of current broadband
mapping data are obvious; they're widely publicized and
acknowledged. The Rural Utilities Service employs a review
process to help verify which areas are unserved, and ensure
that, as she said, scarce resources limited loan and grant
dollars will go to where the need is greatest. The FCC has
employed a similar process for certain USF mechanisms in the
past, but not always.
Chairman, do you agree that a challenge/evidentiary process
is a good way to improve the accuracy of maps before funding
decisions are made?
Chairman Pai. I couldn't agree more, Congressman, and
that's why last year, two years ago rather, I set up, and my
colleagues agreed, with a challenge process that involved not
just competitive providers but opening up to others, farm
bureaus, for example, legislators and others who might want to
challenge those maps. And in addition to that, we started an
investigation into one or more of the carriers that we thought
submitted inaccurate maps because we wanted to make sure there
were submitting accurate data to us at the end of the day. And
that's on the mobility side.
On the fixed broadband side, I share your frustration,
coming from a rural part of the country myself where it's hard
to get coverage. One of the problems I encountered when I first
got in office two years ago is the FCC's process for getting
information from broadband providers was created in 2000. Now I
mean just think about how long ago that was, 17 years--19 years
is an eon in this area, and so we started to proceeding to
upgrade that Form 477, as it's called. We've been meeting with
stakeholders, we've been encouraging private sector actors to
start mapping initiatives of their own, but the bottom line is
we want to get better data in because that ensures, and we
would be able to report to you, that every dollar going out in
the universal service fund, is, in fact, closing that digital
divide in Pike County or Parsons, Kansas, wherever it is.
Mr. Cartwright. How much right now are you relying on
service, you know, private sector service providers for giving
you the information about where the areas are that are
unserved?
Chairman Pai. That has traditionally been the process that
they submit this Form 477----
Mr. Cartwright. One hundred percent?
Mr. Pai. A fair amount, yes, except for the challenge
process with respect to Mobility Fund, II.
Mr. Cartwright. So what else can be done to improve
broadband coverage maps?
Chairman Pai. I think making sure that mapping process is
robust--Congress obviously allocated resources to the Commerce
Department now in part to address this issue--continuing to
work with non-traditional stakeholders, as I might call them,
encouraging farmers and others to participate in that process
either through their farm bureaus or on their own. I mean there
are so many things that we're doing right now to upgrade the
granularity and meaningfulness of that data we're getting in.
Mr. Cartwright. I'm glad you used that word
``granularity''. I am curious to learn more about the recent
announcement that the FCC and internet service providers will
work to develop are more granular broadband data and mapping
approach. Tell us more about that.
Chairman Pai. Yes, thank you for the question, Congressman.
We have encouraged some of the trade associations working on
this issue to develop mapping initiatives, and some of them are
starting to do that. I recently spoke at an event where one of
those trade associations representing essentially phone
companies announced an initiative to get that mapping
initiative underway. Other providers and trade associations are
doing that as well. But this issue is so important in terms of
granularity. Last week, for example, I found myself on the
Muller Ranch, which is in a rural part of Yellow County,
California. They're not far from Sacramento, one of the biggest
cities. But Frank Muller, who's the owner of the ranch said if
you look at----
Ms. Rosenworcel. Different Muller.
Chairman Pai. Oh, so sorry. Yes, Frank, just if I did not--
--
Ms. Rosenworcel. You had us all very confused. [Laughter.]
Chairman Pai. I thought I said Frank, but in case I
didn't--But one of the things he showed me was essentially this
metal rod that he's been using that his father might have used,
his grandfather might have used, to measure soil moisture, and
he said essentially he'd just take out a chunk of soil and feel
it to feel how moist it is. Then he showed me this very
advanced tool and he said all I have to do is stick this thing
in there and it monitors soil moisture, and Ph, and nitrogen
and all the rest of it, but I can't use it because it relies on
4G LTE.
And if you look at a map you would think, oh, he's in
Sacramento, he's a big city guy; but just a few miles away from
Sacramento he's essentially in another geographic zone. And so
we wanted to change that to make it more granular so we
understand the Muller Ranches that are out there and target our
funding to people like him and to places like his so that they
can get on the grid.
Mr. Cartwright. And working with the trade associations as
you mentioned, it sounded like you're encouraging them to do
that, is that correct?
Chairman Pai. Absolutely. This is an all-hands on deck
effort. We want all of them to be foremost thinking about how
to give the FCC the----
Mr. Cartwright. Not to interrupt but I'm almost out of
time, you're encouraging them but you're not requiring them, is
that it?
Chairman Pai. Well, we do require them to participate in
our Form 477 process, in the mobility fund mapping data
collection initiative that we've got. Those are mandatory
efforts. But we also want to encourage them to think about
developing tools as well because ultimately it's beneficial not
just to us but to consumers to understand where broadband is
and where it isn't.
Mr. Cartwright. Thank you, Mr. Chairman, I yield back.
Mr. Quigley. Thank you, Mr. Cartwright. Chairman and
Commissioner, I'll say this, I think the ranking member will
join me. We may agree, we may disagree; you two may agree and
disagree, but I will say you two are very well prepared and
forthcoming and we appreciate your participation and your
service, and this meeting is adjourned.
[Questions and answers submitted for the record follow:]
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Tuesday, April 9, 2019.
DEPARTMENT OF THE TREASURY BUDGET REQUEST FOR FISCAL YEAR 2020
WITNESS
HON. STEVEN MNUCHIN, SECRETARY, U.S. DEPARTMENT OF TREASURY
Mr. Quigley. Good morning, everyone.
This morning we welcome Secretary of the Treasury, Steven
Mnuchin, to testify on the Department's fiscal year 2020 budget
request.
Mr. Secretary, thank you for being here today.
The fiscal year 2020 budget for the Department of the
Treasury is $12.7 billion, which is $62 million below the
fiscal year 2019 enacted level.
In addition, the budget proposes $362 million in BCA cap
adjustment funding for IRS program integrity activities.
As in prior years, the request again proposes cuts to IRS
that will reduce the resources available to support taxpayers
and weaken the agency's ability to protect the integrity of our
tax system.
The request again proposes to eliminate funding for
discretionary grant programs within the Community Development
Financial Institutions Fund, and goes a step further by
proposing to rescind $25 million in CDFI funding that Congress
restored in the fiscal year 2019 bill.
And it again slashes funding for the Special Inspector
General for TARP by 24 percent, despite the continued
obligation of billions of dollars for TARP programs that will
continue into 2023.
While there are many areas of concern in the
Administration's request, I do want to call attention to one
bright spot.
I am pleased to see the budget includes increases for both
the Office of Terrorism and Financial Intelligence and the
Financial Crimes Enforcement Network.
I look forward to hearing from you today on how the
Department plans to use these funds, in addition to the
significant increases that Congress appropriated in fiscal year
2018 and fiscal year 2019, to enhance efforts to combat
terrorist financing and money laundering and to enforce
economic and trade sanctions.
Lastly, I must take this opportunity to comment on the
Department's plan to divert up to $601 million from the
Treasury Forfeiture Fund to pay for the construction of
physical barriers along the southern border.
I understand $242 million has already been transferred to
the Department of Homeland Security. This is $242 million that
could have been used to augment IRS Criminal Investigations;
$242 million that could have been used to support Homeland
Security Investigations into financial crimes, money
laundering, human trafficking, and intellectual property theft;
$242 million that could have been spent on tools to help Coast
Guard teams search for illegal drugs onboard vessels at sea.
The decision to redirect these funds towards border fencing
recklessly undermines the ability of Treasury and Homeland
Security to address known threats and instead uses it for a
symbolic campaign promise.
Before I turn to our witness for his statement, I would
like to recognize Mr. Graves for his opening remarks.
Thank you, Mr. Graves.
Mr. Graves. Thank you, Chairman Quigley.
Welcome back, Secretary. It is good to have you back with
us.
The last time you were with our subcommittee, Congress had
just passed the Tax Cuts and Jobs Act. 15 months later, GDP
continues to grow. The unemployment rate is at the lowest rate
it has been in over 50 years. The economy has added more than 5
million jobs since the President took office and your team has
been put to work.
Eighty percent of individuals are now paying lower taxes
this year. Businesses have lower regulatory and compliance
costs, and it is easier for families and business owners to
file their taxes, thanks to your leadership and the
administration. We appreciate all you have done to get us to
this point.
I do want to commend you along with Treasury and the IRS
staff who have worked so hard to implement tax reform for this
filing season. I know it has been a tremendous amount of work
for everybody. And Congress did not make it much easier for you
when we had just a little bit of a lapse of funding for 30-plus
days. I know that made it a little bit more challenging.
But so far it seems tax filing season is proceeding without
any notable problems, and if there are some, maybe you can
highlight them for us today.
But regarding the administration's budget proposal, I
appreciate that you are making some important investments in
the military and border security, while making tough choices to
reduce spending. That is across the board when we have seen
this budget proposal.
The debt nearly doubled under the previous administration.
We sometimes forget how that occurred and when it occurred, but
it did. It is a debt that has been inherited by this
administration, and I appreciate what you have been doing as
well as the entire team with the Trump administration working
within the budget limitations that Congress has placed on you.
Now, I understand the request for the Treasury Department
includes important investments in sanctions enforcement,
national security reviews for foreign investments,
cybersecurity, and IT infrastructure at the IRS, all very
important investments, and thank you for you focus on that.
And I look forward to working with Chairman Quigley in the
days ahead as we formulate a budget that we know your
department will have the sufficient resources necessary to
carry out your mission.
And, Mr. Chairman, I will be happy to yield back at this
time, but thanks again for holding this hearing today.
Mr. Quigley. Thank you, Mr. Graves.
Secretary, I thank you so much for being here today.
Without objection, your full written testimony will be entered
into the record.
With that in mind, we would ask you to please summarize
your opening statement in 5 minutes.
Secretary Mnuchin. Thank you. It is a pleasure to be here
with you today.
Chairman Quigley, Ranking Member Graves, and members of the
subcommittee, I am pleased to join you today to discuss the
President's fiscal year 2020 budget and the priorities for the
Treasury Department.
I am proud to report that President Trump's program of tax
cuts, regulatory relief, and improved trade deals is resulting
in the strongest economic growth since 2005 and the best job
markets in generations.
I would like to highlight some key issues for you today. I
would note that Opportunity Zones are a key component of the
Tax Cut and Jobs Act. They will help more Americans benefit
from our strong economy. Opportunity Zones offer capital gains
tax relief for investments in businesses in distressed
communities. We are seeing a great deal of enthusiasm for this
policy across the country.
The administration is making trade a top priority. I urge
all members of Congress to support the passage of the U.S.-
Mexico-Canada Agreement. It will create the highest standards
ever negotiated to protect intellectual property rights,
provide strong support for small and medium-size businesses,
encourage manufacturing, open markets for American agricultural
products.
We are also making progress in negotiating with China to
rebalance our economic relationship and unfair trade practices,
open their economy to American companies, and protect our
critical technology.
Turning to the President's 2020 budget for the Treasury
Department, it reflects our key goals of maintaining strong
economic growth as well as protecting America's national
security and technology infrastructure.
We are requesting $35 million to continue implementing
FIRRMA Modernization Act. This legislation, which passed
overwhelmingly with bipartisan support, modernizes the
Committee on Foreign Investment in the United States, known as
CFIUS, review process.
FIRRMA enhances CFIUS' ability to analyze transactions for
national security while preserving our commitment to an open
investment environment.
The budget provides for increased funding for TFI and for
the Financial Crimes Enforcement Network, FinCEN. These funds
will be used to continue to protect the financial systems'
abuse by rogue regimes and actors, including terrorists,
transnational organized crime, proliferators of weapons of mass
destruction, and other threats to our country.
The funding includes critical investment in information
technology and mission support capabilities.
It also supports the Terrorist Financing Targeting Center
and implementation of the Countering America Adversaries Act
known as CAATSA.
It also further expands FinCEN's ability to combat
cybercrime and prevent the illicit exploitation of emerging
payment systems, including cryptocurrency.
I would like to highlight two other initiatives which are
modernizing the IRS and the proposed integrity cap adjustment.
Our 2020 request for $290 million for the Business Systems
Modernization Account is the first installment that go towards
upgrading IRS systems and operation.
This plan will reduce long-term costs of maintaining these
systems and dramatically improved taxpayer service.
We are also requesting a program integrity cap to allow the
IRS to efficiently collect taxes, enforce our tax code, prevent
fraud, including by modeling compliance risks, and prevent
identity theft.
We anticipate that a $15 billion investment over 10 years
would generate over $45 billion in additional revenue.
Finally, I would note the budget includes additional
support for the Office of Critical Infrastructure, which is the
protection and compliance policy to help Treasury identify and
reduce emerging threats and vulnerability to our financial
systems.
I look forward to answering your questions, and thank you
very much. It is a pleasure to be here with you.
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Mr. Quigley. Thank you, sir. We appreciate that.
So yesterday I was asked what questions I would ask you
today. It just seemed humorous to me at the time, suggesting it
was not going to be about how your NCAA brackets had done, but
how did they go?
Secretary Mnuchin. I am a bigger fan of professional
basketball.
Mr. Quigley. I have got it.
Secretary Mnuchin. So I am not an expert at NCAA.
Mr. Quigley. All right. So that the press does not think I
totally misled them, let me get to the point. Last week we are
well aware that the chairman of Ways and Means under 6103 of
the Tax Code requested the President's tax returns.
And we can get into the issue of what that answer should
be, but at first I think it is more important that we talk
about who should make that decision and, with respect, whether
or not you, Mr. Secretary, should be involved in that decision.
We are aware of a longstanding delegation order that the
Secretary does not get involved in taxpayer specific matters,
and that the IRS Commissioner has that responsibility. Quote,
``the Commissioner of Internal Revenue shall be responsible for
the administration and enforcement of the internal revenue
laws.''
In addition, this is not a delegation that is easily
revocable. Federal law provides that if you decide not to
delegate such a power, that decision, that determination shall
not take effect until 30 days after you, Mr. Secretary, notify
the tax writing and other specified committees.
So it raises the question as to whether a decision to
decide this by yourself is appropriate and legal. So let me
begin with that and get your reaction as to whether or not you
should be the one making that sort of decision, sir.
Secretary Mnuchin. Well, first let me comment that I do
look forward to talking about our budget.
Mr. Quigley. We are going to get there, sir.
Secretary Mnuchin. I am not surprised on this question. So
better we get this out and----
Mr. Quigley. I wanted to surprise you with that first
question, but it did not work.
Secretary Mnuchin. You did surprise me on the first
question.
Let me just comment that, first of all, I wanted to
acknowledge that we did receive the request, and as I have said
in the past, when we received the request it would be reviewed
by our Legal Department, and it is our intent to follow the
law, and that is in the process of being reviewed.
Now, in regard to your specific question----
Mr. Quigley. Well, let me just interject. I apologize. What
part of a review, whether or not your office should be the one
that makes the ultimate decision?
Are they reviewing whether or not you should make that
decision, as well, sir?
Secretary Mnuchin. It would be premature for me to comment
specifically what they are reviewing on or what they are not
reviewing on, but I would highlight, okay, I think as you know,
the law calls for a request to me. As you have said, there is a
tradition of delegating certain responsibilities.
I would just comment that it is my responsibility to
supervise the Commissioner, but again, I think it would be
premature at this point to make any specific comments other
than, as I have been consistent before in saying it is being
reviewed by the Legal Departments, and we look forward to
responding to the letter.
Mr. Quigley. Well, in case they are curious, we can
reference Treasury Order 150-10 and Section 6103, which talks
about the disclosure to committees of Congress on these points,
and we go back. That was April 22nd, 1982. The previous order
dates back to St. Patrick's Day 1955.
So it would seem that the matter of who makes decisions is
pretty clear. My concern is that we are going to get past that
point, and the decision as to whether to pass these on will
have already been made.
But let me ask you in the meantime. The White House Chief
of Staff made his thoughts on this pretty clear. Have you
spoken to the White House Chief of Staff or the President about
this decision?
Secretary Mnuchin. I have not spoken to the White House
Chief of Staff or the President about this decision.
Mr. Quigley. Has anyone from the White House talked to you
about this decision?
Secretary Mnuchin. To me personally or to other people
within my Department?
Mr. Quigley. Well, you personally first and to other people
second.
Secretary Mnuchin. I have not had any conversations with
anybody in the White House about this issue personally.
Mr. Quigley. Any communication.
Secretary Mnuchin. I personally have not had any
communication with anybody in the White House, although I want
to be specific that relates to me and not everybody at
Treasury.
Mr. Quigley. Okay. So to your knowledge, has anybody in the
administration communicated with anybody in your office about
this decision?
Secretary Mnuchin. Our Legal Department has had
conversations prior to receiving the letter with the White
House General Counsel.
Mr. Quigley. And did they brief you as to the contents of
that communication?
Secretary Mnuchin. They have not briefed me to the contents
of that communication. I believe that was purely informational.
Mr. Quigley. You believe what was purely informational?
Secretary Mnuchin. I believe that the communication between
our Legal Department and the White House General Counsel was
informational, that we obviously had read in the press that we
were expecting this.
Mr. Quigley. So they communicated just to say, ``Expect
this,'' or did they talk about their views in any way, shape,
or form as to how you should respond?
Secretary Mnuchin. Again, Mr. Chairman, I want to be clear.
I personally was not involved in those conversations. Again, I
want to be very clear and not be misleading. I acknowledge that
there were conversations. I am not briefed on the full extent
of those conversations.
And I would also just comment those have been prior to us
receiving the notice.
Mr. Quigley. Yes, because they saw the handwriting on the
wall. We are going to----
Secretary Mnuchin. I think, as you know, it was widely
advertised in the press beforehand.
Mr. Quigley. Sure.
Secretary Mnuchin. So this was not exactly a state secret
that we thought we would be getting it.
Mr. Quigley. I think this committee would like to know if
in those communications the White House expressed their desire
to you or anybody else at Treasury what their views or how you
should act on this matter.
So if you could pass that on, sir, we would greatly
appreciate it.
I will pass on to Mr. Graves now.
Mr. Graves. All right, Mr. Chairman.
Mr. Mnuchin, Secretary, it is interesting how these
committee meetings at Appropriations have turned into
investigative hearings, putting different individuals from the
administration on trial it seems at times.
And so, Mr. Chairman, it is, I think, fair for the
Secretary to respond that they are going to fully comply with
the law when I think we all know this is a political stunt by
the new majority that just could not wait to get a gavel and to
scour through all of the rules of the Ways and Means Committee
into how they might use their political power and influence to
retaliate against a political opponent that they just disagree
with. That they do not like.
They did not like the outcome of the Mueller report. So now
we have got to issue a subpoena and request that the Attorney
General break the law and reveal classified information and
other things. It is remarkable to watch this occur.
So, Mr. Secretary, I appreciate your good work, what you
have done, as I said in my opening statement, all that you have
done to assist the economy to make sure that there are plenty
of jobs being created, 5 million new jobs since the
administration took place.
The GDP is growing strong. Unemployment is at a 50-plus
year rate of the lowest ever in the 50-plus years.
And yet what do we want to talk about? Tax returns. Why? I
am sure the President has filed the financial disclosures as
required by law, and I do not see any questions about that. But
for some reason the new majority just wants to peek in, peek in
a little bit further because they are just determined to prove
something that they think might exist somewhere, and each time
they get turned down and it is proven false.
In fact, there was no collusion. There is no obstruction.
But that is not enough, and here we go again with something
else. It might not ever end.
But halfway through this administration, you all are doing
a fantastic job. I will go to something more pertinent to the
day, and that is tomorrow we understand that in the House
Financial Services Committee there is going to be the Chairman
and CEO, Jamie Diamond, who is going to testify, and he is
hopefully going to speak a little bit about cybersecurity. That
is one of your priorities, and I am grateful for that.
But the Chairman and CEO said that the threat of
cybersecurity may very well be the biggest threat to the U.S.
financial system, and that they spend about $600 million every
year just to ward off cybersecurity attacks.
You have made a request in your budget for a $7.7 million
increase to strengthen the financial sector's cybersecurity
infrastructure. You are taking that threat seriously, and we
appreciate that.
Just give us a little bit of a glimpse. Is the financial
sector sufficiently prepared in your mind to manage large-scale
business disruptions, data disclosures, and other cyber events?
Talk about that for a second.
Secretary Mnuchin. Sure. Well, thank you very much.
I mean, let me just comment that cyber issues specifically
relate to the financial infrastructure, which is a
responsibility of the Treasury Department, working with DHS.
It is something that we take very, very seriously, and this
requires an ongoing investment. This is not just a one-time
investment. This will focus on a continuing investment.
I am actually hosting a meeting tomorrow afternoon of those
CEOs at the Treasury Department, specifically with our
cybersecurity experts. I will be having representatives of both
DHS and the intelligence community there with me, as well as a
session with the regulators.
So this is one of the highest priorities for the
department, and this is something we will continue to work with
the private sector. The private sector has the primary
responsibility, but this is an area where we need to improve
the effectiveness of the U.S. government working with the
private sector to prevent what could be both state actions and
non-state actions, attacks to our infrastructure.
Mr. Graves. The additional $7.7 million that you are
requesting, share with us a little bit about how you expect to
use that, how that might help with that goal.
Secretary Mnuchin. That is to staff-up our internal
department to do this. I think, to be honest with you, this is
a rather modest request, given the size and the significant
risk, and this may be something that we will come back in the
future and ask for more money just as we appreciate we have
asked for more money for TFI. I think that has been very
effectively used. We appreciate it.
This is a modest investment and something we may come back
to you because it is one of the most important areas.
Mr. Graves. Right. Thank you, Secretary. Thanks for being
here and joining us today.
Secretary Mnuchin. Thank you.
Mr. Graves. Thank you, Mr. Chairman.
Mr. Quigley. Mrs. Kirkpatrick.
[No response.]
Mr. Quigley. Mrs. Torres.
Mrs. Torres. Secretary Mnuchin, I understand that a total
of $9.6 billion has been provided for the Hardest Hit Fund
since its creation. How much of that funding is left?
Secretary Mnuchin. I am not aware of that specific number,
but I can get back to you on that.
Mrs. Torres. In the past two years, what are the main
purposes for which the funds have been used?
Secretary Mnuchin. The Hardest Hit Funds, I believe, as you
know, was money that was----
Mrs. Torres. I know what it is. Just answer my question
please.
Secretary Mnuchin. Can you repeat your question?
Mrs. Torres. In the past two years, what are the main
purposes for which those funds have been used?
Secretary Mnuchin. They have been allocated to different
States for various different purposes, as the funds are
specified. It is not an arbitrary situation.
Mrs. Torres. Exactly what were they being used for? You do
not know, but can you follow up with my office and let me know?
Secretary Mnuchin. Absolutely.
Mrs. Torres. Thank you.
Secretary Mnuchin. It is for various mortgage related
issues in different parts in the States, but we are happy to
give you a more detailed update.
Mrs. Torres. I appreciate that.
With the President's decision to spend up to $601 million
on the border wall out of TFF, can you tell me what other law
enforcement activities will not be supported in fiscal year
2019?
Secretary Mnuchin. I do not know the answer to that. The
request for the funding was a request that came from DHS for
law enforcement purposes. DHS has prioritized the different
things. I cannot tell you. It is not within my domain.
Mrs. Torres. Okay. So law enforcement purposes, only a
priority at the border, but not in our communities?
Secretary Mnuchin. Again, law enforcement purposes are not
within the Treasury's domain as it relates to these issues. We
transferred the funds, and DHS has prioritized them.
Mrs. Torres. In prior years, Treasury has sought to
maintain a minimum of $100 to $150 million in the TFF for
operating expenses for the subsequent fiscal year. Treasury's
latest reporting to the subcommittee projects that there will
only be $71 million remaining in the TFF at the end of fiscal
year 2019.
Are you concerned that the project balances will be
insufficient to fund essential operations for fiscal year 2019?
Secretary Mnuchin. I am not. That was somewhat of an
arbitrary number.
I am sorry. I thought I answered. I said I am not
concerned. The $100 million was somewhat of an arbitrary
number.
Mrs. Torres. Is that enough, $71 million, that number that
you have that is projected to be left? Is that enough to fund
current activity?
Secretary Mnuchin. I believe it could, but we will look at
that in the context of our overall funding.
Mrs. Torres. Okay. Moving on to CDFI, in California's 35th
District, which I represent, there are 252 loans and
investments that were made using resources supplied by CDFI
funding, totaling nearly $37 million. This means more for
small, family-owned businesses.
In crafting the fiscal year 2020 budget, you had a
fantastic opportunity to change the fact that there are cuts to
this program, but you did not. You are proposing a 94 percent
decrease.
Can you tell me why?
Secretary Mnuchin. Sure. Well, let me just acknowledge that
I do believe that the CDFI program does make significant
contributions to certain communities, and I have seen this
first hand both in my role at Treasury and my prior experience.
This was just a difficult decision of allocating money
between different priorities within the Treasury, and we look
forward to working with you and the committee as you ultimately
decide how we spend the money.
Mrs. Torres. I just want to clarify. Certain communities
are the communities that I represent, which are made up of the
working poor. These are people that are working two or three
jobs, that do not have a checking account that can match yours
or anyone else in this room probably.
So these programs are critical, and I hope that we can find
a way to make it work so that these programs do not have to
suffer a 94 percent cut.
Secretary Mnuchin. I appreciate that, and as I said, I have
acknowledged I have seen first-hand the benefit of many of
these programs. So we look forward to working with you and the
rest of the committee.
Mrs. Torres. I only have 5 minutes, and I do not have time
for niceties. So I apologize for just getting on.
Mr. Quigley. Thank you.
Mr. Stewart.
Mr. Stewart. Thank you, Mr. Chairman.
Mr. Secretary, thank you for being here. We appreciate the
time you take and look at the oversight by Congress as a
fundamental constitutional prerogative. It is something that is
important, and these hearings are an important part of that.
I do have a few questions I would like to bore down on.
Before I do, I cannot not address the elephant in the room, and
that is the conversation already. I have expressed my view and
concerns about this, and that is to push for tax returns, which
I just think is political nonsense.
I think most Americans can see it for what it is, and that
is it is just politically motivated intrusion into basic
fairness and basic privacy.
And if that is not true, then I would ask did the chairman
of the Ways and Means release his tax returns. Have other
members and chairmen and chairwomen of other committees
released their tax returns?
Did the Clinton Foundation or former Secretary release
their tax returns? Why is not every member of Congress and
every Senator required to release their tax returns?
And the answer is that because we have an expectation of
right, and a right of privacy, and you are right. The chairman
of the Ways and Means has in a confined way the authority to
request these, but it has got to be for a legitimate
legislative purpose.
And I would challenge anyone when asking for these tax
returns to define what that legislative purpose is. What are
they investigating?
And I think it is exactly what the ranking member said.
This is nothing more than they disagree with an individual on
their policies and their programs and their politics, and they
want to punish that person. And this is the only way they can
do it.
They have been trying for 2 years, and it has failed and
failed and failed, and so they will say, ``Well, let's try tax
returns. Maybe there is something there. We have no evidence
that there is anything nefarious. We have no evidence that
there is any wrongdoing, but maybe we will find something.''
And if you are going to have that be your standard, then
have that be your standard for every member of Congress or for
any other American citizen.
And I think most Americans reject that. The only way this
works is if the American people trust the IRS and trust that
this information will be held private, and if it is not, if
that is violated, then people will quit complying.
And as we rely on voluntary compliance, by and large, for
our tax policy and those programs being implemented, that will
dissolve underneath us if people lose that basic sense of
fairness.
And that is the only thing this will do, is dissolve that
basic sense of fairness that people are treated the same
regardless of what position they may have or regardless of
their politics.
So once again, what is the legislative purpose of
requesting these tax returns?
What are you investigating?
What crime or misdeed are you alleging here?
And if you do not have the answer to that question, then
you have no right to pursue this.
We sent you a letter, and I know you have received
hundreds, I suppose, letters. I do not expect you to recall
this off the top of your head, but I would like you to answer
back if you could and maybe follow up with us.
I have supported sanctions against Russia in almost every
fashion. I think they are a very important tool for us to
punish them and to change their behavior regarding America's
interest.
The Countering America's Adversaries Through Sanctions Act
was one I supported. It includes sanctions on financial
services, energy and defense. We have vigorously sanctioned in
those areas.
It also authorizes sanctions in metals and mining, and we
have not done any of that at all.
Mr. Secretary, we sent you a letter last fall requesting
that you look at sanctioning Russian potash. Now, this is
important to me because the only potash producer in the entire
country is in my district.
And I was wondering if you could give us an update on a
response to that letter and what your views are regarding our
concerns in that letter.
Secretary Mnuchin. Sure. Well, first of all, let me just
say I actually do make a point of trying to read all of the
letters that come in, and I cannot always recall all of them.
So that is why my staff appropriately just gave me copies of
this.
But let me just first acknowledge sanctions are a very
important tool. We have used them, I believe, very effectively
against Russia. We will continue to use them against Russia for
bad behavior, to try to change behavior.
I want to be careful in a public setting that we do not
comment on future sanctions, but I can assure you that my
office will follow up. You requested something we are taking
very seriously, and without implying we are going to do
something or not do something because I do not want to
publicize it, I can assure you we are taking your request very
seriously.
Mr. Stewart. Okay. My time has expired, but I would add
this. Thank you for taking it seriously. We sent this letter
nearly six months ago. Whether you agree or disagree, I do
think that you owe us a response on this.
So we would look forward to your formal response to this
request.
And, Chairman, thank you, and I yield back.
Secretary Mnuchin. I think we actually did respond to it.
So I apologize if there has been some confusion on that, on
March 11th, but we will get you another copy.
Mr. Quigley. Thank you, Mr. Secretary.
I am sure that President Obama is relieved that the
Republicans did not use their oversight authority and committee
structure to analyze and dissect any part of his
administration. So I am sure he is relieved that that never
happened. [Laughter.]
Mr. Quigley. Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And thank you, Secretary Mnuchin, for joining us again this
year. Just down the hall we have Attorney General William Barr.
Did you guys take the same cab over?
Secretary Mnuchin. We did not, but as I referenced before,
I am sure his is even more interesting than ours is this
morning.
Mr. Cartwright. Do not sell yourself short, Secretary.
And if you do happen to bump into the Commerce Secretary,
we are still waiting for him to show up. We are waiting by the
telephone. We would still love to hear his testimony this year.
I wanted to ask you about the Community Development
Financial Institution Fund, and you are aware of what that is,
right?
The administration has proposed essentially eliminating
that fund by reducing funding from $250 million in fiscal year
2019 down to $14 million for the year going forward.
That is a 94 percent decrease, and by my way of thinking,
it represents pretty much a complete abandonment of that
program by the administration.
In previous years the administration has justified these
kinds of drastic cuts by stating that the CDFI industry, quote,
has matured, unquote, and that, quote, ``these institutions
should have access to private capital needed to build capacity,
extend credit and provide financial services to communities
they serve,'' unquote.
The question for you is I would like to know the basis for
your conclusion regarding the relative maturity of the CDFI
industry.
Has there been a report or a study done by your agency that
assesses the likelihood of private investors filling that gap
left by defunding CDFI?
Secretary Mnuchin. Mr. Cartwright, Mrs. Torres just asked
me a similar question on this. So, again, I apologize. You did
not hear, but let me reiterate what I said, which is, first of
all, I do want to acknowledge that I do think the CDFI funds
provide many benefits to many communities; that our decision
here was based upon making difficult decisions on funding
various different programs across the Treasury Department.
And we look forward to working with you and the rest of the
committee on specific allocations.
Mr. Cartwright. I did miss your answer before. Did she ask
you whether you had done a report or study to analyze whether
there is a likelihood private investors fill the gap left
behind de-funding CDFI?
Secretary Mnuchin. I did, and I apologize. I did not answer
that specifically for you. I do not believe we have done a
report, although I will check.
But as I have said, I want to acknowledge that we look
forward to working with the committee on this funding.
Mr. Cartwright. And I want to encourage you to commission
such a study or report so that we are basing our decisions on,
you know, facts and evidence.
Secretary Mnuchin. I think that is a good idea, and I will
encourage the staff to review this and do additional research
on it either internally or externally.
Mr. Cartwright. Perfect. The National Association of
Federally Insured Credit Unions issued a statement opposing
that elimination of CDFI funding. Did you see that?
Secretary Mnuchin. I have not seen it specifically, but I
am not surprised.
Mr. Cartwright. Not surprised.
Secretary Mnuchin. In my previous life, I was a banker, and
I am familiar with, again, as I have said, I have seen
specifically in certain communities where these have helped. So
we look forward to working with you on this.
Mr. Cartwright. Glad to know you have been paying
attention.
They said this. ``Without the CDFI fund grant program, many
CDFI credit unions would not have been able to offer new
products and loans that provide financial stability for members
and their families,'' unquote.
And this statement seems to contradict your position that
the CDFI industry has fully matured. What do you know about the
CDFI industry that the NAFCU apparently does not know?
Do you believe that you are in a better position to judge
the maturity of the CDFI industry than CDFI credit unions
themselves?
I suppose the answer to that is all wrapped up in the study
that I hope you are going to commission.
Secretary Mnuchin. Yes. And let me just acknowledge whether
the industry has matured or the industry has not matured, like
many other programs, even if it has matured, there could still
be benefits of certain things.
Again, this was a difficult decision on funding across
various different programs, and we look forward to working with
you and perhaps given the popularity of this program within
certain areas of Congress, we will reconsider it if it is
funded in how we propose it in next year's budget.
Mr. Cartwright. Okay. So operating without studies or
analyses, you are working assumptions, and my question is: how
many other aspects to the Treasury's proposed budget are also
based only on assumptions?
And how much credence should we be putting in this
administration's budget based on assumptions and not facts in
evidence?
Secretary Mnuchin. I would be happy to discuss any of the
specifics with you on any of the requests. Obviously with an
entire department, there are certain things I am personally
very involved with.
If you want to talk about IRS modernization, that is
something I am very interested in, the TFI funding. There are
many things I can comment on the specifics of and how we have
reached the decision.
But obviously, not every single line item itself.
Mr. Cartwright. Well, thank you, Mr. Secretary, and my time
is up.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
The gentleman from Ohio, Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
And thank you very much, Secretary Mnuchin, for taking the
time to be with us this morning.
Last year I was not a member of this subcommittee, but
during a subcommittee hearing on the budget, I had discussed an
issue which the next day you came out and talked out. I really
wish we would have flipped it by a day. It probably would have
been very helpful, but it is regarding the issue of access to
banking for the cannabis industry.
And you described that conflict as untenable. Just last
year you stated that reviewing the existing guidance, referring
to the 2014 policy memo meant to provide direction for banks on
how to service cannabis businesses.
If I can quote you for a moment, ``We do want to find the
solution to make sure that the businesses that have large
access to cash have a way to get them into a depository
institution for it to be safe.''
I could not agree with you more, sir. In my 25 years as a
prosecutor, I think it is a horrible situation that is sitting
out there, and we need to get that.
But I have taken to introduce some legislation to clarify
the existing discrepancy between State and Federal cannabis
laws. While I am not asking you for an official position on my
bill, I would like to hear your thoughts on how this body can
be more helpful when it comes to banking access for legitimate
cannabis businesses.
And I would really like to work with you because I believe
you are right on this, and the current situation is untenable.
So who on your senior staff could we work with to try to
find some solutions for both of us?
Secretary Mnuchin. I would be pleased to follow up with you
directly and bring a team up.
Again, without having a policy view on the conflict of
Federal law versus State law, for many areas that fall under
the Treasury Department, this creates a significant conflict,
everything from the IRS, which wants to collect taxes and has
to build specific cash rooms to hold cash, to me working with
the banking regulators where there are conflicts.
So I would encourage this as something that we are not
taking a policy position on the conflict of Federal versus
State, but this is something that does create a conflict in our
ability to administer many areas.
Mr. Joyce. Certainly if you went and spent $20,000 cash on
a car, you would kick of a SARS, and if you come in to pay your
taxes with $100,000 in cash, please come on in. You know, we
will gladly accept it.
That to me does not make any sense and needs to be
something we need to work to cure, and I look forward to
working with you on that.
But Treasury has issued guidance clarifying that certain
tax-exempt bonds maintain tax-exempt status when refinanced,
but has not yet issued such guidance for the Tribal Economic
Development Bonds. Tribes are beginning the process of
refinancing their bonds now, and in the absence of such
guidance will face significant and unanticipated costs
increases.
Does Treasury still intend to issue such guidance?
And if so, will you please do so and expedite its
completion?
Secretary Mnuchin. We are in the process of issuing, as you
can imagine, an enormous amount of guidance as it relates to
the Tax Act. So I am not aware of this specific, but I assure
you I will check with the staff, and we will follow up with you
to see where that is.
Mr. Joyce. We have many hearings on today, and I am ranking
member in Interior where these Indian issues will come up,
tribal issues will come up more often. So that is why I have an
interest in making sure that we can fix those.
Secretary Mnuchin. I completely understand. Thank you.
Mr. Joyce. And you know, another one was that the Treasury
Tribal Advisory Committee was authorized in 2014 to advise the
Secretary in all tax matters related to Indian Country.
Appointees to the committee have been chosen by Congress and
Treasury, and the charter is written. Unfortunately, Treasury
has never convened a meeting of this committee.
Is it your intent to convene a meeting of this committee?
And if so, when?
Secretary Mnuchin. I was not aware that we had not done
that. So I appreciate you bringing it to my attention. I have
no idea why. It sounds like we should convene that. So we will
follow up with that.
Thank you for bringing it to my attention.
Mr. Joyce. Thank you for following up.
And lastly, the Opportunity Zone Program creates tax
incentives for investment in designated census tracts which are
economically challenged. Many of these Opportunity Zones
include lands held in trust by the Federal Government for
tribes.
But because Treasury's draft regulations require funds to
be used to purchase and improve property in designated zones,
they inadvertently exclude these lands held in trust, and also
inadvertently exclude tribal governments from being eligible.
Will you look into this matter? And if the exclusion was,
in fact, inadvertent, could you do what you can to ensure that
the final regulations include tribal governments and lands held
for these tribes in trust?
Secretary Mnuchin. Yes. That issue I am somewhat more aware
of, and let me just comment. In general, I think the
Opportunity Zones are a very important program, and this is
something that I hope that people can work across party lines
as we continue to implement this.
There are some technical issues, as you have said. This is
a highly technical issue that we are trying to figure out how
we solve. We do not yet have resolution to.
Mr. Joyce. I certainly appreciate your time in being here
today, and in behalf of my other members who might have gotten
up and left, there seems to be only four of us on every
committee, and as you know, there are other hearings that are
taking place today. So they have left to hit ten other
hearings.
I will be leaving, and it has nothing to do disrespect for
you, sir. It is just the fact that I have other hearings we
have to attend as well.
I yield back.
Mr. Quigley. Thank you, sir.
The gentleman should be commended for his clear,
consistent, ongoing concern for the issue related to cannabis
banking and related issues that go with it.
Mr. Secretary, I want to touch on before we go where we
started this, but you are correct in discussing the issues of
FY 20. Let me let you take some time to address an area of
concern that has come to our attention, and that is the reports
and the quote is ``mass exodus'' of staff due to internal
disagreements and lack of direction.
Can you address the concerns within Treasury of loss of
staff?
Secretary Mnuchin. I do not believe we have. So if there
are specific questions you have, but we have not lost staff due
to issues or anything else. So despite what may or may not be
written in the press, it is just not factually correct.
Mr. Quigley. I just want to get your answer, sir, on the
record.
But toward that end, fiscal year 2020 proposes to cut
funding for the Treasury Inspector General for Tax
Administration by $4.25 million and to hold the Treasury
Inspector General at flat funding, despite the extraordinary
growth in funding for other Department offices, including a
$41.4 million increase for Department salaries and expenses and
a $7.7 million increase for the Office of Terrorism and
Financial Intelligence.
So there are parts of the agency that are growing, except
for those that oversee and do inspections of how you are doing.
Can you justify at this point in time cutting the watchdog
parts of the agency that are otherwise growing?
Secretary Mnuchin. All right. Again, we would be happy to
follow up with your staff on the specifics of any of this.
So I think when you drill down into the numbers, you cannot
just look at the headline number. You have to look at, in the
case of the departmental office, as I said, its specific
increases in areas like CFIUS and others that are for national
security.
As it relates to the Inspector Generals, I fully support
the role of the Inspector Generals in the Department both in
taxes and other areas, and again, we would be happy to go
through the specifics of how these were built and the
recommendations.
Mr. Quigley. But your initial reaction to the fact that at
least one of those Inspector General offices is going to be cut
and the other one will get flat funding, I cannot imagine
anyone believes that their agency is of a mind that it cannot
be inspected and should not have a hardy inspection of those
issues that they are working on.
Secretary Mnuchin. Well, the significant reduction, the
only significant IG reduction is the area of TARP, and the
reason for that is that program is discontinued. So----
Mr. Quigley. It still has programs that are going to be
operating, funding through for some period of time though,
right?
Secretary Mnuchin. And, again, we are happy to go through
the specifics, but those ongoing programs are overseen by other
people, okay, outside of the Treasury Department and have very
specific reporting requirements.
So, again, we are happy to sit down with your staff and go
through any of the specifics.
I want to acknowledge we think that the IG's role,
particularly I would comment in the area of tax administration,
is very important.
Mr. Quigley. Sure. Well, and TIGTA is cut, but obviously
the IRS is growing, and hopefully growing a significant amount
to be able to continue its job.
But thank you.
Mr. Joyce.
Mr. Joyce. I would certainly defer if Mrs. Torres has a
question at this time.
Mr. Quigley. Mrs. Torres.
Mrs. Torres. Thank you.
And thank you for bringing up the issue of cannabis. When
there is so much cash around, it creates a lot of problems, and
when I look at crime around facilities that sell cannabis, it
is a big issue in our committees, and I hope that you will take
some time to look into that.
I want to go back to the issue of forfeiture funds. I just
want to get clarification that the funds required to operate
the TFF, the amount that you gave us, $71 million, is adequate,
is an adequate amount to leave in the fund that we should
consider.
Secretary Mnuchin. I believe it is, but since you have
asked me the question twice, what I would say is let me go back
and just confirm that with my internal group because you
obviously have raised some concerns about this, and we will
follow up with your staff to make sure that we are 100 percent
comfortable on that and can update you on why we feel that is
the case.
Mrs. Torres. I appreciate that, and I apologize. I usually
like to send my questions in advance so our guests are prepared
to answer my concerns.
Secretary Mnuchin. It would have been helpful if the
chairman had sent me the question about the NCAA in advance.
Mrs. Torres. So I want to talk about the Northern Triangle
countries, Guatemala, El Salvador, and Honduras. Obviously, you
know, we have a humanitarian crisis at the border with hundreds
of people coming north, a very difficult situation there not
only with crime, but very, very corrupt governments.
It is unfortunate that we have provided very little
political support for CSIG, which is, you know, the UN
investigative body, commission, that is there to help provide
support to the Attorney General, and in Honduras as MACCIH.
Last Wednesday, April 3rd, the Department of State provided
Congress with a list of corrupt officials from the Northern
Triangle countries, which was required by my amendment in
fiscal year 2019 in DAA. As I have already said publicly, I was
very disappointed with that list. I was very disappointed to
see many officials that we know are dealing in narcotics and
very much involved in narco trafficking were not on that list.
So, Mr. Secretary, given the very short list that we have,
do you see any reason why those individuals on such a list,
which was created by the Department of State, should not be
sanctioned under the Magnitsky Act?
Secretary Mnuchin. In general, let me just comment. I work
very closely with Secretary Pompeo and the State Department on
many issues and the sanctions. I am not familiar with this list
per se.
I will follow up with the Secretary both to understand the
list and review, if it is appropriate, for sanctions. It does
sound like it is something we should look at and take into
consideration.
As I said, we have used these obviously in many other
areas. I am more familiar with them in the case of Mexico and
Venezuela, of drug trafficking and other issues, but I will
follow up on that.
Mrs. Torres. Again, if you want to deal with the issues
that we have at our southern border, you know, we cannot be
negligent and not pay attention to the very corrupt governments
in the Northern Triangle.
The reason why these people are fleeing is because there is
no justice. There is no access to justice, and their
governments are stealing funding that should be available to
create programs for education.
I hate to continue to devastate other budgets that are
critically needed in our community, like the forfeiture
funding, to build the wall when the answer is right in front of
us, and that is dealing with the corrupt people. They should
not have a visa, and they should not have access to our
financial institutions here in the U.S., not when we know and
we are very clear that they are dealing and they are known
narco traffickers.
Secretary Mnuchin. Well, let me again agree with you
completely that Treasury and this administration in no way
wants to look the other way when we are aware of corruption in
foreign governments, and these sanctions work, and we will
follow up with your office to make sure that corrupt officials
do not have access to our financial system.
Thank you.
Mrs. Torres. I appreciate it.
My time is up, and I yield back.
Mr. Quigley. Thank you.
Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman.
I am at a point, Secretary Mnuchin, can you explain what
you are doing to help Federal, State and local law enforcement
develop the intelligence to understand how drug organizations
and laundering their drug proceeds or how they are laundering
their drug proceeds?
And what are you doing with the Government of China to stop
the flow of fentanyl into this country?
Because obviously we have a tremendous amount of overdose
deaths that exceed car accidents and everything else now.
Secretary Mnuchin. Sure. Let me answer your second question
first because that is something that I am very, very familiar
with. I participated in the meeting between President Trump and
President Xi where President Trump specifically asked President
Xi to change the classification of fentanyl so that it would be
illegal in China.
That is something that President Xi said was very difficult
to do, but because the request came from President Trump, that
was a commitment he made on the spot. I understand that a lot
of that is in the works and has changed.
And that is a specific area where we appreciate China
working with us on that because I think, you know, fentanyl is
a very significant issue in this country and a big concern of
President Trump's.
As it relates to your first question, our specific role at
Treasury is obviously where we have any specific intelligence
in enforcing the sanctions as it relates to money laundering.
We also work very closely through FinCEN with all of the
banks on money laundering. As it relates to specific State and
local areas, that is obviously something that we do on an
interagency basis. We are not always the primary lead on, but I
assure you money laundering is one of our top priorities that
we focus on.
Mr. Joyce. Thank you for the work that you are doing there.
Secondly, I know that when we were in the majority that we
took great pleasure in cutting the amount of money that was
going to the IRS every year, and I know that you have taken it
under your wing and the budget request proposes investments to
implement your integrated modernization business plan, to
modernize IRS systems, which I applaud, and taxpayer services
in two three-year phases beginning in 2019.
How would this modernization plan improve the long-term
operations of the IRS and the service provided to taxpayers and
businesses alike?
Secretary Mnuchin. Well, thank you for raising that issue
because I would say if there is one of the most important
things that I think this committee can do is to give us the
funding to invest in modernization at the IRS.
The IRS has underfunded their technology for years and
years. This is not a Republican or a Democrat issue. This has
crossed multiple administrations. It is somewhat embarrassing
that we are operating at the size and scale we are. The IRS is
under attack all the time for cyber issues, and that we are on
dated technology.
I think, as you know, we had a problem last year, not this
year, on Tax Day because of this dated technology, and I would
also say that taxpayers deserve to have capabilities of online
customer service that are consistent with other big financial
institutions.
Taxpayers are paying the government significant amounts of
their hard-earned money, and they should be able to have access
to information. They should be able to communicate.
In this day and age, calling up and asking to speak to a
person on the phone is not necessarily the most efficient thing
to do.
And let me just comment. This has to be multi-year funding.
So for this to be effective, we need multi-year funding. This
cannot be turned on and off. This is going to take 5 or 6 years
to implement.
Mr. Joyce. Is it an investment also in the data services,
the infrastructure there?
I know the one thing I have seen: is it pretty dated, the
equipment that you are forced to use down there? Back to the
old mainframe days?
Secretary Mnuchin. It is a combination of hardware,
software, business processes. It impacts every single area. It
impacts our enforcement. It impacts our customer service.
Over time, by the IRS taking in all this data, we should be
able to do more of our enforcement electronically using
technology, and taxpayers deserve to have a better experience,
which we need this investment in technology to do.
Mr. Joyce. Thank you, sir.
Mr. Chairman, I yield back.
Mr. Quigley. Thank you.
And, sir, I cannot agree more. We absolutely need to on a
bipartisan basis help modernize the IRS, and I hope we are all
in agreement that we need to make sure they have the resources
to enforce those efforts as well and that those dollars are not
taken away every year or reduced every year in the process to
help fund the other parts of the agency.
Mr. Crist.
Mr. Crist. Thank you, Mr. Chairman.
And thank you, Secretary, for being with us today.
Mr. Secretary, I want to talk about cash. You oversee a lot
of important agencies, sir, designed to keep Americans safe and
keep the financial system secure. And there is a vast
regulatory system built on that, monitoring everything from
bank accounts to wire transfers, from terrorist financing, real
estate fraud, insider training, even Russian sanctions, as it
were.
When money touches the U.S. financial system, it is almost
like it comes into the light. I like that. I am from Florida,
and we appreciate transparency, as I am sure you do. We like to
say that sunlight is, in fact, the best disinfectant.
I am grateful to all of the folks at Treasury who are
utilizing financial regulations to find the bad guys, throw
them in jail, keep the American people safe. They have a lot of
tools, and they know how to use them and use them well.
But this is a question about cash. Would you briefly
explain to me from a law enforcement perspective what happens
when markets exist in cash only?
Secretary Mnuchin. Well, first of all, thank you for your
acknowledgement of the many areas.
Cash, obviously particularly as it relates to the U.S.
financial system, we need to be able to track cash when it
comes in and out of the banking system so that cash
transactions are not used for illicit purposes.
I would also say a big focus of ours has also been crypto
assets for similar reasons, that cryptocurrencies can be used
like cash for illicit activities.
So cash is something that is very important to monitor. On
the other hand, I do just want to acknowledge despite the world
that we live in which is going more and more digital, the
worldwide demand for U.S. cash is significant, and being the
reserve currency of the world, we have to be careful in being
able to properly enforce and monitor these cash transactions
with that.
Mr. Crist. Yes, sir. It seems like from a financial crime
standpoint money laundering, tax evasion, even armed robbery,
cash only is not right. It seems like as policy makers, you and
I would want to steer commerce out of the all cash space and
into regulated space. Would you agree with that, by and large?
Secretary Mnuchin. Again, I want to be careful because,
yes, as a general matter, cash transactions create a more
complicated regulatory environment.
On the other hand, as I said, I want to be very careful
that we do not regulate that you cannot use cash.
Mr. Crist. Fair enough. My home State recently legalized
medical marijuana, overwhelmingly, and the industry has
responded, Mr. Secretary. By 2020, the regulated license and
tax cannabis market in my State alone could come close to $1
billion.
But because of a discrepancy in Federal and State law and a
failure of Congress to act and a failure of regulators to be
proactive, this regulated licensed, voter approved billion
dollar industry is going to be all cash.
I note a 5.86 percent increase requested for Financial
Crimes Enforcement Network, or FenCEN. I assume this increase
is because you all want to catch more bad guys and make
families more safe.
So why then is Treasury not doing everything at its
disposal to create a workable, reasonable, confidence-inspiring
way to make it safe for these companies to bring their revenues
into the sunlight?
Secretary Mnuchin. Mr. Crist, we have had a few other
comments on this earlier. So, again, let me just say I hope
this is something this committee can on a bipartisan basis work
with since there are people on both sides of the aisle that
share these concerns.
I will just say I do not believe this is a failure of the
regulators. I want to defend the regulators on this issue. The
problem is, okay, there is a conflict between the Federal law
and the State law.
And I am not making a policy comment on what the right
outcome is, but I, too, share your concern, whether it is my
supervision of the IRS where I have already said we have to
build cash rooms to take in cash, which creates all different
types of security issues.
There is not a Treasury solution to this. There is not a
regulator solution to this. If this is something that, you
know, Congress wants to look at on a bipartisan basis, I would
encourage you to do this.
This is something where there is a conflict between Federal
and State that we and the regulators have no way of dealing
with.
Mr. Crist. Thank you.
Your encouragement is appreciated, Mr. Secretary. Thank you
so much.
Mr. Chairman, I yield.
Mr. Quigley. Thank you.
I am going to close by commending you as I did in the
beginning and questioning you as I did in the beginning.
Again, I want to thank you for the notion of including
increases for both the Office of Terrorism and Financial
Intelligence and the Financial Crimes Enforcement Network. We
want to work with you to make sure we use those precious
resources appropriately.
Mr. Crist talked about transparency. He was quoting the
people of Florida, but it was actually Justice Brandeis who
said sunshine is the best of disinfectants.
Respectfully, sir, I would disagree with you in the notion
that your office should be reviewing this decision, the request
coming from the chairman of Ways and Means, at all.
But in the final analysis, I think you need to appreciate
the fact, and I am asking you if you do, what Mr. Crist brought
up. There is a reason that Presidents release their tax
returns, right? There is a reason these regulations were put in
place and the ability to do this, and it is certainly not
anything novel, as has been suggested recently.
Richard Nixon, Gerald Ford, Nelson Rockefeller all had
congressional hearings relating to their tax returns. There is
something you trade off when you do what the President of the
United States does, and it is generally the notion that the
public has a right to know and make the decision on their own
whether a law maker is making a decision based on their own
interest or on someone else's.
So would you acknowledge there is a reason these Presidents
released their returns and that this call for transparency
matters at this time in our Nation's history?
Secretary Mnuchin. Well, I believe that these Presidents
released those returns on a voluntary basis. I am not aware of
that there is any law that required them to.
I am aware----
Mr. Quigley. But would you acknowledge that there is a
reason they did it, that they are not doing it----
Secretary Mnuchin. I do not----
Mr. Quigley [continuing]. To show people how to fill out a
tax return if you are the President.
Secretary Mnuchin. Again, they made individual decisions. I
would just also like to say there is a requirement for
Presidents to have financial disclosure. I believe that this
President has complied with that, as other people, and the
general public, when they elected President Trump, made the
decision to elect him without his tax returns being released.
Now, since we opened with this, okay, I guess I just cannot
help----
Mr. Quigley. We can do better with an answer.
Secretary Mnuchin [continuing]. I just cannot help but say
since you made the comment on President Obama and being looked
at, I am----
Mr. Quigley. A little bit.
Secretary Mnuchin [continuing]. I am sure there are many
prominent Democrats who are relieved that when Kevin Brady was
the chairman of the committee that he did not request specific
returns.
But anyway, it was a pleasure to be here----
Mr. Quigley. Because it was released.
Secretary Mnuchin [continuing]. With you today.
Mr. Quigley. And President Obama released visitor records.
President Obama was more transparent than the last ten
Presidents.
Secretary Mnuchin. I was not referring to Presidents. I was
referring to other members of Congress, prominent Democratic
people who may support people, ordinary taxpayers.
But in any event, it is a pleasure to be here with you
today to address the funding, and we look forward to working
with you on many of these bipartisan issues.
Mr. Quigley. And this is a technical question. Will you
submit DHS' request for funding for the record?
Secretary Mnuchin. I assume we would be more than happy to
do that. Just make sure I check on that, but I do not see any
reason why that would not be the case.
Mr. Quigley. Very good. Thank you.
This meeting is adjourned.
[Questions and answers submitted for the record follow:]
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