[Senate Hearing 116-440]
[From the U.S. Government Publishing Office]




                                                          
                                                         S. Hrg. 116-440

 NOMINATION OF THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY 
            DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

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

                          HEARING & EXECUTIVE
                            BUSINESS MEETING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               ----------                              

June 24, 2020--HEARING ON THE NOMINATION OF THE HONORABLE DEREK T. KAN, 
 OF CALIFORNIA, TO BE DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND 
                                 BUDGET
                                 
July 21, 2020--EXECUTIVE BUSINESS MEETING TO CONSIDER THE NOMINATION OF 
THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY DIRECTOR OF THE 
                    OFFICE OF MANAGEMENT AND BUDGET
                    
                    
                    
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             Printed for use of the Senate Budget Committee
             
             
             
             
             

 NOMINATION OF THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY 
            DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
            
            
            



                                                        S. Hrg. 116-440
 
 NOMINATION OF THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY 
            DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

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

                          HEARING & EXECUTIVE
                            BUSINESS MEETING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

June 24, 2020--HEARING ON THE NOMINATION OF THE HONORABLE DEREK T. KAN, 
 OF CALIFORNIA, TO BE DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND 
                                 BUDGET
July 21, 2020--EXECUTIVE BUSINESS MEETING TO CONSIDER THE NOMINATION OF 
THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY DIRECTOR OF THE 
                    OFFICE OF MANAGEMENT AND BUDGET
                    
                    
                    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                     
                    


             Printed for use of the Senate Budget Committee
             
             
             
                           ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
42-252                 WASHINGTON : 2021             
             
             
             
                        COMMITTEE ON THE BUDGET

                   MICHAEL B. ENZI, Wyoming, Chairman
CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
MIKE CRAPO, Idaho                    PATTY MURRAY, Washington
LINDSEY O. GRAHAM, South Carolina    RON WYDEN, Oregon
PATRICK TOOMEY, Pennsylvania         DEBBIE STABENOW, Michigan
RON JOHNSON, Wisconsin               SHELDON WHITEHOUSE, Rhode Island
DAVID A. PERDUE, Georgia             MARK R. WARNER, Virginia
MIKE BRAUN, Indiana                  JEFF MERKLEY, Oregon
RICK SCOTT, Florida                  TIM KAINE, Virginia
JOHN KENNEDY, Louisiana              CHRIS VAN HOLLEN, Maryland
KEVIN CRAMER, North Dakota           KAMALA D. HARRIS, California
                 Doug Dziak, Republican Staff Director
                Warren Gunnels, Minority Staff Director
                
                            C O N T E N T S

                              ----------                              

                                HEARING

                                                                   Page
June 24, 2020--Hearing on the Nomination of The Honorable Derek 
  T. Kan, of California, to be Deputy Director of the Office of 
  Management and Budget (OMB)....................................     1

                OPENING STATEMENTS BY COMMITTEE MEMBERS

Chairman Michael B. Enzi.........................................     1
Ranking Member Bernard Sanders...................................     2

                               WITNESSES

Honorable Derek T. Kan, of California, Nominee to be Deputy 
  Director of the Office of Management and Budget................  4, 5

                   MATERIALS SUBMITTED FOR THE RECORD

Statement of Biographical and Financial Information Requested of 
  Presidential Nominee Derek T. Kan to be Deputy Director of the 
  Office of Management and Budget................................    19
Pre-hearing Questions from Ranking Member Bernard Sanders with 
  Answers by Derek T. Kan........................................    27
Pre-hearing Questions from Senator Chris Van Hollen with Answers 
  by Derek T. Kan................................................    36
Post-hearing Questions from Chairman Michael B. Enzi with Answers 
  by Derek T. Kan................................................    51
Post-hearing Questions from Ranking Member Bernard Sanders with 
  Answers by Derek T. Kan........................................    57
Post-hearing Questions from Budget Committee Members with Answers 
  by Derek T. Kan................................................    49
    Senator Kevin Cramer.........................................    50
    Senator Charles E. Grassley..................................    52
    Senator John Kennedy.........................................    55
    Senator Chris Van Hollen.....................................    60
    Senator Sheldon Whitehouse...................................    62
    Senator Ron Wyden............................................    66

                       EXECUTIVE BUSINESS MEETING

July 21, 2020--Executive Business Meeting to consider the 
  Nomination of The Honorable Derek T. Kan, of California, to be 
  Deputy Director of the Office of Management and Budget.........    69
Committee Votes..................................................    69

                OPENING STATEMENTS BY COMMITTEE MEMBERS

Chairman Michael B. Enzi.........................................    69


 THE NOMINATION OF DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY DIRECTOR 
                    OF THE OFFICE OF MANAGEMENT AND 
                                 BUDGET

                              ----------                              


                        WEDNESDAY, JUNE 24, 2020

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:33 p.m., in 
Room SR-301, Russell Senate Office Building, Honorable Michael 
B. Enzi, Chairman of the Committee presiding.
    Present: Senators Enzi, Grassley, Crapo, Toomey, Braun, 
Scott, Sanders, Whitehouse, and Van Hollen.
    Staff Present: Doug Dziak, Republican Staff Director; and 
Warren Gunnels, Minority Staff Director

         OPENING STATEMENT OF CHAIRMAN MICHAEL B. ENZI

    Chairman Enzi. Good afternoon and welcome. I will call this 
hearing to order. I will make a few brief opening remarks then 
turn it over to Ranking Member Sanders to do the same.
    We are here today to consider the nomination of Derek Kan 
to serve as the Deputy Director of the Office of Management and 
Budget. I hope we can agree a fully functioning team at OMB 
during these challenging times is better for our country.
    We recently heard from Acting Director Vought on the 
important things OMB is doing as our nation continues to 
confront an unprecedented crisis, both health and economic, 
from the COVID virus. The role OMB is playing in responding to 
this crisis makes its work more important than ever. As a 
result of the government's response and closing America, today 
the Federal Government faces more than $26 trillion in debt. I 
am hopeful that OMB, with a leadership team in place, will 
continue to help address these combined challenges of 
addressing COVID and the national debt.
    During Acting Director Vought's confirmation hearing, we 
heard about the administration's response to the pandemic 
crisis along with other ways to make the nation more fiscally 
responsible. Mr. Kan, if confirmed, would serve a key role as 
OMB's Deputy Director as the agency continues its important 
oversight work in implementing the financial oversight over the 
recent legislation approved by Congress.
    Today I look forward to hearing from Mr. Kan. Particularly, 
I am eager to know how his past positions working in public 
policy and the private sector will translate to enacting, 
implementing, and overseeing COVID programs, providing general 
government oversight as well as ideas on how we get to the 
other side of this pandemic, and can start to address this 
fast-growing national debt.
    Mr. Kan is not new to our nation's capital or even OMB, 
where he has served as the Executive Associate Director of the 
White House's Budget Office since last July. Prior to this, he 
served in the Department of Transportation in a Senate-
confirmed position, as Under Secretary of Policy for Secretary 
Elaine Chao. Some on this Committee may have also worked with 
Mr. Kan during his years as a Senate staffer.
    I believe his government and private sector work history 
provides Mr. Kan with the necessary experience to improve OMB, 
and I appreciate his willingness to serve his country at this 
time. I enjoyed talking with Mr. Kan prior to the hearing and I 
hope that many of my colleagues have had the chance to do the 
same.
    And particularly, I am interested in learning Mr. Kan's 
views on the need for budget process reform as well as 
government-wide inventory of Federal programs that OMB is 
working on. Knowing exactly where the taxpayer's money is going 
is an important part of a working budget process. This 
inventory will help lawmakers make better informed spending 
decisions. This inventory can also help the government 
eliminate duplication and ensure programs are working as 
intended for the people who may need them.
    Thank you again for joining us today, Mr. Kan. We look 
forward to hearing from you, and it is good to see your family 
here.
    Ranking Member Sanders.

          OPENING STATEMENT OF SENATOR BERNARD SANDERS

    Senator Sanders. Thank you very much, Mr. Chairman.
    Let me thank Mr. Kan for being with us, and thank you for 
holding this hearing.
    Mr. Chairman, today my views are a little bit--just a 
little bit different than yours, and I look at the world a 
little bit differently. And from my perspective, at this 
particular moment in American history, in fact in world 
history, we are experiencing an extraordinary series of crises 
unprecedented in the modern history of our country. In fact, we 
are in the midst of the worst public health crisis since the 
Spanish flu of 1918, and the worst economic crisis since the 
Great Depression of the 1930s. That is where we are.
    As I am sure you know, sadly, over the last four months, 
more Americans have died from the coronavirus than were killed 
during World War I. Forty-six million Americans have filed for 
unemployment. In my state, a small state, over 70,000 people 
have applied for unemployment, which is just an incredibly 
large number. Over 16 million Americans have lost their health 
insurance as they have lost their jobs, because we are the only 
major country on Earth not to guarantee health care to all 
people as a right rather than as a job benefit.
    And unbelievably, in this particular moment in American 
history, tens of millions of people across the country are in 
danger of going hungry and being evicted from their homes and 
literally thrown out into the streets. Further, as you are more 
than aware, over the last several weeks hundreds of thousands 
of Americans from all across this country have taken to the 
streets in opposition to systemic racism and police brutality 
and police murder, and people want justice in this country.
    Now given all of these unprecedented crises, we need 
personnel at the Office of Management and Budget, and, in fact, 
in every part of our government, who have the fortitude to 
stand up to a President who is far removed from reality in 
terms of his actions and his rhetoric.
    At a time of massive wealth and income inequality, we need 
personnel at the OMB who will demand that in this country we 
have the wealthiest people in this country and the largest 
corporations start paying their fair share of taxes. 
Unbelievably, Mr. Chairman, as you may know, during this 
pandemic--during this pandemic, while the wealth of the average 
American household has plummeted, people on top have seen a 
huge increase in their wealth. At a time when millions have 
lost their health insurance, we need leadership in this 
government who understands that we have got to join every other 
major country on Earth and guarantee health care to all of our 
people as a right.
    At a time when over 30 million Americans have lost their 
jobs and are suffering economic deprivation, we need 
governmental policy which protects workers, which protects low-
income people. And to my mind that means making sure that we do 
what Europe does, guarantee workers a continuation of their 
paychecks, make sure that every adult in this country gets 
$2,000 a month during this crisis, so that people are not 
pushed into absolute desperation.
    We need personnel at the OMB who will work with Congress to 
provide the Postal Service with the emergency funding that it 
needs to avoid running out of money and laying off over 60,000 
workers. And I simply have to say, with no personal animosity 
to Mr. Kan at all--I am not quite sure that I have ever met 
him--I would simply say that after reviewing your record at Eli 
Lilly, KPMG, McKinsey, and as a member of President Trump's 
Coronavirus Task Force, I do not believe that you are the kind 
of person we need in this position at this time, and therefore 
I will be opposing your nomination.
    Mr. Chairman, I thank you very much for the opportunity and 
I yield back the balance of my time.
    Chairman Enzi. Thank you, Senator Sanders.  Mr. Kan, we 
look forward to hearing from you today. Under the rules of the 
Committee, nominees are required to testify under oath, so 
would you please rise with me so I could administer the oath.
    Do you swear that the testimony that you will give to the 
Senate Budget Committee will be the truth, the whole truth, and 
nothing but the truth?
    Mr. Kan. Yes, I do.
    Chairman Enzi. If asked to do so, and if given reasonable 
notice, will you agree to appear before this Committee in the 
future and answer any questions that members of the Committee 
might have?
    Mr. Kan. Yes, I do.
    Chairman Enzi. Thank you. Please be seated. And we will now 
have an opportunity to hear from Mr. Kan.

 TESTIMONY OF THE HONORABLE DEREK T. KAN, OF CALIFORNIA, TO BE 
     DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

    Mr. Kan. In the interest of time I will keep my statement 
brief by reading the first few and last few paragraphs of my 
prepared remarks.
    Chairman Enzi, Ranking Member Sanders, and distinguished 
members of the Committee, I am honored by the opportunity to 
come before you as President Trump's nominee for the Deputy 
Director of the Office of Management and Budget. I am also 
thankful for Acting Director Vought's support of my nomination.
    I am grateful to have my wife, Connie, here with me today, 
as well as my daughter, Avery, who turned six just a few days 
ago. Our two other boys are at home, watching TV, maybe this 
streaming video too. They all have made significant sacrifices 
in uprooting their lives to move out to D.C. three years ago so 
that I may serve this country and this Administration.
    I am also thankful for my parents, Scott and Julie, who 
have worked so hard to give me plentiful opportunities 
throughout my life. They immigrated here from Taiwan over 40 
years ago, to pursue the American dream. My mother, who never 
graduated from college, taught me the value of hard work and 
persistence, and my father, an engineer, taught me the value of 
rigorous analysis and that it is okay to be silly. Together, 
they taught me to have a deep respect for authority, a love for 
this incredible country that afforded us tremendous 
opportunities, and an unwavering faith in God. I hope to make 
them proud.
    It is with a deep sense of humility and gratitude that I 
come before you today for this nomination. Having been a civil 
servant at the Office of Management and Budget, a Senate 
staffer working closely with the Senate Budget Committee and 
with OMB, and as a policy official at Department of 
Transportation (DOT) who worked closely to implement the 
guidance of OMB, I would be grateful for this opportunity to 
serve our nation as the Deputy Director of OMB, in an effort to 
improve the management of our agencies and the finances of our 
nation.
    Each of you have my commitment that if I am confirmed I 
will work collaboratively with each and every one of you to 
address our nation's spending and improve our nation's 
finances.
    Thank you for the opportunity to come before you, and I 
would be pleased to answer any questions you may have.
    [The prepared statement of Mr. Kan follows:]

                   Prepared Statement of Derek T. Kan

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    Chairman Enzi. Thank you. Now we will begin questions but 
given our new COVID protocols I wanted to explain the process 
for all the Committee members before we start.
    The hearing room has been configured to maintain the 
recommended six-foot physical distance between Senators, the 
nominee, and other individuals in the room necessary to operate 
the hearing. A number of Senators are joining us by video 
teleconferencing. For those joining by video conference, once 
you start speaking there will be a slight delay before you are 
displayed on the screen.
    To minimize background noise, we are asking Senators who 
are using the video conference option to please click the mute 
button until it is their turn to ask questions. But when it is 
your time to speak, please remember to unmute yourself. If 
there is a technology issue we will move to the next Senator 
until it is resolved and come back to you.
    I would remind all Senators and the nominee that the five-
minute clock still applies. For Senators using the video option 
you will notice a screen labeled ``timer'' that will show how 
much time is remaining. At about 30 seconds remaining I will 
gently tap the gavel to remind Senators their time has almost 
expired.
    To simplify the speaking order process, Senator Sanders and 
I have agreed to go by seniority, alternating between sides for 
this hybrid hearing.
    With that I will start the questions.
    An effective way of helping us to improve program 
conformance would be to have an inventory of all Federal 
programs. OMB should be a partner for us in this area with its 
work related to the Digital Accountability and Transparency 
(DATA) Act, USAspending.gov, and other transparency 
initiatives. I have strongly advocated for a program inventory 
and support Senator Lankford's Taxpayer's Right to Know Act.
    What are OMB's goals for implementing a program inventory 
and improving Federal financial and performance data that way?
    Mr. Kan. Thank you, Chairman Enzi. I am aware of your long 
experience in this area and we completely support this major 
priority of yours. If you look across government we have 
something like 120 economic development programs, and yet we 
are not sure if that is 140 or 110. In fact, if we ask how many 
programs there are, it is very difficult to track.
    And so we are committed to working with you on this. Our 
staffs are in touch and we look forward to standing up a pilot 
program to really help build this out and scale it, to take a 
step beyond what USAspending.gov currently provides.
    Chairman Enzi. Thank you. My staff and I will have some 
ideas on that too, that puts some of the burden on the 
departments themselves.
    Changing the subject, the Chief Financial Officers (CFO) 
Act of 1990 created the OMB Office of Federal Financial 
Management to provide leadership and establish government-wide 
financial management policies for executive agencies. How will 
you work with the Office of Federal Financial Management and 
the larger CFO community to better integrate financial and 
performance data so that we can make informed decisions?
    Mr. Kan. Thank you, Chairman Enzi. We are very familiar 
with the CFO Vision Act and we support a lot of the goals of 
the bill. I think there needs to be a clear discussion of what 
is the vision of CFOs in government. As folks around the table 
here know, CFOs serve a lot of functions in the private sector. 
Some are bookkeeping and budget accountings. Others do integral 
controls. Others do procurement. So as we think about the role 
of the CFO, it is a very important topic that we look forward 
to working with you on.
    Chairman Enzi. Thank you. OMB has offered agencies 
flexibility in meeting audit and financial reporting deadlines 
so they can prioritize the COVID-19 work. What mechanisms are 
in place to ensure agencies will put out this information in a 
timely manner?
    Mr. Kan. Sure. Within a few weeks of passing Phase 3 and 
Phase 3.5, OMB issued guidance around financial reporting in a 
guidance document called M-20-21. This document helped identify 
all--laid out best practices for tracking. Transparency is an 
important objective of the administration, and keeping clear 
track of all our finances and how we have been spending is 
something that Congress put into law. We share that objective 
and we are rapidly making sure that all agencies are in 
compliance with the law and with this guidance.
    Chairman Enzi. Thank you. Earlier this month the 
Congressional Budget Office reported that the Federal deficit 
was already $1.9 trillion for the first eight months of fiscal 
year 2020. One of my top priorities as Chairman of the Budget 
Committee has been to reform our broken budget process. How can 
this Committee work with OMB to improve our broken budget 
process?
    Mr. Kan. Thank you, Chairman Enzi, and thank you for your 
leadership in the drafting and creating of the Bipartisan 
Congressional Budget Reform Act. I think this was the first 
reform bill we have seen in about 20 or 30 years that was 
passed by this Committee on a bipartisan basis.
    If you look at budget reform history, a lot of these ideas 
evolve and turn into something that actually impacts baselines 
and spending in the out years. In 2005 and 2006, Judd Gregg and 
Kent Conrad in this Committee came up with a budget reform act, 
and it was Judd Gregg's bill, which ultimately became Murray-
Ryan.
    And so as we consider--and we will partner with you on the 
Bipartisan Congressional Budget Reform Act--a lot of the seeds 
that are developed here likely will turn into something that 
will help enforce discipline and set us on a better path in the 
future.
    Chairman Enzi. Thank you. Instead of rapping my gavel 
softly I will yield the balance of my time and turn it over to 
Senator Sanders.
    Senator Sanders.  Thank you very much, Mr. Chairman. Mr. 
Kan, at his rally in Tulsa on Saturday, President Trump said 
that he told his people to slow the testing down, with respect 
to the coronavirus. When asked by reporters if he was joking, 
the President said, quote, ``I don't kid,'' end quote. As a 
member of the Coronavirus Task Force, would you recommend that 
the U.S. conduct fewer coronavirus tests?
    Mr. Kan. Senator Sanders, thank you for the question and 
also thank you for your candor in your opening remarks.
    Regarding testing, I will let the President speak for 
himself regarding his remarks. However, regarding testing 
broadly, in January we had no tests at all in this country. 
Today we have performed 26 million tests.
    Senator Sanders.  I am just asking you your opinion, as a 
member of the Coronavirus Task Force. The President can speak 
for himself. I am just asking, do you agree with him? You are a 
member of the task force.
    Mr. Kan. I think testing is important. I think testing has 
provided a lot of insight across the country regarding where 
hotspots are. Centers for Disease Control and Prevention (CDC) 
continually scales up testing across the country, and I think 
governors, public health leaders all find tremendous value in 
testing.
    Senator Sanders.  Let me ask you another question, if I 
might. Senator Enzi, quite correctly, when he began the 
hearing, pointed out that he is doing social distancing. He is 
trying to protect the health of the members of the Committee 
and he is doing exactly the right thing. And yet at that same 
rally in Tulsa, the President did not have social distancing. 
People were packed right next to each other. People were not 
required to wear masks.
    As a member of the Coronavirus Task Force, what would you 
say about the examples that the President is setting to the 
rest of the country when he ignores CDC guidelines?
    Mr. Kan. Thank you, Senator Sanders. I think all of these 
types of questions around social distancing, around public 
hygiene, personal hygiene, we always look to the public health 
experts, at the CDC. On the task force, we look to the 
leadership of Dr. Birx, Dr. Fauci, and Dr. Redfield to help 
inform what are the best practices around social distancing and 
how to operate in large crowds.
    So I would refer you to them, who are the----
    Senator Sanders.  No, I know what they say. All I am 
giving--what they say is that you should do exactly what 
Senator Enzi is doing, that we should have social distancing, 
that people should wear masks. Yet the leader of our country 
rejected those guidelines. Is that a good example, in your 
view, as a member of the task force? Is that a good example for 
the rest of the country?
    Mr. Kan. Senator Sanders, again I would refer you to the 
public health experts who have talked about this, who I think 
had a number of questions----
    Senator Sanders.  I know it. I am quite aware of it, and it 
is an example Senator Enzi is following their guidelines. But 
the leader of our country did not. Do you think that that is 
setting a bad example for the people of our country?
    Mr. Kan. At the risk of being redundant, Senator, I would 
suggest that this question is for the public health experts, 
and they speak----
    Senator Sanders.  Well, you are a member of the task force 
and I am assuming that you are kind of a--you would not have 
that position if you did not know something about the issue, 
and I think you do know something about the issue. My guess is 
you are probably embarrassed about what the President of this 
country is doing.
    Mr. Kan. That is not the case, Senator. It is just we all 
have roles on the task force. My role is not to provideany 
direction or guidance on public health. We have demonstrated experts 
who have spent their careers in this who talk about what the Centers 
for Disease Control and Prevention should do. They help prepare the 
guidance and develop those. Those are the medical experts and from day 
one we look at the medical experts for----
    Senator Sanders. I apologize for putting you in a difficult 
position, but I think--my guess is that in your heart of hearts 
you probably understand how absurd the actions of the 
President, and dangerous the actions of the President are.
    Just one last question. We are now looking, as I am sure 
you are aware, at massive levels of income and wealth 
inequality, and during the last several months that gap between 
the very, very rich and everybody else has grown wider. And yet 
it is my understanding now that the Trump administration 
believes we should pass another cut in capital gains taxes that 
would disproportionately benefit the top 1 percent. Does that 
make sense to you, Mr. Kan?
    Mr. Kan. Senator, I would respectfully disagree with some 
of the premise of your question, and I am happy to follow up 
with you after. A lot of our, I think, Phase 4 discussions are 
still in the policy process and I do not want to get ahead of 
the team.
    Senator Sanders. Okay. Good. Thank you very much.
    Mr. Kan.
    Mr. Kan. Thank you, Senator.
    Chairman Enzi. Senator Braun.
    Senator Braun. Thank you, Mr. Chairman. So far the 
conversation seems to be off the subject of budget, in that 
since I have been here a year and a half we are now ingrained 
in trillion-dollar deficits, not considering what happened with 
coronavirus.
    I am interested in somehow, for the sake of people that 
like government and those of us that even think it has gotten 
too large over time, what do we do to rein in a structural 
deficit? And we do know that so much of that has to do with 
entitlements. I am interested to see what the serious approach 
is going to be once we get the effect of coronavirus in the 
rearview mirror, to getting back to what is a structural 
problem that no one here in government should be proud of.
    And I think it is an embarrassment to the people we 
represent that we cannot keep our house in order for the sake 
of a government that many people think should even do more of 
it. It seems like it ought to be, you know, closer to where we 
have our financial house in order, and it points back to 
entitlements.
    What is your opinion there of reforming them?
    Mr. Kan. I completely agree with your observations, Senator 
Braun. If you look at the budget today, we spend something like 
$400 billion on interest. And if you look at, over the last 30 
years, when we have had major budget process reforms, the last 
40 years if you go back to the Greenspan Commission, it started 
with a clear focus of what the problem is. And I think you hit 
the nail on the head, that 60 or 70 percent of our budget is on 
autopilot.
    And I think highlighting and focusing on the specific 
metric we need to solve is the first step. One metric that 
folks seem to be talking about these days is debt as a 
percentage of Gross Domestic Product (GDP), that as we begin to 
focus on that, potentially a fiscal rule that revolves around 
debt-to-GDP ratio could help crystallize where we need to focus 
and how we can get our finances back in order.
    Senator Braun. What do you think of the idea of, probably 
the biggest driver within entitlements would be the rising cost 
of health care? And Medicare would be somewhere, if we could 
reform a broken health care system, whether you think there 
should be one payer for it or not. I think the President has 
tried, more than anyone, to make those basic reforms of 
transparency, competition, no barriers to entry, getting the 
consumer engaged in his or her own well-being.
    Wouldn't that benefit probably the hardest item to solve 
that structurally drives these deficits, and will the 
administration be interested in, you know, putting out and keep 
driving on the idea of reforming health care to lower that part 
of the budget costs?
    Mr. Kan. Absolutely, Senator. If you look at the trajectory 
of the budget, so much of it is driven by mandatory spending 
that has gone up. The President has committed that he will 
protect social security and Medicare.
    And as you look at the budget, we have laid out a number of 
reforms. One of the reforms which I think, Senator, you are 
very familiar with, is around this concept of site neutrality, 
that individuals should not have to pay for the same service, 
whether it is in an outpatient clinic or in a hospital. And so 
we are working to try to reform some of the payment practices 
to create downward pressure on government spending. We spend 
$4.7 trillion on everything under the sun, and I think, 
Senator, we completely applaud your observation and stand ready 
to work with you on bringing down spending.
    Senator Braun. And to be fair to the other side, because it 
has come up in a back-and-forth shortly after I was here, and I 
remember Senator Warner mentioned, that we spend less than 
other developed countries. I brought up the point that whatever 
the tax rate has been over the years, we average, through the 
revenue that we create, about 17.5 percent of our GDP.
    And I think you do need to ask the question, is there room 
to raise revenue, or is that statistic so compelling that 
generally along with lower tax rates we have higher economic 
growth, with higher tax rates it is lower economic growth, but 
through any tax rate it averages about 17.5 percent. Is there 
any way to go beyond that--and I am getting close here, so do 
you want me to come back to follow up later, because I am 
getting close to time expiring.
    Chairman Enzi. If you are finished with the question we 
will let him answer.
    Senator Braun. Okay. My question is, is there room to raise 
revenue in a way that would not hamper economic growth?
    Mr. Kan. If you look at where revenue levels are, they are 
close to where historical norms are. On the spending side, 
spending as a percentage of GDP this year will likely be around 
30 percent. Historically it has been around 20 percent. And so 
if one line has been 17 and we are at 16.5--16.3 percent--the 
other line historically has been 20 percent, and what, 30 
percent. I think historical data, and most of the economists 
will point out that one side of the ledger probably needs a 
little more work than the other.
    Senator Braun. Thank you.
    Chairman Enzi. Thank you. Senator Whitehouse.
    Senator Whitehouse. Thank you. Mr. Kan, we have had a 
previous conversation that I would like to raise with you here 
because it involves a particular situation that we have had in 
Rhode Island. Medicare reimbursement levels are set by Center 
for Medicare and Medicaid Services (CMS), and some time ago 
they put together what they called an imputed rural floor, 
which is tedious bureaucratese. But it set a floor on how low 
hospital reimbursements could go. It left out some areas, like 
Rhode Island, because we do not have rural hospitals.
    So we do not get the benefit of the rural floor. So for a 
long time CMS basically imputed a rural floor so we would stay 
even. Now Rhode Island has always been reimbursed at lower 
rates than nearby, but CMS Director Verma unilaterally, without 
procedure, undid the imputed rural floor. That affected Rhode 
Island, Delaware, and New Jersey hospitals. A bit of a redo 
adjustment was made in fiscal year 2020, for fiscal year 2020. 
That actually made it worse for Rhode Island. We went from a 
reimbursement rate of 1.0445 down to 1.0371.
    So the situation that we face right now, this is Rhode 
Island, this is Connecticut, this is Massachusetts. In 
Connecticut, hospitals are paid at a reimbursement rate of 
1.3525, and I hope I can ask you, Mr. Kan, to agree that 1.3525 
compared to 1.0371 is about a 30 percent premium.
    Mr. Kan. Yes.
    Senator Whitehouse. Mathematically. Am I correct?
    Mr. Kan. Yes, sir.
    Senator Whitehouse. All right. And then you go over here to 
Bristol County, Massachusetts, and they are paid 1.2868, 
compared to 1.0371. That is about a 25 percent premium. Would 
you agree with me?
    Mr. Kan. Yes, sir.
    Senator Whitehouse. Okay. So--and here is St. Anne's 
Hospital, which is five minutes from the Rhode Island border, 
in Massachusetts, and here is Backus Hospital, which is 
probably 20 minutes from our Westerly Hospital. So you have 
hospitals that are like 5 minutes to 20 minutes apart from our 
borders, and we are on the losing end of a 25 percent or 30 
percent reimbursement gap.
    I have spoken to Ms. Verma about it over and over again. We 
get no place. They have pretended that they are going through a 
process of reconsidering the whole thing, but you cannot do 
that in government without leaving a trail of administrative 
procedures and steps. There is no such trail. My belief is that 
I have just been lied to by Administrator Verma.
    I have had her senior staff in, her career people in.They 
agree that they cannot justify this and that a discrepancy, so 
geographically close and so severe, is inexcusable and wrong. I have 
had political staff come through the Finance Committee and they have 
agreed that they cannot justify this, that it is wrong, that there is 
no excuse. I have gone over this with Secretary Azar in Finance 
Committee hearings, and he says, nope, there is no justification for 
this.
    Could you, on behalf of OMB--I know you have had a few days 
to look into this--let me know, is there a justification you 
have for why Rhode Island hospitals should be paid 25 percent 
or 30 percent less than hospitals just right across the border 
in nearby Connecticut and Massachusetts? And what is OMB's 
stance in all of this? And what do you know about why Ms. Verma 
is making things worse and worse for Rhode Island, Delaware, 
and New Jersey hospitals, rather than correcting something that 
both Azar and career folks and political people passing through 
all agree is indefensible? Why is this not changing? What do 
you know about it?
    And by the way, it is $28 million for Rhode Island's 
hospitals in a single fiscal year that got knocked out by the 
imputed rural floor change. Twenty-eight million dollars is a 
lot, particularly while we are trying to keep hospitals afloat 
through the coronavirus. This is a real blow, and the fact that 
we cannot get taken seriously by Ms. Verma is--particularly 
when nobody defends her decision--is really tiresome.
    So if you could answer that. Take your time.
    Chairman Enzi. I will allow you to answer.
    Mr. Kan. Thank you, Senator Whitehouse. I know that this is 
a very important issue for Rhode Island, and I have read many 
of the letters you have sent to the administration on this 
topic.
    Senator Whitehouse. I have been prolific. I will agree.
    Mr. Kan. I am familiar with the nine hospitals you 
mentioned. I pulled up those comments that they have stated 
they lost $28 million due to this wage index.
    Our budget proposes comprehensive wage index reform, and we 
look forward to working with you to consider how we address 
some of these inequities in the Medicare hospital payment 
adjustments system. Regarding anything I know, I am not 
familiar with the specifics of what happened at CMS, but I 
commit, Senator, to working with you to getting to the bottom 
of this. And our budget proposes a reform proposal, and I would 
very much welcome working with you on how we modernize the 
hospital payment system here.
    Senator Whitehouse. Any chance we get any of the money back 
that you guys--this administration unilaterally knocked out of 
our----
    Mr. Kan. I will check with CMS. I do not know the back-and-
forth of what led to this, and I am not sure what legal 
authorities we have. But, Senator, you have my word that I will 
look into this and get back to you.
    Senator Whitehouse. All right. Well, Mr. Chairman, you can 
imagine how annoying and frustrating this is. I do not think 
there is a margin this big anywhere in the country. I do not 
think there is any excuse for it. The promise that somebody is 
going to work with me and get back to me--we hear that all the 
time and none of those promises mean a thing.
    It is just immensely frustrating to me that I have to deal 
with this, and as you can imagine, if you are paid a 30 percent 
premium at Backus Hospital compared to Westerly Hospital, and 
they are 20 minutes apart, you are going to be able to pay 
nurses more. You are going to be able to invest more in new 
equipment. You are going to be able to keep up the hospital 
better. You are going to be able to pay doctors more. You are 
going to be able to support the doctors who have hospital 
privileges better. You are going to be able to do all of that a 
lot better. And we are on the losing side of that, and there is 
no justification for it that anybody can offer. None. People 
admit that it is wrong, and this has been since October of 
'18--since October of '18.
    So forgive me for being a little bit impatient, but our 
hospitals really need the revenue. We all need to be treated 
fairly at this time, and being spun and being told that we will 
get back to you is what I have had two years of now, so forgive 
my frustration.
    Chairman Enzi. Senator Scott.
    Senator Scott. Hi. Thank you, Chairman, for doing this. You 
know, going back to how these hospitals get paid, I will give 
you a story. In Florida, we have 22.5, 23 million people. New 
York has 2 to 2.5 million less. We get about $230 million, I 
think, for Disproportionate Share Hospital (DSH) payments for 
our hospitals that take care of patients that--low-income 
patients, and New York gets $1.7 billion. You know, the entire 
time I was governor I complained about it and nothing ever 
happened. As a matter of fact, at one point while I was 
governor the Obama administration cut out $1 billion out of my 
Low Income Pool (LIP) payments, because I would not go along 
with something.
    So, I mean, the way that--I think all of us should be a 
little frustrated with the way that the Federal Government 
allocates dollars, but especially the way dollars get allocated 
through our health care system makes no sense.
    So, Mr. Kan, thank you for your hard work. I think one 
thing I know you and I talked about the other day, and if you 
could just talk about your position on this, I think wehave got 
to decide that--we have got to come to the conclusion that China has 
decided to become our adversary. It is not something we chose. It is 
something that the General Secretary of the Communist Party, Xi, 
decided to do, and whether it is, you know, stealing our jobs or 
technology, or lying to us about the pandemic, or putting people in 
prison for their religion or taking away basic rights of Hong Kong 
citizens, or now trying to be a thug with regard to how they deal with 
Australia. I think we have got to wake up and understand that we have 
got to figure out how to build jobs in this country and not how to 
build more jobs in Communist China.
    Can you talk about your position and how you think there 
are things you could do to possibly help? One thing I had, 
which we have not gotten done yet, is the Promoting 
Responsibility in Markets and E-Retailers Act of 2019 (PRIME) 
Act, which would require online retailers to disclose where 
products are made, because I think Americans--I do not think we 
should have to--we should mandate that they buy American 
products, but I think they would buy more American products if 
they knew where things were--if Amazon would tell us where 
things are produced, and right now we do not even know that. 
And they are not willing to do that voluntarily. Unfortunately, 
it seems like we have to pass legislation to do things like 
that.
    But if you could just give us your view on how we are going 
to hold China accountable for all their bad deeds.
    Mr. Kan. Sir, thank you. Thank you, Senator Scott. You are 
also prolific on writing about this topic, and your daily 
newsletter covers this topic and a lot of real estate is 
dedicated to this topic.
    I think there are two major areas in which OMB will be 
playing a role in countering great powers, and specifically 
countering China. One is on the budget side. If you look at our 
fiscal year 2020 budget proposal, we focused heavily on great 
powers competition. That includes increasing spending in areas 
where we believe China has been a competitor. A lot of that is 
in the development of research and development (R&D), advanced 
engineering around areas such as artificial intelligence (AI).
    So as we think about the budget, as we are going through 
the appropriations process now, it is helpful to consider where 
should we invest to counter China's technology development, 
infrastructure development strategies as they use it to compete 
against us.
    The second is on the management side. We share a number of 
your concerns, and we will be addressing some of the supply 
chain risks that you have identified, through your letters and 
through some of your legislation. As you may know, we stood up 
the Federal Acquisition Security Council, which provides a 
whole-of-government response to remove bad actors from our 
Federal systems and networks. And so with all of the assets we 
own as a Federal Government, as well as our budget, we are 
seeking to counter China.
    Senator Scott. Thank you, and thank you for your focus on 
that. Another thing I have tried to talk about up here--I have 
been up here about 18 months--is the fact that, you know, we 
have a Federal debt that I do not know how our generation or 
the next generation or the generation after that is ever going 
to be able to pay back, when you see that our debt is growing 
much faster than our GDP is growing. So as a percentage of GDP 
it is not going down. It is actually skyrocketing.
    So what are some ideas that you guys have that are going to 
be able to counteract the fact that now we have--I guess at the 
end of this year we will have $25, $26 trillion dollars' worth 
of debt?
    Mr. Kan. Well, our budget proposes more spending cuts than 
any budget in history, but I think also creating a fiscal rule 
for us to consider is something that we should begin looking 
at. If you look at, historically, the debt-to-GDP ratio has 
been about 60 percent. For the last 80 years it has been about 
63 percent. Today it is over 100 percent. And so one of the 
considerations could be to look at a fiscal rule, which I think 
some of that is captured in Chairman Enzi's bill on budget 
process reform.
    Senator Scott. You know, one thing I did as governor of 
Florida, I tried to go through every line. Unfortunately, the 
President does not have a line item veto, which I had as 
governor. But one thing I was able to do was go through every 
line--there were about 4,000 lines in the Florida state 
budget--and say do I get a return for the taxpayers? And 
whether that means that this money was going to go to take care 
of autistic children, and then I said, did it? If it did not, I 
am not going to continue to fund it. If we were going to do for 
economic development did we get a return on the dollars we put 
in, or we are not going to do it.
    And so I hope the Federal Government will start thinking 
more about if we are going to spend money, can we get a return 
on those dollars. Whether--if that means just like things like, 
if the law enforcement bill unfortunately did not go forward, 
can we make sure that something happens with the dollars that 
we put out there, because I want to get results. And I think 
every--all of us up here came up here to get something done, 
and I think one way to do it is if the administration would 
work with us, and we will do it because we have to be the 
appropriators, but if we will focus on--if we are going to 
spend the money, did we get something for it, and if we do not, 
why are we spending the money? So we can look at that.
    So thank you very much, and thank you. Especiallythank you 
for your focus on watching how money is spent and focusing on holding 
China accountable.
    Chairman Enzi. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman, and welcome, 
Mr. Kan. As we discussed the other day I really wanted to ask 
you some questions about OMB and your involvement, the extent 
of your involvement in the withholding of dually appropriated 
funds to Ukraine.
    As you know, the Government Accountability Office (GAO) 
found that during the period of time that you were at OMB that 
OMB broke the law and was in violation of the Impoundment 
Control Act when it withheld those funds.
    Now in the sort of paper trail that so far has come to 
light there is an email regarding this issue on August 12th, 
from OMB General Counsel Mark Paoletta, stating that the 
Department of Defense (DOD) was being, quote, ``extraordinarily 
difficult,'' unquote, about the withholding. DOD was very 
worried that if the withholding continued that they would not 
be able to get the money out the door for Ukraine military 
assistance in time.
    Are you familiar with that email?
    Mr. Kan. I am not, Senator. If you send it to me or send it 
to somebody here I would be happy to review it. You said August 
12th?
    Senator Van Hollen. August 12th, you were copied on an 
email. You are not familiar with that email?
    Mr. Kan. I am not.
    Senator Van Hollen. Okay. This email has been discussed in 
many forums, including in the House, so it is a surprise to me 
that you would come here without knowing about that.
    Let me ask you this. Were you aware, during your period of 
time at OMB, that monies to Ukraine were being withheld?
    Mr. Kan. I was aware that monies were being paused. I was 
not substantively involved in the entire Ukraine policy 
process.
    Senator Van Hollen. Well, when did you first become aware 
that those funds were being withheld?
    Mr. Kan. Probably near the end of summer, but it is--I do 
not remember the blow-by-blow. I had been at OMB for just a 
couple of months and was frankly still getting acclimated to 
the institution.
    Senator Van Hollen. Okay. On your--in your responses to our 
preliminary questions you indicated that the withholding was 
the result of a policy review process. Do you recall that being 
your response?
    Mr. Kan. Yes, Senator.
    Senator Van Hollen. So based on what you just told me, is 
that response based entirely on what others at OMB have told 
you, or is that based on your personal involvement and 
knowledge of these events?
    Mr. Kan. I do not want to get into sort of each 
conversation I have had, but it was based upon my understanding 
of events.
    Senator Van Hollen. Yeah, but I am trying to figure out, 
you just were telling me you did not have much personal 
involvement.
    Mr. Kan. Correct.
    Senator Van Hollen. So my conclusion from there would be 
that your statement that this was really a policy review was 
based on what others told you. So to what extent was that 
statement based on your personal involvement? Tell me about 
that.
    Mr. Kan. It was more based upon what folks had told me, not 
based upon personal involvement.
    Senator Van Hollen. Got it. And so I am trying to better 
understand what it means to be involved in a policy review. Is 
that the way you would describe simply a pause in the 
obligation of the funds?
    Mr. Kan. Yeah. So policy reviews and pauses are things that 
I even participated in when I was a program examiner at OMB 15 
years ago, as a civil servant. Policy officials will oftentimes 
want to review a specific program, have questions on it. I 
think there is one program I workedon regarding veterans' 
affairs IT procurement, where policy officials felt that we needed to 
review the contracts and review the entire IT project before 
proceeding. And so----
    Senator Van Hollen. Well, let me just--let me, if I may, 
Mr. Kan, ask you this question. If the President of the United 
States, any President, were to pause foreign assistance to 
another country--again, let's hypothetically say Nigeria--in 
order to pressure that country to announce an investigation 
into an American politician, would that be a policy review, as 
you understand the term?
    Mr. Kan. Senator, I do not want to get into hypotheticals, 
and I think the Senate----
    Senator Van Hollen. No, this is--I am just asking you, 
would that set of facts--that set of facts, would that 
constitute a policy review?
    Mr. Kan. Senator, I think--I do not answer hypotheticals, 
as a matter of principle. But the Executive branch has the 
authority and has precedents, many precedents across many 
administration to pause funding to review, if a particular 
program makes sense.
    Senator Van Hollen. Okay. I see my time is up, Mr. 
Chairman. Well, OMB also withheld documents from GAO, so we 
will send some follow-up questions on whether or not you would 
be willing to provide those documents that OMB refused to 
provide.
    Thank you, Mr. Chairman.
    Mr. Kan. Thank you, Senator.
    Chairman Enzi. Thank you, Senator. Are there any others 
wishing to ask questions?
    [No response.]
    Chairman Enzi. Seeing none, I want to thank Mr. Kan for 
appearing before the Committee today. Mr. Kan, your full 
statement will be included in the record. As information for 
all Senators, questions for the record are due by 12 p.m. 
tomorrow, with signed hard copies delivered to the Committee 
clerk in Dirksen 624. Emailed copies will also be accepted, due 
to our current conditions. Under our rules, Mr. Kan will have 
seven days from receipt of our questions to respond with 
answers.
    With no further business before the Committee, this hearing 
is adjourned.
    [Whereupon, at 3:22 p.m., the hearing was adjourned.]
    
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EXECUTIVE BUSINESS MEETING TO CONSIDER THE NOMINATION OF THE HONORABLE 
  DEREK T. KAN, OF CALIFORNIA, TO BE DEPUTY DIRECTOR OF THE OFFICE OF 
                         MANAGEMENT AND BUDGET

                              ----------                              


                         TUESDAY, JULY 21, 2020

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 12:08 p.m., in 
Room SR-301, Russell Senate Office Building, Honorable Michael 
B. Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Graham, Toomey, 
Johnson, Perdue, Braun, Scott, Kennedy, and Kaine.
    Staff Present: Doug Dziak, Majority Staff Director; and 
Warren Gunnels, Minority Staff Director.

         OPENING STATEMENT OF CHAIRMAN MICHAEL B. ENZI

    Chairman Enzi. Good afternoon. This meeting of the Senate 
Budget Committee will come to order.
    Today we are meeting to vote on the nomination of Derek Kan 
to serve as Deputy Director of the Office of Management and 
Budget.
    It is Committee practice and precedent to allow for 
statements from the Chair and Ranking Member. I intend to 
support Mr. Kan's nomination. He has the necessary experience, 
both in and out of government, and I am glad he is willing to 
serve in this important role.
    I hope my colleagues will also support this nomination.
    Unless Senator Sanders has something to add, and 
recognizing that members have busy schedules and other votes, 
we will move directly to a vote.
    Committee members may submit statements for the record.
    I would note, for the record, that a quorum is present and 
unless there is objection. . . .
    [No response.]
    Chairman Enzi. Hearing none, the clerk will call the roll.
    The Clerk. Senator Grassley.
    Senator Grassley. Aye.
    The Clerk. Senator Crapo.
    Senator Crapo. Aye.
    The Clerk. Senator Graham.
    Senator Graham. Aye.
    The Clerk. Senator Toomey.
    Senator Toomey. Aye.
    The Clerk. Senator Johnson.
    Senator Johnson. Aye.
    The Clerk. Senator Perdue.
    Senator Perdue. Aye.
    The Clerk. Senator Braun.
    Senator Braun. Aye.
    The Clerk. Senator Scott.
    Senator Scott. Aye.
    The Clerk. Senator Kennedy.
    Senator Kennedy. Aye.
    The Clerk. Senator Cramer.
    Chairman Enzi. Aye, by proxy.
    The Clerk. Senator Sanders. 
    Senator Kaine. No, by proxy.
    The Clerk. Senator Murray.
    Senator Kaine. No, by proxy.
    The Clerk. Senator Wyden.
    Senator Kaine. No, by proxy.
    The Clerk. Senator Stabenow.
    Senator Kaine. No, by proxy.
    The Clerk. Senator Whitehouse.
    Senator Kaine. Yes, by proxy.
    The Clerk. Senator Warner.
    Senator Kaine. Yes, by proxy.
    The Clerk. Senator Merkley.
    Senator Kaine. No, by proxy.
    The Clerk. Senator Kaine.
    Senator Kaine. Yes.
    The Clerk. Senator Van Hollen.
    Senator Kaine. No, by proxy.
    The Clerk. Senator Harris.
    Senator Kaine. Yes, by proxy.
    The Clerk. Chairman Enzi.
    Chairman Enzi. Aye.
    The Clerk. Mr. Chairman, the yeas are 15, and the nays are 
6.
    Chairman Enzi. The nomination is reported favorably.
    As a reminder to all Committee members, statements for the 
record are due to the Committee clerk by 12:00 p.m. tomorrow. 
E-mailed copies will be accepted, due to our current 
conditions.
    I ask for unanimous consent to enter into the record a 
letter of support for Mr. Kan's nomination from the American 
Trucking Association. Without objection, so ordered.
    [The letter follows:]
    Chairman Enzi. With no further business to come before the 
Committee, the hearing is adjourned.
    [Whereupon, at 12:10 p.m., the Committee was adjourned.]
    
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