    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                        FINANCIAL SERVICES AND GENERAL
                      GOVERNMENT APPROPRIATIONS FOR 2023
    ====================================================================

                                     HEARINGS

                                     BEFORE A

                               SUBCOMMITTEE OF THE

                           COMMITTEE ON APPROPRIATIONS

                             HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SEVENTEENTH CONGRESS

                                  SECOND SESSION
                                    __________

            SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT

                         MIKE QUIGLEY, Illinois, Chairman

      MATT CARTWRIGHT, Pennsylvania		STEVE WOMACK, Arkansas
      SANFORD D. BISHOP, Jr., Georgia	MARK E. AMODEI, Nevada
      MARK POCAN, Wisconsin			CHRIS STEWART, Utah
      BRENDA L. LAWRENCE, Michigan		DAVID P. JOYCE, Ohio
      NORMA J. TORRES, California
      ANN KIRKPATRICK, Arizona

      NOTE: Under committee rules, Ms. DeLauro, as chair of the full
    committee, and Ms. Granger, as ranking minority member of the full
    committee, are authorized to sit as members of all subcommittees.

             Matt Smith, Laura Cylke, Marybeth Nassif, Elliot Doomes,
                       Aalok Mehta, and Parker Van de Water
                                Subcommittee Staff
                                     __________

                                      PART 5

                                                                       Page
      Fiscal Year 2023 Budget Request for The Judiciary...............    1
      Office of Management and Budget.................................  125
      Internal Revenue Service........................................  147
      Federal Trade Commission/Securities and Exchange Commission...... 179

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

              Printed for the use of the Committee on Appropriations

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    49-393                     WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                          COMMITTEE ON APPROPRIATIONS

                                    ----------
                      ROSA L. DeLAURO, Connecticut, Chair

    MARCY KAPTUR, Ohio			KAY GRANGER, Texas
    DAVID E. PRICE, North Carolina		HAROLD ROGERS, Kentucky
    LUCILLE ROYBAL-ALLARD, California	ROBERT B. ADERHOLT, Alabama
    SANFORD D. BISHOP, Jr., 		Georgia	MICHAEL K. SIMPSON, Idaho
    BARBARA LEE, California			JOHN R. CARTER, Texas
    BETTY McCOLLUM, Minnesota		KEN CALVERT, California
    TIM RYAN, Ohio				TOM COLE, Oklahoma
    C. A. DUTCH RUPPERSBERGER, Maryland	MARIO DIAZ-BALART, Florida
    DEBBIE WASSERMAN SCHULTZ, Florida	STEVE WOMACK, Arkansas
    HENRY CUELLAR, Texas			JEFF FORTENBERRY, Nebraska
    CHELLIE PINGREE, Maine			CHUCK FLEISCHMANN, Tennessee
    MIKE QUIGLEY, Illinois	        	JAIME HERRERA BEUTLER, Washington
    DEREK KILMER, Washington		DAVID P. JOYCE, Ohio
    MATT CARTWRIGHT, Pennsylvania		ANDY HARRIS, Maryland
    GRACE MENG, New York			MARK E. AMODEI, Nevada
    MARK POCAN, Wisconsin			CHRIS STEWART, Utah
    KATHERINE M. CLARK, Massachusetts	STEVEN M. PALAZZO, Mississippi
    PETE AGUILAR, California		DAVID G. VALADAO, California
    LOIS FRANKEL, Florida			DAN NEWHOUSE, Washington
    CHERI BUSTOS, Illinois			JOHN R. MOOLENAAR, Michigan
    BONNIE WATSON COLEMAN, New Jersey	JOHN H. RUTHERFORD, Florida
    BRENDA L. LAWRENCE, Michigan		BEN CLINE, Virginia
    NORMA J. TORRES, California		GUY RESCHENTHALER, Pennsylvania
    CHARLIE CRIST, Florida			MIKE GARCIA, California
    ANN KIRKPATRICK, Arizona		ASHLEY HINSON, Iowa
    ED CASE, Hawaii				TONY GONZALES, Texas
    ADRIANO ESPAILLAT, New York		JULIA LETLOW, Louisiana
    JOSH HARDER, California
    JENNIFER WEXTON, Virginia
    DAVID J. TRONE, Maryland
    LAUREN UNDERWOOD, Illinois
    SUSIE LEE, Nevada

                     Robin Juliano, Clerk and Staff Director

                                       (ii)

       FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2023
                                    __________

                                                Thursday, May 12, 2022.

               FISCAL YEAR 2023 BUDGET REQUEST FOR THE JUDICIARY

                                   WITNESSES

    HON. ROSLYNN R. MAUSKOPF, DIRECTOR, ADMININSTRATIVE OFFICE OF THE U.S.
        COURTS,
    HON. AMY ST. EVE, CHAIR, JUDICIAL CONFERENCE COMMITTEE ON BUDGET
        Mr. Quigley [presiding]. Good morning.
        This morning we welcome the Honorable Roslynn Mauskopf, the
    Director of the Administrative Office of the U.S. Courts, and
    the Honorable Judge Amy St. Eve, Chair of the Judicial
    Conference Committee on Budget, to testify on the judiciary's
    fiscal year 2023 budget.
        It is nice to welcome you both for your first in-person
    hearing before this subcommittee. In fact, this is the first
    in-person hearing we have had in more than two years, and we
    are excited to gather here today to discuss the judiciary's
    budget request.
        To begin, I want to remind my colleagues that today's
    witnesses represent the lower courts and not the Supreme Court,
    which sets its own operational and investigatory policies
    involving leaks.
        From my years in the courtroom, I truly believe a well-
    functioning federal court system is a key pillar of our
    democracy and is fundamental to ensuring the constitutional
    rights of all Americans are protected. That is why I worked
    with my colleagues to pass the Courthouse Ethics and
    Transparency Act and to introduce the Twenty-First Century
    Courts Act. These bills will ensure more oversight and
    integrity to the judicial process, particularly on misconduct
    issues.
        Greater public access to the federal courts also increases
    accountability in the judicial system and builds faith in our
    democracy. I am pleased that the Judicial Conference, under the
    CARES Act, expanded their access policies to include
    livestreaming audio in circuit courts and in selected civil
    proceedings, as well as livestreaming video for some criminal
    proceedings. These are all steps in the right direction.
        However, I am concerned that these measures might be seen
    as temporary fixes to continue judicial operations during the
    pandemic. I would encourage the Conference to explore the
    benefits of permanently expanding its livestreaming practices,
    creating more ways for the American people to view and
    understand our democracy in action.
        Moving on, we know the federal court system cannot properly
    function without the support of this committee. We appreciate
    the submission of your fiscal year 2023 request totaling $8.6
    billion, an increase of $655 million over 2022 enacted. I
    strongly believe that sufficient funds for our judicial system
    should not be a partisan issue and will advocate for highest
    possible funding to support the judiciary's priorities.
        In addition to this request, the committee notes the
    judiciary's physical security, cybersecurity, and IT
    modernization request of $516 million. I know this was not sent
    to us lightly and is the culmination of a coordinated analysis
    to evaluate the judiciary's critical IT security risk,
    vulnerabilities, and aging systems. I look forward to hearing
    more about this request.
        On the topic of safety, I am interested in hearing about
    the return-to-office guidance from the judiciary's COVID-19
    Task Force. The judiciary's transition back is more complicated
    than many other federal agencies, since it must accommodate
    jurors and courthouse visitors, in addition to staff.
        Equally important, we hope you share updates on the
    progress made to create a safe and respectful workplace for all
    employees. I am interested in learning about changes to the
    judiciary's code of conduct and workplace conduct policies, as
    well as any progress on the climate survey.
        Once again, thank you for joining us this morning, and I
    look forward to working with you both.
        I now turn to the ranking member, Mr. Womack, for his
    opening remarks.
        Mr. Womack. Thank you, Chairman Quigley.
        And, Judge St. Eve and Judge Mauskopf, thank you for
    appearing before this panel today.
        The rule of law is the bedrock of American society. Our
    Founders wisely designed our judicial branch to protect our
    constitutional rights, both faithfully and impartially, and
    uphold justice for all.
        An independent judiciary that holds the trust and respect
    of citizens and can resolve criminal, civil, and bankruptcy
    disputes in a fair and expeditious manner is fundamental to our
    Nation.
        In addition, each year the judiciary's Probation and
    Pretrial Service Officers perform a critical public safety
    mission by supervising over 200,000 offenders and defendants
    living in our communities.
        While this hearing isn't on the activities of the Supreme
    Court, I will say that the leaking of Justice Alito's draft
    opinion is disappointing. I am glad that Chief Justice Roberts
    has ordered an investigation into the leak. I know the vast
    majority of judiciary employees are dedicated and loyal public
    servants. I am hopeful that further leaks do not damage the
    work of the Supreme Court and all the federal appellate and
    district courts.
        Regarding the budget, the judiciary has many funding
    requirements to keep up with the growing court and probation
    workloads and to address both physical and cyber security
    threats. I am anxious to help you address those.
        However, your fiscal year 2023 request is for $655 million,
    or an 8 percent increase over the current year, and that is
    going to be difficult for this committee to provide. We are $30
    trillion in debt, and I believe the committee, the overall
    committee, has to take a look--a careful look, if you will--at
    all federal spending and responsibly reduce where we can. I
    think we have a moral obligation to future generations to get
    our fiscal house in order, and that means making some tough
    choices and discerning between our wants and our needs. And
    there is no agency, there is no funding recipient that should
    be omitted from this discussion.
        I appreciate the important work that the judiciary
    performs. I look forward to your testimony.
        And I yield back my time. Thank you, Mr. Chairman.
        Mr. Quigley. Now, we will hear from our judges. Please
    begin your opening statements.
        Judge St. Eve. Good morning. Chairman Quigley, Ranking
    Member Womack, and members of the Subcommittee, my name is Amy
    St. Eve, and I am pleased to make my first appearance before
    you today, alongside Judge Roslynn Mauskopf, to present the
    fiscal year 2023 budget request of the federal judiciary.
        I am here today as Chair of the Judicial Conference's
    Committee on the Budget, which is charged with formulating and
    justifying the Conference's budget request to Congress.
        I would like to begin by thanking the Subcommittee for the
    strong and consistent support that it has shown to the
    judiciary, including in the recent fiscal year 2022 omnibus. We
    understand that you faced many hard choices about how to invest
    your resources, and the $8 billion provided to the judiciary
    will allow us to implement some important priorities.
        At the same time, fiscal year 2022 will be a difficult
    budget year. The 3.5 percent increase provided in the omnibus
    is below the 6.3 percent increase we requested, and that
    difference will require the branch to forgo some necessary
    staff and to scale back or defer some strategic investments.
        We know that we aren't alone in facing budget challenges,
    but we hope the Subcommittee will continue prioritizing funds
    for the judiciary to allow us to carry out our constitutional
    and our statutory missions.
        The judiciary's fiscal year 2023 budget request has been
    impacted by several big cross-cutting issues. The first of
    these issues is the ongoing COVID pandemic. Conditions still
    have not returned to normal across the judicial branch,
    challenging our ability to accurately predict future workload
    and fee collections.
        In addition, we have significant unmet needs remaining from
    several emergency off-cycle funding requests intended to
    address a worsening physical security threat environment and a
    greater understanding of the vulnerabilities and challenges we
    face in the areas of cybersecurity and IT modernization.
        We briefed the Subcommittee's leadership on these
    challenges recently. And though we cannot share more in this
    setting, we can provide additional details through other means.
        We have begun migrating some of our most critical off-cycle
    needs into our annual budget and will soon provide a plan
    showing how we will fully incorporate our supplemental requests
    into our annual budget over the course of the next five years.
        The final dynamic is the continuing impact of significant
    external cost drivers, including the Supreme Court's 2020
    decision in McGirt v. Oklahoma and the ongoing implementation
    of the First Step Act. We have done our best to capture these
    and other dynamics in our request and will inform the
    Subcommittee as early as possible when an external event is
    going to have a significant impact on our required resources.
        Turning now to the overview of our request, the judiciary's
    fiscal year 2023 budget totals $8.6 billion in discretionary
    appropriations, a $577 million increase above our assumed
    fiscal year 2022 level. More than $200 million of that increase
    is needed just to fund the proposed federal employee pay raise
    and inflation-related costs. I urge the subcommittee to
    consider the impact of failing to fund these base adjustments,
    which must otherwise largely be absorbed by staffing reductions
    that diminish our ability to provide critical public services.
        Beyond base adjustments, the judiciary's request includes a
    little more than $100 million for new investments across our
    four primary accounts. These investments are detailed more
    fully in my written statement, but they include funds for
    increased staffing needs, particularly among probation officers
    and federal defenders; new magistrate judges and law clerks;
    cybersecurity and IT modernization; and physical security such
    as contract guards and security systems, equipment, and
    infrastructure.
        Finally, I would like to note the high priority that we
    continue to place on cost containment. Our current focus is on
    assessing lessons learned during the pandemic. I am committed
    to evaluating and pursuing the long-term adoption of any
    temporary pandemic-driven change in policy or in practice that
    can contain costs without harming judicial operations.
        Again, thank you for the opportunity to appear today and
    for your support of the judiciary. I ask that you please make a
    part of the record my statement and those provided by other
    judiciary entities on whose behalf we submit requests. And I
    would be pleased to answer any questions.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Judge Mauskopf. Chairman Quigley, Ranking Member Womack,
    and members of the subcommittee, I, too, am pleased to appear
    before you today to present the Administrative Office's fiscal
    year 2023 budget request, which totals $111.3 million.
        These funds will enable us to continue our work
    facilitating national programs and policymaking processes, and
    supporting courts, probation and pretrial services offices, and
    federal defender offices across the country. In addition to
    standard pay and non-pay adjustments, our request includes
    $306,000 for several new positions at the AO in our Risk and
    Compliance Office and for background investigations of
    contractors working at the AO.
        My written testimony highlights several important ongoing
    priorities. The AO continues to play a central role in
    assisting courts and federal defender offices to address
    operations during the pandemic, with a shift in recent months
    to a focus on long-term recovery and returning the judiciary to
    pre-pandemic operations.
        We also continue our work to ensure a safe and harassment-
    free workplace for judiciary employees. I chair the Judiciary
    Workplace Conduct Working Group, and my written statement
    discusses the Working Group's latest recommendations to further
    strengthen workplace protections.
        And we have discussed at length with the Subcommittee our
    need for additional resources to address the sharp increase in
    the number of cyber-attacks on judiciary IT systems and the
    need to modernize those systems. I cannot overstate the gravity
    of the broad impacts across our society of cyber-attacks on the
    judicial branch. These attacks pose risks to our entire justice
    system and, more broadly, are an attack on our democracy
    itself. I look forward to discussing these topics in more
    detail at today's hearing.
        The Judicial Conference also has several important
    priorities beyond the judiciary's own budget that are relevant
    to the Subcommittee.
        First, we very much appreciate the Subcommittee's ongoing
    strong support of our Court Security appropriation to address
    the physical security needs of the judiciary in light of the
    increasing number of acts of violence and vandalism, both on
    and off courthouse premises, including the tragic murder of
    Judge Esther Salas' son and critical wounding of her husband in
    2020. The Daniel Anderl Judicial Security and Privacy Act,
    named in honor of Judge Salas' son, has been introduced in both
    chambers, and we urge prompt passage.
        We again ask this Subcommittee's support for one-year
    extensions for nine temporary district judgeships in fiscal
    year 2023. These temporary judgeships meet the criteria for
    conversion to permanent status, and short-term extensions keep
    them from expiring while Congress considers comprehensive
    judgeship legislation.
        We ask for consideration of the Judicial Conference's space
    priorities within the GSA's budget for new courthouse
    construction projects and the Judiciary Capital Security
    Program. Our courthouse priorities for fiscal year 2023 include
    construction funding for the space emergency courthouse project
    in Puerto Rico and for new courthouse projects in Hartford,
    Connecticut, and Chattanooga, Tennessee. We thank the
    Subcommittee for the funding provided in the fiscal year 2022
    omnibus and ask that the balance to fully fund these projects
    be provided in fiscal year 2023. The Capital Security Program
    makes security improvements to courthouses, and we seek 2023
    funding for projects in Augusta, Georgia and Fort Wayne,
    Indiana.
        Lastly, we are taking steps to modernize our case
    management System, CM/ECF for short, and the PACER system used
    to access online court records. After extensive analysis, we
    have concluded that both CM/ECF and PACER are outdated and
    require replacement. We expect to fund the bulk of our
    modernization efforts from PACER user fees. As Congress
    considers legislation related to CM/ECF and PACER
    modernization, our primary concern is that there is a stable,
    predictable funding stream going forward to modernize and
    operate these systems. We will continue to keep the
    subcommittee apprised of our modernization efforts, as well as
    the impact of any legislation on our ability to finance CM/ECF
    and PACER activities.
        Chairman Quigley, Ranking Member Womack, and members of the
    subcommittee, I want to thank you for your ongoing support of
    the AO and the judicial branch as a whole, and to thank you
    again for the opportunity to testify today. I would be pleased
    to answer questions.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Quigley. Thank you for your opening statements.
        And I would, respectfully, ask you both to provide a deeper
    dive on the cybersecurity needs that you are addressing. What
    are the long-term needs? What is your best effort at addressing
    this in annual appropriations versus the need for a
    supplemental? How much of this needs to happen and how quickly,
    and what are the costs involved with both?
        Judge St. Eve. Thank you, Chairman Quigley.
        As you know, we have submitted a supplemental request that
    totals $403 million for our IT security and modernization
    needs. And they really go hand-in-hand. In order to enhance our
    cybersecurity, we need to modernize our IT, which has become in
    some instances obsolete.
        We have a Judiciary IT Security Task Force that has been
    looking closely at these issues, and that Task Force includes
    members of DOJ who are experts in cybersecurity, as well as a
    member from the Department of Homeland Security's Cybersecurity
    and Infrastructure Security Agency. They are looking at our IT
    and coming up with recommendations. Our goal is to put in place
    zero trust architecture which will include IT verification,
    multifactor authentication, network segmentation, and other
    pieces to put the necessary security in place.
        In terms of the cost, we are vulnerable. I know we have
    shared some of our vulnerabilities with you and Ranking Member
    Womack, and we are happy to provide, outside of this hearing,
    additional information. We are trying to take care of those
    vulnerabilities through modernization and enhancing our
    cybersecurity.
        To answer the second part of your question about the timing
    of it, ideally, we would prefer to have a supplemental lump sum
    for this. That would, for one, take some of the pressure off of
    this subcommittee in terms of funding it, but it also will
    allow us to know that we can start and complete multiyear
    projects. This is going to be an ongoing project. We have a
    five-year plan that we are working on for it. If we don't get
    supplemental funding, we will have to incorporate those funds
    into our annual requests and we have done so, or started to do
    so, with fiscal year 2023.
        Judge Mauskopf. I will just add, as I said in my opening
    remarks, I can't overstate the gravity of the need to do this.
    We are a repository. We, the judiciary, are the repository of
    some of our Nation's most sensitive law enforcement and
    national security information in the cases that get filed
    within our courts.
        We also know that we are vulnerable. We are an
    organization, an entity, a branch of government, that is like
    many others in government. We need to modernize our systems. We
    are not alone in this effort.
        Chairman Quigley, as you noted, we make our funding request
    not lightly and after significant study of our own systems by
    GSA's 18F consultancy, by the Department of Homeland Security,
    and the Department of Justice, all of which are experts in this
    field. We have met with the White House cyber czar and his team
    to make sure that we are part of the entire federal
    government's effort.
        Mr. Quigley. And let me ask you, how do you coordinate with
    other federal agencies on an ongoing basis?
        Judge Mauskopf. With respect to cybersecurity, in
    particular, over the past year, we have developed seamless
    relationships with our executive branch partners that are
    expert in areas of cybersecurity, that are responsible for
    investigating issues with respect to cybersecurity, and that
    are helpful to us in assessing our needs and developing the
    systems that we need in the most secure and cost-effective
    ways. Our partnerships have really brought to our table the
    necessary components for us to put together the request that
    you see and to move forward on our modernization efforts.
        Mr. Quigley. Thank you.
        Mr. Womack.
        Mr. Womack. Whenever I hear the word ``modernization,'' I
    think new things, new shiny objects, new stuff, expensive
    stuff. And, look, all these vendors, they are smart. You know,
    they provide certain platforms that will probably have a shelf
    life before their technology is changed, maybe even slightly,
    to warrant new stuff.
        I mean, I have got, I guess, the latest, greatest iPhone. I
    don't know much more of what it does that my previous one
    didn't do, but I do have it. This stuff gets expensive.
        So, Judge St. Eve, help me understand how archaic our
    systems are in terms of how old they are. Because, once upon a
    time, they were new and they served our purposes. So, can you
    kind of put into context, when we talk about all of these
    modernization needs that we have--and they do become very
    expensive--what are we trying to replace; why are we trying to
    replace it, and what will making this kind of investment
    actually do for the services you render?
        Judge St. Eve. Thank you, Ranking Member Womack.
        We have underinvested in our IT in the past because we have
    had other priorities, and we are not alone in that. I think
    many government agencies are in the same position.
        What we are trying to do is not replace all of the
    equipment, but bring new objectives to achieve what is called
    zero trust architecture. That will involve changing some
    policies, which won't cost any money. We are doing that as
    well. But that will also involve bringing additional technology
    to our IT systems to verify user identities, for example, and
    to engage in network segmentation, where you can't get from one
    place to another without going through additional hoops that
    will bring more security to the system.
        Mr. Womack. So, the things that we are replacing, how old
    are they?
        Judge St. Eve. I don't know exactly how old they are. I
    think it varies depending upon the court since the different
    districts and Circuits use different systems.
        Mr. Womack. I mentioned in my opening about leaks. Leaks
    are never good, whether it is your oil pan or your indoor
    plumbing. Leaks in the federal judiciary, particularly at the
    Supreme Court, are profoundly--profoundly--troublesome to me.
        Is keeping draft opinions at the district and appellate
    court levels, keeping all that confidential, is that difficult?
    Do we have these issues at that level?
        Judge St. Eve. I can only talk about my own experience at
    the district court in the Northern District of Illinois and in
    the Seventh Circuit. I speak with my staff and my law clerks
    when they come onboard and make clear how important
    confidentiality is. I am not aware of a problem that we have
    had in the Northern District of Illinois or the Seventh
    Circuit.
        Mr. Womack. About it, Judge Mauskopf?
        Judge Mauskopf. I would echo that experience, as a judge.
    And since we have been talking about cybersecurity, and we have
    mentioned segmentation and zero trust architecture, I note that
    one of the things that we are concerned about in the cyber
    arena is that we are a systems of systems, and our systems
    house draft opinions. That is another category of very
    sensitive predecisional information that we house within our
    systems, which is yet another reason why we need to take steps
    to modernize our systems and to ensure that those types of
    controls are put in place.
        Mr. Womack. I acknowledge the work in the probation and
    pretrial service arena. You have got a $28 million increase for
    those services. And I am sure it is related to the growth in
    offenders and defendants living in our communities. Of the $28
    million, if you don't get all that $28 million, what happens? I
    mean, how does it impact the probation and pretrial service
    piece?
        Judge St. Eve. I agree, Ranking Member Womack, with what
    you said at the beginning of the hearing about the critical
    public safety role that probation officers play, and they
    really do. If we don't get all of the money we requested for
    probation we will have to cut back and won't be able to hire
    and bring on as many probation officers as we would like.
        We have seen, over the past couple of years, the workload
    increase for probation officers for a couple of reasons. Those
    reasons are all driving toward the fact that they are
    supervising now a higher-risk category of offender. The First
    Step Act resulted in additional early releases through the
    retroactive release program----
        Mr. Womack. So, that put a lot of pressure----
        Judge St. Eve. That put a lot of pressure----
        Mr. Womack [continuing]. On an already heavily leveraged
    organization?
        Judge St. Eve. Exactly. So, because of that, probation
    officers ended up supervising more individuals than they
    previously were and, generally, they supervise a higher-risk
    population.
        Another factor that has had a significant impact over the
    last year is part of the First Step Act, and that is
    compassionate release motions. Individual defendants can now
    file compassionate release motions directly with the court.
    They don't have to go through the Bureau of Prisons anymore.
    The First Step Act permitted that change.
        When COVID first began, we saw thousands of applications
    and motions being made. Early on, before vaccines were
    available in the Bureau of Prisons, many of these motions were
    being granted. Approximately 3600 were granted between January
    of 2020 and June of 2021. Out of those that were granted, about
    29 percent of those defendants had a criminal history Category
    of VI. That is the highest category you can get in the
    Sentencing Guidelines.
        Mr. Womack. Yes.
        Judge St. Eve. So, those are the defendants they are
    supervising.
        Mr. Womack. Yes. So, it, basically, serves as an unfunded
    mandate when something like that passes and it impacts you
    downstream.
        Mr. Chairman, I appreciate the fact that I have gone a
    little bit over. I apologize for that, but I think it is very
    important to note that, when we pass measures in the Congress
    that do put pressure on a judiciary like that, we need to be
    mindful of it.
        And I yield back.
        Mr. Quigley. Absolutely, and chairmen and rankers have
    their ``magic minutes,'' too.
        Mr. Pocan.
        Mr. Pocan. Thank you, Mr. Chairman.
        Thank you to the witnesses.
        I apologize, as I have two hearings going on, or I would be
    there in person.
        Just so you know, we don't have a timer for those of us who
    are remote. So, I have set my own timer, but I just thought you
    might want to know that for other purposes.
        My first question would be, you know, I recently spoke with
    a federal judge in my district about some very much-needed
    repairs at the federal courthouse in Madison, Wisconsin. My
    understanding is that they have got a number of exterior
    issues, including rusting and other items.
        How does that funding work for repairs? And how can this
    subcommittee support those types of needed repairs?
        Judge Mauskopf. Thank you very much, Member Pocan.
        There are different types of budgets that are available to
    address issues at courthouses. We don't like to build
    courthouses if we can repair courthouses and put them back to
    good use. So, there are mechanisms that are available to do
    those types of exterior fixes through GSA's repairs and
    alterations program.
        There is also the Capital Security Program. Where repairs
    are necessary to improve the security aspect of a building,
    there is funding available to do those types of projects. We
    are very thankful for the funding that was put into the Capital
    Security Program in the fiscal year 2022 omnibus, as that
    program had not been funded for several years.
        Mr. Pocan. Great. Thank you.
        Another question around staffing, and I know that was one
    of the areas that you mentioned there is just no funding for.
    So, there, also, in my State is an open federal judgeship that,
    because of silly Senate rules, as the best way I can describe
    it, it is an open position, but you are paying someone to come
    in and be a temporary judge at a full-time level. What does
    that cost compared to just having someone confirmed by the
    Senate? Is there an additional cost to having someone full-time
    filling at that level? I am just trying to get an idea of what
    is happening because of inaction.
        Judge Mauskopf. If it is an Article III vacancy, I take it
    that you are talking about a visiting judge who is coming in to
    take on some of the caseload----
        Mr. Pocan. Yes.
        Judge Mauskop [continuing]. Where there are not sufficient
    authorized judgeships filled. Is that right?
        Mr. Pocan. Yes, correct.
        Judge Mauskopf. So, I don't think we have a breakdown of
    how much that costs, but, of course, there is travel involved.
    Judges need support, whether it is court reporter support or
    law clerk support. In this day and age, we try to do some of
    that remotely and we have good communication back with our home
    courts to avoid expense. We often try and leverage the
    resources that are available within the court itself for the
    visiting judge.
        But it is not without cost. It is not without additional
    burden. Of course, filling vacancies is critical to make sure
    that all courts in the country have their authorized strength
    of judgeships to get the job done.
        Mr. Pocan. How would I get an estimate of what additional
    cost that is for the Eastern District in Wisconsin? Because it
    has been vacant for about six months, and I am just kind of
    curious how much extra we are spending because of that.
        Judge Mauskopf. I can take that question back and get you
    some additional information.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pocan. Great. I appreciate that. Thank you very much.
        I have 45 seconds. I don't know if it adequate time, but,
    hopefully, someone will ask you more about the Federal Public
    Defenders Program, because I was curious about it. I know you
    said that you don't have enough, that fewer than 10 percent of
    federal defendants can afford counsel. If that comes up, I will
    be glad to hear those answers.
        And I will yield back, Mr. Chairman. Thank you.
        Mr. Quigley. Mrs. Torres.
        Mrs. Torres. Thank you, Chairman Quigley.
        And thank you, Judge St. Eve and Judge Mauskopf, for being
    here with us today.
        Congress heard disturbing and heartbreaking testimony this
    March of sexual harassment, workplace abuse, retaliation, and
    the use of non-disclosure agreements by the judiciary against
    its own employees. I am disappointed with Chief Justice
    Roberts' response to these reports by declaring inappropriate
    workplace conduct is not pervasive within the judiciary.
        So, I want to emphasize how important it is that the
    Administrative Office and the Judicial Conference respond to
    claims of sexual harassment and workplace misconduct by taking
    active steps to welcome those brave individuals that come
    forward and the bystanders that witness this harassment; and
    that more emphasis and attention needs to be paid to the
    victims of this harassment.
        So, Judge Mauskopf, I understand that the Office of
    Judicial Integrity is supposed to provide confidential advice
    to judiciary staff on workplace issues, such as sexual
    harassment, and coordinate staff training programs, and ensure
    consistency in workplace policies and protections across the
    circuit. I read your statement, your opening statement, here as
    it relates to that report and the working group.
        I am not sure that I am confident that this climate survey
    of judiciary employees at regular intervals, or the survey that
    was just posted, how reliable that information is, since I
    understand that, in January, the AO sent a form to thousands of
    judiciary staffers asking if they had witnessed wrongful
    conduct in the workplace. After the first 40 responses, which
    85 percent of those 40 respondents said yes--yes--that question
    was shut down. So, how reliable truly is this report that is
    made public?
        Judge Mauskopf. Thank you very much, Representative Torres.
        I know your commitment to workplace conduct issues, and I
    assure you that the entire judiciary and the Administrative
    Office is committed to sustaining an exemplary workplace within
    the judiciary. There has been considerable work done over the
    past several years to enhance the protections that are
    available to judiciary employees--in fact, protections that go
    beyond the statutory protections against discrimination,
    harassment, sexual abuse, sexual harassment.
        Let me make a clear distinction between the climate survey
    that the Workplace Conduct Working Group has recommended in its
    recent report and the incident that you mention in January with
    respect to a question that was put to employees.
        In January, the Office of Judicial Integrity and the
    Directors of Workplace Relations were conducting a nationwide
    training program for chambers staff, both law clerks and
    administrative staff in chambers. There was a registration
    form. You had to sign up because it was a virtual presentation.
        An administrative clerical person on their own decided to
    ask a very broad question about, have you ever witnessed
    harassment in the workplace?
        Mrs. Torres. Why would that question not be encouraged in
    such a wide questionnaire?
        We have like 16 seconds. So, I just want to, for the
    record, ask you, is it true that there are only two staffers,
    full-time employees, for the 33,000 judiciary staff? And are
    two staffers to investigate these harassment complaints enough?
        Judge Mauskopf. There are many more than two in the
    judiciary. There are two in every district court and bankruptcy
    court. There is a Director of Workplace Relations and two EDR
    Coordinators in each circuit, and there is a central Office of
    Judicial Integrity. So, there is----
        Mrs. Torres. My time is up, but I promise you that I will
    give you more time in the next round.
        Judge Mauskopf. Thank you very much. I would appreciate
    that.
         Mr. Quigley. Mrs. Kirkpatrick was on the screen. I am just
    asking if she is still there.
        Mrs. Kirkpatrick. Yes.
        Mr. Quigley. Well, there you go. Mrs. Kirkpatrick.
        Mrs. Kirkpatrick. One of the areas I am most concerned
    about is court capacity. Federal judges in Arizona where I live
    have some of the highest caseloads in the country. This is, in
    part, due to our proximity to the southern border, among other
    reasons. These high caseloads and lack of general court
    capacity have led to significant consequences and erosion of
    the court's ability to maintain normal order.
        For instance, we have seen a number of reports of judges
    curtailing or fully eliminating oral arguments; severe delays
    in case processing; high stress and burnout among judges and
    staff, among other detrimental effects.
        Judge Mauskopf, you indicated in your testimony that
    failing to extend temporary judgeships across the country,
    including in Arizona, would be harmful to the administration of
    justice in a timely manner. Would you please share some of the
    specific challenges you have seen coming out of Arizona, and
    what sort of impacts failing to extend these temporary
    judgeships would have on my State? Additionally, please speak
    to the overall scope of need for more judges throughout Arizona
    and the greater southern border region.
        Judge Mauskopf. Thank you very much, Representative
    Kirkpatrick.
        As you note, Arizona has one of the temporary judgeships
    that we are requesting be extended yet another time. In
    addition to that temporary judgeship, the Judicial Conference
    has recommended four additional permanent judgeships for the
    District of Arizona. The caseload in Arizona is such that it
    can support not only the conversion to permanent of the one
    temporary judgeship, but four additional judgeships. That is
    representative of the high volume of cases on the Southwest
    border.
        I know that we have used visiting judges on the Southwest
    border, including in Arizona, to meet the needs of the courts,
    particularly with respect to criminal cases, but there is also
    a need for additional judges to handle all of the caseload in
    Arizona.
        We have talked about probation and pretrial services, and
    how important that is to public safety. There is a particularly
    acute need to focus on resources for probation and pretrial
    offices in the District of Arizona. There is unique geography
    in the District of Arizona. There are tribal nations that need
    to be served that also bring unique needs to probation and
    pretrial in the District of Arizona. Again, this is also true,
    across many districts on the Southwest border. So, there is an
    acute need for judgeships and an acute need for additional
    resources to handle that type of probation and pretrial
    caseload.
        Mrs. Kirkpatrick. I have another question. Over the past
    few years, Congress has endeavored to modernize its practices
    in a number of areas, in an effort to improve efficiency,
    collaboration, and effectiveness. Modernizing systems across
    the entirety of the federal government must be a priority.
        One of the concerns I have heard surrounding the judiciary
    is the archaic nature of its systems, particularly the Case
    Management System. Judge, thank you for your written testimony
    on this matter. And I would appreciate that you expound on the
    current Case Management System's shortcomings and the efforts
    to modernize it.
        Judge Mauskopf. Our case management system, CM/ECF, is the
    backbone for two things. It is the backbone for our operations
    within the courts. It is the public filing system for
    litigants. It is how judges manage their cases. It is also the
    backbone to the public access system, the PACER system, by
    which the general public accesses judiciary records.
        Judge St. Eve has been involved with CM/ECF for quite some
    time. It was built long ago. It has had a lot of bells and
    whistles added to it over time. But we commissioned GSA's 18F
    consultancy to do a complete analysis of our CM/ECF system. It
    is unsustainable. It is no longer up-to-speed. We need to
    completely rebuild it and we need to maintain it while we
    completely rebuild it. But we have already embarked on that
    process to build a new CM/ECF.
        Mrs. Kirkpatrick. Thank you so much. Thank you for your
    testimony. Thank you for answering my questions.
        And I yield back.
        Mr. Quigley. Thank you.
        Mrs. Lawrence I believe hopped on. Is she still there?
        [No response.]
        If not, we will go to a quick second round. A few people
    have----
        Mrs. Lawrence. I am here.
        Mr. Quigley. Oh, there you are.
        Mrs. Lawrence. Yes. Sorry.
        Thank you so much.
        Judge Mauskopf, you mentioned in your prepared testimony
    that the fiscal year 2022 will be a difficult budget year for
    much of the judiciary. Can you elaborate on this point and talk
    about some of the constraints you see going forward, especially
    as it relates to staffing?
        Judge St. Eve. Thank you, Representative Lawrence.
        We appreciate the support from this Committee for our
    fiscal year 2022 budget, but the enacted appropriation was
    short of what we asked for. We asked for a 6.3 percent increase
    and received a little bit over a 3 percent increase, which will
    have the largest impact on our Salaries and Expenses account.
    Most of our staff is paid from that account.
        We won't be able to bring staff on that we need in certain
    areas. Our IT mission will lack that additional staff that it
    could use, and we won't be able to go forward with as many
    changes as we would like to. We will have to wait for the next
    year. So, not getting the amount that we asked for certainly
    will have an impact on the Salaries and Expenses account.
        Mrs. Lawrence. Okay. Judge St. Eve, what efforts are being
    taken by the judiciary--I understand the budget is not where
    you want it to be--to recruit, hire, and retain a highly
    qualified, diverse workforce?
        Judge Mauskopf. Representative Lawrence, there are a number
    of initiatives going on across the judiciary to recruit and
    ensure that we have a diverse and qualified workforce.
        Prior to becoming the Director, I chaired the Judicial
    Conference's Judicial Resources Committee and its Subcommittee
    on Diversity. One of the initiatives started at that Committee
    was the Diversity Roundtable, and it brings together
    representatives of a number of committees, including in the
    magistrate judges community and the bankruptcy judges
    community.
        We are all sharing and employing best practices to do
    outreach to broad segments of our communities to make sure that
    people are aware of positions that are available, to talk to
    people about how to become a magistrate judge or a bankruptcy
    judge, and to make sure that we get a broad and diverse pool of
    qualified applicants for every position that we are hiring.
        The Defender Services Program----
        Mrs. Lawrence. Thank you.
        Yes, I wanted to get this next question in. Thank you so
    much.
        Judge Mauskopf, the Sixth Amendment of the Constitution
    guarantees the accused a right to be represented by counsel in
    serious criminal prosecution, and rightfully so. But there is
    an 8.2 percent increase over fiscal year 2022 level to maintain
    current services within the defender services budget. How will
    this budget that we are talking about work to ensure that the
    administration of the Judiciary addresses the workload
    challenges? I hear what you are saying, and we are making a
    commitment for a diverse workforce. But are we going to be able
    to meet the goals of the Constitution?
        Judge St. Eve. We certainly will meet the goals. The
    defender services workload, as you indicated, is up. Caseload
    filings went down during the pandemic. So, there were fewer
    criminal case filings. Those are now starting to go up, and the
    defenders are seeing those cases. But pending cases have gone
    up during the pandemic because trials were slow to resume, and
    even once they resumed in the courtrooms, you can't try as many
    cases at once as you used to because of pandemic restrictions.
    So, the defenders are facing a higher pending caseload.
        I think 7.8 percent of the defender services request is
    needed just to maintain current services. So, we are hoping
    that the defenders will get that.
        Mrs. Lawrence. Well, I look forward to staying in touch
    with you because this is really important, and the staffing
    issue is something that I am very concerned about.
        And I thank you, and I yield back.
        Mr. Quigley. We are going to go to--a few members have a
    second question. We appreciate your patience.
        And we will turn to Mr. Womack first.
        Mr. Womack. Yes, just very quickly, Judge Mauskopf, you
    were, in response to my colleague, Mrs. Torres' question, you
    were in the process of talking about the survey that was done
    back in January. And I think mid-sentence she took her time
    back. But you were about to say something about a question
    offered by a staffer that was one of those, ``Have you ever. .
    .?''-type questions. So, do you want to finish that thought for
    us, please?
        Judge Mauskopf. The question was asked on a registration
    form. It was merely asking, ``Are you attending this program?''
    And on the initiative of a clerical staffer, the question was
    included. The question was broad. It did not even ask about the
    judiciary as the workplace. It didn't have a timeframe, and it
    was a broad-based question: ``Have you ever witnessed
    harassment or workplace misconduct?''
        There were some people who responded yes. Every single one
    of those individuals who responded yes was contacted by the
    Office of Judicial Integrity to make sure that it was not an
    issue within our workplace and that if it was an issue within
    the judiciary workplace, that it was followed up on. In fact,
    many of the respondents said, ``I wasn't even talking about the
    judiciary.''
        The reason the question was pulled was because, as you can
    imagine, workplace conduct issues are sensitive. They need to
    be reported. We encourage reporting. But they shouldn't be
    reported on a registration form for a video training program.
    That is why we felt very strongly about following up with each
    and every one of those respondents to make sure that, if there
    were issues within the judiciary that needed to be addressed,
    they would be addressed.
        Mr. Womack. Thank you for clarifying, yes.
        Mr. Quigley. In my opening statement, I talked about the
    livestream audio and video that has taken place during the
    pandemic. I would like your thoughts on how this has worked and
    the likelihood that this might continue post-pandemic.
        It was a Supreme Court Justice that said that sunlight is
    the best of disinfectants. However anyone views it, the fact of
    the matter is public perceptions are reality and people want to
    see what is happening. Warts and all, people can watch
    everything we do here in Congress. We certainly hope and
    appreciate that you can continue this livestreaming.
        Judge Mauskopf. So, thank you, Chairman Quigley.
        I think we have learned a lot over the past two years about
    the use of technology with respect to improving public access
    to the judiciary. I think there are lots of different levels.
    Some are much more complicated than others.
        In the appellate courts, for example, all 13 courts of
    appeals are using some type of livestreaming, whether it is
    audio streaming or, in some courts of appeals, such as the
    Ninth Circuit, and to a lesser degree the Second Circuit, there
    is video livestreaming. That seems to be working quite well and
    I believe that many of the circuits are discussing keeping
    those types of practices post-pandemic.
        In the district Courts, in the bankruptcy Courts, things
    get a little bit more complicated. That is especially true
    within the district Courts, where you have both the criminal
    side and the civil side.
        The CARES Act has been critical to the district Courts'
    ability to keep justice moving forward during the pandemic.
    Pleas and sentences have moved along with dispatch during the
    pandemic, although I must say, based on my own experience as a
    judge--I think, Judge St. Eve, being a former district court
    judge, can understand this as well--it hasn't been perfect.
        One area that is particularly difficult is the fact that
    the federal defender community and the Criminal Justice Act
    community, has had to navigate significant challenges in
    building a relationship of trust with their clients using
    technology.
        Where we have had successes, as you know, Chairman Quigley,
    is broadening public access through the use of the CARES Act by
    allowing participants to come into proceedings virtually. I
    think there is room in many areas to be able to use technology
    to broaden public access.
        In the bankruptcy courts, for example, there are consumers
    who are required to come to court to explain their
    circumstances. Technology has allowed them to come to court
    virtually and not to have to take a day off from work or to
    travel long distances to come. It also allows others to come
    and listen to proceedings who are interested.
        Of course, we are not streaming trials. The rules of
    criminal procedure prohibit that. And I don't think the
    pandemic has changed the concerns that the judiciary has long
    held about the concerns of streaming trials--the privacy
    concerns, witness concerns, and the safety concerns for trial
    participants. I don't think those have changed.
        But I think there is real ground to improve public access
    to the courts through the use of technology, based on our
    experience during the pandemic.
        Mr. Quigley. I appreciate that.
        Mrs. Torres.
        Mrs. Torres. Yes. Thank you for finishing your thoughts.
        In the Office of Judicial Integrity, how many employees do
    we have there?
        Judge Mauskopf. There are now two. There will be three.
        Mrs. Torres. Okay. So, those two--or soon to be three--
    employees will oversee 33,000 staff, judiciary staff,
    complaints/concerns?
        Judge Mauskopf. No, they are not the only place that takes
    these types of complaints or gives advice. We have----
        Mrs. Torres. But they are the last?
        Judge Mauskopf. No, I wouldn't say that. They could be the
    first.
        Mrs. Torres. Okay.
        Judge Mauskopf. There are Directors of Workplace Relations
    in each of the circuits. There are Employment Dispute
    Resolution Coordinators, two in every district court and in
    every bankruptcy court. They take complaints. They give
    confidential advice.
        So, there is a network that is available to each and every
    employee, based on their own comfort level of where they would
    like to bring a complaint or where they would like to seek
    advice. They can do it within their court. They can go out of
    their court to the circuit. They can go out of their court
    system to the Office of Judicial Integrity.
        Mrs. Torres. I am going to ask a follow-up on that in
    written form.
        Right now, I want to ask you about the individuals that
    were contacted on that very broad question. Because, you know,
    I believe that, with 85 percent of the respondents, maybe the
    survey could have been resent and the question could be asked
    more specifically.
        So, of the individuals contacted, what was that approach?
    Were they given their rights as individuals to report? Were
    they given opportunities to anonymously report misconduct? Were
    they put through training, and what kind of training?
        You know, in Congress, we have a lot of issues with Members
    of Congress harassing their employees, including offering a
    payment to surrogate a baby. I mean, these are just outrageous
    issues that we were seeing until there was skin in the game,
    where now Members of Congress have to pay out of their own
    pocket when they harass an employee, sexually harass an
    employee, and they are found to be guilty.
        So, this is where I am going. Like what are we doing to
    change the climate? This is a really important issue that you
    oversee every single day.
        Judge Mauskopf. We have done quite a bit in terms of
    changing the climate. The codes of conduct for judges have been
    changed to require judges to report misconduct that they,
    themselves, see, including with respect to their own
    colleagues. A failure to report is misconduct in and of itself.
        Mrs. Torres. What is that? What does that mean?
        Judge Mauskopf. I think you are familiar with the judicial
    conduct and disability process. There are judicial conduct and
    disability sanctions that flow from violations of the codes of
    conduct.
        Mrs. Torres. Without naming a judge, can you give me an
    example of how an incident was managed, punished?
        Judge Mauskopf. Well, I think there are----
        Mrs. Torres. Adjudicated?
        Judge Mauskopf. I think there are a number of publicly
    available reports of ways in which judicial misconduct has been
    handled through the JC&D process that resulted in judges
    resigning from the bench. I mean, obviously, impeachment is the
    potential for wrongful behavior by a judge.
        Mrs. Torres. In writing, I will ask you to further explain
    and provide an example.
        Judge Mauskopf. We welcome that.
        Mrs. Torres. But are you confident that the judiciary has
    everything it needs to actually protect employees from sexual
    harassment, discrimination, and retaliation?
        Judge Mauskopf. I am confident that we have a system that
    protects employees against all of those things; a system that
    will root out those things; and a system where employees,
    including law clerks, can be comfortable reporting those things
    without fear of retaliation.
        Every workplace has to strive to do as much as it can to
    sustain the systems that it has and to improve the systems that
    it has. That is why the Workplace Conduct Working Group
    continues its efforts and has made the recommendations that it
    has recently made, including to conduct a comprehensive climate
    survey of the judiciary itself, where employees will be able to
    anonymously report how well our systems are working and what
    they, themselves, have experienced or witnessed.
        Mrs. Torres. My time is up. I look forward to reading your
    answers, and I look forward to you expanding on that. Thank
    you.
        Judge Mauskopf. Thank you.
        Mr. Quigley. Thank you.
        Mrs. Kirkpatrick.
        Mrs. Kirkpatrick. Thank you.
        Judge, I have just a couple of questions.
        Given the rising distrust in the court system, especially
    as it pertains to the Supreme Court, how do you balance
    providing adequate security to judges and Justices with every
    American's right to protest? Is it the judiciary's view that
    Justices and judges should be immune from public scrutiny and
    protest? Or should they be subject to free speech and protest,
    like other public officials?
        Judge Mauskopf. Representative Kirkpatrick, I think there
    is a profound difference between the First Amendment right to
    protest and concerns and threats against judges and justices.
        And unfortunately--and I will speak about the lower courts
    here--I mentioned the just horrific tragedy that befell Judge
    Esther Salas' family, including the murder of her son, the
    serious wounding of her husband.
        Unfortunately, that is not the only example of violence
    against judges. We have Judge Lefkow in Chicago, Judge Vance in
    Alabama, Judge Daronco in New York. There are so many actual
    incidents of violence against federal judges in the lower
    courts.
        The lower court judges--magistrate judges, bankruptcy
    judges, district judges--are on the frontlines in litigation,
    where, unfortunately, sometimes people are not happy with the
    outcome of their proceeding or the way their proceeding is
    handled. It is these types of acts that the judiciary needs to
    be protected against.
        It is these types of acts that underlie the motivation
    behind the Daniel Anderl Judicial Security and Privacy Act that
    we have put forth to try and protect the public information
    available about judges so that dossiers about judges' homes or
    where they travel day-in and day-out--as was done with respect
    to Judge Salas, Justice Sotomayor--can't be compiled and can't
    be used to threaten or to bring violence to a judge or a
    judge's family. There is a big difference between that and
    peaceful public protest.
        Mrs. Kirkpatrick. Thank you. Thank you for answering my
    questions.
        And I yield back.
        Mr. Quigley. Thank you.
        We want to thank our witnesses today. Judges, we appreciate
    your input.
        Ranking Member Womack and I, and the committee, look
    forward to working with you during this budgetary process, as
    appropriations begins.
        Thank you so much for everyone who was involved today.
        This meeting is adjourned.
        [Questions and answers submitted for the record follow:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                                 Tuesday, May 17, 2022.

                        OFFICE OF MANAGEMENT AND BUDGET

                                    WITNESS

    HON. SHALANDA YOUNG, DIRECTOR, UNITED STATES OFFICE OF MANAGEMENT AND
        BUDGET
        Mr. Quigley. Good afternoon. The Approps Subcommittee on
    Financial Services and General Government, Fiscal Year 2023
    Budget Request for the Office of Management and Budget
    committee hearing will begin. I will begin with the opening
    statement.
        This afternoon we welcome back the Honorable Shalanda
    Young, the Director of the Office of Management and Budget, to
    testify on OMB's fiscal year 2023 budget.
        Director Young is very familiar to us, having previously
    served as staff director to this committee.
        Last year, she testified before this subcommittee as the
    acting OMB director. I could not be more thrilled that the
    President nominated her and the Senate confirmed her to be the
    permanent head of the agency. Congratulations.
        Of course, Director Young's title is hardly the only thing
    she has changed in the past year at OMB.
        I want to highlight a few of these items.
        First, as a supporter of government transparency, I have
    pushed for years for more openness when it comes to the
    President's budget and OMB's apportionment authority. So, I am
    glad that we were able to secure several new transparency
    requirements in the fiscal year 2022 bill, including the
    creation of a single landing page with links to federal agency
    budget justifications and public disclosure of OMB
    apportionments.
        These are important changes that will provide the public
    with insight into billions of dollars of federal spending,
    while ensuring this committee, and Congress, can perform its
    oversight work and ensure the executive branch is faithfully
    implementing appropriations law.
        I know OMB has already met several deadlines specified in
    these new provisions, and I look forward to hearing more about
    the remaining requirements and when they will be completed.
        Last year, Congress also passed the Infrastructure
    Investment and Jobs Act. This bill is a historic investment in
    U.S. infrastructure priorities, including broadband, roads and
    transit, water and power systems, and more, and will provide
    real benefits to every community in the country.
        But it also adds to the oversight responsibility of OMB,
    which is already monitoring trillions in spending for
    coronavirus relief, as well as supplemental funding for
    Ukraine, all in addition to regular approps.
        OMB is also grappling with significant government-wide
    challenges and opportunities.
        For example, we expect that increased use of remote work
    will last far beyond the pandemic, allowing agencies to
    diversify their hiring pools, reduce office space requirements,
    and cut their greenhouse gas emissions.
        The Ukraine situation has also highlighted ongoing
    deficiencies and vulnerabilities in agency cybersecurity,
    accentuating OMB's work coordinating government-wide IT and
    cyber spending.
        We hope to learn more today about how OMB is incorporating
    these factors into government policy and long-term federal
    budget planning.
        In recognition of these and other responsibilities, OMB has
    requested $128 million--a $12 million, or 10 percent increase,
    over the fiscal year 2022 enacted budget. This builds on a 9
    percent increase in funding we provided this year.
        In addition, the request includes a $6 million increase for
    the Information Technology Oversight & Reform account, which
    partially funds OMB's Office of the Federal Chief Information
    Officer.
        We look forward to a robust discussion about how these
    funding increases will be used to benefit the public, including
    combating the inflation that is hitting so many Americans right
    in their checkbooks.
        I now turn to the Ranking Member Mr. Womack for his opening
    remarks.
        Mr. Womack. Thank you, Mr. Chairman. And welcome back to
    the committee, Director Young.
        I, too, congratulate you on your confirmation. Who would
    have ever thought that a management fellow at NIH, what, 20
    years ago?
        Ms. Young. Twenty-one.
        Mr. Womack. Twenty-one years ago would have, would have led
    to being Director of the Office of Management and Budget, and
    we are all very proud of you. Miss your work here, but
    nonetheless, you are doing remarkable things in this country.
    And we congratulate you.
        You are leading OMB during a very challenging time, as the
    country struggles with the health and economic impact of COVID-
    19, staggering inflation, and the war in Ukraine. I appreciate
    the hard work of all the staff at OMB to help address the needs
    of the country.
        Regarding the fiscal 2023 budget, I am disappointed that
    once again it proposes massive non-defense increases,
    inadequate defense spending, and the elimination of
    longstanding life protections, such as Hyde. Last year, when
    you testified, I said that I was concerned at the excessive
    level of federal spending by this Administration would lead to
    both inflation and historically high debt that will hinder the
    recovery and burden future generations of Americans.
    Unfortunately, my concerns have materialized.
        Inflation is at the highest level since 1981. The budget
    proposes increases in both taxes and spending, which will
    likely grow inflation even higher.
        Now, regarding the nation's debt, it currently exceeds 30
    trillion. And the President's budget estimates it will grow to
    over 44 trillion in the next 10 years. This debt, along with
    increasing interest rates, will hurt future generations'
    economic opportunities, and hinder the Federal Government's
    ability to fund the future security needs of the country.
        I was hoping that as the pandemic waned and the economy
    grew, we could reduce non-defense spending. Yet, the
    President's request proposes even more.
        I am also troubled with the Administration's tax proposals.
    I don't see how increasing taxes on American corporations will
    help reduce inflation, address supply chain disruption, or help
    American companies compete on a global basis. I understand the
    Administration can propose an aspirational budget, especially
    in a year without budget caps. However, we all know that in
    order for the committee to complete its work for fiscal 2023,
    defense spending will need to go up, non-defense will have to
    come down.
        We also know that longstanding provisions, such as Hyde,
    will be restored.
        In recent years, the appropriations process has broken
    down, resulting in CR after CR, and ending in omnibus
    appropriations bills enacted several months into the fiscal
    year. I hope you will work with the committee in crafting
    bipartisan appropriation bills that can be enacted before the
    start of the fiscal year 2023.
        Regarding the budget request for OMB's operations, I
    believe the 10 percent increase over the current year is
    excessive, but I will work with Chairman Quigley to ensure that
    you have an appropriate level of resources to complete your
    work.
        Director Young, I look forward to working with you and am
    hopeful we have a successful bipartisan appropriations process
    this year. I thank you.
        Mr. Chairman, I yield back my time.
        Mr. Quigley. Thank you, Mr. Womack.
        Director Young, thank you again 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. Young. Will do.
        Chairman Quigley, Ranking Member Womack, Mr. Pocan, Mr.
    Stewart, if people might be up late at night and watching us
    over C-SPAN and wonder why we are all smiling, it is because I
    would like to say I grew up on this committee. This is where I
    cut my professional chops. And really see a lot of people who
    are like family to me sitting at the dais and behind the dais.
        So, I think that the best of Washington is found on the
    Appropriations Committee, and I was very proud to work as Staff
    Director and staff on this committee for about 14 years.
        Thank you for the opportunity to appear here today to
    present the President's 2023 Budget request for the Office of
    Management and Budget. I would like to start by thanking
    members of this committee from both parties for their support
    for OMB's budget in the 2022 Omnibus. These additional
    resources have allowed us to begin refilling career staff who
    those jobs have been vacant for, for many years.
        For example, we have been able to fill longstanding key
    leadership positions, such as the Chief Statistician, at OIRA,
    our regulatory office, which has been vacant for well over 2
    years, and other critical staff-level positions across all
    offices, some of which were vacant for far longer, including
    examiner positions in OMB's Health Division, Medicare Branch,
    and Social Security and Human Service positions in the
    Education, Income Maintenance, and Labor Division.
        As you can see with our 2023 request, rebuilding our career
    staff remains a top priority for OMB. This is the second-lowest
    our staffing level has been in 15 years. Even as OMB continues
    to take significant new areas of responsibility--you have laid
    out many of those--we are implementing the bipartisan
    infrastructure law, Leading the Made in America agenda. The
    bipartisan infrastructure law made our Made in America Office
    permanent.
        We want to transform federal customer service delivery.
    People should not have to guess which 3- or 4-letter agencies
    they have to go to to find services. We should develop a
    government that leads people where they are through life
    experiences.
        And we are answering the call on key issues, like the war
    in Ukraine, and much, much more.
        Our fiscal year 2023 request totals $128 million, an
    increase of 10 percent over fiscal year 2022. These resources
    will allow OMB to continue our work rebuilding and maintaining
    our career staff. And that includes funding to maintain a
    robust Student Pathway to Intern Program, which will help
    strengthen OMB's employee pipeline.
        OMB is also requesting 13.7 million for the Information and
    Technology Oversight and Reform Fund, or ITOR. OMB's Office of
    the Federal CIO would use these funds to reach 53 FTE, which is
    the number of personnel the office needs to do its work
    improving the nation's cybersecurity.
        I would also like to say a few words about the President's
    overall fiscal year 2023 budget request. Under the President's
    leadership, our country has made historic progress in the face
    of significant challenges. We have created 8.3 million jobs.
    The unemployment rate has fallen to 3.6 percent. Last year saw
    the strongest economic growth in nearly 40 years. And we are on
    track to cut the deficit by more than 1.5 trillion this year,
    based on the latest Treasury data.
        The President's 2023 Budget details his vision on this
    progress. It expands our economic capacity, improves our public
    health infrastructure, combats the climate crisis, and advances
    equity, dignity, and security for all Americans. During what
    will be a decisive decade for the world, the budget strengthens
    our military and leverages America's renewed strength at home
    so our nation is prepared to meet pressing global challenges
    and manage crises as they arise. And it makes these investments
    in a fiscally responsible way, reducing the deficit by $1
    trillion over the coming decade.
        Thank you for the opportunity to be here today. It feels
    like coming home. We will see if I have that same sentiment in
    a couple of hours. But I look forward to answering your
    questions.
        Mr. Quigley. Home isn't always fun.
        Again, thank you, Director.
        As I mentioned in my opening statement, I was pleased the
    fiscal year 2022 appropriation package includes several of the
    new transparency provisions that will make the budget process
    more accessible to the public, and help this committee do our
    oversight work.
        Can you outline a little the progress OMB has made in
    meeting the new statutory requirements under 204, many of which
    require public disclosure of apportionments?
        Do you anticipate meeting the deadlines outlined in 204,
    especially for automated apportionment?
        And, again, I was pleased to see the enactment of the
    Congressional Budget Justification Act. This has been a
    priority. The bill requires the OMB director to create and
    continuously update a website that lists budget justification
    information. Can you tell us progress on that matter as well,
    please?
        Ms. Young. Absolutely. And I know you have been a leader on
    transparency issues.
        OMB has already begun to implement the new apportionment
    transparency requirements on March 25th, as required by the
    law. We began posting final apportionment to a MAX Community
    page, so your committee staff can access that.
        Within 15 days after the Omnibus was signed, OMB was
    required to submit our apportionment delegation to the Federal
    Register. We have done that. And we are working to comply to
    our next time frame, which requires apportionments be put on a
    public website. And we intend to meet that time frame.
        On congressional budget justifications, which I know is the
    Chairman's bill, we are working to meet the requirements of the
    Congressional Budget Justification Transparency Act. We have
    already met the Act's requirement that OMB maintain a
    centralized website. The act also requires OMB to develop data
    standards for agency CJs, and we are working on how to meet
    those further requirements, but we are on track to do so, Mr.
    Chairman.
        Mr. Quigley. Thank you.
        The Russian invasion of Ukraine has revived questions about
    the vulnerability of U.S. critical infrastructure, including
    the federal agency system, to potential Russian cyber attacks.
    During the 2023 budget, President's budget--does the
    President's 2023 Budget incorporate such concerns into the
    proposed spending levels on the agency's side for IT needs?
        What is your strategy for addressing these concerns in the
    fiscal 2024 President's budget?
        Ms. Young. Given all that the Appropriations Committee has
    to fund, it is easy for cybersecurity to get left behind. You
    have a lot of obligations; the same with putting together the
    President's Budget. But we have seen through various attacks,
    from Colonial Pipeline to SolarWinds, that we cannot afford to
    let this lapse, and we have to do a better job as a government.
        Cybersecurity is a priority in the 2023 budget. It includes
    $2.5 billion for CISA in the Department of Homeland Security.
    You heard us, we are asking for a little over $13 million for
    our CIO, who oversees cybersecurity efforts across the
    government. And we are doing good work with our technology
    modernization fund, which this committee has supported in the
    past.
        That fund resides at GSA. OMB and GSA run that program. And
    agencies come to us and submit applications for innovative
    projects to strengthen their technology and cybersecurity
    needs. We are seeing that is needed more than ever.
        You mentioned Russia, as well as China. We have to stay on
    top of this threat. And many of our systems are not ready. And
    we often do a good job responding after an event, and we are
    trying to position ourselves, including with the new Zero Trust
    strategy, getting ahead of the issue.
        Mr. Quigley. Thank you.
        Mr. Ranking Member.
        Mr. Womack. Let's go down memory lane a minute, back to
    '18.
        You remember well the budget process, Joint Select
    Committee. Sixteen members: 8 Senators, 8 members of the House.
    And I co-chaired that, that committee with our friend Nita
    Lowey. We talked about a lot of things. But the overarching
    theme was what can we do to fix what most people would
    characterize as a broken budget process in this country.
        And, sadly, you know this is my 12th year, but, sadly, in
    the course of the entire time I have been in Congress we
    haven't seen regular order the way, the way it was designed to
    perform. So, a couple of questions for you.
        Out of that committee, Director Young, we talked about
    biennial budgeting. Do you have any thoughts on it?
        Is it still, do you think it would still be a fresh
    alternative, a more effective alternative to what we are doing
    now?
        Ms. Young. You know, one, I like to clarify when this comes
    up. There is biennial budgeting and biennial appropriating. I
    think there is a lot----
        Mr. Womack. We are talking about budgets right now.
        Ms. Young. We are talking about budgeting. And I do think
    we did some version of biennial budgeting. And I think it works
    fairly well when we had to do 2-year budget deals in order to
    statutorily change the caps that you mentioned.
        We are out of the cap season, but during caps we often
    passed a 2-year budget. That second year was often a smoother
    process. So, I think we have an example that worked in recent
    memory.
        So, I certainly would want to work with several of you. You
    are not the first member. I think there is interest on both
    sides of the aisle and both sides of the Capitol to do
    something.
        From the seat I sit in now, I will tell you CRs are
    detrimental. You know, we did Ukraine funding. We started to
    see Russian aggression while the Department of Defense was in
    CR. That is not an effective way to run a government.
        I will say we can't give grants to state and locals. We
    hold those during a continuing resolution to see what the final
    numbers are. Your communities are used to dealing with that
    uncertainty, but it is not acceptable.
        So, I look forward to working with you to figure out
    something to get us on schedule.
        Mr. Womack. Another frustration I have, and it was
    exacerbated by the COVID pandemic, and that is that we don't
    talk up here a lot about deficits and debt unless there is some
    kind of, you know, consequence as a result from not dealing
    with it.
        You know, we are $30 trillion in debt now. We will add to
    the debt this year and for the foreseeable future. But in that
    Joint Select Committee we, you know, we advocated for a debt-
    to-GDP target.
        What are your thoughts on debt-to-GDP? If you can't get to
    a balanced budget, at least some metric out there that you can
    work toward where there are some guardrails that keep Congress
    from sidestepping the issue. Your thoughts on it?
        Ms. Young. Yeah. And I think we, we talked about this. The
    one thing that comes to my mind I would hope would be avoided,
    I think that is the frustration on the discretionary side. I
    wouldn't want to see us go down a road of doing something with
    similar consequences on the mandatory side.
        When we talk about debt, many of the things that are
    included in that number you cite are spending on entitlements,
    not what the Appropriations Committee is considering, but
    Medicare, Medicaid, Social Security. So, we have to be very
    careful about triggers to make sure there are unintended--not
    unintended consequences.
        I do think the way we are going to have to deal with this
    as we face cliffs in the entitlement programs are both parties
    are going to have to come together and find solutions that deal
    with the issues of the day, and maybe not necessarily triggers,
    where we don't have to make targeted decisions.
        Mr. Womack. That is a key word you mentioned: cliffs. I am
    a proponent of when you recognize that you have a problem, not
    to wait till you get ready to drive off the cliff, but to begin
    addressing the solutions to the problem as soon as you
    recognize you have a problem, so that you never really see the
    cliff.
        But up here, it seems as though we are not motivated until
    there is a danger sign ahead.
        Would you agree with that?
        Ms. Young. I will let you speak about how things run here.
    I am no longer on Capitol Hill. But I do believe these are
    major issues.
        The population is aging, there are structural issues tied
    into those debt numbers and the benefits numbers. And my guess
    is both parties are going to have to hold hands and come up
    with some creative solutions that rise above politics of the
    day.
        Mr. Womack. I would not disagree with that.
        So, so let's get back to what we do up here. We are
    appropriators. We deal with the discretionary part of the
    budget, which is about a third of Government spending.
        I make the argument all the time to anybody willing to
    listen that the, the continued lack of leadership on the part
    of the Congress to deal with the side of the spending ledger
    that is outside of the appropriations jurisdiction--and we are
    talking about mandatory spending, you just mentioned the big
    ones, Social Security, Medicare, Medicaid, I would add net
    interest to the debt, on the debt to that equation--but the
    inability of Congress to actually deal with those programs is
    creating intense pressure on the part of the budget that the
    appropriators have to deal with, and that is a discretionary
    budget.
        And so, would you not agree that at some point in time, or
    as you said, hold hands, we are going to have to have an adult-
    level discussion as a country about just how far we can
    continue to go without addressing that side of the spending
    ledger.
        We have about 10 seconds.
        Ms. Young. Yes. Well, I understand, you know, you mentioned
    the high-level, non-defense discretionary. I will point out
    that that much is needed to return non-defense discretionary to
    its historic level as a percent of GDP. So, we are woefully
    behind in the investments we have been able to make over the
    last 10 years.
        So, I couldn't agree with you more: you can't, you can't
    deal with a third of budget and expect to see a lot of results
    on the bottom line.
        Mr. Womack. Thank you so much.
        Yield back.
        Mr. Quigley. Thank you.
        Ms. Kirkpatrick.
        Ms. Kirkpatrick. Thank you, Mr. Chairman. Thank you. Thank
    you, witnesses. I really appreciate having this hearing today.
        And, you know, Director Young, it is nice to see you again.
    And it is great to have you as, as the acting--no longer as
    acting, but actually as the OMB director. So, I thank you for
    that. It is great to see you.
        My question is, since you took office, President Biden's
    budgets have focused on investing in domestic programs for the
    betterment of the country. As you and others have said, the
    President's budget is about advancing equity across-the-board.
        To that end, I have some questions related to how the
    budget advances equity in a few different areas.
        So, my first question has to do with Arizona, which has a
    significantly higher percentage of veterans than the broad
    United States. A huge number of those veterans live in my
    Southern Arizona district. So, one of my top priorities since
    getting to Congress years ago has been advancing the quality
    and availability of veterans' medical care.
        I am proud to see that the President's budget proposes
    increasing the overall scope of veterans' medical care funding
    by over 20 percent. It would be great to hear from you about
    the importance of these investments to the broader veterans'
    health care landscape, as well as high veterans population
    states like Arizona.
        So, my, my question has to do with, you know, how are we
    going to, how are we going to significantly advance health care
    for our veterans?
        Ms. Young. Thank you, Congresswoman Kirkpatrick. And good
    to see you as well.
        I would like every member to take, you know, a hard look at
    how we present VA medical care. We often talk about defense and
    non-defense. That split was, you know, done over a decade ago.
    It is a way we talk about the budget. But it doesn't have to be
    the final way we talk about a budget.
        VA medical care, the budget presented it as its own
    separate category. We believe it is important enough and our
    obligations to our veterans, who have earned benefits of
    medical care should not be squeezed by the traditional caps
    that we talk about a budget in.
        So, we believe a way to protect VA medical care, the
    traditional VA system, the brick-and-mortar system, and also
    allow our veterans to use community care, a way to protect that
    and ensure that it grows at the level our veterans deserve is
    to create its own separate category, separate from defense and
    non-defense.
        Ms. Kirkpatrick. Second question has to do, you know I grew
    up on tribal land in Apache country. And I have really
    dedicated my career toward, toward advancing the betterment of
    our state. I have seen firsthand the challenges these
    communities, tribal communities face on a daily basis. Like our
    veteran population, again, one of the most serious challenges
    Native American communities face is lack of accessible, quality
    health care.
        I know the President's budget proposes to increase the
    Indian Health Services to make the funding mandatory. What is
    the importance of making the funding mandatory? And how would
    such a funding increase broaden availability of health care for
    Native Americans in Arizona and throughout the country?
        Ms. Young. Congresswoman, you have me talking to the
    Appropriations Committee about taking something out and making
    it mandatory. So, it might not be widely well received.
        But no one, I believe, could argue that our Indian brothers
    and sisters have not always gotten their fair share from our
    government. And one place in particular, Indian Health Service.
        We have listened. We have done tribal consultation. One
    thing that came out of those consultations and those
    conversations was a more steady path to pay for medical care.
    You heard me talk about veterans, how we approach that.
        On our Indian Health Service side, last year we put forward
    a proposal to do advance funding. We weren't able to get that
    done, so we are trying a new idea, which is to provide steady,
    consistent, known funding through a mandatory stream.
        I think as I leave here, regardless of what Congress does,
    I just ask that we do something to ensure that our Indian
    Health Service is adequately funded, which it currently is not.
        Ms. Kirkpatrick. Thank you so much for your leadership. And
    I yield back.
        Mr. Quigley. Thank you.
        Mr. Stewart.
        Mr. Stewart. Thank you, Chairman. And thanks, Director
    Young. Thanks for being with us. It is good to see you.
        You at the beginning comments said you hoped you that when
    you left we would still be friends. I promise you we will be
    because I think all of us can respect you and the work that you
    do, while at the same time disagree, and disagree
    wholeheartedly with some of the actions or the divisions of the
    Administration.
        You did mention the discretionary budget proposal. I am so
    glad you did. It is the thing I would like to focus on, if I
    could.
        $1.6 trillion sounds like a lot of money. Americans listen
    to that, they go, well, it seems like a lot. But they, we
    really don't appreciate what that really is. It is nearly, as
    you said, 10 percent more than in 2022. It is a whole boatload
    more than 2021.
        And which, by the way, at the same time we have got a 10
    percent there, only a 4 percent increase in defense, which I
    hope we have time to talk about as well.
        Before we do, I do want to focus on this:
        In the last couple years we have spent something like $10
    trillion. We spent 2.2 on the original COVID package, another
    2.1 on the second, 1.9 in interest structure. And that is on
    top of the normal budget, which is close to 5 trillion. And the
    result of that is generational inflation.
        And I know, Director Young, you have this experience, at
    least I hope you do, of talking with just normal working
    families. You know, hardworking Americans, this is devastating
    to them. If someone picks you up in a car in the morning and
    drives you to work and you haven't filled up the gas tank in
    that car in a long time, you don't worry that much about what
    the price of fuel is.
        And if you are doing well, and you have someone who maybe
    shops or cooks for you, you don't care what the price of milk
    or the price of bread is. But the vast majority of Americans
    do. Including, for example, my 6 kids, who are all young and
    they are starting their careers. And they think about it, and
    it impacts them all the time.
        And, Director Young, I know that you are sympathetic to
    that. I wish that the President and other members of the
    Administration were more sympathetic to it.
        But my question to you is this: does the Administration
    recognize that Government spending, once again something like
    $10 trillion in a couple years, has impacted inflation?
        And I am going to ask my second question and allow you to
    answer both, if you could.
        And the second question is tied to that, if they don't
    believe that now, how high would inflation have to be before
    they would consider cutting double spending?
        Ms. Young. Thank you, Mr. Stewart.
        One, you are talking to a parent of an almost 7-month-old.
    So, one of the things the President has pointed out is we need
    to do things to bring down costs for the American people. He
    gets that. You have heard him address the American people and
    one of his top, if not the top, economic concern is bringing
    down the cost of goods for people, including child care. I can
    tell you, for parents it is one of the drivers keeping women
    out of the workplace.
        We need to bring down the cost of health care.
        We need to bring down the cost of energy for families. The
    President has presented ways to do that and has called on
    Congress to do that.
        Speaking of, you know, spending and saving, we are on track
    to bring down the deficit by $1.5 trillion this year. And the
    President does believe and has stated that is central to his
    effort in fighting inflation.
         Mr. Stewart. Director, I appreciate that.
        You mentioned, for example, the President has focused on
    bringing down costs of energy. In fact, it seems to me his
    focus has been on increasing the price of energy. There are
    many in the opposite party who think that is actually a good
    thing. They want to drive the cost, high prices of energy up in
    order to compel some of the incentives for the Green New Deal,
    for example.
        But I am puzzled, because I really don't know the answer to
    this question. Give me an example of where the President's
    policies are actually provided to drive down the cost of
    energy, and not just to do the opposite? Which I could go
    through the list of things that I think could cause that, but I
    think you are familiar with them. Help me understand why this
    President, what he has done to drive down the cost and not put
    up the price of energy?
        Ms. Young. I think we all know energy, especially oil,
    prices are guided by the market. But what the President has
    done is use all the tools at his disposal, including releasing
    tens of millions of barrels of oil from the Strategic Petroleum
    Reserve.
        So, this President is quite aware of the cost impact on
    everyday families, and is using every tool at his disposal to
    deal with those rising costs.
        Mr. Stewart. Well, I am almost out of time. I don't have a
    timer in front of me. I will just conclude by saying this:
    killing Keystone Pipeline, shutting down oil and gas permits in
    the West, in Alaska, offshore, but more than that, and that is
    demonizing the oil and gas industry and trying to demonetize
    it, and allow them not to have access to financial markets so
    now they don't have the resources they need to go and explore
    and to drill, I think those have far, far--in fact, I don't
    think, I know they have far, far more impacts than the few, few
    million barrels of oil that comes out of the Strategic Oil
    Petroleum Reserve.
        But, Director Young, thank you once again. I will look
    forward to continuing conversations with you.
        Ms. Young. Thank you.
        Mr. Quigley. Mr. Cartwright.
        Mr. Cartwright. Thank you, Mr. Chairman. And thank you,
    Director Young, for joining us this afternoon. It is great to
    be able to call you that, Director Young, and drop the
    ``acting'' part of that title.
        All of the years that you worked hard on the Appropriations
    Committee gave you an insight that I have no doubt will serve
    you well in the White House.
        The ranking member talked a little bit about continuing
    resolutions, which really are the bane of federal
    appropriations. We are here today to discuss the fiscal year
    2023 budget.
        But we only passed last year's budget, the fiscal year 2022
    Omnibus two months ago, in March. The Federal Government has
    been funded under these continuing resolutions for months,
    often at the very last minute before the last continuing
    resolution expires.
        And, you know, if you are scoring along at home, what a
    continuing resolution is is an agreement that whatever we spent
    last year we will spend again. Can you imagine operating a
    family budget that way? Well, we bought a new car two years
    ago, so every year after that we have to keep buying a new car.
        It is ridiculous. And it is ridiculous to run a government
    like that, too. And I think our ranking member agrees with me.
        Operating under continuing resolutions places financial
    uncertainty and impositions on all federal offices. Office of
    Management and Budget faces additional uncertainty and
    impositions because it has two sets of responsibilities: your
    own internal responsibilities to keep OMB in operations; and
    your responsibilities to oversee other federal agencies.
        So, my questions is, what additional challenges to its
    internal and interagency operations did your office take as a
    result of last year's string of continuing resolutions? And how
    did you handle those challenges?
        Ms. Young. I have a very small agency in the context of
    Government agencies. But if other agencies like Department of
    Defense looked at the risks of hiring, for example, in the
    midst of CRs the way I do, then it really does impede an
    agency's ability to operate.
        I just won't do it. I won't put at risk trying to guess
    where Congress is going to, going to head. So, we put off
    critical vacancy fills, we put off critical hiring citizens, we
    don't invest in our contracts the way we should. And that is
    with a tiny agency by the scale of federal agencies.
        So, looking government-wide, it really is one of, one of
    the worst ways to manage the United States Government. I don't
    think anyone looking from the outside in would think that we
    would do--fund agencies by 2, 3, -month increments, sometimes
    2, 3, -week increments.
        So, you and Ranking Member Womack have certainly hit on an
    issue that I know we all share and that we have to find some
    way of getting out of.
        And one way we can help do that is to work with the
    leadership of this committee, get the budget to you, start the
    process and really enter into constructive conversations on how
    we can ensure that a timely, a timely budget as close to
    October 1st can be achieved.
        Mr. Cartwright. Thank you for that.
        I know you are also working on streamlining customer
    service in the Federal Government. We have all heard from our
    constituents how hard it is to navigate Government websites to
    find the right service that fits their needs, speak to the
    right person, and find somebody who can help them navigate the
    Federal Government.
        This help is particularly critical for citizens who have
    recently suffered a sudden financial loss and need help
    receiving Government services. I know OMB is working on
    improving government-wide customer service, and helping
    citizens who face these accessibility challenges.
        The question is, how is OMB leading the charge to
    streamline federal services and make them more accessible to
    all customers?
        Ms. Young. It is one of the things I am most excited about.
    People shouldn't have to know the ins-and-outs of government
    programs and laws to figure out which government agency to go
    to to get a service.
        If you have a housing need, how would you know that rural
    housing is mostly taken care of at USDA versus the Housing and
    Urban Development Agency?
        So, we have got to, the Government has got to do a better
    job of meeting people where they are. People shouldn't have to
    guess which 3- and 4-letter agency to go to to find assistance.
        And so, we are committed, OMB led the charge on an
    Executive Order, a customer service Executive Order which talks
    about these life experiences. And we have specific things, like
    getting passports for travel, like knowing how to get housing
    services, and like knowing how to get food services. And we
    think we can meet some achievable milestones and make real
    change for people who want, and need, and deserve those
    government services to be able to find them.
        Mr. Cartwright. Well, thank you. I know you are going to
    find some willing and able partners on this subcommittee in
    that effort.
        Mr. Chairman, I yield back.
        Mr. Quigley. Thank you.
        Mr. Joyce.
        Mr. Joyce. Thank you, Mr. Chair.
        Director Young, it is an absolute pleasure to see you here
    today.
        As we have already touched on this afternoon, Americans are
    bearing the brunt of record-breaking inflation on all products,
    from grocery to gas. The White House has pinned blame on
    several sources but doesn't speak much about its plan to craft
    fiscal policy that is mindful of inflation.
        Can you provide a few specific examples of how OMB worked
    to lower inflation and developing the President's $5.8 trillion
    2023 budget?
        Ms. Young. One, I think it is important to know that
    economic assumptions are built into the budget. And inflation
    is an interesting thing. It has offsetting triggers--you bring
    in more revenue and you spend more with inflation.
        So, this budget does assume some rise in inflation to
    ensure that what we presented, which is over a trillion dollars
    in deficit reduction over 10 years, is actually reflective of
    assuming some rising inflation.
        So, one, we tried to be honest about what the economic
    picture would be over the, over the 10 years. And we still see
    a production of a trillion-dollar deficit saving over this
    budget window.
        Mr. Joyce. Well, your office has requested $128 million
    through 2023, a 10 percent increase from last year. The budget
    attributes 4.5 million of that spending to inflationary
    adjustments.
        Obviously, you are also not immune to the impacts of
    inflation. What costs have gone up for OMB to require this
    extra funding?
        Ms. Young. So, every government agency, I am very proud
    that the President set up a 4.6 percent federal employee pay
    increase. That pay increase is done by formula, and it is tied
    to the Consumer Price Index. So, most of OMB are people. So,
    our people will cost more from year to year. And that is mostly
    built on the pay adjustment the President has put forward for
    all federal workers.
        Mr. Joyce. Your office also estimates that the deficit will
    remain above a trillion dollars every year for the next decade,
    increasing to 1.4 trillion this year to around 1.8 trillion in
    2032. With rising interest rates, our debt load will become
    more of an expensive pressing problem.
        At some point the White House and Congress need to have a
    responsible conversation about reigning in federal spending
    levels.
        What are some meaningful steps your office believes we
    could take to reduce the deficit over the next decade and
    improve upon these dire deficit projections?
        Ms. Young. So, one thing we haven't talked a lot about here
    are the pay-fors in the budget. The President believes that we
    are going--we should invest in the American people, but the
    fiscally responsible way to do that--and we may disagree on
    this--is through tax reform: ensuring that corporations pay
    their fair share, that we go back to some levels, not even all
    the way back, to tax levels for the richest Americans before
    the 2017 tax cuts.
        So, we believe we can do both: bring down the deficit, so
    that is what the budget is showing, and invest in the American
    people. And also, we do that by increasing taxes for the
    wealthiest Americans.
        Mr. Joyce. Thank you for your response. And I yield back.
        Mr. Quigley. Thank you.
        Mr. Pocan.
        Mr. Pocan. Thank you very much, Mr. Chair.
        And thank you, Director Young. We are very glad to have
    you. I was pretty ecstatic when I saw your name was going
    forward and you got confirmed. And, you know, having worked
    with you, the President and the White House is very lucky to
    have you in that position.
        Let me just say, I agree with Mr. Womack. I used to be on
    Reid Ribble's bill as well to do the biennial budget process,
    not appropriations but budget process. And just so you know, I
    think in a bipartisan way a lot of us who came from state
    legislatures who operated that way it was efficient. And I
    agree with him on many of those points.
        One point that he and I may not agree on much, as much
    though, is while you have a lot of great investments for
    working families, and we really appreciate what you have put
    together in this, as well as the attention that you have talked
    about in the deficit, the defense budget still is ballooning.
        You know, Congress doubled what the President requested in
    the last budget. We just keep moving forward. And, yet, this is
    one of the very few agencies that never seems to get any real
    scrutiny or real review.
        You know, this is when you talk about national security, I
    have asked this question of Dr. Fauci, Dr. Tabak from the head
    of the NIH, Dr. Jahn. They have all said that COVID was a
    national security threat. And, yet, the NIH budget is about a
    12th of the defense budget. The CDC budget is about one-
    seventieth of the defense budget. And, you know, I would argue
    things like cybersecurity, climate change, pandemics clearly
    are all things that fall under national security.
        But one of the problems that we have had with Department of
    Defense is they take the language that they consider to be how
    they can spend money very strictly. So, they say because of, I
    think these five words, ``state and non-state actors,'' that
    they can't put money into a lot of other areas.
        So, while there is some research on breast cancer, for
    example, because of women in the military, they won't take care
    of things like noise abatement when you bring F-35s to a
    district like mine. So, those 800 deficiencies, that two got
    fixed one year for the F-35s, so there is very, very little
    review on that. But then I can't get support because they say
    it doesn't fall under their purview.
        And I would argue that when you have the most recent class
    of aircraft carrier, the Ford Class, when the toilets get
    plugged it is $400,000 worth of assets have to be flushed down
    the toilet, you are going to be flushing money down the toilet.
        We have amphibious vehicles that sink but don't float, and
    that is a problem with amphibious vehicles.
        As I mentioned, the F-35, 800 plus deficiencies.
        Don't you think that the Pentagon should have to pass a
    budget to--or, I am sorry, an audit in order to get some of the
    continued funding, and that perhaps a broader look at national
    security? COVID-19 clearly was the biggest security threat we
    had in the last several years. That we could possibly be
    looking at ways to open up how we spend that besides just
    defense contractors?
        Ms. Young. Well, I hinted at this earlier. I do think the
    way we look at the budget the last, over the last decade is,
    you know, we landed there and we haven't moved from it,
    defense/non-defense. Even taking a conservative change to that,
    security/non-security. If Department of Defense is central to
    our security, so is the FBI. But that is counted with the
    Labor/HHS bill and the many social services we fund.
        We can certainly take a broader look at what security of
    the nation is: Department of Homeland Security, for example,
    veterans, you know, outside of medical care.
        So, count me in to re-look at how we kind of pit these
    things against each other, and should we take a broader look at
    what security is. Even in the conservative view, I think there
    is room to grow what is real security.
        I think any congressperson would tell you it should, our
    agencies should pass an audit. I don't think we can not invest
    in the Department of Defense, unfortunately, until they do so.
    But it should be something any commonsense person would tell
    you we expect all our agencies to do.
        Mr. Pocan. And I appreciate that. I just think it is time
    for a more modern definition of defense. And I think there are
    other things clearly pandemic-related, and other areas that
    could receive better funding since the CDC's entire budget is
    one-seventieth of the Pentagon's budget, to address those sorts
    of things.
        And I am glad you shared what you thought about the audits
    because, you know, I think there are many things that are very
    important. We want to support our military personnel, but there
    are so many examples of things that don't do well. And if that
    happened in any other agency, I think we would have serious
    problems. But especially this idea of being able to spend for
    the national security, perhaps funding a broader definition.
        And I don't know how we could work together like that, but
    I would really love to work with your office on trying to
    figure out how to do that.
        And I yield back, Mr. Chairman. Thank you.
        Mr. Quigley. Thank you.
        Ms. Torres.
        Ms. Torres. Thank you, Chairman.
        Director Young, it is really great to see you again.
    Congratulations on everything that you have achieved. I am
    thrilled that your position has not been misclassified.
        I say that because I think you know where I am going. As a
    former 911 dispatcher for 17.5 years, I dealt with some very,
    very tough issues. People do not call 911 because they are
    having a great day. They dial 911 because most often it is the
    worst day in their lives.
        I have handled calls from suicide callers, domestic
    violence involving children, shootings in progress. I have had
    to negotiate, you know, with barricaded suspects, with victims
    being held hostage.
        These are real life situations that 911 dispatchers have to
    go through. The work that they do, the work that I did, you
    know, way back, was protective service. It may, it may surprise
    people to hear that. In fact, due to the protective and
    stressful nature of this work, PTSD rates for this profession
    are about 18 to 25 percent, in line with combat veterans.
        However, OMB's Standard Occupational Classification catalog
    categorizes public safety telecommunicators as office and
    administrative support occupations. This includes secretaries,
    office clerks, and taxicab dispatcher.
        This topic may seem like just a technical issue,
    insignificant. But the real world impacts are substantial for
    this group of employees. Classifying public safety
    telecommunicators, who are primarily female, heads of
    households, as secretaries is based on a 1950's view of the
    work of this profession. It is biased, you know, to put it
    mildly.
        In the year of the Lord, to quote, you know, our vice
    President, we have to correct this, this problem. 911
    dispatchers when I worked the 911 center--in November of 2008 I
    took my last call--I had four screens. Now they have eight.
    They follow bank robberies, robbers. You know, their work is
    tremendously changed from that secretarial work when the 911
    line was first implemented.
        So, to address this problem I introduced the 911 SAVES Act,
    a bipartisan bill that directs OMB to classify public safety
    telecommunicators as protective service occupations. The good
    news is that we don't have to wait for this bill to pass
    because last year I introduced an amendment, and the language
    was agreed. This committee instructed OMB to reexamine the
    classification of public safety telecommunicators.
        So, my question to you is how much longer do 911
    dispatchers have to wait to get the good news? How much longer,
    you know, do we have to wait to ensure that there is a path for
    Congress to focus on this profession and provide them with the
    training and profession--to professionalize this profession?
        Ms. Young. So, one, I will say the statistical analysis,
    and that is what it is, and without the context which you bring
    to us--and I thank you for your leadership there--one, I think
    it would be truly helpful to have you over and talk to the
    staff that work on this. I think your perspective is awfully
    compelling. I have heard you tell the stories. And one could
    not help but be moved by those.
        Two, this is--should not be what jurisdictions are using to
    base their stature, their compensation for 911 responders. So,
    we certainly encourage them to adequately compensate. The
    statistical categorization should not be the thing that
    determines how we treat and professionalize this service across
    the country.
        But we got your report language. We are taking it to heart.
    Just so you know, these changes usually are a 10-year process.
    Your report language has us speeding that up. And I think
    meetings with interested parties is a good place to start.
        So, thank you for the report language. And in addition to
    the hearings, that has really sped up our consideration. But it
    is, typically, a long process. And we last changed the
    classifications in 2018.
        Ms. Torres. Well, we are going to give you a bigger budget
    so you can help improve conditions.
        I yield back.
        Mr. Quigley. Thank you.
        We are honored to be joined by the ranking member of the
    full committee, Ms. Granger.
        Ms. Granger. Mr. Chairman, quickly, thank you for yielding.
    Sorry I had to miss the opening. I had something I had to do.
        Just a personal privilege, I would like to congratulate
    Shalanda on your confirmation to OMB. You will do a wonderful
    job.
        I have known her for years. And she can be a very tough
    negotiator, but she works well with members on both sides of
    the aisle. And I am so glad that you are willing to serve in
    this very, very important position.
        I just have a question.
        The President's budget proposes a percentage increase for
    defense. To put it simply, I don't think it enough to address
    current threats. How do you explain this request that doesn't
    even keep up with inflation at a time when other countries are
    becoming more aggressive around the world?
        Ms. Young. I am sorry you missed Mr. Pocan so you can see
    the extremes of opinion on this topic.
        Ms. Granger. Okay.
        Ms. Young. And for me, the safe place to be in developing
    this was with the National Defense Strategy. And I can truly
    say, for probably the first time in a long time, OMB, I and the
    Secretary of Defense held hands and did a budget based on the
    National Strategy. You don't often hear that from within
    administrations, but that was the case.
        Now, what I also realized, I am working with you all for
    many years, is this is the beginning of a process. I understand
    that. And not just the Department of Defense, other agencies,
    we want to make sure that we are using the latest data on--that
    ensure that we aren't losing spending power at the Department
    of Defense or any other agency.
        So, you have my commitment to working. I think I have said
    it over and over, the most important thing is to make sure we
    get bills done and we start this discussion, and speed it up as
    fast as possible to get bills done by the beginning of October.
        Ms. Granger. I have great confidence in you. You are very
    practical and very straightforward, and a pleasure to work
    with. So, thank you for that answer. I appreciate it very much.
        Ms. Young. Thank you.
        Mr. Quigley. Ms. Lawrence.
        Ms. Lawrence. Thank you, Chairman.
        I am, too. I know this has been a choir, but I can't tell
    you how proud I am of you, and so glad that we have the right
    person in the job.
        But in addition to that, welcome to motherhood. It will
    definitely change your life.
        I am the co-chair of the bipartisan Congressional Caucus on
    Foster Youth. And we work to ensure that foster youth have the
    resources that they need to be successful in their transition
    to adulthood. I firmly believe that increasing opportunities
    and federal internships can help foster youth enter the
    workforce and gain critical experience.
        Can you talk to me about how your budget will work to
    strengthen that pipeline of diverse and underrepresented
    candidates in the Office of Management and Budget?
        Ms. Young. Well, I think any time--and you all led, the
    House has a paid internship program. We are trying to do a
    little catch-up.
        And I think any time you pay kids, I am not sure, I worked
    at a dry cleaner. Free work was not something my family
    understood well. We have, we have to be employed in my family.
    So, it is a way to get people who would not otherwise have the
    resources to experience something, like working for Congress,
    like working for OMB.
         So, I certainly hope the ability to pay brings people in.
    Families across the country want to do this for their kids. I
    think they would find resources as best as possible. But any
    help, including paying the children so they could at least pay
    for their own living expenses while they are here, I think will
    help open up pipelines.
        But, specifically for foster youth, I am proud of what this
    budget does. It includes a 30 percent increase in
    discretionary, funding for child welfare programs. As part of
    the increase we proposed a hundred million dollars competitive
    grant program to advance racial equity in the child welfare
    system and support struggling families who are in need for
    foster care, and a $10 million mandatory funding package to
    safely keep struggling families together, which is the goal of
    many foster programs, if we can.
        So, I am proud of what we have put forth. I know it is the
    beginning of a conversation, but it is often a part of, you
    know, government services and budget overlooked. And so, I
    really asked for strong consideration of those, those
    proposals.
        Ms. Lawrence. Thank you. And you started my next question.
        I am thrilled you are a working mom. When you have women in
    the workforce, especially those of us who are responsible for
    policy, it does change the conversation. The President calls it
    the nerve center of government.
        Talk to me about how this budget addresses inequities
    facing women, especially women of color?
        Ms. Young. So, one, becoming a mother I have also seen many
    of you in different lights. I know Representative Granger, for
    example, is a mother of twins. I don't know how that is
    possible, especially seeing the things any of you, I know a
    couple mayors on the table, and all raised children.
        Ms. Lawrence. Yes.
        Ms. Young. Those examples show younger people, they showed
    me it was possible to be a parent and also continue to serve
    this country in the way that I want to. I didn't have to pick.
        So, I appreciate the leadership you all have shown, and
    those stories, having people hear those is really life changing
    more than anything.
        The President has put forward, as you know, a robust child
    care package. We believe, I know from personal experience, if
    you do not have adequate child care that is dependable, no one
    wants to drop their kid off in a place that they feel unsafe in
    order to go to a job. No one is efficient in their workplace
    when that happens.
        So, we, we have seen bipartisan support for child care
    packages in the past. And I know if we work together, we can do
    something to help struggling families get their kids into--and
    these child care facilities are hurting coming out of the
    pandemic. So, making sure some of them have to reopen. Some are
    struggling to get staff back in. So, we certainly believe that
    families shouldn't be paying more than 7 percent of their
    income in order to make sure their kids are taken care of.
        Ms. Lawrence. Can you talk to me about what, in your view,
    the additional steps the Administration takes to address hate
    crimes will do? I am the founder of the Black-Jewish Caucus,
    and we have seen an epidemic of that.
        And how can we ensure effective implementation?
        And what moves or steps are we taking in our budget that
    will start addressing this increase in shooting and hate
    crimes?
        Ms. Young. Well, one, I have to start with extending my
    sympathies to the victims in Buffalo. The President was just in
    Buffalo, gave a speech about this sort of thing not being
    tolerated. We have seen too much of it over the last years. And
    I can only imagine what those families are going through as it
    is still fresh. So, I have to start there.
        And the budget, unfortunately, Buffalo just happened. But
    we have many examples of this type of shooting previous to
    Buffalo. So, this budget did contemplate resources to deal with
    this sort of thing. $49 million for FBI to address domestic
    terrorism and hate crimes; $23 million for DHS's Center for
    Prevention, Programs, and Partnerships; and $20 million for
    DHS's Targeted Violence and Terrorism Prevention Grant Program.
        Also, I would be remiss if I didn't mention a popular
    bipartisan program, $360 million for nonprofit security grants
    to harden critical infrastructure for communities.
        Ms. Lawrence. Thank you so much.
        I yield back.
        Mr. Quigley. Thank you.
        Director, there will be a few more questions in a quick
    second round. I wanted to let the ranking member start that
    off.
        Mr. Womack. Thank you, Chairman Quigley.
        And mine is going to be under the, kind of under the
    umbrella of COVID relief and the pandemic as we see it today.
    Now, I realize it is not over. And I also realize that some
    areas of the, you know, of the economy have suffered more than
    others. Maybe even some states have suffered more than others
    and this sort of thing.
        But, you know, in that COVID relief package that was passed
    last year there was $350 billion for grants to state and local
    governments. I am a former mayor. So, I look at this kind of
    money kind of in an objective way.
        In some cases, I believe that the tranche of money that has
    gone to some local political subdivisions might have rivaled
    the entire amount of that jurisdiction's annual budget. I could
    be wrong on that, but I bet I am pretty close. So, I sometimes
    question--and the first tranche was done in 2021, the next
    tranche I think comes out later this spring, maybe this
    summer--and even in my own state there are arguments being made
    among these political subdivisions as to how, what are we going
    to spend this money on?
        And so, I look back and I think, we took a pandemic and we
    threw a bunch of money at the pandemic. And in some cases the
    money was not all that necessary because the political
    subdivision wasn't in all that hardship.
        For example, in the State of Arkansas--and I, you know,
    that is the one I pay attention to--it announced in April that
    the state had the largest month of revenue collection in its
    history--in its history. Revenue for the month of April up in a
    lot of states, every--while everyday families are suffering
    from high gas prices, other inflationary spirals, and this sort
    of thing.
        So, the larger question is--that is one example of how we
    put a bunch of money into the hands of a lot of governments.
        So, I guess my overarching question to you is, given the
    state of the federal debt, given the conditions we have with
    employment, with low unemployment and everybody has a help
    wanted sign in their window, with unprecedented inflation,
    should we not take a look at rescinding, clawing back some of
    these borrowed dollars that are still sitting in healthy
    balances in places where we have now created fights among
    political subdivisions as to how best to spend it for non-
    COVID-related projects and issues?
        So, that is my question. Should we not take a look at
    clawing back some of this money, or using it as offsets?
        Ms. Young. I think you did a couple of times. And those
    proposals were rejected for one reason or another.
        You know, we, you and I went down memory lane the first,
    the first round of questions. Memory lane is more recent on
    this one. There have been efforts in Congress to rescind that
    money and use it for future pandemic needs which, you know, we
    are still seeking for vaccines and therapeutics.
        The Congress spoke. That money was deemed too important.
    And we, we live to discuss how to move forward on COVID without
    clawing back those state and open funds.
        We have been open in conversation about looking for other
    offsets in ARP and past COVID bills before ARP. Just so you
    know, we sent out balances recently: about 160 billion remains
    unobligated. Most of that is for multi-employer pensions. That
    is hard to rescind. The rest mostly consists of veterans' money
    for VA, and Disaster Relief Fund.
        So, as we have sought COVID, new COVID money for vaccines
    and therapeutics, while we don't believe that emergencies
    should be offset, this Administration has been willing, has
    worked with members on both side of the House and looked for
    adequate and acceptable offsets.
        And let me tell you, you run into stone walls when you say,
    What about disaster relief? No, we are entering hurricane
    season. We can't take from veterans. So, the pool is getting
    tighter and tighter.
        And by the way, state and local funding, while it is going
    out in tranches, it is still all obligated because we know
    where it is going.
        So, the pool of unobligated funding is shrinking as the
    days go on.
        Mr. Womack. I guess all I am asking is, as leaders, we are
    all leaders, and certainly from your position as the--and you
    have got the bully pulpit on the budget side because you are
    OMB--is to continue to help promote the notion that before we
    borrow more money for whatever is next, that we take a look at
    what is unobligated today and try to use it before we commit to
    other projects down the road.
        Anyway, that is, sometimes I wonder how many people truly
    care about passing on this debt situation to future
    generations. But when I look at my three grandsons in their
    eyes, and I see that they had nothing to do with creating the
    problem, but yet we are going to give them the opportunity to
    pay for it, I just think that is morally wrong on our part.
        So, just looking for some help and some leadership to help
    promote this thing.
        Ms. Young. We have been at the table, especially on the
    COVID relief funding. And as you have seen, we have been open
    to offsetting future pandemic funding needs. And we continue to
    not want to enter the fall with Americans without adequate
    vaccines and antivirals. So, we are willing partners to see
    what we can do to get that funding. And many have said offsets
    are necessary, so we continue to press that.
        Mr. Womack. Thank you.
        Mr. Quigley. Director, we have one last question.
        Lessons from the pandemic. Teleworking is going to be with
    us. Can we predict, or rationalize office space needs based on
    what we think needs are going to be, and perhaps reduce the
    burden we put on GSA in other areas?
        Ms. Young. I think we are going to, going to have to.
        I sit in a GSA building. Let me tell you, they have a lot
    on their plates. And I think this is an opportunity for
    agencies. And OMB, you are right, has a central role to this,
    to push agencies to really look at their future work.
        OMB is doing that internally and looking at what it looks
    like to work. Workers have options, as Ranking Member Womack
    pointed out. So, we have to stay competitive with the private
    sector.
        So, I think those things go hand in hand. What, what do we
    have to do to retain and get good staff? And I think that comes
    down to are we providing a flexible workplace? Are we hoteling?
    Do we have maximum telework?
        And those things should have savings in the space realm.
    So, I think it will help us in space, and retain and recruit
    the best federal workers.
        Mr. Quigley. Very good.
        I want to thank both ranking members and all those who
    participated.
        Director, I want to thank you for being here today, your
    staff's work, and your dedication to service. We look forward
    to working with you through this unique year of budgeting and
    appropriating.
        We are adjourned. Thank you.

                                               Wednesday, May 18, 2022.

                            INTERNAL REVENUE SERVICE

                                    WITNESS

    HON. CHARLES P. RETTIG, COMMISSIONER, INTERNAL REVENUE SERVICE
        Mr. Quigley. Good afternoon. This afternoon we welcome
    Charles Rettig, Commissioner of the Internal Revenue Service,
    to testify on the IRS fiscal year 2023 budget request.
        Commissioner, I know you've been making the rounds on
    Capitol Hill, and we are your fifth hearing this spring. We are
    pleased that you could fit us into your schedule.
        Since your term ends in November, this is conceivably your
    last time appearing before us as Commissioner of the IRS. If
    so, I would like to thank you for your public service.
        It is no small task to lead the IRS in normal times, but
    the last two years have been anything but normal. As a result
    of the pandemic, the IRS has had to deal with office closures
    that disrupted tax filing seasons, increased responsibility
    such as administering three rounds of economic stimulus
    payments, the new monthly Child Tax Credit and the creation of
    new portals and partnerships to increase customer outreach.
        Our time today provides us with an opportunity to focus on
    how we can work together to fulfill the IRS's mission to
    provide American taxpayers with top quality service and enforce
    tax laws with integrity and fairness for all.
        The IRS began the filing season with a historic backlog.
    Many taxpayers tried to call for assistance on how to properly
    file their returns only to turn away disappointed after being
    unable to reach anyone.
        Congress responded to this dire situation in the most
    recent appropriations bill by providing the IRS with additional
    funding to hire customer service representatives and special
    authorities to expedite hiring.
        I am pleased that the IRS is taking full advantage of this
    authority to bring aboard 10,000 new workers. I am eager to
    hear about the progress in meeting your recruiting goals and
    the impact this is having on reducing the backlog and improving
    customer service metrics.
        We understand, however, that this is just a down payment on
    restoring the IRS to where it needs to be after years of
    underfunding.
        The fiscal year 2023 IRS budget request is $6.3 billion for
    enforcement. This is an $835 million or 15 percent increase
    above the enacted level. These funds will make a dent in
    restoring critical enforcement staff, which has experienced a
    30 percent decrease in personnel.
        It is critical that the IRS has the skilled examiners,
    auditors and criminal investigators to ensure that everyone is
    paying their fair of taxes and wealthy individuals and
    corporations comply with the law. Doing so was also a key step
    toward reducing a tax gap that is estimated at over $600
    billion.
        I am happy to report that we recently secured $52 million
    in the Ukraine supplemental to support the Treasury
    Department's work to trace financial activities associated with
    Russian oligarchs. I am eager to discuss the IRS' progress in
    this area and what more we can do to adequately fund this
    division.
        I know the IRS also had critical long-term initiatives
    including the 6-year Integrated Business Systems Modernization
    Plan, a roadmap to modernize and retire its legacy IT systems.
    And the Taxpayer First Act includes 45 provisions, including
    specific mandates to improve the taxpayer experience that will
    take years to fully implement.
        Progress in this area may have been interrupted because of
    the pandemic, but I hope these mandates are not overlooked and
    remain priorities.
        Lastly, I want to take this time to thank the hardworking
    staff at the IRS for their continued commitment, expertise, and
    dedication to the IRS's mission. I know the last two years have
    not been easy, and we look forward to hearing about IRS's
    progress.
        Once again, thank you Commissioner for joining us this
    afternoon. And I now turn to the ranking member, Mr. Womack,
    for his opening remarks.
        Mr. Womack. Thank you, Chairman Quigley. Welcome back to
    the committee, Commissioner. Always good to see you. Thank you
    for your service.
        I want to acknowledge your work and the employees that
    serve under you. And I say that sincerely. We have been through
    a couple of really tough years. And I know I am preaching to
    the choir. But, you know, anytime you've got, you know, a group
    of dedicated people like you have at the agency that are
    looking after the demands of your office, it means a lot to me.
    And I want them to know that. And I know there will probably be
    some of them watching the proceedings here today, and they need
    to hear it from guys like me and Mike Quigley that we
    appreciate them because we really do.
        And as you said, getting multiple economic relief payments,
    implementing new Tax Code changes and the various COVID relief
    bills, dealing with the impact of COVID on your staff and their
    families, a lot of challenges.
        Completing your core mission, however, has suffered as a
    result of that and, of course, you had millions of unprocessed
    paper returns, amended returns, and returns under review going
    into this tax filing season, and that's always a difficult
    thing to execute.
        I know the administration will say that years of budget
    cuts have hurt the IRS. It is true that during the Obama
    administration, when the Senate was controlled by Democrats,
    IRS appropriations were significantly reduced. However, for the
    past three years, the IRS has received significant resources.
        Fiscal 2020, more than $200 million increase in
    discretionary appropriations, $766 million in supplemental
    funds. Fiscal 2021, more than $400 million in discretionary
    appropriations and $2.4 billion in supplemental, more than a
    billion from the American Rescue Plan still available at the
    start of the fiscal year.
        In fiscal 2022, the IRS received a $675 million increase
    with an emphasis on reducing the backlog, including a 9 percent
    increase in the taxpayer services appropriation, authority to
    transfer funds from enforcement and operations to address the
    backlog, and, of course, direct hiring authority, which we're
    going to be anxious to hear how that has helped you solve some
    of these pressing issues.
        Regarding your fiscal 2023 request, before I consider
    providing additional funding, I would like to see that the
    significant funding you have already received has been
    successfully and appropriately utilized, specifically headway
    on getting the backlog of last year eliminated, the amount of
    additional phone calls answered, and the IRS using enhanced
    technology to assist taxpayers and improve staff efficiency.
        On another note, the administration's recently proposed
    Build Back Better Plan would have provided the IRS with nearly
    $80 billion to hire more than 85,000 additional staff over 10
    years.
        While I recognize the IRS staff has been overtaxed these
    past couple of years, I am currently opposed to providing the
    IRS or any other agency with a blank check of mandatory funding
    to more than double the size of their operations. I know that
    the administration will say the IRS needs sustainable multiyear
    funding. I agree.
        In recent years, the appropriations process has resulted in
    CR after CR or omnibus packages enacted months after the start
    of the fiscal year. No reputable business or government agency
    should operate that way. It hurts every agency across the
    government, including the military, the FBI, and the Small
    Business Administration, not just the Internal Revenue Service.
        I've called for reforms to the process to help get our
    bills enacted on time and provide more certainty for agency
    budgets across the government. However, I do not believe
    providing excessive amounts of mandatory funding outside the
    appropriations process is an effective solution to the
    challenges we face.
        Commissioner Rettig, you have a very challenging job. I
    know that you and your team are committed to improving the
    agency. I look forward to hearing how you plan to enhance the
    service provided to American taxpayers. And I can assure you
    this. I will work with Chairman Quigley to ensure that you have
    an appropriate level of resources in fiscal 2023. And with
    that, I yield back my time.
        Mr. Quigley. Thank you, Mr. Womack.
        Commissioner, again, thank you for being here today.
    Without objection, your full written testimony will be entered
    into the record. And with that in mind, we would ask you to
    please summarize your opening statement in five minutes.
        Mr. Rettig. Thank you, Chairman Quigley, Ranking Member
    Womack and members of the Subcommittee. Thank you for the
    opportunity to discuss the current IRS operations, the funding
    request for fiscal year 2023 and obviously any other issues or
    comments that you might want to discuss.
        As you know, fiscal year 2021 gross receipts to the IRS
    were approximately $4.1 trillion, which represents
    approximately 96 percent of the gross receipts of the United
    States of America. A successful, fully functioning IRS is
    important to the continued success of the country.
        We have been at the forefront of successfully providing
    rapid economic relief to taxpayers, including issuing more than
    $1.5 trillion in combined historic economic relief in
    individual refunds during the pandemic.
        The President's fiscal year 2023 budget request proposal is
    for the IRS to receive $14.1 billion, which would allow the
    Agency to take important steps forward in improving taxpayer
    service, modernizing our systems, ensuring fairness in the tax
    law, and earning the trust and respect of every American.
        The President's proposal supports fair and equitable tax
    administration for all Americans, increased oversight of high
    wealth individuals, ensures our efforts to ensure that we stay
    current with the paper inventory that I am sure we are going to
    discuss today, and initiatives to accelerate the development of
    digital tools on behalf of taxpayers improving taxpayer service
    in our interactions with everybody.
        As you know, the Internal Revenue Service interacts with
    more Americans than any other public or private organization on
    earth. It is important, and it is important to the success of
    this country.
        With the signing of the recent omnibus legislation
    providing for our fiscal year 2022 budget, we adjusted our
    American Rescue Plan spend plan, which had been delivered to
    the Committees on February 12th, for funds received under the
    ARP and funds received under the omnibus.
        As of May 10, we have obligated $984 million of the three-
    year ARP funds to maximize taxpayer service, including
    responding to taxpayer questions about Economic Impact
    Payments, Advance Child Tax Credit payments, and modernizing
    our technology.
        Taxpayer service remains the most significant priority of
    the Internal Revenue Service and of every employee at the
    Internal Revenue Service.
        Using funds provided by Congress, including ARP, we have
    implemented many new innovative strategies. We have reduced our
    unprecedented current and projected inventories. We are on
    target to get healthy by the end of this tax year. But we need
    to do more. We know it, and you know it.
        And when it comes to the funding, I have to say I go back
    to my confirmation hearing. I invited oversight at my
    confirmation hearing in front of the Senate Finance Committee
    and in most every hearing since then, and I believe every
    commissioner should and would invite oversight.
        We are in this together. It is not just the IRS. Tax
    administration in this country is a privilege for all of us,
    including members of Congress, including taxpayers, including
    tax professionals, and obviously including members of the
    government.
        While I won't go into detail because I think that all of
    your staff have been briefed, the 2022 filing season by and
    large went smooth. It was exceptionally smooth with respect to
    individuals who electronically filed an accurate return
    requesting a direct deposit of their refund. We continued to
    get those refunds deposited within 21 days. In many cases, the
    refunds were deposited within 3 or 4 days.
        Paper returns continue to be an issue for the Internal
    Revenue Service. We did a lot of messaging out to taxpayers
    trying to get them into preparing and filing an electronic
    return. From what we see year-to-date 2022 to 2021, these
    efforts have been successful. Our projections were higher than
    what we are seeing so we will get into that.
        Through May 6, we processed more than 138 million returns,
    issued more than 94 million refunds totaling more than $285
    billion to individuals in this country.
        Our mitigation efforts are making a difference and our
    inventories are trending in a good direction. We're working to
    make sure that IRS inventories get back to normal by the end of
    this year. The terminology you will hear me and others use is
    ``get healthy,'' which is through the eyes of the taxpayer,
    meeting their expectations for our efforts.
        Almost every Commissioner over the past few decades has
    stated that inconsistent funding is among the most frustrating
    experiences, that they can have. Americans deserve a fully
    functioning, successful Internal Revenue Service. We look
    forward to working with your Committee and providing whatever
    information, as often as you want. I am available. The rest of
    our Agency is available. We will be where you want us to be to
    assist you in the process of determining the appropriate
    appropriations for the Internal Revenue Service for fiscal year
    2023.
        With that I conclude my statement and look forward to your
    questions.
        Mr. Quigley. Thank you Commissioner. Before we begin with
    questions, House rules require me to remind you that we have
    set up an email address to which members can send anything they
    wish to submit in writing at any of our hearings or markups.
    That email address has been provided in advance to your staff.
    We will begin with questions.
        Commissioner, I know the IRS Criminal Investigations
    Division is part of the special task force set up by the
    President to help trace Russian financial activities. Can you
    explain their unique role in going after Russian oligarchs who
    evade U.S. sanctions and are they partnering with other law
    enforcement agencies?
        Mr. Rettig. The IRS Criminal Investigation Division and the
    individuals on the front lines are referred to as Special
    Agents. IRS Criminal Investigation Special Agents are the
    absolute best financial investigators on the planet, bar none,
    any country--our country, any other country, bar none.
        We have been tasked as part of, the KleptoCapture Task
    Force to go after resources and assets, both real and
    financial, belonging to sanctioned individuals.
        We have not yet received the funding for that task but that
    didn't slow us up. We started in March. We're aggressively
    doing what we're capable of doing. We will get the job done in
    that space.
        We are actively tracing cryptocurrency transactions,
    identifying digital assets of the sanctioned individuals and
    entities. We have already successfully identified both real and
    financial hidden assets. We have discovered cryptocurrency
    transactions. We have contributed to the Specially Designated
    Nationals and blocked persons list. We currently have 25 active
    investigations within this particular space.
        We are also working to investigate, disrupt and dismantle
    the efforts of the sanctioned individuals and entities blocking
    their efforts. When it is public knowledge that the sanctions
    are out there, when they know that countries like the United
    States are coming, they try to move the assets, and we are
    trying to get ahead of the efforts and block those efforts
    around the world.
        We are working with international law enforcement partners,
    which we have an ongoing relationship with throughout the
    world. This is the space that the IRS Criminal Investigation
    functions in and the cyber teams within IRS CI lead the world.
    There is a lot that we could go through to give you the
    examples.
        I think the people of this country should be comfortable
    that the Agency and in particular IRS Criminal Investigation,
    tasked with this work is the best. We will get our job done. We
    would appreciate funding, but we will get our job done.
        Mr. Quigley. Let's talk about the funding. Can you explain
    priorities and allocation of the House included money and the
    supplemental, Ukraine supplemental, to the Treasury relating to
    this, to trace Russian financial activities and then the fiscal
    year 2023 budget request for Criminal Investigation Division, a
    $785 million, 18 percent increase, above 2022. Why is more than
    $5 billion requested for enforcement dedicated to the Criminal
    Investigations Division? To your understanding, how will this
    play out to get the resources you need?
        Mr. Rettig. The Criminal Investigation staff are federal
    law enforcement officers. They get trained through the Federal
    Law Enforcement Training Center down in Georgia. We push as
    many people through that, called FLETC, program as we can so we
    try to maximize the number of special agents that we have. We
    are down about 25 percent on field special agents over the last
    10 years.
        You all know my background before I came on board at the
    Internal Revenue Service, and I think that one of the most
    important functions of the Internal Revenue Service, is
    Criminal Investigation, whether it is an illegal source income,
    whether it is in narcotics-related income, financial crimes or
    also traditional crimes, they help keep the taxpayer more
    honest, and they are important for us. Their activities do not
    become visible until there might be an indictment or such.
        Getting appropriate funding for Criminal Investigation is
    important, but there is an absorption issue. When we ask for
    money through Treasury, it is based on what CI is able to
    onboard and train.
        As you indicated Mr. Chair, my term expires at the end of
    this year, and it is something that I would ask every Member of
    Congress to keep an eye on. It is how we can expand not only
    the workforce within IRS Criminal Investigation but also, the
    tools and techniques. They are at the forefront of protecting
    our country in all these spaces, both legal and illegal sources
    and are critical.
        I think being called upon with respect to the Russian
    sanctions and the oligarchs is an example of why we need to be
    ready. The agency, whether it is IRS CI or whether it is the
    rest of the agency, needs to be prepared for the next crisis.
    Is it the Russian oligarchs? Is it the pandemic? Is it
    something that we don't know of yet today? That's where the
    funding and oversight in my mind come together.
        Mr. Quigley. Thank you. Mr. Womack.
        Mr. Womack. In our conversation this week, you indicated
    that it looks like we are at about 95 percent E-filers right
    now, which is up but still not where it ought to be. We are in
    the 21st century.
        You would think that based on those extraordinary payouts
    that were going to taxpayers that there would have been a lot
    of motivation for those who were paper filers to get it done
    electronically. Is it still surprising to you that there are so
    many people out there that just simply are stuck in the former
    technology?
        Mr. Rettig. There are a few forms that we need to get to
    the point where people can E-file. So, a very small percentage
    of the folks who paper file have forms that cannot be E-filed.
    But in terms of the availability and access to E-filing for
    literally every American, there is the Free File program, the
    other commercial filing programs, and the VITA sites and Tax
    Counseling for the Elderly sites around the country, which are
    pro bono in their communities. Many operate at libraries and
    people have access to it.
        I don't have the answer as to why people continue to file
    on paper, and I particularly don't have the answer during the
    pandemic when we thought we did a good job telegraphing if you
    E-file your refund the check would be issued quickly. But if
    you give us direct deposit information, we can do that in days.
    And we continued that process during 2020, 2021 and into 2022.
    That process continued smoothly.
        Mr. Womack. How can we help you in this regard? What can
    Congress do?
        Mr. Rettig. You got us to where we are with E-filing. It
    started in about 1990. There were incentives to get people to
    electronically file. We need to continue the messaging. And it
    is not typically in underserved communities. We are pretty good
    in our interactions in those communities. Proudly, we are on
    the ground in underserved communities around the country. When
    I came onboard, we had relationships with about 3,000 community
    organizations. We now have relationships with about 18,000
    community organizations. We now have relationships with 13,000
    public school districts around the country. We get our
    information proudly into those arenas.
        If we could get to a version of where a possible mandatory
    E-file, now keeping in mind we have people who do not have
    broadband. We have rural communities, et cetera. I will say in
    the last few years the IRS, and this I give to the employees,
    we significantly expanded our multicultural, multilingual
    outreach. The Form 1040 for the first time in history for 2020
    and 2021 is in Spanish. We have gone way out in those regards.
    I don't see it as an inability to contact some of the
    communities that might historically have been more on paper. I
    think it is more the mainstream folks.
        Mr. Womack. But it is to their advantage.
        Mr. Rettig. On the outside I ran into people who filed on
    paper, and when I asked why there is a wrong belief that we
    audit fewer paper returns. Let me, for the record, say that
    belief is not accurate. We do not distinguish between
    electronic filing and paper filing on what might come out in
    the audit process.
        Mr. Womack. We talked about backlog. And you said in your
    opening that your get healthy, get well date is toward the end
    of this year. Are we making regular incremental progress on the
    subject?
        Mr. Rettig. We are. Chuck Rettig is committed to you, and I
    think I said this to you on the phone, the IRS Commissioner
    Chuck Rettig is committed to you and to the American public
    that we will be healthy by the end of this year.
        An example I can give you--when I say we are trending in
    the right direction, you may want to say, show us some data,
    give us where you are.
        Year-to-date on what we refer to as Error Resolution cases,
    which is really where a taxpayer maybe couldn't appropriately
    reconcile two Economic Impact Payments or the Advance Child Tax
    Credit payments and those returns kicked out of the system
    required a manual review--as of April 28th in error resolution,
    we had 1.5 million individual matters this year.
        Last year, same time year-to-date, we had 8.8 million. The
    volumes are going down. We did get a spike, as we would expect,
    around April 15 and a little bit beyond that, but this was
    anticipated because a lot of people file at or about the filing
    deadline. The numbers are definitely trending in the right
    direction. I will commit to each of you that if we see a change
    in this direction, you will hear from me.
        Mr. Womack. Thank you.
        Mr. Quigley. I see we are joined by the Chairwoman of the
    full committee, Ms. DeLauro. She is recognized for questions.
        The Chair. Thank you so much, Mr. Chairman, and I thank my
    colleagues on the committee. Commissioner Rettig, first of all
    let me just say an unequivocal thank you to you and to the IRS
    staff. You all did unbelievable work last year. You distributed
    more than $200 million monthly child tax credit payments, $93
    billion. This was to children and their families from July
    through December of last year.
        I know at the outset there was a lot of concern and that
    people did not feel that this could happen and that the agency
    would not be able to deliver these monthly payments. But you
    did it. You did it successfully, and I want to congratulate you
    on that.
        And I am not alone in saying how many constituents come up
    to me and talk about the impact of the monthly Child Tax Credit
    payments, the impact on their families, a game changer, a life
    line to middle class families, to working families and to the
    most vulnerable families. And I am going to continue to work
    with my colleagues to make the monthly expanded child tax
    credit permanent.
        And before I get to my questions, I would like to make a
    brief PSA, a public service announcements, that families that
    do not usually file taxes can visit getctc.org online to claim
    their Child Tax Credit, the Child Tax Credit for January to
    June. They need to be able to collect that.
        My questions quickly, how fast can the IRS resume the CTC
    monthly distribution program if it were included in future
    legislation? What improvements could be made with outreach to
    ensure more families are receiving the Child Tax Credit?
        Mr. Rettig. The system that we have in place that we did
    the six monthly payments--and by the way thank you for your
    comments. They are very well received. And, as well, thank you
    for appearing at one of our Taxpayer Assistance Centers when we
    had a public day. So I appreciate that. I am not going to
    mention the pizzas, but I think you know what I mean.
        Those efforts are not lost on me, nor are they lost on our
    employees. The system we have in place for the six monthly
    payments would need to be adjusted if it was to be made
    permanent. It would be different. So, it would not be an
    instant change. But IRS employees are resilient. They rise to
    the challenges.
        I would tell you that we would get it up to speed and start
    issuing those payments faster than any other federal agency
    could do it. Our IT folks, our technology folks and our
    operating divisions who do this, this is what they do.
        I think evidence of that is that we did those six monthly
    payments. We did the three rounds of Economic Impact Payments
    in two weeks, 48 hours and 24 hours. And I don't think anybody
    else has the talent pool that would match us.
        We would need to see what is passed as to what adjustments
    are there. I am not hedging on the answer with you, but I would
    commit to you and pledge to you that myself and the IRS would
    get that up to speed as quickly as possible. If there is
    legislation pending, I think you are fully aware we would very
    much appreciate the opportunity to participate in helping make
    that legislation administrable as opposed to getting
    legislation that is difficult to administer and that would
    impact the timing as well.
        The Chair. Well, I'm so much appreciative of--and the other
    piece of this is how can we--and you might mention your
    outreach efforts here, and how then can we--how can we deal
    with further outreach efforts to ensure that more families
    receive that Child Tax Credit?
        Mr. Rettig. I think the employees of the IRS and myself, we
    have greatly, I indicated, expanded our outreach efforts both
    on the ground, virtual and otherwise. I earlier said we have
    relationships with more than 18,000 community organizations. We
    also have a relationship with ethnic media outlets, and we do
    interact with more than 150 different ethnic media markets
    around the country.
        These relationships did not exist--and this is not
    attributed to me, it's really because of the EIP--but they did
    not exist when I came onboard. Our employees have aggressively
    been going out to try to get to the communities.
        Our movement in the languages that I mentioned earlier has
    really opened doors for us in a lot of communities. We have a
    lot of employees who are from these communities and go back
    into the community. They are going into where they live and
    distributing flyers. I think that you are aware that on the
    EIP, we distributed the EIP outreach material for EIP 1 in 35
    different languages.
        I know that when I came onboard we more or less did
    activities in four languages. So, you all can make a
    difference. I'm looking at the staff in the room, you all can
    make a difference. Can one person make a difference? My
    challenge and my encouragement is for everybody here to carry
    on with this after the expiration of my term.
        The Chair. Well, listen, please, let's continue to be in
    touch. And I know the chair of the committee, the subcommittee,
    is as anxious as I am. We want to make sure that you have the
    resources that you need as you deal with enforcement, as you
    have been collecting taxes but also as to how in fact we can
    make this tax credit, and as I said I'll continue to pursue the
    extension of it, of making it permanent.
        And the monthly basis has been a godsend to people. No one
    pays their bills on a yearly basis. They pay them on a monthly
    basis. And all the information coming to us has shown that
    quite honestly this has been--I have never seen a federal
    program that has resulted in so much success in such a short
    period of time.
        And you and the IRS have been instrumental in making that
    happen. We have really lifted over 3 million youngsters out of
    poverty. And it is not--what we don't want to do is we see the
    numbers on poverty. They are up in January. What we don't want
    to do is to throw these folks back into poverty. And this Child
    Tax Credit is the biggest middle income tax cut to people in
    history. And so we want to make sure that we have the delivery
    capacity of it. So thank you so much for the work of yourself
    and your staff.
        Mr. Rettig. If you pass the law, we'll implement it. We got
    it.
        The Chair. Hear, hear. Thank you. Thank you for that
    attitude. Appreciate it. Thanks so much. And I want to say a
    thank you to the chairman for allowing my participation. Thank
    you so much.
        Mr. Quigley. Thank you. Mr. Stewart is recognized.
        Mr. Stewart. Thank you, Chairman. Thanks, Commissioner for
    being with us. I have respected your work. I'm familiar with
    your work. One thing I want to recognize you for, for example,
    previous to your work as commissioner some of the philanthropic
    work you have done, especially as a former Air Force pilot, a
    veteran. I love the work you did with the Vets Count at UCLA
    and some of the other things. So thanks for that.
        The second thing is I am making this point before I lead to
    my question, trust in the IRS is essential for the work that
    you do and just actually for any of this process to work. Tax
    compliance is essentially a volunteer proposal.
        Now I know there are enforcement mechanisms and if people
    cheat you will seek to find them and to prosecute them. But for
    the vast majority of Americans, it comes down to this. They
    recognize the federal government needs money. They hope that
    the IRS is fair. They hope that they are ethical. And they hope
    that they will be treated the same regardless of their
    background or their political beliefs.
        And I know that you would agree with that. I won't take the
    time to ask you to reply. I mean, it is essential that we
    maintain trust in the IRS. And the average American just feels
    like, yeah, I don't like paying taxes, but I recognize I have
    to in order to live in this great country.
        I would read you four or five names. And I know these would
    be familiar with you. I'll start with President Trump, Jeff
    Bezos, with Warren Buffet, Mr. Zuckerberg, Mr. Murdock, there
    are a number of others. And those are just some that we know
    about whose tax returns or portions of their tax returns were
    deliberately leaked by obviously an IRS employee and clearly
    leaked for really raw political purposes.
        Coming back to this idea of how essential trust is, I would
    ask you, have these leaks been investigated? How serious do you
    view them? And if you view them seriously, what efforts have
    you taken to prosecute and have any people been held to account
    for this?
        And, Commissioner, I would ask you to be brief in your
    response because there is one other issue I do want to talk to
    you about in the limited time I have, but representing just
    normal Americans, this such a critical question. I feel like it
    has to be asked and presented to you.
        Mr. Rettig. As you know, I can't speak to any individual
    taxpayers, but as to the information mentioned there, that is
    being investigated by TIGTA. That information was published one
    morning, and within an hour, I reached out directly to the
    Director of TIGTA. TIGTA confirmed at that point that they are
    conducting an investigation.
        The Secretary, on the same day was testifying, I believe,
    and indicated that the U.S. Attorney's Office for the District
    of Columbia, the FBI, as well as TIGTA were also investigating.
    Appropriately so, somebody outside of the Agency investigates
    what may or may not have happened in the Agency.
        I don't believe that there has been any information
    indicating that it was leaked by an IRS employee. But those
    investigations are ongoing. I would suggest that people that
    have questions reach out to TIGTA. I believe TIGTA has briefed
    some folks on the Hill.
        Moving to the other side, as to leaks of information and
    trust in the IRS, the IRS takes this seriously. It is probably
    the highest priority of every person at the IRS, which is to
    maintain the confidential nature and private nature of
    information that people give us as well as that people are
    required to give us.
        And, to me, both as Chuck Rettig and as Commissioner, at
    the end of the day, you referenced about prosecuting this. The
    IRS is an investigative agency. I fully believe that the
    appropriate individuals, if it can be determined that a crime
    was committed and, I am not hedging on that, I'm just telling
    you the sort of public approach to these kinds of things, I
    fully believe that the individuals should be prosecuted to the
    fullest extent of the law. This goes to the core of what we
    consider to be tax administration, people filing with us. I am
    cutting off because you asked to preserve some time. But I hope
    you get my passion on that, right?
        Mr. Stewart. I do. And I appreciate that. But, I mean, I
    hope you understand as well that a lot of Americans feel like,
    hey, there are rules and law that apply to me and then there
    are rules and laws that seem to apply to other people or in
    this case not to apply. And I know in some of these cases where
    more than two years past the event and yet so far as I know,
    there has been no announcement or anyone prosecuted, anyone
    charged with these, it seems to be, criminal activity very
    clearly and that breaks down that faith in the rule of law.
        Let me, Commissioner, if I could, I want to come back to my
    original opening statement of a concern I have, and I will have
    to pursue this either in a private conversation with you or
    perhaps in writing. And that is the IRS' intention to, you
    know, take financial transactions on Venmo and PayPal. I would
    imagine the vast majority of which are just people, you know,
    sharing the cost of a meal or sharing the cost of a vacation or
    whatever it might be, and then to put a $600 limit on that and
    to investigate some of those and to require additional 1099-Ks
    for every transaction greater than that, I mean, I cannot
    imagine the number of people that are going to be confused.
    They are going to be caught in this web, unsure of what to do,
    unsure of how to get an answer from the IRS.
        It seems incredibly intrusive for something that is meant
    to be--you know, ease financial transactions, not to be a tax
    event. I am out of time. I would like to follow-up with you on
    that though and look forward to your conversation.
        Mr. Rettig. Thank you.
        Mr. Quigley. Thank you. Mr. Bishop is recognized.
        Mr. Bishop. Thank you very much. I am going to be brief. I
    want to ask four questions. First off, many of my constituents
    in rural areas don't have access to high speed internet, and so
    they have to file their returns by paper. And according to an
    NBC report, paper returns will take five to eight months to
    process, which is unacceptable, particularly for people who
    need those refunds.
        So can you tell me what you are going to be able to do to
    expedite that?
        Second, I want to ask you about the Intuit settlement. The
    sum of $141 million was agreed to for a settlement for injuries
    for low income toward their paid products and away from the
    free tax prep as provided by the IRS. Can you tell me how and
    when the taxpayers who would have been eligible for the IRS'
    free tax service will be compensated and how will they be
    notified? I think that's about $4 million out of the $141
    million total that's due for people in Georgia.
        And the third question, we're still getting complaints
    about the IRS not answering the phones and not being able to
    talk to anybody about questions and having appointments
    cancelled and not having people in the offices for walk-ins.
    When and how is that going to be dealt with?
         And finally the tax gap, with the $600 billion annually
    and $7 trillion in lost revenue over the next decades, what are
    we going to be able to do to collect that? And if we are able
    to do it, will the resources that we are making available help
    you to accomplish that? And if you could sort of touch on
    those, I would be most appreciative.
        Mr. Rettig. I will. I also want to assure you and all of
    the other members of the Subcommittee that I am available to
    meet with you personally as well as our folks are available to
    meet with you.
        As to constituent issues, if we can coordinate a call or a
    meeting where you have waivers allowing us to discuss the
    matter with you, we can probably identify matters and where
    they are in the process for all of your constituents.
        As to the paper issues, I am very familiar with your
    district. I am a military family. I have a son who is a Major
    Medical Officer at Fort Benning and have been into your
    district more than a few times, I am proud to say.
        As to the paper issues, it's pretty public. We have surge
    teams. We brought in contractors. We are processing paper as
    quickly as we can. We are committed to what we call ``getting
    healthy'' by the end of calendar year 2022, which is this year.
    The importance of that is ``getting healthly'' before we go
    into the filing season for it next year.
        We have encouraged folks to file electronically. There are
    people for a variety of reasons that filed on paper. Part of
    the funding request is to increase our Taxpayer Assistance
    Centers staffing. It is in the fiscal 2023 funding request to
    actually put three people in each of our 358 taxpayer
    assistance centers, which could help a lot of these problems.
    These are walk-in centers where people can actually do an
    appointment or walk-in without an appointment.
        The fact is more than half the people who call into our
    centers requesting an appointment get their matter resolved on
    that particular phone call. If you have people with unresolved
    matters, we can coordinate to discuss that separately.
        As to the Intuit settlement, the IRS is not part of the
    Intuit settlement. That was between the 50 states and Intuit,
    and the terms of the settlement are not something that IRS is a
    party to. I can't really speak to the timing of that piece.
        As to the tax gap, I was focused on the tax gap before I
    came onboard. It's a combination of education, outreach, and
    helping compliant taxpayers. Enforcement supports compliant
    taxpayers, reassures them that they know they are doing the
    right thing. And this is really a funding and budget issue.
        On the enforcement side, we are down about 17,000
    enforcement personnel since FY 2010. The attrition rates for
    our experienced front line field revenue agents are the highest
    in our agency. As you would imagine, it takes somebody a while
    to get the experience to be in that position.
        To just give you one sense of the volume that we deal with,
    I have 6,500 front line field revenue agents to handle the
    complex examinations. Last year, we got over 4 million
    partnership returns. That's a single lane.
        If we put all 6,500 revenue agents on that, we still would
    not have a significant impact. These same folks have to go
    after the bigs, the super bigs, the complex transactions for
    individuals in closely held businesses.
        Mr. Bishop. Thank you very much, Commissioner. My time has
    expired. And thank you for expediting your answers. I think you
    covered everything.
        Mr. Rettig. I tried. I'm not the most concise speaker. I'm
    working on that. Four years in, I'm trying.
        Mr. Bishop. Thank you.
        Mr. Quigley. Mr. Joyce.
        Mr. Joyce. Thank you, Mr. Chair. Commissioner Rettig, nice
    to see you again.
        Mr. Rettig. Nice to see you.
        Mr. Joyce. And I'm going to ask you some questions and then
    I'm going to leave. And I apologize for that ahead of time, but
    I have another hearing that I have to be the ranking member at
    2 o'clock.
        Mr. Rettig. It's just like at home. My wife asks and
    assumes I am going to answer. I'm with you on that.
        Mr. Joyce. Okay. I understand the pandemic has created
    challenges for the IRS. And you've worked hard to reduce the
    significant backlogs, which created delays for American
    taxpayers.
        Can you speak about the lessons learned at your agency over
    the last several years which might help you permanently
    eliminate those backlogs so Americans no longer face problems
    and delays processing their tax information with the IRS?
        Mr. Rettig. Okay. I thought you were going to ask me
    questions and take off, so I get it.
        In terms of lessons learned, one thing that we did was
    issue 257 million letters to taxpayers reconciling their
    Economic Impact Payments as well as their Advance Child Tax
    Credit payments because we had more than, I think about 13
    million individuals a year ago that couldn't reconcile two
    payments. When they come into our system electronically, those
    get kicked out to manual processing.
        Lessons learned for us was to get that information to
    people upfront and also to advise people that they could go to
    their online account to verify these numbers. Having the return
    be electronically filed, having it be accurate and having them
    request a refund in direct deposit is critical to move through
    our electronic systems quickly. Where we can and get people off
    paper. It has been really significant. I would say if there was
    one arena that was maybe the most significant for us that that
    was it.
        The other part of it is we did use our funding to
    modernize, in the same lane, a portion of this process where we
    had the manual review and an individual IRS employee could do
    100 a day. We have modernized three of 20 steps that that
    employee would have to do. Now that employee does thousands per
    day. As you can imagine, that's taking care of the inventories.
        Having people interact with us and having us be on the
    streets in the communities, we are still a people-oriented
    organization. Our employees are proud to be in those streets.
    Speaking after my term, I think it would be remiss if the
    Agency flipped to an entirely technology driven organization.
    That is not reflective of the country we live in.
        I will also say and I mentioned earlier that for the first
    time in history the Form 1040 is in a language other than
    English. It is in Spanish. You can call in to our systems. We
    have over 350 different languages available for interpretive
    services, and last year over 90 million page visits on our non-
    English speaking pages. That's another area where people are
    trying to get it right. It is up to us to get into their
    community and the language they are most comfortable in. We are
    not done, but we have done well in that.
        Mr. Joyce. How do millions of American individuals and
    businesses trust some of their most private and valuable
    information to the IRS each year? You have got the IRS that has
    come under repeat criticism for struggling to modernize its
    technology and respond to cybersecurity risks.
        The Treasury Inspector General report from December
    indicates that these issues persist. The IG gave a mixed
    evaluation of IRS progress on technology and cybersecurity
    problems.
        Congress appropriated an extra $1 billion in the American
    Rescue Plan to help fund modernization of IRS technology and
    security. How is the IRS using this extra money and what
    progress is being made under the IRS modernization plan and why
    have these inadequacies persisted for so long?
        Mr. Rettig. I would take exception to anybody believing
    that we have vulnerabilities in the cyber space. You know that
    we receive about 1.4 to 1.5 billion sophisticated cyber attacks
    per year, which are not from 8-year-old children. These are
    from nation states that you and I both know. You're not seeing
    that they're getting into our systems.
        I think it is a disparagement to our employee's efforts, to
    the quality of the people that we have online 24/7, and they do
    work 24/7 in this space. I'm not speaking to you, sir. I'm just
    saying in general. I'm on the inside. I see what we have.
        TIGTA can certainly step in and say, you need to square off
    this corner as opposed to how it looks today. A million dollars
    when we're going up against nation states around the world,
    1.4-1.6 billion times per year, millions of times per day, I
    think that the employees of the IRS in this particular space
    should really be congratulated for their efforts and where they
    are--you know, there are certain things I can't say in a public
    hearing, right?
        Mr. Joyce. Oh, yeah, and it didn't come from me, sir. It's
    coming from the Inspector General.
        Mr. Rettig. No, no. And that's why--I saw you look at me,
    like, ``hey, what are you doing?'' So, that's why I said, you
    know.
        Mr. Joyce. And lastly, quick, I know I don't have much time
    left. Does the IRS plan to release further details as to how
    the cyber, crypto and then blockchain technology, how you are
    going to get the guidance from you on how you are interpreting
    that--what department or broker is with respect to digital
    assets and cryptocurrency industry was weighed in?
        Mr. Rettig. The entire virtual currency world is moving
    faster than the rest of the world.
        Mr. Joyce. Sure.
        Mr. Rettig. Quite frankly. You know, then some----
        Mr. Joyce. You're getting attacked on one end and you're
    getting----
        Mr. Rettig. Exactly.
        Mr. Joyce [continuing]. Attacked on the other.
        Mr. Rettig. The answer is we have to. We have to get out
    there. We have to give the appropriate guidance where it's
    necessary. The other side of that is that we added to the
    income tax return. I think it was for 2019, for 2020 and for
    2021. Have you had any transactions? That's a yes/no question.
    That's not a difficult tax question. The people who answered no
    where they do have those transactions should be concerned.
        Mr. Joyce. Thank you for your time. I yield back, Mr.
    Chairman.
        Mr. Quigley. Thank you. Mr. Pocan.
        Mr. Pocan. Thank you very much, Mr. Chairman, and thank
    you, Commissioner Rettig, for being here and, you know, thank
    you to all the people who work at the IRS who have been doing
    an awful lot of work, especially given COVID, a lot of extra
    programming and definitely you have had insufficient resources
    to do much of what you needed to do.
        Let me dig a little deeper into Mr. Bishop's last question
    about audit rates and the tax gap. You know, I know you
    mentioned the lack of employees. And I understand that. But it
    is estimated that the U.S. is losing about $547 billion per
    year through unpaid taxes. And we also know that high income
    taxpayers are responsible for much more of that unpaid tax than
    lower wage earner, whose income is easier for the IRS to
    monitor.
        What I am concerned about is that recent data shows the IRS
    is auditing low income people at a rate of 13.5 per thousand up
    from 13 per thousand and that is compared to a rate of 2.2
    thousand for other individuals.
        I guess my questions are, can you assure us that any
    increases for budget would be used to ensure that the
    wealthiest and corporations are paying their fair share and not
    just continuing going after the easier low income individuals?
    And how can that additional money help you go after those
    specifically?
        Mr. Rettig. I first would appreciate the opportunity to
    meet with you at your convenience in your office on the phone
    or on Zoom to go through what is wrong with the figures that
    came out.
        GAO issued a report yesterday that confirms that the IRS
    audits high income individuals far more than all lower income
    individuals, as a percentage of the people who come in.
        The other part is, can I assure you that any resources the
    IRS might receive will be focused on higher income individuals,
    more complex transactions, the big and super big corporations?
    Absolutely. That is where all our experienced revenue agents
    are currently. Those are the people that we are trying to
    expand and to go into that direction.
        The only reason the Internal Revenue Service looks at lower
    income individuals deals with IPERA. We have been trying to get
    the improper payment rates associated with the EITCs out of
    IPERA since long before I came onboard. The effort is to try to
    ensure compliance for everyone at the higher income levels. The
    administration has requested that specifically. I think
    everybody inside the IRS is interested in that.
        We need experienced technical agents to be able to get into
    those spaces and figure out where to audit and--as important,
    as where not to audit. We are using a lot of artificial
    intelligence data. We have a lot of analysts in our return
    selection process in the higher income areas. You should expect
    us to continue to do so and again, beyond my term, hold the
    agency accountable for that. Hold me accountable now, but this
    is important. People need to know. We need to be transparent.
        Mr. Pocan. And I think some of what you say may relate to
    this. In your budget justification, you pointed out that
    insufficient resources have led to just a 7.7 percent audit
    rate for large corporate compliance programs in the most recent
    year that data was available. Do you have an estimate of how
    much tax revenue we forego because of that insufficient amount
    of resources?
        Mr. Rettig. A couple years ago, Senator Wyden asked me that
    question. I said it could be up to a trillion dollars. We have
    to look at how we get to the trillion dollars. If you consider
    that virtual currency, there were $14 trillion in transactions
    last year over $2 trillion market gap and the US GDP to the
    world is somewhere between 30 and 40 percent. You can probably
    do the math to get you to the trillion.
        A lot of people came back at us on that, but our RAAS
    group, our research group, supported the comments that I made.
    Also know, this comes back to conversations about the Russians
    and the oligarchs, that illegal source income is also subject
    to tax in this country.
        Getting us and getting Criminal Investigation the resources
    to go after the illegal source people for prosecutions. But
    there's always a component where it comes back to a civil
    issue.
        Maybe I should have just condensed to this to say we will
    issue a tax gap estimate this summer. Look for it to cover the
    next three years. I think it is 2014, 2015, 2016, but that's
    outdated information. Look at the virtual currency market in
    2016 compared to today. You would not have developed a work
    plan based on something from 2016 nor should we.
        It will also give some projections for 2019. We have put a
    lot of effort, myself included, into getting current
    information and developing a work plan based on current
    information not based on old information.
        We will issue that--and I apologize time-wise, Mr. Chair--
    but we will issue that this summer. Again, I am available to
    meet with you, and I appreciate your questions.
        Mr. Pocan. Sure. Thank you, Commissioner. I yield back, Mr.
    Chairman.
        Mr. Quigley. Ms. Torres.
        Ms. Torres. Thank you, Mr. Chairman. And good to see you
    again, Commissioner. I want to go back to the tax filing
    because it is such a big concern and a big issue.
        In 2021, as you know, more than 160 million people filed
    their tax returns with the IRS. An estimated 10 percent of all
    federal tax returns are paper filed.
        Mr. Rettig. About 17 million.
        Ms. Torres. Including me.
        Mr. Rettig. Mm-hmm.
        Ms. Torres. Okay. I am kind of feeling like we are trying
    to say it is the fault of paper filers that they are--I
    understand maybe you did not mean to say that. But I think it
    is--we need to be very clear. We want people to file their
    taxes in whichever way that they can file them. What we want is
    for those taxes to be filed.
        Last year at this very same hearing, I asked about the IRS
    decision to use several trailers to store unopened tax returns.
    At that hearing, you assured me that the agency was caught up
    and processing those returns.
        So I'm going to read you a letter from the IRS to my
    constituent. This letter was written on July 21, 2021, we
    received a request for verification of non-filing of a tax
    return. As of the date of this letter, we have no record of a
    processed tax return for the tax period listed above. If you
    have any questions, call this number, which no one ever
    answers.
        My question to you, sir, is it, you know, a typical way of
    doing business at the IRS office for paper filers to open up
    the return, cash the check but then brown file the paperwork?
        Mr. Rettig. We are required to remove the checks and
    process the checks within 48 hours by law, so the initial
    answer to that is yes. We also have three large submission
    processing centers, Ogden, Kansas City and Austin. Depending
    upon the volume and the flow of paper processing in those
    centers, we move returns among those centers. If one is ahead
    of the curve, we will move volume from one of the other centers
    to that center. Those movements happen in trucks.
        I heard you say that I said we were caught up last year. I
    don't think I said that. And if I----
        Ms. Torres. You did. We can send you back the tape. You can
    look for it yourself.
        Mr. Rettig. It may have been that I was not answering the
    right question for you because we still have 1.6 million paper
    returns that were received in calendar year 2021 but know that
    is down from about 10 million paper returns from 2021 at the
    start of the filing season 2022. We're processing paper in the
    order received, first in/first out. We have all hands on deck
    to get that paper processed.
        Ms. Torres. So I want to be very clear with you. I'm on
    your side.
        Mr. Rettig. Yeah.
        Ms. Torres. I want to help you do your job.
        Mr. Rettig. We have had this discussion.
        Ms. Torres. It is disappointing to hear concerns and
    complaints from constituents day in and day out. It is
    disappointing that we would prioritize because, you know, we
    say it in a state law to prioritize to cash those checks, to
    bring in the revenue, but we do not prioritize uploading that
    document.
        How much more work are you creating, not you, but is your
    staff creating by doing one and not the other? And at which
    point, how many months or how much time is going to go by
    before those documents actually get uploaded into the system?
    Because for this constituent, it still has not been done. That
    means that that constituent----
        Mr. Rettig. If you give me that constituent's information,
    we will try to find it. We probably can find it in our system.
    I have made this offer to everybody. And I know you have my
    cell phone because we have talked.
        Ms. Torres. Yes.
        Mr. Rettig. We are there. But it is not a special lane kind
    of a thing. But we are working hard, myself included on this.
        Ms. Torres. I am trying to assess as to what is the
    timeline?
        Mr. Rettig. Know that, here is sort of the background and
    we can go through this when we do have more time. The structure
    of the Internal Revenue Service is the folks who answer the
    phones, when the phone volume is down, they got onto processing
    the paper returns. That would be a logical structure but for a
    pandemic, but for when you are receiving 1,500 phone calls per
    second to----
        Ms. Torres. We are giving you a lot of work. I get it. My
    time is expired. Like I said, I am on your side. Okay. I give
    back.
        Mr. Rettig. I am available to meet with you.
        Mr. Quigley. Thank you. Ms. Kirkpatrick, please.
        Ms. Kirkpatrick. Thank you, Mr. Chairman, and thank you,
    Commissioner, very much for appearing before the committee. We
    really appreciate your time.
        Last week I was fortunate to meet with the FTC Chair Khan.
    While I couldn't attend our hearing this morning because I had
    another hearing, one of the topics that the chairman and I
    discussed in our conversation was the increasing rate of
    identity theft and fraud in Arizona.
        Could you please share some of how the IRS is protecting
    taxpayers from identity theft and fraud? In particular, could
    you give attention to states like Arizona where identity theft
    is prevalent and on the rise?
        Mr. Rettig. It used to be taxpayers who were victims of
    identity theft could get an IP PIN and that coded PIN would be
    mailed to their address and it would ensure that we have the
    right taxpayer.
        The last two years taxpayers have been able to apply for an
    IP PIN without having been a victim of identity theft. Last
    year we had between 5 and 6 million IP PINs generated. That
    would be my first comment for folks.
        I got a comment the other day. I was not aware of a spike
    in Arizona. I would say generally in the identity theft world
    it has been a public/private partnership with IRS and what we
    refer to as CERCA, which is a lot of folks.
        It has come down about 90 percent from where it was in
    2014-15. But what we keep saying is 1 is 1, right? We try to
    help everyone.
        What it may be, and I would like to get back to you, is
    that maybe we need to increase the outreach and what people
    should do, not only in Arizona, but in other parts of the
    country, to be responsive to because as we all know, when
    somebody takes your identity for whatever purpose, here it is
    tax, it is not an easy future couple of years.
        Messaging is important. Messaging with your office, through
    your office in your community is important and look for us to
    step that up. I would suggest, and most people completed their
    filing season by April 18th date, that going forward if there
    is a spike in the community, we need to have more people get
    this IP PIN.
        Ms. Fitzpatrick. Thank you. And I appreciate that answer.
    My next question has to do with the Child Tax Credit. I've
    heard from families throughout my district and the rest of
    Arizona about how the Child Tax Credit has impacted their
    lives.
        Our failure to extend it is shameful and has directly
    increased child poverty rates. While I know you have no say in
    whether a program like that is extended or not, I would be
    curious to hear from you about the scope and impact of the
    program. For example, how many families took the credit, how
    many children were lifted out of poverty and any other examples
    regarding scope that you can think of.
        Mr. Rettig. We sent out 57 million reconciliation letters
    on the Advance Child Tax Credit. Some of those may be a both
    parents type of a situation. But that would show the volume of
    folks engaged with that.
        I think that overall IRS employees did a tremendous job of
    getting these payments out. You may recall that in early March
    of 2020, I was testifying on the Senate side and indicated to
    back off on getting us more projects if you want us to get this
    Advance Child Tax Credit out on a timely basis. By the end of
    March, I had a separate testimony, I said do not worry. We have
    it. We got this. You can rely on us. We are proud of what we
    were able to do there.
        As to the future of it, I am just the head of an
    administrative agency, a public school kid from LA. You are way
    over my head on this stuff, right?
        Ms. Fitzpatrick. Thank you very much. Thank you for your
    answer. I am almost out of time and so I am going to yield
    back. Thank you, Mr. Chairman.
        Mr. Rettig. Thank you.
        Mr. Quigley. Thank you. Ms. Lawrence.
        Ms. Lawrence. Thank you, Mr. Chairman, and welcome back.
        Mr. Rettig. Good to see you.
        Ms. Lawrence. In March, the IRS announced the creation of a
    surge team. It was to address the massive backlog of tax
    returns and correspondence. Can you talk to me about how the
    hiring efforts are going? How are you working to quickly train
    so many new people? And will this effort help settle the
    backlog?
        Mr. Rettig. This effort combined with other efforts will
    get us healthy this year. A surge team was one of many
    different lanes that we have approached to get through the
    inventories. It is an absolute must that we--my terminology is
    pretty blunt--crush these inventories.
        We took people off the phones, which did not help the level
    of service, the ability of people to have a phone call
    answered, and pushed them into working the inventory. Then we
    added surge teams of people who were two or three years out of
    this space and promoted to another space, and we essentially
    forced them back into this.
        Many were very happy. Many were less than very happy
    because they saw themselves moving forward, but they understand
    the bigger task at hand. It is two different lanes: It is
    Submission Processing and Accounts Management.
        We have also engaged contractors. We have over 2,500
    contractors coming onboard to upscale our people and have the
    contractors handle the less specific tasks. We have done a lot
    in the technology field in order to accelerate processing of
    what we have.
        Ms. Lawrence. Is it working?
        Mr. Rettig. It is absolutely working. I indicated that we
    are trending in the right direction. There is no question. I
    commit to you as Chuck Rettig and as the Commissioner, we will
    be healthy. If there is something that happens, I always have
    to hedge because somebody will remember maybe what I said, but,
    you know, if we have a COVID or we have a this or we have a
    that, I deal in a world of uncertainties. I only know what we
    know.
        If the environment through the rest of this year is as it
    is today, we will be healthy, which means we will be at current
    inventory levels going into the next filing season. I
    understand how every taxpayer, how every representative,
    everybody wants this; trust me, nobody wants this more than the
    employees at the Internal Revenue Service. They're proud of
    what they do.
        Ms. Lawrence. Thank you. I'm glad to hear that. Let's talk
    again about the paper returns. Have you implemented scanning
    technology to process the paper tax returns versus employees
    you have that transcribe the paper returns manually? So where
    are we in handling of the paper?
        Mr. Rettig. We requested funding for scanning in 2013,
    2014, 2015, 2016 and 2017, and we did not receive funding. In
    2018, we moved to emphasize the electronic filing of returns
    because we did not have the specific funds to go down that
    lane.
        Know that the scanning technology that is out there is not
    completely the answer--it doesn't work, transparently, with our
    systems. These are paper returns that individuals would still
    have to go in and tick and tie once the scan went through. It
    doesn't eliminate those job categories, and it doesn't
    eliminate paper.
        We are looking at this and many other things. In the
    President's fiscal year 2023 budget, there is funding to take
    us in that direction, and we want to get there.
        Ms. Lawrence. We need to get there. We really do. The last
    question I have, my district includes one of the most diverse
    communities in the State of Michigan with many cultures and
    languages represented. How are you working to improve services
    and enhance customer experience for those who are using a
    language other than English?
        Mr. Rettig. I'm a public school kid from LA. Put me in a
    Spanish speaking country, and in 3 days I will be fluent in
    Spanish. I came onboard in the Internal Revenue Service, and on
    week two, and I said how many languages do we operate in, and
    somebody said four. I think my response was, that is
    unacceptable when you serve every American in the country.
        Ms. Lawrence. It is.
        Mr. Rettig. It is not a coincidence that you have a public
    school kid from a very multicultural environment. I was saying
    to somebody the other day, we used to brag about something,
    which was the fact that my mom was born in the United States in
    our neighborhood, it shows you how the rest of our neighborhood
    was. I'm sure you are aware, I am the first commissioner whose
    spouse came into this country as a refugee.
        Ms. Lawrence. Yes.
        Mr. Rettig. My in-laws live in Little Saigon in Southern
    California and do not speak English. I am very proud of that. I
    didn't come in unmindful to real people. The 1040 is in Spanish
    because I said get it in Spanish.
        Ms. Lawrence. Yes.
        Mr. Rettig. You call into our services, and we have
    interpretive services in over 350 different languages. We had
    over 90 million page hits on our non-English speaking pages
    last year. What I did here was open the door and our employees
    passionately went through this. Our employees live, work, and
    proudly serve the communities that you are referring to as well
    as all other communities.
        If there is an area that I can say I delivered a pride
    factor to our employees during the pandemic, it is opening the
    doors and doing this work.
        I will add in, since this might be my last time before the
    committee--and I am going to use a few seconds here, sir--look
    at what we have done in Puerto Rico. You will have the largest
    call center of any federal agency in Puerto Rico. We went to
    Puerto Rico because of hiring challenges we have in large
    cities here.
        Watch our Lifting Communities Up program initiative. We're
    in the Mississippi Delta. We have facilities there.
        Ms. Lawrence. Right.
        Mr. Rettig. We will have one of the largest facilities
    anywhere at some point in time. We have five other communities
    that we are going to.
        We are doing job skills training with four-year and two-
    year colleges and high schools to bring into the IRS and change
    these communities.
        Ms. Lawrence. I want to say thank you for everything you
    have done and maybe you will enjoy some more romantic comedies.
        Mr. Rettig. We are proud of where we are. But we get it
    that we need to do more, you know.
        Ms. Lawrence. Thank you. I yield back.
        Mr. Quigley. I am not sure about the romantic comedies.
        Mr. Rettig. You know my wife watches these.
        Mr. Quigley. I get it. And I appreciate that.
        Mr. Rettig. She grills me when I get home so, you know.
        Mr. Quigley. Commissioner, there may be a few second
    rounders. And I'll let the ranking member begin that.
        Mr. Womack. Thank you. Real quickly, in my opening, I
    talked about direct hiring authority. Months ago you and I
    talked about the difficulty you were having in finding
    employees. You just spoke to it just a minute ago. So for the
    committee, for the committee's benefit, tell me what this
    hiring authority did for you and how it ultimately helped the
    American taxpayer.
        Mr. Rettig. The Appropriations Committees rescued the
    Internal Revenue Service and the ability of the Internal
    Revenue Service to get through these inventories. You gave us
    direct hiring authority. We had been asking for that
    administratively. It was not coming.
        Know that we have an administrative ask for three years,
    400 a year, 1,200 total, in IT that's been outstanding for more
    than a year. Expect us to come back for direct hiring authority
    in some of the more technical fields. We can't exist without
    that. For federal agencies, it's a six to eight month process
    to onboard people. That doesn't work. It just doesn't. It's
    unacceptable.
        With the direct hiring authority we got, which came on
    March 15th, we immediately opened job fairs in our three big
    processing cities, Kansas City, Austin and Ogden. Over 90
    percent of the people who show up at our job fairs are getting
    tentative offers, subject to background checks.
        We've been able to accelerate the background checks--
    fingerprints, for example. But when I talk about being healthy
    by the end of this year, we will crush these inventories.
    Without that direct hiring authority, you would not be hearing
    me say that. There is no way I could commit to that on the
    normal process.
        I am sure other federal agencies would love to have that
    same ability. But, let me remind the world 96 percent of the
    gross revenue in the United States of America goes through the
    Internal Revenue Service. Congress and the Administrations turn
    to the Internal Revenue Service to issue historic, epic, timely
    economic relief.
        I said something recently, it is notable to me, and I think
    it should be notable to others, Congress and the
    administrations didn't turn to the VA or the SSA, who have
    processes in place to issue benefits. They turned to the
    Internal Revenue Service during two different filing seasons to
    get it done, and we got it done.
        Mr. Womack. Please express, as I said in my opening, to
    your rank and file employees how much we appreciate their hard
    work and dedication and under sometimes thankless conditions.
    And I thank you again for your service.
        Mr. Rettig. Thank you.
        Mr. Quigley. I want to just echo what the ranking member
    just said. Please pass our gratitude on. Sir, is there anything
    you want to close with?
        Mr. Rettig. Just thank you very much. As you said, my term
    is set to expire November 12th of this year. For a public
    school kid--nobody in my neighborhood grew up and moved to
    Washington, D.C. for anything. I am the first in my family to
    graduate from college.
        One of the in-house jokes is among my non-lawyer friends is
    that none of them went to college. I come from a very proud but
    normal background and couldn't be more prouder than to be on
    the journey that I am on with you and the respect that you all
    have shown throughout for myself as well as for the employees
    of the Internal Revenue Service.
        It's meaningful. I happen to be the figurehead for the
    employees. But, you know, I couldn't be more prouder of the
    people I am working alongside on this journey. IRS employees
    have gone far beyond. I have asked more of our employees during
    the pandemic than I ever would have asked on the private sector
    on the outside. They exceeded my ask every single time.
        I want people to understand that of the challenges the IRS
    has undergone during the pandemic are not due to a lack of
    dedication or desire of any employee. When we opened up in June
    of 2020 in some of our processing facilities, we had to go to
    50 percent capacity. In some of the facilities, 70 percent of
    the employees showed up. We had to say no, no, you can't be
    here.
        Former IRS employees were calling me routinely, executives
    all the way through, ``can I help, Chuck? I can answer
    phones.'' I would tease and say, ``I don't really think you are
    capable of answering the phones.'' But, people need to know
    that story and the pride factor of the people.
        The IRS employees understood exactly what was asked of them
    to help the country at the worst time of what, I believe, will
    be most of our lives, and they performed. I hope that, if I end
    up moving on after November 12th, that that story is not lost
    and that you all continue to support the employees, where and
    how you can. They are the backbone of this country. Thank you.
        Mr. Quigley. I thank you and your staff for participating,
    the members of this committee, the ranking member and our staff
    for all their good work. And we are adjourned. Thank you.
        [Questions and answers submitted for the record follow:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                               Wednesday, May 18, 2022.

                            FEDERAL TRADE COMMISSION

                       SECURITIES AND EXCHANGE COMMISSION

                                   WITNESSES

    HON. LINA KHAN, CHAIR, FEDERAL TRADE COMMISSION
    HON. GARY GENSLER, CHAIR, U.S. SECURITIES AND EXCHANGE COMMISSION
        Mr. Quigley. The hearing will come to order. This morning
    we welcome the chairs of the Federal Trade Commission and
    Securities and Exchange Commission to discuss their Fiscal Year
    2023 budget request. This is the first time we have hosted FTC
    Chair Khan, but SEC Chair Gensler testified before this
    subcommittee last year. It is a pleasure to have you both here
    today. And while it is a double header, we won't do the
    seventh-inning variety like MLB copped out with.
        Today, you as agencies serve as cops on the beat,
    protecting consumers across vast swaths of the economy. They
    set rules and expectations for corporate behavior, ensure
    Americans have the information they need to make prudent
    decisions and investigate allegations of wrongdoing.
    Collectively, these agencies provide billions in redress each
    year for consumers affected by unfair, deceptive, or illegal
    practices.
        I applaud both chairs for reinvigorating their agencies to
    robust enforcement actions, a proactive rulemaking agenda, and
    a willingness to think creatively about better ways to protect
    consumers.
        Unfortunately, this is not the only similarity between
    these agencies. They are both seriously out resourced by the
    industries they oversee. The FTC assesses mergers and
    acquisitions and other competition issues for much of the U.S.
    economy, including technology, healthcare, energy, and
    pharmaceutical. It also investigates unfair and deceptive
    practices related to privacy, cyber security, credit reporting,
    misleading advertising, and numerous other areas.
        The SEC monitors more than 29,000 registered entities, as
    well as numerous national security exchanges, alternative
    trading systems, credit rating agencies, clearing agencies, and
    self-regulatory organizations. Both agencies have some of the
    brightest and hardest working employees in government, but
    these broad responsibilities mean the agencies must make hard
    decisions about what investigations to pursue. For example, we
    have heard reports that these agencies may be out staffed ten
    to one in high-profile litigation. So we appreciate that both
    agencies have requested substantial funding increases in FY2023
    to support their enforcement, rulemaking, and research
    priorities.
        The FTC has requested a significant funding increase of
    $113.5 million or 30 percent over Fiscal Year 2022 enacted to
    hire more staff across nearly every part of the agency and
    support its IT and expert witness needs. But because of an
    unprecedented surge in merger and acquisition activity, the FTC
    will also collect more filing fees which will offset some of
    the proposed increase.
        We look forward to discussing how the FTC will use these
    funds effectively to support its consumer protection and
    competition work including important activities that I have
    long supported like increasing consumer rights to repair the
    things that they own.
        We also hope to hear more about how the FTC is addressing
    the merger surge, the Supreme Court ruling curtailing its
    ability to award refunds to consumers under Section 13(b), and
    increasing expert witness costs.
        The SEC has also asked for $2.21 billion in Fiscal Year
    2023, a 10 percent increase over Fiscal Year '22 enacted. Much
    of this is for additional staff, particularly in the
    enforcement and examinations divisions. The SEC plans to use
    these resources to address a variety of emergent issues
    including cryptocurrency exchanges and tokens, increasing
    numbers of initial public offerings and single-purpose
    acquisition companies, and a growing number of private funds.
    These funds will also support the SEC's ambitious rulemaking
    agenda.
        I anticipate an informative discussion about the SEC's
    progress in ensuring that consumers have the data they need to
    make informed investment decisions, particularly related to
    climate change impacts. I am also heartened to see that the SEC
    recently reopened or extended some of its comment periods.
    Robust public engagement ensures that critical feedback can be
    provided in the rulemaking process and minimizes the risk of
    cost for litigation. I encourage the SEC to consider further
    changes to ensure substantial public comment.
        Thank you both, again for joining us this morning. I now
    turn to the Ranking Member, Mr. Womack, for his opening
    remarks.
        Mr. Womack. Thank you, Mr. Chairman. And I would like to
    welcome the witnesses, Chair Khan and Chair Gensler. Welcome to
    our committee. Thank you for appearing.
        Our economy is fragile as we are recovering from the
    pandemic, experiencing dramatic inflation and struggling with
    supply chain shortages along with the impact of the conflict in
    Ukraine. Now is not the time for federal regulators to further
    burden the economy with ideologically-based rulemakings that
    saddle American business with new costly requirements.
        The FTC is charged with protecting American consumers
    against unfair, deceptive, or fraudulent practices such as
    identity theft, false advertising, and unwanted telemarketing
    calls. Alongside the Department of Justice's Antitrust
    Division, the FTC is also responsible for enforcing our
    nation's anti-trust laws and conducting pre-merger reviews.
        Under the Biden administration, the FTC is contemplating a
    dramatic shift in its approach to traditional antitrust
    enforcement which could have far-reaching impacts on American
    competition and participants in our economy. To that end, for
    Fiscal '23, the FTC is requesting more than a 30 percent
    funding increase over the Fiscal '22 enacted level after the
    agency has already enjoyed significant funding increases in
    recent years. Under any circumstances, I would be reluctant to
    consider increasing an agency's operating budget by 30 percent
    in one year. Given the Federal Government's current financial
    situation with more than $30 trillion in debt, I am especially
    reluctant to support such an enormous increase.
        The SEC plays a critical role in protecting investors,
    maintaining fair, orderly, and efficient markets, and
    facilitating capital formation. The SEC should focus on those
    core responsibilities. With high-speed trading, uncertainty in
    the economy, and cyber security concerns, the SEC has many
    important issues to focus on to ensure our markets are
    efficient and facilitating capital formation. Instead, the SEC
    appears to be moving forward with an aggressive partisan
    agenda. Rules are complex and could have far-reaching impact.
    However, they do not provide the public with a sufficient time
    to conduct in-depth analysis of the impact. The short period of
    time the public is given to provide comments gives the
    appearance the SEC has already determined the outcome, and is
    not all that interested in meaningful public input.
        While I appreciate that the SEC recently extended the
    comment period for a few proposed rules, I believe the SEC is
    trying to do too much too quickly. I am also concerned the SEC
    is involved in areas that are outside of its core mission, such
    as climate change and political spending. The EPA is the
    primary federal regulator for climate change, the FEC for
    campaign spending. The SEC should not use its authority over
    public companies to require costly and ideologically-based
    disclosures that do not provide material information relevant
    to making investment decisions.
        Regarding the work of this committee, as the appropriations
    process unfolds, I will work with my chairman, Chairman
    Quigley, to make sure each of the agencies have an appropriate
    level of resources to complete your important core mission.
        And let me say one more thing before I yield back and that
    is that given the likely scenario that we are going to be in a
    continuing resolution, and I know that my colleagues up here
    would like to believe that we could get our work done on time
    and by the October 1 fiscal date, the likelihood--I don't think
    there are any handicappers in Las Vegas giving us good odds at
    making sure that we get our work done on time. We haven't in a
    long time. And with that in mind, higher budgets and a shorter,
    more compressed time to spend I think can be terribly
    inefficient for the taxpayers. So I caution us about the
    evaluation of these higher budgets.
        And with that, Mr. Chairman, I yield back my time.
        Mr. Quigley. And I appreciate the Ranking Member's remarks.
    It has been a pleasure to work with you, but I must--I must
    disagree. I believe that we are going to get all 12 bills
    passed and approved and we won't need a CR. And as a Cub fan, a
    big supporter of Santa Clause and the Easter Bunny, I want you
    to know my credentials are behind me.
        We are joined by the chairwoman of the full committee, is
    that correct? Ms. DeLauro? Okay. I was just given the timing. I
    wanted to see if she wanted to go ahead.
        We will go with the statements first. And then we will let
    her go and the questions first if she is here.
        So Chair Khan, thank you for being here today. Without
    objection, your full written testimony will be entered into the
    record. With that in mind, we ask you to please summarize your
    opening statement in five minutes.
        Ms. Khan. Chairman Quigley, Ranking Member Womack, and
    members of the subcommittee, thank you for inviting me to
    testify today. It is an honor and pleasure to be here alongside
    my friend and colleague, Chair Gensler. This testimony reflects
    my own views and not the views of the Commission or any other
    commissioner.
        The FTC has requested a substantial increase in funding
    next year, specifically, an additional $113.5 million, and I
    appreciate this opportunity to discuss this request with you.
    The FTC is on the front lines of many of the most pressing
    issues that Americans face today from corporate mergers that
    can enable firms to hike prices and slash wages, to massive
    data breaches that can expose Americans' most sensitive and
    personal information.
        The Commission is charged with tackling unfair or deceptive
    practices, be it businesses who lie about products being made
    in America or fraudsters who peddle fake COVID cures. And we
    are responsible for rooting out unfair methods of competition
    that can crush entrepreneurs and stifle innovation.
        It has been terrific this past week to meet with many
    members of this Subcommittee, and the range of topics that you
    have raised reflects the breadth and critical importance of the
    FTC's work. Our jurisdiction spans the entirety of the U.S.
    economy and Congress has assigned us the task of enforcing or
    administering provisions spanning more than 80 statutes,
    spanning children's privacy and energy market manipulation to
    telemarketing and horse racing.
        Given the urgent problems facing Americans, we are
    assertively using the full set of tools and authorities that
    Congress has granted us. I continue to be deeply impressed by
    the tenacity and creativity of our talented staff in the face
    of an ever-increasing workload, defendants with seemingly
    endless resources, and legal challenges to our authority. But
    there is much more we need to do.
        An essential component to meeting these challenges is
    additional resources, which is why the Commission has requested
    the additional funding for the next fiscal year. I am confident
    with this type of increase we would be able to more fully and
    effectively deliver on our mission.
        Indeed, funding increases that Congress provided the FTC in
    recent years have been put to important use. This critical
    support has helped the agency continue its far-reaching work to
    protect Americans, particularly in the wake of an on-going
    pandemic and an unprecedented merger wave. That work includes
    ensuring that consumers maintain access to affordable
    healthcare threatened by proposed consolidation of hospitals,
    and it includes obtaining a ground-breaking ruling against
    ``Pharma bro'' Martin Shkreli for jacking up the price of a
    life-saving drug with the court issuing an unprecedented
    lifetime ban on Shkreli from working in the pharmaceutical
    industry.
        A few months ago, we also won a motion to dismiss in our
    monopolization case against Facebook, now known as Meta, where
    we alleged that the company engaged in an illegal buy-or-bury
    scheme to crush competition after suffering a string of failed
    attempts to innovate.
        We are using our newly granted authority to seek civil
    penalties against fraudsters pedaling fake COVID cures and we
    are looking closely at geolocation data brokers and aggregators
    who sell personal location information on Americans that may
    reveal their religious observations, political views, and even
    their healthcare decisions. This is just some of the important
    work that the agency has been able to pursue with the
    additional funding.
        I take seriously the importance of ensuring that agency
    funds are put to the most effective use. Accordingly, I have
    asked our staff to orient our enforcement efforts around
    targeting and rectifying underlying root causes rather than a
    whack-a-mole approach that imposes significant enforcement
    costs with seemingly few long-term benefits.
        We are also ensuring that our work is tackling the most
    significant harm across markets, particularly by dominant firms
    whose business practices affect huge swaths of Americans.
        Lastly, we are focused on the need to be forward looking
    and anticipating problems and taking swift action, especially
    as it concerns next generation technologies and nascent
    markets. I believe that these principles can help maximize our
    efficacy.
        The additional funding would enable us to hire an
    additional 215 full-time employees. We anticipate that the
    majority of this increase would go towards expanding our
    enforcement teams and litigators who are on the front lines of
    fighting unlawful business practices. We would also use the
    funds to continue building in-house expertise including
    technologists, economists, and financial analysts and others
    who can help ensure that our tools and skill sets are keeping
    pace with changing market realities.
        Congress created the FTC in 1914 against the backdrop of an
    Industrial Revolution that delivered sweeping technological
    advances, but also enabled intense consolidation in industries
    ranging from oil and steel to sugar and tobacco, creating deep
    national unease about the unchecked power that these
    monopolists could wield. Since then, the agency's mission and
    scope has only expanded, covering key protections for
    consumers.
        The job that Congress has given us is enormous. And we hear
    weekly from lawmakers about new issues and problems that we
    should address. I am enormously keen for us to do so and fully
    deliver on our mission, but without the additional funding, it
    will continue to be a challenge.
        Thank you again for the opportunity to appear before you
    today and I am happy to answer any questions. Thank you.
        Mr. Quigley. Thank you. We will now turn to Chair Gensler.
    Please summarize your opening statement in five minutes.
        Mr. Gensler. Thank you so much. Good morning, Chair
    Quigley, Ranking Member Womack. It was good to talk with both
    of you yesterday and members of this subcommittee. I am honored
    to appear before you alongside Federal Trade Commission Chair
    Khan.
        As is customary, I would like to note that my views are my
    own and I am not speaking on behalf of my fellow commissioners
    or SEC staff.
        I would like to actually just open this in an unusual way
    by discussing two key years in policymaking. It was 1933 and
    1934. You see, we were in the midst of the Great Depression,
    but FDR and Congress addressed the crisis through a number of
    hallmark policies. And amongst them, Congress and FDR came
    together to craft two federal securities laws. In 1933,
    President Roosevelt formally suspended also the gold standard.
    In 1934, Congress working with the President said institutions
    were prohibited from redeeming dollars for gold. So in other
    words, if I can just--a little play on words here, but what
    Congress did and the President did in those two key years one
    could say replaced one gold standard which what I think was
    another, the securities laws.
        I believe the core principles of the securities markets
    have contributed to America's geopolitical standing around the
    globe, the three that Ranking Member Womack and the Chair
    referenced: investor protection, issuer--facilitating issuers,
    and the markets in between.
        We have $100 trillion capital market, the largest, most
    innovative in the world. It is 38 percent of the world's
    capital markets. We are only 24 percent of the world's economy
    and of course, 3 percent of the world's population. We can't
    take the leadership though for granted.
        New financial technologies and business models from
    predictive data analytics to yes, cryptocurrencies, continue to
    change the face of finance, but also other countries are
    developing deep, competitive, capital markets. And yes, those
    other countries want to surpass us. I mean there is a large one
    sitting in China, a government that would like to surpass us.
        We are also in the midst of uncertain geopolitical times.
    Growing cybersecurity risks have been really on our minds for
    these last six months with the war in Ukraine, but even beyond
    that, around the globe central banks have started to transition
    from an accommodating phase to a tightening policy stance.
    Further, the nature of finance itself will constantly challenge
    even a gold standard. And let's remind ourselves, even gold
    medalists have to practice and usually, they are the ones who
    pay the most attention to practice.
        In recent years, we have seen as much whether the market
    events in March 2020, the meme stock volatility, the
    speculative cryptomarkets, or the collapse of Archegos Capital
    Management, or a case we bought with the Department of Justice
    yesterday against Allianz which was an $11 billion situation
    where they were defrauding their investors.
        Given these trends, we should have grown during these past
    five years. Instead, the opposite happened. When I testified
    last year, I mentioned that we were four percent fewer than we
    were in 2016. We are still two percent smaller than we were in
    2016. In the past five years, our registrants have grown by 12
    percent. Last year alone, we got 46,000 tips, complaints, and
    referrals, three times what we got seven years ago. Again,
    three times what we got seven years ago.
         So we oversee these national securities exchanges, credit
    rating agencies, and the like that the chair mentioned. We have
    processed thousands of periodic filings, the measure is
    actually in the tens of thousands. So even though the SEC
    shrank, I think we should do everything to maintain and enhance
    our oversight of the markets and one way to do that is ensure
    we are adequately resourced. Thus, I am pleased to support the
    President's budget of $2.149 billion. Our capital markets are a
    national treasure and we at the SEC must work to keep them that
    way.
        But we can't do it alone. We need your help. It is not a
    good time to scrimp with the SEC resources, but fortunately,
    there is some good news is that we are fully budget neutral.
        Congress set up a mechanism decades ago that we charge fees
    to the industry we oversee and the way that I understand
    appropriations work if you were to fortunately give us $10 or
    $20 million more in appropriations, it doesn't take from any of
    the 30 other agencies, FTC being one of them, that 30 other
    entities I understand you oversee. So thus our budget request
    doesn't compete with other decision. But of course, we welcome
    the insights and how we should spend the money.
        In sum, markets can't stand still. The world isn't standing
    still. We have got a lot of geopolitical competitors who would
    like to take this gold standard away from us. The SEC resources
    can't stand still either. I hope we can come to some agreement
    on that. And I thank you.
        Mr. Quigley. Thank you, both. Before we begin with
    questions, House rules require me to remind you that we have
    set up an email address to which members can send anything they
    wish to submit in writing at any of our hearings or markups.
    That email address has been provided in advance to your staff.
        We will now begin with questions. We will first go to the
    Chairwoman of the Full Committee, Ms. DeLauro.
        Ms. DeLauro. Thank you very, very much, Mr. Chairman. I
    thank the committee for allowing me to jump the line so to
    speak here, so I really do appreciate it. And I want to say
    thank you to our witnesses this morning and thank you for the
    work that you do.
        My question is to Chair Khan. On February 17th of this
    year, there was a recall--was issued on Abbot Nutrition infant
    formula products due to bacterial contamination at the
    company's Sturgis, Michigan plant. Resulted in infant deaths
    and hospitalizations. As a course of tracking, the National
    Infant Formula shortage driven by Abbott's recalled products in
    March, I called for an OIG investigation into the FDA's
    handling of the recall. In April, I acquired a report from the
    whistleblower who worked at the Abbott facility and I made
    public the damning findings of the report.
        And while I introduced an emergency supplemental
    appropriation to restore the domestic supply of infant formula,
    I want to look at the long term root causes so the issue does
    not happen again.
        During your recall of this unsafe product and market
    consolidation, supply is limited and families are struggling to
    secure infant formula for their children. We have four
    companies who control 90 percent of the infant formula market.
    Abbott alone controls around 43 percent of the market. The
    level of concentration has created a fraudulent system unable
    to adequately respond to shock in the supply chain.
        Currently, an estimated 50 to 66 percent of all infant
    formula sold in the United States is purchased through the
    Women, Infants, and Children Program, the WIC Program, meaning
    the impact is heaviest on the most vulnerable Americans.
        So my question, Chair Khan, you are a known scholar of
    anti-trust law and history. Can you explain how the infant
    formula industry became so concentrated and how that
    contributes to the current shortage?
        What authorities can the FTC bring to bear to help address
    this shortage both in the short and long term?
        What issues has the FTC worked on jointly with USDA or FDA
    in the past? And does the FTC have strong working relationships
    with the agencies that would allow for quick and effective
    joint coordination?
        Ms. Khan. Thanks, Congresswoman. I will say up front, the
    baby formula shortages that we are seeing are deeply concerning
    and troubling. And it is something that we are watching quite
    closely.
        As you noted, it wasn't inevitable that this one plant
    being taken off would lead to such outside defects. And so we
    are doing everything we can to make sure that even though a lot
    of these issues are in USDA and FDA's wheelhouse, we are using
    our tools at hand.
        I think you are right that this situation has revealed a
    couple of underlying factors that has exacerbated the effect of
    this situation. One, as you noted, is the high concentration
    that we see in this market where three to four companies
    control the U.S. market.
        And the second is that states grant exclusive WIC contracts
    to manufacturers which in practice means that you are further
    consolidating the distribution system, so that when you have a
    shock to the system like this, other manufacturers are not
    willing to step in as quickly because of those long term
    contractual arrangements.
        So there are a few areas for the FTC here. First, and one
    of the most immediate things that we can do is monitor the
    markets for any deceptive or fraudulent conduct to ensure that
    bad actors are not taking advantage of the situation and
    exploiting the panic and anxiety that parents are facing. We
    also want to avoid situations where online bots are being
    automated to buy up product and then jack up prices.
        A second issue that we are able to look at is whether there
    is economic discrimination occurring in the market that would
    somehow disfavor smaller retailers and further exacerbate some
    of these supply issues.
        And third, we are really stepping back to understand how we
    got to this state where we have such deep concentration in this
    market, look at the mergers that contribute to it, and figure
    out how we can apply these lessons to make sure that other
    markets for these types of essential goods are not in such a
    fragile state.
        Ms. DeLauro. Can you tell me whether or not you are working
    with or can work with USDA and FDA and sign a deal with some of
    these--and some of these issues? And I don't know if you are in
    conversation with them or can do so as quickly as possible?
        Ms. Khan. Yes, we are in contact with USDA and FDA and see
    these types of agency partnerships as force multipliers, so
    definitely want to make sure we are sharing information,
    sharing tools, and resources where we can to address this
    problem as quickly as possible.
        Ms. DeLauro. I would like to work with you all on this.
    Because this is just one example. I am not going to talk about
    this, but you have got a meat packing industry that is also--
    that is another area of consolidation. And we are dealing with
    this and it is a detriment to the American public and we see
    price gouging as it has to do with food and pork products.
        And I am delighted to hear that you are looking at whether
    or not there would be price gouging on infant formula, but to
    the concept of consolidation of--and concentration in the
    market, it is an underlying fact here. I am not going to talk
    about FDA dragging its feet, you know, and not doing something
    about this earlier on, but we have a very fundamental
    underlying problem of what is going on in some very critical
    issues that face people's lives and their economic security and
    in this case, the lives of their children at stake.
        So I am hopeful that we can work together and that you all
    will be a major force in helping to get us on a long-term
    solution to this issue. So I thank you very much and I yield
    back. And I thank the chairman for allowing me to, as I said,
    to jump the line and I thank the members for their indulgence
    as well. Thank you.
        Mr. Quigley. Thank you. Thank you. Ranking Member Womack.
        Mr. Womack. Thank you, Mr. Chair. Again, thanks to the
    witnesses.
        Chair Khan, I will start with you. In Fiscals '21 and '22,
    as I said in my opening statement, the committee generously
    provided the FTC with increases of more than 5 percent in those
    years. For Fiscal '23, you are requesting a $113 million or 30
    percent increase over the current year, an enormous proposed
    increase, that is not supported by the Republican
    Commissioners. Commissioners Phillips and Wilson even issued a
    public statement criticizing the request. And you heard my
    remarks about CRs and how a compressed spending time line could
    lead to some inefficiencies.
        Have there been partisan disagreements on budget requests
    in the FTC in the past?
        Ms. Khan. I understand there have been instances when
    commissioners have dissented from budget requests in the past,
    yes.
        Mr. Womack. In their statement opposing the request,
    Commissioners Phillips and Wilson said that enforcement
    productivity of the FTC has declined substantially under your
    leadership. Now how would you respond to those concerns?
        Ms. Khan. I would disagree with that characterization. We
    are actually seeing trends that are on par with previous years
    and we are now in a position to actually be increasing over
    those rates.
        I would say a deeper question that we confront is what does
    it mean for the FTC to be an effective law enforcer? I think we
    have seen instances of repeat violations, recidivism, and so we
    need to make sure not just that we are bringing lawsuit after
    lawsuit, but that we are structuring these lawsuits and
    structuring any remedies and settlements to make sure that we
    are not incentivizing these types of repeat violations. And
    that is where we are really keeping front of mind as we are
    pursuing our work, to not just kind of count the number of
    lawsuits, but make sure they are actually effective and they
    are actually deterring unlawful behavior.
        Mr. Womack. In my opinion, a 30 percent increase in one
    year is based on a kind of a best-case scenario where as
    Chairman Quigley has said, even though he is a Cubs fan, that
    he believes in some of the things that might appear to others
    to be somewhat not practical or maybe even downright
    impossible.
        And gosh, I call on my old days as a broker at Merrill
    Lynch, Chairman Gensler, that past performance does not
    guarantee future results, except in the case of Congress. I
    think past performance does somewhat guarantee some future
    results or at least I haven't seen anything counter to that.
        So let's just play this out, Chair Khan. Thirty percent
    increase. Let's assume for the sake of the argument that if you
    got--if we got our appropriations work done on time by October
    1st, that you would be able to efficiently commit those funds,
    if you got them, in a responsible way. But let's say for the
    sake of the argument that we don't get appropriations done.
    Maybe we kick it to the lame duck session and maybe it is
    January 1. What happens?
        Ms. Khan. Of course, any time where you are delaying when
    we have that certainty, that compresses any time that we would
    have to do that type of hiring, so earlier, getting that
    information is better. That said, just halfway through FY2022,
    we have been able to bring on board 114 FTEs. So we are on
    track to be able to basically proceed at the rate that would
    position us to bring on the full number of employees if we are
    able.
        Mr. Womack. Is there a point in the next fiscal year where
    you would say gosh, if we don't have our funding by X date, it
    would be difficult for me to spend that kind of money?
        Ms. Khan. I mean I think, look, I think, you know, we in
    past, the FTC when it has been on these continuing resolutions
    have had to make hard decisions about prioritization. In
    certain instances, the agency has been able to over hire,
    expecting that there might be some instances where later on be
    able to even that out. I think those are the types of tactics
    that we would look to in this type of instance as well.
        Mr. Womack. Quickly to Chair Gensler, you have a statutory
    obligation to do cost benefit analysis. You have been--I know
    the Federal Government gets accused of not being very fast,
    although I don't think it applies to the SEC. There have been a
    lot of rulemaking proposals in the first quarter of this year.
    So help me understand how we are dealing with the cost-benefit
    analysis requirement with so many rulemakings under way?
        Mr. Gensler. I thank you. Let me address both parts of your
    question.
        In terms of the cost-benefit analysis, we include such
    cost-benefit analysis. We actually call it economic analysis
    under the congressional mandate that considers efficiency,
    competition, and capital formation. Those are the three things
    we must consider in every one of our proposals. And we take a
    considerable amount of time putting together those proposals,
    putting them out to public comment. I truly believe that is the
    core of what we do, is this economic analysis. I was even for a
    short time honored to be a professor of global economics and
    management up at a school up in Massachusetts. And so, I really
    think that is critical.
        But, then, the public feedback, to your second point. We
    put out things on our website and say that it will be a minimum
    of two months, 60 days from when we put it on the website, or
    because there is a delay often getting in The Federal Register,
    30 days from when it is in The Federal Register, the longer of
    that. So, it is always at least two months. We did, as I
    earlier said, we put some of these out, particularly the
    climate rollout for further input. Because we benefit from that
    input.
        And lastly, you said something in the opening. I couldn't
    agree with you more; investors get to decide what information
    is really relevant for them. And whether it is our climate
    proposal, or we have something on cyber disclosure, it is
    really hearing from those investors: is this what you make
    investment decisions about? And hearing from the issuers on the
    other side as to whether this works in this conversation that
    is already going on amongst and between investors and issuers.
        Mr. Womack. Thank you very much. I know I am out of time.
    We will come back in another round.
        Mr. Quigley. Thank you.
        Chair Khan, you referenced the surge in volume of mergers
    and acquisitions. There were nearly 8,000 transactions and more
    than $2.5 trillion in deals in 2021, both all-time records. So,
    tell us a little bit about that challenge. Has the FTC changed
    its enforcement procedures and policies in response? And how is
    it prioritized, this need? And obviously, this is a significant
    request. How does this actually play into the needs you are
    going to have?
        Ms. Khan. Yes, thanks for the question, Congressman.
        As you noted, there was just a surge in dealmaking. It was
    a record year. We had filings that were around 60 percent
    higher than the prior 10-year high. And it created enormous
    strain for our staff, because we understand that illegal
    mergers/unlawful deals have deep consequences for Americans,
    including some of the consequences that the Chair was talking
    about earlier in terms of concentrating supply, creating more
    fragile supply chains. So that, when you have these shocks to
    the system, we are not as resilient.
        So, we recognize that there are deep costs to missing some
    of these illegal deals. So, we have had to triage. We have had
    to really make difficult decisions about what are the mergers
    we are investigating; what are the mergers we are not
    investigating.
        With this type of increase, we would, of course, be able to
    hire more attorneys to make sure we have more folks looking at
    these deals. But we also have a couple of longer-term
    initiatives underway to make the situation more manageable in
    the future.
        So, one effort that we have underway, in tandem with the
    Antitrust Division at the Justice Department, is a revision of
    our merger guidelines. This is kind of the enforcement manual
    that we use to help us detect what are the illegal deals.
        And one key goal here is to make sure these guidelines are
    reflecting the current market realities; that they are aligned
    with the underlying laws that Congress has passed, but also
    that they are creating an administrable and predictable system.
    I think the current system that we have can create a lot of
    ambiguity, a lot of uncertainty, and contribute to some of the
    delays. So, we are hoping that that process will help
    streamline.
        And the other effort that we have underway is a revision to
    our HSR form. So, this is the form that merging parties use on
    the front end, when they are filing their deal with us. And as
    of right now, the information that we are collecting is not all
    that probative. We are going to be updating that, so that we
    can also cut down on the time that our attorneys are having to
    review some of these deals. So, an increase in resources would
    further help us on all those fronts.
        Mr. Quigley. So, all things being equal, the issues you see
    in a merger that drives the FTC to investigate one or another:
    a lack of competition, just one of those variables, or what are
    the others that really strike the interest?
        Ms. Khan. Yes, I mean, the core underlying statute charges
    us with prohibiting mergers that may substantially lessen
    competition or tend to create a monopoly. And so, we are trying
    to understand if deals could have that effect. There are a few
    ways to be assessing that. One is if the companies are direct
    competitors; they are both in the same market, selling the same
    good and service. We also see instances of vertical
    integration, so different firms within the same supply chain
    that are merging. That, in certain cases, we have seen
    historically can also lead to problems.
        This past year, the FTC unanimously challenged two vertical
    deals, Lockheed Martin and Nvidia/Arm. Both of those parties
    ended up abandoning the deal, which was a big win for us.
        And so, those are two types of issues that we look at. We
    also look at instances in which firms may not be direct
    competitors today, but may be positioned to be competitors in
    the future. So, this is a type of nascent or potential
    competitors that might occur. Our major lawsuit against
    Facebook alleges that Facebook purchased Instagram and WhatsApp
    because it recognized that each of those were, basically,
    nascent threats to its dominance. So, those are some of the
    types of factors that we look at.
        Ms. Khan. Let me ask you both, quickly, Chair Khan, you
    talked about bringing on 116 FTEs and the need for more. Chair
    Gensler, you talked about the need to up your FTEs. How
    difficult is it at this time? We hear in the private sector
    that there is a shortage of qualified labor in key positions.
    What are the challenges you are facing, beginning with you,
    Chair Gensler?
        Mr. Gensler. You raise a good point. We are finding that we
    have a little bit higher turnover these days, whether that is
    because of the pandemic, whether that is because the legal
    market is able to recruit some of our really great talent. But
    we have been finding talent to backfill. And I do have
    confidence that, if you are good enough to support our
    increase--we are just trying to get back to about 6 percent
    greater than where we were in head count from 2016. We are a
    bigger agency than Chair Khan's, but I do have confidence that
    we would be able to use the money.
        Ms. Khan. Likewise, despite the legal market being very
    competitive, and the FTC not being able to compete even with
    some other federal agencies because we are at a lower pay
    scale, we have, nonetheless, been able to hire. One core part
    of our expansion strategy would also be leveraging our existing
    regional offices. So, the FTC has eight regional offices spread
    across the country. And if we are able to hire in those cities,
    that would just dramatically expand the talent pool that we
    would be able to draw from. As you all know, the D.C. market
    for lawyers and economists can be extremely competitive. So, we
    think that would boost our efforts as well.
        Mr. Quigley. Thank you both.
        Mr. Joyce.
        Mr. Joyce. Thank you, Chairman.
        And as a long-suffering Cleveland sports fan, I can
    appreciate your idea of tomorrow this is all going to happen.
        Chairman Gensler, thank you for coming.
        My understanding is the SEC has three responsibilities: to
    protect investors; to maintain fair, orderly, and efficient
    markets, and to facilitate capital formation. The SEC, under
    your leadership, has pursued an aggressive agenda, primarily
    concerned with investor protection, without balancing its
    responsibilities towards capital formation. Your agency's
    proposed rules on everything from private fund advisors to
    climate are already impacting companies and investors. With
    record-high inflation and rising interest rates, our capital
    markets shouldn't face more headaches from regulators. The SEC
    should pursue a policy agenda that promotes stability. Instead,
    the SEC has proposed a wide range of aggressive rules with
    short comment periods which only increases uncertainty in our
    capital markets.
        I am particularly concerned about the SEC's climate rule's
    disclosures on greenhouse gas emissions. Now more than ever,
    our capital market regulations should not discourage
    investments; we should advance America's energy independence.
    How do you think the SEC's proposed climate rules impact
    investments in American energy producers?
        Mr. Gensler. Thank you so much for that question.
        I think that the SEC has a longstanding role to help this
    conversation between issuers, on the one hand, the companies
    trying to raise money for good ideas and to build factories,
    and the investors on the other. And what we have today in our
    capital markets is that companies are already making
    disclosures around climate risk and the greenhouse gas
    component of that, and I think that we can lend a role to bring
    some consistency comparability--almost thinking of this as like
    a data standardization.
        And in that regard, it can help issuers in terms of, if
    somebody wants to say, you know, this market is overpricing
    this risk; I think, in fact, I want to make more investments in
    one part of the economy rather than the other. So, I am
    neutral. In the role I am in, I am not a merit-based regulator.
    It is just about trying to bring standardization to the
    disclosures, which I think helps both the issuers and the
    investors. It helps to sort of be a little bit anti-
    greenwashing as well. But the public input is going to be
    really important.
        Mr. Joyce. Well, I am concerned about the climate rule's
    impact on public companies, but I am also very concerned about
    its impact on small businesses. As you well know, in
    northeastern Ohio, where I am from, we had had auto
    manufacturing companies that were public; you also have a lot
    of small businesses, what I would call ``mom and pops'' who
    make pieces, parts, and clips that go into that. What is their
    duty to report?
        Mr. Gensler. This is about public issuers, public companies
    reporting, not about private companies reporting at all. We
    also are very careful that even small companies, you know,
    those that are public, but small companies, we try to, I would
    say, tailor and tier the proposal--again, we will hear more
    from the public--that they are out of certain obligations, the
    smaller. We have about 7 to 8 thousand issuers in the United
    States, but 5,000-plus are called smaller issuers. And we sort
    of try to tailor and tier those out of a bunch of this.
        Mr. Joyce. If I'm hearing you correctly, then you are
    saying SEC's new climate rule will not make these people liable
    for calculating and reporting their small businesses'
    greenhouse gas emissions if they are privately held?
        Mr. Gensler. This is a public company disclosure regime,
    not private companies. And I would say this: around the globe,
    other regulators around the globe are trying to do this as
    well, and that puts, shall I say, responsibilities on U.S.
    issuers that might be operating in France and other countries,
    and so forth. So, I think that we want to be part of that
    conversation, try to get it right through the right economic
    analysis, the right public comment, with the issuers giving us
    feedback.
        Mr. Joyce. I also want to focus on the materiality
    standard, which has been the bedrock of the SEC's disclosure
    regime for almost 90 years. Looking for a quick answer here,
    since my time is running short, am I correct that the public
    companies are already required to disclose information that
    presents a material risk to a company, including climate-
    related risks?
        Mr. Gensler. It is correct, but, also, over the decades, we
    have taken an opportunity to try to lend some consistency and
    comparability, this standardization, to those disclosures.
        Mr. Joyce. Does the current SEC leadership no longer view
    the materials standard as the cornerstone of the securities
    disclosure regime?
        Mr. Gensler. Everything that I do is guided by this. It is,
    basically, what is the substantial likelihood that a reasonable
    investor finds it important/significant in their investment
    decision? That is the cornerstone.
        Mr. Joyce. We managed to get to the full 5 minutes, and I
    yield back nothing to you, Mr. Chairman. Sorry.
        Mr. Joyce. I do want to say that I am old enough to
    remember when you took our beautiful Baltimore Colts over--we
    stole them back, you know. I guess it is true Indianapolis took
    it, and then, we stole them back. [Laughter.]
        Well, they are still around.
        Mr. Gensler. Yes, yes.
        Mr. Quigley. The sports great inception will come later.
    [Laughter.]
        Mr. Cartwright.
        Mr. Cartwright. Thank you, Mr. Chairman.
        And thank you, Chair Khan, for pointing out something that
    I hadn't thought of. We all know that inflation is caused by
    many things. One of them is price gouging by a lack of
    competition and excessive consolidation of industry. Everybody
    knows that. But you have added the point today that, when you
    have excessive consolidation and not enough competition, it
    makes our economy logistically vulnerable to supply chain
    shortages as well. So, thank you for that.
        And thank you, Chair Gensler. You have very much heartened
    me by calling American securities laws the gold standard of the
    world. They are. We all know that, in order for our crown
    jewel, our capital markets to work, investors have to have
    trust that they will be protected from fraud and abuse.
        Now I am concerned about Registered Investment Advisors. I
    want to talk about that for a moment. There are about 14,000
    Registered Investment Advisors, RIAs, registered with the SEC.
    They attracted my attention because they are not required to be
    FINRA members. FINRA, of course, is the Financial Industry
    Regulatory Authority that Mr. Womack would have been a member
    of when he was a broker.
        And there are a lot of protections involved in FINRA that
    have evolved over the years. FINRA requires clear disclosure of
    the arbitration provisions. And within the arbitration
    provisions, FINRA prohibits designation of inaccessible venues
    for arbitrations; prohibits limiting claims in the arbitration
    clauses; prohibits arbitration clauses from preventing class
    actions from going forward. And it also charges minimal fees.
    We are protecting mom-and-pop investors with FINRA, and it does
    a pretty good job of disclosure.
        The problem is that, with Registered Investment Advisors,
    they don't belong to FINRA and none of that applies. And what
    we know is that they are using arbitration clauses without any
    of these protections; for example, protections against
    inaccessible venues; protections against excessive fees, like
    with certain arbitration organizations that charge a lot of
    money that moms and pops can't afford to take claims against
    Registered Investment Advisors to court.
        So, we don't know things that we know about FINRA
    arbitrations and arbitrators; for example, how many claims
    succeed; how many unpaid awards exist; where the forums are
    that these arbitrations take place. Policymakers, when we deal
    with Registered Investment Advisors, we lack information about
    how many claims succeed and how many fail, and how many claims
    have been filed against certain Registered Investment Advisors.
    It's kind of the Wild West. It is not the gold standard right
    now.
        And so, here is my question to you: I think we need to work
    on better understanding what is going on with RIA arbitrations.
    The question for you is: will you work with us on a plan to
    gather information about RIA arbitration practices, so that we
    can figure out if American investors dealing with RIAs are
    sufficiently protected?
        Mr. Gensler. I would be glad to work with you and your
    staff and other committee staff.
        Just a little bit of history. The Congress decided again in
    the 1930s to have a self-regulatory organization for broker-
    dealers in something that was called the Maloney Act in the
    1930s, but did not decide to do that around investment advisors
    because that law didn't pass until three years in the
    Investment Act of 1940. So, it would really be up to Congress
    if that were to change. That is not within our remit.
        But to work with you to try to get better information, it
    is part of why we have such a large exams function. Two-thirds
    of our examiners, fully two-thirds of our examiners, are
    examining investment advisors because we cannot rely on FINRA
    to do it. There is no self-regulatory organization.
        Mr. Cartwright. Thank you. Let's work together.
        Mr. Chairman, I yield back.
        Mr. Quigley. Thank you.
        Mr. Amodei.
        Mr. Amodei. Thank you, Mr. Chairman. I appreciate it.
        Chair Gensler, I have got a couple of questions that are
    just kind of related to the rulemaking, to follow up a little
    bit on what Ranking Member Womack talked to you about briefly.
        I am looking at the short-term history and the opportunity
    for public comments, and in the face of--my understanding is 54
    percent--or there are presently 54 discretionary rulemakings on
    your short-term agenda. And there are 28 proposals pending
    right now. And so, obviously, that is your job. And so, I don't
    want to get into, you know, what are you going to do, or
    whatever the heck, although it would be nice to have some idea
    of where things are heading before it is announcement on a
    Friday afternoon, or something like that.
        But I am looking at this, and I would kind of like to know,
    first of all, the section of your staff that handles
    rulemakings, can you give me an idea of what is the number of
    those folks? Is it kind of what it has been before in the past?
    Are you guys fully staffed or are you dealing with--what does
    the workforce look like on your rulemaking, on what--I will use
    my phrase--``ambitious rulemaking agenda'' that is before you
    right now? Are we fully staffed?
        Mr. Gensler. It is a terrific question. We have some
    vacancies, but throughout the agency--it is about 4,500 people
    total--but throughout the agency we have rulemaking units in
    each of the big program offices, and those are usually like six
    to ten people in each of these units. And then, of course, our
    entire 140 economists, that economic unit, most of them from
    time to time work on rulemaking, but they also work on
    enforcement matters. But, at any given time, you could assume
    that probably it is split pretty evenly amongst the 140 and so
    in the economic unit, and there is probably another 20 to 30
    people in our Office of General Counsel at some time.
        We have not expanded the numbers, or if we have, we can
    come back to you. It might be modestly. It is just that good
    folks are working diligently through these agenda items.
        Mr. Amodei. Okay. I mean, I know it is probably not apples
    and apples, but I look back at a very ambitious rulemaking that
    was associated with the enactment of Dodd-Frank, and that was
    about 67, and not that anybody accuses anybody of being nimble
    or quick, but that took the agency, before you were there,
    about 10 years to do.
        And so, I look at the number that is there now, and I am
    going, well, we are clearly not on a 10-year pace. And so, that
    is why I am like, well, so how does staffing look?
        And then, I guess the other thing is, as I am looking at
    comment periods here, the present record under your tenure for
    comment periods is significantly different than your
    predecessors, on the shorter side. So, if you have got about
    the same staffing and the comment periods are less, give me an
    idea of how you think that dynamic is good for the end product
    of the rulemaking with less time for public comment, and
    obviously, much less time than the last time a major rulemaking
    event transpired, as in Dodd-Frank.
        I just kind of want a sense because it seems like it is
    like, hey, we are in kind of a big hurry here, and we haven't
    done anything to change our resources. We have done something
    to shorten up the rulemakings or the public comment in terms of
    the 45 days or less, as opposed to 60 and 90. So, give me a
    sense on what the method is to the madness there, if you would.
        Mr. Gensler. So, I thank you for the question.
        The SEC actually got about 120 Dodd-Frank mandates. The 67
    you reference might be when I was at the CFTC, and that was the
    exact number we did at the CFTC.
        But what we have endeavored to do is put things out for 60
    days from when we vote on it or the day after we put it on our
    website. What we have found is The Federal Register, which is
    another part of the U.S. Government, The Federal Register can
    sometimes take a week or even up to 50 or 60 days to put
    something on their site. And so, we have said it would always
    be the later of 60 days from when we put it on our site or at
    least a month after it finally gets into The Federal Register.
        So, we do feel that we are giving adequate time for the
    public to comment. We have gotten really robust comments on
    that which we put out before. And as was mentioned earlier, we
    have, from time to time, even lengthened comment periods. We
    have done it at least four times since I have been at the SEC.
        Mr. Amodei. Thank you, Mr. Chairman. I yield back, Mr.
    Chairman.
        Mr. Quigley. Thank you.
        Mr. Pocan.
        Mr. Pocan. Thank you very much, Mr. Chairman.
        And thanks to both of our witnesses.
        Chair Khan, I want to follow up on something that Chair
    DeLauro started to ask, or at least brought up. It was the four
    companies that control 85 percent of the beef industry. The
    concentration has allowed meat packers like National Beef, JBS,
    Cargill, and Tyson to squeeze consumers and producers alike. I
    have been concerned about concentration in the meat packing
    industry for years, and I fear that right now it is
    contributing to the high prices that we are seeing at the
    grocery store.
        Just looking at the paper in the last week, The Washington
    Post reported how the meat industry hyped baseless shortages to
    keep the plants open amid COVID. Clearly, this is another
    concern, much like with the formula, but I think right now
    people are paying more than they need to because of this
    concentration. What is your jurisdiction over meat packers and
    what can we expect from your agency in addressing high food
    prices?
        Ms. Khan. So interestingly back in 1919 the FTC did a big
    investigation into meat packers, finding that there was, you
    know, a big meat trust that then was exploiting its power. As a
    result of that report the FTC's jurisdiction over some of these
    areas, including meat packing, was actually stripped. So--so
    that--the antitrust component of that is now in the Antitrust
    Division's wheelhouse.
        That said, you know, we do have a whole set of areas where
    we intersect with rural America and, you know, potentially some
    of the price increases that we're seeing. In December we
    initiated a--a market-wide inquiry into the supply chain
    disruptions.
        We've been hearing from a whole set of market participants
    including grocery stores about some potential, you know,
    economic discrimination in the supply chain that could have
    been exacerbating some of the disruptions, so we sent out a
    whole set of orders to some big retailers, wholesalers, to try
    to understand what's really going on here?
        Of course a lot of the supply chain disruptions are--are
    tied up in the aftermath of--of COVID, but I think inasmuch as
    there might be unlawful activity contributing, that's something
    that we definitely want to know about.
        Another area where the FTC enforces the law is in the
    context of--of grocery stores. So inasmuch as we see mergers
    and acquisitions being proposed among grocers, that's very much
    in our wheelhouse, too.
        Another issue that we've heard about from farmers in
    particular is potentially unlawful repair restrictions on their
    equipment. This was an issue that the Chair raised where you
    have, you know, equipment manufacturers that are limiting how
    farmers can fix their tractors, can fix other key goods and
    service--key goods and equipment. And that can also add costs
    that then can get further passed along to consumers. So those
    are some of the issues that we're looking at and working on.
        Mr. Pocan. Thank you. And that second part I have
    absolutely heard in my district as well about the repair
    restrictions, so I am glad you are looking at that.
        Also last year I wrote to the commission urging you to
    scrutinize military contractor monopolies. I want to thank you
    for blocking the proposed merger between Lockheed Martin and
    Aerojet Rocketdyne earlier this year.
        The Department of Defense regularly talks about cost
    increases due to lack of competition, but the commission
    approved a merger between Northrup Grumman and Orbital ATK in
    2018, and it expressed concerns that it could limit Northrup's
    incentives to provide sophisticated systems to the Department
    of Defense at a competitive price.
        Could the FTC unwind this merger between those two and what
    resources do you need to continue to go after consolidation in
    defense?
        Ms. Khan. So the FTC certainly has the legal authority to
    challenge mergers and acquisitions after the fact, even if
    they've been consummated. In instances where certain types of,
    you know, promises or commitments did not actually materialize
    including potential cost savings for the Defense Department
    those types of facts can be relevant as well.
        In these types of instances with defense mergers in
    particular the FTC does end up being somewhat dependent on the
    Defense Department's use since they are oftentimes the--the
    major, if not the main customer. And so we would be curious to
    hear how that deal from their vantage point has transpired,
    if--if the cost savings have actually been generated. But
    certainly these types of merger challenges, either on the front
    end or after the fact, are enormously resource-intensive.
        And the FTC today, the staffing of the FTC is--is still
    less than two-thirds of what it was in the 1980s. So we are
    operating at a--at a lower level and it creates a lot of
    strain. Our staff has done heroic work during the pandemic,
    especially during this merger surge, but it definitely takes a
    toll.
        Mr. Pocan. Great. Thank you very much, Mr. Chairman. I have
    got 14 seconds, so I will yield back.
        Mr. Quigley. Thank you.
        Mrs. Torres.
        Mrs. Torres. Thank you, chairman.
        And Chair Khan, and Chair Gensler, thank you for being here
    today with our committee.
        Chair Khan, good to see you again. As you know, individual
    safety concerns are high in the priority of all Americans.
    Members of Congress or political figures, for example, do not
    provide their schedules. They don't publicly disclose their
    schedules because of concerns of tracking their movements to
    and from--and safety concerns.
        So as it relates to companies, internet companies' unfair
    data practices, I want to go back to your opening statement and
    ask about what these organizations are doing, how you have been
    dealing with them as it relates to women trying to access
    health care at Planned Parenthood for example.
        It is my understanding that these tracking components of
    these apps have been sold for as cheap as $160. In the State of
    Texas for example the government there has signed a law that
    would--that promotes vigilantes to target women who are seeking
    abortions. Planned Parenthood provides much more than
    abortions. So I am very concerned about women not being able to
    safely access cancer screenings, HIV screenings, and other
    types of health care in addition to abortions, should they
    choose to do that.
        So my question to you is what more can you do to ensure
    that--whether we as individuals acknowledge and accepted
    tracking that this tracking information is not being used
    illegally to endanger someone or prosecute them for seeking
    health care?
        Ms. Khan. Yes, thank you for the question, Congresswoman.
    It is enormously concerning the degree to which we've seen
    tracking of people's location basically emerge into a very
    lucrative market where all sorts of companies ranging from data
    brokers to aggregators are now trafficking in this data, which
    as you noted can be extremely informative and insightful. It
    can tell you when people are going to church, if they're
    accessing reproductive health services, and can be exploited by
    a whole set of bad actors. So this is certainly something that
    is on the FTC's radar.
        The FTC in the past has done workshops and enforcement
    actions in this area. Just this past year the FTC brought an
    enforcement action against a company called SpyFone, which was
    a stalkerware company that was actually enabling--selling the--
    the location data in real time to people including potential
    stalkers, you know, endangering people, really putting their
    lives in--in danger.
        So--so we were able to take a strong enforcement action
    there. And--and the remedy that we pursued basically prohibited
    both the CEO and the company from ever operating in this market
    again. But of course the problem is much more persistent and
    prevalent. I think the fact that we have an entire sub-economy
    on this that's incentivizing the endless collection of this
    data--even if the app or service doesn't require your location,
    I think that invites us to, you know, think hard about whether
    we need to be setting clear limits on this type of thing. And
    of course there are a lot of discussions in Congress as well
    around potential privacy legislation.
        Mrs. Torres. This is something that I hope that you will
    continue to work on and be extremely aggressive. On a personal
    note I have been a target of foreign actors, MS13, and I
    certainly would hate for these actors who know where I live,
    who know where my son and my grandson live, to purchase this
    information online. They have come and targeted--threatened me
    and my spouse and graffitied my home and fired a shot at my
    district office. I would hate for them to pay $160 as a price
    on my life. And it is not just me, but it is all of these young
    women who are simply trying to get--to have access to health
    care. So this has to be of utmost priority to your office.
    Thank you.
        And I yield back.
        Mr. Quigley. Thank you.
        Ms. Lawrence.
        Ms. Lawrence. Thank you, chairman.
        I want to thank you for being here today.
        And Chair Khan, I have a question for you. In fiscal year
    2021 the FTC received more than 5 million complaints from
    unwanted calls including 3.4 million reports about robocalls.
    Now I am a politician. I understand that this causes so much
    frustration to the consumer, so my question is will the
    commission use every tool available to tackle this problem?
        Ms. Khan. Thanks for the question. Yes, absolutely.
    Unwanted calls are a scourge and they're actually the--the
    highest--the source of the highest number of complaints that we
    get at the FTC: unwanted calls, robocalls. The FTC has long
    been a player in this space including more recently we've been
    going after these VoIP providers, these providers that are
    basically enabling the mass dissemination of robocalls. So
    they're--they're enabling and facilitating robocalls on a
    massive scale.
        And we've reminded these companies that facilitating or
    assisting in illegal robocalls is also unlawful. And so we've
    been able to pursue strong enforcement action there, which I
    think is useful because it's really going upstream to look at
    some of the companies that are facilitating these robocalls,
    not just the fly-by-night scammers that appear one day and then
    another day even after you go after them.
        I'd also note that we work closely with the FCC on this
    since they have jurisdiction over the carriers whose networks
    are being used for robocalls and the FCC I think has a lot of
    latitude to also be looking upstream and--and making sure that
    we're cutting down on these robocalls, because as you noted
    it's just a huge invasion of--of privacy. It creates an
    enormous cost for people.
        Ms. Lawrence. So I have a question--cryptocurrencies are
    attracting more Black and minority investors who have
    historically been left out of our investment options, but these
    communities, the Black minority investors--have the most to
    lose given the shakiness of this industry. What new tools or
    resources will the SEC need to deal with the increased
    financial risk, fraud, and misconduct associated with digital
    currencies?
        Mr. Gensler. I thank you, congresswoman, for that question.
    I think you're right, this is a highly speculative asset class
    that has caught the attention of the public around the globe,
    not--not just here in the U.S., but around the globe. And there
    are some underlying innovations around how to keep data ledgers
    and how to move money on the internet or value on the internet,
    and innovations even in finance.
        Having said that, it's the basic principles of that gold
    standard I mentioned. If you're raising money from the public,
    you're an entrepreneur raising money from the public, you
    should have full and fair disclosure, and guess what, not lie
    to them. And those are the token offerings that are going on
    these days, many of which; I can't prejudge any one, but I
    would even say most of which come under our securities laws.
    They're--they're investment contracts, they're securities.
        We're trying to work with the crypto trading platforms to
    get them registered, which again because most of the tokens are
    likely to be securities, if you have even one on your platform
    you should register the SEC. And we'll use our enforcement
    tools to being enforcement actions, but I'd prefer if they'd
    come in. We can also use our exemptive authorities. But right
    now the investing public in all communities are not well-
    protected.
        In terms of what this committee can do is help us get--
    again we're not trying to grow really significantly, but
    resources to grow at least six percent and grow our enforcement
    arm in this space.
        Ms. Lawrence. Thank you so much. I support that 100 percent
    because when we are moving to this new rapidly growing concept
    of crypto financial industry, we must regulate it and protect
    the public. So I look forward to talking to you about more
    tools such as registering it to make sure we can validate the
    currency transfer.
        Thank you so much and I will yield back.
        Mr. Quigley. Thank you, chair.
        So thank you. We are going to do a second round for the
    members who are still here, and I am going to let the ranking
    member lead that off.
        Mr. Womack. Thank you, Mr. Chairman.
        Did you think you were going to sit through this hearing
    and not talk about crypto?
        Mr. Gensler. I--I--I would have been a little bit surprised
    and even disappointed.
        Mr. Womack. Well, as Lee Corso says on game day, ``Not so
    fast,'' because we--I am going to follow up with some questions
    about crypto.
        Speaking of football, before an official can throw a flag,
    do an enforcement action, you got to know the rules.
        Mr. Gensler. Yes.
        Mr. Womack. There have to be a set of rules. So help me
    understand where we are in the--and you and I talked off line
    about the difference between a securities piece in this whole
    cybersecurity market and the commodity piece in it. So help us
    understand the difference and where we are in creating the
    rules for this whole system that is now well over a decade old.
    Seems to me that we still have a lot more questions than we
    have answers.
        Mr. Gensler. So I--I thank you for that question. The SEC
    oversees an issuer marketplace, the 7 or 8,000 issuers. And
    Congress painted with a very broad brush--and I think the rules
    are actually quite clear that if you're raising money from the
    public and the public anticipates a profit based on that--
    efforts of that sponsor, that entrepreneurs, that's a security.
    In fact, Congress had 32 different terms that are entered into
    the definition and the Supreme Court, Thurgood Marshall, wrote,
    ``Congress painted with a broad brush to protect the public
    against scammers and fraud and so forth.''
        A commodity, when you think of corn or wheat or gold or oil
    doesn't have an issuer. It doesn't have like one party sitting
    there behind it and the public's not anticipating based on the
    efforts of that one party. So over the decades we found--
    literally the seminal big case was about orange groves in
    Florida, but subsequently there was even an ostrich farm. I
    think it was in--it might have been in Texas. I'm trying to
    remember. Are--are all sorts of different ways to raise money
    from the public that were securities. So that's what we--we see
    now.
        We would also enter into and work with the Commodity
    Futures Trading Commission and we're working on trying to do
    that. So to the extent that there's a commodity token, a crypto
    commodity token; and there might be a very small number of
    those, that that information would all go--sent over the--to
    the CFTC and--and--but we have jurisdiction over probably the
    vast number of these. Bitcoin is--maybe that's a commodity
    token, so that is a big market value, but that goes over there.
    I--I hope that helps.
        Mr. Womack. Yes, so we are talking about budgets, so what--
    help me understand the resources that you allocate to this part
    of your portfolio.
        Mr. Gensler. I wish we had more to be able to dedicate to
    this. We brought probably in the last six years about 85 or 90
    enforcement actions. We have a unit in our Enforcement
    Division. Enforcement's 1,300 people, but we have a unit that
    we've just decided recently now, so we're trying to move 20
    people over to grow it. It--it would be slightly to--into the
    low 50s, to just give you a sense. We're really out-personed.
        This is a field that--well, recently it's only worth $1.2
    trillion. Two weeks ago it was supposedly worth $2 trillion.
    There was--there was one crypto complex that--that went from
    like $50 billion of value to near zero just in the last three
    weeks. I mean, these are highly speculative, volatile, and I
    would dare say often the public is not protected. They don't
    have the disclosures from these entrepreneurs. They don't have
    the--the crypto exchanges should come in and register or
    frankly we're going to continue to bring--you know, use what
    Congress has given us in our enforcement and examination
    function.
        Mr. Womack. Real quick question about consolidated auto--
    audit trail. We have heard concerns regarding security of the
    system. Help us understand with regard to your oversight of CAT
    what the SEC is doing to ensure the system is secure and
    personal identifiable information is protected.
        Mr. Gensler. So it was just--just about when my predecessor
    was finishing up his job, Chair Clayton. They put in place
    something on personal identifying information to ensure that
    for instance key parts of that were no longer collected. I
    think this is a 10-year project that's been going on between
    the securities industry and the SEC and FINRA. And so he sort
    of did that, put out a proposal on data security that augmented
    that. We continue to work with members of the industry, data
    scientists of course as well, to try to finalize that rule
    around data security.
        Mr. Womack. I yield back.
        Mr. Quigley. Mrs. Torres.
        Mrs. Torres. Chairwoman Khan, several journalists'
    investigations have brought to light very disturbing rental car
    company failures to keep accurate records of the vehicles that
    were rented. They have properly reported some of these vehicles
    as stolen, which were not, were returned by the customer. The
    police has made several arrests. People have spent weeks in
    prison as a result of these false reports. It appears to be
    very little that has been done to punish these inaccurate
    reports. As a private citizen if you make a false report, there
    are punitive damages, but these rental companies have been able
    to get away with imprisoning people, with threatening people.
        So what is the FTC doing? Do you have enough funding,
    enough resources to ensure that you are focused also on this
    issue that puts so many of our constituents in danger?
        Ms. Khan. Yes, it's a phenomenally important question and
    the reporting on this has really just been horrific, really
    horrible set of circumstances. And we received a--a letter from
    members of Congress asking us to look into this, so it's
    definitely something that's on our radar. Of course we can't
    disclose if we have a non-public investigation, but I can
    assure you that it's something that we take very seriously.
        I know there's been a--a theme about, you know, looking at
    different markets and--and underscoring how we actually have
    deep consolidation and concentration in all sorts of pockets of
    our economy. I would note that the rental car industry and
    market is another area where we now see three to four companies
    really dominate the U.S. market. And I think we see how in
    these types of instances if companies don't have to compete for
    consumers, they kind of can become too big to care and in
    certain instances be able to get away with this type of
    conduct. So I think there is also a deep connection between the
    kind of competition issues and these types of consumer
    protection abuses.
        In terms of resources, I mean, you know, we are charged
    with looking at these types of things all across the economy.
    In the last couple of years in particular we were very focused
    on COVID fraud since the pandemic was being exploited by all
    sorts of bad actors pedaling fake cures, you know, pretending
    to be the government and--and providing loans and all sorts of
    scams and--and fraudulent activity that was harming all sorts
    of communities. So that's been a big area of focus for us. But
    of course additional resources can always help boost our
    ability to look into these types of things and act quickly,
    because I think that's incredibly important as well.
        Mrs. Torres. Well, there certainly appears to be a great
    need for you to hire up people that can focus on protecting
    consumers. You do not know who you are renting a company--a car
    from because while you might rented a vehicle from Thrifty,
    when you show up at the counter it is Hertz, as an example. So
    it becomes very confusing for consumers.
        And again, like the tracking issue, a consumer that does
    everything right, pays their rental vehicle, returns it on time
    should not be subject to arrest and false prosecution as a
    result of irresponsible data entry mistakes and irresponsible
    refusal to acknowledge their mistake.
        So with that, I yield back.
        Mr. Quigley. Thank you.
        Mr. Amodei.
        All right. Mr. Joyce.
        Mr. Joyce. Thank you, Mr. Chair.
        Chair Khan, it was lovely chatting with you yesterday. As
    we have discussed, you requested a 30 percent increase for what
    you believe is the commission's ability to challenge
    meritorious cases because it is in danger. To justify such a
    large increase this committee would need to agree that the
    cases the FTC has acted upon so far under your leadership do in
    fact deserve antitrust-related scrutiny. I am not confident in
    how these funds will be used when I consider for example the
    recent FTC action to block the Illunina acquisition of GRAIL,
    and acquisition which would speed the deployment of lifesaving
    multi-cancer-related detections tests to Americans.
        Can you explain what concerns you have with this
    acquisition as whether you believe the FTC action conflicts
    with the Biden administration's Cancer Moonshot goal to
    decrease the death rate for cancer from 50 percent to over the
    next 25 years?
        Ms. Khan. Thanks for the question, congressman. This deal
    was challenged before my arrival. I've never taken any votes on
    this matter, so I can't opine on--on any of the specifics. It
    is currently pending at the agency in our Part 3 proceeding, so
    there's a--a strict wall up that limits what--what we can share
    in terms of our substantive views, but I assure you that our
    staff only recommends challenging deals when the facts and--and
    law warrant it, and this was a unanimous decision by the
    commission.
        Mr. Joyce. Thank you.
        Mr. Chair, I'd like to enter into the record a letter
    from--that has been signed by a number of members to the FTC
    Inspector General on this matter.
        Mr. Quigley. Without objection.
        Mr. Joyce. What I would also like to then follow up on,
    chair, is I would like to focus for a moment on the repair
    restrictions, specifically those restrictions that drive up the
    cost auto repair.
        As I am sure you are aware, with record inflation it is set
    to cost American families and extra $5,200 this year,
    considering that a repair for a simple fender-bender averages
    nearly $4,000 today, a 26.4 increase in just five years. What
    more do you believe we can--can be done with respect to
    automobile repair restrictions, whether on patent abuse or data
    controls to bring down the cost of auto repairs for American
    consumers?
        Ms. Khan. Yes, it's a terrific question and--and definitely
    something that we're looking at closely. Before my arrival the
    FTC issued a report on repair restrictions really getting deep
    into understanding where we are seeing these? Are there any
    legitimate justifications? What are instances in which they
    might be illegitimate? And last summer we issued a policy
    statement noting the various legal authorities that we have to
    go after this, be it in the consumer protection vein, be it in
    the competition vein.
        We also have the statute that Congress gave us, the
    Magnuson-Moss Tying Act--Warranty Tying Act, which basically
    specifically addresses our ability to go after some of these
    unlawful ties that we see where--where goods are being sold
    conditioned on warranty also governing that same entity and the
    repair only being able to be done by that same entity.
        So this is something that's a top priority for--for the
    commission. I think you're absolutely right that we've seen how
    it can significantly increase the costs of goods including
    auto.
        I think these data issues underlying a lot of this is very
    concerning because we can see the ways in which the growing
    digitization just gives additional tools and levers for these
    equipment manufacturers or auto manufacturers to be
    manipulating what types of repairs can and cannot occur. So I
    think it's just another axis on which we see some of this
    conduct potentially getting worse.
        Mr. Joyce. Thank you.
        Chair Gensler, since the matter or cryptocurrency was
    brought up, you indicated that you wanted more money so you
    could go after those in this cryptocurrency field, but with no
    clear comprehensive final SEC rules regulating
    cryptocurrencies, can you explain how it is appropriate for the
    SEC to ramp up crypto-related enforcement efforts?
        Mr. Gensler. I thank you, Representative Joyce. I actually
    think there's very clear rules. If you're--if you're raising
    money from the public and the public's betting on that, you've
    got to disclose certain things. That's called disclosure. And--
    and--and it's pretty straight.
        If you have a--a--an exchange, a crypto exchange that has
    these tokens on those exchanges and those tokens are securities
    under the securities laws, then that exchange should register
    with us as a national exchange. We've actually said publicly;
    and we've talked to many of these exchanges one on one, come
    in, work with us. We can even use some of our exemptive
    authority to work to get them registered.
        These exchanges are trading against their customers. They
    literally are making markets versus their customers, they're
    holding the--what's called the private key. If they lose them
    or there's hacks, guess what, they--they public will just have
    to get in line like they're in bankruptcy court. So we're
    trying to build in the protections that are already in the
    securities laws and get folks registered. But yes, we also have
    a robust enforcement effort to try to help best be a cop on the
    beat.
        Mr. Joyce. As you work to regulate the industry what kind
    of benefits do you see blockchain technologies providing to our
    financial services infrastructure?
        Mr. Gensler. It's interesting. I--I was honored to teach
    this up at MIT as well and start this, a course called
    Blockchain and Money. And folks can watch it online apparently.
    It's got rather--it's free. It's free.
        There were two innovations that Satoshi Nakamoto had:
    moving value on the internet and avoiding something called
    double spending. And this underlying accounting ledger really,
    a database called blockchain technology, and--and to avoid
    double spending.
        Not many people have picked up the second piece of it. The
    actual use of blockchain technology is very limited. When I was
    at MIT I was intrigued by it. I still am intrigued as a private
    citizen. In my current role I have to be technology-neutral,
    but I think it's important not to be technology-naive. And
    we've got to still protect the public in this field.
        But to answer your question, really if you go across the
    financial sector, very few if any have actually adopted
    blockchain technology because it's higher cost to keep it
    databased and it's also more copies. More people can see the--
    the records as well.
         If I could just say one thing that was raised by others,
    there's an overlap between our two commissions in one way. We
    are also seeing increasing consolidation in the financial
    sector. Only a few market makers are making markets in stocks
    now, particularly for the retail public. The wholesalers,
    there's three or four that really dominate that market. We're
    starting to see much more consolidation in the investment funds
    space and the like. So we're using our authorities to try to
    promote through transparency greater competition and through
    rules of the road. And that's part of what is behind our
    private funds rule as well, is just trying to have more
    competition through greater transparency about fees and
    performance.
        Mr. Joyce. Thank you.
        Thank you for the excess time, Mr. Chair.
        Mr. Quigley. No problem.
        Chair Khan, do you wish to add to that in any way or
    anything else?
        Ms. Khan. No, I would just echo that, you know, we're
    seeing this type of--I think the--the degree of concentration
    and consolidation that we've seen, it's fair to say now is more
    of a systemic feature of parts or economy rather than isolated.
        And I would just note that there's a lot of empirical work,
    but also experience showing that when you have more
    consolidation and more concentration, that creates the
    underlying conditions for more illegal behavior, be that
    monopolization--be that--basically when you have this type of
    underlying concentration or consolidation, that creates the
    underlying conditions for illegal behavior, be that collusion
    or be it monopolization.
        And so I would just note that the degree to which we now
    see this type of underlying consolidation as more of a systemic
    feature, it just underscores how there's a huge need for the
    FTC really being the cop on the beat to make sure these market
    structures are now not being exploited to engage in illegal
    behavior.
        Mr. Quigley. Very good.
        Mr. Ranking Member, do you have anything to add?
        Mr. Womack. I'm good.
        Mr. Quigley. Very good. We want to thank you both for your
    participation today, the work your staff does and your service
    to our country. Thank you, both.
        We are adjourned.
        [Questions and answers submitted for the record follow:]
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