[Senate Hearing 118-523]
[From the U.S. Government Publishing Office]
S. Hrg. 118-523
FINANCIAL SERVICES AND GENERAL GOVERNMENT
APPROPRIATIONS FOR FISCAL YEAR 2024
=======================================================================
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
on
H.R. 4664/S. 2309
AN ACT MAKING APPROPRIATIONS FOR FINANCIAL SERVICES AND
GENERAL GOVERNMENT FOR THE FISCAL YEAR ENDING SEPTEMBER
30, 2024, AND FOR OTHER PURPOSES
__________
Department of the Treasury
Nondepartmental Witnesses
U.S. Federal Communications Commission
U.S. Securities and Exchange Commission
__________
Printed for the use of the Committee on Appropriations
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
50-515 PDF WASHINGTON : 2024
-----------------------------------------------------------------------------------
COMMITTEE ON APPROPRIATIONS
PATTY MURRAY, Washington, Chair
DIANNE FEINSTEIN, California \1\ SUSAN M. COLLINS, Maine, Vice
RICHARD J. DURBIN, Illinois Chair
JACK REED, Rhode Island MITCH McCONNELL, Kentucky
JON TESTER, Montana LISA MURKOWSKI, Alaska
JEANNE SHAHEEN, New Hampshire LINDSEY GRAHAM, South Carolina
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
CHRISTOPHER A. COONS, Delaware JOHN HOEVEN, North Dakota
BRIAN SCHATZ, Hawaii JOHN BOOZMAN, Arkansas
TAMMY BALDWIN, Wisconsin SHELLEY MOORE CAPITO, West
CHRISTOPHER MURPHY, Connecticut Virginia
JOE MANCHIN, III, West Virginia JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland CINDY HYDE-SMITH, Mississippi
MARTIN HEINRICH, New Mexico BILL HAGERTY, Tennessee
GARY PETERS, Michigan KATIE BRITT, Alabama
KYRSTEN SINEMA, Arizona \2\ MARCO RUBIO, Florida
DEB FISCHER, Nebraska
Evan Schatz, Staff Director
Elizabeth McDonnell, Minority Staff Director
------
Subcommittee on Financial Services and General Government
CHRIS VAN HOLLEN, Maryland, Chairman
RICHARD J. DURBIN, Illinois BILL HAGERTY, Tennessee, Ranking
CHRISTOPHER A. COONS, Delaware Member
JOE MANCHIN, III, West Virginia JOHN BOOZMAN, Arkansas
MARTIN HEINRICH, New Mexico JOHN KENNEDY, Louisiana
MARCO RUBIO, Florida
Professional Staff
Ellen Murray
Maddie Dunn
Diana Gourlay Hamilton
Dan Brandt (Minority)
Winnie Chang (Minority)
Administrative Support
Maria Calderon
Alex Shultz (Minority)
\1\ Died September 29, 2023.
\2\ Appointed to Committee October 18, 2023.
\3\ Appointed to Subcommittee November 2, 2023. deg.
C O N T E N T S
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hearings
Wednesday, March 22, 2023
Page
U.S. Department of the Treasury.................................. 1
Wednesday, July 19, 2023
U.S. Securities and Exchange Commission.......................... 37
Tuesday, September 19, 2023
U.S. Securities and Exchange Commission.......................... 67
----------
back matter
List of Witnesses, Communications, and Prepared Statements....... 103
Nondepartmental Witnesses........................................ 99
Subject Index:
U.S. Securities and Exchange Commission...................... 105
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2024
----------
WEDNESDAY, MARCH 22, 2023
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 2:30 p.m., in room SD-124, Dirksen
Senate Office Building, Hon. Chris Van Hollen (Chairman),
presiding.
Present: Senators Van Hollen, Murray, Manchin, Heinrich,
Hagerty, Collins, Boozman, and Kennedy.
U.S. DEPARTMENT OF THE TREASURY
opening statement of senator chris van hollen
Senator Van Hollen. Welcome, everybody. This hearing will
come to order. And I want to start by welcoming Senator Hagerty
as the Ranking Member of the Financial Services and General
Government (FSGG) Subcommittee of the Appropriations Committee.
Also pleased to continue to have Senator Kennedy on the
subcommittee, and newly having Senator Heinrich on the
subcommittee. And Madam Secretary, thank you for your service.
Thank you for being here today to talk about the 2024 Treasury
budget and related matters.
Since its very inception, the Department of Treasury has
played a central role in maintaining a strong economy, spurring
growth and promoting opportunity. Secretary Yellen, I suspect
that much of your attention in recent days has been focused on
the situation with the banking system.
I give you and the Biden Administration, the FDIC, and
others, high marks for the way you responded quickly and
decisively to the Silicon Valley Bank default and the issues
with Signature Bank as well as others. First of all, making it
crystal clear that the United States Government is not going to
bail out the owners and investors of the bank, but also
assuring depositors that they would be held harmless.
That was a very important measure to take to make sure that
the workers at small businesses and other companies that bank
with Silicon Valley Bank got paid and also to prevent the
contagion within the system.
I also want to commend you and your team on the efforts you
made in implementing the sanctions on Russia, including efforts
to place a price cap on Russian oil and Russian petroleum
products. We have worked with the Deputy Secretary as well as
you on these issues. I do believe we could go even further in
terms of ratcheting down the price cap in that area.
I also want to applaud your efforts to move toward a global
minimum tax rate for corporations to stop the current race to
the bottom that we have seen between countries. A little later,
I am going to ask you about the debt ceiling. The United States
of America pays its bills on time.
We always have. And because of that, the United States has
earned a reputation as a reliable, credible, and trustworthy
partner here and around the world. And that reputation helps
every single American and our entire economy. We need, speaking
of the deficit, to make sure that the IRS has the capacity and
the resources needed to collect revenues that are due and
owing, including from very wealthy tax cheats.
Now, that is why the IRS received $80 billion over 10 years
in the Inflation Reduction Act, and we will be asking you some
questions about implementation and use of those resources.
Obviously, they also go toward trying to improve, dramatically
improve IRS customer service, which we are already seen results
from, as well as dealing with outdated technology, including
the COBOL system, which the IRS continues to use.
We know that there are over somewhere between $500 billion
and $1 trillion in taxes each year that are owed and not paid.
Those are just some of the issues under the purview of the
Department of Treasury.
Madam Secretary, again, I would like to commend you and
your staff on being responsive to questions from Members of the
Committee. And let me now turn it over to Senator Hagerty for
his opening statement.
opening statement of senator bill hagerty
Senator Hagerty. Thank you, Chairman, Van Hollen, and thank
you for holding this hearing today. As the new Ranking Member
of the Committee, I look forward to working alongside you and
all of our colleagues.
We have an exceptional job ahead of us. We are challenged
in conducting rigorous oversight to strengthen U.S. financial
systems and ensure that the dollars that taxpayers have
entrusted to us with are spent responsibly. I also want to
welcome our witness today, Secretary Yellen.
Thank you for appearing before the subcommittee, Secretary,
at such a critical time for our economy, and I look forward to
your testimony. Secretary Yellen, the Department of Treasury
has a fundamental role in managing our Nation's debt and
collecting its taxes. The President, with the advice and
consent of the Senate, has conferred upon you a great
responsibility and obligation to provide sound economic
guidance.
At this same time, it is your duty to respect the rights of
taxpayers who rely on you to treat them fairly. Unfortunately,
our Nation has accumulated an unprecedented amount of debt at
levels that are unsustainable at this point.
One of our Nation's greatest strengths is the depth and
liquidity of our financial markets that has allowed us to
capitalize our economy with large amounts of money at a
relatively low cost, a significant competitive advantage for
our Nation.
Further, our historic commitment to the rule of law and our
commitment to repay our debts underpins this strength. While I
understand the desire to raise the debt limit, repaying our
debts is not just a matter of periodically increasing the
amount we can borrow.
We are on an unsustainable path for which the bill will
ultimately come due. Our ability to repay our debts requires us
to live within our means, which means we must put our economy
on track to eliminate the annual deficit.
In my view, we either take serious steps toward addressing
our fiscal house now, or we allow the global financial markets,
who will not ignore our fiscal peril, to make those decisions
for us, and it won't be pretty. The country is looking for
leadership from you, Madam Secretary, to navigate this
difficult fiscal path.
However, I was disappointed to see the President's budget
put forward a series of tax increases that have been largely
rejected by both Republicans and Democrats in Congress. The tax
increases proposed in the President's budget would make
American businesses less competitive and ultimately weaken our
economy at a time when we desperately need it to be strong.
Combating inflation remains a priority for me. Many basic
goods and services are too expensive for most American
families. Again, I believe that too much spending has placed
upward pressure on prices. Very simply, there are too many
dollars chasing too few goods and services. My constituents'
purchasing power has steadily and dramatically eroded over the
course of this Administration.
One way we can both rein in inflation and expand the
economy is by extending tax reform, which contrary to forecast
at the time, resulted in booming corporate tax receipts for the
Federal Government, allowing manufacturers to deduct the full
cost of their capital expenditures in the year that they are
made, encourages businesses to build more factories, help
workers to become more productive, raise wages, and it expands
economic output.
When we expand supply, we put downward pressure on the
system to meet demand. In that manner, businesses provide more
goods and services to their customers at a lower price. The
problem with more government spending is it just redistributes
private resources from one group to another, generating
economic friction and inefficiency.
Its primary effect is to increase demand, not to increase
supply, further adding to inflationary pressures. Rather than
helping individuals and businesses during these challenging
times, taxpayers are facing greater tax burdens, reduced
customer service from the IRS, and endless amounts of paperwork
and bookkeeping requirements.
I have reintroduced my Snoop Act, which would strike the
Biden Administration's requirement that third party platforms
report businesses gross transaction volumes totaling more than
$600 per year to the IRS. This requirement is cumbersome, is
difficult to comply with, and it needlessly intrudes into
Americans' privacy.
While I was glad to see your department is temporarily
delaying the implementation of this provision, I will continue
to stand up for small business owners with an aim to put an end
to this egregious and unwanted overreach.
And finally, as a lifelong businessman, I have been
following the developments over the past week as we have seen
unfold a pair of spectacular bank failures. To me, this entire
situation was a series of failures that should have been
foreseen. First, it is a massive failure on the part of
management.
Silicon Valley Bank's board and management seem to have
been asleep at the wheel. It has become--beyond comprehension
that they could have allowed the Chief Risk Officer position to
remain vacant for 8 months during the period leading up to this
collapse. It is malpractice, plain and simple.
Second, it was a massive failure of oversight from the San
Francisco Federal Reserve Bank who in their position--who in
their possession had the detailed liquidity reports that should
have made it clear that this was a real issue. But perhaps the
biggest failure of all is how this Administration mishandled
the crisis, particularly the decision to take Silicon Valley
Bank and Signature Bank into receivership instead of
expeditiously expediting an auction.
By failing the auction process, we find ourselves now in a
completely new environment where no one knows the limits of the
taxpayer backstop. The decision made by the FDIC, the Federal
Reserve Board, and by yourself to guarantee all deposits of
both banks, even though those exceeding--even those exceeding
the $250,000 insured limit sets a dangerous and uncertain
precedent, one that would not have been necessary had a
successful auction occurred.
And it sets up American taxpayers to foot the bill,
regardless of the Administration's claims to the contrary. As
we saw on Sunday with the FDIC's announcement of the sale of a
significant portion of Signature Bank's assets, losses are
already being accumulated and those losses will be forced upon
the entire banking system, and by extension, U.S. taxpayers.
Secretary Yellen, I hope you can address these concerns
today in both your testimony and during the period of
questions. Thank you.
Senator Van Hollen. Thank you, Senator Hagerty. The
Appropriations Committee has two new strong leaders. We have a
new Chair, Senator Murray, and a new Ranking Member, Senator
Susan Collins, who is with us today. Senator Collins, Ranking
Member Collins, do you have any opening comments?
Senator Collins. I do not--thanks----
Senator Van Hollen. Okay. Thank you. Madam Secretary, it is
great to be with you. Your biography and experience is well
known to Members of the Committee, so I won't go on for a long
time.
I will note that you are the first person to have led the
White House Council of Economic Advisors, the Federal Reserve,
and the Treasury Department. It is also great to see your
signature on our currency.
So, without objection, Madam Secretary, your full written
testimony will be entered into the record. I ask you to please
summarize your opening statement in approximately 5 minutes.
STATEMENT OF HON. JANET YELLEN, SECRETARY, U.S.
DEPARTMENT OF TREASURY
Secretary Yellen. Chairman Van Hollen and Ranking Member
Hagerty, thank you for inviting me to join you today. I would
also like to thank you for your leadership of this subcommittee
in support of the Treasury Department.
Two years into this Administration, Treasury continues to
serve at the forefront of our Nation's response to some of its
most urgent challenges. We have advanced our country's domestic
and international economic priorities thanks to the resources
that you have provided us. Our top priority is to protect the
health of the U.S. economy.
Two weeks ago, we learned of problems at two banks that
could have had significant impacts on the broader banking
system and the American economy. In the days that followed,
Treasury worked with the Federal Reserve and the FDIC to take
decisive, and forceful actions to strengthen public confidence
in the U.S. banking system.
We took actions to protect all depositors of the two failed
institutions and provide additional liquidity for banks. This
was designed to mitigate risks to the banking system. It is
important to be clear, shareholders and debt holders of the
failed banks are not being protected by the government, and no
losses from the resolution of these banks are being borne by
the taxpayer.
Deposit protection is provided by the Deposit Insurance
Fund, which is funded by fees from insured banks. As I said
last week, the U.S. banking system is sound. The Federal
Government's recent actions have demonstrated our resolute
commitment to take the necessary steps to ensure that
depositors savings remain safe.
Beyond our work on the financial system, Treasury has also
led our Administration's broader efforts to recover and
stabilize our economy from a once in a century pandemic shock.
Our Office of Recovery Programs help drive the fastest and most
inclusive labor market recovery in history by coordinating the
effective implementation of the American Rescue Plan relief.
Today, the unemployment rate is near historic lows. Our
economy has added over 12 million jobs since 2021. Our
Administration is now building on that progress by effectively
implementing long term investments enacted by Congress.
Internationally, Treasury continues to mount a swift, bold, and
enduring response to Russia's illegal war against Ukraine. In
my visit to Kyiv a month ago, Ukrainian officials told me
firsthand about the critical impact of our work.
As part of a broad coalition, we are responsibly disbursing
vital economic assistance to Ukraine. Since last February,
Treasury has also implemented over 2,500 Russia related
sanctions. We have degraded the Kremlin's ability to replace
more than 9,000 pieces of heavy military equipment that it has
lost on the battlefield.
We have also stabilized global energy markets and cut into
the Kremlin's revenues by implementing innovative caps on the
price of Russian oil. The President's fiscal year 2024 budget
requests the necessary resources to continue advancing our
Nation's priorities. I will highlight three imperatives. First,
the budget requests $14 billion in discretionary resources for
the IRS.
For too long, the IRS has been woefully underfunded. We are
changing that. Our budget request provides steady State
operational funding that will allow taxpayers to receive the
best service possible. It will complement the one-time long-
term investment in the IRS from the Inflation Reduction Act.
We have already seen our investments pay off. For example,
the IRS has answered a million more phone calls during this
filing season than at this time last year, and now is the time
to build on this progress. Second, our budget request shores up
our capacity to respond to Russia's immoral war in advance of
our national security priorities.
It includes $244 million for the Office of Terrorism and
Financial Intelligence to continue to administer, enforce, and
modernize our sanctions regime. It also allows the office to
expand financial intelligence in sanctions related economic
analysis. Further, the budget request $229 million for FinCEN
to support its efforts to address deficiencies that illicit
actors exploit to evade scrutiny.
Third, this request enables us to continue our work to
bolster the long-term foundations of the American economy. We
are requesting $332 million for Treasury's Departmental
Offices, which craft and implement policies to advance our
economic priorities and coordinate Government wide efforts to
promote financial stability and growth.
We are also asking for an increase for the Community
Development Financial Institutions (CDFI) Fund, which expands
credit and financial support to historically underserved
communities.
I want to end by thanking the men and women of the Treasury
Department for their service. Their dedication and commitment
inspire me every day, and I could not be prouder to call them
my colleagues. With that, I am happy to take your questions.
[The statement follows:]
Prepared Statement of Hon. Janet L. Yellen
Chairman Van Hollen and Ranking Member Hagerty: thank you for
inviting me to join you today. I would also like to thank you for your
leadership of this subcommittee and support of the Treasury Department.
Two years into this Administration, Treasury continues to serve at
the forefront of our Nation's response to some of its most urgent
challenges. We have advanced our country's domestic and international
economic priorities--thanks to the resources that you have provided us.
Our top priority is to protect the health of the U.S. economy. Two
weeks ago, we learned of problems at two banks that could have had
significant impacts on the broader banking system and the American
economy. In the days that followed, Treasury worked with the Federal
Reserve and the FDIC to take decisive and forceful actions to
strengthen public confidence in the U.S. banking system.
We took actions to protect all depositors at the two failed
institutions and provide additional liquidity for banks. This was
designed to mitigate risks to the banking system. It's important to be
clear: shareholders and debtholders of the failed banks are not being
protected by the government. And no losses from the resolution of these
banks are being borne by the taxpayer. Deposit protection is provided
by the Deposit Insurance Fund, which is funded by fees on insured
banks.
As I said last week, the U.S. banking system is sound. The Federal
Government's recent actions have demonstrated our resolute commitment
to take the necessary steps to ensure that depositors' savings remain
safe.
Beyond our work on the financial system, Treasury has also led our
Administration's broader efforts to recover and stabilize our economy
from a once-in-a-century pandemic shock. Our Office of Recovery
Programs helped drive the fastest and most inclusive labor market
recovery in history by coordinating the effective implementation of
American Rescue Plan relief. Today, the unemployment rate is near
historic lows. Our economy has added over 12 million jobs since the
start of 2021. Our Administration is now building on that progress by
effectively implementing long-term investments enacted by Congress.
Internationally, Treasury continues to mount a swift, bold, and
enduring response to Russia's illegal war against Ukraine. In my visit
to Kyiv a month ago, Ukrainian officials told me firsthand about the
critical impact of our work. As part of a broad coalition, we are
responsibly disbursing vital economic assistance to Ukraine. Since last
February, Treasury has also implemented over 2,500 Russia-related
sanctions. We have degraded the Kremlin's ability to replace more than
9,000 pieces of heavy military equipment that it has lost on the
battlefield. We have also stabilized global energy markets and cut into
the Kremlin's revenues by implementing innovative caps on the price of
Russian oil.
The President's fiscal year 2024 Budget requests the necessary
resources to continue advancing our nation's priorities. I will
highlight three imperatives.
First, the budget requests $14 billion in discretionary resources
for the IRS. For too long, the IRS had been woefully underfunded. We
are changing that. Our budget request provides steady-state operational
funding that will allow taxpayers to receive the best service possible.
It will complement the one-time, long-term investment in the IRS from
the Inflation Reduction Act. We have already seen our investments pay
off. For example, the IRS has answered a million more phone calls
during this filing season than at this time last year. Now is the time
to build on this progress.
Second, our budget request shores up our capacity to respond to
Russia's immoral war and advance other national security priorities. It
includes $244 million for the Office of Terrorism and Financial
Intelligence to continue to administer, enforce, and modernize our
sanctions regime. It also allows the office to expand financial
intelligence and sanctions-related economic analysis. Further, the
budget requests $229 million for FinCEN to support its efforts to
address deficiencies that illicit actors exploit to evade scrutiny.
Third, this request enables us to continue our work to bolster the
long-term foundations of the American economy. We are requesting $332
million for Treasury's Departmental Offices, which craft and implement
policies to advance our economic priorities and coordinate government-
wide efforts to promote financial stability and growth. We are also
asking for an increase for the Community Development Financial
Institutions Fund, which expands credit and financial support to
historically underserved communities.
I want to end by thanking the men and women of the Treasury
Department for their service. Their dedication and commitment inspire
me every day, and I could not be prouder to call them my colleagues.
With that, I'm happy to take your questions.
Senator Van Hollen. Thank you, Madam Secretary. I think
your testimony underscored the depth and breadth of the
responsibilities of the Department of Treasury. Thank you for
listing those priorities, including, importantly, CDFIs.
Going back to the banking situation, I saw you gave some
remarks just the other day indicating that we are still
determining the root causes of the recent crisis. And I also
serve on the Banking and Housing Committee, and we are going to
be having hearings next week to try to get to the bottom of
exactly what happened in Silicon Valley Bank and other banks.
But there is one area where I think we can agree, I hope we
can agree to move forward now on the issue of accountability,
and that is the need for legislation to empower Federal
regulators like the FDIC to claw back compensation packages and
stock profits that were gained by executives at failing banks
in close proximity to the bank's failure.
I know that under the Dodd-Frank Law, that authority exists
for executives of the biggest banks, but apparently it does not
exist with respect to banks the size of Silicon Valley Bank.
And we also know from reports that the CEO of Silicon Valley
Bank sold about $3 million worth of shares just a short time
before the collapse.
I know President Biden has called upon Congress to change
the law so that we can hold executives accountable. This is
whether or not there is criminal wrongdoing or not. That is a
separate matter.
I know the Justice Department, the FBI will be looking into
that. But just as a basis of accountability, would you, Madam
Secretary, you and the Treasury Department, work with me and
others in the Senate who are interested in fashioning
legislation along the lines that President Biden also supports?
Secretary Yellen. Certainly, Senator Van Hollen, we, of
course, agree with President Biden that those who were
responsible for the failure of a bank should not be profiting
when stockholders and investors in the bank are taking--forced
to take losses. And when the Deposit Insurance Fund is working
to save the depositors in stem runs, that this is an important
form of accountability. And we would be glad to work with you
on that legislation.
Senator Van Hollen. Thank you. I look forward to doing that
and hopefully we can get it passed on a bipartisan basis and
support accountability in the system. I think American
consumers are sort of looking at the situation here where those
who were clearly responsible for the failure in their banks are
running away with major profits.
And that doesn't seem right, especially at a time, as you
said, when we are asking, we are going to be asking other banks
to help support those depositors.
I am somewhat concerned that perceptions and a sense that
there is riskiness in the bank system because of these failures
will lead some people potentially to go to the shadow banking
system, which, as you know, is a much more risky proposition
and not subject to much of the regulation that currently
exists, including the kind of capital requirements that apply
in the banking system.
As Secretary of the Treasury, you serve as the chair of the
Financial Stability Oversight Board, which has the authority to
designate non-banks as systemically important financial
institutions.
Last November, in the Banking Committee, I asked the
Federal bank regulators that were before us as witnesses,
including the vice chair of the Federal Reserve Bar and the
heads of the Office of the Comptroller of the Currency (OCC)
and the FDIC, if they would support a repeal of the Trump era
guidance that made it much more difficult to regulate the much
riskier shadow banking sector.
The answer from all three of those witnesses who are
responsible for it and who sit on the board with you was yes,
they would vote to repeal that limitation on the ability to
provide prudent regulation over the non-banking sector.
So, my question to you, Madam Secretary, is can we move
forward and hold that vote on the Financial Stability Oversight
Council (FSOC)? And if so, when.
Secretary Yellen. I am working very closely with FSOC. We
are considering and drafting revised guidance on designation
that would restore FSOC's lost capacity to designate non-bank
financial institutions as systemic and subject them to
regulation.
I would say that more generally the risks that you
mentioned in the non-bank financial sector, sometimes other
forms of intervention can be appropriate and I have made it a
priority since I became Treasury Secretary, as Chair of FSOC,
to look at a number of different risks in the non-bank
financial sector. In some cases, for example, the case of money
market mutual funds or open-end bond funds, where I believe
there are risks, the Securities and Exchange Commission (SEC)
has the authority, and FSOC has worked with the SEC.
The SEC is in the process of taking appropriate action. So
FSOC has a number of different tools to deal with these risks,
but I agree with you that risks have migrated to that sector
and designation is an important power that needs to be in the
toolkit of FSOC.
Senator Van Hollen. Well, thank you, Madam Secretary. Look
forward to working with you and I hope you will schedule that
as soon as possible. My last question for this round relates to
the debt ceiling.
My head was spinning this morning when I saw the speaker of
the House say that the recent banking crisis made it even more
important that we threaten the debt ceiling in order to achieve
major budget cuts, the kind of cuts that have been outlined in
the House, by House Republicans.
You are very aware, I think, of what the risks would be if
the United States does not meet its full faith and credit. Do
you believe that the recent uncertainty in the banking system
means that we should threaten the full faith and credit of the
United States in order to pass budgets that one of us on one
side of the Capitol or the other may like?
Secretary Yellen. The failure to raise the debt ceiling
would cause an economic and financial catastrophe.
It would be a failure of the U.S. Government for the first
time since 1789 to fail to pay bills that it had incurred, and
it would cause a loss of confidence in the United States as the
safest country, that our currency as a reserve currency used by
the world--it would bring untold, unbelievable economic damage.
I think this is something that just can't be contemplated.
It is a fundamental, basic responsibility of Congress to pay
the Government's bills. And I call on Congress to expeditiously
raise the debt ceiling.
Senator Van Hollen. Well, thank you, Madam Secretary.
Senator Hagerty.
Senator Hagerty. Thank you, Chairman Van Hollen. Before I
get into my line of questioning, I just want to clarify on the
debt ceiling piece. Secretary Yellen, do you think it is not
possible to negotiate in any respect the spending package that
has been put forward? Is it possible to set aside and agree
that our Nation's debts will be paid, that we will pay the
interest on our debt, and set that component aside and agree to
that before we get to any discussion on specific spending
reductions?
Secretary Yellen. I am not sure exactly what you are
suggesting here. President Biden has indicated that he is more
than willing to discuss an appropriate path for spending in
taxes in the overall deficit, that it is important to have a
fiscally responsible budget plan, and that these are certainly
appropriate matters for discussion between the White House and
Democrats and Republicans in the Congress, and he looks forward
to doing that, but not under the specter of destroying the
country's economic and financial----
Senator Hagerty. I think the specter of this being
presented is a false choice. And the specter that you present
does not have to be that. We are facing an unprecedented
spending epidemic. We are in a deficit spending situation.
We have $31 trillion of debt moving higher that we are
parking on the backs of the shoulders of our children. If we
don't address it in a responsible manner ourselves, the capital
markets will address it eventually, and I think that will be
far more catastrophic. So, we have to find a way to talk about
this that doesn't pit ourselves of this doom and gloom scenario
and that we find a way to actually address that.
Secretary Yellen. Senator Hagerty, President Biden has
submitted to Congress a budget that has, over the next decade,
$3 trillion of deficit reduction. It invests in our workforce,
in our economy----
Senator Hagerty. And massively increases taxes at a time
when we are trying to recover our economy. It is a nonstarter
on both sides of the aisle, as you know, Madam Secretary. Let
me get back to the questions that I wanted to entertain with
you, though, today.
As I mentioned in my opening statement, I have been
tracking the Silicon Valley and Signature Bank situation in
very close detail. The situation was caused by a remarkable set
of failures, in particular the Silicon Valley Bank situation,
failures of management, failures of Federal oversight, and
failures of how we responded to it.
Both President Biden and in your opening remarks just a few
minutes ago, you unequivocally stated that no losses will be
borne by the taxpayer for the actions that have been taken by
the Fed, the Treasury, and the FDIC in guaranteeing that all
insured deposits at Silicon Valley Bank and Signature Bank that
followed the failed auction of SVB, that none of those will be
borne by the taxpayer.
I understand why that claim is politically appealing, but
it is impossible to square with how these programs actually
work. As you know, the systemic designation used in the
guarantee of SVB and Signature Banks' deposits relies on the
FDIC, Federal Deposit Insurance Fund, which will be replenished
in the case of a loss with a special assessment on banks across
the Nation, which inevitably will be passed along to all bank
customers, which, last time I checked, were American taxpayers.
So, as we saw with Signature Bank, the estimated cost to
the Deposit Insurance Fund for this resolution alone is $2.5
billion, which will be paid for by fees assessed to banks
across the Nation. Is that correct?
Secretary Yellen. There will be a special assessment to--so
it is only an estimate, the $2.5 billion. We don't really know
what the final cost----
Senator Hagerty. I understand.
Secretary Yellen [continuing]. Will be but there will be a
special assessment----
Senator Hagerty [continuing]. If you add SVB, it is going
to become much, much larger. And when you increase the cost of
doing business, that cost is going to get passed on to
customers. So, this number, $2.5 billion plus and any future
losses will be in fact borne by bank customers across the
United States. Again, American taxpayers, the last time I
checked, is that correct?
Secretary Yellen. But they may be borne by shareholders of
the firms.
Senator Hagerty. I think the fees tend to be passed on to
the consumers. I would like to turn to news reports yesterday.
The Treasury is considering whether the Administration can
order an unprecedented expansion of FDIC coverage to guarantee
all in insured deposits.
As was reported, this facility would be backed by the
Exchange Stabilization Fund, which was created to support the
value of the U.S. dollar in international markets, not as a
slush fund when consulting Congress may be inconvenient.
I am deeply concerned by these reports, that such a program
would not only constitute a misuse of the ESF, but it would
circumvent Congress's role in approving such an action. So,
Madam Secretary, does insuring every deposit, every FDIC
insured bank in the Nation over $250,000 require Congressional
approval?
Secretary Yellen. This is not something that we have looked
at. It is not something that we are considering. All that I
have said is that when the failure of a bank is judged by
supermajorities of the FDIC board, the Fed board, and myself in
consultation with the President, when such a failure is deemed
to create systemic risk, which I think of as the risk of a
contagious bank run, then we are likely to invoke this systemic
risk exception which permits the FDIC to protect all
depositors, and that that would be a case by case
determination----
Senator Hagerty. I understand, and that----
Secretary Yellen. We have not considered or discussed
anything having to do with blanket insurance or guarantees of
deposits.
Senator Hagerty. Two points, Madam Secretary. One, I would
encourage you, if you do consider something broader than the
basic $250,000, that you remind--to remind you that
Congressional approval is required in the form of a joint
resolution.
Two, the program that you just stated really suggests to
many people in America, certainly people in my home State, that
there is a two-tier system of insurance here in America. For
those that are deemed to be systemically important at the time
and those that are not. I think many Tennessee banks are
concerned that they would not be deemed----
Secretary Yellen. I would disagree with that, Senator
Hagerty. And I said explicitly in remarks I gave yesterday to
the American Bankers Association, which is mainly consists of
community banks, that this is not a question of invoking it for
large or medium sized banks only. That the failure of a small
bank, of a community bank could likewise trigger a run-on other
banks and lead to the same judgment that the failure of that
community bank creates systemic----
Senator Hagerty. I think more clarity here would be
appreciated. Thank you. And I want to turn to one more point
that you and I have discussed in a number of times before in a
very short period of time that I have. This has to do with the
ProPublica leak of taxpayer information.
We have met now, this is the fourth time you and I met
about this. The fact is that ProPublica was a leaker, or
somebody at the IRS, or somehow, they have--ProPublica has
leaked confidential taxpayer information. It has been nearly 2
years since this occurred. Has anyone been held to account?
Secretary Yellen. I am just as frustrated by the situation
as you are. I would love to know who is responsible for that.
And I am afraid that I know no more about this than I did when
the leak first occurred.
We did what I believe is the appropriate thing, which is to
refer this matter to independent investigators, the Treasury
Inspector General, the IRS Inspector General, and the
Department of Justice. And there are a lot of----
Senator Hagerty. And no new reports?
Secretary Yellen [continuing]. Independent investigations
that follow their own timelines, and I can't tell you when they
are going to be concluded. I would suggest that you ask those
investigators when they think it might be concluded.
I would really like to get a report, and I think this was a
very serious matter and deserves an independent and thorough
investigation.
Senator Hagerty. It damages the confidence of taxpayers in
America.
Senator Van Hollen. Thank you, Madam Secretary. As I said
at the outset, the Appropriations Committee has a new Chair,
and I am pleased that she is joining us today. Senator Murray.
Senator Murray. Well, thank you very much, Chair Van Hollen
and Ranking Member Hagerty. As Vice Chair Collins, who is also
here with us today, and I made clear when we announced our plan
to return this Committee to regular order, we have a
responsibility to deliver for the American people by working
together to draft and pass funding bills that strengthen our
economy and keep America competitive on the world stage, and
make sure that our families here at home are financially secure
and thriving.
This is no small feat, as we all know. But this hearing is
really an important reminder that when it comes to keeping our
Nation strong, secure, and competitive, it is not just about
how much we spend on defense, which is important.
It is also important how strong our economy is, and I mean,
on Main Street, not just on Wall Street. And as we have seen,
the collapse of the Silicon Valley Bank and Signature Bank have
been a really stark reminder of the important role Treasury
does play regulating our banks, ensuring our economy is sound,
and protecting American workers and savers from paying the
price for Wall Street's mistakes.
And that is really critical because working families are
the backbone of this economy. And that means when our families
are less financially secure, our Nation is less financially
secure. Strong funding for Treasury means strong enforcement of
our sanctions against Russia and Iran, the drug cartels, and
other dangerous actors. It also means when my constituents call
the IRS with a question about their taxes, they can actually
get a real person on the other end of the line.
And thanks to the funding the Democrats passed, the IRS is
now answering 90 percent of its phone calls. That is a dramatic
improvement from the 13 percent last year. But we still are
playing catch up on these investments. The technology that
handles Americans' tax returns, for example, is over 60 years
old.
So, we need a modern IRS. And that won't just mean fewer
tax cheats, stifling families when it comes to paying their
fair share. It means that Americans' personal financial
information is safer from cyber-attacks or nefarious actors.
And it will mean we could put more money back in families'
pockets when it comes to the tax refunds and relief that they
are entitled to, like the childcare tax credit President Biden
proposes reinstating in this budget. Secretary Yellen, I asked
you about the IRS spend plan for the IRA funding in our call
when we talked last month.
Congress still doesn't have that. And I want to join Chair
Van Hollen in saying the department has had enough time to
produce it and we expect to see it. And lastly, families, of
course, are also counting on us to raise the debt limit, you
just talked about this, without drama, without delay.
And let me just be clear, as you were, that the full faith
and credit of the United States, that is to pay our bills on
time like every families expected to, is not something that
should ever be held hostage to score cheap political points at
the expense of working people in this country.
Not getting that done would be catastrophic for our
economy, so I hope we can do this in a straightforward,
bipartisan way, as we have many times under both Republican and
Democratic leadership.
So, again, thank you for being here today and I just want
to say I am going to be very closely paying attention to the
work on the issues raised by the Silicon Valley Bank and
Signature Bank, and I expect that you will keep us updated on
this as we move along.
Secretary Yellen. Yes, of course. I would be glad to.
Senator Murray. Thank you. In terms of questions, last
year, I was able to pass a sweeping bipartisan retirement bill,
in our SECURE 2.0 Act, that will increase families' financial
resiliency and help more families save for a dignified
retirement and make it easier for businesses to offer
retirement plans. Can you tell us what resources Treasury will
need to implement all of the SECURE directives in a timely
manner?
Secretary Yellen. Yes, there are some resources the
Treasury will need, and they are included in the 2024 budget.
My understanding is that the Bureau of Fiscal Services will
need about $10 million to complete their effort to digitize
savings bonds.
The Office of Tax Policy will need about $1.5 million to
hire additional OTP, Office of Tax Policy Staff to write the
regulations and rules. And IRS will be faced with
implementation of many of the features of this.
And there is money included in the budget. I believe an
additional $10.5 million for IT funds. And an additional
roughly $5.5 million, and this would go from fiscal year 2023
through 2027 for additional lawyers in the Chief Counsel staff.
Senator Murray. Okay. Thank you for that summary, and I
will be following that very carefully as we put this bill
together. As I mentioned, I do expect from you a detailed plan
about how the IRS is intending to use IRA money. Without that,
we are hearing all kinds of conflated things about 87,000
people and an army kind of thing. But tell us when we are going
to see that plan so we can see the detail of----
Secretary Yellen. In a matter of weeks. I have seen a draft
of the plan. It is not final, but you should see it very
shortly.
Senator Murray. Okay, we need to see that because it is
really important----
Secretary Yellen. Of course.
Senator Murray [continuing]. For taxpayers to be able to
call the IRS and get a response. It is really important for us
to be able to have the new technology we need, but we need to
see your spend plans so we have a real concrete----
Secretary Yellen. You will see that.
Senator Murray. Okay. And finally, I know President Biden's
2024 budget is rightly called a blue collar blueprint to
rebuild America, and that blueprint would not only help
families with lower health care costs, but also invest in
quality child care, ensure giant corporations and billionaires
pay their fair share a lot more, but I wanted to ask you, do
you think that the President's budget would increase inflation
or put us on a fast path to fiscal ruin, as some of our
colleagues have suggested?
Secretary Yellen. No, I don't. It is--it does invest in
America, in our people, in our economy, in ways that will make
it more productive, but it proposes ways to pay for that. And,
in fact, over 10 years, it involves deficit reduction amounting
to $3 trillion, so it puts us on a more secure and prudent
fiscal path.
It--many of the investments that are proposed could be
viewed as expanding supply. Senator Hagerty mentioned the
importance of supply and inflation as a matter of supply and
demand. And the supply side of our economy is important.
We know that private investment capital formation matters,
and that is what traditional supply side economics has always
focused on. I have coined the term modern supply side
economics. I believe the supply side of the economy is
important, but there are other kinds of investments that are
also critical, and that is what is included in this budget.
Funding for education, human capital, investing in people,
investing in cares for children, in childcare, early childhood
education, enabling more people to work, investing in research
and development that improve our technology and productivity.
So, there are some very significant investments in our
economy that will expand its capacity and ability to supply
goods and services.
Senator Murray. Thank you very much. Thank you, Mr.
Chairman.
Senator Van Hollen. Thank you, Madam Chair. And now we will
turn to the Ranking Member of the full Committee, Senator
Collins.
Senator Collins. Thank you very much, Mr. Chairman. It is
great to be here with you and the Ranking Member and appreciate
it. Secretary Yellen, I want to talk with you about the
consequences of the decision that was made by Treasury in
consultation with the Federal Reserve and the FDIC to use a
systemic risk exception in the Federal Deposit Insurance Act to
insure all of the deposits of Silicon Valley Bank.
Last Wednesday, the new CEO of this bank held a conference
call for concerned clients, and he urged them to return all of
their deposits to the bank. And here is what he said on that
call, and I am going to quote it. ``There is no safer place in
the U.S. banking system to put your deposits.''
I am very troubled by that comment because it invites
deposit flows from well-managed, prudently invested community
banks to a bank that was poorly managed, that took excessive
risks.
And it seems to me by guaranteeing all of the deposits,
that you are creating a situation where they are immune from
losses, draw in deposits from well-managed banks in a way that
puts the well-managed community bank at a competitive
disadvantage.
So, I guess my question to you is, how is this fair?
Secretary Yellen. Well, look, we invoked the systemic risk
exception because Silicon Valley Bank had experienced a
calamitous run, a run that was so enormous that it overwhelmed
the liquidity of this bank, its ability to arrange liquidity.
And it created the potential for fear about the safety of
uninsured depositors in many other banks. And a failure to
protect those who were uninsured depositors in this bank at the
time it was put into receivership would have led to fears by
uninsured depositors at many other banks who really have no
easy way of knowing what the status of their banks are and
whether or not their funds are at risk.
It risked contagion throughout the banking system. We
invoked this exception in order to try to contain the contagion
that seemed to all of us to be inherent in these uninsured
depositors being wiped out or severely gutted.
So, it wasn't a question of protecting that bank or that
group of uninsured depositors, but rather the implications for
the broader banking system because of the contagion potential.
Senator Collins. Well, I want to switch to relate it by
different topics. But to me, it creates a situation where you
are rewarding very wealthy depositors and you are creating the
need for a special assessment that is going to be imposed on
those well-managed community banks that don't take--didn't take
those risks.
And from what the bankers I have talked to tell me, the
majority of their depositors fall under the $250,000 limit.
Well, at Silicon Valley Bank, the opposite was true. But let me
follow up on a point that Senator Hegarty made.
He asked you about the level of FDIC insurance. I remember
in 2008 when it was raised from $100,000 to $250,000 during
that financial crisis. Now, some of our colleagues, including
Senator Elizabeth Warren, has recommended that we raise up to
$2 million or even up to $10 million. Do you agree with that?
Secretary Yellen. You know, what I am focused on right now
is trying to stabilize the banking system. And I know our
banking system to be sound, and I think right now we need to
focus on improving the confidence of the public that we do have
a sound banking system. And we can debate in the days ahead
whether or not $250,000 is the right level for deposit
insurance, or whether that system could be--should be changed
in some way. I am not going to weigh in on it.
I believe there is plenty of time to have reasoned
discussions about that. For now, I want to use the tools that
we do have at our disposal to improve confidence and make sure
the banks that are faced with deposit outflows have adequate
access to liquidity.
The steps that the Federal Reserve took in the aftermath of
that bank failure to make liquidity more broadly available to
support deposits, that is an important step that went with the
steps that we took as well.
Senator Collins. Let me very quickly switch to a different
issue. You said in your statement that the IRS is answering a
million more calls than last year. That sounds good.
But the fact is that the Inspector General for Tax
Administration calculates their own collar response figure
based on the data they collect from the IRS, and for this
filing season through March 4, the Inspector General calculates
that the IRS has only responded to 52 percent of calls, and
that if you add together both automated calls and calls
answered by an IRS customer service representative, that the
number of calls that are answered declines to even more, to
only 29 percent of the calls are answered by an IRS customer
service representative.
So, I hope we will follow up and try to get to the bottom
of that. I can tell you, based on the casework in my offices in
Maine, and I have six offices, that they are having an
extremely difficult time getting answers from the IRS.
Secretary Yellen. Senator, I would be glad to look into
that. I am not aware of the report that you just mentioned. We
have been tracking on a weekly basis the IRS's performance
during this tax season and it has been running between 80 and
90 percent. That is a very different number than you mentioned.
And I would be glad, I will ask my staff to try to
reconcile that discrepancy. But I personally promise that this
tax season, that--so I don't know if you are talking--are you
talking about the entire year or the tax----
Senator Collins. The tax season through March 4. And it is
a report by the Inspector General for Tax Administration.
Secretary Yellen. I will look into that because I have been
told its average is 85 percent, in line with the promise that I
personally made.
Senator Van Hollen. Senator, thank you. Thank you. Senator
Heinrich.
Senator Heinrich. Thank you, Chairman. Welcome, Madam
Secretary. We have had some discussion here on the deficit, and
I thought it might be helpful if you could remind us of the
relative role of the Trump tax cuts in creating the current
structural deficit.
Secretary Yellen. Well, the Trump tax cuts added hugely to
the deficit. I wish I recalled, it was something like $2
trillion over 10 years. And so that is a major contributor to
the deficits that we have.
Senator Heinrich. Pivoting quickly to the banking
situation, as Chair designate of the Joint Economic Committee
(JEC), I was very pleased that the Administration acted quickly
to ensure that small banks and depositors don't take the brunt
of the Silicon Valley Bank failure.
But I also suspect that this is a disaster that could have
been prevented. When Congress voted to roll back key regulatory
provisions back in 2018, I was also Vice Chair of the JEC at
the time, and I warned that weakening these rules put the
health of the banking system at risk.
And in fact, I have released a report, a JEC report, that
named SVB Financial Group specifically as one of the banks that
would face nearly none of the enhanced regulations originally
put in place in the Dodd-Frank legislation.
How can regulators shore up confidence and stability in
this asset class of banks? And do they need additional tools in
order to improve the stability throughout the entire financial
system?
Secretary Yellen. So, I absolutely think that it is
appropriate to conduct a very thorough review of what factors
were responsible for the failure of these banks. And it is true
that there was legislation that weakened bank regulation, and
there were also regulatory decisions by the Federal Reserve and
other banking agencies.
There is also a question of supervision in how that is
conducted. I was pleased to see that Vice Chair for
Supervision, the Fed's Vice Chair for Supervision, Michael
Barr, is undertaking and will report by May on an investigation
of what is involved.
And certainly, we should be reconsidering what we need to
shore up regulation to prevent this. This was a very unusual
set of circumstances the Silicon Valley Bank faced. It appears
that they had seen a significant interest rate risk that they
were subject to, and an exceptionally high, over 90 percent of
their deposits were uninsured. And that is, you know----
Senator Heinrich. That number is well outside of the norm.
Secretary Yellen. So, in that sense, this was an unusual
bank, but I think it is appropriate to review all of that.
Senator Heinrich. Do you have any thoughts at all on the
nature of--I mean, this is basically our first digital bank run
in a way--the way that the fire sort of spread.
Secretary Yellen. Yes.
Senator Heinrich. How should we be thinking about that in
the role of providing proper oversight and de-risking these
financial institutions going forward, given that that is very
much the world we live in now?
Secretary Yellen. So, this was an overwhelmingly rapid run
on a bank. To the best of my knowledge, we have never seen
deposits flee at the pace that they did from Silicon Valley
Bank. Now, many of the depositors were, you know, startup tech
firms that work with venture capitalists that also bank.
And there was, as you say, on the Internet essentially
shouting fire in a movie theater. And it perhaps it is the case
that now in the world we live in, that although this was a
small community with a disproportionate share of Silicon Valley
Bank's deposits, this kind of thing may more readily happen
now.
And it means that in general, when we do liquidity stress
tests on banks, where we think about liquidity requirements,
perhaps some of the assumptions that go into modeling the pace
at which deposits might flee, maybe some of those need to be
updated and rethought. But this is a new phenomenon and we
haven't seen this before.
Senator Heinrich. I think it is an important question----
Secretary Yellen. We need to rethink it.
Senator Heinrich. It is the world we live in today. Some
House Republicans recently introduced a bill that would force
Treasury to prioritize covering debt held by foreign debt
holders like the Chinese government before financing Department
of Defense, the VA, really every Federal funding priority
outside of Social Security and Medicare.
You have referred to this plan as default by another name
and have pointed out that it is really not logistically
feasible for Treasury to prioritize payments given how Treasury
operates. What do you think of this plan to prioritize things
like foreign investments over current and former service
members and other obligations that we have as Federal
Government?
Secretary Yellen. Well, we have a set of bills that come
due, and it is our obligation and my obligation as Treasury
Secretary to see that those bills are paid, and not some of the
bills, and to decide which bills are more important than other
bills, simply to pay the bills for programs in spending that
Congress has authorized.
That is why I say prioritization is default by another
name. Not paying any of our bills is default. And when you
think about the pain that it would cause to Social Security
recipients, to food stamp recipients, you name it, people to
vendors who supply services to the Government and have their
own payrolls to meet, to be told they are not going to be paid,
the Government isn't going to honor those bills.
That is a default. And reading rating agencies,
particularly Fitch, has already clearly indicated that a
failure to pay all of the government's bills when they are due
would certainly compromise our credit rating. So, this has
never been tried. It has been rejected by all past Treasury
secretaries.
And I would say our systems, or payment systems, are simply
set up to pay all the government's bills when they come due.
They are not set up to divide payments into different types as
a general matter and to be able to say, yes, this, this, this
and this we are paying.
And these other things we are holding back for many
agencies, payments of all types are all mixed together in ways
that couldn't be disentangled.
Senator Heinrich. Thank you, Chairman.
Senator Van Hollen. Thank you, Senator Heinrich. Senator
Kennedy.
Senator Kennedy. Thank you, Mr. Chairman. Welcome, Madam
Secretary. Madam Secretary, isn't it a fact that the
President's proposed budget for next fiscal year is a half a
trillion dollars more than this fiscal year?
Secretary Yellen. On the spending side?
Senator Kennedy. Yes, that is what a budget is.
Secretary Yellen. Yes. It is about $400 billion----
Senator Kennedy. It is about $500 billion more, right?
Secretary Yellen. It is about what?
Senator Kennedy. $500 billion more, right?
Secretary Yellen. About that.
Senator Kennedy. Isn't it a fact that since 2019 until
today, I am not including the extra $500 billion that you all
want to spend, since 2019 through today, U.S. population has
increased 1.8 percent and the Federal Government's budget is up
55 percent. Isn't that a fact?
Secretary Yellen. But we had a pandemic.
Senator Kennedy. Isn't that a fact, though? I mean----
Secretary Yellen. I don't know those numbers.
Senator Kennedy. You don't know? You never looked at that?
Secretary Yellen. I don't have those numbers in my head.
Well, I am not disputing them.
Senator Kennedy. Okay. Isn't it a fact that the President's
proposed budget proposes $4.7 trillion in new taxes?
Secretary Yellen. It does propose significant additional
taxes, yes.
Senator Kennedy. $4.7 trillion.
Secretary Yellen. Something like that, yes.
Senator Kennedy. Okay. You talked about reducing deficit.
Isn't it a fact that under President Biden's proposed budget,
that gross debt will rise from $32.7 trillion at the close of
this year to $51 trillion by 2033?
Secretary Yellen [continuing]. What number did you give me
for----?
Senator Kennedy. The President's proposed budget will
increase gross debt from $33 trillion at the close of this year
to $51 trillion in 2033? Isn't that correct?
Secretary Yellen. Well debt held by the public, which is--
--
Senator Kennedy. No, ma'am, that is gross debt. Isn't that
a fact?
Secretary Yellen. That is probably a fact.
Senator Kennedy. So, you haven't reduced the deficit, have
you?
Secretary Yellen. The deficit, the debt and deficits are
reduced by the President's budget.
Senator Kennedy. How can you go from $33 trillion to $51
trillion and call that a reduction in the deficit?
Secretary Yellen. Because that is a calculation for which
you need a baseline. And then you compare the budget and the
deficits and debt in the budget with the baseline in which
there are none of the changes either in revenues or in spending
that are----
Senator Kennedy. Here is my baseline--and here is my
baseline, at the end of this year, we project--people a lot
smarter than me, probably not than you but smarter than me--say
that gross debt is $33 trillion. They say if the President's
budget is implemented by 2033, it will be $51 trillion. Isn't
that a fact?
Secretary Yellen. If the President's budget is not
implemented and none of the changes are made, it will be worse
than that. And so, the President's budget has improved the
fiscal outlook relative to what we would have without the
President's proposals.
Senator Kennedy. Even though it raises a gross debt from
$33 trillion to $51 trillion, you say that is an improvement?
Secretary Yellen. It is. It is an improvement because it
raises taxes by more and it leads to----
Senator Kennedy. That includes taxes. In what world is that
an improvement other than Washington and la la land?
Secretary Yellen. It is an improvement in that the revenue
increases far exceed proposed investments.
Senator Kennedy. Okay. All right. Let me ask you this,
isn't it a fact that in January of 2019, the Federal Reserve
issued a warning to Silicon Valley Bank over its risk
management systems?
Secretary Yellen. I have no idea. I am not responsible in
any way.
Senator Kennedy. But you are in charge of the banking
bailouts and the crisis, right?
Secretary Yellen. I am not involved in banking supervision
and I don't have access to any information about the
supervision of Silicon Valley Bank.
Senator Kennedy. Okay. So, you don't know whether or not
the Fed, you haven't looked to see whether or not the Fed
issued a warning, what, 4 years ago to the bank over its risk
management systems?
Secretary Yellen. That is not public information and it is
not for me----
Senator Kennedy. Sure, it is--Wall Street Journal.
Secretary Yellen. Well, it may be in The Wall Street
Journal, but it is not public information and it is not
information that I have access to.
Senator Kennedy. Well, I will give you a copy of this
article.
Secretary Yellen. I read the article, but----
Senator Kennedy. The Fed issued a matter requiring
attention, and it said your risk management practices are
terrible and you need to improve them.
Secretary Yellen. That is what the article says.
Senator Kennedy. All right. Isn't it fact that months
before SVB went under, that the bank disclosed that its market-
to-market value of its bonds was $16 billion less than their
balance sheet value?
Secretary Yellen. They did make such a statement.
Senator Kennedy. Did the people at the Federal Reserve just
not read it?
Secretary Yellen. I am not in the Federal Reserve.
Senator Kennedy. I know.
Secretary Yellen. I was at the Federal Reserve----
Senator Kennedy. But you are in the Treasury and you are in
charge of the banking crisis. Let me ask you----
Secretary Yellen. I am not in-charge of the supervision of
the bank.
Senator Kennedy. Let me ask you this. Senator Heinrich
talked about the 2018 amendments to the Dodd-Frank Act. Isn't
it a fact--now SVB was not stress tested in 2022, 34 banks
were. Here is the Fed's report. Isn't it a fact that if SVB had
been stress tested, it would have passed?
Secretary Yellen. Stress tests look at capital of a bank.
Senator Kennedy. Here is the--yes, ma'am, under the stress
test. Isn't it a fact that SVB would have passed?
Secretary Yellen. I don't know--it wasn't stress----
Senator Kennedy. Well, you need to look into that, Madam
Secretary.
Secretary Yellen. I said this is not my job, this is the
Federal Reserve's job.
Senator Kennedy. Isn't it a fact that when the Federal
Reserve stress tested in 2022, it only stress tested credit
risk and didn't stress test duration risk. Isn't that a fact?
Secretary Yellen. You know, I believe the stress tests in
general partially address and take account of interest rate.
Senator Kennedy. No, ma'am. I have read it. Here it is,
bigger than Dallas.
Secretary Yellen. Well, to the extent that there are assets
held in an available for sale portfolio that would suffer
losses due to changing interest rates, that would be captured
in the banks----
Senator Kennedy. No, ma'am, it is not there. I have read
it.
Senator Van Hollen. Senator Kennedy, I have allowed people
to--the Secretary to stray over answers that were asked before
the time went out, but not a series of questions after the time
went out, but----
Senator Kennedy. Sure, I get it. I understand, Mr.
Chairman.
Senator Van Hollen. Thank you. And thank you, Senator
Kennedy. And let me, I worked together with Senator Kennedy on
lots of things. We have got a good working relationship. I am
pleased to have done it.
We have some disagreements, and some of those questions
have prompted me just to ask you some follow up on some of
these issues. I just want to underscore the point you made,
that the President's budget, President Biden's budget reduces
the deficit over the next 10 years by $3 trillion relative to
if we did nothing. Is that right?
Secretary Yellen. That is correct. That is what I think I
said in answer to Senator Kennedy.
Senator Van Hollen. Right.
Secretary Yellen. We need a baseline. Then you look at the
budget, and you compare deficits and debt in the two scenarios.
And in that sense, there is a $3 trillion reduction in deficits
relative to the standard.
Senator Van Hollen. Right. I mean, if the Congress packed
up its bags and left, which maybe some--lots of people would
want us to do, and the President took no other action, the
reality is 10 years from now, the deficit would be $3 trillion
higher than if than it is today.
Secretary Yellen. Yes.
Senator Van Hollen. And isn't it a fact that one quarter of
the total accumulated national debt was incurred during the 4
years of the Trump Administration?
Secretary Yellen. Yes.
Senator Van Hollen. And isn't it a fact that during the 4
years of the Trump Administration, Congress passed the debt
ceiling increase three times without a lot of drama?
Secretary Yellen. Yes.
Senator Van Hollen. And Senator Heinrich asked you some
questions about the proposal coming out of House Republicans
for some kind of debt prioritization. And you made very clear
that that is just default by another name, right?
Secretary Yellen. Yes. Yes. It is not paying our bills.
Senator Van Hollen. Right. And isn't it true that back in
2011--I am having a sort of this is flashback on steroids. We
were just getting close to that waterfall in the debt ceiling--
--
Secretary Yellen. Yes.
Senator Van Hollen. Led Senators to lower the rating of
U.S. credit, right----
Secretary Yellen. Yes. And that is why I have asked
Congress to raise the debt ceiling expeditiously. We don't want
to get to the X-date and push this because damage can occur and
we could be downgraded if Congress looks like it is not willing
to.
Senator Van Hollen. I really hope, Madam Secretary, that we
won't do that. I do welcome a vigorous debate with my
colleagues on the budget issues. Whether you make spending
cuts, whether you make revenue increases, people can have a
healthy disagreement on that front.
But that also does raise the issue of the IRS budget and
the $80 billion that was presented, provided with the IRA for a
number of functions, one of them being to allow the IRS to
collect revenues that are already due and owing and not paid.
Now, I have a couple of questions regarding that, Madam
Secretary. One is you have directed the IRS and the Treasury
Department that you will not increase audits above any
historical level with respect to small businesses or taxpayers
under $400,000, right?
Secretary Yellen. I issued an order to that effect. I have
told the IRS that they must not increase the audit rates on
either individuals or small businesses earning under $400,000.
Senator Van Hollen. And I think it was maybe--I think it
was Jesse James who said when he is right--when he robbed
banks, he said that is where the money is. Where the money is
in uncollected taxes is in very wealthy, wealthy folks who are
not paying their taxes on time, right?
Secretary Yellen. That is right. It is wealthy individuals,
complex partnerships, corporations, where there is particularly
unreported income.
Senator Van Hollen. Right. And I know that the
Administration and the IRS have calculated hundreds of billions
of dollars of lost income annually from this tax gap. But the
Congressional Budget Office (CBO) has a more conservative
number, but it has a number nevertheless from the enactment of
the Inflation Reduction Act.
And it also calculated that the first act, I think it was
the first act of the of the House under new leadership of
Speaker McCarthy when they repealed the Inflation Reduction
Act, according to CBO, that would increase the deficit relative
to where we are today by $114 billion, right?
Secretary Yellen. Yes. The money that we spent on--that you
appropriate to the IRS, whether it is the discretionary budget
or the additional long term mandatory investment in the IRS,
this is money that brings in net more tax revenues.
In that sense, it is not really costly. It generates more
money for the taxpayer by enabling the IRS to collect the taxes
that are owed than you are spending in appropriations on the
agency.
Senator Van Hollen. Right. So, you know, I hope in the
coming weeks we can have a sober conversation up here about the
budget and deficits, because it is one thing for our House
colleagues to say they care about the debt ceiling, the
deficit, and another thing for their very first action to be to
increase the Federal budget deficit by over $114 billion over
the next 10 years.
Senator Kennedy. Mr. Chairman, can I ask a personal----
Senator Van Hollen. Let me just ask my last question. I am
happy to entertain the question if my other colleagues are
willing. So, Madam Secretary, in terms of the IRS funding, in
addition to trying to collect taxes from wealthy tax cheats, we
have seen an improvement in IRS performance when it comes to
answering constituents' calls. Is that not, correct?
Secretary Yellen. That is certainly the reports that I have
gotten, that the response rate has been between 80 and 90
percent this tax year----
Senator Van Hollen. And we are going to look, as Senator
Collins raised some important questions here. It has definitely
improved. Whether it has improved to that extent, according to
the Inspector General, we will have to take a look at that.
But I do think that making sure that folks who, especially
very wealthy folks pay their taxes on time is important. And I
am just going to, in closing here, refer you to a letter that a
group of us sent on March 20, myself, Senator Warren, and
others regarding abuses of trust that allow very, very wealthy
individuals, billionaires to pass on lots of money without any
taxation.
They have very high-priced lawyers, which in our view are
skirting the law, certainly the intent of the law. And we are
asking you to take a look at that when you do that.
Secretary Yellen. Yes, we actually have some proposals in
the Green Book to clamp down on that type of abuse, and we
would be glad to discuss further things we can do to prevent
that kind of abuse.
Senator Van Hollen. Got it. Senator Kennedy, it is up to
Senator Hagerty, but I am happy to----
Senator Kennedy. Well, I just wanted to ask, this is a
question, not a comment, are we all going to--I mean, my
colleague here hadn't had a chance to answer and ask any
questions, but will we have a chance to follow up as well with
the Secretary?
Senator Van Hollen. Sure. Everyone is--we are doing another
round. We have 7 minutes each. Absolutely. Absolutely. Senator
Boozman.
Senator Boozman. Thank you. Thanks for the pep talk. Thank
you, Madam Secretary, for being here. And I would like to ask
some questions that my community banks in Arkansas are
concerned about.
It is important to remember that Silicon Valley Bank and
Signature Bank took on unique risks and were materially
different from most U.S. banks, especially rural community
banks are safe and sound.
In light of those unique risk profiles, and I'm
understanding that you aren't the FDIC chair, when determining
whether to invoke the systemic risk exception, what specific
data points, metrics, and factors do regulators focus on?
Secretary Yellen. Well, we were very focused on the
potential for the failure of these banks and losses to
uninsured depositors in the banks to trigger runs on other
banks. And we looked at things like deposit outflows from other
banks, anecdotal reports that we heard.
I will say that many mid-sized banks expressed great
concern that they have uninsured deposits. Often these are
local businesses that can't operate within the insured deposit
limits. And these banks felt seeing many uninsured depositors
having the view, the only place you are safe is in the largest
banks, many of these banks felt very skittish about their
potential to suffer runs as well.
And I have heard this in many banking context that my staff
and I have had in recent days, that there is concern. We can
see that banks across the country are shoring up their
liquidity. They are very worried about contagion from the
troubles of Silicon Valley Bank and Signature Bank.
And the steps that we took were designed to improve the
confidence of all depositors that they are safe in banks. And,
you know, depositors often don't know about what the specific
situation is of their bank, whether it is a mid-sized bank or a
community bank, and if they become worried, they can pick up
their deposits and go someplace they think is safer.
And we did not want to see contagious runs that could have
impacted many banks, including community banks.
Senator Boozman. Very good. While Silicon Valley and
Signature's uninsured deposits will be paid for by the Deposit
Insurance Fund, banks will replenish the fund via a special
assessment.
In reality, those costs will be passed down to customers
via higher banking costs, and I am concerned that Arkansans
will have to subsidize Silicon Valley Bank and Signature Bank's
deposits, and maybe others that come forward.
What specific legal authority exist for Treasury, FDIC,
and, or the Fed to exclude certain banks from being charged the
special assessment, and will the community banks get charged
that special assessment?
Secretary Yellen. I don't know what the rules are around
that precisely. I think the FDIC may have some ability to
determine which banks are charged. I believe it is up to the
FDIC to make that determination.
Senator Boozman. And again, absent Congress passing a new
law, what specific authority does Treasury, FDIC, and, or the
Fed have to guarantee, even temporarily, all insured deposits
of open banks?
Secretary Yellen. Well, I mean, the FDIC, if it wished to
put a program in place like the Tag Program that I think was
instituted in 2008, that requires Congressional approval.
Senator Boozman. Okay. Very good. Thank you. Turning to a
different issue, can you provide a timeline for when Treasury,
and, or IRS will write any further rule makings, guidance, or
notices regarding the Inflation Reduction Act's direct pay
provisions relating to tax exempt entities?
Secretary Yellen. Are you referring--you are referring to
the IRA?
Senator Boozman. Yes, ma'am.
Secretary Yellen. We have many rule makings we are required
to do to implement the features of the IRA, and we are frankly
working 24/7 to get them done as rapidly as we can. I can't
give you an exact date, but I can tell you that we are working
on it very hard. We are full tilt. These are some rather
complex rules, and we are working very hard to get them out.
Senator Boozman. Good. Thank you. The CDFI Fund is in the
process of finalizing changes to its CDFI certification
application. What analysis has Treasury done to understand the
impact that the application changes will have on currently
certified CDFIs? How will the changes impact recipients of
Emergency Capital Investment Program (ECIP) funds?
Also, will depository institutions be less likely to meet
certification requirements under the new standards? And if so,
what impact will have on the--will that have on the Fund's
ability to support investment and access to capital in
underserved communities?
Secretary Yellen. So, I really need to get back to you on
that. I am not knowledgeable about the details of the change
in--that you are referring to. Certainly, the CDFI Fund is
trying to get money into the hands of CDFIs to lend in
underserved communities, and certainly not to make it harder.
And my staff will get back to yours, if that is okay----
Senator Boozman. Yes, ma'am.
Secretary Yellen. On the details of the question you asked.
Senator Boozman. Well, thank you very much. Thank you, Mr.
Chairman.
Senator Van Hollen. Thank you, Senator Boozman. Senator
Hagerty.
Senator Hagerty. Thank you, Chair. And--just a couple of
follow up questions. One, I would like to follow up on the
point that Senator Kennedy touched, Secretary Yellen, and that
has to do with the crisis that we just experienced with the
banking community here. It is--the mantra of Washington seems
to be never let a good crisis go to waste.
There have been calls now that there need to be
reregulation, that the tapering, I was not here when this was
passed, but that the tapering that Senator Kennedy mentioned
back in 2018, S. 2255, it was meant to take the one size fits
all regulation and try to in some way make that better fit the
market.
That that is the reason for the failures that we have seen.
What we have seen is a failure of management, as I mentioned
earlier. You have got a management that was asleep at the wheel
and out to lunch. They left their Chief Risk Officer position
stay open for 8 months up to the failure.
I am not aware of anything in S.2255 that would have fixed
that problem. Are you, Madam Secretary?
Secretary Yellen. Look, you know, we need to do a thorough
review of what happened in the case of these bank failures, and
I am not prepared to weigh in on precisely what the causes were
at this point.
Senator Hagerty. I will weigh in a little bit further and
if you will accommodate me. There was also a failure at the San
Francisco Fed in terms of the oversight that they should have
been providing. Again, they were getting detailed liquidity
reports, I believe, on a monthly basis about what was happening
in Silicon Valley Bank.
Yet they didn't seem, you know, they didn't seem to
identify the problem nor did they address it in time. And I
think the most disappointing failure of all is what happened
during the weekend that the auction should have taken place.
Rumors were rampant about slowness of the process, whether
people were being encouraged or dissuaded from bidding.
And at the end of the day, my understanding from FDIC
official was that they did have a bidder, but they were not
able to conclude the auction. We would be in a far better place
right now had the FDIC concluded that auction.
We were talking about a new buyer of the bank and we were
in a position at this point to have contained the loss to,
again this is the example of Silicon Valley Bank, as opposed to
finding ourselves in a position where we have a much broader
situation, where there is a precedent has been set now that,
again, make many people in America wonder whether every deposit
in America has been, you know, in some agreed to be backstopped
or guaranteed.
You have articulated the decision process that you would go
through on a case-by-case basis, but I think, again, as I
mentioned earlier, the bankers in my home State of Tennessee
are very concerned whether they would be included or not.
And there is a lot of uncertainty that we are going to have
to get to the bottom of there. From that point, though, I would
like to turn to just another issue, Secretary, and that has to
do with the President's budget.
The new budget lays out another $2.5 trillion of spending
increases and going to the Treasury Green Book that you just
mentioned a few minutes earlier, another $4.7 trillion of tax
increases as well. Those tax increases, in my view, as you look
at the Green Book, will have a lot more complications.
We have already got an overcomplicated tax code. I think
this promises to overcomplicate it further. The most recent
estimate that I have seen shows that individuals and
corporations spend 6.5 billion hours on tax filing and
reporting already, and it is hard to imagine a system as
complicated, as bureaucratic as it already is, getting more
simple with the addition of another $4.7 trillion of new taxes.
And my question of you, and you may need to get back to me
on this, is how many more forms or instructions are going to be
required from the IRS to the American public to address this.
How many more hours will be required to fill out new forms and
new overhead to address this massive new tax increase?
Secretary Yellen. Well, I can't give you an estimate at
this point of the number of hours or forms, but if Congress
would consider seriously the proposals, we would be able to
make estimates of those things.
Senator Hagerty. I will certainly consider it seriously,
but it is clear to me that it is not going to get any less
complicated. It is going to be more complicated considerably by
the way it is moving.
Now, I just finish with this. I am very concerned again
that the Green Book calls for more than $100 billion in
targeted tax increases on fossil fuels, and talking about
further increases on fossil fuels, further complicating that
business at a time when our economic security and our national
security are in such a grave situation.
I think it really doubles down on the weaponization of our
tax code against industries that are out of disfavor by this
Administration, and it weakens us as a Nation. Anything that
would lower investment in energy production right now will
weaken our national security, so it is a grave concern.
Secretary Yellen. I would say that fossil fuels have
benefited from many special tax features that really are tax
expenditures. They have benefited from that for decades. And at
a time when we need to make a shift over time to clean energy,
to be spending money to subsidize fossil fuels through the tax
code is something that doesn't seem to our Administration to be
appropriate.
Senator Hagerty. Anything that increases the cost of
producing energy right now, at a point we have had massive
inflation in energy cost, and we are at a point right now where
we cannot fulfill our obligations to our allies.
It is putting our Nation at a point of weaker, weaker
economic security, weaker national security. I think we should
not be doing that. Thank you, Madam Secretary. Appreciate you
being here. Mr. Chairman, thank you.
Senator Van Hollen. Thank you, Senator Hagerty. And I am
going to turn it over to Senator Kennedy. Just one piece of
business before that. If I run out before Senator Kennedy is
finished asking his questions, I just want scout's honor, you
will stay within the time limit, number one. I know you will.
Thank you, my friend.
And number two, in case I can't get back, let me just say,
Madam Secretary, thank you for appearing before the
subcommittee. And members will have one week to submit
questions for the record due on March 29.
And we would appreciate if your office could respond to
those questions as soon as possible. Again, I will be here
unless I get called up away, right, to get my questions up in
another hearing. Thank you, Madam Secretary. Senator Kennedy.
Secretary Yellen. Thank you, Senator.
Senator Kennedy. Scout's honor, Mr. Chairman. Madam
Secretary, I thought I understood your proposed budget, and I
want to walk you through it again. Isn't it a fact that the
President's proposed budget increases spending by half a
trillion dollars over the current budget?
Secretary Yellen. There is an increase in 2024 over 2023 by
about that much, and at least----
Senator Kennedy. Isn't it a fact that the President's
budget proposes new taxes of $4.7 trillion?
Secretary Yellen. That is probably right. Yes.
Senator Kennedy. Okay. And isn't it a fact, I am talking
about gross debt now, not public, not debt held by the public.
Isn't it a fact that under the President's proposed budget,
gross debt would go from $32.7 trillion at the close of this
year to $50.7 trillion by 2033?
Secretary Yellen. It is subject to statutory limitation.
Yes, would go, as you said.
Senator Kennedy. So, the President's budget would increase
our debt by $18 trillion.
Secretary Yellen. Which is $3 trillion less----
Senator Kennedy. Right.
Secretary Yellen. Than it would increase without the
proposals in the President's budget.
Senator Kennedy. So, what the President saying is these
were my words, not his, because of his budget, we are going to
have three heart attacks and a stroke instead of four heart
attacks and a stroke.
Secretary Yellen. Well, I would not agree that we are going
to have three heart attacks and a stroke because we have a very
large economy. And while the numbers that you cite are very big
numbers, the size of our economy is also extremely large.
And I think a better metric for assessing what the impact
of the budget is on our economy and whether or not it is
manageable is real net interest on--the real net interest
payments that we have to make relative to the size of our
economy.
And those real net interest payments run throughout the 10
years of the budget at around or under 1 percent of Gross
Domestic Product (GDP), which is historically normal.
So, debt is increasing, the size of the economy is
increasing, interest rates are moving back toward more normal
levels after a period of many years in which they were
exceptionally low. And yet overall, what you see in this budget
is real net interest on the debt, stabilizing at about 1
percent of GDP, which is a manageable and historically normal
number.
Senator Kennedy. So, $51 trillion of debt up from 33
trillion doesn't bother you?
Secretary Yellen. I think the path that has been set out in
the President's budget is fiscally sustainable.
Senator Kennedy. Okay. How much debt is too much? Tell me
that.
Secretary Yellen. Well, I just gave you the metric that I
think is best for assessing fiscal sustainability.
Senator Kennedy. Let me ask it in simpler terms. I didn't
follow you there. It is what percentage of our GDP--what debt
as a percentage of our GDP is too much?
Secretary Yellen. So, it depends on what interest rates
are. And real interest rates have been extremely low. This
budget and previous budgets have projected that they would move
up toward more normal levels over time, but certainly not the
levels that we saw several decades ago. And----
Senator Kennedy. Could you just answer my question, Madam
Secretary. What percentage of--what percentage of debt of our
GDP is too much?
Secretary Yellen. Well, this budget has debt held by the
public moving up to around 109 percent of GDP.
Senator Kennedy. And that is not too much, in your opinion.
Secretary Yellen. Historically, it is a high level, but on
the other hand, interest rates, real interest rates have moved
down substantially in recent decades. And so higher levels of
debt to GDP are sustainable with lower real interest rates. And
on balance, as I said, the interest burden of the debt is at a
level that is quite reasonable in historic terms.
Senator Kennedy. Madam Secretary, are you a Keynesian?
Secretary Yellen. Well, I don't quite know what you mean by
that, but I certainly----
Senator Kennedy. Do believe that it is acceptable, indeed
it is admirable for government when you are in a slow period of
recession or more than a recession to stimulate the economy by
spending--by borrowing money and spending.
Secretary Yellen. It certainly can be. I certainly----
Senator Kennedy. That is what I mean by Keynesian. Do you
support that?
Secretary Yellen. Well, there are different tools that can
be used to stimulate an economy that is in a downturn, and it
is--monetary policy is an alternative tool. And----
Senator Kennedy. But let me go back to my question. Keynes
said that when you are in a recession, you can borrow money and
spend it, government can, to stimulate the economy and get you
out of the recession.
Secretary Yellen. Well, I am not going to make a blanket
statement that I agree with that.
Senator Kennedy. Well, let me ask you if you agree with
this, a lot of people who say they are Keynesians, and based on
what I have read of your writings you are Keynesian, they
forget the second part of what Keynes said. He said, after you
get out of the recession, you pay the money back. Did he not?
Secretary Yellen. I don't recall that he said that.
Senator Kennedy. He said it. I will show you that one too.
Secretary Yellen. Show that to me.
Senator Kennedy. I promised the Chairman I wouldn't go over
and I want to yield back 2 seconds.
Senator Van Hollen. Thank you, Senator Kennedy. And I am
hoping that you would agree that all economists would agree
that it is a bad idea to default on our debt. As we still try
to figure out how to deal with these budget issues, I look
forward to a conversation. This has been a good, I think, good
discussion for all.
Thank you to the Members. Madam Secretary, thank you. And
the hearing is adjourned. Well, Madam Secretary, I have--
Senator Manchin has just arrived. I am going to give him
seven--I am going to, as I said earlier, Madam Secretary, I am
going to have to depart.
My other colleagues here may have to depart. This is--we
will give seven--thank you, Senator Kennedy. But, Senator
Manchin, you have got 7 minutes here, and I am going to--you
will close out the hearing, all right. Thank you.
Senator Manchin. Thank you so much. I am so sorry. Hello,
everybody. I am so sorry. I am glad you stayed. Madam
Secretary, I know we have an awful lot to talk about, and you
have been so kind in sharing and giving me some of your time in
the meeting with you. But I think on the record, I would like
to have a few things that we can talk about, on the record, and
make sure that we do.
First of all, you know, with all this going on and there is
a lot of talk about the bank and this and that, and I think it
was Senator Hagerty who was talking about over the $250,000. I
have been talking to a few colleagues and we were just
wondering if it is--and, you know, you said you haven't gotten
to that point yet.
So, let's say 90 percent of my West Virginia deposits are
under $250,000. And now they are going to pay a little bit
higher premiums, I guess, or higher bank fees or somebody is
going to pay. Is the bank absorbing that or will be passed on
to the consumer?
Secretary Yellen. Well, it is not obvious that it would be
passed on to the consumer. I suppose it could be, but it may
also be absorbed by the--it is a special one-time assessment--
--
Senator Manchin. If we are assuming that could happen, and
maybe it could be the consumers, okay. They understand, you
know, the bankers, I had all the community bankers in. What
they believe would be unfair, they said, listen, we are in good
shape. We move money around.
So, if we have a depositor that has $1 million, this one
banker says, you know, I will call three of my friends and say,
can I move $250,000 to you, $250,000 to you, and $250,000 to
you. We do that all the time to make sure everyone is covered.
That is my response.
He said, that is my risk responsibility, which made all the
sense in the world. So, I know a lot of tools that we already
have, but sometimes it is just bad banking practices. They all
come to the conclusion they felt the San Francisco Feds did not
do their job.
They thought they were, you know, laxed in basically what
they should have enforced. It was 8 months without a risk
manager at the bank, SVB, that they knew of. Is that factual?
Secretary Yellen. Senator Manchin, I am not involved--it is
the Federal Reserve in California that are involved in the
supervision of that bank. I am not involved. I have read some
newspaper stories about this, but this is not in the public
domain and I don't know.
Senator Manchin. Well, for the record, I think you did the
right thing when you all made your decision on taking care of
depositors, but not the bank bailout and not the shareholders
and all that. And I think there is a claw back. There is--you
understand there is legislation for claw back.
Secretary Yellen. Yes.
Senator Manchin. Because we think that there were nefarious
acts by those responsible to protect themselves and the heck
with our depositors and all the other people have fallen prey
to this. So, we are hoping that you all can look at that, maybe
give us your blessing.
Secretary Yellen. Yes, certainly.
Senator Manchin. And in the $250,000 above, I was just
going to ask you this, from $250,000 and above, it was--to me
the reasonability would be if I need to keep about $2 million
in the bank because of payroll and inventory reasons, and I
normally secure it at what $250,000.
I got a $1,750,000 at stake. Could I be able--should I be
able to buy or pay a little higher bank fee to get protection
up to the amount with a cap maybe at ten, something--I am
just--we have been talking, some Senators have been talking
back and forth. Could the FDIC, and I think they said it would
take the legislation----
Secretary Yellen. It would take a legislation.
Senator Manchin. I don't think we should do it without you
all involved showing us how to structure that. But if I could
go back to my bankers and says, for those businesses you might
have and even rural areas--they have to keep large amounts of
cash because they need that. Now that they know that they are
exposed, they would be the first ones to move to the bigger
banks.
Secretary Yellen. That is exactly right.
Senator Manchin. So, they are worried about that. And they
said if you could offer some type of insurance policy, that
they would pay for. So, the $250,000, 80 to 90 percent of in
rural areas, aren't going to be saddled with accommodating
somebody that needs that type of protection.
Secretary Yellen. I think often the uninsured depositors,
especially in community banks, are local businesses that have
payroll and can't manage with----
Senator Manchin. Does that type of evaluation make sense to
you? Does it make----
Secretary Yellen. I think this is very worthwhile, you
know, for you and your colleagues to be discussing what is
appropriate here, and we would be more than willing to work
with you to think this through. It is worthwhile. Look, we are
for the moment, we are trying to stabilize the situation using
the tools at our disposal. But there certainly are----
Senator Manchin. Yes, I mean, these are questions asked by
reasonable people in the business and they are just saying----
Secretary Yellen. Of course, yes----
Senator Manchin [continuing]. If you are going to do
something, rather than just now saying--they think if you set a
precedent now that they are expecting the feds to bail
everybody out, and I don't think that is what our intentions
are.
Secretary Yellen. I don't think that that is going to be
needed. But we don't want to see contagious bank runs and a
loss in confidence in our banking system, especially when the
banking system is overall for the United States, very sound.
Senator Manchin. And this--this subcommittee hopefully will
have Mr. Jerome Powell of the Feds telling us basically what
they have been able to do since the CBB has happened as far as
to enforce the oversight by the San Francisco Reserve and all
the different reserves we have around the country. If they are
looking at their more troubled areas, if you will.
Secretary Yellen. It has been announced that Vice Chair for
Supervision, Michael Barr, will do a thorough review of the
supervision of this bank.
Senator Manchin. Now, I know this is in your bailiwick,
okay. I know that the White House is currently working with the
EU on a limited trade agreement that will allow them to become
eligible for the first half of the EV credits.
What we are concerned about is, you know, I know the EU and
I am fine. I said, I don't have a problem with our allies. What
I have a problem with is going to countries that we don't have
what we would call a secure supply chain.
So, when we wrote the bill, we wrote, as you know I have
spoken about this before, we wrote it with free trade
agreements for us to have a free trade agreement, we knew there
had to be more of a--more of a confidence that we are going to
have a pretty good supply chain and not be held hostage.
Some of these other countries where an awful lot of the
minerals come from are not in the EU. If you are trying to
expand and the White House tries to expand that beyond, we are
back in that critical situation where we have unreliable supply
chains, where the Chinas, the Russias, the Irans, the North
Koreas, all the different people who have various trade
activities, they sometimes use unscrupulous tactics to hold
those people hostage.
And they have already had a pretty good stake in it. I can
assure you that was not the intent of how we wrote the bill.
Secretary Yellen. Senator Manchin, I understand that the
intent of the bill is that we should have secure supply chains,
and any agreements that we would look at, and of course we will
consult closely with you and with Congress, would be meant to
make sure that we are securing our supply chains as the
legislation is----
Senator Manchin. Well, you have been--we might respectfully
at times agree to disagree on some things, but at least you
have been kind enough to sit down and work with me, and I
appreciate that. And we want to keep that going. I think we
have furnished you with the concerns we had----
Secretary Yellen. Yes.
Senator Manchin [continuing]. With production, you know,
sourcing critical minerals, and processing versus the
manufacturing, and why we think there is a difference there,
and why we think it is imperative we keep that difference,
okay.
And if we don't keep that difference, then basically this
material, that they're considering part of the processing,
which goes in the manufacturing portion, does not go into the
processing at all. Processing is taking the raw materials, raw
minerals and processing them into a form, then goes into----
Secretary Yellen. And using it----
Senator Manchin. Okay. That is the differences. And we
think that is very clear. And more, hopefully, that before you
all come out with the rule and all that, we have more input in
that or we are on the same page because that one causes a lot
of problems.
Secretary Yellen. So, I believe we are on the same page. We
are working very hard on the rule and have said that we will
get this rule out by the end of March, where we are certainly
trying to meet that deadline. And have been consulting with you
and your staff and broadly understand----
Senator Manchin. One final question, since I haven't put
the clock on myself right now, but I am watching them go--don't
tell on me. One final question. Knowing what we have and how
critical the financial situation can be and just what the bank
thing, just that one thing, what it did to our psyche, if you
will, and our whole, could have unraveled so many things,
right, with the SVB and all that started.
When you don't have the financial house in order, right now
I would venture to say, what would you recommend we evaluate in
how we operate our Government and our finances of our
Government right now?
So, we are looking at all these other things. I hear about
stress testing and all the things that goes on to evaluate, are
they in a critical position or not? What do you think we could
do to look at how we operate here?
And I want to be very clear, the way that both sides,
Democrats and Republicans, are approaching the debt ceiling,
there is not one person as far as out of 100 Senators that I
truly in their heart believe that we should not hold anything
hostage about paying our debts, or missing that, or going into
default.
I really believe that in my heart. With that, I do not
believe it is unreasonable for my friends and colleagues on the
Republican side to say, can we sit down. Now if they are going
to say, I will not vote to raise the debt ceiling unless you
pass this, this, and this, I would not agree. That is a wrong
approach.
Would we sit down and we can agree that we should be
looking at these portions of our debt and how we have
accumulated so much debt so fast. We know what we did with
COVID. Take COVID out of the picture. We know what--how the
rest of it. Or do we know how the rest of it accumulated in
such a short period of time, especially since 2001. But even
looking at 2013, the last 10 years, it has been unbelievable.
And the projections from Office of Management and Budget
(OMB) doesn't quit. So, it scares the bejesus out of me and all
the trust funds. I am hopefully that we can come to an
agreement. And if you all would be receptive to considering,
should we come to an agreement, that we can basically look at
all of these things and within a 90-day period, come back with
some recommendations and get a vote either up or down?
We are not holding anything hostage. We are voting to pay
our bills. And all we have agreed on is we are going to put a
bipartisan, bicameral group together to look at trust funds and
look at the different things that are very vulnerable, the same
as you do with a bank when you send your examiners in.
Secretary Yellen. Senator Manchin, I believe being on a
fiscally sustainable course is critical for our Nation, and we
should sit down and have a very reasoned discussion about what
is necessary to accomplish that. The President has offered to
have discussions, but not with the sword of Damocles----
Senator Manchin [continuing]. Put forward, if you don't go,
if we don't--yes----
Secretary Yellen [continuing]. We are going to not pay your
bills and have financial and economic chaos.
Senator Manchin. If I was capable of bringing some people
together on both sides and says, listen, let's sit down and
talk about what we think, that we could basically come and look
at over a 3-month period to come back with a guaranteed vote on
the floor, if we make recommendations, you don't have to vote
for it.
And I they think, oh, it might be too toxic. I don't care
what you think, let's look and see how we get our finances in
order, because we are not right now. And knowing what happened
to the banks, you put all this in a concern, could that happen
to our country?
Secretary Yellen. Well, we should be stress testing our
fiscal just as we stress test banks. We should be looking at
what we----
Senator Manchin. But we don't, do we?
Secretary Yellen [continuing]. Think what will happen in a
base case, and what happens----
Senator Manchin. In worst case----
Secretary Yellen. In alternative better and worse
scenarios----
Senator Manchin. But I have been here for 12 years, Madam
Secretary, and I have not had that happen or anyone approached
me with that. So, I am glad that you have said that. And I
think that you are right on.
Well, I want you to know, I won't participate and will not
participate by holding anybody hostage. I will vote for the
debt ceiling. But I would vote with the understanding that at
least we can have a conversation with a guaranteed vote in 90
days on changes we think need to be made.
And I think that is a responsible, reasonable approach. So
hopefully you can talk to your--to the White House and I will
be talking to them, too, and seeing if they would agree to
something such as that.
Secretary Yellen. I mean, I know the President is open to
discussions on this topic.
Senator Manchin. Well, with that, sometimes it pays to be
late. I had so many--I am so sorry to keep you this--but let me
just say, I want to thank you, Madam Secretary, and your staff
for being so accommodating and forthright with us and coming
before and appearing before the subcommittee.
Our members will have one week to submit questions for the
record, which are due March 29. I would appreciate if your
office can respond to those questions as soon as possible.
ADDITIONAL COMMITTEE QUESTIONS
[The following questions were not asked at the hearing, but
were submitted to the agencies for response subsequent to the
hearing:]
Questions Submitted to Hon. Janet L. Yellen
Questions Submitted by Senator Bill Hagerty
Question 1. The SEC's ``dealer'' proposal would create a
quantitative threshold for the amount of Treasuries a firm could trade
without being forced to register as a dealer. I have significant
concerns with the negative impact this will have on Treasury liquidity.
My colleagues and I have sent letters to the SEC and to you on this
issue, but have not received sufficient responses.
--Secretary Yellen, may you please lay out the specific steps the
Treasury Department is taking to ensure the SEC isn't damaging
the Treasury market with this proposal?
Answer. Treasury is collaborating with its fellow members of the
Inter-Agency Working Group on Treasury Market Surveillance (IAWG),
which includes the SEC, to evaluate a range of potential policies to
enhance the resilience of the Treasury market. In November 2022, the
IAWG published a Staff Progress Report, outlining the significant
progress made towards its goals and highlighting ongoing workstreams,
including a discussion of the SEC's dealer and government securities
dealer registration rule proposal. As indicated in the Staff Progress
Report, the SEC's staff is considering comments received on this rule
proposal in making recommendations for the SEC's consideration.
Treasury will continue to work with the IAWG on this and other policy
options to enhance the resilience of the Treasury market.
______
Questions Submitted by Senator John Boozman
Question 1. FinCEN has received widespread criticism that its
proposed rule concerning access to the beneficial ownership registry is
not consistent with congressional intent when drafting the Corporate
Transparency Act. This criticism has come from across the political
spectrum and from the financial services industry, among others.
--Can you give me your commitment that you will work with me to
resolve these concerns?
--Will you ensure that FinCEN works with stakeholders and takes into
account the concerns raised by Congress, so they are faithful
to Congressional intent?
Answer. Yes. FinCEN appreciates all the comments submitted in
response to the beneficial ownership information access notice of
proposed rulemaking. In total, FinCEN received more than 80 comments on
the proposed rule and is carefully reviewing them. FinCEN is
considering the concerns raised in the comments and intends to remain
faithful to Congressional intent. FinCEN's priority is to implement a
highly useful beneficial ownership reporting regime, while minimizing
burden on reporting companies (particularly small businesses) and
financial institutions, consistent with the Congressional intent set
out in the Corporate Transparency Act (CTA). Because FinCEN in engaged
in an active rulemaking process, we are unable to comment further on
any particular policy decision at this time.
Question 2. Congress passed the Corporate Transparency Act (CTA) in
2020 to meet the goal of promoting financial transparency while
eliminating duplicative reporting requirements and reducing unnecessary
regulatory costs and burdens for financial institutions. As drafted,
FinCEN's proposed rule creates a framework in which banks' access to
the Registry will be so limited that it will effectively be useless,
resulting in a dual reporting regime for both banks and small
businesses.
--Will you work to ensure that FinCEN rectifies the redundancies and
inefficiencies proposed under the current rule and establishes
a more efficient framework that will allow financial
institutions to fulfill regulatory requirements and better
support AML/CFT compliance?
Answer. FinCEN's priority is to implement a highly useful
beneficial ownership reporting regime, while minimizing burden on
reporting companies (particularly small businesses) and financial
institutions, as required by the CTA. FinCEN understands the concerns
raised by commenters regarding access by financial institutions to
beneficial ownership information, as well as concerns about the
permitted uses of such information. FinCEN is reviewing comments to the
beneficial ownership information (BOI) access notice of proposed
rulemaking and is considering concerns raised by commenters as it works
to finalize the rule. FinCEN is engaged in an active rulemaking
process, so we are unable to comment on any particular policy decision
at this point.
FinCEN also expects that many issues raised by commenters will also
be considered in the future revision of its Customer Due Diligence
(CDD) Rule. The CTA requires FinCEN to revise the CDD Rule within 1
year of the effective date of the final beneficial ownership
information reporting rule. In revising the CDD Rule, the CTA directs
FinCEN to reduce unnecessary or duplicative burdens on financial
institutions and legal entity customers. FinCEN will consider revision
of the CDD Rule through a future rulemaking process that will provide
the public with an opportunity to comment on the proposal.
SUBCOMMITTEE RECESS
Senator Manchin. The subcommittee meeting will be adjourned
on that.
Secretary Yellen. Thank you.
Senator Manchin. Thank you.
[Whereupon, at 4:19 p.m., Wednesday, March 22, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2024
----------
WEDNESDAY, JULY 19, 2023
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:45 p.m., in
room SD-124, Dirksen Senate Office Building, Hon. Chris Van
Hollen (Chairman), presiding.
Present: Senators Van Hollen, Durbin, Coons, Manchin,
Hagerty, Collins, Boozman, and Kennedy.
U.S. SECURITIES AND EXCHANGE COMMISSION
OPENING STATEMENT OF SENATOR VAN HOLLEN
Senator Van Hollen. This meeting of the Senate
Appropriations Committee's Subcommittee on Financial Services
and General Government will come to order.
I would like to begin by thanking our Ranking Member,
Senator Hagerty, and the Members of the subcommittee for their
input and work in getting the FSGG Appropriations Bill through
our subcommittee and through the Full Committee last week.
I also want to take this opportunity to thank the Vice
Chair of the Full Committee, Senator Collins, for working with
the Chair, Senator Murray, to create the framework that allows
us to proceed and conduct our business. So thank you, and to
all the Members of the subcommittee and Full Committee, thank
you.
I think Members of the subcommittee know full well that
this subcommittee covers a broad array of agencies, lots of
agencies under our jurisdiction, and while we will not be able
to have an oversight hearing on every single one of those
agencies, we will be working to conduct more oversight hearings
over some of the biggest ones, including today, the SEC.
As part of the Appropriations process, we did not fully
fund the SEC's request, but I worked with Ranking Member
Hagerty to propose what we thought adequately supported the
SEC's needs to ensure market transparency and ensure the
integrity of those markets. The fiscal year Bill this Committee
passed last week includes $2.4 billion for the Commission.
Today, we welcome the Chairman of the SEC, Chairman Gary
Gensler. Gary Gensler was born and raised in Baltimore City,
and besides picking the right State to be born in, just a
matter of good fortune, Mr. Gensler also has many earned
qualifications that bring him to the position he now holds.
Mr. Gensler served as the 11th Chairman of the Commodity
Futures Trading Commission, CFTC, and has been a leading
national expert on blockchain and other modern finance issues.
He served as a professor of the Practice of Global Economics
and Management at MIT. He also has considerable experience from
his time in the private sector as a partner and co-head of
finance at Goldman Sachs. Those are just a few of the
touchstones of Mr. Gensler's experience that brings him to this
position.
Chairman Gensler has led the SEC with a focus on
transparency and adaption to changing market conditions. I
particularly appreciate the updates he has made to insider
trading disclosure with last year's revisions to Rule 10b5-1,
on insider trading, an issue that Senator Fischer and I have
worked on together.
I also appreciate Chairman Gensler's partnership in the
implementation of the Holding Foreign Companies Accountable
Act. This was bipartisan legislation. I was pleased to team up
with Senator Kennedy, also a Member of this Committee, to
require that all companies that are listed on U.S. exchanges
comply with the same auditing standards that apply to U.S.
companies.
Companies based in China had been playing by their own set
of rules, and I want to commend Mr. Gensler and the team at the
Public Company Accounting Oversight Board, PCAOB, for ensuring
compliance with the requirements of this new law. I know, Mr.
Chairman, that this is an ongoing effort.
Senator Kennedy and I also hope to ensure that Chinese
companies that trade on our exchanges, and all foreign public
companies trading on our exchanges are held to the same insider
trading disclosure rules as U.S. companies, and we believe that
the Holding Foreign Insiders Accountable Act will be part of
this year's Senate National Defense Authorization Act we hope
to pass next week. And again, I want to thank Senator Kennedy
for his leadership in this effort.
Under the leadership of Chairman Gensler, the SEC has
responded to changing market conditions, which are only
becoming more complex. Industries like digital assets and
crypto currencies have evolved rapidly, growing by billions of
dollars, in large part due to everyday retail investors seeking
to grow their wealth. It is critical that the Commission have
the flexibility to pursue bad actors in our capital markets,
like FTX, which reportedly profited by improperly acting as an
exchange platform and defrauding countless investors.
I also know the SEC is taking lots of public input as it
seeks to respond to the growing market demand for material
information about environmental, social, and governance issues.
Our institutional investment community has also asked for this
transparency, and markets are responding and evolving, as
should our regulators.
There are also many issues regarding new innovations,
especially AI, that could impact the markets for good or for
ill. Chairman Gensler gave an important speech about that, I
believe just yesterday.
These, colleagues, are just some of the issues I hope we
can cover today. And before I turn the floor over to Chairman
Gensler, I recognize Senator Hagerty for his opening remarks.
And again thank him for his help as we move this legislation
through the Full Committee and onto the floor.
OPENING STATEMENT OF SENATOR BILL HAGERTY
Senator Hagerty. Chairman Van Hollen, thank you. And I want
to thank your staff as well for our partnership through this
appropriations process. I think we have made a lot of progress
and I appreciate you holding this important hearing today.
Chairman Gensler, I want to welcome you. I look forward to
your opening statement as well.
Last week, the Full Committee approved the fiscal year 2024
Financial Services and General Government Appropriations Bill
by a vote of 29-0, which is no small feat. The last time the
Committee unanimously approved the FSGG Bill was in September
of 2019. And interesting, that was the last time that the
Chairman of the SEC came before this subcommittee. So we are
pleased to see you here today.
As I mentioned, the last time the subcommittee met, my top
priority as Ranking Member is to work with my colleagues to
conduct rigorous oversight, strengthen U.S. financial markets,
and ensure that taxpayer dollars are spent responsibly. The
American Financial system is one of our greatest assets and
advantages, and having access to deep liquid markets has been
critical to our role as the world leader in innovation and
economic prosperity.
Congress is currently debating the SEC's budget for fiscal
year 2024, which is significant. I am familiar with the day-to-
day administrative work of the agency and have great respect
for the career staff. We need to fund that work. My concern,
however, is when the agency diverts these resources and spends
these dollars on initiatives not even within the authority of
the SEC.
And here are a few specific examples. Chair Gensler, your
climate change proposal, many sophisticated commentators
believe that this is well beyond the SEC's authority. We know
it is costly, meaning tens of billions of dollars, or more, as
companies struggle to comply. We know small firms will,
particularly, be hurt. We also know it is unlikely to provide
meaningful insight for return-oriented investors, but it will
be a bonanza for the lawyers who will have a new cottage
industry.
Yet, the SEC blindly pushes ahead, consuming vast resources
now, and that will be compounded when the inevitable lawsuits
come pouring in.
Then there are the actions concerning shareholder proposals
and proxy advisors. A study from Harvard Law School showed that
five individuals account for roughly 40 percent of all
shareholder proposals here. That is a remarkable concentration
of power. Fifty million households have to consider the whims
of five individuals.
The SEC had made progress on limiting this abuse of power,
but this was reflexively undone in 2021 with no study,
increasing the number of PEP proposals flowing in, and even
allowing shareholder proposals that would require companies to
break the law, because shareholder proposals are so inexpensive
to create, because shareholder proposals are now flooding the
zone, as a result, investors turn to so-called proxy advisors
for voting recommendations.
Many, in effect, outsource their voting to these proxy
advisors. The two leading firms are a duopoly, both foreign-
owned, wielding vast influence over American public companies,
which creates many obvious conflicts.
Mr. Chairman, your predecessor, Jay Clayton, after lengthy
public comment, made changes to the regulation of these proxy
advisor firms, requiring them to be more transparent and to
give companies time to correct proposals' errors, including
those that recommend votes for proposals that would require
them to break the law. You took away that transparency and the
opportunity for better information.
So by virtue of your actions, you increase the business of
the proxy firms, made them less accountable, and reduced the
quality of information available to shareholders. This too is
now being litigated over whether, through this process, you
failed to follow the Administrative Procedure Act.
Regardless of the outcome, I can tell you that these so-
called ``proxy advisors'' are making our financial markets
significantly weaker and less democratic.
There are other examples: shortened comment periods,
creating related proposals as separate to avoid considering the
cumulative and combined effects, introducing new Final Rules
that include key points not in the proposal subject to public
comment, the list goes on.
This issue is not unique to the SEC. Like Lina Khan at the
FTC, ignoring procedural requirements and losing in court,
seems to be worth the price to push our markets to the left. In
fact, in the enforcement arena, it seems willing to bring cases
that you must know have very high odds of losing. And perhaps
you think making a statement is worth the loss.
Well, what do you say to the person who has to defend
themselves in one of these messaging cases? Do you apologize?
Do you thank them? There is no good answer here, because in
America, we should never use our law enforcement authority on
innocent people to make statements, and we certainly shouldn't
hamper the efficiency and competitiveness of our capital
markets to score political points.
While we need referees that enforce the market rules and
punish bad actors, I am concerned that the SEC has moved well
beyond its role as a market regulator, and is seeking to make
policies that are both beyond its authority and destructive to
our economy.
In summary, this Committee's job is to ensure the SEC has
the resources it needs to fulfill its statutory duties, and
that it is using those resources appropriately.
And your job, Mr. Chairman, is to be a responsible steward
of those resources and stay within your boundaries.
I am concerned that that is not happening. This requires
accountability, yet inadequate responses to Congressional
directives and questions, including many that I have sent
myself, suggest a resistance to accountability. And that makes
today's hearing all the more important.
So I look forward to your opening statement, Mr. Chairman,
and to the opportunity to discuss these matters further. Thank
you.
Senator Van Hollen. Thank you, Senator Hagerty, and I don't
know if the Vice Chair wants to--okay, thank you.
So let me just turn the floor over to you now, Chairman
Gensler, for your statement. If you could keep it within 5
minutes, that would be helpful to the Committee. And I should
say, if you see Members popping up and down, we are going to
have a series of five votes, so we will probably be playing a
little musical chairs up here. But please begin.
STATEMENT OF HON. GARY GENSLER, CHAIRPERSON
Chairman Gensler. Thank you and good afternoon, Chair Van
Hollen, Ranking Member Hagerty, Vice Chair Collins, and Members
of the subcommittee. Thank you for inviting me here to testify
today on the Securities and Exchange Commission's fiscal year
2024 Budget Request.
And as is customary, I would like to note that my views are
my own, as Chair of the SEC, I am not speaking on behalf of my
fellow Commissioners or the SEC staff. I also wrote this
myself; it was not done by generative AI. Just to make that
clear.
I really, I want to thank this Committee for the approval
last week of the funding the SEC at the levels that you just
mentioned. While that funding would allow the SEC to continue
to operate at its current level, it is $73 million less than
the fiscal 2024 request. Thus, I just want to--the testimony
that I submitted for the record is the full President's budget
request.
Just to put it in context, the difference, what it will
mean is; we will not be able to hire additional staff. I think
we put in for about 170 more people, and some additional
important technologies to watch out for the investing public
process tips, review public company disclosures. But again, I
do appreciate it, and if it helps, getting a unanimous vote, I
will come back any year you want, Chair Van Hollen and Ranking
Member Hagerty.
To put all of this in context, the SEC now, though, is just
about 3 percent larger than it was 7 years ago, in 2016, in
terms of headcount. The bulk of this year's budget request
would be to support currently authorized staffing levels given
inflation. The SEC is critical to the American public. For 90
years, the Federal Securities Laws, and the work to oversee
them, have played a crucial role in good times and in bad
times, in times of stress, and the laws benefit investors,
issuers, and the markets in the middle.
I think the core principles of U.S. Securities Regulation
have contributed to America's economic success and geopolitical
standing. And that is really the key for our future
generations. The agency's clients are ultimately 330 million
Americans, your constituents, who invest in their 401(k)s,
IRAs, trade through brokerage apps, take out mortgages, auto
loans, robo-advisers, and the like, and access the capital
markets with good ideas to build businesses.
We have seen tremendous growth and change in our markets,
and more people than ever participating. Just in the last 5
years, the number of clients of investment advisors grew 70
percent. During the same period, average daily trading in the
equity markets have more than doubled.
Technology is also rapidly transforming our markets and
business models, whether it is electronic trading, the cloud,
artificial intelligence, of course, predictive data analytics.
And the Chair also mentioned things about, what I would call,
not your words, the Wild West of the Crypto Markets, rife with
noncompliance, where investors have put hard-earned assets at
risk in a highly speculative asset class.
Such growth and rapid change also means more possibility
for wrongdoing. As the cop on the beat, we must be able to meet
the match of bad actors. Thus, it takes a sense, takes time,
and it makes sense for the SEC to grow along with the
expansion. Again, we are just about the size we were 7 years
ago.
With the Committee's help, this year, for fiscal 2023, we
were able to get appropriated funds to add 400 positions that
is on a base of about 4,500. And given the Appropriations'
timing, the bulk of the hires are still being on-boarded during
the second half of this year. Thus, the fiscal year 2024
request seeks the full-year funding for those staff, plus 170
more.
I also want to mention our efforts to reduce costs. We have
worked with GSA to right-size our leasing footprint, and we
will vacate one of our three headquarter buildings here in
Washington; they are right by each other. But we think this is
important. This will save about $14 million per year in
savings. We are looking at other right-sizing around our 11
Regional Offices.
As this committee continues its work, it is worth noting
that the SEC's funding is deficit-neutral. We charge fees, and
that covers our full cost. And this has been since the 1930s.
Two years into this role, I am so grateful to work
alongside remarkable staff and my fellow Commissioners, to help
maintain America's capital markets, the best in the world. We
can't take the leadership for granted, though, and so the
fiscal year 2024 budget request would give the agency the
resources to better protect the American public.
I am pleased to take your questions.
[The statement follows:]
Prepared Statement of Gary Gensler, Chair,
Securities and Exchange Commission
Good afternoon, Chair Van Hollen, Ranking Member Hagerty, and
members of the Subcommittee. Thank you for inviting me to testify today
on the Securities and Exchange Commission's fiscal year 2024 budget
request. As is customary, I'd like to note that my views are my own as
Chair of the SEC, and I am not speaking on behalf of my fellow
Commissioners or the SEC staff.
protecting the public for 90 years
The SEC is critical to the American public. For 90 years, the
Federal securities laws--and our work to oversee them--have played a
crucial role in good times and in times of stress. These laws, the
first of which was enacted in 1933, benefit investors, issuers ranging
from startups to multinational corporations, and the markets in the
middle. The core principles of U.S. securities markets regulation have
contributed to America's economic success and geopolitical standing
around the globe.
This agency's clients are the 330 million Americans--your
constituents--who invest in their 401(k)s and IRAs, trade through
brokerage apps, take out mortgage or auto loans, or use robo-advisers.
They're also Americans accessing the capital markets to fund their
businesses from small to large, their new ideas and innovations. We
oversee broker-dealers; stock exchanges; clearinghouses; investment
companies, such as mutual funds and exchange-traded funds; investment
advisers; and public company issuers, among other participants in our
financial markets.
It's for the investing public and issuers that our staff must
continue to drive efficiencies, help promote for financial stability,
and modernize our rulesets for today's $100 trillion capital markets as
well as today's technologies, in a manner consistent with our
Congressional authorities.
Growth and Change in the Markets
We've seen tremendous growth and change in our markets. More people
than ever are participating--trading and using tools and technologies
that were unavailable even a few years ago.
For example, from 2017 to 2022, the number of clients of registered
investment advisers grew nearly 70 percent from 34 million to 57
million. During that same period, average daily trading in the equity
markets more than doubled from more than 30 million transactions to
more than 77 million.
Technology is rapidly transforming our markets and business models.
These changes range from electronic trading and the cloud to artificial
intelligence and predictive data analytics, just to name a few. There
has been dynamic change in communications to and among investors, from
Reddit forums to celebrity influencers. Further, we've seen the Wild
West of the crypto markets, rife with noncompliance, where investors
have put hard-earned assets at risk in a highly speculative asset
class.
Such growth and rapid change also mean more possibility for
wrongdoing. As the cop on the beat, we must be able to meet the match
of bad actors. Thus, it makes sense for the SEC to grow along with the
expansion and increased complexity in the capital markets.
I am proud of this agency. I am proud of our dedicated staff. It
has done remarkable work with limited resources. With funding to meet
the scale of our mission, we can be an even stronger advocate for the
American public--investors and issuers alike.
Further, while recent market volatility raises many important
issues for policymakers and the American public, it is also a reminder
of the SEC's need to be adequately resourced.
budget request
I am pleased to support the President's fiscal year 2024 request of
$2.436 billion for SEC operations, to put us on a better track for the
future. The bulk of the increase would be to support currently
authorized staffing levels given inflation. In addition, we've
requested $39.6 million for needs supporting General Services
Administration (GSA)-led real estate projects.
Though in this testimony I'm discussing the full request, I want to
thank this Committee for its bipartisan approval last week on the bill
that would fund the SEC at $2.364 billion, which would allow the SEC to
continue operating at its current level.
To put this in context, with this Committee's help, fiscal year
2023 funding for the first time would bring the agency's staffing back
above where we were 7 years ago. The SEC this year is expected to be
approximately 3 percent larger than it was in fiscal year 2016.
Meanwhile, the demands on our talented staff have grown dramatically.
The agency's oversight function is vast. In addition to the
approximately 40,000 entities I mentioned above, we oversee credit
rating agencies, the Public Company Accounting Oversight Board, the
Financial Industry Regulatory Authority, the Municipal Securities
Rulemaking Board, the Securities Investor Protection Corporation, and
the Financial Accounting Standards Board.
In fiscal year 2023, the number of positions funded by Congress was
5,303, a much-needed increase of 400. We're now in the process of
filling those positions. The fiscal year 2024 request seeks funding for
an additional 170 positions, as well as full-year funding for those
staff hired in fiscal year 2023. Considering full-time equivalents
(FTEs)--or actual time worked--the fiscal year 2024 request would
support 5,139 FTEs.
As this Committee considers its work, it's worth noting the SEC's
funding is deficit- neutral; appropriations are offset by transaction
fees.
The SEC has 30 Divisions and Offices across our 11 regional
locations and Washington, DC headquarters. I'm summarizing below the
budget requests for our six Divisions and will briefly touch on
technology and real estate. For further details as well as a review of
the other offices of the SEC, please reference the fiscal year 2024
Congressional Budget Justification.\1\
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\1\ See Securities and Exchange Commission, ``Fiscal Year 2024
Congressional Budget Justification'' (March 10, 2023), available at
https://www.sec.gov/files/fy-2024-congressional-budget-
justification_final-3-910.pdf.
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Full-time equivalents (FTEs) at the SEC and in individual Divisions.
Overall SEC FTEs include all Offices and Divisions.
enforcement and examinations
The Divisions of Enforcement and Examinations account for about
half of the SEC's staff. Without examination of compliance with and
enforcement of our rules and laws, we can't instill the trust necessary
for our markets to thrive. Stamping out fraud, manipulation, and abuse
lowers risk in the system. It protects investors and reduces the cost
of capital. The whole economy benefits from that.
Division of Enforcement
The SEC received more than 35,000 separate tips, complaints, and
referrals from whistleblowers and others in fiscal year 2022. To give
context, this is more than double the number we received in fiscal year
2016.
During the same period, the Division shrank 5 percent.
Even with limited resources, the Division brought more than 750
enforcement actions in fiscal year 2022, a 9 percent increase over the
prior year. Our actions resulted in orders for $6.4 billion in
penalties and disgorgement.
Meanwhile, rapid technological innovation in the financial markets
has led to misconduct in emerging and new areas, not least in the
crypto space. Addressing this requires new tools, expertise, and
resources.
The additional staff will provide the Division with more capacity
to meet these challenges, investigate misconduct on a larger scale, and
accelerate the pace of enforcement investigations to resolution.
This year's request would grow the team and get the Division to
just 4 percent more than it was in fiscal year 2016.
Division of Examinations
The Division of Examinations serves on the front lines to help
ensure firms comply with the law.
In fiscal year 2022, we conducted more than 3,000 examinations
across our tens of thousands of registrants, from investment advisers
to broker-dealers to exchanges, to ensure they are following their
legal obligations to customers, including seniors and other vulnerable
investors.
Importantly, the Division is the first line of defense for the
investing public relying on investment advisers. Their numbers have
grown significantly in the last 5 years. Registered investment advisers
grew by 20 percent--to about 15,000, up from approximately 12,500 in
2017. During the same period, the number of private funds advised by
registered investment advisers increased by 50 percent to approximately
50,000. This stretches thin the limited resources of the Division.
Further, we work in parallel with self-regulatory organizations to
examine registered broker-dealers; in each of the last 5 years, we
jointly examined nearly half of them--even as the number of daily
transactions in the equity markets more than doubled.
Our fiscal year 2024 request would help the Division grow to 1,144
FTEs, allowing it to keep pace with the market challenges of the last
decade. The majority of this increase relates to full-year funding for
those staff positions authorized and hired in fiscal year 2023.
These additional resources would strengthen the Division's ability
to protect American families by addressing risks in the crypto markets,
cyber and information security, and the resiliency of critical market
infrastructure.
programmatic divisions
Next, I will turn to our three programmatic Divisions.
Corporation Finance
The Division of Corporation Finance oversees the disclosures of
public companies so that investors can make informed investment
decisions. It's important for investors to receive useful, timely, and
accurate disclosure.
During the last 3 years alone, the number of reporting companies
the Division oversees has increased by 18 percent to 7,836, primarily
due to initial public offerings. In addition, merger activity has more
than tripled 2020 levels in the last two fiscal years. In contrast, the
Division's staff is still approximately 17 percent below fiscal year
2016.
Today's budget request would grow the team to 454 FTEs. With this
increase, the Division still would be 5 percent smaller than it was in
fiscal year 2016. Nonetheless, additional resources would allow the
Division to serve investors more ably as markets grow and evolve.
Investment Management
The Division of Investment Management oversees the funds and
advisers that steward nest eggs for millions of American investors.
It oversees more than 30,000 registered entities, including more
than 17,000 registered funds and 15,000 investment advisers.
As discussed earlier, we've seen significant growth in the number
of investment advisers and private funds. Further, the assets managed
just by private funds, now at approximately $25 trillion in gross
assets, have surpassed the size of the entire U.S. commercial banking
industry of approximately $23 trillion.
Overall, the combined assets managed by registered investment
companies, private funds, and separately managed accounts the Division
oversees has surpassed $100 trillion. Given this growth in the markets,
we've asked for funding to support 238 FTEs.
Trading and Markets
The Division of Trading and Markets serves on the front line for
maintaining fair, orderly, and efficient markets. Market monitoring and
supervision are essential parts of the Division's activity--especially
during times of market stress.
The markets and the market participants we oversee represent a
significant and growing number of market transactions as well as volume
of trades. The Division oversees more than 3,500 broker-dealers, 24
national securities exchanges, 99 alternative trading systems, 50
security-based swap dealers, and seven active registered clearing
agencies, among other entities. Further, the Division is responding to
an increasing number of public inquiries, up by more than 67 percent
since fiscal year 2019 to approximately 20,000 inquiries in fiscal year
2022.
In fiscal year 2024, we've requested 309 FTEs to support this
important function of the Commission.
economic risk and analysis
Economic analysis is critical to all of the agency's work. The
Division of Economic and Risk Analysis supports the Commission in every
role, whether it's enforcement or examinations, monitoring the markets,
or rulemaking.
In the Enforcement context, the Division's staff is instrumental in
identifying potential wrongdoing, assessing ill-gotten gains, and
working to return funds to harmed investors.
The Division's economists are involved in every aspect of the
agency's rulemaking. Proposing and adopting releases include economic
analyses that consider the costs and benefits of our rules as well as
their effects on efficiency, competition, and capital formation. Those
analyses are included in proposing releases that are put out for public
comment, and staff throughout the agency actively engages with the
public to receive input, including on the economic analyses.
Fiscal year 2023 has gotten us to modestly above where we were in
2016 for FTEs. Given the critical nature of the Division's work,
though, for fiscal year 2024, we've asked for funding to support 198
FTEs.
additional matters
Technology
We live in transformational times. The amount of data analysis that
the SEC processes in the Division of Enforcement alone has grown 20
percent year over year for the last 3 years. Cyber threats have placed
our financial sector on high alert. As technologies evolve, it is
important that the SEC's information technologies follow suit.
Thus, we have requested $393 million to support the Commission's
data analysis, cybersecurity, and other IT needs. This request assumes
full use of an additional $50 million from the SEC Reserve Fund for
multi-year IT projects and programs. To put these figures in context,
this spending is dwarfed by what some of the biggest market
participants spend in a month on technology.
Real Estate
Another important part of our budget is for offices and leases. We
have offices in Washington, DC, and 11 other places. The total cost in
fiscal year 2023 was 5 percent of our budget.
Over the years, we've worked with the GSA to rightsize our leasing
footprint. In the last 9 years, we have shed 140,000 rentable square
feet across our facilities. We are in the process of shedding another
30,000 rentable square feet in our San Francisco and Fort Worth
regional offices.
Further, we are preparing to vacate one of our three headquarters
buildings in Washington, DC, by the end of this fiscal year, resulting
in a reduction of 210,000 square feet of space and approximately $14
million per year in savings.
The GSA also secured a new lease to move the SEC headquarters in
Washington to another building. The separate fiscal year 24 request of
$39.6 million would support GSA's work on buildout and move-related
costs for this effort and for the replacement lease for our Atlanta
office. The SEC proposes to offset these costs with fee collections and
return any unused amounts to fee payers or the Treasury after project
completion.
With the finalization of a new Collective Bargaining Agreement, we
look forward to reassessing our facility needs and working with GSA on
efforts to relinquish additional space it deems marketable in the
coming years.
conclusion
Two years into this role, I am grateful to work alongside this
remarkable staff and my fellow Commissioners to help maintain America's
capital markets--the best in the world. We can't take our leadership in
capital markets for granted, though.
The SEC is working hard day in and day out to keep pace with the
dramatic growth and change in the markets. This fiscal year 2024 budget
request would give the agency resources to better protect the American
public.
I thank the Committee for providing me the opportunity to summarize
this budget request. I am pleased to take your questions.
Senator Van Hollen. Thank you, Chairman Gensler. And I
think what we will do, is we will have 6-minute rounds of
questions. And if people want more than one round, we will try
and accommodate that as well.
So Mr. Gensler, you talked a little bit about the ``Wild
West of Crypto Currencies''. I would like you just to take a
few minutes to talk about some of the fundamental issues at
stake here, and the issues of jurisdiction regarding the SEC,
the CFTC, which you used to chair, and how we deal with these
entities that people are trying to figure out whether they are
fish or fowl.
Chairman Gensler. I thank you for that. The investing
public, not just here in this country, but around the globe,
has taken an interest in these crypto assets, the so-called
crypto tokens or currencies. And generally speaking, there is
some, group of entrepreneurs behind those projects.
And what we have in America is laws that are clear, that
are on the books, that if you are raising money from the
public, and the public is anticipating profits based on the
efforts of others; that comes under the Securities laws. This
is something that was written in the 1930s, but as recently as
Supreme Court Justice Thurgood Marshall wrote an opinion about
40 years ago, that Congress painted with a broad brush to
protect the investing public.
And so at the core, that is a question: How many of these
15- to 20,000 tokens have attributes that they are investment
contracts under the law? Investment contracts are part of the
Securities Law, and many of them have a group of entrepreneurs
in the middle, and investors are anticipating profits based on
the efforts of that group of parties.
And then there are the companies that then are facilitating
investment in it; they can call themselves crypto lending,
crypto trading, and the like. We at the SEC have very robust
authorities around these platforms. You asked me about my
current job--my former job, a great agency, I was so proud to
chair that agency too, the CFTC, doesn't have similar
authorities.
So to the extent that some tokens are not what I might call
crypto security tokens, but they are non-securities, our sister
agency, our sibling agency, under Chair Benham, has authorities
over there, but they are not, they are frankly not as robust as
what we have.
We are a disclosure-based regime, and if I can close on
this, we are a disclosure-based regime, and so when the
investing public is anticipating profits based on the efforts
of others, it is best that those others, you know, give full,
fair, and truthful disclosure. This is a field that has been
rife with fraud, and scam, and hucksters, there are also good-
faith actors.
Our goal at the SEC is to bring the field into compliance
within the Securities Law where these tokens--and not
prejudging any one of them--where they are securities, and then
the platforms themselves, that they come into compliance,
rather than what they are doing, often now, out of compliance,
is not protecting the investing public against fraud
manipulation, commingling their functions, and often in
conflict with their investors, trading against their investors.
Senator Van Hollen. Well, as you know, I think we, on a
bipartisan basis, think this is an important, ongoing
conversation about the contours of policy. I just want to
express my thanks to you and your team at the SEC, for being
important cops on the beat, and exercising the authorities that
you do have under current law, to go after bad actors that are
attempting to defraud investors and the public. We talked a
little bit earlier, offline, about the issues of whether or not
your budget can accommodate new technology investment, right?
And we are talking about cryptocurrency, which we weren't
talking about, at least here on the Hill, 10 years ago.
Technology obviously is always on the move. I guess my question
to you is where do you see the SEC's budget capacity going when
it comes to keeping up with technology? And if you could also
take a moment to comment on the AI, both risks and/or promise.
Chairman Gensler. So as you mentioned, we have about, for
2024, looking for about looking for about $2.4 billion, all
paid for by transaction fees. But only about one out of 6
dollars, or about $400 million of that is technology. Often to
keep up with the Legacy systems that we have, and we could,
certainly, with this Committee's help in Congress' helped, use
more in the technology area.
In terms of artificial intelligence, I think it is the most
transformative technology of our times, every bit as
transformative as the Internet in the 90s, but the mass
production of automobiles in the 1920s. I mean, I think it will
change the job markets, it will be--have to be consideration
for other members, and other responsibilities around national
security, and geopolitical competition, and so forth.
But as it relates to finance, just as it relates to the
SEC, I would mention three quick things: One, fraud is fraud.
If you use artificial intelligence to deceive the public, it is
still under the Securities laws. Two, with the algorithms,
parties are now thinking about optimizing the communications to
investors, not just on what is good for the investors, but
maybe what is good for the advisor or broker-dealer. And it
will still have to put the investor first, not the robo-
advisor, or robo-broker first.
And thirdly, I do think, longer-term, it is going to create
fragility, and the financial crisis of 2028 or 2033, somebody
is going to turn around and say, well, I didn't realize that
all these algorithms are based upon some base foundation model,
and the mortgage market all went one way, maybe, or this
market.
I am not trying to predict which market, but these, the
economics of artificial intelligence, I think, will lead to
one, two, maybe three base models. And it is simply because it
takes so much computational power, so much data, and what is
called network effects. And artificial intelligence is really
going to drive a lot of efficiency. It will probably boost some
productivity, boost our economic growth, but there are also
these challenges.
Senator Van Hollen. Well, thank you. We hope we can work
with you to get ahead of them as much as possible.
Senator Collins.
Senator Collins. Thank you very much, Mr. Chairman.
Chairman Gensler, you have stated in the past that you
believe that there is benefit to being in the office. Today you
told us that the SEC will be getting rid of one of its three
buildings in which its employees work. And in February, the
SEC's employee union reached an agreement with the agency that
requires employees to return to the office only 2 days for each
pay period, that is 4 days per month.
Now, I will quickly concede that there are some jobs that
can be done remotely, but when you are serving the public, when
you are helping to protect consumers, when you are dealing with
large financial firms, you need people to be at work. You need
people to be in the office. You need people to benefit from the
conversations that they have with their fellow staff members
and regulators.
So I guess my question would be, why did the SEC agree to a
policy that is going to result in so few employees actually
coming to work only 4 days a month? That strikes me as not
serving the public.
Chairman Gensler. So if I might, I appreciate the question,
and let me just start with, the workforce, the staff, I
couldn't be prouder of the SEC workforce. We have had a very
robust work-from-home policy before COVID that was not as--not
the one that you just mentioned, but was 6 days in the office
out of a pay period and so forth. And then COVID came, and we
actually found that the staff could be quite productive.
And then the bargaining unit, in good faith, bargaining
with management, we ended up, this is a matter of record, at
impasse over these matters, and the impasse panel came out with
where we are, which you accurately said, 2 days at a minimum in
the office. But there are also provisions in the arrangements
that, for examinations, for enforcement, for other parts of the
agency, where it is appropriate, management can call in and we
do on-site examinations of financial advisors and--I am sorry--
investment advisors and the like.
So we have found, during this period, this sort of forced-
upon-us period in 2021 and 2022, that our productivity was
quite strong, and the staff, the dedicated staff, continued.
But, as I say, we did end up bargaining in good faith, and this
is where we landed.
Senator Collins. Well, this does not strike me as a good
deal for the taxpayers or for the consumers that you are
charged with protecting. I understand that some employees are
at the job site; that makes sense to me. I also understand that
there are some jobs that can be done effectively, fully remote,
and under this employee contract, individuals who are in
positions that are fully remote will not be required to return
to the office at all. Surely, there is a need even for fully
remote individuals to come to the office for meetings
occasionally.
I am just concerned as we have seen at the IRS, and the
Social Security Administration, that what happens is consumers
get the short stick, and that the individuals, the companies,
and financial advisors whom you are regulating are going to
find it difficult to get information. And many of them have
brought their employees back to work, and they are certainly
back to work more than 4 days per month. So I want to express
directly, too, my deep concern and disappointment about that
agreement.
I want to turn quickly to another issue, and that has to do
with your rulemaking process. And I would associate myself with
some of the comments made by the Vice Chair on whether
stakeholders are being given adequate time to respond to new
rulemaking, whether provisions are being included in the Final
Rule that were not in the Proposed Rule, and whether or not
there is sufficient input going from the public and from the
regulated into your rulemaking.
So if you could respond to how your current process tracks
with your prior SEC practice.
Chairman Gensler. We put proposed rules out to notice and
comment, according to the Administrative Procedures Act, and we
put economic analysis in. On average, I am just looking at some
notes here, but on average, from the time that we vote on
something, it has been about 70 to 75 days out to public
comment.
What we also find during that two or two-and-a-half months,
that is kind of the first deadline, but there are some people
that will continue to send in comments, and we do, as best we
can, to continue to take meetings and talk about. And this is
just an average, just to give you a sense. But on average, it
is about 13 months between proposing a rule and finalizing a
rule.
Now, some of them take a-year-and-a-half, some we never
finalize, but I am just saying, on average, it is about 13
months. And so, on average it has been about two-and-a-half
months that the formal period is, and then we continue to take
meetings and have input. We document it in the file, of course.
Even these discussions here today, only one of five
Commissioners, but the discussions we will have here today will
influence me as a Commissioner, as we think about that Final
Rule.
Senator Collins. Thank you, Mr. Chairman.
Senator Durbin. After the questioning by Senator Collins, I
want to say for the record that Senator Van Hollen is here
today. He had to go vote on the floor, and he will be
returning.
Senator Manchin.
Senator Manchin. Thank you, Mr. Chairman. And Chairman
Gensler, thank you for being here. I think you know, I sent a
letter to you concerning on the SEC's ruling, if you will, or
presumed ruling, and we talked briefly about that. So what I
really wanted to do is make sure that we have the Scope 3
emissions.
I have a big--I have really hard concerns about the ESG
because if ESG is not taken with the same light that,
basically, geopolitical unrest that we see around the world,
you are putting us in a very unfair advantage--or
disadvantage--can be very harmful. I say that because friends
that I have over the UK, when it came to survival, when it came
to freezing to death, or basically being able to maintain any
type of quality of life with all the stresses because of the
Ukraine war, they threw all caution out the window.
And I think, you know, because they were just trying to
survive, so the environment took a way, way far back seat. And
if we do it properly, if we have a balance between the energy
and the economy, we should never get in that disproportionate,
unbelievable situation.
So on that, really, my letter addresses those concerns, and
if you all could give it to consideration as far as the Scope 3
emissions, it could really be devastating to the smaller
operations; and if I am understanding, you all have already, I
think, evaluated. You have, of the 500 largest Russell 1000
Index companies, 90 percent of them already published,
substantially, sustainability reports calling into climate.
So it is putting a lot of burden on the food chain way down
low, and people are just going to--you know, we are hearing an
awful lot of comments on that; so if you want to just say
something about that, or if you are aware of that, and
considering that.
Chairman Gensler. I thank you for the question. We just, I
want to say this as I have said before, we are merit neutral at
the SEC. Congress debated this 90 years ago; it is a really
important feature, investors get to decide what investments
they make, and we are a disclosure-based agency.
And like the statistic, you said, investors are already
relying on climate risk disclosures by companies. Well over
half of the top-thousand companies already make disclosures,
not because we mandated, Senator, but they are making it
because their investors want that information to make
investment decisions.
So we took it up to make a proposal to bring some
consistency and comparability to a lot that is already
happening. To your question, if I might say, about so-called
``Scope 3'', this is for the other senators and Members, this
is like supply chain, greenhouse gas emissions, or customers,
you know.
Senator Manchin. Correct. We take it, and the chicken, and
chicken houses occur from the chicken, and you know what, all
the way up to the--where you eat the chicken.
Chairman Gensler. I think that is a good way to say it,
Senator.
Senator Manchin. Thank you.
Chairman Gensler. I have got, I think I have got it. And
we, when we made a proposal, we even thought that it was this
so-called ``Scope 3'', was at a different stage of development,
different stage of disclosures, fewer companies making the
disclosure. We took a tiered approach at that time.
Senator Manchin. Okay.
Chairman Gensler. But I would say this; we have heard the
feedback, and it is from the agriculture community, it is from
the small- and medium-sized enterprises, and around Scope 3
discussions, and I ensure you that we only have, you know, a
rule that we are trying to finalize to bring comparability and
consistency about the public companies. And a lot of comments
came in about alternatives to ensure that we don't
inadvertently somehow, that the reach of the rule doesn't go to
the nonpublic companies, which I think is, that is your
consideration.
Senator Manchin. Yes. The small, the small end farmers, the
small end producers, those people who are beholden to the
larger corporations, and they really dictate to them what they
do and how they do it, anyway. And they are under the gun no
matter what. But you put an extra burden on them, and they are
marginal sometimes now.
Chairman Gensler. But I assure you, we have heard loud and
clear. I can't prejudge where we will end up. I mean, staff has
to pull this together. We have got 15-16,000 comments on this
one, so it is likely to take more than that, average 13
months----
Senator Manchin. We can get you a lot more if you need
them.
Chairman Gensler. What is that?
Senator Manchin. We can get you a lot more if you need
them.
Chairman Gensler. All right.
Senator Manchin. I will give you all the ones we are
getting, and we will get--transfer them to you. I understand
that under your tenure, the SEC has proposed twice as many
rules as your predecessors. In the spring of this year you
announced your intention to finalize more than two dozen of
these rules.
My colleagues on both sides of the aisle, as well as
businesses of all sizes have expressed concern SEC has provided
insufficient time for public comment. These are probably things
you have heard anyway, particularly given the significance of
many of the rules. Constituents and companies affected by these
rules believe comment periods should fall in the projection of
60- and 90-day range. However, under your tenure, 74 percent of
the rulemaking has been a 30-day comment period.
So given the importance of providing maximum certainty to
the public in changes in the financial markets, will you commit
to adhering closure to the traditional public comment periods
for future rulemaking, which the people think they just need to
get a proper cross-section?
Chairman Gensler. So I am sure your staff did very good
work, but if I can just----
Senator Manchin. Well, you can correct it, sometimes, you
know, we even make mistakes.
Chairman Gensler. No, no, I am not suggesting that at all.
But my predecessor, Chair Clayton, finalized 64 rules, our
docket is looking to do 50 to 55. We have finalized about 19;
we have about 35 proposals outstanding right now, and so we are
in that same zone. Two, in terms--now, there might be different
types of rules----
Senator Manchin. And so I just think it is the same period,
right?
Chairman Gensler [continuing]. Yes, over a 4-year term. We
may have gone a little bit sooner in the 4-year period, but the
whole docket is about----
Senator Manchin. But his was--if I am understanding, his
was a 60- 90-day, you know, comment period.
Chairman Gensler. So in terms of the comment periods, our
average period from the time we voted and put it on our website
to literally the close of the comment period has been, I think,
74 days. Now, what we do is, because there is a period of time
before it gets in the Federal Register, we generally put things
out, we say it will be no less than 60 days from the time we
vote, or later if it takes long to get in this Federal
Register.
Senator Manchin. Okay.
Chairman Gensler. But for instance, in some really, you
know, important rules around equity markets, we put that out
for 105 days. The climate rules that you mentioned were out,
though I don't have the notes here, well in the high double-
digits days. We have also reopened between a dozen and twenty
rules where we get further comments.
And as I say, because it tends to take between a year and
20 months to finalize, we continue to take meetings, we
continue to take input, because these are important matters, as
you say.
Senator Manchin. Thank you, sir.
Senator Durbin. Senator Hagerty.
Senator Hagerty. Thank you, Mr. Chair.
Chairman Gensler, I would first like to just start out by
commenting on the fact that yesterday, the SEC refrained from
inserting itself into an ongoing court case regarding the
determination of syndicated loans as securities. And as you
know, this is a well-functioning market, it has got
sophisticated market participants, and I was glad to see the
Commission resists to adding any uncertainty into such an
important part of our credit markets.
I would like to turn now to the SEC and its agenda. As I
mentioned in my opening statement, many of the rules
promulgated under your tenure have crept well beyond the SEC
statutory mandate. And we are not talking about just a few
rules; it is an eye-watering number. You just talked with
Senator Manchin about the number of rules that you have
undertaken so far, and you have pointed back to the fact that
this is in line with what your predecessors have done.
But I would look back at the last 27 months of your two
predecessors and the pace that you have undertaken here. And
during the 27 months that you have been Chairman of the SEC you
issued--you have issued 58 rule proposals. That is nearly equal
to the proposals by both Chairs Clayton and White combined
during their first 27 months.
The sheer volume of this isn't the only problem, though.
And again, you touched on this with Senator Manchin, the speed
with which these new rules are developed and imposed on the
market is just as important. And here again, it feels that you
are moving at an extremely rapid pace.
This raises an obvious question then, how does the volume
and speed of rulemaking impact the quality of these rules?
Well, here are just a few issues that were raised by SEC
managerial employees that came directly from the Inspector
General Report that was conducted last October--that was
printed last October.
And I will run through a few of them, and these are direct
quotes. ``Shortened timelines during the drafting process;
limited time available for staff research and analysis, limited
feedback during the rulemaking process, shortened public
comment periods, increased litigation risk, difficulties
managing resources, and other mission-related work.'' These are
direct quotes from that OIG Report.
So my first question is, do you agree with the statements
of the SEC Managerial Staff that were in this report that
state, quote, ``The more aggressive agenda, particularly as it
relates to high-profile rules that significantly impact
external stakeholders, potentially; one, limits the time
available for staff research and analysis; and two, increases
litigation risk''?
Chairman Gensler. Again, I am very proud to be part of such
a dedicated staff. And I think they are doing excellent work.
It is what we benefit from when we put these proposals out to
public comment, and we hear back, whether they see something
that we didn't get accurate in the economic analysis, the legal
analysis, the policies.
In terms of the staff, I am also pleased to say that we
have, for a number of years been very--the survey is done by
the Partnership for--the Partnership for Public Service that we
tend to be very highly ranked by our own staff about the work
at the staff. But in terms of the rules----
Senator Hagerty. I am talking specifically about the OIG
Report, and here, what they are citing is not a process
substance that you are talking about. It is talking about
concerns with the process itself. Again, the speed and the
volume that you are moving forward on; and here, it seems to me
that it is a recipe for disaster moving at this pace, at this
volume, particularly when you hear these types of complaints
coming back from the staff. And the real victims here are the
Americans whose livelihoods depend on returns from the
marketplace.
Chairman Gensler. You know, I appreciate that, but it is
also we put out to public comment. We have a rule docket that
is these 50 to 55, or so, and that is, we have been candid with
the public through the administrative process about that is our
docket, these 50 to 55 proposals, and we get the comments back,
and we adjust. I mean, the final proposals--I mean, the final
adoptions reflect a lot of the comments that we have received.
Senator Hagerty. If I could come back again where I started
here, in terms of the tendency to exceed the mandate of the
SEC. The regulatory agenda that you have laid out, the
increased budget requests that you have laid out raises
complicated but particularly germane questions. Like, how much
funding would the SEC need if it weren't trying to do the job
of the Congress, the EPA, the banking agencies, if it weren't
bringing enforcement actions that are likely to be lost?
Rather than struggle for the answer here, let us--we will
get through that, so the question is for the record, but that
is a very obvious question. I mean, if you look beyond the
mandate activities, we are funding those.
What I do want to ask you is this: Do you keep a tally of
the cost of lost cases, when you bring enforcement action and
lose? Have you kept track of the expenditures, the cost of
that, both to the SEC and to those who have to defend against
them?
Chairman Gensler. We bring a--we either settle or bring
between 7- and 800 actions a year, and that is being a cop on
the beat, and we lose very few, Senator, but we are going to it
from time to time. That is the nature of our processes. So too
would any law enforcement, we are a civil law enforcement
agency. But it is really to protect the investing public, and
protect those firms that are trying to access the capital
markets. And so we bring cases, whether it is Ponzi schemes, or
pump and dump schemes, or accounting fraud, insider trading,
and----
Senator Hagerty. I am talking about the statement cases,
the cases that are meant for messaging. That is my great
concern. And I don't think it is right to put American
taxpayers on the hook for defending themselves in these cases
when you know that there is a high odd--high odds of losing.
That is the point here.
Chairman Gensler. To say----
Senator Hagerty. And I will come back with questions for
the record. We are out of time on this round. But I will come
back with questions for the record to try to get at this cost.
Chairman Gensler. If I might just say, we only bring a case
if we think that it is--the facts and the law dictate it, and
it is really within the facts. We take it, our five-member
Commission votes on every one of these. We end up voting
between 15 and 30 of these a week, and we take this very
seriously. We don't, we don't bring cases if we don't think
there has been real wrongdoing.
Senator Hagerty. Thank you.
Senator Van Hollen. Senator Durbin.
Senator Durbin. Thank you, Mr. Gensler, Chair Gensler, for
being here. What percentage of Americans--are in the stock
market?
Chairman Gensler. Well, it is--there is at least 52 million
Americans that have investment advisors advising them. There is
even more than that number, and I will have to get back to you,
that actually invest in mutual funds or have brokerage
accounts, but it is--it is well over half, but we will get you
the exact statistic.
Senator Durbin. I have heard it was around half, if you
could give me some specifics, it is helpful. The thing that
surprises me, when I read and learned that one out of five
Americans invested or traded cryptocurrency; are you aware of
that?
Chairman Gensler. I have seen some of those statistics.
Senator Durbin. One out of five.
Chairman Gensler. Again, I can't vouch for the surveys. It
is not done by the SEC, or this Committee.
Senator Durbin. So this is an industry which you have said
is, quote, ``Rife with fraud, scams, and abuse.'' Did you say
that recently?
Chairman Gensler. I would say it in this live hearing; it
is a field that is rife with fraud, scams, and abuse, and there
are a lot of actors in this field that are international,
offshore, but they are still tapping on the American public's
wish for a better future.
Senator Durbin. According to one estimate in 2022 alone,
fraud schemes involving cryptocurrency totaled more than $9
billion. Does that surprise you?
Senator Durbin. No. It could be larger, sir.
Senator Durbin. I could go through the list of outrages
involved in this industry. Celebrity endorsers, Matt Damon,
noted financial advisor; Larry David, another financial advisor
with trust implicitly; Tom Brady, who can't even get paid for
doing the commercial; Kim Kardashian, and on and on. They spend
billions on sports arena or stadium naming rights deals to gain
misguided credibility with everyday Americans.
They manipulated prices with phony tokens of no underlying
value, fail to protect and segregate investor funds. This is
happening over and over again. This doesn't sound like America.
What is missing here?
Chairman Gensler. Well, it is a real pattern. I mean, there
is a technology underlying it, a ledger technology called
blockchain technology. There may well be a particular value in
some of these use cases, but the American public is not getting
the proper disclosure to make their investment choices. And
then the companies operating in this space, as you say, are
bundling and co-mingling services that we would never allow.
We would never allow the New York Stock Exchange to also
trade against their customers. We just, we don't, we haven't
for decades. And here, there is all this bundling and co-
mingling. And what is more, there is this tremendous amount of
bad actors in the field as well, a lot of them offshore preying
upon U.S. investors.
Senator Durbin. And a lot of them are looking for a home in
our political system, are they not?
Chairman Gensler. That is not our jurisdiction, but I have
read some of those articles.
Senator Durbin. I went to a hearing like this, walked out
in the hallway, the reporter said, ``How much money has your
campaign fund taken from the cryptocurrency business sector?
And I said, ``None. I have nothing to do with him.'' She said,
``You are wrong. It is $20,000, and I can show you.'' I hadn't
asked for it, didn't realize I had received it. But they are
playing everywhere they can to buy influence in the process.
What is the best way for us to protect American consumers from
cryptocurrency in the future?
Chairman Gensler. Well, I think that we have robust
authorities at the SEC. I think our sibling agency still does--
I have said this often--the CFTC may need additional
authorities, because some of these tokens are not under our
jurisdiction. I think it is very few, but I am not trying to
prejudge any one token. But our authorities at the SEC are
quite robust. We could always use some more resources.
Senator Durbin. That is a question I want to get to,
because I am on the Agriculture Committee too, and there is an
ongoing debate among some quarters as to whether the CFTC has
any authority in this industry. Do you think they do?
Chairman Gensler. Well, there are some tokens that--and
Bitcoin, I will just stay with that, Bitcoin itself doesn't
have the attributes of an investment contract under the
Securities laws; but many tokens, without prejudging any one,
have the attributes of an investment contract. Meaning there is
a group of individuals that the public is investing based on
anticipation of profits based on their efforts.
But as it relates to this, the Bitcoin, as I understand it,
under the Commodities and Exchange Act, there is anti-fraud and
anti-manipulation, but they don't have what is called plenary
rule-writing authority. But I am sure Chair Benham could better
answer some of those questions.
Senator Durbin. So when it comes to appropriated funds, do
you have enough in the SEC, personnel, and resources to deal
with the cryptocurrency business?
Chairman Gensler. If this committee were to see fit, and
want us to have more resources, we could use them. Part of this
$73 million, I know, and I really do thank the committee to
come, unanimously, to fund us. But that we were hoping to add
another 170 people; some in disclosure review, some in
examination, but certainly some of them in enforcement. And you
know, that cuts back on our ability to do this.
Senator Durbin. Thanks, Mr. Chairman.
Senator Van Hollen. Thank you, Senator Durbin.
Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman. And Mr. Chairman,
welcome.
Chairman Gensler. It is always good to see you, Senator. I
have enjoyed our times in our private talks, and in these
hearing rooms.
Senator Kennedy. The feeling is mutual. Mr. Chairman, why
did you and the SEC allow the FTX fraud to happen?
Chairman Gensler. The crypto field is often one that is co-
mingling and bundling services, as I said earlier, and often,
also offshore; and it is rife with abuses and fraud, it also
takes time to thoughtfully, and by the book, and by the law
build investigations and bring actions. There is a public
figure, on average about 23 months from start to either
settlement or bringing an action at the SEC.
We did bring actions over the course of the last 5 years on
150 companies, or a----
Senator Kennedy. But the cow was out the barn? I mean,
here--I follow your remarks, Mr. Chairman, because I have great
respect for you, and you have said repeatedly before FTX blew
up that the SEC has the authority to regulate cryptocurrency.
Now, here you have this company, FTX, run by a young man
who has more zeal than wisdom. He prides himself looking like
the fourth runner-up in a John Belushi look-alike contest. He
prides himself on being under-dressed and over-haired, reeks
with arrogance. You could have sent down one investigator from
the FTC with an ego like Mr. Bankman-Fried, and Sumler, send
someone down from the SEC, and let them just watch you for a
day. And he probably would have welcomed you in.
I mean, his dad is a chaired professor at Stanford Law
School. Where was Stanford? But where was the--where was the
SEC? I mean, this was an accident waiting to happen, and I
don't understand where the SEC was.
Chairman Gensler. So sir, I would say that the whole field
has hurt more Americans than it should.
Senator Kennedy. Yes, but I am talking about FTX. I mean,
we look back at FTX. I mean, Senator Durbin made this point,
and we have this elaborate, complex regulatory machinery, the
SEC, which I support, which is supposed to guarantee
transparency and combat fraud. And any fair-minded person has
to look at FTX and Mr. Bankman-Fried and these kids, and go:
What in God's--where were--where was everybody? Where was the
SEC?
Chairman Gensler. And I would say where we were is, my
predecessor, and also under my honor to be Chair, we have
brought 140 or 150 actions. There are 15 to 20,000 tokens, and
there are dozens of----
Senator Kennedy. Yes, but that was after the fact, Gary. I
mean, here is this young man; he did everything but bomb Mount
Rushmore. Weren't you all curious? Where is this guy getting
this money?
Chairman Gensler. I would say that in the summer of 2021,
when we Wells noticed a very large crypto exchange in the U.S.,
they went on Twitter and said that we were sketchy. When we
subpoenaed Do Kwon, and this is all public, so I can say it;
when we subpoenaed--we gave him a subpoena; he fought us in the
District Court, he fought us in the Appellate Court.
Senator Kennedy. I know that. I know that. But I am not
talking about how many lawyers can dance on the head of a pin.
I am talking about why didn't you send somebody down? I
guarantee you, with his ego, Mr. Bankman-Fried would have
welcomed you. Okay. He probably would have asked you to bring a
film crew.
You just send an investigator down, spend a half a day with
these young people, come back, and go get an injunction. Shut
them down, until they can answer some very basic fundamental
questions. Like, for example, were they co-mingling funds? Why
didn't we do that? Why didn't you do that? That is what we pay
you folks to do.
Chairman Gensler. Again, I can't----
Senator Kennedy. I mean, I get all the Wells letter and all
that. We have got--we have got tens of thousands of people that
lost a lot of money, and they look, they look at this young
man, and they will go: How did the--how did the regulatory
authorities allow this guy to function? I mean, your Secret
Service name is Butthead. That is how bad he is. Where was the
SEC?
Chairman Gensler. And again, sir, I can't speak to one
enforcement matter like that, but let me just broadly say this
whole----
Senator Kennedy. Well, it is a big one.
Chairman Gensler. This whole field, the whole crypto field,
is built on models that we wouldn't allow in traditional
securities markets of co-mingling. The co-mingling that you are
mentioning----
Senator Kennedy. And why did you allow FTX?
Chairman Gensler. And we have----
Senator Kennedy. Why did you allow FTX?
Chairman Gensler. We have vigorously--we investigate by the
book. You, I am sure, and the American public, want us to
follow the facts, follow the law, properly give people
subpoenas, they get lawyered up, they give us replies, they do
effectively burn clock, and on average it takes time----
Senator Kennedy. You could have gotten an injunction half-
a-day.
Senator Van Hollen. Senator?
Senator Kennedy. Thank you, Mr. Chairman.
Senator Van Hollen. Thank you, Senator Kennedy.
Senator Coons.
Senator Coons. Thank you, Chairman Van Hollen; Ranking
Member Hagerty, thank you.
Chairman Gensler, as the questioning of my colleague
indicates, there is widespread interest in and concern about
not just the years of alleged fraud carried out by Mr. Bankman-
Fried at FTX, but concern about the whole sector, about the
safety and security and transparency of crypto transactions.
You have said the '33 Act and the work of the SEC is critical
to providing protection for the half of all Americans who
invest and who are at risk.
I am glad, that on a bipartisan basis, this Committee is
coming forward to support a level of staffing, and resources,
and technology needed to deal with emerging challenges, like
how to effectively regulate crypto. And your funding is deficit
neutral. I mean, one of the great things about it is we are not
expending more taxpayer dollars.
Is there one critical area you would point to briefly where
you think either staffing, technology, or resources are
lacking, and you would urge us to prioritize investment beyond
the agreement that is been reached by this subcommittee?
Chairman Gensler. I thank you for that question. I think
that our full funding request, which is about $70 million more
than you were able to come together on, would provide about 170
more people.
Senator Coons. Yes.
Chairman Gensler. And that is across our examination, our
disclosure review, which is a really important piece where
issuers need feedback and enforcement, but it is also
technology. And a big piece of it is, at give or take $400
million, we are really--most of that technology spend right now
is about our Legacy systems and technologies changing so
rapidly. And even just data storage costs a lot more, just
sheer volume of data. I think that would help us be better----
Senator Coons. That is my hope, it will be----
Chairman Gensler [continuing]. Cops on the beat, and
better--but just even be more responsive to market participants
wanting to get their filings reviewed.
Senator Coons. How many rule proposals do you currently
have under development, and how many of them might be finalized
later this year?
Chairman Gensler. I believe sir that we have thirty-four--
or -five proposals that are already out public but not yet
adopted, and we have maybe a handful, five, six that are still
being considered to be proposed, but that is our whole docket.
In terms of timing, it is really when the staff is ready; and
the Commission is ready, but it will take more than through the
end of this year.
Senator Coons. I joined a dozen of my colleagues in sending
a letter just encouraging you, given the suite of rules in
proposal development, to just make sure you are providing
sufficient time for notice and comment on the proposed rules. I
don't believe we got an answer. What is your answer to concerns
that the aggregate impacts on the market, of such a broad range
of proposed rules, need to be taken into account?
Chairman Gensler. Well, in each of these rules, we do take
into consideration the economic analysis, and then sometimes
there are some interactions, and we note those in those rules.
But we benefit from the feedback, whether it is from large
market participants, their trade associations, individual
investors, and then we take that into consideration.
And as I said earlier, on average, these rules from
proposal to final, take a year to a-year-and-a-half, but the
formal comment periods have been about two to two-and-a-half
months from when we voted out, we put it on our website, we
start getting feedback.
We have also reopened our--more than a dozen, I think it is
20 of them, to get additional comment, and sometimes we update
economic analysis and put that further out, and where
appropriate we make adjustments in the Final Rules.
Senator Coons. I do think it is important to regulate in a
wise, and transparent, measured way so that the regulations are
both effective and sustain. A last question about a specific
proposal, swing pricing as an option used by funds currently.
How many funds have actually utilized swing pricing since it
was authorized in 2016?
Chairman Gensler. Sir, I would have to get back to you in
detail, but I think very few. I mean it is--while it is
voluntary, I am not sure, so this is on mutual funds for this,
sir.
Senator Coons. Yes. I would appreciate an answer back in
terms of how you think the proposal for a hard close would
impact the use of swing pricing, and whether or not this is
going to have an undue market impact. It strikes me my--what I
have heard is that it is a tool that is very rarely used. And
so perhaps the analysis needs to----
Chairman Gensler. No, no--that is correct. I don't know the
exact number, but it has been very rarely used. It is open-end
bond funds work for the American public, really in many ways it
is a very good product, because you can get the benefit of low-
cost and diversification. In times of stress, there have been
times, and we saw it in 2020, in times of stress where we rely,
ultimately, on the Federal Reserve, the Fire Department, so to
speak, to come in and support the markets. And so we are just--
we are trying to build a little greater resiliency into the
markets in those times of stress.
Senator Coons. Thank you. Thank you for your testimony.
Thank you, Mr. Chairman.
Senator Van Hollen. Thank you, Senator Coons.
Senator Boozman.
Senator Boozman. Thank you, Mr. Chairman, very much; and
thank you all for holding this really important hearing.
It wasn't too long ago that I was chairing this Committee,
and you were chairing the CFTC, and the one thing that I want
to compliment you on is that you have always been good to come
and testify, and are very approachable, so we appreciate that.
Chairman Gensler. I thank you. And I want to compliment
you. It has always been good to get on the phone, or come to
your office, even if we might have differences of policy, but
we always--I learn from it, and we try to narrow the
differences.
Senator Boozman. No, I appreciate that very much. One of
the things that I have a lot of concerns about is the SEC's
custody proposal. You know, it undermines CFTC customer
protection rules, conflicts with global margin treatment, what
happens in the derivatives and treasury markets, and adds
complexity to institutional, investment advisors, and qualified
custodians. Even worse, in response to questions from my staff,
both CFTC and Treasury staff said the SEC did not coordinate
with either agency, which is unacceptable.
The impacts on the derivatives, commodities, and treasury
markets could cause systemic harm, and I strongly urge you to
withdraw the proposal or completely rework it. Now, it is
difficult. The SEC is such an important entity, and yet it is
hard for us to, you know, give you the means that you need when
you come out with this kind of stuff. I don't know how to say
that in a nice way, but again, you know, this is--this rule is
not a good rule. It has the potential of creating a lot of
problems; and then, also, not working with CFTC and Treasury,
which it affects in a great way, could it affect in a great
way.
Chairman Gensler. If I might, just put it in context; we
have had a custody rule, and this is about investment advisors
holding assets for their customers, since the 1960s, but then
the Bernie Madoff events happened. They were terrible, really.
And Congress came together and put a provision in, that Reform
Bill, Dodd-Frank, that specifically addressed that we, the SEC,
would have not just new authorities but should address the
safeguarding of all client assets.
It was no longer just the securities and funds held, or on
behalf of customers, but all client assets. That was in 2010,
and here we are in 2023, 13 years later, and we hadn't taken it
up. So it is one of the remaining, I would say we had about 8
of these when I came on board, 8 of 54 things we are working on
were left--still left over from Dodd-Frank.
And we have got a lot of public feedback. It is important
to take that feedback. We have met with the Commodity Futures
Trading Commission; we have met with the Futures Industry
Association about some of their comments, and we are taking
those into consideration.
Senator Boozman. No, we appreciate it. But the reality is
the markets have been very resilient, and again, we want to
allow our farmers and others to manage risk, and our concern is
this would blow up those markets, and the agency, again, you
should consider, you know, making significant changes based on
all the conversations that you have had.
The Fed has recently warned of a potential credit crunch
and further slowing of the economy, during the pandemic we saw
lenders use a single-name CDS to hedge against credit
drawdowns; however, many believe the SEC's Proposed Rule 10b-1
would hurt liquidity, and cause lending pullbacks, which is
exactly the Fed's concern. We are in a high rate environment,
and the Fed is warning against credit pullbacks. Yet, the SEC
proposals, such as Treasury market reform, applying Rule 15c2-
11 to fixed income, the dealer proposal in the Rule 10b-1 would
all be major overhauls that could reduce access to credit.
So I guess the question I would have, would you conduct a
publicly available economic analysis of the cumulative effects
of your SEC proposals on U.S. credit markets? And will you
commit to coordinating with the Federal Reserve about the
cumulative effects of SEC proposals on U.S. credit markets?
Chairman Gensler. So thanks for the question. There are a
number of proposals that you mentioned related to the U.S.
Treasury market, so there were three or four of those that you
mentioned, and we have been in consistent dialogue with the
U.S. Treasury, the issuer of U.S. Treasuries, on behalf of us,
the American public, and the Federal Reserve because they use
Treasuries to conduct monetary policy, and the various rules.
So we have been in very good, close discussions with them.
Second, we do have economic analysis on--in each of those;
one is a Treasury market clearing; one is about Treasury
dealers, and each of those we have robust economic analysis but
also have gotten feedback. What is the issue we are trying to
deal with? We are trying to deal with resiliency in the 2020
dash for cash, during the starting part of COVID, there were
really significant issues in the U.S. Treasury market, than
there were in the fall of 2019, and in part, what supported the
Treasury market was the Federal Reserve buying a couple
trillion dollars, give or take, of Treasuries.
So it has really, it has been an effort to have a little
greater resiliency and competitiveness in that market. We, the
taxpayers, ultimately benefit from that.
Senator Boozman. We appreciate it. Again, fragile economy;
we just want to make sure that access to credit is not impaired
even more. Very quickly, you know, you mentioned that you got
feedback regarding Senator Coons' question about rushing rules,
and so you know the feedback we are getting is from the IG, and
they said, the IG report found that staff had limited time for,
quote, ``Research and analysis'', end quote, meaning their
economic analysis were rushed.
So you know, we need to sort that out. And I know that you
are working hard in that regard. You are trying to get a lot
done, but that is the feedback that we are getting.
Chairman Gensler. I thank you for that feedback, sir.
Senator Boozman. Thank you.
Senator Van Hollen. Thank you, Senator, Boozman. So here is
how we are going to proceed. We are going to have one more
round of questions for interested Members of the Committee.
That is going to be 5-minute rounds.
So Mr. Chairman, you have discussed in your appearances
before the Banking and Housing Committee, my belief that
investors and the public have a right to know when corporations
are taking big risks through the use of offshore tax havens.
Jurisdictions around the world, especially Australia and the
European Union, are moving in this direction, giving their
investors the information they need to assess the tasks risks
of their portfolios, including offshore tax havens.
I have introduced legislation, the Disclosure of Tax Havens
and Offshoring Act. Right now, as you know, the Financial
Accounting Standards Board is looking at this. I am going to
submit some questions for the record on the subject for you to
take a look at, so we can, hopefully, move forward.
I do want to ask you a question about proxy advisors, and I
clearly have a difference of opinion from my colleague, the
Ranking Member, on this. But tell me where I am wrong in this
logic.
I am T. Rowe Price, or I am another company, I choose to
hire, with my own money, proxy advisors to give me guidance and
advice on how I should proceed on different proxy votes. I use
the example of T. Rowe Price; they are a Maryland-based
company, and they both provide advice and they also pay proxy
advisors for advice in some cases.
So it seems to me that for those of us who do believe in a
market system, and for the ability of private parties to make
choices of their own within the law, that trying, by Government
Fiat to stop a private entity from hiring a proxy advisor to
make recommendations on decisions, seems kind of a violation of
market principles and freedom of choice. What do you think?
Chairman Gensler. The investors in this case, in your
hypothetical, T. Rowe Price, a Maryland firm, but it doesn't
matter what State they are in, but that investor has, as an
investment advisor, a fiduciary duty to their ultimate
investors. And that fiduciary duty, they have to decide, as
part of that fiduciary duty, how to vote on a board of
directors, maybe on mergers, and maybe on other matters before
them.
It tends to come in a short season in the spring, and so
there has developed, in the last 20 to 30 years, these outside
advisory firms that--firms like you just mentioned, but other
investment advisors turn to. But it is still, ultimately, in
your hypothetical, T. Rowe Price's fiduciary obligation to
decide whether they support or object to whatever the vote is.
In terms of the rulemaking that we did, we had a number of
people that came into us, it was early in my tenure, that said
that they thought that we should take this up. And we took the
time to put it out to notice and comment. We got comments back,
and based upon the record and the Commission's consideration of
it, we have finalized some changes as our predecessor had made
other changes.
Senator Van Hollen. Right. But don't you think that any
company should be able to, with their own money, pay somebody
for proxy advice which they can take or leave without anyone
trying to pass a law or regulation to prevent them from using
their own money in that way?
Chairman Gensler. Yes, I would broaden it; investment
advisors, small and large, use outsourcing. They hire others
for their technology, they hire others for pricing services,
they hire others for proxy advice. I mean, there is dozens and
dozens of things that they use outside advisors and we, we are
neutral to that. We allow that.
They still retain their fiduciary obligations and all of
their other obligations that an investment advisor is
safeguarding the assets that we were talking about earlier.
But the use of outsourcing is a robust part of our economy,
not just for investment advisors, and at least at the SEC,
there is no--and that has facilitated--it promotes efficiency.
Senator Van Hollen. Thank you. Thank you, Mr. Chairman.
Senator Haggerty.
Senator Hagerty. If the Chairman might accommodate me to go
outside of the 5-minute limit for a minute because I would love
to--this is a very healthy conversation and to share my
perspective on it.
One, my conversation with Chairman Gensler, really has to
do with transparency and disclosure regarding the advisory
firms, not whether or not you can hire them, but transparency
in terms of what these firms do; these firms not only work for
the T. Rowe Prices, in your example, they also can work for
activist investors, and they can be deployed to go out and put
proposals in place that suit the desires of those activist
investors.
In fact, activists are in the ownership structure of these
offshore firms. It is a duopoly. Two firms they say control 97
percent of the proxy advisory services. I don't know who the
other 3 percent are controlled by, but these two large firms.
In my own private sector experience, I have dealt with
these firms. As a member of the New York Stock Exchange traded
company, experienced a proposal against, recommending against
management, and what happens next is a phone call comes to
management saying that our consulting arm--I am sure there is a
Chinese wall there--but our consulting arm will help you get to
a better answer.
And after paying hundreds of thousands, sometimes millions
of dollars in consulting fees, you can get the proposal
recommendation for management as opposed to when it was against
it. And as I mentioned, there are even circumstances where
these firms are recommending four actions; that if management
were to take them, would cause them to violate State or Federal
laws.
So there is a real problem. I think this goes back to our
whole discussion about the volume of rules coming down the pike
and trying to deal with the proposals that are now so easy to
issue.
As I mentioned earlier, the Harvard Law School Study
indicated that there are five individuals that are launching
over 40 percent of all these proposals. They are easy to do,
and they are just inundating companies with this. And I think
there needs to be--I think we should take a hard look at how
these proxy proposals are put forward too. This is outside the
realm of the advisors, but boy, they generate a lot of business
for the advisors.
Thanks for that diversion, but I think that is a healthy, a
healthy conversation for all of us to have. And that is where
my concern lies.
To come back to some questions I wanted to discuss with
you, Chairman Gensler, I would like to come back to crypto and
the blockchain technology markets for a moment. In your
conversations with Senator Durbin, you talked about a robust, a
robust set of rules that you have--a robust set of tools, I
should say, that you have to deal with this. What I have seen
happen, just this year alone, is that U.S. share of stablecoin
volume has gone down. U.S. blockchain developers' jobs have
decreased here in America, and I think what is happening is
that industry players are migrating overseas to other
jurisdictions where the rules of the road are clearer for them.
And when you think about the rules of the road here in
America, the rule set is anything but clear. And what is
occurring here, much more often than not, is regulation by
enforcement, if you will. And I think that is creating a great
deal of uncertainty in the market.
What worries me is that we are losing out on technology
development and innovation that I would like to see happening
here, and I think it might make your job more challenging, as I
think about your conversation with Senator Kennedy, because the
company he is concerned about, FTX, is a Bahamian company. It
is not an American company. And these companies like FTX are
searching for jurisdictions that probably allow them to do what
they want to do.
The question I raise is if we had a robust rule set here,
would we have the ability to attract the licit actors to
operate here in the United States of America? And is there a
way to put clarity? I mean, I would be interested in your
concerns on that, yes.
Chairman Gensler. So I actually think there are robust rule
sets at the Securities and Exchange Commission, and it is
outside of my--our jurisdiction, but over at the Treasury
Department, and anti-money laundering, and financial crimes,
enforcement network, and so forth.
Senator Hagerty. Yet these firms are moving offshore.
Chairman Gensler. Yes, because this is a field that, in
part, is built on a business model of, catch us if you can. It
is built in part, not everybody, but in part on a model of
preying upon the investing public's desire for a better life
and future, and the hype around these tokens, these 15- or
20,000 tokens.
And like most of venture capital, and I know, Senator, I
respect you were in the venture capital field, most venture
capital investments fail, just statistically, to many of these
tokens, you know, if you think of them like startups, are
likely to fail. And yet, they are not making full, fair, and
truthful disclosures to the investing public. And you are
absolutely right. There is a bit of regulatory arbitrage. I
will set up in Malta. I will set up in the Bahamas. I will set
up in, you know, some tax haven or offshore where they don't
have the robust rules of the road that we have in our
securities markets or the robust enforcement we might have
around anti-money laundering.
Senator Hagerty. To come back to, to the timing here,
because I just a couple more questions to, to touch on, and we
are running short. I would just strongly encourage, rather than
regulating via enforcement, to think through the rule set that
would create clarity in the marketplace. Because when I talk to
market participants, they tell me that there is a lack of
clarity here. And that is a, I think, a laudable goal to
achieve.
I have got a couple of other quick points. One of them goes
back to what Senator Coons touched on in terms of not getting a
response back, what I mentioned myself in terms of not getting
responses back, fulsome responses back from the SEC when we
send questions in. And this comes back to specifically two
letters that you received from House Committee Chairman
McHenry, Jordan, and Comer; Chairs McHenry, Jordan, Comer,
asking about providing specific certifications regarding any
use by you, or your direct reports, or personnel there at the
SEC using their own personal, either off-channel or all-
platform methods, to communicate or conduct SEC business.
I am talking about personal phones, using Signal, WhatsApp,
those types of communications. In your written response to the
first letter, you talk about the operation, you mentioned a
number of areas, but you don't specifically respond directly to
the five clear requests that were made in the SEC off-platform
letter that came forward. And it includes providing specific
certifications regarding the SEC's, and your personal
compliance with Federal record-keeping requirements.
So I think those requests are straightforward. I think it
would be appropriate to address those, and I would just ask you
now if you; have, you yourself, been involved in using your
personal device, or off-platform devices for SEC business?
Chairman Gensler. I have disclosed here; I think Senator
Van Hollen still might call me on my cell phone. I have known
him for 23 years, but when I get----
Senator Hagerty. I am talking about the concern that was
raised by----
Chairman Gensler. No. I don't use. I occasionally--it is
very rare these days, but I occasionally get an email from
somebody, and then I just forward it over to the SEC.
Senator Hagerty. I would just encourage you to please
respond to these questions again. I have expressed the same
frustration that my colleagues do in that regard. I think a
response would be warranted there.
One last area I will touch on, and I will deal with the
rest of this to questions for the record; when you were
speaking with Senator Collins about work from home, when you
and I talked about this yesterday, it raises the question of
what the impact might be on your office footprint.
And there has been news, a lot of news related to the GSA
announcement on your new headquarters' lease. I have seen
different estimates for the cost of that lease to the taxpayer.
But what would you expect over the next--do you have an
estimate of what the next 25 years that building cost would be?
Chairman Gensler. I think we need to get back to you, but I
would say this, that our needed footprint has come down from
when that was initially put out for a request for quote, now I
think it was 4 years ago; it was pre-COVID, and so we----
Senator Hagerty. At least we are trying to do it after
COVID----
Chairman Gensler [continuing]. We have actually worked with
the General Service Administration and said, and we were--we
had a right, under our agreement with GSA, we had a right to
downsize with them, and we did about a year ago downsize with
GSA. But we would have to get back to you on this specific
question about----
Senator Hagerty. Yes, and just, again, just thinking about
the expense of these buildings, and as you described, a very
different sort of work pattern. I would think that would have
an implication on this.
Chairman Gensler. We are actually looking at it across all
12 of our offices, and where we can, to prudently and
thoughtfully, shed space.
Senator Hagerty. Well what; if I could work with you--if
your staff could work with mine to just get us any sort of
internal analysis that you have done, any fair pricing analysis
that you have done, I would very much appreciate that.
Chairman Gensler. I will ask staff to coordinate with
yours, and some of this information is over at GSA, and not
ours, but okay.
Senator Hagerty. Okay. Thanks for coordinating with us on
that. And I will submit the rest of my questions for the
record. Thank you, Mr. Chairman.
Senator Van Hollen. Thank you, Senator Hagerty. Thank you,
Chairman Gensler, for being before the subcommittee. We look
forward to continuing to be in touch on issues that were raised
today.
ADDITIONAL COMMITTEE QUESTIONS
Senator Van Hollen. Our senators on this Committee will
have one week to submit questions for the record. That means
they are due July 26.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
No questions were submitted for the record.
SUBCOMMITEE RECESS
Senator Van Hollen. And with that, this subcommittee
meeting is adjourned.
[Whereupon, at 4:45 p.m., Wednesday, July 19, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2024
----------
TUESDAY, SEPTEMBER 19, 2023
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:35 p.m., in
room SD-124, Dirksen Senate Office Building, Hon. Chris Van
Hollen (Chairman) presiding.
Present: Senators Van Hollen, Manchin, Hagerty, and
Kennedy.
U.S. FEDERAL COMMUNICATIONS COMMISSION
OPENING STATEMENT OF SENATOR CHRIS VAN HOLLEN
Senator Van Hollen. This Committee, the Subcommittee on
Financial Services and General Government Hearing will come to
order.
I would like to begin by thanking my Ranking Member,
Senator Hagerty, and other Members of the Committee for our
continued oversight efforts of agencies under our jurisdiction.
We are very grateful to be joined today by the Chair of the
U.S. Federal Communications Commission, Jessica Rosenworcel.
Welcome to you.
The FCC has a very important set of responsibilities, from
working to provide access to affordable high-speed Internet to
keeping spectrum licensing competitive, and much more. The
mission of the FCC is essential to ensuring that the United
States remains on the cutting edge of communications'
technologies in the 21st century, and that, in turn, is
essential to the success of our country, our economy, and
important, of course, to national security.
I am pleased the Senate confirmed President Biden's
nominee, Anna Gomez, to the Commission earlier this month,
bringing the FCC to its full contingent of five Commissioners.
And I would like to applaud Chair Rosenworcel and the
entire FCC team, including all the Commissioners, for their
rapid response to the disasters in Hawaii and Florida. Their
work in the early days of the disaster helped save lives by
ensuring that survivors could stay connected to their loved
ones and to emergency response teams. Tragedies like this show
us just how essential access to broadband is in our modern
life. It is not a luxury; it is a necessity.
And if we did not know that before the pandemic, we
certainly know it now. America scrambled to get online; Zoom
became a verb, and Congress worked through a number of measures
to try to address these issues and get more Americans
connected. Before the pandemic struck, I had introduced
legislation to close what we call the ``homework gap'', because
students without access to broadband were put at a big
disadvantage when doing their homework, compared to their peers
who were connected. But with the pandemic, now the homework gap
became a full-blown learning gap. As classes went online,
students who were unconnected were bound to fall even further
behind.
Many States and local jurisdictions used the emergency
school funding they had through the CARES Bills to help their
students connect with remote learning. But there was not a
dedicated program until, as part of the American Rescue Plan,
we established the Emergency Connectivity Fund, a critical
lifeline to students around the country.
And that Emergency Connectivity Fund has helped more than
18 million students connect to the Internet by providing them
with Wi-Fi hotspots, modems, routers, and Internet-enabled
devices, as well as Internet service to those devices.
This was an emergency measure, and its dedicated funding
will run out in December. But it has established a strong
foundation that we can build on by modernizing and adapting the
E-Rate Program. We need to ensure that the E-Rate Program can
provide connectivity beyond the walls of our classrooms and our
libraries. And I know Chair Rosenworcel is passionate about
this issue, and I salute you for your efforts.
We must, of course, not only connect students to broadband
but every American household and small business, no matter
where they live--in rural, suburban, and urban areas.
Nationwide, tens of millions of Americans remain without access
to broadband, but thanks to the passage of the Infrastructure
Modernization Bill, we are well on our way to connecting them.
That law launched and funded the Broadband Equity Access and
Deployment Program, known as the BEAD Program, to connect
America.
But the BEAD Program and other Internet connectivity
programs would be flying blind if it were not for the FCC's
broadband mapping program. For years, the FCC had a broken
mapping system. Many Americans were told they were connected to
the Internet when, in fact, they were not. By creating an
interactive system, the FCC has dramatically improved the
mapping process so we can implement plans to connect all
Americans. There are still issues, and we are working through
them, but it is much better today than it was, much better.
My home State of Maryland received nearly $268 million to
expand access to affordable, reliable, high-speed broadband
across our State, and the FCC's map is providing crucial data
to aid in the implementation of that effort. But we all know
that getting people physically connected to the Internet won't
do them any good if they cannot afford to pay the bill for
services. That is why the Infrastructure Modernization Bill
also launched the FCC's Affordable Connectivity Program.
This program provides eligible low-income households with
high-speed Internet plans at little or no cost. In my home
State of Maryland, over 255,000 households have already
enrolled in ACP, and more than 20 million households in every
part of the country have enrolled in the program, and
enrollment is growing by the day. The Affordable Connectivity
Program has been vital to ensuring equitable access to high-
quality, modern broadband infrastructure, especially in rural
areas, and low- and moderate-income communities.
And today, we will discuss the importance of providing
ongoing support for that program.
Turning to another area of FCC responsibility, it has been
6 months since the FCC's Spectrum Auction Authority has lapsed,
the first time the FCC has not had this authority in over 30
years. This is on Members of Congress to address, but we look
forward to Chair Rosenworcel's comments on that matter.
Colleagues, we need to quickly come to agreement so the FCC
can conduct auctions that are necessary to ensure the United
States remains on the cutting edge of global communications,
technology, it is important to our economy and our national
security.
Today's hearing will give us an opportunity to learn more
about that and other issues, and inform the work we are doing
together on behalf of the American people.
So with that, I will now turn to Senator Hagerty for his
opening statement; Senator.
OPENING STATEMENT OF SENATOR BILL HAGERTY
Senator Hagerty. Well, thank you, Chairman Van Hollen, for
holding this hearing. As the Ranking Member, I look forward to
working with you on this subcommittee and with all of our
staffs to continue to make certain that our tax dollars are
spent effectively and efficiently.
Chairwoman Rosenworcel, welcome to you. It has been good to
get to know you by phone. I am glad to see you here today and
looking forward to your testimony.
As with the airwaves that are broadcasting this hearing,
the FCC's influence on the economy, our national security, and
the daily routines of American life is paradoxically both
ubiquitous and invisible. The FCC regulates the non-Federal use
of the electromagnetic spectrum that we rely upon for mundane
activities, like our garage door openers, all the way to the
global delivery of events that shape the world and allow us to
witness history as it unfolds, in real time. And not just on
television, but over mobile devices now.
The FCC also regulates speech, specifically children's
programming, campaign advertising, and indecency. But today,
that is only for broadcasters. Whether the FCC should, or
should not, or to what degree, regulate the speech of social
media platforms is currently under debate.
Personally, I have introduced legislation, the 21st Century
Free Speech Act that would ensure that all Americans have
reasonable, nondiscriminatory access to Big Tech speech
platforms. It would also limit the ability of Big Tech
platforms to discriminate against free speech on ideological or
political grounds.
That is because I believe that Americans, rather than Big
Tech companies, should determine what information to consume,
what information to share, and what information to believe.
The FCC also, in coordination with other Federal agencies,
has a role in regulating communications equipment, equipment
that may pose an unacceptable national security risk, which
means the FCC can prohibit the sale or use of domestic or
foreign-made equipment in the United States. We are in an
information age that depends on reliable and secure data,
video, and voice transmissions, as well as reliable and secure
networks and devices. We all experience that first-hand during
the pandemic, trying to work from home while sitting around the
kitchen table with our children who are trying to attend
classes remotely.
The FCC's highest priority, according to a strategic plan,
is to help bring affordable, reliable, high-speed broadband to
100 percent of the population. Once upon a time, back in the
1950s, the FCC's highest priority was to bring telephone
service to 100 percent of the population. Telephones, then
rotary ones, were considered a necessity that should be
provided to all.
The FCC has come close, but still hasn't achieved ubiquity.
As technology change, the definition of universal service has
changed as well, to encompass wireless service, and now it
includes broadband. I will also add that the definition of
broadband has changed. At one point, it was the 10:1 standard;
now it is 25:3, and in the future, it could be 100:20.
In other words, as long as the definition and measure of
universal service in broadband keep changing, then the goal of
100 percent connectivity is practically unattainable. One
thing, however, that has not changed, nor will it ever, is that
resources are limited. The FCC relies on fees to pay for its
operations. In Federal budget parlance, these costs are offset,
which was often mistaken for free.
These costs are not free. They are ultimately paid by the
consumer. And it is this subcommittee's prerogative and duty to
limit these costs, which are growing. If the FCC's full budget
requests were enacted, then the FCC's costs will have grown by
26 percent or 8 percent annually on average since fiscal year
2021, excluding mandatory funding.
As a former businessman, I want to see evidence of a
corresponding increase in output or productivity for that type
of investment.
Chairwoman Rosenworcel, I am certain that you will address
these concerns today in your testimony. I look forward to
hearing you.
Thank you, Mr. Chairman.
Senator Van Hollen. Thank you, Senator Hagerty. We have
been joined by Senator Kennedy.
And now I am going to turn it over to Chair Rosenworcel.
And we will not go through your long and very impressive
biography, but just to say that the Chair has over two decades
of communications policy and public service experience,
including as the Senior Communications Council for the United
States Senate Committee on Commerce, Science, and
Transportation.
And with that, let me turn it over to you. If you could try
to keep your opening statement to about 5 minutes; and then we
will take questions. Chair Rosenworcel.
STATEMENT OF HON. JESSICA ROSENWORCEL, CHAIRWOMAN, U.S.
FEDERAL COMMUNICATIONS COMMISSION
Chairwoman Rosenworcel. Thank you. Chairman Van Hollen,
Ranking Member Hagerty, Senator Kennedy; thank you for the
opportunity to appear before you today, and for providing full
funding for the FCC in your fiscal year 2024 bill.
As a fee-funded agency, the FCC has worked hard to develop
a budget that maximizes benefits to consumers while remaining
fair to those responsible for funding our requested
appropriation. We do this because the work of the FCC matters.
Communications technologies power one-sixth of the economy, and
I believe everyone needs access to these technologies to have a
fair shot at 21st-century success.
Although this is not my first hearing before this
subcommittee, it is a first in other ways. It is my first
presentation of the agency budget under my leadership, and the
first time in our Nation's history that a woman has permanently
led the FCC.
So let me draw attention to some of the recent efforts of
the agency. First up, our Affordable Connectivity Program, it
is the largest broadband affordability effort in the history of
the United States. It now helps 21 million households get
online and stay online. But for this program to continue to do
this good work, we will need additional funds because support
from the Bipartisan Infrastructure Law will run out as early as
April of next year. We have come too far to turn back. Keeping
this program funded needs to be a priority.
Of course, this program is not the only one to help get
broadband to those who need it. I want to acknowledge that the
Emergency Connectivity Fund, championed by Chairman Van Hollen,
has also been instrumental in closing the digital divide,
especially for students.
Second, the FCC launched its Space Bureau. The space
economy is growing fast, and the agency's satellite licensing
policies need to keep up. I want to thank the subcommittee for
supporting this reorganization.
Third, we have modernized our regulatory fee structure to
be more transparent and fair.
Fourth, we have developed the National Broadband Map. It is
a detailed effort to identify where broadband is and is not all
across the country. This effort is iterative; it is improving
all the time.
Fifth, we implemented the Pirate Act. The budget increase
you provided has made it possible to enforce this law.
Sixth, the FCC is working to connect the most vulnerable.
We are implementing the Safe Connections Act to assist
survivors of domestic violence. We are also implementing the
Martha Wright-Reed Just and Reasonable Communications Act to
ensure that the rates for prison pay phone calls are truly just
and reasonable. On top of this, we took steps to ensure video
conferencing services have those that have become ubiquitous,
like Zoom, Teams, and WebEx, are accessible to people with
disabilities.
Seventh, we are doubling down on our efforts to stop scam
robocalls and robotexts. We have new technologies to cut them
off and new legal procedures to stop carriers from sending
along these scams, and our efforts are beginning to bear fruit.
For instance, we were able to shut down a major auto warranty
robocall scam, but we are going to need new tools from Congress
to continue to keep this junk off the line.
Eighth, we are connecting people to emergency services. We
set up 9-8-8, the new three-digit easy-to-remember number to
call or text the Suicide and Crisis Hotline.
Ninth, we are focused on network security. We have updated
our rules to improve the reliability of wireless networks
during disaster, and for the first time in history, we have
revoked the authorization to provide telecommunications
services for Chinese communications providers. We have also set
up the Secure and Trusted Communications Networks Reimbursement
Program to remove and replace insecure equipment in our
Nation's networks. To fully fund this effort, we will need
additional funds.
And tenth, we are focused on spectrum policy. We are
identifying airwaves in the 7 to 16 gigahertz span to ensure
the United States leads in 5G, 6G, and beyond. We have also put
a premium on ensuring Spectrum reaches Tribal communities. As a
result of our work, today, more than 80 percent of federally
recognized Tribes have access to licensed spectrum.
But as we plan for the future, we need Congress to restore
the FCC's Spectrum Auction Authority. For 3 decades the agency
has had the power to auction airwaves for commercial use.
During that time, we have held 100 auctions and raised $233
billion for the United States Treasury. Letting this authority
lapse jeopardizes our wireless leadership and ability to
compete in a global economy. Simply put, we need this authority
back.
Thank you again, to the subcommittee for your support for
the fiscal year 2024 bill. And I look forward to answering any
questions you might have.
[The statement follows:]
Prepared Statement of Jessica Rosenworcel
Chairman Van Hollen, Ranking Member Hagerty and Members of the
Financial Services and General Government Subcommittee, thank you for
this opportunity to appear before you today.
I want to start by thanking the Subcommittee for its decision to
provide full funding for the Federal Communications Commission in your
Fiscal Year 2024 FSGG bill.
The work of the Commission matters. Communications technologies
power one-sixth of the nation's economy--and everyone needs access to
these technologies to have a fair shot at 21st Century success. As a
fee-funded agency, the Commission has worked hard to develop a
reasonable budget that maximizes benefits to consumers, while remaining
fair to the industries responsible for funding our requested
$410,743,000 appropriation. Your support will go a long way toward
ensuring that the Commission meets its statutory mandates and upholds
the core values of our laws--consumer protection, universal service,
competition, national security, and public safety--all while keeping
pace with ever-changing and advancing technologies.
Although this is not my first hearing before the Financial Services
and General Government Subcommittee, it is my first presentation of the
budget as Chairwoman, and the first woman to permanently lead the
agency in our Nation's history. I'd like to highlight some the
Commission's recent work, made possible by your support of our budget,
under my leadership.
First, the Commission's Affordable Connectivity Program, the
largest broadband affordability program in our Nation's history, now
helps 21 million households pay for high-speed Internet service. Across
the country, I have met with people who have been able to get online
and stay online thanks to this program for work, school, healthcare,
and more. Our current projections indicate that the appropriated funds
provided through the Infrastructure Investment and Jobs Act to keep
these households connected will run out as early as April of next year.
I strongly support identifying a way to fund the Affordable
Connectivity Program into the future to help more families get and stay
connected to the high-speed Internet they need to participate in modern
life.
In addition to the Affordable Connectivity Program, I want to note
the work the agency did with the Emergency Connectivity Fund, a program
Senator Van Hollen championed. This one-time effort developed during
the early days of the pandemic was designed to assist students and
library patrons with access to connections and devices. To date, more
than 18 million students have benefited from Emergency Connectivity
Fund support. It has helped close the Homework Gap, ensuring that kids
everywhere have the ability to get online for schoolwork both in the
classroom and at home.
Second, we are doing our part to keep pace with rapid development
of the satellite sector and the growing importance of space-based
communications. I want to thank the Subcommittee for supporting our
ability to do this by approving the Commission's request earlier this
year to establish the Space Bureau. The space industry has entered an
era of unprecedented growth, which is fueling an increase in both the
complexity and the number of applications for space services before the
Commission. The Space Bureau is up and running and already hard at
work. The Commission is preparing for the coming convergence of
satellite and terrestrial convergence--we call it Single Network
Future. And later this week, the Commission will vote on new rules to
streamline our satellite policies and expedite the processing of space
and earth station applications as well as a new licensing framework for
commercial space launches.
Third, the Commission made the regulatory fees that support our
work more transparent and more fair. In August, we unanimously adopted
a long-overdue, comprehensive review of our internal regulatory fee
process that aligns the assessment of regulatory fees more closely with
the burden of the work being performed by Commission employees in each
category.
Fourth, the agency's work to create the National Broadband Map--the
most accurate broadband map ever created--will help close the digital
divide. For decades, the Commission produced broadband maps based on
Census blocks. In practice, this meant that if there was high-speed
Internet service in a single location in a Census block, the agency
assumed there was service throughout the area. Needless to say, this
methodology overstated service nationwide. Following the Broadband DATA
Act, in November 2022, thanks to the appropriated funds you provided--
$98 million total--the FCC developed its first location-based broadband
map to paint a more accurate picture of where broadband is and is not
available across the United States. This new map identifies every
household and small business in the country that should have access to
high-speed Internet service. For context, on how much more granular
this is than what came before, in our current mapping effort the
Commission identified over 114 million locations where fixed broadband
could be installed compared to data from just 8.1 million Census blocks
in our prior maps. We will keep iterating and improving this map and
look forward to using this data to help efforts all over this country
to bring broadband to everyone, everywhere. Given the time, effort and
money that went into starting it up, we need to make certain that we
have the resources to continue to update and maintain our maps well
into the future.
Fifth, we implemented the Pirate Act and enhanced our protections
of licensed broadcasters from pirate radio. We did this with a $5
million budget increase to our base appropriation to support this
resource-intensive, on-the-ground work. In addition to tougher fines on
those who violate the spectrum rights of broadcasters, the law requires
the FCC to conduct periodic enforcement sweeps, and grants the
Commission authority to take enforcement action against landlords and
property owners that knowingly permit illegal pirate radio activity on
their properties. In March, we proposed over $2 million in fines
against violators. And in 2023 so far, we've issued 24 notices to
property owners warning them of apparent pirate radio broadcasts from
their property. At the current spending level approved by this
Subcommittee, we will be able to continue this important work.
Sixth, the Commission is working to connect the most vulnerable.
This past February, the Commission took steps to implement the Safe
Connections Act. Under this new law, the Commission now has authority
to help survivors of domestic abuse to swiftly and securely separate
from communications contracts like family plans and receive emergency
communications support from Lifeline or the Affordable Connectivity
Program for up to 6 months.
We are also implementing the Martha Wright-Reed Just and Reasonable
Communications Act. We are going to use this new law and the expanded
authority it provides to ensure the rates for prison phone calls--both
interstate and intrastate--are just and reasonable. We are going to use
it to address advanced communications services like video. And we are
going to use it to ensure access to these communications by those with
disabilities.
In addition, in June, we took steps to make the video conferencing
services that have become ubiquitous more accessible to people with
disabilities.
Seventh, we are doubling down on our efforts to stop scam robocalls
and robotexts. Robocalls and robotexts aren't just exasperating, they
are a pathway for fraudsters to harm consumers. So, we have been
attacking them from all angles--cutting off bad actors from our
networks, requiring providers to block unwanted calls, and mandating
technology to stop call spoofing. Some of our efforts are beginning to
bear fruit. After we identified the companies behind the auto warranty
robocall scam, we told the rest of the industry to cut them off and
auto warranty calls fell by over 90 percent. We used the same method to
reduce student loan scam calls by 88 percent. And because this is
problem that requires coordination among law enforcement, we now have a
memorandum of understanding with Attorneys General from 47 States.
Eighth, the Commission is helping connect people to emergency
services. This past July was the first anniversary of 988--the three-
digit, easy-to-remember number you can dial to reach the Suicide and
Crisis Lifeline. Thanks in part to the Commission's work, if you text
or dial 988, you will now be connected to professional, compassionate
support for mental health emergencies.
Ninth, the Commission is doing more than ever before to keep your
communications more resilient and secure. For example, we have updated
our rules to improve the reliability and resiliency of wireless
networks during emergencies. We launched the Mandatory Disaster
Response Initiative, which promotes service continuity through
coordination, assistance, and information sharing during emergencies
and disasters. And we opened up our Network Outage Reporting Systems
and Disaster Information Reporting System for sharing with Federal,
state, Tribal and territory access. Sharing this information will
enhance the ability of these agencies to respond more rapidly to
outages and help save lives.
And under my strategy of ``deter, defend, develop'': deter bad
actors, defend against untrusted vendors, and develop a market for
trustworthy innovation, the Commission has taken a number of actions to
protect our networks from national security threats. For the first time
in history, we have revoked the authorization to provide
telecommunications services for four Chinese communications providers.
In addition, the Commission adopted my proposal to regularly review
foreign companies' authorizations to provide telecommunications
services in the United States. On top of this, we have launched the
Secure and Trusted Communications Networks Reimbursement Program to
remove Huawei and ZTE equipment in our communications networks. This is
important for our domestic security and also sends a signal to the
world that going forward we will not support insecure equipment in
essential infrastructure. However, the $1.9 billion previously
appropriated to operate the Secure and Trusted Communications Networks
Reimbursement Program is not going to be enough to secure our networks.
After receiving and reviewing applications, we currently face a more
than $3.08 billion shortfall to fully reimburse participating carriers
for removal, replacement and disposal of the problematic equipment. The
Commission has received its first reimbursement requests from
participants and, unless a further funding source is identified, will
only be able provide forty cents on the dollar to those companies in
reimbursement.
And tenth, we are finding more ways to use spectrum to support
wireless communications into the future. We are working to free up more
spectrum to serve as a launching pad for new technologies. We have
already identified the 7-16 GHz band as prime mid-band airwaves for 5G,
6G and beyond. That is why I proposed making 550 megahertz of spectrum
in the 12.7-13.25 GHz band available for new commercial mobile use. And
we're not stopping there, the FCC is already looking to what a 6G
future could look like including its impact on the digital divide,
machine learning, how it could make life easier and more efficient for
consumers, and new ways to connect industries, technology, and
communities. Those communities include Tribal communities, and as a
result of our work in the 2.5 GHz band, today more than 80 percent of
federally-recognized Tribes have licensed spectrum. That is real
change--and real opportunity.
But as we plan for the future, we also need to be mindful of the
spectrum demands in the present. And one thing that absolutely needs to
happen is the restoration of the FCC's spectrum auction authority. For
three decades the FCC has had the authority to auction off airwaves to
commercial actors to use to deploy, create, and innovate. But on March
9 of this year, that authority expired for the first time. As this
Committee knows, if this is not corrected, it could have a tremendous
impact. Over the past three decades, the FCC has held 100 spectrum
auctions and, in the process, raised more than $233 billion for the
United States Treasury.
Restoring this authority will provide the United States with the
strongest foundation to compete in a global economy, counter our
adversaries' technology ambitions, and safeguard our national security.
Most importantly, we cannot afford to wait. The global wireless
community is convening for the World Radiocommunication Conference at
the end of this year. It is where we set the future of spectrum policy.
Restoring the FCC's auction authority is the first step in doing that,
and it is my hope we can do it soon.
So that's ten things the FCC is doing to bring high-speed
connectivity to everyone, everywhere that is secure, resilient, and
ready for the future. The budget that this Subcommittee has provided in
its FY2024 FSGG bill will help to support these critical efforts into
the future. Thank you for the opportunity to join you today to share
these details about the Commission's ongoing work. I look forward to
your questions.
Senator Van Hollen. Thank you. Thank you, Madam Chair.
And I am going to start where you left off on the issue of
spectrum authority and just get your sense of what the harmful
impact is to our economy, to our national security, to a whole
range of issues because that authority has now lapsed? And if
you could just provide your impressions about how we can best
navigate a solution, which of course does need to come from
Congress.
Chairwoman Rosenworcel. Thank you. The United States is a
wireless leader. The smartphone started here, the application
economy began on our shores, and we have powered this wireless
revolution with spectrum. We have been able to take airwaves
and repurpose them for new commercial use and hold commercial
spectrum auctions. Those auctions have been a model for the
world, and they have been lucrative for the United States
Treasury. Like I just mentioned, we have raised $233 billion.
But for the first time in 3 years, we don't have that
authority. And this year is an especially important year
because we are going to the World Radio Conference. That is a
conference where global spectrum authorities gather every 4
years to discuss their plans for the wireless future. And in
the United States, we now do not have the authority to hold
commercial spectrum auctions, and we lack a commercial spectrum
pipeline.
So what I am concerned about is that the future won't look
like the past, and our leadership is less secured than it
should be.
Senator Van Hollen. Well, thank you. Thank you, Chair
Rosenworcel. And just, to my colleagues here, we have really
got to resolve this. I mean, as you know, it expired in March
and, you know, we are just hurting our own country and our
economy. So I hope we will all figure out a way forward on
this.
If I could turn now to trying to connect all of America to
high-speed Internet, and really ask you to focus on two
programs that both you and I mentioned in our opening
statements. One is the Affordable Connectivity Program. How
many people are on it? How many people do you expect to join in
the coming weeks? And what would be the consequences of
Congress failing to provide additional funding for that
program? And actually, I will wait until you answer that one
before I ask a second question.
Chairwoman Rosenworcel. All right, it gets complicated
fast. The Affordable Connectivity Program is the largest
broadband affordability effort in our Nation's history. It is
the byproduct of the Bipartisan Infrastructure Act. The FCC
runs it; it means low-income households in every State can get
access to support for basic broadband service. It is helping 21
million households across the country get online and stay
online.
Right now, our best estimate is that the funding provided
in that law will run out in April, and by April, we might have
as many as 25 million households that are connected to this
program. We have come so far; we can't stop now. We absolutely
need another direct appropriation from Congress to continue the
good work this program is doing. It has been of extraordinary
benefit to people around the country who can now go to work, go
to school, take health care appointments, and participate in
their communities because they have reliable Internet access.
Senator Van Hollen. Well, thank you. As you said, I think
24 million people and in every State around the country, this
would obviously be a huge blow to our effort to really connect
people, because physical connection is important, but if you
can't afford it, it doesn't do you much good.
On the homework gap issue, but as you indicated during the
pandemic, we put in place the Emergency Connectivity Fund.
Those funds will--those dedicated funds will expire at the end
of this year. There was an emergency program, but we are
hopeful that you will be able to adapt the E-Rate Program to
make sure that we don't lose the ground we have gained and
instead build upon that foundation. Can you talk about some of
your ideas for doing that?
Chairwoman Rosenworcel. Sure. The E-Rate Program is a quiet
powerhouse. Since 1996, we have been able to connect schools
and libraries across the country to high-speed Internet. We
lead the world in our efforts to do so. And what we need to do
now is update that program for the moment we are in. So I have
proposed what I call Learn Without Limits, where we use the E-
Rate Program and modernize it. For kids in rural America who
spend lots of time on a school bus, we propose to use the E-
Rate program to develop Wi-Fi on Wheels, to hook those school
buses up to the school network so kids who spend time on those
school buses can get some school work done.
I have been on buses in rural communities that have it; it
is pretty dramatic, and those buses were funded by the
Emergency Connectivity Fund, so we know it works.
Now, the other part of Learn Without Limits is making sure
every school library and library in this country has wireless
hotspots to loan out. I think the E-Rate Program is well suited
for doing both of those things, and in the process, it can help
us solve that homework gap you and I have talked so much about.
Senator Van Hollen. Thank you. And we look forward to
working with you on those initiatives.
Senator Hagerty.
Senator Hagerty. Thank you, Chairman Van Hollen.
And welcome again, Chair Rosenworcel. We have talked about
National Security before. I would like to talk with you about
it again today. We all know that Chinese technology is a threat
not only to the Federal Government but to private industry here
in America, and the FCC's covered list effectively bans the
sale, bans the use, and the importation of certain
communications equipment and services. I think it is a very
potent tool.
One of the things, and you and I have touched on this
before, is it seems that the list is quite narrow, and so just
as an opening question, I would like to ask you. Is the
Commission being deliberately cautious here, or is there
something that is holding you back?
Chairwoman Rosenworcel. That is a really good question,
Senator. The covered list is a list of equipment that our
Nation's National Security authorities have found to be
insecure, and as a result, it cannot be used for any FCC
expenditure. So if you get money from us to help you build your
network, you cannot use it to purchase any of that equipment.
We update it from time to time, but we only are permitted
under the law to update it if national security authorities
identify additional companies. And so on a fairly regular
basis, we reach out to those national security authorities
enumerated in the law, like the FBI, like the Department of
Justice, like the Office of the Director of National
Intelligence, and ask for updates. And recently, we even wrote
them with the names of two companies that had been brought to
our attention by some Members of the House of Representatives
and asked for their assessment on it.
So if I could ask you to do one thing, it would be to make
sure that those national security authorities get back to us
and help us keep that list up to date.
Senator Hagerty. That is a very helpful suggestion, and I
think our work right here on the Appropriations Committee, we
may be able to help in that regard.
Staying on this, the covered list, what would be the
implications of a more extensive list, even a retroactive list?
How would that help you utilize the covered list to the fullest
extent?
Chairwoman Rosenworcel. Well, a covered list has other
values too. I just want to acknowledge that when we publicly
produce a list of equipment that we believe is insecure that
the government won't support we are also telling the private
sector this isn't stuff you should be buying or using.
Senator Hagerty. It is an important message.
Chairwoman Rosenworcel. And we are also telling the global
economy that we don't trust this equipment. So I do want to
acknowledge that that list has power beyond just the FCC and
our immediate programs. I think it is narrow because our
national security authorities are careful, which is
appropriate, but I also think we can't let this list wither. We
need to update it from time to time and reaching out to them
regularly as we do has been useful, but of course, you also
pointing out that this should be a priority would be helpful as
well.
Senator Hagerty. And amplify the point you just made; when
I was serving in a previous role as United States Ambassador to
Japan, the third largest economy in the world, we were able to
get them to block untrusted carriers because of what had
happened here. Our ability to point to that, and the example
that we set, as you say, can have repercussions around the
world. So thanks for that to continue.
Chairwoman Rosenworcel. Absolutely. That is absolutely
correct.
Senator Hagerty. The strength of the covered list rests
with the Commission's Equipment Authorization Program, and that
predates the covered list. And my question is if -- you had the
Equipment Authorization Program, are there other FCC programs
that are already in place that might serve as a foundation for
addressing national security concerns beyond the covered list?
Chairwoman Rosenworcel. We have been exploring what kind of
certifications might be necessary from applicants before the
FCC.
Senator Hagerty. Mm-hmm.
Chairwoman Rosenworcel. For instance, if you are about to
bid in a spectrum auction in the future, should you certify
that none of your funding comes from countries whose revenues
and governments we have concerns about? We have also been
exploring whether or not when we give you an authorization to
participate in our economy, what kind of national security
questions we should ask at the outset, including what
equipments might be used in your networks, and what kind of
managed services you might get from some foreign-provided
company.
So we are looking across the board for other points to
create opportunities for certification to make sure that
networks in this country are secure.
Senator Hagerty. As you think about the national security
ramifications of what you do, and I am sure you do this every
day, know that our staff stands ready to work with you, and
that I would be very interested in any thoughts that you might
have in terms of looking at existing authorities and new ways
to utilize those. And frankly, if there is any way we can
support you in that, or if you need our support, letting us
know.
Very quickly, I would like to turn to the satellite
industry. It is growing; it has an incredibly important role in
communications. The creation of the Space Bureau is intended to
align the Commission's resources with its responsibilities. And
I just want to get an update from you on what the current
status of the space Bureau is, how you are going to know if the
reorganization that you are undertaking is a success? How will
you measure that?
Chairwoman Rosenworcel. Sure. First of all, I want to thank
the subcommittee for supporting this reorganization. When I got
to the agency and I saw the backlog we had of satellite
applications, I felt that we had to reorganize to address them
more rapidly. Just this week, the agency will be voting on an
effort to streamline the application process. We also have a
transparency initiative.
And then globally, we are leading with what I call the
``single network future'' because we are trying to develop a
framework for figuring out how terrestrial wireless services
can combine with new satellite services in the phones in our
pockets and the devices on the ground. So I think we are
actually making great strides. The challenge now is to continue
and to hire people who can help us with all the applications we
have before us.
Senator Hagerty. And I would think you will find great
opportunities as well for cost savings when you think about
your connectivity objectives as well, utilizing this, as you
call it, the ``single network'' approach----
Chairwoman Rosenworcel. The future.
Senator Hagerty [continuing]. Future. Thank you.
Thank you, Mr. Chairman.
Senator Van Hollen. Thank you Senator Hagerty. We have been
joined by Senator Manchin, who has agreed to defer his
opportunity to question first to Senator Kennedy.
Senator Kennedy.
Senator Kennedy. Okay. Thank you, Senators.
Madam Chair, welcome. You have been on the FCC for a while,
haven't you?
Chairwoman Rosenworcel. Mm-hmm.
Senator Kennedy. You know what I am talking about then when
I refer to the C-band.
Chairwoman Rosenworcel. I do. I do.
Senator Kennedy. Yes, I bet you do. That is sort of the
part of the spectrum that the companies that want to roll out
5G cell phone service really need; am I right?
Chairwoman Rosenworcel. It is mid-band airwaves that are
like Gold Coast territory for wireless.
Senator Kennedy. All right. I am going to call them the C-
band. You will remember then in 2018, I certainly do.
Chairwoman Rosenworcel. Mm-hmm.
Senator Kennedy. Not you, but some of your colleagues on
the FCC decided they were going to give the C-Band away, my
words, not yours. At the time, that C-band, we didn't know how
important it was. It was licensed to some foreign satellite
companies.
Chairwoman Rosenworcel. That is right.
Senator Kennedy. And we discovered how valuable that C-band
was. And the 5G telecommunication companies, mostly American
companies, were really anxious to get it. And some members of
the FCC, and frankly some senators, came up with a proposal to
give that C-band to the foreign satellite companies and let
them sell it to the 5G companies and keep the money.
And I didn't like that, and neither did Senator Cantwell,
and neither did Senator Schatz. And we called the President and
insisted that--and the President called the FCC and said we
need to bid this out. Do you remember all that?
Chairwoman Rosenworcel. I do, Senator. Yes.
Senator Kennedy. And we saved about $81 billion. Now, you
have been auctioning the C-Band out. You held an auction in
September, did you not?
Chairwoman Rosenworcel. Yes.
Senator Kennedy. Number 107, I think it is called.
Chairwoman Rosenworcel. I believe that is right. Auction
107 as referenced here involved the auction of the C Band (3.7
GHz band), but that auction took place between December 8, 2020
and February 17, 2021. Auction 107 garnered over $81 billion
for the U.S. Treasury and no longer has outstanding
applications on file. Auction 108 (2.5 GHz band) occurred from
July 29, 2022 to August 29, 2022 with the winning bidders
published on September 1, 2022. Auction 108's licensing process
was incomplete when the FCC's auction authority expired under
Section 309(j) of the Communications Act.
Senator Kennedy. Okay. The problem, that we have got two
problems here, your authority to hold auctions has run out.
Chairwoman Rosenworcel. Yes.
Senator Kennedy. And number two, more immediately, you
conducted some auctions in September, awarded some licenses to
the C-band based on auctions, highest bidder.
Chairwoman Rosenworcel. That is right. The licenses in
question are for the 2.5 GHz band. The licensing process for
the winning bidders cannot be completed due to the expiration
of auction authority under Section 309(j) of the Communications
Act.
Senator Kennedy. Took those companies' money, and then your
authority ran out.
Chairwoman Rosenworcel. That is right.
Senator Kennedy. And the FCC hadn't given them the
licenses.
Chairwoman Rosenworcel. That is right.
Senator Kennedy. Why can't you give them the licenses, they
paid for it.
Chairwoman Rosenworcel. I agree with you, the situation is
unfair. They paid for it. They deserve to have that license.
Senator Kennedy. So why can't you give it to them?
Chairwoman Rosenworcel. So the Communications Act is very
straightforward. It says: Our authority to grant licenses
expired on March 9, 2023. We got a lot of laws before us that
are tortured and confusing, but this is a straightforward
provision; it expired.
Senator Kennedy. Okay.
Chairwoman Rosenworcel. And so we are going to need your
help getting rid of that expiration.
Senator Kennedy. What if we did two things? What if, number
one, to solve the immediate problem, we passed a bill that
said, only one time, short-term basis, we are giving you, Madam
Chair, and the FCC, the authority to go ahead and award those
licenses that people have already paid for? That is the first
bill. The second bill would be to renew your authority to hold
auctions. Would you have any objection to us doing those two
things?
Chairwoman Rosenworcel. Sure. I don't object to you trying
to be specific about the licenses in your bill. But I want to
emphasize how much we do need that authority back.
Senator Kennedy. All right. Tell me. I mean, this sounds
very, very simple when we talk about it here, tell me, tell me
who is pushing back on reauthorizing your authority to hold
auctions?
Senator Kennedy. Well, that is happening in Congress. I
certainly have uniform support among my colleagues at the FCC
for getting auctions reauthorized.
Senator Kennedy. But who is--who is against it? And I am
not asking personalities, I am asking what interest groups are
against it?
Chairwoman Rosenworcel. Well, you know, the way that we
auction spectrum, and have in the last several years, the C-
band being an exception, is we frequently identify airwaves
with Federal users, from the Department of Defense, or the
Department of Transportation, and we say, perhaps they could do
the same function with a little less spectrum.
And then we identify a way to take some of that spectrum,
repurpose it for new commercial use. And then with the revenues
from our auctions, we make the Defense Department or the
Department of Transportation whole by giving them funds from
the auction----
Senator Kennedy. So you are getting pushed back from the
Defense Department and the Department of Transportation?
Chairwoman Rosenworcel. Well, those are the two largest
Federal authorities with airwaves below 6 gigahertz, so I
focused on them here. But the reality is we are putting more
stuff in our skies for communication than ever before, they all
have to----
Senator Kennedy. I know. But you can't say this, but I can.
You are getting pushed back from Defense and Transportation. We
have got a turf battle here. What can we do to sit down with
DOD, and Transportation, and the FCC and work this out? We are
all for national defense.
Chairwoman Rosenworcel. Absolutely.
Senator Kennedy. We are also for 5G. So what can we do to
get this worked out?
Chairwoman Rosenworcel. Well, I could offer the services of
my office and my whole agency to assist you because I want to
make clear that when our commercial wireless economy grows,
technology expands, and the U.S. does better. That is true
across the board.
Senator Kennedy. If our Chairman called a meeting and tried
to get everybody together, would you come to it?
Chairwoman Rosenworcel. I would.
Senator Kennedy. And would you bring your colleagues on the
FCC?
Chairwoman Rosenworcel. I would. Absolutely.
Senator Kennedy. Okay. We need to get this battle worked
out.
Chairwoman Rosenworcel. I agree with you.
Senator Kennedy. Thank you, Mr. Chair.
Senator Van Hollen. Senator Kennedy, before I turn it over
to Senator Manchin, I say, amen, to everything you said, both
in terms of making sure that those companies that have already
paid for their spectrum should get it. But they could also get
that if we just reauthorize the--write the authority to enter
into these contracts.
I talked to Senator Cantwell about this issue today, who
chairs the Senate Commerce Committee with authorizing
jurisdiction. Not a long conversation. But I agree with you. We
need to get this done in the coming weeks because it is hurting
all of us. Thank you.
Senator Manchin.
Senator Manchin. I also agree. Let me just say this, the
fiscal year 2021 Omnibus Bill appropriated $1.9 billion to
carry out the Secured and Trusted Communications Networks
Reimbursement Program, which is also known as a Rip and Replace
Program.
Chairwoman Rosenworcel. Yes.
Senator Manchin. For all the people that we say are out
there that we got to get off these services. Where do you stand
on that? What are the security implications that we are not
fully aware of, and we are not----
Chairwoman Rosenworcel. Well, there is insecure Chinese
equipment----
Senator Manchin. Right.
Chairwoman Rosenworcel [continuing]. And many of our
Nation's smallest wireless carriers, and Congress provided us
with $1.9 billion to take it out so they could replace it.
Senator Manchin. Right.
Chairwoman Rosenworcel. But as I have told the authorizing
committees, we need an additional $3.08 billion to fully take
that equipment out securely and place----
Senator Manchin. We are paying for all, the Federal
Government is paying to reimburse those who were led to believe
this is safe and secure and it is cheaper.
Chairwoman Rosenworcel. That is exactly right. I think we
have decided that this equipment is insecure----
Senator Manchin. And so would you----
Chairwoman Rosenworcel [continuing]. And we need to take it
out at all costs. And the smallest carriers have it in their
networks with the least resources and the fewest companies--and
the fewest customers.
Senator Manchin. Okay.
Chairwoman Rosenworcel. So Congress set aside funding for
it but those funds are not sufficient to fully fund
reimbursement.
Senator Manchin. Madam Chairwoman, then talk to me about
your FCC's budget for 2024.
Chairwoman Rosenworcel. Yes. Our budget maintains----
Senator Manchin. Is it in there? Is your request in there?
Chairwoman Rosenworcel. Our request is not part of our
budget. That funding was set aside in the Infrastructure
Investment and Jobs Act, Division J, Title IV.
Senator Manchin. The reason I am saying that this is --
everything we are talking about is extremely important. That
was one of the most offensive things that we had found out
about all the different users that we had using something that
could be detrimental to all of us and our security.
Chairwoman Rosenworcel. Yes.
Senator Manchin. So to me, that would be a high priority.
That I think if you don't identify it, I can guarantee you,
they won't come forward and just say: Oh, yes, we still think
that is needed. But it must not be your highest priority
because it is not in your budget request.
Chairwoman Rosenworcel. Well, we have--I have written to
Members of Congress on this on five or six different separate
occasions asking to be able to have this funding made
available. So we have made it a priority, and we are working
with the carriers that have it in their networks right now to
try to identify what our funding stream options are.
Senator Manchin. What are your highest priorities right now
within your budget request; as far as the mission of the FCC?
Chairwoman Rosenworcel. I think we have got to make sure
that we figure out a way to get broadband to everyone in this
country. We have got to make sure that our maps can actually be
accurate and help with that process. We got to make sure that
wireless services reach everyone and that we get our spectrum
authorities back.
Senator Manchin. How do you, how do you in rural areas such
as mine, in Louisiana, and Tennessee, and on, and on, and
Maryland even has some rural areas that I am very familiar
with, how do we make sure that the carriers who have exclusive
rights in those areas, who have had rights, and have told us
everything in the maps would have been totally erroneous, or
maps when they protect their territory? How can we make sure
that they are doing what is needed?
I had a person call me today, one-half mile from where
Frontier was going eight homes down over, and they won't come.
How can it be----
Chairwoman Rosenworcel. Yes. No, we hear stories like that
all the time.
Senator Manchin. Yes.
Chairwoman Rosenworcel. What we are trying to do with our
maps, and this is a process, it is not something that happens
overnight, as we build the kind of database where consumers,
States, and municipalities can come to us and say: This
information's not right. I live here, and in my own backyard,
let me tell you, you have got it wrong. And what the carriers
are telling you isn't right.
And I think you know we have been working with the West
Virginia Broadband Office to do a lot of that work, and a lot
of State broadband offices have really stepped up to help us
understand where our data is right and where it is wrong. And I
just got to tell you, we are going to have to commit to that
process for the long haul to make sure that things like those
BEAD monies that are being spent right now get spent in the
right places.
Senator Manchin. Do you have enough resources to do the
mapping and making sure the maps are accurate and followed as
we designed?
Chairwoman Rosenworcel. We do right now, but in the next
fiscal year we will have to ask for an additional appropriation
to keep those maps up and running, and continue to improve
them.
Senator Manchin. My recommendation would be, based on what
we talked, with the Huaweis, and all the concerns we had, that
we just mentioned, that that be a high priority of yours to ask
in your budget?
Chairwoman Rosenworcel. Yes.
Senator Manchin. And so for the additional background on
this because just in common sense, I tell people back home, and
they remember their grandparents, or great-grandparents talking
about when they had no electricity, in 1936 we had the rural
broadband electrification. I could never figure how we got into
so many hollers and up so many creeks and everything else. I
never could figure it out. And then I heard about co-ops.
Chairwoman Rosenworcel. Yes.
Senator Manchin. And it was people who didn't basically
look at anything except the service they needed, and they
gathered as a co-op and was able to take it the lowest cost. Is
that type of a model still available for broadband when we
can't get the big guys to go because they say, well it is not--
there is no return on investment, so why are you forcing me to
go up this hollers, or down this road here, and there is only
five people?
Chairwoman Rosenworcel. I think we have a perfect analog
with the Rural Electrification Act. I mean, there was a time
where we thought we could only bring electricity to the cities;
you weren't going to turn the lights on in parts of rural West
Virginia.
Senator Manchin. There is not that many rural co-ops still
left.
Chairwoman Rosenworcel. And what we did was we mapped where
electricity was and was not, and then we identified where
commercial actors could take it, and where commercial actors
wouldn't take it, we developed public-private partnerships to
deploy in those communities.
Senator Manchin. So we can go--we can identify some areas
ourselves where they are just, they just cannot get service. I
mean, I am sure that John, I am sure that all of us here have
that same problem, and if we can identify that to where you
will assist and help them put a collective together?
Chairwoman Rosenworcel. Absolutely. What you have to be
mindful of, is some State laws prevent some of those municipal
deployments, and you need to make sure that the State
legislature does not stop those activities from happening. But
you know history shows that when we didn't have barns, or
roads, or bridges, we came together as communities to build
them.
Senator Manchin. Sure.
Chairwoman Rosenworcel. This, to me, feels exactly the
same.
Senator Manchin. Well, we have got one shot, because you
have put a lot of money on it right, and if we don't follow
through we will not have it.
Chairwoman Rosenworcel. You are right. The BEAD Program is
a-once-in-a-lifetime kind of effort.
Senator Manchin. Thank you.
Senator Van Hollen. Well, thank you, Senator Manchin.
And as the Chair Rosenworcel said, in some of these areas
and, you know, because we have had conversations in Western
Maryland; in some of the areas there has been local resistance
to allowing a municipality, for example, to simply, you know,
start their own broadband service, if there is no other
provider, and some State laws preempt it, but I look forward to
working with you on that.
Let me just say with respect to Rip and Replace, right,
this was our effort to improve the security of our own
networks, there were a number of networks around the country
that had ZTE and Huawei, part of it. As part of the 2021
Omnibus, we collectively, Congress provided $1.9 billion in
mandatory funding to rip and replace those funds. So it has
never been part of the baseline, it was considered a one-time
expenditure. It was not enough. So my understanding, and
correct me if I am wrong Madam--Chair Rosenworcel, is that it
requires another approximately $3 billion to finish the job; is
that right?
Chairwoman Rosenworcel. That is correct.
Senator Van Hollen. And we are hoping that that might be
included as part of an effort to extend the--your authority
when it comes to--you know, when it comes to the sales, leasing
of the spectrum.
Chairwoman Rosenworcel. That is right.
Senator Manchin. Mr. Chairman, can I just follow up on?
Senator Van Hollen. Yes.
Senator Manchin. Is that only for domestic?
Chairwoman Rosenworcel. Yes.
Senator Manchin. Rip and Replace is just for a domestic?
Chairwoman Rosenworcel. Just for carriers in the United
States.
Senator Manchin. The United States, because we have an
awful lot of our allies who really follow----
Chairwoman Rosenworcel. Absolutely; but only carriers in
the United States, yes.
Senator Manchin. Got you.
Senator Van Hollen. Let me turn quickly to the question of
robocalls. And we are obviously going to do another round of
questions for any members who are interested.
Robocalls are obviously a constant challenge for consumers,
and it is always a bit of a cat and mouse game, trying to keep
one step ahead of the robocallers who are violating the law. So
if you could speak to two things, one the challenge of
collecting fines that have been leveled against violators and
whether we can be helpful in any way, or whether they are sort
of fly-by-night operations.
The second as you mentioned in your testimony the need for
Congress to help you fill a loophole in the law, my
understanding is there has been a recent lawsuit, and maybe
current law does not cover texting. So if you could cover those
two issues.
Chairwoman Rosenworcel. Sure. Robocalls are annoying,
robotexts are irritating. We need to do everything we can to
stop them. We have deployed new technology like STIR/SHAKEN. We
have got a Trace Back Consortium working on it. I have now got
partnerships with 47 of our State Attorneys General to work
with them on this issue. We have issued cease-and-desist
letters; we are doing new things, new tools. But there are two
gaping loopholes that I see.
The first is a Supreme Court decision in 2021 decided to
freeze the definition of auto-dialer in the early 1990s, and as
a result, there are a whole lot of scam artists out there who
can evade our authority in the Telephone Consumer Protection
Act. We would like to update that definition so that we can
enforce the law against them.
And second, we have issued more than $700 million in fines
against robocallers and robotexters since I have been at the
helm of the agency, but I can't take them to court and go
collect that money. I have to hand that off to the Department
of Justice, and I am sure they have got lots of other
priorities. And I am sure many of those companies are fly-by-
night, and collecting those fines may not be easy. But I still
would like the authority to do it, because I have to do
everything we can to hold those folks to account if we want
this effort of enforcement to be successful.
Senator Van Hollen. Well, speaking for myself, I would like
to help you on both counts there, and maybe we can work with
your team. The second part, which is giving the FCC the
authority to directly go to court to collect the fees, do you
have any estimate of what that would require in terms of
additional resources?
Chairwoman Rosenworcel. I suspect the consent of the
Department of Justice, and that might prove more challenging in
identifying the resources, but I just feel like we have got to
hold some of these folks accountable, and issuing fines, and
letting them disappear is not the way to do it.
Senator Van Hollen. Absolutely. But as you know, there are
other Federal agencies that do have the authority to bring
lawsuits, and they develop sort of shared authorities----
Chairwoman Rosenworcel. Right.
Senator Van Hollen [continuing]. With the Department of
Justice, so if you don't have----
Chairwoman Rosenworcel. Yes. And we are working----
Senator Van Hollen [continuing]. The time or capacity to do
this; maybe we should talk to them.
Chairwoman Rosenworcel. And we have been working with State
Attorneys General. We have had a lot of success working with
the Ohio Attorney General on auto warranty scams; we have done
some mortgage scams with the Florida Attorney General. Really,
no matter where you are in this country, people are irritated
by this. So we are trying to develop as many partnerships as we
can to make sure these folks are held to account.
Senator Van Hollen. Got it. And my last question really
picks up on something that Senator Manchin raised and which I
raised; all of us have raised; which is the mapping question.
Chairwoman Rosenworcel. Mm-hmm.
Senator Van Hollen. And as I said in my opening remarks, I
think the FCC has made dramatic strides in improving the system
by creating that feedback loop. But I am sure you are aware of
the 2022 GAO Report that talked about the 15 Federal agencies
administering broadband programs.
Now, the BEAD Program is obviously a big one in the
Department of Commerce, but there are many others. Can you talk
to--discuss the effort and coordination? Because I can tell
you, you know, in preparing for this hearing, in fact, one of
the reasons we want to have the hearing was just as we sort of
look through the chart of, you know, Department of Agriculture,
FCC, Commerce, all of these agencies that are involved.
Chairwoman Rosenworcel. Yes.
Senator Van Hollen. If you were going to recreate this, do
you have any thoughts on how we design it, or how we can better
coordinate with the existing programs?
Chairwoman Rosenworcel. You know, Senator, if I had a magic
wand, I would make it simpler. I understand what you are
describing. So what I have been trying to do at the agency is
figure out how we can coordinate with as many of these actors
as possible. I signed a memorandum of understanding with the
Department of Commerce because they have a lot of programs like
BEAD, and I signed a memorandum of understanding with the
Department of Agriculture because the Rural Utility Service has
a lot of programs.
I also went to the Department of the Treasury because their
Capital Projects Fund is loaning out a lot of money. So I went
to the biggest actors and said: We are all going to share
information and data.
On top of that, I have developed something called the
Broadband Funding Map using $10 million in direct
appropriations set aside in the IIJA. It is not the map that
gets all the attention, but I think going forward it should get
more attention, because I am asking everyone who has a
broadband program to file data with us about where they have
given out grants, so that we have a map of the enforceable
commitments around the country.
To be clear, I have had a lot of positive feedback from the
Department of Commerce; we coordinate well. I have got to work
with some of the other agencies to get more information and
more data from them, but it is starting to come in. And keeping
these other agencies reporting to us about where their grants
are going, where their dollars are headed, and what they are
doing is a really important part of making sure that we don't
overfund some areas and ignore others.
And so that Broadband Funding Map, I think, is a very
important tool for Congress and its oversight. But I am going
to need all those other agencies to give me their data in a
very specific format in order to ensure that tool is really
valuable.
Senator Van Hollen. Well, if you can keep us posted, I am
sure we have a shared interest in making sure you get full
cooperation from the other agencies. Because as you said, one
thing that--it is important is to have a map to know who has
broadband connections, and who doesn't. It is also important to
have a map of who is funding what and where, so we don't
duplicate effort.
Chairwoman Rosenworcel. Right. Exactly.
Senator Hagerty.
Senator Hagerty. Yes. I think that is a great suggestion,
Mr. Chair. And I certainly applaud your asking the question.
And Chair Rosenworcel, I hope you will share even the interim
data on this Broadband Funding Map with our teams. I would very
much like to see just the data to date and what it is showing
you, what it is telling you, where it might lead us as
policymakers and appropriators.
Chairwoman Rosenworcel. Yes.
Senator Hagerty. I would like to just come back to the
topic of our allies for a moment. And I think you are working
hard, you are working apace, you have even identified the cost
of $3.08 billion, what it will take to rip and replace here,
and try to get our networks secure. I think it is terribly
important that we do it. I think it is also important that our
allies do the same. And one of the most important aspects of
our alliances around the world is our interoperability with our
allies.
That is constrained dramatically when we have systems that
we can't trust on the other side. And I have seen a real gap,
if you will, in terms of understanding amongst our allies, of
what the threats are, what the concerns might be.
And I am not certain what the vehicle would be, and it
might take you a little longer than just this moment to think
it through, but if there is a role that you could play in terms
of putting together the information that would help persuade
our allies of the urgency of doing exactly what you are trying
to accomplish here, in terms of getting their networks secure
so that we can share more information with them, and so that we
will be more interoperable with them, I think would do us a
great service. I would love to get your thoughts on that.
Chairwoman Rosenworcel. Yes. I think, and I have talked to
national security authorities about this. I think that if we
choose to take this equipment out of our networks and fully
fund its replacement costs, we have to go tell everyone around
the world that we chose to do that. The United States decided
that this equipment was so insecure we needed to take it out,
remove it, and we paid for it. I think that is a really
powerful example. And when we do it, we need to share that with
our allies around the world.
And there are other countries that are working with us on
this issue, not all of them. But I think it is also
simultaneously important that we help build up a better market
for network equipment in the United States, and in our allies,
because we have gotten to a place where there is only a handful
of network equipment providers in the world right now; some of
the biggest come from China.
We need to make sure that the equipment market is more
diverse, and more competitive, and less costly. I think that
will also benefit us and our, you know, political interest in
making sure that secure equipment is here at home and also
abroad.
Senator Hagerty. Back in 2017, I asked for a chart that
showed what an end-to-end non-China solution for 5G would look
like. And we actually put flags on the chart; multiple nations
are involved for us to get this done, and multiple
opportunities, therefore, to cooperate, and the need to
cooperate with those nations, in terms of their standards, the
specs for those devices. It is a big opportunity and a big
challenge at the same time.
Chairwoman Rosenworcel. Yes, we can't do this on our own.
We have got to find like-minded nations and then work with
others to make sure that this equipment, which isn't just about
Communications networks, it is about the infrastructure that
supports modern economies, is actually secure and not
vulnerable to foreign actors who might eventually wish to do
them harm.
Senator Hagerty. Yes. I think the vulnerability is clear,
and I very much appreciate your continued thinking on this. And
if you see an opportunity for us to help support you in this
effort, please know that we are all supportive of doing that.
Thank you.
Thanks, Mr. Chair.
Senator Van Hollen. Thank you. Well, Chair Rosenworcel, so
we have covered a lot of territory today.
Thank you, Senator Hagerty, other members who were here.
ADDITIONAL COMMITTEE QUESTIONS
Senator Van Hollen. The hearing record will remain open for
7 days, allowing Members to submit statements and/or questions
for the record, which should be sent to the subcommittee by
close of business Tuesday, September 25, 2023.
[The following questions were not asked at the hearing, but
were submitted to the Internal Revenue Service for response
subsequent to the hearing:]
Questions Submitted to Chairwoman Jessica Rosenworcel
Questions Submitted by Senator Joe Manchin
Question. The IIJA established the BEAD program to expand high-
speed Internet access across the country, including my home state of
West Virginia. The BEAD program requires that funding be allocated
based on each state's proportion of unserved locations according to the
National Broadband Map. For decades, the FCC was allowing Internet
providers to draw the broadband maps and they were wildly inaccurate
with grossly overstated coverage. I led the fight to fix the map,
because without correcting these maps, West Virginia would never have
received the resources necessary to address the lack of coverage.
It is imperative that the map be accurate and accessible to the
general public.
In that vein, I secured report language accompanying the FY24
Financial Service and General Government appropriations bill that would
direct the FCC to work with other agencies, including NTIA and USDA, to
develop broadband maps that display eligibility for broadband
deployment programs designed to expand broadband access and close the
digital divide, particularly in rural areas.
I also secured report language that would ask the FCC to address
any ongoing accuracy issues with the National Broadband Map. What is
your plan to continue the important work of improving the National
Broadband Map?
Answer. I understand how vital it is for the Commission to work to
continually improve the accuracy of the National Broadband Map. This
map is an important tool to help close the digital divide because it
identifies, like no other data collection before it, where broadband is
and is not all across the country. Moreover, this map is being used to
inform broadband funding decisions at both the Federal and state level,
including for the Broadband Equity Access and Deployment program at the
Department of Commerce.
The Broadband DATA Act is the law that governs the agency's data
collections that are used to assemble the National Broadband Map on a
biannual basis. This process is designed to be iterative, with each new
version of the map providing a more accurate and up-to-date picture of
where broadband services are nationwide.
Twice a year the agency releases an updated broadband Fabric, which
is a database of all broadband serviceable locations in the United
States. The Fabric is developed using hundreds of data sources,
including tax records, property records, parcel boundary records, and
satellite building imagery.
Following the release of each updated Fabric, providers are
required to supply information about the service they provide at each
broadband serviceable location. The combination of this information and
the Fabric database leads to the production of each map.
Our next map issued using this process will be released in November
and will reflect provider-reported availability data as of June 30,
2023. It will be our third map issued pursuant to the Broadband DATA
Act.
We will continue using all the tools available to the Commission to
update and improve the map, including: improvements to the underlying
data used to identify broadband serviceable locations on the Fabric,
collecting updated broadband availability data every 6 months,
processing challenges to the Fabric and broadband availability data
shown on the map, and validating the data providers are filing.
Our current version of the Fabric includes over 115 million
locations where fixed broadband could be installed. This reflects
steady improvement in the Fabric since it was initially released in
June of 2022. Working with our vendor CostQuest, over one million
additional broadband serviceable locations have been added to the map
since the November 2022 pre-production map, and the November 2023 map
will add over 800,000 additional locations nationwide.
These additional locations are primarily the result of our work
with our vendor to update and improve the Fabric by refining the models
and processes for creating the Fabric and using updated and improved
input data sources such as new parcel data. The current version of the
Fabric also incorporates millions of adjustments to the data associated
with locations that were already included in earlier versions of the
Fabric, including, for example, changes to address fields, unit counts,
secondary addresses, broadband serviceable location status, and
building and land use codes. Stakeholders--including municipalities,
states, Tribes and individual consumers--are also helping to improve
the Fabric through the challenge process. Over 1.5 million Fabric
challenges have been accepted and incorporated into the Fabric itself.
These challenges have helped identify missing locations and correct
addresses and other information associated with the broadband
serviceable locations included in the Fabric. Going forward, these
efforts to improve the Fabric will continue to be a critical tool for
improvement of the National Broadband Map.
In addition to our continuing efforts to improve the Fabric, we are
also focused on making use of the tools provided in the Broadband DATA
Act to ensure that the availability data shown on the map are as
accurate as possible.
When providers submit data there are several steps the Commission
takes to ensure as accurate-as-possible reporting, including automated
system validations, informal and formal data verification efforts,
audits, and when warranted enforcement referrals. The FCC has built
automated error and anomaly detection and data cross-checks into the
Broadband Data Collection system to validate submissions from Internet
providers. Some require the provider to make a correction before the
submission is accepted and others are reviewed by FCC staff.
To date, FCC staff have initiated over 900 verification inquiries.
This has resulted in updates to over 600 submissions from providers and
a clearer picture of broadband availability in every state and
territory. The agency is also conducting audits of reported mobile
coverage in a number of states.
In addition to audits and verifications, the Commission has also
engaged directly with providers to offer technical assistance and
support ensuring that the availability data that is reported is of
sufficient quality. This outreach includes webinars, tutorials,
standing up a technical assistance help desk, and one-on-one meetings
with staff.
Another important tool is the availability challenge process. It
has resulted in our mapping team processing over 4.8 million challenges
to provider reported availability data since the release of our first
pre-production map in November 2022. These challenges have already
yielded important changes in the map data and I anticipate that, over
time, the challenge process will continue to serve as an important tool
for correcting inaccuracies in provide reported data on the map.
Finally, the Broadband Data Act also gives the FCC authority to
take enforcement actions to address situations where a provider
``willfully, and knowingly, or recklessly'' submits ``materially
inaccurate or incomplete'' availability information. While I cannot
provide information about specific enforcement referrals as these are
ongoing law enforcement investigations, I can confirm that we have
ongoing enforcement investigations. Moreover, I want to be clear that
we will not hesitate to use this process when warranted, including
against providers that have failed to report data or falsified data.
Question. How do you ensure the National Broadband Map is accurate?
Answer. The National Broadband Map is designed to be iterative--and
consistently improving. To ensure these improvements are featured on
the map, the Commission uses a number of tools to prevent, identify,
and address inaccuracies and anomalies in both the fabric database and
broadband availability data submitted by providers.
The Fabric is an evolving dataset of all broadband serviceable
locations in the United States that will need to change as new
locations come online. Substantial improvements have been made to the
Fabric since its first pre-production release in November 2022, and it
continues to improve with each release.
With respect to the Fabric, the Commission uses a number of
practices to ensure it is as accurate as possible. Following each new
Fabric release, the FCC's contractor, CostQuest, continues to refine
and update its models, gain access to new and improved data sources
used to identify broadband serviceable locations, such as new
construction data, and makes other updates to the locations on the
Fabric based on stakeholder feedback both through the challenge process
and direct engagement.
We have acknowledged that there were a few discrete instances where
the data in the initial release of the Fabric did not meet our
expectations. The known instances correspond to areas in the United
States where the underlying datasets used to create the Fabric (parcel
data, tax assessor data, high-resolution imagery data) were either
outdated or simply not available. To improve the Fabric data in these
areas, the FCC and our contractor, CostQuest, have invested significant
resources since the release of the first version of the Fabric to
undertake manual review above and beyond the baseline methodology to
identify additional broadband serviceable locations in these areas.
In addition, the FCC has developed a robust Fabric location
challenge process through which stakeholders can raise location
specific issues, such as missing locations, misidentified locations
(i.e., a house incorrectly labeled as a large business), incorrect
location information including address or unit count, and incorrect
location placement on the map. Once submitted, the FCC and its vendor
review the submissions using a series of geospatial checks and
ultimately visual verification of satellite and fly over imagery for
certain challenge types. Location changes resulting from a challenge
are reflected in the next Fabric release.
Stakeholders including states, local and tribal governments and
consumers have submitted over 1.5 million challenges which been
accepted and incorporated into the Fabric to date. We continue to
accept both bulk and individual location challenges on a rolling basis.
The FCC has taken a number of steps to inform and engage stakeholders
in the Fabric challenge process, including holding webinars and
workshops, and releasing outreach and technical assistance materials.
With respect to availability data, the Commission is also using
every tool available to ensure the information is as accurate as
possible. For starters, Commission staff provide technical assistance
and support to providers to assist with the correct filing of data
through webinars, tutorials, articles, a technical assistance help
desk, and one-on-one meetings. The Commission also uses system
validations, data verifications and audits, enforcement actions and a
challenge process to ensure the availability data on the map is as
accurate as possible.
The system providers use to submit availability data features a
validation process, is designed to recognize patterns that suggest a
problem with the underlying information provided to the agency. This
has resulted in over 900 verification inquiries from Commission staff,
followed by updates to more than 600 submissions from providers. These
informal and formal verifications play an important role in ensuring
the map is accurate. The FCC has also been using the audit tools
provided in the DATA Act to verify the accuracy of mobile coverage data
in a number of states. Providers are also required to certify the
accuracy of their submissions to the agency. This facilitates our
ability to refer matters for investigation and enforcement where
appropriate, something we have not hesitated to do.
One of the most important tools we have for ensuring the accuracy
of broadband availability data is the challenge process laid out in the
Broadband DATA Act. We accept challenges to availability data shown on
the map on a rolling basis and update the map to reflect the results of
these challenges. These challenges can be filed individually through
the user-friendly map interface, or as bulk submissions into the BDC
filing system. These processes allow those in the best position to know
the accuracy of the data, consumers and other local stakeholders to
help verify the accuracy of availability data on the map.
To date, our mapping team has processed over 4.8 million challenges
to provider reported availability data. These challenge can be
submitted by individuals, state, local and Tribal governments and other
entities. When a challenge is filed, FCC staff reviews the challenge to
ensure it aligns with reason code selected for the challenge and then
forwards accepted challenges to the provider for its response.
Providers have 60 days to either concede or dispute the challenge. If
the challenger and provider don't agree on the actual availability of
the service reported at the location in questions it goes to the FCC
for adjudication. Conceded challenges and those adjudicated in the
challenger's favor result in corrections to the data shown on the map.
West Virginia is a good example of how participation in the
challenge processes and working in partnership with the FCC can yield
important improvements to the accuracy of the data reflected in the
National Broadband Map. The West Virginia State Broadband office filed
both location and availability challenges and worked closely with FCC
staff to identify discrete concerns that may warrant FCC verification.
This back-and-forth helped contribute to an increase of 86,860 unserved
locations in West Virginia between the release of our pre-production
draft in November 2022 and the data used by the Department of Commerce
for its allocation in the Broadband Equity Access and Deployment
program.
Given the importance of stakeholder participation in the challenge
processes in refining the data depicted on the map and ensuring that
the map is as accurate as possible, we have conducted extensive
outreach to state, local, and Tribal governmental entities, service
providers, and others to inform stakeholders about how they can
participate in the process. Commission staff have held hundreds of
meetings with congressional offices, service providers, public interest
groups, and governmental entities across the nation to be sure we are
offering support and technical assistance throughout this process. The
Commission continues to conduct outreach meetings in person and
virtually as well as produce guidance and educational materials on an
ongoing basis as we work with stakeholders to improve the accuracy of
the data on the National Broadband Map.
Question. As a follow up, NTIA relies heavily on the FCC National
Broadband Map to implement the BEAD program. As Federal investments in
broadband move into full swing in states like West Virginia--which is
the second least-served state in the country--we need to ensure we have
the most up-to-date FCC map. Needless to say, the National Broadband
Map has a significant impact on the BEAD program.
Do we have adequate resources to support the National Broadband
Map, and if not, do you have plans to ask the Office of Management and
Budget (OMB) for additional funding next fiscal year?
Answer. The Commission currently has funding sufficient to support
the National Broadband Map through Fiscal Year 2024. However, it does
not have funding adequate to support the map beyond Fiscal Year 2024.
That is why we are requesting funding resources in our regular budget
for Fiscal Year 2025.
By way of background, it is important to know that in the Fiscal
Year 2021 Consolidated Appropriations Act (Public Law 116-260), the
Commission received $98 million in funding for the start-up and
implementation of the Broadband DATA Act (Public Law 116-130). Congress
provided funding in two distinct sections of the Fiscal Year 2021
Consolidated Appropriations Act. The first $33 million Congress
provided was in the Commission's regular appropriation and derived from
regulatory fees (Division E, Title V, 134 STAT 1408). Congress later
provided an additional $65 million in direct appropriations under
Division N, Section 906 to ensure ongoing implementation of the newly
established mapping effort (134 STAT. 2144).
In light of this, on February 17, 2021, I established a Broadband
Data Task Force to use this funding and lead a cross-agency effort to
implement the Broadband DATA Act.
The resulting maps are, consistent with the law, designed to be
refined through an iterative process. That is why the agency developed
systems that allow for the steady collection and integration of new
data and the release of new maps. Providers are required to submit
updated availability data twice a year, and the fabric underlying the
maps is also refreshed twice a year to reflect broadband serviceable
location updates. Ongoing map updates remain essential at this juncture
and this data is being used to inform the agency's universal service
funding decisions.
To date, the Commission has carefully managed the mapping program
to ensure that it provides data that is as accurate as possible under
the law in light of the limited appropriated funds. However, the agency
is now facing ``out years'' beyond the initial program start and
implementation period. That is why the initial Fiscal Year 2021
investment will need to be replenished in Fiscal Year 2025 and on an
ongoing basis until such time when Congress determines that mapping is
no longer needed. I want to be clear, however, that I think that having
this tool is essential, especially right now, as we work to address the
gaps in deployment that contribute to the digital divide. That is why I
have directed our management team to ask the Office of Management and
Budget for additional funds for Fiscal Year 2025 that are within the
range of the original funds provided as part of our fee-derived funding
in Fiscal Year 2021.
Question. The FCC established the 5G Fund for Rural America, which
uses reverse auctions to distribute $9 billion to bring 5G broadband
service to rural communities unlikely to otherwise see the deployment
of 5G-capable networks.
I understand that you've Noticed a Proposed Rulemaking that seeks
to improve the implementation of the 5G Fund.
The Notice says, ``In the 5G Fund Report and Order, the Commission
decided that it would accept bids and identify winning bids in the 5G
Fund auctions using a support price per adjusted square kilometer.''
And would factor in such things as terrain and elevation.
Considering that lower bids win in reverse auctions, this may be a
reason why West Virginia is not getting its fair share of funding
compared to a flatter state, since it is more expensive to build a
tower that will be blocked on one side by a mountain.
What is your approach to accounting for terrain and elevation when
accepting and identifying winning bids?
Answer. The 5G Fund was first proposed in 2020 as a way to
modernize the Commission's universal service support system for
wireless carriers serving rural and high-cost areas of the country. At
that time the agency decided that it would assess bids in an auction on
the basis of support price per adjusted square kilometer. This
methodology featured the use of an adjustment factor designed to take
characteristics like terrain, elevation, and population density into
account.
I believe we should update this approach. For the first time in our
history, thanks to our new mapping initiatives, we have comprehensive
data regarding the state of wireless service all across the country. We
now know, for instance, that over 14 million homes and businesses
nationwide--including over 360,000 in West Virginia--do not have mobile
5G wireless coverage today. On top of this, the pandemic has changed
our thinking about where we live, work, and travel, expanding our
expectations for wireless service nationwide.
It is imperative that as we move forward with the 5G Fund, we take
these facts into account. That is why I believe we need to expand our
thinking beyond what was first proposed for the 5G Fund in 2020. To
this end, on September 21, 2023, the Commission began a rulemaking to
consider new ways to administer this program. Specifically, the agency
sought comment on how to best incorporate the use of mapping data in
the 5G Fund, in light of the clear gaps it demonstrates in coverage. We
seek comment on how to do so in light of the methodology that was
adopted when the 5G Fund was first introduced, including through
changes to the adjustment factor. I am looking forward to the record
that we receive in response to this rulemaking. I am hopeful that we
can modernize our approach so that we both appropriately account for
areas that are costly to serve, including for topological reasons, and
ensure we reach those locations that our mapping data indicate are
without service today.
______
Questions Submitted by Senator Chris Van Hollen
Question. I want to bolster the Commission's efforts to stop scam
robocalls and robotexts. In 1991, Congress passed the Telephone
Consumer Protection Act (TCPA) to tackle the rising issue of
unsolicited telemarketing calls or robocalls. The TCPA generally
restricts the use of certain automated telephone equipment for making
calls to consumers without prior consent. In the preceding years, the
Commission has established regulations under the TCPA to ensure that
emerging technologies fall under its protective umbrella, such as
extending the consent requirement to text messages made using an
autodialer. In a 2021 case interpreting the TCPA, Facebook, Inc. v.
Duguid, the Supreme Court adopted a narrow interpretation of the class
of equipment typically considered autodialers, potentially reducing the
number of text messages for which prior consumer consent is required.
Commission data show that consumers receive increasing numbers of
illegal and unwanted text messages, and the problem worsens yearly. Are
there limitations on your authority to address robotexts, to implement
anti-robotexting rules, or to collect enforcement remedies that
Congress can address? If so, please indicate what additional
authorities you need to address this issue.
Answer. There are at least three additional ways that Congress
could grant the FCC authority to better address the increasing number
of illegal and unwanted text messages.
First, Congress could update the Telephone Consumer Protection Act.
The TCPA's definition of ``automatic telephone dialing system'' has
been unaltered since 1991, despite many changes in technology during
the intervening years. Moreover, the Supreme Court's 2021 decision in
Facebook v. Duguid narrowed the definition of automatic telephone
dialing system, as a practical matter limiting it only to those systems
with a random or sequential number generator. This decision makes it
harder for the agency to ensure the protections in this law cover how
many scam artists now use technology to reach us with junk calls and
texts. To address this loophole, Congress could expand the TCPA's
definition of ``automatic telephone dialing system'' to specify that it
includes calls made from a stored list of numbers. Congress could also
amend the TCPA, and specifically Section 227(b)(1)(A) of the
Communications Act, to specify that it is unlawful to send robotexts
under this section. The Commission has, since 2003, taken the position
that the term ``call'' in Section 227(b)(1)(A) includes both voice
calls and text messages and courts have supported this determination.
See, e.g., Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 954
(9th Cir. 2009). Nonetheless, I believe that legislation to make that
explicit would bolster the Commission's ability to protect consumers
from unwanted robotexts.
Second, I believe it would be beneficial for Congress to provide
the Commission with the authority to collect the fines we impose
against the bad actors responsible for illegal robocalls and robotexts.
Right now, our enforcement work ends when we issue a forfeiture order
because we lack the authority to pursue collection in court without the
Department of Justice. To put this in context, note that in the last
year alone, the agency has finalized more than $500 million in fines
for illegal robocalls but lacks the ability to even try to collect
these funds in court.
Third, the Commission could benefit from authority to access Bank
Secrecy Act information in order to help identify more quickly the
financial records of our calling targets without giving those targets
suspected of scams a heads up that we are coming for them. We are
currently engaged in discussions with the Department of Treasury to
acquire the access to this information. If we are able to access this
information, it would allow the Commission to obtain evidence that can
help identify who is actually responsible for illegal robocall
campaigns, and to prevent scam artists from registering new entities
under new names after enforcement actions shut them down.
Question. Our commitment to the universal service principle,
ensuring that all Americans have access to essential communication
services, is currently facing a serious test. The Communications Act,
which established the FCC, firmly laid down this principle. However,
the funding for two highly successful programs that play a crucial role
in bridging the digital divide and ensuring affordable broadband access
for all Americans will be depleted within months. The first of these
programs, the Affordable Connectivity Program (ACP), offers financial
assistance for broadband access to over 20 million working families.
The second program, the Emergency Connectivity Fund (ECF), has provided
invaluable support to more than 18 million students and library
patrons, enabling them to access Internet connections and devices vital
for their education and information needs.
Numerous constituencies have sounded the alarm about this impending
funding crisis. The Universal Service Fund (USF) has historically
played a pivotal role in extending telecommunication services to
underserved areas, paid for by fees collected from telecommunications
carriers rather than direct appropriations. Could the Commission
leverage the USF model, which underpins several vital initiatives,
including Lifeline, the E-rate program, rural health delivery, and the
expansion of rural broadband infrastructure, to fund the ACP and ECF,
as some have suggested, without significantly increasing fees on
consumers?
Answer. The Affordable Connectivity Program is the Nation's
largest-ever broadband affordability effort. Today, it is responsible
for helping more than 21 million households get online and stay online.
Based on our current projections, we expect that existing funding for
the ACP from Congress will run out in April of 2024. Without additional
funding, these ACP households are at risk of losing access to high-
speed Internet service. Cutting them off will also cut off access to
work, education, and healthcare opportunities that are now online.
For this reason, I have consistently stressed that the agency will
need additional ACP funding. To address the emergency need for funds in
the immediate future, the Administration recently proposed $6 billion
in direct, supplemental funding for ACP. This request would provide the
agency with funding to continue to program through the end of 2024,
with some potential program changes.
To be clear, additional congressional funding is the only path
forward for the ACP in the immediate term. If Congress does not provide
this additional funding, the FCC would be able to simply leverage the
Universal Service Fund to support ACP. To do this successfully would
require legislative action and significant time to resolve complex
legal and administrative issues, including the fact that many ACP
providers are not eligible to participate in traditional universal
service programs and many ACP households are not eligible to
participate in the FCC's traditional universal service low-income
program--leading to substantial fall out of providers and customers.
Even if these issues could be resolved through legislation, relying on
the Universal Service Fund for ACP would more than double the size of
this fund. Our current estimates suggest that this would triple the
contribution factor--which in turn impacts the assessment that
consumers pay into this fund on their bill. In practice, this would
mean an additional increase of at least $6 to $10 on the monthly
communications service bill of consumers in this country.
______
Questions Submitted by Senator John Boozman
Question. What is the FCC's plan to continue the Affordable
Connectivity Program (ACP), absent Congressional action, in light of
funding running out?
Answer. When Congress tasked the Commission with developing the
Affordable Connectivity Program it also provided an appropriation of
$14.2 billion. Today, these funds support more than 21 million
households that count on ACP to get online, including over 200,000
households in Arkansas. To ensure that these households can continue to
count on ACP for high-speed Internet access, the Administration
recently requested that Congress provide an additional $6 billion in
funding for ACP. In fact, our current estimate is that the initial
appropriation of $14.2 billion will expire in April of 2024, which may
result in millions of these households losing access to the Internet.
So without further funding from Congress, this program is in jeopardy.
Question. What is the FCC doing to communicate the possible
upcoming changes to the ACP, including a lapse in funding, with
consumers so that they aren't surprised by a sudden price increase or
loss of service?
Answer. The Commission fully recognizes the importance of
communicating with participating households and providers about any
changes to the Affordable Connectivity Program. However, it would be
premature to communicate about potential program changes while
discussions concerning additional funding for the ACP are ongoing. As
noted above, the Administration has requested that Congress provide an
additional $6 billion in funding for the ACP and the FCC remains
hopeful that Congress will provide this additional funding. However, if
Congress does not provide further funding for the ACP, staring early
next year the Commission will provide guidance to both consumers and
providers about the end of the program in order to prevent unexpected
price increases or loss of service.
Question. On March 29 of this year, I joined a bipartisan letter
with 27 of my Senate colleagues asking the FCC to engage proactively in
the ongoing ATSC 3.0 broadcast television transition. I have been
pleased to see that the Commission announced the formulation of a task
force and have been informed that the Commission has started to work on
various rulemakings that would help lay the groundwork for a successful
transition. Could you provide an update on where those rulemakings
stand as well as how the task force meetings are progressing?
Answer. The Commission is committed to helping with the rollout of
next generation television based on the ATSC 3.0 standard and ensuring
when this occurs consumers are protected from service disruption,
service loss, and being saddled with the cost of expensive new
equipment to maintain television service. To this end, the agency has
worked with the National Association of Broadcasters in a public-
private effort known as the Future of Television Initiative. This
initiative features a broad group of stakeholders working through
challenging matters associated with the transition--both from an
industry and consumer perspective--with an eye to creating a roadmap
for a transition that serves the public interest. While this work is
still in its early stages, we have appreciated the way this forum is
facilitating discussion on major issues, including the conditions
needed to complete the transition, what the post-transition landscape
should look like, and challenges presented by the lack of backwards
compatibility of equipment for consumers.
This last point is an especially important one, because while ATSC
3.0 has the potential to create new business opportunities for
broadcasters, it is vital that we think upfront about what the
transition means for consumers. To be clear, there are potential
benefits for consumers in this transition, including new services and a
higher quality viewing experience. Nonetheless, the next generation
television standard is not backward compatible, meaning it does not
work with existing television sets or set-top boxes. While progress has
been made with the expansion of ATSC 3.0 signal availability, with over
60 percent of households nationwide having access to next generation
television signals, most households lack equipment necessary to receive
this service. Some manufacturers, however, have started to include ATSC
3.0 tuners in their new mid-range and high-end sets, but options are
limited and remain costly, especially for households that do not want
to purchase a new set right now nor have the means to do so. This means
we do not yet have a solution that works for all consumers and moving
to the next standard right now would mean many of the most vulnerable
consumers would lose access to service.
In order to prevent consumers from losing access to their free,
local broadcast television service and still allow broadcasters to take
steps forward and innovate, many stations are broadcasting in a manner
that reaches viewers with a signal using the existing standard (ATSC
1.0) while on a strictly voluntary basis transitioning to ATSC 3.0.
This approach minimizes viewer disruption, allowing those who have not
replaced their television or purchased a special reception device for
ATSC 3.0 service to continue to receive broadcast television service.
In order to further minimize viewer disruption, the Commission has
had a ``substantially similar'' requirement that ensures that any
broadcaster providing a signal in ATSC 3.0 provide programming content
stream that is substantially similar on their ATSC 1.0 signal. This
requirement was slated to expire on July 17, 2023. However, on June 23,
2023, the Commission acted to extend this deadline to July 17, 2027 and
committed to review it 1 year in advance in order to reassess market
conditions.
On June 23, 2023, the Commission also initiated a rulemaking to
further our understanding of the current marketplace for ATSC 3.0
Standard Essential Patents and the ability of third parties to develop
products that rely upon them as well as the impact on consumers if the
Commission were to require these patent holders to commit to licensing
them on reasonable and non-discriminatory terms. Comments received in
response to this proceeding are currently under review.
Question. What is the FCC doing to coordinate with state broadband
offices to provide status updates (such as timelines, construction
progress, which providers are behind in their plans or likely to
default, etc.) on the Rural Digital Opportunity Fund (RDOF) program?
Answer. The Commission recognizes the importance of keeping states
informed about the Rural Digital Opportunities Fund. That is why the
agency uses a variety of different measures to ensure that states
receive updated information about carriers awarded funding under this
program in their respective states. First, the FCC produces a Broadband
Funding Map. This tool provides states with the ability to view areas
where carriers have RDOF commitments and already provide service due to
RDOF obligations. Second, the FCC is closely monitoring carrier
progress and compliance with RDOF obligations and will notify state
broadband offices when the agency learns that a carrier subject to an
obligation does not intend to meet it in the state or otherwise falls
short. Third, the FCC plans to ask carriers to directly engage with
state broadband offices when they develop their state-specific
challenge processes under the Broadband Equity Access and Deployment
program in order to keep state authorities fully apprised of existing
deployment plans and the technologies they intend to use to meet their
RDOF obligations. Fourth, in the event a carrier withdraws from RDOF,
the FCC announces this in a public notice which it shares with both the
Department of Commerce and relevant state broadband offices. On top of
this, the Broadband Funding Map is updated to reflect any such
withdrawal. Finally, the Commission staff is always open to inquiries
from our state colleagues about any carrier and its participation in
RDOF at any time.
______
Questions Submitted by Senator Bill Hagerty
Question. I have heard from constituents that the FCC is
considering updating the rules surrounding spectrum to potentially
facilitate new two-way wireless broadband services in the lower 12 GHz
band. They tell me that updating these rules could help serve consumers
in rural Tennessee by closing the digital divide.
The FCC unanimously approved a Notice of Proposed Rulemaking to
consider how to best modernize the rules for 12 GHz band and
potentially facilitate new two-way wireless broadband services, and I
understand no final decision has been made.
Chairwoman Rosenworcel, as the Commission explores options for
transitioning to 5G, could you discuss your thoughts on new rules for
fixed broadband in the lower 12 GHz band and a timeline on a looming
decision?
Answer. The Commission has identified more than 1000 megahertz of
prime mid-band spectrum in the 12 GHz Band (12.2-13.25 GHz) for new and
innovative uses. These are airwaves are right in the middle of the 7-16
GHz band that we have identified as the sweet spot for the next
generation of wireless technology--or 6G. We are the first country in
the world to identify these bands for new wireless use and take action.
I believe these airwaves can be optimized with a mix of licensed,
unlicensed, and space-based services. The 12.7-13.25 GHz band is a
prime candidate for new mobile use, so we are exploring how to put it
in the pipeline for new wireless broadband, which is critical for
United States wireless leadership.
Meanwhile, the 12.2-12.7 GHz band presents an opportunity to allow
new services to use the band efficiently while protecting incumbent
satellite functions that millions of people in this country rely on
every day. As a result, we are exploring how these airwaves can be used
for fixed licensed and unlicensed terrestrial services, including two-
way point-to-multipoint links and other use cases that could, among
other things, expand backhaul to support advanced broadband capacity.
The deadline for comments on these proposals was in September.
Commission staff is reviewing the record carefully with an eye to
moving forward and opening up this band for new services.
Question. Chairwoman Rosenworcel, as the debate around cable
regulations and new streaming platforms continues to play out in the
public arena, could you provide the Subcommittee an update on where the
FCC stands?
Answer. The video marketplace has changed significantly with the
introduction of streaming services. There are so many new screens and
new ways to watch programming. This is exciting for viewers who can
consume content from near and far at virtually anytime and anyplace. At
the same time, it is important to recognize that television
broadcasting, which is uniquely local, should have the opportunity to
thrive in this new landscape.
The primary laws governing the distribution and carriage of
broadcast television stations on multichannel video programming
distributors (MVPDs) include the Cable Communications Policy Act of
1984 and the Cable Television Consumer Protection and Competition Act
of 1992. Both of these laws amend the Communications Act. Therefore,
this remains the legal framework under which the Commission must assess
all issues associated with MVPDs.
When the Commission last attempted to address this matter, in a
Notice of Proposed Rulemaking adopted in 2014, the record revealed
significant concerns with the agency asserting jurisdiction over MVPDs
in a way that the statutory framework was not designed to support in
1984 or 1992. To understand why, consider that Section 602(13) of the
Communications Act defines an MVPD as an entity that ``makes available
for purchase, by subscribers or customers, multiple channels of video
programming.'' At the same time, Section 602(4) of the Communications
Act defines a channel as ``a portion of the electromagnetic frequency
spectrum which is used in a cable system and which is capable of
delivering a television channel.'' It is imperative that the Commission
give these words full meaning. As reflected in the record, online video
programming distributors do not neatly fit in these statutory
definitions because they lack a physical connection to subscribers and
do not use any electromagnetic frequencies when delivering programming
to their viewers. As you know, the Commission lacks the power to change
these unambiguous provisions on its own but can do so if Congress
changes the underlying law.
In addition, the record demonstrated that even if the Commission
were to proceed, it would require changes to underlying copyright
policies. It is not clear if the Copyright Office would, with an
altered Commission interpretation of the definition of MVPD, allow the
current statutory copyright license to be used by online video
programming distributors. As you know, the existing statutory copyright
license works hand-in-hand with the retransmission consent policies in
the Communications Act. What this means in practice is that the
carriage of broadcast television station signals on traditional MVPDs
can take place without negotiations with every single copyright holder
associated with the station programming. Without a statutory copyright
license applying to new online video programming distributors, those
distributors would be obligated to black out programming for which they
are not able to negotiate copyright licenses.
Because we recognize that it is important that local broadcast
stations have the ability to reach viewers where they are in this new
media environment, the Commission is meeting with stakeholders to learn
more. To this end, we understand that carriage via online video
programming distributors is now the subject of private negotiations
between local broadcast stations and their affiliated networks. We are
monitoring these efforts, to better understand the consequences for
carriage and consumers. We are also continuing to review the record
from 2014 to identify outstanding issues.
CONCLUSION OF HEARINGS
Senator Van Hollen. The subcommittee stands in recess until
the call of the Chair.
[Whereupon, at 3:27 p.m., Tuesday, September 19, the
hearings were concluded, and the subcommittee was recessed, to
reconvene subject to the call of the Chair.]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL
YEAR 2024
----------
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
NONDEPARTMENTAL WITNESSES
[Clerk's note.--The subcommittee was unable to hold
hearings on nondepartmental witnesses. The statements and
letters of those submitting written testimony are as follows:]
Prepared Statement of Professional Managers Association
Dear Chair Van Hollen, Ranking Member Hagerty, and Members of the
Subcommittee:
On behalf of the Professional Managers Association--the non-profit
professional association that has, since 1981, represented professional
managers, management officials, and non-bargaining unit employees at
the Internal Revenue Service (IRS)--I write regarding funding for the
IRS in FY 2024.
The IRS is the primary revenue source for the entire Federal
Government. Without revenue from the IRS, it is impossible to fund any
other Federal program or agency initiative; NASA cannot send astronauts
to Mars or the Moon, the Department of Veterans Affairs (VA) cannot
serve our Nations veterans, and the Social Security Administration
(SSA) cannot process retirement or disability payments. Put simply, the
IRS funds freedom.
I. Improving Customer Service and the Taxpayer Experience Requires
Ongoing Investment by Congress.
There is no denying the frustrations millions of Americans and
businesses feel when interacting with the IRS. IRS employees alike are
frustrated with the quality of agency operations and the inability to
properly service taxpayers. However, thanks to funds provided by
Congress in recent years, the IRS is already beginning to make critical
improvements to taxpayer services and business operations. To continue
this progress, it is essential that the IRS receive stable and
appropriately increased funding in FY 2024 and well into the future.
PMA supports the Biden Administration's IRS request of $14.1
billion for funding in FY 2024. This proposal includes dedicated funds
to improve the taxpayer experience and customer service ($642 million)
and for IT upgrades via Business Systems Modernization (BSM; $290
million). The dedicated funding for BSM is especially critical to
ongoing modernization efforts because this priority was unfunded in
FY23 annual appropriations.
The President's budget also includes other critical requests to
strengthen the capacity of the Treasury Department. PMA supports the
administrations requests for additional cybersecurity funds and to
enhance the capacity of Departmental offices, such as the Office of the
Chief Human Capital Officer. All IRS human capital policies must be
approved by the Treasury human capital leadership, reinforcing the
importance of enhanced capacity of Treasury Departmental mission
enablement offices.
II. Implementing the Inflation Reduction Act (IRA)
Passage of the IRA by Congress provided the IRS with a desperately
needed infusion of stable, long-term investment that will enable agency
and taxpayer service transformations. The IRS must be able to implement
the law. PMA believes transparency and accountability with Congress is
essential both to build trust with the IRS and to identify additional
improvements that may become necessary.
The Taxpayer Advocate recently noted her view that the IRA does not
properly prioritize funding for Taxpayer Services and BSM accounts.\1\
We at PMA agree with the perspective that dedicated funding is required
to improve taxpayer services. We urge Congress to provide specific
funding for these accounts as requested by the President, instead of
reprogramming IRA funds. The Taxpayer Advocate's idea that Congress
could allow the IRS to reallocate funding across its four core
accounts, within certain parameters, may provide the ideal balance of
agility and oversight.
---------------------------------------------------------------------------
\1\ NTA Blog: National Taxpayer Advocate Urges Congress to Maintain
IRS Appropriations But Re-Direct Some Funds Toward Taxpayer Service and
Information Technology Modernization--TAS.
III. Funding & Provisions To Ensure The Equitable Delivery of
---------------------------------------------------------------------------
Taxpayer Services
A combination of internal equity issues and funding constraints
drive the inequitable delivery of taxpayer services. As the IRS grows
its workforce and replenishes its ranks from exiting retirees, ensuring
the next generation of IRS employees has the resources and awareness to
promote equitably engagements with the public will be critical.
Oversight is necessary to ensure IRS leadership is taking an active
role in addressing barriers to the advancement for women and people of
color within the Service. The IRS workforce has steadily increased in
diversity over time. Unfortunately, IRS leadership does not reflect the
diversity of its workforce. A March 2021 report reflects a significant
drop-off of women and people of color in IRS leadership positions.
The failure to ensure that a diverse cadre of employees can rise to
leadership levels has a direct impact on taxpayer services.
Issues regarding the equitable enforcement of our tax laws are
well-documented and have been repeatedly reported to Congress. In the
absence of robust enforcement funding, the IRS disproportionately
audits low-income Americans, often people of color, with the simplest
tax returns to review. Meanwhile, high-income earners with complex tax
returns are infrequently audited due to a lack of time and resources.
The IRS also fails to provide low-income taxpayers with adequate
taxpayer assistance services. While the IRS does sponsor a program to
provide free legal assistance to low-income taxpayers, in Mississippi,
the state with the highest audit rate in the country, ProPublica
discovered in 2019 that there was only one attorney for the program in
the entire state.
This legal assistance program is just one example of a well-
intentioned program meant to assist those in need that has failed its
taxpayers due to a lack of funding and oversight by Congress.
A gutted IRS creates a two-tiered tax system where low-income
Americans are over audited and under services while wealthy Americans
can avoid or evade paying an estimated $160 billion in taxes. Adequate
funding and oversight are necessary to rectify these inequities and
achieve the diversity, equity, and inclusion goals set out by this
administration.
PMA also supports funding to provide implicit bias assessments to
all current leaders and future candidates recruited for leadership
positions. These assessments are intended to help IRS leadership
candidates develop a personal awareness of any potential biases so they
can account for them in their leadership, however, the results should
not be shared with the agency or used in personnel decisions. Further,
to increase employee retention, PMA supports funding for professional
development resources to support leaders in managing their implicit
biases and learn skills to lead inclusively. PMA implementing
leadership training centered on cultural competence and training to
help all IRS workers, managers, supervisors, and executives manage
their implicit biases.
Finally, to truly understand the current equity landscape at the
IRS and ensure modernization initiatives do not inadvertently
perpetuate inequities, PMA encourages Congressional funding for a
review of IRS workplace policies to identify areas where systemic
discrimination and other biases have seeped into our processes (e.g.,
standards of dress, religious comp time, performance standards for
written/verbal communication, etc.).
IV. Funding Government Agencies On Time
Congress has struggled to pass appropriations bills on time for the
majority of the past 45 years. Few would say the Federal Government's
budgeting and appropriations process is not entirely broken. PMA wishes
to stress the significant costs to the effective and efficient
operation of agencies under these circumstances. Taxpayer money is
wasted when Congress is unable to timely pass appropriations laws on
time in advance of a new fiscal year.
The IRS cannot conduct hiring and onboarding when it is in a
continuing resolution state. The IRS cannot engage in new contracts
when the government is under a CR. The IRS cannot enact a long-term
plan to modernize its systems when it does not know what funding it
will have in 6 months. Put simply, the IRS cannot do its job
effectively when Congress consistently fails to do its job. And
taxpayers ultimately pay the price through diminished service.
PMA is hopeful that a divided Congress can still find a way to
fulfil its basic constitutional obligations.
Thank you for your consideration of PMA's perspective. Please
contact PMA Washington Representative Natalia Castro
(ncastro@shawbransford.com) if we can be of further assistance.
[This statement was submitted by Chad Hooper, Executive Director]
SUBJECT INDEX
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Page
U.S. SECURITIES AND EXCHANGE COMMISSION
Additional Matters............................................... 46
Budget Request................................................... 43
Economic Risk and Analysis....................................... 45
Enforcement and Examinations..................................... 44
Programmatic Divisions........................................... 45
Protecting the Public for 90 Years............................... 42
[all]