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Hearing of the Senate Homeland Security and Governmental Affairs Committee - The Nominations of Peter Orzag to be Director of the Office of Management and Budget and Robert L. Nabors II to be its Deputy Director

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Location: Washington, DC


HEARING OF THE SENATE HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS COMMITTEE
SUBJECT: THE NOMINATIONS OF PETER ORSZAG TO BE DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET AND ROBERT L. NABORS II TO BE ITS DEPUTY DIRECTOR

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SEN. LIEBERMAN: (Strikes gavel.) Good morning -- or no, good afternoon, and welcome to our hearing today.

Today we're going to hold two hearings back to back for the nominees to lead the Office of Management and Budget. First we will consider the nomination of Peter R. Orszag to be director of OMB. That child of yours, I would say, is absolutely adorable, and I'm going to give you a moment to -- later on to introduce him. But I would say, as a parent and now a grandparent, I'm greatly admiring of his posture. (Laughter.) He's sitting right up there. (Laughter.)

(Chuckles.)

MR. : (Off mike) -- yesterday. (Laughter.)

MS. : Right.

SEN. LIEBERMAN: You're right.

MS. : (Off mike.)

SEN. LIEBERMAN: Okay. And after Mr. Orszag, we will immediately after hear the nomination separately of Robert L. Nabors to be deputy director.

At this point, I would welcome both of you. We're happy to have you with us today, and thank you for your service to our country and your willingness to serve once again.

These nominations come at a time of unprecedented budgetary and economic peril for our nation, beyond even the normal for the Office of Management and Budget and those who lead it. The economy, after all, is facing a painful recession at the same time our government faces massive budget deficits.

In response, the incoming Obama administration is putting together a major economic recovery and reinvestment package, developing plans to achieve long-term budget stability and at the same time instituting an ambitious program to improve performance and reduce the cost of government. Those are difficult, important and enormous undertakings, and OMB must be a leader in all of them. So the two of you have your work cut out for you.

Dr. Orszag, with your extensive experience in budget and public policy, you are well qualified to assume the big responsibilities of the position to which you've been nominated.

Your government experience includes nearly two years as director of the Congressional Budget Office and several years as a senior economic adviser in the Clinton White House. You've also held prominent academic and private-sector positions in a wide range of economic and policy areas.

The director of OMB is a key member of the president's economic team, helping the president prepare and execute the budget across 14 Cabinet departments and more than 100 executive agencies, boards and commissions.

The OMB director recommends how to spend every tax dollar, oversees the management of every federal government agency program and reviews rules -- every rule, really, but rules, I mention by example, vital to our public health, worker safety, environmental protection and regulation of our financial institutions.

If confirmed as budget director, you will be overseeing more new government money being spent more rapidly than I think we've ever experienced in our history. The stimulus package that the new administration is putting together, between $750 and 800 billion, dwarfs the size of the budgets of most of the countries in the world, and, if enacted, would be more than eight times the size of the annual budget of our largest state, California.

So I look forward to hearing from both of you today about the measures you intend to take to ensure that these enormous sums that will be spent quickly will also be spent wisely and responsibly. Beyond the immediate crisis, we face long-term fiscal imbalances that have been rising for years while we here in Congress, and in the executive branch as well, has -- have acted as if they were not there.

Now the moment of truth -- and I hope the moment of responsibility -- has arrived. Last week, the Congressional Budget Office projected a $1.2-trillion national deficit in fiscal year 2009 -- this year -- and a cumulative deficit of over $3 trillion over 10 years. These numbers don't even take into account the cost of the stimulus package that I've just talked about or the long-term cost of rising health-care and Social Security expenditures beyond the 10-year budget window.

Mr. Orszag, in both academia and government, you've been a leader in identifying and analyzing the major long-term budgetary challenges of our time. So I'm eager to hear, this afternoon, your thoughts on how the new administration can move our country, with Congress, toward fiscal responsibility.

For decades, we have depended on the willingness of our trading partners to subsidize our consumer and government deficits. The result has been large trades -- trade deficits and a gradual transfer of wealth from the United States to foreign countries, notably China and countries in the Middle East. Over the long term -- and perhaps shorter than that now -- this is not just undesirable; it is unsustainable. I want to know how you would begin to right these imbalances, both at the governmental and macroeconomic levels.

The OMB director, I presume and hope, will also be a key player in helping to strengthen what we all agree now is our fragmented and inadequate financial regulatory structure, to prevent the type of meltdown we are now experiencing from happening again. Failure of our regulatory agencies to police Wall Street adequately has certainly contributed mightily to the current national economic crisis.

I personally believe that rather than adding layers of regulation to the patchwork that already exists, real reform must begin by clearing the table of the entire existing federal framework of financial governance, so that we can begin by building a new regulatory system that really will protect America's investors, institutions, consumers and economy. On this, too, I look forward to hearing your views today.

Oversight of federal acquisition of goods and services is another increasingly important responsibility of the OMB director. Federal purchasing has exceeded $400 billion for the past several years, and OMB must wring every possible efficiency out of the contracting process.

Finally, the OMB director has critical responsibilities to guide implementation of information technology and e-government across the federal government. I personally am excited that the president-elect has big plans to use technology to increase public accessibility to government and government accountability. This committee has done extensive work in authorizing e-government legislation, and we look forward to working with you to help this shared vision become a reality.

So we've got a lot of ground to cover today -- it's important, critical ground -- and of course, a lot of important work to do together in the years ahead. And I, for one, look forward to it. Thank you.

Senator Collins.

SEN. SUSAN COLLINS (R-ME): Thank you, Mr. Chairman. Mr. Chairman, the fact that our opening statements are so similar does not indicate collusion -- (laughter) -- but just the fact that there is bipartisan concern about the issues that you raised.

As you indicated, seldom have nominees for the director and deputy director of the Office of Management and Budget come before this committee at a more critical time. The federal budget is under tremendous stress from the impact of a deep recession and because of rescue and stimulus packages. Spiraling entitlement costs are driving long-term budgetary imbalances. And the next few years will also see the cresting waves of baby boom retirements, with enormous effects on Social Security and Medicare expenditures, as well as on our own federal workforce.

Pointing to these trends and to the estimated $1.2 trillion deficit for the current fiscal year, the president-elect has prudently warned that unless strong measures are taken, the outlook is for red ink for as far as the eye can see.

Our nation's public debt has reached $6.3 trillion, about 45 percent of our gross domestic product. According to the CBO, federal spending will climb to an astonishing 25 percent of GDP this year, more than at any time in American history outside of World War II.

And I know, given our nominee's background, that he won't contest those CBO figures in this case.

With a stimulus package worth another perhaps $800 billion, our nation's debt as a percentage of GDP could rise to 60 percent, the highest level since World War II. That is, of course, an unacceptable and unsustainable scenario in the long term for our government, for the economy and for the families and business owners who pay the government's bills.

OMB will be the leading player as the incoming administration formulates policy to deal with a grim present and an uncertain future. OMB will also be an indispensable link to Congress as the executive and legislative branches work toward consensus on finding a sustainable path forward.

Dr. Orszag comes before the committee with an impressive set of skills and experiences. As the former director of the CBO, he is very familiar with the legislative branch as well as with the intricacies of the budgets and policy analysis.

I take special interest in several issues for which the OMB director is a key player. The overriding concern, of course, is the federal budget. Dr. Orszag has already indicated that the economy and stimulus measures portend a near-term rise in the deficit. But as he knows, and as we have heard from the former comptroller general, David Walker, and other experts, the outlays in recent years and the growth of unfunded entitlements are unsustainable.

This recession will not last forever, so we desperately need a realistic plan to avoid having the federal budget become an enormous drag on opportunities for job growth and higher personal income, for people's ability to decide what to do with their own money. And let me add that the public expects from the next administration far better oversight and aggressive stewardship of the Troubled Asset Relief Program and of any future economic recovery packages.

Another major OMB responsibility falls under the general heading of executive branch management. This committee has repeatedly documented a voluminous, shocking waste of taxpayer dollars, by the federal government, in virtually every program and department. Many of these examples have arisen in the realm of government contracting.

Our committee has successfully passed important reform legislation to improve the federal acquisition process. But additional reforms, particularly the revitalization of the federal acquisition workforce, must be high on OMB's list of targets for critical improvements.

Effectiveness and equity are other key management concerns. Homeland security grants, for example, are essential to ensure that every state can achieve a baseline level of readiness and response capability for both manmade and natural disasters. OMB needs to examine budget plans carefully to ensure that they're consistent with that goal.

Other special concerns which the nominee has recognized, in his responses to our pre-hearing questions, include transparency in government operations, an issue of vital importance, I know, to Dr. Coburn and to many on this panel, metrics for agency performance, so we actually can measure and evaluate more effectively, closer attention to the GAO's high-risk list and the need to tackle escalating costs of health care and entitlement programs.

Today, the committee will also consider the nominee for one of the deputy directors, at OMB, Robert Nabors. I look forward to learning more about his background, particularly his experience as a program examiner at OMB during the Clinton administration.

That past OMB service included oversight of a previous census. And this committee is painfully aware of the failures, particularly in the area of technology, in planning for the upcoming census.

Our exploration today with both nominees, of the financial and management hurdles facing the federal government, makes this a critically important hearing.

Thank you, Mr. Chairman.

SEN. LIEBERMAN: Thanks very much, Senator Collins.

We're really honored to have with us today, to introduce Mr. Orszag, Congressman John Spratt, Congressman Paul Ryan, the chairman and ranking member respectively of the House Budget Committee.

I gather that a vote has gone off in the House, so I want to let you two go forward. Speak as long or short as time allows, and then we will understand if you depart. Your presence is appreciated.

REP. SPRATT: Mr. Chairman, what I will do is read the opening paragraph and the concluding paragraph, and submit my testimony for the record, with your consent.

SEN. LIEBERMAN: (Laughs.) That's a good precedent for this committee.

REP. SPRATT: Given the questions you outlined for Mr. Orszag, I don't think we need to be here anyway, because I think he'll be occupied for the rest of the afternoon.

Chairman Lieberman, Ranking Member Collins, members of the Homeland Security Committee, thank you for allowing me to testify on behalf of Peter Orszag for director of OMB. As I told the Budget committee earlier this week, had the choice been mine, Peter Orszag is exactly the person I would have chosen for OMB. And indeed, two years ago when the nomination for the directorship of CBO was ours, Senator Conrad and I picked Peter Orszag, and let me tell you, he has fulfilled or exceeded our expectations in every way.

Mr. Chairman, our economy is in recession, but this is not your garden-variety business cycle recession and there is no off-the-shelf traditional solution for us to turn to. In times like these, we need our best and our brightest, and Peter Orszag fills that bill. He has the skills, the temperament, the intelligence and the experience needed at OMB.

I urge his confirmation and hope it will come swiftly, because the work to be done is -- at OMB is already cut out, which includes next year's budget, coming on the heels of this year's stimulus bill. He's got enough to do for us to confirm him as swiftly as possible and put him to work, where I know he'll be an enormous help to the government of the United States.

I, without qualification, with the highest recommendation, recommend him for this post.

SEN. LIEBERMAN: Thanks very much, Chairman Spratt.

Congressman Ryan.

REP. RYAN: Chairman Lieberman, Ranking Member Collins, it's a pleasure for me to be here, as well, with Chairman Spratt to support Peter's nomination. We -- the three of us have spent a lot of time together over the last two years. And I always enjoy the fact that when you typically have a witness, usually they put a glass of water in front of you; with Peter, we put a pitcher of Diet Coke in front of him. He is a high-octane, high-energy individual.

One of the reasons why I am here to support his nomination is because of how he conducted himself and how he ran the CBO over the last two years.

We budgeteers really expect great integrity and fairness and impartiality from the Congressional Budget Office. That is exactly the kind of leadership he provided to the CBO.

While Peter and I may come from and have different economic philosophies and doctrines, we have great respect for one another.

This is a job at a time where we had the largest economic challenges in a generation, arguable the greatest fiscal challenges in the history of our nation, and we need somebody to hit the ground running. He will not miss a beat on that, and I have every expectation and confidence that he will bring that sense of integrity in the numbers, a sense of impartiality to this new job.

He's going from a job as an impartial referee to a job as an advocate for a particular administration. And while, you know, I have concerns with the fiscal direction of this administration on some levels, I have much more comfort, I am very pleased that he is going to be over there as the director of the OMB. And so it is with those thoughts in mind that I am here also to offer my support for his nomination.

SEN. LIEBERMAN: Thanks very much, Congressman Ryan. The presence of both of you means a lot to us, as I know it does to Peter Orszag.

So please feel free to go back and vote. And thanks for your attendance here.

REP. RYAN: Thank you, Mr. Chairman.

SEN. LIEBERMAN: All the best.

We'll go forward now. Dr. Peter Orszag has filed responses to a biographical and financial questionnaire, answered pre-hearing questions submitted by the committee and had his financial statements reviewed by the Office of Government Ethics. Without objection, this information will be part of the hearing record, with the exception of the financial data, which is on file and available for public inspection in the committee offices.

Our committee rules require that all witnesses at nomination hearings give their testimony under oath. Dr. Orszag, would you please stand and raise your right hand?

Do you swear that the testimony you are about to give to the committee will be the truth, the whole truth and nothing but the truth, so help you God?

MR. ORSZAG: I do.

SEN. LIEBERMAN: Thank you very much. Please be seated.

Dr. Orszag, we have previously referred to at least one member of your family who is here. If there are others, family or friends you'd like to introduce, this is a good time.

MR. ORSZAG: Yeah. In addition to my son Joshua, I'd also like to introduce my significant other, Claire. Joshua's joined me at the witness table. (Laughs, laughter.)

SEN. LIEBERMAN: Joshua. You're welcome to call on Josh if you need --

MR. ORSZAG: Should we ask him to take an oath? (Laughter.)

SEN. CARL LEVIN (D-MI): Representative Ryan says you're high- octane -- (off mike).

MR. ORSZAG: I have to keep up with him.

SEN. LIEBERMAN: That's true.

Before we proceed with your statement -- and I promise you that this is the last time I'll do this in public, but it's too irresistible for me. In the interest of full disclosure, Mr. Orszag, having taken the oath, I want to disclose a relationship that the two of us have. His mother grew up in Stamford, Connecticut, next to -- in the neighborhood of my mother -- my family grew up.

And both Peter and I have found out from his mother and mine, different generations, that her father, Peter's grandfather, courted my mother -- (laughter) -- when they were both teenagers living in the same neighborhood.

And to give you a sense of what courtship was like, in those days, my mother remembers -- passed away now but she remembers your grandfather with great warmth, that he used to come over, Senator Collins, and help my mom, who was one of six children, in a family whose father had died very early, to help my mom do the family wash; a good man undoubtedly with a genetic interest in budgetary control and thrift. (Laughter.)

But anyway, now that that's over, and I've gotten that out -- (cross talk, laughter) -- please proceed with your statement at this time.

MR. ORSZAG: Thank you very much.

Senator Lieberman, Senator Collins, members of the committee, I'm honored to come before you as President-elect Obama's nominee for director of the Office of Management and Budget.

I'd also like to thank Mr. Spratt and Mr. Ryan for their introductions. As director of the Congressional Budget Office, I worked to establish good relationships with members of both parties. And I hope to continue that spirit of bipartisanship if I am confirmed as director of OMB.

It is a momentous time to be holding this hearing. In the short run, we face the worst economic crisis since the Great Depression, with job losses of more than 2.5 million over the last year and projected job losses of 3 to 4 million more over the coming year, unless we act and act aggressively.

Over the medium to long run, we face the prospect of daunting fiscal deficits that reflect an unsustainable course that the federal budget is on.

But what I want to spend most of my time with you on this morning is government performance. I'm particularly pleased to be before this committee, because I believe that government performance and budget must be one. Government performance must be reflected in our budgetary priorities, and then the results of improved performance will yield benefits to the budget. So I am -- if I am confirmed, I would seek an OMB version 2.0, where those two arms of the agency are better integrated and you see a more unified whole between performance and budgeting.

Most of the performance issues the government faces today have developed over decades and will take time to address, but there is an urgency to begin now. We need to be open to new ideas and new ways of doing things.

Improving performance overall requires not only sustained focus, but also a better set of metrics. After all, it is hard to change what you can't see or measure. Significant improvements to the existing performance management system are both possible and necessary.

Let me touch briefly on several areas in which we can do better, many of which have already been discussed. First, procurement and contracting. The dollar value of federal contracts has more than doubled over the past eight years to more than $400 billion in 2007, but the number of qualified contract officers has remained flat at about 28,000. Given that disjuncture, it's not surprising that problems have arisen, especially at the Department of Defense.

In addition to reviewing the use of no-bid, cost-plus and interagency contract vehicles, we must improve the quality and quantity of the federal acquisitions workforce. And I'm pleased that OMB is already working with the Federal Acquisition Institute to do this.

We also need to use technology to create more transparency around procurement and contracting. Current vehicles such as USAspending.gov suffer from a lack of timely and accurate data, and a presentation that is not seen as engaging enough to attract widespread visits. Technology can be a great way to create transparency that will spur competition and help identify problems.

We also need to clarify what is and what is not an inherently governmental function, a line that has become too blurred in recent years.

The use of contractors has grown dramatically, and the result is often that we are depleting the core skills of government agencies.

That leads me to the second topic of human capital. Central to any effort to improve the performance of federal programs has to be a strategy to restore the prestige to and increase the capacity of our federal workforce.

Over the next decade, roughly 60 percent of the federal government's 1.6 million white-collar employees and 90 percent of the 6,000 federal executives will be eligible to retire. To mitigate and offset these expected retirements, we need to take a number of actions, including perhaps most importantly, as President-elect Obama has said, making government cool again. We need to dramatically improve the federal hiring process, and we need to provide more opportunities for civil servants to rise to policy level offices, so that they can aspire to doing -- to seeing the results of their hard work in promotions.

The third key topic is information technology. The current -- the government currently spends $70 billion in nonclassified information technology and perhaps another $20 (billion) to $30 billion in the intelligence community on information technology. On the one hand, IT investments can provide much better transparency and provide a platform for more extensive interaction with the American public. On the other hand, historically, IT investments have not been well integrated into the budget process, and IT investments have often not been aligned with agency missions. They also need stronger management and auditing. Major IT projects have a poor track record in government.

We also need to promote better cybersecurity, The number of threats continues to grow and represents risk to both key financial and other infrastructure, as well as data. If confirmed, I look forward to renewing OMB's commitment to cybersecurity through the Comprehensive National Cybersecurity Initiative and other efforts.

A fourth key topic is financial management. Improper payments in programs such as Medicare, disability and the tax code amount to perhaps $70 billion a year. Significant savings opportunities should be -- these significant opportunities should be pursued vigorously. I have already heard about the results that have resulted from recovery auditing and other steps, and I think those are promising measures that we should be exploring more aggressively. In addition to paying more attention to the problem and recovery auditing, we can create stronger incentives for enforcement in the first place.

We also must improve the management of the federal government's real property holdings. The federal government owns 1.2 billion structures valued at more than $1.5 trillion. Ten percent of these facilities are either underused or empty. That is unacceptable.

We need to more aggressively pursue opportunities for dispossession and terminating inefficient leases so that we can better manage the federal government's own portfolio of real properties.

Finally we need to reexamine how we can best protect public health, the environment and public safety through the regulatory process. I am pleased that the president-elect has announced his intention to nominate Cass Sunstein, one of the nation's leading law professors and thinkers and a specialist on regulation, to run the office within OMB responsible for coordinating regulatory policy.

With that, Mr. Chairman, let me just reaffirm my commitment to working in a bipartisan manner, with all of you, if I am confirmed, to tackle the very important challenges that we as a nation face. Thank you very much.

SEN. LIEBERMAN: Thanks, Mr. Orszag. That was a very thoughtful and practical opening statement.

I appreciate -- you know, in all the years I've been on this committee, we always say that the M in OMB is often not given enough attention. That is the management part of the job. Some administrations do better; some not so good. But I appreciate your focus on it right from the beginning.

Maybe it's time to change it to the Office of Performance and Budgeting.

MR. ORSZAG: That would be okay by me. I don't know if that's -- anyway, we can talk more about that.

SEN. LIEBERMAN: (Laughs.)

MR. ORSZAG: OPM. There already is one.

SEN. LIEBERMAN: Let me start my questioning with the standard questions we ask of all nominees.

First, is there anything you are aware of, in your background, that might present a conflict of interest with the duties of the office to which you've been nominated.

MR. ORSZAG: No.

SEN. LIEBERMAN: Do you know of anything personal or otherwise that would in any way prevent you from fully and honorably discharging the responsibilities of the office to which you've been nominated?

MR. ORSZAG: No.

SEN. LIEBERMAN: Do you agree without reservation to respond to any reasonable summons to appear and testify before any duly constituted committee of Congress if you are confirmed?

MR. ORSZAG: Yes.

SEN. LIEBERMAN: Thank you.

We're going to start with a first round of seven questions. I appreciate the number of members of the committee here, which speaks to the interest of course in your nomination.

Let me ask you a couple of questions that relate to the immediate challenge we face. And that is the condition of our economy and the recommended Economic Recovery and Reinvestment Act.

We've heard a lot of back and forth to date about whether the proposed administration -- Obama administration stimulus package is big enough or whether it's too big. I wanted to ask you to comment on that, and also, in your role as an economist, help us to reach an informed judgment about how we can reach a reasonable conclusion about what size stimulus is the right size to help us out of our current economic crisis.

MR. ORSZAG: Well, let me just begin by noting that in the current economic environment, which is highly unusual, the key impediment to economic growth -- and this is not normal. Normally other conditions apply. The key impediment to economic growth is how much demand for goods and services that firms and other entities could produce That's the key issue.

The gap between how much the economy could produce and how much it is currently producing is estimated to be about $1 trillion now per year. That's lost income of about $12,000 a year for a family of four, on average. It's that huge GDP gap that is at the heart of why we need to act, and it's reflected in lost jobs and lost income.

Now, that perspective may suggest a very large number for an economic recovery plan, and in fact there are academic economists who are suggesting numbers that are much, much larger than what's under discussion in the policy process, because they look at numbers like a trillion dollars a year out over two years or so, and you get very large numbers. That's one perspective.

The second perspective is, let's look at all of the specific policy proposals that you can put together that immediately add aggregate demand in an effective way, that have relatively high bang for the buck. And you add those all up together, and there's some tension because you can't get a collection of policies that add up to anything close to numbers that are commensurate to the GDP gap.

So you then have a judgment call. Where do you cut off the package, balancing the macroeconomic risk against the (fiscal ?) condition that we're in and the declining bang for the buck that comes as you go down the list of possible initiatives or interventions.

SEN. LIEBERMAN: The macroeconomic risk of the growing long-term debt, you mean?

MR. ORSZAG: No, just that -- let's say that you only came up with $150 billion of economic --

SEN. LIEBERMAN: Okay.

MR. ORSZAG: -- recovery spending. You're then leaving a GDP gap that could be 8(00 billion dollars) or $900 billion, a very large gap here, and --

SEN. LIEBERMAN: Right. Gotcha.

MR. ORSZAG: -- leaving a very significant --

SEN. LIEBERMAN: That gap.

MR. ORSZAG: -- (word inaudible).

SEN. LIEBERMAN: Yep.

MR. ORSZAG: It's the judgment of the economic policy team that the incoming administration has put together that it is worth tolerating some slippage -- that is, some things that might not spend out immediately over the next three or six months -- given the severity of the economic downturn and the projected length of the economic downturn, especially if those things then lead to investments that will improve long-term economic performance.

So there's this balancing act between getting money out the door quickly and addressing the macroeconomic risk. And when you start to loosen up on that a little bit, in terms of things that, you know, may not fully spend out over six months, are you at least getting something that you sort of wanted anyway?

SEN. LIEBERMAN: Okay. That's a helpful beginning. Let me, just for -- as a point of clarification, when we're talking about the total size of the stimulus or Economic Recovery and Reinvestment Act -- 750 billion (dollars), 800 billion (dollars) -- we're talking, aren't we, about a two-year period of time for spending it out?

MR. ORSZAG: That's correct.

SEN. LIEBERMAN: Okay. So that if you go with that trillion- dollar deficit, and demand reaching the potential in the economy, that's -- we're talking about 2 trillion (dollars) over two years.

MR. ORSZAG: Correct.

SEN. LIEBERMAN: But we're trying to figure out, also, what the multiplier effects are of every dollar we spend.

MR. ORSZAG: That's correct also.

SEN. LIEBERMAN: So let me ask -- this is another point of discussion here on the Hill, as you know -- which is that the balance in the economic stimulus package between spending and tax cuts, in simplistic terms -- there are obviously some people who feel that tax cuts don't bring much of a return; spending is the way to go.

The administration is -- Obama administration's clearly moving in a different direction, a more balanced package. Give us your justification for that.

MR. ORSZAG: Well, if you just look at bang for the buck -- so in terms of immediately adding to aggregate demand -- I think there's widespread agreement among economists that the highest bang for the buck is direct federal government spending on infrastructure or on real goods and services.

One layer below that is assistance to states, because that provides -- that avoids laying-off of teachers, and other steps that state and local governments would take in the absence of assistance.

And then in general, one layer below that are tax provisions. And the reason tax provisions are somewhat less effective, at least from a short-term stimulus perspective, is that part of the money is saved rather than spent. So you provide a dollar in tax relief, part of that is saved rather than consumed, and the result then is that you don't get a full dollar added to aggregate demand.

However -- and the reason there's some balance is -- if you look down the individual items of federal-government spending that you could get out the door quickly, you know, there's a limit to that.

And so again, if you face a GDP gap of $2 trillion over two years, you're either going to stop at things that have the maximum bang for the buck and then assume a very substantial macroeconomic risk, or you're going to include in the package things like state fiscal relief and tax relief that provide some macroeconomic benefit but might have slightly lower bang for the buck.

SEN. LIEBERMAN: Let me ask you a final question on this round. The president-elect has spoken about the need and promised the American people that there would be oversight of this money. This is a lot of money to spend --

MR. ORSZAG: A lot of money.

SEN. LIEBERMAN: -- particularly when the risk of waste or even fraud becomes higher. Are there specific mechanisms that you have in mind for doing this, or is it just going to be put through the regular OMB process?

MR. ORSZAG: Yeah. We are -- we are thinking of special oversight and auditing processes for this. So I'll give you two examples.

SEN. LIEBERMAN: Okay.

MR. ORSZAG: We plan to create a website that will contain information about the contracts and include PDFs or the contracts themselves and also financial information on the contracts.

SEN. LIEBERMAN: Define PDFs for me.

MR. ORSZAG: Sorry. An electronic document that is posted on the Internet so that you can -- the public can see the contracts on the web.

SEN. LIEBERMAN: Right.

MR. ORSZAG: One of the difficulties of this existing financial -- federal financial management payment flows is that the time between when a contract was signed and when the information shows up on federal government websites is so long that we didn't want to allow that time lapse to occur. So we are -- we have proposed that the contract officer, when you sign the contract, would be required to go to a simple web-based portal and fill out a simple template, basically to create a faster flow of information at least at an aggregate level; on specific contracts, post the contract so you can see that information, too.

In addition to those kinds of steps, we would favor creating a special board -- an oversight board composed of the inspectors general of the relevant departments and chaired by the chief performance officer that would review problems and that would conduct regular meetings to examine specific problems that might be identified, for example, by folks who are looking at their website and saying, wait a minute, that doesn't look right.

SEN. LIEBERMAN: That's very reassuring. Thank you.

Senator Collins?

SEN. COLLINS: Thank you.

Dr. Orszag, I mentioned in my opening statement my concern not only about our current economic crisis but the long-term, spiraling, troubling increase in the public debt.

The Peterson Foundation, headed by the former comptroller-general David Walker, recently noted that America now owes more than its citizens are worth -- a startling way of focusing our attention on the growth in the federal debt.

Many people have proposed a bipartisan commission that would tackle the issue of entitlement reform. All of us know, in Washington and throughout the country, that the current structure of Social Security and Medicare are simply not sustainable in the long term.

My first question to you is, do you agree that entitlement reform is an issue that the new administration must tackle? And second, do you support the creation of an outside commission to come back to Congress with specific reforms?

MR. ORSZAG: Let me answer very directly. First, the federal budget is on an unsustainable course, and it needs -- and the course that we're on needs to be rectified as we emerge from the current downturn, or we will face a fiscal crisis at a time that is difficult to predict.

That fiscal imbalance is driven mostly by rising health-care costs. And I think there are huge opportunities to improve the efficiency of the health-care system to reduce costs without harming health outcomes, because -- reflected in the fact that we have huge variations across parts of the United States in cost per beneficiary that are not correlated with, and that don't -- do not reflect, better outcomes in the higher-cost areas.

With regard to the process, I will also say, I think our existing system does not deal well with gradual, long-term problems. And you can look across a variety of areas. Our system seems to respond to crises and not to gradual long-term problems like rising health-care costs, like a gradually growing fiscal gap, like climate change and other gradual problems.

That opens up the possibility of changes in the process, and there are a variety that have been discussed. One -- Senators Conrad and Gregg have a proposal --

SEN. COLLINS: Yes.

MR. ORSZAG: -- for a long-term fiscal commission. Senator Baucus has a proposal that focuses more on health -- on how health- care decisions are made. And I think those process changes are things that we are carefully examining.

And I'd just come back again to the conclusion that the existing system is not working very well, and therefore some changes (seem ?) warranted.

SEN. COLLINS: And I recognize that the new administration needs to get past the current fiscal crisis, but I assume from your comments that you do recognize the long-term budget imbalance and the threat to our long-term economy and that the administration is committed to tackling those budget issues as well.

MR. ORSZAG: And let me be more specific: If I'm confirmed, I will be part of the process that puts together the fiscal year 2010 budget, which will be released in mid-to-late February.

And perhaps, actually, Mr. Chairman, if I could just say a general caveat "if I am confirmed" for all questions, so that I don't have to keep repeating that, and just assume its implicit in my answers.

SEN. LIEBERMAN: Without objection.

MR. ORSZAG: Thank you.

SEN. COLLINS: We will assume that appropriate caveat.

Turning now to the economic stimulus package, you mentioned in response to Senator Lieberman your intention to have some sort of state fiscal relief included in the package. And as you know from our conversations, I support that as well.

There are some who have suggested, however, that while helping states in order to prevent layoffs and budget cuts that might exacerbate the recession, it's appropriate now that that should be structured in terms of loans rather than grants. What is your opinion on that?

MR. ORSZAG: Well, I think there are two issues that would -- that need to be examined with regard to that thought. The first is that many states -- for many states, such loans would face the same sorts of constraints as debt issuance and other borrowing that they undertake. And so for many states it's actually not that easy to engage in such credit transactions.

The second point, though, is we have to be clear about what we're trying to accomplish through that state fiscal relief. If it's to avoid layoffs and to help the macroeconomy, which is what I believe is the case, rather than just pure benevolence -- it's not just benevolence; there's a macroeconomic imperative -- that would also, in my mind, at least, raise questions about the loan approach as opposed to a grant approach.

So I understand the theory of the case behind the idea, but I guess there are both practical and then a sort of philosophical question that arises with regard to whether it would impede the macroeconomic impact that you're trying to achieve through that assistance.

SEN. COLLINS: I think the concern is where we recognize the need to help states. You don't want to be creating a situation where states in good times are spending too much money, growing their programs too much, with the knowledge that Uncle Sam will come along and bail them out in the bad times and thus they're sustaining -- they're reaching unsustainable levels of spending.

MR. ORSZAG: Yeah.

SEN. COLLINS: So I think --

MR. ORSZAG: And I think that's a legitimate concern. I appreciate the concern.

SEN. COLLINS: Many of us have also advocated a significant portion of the stimulus package be devoted to infrastructure spending. There's a backlog in the state of Maine, in virtually every state, of shovel-ready transportation projects. And the reason I'm (for those ?) -- that kind of spending is that it not only creates good jobs but it leaves communities with lasting assets that they really need.

I think, however, we need to look beyond just the transportation sector. There is other kind of -- there are other kinds of investments that are needed, and one of particular interest to this committee are the land ports of entry. The U.S. Customs and Border Protection faces significant infrastructure challenges. Some of the land ports of entry are over 70 years old. There's been an increased traffic volume, security requirements. In my state there are three ports of entry that are on the list but have been waiting for funding for quite some time.

Are you looking beyond the transportation infrastructure at such needs as the land ports of entry, military construction? There are a lot of projects in the queue.

MR. ORSZAG: Yes. And with respect to the ports of entry question in particular, I have had discussions with Governor Napolitano on precisely that topic and explored the possibility of funding as part of an economic recovery plan to speed investments in the land ports of entry.

SEN. COLLINS: Thank you.

SEN. LIEBERMAN: Thanks very, very much, Senator Collins.

We'll go to the other members of the committee, as is our rule, in order of arrival. Just for the information of members, the order I have, as kept by the clerk, is Senators Levin, Tester, Akaka, Coburn, Voinovich, Carper, Landrieu and Pryor.

Senator Levin.

SEN. LEVIN: Thank you, Mr. Chairman. And we welcome Peter Orszag. You're going to make a great OMB director. We welcome your family and (particularly ?) your son, who's been trying to look interested during this last hour and has done very, very well.

I want to pick up this idea about the TARP program and the conditions and the assurances that are going to be granted or provided, as part of the second half of the program, which were not there for the first half. And the failure to do that on the first half has created a real credibility problem about the use of $350 billion of taxpayers' money.

So I want to ask you, what is reasonable for us to expect in terms of assurances, on the second half, before we vote on it? I'll be writing a letter to Larry Summers about this, this afternoon, hoping to get an answer by the morning, on this, before we vote.

So question one: Is it reasonable for us to expect that TARP recipients are going to be required by the Treasury to track and report their use of TARP funds?

MR. ORSZAG: I know that the incoming administration is committed to heightened transparency and accountability. I can't commit, given that that's more of a Treasury responsibility, to --

SEN. LEVIN: Should we be -- should we not be able to expect that we will be told, by recipients, how they spent those funds, and that that will be reported publicly, just the way the contract is going to be on the web? And by the way, I commend you for that.

It's taken the threat of a subpoena to get the current Treasury Department to produce the documents which should be made public, are public documents. They involve public funds.

Senator Collins and I have been involved in that go-round with them. And hopefully these documents are coming, and we do that as a permanent subcommittee investigation, not on behalf of the full committee, which of course would involve the good offices of our chairman.

So should we not reasonably expect that the recipients of TARP funds would be required to report on their use of TARP funds?

MR. ORSZAG: Well, it seems to me like that's the kind of change that the incoming administration will be looking at and examining. It seems reasonable to me. But again I am not the official responsible for --

(Cross talk.)

SEN. LEVIN: Would it be reasonable for you, in your judgment, for us to expect a requirement that TARP recipients provide and agree to benchmarks which need to be met, relative to the use of those funds?

MR. ORSZAG: I think I'm going to be repeating my answer.

SEN. LEVIN: That's good enough. I'll ask you -- that's a good enough answer.

MR. ORSZAG: Okay.

SEN. LEVIN: If you think it's reasonable, that's good enough. We'll use that argument.

MR. ORSZAG: Again, without -- I want to respect the work that the Treasury and Mr. Summers and others are doing. It seems to me like those are questions that are better directed to them than me.

SEN. LEVIN: Well, they will be directed to them. But it's also appropriate that we ask you whether you think this would be a reasonable requirement.

MR. ORSZAG: It does not seem unreasonable to me, but again, I am not the official responsible.

SEN. LEVIN: Would the same answer be forthcoming as to whether or not it is reasonable that Congress be assured that banks receiving these funds would extend credit with those funds to a reasonable extent?

MR. ORSZAG: That again seems reasonable to me, with the caveats that we've already discussed.

SEN. LEVIN: All right. Would that answer also be accurate relative to the use of a reasonable portion of those funds for mitigating foreclosures on residential mortgages?

MR. ORSZAG: Yes. And I know that that is something specifically that the incoming administration would like to explore.

SEN. LEVIN: All right. And finally, what about a written viability plan? We required the auto manufacturers to give us those plans, and that was proper. Should we not require at least the major recipients of these funds, these TARP funds, the other recipients, such as the banks that received significant funds, to provide those same kind of viability plans?

MR. ORSZAG: Again, with the caveat that especially in the financial sector things may sometimes move very rapidly, and with the caveat about timeliness, and also that it's not really my jurisdiction, it doesn't seem unreasonable to me.

SEN. LEVIN: All right. Thank you. As you know, Dr. Orszag, the Permanent Subcommittee on Investigations, which I chair, has spent a lot of time looking at offshore tax havens.

MR. ORSZAG: Yes.

SEN. LEVIN: These secrecy havens which have -- whose use has denied our Treasury the funds that could be as much perhaps as 100 billion (dollars). That was one estimate, which we have been using at the Permanent Subcommittee on Investigations.

When we met last week, I shared with you a copy of a bill which had been cosponsored by senators -- then-Senator Obama and Senator Coleman, so it's a bipartisan bill; but even more significantly, has the imprimatur of the president-elect.

MR. ORSZAG: Yes.

SEN. LEVIN: The purpose of the bill is to shut down the offshore tax abuses. Have you had a chance to review the bill? And whether you've had that chance or not, what do you think about our cracking down on the use of those tax havens?

We can't stop them from existing, but we sure as heck ought to do what we can to stop taxpayers who owe the Treasury money from using those tax havens. Could you give us your thoughts on that issue?

MR. ORSZAG: There is no question in my mind that we -- that increased enforcement and better enforcement of the tax code is a beneficial thing that we need to be more aggressively pursuing --

SEN. LEVIN: And does that --

MR. ORSZAG: -- including international transactions.

SEN. LEVIN: And does that include specifically going after these secrecy jurisdictions where American citizens, including individuals and corporations, have been utilizing to avoid paying their taxes?

MR. ORSZAG: Again, that is aligned with the overall objective of improving the enforcement of the tax code. I don't want to comment specifically on exactly which provisions are most auspicious, given that, again, that is not my jurisdiction.

SEN. LEVIN: All right. Relative to that question -- and this goes to the issue of scoring -- we take initiatives, or try to, around here to enforce our tax laws. And you very properly have gone in very actively and, I think, thoroughly and effectively have gone through the measures which are going to be before us to try to get this economy going again. And this testimony is very helpful.

But one of the things that's overlooked, because it will take a little more time than doing this in the next couple weeks, is tax enforcement. We talk about tax cuts as a stimulus, direct expenditures as a stimulus, but in terms of reducing the impact on our deficits, which is a concern of all of us, one of the things that has to be considered is surely enforcing the tax laws which exist. When we put, or try to put, money in for collection, and if the payback is about four dollars to every one dollar that we put in there, roughly, it's scored as an expenditure instead of a revenue. You have personal experience with that from CBO.

Is there some way that where you have that kind of an investment in increasing revenues through tax enforcement, that instead of having a cost, which makes it more difficult for us to get that adopted because it's scored, is there a way that we could change that in some way, at least relative to the direct revenue raising which would result from an expenditure?

MR. ORSZAG: Let me first again say I think improved enforcement of the tax code is not only an important fiscal issue, but it's just important as a civic question that American citizens should expect that their fellow citizens are paying their fair share and complying with -- and that there's full enforcement of the tax code.

That having been said, you have identified one of the issues around why we don't have as much enforcement or one of the possible reasons we don't have as much enforcement as might be optimal.

Those scoring rules have developed over a long period of time. They exist for technical reasons. I do see them, in some cases, as an impediment to effective enforcement, so I would like to explore ways in which they possibly could be changed, working with the budget committees and other budgeteers and cognizant of the fact that they have developed for a reason, but nonetheless do seem to me to be an impediment to enforcement not only in this area but in Medicare and other areas.

And given that we should improve enforcement, I think we should be looking at incentives for the agencies to do better and incentives for you all to provide more resources to that activity.

SEN. LEVIN: Well, we thank you and we congratulate you. And I think you'll make a terrific OMB director.

MR. ORSZAG: Thank you.

SEN. LEVIN: Thank you, Mr. Chairman.

SEN. LIEBERMAN: Thanks, Senator Levin.

One of the -- one of the great mental exercises for witnesses before this committee is to handle Senator Levin's questions. You did pretty well.

MR. ORSZAG: Did I succeed?

SEN. LIEBERMAN: You did pretty well.

SEN. LEVIN: Too well, on the first set. (Laughter.)

SEN. LIEBERMAN: Senator Akaka is next. Senator Akaka, I want to say, along with Senator Voinovich -- as you probably know, Dr. Orszag, going to something you mentioned in your opening statement -- the two of them together have done truly extraordinary, largely unsung work on behalf of the human capital improvement management of our federal government.

With that, I'm happy to call on Senator Akaka.

SENATOR DANIEL AKAKA (D-HI): Thank you. Thank you very much, Mr. Chairman. I want to thank you for your leadership of this committee. I really enjoyed my work with Senator Voinovich over the years and -- (inaudible word) -- worked so well in trying to bring about some good changes.

Let me welcome you, Dr. Orszag and also Joshua, to -- hi, Joshua.

MR. ORSZAG: Could I just point out he used to call the CBO the Congressional Boring Office? (Laughter.) We need to come up with a new name for OMB.

SEN. AKAKA: Well, thank you very much for being here.

In my role as chairman of the Oversight of Government Management Subcommittee, I'm very concerned about the management challenges facing the incoming administration. It is more important than ever for the Office of Management and Budget to focus on better management, and not only budgetary issues.

So it's -- I've taken your statement of providing better government performance as a step ahead -- I mean, past management. And I'm thinking that government performance means that there is management and there is accountability that brings on better performance.

The Government Accountability Office has identified about 27 issues and programs that are at high risk for waste, fraud or abuse due to poor management. OMB will be critical to addressing these management issues, as well as several other issues throughout the government. And I have been especially worried about contracting management of -- (audio break) -- agencies and human capital planning.

MR. : Yeah.

SEN. AKAKA: I've also been very focused on ensuring that the federal government protects Americans' personal privacy, where OMB must play a critical role. So I look forward to working with you and your team on this in the future.

And -- but before I move on to my question, Mr. Chairman, I ask normally that my full statement be placed -- and made a part of the record.

SEN. LIEBERMAN: Without objection, so ordered.

SEN. AKAKA: Thank you.

Dr. Orszag, several large acquisition projects at Department of Homeland Security, including SBInet and the Coast Guard's Deepwater Project, have experienced significant contracting problems and cost overruns. Despite repeated problems with the contract management at agencies in recent years, OMB has not played an active role in most large contracting decisions or policy. Instead, contracting problems have been handled at the agency level.

My question to you is, what are your plans to enhance OMB's role in contracting decisions and oversight at agencies?

MR. ORSZAG: Again coming back to the basic issue, which is that acquisition procurement has doubled since 2000, the number of acquisition officers has stayed flat. It's not surprising to me that agencies are struggling in overseeing their procurement budgets.

In addition to that, there's not sufficient scoping out of procurement tasking ahead of time. And then there's not sufficient auditing and oversight as the project proceeds; again not surprising that you run into trouble in the middle of even long-term procurement projects.

It is absolutely OMB's responsibility to provide oversight and guidance on procurement issues. We have a statutory office, as you know, that's dedicated to that topic.

I know that it has already started to work actively, to increase the number of acquisition officers, because I do think that's one of the key steps that's required in fixing this problem. And without that, you're going to be tilting at windmills.

Even with -- that's necessary but not sufficient. If we had more acquisition officers, we'd have more ability to mitigate some of these problems. But you need to do more than that.

We need again to address better scoping out of projects and then monitor them as they go along. And OMB plays a key role in that process, in part by -- through the budget process, which is to say how we can use the budget process to make sure that we're providing leverage, when there are problems, to fix them.

SEN. AKAKA: Is one of the problems staffing?

MR. ORSZAG: At OMB or out in the agencies?

SEN. AKAKA: Well, anywhere.

MR. ORSZAG: Again I think in acquisition, you know, look, if you double the procurement budget, and the number of procurement officers stays flat, then unless you think the productivity of those officers has doubled, over the same period of time somehow magically, it's not surprising that things get sloppy and problems arise.

So absolutely staffing is one of the key steps. And this is an area coming back to enforcement. I mean, it's not -- you might not think of it exactly as enforcement. But this is an area where some increased cost will actually save money.

By constraining acquisition officers, we're being penny-wise and pound-foolish, because you might save a little bit on human capital costs but you're losing a lot in terms of cost overruns and other problems in the procurement budget.

SEN. AKAKA: Dr. Orszag, as you are aware, I'm very concerned about protecting the privacy of Americans' personally identifiable information. In particular, I've been a strong advocate of enforcing the current privacy laws of agencies and strengthening areas that may be weak. Currently, different agencies have widely differing programs in place to protect privacy. The Department of Homeland Security -- the committee ensured that a robust privacy office was established. And I have been impressed by the work that they do. However, many agencies do not provide such a comprehensive and focused attention to privacy.

My question to you is, do you believe that OMB should serve as a strong government-wide advocate to ensure that all agencies are implementing the Privacy Act correctly? And if so, how do you anticipate OMB fulfilling that mission?

MR. ORSZAG: First, yes, privacy is absolutely crucial. Especially as information technology advances, protecting the information that's contained in various federal databases and other IT structures is crucially important to all of us.

Questions have arisen -- you know, for example, when IT investments are made, the agencies are supposed to conduct privacy impact assessments. Those are done in -- my understanding is they're not as rigorous and they're not as rigorously applied as could be the case, so we could improve there. Questions have arisen with regard to OMB's internal structure and whether we should have a chief privacy officer internally at OMB like occurred during the 1990s, and that would be something that I'd want to look at very carefully.

But I can tell you that the importance of the privacy issue, whether it's lodged with the E-Gov administrator or the head of OIRA or a chief privacy officer, has to be at the top of our thinking as information technology evolves.

SEN. AKAKA: Thank you very much, Mr. Chairman.

SEN. LIEBERMAN: Thanks very much, Senator Akaka.

Senator Tester, you're next, and then Senator Voinovich.

SEN. JON TESTER (D-MT): Thank you, Mr Chairman. I appreciate that. First of all, thanks for being here, Peter. I particularly appreciate your boots.

MR. ORSZAG: Thank you!

SEN. TESTER: Is that regular attire for you?

MR. ORSZAG: It's a subtle act of rebellion.

SEN. TESTER: Okay, good. (Laughter.)

SEN. LIEBERMAN: They didn't wear them on Hawthorne (sp) Street in Stamford.

MR. ORSZAG: Exactly.

SEN. TESTER: I wear them every day, so maybe I rebel every day.

Could you talk about some of the methods that you plan on using to gauge federal programs' effectiveness?

MR. ORSZAG: Yeah. And let me talk to the performance metrics system in particular.

There currently is a system, the PART system, that had been designed and is out -- is in use. It is not particularly effective for two reasons. One is, frankly, most federal officials don't even know about it. I just read a study that something under a quarter of senior federal government officials have even heard of PART, and then of those who are knowledgeable about it, most don't use it or just sort of, you know -- there's a lot of going through the motions of filling out forms without as much impact as it could have.

And I think that's for two reasons. One is it was developed without consultation with the Congress and with the agencies and, secondly, it's too focused on process rather than outcomes.

So let me give you a specific example. We were talking about tax enforcement before. The PART process for tax enforcement measures the numbers of audits. That's great, but it's not what we really care about. What we really care about is the tax gap or the error rate or the compliance rate. So my view is we should be focusing our metric system on that ultimate outcome and not what we're doing to get there and then let the agencies focus on how to get there.

I would like to see a performance metric system that tells the Treasury Department and the IRS: Hit this compliance rate for the tax code. And, you know, you're going to have lots of internal measures that you need to use from a process, whether it's audit rates, risk, this, that and the other the other thing, to hit it. But don't just tell me what your audit rate is, because I don't really care about that. I care about what the tax compliance rate is.

So we need to -- and I had said earlier, it's really hard to do anything if you don't measure it, because you don't know where you're -- what you're trying to change and where you're going. I think it's crucially important if -- again, if I'm confirmed, that we revamp and revise. The PART system is something that could be built upon, but it needs to be revamped in consultation with you all and with the agencies to be something that they're bought into and they'll actually use and that's more outcome-measured.

SEN. TESTER: Okay. You've got a number of years of experience. Do you have an programs in mind?

MR. ORSZAG: For --

SEN. TESTER: Termination.

MR. ORSZAG: We will have -- the president-elect will be releasing a budget and economic overview in mid-to-late February, and that will contain some program eliminations, yes.

SEN. TESTER: Are you willing to --

MR. ORSZAG: No.

SEN. TESTER: No. (Laughter.) You've got to ask.

MR. ORSZAG: (Laughs.) Yeah.

SEN. TESTER: Expiring tax cuts -- can you relay to us which ones of these cuts -- I mean, President Obama's talked about them a lot during the campaign.

Can you tell us which ones he's going to keep, which ones he's going to let expire?

MR. ORSZAG: I'd just again say what -- the president-elect during the campaign made a series of specific statements about tax provisions under $250,000, and I at this point see no reason that that has changed in any way, and I haven't heard any discussion of any change in that.

SEN. TESTER: Okay. Do you want to talk about TARP funds anymore --

MR. ORSZAG: No, thank you.

SEN. TESTER: -- or you'd just refer them to Treasury or you don't want to -- (laughter) --

MR. ORSZAG: Not really. (Laughter.) But I will. (Laughter.)

SEN. TESTER: Well, we'll see.

MR. ORSZAG: Okay. (Laughter.)

SEN. TESTER: Can you give me any additional details -- and you've seen the Summers letter -- beyond the Summers letter, on how the funds will be spent differently in this batch than it was in the first 350 billion (dollars), even though I'm not sure anybody can tell us how the first 350 billion (dollars) was spent to begin with?

MR. ORSZAG: Again, I think that is a question for Mr. Summers and the Treasury secretary-designate.

SEN. TESTER: Okay. Okay.

Debt limit.

MR. ORSZAG: Yes.

SEN. TESTER: Big issue, something that I'm very concerned about, and not for me but far more for my kids and grandkids. And just -- I mean, where does the debt fall into our choices in critical areas, like health care, for example? I mean, where -- what are your recommendations going to be when we're talking about trying to tackle a problem as complex and as costly as health care in this country, weighing in the issues of the debt?

MR. ORSZAG: Let me talk specifically about health care, because it really is the key to our fiscal future. Current -- for example, on our current path, if you -- if health care costs grow at the same rate over the next four decades as they did over the past four decades, Medicare and Medicaid are going to go from 5 percent of GDP to 20 (percent) by 2050. Twenty percent of GDP is the entire size of the federal government today. That's basically the whole ball game.

I think there are huge opportunities to reduce costs, because if you look across parts of the United States -- so for example, if you look at the last six months of life at UCA (sic) Medical versus the Mayo Clinic, at UCA (sic) Medical, Medicare beneficiaries on average cost $50,000 a year; Mayo Clinic, $25,000 a year -- twice as much at the UCA (sic) Medical. There's no improved quality at UCA (sic) Medical. In fact, quality indicators suggest Mayo does better. All that happens is you have more tests, you see more specialists, you spend more days in the hospital at the -- at UCLA.

Across regions of -- in the United States, across hospitals within a region, across doctors within a hospital, we see those kinds of variations, with higher costs not correlating with better outcomes.

To tackle it, we need dramatically expanded health information technology, to get the data on what works and what doesn't. We need to examine through comparative effectiveness research what works and what doesn't. We have to provide financial incentives for better care, rather than more care. Currently, we have incentives for more care. Guess what we get? And then we need prevention and healthy living.

And I think all of those components will lead to a new health care system that will be much more efficient and that will be key not only to addressing our long-term fiscal problem, but also helping state governments and, frankly, helping workers, because workers' take-home pay is now being reduced to a degree that's under- appreciated and unnecessarily large because of the high costs of health care to their employers.

SEN. TESTER: So what you're saying is, is that in health care, as long as we're talking about it, that the moves -- the policy decisions that you would advocate would actually reduce the debt?

MR. ORSZAG: Over time, what would happen is, instead of going to 20 percent of GDP in Medicare and Medicaid, you'd be bending that curve. The key to our fiscal future is bending that health care cost curve. It wouldn't necessarily reduce the debt relative to where it is today, but it would avoid an unsustainable explosion in that debt.

SEN. TESTER: Okay. And I got you. But the other side of that coin is -- and I've got to let you go, because I'm down to 15 seconds -- but the other side of that coin is, is that when you're making -- when you're advising us on what decisions we should be making, what impact is that debt going to have on your recommendations? None?

MR. ORSZAG: Oh, no. The reason that I would suggest we need to tackle the medium-term budget problem and health care costs over the long term is precisely that that is -- that the growth in debt that would ensue would be unsustainable and a huge problem. And let me actually comment on that for a second.

SEN. TESTER: Yeah.

MR. ORSZAG: In the current environment, in the current economic crisis, we are in the highly unusual position in which we can issue substantial amounts of federal debt at very low interest rates, because investors have full confidence in Treasury securities, as they should.

If we don't act, however, over the medium to long term to bend the curve on health care costs, if we allow deficits to grow and grow and grow, and debt to increase exponentially, at some point investors will no longer have that confidence. And if we were ever to face an economic crisis like we do today without that full confidence of investors, we would have much less maneuvering room to do various steps, because we wouldn't be able to issue huge amounts of debt on an emergency basis.

We need -- that's only one of many reasons, in addition to our kids and grandkids, that we need to avoid this fiscal path that we're on over the medium to long term.

SEN. TESTER: And just one thing -- and this is a very easy question to ask -- when do we need to start addressing the health-care issues? Six months? A year? Three months?

MR. ORSZAG: Five years ago.

SEN. TESTER: Okay.

Thank you, Mr. Chairman.

SEN. LIEBERMAN: Thank you, Senator Tester. Very good round of questions.

Senator Voinovich is next. Senator Voinovich, while you were out of the room, I thanked you and Senator Akaka for the extraordinary work you've done on human capital management -- which reminds me that somebody told me long ago that people are always praising one another in Washington. But you know somebody really means it when you are praised when you're not in the room.

SEN. GEORGE VOINOVICH (R-OH): (Chuckles.)

SEN. LIEBERMAN: And in your case I really do mean it.

SEN. VOINOVICH: Thank you.

SEN. LIEBERMAN: And I say that as you've announced your decision to retire in two years. We're going to miss you, but you made a great contribution, but you've got two years to make even greater contributions.

SEN. VOINOVICH: You bet. (Chuckles.)

SEN. LIEBERMAN: So with that, I'm happy to call on you.

SEN. VOINOVICH: Thank you very much. Thanks for your nice words. Dan and I have worked together as a great team over a long period of time.

I'm glad that you're willing to take this job, and I'm going to get onto some stuff real quick.

MR. ORSZAG: Okay.

SEN. VOINOVICH: As you know, over the last five or six years I've tried to get tax reform and entitlement reform. And the Bush administration said they'd do it with Mack-Breaux on tax reform; they came back, they shelved it, nothing happened.

Then Frank Wolf and I put together Saving America's Future Economy, the SAFE; got people in the House to sponsor it, Senate to sponsor it. Then we came up with the Bipartisan Task Force for Responsible Fiscal Action Act. This year I was -- last year I was trying to get everybody together to agree on the language of the 16- member commission, to get it in place so that once you guys got into office you could appoint the Office of Budget and Management and the -- you and the treasurer, so that -- and get going on it.

And I asked you this question -- we were at the committee on -- to balance the budget, remember that night? You guys were all on the stand. You were -- we were asking you questions. And you kind of waltzed on it.

Now, what I'd like to know is this. Is this administration going to do something about tax reform and entitlement reform? Because when I approach the issue of the commission with Kent Conrad, Kent says, "I'm getting pushback from the administration." When I talk with the House members that we'd like to get together on this language, they say they're getting pushback from the administration. Is the administration going to go forward and do something about it?

And I want you to know this. Most of us believe that if you don't have this commission with like a BRAC process -- they come together; they get the job done; we either go up or down on it -- I don't think it will ever happen.

And a lot of people won't participate because they'll think, why should I bother with this when, I know, I'm not going to get a vote, after all the hard work that I've done? What are you guys going to do?

MR. ORSZAG: The president-elect has stated that he -- it is his intention that we will address entitlement reform. I spoke earlier about the fact that the existing process doesn't seem to work so well, either on the long-term budget process or on health care specifically.

I think working with you and exploring the best way of adopting a process change, whether it's the Conrad-Gregg commission, or other commissions, or whether it's the Baucus health board idea, is something that you should expect from me, if I'm confirmed.

SEN. VOINOVICH: Good. That's great.

The other thing is and this is a pet peeve with me now -- I'm going on to appropriations -- is that I've asked the other administration to make a case of why it's important for Congress to pass appropriations on time. And I hope you agree that it's a wonderful thing.

That would be the greatest gift that we could probably give the Obama administration, is to get our appropriations done on time, in a way to not have what we're going through with the continuing resolutions. How do you feel about that?

MR. ORSZAG: That would be a wonderful gift, yes.

SEN. VOINOVICH: High Risk List; Senator Collins and I and all of us have been working on a High Risk List. And we got a lot of cooperation from Clay Johnson. And they put together strategic plans on how to get the stuff off the list.

Are you familiar with those plans?

MR. ORSZAG: Yes and I have them in my book.

SEN. VOINOVICH: Okay, and you're going to make that kind of a strategic plan part of their budget submission -- is that it -- to try to make sure that this happens.

MR. ORSZAG: That's one approach that, I think, that can be effective. The chief performance officer that the president-elect has identified is going to be very focused on --

One of the -- let me step back -- one of the key things, I think, we need to do, and the High Risk List is an example of that, is not just diffuse our focus across a whole variety of things but, to the extent we can, focus on the biggest problems, just on a risk-based assessment. And the High Risk list does that. Focusing on those areas makes a lot of sense to me.

SEN. VOINOVICH: I think that I'll never forget Mitch Daniels. I said, you know, if I were the administration, I would look at this and say, here's what I inherited, and here's working with you guys; we reduced the list down to maybe -- you know, by three or four.

There are two areas that Senator Akaka and I have been working on real hard. One is the security clearance, that we got onto four years ago and finally they threw up their hands and said it's got to be scrapped. And they've come up with a new program. Are you familiar with it?

MR. ORSZAG: Yeah, I think so. My understanding is only, if memory serves, something like half of the relevant workforce has gone through that process.

SEN. VOINOVICH: Well, we've improved it a bit --

MR. ORSZAG: Yes.

SEN. VOINOVICH: -- but they've come up with a new idea, and I would really appreciate you looking at what they did. I think the intelligence folks got together and tried to work on that issue.

MR. ORSZAG: Yes.

SEN. VOINOVICH: The other one that we've been working on is on the supply chain management.

MR. ORSZAG: Yes.

SEN. VOINOVICH: And a guy named Ken Krieg was working on it over in the Defense Department, and they're in their third year in getting it done. And I'd like you to look at where they're at, or the person that's going to do the management part of this thing, to just see if we can continue to get that one part of it finished, because Rumsfeld said we could save $27 billion a year. And they've really made some real good progress on this issue. So I'd really like you to look at that.

The other thing that we did here which is great for Homeland Security is that we provided a deputy secretary for management for transformation, and that's Schneider. I don't know if you know Schneider or not, but he's -- who's doing that. And we think that there ought to maybe be a term for these people that do the transformation.

We tried to get it done over in the Defense Department and we failed. I thought Gordon England was going to do it, and he didn't. And it seems to me that in places like Defense, where you've got real management problems, you know, with the -- (inaudible) -- Homeland Security -- my goodness -- you know, our -- Napolitano?

MR. ORSZAG: Yeah.

MR. VOINOVICH: We talked with her, and she seems good, but it's still screwed up.

And the point is, have you thought about transformation and how to make sure that it gets done? Because people get, you know, tied up with other things, it takes their mind off of it and you don't get it done.

MR. ORSZAG: Yes. And in fact that's a broader theme, which is, on many of these performance issues, it requires sustained focus, even when the cameras aren't here, day after day, to get it done, because this is not just a snap-your-fingers kind of thing.

And let me just return for a second to the background issue.

All agencies now, my understanding is, do have in place a procedure for issuing personal identity verification credentials and 52 percent of federal employees have gone through the required background checks.

SEN. VOINOVICH: But I'm just talking about new clearance that -- by your federal -- you're doing business with the federal government, and how many two-year backlog, 250,000 --

MR. ORSZAG: Oh, in the time involved, yes.

SEN. VOINOVICH: The -- no, and security clearances -- when Gordon England was confirmed, he had to go through another security clearance. Apparently the recommendation is if I get this kind of clearance, that clearance should be good for this, this, this and that.

MR. ORSZAG: As someone who has just recently gone through multiple security clearances, I am very sympathetic to that thought.

SEN. VOINOVICH: Well, I'd really like you to look at it, because I think we made some progress. And I'd like to -- I think if you stay on that, we might be able to take that off the list.

MR. ORSZAG: Okay.

SEN. VOINOVICH: Thank you.

SEN. LIEBERMAN: Thank you, Senator Voinovich.

Senator Carper.

SENATOR THOMAS CARPER (D-DE): Thank you, Mr. Chairman.

Mr. Orszag, or Dr. Orszag, which do you prefer?

MR. ORSZAG: Whatever you'd like. It has been pointed out to me that when people call me doctor, I'm not the right kind of doctor and that I don't have the authority to issue prescriptions.

SEN. : His son told him he was boring.

MR. ORSZAG: Yeah, so I'm having a rough day. (Laughter.)

SEN. LIEBERMAN: (Laughs.) How about Dr. O?

MR. ORSZAG: Dr. O. (Laughs.) So yesterday I was told to become Dr. No.

SEN. : We already have one of those.

MR. ORSZAG: There you go.

SEN. : I don't know if we can handle two.

SEN. CARPER: Well, Dr. O -- (laughter) -- whoever you are, we're glad you're here.

MR. ORSZAG: Thank you.

SEN. CARPER: Thank you for taking this on. And you were good enough to come by and spend some time with me yesterday, and I appreciate that very much.

And one of the issues I raised with you, when Governor Voinovich was governor, I suspect he had line-item veto power. I had line-item veto power as governor, as well. And I think line-item veto power, frankly, is a little bit oversold in terms of its utility to make big differences in budget deficits, like when we're looking, like, at the ones we have right now. Having said that, I think they can be a helpful tool to have in one's toolbox.

During the Clinton administration, the Congress passed, President Clinton signed legislation -- not -- it was not a constitutional amendment; it was a statutory change that provided for enhanced rescission powers for the president, as you may recall. And it was not just for spending, but I think it also dealt with revenues and I think it may have dealt with entitlements, too.

And the Supreme Court knocked it down and they said it wasn't constitutional, and I'm embarrassed to say I can't tell you exactly why.

But it required in this case the president to sign the appropriations bill, send a rescission -- if you want to send a rescission to the Congress, and the Congress needed, I think, a two-thirds vote in both the House and Senate in order to defeat the rescission. Otherwise, it took effect, but they had to vote, had to vote. That was knocked down as unconstitutional by the courts.

When I was in the House, my last term in the House, we -- I offered legislation and said let's take a little different approach. And what I called for was what I've already described as a two-year test drive and -- that would say the president could sign an appropriations bill and then send a rescission message to the Congress, the House and Senate, but we'd have to vote on it or vote it down, and a simple majority in either the House or Senate would defeat it.

We restricted somewhat the ability of the president to rescind spending. If programs were authorized, fully authorized, he could rescind them more than 25 percent of the authorized spending. And if the programs were not authorized, there was no restriction. He could rescind up to a hundred percent of those.

And after two years -- and the bill we passed in the House by a 3-to-1 margin -- after two years the power went away, unless that was renewed. It was (sometime ?) -- and that was in case it served to create an imbalance between them -- the authority of the Congress -- legislative versus the executive branch in terms of spending. Passed 3-to-1, came over to the Senate. It died in the Senate, and it did not become law.

And then subsequently in the Clinton administration, several years later, they passed the legislation that I described. It was deemed unconstitutional.

We've reintroduced the legislation. Senator Collins, who's not here, is a cosponsor. I think Senator Bayh, Senator Snowe and others joined us last -- in the last Congress. And we're going to brush it off, dust it off and reintroduce it this time.

Do you have any advice for us as we attempt to put something like this in place? Again, it's a tool; it's not going to make -- I don't -- I'm not going to suggest it's going to turn a $1 trillion deficit into half of that -- but one of the tools in the president's toolbox. Any advice for us as we try to cobble together something that's responsible and maybe constitutionally?

MR. ORSZAG: This is a topic that I know the president-elect had spoken about during the campaign. I'm also aware of concerns among some of your colleagues about the balance between the legislative and executive branch.

SEN. CARPER: And they should have that concern.

MR. ORSZAG: And again, if I'm confirmed, I would look forward to discussing it with you further and providing perhaps technical advice that we might be able to provide.

SEN. CARPER: What -- do you recall why the administration -- the legislation that Senator -- President Clinton signed -- why was it deemed unconstitutional? Do you recall?

MR. ORSZAG: I think it does -- it reflects the balance between the executive and the legislative branch, and the respective roles of the two that are defined in the Constitution.

SEN. CARPER: Okay. Well, what we did in the last Congress when we were introducing the legislation, we made it not a two-year test drive, but a four-year test drive. And if it were abused, then we have an opportunity not to restore that authority.

Okay. Well, thanks. Well, if you get confirmed -- and I hear you might -- then we'll have -- hopefully, have the opportunity to talk about this further, and you can give us some advice -- technical assistance, if you will.

I wonder if I could talk just a little bit about improper payments. And we talked about it the other day, and you've mentioned it I think today. One of the things that Senator Coburn and I have focused on, and that is improper payments and updating the federal law and trying to make sure that -- first of all, that agencies simply 'fess up when they've made improper payments and tell us what they've done. And for the most part, most agencies now do that. Improper payments reporting has grown to about $70 billion as of last year.

MR. ORSZAG: Yeah.

SEN. CARPER: But a couple of -- I think Medicare Part B is not reported. I think maybe parts of homeland security and government affairs don't report. But for the most part, agencies are reporting. I'm not convinced -- and that's good. It's good that they're reporting.

Most of those improper payments were, as you know, overpayments, and I'm not sure that we do a very good job of going after the money and of doing what we call post-audit recoveries. Although in Medicare now for three years I think we've done post-audit recoveries for Medicare in three states. And we've gotten almost nothing back the first year, a little bit back the second year, and I think about 600 million (dollars) back in the third year, just with three states. So there's some -- there's real money there to be recovered.

What are your thoughts on, particularly on improper payments, but especially post-audit recoveries and how we might use them going forward?

MR. ORSZAG: Well, again, as I mentioned in my opening statement, I think those are a promising tool. You're right that -- implicit in your question is that while additional reporting might be beneficial, we need to start focusing on actually getting at the money that has been reported and reducing that $70 billion figure. The step that you mentioned is one possibility, and should be explored. Again, more enforcement resources is also part of the solution here.

SEN. CARPER: All right.

MR. ORSZAG: A core principle, that the right amount should go to the right person at the right time, should be a bedrock principle that we apply throughout the federal government.

SEN. CARPER: Uh-huh. One of the -- a somewhat related issue is surplus properties.

MR. ORSZAG: Yes.

SEN. CARPER: As you know, we've got a lot of federal property that we don't use. We pay utilities on it; we insure it; we have to do all kinds of things to maintain it, heat it, cool it, utilities and so forth; spend a lot of money for it. We don't do a very good job identifying those surplus properties and retiring them, if you will -- allowing agencies to dispose of them.

One of the reasons, I'm convinced, is that we don't allow agencies to participate in the proceeds.

MR. ORSZAG: Yeah.

SEN. CARPER: If you have a building and you get a hundred dollars for it, agencies get nothing for it, for the most part. There are some exceptions to that.

With respect to improper payments and post-audit recovery, I wonder if one of the reasons why we don't do a very good job of getting -- going after and getting that money is there's not a real incentive, a financial incentive, for the agencies to go after the money, to allow them to keep it for some good purpose.

Do you -- would you talk about both of those --

MR. ORSZAG: Yes.

SEN. CARPER: -- in the context of the incentives, please? Thanks.

MR. ORSZAG: Well, first, with regard to real property, yes, a few agencies have retention authority. They can basically keep the proceeds. But many agencies don't. And that, you know, that impedes their incentives to dispose or efficiently manage the property that they're using.

More broadly, there is evidence from other examples -- for example, there is evidence that when local law-enforcement agencies were able to keep some of the proceeds from captured stolen goods or what have you, there were improved enforcement that resulted.

I think it's just a natural observation that if people do not have adequate incentives to do the right thing, they often don't do it. So it is at least it -- worth exploring -- returning to the earlier discussion that occurred -- the incentives on both the legislative side and on the executive side for improved enforcement.

So I think -- let me go broader again -- improved enforcement's going to require the sustained focus that we were talking about before. It's also going to require resources. And I think it's also going to require thinking creatively about the incentives that we're creating, and whether we can improve them and strengthen them.

Because this is a problem that has always existed. And the thought that we're going to get rid of it immediately is unrealistic, but surely we could do better. And examining why we haven't done better in the past is part of the solution.

SEN. CARPER: Good.

Mr. Chairman, do you think I've used enough time?

SEN. LIEBERMAN: You used it, and you used it well.

SEN. CARPER: Thank you, sir. (Chuckles.)

SEN. LIEBERMAN: Did I give the right answer?

SEN. COBURN: That was great.

SEN. LIEBERMAN: Thank you. Thanks, Senator Carper.

Senator Landrieu?

SEN. MARY LANDRIEU (D-LA): Thank you.

Peter, I think you're an excellent -- truly an excellent nominee for this position. I mean, you come with all the essentials -- academic essentials. But more than that, you come with the right kind of set of experiences to do this job, which is, I think, going to be one of the toughest jobs in any administration, but particularly for this new president. And I know that he's going to come to rely on your expertise, as we are, to help us through this very difficult time and to set a course for fiscal responsibility.

I have just three specific questions. One, I want to start by agreeing with your assessment that one of the first things that we should do to get a handle on long-range -- our long-range fiscal situation is to focus on health care.

I read an article the other day, Peter, that said we don't have a health-care system. We have a disease-management system that is badly broken and flawed. And we need to quickly get to a health-care system in America, an efficient one, in order not only to do what our citizens are expecting us to do, but to basically get a handle on the finances that are wholly unsustainable.

So we've worked very closely together on some various approaches. And Ron Wyden and others have a bipartisan group. So I think you're right on and just want to encourage you and look forward to working with you on that.

MR. ORSZAG: Senator, if I could just note, someone once quipped, those who say we don't have --

SEN. LANDRIEU: Go ahead.

MR. ORSZAG: Those who say we have -- I'm blowing it now.

If you think we have a health care system, that might be right, until you try to change it. And then all of a sudden, we have a system that can't be changed.

It's absolutely crucial. And I don't want to eat up any time. But I do want to emphasize, the reason that I -- one of the primary reasons that I was interested, in this job, is to help Tom Daschle and the rest of the administration tackle health care costs.

SEN. LANDRIEU: And honestly I want to say, I think, you're exactly right. It's a little unusual for an OMB director. But you are going to be an unusual OMB director, because you actually understand what's running up the cost in the government and where you have to focus your time and resources. And that is an area that we've got to get right.

So I just want to say how pleased I am, but specifically two things that are right before us. The stimulus package, and Joshua is being so wonderful. He's being so good.

The stimulus package, it goes with your idea, which I just want to quote, from your own document here, that you say, I'm looking forward to or we will launch a pilot program, with individual agencies, to serve as demonstration projects, through which we can test our approaches to improve effectiveness, efficiency, share best practices and further improve performance.

We can do that actually right now, in the stimulus package, with approximately $3.5 billion of money that's already been appropriated that, if we could shake loose from the bureaucracy that is not functioning, could actually do two things at once -- create hundreds if not thousands of jobs, in an area that's been devastated by natural disasters, and save the federal government money by not requiring additional funding.

So the stimulus package; I want to know if you would be open if we could present to you some real evidence as to why there's billions of dollars that are tied up and, with just some language change in stimulus, would free that money up and create jobs.

Would you be open to receive this? And do you understand what I'm pointing to, relative to the billions of dollars that are caught in this pipeline between Washington and the Gulf Coast area?

MR. ORSZAG: I am open. I am absolutely open. And let me be again more broad than that. Again if I'm confirmed, I'm going to be open to receiving all of your ideas, because I think we need to be reexamining what we're doing.

SEN. LANDRIEU: And just for the interest of the press, I'm going to give this to them in more detail. But it is specifically Circular A-87 that states, a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred, by a prudent person, under the circumstances prevailing at the time the decision was made.

That's very reasonable.

FEMA right now is not operating under this circular that is mandated by this government. I won't go into the details, but just let me give you one example. FEMA today refuses to reimburse communities if they failed to traverse floodwaters in an insecure communication dead zone to turn on a humidifier the day after the hurricane. If you did not traverse through four feet of water to turn on a humidifier in your house under water, they are claiming that you didn't do everything you reasonably could, so they won't reimburse you.

I could give you a list of things. We are looking for a person like yourself with common sense that will simply apply the current law, free up this money and get people back to work.

I've only got another one minute, so let me bring your attention to this document, this chart. This is a chart, Mr. Chairman and members, that we really have to focus on. This is a chart, in my view, that we have to focus on. It's a chart from 1929 to the present time, the level of spending relative to Corps of Engineer investments in this country relative to the Gross National Product.

When you got to 2007, way down at the end, the last dot, or 2005, Mr. Chairman, that's when the levees broke in New Orleans, because that's what starts happening when you underinvest significantly over time in a dangerous way of core infrastructure. Now, we hear a lot about highways, we hear about land ports, we hear a little bit about water ports, but if you ask Senator Murray and Senator Cantwell, this last weekend when they went home what they heard about was dikes and levees, because all over this country these levees don't exist or they are breaking or the dikes are non-existent. There are flooding issues extraordinaire, of which we, of course, are in, you know, ground zero.

So my question is, while health care is truly a need, could you comment just briefly on your understanding of the current status of Corps of Engineer infrastructure spending relative to the GDP, and maybe perhaps some creative ways that we can begin to reverse this obviously dangerous trend for the United States of America?

MR. ORSZAG: Well, Senator, I know this is an issue that has arisen with regard to the Economic Recovery Act and whether there are specific projects through the Corps of Engineer that could be accelerated as one tangible example of the attention or concern that surrounds this area of activity.

SEN. LANDRIEU: Well, I'd appreciate your continued focus on this (in/and ?) this committee, because we have an obligation to try to prevent disasters when we can. Now, we can't always predict terrorist attacks, although we're trying to do our better job, but we most certainly, Mr. Chairman, even though we're not an appropriation committee, we can ring the alarm bell. I think this graph is an alarm bell about the gross and dangerous under-investment.

And how we can reverse it, I have some suggestions, but I think we need to be attentive to the $120 billion that it costs this government because we failed to put up a few billion dollars to get the levees straight in the first place. It broke and basically cost the government 120 (billion dollars.) So when we think about saving money, this would be a good place to start.

Thank you.

SEN. LIEBERMAN: Thanks very much, Senator Landrieu. I appreciate what you said. I agree with it. I thank you for your advocacy not only for the Gulf Coast but for learning the lessons from Katrina, so that we can protect other parts of America from anything like that.

Senator McCaskill. Thanks for being here.

SEN. CLAIRE MCCASKILL (D-MO): Thank you very much.

I first want to thank you and your family for your willingness to embark on this endeavor. There's no question, with your background, that you're not in this for the money, and there's no question, giving (sic) the position you've taken, you're not in it for the glory. So if it isn't money or glory, it's something that's more noble, and I congratulate you and your family for your willingness to do it.

I know that you and the chairman visited a little bit about contracting reform, and you and I have talked about contracting reform. And it's an area that I think we have some real ground to plow in terms of money savings.

I want to spend just a couple of minutes about the IG community overall. The chairman and the ranking member and others on this committee have helped. We did a bill that I think strengthens the independence of the IG community in terms of allowing them -- for their budgets to be transparent, that we can see how much they're requesting and whether or not the agency is working with them, allowing them their own legal counsel.

I first want to ask about the IG community -- about the report that was prepared concerning all the recommendations that have been allowed to languish and what kind of sense of urgency do you see within OMB about looking at this low-hanging fruit, documented with good factual basis for the recommendations that -- ways that we can begin to at least make a down payment to the America people that we are worried about the way we are spending their money.

MR. ORSZAG: I am personally aware of that list of IG recommendations, and again, if confirmed, we are going to make sure that the Cabinet secretary-designees or hopefully at that point the Cabinet secretaries are also aware of the IG recommendations in their areas and that they're attentive to those recommendations, because at least from a cursory look, there does seem to be issues that need to be addressed. And OMB plays a crucial role, as you know, in chairing an interagency group of IGs. So we are a natural place for a lot of that activity to occur.

SEN. MCCASKILL: It's really frankly the council that was codified, in the bill, and that your deputy director serves on, is a great place for you guys to push, from the inside, because frankly we haven't had a lot of help from the inside.

In fact in many agencies, the IGs have been treated as -- well, ostracized and with no support. In fact, some agencies; we've gotten reports, whistleblower reports, that after we've said that they have to do -- they can -- they have to do their own budgets that they have lost the administrative support of their agency, in preparing their budget, which of course was not the idea behind the bill. It wasn't that they were supposed to become self-sufficient in terms of administrative support.

As we look at the stimulus, has there been any thought given to the resources of the Oversight Committee, because of the enormous amount of money that's going to be expended?

It's unrealistic that we're going to grow spending so exponentially, in some of these agencies, and expect the GAO and expect the IG community to do the job they really need to do. Because the scary part about spending a lot of money at once is, that's usually when things get sloppy, because it doesn't feel like the money is quite as precious.

And I'm curious if you all have thought about putting, in the stimulus package, additional resources for the IG community and GAO.

MR. ORSZAG: There has been significant thought given to program integrity funding and also, as was mentioned before, a special oversight board comprising the IGs and chaired by the chief performance officer, specifically on this topic, that will hold regular meetings to identify and examine problems, in addition to a special website that will have information about the contracts, so that we are being -- we would be transparent about what's happening and that information through whistleblower and other mechanisms could be fed back into the IG community and that oversight board.

SEN. MCCASKILL: I think that's great. I would stress that I think that the best whistleblowers are the employees of GAO and the IG. And especially you look at the responsibilities of GAO and the amount of money they generate.

Some IGs are better than others, in terms of how much money they generate for every dollar we spend. But all of them make money for us. They're all moneymakers. And it seems to me that we're needing some moneymakers around this place right now. So I'm hoping that you all look at actually staff levels, within GAO and these IG departments, as you look at the stimulus.

Earmarking: Obviously, it is something that has become a lightning rod in many ways. Has there been discussion about the Bush executive order and how you all are going to handle the Bush executive order as it relates to earmarking?

MR. ORSZAG: Two things. First, we are reviewing all executive orders and -- for their appropriateness for a new administration.

Secondly, with regard to earmarks, my understanding is that -- well, secondly, with regard to earmarks, the president-elect has stated that he is quite concerned about the issue, would like earmarks reduced. My understanding is that the chairman of the House Appropriations Committee and the Senate Appropriations Committee have reached an agreement that has been publicly released on reducing earmarks to 50 percent of their level from 2006, if I remember correctly. And that's certainly a step in the right direction.

SEN. MCCASKILL: I would also -- you know, one of the -- piece of legislation that has not been introduced yet but I will be introducing is looking at the -- whether or not, at this juncture in our government, we can afford any earmarking to private or not-for-profit entities. Can we really afford, at this point, to be earmarking to private endeavors when we have so much that needs to be done in the public sector?

And I would just ask that you all, as you are considering your earmark policy going forward -- I know reduction's a great thing, but looking at the amount of money that's being spent by the federal government in the private sector through earmarking, as opposed to some process that involves competitive grants.

And finally, on competitive grants, it was -- as someone who has not done earmarking and who's spent a lot of time encouraging people into competitive grants and talking to my constituents about the competitive grant process, imagine my horror when I learned that a program in my state that had competed for a grant and had gotten one of the highest scores for the grant was not considered for the grant because the agency that was doing the competitive grants decided they were going to pick someone that hadn't even applied. In other words, it was not competitive grant; it was bureaucracy earmarking under the guise.

And by the way, the amount of time and resources that agencies take to prepare grants is a significant expenditure of public dollars. So I wanted to put on your radar this notion of, from your position, talking about -- that the process of competitive grants and that there is nothing, frankly, that is more susceptible to undermining this idea that we pay attention to how we spend our money than calling something a competitive grant that is just a good old boy or good old girl system.

So I wanted to put that on your radar. And I know you have hardly anything on your radar right now, but I thought I would add another small thing to it, because I think it's something that's very important.

We've had a lot of growth in competitive grants. We've got to make sure that the process is rigorous.

So thank you very much, and welcome.

MR. ORSZAG: Thank you.

SEN. LIEBERMAN: Thanks very much, Senator McCaskill.

I think Senator Collins and I will each ask one question and then we'll let you go. We want to get to Mr. Nabors. Chairman Obey is here. Like Elvis, he is in the building. (Laughter.) He's actually in the room, I believe. I say that because -- I compare Chairman Obey to Elvis because you can never say too much positive about the chairman of the Appropriations Committee here in Congress. (Laughter.) Anyway, we welcome Dave Obey.

Very briefly if I can, and if you want to take this under advisement. I had a -- (this combines ?) the tax code with the TARP functions. And I had a suggestion from someone that it might be constructive to allow investors who buy deeply discounted mortgage- backed securities to treat income -- return of principal on these investments as capital gain rather than ordinary income. Obviously, that would make it a lower tax. And then the argument is that that would encourage investment -- private investment in those mortgage- backed securities would help shore up mortgage values and reduce the pressure on the federal government to buy the assets directly through TARP or the Federal Reserve.

I wonder if you've heard that idea and whether or not you have -- whether you have an impression of whether it makes sense.

MR. ORSZAG: I would again refer to the Treasury folks, and I'm sure they could follow up with you. I guess the only thing I would say is the tax code generally treats debt instruments like mortgage- backed securities in a particular way. And equity investments are what get capital-gains treatment.

SEN. LIEBERMAN: Correct.

MR. ORSZAG: So that would be a --

SEN. LIEBERMAN: (Inaudible.)

MR. ORSZAG: It would be a change that may be difficult to limit --

SEN. LIEBERMAN: (Inaudible.)

MR. ORSZAG: (Inaudible) -- financial engineering to the instrument that you think you're targeting.

SEN. LIEBERMAN: Gotcha. Okay.

Senator Collins. Thank you.

SEN. SUSAN COLLINS (R-ME): Thank you.

The federal government will spend more than $70 billion in this fiscal year on information technology projects. OMB consistently identifies more than a billion dollars worth of these IT projects as poorly planned and/or poorly performing, usually both. The number of investments that the federal government is making each year in IT continues to grow, yet the problems continue to grow as well. We've had enormous failures in IT projects -- at the FBI, at the Census Bureau. the list goes on and on.

And OMB is responsible, under the Cohen-Clinger Act, for overseeing the major IT investments. How do you propose that OMB exercise better oversight to get these IT contracts back on track?

MR. ORSZAG: I think there are several steps. And one of the issues that I'm examining is whether the E-Gov administrator is a sufficient staffing internal resource, or whether we also could use a chief information officer internally at OMB.

As you noted, we have a variety of statutory responsibilities, not only the Clinger-Cohen Act, but under the E-Gov act, et cetera. They identify a few things. First, I think the IT investments need to be better aligned with agency budgets. Currently, the Exhibit 300s, which are the way that the IT budgeting occurs -- it's sort of in its own world, agency by agency, not aligned with the non-IT part of the budget process. Those need to come together to ensure better alignment of IT and what you're trying to accomplish with the IT.

And then, we come back to this general theme that we've discussed previously, that there's simply not enough oversight and auditing of performance throughout not just IT investments, but throughout many other areas of what we're doing. And that requires sustained focus. So coming back to a theme that we've touched upon before, and assuming that I am -- if I am confirmed, I look forward to regular -- this will require regular work with this committee and the chief performance officer on an ongoing basis in order to get real results, because it's not going to happen overnight and it's not going to happen by snapping our fingers.

SEN. COLLINS: That's true. And this committee approved at the end of the last session some very important legislation that would provide additional reporting to the appropriate committees of Congress, as well as to OMB, that I encourage you to take a look at.

I've been very impressed with your answers today. I do want to tell you, the chairman at the beginning asked three routine questions that we ask every nominee. I would be remiss in my capacity as the ranking minority member if I did not tell you that the minority members of this committee also expect that you will be responsive to our requests for information, as well.

MR. ORSZAG: Absolutely. Absolutely.

SEN. COLLINS: Ninety-nine percent of the time, fortunately, on this committee, those requests are going to be joint.

MR. ORSZAG: That makes it even easier.

SEN. COLLINS: Thank you, Mr. Chairman.

SEN. LIEBERMAN: Amen. Thanks very much, Peter. You've been, to use Senator Collins' words, just to show how bipartisan we are -- your testimony has been quite impressive. We look forward to working with you.

I'd actually like to explore the possibility that we might get together informally on a regular basis, without a public hearing context, but just to talk about projects that we're working on that overlap. And I hope you'll be willing to do that.

MR. ORSZAG: I would look forward to it.

SEN. LIEBERMAN: Thank you very much. Without objection, the record will be kept open until noon tomorrow for the submission of any written questions or statements. For the record, we're doing it on that short a time frame because we want very much to have this critical nomination and that of your deputy be ready for Senate action -- hopefully unanimously, by consent -- as soon after President Obama takes office next Tuesday as is possible.

Thank you very much. And with that, we will adjourn this hearing, and immediately reconvene for Mr. Nabors.

And we have immediately reconvened for the hearing on the nomination of Robert Nabors to be the deputy director of the Office of Management and Budget.

Perhaps, in deference to Chairman Obey's schedule, before either Senator Collins or I speak, Dave, we'd be happy -- first, we thank you for coming over to introduce Mr. Nabors. And we'd be happy to hear your opening statement at this time.

REP. OBEY: Thank you very much, Mr. Chairman, Senator. I am -- (off mike) -- yesterday when I appeared before another committee to introduce Mr. Nabors, I noted that I had one concern with the incoming Obama administration: their great concentration of power in the hands of Chicago White Sox fans, with both the incoming president and the chief of staff, and Mr. Nabors. I was willing to overlook that. But as a Green Bay Packers fan, I discovered last night that all three of them were also Chicago Bears fans. That's almost too much to bear.

SEN. LIEBERMAN: Enough is enough.

REP. OBEY: (Laughing.) Really.

But having said that, let me -- I'm sure that you know what Mr. Nabors' background is. He went to Notre Dame for his undergraduate degree and got his master's degree at the University of North Carolina; served at OMB as a program examiner. He then served as senior administrator to the -- adviser to the director, and then became assistant director for administration and the executive secretary of OMB. He joined the staff of the House Appropriations Committee, serving in various capacities for several years. He then served two years as minority staff director, and for the last two years has served as chief of staff for the house Appropriations Committee.

Well, I have never met a person who worked harder. And it is really with mixed feelings that I appear before us, because he's been my right arm for the last four years. And he is a tremendous asset to this institution of the Congress of the United States.

And we're losing a very valuable asset. But the executive branch is gaining one. And I think that's the country's gain as well.

He is a person of solidity and wisdom. And I think he -- I said yesterday that as we know, mathematics is the universal language. But budgets, even though they are a compilation of numbers, they also represent what's going to happen to human beings behind those numbers.

Mathematics is a universal language, but so is pain. And so is the human desire for opportunity. And budgets certainly can provide both. And I think Mr. Nabors understands that, recognizes the human dimension of everything we do in the budgeting area.

I would also simply note that he brings a special quality because, I think, he understands both branches of government. And I think he will help bring a degree of respect, between the executive and legislative branches, which has all too often been absent in recent years.

And I think while he will provide tough-minded service, to the executive branch and to the Congress, he will also bring a deep and profound understanding and respect for the opposite institution. And that never hurts around here.

With that, I appreciate your hearing me. And I'll even go back to my roll calls and leave you to your business.

SEN. LIEBERMAN: Thanks, Chairman Obey. That was a very, obviously heartfelt and thoughtful introduction and endorsement. We appreciate it very much.

Mr. Nabors, I don't think you could have had a better start.

MR. NABORS: Thank you.

SEN. LIEBERMAN: Safe travels.

REP. OBEY: Thank you.

SEN. LIEBERMAN: I officially welcome you, Mr. Nabors, to the committee. Since I gave an opening statement on the issues facing OMB, at Dr. Orszag's hearing, I'm going to simply enter that into the record as well. For this hearing, the discussion we've just had, with Dr. Orszag, was I think both illuminating and sobering.

For any administration, directing OMB is one of the most important jobs even though, in some sense, it's little known outside of Washington. But being second in command, being deputy direct, is no less demanding and particularly so at this unique hour, really unprecedented time in our nation's economic history.

As Chairman Obey illustrated, you have an impressive background. I think your previous experience at OMB will be very useful, as will, of course, the service you have given the legislative branch of our government. So I thank you for being here, and I'm eager to hear your views.

Senator Collins.

SEN. COLLINS: Thank you, Mr. Chairman. I too outlined in my opening statement from the previous hearing the general issues, as well as welcomed our witness today.

I will note that both the nominees today have had the wisdom to bring adorable children with them, thus making it very difficult for the members of this committee to ask the kind of hard-edged questions for which we are known. (Laughter.) So I think that too indicates a certain skill and savvy on the part of the witnesses today.

But welcome. I had a very good meeting with Mr. Nabors in my office yesterday, and I look forward to exploring a few issues with him during the questions.

SEN. LIEBERMAN: Thanks, Senator Collins.

I will say for the record that Mr. Nabors has filed responses to a biographical and financial questionnaire, answered pre-hearing questions submitted by the committee, and had his financial statements reviewed by the Office of Government Ethics. Without objection, this information will be made part of the hearing record, with the exception of the financial data, which are on file and available for public inspection in the committee's offices.

Mr. Nabors, our committee rules also require that all witnesses at nominations give their testimony under oath, so I'd ask you to please stand and raise your right hand. (Administers the oath to the nominee.)

Thank you. Please be seated. As Senator Collins has indicated, I understand your family is here with you, and I ask if you'd like to introduce them at this time.

MR. NABORS: I would be very happy to.

SEN. LIEBERMAN: Please do.

MR. NABORS: My wife, Teresa (sp); my son, Jude; and my daughter, Georgia.

SEN. LIEBERMAN: Welcome to all of you, and thank you for supporting your husband and dad in serving our country, as he is about to do in a very significant way.

I'd ask you now to proceed with any opening statement that you have.

MR. NABORS: In the interest of time, I will try to keep my statement brief and try to follow the Spratt model by reading the first and last paragraph of my prepared remarks.

Mr. Chairman, Ranking Member Collins, I am honored by the opportunity to come before you as President-elect Obama's nominee for the deputy director of the Office of Management and Budget.

I would like to take an opportunity to thank Chairman Obey for introducing me to the committee. As anyone who knows Chairman Obey knows about him, he has a deep-seated respect for Congress. This is a gift that he has imparted to me, and a gift that I plan on taking with me to my new position, if confirmed.

Mr. Chairman, these are extraordinary times. If confirmed, I am committed to working with the director, the deputy director for management and other members of the administration to find the best ways to reform our budget; eliminate waste, fraud and abuse; to put in place oversight mechanisms to ensure that we wisely allocate federal resources and manage those resources as effectively as possible.

And with that, I thank you for the opportunity to testify before you and I'm prepared to answer any questions you might have.

SEN. LIEBERMAN: Thank you very much.

Let me start with those standard questions we ask of all nominees.

First, is there anything you're aware of in your background that might present a conflict of interest with the duties of the office to which you've been nominated?

MR. NABORS: No.

SEN. LIEBERMAN: Do you know of anything, personal or otherwise, that would in any way prevent you from fully and honorably discharging the responsibilities of the office to which you've been nominated?

MR. NABORS: No.

SEN. LIEBERMAN: Do you agree, without reservation, to respond to any reasonable summons to appear to testify before any duly constituted committee of Congress if you are confirmed?

MR. NABORS: Yes.

SEN. LIEBERMAN: Thanks. Let me proceed.

Let me ask you first how you see the role of the deputy at OMB and, as part of that, whether you and Mr. Orszag have discussed how you might divide responsibilities.

MR. NABORS: We have had those types of discussions. And I think part of the way I view the role of the deputy director is influenced by my previous tenure at OMB. I think especially to the outside world, much has been made about the distinction between the management side of OMB and the budgetary side of OMB.

From my experience, that distinction between the two parts of OMB are very much exaggerated. And I'll just give you one example.

In my previous tenure at OMB, I served as the Census Bureau examiner, in what is traditionally thought of as the budget side of OMB. But I was as likely to interact on a daily basis with my colleagues from the Office of Information and Regulatory Affairs, the Office of Federal -- Financial Management or the Office of Federal Procurement Policy as I was to interact with other budget people. It's because the issues that I was dealing with, with the Decennial Census, in particular, were so complex that it actually took a team of experts to help think through some of the problems.

So I come to the position with a predisposition that there is no distinction between "budget" and "management" at OMB. It's one institution. I see that my primary role as the director of OMB is to make sure that all of these different perspectives within the institution -- the management components, the statutory office components, the budgetary issues -- are brought together so that when a recommendation is made to the director, all of the different facets of a particular problem are brought to the forefront.

SEN. LIEBERMAN: Very good.

There was some talk with Dr. Orszag of the line-item veto or enhanced rescission. We're going to be looking at reform of current budget rules and procedures in this committee and in Congress. I wonder if you have any suggestions yourself about how we might reform our budget rules and procedures here in Congress, based on your experience, again, in both branches, to advance the cause of fiscal responsibility

MR. NABORS: I think that there are a couple of things that the committee could look at and that I think that OMB could be a helpful partner in. I think that the first thing that I would point to is transparency. I think that the budget and financial systems of the federal government are among the most complex and obtuse systems that exist anywhere. And I think anything that we can do to bring increased transparency both to the budget itself and to the budget process is a positive step in the right direction.

I think the second thing that can be done is, is any efforts to better integrate the performance aspects of program management with the budget processing components would be, once again, a very, very positive step. I think right now -- and once again, based on my previous experience at OMB -- too much of the program analysis and the budget development are separated. The example that I would use is, previously at OMB we had a very long and detailed process that really began in October and extended all the way through February to put the budget together.

After that, the examiners sort of catch (40 ?) hours of sleep and go back to work starting on something called the spring reviews. And those spring reviews were opportunities to focus on the management component. That tended to be book-ended in between the budget -- excuse me, the budget creation process and the congressional budget process and appropriations process. So oftentimes that spring management review got short thrift (sic).

I think that one of the things that needs to occur is that throughout the budget process, from budget formulation all the way through budget execution, there needs to be a strong focus on the management component, so that, as much as possible, these pieces aren't disrupted. And I think the same thing can be said of the OMB and the administration's working relationships with the Congress.

Too often, our conversations with regard to budgetary issues are limited to either the Appropriations Committee or the Ways and Means Committee or the Senate Finance Committee. I think more attention needs to be paid to incorporating the findings of oversight committees into the deliberations that go into crafting the annual congressional budget and the appropriations bills.

SEN. LIEBERMAN: (Off mike.) Appreciate it.

Let me go to the stimulus package and ask for a reaction to an idea. The president-elect has set down three standards for his stimulus package. Let's see if I can recall them. One was that they create jobs; two, that they are able to be implemented fairly rapidly; and three, that they support sound national policy.

So, consistent with that, we're obviously looking -- about a major infusion of money, for instance, into transportation to the -- by the states. We're looking at other more innovative sort of new- economy ideas, like investments in the health IT and the smart grid.

And, probably because I'm on the Armed Services Committee, it struck me that another possibility would be to accelerate the funding of defense programs that we know we're going to have to buy in the next three to five years, and to do them this year or next year.

I'm not talking about finding -- using this as an excuse to sort of find money for controversial programs. I'm thinking of programs that everybody agrees that will be high priority for funding and they're just going to be spread out over three years, and that this would create jobs quickly.

These projects are -- I think the question is, can you find them? I'm sure you can. They're ready to be funded rapidly. And they do support sound national policy, which is our national defense.

I wonder if you have a reaction to that thought.

MR. NABORS: Well, we have spent some amount of time looking at what can be done through the Department of Defense. In particular, we have been looking at efforts that could both stimulate the economy and make the lives of our military families and soldiers more satisfactory. We will go back and take a look at whether or not there are other Defense programs --

SEN. LIEBERMAN: Yeah.

MR. NABORS: -- that we think could be executed quickly and could provide a stimulative bolt to the economy.

SEN. LIEBERMAN: Appreciate it. I take it you're thinking -- when you think about the families -- perhaps of military construction, of housing and the like.

MR. NABORS: We are thinking about military construction and housing.

SEN. LIEBERMAN: Yeah.

MR. NABORS: But we will expand that perspective to look at other issues as well.

SEN. LIEBERMAN: That's one of the areas I was thinking about -- military construction of facilities on bases that everybody agrees we're going to have to do in the next three to five years, including housing but also, perhaps, the purchase of some systems that we know are -- we're -- and it could be that we can actually gain a cross- benefit if we fund up front with the Defense manufacture.

I appreciate that answer, and I look forward to a response as you take a look at it.

MR. NABORS: Yes, sir.

SEN. LIEBERMAN: Thank you.

Senator Collins?

SEN. COLLINS: Thank you, Mr. Chairman.

Mr. Nabors, I'm particularly interested in your experience with the census. As we discussed yesterday and as I indicated in my previous questioning, I'm very concerned about the total failure of a major IT contract at the census that was absolutely critical to improving the effectiveness and efficiency of the 2010 census. It is extraordinary to me in this time and age that we're going back to such a primitive system for trying to count people and carry out the constitutional responsibility of conducting a census.

Do you think, given OMB's responsibilities to oversee IT contracts, that OMB should have been able to avert that disaster at the Census Bureau?

MR. NABORS: I think the way I would answer that question is that because of the responsibilities that OMB has been given by the Congress and by the president on many issues, OMB is ultimately responsible. And this is one of those issues where there are so many components of the decennial census -- both the funding, contracting issues, information technology issues sort of reside ultimately at OMB for appropriate oversight -- that, yes, I believe that some amount of responsibility should be borne by OMB in terms of whether or not an appropriate amount of attention was placed at a high enough level to catch these types of things.

And I think that one of the lessons that this brings out is that we need to spend more time doing the type of oversight that is necessary to ensure that the major dollars that we are investing in things like the decennial census are spent wisely.

SEN. COLLINS: Should OMB have a stronger chief information officer or chief technology officer that sets standards across the government?

MR. NABORS: I think, as Dr. Orszag laid out, the issue overall of IT and the importance of IT within the federal government at this point really is causing us to step back and take a look at whether another type of position -- maybe a chief technology officer or chief information officer -- is something that is worthwhile. I think the decennial census provide a prime example of why we might need to consider that. And I think over the next couple of weeks I would expect to have further conversations about -- with Dr. Orszag about that.

SEN. COLLINS: Along with technology concerns arises a greater concern about privacy of personal information that is held by federal departments. In part due to the work that our committee did when we passed the Intelligence Reform Act in 2004, we created privacy officers in a number of agencies. And many agencies have designated privacy officers as a result.

However, within OMB, there is no single official designated as the lead on privacy policy, despite OMB's responsibility in e- government, the office -- OIRA, Office of Information and Regulatory Affairs, procurement issues. I understand that when you were working at OMB for a period of time there was a chief counselor for privacy, a position that has been vacant since 2001. Based on your experience, do you believe that this position was a valuable part of OMB that should be restored? Should Congress mandate that that position be created?

MR. NABORS: Well, I -- when I was at OMB, we did have a chief -- a chief counselor for privacy, and I think he was very effective at the time. And I think it was because of two reasons.

One, he was recognized as one of the foremost experts in the country on privacy, so when he spoke he carried a lot of weight.

And I think secondly, the director, the deputy director and the deputy director of management all made it a point to ensure that whenever we were having broader information-technology types of conversations or broader policy conversations, that our privacy person was in the room and participated so that privacy was always part of the conversation that we were having.

I think as we go forward, there are reasonable discussions that we can have about whether -- what the best way to achieve that type of goal is again. Perhaps it is having a person, but I think -- I think there is general agreement that we need to ensure that privacy is in the room and that people that we have talking about privacy are among the best, brightest and most thoughtful people considering the issue.

So I'd very much like to work with you and your committee to determine, in your opinion, how would you think the best way to structure that to ensure that privacy gets the appropriate level of attention during the OMB decision-making process.

SEN. COLLINS: I look forward to working with you on that issue.

Finally, I want to talk to you a bit about performance of federal programs, evaluation and assessment. So much of OMB's functioning is focused, as you indicated, on the budget, that at times we lose sight not only of the management side of OMB, but the importance of evaluating the effectiveness of federal programs. The current administration tried to tackle this issue by establishing what was known as the PART program, yet Congress did not find that to be as useful as we might have hoped. I know when I looked at various programs that oftentimes I very much disagreed with the ratings that OMB assigned, and often giving a program the red light in a PART program evaluation really seemed to be a way to try to kill a program, or reduce or eliminate its funding, rather than truly being a fair assessment of its effectiveness. Yet there's no doubt in my mind that there are programs that are not effective, and either should be eliminated or restructured so that they better achieved their goals. What are your thoughts on a possible successor to the PART program that would help both the administration and the Congress more effectively evaluate the work of federal programs?

MR. NABORS: I think that the first step is recreating the process that led to PART. And I say that for the following reason.

When I was on the Appropriations Committee, I was repeatedly asked by OMB analysts and by agency officials what I thought about various PART scores. And I had to be honest with them and say we on the Appropriations Committee don't really look at PART, in part because we don't think it's a useful tool. It's not crafted in a way that was useful to the types of decisions that appropriators were making.

From talking to my colleagues on various authorization committees, I got the same reaction from them; that while PART -- the concept of PART, the concept of measuring performance, is something that should be universally beneficial across the Congress, the way it was done was not terribly helpful. So I would step back.

And the first step in the process is actually identifying the appropriate measures by which a program's success or failure can be determined. And it's -- programs have very, very different levels associated with them. It can't be as simple as cost per student. There are more fundamental issues at play with some education programs than just something as simple as cost per student. I think that one of the things in evaluating PART that I would want to do is sit down and determine, with congressional stakeholders and with outside stakeholders, what is the best way to measure the performance of particular programs.

I think that the second thing that I'd want to do is evaluate exactly what are we going to do with the information once we've collected it. As you've noted, oftentimes a bad PART score is a justification to eliminate a program. I think oftentimes those proposals were made without a consideration for how integral such an activity might be to the federal government or to society at large. Just because something gets a bad PART score doesn't mean that we shouldn't do it; it means that we should do it better. And I think that that's one of the things I'd like to look at as part of a PART review process.

SEN. COLLINS: Thank you.

Thank you, Mr. Chairman.

SEN. LIEBERMAN: Thanks very much, Senator Collins. Senator Collins was kind enough to say before she gave her opening statement that I said a lot in my opening statement that she intended to say. She's now asked all the remaining questions --

SEN. COLLINS: (Laughs.)

SEN. LIEBERMAN: -- I had wanted to ask. (Chuckles.) So -- unless you have others?

Mr. Nabors, thanks very much for your willingness to serve. You and Peter Orszag are really a great combination, and I think you'll serve the country and the president and Congress really well because we've got a lot of work to do together. I look forward, honestly, to getting to know you better, and I appreciate very much your testimony here today.

Without objection, the record of this hearing will be kept open until noon tomorrow for the submission of any written questions or statements for the record. We hope that the Senate will be able to confirm you as soon after the inauguration next Tuesday as possible.

With that, I thank you, your family, your staff. The hearing is adjourned. (Sounds gavel.)

MR. NABORS: Thank you very much.

END.


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