Hearing Of The State, Foreign Operations, And Related Programs Subcommittee Of The House Appropriations Committee - The Department Of State

Statement

Chaired By: Rep. Nita Lowey (D-NY)

Witness: Jack Lew, Deputy Secretary Of State For Management And Resources

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REP. LOWEY: The Subcommittee on State, Foreign Operations, and Related Programs will come to order. Today's hearing will examine the president's FY 2010 budget request for international affairs and I am pleased to welcome Deputy Secretary of State, Jack Lew, who is well- known to us from his previous work as the Director of OMB during the Clinton administration, and in light of the foreign policy challenges facing our country many of which required tremendous resources, Secretary Clinton is quite wise in selecting you as one of her deputy.

And looking at the FY 2010 request for the 150 account, I can see that you are already having a significant impact. Because we recently had a hearing with Secretary Clinton on Iraq, Afghanistan, Pakistan and the Middle East, I would like to focus on the details of the 2010 budget request for this hearing and take advantage of the expertise we have in today's witness.

Mr. Secretary, the president's budget seeks an unprecedented $53.9 billion for the 150 account including $52 billion within the subcommittee's jurisdiction. And before anyone complains about the size of the increase, I want to make it clear, let me note, that most of it simply is to regularize the supplemental fundings for Iraq, Afghanistan, Pakistan, the West Bank and Gaza, and humanitarian assistance. Total supplemental funding combined with the FY 2009 appropriations reflect an increase in 2010 of about $4 billion or eight percent, which is consistent with increases sought by former President Bush.

President Obama, through honest and transparent budgeting, has declared upfront the true cost and importance of our foreign policy. He is investing in diplomacy and development as our first line of defense by providing resources to create a 21st century State Department and USAID instead of relying on our over stretched military to run our foreign policy and implementing foreign aid program. Our investments today in this approach will yield great dividends overtime. And because as we all know, diplomacy and development generally are less expensive and more effective methods than military operation to achieve sustainable peace and security. In fact, the major increases in the international affairs budget are not for program expenses. They are for what I recalled people expenses.

With adjustments to supplemental funding, the President's request seeks a 30% increase for both the diplomatic and consular programs account and USAID operating expenses, which funds the operations of the State Department including personnel, security, and training at our embassies and USAID development, personnel, and security cost. I applaud you, Secretary Clinton, and the President for following through in your pledges to rebuild state and USAID. However, we do need a comprehensive strategy for spending these resources to achieve specific goal.

I hope you can provide insight on why the majority of the proposed new positions will be domestic deployments instead of overseas, given our understanding that the greatest needs lie on our embassies and missions abroad. For example, how would you integrate the new hires for which you seek funding into your global staffing plan? How will you accommodate these new State Department and USAID employees in already crowded embassies? And how long will it take you to recruit, hire, and train these new employees for deployment.

Our appropriate human resource policy is in place to ensure the best people for the job are hired. I am particularly concerned that you are seeking significant and much needed increases for USAID, which does not have a management team in place. I see that if nominations for USAID Administrators and Assistant Administrative positions are not forthcoming, Congress' willingness and ability to provide the resources you seek will be compromised.

Additionally, the administration needs to clarify the role of the civilian stabilization initiative and how it will interface with the operations of the rest of the State Department and USAID programs and personnel. Do you envision any differences in the concept than what was developed by the previous administration? Mrs. Secretary, turning to the assistance programs, there are relatively few major programmatic increases in the President's budget. The key increases on development assistance are to scale at basic education, expand agriculture and food security assistance, and grow climate change initiative.

I continue to believe that access to a quality education is one of our most important tools of channeling young people in conflict prone regions towards a more productive path. And I am very pleased that Secretary Clinton has continued her commitment to basic education. And I look forward to our continued partnership on this issue.

Additionally, in light of the economic crisis and the impact on food security I understand your emphasis on agriculture. And while the (grim?) news on global warming certainly warrants a more focused approach to stem carbon emissions and facilitate eco-friendly solutions to the world's energy needs, I hope you can provide greater detail on the mechanisms and modalities to programming these increased resources.

I am particularly concerned that there seems to be no budget detail on the $500 million requested for the Clean Technology Fund. I would note to my colleagues that the increases in the ESF account are largely to fund the programs in Afghanistan, Pakistan, Iraq, West Bank, and Gaza. There is also a nominal increase in global health with the exception on malaria programs, which are increased by $200 million. And while global HIV-AIDS funds have totally increased over the past decade when many other aspects of the international affairs budget were cut a flat line as we have seen with the H1N1 outbreak. Health needs cannot be deferred.

Mr. Lew, you, the secretary, your colleagues at the State Department face a daunting set of challenges. But you have inherited a committed and skilled workforce. You have a secretary and a President that has inspired millions around the world. You have my personal commitment and the commitment, I hope, of all of us in Congress to help you succeed.

Before I turn to you for your remarks, I'd like to turn to Ms. Granger for any comment she may have. Ms. Granger.

REP. GRANGER: Thank you, Madame Chair. I want to thank Deputy Secretary Lew for appearing today to explain the administration's FY 2010 priorities. The subcommittee has only begun to receive the details of this budget request and I hope the Deputy Secretary and his staff will work quickly to provide full budget justification so that we can better understand the items requested prior to us working up the bill. We've received some high level descriptions of their request. We note the accounts in the State Foreign Operations Bill totaled $52 billion or 42 percent increased over the FY 2009 regular appropriation excluding emergency appropriations.

This large increase will bolster staffing, as the chair has mentioned, for the State Department and USAID and support administration priorities like food security, climate change and global health and continued support for civilian efforts to fight the war against terrorism particularly in Iraq, Afghanistan, and Pakistan. The administration has described this international affairs budget request as a smart power budget, one that balances diplomacy, development, and defense in the advance of our national security objectives.

I've long supported the concept of smart power and I hope the Deputy Secretary will explain how the State Department and USAID planned to implement the amounts requested to support the diplomatic and development goals of this administration. Maintaining an appropriate level of highly trained staff is critical to demonstrate smart power. And this committee has supportive hiring efforts began by the previous administration. I look forward to an update from the Deputy Secretary on the progress that's been made thus far to hire and deploy new Foreign Service Officers. And I look forward to hearing about the new hiring expected for FY 2010 beyond.

In closing, I should note that I'm pleased the administration is following through in support for the Merida Initiative. The $450 million request is an important investment in Mexico's war against drug curtails on our southern border. The Deputy Secretary and I had spoken about how to finish all these if the funds are provided quickly to the next government. And I thank him for the work he has done to expedite the funds already appropriated. I look forward to working with you and to hear from you. Thank you.

REP. LOWEY: Deputy Secretary Lew, your full written statement will be placed in the records, feel free to summarize your oral statement so we can leave enough time to get everyone's questions. Proceed as you wish.

MR. LEW: Thank you very much, Madame Chair and Ranking Member. I appreciate the warm welcome and look forward to working with you and the members of this committee both today and as we go forward. It's my honor to be here today to present President Obama's International Affairs Budget request for 2010. And I will take advantage of putting my statement on the record to summarize the major principles and priorities in the budget so we can give most of the time for questions.

A top line level of $53.9 billion of request represents a 9% increase over the 2009 funding levels. This budget provides the detail of what we need when we talk about smart power and it provides the resources for the administration to pursue its foreign policy goals. United States face diffusing complex threats including terrorism, climate change, pandemic disease, extreme poverty and global criminal networks. Key to our security and prosperity is a stable and secure world. And we cannot achieve that through military means alone.

It requires American leadership that promotes our values, build strong partnerships that improves the lives of others. That is what President Obama and Secretary Clinton calls smart power, harnessing the tools of diplomacy development and defense to help build a more peaceful and prosperous world. Reducing the risk of global poverty and instability will ultimately lead to conflicts. Smart power will save us both dollars and lives in the long run. We understand that economic conditions at home makes it a very difficult moment to ask the American people to support even the modest increase in spending overseas. At the same time, the American people understand that our future security depends on resolving current conflict and avoiding future ones.

When Secretaries Gates and Clinton testified together recently, they made a powerful case that investments in diplomacy and development, two of the pillars of our smart power strategy, are as vital to our national security as investments in defense; the third pillar. Smart power starts with people. That's why our budget puts an emphasis on increasing the size of the Foreign Service. Ultimately, achieving a 25% increase in State Foreign Service officers over the next four years. And I wanted a special attention to the urgent need to rebuild the US Agency for International Development. We are looking to USAID to take on some of the most difficult tasks in some of the world's most challenging environments.

With the ranks just over 1,000 Foreign Service officers world wide, USAID does not have the manpower it needs, which is why this budget includes a 45 percent increase in USAID operations and puts USAID on the path doubling its Foreign Service officers by 2012. All of our goals, conflict prevention, poverty reduction, food security, global health, climate change come back to having the right people with the right training and the skills to get the job done. This budget also provides the resources to pursue critical missions in conflict areas that occupy much of our attention these days, Afghanistan, Pakistan and Iraq.

Our FY 2010 request seeks $2.79 billion in non-military assistance for Afghanistan and $1.3 billion in non-military assistance for Pakistan, substantial resources that must be coordinated and deployed effectively. Following the administration's strategic review, State and USAID are implementing a comprehensive civilian program, which is fully coordinated with our military and other key agencies such as the Department of Agriculture and the Department of Justice to bolster both security and development.

At the same time, it is important to step back from these conflict areas to see clearly our broader objectives. We make investments to promote long-term development in human security both from the top down and bottom up strengthening the ability of governments to meet the basic needs of the populations. And at the same time partnering with citizens and civic groups to build human capacity and reduce extreme poverty. Children need a basic education that provides skills to pursue opportunities rather than hatred. Parents need jobs to reject the appeal of extremists who, too often, offer the only way to support a family and for many, survival requires minimal access to basic health care. Overall, 56 percent of our assistance requests has targeted to development programs with special emphasis on economic development, good governance, global health, food security, education and global climate change.

For example, our budget request include $7.6 billion for a global health initiative, which continues to fight against HIV-AIDS, malaria, and tuberculosis and expands that to address maternal and child health, neglected diseases, family planning and basic health infrastructure. It commits $3.4 billion to a food security initiative aimed at addressing the root causes of food shortages by more than doubling the resources devoted to agricultural production and productivity. And on the climate front, it is $581 million to help developing countries most vulnerable to the impacts of climate change, adapt by becoming more climate resilient and developing clean energy alternatives. Our budget also invests in the strategic bilateral and multilateral partnerships that are critical to global security, stability, and prosperity. We focus on states that can or must be partners in regional peace and prosperity, and tipping point states who is potential for conflict and instability, present regional and global threats.

And we leveraged our multilateral partners who represent both a force multiplier and a cost effective means for addressing global challenges. We are strengthening global security capabilities knowing that when our allies and partners can defend their territory and borders against external and internal threats, we are more secure. Our strategy seeks to forge partnerships among states to help build global security capacity in a number of areas including peace keeping, police training, counternarcotics, non-proliferation, and combating nuclear terrorism. Finally, we provide the resources over $4.1 billion to respond to humanitarian needs.

Our humanitarian assistance programs have provide relief when we see human suffering, our fundamental expression of our values. At the same time living with our values often strengthen our ties with other people. Our humanitarian efforts in the aftermath of the earthquake in Pakistan actually began to turn the sentiment amongst many Pakistani citizens away from extremist and led them to see the United States as a political force for good in their lives. At this very moment, we are taking steps to make sure that the United States is in the forefront of efforts to address the needs of people who are seeking safe haven as the government of Pakistan takes military action against extremist. There is a real possibility that in addition to the 500,000 already internally displaced another 1 million persons could need assistance.

The challenge impart is providing funding and we are taking steps to make certain that we are able to help there. But even more challenging will be getting access. And our very capable Ambassador in Islamabad is coordinating with international organizations, NGOs and the government of Pakistan to determine how we can assist most effectively.

Securing the resources to promote our goals is an important first step to restoring American global leadership. But resources alone are not enough. We know we have to be better managers of our resources as well especially in these difficult economic times.

I hope my appearance before you today signals the Secretary's seriousness and determination that the Department be a responsible steward of tax payer dollars. It is the first time the position of Deputy Secretary of State for Management and Resources have been filled and in only a few short months the reformed agenda is already robust. Even as we undertake the reviews and seek the necessary input to define our new approach, you have already seen signs of how we are going to work differently. The Afghanistan and Pakistan were bringing all agencies together under shared set of objectives allowing us to benefit from the range of expertise available across the U.S. government, maximizing resources through greater coordination and integration and recruiting rapidly to meet a critical and time- sensitive mission. In food security and global health, the State Department is leading whole of government efforts creating inventories of programs, identifying gaps in our current programming and coordinating among agencies to develop a shared strategy.

All these examples highlight the need to develop broader mechanisms to manage by country and by function so that all foreign assistance programs are coordinated and resources can be allocated to achieve objectives most effectively as the programs can be operated most efficiently.

Accountability for results is another principle that will guide our reformed efforts. We are keenly aware that with increased resources comes the obligation to demonstrate that we are making an important difference. Finally, we know that we need to be a more effective donor. Our people in the field must have the means to leverage opportunities, to build strong partnerships, and responsible governments and support development progress by empowering partners to have more of a say and how aid resources are targeted in their countries. We look forward to consulting closely with you and other stake holders as we consider these questions and others in the coming weeks and months ahead.

I thank you for the opportunity to appear today and I look forward to answering your questions. The President and Secretary's agenda is an ambitious one. Yet, with the right resources and good counsel we are confident that we can meet these challenges. We look forward to working closely and I welcome the opportunity to answer questions.

REP. LOWEY: Thank you very much. We appreciate your wisdom and we appreciate your coming before this committee and I will begin by asking some questions and then I will proceed from side to side giving each member five minutes. As you know, this said committee has supported efforts to strengthen USAID's capacity over the past two years. In my judgment, USAID is the key agency with the responsibility for implementing most of our fine assistance programs and I agree with the Secretary's objective of strengthening the agency. And I also agree wholeheartedly and we've had many discussions about her focus on coordination accountability.

I've had this experience wherever we've been that people from one program don't know what the other is doing and so to go there and coordinate and to demand coordination will really bring about greater effectiveness. However, I find it difficult to comprehend that five months into the administration, we still do not have any political leadership at USAID. There is no ad administrator. There are no political appointments for any of the assistant administrative positions. And as I noted, I think there's really a danger that unless a management team is in place to administer these resources, not that you're not very capable, that Congress may be reluctant to provide such significant resources. Can you tell us where the process is in terms of appointing a USAID administrator and why this is taking so long?

SEC. LEW: Madame Chairwoman, the process of selecting cabinet and subcabinet level officials in the government is as you know a very difficult one and a very time consuming one. The administration began a bit ahead of other administrations. We've now found ourselves in the same situation that other administrations have found themselves in at this point and I don't think we are particularly behind the past trends but it is frustrating that we are not able to have our full team on the field.

The process of selecting names, clearing names, bringing them forward for confirmation has been very time consuming. I think that the State Department actually is ahead of most other agencies at this point. Unfortunately, we have not been successful on moving as quickly on filling the key positions at USAID. There are a number of very good names that are in the process of review and no one will be happier than the Secretary and myself when we reach the point where names are put forward for these positions. But I do not want to leave the impression that in the absence of leadership at the agency itself, that there has not been a good deal of attention paid to USAID.

I mean, I could say that I personally have been putting an awful lot of my time and attention into paying attention to the kinds of management issues that when we have a USAID administrator, I won't need to pay as much attention to. The Secretary has been involved as well. As we planned for, you know, the Afghanistan effort, USAID is at the core of it and we've drawn on USAID at every level to be part of the strategic planning process and to implement effectively. As we review the priority areas like food assistance and healthcare, USAID is at the center of it. So USAID is very much part of the administration's efforts. We will all be happy when we have fully confirmed leadership in place.

REP. LOWEY: Well, I guess I expected that answer. However, I think it's important to know for the record that we eagerly await leadership at USAID because I know that you're responsibilities are widespread and we both agree that having that leadership in place would be very helpful.

SEC. LEW: I could not agree more.

REP. LOWEY: And perhaps you can comment on the MCC. How close are we to having a CEO at the MCC?

SEC. LEW: Well, it's really largely the same answer. There are very good names in the review process but again I want to emphasize that Secretary Clinton, as Chairman of the MCC Board, is engaged actively with the MCC. As the person responsible for coordinating the foreign assistance programs, I have engaged actively with the MCC and I think that contrary to the expectations that many had that we would not treat the MCC as a core program, we have very much been treating it as a core program and want very much to be able to help move it forward.

REP. LOWEY: Good luck in that appointment as well. Lastly, the FY 2010 request includes funding to hire an additional 350 Foreign Service Officers, a USAID 1,181 Foreign Service and Civil Service positions at the Department of State. This is in addition to the substantial increase as this committee provide us the staffing in the FY 2008 emergency supplemental and then the regular bill for FY of 2009. Of the over 15,000 new positions in the FY 2010 request, how many do you project will be posted overseas? How many domestically? Can you explain the increase staffing particularly for security related positions?

SEC. LEW: Let me answer the question first in principle and then with some numbers. Our goal is to assign as many Foreign Service officers overseas as we can. There are domestic postings that support the efforts of Foreign Service Officers overseas, so it will never be all overseas. There is some balance that there will be. In the initial year of appointment, there are language training activities that have the posting be domestic before someone is assigned overseas. So looking ahead we see that there are roughly 180 positions that will be in hard language and other training at the Foreign Service Institute.

We have a number of positions that are going to be coordinating with the Department of Defense. So there's about 20 positions that are detailed to DOD and, you know, we have over 500 positions that are intended to be overseas right away. So the mixed of domestic and overseas will be much more heavily weighted towards overseas as we get deeper into the training and deployment process.

REP. LOWEY: My red light is on. Ms. Granger.

REP. GRANGER: Thank you. I understand that the President's budget proposes removing language, prohibiting or restricting funds for the Palestinians. These provisions are intended to prevent U.S. dollars from falling into the hands of terrorist. In the hearing with Secretary Clinton, we had a great deal of discussion about the prohibition on funds going to Hamas, which the administration included in its supplemental request. Now the administration seems to be reversing course.

Is there a reason why the administration has requested that safeguard on funds going to Palestinians should be removed in the fiscal year 2010 bill?

SEC. LEW: I am not aware of any provision that reverses the restrictions in this area. There has been some evolution of the provision that was in the supplemental appropriation, you know, amended something that was put on in the omnibus and there maybe something that's out of synchronization in terms of time. But I am not aware of any policy difference and if there is something that hasn't caught up in time, we will work with you to reconcile that. Our position is very clear that we want to be in a position to support responsible Palestinian authority that is working to build stability both in financial and security areas. We want there to be room for a government to form so that it can draw as broadly as possible to create a stronger support for moderate leadership and drive a wedge in the support that extremist have. And we are very comfortable with the revolution in the supplemental, which we frankly thought clarified the original intent.

REP. GRANGER: Yeah. Okay. We will follow up on that and see if there is a conflict. And also I want to ask you about Merida. We visited; we understand the problem with Mexico. I want to make sure that we are on track to provide Mexico with the helicopters funded in '09 by the end of this calendar year.

SEC. LEW: We are on track. I actually just checked the other day to make sure that we were on track and in general the Merida money to Mexico has not moved as quickly as we would like and we've been paying quite a lot of attention to why things are stuck in the pipeline. Some of the issues have to do with the fact that Mexico had not previously been a recipient of military assistance and there was a fair amount of process they had to go through. That's finished now. There are now agreements in many areas to provide equipment where they are locked into place with deadlines including for the helicopters.

REP. GRANGER: Good. Let's make sure that happens also with the Black Hawk--

SEC. LEW: Yes.

REP. GRANGER: -- Coming up in $66 million. And then your FY 2010 request includes 450 million. We've not seen full details what is in that request. Can you explain a little bit about the equipment and the programming that's being requested?

SEC. LEW: The intention in the Merida funding was to continue with the program and frankly the addition that we made stood out the most was adding the Black Hawk helicopters back in. That was in the supplemental but that was the major addition so, I think that the approach on Merida is to give the Mexican police and military the equipment they need to mount an effective effort to stop the drug trafficking and crime. We want to work with the government of Mexico as we go along and if the need evolve, work with them to evolve themselves. The precise details for the equipment that will be provided in the 450 million, I'd like to get back to you on.

REP. GRANGER: I understand. Thank you. Thank you, Madame Chair.

REP. LOWEY: I just want to note that the president's request does delete all the policy language I believe that is carried in our bill, not just the one that you are referring so, all of that language is in there and I think we are in agreement with the administration as you mentioned that the additional language which we added plus the other policy language that we've included does define our positions, our mutual positions very clearly.

SEC. LEW: Going back to my former life at OMB if I recall correctly White House budgets always remove the language that's added and -- that doesn't represent a change of policy but it is an executive privilege issue. And on the policy here, there has been no change and we remain, you know, anxious to work with the committee to make sure that there is no ambiguity about that.

REP. LOWEY: Thank you. Mr. Jackson.

REP. JACKSON, JR.: Thank you, Chairwoman Lowey. I want to begin by welcoming Deputy Secretary Lew to our subcommittee and thank him for his testimony. Deputy Secretary, I read with great interest your testimony at least the version I received last night. The version that we've been presented today is several pages short. I didn't think you'd want me to read the whole thing. It is actually not even here. It stops on page four and I think there are more pages that should be added but during my tenure on the subcommittee, I have championed the countries in Sub-Saharan Africa and the larger African Diaspora.

I fought not only to provide these fragile countries with emergency humanitarian assistance but also with the resources for long-term sustainable growth. I noticed and appreciate the administration's effort in its FY 2010 request for Migration and Refugee Assistance, in that account, to incorporate recent supplemental funding into the core budget request. Aside from funding a much more accurate reflection of the ongoing needs of the program, I think this will help mitigate the operational challenges that arise from relying on supplementals to fund regular programming.

However, I noticed that if the President's pending FY '09 supplemental request for MRA is approved by Congress, the FY '10 request would be slightly below the FY '09 appropriations. In view of the unmet humanitarian needs of many refugees and internally displaced persons, our ongoing special responsibility to displace Iraqis, and new humanitarian concerns in places like Sri Lanka and Pakistan, I am wondering how can the U.S. meet our current fiscal needs at the FY '10 request level. I'd like to hear your thoughts on that. And in the interest of time, let me state also my next question.

I noticed that our voluntary contributions to peacekeeping operations will decrease by around 25%. I know that the funds that were requested in FY 2010 will support several missions in Sub-Saharan Africa including Somalia, South Sudan, the DRC and Liberia. Since most of these missions had been ongoing for sometime and will probably continue, why don't we reduce our voluntary contributions to peacekeeping operations by 25 percent since we also decreased our assessed contributions to peacekeeping? Are there any missions that we might be neglecting? Thank you, secretary Lew. And thank you, Madame Chairman.

SEC. LEW: Mr. Jackson, on the question of the funding level for refugee assistance. We very much have tried to take a look at the full year and include the resources that are likely to be needed. I should make the point here as in other areas that contingency planning is always subject to risks so you never have a full knowledge of what will actually occur. So we would reserve the right if there are emergencies even though we've planned ahead to come back and work with you. In terms of the number that we put in here, there are several areas that in 2009 were quite intensive in terms of demands for resources, in Gaza and Georgia and Lebanon.

And the reduced needs in those areas we think provides a sufficient cushion that we are now funding at a historical level that will enable us to meet the expected needs around the world. As the year develops if that turns out to be an underestimate, we would work with you on it. But it is our best estimate that given the reduction in needs in some parts of the world there is a cushion to meet the needs in other parts of the world.

On the peacekeeping numbers, the overview that I'd like to give is that we, both on the supplemental (and this?) budget have taken very seriously the need for the United States to fully meet its commitments to all peacekeeping accounts. The supplemental clears up arrears of this budget, keeps us current, and even takes a first step towards helping to deal with the problem that our fiscal year doesn't match up with the fiscal year of international institutions. And we will synchronize our payments a little bit more closely to the needs of internationally used institution fiscal years. In terms of the specific numbers that you asked about, you know, we are assuming that in the case of Somalia that there will be a switch at least for the logistical support to be handled through assessed peacekeeping. We sent a notification to the committee last week on that. We know there is a variety of use on that issue and we look forward to discussing that with you.

We also note that Liberia mission is scheduled to be completed and that will result in a lower level. So we think that the numbers that, you know, we've put in the budget will cover both the assessed and the voluntary requirements.

REP. JACKSON: Just a very quick follow up if I might.

The Liberian operation for example is scheduled to be completed but the request from the Liberians themselves and the request of neighboring countries and other countries that are participating in the operations are also making the case that they like to extend the mission, to increase the mission, to keep the stability in Liberia. And so, it just appears from my perspective that reducing the voluntary contribution and the assessed contribution, that we're making some assumptions based upon dates that we think are approaching but they may not necessarily be mission worthy or what the reality is on the ground. I thank the Chair for yielding me the time and --

SEC. LEW: I'm sorry, if I just add one further response. The supplemental level was actually kind of a high water mark level because we were clearing out some arrearages and we would not need to maintain funding at the '09 level including the supplemental level in order to maintain our activities. I think it may exaggerate the difference and we'd be delighted to work with you, Mr. Jackson, to kind of go through the numbers and make sure that we're fully accommodating what is likely to be the requirement in Liberia.

REP. LOWEY: Thank you. Mr. Crenshaw.

REP. ANDER CRENSHAW: Thank you, Madame Chairman. Welcome. The chairman mentioned the MCC and I think I was encouraged to hear what you have to say. I'll be the big supporter of that. You talked about smart power. I think it's the smart aid where we require folks to follow an economic freedom and human rights and things like that. And I was encouraged to see the request of 1.4 billion, a sizable increase from last year. But since there is no CEO yet, I'm a little concerned and I think I heard you correctly say that you'll try to make that happen.

And goes my question which kind of, do you see that MCC continuing to be an independent agency or right now, you mentioned the Secretary is kind of overseeing things and I guess good but you don't plan to kind of move towards away from the independent agency aspect and kind of have it thrown in with all the foreign assistance, do you?

SEC. LEW: I think that we view all of the different assistance programs as having important attributes that make them distinct from one another but we also see (there?) being a critical need to coordinate amongst them in a way that frankly, they haven't been in the past. There are far too few countries where all of the different streams of USAID are fully coordinated. And that leads to duplication of effort, redundancy of capacity and not necessarily putting the U.S. government forward in the best possible light. So, I think in general while we very much appreciate that there are differences in the MCC with its five year compacts, it's very clear benchmarks has very unique characteristics, but on the ground MCC has drawn USAID from much of the work that it does just as PEPFAR draws on USAID from much of the work that it does.

We would like for that collaboration to be much more thoughtful and organic than it is. Right now, we are in a situation where it could work in one place and it might not work in another place. And when I asked for example to where everything is coordinated I'm pointed to precious few countries where everything is coordinated. I don't know what it requires to change in the law to accomplish what I'm talking about but if you think about the role of the ambassador in the DCM, if you think of them as the CEO with a range of programs that they oversee, there ought to be full knowledge by the ambassador in the DCM of all the programs going on. And if one of the programs is undertaking an activity in an area where another is already present, a flag ought to go up and say let's do this together. Let's not build two separate facilities that do the same thing. Let's not duplicate effort.

Let's not send confused messages to what the program of the government of United States is. I also think it's important that in all respects that we think of our foreign assistance programs as being part of our foreign policy and the expression of our foreign policy. You know as we've gone through the very difficult discussions regarding the MCC compacts with certain countries where there are frankly problems, it has been very important to coordinate what is done through the MCC and what is done through our diplomatic channels so that we're supporting each other as opposed to working across purposes. And I think that if in that kind of new ones wave managing, one can respect that each program has some very important characteristics that make them different from one another. But that doesn't stop us from coordinating and to run an effective --

REP. CRENSHAW: You don't see the major changes in the way. I mean this is the fifth year and I can have five year compacts. It's kind of a pivotal year.

SEC. LEW: Yeah. I think that we do have some changes in mind. The MCC has proposed that the single compacts versus multiple compact issue is a serious concern that they have, and we support the notion of having multiple compacts. I think the whole question of five-year funding is something that we need to work with the Congress on. If somebody had ask me 10 years ago with Congress' lack of money for five years for program like MCC, I wouldn't have believed it possible but in fact the commitment was made and there was the patience to stick with MCC long enough to give the program a chance to get the pipeline out into the field. I think we are now at the point where we all together have to evaluate the results. We're very pleased with the way MCC has been working and embraced the mission of MCC wholeheartedly.

REP. CRENSHAW: One thing, you know, at times almost have it -- you know it's unique in the way the funding is kind of planned out over several years. Most of foreign assistance is appropriated -- (inaudible) -- and so, you know, the MCC money is always kind of a target for folks to say well you know I know that's committed but it's really not spent so why don't we take that money and put it somewhere else. You got any ideas about, you know, how we can do a better job of making sure that when we enter into compact and say this is what we are going to spend over three to five-year period that people don't kind of grab the money each year.

SEC. LEW: I think the risk of multi-year money is one that is perennial. I think it's the right way to think about an awful lot of issues and we'd love to work on multi-year programs in other areas as well. It's not always in the best interest of achieving long-term objectives to have year-to-year decisions. At the same time, I fully understand that the appropriations process is an annual process. MCC has, you know, survived through its kind of early years with the tolerance that it takes time to get the pipeline fully flowing. I think that the challenge will be for MCC to show results and if it can show results we can work together on multi-year funding.

REP. CRENSHAW: Thank you very much, Chairman.

REP. LOWEY: Thank you. Mr. Schiff.

REP. ADAM SCHIFF: Thank you, Madame Chair. It's definitely good to see you. I know we did not reach a meeting of minds last week on the issue of coalition government and I want to reiterate my concerns about that. In the event there is a coalition government that is formed I think we'll need to revisit many of the issues that we discussed and I'm just going to leave it at that. I do want to ask you about three countries this morning, Egypt, Yemen, and Somalia.

Last week, you may have seen a pretty powerful editorial in the Washington Post taking issue with unrestricted IMF financing rather financial assistance of Egypt without any discussion of the promotion of democracy in Egypt. And while I don't agree with the incompetent and condescending way that the previous administration sought to promote democracy in Egypt or elsewhere in the Arab world, the failure to impose democracy by diktat should not lead to total abandonment of a policy that seeks to bring more democratic rule to hundreds of millions of people through a process of candid engagement with current regime support for the growth of independent civil society and the Arab world, support for independent media, and an unwillingness to continue turning a blind eye to gross violations of human rights.

Pole after of pole of Arabs taken in the last decade has shown that American support for authoritarian regime is often at the heart of anti-American attitudes in the region. So my question with respect to Egypt is what we will be doing to promote democratic reforms in Egypt notwithstanding the statements of the Secretary of Defense? And with respect to Somalia and Yemen, over the weekend, General Petraeus told Chris Wallace we see tentacles of al Qaeda that connect to al Qaeda in the Arabian Peninsula in Yemen.

The elements of al Shabaab in Somalia, elements in North Central Africa, and it started to reach all the way of course into Europe and the U.S. My principal concern is over Somalia and Yemen and is there anything in the State Department's budget or plans to try to create institutions in Somalia in particular but also in Yemen that will prevent either place from becoming the next Afghanistan?

SEC. LEW: Thank you, Mr. Schiff. Let me start, if I could, on your first observation because I actually think we may have not reached agreement on the words but we have a meeting of the minds. We agree with you wholeheartedly in the case of U.S. support for Palestinian authority that we should not be supporting organizations or individuals who have ties to terrorist organizations. And we want to make sure that as we implement any Appropriation bill that is enacted, that we make sure that there is no ambiguity about that. Sometimes it is hard to address the words but I think there is actually an agreement on the principle.

On Egypt, the U.S. funding for Egypt has been a source of some tension in the relationship with Egypt over the last few years. And the combination of the reduced level coming down and the year mark that went from $50 million to $20 million for democracy, I do not think contributing to our ability to actually move Egypt forward on the democracy agenda. That does not mean that we don't want to support democracy activities. We do very much remain committed to promoting democracy in Egypt and we understand the shortcomings that exist there. I think that in the conversations that the Secretary had when she was in Egypt and the conversations I've had with representatives of the government of Egypt, there has been an enormous appreciation that what we've said is we want to work together on identifying funding objectives which meet with our kind of bilateral approval. It is kind of, we are not saying we won't be promoting democracy actually.

What we are saying is we want to have a conversation with them and engage with them in a somewhat different way. Egypt is an important ally. They have important challenges in this area. We know that we need to work with them. I think they know that they need to work with us. And we've tried to use the very small change in the way the AID is structured. To create a relationship, we can have more influence and make more progress.

REP. SCHIFF: If I can just say before if there's time for you to respond on Yemen and Somalia, I agree with the approach and I think that we have been very effective in our democracy assistance funding in Egypt. And that there may be very well room for us to work with Egyptians in supporting organizations and democracy promoting institutions that are not flash points in our relationship with Egypt. So I don't think we have gone about it necessarily in the best way. And I think there is room to work with Egyptians on a better approach but I want to make sure that we are not abandoning the approach because I think it is fundamental that the concern that many in the Arab world have about the United States.

SEC. LEW: If I may briefly just address the question you raised on Somalia and Yemen. You know in Somalia, we have a significant effort in the peacekeeping area and we put some $28 million a day economic support funds. They can be used for precisely the purposes that you inquired about, reconciliation efforts, training, government and civic leaders, and supporting initiatives to facilitate dialogue and civil society. You know I don't think we disagree about the risk that is present in Yemen or Somalia and we are very attentive to the fact that we have to keep our eye on areas of instability, which could become the next challenge. Yemen requires our attention as well and we are happy to continue the conversation about Yemen.

REP. SCHIFF: Thank you, Madame Chair.

REP. LOWEY: Mr. Kirk.

REP. MARK STEVEN KIRK: Thank you, Madame Chairwoman. I would note that when you left OMB, our assistance to the West Bank totaled $211 million. And this year will be four times that at $865 million. So I shared my colleague, from California's, very deep concerns about the direction you are going. And I want to ask a very specific question.

In November of 2007, the AID inspector General released a report entitled the "The Audit of the Adequacy of USAID's Antiterrorism Vetting Procedures." The Inspector General concluded the following: AID's procedures, policies, and controls are not adequate to reasonably ensure against providing assistance to terrorists. These policies or procedures do not require the vetting of potential or current AID partners. Further, the sufficient management controls have not been developed to reasonably prevent AID from being inadvertently provided to terrorist. To decrease the risk of inadvertently providing funding and material supports to terrorist entities, AID should issue guidance on the world wide Antiterrorist Vetting Program.

In June of 2008, the Inspector General released its own report reviewing the State Department's counterterrorism vetting procedures. They concluded procedures for counterterrorism vetting and whether vetting is conducted at all very widely through the department. Different lists are consulted by different offices and few offices have negotiated special arrangements to conduct vetting at the terrorists screening center. The inefficiencies and potential vulnerabilities in these arrangements have been apparent both at the interagency and department level but the interagency efforts so far has failed to establish government wide sets of standards and procedures for counterterrorism vetting prior to awarding government assistance. In response to the 2007 report, AID developed a Partner Vetting System.

I personally visited that office in Crystal City at the terrorist screening center. The final rule for the Partner Vetting System was published January 2nd, but left implementation to the new administration. Given the conclusions and recommendations reached by two AIG reports and the very large provision of assistance now proposed for Pakistan, Afghanistan, Lebanon, Egypt, and especially the West Bank and Gaza, will you commit to implementing the Partner Vetting System for the State Department and USAID assistance?

SEC. LEW: Mr. Kirk, in terms of current practices on vetting of NGOs, you know there is a vetting process in place where NGOs are checked against multiple terrorist lists.

REP. KIRK: Can I just tell you, the current system is the one that the IGs decried --

SEC. LEW: No, I understand --

REP. KIRK: -- it's the new systems that I am asking.

SEC. LEW: -- and I'm going to answer your question.

REP. KIRK: Great.

SEC. LEW: The rules that you are asking about were presented for our review soon after we arrived and we asked a number of questions about them. Most prominently was "why did it apply to NGOs exclusively? Why it did not apply to contractors?" And frankly, I couldn't be satisfied that there was a good rationale for saying that there was a difference and made a difference. And I asked USAID to go back and re-draft a regulation that would be applied across the board. That has been sent to OMB. It is in the rule making process now and it is our intent for it to become final.

REP. KIRK: Good. I support that you are actually going to expand the initiative.

SEC. LEW: Yeah. I thought it was a mistake to issue a rule that went half way and create confusion when in just a few weeks we would be able to implement a rule that starts out in an even handed way.

REP. KIRK: Great. I hope that there are no exceptions.

SEC. LEW: I am not aware of exceptions. Obviously, our many --

REP. KIRK: An international NGO system hates this program. And so, I would hope that you would not provide any out, given the very large increase and the fact that we may be under language proposed by the administration providing a tax payer subsidy to (her mass?) controlled ministry at the PA. This system actually will protect the administration more than if there were --

SEC. LEW: Since all of my interventions had been to expand not narrow the coverage, I know that it's broader than it was in January because it covers contractors. I'll go back and check --

REP. KIRK: Great.

Thank you.

SEC. LEW: -- whether there any exceptions were in there.

REP. LOWEY: I just want to say that I appreciate --

REP. KIRK: I thought it is my turn to --

REP. LOWEY: No, no. You get in just a minute but I just want to say that I appreciate the gentleman bringing up this issue because as you said, it certainly is applicable in Pakistan and Afghanistan and the administration has been extremely cooperative. And understanding we have the strength and the requirements. Given the best requirements, the chances that someone could get through a hole but I think if we are all in agreement that this is critical, we can certainly protect the system and I wanted to thank the administration. Now you can go back.

REP. KIRK: No, I take what you said is very good news. We have not received the formal budget justification from the department. Budget in Brief says that you'll be requesting $62 million for public diplomacy including 20 new positions. I am concerned that we haven't identified the Chinese speakers in that list to where we will be going. Also last year, we funded six new American Presence Posts. For public diplomacy in China, they cost about $1.5 million each in China. Secretary Rice outlined a vision for (Kennedy's Post?) throughout China, in the largest cities where we don't have a consulate.

In the Budget in Brief, we have no mention of American Presence Post. For example, here's a list of cities with no American Presence whatsoever. In Shenzhen 8.5 million people, Tianjin 8.2, Chongqing 7.5, Nanjing 7, Dongguan 6.5, and Hangzhou 6.3, so these are all plus 5 million metropolitan jurisdictions. Are we going to fund the American Presence Post plans of the department or are we going to let these cities go?

SEC. LEW: Well, first in terms of when the details are going to be forthcoming. Our plan is to get the detail budget justification out there in about two weeks, which I am told is actually ahead of past schedules, which given that it's transition year is something that we feel pretty good about so, I apologize it's not here yet but we are trying to get it to you as soon as possible.

In terms of the American Presence Post, we are looking at the issue and understand that it will require some engagement with the government of China to work through what would be acceptable post, where that they have some desires to have some additional offices in the United States and look forward to engaging in conversation with them where their interests and our interests can all be worked through.

REP. KIRK: I just say that these cities alone, which would be six cities has over 40 million people where there is no U.S. diplomatic presence.

SEC. LEW: I understand the issue and I think that as we work through these issues with the Chinese there will be some places where Presence is more likely to be possible than others and we'll get back to you as we phase.

REP. KIRK: Thank you, Madame Chairman.

REP. LOWEY: Thank you. In terms of the resources, I would just say that your input is helpful and if we could justify positions in every place where we would like positions, I am not sure where that would take us Mr. Kirk, so I look forward to working with you and certainly the State Department in evaluating your request and see what we can do to be helpful. Ms. Lee.

REP. BARBARA LEE: Thank you, Madame Chairman. Thank you very much -- (inaudible). Thank you for being here and congratulations. We certainly have a lot of work to do.

SEC. LEW: Yes we do.

REP. LEE: War, poverty, genocide, disease, climate change, but I am very pleased to see that President Obama pledged to double foreign assistance by 2015. Really begins to put us on the right track to reaching some of our goals. So, congratulations to you for being in the position to make sure that much of these happen.

Before I ask you a couple of questions on the budget, let me just mention and I mentioned this to the Secretary in terms of an inquiry with regard to a constituent of mine, Tristan Anderson (sp) who was seriously injured when he was struck in the head by tear gas canister in Israel and by Israeli soldiers while he was engaged in a non- violent demonstration. And so, we will be following up right in a more detailed letter because I am hoping the State Department is monitoring the full investigation of this very, very terrible instance.

On the budget, let me ask about the global fund first of all. It has always been a key component in our response to the HIV-AIDS pandemic, TB, and malaria. In a very short period of time, we've really achieved significant results putting over 2 million people on AIDS treatment, 5 million have been treated for TB, and 70 million bednets have been distributed to prevent malaria. And of course we've been generous donor to the fund but the anticipated contribution I think it is 900 million in FY 2009 budget. That will have to be significantly increased, if we expect to fully fund all of the grants and meet the dramatically increased needs anticipated for 2010.

And so I am not sure in terms of this budget. It looks like we are flat lining our contribution to the global fund and I am wondering could you clarify that especially given the need to actually increase it. Next, let me just congratulate you and our administration for the new global health initiative. I think that it is a major step in the right direction in terms of looking at how we address a smart power agenda.

I'm concerned though that the $51 billion allocated to PEPFAR and malaria over the next six years could fall short if I'm reading this right at the funding pace which we authorized, and that was about $48 billion over the next five years.

So I'd like to get some clarification on how we're addressing the global fund and PAPFAR and I want to make sure that we're not or we shouldn't anticipate a decline in resources for these very important and productive and you know, noble efforts that we're engaged in.

MR. LEW: Thank you for those questions. I think that by any estimation, you know PEPFAR and the global fund have just done an enormous amount in a very short period of time to tackle a terrible disease, three terrible diseases with extraordinary impact. The president, the administration continue to support very strongly the funding of those programs and as you've noted we've expanded the concept to have a broader global health focus.

In terms of the global fund itself, we actually requested a higher funding level than has been requested previously, and overall we think we have funded both the U.S. and the global funds in programs so that they can meet the need. There's obviously some interplay between the two, and you know we know that in the past there's been you know back and forth between Congress and the administration on this and we look forward to continuing that conversation as we go through the year.

On the global health program more broadly, at focus on the three diseases in PEPFAR, you know HIV/AIDS, tuberculosis, and malaria, has been enormously valuable in terms of just tackling a problem that eight years ago had no solution and now giving two million people treatment that's lifesaving. You know, we need to find the means to extend that kind of focus to a number of other areas where we know very well how to improve health and life extending outcomes actually more easily and less expensively than in those other areas.

Our focus is on basic health issues, things like maternal and child health and the neglected tropical disease diarrheal illness which takes the lives of so many children, things that are very easy when you have a health presence to treat and can be done in a coordinated way.

In terms of the funding level overall, the president committed to funding the PEPFAR at $50 billion over five years, he's actually increased it to $51 in his budget and it's over six years. We think that that is a funding level that will enable us to keep pace. There are many issues about the projected requirements to keep pace with the current program and as I think you know there's a statutorily required strategic review of the program which our new administrator who is going to be running the PEPFAR program when he's confirmed will take on as a first order of business.

REP. LEE: Madame Chair, may I just quickly follow up? With regard to PEPFAR I want to make sure that we're talking about a minimum of at least $48 billion a year for PEPFAR, the numbers I'm not sure, I know you have $51 billion over the next six years which falls short for the funding pace for PEPFAR alone.

And then secondly, yes, the administration has requested more than previous administrations for the global fund but that's part of the reason we're behind. And there're grants now that are pending that won't be funded if in fact we don't significantly increase that $900 million.

MR. LEW: We will, the funding level that the administration's put in we believe meets the needs of the program if there are short falls that you see, we'd be happy to discuss those with you.

REP.LEE: Thank you very much Madame Chair, and I'd like to follow up with you on that.

REP. LOWEY: Thank you Mr. Lee and I just want to thank Mr. Lew as well for suggesting that there has been a conversation and that there will continue to be a conversation. As you know in the supplemental we put an additional $100 million for the global fund, and the question of balancing all the tremendous needs we have certainly we want to continue aggressive action with HIV/AIDS and the global fund of PEPFAR -- (inaudible) -- and how that balances for food security and agriculture and education is where the additional conversation such as that. So I thank you for your input.

Mr. Rehberg.

REP. REHBERG: Thank you Madame Chair. Being new to the subcommittee I'm trying to create a timeline on food security and the definition of emergency purchases of local or regional commodities. I notice in your presentation you have an appropriation request of an additional $300 million. Could you work through with me what you mean by famine prevention? Is that an emergency in the minds of those within the State Department? And the authority was originally granted in the pilot project and in the Farm Bill of 2008 and I see a study is going to be published after four years. Work through with me a little bit.

And the reason I come from this direction is I feel a little bit of a shifting of intent or responsibility on the part of those of us from agricultural states, I have to defend my votes on foreign assistance and let me make a statement and then you refute it if you should or can or wish to. And that is we're taking tax payer dollars from my agricultural producers in Montana to send over to Africa to buy food product commodities from the European Union.

MR. LEW: Congressman, the thrust of our food security initiative is to be able to develop in the long term sustainable food production systems so that the need for emergency assistance in the long run will be reduced. It's ultimately not a solution to the problems in the poorest countries of the world for us to either export commodities or for them to be purchased locally. Ultimately they need to develop sustainable agricultural systems that can meet their own needs.

REP. REHBERG: And I clearly understand that and you know, there's no way I could justify as a fiscal conservative the expense of the transportation of commodities from America over to a famine area except that it's the tax payer dollar that's being used to purchase the commodities in America to send to the area as opposed to taking the tax payer's dollar, sending it over to a competitor to buy the product somewhere else to give for the food security.

MR. LEW: Over the past number of years, there's been an evolution of the commodity program from a U.S. export program to a mix of U.S. exports and local purchases. That's actually had beneficial effects in terms of helping to stabilize markets around the world and provide the commodities that are actually needed in the countries that are the recipient countries.

When I was in my last tour of duty at the Office of Management and Budget, there were more than a few circumstances when commodity exports that we were proposing didn't meet the needs of the country we were sending them to and there was food that they didn't need and didn't know what to do with.

REP. REHBERG: Is that because we don't produce that food product in America?

MR. LEW: I think --

REP. REHBERG: Or where we, it was a purchasing problem?

MR. LEW: You know, I think that the challenge we have is to make sure that we're providing commodities that are needed at levels that meet the demand, get delivered to the people, but that need it and as much as possible don't cause instability in the markets that we're seeking to help.

REP. REHBERG: I could understand that in the emergency standpoint but in an ongoing food security program it seems like somebody ought to be smart enough to get the product in the hands of people that they want, purchasing from us so that we're not only teaching them to farm which we all support, but also undercutting ourselves financially locally because it's our economic development in the farm states, it definitely is a shift that I see, I recognize it from --

MR. LEW: I think that it's a mistake to characterize these as emergency nonemergency programs because these are really all emergency programs and the need that we have is to meet the timeliness requirements, the appropriateness of the commodities and as much as possible support the local production markets so we don't end up providing assistance but destroying the local agricultural market.

There's a place for U.S. products in there, I don't mean to be suggesting that it's all or nothing, but I think that the fact that the program has become a mix, that is not a new policy that --

REP. REHBERG: Could your agency provide information --

MR. LEW: Sure.

REP. REHBERG: -- to me of the --

MR. LEW: Sure.

REP. REHBERG: -- changing mix --

MR. LEW: Yeah.

REP. REHBERG: -- whether it was --

MR. LEW: I'd be happy to.

REP. REHBERG: -- 90 10 and now it's 60 40 or 50 50 or --

MR. LEW: And --

REP. REHBERG: -- 30 70.

MR. LEW: And I would just underscore that the really important focus of the food security initiative that we're undertaking is really in the area of promoting self sufficiency. And the big increase in the budget here is in the area of promoting education and extension of technologies and farming practices which is kind of neutral in the sense that it's not exporting or providing goods but helping to create a sustainable --

REP. REHBERG: Real quickly then, do you read the authorizing legislation in the farm bill that you're taking the $300 million figure for your appropriation request as $300 million per year in authorization or $300 million total over the course of the farm bill's authorization?

MR. LEW: I'll have to get back to you on that, Congressman.

REP. REHBERG: Okay.

MR. LEW: Yeah.

REP. REHBERG: Thank you.

MR. LEW: Thank you.

MS. LOWEY: Thank you. Ms. McCollum.

REP. MCCOLLUM: Thank you. Mr. Lowe, I'd like to congratulate the administration on this budget request. I support the smart power strategy that you described in your testimony. I look forward to working with the administration on our shared priorities, global health, climate change, and agricultural development. Congratulations.

MR. LEW: Thank you.

REP. MCCOLLUM: I was also encouraged to hear the strong statement from you in support of Middle East peace, a two state solution to the Israeli/Palestinian conflict. Resolving the Israeli/Palestinian conflict is an urgent national security priority of the United States, but I have serious concerns about the new Israeli's government's failure to embrace the creation of an independent Palestinian state. This budget commits billions of tax payer's dollars to Israel and hundreds of millions to the Palestinians in pursuit of mutual peace and security.

The American people are making a serious investment in peace; however U.S. support must be matched by accountability and it's time for both the Palestinians and the Israelis to be accountable for removing obstacles to peace. One of those obstacles to peace and security is the government of Israel's continued support for the expansion of settlements and the failure to prevent the establishment of illegal outposts on Palestinian land.

This land must one day be included as part of a future Palestinian state. Since 1967, homes have been built for 470,000 Israelis in the West Bank in east Jerusalem. In the past three years, Israel has built over 5,000 homes in the West Bank settlements and another 500 beds for houses were issued. Continued settlement expansion will only lead to one conclusion: a one state solution and this is an unacceptable solution.

The continued expansion of settlements not only undermines the peace process, but it undermines U.S. national security. In fact, the settlement expansion also undermines Israeli security and America's investment in Israeli security and I would like to quote Vice President Biden in his speech to AIPAC recently. Quote, "Israel has to work toward a two-state solution, not build more settlements, dismantle existing outposts, and allow Palestinians freedom of movement."

Now I strongly support the Vice President's statement, so I'd like to ask you to help me to understand clearly where the administration's position is. Does the U.S. government oppose Israeli government policy of settlement expansion in the west bank and East Jerusalem? Can you assure me that none of the $2.8 billion in funds provided to Israel through the foreign military financing will be used to enable or facilitate the expansion or maintenance of settlements? And since settlement expansion is contrary to U.S. policy and undermines the national security interests, what is our government doing to hold our partner Israel accountable if they choose to continue their policy of settlement expansion? And as you can tell, I feel a sense of urgency to push for peace.

MR. LEW: Congresswoman, the administration and the president have I think taken a very clear position that we strongly support a two state solution and that we feel that it's urgent for the United States to engage actively in the process. President and Secretary Clinton have appointed Senator Mitchell as a special envoy and he has been traveling in the region, meeting with the parties, he has been working closely with the president and secretary as they plan and prepare for meetings with the heads of state from the region which are going to be held in the coming weeks.

I think that the time is now for all the parties in the region to come forward and engage in this conversation constructively and we have made clear that we want to be active and support of the process both diplomatically and through our financial support. I think that it's not the appropriate moment for me to putting forward new administration statements on this issue. It's obviously a set of policies that are critically important in the coming weeks, months and years ahead and we very much hope that we reach a level of engagement that can break a log jam here.

We're at a moment in history where in some ways there's remarkable commonality of interest amongst so many of the parties. There's a shared concern about the threat posed by Iran in the region and the world. There's a shared concern about the spread of extremism around the region and the world. I think we have to move on into these conversations so that the president and secretary are able to pursue in each of their conversations as effectively and as aggressively as possible the efforts to bring the parties to be able to have a constructive dialogue.

REP. MCCOLLUM: Well I thank you for your very diplomatic answer. And Madame Chair, I strongly support what this committee has been focusing on to make sure that we support Senator Mitchell in a unity government and that we remove obstacles for people who want peace to be part of that government. But at the same time guarantee that we're not funding Hamas. But along with the dollars that we're providing in that area, we need to be having a frank discussion with a great ally in Israel, a country which shines brightly with democracy in that area, that we also have tax payers who are very concerned about illegal outposts and expansion and we as representatives of the people are starting to hear very loudly and clearly from people that we represent from all phase, from all walks of life who support peace that the settlements are an obstacle and that we have to stand strongly for a two state solution and they're very concerned about lack of support that they're hearing from the new Israeli government.

Thank you.

REP. LOWEY: I would just briefly let me say that in addition to being a diplomatic response, I thought that Secretary Lew did reflect the observations of this delegation when we were in Israel, the West Bank and Egypt just recently. And it was clear to all of us that there was a commonality of interest that was new. There was concern on the part of the Egypt, Saudi Arabia, UAE and others about the danger, the threat to the region of Iran. And it was also clear to me that Binyamin Netanyahu was in the process of evaluating the position of Israel before he came. In our meeting which was very cordial, very pleasant, there was no clean answer to any of the questions that were posed and it very clear to us that they were having, and he was very specific about saying in the next few weeks, that he and his cabinet were going to reevaluate their positions before they come to the United States.

So I would hope that the conversations between Israel, between Binyamin Netanyahu and others who may be part of it, between I'm not sure if I assume Abu Mazen will be coming and Salam Fayyad will be coming and I hope that all the parties can work together. I think there is a real commitment on the part of the majority of the Israelis and certainly on the part of the Palestinians to a two state solution. I am less optimistic and I think a unity government and a power sharing government although we have placed many conditions in the legislation in response to Senator Mitchell's request for flexibility, I think Senator Mitchell, Abu Mazen and the Israelis and most of us who were there have real questions about the reality of a unity government or power sharing government.

However that is certainly on the table, it's certainly going to be discussed but I think there's agreement that this is a hypothetical. So let me say this, in my lifetime, having worked on this issue and been to the reason many times, I hope that the administration, the president, the secretary of state, Senator Mitchell can bring the parties together, we can have two state solution and seek peace. So I personally want to thank you and the administration for the commitment to this goal and hopefully again we can see it in our lifetime. And I thank you.

REP. : Well Madame Chair being Irish and having traveled to Northern Ireland and run the peace process with -- (inaudible) -- I have great confidence in Mr. Mitchell but what he does is he holds everybody accountable. Thank you.

REP. LOWEY: Thank you. And I told Senator Mitchell that compared to the issues in Afghanistan and Pakistan, I think he has a much easier job. (Laughter.

) So we all wish him good luck --

MR. : A shortage of high problems.

(Laughter.)

REP. LOWEY: Thank you very much. I think we have votes in what, about ten minutes or so? So perhaps we can continue this discussion until the bells go off and again I thank you for appearing before us.

I want to focus for a few minutes on this Civilian Stabilization Initiative because the fiscal year 2010 budget requests $323.3 million for this civilian stabilization initiative or CSI, and in fiscal year 2008, 2009 this committee appropriated total of $150 million in support of CSI, $95 million to the Department of State. $55 million to USAID. Your request reverses this pattern of joint funding to state and USAID by requesting all CSI operations funding under the Department of State.

Furthermore, the budget recommends the leading language that was carried in the last two years requiring that there be coordination between state and USAID. Let me just say I don't understand this at all and so I'd like to know what is the justification for the decision to request all CSI funding through the Department of State? Why does the, I'll give you a couple of questions and then you can just respond, I know you'll remember them all --

MR. LEW: Jotting them down.

(Laughter.)

REP. LOWEY: Why does the request delete language carried the last two years in the bill requiring consultation between the department and USAID?

And with the elimination of direct funding and the deletion of the consultation requirement, I'd like to know what law will USAID have in the decision making process?

And your budget request more than doubles the funding for this initiative? What evidence is there that this capability is effective and is being utilized, especially without USAID being involved?

And are there examples of successful deployments and if so, what are they? Let me just say in addition the request includes $76 million USAID office of transition initiative for rapid response fund.

So I'd like to know how these resources would be used. And how will the department and USAID determine whether OTI will be deployed to a post preconflict situation or whether the CSI will be deployed?

So as you can see I think the coordination between state and USAID is absolutely essential, so I don't understand this request at all.

MR. LEW: Well let me start by maybe taking a step back and saying that while efforts have been made to date to build civilian stabilization program, they're so early in implementation that we do not have a capacity that's large enough to deal with the very enormous demands that we see in the world today and expect to see in the years ahead.

So we start out with a deep commitment that for the State Department to take back the responsibilities that have over the past number of years kind of moved over the Defense Department, it's absolutely critical that the State Department have the capacity to quickly deploy people with the right skills to areas of either crisis or where there's stabilization needs. And the concept behind this initiative is that there need to be three components, there need to be full time employees who work on this all the time, there need to be ready reserve government employees who can be redeployed when needed, and ultimately there need to be non-governmental outside reservists much like the military reserve. And just to put into context --

REP. LOWEY: But before you go further because I did ask you a lot of questions, one, I agree with you, but how do you do this? Together, we want to build up USAID and you want to build up the State Department. So now you're saying it should all be in State Department, we're building up USAID with that expertise that I hope someday they can be transported quickly and appropriately where they're needed.

But now you want to move it all into State.

MR. LEW: Well first the deletion of the language I think is the same answer that to the question before that there were, I think most if not all of the language was included in the appropriations bill was not included in the request just because that's the tradition of budget requests. So I think we need to separate the transmittal from, you know, the policy that we would aim to work together on.

I must say that I've had questions on this in my own mind since coming to the State Department. You know, the question of how to coordinate USAID and State Department and other agency of governments is much more basic than CSRS. And I think we need to get to the point where the dividing line that money was appropriated for one but not for the other, therefore they don't operate as one program is something that is right at the top of my list of things that we have to overcome.

That may make me perhaps not sufficiently sensitive to how important it is to people here or perhaps in the agency that when the appropriation is made to one place or another, it matters deeply to them.

I think the goal here is to build a capacity that's sufficiently robust that it can serve the mission. The decision to put it in state versus USAID is something that we are continuing to review, you know, in the sense that it's not obvious to me why the decision was made to build an expeditionary capacity in a second part of the foreign policy establishment. We do have SCRS, it is working at its size very effectively. We just deployed the, you know, resources of the civilian response team to go to Afghanistan to work on the elections in August and it was the one resource that we could send over immediately. It demonstrates the need to have this capacity.

Frankly, I would like to engage in a conversation within the Department and between the Department and USAID and with the Committee because I think that this is in some ways a cross government effort. It's not just State and USAID. I mean, when we need people who are experts in governance or rule of law or agriculture they may or may not come from the confines of the foreign policy agencies and we need to have the ability to draw on the right people with the right skills to meet the tasks and those are going to change over time.

So I guess my view on this is that we have something that's nascent that we want to build up. We want to work with you and the other committees of concern here to make sure we build up something that is not duplicative but that harmonizes the different parts of the foreign policy community and the non-foreign policy community have a role to play here and it ultimately would make it less consequential where the appropriation is and more consequential what we're asking the people to do. And that's going to be how we try to manage across these boundaries.

REP. LOWEY: Clearly I appreciate your response and I know that we have to have further discussion, but again my concern has been if you don't have the civilian expertise at USAID then the question is -- and you're not totally focused on building up that USAID and I know you care very much about it as does the secretary and understand the importance of it, then it's very hard to focus on the civilian stabilization initiative without the investment in that expertise. And we can certainly continue this discussion.

And I also agree with you that there are people at the Department of Agriculture for example that may be called on. But I feel and I believe you share the commitment to building up expertise at USAID. Frankly in my visiting with Ambassador Newman I think former Ambassador Newman in Afghanistan and there's a place where we need putting aside the Civilian Stabilization Initiative, you compare the strength that USAID had in Afghanistan when he was ambassador to what it has now and suddenly we're just trying to recreate everything.

So I just want to be sure we have the basic strength before we try and build on other capacities elsewhere.

MR. LEW: We agree totally about the need to rebuild the USAID core base, but one point I guess I would like to add is that there's a disproportionate number of positions that we would like to be able to call on that will not be full time either state or USAID positions.

In this 2010 budget we would end up with thousands of reserve civilians that we could call on and hundreds of full time state and USAID employees. So it's like 10 to one in terms of the ratio of full time versus stand by reserve.

I think the challenge we have is to design and implement a reserve system where those people are truly available to us, that they're pretrained, that they stay up to the standards that are required to be deployed quickly and that to me is a huge undertaking, something that the State Department has never done, USAID has never done, and it's something we can have models of how military reserves work, but we need to develop the model for how to do that on the civilian side.

I don't believe we're going to ever be able to have enough full time civilians who are sitting in Washington offices waiting to be deployed, just as the military doesn't have enough full time soldiers waiting to be deployed. They need a reserve capacity to meet these peaks and valleys of demand. I think that is a huge undertaking and one that we're very focused on and we very much look forward to getting the appropriations for that so that we can build that capacity.

REP. LOWEY: The discussion should continue just before I turn over to Ms. Granger. I want to make it clear I don't foresee any capacity composed of people who are just sitting there with expertise waiting --

MR. LEW: No, no I understand.

REP. LOWEY: -- to be deployed. Now they may be in another country, they may have the capacity totally focused some place else and you'd be able to call on them, but to be continued.

MR LEW: Yeah.

REP. LOWEY: Thank you. Ms. Granger.

REP. GRANGER: The administration has included another request for $98 million in economic support funds for North Korea. That's for fiscal year 2010. Tell me exactly what those funds will support? I know the news that we see is grim, do you see a potential to restart the six party talks or?

MR. LEW: The funds that are requested for North Korea are all contingent on progress being made in the six party talks and progress being made in terms of compliance with the removal of the nuclear capacities. You know, the specific funding you know would be for, you know, for, in the area of fuel oil keeping the commitment that we have to replace fuel oil when nuclear capacity is taken down for energy production. But it only would kick in if in the event that Korea complies. So there's absolutely nothing that we would provide here to North Korea absent North Korea's compliance.

REP. GRANGER: I understand. Thank you.

MR. LEW: And we hope that there is a return to the six party talks and that North Korea goes back into compliance because that's hugely important policy objective that we and most of the world share right now.

REP. GRANGER: Certainly.

REP. LOWEY: Ms. Lee.

REP. LEE: Thank you very much. Let me that I was very happy to see that the president's budget does take significant steps towards rebuilding our civilian foreign assistance and diplomatic capacity. I also strongly believe that the State Department should really accurately reflect the diversity of the United States in order to accurately represent our country. So I hope that this process and what you're about to do will include the whole issue of diversity, people of color, women, individuals with disabilities in terms of advancing opportunities for these populations of people.

Also for a couple of years now I've been asking questions with regard to the minority women owned business participating and utilization as it relates to contracting within USAID and the State Department. I guess, Madame Chair, I don't know if I need to request a report from the Department because I still don't have a good handle on how the Department is doing as it relates to minorities and women and individuals with disabilities in terms of total contracting dollars and what the percentages are to these companies. Would that be under your jurisdiction or how could I get that information because I, and I mentioned this before previously in my last life owned a small business and tried to do business like other African American companies with the Department of State USAID and there were roadblocks after roadblocks after roadblocks. And I mean and I did it the way that it should have been done, the proper way in terms of contract and procedures and not one instance and I don't know many people of color who have been able to do business with the State Department. So I'm trying to get a good handle on that and still haven't been able to figure it out.

MR. LEW: We would be happy to work with you and pull together, you know an analysis to explore both of those issues. Let me just underscore the secretary's commitment, my commitment that in the area of recruitment, it's very important that the State Department broaden its base for all kinds of reasons. We can't only do our job effectively in the 21st century if we go around the world reflecting the diversity of the United States and the world that we're dealing in. And historically the diversity has not been that great, there's been a lack of diversity at many levels historically in the State Department. I think we're doing better than in the past, but that doesn't mean we don't need to go out more aggressively and recruit at schools and through organizations that help us to build the diverse base we need.

Frankly we have an opportunity now with the first significant expansion in foreign service officers in a generation to go about doing it, what we would consider to be the right way. And to expand the opportunities for individuals to come in and get information, to expand the opportunities for them to be interviewed and to make sure as the selection process moves forward, it's fair and open.

So what we agree wholeheartedly with that and would you know be happy to work with you to go through in more detail what our recruiting policies are and what the record is.

In the area of contracting, at the risk of sounding too critical of my own department, we're kind of non-discriminatory in making the contracting process difficult. We have to fix it. We have to get away from these giant contracts. It's not just minority businesses that have a hard time doing business with the State Department, I hear from NGOs I hear it from medium sized organizations, large organizations. There are good reasons why things evolved the way they have over the years, but one of the things that we need to do is look at it and as we look at it, to keep in mind that one of the benefits of opening up contracting to smaller more competitive contracts is that it naturally helps to ease some of the barriers that have kept minority firms from competing.

I don't have an easy answer for this, but I know that at an administration wise level this is a goal that the president has and it's certainly something we take seriously at the State Department.

REP. LEE: Well thank you very much and let me just say that we'd like to work with you as chair of the Congressional Black Caucus we have some ideas on how we could make this happen in a way that would work. And so I hope that you would consult with not only us but those of us in the tri caucus who would like to see this happen.

MR. LEW: Thank you.

REP. LEE: Thank you.

REP. LOWEY: Thank you. Mr. Rehberg.

REP. REHBERG: Thank you. As we enter into a world of identity and REAL ID and the next generation passport I guess you know as you know you have a lot of secure information, birth cities, passport numbers, and the like. I guess could you talk to me a little bit about what you're doing within the Department to protect the privacy of citizens? And does this budget, I was going through your testimony, I see you talk a little bit about cyber security but I guess I want you to expand a little bit beyond your testimony of what you're doing internally and does this budget reflect the kinds of things that are going to need to occur in the short term, whether we're talking about Immigration policy, REAL ID, and protection of that information.

MR. LEW: Congressman, there's a natural tension between raising the bar on how we scrutinize the comings and goings of individuals and personal privacy and --

REP. REHBERG: I'm from Montana, I clearly understand that concept.

MR. LEW: And we are very, very attentive to that, to the importance that both sides of the equation are very important. I think that you know there have been some incidences in recent history at the State Department that showed that there was perhaps not a high enough level of protection of individual files, even before our arrival. I know that there were actions taken to try and tighten that up. As we go forward and look at the different systems that we put in place, the challenges to make sure that the law enforcement agencies that have appropriate needs and reasons for access get access but that nobody else does. And you know it's not a problem that one can just say well we fixed it, we move on. You constantly need to pay attention to it, systems change, staff change --

REP. REHBERG: Does this budget then reflect --

MR. LEW: I think it's part of our ongoing program and it's more a question of focus than it is budget. I'm not aware of the need for any specific resources in this area. And I'm told that there's $2.7 million in our privacy office which is for the --

REP. REHBERG: -- money and is that going to be part of the next generation passport similar to what Europe has or have you not begun that process of changing the passport?

MR. LEW: Well we have a new passport. I mean, you know, the new passport that we have is, you know has in it you know substantial amount of information that's electronically you know encoded. So that's in place already. The challenge is how to make sure that the access to the information is controlled and as I say available for proper purposes but not for improper purposes.

REP. REHBERG: So there is additional money in this budget --

MR. LEW: I'll get back to you in more detail on --

REP. REHBERG: Okay.

MR. LEW: You know on I must confess that in the many details of the budget I've discussed this with people at a policy level but I'm not deeply familiar with the funding issues behind it. So why don't I get back to you?

REP. REHBERG: I perhaps didn't know it as well when I voted for REAL ID and Montana's one of those states where I've got Ted Kaczynski on the left and the Freeman on the right and everything in between. So I'm perhaps more sensitive to privacy and the identity crisis that we have going on with some of that information getting out. So if you could get back to me I'd appreciate it.

MR. LEW: And I just say more broadly that there are a number of issues related to the bar having been raised very high on security that we need to reevaluate and it's always difficult to put any interest over security, no one wants to be responsible for changing a protocol and then having somebody slip through who shouldn't have slipped through.

On the other hand we have to be careful that we don't create problems that are as important as the solution and I understand the direction of your question. Look forward to working with you on it.

REP. REHBERG: Appreciate it. Thank you.

REP. LOWEY: Deputy Secretary Lew, thank you again for your time. I certainly look forward to working with you as I know does the committee and this concludes today's hearing on the president's fiscal year 2010 request for the international affairs budget for the subcommittee on state, foreign operations and related programs stands adjourned.

MR. LEW: Thank you Madame Chairman.

Thank you.

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