tracking what is going on with the manufacturing of heparin, the cost of that through public sector in medicare and medicaid, and go back to march, 2008 when the new york times had an article that said the food and drug administration had linked it to 19 deaths and hundreds of severe allergic reactions, though the agency was continuing to investigate. those deaths and a large degree actions were due to components that and it up in heparin, that ended up getting into it from china. i was wondering if you completed the investigation and how many people may have died from those of imported components? that is my first question. have you finished a report, is there additional data? then i want to ask this -- you have kindly submitted for the record from previous question i

have done questions that i have asked regarding heparin./ heparin is actually made from the intestines. i represent a lot of hog farmers, so i am interested why we would go to china for heparin. the test teens -- the intestines are ground up, extracted, and they eventually get the protein. i don't know if it is a blood thinner -- >> blood thinner. it keeps you from getting blood clots. b>> thank you. what is interesting about what you wrote in answer to my question, he said the fda had approved applications to market heparin, but it does not say anything about manufacturing. it is not clear where the

ingredients are made. i want to know for the three or four companies that are listed that are supposedly marketing it, how many of the ingredients come from the united states? i will push you a little on this, maybe not today, but in further questions. i'm also going to ask about damages. our government and the american people were not able to recover damages from the deaths because of contaminated imports? and where would i get how much money is being made by these pharmaceutical firms in marketing these products compared with one it takes them to manufacture? can you get at that, or where do i have to go for those numbers? >> you have asked a string of

questions imbedded in the one important issue of heparin, and some of that we may have to get back to you one. the experience with contaminated heparin was very serious. it was an eye opener to the fda and the pharmaceutical industry into our nation more broadly about the fact that we need to be paying attention to the fact that the supply chain for many products in this nation is complex and global. as you point out, the precursor for heparin that is used in the u.s. and manufactured by u.s. manufacturers, but much of the precursor comes from china, which i think has more pigs than any place in the world. >> we have a lot in ohio, too, and we would like to compete in this market.

>> but it cost, as you pointed out, serious allergic reactions and many deaths. >> do we know how many deaths yet? >> in terms of the documented deaths, i think -- nine >> why is it impossible to know? >> because sometimes the providers don't make the association between the death of a patient and the contaminated heparin. they often have complex medical illnesses, and when a person expires, the connection was not necessarily made that it was because of the heparin. as with all the investigation and we began to understand the and between the hepaeriarin

fatalities, we know that it took a serious toll. in response, we have put in place and number of protective measures, a new screening tests and safety systems, also working with regulatory authorities in china on this and working with the private sector so that we have safeguards that this kind of the event will not occur again. but it is a warning call about vulnerabilities in the system that we need to work on. i think my time is up responding to you, but we're happy to follow up further. >> thank you, i want to thank the chairman for his generosity trying to get to the bottom of this. that has been extraordinarily difficult, and we're going to keep digging down into this. we're all struggling to try to find the money to balance the budget, and if you look at the amount of money that our government pays for the medicare

and medicaid accounts for heparin, for a drug that is off patent, it is unbelievable. this as many links to it. thank you very much and we will have many follow-up questions on heparin. >> thank you, the members of this committee have a lot of passion about our issues and we appreciate your time. i want to visit the discussions you and i have had about food safety and food modernization. using the cdc numbers which you have -- and i agree with you, 3000 deaths per year is horrible, we need to do something about it -- but where i have an issue taking the emotion out of it, and we have talked about this, 3000 people dying per year is down 40% from

last year. again, it is too high, we need to keep working, but it is down 40% from the cdc numbers. 48 million foodborne illnesses per year, a decrease from last year. it's still too high. but in a country of 311 million people, eating three meals per day, 365 days per year, consuming 340 billion meals per year, if you divide that into 48 million, there is still a food supply that is 99.99% safe. where is my math flaw on that? >> well, the key numbers are that we know about one in six people get sick every year from foodborne illness. >> let me interrupt. the key numbers come from the cdc, and those are the numbers i have used.

those are the numbers i want to stay with. where is that math lot? -- where is that math flaw? >> we're seeing preventable deaths. we're seeing even more preventable illness. that is associated with preventable costs with the health care >> you agree with my mad that it is 99.99% -- h. i agree with your mat we have one of the safest food supplies in the world. >> the concern i have is, are we targeting the 3000 people effectively? if we move that number from 99.99% to 100 percent, which

you and i and everyone on this committee would want to do, are we going to get their? are we going to get at -- with this bill, i will tell you where i have concerns. there is nothing in there that attacks the virus. in your testimony, you mentioned that you have permitted a test for its last year. but that is the only mention of noravirus. the cdc said opprobrious hand hygiene is the single effort to permit the transmission of the virus and reduced presence. it is best done by plane antiseptic soap.

we are talking about 17,000 new fbi employees. that is not addressed -- f employees. the second-highest is salmonella. i come from poultry country. before the food modernization act, the fda did formalize the egg rule. it could be avoided with this new food safety requirements, which you put into effect last year. i do not want to say --i will let you respond. you did not mention the third highest in your budget. it would appear to me that those are the three things that we

need to target in order to close the percentage. in these tight budgetary times, it would be a lot smarter approach. >> mr. chairman, i understand your concerns. we all recognize that we have a food safety -- a food supply that is generally safe. no one can argue that we are experiencing a set of preventable outbreaks due to a range of microbes, some which cause more severe disease. it is a range of concern and a changing panoply of concern. salmonella was not thought to be such a major concern in peanuts. today, we know it is a different

situation. >> this is only july that we have had the new salmonella rules. >> i think what we need -- >> the peanut problem which occurred in mr. bishop's district was a criminal act and not so much food safety. it was a criminal act. >> we are increasingly seeing salmonella in those kinds of products. we can not only have a food safety system that addresses problems that have happened. we need a system as the food safety modernization act calls for to prevent the introduction of contamination of any kind. that is what i think is a huge opportunity here, to move toward a system that is based on prevention so that we can prevent the unnecessary gaps and the unnecessary costs to the

health care system and the unnecessary costs to industry and to our economy more broadly. in a globalized economy, we have a whole set of additional threats to the safety of our work could supply that we need to be mindful of and prepared for. we are trying to create a food safety system for the 21st century and beyond. we have a responsibility to take that seriously. congress has given us the mandate to do so. i am excited about the opportunity to keep moving the dial so that our food supply is as safe as is possibly can be. >> my time is expired. >> thank you, mr. chairman. i wish we had a whole week of this panel. in essence, we are talking about -- by the way, i do not think we have had a head of the

agency who has had to cut -- such a tremendous academic and medical background that you have. i am please that you took this job. you were the first responder -- you are the first responders to any illness that happens in america. your illness -- your agency is the one that has to stop it, find cures for it. i think that in this big budget slashing that we have to do -- i wish it was not so much slashing as we could do a microscopic surgery. that is what we need to do. as surgery is done that way, it has to be smart and effect. but we do not do it that way. i am thinking we need to have a

week of hearings discussing what would be a day without the fda. everything would come to a grinding halt in this country. you are responsible for articles used in food and drink for mankind and for animals, things that we do not think about that are regulated like chewing gum. you have put a lot of that in your mouth. dietary supplements and dietary ingredients, infant formulas and raw agricultural commodities, such as what we grow in our area, like lettuce and carrots and things like that. canned and frozen food, live food animals, bakery goods, snack foods, candy, chewing gum, etc.

this is a whole list of things. in our new law that we passed in congress, the food safety modernization act, which did pass with broad bipartisan -- the chairman has already pointed out the number of deaths that have occurred in this country. the president has asked for $180 million for implementation of the new coup plot. what would happen if that money was not appropriate, if the congress did not give you the money to take these tough our responsibilities that we -- tougher responsibilities that we have given you? >> we are beginning to implement some of the new mandates and requirements

contained in that bill. we will be able to make significant progress in key areas. we will continue to be able to put forward -- >> if you do not get the money, it is a question. >> if he did not get the money, we will not be able to fulfil the ambition inspection mandates domestically and internationally. we will not be able to get that hands on look. on thes follow up inspections. a lot of the products we need in winter time -- we are eating a lot of fresh vegetables -- a lot of that come from -- comes from mexico. we also sell a lot of food brought in the united states. california growth 80% of all the eaten in -- almonds

the entire world. those enquirer -- those require inspections. if we do not live up to our regulations, what does that do to the movement of food supply? particularly with fresh roots and vegetables. >> 40% of the fresh fruit and produce comes from outside our borders. the food and drug administration has a responsibility to guarantee the safety of those products. we need inspections at the border, which is hard to do and time intensive. we need to go out to where the products are coming from and insure the safety of that supply chain. as you point out, we also need to have companies in a robust food safety system in order to support our exports of food to other parts of the world. when there is a preventable

outbreak, it can have a devastating impact of the health of that sector of the food industry into the sales domestically, as you well know, and the ability to export. if we cannot do the inspections that we need to do, we will not be able to assure the american people that the food they are putting on their plates and serving their families is safe and wholesome. >> if you do not do the inspections, who does not move. >> who does not move. >> thank you. members of the committee, we are expecting a vote in the next 10 minutes. what i would like to do is win the first bill goes, i would like to vote and come back. we can rotate in and out and maximize our comments with dr.

hamburg if that is ok. just what vote. there will be plenty of time. >> thank you, mr. chairman. i want to continue the questions about the food safety modernize asian act. -- modernization act. how much is in your 2012 budget for the implementation of that act? >> it is $183 million. >> $183 million. how will we know this time next year if that $183 million has achieved the results that brought about the bill's passage? what monitoring our tracking

will we have this time next year? >> we intend to track carefully our performance as we move toward implementation of the food safety monetization act. we recognize there are a number of key areas where we have to make significant progress moving forward. we need to put in place preventive risk based approach is working with industry and farmers and producers -- risk- based approaches working with industry and farmers and producers. we need to continue to expand our production. it takes a number of years before an expected is trained and able to go out into the field and performed at full capacity. some of the impact of dollars today will not be seen for a few years down the road. we will be strengthened in our

employ safety activity to make sure that we expand our inspections overseas and work with industries to ensure that boots are being manufactured according to our standards -- foods are being manufactured according to our standards. that is an important part of the act that we have not had a chance to talk about yet. we will be working with states and localities in terms of helping them stand in their capacities and the contributions they make in monitoring the food safety supply and responding to outbreaks when they occur. there will be clear activities underway. we will be promulgating produce

safety rules. we will be putting in place other guidances and taking other actions concrete in terms of what is required for implementation. i do want to caution that much of the transformation that needs to happen and the building up of programs will take time. it is not a one-year activity. it needs to be a sustained activity. >> will the gentleman yield? >> yes. >> you are talking about 17,000 employees in a one year. period, correct? -- in a tin ear period, correct? -- 10 year period, correct?

you are talking about massive bureaucracy. every dollar that we spend, 40 cents is borrow. ed. >> your response was on activities. i am new here. my observation is that when government measures and monitors, it measures activities, not results. the follow-up question is not how are we going to measure activities, but how are we going to know in 2012, is this $183 million a sheet in your results?

-- achieved in your results? >> you will not see the results in the same fiscal year in all cases. we will see, if we do this right, fewer outbreaks of human borne disease. we will see fewer people sickened by the food they eat. we will see a system that can better ensure that food produced in this country and overseas coming into this country will be produced according to our same standards and will be as safe and wholesome as we can assure. >> my time is expired. i will get back and follow up. >> congresswoman kaptur.

>> thank you, mr. chairman. how many drugs have been approved in the area of mental illness? >> every year i asked that. i was wondering if you could expedite the platform of these debilitating illnesses that affect many people across our country. i want to go back to the pepper and -- heperin issue. how complex a medical product is it compared to other products you regulate? is it at the top level of complexity? is it medium or assemble them simple? >> it is a complex molecule. >> do you know where the ingredients for heperin is

produced ji? there are materials that come from many different sites. >> is fda add to those sites? >> we do not have the resources to be at the site of every product where it is made. we tried hard to use our resources wisely. we are at manufacturing sites to its best -- to inspect them before we approve a new drug. that is when the drug is manufactured. we work with companies. >> i am at a little uncomfortable with what you are saying. if i make a cake at home and i look at with the ingredients are from, i know where they are from

my reading the label. for these drugs and medical products like heperin, there is a lot to be made offshore. how do we know what conditions those pigs live in? >> one of the reasons we have developed a much broader international program is so we can get a handle on these issues. we can be on the ground working with manufacturers and regulatory authorities. >> i wish i could get you on the ground in ohio. when i look at some of the answers to pass questions, it looks like illinois and has this wrapped up. we are looking at three companies all in illinois i. . three companies. i wonder if they have connecting

doors. according to information that you provide -- i am going to become an expert in heparin. if americans die, we should know why. we should understand the production chain. it will help us with what is happening with other medical products. according to your answers to us in the record, my question was, what percentage of heparin's ingredients were domestically produced as opposed to foreign produced? the components produced domestically persons abroad is determined by each manufacturer according to their specifications. then it says, manufacturers of the finished product do disclose the source of the active pharmaceutical

ingredients. you are not on the ground where the source is being produced. you are saying fda would need to review the application to determine the components of cornyn --foreign made products. the applications contain information that is a trade secret. heparin is off patent. it has been around for a long time. it is a trade secret, commercially confidential or otherwise protected from disclosure to the public under the freedom of information act, the trade secrets act. if something is off patent, why don't the american people have a right to know where the ingredients come from specifically? what is missing in the law? >> i think the problem is that

heparin and many other products are made in complex ways that have ingredients that come from many places. the companies take responsibility for making sure, to the degree that they can, that the supply chain is safe and intact. we have a responsibility to oversee that process. in terms of our resources to be in every place where a precursor material is made -- >> is it within your purview to insure user fees on the company that the products that come back safe?re saint jore >> there were things done to insure the safety of that

product. there were things that about more intensive screenings of the precursor product, more intensive screening of the manufacturing procedures. more intensive screening of the final product. >> who is paying for that? >> we are working with industry. they provide user fees for the components of the work that we do. budget authority pays for many aspects of this program. the industry, directly, through their work, takes responsibility for components of it. >> thank you. there will be more questions. >> thank you, mr. chairman. welcome. i apologize for not being here earlier. there are a few other things going on this morning. i want to thank you for coming by and visiting. i appreciate that very much. last summer, the food and drug

administration released its guidance to keep animals healthy and products safe. you laid out plans to phase out the use of growth production antibiotics as the fda refers to them. the production antibiotics served to roles. to improve the overall health of growing the animal and improvement in the efficiently. growth as a result of improved integrity.u gut this guidance will directly help the impact on the health of the animals. i am curious as to what sort of out of reach the fda has done

with the producers themselves to get their input? these are farmers who care for these animals. they produce a bountiful and say who supply. i think that type of out reach is extremely important to really understand modern production agriculture. can you talk about that? what kind out reach there is an communication. >> our center for veterinary medicine has been deeply engaged in this issue and those conversations. it is an important concern. antibiotics are vital for treating illness and disease in humans and animals. it is a vital resource, but it is a limited resources in terms of the number of antibiotics available. we do not want to be in a position where antibiotics resistance develops and we no longer have tools to treat serious disease in people or

animals. that is why we are moving to try to find a framework for their use that is judicious and thoughtful, never denied antibiotics for -- never denying antibiotics or appropriate treatment when there is an indicated medical need, but reducing use that can contribute to antibiotic resistance and is not medically indicated and not for therapeutic purposes. we have been working closely with producers and industry. we have had a lot of ongoing conversation and a lot of back and forth. we are trying to move in a voluntary way to accommodate many of these concerns. we are working with the budgetary committee so we can

ensure that antibiotics are administered as appropriate and with appropriate oversight. >> to clarify, you are saying it is better to wait until all the animals could sit? or to have healthy animals all along? >> we want to have healthy animals. but we do not want to lose -- want to use our antibiotics in a way that can cause serious problems. ante beyond resistance is a serious problem. when there is a therapeutic indication, at have got it should be used. for growth promotion -- when there is a year -- there is a therapeutic indication, antibiotics should be used. our ability to have this vital resource of working effective by

attics -- effective antibiotics means we need to move in positive direction. >> in my mind, it is better to have a healthy animal to begin with. just like healthy human beings. rather than to wait until you have a food risk with these these animals when you wait until after the fact. the idea of growth promotion is just because they are healthy. it is not because they have for months or something being fed to them. >> but we know you can reduce the use of antibiotics in those settings without compromising the health of animals. we need to be judicious in how we use these vital resources nico.

>> i hope there is input from producers. they are facing record input costs. they're not going to be overusing anything because there bottom line is affected. it is to their bankers to have the healthiest and most possible going into the food -- it is to bear this -- to their advantage to have the healthiest animals possible going into the food chain. thank you. >> thank you, mr. chairman. good morning, commission. secretary sebelius was

testifying at hhs. i wanted to make it to be hearing this morning. thank you for the good work that you do at es the fda. three years ago, the fda was still under foreign -- underfunded that it could not perform its mission. progress was made, but it stalled with this year's continuing resolution. the house passedhr 1, -- passed hr 1, which would cut the fda. my view, as someone who runs for office every two years, if you cannot quantify what you have or if someone cannot tell you where it is coming from, you do not have any idea whether or not you are going to win.

it is about the numbers. how with the fda accommodate that kind of cut and what would it do to address problems identified by the science board in 2008. if the cuts were implemented, would it lead to fewer food safety and medical product inspections? how many? would be cut impact the amount of imported food and medical products that get inspected? how many? given that cuts would have to be enacted during a short amount of time, with reductions in the fda inspection force be necessary? the present budget -- it president's budget identifies some problems with the science board. where does it lead us? it fails to fund adequately in fiscal year 2012.

what would that do to the agency's ability to fulfil its mission? what are the risks to public health at the fda is not able to perform its mission? >> we face a worrisome situation in terms of being mandates and responsibilities. bailout step our resources and have for many years -- they outstep our resources and have for many years. we are grateful for the help we have gotten to help build our budget. it has enabled us to put in place programs in the key areas to protect the health of the public. if we had to face cuts of the magnitude you are describing, it would be devastating.

the size of the cut is equal to the budget of one of our centers. we would absorb it across -- a >> >> i am looking for some specific numbers. the import is lost if we do not have the numbers. i was concerned about finding last year at this time when we spoke. in order to move on a piece of legislation, which is so good and needed, but without the resources to do it, what are the consequences? it is a question of the resources for 2012. we have looming here hr 1.

i want to know specifically how many food and medical product inspections, what impact on imported food and imported medical products? if you cannot answer them today, i want it laid out specifically so that it is well known that what we are playing with here is at our risk. we need you to talk about the agency's ability to perform its mission and what the risks are to public health. i do not know if you have any of those numbers today. >> i cannot give you exact numbers in terms of how many fewer inspections. it will be significant. we will be unable to do

inspections domestically and internationally at the level we need to be doing. we are already not at the level we want to be at and that we know really matters. we will be delayed in our ability to review and approve new medical products that come before us. that will have an impact on people who need and are counting on those products. it will have broader impact on the economy and the health of the companies making those products. , the jobs associated with that, our ability to maintain exports in key areas and our global economic competitiveness. we would not be able to do the work that needs to be done to assure the safety of the blood supply. the fundamental things that matter to people every day.

we need to be thoughtful. we all recognize that we have to tighten budgets. we will work with congress going forward to examine how we can achieve important cost savings. the president's proposed budget does contain significant administrative savings across the agency. we have critical and unique craft that are vital to be he alth and safety of people. >> we need to have a catalog of the blood supply and what that means. it is critically important for this committee to know in terms of what its actions need to be. it is important for the public to know what is about to befall them if this piece of legislation passes today.

>> i will recognize myself to follow up from where i was. >> we talked about how the budget request from this year was 183 million. i will acknowledge that i am new here. i am still learning. the approach i take is the approach i took in my business before i got here. the same approach american consumers have. what do we have to spend and what are we going to get our what we spend? do you have a 10 year as demand for what the enforcement of the food safety modernization act will cost? >> in order to fully implement the food safety modernization act and it's important mandate and requirements, -- its important mandate requirements,

we would need comparable increases all but the next couple of years to get us to the overall working budget for this program. as a businessman, i think you can appreciate that there are some investments that have a greater return on investment. it is important to underscore. this opportunity that we have to transform the food safety system in our nation is going to have a much more profound impact than what you are paying up front in terms of those dollars. it is going to reduce costs to the health-care system, a predictable cost though- preventable causes. -- preventable costs. it will support the health and growth of critical sectors of

our economy, enabling them to have broader market here at home, more confidence from consumers as well as stronger export markets. there is a huge return on investment. the cost of these outbreaks of food borne disease that we know can be prevented are enormous, in the billions. well over $100 billion. >> i want to continue to pursue, but i think the chairman is back. i will go back. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> we are trying to run this in a manner that is that this on everybody. i want to talk to you about the dietary guidelines. i know you have been involved in this in new york city.

salt is already on everybody's drop lists. there are articles that take the other side on salt. i will submit these for the record. there are five or six of them right here. they are on a that based discussion level talking about the sodium intake. they give a counter side to it. as someone who is at fda, while it is ok for a group to take a position, i do not think the fda should take a position on that until they have look at all the facts. i will submit this to you. i would like you to get back to me and let you -- let me know what your comments on that are for the record. i also want to switch gears right now and top about a gao

report that came out one year ago. it was on the office of criminal investigation. it operates almost autonomously with the director deciding which cases he or she would report to fda senior management. are you familiar with that report? >> i am. >> have you taken steps -- steps to rein that in? they should come to you and be a part of the fda core mission and prioritize rather than have an autonomous group doing it their way. the gao pointed out that their budget had rose by 73% since 19909.

the number of employees have got up -- rose by 73% since 1999 and employees have gone up 40%. have you implemented gao recommendations or do you disagree with them? >> we took it extremely seriously. a group of individuals follow up in terms of developing a set of actions that should be taken based on that report. we are moving forward with bad. -- with that. >> can you give me a list of what they are investigating and why they are investigating it? >> i am not sure i can give you

a list of what they are investigating. i would be happy to if i could. in terms of the kind of work that they do, it relates to some of the important questions that were asked about the control of counterfeit drugs. >> you feel like what they are doing is consistent with the core mission even though fda senior management did not know what they were doing >>? ?hei >> there were a number of concerns and we are working closely with the department ig because it is part of a coordinated effort to address a set up enforcement and enforcement -- enforcement an investigation activities. we are in a. period trying to examine

systems and how they work. we have new leadership that is overseeing and we are recruiting for a new head. >> you are aware they have increased 73%. you have the gao number. here is one of my questions. there are two members of congress who ride bikes to work. i am one of them. jeff novitski, who does he answer to? >> his boss would be the head of that office. >> that is the vacancy right

now? the head right now? >> we at an acting head. >> he would answer to the acting head? >> and to the person who oversees our inspectors. >> he is four away from you, so to speak. here is my question. there are important issues in a food safety and truck safety. i do ggoogle novitski and lance armstrong, do you know how many hits come up? 160,000. if he has broken the law, that is a serious matter. it appears to me that there is -- he is operating on his own.

i would like to know how much has been spent on this investigation. is there anybody here who can give you the information? >> we can give it to you now, but we would like to follow up. this is in conjunction with the department of justice. >> you are aware of this investigation? and you are aware that millions have spent time. i would like to know what prior to that is in the food chain. i hope i am proven wrong. but because it is a celebrity and one great way to make a name for yourself in this town is to bring down a celebrity. certainly, people need to follow the law whenever their status. it appears that millions of dollars are being spent. lots of employees are involved

in this. i am not sure so many resources would be put in front of the issue would happen -- in front of the issue with heparin. i understand you have to keep some of this quiet, but i would like to know where this is on the priority list. i believe this is one man's tear and may be a personal issue after somebody else. i am not sure where the balance is. i want to know where it is on the priority list. how many people are in on this investigation and how much it has cost the taxpayer. >> i appreciate your concern. i have raised similar questions myself within the agency. >> isn't that the irony of it?

it is one of the healthiest thing americans can do right now, i will say that as a bike rider. this is an icon who revolutionized by writing and brought it home to so many americans. guilty, that is a different matter. i just sent this is blown out of proportion in terms of resources put into it. in terms of public health, this is a huge icon that your agency is trying to take down. maybe it should. i am not saying you are wrong on this. you are really going after somebody who -- whose name is synonymous with health. >> it is an investigation in coordination with the department of justice. i will provide you with some of the information you asked for.

i also hope you wear a helmet when you ride your bicycle. [laughter] >> i do and i occasionally stop at red lights as well. >> i want to invite you to the greatest bike riding event in the entire world. it is called the sea otter classic. it is like the events of every type. >> as long as they have a slow lane. >> i tried to do a bicycle ride, but turned around before we completed the whole circuit. i want to play my kids were not wanted to go further. the-i want to blame my kids or not wanting to go further. >> i would like to focus for a minute on user fees.

when we passed the food safety act, we had some food safety -- we had some user fees in there. we had a user fee that was an annual registration fee of $500 per year. i understand the industry supported it askin -- and consumer groups supported. where is that user fee proposal now? >> at the present time, there is an interest in continuing discussions around these that could help support the food safety modernize asian act. as you know -- food safety modernize asian mod ernization act.

when you think about food safety, it is an issue where the public and industry have huge investments and concerns in terms of the outcome, the benefits. it made sense for it to be a shared responsibility in terms of supporting the program. we hope there will be continuing discussions with industry and with congress about user fees. i think, as the president indicated in his budget, we hope that in 2013, there will be proposals. action before them would be most welcome. >> you need the authority to do that. perhaps we should revisit that. when i was on the county board of supervisors in california, the county environmental health office had a best route inspection fee. every kitchen is required to be

inspected -- health of this had a restaurant inspection fee. nobody liked it. there doesn't seem to beat anybody wanting to repeal that the. the-anybody -- be anybody wanting to repeal that fee. we talked about it earlier. i am concerned about fresh products grown in mexico and coming into the united states and grown in california and grown in mexico and coming into

the united states. a lot of the trade with mexico is agriculture. if that agriculture is delayed on the mexican or the u.s. side, it is lost. concern is about that. you have created this fast track for folks who fly regularly all the time. i forget what the passport is. people who are foreign-born and coming into this country, they paid $50 or $500. they get expedited through the customs and the ntsb. do you think this qualified import your program is going to work? will be folks spending that money make sure they get fast- track? ed?

>> we need to find ways to expand our reach and have a risk-based approach. this is one way to help in that regard. we can reward people with good track records in terms of being able to recognize that they have demonstrated adherence to standards and quality. they do not need the level of inspection that other purveyors mayor required. we need a risk-based strategy overall so we can target limited resources. we are developing a set of new tools and strategies, some that came with the food said the modernization act to extend our

reach internationally and to utilize third parties. >> [inaudible] >> we do not yet have the foundation of a program in place. it would take a while to build up a program. i think we would anticipate that it will be a program that will be subscribed and successful. i would hope we would be able to recover that amount of money. this is a request for 2012. we will not be seeing it immediately. >> my sincere thank you and appreciation for the work that

was shown in the meeting with growers. i know where you are. i see you hiding back there. mike, the effort you made to sit down and listen and show concern and understanding for air -- or a complex process to ensure food safety -- almost everything we have produced in the united states has a process where you can sterilize it and sanitizing. except leafy greens. you really have to develop all that food safety in to be growing practices. to be able to have to risibility in that -- the california industry is ahead of the world. we are excited about it. they were the ones who came before this committee by saying, we need to be regulated. they went out and set up a bunch

of tough regulations. now they are asking the nation to be regulated like they are. it is a good program. >> i agree with the gentleman. i had an opportunity to be briefed on with the california program was. it was a positive step. one of my first jobs was as a cook. the way we sanitize the ledges was that -- that was that we sold it in salt to kill the bug . -- soaked it in salt to kill the bugs. i will have to give you some some time. >> salt, pepper, oil, and garlic. that is all you need to make it happen.

hr 1 dropped the language specifying the level of generic drug funding in the 2010 bill. there is no report accompanying that bill. there is no idea the level the bill would provide. since it also cuts funding for the fda, which is 40% below 2010 let me ask you about your concern about the impact of the cuts on the procedures of generic drugs. do you perceive -- do you foresee a slow in generic applications? what i am trying to get some idea of so that we know what

consequences there are, a sense of how many fewer generic drugs would be approved under hr 1, =. what can you tell us. >> we have been moving product reviews forward. we beat you about to drugs per business day at the present time. this cut would set us back. it would mean we'd would have the word drugs being approved. >> to you have any idea how many? >> i would prefer to get back to you with exact numbers. it is again one of those issues where we have to not be penny wise and pound foolish.

a small cut to that program is going to have repercussions in terms of cost to the health-care system. i think about 75% of prescriptions in this country today are generic drugs. it is resulting in huge savings. that is a point i want to try to make. we are taking a look at how we want to save money and cut back the cost of health care. now there is also something that i -- you do not have to comment on this. something i wanted to go after, and that is this opportunity that the pharmaceutical companies have were they paid to delay. they pay to delay a generic drugs from coming to the market. they are in essence paying their competitors to do that. if that were not a loud and if we could move generic drugs to the market sooner, on that one

specific item that i've mentioned -- if the federal government is purchasing drugs tricare, for medicare, for medicaid, it is about 8 $3 billion savings. when you think about the savings that can be made if we have generic drugs going to the market, in fact, we can begin to look at how health care costs get reduced which is what we are trying to do. the other piece that i mentioned in terms of the "pay to delay," and that follows on the generic drug peace because $3 billion we could apply to some other effort including reducing the deficit rather than taking the money from food safety modernization or from inspectors were for dealing with some of the other areas that we do.

those are the places that we ought to start rather than putting at risk the health and safety of people in this country. if i cannot quickly to a food modernization peace because it is hard for me to stay away from this area, the legislation calls for the inspection of high risk with every five years and dropping to three years. low-risk would be inspected every seven years and drop to one. based on the information that you currently have, how many food facilities would fall into the high-risk category and how many in the low-risk category? in order to meet the mandate, how much more funding would fta need to reach those inspection frequency is and how many more inspectors would you need to hire? >> first i should have thank you for your leadership on food safety over the years. it has been most appreciated. in terms of your question, let

us see if mike taylor -- he says 8000 in the high risk category. -- 8000 in the high -- >> we are shooting for about 8000 in the high risk. >> low-risk category? >> we do a total of 16,000 inspections. [inaudible] >> when you are looking at high risk, 8000. not a small number for us to

have -- not the tools that you need in order to get the job done. >> the mention of the inspections done by a spate gives me the chance to underscore a point that i did make earlier but i think you were out of the room. another casualty of the cuts in hr1 would potentially be our opportunity to help support the state and local partners and the ability to help strengthen those on the ground at programs that are so important to an integrated food safety program. >> thank you, mr. chairman. >> thank you ms. lore. i wanted to talk to you about the interagency working group on food marketing to children. the proposals that came out in december of 09, it really is

something that concerns me. the potential over reached based on these guidelines that are sitting on the table right now -- and i know we are having a comment. . but under these guidelines that are out there, the foods that would not be allowed to be advertised on television shows in which 50% of the audience are children, are in a butter sandwiches, eggs, granola bars, milt, pretzels, cheerios, brad, -- andrackers, and she's cheese. reason brand, vegetable soup,

yogurt, some salad dressing, and againdressingnatural cheese. and what bothers me -- and the television shows that teenagers watch -- basically college football, fresh prince of bel- air, full house, nascar -- the only thing i can keep up with. news, comedy central, these would not be allowed to advertise on there. does that not strike you as an over reach? particularly because these are allowed to be sold? >> you know, i think that the effort is really geared at trying to make sure that there

is an opportunity for information about health products to be as accurate and as informative and cost possible. certain products are often targeted in ways that are misleading in terms of their nutritional value. and it is the appeal of the sugary sweet and cereal -- >> let me ask you this. it seems like any state has a solution for everything. good old mommy government is here to tell you how to raise our kids. i might want to serve my kids bologna sandwiches. in fact, the sandwiches that committee routinely like eating, two packages would exceed your guidelines and they would not be allowed to advertise.

i am going to allow you to come speak next time. he is like a referee in the background. you cannot see him. but in a way, what does the nanny state wants? let us talk about healthy kids. are you familiar with the family friendly and tv show called "skins"? >> i am not. >> it is not something you necessarily want to 14 year-old watching. yet, you could watch "skins" which is basically a kind of a soft porn, titillating type show. i have not watched it. i have channel surfed through it. but you could watch that show, but you could not buy cheerios -- cheerios would not be allowed to advertise on that. does that not strike you, even

for obama government inconsistent? >> from the fda perspective, our role is to try to get accurate information to consumers so they can make informed choices, hopefully informed sources -- >> is the label not going to do that? >> it is very important to provide that kind of information so people can begin to see what is in their foods. >> i know you wanted so that when i take my wife out for a romantic valentine's dinner we have to read to the content of the food before we can 0 -- order our fish and estate. i am not going to let you steal my romantic evening. i do not know where the nanny state is planning on stopping. it is one thing after the other that you plan to control grid i want to invite you to look at a review of the show "skins."

we are saying that, fine, you can watch this. freedom of speech. >> i am not here knocking "skins," but i think it is ironic that sure rios cannot be advertised on it because that might hurt our teenagers. not that they are running around in skimpy little close doing naughty things. [laughter] if i have not drawn up a little advertising and interest in the show -- >> we have to run because we have to call for votes. i think we are going to go into what is advertised in television, let us go after prescription drugs that are driving the airwaves. by the time they get to the disclaimers they are going to tell you you are going to die. i do not know why anyone would buy it, but they seem to be affected. it is just over low. it is a piece of. -- it is abusive.

i wonder if you could get some information to this committee on a number of tests on pesticides for fresh produce at the border. you do not have to give me that right now, but if you could get to committee. at the time it has taken the agency to return the results of those tests. i want to look at the number, time, and then i want to know if there are enough resources to analyze and report these tests. this is where speed is essential, if there are any gaps in being able to provide that speed i would like to know about them. lastly, i would like to read something. i want to get that on the record in writing. i would like for you to be aware on the issue regarding import procedures for release notices

for cocoa beans. it has come to my attention that several of the cocoa processing industry are facing time delays and additional financial burden at u.s. ports because of the need to clean the product at the ports, not at the processing facility. i do not even know all of the facts, but i will submit it to you and -- >> thank you. i will have to admit that i am not up to speed on cocoa bean imports. we will get back to you with information on that. and on the other it is very important. i which is that what you said about time being essential with the testing of fresh produce coming into this country, it is an area where we have a huge opportunity to apply better site so we can have on site diagnostics to give us answers quickly and to be able to move products more swiftly which matters to companies that it matters to the quality of the produce and it matters to people

who want those foods on their plates. >> when you think about it, when we move from a fast-food society to this so-called "sl;ow'food" or "fresh food", we are going to move fast to make sure that this low food is what we claim to be. thank you. >> i was just complaining to the very distinguished democrat clarke that i think you guys took out our timekeeper back here on the television. you might have another two minutes if you want. >> i am finished, mr. chairman. we have to go. >> we appreciate it. we are going to have to run on the. we will have a lot of questions for the record. but i do want to say that you are extremely important agency to every single household in america. we all take a lot of pride in your work, we all have opinions of what you are doing right and wrong.

we went to work to this process with you. we appreciate what you are doing. while the hearing is ending, our discussions will not. thank you, this committee hearing is adjourned. >> thank you.

missing. >> "washington journal" continues. host: let me introduce you to a freshman member of congress, kevin yoder, republican of kansas and a member of the appropriations committee. your first visit to the "washington journal." thank you for being here. glad to have you. we are going to talk about the federal budget and job creation. let's talk about the next strategy steps for the house republicans. "the wall street journal" is reporting a three-week bill on spending will be offered. can you tell us more? guest: house leadership is working on putting together a

package of spending reductions that will keep the government open while keeping their commitment to reducing the size of the federal budget. about a week and have ago, we passed a two-week extension that will expire on march 18. we are working on trying to come up with another extension. the end goal is to come up with an extension until the end of the fiscal year, which ends in september. in the meantime, as we try to negotiate what that bill will look like with the senate, we need to keep the government operating. our commitment is to reduce spending while doing that. i think our bill will continue to cut billions in spending while keeping the government functioning. host: how important is it for you to keep the government functioning? guest: i do not think the americans sent us here to shut down government. they sent us here to solve problems and reduce the size of the budget. i think americans in both parties from coast to coast want people in washington to lead and

solve problems and reduce the size of the federal budget. i do not think shutting down the budget is the message that the americans are sending to us. they want us to try to solve problems. host: i want to show a brief clip from the senate floor. majority leader harry reid yesterday. let's listen. >> i can only speak for my caucus. we accept the lessons of yesterday's vote. we know we will have to make a sacrifice to reach consensus. we are willing to do that. republicans have to be willing to move their position also. host: i have a number of questions. as a freshman member of the house, what has your lesson than about the bicameral legislature and when things move to the senate floor? guest: we are two for two. the senate is struggling in

finding a consensus. the senate and house operate differently. the republicans are a minority in washington with the senate run by the democrats as well as the executive branch. we know we will not be able to push something through without the senate in gauging and doing their part. we are all watched fall. we are doing everything we can to try to advocate for what we think they should do. ultimately, the senate will have to leave. at this point, it does not seem like they have a concise plan. host: i want to give you the phone numbers so you can join in on the conversation about funding the government for this year. also, there's work going on on the 2012 federal budget. you can reach us by e-mail and twitter. lots of ways to get involved if

you would like to ask questions of kevin yoder of kansas. he also suggested that republicans will need to compromise. how willing are you to compromise? guest: we do not think the legislation the house passed has gone far enough. we are running a trip to sit -- we're running a deficit of $1.5 trillion. the bill would reduce spending by about $5 billion. the rest of the year, we have to figure that out. we think reductions need to be greater than what the house has passed. we're not trying to force a government shutdown. we're not trying to put people in a situation where there are so many poison pills that they cannot accept the legislation. the same time, we just had an election. there's a new republican majority in the house precisely because we ran on the platform of change in the course of business in this town and

reducing spending. we feel we need to stick to those principles. we understand we have to cooperate. host: papers are filled with some of the consequences of cutting the federal budget stories. here are two. "the washington times." of course, this extends to municipalities, as well. they're talking about the sudden loss of block grants. they have said it is irresponsible, vicious, and hateful attack on the middle class that they would be cut and cut so quickly. this is "the new york times" this morning, talking about the consequences of cutting head start. this is an editorial in "the washington times" about ethanol subsidies.

when it comes from talking globally to talking about specific programs, where are your bottom lines? what kind of programs are you willing to cut? how are you approaching this philosophically? guest: it's very difficult when you start talking about every program and the impact to individuals. my heart goes out to americans held by programs that we've had to eliminate or reduce. i do not think we relish the idea in any of the situations that we are having to make these discussions. we are borrowing over 40 cents out of every $1 we spend in washington. it is not responsible. ever -- americans across the country have to do more with less. why can't the government? the folks in washington keep spending more and more. there are hundreds and hundreds of programs across this town that do things for americans that provide a service to them that is beneficial. we cannot afford all of them.

that's the challenge. we are taking the tough task of finding reductions. i do not believe we can leave parts of the budget and approached. i think everything has to be on the table. host: does that include social security, medicare, and medicate? we would never talk about any reform affecting 55 or older. we have to be careful about the debate. seniors who are at the age of retirement or receiving benefits or social security, they can rest assured that their benefits are protected. for the folks that are 55 years and under, we will have to enter a national dialogue. do we want to have dramatically higher taxes? i think that is where we are right now. we are engaged in a dialogue with the american people. we are not trying to ram it through congress. we are doing town hall meetings

and discussing the problems that we face and are asking for input from americans. the ideas are not going to come from a roomful of bureaucrats. host: the age has been addressed in the past. why are they off the table right now? guest: i think adjusting benefits for folks currently receiving them is not something we want to do in washington. we think folks 55 years and older who have determined that have paid in four decades into the system -- which do not think it is fair to start throwing them off of benefits. we want to figure out a long- term plan for those folks in their 20s, 30s, and 40's and figure out a system that works for us going forward. the younger generation has to figure this out. we will, with some solutions that provide for a balanced budget that will create

prosperity that we all want. host: i want to get to some calls. let's begin with st. louis, missouri. jerry, you are on the air. good morning to you. what are you thinking as you are watching this debate? caller: i have heard everything but i have not heard them wanting to give up anything. [unintelligible] host: ok. members of congress and how they are situated. guest: i think members of congress could give up just like anyone else. when i was in the legislature for eight years, we passed legislation to reduce our own pay. i think congress should step up and do those similar things. i think we should sacrifice and

lead by example. i would be supportive of legislation or an amendment that would come to the floor. one of the things we first did was reduce our budget for our office. we cut spending on expenses in our own office. that was a start. i agree with the caller. host: this tweet - guest: this is the essence of the national debate. there are folks who believe we should spend more money in washington to create more jobs back home. where i come from in kansas, we are not getting stimulus dollars that are creating all of these jobs. what creates jobs for small business owners and for folks who need help is helping small businesses so they can have the ability to create, innovate, create entrepreneurial programs. that is where jobs are created

at home. i do not believe that sending more tax revenue to washington will create jobs or get this economy going. i think it will have the opposite effect. the other senate is the history shows the more money we sent to washington the more money they spend. i think americans might be more comfortable sending money to washington if they knew it was going to pay down the debt and create solvency. washington would spend more money and the debt will continue to grow. we do not have the revenue program. we have the revenue problem. we have a spending problem. many of these programs are growing far faster than the rate of inflation. we have to cut back. we cannot spend more money that we have. there is a culture in this town that believes they can spend as much as they want regardless of what they have, and americans are fed up with that attitude.

host: our next call comes from cape cod. good morning. caller: good morning. i have not heard this representatives say anything about corporate america helping out america as well. everybody has to help out. why are we giving the subsidies to these oil companies? why are we giving these corporate tax breaks? he keeps saying don't tax the wealthy because they create jobs. from what i understood, there are no jobs. they had these tax breaks for the past eight years or 10 years. when you keep saying the mom- and-pop stores, savings on taxes, give them a tax break because they can hire more people, but your small business policy does not apply to them. it applies to the corporations,

the millionaires, and they have maybe four or five employees. you are talking about -- you want us to take the hit as the middle-class, but corporate america and the upper echelon does not want to pay their fair share. where is the fair balance there? guest: i think there is a culture of overspending and washington. we want to create an efficient and effective government that spends dollars wisely. the challenge is why are we spending so much? i understand the caller's concern that jobs are not being created in the private sector. we have already done that. the federal government is much larger than the needs to be. we need to stimulate job growth back home, and i do not believe greater taxes on small businesses or any businesses is going to encourage them to create jobs. many of the policies that have

come out of washington, all the loot -- all the new rules and regulations have created a very hostile climate in this country for folks to create jobs so people are shipping jobs overseas, not keeping them at home. we have one of the highest corporate income tax rates in the world. my dream for this country is we would have the best place in the world to create jobs, started business, and build the prosperity of this country. i do not believe that raising taxes is going to recreate the prosperity that americans want to have it. i have a disagreement with a collar. i think is the wrong direction to take this country. host: we are trying with our limited national resource to keep an eye on the earthquake and tsunami story. the associated press has just announced and msnbc has tweeted

that japan is issuing an evacuation order to thousands of residents near a nuclear power plant. certainly, we will keep an eye on this. we will keep an eye on breaking news. this is a big day for people who are following what is going on in the world. jobs. i pulled the baltimore sun because it is typical of what is going on a run the country. home sales rising. we look at your own on and on the rate in kansas and kansas city and the city itself. what is happening with jobs in your district? against coke the job numbers that you are refering to --

guest: the job numbers that you are referring to -- the economy is probably stronger -- keep tax rates low and below regulatory environment in kansas. we try to foster innovation through small businesses. we try to be very welcome to capital and growth. one of the things we are focused on in the kansas city is bioscience. host: arthur government subsidies supporting that? ? there are research dollars the come to our university. as i said, we are making these reductions in washington. some of these things hit home. i voted to reduce a lot of these things because i cannot continue to borrow 40 cents out of every dollar. even if it has an impact on federal money that transfers

from my constituents to washington back home. we believe a lot of these projects and programs back home can be run better locally with state involvement. we think if we spend money in washington, we get less money back. it has to go through the bureaucracy. the other issue at home is it is not just the unemployment rate. there are folks across the community that do not show up on those numbers that are taking pay cuts and struggling to survive it. what they are not asking for is another washington bailout. they are not asking for greater taxes. a great example is the 1009 and a requirement that we recently passed in the house to repeal, a requirement that every business in the transactions has to fill out irs paperwork. it is a bureaucratic nightmare. we are trying to help those

businesses that can't create jobs. host: the next call is from tampa. good morning, becky. caller: good morning. thank you for c-span. if we were not in two wars and the bush administration wanting to have hired the tsa, home and security, gave some much money to the defense department, we would be in a whole lot better shape than what we are in. certain things you are asking us to make concessions -- we make concessions every day. it's not one person in the senate or in the house are saying -- not one person in the senate or in the house are saying anything about their benefits. i am tired of the working people taking this from people like you. you did not answer the man's question in wisconsin. when are you going to make

concessions? get us out of these two wars that cost us billions every three days. that is our problem. thank you. host: thank you. guest: i do not spend my time focusing on which president or which congress made the mistakes. we could go through and re- debate a lot of these decisions. this is one of the biggest class's in history of new members because americans in both parties, independents across this country, are tired of seeing washington spend more money than it has that. that goes for domestic programs and defense programs. i think there are reductions that can be made. i believe that as the president works to remove troops overseas,

we will start reducing those costs. these are things that we need to have. there are reductions that need to be made everywhere, including defense and our activities overseas in the middle east. we are spending more money than we have that. we will have to approach all parts of the budget. i believe that we do need to -- i would support an amendment or bill on the floor that would do that. i am happy to do that. i think that is the type of leadership that we need to display. we reduced our own salaries. frankly, that is and then we could do here. host: next call is from virginia beach. good morning. caller: good morning and thank you for c-span. i am 73 years old. and i have seen the federal government grow like [unintelligible] when the republicans came in,

all of them said they were going to cut spending levels back for federal agencies. they seem to be just nibbling around the edges. every federal agency above baseline got an increase every year of 4% to 7%. bush came in and cut it back to 4%. when the democrats took over, they raised it again 10% to 15%. in 2009, obama increased it another 28%. that is why that debt clock is ticking over and over again. the republicans promised to cut it back to 2008 levels. we are all going to have to suffer pain. what do you cut it back to 2008

levels right now instead of nibbling around the edges? guest: i think the bill that we passed to get to that $100 billion market republicans pledged to reduce in spending -- we are in the process now where the senate is making a very minimal set of reductions. they are looking at $6 billion worth of reductions. those dollars are real. they are necessary to make reductions. i agree with the caller that we are just nibbling around the edges. the house wants to make some startling reductions. we are does moving chairs around the titanic. we have to get serious. we need to government reform. i am ready to lead and be part of that. what is about is spending the money that we have and not borrowing 40 cents of every dollar. americans get it.

there are small businesses and family budgets that they have to cut back. they are demanding more and more and more. i am looking on the appropriations committee for new submissions that request thousands of new employees. the folks in washington just do not get it. we are here as new members in this congress to let them know that americans are fed up with the overspending. the caller makes an important point about of the increases that have happened over the years. this is less about party and more about sanity and fiscal responsibility. host: this is from honolulu, the prediction that the tsunami will be reaching the shores of hawaii at 3:07 a.m. eastern time. that is 8:07, right about now.

we are waiting to hear about the impact of these waves. it is suggested from the national weather service that the alarms started sending overnight for people in the coastal zones. it looks like the largest wave will be 2 meters, more than 6 feet, and all residents in the inundation zones have been ordered to evacuate beginning at 12:18 pm we are waiting for this big earthquake, resulting in a tsunami, to hit u.s. shores momentarily. we will keep you posted. we have about 10 minutes left with congressmen kevin yoder. henry is a democrat. you are on the air. caller: kevin, i would like for you, if you are really serious about doing something about the

budget, first of all, i would like you to take some leadership and introduce a bill that would, of course, cut or make sure that congress pays for more of their medical, make sure the congress takes a pay cut, introduce a bill that will cut subsidies to all states for every dollar that each state sends to the federal government. they should get a dollar back. there are no states that should have any kind of an advantage over another state. the republicans do not like government. then cut all of your government contracts. do not accept any more than your state sends in federal dollars. go to the 400 richest people who have more than 155 million people in this country in wealth

and ask them to pay their fair share of the taxes. if you are not just trying to raise the misery index and make president obama look bad and position your cells for 2012, then you will start doing some serious legislation that cuts everyone across the board, especially the ceo's and the thieves that got us into this position with the bonds that they sold and securitization -- host: thanks. we get your point britis. guest: i am not anti-government. what we are is looking to find an effective and efficient use of government resources. right now, there is a tremendous

amount of government waste and inefficiency in this town. programs are growing without results. americans know that spending more money in washington is not going to create jobs back home. i don't think the answer is going out and attacking americans, ceo's, individuals across this country and sending more money to washington. that is not the answer. where will have to decide. do we want a country that barrault's and spends and taxes and regulates and is that the answer to prosperity? do we want to create a free enterprise system of economic freedom for individuals to grow and create jobs at home? usually the answer in washington is for every problem there is a new regulation or a government program. the gao cannot with a list of hundreds of duplications in which we have -- the g a zero came out with a list of hundreds of duplications -- the diego

came out with a list of hundreds of duplications -- the gao came out with a list of hundred of duplications. i think americans are tired of that. i think what they want to see us do is balance our budget and live within our means. if we do not reduce spending right now and get this budget in line, in 10 years, 15 years, 20 years, we are in a huge crisis. we are going to be bankrupt soon. the wall street journal reported earlier this week that we borrowed $200 billion a year in interest today. in 10 years, we are going to borrow almost $1 trillion in interest. the shipping of resources overseas to foreign countries that are learning this money. we have to decide what kind of country we want. what does america look like? i believe the best one we can

create is one that creates prosperity in this system that allows individuals to work and grow and create jobs at home, not a system full of government spending and waste, bureaucracy, taxation, regulation. i do not think that is the america that we want to build. the idea that we want to go home and attack folks and raise taxes and send more money to washington, that is not going to solve the problem. we have to work toward balancing this budget. host: we are out of time. i know you have already returned to your all of modern to students. can you give our viewers your overriding impression of what it is like to be in the house? guest: is an amazing experience. at the problems that we are facing are very challenging but we have a new group of folks who are very optimistic. i still believe that we can

rebuild this country and restore the principles that made us so prosperous and such a beacon of hope around the world. it is very humbling and a job that i believe the american people are counting on us to get the job done. i which nita lowey is a ranking member. thank you for being here this morning. we have a lot going on today. i am going to start with libya. again, leaders in europe are meeting, france pushing for a no-flight zone. what are your thoughts about the u.s. involvement level?

how big should it be? why is that a good -- disco hit it is clear to me after discussing this in debt -- guest: the administration is actively involved in strategy sessions and discussions with the international community. the united states cannot act independently. people may say no fly-zones, they may come up with all kinds of actions, but, number one, there are implications as secretary gates said to every one of the proposals. unless we act with the international community, i do not think it will be affected for us to take any action by ourselves. we have spoken out publicly. it is absolutely apparent that its leader is shooting and

killing his own people. i hope there can be some consensus. host: we were anticipating that the big story would be saudi arabia. we heard some reports that there may have been some government shots fired into the crowd as they were assembling last night. it is all but eclipsed by japan and the earthquake followed by the tsunami. guest: i just came back from japan as a part of a congressional exchange program. they are good allies. they have been an active member of the six-party talks in the region which is so very essential. this is just devastating. when you read the reports after you just met so many members and their leadership and you have been in their homes and you have had such in-depth discussions

over three or four days, to see this happening is just devastating. japan is probably one of the most organized places i have ever visited. the streets are clean. the people are polite. there is a plan for everything that has to happen. i know that they have been preparing for a possible earthquake or tsunami for a long time. preparing for it and then responding when the tall buildings are shaking and people are losing their lives, hopefully the lives lost will be kept to a minimum because of the preparations. host: this is also a domestic story. the waves are beginning to reach the coastline in hawaii. it is scheduled to do so right now as we are speaking. if you were just treated to us

that oregon coastal areas are being evaluated. this.r is great ofor i want to talk about foreign aid spending. let's use an example of japan. when something of that magnitude hits, the international community gets involved. we send resources. how do we budget for federally unexpected disasters? guest: first of all, our foreign aid budget is 01% of our total expenditures. i believe with many of the new members of congress that we should be evaluating every program, cutting out waste, fraud, and abuse. certainly there are programs that may not be as efficient as others. even in the foreign aid program when i was the chair and ranking

member, we worked together in a bipartisan way to make sure there was oversight. we are sending billions of dollars to afghanistan, billions of dollars to pakistan. the total budget is only 1%. i got a deep, black. about the $3 billion that was on a palette going from afghanistan. i immediately held up all that money until we came to a conclusion and an understanding as to where that money came from and where it was going. we provide excellent oversight on our foreign aid budget and weekends to do more because we have -- and we can still do more. when you see what happens in japan, they do not get foreign aid. in disasters such as what happened in haiti, we can

respond and we do respond. number one, it is in the interest of the national security of the united states to respond to disasters. we know that when communities and countries in turmoil -- this can cause tremendous action on the part of terrorist organizations such as al-qaeda recruiting people who do not have food, clothing, or clean water. i think it is important to remember 1% of the budget. our national security depends on defense, diplomacy, and our budget. host: i want to put a set of numbers on the screen and then go to your telephone calls. we are going to be out early today because house will be in session a half hour from now.

the present for this fiscal year requested $56.7 billion. the amount suggested in the continuing resolution by the house, $45 billion. you have been speaking saying that is shortsighted. guest: number one, our national security, the united states of america depends on defense dollars. those are being cut, too, but not in proportion to foreign aid. defense, diplomacy, and development. turmoil, terrorists -- they find a very for tile soil when they are in communities that are lacking the basic essentials of life. it is in our interest. secondly, we are amoral society. ithere are many people who support foreign aid because they

understand it is important to help people whether it is hiv aids, malaria, drinking water. i have been to some countries where family planning is not adequate, and women who can barely support their children are having a ninth or a tent child. it is in the interest of the united states. we are a society that believes we have to be helpful to others. host: one last article and then to your calls. the treasury secretary has been on capitol hill trying to make the case for maintaining funding levels for key foreign aid programs. here is the headline.

let's get to your telephone calls a. new york, cathy, a republican. go ahead. caller: i just want to tell the

representative that my feeling is that we should have absolutely nothing to do with the libyan conflict. the best thing we can possibly do is to help the president of our country stand up and publicly state that the european union and the islamic countries need to solve this. i don't really give a damn anymore whether we are a humanitarian or whatever we are. this is not our fight. i have a son in the united states navy. he is in the enterprise battle group. he is currently deployed. the last thing i want to have happened is handstanding off the coast of libya and our blood and treasure going to something that is not our fight. guest: thank you for your eloquence. i hope your son will come home

soon. we have to understand that we are not living in isolation. i want to go back to a point that was made before and the article that susan read about the banks. we are focused like a laser beam in our country on jobs. that is what we should be doing, creating jobs and putting people to work. the banks, by creating markets overseas, by investing in development and training and working in partnership with other countries, creates jobs because our exports to these countries are increased. it is not just because we are good people, also we are. it is in the national security interest of the united states, and when a disaster occurs, we have an obligation to be helpful. i know we will as we have been in haiti and responding to other disasters. host: next is its duty, an

independent. -- next is judy, an independent. caller: i see some money going out for [unintelligible] things like that. i see a lot of money going up for military aid to governments that are not necessarily too nice to their people. i would like to know the proportion of military aid we are sending to actual humanitarian aid. guest: that is a good question. it is about 20 times or more. i happen to agree with you. secretary gates and general petraeus and admiral mullin have made that point very well. we see in afghanistan that the civilian aid is absolutely essential to resolving this

conflict. we are putting many, many billions more dollars in the defense program then in the civilian side. i think that has to be changed, hopefully in my lifetime. host: good morning. caller: i am from westchester county. hello. i would love to have a town meeting with ms. lowey so we can look eye to eye so we do not have to be on the telephone for 40 hours to ask a question. howl are our national interests involved in helping women have babies in other countries? how does that help our national interest? the other two ladies -- we are involved in other countries,

giving money to their military. a couple of years down the road, they are knifing us in the back. we have to stop giving all this aid to governments and let them figure out what they want to do. for heaven's sakes, it is not in our national interest to give money to people to stop having babies in the third world countries. we have to help our own citizens. that is all i would like to say. maybe one of these days, which will have a nice, big town hall meeting where mrs. lowey is actually there. guest: i have been in office for 22 years. every year, i go to the supermarkets, libraries, office hours, and please call my office. you do not have to wait for a great, big meeting. i would be delighted to meet you

one-on-one. i think it is important to know that we do not live in isolation. we are all connected. in the days of one part of the world and not getting to the other part -- what happens, be it in japan or china, what happens in afghanistan, pakistan, is certainly relevant to our own security here. i mentioned the banks before because i am very concerned about jobs in west chester county. i have worked hard to get fda loans so we can help businesses expand. in terms of international assistance, again, we export to japan. they export to us. we export to china. we are all interconnected. when there are asian flus, they

are exported as well. i would be happy to talk to you further. host: we are trying to give you some news updates on the earthquake and tsunami as we talk here about these federal spending priorities. this is a sad story. as many as 300 bodies have been found in one city. the next telephone call as we talk about foreign spending with congresswoman nita lowey. this is a real personal story for her this morning. caller: i just want to say that i believe in giving foreign aid to people because people around the world need the help. a lot of the money goes to governments that keep it for themselves. as i was growing up as a kid,

[unintelligible] i think they need to do a lot more in this country. thank you. guest: and thank you, sir. i do want to say that a good deal of our aid is delivered to organizations like save the children who are working with families and villages. there is a small group in guatemala, for example, that is training people to make products such as pocket books so they can sell them and support their own families. let's remember, again, we are living in a global economy. we are living in a global world it. if there are diseases abroad, they can come here. if there is a disaster abroad, because of the good nature of

the people of the united states of america, we do want to assist as in haiti. i do want to say that mexico, which is right on the border of texas, we may be assisting and training their police force and their military, but it is in the interest of the united states of america keeping us safe here to help those in mexico. host: how is your working relationship with the new chair? guest: she is a delight. she is from texas. now she is chair and i am the ranking member. and maybe the only committee with two women. host: you feel that even though you have different priorities for spending, you can find consensus? guest: there is no question. many of our priorities are the same. we are looking to the whole budget to make sure every dime is spent effectively and there

is no waste. the gentleman talked before about giving funds to the people rather than the government. corruption has been a big issue for me as it has been for secretary clinton. recently, when the president tried to raise taxes, there was a mass demonstration. frankly, if we are giving all of that aid, there should be many more people paying their taxes especially at the top level. host: the next call is from new york. good morning. caller: i should probably say i am a tea party member more than a republican. i think andrew cuomo is doing some very good things for the state. i am so mad at the entire congress. our debt payments are larger than the state budget. we are destroying this country with the massive level of debt we are piling up.

neither party is willing to do anything. one party is offering a third of a percent. while we are racking up debt at exponential levels. guest: let me say, number one, i have known in drew, since he was a kid. he lived to run the corner from me in queens. i am very proud of him and i think he is doing a good job. secondly, i happen to agree that we have to tackle the debt. i am opposed to the $40 billion in subsidies to the oil industry. there are many special cause outs for large corporations and businesses that we have to attack. there has been major assaults on appropriations and earmarks. i have always said that you have to be careful when you provide a legislative director of it earmarked. no one is looking at the special

giveaways. i think we have to do a lot more because addressing the debt is essential n. but you cannot do it with a sledgehammer. with ave to do it in scalpel. teachers would of been laid off. the programs would of been cut. title 1 programs would of been cut. money to the national institutes of health providing research for cancer, alzheimer's, diabetes, wouldn't been cut. i am hoping we can come to some bipartisan solution in the senate so rationality will prevail rather than this hammer approach of cutting. host: from twitter -- guest: let me say that there has

to be a balance because we provide a lot of money, if you are talking about haiti, to the non-governmental organizations. there are over 10,000 of them in haiti. they are there to deal with humanitarian services to help build better schools. unless we train the government, unless we work with the institutions, i am very concerned that we are not going to accomplish what we really have to do, and that is removing ourselves. the non-government organizations cannot be there forever. the institutions have to train to deliver the services. what want to see if we want to develop communities outside of port-au-prince, i want to see what i call a community of learning, a school at the center of the community, and around that, job opportunities.

a big career inferred just announced they were going to have a business in it -- a big korean firm just announced they were going to have a business in haiti. the purpose of foreign aid is to help people help themselves. host: our next call is another new yorker, william, a democrat. caller: i would like to suggest several reasons why the the eight budget should be cut. the d.a. has offices in 63 countries and that is way too much. the second reason is [unintelligible] medical marijuana [unintelligible] something that congress is lagging behind with sentiment on this issue. i think this is something that needs to be cut.

i think the people need to question its such as the congresswoman. guest: thank you, sir. i would say to you that the legalization of drugs is a debate that we really have to have. certainly in mexico when you see the drug cartels that have infiltrated the military, infiltrated the police, our guns going over to mexico, and the drugs coming from central america to mexico to the united states -- we have to work on our drug control programs here. we have to try and do something about more effective programs to stop people from getting addicted to drugs. but i think the legalization of drugs is clearly a debate that we have to have that. host: the next call is from the bahamas.

zack, you are on the air. caller: the national times that you were " prettquoting. host: i did not know the ownership of the financial times. caller: you may want to check that. that is not the only publication that muammar gaddafi owns. ms. lowey, you strike me as very naive when it comes to foreign -- i am surprised that you are on the forum committee. -- on the foreign aid committee. i am familiar with eastern europe. i have some background there.

anything is better than muammar gaddafi. the person leading the rebels has a ph.d. i am surprised the protesters and libya -- they are sitting ducks. maybe some kind of advice [unintelligible] i tell you, anything is better than muammar gaddafi. that is my comment. guest: let me say that you certainly seemed well informed. the secretary of state and the president are very aggressively involved in this issue. the secretary of state is going to egypt, tunisia, and libya. i think she is leaving on sunday and working actively with other members of the community.

our military is in afghanistan. we are in so many parts of the world. it seems to me although i would like to stop the murder rings and the killings immediately that we have to work in coordination with the international community. host: here is a headline from the washington post, the lead story today. you suggest the white house is actively involved. there are critics who are saying they have been dragging their feet. what is your reaction? guest: well, i think words are find but action is what really counts. we have our forces in afghanistan right now. we are actively training and

working in pakistan. and i would like to say that there should be a no fly-zone. then in my conversations with the secretary and others, it is not necessarily the whole solution. i think our secretary of state going there this week, the beginning of next week, and working with the other members of the community is essential, speaking out and supporting the opposition is one thing. but sending our young men and women abroad is another. i think that they are being cautious but very directive in their thought process. host: let's move to the larger discussion over the continuing resolution. we hear there are republicans that going to announce another

short-term continuing resolution with cuts. guest: i wish i had a vision that could assure me that we would not be making massive cuts that are really going to affect not just my community but all around. we have to be very careful when we appropriate at the time of the huge debt. let's remember that when president clinton left the white house, we had a surplus. let's just remember that. we are all part of this effort in looking for waste, fraud, and abuse, but you cannot use a hammer. in my district, when i talked to several hundred people who are involved with head start, these are working people. what they going to do with their kids? there are teachers who are preparing to be laid off because

there is no money at the state or local level to support them. police, firefighters, the national institutes of health. i am hoping we can do it in a bipartisan way and come up with a plan that does not get to the bones of our government and our services to the people. host: we are going to be taking this weekend at the virginia festival of books on "book tv." we are going to be alive at this weekend from the organization of american historians. we will have live panel sessions on both saturday and sunday on c-span3.

anbama, diana is independent. caller: i appreciate you taking my call. in reference to the foreign aid, let's bring that down to the united states grassroots. well with the perception be of me if i took my husband's income and went across the road and fixed my neighbor's roof and painted his house and advised his children while at the same time allowing my home to deteriorate? there are advertisements on the tv to help feed the children. now they are putting u.s. children in there. i wish they would amend that and make it not north american free trade but make it north american fair trade because the blue- collar labor of the united states is not surviving here.

we cannot protect or clothe our own. we have to take care of home first. guest: thank you and i appreciate your thoughtful comments. i visit the food banks in westchester county, n.y., and the numbers have just increased dramatically, not just the people who are out of work, but people who have low-paying jobs and cannot afford to feed their family. that is why i and working so hard in the congress to focus on jobs, jobs, jobs. to me, this is what our primary responsibility is it. when the unemployment rate keeps climbing, we have to focus on jobs. i agree with you that putting people to work is uppermost and is why i support the programs of the small business

administration. in my community, i have seen jobs in the biotech field, going from 400 to about 1600. another company that installs solar panels went to half a dozen people to over 100 people because of support from some of the small business administration programs. so, we have to focus like a laser beam on creating jobs. again, we do not live in isolation. what happens overseas affects us. china, for example, is taking our jobs, is frankly exporting more than we are exporting. this affects us. i mentioned the avian flu. people fly. they travel around the world. the flu does not stay in one

place. we are all interconnected. when there is turmoil in one part of the world, it can affect us here at home. it is in national security issue to invest in foreign aid. host: we are almost out of time. let's take one more call. caller: good morning and thank you. i would like to say that just what the congresswoman mentioned, if head start is not being funded properly, why are we giving to foreign aid to other countries? if there is any other country i would move to, it would be japan because they are such a great country. i want to say that we do not need to by our friends via financial aid. this is ridiculous. host: we do not need to by our friends. guest: is a matter of developing or alliances, working

together in the interest of the united states of america. in haiti, when there is poverty and people do not have homes or a place to live, it is not a matter of buying our friends but to make sure we can bring stability in the country because they are right on our border. the same thing with mexico. people travel everywhere and we are all interconnected. i hope that in addition to suppor

subcommittee on insurance, housing and community opportunity will come to order. let me just say before we start that i'd like to take a minute to express the deepest sympathy for the people of japan as they cope with the aftermath of this terrible earthquake and tsunami. while reports of the damage continued to surface, it is clear this disastrous event will leave an indelible mark on the region. my thoughts and prayers and i'm sure all of us who are here are with the people of japan, not to mention our hopes that the effects of hawaii and the west coast will be minimal. i would like to note that administer fugate cannot join us today given he must remain at the fema headquarters to monitor the developments in hawaii, alaska and the west coast and the pacific territories and to

coordinate possible federal assistance to state and local governments. we understand his responsibilities and we hope that we'll meet with the administrator within the next few weeks. with that, we are going to have opening statements and i will start and welcome today's hearing. where we will examine legislative proposals to reform the national flood insurance program or nfip. it is critical that well in advance of nfip's september 30th expiration date, congress begin a dialogue and shape a reformed measure. millions of homeowners and businesses in illinois and across the country, not to mention our recovering housing market can ill afford the turmoil by program labs which occurred during the previous congress. that said to the credit of my colleague, ms. waters, the former subcommittee chair, much progress was made on fip reform

legislation, some of which is included in the draft bill under consideration today. there's no question that the program is in dire need of reform. for many years, the nfip has been, for lack of a better phrase, under water with long standing management and financial challenges and last reformed in 2004. the nfip borrowed millions from taxpayers followinging the 2005 gulf coast hurricanes and continues to be financially unstable. since 2006, the nfip has been cited by the government accountability office as a program of high risk and in need of fundamental reform. we work to restore the financial integrity of nfip so homeowners and businesses in floodplain areas like many in my state of illinois, are not left without any protection and taxpayers are not on the hook of the failing of nfip.

we must work towards a long term plan for flood insurance that eliminates taxpayer risk in the near term important reforms to the nfip must improve its financial stability, reduce the burden on taxpayers and examine ways to increase private market participation. today, i would like to welcome guest members to our committee, regulators, engineers, realtors to examine flood insurance programs that businesses and local communities can count on. with that, i recognize ranking member for his opening statement. we have agreed to limit the opening statements for five minutes. >> good morning, chair woman, biggert. i want to thank our witnesses for taking time to testify. as you may recall, we were successful in passing the flood insurance reform priorities act of 2010 last summer, which was

introduced by congresswoman waters. the bill received received broad bipartisan support, here we are once again. since the program is slated to expire at the end of september, i hope we can work together to pass this necessary legislation and not allow the program to lapse as it's done in the past. finally, as we move forward, we need to make sure reauthorization has the stability to enter our housing market. i look forward to all the testimony. i would like to introduce two statements for the record. the first is from the american insurance association, write your own flood insurance coalition, aia expresses the need for meaningful and long term extension and. the second is the national wildlife coalition, it raises environmental concerns to keep in mind as we move forward with nfip reform this year. thank you, mrs. chair woman. i would like to see who else on

our side would like some time as it permits. >> thank you. at this point, i ask unanimous consent that our colleague, mr. palatso can participate in the hearing today. without objection, welcome. i recognize representative dole for two minutes. >> thank you, madam chair woman. i want to welcome you all here as well. thank you for being here. the flood insurance program insures more than 5 million residential and commercial property owners and more than 20,000 american communities. these millions of property owners and their communities depend on this program to provide some measure of security against inevitable flood risks. at the same time, with this program's existing debt and with the persistence of federally subsidized premiums, the program remains under capitalized and

the solvency is in jeopardy. all of which places the american taxpayer at an ongoing substantial risk. clearly, we need to minimize taxpayer risk by making this program more self sufficient and by expanding the private sector's role in protecting against flood disasters. the important question for us is how to accomplish these important objectives. one thing be that also seems clear is that the strategy of short term authorizations and the corresponding temporary program lapses have not worked to minimize taxpayer risk or to expand the private sector's role. in fact the short term authorizations and temporary lapses have had the opposite effect while also destabilizing already fragile housing market. to properly reform and strengthen this program, we need to reauthorize this program on a long term basis and we need to do so promptly to avoid any additional lapses in the program. long term reauthorization will allow us to create stability and predictability for property owners while moving towards

meaningful and necessary reforms. we must also gradually reduce federal subsidies that keep taxpayers on the hook. we must consider how to deal with repetitive lost properties to index coverage for limits for inflation and expand available coverages. we need to consider policies that will limit adverse selection and better spread risks. we need to consider giving private market insurers some certainty and uniformity regarding applicable law under what is necessarily a national flood insurance market. in the end, we need to create the conditions under which the taxpayer risk is minimized, private sector involvement is expanded and policy owners are protected. i look forward to working with the chair woman and my colleagues on both sides of the aisle to achieve these most important national objectives. i yield back. >> thank you. i would also like to ask for

unanimous consents for ms. mccarthy, a member of the full committee, to participate in today's hearing. without objection, so ordered. now recognize mr. cleaver for two minutes. >> thank you, madam chair, to you and to the ranking member. are with the tsunami hitting japan yesterday, or last night, it provides us with a reminder of the devastation that can be caused by flooding and it also is appropriately getting the attention of the fema administrator, which is why the administrator is not with us this morning. madam chair, i think that it's time that we do an overhaul of

the nfrp because obviously, there are concerns. we attempted in the aftermath of katrina to provide some reform to the program. we didn't get very far. something has to be done. we are about $18 billion under water, pardon the pun, and the program simply can't continue as it is now. we need to struggle with and debate, if necessary, the issue of the wind damage coverage which was one of the controversies when we tried to deal with this issue back in 2009. i'm looking forward to raising those questions about reform to our panel this morning. and to actually find out from them whether or not they believe that we have time to do anything before the september expiration date.

because i think, you know, if we move expeditiously, maybe we can address this issue. thank you, madam chair. i yield back. >> thank you. i would also like to submit for the record, by unanimous consent, letters or reports from all state professional insurance agents, international code council, lloyds of london and the national multi-family housing council. without objection, so ordered. we now start with our witnesses. and i would also like to submit without objection the testimony of administrator fugate for the record without objection. we are happy to have with us maurice williams brown, managing director, of the government accountability office and manager sally mcconkey, manager

of state plan manager, coordinated hazard assessment and mapping program illinois state water survey. as you may know, if you can address the dais for five minutes. ms. brown, you're recognized for five minutes. >> thank you, chairman biggert, ranking member, and members of the subcommittee, i appreciate the opportunity to participate in today's hearing on the national flood insurance program. as you know, floods are the most frequent natural disasters in the united states caughting billions of dollars of damage each year. this morning, i would like to share my thoughts on three areas. fema's administration of nfip, the proposed reforms put forth in the discussion draft and other possible areas for reform.

first, nfip serves a vital role in providing protection against flooding to over 5.6 policyholders nationwide. nfip is one of 30 programs or areas on gao's 2011 high risk list. it first appeared on this list in march 2006, after the 2005 hurricane season exposed the potential magnitude of long-standing structural issues on the financial solvency of the program and brought to the forefront a variety of operational and management challenges that must be addressed to especially ensure the long term stability of the program. in our ongoing work, examining fema's management of nfip, our preliminary results reveal challenges and strategic planning, human capital planning, intraagency collaboration. records management, acquisition management and information

technology. while fema continues to make some progress in addressing certain areas, fully addressing these fundamental issues will be vital to its long term operational efficiency and stability. second, using the broad public policy goals identified by gao on the role of the federal government in providing natural catastrophe insurance, i will share some thoughts on reforming an fip at outlined in the discussion draft. these broad goals include charging rates that reflect the risk of flooding, limiting costs to the taxpayer, encouraging broad property owner participation, and encouraging private sector involvement. successfully reforming nfip will require a tradeoff among these often competing goals. for example, currently, nearly one in four policyholders does not pay a full risk rate and others pay grandfathered rates. the discussion draft addresses

the structural issue by phasing out these rates over time. this not only results in rates that reflect the risk of flooding but also can help minimize the cost to taxpayers and could help encourage private sector participation. the tradeoff involves potentially losing policyholders who may opt to leave the program, potentially increasing post disaster federal assistance. however, these challenges can be overcome by a variety of options, including targeted subsidies. the goal of encouraging broad participation could be achieved by increasing targeted outreach to help diversefy the risk pool. one way to do this is make sure the incentive structure is consistent with the goals of expanding participation in low risk zones and areas subject to repeated flooding but has low penetration rates among others. encouraging private markets is

the most difficult challenge because there is currently no broad based private market for flood insurance for most residential and commercial properties. as originally envisioned, nfip was established as a cooperative arrangement between the federal government and the private sector with both assuming a share of the risk. the concepts in the discussion draft would begin to address this issue by giving fema greater authority to explore alternatives. for example, the discussion draft addresses the possibility of reinsurance. finally, while the discussion draft begins to address many of the broad public policy goals, i would like to offer a few other areas for consideration as the reform discussion continues. for example, leveraging mitigation programs and ways to make them more effective, including clarifying fema's authority to charge higher rates when property owners refuse or do not respond to mitigation offers or allowing fema to apply

surcharge when mitigation offers are refused. actuarial rates and whether they should be sufficient to pay for catastrophic losses and any borrowing from treasury. aappropriating for any subsidies until the rates or fully phased in and authorizing fema to map for all present flood risk including erosion. chairman biggert, ranking member gutierrez, this concludes my oral comments and i would be happy to answer any questions at the appropriate time. thank you. >> thank you very much. now recognize ms. mcconkey for five minutes. >> the association of state floodplain managers thanks this subcommittee, chairman biggert and ranking member gutierrez for your attention for the need to reauthorize the the national

flood insurance program. we appreciate the opportunity to comment on the discussion draft legislation and to share our thoughts on the current status of the nfip, challenges the program confronts and opportunities to improve our nation's efforts to reduce flood related losses. the association of state floodplain managers and its 29 chapters represents over 14,000 state and local officials. all asfpm members are concerned with working to reduce our nation's flood related losses. asfpm believes the nfip has been a useful program for addressing flood losses in the nation and should be reauthorized without lapse. a reauthorization of two to three years is important for the stability of the nfip and the associated predictability is important for the lenders, housing industry, home buyers, policyholders and the write your

own insurance companies. while a longer period of authorization is important, it must be balanced with the need to fully consider many important reform ideas which will need further evaluation and consideration by the committee. there are fundamental issues that need to be thoroughly considered. for example, should the nfip accommodate catastrophic losses rather than the average historic alloss year. are there realistic affordable obltti ti objectives? are they expected to cover catastrophic losses. the nation must carefully balance the issue of who pays for development of risk. we believe a two to three year reauthorization will provide the needed reliability while allowing time for fema to complete its rethink nfip -- short person, i guess. allow time for fema to complete its rethink nfip project and

congress and the committee to review and consider the significant policy and legislative options and recommendations for management and operation of the nfip. the report is expected out june of 2011 and we think this project will identify or does identify the tensions and the tradeoffs of various options and needs careful and deliberate consideration. asfpm has identified a number of concepts which we feel should be part of any reform. first, a comprehensive national flood risk management framework is needed to actually reduce flood related losses of life and property in the nation. we must move beyond the current nfip minimum approaches and achieve a fuller integration of federal programs. secondly, bold reforms should be considered to address current flood insurance issues. flood insurance should gradually move towards being actuarial sound to reflect actual risk and enable market based financial

decisions. third, floodplain mapping has changed significantly over the life of the program. better technology, improved methods and creation of risk assessment techniques allows for the identification of flood hazard areas and enables the creation and distribution of this information to decision makers. technological advances will continue and a long term authorization of the mapping program is needed so we can fully utilize those advantages, continuing to improve in advance flood risk identification. fourth, improvements in floodplain management and hazard mitigation elements of the nfip should be continuously evaluated. with respect to the current discussion draft, we find that the draft developed by the subcommittee thrincludes a numb of important chains nges to the nfip. we note that these constitute revisions rather than full reform that we are discussing and would urge that the subcommittee plan on an in-depth

consideration of the significant policy and legislative recommendations for the nfip during the two to three year reauthorization period. asfpm appreciates that the proposal attempts to modify and tighten previous proposals to delay the mandatory purchase requirement of properties in areas newly mapped as floodplain. however, as a matter of principle, if the risk is known and documented it's not appropriate for the federal government to help people ignore their risk. rather than delay mandatory purchase, we prefer the subcommittee consider other methods of addressing the affordability issue. i actually grew up in east st. louis, illinois, where my father owned aa business. we lived and worked in the floodplain with no real knowledge of the risk we were at. we knew the levees were there and counted on them. to be abruptly confronted with

the significant expense of flood insurance would have been very, very hard on my family and my dad's business. but to have flood damages to our home and to the businesses that were uninsured that we could not recover from would have been devastating. there are a number of aspects in the discussion draft that asfpm agrees with, such as the proposal to use differentiated deductibles for preand post properties. the phase in of actuarial rates for certain properties is a step forward and we agree with most of the listed categories. asfpm very much supports the establishment of the technical mapping advisory committee and should be an advisory council to provide stake holder input to assist fema in improving its processes. there are a number of issues that require further consideration. while asfpm does support a more

in depth study of privatization, any such movement in this area must ensure there are continued strong incentives for comprehensive floodplain management which is one of the great strengths of the current program. further, we would like to suggest two other studies which would be an order in addition to the privatization initiatives already provided for in the draft. a study of the feasibility of group insurance for entire communities, for identified flood hazard areas or residual risk areas behind levees. secondly an economic analysis of the overall effect on taxpayer funds providing flood insurance vouchers to low income property owners. also the severe repetitive loss program is needed to assist in reducing the approximately $200 million drain on the national flood insurance fund. we urge the committee to work with fema to identify category changes to better implement this program and the use of demolish and rebuild as a mitigation option. asfpm is grateful for the opportunity to share our

thoughts with the subcommittee and hope they will be helpful as you move forward with legislation. we will glad to answer any questions and assist the subcommittee any way we can. >> thank you. we'll begin the question and answer period. i recognize myself for five minutes. ms. brown, over the past five years, fema has paid more than $2 billion in interest payments to service its debt, nearly $2 billion more to reduce it. fema still owes $17.75 billion to u.s. taxpayers, many of us asserted fema would be unlikely to repay its debt. do you foresee any scenario in which the debt can be repaid over time? and can you outline a range of public policy options for how congress might enable fema to be able to address its debt to the u.s. treasury?

>> we have looked at this issue and the bottom line is, as it currently stands, fema has been able to make principal repayments because they have experienced relatively low flood loss years. that's how they've been able to do it. it's not clear it's reasonable to expect that to continue to occur it in the future in order for fema to be able to make those payments. there's a possibility that in srn years where fema experiences higher than normal flood years that they actually could see their borrowing from treasury go up because they may have to borrow from the treasury in order to make their interest payment. there are a range of scenarios that could be taken to address this. a decision could be made to forgive the debt in order to allow the program to start on a more sound financial footing, provided appropriate reforms are

in place. there's another way to do it would be to consider, you know, a surcharge that fema could add to existing premiums to be used to pay down the debt. that raises questions of fairness. is it fair for the current and future policyholders to have to pay a surcharge to repay the debt? so there are many ways to think about it. this isn't something that we have specifically studied, but we've looked at and read a number of possible alternatives, but this is a challenge that has to be addressed in order for the program to be put on a more stable financial footing going forward. >> well gao has also suggested that operational and management issues may also limit efforts to address the nfip's financial challenges and meet the program goals. can you highlight some of those issues for us?

>> yes. in the last decade, we've identified and made recommendations to address issues surrounding the rate setting process and how that's handled. we've raised issues with the quality of the data that fema uses to do some of its rate setting. we've raised concerns about the financial management controls and the system in place. we've had findings surrounding the oversight of the wyos. we've looked at the incentive structure that fema uses to incent wios the number of policyholders in the program and expanding the risk pool. we've also, in the work that we currently have underway, we've identified a number of challenges associated with their information technology and investments that they've made in a program -- technology program

that failed that cost fema substantial sums of money. human capital management, identifying where they need people in a mechanism to make sure the program is being adequately managed during emergencies and outside of emergencies. so a full range of issues to be fully advised. >> thank you. ms. mcconkey, i might get it right sometime, given your experience in illinois, can you provide the committee with your point of view on risk-based pricing and how it should work? and also alternatives that communities can consider for mitigating flood damage. >> yes. >> or risk i should say. >> it's very important that the people who are living at risk know the risk and share -- and be part of the paying for their risk. it is, we feel, inappropriate to externalize that risk to the rest of the taxpayers, the

federal taxpayers, but we also understand that you have to gradually move towards actual rates for flood insurance and that we also need to look at a more holistic view of our at risk communities and not just consider flood insurance or just a levee to be the ultimate answer. we need to look at really having more sustainable communities which might include a retreat from -- strategic retreat from the floodplain or buying flood easements or other mitigation techniques that will really long term reduce our flood risk in the nation. >> thank you, my time is expired. recognize the ranking member gutierrez for five minutes. >> i would like to yield my time to congressman cleaver. >> thank you, ranking member gutierrez. i do have some questions. ms. mcconkey, you're a

midwesterner and grew up in the shadows of missouri. we've had unusual snowfall this winter which means that very shortly, a mixture of the me melting snow and 9 normal spring rains can and does often create flooding along illinois and missouri. we are also still in the throes of a recession. a large number of unemployed folk are living in areas that are susceptible to flooding.

do you agree that it would be difficult for many of the people just struggling to exist, who did not purchase flood insurance to have to go to a private insurer at a time like this. i mean there's a great deal of talking about the privatization. i mean, what does privatization do to people who are vulnerable like those -- you probably know some of them. is it unfair for us to think in terms of privatization as a way for them to protect their homes and property? >> actually, what we believe is that to deal with people the affordability issue should be manage a program, a program like hud that has experience with

means-tested systems so that you could -- actually i can talk pretty loud. we really think that it shouldn't be handled through the insurance mechanism to deal with the affordability. it should be through a means tested program handled by hud like you could get vouchers if you can't afford the flood insurance. you have the protection of the flood insurance without distorting the insurance aspect of the program and you have protection for individuals through -- that's irrespective if it's fema, flood insurance or if it's private. that's our solution. i don't know how the rates would change with the privatization. i can't speculate. >> it wasn't the rates as much as it is the fact that, you know, i guess to some degree it is, but i'm concerned about people who are just struggling right now to survive. >> exactly. >> and vulnerable.

but before my time expires, i'm from the missouri side. my other concern, ms. biggert, i appreciate very much you moving ahead trying to do something with regard to the flood insurance overhaul. it seems to me that there ought to be, ms. biggert asked you the question, maybe if this bill moves and i hope something moves because i think, you know, we're dealing with $18 billion problem, and the fact that we have people who are out here vulnerable. i would really hope that before september, we could come up with a bill, but that the legislation ought to address this $18 billion problem we have, and i mean, i listened carefully to the options. none of them are extremely

attractive, i might add. but we've got to do something or we'll continue to meet and talk about an $18 billion problem. i think now is the time for us to attack the problem. i don't think we ought to wait. i don't know whether fema should send options, maybe even more you didn't mention or some way, we need to begin that struggle now instead of postponing it. i yield back the balance of my time. >> thank you. i think mr. cleaver, that we really are having this hearing now because we do need to move ahead and would expect that having, maybe another hearing, but at least a markup soon. you know, this is a draft discussion right now, but we

really want to proceed. i know the study is supposed to come out in june. i think we really want to be moving ahead before then and i think maybe we'll get an update on all of what's going on as far as the study too, but it's very important that we don't let this slide. as you know, it's much harder to do it later on and get the senate engaged, which has always been a problem. well, you could say that. i now recognize mr. hurt from virginia for five minutes. >> thank you, madam chair. thank you all for being here. welcome and thank you for your obviously significant interest in this important issue. the chair woman spoke of the $18 billion debt that is accrued through this program and i have read that the deficit, the

deficit to this program annually has been $1.3 million. ms. brown, i wonder if you can talk about that deficit. is that something that's been consistent post katrina, pre-katrina? are you able to comment on that? >> i'm not. this isn't anything we've specifically looked at. >> with respect to the proposal that we're evaluating, this draft bill, can you talk about what, in real terms, the taxpayer subsidy is for this program? are you able to talk about that? >> yes, i can give a rough estimate based on the full risk rates currently charged and the estimate for the subsidized amount and the current estimate is that the subsidy basically results in those subsidized properties paying 45, 45% of the

full risk rate. if we did a rough calculation based on the current policies in force and estimate that somewhere around $1.8 billion a year is being subsidized. that's the amount lost in premiums if there was a full risk rate across the board. >> this gao, in looking at this draft bill, been able to determine what the -- what that might be reduced to if you're able to encourage the private market to come into this business? >> well, it depends on how that happens. the challenge with flood insurance has been historically, there wasn't a private market and there wasn't a private market for a number of reasons. so depending on how that was structured to bring the private market in, there are a number of things that would have to be dealt with. if you bring the private market

in and they're able to focus on the lowest risk properties, that would leave the program with a very concentrated risk pool and all the riskiest properties will be in nfip. that can potentially expose the program to greater losses, because there would be this concentrated risk. so the impact that the private market would have is really unclear until there's a better sense of kind of how that would be structured. and what role the nfip would play in that particular scenario. >> okay. obviously, one of the issues, the fundamental issue, i think, that we all have to kind of deal with, and this issue to me, is a new one. is the issue of moral hazard. obviously, i would think we all agree there are places that people should not live. under the current proposal that we're looking at today, do you

see that the moral hazard issue, that is encouraging behavior, encouraging people to do things that are not in their best interest, would that be minimized or would that be -- could that be increased by the proposal that we're looking at today? i would like an answer maybe from you ms. brown, as well as you, ms. mcconkey, if you don't mind. >> in terms of the closer premiums come to fully reflecting risk is a clearer signal to a property owner that they are living in harm's way. to the extent that the discussion draft moves those premiums in that direction, it definitely, you know, would help elevate the risk that homeowners and property owners are exposed to currently. >> ms. mcconkey? >> i don't think i could say it any better. >> thank you. i yield back. madam chair. >> thank you, mr. hurt.

i now recognize mr. cleaver for his five minutes. >> thank you, madam chair. i just have one question. i would like to yield the balance of my time to the gentle lady from new york, ms. mccarthy. i'm still on the 18 billion. there have been some suggestions that perhaps reinsurance could be a way to eliminate future debt. i would like to just get your response to that, both of you. either of you. one of you. >> the issue of reinsurance, one of the things in the discussion draft that was interesting is that, you know, there's an opportunity for fema to do some study and pilots and explore the option of reinsurance. this is something that we have looked at a couple of years ago.

there didn't appear to be an appetite at that time, but i think it's something definitely worth revisiting because the way it currently works is nfip, while it's an insurance program, it doesn't function really anything like private insurance. because private insurers would purchase reinsurance to cover that catastrophic level of risk. what happened, and we saw this happen in katrina, because to representative hurt's point, prior to katrina, the program wasn't running a deficit. it was pretty much self funding up until 2005. and treasury you became the reinsurer, because any losses over and above the amount that could be covered through premiums because there is no reserving mechanism was borrowed from the treasury. what you're left with is treasury -- the program now has this outstanding debt to the treasury because there wasn't,

you know, the opportunity for any type of reinsurance mechanism. >> i yield to ms. mccarthy. >> i thank my colleague. i also say thank you to chair woman for having this hearing. i think it's extremely important. i want to give you a little back ground. i live on long island. we have a lot of shoreline. we have a lot of homes that need flood insurance in case of a hurricane. so far, we've been blessed that we haven't had that hurricane. i represent central nassau county. fema, i'm sorry mr. fugate is not here, because i had questions i wanted to ask him. apparently what fema had done was go out to suffolk county and took those maps and put them into nassau county.

center of nassau county which they're saying on certain areas in this particular village were a little higher even though we're not near any water. i stress that, we're not near any water nor have any families had any floods for over 25 years. is there a possibility? absolutely. >> should we look at that? absolutely. i want to ask, the draft legislation contains a provision to bring back the technical mapping advisory council to address mapping standards made up of representations from many different agencies familiar with mapping. i'm interested in getting your thoughts on having the mapping process and an entire independent entity in an effort to ensure the most accurate data is used to update the maps. nassau county, long island, we had our maps updated. to give you a side bar, i have a retirement home somewhere out in

suffolk county, very close to the water. i did not get an increase. i am now not in a flood zone, and i don't understand that at all, because when it rains heavy, the water from the bay comes up basically on the lawn. so something's wrong here. if i'm i'm living there, then i should be paying more, in my opinion. i shouldn't say that, but right now i'm getting away with it. but the people in nassau county, the center, in my opinion, the maps are wrong. so i would like your opinion on bringing back the technical mapping advisory council so that we have more accurate maps. >> okay. we very much endorse the idea of the concept of bringing back the technical mapping advisory committee. actually when it was instated in 19 -- i think '94 or '95, through their recommendations

they actually brought out the map modernization program which has really led to great progress in improving the quality and the accuracy of the maps in most places. so, yes, we do believe that's an important body to have as an advisory council. through fema's risk map program, the next five-year initiative, they have taken certain very strong steps to address quality issues with the mapping. and also to have greater engagement with the community so that there is more ground truthing to what they're doing earlier on in the process. >> may i stop you right there? that was one of the biggest failures. they did not let the community know. they did not let even the counties know. they just asked them for their maps, which is very upsetting. >> and fema has addressed a lot of problems in that regard with their risk map process, where it is very clearly prescribed to

anyone who -- and actually the group that i manage, we do the digital flood insurance rate maps, we do the engineering studies for illinois county. so we have done 78 of our 102 counties. so we actually -- i'm involved in that process. i read the rules because that's what we're supposed to do, and through the risk map process they really is strong community engagement, early on technical meetings so that there is ground truthing of what you're doing and fema has also set up -- and i apologize, i may not have the right phrase, but an arbitration panel for when there are appeals to the maps. i think we have -- they have listened, they have heard about the problems and that risk map makes great strides in addressing the accuracy and the outreach issues. >> thank you. mr. brown, anything? mr. cleaver, would you like your time back? >> i think his time is expired. >> oh, sorry. >> now recognize mr. dole for

five minutes? >> thank you, madam chairman. >> from illinois. >> we're delight that you're here from illinois. obviously the chairman doctor t -- the chairwoman, the ranking member and myself are delighted to have someone else here from illinois. >> thank you for the invitation. >> ydo you have any suggestions on the repetitive loss properties and how to make them less of a liability? >> yes. this is also an issue that we have looked at over time. and while great strides were made with amendments that were made in the 2000s to address repetitive loss properties, the number of properties has continued to increase and we looked at february numbers and they're continuing to increase. there are a couple of things that we would propose be

considered that deals with mitigation offers and what happens when those offers are refused or not responded to. and in terms of allowing fema perhaps to -- to apply surcharge above a full risk rate for those properties. if the homeowner chooses to refuse or not respond to an offer. and also really focusing some attention on the mitigation programs and determining if there are ways to make them more efficient and effective as a way to address the issue of the repetitive loss properties. >> and just following up on my colleague on the other side who talked about reinsurance, you currently aren't using reinsurance right now. is that correct? i'm sorry, in the -- >> in the fema, no. >> they're not using. is there any question that you're able to -- that fema is able to use it? >> that i'm not sure about. if they could if they wanted to. right now the mechanism is for

it to -- for them to rely on borrowings from treasury. >> i mean, would perhaps additional insight or authority from congress be necessary to let them do that? it certainly is a common practice out there in the insurance industry in order to try to protect from catastrophic losses and certainly when we look at those areas that are particularly hard hit, or those that continually will be hit again and again, it would seem to me that potentially at least having that mechanism or vehicle available may be something that they might want. is that something -- what is your take? >> well, my take on whether they could do it now, this is where i really wish mr. fugate was here to dress th to address that question specifically. as far as that being an option to be considered, i think that's one of the options that needs to be on the table and discussed as far as reforming the program going forward.

>> miss mcconkey, question for you on the vouchers. you talked about vouchers before. can you give me any sort of an idea on how you anticipate or how you would like to see something like this, how it would be administered and do you have any idea what the cost of that would be? >> to answer your last question first, no, that's actually the cost of it is a study that we recommend be initiated through this draft legislation. the voucher system we envision as something to be managed through the housing and urban development because they have experienced with means tested voucher systems. fema does not. but this way it would allow for people to get the message about the risk that they have with their home and yet not be burdened in these times or because families that really are just operating on the edge would not be burdened with the cost, that we would pick that cost up.

it also provides them with fuller protection than no insurance at all. if you have insurance, then that means you've got money to pay off your mortgage. but if you're relying on disaster assistance, you are still in -- obligated for that mortgage. you really aren't covered. it provides lower income people with greater coverage. the voucher system, as we said, we believe to be means tested. that's the extent of my knowledge on that. we would have to do more research to give you a more thorough anser. >> okay. with just the short amount of time i've got left, you talked in your testimony before about -- or at least in testimony in the past about floodplain coverage going from 100 year to expanding it beyond that in terms of, you know, 250 or even a 500-year event. do you have any idea how much of the country would be covered under those instances?

>> that's something that i don't know that anybody could just estimate that without some research on it. going beyond the 100-year, looking at the 500-year would be something to consider as a residual risk area. probably you could estimate the difference between the 100 and 500-year floodplain if it was all digital. >> the gentleman's time is expired. miss capito? >> i think i'll save my questions for the second panel. thank you. >> miss mccarthy, would you like to claim your time? then we'll go to mr. palasso from mississippi. thank you for joining us. >> thank you for having me. good morning. i appreciate the courtesy provided by the house financial services committee to allow me to participate in this morning's

very important hearing. thank you, chairwoman biggert. i ask consent that my full statement be included in the record. >> without objection. >> i represent mississippi's fourth congressional district, which is the only district representing the mississippi gulf coast. fema has served as a partner to our state and we applaud administrator fugate's continued leadership to the agency. the national flood insurance program is critically important to south mississippi and any area exposed to flood risk. as floods continue to be among the most costly natural disasters in the united states, i urge the committee to closely consider reforms offered by administrator fugate to the nfip and to pass a long-term reauthorization of nfip. madam chairwoman, with your -- with the absence of administrator fugate, i would like permission to submit my questions for the record for him. >> without objection. all members requests for

questions will be put in the record. >> thank you. i would be remiss if i didn't not mention the high cost of wind insurance is a major factor preventing coastal residents from building homes and attracting new industry. i'm committed to a bipartisan effort to resolve this with the goal of providing coastal residents with needed cost reliefs and comprehensive cost coverage. i look forward to working with the financial services committee to find solutions to our problems. thank you, again, chairwoman biggert, for allowing me to be here today and i yield back. >> thank you. mr. duffy, do you have questions or we'll move to the next panel? i'd like to thank so much the witnesses. this has been a very informative and very helpful to us and thank you so much for being here. >> thank you. >> and i might -- those members who have written questions, that will be open for 30 days for

submitting questions to you for written response. and we'll now move to the next panel. >> if we can do this very quickly, i might mention that the floor is estimating that we will have votes between 11:45 and 12:15. so we do want to move as expeditiously as possible.

>> okay. if the panel can take their seats and if they know where they're sitting. all right, i'd like to introduce our second panel. we have stephen ellis on behalf of the smarter, safer coalition and vice president, taxpayers for common sense in washington, d.c.

then we have terry sullivan, chair of the committee on flood insurance, national association of realtors and owner of sullivan realty in spokane, washington. spencer houldin, chair government affairs committee and independent insurance agents and brokers of america and president of ericson insurance services in washington depot, connecticut. frank nutter, president reinsurance association of america, washington, d.c. sandra parrillo, chair of the national association of mutual insurance companies and president and ceo of providence mutual fire insurance company, warwick, rhode island. then donna jallick, on behalf of the property casualty insurance association of america and vice president flood operations. harleysville insurance, harle

harleysville, pennsylvania. and last but not least, barry rutenberg, first vice chair, chairman national association of home builders, washington, d.c. welcome to you all. as you heard, i'm sure, if you can limit your testimony to five minutes and after that we'll have the question and answers. so mr. ellis, if you would like to begin for five minutes, you're recognized. >> thank you. good morning, chairman biggert, ranking member gutierrez, members of the subcommittee, i am steve ellis, vice president of taxpayers for common sense, a national nonpartisan budget watchdog. thank you for inviting me here today to testify, but i'd also like to recognize the people who are affected by the tsunami and also how it accentuates the importance of fema and the national flood insurance program flooding. taxpayers for common sense hassed avoluntahas ed av advocated for reform of the nfip.

all have recognized nfip is flawed and must be reformed. the question is how. any reauthorization of national flood insurance program must make significant changes to put it on sounder financial footing with more sound rates and accurate maps. the discussion draft of reform legislation being circulated by the committee is a good start. it responsibly tackles rate and subsidy issues, creates a mechanism to increase confidence and accuracy in flood mapping and doesn't stick tax payers with the tab of bailing out a failed program. but we're concerned with provisions that could inhibit adoption of updated maps, add a new business line to the program and mandate annual coverage, limit increases that will insure the program's increases every year. we look to making this good start and even better final product. tcs is allied with smartersafer.org. the depth and breadth of the

coalition, some which of are at this table, underscores the importance of reforming nfip. i would like to submit for the record smartersafer.org's principles for reform. >> without objection. >> but to summarize quickly and clearly, those principles are maps are accurate and up to date, they're risk based rates, any subsidies should be explicit and targeted to those who truly need them and encourage mitigation as a tool to reduce risks. taxpayers for common sense endorses those basic principles to better protect people, property, the environment and the taxpayer. i would like to talk about the flood insurance and the draft legislation for the taxpayer perspective. nfip does not charge truly actuarially sound rates. the program's goal is to find as charging premiums that would generate enough revenue to cover historical average loss year. that means catastrophic loss years are left out of the equation. the program covers any fiscal short falls by borrowing from the u.s. treasury which is the signature subsidy of itself

since the loans are virtually interest free. the program contains enormous cross subsidy as well. the draft legislation will provide a mechanism to move towards more actuarially sound rates. responsible both for the homeowner and the program. the legislation also stipulates that most properties have their rates increased by 20% annually until they're paying the estimated risk premium rate. in addition, the draft legislation directs its subsidies not be available to lapse properties. lapsed policies. these changes move the program in the right direction. what appears to be remain uncharged are subsidies to free firm and repetitive loss properties that do not meet the specific criterias. these properties have been su i subsidized for decades. flood maps must be up to date, accurate, and based on the best

available science. we support the flood mapping advisory council to develop new standards for flood insurance rate maps that will incorporate true risk, be graduated and reflect realities on the ground, both man made and natural. the direction that fema -- that implement the new protocols is also critical. the council and the development of new mapping standards should not and will not delay the ongoing fema map modernization efforts. that program is critical to the long-term fiscal viability of the program. we appreciate that unlike previous legislation, the bill does not automatically delay the implementation of new maps. the draft legislation could delay or undercut new maps by giving the administrator authority to suspend flood insurance purchase requirements. insulating people from the changes related to the maps on paper does not change the geological realities. their property is at risk. there are some troubling expansions in the draft. one is the creation of the new insurance product for business interruption of the loss of

personal residence. another loss of use of personal residence. another would enable coverage limits to increase by some inflationary measure. with the flood insurance program so heavily in debt it doesn't make sense to expand the coverage provided. tcs supports the privatization study called for in the legislation and calls fema to pursue the initiatives. also, fema should be authorized to develop a catastrophic reserving. communities and individuals should be helped to reduce their flood vulnerability. on balance, the draft legislation is a good step forward to reform the troubled flood insurance program. we look forward to working with the committee and congress to move the program in the right direction and off the backs of taxpayers. thank you. >> thank you very much. mr. sullivan, you're recognized for five minutes. could you turn on the mike? thank you. it should show green. yes. >> good morning, chairwoman biggert and ranking member g

gutierrez and subcommittee members. my name is terry sullivan, i'm the designated broker of sullivan realty in spokane, washington. i've been active with the national association of realtor s for 17, the last 17 years of my 40-year career as a realtor. currently i serve as chair of nar's land use committee. i'm honored to represent the views of more than 1.1 million realtors engaged in all aspects of residential and commercial real estate. as you know, flooding claims more lives and property than any other natural disaster in the united states. it happens anywhere. along rivers where snow melts or rain falls as well as the coastlines. without the national flood insurance program, 5.6 million home and business owners across the u.s. would not have access to the affordable flood insurance. since the year 2000, the program

has averted $16 billion in property loss in the 21,000 communities where flood insurance is required. in short, the program saves taxpayers money. chairwoman biggert, thank you for your leadership and for drafting the legislation to reauthorize the nfip for five years. this would end the current stopgap approach that has had -- led to nine extensions and five lapses in the program since 2008. a five-year reauthorization would provide needed certainty for the real estate markets to recover from the longest recession since the great depression. the many extensions and shutdowns have immeasurably undermined real estate investor confidence. just one of the lapses delayed or canceled more than 47,000 home sales in june of 2010 alone. we are pleased to see the bill

would add coverage options for business interruption, loss of residential use. coverage which has not been updated since 1994 would be indexed for inflation. finally, the bill would ensure that repetitive loss properties have an insurance rate that reflects their loss history, a provision we strongly support. all of these reforms will encourage participation, increase the funds for nfip, help property owners recover from flooding and decrease future federal assistance when underinsured properties suffer flood loss. while we understand the need for tough reforms to strengthen the program long-term, we remain deeply concerned about provisions to return to a time when taxpayers relied on private insurers to administer the program. it didn't work then. it won't work now. madam chair, this is hud's

federal register notice from 1977. it provides the history of nfip and how we got to the government program we have today. with your permission, i would like to have it included in the record with my written statement. nar is strongly opposed to the private risk initiative or bills including hr-435 to end the nfip. >> without objection. >> thank you. the bottom line is the private market will charge too much. today the four companies that write only 200,000 private policies would have to ramp up by 3,000% to the nfip's 5.6 million current policies. the private insurance market simply cannot guarantee either affordability or availability of flood insurance. in conclusion, nar believes that congress should reform the program, not end it. once again, on behalf of the

entire membership of the national association of realtors, thank you for providing us this opportunity to share our views on a vital program and i look forward to answering any questions you may have. >> thank you very much. now mr. houldin? >> mr. houldin. good morning. my name is spencer houldin, i'm pleased to be here today on behalf the independence insurance agents and brokers of america, known as the big i, to present our association's perspective on extension and reform of the nfip. i'm the president of ericson insurance, the second generation insurance agency with offices in connecticut, and new york. since 2008, i've served as chairman of the government affairs committee for the big i and have represented the state of connecticut on the big i bord since 2006. the big i is the nation's oldest and largest trade organization and association of independent insurance agents and brokers, we represent a national network of

more than 300,000 agents, brokers and employees. many of these agents serve as a sales force for nfip working with the rate your own companies. we understand the capabilities and challenges of the insurance market when it comes to insuring against flood risks. we think this hearing is especially timely in light of severe storms and flooding in the northeast and this morning on the west coast. in fact, my firm fielded nearly 75 calls this week when clients experienced water in their homes up in connecticut. we commend the subcommittee for looking at this very important issue. the big i believes that the nfip provides a vital service to people and places that have been hit hard by natural disaster. the private insurance industry has been and continues to be largely unable to underwrite flood insurance because of catastrophic nature of the losses. therefore the nfip is virtually only way for people to protect against the loss of their home or business due to flood damage. prior to the introduction of

this program in 1968, the only financial remedy available to consumers was flooding disaster assistance. since then, the nfip has filled the private market void and created a reliable safety net. it is also important to note that for two decades up until the 2005 hurricane season, the nfip was self-supporting. with that said, we do recognize the program is far from perfect and calls for congress to shore up its financial situation. for this reason, the big i is very encouraged by chairman biggert's draft legislation, the flood insurance reform act of 2011. in the past, the big i released a 12 point plan to modernize the flood program and we're happy see a number of the recommendations have been incorporated. the first is a long-term reauthorization which we strongly support. as you know in recent years congress relied on numerous short-term extensions. last year alone the nfip expired on three separate occasions, only to be retroactively extended by congress each timing. while the big i is grateful for

the action, we strongly believe long-term extension is critical to provide marketplace stability. additionally for many years the big i asked congress to begin phasing out subsidies found in the program. we're pleased chairman biggert's draft legislation addresses this. the big i welcomes and supports chairman biggert's ideas on subsidies for commercial building, second and vacation homes, homes experiencing significant damage or improvements and homes sold to new owners. the big i welcomes the draft legislation's proposal to increase the amount fema can raise premiums at any given year. currently fema can only increase the premium of maximum of 10% on a property. the draft legislation would propose to increase this to 20%, which will allow the program to move even more properties towards actualial rates. the big i is also pleased that the draft legislation has chosen to modernize nfip by increasing maximum coverage limits by indexing them for inflation and by allowing fema to offer the

purchase of business interruption and additional living expense coverage. the inclusion of optional business interruption coverage is particularly important to big i members and their commercial clients because it reimburses them for lost income through their inability to operate due to flood loss. as i speak, we have a popular rib restaurant in my town shut down since monday. their property was flooded as was the road in front of their business. their losing thousands of dollars a day in revenue but normal expenses, payroll and mortgage, continue. it is an insurable loss today and one detrimental to a small business. with another two inches of rain last night, there is a good chance they won't be open for another week. the big i also supports strongly the option for a consumer to purchase additional living expense. if their home is not inhabitable due to a flood loss, they need funds for additional arrangements. the big i is pleased that the subcommittee is conducting today's hearing and appreciative of the opportunity to testify. adopting the reforms found in a draft legislation would help make the nfip more sound and

more effective at serving both consumers and taxpayers. thank you. >> thank you, mr. houldin. mr. nutter, you're recognized for five minutes. >> thank you, madam chair. my name is frank nutter, president of the reinsurance association of america. reinsurance is critical to insurers and state-based property insurance programs to manage the costs of natural catastrophe risk. it is a risk management tool for insurance companies to improve their capacity and their financial performance and enhance financial security and reduce the financial volatility. it can serve the same function for the national flood insurance program. as a currently operates, the nfip is not an insurance program, but it should be and it can be. the full application of risk-based rates and appropriate risk-bearing role for the private reinsurance secretary work transform the program. by doing so, the nfip could also achieve the goel of protecting taxpayers and the treasury. it is a commonly held belief that a role in the nfip is unachievable.

on behalf 6 our community, we would challenge that suggestion. we commend the chair's discussion draft regarding the protecting tax payers with risk-based rates. the rates were introduced early in the program as an inducement for communities to come into the program and it was a successful strategy. but the number of subsidized properties hasriesen risen in years. the rates have facilitated the development of coastal areas including those at high risk to flood loss and compromised the use of the natural floodplain to mitigate damage. repetitive loss properties acording to the gao account for 1% of the policies, but 25% to 30% of the losses. in addition caps on rates may be popular with ben officialries but the caps distort risk assessment by builders, local officials, property buyers and policy holders. they increase across subsidy from low or no risk persons and tax payers to those living in high floodplain -- high risk flood areas. we commend the draft in this

regard. the nfip should plan for extreme events but does not. fema represents 75% of its policies a policies are actuarially sound. it does not incorporate a catastrophe factor for severe loss years but relies on the average annual loss model for its pricing. this pricing model is ill suited for natural catastrophe risk, whether in the private or public sector. because of the pricing model, the nfip has neither adequately planned for nor priced for extreme event years. the gao points out the program should operate like an insurance entity, if it did, it could reduce or eliminate taxpayer exposure to future debt by laying off risks to the private sector through reinsurance and catastrophe bonds. the private sector role in the program now is appropriate and it relates to the right your own program, which provided the nfip with a valuable marketing arm and administrative capability. for a variety of reasons, a private insurance market for

flood risk has not developed. we believe, however, that a private reinsurance risk bearing role for the nfip can be established. and that the nfip can address its volatility and extreme event of any exposure and decrease the dependence. both financial sectors have significant capacity and believe flood risks can be reinsured or transferred. such a transfer introduces a private sector rating verification model into the nfip, providing incentive and guide post for risk-based rates. we offered two approaches to do this. the first is a traditional transactional reinsurance approach. as with most state property insurance plans, fair plans and wind storm pools, nearly all private insurers address their volatility through the purchase of reinsurance. as with these other governmental entities and private sector insurers, the nfip would work with modelers, underwriters, brokers to provide the market with risk portfolio, determine what types of risks are aminable

and seek coverage in the private sector. should the nfip find the bids unattractive, it would not go forward with the placement. the nfip therefore would be in the same place as it is now dependent on public debt. if the placement were successable, private sector would provide financial relief to taxpayers. as is reflected in the discussion draft, no study is necessary to evaluate this alternative, but can be pursued at this time with the full opportunity to evaluate proposals. the second option that we have highlighted exists in the current draft and that is the reauthorization of reinsurance pool. section 4011 adopted in 1968 provides for the director of fema to encourage and arrange for appropriate financial participation and risk bearing by insurance companies to assist insurers on a voluntary basis for the purpose of assuming on such terms as may be agreed upon financial responsibility as will enable such surers with

assistance to assume a reasonable portion. the provisions of the statute authorizing the pool have long been dormant. but they remain a viable mechanism for the creation of another pool, this time to reinsure the national flood insurance program capitalized by the surers that wish to provide capacity. the director in those participating insurers would enter into negotiations and could subscribe capacity on an annual basis. this proposal does not change the right your own program, fema remains the insurer, flood risk at the consumer level, but transfers flood risk from taxpayers to the private sector and allows those insurers that wish to participate to do so through a standing facility. these two approaches, a traditional property catastrophe insurance program and/or the reauthorization of the standing facility, are both complementary and not exclusive to each other. the existing statutory authority may well be sufficient to move forward without delay. with look forward to working with the committee and the congress and reform of the flood

insurance program and the reintroduction of a private sector reinsurance role in t thank you. >> thank you very much. miss parrillo, you're recognized for five minutes. >> thank you. good morning, chairman biggert, member gutierrez, and members of the subcommittee. thank you for the opportunity to speak here today. my name is sandy parrillo, president and chief executive officer of the providence mutual fire insurance company, one of our nation's oldest insurance companies. we began as a small fire insurance mutual in 1800 and today provide personal commercial shurinsurance protec to policy holders in new england, new york and new jersey. the providence mutual employs approximately 75 individuals, represented by more than 300 independent agents and is based in warwick, rhode island. i'm here as chairman of the national association of mutual insurance companies to present our views on the national flood insurance program.

we represent insurance companies ranging from small farm mutuals to state and regional insurance carriers to large national writers. members serve the insurance needs of millions of consumers and businesses and every town and city across america. collectively, namic members cover more than 50% of all homes in the country. i would like to begin by thanking the committee for its hard work on producing a discussion draft of proposed reform legislation. we are encouraged that the draft reflects the input of many of the relevant stake holders and has the stated goal of protecting taxpayers and policyholders. it is our opinion that the nfip is in serious need reef form and in order to achieve this goal, we believe the best option is optimizing the current framework by implementing significant reforms that address the existing weaknesses. the programs' flaws are significant. subsidized premiums have been charged on a nonactuarial basis.

in addition, the tax uprates for those in need of coverage remain low. under 30% of those that need flood insurance purchase it. the nfip was created in 1968 because of the absence of a viable private flood insurance market. the unconventional nature of flooding makes it virtually impossible to pull risk among the large enough population for private insurers to be able to offer a viable and affordable insurance product. the public private partnership that eventually merged between the federal government and the right your own companies has the potential to offer an answer. we believe that with the right mix of reforms, the program can begin to address the problems of adverse selection, moral hazard, and financial instability that has plagued it in the past. we recommend a package of key reforms designed to achieve five essential objectives. to charge sound rates. the nfip must begin charging risk based rates if it is to have any chance of being a solvent program. these rates should reflect the

true cost of providing coverage. under the current structure there is no chance the program will ever repay the sizable debt it accumulated in 2005. we recognize that the move to actuarially sound rates is painful due to the premiums charged in some instances. those property owners that need assistance, flood vouchers may be offered on a means tested basis to help mitigate the cost. however, any subsidies that the government believes are necessary must be independent of the nfip and fully transparent. subsidies cannot continue toible hidden within the insurance mechanism and homeowners should fully aware of the real risks and costs of where they live. second, update and improve the accuracy of flood maps. flood maps must be updated based on the best available science with the goal of insuring that nfip flood maps accurately reflect the risks caused by flooding. putting off the adoption of upgated flood maps does a disservice to the citizens, property owners, rescue workers,

and land development officials living and working in flood prone areas who in the end risk losing their homes and their lives. we recommend adopting a nonpolitical balanced and incredible process for updating the maps. third, to improve the takeup rates. insurance is dependent upon the large numbers, thus the insurance mechanism works best and is the most affordable when everyone participates in the program. currently only 20 to 30% of individuals exposed to flood hazards actually purchase insurance. the program must take steps to increase these numbers dramatically in order to properly pool the flood risk and achieve financial soundness. fourth, discourage competitive loss properties a cording to the cbo, there are 71,000 nfip insured repetitive loss properties which represent just 1.2% of the nfip portfolio, but account for 25% to 30% of the total claims paid between 1978

and 2008. something must be done to deal with this issue. quite simply, american taxpayers should not be forced to subsidize a small subset of nfip policy holders who continue to rebuild in high risk areas. finally, improve the management and correct operational inefficiencies. the nfip must have quality information regarding its policy holders if it is to operate efficiently. we must develop an institute clear procedures for monitoring contract and claims records effectively communicating with lenders and triggering enforcement actions for noncompliance with mandatory purchase requirements. we believe these reforms are necessary and achievable. i have included more detail policy proposals for each of our five key objectives in my written testimony and as the process moves forward, we stand ready to work with the subcommittee to address the insufficiencies in the current program. again, thank you for the opportunity to speak here today. >> thank you. and miss jallick, you're recognized for five minutes. >> thank you chairman biggert,

ranking member gutierrez -- >> i think you need to turn on the mike or move it closer. >> thank you. thank you. thank you for the excellent draft legislation on flood reform. the proposed changes address many of the major flaws and the current program. thank you, also, for considering it in a timely fashion. 5.6 million people depend on this program to protect their homes and businesses. and thank you for the bipartisan leadership you have demonstrated on flood reform over the last several years. my name is donna jallick, i am the vice president of flood operations for harleysville insurance, one of the largest write your own flood insurance private partners. harleysville is also a member of the property casualty insurers association of america and a write your own flood insurance coalition. i have been working with the federal flood program for 15 years. last year congress allowed the

nfip to expire four times for a total of 53 days. and there have been ten short-term extensions in less than three years. lapses hurt consumers. millions of real estate professionals and our business. private write your own insurers have been leaving the program in droves and in part because of the lack of stability in the program and the confusion for consumers. when the program lapses, ensurers have to decide whether to keep collecting flood premiums and whether we can afford to put our name behind a program that may or may not be continued in the same form by congress. it creates significant liability and vulnerabilities for all stake holders. the lack of program stability also makes it difficult to administer the program and to explain it to consumers.

our disconcerning message must be buy flood insurance because we think the program will be renewed, and we have a guess as to what we think the rates might be when it gets extended retroactively. we already require agents to spend months training to understand and explain the nfip to consumers. lapses and short-term extensions increase this expense. five years is a good proposed extension. the available amount of protection for consumers under the flood program has not been increased for 17 years. the draft would index flood coverage for inflation. that's a good start. federal flood rates, which are currently a fraction of what the private market would consider, even for low risk properties, would be appropriately increased