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hearing. see no objection, mr. duncan, yet no objection to that? i now recognize myself for an opening statement. unmanned aerial systems commonly known as drone has been a game changer for men and women serving in iraq and afghanistan. the systems have provided troops with eyes in the skies have taken the flight to the enemy. to eliminate the most dangerous al qaeda terrorist, drums have increased capabilities to secure our borders and first responders. u.s. customs and border protection began first looking at drums back in 2004, now cvp owns 10 ues aircraft. the systems have been used to surveilled drug smuggler tunnels, videos, burbridge, risk

of flooding and assist with the deployment of national guard resources responding to local flooding. cdp has flown missions in support of the border patrol, texas rangers, u.s. service, fbi and others. the systems have become a force multiplier for military operations and for border security. however, we run the edge of the new horizon. using unmanned aerial systems within the homeland currently are 200 active certificates of operation issue i the federal aviation administration to over 100 different entities such as law enforcement department and academic institutions to fly drugs domestically. this map on the monitor shows the locations of coa recipients as at april 2012. the number of recipients since that time has in fact increased.

the faa plans to select 65 cities around the country for the use of nongovernment euros this year and plans to allow the deployment of nongovernment drugs nationwide i.t. here 2015. while the faa is responsible for ensuring the systems fly safely in u.s. airspace with only two and a half short years until drums began to dominate the skies in the u.s. homeland, no federal agency is taking the lead to do with the full implications of using unmanned aerial systems and developing the relevant policies and guidelines for their use. this is despite the fact that four years ago the government accountability office recommended to the secretary of homeland security that she directed tsa administrator to examine security implications of future nonmilitary uav has operations in the national airspace system and take any

actions deemed appropriate. tos recommendation was well-founded cousin 2004 tsa issued an advisory that describe possible terrorist in using uis as weapons. the advisory noted the potential for uis to carry explosives to disperse chemicals or biological weapons for the armed forces of colombia or and has below were interested in acquiring d's uas's. while the advisory knowledge is no credible evidence to suggest the organization planned to use the systems in the united states, it did state the united states government was concerned that these aerial vehicles could be modified and used to attack key assets and critical infrastructures within the united states. these concerns were validated just last week or last year when

massachusetts man agreed to plead guilty to attempting to damage and destroy federal buildings. the individual is arrested and put number of 2011 after an undercover fbi investigation revealed a plot to use multiple remote-controlled aircraft laden with explosives to collapse the dome of the united states capitol and attack the pentagon using that uav system. as if this plot was a frightening enough, cutting-edge research out of the university of texas at austin has revealed to have more. specifically researchers from the school of engineering led by todd humphries was our first witness today through the civilian unmanned systems can be hacked into and hijacked with the relatively small investment of money and time. these findings are alarming and have revealed a keeping hole in the security of using i'm an aerial systems domestically.

now is the time to ensure these vulnerabilities are mitigated to protect her aviation system at the use of unmanned aerial systems continues to grow. the department of homeland security mission is to protect the homeland. unfortunately dhs seems either disinterested or am prepared to step up to the plate to address the proliferation of unmanned aerial systems in u.s. airspace. the potential threats they pose to our national security and the concerns of our citizens have of how drones fly over cities will be used, including protecting civil liberties of individuals under the constitution. for example, in discussion with my staff prior to this hearing, department officials repeatedly stated that the department does not see this function with the domestic use of drones as part of their mission and has no

moral of the domestic unmanned aerial systems. i strongly disagree. i can imagine how they would find they have no role when there's a terror plot afforded by the fbi, attempting to hit the united states capitol and the pentagon. what more homeland security interests could there possibly be. dhs is lack of attention about this issue is truly incomprehensible. it should not take a 9/11 style attack by terrorist organizations such as hezbollah or a lone wolf inspired event to cause dhs to develop guidance addressing the security and creations of domestic drones. they should not take a hearing to force dhs to develop policy when it comes to security of our homeland. what it should take his responsible leadership willing to recognize a potential threat and take the initiative. dhs? initiative and i am concerned that dhs is reverting back to

pre-9/11 mindset, which the 9/11 commission described as a lack of imagination in identifying threats and protecting the homeland. we are dispointed that dhs declined to testify here today. this is simply another example of how dhs leadership is failing to get ahead of the curve on an issue which directly impact security of the united states. i hope her witnesses testimony will be a call to action for the department. during today's testimony, we look forward to learning more about security issues related to the domestic use of drones and what do you just needs to do to prepare for their widespread use. with that, the chair now recognizes the ranking member i guess pro tem, mr. cuellar. >> thank you, mr. chairman. at thank you for the opportunity to be here with you as the ranking member for the border maritime where we deal with

border security and dealing with some of the uav is the u.n. i have worked on together. it certainly gives us an opportunity. also cochair of the unmanned system caucus for informational purposes, members, we do have tomorrow a caucus meeting and we are going to have members representatives from the fbi, dhs, cbp tomorrow night at the rayburn room 2261. this will be an opportunity for members and their staff to learn about current and future domestic use of unmanned aerial vehicles. buck mckeon and myself have spent time with other members of the caucus looking at issues. privacy issues brought up that i've seen a lot of the privacy issues severity been decided by the supreme court.

we're looking at use in a type of platform. so whether it's a dirt poor in this case a lot of those privacy issues have been addressed by the supreme court. there's one to page a has anybody wants to learn about privacy issues on drones or uavs, please contact my office or box office. but the other thing, you bring up a lot of good points we need to cover. good questions to look forward from a u2 graduates also. i do have two degrees and dr. come as a pleasure meeting you. i do have a few questions for you on that, but i think this type of dialogue will be good to talk about. one last thing as you mentioned, we did pass the reauthorization that tax about the integration of more dominion uavs in

different steps we have broadband. if you haven't talked to the has to do discuss because they are steps they will be going into the future used on this. i know the ranking member, mr. keating is on its way. he does have a statement. i'm not going to read a statement. obeah appeared if you are given the opportunity to also make that statement when he shows up. but at this time, thank you for allowing me to be with you all. >> i think the ranking member. before continuing i asked to ranking tests can't know for unmanned vehicle systems international and captain lee mack, president of the airline pilots association describing the domestic use of ues. both of them are very much in favor of this hearing. hearing no objections, so order. the chair now will go to the

panel and introduce dr. todd humphreys. he and from austin i take reticular pride that you are also today. growing up in a family of longhorn, you take even more pride in not as well. so i have a little bit of orange blood myself. dr. todd humphreys at the school of engineering at the university of texas austin specializes in the application of optimal estimation techniques to problems and satellite navigation, orbital and attitude dynamics of no processing. for anybody here who understand that other than dr. humphreys, congratulations to you. he directs the radio navigation laboratory at ut austin camara's current research focuses on defending against intentional gps spoofing and jamming. most recently, that are

humphries uncovered the gps signal to navigate unmanned aerial systems can be hijacked and controlled. he conducted experiments that way since missile range but the department of homeland security and dr. humphreys and also i believe the memorial stadium and often. i believe we will see a video that describes that. he obtained his doctorate from cornell university. the chair now recognizes that are humphreys for his opening statement. >> chairman mccaul, members of the subcommittee, you may have heard these reports made by chairman mccaul that about this time last month masterman tonight from the university of texas hijacked a civilian unmanned aerial vehicle, a small helicopter and brought it down from a remote location. that much is true and i've come today prepared to talk about what we did with the

implications are for the national airspace and what can be done to address the problems that our experiment brought. so how did we hijack the small helicopter? we exploited a weakness in the global positioning system. you see, gps signals come in two flavors. military signals are encrypted to prevent counterfeiting and unauthorized use. and then there are the second class, civilian signals. these are not encrypted. they are freely accessible him not explains they are usefulness, but it also opens up all durability. it makes them easy to counterfeit. or in other words, to his truth. just like monopoly money, they have the detailed structure, but they don't have any built-in protection against counterfeiting or spoofing. so what does this have to do with a uavs? the connection is obvious. i must tell civilian uavs depend heavily on civil gps for

their navigation. that means if you can convincingly fake a gps signal, you can fool a uav into tracking your signal instead of the authentic one and at that point you can control the uav and make it move left or right, front or back, up or down. in other words, you hijack the uav and you can do this from miles away. my friends at the university of texas have prepared a video that i would like to show you, which illustrates what we did and helps me to explain the technique involved. you see, against the background, an animated one like the one we used fine against the desert floor, this white person entering your picture is the good guy. he is a remote operator up leading to the uav a waste point. the white time as the

destination supposed to move to. the gps satellite will relocate itself and as you see your recognizes where the destination it then makes its tracks lining up nicely with this goal. the bad guy moving in from the left is this proof operator and is going to transmit a fake gps signal to the uav. at this point we will pause so i can talk about what you see on the screen. the peak on the screen exists in every gps receiver and corresponds to the authentic signal and you can go ahead and roll it now. if you can create gps signals to cause another to appear and what winds up with the authentic ones and that hijacking inside the gps receiver. as it draws off company goes uav flies at the back.

the coast is where now it thinks it is. it is this perceived location. as in the in the stories this way point, the ghost uav alliance up instead of the actual uav. we did the same thing at texas memorial stadium by making our uav thinking it was rising upward at a fast clip and you'll see here and response it falls downward. we can go ahead and pull it. at first it's the authentic signal to ground controller in control of the uav, but at this point when they go bad it is not a spoof or, the hijacker who controls the uav and it drops precipitously towards the ground. it is all in control of the remote hijacker. then, we were invited by department of homeland security are authorized by the department of homeland security and perhaps

facilitated the tests we can conduct over the air, were recaptured the uav in midair. we did it for about half a mile away. i hookup rebroadcast or signal and you'll see in this case is in the former case the uav started in the hovering position but then came straight down as if i were an elevator moving down a shaft entirely under control of the remote hack. so what are the implications for national airspace? back in february congress handed a mandate, the federal aviation at to develop a comprehensive plan for safely accelerating uavs in the national airspace and i believe the results of our demonstration should factor heavily into that plan. the district is that the faa is this culture and expertise is geared more towards safety and

security and our tests implicated the security of the airspace. i think it is fair to say that dhs may have also a role to play in drawing up these new rules and regulations and i'm happy to entertain questions from the committee. >> thank you, dr. humphreys. let me state for the record they canceled the utes football is piercing that they move the football practice, which was the biggest miracle of all in my students eyes. >> me follow up on your last comic as that's been most -- first of all, this is astounding you could hijack a uav and bring it down. i think it is an eye-opener. let me also state that military uavs are encrypted. this could not be done. the ones used on the border, but anyone domestically had this vulnerability we are concerned about. i'll ask you about this later. you mention you typed the faa

and their main concern is security of the airwaves -- i'm sorry can the safety of the airwaves. they'll just need and make sure there's no other airplanes are uavs that would interfere with the flight pattern. but their focus is not security. but there's no federal agency that is providing oversight in terms of the security aspect today. is that correct? >> as far as i know. i feel dhs is a role to play in that and the faa could possibly play a role there, too. as they say its culture and expertise is not designed for that. >> the government accountability office agreed with you and in a report they said this is the role when they directed the secretary of homeland security to the tsa to basically provide for that security, says security

risk domestically and develop a national policy. so i think you have some company there in terms of agreement. i find this to be no one is minding the store and know when it's stepping up to the play. many of the gao and dhs to do it, i tend to agree with them kind that dhs is stepping up to the plate and yet they failed to bring witnesses to testify here today on this very commit very important issue when you have a terror plot forward it in the united states s. than a year ago using one of these uavs. let me ask you this. you've identified a whirl vulnerability with these domestic uavs. tell me what would be sort of your nightmare scenario and demonstrating what you were able to do with uavs of a terrorist

or some other malicious person wanted to exploit the system. >> okay i should point out currently a not terribly worried. the uav we've brought down was only 13 pounds, not very large. they could do damage in the helicopter blades swing swiftly. i'm not terribly worried at present. my nightmare scenario is looking for were three or four years where we have adopted uavs for national air space and now the problem of scaling obsolete more heavy uavs in this particular vulnerability is addressed. we don't fix and it becomes even more indigenous to the navigation system. >> and the next two years all have thousands finer and domestically. does that give you concern given

the fact there's no federal agency given aspects click >> they did make a prediction that by 2020 there could be 30,000 in our airspace. i would like someone to take ownership of the security component of uavs coming to the national airs his third >> you have done the country a great service by identifying a vulnerability. we talk about cybersecurity connect to the internet are vulnerable, which if you're connected to a gps device are vulnerable. can you explain how that works in a limited amount of time i have left and how we can expect quick >> yeah, sure. you're right. this is just one expression of the larger problem of unauthenticated civilian gps signals. they've been so popular, so useful that over the last two decades we've absorb the technology he deeply into critical national infrastructure

so even manned aircraft and some older ability toward spoofing financial exchanges and the energy distribution system are increasingly reliant on gps for timing. so in fact, this is a larger problem than the uav and it all gets traced back to the unauthenticated civilian gps signals. >> i see my time is ready to expire. the miss a thank you for coming to washington to testify here. thank you for what i believe thank you for what i believe it's a great service to the country. as for identifying the vulnerability not only take knowledge he wise, but also from a bureaucratic standpoint. i intend for the committee to fix this problem. what that come in to cherner recognizes the ranking member, mr. cuellar. >> doctor, thank you very much and i appreciate the work you've done. just to repeat again, the specific spoofing efforts were

be unsuccessful again. the encrypted military gps systems come is that correct click >> is important to remember. >> were talking about civilian uavs. >> i would note also my understanding is for the civilian commanders different purposes. law enforcement act purposes, university research purposes and all that. so for civilian purposes or commercial purposes, most are going to be small, 11-pound mini helicopters and i just saw one in laredo used for specific instances and it's usually line up side come is that correct click >> those are the ones currently operated. >> most of the time it would be there and it's usually leavened pounds or whatever the case might be.

>> that helps put things in it. >> the other thing is since spoofing focuses on gps signals, it goes beyond unmanned aircraft, which means that anything from cell phone to aircraft will depend. you can have an impact on anything dealing with gps that depends on gps for navigation. it not only unmanned. it could be other technologies. >> as long as they depend on signal. >> right, exactly. >> i think you stated the closest thing we have is a foolproof way would be for the gps -- i think it's part of the air force to alter -- from coming down. can you explain how this would be done without an impact in the device is then explained that?

>> i said that's the closest thing to foolproof. the truth is they would take a long time for that to be planned, ruled out and implemented. i am not holding my rep for a change in the signal being broadcast by the gps satellite. who would like to have it happen because would be a solution that would solve the problem for growing worldwide that uses the gps signals. at least it was sold to some degree and how this would not affect people currently use gps, we can make it backwards compatible so if you pay attention, it's like a watermark and a $20 bill. if you look to $20 bill you can see it, but if you don't pay attention you're not other vice presidents. the same thing happens up adding authentication signatures to civilian gps. bottom line is things will affect gps signals, which means

anything that depends on gps signals for navigation, right? >> you can think of the uav but one expression of the larger problem. >> right, exactly. most of the civilian purposes will be small and different types of uavs and most of them -- a lot of them are going to be mini helicopters within a specific site for that specific purpose, law enforcement, scientific, news, whatever the case may be. >> that's right. initially anticipated will be specific when they get authorization. i don't know how it's going to 10 or 20 years when we uav highways in the sky like you may see in in the movies. but initially it's very specific purpose for his comments about small uavs, one of my recommendations in the written testimony is those exceeding 18 pounds and may be required to have a spoof resistant navigation system.

they recognize we would want to encumber the smaller uavs that are less of a danger in more sensitive with that same kind of requirement. i recognize there's a balance to be struck and we can look at the 16-pound versus a 10-pound. at about 18 pounds, they become quite badly if something goes awry. >> way. in the bottom line is i really appreciate it because like anytime ago into a new technology and talk about uavs, basically technologies of different platform. cameras are centers, but it's a different platform whether his helicopter or plane or uav, i really appreciate what you're doing them will be looking at recommendations. it's a lot of good work you and your students did. it's a great job and certainly will take that into consideration. i thank you for your good work. >> i think the ranking member.

i didn't have a chance to ask your butcher recommendations for safety and security. i has to submit that for the record. that would be excellent. i know what the gentleman from south carolina, mr. duncan. >> thank you, mr. chairman. i want to thank dr. humphreys were being heard. this is educational to me. and thinking through the 2011 with the iranians claiming to hijack a military uav, the question i have for you as an encrypted signal, but do you think that the iranians for labor to use a technology is spoofing to help bring down that uav? the next important to bring whatever they say with a couple of doses of salt. but in this case, i am somewhat concerned that their claims could have some merit. they may have initiated an

electronic barrage against the cia uav played their airspace. it could've initiated a sequence of events that led to his capture. the plain fact is that showed up intact and that means we've got a lot of explaining to do. >> rate. that means it didn't crash. so that type of electronic rashi mentioned that may have been used, is that possibility within civilian airspace if someone wanted to capture law-enforcement uav, could they put up an electronic garage to bring down a law-enforcement uav? the next similar may be used. the command-and-control signal goes back to the remote pilot and of course gps signal helps navigate. mostly uavs do well if you cut one of those two umbilical cords, but they don't devote to cut out for them. in her case at the spoofing we

didn't cut the cord. we supplanted with basic dishes one. so i'm broadly concerned about jamming electronic russia tags into the spoofing these more sinister under the wire attacks. >> you not only change the gps said l-2 for the uav in regard to elevation our direction, but you were able to tap into the command-and-control aspect? >> , we did not at that. that could be done as a jamming attack. we cut the cord and prevent the remote operator from controlling the uav as he or she wishes. >> so come you were able to change the gps signal before the plane into thinking the elevation was different to bring it down. speak the remote operator with a contact he wishes for nothing appeared wrong to his sensor in the configuration we hunt. >> you could've flown that during the command-and-control ability to another runway and

captured it? >> ultimately yes. it's not terribly easy to control that once you've got. you can jump on its back, or can you read it? question we asked is what could be done not to you captured other than moving it down like we did for doing broad strokes. >> if it's used for surveillance purposes and has a real-time feed, could that be be hacked into? or replacement fee is said to for the operator? and thinking mission impossible year with a change the video feed in the operator seen something completely different. is that a possibility? >> or put a polaroid picture? >> it turns out these are areas of research in our laboratory and elsewhere. the truth is those kinds of data feeds can take advantage of the existing encryption utilities that are very difficult to

crack. and so if precautions have been in place if those feeds are encrypted it's not cbc. the attacks we were successful in going after the unencrypted, unauthenticated gps that no one has bothered to protect that signal and so that was the weakest link. >> you think most in law enforcement or governmental agencies over the u.s. are using encrypted signals or are capability or just civilian gps? >> very few civil government agencies in the united states are using encrypted military signal. all of us depend on the civilian signals. i will tell you i had two of the lieutenant in the austin police department in my office on tuesday and they were asking me for guidance on what i would do with their newly purchased uav. what i use that? would i recommend they use it during game day as they want to monitor for suspicious that they believe around the teeth of a stadium?

would i recommend they use it for a s.w.a.t activities of the hostage situations? to give them my recommendations if you have risk on the ground already, i would get those eyes in the sky. but if there isn't an ongoing briski at dignity on the ground, i'd probably keep it down. >> you think criminal elements could utilize this for law-enforcement surveillance? >> i think they could use a type elegy -- the spoofing technology? >> gps technology students have come up with. >> i want to make a point this was nec. it has taken us years to perfect see us. the trouble is civilian malefactors or others can get a hold of what are called gps signal simulators and they can do almost everything we did and these are readily available, even purchasable. so i am worried that it could be a weapon in the arsenal of organized crime or state actors

of organized terrorists. >> thank you. my time is. >> the chair now recognizes the actual ranking member of the subcommittee, mr. keating. thank you, mr. chairman. the thought of having to texas representatives here prompted me to get here with great alacrity. i want to thank mr. cuellar for his fine performance. i appreciate that. and thank you, mr. chairman. i ask unanimous consent misstatement go on the record that we can move expeditiously to questions. i have just a question for dr. humphreys. when you are comparing the civilian -- if you use that term in the different codes of encryption, what is the cost differential? you know, if law-enforcement ones in print and more common is cost prohibited or would that be a better track to take to differentiate it so there is more encryption is spoofing?

>> perhaps if there's recommendations the uav usi has recommended, they would like to use saddam receivers, gps receivers for military uses into the civilian uavs that they can be protected from hacking attacks. the trouble i see what that is twofold. one coming as the price goes up because there's only a couple companies that can build these receivers and so the price would much more than doubled. and that is going to hurt this nation industry, which is sensitive to price, especially for smaller devices. and second, i do feel of the logistics working out. these are hot items. you would not want than proliferating among civilians and end up in the wrong hands. and you wouldn't necessarily want to distribute the keys on a short-term basis because that is cumbersome for the owners.

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spoofing attack. >> thank you. mr. chairman, i yield back my time. >> thank you ranking member. we recognize the general aid from new york. mr. clark. >> thank you very much mr. chairman. i think our ranking member -- i thank him for filling in. dr. humphrey, i find the whole topic as fascinating. i serve on infrastructure protection. this is quite fascinating. one of the questions i have, and i've had this quite froactly as -- frequently as we advance our

technology logical know how whether it pays in outset to bake into our technology ways in which we can counter act disruption or if need be, disarm and disable the vices that are developed. and it would seem to me, no knowing what we know that the next generation would be sensitive enough that if any spoofing activity were to take place, something could be banked into the twos that would protect us. what do you say about that? >> i agree with that. i would recommendly whole heartly efforts to bake into antispoofing techniques.

problem would be -- without taking the issue seriously enough. we have a great number in our air space which continue to be just as the one we took down. there are techniques, simple tech vehicles that while not foul proof, they can increase the resistance to a spoofing attack significantly. i recommend in my written testimony a long list of these techniques. some simple some not. antispoofing is hard. there's no question and easy and cheap slowings. there are reasonable cost effective measures we take in the short term to bake it in, as you say. >> you also stated in your view of the problem, should be solved as the sourced at the gps satellite themselves. do you believe that this is likely to occur? >> so i did say that on an interview. i guess i despair at the kinds

of institutional changes that would be required looking for funding or political will to bring that about in the very best scenario, it might take five years before we see any protection. i'm becoming more pessimistic we can solve this problem at the gps saturday light i suppose had there are more grassroots approach with the uav within the navigation system is more reasonable and practical. >> you recommended that dhs submit to funding development and implementation of a authentication signature in the forthcoming signals. how did the hs respond to the recommendation and do you think the agency will make will the suggested changes? >> so this is a long-term recommendation. as i said, i'm not saying it's going happen tomorrow or within

five years. long-term. i would like the dhs to commit to funding this. the department of defense has indicated some willingness to implement a change to the civil gps signal so they can be awe authenticated like putting a water mark on the $20 bill they don't have the funds. i believe it would fall to the dhs to fund something like this. >> in just listening to what you have had to say look at the rate of which the uavs are being produced. if you're estimated it make take about five years to get there, we could be talking about, you know, tens of thousand of uavs at that point in time, having been deployed at some level whether it's military, whether it's local law enforcement. so, you know, i want to thank you first of all for the work

that you've done, the research and the capabilities that you have uncovered. but my concern is you know what you suggest we do right now. >> the suggestion i have right now are these grassroots approaches for fixing the uav without having permission of the department of the gps director at the air force. there are reasonable techniques you bake in the gps sever receivers and the entire navigation system while they don't prevent sophisticated attacks, they would sure make them harder. >> thank you very much. i yield back, mr. chairman. >> i thank you yes lady. you raise a point. -- i hope we can fix these. i ask you put the intreemtion the record. chair recognizes the gentleman from illinois, mr. davis. >> thank you very much, mr. chairman. i must confess, i am fascinated

by this. i was sitting here thinking that we may have all of these things in the environment singing all around every place when you watch when you used to be science fiction. i'm not sure this is much fiction now as it use to be. but i was trying to figure out the utilizationization and utility, what's the usefulness of the continuous development of the technology? >> it's a great question. there are in fact, a lot of great uses to which these drones can be put. i want to use them in the research so we can do better detection of interference sources in the gps radio ban. i'll confess also. i'm looking forward to a day when i get a taco delivered to

my doorstep from a done that days takeout deliver i are. other types can be in monitor border helping to surveil difficult situations like a swat attack against somebody who is got as hostile situation ongoing. i see these as being very useful. i would not want to put the brakes on the plan faa has to roll them out in the future. i would simply want to hold the faa to the language of the act passed back in february so we is safely accelerate the adoption of these uav into the national air space. >> i guess since we have a great concern about terrorism, terrorist, terrorist plots, that it would give us the opportunity to stay a step ahead of

individuals our countries, even, that might have other kinds of motivation for further development. >> that's true. if you put the brakes on the industry now, you end up putting at a disadvantage compared to other countries. the uav revolution is coming, and we might as well be on the cutting edge of it. how do we balance -- i'm thinking of all of the concerns that we have right now about money and expenditures, and, you know, when we cut $25 billion out this, we deny people food stamps or, you know, i think people having so much difficulty simply having shelt are or a place to live, how do we balance

the utilizationization of our resources resources in terms what it would take to further develop the technology we're talking about versus how do you feed the hungry or? >> well, it's a good question. i guess i would point out in many cases the uav would save money. austin police department the lieutenants talking to me they were telling it cost $5 million to buy a helicopter for man use and only maybe $50,000 on uav. they're on a tight budget. i understand where they are locking at them to save money. it would frees up budgets for other worthy uses for the funds. it's going to be a dynamo for innovation and jobs a healthy domestic uav industry. my main contention is let's let it go ahead but let's be

vigilant to the uses they are put and ensure the peoples' privacy and security is a top priority. >> well, let me thank you very much. i certainly support technology enforcement. i want to as balanced as we can. i commend you for your work. thank you very much. >> thank the gentleman. the chair now indulges the gentleman in texas for one question. >> one question. doctor, just real quickly. i appreciate the good work you have done. there are first of all the military type of drones uav and there is the hobby uav and the commercial uav would you say that? >> i think those are good broad classification yes. >> what you use is . >> personally it was an $80,000. >> was it a hobby? >> no. >> it wasn't? >> okay a hobbyist could use it,

of course. it was a quite expensive for the average weekend hobbyiest. >> right. my u understanding is that most of the hobby uav do not have protection over radio signals and they can be easily taken over whether it's oiled ,000 or $5,000. my understanding is most commercial uav have encription the frequent frequency on hacking or spoofing would be difficult. >> the communication from the remote pilot might well be secure. it but the spoofing of the gps signals is not secure. and that's what we demonstrated. we were use the high end sophisticated uav. we were not using the do it yourself drone. >> my understanding is most of the commercial uav have the encription on it. and having it is very important because just like a member of the fbi person they were selling

the encription keys and there was sort of things involved on that. wanted to -- appreciate the work. i wanted to make sure . >> they may have encription on the command and control link. they don't have encription on the gps navigation lang. >> those are the recommendation. >> i recommend we ensure uav exceeding 18 pounds have certified themselves as spoof resistance. i give a brief definition many any statement. i'm willing to entertain that definition in further research. >> thank you. thank you, mr. chairman. i thank the gentleman. let me reintegrate. that is we worked together very closely on getting these uav military dhs con on the border southwest border where they are needed and very valuable in securing the border. what we're talking about here today is the domestic use of uav

which are not encrypted and vulnerable. there's no policy set forth in terms how we do deal with them the next couple of years are going to multiply the flownd. thousand. it's incumbent upon the department of homeland security in particular of the trotion plot to engage on the issue and come provide that security and policy. with that. i want to thank our witness dr. hum humphreys. it's been a pleasure to hear your intelligent testimony, but on a personal level to meet you as well. thank you chair now recognizes second panel and

before i do that. i want ask unanimous consent they welcome a colleague and fellow texan kevin brady to introduce his local hometown sheriff. >> i thank you. i want to thank you you for the committee for allowing me the special privilege today. i'm pleased to be able to introduce the committee today not only constituent but a friend and incredible law enforcement officer who has hands on experience in the subject. chief deputy william mcdaniels sheriff office. texas sheriff office has jurisdiction over the largest sub burden. it is one of the fastest growing counties in america. the only agency in texas that is currently used unmanned aerial views. in my view, it has tremendous potential for public safety for emergency response, for search

and rescue, and at times during natural disasters such as the wild fires we experienced locally last year. chief mcdambisa daniel is decorated law enforcement office with an impressive career spanning many decades. he received a public safety law enforcement chief award for excellence, two awards in that arena, while serving the united states air force, he received a air force accommodation medal, at 15th air force combat crew excellence award. he's graduate of fbi national academy in quantity quo, virginia. i know, the chief's testimony will be insightful in helpful in an emerging issue. so thank you for allowing me to introduce the good friend today. chief mcdaniel, thank you for being here. >> thank you mr. brady for the kind introduction. and with that. i'm going introduce the rest of

the panel. director of civil aviation issues for the u.s. accountability office. he's a member of the -- and policy analysis studies, related to civilian aviation issues including safety environment, air traffic control, airport development and international aviation. prioring to come it in 1918 served on the faculty of university of california in university of illinois. i note that from mr. davis my colleague. in addition he served on the nation commission on terrorist attacks upon the united states on are the 9/11 commission. on the aviation in transportation security team from 2003 to 2004. and let me see here in my notes. i apologize. our last witness.

last but not least. mrs. amy is the legal counsel of the electronic previous information center. her work includes issues of national security government surveillance, digital. she is the moderator of the weekly twitter based privacy discussion and assists with epics internet and social media web presence. prior to joining that, i don't -- she graduated from new york law school where she pursuits studies on media law, technology and the first amendment. we appreciate you being here today to bring up the important privacy issuings we see domestic use of the uav. so with that, now the chairman recognizes mr. dillingham for his opening statement.

>> thank you mr. chairman, members of the subcommittee. my statement today discusses three areas. first, an overview of the findings and recommendation from our 2008 study that focus on some of the key challenges to safe integration of unmanned aerial system in the national air space. second, dhs's role in the domestic use of the system, and third, our observation on emerging issues. in 2008, the four key challenges we identify to integration were the ability of uas to sense and avoid other aircraft, ensuring unsphwrupted command and control, the development of standards to ensure the uav be establish safety, reliability and performance requirements, and finally, to ensure that the regulations being developed for unmanned aircraft be equal to existing regulations for manned aircraft. to address these challenges, they developed a matter of

congressional and three recommendation two for faa and one for dhs. we recommended faa issue a comprehensive uav program plan and establishes processes to obtain available operational data. we have closed those recommendation as being implemented. we suggested that congress create an organization within faa to coordinate government and private sector efforts to address the safety challenges. and we also recommend that the tsa exam the potential security related to uas and take appropriate action. behave closed matter for congressional consideration and the recommendation to tsa. it's not being implemented. regard dhs role with them in the national air space, dhs is one of several partner agencies of faa joint planning and development office, that is working to integrate uaf. faa has granted custom and

border protection to operate the ten uaf to support the national security issue along the u.s. northern and southern borders. it's providing support other other federal and state agencies in carrying out their missions. as a chairman described in the opening statement, tsa acting in the role lead agency for transportation security, in 2004, issues an as provide i are which indicated that the federal government was concerned that uaf could be mod fighted and used to attack key assets and infrastructure in the united states. neither dhs nor tsa has taken any significant action to implement the 2008 recommendation to exam the potential security implication of uaf. according to the tsa official in 2008, an again as recently as this month, they believe that the agency current practices are sufficient no additional actions are needed.

with regard to emerging issues, our ongoing work is identified three key issues that warrant further consideration. first, is private sei, as it relates to collection and use of surveillance data. members of congress, civil liberty organization and civilians have expressed concern at the potential increase use in the national air space by law enforcement or commercial purposes has potential private sei implications. currently, no federal agency has specific statute story responsibility to regulate privacy matters relating to uaf. stakeholders told us by developing guidelines that are appropriate for the appropriate use of uaf of could in fact preclude abuses of the technology and negative public perception of the potential uses that are planned for these aircraft. a second emerging issue is owners of model aircrafts do not require permission or license from faa to operate their

aircraft. as chairman described in the opening statement, a man in massachusetts pleaded guilty for plotting to use a large remote control model aircraft filled with c4 plastic explosive to attack the pentagon and the u.s. capitol. this kind of incident highlights the potential for model aircraft to be used to cause harm. a third emerging issue is a potential for jamming of gps signal that control uat. in a jamming scenario, the aircraft would probablily lose the ability to determine whether it is locate and in which direction it is traveled. low cost things are ready available on the internet. mr. chairman, rehabbing has been, and member of the subcommittee. we plan to issue a full report to the subcommittee and other committees on the congress on the uaf work later in the fall. thank you, mr. chairman. >> thank you for the good work. chair recognizes another fellow

texan. chief mcdaniel. >> thank you, sir. the sheriff office is the seventh largest in the state of texas and is responsible for law enforcement services for a county that covers over 1,000 square miles. it has a population of over 471,000. as indicated, it is an extremely fast growing county. the county is diverse, in geography as well as population, with the extremely urban area with a very dense population on our southern border with houston and harris county. to an extremely rural area in the northern portion of our county. the sheriff office is committed to protecting the lives and property of the people we serve, and since my sheriff took office in 2005, we have sought out new and better technology to enhance both our efficiency as well as our effectiveness in carrying

out our public safety mission. i believe the uav systems now available to public safety agencies are exactly the type of technology that will makes more successful. it is not just a law enforcement tool, but a public safety asset that can now be used by fire departments, emergency management offices and other government tal universities as well. the sheriff office has owned a shadow hog uav since december 2011. we have not used it for an operational mission to day, we see the benefit and the mission profile for swat operations, high-risk warrants with locating lost persons, manhunts, hazard material spills, fire scene, traffic accident investigations, or traffic management and observation due hurricane evacuations.

we did not obtain this for the purpose of surveillance. i do not believe small uav such our shadow hawk are particularly designed or suited for that type of mission. the faa has expertise in the aeronautical field, they don't have the necessary public safety mission experience to effectively oversee this type of operational environment. if federal oversight is necessary, it would seem appropriate to establish it under the department of home land security. different from the air gnat call component, the faa would continue to manage dhs would manage the operational aspect by setting an enforcing operational guidelines and procedures, belier a data base relating to the uav, agencies using them mission results and act as resource in information tool for

current and interested public safety agencies. current case law supports the use of air assets by law enforcement, and i do no believe it is necessary to introduce new legislation that would so veer -- severely restrict the uav effectivenesses. i courage you to recognize as an important tool for public safety agency. i believe in this technology and the mission of protecting the citizens of my county, my state, and this nation. >> thank you, chief. we recognize. >> mr. chairman, and members of subcommittee. thank you for the opportunity to testify today. my name is amy i'm associate at electronic privacy sei information center a nonpartisan research organization in dc focused on a public attention on

emerging issues and privacy and civil liberties. we thank you for holding the hearing today. drones greatly increase the capacity for domestic surveillance. they are specifically designed to carry highly invasive technology. they are cheaper too buy and maintain. they can operate undetected in urban and rural informations. sensitive information is particularly vulnerable to unlawful access. as briefsly discussed they are not secure. observed in comments faa on drone test site location. it pose a threat. hackers are not only able to gain control they are able to intercept the data feeds transmitted by a drone. we recognize that drone technology has very positive uses in the united states. it can be used to monitor for environment use. help prevent the spread of

we'res. however, there are substantial legal and constitutional issues involved in the deployment of aerial drones by federal agencies. as drone technology becomes cheaper it will become more wide spread and the threat to privacy will be more substantial. ethic supports compliance with currents federal law for the deployment of drone technology and limitation for federal agency and other organizations who obtain. the current state of the law is insufficient to address the threat. legislation is needed to protect against the use of drones surveillance tools and to provide for redress against drone operators who fail to comply with the protection. congress directed the faa to develop regulation encourage wide spread of drone in the u.s. the fourth coming regulations -- public and private drone operators including dhs and the custom and border bureau. earlier this year in a formal petition to the faa they urged

the agency to conduct a rulemaking to implement the rulemaking for privacy drones. it was joined by more than 100 organizations, experts and member of the public who believed the privacy rules were necessary before they entered the skies in a more wide spread way. they have not spending to the ask q for agency action. they mean there is no administrative framework in place 0 to regulate drones in the skies. as currently been mentioned they operate ten drones in the united states. the dhs inspector general recently assessed.

several of the colleagues have made efforts to address some of the privacy threats to drone. we believe those efforts are not suffer. there are simple steps that we believe can protect privacy as use of drones increase in the sky. first congress should pass targetedded legislation initial step would be the passage of the bill to limit drone surveillance in the united states in cases where a warrant has been not obtained. however a fully address the invasive nature of drones new legislation must prohibit nonspecific untargetted drone surveillance, limit the use of drone surveillance data collected, transmitted, stored or shared and require knows notice of the politician. the law should provide for independent. second should expressly require drone operators including dh sb

and the implement regulation subject to public notice and comments that address the privacy implication. and finally, i think congress should clarify the circumstance in which they purchased by them in the pursuit of the mission may be deployed for other purposes. the failure to make clear the circumstance on federal and state agencies may deploy dproans for aerial surveillance has raised significant concerns about the program. once again, i thank you for the opportunity to testify today. i'll be pleased to answer your question. >> thank you. we start first with you mr. dillingham. you mentioned tsa identified the potential terrorist threat through the use of these uav systems, you know, the in colombia and talk about hezbollah, and then of course the concerns came to in last september when it was reported by the associated press to blow

up pentagon and u.s. capital is arrested and it was a drone he was going use to do that. >> yes, sir. >> the united states capital and the pentagon, the very targets of 9/11, and yet the department, as you recommended through the gao, the department has a role in this. to provide a security assessment in a national policy. the department apparently disagrees with you. and disagrees with me as a chairman. and refused to provide testimony before the committee here today. i find it in re henceble. i think they should become before the committee. we had a direct threat to the capital of the united states and the pentagon, if they don't see it as role of the department of homeland security to come up with a policy and a security assessment to monitor the threat that these domestic drones can

pose to the american people. do you have any idea with their rational is? >> mr. chairman, we specifically followed up in preparation for the hearing, but before that they had the policy once we issue a recommendation we do periodic followups because of the agencies are not only responsible for reporting to the gao they report to the congress. we followed up repeatedly and asked the tsa again about the position had their positioned change? they indicatorred the position had no changed. they added -- their added comments were they were doing -- they were taking actions that they thought were sufficient to address the issue. and as you know, one of the central tenets of tsa security are risk analysis, or risk assessment so they know where

they would best deploy their resources. we asked for some evidence of risk assessment that was done with regard to uav or uaf we were not able to obtain that from dhs. so that we still think that our recommendation is valid and needed to be addressed. for balance, though, let me say that dhs is participating with the joint planning and develop office as part of the cross government-wide development for plans. in terms of what the nature and scope is position beyond being members of the particular group. we were not able to ascertain at this point. we continue to work that issue for our full report. >> i can't ascertain it either. if they won't come before the committee to describe what they're doing, how can we no? they are taking certain precautions, yet they will not come before the committee to

tell us what brie cautions they're taking. >> yes, sir. and they have defied not only you but the committee and the america people. i'm not pleased, obviously. let me go to chief mcdaniel. you receive homeland security grants to purchase these drones. is that correct? >> that is correct. >> they have no role. >>s no sir. i hope you're saying that. you believe there needs to be federal oversight by the department of homeland security. >> yes, sir, there is a difference between the aviation aspect of that certainly the faa is entitled to as experts in that environment, but they do not have the understanding the expertise that i believe an agency such as the dhs would have in understanding the operational roles and missions that in our case, law enforcement would have in the need we would have. >> i tend to agree with you.

i think faa provides the safety or the routes but not security. tell me just very briefly the legitimate law enforcement purposes. i believe there is legitimate law enforcement purpose for the use of these domestically can you expand on that? >> well, we have periodic needs for our s.w.a.t. team to be called out and respond to critical incidents involving barricade suspected, high-risk warrants, and this is an asset that provides that incident commander with a situational of awareness to see everything that is going on within that incident so that he can better manage that incident and bring it to a safe conclusion. >> i agree. i think it should be limited to specific instance or within a legitimate law enforcement purpose. i think what most american people do not want to see are thousand of these drones being

ice of the sky, sort of spying on the american people. i think it takes me to you. when it comes to the priseres sei issues, i think which are a legitimate concern. i think people can accept if this is being used for manhunt as we use law enforcement helicopters are used in the sky for various legitimate law enforcement purpose balance we they don't want to see is sort of spying with emission involvedded in the plan. there is no policy. the department of homeland security has an office of privacy. don't you believe they should be involved in working with people like yourself and people like the sheriff and the gao to develop a privacy policy? >> i think they believe that. i think a great first step they have the most robust privacy office. they didn't done a privacy impact seas assessment on the own drone program which is one

of the most robust and the most public sized. they have not gone in to determine what impact the drones will have on the american public as they use them. we think it would be a great first step. after that has been completed to go in and monitor these and determine what they can be used for and what they cannot be used for. >> let me conclude by saying that you may not agree on all of the issues, one thing you agree on, is that dhs has a role to play whether it's providing a security analysis working working with state and locals and with privacy. and i hope this hearing gets their attention, i hope your testimony gets their attention, the step forward step up to the plate and do something about this. with that, i recognize ranking member. >> thank you, mr. chairman. chief mcdaniel. i'm not saying by any stretch of the imagination you would do this. a question for you, if there was

a law enforcement person chief or other official who wanted to replace the rubber bull lits with real bullets. do you know of my any state rule stopping anyone from doing that? >> i'm not aware within the state of texas that would prevent that, no sir. >> i would suggest that's probably it'll typically for all states. do you think we should be looking at it both federal and state ?refl. >>? certainly i can understand it as being a concern. the twawlty of that ever occurring is slim and none in my view based upon the platform, the accuracy required, all of those things that go into it lethal or less than lethal situation, i don't believe the uav are appropriate for that type of weapon platform. >> thank you. the question for -- i

apologize. i can envision probably in the more extreme example the press or someone else, you know, how they invade someone's privacy right now, abusing these vehicles, and is there any way even besides criminal law and other lawsuit, is there a way we can trace is someone is photographing or doing some video cam work on people in the private lives out in the backyard or in front of the pool or whatever. is there a way we can trace that so there can be civil action. perhaps do you think there is available civil action in that respect that could be brought forward? >> on the state there could be. so you to look to the peeping tom laws. some are specific. and they require the motivation to catch person in the state of undress. other than that, there is no legislation that would address those circumstances. and right now, can the opaque

process for licensing the drones to be used and the fact that hobby yis can gain control of a drone and use it no matter without getting a license at all, there is additional barriers to it. especially the press using these. >> in addition to homeland security the faa should be involved in set these kinds of regulations? >> i believe the faa has a role, i don't believe that they are set out to go the full distance the department of homeland security can go. they are licensing authority. within the authority they have the ability to request description of what a drone is going to be licensed for what they will be used for and hold the licensee at task to that purpose. we don't believe that is taking place right now. we think it would be an appropriate function of the faa. >> okay. conclude by commenting that i agree with the chair as well. is there some need of some kind of oversight because the privacy rights are in danger. there's potential for terrorist activities that are involved. and misuse that way there should

be some kind of, you know, control other than good common sense of law enforcement as to how it is used as well. so we're hopeful that we can follow up the hearing with that kind of input from homeland security and perhaps faa. thank you. >> ranking member for the congresses, thank you. we recognize mr. duncan from south carolina. >> thank you for holding this hearing. i want to follow up. i think we need a hearing with faa to bring them questions about what they're doing to implement permitting and certificates in the country with the flying of unmanned air ideal systems because we have a lo rough bust civilian aviation population in this country. and if you have visual flight rules and you have a civilian avenueuateer that goes up on the 172 he's not on following a flight plane. he currently probably not looking to see if there's a certificate are whether the

sheriff is flying a drone in the area. they're not looking for other aircraft in the air space. they're looking down at whatever their surveilling. thing is a real threat to civilian aviation with unmanned aerial systems. especially if we see dramatic increase projected based on the information provided. we need talk to faa with regard to civilian aviation and flight rules. the gist of my concern about drones and unmanned aerial systems is the privacy issue. it's a real issue, real concern to the constituents that i represent, real concerns to american across the land great land on what the government is surveilling. we had recently an episode in nebraska farmers were upset that the epa was flying aircraft and possibly uav to check their fencing. and whether their callets cattle

were getting in streams are they going to use that for that going forward? i'm a cosponsor of austin scott's bill which is an important piece of legislation. when i think about privacy issues i think about what we have done on the war on terror and surveillance of people we suspect are involved in terrorism. in order to listen in their phone conversation cell phone or landline, it defies the courts involved. are they going to be involved unmanned aerial systems surveying american citizens on the country in whether their activities are whether it's terrorist or narcotic activities. where is the right of privacy? and where does a court such as this get involved in this? i think these are legitimate questions we need to ask. we have a office of privacy within the homeland security the chairman mentioned earlier, that office of privacy is there for a reason. it's to make sure that department homeland security is involved in making sure that the

privacy rights of the united states citizens aren't violated as we try to protect the great country. is that office of privacy involved with the department of home land security with regard to unmanned aerial system? it's a vailed question for us to ask. i want to thank amie for being here. what methods do you feel are best to cooperate with the growth in uafst? >> we thing the best principal to look at transparency and accountability. we are looking at again, proceeds at faa to make sure that drone operators aren't allowed to utilize their drones for purposes outside of what they have initially been licensed for. we want to see dhs implement regulations protecting privacy and ensuring they cannot been used for jenizes surveillance. we think that is not in line with constitutional principals and should not be used. we would like to see as we proposed in longer statement,

legislation that is geared towarding protecting these rights. we think it's important do this now as previous witnesses have stated. violations have no occurred yet. if we wait for the drones to go in the air, before we ask i think we're going regret it. >> thank you for protecting civil liberties in the country and what you're doing. i come from south carolina we're on the coast. there's a threat of hurricanes. i can see and understand certificate issues for weather epa or homeland security or some organization to fly the coastline prior to a hurricane coming in to assess changes in the environment take real time actual aerial photographs that can be used. i can understand a certificate being issued for custom and border patrol if they know terrorist an area of the border being exploited one sometime certificate. i can understand the need for some sort of privacy committee

to issue those certificates. i can understand a one-time certificate or temporary certificate being issued to a sheriff if you had a prison break or a lot of drug activity. these are isolated incidents. they aren't carte blanche of flying unmanned air row systems across the system. i want to ask mr. dilling hamming why has the department of homeland be so slow to develop the use of drones? >> that's a good question sir. we have not, able to get an answer from dhs or tsa why they have not followed our recommendation. we have been told by many state holders that it's better to act on these potential issues before we have a crisis or before some of these things occur. oftentimes, not only does it take regulation two or three years to be enacted, but often

times when regulations are acted enacted in a crisis situation, sometimes they aren't the best work that the agencies do. so we have been -- we continue to follow up with dhs and point out we think that have a role in the uav situation as well as both in terms of privacy as well as security. >> all right. i don't want to wait for a crisis situation. i know, the chairman as well as i think i know him. i think we'll have department of homeland security sitting where you are to ask questions. i yield back. >> thank you. let my say not been slow, they have completely disregarded mr. dillingham and the gao and defied the committee by indicating that no role whatsoever in the domestic use of uav. i recognize mr. clark.

>> thank thank you very much, mr. chairman. let me add to my voice of that of my colleagues about concern with respect to dhs and their response to this committee. clearly this is an emerging threat. and it is certainly within the jurisdiction of dhs to respond this committee about subcommittee and the request to know where they stand with regard to this, and it's not acceptable to not participate to not share with us their thinking. when you think about the implications of these devices, dr. dillingham, you note in your testimony that currently no federal agency has specific statutory responsibility to regulate privacy matters related to uaf.

do you agree with that the responsible agency should be dhs and in your opinion, which agency is best positioned to take this on, and why? >> i think i'll answer at this point, we're probably not in a position to say who should be responsible, but we think the process that is joshedway now firms of the potential agency incoming justice homeland security, faa, should be working together as to figure out who in fact is going to take the lead in the particular areas. because it's no one's mission at this point because uaf didn't exist in the domestic area before not too long ago. we think it is something for collaboration and cooperation but definitelying definitely something that needs to be attended to now rather than

later. >> do you agree with that? >> we do agree. we grow as other agencies implement drones in the united states, we think that those agencies should also take on a role in regulating and protecting privacy of the people who may be coming under cor vai lens because of the operation. >> madam, the organization representing uav manufacturers and operator recently release and industry code of conduct. it included some privacy safe guards. more over compliance with the guidelines of both voluntary and un enforceable. although the attempt to address the concerns can you explain official action with enforcement is necessary? >> i'm holding the voluntary code of conduct right hire. it's one page front and back. all they say on privacy is we will respect the privacy of individuals. as you mention both voluntary

and nonenforceable. we believe without official action if everything is left down to one line privacy will be not sufficiently protected. >> is there a particular down study for the manufacturer in not providing a more robust code of conduct? >> many privacy experts including rhode island yab former professor of stanford has said that people in the united states will be very he substantiate to accept the adoption of this technology if they are not put into place. prior to the adoption of it. so we believe that if we don't address this now, there will actually be a viz really a reaction from the american public and that we will not be able to comply with the spirit of the faa act which requires that drones be allowed into this united states national air space. >> from a commercial use standpoint or a local law

enforcement standpoint, is it within the best interest of manufacturers to strengthen their code of conduct? >> we believe it's not only in the best interest for them to strengthen the code of conduct, it is also in the best interest to support large scale legislation and regulation related to privacy. >> thank you very, mr. chairman. i yield back. >> i thank the gentle lady. we recognize the chairman from missouri. >> thank you, mr. chairman i guess for my in you to answer, can you define a drone for me? is there a certain size or altitude that it nighs out? what substitutes what we're trying to deal with? >> i guess i'll try and start. it varies, sir. it varies from hand held model airplane types to ones we're

most familiar with in terms of predatory and the global hawks that are used mostly in the war theater. what we're talking about here for the most part, are what's called a small uav which is what faa is trying develop a rule for. and that is, i think, less than 55 pounds, and relatively small in size. >> okay. to fly and -- are you familiar with that? >> i've heard that phrase before. it could be the size of flying trash can. or it could be the size of a humming bird. >> i thought you said 55 pounds. >> right. i'm saying it varies in size. the small uav rule that's being worked refers to that size the 55 and down. >> 55 and down, sir. >> okay. i know that the flying trash cans originally when they were developed, i think part of their

thought process was to use them for police work, if you're in a neighborhood you're chasing a suspect through several buildings or whatever they can fly that over at fairly low altitude, but just had a question on that. and to answer mr. deng can, the question a part of it maybe not answer. i think the transportation infrastructure committee has tried to tackle the problem of getting in general air space and aviation and faa air space. ic that is a separate maybe issue that's hopefully we're trying to handled on that angle. anything that can be seen by anyone driving down the street flying a helicopter, i guess i would say.

you're f you're driving down the street and a guy is sitting on his lawn smoking marijuana. you have a right to arrest him. >> right. >> if he's in the backyard and has a privacy fence you're not allowed to put a ladder up or not? because it's not available to people? >> the norm is to be able to view it from what the public can see. >> okay. that's kind of where i was -- my hill billy way of getting there, i guess. 30,000 feet or whatever these -- we always think about of the predatory drones that are armed and have been successful in a lot of military operation. my constituents and i think a lot are concerned that type of surveillance will be at the not armed you can't see them or hear them. but is that a whole different

level than what we were talking about a second ago being able to see what you can normally see? >> certainly. the utilization of the uav over an area would open it up to view from law enforcement or any other governmental entity. >> these small ones we're talking about today the 55 pounds and belows with the flying trash can. i have seen them. i think they would be fairly apparent to people, i'm not saying operate. i've seen it on the shelf. where they develop them. as far as the sound they put out, things like that, are those that most of those are they going people going to be acknowledge there is something flying over their farm or house or looking to see if you're shooting up. >> that's an excellent point. the uav that public safety agencies law enforcement ftd are using are looking do to scare --

utilize are not the global hawk or the predatory in $30 million a copy. they are small in stat chiewr. the maximum time allot of on our shadow hawk is two hours and twenty minutes. >> at what altitude? >> no more than 400 feet aboveground level. >> people are going to be able to privacy will be alleviated aassume with that type of. >> absolutely. a that altitude and the type of engine it has, it sounds like a very powerful weed eater, and you'll be able to notice that it's above. >> maybe you could make a weed eater out of one. it would be handy. mr. chairman,, the department of homeland security will not testify before the subcommittee and the department of homeland security. is that correct?

i rest my case. thanks for the point. i'll close on it as well. chair recognizes for the third time during the hearing from texas. >> it's refreshing to hear my good republican to talk about civil liberties. thank you. appreciate that. but what one more thing out epa story by foxx. they took it back. it was not uav. it was aircraft they have been flying for the ten years both under democrat and republican. ..

>> the supreme court has already interpreted different cases. for example, talking about aircraft. keep in mind that the supreme court has argued talked about using cameras on aircraft. this time it is a uav. it just just make sure that we all understand the supreme court aspect. there is a expectation of privacy when it is inside the

house, it is a different type of privacy. the business has less expectations and inside the supreme court or the springford has talked about the doctrine and you are familiar with the dow chemical company versus the united states. also familiar with the doctrine of california versus serrano case. the supreme court said that the police did not have to obtain a search warrant on a [inaudible] is that correct? also -- the court also defines aerial searches in florida and chief tommy mentioned the

400 feet. they did not need a search warrant when buying a helicopter above 400 feet. in this case, a different type of platform. if you are flying about 400 feet, no search warrant. but if you are flying below 400 feet, and i believe most of the law enforcement and those uavs will be a 400 below. therefore, if it is -- if you are flying at 400 feet in altitude, at that time you would need a search warrant whether using helicopter or a uav, probably not an airplane, but a unit. the supreme court has already laid out the law and what it is. i do agree with my colleagues here that we probably need to look at some legislation. but as we draft the legislation. we have to keep in mind that the supreme court has already defined open doctrine

expectations. is that correct? >> yes, sir, that is absolutely correct. as far as case law goes, there is no difference between establishing a separate type of case law for uavs. the manned aircraft component is nothing more, compared to a uav that has them on the ground. they are the aircraft assets. >> the dow chemical company versus united states, airborne use of thermal imaging. here is another case where technology is being used. i'm fascinated by it, but i do understand there are concerns and that the doctor had just

testified -- i looked at his recommendations. they are good recommendations. i think we need to look at those recommendations. all i am saying is that members -- there already is case law on a straight the supreme court has ruled on us. if we do any legislation, i would say let's look at the legislation of the supreme court. let's use common sense and applying some of this. and put trust in our law enforcement, which i appreciate and having three brothers and one is a quarter share. i appreciate the work they do. thank you very much, mr. chairman. >> i thank you, gentlemen. i would like to thank the witnesses for being here. as a former federal prosecutor, i understand -- is there some i missed? >> yes. >> oh, my goodness. mr. davis. i sincerely apologize red. [talking over each other] [talking over each other] >> you really have a lot to ask him about when he asked it.

you talk about using instruments -- that that could become a problem. you mentioned that. can you mentioned a little bit more? >> yes, sir. one of the emerging issues that we have identified is the potential that the controls of these uavs in flight, again, we are talking about the small ones as opposed to the encrypted vod type. they could, in fact, be jammed in great command and control. linked with uav. meaning that the uav could go off course. not necessarily or could include

being taken control over, but clearly breaking that commanding controlling the appropriate persons or organizations that we are controlling. it is something that needs to be addressed now before we have these potentially serious kinds of incidents. >> thank you very much. let me ask you and chief mcdaniel. the davis act is collective. could you describe what kind of data it is. what it is used for and how long is it chats. with the individuals have any idea that this data may be collected that involves them?

>> the only data that we are collecting off of our shadowhawk is color video. we can convert that to both still photographs or video. depending upon the situation, we would obviously store that video for criminal purposes. i.e. if our swat team is going in on an individual or it it is a high-risk warrant, we would also have that video or photographs preserved as evidence. it does have a system, a forward-looking infrared camera system. however, the idea behind that was more for searching for lost persons in our national forests to be able to identify them. >> let's say you have a tip that a farmer was using some of his or her acreage, and they had a

plot of marijuana growing. and you wanted to check that out with one of these vehicles. would there be a way to do that without requiring a search warrant, or would you be within limits? how would you handle a situation like that? >> as indicated earlier, the supreme court in 1924 established 1924 doctrine that allow those things to be observed that the majority of the public could see. in responding to the example that you present, the reality is, and this is based upon law

enforcement, investigation techniques and etc. -- utilizing this drone to observe a marijuana field would not be appropriate. it would not be a good investigative tool because of the constraint that the faa puts on the use of uavs by law-enforcement agencies. find no higher than 400 feet atl. and because of the noise in the sight of it. if we are trying to investigate whether there is a marijuana field to continue with their investigation and ultimately arrested suspects, the uav is not it. >> sir, are you comfortable that enough attention is being given to the individual rights and civil liberties of citizens,

given the use of this type of surveillance? >> i'm not sure that comfortable would be the right term. we do respect the fact that law enforcement is not at this time and use drones for broad and untargeted access. with verse that to supreme court precedent, it allows for aerial surveillance in open fields. however, recently the supreme court did investigate a case in u.s. versus jones of police using gps without a warrant to track a suspect. drones allow for the same type of pervasive and intensive surveillance that the gps allows for. and in that case, justice scalia wrote in circumstances involving dramatic change for the best resolution to privacy concerns must be privacy regulator. we represent a jump in technology with drones with

normal tracking of an individual with policemen and a police car come as drones represent to aerial tracking in a helicopter airplane. >> thank you very much, and thank you mr. chairman for the very interesting information. i yield back. >> thank you, mr. davis. i apologize again for my oversight. >> speaking of oversight, this has been a very productive and insightful hearing. let me just close by saying that as a former federal prosecutor, i recognize the value -- the legitimate law enforcement value of technology. i think the balance is privacy and security. obviously the fourth amendment applies here. the case law is that were set forth -- it is there. i have stated my prior career. this is an evolving field. there are thousands of the things that can be deployed in

the skies. in the next couple of years, we may see more than a couple thousand, maybe 10,000 of these things. i think it is incumbent upon the department of homeland security to come up with a policy. to come up with a security analysis. i think one thing that we can all agree on, on both sides of the aisle of this committee, both republican and democrat, and i think all three of the witnesses -- they agree on one thing. that is that dhs has a role. i think mr. billingham -- local law enforcement does the backend. and ma'am come as a expert of privacy, she should be involved in this issue. we cannot walk away with that as a common goal and understanding. i hope that this week that the department. withoutcome i do want to thank

the witnesses. i think the members for their questions. thank you so much. this hearing is now adjourned. [inaudible conversations] of 2013.le conversations]

this is two hours and 15 minutes. >> good morning, ladies and gentlemen. the house armed services committee meets to receive testimony from our industry partners on the challenges of planning for sequestration. since we began this hearing, back in september of last year, we have held seven hearings and one briefing on sequestration. the bulk of which have delved into the impact of sequestration on our military capabilities and national defence. today we are holding our second hearing focused on the economic impact of sequestration. this time, focus on the implications for the defense industry base that enables and supports our war fighters. joining us today are mr. bob stephens, chairman and ceo of lockheed martin. mr. sean o'keefe, chairman and

ceo of eads. david hess, and della williams, president and ceo of williams. i should note that mr. o'keefe also chairs the national defence industry association and mr. hess chairs the aerospace industries association. ms. williams is on the board of the national association of manufacturers. barring a new agreement between congress and the white house on deficit reduction, over $1 trillion in automatic cuts known as sequestration will take effect. although the house has passed a measure that would achieve the necessary deficit reduction to avoid sequestration for a year, the senate has yet to consider legislation. the president's budget submission which saw $1.20

trillion in alternative deficit- reduction through increased tax revenue was defeated in a bipartisan and bicameral manner. this impasse has created a chaotic and uncertain budget environment for industry and defense planners. while the cuts are scheduled for implementation, companies are required to assess and plan according to the law and sequestration is the law right now. we have all heard the growing number of estimates. secretary panetta has warned seek restoration would be catastrophic to our military and result in the loss of 1.5 billion jobs -- 1.5 million jobs and a 1% increase in the unemployment rate. this would send 200,000 men and women in uniform from the front line to the unemployment line. it would result in the smallest

ground force since 1940. the smallest number of ships since 1915 and the smallest airforce in its history. the national association of manufacturers warned that dramatic cuts in defense spending under the budget control act of 2011 will have a significant negative impact on u.s. jobs and economic growth. the manufacturers forecast and one by dr. stephen fuller on behalf of the aerospace industries association has estimated private-sector job losses at over 1 million. faced with the process -- prospect of being forced to lay off four -- workers and give bad news to shareholders, industry leaders have been attempting to get more guidance from the administration. -- on how they will interpret and implement the law.

to date, the guidance has been piecemeal. last fall, the pentagon stated that war funding would not be sequestered. then in may, the omb overruled and declared that while veterans' benefits woul be exempt, funding for the troops on the front line with not be exempt. in june 2012, secretary panetta met with various defense industry's executives to discuss the impact of sequestration on their operations and to gauge the current state of the industry in general. in addition, press reports indicate that the director of the office of management and budget met separately with heads of several major defense companies. unfortunately, it does not sound like industry learned much from those meetings. reports indicate omb does not plan to issue implementation

guidance until at least november, less than two months before sequestration is scuttle to take effect. my fear is that the guidance will come much too late. industry faces a host of planning canada's -- planning challenges. not the least of which is the act which requires most employers to provide notification at least 60 calendar days in advance of mass layoffs and plant closings. in some states, the requirement is 90 days. that means defense companies are currently grappling with whether to send tanks slips by november 3 to their employees. in addition, i worry that the cavernous silence from the

president will lead many to exit the industry or to walk away from capital investments that are in the best interests of our troops. as i have said many times before, the men and women on the front lines have on our backs. who is going to have theirs if we allow the impending threat of sequestration to shutter the american industrial machine that enables them to fight, win and return home safely. this overdue guidance from the administration on how the -- on how they intend to interpret the law and implement sequester mechanically is critical to employers, not to mention congress. i look forward to our panel with the director of the omb on august 1. we all believe there is strong bipartisan agreement that

sequester is bad policy and should be replaced. my hope is this hearing will provide additional incentives for the administration to provide more information to employers and for all parties to resolve this impasse. i look forward to your insights today. mr. smith. >> thank you, mr. chairman. i think our witnesses for being here to discuss this important subject and give their perspective on it. there -- i agree with the chairman that sequestration is not a good idea. it would be bad for our economy, bad for defunds -- bad for our defense. it is-across-the-board cuts in all discretionary spending -- education, transportation,

infrastructure and on down the line. the part of the problem is the budget control act was not well drafted. i have heard dozens of different opinions about what it means and what exact effect it would have theory but is exempt, what is not and how it would implement it. nobody knows for sure until we actually do it. that is part of what the administration is wrestling with. i do not think there's any dispute that there is bad. i have not heard the white house disputes that. secateurs panetta has explained how awful sequestration would be. -- secretary panetta has explained how awful secret station would be. the burden of this house committee and house is to get rid of it one way or the other, to make sure it does not happen. if it happens, it will have a profound and negative impact. this is a problem right now. we tend to look at it and say

sequestrating kicks in on january 1. but all of you and thousands of other employers are making decisions right now and based on what date reasonably project will happen in the next fiscal year. those decisions are leading people to hiring less people in some cases, laying them off in a petition -- thinking things will be cut off. we also have to look at what has gotten us into this. there seems to be an opinion that while this is a terrible thing and it is incompetence that is preventing us from dealing with it, it is not. it is more denial about the fiscal situation we are in. we are only here because of the refusal of the majority of people in the house to raise the debt ceiling. this deal was done at the all -- as the only way to raise the debt ceiling and stop the united states of america from

defaulting on its obligations for the first time. it was only that blind notion that somehow not raising the debt ceiling was a solution to our fiscal problems that forced us into this awful decision. a decision which i did not support, mainly because it put all of the burden on the discretionary budget. we had a $1.20 trillion deficit. a 38% deficit that needs to be addressed. so far, we have put the burden on that on the backs of 38% of the budget which is the discretionary spending budget. we have refused to talk about revenue. the solution going forward double help us come up with the deficit control steps necessary to avoid sequestration -- admit that we are not balancing the budget anytime soon. we would love to have a balanced budget but there is not an economist out there that will not tell you doing that in the near term would be devastating to the economy.

our role is to get those deficits under control but we cannot hold hostage steps that will do that to the notion that we have to have a balanced budget right now or even in the next three, four, five, six years. second, everything has to be on the table. we are going to need more revenue. we have cut taxes across the board. if we are truly committed to providing for the men and women who serve us and for our national security, we have to be willing to raise the revenue to pay for that. that is a critical piece of it. yes, we also have to look the other 62% of the budget. the mandatory spending and savings there as well. right now, there seems to be this desire for a balanced budget. also a desire to not raise revenue and not to cut any spending that is important. those numbers do not add up.

i hope this committee can begin to be a part of the process of starting a realistic debate that can avoid the awful outcome that would come with sequestration and the awful outcome coming every day we delay making it clear that it will not do sequestration. i look forward to the testimony and the discussion. thank you. >> thank you, mr. smith. and thank you again, each of you for being here today. this is probably one of the most important hearings i can remember attending and we really appreciate your willingness to be here. mr. stevens, if you will begin, please. >> could morning. chairman mckeon, distinguished

members of the committee, i thank you for this opportunity to i expressed our industry perspective on the impact of sequestration. i will submit a prepared statement for the record and offer a brief summary. >> no objections. that goes for each of you. >> thank you read as chairman and chief executive officer of lockheed martin, i am proud to represent 120,000 hard-working men and women who are the foundation of our business. we are a global security company operating in 50 states in 75 countries. our work force includes 61,000 scientists and engineers and 26,000 military veterans. our company consistently higher is the largest number of graduating engineers from u.s. universities compared to any other company. we receive more than 1 million resonates each year from -- resumes each year from people who want to help keep our nation

safe and secure and ensure the united states lead the world. lockheed martin is the largest provider of information technology services to the federal government and we have a business presence in virtually every federal department or agency, including the social security administration,nih, the veterans administration and the federal aviation administration, to name a few. the men and women of our company play an important role in america's future and we all take that responsibility seriously. sequestration jeopardize is that future. from a national security perspective, defense secretary leon panetta has spoken in the strongest possible terms against sequestration. he said this process will have catastrophic consequences for our nation's defense and he described it as a meat ax. it is. the cuts were developed independent of any correlation

with national security strategy , technology needs or operational reality. those cuts will be detrimental. from an industry perspective, our near-term horizon is completely obscured by fog of uncertainty. with just 167 days remaining until it takes effect, we have little insight as to how sequestration will be implemented and no insight into which programs will be curtailed, which sites will be closed, which technologies will be discontinued, which contracts will be reformed in which suppliers, particularly small businesses who are vital to our supply chain, will be shut down or severely crippled. most tragically, we fear people be unable to provide the equipment and support needed by our military forces and we are unable to reliably estimate how many employees will lose their jobs and how many families are going to be disrupted. it might be flattering to believe that our industry is so robust and durable that it could

absorb the impact of sequestration without breaking stride but that is a fiction. the impact on our industry would be devastating, with a significant disruption in ongoing programs and initiatives leading to facility closures and personnel reductions that would disrupt a advanced manufacturing operations, road engineering expertise and accelerate a loss of skills and knowledge. it will undermine our aerospace and defense base which i believe is one of the crown jewels of the american economy and is vital to our country. beyond the fence, i think the broader consequences of sequestration also are not well understood. the abruptness and across-the- board nature of the cuts will hit hard virtually all domestic discretionary accounts as well. since most of our domestic departments and agencies do not have substantial capital acquisition accounts like the department of defense, that means the cuts will come from people through significant works

for los and personnel reductions double byte the constrain agencies in providing essential support and services and filling their missions. sequestrating constitutes a blunt force trauma. it is likely to tear the fabric of our industry and affect our national security and -- i do not profess to have the with them or expertise to give counsel to this committee or the congress on the precise path forward to resolve the fiscal challenges our nation is facing but i have spent a decade of my professional working life in the national security arena and i have never been as concerned for the risk of the health of our industry and government enterprise. sequestration has been described many times to me as a doomsday device, a threat that was designed never to happen. but the effects of sequestration are being felt right now throughout our industry. every month it goes by without a solution is a month of on --

additional uncertainty, deferred investment, lost talent and increase costs. i urge you to take action to stop the sequestration process and ask that you do so soon. >> thank you, sir. >> i appreciate the opportunity to appear here today on behalf of the 90,000 members of the national defence industrial association which i served as chair. in addition to representing eads, the world's largest aerospace and defense company, i am particularly cursed by a memory of how this particular provision of public finance was first introduced into the federal process as a mechanism to enforcing some measure. when it was enacted in the mid-

1980s, it was intended to be indiscriminate. across the board by precisely the same amounts, the logic was 25 years ago, the method was a substitute for rational judgment. and choice of priorities. because the process had failed to reach consensus on what those priorities would be. therefore exacting a precise amount was enacted. the logic was also that this method was devoid of of any priority selection. nothing would be more affected and therefore there were no priorities. if everything is the same priority, there are no priorities. the logic was this resource management mechanism was so stupid that the threat of it

would be a prompt all by itself to public leaders to avoid it at any cost. that was the logic. quaint as it sounds, 25 years ago. but it has been adopted a year ago as a mechanism now of enforcement following the debt limit extension provisions. that were then enacted to force this again. the consequences of this are serious. bob stephens has talked about efforts that would be applicable but the percentage that is to be applied while it ranges anywhere in the single digits to low double digits may sound like that will not be much of an impact. it masks the real consequence of this. the most severe is the administrative disruption that

will likely cost almost as much as what this mechanism is designed to save. by however much is sequestered, taken across the board without priority or application, to any sense of its value in which contracts are valued at exactly the same value as cutting the grass at military bases, the consequence of that may sound exacting in its precision but the effort to implement it would be much more disruptive than anything else. it will force inefficiencies as it has in the past. that has been demonstrated and documented in terms of its extent. it is going to implement and enforce a number of contract penalties kabul terminate a variety of different programs --

there are some efforts to select with an the amounts that are identified by the program product in activity definitions. even those definitions are still in dispute an argument over how they will be applied. so that will extend this even further. the cost will certainly increase as there is a change in quantities by contract. the cost of capital for smaller second and third tier suppliers will almost certainly go up as financing expenses, just to meet the cash flow requirements as progress payments are disrupted. once that is settled, penalties will then be applied as well. bob stephens spoke to the act provisions that will be an

across-the-board destructive effort. that has already started in some cases by notification to many of you and your colleagues as well as governors in 50 states. this provision may in fact have to be implemented. so it has already begun. the impact on second and third tier suppliers of which the national defence industrial association, most of its members represent, is going to be very significant. the disruption in that particular market is going to be one that may not sound like the percentage sound like a big deal. but just take for example suppliers to my company which does purchases, $15 billion worth of commercial and other activities in the united states every year. 70% of what we do is commercial, 30% is related to public contracts.

yet many of the suppliers are much the same period for aerospace article that apply and in some cases, we do roughly 30% toward the commercial side of the equation. the cost of doing business for many of the second and third tier providers is going to go up significantly. some of those providers will elect to either exit one element of the market, defense and in particular, or public spending and as a consequence, the options for competition to maintain cost competitiveness is going to be much different. in the $15 billion a year that my company invests to purchase goods and services in the united states. some of those seven tier providers will exit the market and when they do, there will be less choice and the cost of doing business will go up. in the defense market, those

same products cost in a public market at least on the order of 20% more to do business. those suppliers will exit the public defense market faster than any other. just to shed that 20% overhead that it costs to do business. as a consequence, it becomes an easy choice or one they are driven to in order to just survive. that is an opportunity to examine what that cost of doing business is uniquely to the public sector. if every article or most require roughly at the same comparability of its application in a commercial or defense context, why does it cost that much more just to sell to the

public? that has an opportunity for re- examination. defense business board has advocated a regulatory holiday. during the 1990's, the administration refer to this as a precarious and holiday. -- precairment the same can be e cases in which 20% of the cost could be reexamined on a case by case basis. it demonstrates -- they have come up with it. creative -- they have come up with a very creative methods to do that. that is to looking at a mine last application of no priority,

everything is a priority. that is an overhead that i would encourage as an opportunity to really look at what those expenses could be, to yield a lower cost and ultimately to accrue savings. maybe this is the most important element. while there will be -- a reduction in this area of domestic discretionary willpriations, it's resonate a different way. we are looking down and we have public servants for delivery of public services that require personnel and as a result, how the federal government goes about the process of determining how those reductions will be made is something you have to be heard from. while there may be a prospect of fewer tsa agents at the airport on any given day or

disruptions as a consequence of the faa air-traffic controllers not been asked to report for duty that day -- there will be fewer research grants because be nih or the national science foundation is withholding the grant that was required for research activity. all of those are severe impacts. by comparison to the impact that will be on the armed forces in the u.s., men and women in service will voluntarily -- the impact will be profound on them and their families. it is worthy of consideration of what the consequence will be that is far greater than anything we are talking about this morning. >> are you close to -- > >> and done.

i commend the committee for seeking resolution to this issue. i very much appreciate the opportunity to testify. thank you. >> thank you. >> -- is your mic on? get it close. >> i appreciate the opportunity to testify before you today regarding this serious matter of the potential for sequestration and the implications it has to our defense industry. as you know, i wear two hats. one as the president of the $13 billion company that employs more than 36,000 employees worldwide and second as the chairman of the aerospace industry association, which represents 300 aerospace companies across the u.s., which collectively account for 90% of the revenues for the aerospace and defense industry. i commend the committee on

assembling such a representative group of witnesses to provide diverse answers based on the different challenges faced by each of us in the coming months. the chairman of aia -- i have visited capitol hill to outline what we see with regard to sequestration, the potential to affect over 1 million highly skilled aerospace and defense related jobs. the campaign has been spreading throughout the country with grass-roots rallies, highlighting the importance of sequestration versus suffering its consequences. as an industry, we are already seeing the impact of potential sequestration budget cuts today. companies are limiting hiring and halting investments largely due to the uncertainty about sequestration cuts being applied. at our sister division, the leadership has already indicated that given this environment, if they had to choose between

investing and internal dollars between commercial and defense programs, the witches commercial programs. because of the uncertainty in the defense budget. that is a fair amount of uncertainty in the commercial environment right now. equally concerned are the impacts of sequestration on the domestic side as it relates to homeland security, border security, aircraft control, tsa, and other agencies. the sequestration threats facing other government agencies contracts the work force and affects our ability to do business safely and effectively. in the near term, some clarity from the office of management and budget about house sequestration cuts would be implemented will be helpful in terms of avoiding some of these impacts. regardless of how the cuts are implemented, the consequences for the industry would be dire. the industrial base tax force has reported that sequestration results in the closure of

production lines and layoffs of skilled workers. it reduces the ability to respond to the needs of the u.s. military. however, i am here to offer my view on how sequestration will affect us directly and share with you these are becoming a reality for us. we build jet engines for the commercial and military marketplace. as you know, our future military based market consists primarily of the 135 engine 40 f-35. we are proud of our engine chosen to power the next generation. these will not really add to our production business until 2016 or later. with the end of the production run this year and potentially the end of the production run for the engines for the c-17,

the f 135 engine is our future for our military business. already the decline in defense spending is affecting the f-35 production ramp and our engine production. as you know, $487 billion in budget cuts are announced and that has pushed at 179 f-35 aircrafts between 2012 and 2020. original projections a few years ago have had as building over 100 f 135 engines per year. this year, we will build over 50. half of that number. next year, our f-135 will actually increase. if sequestration will take effect, that number would decline dramatically. it is not just new engine deliveries that are impacting it. spare parts are the key to keeping our manufacturing base. flight hours have been cut back

in sequestration will result in further reductions. this undercuts demand for our spare parts and overhaul work. for my company, the scituate it poses a work force and supply based problem. as the f-22 program winds down, i am transitioning many of these workers to be f-135 protection. this is extremely difficult, getting the near-term production. with sequestration come it will be more difficult to retain those highly skilled employees. quite simply, my work force is aging. specialized and highly compensated. if and when we go back up, the curve is steep and will affect production quality and training, which adds time and cost. this is unique because from a production standpoint, a jet engine is a jet engine, whether it goes on a military aircraft or commercial aircraft. this allows us to absorb disruptions between -- better

than small companies. for a short time, i might be able to move employees between military and commercial programs, assuming i have an increase in demand for the commercial area. i have to take a risk if there seems to be a reward at the end of the day. this is like putting a band-aid on a bullet wound. in terms of our supply route, they are struggling. many are small businesses, making specialized cars for military engines that simply cannot survive another production decline in disruption. we continue to hear from our suppliers that if further cuts take place, we would be forced to lay off employees. one large supplier says they do not believe that d.o.t. will produce the number of engines. this uncertainty makes us less willing to enter into long-term agreements and drives our cost up to date. if sequestration were to go into

effect, no amount of juggling will preserve my work force or help me maintain our supply base. the step down in current production ramp for that 135 mean some people will lose their jobs. it means that reduced volumes for suppliers which means costs go up. it puts a good program in a very tenuous position, a program we cannot afford to lose. to reiterate, make no mistake, it is dangerous to the war fighter and for us as a business and our supply chain companies and for us as a nation. again, i appreciate your perseverance on this topic. and for your allowing me to be your today. thank you. >> thank you. >> thank you, mr. chairman. a ranking member smith and members of the committee. thank you for the opportunity to testify on sequestration

implementation options and the effects on national defense industry perspectives. i am the president and ceo of william speier wrote in fort worth, texas. we design and manufacture innovative products including custom cables, connectors, adapters come up test equipment, and intelligent power management systems. our products that improve the safety, reduced aircraft downtime, boosted buying power of the defense and procurement dollar. we currently have 89 employees. they continue to amaze me every day. i have been here since day one. as a manufacturer, i very much appreciate your focus on defense industry and the impact at the

cuts set to begin on january 1 of 2013. well i wish i were here under better circumstances and the impending threats of these wholesale budget cuts, it is a deep concern to me. my goal today is to put a face and a name to what is rather cavalierly discussed in the press as sequestration. most people would associate defense cuts with a big defense contractor, which are represented by several of my colleagues here today. supporting every one of these large integrators on dozens of programs are thousands of tier 2 and your three suppliers. most are small and medium-size businesses who design and manufacture what seems like a small parts. moreover, the defense supply chain companies collectively

employ millions of hard-working people who each support spouses and children and community. these cuts will not just impact a few companies. these cuts will slow down the supply chain and through the broader economy. they will impact companies like mine. they will threaten the jobs of thousands of skilled workers. in fact, at a report released last month by the national association of manufacturers concludes that by 2014, the cuts in defense spending enacted last year combined with the cuts set for january 1 of 2013 will result in the loss of more than 1 million jobs. increasing the unemployment rate almost 1%. just in texas alone, this meant than 100,000t more jobs.

manufacturing is an engine of economic growth. why are we making decisions that will inevitably stall that engine? the budgetary issues, the federal government faces them. they are the same one that i deal with every day in my own business. analysts say the defense industry is faced with several choices. either exit the market, a double down on defense by buying your competitors, or whether the storm. at our company, we have chosen to invest in product development. these are major investments. we are committed to developing products that will meet the military requirements. i believe that this dedication to provide innovative progress

helps to illustrate the potential impact sequestration will have on my business and many others. sequestration will create an exodus of talent and skills to other industries. we presently have almost 90 employees, including assemblers and engineers. experienced in mechanical, electrical, software, from where, hardware, and manufacturing. these jobs are in jeopardy. what is being billed as a stopgap budget fix it will have lasting effects on our defense capability for years to come. the switch will just not get flipped back on to reverse that trend. moreover, the deep personnel and program cuts will threaten our national security. indeed, the united states could

lose our technological and strategic advantage and never get it back. in conclusion, i urge members of congress to go back and sharpen your pencils. sequestration is cosmetic surgery with a chainsaw. working together, we can solve this. we need to do it smartly and strategically. while keeping the economy moving and defending this great land. thank you very much for inviting me to appear before you to talk about this very important issue. i would be pleased to answer any of your questions. thank you. >> thank you. i think we on this committee all understand, more than perhaps the rest of the congress, how serious these will be on our military and of our industrial

base that you have laid out. i have a series of questions that could be answered very briefly. i would agree to to do that so we get these things on the record, which will help us as we go for. based on your testimony, it seems to me that you believe that sequestration goes into effect on january 2 and there will be job losses. can you each confirm at this time that layoffs are reasonably foreseeable? >> yes. thank. >> yes. >> thank you very much. >> do you believe we are obligated by the spirit of the letter of the worker adjustment and retraining notification to give conditional notices to your employees as a result of sequestration?

in advance of making a final determination regarding which specific employees will be let go? >> given the uncertainty today, yes, we do. i like that answer. you have a specific history regarding the helicopter that is very important. could you expand on that? >> we knew there would be layoffs at a particular site. we did not know which employees would be laid off. we did not issue notices at the time of that termination. we opted rather to do internal planning to see if we could replace the worker in another assignment either in that location or another location, look at dimensions of the business we might have to provide flexibility -- that

process took 45 days. in the subsequent evaluation of the termination claims that is typical in a termination environment, we have an opinion from the defense contract audit agency that says we should have acted more timely and the costs associated with that 45 days may well not be allowable. they might be viewed in their draft opinion that our actions were unreasonable, that we waited an unreasonably long time. experiences like that inform us in an odd way of the compelling requirement to take timely action and not allow the ambiguity of the situation to accrue against the interests of the company, even though in that case, our preference was our judgment to act prudently. >> you are still on that position?

>> yes, sir. it has not been concluded yet. >> thank you. >> i concur. i concur with your question and we will be compelled to do something in that regard. yes. >> we would certainly abide by the requirement. we have certain advantages in our business. 80% of this as -- is the fence. 25% of our business is defense. depending on what is happening in the other elements of business, we might have the potential to redeploy people. it is far from certain. when you were looking at budget cuts in the order of magnitude that sequestration would involve, certainly there would

be scenarios where we would be looking at proportional headcount reductions. >> thank you. >> i do not believe we are covered because we are less than 100 employees. even if it does not change -- if we do not get some contracts soon and i do not see how we will be able to keep our employees -- the sequestration will cut drastically. >> thank you. barring additional guidance from the office of management and budget and the department of defense on the application of sequestration, do you believe that conditional notices will have to be issued this fall prior to january 2 to comply with the warn act? how many employees do you estimate will receive those conditional notices, and if you will not have to issue conditional notices this fall, what extenuating factors affect your decision?

>> yes, sir. i think that we will be compelled to issue notices. there is an ongoing discussion about how many warn notices will need to be issued and exactly when. there is so much uncertainty in this environment. i think that will be a capstone sirmente that the committee wrestles in your deliberations but we do know several things. we do know that sequestration is the law. we do know that law takes effect january 2. we believe any reasonable modeling around the law will require significant reductions in force with double-digit reductions in the budget. in the past when we've had budget reductions we look internally at a strategic assessment of our company because if we cut the clock uniformerly it will be uneconomical and those costs will flow back in the future. that restructuring will likely mean we will have plant closings. plat closings and significant reductions in employees will trigger the warn act. the question becomes when. our best judgment, as we try to put pencil to paper with all

this uncertainty about planning, is that agencies will actually move closer to january 2 because the act requires a $55 billion reduction in fiscal 2013, but the act takes effect after the first quarter. so the $55 billion has to be reduced over nine months, not a year. every year that's delayed after january 2 makes the magnitude of the reduction to accumulate $55 billion in the year more. if three more months go by, the equivalent of $110 billion would have to be taken out of the agency which would be more and more disruptive. so i think as people come to terms with their responsibilities in that sequestration is the law and we must prepare for it, there will be an impetus to move closer to january 2. we need to be prepared to enable agencies to make those determinations because of that preparedness of, we'll set back 60 days, or in the case of new york, 90 days from that. the question is which employees

would be terminated. we don't really know. we'd have to broaden the notification under warn appropriately. we are very hungry for more guidance, very hungry for more information so we can nairy this and behave responsibly. >> and yet when we held one of our hearings in september and we asked the assistant secretary, dr. carter, what they were doing to prepare, his comment was rather flipant. we don't have to do anything to prepare. we just take the budget out, take the percentage off of every line item so it takes no manage. i just think that is totally irresponsible. mr. o'keefe. >> again, i think much as you heard from others here, absent any specific guidance on how this should be applied, we will be compelled, as a matter of

compliance with the spirit of the law of following through on the warning act provisions. now, we've already begun that process. again, we've notified many members of congress that represent constituencies and districts in which we operate in as well as the governors of those states that this provision will have applicability. we're assessing at what point we have to make that determination. and much as you heard from bob stevens, we have to make that choice as we see the time unfold here absent any guidance that's going to have to be sooner or later. again, the determination from the office of management and budget and d.o.d. will prescribe that. but much what you heard as well from dave hess, 70% of what we do icommercial related. we are going to have options and alternatives, but there are going to be very specific contracts and programs that will be affected that are federal contracts across the board. and once we get those more

specifically targeted, that will be focus and where the warn act applications will occur. >> thank you. mr. hess. >> we will certainly abide by the regulations of the warn act. as you heard from my colleagues, you know, given the amount of uncertainty in terms of how the budget reductions play out and also given the opportunity to maybe redeploy people to other parts of the business, it's not clear to us today that we would trip the threshold involving implementation of the warn act. with respect to conditional notification, we are still considering that possibility. >> thank you. >> i understand you're not affected by this, but please explain whether any of the exemptions to the 60-day notice of the warn act requirements are applicable in this situation. for example, could your company claim that layoffs results from sequestration were sudden, dramatic and unexpected? >> we don't believe so. >> no. they're well forecasted and

anticipated. we're motz in advanceed and -- we're months in advanced and we see it coming. >> they say sequestration will occur on january 2. not contingent on anything. it's the law of the land and we're obligated to plan on it. >> even though some in the administration say it's not going to happen, don't worry about it, you feel you're bound by the law? >> we have a fiduciary responsibility to our board, to our shareholders and our employees to plan based on the laws in the books today. >> and aside from issuing notices to your current employees, how has the possibility of sequestration impacted your current hiring practices or that of your industry partners? >> well, sir, we slowed down on the i think very simple and logical premise that if we're going to engage in significant

reductions in the work force in january, it's prudent to bring people on for six months. what struck me as more interesting and maybe more telling about the future, we recruit heavily on college campuses. we do get a million resumes a year from very talented young people, and i know you interact and members of the committee interact with these young people all the time and it gives you the optimism of the future of america when you have the ability to seele talent and -- see the talent expressed by these graduates. they started to ask whether they wanted to come into the industry or specifically with our company even though they love the technology and they love the mission because they question, if i join you now, will i have a job next year? these are very smart kids. we want them because they're smart young people and they're smart enough to realize this uncertainty could cause them to look at other options for their career. we want the best and brightent talent in the defense industry

so we can continue to innovate the products and services that our women and men in the armed forces rely on to keep themselves safe. >> mr. chairman, i would say we've slowed down hiring as a consequence indirectly of sequestration. what's occurring now is requests for proposals, range of different contractual activities are all shifting to the right in the federal activity. it's all been delayed. so as a consequence of that, it refocuses your attention. we are not going to hire folks in anticipation of what we think is going to be market opportunities coming down the road that we think we can compete more successfully. we've slowed that down significantly. >> so even though you've been told that it's probably not going to happen, don't worry about it, the department is already slowing down in anticipation of it happening? >> absolutely. >> there is no question. >> thank you. mr. hess. >> clearly the threat of sequestration is tempering our decision today with respect to hiring and capital investments.

quite honestly, we've seen companies in the past that have made decisions to invest and are suffering the consequences today, for example, in the joint strike fighter program. i mentioned the fact that the lines we're looking at, production volumes, are about half of what they were forecasted to be. companies that invested based on the prospects of a much higher volume are now struggling. in fact, some of them we have examples, small businesses like williams that have gone chapter 11 or chapter 7 because they can't support the cash flow. they made decisions based on forecast of growth. sequestration would only exacerbate that. >> ms. williams. >> i feel that i owe an obligation to my employees to explain this as well as i can to them so that -- i mean, they get very nervous about this word, sequestration. they are like, what does this mean?

but i owe it to them so that they know what might be happening and whether they should go look for another job. and believe me, i don't want to lose those people because they're longtime employees, but this consumes about 50% of our business, a little over 50%. and i think my hands are going to be tied if all of this happens. >> thank you very much. mr. smith. >> thank you. first of all, just out of curiousity, have even of you been told, it's not going to happen, don't worry about it? >> in my case, sir, there's lots of discussion when we engage in a dialogue about what we should prepare for, and there are suggestions that a remedy will be developed. sure. i would say -- and i think your comments earlier certainly reflected this, sir, there are lots of opinions and there are lots of points of view, but we

hold ourselves to a set of standards that i know you and the committee expect business leaders to hold themselves to. >> i understand that. further question. the chairman said a couple time the administration's position is it's not going to happen. >> we're preparing. >> don't think that's accurate. >> we are preparing. >> the administration is aware of the fact that this is the law and until we cheaning it it's potential. they don't want it to happen. nobody in this committee in this room wants it to happen. the problem isn't so much a matter of preparation. the problem is that the law is regrettably on the books, and coming, and we have to find a way to change it. and towards that end -- and i do have a question at the end of this -- but i think what we've learned here is that government spending kind of matters. you can't just blindly putt it and assume there's no problem which is sort of what led us to this horrible deal in the budget control act last time was, you don't raise the debt ceiling, it's no big deal. that will get us to a balanced budget. that will work. government spending matters.

so does private sector. so does keeping taxes low. but we can't simply blindly say whatever you cut from government it will be fine because they are not really doing anything that important anyway. and it is that attitude that led us to where we're sitting here. the notion that you didn't have to raise the debt ceiling and then if you put in place mandatory cuts it really isn't that big of deal. so i hope that lesson will be learned. and as we go forward looking at our budget situation with $.3 trillion deficit, as i mentioned, even though tomorrow we say we won't do sequestration, i'm curious as you look at the next 10 years. a boom time for defense contractors, no matter what happens, sequestration or no sequestration, we've got pretty tight fiscal situation for the next 10 years.

how are you looking at that? how are you anticipating the impact of simply the reality of, you know, revenue being in one place and spending being in another and the need to reconcile that and the reality that the defense budget right now is 20% of our budget? how are you planning for that over the next 10 years? >> the way we're focusing our business now is to accommodate the reductions already in the budget control act of $487 billion that defense secretary panetta has spoken about that's embedded in our national security strat he gee. -- strategy. a number of our programs have been capped, canceled. we slowed down our programs. our work force is 18% smaller today than it was three years ago. we're hitting the brakes there. we've taken out a million and a half square feet of facilities. we will take out another 2 million square feet by 2014. we cut our research and development. sizing the cloth of the business to meet the market reality. we're also looking to work with the administration and the

leadership in the pentagon at international work because our nation has asked others to step up as security cooperation partners, as good security cooperation partners, if we have interoperable systems we could do well together. they burden share some of the expense, and any incremental work flowing into our businesses stabilizes our businesses, stabilizes the work force and it lowers the cost of every bit of equipment that the u.s. buys for u.s. purposes. so that's how we focus the strategy in the business. >> if i could, mr. o'keefe, maybe you could take a stab at this one. how worried are you, give given the budget reality, that that reduction number will go above the $487 billion that's currently projected? if i could piggyback on that projection. there are a number of studies coming out now that the pentagon's plans to, quote, reduce that spending over the course of the next 10 years, don't really quite add up. what they say get them savings doesn't.

it will wind up costing them more than that. do you think it will be more than what's currently been talked about? >> it's certainly possible. if there are reductions we'll do the best we can to accommodate our business. ande done it historically we'll continue to do our very level best to size the business so that we can deliver against these commitments. i think the greater concern we have is that the resources that are available for national security alined with a strategy of -- aligned with a strategy. >> does anybody else want to comment on that? >> to pick up on the last point, it is yet to be mentioned. this is the first time we've seen in the course of better than 40 years in which every change and reduction in national security spending in that span of time has been precipitated by a change in strategy to accommodate or to recognize a different threat

level. this hasn't happened in this case. this is purely exclusively driven by the financial realities of -- >> if i may -- >> yes, sir. >> we just took $175,000 troops out of iraq. we're drawing down afghanistan. there are national security changes that are precipitated. some of it the budget is part of it. there have been, you know, just like in those previous cases, changes in our national security needs based at least on iraq and afghanistan. >> there has been accommodation to that. i think you also suggest, as you have in your opening statements as well, that much of what we're seeing going forward here is going to be a consequence of the fiscal uncertainty and less about the threat. so it's very difficult. it's near impossible from where we sit to anticipate exactly what kind of market changes that will involve. and i think very realistically there are pearg back expect -- parring back expectation will look like.

and what we are seeing is a gravitation towards second to third tier suppliers to those that are far more commercially oriented. >> it would help if the government have more revenue so it is not forced into as bad of a budget situation. would any of you disagree with that assessment? >> i think the choice of exactly what spending and revenue balance is is more dominantly of your portfolio. and so as a consequence, i'd defer the answer to that, sir. >> that is true. i yield back. thank you. >> thank you. mr. bartlett. >> thank you. 20 years ago i sat in the most junior seat on this committee and frequently frustrated particularly in important hearings like this that time was going to run out before i came up in the cue. sensitive to that frustration,

i would like to yield my time to the most junior member of our committee here, that's mr. west. >> thank you, mr. bartlett and thank you, mr. chairman, and mr. ranking member. i'd like to try to get a little bit more specific. i'd like to know from each of you what are your four major weapon systems programs or developments that you have the most concerned being affected by sequestration and, of course, the corresponding work force concerns as well. so if you could give us that idea of kind of your top four. >> i want to be responsive to your question, sir. when you align the top four with sequestration, one of the challenges we have, our understanding of sequestration is across the board. >> irregardless of sequestration, what are the top four that you think will cause you concerns if they were affected by sequestration? >> undoubtedly the joint strike fighter program. undoubtedly programs in missile defense, and there's a portfolio associated with missile defense. without question programs like latoral combat ship, excelling combat capabilities.

and then an array of classified or intelligence oriented programs. all of which, as we understand the environment, would not be immune so the support service we provided the intelligence community would be adversely impacted. >> how about work force impacts? >> our best estimate, which i admit, is sufficiently crude, i am a little embarrassed to offer it, 10,000 people, but we've done it at the back of the envelope where we've made up the assumption of 120,000 people, in the neighborhood of 10,000, that number could be more or less depending upon will there be accounts that will be excluded as the chairman and ranking member said. there is still yet information to be determined. we'll shape our outcome there. i think 10,000 across the board is about the best answer i could offer. thank you, sir.

>> well, sir, the three i would highlight in particular are the first and foremost, the uh-72 lakota helicopter, the program that is frequently recognized by every audit service and the defense department overall as on time, on budget for over 225 aircraft thus far without any exception to that whatsoever. that could be compromised as the changes and production rates alter, that will almost certainly cost increase per unit and that will be the first time in the entire experience of that program that we would see a cost increase or a failure on delivery. i really would hate to see that record of absolute achievement compromised or blemished even for a moment. the second, as much as bob stevens described, is the combat ship. we have a lot of interest in the systems that are engaged there for radar and a variety of other activities all of which will turn on whether or not the

number of vessels -- commission for production and contracted will be engaged. uncertainty for an for a period of time which therefore takes whole upets and defers them until there is time certainty. and the third is the united states coast guard. often recognized as a very strong support element of the defense establishment and national security overall, we produce most of their helicopters and a good number of their cargo aircraft. all of which by contract at this point have a prospect of being deferred given the very small maneuverability that this particular agency has for their capital accounts. we don't know what will be. so trying to estimate the number of peoples will be not impossible to figure out what would be involved here until we see what those exemptions are as well as which programs in specific may ultimately have to deal with that if they are all

going to be applied across the board evenly. >> for pratt-whitney, we are seeing significant engine delivery reductions in our legacy engine programs. certainly our sole source engine on the f-22, now that program has been terminated, we are finishing up some spare engines. for the c-17 and f-16 where we deliver military engines, both of those program delivery rates are declining as well as they shift largely to international sales. we were counting on the ramp up and the increase in the joint strike fighter program that bob talked about with our sole source engine there to offset those declines and really kind of stabilize our operation and enable us to maintain our industrial base. as we see that program continue to be delayed, the last recuxes

that support the $487 billion in reductions took on 187 airplanes out of the sky. so that impacted our delivery rates. and we were looking for the ramp up in the tanker program. but that doesn't start until 2016 and beyond. so joint strike fighter and tanker will be the most important programs for us. >> the weapon systems, test equipment that we manufacture for all aircraft that we do currently for f-16, f-15, f-18, the a-10 program and the f-35 and some on the f-22. but this concerns me because we go to the air force bases and recently we saw 1969 technology still being used. do you remember 1969? rabbit ears, transistors. >> i was only 8 years old.

[laughter] >> the gentleman's time has expired. >> thank you, mr. chairman. my time has expired. >> thank you. mr. andrews. >> thank you, mr. chairman. thank you, ladies and gentlemen, for your testimony this morning. i agree with you completely that i favor repeal of the sequester as soon as we can possibly do it for many of the reasons you very well articulated here this morning. i also acknowledge the responsibility to understand the comments that admiral mullen gave us when he was chair of the joint chiefs of staff in which he recognized that a country that borrows 40% of its operating funds can no longer be a strong country. inevitably, the national debt is a national security issue. the way we got into this mess is that for five decades people on this side of the aisle and people on that side of the aisle have gone through the following exercise.

whenever anybody brought up a reduction in spending, we had hearings about how bad that was and who it would hurt. and whenever anyone brought up an increase in revenues we had hearings about how bad that was and who it would hurt. so we made a series of decisions that you would never make in your fiduciary responsibilities. we made stovepipe decisions about those spending programs and those revenue increases in isolation. that's how you create a $17 trillion debt. how you get out of it is to do things that people do not like. i think most of you would agree that since nearly half of our budget -- i guess more than half of our budget is social security, medicare and medicaid, that we have to do something about restraining the growth of those programs in an equitable way. i agree. that's why i'm one of the fewer than three dozen people who voted for the simpson-bowles budget proposal, mr. cooper put on the house floor in march.

it will stipulate that -- i think you would agree with that. let me ask another question. it's become an article of almost religious faith around here for some members that any revenue increase at any time on anyone should be taken off the table. who here agrees with that proposition? >> let me speak. i don't think you'll hear any of us here today arguing against the need for fiscal responsibility. we have jobs to do running the companies we run. i can look honestly at my colleagues here saying we're first and foremost americans. as possible talked about, we are all making decisions today to deal with the 10% budget reduction that's already been enacted and being planned on implemented now. we're making decisions in terms of head count reductions. we're right sizing our companies. we're closing facilities, consolidating our footprint, making the tough decisions and taking the tough actions to deal with the need for fiscal responsibility.

we i think are supportive of that and understand that. >> mr. hess, if i may, the specific question i asked was, who here would advise the congress to rule out under all circumstances any revenue increase on anyone at anytime? would any of you make that recommendation to us? think say that i don't any of us are sitting here today presuming that we have the wisdom to recommend a solution here. >> no. i don't think it's a matter of wisdom. i think you have a lot of wisdom. do you have an opinion? you are an american citizen. you are the leader of a major institution. do you or do you not think it's wise for congress to rule out all revenues on all people at all times forever. do you think that's a wise congress, -- thing for congress? >> i think you have to put everything on the table. >> i know when we face challenges in our business -- and i don't intend to imply that the challenges that we face

come close to the magnitude of the challenges you face on this committee or that congress faces. it makes ours look pale. we try to put in the recipe every possible ingredient that might lend itself to the formation, not just of a solution but in a perfect world a flexible array solution, comprehensive, thorough that allows us the flexibility to run the business. philosophically i think you'lly that in our actions. i think we're held accountable from our board and our shareholders, i think our employees expect it. >> i appreciate that. since my time has run out, i'll give you this context. social security was truly imperiled in the early 1980's

and a president named ronald reagan and stepped forward and on two occasions agreed to raise more revenue for us. the reason that social security still exists today. and i think our friends on the other side would be wise to follow president reagan's example in this time of emergency. i yield back. >> all that we had president reagan. [laughter] >> mr. chairman, i want to first thank you not just for holding this hearing, for being across the country alerting the public to the dangers of sequestration long before anybody else was doing it. and also for actually putting the solution on the table. we're not going to change this by press conferences. unfortunately, the house, as you mentioned, has passed a solution. second thing i have to do is take issue with something the ranking member said at the beginning because i just believe it to be blatantly inaccurate. we did not get here because the

majority of members of the house of representatives or majority of individuals across the country realize the insanity of continuing to allow an irresponsible and uncontrolled massive increase in the smothering debt our nation is mounting. we got here very easily. picture's worth a thousand words. if you look -- joe, if you could hold that one up for me. this administration decided they would spend $825 billion on a stimulus package. $347 billion of interest. if you look at these charts, if they look identical, it is identical, because what actually happened is they decided to spend in one year on a stimulus package almost the entire amount they are now taking out of defense for 10 years. and even though this package has no measurable significant increase in jobs, we know this is going to cost us between 1.5 million and two million jobs.

it's important to know how we got here. but we are not the ways and means committee. we are not here to talk about tax increases. we are not even a jobs creation committee. what we're here for is looking at the national defense of this country and that's what you guys do and you do it very, very well. my big concern as i go back to the 1990's and look at all the cuts in a are taking place, and i am concerned about the $487 billion that we have already taken much less the $1 trillion that's coming, my understanding is we started that decade with 50 major defense firms and we ended up with six prime contractors. we started that decade and at the end of it we had our major surface combatant shipbuilders and our fixed wing developers fell from six to three. our tactical missile producers fell from 13 to three. and the number of tract combat developers fell from three to two. today there are just two

companies, boeing and lockheed martin, that build fighter aircraft. my question for you is what impact do you think sequestration may have that might be similar to the 1990's in terms of weeding out our industrial base and the impact it may have on that over a long-term period of time? >> yes, sir. having lived through the 1990's, i think the consolidation that you described was an effort to size supply for the likely demand that has to equalibreate somehow. another round of reductions on the demand side of this will -- should we try another? there has to be a healthy relationship between the demand for the products and services that we have and our ability to supply them.

so the supply chain in some form or fashion will either be graceful and focused and have a good architecture or it won't be, but it will size and shape itself differently to meet the level of demand that exists. >> i think that the shakeout in the market we're seeing right now in the second and third tier of suppliers is already a manifestation of that point. we're seeing either companies consolidate, be bought by larger primes as we've seen in the last few years or simply exited the public market. and have consolidated much more towards the vague reasons some of the commercial trends that occur but at the same time much more reliable than we're seeing as forecasted over the next decade in the public spending market. i think that's already occurring. it's happening right now. >> i guess i would have to agree with you. i think we're getting to have a very critical point.

it's not the big companies you referenced. people like lockheed martin and boeing. where we see a greater concern is with the smaller companies such as represented by ms. williams today. that down to one company may has a unique skit set or technology -- skill set or technology that they're consider exiting the business. otherl go pursue or market. that's quite honestly where we're really starting to see some concern. >> excuse me. i would agree with the gentleman here that this is going to affect us greatly. >> mr. chairman, thank you, and i yield back. >> thank you very much. mrs. davis. >> thank you, mr. chairman, and thank you all for being here. i just want to say as someone representing san diego that i want to thank you for your work on behalf of your employees and certainly their families. and i really relate to what you're saying about people being affected, but as we know it is not just in the defense industry

that we see tremendous affect on families today, uncertainty and i know that you have to be concerned about that. how young people are educated today is critically important to our national security and so that's a concern as well. i want to just identify myself with some of the comments and questions of my colleague, mr. andrews, because i think we do want to see this in a balanced way and i call upon you and i hope that you are considering that you obviously need to be very strong advocates which you are for the industry that you represent. but i would hope you would extend that as we work into these very, very difficult issues that we're facing. i wonder if i could count on you to do that to include those kind of comments as well and the need to balance out and put everything on the table as you suggested. >> i'd be happy to do that.

>> thank you. what i want to ask you about, let's be strategic about this. i don't support sequestration. as we said, nobody here does in those kind of across-the-board cuts. in reality is you had to deal with cuts and different ways of really analyzing the work that you do within the budget control act and some of that extends to additional changes that may be made in the industry. and are you in a position today to suggest to us, are there reforms in contracting that you think is critically important to make? we think multiyear contracts, perhaps that could spread out some of the sacrifices, if you will, that might be made in terms of looking at the strategy that is put in place, the targeted kind of cuts. and i know, ms. williams, you spoke about that as well. what is it that we should and could be looking at? i don't want to say next

generation of reform. something you talk about but we don't acknowledge as part of this whole discussion. >> thank you. i'll try first, ma'am. i will say this probably won't sound inventive or innovative in any way. it's interesting about acquisition reform, the fundamentals that seem to keep resurfacing are the same observations we have across the industry. i tell you first is stability. whether that stability is the funding environment or the requirements environment or industry's ability to hire, train, get the right people in the right place at the right time, do those fundamentals, those fundamentals drive this process substantially. secondly, if we could look at shortening the cycle times, cycle times in the industry are getting longer and longer and longer from the formation of a proposal, the early test phases, it's getting longer and time is money. anything we can do to streamline, simplify and shorten that process certainly would accrue to a portfolio of efficiency initiatives that i think would result in good

savings. >> i'd simply offer the recommendations of the defense business board that reports to the secretary of defense, take them up on their suggestion. what they're proposing is simply suspend regulatory environment in which every regulation then has to justify the reasons for its application as is being sought to be applied. otherwise, dispense with it. that is an approach that will sort out this question, not our recommendations, one that the business board made to the secretary of defense in that regard, that's not an unreasonable proposition. it is a documented proposition that costs precisely the same articles, at least 20% more to sell to the public than it does in any other commercial activity. so sorting out what causes that 20% is one manner that the defense business board has recommended.

i'd take them up on their suggestion and do it. >> what do you think keeps us from doing that now? >> i don't know. resolve, commitment, suggestion, whatever. it was just been put forward but it's one that would be worthy i think of inquiring -- and ofof d budget. what is aaron to with the logic that this group has recommended to be implemented, which does not disband -- this justifies what it needs to be there, or it is dismissed? it is a fairly reasonable proposition. one would love to contribute because of the additional cost of doing business. >> thank you, mr. chairman. >> the thank you.

they have led three times in the house. we voted to address sequestration, but sadly, the president has threatened to veto. the senate has not taken up the legislation, but the more the american people learn, i want to thank all of you for bringing this up. also, i am grateful. a state near and dear to me. it is virginia. my brother was born in richmond. i am very proud graduate of washington and lee, and i have a son who is active duty navy. it is very revealing, particularly in northern virginia, as you look at the consequence of defense spending, it is not just northern virginia. this includes mclean, sterling,

arlington, falls church, alexandria, fort belvoir, quantico. each won over $1 billion. it would be such a state affected, jobs, military families, they are put at risk. as we approach this, it has already been addressed, but there has been some confusion about the warren act. the notices, 60 days, 90 days, what is it with a minimum of 60 days. when would a person anticipate to receive the notice of layoffs, if you could give your point of view? >> i am certainly no attorney or warren at specialists, but i have been around some that think they are, particularly as you look at sequestration. this is with timely notification. this is october or early november. new york is a 90-day

notification state. i think we set this back in time, and it would be the end of september, early october. >> again, we've already begun to notify members of congress who represent districts in which we operate and do business as well as governors of those respected states that we may be compelled to do this once we in the absence of guidance from the office of management and budget or the defense department. now, that will have to occur sometime prior to that 60-day notification stage. and exactly when is going to be very much contract dependent depending on what advice or guidance we receive from the administration. defined the requirements of the warn act and, again, we're -- of the warren act, and, ag

ain, we are certainly prepared to comply with the law. again, given the uncertainty in how sequestration will play out, it's not clear to us that u.t.c. we'd trigger the warn act -- the warren act concern that we have. >> as i said earlier, i don't think this applies to me because i'm less than 100 people, but i still want to give my employees an update and bring them up to speed on this because they don't understand what's happening. >> and it's an extraordinary coincidence, each one of you identified a date prior to november 6 which is election day, so this is something thems. williams, as your company stopped or slowed down capital investment in an effort to conserve funds and in anticipation of sequestration? >> which we have done -- what we have done previously. the way we got our business, a lot of our business was that we would make prototypes and that's how we developed all thesebut i

recently, as i was talk earlier, we went to an air force base and saw the 1969 technology. we personally invested lots of dollars in order to bring this up to current technology. we have done that. we are not through by any means, but we have done that. what concerns me is, will i be able to continue to finish that project? and if that happens i will lose those engineers. >> i just want you to know, i particularly appreciate it. i represent the communities of fort jackson, fort gordon. i currently represent paris island. i want the best for our troops. we -- for their health and safety, we want -- and we doit really is dependent on your efforts. i want to thank you for your prototype efforts and however wethank you. >> thank you, sir. mr. courtney. >> thank you, mr. chairman. and thank you for holding this hearing and the witnesses for your really important testimony

here today. and i want to also note, mr. the sort of genealogy of sequestration, talking about the gramm-rudman act. there is the concept that is now lost in the midst of time a little bit and i think it's important for us to remember that was used at a time of structural deficit and one of the sponsors of it, then congressman graham, was quoted at the time saying, it was never the objective of gramm- rudman to trigger sequester. it was the threat of sequester, force compromise and action. obviously those are the critical two words that i think is our burden to satisfy here as members is, a, to compromise, and b, to act. if you finish the story of gramm-rudman, it was a bumpy ride to get to the point where we actually deal with the structural deficit that was at the time and it was not until

george herbert walker bush that walked off some sacred cows to help the measure. it put in place pay-go rules. and the budget that president clinton passed in 1993 which changed the tax rates that finally intersected spending and revenue to a point where the first time in our lives we actually had the government public finances in balance. and by the way, we created 22 million jobs during that time period. and when i view the budget control act, which again i join the majority of people in this committee supporting passage, that is certainly the path that i think we voted for or should have been thinking we were voting for that compromised an action what was we were looking for, not a chainsaw goingand so it's going to require people to move off of pledges and some sacred positions to really fix

the problem and, again, we have a historical precedent. we can do this. our country did it. and, again, your testimony, all of you here today, again, stakes are huge if we don't. the question, again, having that horizon, that stability which really provides the basis for you to move forward and plan and invest. and coming from a district where the construction of nuclear submarines sakes roughly four to five years, obviously a one- year horizon is not enough. in terms of really trying to, you know, get to that sweet spot of efficiency and quality. and one of the measures that we've been voting on here is just a one-year fix to sequestration. and i was wondering if you could sort of comment whether or not that in your mind really fixes the problem or just delays

it and just again leaves the challenge of trying to do intelligent planning sort of out there for just a short period of>> well, we're a long cycle business. our products last 20, 30, 40 years. right now we don't have six months visibility which is a unprecedented plea -- which is unprecedentedly short. and we are doing our business planning in one year, three years, five years. i think the best suggestion i could give, recognizing how complex and difficult the actions will be associated with this suggestion is a complete, a comprehensive and durable approach is i think the very best solution. when we look at the challenges in our company, we think a lot about growth. the growth of our business, and i think you could extrapolate the growth of our country is through competitiveness. that means getting the best talent, investing in that

talent, getting the best innovation. that investment cycle is absolutely determined of how much visibility and how much certainty or uncertainty is in the environment. right now there is crushing uncertainty that's limiting all of that. so the more comprehensive a solution that could be put together, the longer duration of that would clear the debt chairs considerably and i think open up businesses to take action that would lead to that kind of growth that we are looking for in our business. >> to the extent that this is useful for prompting process reform and adherence with than the determination of public policy and public finance choices, that is terrific. to the extent those that it also serves to create unrest in the marketplace, a complete lack of confidence and stability because

of the prospect of this sort of damocles, as it was called historically as part of religion, to the extent it can be used, this is a double edged sword. in some respects, perhaps as stock -- a hobson's choice. those that have to wrestle with this question i do not envy at all. >> the gentleman's time has expired. >> thank you, ladies and gentlemen. we appreciate your perspective. it has been very telling in terms of what may be looming if sequestration takes place. i want to summarize. uncertainty, instability, under

arrest. obviously as this goes to what you pointed to along with your intellectual capital and human capital, that affects that significantly. it is those intellectual capacity assets that are most valuable, but if we lose those or those are weakened, that weakens us in the future. even if this is put off. that uncertainty is building. those things are concerning to me. if we do get to the sword of damocles, as it has been termed, of ceqa station, what effect will that have on your current contracts? while those contracts have to be terminated by default, and if so, what does that mean for

your employees, for your partners, for your suppliers? at think that has a significant effect. what will happen with the restructuring of those contracts? what happens if, and what does that mean? i would like to give your perspective on what that will hold. >> we think it will affect thousands. we do not believe these terminations would be for default, because it is not a for cause termination. if the contracts were terminated. contracts can be reformed without being terminated, which i suspect will be in the majority of cases. we will just buy fewer or less, and that would require folks like us to go into the parent -- the supply chain and reschedule

all of those for a resources. they will look at that action and call that a business disruption. as a result, they will formulate a claim, a request for equitable adjustment for consideration in the contract. one of the areas we are still trying to deal with is that this is a net number. this is likely to be some disruption claims. do the cuts have to be deeper than $55 billion to achieve a net $55 billion out come? all of that will unfold very broadly, probably all at once, when we get agency guidance about terminations or reparations of contracts, and that will include a huge amount of effort to prepare these claims and to deal with this administrative environment.

>> the recommendation as well as what stevens has walked through, to simply add, this is going to be an appointment at for auditors. if you are an attorney, this will be a great opportunity to do all kinds of things in the future, because everything has to be subject to review. this is just about impossible to estimate what this will be at this juncture. >> i think your questions are a very good one, and one that has not been considered is clearly the cost to sequestration that has not been considered, and i think bob described it well, but, clearly, if you look at the volume of contracts that would have to be priced and the request for eab