professor history emeritus peter , they discuss the 1915 film, the birth of a nation and its significance. american history tv, all weekend, all weekend, every weekend, on c-span three. >> tonight on c-span u.s. secret service director joseph clancy testified at congressional hearing about misconduct by secret service employees. then part of a conference on housing market beginning with white house economic advisor mark furman, followed by a discussion on economic well-being of consumers and buyers. >> secret service director testifies before a subcommittee about secret service employment's contact in football the leaking of personal records and congressman. also testifying, john roth whom

investigated the incident. this is two hours. >> the house committee on homeland security subcommittee on oversight and management efficiency in the governmental affairs on subcommittee on regulatory affairs and federal management will come to order. the purpose of this hearing is to examine failures at the u.s. secret service and their implications governmentwide. the chair recognizes himself for an opening statement. in september, the the dhs office of inspector general of the oig

released a report on its four month long investigation into improper access and distribution of information within the secret service. the findings were alarming. widespread violation of the privacy act and agency policy occurred by secret service employees who access and distributed information on a number of congress' past employment application and senior management did nothing immediately to stop it. inspector general john roth stated the episode was deeply disturbing. in addition, director clancy announced he had a different account different account of what he initially told oig. investigators had to re- interview clancy and issue an addendum to the report. this incident leaves questions unanswered. how did this happen? why did secret service leadership not act? and why and how did rector

clancy change his account almost immediately after the oig report was released? the american people deserve answers. dhs must hold all employees involved a properly accountable. as deterred disturbing as this is, it is only one example of other instances where secret service employees short poor judgment and leadership ltac. earlier this year senior agents who may be under the influence of alcohol compromised an area at the white house being investigated for a suspicious package. director clancy was again not immediately informed. late last year, oig also reported about a 2011 incident where agents were diverted to investigate an accident at correction in incident at the home of the director which appeared to be the misuse of agency resources in violation of the code of ethics. the findings in the oig report is another example of the damage to american people's trust in the secret service. when scandal after scandal emerges, and management is

ill-informed or fails to act, the american people has cause for great concern. we entrust the secret service with tremendous authority and tools. when they have blooms those authorities they violate their contract with the american people. because of the services recent failure, dhs secretary jay johnson convened a panel of experts last year to recommend changes to improve the service. panel made recommendations in 2014 related to training and personnel, personal security, technology, and operation, and leadership. the report provided a and leadership. the report provided a broad roadmap to begin reforming the service. i expect rector clancy to fully explain today, what progress has been made in implementing the recommendations. while congress has responsible responsibility to conduct oversight we must also understand what is being done to improve the overall management of the secret service. i am also concerned that similar

abuses and shortcomings could occur in other federal law-enforcement agencies. it is important to understand what policies and safeguards, if any are in place to prevent similar abuse regardless if it is a member of congress or one of our constituents back home. if it happened at the service, what is to say other federal agencies are any better? today's hearing must be more about pointing fingers, the the american people have high expectations, as they should, for the secret service and what the agency to be successful. it is actually critical to our nation's well-being as an we saw from excellent work during the papal visit, and united nations general assembly, the service can succeed with proper focus and leadership. i. i look forward to hearing more from our witnesses on how the secret service can best overcome recent obstacles to improve the management and reform the culture of this critical agency. the chair now recognizes the chairman of the senate committee on homeland security, the

gentleman from oklahoma, for his statement. >> thank you very much. thank you for holding this joint hearing with our subcommittee as well. good morning abroad. i'm trying to think of a more awkward situation than how we are currently seated here, i'm sure there is a way, we are so far away from each other on the panel setting. i appreciate everyone here and hope this is an open dialogue. i do hope this shed some important light on the situation where we are with the circus secret service. i like to acknowledge the essential rule the secret service bills and its incredible dedication to our country. we appreciate very much the service they provide to our nation and what it has done historically and what it continues to do. however, recent history however, recent history of high profile and immersing profiles in the dhs findings of

wrongdoing can't be swept under the rug, as i know secret service is not doing. these investigation reveals unauthorized database searches, protected information began during the house oversight and government reform hearing in march of this year. in the days days that followed the secret service continue to misuse their authority to access employment history of the chairman. the oig report 60 incidents of unauthorized access violated the privacy act. as well as internal dhs policies. the report also noted that 18 senior secret secret service executives failed to stop the access or inform director clancy of the access. in in fairness, it does reflect that once special agent directed her subordinates to cease accessing the database. the oig did not question those involved if this was the only time that inappropriately in it use the database.

in the internet age everyone is concerned about the possibility personal information could be stolen or misuse. our elite on perforce when agencies are not above the law. those responsible must face consequences. to me, me, there is a bigger issue. millions of americans personal data stored across government agencies, the g.i. report released this year on the federal information security showed alarming findings. from 2009 until 2014 the number of information security incidences involving personally identifiable information has more than doubled. geo has stated many agencies had failed to fully implement the hundreds of recommendations previously made to remedy security control vulnerabilities. these weaknesses exist with personal data of millions of americans house by the irs, hhs, ba, and other agencies. just this month, the social security

ministration's office released a security ministration's office released a report showing the social security administration pay monetary awards to 50 employees were previously discovered to have access personal information of others without authorization. fifty federal employees who access the personal information of others without authorization, yet incredibly in the end they were rewarded despite raking the law. another example, the senate the senate homeland security committee received testimony that a whistleblower was retaliated against by shedding light on inadequate suicide prevention at a virginia hospital. they they learned that the employees illegally accessed private " records after he brought to light the shameful behavior occurring at the virginia hospital. the question is now, how do we fix this palm so that americans believe that government will protect their information and not use it for other means? i'm hopeful today we will take a step or to address this issue, i'd like to thank the director, and all for your testimony today. i look forward forward to examining the challenges with

you. >> we now recognize from new jersey. >> thank you mr. chairman and ranking member for holding today's hearing. director clancy i want to first extend my condolences in person on the loss of your father. director and inspector general roth, mr. williamson, i think you free testimony. i also want to thank the men and women of the secret service for their diligence and hard work during the recent poppel visit in the 70th anniversary of the united nations general assembly. as a member of the committee on homeland security, and the committee of oversight and government reform i am well aware of the gravity of the secret service mission.

particularly regarding its duty to protect the president along with foreign dignitaries, and to to oversee security at major events, domestically and abroad. i'm confident the overwhelming majority of the men and women of the secret service take their job seriously and express the highest greater professionalism, i'm appalled by the recent reports of operational lapses and poor judgment by senior level management. it is obvious he there is a widespread lack of consistent leadership and management within the secret service. however, this did not just begin hundred clancy's leadership. these issues have been going on a number of years. of years. last year, secretary johnson commissioned the independent panel to evaluate the secret service. according to the panel's report the secret service needed to undergo or a cultural change and that included leadership that was capable of fostering greater accountability among all staff, modernizing a ministry to functions, including adjusting

hours, special agents, and uniform and uniform division personnel must work and improving training. after the panel the inspector general continue to cooperate their findings. it they have issued to memoranda regarding misconduct among senior secret service personnel and to management advisories. the most recent management advisory was issued on october 21, personnel were found sleeping on the job. the inspector general found staffing and scheduling practices of the secret service contributes to officer fatigue and this could pose the immediate danger to protect these. instead of addressing the root of the problem of having overworked agents, the secret service considered the findings in isolated incidents. furthermore, the inspector general most recent advisory on improper database access of the secret service shows the agency has a deeply rooted cultural problem that is not being addressed. the inspector general found over 40 agents improperly access the

personal records of a member of congress through an antiquated database. according to the inspector general findings, secret service leadership including the director and deputy director did not recognize the severity of the situation and dismissed that data breach as a rumor. the inspector general found that instead of dealing with the situation the director of the secret service found the -- what is even far more glaring as the inspector general found the assistant director of training appointed by director clancy to manage and direct all aspects of personal career development and operational training for the agency, suggested the information contained in this database be leaked to embarrass the congressman. mr. chairman, while this incident is reprehensible, it is not beneficial for us to be here today and isolation. we must have a broader productive discussion about the secret

service management and culture. finally, another secret service cannot improve without help from congress. therefore, i need to know from the director what he needs from us to not only make the adequate changes for staffing, but also the technological advances for personal databases. i also need to know from the director what his plan for the agency are, when he has top level management that turns a blind eye instead of addressing issues. with that mr. chairman, i yielded back the balance of my time. >> thank you. we now recognize the ranking minority member of the senate from north carolina. >> thank you chairman. chairman lange and welcome mr. clancy, mr. roth, mr. williamson. i first want to say thank you to the brave men and brave women who serve in the secret service.

while i understand the last few months and few years have been marked by high-profile incidents of agency misconduct, i know and you know the majority of our agents work hard and put their life on the line every day to protect the white house, past presidents, presidential candidates, and many administrative officials and former dignitaries. i also know firsthand as a former leader of a law-enforcement agency what the bad actions of two, three, or four agents can do to the morale of an entire organization. i know that just looking at the faces behind you mr. clancy, i know the effect that these high profile discussions have had. i am here in the spirit of let's work together. let's make this certain secret service what it should be, the most trusted law-enforcement agency in america. let's restore the morale of your agents, let's work together in a

management collaboration and cooperation to change this dynamic and once again have your agents stand tall, if they tell their friends and neighbors that they work for the secret service. that is a big part of why am here today. to remember and to remind, i think everyone on the status that there are literally of thousands been in women who every day, walk alongside cars willing to sacrifice their life in protection of leaders of this country. nothing that can be done by one person can take away the bravery of those men and women. so, clearly we have some issues to discuss, there is there is no doubt about that, clearly you have already heard the concerns we have here today. my reason for being here ever been interested in this topic is really to restore the morale and

restore the integrity of the secret service so that all the brave men and women, who have done nothing wrong in the secret service, can once again hold their heads high. with that, i yield back the balance of my time. >> thank you. the chair now recognizes the ranking minority member of the house committee on homeland security, the gentleman from mississippi for his statement. >> thank you very much. i think the oversight and management subcommittee and set it subcommittee and regulatory affairs and federal management for holding today's hearing. i also welcome director clancy and inspector general roth and williamson here today. i'm joining my colleagues in already said he for me, and thanking the men and women of the secret service for their work during both the papal visit and the 70th anniversary of the united nations. the dedication of the agents of the secret service is wonderful,

fortunately there to work is overshadowed by the x mosher of problems within the agency. the issues that lie within the secret service existed long before director clancy's appointment. however, as head of the agency the congress, the public, public, the officers and agency leads hold him accountable. prior to director clancy's appointment, serious operational lapses and leadership failures led to secretary johnson's appointment of an independent panel to review the secret service. this panel known as a protected mission panel had several glaring findings and recommendations. one of these findings is what i realize and articulated through many years of oversight of the secret service, the law-enforcement agency needs to undergo a cultural change that includes leadership that is

capable of fostering greater accountability. the panel stated the agency is starved for leadership. unfortunately, it still seems as if the secret service has yet to be fed. the sense that panel completed its review the office of inspector general has led investigations into misconduct involving secret service supervisors on more than one occasion. inspector general found that in march, at least four supervisors turned a blind eye went to veteran agents, including the head of the presidents protected detail disrupted a bomb investigation by allegedly driving impaired through a barricade at the white house. last month, the inspector general found at least 45 agents improperly assessed a 1980s mainframe to personal database

to retrieve information in an attempt to embarrass a member of congress. of those agents who may have broken the law, i am, approximately 18 of them were at the gs 15 and scs levels. the findings findings also concluded the director of the secret service, his deputy directors, his chief of staff failed to take seriously that agents were discussing information about the congressman's personnel file. inspector general also made the finding that the assistant director of training, the person appointed by director clancy to manage and direct all aspects of personnel, career development, and professionalism suggested the information found in the database the leaked in retaliation to congressional oversight. the ig findings further illustrates there is a lack of

leadership and accountability from the top down. in this instance, instance, little leadership and accountability was shown. rector clancy has indicated the secret service will be expanding and undergoing a rigorous and necessary hiring. the new hires will be looking to their leaders for guidance. as a secret service expands it is our responsibility of congress to assist the secret service with adequate funding for his mission. both the protective mission panel and inspector general have indicated that officer fatigue can place protective at risk. the agency also needs to have the capacity to properly vet employees before they begin work, whether continuing the practice of unclear personnel working in sensitive areas such

as the white house. the new recruits should represent america and have opportunities for advancement. as of right now, the secret service direct diversity numbers are dismal. furthermore, it would it would be hard for the law-enforcement agencies commitment to equal opportunity and inclusion to be taken seriously with the class action racial discrimination lawsuit still hanging over the secret service his head, and the secret service using every delay tactic it can instead of resolving the lawsuit amicably. there must be some changes made at the secret service. i know the deeply rooted problems will not cease overnight, but we must get to the source of them instead of continuously glossing over, putting on band-aids, and going forward with business as usual. i look forward to working with the secret service to advance its mission. with that, i yield the back back. >> the chair thinks the gentleman. chairman reminds other members of the subcommittee that opening

statements may be submitted for the record. we we are pleased to have a distinguished panel of witnesses before us today on this important topic. the witnesses entire written statements will appear in the record. the chair will introduce all the witnesses first and then recognize each of you for your testimony. mr. joseph clancy was appointed director of the united states secret service in february 2015, after service as acting director since 2014. previously, he served as special agent in charge of the presidential protective division. mr. clancy began his career with secret service in 1984 in the philadelphia field office, welcome. the honorable john roth assumed the post of inspector general for the department of homeland of homeland security in march of 2014. previously he served as director of the office of criminal investigation at the fda and as assistant u.s. attorney for the eastern district of michigan.

welcome. mr. joe williamson. he is managing director of the information technology issues at the government accountability office, the gao where he leads the evaluations of information technology across the federal government. since joining gao in 1979, he has led 79, he has led numerous reviews of information technology systems and management at a variety of federal agencies. welcome. thank you for being here, the chair now recognizes mr. clancy for his opening statement. >> good morning mr. chairman, chairman langford, chairman perry, chairman johnson, ranking member and distinguish members of the committee. thank you for the opportunity to testify today. i plan to address the findings with the recent oig report and many improvements

implement it over the past years designed to address the protective mission panel findings. i also look look for to discussing the numerous organizational changes we have made at the united states secret service and would like to express my gratitude and recognize the support of secretary johnson and the congress and making many of these changes possible. i said before you today, a proud representative of thousands of men and women who selflessly execute the mission of this agency on a daily basis. recent accomplishments including four near simultaneous special security events surrounding the papal visit and the united nations general assembly, as well as a number of high-profile high profile cyber investigation served to reinforce this feeling. in fact, in addition to initiating protection of two presidential candidates last week, secret service personnel are at this very moment, deployed around the world ensuring the president safety while in southeast asia. yet another example of their commitment and dedication to the mission. despite the secret service is many recent successes, i

recognize the primary reason we are here today is to address the misconduct detailed in the oig's report. this investigation arose from allegations that secret service employees and appropriately utilized an internal database to access the applicant record of an individual who is now a member of congress. the misconduct outlined in the reports is inexcusable and unacceptable. this conduct is not supportive of the agency's unique position of public trust. on behalf of the men and women of the secret service i would like to publicly renew my apology for this breach of trust and affirm my commitment to restrain it. the oig reported these employees violated existing secret service and dhs policies pertaining to the handling of the privacy act protected information. at the time these violations occurred, relevant policies and procedures were in place and can be found at a number of locations

including the secret service ethics guy, the policy policy manuals, and required online training courses. i was angered by the willful disregard of these policies. i am determined to ensure all employees are held to the highest standards of professional conduct. as i have stated on prior occasions i am committed to ensuring accountability in this matter regardless of rank or seniority. secretary johnson and i stand together on this point. today, several dozen employees have been issued disciplinary proposals relating to these events. more are on the way. the discipline is being administrated in accordance with the hs and secret service policy. i'm confident these actions will be fair, appropriate, and completed in a timely fashion. a contributive factor that allowed multiple individuals to improperly access this information with the nature of the information system that housed the data. secret service recognizes deficiency some years ago and

began a process to modernize its it infrastructure to allow for such data to be compartmentalized. it would restrict the access to those without an official need to know. this process was completed this past june. at this time the mci system has been officially retired. with respect to applicant records the number of plays with access to the system has been reduced by no more than 95%. finally, much as been made of my statements and decision of the oig to reopen the investigation on october 5, 2015. prior to publicly releasing the report in september 30, the oig gave me a draft copy that reflected my statement that i became aware of the rumor on april 1. as my colleagues and i review the draft, i was reminded that i had in fact been made aware of the rumor on march 25.

however, let me be clear that what i was made aware of was a rumor, no indication of employees misconduct or employees accessing internal databases. in order to ensure the accuracy of the report and knowing the concern it would cause, i took the initiative to contact mr. roth prior to the report's publication to ensure the report was accurate and correct on this point. with respect to the recommendations of the panel, tremendous panel has been made in all areas. i am proud to say we have significantly altered the way the secret service is structured and manage. we have made strides in hiring new members of our workforce and expanding training opportunities for current members. i'm also realistic and knowing that many of the changes we're making will take time and we must continue to community these changes to our workforce. in the interest of time, i will point you to my written testimony submitted in advance of this hearing for a more thorough description of this process and i look for for to discussing our progress on these recommendations with each of you today. i would like to close by remembering a remarkable leader

and true friends, former assistant director jerry parr. jerry is widely known for his decisive actions he took during the march 30, 1981 assassination at tempt on president ronald reagan. the decision he made that day including evacuating the president directly to the hospital, likely save the life of the president. as i reflected on his passion, i have the opportunity to review a speech he made it to a graduating a graduating special agent training class in 1994. he stated, and i quote. >> and organizational culture is a product of time, successes, sufferings, failures, and just plain hard work. after 100 years or so deep roots are developed in a corporate memory evolves. while another agency can purchase persons comic women, technology technology similar to the secret service, it cannot buy this corporate memory.

this is a priceless commodity.". as the men and women of this agency traverse these challenging times it is important to remember that culture involves more than an agency's failures and the successes derived will prevail as the lasting memory of the secret service. thank you, i welcome any questions you have. >> thank you mr. clancy. the chair now recognizes mr. roth for an opening statement. >> chairman, and ranking mentors members, think you provide me here to testify. we have conducted investigations, audits, and inspections, and we have a number of we have a number of ongoing projects. my written testimony describe some of that work and discusses the implications. for my oral remarks i will discuss our investigation into the allegation of the secret service agents improperly access to the restricted database to as well

as some other ongoing work. we found the application entry contained within the secret service data best of the master central database was accessed on approximately 60 occasions between march 25 and april 2 of this year. we can concluded the vast majority of those who access the information did so in violation of the privacy act of 1974, as well secret service and dhs policy. we identified one individual who acknowledged disclosing information protected by the privacy act to an outside source. however, because the number of individuals with access to this information is so great we were unable to identify others who may have disclose protected information to third parties. we found the access began minutes after clancy began test of moni on march 24 and continued in the days following. the application was widespread,

fueled and by improper access of the database. we found a number of senior managers new agents were accessing the mci improperly and some of them accessed it themselves. other senior managers were aware that he once applied to the secret service but apparently did not comprehend seriousness of what was developing. as a result, no one acted until it was too late to stop this on authorized and unlawful activity. our investigation also revealed that the mci and case management tool implement it in 1984 to not have the audit and access controls of a modern it system to appropriately segregate information. such can trolls and segregation may have prevented or minimize the behavior we discovered. this also appears to run counter to the privacy act which requires agencies to establish approach. safeguards to ensure the safety,

and security of the confidentiality of the records. additionally, the secret service must ensure only relevant records are maintained in these type of databases. the privacy act requires the agency maintain its records only such information about an individual as is relevant and necessary to accomplish the purpose of the agency. the fact that the mci had records of an unsuccessful application from 12 years years earlier, which contain sensitive information which could lead to identity theft violated the provision the privacy act. finally, although all agents were trained in the use of the system and receive yearly refresher training, it was apparent many of the agents disregarded the training. the secret service recently reported that it retired the mci and migrated all data to five other secret service information service in september 2015. our office information technology audits is currently

conducting a technical security assessment of the information systems that the secret service now uses to retrieve the information. we expect to complete that assessment and issue a final report in february 2016. over the past year and a half as part of our independent oversight effort, we have investigated various incidents root involving misconduct by secret service employees and other issues related to the secret service organization. the results of our investigation and reviews.ongoing organizational it challenges. the secret service has certainly taken steps to address these challenges but not always successfully. additionally, we are reviewing three incidents involving potential security lapses. for each incident, shots being fired at the white house from constitution avenue, an intruder jumping over a fence and entering the white house, and i'm guard coming close proximity to the president, we are determining whether the secret service policy followed

its own policies when actions were taken to correct deficiencies and whether these corrections were adequate. the ultimate ultimate aim of our review is to determine and understand the root causes of these lapses. this fiscal year we plan to issue three report from these incidents as well as the capping report that identifies the root causes. i welcome any questions you or other members of the subcommittee may have. >> thank you mr. roth. the turnout recognizes mr. williamson for opening statement. >> thank you to the full committee, members of the subcommittee. thank you for him biting geo to testify today. as requested i will briefly summarize our statement on information security across the federal government.

gao has long-standing concerns about the state of information security in the federal government. we initially identified several information security as a governmentwide high risk area 18 years ago. we subsequently expanded this high-risk designation to include computerized system supporting the nation's critical infrastructure and the protection of privacy and personally identifiable information. the cyber threats facing our country continue to be very serious the impact of these threats is highlighted by recent incidents involving breaches of sensitive personally identifiable information and the sharp increase in information security incidents reported by federal agencies over the last several years. they have risen from 5,502,006 to around 67000 in 2014. given the risk posed by external and internal threats and the increasing number of incidents,

it is crucial that federal agencies take appropriate steps to secure their systems and data. however, we and inspectors general have continued to identify significant weaknesses in needed security controls. for for example, in fiscal year 201,419 of 24 major federal agencies declared information security as a material weakness or significant deficiency. most of these agencies have reported weaknesses in the key control areas we track, including controls controls intended to prevent limit, or detect unauthorized or inappropriate access to networks and data. in particular, our work has often shown that too many agency employees have too much unnecessary access to too many

databases. agencies need to implement clear policies on access to sensitive information. they need to grant access to users at the minimum level necessary to perform legitimate job-related tasks on a need to know basis, deploying effective monitoring to track user activities is also essential to see that they are quickly detected and remedied. to address the many information security weaknesses that federal agency gao and inspectors general made thousands of recommendations. over the last six year gao has made around 2000 recommendations to improve information security programs and controls. today, about 58% of these recommendations have been implemented.

until agencies take action to address weaknesses and implement geo and recommendations, federal networks networks and sensitive information including personally identifiable information will be at increased risk from internal and external threats. actions to implement recommendations will strengthen systems and data security, and reduce the risk of cyber intrusions or attacks. that concludes a summary of my statement, i look forward to it addressing your questions. thank you. >> the chair now recognizes himself or some question. i'll begin with mr. roth. mr. roth, how many subpoenas regarding the chafe is incidents and the mci, how many subpoenas were issued? >> i believe it was only one subpoena. >> so why, why, if there were multiple individuals that admittedly breached the

information and may have compromised it, why would only one subpoena be issued? why would there not be multiple subpoenas issued for multiple individuals? >> most of the information we received were from government data systems so no subpoena would be necessary. the only time we have to subpoena is if we go to a third-party like a telephone provider. typically. typically is our policy in these kinds of circumstances to have a level of predication before we go and subpoena someone's personal telephone records. we have predication only on one individual rather than the hundreds who may have had access to that information. >> even those who committed to wrongdoing. >> that is correct. >> was the index search for other improper access incidences? >> it was not. the index itself was created in 1984, do not have the ability to readily do the kinds of

forensics that you would do it on modern data system. in fact what we were required to do, what the ministers of the database were required to do is actually write scripts or programs to be able to find access to this information. it was a highly time-consuming type of thing. because of the necessity for finding answers as quickly as we could, we only restricted it to chairman chafe its name. >> based on that, would it be correct to say that we have absolutely no idea at this point, regarding that day the system, if any other americans, any other citizens have had similar things occur regarding their personally i don't viable information. whether it was search, or divulge, we, we have no idea? >> that is correct. >> that is a bit unsettling. director clancy. are you familiar with operation moonlight? >> i am familiar with some

details of that, yes. >> i understand you have thousands of employees. this hearing is not meant impugn the credibility of your agency, i think americans have the highest regard and want to have that. but but how does something like that happen? >> so secret service agents use government information, access databases and then you seek women, time, material to survey all essentially a private citizen's property without any due cause of anything. that is my narrative. what is yours. >> and how does that happen. >> sir, forgive me i was not here during that timeframe. i will allow some briefings when i first came in as acting director. it was found from the oig report that people may very poor decisions, there is misjudgment, should not have happened. there were some changes made in our management.

>> i will tell you, i looked at and i imagine you're familiar with it, i will just redo the subject is directive 2015, 02015, 09. disciplinary and adverse actions. it is from your agency and it moving forward based on what has occurred regarding the information of the data breach. i want to give you a flavor of what i see here. an employee is entitled the employee to, the employees entitled to. i'm just kinda going through each paragraph. the employee will be provided with, the employee shall have an opportunity to, the employee is entitled to. you kinda get my just and the reason i say that is what i'm wondering is, and what a lot of people are wondering is, what are the consequences of the actions of 45 or 41 employees who access mr. chafe its data

and then whoever disseminated it, up to 60 times, what are the consequences to those individuals? we see what the employees rights are. >> yes or. >> but what are the consequences -- how does mr. chafe its get his reputation back? >> what is going to happen to these individuals what do things stand? >> secretary johnson and i met and talked about this in a true sense of transparency because myself and my executive staff have been all interviewed in this case. we made a joint decision that the department of homeland security would make the proposals, in this case i will tell you -- and i've heard the comments made today, reprehensible, disturbing, and nursing. i agree with everything that is being said here today. my workforce does as well. the hearing today will help me get the word out and the importance of protecting pii. we have all the training and the ethics guide, we go out and trey

are new recruits, but a hearing like this puts a definitive stamp at our failures. in this case the individual stance or question mr. chairman, in this case we are proposing as of today, approximately 42, don't home it to that number, approximately 42 will be 42 will be issued a proposal of discipline ranging anywhere from three days up to 12 day suspension. >> so the maximum is a 12 days -- and the chairman is going to indulge himself. so the maximum penalty, the maximum repercussion for going -- will know when you look at these computer system there's a warning of front that is to be used for official business only. we all know. as your folks do i hold a secret security clearance, everybody in

the room knows, everyone in your agency knows that using this information for what it was used for was incorrect, improper, unauthorized, illegal. the most we can hopeful, the the toughest disciplinary action is not loss of your clearance, not loss of your employment, it's 12 day suspension? i just want to be clear. is that correct request mark. >> that is the grades at 15 and below for those proposals as of today, pretty sure that. the fes level folks have not had their discipline proposed as of the state. >> as mr. lowery and ses level employee? what is the range of options or discipline of consequence for mr. laurie, if you can inform, i'm not asking you to tell is what it is maybe you are still completing your investigation. but what we expect? >> a letter of reprimand up to a letter of removal. >> i now recognize gentleman from oklahoma.

>> i will divert my time. >> thank you chairman lang. mr. clancy, every incident that we know of there seems like there was not an adult in the room. there is no one who provided that voice of saying hey guys, this is not the way to do this. hey, we have a responsibility that is higher. so, while we look at management and resources, you said in your testimony you talked about how the corporate culture of the secret service is a priceless commodity. every day that priceless commodity gets threatened by agents not willing to be the adult in the room. not willing to be the person who stands up and says, knock it off. because, you can't do it just from a management standpoint, you have to change the culture at the

bottom. i think that is one of the concerns we have. it seems all of this has happened with the great impunity and almost you can't touch me, as the chairman just talked about or, it is okay to do this. so i want to know as we look at management changes, as we look at systemic rules and policies, those rules and policies are only as good as the commitment that people at every level within the secret service have for change. so, what are you doing within the secret service to build capacity for people to be the adult in the room? to stop at the source and say this is not what we do in the secret service? >> thank you senator. the system that we have in place now is relatively new. it is approximately two years old. this includes a table of penalties. in the past, this one was handed at a more local level. now

everything is funneled up to our office of integrity. >> i don't mean to interrupt and not talk about discipline. i'm talking about culture and obviously consequences are part of changing that culture. but what about the integrity at every level of basically saying, we don't do this, we don't go to hotels and higher people to service us. we don't drive into the white house and disrupt a major investigation. we don't access a congressman's secret records. we don't do that. do that. who is the person and how are we training people at every level to stand up and stop this behavior because i don't think we can do it just having hearings like this. i think we have got to restore this priceless commodity that you're talking about which is the integrity element of the men and

women at every level, knowing that it is their responsibility to help maintain the integrity of the secret service. >> i agree with you senator. we have to do more in terms of communicating with our people. we can have all the training exercises and all the online training, for example i have been to approximately ten of our field offices, i speak personally to our agents. i walk around the white house and talk to the officers. i meet all of the recruits prior to their graduation and tell them what they represent and what is expected of them. i have to do more of that as well as our staff. we have to keep communicating to our people. again, what the congress is doing today is a help to a centaur agency because again, the seriousness of what we have done in this particular case resonates by these types of hearings. >> i think the issue of culture has a lot to do with what we have been experiencing and the

last that has occurred. ester director. i i want to talk about the panel's recommendation one of the things i think was noted in the panel was that we needed to breathe new leadership from outside this organization that didn't have the long-term relationship and might be somehow influenced by the relationship it did have. you have a 27 year record, or experience with the agency. clearly you are an insider. there was a removal of a number of deputies and they were replaced, the majority of the deputies that were replaced were also from within the agency with long service records. my question is, how do we change the culture of the organization

if the very top leadership has been a part of that culture, and and perhaps only sees this organization from within? would we have not been better served had you identified the capacity to go to the outside and find people certain skills, leadership abilities, accountabilities, that would have transcended the relationships that individuals may have had? could that possibly have helped us become more efficient, more effective, and more accountable as an agency? >> thank you for that question. i. i will tell you out of respect with you that many thought that its position should have been someone from the outside. there's good reason for that, i understand that. i consider the fact that i left

the service for three years, worked in private industry, has allowed me to bring in some outside views on how to run a business and how to run this agency. so what i did do, first of all i brought in as chief office operating officer, civilian from outside the agency. that coo is the equivalent of the deputy director. additionally, we have created a lot of subject matter expert positions where traditionally the answer to agents. prior to me arriving here, all of the top level security was run by agents. some of them scantily were not subject matter experts. for example, finance. we finance. we now have a chief financial officer who does not report to an agent, she is the chief financial officer. chief technology officer is an engineer not an agent. chief strategy officer chief strategy officer is a lawyer who is not an agent. a few others as well. we are trying to bring in outside perspective to run this business but also move the agents into our core mission of protection

and investigation. >> so talk to me a little bit about your ability to bring in not only new people into the agency but more diverse people. the information i read regarding the secret service was that it is predominantly white male, there is a small percentage of women, not consistent with across-the-board and federal government. what are you doing to address the issue of lack of diversity in terms of race, ethnic city, gender, impositions and what are you doing to address the long-standing and outstanding issue with the civil rights complaint? beyond them as opposed to using the system to delay the implementation of the corrective actions that could be taken place. thank you. >> entrance of diversity i would

ask you first to look at my executive staff. on the staff of approximately 12 people, we have five african americans, six females, but going down throughout the ranks you are correct. we are not where we want to be with diversity. we are targeting universities that provide diversity for us. we have shortened our hiring process where we can go to these universities over a weekend period of time, do a testing, interview, and polygraph if the first two steps are met. we are targeting specific areas of the country to really work on this diversity. we are deficient in that area, certainly with females as well. we are working diligently to try to improve that diversity. >> thank you, i yield back. >> chair thinks the general lady, the chair now recognizes mr. johnson from wisconsin. >> think mr. chairman.

inspector general roth in your written testimony quote, you state information was accessed by secret service employees on approximately 60 occasions between march 25 and april 2 of this year. you went on to say that we concluded the vast majority of those who access this information did so in violation of the privacy act of 1974. what are the penalties for violating the privacy act of 1974? >> there are several penalties for the agency that is involved if there is a widespread global gross negligence standard. their civil penalties, monetary penalty for the agency of all. for individuals who accessed the system improperly, knowing it was protected under the privacy act, that is a misdemeanor which has a fine as a penalty. but no custodial no custodial sentence. >> is there any department of justice investigation being

undertaken right now to determine whether those misdemeanors were in fact prosecuted. >> no. during the the course of our investigation we presented a case of the most compelling case we had and it was declined by the u.s. attorney's office. >> why would that be question. >> there are several reasons. first of all, each individual agent has a fifth amendment right to not speak to us if in fact they are under criminal jeopardy. we cannot interview which were compel their interview which we had to do. the level of evidence the department of justice had was not sufficient for them to move forward. additionally, when one, when one looks at the penalty it was simply a matter of competing resources. >> director clancy, i got involved in looking into the culture problems with the secret service back in early 2012 after

events. this is not why i ran for united states senate, was to look into the secret service and be able to see that we all want to have a high credibility and as you stated in your testimony the culture in many respects is almost beyond reproach me. it's a fabulous agency and they do great work. on the other hand, other hand, there is a real cultural problem. what are you going to do about it? i hear communication, i understand communication but actions speak far louder than words. we're talking about a a disciplinary process when their violations of privacy act and there are no prosecutions of it, nobody is held to misdemeanor penalties, there is nothing more corrosive in an organization that has culture problem when misdeeds go unpunished. so what actions are going to be taking?

>> this is three years now, this occurred in april 2012. where 2013, 2014, 2015, three years later we have a number of members of the secret service violating the privacy act, violating the dhs and secret service procedures. it does not seem like we are getting a hand of of the culture problem within the secret service. >> mr. chairman, thank you for the question. we have remove people from the secret service. you mentioned that several were removed in that case. as of today, we are up in the process of proposing the removal of an individual unrelated to this. people are removed in the secret service. this penalty and we refer to it a few times here, we have benchmark that with other agencies. we want to be consistent with what is being done across the board.

just recently i publish for the first time to our entire workforce, the discipline over the past year. so they can see what types of cases are out there, our supervisors being disciplined equal to the workforce, we are trying to be transparent. that communication is critical here. we are trying to be more transparent and driving home the point that people will be held accountable. in this case, they will be held accountable. >> as the chairman is pointing out there are objections for the employees and the actual agents, but again it is hard to see the accountability. if i meant to be a problem? are you constrained and what actions you would like to take based on all the protections for the agents? should we have, should we be looking at the law there and making sure the agencies having a power to actually help people? >> i think the service would allow us to speed up that proposal in the discipline process. i know sometimes we are delayed

in the process as we move forward. >> so you would like the ability to take stronger action, quicker? >> yes. >> good, i think we need to take that into account. >> the chair now recognizes a gentleman gentleman from mississippi,. >> thank you very much. almost to the member before me the conversation has been about the culture of the organization. i think it speaks to whether or not internally we can fix it, or do we just cover it up? i'll get to specifics, shortly. inspector roth, in your review of the secret service, how would

you describe the culture within the service, especially at the executive level question marks. >> as we noted in the report on the access to chairman shea fits implement record, we found a number of supervisors who them in fact had access to mci, to me that was a very troubling incident. additionally, few people then elevated their concern or the fact that this is being used to a high enough level of management for something to be done. that was really troubling behavior that we identified. >> so, let me -- senior-level people accessing information, then we had that information being noted by people above those individuals, and is your

testimony that nothing happened? >> that is correct. i will give two examples, if i may. the first was a special agent charge of the washington field office came to understand some of her employees were accessing the mci to understand whether or not that rumor existed. she ordered her individuals, her subordinates to cut it out, her exact words were knock it off or quit fooling around with the mci database. in fact, that is what occurred in the washington field office. unfortunately, throughout the country other individuals were doing that. that would be one example. the second example is the special agent in charge in the indianapolis field of vision who was frankly curious why it was in his view chairman shea fits was so hard on director clancy. he just out of idle curiosity access the database himself to this cover himself that chairman

jay pitts was a prior applicant. he did nothing with that information, did not elevated up, or do any other type of conduct. there of conduct. there are number of examples like that. >> so, thank you very much. so director clancy, i hope you since the memberships concerned about the culture. i would hope that going forward you would take this hearing as you said as a moment of instruction to try to fix it. the men and women deserve, they do a wonderful job, but it is about leadership. it is absolutely important. as you you know, i've been talking to you since the summer, a

smaller issue than some, it is relative to the fact that we found out there were 643 employees assigned to duty that required a security clearance. they were working for the department without the completion of the clearance. i had asked you for the demographics of those individuals. as of this date, i don't have the information. i know you have been busy but can you give me some indication when i can expect to receive the demographics of those 643 employees? >> yes sir, first of all my apologies that you have not

received that information. 640 individuals i am assuming made the be departmentwide. i think in the secret service we did have people working that did not have their security clearance. i think was much less than that. we will get you an answer in the coming days on that issue. >> will, it was departmentwide over a five-year period. my point is, some of us men and women around the country indicate that i am tried to get employed with the secret service but they tell me i can't get considered for employment because i haven't been cleared. i can't can go to training, i can't do a lot of things. but what trouble some of us is when we are already employing people whose job required clearance on the other hand. so i don't know if that is favoritism or what.

it is real concerning. >> i i will follow up on that server. i can tell you we don't look at that diversity in terms of who gets his security clearance and who does not. in this case, the one that you referenced now speak of the secret service, we were delinquent as we went through this hiring process. we did not get people there security clearance in a timely manner. some, and they were assigned to positions outside of the washington for the most part. what we we have done now is brought in some contractors, an additional 14 contractors to ensure this never happens again where someone goes through our training and when they graduate they should have their clearance. that has been resolved now within the secret service. >> thank you. so it is your testimony that nobody working for the secret service right now is without a security clearance? >> that is correct. to to the best of my knowledge, that is

correct. >> can you verify that for the committee? >> yes. >> i yelled back. >> the chairman now recognizes a gentleman from georgia. >> thank you mr. chairman and for you all for being here. this is especially troubling for me as we look back over the history of this incredible agency, the service, it is an icon of what i think is american exceptionalism. the actions we have seen take place, of course it tarnishes the reputation of the service, but more so i think it really turn us is the image of the american people have of what they have always elevated as being exceptional service. not just in the nation, but in the world. i think it is imperative that we address these issues, not just

in hindsight, but in going forward to make sure we restore the trust of the american people, the trust of congress, and the trust of the protect these. mr. roth. mr. roth, you said something in your written statement that really struck me here. the secret service has certainly taken steps to address these challenges, but not always successfully. these persistent challenges may not be easily to resolve expediently, they may require more fundamental change that addresses the root of the misconduct. i think that is where we need to focus. where where is the root, and euro opinion? what is the root of the problem? >> when you look at guidance in regards to creating an ethical culture, they say it comes in three dimensions. one is tone at the top which is not just at the very top it all through the leadership of the organization.

the leaders have to set the tone. the second is to have a code of conduct in a code of ethics that is truly meaningful, the the third is to enforce that code of conduct in a way that expresses to the ranking file that you mean what you say in regard to that tone at the top. you have to look at all three of those things. director clancy has said, i think the middle part the code of conduct, was not there and there have been steps that i've been taken since then to restore a policy. that is certainly an improvement we think is well-deserved or a positive step in the right direction. again, it has to be tone all the way through the organization as well as a meaningful enforcement of that code of conduct. >> i have a timeline of misconduct that went back prior to cartagena, goes back to 2011. up until that time i don't

recall, there's mr. conduct in any organization, is there history like we're seeing now that you are aware of? prior to the last four or five years? >> i am not aware of it. i just don't have any insight into it. certainly we are only as good as the audits we do in the investigations we do, we do not have anything before that. >> thank you. mr. clancy, i applied your efforts. you have a difficult task, you have have been in the agency for quite a while. do you recall that there is the level or consistency of misconduct previously in the agency? or is this something that mac. >> i think any agency has had some misconduct. the secret service has had misconduct in the past. more attention has been brought to misconduct in the last several years, that is a good thing. i applaud inspector general office for that. this has. this has to be brought out in

the open. these misconduct episodes, otherwise we will not correct it. >> make sure i understood it right, you said you're trying to benchmark you disciplinary actions of other agency, is that what you're referring to looking at other agencies. >> yes, i understand with a table of penalties were built out, our legal team worked with other agencies to see what they were doing from discipline standpoint, what their table of penalties were. we took their best ideas, best practices, built ours. >> i would suggest, you guys have to be a little stronger, little better. the nature of the work that you do is so important to this nation. one last thing, i think we have talked a lot about culture in here and that is true. what you're getting at is the culture of the agency it is -- you are in the secret service, you have an obligation to the

integrity, the honor, and the dignity to uphold this agency. i think that may be what is missing. somewhere, just real real quickly i was going over this timeline and there seems to be a common element with a lot of these. i look at catania, alcoholism ball, june 213, alcohol, november november 2013, abuse of alcohol, march, alcohol, june 2013, alcohol. 13, alcohol. there seems to be this continual cycle of alcohol abuse associated with this which from my experience in the military usually indicates there is a morale issue. i will let you comment and i will yield back after that. >> yes, you are correct congressman. we do have a morale issue and a lot of it is because of our staffing.

that is one of the things we need to do his work with our staffing so that we can build up our staffing level. we can can get more training which are people want, get them a better quality of life which will help their quality morale as well. to your point here today the accountability and discipline matters also helps that morale. are we going to hold people accountable question but i will tell you the episode since i've been here, you mention the marco individuals after retirement party drove through the white house. i can tell you retirement parties now, i don't don't know of any that are taking place. people got that message. what we are talking about today, pii, people are getting this message. unfortunately it takes the significant errors of misconduct to resonate sometime with our people. i want to also say one thing, less than 1% of our people are involved in this misconduct. truly, 99% as% as some of you mentioned are doing the right thing. they're working very hard.

we have to focus on that less than 1% because we are held at a very high, and rightfully so, at a high level. >> i hope you can get the service back to the point where people aren't doing the right thing because they're afraid of the discipline, they are doing the right thing because they are dedicated to their job, the service, the spirit of the service, and their oath to the constitution. thank you sir. mr. >> the chair thinks a gentleman and now recognizes the chair of california. >> thank you mr. chairman. director clancy, just to be to have some statistics here on the record, according to the partnership for public service the agency is 74% male, is that correct? >> 75%, let me just check that

real quick. that sounds correct. >> 72% white, leaving it severely out of step with other agencies, women make up 25% of the agency's workforce, but only about 11% of the agents in uniform officers. >> you are correct, yes. >> you talked about your outreach efforts with universities and targeting certain areas of the nation. how do you engage on employment agency to help you or to advise you in finding a more diverse workforce? >> i am not aware that we have taken that step yet but it is an excellent suggestion we will

look into. when we go into the different areas of the country we have a very diverse group recruiting that tries to encourage females to apply as well as across-the-board and diversity in diversity. >> are you targeting also the military? law-enforcement agencies looking for - like they're great people working. >> absolute, we do it in military bases, we run the lacks, entry-level recruitment centers. if you want to apply for job at a secret service we can do it testing initially, if you pass the test that very day we can do a super interview if you, again if it looks like you're a good candidate will move you to a polygraph, all within polygraph, all within one weekend to try to speed up the process. absolutely on military bases, we found personally people

(military background service very well. >> well they have a high work ethic. >> they do. >> they understand the pecking order. they understand the need to serve. i am disturbed by the incidence, i am happy to hear that it is a reflection on less than 1% of the workforce but by no means it doesn't make me feel better or safer. so, would you say you have an agent problem or do you have a management problem? >> is a management problem, and it starts with me. it is a management problem, leadership problem, and i have to find an answer to. >> have you taken steps to ensure that when we are coming down on agents that tougher disciplinary actions are taken upon the people who supervise them? >> supervisors are held accountable. again, we put this out trying to

be transparent to shore workforce. >> are there policies in place to ensure that whistleblowers are protected? >> yes, everyone in the service knows that whistleblowers perform a vital function in the -- there is no retaliation, you have to let them go. >> so there are disciplinary steps that the agency takes when the department rules are violated? >> there are disciplinary steps the department takes when our laws are broken. >> yes. >> the agents are read miranda rights, is that what you are referring to in an earlier question? >> no, they, they are not read miranda rights. they are red alkynes or garrity's, let the inspector general correct me if i am

wrong. that's what their rank is. >> i come from a civilian part of law-enforcement so, pardon -- so criminal charges are filed, whether they are felony charges or misdemeanor charges, what steps do you take during that process question marks. >> if criminal charges are filed we typically immediately move to removing the security clearance so this individual can no longer have access to any protected facilities, any access to any of our prick tease of course -- >> surette harris happens to the rest of the department that are working with that employee in the process of a criminal investigation and the supervisor question work.

>> at that point, we remove all of their badges, their equipment then it goes through the normal course of criminal justice system. >> my time is out but what i'm trying to figure out is, if you have a rotten apple, how do you ensure the whole bowl is a bad question work. >> we can remove them very quickly in that case. mr. chairman if i could just correct the record for one item, ranking member thompson had asked me about security clearances, our agents and officers some of them in training now have not had their clearances settled. they will will buy graduation. so anyone who graduates from our academy will have security clearance. while they they're going through training some may not have.

>> but as of the summer when we talked, that was not the case. >> that's correct, that was not the case. you are absolute correct. >> thank you. >> the chair now recognizes gentleman from florida. >> sorry to hear about your dad. >> thank you sir. >> greatest generation. >> it was, i know many here have lost their from the generation and we learn from them. >> was your data that. >> as he was. >> yeah i know about this, just mature mom. it's the generation of your glass half full, go to church on sunday the rest answers itself. >> yes or. >> we are lucky to have those kind of folks. although we do little for country now, without ever saying that they remind us that compared to what they did, we don't do much. >> that is correct. >> i fully respect the operation for you and your dad. i've also always thought of

organization culture being the combination of performance and behavior. therefore how your agents and your employees think of themselves dependent on those two things. they all see it. when bad behaviors not dealt dealt with quickly and impacts that culture and how we view each other because it discourages good performers that are doing their job every day. everything tells me these incidents of bad behavior are to be isolated, put up in lights for everyone to see, and action and action needs to be taken quickly. therefore, and that really is the responsibility of the leadership. therefore, when it drags on and on, when it drags on and on, it really sends a bad message to this corporate culture that you referred to earlier. why so slow? i mean, systematically, you're

the chief and you are the head of homeland security. let's go, let's take some action so you can do what's right and preserve the culture for all your great performers, am i missing something on that? why so slow? >> you are correct on that. if there's criminal activity it is much quicker. we can remove we can remove their securities clearance right away. other types of problems do take time for the following investigation. in transparency, we have the oig handle this investigation to do a very thorough investigation and then once that was completed then we could move forward with that discipline. under title v, the federal employees are given certain rights and we follow that process. eventually we will get to where we need to be. >> what's going pretty slow for

my taste and for the sake of your organization i would be pushing this as hard as i can because typical folks that run large organization don't understand this kind of length of time. it just festers because you don't put it behind you. so my point on that is let's get going. i have found an organizational change that if you do not change one third of your people in positions of responsibility you will not change culture. they will outweigh you. they always outweigh you. if you change more than 50% that he may then you may have a problem with the institutional memory that you discussed earlier. i'm really bad that you brought diversity and experience in your direct reports. but they will outweigh you. so, no rule of thumb is a hundred% for sure. if i'm sitting in your chair and not changing one third of my managers, and you are thinking you're going to change your organization, good luck. don't believe it.

so i don't know if you have thought of bout it in numeric terms but let's get a performance culture going without washing away the memory of the successes of the past. i'm all am all for having both and i don't think if you apply this in your earlier comment, i don't think it is one or the other. change your culture and preserve the successes of the past. islamic sense question marks. >> it does, yes or. >> as they anything i said you disagree with? >> no i wouldn't sir. >> look, we want you to succeed and we could talk all day about whether you should do the job or not but you are in the job. we need you to be successful so anything i can do or our group, we want you to succeed. look, i really like the tone at the top, so let's get him.

>> thank you sir. >> the chair thinks the gentleman, now recognizes a gentleman from georgia, mr. carter. >> thank you mr. chairman that they can for being here. mr. clancy, how many times -- when did you become the acting director? >> on october 6, i believe of 2014. >> comedy times have you appear before congress? >> i believe this may be my sixth or seventh. you know, i've been here since january 6 and i think this is the fourth time i've seen you. obviously we have concerns here and there seems to be an ongoing problem. as he might know, i'm very fortunate to have the federal law enforcement training center in georgia in my district. i'm familiar with the training that takes place with the secret service agents down there, i think they do an excellent job. i also want to remind you of the protective mission panel that came out and actually said the amount of training the secret service agents were getting were

far below what it should be, in fact i think at one time it was equaled only to 25 minutes for each 1300 uniformed officers. what are we doing to change that? >> well, you're absolutely correct. i've been out here federal law-enforcement training center. they do a great job down there. they help us as we job down there. they help us as we try to build our staffing levels. in terms of what we have done, uniformed division 99% have gone through a building defense exercise training mission, a ten hour block. additionally, approximately 700 of our uniform officers have gone through three day training. or they do their firearms, emergency medicine, control tactics, number of things. the agents of the president detail, we increase increase in the number of agents on the presidents detailed by the second quarter early january we increase the numbers by 85 which was recommended by the blue-ribbon panel. >> .. 85% on the president's del in the past year. mr. carter: specifically, let's get to what we are here about today and that is chairman

chaffetz and that situation. inspector roth has stated that several of the agents that violated the secret service and the homeland security policies, when they accessed his records, this is a criminal offense, don't you think? director clancy: it's on the books as a criminal offense. mr. carter: tell me what you have done. have these people been fired? have they been disciplined at all? a criminal offense by an agency that we hold to the highest standard. by an agency that we hold to the highest standard. i am a little bit frustrated by something i have heard here. keep in mind that we are experts at spin and pivoting. that was his favorite word. all of a sudden i here you

talking about data. give me a break. if they wanted to see this they would see it. how can you let this go on? why haven't you fire these people? don't you agree? they knew this was wrong. >> i do agree answer later is misconduct. the discipline for those but the data is also important as a sidestep. >> i understand andi understand and respect and acknowledge that it is important that it be protected. still,still, the basic premises that they knew what they were doing was wrong. >> they should've no what they were doing was wrong. >> should have known? home at the highest level. i just can't go along with that. inexcusable and it deserves discipline. i am a small business man.

when something like this happens -- and i'm not trying to tell you how to run your business, but when you know it is going to destroy-year-olddestroy -year-old business, and you have got to get rid of this cancer. you have an opportunity to set an example. what they did was wrong. they deserve discipline and they deserve to be let go. >> some of these people have spent 28 years with no discipline in their history. some of them self-reported. there obviously all very remorseful. it was wrong yes, but we look at the whole picture and the whole person, their career. >> and i get that. i want to make sure that the punishment that fits thefits the crime, and i understand

that and you should look at the whole career. at the same time you have been here six times since he took office. we want you to succeed. wesucceed. we don't want to see you fail. we don't want to see you here anymore. we want you to do this and we want you to do well. but we have to have your help. mr. chairman, i yield back. >> the chair thanks the gentleman and recognizes the gentleman from oklahoma. >> we still have a little ways to go. let me state a couple of things i picked up the conversation today and i want to walk through multiple. there are a lot of issues with secret service that have been well-documented and i want to talk about that a little bit. i think someone from the inside is to be there to fix it. the same law enforcement background, the same sense of corporate identity with

secret service walks in as an outsider and has a different opinion on it. someone from the inside could walk in. i appreciate. i will come back to that in just a little bit. let me ask you a question. for these individuals access to database it was the 1st time for them to access a database like this? did anyone ever asked them, maybe i should go look in jason's records. well, maybe we can get access to that. if you're interested in someone they can go public. >> i think it ran the gamut depending on the agent we talk to. some did not think it was wrong at all. one of the other larger criminal databases. this was run by the secret service and saw nothing wrong with that.it. others did not understand it was wrong until after they

did it. >> there is a training that happens multiple times a year, both orally and electronically. for official use only. it still your perception that some individuals ignored all of that. >> that's correct. >> well, the problem with that is if they can pull a member of congress, any individual, that means a new neighbor a new neighbor down the street i can go check my records. some new guy can go pull his family and pull the records on it, someone they don't like they can pull the records. the va became a whistleblower. they were pulling records. the challenge that we have is access to data, official and not official and how we track it.

is it your perception this has been an ongoing issue for some employees just to be able to use the database, as i can go look at it and blur the lines? >> that is the since we got. >> how do we deal with this? social security was identified, 50 different individuals were given merit bonuses. for unofficial purposes. grabbing information and look at it. that's a whistleblower. how many agencies have good systems in place to be able to audit how individuals access the sensitive databases? >> this particular access problem is probably the most common issue that we see only are doing detailed information security audits.

too many people have access to things they don't need access to. it is not part of their job description. they don't have a need to know but are given access. access is a real issue. i would say it's probably the most frequent. another issue that is interesting is, when you are collecting pii one of the things you do, scheduling a record notice, tell them how long your going to keep the files before you dispose of it. i was curious about why application file from 2,003 would be 12 years later. those kinds of things should be disposed of fairly quickly. hopefully that is part of what the service will be doing going forward. disposed to schedule records out of dispose of them in a certain date. sometimes one year, sometimes five years. >> there are two different sets.

paper records. it is my understanding that there are still some offices that of the access has been changed electronically, if you go into a file room is old application files may still be there in paper form as well. >> we are moving forward with applicants. every few years those files will recur. rightrecur. right now there is an investigation going on with the inspector general, so some of that will be delayed slightly, but that is the plan. and also with the applicants in mind 95% of95 percent of the people that have access no longer we will have access. >> paper and electronic. offices around the country still have access to paper records? >> it back to you.

>> evaluate as well. with the electronic version access.which agency would you identify and say this agency is a good model example about a hand personally identifiable information? they are model agency. >> don't have one. >> somewhat depressing. >> yes it is. on a more optimistic note, since the opm cyber disaster this is become a major priority. the agency has now recognize this is a critical issue. when we 1st announced information security chicken

little the sky is falling. >> the sky fell. >> the challenge we have, let me give you one example. for years and years identified. how does this get better, how do we prevent unauthorized access of medical information and a private information form for veterans? >> veterans affairs has a significantly high percentage of systems that are considered high impact systems. that is called the disclosure of the data or the modification of the data because of the medical records is considered to be severe in terms of the possible impact if lost, stolen, or reviewed by others. given that you have to put much stricter controls in place including monitoring users and what they are doing and if they have any atypical patterns. >> is this an audit or an algorithm?

>> this is an audit and an algorithm. you can do it automatically. we have to put these controls in place to prevent the situation you describe. >> i don't know if we're going to do a 2nd round of questions. >> thank you. and i will suspend your questions. >> mr. chairman, i know we were here. my colleagues want us to focus on what happened to the chairman j fits.

if i were he will probably want this to go away now. fun the lessons that you need to learn. i really don't think you need to have this continuing story. and it does speak that needs to be addressed. the culture, and the the rank-and-file levels. how are you addressing the need to get our agency to

think more differently. we don't. we don't get into files the mechanism that shows when the file is being accessed. i would have liked to have known steps you're taking. >> i just think in terms of the overall culture of these give you one example. service on the internet. our agents and officers can send in suggestions, what we

should be doing better. we get other people looking at that and they can like that. very positive already within a few weeks. people have taken ownership of their agency. it's the individuals who have to take ownership. i will say again, 99 percent of our people do have that. >> i have been on the executive branch of government. i know it takes that kind of expectation, plan of action and whether or not your hiring people from the outside you look at these issues and work through groups, down through the

organization. at some point i would like to know if you're planning those kind of action steps. i really do want to know, is there some sort of way that there is a notification of accessing information when you are not -- when it is out of order for what your doing, not related to your case, your identification number signals whether or not you are or are not the right person to be access this information. as a follow-up. >> my understanding, and the other gentlemen may be able to answer this better command requires constant monitoring and auditing. there is no automatic notice the someone has access someone's data inappropriately. >> there is administrator

for each of these buckets of information. that administrator has to control who has access, the need to no that information. with our human resources we have approximately 260 who have access to our applicant data with this new system, and that administrator would have to ensure that anyone else who enters has access. >> if i may just as an example, the dhs tech system is one in which for example, if there have been a record created and i access to the director would get an e-mail that i was the one who access the record. not only what the director was talking about, you can run reports by the system administrator, but there are also real-time controls on modern it systems. >> thank you. >> the chair thanks the gentle lady from new jersey.

>> thank you. the audit system will be the key. whatever percentage that is, to be able to have for this computer at this spot, here is everything that you ran and that they know at some point someone is going to just spot audit you. just a simple accountability that sits out there somewhere to know there is not residents running, files that don't seem to be consistent with official records. a spot audit, you may come in. all of those things become important. we have a tremendousa tremendous number of people that work on the federal workforce that are great people that generally love the country. the problem is, you mentioned the 1 percent. i had to smile as we were walking through some of the conversation about secret service.

i hope we are really not picking on you. this has become the latest example of multiple examples , this visual example again. but as i listened to the conversations on the days about challenges with public relations nightmares, employees not doing their job, we could quite frankly flip the tables on members of congress and have the same accusation. i assure you it's more than 1 percent of members of congress have these exact same issues. so it's a human behavior issue but it's also professionalism issue of taking a serious. so going to give you an unfair list command just to walk few a few things. as i have tried to start walking through some of the issues, the oldest general law enforcement entity in our country, and incredibly valuable resource to our nation. but my fear is changes have been put in place have

brought about moralebond about morale shifts. i'm trying to figure out how we should morale back and get on top of this? otherwise it's whack a mole. over time seems to come up over and over again. getting some sort of standard practice with counterpart agencies. accountability of leadership that is not tolerable. when you actually confront issues everyone knows that is the standard. if there is a bad apple or at some point flippant about it, everyone works down to that level. i find that the secret service is not giving a top priority for some of the newest technology. i think it is demeaning and sends a false message. not as valuable as some of the other aspects. the responsibility seem to be getting cluttered.

the clarity where it has been historically, there seem to be other duties that are creeping into it that distract from the core mission. the consistent career track seems to be a consistent theme that i have heard over and over again. no one really knows what path there on. in my off on any of these? >> you are correct, and i will comment on the career track. we brought in a workforce of agents at different levels to try to look at the best career track moving forward. i just announced a couple months ago a new career track for our agents so that they can plan their future. you don't know if you will come to washington. again, listening to our workforce trying to find solutions. >> that's one of the things you can do. i encourage you, the possibility that individuals

on the previous career track still could finish that out and be grandfathered in or choose to shift to the other one. i feel like the new guy has the new stuff. but also have something to say i start on this. as they walk through this corporate identity is extremely important and valuable. i fear that there is a growing sense of lack of importance of people that are incredibly important to our nation. never want secret service folks to feel like they just our doors for a living. the morale and what you said will be incredibly important for years to come. if there is a silver lining in this historically the secret service have had a bad time when a president was shot. no one has been shot. there are just some things that were messed up. it is a unique moment to reevaluate who we are, where

we are going command i encourage you if there are issues in the scheme of things these committees need to know it. as we want to make sure all of the families all feel equal levels of importance. their secret service transition pretty quickly and all the restructuring in your now one of many rather than the big dog a treasury which has benefits and challenges. wewe need to know and have some way to help communicate so that we can help engage because we are not only advocates. today probably feels like accountability. we will need to no that. >> that's fair. >> if i could comment on one thing. i know it has given me comfort. i went through this papal

visit as well as the un. i can tell you, this was a defining moment for our agency. i talk to these people and look in their eyes. they want to be successful. this was an unprecedented time in our history. are peopleour people were determined to make this successful and we did it without incident. our people felt proud about that. now, we have to correct these other things and will. we have people that are working very hard for the american people. >> we do and acknowledge that. that me ask you this as well. is there any independent agency or agencies that is an executive agency that you think has a higher risk or has no system of tracking,

the highest risk and part of my question, do we know for certain that they have audited a process? risk, and part of my question are the independent agencies, do we know for certain that they have auditing process because they handle incredibly sensitive financial data on americans? mr. willemssen: i would point to those agencies who have the most p.i.i., personally identifiable information as reason to make sure that they are doing everything they can to protect that. you start with social security administration who has p.i. on almost every citizen. v.a. you already mentioned definitely an issue. independent agencies, do we know for certain that they have department of education probably somewhat overlooked because they have a tremendous amount of p.i.i. because of the student loans not only on the student but sometimes the parents. i would be most concerned about where the p.i.i. is most significant. senator lankford: let me ask you about things like f.c.c. or cfpb, they have a tremendous amount of data. do we know on their employees how they have access anti-limitations they have?

mr. willemssen: we know that they have at least three sets of data collection that includes p.i.i., maybe more. arbitration case records, bank account and transaction level data, and storefront payday loans. senator lankford: we did make a recommendation in terms of the -- we previously had done work and made a recommendation related to their privacy impact assessment. whenever you correct p.i.i., you have to do a privacy impact assessment that lets everyone know what are we collecting, why are we collecting it, how are we going to use it, how are we not going to use it, and when are we going to dispose of it? they had not fully done those when we did our work that we maimed a recommendation on that. that's something i can follow up on. senator lankford: i know cfpb has requested again another incredibly large jump of

information they are gathering on americans and databases. that seems to exceed even what was originally designed in dodd-frank. mr. willemssen: it may be more than what we had mentioned in our report then. they may have further expanded t senator lankford: it's a fairly recent expansion. what we are trying to figure out who has access to that and how often. mr. willemssen: we can follow up for you on that. senator lankford: that would be helpful. gentlemen, i thank you for your participation today. mr. perry: the chair thanks the gentleman from oklahoma. before i close out i have a couple of questions. mr. willemssen, you are from the government accountability office, i read through your information. i'm just wondering if you can provide any clarity on other agencies regarding penalties,

regarding accountability for actions that have been -- that they have engaged in regarding security clearances. that might be out of your wheelhouse mr. willemssen: i can talk about numerous -- some of the major incidents over time. probably the first major incident we had with inappropriate browsing was at the i.r.s. in the mid 1990's. several employees decided to start browsing celebrity's tax returns, as a result of that there was an act passed that taxpayer browsing protection act, 1997, and that among other things has the penalties of up to $1,000 fine and imprisonment of not more than one year. mr. perry: do you know if anybody was prosecuted under that and subjected to those penalties at all? mr. willemssen: do not know that, sir. but i can -- we can follow up on that with i.r.s. mr. perry: i actually wish you would just so we know. director, you also mentioned that i think you had -- there are limitations, right, what you

can do regarding accountability, punishment for actions that are beneath the standard, is that correct? director clancy: yes. we are not able to fire at will. mr. perry: so we need to know, the members of this board and congress in general, needs to know what you need us to do for you to be successful, for you to manage it for us. we need your direct recommendations. that's as said so many times in the room, we want you to be successful. if we are standing in the way, you need to let us know what we can do, what we should do, so you can be successful. i have served for over 30 years in the united states military, if you're familiar with the army, i can guarantee you if there is a question of your security clearance and activities regarding the security clearance, that is suspended on an interim basis pending an investigation. if you're found to have been at fault and have breached, it's serious. incredibly serious for the most minor infractions. it's not meant to be a culture

of punishment and fear, but it's meant to keep honest people honest. and to raise the level of importance of those things that should be important. i would just suggest that maybe that would be something you might want to look at for suspension of security clearances, which i would imagine in your business a suspension of a security clearance, certainly on an interim basis, but -- maybe on an interim basis but absolutely on a permanent basis means loss of employment because you can't be employed without it, right? director clancy: that's correct. mr. perry: that gets to where we want to be. you are the top dog, and you are in charge, but i will tell you this -- whether it's in my family or my military or running my business, bad information does not get better with time. there must be a culture of something happened, who needs to know, and we get the information to the top of the chain as

quickly as possible. if your subordinates don't know that is your expectation, we are going to have a continuation of this, which none of us want. you are sitting in front of us and defending your agency and agents, as you should. you probably also know 95% of your time will be spent on a 5% of your people. director, i've been out to your operation, and i've been impressed. all of us want to hold up the secret service as the standard. americans desperately want that. these things are incredibly hurtful when we hear them in the news. there's a bigger picture. i think your employees need to understand, it is not their system. ,t is the taxpayers database and it is not their information. it is the individuals information. you don't own it. to use it willy-nilly is

reprehensible in an age when, as the senator talked about, the information the government has gathered, the private sector is gathering, what happens to it, and the force of law under the aca, which says you must submit your information, to think and wonder somebody might be using that for their personal whatever, that's a problem for the american citizen trusting their government, and your employees have a direct connection. they must understand that. you've been questioned a couple times on diversity and filling your ranks and keeping your people employed and keeping them in sent defies. we understand you have challenges in complying with the law. i would say from this person's perspective, i want you to get the best. you get the best to do the job.

finally, i noticed a couple times you said, you are trying to be consistent with other agencies. i understand where you want to be, but this is the secret service, the premier organization of your type in the united states government, in the world. how about if you lead? whoou can't find somebody meets the standards you want set in government agencies, go outside. if you need help from us, ask for it. thank you very much for your time. gentlemen, i think you, the witnesses, all for your valuable testimony and for the members and their questions. members may have additional question is -- questions come and we ask you respond to those in writing. without objection, this subcommittee stands adjourned.

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[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> on the next washington journal associated press reporter than human rights

watch looks at the causes of the european migrant crisis in with the united states and united nations are doing to providing relief. france's effort to build alliance to defeat isi s. plus your phone calls, facebook comments command tweets washington journal live 7:00 a.m. eastern. >> our coverage a book fairs and festivals across the country with nonfiction author talks, interviews, and viewer call-in segments. live from the 32nd annual miami book fair. coverage on saturday. authors include representative john lewis. a livealive: with "wall street journal" columnist and author peggy noonan. judith miller joins us to

discuss her book the story may reporters journey. ted koppel on his book lights out. surviving the aftermath. speak with the authors live. thrown under the omnibus. enjoy and read will take. the clintons and the racial divide. live from miami. be sure to follow and tweet us are questions. >> the urban institute hosted aa form on housing and the role of the housing market. how the obama administration tracks the overall health of the us economy. this is foreign a half hours.

[applause] >> good morning, everybody. ii feel a little bit like a proud parent when i come to these things. i want to say thank you to faith and her team. but i especially want to say thank you to the extraordinary team that lori has assembled with ellen and jim's leadership, the housing finance policy center, the great researchers there have literally -- we like to say elevated the debate about housing finance issues really bringing at the time at the moment when policymakers, regulators and others are thinking about hard questions, bringing analysis to bear and helping explain those issues to the broader public.

and. and i could not be more proud of what they have accomplished. we are going to start our days hearing from no one better we could find to give us a larger picture of our housing fits in the larger economy than the chairman of the council of economic advisers. held that position since 2013 president obama's 1st term. the policy range bringing economic lens to extraordinary range of issues. always astounds me. he works on fiscal and tax policy,, health, economics, social security, domestic and international trading globalization issues. he brings to those conversations every single one a grounding in the data and analysis and fax.

despite his positions along with various academic credentials, publications, degreescredentials, publications, degrees and others some people would say his greatest claim to fame is having once been the college roommate of matt damon. and i am also told a colleague of mine did some googling last night and told me if you happen to spend time in washington square park in the mid- 1980s he might have seen him performing as a master jugglera master juggler burning torches which is a talent i never knew you have before look forward to you demonstrating. been described as the ultimate walk for the nation's capitol. he has brought evidence to bear inside and outside the administration on a huge range of issues and the safety net, the effects of stimulus and the affordable care act and much more. i know from jason's work

that he brings -- he starts every conversation as we like to do here with the data and the evidence, but he also brings an astute understanding of the policy context in the world of what is doable, something that sometimes congress and academics are less attuned to doing kind of brings a constant reminder of the people who we are describing in this data in their life which makes a particularly powerful. we could not start this off better. greeting warmly please my good friend jason furman. [applause] >> thank you for that great introduction. he left out that we work together during the clinton administration. thanks so much for having me here today.

i am going to talk to a broader set of issues that a lot of the specifics that you will be addressing over the course of today. and you know, ultimately what we are interested in in terms of the economy is so much productivity growth we have, the size of the pie and how that productivity growth is shared. and housing plays an important role in that in particular through the effect it has on the mobility and dynamism of the economy. and so it is that aspect of housing in particular the regulation and the role it plays in creating economic rents that i will be talking about today. the backdrop of this is the cyclical recovery of housing has continued to be quite strong. residential investment is helping to lead gdp growth

during a 4.6% annual rate for the last two years. housing construction continues to rise comfortably above 1 million units per year. house prices are up, which have have cut the number of households underwater in half. the rising housing wealth has also played an important role in what has been one of the bright spots that is driven the us economy forward through a set of global headwinds which is consumer spending. financial reform as improve the sustainability of the housing market, although we continue to see credit growing more slowly than we would like, especially for many underserved communities command that has been a big focus and push of the administration that i am happy to talk more about. as we have seen this cyclical recovery, it has

brought in to relieve some of the bigger challenges we have in terms of affordability, a topic that has led in the analysis of pointing out that there is no county in this country that has affordable rentals the lowest income citizens. and the other structural issue and the one that is closely related but i will be talking about is unnecessary land-use or zoning restrictions which have reduced mobility and dynamism slowing productivity growth and raising inequality. now of course there are many benefits to land-use restrictions. they can serve a legitimate purpose in terms of health or safety or the environment , but the growth of them has been excessive and has created what

economists call economic rent and excessive return to one factor of production above and beyond its cost and the economic rent in turn leads to the economic problems i talk about but also create an opportunity that if you can introduce more competition, reduce barriers you can actually improve efficiency and growth while reducing inequality at the same time which in some senses the holy grail of what is looking for. there are other areas of talked about elsewhere. the rise of occupational licensing creating a barrier. people getting jobs and moving between jobs. the discussion that i'm going to have with you is one that has a long history and goes back at least to glenn jacobs death and life of great american cities

published over 30 years30 years ago and one that economic research has increasingly filled in. start 1st with the backdrop. familiar set of facts. the 1st is the rise in equality. in 1973 more than two thirds of the income went to about 90 percent of households. by now that has fallen to about 50 percent of the income going to the bottom 90 percent. at the same time that the buyer has been distributed increasingly unequally command has actually grown more slowly. the productivity growth was growing at about 2.8 percent per year in the decades up to 1973 command in the decades since then productivity growth has slowed to 1.8 percent per year.

and that over time accumulates to a dramatic difference. at the same time, you have seen a variety of measures and dynamism of the economy decline. move between jobs, the rate that people change their industry or occupation, businesses create or destroy jobs, or new businesses are created. all of those have gone down steadily for many decades. we don't fully understand all of those trends in any quality and productivity and dynamism. what i'm going to try to argue today is that land-use restrictions in the growth of them has played a role in all of this. so let me talk 1st about the growth of land-use

restrictions. we don't have detailed direct nationwide data on this question over long periods of time, but we have a range of observations, circumstantial evidence in particular case studies, all of which tell a consistent story. and i will start the story by looking at the difference between real construction cost and real house prices. and those group, roughly in tandem going about the same rate for several decades command then even prior to housing bubble started a substantial divergence and even after the bursting of the housing bubble that divergence remains. in the last three years housing prices, 56 percent

above construction cost, this 23 percentage points above the 1990s. so that is one piece of evidence. you can sell something for more than it costs to build it. the scarcity of land either natural due to boundaries and natural features of topography or man-made in terms of zoning. he also see if you look across a set of cities, this shows you how much higher your house prices are relative to your construction cost. places like anaheim, san francisco, los angeles have very high costs relative to how much it costs to build their command of the other end to try to milwaukee. and this compares 1999 to 1989 and the fact that there

are more dots in the lower right-hand part of the graph that indicate there are more places that have seen this ratio rise over this period in time. researchers who have looked at these types of divergences have found that in the 50s and 60s the main thing driving house prices was construction cost since then land-use restrictions have played an important role. when you look at particular places you see those. for example, may have looked at boston and carefully constructed measures of land-use restriction, observe them growing over time. the seed in places like new york with the rise of historic preservation districts and a lot of this is potentially grounded in following much of the turmoil in the 1960s so

zoning restrictions that consciously or unconsciously where attempting to reinforce and lock-in the increase segregation. zoning as everyone knows reduces the supply of housing. whenhousing. when you have more land-use regulation you have less construction when you do things like increase lot size you will have fewer permits. and this reduced construction is drives of house prices, and higher house prices in turn we do more segregation which leads to a greater desire on the part of the people living in those communities to protect the value and establish more land-use restrictions

themselves. essentially have a cycle of rent seeking behavior blocking in these sets. supply restrictions also in turn reduce affordability. and here we are looking at the wharton residential land-use regulatory and. places like boston that have a lot of constraints on the use of land have very low affordability. some of the cities i mentioned before like st. louis and kansas city on the other end in terms of substantially more ability to build new housing and thus greater affordability. this affordability dispersion that we are seeing here is for a point in time in 2013, but it is

important to understand that this affordability is not distributed evenly across the country, but that thatcountry, but that over time as well it appears to have grown. so land-use restrictions are grown more in some places than others. the dispersion and affordability has grown more in some places. this trend toward greater land-use restriction is especially a concern right now given some of the demographic and structural changes that are going on in the housing market. and you can see some of those changes in this next figure which shows that multi family starts now fully recovered and exceed a

level that they were at prior to the housing bubble while single-family starts on the way up but have not gotten back anywhere near their precrisis levels. there has been a range of research and debate around this set of questions with important contribution, including port and contribution by the urban institute and report on homeownership and headship, but all of it finds a consistent trend that a range of cultural shifts to a changing demographic structure are leading to a greater demand for multifamily housing as well as the baby boom turns into the retirement boom from a

greater demand for modifying houses, for shared housing,, and then, of course, the famous millennial's moving out of the basement and into rentals. all of this structural shift in the housing market runs right up against the land-use restrictions i have been discussing. because land-use restrictions disproportionally apply to multifamily housing, the housing modification, shared living and all of the types of things that we are already seeing more of an are likely to see more of going forward. as a result of those type of restrictions on supply could, when they come up against the southern trend, be even more consequential going forward.

so i want to talk now about why it matters for the economy. and why is somebody who is focused, as sara indicated, covering the range of economic issues, that, that i am so focused on this and why the administration has made this an increasing focus of policy as well in terms of not just the specific goals of affordability of housing, but the broader goal of raising incomes of middle-class families, working families which depend on greater productivity. and reduced inequality. the most important economic observation is the place

really matters and agglomeration really matters. you can have cities like san francisco and boston that are really productive, and when people move to the cities they can get higher wages for the same set of skills by virtue of living in a more proactive city. and they can make the other people in those cities more productive, as you get these conglomerations of skills, ideas, talent spilling over. as a result, when you have the type of mobility that lets people moved to those places, you can have greater productivity. you can see greater wage increases for the people that moved to them. greater wage increases for the people that didn't because with less labor supply, supply and demand can raise wages in places

that were left behind. improve job matchups and ultimately competing away some of these rants and the economic sense of the term. the extra money that you get by erecting barriers to competition. so all of these economic facts about the importance of agglomeration, the importance of mobility, the importance of place make evidence like what i am showing you hear particularly scary. and this shows migration rates by distance, and you see both within counties and within states a very dramatic to climb and people moving. and this decline is one that

is not easily explained away. it is something you see in a pretty broad-based way, not just written by one particular group or demographic change. you see it within demographic groups. so, what this leads to is much less of an ability for that agglomeration sorting of people to work at effectively for growth and for inequality. want to show you two papers which have tried to look at some of the consequences of this or summarize them. the 1st simulated the effects of 1 percent higher labor demand. something happens in your place that leads you to want

to hire more people. your economy has strengthened, you integrated then you compared the places in blue which have low housing regulation to the places in orange which i housing regulation. what you see is what labor demand goes up housing reflect five response to places with low regulation to a degree. the house prices are the inverse of that with greater supply becoming lower prices. the low regulation places feel less of an increase in prices when they have an increase in labor demand and then ultimately all of that shows up in long-term employment. ..

return to capital than the margin. this is something across countries that are similar. it's similar across states as well. in the 60s and 70s, you saw a lot of convergence and you saw across different types of states. in general, each year on average it was 2% down between it.

as restrictions have grown that convergent mechanism have continued for states who have less supply or last land-use restriction. but that convergent mechanism has broken down and even stopped for states with more supply because of that inability to move. this is something that can be quite important they've done a lot to document the issues that i'm talking about today. they observed from 1964 until 2009 the wage dispersion across

cities increased by a factor of two. remember we would expect that of people can move freely we wouldn't see that wage dispersion. people who would move would end up getting competed away. that's another suggestion that people can move as freely as you would have in certain economic models. they did it counterfactual experiment to look at what would've happened from 1964 until 2009, workers and capital had moved so that wage dispersion had stayed at the same level that it was in 1964. it hadn't increased over that. that experience showed it would've been 10% higher in 2009

than it actually was. now there's a whole bunch of details one could look at in these paper. there are very large employment effects relative to what one might imagine, but it gives you a sense of just how large these affects are. when i was talking about the productivity slowdown before, it was 2.8 - 1.8% slowdown. here were talking about something over a similar period of time that is a meaningful magnitude relative to the overall that we are trying to explain. it's not just the level of output, but also mobility and opportunity. they have documented that even as inequality has risen,

mobility hasn't, and that mobility varies enormously across counties. now there are some arbitrage opportunities there. some have affordable housing and low rent and people could move to them in advance, but many of the places with high mobility don't. they are much more expensive to live in, partly because the demand for living in them and partly because of artificial constraint on the supply of housing. when you look at that geography of mobility and how much that varies, getting people to move across places is an important part of the solution to increasing incomes and increasing incomes across generations. that is something that this is getting away from.

it's getting away from it because zoning isn't distributed randomly across the country. it is actually correlated with those places that have inequality and lower mobility. so you have more constraints on mobility and that in turn locking in inequality in the next generation. i've been focusing on a broad set of economic issues. plan to use restriction, land use restriction has another impact. it leads to more dispersion in living which leads to more travel and more climate admission and that worsens our environment. there is evidence that they lead

to more housing bubbles and more volatility and not just the housing market, but as a result result of that in the macroeconomy as well and that they can also lead to the reduced provision of public goods being spread across the economy. so this has been an issue that we have been concerned about in the administration. it is something the president is personally concerned about. it is something that hud and others have been focused on. a lot of it, of course, plays out at the state and local level, and is appropriately within the policy purview of states and localities. it's not one major piece of

legislation that will or should change everything that i have been talking about this morning. what we think we can do is, first of all, help shine a spotlight on the issue, give more tools to help empower communities to make changes, and make some policy changes that would help in that regard as well. so let me briefly describe three of those. the first is this past summer, hud finalized its affirmatively furthering their housing role. what's exciting about this rule is that it will give communities the tools to, to, in a much more granular way than i have done in a few minutes i've been speaking with you this morning, document

where these restrictions are, the consequences they have in communities, and help create a better understanding of what they mean and what tools you have two deal with it. second, the administration would like to put money into helping create incentives to solve this problem, and in the fy 2016 budget, the president proposed a 300 million-dollar initiative that would provide grants, both as an incentive to local communities to encourage them to create more fluid, affordable opportunities for mobility, as well as to help deal with some of the costs of making those

transitions. then the third effort that i wanted to highlight is that a bunch of this issue comes from the intersection of land-use restriction and the structural changes that have led to more demand for multifamily housing. so addressing some of the issues in the multifamily market in particular are important in relieving some of the stresses. the multifamily risk sharing mortgage program which is joint between hud and treasury is designed to help unlock underserved communities. you have already seen the first transaction with new york city under that program and we expect to see more. so i want to conclude with where

i began which is housing is really important in its in its own right. it's a necessity for people. it's the most important asset that most households have, but also has a broader effect on the overall economy. it has a broader cyclical effect and it played a disproportionate role in creating the recession that we just went through, and in the last two years, the last several years, it's playing a disproportionate role in helping us out of that recession. it's growing faster than the overall economy. it also plays a broader structural role in the economy. it's something that, you know, we will be looking hard at along with all the other things that are creating these economic

issues because we can't afford to leave any stone unturned in trying to increase the productivity of economy and reduce an inequality and expand opportunity and mobility. thank you for your attention on this topic. [applause]. >> i'm happy to take any questions. >> there's a microphone next to you. >> i'm an economic consultant. going back to your construction cost price chart, i'm wondering where that cost come from's and what's captured in their because certainly during the downturn, a lot of builders would suggest

they were losing money and a lot of them today would say they aren't very thin margins for making money. how does this chart address those issues? >> so first of all, it's real. it's adjusted for inflation, that's why it's flat and not going up. it's just going up at the same rate of everything else. second of all, the difference between the construction cost in the real house price isn't necessarily profit for the people building the houses. they had to acquire the land and sometimes the land is marks pensive than the previous owner of the land got the difference between those two. if you want to think about the returns to the construction industry are what you've been talking about, that isn't measured by the difference between the blue and red line. i don't think this story is

consistent with your story. you do see construction prices are increasing faster than inflation. not a lot faster, personally i hear about constraints all the time from people in terms of labor but i don't see them all the times in terms of the data. but maybe there are there a little bit. >> my name is jim gray, i work at half hfa. you talk about regulation as a monolith. why is zoning specifically designed to address affordability. could you differentiate between land regulation that you see is more damaging and that including zoning that is not. >> if you look at the

300 million-dollar grant program that i i described that we propose, that's not just reducing barriers but it's also designed to create funding for things like inclusionary toning. i agree this is not just a matter of reducing barriers, it's a matter of taking active steps so that you can undo a lot of trends you have seen over many decades. that's a good point and think you for allowing me to elaborate. >> you're just mentioning the housing role in the recession

but then you said that could also play a role in getting us out and i wondered what you meant on that in if you could expand on that. >> sure i just meant a relatively simple point that if you look at the last two years, housing has grown at 4.2% each year. everything else in the gdp that is not housing is growing at about 2% per year. housing is disproportionately bringing gdp growth up. that is something we didn't see right away. normally what gets you out of a recession is a really steep rise in housing. if you look in the 1980s, for example, it was a rapid recovery warehousing grew about 10%. i could be wrong about that. you didn't see see that this time because the recession was caused in part by a huge bubble and there wasn't that need to fill the houses in 2009 2009 and 2010, but as we've worked off that access, you have seen the growth rise and i think there is still a lot of potential that we are building about 1.2 million houses per year. i think that will be one of the

components of gdp that will continue to drag the overall average up. >> going back to your statement on migration. i wonder if you have that data available by race and ethnic and age distribution, and perhaps regionally? >> that is a good question. you you people have broken down these sorts of data and other things i've mentioned and have broken it down by a variety of demographic groups and we tend to see similar trends but i am not sure if this one was done by race. >> that's a really interesting question. i will look into it, thank you.

>> just related to that same mobility data, what other high hypotheses has to do with the rise of households, do you have any ability to disentangle which aspects are driving that? >> yes i was alluding to that when i said that these trends in mobility and not just these but the others that i've shown are broad-based and often you see them across a variety of demographic groups, so while something like one factor that may have contributed it can't explain the broad-based changes that we've seen. >> so i find this really interesting because of course

there is the whole question about the quality of life in the land use regulations are there because people, in san francisco and boston are wonderful because they have the land-use regulation. this is a little bit of an extension of jim's question. can you talk a little bit more about, we talked about 5 acres owning or are we talking about other kinds of regulations question at. >> i have lived in both san francisco and boston i think they are completely wonderful. i think that's the argument for everything i'm talking about that if more people want to live there, that's terrific and we shouldn't be trying to get in the way of it. i guess i don't think, i guess i don't know that i agree about how surprising it is.

we are very concerned about mobility and opportunity and affordable housing. this hits every one of those. to some degree, this is, some of these are justified in some of these are choices that communities can make, but when you're talking about how tall you can build or the things that just make it harder to set up and get permits, all of these types of restrictions play a role in the phenomenon that were talking about. >> i have two questions, first can you tell us the name of that $300 million grant program you are talking about because i'm

familiar with the other things but not the other one. the other thing is just living in the city where there has been a lot of multifamily construction so the supply has increased or medically but we've also seen that rent has gone up dramatically and it's even more extreme in some of the other cities that you are talking about. it seems like just supply will not make mobility possible for people. particularly people who are not well-established in their careers or earning high income. i'm wondering if there is a rental side parallel to the point that jim was making. is there anything about rent control and a tool for these cities where they're trying to make sure people at different levels can actually live there. >> that's a great question. the 300 million-dollar grant is a proposal in the budget. if i told you the name of it

would be enacted for sure because it has a great name and i'm afraid i'm going to mix it up. in terms of affordability, absolutely. i am focusing on one issue today. this is not the whole housing agenda. that's not the only thing you want to do on affordability. i can talk about the supply side and the demand side which is an important side of the story as well. spanning access to credit for homeowners is an important part of that as well. expanding affordable rentals is another part of that. there's a broader set of housing agenda and i guess i don't want to go into a bigger debate right now. >> thank you so much and have a terrific day [applause].

she can take it from here. we have the microphone. thank you for coming back. i want to welcome the people who might not have come to something that was standard housing and are intrigued by this panel and the next one. and vice versa. those of you who are the housing regulars with this panel in the next one in particular, we are doing something a little bit different. this panel was inspired by some

of what we heard last year. that was that the housing and housing climate world as we know it, it, or as we knew it are undergoing major change both with respect to demographics and with respect to consumer finance. how the consumers interact with the housing world. the next panel will be largely about demographics. this panel is going to focus on the consumer side. i have with me three of my very favorite people in the world to talk about this so it is an enormous pleasure for me to introduce the panel. the first speaker will be rachel schneider who is a senior vice president at sea ssi and she

will be followed by anna who has a long history in the housing and mortgage world but these days is the assistant director for financial education at the consumer protection bureau. and bill who is the president of the hoke finance organization. they are just the experts on this topic and i hope that you will really find their connection of why, what is going on with american households and their finances to housing and housing the finance really compelling. we will start with rachel. >> thank you very much for including me on this panel and thank you to all of you for

paying attention to some of us who aren't housing experts. we have been thinking a lot about the idea of financial health. what it means to be financially healthy and i wanted to share a little bit with you. we recently did a study of the american population and we surveyed a broad sample of people to understand if they were financially healthy. the way we think about natural health, the way we think about it is you are financially healthy if your day-to-day financial system allow you to both weather shock and be resilient and to take advantage of opportunity. we ask questions like how long

can you make ends meet if you had a disruption in income or do you struggle to pay bills and credit card payments. what we found was about 43% of people described themselves as struggling to pay bills and credit card payments. about 30% at only make ends meet for three months or less if they needed to. we added together a lot of those things and put together a comprehensive report and we think about 57% of american households are struggling in some way. there financially vulnerable or coping and we are talking about that group as financially unhealthy. interestingly financial health is important but it's not the whole story. we think about financial health, about one third of the families who are unhealthy have incomes over the median in the u.s. or over $60,000 per year. about a third of third of the

families that are healthy have incomes below $60,000. so income matters but it's not the whole thing. housing also matters but isn't the whole thing. probably unsurprisingly, home owners were more likely to be healthy than unhealthy. only 48% of homeowners are not healthy. renters, the number is much higher, 77%. that is consistent with the idea may be that people who are homeowners also tend to be healthier. it's not nearly as strong of an indication of health as the overall cost of housing relative to income. when we look at the sample as an overall, we look at peoples whose housing costs was higher than 30% of income, then it starts to not matter whether you are a homeowner or renter. either way 80 to 84% of percent

of people are going to be unhealthy. so this relationship to overall financial health is more than just purely a choice to own or rent. we have also been a partner in a research study and it's a pretty extraordinary study. over the course of a year, we tried to gather the financial inflows and outflows of 235 families in a full and complete way. we gathered information about every dollar that came in and out of the house. it was a small sample but it was extensive study. bill has been on the advisory

council and participated in some of our work around that as well. it was sponsored by the four foundations, the city foundation and some other networks. we've gotten a chance to really get to know these households very deeply. when i think about housing issues, i'm mostly thinking about two stories from those households. one is a woman named sandor young and another is a household we call rodriguez. they're not real names. in both cases these are households that have a fair amount of stability. but her stability is coming from the fact that she's living in middle-class middle-class housing. housing is a source of real consistency for her.

another family bought a home in a rising house market and they also have volatility. both of these are women who are households led by women who are nearing retirement and they're both thinking about the financial well-being of their adult children. for the rodriguez family it's a much more complicated financial picture. home equity lines of credit, mortgage, credit cards, annuities, but the value of her home is what she thinks of as her source of security. simple cases these are women who are worried about retirement but thinking a lot about how their current housing is what is going to enable them to have a secure retirement. they really think about whether they would need to downsize and use the value they have accrued as a way of bolstering their retirement income.]bb7ñ

in sandra young's case it's knowing that she can pay this low rent for a long time and if she had to her adult kids could start contributing toward that rent because the place is big enough that they could do so for a while. so i think a lot about this connection between housing and financial health. i think it's very much, it's not that housing drives financial health or vice versa but there are multiple paths to financial health, but it's hard to imagine where financial help doesn't include a significant amount of housing stability. rachel has a few cases where it didn't work so well. we will get to that later.

>> i know you've been thinking about the connection because that's where you come from. >> it's great to be here. thank you for inviting me. you always push me to think a little bit harder and the idea of bringing our financial well-being research into this room is a great opportunity. the mortgage crisis, as as you know was also a household financial crisis and i don't need to tell you about how much consumer sentiment and their sense of financial well-being and financial health can affect the housing market. you also know the long-term data on home ownership and rental affordability and demographics. i will just add one high-level one that in a recent pew survey, 49% of americans reported not feeling financially secure. it's clear that as statistics show many consumers are still struggling. they've made financial education a critical part of our mission.

in fact it's a requirement. one of the things we are doing is a lot of research to help the field of financial education broadly defined to be more effective. it is sort of a cornerstone stone foundational part of that. to explain it in a nutshell, we started realizing that a lot of people were talking about education with the end goal of financial well-being. everybody agreed, even internationally that this was the end goal, but they lacked a definition and a way to measure that and that's how were going at it. we wanted to start by defining it and define it in terms that resonate with consumers themselves. so we asked them and they came up with four definitions. these are subjective definitions in the online very nicely with

the financial health measures. the first is having the ability to manage your day-to-day finances and the second is feeling that you could weather a financial shock or emergency without it capsizing you and the next is a sense of being on track to meet some financial goal. what those goals might be would vary greatly. the other is a sense of freedom and flexibility to make choices that allow you to enjoy the quality of your life. whether that is deciding where to go out to eat or where to live, it's sort of this aspirational quality of subjective financial well-being that the definition also captures. so we think this is important to tap into this information, the

personal preferences need to be kept in mind because i think a lot of time financial education is like telling people to eat their spinach. in this way when we really can identify what it means to the consumer on their term, we don't see that consumers have financial goals for the financial goals, they have them for the sake of meeting life goals. obviously home ownership fits very deeply into these life goals and how you achieve them. so why should care, imagine you do care about these things. you know that a healthy housing market depends on how consumers grasp the solutions and long-term challenges. education is just one part of the solution. a good transparent financial services marketplace is another one of those. there are many other pieces that need to be brought together. i know that the collective challenge we all have. >> so bill has many hats but he is lender in one of the toughest parts of the country.

we've asked him to open by talking some about the experiences he is having and he will describe mississippi to you and seeing people through to successful housing outcomes whether they are rental or ownership. >> good morning. thank you. i really appreciate the opportunity to be here. this is a different audience than i often work with. i run of financial institution and work in the greater memphis area of tennessee as well as arkansas. we spend time talking about

consumer protections and other strategies to improve the lives of people who are underserved by the traditional financial service industry. lately i feel like i have been somewhat of a broken record as i've been engaged in several conversation. the dark area are the counties in the united states that the department of trade reclassified they have been over 20% poverty for at least three decades in a row. you can't see baltimore in the bronx and some other counties that are too small to highlight on this map, but it does clearly show where the concentration is.

it's in the midsouth delta region. it's across the rio grande valley. it's in indian country. it's in the central valley. if you look at this collectively, it is really a picture demographically of the united states. it's hispanic, it's rural white folks, it's african-americans, but you see there are certain parts of the country that are affected much more. i want to use my home state of mississippi to lift up some of the points that i would like to make. this map on the left shows the counties in mississippi that are consistent with poverty.

it's probably not surprising, but it's very start when you look at this map alongside maps that illustrate other indicators of economics and social well-being and demographic trends. mississippi has the highest percentage of african-americans in the nation. if you drill down a little bit more, 15% of the white children in mississippi live below poverty. they've had significant implications in several sectors. when you look at jobs they have the 45th highest unemployment rate in the country. the counties that are shaded by the jobs and unemployment map are one and half times the state average in a state that is already 45th in terms of

unemployment. when you look at education, most of us consider the most clear pathway out of poverty. the darkened counties are the counties that have the poorest performing school districts that are rated c and d. the majority of white districts in mississippi, 81% r-rated air be whereas only 27% of the black counties are right rated air be. you look at indicators of health. the map shows a low birth rate in the you can also look at diabetes. mississippi is rated 49th. cardiovascular disease they are rated 50th. obesity is rated 49. infant mortality mortality is rated 50th. this has all kinds of effects in

terms of productivity and economic cost and addressing these challenges for poor people and more importantly in people of color is important. unfortunately service providers are not helping themselves in these places. one shows the percentages of banks in mississippi. mississippi ranked the rate of unbaked people the twice the national average. this map shows the high cost of mortgage lending and it is one and half times the state average which is 7.3% compared to a u.s.

average of less than 4%. so again in these counties that are the highest poverty and concentration of people of color, the providers are not providing access to financial services and so again, by and large i don't think providers are helping themselves in an environment where three quarters of the net growth in population are going to be people of color. it's not just what the previous map showed. in many cases it's worse than mississippi, mississippi, but this is throughout the country and throughout the nation. to say that the federal reserve

has determined that people are more likely have assets when they have a banking account, that seems obvious but in an environment where 90% of the banks that have close have been in low income areas, it's hard to get a bank account when you don't have a bank. another obvious finding is that there's a positive relationship between a bank and access to a mortgage. if you don't have a bank branch, we are not reaching a lot of people who need it. access matters. the last point i will make is that if the financial service sector wants to maintain a

healthy volume of customers, it has to find ways to observe the statement of the population. >> i think the ultimate point, with the changing demographics, it's incumbent upon the entire service sector to really understand how the newer population is going to move into the housing market and what they're going to need and how they are best served. let me just ask the question in any of you can answer this. is household financial stability a precursor to housing stability

or is housing stability something that is essential to create household financial stability? anyone want to take it? >> i don't have a full answer, but 11 thing that struck me when i saw our, it struck me how this echoes what we have seen forever, survey after survey on why people aspire to home ownership. it isn't a financial motivation, it is about these themes more broadly of security and freedom. to back that up, a recent pew survey, when americans were asked would you rather have economic security or a chance to increase your income, 92% preferred financial stability to

economic mobility. i think that's why it's hard to get people to move around for economic opportunity that we talked about in the beginning. i think it works both ways but i do believe it's hard to imagine establishing household financial stability without housing stability in the first place. with that said, for home ownership, one has to attain a certain level of financial health and financial well-being in order to make that step. our research is looking beyond the definition to what other drivers of financial well-being and where can we have some impact to move that needle, especially around financial education intervention, but we do note the importance of socio- economic opportunity and background in establishing financial well-being. income and economic opportunity are not the whole story and people can achieve financial well-being of different levels even within the same income groups. were looking for ways to move the needle through education but

not simply through conveying knowledge. it's really important to understand that we have found, in general that simply knowledge and capability building are areas for improvement as well as having access to a low interest rate and more affordable rental housing, these all make it a lot easier for consumers to build their financial health without having to acquire vast amounts of knowledge and really strong discipline. the ways in which the system can make it easier for people to make the right choices as part of the solution. i know that you are faced with the demographics in the situation that you put up there, but i also know you bring an awful lot of people through to success. do want to talk a little bit about how financial services can

do that? >> the question that you posed earlier is interesting, it made me think about them mortgage service on a biannual basis. we asked them what the impact of becoming a homeowner is. a lot of them are first-time homebuyers. that is very unique in the financial service industry. over 60% of our respondents tell us that getting a mortgage has improved the way their children improve in school. it says they have better recreation opportunities that lead to better health outcomes. they have safer neighborhoods. i think about the story of a woman in jackson who experienced

a murder and is next door to the home that she owns. she like most of us would want to get our children out of the home. so she moved and she got an apartment and tried to sell the home. of course the home was hard to sell. she tried to get another mortgage and she couldn't. eventually she came to us and we were able to take the time to affirm the police reports that she had actually had this traumatic experience and she had a track record of paying her mortgage and we were able to get her back into a mortgage and she is just overwhelmed at how that has affected her children. so i think taking the time to

not treat people as a formula but looking at their balance sheet and financial position and understand that you don't want to overlook these issues like medical collections were they know they're going to be disproportionate on low income people and look at how they've handled it. look at their utility payments, look at the nontraditional credit and underwrite each of them on a case-by-case basis. it is more labor intensive and we all try to be as efficient as possible but if we don't take the time to actually look at individual circumstances, a lot of people will lose out.

>> and you don't hold all of this wealth and portfolio, right? >> it's been quite a roller coaster in terms of that. for several years we were a servicer and we would actually provide a secondary market for many community banks who didn't have any relationships. they would originate the loans and solemn to us and we would sell them to fannie. it was a win win win. what everyone knows what happened to the secondary market. it went away. now it is not attainable. but for many of our customers, i actually was surprised to find a few weeks ago that we are now selling 70% of our mortgages. for a while we were holding 60%. we couldn't find a purchaser.

we couldn't find them even though we had good standing mortgages. they may be behind on a car payment but they will make their mortgage payment. so we have been able to, we've seen an increase in our ability to sell mortgages. the gases there is more money in the market, people are trying to find a higher return. we are finding more regional banks.

there was a real revelation about volatility and income. i know you've done some work on which bills people pay and which bills they don't pay. what i'd really like you to comment on is something i've heard you say before which is everybody has a plan. so how do people work through it. i think one of the real important points about the changing world and the changing demographics is that may look pretty difficult and it's obviously is, but it isn't the world that were going into and so the question is how do people cope and how do people work their way through it and what is needed to make people, to make it easier for people to get

through, it's a very tricky situation. this is not just poor people, the jp morgan chase did some work with people much higher income that show a lot of the same thing that rachel has been talking about right now. >> thank you for asking. i do think it's an important issue for the world to be aware of. what i was referring to is that one of the things we looked at in the diary study was a volatility. the magic of diaries is that we have a years worth of information. we can see not only how much people have as a snapshot but what it looks like overtime. we looked at to what extent income and spending are stable. what we found is that on average within the population, people had more than two and half moments in the year were income was 25% more than their average

income. we had just as many moments where income was 25% less than their average income. in almost half the months people's income was not the same as their average income by a pretty substantial order of magnitude. whenever i talk about this, i want to put average in air quotes but it becomes really useless to think about your average monthly income if this amount of the time your income is so far off from the average. the diary study is a third below the poverty line and a third is above. but it's not upper-middle-class. so j.p. morgan chase study that came out this spring looked at some of the same questions and

also found extraordinary volatility in this is consistent with the trend that has been documented by other researchers fairly substantially around year-over-year volatility. what's different is that we are documenting all the volatility within a year. that had implications for bill pay overtime. of course volatility, if you are going up and down over a cushion doesn't really matter that much. i've been talking about myself. i have a ton of income volatility. my husband is a partner in a law firm and gets paid at the end of the year. we have a ton of end of year volatility. but given that more than half of americans do not have a cushion

of any sort, what they are doing is going up and down around zero. they're trying not to get below zero. that causes all sorts of expenditures in the effort to not go below zero. what was really interesting as well is that when we do the same analysis looking at spending, economics suggests that maybe you've seen more stability. the whole idea is that you would move your consumption over time and you would be able to say and pull from that savings when you got dipped. what we see is that spending variations is pretty much the same as income variation which is really surprising and suggests that a lot of people are either waiting till they have cash on hand to make necessary purchases or that income volatility is a circle.

i can have money this month to pay some bills so i don't pay my cell phone bill and next month my cell phone bill is twice as much though also in my spending is really erratic. then the third thing that's going on is that some spending is erratic by nature. christmas happens once a year. the beginning of school happens once a year. cars break down and have to get fixed when it happens. there's no wiggle room on that. for those three reasons i think we see a lot of volatility in those spending patterns along with volatility in income and i think this has really substantial implications on how to think about bill collection. so when we look at expense spikes is more than one thing happening at a time. so in those moments where people have an expense spike that makes their expenses more than 25% over their average spending in

only 44% of the time can we remove one expenditure and smooth it out. 28% of the time we can remove two expenditures and smooth it out but in another 28% there's nothing you can remove to smooth it out. so to me this is really important because we have a mental model that may be people spending is divided into fixed expenses and it's mostly steady but every once in a while there's this bike. but that's not really what we see. in fact what we see is a lot of variability and a lot becomes annual spending. people's financial lives. >> i want to bring it back to what bill said that one of the consequences is that people don't pay their mortgage every month on time, but they catch

up. so i i know that a lot of the conversation that we've had around the new demographics have talked about underwriting and things that have to be altered with the way we think about underwriting. i think this suggests there is other work we can do on mortgage instruments. i'm an ask one last question and then open it up. you've done a a good job of telling us why we ought to care but you have a room full of housing and housing finance people. what should they do both to mitigate some of the issues you've raised and also to respond to them

so they have taken a number of steps to do that over the last one half years. looking at payroll, compensation and just recently new forms for closing that helps consumers know about what they are getting into and better pip pair for closing. upcoming changes will give us more transparency into the market, housing requirements, these are all parts of the healthy market side of the equation. on the healthy consumer side of the equation which is where my work comes in, we are taking up the challenge to provide stronger and better evidence of what works. i want to take a moment to recognize that last month the urban institute released a study institute that did a rigorous

randomized control test of coaching tests. it found a really good material improvement in financial health, things like savings, debt reduction, improved credit scores, as well as in the more subjective elements of control over finance and reduce financial stress. obviously this industry has a long history of experimenting with the financial education as far as the housing process whether it is that prepurchase, post purchase, purchase, delinquent counseling, there's pretty good evidence around the benefits of prepurchase counseling in terms of default and other indicators. post purchase counseling and better outcomes for sustaining homeownership. from my point of view, at this this point i would suggest taking a hard look at that evidence, trying to build off of that in terms of offering preparedness and coaching, and

servicing supports that help consumers sustain homeownership. >> bill? >> that was an interesting conversation here yesterday. one of the comments stuck with me. it was with income. inequality and opportunity. one of the comments was made, we really need to stop looking at low income people and people of color as liabilities to be managed. and in many cases to be avoided. instead looking at them as assets to be developed. this is a market that we'll need to figure out how to respond to. the only way my opinion to do that is really basic blocking and tackling. developing products. products that are appropriate that are not rigid but appropriate for the markets we're trying to serve taking it to the consideration the downpayments and grants to

reduce the cost of entry. financial counseling, and education has to be coupled with access to financial system. 36% of our members at the credit union did not have a bank account before they joined the credit union. so it is no wonder they had a great deal of income volatility. they had no ability to manage that. at tax time they don't have an account to deposit it in and move it out. their lives in income and expenditures are on a more reasonable basis. product product development, access to the financial system, respectful customer service, there's a lesson to be learned from the industry. they bring folks in, they know know them, they treat them like they are there best friend.

fortunately they stick a knife in her back and rip them off on the way out the door. but their customer service -- there is a survey done a while back that even middle and upper income people of color avoided banks because they felt like they were not treated with respect. so treating people with respect is something critical and no one wants to go into a door knowing it is more likely to get a no than a yes. marketing through challenge that are going to be received, radio stations in these communities are different. members listen to different genres. you really go to the market where the market is going to hear you. i can't emphasize enough the importance of diversity and

decision makers. management, stack, boards of the financial service providers. we are not where we need to be. we are going to miss the mark if we do not diversify the decision-makers and the people who interact with the markets in which we are trying to reach. >> so, i agree wholeheartedly with everything that the panelists have said. i would another point which as i mentioned financial health is not necessarily fully determined by income. when we control for income and we look at the drivers of financial health are, what comes up is the planning and orientation, and savings. both of those elements are partial with the becoming a homeowner and state homeowner. i think there's there's more that can be done in the design of homeownership products that would leverage that.

the both encourage the long-term orientation and help people set aside saving so you could envision a mortgage payment might include an extra amount that could set aside in a savings account for emergency repairs, for example. or, before someone gets being a homeowner a savings product that really helps drive toward putting aside a doubt payment. more integration integration across savings product and homeownership related products. rental payments would be really valuable and likely make it easy for people to save, we know that is very challenging to set aside money in a regular way in a purely volunteer basis. >> okay, we'll open it up to the audience. we'll start in the back because the mic is closer and then we will come to you. >> hello? i'm with cambridge financial in

boston. the first time homebuyers there is interesting, i am wondering if you have seen this, because the market is constrained while the lenders get blamed a lot for credit overlay what we are really seeing is the realtors are often imposing additional credit requirements on buyers. they will actively select the buyers that are more likely to be approved or all-cash buyers, have all sorts of mechanisms for filtering. even with the differential in the commission is between 5% and the sale price. it is very difficult for a buyer who doesn't have 20% down today to get on the radar of a listing agent to be able to be competitive in the market. i'm wondering if you're seen that in other places? >> we absolutely are.

we do everything we can to engage realtors and let them know that we can help them to serve more customers. they are looking for the larger, they're looking for as much revenue as they can generate. our average revenue is maybe 70 or $80000. we do a lot of them, they perform well. that is not the market that realtors are really looking at. it's mortgages that that are two or three times that size. in it addition to trying to engage them and we also try to go directly to the customers. again, again, the emphasis on marketing and making sure that consumers know we have products

that will meet their needs and we are very serious about serving them in the best way we can. >> i'm a housing specialist, bill, i have a question for you about credit unions. we are looking to them right now along with banks to see what type of partnerships there are around the country. we are finding there are several of them particularly in some communities. you have any partnerships first while with commercial banks to help you expand to the whole mississippi area as opposed to just one or two communities? also, what kind of federal policies or initiative programs whatever you want to call it, that could be promoted by the federal government to encourage those partnerships beyond what is going on right now? >> that is a great question.

i mentioned earlier, i think because this is not something that is a natural way of conducting business for traditional financial institutions. i think think partnerships with nonprofits that provide financial education and also financial services, they are coupling grant dollars, federal programs at the needs of these consumers. we have done a lot of work over the past several years to try to raise the awareness of community development financial institutions, community development banks, community development credit units, loan funds, as a very important part of the financial service system in this country. particularly for meeting the needs of lower income,

historically underserved revenue. we have again, i spoke earlier about our earlier effort to be a secondary market for banks, we do not have that tool available. we do participate in loans, we are home loan bank, will go to grant funds and traditional banks to do development of affordable housing and train them how to develop mortgage products that will serve the communities. i think more and more banks are seeing, typically larger bankers in the importance and the value of investing in cfi's and referring to customers to them. i think the issue of needs to be

a primary focus for policymakers they want to open up and modify the reality of today's financial service system. in the 70s when it was established it was based on a branch making model. most have not been into a bank branch branch for months. we do our transactions online. we are mobile, we do them on our mobile apps. at the same time, my mortgage is held by a bigger rink that does not have a branch of my region. so they do not get the credit for making investments in places like delta and in many places that are bank deserts where the mega banks do not have a presence. those are the portion it to the

banks that do the business in the communities. >> we have time for one more question. >> great thank you. i had a question about holding onto loans that might not fit the traditional credit. i think we all recognize that commonsense underwriting and low-level underwriting sometimes makes great sense and bill, you had a couple great examples of that. of course the current loans on your book a missile to the secondary market. doesn't call for us to rethink where deposits can be hold and maybe have some of the missions with, since landing on the risk spectrum? is it something this this panel has an idea about? >> i will talk to that question.

>> bill has something of an exemption. >> we do. but you chair the committee. >> so i think it is a really important issue. my own opinion is that they have gotten it writes in the past and that any expansion needs to be extremely careful because just because the mortgage is in portfolio does not mean it is fabulous. in fact, having been the director i can tell you the story of an awful lot of california that held all of their mortgages and portfolios. enough said. i think this has to be very

carefully dealt with. i do think the cdf by exemption is a really important one, those institutions work very carefully with the borrowers. not to say others don't. but prove it first. okay, i think with that we will give you back and thank you very much for your time. [applause]. [inaudible] [inaudible] >> okay everyone come back we will get started. so this panel is on housing urbanization demographics. i have a distinguished group of speakers. starting from the side, the

managing director, ralph, my colleague and director of metropolitan housing and community policy center at the urban institute. joe neary who is the president-elect of the national association of hispanic real estate professional. a national board member and attorney. and when fisher vice president of the bankers association. i i have asked each of the panelists to do is short presentation, five or six minutes. we cut them up at six minutes. on something that they have been working on her thinking a lot about lately. we are going to start with ralph who is going to discuss a paper on housing in home ownership followed by then fisher who has done demographic study on behalf of the mba and the results are somewhat different than the urban study.

finally, shaker is going to talk a bit about financial rental housing and finally joe is going to talk about the role of hispanics as future homeowners. with that, that, let me help rough kick it off. ralph has the clicker. >> thanks everybody for being here thanks for the invitation. i will just start out right away with the first thought and this is something that should be familiar right now because it is been in several presentations already. the number of to rent it was growing slowly in the 90s and 2000, we project that a large number of young, diverse people who are entering housing markets in the next 15 years will be leading to substantial growth and demand for rental housing. you can see the number of white renters is going up a bit but in particular african-american and latino's, people of other racers are contributing to that rental demand. at the same time, the growth and

owner occupant is going to slow for two reasons. one, because there's an increasing number of older homeowners, most of whom are white who will be passing away. also, until the 2030s millennial's will into their homebuying years. so the 2010 and told 20. is is a little slower than 2020 through 2030 for homeownership. because that renters are growing faster than homeowners we project homeownership rate will drop to 51.3% by 2030. that does not mean that we are becoming a renter nation by any means. i think it is important to ship to a view that renting and owning are part of a life course transition. i hope we can talk about that through the q&a. >> because rents are going up and wages are flat, red cross

prince have gone up a lot, this a sense 2000 and 2012. so by 2012 half of all renters were painted over 30% of their income, that means they lack affordable housing. black and hispanic households were heavily burdened with 58% and hispanic households were heavily burdened with 58% 55% of them respectfully. they like affordable housing. since the majority of black and are renters and hits the whole population. by now i suspect even more to because burden that is the case in 2012. of course if you do not have affordable housing in his house to say for a down payment, it's hard to get a credit record because you are more likely to fall behind on your bills, you might accumulate data for young households who carry student at that picture can be frustrating. they worked so hard but their economic security may seem further way than ever. the second function is a mortgage credit box. this is one of many great that laurie and her team puts together and her monthly chart book. there's probably knew one of

these right now from earlier this week. we're seeing a lot fewer homer owner-occupied homes that we have in 2000 or 2001. why purchase loans have rebounded in the last three years. the spin again black loans are barely moving even though the number of households who are hispanic and black start growing. now lori and i were doing our projections of rental and ownership demand we looked at recent trends of housing supply and demand, economic outlook. we. we agree that policy to make a material difference in the homeownership rate by 2030 especially for households with in their early 30s and forties. even an optimistic picture, and, and that who is pretrade here, 35 to 44 -year-olds, even the optimistic picture has slippage from recent deafness of these. if we keep having such extreme affordability problems limited access to impaired credit among

minority households homeownership could decline further especially for african-americans. there are a lot of actions that we can do to help build affordability, economic security and financial health so that housing is once again a pathway toward upward mobility instead of a source of instability. i hope we we can talk more about these during the q&a. >> thank you so much for the invitation to be here today. i'm going to discuss our version of a healthy demand study. our work folks on three courses, the ever changing demographics of the united states which you have heard about today, shifting societal trends, some of which are delaying decisions about when individuals form households and undertake other important life decisions and the third one

is of course the fading of the economic recessions and perhaps that is one of the areas in which we have differences of opinion with the prior study. i'm going to jump right to the chase and tell you about our forecast for household formation over the next ten years. our studies looking at 2014 through 2024. the headlight the headlight number is 15,900,000 additional households in the united states, that could be one of the largest increases in households one of the largest increases in households this country has ever seen. if you look at the chart here we have depicted the change the additional households are the change of households by age group because of course h has a lot to do with the type of housing you consume and whether or not you choose to own or rent. above the age of 60 you can see the increase in the number of households will be driven primarily by non-hispanic whites, where as in the middle range between the ages of 45 - five-60 over the next ten years the decreases in households will be driven by non-hispanic whites

that moved into above 60 age group. of course course under the age of 45, this country will become much more diverse than it has ever been. you can see that by the different colors in these bars. overall, one of the notable things about this chart is that hispanics are positive influence on household growth at literally every age. they will lead increases 55.7 million with 5,700,000 additional households. there additional households. there'll be about 5 million additional non-hispanic white households, and i reprieved to the study. i will keep going down the list if you wish. this is our headline number, we are we are getting 1.6 million households a year. you already show the speech frank study and in addition to the demographics themselves and the societal trends that many people have been talking about,

the economy is improving. we have have gone from 10% unemployment 2009 to 5% as of october of this year. i think we can't discount just how hard the economic recession hit young people in particular. so not only our young people staying in school longer, choosing to get married later, having later, having children later, the economic recession doubles down on that trend and particularly impacted them. when you look at house of information right you see the greatest impact. one of the greatest things that we have been trying to do is unbundle that so we get a more picture of what might happen going forward. anything we often we often hear when we talk about increasing diversity is the fact that we know different racial and ethnic groups have different propensities to be homeowners that is probably a true statement but at the same time the population is aging.

so if you look here, i have have the change in population of hispanics in the u.s. over the next ten years by age group, two thirds of the increase in population are going to be among hispanics over 40. if you look at the black line here that is showing the homeownership rate of hispanics in each of these age groups. over the age of 40 beverage homeownership rate has been 60%, and that's read 201414 at a low-end. so, there is an unsettling factor of the increasing diversification which is aging. it will lead to different homeownership and healthy decisions in general. this is one of my favorite pictures because when we talk about ownership within about single-family housing. we think about multifamily housing, others have brought up single family rentals for example is an important component. we also have multifamily ownership which is kind of housing in this country.

what is interesting here's when you look at some of the age-adjusted shift in owning and renting that is taking place over the next three years, much much of that action is between single-family ownership and single-family renter ship in the country. if you look at the yellow bars you'll see the share of housing really did not change that much. so, this is important for us to keep in mind as we are talking about policy ideas and decisions were going to make. their different ways in which housing demand can be served in this country. i will wrap up here because i think we will talk about it more, we really focused on housing demand and the number of households form of the study, people push us about homeownership rates and would go about that to a's. we say with all of these ethnicity grapes have the same rate in 2014 and 2024. we also look at the second

scenario where those averages could revert back to other averages. not as the low of 2014 and not as high as 2024. what four. what we think might happen almost 65% of homeownership rates in the first scenario and 66 and a a half of the second scenario. a bit more optimistic than the picture. >> so first of all, they're both extraordinarily well behaved. they were not competed but i was wondering under the rate protection? >> it also strikes me that we

started to crack that index we really screw the housing economy by the way. so anyway maybe it isn't the most relevant thing actually what is the homeownership rate. so i think what i'm going to do, for slides and because i do not have any original date i hope i can give you one or two semi original ideas. i want want to spend most of my time on the last slide. so first of all, one of the issues of our homelessness and housing is lack of love where these renters come. i think you got the answers from frank in a number of people. the question the question is where do they go? it turns out most of them actually between at least 2006 when we had about 10,000,000 single family rentals and 15 the late assessment i've latest estimate i've seen is that we have 15 million. so that is 5 million absorption from the great