we've had economic growth and not anything that we'd like, but that generates money and we've had a fiscal cliff deal that did raise revenue of $700 billion over the decade and that's a tax increase effectively and those things have brought that deficit down from $1.4 trillion to a little under $500 billion and 460 or 80, somewhere in that range. are those measures, director hall, sufficient to continue to lower the deficit as we look forward? >> they're not and what's going to happen is the effects of the aging population and the rising healthcare costs are going to become much more apparent going forward and we're going have a much harder time keeping the debt anywhere near its current level. it will be difficult to do that. and your test on this, and i don't want to belabor it with mr. akita, but what will be the impact of that debt on economic

growth? >> it's certainly a drag on economic growth. i think it puts us at risk in terms of economic policy if we have another downturn and our ability to deal with that, and then at some point we get to a tipping point, right? when the debt is just so high that you have a hard time and the federal government has a hard time borrowing money and then we have a real issue. >> is there any way of dealing with the debt without dealing with entitlement programs? >> we have a lot of choices, and obviously, entitlement programs and the growth of those are a big part of the growing debt in our forecast. >> this committee has put forward, a couple of pretty provocative ideas on medicare and medicaid that would slow their growth according to cbo studies. i know our chairman has talked about social security in the past and we've had private discussions about the need to

have a process or address that. do you know if the administration has put out any proposals on entitlement reform? >> i -- i don't. i'm sorry. >> and how many years has this administration been in office? seventh year, i think? >> yes. that i should have been able to calculate. obviously, i'm leading the witness if we were in a courtroom. the point is we have a huge crisis. we know it's here. we've been around seven years. it's time to deal with it and this is an area where the administration has to lead and i think frankly this committee has been willing and has put out ideais and think the congress is ready and so i would hope, mr. chairman, and i'll close out, i would just hope that the administration would take that opportunity to sit down and talk about the real long-term problems we'll face instead of pretending they'll disappear because they'll get worse. >> the gentleman's time has expired and mr. mcdermott is

recognized for five minutes. >> do you own a house? >> i do. >> did you pay cash for it? >> i did not. >> so you went in debt to buy that house? >> that's right. >> is that a pretty common occurrence in the united states? >> it is. >> so we have a population that understands the idea of investment creates debt and that in the end in 30 years you'll have a house probably and you'll have some house that's probably worth quite a bit more than what you paid for it maybe already is would that be true? >> that would. >> that would be a projection you'd expect? >> yes. >> the idea of investment and mr. van helm talked a lot about it is one they think we have lost sight of in the congress. the republicans don't seem to

want to invest anymore, and i was reading "the new york times" and i couldn't believe it when i opened it and saw that a great leader of the conservative right had come out with a suggestion that we should double the nih budget. newt gingrich and i asked him to put his editorial in the record said -- >> objection. >> even though we led financing for medical research stagnate government growth on health care has grown significant and that should trouble every fiscal conservative. as a conservative myself i'm skeptical to government investments and when it comes to break threws that can cure, and not just treat the most expensive diseases government is unique. it alone can bring the necessary resources to bear. the federal government funds one-third of medical research and it's ultimately on the hook for the cost of the illnesses so it does the research to try and

deal with it. it's irresponsible and short sighted and not prudent to let financing for basic research dwindle. the last budget that we put out of this committee was $1.7 billion less for nih and not doubling the budget, but down $1.7 billion. 14,000 less grants is what the omb suggests that equates to. tell me how that spurs the economy to cut investment at the national institutes of health? just explain to me how that would spur the economy? >> i don't know that we've done analysis of that sort of thing. >> can you imagine any way it would? certainly, there are things on the spending side that have dynamic effect that have a

positive effect on macro, economic growth. >> do you think the national institutes of health over the course of the last 50 years have had a positive effect on the economy? >> i just don't know. i don't want to speak lightly of it, but really i don't know. you're kidding. you really are a politician. our henry jackson, our senator from washington once said he was looking for a one-armed economist. someone who didn't say on the one hand this and on the other hand that. you can't look at what's come from our pharmaceutical industry and from our health care industry and all that's -- it covers 16% of gdp and you're saying that the national institutes of health, with all of the research they've done in aids and in cancer and heart disease and in kidney disease, none of that has been positive? >> i didn't say that. >> you said you couldn't say that its had a positive effect.

the effect is without that kind of research medicine in this country would fall behind and we'd be like sierra leone or botswana if we stopped doing research and we say that we're going to go forward in the next century by innovation. we're going to innovate and that means you have to do the kinds of things that innovate and that's nasa. that's nsf. that's all of the places that we invest money. if we stop investing in the military and darna and all of these places where money is invested they say no we have to cut back we have to cut back, but when you cut this you're cutting your own throat, in my view economically. after the second world war when we had the same kind of debt we had today we invested. we gave a free college education to every soldier who came back. that's investment.

>> the gentleman's time has expired. the gentleman from california, mr. mcclintock is recognized for five minutes. >> just to pick up that point. when we were at the end of world war ii when we had exhausted our resources and when you were carrying a debt as big as it is today, didn't harry truman in 1945 abolish the excess profits task and in 1946 didn't he slash income taxes from 60% i believe, down to 20% or so? didn't he reduce the federal workforce by 10 million employees called mobilization and didn't he take the federal budget down to $30 billion in a single year, and didn't the centers at the time warn us of 25% unemployment rate and a second great depression? >> i don't know my economic history like i ought to. >> please check it out because i

believe you'll find that that is a fact and instead of that second great depression we had the post-war economic boom. i've been asked what keeps you up at night and my answer immediately is the debt. we're paying $230 billion a year just in interest costs to service that debt. that means if you're an average family paying average taxes $2,000 of what you sent to the government this year did nothing more more than rent the money that we've already spent and as you pointed out at the end of world war ii when we were carrying this much debt there was serious doubt whether we could continue into 1946 our resources were exhausted, and our credit was shot. we are now at that point in history and we are concerned about what happens to our ability to respond to an international crisis if one is upon us in the condition we're currently in. the budget that congress has just adopted sets a course back to solvency.

how important is it that we stay that course? >> i think it's important that we do something fairly quickly and get a plan together quickly because the longer you wait the more dramatic a change you need. we have a plan and that's the budget that's in place and we just heard the ranking memo, co threats from the senators and from the administration that if the congress doesn't agree to spend a lot more money they're going to shut down the government. how damaging would be that path that is being suggested, that we massively expand spending at this moment in our history? >> well the economics of it is interesting. spending a little bit in the short term is a stimulus. it adds to economic demand, but adding to the debt over the long run time period is a drag. >> it adds, it adds temporarily

because when you take a dollar from peter to pay paul paul has an extra dollar, but doesn't peter have one less dollar to spend in that very same economy? >> that's right. >> isn't the impact over the long run negative, not positive? >> that's right. making the debt worse is a problem. >> my friend from new jersey rightly pointed with pride to the clinton administration's surpluses and rightly criticized the bush administration's deficits and the impact that he had on the economy but he reminds me also of churchill's diskrim mission as a man who occasionally stumbles over the truth and then carries on as if nothing has happened. isn't it true that bill clinton's administration cut federal spending by 4% of gdp, dramatically reduced entitlement spending and in his words ending welfare, as we know it and approved the biggest capital gains tax cut in american history. george bush comes along, increases federal spending by 2%

of gdp and approves the greatest expansion since the great society and started the entire area of stimulus spending. mr. obama came in and increased it by another 2% of gdp. further expanded our entitlement obligations and drove stimulus spending through the roof. >> what do these experiences tell us? >>. >> i don't know about those experiences in particular, but right now the end result from 2007 until now, having the debt double, nearly double as a share of gdp is something of real concern and it really handicaps us going forward in terms of economic policy. >> in the remaining 23 seconds reagan recovery, obama recovery, compare and contrast. >> i can tell you that the gdp growth from this recovery has been very slow. i don't know that i want to attribute it to one president or another, but gdp growth has been very slow this recovery.

maybe the slowest we've had. >> gentleman's time has expired and the gentleman from massachusetts, mr. multion is recognized for five minutes. not here. mr. norcross, new jersey. >> thank you. >> mr. chairman i appreciate it and good to have you here, dr. hall and we certainly appreciate you sharing your views. i want to follow up with a comment you made in your opening statement follow-up to mr. van holland. you talk about wage growth as a stagnation on the revenue side of the ledger and that over the course of the last year of this recovery it has been stagnant and i agree with that. i think we all agree with that but i'm looking for a little better explanation and we look

through 73 through 2013, real wages increased by 9% but productivity and the very thing that we said drives those wages is up by 74% and huge gap that has been discussed. how do you attribute between what happened then and now and why that isn't changing based on your earlier comments that with the growing economy the growing wages? >> right. i know that it's been noticed and it's a concern that productivity growth has outstripped wage growth at times. >> massively, massively. one part of it is non-wage compensation. things like health care costs and other things. that's been a big part of that. so if you sort of take that into account they get a little closer which has been a little bit of a -- >> just fractionally. there has been a bit of a separation of that and i think

that's an interesting thing. i still think that it's fair to say that you still can't get solid wage growth without productivity growth. and i think a lack of productivity growth is going to still hold back wages going forward and if that isn't somehow resolved. >> just following that up and following your logic then we should have had a massive wage increase. 74% productivity growth and only 9%. i'm looking for how did that occur and in your opinion, following your suggestion that the increase in productivity would give you wages and that didn't happen. we have to spend a little time looking at it and just right offhand, but like i say if you look at just narrow wages that's a bit of it. we have had -- we only have had

a bit more of a separation between productivity growth and it takes it up to 74% and it's still a massive difference and i guess what i'm leading into is the trade agreement and 73 in nafta and we're looking at scoring and whether or not a trade agreement is good for this country, you take certain a assumptions into effect, wouldn't you? when you score something do you assume that the other countries will follow the rules? >> well that's right, and up until now the scoring of trade agreements has been looking at tariff revenue has been driving that. the effects would be different and you're right. it does rely on the agreement being upheld in both sides so

when we're moving forward any trade agreements we might enter into, you will assume that they're going to follow the rules as part of that scoring? we do our best to estimate that. if there are indications that enforcement may be a problem or some of those things may not be credibly enforced then that could play into our scoring. >> is that a maybe? i'm not trying to pin -- >> i'm saying it's a -- it's a judgement i can't make because i don't know all of the details of a future. >> we'll be running out of time. will you please follow up? it's not a maybe. are you going to have to assume they're following the rules? because i look at vietnam who has never followed the rules on their wage agreements and yet they'll be included in this trade agreement. australia, different story. they tend to follow the rules

and when you start screwing these things we want to make sure you're taking into account whether or not you'll assume that they've found god and are going to follow all of the rules which we find very unlikely. so we appreciate you coming onboard and looking forward to future meetings with you and your insight. thank you. >> the gentleman's time his expired and ms. black is recognized for five minutes. >> welcome dr. hall. we look forward to working together especially at this time when we're looking at very krital things in our country and my colleagues before me have spent a lot of time on the impact on the debt and our economy. i want to just turn to another area related to this and that is the impact of the interest for our government spending and our economy. so this past january the cbo estimated that its budget and economic outlook that over the next decade the interest payments on the federal debt will rise by more than 400% just astounding.

$827 billion per year in the year of 2025. this is astounding and as one of my other colleagues said how do you talk about billions and trillions about constituents and to ourselves is something that is unimaginable but over these ten years the federal government is expected to pay a total of $5.6 trillion in interest payments. again, just astounding. what negative effects will these growing interest payments have on our economy? well, first they'll make the debt grow and that will have a pretty significant effect on the federal debt. i think if you do a quick calculation and the interest rates go up by .75 percentage points, just a fairly small

amount. the debt to gdp ratio 25 years from now will go up by 25% which is higher than the long run average. i mean just the debt -- just the debt alone from that is significant. when you raise interest rates you've had all sorts of effects and you raise the cost of capital to workers that can have an impact on wages and by reducing the capital and raising interest rates, it does affect investment, as well. so you have economic growth aspects to this. >> so as the interest rate goes up, that also means that more tax dollars paid into the coffers will be used to provide services and help with those kinds of things that we believe that we need to give to those most needy. we'll have less money for that because if the interest rates go up that means more money will go

to pay for the debt. is that not correct? >> that's right. >> so given that what is the effect if just 1% increase in interest rates on these projections? how much worse does this problem become? >> it can become significantly worse. to say something like three-quarters was 1% and you're talking about 30-plus percent and that's really significant. i can give you more detail on the long-term budget outlook because one of the things we do with that is we show you how the interest rates affects the debt in the long run and do some discussion of that. and i appreciate getting that information and all it will do is make me stay up later at night worrying about where we're going and how we take care of this, but my last point here is my understanding from sitting on this budget committee is the

longer we wait the harder it is. figuring out how to take care of those entitlement programs that is the greatest driver of our debt right now while we can and before interest rates do rise, will put us in a better position and perhaps not put us in a crisis situation. is that not correct? >> that's correct. >> thank you. thank you, mr. chairman for this hearing, and i yield back. the gentle lady yields back. mr. lew is recognized for ten minutes. >> thank you, mr. hall for your public service. i'm going to ask you about dynamic scoring. i believe it is a radical sea change in how the cbo will score the federal budget and to me it's not radical because of the concept. i think the concept as you know is pretty easy that basically people react to changes in governmental policy. >> what is radical to me is that earlier this year the house majority passed a rule that said we'll only apply dynamic scoring to some parts of the budget and

my view is math is math. if you'll apply math to some parts of the budget and not others that's going to skew the budget, and in the response earlier in the hearing you would have evidence of dynamic effect, but doesn't everything have dynamic effect whether you're spending on education or spending on infrastructure or spending on nih to do rnd and everything has dynamic effect. >> isn't that true? >> i'm not sure everything does and some spending am whys have the dynamic effect just like revenue has done. >> and will the cbo go beyond what the house rule is if you believe there is going to be significant evidence of dynamic effect and score it that way regardless of the house rule? >> i believe the house rule asked to use dynamic analysis on both the spending side and the revenue side where appropriate. >> it limits the spending side

though. >> okay. so let me ask you. you have no objection to having cbo score the entire budget with dynamic analysis. >> that's right. we've been doing that. if you look at the budget, you can see the dynamic portion. we do it in the long-term budget and we do the macro economic effect. so we've had a little bit of experience doing that, and this change to us is sort of a continuation of using the methodology that we've already been using. >> thank you. that's reassuring. second question i have is how you do it. so let's say. i give this as an extreme example and say they stopped funding education and applied it toward deficit reduction so you will have a numbers effect to that, but then over time you will have a lot of uneducated people in america and that will have a drag on the gdp. do you factor that in, for example, educational levels of

our population and how strong our infrastructure is and all those things of dynamic scoring. >> we do. that would have an effect on productivity going forward and our drop in productivity going forward would be a dynamic effect that would not be good for economic growth. >> it's possible that dynamic scoring will go in reverse, right? . there will be some cuts that will have a worse effect over time because you will have a less productive workforce or something else that affects gdp. >> that's right. and then i have a question about your view of what happened in kansas and louisiana because they applied dynamic scoring in those states and the governors of those states said we'll do massive tax cuts because our dynamic scoring shows that we'll bring more revenues and those tax cuts. it didn't happen. both of those states are facing potential bankruptcy and do you think they just got the dynamic analysis wrong? do you think the theory that if

you bring in more revenues is incorrect and it ran with coincidence and it will bankrupt your stay. >> i don't know the specifics about the states and what they did, but the economic evidence is that there are dynamic effects and not that the dynamic effects are so strong that tax cuts pay for themselves. that takes the economic evidence too far and it's just not there. >> thank you. i will yield back. >> okay. change an yields back and the gentleman from georgia is recognized for ten minutes. >> thank you mr. hall for being with us today. you were asked earlier if you were a homeowner. you confessed to being a homeowner. i'm not going to ask if you're a credit card holder but i do want to ask if your model reflects differently the kinds of investments that mr. lew was talking about, whether that be education and whether that be infrastructure and consumption. consumers buying more imported goods and does our model make a

distinction between government spending on investment and government spending on consumption? >> it does and that's an important distinction because deficit spending on something that will give you the dynamic benefit is different than something that's not. >> when we talk about deficits annually and debts over time the scoring i generally see if we spend more today we'll have a positive effect on gdp in years one, two and three, but a drag on gdp in years seven eight and nine in rough terms. is there a way to avoid that impact as we try to balance. >> sure. >> -- gdp growth today versus gdp growth tomorrow? is there a formula that gives us gdp growth in each and every year? >> it's not a formula, but one of the things that would really help is not surprising people right? if you get a fix you announce it now and you give it a little time so people can adjust to it then hopefully you can avoid that -- that push against

economic growth. you can avoid that and still get the benefits down the road. so it's the idea of getting a plan together or having the effects phased in over time so you don't get a drag on the economy. >> so let me be clear about that. i'm 22 years away from retirement. young people polled say they are more likely to see a ufo in their life time and you're saying whatever it is that we're going to do to address that concern that the same solution phased in over time has less of a drag on gdp than if that solution was imposed at some drop-off point. >> that's right. in the near-term and you could have a drop-off point as long as you give people a little bit of time to adjust to it so it's an issue of timing and it's an odd issue because the faster you fix it the better off you are, but if you take a little time and phase it in, hopefully you can avoid this drag in the early years. >> i'm confused about that because i've been on the budget committee for four years and

only been in congress for four years. my experience in congress is we do a lot of things one year at the time and we'll get to december 31st this year and decide we'll write tax policy for last year. we'll get to a problem that's coming in ten years and we won't deal with it in years one through nine and you're saying there is an economic consequence to the short-term extensions to the one-year policies? to the let's wait and see culture that exists on capitol hill? >> without commenting on the culture, but yes, there can be an effect from doing that. >> i feel guilty about the culture and if you'll comment on the economic effects that the culture brings. i'm thinking about the formulas and i just have such great respect for the budget committee chairman and getting to the first conference balanced budget we've seen in this countrykrountcountry

since 2001. we went after those consumption programs and certainly the sequester has gone after many of those investment programs. i supported the chairman's mark and supported the budget. >> have you seen alternatives that tried to reduce the consumption spending in this country in order to enhance the investment spending in this country, that haven't gotten the attention on capitol hill that they should have? have you seen any leaders out there other than the chairman pushing that idea that we can -- we are harming our country with consumption so let's get that balance right? >> i can't say i have anything in mind. we do have that proposal and we've actually thought through some possible ways of balancing the budget in ways of improving

things so some of those options are things that we thought of when we sort of detail what we think what the impact would be. >> i know you work hard to give us the economic information and not try to drive the congress on policy issues but if i could encourage you at every opportunity to help to beat that drum about the -- about the degradation that occurs in our economic system with the uncertainty that absolutely ney one in this committee and no one on capitol hill benefits from, that is a place that we can come together and make the difference. >> the gentleman's time has expired and the gentleman from virginia is recognized for five minutes. >> i just want to take exception of a couple of remarks previously given by the ranking member and just get your confirmation that it's true. he said in the short run the republican budget reduces gdp, and you said correctly that, yes, the aggregate demand goes

down and that's the relationship, but i just want to put it in context. would it be equally true to say if we go another trillion dollars in debt as milton friedman taught us decades ago and you created jobs program and people dig a ditch with teaspoons and then fill in the ditch and that would also create gdp growth. >> it would in the short term. that's right. >> that would also create growth in the short-term and i'm just trying to show the context of smart, economic growth and the second remark the ranking member made was that immigration increases would increase gdp growth. that's also a true statement, but what most use as the more helpful measures is gdp per capita and would you say that's accurate as a measure of welfare, that the gdp per capita is more important than the average person than just growth in gdp. >> that's what's behind

household income. >> good. and is it your understanding that in terms of federal scoring, immigration federal programs come into play but if an average person with a ninth grade education emigrates to our country and pays very little in federal income tax, but if they have two kids in schools the cost of that is roughly $24,000 to the local and state roughly speaking and any other additional expenses and is that scored by cbo the state and local costs? no, we don't do a state and local. right. >> so when he says immigration causes growth, i accept that premise. it does increase gdp growth, but the average person would not be happy to find the additional tax burden for paying for schooling and the other programs that go with it and finally if we can just redirect to the slide this is probably the most important problem the country faces and

provides the ultimate context and background that everyone we've been speaking to the $18 trillion in debt and the debt clock that is spinning out of control and this chart is from cbo and roughly shows that by 2032, the four major programs plus interest take up all federal revenues by about 2032, and so i say this over and over to folks. our governor came up with the entire delegation from virginia today and sequesters having painful effects on the military in virginia. we need transportation spending and education spending, et cetera, but i just want your confirmation that what this graph is telling us is that under current law, and at present the budget committee can only deal roughly speaking at one-third of the budget and two-thirds is autopilot that we can't touch without changing the law, and i just want to make it clear that by 2032 under current law with interest payments included, 100% of the budget is

autopilot, and there will be very little, if any, money left for military and all of the regular expenses of running the government all else equal. >> it certainly gets up to be at an unsustainable level. it's hard ton where it is, but it is. >> in your view, i know this is incredibly hard to answer and you have the debt at 18 trillion and the at the bottom of the debt is roughly $27 trillion. what breaks first? where is the -- this time is different than folks out of harvard had the red lights going off and you said that to gdp ratio is already at historical highs and if you throw this story along with that, where do you see the first breaking points? >> i don't know. that's -- it's like any not kind of debt. when it just accumulates, if it's a company or if it's a household, at some point you

know it's going to break them. you don't know where. >> right. right. i would like to go to the next slide slide. >> i think you're quite familiar at the bottom but harvard and it seems like we can do more to provide numbers through cbo and through our committee were to illustrate how dire the situation is that this chart presents economics professor estimates that the total fiscal gap and roughly the difference between our projected spending and revenue in current dollars is more than $200 trillion, and i just gave the 127 trillion and he does it in the infinite horizons and by the way, for political purposes and it's not blue or red. >> the gentleman's time has expired. >> the gentleman from indiana is recognized for five minutes. >> thank you, mr. charm thank you, dr. hall for being here and i've enjoyed listening to your testimony and also to the

answers to different questions that very been asked i want to talk about interest on our debt and interest rates a little bit and i appreciate your comments about $18 trillion of debt and that does to on you are economy and the future of the country and we're talking about the interest and could you talk just a little bit about the sequester and maybe how it relates to our military readiness and our military spending &, but then is that the greater problem or are our entitlements the greater problem that we need to fix because as mr. pafk wellscal was saying earlier, with the budget of the late '90s when president bush did come into office 9/11 did

occur and we had some extreme situations that we had to deal with, but i don't think that that could be the only place we blame for our high number of debt. i think it really starts pointing, too, and the sequester has shown we've seen military spending go down but we haven't done anything about the other tw-thirds as congressman brown was talking about. could you talk a little bit about that? >> sure. the most obvious thing that clearly is coming is the effects of the aging population. that's just going to happen and that has significant budget impacts and the rising healthcare costs. so which is also related somewhat to the aging population. so no matter what else happens those things are going to push the debt higher and there are a lot of ways to work on that. we've tried to give you some options, but that -- those issues didn't exist until now.

>> cbos, report on health care costs. cbo recently reduced its projection on health insurance premiums for the 2016-25 period. is that something -- could you talk a little bit about that as we talk to folks back home they're seeing a rising cost in premiums and out of pocket expenses. are we seeing -- could you just touch on that a little bit? >> let me just put it in context. one of the challenges from cbo and the aca was that we didn't have any experience with that. so when we're trying to estimate the likely impact, to be honest we're relying on theory and we're relying on theory and now what's happening is we're starting to get some experience and we're starting to get some real data and going forward that's got to inform our estimates of the costs going forward and what we saw early on is we saw a drop in premiums

that we didn't forecast and we'll keep monitoring premiums and monitoring things and it looks like premiums are not following our forecast and if in fact, they wind up going more than the forecast we'll adjust. >> that's my concern that folks at home aren't seeing wage increases and we're starting to see large companies increase. the minimum wage for the companies but as you mentioned earlier there needs to be tightness in the labor market and the companies are having a hard time finding that, and to go back to the debt and the interest interest. how do we, the interest will surpass the next ten years and you what? i don't remember, if that's the projection, i suspect it hasn't changed. what can we expect when greats do at some point go back up?

how are we as a congress, supposed to handle the debt service to 18 trillion of debt and a debt that will only continue to rise? what happens? >> well if you want to avoid the debt getting out of hand you have to make some cuts. you have to manage spending or manage revenue or you've got to do something. >> thank you for your candidness. it's appreciated and i appreciate the chance to ask you a couple of questions and i look forward to working with you on this new committee. >> the gentleman yields back. the gentle lady ms. black burn is recognized for ten minutes. >> we so appreciate your time and your willingness to work with us. i think we all realize that we have spending issues and budget issues and it is constituents want us to get these addressid

and think we're tired of the bureaucracy feeling as if they're immune and exempted from having to work within a budget and i just, i think they're encouraging us to be bold in the work we're doing. i want to ask you specifically about the inspector general report and we've been doing some work on the counsel of inspector general on integrity and efficiency reports and, the fiscal year 2013 and they had quantified $56 billion worth of savings and it we have had a project going on in our office that the interns were working and the window from 2011 to 2014, they found $97 billion

that could be utilized with the inspector general report and they had the waste fraud and abuse. so as you all look at the budget, does cbo take these reports and waste fraud and abuse into consideration and how does that play into your cost estimating and your budget process? >> sure. we do take the ig reports into account when we can and it's a matter of estimating the cost properly so it's clear that there are issues and that is part of the cost estimate going forward forward. the scoring efforts to bring waste and fraud into under control. there are scoring rules that make that for us. >> there is a report that cbo

issued in 2014 regarding the budget efforts of reducing waste fraud and abuse with the healthcare programs. so is cbo looking at or studying waste fraud and abuse on a broader level and are there plans to release any future reports in this vein? >> at the moment we're not currently conducting research like that, and we are happy to discuss the possibility of such work if there's interest. >> well, let me ask you this then, could you capture savings by utilizing some of these, kept your savings and used them for budgetary offsets by heightening efforts or changing the way you utilize these reports or integrate these into the budget process? >> there's actually a score keeping rule that makes it a little bit tricky. if it's -- if it's -- if it's a

new proposal and and it's something that's the increasing spending on finding waste and abuse and then the rules won't let us count that. >> that's helpful. i appreciate that. i have a couple of other questions and i'm going to just submit to you dealing with interest rates and deficit reduction because those are those are items that come up when talking with constituents and town hauls and the good thing is that people are watching very closely what is happening with the budget and they're very concerned about the health of this nation and they want us to begin to operate in a more forthright way and also a

healthier way as we determine the budget process. i yield back. >> the gentle lady yields back and mr. palmer is recognized for five minutes. >> thank you, mr. chairman and thank you for being here, dr. hall. it was earlier discussed about the impact of regulations. i think the regulatory environment costs the economy $2 trillion last year and it is a little over 15,000 per household. in your view should that be taken into account when the cvo looks at its economic projections? i know the president's office of regulatory affairs takes a look at that. i think it only captures the discretionary cost. is there any consideration of the cbo taking into account regulatory costs? >> no. i don't think we've ever really

done research or done work on the possible impact of regulation and a lot of what makes it tricky is you need regulation and the issue is what becomes too much regulation and what becomes regulation that has a tradeoff with economic growth and that's a very difficult thing. >> you raise a good point right there that you do need regulation, but what you need is certainty in regulation, and i think there are a number of studies out there that indicate that when businesses know that they're going to be regulated and they know what the regulations are it doesn't have a negative impact. it's the uncertainty in regulation that has an impact, and i think we're seeing that played out in the economy now. how would you respond to that? >> well, i think i mentioned earlier, there is some economic research about the effect of policy uncertainty on economic

growth and that can have an impact. that's still kind of new research. i don't know how well accepted it is yet and to be honest i don't know how much they focused on the regulations contribution on that. >> i think there is new work out there, i can't remember if it's the university of chicago or the london school of economics that looked at that aspect of it, but i do think it's something that cbo ought to take into account and it was also discussed and mentioned earlier with our distinguished colleagues about the states and a couple of states and louisiana being one of them that used dynamic scoring and justification for tax cuts at the state level and i want to run through this proposition because state taxes are considerably lower. is it possible that the benefits of a state tax cut would have less of an impact on discretionary spending and investment spending or that

impact would be nullified or muted because of higher federal taxes and regulatory calls such as what they're experiencing now, higher energy costs and higher healthcare costs and higher federal taxes. well, yeah. that's right and that's one of the difficulties of doing any projection and that's certainly one of the difficulties is understanding fully what's been the effect and the dynamic effect of things and it's not that easy to estimate. >> for instance in alabama, our state income tax are at levels 5%. lets very little compared to the federal income taxes and when you consider that for instance, bluecross blueshield just announced that their premium rates will rise by 26% and that's pretty significant. you take into account the increase in energy costs and particularly for people on fixed income and lower income for its consuming for people who earn

less than $32,000. when you take into account that the state taxes are usually fairly insignificant and particularly on the income tax on the income tax side relative to the cost imposed by the federal government. would it not be true that whatever tax cuts you have at the state level would be pretty much whacked out by federal policy? >> yes, sure that's possible. >> one thing you were asked earlier if you own a home. you said you did. you were asked if you had a mortgage on that home. i would like to know if in ten years the interest on your mortgage will be the highest single household budget item? >> i have a fixed interest mortgage so, no. >> so the answer is no. well, that's good. that makes me feel better about you being the director of congressional budget office. mr. chairman, i yield the balance of my time. >> mr. westman recognized for five minutes.

>> thank you, mr. chairman. and thank you dr. hall on your bio that you taught at the university of arkansas and i just wanted to point that out here for the committee. >> i did. appreciate you being here today. you made an interesting comment about how delaying solutions to our problems compound the problems. and we know that those solutions haven't been implemented in quite some time and our problems are getting worse with too much debt with too much continued deficit spending. and we've seen the graphs that show what this is going to do to our interest on the debt. and we've seen the grass that show the amount of discretionary spending. but when we start looking for solutions to these problems and we start drilling down on some of these mandatory spending components, and specifically if we look at the affordable care act, you know, i think of it in two components.

you've got the exchanges which provide premium support for those who fall in the 138 to 400% of the poverty level bracket. and then you've got medicaid expansion, which 29 states in d.c. have participated in the medicaid expansion and it pays up to 138% of those in 138% of the poverty level. so unlike traditional medicaid and for disabled beneficiaryies for nursing home and children, the aca is for abled bodied working age adults. my question do you know the wit on the numbers of aca participants and the exchange in the medicaid expansion and also the budget impact for each population? >> i don't offhand, but i can follow up with you. >> okay. i haven't looked at some of that data and i believe there are more people in the medicaid

expansion population and those effected by the changes. we're anticipating a court ruling in the king versus burwell case would effect those under the exchanges but do very little to effect the large population of those in the medicaid expansion population. since you don't know the number you probably won't know the answer to this question but i'll ask it anyhow. would you say fair to say medicaid over the aca is costing more than the exchanges if there were more people in the medicaid expansion and more money is being spent? >> i don't know offhand. >> all right. when we look at that medicaid expansion there's also an incentive premium in there that was put in. the budget director even stated here in this committee that the premium was put there to entice

states to expand medicaid. and again the medicaid expansion's only been done in 29 states and d.c. whereas the exchanges are in all 50 states. and under traditional medicaid the federal government only pays an average of about 57% of the cost for traditional medicaid whereas under expansion the federal government pays 100% of the cost for those in the expansion population that will be backing off around 90%, which is still a very large premium, again for able-bodied working age adults. our numbers show that this premium alone is about $300 billion over ten years. have you seen any other areas like this under the mandatory spending where you know, there seems to be these premiums or enhancements or, you know things that would make our

mandatory spending continue to grow. which also makes our deficit spending continue to grow which makes our debt problem even worse. >> yeah, i don't know i'm sorry. >> the time i allotted for you to answer questions has been quite short today. i appreciate your testimony. i would appreciate if you could go back and find some answers to those questions and get those to me. and, mr. chairman i yield back. >> the gentleman of south carolina mr. sanford is recognized for five minutes. >> yes, sir, again thank you for your time as well. couple quick thoughts. one, i wanted to follow up on my colleague from virginia's thoughts with regard to what our colleague from maryland had suggested about the republican budget. and in it he said you know the republican budget will slow economic growth. what my colleague attempted to get at from virginia was the why. and i think used the analogy of yeah, you can hire a bunch of people with teaspoons and fill in a ditch and dig it out again. yeah, that would add economic growth but ultimately not make

us more prosperous. would another way to characterize this suggestion by my colleague from maryland be that of if you continue down this road if you go on spending money that you don't have, if you don't impose the financial constraint that the republican budget was ultimately about yeah, there might be a little bit of slow down short-term but there will be much greater consequences down the road by not addressing the entitlement and spending issue that this country's confronting. would that be a fair characterization? >> that's right. i think that's part of our basic message over the long-term budget outlook. >> i also want to go back to your words earlier. you said the debt deficit issue will have significant effect in growth at some point. not quite sure where. but i want to go back to, again my colleague from virginia, he

mentioned the book this time it's different it was one professor from harvard the other from the unitversity of maryland, lawrence -- indeed i think has done a lot of work on a thing called generational counting and the debt load in this country and impact on future generations of a young person born in america today. simpson bolls i think it's interesting their observation was we're facing the most predict bli economic crisis in the history of man if we continue to not address the deficit and debt issue we have in this country. again, i'm not trying to lay blame. debt doubled under the bush administration, doubling again under the obama administration. this is not a partisan issue, but it is a flat out economic and numerical issue that is going to have unbelievable consequences for the american public if nothing is done.

could you just explore just a little more deeply when you think we might get to that tipping point from which again be these severe consequences? >> yeah. this is one of the things that's difficult in communicating about this because nobody has a tipping point. you know it's got to be there somewhere. but there's no real consensus as to what is a tipping point, when it's going to happen. i would liken it to looking at any business that's losing money at some point. >> okay. but let me just because time is so limited. >> okay sure. >> might we say this, the effects of the tipping point, if we go over that tipping point would be one in all probably substantial effect in terms of value of the dollar. if you look at tipping points around the globe when countries have had a debt spiral, severe consequences for the currency in question. there have been severe consequences generally with regard to barring capacity, with regard to interest rates and a

spike that impacts the mortgage, a person's ability to buy a home, also there have been real impacts to way of life because there's generally been economic drag which is what rhinehart and rogue point getting in their book. you would say there would be severe consequences if we go past that tipping point wherever it might be? >> that's right, yes. >> and coming back just for one second, if we're somewhere around 2025 2032, which is not that far off at that point which we only have enough money for interest and entitlements and nothing else could that be a likely spot at which you indeed financial markets say wait a minute this is clearly unsustainable we're not going to loan you more money if you're at this spot. i mean could that in narrowing probability could we be getting

close to as little as maybe ten years out? >> you know i don't know. >> conjecture, i understand that. but would it be reason to say financial -- if you believe the financial markets anticipate and we're going to get to a market in ten years where there's no money for interest and entitlements only, it could well be inside of ten years that we're looking at such a tipping point. would that be reasonable conjecture? >> certainly the part is you have to believe you're going to address it. that factors in. that's why the debt to gdp ratio alone doesn't tell you anything. you have to have some sort of credibility that it's not going to continue and it's worthwhile to continue to loan you money. >> gentleman's time has expired. gentleman from arkansas mr. womack, is recognized for five minutes. >> thank you, mr. chairman. and as my colleague from arkansas's already stated, your bio includes a stint at the university of arkansas. go hogs. welcome to the hearing room.

mr. mcdermott from the acting ranking chair's position a moment ago opened his line of questioning about his house. if it's okay i'm a fellow ar arkansan. nice home? >> sure. >> you've already mentioned you took out a nice mortgage. was it the nicest home you looked at? >> no. >> so you looked at nicer homes? >> i dreamed when i looked at the other ones but realistically that's what i could afford. >> so there were nicer homes, bigger homes. >> yes. >> probably some in some gated communities, a lot of amenities you'd like to have had you dreamed, so why did you buy the house you got? >> it's what i could afford and what i could -- it was a loan i could pay back. >> so when you went to the

lender, they were interested in your ability to repay? >> that's right. >> how novel. were any of the considerations in what you were doing say maintenance and upkeep utility costs, taxes those kinds of things? >> oh, absolutely. that factored in our decision. >> you might have had kids going to college that might take a bite out of your disposable income, all of those things. and your lender he was interested in that too probably wasn't he? >> yes. >> but as mr. mcdermott said, the house is a great investment. so if it's a great investment if it's something we ought to do as homeowners is buy a home and invest in those homes stands to reason we probably ought to go for the best thing that we can without regard to our ability to repay. but what you've basically

stated, and i know it's kind of a crudely simple comparison that i'm making here is that the people that are lending you money for an investment like that are vitally interested in your capacity to repay that loan. and if you could not demonstrate a capacity to repay that loan, you're probably not going to benefit from that loan correct? >> that's right. >> so as mr. sanford stated a minute ago and others here have stated, our creditors must be interested in our capacity to repay, don't you think? >> yes. >> do you think there's coming a point in time that they may ask of us to start doing some things like looking at our budgets as everyday americans look at their budgets and start doing away with cable and expensive vacations and unnecessary costs that might be as mr. woodall would articulate to the consumption side and not

necessarily to the investment side, don't you think our creditors are going to be expecting us to do that? >> yes. >> don't you think they're kind of looking at that today? as a matter of fact i think it's under this president's watch that we have taken the only downgrade in a rating agency at least in my lifetime i don't know ever i suppose, and that downgrade was basically a reflection of congress' inability and the leadership of the country's inability to come to terms on a long-term program that would keep us from getting to the point where we're going to have to suffer extreme measures is that correct? >> i don't want to speak to their decision. i don't know what their decision was based on but that certainly should be a consideration. >> in the remaining time i have and it's already been said a number of times, but one of the things that frustrates me as a member of congress is our inability to completely wrap our arms around the solutions that

are going to take the long-term implications of all of these programs, whether they are investment grade or otherwise off the backs of the next generation. and when i looked at that slide a minute ago and i projected out to 201332, i've got a 2-year-old grandson this month, before that young man can vote the debt load and the amount of pressure that the mandatory programs are having on the discretionary budget will be more than we have to be able to even afford discretionary programs. and that young man even before he has a chance to vote has not had one thing to do with creating that problem. and so i'm like the rest of my colleagues up here i'm in search of solutions. and i think the time to do it is now. and i yield back. >> gentleman's time has expired. gentleman from kentucky recognized for five minutes. >> thank you mr. chairman. welcome, mr. hall on your

position. wish you well and look forward to working with you. one of the things i won't say keeps me up at night because i have a very easy time going to sleep, but what i think about a lot is how did this body which moves at its optimum efficiency at about 10 miles per hour can make policy in a world that's moving at 100 miles an hour. and this manifests itself in so many areas that we deal with in the energy field and education field and medical field where things are changing so rapidly. and those obviously all have repercussions for government and the taxpayers and our federal budget. i remember several years ago when treasury sec nair geithner was here and we were discussing these long-term projections about deficits and costs of medicare and medicaid and so forth. and i asked him at that time how reliable would you say projections going out 30 40, 50

years would be and he said i don't think projections past five years are reliable. of course that doesn't make your job any easier. and nor does it make our job any easier. but in your statement talking about the transparency of your modeling that's kind of the segue to that issue. and i am concerned about how somebody in like cbo would model forecasting in some of these areas when things are changing so rapidly. just look at what the changes in the forecast of health care costs and the medicare viability have changed in just the last few years. and obviously you've had to go back cbo's had to go back and revise forecasts and projections and so forth. so i guess my question is, we've talked about modeling and asked questions over the years about how cbo reached these various

conclusions. and i don't think that any of us really understands how that process has -- comes about. and now that we're going to use dynamic scoring apparently both on the tax side and on the spending side it seems to me that there needs to be a great deal of consultation with the congress about the modeling that is used. and i know that that risks putting that question into a partisan dialogue, but i guess my question would be how do you plan to continually modernize your modeling system? and what if anything should congress be able to -- what input should congress have in your modeling decisions? >> sure. to me one of the fundamental things that we need to do especially with something like dynamic scoring is transparency.

we don't want to produce a dynamic estimate and give you nothing else except a number so all you can do is criticize it's too big or too small. what we want to do is be transparent about what model we're using, how we're characterizing the economy. and we want to interact really with experts. we've tried very hard to do that. we've been doing the dynamic modeling for a few years. we've talked about it with our panel of economic advisers. >> i would rule out talking with us, but go ahead. >> well, we're happy to talk with you. we've given presentations to staff many times. we're happy to do that. and, you know, the whole goal we all kind of have the same goal i think, and the goal is to produce the best estimate possible. and i think the dynamic part of this helps us produce the best estimate. >> the only thing i would say before i yield is that the problem is that your estimates while done with the best of

intentions and done as accurately as you can make them are still highly inherently flawed. most of them are going to turn out to be -- meantime we have to make investing decisions or taxing decisions. and in the case of as mr. mcdermott talked about earlier medical research, we may miss some real opportunities to do something that will not only benefit millions of americans but also have an incredibly positive impact on the budget. looking at things like alzheimer's research which all accounts indicate are very close to yielding some real significant progress curing that disease and reversion of the mental deficiencies. and we should be in my opinion investing far more because the downstream savings is roughly $200 billion a year spent on alzheimer's would be worth it to achieve. thank you for that and i yield

back. >> gentleman's time has expired. gentleman from new jersey mr. garrett recognized for five minutes. >> i thank the chair, i thank you for being with us here today. i just came from another financial services hearing on xm bank and that hearing made me think of something in this are you familiar with the writings of frederick bostia at all? >> i know the name a little, but i don't -- >> this applies here sort of as well, seen and the unseen. seen is the immediate and it unfolds with causation. the unseen occurs over time and unfolds over a period of time. in thinking about that on the way back over here i don't know if he got his writing from earlier writings but if you go back to earlier writings we are focused on the here and now we

should be focused on the eternal. if you focus on the here and now that is only transient. we should be focused on the eternal. and i think about all that comes into play when we're talking about spending and our debt, what is transient and what is eternal. now, you have or rather the cbo's office has in january put our their budget and economic outlook projections. and if you look into that and see what is seen and what is not seen but public debt will reach 79% of the economy by 2025. and this is a question i've asked before and answers are always no i assume you'll say the same thing. when the cbo takes into account the potential for other things do they take into account other things when they come into those projections or just work off of a baseline? the answer is yes they work off of a baseline or do they take into account for such things as potential for future war potential for emergency military spending that we just can't

foresee? the answer is? >> no. >> right. do you take into account or did they take into account with those projections future recessions that may come in the future and the answer is? >> no. >> no. because you can't see them now. do you take into account future large expenditures for new government programs that we just haven't even thought up yet? and the answer is? >> no. >> right. so we've seen and what we get as a report is only what we hear and now and know, but those other things are not considered in the actual report, is that correct? >> that's right. >> so if any one of those or all of those things occur the actual projections would be what? a lot -- >> different. >> different. and actually if you did those expenditures on future wars, future recessions not only different they would be how would we classify them worse off i would say. >> right. >> what other ones do we take into account the interest rates are not as projected but they are because of these factors or other factors could be higher

than what we're projecting now. >> actually, on that one i'll tell you yes because the long-term budget outlook one of the things that we do to worry about just exactly what you're talking about as we go through some scenarios what if interest rates are higher, what if interest rates are lower to give you an idea of how our forecast changes. >> i thought your idea was going to be yes on that. so if the cbo forecasts are correct in ten years we will be spending $827 billion on interest payments alone, give or take a billion dollars is that correct? >> yes. >> and how much could we be spending -- or what could we be doing with that $827 billion if we were not spending it just on interest payments to investors and banks? >> not my decision, but -- >> in other words the answer i guess is we would be spending a lot more on all the other things we talk about spending on whether it's infrastructure or health care costs. >> right. >> or if you believe in educational costs all those other things could be funded by it.

but we can't because we'll be spending it on -- >> on the debt. >> on the debt and interest payment. and also in this report the cbo projects federal tax revenue will grow, so upside by $3.2 trillion over five years up to $5 trillion and 25%, that's an average over 4.5%, 4.67% is your ne caveat. we assume there's no change in marginal tax rates from inflation. so we have the bracket creep in there. and whether or not you think that bracket creep would be allowed. >> so things could be actually a lot worse? >> that's right. >> again but even if they stay the same our projections on spending side are what? worse than that we'll be spending more than that increase in revenue so we'll be continuously getting into a worse situation than we are right now is that correct? >> yes. >> so the seen is what with know as far as what we spend. the unseen is what? the eternal. and the eternal in this case is

on our children and our grandchildren and what we can actually foresee is a future increasing debt and an eternal debt for them of a less prosperous and growth of economy for our children and grandchildren, is that correct? >> gentleman's time has expired. dr. hall, i want to thank you for appearing before us today. please be advised members may submit written questions to be answered later in writing and those questions and your answers will be made a formal -- a part of the formal record. any members who wish to submit questions for the record may do so within seven days. we look forward to working with you in the months and years ahead. this committee stands adjourned.

earlier today president obama talked at the g-7 summit. tonight we'll show you the news conference as the president also answered questions on combatting isis cyber security and immigration policy. we'll have that at 8:00 p.m. eastern on c-span. and tomorrow a hearing on the current challenges of the transportation security administration with testimony from a homeland security inspector general and a former

tsa official who's written several stories about his tenure with the agency. the senate homeland security committee holds the hearing, starts live tuesday 10:30 a.m. eastern on cspan3. next, the senate natural resources committee holding a hearing on drought conditions in the western united states. and what the states are currently doing to address the problem. this is two hours.

good morning. we're calling to order the full committee on energy. welcome to everyone this morning. we're meeting today to discuss drought conditions. i don't know about the rest of you but i was completely dumped on yesterday. i'd never seen any rain so hard. but i was thinking about drought as we were battling the wet here. but truly the drought conditions that are facing the wesh united states have garnered the attention of so many of us. much of the west has been in varying degrees of drought for the past 15 years now. according to a survey released last week by the u.s. drought monitor approximately 57% of the west is now experiencing moderate to exceptional drought. all or part of nine states in

the worst shape range from severe to exceptional drought. the impacts are significant. california in the midst of its fourth year of severe drought has for the first time imposed mandatory 25% reductions on water use by residents and businesses. many farmers in california continue to face unprecedented reductions in water delivery by the bureau of reclamation and the state which are often their primary sources of water. these farmers have contracts with reclamation in the state, but today in the absence of water their livelihoods are being dramatically impacted. drought is leaving behind hard decisions for these folks decisions where they're saying which fields do they lay fallow do they change the certain crops that they plant, do they plow under crops such as fruit trees? i was out in fresno several months ago and saw whole fields of beautiful citrus trees healthy citrus trees that were

literally bulldozed over because there was no water. in certain cases the drought has led farmers to go out of business entirely. of course the impacts are not just on our farmers with some communities no longer having running water and individuals in farming communities losing jobs. now, there's much discussion regarding what drives water release decisions in the state. during the course of the state's four-year drought, for example many have said that the large amounts of water that had been released at various times and in various forms or held back from release have been done to ensure protection of fish at the expense of cities towns and farmers. indeed we've heard repeatedly that farmers in the state use 80% of the state's water. so the question needs to be asked, is that accurate? my understanding is that the california department of water resources has reported that statewide water use looks more like this, 10% urban use, 41% agricultural use and a majority

of 49% use for environmental management wetlands delta outflow, wild and scenic designation and instream flow requirements. so one of the very real questions we should discuss regarding california's circumstances and potentially elsewhere is to what extense is the very important balance between water for fish under state and federal law being given equal legal support for that of water delivery to meet the needs of people in cities, towns and farms? and if the balance is not equal, then why not? are there regulatory imbalances? and can the federal government be helpful in addressing imbalances? elsewhere in the west the situation while perhaps not quite as dire is trending that way. in washington state the governor declared a statewide drought emergency on may 15th. in oregon the governor has declared a state of drought emergency in seven counties with another eight requesting designation. across the colorado river basin where 40 million residents in

seven states rely on water from lake powell and lake meade on the colorado for industrial residential and agricultural needs. the drought in varying degrees has been a fact of life now some 15 years. and the strains are starting to show. most notably at late immediate where lake levels have fallen 130 feet in the last 15 years. at the current rate in the next few years users in arizona and elsewhere could see reductions in their state allocations under the colorado river compact. hydropar operations at lake meade and lake powell could also be curtailed in coming years. i've mentioned in this committee and others potential hydropower impacts remind us of the very strong neckxus between energy and water and that's something i'm watching and very concerned about. in the face of the challenges stemming from drought, water

users, federal and others are working to deliver water where it's needed. these actions include state and federal officials working to facilitate together and farmers delaying the date of delivery. of course many have turned to groundwater consumption to meet their needs. so there's some hard questions i think is that need to be asked here. are current actions sustainable in the face of multi-year droughts? are all effected parties given sufficient attention to long-term planning and related actions? and what is the federal government's most appropriate role in addressing longer term solutions, given tight budgets and that much of whans with water in the west is actually managed by the states. are there innovative efforts on the ground that should be replicated? and then also what new ideas for water storage conservation and use might we consider? we've got an impressive panel of witnesses here today.

in particular i look forward to hearing from those who are on the ground and how they are meeting the challenges. i look forward to everyone's thoughts on how we can be helpful here. i'll turn to my colleague senator cantwell. i will note to the committee that we have a vote scheduled at 10:30. so we will keep the committee going and just ask members to go out and vote and then come back. but i'd like to turn to senator cantwell. >> thank you. i'd like to thank chairwoman murkowski for scheduling this important hearing. as you mentioned in my state the governor has declared a drought emergency as been declared in 11 other states. we hope to use this to understand the magnitude of the impact of these droughts across many of our western states. i want to emphasize too that we hope to have a robust discussion today about solutions, things that we can do and things that we can plan for in the future.

what is working what is not working, what are the federal government actions that need to be addressed to face drought issues over the long term and if drought conditions are likely to become the new normal, what to we need to do to usher in a new era of solutions? this year many states are experiencing the warmest winter on record. in my state snow impact at the mountain level, which keeps our river flowing in the spring and summer, are now at 9% of normal levels. and 11 snow sites monitored by the department of agriculture were snow-free this year for the first time ever. for example hurricane ridge chrks is one of the most visited parts of our state in olympic national park is normally covered in feet of snow this year and is completely snow-free. it's actually a pretty startling sight to many washingtonians.

78% of the state's streams are running below normal and runoff is projected to be the lowest it's been in 64 years. on may 15th the governor declared a statewide drought emergency has been working with communities to mitigate the impacts particularly in rural communities which have been hard hit. in the basin which is the state's most productive agricultural region, irrigation districts are rationing waters and farmers are facing significant cuts. the washington department of agriculture predicts the crop loss could be as much as $1.2 billion this year. so i want to make sure that our federal agencies are working hand in hand with the states to provide relief and assistance and to try to address this issue moving forward. meanwhile, our communities are bracing for a severe fire season, which also will provide many challenges. so it's very important to me that we look at responding to the long-term changes that are before us in the ways we do

business in managing water in the midst of this major crisis. and that we think about the paradigm shift that is in front of us as we face these warmer seasons. we need to develop 21st century strategies for water management that not only respond to the drought conditions of today but prepare us for an uncertain future. this requires new ways of thinking and collaboration which means exploring all options not just incremental change at this point in time. i think the basin in my state is an example of long-term water basin planning, which hasn't been done in the past in which interest groups from farmers to fishermen to tribes to environmentalists are working together to try to implement the best plan over the long term. but i think there are four areas we should consider moving forward. one, we need more collaborative water sharing agreements. just like with the basin this empowers communities to take

action at a local level and be part of crafting solutions. second, we need to be more flexible in drought operations. this includes the way we build, manage and finance storage and other infrastructure and how we support those efforts at the local level. i know a lot of people don't even want to talk about storage because they start thinking about how long it takes to get it permitted and authorized. i'm not talking about rolling back any environmental laws, but i think we have to think creatively about how we build storage now. we need to do even if that small scare storage is what is being done with the basin project. we need to do a better job with science and technology. i'm amazed what israel has done as a country to have such low water resources and yet continue to be such an agriculture producer. we need to make sure we're employing new technologies that deploy efficiencyies from everything from hydroelectric dams to agriculture to our

homes. and finally we need to do a better job of planning for the future instead of just simple pli reacting. i hope, madame chair in the future we could get some of our climate scientists from oakridge. i know senator alexander is a member of our committee who they have incredible science on what will be impacting us. as a nation they have the modeling i think we should look at what these new normal conditions mean to us as a nation because i think we can see what the economic impact is going to be from an agriculture perspective. and i think it's going to be great. so i think we need to do a better job planning for the future. we need to do all that we can now at the federal level to be flexible in our response to get the right kind of investments to help ensure that our states can deal with these and that our communities will be better protected in the future. so once again i thank you for your leadership in having this hearing. i look forward to hearing from the witnesses including tom

lorenger and i look forward to hearing from all of the witnesses today on this important topic. >> thank you senator cantwell. with this we will begin hearing from our witnesses this morning. again, very distinguished panel. thank you all of you for being here. the lead will begin with michael connor followed by mr. thomas, the director of the water planning division for the arizona department of water resources. thank you for coming from the west to be here. also from the west from washington we have mr. tom loranger from washington state department of ecology. he will be followed by mr. james

ogsbury. so giving us the view from the western states there. mr. cannon michael is the president of bows farm on behalf of the family farm alliance welcome to the committee. and wrapping up the panel is miss betsy cody who is a natural resource policy specialist at crs. so we welcome all of you. and with that mr. connor we will lead off with you. and when the vote is called you will see various members of the committee leaving but i would ask that we just move through the system here this morning. i know that you have a hard stop at noon, so we want to try to accommodate that. so five minutes testimony and full written statement will be incorporated as part of the record. mr. connor welcome. >> thank you chairman, members of the economy tee. i'm mike connor, deputy

secretary of the department of interior. thank you for inviting me to testify on the serious water resource issues effecting much of the west. i will briefly lyly summarize my testimony. the department is acutely aware of the worries concerning families, farmers tribes, businesses, cities and the environment throughout the west. we are committed to doing all we can to address the situation. we understand the implications for western communities and the need for continuous action to build long-term water supply reliability and resiliency. given the current and future impacts associated with climate change and otherh stressors, we have no choice but to adapt. to that end the department has taken a multifaceted approach to assist western communities impacted by drought. the department has instituted a multi-pronged strategy that encompasses short, medium and long-term dimensions. given the significant

infrastructure owned and operated by the bureau of reclamation and urgent response requires immediate focus on day-to-day operations. taking any and all actions to effectively manage water and maximize supplies for human use while maintaining environmental conditions necessary to protect fish and wildlife as well as protect the interests of other water users. this year the fourth year of a historic drought in california litigation has been minimal while federal agencies state agencies, water users and governments worked together to share limited water supplies. the collaboration and cooperation has been as historic as the drought itself. beyond addressing the current crisis we're also making strategic investments to stretch limited supplies and minimize conflicts over the next several years. as illustration just two weeks ago secretary jewel traveled to los angeles where she announced a total of $49.5 million in grant assistance to co-fund a

host of locally driven water conservation projects urngd the water smart program. these joints joined hundreds of millions invested by this administration and sportded by congress to help families across the west confronted by the historic drought. finally, we continue to assess and plan for long-term directions to secure agreements in infrastructure and technology investments needed to address unsustainable water uses that are the source of significant conflict today. and likely to get worse in the future. the department views this as an all hands effort with actions occurring across the department. the national park service, bureau of management bureau of indian affairs and geological survey all working aggressively with partners. dovetailing with other agencies as part of administration wide national drought response partnership. form a line across the government to help communities manage the impact of drought. these efforts rely in no small

measure on a broad array of stake holders. conservationists, farmers, ranchers and so many others from california's central valley, from grazing lands and timberlands and parklands in indian country collaboration is enabling flexibility to reduce water consumption, prechbt water loss, preserve endangered species, protect recreational assets and our experience has taught us however that to be successful umt matly we must be dedicated and commit for the long term. take the colorado river basin as an example. that basin has been the beneficiary of collaborative efficiency measures for the last 15 years, most recently though the intentionally created surplus program developed in 2007 with the seven states as well as agreements forged in 2010 and 2012 with the mexican government through those efforts approximately 1 million acre feet of water has been conserved effectively delaying the time at which we'll reach critical levels in lake meade.

unfortunately the drought continues to outpace our conservation efforts and potential shortages in the lower basin are now possible in 2016 and 2017, underscoring the need for continued collaboration and extraordinary operational measures into the future. successfully confronting the challenges of drought will take considerable investment in ongoing commitment. the department and this administration will not lose focus on our duty to help western communities dealing with drought. we know neither the federal government nor the communities we serve can simply build, conserve recycle or regulate our way out of these challenges. rather, we understand the need to take a multifaceted long-term approach to diversifying our western water portfolio and working to achieve lasting results. thank you for the opportunity. i look forward to your questions. >> thank you deputy secretary. >> good morning chairman, ranking member cantwell.

i'm with the arizona department water resources. thank you for providing me the opportunity to present arizona's testimony regarding out in the west. its impact on my state, our form lay if offsetting km mitigating drought impacts in the role of the united states. the arid nature of arizona reminds us of the value of every drop of water we have. we use about 7 million acre feet of water per year and sources 40% from the colorado river, 40% from ground water 17% from in-state surface water sources and 3% from reuse of reclaimed water. arizona has created institutions that provide certainty. it took political capital compromise and hard choices over many decades to create the projects laws regulations intrastate and interstate agreements that effectively manage our water. the result was worth the effort. we enjoy a high quality of life and vibrant economy and will continue to do so even in the

face of this drought. despite arizona's successes where supply uncertainty and water vulnerability remains, managing is a part of arizona's history and continues to be a key strategic goal for our state. drought on the colorado river is at the top of our list of challenges. arizona will lose 320,000 of its 2.8 million acre feet colorado river allocation when a tier one shortage is triggered. we'll know in august 2015 if shortage will occur in 2016. the probability of a tier one shortage in 2016 is 33% and increases to 75% for 2017. arizona shoulders the brunt of the shortage, about 84% of the total taken by arizona, nevada and mexico. if lake meade continues to decline, arizona will take larger reductions while california will continue to take no shortage. another challenge for arizona in the lower basin is an issue referred to as the structural

deficit. it's caused by the volume of water released from lake meade for beneficial use, evaporation and delivery losses exceeding the volume of water entering lake meade from lake powell even in a normal year. as a result lake meade's elevation drops about 12 feet per year. greater than normal colorado river flows into lake meade help offset structural deficit impacts, but the drought has reduced that likelihood from happening. despite the impacts uncertainties and vulnerabilities i have described, arizona is not in a water crisis and is well-situated to deal with the drought. an outcome of good planning and managing the 1980 ground water managing and its prodigy. it contains carrots and sticks. agricultural acreage is capped and new housing must have a 100-year renewable water supply. municipal providers required to have drought managing plans. the act incentivizes saving water, under ground storage

programs allow water to be stored underground and recovered later resulting in the storage of 5.6 million acre feet and another 3.4 million acre feet by the arizona water banking authority dedicate today back -- dedicated to. another 600,000 acre feet for nevada in the 2,000s. maintaining the resiliency arizona enjoys today will be a challenge. first, the secretary of the interior water in the lower basin of the colorado river should continue to be an effective partner in creating and implementing collaborative actions with the seven basin states to create a sustainable colorado river. however, it is imperative that any actions of the secretary or the united states to drought stricken california not reduce arizona's flexibility to manage its own water supplies arizona already takes the lion's share

of colorado river shortage federal actions that might further impact arizona are not warranted and it would not be equitable equitable. second, the reliability and sustainability of the river is critical to arizona indian tribes and to the united states as trustee for those tribes. essential arizona project water is key to existing and future travel override settlements in arizona. third, there's a need for augmenting the colorado river recognized in federal legislation and reclamation water supply and demand study and arizona strategic division for water supply sustainability. last, arizona would like to see additional opportunities for federal support of programs that conserve water that will benefit the entire system rather than one particular user, especially considering how much some users like arizona have already done. thank you again for the opportunity to provide you with a snapshot of the arizona experience. >> thank you. appreciate your comments. let's go to mr. loranger.

>> madame chairman, members of the committee, thank you for the opportunity to testify today. i'm the water resources manager with the washington state department of ecology. as senator cantwell mentioned, current snow pack levels in washington are 9% of normal. this is the lowest we have on record. because of the low snow pack, rivers with diminishing flows and irrigation districts already cutting off supplies to junior users, governor declared drought in washington in may. with the state's drought declaration relief can be provided for those experiencing hardship and to improve flows for fish. regarding agriculture in the state currently difficult decisions are being made about what crops get priority water and how best to save fish. as chairman murkowski mentioned the washington state department agriculture anticipated $1.2 billion crop loss in the state this year. the basin where the bureau of reclamation has built multiple storage projects the drought means less water is available for junior water users. in the last two weeks we have

already issued 30 emergency drought well permits to junior users in the rosa irrigation district in the basin. little spokane basin and other basins in the state we've sent out curtailment orders already to junior users. in the wall la wa la actively working with water managers to develop leases and provide pulse flows for struggling salmon. regarding communities in the state the largest municipality, seattle, tacoma, everett, taken proactive steps to restore water. particularly the smaller community systems may experience problems. the drought response funding from the legislature will allow communities to rehabilitate or deepen wells as needed or

construct interties with adjacent systems like we did in the 2005 drought. regarding flows for fish on the olympic peninsula we've committed 13 leases already where farmers will let 1,000 acres of farmland lie fallow. in return flows will be improved particularly in that critical late-summer period. we're also in the process of leasing water from the kititash, very sensitive very important to salmon in that basin. right now in the walawala both irrigators use and passage are effected. so currently partners are shifting flow from creek to creek to aid struggling salmon right now. chinook and bull trout as well. so challenging time for fish and farms in washington. so key to the successful implementation of emergency drought response in washington is the work we've done actively

developing collaborative partnerships in these key watersheds like the yakamaw like the walla walla, other water managers federal government, it's a new way of doing business where we have irrigators supporting flow enhancement enhancement projects for fish we have fishery interest and tribe supporting. from these partnerships we've developed minimum flow requirements flexible mitigation strategies and lease arrangements that make it easy to shift water around when we have to rapidly during drought. few examples, we've developed leasing regiments to shed water for irrigation and provide while land lays fallow, all parties have agreed to a flexible mitigation approach to these big drought wells have mitigation water not up front but later on

in the season. the integrated strategy was developed working with all of these partners. when funded it will expand the reservoir capacity in the basin improve facility operations and improve fish passage and fish habitat providing more water for these critical drought periods. in the dungeoness agreed to voluntarily reduce their water diversions during these drought periods and periods of low flow. this is remarkable given that their water rights allow them to take more water. these irrigators are also entering into lease agreements so water can be left in the stream during these critical drought periods. and the wallawalla, all moving water around to protect fishery and ensure use for irrigation. yumatilla, trapping and collecting fish. thank you. >> thank you.

welcome. >> thank you chairwoman murkowski, ranking member cantwell. i'm the executive director of the western governors association, an independent nonpartisan organization representing the governors of 19 western states and three u.s. territories. it is an honor to appear before you today to discuss the critical issue of drought. well over a year ago nevada governor and current chairman of wga brian sandoval announced his attention to devote his energies as chairman of wga as critical issues of drought. this applauded by the western governors because as an issue it speaks to the strengths of wga. it's timely actionable it's bipartisan. it's a top priority of our governors. and unfortunately it's a perennial concern in the west. it's designed by governor sandoval the western governors drought forum is an effort that speaks to the pragmatic nature of governors who as chief

executives are focused on practical common sense solutions to state and regional challenges. i will not belabor the severity of the present drought or its impacts. you and other witnesses have established that case. and there's been extensive coverage of the drought's impacts on california where snow levels are now zero percent of normal. and the snow pack of the sierra nevadas has officially disappeared. these severe conditions however are not limited to the golden state. washington governor jay insly as you've heard declared statewide drought emergency on may 15th citing the fact on the olympic peninsula where there should have been 80 inches of snow there were instead glacier lilies in bloom. governor kate brown of oregon i believe has declared drought emergencies now in 15 counties. early may snow pack levels in the boise river basin of idaho were the fourth lowest on record since measurements began in 1940.

western governors have individually taken desissive actions to prepare for drought and manage impacts. california governor jerry brown issued an executive order on april 1 on april 1st mandating a 25% reduction in mun is malwater use. state's participation in the integrated water resource management plan which will empower water users in a rich agricultural area to reduce the risk of drought to agricultural areas and the government 37. the forum is a multifaceted earner prize that has hosted webinars. for officials in water managers to share drought management best practices case studies and innovations. wj hosted a series of workshops throughout the west, each of which focused on drought's

impact on a particular economic sector including energy agriculture, mining, manufacturing and tourism, the lessons learned from these and other activities have been memorialized in an online resource library, and will be summarized in a report issued by the governor's later this month at the annual meeting in lake tahoe. in wrestling with drought, western governors have enjoyed productive partnerships where the government. they provided leadership for the recent reauthorization of the national integrated drought information statement. this has led to continuing work with the national oceanic and atmospheric organization to support the resource decisions of the states. wj supports the cooperative water program and national stream flow and information program of the u.s. gee lodge can survey, as well as the snow

survey activities of the natural resources conservation service. this programs provide valuable data and information to inform state water resource decisions. wj recognizes the value of state federal partnerships. the collaboration to craft a unified operation plan in california led to an expedited water transfer process among other benefits. wj recognizes the importance of infrastructure investments, the value of streamlined permitting for infrastructure and the significance of federal support for state and local water crews. this committee is investing in the issue of drought and look forward to working with you to craft solutions to apply the substantial resources of the federal government and respect the authority and expertise of states to manage water within their boundaries. thank you for the opportunity to appear here today.

>> thank you. >> mr. michael welcome. >> good morning, 50id like to first of all thank the committee for this opportunity to be able to present on this important issue of the west wide drought and thank the committee for taking the time for the attention on this matter. i'd like to thank chair woman her cow ski for the leadership roll she's taken in this effort and also for her recent visit to california to see the conditions for herself firsthand and i greatly appreciate your comments that you started with, it means a great deal you've taken it to heart and learned so much. i would offer anyone in this room the opportunity to come to our farm for a visit to see conditions for yourself firsthand. i'm here today representing the family farm alliance, we're a grassroots organization comprised of farmers, ranchers irrigation districts and industry groups that have representation through the 16 western states, the main mission of the alliance is to provide

the -- ensure the availability of reliable affordable irrigation supplies for farmers and ranchers. my name is cannon michael. i'm the sixth generation family to farm. my great grandfather came over from germany in the 1850s and through a lot of hard work became a successful cattle rancher, we are still fortunate to farm some of the land he settled on. i live on the farm with my wife and three children. as i sit here before you, i am now awaiting a decision, which has just come up in the last few days, which may take that number to 80% or higher. we mentioned regulations for fish a little earlier. the sole decision that may change my allocation in the farm this year, is based on temperature modelling for fish only. there's not enough now that's been discovered -- not enough cold water available for storage

in fish. and that may eliminate all the collaborative work that's been done for different water users this year. a very disturbing time for me and my family. throughout the last 15 months there's no denying in the last four years that hydrologic issues have been plaguing california. in the last 15 month period, there's been significant rainfall events. very precious at the time of this critical drought. what we've seen over and over again, is the uncaptured part of the rain events has floed out to the ocean and not be able to be captured by our water system. california relies on an engineered water system that moves water through the sacramento san joaquin delta where two thirds of the waterfalls in the north part of the state. two thirds of the population is in the south part of the state. now with this layering of regulations we've seen, we've

seen all flexibility be taken out of the system, i would ask today as the federal government, you have the opportunity to ensure that regulations when they are in place are implemented with some balance and some accountability, it would be one thing to me if these last years of regulation and limitations did we had seen some improvement in the fish species, but we're not seeing that there needs to be a clear look at those regulations and they need to have accountability, and they need to have balance. quickly on the impact i want to make the point quickly, one fallowed acre has an extreme impact over a large area it's not just the income to a farmer, it represents loss of work to my people on the ground. if i don't run the tractor on that ground, it means i don't buy tires parts, fuel. all those associated zres that bring me those products they also suffer. it means i don't produce an actual product off that grounds. that product doesn't go to a processing plant, a supermarket

it doesn't stock those shelves. come out to something else that may be transported across the nation or the world. i may not take any financing, it affects the banks. it's a large ripple effect. and we have over 800,000 acres being fallowed this year. the economic impact is huge. we've also seen food prices rise, we're taking away sources of healthy fresh fruits and vegetables from people that we have been telling they need to eat more of those types of products. 10 to 15% may not mean a lot if you have a disposible income. it means a heck of a lot if you have a difficulty providing for your own family. we cannot take these products away from people. they produce food and fiber in the most environmentally and ethically friendly ways in the world. if we do not follow the regulations that we are underneath, the l.a. times recently did an excellent expose on mexico, where we are relying

on them to get to food. they do not have enforceable penalties. everyone uses a lot of water every day, we all rely on water, so we need to decide where we want those products to come from. every time you eat, you're consuming water, every time you put on your clothes, you're consuming water. do we want water to come from places like california water products to come from there or other countries? we have to start figuring out solutions and have accountability for environmental regulations. we need leadership from the federal government, we need your help, and i'm asking for that today. thank you. >> thank you. i appreciate the personal touch you have give tonight issue. finely let's go to miss betsey cody. >> thank you for the opportunity for crs to testify today on

western drought conditions. my testimony includes a discussion of potential options to address drought challenges. crs does not take positions on legislative proposals or make recommendations from the congress. while more than 20% of the united states is experiencing moderate to exceptional drought. much of the drought is concentrated in the west. although there have been slighter improvements in some areas, precipitation have resulted in returnoff in other areas. the short term seasonal outlook is it for these trends to continue in the far western states especially. long term predictions those more than three months are more difficult to make. especially on a regional basis. chief among the challenges for western states is managing scarce water supplies and ensuring public health and

safety and other effects as you've heard from many of our panelists. states and local water entities typically lead efforts to prepare for a drought. i think you've heard excellent examples of that today. due to their primary role in water allocation. even without drought, though 80% of state water managers expect water shortages weren't next decade. key concerns range from population growth and lack of information on water availability and use to potential impacts of climate change and effects of extreme weather events such as floods and droughts. the bureau of reclamation faces similar challenges, especially for its large multiple purpose projects, that involve balancing multiple objectives across large areas. challenges in the colorado river basin and the central val eye of california and to some degree