when congress is in session, c-span3 brings you more of the best access to congress with live coverage of hearings, news conferences and key public affairs events. and every weekend, it's american history tv traveling to historic sites, discussions with historians and authors and

eyewitness accounts of events that define the nation. c-span3, coverage of congress and american history tv. at 3 p.m. eastern today the american enterprise institute will look a survey on american views on k-12 education and some issues being discussed nationally. you can see that live on c-span2. in the meantime on c-span3 we're taking the opportunity while congress is on break to show you some of the american history tv programs that are normally seen only on weekends. at 8:00 p.m. symposium on william f. buckley's view on american conservative. at 9:25 p.m. james baldwin's significance in american political thought. at 10:45 principle ton university president on race in america. on c-span today's announcement by new jersey governor chris christie that he's running for the presidential nomination. you can see his comments beginning at 8:00 p.m. eastern.

in omaha and in the united states as a city that when you came in if you were black, you needed to keep your head down and you needed to be aware you weren't going to be served in restaurants, you weren't going to be able to stay in hotels. when the de porres club began its operation, they used the term social justice because civil rights wasn't part of the national lexicon at that time. the idea of civil rights was so far removed from the idea of the greater community of omaha or the united states, that they were kind of operating in a vacuum. i always like to say they were operating without a net.

there were not those support groups. there were not the prior experiences of other groups to challenge racial discrimination and segregations. >> we look back to the union pacific and how the construction of union station helped omaha's economy. >> union pacific is the -- one of the premiere railroad companies of america. it was founded in 1862 with pacific railway access law signed into law. it combined several railroad companies to make union pacific and then they were charged with building the transcontinental railroad that would connected the east and west coast. so, they started here. was moving west and central pacific started in -- on the west coast and was moving east. and they met up in utah. and that's really what propels us even farther. we become that point of moving west. one of the gateways to the west. >> see all of our programs from

omaha saturday at noon eastern on c-span2's book tv and on american history tv on c-span3. chief financial officers talk about major financial. this wall street journal annual meeting has xhiss policy holders and regulators. finance director keith higgins. >> you're head of corporation division of finance? >> i don't have a badge. that's one thing i wanted but i didn't get it. >> proxy access, is it a great

step forward for american democracy or a trojan horse that will destabilize the capitalist system as we know it? >> none of the above is an answer. look proxy access was a rule the commission adopted back to my time. the court struck it down so since whenever it was, 2009, there hasn't been a federal rule on proxy access. companies have -- making sure that they -- begun to do it in pretty tall order. there were proxy access proposals filed at companies. they've had a variety of successes. >> variety of successes, you mean getting it adopted? >> exactly, getting it adopted.

some companies have put it in voluntarily, recognizing that it's -- that it's something that -- from a shareholder relationship point they're happy with rate parameters put around it. >> is it a current objective of the s.e.c. to make proxy axe ses in some form is put in place? czink the s.e.c. is relatively new -- neutral. >> the s.e.c. rule was struck down. there hasn't been a move to put another rule in place. they also said it's a proper subject for shareholders to present at an annual meeting so shareholders can vote on whether or not they want proxy access. you know we've been pretty diligent in making sure that that happens. i don't think we have a horse in the race. it seems to be happening. some companies are embracing it. many are not. where it stands right now, it's an issue for shareholders.

if the shareholders want it -- can you talk about -- i know i'm never going to get real numbers out of you. >> why not? >> please give us what you think is the precise recipe for amount of shares owned and ownership for which shareholder would qualify for proxy. >> the short answer you're not going to get. because it's going to depend on the facts and circumstances. what the institutional investors advocating are saying is the gold standard what the s.e.c. had back in 2009 or whatever, '08, or whenever the rule was passed. >> that standard is three and three? >> three years, 20% of the board, i think, was the 20% 25% of the board and other bells and whistles on it. vanguard came out saying they would support a 5% access.

fidelity stated they didn't believe in proxy proposals at all. it was intgs to read an article in which fidelity, who owned a substantial holding in one company voted -- presumably voted against a proxy access of proposal. it's want proxy access? i think each company is going to be different. the s.e.c., i should say disclaimer applies and i'm speaking of only my views. they don't -- >> as far as you can tell there's not an express effort by the s.e.c. to push forward proxy access. >> we want to let private ordering work.

if shareholders want proxy access, the position at the commission is we ought not to do anything to stand in the way. >> let's move to hot topic, i don't think there's any topic that gets this group more excited. i just have to say the letters, iss. iss, iss, iss, talk to us about iss. >> right. proxy advisory firms are -- have been a hot topic. we know that. the commission held a round table about a year and a half ago about proxy advisory firms. the two issues they focused on is one is an investment adviser issue. the other is conflict of issue. what's the obligation of an investment adviser to help with

proxy voting. to make sure that the firm is acting in the best interest of the client of the adviser. >> the s.e.c. put out -- what's the best way to describe -- >> staff legal bulletin. providing guidance. on what the staff believes is the right way to think about these issues. on the question of what's the responsibility of investment advisory firm, there was an old saw that the investment adviser must vote every share on behalf of the client. the reality is they must follow the instructions. if the client says, i want you in every -- we made it clear. if the client says every time a meeting comes up, vote with

management unless we tell you otherwise. that's perfectly okay because the adviser's obligation is to the client. the fear was that advisers because they were told they believed they had to vote every share. you got a thousand proxies to look at in the course of a year. >> if you're fidelity even more than that. >> that's right. they have a big outfit to do that. small advisers have tougher -- they don't have as much overhead to devote to it. you can't have a set it and forget it policy. you need to monitor activities of the proxy advisory like any sub-adviser to make sure -- >> can the shareholder say, i don't want you to vote anything until i express -- pretty easy

for an adviser with a public mutual fund. where the mutual fund board is the client. that's going to be a little harder to -- you're not talking about mutual fund shareholders -- >> i meant both. on the other side of it, conflict of interest? >> yes. there was a concern that one of the advisory firms who will remain nameless has a consultant in which they provide advice to companies about the very matters that are often the subject of shareholder votes. nothing stuck in the krau of companies more than seeing that happen. quite frankly, if you were the company hiring them -- >> is it necessarily your issue? >> exactly. >> why you want to necessarily disclose the conflict. it wasn't entirely clear -- i think the perceived problem is

it felt that the firm was using its consulting business and leveraging its advisory business -- >> is that true? >> i don't know. we haven't investigated that. what we said is it's not enough in making conflict to your adviser. it goes to the proxy adviser client. you need to tell exactly when you have a significant ruling. >> the end result -- a group of ceos most powerful in the company. the end result out of this is what? >> the end result is that that'ss as far as the staff believed in providing interpretations of the existing rule. that's as far as the staff believed it could go in providing advice on how add advisers should work and how the advisory firms work. there have been other calls for, gee, there should be more

transparency. proxy advisory should have to explain their methodologies because we don't understand the black box they come up with in -- we understand it can be vexing. on the other hand, it's the client -- i mean, their clients seem to me to be the ones that ought to be asking. now, i know the companies are saying well, that depends -- that affects how they recommend votes on our say on pay packages. this has been a more aggravated progress because that gets tested at most every year. without commission rule-making that would require that i don't think there's anything the staff can do. >> let's move to another hot topic. there seem to be a lot of them. pay ratio disclosure. as you all know in dodd/frank

a requirement reporting companies -- i'm going to mangle the precision of what's required. maybe you can just remind them and then tell us where we are in the process of actually making this happen. >> right. the disclosure requires companies to disclose the compensation of the chief executive -- total compensation of chief executive officer. the median compensation of their workforce and ratio of those two numbers. so, it's not -- total compensation is disclosed in the summary compensation table which, of course a lot of people have issues with how that's presented because it includes a whole lot of things. set that aside. that number versus median compensation and show the ratio. it's pretty simple but biggest concern we've heard requires the

mean compensation of all employees. the way the commission proposal which was put out a year and a half, you know, getting closer to two years ago, expresses. >> some people want you to exclude -- >> foreign workers. they said -- first of all look, a lot of people don't think this disclosure is material information for investors, et cetera. it's meant a name in shame. we have heard that. it is the statute, the law of the land and the commission was directed to implement that. the commission came up with a proposal that in dealing with all employees, commission believed that the best way to read that is the way it naturally sounds but to provide as much flexibility as we could to allow companies to use statistical example of methods

to try to determine what the median compensation would be for a global workforce. we heard a lot of things about, you know -- >> so what does that mean? i don't have to put all 240,000 employees in a spreadsheet and ask them to find -- >> it's not that hard. >> the problem, dennis is that that -- the problem with that, i don't deny that these are concerns. different payrolls, different ways of paying people. i mean not everybody has a w-2 compensation number in the u.s. that you can come up with so companies rightfully said look, we want to get this right. we take our obligation seriously and if with really are going to do this right, it's going to be very very expensive for not a

lot of benefit. we hear those arguments. we try to do as good a job as we can -- >> so, if you're a cfo, you can say we're going to take a core sample and dig a few inches and that will be -- >> you don't have to find every employees' compensation in order to get to a median. when you read your newspaper and it talks about the median home price in the u.s., my guess is they don't take data from every single home sale over a period of time. there's a statistical sampling that gets done. that's what the rule will -- >> what's your advice to a cfo who has to go in front of her bothered in two weeks. on the agenda is pay ratio disclosure and supposed to present on that. your advice to them is what? >> my advice is the proposal is

out there. we just had what is the affect on pay rate ofdy minimum mouse amount of employees. my advice would be to bring in statistician, the hr people, before you go to the board and let's figure out a way that we can choose a reasonable methodology that will be as cost effective as possible. i don't think anyone thinks this has to have precision to the fourth decimal point. we've asked people to come up with a -- if the rule becomes effective, if companies do it in good faith it will -- >> okay. how would you judge the quality of financial reporting right now? we think -- quality financial reporting? i guess if you look at the number of restatements, they're

coming down, which i would -- is one indicator of a good sign. i think my decision reviews filings. i hope our folks are doing a good job in raising the kind of comments appropriate to raise and provide helpful, i'm sure you don't always think is helpful, but at least -- the least raised issues that are worth raising. we don't think when we make comments we don't -- we're not always going to be 100% right but we would like to be right most of the time. right in the directional sense of raising issues that are worth raising. we don't understand your businesses as well as you understand them. you're going to say they don't understand our business. we'll confess to that. on the other hand, we, we review filers, we review companies every year. and our folks are pretty good. and they're willing to be educated and willing to go back --

>> if there's only one or two issues that do crop up in terms of quality of financial reporting, what would you say they are right now? is it revenue recognition? >> for companies starting out, when we review ipos it's probably the single most prevalent we give on revenue recognition. as new transactions and types of transactions come about and as new accounting standards are adopted, that's always an issue we'll look at. segments remains an issue that we will continue to comment on. again, we'll mostly comment on it in young -- young companies making sure we get the segment right. when you do acquisitions or change of business and we want to look at segments. segments are obviously required under gap. we think they're useful and -- >> when you say segments -- >> reporting --

>> reporting -- >> for you it doesn't sound like huge issues. >> i think financial reporting is complex. businesses are complex. the one thing i'm sure everybody would like is if things were simpler but life isn't always simpler. and by and large, we think the companies we review on a regular basis, the large company companies, they're doing a good job. one thing is harmonize financial reporting standard around fris so give us the update on that. our division is the disclosure division. what jim has said recently on

ifrs is three principle things. one is there does not seem to be any huge cry for adoption of ifrs in the united states by -- at least by the filer community in the united states. maybe that's an understatement. >> is there a huge cry? do you guys want to do it or not? a lot of head shaking. >> right. there isn't a substantial amount of support for option filing in ifrs. on the other hand, we think there is still the principle that a single global set of high quality accounting standards would be in everybody's best interest investors, companies and the like. there's not a path forward on that. the idea is to continue to work -- work to harmonize where possible and jim has also floated recently the idea of

allowing, if companies want to present ifrs information in their filings are worried about them being nongap measures. >> it seems like the benefits greater to that of the nonu.s. company if companies were doing nonifus, access to capital markets, publicly traded companies is pretty well assured. so, what's the incentive for this audience of established companies to even take an interest in the topic? >> why don't you ask them. >> i mean, this is -- >> that's the question to ask them. i don't know. and i think that's sort of the observation that jim has made. >> one issue that did come up earlier today was around the issue of 13-d filing times, delays. the original rules were set up in the '60s. >> late '60s. >> different time, different era, different disclosure mechanisms. here we are, 2015, is it time we

speed up and perhaps make almost instantaneous 13-d requirements when someone breaches a threshold? >> certainly a point of view that we've heard expressed. we have a rule-making petition in on that. >> as we've said 13-d is a complicated area. we don't think it's just about reducing the amount of time. i think even back in '68 when the rule was first adopted it didn't take ten days to prepare 13-d to file. i don't think it's right to think about it in terms of how long does it take to file. now we have electronic filings and can't people do it quicker. there's a substantial group of people and believe the legislative history supports the notion that the ten days was specifically designed by congress to allow post 5% accumulations of stock.

of basically allowing stakeholders to build substantial stocks of lot. you can have them on both sides. we don't have -- again we don't have a horse in the race necessarily. on both sides, on the one hand, yes, this is good for all shareholders to have people incented as substantial block holder and others say it's unfair to stockholders. somebody crosses the 5% threshold and the rest of the people are selling into thatted bier -- buyer without knowing that person of massive state. that somehow seems unfair. it's hard to know is that the right number is it 2%? 10%? i think our view is that any solution to the 13-d issue needs

to be more comprehensively thought through. >> it will be guys out of the jobs by then. >> we hope know. >> they'll be ceo by then. it's about the inclusion of derivatives. somebody amassed an 8.9% stake totally with der rivertives. that avoids anti-trust. it's all -- i think it's not just one thing that can be done. look a lot of those that you might have read in the paper, neither confirming nor denying, there was thought the s.e.c. enforcement division was looking at group activity and were there are groups operating out there

in violation of the -- >> i was going to ask about that. why aren't there more -- >> you talked to serezny last year but the group needs to be looked at on the comprehensive view. maybe there are activity that ought not be happening. some concern legitimate stockholders have, if we decide to talk to management about our concerns, is that going to make us a group and what liability are we going to subject ourselves to? there's concerns on both sides. >> it seems like the overall -- if you have questions, you want to speak up, let us know. if you want to be more confidential, which perhaps is the best path here, you can send a note to john. >> happy to read off your address and e-mail and telephone number. >> hey, jack.

good. so mine's on pcaob. what gives? in fact a regulator, so we can't tell for yourselves what's going on with that organization. >> yeah. i don't mean to give bureaucratic shuffle. it is first seen by office chief accountant and his folks. we don't really have any -- in fact, we've heard that concern. i hear you. >> that sounded like a shuffle to me. >> that's a shuffle. >> i have to say the theme that comes from you is that this stuff is hard. it takes a long time. you have to weigh input from all stakeholders. >> it's definitely more complicated. look, i spent 30 years in private practice.

coming for the last years down to the s.e.c., you see a lot of things you never saw when you were representing companies and doing transactions and the like. what's the single best revelation when you write the title of your book? >> the shuffle. >> nothing that grand. >> come on. let's ask questions of this guy. >> one here anonymously. keith, what are your views on nongap financial disclosure? >> so nongap financial disclosures, the s.e.c. started off, you remember back in the days enforcement action on nongap and then a rule, reg g, where nongap measures were relatively disfavored. there was some sense that somehow that we weren't doing right by shareholders if we allow companies to do nongap. we've gotten a lot less

nonhawkish. the guidance we put out recently basically says look, as long as you're explaining things explaining why this information is useful to shareholders, have they used the information, and explain the adjustments you're making to gap, we want transparency. we understand, quite frankly, a lot of analysts a lot of people judging your companies on nongap numbers. it's crazy for the s.e.c. to be standing in the way of people properly valuing companies. we would rather have nongap filings. i think you'll find by and large, there was a celebrated ipo case which i won't name where i think we thought that that nongap measure was a bridge too far. it was sort of like, will you take out all the expenses.

that seemed nonright. i think our folks have gotten a lot more sensible about, you know, about how we look at it. and recognizing it needs to be helpful but we're not nongap. >> did we get to your polling question? i don't think we did. >> let's do that. >> let's do the first question. >> lots do that. we're interak ty here. >> great. >> get out your minis, please. >> late at night when i'm candid candid. >> get in the mood. you got to get in the mood for this question. i regard the accounting regulations and requirements of my company as? and you see the options. >> do you see the options on your mini?

>> mostly busy work. some value. so these are update. helpful. meaningless busy work. absolutely essential, 11%. >> somewhere in the middle. >> i think a little beyond middle, right? some are right in the middle. what do you think? >> we're not the accounting regulators. i guess my question would be we just apply the rules. obviously, you have to have accounting regulations, right? and we understand the fasb, it's a grown pretty substantially.

they're trying to get it right. >> if you had to go in front of congress and they said, keith, you can have whatever you want, tell us what you want one or two things, what comes to mind? >> i can have whatever i want? >> for your job. >> oh. >> what i would -- actually what i would like is for the commission to be able to get back to its historic agenda of investor protection fair and orderly efficient markets and facility and capital formation. and working on things that five independent commissioners believe are important for our financial markets. and, may get in trouble with congress on this, but i'm not sure all of the things that congress has done have really been all that helpful in setting the s.e.c.'s agenda. i've basically spent my two-year

tenure so far working mostly on congressionally mandated rule makings. some are very useful. >> the s.e.c. has become, my interpretation, not yours, it's become an order-taker -- >> congress -- i'm a civics person. congress is the legislative body. when they pass a law it's our responsibility to implement it. but it has been pretty breathtaking between dodd/frank and the jobs act what congress has directed the s.e.c. to do. and i think that the commission could probably set its own course in a way that would further its three-part mission. >> any other questions? keith, we gave you a little grief here. you were very precise but we do that to all the regulators. >> bureaucratics. >> you were thoughtful forthcoming and we appreciate

you being here. >> i appreciate it. >> we continue with "the wall street journal's" annual meeting of corporate ceos. over the next half hour white house budget director shaun donovan will talk about sequestration and the possibility of another government shutdown in the fall. he says odds are better than 50/50 that it won't happen. >> several fun facts about shaun donovan. i think he's known around the white house as shaun don, is that right? >> i wouldn't confirm or deny. it's true. >> his youngest son is a bass player in a band. he's designed part of his house as a trained architect and his father, michael just recently became a u.s. citizen after living here since the early '60s. >> that's right. 53 years in the u.s. >> quite amazing.

i want to bring up a word you probably don't like much. shutdown. >> a nice way to start. >> yes. harry reid talked within the last week of warning of the possibility of a shutdown. obviously, brewing behind all the other things going on at the moment is an impasse of sorts about spending for the next budget. i could summarize where it stands, but i'd be interested, is this really head negotiate direction where we could possibly in the fall see a shutdown because the divisions can't be overcome? >> i'm not going to rule it out. here's why. we have this word in washington sequestration. it's a word probably no other word human being outside of washington has ever heard of. to translate it, it was basically the cuts to the budget that were supposed to be so terrible that they were going to bring everybody to the table to make a deal. it was going to be -- pain was going to be equally shared,

defense, nondefense. it went into effect. it was terrible for our economy. lost 750,000 jobs. and republicans and democrats came together and fixed it through -- what happens this year unless congress acts, sequestration acts. that's really what the fight's about. >> the ticking time bomb. >> exactly right. and the president's been very clear. one of the things i think we've tried to do is be very clear about what our bright lines are in these negotiations so we can create space for where there may be a deal. so the president said right when we put out our budget in early february, he's not going to accept a budget that locks in sequestration. there's six more years of sequestration. i think everybody accepts if we don't get a deal here in the midst of a heat presidential campaign, we're not going to get into one next year. we'll have many more years of this.

he won't accept a budget. the translation is he would veto bills that are written at this see guest rags level sequestration level. at the same time some are saying, let's fix the defense budget and not what we call the nondefense budget. the nondefense budget is everything from the state department to homeland security to veterans administration, but also all of the seed corn of our economy, education, infrastructure, basic research all of those things would be heard if we just fixed the defense part of the budget. >> the president is okay in some ways raising defense spending but wants to raise other kinds of discretionary spending. >> he actually believes that sequestration is bad for our national security for the defense of the homeland. so, he is -- he agrees with republicans that we ought to do something there. he also agrees with an increasing number of republicans that we ought to be doing something on the nondefense side. the last thing i would say that often gets lost in these debates

is we want to fully pay for whatever we do in discretionary spending with smarter, long term cuts to spending on what we call entitlements, mandatory spending and on the tax side. that's where our fiscal problem is long term. right now this so-called discretionary spending is at the lowest level it's been in decades as a share of our economy. that's not where our fiscal challenge is. the fiscal challenge is really on the longer term, entitlement programs, tax side. we to want do what congress did a couple years ago with this so-called murray/ryan deal. >> you say it's possible this could all lead to a government shutdown. murray and ryan aren't in those positions. it's a repeat of that. a different setting. what are your odds that that actually happened or that we see something resembling a shutdown?

>> look i think the odds are better than 50/50 we get a deal because we're hearing more and more democrats and republicans come out and say that it's the right thing to do. speaker boehner said a few weeks ago he was open to a deal, rogers is head of appropriate operations in the house said the same thing. i think the problem is what we don't want is this governing by crisis we've seen too often from washington. we would like to get started right now. in fact, we're working with democrats to stop the progress of the defense appropriations bill literally this week because we think that's a key signal to congress that we've got to stop this scha raid we're proceeding on right now and get to a real negotiating table. what i hope we don't do is leave it to the fall near a crisis where it's a shutdown or last-minute deal. that's not good for anyone. >> i want to get to corporate tax reform. maybe we can bring up the first question if you have your ipad

handy there. which ranks as your biggest concern from a corporate point of view when it comes to the federal budget? people are fast answerers. complexity of the tax code -- okay. it's still coming in. federal -- growth and federal debt. people are only going for three? is there only three items there? so we had complexity of the tax code seems to be the winner. i don't know if you would have some view on that yourself. >> well, a couple things that are interesting about this. i think it does show the substantial progress we've made on the federal debt. we still have a ways to go. our deficits are now 3% below of gdp, which is kind of the

standard measure most economists use. we're below the 40-year average after having tremendous challenges just a few years ago. deficits come down by two-thirds. i think it's interesting to see how few of you are really focused on that piece. on the tax side, look the president agrees. really both of those things. the corporate tax rate and the complexity of the system, i think there's broad bipartisan agreement. the president has been clear and we're working very well on a bipartisan basis this calendar year to see if we can get tax reform done. >> tax reform of what kind? >> so, i think there's a chance for broad business tax rye form that includes both domestic and international. >> within the orbit of trying to get some highway -- revamped highway spending? >> our view, if you do this right, it is deficit neutral over the long run but it actually would produce some real savings in the first decade.

we ought to use that savings toward what people see as a critical need. we would increase infrastructure spending by 40% and get a six-year reauthorization of the highway trust fund. we've done a dozen different short-term extensions. look, anybody who tries to plan, you try to plan in your business lives, think about a governor trying to plan infrastructure investment with months at a time of the highway trust fund. it's not a way to manage. >> what's your sense of likelihood? i think the thing to watch for, i think there are good discussions happening, particularly as the trade debate has been front and center i think as it moved to the next big issue it's going to be around tax reform.

there's an extension till the end of july. the hope is there can be negotiations around a basic framework over the next couple months. and then an extension of the highway trust fund through the end of the calendar year to get time to really put together a comprehensive package on business tax reform. >> because so many plots playing out at the same time. we have the trade fight, we have the fight over spending and sequestration that you mentioned. the highway funding bill will come up. then possibly at the end of the fiscal year, some possible shutdown scenario. you can continue to move forward on corporate tax overhaul? >> look, sometimes, you know, bigger is easier not harder in washington. what i mean by that is that if you pull together the tax extenders that need to be extended, if there is some kind of budget deal at the end of the year with business tax reform

and the highway trust fund sometimes it's actually easier to get all of that done together in one deal. the heart of the thing, this goes to the answers we saw i think everybody agrees that we can bring the corporate rate down. that's part of the president's proposal. and with can make the tax code simpler. the problem is, one of your making the tax code simpler is taking away somebody else's benefit in the tax code. it's really when the rubber hits the road on what are the provisions that you're going to be eliminating to get to simplification that politics gets hard. i would say to your audience, to all of you here, if you really believe this is something we ought to do as a country, i think we're all going to have to stand up and be willing to give up certain tax breaks that may benefit us narrowly in terms of you know a particular industry, a particular product for the larger good which is to get a

simpler tax code and a lower rate. that really is the goal. not easy. it's been tried many times before. that's where the rubber hits the road when we start talking about what specific loopholes we're going to close or provisions that will pay for lowering the rate. >> now, you talked today and a lot of times in the past about how the real concern is the longer term deficit picture. our debt to gdp now is what something like 74%. i think the norm before the recession was under 40. i think the hope is to get it down to something like 70. a cbo came out with a report today saying by 2040 it will be over 100%. >> that's if we do nothing. and the president's budget would actually take steps that within the ten-year window would put it not only on a stable path but declining path. that's a key step and bring it down significantly further in the subsequent decades. a couple things we have to recognize.

even cbo's numbers are substantially better than they were a few years ago. why is that? because health care costs are growing much more slowly. if there's a single driver on the cost side that is more important than anything else in the deficit, it is health care costs. that's why all the progress we've made with the affordable care act, health care costs growing at the slowest rate they have in 60 years, have made a huge difference. one factoid on that. in the year 2020, we expect to spend about $200 billion less on federal health care expenditures than we expected just a few years ago. and that's how dramatic just a smart change can be in terms of those costs. and there's a lot that we're experimenting with that could pay huge dividends and bring down the debt dramatically in the outer years, if we can do that. we also have to recognize the

population is aging, right? we have too few workers per retiree with the baby boom happening. that's why immigration reform is one of the most powerful things we can do. immigration would bring down the deficit by a trillion dollars. that's a critical step to take to rebalance our demographics. >> i was hoping in time remaining before we get to questions we might talk a little about the whole nation cfo and maybe you might have interesting advice for the audience. in the meantime i would like to bring up we had one other audience response question. if that could come up. it will overlap a little bit these mattickly. if you could change one thing in washington's fiscal management, it would be, and we'll have to wait and see what it will be. see if we have the time ticking down here. devise bipartisan budget

process. so far the corporate tax code. cut the federal deficit. reduce overall tax rates. i guess that -- yeah. strong desire for that. >> >> looks like tax reform is important to the audience. good. help us get a deal done this year. that'll be great. >> again, the federal deficit came in in that one. that is interesting. but, so -- i don't know whether you would draw a direct correlation between the way you have to try to deal with feuding interests within the rather large federal government. >> you're talking about my children at home. >> right. we could get to that, too. to come up with a budget to craft the budget. i don't think many of the people in the room are dealing with the equivalent of a debt ceiling. or you know, the end of the fiscal year and sequestration and such things. i'm interested in what advice you might be able to part from

your own experience on working with these kinds of conflicting interests to try to make it all come together. >> i think one of the most challenging things. not only in the public sector but the private sector. i worked in bloomberg city as the housing commissioner there, as well. which is an interesting sort of joint public/private experience in some ways. i think what is often a challenge, i see, and it's particularly true here and it's true in the private sector, as well i think it is easier. it's not easy in budget math. it's easier to show what the financial bottom line is. what are we spending? what are tax rates? it's often much harder to have a clear picture of what we're buying, right? and if my job is to try to get more bang for the buck i think

we're pretty good at measuring the buck. we're pretty bad in government. but i think in lots of places of measuring the bang. what are you actually -- what value are you getting for the money that you're spending? and so, one of the things i've really tried to do throughout my career in the public sector, i'm a real numbers guy is to figure out how you measure performance in a way that you can link to the financial picture. and i felt like that was a real challenge often in the private sector. it's particularly challenging in the public sector. i often don't think we know what success looks like in the public sector. so being very clear, creating measures around that, and then linking them to financial performance, i think it's not alone going to solve the political challenges we have. but let's face it, you know we have a fiscal deficit we also

have a trust deficit in government. and if we can show better what it is that we're actually producing the value that we're producing, what -- whether we're accomplishing the mission of what government's out to do. i think we could win over a lot of people in the country and get past some of the partisanship. >> if you could highlight one area like that that was some sort of metric some sort of deliverable, what would that be? >> well, look, i'll take an example that i would i worked very closely on at hud. i think there's broad political consensus that we shouldn't have folks that served our nations in the military sleeping on our streets. right? broad agreement. >> right. >> the problem was, we didn't have a clear set of solutions about that. and so i worked with a range of

folks. it was like a hud stat process. i would meet with the most senior management and look place by place at where we were driving down the numbers of veterans getting them -- that are on the streets. getting them housed. in four years we've reduced veterans homelessness around the country by a third. and street homelessness by 43%. and that's in four years. that's real progress. and what's happening, congress is putting more money into veterans' homelessness. if you can be clear and show real progress, you actually can build some sense of bipartisanship. >> did you want to jump in?

i don't know if there are -- >> questions from the audience? >> let me ask you, though, just in line with what neil was pursuing. it's interesting to hear you talk about creating the metrics by which you can measure success. the bang, as you put it. how, though, do you rally a very large organization like omb, which is representative of trying to consolidate the thinking and budgets of a nation, of a national government or hud. how do you rally all the diverse thoughts about how the money should be spent? around a budget in one direction? understandably congress is making a lot of decisions and you have to say there's a lot of money for that. and they refine their ideas. but still, you're in the business of doing something along the lines of what the cfos

are doing. which is trying to create consensus within an organization that has compelling legitimate claim, diverse claim on the money. how do you do it? >> yeah. well, look first i think there is no substitute for actually creating a process where people have their say. but i also think, and this goes back to the point i was making earlier, my general experience has been that if somebody understands the reason why you're making decisions. if you're actually saying to them, look, we're not going to put more money into that program. and here's the reason why. it's not producing results in the same way this is. hear them out. let them, you know, be part of that process in deciding. but i -- i -- what i have found is that if you do have a clear way of saying, here's why i'm making this decision and here's

the evidence, then it's going to be a lot easier to create consensus. and for people even if they're not happy about it to walk away from the table understanding why that decision is made and feeling like they can do something about it, right? well, i can take my program and try to make it better. or try to improve it in ways that maybe next year i'll have a better shot. that's got to fight against the retail nature of politics. folks focusing just on their district rather than the larger picture often. i think the president has really tried to bring that sense of you know, we're going to focus on what works. we're going to drive money towards, and be able to show clearly how we're able to make decisions. what i have found is it's not going to create perfect consensus, but it's going to

make it a lot easier to get buy-in from a diverse set of folks across the administration. you've got to say no a lot in the omb job. i'm sure you all as cfos do, as well. and having that ability to point to something and say, here's what i'm basing my decision making on that is objective and focused on our mission makes a big difference. >> a lot of this was resolved in the past or has been resolved politically. there was horse trading. does this suggest that omb is kind of adding to the machinery of analysis that you can get a range of programs presented to you and detail work groups on each of those the way that some of the cfos might for divisions of their company? do you have that infrastructure? >> that's exactly our role. we are the analytic infrastructure within the federal government. i have, you know we have the "b" for budget, also the "m" for management.

we've created a performance stat infrastructure for all of the agencies in government. and we're linking that to budget information to be able to get you know, as i said before, both the bang and the buck. >> right. so that's always been the role of the omb but as government programs expand, is that -- is it -- does the omb have the capacity to deal with the ever growing demands for that kind of analysis that might have otherwise in the past been handled through a political situation? >> look, i think it's fair to say that we can only focus on a share of those decisions. so part of -- part of what we're trying to do is create this similar culture within agencies, right? to have to build the analytic capacity within agencies, to have performance management be an important part of what agencies themselves are doing.

so that it's both doing it ourselves, but not just you know, if this is purely adversarial, where we're seen as you know, the judge and jury, we're going to be less successful. if we can build a culture of performance management inside agencies, then i think we have a better chance of actually building, you know not just doing it ourselves, but building it across the federal government. >> questions from the audience. otherwise, please. >> one of our critical responsibilities is to make sure that, you know, our resources are spent appropriately, that there's no fraud, that we have good controls in place. not to put you on the spot, you're new. but who should we look to in the government to do that for us? for the taxpayers? when you look at, you know medicare, billions of dollars in fraud, beating themselves in the chest because they post this stuff publicly and now people are saying, wait a minute we're going after some of the most

egregious fraud. why wasn't that cleaned up before? why did it need to be posted? i saw something recently that half of all disability claims for government employees are overpaid. you look at things like the irs courtesy hang-ups when there's half million hours allocated a year for union lobbying activity. and i think a lot of us saying, who represents us? the taxpayer. who's making sure that there's not fraud. they're making sure there's good value as, you know, we're negotiating what the people who work there. so, you know i know it's a tough question. but would like to know. >> and i would say, to some extent, everyone needs to be responsible for that. and there needs to be accountability for it. and we do have a system of inspectors general and other agencies like the general accounting office, which try to create accountability around that. and they're constantly auditing going in and looking at where

are their problems within government? both on an agency-specific basis and across. and we do a lot of work with those organizations to make sure that findings of individual problems around those things are connected to a broader picture of, is there a systematic or structural problem here that we need to take on? and i do think part of the problem, to be frank, is that -- you know, you're not going to hear stories about where we're making progress. that we tend to have a culture in the media particularly that focuses on where there are egregious problems. very rarely what you'll see is well, is this more than an anecdote? what is really happening overall? are those examples, you know, increasing, decreasing? and i think one of the things that -- and this is as you said, i've been at omb about a year, but it's something at hud we worked on extensively and overall across the

administration our improper payments rate has gone down substantially across the six years of this administration. so we do measure we look at what are the programs that are most vulnerable to fraud. we measure very consistently what are the improper payments that go out. and what are the things that we're doing to try to stop that. and we have seen significant progress in many of those areas. one of the problems is -- and this is the frustration often of the way the budget process can work in d.c. you mentioned the irs. 40% of taxpayers are having their questions answered timely when they call in because budgets have been cut so dramatically for the irs. and the commissioner has been clear that he's doing what he can to improve that service.

but there's only so much he can do without the resources. and it's getting to the point where we've had to cut back auditing dramatically in the irs. and we can show that there's tens of billions of dollars that we're unable to collect. so we're basically shooting ourself in the foot on a fiscal basis. if we're not investing in the things that allow us to measure fraud, go after folks that are cheating the system. and ultimately if we don't have a tax system that we can rely on in terms of enforcement that's a serious problem for the country going forward. so one of the biggest things we're concerned about in the budget fights this year is the resources that allow us to go after fraud particularly own the tax side. >> other questions? >> i could ask a quick one. we haven't brought up the debt ceiling issue. i think you would know a lot better it's pushed out into november territory. >> because the deficit has continued to come down. >> right.

>> we now expect it to go a little bit longer. hard thing to predict exactly. >> i know i know. but we'll hit it at some point. might be early next year. do you foresee that as being a real problem and impediment, the fight yet again? and we've seen it a few times in the last years to get congress to approve a raising of that ceiling. >> look if there is a most basic task that congress has, it is to protect the full faith and credit of the u.s. government. i don't have to tell all of you it would be catastrophic for the country. so the president's been very clear. this is not something to be negotiated with, taken as a hostage. we've heard encouraging words from the leadership on both sides of the aisle, republican

and democrat we should not play politics with the debt limit. so all i would say is it would be deeply irresponsible for this to be the very first congress in our history to let us go over that cliff to push us over that cliff. and we're certainly not going to be negotiating over the debt limit. this is something congress needs to do. and they need to do it without any conditions. >> thank you very much. >> thank you. add 3:00 eastern today, the american enterprise institute will look at a nationwide survey of american views on k-12 education. and some of the issues being discussed nationally, you can see that live on c-span 2. in the meantime here on c-span 3, we're taking the opportunity while congress is on break to show you some of the american history tv programs that are normally seen only on weekends.

at 8:00 eastern, a symposium on william f buckley's view of american conservatism. and then at 10:45 professor eddie glod on race in america. and prime time on c-span today's announcement by chris christie he's running for the republican presidential nomination. hear his comments beginning at 8:00 eastern. >> this summer, book tv will cover book festivals from around the country and top nonfiction authors and books. and at the beginning of september, we're live from the nation's capital for the national book festival celebrating its 15th year. that's a few of the events this summer on c-span 2's book tv.

the agency's working on regulations dealing with transportation fuel sold in the u.s. members heard from janet mccabe. this is about two hours. >> good morning, everyone. s i was privileged to chair two prior hearings on this topic, look forward to another regarding the fuel standard and the management. the ideals are laudable to improve our nation's energy security and secure the environment. the improved energy efficiency have lowered our emissions. for many years, the rfs has chased the annual mandates.

since 2009, and we're awaiting the final version of the 2014 volumes even though the year in question has been over for six months. as reason they could not finalize volumes. seemingly and a mission that this program is unworkable in the current form and there's a tremendous amount of controversy around it, and there are a lot of opinions circling and a lot of emotions around this particular issue. in accordance with a court order, june 1st 2015, the proposed mandates for 2014 '15 and '16 were released together.

although some might say better late than never, we need to take a serious look at whether these delays are unavoidable every year. the epa proposed 2014, 2015, and 2016 requirements including levels of renewables and those quotas for the gasoline supply over the next year and a half. epa has widely chosen to work from the actual -- the epa has chosen to work from the actual used volumes for 2014, but the future mandates called for by the proposed rule represent an aspirational goal of breaching the blinn wall. the likelihood that the volumes -- advance fuel required on the ers will have to be reset by the epa starting next year. this authority will likely be triggered due the agency waiving significant percentages of the volume mandated by the law in face of production not being nearly as high as imagined by congress in 2007 when the rfs was last modified. let me reassert again. congress is the one who set the rule in 2007, but the epa is the one who has to figure out how to manage this, since the production is not close to what was predicted in statute. after a decade, we must ask ourselves the rfs goals of yesterday are worth the increased cost to our food, gas, and the environment.

the price of livestock feed to the additional cost to restaurant owners, to the everyday americans who live with more expensive grocery bills, the program has had a negative impact in many areas. beyond real concerns over engine damage, there have been additional costs to motorists at the pump. on the environment friend, new studies are highlighting the program's negative impact on our land, water, and air, specifically ozone. today we have the opportunity to review the epa's management of the program and take stock of the current state of the rfs. i anticipate an insightful hearing and am pleased that our witness can join us. thank you for being here again. i look forward to re-examining these issues with my colleagues and our witnesses today. with that, i recognize the ranking member for opening statement. >> thank you, mr. chairman. i want to start by first saying i wish we weren't having this hearing today.

i wish there was no question over the management of the rfs. or the environmental protection agency's ability to implement the rfs as congress intended. unfortunately, we're at a place where epa has created i think in some ways unknowingly uncertainty to our biofuels producers. from corn ethanol to biodiesel to ethanol producers. and this uncertainty and lack of predictability is costing us investments. it's costing us environmentally and it's costing us jobs. i'm a strong supporter of all of the above energy policy security, along with senator langford, my state is one of the leading producers, although we're number two. i don't know where oklahoma is on that rank. number two in the production of oil, and we have a lot of associated gas. we have a lot of wind resource. and we certainly have a lot of bioresource. and so this is a huge issue to my state. and i can tell you that i think all of the above -- the rfs is part of that all of the above policy.

when we look at what rfs means to my state of north dakota alone, the industry represents $2.5 billion in annual economic output, almost 9,000 jobs. in oklahoma, the rfs helped create about 4,300 jobs. in wisconsin, 4.2 million in economic output with over 19,000 jobs, and in iowa, obviously a major ethanol and biofuels producer. 19.3 billion with almost 74,000 jobs in the mix. so i think i could go on. i think these numbers are important to highlight because the rfs is critical to our economy, and that's why it's so important that it be administered correctly as congress intended. i'm glad the epa finally released the new proposed rules for 2014. obviously late. i don't think anyone can say releasing those numbers in '15, were there isn't finality to the

rule and won't be until the end of '15. '14 rules were not timely. i don't think there's any doubt about it. and that has created a great amount of disruption. but i do want to take -- and praise this important first step. and i want to thank ms. mccabe for her leadership in making that happen. unfortunately the proposal continues to ignore congressional content and reduces congressionally mandated blended volumes, citing availability of distribution capacity. the statute only allows for an inadequate supply waiver for domestic biofuels supply, and not a distribution capacity waiver. in fact, in 2005, the house included a waiver provision for distribution capacity, but the final bill passed by the house and senate did not. so i hope when the epa puts out its final rule this november they will toss out this flawed

and disallowed reasoning and return to the management of the program to the way congress actually intended. if they do that, the program will work just fine as it did in the first years of the rfs. i think certainty needs to be our top concern when it comes to federal regulation, legislation, or anything else that we do here in washington. and certainly on this committee, we spend a lot of time talking about predictability and certainty as essential components to a proper business environment. providing that certainty for our producers and businesses is absolutely critical so that they can plan long-term and grow their business. and congress provided that certainty, i believe, in 2005 and 2007 when it passed and amended the rfs by setting very clear volumes and guidance on when those volumes may be waived. the best way to get back on track i think is to follow these very clear congressional mandates. because this uncertainty has real consequences, i mentioned

earlier the contribution rfs has made to our states. when managed out of line with congressional intent, you can imagine there are negative consequences. the advanced and cellulotic biofuel sectors have already lost 13.7 billion in advancements due to epa's delay. for biofuels, plants in 34 states have closed or idled back of lack of certainty from epa. in 2014, nearly 80% of u.s. biofuel producers scaled back production and almost six in ten idled production altogether. i know this as a certainty because our diesel plant stalled production in biodiesel for the first part of 2015. however, i must emphasize again that this is not a problem with the rfs. but rather a problem with the administration of the rfs. as one testimony for the record noted, epa's failure to issue rfs rules in a timely manner that is consistent with the law should not be misconstrued as a sign that the program is broken. up until 2013, the program worked as intended to spur innovation and growth in the advanced and cellulotic biofuel space. so i look forward to hearing from ms. mccabe about how they can get back to those past successes. and i would say i think -- i'm particularly interested in the process and how that process can be amended. this is not a hearing to talk

about whether we should repeal or in any way adjust the rfs, but what we can do to make this program administered in a way that provides certainty, so thank you for showing up and thank you, mr. chairman, for the opportunity to offer a statement. >> at this time, we'll proceed with testimony from our witness, janet mccabe. she previously served in the office of air and radiation's principal deputy to the assistant administrator. it's good to be able to see you again. we swear in all witnesses that appear before us. if you don't mind, i'd like to ask you to stand, raise your right hand. do you swear the testimony that you're about to give will be the truth, the whole truth, and nothing but the truth, so help you god?

>> i do. >> thank you. let the record reflect the witness answered in the affirmative. we will be using a timing system today, but you are the only witness in our conversation. we would like you to stay as close as you can to the five-minute time period. we've received your excellent statement for the record early on. you're welcome to build on that or be able to reinforce that or to be able to talk about a totally different thing if you'd like to as well, and then we'll have some question time as we have done in the past. the first round will be set questions at five minutes each. after that, it will be open dialogue, where we'll have both interchange on the diaz as with you and a more open conversation. so will be glad to receive your testimony now.

>> thank you, members of the subcommittee. good morning. i appreciate the opportunity to testify on the renewable fuel standard program and epa's recent volumes proposal. the clean air act requires epa to publish annual standards for four different categories of renewable fuels. total advanced, biomass based diesel and celulosic. on may 29th, epa issued a proposal that would establish the standards that applied for years 2014 through 2016 and the volume of biomass based diesel for 2017. we will finalize these standards by november 30th at which point we will have returned to the statutory timeline for issuing the renewable fuel standards. epa recognized that the delay in issuing the standards for 2014 and 2015 has led to uncertainty in the marketplace. this proposal establishes a path for ambitious, responsible growth in biofuels and helps provide the certainty that the marketplace needs to allow these low carbon fuels to further develop. congress set annual standards for biofuel use that increase every year. it also included in the law tools known as the waiver

provisions for epa to use in the event that it determined the prescribed volumes could not be meet. we seek to ensure the growth continues, consistent with congressional intent. it uses our waiver authority in a judicious manner to establish ambitious but responsible and achievable standards. the proposal addresses three years worth of standards and would set the volume requirement for biomass based diesel for a fourth year. for 2014, we're proposing standards at levels that reflect the actual amount of biofuel used to domestically in 2014. for 2015, 2016, and 2017, the proposed standards would provide for steady increase over time. the proposed volumes reflect our consideration of two essential factors. first, that the market can respond to ambitious volume targets, and second, that there are limits today to the amount of volumes that can be supplied to consumers. the steadily increasing volumes

that we have proposed mean that biofuels will remain an important part of the overall strategy to enhanced security and address climate change. we're optimistic about the future of biofuels and think our proposal will put us on a pathway for steady growth in the years to come as congress intended. many stake holders rightly want to know why the volume targets established in the statute cannot be reached. there are several reasons. slower than expected development of the cellulosic supply. a decline in gasoline consumption rather than the growth projected in 2007. and constraints in applying certain biofuels to consumers. our proposal includes a discussion of this last constraint known as the e10 blend wall. if gasoline demand continues on average to trend downward or remain flat, increasing the amount of ethanol used will require greater significantly use of blends with higher ethanol content. epa has taken steps to pave the way for increased use of higher ethanol blends.

for 2016 we are proposing to set total renew involve volumes at 9% higher and advance bio fuels

at 10% higher and bio diesel standards in 2017 about 17% higher than the actually 2014 volumes. we believe that these proposed volumes are achieve knowledge and consistent with congress's clear intent to drive renewable fuel use up, even as we use the authorities that congress provided epa to manage the program responsibly. the epa has taken other steps to improve the administration of the prm. the we have improved the quality and transparency of the petition policy for new bio fuels pathways. it is important to remember the rfs program is only one part of the picture. there are other programs looking to support biofuels and biofuels' infrastructure and we work with them closely. we will have a public hearing on june 25th in kansas city, kansas, and we look forward to hearing from all stakeholders during the public comment period

which ends on july 27th. as i said, we intend to finalize the rule by november 30 of this year. i thank you for the opportunity to serve as a witness at this hearing and look forward to your questions and discussion. >> thank you. the ranking member and i are going to defer our questions until the end of this round. we go to senator burns. >> thank you, chairman and thank you ms. mccabe for joining us today. i would like to start offer by saying thanks so much. we know you are working hard in this area, so i appreciate that. i appreciate your testimony. i believe this is not only an economic issue but a national security issue, as well. this committee does have a history of working together across the aisle on security and good governance matters and i look forward to working with my colleagues on this important topic. clean and renewable energy is a

topic that everyone in the united states can get behind. and over the years the rfs has proved successful at driving innovation and effective options for consumers at the pump. and as many of you may know, iowa leads the nation in biofuels creation producing 3.8 billion gallons of clean burning ethanol and 230 million gallons of biodiesel and that is from 2013 numbers. we are home to two state of the art celulophic facilities with another coming into production later this year. when passed by congress, the original intent of the rfs was to create consumer choice for clean fuel by spurring investment in research production and infrastructure. unfortunately, the epa is now using the lack of infrastructure as an excuse for setting biofuels levels lower than originally mandated. which flies in the fait face of the law. this issue is of critical importance to the state of iowa as well as the nation.

as you may know, ms. mccabe, in february i invited epa which flies in the fait face of the law. this issue is of critical importance to the state of iowa as well as the nation. ensuring our domestic energy security and promoting innovation in the next generation of biofuels is crucial as we move forward. as you may know, ms. mccabe, in february i invited epa administrator gina mccarthy to visit iowa and to see the impact of the delayed release of the rfs volumes. additionally, last week, the entire iowa delegation, republican, democrat, the entire delegation, sent another letter to the administrator, urging her to hold a hearing on the rfs levels in our state. can we expect either of these to happen? >> thank you, senator. i cannot speak for the

administrator's schedule but i can take back to her you raised this this morning and her office can respond. >> thank you. >> in terms of the hearing, as i mentioned, we had are holding a public hearing in kansas city, kansas. we have a regional office there. there is great interest in this herb across the country and always a challenge for to us choose the location of the limited number of hearings that we're able to have. in this case, we felt having a hearing in kansas city was well located for many states interested in this issue and we have the support of our local office there. we have -- as of yesterday, i think we had about 250 people signed up, including a number of

people from iowa. we look forward to good attendance there. >> thank you. and if you would please emphasize to her that that is an open invitation. we want to see the epa administrator in iowa to experience some of the difficulties we have had with the lack of action on part of the epa. if we can move on to infrastructure and congressional intent, in your testimony, you site lack of available refueling infrastructure as justification sfor not setting the rvos higher. when congress passed the rfs in 2005, only two types of waiver authorities were included and that was lack of supply and severe economic harm. that conference committee rejected available refueling infrastructure, which would have

limited consumer choice and the availability to get more of those bio fuels into the marketplace. despite the clear direction from congress, epa has now decided to use available refueling in infrastructure as a condition to wave the standard even though congress expressly rejected that when they set the law. can you explain why the epa is blatantly overlooking the law? >> sure. i would be happy to discuss this and this is an issue which there are many views and happy to explain ours. the language in the statute as you observe gives two reasons for epa to wave the standards and the one we are looking at is the one that says inadequate domestic supply. and i understand there is activity in finalizing those words, but in fact, those words are very simple in the statute.

and do not explicitly say exactly what that means. and as is often the case, it is epa's job to reasonably interpret the language in the implementation of the statute. we lay this out at some length in our proposal and be happy to share that with you if you haven't seen it. but the bottom line, senator, is that our interpretation of that term is that congress intended for these fuels not only to be produced, but to be used. that is where the value in greenhouse gas reduction and diverse energy supply and, as you say, consumer choice comes. when you have a situation where fuels cannot be delivered to consumers on the time frame set out in the statute and congress provided this waiver authority we believe it is a reasonable

interpretation for us to reduce the volumes to a level that still will comply with congress's intent to drive the fuels. this was a big thing that congress did in the rfs. it was calling for big and significant change. and the program stretches out over a number of years. in order to change a system in this dramatic a way, it is taking time. we believe that looking over the history of this program in the last few years and what we can project forward to set the standards at the statutory volumes would simply not be appropriate. there is too far a way to go. and so the waiver provision is there for epa to use in its considered judgment to set ambitious but responsible levels. >> i that i think.

i know my time has expired. i would argue that we are caught in a very vicious cycle with the producers not knowing what that volume will be. so we've actually delayed production and research and the furthering of those types of fuels. so without the standards being set, we don't know where to go. so i just continue to say we need reliable energy sources for all of our consumers and we would like them to make that choice but thank you very much, mr. chair. >> thank you. >> thank you, mr. chairman. thank you for being here. i have a series of questions that will follow up on senator ernst's questions. what you hear about corn production values and from the department of agriculture are different. there is a lot of discussion in

your quadrennial review about coordination. so i'll come back to that in just a minute. but i wanted to associate myself with the previous questions, as well. has the epa use studies or metrics to modern how the proposal rules will affect transportation prices? >> the way that the rule or program affects the prices is complicated. we did not attempt to estimate impacts on transportation fuel prices. >> no studies or models were used? >> we certainly looked at all of those, but we ourselves were not trying to estimate the impact. >> so would it be possible for us to get a list of those studies and the models that you consulted? >> sure. >> did you conduct models on how it would affect international trade and if you looked at changes in trade flows and biofuels between the united states and brazil?

>> those are issues that many people look into and we pay attention to work others do but we didn't do that ourselves. >> when you're evaluating the proposed rule, when you're deciding what you're going to promulgate, are those studies and what you consult something we could have access to? >> sure. anything that we looked at you certainly can look at yourself. >> great. thank you. in your testimony -- and this is picking up with the senator, you say the epa will continue to engage stakeholders and work in consultation with usda and the d.o.e. in april, the department of education released -- i'm sorry, energy released their review and stressed d.o.e. and d.o.d. would be continuing research and demonstration activities to develop drop-in biofuels, particularly for use in aviation

and large vehicles. in addition, the reports states the department of energy would be providing technical support to the states, community and private entities. the usda crop projection reports on corn that state that the amount ooh corn used in calendar year 2014 is estimated to be 14.2 billion bushels up well from the 2013 estimate, and average yields for the u.s. are estimated to be at a record high of 171 bushels an acre. i think what this means is the usda is saying there's plenty of corn and the department of energy is saying we need more infrastructure and more research. i think when you listen to corn growers in my state, they're skeptical about your promises of the close consultation across the department and also with different geographies. and they actually wonder if you all are skeptical of corn. so i wonder if you see their skepticism and if you can explain to them how it's believable that you're listening to these other agencies. >> indeed, we do.

i can assure you that we work closely with the u.s. and d.o.e. i can assure you we do. i have been involved with staff and leaders from those agencies working on this and other issues and there is a commitment across the administration to work to implement the rfs and promote the development and use of renewable fuels. so it is hard to convince people who might have a different view but i think that our proposal reflects the fact that we consult with those agencies and we are not agriculture economist and don't try to be. that is their job to do so. we must work with them and we do. >> it just feels to a lot of people who are trying to make

production decisions that it's hard to reconcile the different agencies' views of the future of the corn crop. i am a cosponsor of s-1239 that is a bill that expands waivers of the vapor pressure limitations that otherwise make it harder for the e-15 to be used in the summer driving season. i have some questions for you related to the problem that that tries to solve. some of these may end up being technical enough that we'll need to do it for the record. on these. the state of nebraska is able to provide us with a breakdown of the number of registered vehicles by fuel source including automobiles capable of using flex fuel and e-10 in our state of nebraska. in light of your concerns over the refueling and vehicle infrastructure issues in the u.s., would you be able to provide an epa estimate of how many vehicles in the total u.s.

fleet are capable of supporting fuel above e-15? and in particular, how many can use flex fuel and would you be able to elaborate more on the breakdown by fleet and the amount of vehicles that could support each category of fuel? >> we do have numbers to answer those questions. i don't have them with me but be happy to provide them. >> great. we'll follow up today with a letter. >> great. >> senator peters. >> thank you, mr. chairman and thank you ms. mccabe for the epa's hard work and i work forward to working with you in the months and years ahead as we continue to work on this. as a senator from michigan i am always looking for ways to diversify the u.s. vehicle fuel supply and making our nation more energy independent, improving our environment. the rfs, i believe, has been a proven program that is driving forward alternative fuels and economic development. it's creating new clean energy jobs and at the same time strengthening our agricultural markets.

while i appreciate the effort of the epa to set targets and trying to balance achievable standard, i believe that these targets that you have don't reflect congress's intended goals for the rfs. when coming passed the rfs, the intent was to set ambitious targets to spur innovation and invest in infrastructure to bring the biofuels to market. in order to accomplish these goals, i believe we have to stay the course and we have to keep the rfs intact. epa's latest proposal is an improvement, certainly over the 2013 proposal, but the proposed volume requirements for the next few years, i believe, do have consequences for our economy, for our energy security, and for the environment. in addition, the epa's delays in rule making over the past few years have chilled -- and i believe this is a big concern -- have chilled necessary advancements and investment in biofuels just as they reached commercial development. the latest proposal says lack of supply is a reason to reduce volumes. it wasn't the congressional intent to allow epa to cite the availability for supply as blending with regard to its waiver authority. i joined a letter signed by 37

senators stating the condition being cited falls outside of what we think is a clearly defined waiver authority. in relation to the infrastructure investment, i believe it is clear that the proposal will depress fuel prices and eliminate incentives that exist today for infrastructure investment. this is troubling, given the fact that before the rule, infrastructure investment was rising rapidly and now it has stalled as a result of some of these delays. what is your plan to get infrastructure investment made if this proposed rules is finalized without any changes? >> we think there are a number of things that will happen. you yourself cited and many others the certainty of having the volumes out there is critical for people to know what is coming. i think this proposal signals an intent of the administration and the epa to steadily grow volumes over time and that certainty is important. the usda, which was mentioned a

minute ago, is committed to looking to enhance and improve infrastructure. it recently announced a program to help do that with grant funds, to help build infrastructure. and we think that the combination of those efforts, things that we are doing in order to stream line the pathway approval process so that we can get these new and innovative pathways approved and into the market will also help. and that as you put those things together, certainty from the regulatory side, some support from usda and others across the administration and people realizing that more fuel, more choice, will attract consumers to want these fuels, that those things will help us move in the right direction and continue to make real progress. >> so as you mentioned, one of the importance of certainty, and before we had certainty, the impact it has. the biotechnology industry showed $13.7 million in investment was lost since the year of the proposal. does that sound accurate? isn't at a big concern?

>> i really couldn't speak to that number, senator. but we absolutely are concerned about the lack of certainty and what it has created. that is why we are getting this program back on schedule. >> do you see the amount of fuels blended increasing in the future years? if so, how do you see that playing out past 2014? >> i do see it continuing to grow. i think senator ernst acknowledged before the rfs that there was very little of this fuel in the market. there's now much more than there was. and we see growth. we see pathways coming in. i have many conversations with stakeholders from across the biofuels industry who are very optimistic about their ability

to supply fuels to the marketplace. as i noted before, this law is calling for something of a significant transformation in the way transportation fuel is provided and these volumes we believe will continue to encourage and promote and drive those changes. >> were greenhouse gas emissions considered as the agency prepared your rule in 2014? if so, what were the results? >> greenhouse gas emissions are fundamental to the purpose of the rfs. when we set up the program in our 2010 rule, we did an evaluation of greenhouse gases. so the annual fuel volumes, we don't do an independent relook at greenhouse gas emissions. >> okay. i look forward to continuing to work with you. this is a critical industry and in my state as well as the other

states here, a critical part of energy independence in our country and with agricultural in particular. we have a special connection given the fact that i represent michigan which we like to believe is the center of the auto industry, as well. so i look forward to working with you. >> thank you. >> ms. mccabe, i appreciate you being here. let me walk through history we walked through together. 2010, final rule for the rfs was four months late. in 2011, it was a good year. it was only two weeks later. 2012, one and a half months late. 2013, nine months late. 2014, 18 months late and counting and 2015 six months late and counting. the challenge is once we get into '1 6/, '17, and '18, how does this get better and how does rfs get on schedule to be ready by november or has congress put a requirement on epa that they cannot fulfill? is there something in the structure that year after year they cannot meet this requirement?

>> senator, i think that is a very fair question. epa does not like missing deadlines either. i think that a couple things happened as we talked about last time when i visited with you that made 2014 particularly challenging and led to these significant delays. and i am an optimistic person. my job is to implement this program and meet our statutory obligations in terms of time frame. so i'm confident that we'll do that. and i'm confident for a couple of reasons. one is through this rule making this year, we will get ourselves back on track. we have -- 2014 was a significant year because of the impact of the ethanol, e-10 blend wall, which was a significant issue that people engaged in very, very robustly. and that time was going to come at some point in the implementation of the rfs.

and last year was the year that it came. we learned a lot from that process and from all the conversations that we had with people. and our proposal, our current proposal reflects a very different appropriate to implementing the required volumes in the statute, evaluating those in light of the fact that we are now at and beyond the e-10 blend wall. and the approach we have taken now, which as it lays out three years, can show the epa sinking over that three year period of time is reflective of the fact that we, of course have finalized the rule and want to make sure we understand everybody's views on it, but if we were to continue with that approach, we would have an approach we firmly believe would enable us to issue the annual volume standards in a timely way. our staff of technical folks working on the rfs program are working on it all of the time. so it's not that we --

>> i don't think there's anyone that believes you're not working on it. it's a matter of the method and the time. let's say '14, '15, and '16 are finalized november 30th. so we have that out. then come november of 2016, now we're in reset time. i would assume you would agree there's no chance we're going to hit the targets for 2017 based on sought of what is required. so that will require reset. we're not going to be 50% unless there's a tremendous loss that comes on board. with the assumption, as well, the way the statute is written, corn-based ethanol continues to decrease as required in statute. and say the loss continues to increase byrequired by sought. if there is a clear aspect of the law that is clear in the law.

that is also not possible based production. so you're in a very odd quandary come november of 2016 trying to promulgate 2017. it looks like he will announce 2016 on time but 2017 is coming. how do we avoid that? >> a couple things in response to that. >> you mentioned the reset requirements and the statute does lay out circumstances under which we consider a reset which is a significant undertaking because it is for multiple years into the future. >> but would you agree on the optic, we're going to decrease that number by 50%? >> yes. i would agree. and depending on how these volumes turn out, we may hit the reset trigger for the other volumes, as well. we actually think that it makes a lot of sense to focus a reset

on all volumes at one time. and it just will provide a lot more certainty to everybody to do that. we also recognize that we have an ongoing obligation to set the annual volume. so we will be looking to plan our work so that we can accommodate setting annual volumes while also proceeding to consider resetting, if we trigger the reset for the volume. >> so let's talk about how you get comment and conversation going on a reset. because setting the proposed volumes, that is one methodology that there's some conversation on right now. and then you'll finalize that rule by november 30th of this year. then we've got to do both the reset and volumes next year. will that be two different processes? will there be a comment period base on the reset and a comment period based on the annual? are they combined? because i assume you're creating a method on how to do reset on how that has to be done again,

2018 or 2019 to re-evaluate from there. so two different processor one process? >> i think it's likely that a reset process would take longer than the one year required for the annual volume. so while this is not firmly it is likely that the process will take longer than the one year requires for the annual volumes. while this is not firmly decided it is likely to take two processes and each will have likely opportunities for stakeholder input and wul do input gathering. >> and will it start before 2016 begins because obviously you have to promulgate that annual amount by november of 2016, if the re-set will take longer because it will be contentious to say the least because there are different players interested in this and i come back to there is conversation about corn base

ethanol and we have to figure out huh that work when if doesn't exist in near the quantities that are needed and so as the re-set comes through, when do you anticipate that will go out for comment and will start? >> so our highest priority right now is to make sure that we get the 2014, 15 and 16 volumes out. that doesn't mean we don't have our staff already thinking about the kinds of things they need of thinking about for the re-set. so i don't have a schedule for you on that re-set rule making but i can assure you that the minute 2016 is done we'll be turning our full attention to the 2017 rule and the re-set. >> and so this is what i would like to do. there has to be some around the water cooler discussion about this and the timing. you're very good at planning on this of these things and back up and if we are going to have it by here we have to have it by omb here and a draft proposal

here and proposed rule making here and we need to know that agenda. and so if i give you a month in a time period and can you come back to us with a re-set time frame at least on the what the major calendar events about be on a -- will be on a re-set and that will be a reasonable amount of time on a calendar. you don't have to tell us what the re-set isond when the reasonable decision making will be set. >> i'll be happy to go back to talk to folks on how much clarity we can give you on a time frame, senator. >> yeah. if we can come back in a month and give a schedule and lay that out and that would be helpful to us to get some level of predictability predictability. center heitkamp. >> thank you. first of all. >> don't think we know what volumes of cellular can be produced because we vrpt given the market volability and so i

don't know there will be enough to meet the standard so let's not presuppose or prejudge that discussion in terms of what will happen in the market place but you would rather get back to the rule we are talking about and debating. i think i mentioned it in my opening comments and senator erns followed on that and walking through the epa legal authority to basically deviate from the statutory mandates. and when you said that the legal justification issin at quat quatquat -- inadequate domestic supply i think it would mean the supply of domestic suppose splie and there is special biodiesel and in fact we stalled biodiesel and we shut down biodiesel facilities because we didn't have enough access to the market. so to me, inadequate domestic

supply means to what anybody that would read it, which is the supply of the product, the fuel. when you say you can use that language to basically justify a refuelling infrastructure waiver, did you look at the legislative history in 2005 when the house language pretty clearly addressed this by saying based on the determination that there is an in adequate domestic waiver based on the inadequate domestic supply or distribution requirement, what does it tell you if amended out of that is inadequate domestic supply what would that inform you as in terms of the legislative history? >> what, senator, i need to look at the language in the statute. >> no, you also -- if you are

going to -- i think broadly read the language inadequate domestic supply and read it in what i would consider a fairly twisted way, you should look to the legislative history, that is what lawyers do that is what judges do. they look at what was the intent of congress and when congress repealed the language or rejected the language in the final analysis distribution capacity, what does that mean, what does that rejection mean? >> to me it means there was discussion and there was interest in this issue specifically from at least some members and that that language did not end up in the statute. >> and what does it mean for lawyers when there is language that is proposed in one side and you go to conference and you eliminate or take out language? it means that is not the intent intent -- intent of congress for waiver. you can't bootstrap that to deal with infrastructure.

i'm not unsympathetic to this but let's not pretend that you don't have a good legal argument for the waivers that you've done. that is the frustration i think. that the statute was designed to give the market place certainty. the statute was designed to basically set standards, with very limited waiver requirements. epa took it on themselves to expand that language and create huge uncertainty which in our you are saying see well there isn't a supply. there isn't a supply because we didn't have certainty for investment. and i'm not trying to beat up on you and i've been a frequent flier on this issue and you have 23450u78errous -- numerous letters and other administrators on this and our level is high because our producers come to us and say what about this is confusing and let's not for a minute and without admission

cake corn based ethanol and explain to me why there was a necessity to reduce mandates on biofuels biodiesel? >> we're not reducing mandates on biodiesel. it takes mandates up to one billion -- 1 billion gallons and then after that it is up to epa to increase the volumes and we have in fact done that every year and this proposal will -- will begin increase the volumes every year. >> but there is still room within the statute for increase volumes for biodiesel. i want to turn with the time i have left to talk a little bit about argentinian bio feels. and i think senator sass opened up this issue as well. this year epa announced approval for argentinian biodiesel as

we've seen high volumes of imports of brazilian shooug cain ethanol and both have the potential to displace domestic production and undermine advanced biofuel volume mandates. i think it is important that we understand a little bit better on how you consider imports when the equation when you are reving rvo's. this issee normously frustrated at a time when we're shutting down domestic supply of biodiesel we're importing from argentina and that makes no sense to us if in fact one of the reasons for the programs is the self-sufficient of fuel for america. >> the statute doesn't distinguish between domestic and imported fuel. it sets volumes of total fuel and it is not limited to domestically supplied fuel. so we pay attention to what is happening in the global markets and there are many things that affect the amount of biofuel

that could be imported to the united states and the united states also exports biofuels so we do pay attention to that. the amount of biofuel coming in from foreign countries is relatively small. and i know there is a lot of discussion and debate and disagreement about that and i look forward and encouraged people to give us information about this during the comment period so we can understand what everybody is seeing. but the bottom line is the statute doesn't distinguish between imports and domestic fuels. >> when you look at the numbers, it is a third. but i think obviously a mark in north dakota is canada and then canadian comes into the east and the west coast so i understand the movement of biofuels. but i think that when we're trying to create a program that meets the goals established by congress, whether people on this panel agree with the program or not and you probably have a

pretty good sense that -- that there is some dispute about -- there are so few things that we disagree on but this happens to be one. but the program that the agency who has the responsibility for administering the program i think, has first and foremost, has to ask the question what is the intent of congress and what do we know about the intent of congress and i think there has been a serious discussion not just in -- among colleagues here but certainly within the industry and a serious concern that the intent of congress has not been followed here and so i look forward to seeing the schedule. i imagine that we're going to have ongoing discussions whether the agriculture committee or whenever we are the discussions. this is an -- this isn't an issue going away any time