actually come to the hearing and get some input and share their thoughts? and the ranking member also said one of the ways they were able to get some savings and be effective in another committee dealing with the coast guard was keep bringing them back but i would like the wendi to show up for the first time so we can keep bringing them back and figuring out ways to save some money. and i'm going to -- let me start with this. mr. dodaro, has the administration had any reaction to your report so far? >> i've not talked to them about the report. we ave -- there are some areas in the high risk list that we have made a number of attempts omb is on high-risk list and we are engagedin regular discussions on that and i do

believe the announcement yesterday they were proposing a commission to deal withhe federal property issue was in response to this report as well. i do plan to follow-up with them and to try to create dialogue to make sure all these issues are addressed. >> the haven't had a reaction. >> would be nice of the director of omb was here so we could ask him that question. >> my understanding is the director said that they are on the same page as we are. >> mr. davis, good to see you again. isn't this really -- i mean, i remember my first term here when we were in the majority, weren't there reports -- did in the president, president bush at the time, didn't they come up with programs that were duplicative and in the nature that could be done away with? so this is a real problem.

this isn't just the first report were the first time we've learned the federal government is wasting money by having duplicative programs. >> unfortunately it's a soap opera. mr. dodaro would agree that. things that have been in that high risk list for a generation, and it takes a sustained effort on the part of republicans and democrats working with the administration to get these done and the promise is keeping your eye on the ball with everything that goes on andhen you cut budgets and go through this er thesere the kind things that fall through the cracks. you still have the pentagon but the books aren't able to be audited so how do you know where you are on these kind of things? so yes it's a soap opera. >> mr. dodaro, can you give us an recommendations on what might be some of the low hanging fruit? i mean, do know, mr. chairman,

if we could move on any of these, if you would be a sign of moving in the right direction. so is there any kind of low hanging fruit, things that are either so ridiculous in nature that by not acting it's kind of a shame? >> my recommendation would be to build of where there is good consensus about the need to streamline, like for it simple, in the areas i mentioned with the multiple programs there are recommendations flexible on the employment and training area to reduce and consolidate some of the programs and surface transportation there is agreement, the quality and improving those consolidated and the's common agreements there semis just would be to build off where there's a consensus as a starting point. and these areas where mr. davis mentioned on the high risk list

we've seen progress. i would say the real point though we took two areas off the list and both of those areas have more than a dozen congressional hearings. it requires top-level attention, metrics on progress, but there's a lot of opportunities to do this. also opportunities in the property area that isn't needed if it needs to be disposed of. we are spending by the latest estimates over $1.6 billion a year to maintain property this derutilized. it doesn't make sense. there should be more competition in contracting. about one-third of the contracts that were put in place had either no competition or one better on the competition. there is also $640 million

sitting in a customs collection account for a number of years that there haven't been decisions on how to use. that could be an easy and quick t and. there is also a lot of money going out the door of the improper payments that i think could be stopped. that is going to take time and effort. we talked about the use of technology but i think that that's another area where the latest estimate and all of the programs have been estimated yet. the latest estimates are about $125 billion so there are plenty of targets of opportunity and would be happy to work with congress and he administration to get results. >> thank you very much. >> i thank the glin. >> i recognize the gentleman from ohio, mr. kucinich for five minutes. >> thank you very much, ms. alexandre i would like to ask you as the president of the tax payers for common sense, you're take on the american people giving the most profitable industry in the world

is $53 billion gift. i'd like to break this down in layman's terms, and i have any misperceptions about this media can help me with it. due to a flaw in the 1995 our continental shelf deep water fact, numerous companies are drilling in mexico in federal land and paying no royalties to the federal government. is that correct? and as we have heard, the gao -- could you see hat louder? >> my microphone was not long. i'm sorry, that's right. no royalties right now that the interior and thetructure of the deep water royalty case. >> as we heard the reports u.s. taxpays could lose as much as $53 billion as a result of this and it's already begun and fiscal year 2011 the buru the

ocean energy management regulation and enforcement estimates we will lose $1.4 billion. in contrast, the oil industry is making stuttering profits. for example, the top five oil companies reported profits of $485 billion in 2005 to 2009. exxonmobil, the largest american oil company reported a 53% increase in its fourth quarter profits. chevron, the number to american oil company reported fourth quarter earnings 72% higher than the preceding years. the third largest, conocophillips, reported quarterly profit climbed 46%. now ms. alexander, is this an industry that needs billion dollar giveaways? >> tax payers for common sense has worked on this a long time and our position is perfectly clear we do not think the oil companies need the subsdies or

any others so we think this is an issue that is right for the congress to address and in some ways it is so outrageous problems in the deep water royalty relief is that there should be bipartisan agreement on these are taxpayers' assets people are taking and if any of us all those oil reserves and said yes, just take it. people would think we were a little crazy. >> back into those of life on e wheel was about $55 a barrel president bush addressed the society newspaper editors i want to quote what he said. quote, i will tell you which 55-dollar oil. we don't need incentives to the oil companies and gas companies to explore. there are plenty of incentives. we need to put a strategy in place to help the country over time become less dependent. ms. alexandre, would you agree with that statement by president bush? >> i would come in and wih the last check about $98 a barrel it seems like it's still less. >> so it makes more sense now?

recently, john hofmeister retired in 2008 and runs the citizens for affordable energy told the national journal that big oil companies d't need government help. would you agree? >> i would agree it doesn't need government help. >> how can we modify the subsi structure to encourage the transition of what say clean renewable energy sources? >> our position has always been we know what we don't need and we can get rid of it. congress can come together, develop a solution to the problem of the royalty relief leases and some of the bigger tax expenditures have significant benefits for oil and gas companies. there are subsidies for the gas companies in the tax code and for different spending programs that there's a big opportunity for there to be bipartisan action for the reform that will help close the deficit in just one step and what a mature indury stand on its own

2 feet. many of the subsidies the royalty relief program isn't 100-years-old but some are as much as 100-years-old and the industry doesn't need that anymore. >> and the handles don't do anything to help the american economy is that right? >> we think that the handle torian very profitable companies. >> with the gentleman yield h remaining time for a follow-up question? >> sure. stat ms. alexander, i think it's important for everyone that wasn't here when german davis had about our investigation it's the leases of called, not necessarily the wall. isn't that correct? the lease is didn't trigger when the oil prices and natural gas prices reached the threshold to trigger the royalties. >> my understanding is there's a set of leases issued between 1996 and 2000 that were false, there was an era in the drafting

than that because they didn't have the threshold and subsequently the court ruled all of the structure language in the leases and that period that contained them was flawed and so all of those or extend from the royalties right now. it is a complex problem, but it's not -- >> i do think was bipartisan support, still, to try to fix tht. thank you. >> i'm sorry. mr. langford of oklahoma. >> thank you. and thanks all for coming. we talked earlier about incentives for agencies to look reduplicate waste. obviously everyonewants to have more staff and do more things and everyone sees problems and they want to help solve it. one incentives specifically do yousee that you think okaye this is an incentive to help the cause honestly i talked with sevel people that are federal workers. they see it as well. they see the waste about them and i can't believe we felt this form and we do this. someone else does this. they see it. how do we create incentives in the agency to that specific

employees to say when you see it here is a way to be able to help us get out of it. >> i will give a couple of samples. why was that of the fairfax i went to my agency heads and a budget time and asked for the budget and they came up with nothing. we said look, what you can find you can spend some of this your own way within certain guidelines and they came up with a lot more. his interest in coaching to be cutting their budget or is it is going to the, quote, deficit. it's not in the nature of the way things work. so that is one thing you could do. another is we could bring the agencies and ask them to take certain lines of buness and look for ways o share the savings and report back. ju two or three lines of business her agency. right now they can work together. the best example of that is the record between the va and the dod. there's no reason you have to do the different sets of health records. i will give you one other if i can just take a second. right now for the state governments spending a lot of moneyon just being able to

authenticate the communications with the federal and from it. security standas exist to authenticate users to acces data and federally funded systems posted by the state. each federal agency interprets the standards differently so the states have to meet each federal agency standards replicating a different process to various programs that cost a lot of money. social security uses technology for verification, department of justice will use a certain procedure and protocol on that. have you do different thin you ought to have one standard and cost for these things. >> that's terrific, mr. dodaro. >> mr. davis talked within each agency, and i do agree with his suggestions in terms of forcing people to come up with recomendations. but many things we point out in our report or multiple agencies involved in the same area and we believe the only way this is going to get assault despite high levels within the

administration. owen b. needs to play a very crical role in this endeavor and the congress does as well to provide the right type of incentives. for example, one of the areas that's not mention what we are going to work on it, it's in our high-risk list is the disabilities programs. itis about 200ifferent disabilities programs, and because of our insistence working with omb on the high risk set of meetings i talked about before, it brought together all the agencies involved in that process. it was one of the first time as they ever met to be able to discuss that. so i think there is ways to build incentives and deal with disincentives. another area we recommended before is leasing versus bying. there is, you know, a sort f a bye yes in the roles that we have recommended that be changed as well. >> what me ask you a specific question. you mentioned about contacting vehicles and two are recommending to were contracting. he compiled a list you say these should be seriously looked at?

>> yes, these are contracts that are interagency contracts and what we have aid is there are really not a list. the list of to becompiled by the executive branch and need physical and people should make sure -- -- we have a multitude of contracts and systems for procurement. you don't have at this point a list to ecure the different contracting vehicles waiting are inherently inefficient. >> we have the types of vehicles that are inefficient or pose more risk to the federal government. i would be happy to provide that. >> i would like that list as well. graybill to reach these different agencies to be given to research and in a way most cannot. what would you perceive as the ed for individuals to the devil to reach in and be able to earch the data city agencies can get o their employment, their strategies, the program philosophies to be able to go through the cut and search it not just a pds on the web site but actual searchable data is there a need for that and is that possible to pilaf? >> there is definitely the need for it. there's not enough of it and it

is possible. estimates that one of the areas you have the opportunity to do that but there are people at home the would like to search that and research that would be journalists or individuals and that is something i would like to see us continue to push on as has been mentioned before and continue to find ways to do that. one last thought on the sunset programs. is there a particular plan that you seem to say this is a great way to sunset these out? >> i can't there needs to be regular reauthorization of programs. there are too many programs that are created that don't have a regular review and process in place. i do think the government needs to invest more in the program evaluations. one of the things we find and we talk about here a l of the programs have been operating for years and it's really not a lot of empirical evidence of what the returns are, whether they are being effective. so i think the federal government has in the past shortchanged the program evaluation, and i think it needs to be put in place on a regular basis.

>> thank you. i yield back. >> i now recognize mr. connolly. >> thak you. our former chairman and my predecessor in this seat in virginia, my good friend tom davis. welcome back, tom. in fact perhaps congressman davis we could begin with you. you talked up the fact it would be a wise investment to expand the number of acquisition procurement personnel within the federal government so that we are loking for a efficiencies and cost savings. could you expand on that just a little bit? because one of the things that certainly has struck a number of people is federal contracting increased enormously in the 1990's but procurement and acquisition personnel within the federal govement didn't keep up with that. >> and cemetery as it declined. it cut budgets and in fact many times to go to a procurement meeting and what you have is a lot of contractors running the procurement.

that's not all bad that you need a cadre inside of the government to understand the tool box that they have to figure out what is the best value for their government and that needs constant training and all of those kinds of things. what's happened many times is the end of losing good personal to the private sector and yet that's where you get your cost overrun. that's where you get contracts that aren't performing well because you don't have the appropriate oversight. ..

titles like that, but sometimes we have to make strategic investments to protect taxpayers dollars. is that not correct, mr. dodaro? >> that's true. you need to look at outlook but make sure you have the proper oversight. contracting is a particularly important aero. >> congressman davis, just knowing you are in the technology side here, right now the administration is looking at several data centers and trying to consolidate as a corporation of those federal data centers. what's your sense of prime suspect for achieving more efficient the protection of data and cost savings of tax tears? >> you have over 2100 data centers right now for 24 different agent fees. and the. i think you can save $700.00 billion a year.

you need to look at the security is due to those kinds of things. but in so many areas were not sharing david demers to 18. mr. dodaro, there's so many ways we can work across asia needs to store these things come you get the economies of scales and this, you can gain along the way if we would learn between agencies to share these things. and it's just not been a culture. >> mr. dodaro, going back to the subject and ms. alexander, in response to the chairman's question, he said the problem is that the royalty agreement, not with the law. i thought he heard to say actually there was a change of law perhaps been a lot written in 1995 that has the effect, i'veretty much exempting offshore oil drilling from anywhere at all. >> is my understanding there was a flaw in the execution of the interior in the 90s.

whether or not there's a flaw in the lot is a little more of an opinion matter, but it is the fact that there were errors in addressing the lease agreeme of interior in the 90s that we think are probably subsequently in the court decision with all price threshold. >> gas, but with respect to this change in the comment that is something obviously within the purview of congress. q-quebec well, this is something congress can come together and we hope that you do. >> finally, mr. dodaro, any estimate on the loss of revenue in terms of the factory or 93rd out of 104 countries of royalties exact from te oil industry? >> i don't think we have a current estimate in that regard, but i do think as i mentioned earlier we don't have reasonable assurance that were collecting as much as we should.

>> thank you. i yield back, mr. chairman. >> thank you. mr. kelley of pennsylvania for five minutes. with the gemini for just a moment? be not pay well. >> tha you. >> i think mr. conley made a very good point in his chairman, mr. lang spared that this is one of the only areas to take on a new procurement reform of he together because i do believe this is an example where these kinds of questions and answers heree can provide the subcmittee some of the history so you couldwork on procurement reform to make clear we never write a lot again that could be misinterpreted by a interi, written correctly and ultimately not surviving the court. i yield back. >> thank you, mr. chairman. mr. dodaro, good to see you again. one of my questions and from where i am, we do a lot of touring and i've been to a lot of deepak plants.

maybe you can understand me. we started talking about duplication and how many people we have in different places, taking different names. a lot of the same time is mayb coming up with some type of the lead. the usda has every day, is that not true? >> i believe so. >> again, my question then comes when we have the folks every day. we have a plan that has been on for the critical control point and considered in appearing scientific application of the state-of-the-art systems. every meat plant designs their own system in accornce with the usda requirements must operate successfully. we do not need an inspector at every plant everyday. we operate the same whether instructors are present or not. i would say from an attendant

lifetime, with a lot more important from snapshots time to time. we have folks in the plant everyday come usda inspectors watching what these people o. inddition to that, we send in another group that comes into go over what they already have gone over. and i would that happens, these aren't large meat processors. small place that may be 4050 employees. they've got to stop what they'r doing and spend a week going over the plan, which has gone over every day with the usda inspector. i'm just trying to understand if they go trough this and see the duplication of this and the cost to taxpayers and the cost benefit analysis, wherein the end of the taxpayer and could you shed any light on this? >> we have learned out for a number of years that the food safety system is completely fragmented. it's really not operating effectively. there is a need to go to risk based approach and i think that is worth your pointing out the

real need to do that. we'd recommend it that there be a congress commission studied with the national academy to redesign this. a lot of her food now it's coming from foreign is them are so on domestic reduction a lot. so we set the system right now can be a lot better and there needs to be real lookat the risk based approach is really the way to go. >> i wonder about this. i just keep wondering why we keep shooting ourselves in the foot and wonder why we haven't been. we have theseiminished and we keep going over and over again and everybody comes up at the same answer. there's too many regulations and too much overlap. when does it stop? when we face it? >> i think you just have to figure out which priority is congress wants to pursue and stick with it.

i mean, i think there is not a lot of substantive focusing on these areas and results. they are our cultures and incentives that will keep thgs in place until they're broken and the only way they'll be broken is through sustained efforts by the congress and the administration in order to do it. otherwise it won't change material. >> i'm looking forward to working with you in to write the same conclusions to get things faced. with that, mr. chairman, i yield back the >> we now recognize mr. tierney for five minutes. >> thank you, mr. chairman. you know, it's interesting, mr. dodaro. i heard my colleagues say they would like to solve the problems having to do with the lease of the noncollection royalties. your report that government retain oil and gas produced by

federal leases. seems like a very commonsense recommendations. everyone on the panel says they agree witht, b interestingly these royalty issues the lease continue. and you agreee're not gettg it. >> there's not reasonable insurance we are. >> with the report by mr. issa and his colleagues phyllis thatcher during may go beyond 1998, 1998 bases and culminated depending upon the market price of oil and natural gas off work on royalties for a total of nearly $80 billion. in fact, your report says that between $21,000,000,053,000,000,000, jumping from his oil companies into their pockets instead of playing down ebt. we have shell and bp and exxon mobil, 485 profit in the last 10,200 jobs. so this is a situation and they

talk about understanding the history. everybody knows that the problem is. everybody knows what the consequences are and i just want to make sure everybody knows there's a solution out there. my massachuset colleague, ed markey has proposed a way to address the problem. first he recognizes he can go back and what the list is bogus and litigation. his resolutions are an alternative to that. they would not allow any nearly 50 companies that are currently benefiting from no royalty leases. those companies have the choice to either keep your no oil leases or begin a fair price and get releases eventually on the deceptive man. now my colleague has worked very closely with the congressional research service to make sure there were no constitutional issues. my question to you, ms. alexander is do you support legislation? >> we work with representative markey. we just want to see this fixed.

but that would work coming out. >> now with a history of everybody saying they want to reserve the problem. d yet as a result, let me tell you the last week -- last friday mr. markey offered that legislatioon the house floor. not a singlone of our colleagues from the other side voted for it. all the people on our side did. it as off the floor again this week and again not what i want her colleagues voted for it and everyone that people on the side of the aisle voted for it. last year and the year before -- this is not a new idea. this is something he's repeatedly brought to the floor. so if we think we'll understand the problem, if we know the history and if we all say we ought to fix it, it always takes these can make things happen. i hear a lot of words. so ms. alexander, we can offer this over and over, but until her friends on the republican side of the aisle want to put these behindheir words, we will get much action. what you say to convince my republican colleagues over here

were blocking this change, what would you say they have in mind when mr. markey reaches the flo? >> as they say, our position is to just fix it. the markey bill does fix it comes up that's one way to do it. come up with another solution. >> taught him by the markey amendment works and why you support it. >> we supported because it is a constitutional approach based on what we've read to putting the lease holders of the no royalty is in a position where they have an incentive to renegotiate. simply put, we just want to not continue to give away, so really cannot let the different options. >> when you say to my republican colleagu. we understand the problem. we share you say. it's your intention to resol it and we provided you with a perfectly legitimate way to resolve it. let's work on it and next time it comes, maybe he'll vote on it to get the matter resolved. $53 billion back to where

people. so when i'm running around cutting money from teachers and reduce in pell grants for students can't afford college, wracking job ratings. let's get serious and descending for real. >> of the gentleman yield? >> i will yield. >> mr. alexander, one of the things the report says was that in some instances information is being provided by the oil companies around the sleep in their results reporting and in some instances there is no reporting what the weather. >> could you comment on that, please? >> the issue of self reporting is basically an honor system. here is our oil, take us, tell us how much you've taken. if you don't think that's the right way to do business, congress and the administration is treating taxpayers if they have a fiduciary responsibility to manage assets. we do support the markey fix, but we also worked ghostly with mr. chairman issa. i think there's a real potential

for a bipartisan solution on this and from the taxpayers do this to the over. >> thank you. >> i think the gentleman. >> for five minutes. >> thank you, mr. chairman. and thank you for the presentations from the entire board. mr. dodaro, i didn't know for sure, but i was listening to the language and i thought he picked up the pittsburgh and i'm glad to see -- is jim dodaro your brother clerics okay, it's the pittsburgh and the boys. listen, thank you for your presentation today. i come to this committee with a background that includes time as united states attorney and in that capacity came in just after september 11 when we were dealing with issues of terrorism. we share responsibilities and other committees as well. one of those committees on which i served as homeland security.

and as a result i think as each of us went to your theory comprehensive assessment of government spending in various capacities, but also the duplication is really struck for two reasons, one with respect to the bureaucratic overlay of so many agencies, but also what's at stake with the issue of bterrorism. so i take a minute to read from your report at least five departments, agencies and more than two dozen presidential appointees overseas, $6.4 billion related to bioterrorism. on the front end of this, we are saying there is no broad integrated national strategy that accomplishes all the stakeholders have bio defense responsibilities to identify the risk systematically, access resources that are needed to do it and to prioritize and allocate the investment across the spectrum. so that's on the front end to prevent an incident.

then you conclude there is no national plan to coordinate federal, state and local efforts following the bioterror attack. the united states? the technical and operational capabilities required for an adequate respse. this could be katrina all over again. we're really on the front end of a rmarkable challenge for my work on homeland security council, bioterrorism is the very real threat. can you take a minute to comme on this very, very important aspect of this report? >> if they would commit thank you. following september 11, there is a lot of focus on protect in the transportation system, particularly the airline industries. wh we were trying to focus on and i think the 9/11 commission was whether the other potential risk for the country? what are other avenues that could be pursued? for example, smuggling

information or threats over the border physically. other modes of transportation. but the bio defense areas where we fell for a number of years wasn't getting enough attention and understanding that the threats were for having an appropriate plan in place to be able to do it is like a number of areas that really requires multiple agencies to be involved and they really haven't been a means to coordinate a year and we try elevate this with the homeland security council and the national security council which are well poshard. we have in.net much responses i would like in this to provide for proper leadership. so i do think this is an area where congressional oversight is foreign to and from my would be very welcome some of the very important things that could be done to make sure we position to detect and prevent something, not only in a position to be reacting after-the-fact.

>> mr. davis. >> let me just say if you think that's tough, what about cybersecurity, or you can tell, dhs, dod and every agency doing a different approach? i think itill be even more alarming. >> i only have 50 seconds, but i'm going to ask both of you in response to this, would you tell me how we look at creating the kind of mechanism where there is a national strategy focal point worth a single point of response to be both prepared on the front end and coordinate these assets and that's important in the event that we have been in demand to be able to respond effectively on the bakend. we have asked for attention to be paid. if i understand, maybe you can tell me the history hre. what is the solution?

what works best in terms of how we organize and then seek accountability? >> i'll take a quick stab. one of the problems that te executive branch level is jurisdiction in terms of who is going to be involved. this is going to take engagement from the congress, both parties that the administration and figure datapath in moving ahead. we have a deprivation since 2002. long overdue, but i think will take a lot of dialogue and a lot of bipartisan cooperation to decide, but it has to be done. >> i agree with that completely. i think this needs upper-level congressional and mustered support to be able to do it. you can't work with the agencies on a peer level and expect the are going to create this type of mechanism. this fundamental problem. >> and i just said, two of my kids but these were not college. >> they are obviously bright children. ending on the high note, the

gentleman's time is expired. we now recognize the gentleman from vermont for five minutes. >> thank you, mr. chairman. mr. dodaro, that is a great report. i really want to thank you florida. i thought among other things it was terrific that it looke at the whole problem, not just the loss from duplication, but also the loss from inappropriate tax subsids, improper payments come in the air raid in our payments. so it was quite comprehensive and extremely helpful. mr. chairman, went to thank you thank you, too. the focus of this inquiry is very important, mr. ranking member, really ppreciated. a little bit about the oil subsidies is an easy target for us, but if it isn't taking care of, your report indicated $53 billion could be saved by taxpayers if we eliminated the oil subsidies for royalty-free drilling at a time of $100 a barrel oil.

so you fully support eliminating that subdy for the oil companies so they can save money for the taxpayers? >> we were asked to calculate what it would be if that would have been in place. >> i would ask you what it was for. it would be $53 billion. >> i believe that is the high-end of our estimate. but what we are trying to focus on -- >> let me just go on. ms. alexander, you indicated again i applaud you because you're taking a comprehensive approach her, looking at all the elements of how the taxpayers getting hammered unnecessarily. but the oil subsidies and a bespoke about as well that we should get rid of the oil companies disagree in a spent about $340 million in the past year saw been to retain this tax payer health. >> the oil companies jobs to make company drilling oil. it's congress' job to have the

fiduciary role and take care taxpayer dollars. we think there's room for a fix. >> is a curfew if they are going to taxpayer subsidies, and that is an expense to every taxpayer in the country, but the intention is to create jobs but that subsidy should go to emerging technologies and industries, not mature and profitable industries. >> we took a skeptical look at all subsidies and certainly as a starting point we want to know what would make getting for attack dollars. to put a dollar and 20 street, we want to know why we are doing it and what our goals are. if were trying to get jobs and are not coming to an effective subsidy. if it's mature and should b allowed to take care of itself, should needsubsidies. we'll be skeptical about subsidies to an emerging technology that is very high performance standards and a reason in that timeframe. >> that skepticism is

appropriate and should be applied to a tax expenditure, which cost the taxpayer money as it should be applied to any line item expenditure in the budget, correct? >> we see it tht way, yes. >> mr. davis, some people say you're real smart politician. i want o ask you really for some advice. >> i'm a reformed politician. >> you know, in this room was that the democrats attempt to hammer away on what we see as tax giveaways and a lot of times the other side of the aisle is focusing on duplication. my view, we are both right. whether his duplication, we had to eliminate. or there is a freebie tax subsidy we had to eliminate that. but we are sort of berates an opposite kind the line here and now the chairman make you never want to save taxpayers money. as the ultimate goal. i wonder wt you think about is trying prepare areas. mr. langford is doing good work in a subcommittee. you mention, for instance,

duplication and makes those vents. why don't we have one set of medic records? would've prepared that getting rid of the ethanol subsidy were there does seem o be some bipartisanort and you're doing them together. or another might be no purpose in costing taxpayers $53 billion in repair that with following your advice on the worry of different federal agencies requiring the states to accommodate each one of their different standards for verification. it makes absolutely no sense. so how do we -- my frustration here at times of namesake of the political impediment that inhibits us from taking appropriate action that can make real progress. in your testimony, you suggested we look in the mirror and frankly i think that's pretty good advice. and michael here with e. to save

taxpayers money. for the duplication we can agree on not be eliminated, but to avoid there is a tax expenditure that's just a rip off from the perspective of the txpayer. with eliminated. moving ahead, making progress, the chairman make you never want to accomplish here. do you think that makes sense? >> in him only makes sense, it's essential. you're the democratic administration and need the administration by them. a congress that is divided. and when it comes to race, one man pork is another man's state, but a lot of these efficiency issues i think we have to deal to come together on this committee, sit down. we're not going to agree on everything, but there enough things we agree not to put together the report and then you have to drive it. you have to go to the administration, go to the floor. let's face it. is interest group that set committee room to want to weigh in on subsidies and if he's each talk in the vacuum.

these are the numbers. hen you get outside, it becomes more difficult. this committee could play a very vital le in coming together with a strong bipartisan report and pshing not come a holding hearings. i think it getting everybody back again with get some agreement on this and trying to drive it. the frustration i feltt. 14 years in the house is there is no sustainability. u.k. report come at the hearin get momentum and we forget about it and move on to the new thing. but this is something this committee was empowered to do when it was formed back in the 50s. and i think it is something we're not going to agree in everything, but there enough things we agreed to put together a juicy report and save taxpayers hundreds of billions of dollars. i think it's a good suggestion. >> i would giv you more time if i possibly could because you are on all the right methods and i think the gentlemen. we now recognizehe gentleman from pennsylvania. we are very pennsylvania

oriented. mr. platts for five minutes. >> thank you, mr. chairman. i certainly think all three of the witnses. great to have all of you. mr. davis, with all respect, i want to say mr. chairman, reat to have you back as well. >> whetted out. keep letting it out. >> your insights are certainly very helpful to us and i want to commend senator coburn are having sponsored legislation to result in this report in the important work of the gao and now following through on the assignment. and really what i see is the beginning of the process, the first of what will be opiate daylight between gao, this committee and support work. and tom come you touched on a perfect sustainability that we all just talked about these things, but then we follow throu. and when you are chairman and now chairman ice, had the

privilege of chairing the subcommittee on government organization efficiency and the nature of management. i assure you we will do our best as a subcommittee to sustain this effort from the legislative side and working with all the parties. on a specific issue, when you think about within the report, what is highlighted in the inefficiency and duplication, the waste of resources, teacher quality, education of kids come employment training, especially with unemployment for a most ears, dod, homeland security commttees are all top priorities for our country and for citizens, yet we know we can do a lot better with resources we are putting into them. the 21st questions rtu and this will probably in follow-up hearings with fewer staff on the subcommittee level. as he looked at some of the duplication, such as 4 billion on teacher -- teacher quality, is there any abily to give

even a testament of saving, administrative savings if we took 82 different programs into even half that number? any ability to give a testament and how much could we likely save from eliminating the duplication? >> i'll go back and take a look, but i don't think we were able to do it because there is a lot of limitations on the amount of information that's available, on what it costs to administer some of these programs, particularly those in the case that administered to the state and local level. we do believe there's plenty of opportunity to consolidate programs. as i mentioned earlier in the administration's proposal for education reform, they are already proposing consolidating these programs in 12 of them. i think there's a lot of opportunities. i don't have a process i wish i did. >> that is a positive sign here come the reference to secretary

duncan, though looking at trying to be proactive in the consolidation effort, to be more efficient if they follow on any similar answer that shall have the ability to edit detail at at this point. and that is when you look at the teacher quality, teacher preparation, those 82 programs i don't think probably have the data available to you right now to do a cost-benefit analysis and a are we happy these two programs -- these i have over here we can show it done a great job. these other 77 are struggling, so when we look to consolidate consolidate -- is th accurate at this point you don't have the data orient the ticket to the detail of the cost benefit analysis? >> that's correct, especially for the smaller programs. we do mention the reported number of the small programs are so small it's hard to evaluate them. >> under 50 million number of administrative costs them with the savings would be. and looking ahead to the hearing

process, i've got to tell you, temptation is to try to make a point about the duplication to invite one representative from a 82 i'm just tacher education. we feel the room. i wouldn't be any seats left to make the point that your report does. we need to do a lot better here. additional questions that we try to squeeze in here and prer payment is a huge issue. you reference 125 william and probably the low end. as we know or think we know about how much is really out there. any specific recommendations? when we think of how to baance the budget and deficit reduction, you know, it's entitlement reform into the biggest areas are medicaid and medicare. any specific areas you want to point us towards with them is the two programs? >> the first thing i would say in the medicare area or needs to be an estimate for the prescription drug component.

right now there is of the the estimate is incomplete. there are opportunities to use more information to elegy up front to help attack and we are looking at and evaluating opportunities right now. we talked about the high risk the chairman ice and we're looking at that issue. i think the improper payments elimination and reporting act was passed by congress last year at the very important vehicle that lowers the threshold, requires accountability, requires regular reporting, setting a target in follow-up entrained spirits and reporting. so i do think this is a really important area that we sustained attention, that can make a lot of progress. >> hopefully we can sustain that effort with you and chairman davis -- >> i would ust say i'm improper payments i think has been constantly solvable for government and the legislation helps. there is so many great software items out there in front

detection that are being utilized. i think you need to continue to push that from here. and i just said, sharing savings contracts or something the government needs to look at in these areas here that is basically don't see anything amiss to get to 93% are not and is negotiated down. they are legal under the fire, but rarely used. it is a great way to get something out tre quickly. it dsn't come out of budget, producing that government. >> i think the gentleman. >> the gentlelady from the district of columbia, is burned for five minutes. >> thank you vy much. i have a question for mr. dodaro and mr. davis, my regional neighbor, but i'm going to give you a pat on the sentencing to sure. i'm not going to ask about oil

subsidies. in fact, i'm going to ask you about a subsidy with the surface. our ranking members chaired a committee that has to do with property and property disposal. i note mr. dodaro, that you identified as i'd like you to elaborate upon it because it's dated improving cost analysis to make federal facility decisions could save tens of millions of dollars. just give an example, we just built a beautiful department of transportation just a few years ag it was huge, state-of-the-art. guess where? we built the department of transportation and will always be there as the headquarters building. we built it, give it a 15 -- it's built by a developer. we have a 15 year lease on it.

when that leases the outcome would show a bought the building. and we will start buying the building again. i believe this has a lot to do with scoring. what changes do you think should be made into should make it? we want to came to this humongous boss if not tens of millions, but billions of dollars because we don't do real estate the way the private sector does. how should we change the scoring? who should do a quick visit administrative? >> we recommend that the omb, but proposal to be what to do with this issue. that's not been done yet, but it's a combination of action by omb work in the cbo in the budget committees they really would have to make a change in the rolls. i think it's appropriate. there needs to be flexibility. it's not always one way or the other, but there needs but there needs to be a good cost-benefit study and the government and taxpayers would benefit. >> on asking for is the federal government should not have one

way of doing real estate transaction with the rest of the country does it another way. first thing you got to look at its widest everybody else do it that way? why do you buy a home with a mortgage and put the money straight down? why is that better for the taxpayer? mr. davis, i was interested. mib. -- this is so davis lake, when approach to things, this notion trying to find ways to rk together. i noted that in properties, we signed a letter with the chairman in which we were asking dsa to access to their database on excess profiting. now the president has a hold that the on excess property going on and now you see her committee well.

so you see the administration can you see this committee and you s the appropriate committee all going at the same issue, all seen that there are dollars there. were all, mr. davis, having been chairman of the committee do you think the committee should play now that there's been so many interested in this low-hanging fruit? >> the administrator of gsa has just put this together her own advisory committee on the subject, too, doing away with the surplus properties. you have a lot of cooks in the kitchen right now. this committee meets driving outcome. they think you need to hold the seat to the fire, for some time limits on tis. this has been around a long time. before i came to congress, trying to dispose of property are useless to property and away we can rehabilitate and use them to share t private sector. what we need to do here at the subcommittee level is continue to hold hearings and tried to

keep their feet to the fire. you got the time limits on this before the clock runs out. i think mr. dodaro's report shows a lot of savings and we can get it right. just add one little thing in the scoring. i hate to mention this, but you get frustrated and congress can directcoring you don't get any action. >> which we direct scoring? >> you can read the rules for scoring. we've done it with some frequency. >> i yield back. thank you. >> the generally deals back in another former chairman of the committee, mr. burgess, recognize for five minutes. >> time, it's good seeing you again. i underand you're in the private sector making lots of money. good to see you. he's blushing -- >> out this morning, but -- >> anyhow, welcome back. it's good to see you. this picture simy doesn't do you justice. but anyhow, i'd like to make a brief comment about

mr. tierney's remarks. i wish he was still here. we checked on the issue that he raised on the eternal motion in th reason the re-committal motion filled with because they were an aside -- i don't like to use the term blackmailing, but black checking the oil companies into renegotiating leases that it darty been agreed to in order to get a nw leas and that is some end i thnk most people would agree is a violation of law. there was the case and i'm saving all this for the record. there was a case in 2007 that went to court, where they try to force the renegotiation of the contract in one because the contract was valid in the government had no right to go back and insist on changing that, simply because they wanted to get more back from the

company. now, i think there is a baby can do this in the future and we talked about that. and then as we can encourage them would renegotiate leases, not threatening the old thesis, but when we've renegotiate leases to create a better way to get those funds back that would help bring women into the treasury and reduce the debt. now i'd like to go into this a little further. this is not the subject at hand, but i think it's extremely important. we've been talking about this i notice on the news the last few days there's more and more commentators and experts, quote unquote talking about it. and that is, our dependence on foreign energy and it plays into what we're talking about in an unusual way. we import about 63% of our energy back in 1972 when we had the oil embargo about 25% or

26%. the more than doubled our dependency on middle eastern oil, oil coming from mexico canada and venezuela, communist dictator down there, shouted your rear in a situation where these oil supplies were in jeopardy. we could see the cost of oil per barrel go through the roof and the cost of gasoline and other things we use oil for us or his energy is concerned go through the roof. right now i've got some gasoline last night, which may not be of interest to anybody, but reykjavíkcastling to cost me $3.57 a gallon and that was the lowest i could find on the entire george washington parkway. so the cost is higher than that in d.c. and is going to. some people say there's disruption of the oil supplies coming in from the middle east alone if we had blockage of the suez canal for the persian gulf, that we'd see oil and gas costs go through the roof here you can

see $5 from $6 a gallon gas. now, we deliver in this country a great deal of our resources by truck. pickens was inducing a weekor two without any told me of the converted or got all of the 18 wheelers use natural gas, we could cut our dependence on foreign oil by 50% within the next decade. that's one thing and yet we're not drilling or doing anything to explore for energy in this country. we can't get oil leases, new oil leases aggregating all kinds of environmental issues raised that say we can'trill here, and drill there. we've got trillions of gallons of coal shale to be converted to ga, to oil. we've got oil all over this country come in the end were enough the continental shelf and in the gulf of mexico. we've got trillions of cubic feet of natural gas and we're

not doing any thing. and so we are in effect creating a greater dependency on foreign energy than we ever have in the history of this country. we've gone from 25% to 60% dependent on foreign energy since we had the oil embargo, where people were bucking for bucks to get a can of gas to get to her. and so just give me another 30 seconds, mr. chairman. i think it's extremely important than a novice this is off the subject and i appreciate you being tolerant of my comments. it's important when we are talking about renegotiating or negotiating oil or whatever were talking about, do we alize we ve a huge dependency on foreign energy in this country from an economic standpoint and a defense standpoint could be in a terrible situation if we don't move towards energy independence. i think all of us, regardless of whether were democrat or republican ought to be talking abou ways we can move in this direction as quickly as

possible. because if we don't do things go south in the middle east or in venezuela or elsewhere, we could really see problems. my thoughts, castling through the roof, cost of all the good things service is going through the roof and inflationary spiral that could kill this country. without coming thank you very very much, mr. chairman. >> mr. burton, can i react to that? i think you're on, but you've got to remember the stone age didn't and because they ran out of stones. our dependency on oil. they will be alternative fuels developed and i think that continues to be long-term strategy. the most frustrating if congress is in ability and i was part of this, to come to grips with some kind of defined energy policy that has more domestic production. as you noted, more research and incentives into alternativ fuels, which we started to do. and more conservation. it's a three-pronged deal in the party shld be able to come

together on this for exactly what you say is going to happen. >> ester chairman, let me make one brief comment. and that is the thing for mr. a lot of the things we are talking about is going to take time, five, 10, 15 years. we don't have the luxury of time that we need to get moving on energy independence right now. thank you very much. he met the gentleman yield back. how could i not agree? you make great points. its economic security, national security. they are all intertwined. so with that, i yield five minutes to the gentleman of missouri, mr. clay. >> thank you, mr. chairman. on the first welcome mr. davis back in mr. orton certainly looks good in this freshly painted hearing room.

let me start my question with mr. dodaro. thank you for your testimony and recommendations on ways we can make the federal government more efficient to save taxpayer dollars. i would like to focus on the earth in defense. i am concerned about dod's pattern of negative appearances in gao report. as we continue to increase dod budget, the agency continues to be plagued by an efficient tea, duplicative programs, waste and in some cses fraud. in your report, you identifi dod's military health system is an area of concern for duplication and redundancy. the reports state that the dod military health system has no central command authority or

single entity accountable for minimizing cost in achieving efficiency. and that's very troubling, given its mission. can you share with the committee the nnual cost of dod military health system and what are the project could cost increases through 2015? >> it's about $50 billion. >> 50 billion for the health care. rate. we point out in the report to the health care cost the dod, just like they are in other parts of our economy growing. in the area that we menioned in terms of the military health care command is something that's been studied by the science board and others, recommdations within doto do it and they pursued a strategy that has minimal changes involved. and we think ifhey pursue a

broader strategy, it would be very important. also in the health care area, congressmen, the cost of prescription drugs is fast growing part in component of health care. we think it could yield some benefits by leveraging their purchasing and they've agreed to start revisiting that issue. >> thank you for that response. and what impact do you think the systems redundancy and command structure issues have on those costs? >> the estimates that were made at the time, savings can be achieved between 250 million over $400 million a year, depending on the nature of the consolidation. >> okay, so that was kind of hope saved the taxpayer if they took the recommendations that implemented them. >> that's correct.

>> right now they are pretty much ignoring them. we might is made a minimal changes in that regard, but we think they could do more. >> okay, me and you have recommended alternative concepts that have been on the table for a while in addition to your report. the naval analysis did one in 2006. you also report the dod officials generally agree wit the facts and findings that with rising costs in the billions, with dod's health system and clear and efficiency, that you think dod is doing enough right now to make improvement. >> i think they could ignore as we pointed out in her report. and we encourage them to do so. we'll continue to do studies, basically outlining some of the options would be for a single

military command is an option. there are other options that could be pursued, but ts is a case where there is a cultural stove piping that the services and their new to be some broader leadership brought to bear. i think it is warranted given the fast rising health care costs. >> thank you for that response. mr. davis, going back to the inefficient energy policy and one argument we hear is that eliminating subsidies will cost jobs. i note that from 05209, top five oil companies have reduced the u.s. workforce by more than 10,000. would have been if we shifted these subsidies to win or other to mr., would not spur job creation in this country? >> i'm just not an expert on these areas. we let the marketplace instead

of the centers. we start to incentivize when none of these other areas have an effect not just in job creation, but reposition us for the future in the global economy. >> i think gentleman. before irecognize dr. kosar, we've had a request from two members to had to leave today that there be unanimous and for the general to revise and extend your report. i understand there's additional detail is then requested figure people said they could give the supplemental for this report. is that amenable to you that with the record open for you to supplement witanyadditional details, for example, agencies, naming them, those sort of things? we realize that's not easily put together in one day. >> i'm sorry. >> dr. kosar is recognized for five minutes. >> mr. davis, and currently cosponsoring resolution x 06,

which establishes a bipartisan, presidentially appointed sunset commission identifies field programs and those that achieving their goals to review them and subject them for termination. i suspect the commission would refuse this committee's work. with your experience, what are your thoughts on this at the legislation were enacted into law? >> if i were in congress, a cosponsor. th's a good place to start. for the things you have to members to remember is if you start talking about programs that don't work, their are a lot of interest groups out there that we don't care about efficient the time they push members and they have theirs in this or the time it's over. that's great whether gao or commission that can call the ball strikes. then it gets harder for somebody to defend some of the bsidies and programs that may not. i think it's a wonderful idea and another starting point on this. the only point i would make asault is, the sustainability

is keeping the momentum going. it's easier to make government work more efficiently and take off to cut programs. and that's where focusing to be. >> ms. alexander, which you see that taxpayers could get behind? >> we've reported different forms in the past is something we look at the resolution and certainly we're open to idea. >> mr. dodaro, you mentioned real property owned and maintained by the government that are unnecessary and not being used. in your view, what is the best method to getthe agencies to private property is sold to the private sector? what our next steps to make this happen? >> we have recommended a would be chair with a real property counsel at this point in time. i think congress should require regular report on a quarterly basis from a wimpy about what the plans are to dispose of property. right now there are over 45,000 buildings underutilized.

ut it's grown over the past year by 1800 buildings. the cost to maintain underutilized properties is up $1.6 billion a year. so i think there needs to be a plan. the administration has goals to try to dispose of property by the end of 2012, but it ain't part of congress' responsibility is to hold them accountable for what progress they are making towards achieving those goals. >> thank you very much. i get the balance my time. >> would the gentleman yield? thank you. mr. dodaro, have you looked at some of the excessroperty in sufficient details to look at things. for example, said moffett field and we discovered that not that was utilizing the relatively small portion of its prfitability and the minimum amount of it for non-core

business that was important to the community. have a look at thosehings and whether or not agencies hold them and that is not technically underutilized, but beng utilized. did you look at any of those sort of items? >> i'd have to go back and i'll provide you an answer for the record, mr. chairman i'm not. the one additional one is you talk in terms of the other side was asking questions and i think this. eyeful. you are almost saying we needed a second goldwater, that we need to go further merging the command structures of the military from the standpoint of spending. is that pretty much of the sustained part of your report? >> i tnk there needs to be some outside intervention in order to break some of the stovepipes that the movie. >> chairman davis, you've certainly seen this then you are

here for the process. would you say that's one of the things the committee should look at us learned when they no longer belong to the military, yet they are still costing the taxpayers? >> the mckinney act was passed to think with the greatest of intentions, but at the end of the day i think the priority has shifted from h do we use this to happen we put this back on the taxco and hungry get money back for the federal government? for borrowing 40 cents on the dollar. it's not attainable. we have to start looking at cost. i agree. >> thank you your one last question to follow up is you've been very supportive. i remember your organization and several others were supported about us tt the course of the ability to make the decisin that the unfortunately named behemoth the oil leases that were flawed. and i know we agree to disagree

on whether or not mr. markey states will be held constitutional, whether it is punitive, but moe probably, have you looked at what can be gained by congress taking all of the dairy subsidies, oil is beinone of them, and other energy subsidies and requiring themo be brought together, something that follows we been talking about today. >> we haven't specifically looked at how to package all of the energy subsidies together. we tend to look at individual subsidies, but we recommend energy policy and look at whether or not each dollar is going towards a common goal. it is something we be happy to work with the committee on. we've looked at energy subsidies and ty try to look at them together, but we understand the difficulty of looking at the mall side-by-side. we certainlydon't think that we have apples to apples comparison

coming out of the administration asked congress would like. >> i look forward to working together. i recognize the gentlelady from new york for five minutes. >> first i wouldlike to welcome my former colleague, tom davis who did an extraordinary job was chairman of the committee. he was always a good figer for the part of the cause, but also reasonable and listen to the minority in work together on a not good bills. it's good to see you. we miss you, tom. welcome back. i want to thank mr. dodaro for your report. it's very helpful and the chairman for focusing on it because this is a time when he to look at ways to protect taxpayers dollars and start reducing the deficit and debt. ..

may have withheld 117 million in uncollected or royalties. that is a staggering amount, and your report indicates one reason this may be happening is because we rely on oil companies to self report. >> there needs to be more verification by the interior department of the data tomake su that the federal government is getting -- reasonable assurance they're getting the revenes that are there and so there is a set schedule with the

department was behind in maintaining that schedule. why in the world don't we have the royalties reported by the agency or at least a third party? why in the world are we relying on the oil and gas industry that isn't reporting accurately according to your own study after study after study? >> our recommendation is there is more verification that needs to be done by them. >> you're still letting the companies verify, correc >> no. interior needs to verify. >> having sold reported information can work if it is verification by the department of the checks and balances rather than go out and have people independently measuring it, so it can work, but the department has to do their part

to protect the taxpayers and that's what you're saying and we said in our recommendations. >> alsoin the recommendation your report proposes the federal government use independent third-party data to assurances accurately pai. it's to have interior do a job fair fighting. islamic interior needs to do better job of verifying if the can use their own verification they can use other third-party to cooperate as well. that's what we did in our audits and verifications. you should use everything available to a watergate data to make sure that reporting is complete as possible and we're getting the revenue that we deserve. >> how do you estimate we would able to keep them if they verify inappropriate way? >> we don't have an estime right now. >> why is it taking so long? are they fair fighting in a better way? have a stake in to be taken the steps to respond to the recommendations

>> we are going to be following up and staying on this and will provide regular reports to this committee. >> you think it's important maybe we need to legislate that they verify cracks to make sure it happens? what do we do to make sure this happens? >> i think i would explain what they're doing and the importance of doing it. i think the regular oversight is important. we have done work and the inspector inspector general has done work. we continue doing our part and so i think that it's good to have sustained follow-up with of the department that responsible for handling thse matters. >> i regret there was an amendment i offered in another committee and the debate went on just until now so i missed a great deal of your testimony and the 21 seconds left i would like to ask you in your report with other area in government can we manage better and save funds? obviously the oil and gas has

historically been an area of tremendous abuse on the oil extracted from federal the owned land but what other category in government do you think if we manage it better we would be given to save taxpayer dollars and make up a dent in the terrible deficit we have? >> i think the report discusses opportunities virtually across government. the department of defense is an opportunity there i think for significant savings. and i also mentioned the need to focus the revenue collection and aw we are not cutting we're actually getting more that we are owed from the revenue standpoint beyond the interior issue i think the irs can and should implement a number of our recommendations to take that area on. i think we lso recommended the tax expenditures be brought under regular review. that's almost as much a discretionary spending in a year in revenue forgone so i think all of those are really good opportunities to be able to save

money and be more efficient. deficits have to go beyond just these programs and to entitlement spending as well. >> my time is expired. thank you. >> i thank the gentlelady. mr. davis? >> mr. kysa asked a question where he taked about something similar. there's a lot of savings between agencies where they can start sharing services and i know that they diluted that in the report it wasn't just the focus of this report, but agencies can share services. right now it's very stovepiped in terms of the way they look at it and our budget and they are reluctant to do that, but tey literally, billions of dollars probably tens of billions they could shareservices between agencies as we talk about the best illustration being medical records between the va and the dod is no reason to separate lists the that is the kind of thing t

>> in the budget we estimated somewhere around $75 billion. it does not take into account that we will raise at over a short time. >> if fannie mae and freddie mac had been there in 2007, 2008, 2009, 2010, what benefit would housing values have in this country when there was nobody to make the loan? you cannot say they were there,

because they were not. >> it would've been much more devastating. cox many own a home and we allowed the value of their home to go down by trillions of dollars. >> i agree with you. the careful to look at options. >> you have to have the numbers. kobach and tell us what year he made the loans and why it occurred with the default rates. this did not have to occur.

>> i agree with you. >> give us the data that says why they went on so that we can analyze the problem. any lost money. find out why they lost money. congress made it possible for it to happen. >> i like to build on the questioning of mr. miller. there is a view that lenders lost money because of bad loans.

lenders lost money when the maker of loans. some guy as coins to lose his job or someone is. if it divorce and in the old days, they would sell the house at a profit. now anybody that invested in good loans, they still lost money. the sub-par lending, how much of the losses are due to losses on prime loans, where you had an unexpected level of default and yesterday profitable cells, today short sales?

>> most of the losses are on the prime. >> the most conservative banker started his bank for the purpose of making the first private loans, i am sure the lost money on the loans. >> you will see a big increase in default rates when people lose their jobs. >> in los angeles, it is easy to get a $20 million loan to buy a home in malibu. you either know the banker or you are the banker.

it is almost impossible to get a loan in the $800,000 range. what would happen to the economy if we allow those that apply to the major metropolitan areas -- what happens if that were too precipitously dropped? how would it affect housing prices? >> as you look at what to do with conforming limits, it is important that we not magnify the pressures on the market. the failures reproduce or bipartisan failures. we have to be careful not to

make this crisis worse for people. i do believe that it would be prudent, based on what we know today that to not let the levels fall modestly. >> speaking for those trying to buy and sell homes in los angeles, you would create a double dip in many areas. the failures of fannie and freddie are bipartisan. the house of representatives passed a bill through this committee under republican leadership that would have prevented this crisis. it was on the other side of the capital where others blocked it.

if we go bad bank the good bank, the profits belong to someone else rather than those profits being used to pay, doesn't make sense to make sure both operations are profitable, -- ? >> i agree. >> things. -- thank you. >> you talked about the continuing winding down of fannie and freddie. some will be selling in the marketplace. does this mean we will sell off

10% of fannie and freddie in the marketplace? >> i cannot tell you precisely. i can say that based on the experience so far, the market has been able to absorb it at that pace. you cannot be certain how the market is going to evolve in the future. >> some of the interest rates will be sold off as a profit? >> i can say for the treasury portfolio, that would be the case. >> in terms of the three options of where we go in the future, i

am a public utility model. some may not like that term. what is your reaction to this model: 4? >> i think it has a lot of merit. you want to make sure you meet those tests. if you are going to have the government provide a guarantee, if you need to make sure that the taxpayer is behind the

context not benefit. you cannot try to put pressure on price guarantees in the future. >> i cannot agree with you more on this point. the housing market is a huge part of the economy. if left without some stability in, banks get excited and they want to loan all of this money to everyone. then they do not load any money. it does not have that huge of an

effect in the overall economy. i think we will have some significant additional volatility in the overall economy. do you agree? >> >> when you look at alternative models that look like? have a more private character to it, most of the systems out there involve banks holding all of that risk. the government is ultimately there, sitting behind the banks with this support that they do not charge for. the really difficult challenge is to make sure you have a system where you have more conservative standards for underwriting.

banks have more capital against risk. >> we may have hired an ounce and cost for mortgages. how can we reconcile that -- for low income people and say we will have modest downed no more increases? how can we tell moderate income people it'll be harder to buy a house? there is a good policy case for the government providing some assistance for low earning americans so they can afford a house. >> i want to try to preserve that. it is consistent with where the

private caucus plays a major role. we would have a better system as it becomes more stable. >> thanks. i think we are mixing a lot of apples and oranges when we talk about low and moderate income households. i feel like, asking, can i get a .alad instead of a soup fact i lived in my first and only owner occupied home. i thought it because i cannot afford a single-family home.

my college -- my kids went to college on the basis of read- mortgaging the home. -- re-mortgaging the home. i want to know the goal of the administration on numbers. many do not care who their mortgage comes from. could probably do not even know. they just want to know how much it is going to cost them and if they will get it. i come from a very expensive district. many probably would not qualify for a fannie mae loan. we have a lot of young people in this room today. if i were them, i may be saying, when is my turn?

if a young couple with good jobs, paying rent, paying student loans off, paying auto loans off, trying to put something aside for everything else, what is a fair amount to ask them for a moderately priced home? what do you expect them to pay? 20% down or 7%? how will they be able to get this together and hope to send their children to college? >> an excellent question. they still have the capacity to provide mortgages at reasonable

cost for those that cannot afford to put a reasonable down payment on their house. >> i am talking about people in this room. they are well-educated, talented, make a decent income, and could have a decent future. as they are living their daily lives, it would be almost impossible for them to put aside $80,000 for a down payment, especially the young women who say, maybe i want to have a family sunday. how will they be able to do that if we do not address their long torn girls -- long term goals? credit du have to go to the bank and get a faa loan. then you can put a smaller amount down on your house.

a for the rest of the american people, -- in the 1 >> i am talking about the vast majority of the american market. the people i know in this room are intelligent people. they are not the low end of the social economic scale. how are they going to get in? >> it is a fundamental choice. you are right to raise it. is it fair to ask all americans to put their money at risk to help subsidize access to 4 search americans? if it is too low, it will be unfair. >> i am not interested in a pooling of the latter because i

am lucky enough to get my help. i want my children to be able to afford a reasonable home in a reasonable labor and some day. those are the questions we have to ask ourselves. as we go forward, the final analysis is about how much we are going to asking from them. >> i am still trying to get my hands wrapped around this. we need tools to protect the innocents. you can have a policy of too small to succeed. that is the state are represent common in mexico.

you indicate on page three that you are worried about sufficient capital. we allowed to the big banks with their own capital requirements to determine the amount. are they still allowed to make their capital requirements, or is that something that has been changed? >> i would never support a system where you allow banks to choose, capital -- how much capital to risk.

banks have to hold more capital against risk, and they do not get to decide. >> that is not in effect. when i was in the district in 2008, there were some hotel owners in new mexico. they were being told they would have to come up thousands of capital for a new facility because the market to market rules. is that protecting the innocent re?i >> i believe large institutions need to put more capital against risk that would be developed for small institutions.

>> in those institutions hold more capital? some institutions were complaining when they needed to put more reserves for capital requirements than they were penalized for adjusting their earnings. they were punished for not putting capital aside. some are worried about when you will worry about them a. >> you are right to say that the accounting system that we had in place made it harder for banks than would be appropriate. >> if we look at the problem, the estimates of 2.4 trillion, only 300 billion were held in

fdic control banks. 75 were performing at that point. if you took a write-down on those, $38 billion is what you get. if you take another 25, and you get another 56 billion. we had 12.3 trillion total. the total exposure in the sub- prime market appears to be in the $100 billion range. dramatic actions -- i question

if we took the right actions. in terms of the responses. i was sitting here in congress. >> do you think the government overreacted? >> we let lehman brothers fail. increase support of fannie and freddie. >> this country came into this crisis without the tools with the crisis happened. that is why it was so deep into severe. congress had to legislate in a panic. that should not happen again. it should give the government better tools to wind down these

institutions. you're right to say the tragic mistake this country made was to build a system where the government could not come in and protect taxpayers from the economy that large institutions made. >> thanks. >> esser look at option 3, there are more tools within that framework to influence the markets and provide some relief when necessary.

i think the idea that government reassurance would only apply to certain securities, mortgage- backed securities that comply with very strict underwriting standards. that affects getting the type of product that we approve of. in the previous crisis, you had standard and poor's and aaa and movies -- you have those type of requirements could stabilize the market. i think having the loss allocation placed on these private guarantor's also provides the risk that would be absorbed by the private-sector, instead of the government.

i know there are some constituencies out there such as the banking industry and the housing industry that wants to have as many products comply. these private giving tours would have the backstop as close as they could so that their losses would minimize. how do you deal with that issue and you are pushing against what you are trying to do. as we get out of this crisis and more to a time of normalcy that we do not have the robust oversight and we may end up in back in the same place because of a lack of oversight and the task -- taxpayer ends up at risk

again. . that is right in determining an option 3. you need to these basic conditions to oversee those types of mortgage guarantors'. it will be necessary to have the freedom to set very conservative rates for who would be eligible for its one reason why we have been careful not to commit this is depending on if congress is willing to design a system was vulnerable to

political influence from people that would like to benefits >> the other thing i want to ask you about is the definition of catastrophic. we seem to be a green that the government should step in at the point of catastrophic loss. i know what we just went through was catastrophic but also in reading through the president's proposal it would appear the other definition is after the private guarantor is wiped out, is that further catastrophic or -- >> in the context of option three?

>> yes. you can design it so that there is less risk for the task -- taxpayer. it is not beyond our capacity. it worst dramatically better than the system we had. i am more optimistic. it is not nearly as vulnerable as the system that we had and the types of failures that we had. >> thanks. >> thank you mr. chairman. thanks for being here. in your testimony, you indicate which your objective is a healthier and more stable housing financing system. part of stabilizing our economy

is to ensure there is adequate capital so that money is available for many for housing, construction and commercial purposes. i assume it is part of the fed's goal. given that goal. there could be a devastating effect on capital institutions it could lead to several hundred of billion dollars leaving the united states and tax jurisdictions. it is my understanding that the past years, our national policy has been to encourage foreigners to put their money in our banks. it could go in exchange for

individuals to earn interest. they have the assurance that corrupt governments do not have access to that information. i think it is a win-win situation. you are shaking your head, yes. it would force banks to hang over interest payment information to the irs. the irs would in turn have this information to turn over to a foreigners' home country. this is a bad idea when first proposed in 2001. why should the administration and congress reject it? a look forward to working with you on this time around.

i think if this were put in place, it would be devastating to our economy. do you agree this is a bad idea and it comes as a bad time? >> i am not completely sure i know which draft regulation you are referring to. i do not think it has the risks that you are suggesting. i would like to talk about it to see how we can address your concerns. >> i would greatly appreciate that. do you think the housing market has bottomed out yet? >> it is hard to know. we have unemployment between nine and 10%. the economy is growing.

there has been a big adjustment in house prices. i think by any judgment, you still have a lot of damage and it will take a fair amount of more time. i apologize -- >> i apologize for sending impatient. i do not know if a payment through fha will help anything. most people bought their first homes in the past few years, and

they paid them back. many paid back their homes without problems with a veteran of their loans. there is a dream that everybody should have a home if they want it, whether they have a job or not. if we can get people back to doing their jobs, then the down payment amount will work just fine. we spoke before about regulators about classifying some loans as nonperforming loans. they should not been performing loans. can you give us any kind of help on the ground in their districts to take the capricious

treatment in to make this treatment stop by some of these out of control bank regulators who are overreacting for failure to do their job in the first place? >> silvestre reyes if you spoke with the chairman, they are worried about this problem. they are working to try to make sure that they do not overdo it without being somewhat accommodating in the bone. >> -- boom. >> thanks.

you said the administration is committed to a financing system where the korean capital is the basis for mortgage credit. he said there is strong consumer and industrial production. it is clear that capital has not come back in this market. in response to a question, you elaborate some. investors should know what they are buying. that is consistent. they say the first effort by the fcc does not quite get there. it allows credit disclosure, due

diligence. the wanted the ability to do their own due diligence. more important, they have made more than one in comparison to this mortgage markets to doing this in a rationale. it is very difficult to enforce. what would you support in the structural changes? direct due diligence by investors allowing them the opportunity to see themselves and what they are buying. into the requirements so that if a mortgage goes into default,

there are clear remedies and there have been stories in the last week or so about some of the big banks advising shareholders -- they have had a peevish tone to it. their ankles are getting bitten by regulators. will the administration's proposal for support require these things? i would be -- >> i would be happy to talk in more detail about these things. for this to work better, he need clarity on capital rules. they need standards that can be enforced. until it happens, private capital needs to come in. >> there have been stories about

a private negotiations going on now. why is this not in your authority now? they do not have an appointed director now wired are they not requiring better behavior services? >> we are trying to take the authority that is in the legislation and apply it carefully to all participants in the market. and make sure the it is

consistent in the game. we are trying to do that on a careful, integrated basis. we have to be careful to get it right. we cannot achieve those objectives -- we have to have a level playing field across the whole. -- we are laying out the basic architecture to draft rules that would give confidence of reform laid out more substance in the attraction. the way our system works is we

want to get feedback on them. >> five minutes. >> we have your testimony in a report. can you elaborate on what you feel their role will be? what do you think we can do with that? >> there are a few examples that we think deserve attention and reform. these entities were allowed to accumulate an investment portfolio, which we do not think is necessary. they did not have enough capital to back it, and it is something we should avoid in the future. we have to look at home loan banks.

there are other things that people have suggested. we will look at every credible idea. there are things we have to take a careful look at. >> during the course of the putting together your report, did you look at other countries around the world? did you look at what was more important for us? >> i did. if you look at the experience of other countries, they did better than we did in the crisis. the biggest difference you can point to is the source of credit. it is true for corporate debt

and mortgage and consumer finance. there was a better balance of both in terms of real estate mortgages. we want to try to preserve that kind of balance. in countries where the government does not provide the guarantee with any in fredi, -- fannie mae and freddie mac -- they do not lead to their banks failed during a financial crisis. the guarantee is somewhat explicit. in many of the countries, the banks are closer to the government.

you are still looking at losses in that context as well. >> can you tell me at what level you think that will occur? >> so many people disagree about it at the moment. if you build in protection, you may make a crisis more likely in the future. if you look at what happened in this crisis and what is getting us out of it, you have to have the ability to reduce the risk of damage that can push the economy into a deep recession that we saw.

it is important to have that capacity. we can do it in a way that does not magnify moral hazard. it is hard to do. >> had some point, it is going to be [unintelligible] >> we can do it in a much more limited way. not to make it overly simple, but if you require banks to have more capital of a risk, more equity in the homes for homeowners, make sure it is more conservative, you will do a lot of good in making sure the system is more stable in -- even in a deeper system. he still may need flexibility and emergency to come in and provide more protection. >> thanks. the secretary has to leave in five minutes. we will have one more.

mr. scott will be the last, unless you can stay an additional five minutes. >> i will be happy to write in into any questions. >> i would ask unanimous consent with the hearing that starts at 2:00 that those numbers -- members in the room on both sides will get a chance to see you get a question in. i hear no objections. mr. scott is recognized. he will be the last. >> thanks, mr. chairman. i am glad i got in. i am very worried about unintended consequences here. granted, there is a lot wrong

with fannie mae and freddie mac. we need to reform this situation. there is a role for government here. we need to be clear on this. we are examining this issue at a time of great volatility of record numbers of people who are losing their homes, largely due to no fault of their own, but because of our problem up here on washington. i am concerned about this rush to judgment here and the tendency to be throwing the baby out with the bath. we had fannie mae and freddie mac for a very serious purpose. there are some problems with them, but they provide a very useful tool to put in the position that we are in. there are still problems facing minorities in the housing market.

just the rush to bring in private capital, it causes a problem. it is not solve the problem of paying the cover shot. many of these are african- american. it may be because of their skin. we have problems on the income levels of individuals. now we have a problem with many of our returning soldiers, which is heartbreaking. they are coming home after fighting in the battlefields of iraq and afghanistan and they come back, and they are on the street. no matter what we do, bringing private capital in is not the insert. i want to stress the treasury into this administration and move with a very gentle eye on this and understand that in my

review of your report, probably the best option, given the volatility of the situation that we are in, would be to look at option 3 as a base on which we can work. i think it has the attributes in here. there is a degree of certainty. even members of the financial services community, the banks and mortgage companies, they realize that the private capital is not coming in at any price. there is our -- there is a need in our housing market for there to be some sort of federal government guarantee. some way to come down in these catastrophic situations. some way for us to be able to be fair in the event of another financial crisis.

i would like for you simply to respond and give us -- i will not ask you which one you like, but do not agree that given the difficulty of the situation that we are in, into the different needs that i mentioned in my remarks, that we need to move from a position of option three than the other two? >> i agree with much of what you said. we have to be very careful that we do not to do more damage as we try to get this into place. you could envision that there is a best place to land. be very careful, and i would caution that if the banks and real-estate companies -- they have to be careful.

i think there are ways to design option 3 along with the faa that would be a very dramatic improvement in our system. can we design a way that does not have the risks? >> i want to yield 10 seconds to my friend. >> the impact of terminating the have program, the emergency mortgage relief program -- any opinion? >> it would cause a huge amount of damage and leave hundreds if not millions of americans without the chance to take advantage of a mortgage modification to station a home they can afford.

i would recommend against it. >> thanks. >> that concludes our hearing. one congressman pose a question to you. i think it is immensely important. he is referring to a draft proposal by the irs, non- residents will, which does not seem to go our way. i think as he stated, it could cause hundreds of billions of dollars for our banks, particularly those in distressed areas in florida, texas, california, arizona. with that, the chair notes that some members may have additional questions for this person, which

they can submit in writing and it will be open for 30 days. this hearing is adjourned. thank you, secretary gu eithner. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] [captions copyright national cable satellite corp. 2010] next, "x & a" and live at 7:00

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