the legislation underpinning figure is very specific. it relates to reconstruction efforts. we have been fully cooperating over the years with the figure. the latest request was afforded to methey wish not only to inspt the reconstruction efforts, contracts for reconstruction. they wish to inspect the state department administration of the platform. they've wish to inspect an audit -- and of its diplomatic security, the medical contract, our award for the contract for construction. we believe that is outside -- and the state department that illegal advisor so advised me -- that is incorrect. those activities of the state

department operating the platform -- not the contracts for reconstruction or police training, but the base contract, the base platform contract, are within the jurisdiction of the general accountability office, investigation committee and state department inspector general. the legislation divides the work load between the reconstruction activities and the state department platform, and i believe that is the way it should be. >> thank you very much, ambassador we will go to robert henke and we will do nine-minute question. >> ambassador, good morning and thank you again for being here. i've got a question for you related to -- i guess an organizational or a structural issue. one of their recommendations in the report was to create an office of contingency contract. i understand of the department does not concur with that idea as laid out in your response.

the issue we are trying to get at it the organizational placement, function in the agency, and the fact that acquisition is critically important to state's mission. just by way of context, state does about $7.7 billion a year in contacting, 26,000 actions. up a bit in fiscal 2009 -- and i want to explore with you this idea of the culture of states and the organizational placement for the acquisition of function and whether or not it is at the table. i want to set aside recommendation for office of contingency contacting and explore with you this idea of the current organization of your office, what is referred to as m at state. as a understand, the office

that handles acquisition reports to the assistant secretary for administration? >> that is correct, sir. >> led by mr. -- mosure -- >> he is the acting assistant secretary, yes. and as well as permanent deputy assistant secretary. >> he has been nominated by the president for an ambassador ship and will be departing shortly. the new assistant secretary nominee has also been announced by the president. >> ok. you may know that congress passed law in 2005, services acquisition reform act, that creates the title of chief acquisition ardor budget officer. we have had chief financial officers, chief information officers, and as recently as 2003, chief acquisition officers. the law directs this person must been -- be a non-career and must

as their primary duty acquisition. are you currently structured that way, that your cheap acquisition officer has as its primary duty acquisition -- chief acquisition officer? >> if one defines primary, the per bond runs, i think so. chief -- at 4 administration is a presidential appointee that supervises three units and i think acquisition and part of our logistics operation is part of -- a significant part. yes, sir, it would meet preponderant primary. >> i am not sure i agree. when i look at the functions handled by the assistant secretary of administration i see a whole lot of different functions and activities. real property, facilities,

supply, transportation, mail services, diplomatic pouches, library services, foia, privacy act printing. it will bundle of different duties. it is hard for me to see where the assistant secretary for acquisition, who is designated as your chief of position officer, can have as his primary duty the management of a $7 billion acquisition program. can you respond to that? >> yes, sir. i think, if you have asked me that question in a previous life i might have said you are correct. i think, though, it is really a question of candy officer of involved, the assistant secretary of administration, he counts on a professional staff that is sufficient to handle $7 billion to $8 billion of material, as you said. in 2007, shortly after i came back to the state department, i

reviewed this matter and decided we were not doing sufficiently good job because we did not have the number of personnel assigned to the acquisition office to keep up with the volume. we had gone from about $2 billion of contract into almost a billion dollars with a nearly no staff. i changed in the operating procedures in the department and placed our acquisitions operation under the working -- funds. that generates a volume of resources available to the office which is directly proportional to the work load they have. and then by doing this we have been able to fund an additional 102 personnel in the acquisition is office. and so, i believe now we have an adequate acquisition corps of professionals, which we continue to develop, and backcourt can provide the assistance secretary, the chief acquisition

officer, with the support they need and allow them to do their job. >> in my mind it makes perfect sense because when a program of this comes in with a multibillion-dollar requirement, you can scale up to do it. then, mr. mosure and his supporters can hire staff to execute -- rather, award the contract. the problem comes when other bureaus may not have the resources to manage the contract. that is what you are trying did get with with program manager -- they do not operate under the fund. >> they don't. however, it is appropriate for them to oversee those activities. the chief acquisitions officer is not responsible for that portion of program administration. contracts, certain elements often described as contract management, contract oversight, closeout, we now have the resources to make sure we can do

that, as well as of the auditing question is that of the code- chairmen referred to. >> one thing we see time again is resources -- when agencies put precious slots against a function, what the general office or a senior executive, it is an indicator of what the agency values. a rundown on your numbers, and bassett, in a -- 9400 people. civil service, foreign service office roughly. >> i believe it is a little high. >> how many people work for you? >> i am sorry -- if you are counting all of the consular offices overseas and a passport, it would come to 9400. yes, sir and -- serve. >> approximately 206 senior executive positions? >> at the state department?

>> know, in your office, m. how many senior executives the you have working in acquisition? >> we have two. >> does not include mr. mosure? he has other duties. >> you are asking for direct, and i am saying two. >> they both testified before. is that of the right number of -- if you have in m 206 senior executive positions, is two the right number? >> i believe that with the the performance and quality of the personnel in the acquisition office -- the leadership is there. the leadership, though, needs to be supported by and adequately trained and adequately funded work force. and because of the implementation of the working capital funds, we have moved in that regard. so, i believe two is a good

number. could it be three or four, i think it could equally be three or four. but i believe that with the package of support, there are other entities that support that acquisitions office. when you look at another agency, when it has a stand-alone acquisitions office that has to do their own space planning, their own management, and their own legal -- there is an officer in the bureau -- there is a senior executive service lawyer in the office of the legal adviser who supports that office. we at the state department put all of our lawyers in one legal shop and then divide them up under a system, legal advisor is at senior executive service level, and there is one that supports and acquisitions function. we won a major organization at the state but -- state department and i believe it works for us, sir. >> shays --

>> thank you for your time this morning. i wanted to start by saying i was really a very encouraged to see the secretary put together the quadrennial development and diplomacy back review planned. i think it is long overdue. i know it was a painful progress -- process, but it will their feud. i am wondering already has been done as a result of that? we had u.s. agency for international development for us, and a started taking -- they started taking action on some things in preferment reform. they are very much interested in a continuous improvement and goodness knows they have problems with their contract thing. but they are looking at the need for change. in contrast, when i look at your statement and the state department's responses to our recommendations, there doesn't

seem to be any recognition that things in iraq and afghanistan are any different. in fact, comparing the model in have as them -- most effective and efficient, because it works in places like haiti and japan, strikes me as a little different what the state department and the u.s., in fact, is facing in a iraq and afghanistan. for fy 12, this big event -- state department requesting more than $3 billion and diplomatic and consular programs in iraq. anything comparable than that anywhere else in the world that you are operating? no. >> only afghanistan comes close. >> and we are going to have 4500 or 5000 security contractors in iraq, putting aside afghanistan? anything comparable? >> only in afghanistan. maag going from 8000 up to 17 -- up to 70,000 civilians?

>> that is double counting. -- >> going from 8000 up to 17,000 civilians. >> it is double counting. it represents the aggregate of some of the other numbers -- >> i understand. but that is more than doubling to what is about to get to. those numbers seem to me to be very different than anything else does the department is doing, putting aside afghanistan for the moment. so, when i look at the things that you are trying to hold onto that work in the past, i don't understand why the difference is a more significant than the similarities. i wanted to ask you just a couple of questions from your statement, the contracts and you have let for the transitions and directed a consulate, some construction contracts. ian was representative. is there an officer assigned to the contract? where are they located?

>> basra. >> they are forward located. are forf our cor's located? >> do you know what their training is? >> they take a course at the foreign service institute and they are professional architects and engineers. >> this score in particular has had the training? >> i will confirm it in writing but that is part of our requirement for foreign service -- >> trying to get to whether or not practice is actually reflecting policy. is there equality assurance program for the project? >> yes. >> same thing for the aviation hub? >> yes. >> is there a core and what kind of training? >> i think the core for the aviation hub is the same. basra aviation hub and the activity are about less than a kilometer apart. two contracts because of the different nature of the work. but there is one project

supervisor on scene to do both. >> rather than going through all of that, what i would like it if you could supply for the record whether or not -- the construction projects as a contracting officer representative, whether or not receive the requirement -- require training and whether there is a quality assurance program. those are all requirements i know you are working towards. many are already assigned. >> you open talk about a qdedr -- qddr need for change. can i respond to that as well? >> let me get through the rest of my questions. >> if you are willing to stay beyond 11:00. >> i will stay beyond 11:00. >> we will not take off your time. >> you convince my chairman of something i am not sure i -- >> it will not be of your time and you will stay later. >> i believe they 416 has been frozen my clock.

the secretary is very, very concerned and interested in the collection of contract administration. -- question of contract and is rationed. if one looks at all of the issues the secretary of state faces in the world, to devote 10 pages out of a 200-page document to contacting and talk -- contract administration, i think this sets the tone. >> as do i, that is why i made the comment. >> the second thing -- and you ask what have we done since the secretary's statement. as i said, was elevated the status of contract oversight personnel. linked oversight duties, specifically to the performance evaluation of those officers. we expanded training and we have elevated the accountability for the planning and oversight and large contracts. i could go a long period of time but i believe there is much more

detail in my full statement. the second thing you said is we are in fact trying to hold on to the past there i would like to take a second of time with the commission acquiescence. when you have a worldwide effort such as the state department must engage in, we live the way to do that is to take an award master contracts in washington that can be fully and openly competed and then have their task orders available the best example is the worldwide protective services contract. we can have a contingency contract awarded in xanadu for security there, or a contingency contracts awarded in shangri-la. i don't think it makes good

economic sense. i don't think it makes good management sense and i don't think it is good for the american taxpayer. the award of master contracts, world wide protective security contract being example, with task orders under it would 7 competed among the eight qualifying firms, i think allows us to move quickly, expeditiously, efficiently and economically to meet exactly what the commission intends and the terms of contingencies. i can also say the state department in fact is one contingency rolling out -- has one contingency rolling out every day. as chairman shays knows from his former position, every day the world changes and requires us to act differently. if i had to award a contract for each individual act that took place in the world i don't think i would ever be able to be responsive. but why do but by awarding

master contracts, having a centralized and professional office staff adequately now hangs to the working capital fund additional funding, we can respond urgently to any crisis we had in the world. is iraq and afghanistan difference, as you rightly laid out? absolutely positively. do i need to do it better job on contract and officer representatives, as the commission well noted? absolutely positively. but i don't submit we are frozen in the past. i believe use of these master contracts, which we have done in many fields, is exactly what we need to do to respond to urgent and continued operations. >> yes, ok. then you have five minutes. >> i will give you an extra minute. >> it is -- contract award task orders, but much more interested how you are setting

requirements, how responsive is a centralized bureaucracy -- not just theoretical but how responsive has it been to the embassy in baghdad? my information from interviews and discussions is not responsive enough. obviously there is going to be a difference of opinion there, but that aqm is really not aware of the urgency. and you are operating in contingencies around the world, but there is not -- chairman tiefer -- mentions -- the contract, dod mention 20 cor's to manage and the department went back and said we can provide six, and then, in that same with six we will not allow

you to take it because it needs a lot more oversight than that. you mentioned the name mrap -- who is setting the requirements? need to sustain them and maintain them. the state department is not focused on a lot of the details because it does have a lot of the worldwide looked and it does have the sort of old time approach to how contrasting gets done. >> i guess i just have to respect of -- respectfully disagree. it gave me a couple of examples. let me for the sake of time take the first and last. >> we have gone to dod. they are learning as the equipment and we are writing their contract for the operation and maintenance of that equipment. i think that shows excellent contingency operations. i don't see it serves american taxpayer one whit to spend a lot

of money to go out and compete a contract which dod already compete it -- >> not talking about rape competing the concept of how the oversee it -- not talking about re-competing. the state department has to be involved in that. >> that is the responsibility for the diplomatic set -- security service professionals on scene to oversee the operations of the contractors. those personnel are on scene. on the mraps, we have been loaned 60 by the department of defense. diplomatic security service will oversee the operation. it will oversee the maintenance of the vehicles. we are writing again i contract through rock island because the department of defense has contract for the maintenance of those. they have specifications for exactly what you need to do per engine our or purge time -- per

time to keep the equipment operating and available for use. we believe we have the personnel. when you are talking about contrasting, there is the contract and there is obviously the administration of the contract. so, i believe both items are in a tight focus. we have meetings every week due >> not so much about the requirements. the contract is kind of the end of the process. >> commissioner, can i add a little bit to that? part of the context of what the commissioner is laying out is we are talking about roads of will -- security. in a big part of the purpose, moving individuals. the military mission with a road security before -- contractors' help with the maintenance, thank goodness. 100 percent of the drivers and

then those individuals, we call than the spot, the military, 6 07 people in the back. because when you're doing road security, under fire sometimes and you have to suppress that fire. that is all united states army. they didn't have contractors. when you assume that portion of the mission and it all go home, you have a different requirements planning contrasting. the reason i bring it up, ambassador, is you talk about operations and maintenance. i am not sure you are spot on on the operations but i know you are spot on on the maintenance. >> let me address that portion of it, mr. chairman -- commissioner. using the mrap as an example. we have built into the contract a training unit, meaning an mrap that the lake -- behaves, which is a simulator. we have a model, it is being

upgraded. every security person who is going to be involved in the operation and use of those mraps will be run through that simulator to make sure they know how to operate it. your point about suppression of fire -- you are right. the u.s. military is the greatest military in the world. i don't have that option available to me after december 31. that is why we are using -- and >> you are going to use contractors for do >> no, bang -- no, sir. the point i was going to make, mr. chairman, there is a difference between the mission of the u.s. military and the state department. the mission of the united states military is to engage the enemy. >> ambassador kennedy, but chairman thibault is taking my

time and that was his question. i will stop it right there and you can come back in the second round to give the answer to that question. i just wanted to go back to the business as usual idea again. in your statement you talked about on an ad hoc basis being able to pull together the resources you need. i was raising the state ig report from october 2009 about the new embassy compound last night and clearly emergency project coordination office you set up would fit into your model. they point to that organization, the way that private was organized and ad hoc office was responsible for a lot of the problems in the baghdad embassy. >> that was a one-off model set up by the existing director. it is not a model that had ever been used before. it was implemented along military lines and that model is

no longer used in the state department. it was used once on the baghdad project and it was discarded by anyone i became undersecretary. >> i worry a little bit when you hear about the ability -- keep what you have and then we can put something together when the need arises. this is what happens when you just put something together when the need arises. i worry about that happening again without institutionalizing some strong workforce, procedures, rules and regulations. >> i think what you are missing, ma'am, is it the experience and the value of the center-left contrasting authority that has worldwide expertise and is appropriately staffed in order to get the job done. >> the expertise we needed in iraq and afghanistan -- if you agreed with my statistics -- is a little different from what the state department has encountered elsewhere. the end of my time. >> i disagreed on the contract.

i agreed on the operational requirements but i disagreed respectfully on the contract structure, i believe with a master contracts we set up we are responsive. >> there will be more discussion on this because i do think we have some major disagreements certainly year. let us move forward with doug. >> thank you very much. good to see you. you have been doing a terrific job says we were together a few years ago. you are showing that stars and still there. great. let me ask you about some of the state department responses to some of our recommendations. 26a and 46b, foreign prime contractors and subcontractors. we recommended these folks consenting u.s. jurisdiction as a condition of award of a contractor subcontract. 26b is less relevant to the

question again state that the answer is this requirement would add the cost of foreign contracts without offsetting benefits but i do not know of you what to a span or want me to go on with my line of questions. >> i would be glad to go into that -- i could also send an additional material for the record. it is your choice. >> let me pursue this and maybe we can wrap it all together. your testimony says 40 logcap contract essentially an interim basis using dod's, and they will give you some time to basically get your act together. which is fine. i want to get a sense of what state is going to do and particularly what you are going to do to avoid the kind of thing that has been written up in "the new yorker." you may have seen the article, things you heard about him -- heard about and i have heard about for some time that are pretty shocking. the article says, of course, the vast majority, more than 60% of

our contractors in iraq aren't, as the article says, not hired guns board -- but hired hands. workers from primarily south asia and africa. living in barbwire compounds. employed by fly by night contractors -- and funded by taxpayers. they are called a third country nationals. many talk about having been robbed of wages, injured without compensation, subject to sexual assault, held in conditions resembling indentured servitude and even food riots. you will be taking over that. your response to something that it drove part of our recommendation which is, we cannot as a country uphold our own values if we are allowing this to go on and we want the oversight and a commitment by

subcontractors, by foreign contractors and subcontractors, that they are not going to do this kind of stuff. state that the answer was, it will at cost without offsetting benefits. to me, at least, it is a huge benefit the world sees we cleaned up our act. can you talk to me about this, what maybe -- if you intend to do something differently? this is a major scandal for the united states. >> two points. first of all, when a carefully couched in my locker statement, that we are using logcap only for life support. the logcap 3 contract that was in use in iraq included maintenance and other things. we competitively awarded our own contract. >> year next sentence says -- >> that is just using, you well know from a previous incarnation, taking advantage of the incredible buying power that the defense department has

available. if i am buying frozen chicken, i can buy frozen chicken. if i could get dod price for a frozen chicken or a gallon of diesel, i would take that any time, the cost-benefit. setting those aside, because i believe those are approve it -- going to your correct point on the question of how contractor operates in the question of trading of its staff there and he's back. our contract for life support, both dod contract and any contract we will award would only be awarded to an american company. we will not award a contract of that nature to a foreign country. >> what about subs? >> we write into the contract, and i believe dod as well --

adherence to -- and it requires, as well as it should -- we lay the responsibility for the performance and for the treatment of employees on the american contractor. i think that gives us the best joke called on that to ensure that any employee working in support -- best chokehold on that to ensure that any employee working in support is treated fairly. the state department -- inspector general have looked into them, the state department officer on scene has looked into them, the regional security officer has looked at them. i testified before, i think house government affairs as well. i would be happy to send you a copy of my testimony. we believe we can enforce through those methods the situation that upholding the dignity and the standards of the

united states holds dear. l -- lco >> holding and on the primary contractor, the american company, and looking over and across the operations on scene with the state department that a contract officers, representatives, assisted by our medical staff, our logistic staff for our security staff. >> all i can say is obviously it has not worked until now, by definition, because if in fact, as we now, the defense department in particular has put the onus on the prime is -- primes limit contract out and then to second tier -- by definition the system is failing. that is why we made the recommendation we made. it seems to me -- i don't want to get into a debate about this, but i would urge you to look at this again because clearly it

has not worked. if it had worked, it had -- as you describe it, it would put the onus on the primes and these sorts of things would not be happening. >> i cannot address how dod or any other government agency may be enforcing their contracts. but under this system that will take place as the state department fully takes over in january of 2012, these personnel will be living on our compounds, using the same food service, using the same medical services, using the same security services that we ourselves use. and i think that guarantees the dignity of life that i think everyone agrees we absolutely must of hold. and if i might, we have dvr maintenance is now done, as i mentioned earlier, not under

that but under a different american prime rate subcontractor who doesn't employ a third country nationals living on our compound and i believe living on their over a year -- same dining and medical facilities and everything else, and there are none of the problems that you outlined when we are administering the contract on scene as opposed to who is holding the master contract. then i hope so, because i grizzly's these things do >> i hope so, because obviously these things i've gone on. it made a recommendation, in order to foster and enforce the interagency contingency process. dogsaid -- we don't have a and it's right. there is nothing for us to respond to. i am a little puzzled by that because if we are making the interagency process work, as you well know, sometimes it does and sometimes it doesn't, we would

think state -- state would comments. is no comments, that mean you really just don't care or the system works fine? what does it mean? >> its means essentially that the national security staff does not consider itself an operational agency. it will not engage in in these kinds of oversight activities. it does not feel it falls within his purview. and i know that because there are other discussions in my tenure of activities related to your principal -- not the details. nss, also to a great extent omb will not engage in these. they did not feel it is in their statutory mandate. olwen be at most will lay down predicates him -- omb will add mostly down predicates, of its standards or fiscal standards, but not feel it is their mandate

to charter executive office of president agency to engage in these kind of operational matters and therefore we have to simply defer to nss or omb on that. >> thank you, sir. commissioner ervin, please. >> mr. ambassador, mr. secretary. thank you so much for being here. always a pleasure to see you. i did not intend to start with the two of the questions -- but it seems there were a few issues left hanging in from various exchanges from my colleague and it probably will follow up themselves and their rounds but i have the vicinity. in the last exchange with a doctor zakheim about the very disturbing article, you said, if i understood you correctly, that the medical staff has looked into some of the allegations that the office of inspector general has done. i think he mentioned another

office or two within the state department. to me, the next question is what has happened and result? with allegations substantiated by the inspector general or the medical staff? >> we were not able to identify actions of a gross and horrifying nature taking place on units that were in direct support of the state department. i do not challenge that it might have happened elsewhere, but our investigations to date have not identified activities of this nature taking place against a third country nationals and entities directly supporting the department of state. >> this is a very important issue, as dr. zakheim said, and we intend to follow up on this. i think it is tremendously important and i hope to at least at the state department there is nothing further to be

reported. >> i fully agree that the question dr. zakheim posed, the requirement the united states government promotes human dignity, is one of secretary clanton's highest predicates -- clinton's highest predicate and we would never tolerate such activities and if we ever did find it we would dismiss personnel and potentially all the way up to demanding changes, more than just individual personnel who are engaged in that kind of conduct. >> sure,, just a quick one -- something like that because we are revoking a contract. >> if it was an american company and we knew that the company was permitting that and i would go to my lawyers and as that. but i would suspect it would be poor management on part of the

american contractor and i would first the man the american contractor removed from any activity related to us their entire american management team. >> with regard to the first kuwaiti issue that came up with your colloquy with mr. tiefer, you said the office of inspector general to look into the allegations, $132 million in dispute, and you can't just send a letter demanding payment. that is certainly reasonable. i am surprised the office of inspector general has not responded for request for details. in the largess refusing? >> i will not say they are refusing. i just believe they have not completed whatever word they are doing. i intend to take the question back and pose and again to the office of inspector general and say this is a question i received from one of the commissioners on the commission on wartime contract and it is in -- i think it is a fair question

for us to ask and a fair question to know that there is information that backs up the 132 million or doesn't. that building has now been in operation for multiple years. it is operating very, very well. there are no major issues. the compound has been rocketed a number of times and the construction, including taking a direct hits, construction has held and none of the personnel have been injured. >> third, finally, just follow up questions on sigur jurisdictions. would you be willing to join them and submitting to olc request for a definitive or partial third-party ruling on the extent of jurisdiction on this manner -- matter? >> certification, i am not an attorney. all i know is i consulted with the state department's legal adviser who assured me the

position we have taken with regard to inspection of platform as opposed to inspection of contracts for police training or military training, or rehabilitation of developments of construction, our legal advisor's position is that those are not within the jurisdiction of sigur, but and jurisdiction of state department that the inspector general as specified in that act so i simply must stand by what the legal advisor told me. >> that leads me to -- particularly interested in that recommendation in a report that goes to a permanent inspector general. i think the commission would feel better about the state department that the position that no such new officer is needed if we had a better sense of state support for the existing office of inspector general at the state department and for sigur.

as to the office of inspector general at the state department. i don't expect you to have these figures at your fingertips, but for the record could you, for example, supply as what the state oig's budget request for the past, say, three years ago since the inception of the obama administration and then the state department that a response to that request? i try to sense how response of the state department has been in recent years to the office of inspector general to have adequate resources to carry out its mandate. >> we fully support the inspector general. we believe inspector general's perform a critical function of calling attention to and highlighting issues that must be dealt with, either warnings in advance or catching acts that show or must be dealt with summarily.

the request for the inspector general's office for fy 12 is $65.15 million. we carry sigar and sigur in our totals, but just giving you butoig and the president's request, $65.2 million, and their budget in the fy 11 in full year cr, 56 million. forded a request that amounts to almost a 10%, 9% increase. we will get information for prior fiscal years. fy 08, for example, actual was

52 million. so, they are going up because they deploy -- they had a regional office in the middle east whose major focus is working on iraq and afghanistan issues and of the department has supported their funding requests and support of their requests by allocating them very, very scarce office and sleeping accommodations in order that they would be close to the scene to do their jobs. >> and the time that remains, i want to talk about your response, the state of former vice response of recommendation of the -- in the department. one could argue that a reasonable minds can differ about a number of our recommendations, including the ones that we just discussed arguably. but the one that seems to me one can argue with, or at least on the grounds upon which the state department argued it, is the notion there should be written justifications on those occasions when a contract and officer recommends suspension

and a management of the department refuses to carry out that recommendation. and the rationale for opposing a recommendation by the state department was -- requiring written justifications would be an administrative burden on most agency's suspension and -- programs which already have limited resources to carry out existing missions. to me, the sum and substance to make is it is too time consuming to will contractors accountable to the american taxpayers and to ensure our diplomats and military prison now and development offices get the support they need. i was really shocked by the response. >> the distinction, sir, is in who makes the final decision on the disbarment. it is not the state department management. it is the procurement executive of the department, which is separate from the head of contract and get the contract

thing. if the the procurement executive decides to the individual contracts think officer has not made his or her case in law and equity, then it is the procurement executive. it is not me, not the assistant secretary for administration, not the deputy assistant secretary for logistics management, -- >> are you saying it would be unduly burdensome on the chief executive officer -- chief acquisition officer to make that determination? >> it is not the determination of the chief acquisitions officer. it is the determination of the clause i-independent procurement executive. every agency has a semi- independent procurement executive that does not issue contracts, who provides policy guidance and oversight to the contract thing. so if he, happens to be a he at

the state department, makes the determination, it is a kind of independent determination and is glad i feel that is exactly what it should be. we must ensure that the american taxpayers spend a dollar and get the dollars worth of value. >> ambassador, we know that. we know you've got to do that. >> i want to pursue this because we find it -- i find it beyond silly, i find it outrageous that the department of state can say that when a contract and officer recommends disbarment or suspension, or even if dca or dcma, somebody is recommending it, that there should be a justification that white -- is ignored. it seems so basic.

you and i ended department and commission have a huge disagreement that we will continue to pursue. how many it this varmints, recommendations, -- debarment, recommendations have been made in the last year? >> that is not acceptable. let me tell you why it is not acceptable. you have to get back. what is not acceptable is you don't know what and yet you are saying it is burdensome. how can it be burdensome if you don't know it? >> i will provide the information for the wreck in and given your statement, mr. chairman, i will review the issue. >> let me tell you why you should. >> i will also consult other u.s. government agencies impacted as well. >> we know dod has -- maybe it is burdensome because maybe they have so many. but if this is a, all among the administration to kind of say we don't want to do it, and you are part of it, it would be a huge mistake i will calm down because

you will get back to was the money put on record the following. you don't know how many recommendations they are of debarment yet your department is recommending that our recommendation not be done because it is burdensome. i would think either if we have so many that are ignored, that is a huge indication of a problem. and if we had too few, or few that have been recommended and the department is claiming it is burdensome, then i think it is a pretty outrageous response. so, i appreciate your looking at that. i would like to -- when you testified before the government oversight committee, you made the point that all of the activities of state were inherently governmental. would you explain to me why you made -- in the transition from dod to state -- that everything

you are doing in iraq, and the transfer, are not inherently governmental, and therefore you can use contractors? i misspoke in the beginning -- not inherently governmental. that is the claim. in your statement, you make it in the very first part of your statement, you jump right in and say the activities we are doing are not inherently governmental. why are you making that claim? >> because, mr. chairman, certain of our activities are inherently governmental. law enforcement, the activities of consular officers, political and economic reporting, executive management, those are inherently governmental. there are other activities that i believe are not inherently governmental. security, because that is one -- one of your other

commissioners commented on that as well. if you look at security, security is not considered inherently governmental in the united states. the united states government contracts for security personnel. >> there is the security and there is the security. it is a pretty broad turn -- term. let me ask you this. if you have an ied and the need to get a medic to deal with the injuries that are outside the embassy and/or you are under fire and you have to shoot your way out to get back to safety -- in either case, you have to get someone there to attend to the wounded and you have to aggressively use force, and you have to aggressively use force to get out, why do you think

that is not an inherently governmental function? >> because i believe, that even in those circumstances, security is not inherently good -- i regard that -- there is law enforcement, inherently governmental and then a security. >> let me just as it does, ambassador. you use the security that covers such a range. i really narrowed it down. we have to fight our way in to get to people who are injured and we have to fight our way out to get away from it. we have to use an aggressive effort with guns, with weapons, to do that. why is that not inherently governmental? >> because it does not meet the definition of an inherently governmental. >> the definition is something that only a government entity -- i realize it is a circular definition.

>> let me take an example. why then do you say, ok -- and i can use the contractor. i propose maybe you use the contractor out of necessity. because otherwise, there's an whole lot of combat medics both paying attention to this -- army combat, navy corpsman, maybe some rolling around in their graves as saying what is going on here? because the army and the military have always made the decision that combat medics are done by a military person. by default, that is inherently governmental. when they fly a chopper in, and commissioner shays talk about being under fire. if you have an ied, and call it what you want, they are under fire. nobody leaves of the injured. they have lifesaving. the united states army does not use civilians -- government or

otherwise. >> the united states army's primary mission is to project force and -- in defense of the united states and its values. >> that is projecting force. talking about a rescue mission that now you are picking up. it is life-saving. >> i am saying that is the distinction. projecting force is inherently governmental and life-saving -- >> are you comfortable with that definition? >> let me tell you and response of the second part. i am comfortable with this definition, yes -- secondly, there are 1800 and some odd department diplomatic security professionals in the entire world. i need, i believe is -- something like when all is said and done, i am going to need something like close to 7500

static, just that guards, for but afghanistan. >> ambassador, i know where you are going and i am going to agree with you. the bottom line is a necessity requires you to use contractors because you have such a huge need. that, to me -- let me say, you are a very candid witness so i appreciate the dialogue. but a more helpful response to this commission and the other, and to congress, would be -- guess what? we have no choice. we have to use contractors. what i fear is that you feel if you have to use contractors and you are using them for inherently governmental, then you are just breaking the law. not a criminal law, breaking the law. i think one of the recommendations -- and let me ask you. one of our recommendations may need to be that there needs to be a recognition on the part of government that sometimes we have to use contractors, non-

government people, in inherently governmental situations because, as in your report talks about in a qddr, that sometimes contractors of dvr the default mechanism. maybe you need that default mechanism. i think that is where you were going with that answer. >> essentially, i know i have a mission that has been given to me. lawyers that i have consulted with tell me that the security as a postal law enforcement as opposed to military force is not inherently governmental. if the commission says that process of that analysis should be changed -- i mean, i am not going to object to that. i know what the basic number is and i know there is a curve here that tomorrow -- and hopefully some indefinite tomorrow -- i and not going to need 7500 u.s. government employees to provide

statics security. and managing and recruiting that process -- >> we are hearing two things and i am going to agree. one is, it may not even be possible for you to have government people fulfil these functions, and the second thing we are hearing for the record is, that you would have to build up to a point and then would you be able to use these folks later on when the contingency draws down. those are two valid points. what our commission feels is in may be unfair to people like you to be put in a situation where you may have no choice but to use contractors and then have to kind of claim that what they're doing is inherently governmental. i will put that on the record. we are going to start with mr. thibault -- four minutes. i have told fox fairly accountable. >> all right.

i have not even said hello. ok -- we generously guard our time so therefore i will make a couple of observations. i think you also have been candid, ambassador, and i really respect the mission that the state has assumed and i think part of the mission you have been given -- of a summation of what we are seeing here -- is wrong. those parts -- and we have given plenty of examples, where those situations that have had historically been united states and military and they are the be world, you have been asked to transition into accepting that, and the use of contract workers is the only option. you do not have an option, and many of those people could be falstaff, and i cannot say

enough for them. the observation i have made, and i will sum it up, it is the year 2013, and we toss numbers around, but the d.c. a a backlog for all of those years, buy it there estimate it is going to be $800 billion -- by their estimate, it is going to be $800 billion unaccounted for. it cannot be audited. contractors pulled it back because there are questionable costs. k b r -- and i gave an example where conscientiously they have gotten 2006 back and but they have struggled to get the rest back in. my whole point is, i propose you

ought to become a more visible champion for dod, assuring that you do on a reimbursable -- what you do not reimbursable basis is fully staffed so they can make -- to on a reimbursable basis is fully staffed so that they can make a dent in the backlog by 2013. seven or eight years -- that is what it will be that will not have been audited, and i have to worry about what is the impact. i believe you could be a champion for that. probably the area with the biggest amount of dollars we have ever spent is logged cap. you're going to transition to logcap and use dod initially. >> for life support. not for maintenance --

>> that is correct. is that this year? >> it starts july 31st. >> so you are, in fact going to use logcap 4 in a manner which we support. we took too long, but we fully support rock island. >> we are using rock island. >> i suggest that as you go through and evaluate that, you are using past performance, current issues. someone ought to come in and ask, why did you pull those out? it is a fair question. because theheire senior vice president to say i've certify all the costs, and

then they do not. i do want to thank you. i may summarize these questions and provide them to you, but the last thing i want to say on the supporting side is you probably use or maybe were fortunate -- i have seen the best transition -- the four view, providing notes -- i have seen that so often -- it is really nice to see people who know how to give the notes to a witness. >> i am a great witness because i had a great teacher. dr.. >> thank you. ambassador kennedy, although occasionally these are combative questions, your longstanding expertise is an acknowledged. i am sure on time -- short on

time, but i have three questions. i was pleased to hear that you're going to take another look at the $132 million for an embassy compound. i think commissioner ervin for piping up on that because he is a former state department general and he knows that there is more to the report than other people might realize. in that regard, i hope that you'll not only ask again whether the state department has more information, but more important, because this report ordered the design of a new embassy compound in baghdad in 2009 -- it is extremely detailed. they may just say, we put what

we have into the report. that should not be the end of the matter. my second question is, of the police training money, you have collected $42 million. you are going to seek $37 million back. there is $109 million in reduced billing. i hope to confirm that once again because that is what the public will be hearing. i want to say about the fee of 512 million, i am one of the people that thought that was a credible figure. i do not want people to be wondering where it came from. the reason is because the report on this subject in january, 2010, said, "as a result, inl has no confidence in the accuracy of over $1 billion of charges. "

i would like to find out -- suppose we want to look and say where did the rest of our $1 billion -- why did only $200 million of that get into -- would it be ok with you if they followed up their previous audits and find out why inl took that money out? on a limited review of yours going on, you said you got an oral legal opinion, and at another time he said u.s. stand on what your legal adviser has told you. that is -- another time you said you must stand on what your legal adviser has told you. that is oral.

we would like our written legal opinion, public, because this is very important. >> obviously, as i said, i will raise this again with the inspector general about the first kuwaiti. on the police training contract , and they're perfectly free to audit -- a audited once, if they want to audit again -- i have made it clear to this group that they're free to audit reconstruction activities in iraq. they are not free to audit the base element of the state department. that is the jurisdiction of three other entities. on the review, i will talk to a certain former law professor and ask him what his opinion is on this matter. >> thank you.

>> the first recommendation in our report was to do a comprehensive risk-based management assessment. your answer was the need to identify organic resources. i am looking at your qddr. you just told us the law enforcement is an inherently governmental function. >> correct. >> on page 179 of the qddr, when you read it with your mind open, it is a little dog dropping.

jaw dropping. you talk about inl and the i.t. guys. they both work for you, right? >> inl works for the undersecretary. >> i applaud you for being candid, but we cannot let this pass. given the importance of the securities sector to states mission and the fact that the inl workforce comprises only 5% direct stake hire employees, rebalancing is necessary. -- state hire employees, rebalancing is necessary.

you're telling me that in the inl work force, it is 95% contractor. that is what the qddr says. is that what the qddr says? >> yes, but there is a major distinction between law enforcement, the power to arrest, and training law- enforcement. i do not regard the training of foreign law enforcement as inherently governmental. it takes many, many forms. what the qddr also talks about -- and this is a specific request to the secretaries which we also agreed on, is that we have been in numerous consultations with the department of justice to find out that in lieu of contract in for training, did they have --

could they put at our disposal, could state and local governments put at our disposal generally foreign officers? >> generally the answer has been no because we do not have the capacity. therefore, we have to hire contractors or personal services contractors, right? to oversee the inl contracts? >> correct. it calls for an in-depth assessment and cost analysis to determine the appropriate work force benefit and expertise. >> it is ongoing. the chief information officer is looking at what cost savings might be obtained by federalizing, in effect, part of her work force. >> cost savings are not relevant

if it is inherently governmental. it is inherently governmental, we can have a discussion about that. >> the full analysis of both of those is that there are -- those are being looked at to determine if we have any activities that are inherently governmental now being done by contractors. the examples of the cost savings run the gamut of is it cheaper to bring in house than to contract out? >> will you share with us at the appropriate time the results of those analyses? >> i would be glad to, but i am not sure they will be done within the commission's time frame. these are very complex issues. >> one last question. i will be brief. at some point, security of the embassy was provided by u.s. troops. 2001-2002.

>> the very beginning. as it was iraq. >> in a stand that the dod said, not our mission, give it to state. did state agree with that decision and embrace it and say, give it to us, it is not inherently governmental? >> i was not in a position that was involved in that. i will be glad to check for the record. however, it is the consistent opinion of the department of defense that they will provide -- and we are deeply appreciative of -- emergency assistance. for example, in yemen, with all the turmoil there, we use our existing staff, but i will get the details for the record. >> i have a couple of quick yes or no questions.

i know in your response to our recommendations you make reference to waivers for course certifications which are available. that tells me maybe you have made use of waivers. would you include waivers in that listing? second, as you know, there's a requirement that each agency review and evaluate its acquisition function. have you done that evaluation, and if so, is it possible for you to submit that for the record? >> that is an internal document. let me check with our lawyers because of the unique nature of the executive legislative branch and this commission. i think i have given you everything you have asked for up

to date. i just have to check on that type of internal documents with our council. >> dod has already set up a transition to the state department. has the state department set up the transition with contacting in mind? >> yes, we have. we are actually dispatching our chief management officer in kabul and an officer who has been intimately involved in the same office working on the transition. >> i'm glad to hear that. secretary gates sent to secretary clinton in december of 2009 a memo looking at alternate ways to pool funds and resources for those missions that had become conflicted

between the departments they -- department of state and department of defense. do you know if the state department ever responded to that request from secretary clinton? >> that activity has been worked out. >> is there a formal or written memo? >> it was essentially resolved in the budget request. what you see in the budget request represents the collective administrative -- administration position on that. >> is that part of putting everything in the account? >> that account is related but separate. the account at the state department is simply how we request those sums either for

our operations or for the result of the agreement between state and defense. >> said the authority expired and now there is something in the fyi 2012 fax >> yes. -- in the fy 2012? >> yes. at thee been looking appropriate mix for the work force with an eye toward some of the problems that agencies have had getting civilians overseas. we had ambassador herbst before us over a year ago talking about the fbs which has gone out of existence -- dare i say it was a failure. what is your prognosis for being

able to get the civilian presence -- not just the state department, but other civilian agencies into iraq and later into afghanistan? >> the state department has filled every state department position in iraq and afghanistan. i would like to specifically note the incredible assistance provided to us by the department of agriculture in deploying personnel from all their field units around this country. we are filling those jobs. the contingency question that you raised is one that is specifically called out in the qddr. there is a task force at the state department reviewing structure, function, way ahead for the civilian stabilization. a new bureau has asked for it.

>> yes or no -- i will get a yes or no as a conclusion. you have been able to get all the civilian representation that you wanted, yes or no? >> no. >> that is the conclusion. thank you. >> the conclusion has to be specified. yes or no answers are not always -- >> we have a no, but if you want to qualify it, it is on your time. >> i will keep going. >> i would like to draw out of your long answer what the bottom line was. >> some agencies have had the resources to provide personnel on detail to the state department. other agencies because of their missions in the united states or elsewhere have not been able to -- >> have chosen not to provide -- >> have chnot been able to

provide -- >> in some cases they have chosen and in some cases they have not been able to. >> i cannot let that pass. we were in afghanistan and we were told that the agricultural department had left approximately 40% of the slots and unfilled. of those that were filled, they had no capability to deal with the problems in afghanistan. with all due respect mr. ambassador, i think what my fellow commissioner is saying is, it is not exactly as you are putting it. the agencies are not forthcoming. they are still not fighting this war. even when they send people, they send the wrong people if they bother to send them at all. i insist on putting that in the record because that is what it is really like out there. i want to ask you about one of

your recommendations regarding certification. we noted in our report that agencies have conceded that they do not give priority reporting past performance assessments into the official data base. we have said before that this ought to be certified. the database is actually used. the state department says we disagree with that because accurate information, comprehensive coverage of contractors and assessment of performance will make it database a saud after tool. sure, if it is done. to you -- a sought after tool. sure, if it is done. do you believe is being done? >> we are all now filling in the new tool. i know the state department is populating the data base. i cannot address other agencies.

>> we are concerned about use and certification. do you have any statistics at all to indicate that the use has increased, that people are actually using the database? what do you have to base your disagreement with us that such certification is not necessary? >> i can tell you is that the state department checks all available information before we award contracts. >> well, it would be nice to get some set of statistics. i do not know if you can come up with that. i have another question in a minute or so left to me. in your testimony, you talked about achieving greater efficiencies with new contract terms. you mentioned reduce acquisition time lines and timely options. could you give me a sense of the

magnitude of the reduced acquisition time line and what the time the options are, what you mean by that? >> taking the second first. when you have a master contract for which you have pre qualified 8 terms and then you compete -- complete the specific task order. if for some reason one of those contractors fails to mobilize or for some other occasion cannot perform, the fact we have a qualified and we have their individual bids, enables us to immediately go down that list, whereas before we would offer one contract at a time and you have to go out and we compete the contract. -- re-compete the contract. it eliminates weeks if not months of effort. >> and reduced acquisition timeline? >> i think the fact that we are

awarding the contracts, such as the medical contracts for iraq, the medical contract, the security contract -- and mean, this goes to a very inherent point in the inspector general's report. this was a snapshot and in the third quarter of last year. he was absolutely right. it is absolutely right. on the date that picture was taken, we had not awarded in medical contract or the security contract. as i outlined today and in my written statement, now, and the sixth of june, we have done this and this and this. snapshots are good to call things to our attention, but this is a continuum. this is not a sprint. this is a marathon until we hit midnight on december 31st, 2011, and when you look across that timeline, this is one of the most difficult things we have

ever done, as the commission has noted, but we are making the hack marks as we go down the line. >> obviously, we have issues with some of what state does, but you're a good witness because you do a good job. thank you. >> thank you. >> island back in the interim time to look your full response -- i went back in the interim time to look at your full response to our report. basically, what you say is that there are two kinds of agencies with regard to suspension departments. there are those were the evaluation and recommendation is made at the lower level, and then the determination of whether to suspend or debarred is made within the agency by somebody higher, but the decision maker is somebody within the management chain. then there are other departments like the state department where

the person making the ultimate determination is someone quasi- independent. year concerned, it sounds like -- you are concerned, it sounds like, by two things. one is the minister of burden, and two, the compromise the independence -- one is the administrative burden, and two is the compromise of independence. we say that there needs to be written justification that needs to be approved by the agency head. i am happy to modify that recommendation so that the approval concurrent of the agency head is not required. that is not important to me, and i would argue that it should not be important to the commission as a whole. the issue is that whoever makes the recommendation, that person,

whether within the chain or independent, ought to have a written justification for the file as to why that determination was made. as far as the administrative burden, to me that is nonsensical. i would urge you to rethink it. >> as i promised the chairman, we will look at it again. as you rightly noted, we have a great concern about compromising the independence of the executive who has a great responsibility. secondly, we want to make sure that anyone, especially someone on the outside, can bring a charge. if the charge is truly frivolous or very serious -- spurious, giving the credibility of documenting it rather than just

dismissing it -- >> we're talking about recommendations being made internally that have been overruled by somebody within the management chain or an independent. we are saying that whoever that is with the authority to overrule, the recommendation within the department by competent individuals, presumably -- >> we document it. we read your recommendation, 23. that could be by anyone. >> officially, could be by anyone? >> could be from another agency -- yes. we will take the chairman's notes. we will take the two which i regard as clarifications -- maybe we misunderstood. but you posited two clarifications that i did not read when i read this, what the

intent of your recommendations were. that we would not have to put oversight on the procurement executive. >> fair enough. >> for an internal, external question. we will take those into consideration as the chair correctly asked me to do. >> thank you. >> ambassador, i have just a few questions and then we will let you close. the commissioner was making reference to dod kind of pulling the rug out from under you and the department, saying you have to provide protection and security to your embassy in kabul. it ended up that you hired armed groups. during that dialogue we had in 2009, the middle of 2009, we realized that we had to get the

lowest priced contract instead of the best value. we jumped in to try to help you will deal with best value. what is disconcerting is that the group is still there. why is it disconcerting? it is disconcerting because they jeopardize the security, in our judgment, of the embassy. second, they brought tremendous disrepute to our government because they, in a sense, were defending our governments and the sea, and thirdly, the whistle-blowers -- government's embassy, and thirdly, the whistle-blowers are still there. one of the reasons we recommend that a ko'd array of people stepping in is the subcontractors -- cadre of

people stepping in is so that contractors cannot say, fine, use someone else, and you have no one else. my question is, why are they still there? >> they are there for two reasons. one, we have recently just awarded a new worldwide protective security contract and are completing the task orders. this is one of the examples where the original low bidder for that specific task order did not mobilize in time. that is why we are going back to that information. >> this goes back to our ability to have a worldwide protective security contract covered that allows us to move to a replacement entity. >> we wonder why though there

should not be within your department a cadre of folks who can step in immediately to deal with a challenge like this because the contract in process takes too long and is highly imperfect. >> by my notes, we have something like 4900 static guards in afghanistan. that is a very, very large number. even at 4900 #, you have to add about 50% factor for training and movement. none of us are going to have a swat team of that size. we really do have to work.

>> we're thinking it may be foolish, may endanger our embassies, may endanger our goodwill, and we think the expense may be worth it to have a cadre you can turn to quickly. because the bottom line is you are stuck with them, and that should not be. let me make an argument for you to rethink your opposition to -- >> it is 760. 4900 is a grand total for all overseas, so it is 760. even when you add that rotation, it is over 1000 personnel. we are not funded or programmed to have that kind of a reserve force available for immediate -- >> your not, and the question is should it be, and we would argue it should be.

i find it difficult to understand the opposition to an independent inspector general for contingencies. that is based on my experience in congress. because frankly, as republicans and democrats both realize, we are not seeing the kind of oversight of contingency contract thing and when we then got in there, we began to see that the other in spectral generals -- inspector generals are not paying attention. one of the values was a kind of raised attention for everyone. secondly, the very example that you are raising the they do not have the legal authority because they were given only a certain chunk of contingency -- we believe they should have the

full bretadth. we want a permanent inspector general that has the ability to cross different departments to do enter and intra agency activities. we want them to be able to look at state commandeered the -- at state, dod, one. we would like you to reexamine this in light of the fact that huge savings could take place. you have a final word to close up. you can take as much time as you want. is your time, and i will just say again, we appreciate the candid dialogue and we look forward to getting back some of the things you said you would. >> let me respond quickly to your chairmquestion.

i think you're correct that there was not the full in-depth focus that should have been made in the very beginning, but i think the corrections we have seen dod now deploying their personnel in theater, the state department opening a regional office in the region to deal with both iraq and afghanistan, does address the question of focus. secondly, i think on your question about the breadth of the responsibilities of an inspector general, i certainly agree that we need full breadth. at the same time, when you are receiving a request such as in to investigate not the activities -- >> yu of party address that, honestly. -- you have already addressed that, honestly.

>> i am saying that i am opposed to having a third-party inspector general so to speak as opposed to a second party investigate the platform that the state department is operating on. one has to understand the platform, the general accountability office, the state department, the inspector general, understand that platform. and then there is what is riding on the platform, and i have no problem with that. there are some 15 different united states government agencies operating overseas. if i have to have each one of them authorized to investigate my platform, i will never deliver any services under the platform, i will just be doing questions and answers. i think that is a detriment to the united states national interests of blog -- interests abroad. >> let me ask you, have they

closed their middle east office? >> they have not. >> how many people are there? >> i will get the for you, the they have not close the middle east office that i am aware of. they have just done another report. about peopleing there, not here. >> they are there. >> you have a closing word now. any comments you would like to make. >> commissioners, there is no doubt that the activity that the state department is engaged in in iraq and will be engaged in in afghanistan when the time line is fixed for the withdrawal of united states troops is unusual. it is beyond the scope of anything that we have ever done in the past, and that is the knowledge. on the other hand, the state epartment has historic pleally

stepped up to challenges. the fall of the berlin wall opened up 24 new posts, and then there were the tragic attacks on our embassy in nairobi which caused additional funds to be appropriated to the state department. we have 77 new embassies built in the past decade-11 years. we know how to mobilize for this activity. we have the confidence. we have the personnel. we absolutely in this case have the full and unerring support and partnership with the department of defense from every level from secretary gates and chairman mao and all the way all the chairman milullan,

way down to the property clerk's we are dealing with in iraq who have provided us with almost 46,000 pieces of equipment. there is a lot of work to be done. it is entirely correct that when the inspector general to a kiss snapshot last fall, there was a lot more to be done -- took his snapshot last fall, there was a lot more to be done, but as i outlined in my oral testimony and written statements, many if not most of the issues raised by a the inspector general -- correctly at that point in time -- have now been resolved. in the remaining six months, we will resolve the remainder of them. we of the contracts in place. we are in the process of awarding those we have not already awarded. the congress has provided us with funds, not all of the funds we might have liked, but we have adjusted the mission -- not the safety or security -- but we

have adjusted the mission to work with the dollars available, which is what any executive branch does in our democracy. my last point is i want to thank the commission for calling attention to the issues we do have to address. your assistance a year or so ago in allowing us to make contract awards on best value was incredibly helpful and is part of the new world wide protective security contracts that we have awarded the master to and we have already awarded several task forces under. it is a long road. it is a marathon. i think we have already crested heartbreak hill, and we have only so far to go. the time there remains a short. anything can go wrong, and i am sure that something will go wrong, but with the teams we have and the executive steering group, the teams in baghdad, teams at state, dod, a joint

teams and the staff i have brought with me plus many more staff who are there to be have phone calls three times a week at 8:00 in the morning with everyone in baghdad -- we will deliver on this mission because it is in the u.s. national interest that we do so. thank you very much, ladies and gentlemen. >> ambassador, thank you very much. have a good afternoon. with that, this hearing is closed. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> german chancellor angela merkel is in washington for daylong meetings with president obama and the administration. the two met earlier and will have a state dinner this evening. we will have coverage here on c- span. we will cover the state dinner at 8:00 p.m.. all of that is live. in about 15 minutes, several former head of the congressional budget office will discuss a status report on the nation's deficit and debt. that is a 3:00 p.m. eastern, live from capitol hill. we will have it for you here on c-span. until then, part of this morning's "washington journal." ork is james o'neill serving as the executive director. we invited you on as a -- to discuss college. before we start, can you tell us a little bit about a program --

that the head of the foundation has on a program. guest: we want to create an amount of tactical innovation and in america. we want a 24 innovators under 20 years old with a two-year fellowship said they can pursue technological projects. host: you are asking them to drop out of college to do that. guest: they can always go back afterwards. pursuing a technological company is a full-time job. host: tell us about the process of choosing these students. where do they come from? guest: we got more than 400 and applications from more than 20 companies. we brought the final was filed for personal interviews.

24 really brilliant fellows have been picked and announced them last week. host: you are asking them to take this money to develop something. what guidelines to you give them? what is the goal of this project? guest: the products are up to them. they can change their idea or project. we want them to have something they are passionate about. we are giving a lot of it buys and counseling. we have several mentors from our net worth in silicon valley. we will host regular conferences and other events to give an expert to advise. our hope is that each of them will pursue some idea they are passionate about. with any luck, they will come up with great inventions that will increase the quality of light and the economy. host: why can't they do this

while pursuing an education as well? guest: it takes so much time. it is a full-time task. there is no way to do that while they are taking on a second commitment at the same time. host: is the product making a statement about college education or the dalia of going to college? guest: that is not the primary goal. we are trying to push the economy forward. if we think that a lot of people, college is overpriced. they may not be getting their money's worth if they are paying a lot for college. many are taking financial risks. that is a factor. host: there is research that shows those graduating seniors,

the proportion of debt ratio is 55%. guest: that is right. student debt surpasses credit- card debt of around $1 trillion mark. it is a burden for a lot of people. it prevents them from doing what they really want to do. host: there is something called an education bubble. guest: absolutely. if you think about what people were saying five years ago, they were saying, go ahead, buy a house. it is the same investment. what can go wrong? we know how that ended. we hear something similar. go ahead get a college education. do not worry about the price. he will get it back later.

that is inaccurate. a lot of people pay a lot of money and go into debt for a college degree. they get a job that does not require their degree. other people never graduate. others wind up in not an interesting job and paying a significant amount of debt and interest every month that prevents them from saving money. host: the executive director is with us. if you want to ask questions, call the numbers at the bottom of your screen. you can also e-mail us or send us a tweet.

on the website, it shows various students you picked. what happens if they do not succeed at what you want them to do? guest: it is what they want to do not what we want them to do. they can change their product to something else. that is up to them. everyone is going to work hard on their products. if it does not work out, they can think of a new idea and work on that. our requirements are very minimal. they work hard, they report on their progress, and do not hit any distractions. there are no metrics for performance or achievement. we are confident that they care about that on their own. host: our first call comes from south dakota on our democratic

line. caller: i believe there is a segment of the college population that may not be doing well on several levels that would be excellent candidates for ending their pursuit of a college education and getting employment immediately. i do not think there is a thing like having a college education. i do not want you to discourage a large population from doing so. it looks good on a resume. guest: i generally agree. that is true in a lot of cases. for a lot of people, a college education has value. there is not anything you can say that you can count on a college education. the curriculum in standards are very different.

to say a college education means a certain thing is a little bit vague. a lot of people go to college and do not want very much. others learn a lot. there are other ways of learning things, skills. everyone should think seriously about their own situation when they are a teenager about the different possibilities before them and think hard about the costs. make a wise decision. for some people, it means going to college. for others, it does not. host: conn. caller: are you talking about the cost? we need more knowledge to do anything. is it a cost only?

what is your premise? please explain. guest: there are reasons to be concerned about how much knowledge and the price. a study was released a few weeks ago that says that 36% of college students after four years have learned very little. 45% over two years. people on the other side of the equation -- many people are probably not learning very much. the amount of knowledge people are getting barry is wyeth -- widely. the price is a concern as well. host: with the high school graduates, the rate is 10%.

those with some college and in the degree is about 9.2% as far as unemployment. college graduates, about 5.4%. greensboro, north carolina. caller: i just graduated from college last year. i think the real problem is that people are not given a chance to learn what they are fed at and apply themselves to a specific field. if you are talented in something, you should get the skills. you should get a chance to be who you are. if you cannot go to the school

you want to reject i went to my college because we had a great library. i like to read. i can do other things. host: what degree do you have? caller: theater. i am working on becoming an actor. guest: i think he makes a good point. there are probably weighs high school could do a better job preparing people. maybe some people, different kinds of math courses. high school can give people skills that can be useful. college should not be a remedial high school. different skills are suitable for different careers.

host: new jersey, republican line. caller: of a like to ask about the role of government spending in giving money to colleges. is that one reason why tuitions are so expensive? guest: whenever government subsidizes something, usually it creates more supply and awesome makes the price wars. that is a good observation. we have seen government spending on education go up dramatically over the past decades and tuition has gone up dramatically. host: there are several comments about this program when it came out. one came from this person who says this. guest: my initial response is

that we are not doing an experiment but trying to create real companies. we are trying to create a real difference. it is not an experiment but a real life. if we were doing an experiment, it would be easel to quibble with which 20 people we pick or staying in school and so forth. it is not an experiment but real life. we pick real people. they are passionately committed, and i think they will do really good work. host: do they come from ivy league schools or state schools?

what is the spread? guest: we ended up with 24 finalist instead of 20. some came from very delete old universities. some came from state schools, even community colleges. several were seniors in high school. host: sun city, fla.. caller: i am concerned about the high cost of a college education. it cost me $5,000 a year to go to college around 1965. i had professors that had doctorate degrees not graduate students. i look at the situation now. students can watch a lecture on their computer.

they do not have to leave home to get a college education. they just go to a room and get tested now and then. host: is technology changing higher education? guest: absolutely. some universities are putting lectures on line. more changes in the next five or 10 years. people start embracing the value of lectures delivered over the internet, of books being cheaper. interactive courses in the new companies create new designs for teachers interacting with students. is will drive the real cost of knowledge and skill based education down dramatically. prices for degrees will continue to go up. host: democrats line.

caller: i am really enjoying the show today. i hope people are realizing that what james is doing is not taking your average kin but needs to be motivated. he is taking motivated, passionate kids that are already on a path to great things into nurturing that. that is what is lacking in our system. capitalism and education do not mix. you can see that schools are a business right now. the amount of "washingtonoday's journal" available at the c-span video library. the university of maryland public policy in georgetown university press have invited

four former directors of the congressional budget office. it is being moderated by the look joyce, a professor at maryland public policy school, and author of a new book. live coverage here on c-span. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> we are going to get started.

good afternoon. i am still enjoys. on behalf of everyone of the maryland school of public policy, i am happy to welcome you to what will be a likely discussion about the budget problems facing the country. this is the latest in a continuing series of conversations we're having about national importance. i am delighted that so many people of diverse backgrounds and organizations founded by their singular attraction to discussions of the federal budget are with us this afternoon. before we move on, i want to pass on a couple of think use. the first is to georgetown university press, which is a co-sponsor for this event. the second is the house budget committee for letting us use the hearing room. it is indeed inappropriate forum for discussion of the debt and deficit. we were treated to a near- government shut down earlier

this year. by early august it will be necessary for the federal government to increase the country's debt limit in order to present an end president did level of the dutch. the that -- the levels are unsustainable, making it imperative that something be done about them. there appears to be little consensus by what, by when, and by whom. to help us address these questions, we have a list of panelists to our go-to people. indeed, this is one of many things they have in common. not only are they among the nation's most accomplished economist, but together they constitute half of the individuals that have been directors of the cbo. cbo as most everyone knows and most everyone in the country has its founding in 1975 become the source of objective analysis of federal budget issues and a critical juncture help to clarify perimeters of the school

debate. the one we are engaged in now will be no different. i want to briefly introduce each of them. it recognize all of their accomplished, and i take all the time we have, but i will hit the high points. we can then move to their immediate thinking on the current budget challenges. to my right is alice hamlin. she is a senior fellow in the economic studies program of brookings. she has almost literally down and all. she's a former director of omb. chance had a couple of sense of brookings. she was co-chair of the task force on debt reduction. and also on president obama is that commission. in 2008 she was named one of the greatest public servants of the past 25 years, but there is a single line that represents her greatest accomplishment. it simply says she was the founding director of the

congressional budget office, which she served up from 1975 to 1983. enner. right is ruby pointe previously he was a managing director of the parents group, which is a p&g company. the is been affiliated with the american enterprise institute and held many positions at government, omb, hut, and council of economic advisers. he was the second director of omb. robert reischauer is president of the urban institute. he was the vice chair. he is also one of two public trustees of this also security and medicare trust fund. he has also worked at brookings and what alice when she set up cbo in 1975 and also served of the agency's assistant director

and deputy director. froms cbo's third director 1989 to 1995, during which the great time i have the privilege to work for him. you may be expecting me to tell you that douglas holtz egan was the fourth director of cbo's, but this is not true. he was the sixth director of cbo. having served from 2003 to 2005, he came immediately from the white house economic council of divisors, before which he had is distinguished economic career. he was director of economic policy for the john mccain policy. even though we are in the house budget committee hearing room, where each of these individuals has spent countless hours delivering prepared statements, we wanted to avoid prepared statements and make this session as interactive as possible. therefore i will pose questions to which each of the panelists

will respond if they so choose. for each question i will then open up to a more interactive discussion among the panelists, and then the panelist and the audience. i cannot wait. i'd think i will start with the first question. that is that the financial markets, for example, standard and poor's and moody's, and others say it would take a credible plan to reassure them about the ability of the u.s. to reduce debt in the medium-term. what i would like to know from the panelists is, what does a credible plan book like, and that is, what would be the minimum requirements for a plan to appear credible? i will turn to alice's first. >> yes, i do. for philwant to think phi

writing this book in recognizing cbo is an important organization. back to the question of what is a credible plan? there is no single answer to this. i spent the last year and a half serving on to commissions, and the objective was to answer that question, how do we get the federal budget back on track. the president's commission and the one i co-chaired with my old friend peak demand sheep were both bipartisan. i think we learned it is possible to put together a bipartisan plan that answers that question. -- pete dimenischi. we decided that you were not aiming to pay off the debt or

even to balance the budget. the first thing to do was to stabilize the debt so that it is not rising faster than the gdp is growing. stabilizing at roughly 60% of gdp has come to be sort of a mantra of what constitutes the objective of a credible plan. when you start working through the numbers to see how you get there, you do not have much choice. you have to do something to put social security on a firm foundation. there are lots of ways of doing that, and we may get into a discussion of what is the best way later, but you have to slow the rate of growth of the entitlement programs or you cannot get there. and on the other hand, you cannot do that quickly, so you are immediately driven to the discretionary spending side, which can be controlled faster.

both of the commissions rose discretionary spending for quite a number of years. when you get through all of that, even if you start with an ideology that says it is a spending program and not revenue program, you realize you have not solve the problem and have to move to the revenue side. that drove both commissions to substantial tax reform that would improve the efficiency of our taxes them and allow us to make -- to raise more revenue with lower rates. i think the arithmetic right to there, that that basically is that outline of a credible plan. >> thanks for organized this, and think you for a very good book. i do have one disappointment. we have all spent countless hours testifying here. i was really hoping to set up

there. [laughter] here we are in the pits again. my great fear is maybe there is no such thing as a credible plan in the following sense that the parties that have become so ecologically appear in the ideologies are so far apart that what one party might think to be a credible plan, the other party thinks to be totally non- credible. it is very hard to see them agreeing to the plan that alice put forward. partisanship, but i do not think that is the right word any more, though i have used it often myself. hard to think of anyone more partisan than tip o'neill. president reagan could deal after deal with him. the two of them agreed secretly

not to oppose the recommendations of the greenspan commission on social security. cannot the imagine somehow speaker brainer and president obama agreeing to anything like that. it would have been nice if they would have agreed not to oppose or support the recommendations of the fiscal commission when they came out instead of recommendations that i would adopt in an instance on health care costs. again, it is very hard to imagine what kind of plan the parties could agree to today. >> thank you for hosting this discussion, and congratulations on the book. when i walked in the room i was handed an envelope, which i understand has a credible plan in it. [laughter]

but so as not to be an advantage over my colleagues here, i have decided not to open it yet, so maybe at the end i will open its and reveal the credible plan. credibility has a lot of different dimensions, and some of them are substantive, some are procedural, and some are attitudinal. i do not think credibility involves a number like it has to be two trillion dollars over 10 years or three trillion dollars or anything. i think it involves taking a significant step in the right direction. this is a many inning game that we are in, and it has just begun, and i think all of us would fall over in a dead faint if the plan that would get us to 60% of jet -- debt to gdp ratio

were enacted this year. what would we do for the rest of our lives? [laughter] >> sounds good to me. >> a certain serious not for to a really important how big, and something that is perceived by markets and leaders as being sustainable. that involves a degree of balance as alice has suggested. not all taxes, not all spending, because i think anybody with any political judgment at all would say if we go too far to one side or too far to the other there will be a political reaction, and different group of folks will come in and turn the card over again. it has to be a plan which the public and the policy makers

think is the best they can get, and understand that they will have to take this medicine. i will talk about that later in answer to some of the other questions that are raised. it have to has -- it has to have safety belts that if the ends do not go right in the sense of the economy or world events, there is a way out that does not involve huge and wrenching procedural changes, and there has to be some kind of enforcement mechanism that if the system tries to undo it, or it fails to achieve at the modest goals of that it has, there is someone standing in the background that will push us forward. those are the elements that icy and the credible plan, and let's

hope they are in here. [laughter] ." >> let me also begin by thanking the right people. it in any way i contradict what is in his book, it is the fault of all there, not the interviewee. all my life i have had to go after alice rudi and bob, and i always -- they always say everything i'm going to say again come into this happening again. [laughter] i am delighted to be here. on the credibility issue, the reality is credibility is something the market believes, and that is a very slippery concept, so we do not know. it has been incredible the market has believe that things they have believed it thus far. certainly changing the direction is imperative, but we do not know exactly what it will buy into.

i think we should think about it in particular ways. number one, it is not our bright line. there is more and there is less, and just as there is no bright line, at which point interventional -- international markets will lose their faith in the united states, i believe we're close to that and should move in the other direction as quickly as possible. we do not know what the number is or the content is. more is less. every juncture we need to be getting more in the way of the long-term fiscal out set. what we're really worried about what is the first step? is the first step corn to be compelling to those international lenders that we care so much about? i think we do know a couple of things. i think the policy changes are

better than process solutions. it is more convincing to actually change the actual structure of entitlement programs as to reduce the budget commitment in the years to come than to set targets for the promise to do that at some point in the future. the more we see the congress and administration touch the kind of policy choices, which alice went right to, i think the more we see that the better. her menu choices are the right choices. the more they can get of that in the first deal, the better off we will be. the less we see of them and the more we see of appeals to targets in triggers and promises that -- the next crowd will be really good at this. >> are there anything that any of the panelists have to respond to what they have heard from each other? >> i would like to make a

comment on doug's definition of credibility, which is what ever markets will believe in to cast our eyes back a few years and remember markets will delude themselves vary greatly as long as they possibly can, and we saw that right after the fiscal crisis. i would not put a lot of faith -- to get by all you need is for them to believe, but they will believe in almost anything that makes them a book. -- makes them a buck. right, but when markets move, they move fast. and i agree with what several people have said there will not be one plan, there will be a series of plans and did not mean to imply otherwise. i certainly agree with doug that

it is a lot better to do substance than process. on the other hand, we're running out of time with respect to the debt ceiling. when you think about what it would take to actually legislate significant medicare and medicaid reform and tax reform, i do not think we will be able to do that by the second of august. the question is, what combination of substance and process can we put in place that is credible? >> i would like to, if there are questions from audience in terms of what a credible plan looks like, what might look credible to you, if anyone has any questions, we would be happy to entertain them. there is a microphone we can get you. all you have to do is raise your hand.

please identify yourself and where you are from when you ask the question. >> [inaudible] >> i do have a credible plan. [laughter] i think we have it now. >> a couple of years ago or even last year we would have sent -- said we would have to distinguish between the immediate near term in the medium-term. a point in some eyes may be underscored by the economic reports of recent days would suggest the economy is doing very badly, and the main story

to it doing badly is cutbacks in spending, particularly at the state and local level leading to big hits and employment at that area. i know i have had a conversation with each one of you talking about the need to distinguish between pushing the economy in the short run, and somehow credibly moving in the medium term to doing opposite. it is not at all clear that the political system is able to do that sort of thing. we obviously went a long way in the stimulus package two years ago, and now we are full speed ahead for the current administration is trying to people speed ahead going in the other direction with total rejection of the notion that the level of the federal debt as the

has anything to do with stimulating the economy. is there any prospect remaining for trading off some restraint and restraint in the very short run with credible, that men's that would take affect two or three years down the road? >> when things were really bad, i never thought there was a contradiction between the short and long-run that would have been possible simultaneously to announce various kinds of short- run stimulus programs while putting a plan on the street that would in fact pick things up in the long-run. i think there are a lot more -- [inaudible] things are not as bad. spots in theow sough recovery, but that is not uncommon.

and i think --[inaudible] playing with stimulus even conception elite is somewhat risky when you are are ready in the recovery given the time line that has any effect, but politically there is no danger of that, absolutely no prospect of another stimulus program from either the fiscal or monetary authority in my view. >> i think as reduce it just, it was a great opportunity missed that we did not do it stimulus simultaneously with long-run deficit reduction, and i do not just mean two or three years from now. the real problems are out there a decade or more ahead, in many

of the things that we could do now and must do now are things that will not take effect for quite a long time, but should be legislated to show that we are serious and can do them. you still have a timing question. i would be opposed to cutting the deficit to quickly right now, and i would be very much in favor of cutting it out in the future, and i think that only makes sense given the fragility of the recovery. >> i was going to call on doug before he raised his hand, because i was sure he had something to say about that. >> i am on record about being a lot less enthusiastic about the stimulus measures that others have been. number one, i believe the situation is incredibly urgent. if you look at the measurable parameters, the things you can take a look at on the number of

-- gross debt to gdp is above 90%. higher probability of a sovereign debt crisis. look at the qualitative characteristic of the united states, heavy reliance on short- term borrowing. short-term borrow short. they have lots of contingents and not terribly transparent obligations. we are in terms of the theory of the case for getting in trouble. we looked like that kind of a place, and i think there is tremendous urgency in getting something done. step to an argument is i started cynical and went downhill. turn off and turn on that

simultaneously as awesome but i would count on. i do not want to confuse the debate with that. let's get on with controlling the debt. the third thing is i think there is a tremendous over blown perception about the near-term impacts of discretionary spending cuts. when the house see our came out earlier this year, the $100 billion number scale, it changed actual purchases of goods and services in 2011 by $8 billion. it's a 15 trillion dollar economy. that is nothing. in the way iset away ♪ terribly troubling to me. it takes a lot of time to underspespend money, too. i live for the day congress cut so aggressively to impede recovery. we have never seen that.

i would like to see that. we have returned and a troubling way on a bipartisan basis to the policy making regime of the 1970's in which fiscal monetary policy were very reactive, attempt to find-tune the economy, target unemployment so we do not worry about inflation, do not worry about the fiscal situation. the outcome of that policy regime was not good. it was high unemployment, poor performance, and i think we have lost that lesson in history, and i would like to set a strong fiscal path. what will spending do and what will taxes look like? >> other questions? tony. >> toni mccann, public policy program at school of university of maryland. having been up here in the

1980's, you look back to which a time when agreements were reached and we made progress. the series of agreements, every time we came back from reconciliation bill, the deficit was bigger and the problems extended as far as i could see. it did not seem to me that we actually made progress until we overheated economy in the late 1990's and were able to generate revenues to solve the problem. with that background, what does that say about a credible plan when we made hundreds of billions of dollars in cuts in medicaid and really never change the program hardly at all. >> i do not know, but i will say things anyway.

>> certainly anyone who is sitting thinking we will just run the clinton playbook and it will be fine, should take that notion and put it aside. we are not going to get a peace dividend. i hope we're not going to count on a .com bubble that we believe will come on forever and that will pledge that way, and certainly we're not in the time of the baby boom, so the programs change things considerably. you cannot look back and say it worked, we know what to do. different world. that is the biggest thing. the second thing is among conservatives, there are some that are fascinated with the idea of these sort of regimes of across-the-board cuts.

1 percent across the board for the next five years, that does not fix the problem, because unless you change the programs, and the issue reform medicare and medicaid and reform social security, all of those three programs are basically broken. they are not delivering the quality of service we would like to see. we have a simultaneous obligation to have a secure state met for the next generation that requires reforms, and the fact if you do not change the structure, one to start doing the cuts the come back to life. reform is the key word. it is not enough to balance, you have to reform. >> you harkened back to the 1990 and 1993e budget reconciliation bills were real red meat. they did well worth it

trajectory for discretionary spending. they did raise taxes, they did cut entitlement programs and combined with the strong economic history of that time and some luck, we ended up with for years of budget surpluses, which i do not think you or anyone on this panel here in 1995, even in 1997 after the balanced budget act was passed would have predicted. so the 1980's, there were a few things done. i would argue based on the work i have done and others have done that while it came nowhere near achieving objectives, it did hamper the growth of

deficits, so i do not think it is the same kind of situation that we're looking at right now. >> i was going to say much of the same thing, but to emphasize not only that the processes we were working under in those days did a lot of good. paygo actually mattered, and the caps on discretionary spending actually matter. spending was rising very slowly, and the economy was growing faster. i saw bill hoagland walken at some point, and he would argue that it actually had impact. it was not nothing. i would not rule out the efficacy of strong process roles. >> reflecting back on the

1980's, i think one question -- one thing your question brings out clearly is as we did find spending cuts in this town, because we went through the 1980's with a large number of what is called tax increases, the first of which was a bill of 1982 i heard it characterized by some as the biggest bank increase in history. it was a tax increase relative to a line that was pledging -- plunging. similarly with your remarks about medicare or medicaid cuts, there are things that slowed down the rate of growth, but did not really cut things. when you put that on top of the recovery that is those figures by today's standards, it was still disappointing then. it really did create a lot of

frustration and the congress because they had done the entire thing. they change the tax to retreat. -- they change the tax trajectory. they got it to go up. that is what they got ultimately, the frustration. i have been reading -- reading about the british austerity program. they compare everything to last year, and it is so refreshing and so easy to understand. i just wish we could do that in this country. >> thank you. we will return to work questioned later, and i have four questions to ask. the question is this, we have heard a lot of people make arguments recently that perhaps having the u.s. default on the debt would not be so bad. if that is what it took the congress and president to get serious about taking steps to reduce the debt. my question for the panel is any

-- is there any plausible argument in your view that says it the fault is a necessary step to get serious about debt reduction that it is a desirable thing, and should we draw a distinction between a little the fault and a default, one that may be is only two or three days of and its people attention and then move on, versus something that is more long-term. >> eve said two out of it was not a very big apple. it is a bad idea. the fault is a bad idea -- default is a bad idea period. the idea that somehow whe need o raise interest rates in order to default in this country is a bad idea.

everything about the avoidance of default should be conditioned on the recognition that raising the debt limit is a recognition of -- recognition of the symptom. the problem is the debt. we should fix the problem and deal with the symptom. i just cannot endorse anything that involves defaulting first. >> i saw i was warming up, and i thought -- >> sorry about that. >> i agree with your basic point. is there a constructive perspective on this issue, and by default what we're talking about here is the failure to pay in a timely basis, obligations of the federal government, and that might mean that social security recipients

receive their payments and those that have interest earnings received there's and urban institute has none of its bills to the federal government paid, so i know -- >> [inaudible] [laughter] >> i wanted to get you on board here. it strikes me that we do not have forward movement on this, in part because a significant number of policy makers and a larger number of people in the public are not convinced that pang -- pain and sacrifice is unavoidable, and some time we have to change that situation. we also have a number policy makers that have staked out positions which in no way are in concert with resolving this issue, and they need some cover,

so if there were some way to engineer a 700 point drop in the stock market or something like that for a few days to shake people up and say you have to get serious about this, and we have to do it in a sustainable kind of way, do i advocate that? no. do i think that is risky? yes. but we are looking for adult behavior and cnn. [laughter] >> the only trouble with the 700 point drop is it could be a 2100 point drop before we are all finished. i find the talk around this totally baffling. i agree the dumbest thing to do would be to default, even for one day at this point. i find the men -- even dumber

politically the idea of prioritizing things where we make sure the chinese get their interest payments, but we are dubious about whether we will pay social security benefits or pay the bills of people here at home. that does not seem to be a winning political strategy somehow. for a time in my life i worked internationally. there are more countries that do not pay their bills band to pay their bills. when you work in a country like that, it is a very bad thing, because someone has to choose which bills to pay and which not to pay. if you talk about an opportunity for favoring political friends or taking side payments, the amount of corruption that kind of situation in genders is very problematic, so i do not seem much good coming out of these notions that somehow we have a big budget deal, it will be ok

not to pay interest for a few days. it is playing with matches around gasoline as far as i am concerned, and it would be an incredibly stupid thing to do. >> i agree. i want to be firmly on record default is a bad thing and we should not let it happen. >> that is clear. >> i think it is important to emphasize how misguided is this notion that if you do not raise the debt limit, somehow it will all be ok, and i think this is at the heart of this crowd that believes there will be no real pain. the problem is we have had 2.3 trillion dollars in revenue coming in. it might be politic -- politically risky but if you could pave the debt service to the chinese and still have two

trillion dollars, but there is 2.1 in mandatory spending. at that point you have 04 0 for national defense, infrastructure, education. it is hard to believe that is either politically viable or rational at all. it is like saying to the bank i would like a second mortgage. in the house has no roof, the windows are broken, you have the citing falling off and there is no way you look at the second mortgage. this makes no sense from a credit management point of view. it does not add up. what is worse about it from an absolutely strategy is -- political strategy is the problem is not gone.

if you want to cut spending, change the law. >> we have a remarkable degree from the panel that can -- defaulting on the debt is a bad thing. [laughter] now i would like to entertain questions from audience. and anything anybody would like to ask. >> i am a graduate of the school of public policy. i work in the community development space. since we're all in agreement about defaults, getting back to the question of cutting the debt, the tax reform, so a historical question and in a sense of what will happen in the future. in 1986, did that have significant impact on reduction and the debt, and what do you think the prospects, even though tax reform is not the silver bullet to solve everything, but

do you see the likelihood of significant tax reform in the next two to three years? >> i do. the question about 1986, that was done in a revenue neutral fashion. it should not have been, but it was. the kind of tax reform we are talking about now, i believe must not be done revenue neutral. we must have a more drastic base broadening than we had in '86, such that we can lower rates and still raise more revenue. >> i think it is almost a necessary condition for resolving the budget problem in the long run. it is very difficult politically and the fact that we showed that in 1986, and the fact we have not seen that since 1986 is an indicator for how difficult it would be. i have seen no prospect of

resolving this without some kind of increase in revenue. i see very little prospect of conservatives ever agreeing to a new tax like the value added tax or new tax. it would be crazy in my view to simply raise rates in the current an inefficient and unfair system of taxation, so the only hope i see is the ability to raise more revenues but with lower rates. the only way you can do that in my view is with a very radical tax reform that broadens the base very substantially. >> just another footnote on the 1986 tax reform, it was revenue- neutral overall, but for certain individuals it was tax cuts and increases for individuals. they thought this was a trade-

off that would not last, that once they were off, they would come back to the ways and means of the finance committee and undo some of the tax increases that were imposed on them on the corporate side, so we do not have a history here of true at revenue neutral tax reform, let alone tax reform that raises a great deal of money, although i would agree completely with alice and rudy that if there is going to be a significant contribution of revenues to the solution, and i think there has to be, that tax reform is a critical aspect of that, but that brings us back to alice's's original point is that it is getting late. tax reform in 1986 was the result of many years of work and

study and analysis and -- in treasury and elsewhere while lots of people have discussed the ideas of reducing itemize deductions or various tax preferences, getting the dial's set right on things like that are not easy to do. >> the last footnote on the 1986 tax reform is that while it was intended to be neutral, it did not play out that way. indeed, the corporate money never showed up. in part because i think we made a bad choice in how we structure this. it lost money, and it drove the pressures somewhere after that. i think that is important to remember. tax reform is really hard to get done.

you can count on one hand the number of substantial broad- based reform. on the evidence, this is an incredibly difficult policy task to achieve. i think this one is even harder for the reasons that have been outlined. the right reforms in this day and age are the ones that lower the corporate rate, in many cases quite dramatically. but with a corporate rate -- what were the corporate rate so we get in line with everyone else. -- lower the corporate rate so we get in line with everyone else. i am not a political expert, i have proven that, but i do not think that will be a winner. if you are not going to do that, you have to drag into revenue neutrality. there are some real serious political opposition to getting another tax in the system.

this is a territory that i believe, if we get it done, and i firmly believe we need a better tax system, it does not happen. >> it certainly does not happen fast. and i sense that there really is a difference atmosphere with respect to spending through the tax code, that even many conservatives are now recognizing that we have done a lot of spending to the tax code and call it tax entitlement, a tax earmarks or what ever, some of that is fair game. >> other questions? bill. >> [inaudible] >> i apologize for being late, what is the best and worst memories you have while you were

director? [laughter] anyone? >> people are struggling for their worst memories i am sure. there is such a long list of best ones. anyone want to take that? >> my best memory is when i was noted for wearing a dark suit with the red tie a lot. that might be every day. i was invited to breakfast by a dear friend, and when i return to the office the entire staff was dressed in my clothes and standing in the great hall and serving my favorite foods, twisters and diet cokes. there were pictures of me in this very suit and tie all over

the place, and i will never forget it. it was the happiest day of my life. the worst day for me was the night of the house vote on the prescription drug bill in 2003 where i was -- since our work was done and it was just recreational boat commenting, i thought it was ok to slow -- fly home. i turned on the tv in the were still doing recreational boats counting. it was clearly one of the fiscal missteps of the past decade, and it was one of the political policy missteps in the way the pope got done and the nature of strong army to get the boat, and that was a bad night. >> anyone else have any memories? >> wait a minute. [laughter] >> should we just let him hang?

you can think about that some and we can come back to it. >> one i remember was the moment in which we really established the cbo as a nonpartisan agency, which as i remember it was about two years into the cbo's history. we had two years of president ford, and every time we said anything that was critical of anything that the administration had done, like it would not save that much money or whatever, the republicans were all over us. then unfortunately president carter put forward an energy plan that did not look to was

like it would save nearly as much as they were planning, and we said so. although some republicans were saying isn't it wonderful we have a non-partner -- non- partisan congressional budget office. the non-partisanship was established from then on. >> i want to ask another question, and it is taking off from the discussion of tax reform that we just had, and it is partly a political question, but it is partly a policy question. it seems increasingly like many democrats would not accept a plan that such as medicare and social security, and in fact the lesson we are supposed to have learned out of the special election in the buffalo area is that if you touch medicare you will be defeated. republicans will not touch a plan, apparently, that raises taxes. i am wondering, as alice said it

is getting late, i am wondering if there is any way politically to touch either of those things in a way you can actually bring the two sides to agreement. i guess the other part of the question is there a distinction between what is politically feasible and perhaps what is desirable or could we have this happy circumstance of both being the same thing? >> well, from a substantive point of view, there is no way of solving this problem first of all without getting some handle on health cost. if you thought of financing them by raising taxes, you would have to raise taxes every year because they are growing faster than our income. that is an essential part of the problem. the only other part of the budget that is growing and causing this problem is also security, and it is growing much

less fast, but i think there is a lot of room for reform with that, and we hit the two hottest button issues you can imagine. i do not think government has ever invented anything as popular as social security and medicare is very close behind in math, but in my view they do need reform. i do not see an answer to the question without some increase in revenue. of course a ferocious battle on how much, a solution has to come from their purses slowing down spending growth. how do you get there politically is a great mystery. i do not think we do have much -- forgetting about the debt limit debate, i think more generally there will come a time when people will stop investing in our debt, and we do not know when that will happen maybe it will not happen for 25 years, but i think it

very well could happen in two years depending on circumstances. i see this as a race between a political system that is moving glacially toward some kind of solution. so glacially it is hard to see any progress whatsoever, and an economic system that is heading toward a crisis. so far the crisis path seems to be winning the race, and hopefully that will change soon, but i am very pessimistic right now, because i do not see much kind of change anytime soon. >> i think that is absolutely right, but i guess i am less pessimistic. i am always the crazy optimist. i think it depends on a bipartisan group of leaders, and i think it has to include the president and the leadership of both parties being scared

enough that they've recognized that they have to put together a package that they are not going to like, that it will have some things in it that each side does not like. we did that in simpson bowl els, in sitting members of congress and five committee members signed its, and all felt there were things in it that they did not want to support -- simpson-bowls, it and five sitting members signed it, and all felt there were things in it they did not want to support. tom coburn said it best. we have to get that spirit to come to the forum, because people are scared enough of the consequences and the things we

have been talking about appear that they are willing to give up something for the good of the country. >> on medicare and social security, we know the substance of that. that is not complicated. the important thing is for the american people to recognize that the status quo was unacceptable. in fact, as i said earlier, all of these programs are broken from a budgetary, substantive point of view. our obligation to the safety net requires that we actually fix them. that should change the policy of putting them on the table. it does. in polling i have done at my think tank, if you ask -- for example, with the debt limit question, we asked about a clean debt limit increase and nine out of 10 americans are opposed.

they are sick of the whole thing. if you ask what would you put on it to have it be sports -- have to be supported, they say changes to medicare and social security to make them both fiscally sustainable. if the choices presented to the american people, if you do not get to keep what you have forever, if it is not going to last, they will be amenable to changes to the programs. they want them to last. on that front, i think you can get it onto the table. the tax thing has always been problematic for republicans. did i say that right? i think there are two things to recognize about that. one, there is a lot of tax policy that has nothing to do with raising revenue in an efficient action and it does look like social policy in disguise.

-- like spending policy in disguise. and the other is that historically, when they have agreed to both spending cuts and tax increases, and they have been hoodwinked. they have gotten a tax increases and not the spending cuts. i think if this sequencing was right, you would change the tax debate considerably. i am with alice. i am optimistic. this country will get this done. >> no risk of me agreeing with him. i am deep in the camp of pessimism. i would disagree with a lot of the things doug said. the consequences are not real to most americans at this point, and unfortunately, not too many political leaders as well. they might understand that these

programs are broken from a budgetary standpoint and want them to be around for their kids and grandkids, but that is a whole lot different from saying cut my benefits. from a beneficiary standpoint, medicare is not broken. it is a terrific program. social security is not broken. even presenting to the american people that, you know, you're living a lot longer. a larger fraction of your total adult life is being spent on social security. do not think we should raise the normal retirement age along with a longer life you're going to be leading? a huge opposition to that. and you wonder, where can you really start this conversation, because what we have to do is tell the american people they're going to get less for more. they're going to pay more and

get less. we have been in a sense living beyond our means as we look forward, and that is not an easy thing to do. we have been having a great sale on government services for the last 20 years, and you do not want the sale to come to an end. so, i think it is going to be hard to get reason to prevail. in this discussion. the fundamental change that has taken place since the last big budget deals is the communication revolution that we have. cable television was not around the way it is. news broadcasts that were mostly opinion and less objective news did not proliferate. there were not loggers. there were not facebook and twitter and all of these things.

an objective presentation -- where an objective presentation of the evidence could dominate the debate, nothing dominates the debate now. and i think that will make it difficult to come to a resolution without some kind of external crisis. >> others want to respond to anything they have heard? > i thought rudy was going to say he is even more pessimistic after listening to bob [laughter] i have a follow-up which is a question i'm asking to a group of economists who have been around the political process for a long time, which is, what is behind you are all saying is the increasing polarization. that is, there is a gap, it seems to me, between the leadership and the rank-and-file in both parties, and there are a lot more people who have, i guess i would call it taken the

pledge. the pledge on the democratic side is we will not touch medicare and social security. the pledge on the republican side is we will not raise taxes. when i have heard a little bit is maybe we can raise taxes if we can say it is not a tax increase. it is just tax reform or eliminating tax expenditures or cutting back untack expenditures -- back on tax expenditures. i'm wondering if anyone would on how in anent an increasingly polarized environment any sort of solution will involve moving toward the middle? >> it is the major factor. i would put it ahead of the communication revolution. i think it is interesting to look back to the 1950's and see the changes in the two parties. the democrats had some incredible fiscal conservatives, eastland, dennis,

russell. whatever you thought of the rest of their views, they wanted to control spending except on defense. the party ranged from those guys to proxmire on the left. in the republican party had a range of ideologies from one yowho was as liberal as any democrat today to the first stirrings of the coldwater movement. the ideologies of the two party had a huge overlap. that made it a lot easier to cut deals. some of the most difficult things were cutting deals within the party as opposed to cross party. the situation is so different today in that there is essentially no ideological overlap between the two parties. as i said before, the gap

between what the two parties believe i do not think has ever been greater. >> anyone else? doug and then alice. or alice and then doug, how about that? >> in the midst of all of this gloom and doom, i think there has certainly been polarization and there is less of a medal on capitol hill. but i am not sure -- middle on capitol hill. but i'm not sure that we should conclude that the american public is significantly more polarized or significantly dumber either than it used to be or voters in a lot of other places like the u.k. were they seem to be able to face up to these things -- maybe they're overdoing it. but if you get a reasonably represent a group of people in a room -- and this has been done multiple times -- and you sit them down and say look, here is the problem. these are the spending

pressures. this is the revenue side. these are the facts. here are some trends. you get pretty reasonable answers. people can do that, average people, and we should not forget that. the characterization of everybody as having extreme views -- i do not think they do. they're on a city councilor in a city with the budget deficit, or on the state budget legislature, then they managed to come to the metal and make some reasonable -- manage to come to the middle and make some reasonable choices. i do not think that is impossible at the federal level. >> the points that are the same to me and do not strike me as dramatically different are exactly what alice said. lots of studies have failed to find the disappearing middle,

failed to find the polarization, failed to find the intractability of politics in the american people. i agree with alice completely. the bottom -- if the retail politics were strongly enforced all the way through, that is what the american people believe and want. the question is, how does that work? at the other hand, it is still the same. my view is that in this town, if you want bipartisan solutions, that begins and ends with the president. the president is the only official elected by all the american people. only the president has sufficient capacity to provide cover for all of those in his party to cover a tough vote and things like that. congress is a partisan place. it has a chairman and ranking members. it has majority staffs and small staffs. it has majority offices and back offices. there is a lot of partnership built into the structure of

congress. only the president can reach across the aisle. we have had two presidents who are not good at this. i do not know why, but we need more of that, and that does not -- that has not changed. there has been in gerrymandering of district and a safe seat phenomenon. i think that is a real problem and one that merits serious consideration. then there are some of these mechanical things. i cannot speak to the democratic side, but on the republican side, i think there was a vast misinterpretation of what the contract for america meant. in my view, the contract for america was a document hammered out by some very strong-willed individuals who did not agree on everything. this was not a group of shrinking violets and they were not an automaton. they hammered out what they thought they could agree on in a short amount of time and off they went. it was enormously successful

electorally. the mistaken conclusion drawn from that was, hey, if we all say the same thing, we will win. it produced this desire for clones within the caucus, and if you cannot adjudicate differences within your caucus, you're not going to be able to develop their reflexes to reach across the aisle. that happened certainly in the house of representatives for republicans. i think it has had a damaging impact on the nature of the overall process. i think we need the same thing out of the president. the american people believe the same thing. in between, there are some mechanical differences in getting things done. >> i would like to agree with the analysis of the american public, that it is not a whole lot different from how it has been in the past. it is a bell curve more than two polar extremes.

when you sit groups of people down in a room and you have some budget experts or some policy experts describe the problem to them in a sensible way, they come to a sensible, middle of the road decision. but when they walk out of the realm, policy is interpreted for them by interest groups, but bybsters -- by loggebloggers, cable television, and they quickly get polarized and diverted off to the side. we of heard it suggested that we reform the tax code in a way that gets rid of some of the spending funded through the tax could. if we're talking about ethanol subsidies, everyone outside of ohio and nebraska can agree, but that is chump change in this game. what we're really talking about here are things like preferences

that affect health, retirement, housing, charitable giving. that affects the middle and upper middle class of america. you see the tense to describe those situations -- attempts to describe the situation, and it is not as if you can get a large fraction of the public embracing them, even simple things like why should we allow mortgage interest to be deductible for second homes? we might, all of us who do not have one, might reach a consensus there, but you know, if you are part of hoboken or north carolina or new hampshire ies where this is very

important, it is a matter of life and death. >> i would like to know whether anyone in the audience has any opinion on the topics of either taxes or entitlements. [laughter] surely, someone does. let's open it up. >> apologies for speaking twice, but i want to call attention to something. our public opinion wing at the school recently did a budget survey in which we asked 1000 people or so to address in detail, systematically, the discretionary budget, and then also asked questions about social security, entitlement, expenditures like mortgage deduction. the consensus answer with people who were confronted with this was the people ended up making decisions that would reduce the discretionary budget by about

75%-80%. a substantial share of that was tax increases that people supported. the majority of tea party sympathizer supported tax increases in this particular context, etc. you can say, what does that mean? by itself, it means nothing at all. bob is absolutely right that if you put that against the drivers and the people who support the second mortgage interest deduction because their entire communities depend on it, on the other hand, there might be some potential here as part of the campaign, the sorts of surveys, if the sorts of things were given some publicity in some mileage and politicians could use them to some degree as protection and say we have some scientifically selected groups of americans who do not like this. they did not say they like a tax

increase. they do not like the social security changes. but a majority of people said we could live with this as part of a package. there might be something here in the pr. >> that is a comment. anyone can respond who wants to? other questions? no one has any questions about entitlements? you can ask about anything you want. >> i wanted to pick up on your point about the cacophony of noise and polarization. i do a lot of work on the debt limit, as most of you know. to pick up on doug's point, this is about paying bills you already incurred. my guess is that most of the people who are dramatically opposed to raising the debt limit think it is the same as a credit card limit, a belief in

which they're wildly assisted by most of the press, and i am sorry to say, by many of their elected representatives. that leads me to think about, it is also easy to say i do not want you to cut my medicare benefits if i think i have paid for them and paid enough to cover them. franklin roosevelt was no 80 it. he knew why he wanted to have diot.idual -- no immediat he knew why he wanted to have individual programs so that no one could touch them in the future. how is it that everyone seems to be entitled to their own facts? >> i think as doug said, it really requires a lot of leadership and it has to eventually come from the president. there is no one else in the country -- [inaudible]

i think leaders will get the kind of shout from time to time if not outright get assassinated. it takes a lot of courage and strength. i hate to say anything optimistic in this group, [laughter] but if there is any help, i think it comes from the fact that other countries have resolved these issues. you see it in places like canada, australia, new zealand, sweden, etc., where they have come to agreement on some pretty severe austerity programs. they have reform social security. now the thing that makes me nervous is that all of these countries face real or imminent crises. in other words, they did not really act until they got scared, and i think that is a disturbing thing. but when they acted, they acted quite rationally.

you might not like all of the solutions they adopted, but they were not done in a panic. they were not totally mad. so there is hope. i did have a privilege of lunching with the canadian minister of finance the other day and asked him, how did you do it? how did you turn the country from cheering on spending to really being very concerned about deficits? he said, you have to keep a really simple. we convinced people that debt was bad. and that did it. and now, the canadian government runs deficits at their own peril. >> anyone else on that? >> i think we have come down to, what is different about us from the grits or the swedes or the new zealanders, -- british or the swedes or the new zealander, who ever they are? is it that our credit card limit

has been too high for these years? it is certainly partly that. is it that we have a system of government which makes budget making much more difficult and complicated than a parliamentary system? or is it the power of our interest groups and the media exaggerating the horrors of doing the things we know we ought to do? i do not know the answer to this. it is some of each, but i cannot think it has got to be disabling. i come back to the same situation. i was talking to european the other day and he said, i was reading about you laying off teachers, laying off state and

local workers. isn't this going to cause riots in the street? i said no, i think people understand this as an unfortunate necessity of having to balance budgets at that level. or at the city level. why we do not understand it at the federal level is not clear. >> years ago when i was at syracuse university, i became pessimistic about my chosen profession and decided i would be much better served by producing one economically literate journalist than 40 economics majors a year. i launched a program. to cut to the end, the course got canceled. during the exercise, allowed students to turn in their assignments in whatever media they were going to go on to do professionally.

writers wrote. newspaper guys, short. magazine writers come along. -- writers, long. one assignment was to cover the brewers. it was a tragedy. different story. [laughter] he came back to me with a guy trudging along with a lunch box. i said, how can you do this? he said, economics is about taking the motion out. television is about putting the motion in. i remember that to this day. you have to inject into the debate emotion.

we are all policy geeks. we want people to look at debt versus gdp. now. it is about attacking -- attaching fax to a motion. if you do not do that, you will not succeed. s to emotion.fact som if you do not do that, you will not succeed. injectou're trying to emotion into something like that is evil. hasn't that already occurred in some segments of the population, which has generated the idea that we do not need to raise the debt limit? how do you get people concerned about something and at the same time be educated about it? >> i'm going to rephrase. the observation was made you're

not entitled to your own set of facts. not true. but you are entitled to your own set of emotions. you have to trump that with the strong promotion of the consequences of debt and how bad it is. that is the marketing challenge of this moment. >> what you have to say is, i should not be running up debt, but i should pay the bills i have charged. most americans think they do not have any debt because the mortgage does not count, the loan from the car does not count, the loan for the refrigerator does not count. it is, i should not overcharge. i should not borrow more than i can pay. i should make every effort to pay the bills that i have incurred. maybe that is the way you tie the debt limit to shrinking --

to a path that in forces and lowers the debt. if we had a balanced budget, we would have to raise the debt limit. if h.r.-one had become law, we would have to raise the debt limit. we would need trillions of dollars. >> any other comments? >> i do not think it is going to be hard to convince americans that debt is evil when they have mortgages, as you say. they buy cars. the finance education with debt. they start businesses with debt. you have to be schizophrenic to say debt is bad when it looks like this, but debt is my road to opportunity when it looks like that. >> but that is exactly what canadians do. [inaudible]

they're not the only country that has done it. the swedes underwent a remarkable transformation. >> part of dealing with entitlements is actually understanding the implications of what congress does. all of us have seen pieces of legislation passed in which the scorekeeping roles came up with a set of protective expenses that nobody really believed to be true. the most recent of that is the affordable care act in which now, the cms actuary has said he does not believe it. that is because of the rules that you operate under. if you're going to make the role of the congressional budget

office more effective in helping congress understand what it has done and what it has not done when it passes debt reduction legislation, for example, what rules would you add or change? >> i will be brief. i have two responses. number one, i believe there are rules that should be changed. i think there should be symmetric treatment of spending and taxes in terms of construction of the baseline. i personally would take every refundable credit and count it entirely as an outlay. the moment you make it refundable, it is independent of the state of the world. i do not think that is the problem. the affordable care act, i mean, i think some people believe -- i do not think it is a good idea from a budget standpoint. it is not a cdo problem.

it is a congress problem. if congress wants to gain the rules, congress is going to gain the rules -- game the rules, congress is going to game the rules, and they do. do not blame the rules or the cbo, blame the congress. that is who did it. the congress did that to them period. >> the particular example you're talking about, cms as well as cdo in its baseline estimates -- cbo in its baseline estimates had very similar cost estimates. what the actuaries said was that the payment mechanism for providers was going to be reduced by about 1.1% per year often to the future, which would

make medicare payments to providers a lot lower than those from other payers, private sector pay years, and that overtime, were there not fundamental reforms in the delivery system of health care -- which there could be -- brought about by this pressure and other pressures -- this was unsustainable, probably. some providers would stop serving medicare beneficiaries. there would be an access problem and there would be a political reaction to that. we have seen that in a sustainable growth rate adjustment to the session -- to physician fees were the congress has not adhered to the loss. it hasn't solved the system from the cuts -- congress has not adhered to the laws.

absolved the system from the cut every year. when congress reneged on what should be done, the action is scored again, and has been every year. >> all of that is absolutely right, but i think the dead put his finger on the more profound put his fingeraoug on the more profound problem, and that is that congress keeps skirting rules. what has happened now? congress passes temporary tax cuts. the number of them is growing,

growing, growing. so they do not get into a base line and it is totally unrealistic. they have renewed that tax line how many times? 15 years in a row. the base line has gotten more and more unrealistic, and we debate things though, still, a round is totally unrealistic baseline. i agree that i would do some things to it, but i think whenever i would do to it, congress would figure a way around in a very few years. >> what is the alternative? to give the cbo the power to say what is a reasonable base line and what is a reasonable interpretation of what the congress will do in the future? i do not think so. you do not want the cbo or any group of technocrats doing that. you want them applying the rules in a very straightforward way. this is what the congress said

would happen under this particular law. if it does not happen, you can provide some alternatives, but you have got to take the congress at its word. giving the cbo a lot of discretion as to what it will do in the future is a road to disaster for the cbo. >> i have to be even more optimistic than alice. first of all, i think bob mentioned the fact that we will never get people to feel the debt is evil when they have so much personal experience with it that works out for them. i think that is not true,

because a few years ago, people realize they were sustaining a debt that was unsustainable. people got calls of, you had a credit line for $10,000 but we are taking it away today. i think people kind of appreciated as forced lessons in living beyond their means. now they're forced to live within their means. i think people are more sympathetic these days, having lived through their own private, personal crises of the past couple of years. when they hear that the federal government is borrowing at an unsustainable rate, they have a resonance with that because they understand that personally. i have seen a change in reception to the idea that debt can be an unsustainable thing. second optimistic point. if you look at all of the plans that various fiscal commissions, task forces, study groups all

came up with, if you do a diagram of all their proposals, there is a lot and a lot of money in the intersection of those proposals. it is just that the politicians are not willing to commit yet because they do not really want to have to dive into that intersection. they want to pretend there is nothing in an intersection because they do not want to have to move there. i think taxes have to be a big part of the solution. i actually think, in my glass half full view of the world, that even paul ryan is proposing to reduce tax expenditures. he is just proposing to cut spending before he cuts tax expenditures. i believe we're not that far away from coming to an agreement about reducing tax expenditures as a significant part of debt reduction. how do we get the conservatives

who are wedded to the no new taxes' pledge to better come to terms with the fact that tax expenditures are spending? you can cut tax expenditures and shrink government even as your raising revenue. and getting the liberals on board to, because once liberals realize that it is spending, they do not want to cut it either. we saw that from the ranking ways and means democrat recently. how close are we to making some progress, do you think? what is the key? what we have to tell chairman ryan to get him to like pause after the first part were he raises revenue by reducing tax expenditures but before he spends a dollar lower tax rates. what do we say to the democrats to let them know that there are progressive ways of reducing tax expenditures?

>> anyone? >> i think doug made a good point a while back. my own experience in trying to sell tax reform to republicans is they say, now you're telling us you're going to lower their rates and broaden the base. but if we do that, just wait. pretty soon you will be raising vat rate again in financing all sorts of spending increases -- again andat trate financing all sorts of spending increases. that happened in 1986, so they have good reason to be suspicious. if they do finally agreed to more revenues, you must absolutely, certainly slow the rate of growth of spending some how. i do not know how you develop

that ironclad guarantee. that is the really difficult part, the that is absolutely necessary to making progress. >> one answer is to get them all in the same room and they have to cut a deal because they are scared if they do not and some of the things we have been talking about will be part of that deal -- never mind. >> i agree with rudy. i just want to say, i do not think you can, in this circumstance, pulled one thing out. the lesson is that it is all spending. the way i think about this -- look a bulls-simpson, for example. that gives you -- look at

bowles-since then, for example. that gives you an example -- bowls-simpson for example. that gives you an example that this can be done. everything has to be out there and you need the tax expenditure is to do the tax reform. pulling one thing out is dangerous, and you always have to remember that. >> the other thing is you need a credible enforcement rules. i think the lesson of the budget enforcement act of 1990 was exactly that. the president did agree to some tax increases. he came to regret it, but within the context of spending cuts and strong enforcement rules, and the enforced rules worked and ultimately brought us, along

with a good economy, to a surplus. you have to do that again. >> an important point of that is, i think there rules worked so well because they weren't forcing a major agreement that was already on the table -- were enforcing a major agreement that was r.d. on the table. -- were already on the table. that will be a lot harder to pull off now. >> we had two components to the rules. one was pay as you go for entitlement programs. that said, we have reduced entitlements spending. you cannot pass legislation that would increase it without paying for it somehow. that presumes we can get together and agree on some big

entitlement reductions. then a procedure like that, i think, can be effective. the discretionary spending control was caps. that worked for really one reason and one reason only, and that was that the soviet union fell apart. we had no rational reason for keeping defense spending as high as it was. in fact, over the whole period, real domestic discretionary spending rose during this great austerity. it was because we cut back defense spending so much that we could raise discretionary spending. it was not a time of true austerity, and that is what we were talking about now, seeking through austerity. >> while we're on that topic,

we've not really talked about discretionary spending. i heard earlier, and correct me if i'm wrong, there was a point of view but across that maybe this is a first step. we're not going to do anything about entitlements or taxes, but we will cut back discretionary spending as a sort of down payment. my question is, how much can we cut discretionary spending? i think of is correct -- bob is correct that it is almost literally the case that going back to 1970 we've not really cut discretionary spending, maybe once in the 1990's. how big of a cut can there be -- how big does it need to be to convince people like republicans that they can go along with an increase in the debt limit? >> if all the commissions have hard freezes and could hold the

dollar numbers where they are, i think that is a possible thing to get agreement on. that is tough, but over time it saves quite a lot of money, and the numbers being bandied about now is about one trillion dollars over 10 years. discretionary freezes are common to all of the plans, and some other small mandatory cuts, accompanied by a strong process change that would force the coming to grips with entitlements and taxes within a reasonable time, and i think it should not be too long after you raise the debt ceiling. >> i think you face the basic

arithmetic problem. we all agree that the major part of the budget problem comes from social security, medicare, medicaid to a considerable degree. i think there is general agreement -- too much agreement, in my view -- that you cannot change these programs abruptly. you have to phase in the changes so as to not disrupt the retirement plans of those in or near retirement. in order to -- if you phase in reforms very slowly, in order to show any progress whatsoever on the deficit in the shorter run without major tax increases, you have to hit the discretionary programs. that is my interpretation of what has gone on in all of these

commissions and why they are, in fact, very hard on discretionary programs even their discretionary programs are not the cause of our basic budget problem. >> they may not be the cause, but as you go through them, both on the defense side and the domestic side, you can convince a lot of people that some of this is not necessary and some of it is not high priority, and that we ought to be prioritized. >> that is true, but that is what you see people pointing to as opposed to the programs that do not work. well. uc policies that would -- do not work very well. uc policies that would -- you see policies that would freeze spending or beat the civil servants about.

>> thank you. i am a cdo alumnus now at the center of budget and policy priorities. i have a question on a completely different topic. the federal government does not have a balanced budget requirement. most state and local governments do. at the same time, state and local governments get a significant amount of their revenue in the form of grants from the federal government. do you think the coming budget debate will be a setting for some sort of renegotiation with state and local governments? >> i do not know. i look back to the canadian experience. lots of people looking different

elements of that and pick out the things they like, but one of the things going on was that the federal government involved the provinces of a considerable amount of work and authority, despite the fact that the provinces were in terrible shape. it was done in part because it was perceived that the provinces were more functional, could take on these problems and solve them in a way that the federal government could not. look at our states. they are showing themselves to be much more capable of taking on tough budget problems and getting their houses in order than we have seen at the federal level. i have some sympathy for the notion that in this setting it might not be a terrible idea to really rethink that mix and that the american people might be well served because the changes we now have to happen might happen more rapidly and more effectively. the question is will happen? i do not know, but certainly, there is some precedent for

thinking it may not be a bad idea. >> i just finished a paper on this very topic. i will giveg, you my fearless forecast. i do think we will see this affect state and local governments severely. i do not think, however, that our federal politicians will be ready to devolve responsibility for specific functions downward. they will finance them less generously, but i think they really do like the power that comes from say, the highway program or messing with education, etc. i would not see much outright devolution, but i would see the federal government becoming much stingier in the amount of money it sends downward. >> i agree with that. much as i would like to see the

devolution and sorting out of functions more clearly -- i wrote a book about this about 15 years ago, which bill clinton liked a lot when he was governor of arkansas. when he got to be president, he liked it less. and i began to realize why. i had proposed a balding things like -- devolving things like criminal justice, education, and some other things to the states. if you run for president, you have got to relate to what people care about most in their neighborhood, and that is crime in the streets, better schools, better housing. you find yourself making promises. i'm going to be the education president. i'm going to fight crime on the streets. no federal president can do that, but you have to promise to do it, and that is how many --

that is how we get so many of these cats and dogs in small programs that are not doing much. there is a feeling that the federal government has to be there to take care of what people care about most. i'm with you in spirit, but i do not think it is going to happen. >> i agree that it is not going to be part of the package of whatever we do in the next couple of years, but it is worth remembering that if you are taking out your public finance textbook and saying, what is federal responsibility and what should be a local or state responsibility, things that deal with income distribution and opportunity, welfare health, education, along at the federal level, because the consequences of doing them well or doing them

badly spillover across the geography of the nation. those things that affect the well-being of a more localized area can be devolved. the problems we're talking about stem from the large redistribution programs. if we want a more roughly equitable treatment of individuals across the country in those respects and in the areas where growth potential is the greatest and the ability to control them the best and do them rationally is really at the federal level, then they should not be devolved. >> i have a final question for the panel, which is, as has been said, time is short between now and august 2nd. i'm going to lay out a scenario which you can decide how possible is. we do not reach a grand deal between now and august 2nd. in fact, we do not even reach a little deal, in the sense of

policy changes being made. but there is something passed tied to the debt ceiling that has some procedural fix, which may include traders, targets, some other kinds of things, promises to do something in the future. in exchange for raising the debt ceiling. is there a way to do that that would be either credible or that would work in your view, or would that just be punting the problem forward and no good would really come of it? >> it will not work, and moody's will downgrade us on day two. on the prospects of something like that happening -- the prospects of something like that happening are quite high because that date pushes right against the recess in august for congress and there are few things more sacred than the

august recess. i think there will be a strong desire to get this over with, if not on the second, certainly before the seventh or so when they go out. >> i agree with that. august 7th, 3:48 p.m., the time of this is easy. >> when did they have their plane reservations to get out of town? but if we go that route, it is likely that this is going to be like groundhog day. the amount by which the debt ceiling is raised will not be sufficient to get us through to the next presidency. it will be six months, come back and we will see what progress there has ben. -- been. >> i can even see shorter, temporary increases in the debt ceiling that start with freezes

and what we went through with the continuing resolution. that will not result in any deals at all just prolong the bargaining process. there is one advantage of a temporary increase in the ceiling, and that is that the deadline is unambiguous right now. we do not really know how many gimmicks they really have. august 2nd is kind of a wish she washy deadline. but if you temporarily increase the debt ceiling, that means that when that expires you have to actually retire debt. that becomes unambiguous, i think. it is a significant amount of money. that could well happen, but i could see this whole thing going on well into the fall with a series of temporary increases. >> as usual, i am a little more optimistic than your scenario.

it is not unlikely that we will get a combination of substantive changes, mostly in discretionary spending, and a process change. i think there is a process change which is plausible and attractive. i have been working with people at the bipartisan policy center. we call it save-go. reminiscent of pay-go. it would involve discretionary caps and a pay-go process that would apply to the the entitlements and taxes. why not just pay-go? because pay-go did not do anything but prevent the congress from making things worse.

now they're going to get worse anyway, so you have to have additional savings that you're committed to in the future. but you would not have to specify initially whether they were on the entitlement side or on the tax side. you could leave that until later with the trigger mechanism that would force you to come to grips with it. i think something like that could get us past the debt ceiling. then the question is, for how long? i think it would actually not be such a terrible thing to have a fairly short -- say six months -- increase in the debt ceiling that would force us to come to grips with these larger come a long run problems before the election. -- larger, longer-run problems

before the election. i think we are getting towards a recipe for disaster with the debt crisis. we're getting towards the spring of 2014. i do not think we have that long. we have to do something within the next few months that is credible and long range. >> for those of you who might be concerned [no audio] these issues will drop off the front page if the debt ceiling is resolved even for six months, remember that the new fiscal year begins october 1st and we will need appropriation bills to keep the government running at that point. we will be back into continuing resolution territory. >> buy your ticket now for the next panel. [laughter] i for one never worry the budget

issues will drop off the front page. we have a few minutes left. i'm going to stop asking questions and see whether there are any remaining questions from the audience. >> what i thought you were talking about was a debt limit not big enough to carry us, but not going to expire. you talked about what we did in the old days which was raised the debt ceiling for six months and then have it drop again. i will tell you, for people in the markets, that does not, is down at all. -- does not calm us down at all. >> i am talking about a temporary increase that would drop. it might not make markets happy. in fact, it would be nice if they were unhappy. i am not making a

recommendation. i am making a forecast. [laughter] >> other questions? >> if i may, what i thought the scenario spelt out was one where we had an increase. we increase -- we agreed to increase the debt limit, but did not accompany it with anything real, just a process. i believe that will be perceived as not real, and i believe that will be unacceptable. i believe moody's has said that in writing. that is my answer, that that is also not the deal i expect to have happened. i'm with alice. we will get a much better deal than that. .> we're about out of time on that note -- which i am sure is with the envelope involves pocket actually said, what we were just discussing, please were just discussing, please join me in