where a democrat has to over performed the president. they have to do 10. better. the republicans have to do something similar. about the lame-duck session. it will be different after the election? >> think it depends on the election outcome. it is hard to see a scenario where barack obama wins reelection and democrats win the senate and don't get their way on taxes. they will have much leverage coming out of the lame-duck session. if mitt romney wins, the chances they will be able to extend the bush tax cuts the way they want to and create the dialogue and tax reform goes to their favor.

it is hard to say how this will play out until we know what is happening election night. >> this lame duck session where they will deal with some major issues, consider that we know now that there are 11 senators who are leaving at the end of this year. the will participate in that lame duck session. my question to ban -- as a group, can they forge a deal? they have nothing at stake anymore. >> rich lugar for instance. >> conrad has been outspoken about the budget. kenbei as a group forged -- can they as a group forge a consensus? >> how likely is that to happen? >> i wish that i knew. >> i think it is unlikely.

and it kind of centrist middle they have tried to reach has failed. unless the outcome of the election is so starring or motivating, it is hard to see how this group of senators might be the device -- decisive block. >> there are some factors that will affect the control of the senate. is there one state that will decide everything? >> at this point, i might say that is virginia. >> would say montana because i that state is so close. montana is one of those races like virginia that i will be watching election night to see which way it goes. >> susan davis and jennifer

duffy, thank you both for being with us. > [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> join us later today for " newsmakers" at 6:00 p.m.. >> at the foot of that bridge, i was beaten. i thought i was going to die. i thought i saw death. >> in 1965, 25-year-old john lewis took part in a voting rights march from selma to montgomery, alabama on a route that would take them across the edmund pettis bridge. >> we came within hearing distance of the state troopers and a man identified himself and said i'm major john cloud of the alabama state troopers. this is an arm of the march and it would not be allowed to enter. one of the young people walking beside me said give us a moment

to kneel and pray. the major said troopers advance them across that bridge, the author and congressman john lewis, tonight at 8:00 on cspan's "q &a." >> testifying to congress last week, deputy defense secretary ashton carter says sequestration could lead to less training for true been deployed to of galveston and customs services for military families. -- deployed to afghanistan and cut services for military families. this hearing is 2.5 hours. >> good morning, ladies and gentlemen. the house armed services committee meets today to receive testimony on the administration's implementation options for sequestration. joining us today is the hon. geoffrey zaentz, the acting

director of the budget and the secretary of defense. this is the first day of august, when you look at the counter, there are only a handful of legislative days left to resolve the devastating cuts to our military known as sequestration. the house has already passed a measure that would achieve the necessary deficit-reduction to result sequestration for one year. however, the senate has yet to consider any solution other than the president's proposal which was defeated unanimously. since he offered that fill proposals six months ago, the president has been virtually silent on the issue. this impasse and lack of a clear way forward has created a chaotic and on certain budget environment for industry and defense planners. this is in part because of the rising tide of uncertainty and in part to help build the political will to resolve sequestration, this congress

has repeatedly requested information from the president and the office of management and budget on exactly how sequestration will be implemented. we understand the planning for sequestration will not lessen the damage but failing to plan for will make a terrible situation worse. in fact, this hearing appears to have prompted a flurry of activity within the administration. on monday, the department labor issued guidance on the applicability of the war in act, urging employers not to notify employees regarding potential job losses before the elections. just yesterday, the president made the long awaited determination that military personnel will be exempt from sequestration. and director zaentz issued a memo to federal agencies that is a step in the right direction. there's more to discuss.

i know we will hear a lot today about balanced deficit- reduction. i want to address the issue briefly. despite claims that the president's budget request reduces the deficit by $4 trillion, by proposing to $0.50 in spending cuts for every $1 in new revenue, these claims or off the mark by nearly 90%. the savings are propped up by a series of budget gimmicks claiming spending reductions that are actually tax increases and counting spending reductions that are already in blog. it climbed $848 billion in savings from ending the wars in iraq and afghanistan by counting funds that all would admit would not be requested in the first place. even if that is a foundation for the president's solution, let the senate brings some version of it to a boat than we will have a conference and sort out our differences. until that happens, it is my

sincere hope that we can quell much of the uncertainty today. as one senior military official told me, america's inability to govern ourselves past sequestration placed directly into the hands of those who spread the idea of american decline and will ultimately thrust us into a more dangerous world. if this is not enough to compel action and straightforward talk on the part of the administration, i do not know what it is. thank you for being here and i look forward to your testimony this morning. i also request my remarks be submitted for the record. mr. smith. >> thank you. i thank our witnesses for being here today and agree with the chairman that sequestration is a problem right now. this committee has done an excellent job paying attention to that reality.

people think we have until jan. are wrong. the uncertainty is having an impact on our economy and not just defense. sequestration it's the entire discretionary budget, not just defense. it has a profound impact on private employers decisions going for about what to invest in. it is impacting the economy and that is -- and the best and congress could do is to find a solution to that right now and the uncertainty of what will happen with the tax cuts that are set to expire at the end of this year. the laying on all this is a huge challenge. that uncertainty is having as big an impact on anything right now on our inability to get the economy moving. i agree that we need to focus attention and this is a problem right now and needs to be addressed as soon as possible. it is worth noting that the sequestration was a bad idea in the first place.

the architects of the plan said they never meant this to be reality. it was meant as a forcing mechanism that would be so hideous that everyone have to get together and agree to prevent it. we now have seen what is obvious -- the problems of determining how to deal with our deficit and what to cut and what revenue to raise are so serious and there is so much difference that we can go through even something as bad as sequestration rather than finding a solution. putting a gun to the head of the economy as a forcing mechanism to deal with the deficit is a bad idea from the very beginning. it is one i hope we never try again. the problem right now that we have to address -- want to thank our witnesses for being here and

for offering a solution. the white house put out a variety of different solutions. every time the republicans in the house put up a bill to deal with sequestration, there has been an alternative offered by democrats. the senate is regrettably a different story. democrats and republicans have a different approach. in the senate, nobly actually controls the senate. because it takes 60 votes to control anything. the solution here is not hoping some time that the senate act produce solution is to get all democrats and all republicans to come together to figure out a reasonable approach. this is the fundamental disagreement. personally, think revenue has to be part of the equation as i have said before. if you look at the republican proposals that say we should not cut defense but cut taxes by even more and balance the budget, the math does not add up

unless you cut everything else in our budget, medicare, transportation, education, health care, everything else by 50%. nobody supports that, not even republicans. let's be realistic about the choices we faced and realistic about the fact that revenue has to be a piece of the equation. if you are committed as we are to providing to make sure that our servicemen and women have the support they need to defend this country, you should be willing to raise the money necessary to pay for it. i think that has to be on the table but i agree with the chairman that it is time for all parties to come together to find a solution to a damaging problem. i think this hearing is helpful and i thank mr. zaentz and mr. carter. i hope we can make some progress toward a solution. it is great this committee shining a light on how big the problem is.

we now have to move past that to finding some way to solve the problem of sequestration so does not happen. with that, i yield back. >> thank you. mr. zaentz - >> mr. chairman, thank you. >> you have to put it closer. >> thank you, the third time as a charm. members the committee, good morning and thank you for having me here. i'm here to discuss sequestration. these are the automatic spending reductions for fiscal year 2013 required by the budget control act. i want to start by reiterating a point made when the president signed the budget control act last august. sequestration by design is that policy.

congress should pass balanced deficit reduction to avoid it. the intent of the sequestered was to use the threat of mutually disagreeable cuts to defense and non-defense program to force congress to enact a compromise deficit reduction plan. if allowed to occur, sequestration would be destructive to domestic investment, national security, and core government operations. a c bo report estimated that on an annual basis, the defense spending would be cut by approximately 10% while non-to spend -- defense spending would be cut by almost 8%. the actual% cut would be greater given that 1/4 of the fiscal year would already have a lack by january 2. these cuts would be across the

board and indiscriminate. there has been a lot of focus on defense cuts. secretary carter will address that in a moment that we would face equally harmful domestic cuts with sequestration causing harm to many investments most critical to our country's long- term economic growth. more than 16,000 teachers and aides would lose their jobs. close to 700,000 young children and mothers could lose nutrition assistance. 100,000 kids would lose their place in head start. the fha would reach the faa would face significant cuts and food safety and work place safety inspections would be cut back. the number of fbi agents, border patrol agents, and transportation safety staff would decline.

the nih would have to cut or curtail vital scientific research such as research in cancer, and childhood diseases. the president's detailed submission to the deep for the present to the committee last september in its february budget both included a plan to responsibly avoid these cuts, making tough choices to reduce the deficit with a balanced package of spending cuts and revenue increases. the president's plan included $2.50 in spending cuts for every $1 in revenue. overall, over $4 trillion in debt as a reduction. that far exceeds the amount required by the joint committee to avoid sequestration. recently, attention in congress has focused on seeking information from the administration and planning and

preparing for sequestration. i want to stress that in the very unfortunate event that congress fails to pass a balanced the deficit reduction package and avoid sequestration, the administration will indeed be prepared to issue the sequestration order on january 2 and manage its implementation. let me be very clear -- no amount of planning, no amount of planning will mitigate the damaging effects of sequestration. moreover, our planning must be deliberate so that we avoid, in an fervently, triggering some of the negative effects of sequestration. we do not want to waste scarce resources or disrupt critical government operations. to make this vivid, the right course is not to spend time moving around rocks at the bottom of the cliff to make for

a less painful landing. the right course is to avoid driving off the cliff altogether. implementation of sequestration would be governed by the procedures set forth in the law. below provides omb and agencies with very little flexibility or discretion in implementing sequestration. it would be a uniform percentage reduction at the account level which would apply evenly, equally, across programs, projects, and activities. because congress has not yet made progress toward enacting balance to deficit reduction, the administration is taking a number of actions to prepare for a possible sequestration. earlier this week, omb issued guidance to agencies and will engage them on matters necessary for issuing the sequestration

order. i have also notified congress of the present intent to exercise his authority to exempt all military personnel accounts for sequestration if it were to occur. regarding federal contractors and the department of labor, they issued guidance on warren act to not require issuing notices to their workers in advance of january 2 and doing so would be inappropriate in light of the underlying purposes of the act. we are taking the necessary steps but as i stated, no amount of planning will mitigate the damaging effects of sequestration. sequestration is a blunt, indiscriminate instrument designed to force action, force congress to act.

it is august 1, five months remains in congress to work together to pass balanced deficit-reduction to avoid the sequestered. the administration stands ready to work with congress to get the job done. thank you and i look forward to taking questions. >> thank you, dr. carter. >> thank you mr. chairman. thanks for the opportunity to be here today. i will focus on the impact of sequestration on the operations of the department of defense. let me thank you all for your continuing support to our department and service members. and military families. not only in afghanistan but everywhere around the world. it is much appreciated.

i just returned on friday from a 10-day trip around the pacific theater where i had the opportunity to meet with our troops stationed in hawaii and guam and the republic of korea, japan. for over 70 years, the presence of our servicemen and women has been a critical guarantor for present -- for peace and this prosperity in the visible region. in the climate of peace and stability created by the u.s. military presence, first, japan rose and prospered and then south korea and southeast asia and now china and india. we intend to remain a pacific power for decades to come. we believe this region is one wthat is an important part of our future lies. our new defense strategy calls for exactly that and that is one of many reasons why the subject of this hearing is so important to all of us. mr. chairman, i would like to ask that my full statement be

submitted for the record. >> so ordered, secretary panetta and i have been suggesting that sequestration is allowed to happen, it would have a dead -- devastating effect on the fence. the testimony makes it clear that the effect on the operations of non-defense agencies would be equally devastating. he has described the mechanics by which sequestration would work and i would refer you to my prepared statement for the mechanics of sequestration as they would apply to the apartment of defense. -- to the department of defense. i will briefly highlight some crucial to dod but some could be echoed by non-defense managers and industry managers refresh critical goods and services to the federal government. i can describe many of the

sequestration impact dod, it is not possible to devise a plan to implement that somehow it eliminates these consequences or even mitigates them substantially. the intent of sequester was to use the threat of a mutually agreeable cuts in defense and non-defense programs implemented in flexibly to force congress to enact a compromise deficit reduction. it was never designed to be implemented. sequestration, if it were allowed to happen, would introduce chaos into the management of every single one of more than 2500 defense investment programs. waste in the defense spending at a time when we have to be especially careful with the taxpayers' dollar. inefficiency to the defense industry that supports us and

would cause lasting disruption even from -- even if only extended for one year. sequestration in fiscal year 2013 would seriously disrupt our forces and their programs. over the longer term, the lower spending caps of 2014-2021, would require the with substantially modified and scaled-back the new defense strategy that the dod leadership carefully developed a few months ago. if sequestration is triggered, its impacts would be devastating for defense. given the recent announcement that the president will exempt military personnel from sequestration, but cuts in the restive dod funding will be about 10%. under sequestration rules, this same percentage cut must apply individually to literally

thousands of defense programs one by one. overseas contingency operations or oco funding would be subject to sequestration. that is war support funding. supporting our were fighters in combat is our highest priority. we would therefore endeavor to protect wartime operating budgets as much as possible including the key operation and maintenance accounts. this is possible to do in part tainocoof onm parts tha and they merge together during the dod budget. we could reduce the base budget portion ofo & m and spare the oco portions. we could take other steps as well.

however, especially with the army and marine corps, this action would lead to correspondingly much lighter -- much bigger impact and readiness. we would seek to minimize the effects on the readiness of units to playing in the near term. but probably not do so fully. as a result, later deploying units including some going to a afghanistan could receive less training especially in the army and marine corps. under certain circumstances, reduced training could also impact the readiness of other units to respond to contingencies should they occur. sequestration would also affect training in the other services, the navy and air force as well. sequestration would force dod and other government agencies to

reduce funding for civilian personnel. we would probably have to release temporary employees and impose at least a partial hiring freeze. we might also have to impose unpaid furloughs on our civilian personnel. you can imagine the effect of the output not to mention the morale of these defense employees who conduct so many of our -- are essential support systems. military families and retirees would be adversely affected by sequestration. you could be forced to cut back on support services, facilities maintenance, and maintenance of government-owned family housing. commissary hours might have to be reduced. funds for the defense held program which provides health care for retirees and military personnel would be sequestered. that would result in delays of

payments to service providers and potentially some denial of medical services. these various sequestration actions taken together would represent a major step toward the creation of nan unready military force. sequestration would also inevitably lead to universal destruction of the dod investment programs. under current rules, the government sequestration process, everyone of our more than 2500 procurement programs, research and develop the projects, military construction projects would each be indiscriminately reducing each by exactly the same percentage. some managers will be forced to buy fewer articles, fewer weapons. productions in buy size will

cause unit costs of weapons to rise. in cases where we cannot reduce the quantity of ivins but, we would have to delay projects which would be economically efficient. many military construction projects would be rendered on executable by sequestration. we would be forced to delay fixing schools, etc. harmful foresee the effects of sequestration, the nature of the sequestration mechanism is impossible to devise a plan that would eliminate or substantially mitigate. we are work in withomb to understand the complex legislation. we're still five months from january and i am hoping that

congress will make sure the sequestration is dismantled. if it is instead a, we will work with all federal agencies and be ready to implement. we will not fill to prepare for sequestration but we're equally word about the different types error which would occur of sequestration does not happen but good for example, we don't want to unnecessarily alarm employees by announcing adverse personnel actions or suggesting such actions are likely. for efficiency reasons, we don't want to hold back on the obligations of funds either for weapons projects or operating programs that would have been obligated in the absence of a possible sequestration.

nor do we want to cut back on training which would harm military readiness in a time when we face a complex array of national security challenges. finally, we understand private companies that serve the department of defense and constitute important members of our national security team will be making decisions on issues related to sequestration. they face many of the same dilemmas we do at number of them have expressed to me their alarm at such a wasteful and destructive way of managing the taxpayers' money and the talents of their employees. we will continue to consult other government departments. the best thing that can happen for our industry partners as well as the department is for congress to enact a balanced deficit-reduction plan. i believe what i have outlined

makes clear that sequestration would be devastating to dod. and just as it would be to every other affected federal agency. secretary panetta and i believe we need to deal with the debt and deficit problems in a balanced away and avoid sequestration and that this will require legislation that both houses of congress can approve and the president can sign. the men and women of our department and their families in need to know with certainty that we will meet our commitments to them. our partners in the defense industry and their employees need to know we will have the resources to procure the world- class capabilities they can provide and that we can do so efficiently. the american people, our allies, partners, friends and potential foes the world over need to know that we have a political will to implement the defense strategy that we have put forward. that is why secretary panetta and i urge action now.

thank you again for all you do to support our men and women in uniform here at home and around the world. thank you and i am happy to take your questions. >> taking very much. the department of labor's guided notwithstanding, each company must decide for themselves if and when they are obligated to provide advance notices to their employees of impending layoffs. the criteria established by the warrant act is that such layoffs be some of the foreseeable. two weeks ago, i asked the ceo of lockheed martin, the ceo of eads north america with the chairman of the national offense and debt association and the former deputy director of omb, the president of pratt- whitney who is a small-business owner on the board of the national association of manufacturers, i asked these

four people the following question -- can you each confirm at this time the layoffs are reasonably foreseeable? there unanimous answers were yes. i also ask each of them at a believed they were obligated by either the spirit of the letter of the warrant act to give conditional notices to employees that may be laid off as a result of sequestration in advance of making a final determination regarding which specific employees will be let go. none of them disagreed. finally, i asked them if any of the exemptions to the 60 day notice requirements are applicable in this situation. for example, could the companies they represent claim that laos from sequestration were sudden, automatic, and unexpected? here is what they said -- we do not believe so. no, they are well forecasted

and anticipated. we knew months in advance and could see it coming. i would agree with my colleagues the law on the books today said that sequestration will occur on january 2, not conditional or contingent on anything. that is the law of the land. and we are obligated to plan on it. we have a fiduciary responsibility to our boards, our shareholders and our employees to plan based on the laws that are on the books today. it the largest defense contractor and senior elected representatives of the national defense in this special -- industrial association, the aerospace industry association and the national association of manufacturers all believe that laos -- that lauyoofs -- that layoffs are reasonable, why do

you disagree with them? >> i think the important thing here is that the department of labor oversees the act. that happened earlier this week. so subsequent to the hearing you are describing. they did that in response to questions raised by contractors in the defense industry and contractors who do business with other government agencies. dol -- the agency responsible for implementing the act, provided the guidance and the guy that makes clear that contractors are not required to issue the warrant at notices 60 days in advance of january 2. they go on to say to do so would be inconsistent with the purpose of the warren act. these potential plant closings or layoffs are speculative and unforeseeable. so to give blanket notices both

with taxpayer resources and create unnecessary uncertainty. clearly the company to just talk about the need to a door this guidance from the department of -- need to absord this guidance from the department of labour. i think the department of labor has responded to questions from contractors with the guidance they gave earlier this week. >> mr. chairman, i cannot add anything on the legal side. i sympathize with my colleagues in the defense industry in the sense that they like we are on the horns of this dilemma. on the one hand, this should not happen. nobody wants it to happen. and we do not want to begin taking actions now that we did to tear ourselves to pieces in

the expectation of something that is really stupid if it happens five months from now. on the other hand, we do not want to be eight -- in a position where we are flatfooted five months from now either. so that is where we are and i sympathize very much with them. this gives them as they discuss with their boards and councils and make their own decisions of legal guidance that they can take as input, but the underlying issue here is that we have a lot of people who depend on us to be a bit until a more or less predictable and responsible way. this puts them in a lousy position, this process of sequestration, which is why the secretary and i had been saying for months that we have to head this off. it is very damaging. just having a shadow over russ is damaging. at this discussion illustrates. -- just having the shadow over us is damaging. and in this -- as this discussion illustrates.

what they are already doing things because it is the law of the land. did the omb or dod provide input to the department of labor's opinion? >> omb plays a role in clearing guidance from all agencies. so they played their normal role. >> we did not. the department of defense did not though the -- as i said, there is a sensible results here of not having people tear themselves apart about something i hope does not happen. but we do not have a role in making the legal determination. >> hope is not good enough to build a strategy on. they are going based on what

the law of the land is. have you or anyone else in your organization given any guidance to industry, either verbal or written, not to issue conditional warren act notices to employees before the election? >> speaking to the defense? >> no, we have made available to our contractors the department of labor's guidance on the warren act. >> the department of labor's issue earlier this week is the only guidance that has been put out. >> let me ask that again. have you or anyone else in your organization given any guidance to industry either verbal or written not to issue conditional boren act notices to employees before the election? >> no. >> no. >> thank you.

>> director, you say you cannot estimate the reduction by program, project, and activity until congress enacts all fiscal year 13 appropriations. can you explain why the omb could not make certain reasonable assumptions to begin its analysis? for example, what could you not use the president's budget request as a baseline or the house passed appropriations? in the case of the department of defense, the difference between the house passed a preparation and the president's request is 1%. i think most analysts would like those odds, 99% certainty of what the funding will ultimately be. >> the cbo estimates have a decent methodology but the

problem with their estimates or anyone's estimate at this point is you have to make a series of assumptions. you have to understand what the appropriation level is going to be. one has to understand balances on the defense side and what they will be. one has to understand mandatory spending for those programs that will be some debt on the mandatory side to sequestration. you then have to understand how much spending will interact with pta's. so it is a very complex exercise. the estimates dr. carter provided at 10% are likely within the reins. our time is much better spent avoiding sequestration and to balance deficit reduction rather than massaging numbers that would have a devastating impact on defense and domestic programs. >> however, you cannot spend

your time doing that and dr. carter cannot spend his time doing that. we, the members of congress, have to spend our time doing that. so what you are saying is you basically will and let -- will implement the law as written and it will be as strait across the board cuts of roughly 10% to every single program, every line item? >> the guide as we did yesterday -- >> working with agencies to understand which programs are exempt in which are not exempt. if the program is exempt from sequestration, it will not be subject to such a cut. >> that is the personnel to regret not only personnel. there are other accounts we have to go through by looking at the budget act of 85, how programs have changed, what new statutes come into play. it is a complex exercise to understand which accounts are

exempt and which ones are not. that is an important part of the across-the-board cut. if an account is exempt, it is no longer in the denominator, if you will. >> right. so you have listed what accounts will be exempt and everything else will be cut line item by line item across the board evenly? what that is what the law says. >> thank you very much. mr. smith. >> thank you, mr. chairman. just to be clear -- you are looking at the options for if we have to implement it give you are not completely ignoring it and dissuading? >> fortunately or unfortunately, we have experience working when the government shutdowns, possible that ceilings. we know how to do this. as dr. carter said, we will be ready at dod and across the government

is unfortunately congress does not do its job and passed balanced deficit reduction. at the same time, we will do it in an efficient way. there are five months between today and january 2. that is plenty of time for congress to pass balanced deficit reduction. and at the same time, it is more than enough time for us to be ready for the unfortunate possibility of january 2 coming to be in behalf to implement these sequestered. we will be ready but really that is not for the energy should be spent. the energy should be spent on passing balanced deficit- reduction to avoid what everybody agrees is that policy. >> there is no question. the testimony has made clear that you both think sequestration is awful and should be avoided in any way possible. on the warren act, that is a legal question. neither one of you suggesting that defense contractors or

people in the transportation industry or any of those areas should not be concerned. there is clearly an impact on jobs. we do not know what specific jobs and that is what makes the warren act difficult because you do not know specifically who will be laid off. but clearly there is a lot to be concerned about it you are a contract worker or defense worker. neither of you would dispute that? >> absolutely. we have a $900 billion cuts. there will be bad consequences. no doubt. the sequester was designed to be in forcing function, not to be a policy that would be implemented. >> absolutely. the warren act is a very narrow question. that is part of the legal obligation that the budget control act issued guidance. how should we implement this? but clearly there is a lot to be concerned about it you are a worker under any government contract. that is the interesting thing about these hearings.

we have had hearings about the devastating impact of cutting federal government spending on defense workers and at the same time, we have complained that cutting federal government spending on other workers the not have an impact on the economy. it does. if you -- as people have said, it is a matter of finding a balanced approach to solving this problem. i do not think there is any gulf between how devastating secret jason would be and how important it is we work to prevent it. i yield back. >> thank you. >> thank you. i have four quick questions for director zients. assistant answers so we can get through all of them. sequestration, depending on how it is administered, could be truly catastrophic. the budget control act specifies that sequestration be implemented in the course of

section 256k of the balanced budget. the same percentage sequestration shall apply to all programs, and activities within the budget account. defense program products and activities have been defined as the most specific level of budget items identified for defense appropriations and explanatory statements and the budget justification document have been modified by congressional action. this level of application may render some programs unexecutable. some investments for loquats the orders may not be -- for low quantity orders cannot be funded. >> i think dr. carter said there is about what the 500 ppa's across the defense

apartment. there are tens of thousands of pta's. each will receive an across- the-board cut. >> will sequestration be implemented at a higher aggregate level? >> the law is clear. at the ppa level. >> it will be those accounts that are determined to not be exempt. and it will also include an obligated balances on the defense side and the mandatory programs subject to sequestration. >> which spending accounts will or will not be subject to sequestration? >> those that are not exempt will be subject to sequestration, as i just described. also balances on the defense

side are subject to sequestration as are mandatory spending programs that are not exempt from sequestration. >> can you provide us with a list of the exempt accounts? >> we will be developing that list. >> the control act of 1985 providing flexibility -- will activities be used? >> we are analyzing how the 1985 act interacts with the dca. that is central to determine which accounts will be exempt and which will not be exempt. >> will the department of defense be granted but ability to apply sequestration to adjust programs and ensure continuation of critical investments? >> the department of defense will do what the law says. it will apply at the ppa level.

>> on what basis and at what level will the authority be given? >> according to the law. >> in my question here, it states that accepted otherwise provided, how you interpret that? >> i need more context to understand your question is. >> if you could take a look at 256k and for the record tell us what you think as of the rights provided means? >> we will do so. >> thank you. should such a funding level be appropriated for fy 13 with the additional $5 billion be sent it to sequestration? >> that depends on whether congress does what we all agreed need to be done which is a balanced deficit-reduction. if it is enacted and the sequester is avoided, then it

would return to the security caps. if sequestration happens on january -- >> thank you for your distinct answers. >> the distinction -- the section he was referring to says except as otherwise provided obligations and that a sequestered accounts shall be reduced only in the fiscal year in which is sequestered occurs. the secretary of the department of education yesterday said it sequestration kicks in and education will be affected as

you pointed out -- i have only been talking about the defense side. that is half of the equation. but he said any cuts to education would be put off until the next year. the next education year. by what authority will he be doing that? >> that is not the case. as we all know, the school year starts in september. the 20122013 school year >> actually, i was on a school board and the board of was on, the school year started in june. >> in terms of how we fund, so september through early summer. so the secretary clarified for the 2012-2013 school year, would not be impacted by sequester. however, it would be very devastating consequences to the 2013-2014 school year.

that money would have to be taken out within the fiscal year which as you all know and september 30. there will be devastating cut to the next school year. education would have to live under the law and do their fair share of these devastating across-the-board cuts. >> thank you very much. mr. reyes. >> gao has stated that regardless of the possible effects of sequestration, agencies must continue to comply with the requirements of the impoundment control act. with empowerment defined as any action or inaction of an employee of the federal government that precludes obligation or expenditure of budget authority. our committee has received testimony that indicates that there is an observable slowdown and reduction in contracts and

orders. question this morning for you is, what is omb's position on contracts funded with fy12 appropriations but executed in fy13? will agencies be allowed to slow down contact or accelerate them to protect programs? >> we have been very clear in yesterday's guidance that we expect agencies to continue normal business operations. and to not slow down in any way. >> have you noticed the same thing that we have noticed? is there any indication from your perspective that these things are occurring? >> i will refer to dr. carter because two-thirds of the contact is that dod. >> i have been concerned about

exactly the phenomenon you are raising. that we begin to experience the effects of sequestration even the sequestration does not take place. i do not see that in the obligation rate statistics yet. i have some anecdotal evidence to that effect from are contacting officers. we are not seeing it show up yet and the guidance river given yesterday was very sensible. which is let's not self sequester before we have to if we end up having to. our program managers to keep operating in the most efficient manner that they had planned to so they are giving good defense value for the taxpayer dollar. we want them to keep on keeping on. if they are managing well, doing it the sensible way.

>> i was interested in your response about not providing guidance to industry leaders. what about providing guidance within the government as it pertains to violations of the anti deficiency at if a director or program leader -- they have to plan long term. sequestration kicks in, what guidance are you providing? >> at the agencies are well aware of the act. the sequester had not taken effect at this point. hopefully it never will. agencies are instructed to continue their normal business operations which means to continue to spend at the appropriate level.

obviously not to in any way violate the efficiency act or slow down spending. >> it seems to me like that puts them in a catch-22 situation. they need to plan ahead. for instance, you mentioned the cutbacks in -- that would affect customs import protection. they have to make those kinds of plans. >> those cuts did not occur until the sequestration order is issued on january 2. again, i think the job of everybody here is to ensure we never get to that point in that congress passes balanced deficit reduction that avoid sequestration. >> there are managers out there that could from my experience

be in violation. i am wondering -- is somebody taking that into account? >> they cannot be in violation. they have their appropriations level and the air spending that level prudently. if on january 2 the level of spending is reduced by $55 million on the defense side and $55 billion on the domestic side, agency managers will be ready to implement that. we will be ready. i think that we have prepared for these types of contingencies before. dod knows how to do it. agencies know how to do it. we have to avoid this situation altogether. >> may i just add to that if i may for clarification? you all may not need this but i want to make sure our program managers understand that the key point is that funds they

obligate between now and when sequester hits, if it hits, will not be subject to sequester. so they will not have to retroactively adjust activities they put on the contract during this period. we want to make sure our program managers, i think most of them do understand that, but that is where guidance is helpful because it makes clear to everybody obligate the funds haven't cooperated in a way that is appropriate. do your defense mission in an efficient way. the sequester will not retroactively apply to what you do now. >> thank you. >> thank you, mr. chairman. part of what you have to do at omb is provide economic forecasts, employment forecasts. there has been several studies about the economic consequences

of sequestration. if you have any doubts that if sequestration were to take effect that there would be substantial numbers of people losing their jobs and it would be detrimental to the economy? >> i think that is absolutely the case. as i said earlier, if you take $55 billion out of the defense budget and equal amount out of the domestic side, teachers will lose their job. people who work at the faa will be furloughed or potentially laid off. same situation with border patrol. so it has a significant impact across the board. you may know, some studies have estimated that 1 billion to 2 billion people in the defense industry -- 1 million to 2 million people in the defense industry could lose their job. >> i cannot know if i can about it that, but the cost to be significant. >> i want to go back to the

department of labor guidance. could the department of labor guidance that says it would be inappropriate to send out notices be any sort of community for a contractor who would be sued later by employees who were laid off? >> i am not a lawyer. i am not a labor lawyer. i think the guidance is very direct. clearly, companies need to work with their legal counsel to interpret that guidance. >> i would assume you would say that they learn from their experience. if they have been sued in the past over these issues and it takes years to resolve them, that would factoring -- >> i would assume that each situation -- i have spent 20 years in the private sector. different situations need to be evaluated. we have pretty clear guidance from the department of labor.

co. leadership needs to work with the legal counsel to interpret it. >> can i get back to the department of education issue for a second? i do not fully understand that. is it the fact that all of the education money is sent out to the school districts before january 2? >> no. >> then how can it be that some of the money -- here is what is going on. you said sequestration will apply to unobligated balances of the department of defense. if the school district has not spent all the money why is that not an unobligated balance? >> unobligated balances outside of the department of defense are not subject to sequestration. add the ended the day, the department of education has the

same across the board cuts -- it has to reduce its spending in fiscal year 2013 by that amount. by funding the school year that is about to begin, it will have a big impact in the following school year. the department of education has to hit that number. it would have a devastating impact on kids and education across the country. >> you made that clear. what i do not understand completely is whether omb has discretion for whether those cuts will occur. can they occur on february 2? september 2? depending on their discretion -- in the case of schools, it will be several months after. >> there are so many different types of programs across the federal government. some are seasonal, so more spending might be up front, in

which case you need to save up front. some might be back-end, in which case the money comes out of later months of the fiscal year. by the end of fiscal year 2013, each agency has to achieve that across the board cut in each one of those ppa's. it is hard to generalize about how it will be achieved. >> do you have discretion to determine when those across the board cuts will occur within the time period from january 2 until september 3? >> the sequestration order is issued january 2. that means that $50 billion has to come out on each side. agencies need to think through how they will end their fiscal year with the savings achieved. in every situation it is different. in every situation trip will be very difficult. a%-10% numbers have been cited

up front. 8% of the domestic side, 10% of the defense said. they are actually higher than that. january 2, we are already one quarter into the fiscal year. >> thank you very much. ms. sanchez. >> thank you for being before us. my first question is for director zients. did you have a vote on the sequestration act? >> the budget control act? >> no. i am not a member of congress. >> thank you. secretary carter -- i would ask the same question. did you get a vote? >> i did not. >> the bill was neither enacted nor voted for by the administration. the only body that can turn the

course of this policy is us, not them. so everybody here wants to talk the negative impact of sequestration. i think there are other committees to have done this. >> would you yield for a moment? the president did sign it. it would not have become law if the president had not signed it. >> taking back my time, we know the impact of the sequestration law -- loss of jobs, cuts to programs across the board, last teachers, less programs to support their children, less programs for senior citizens. however, i do not think the solution is to exempt the department of defense. we need to sit down and go through and figure out what we need to cut. this is the law as it is now --

it is wrong to go percentage by percentage across the line, but we need to, as leaders in this country, sit down. leaders've talked to from major and small businesses. i had a ceo expressed to me that the impact of sequestration, the uncertainty, is weighing down the company. he said he cannot even make decisions for his company because it is making him crazy to not be able to lead his company. with this sequestration, california is set to lose 150,000 jobs. we are on the line for this. i do not want to see sequestration triggered. i do think we all need to sit down in a very calm manner and look through and figure out where we will make cuts, both from the department of defense

and all the other places in our budget. i would urge our colleagues to sit down in a constructive way and work through this and stop this whole uncertainty that is going on. i yield back. >> thank you. mr. jones. >> thank you very much. i was listening very carefully to ms. sanchez. for me personally, i have -- the anxiety over sequestration in my district is mounting every day. one of my biggest concerns is, quite frankly, and mr. director you could maybe answer this for me -- if we do go into sequestration, the mental

health programs within the department of defense, which i think now are very much stressed with ptsd and tbi, at what point do we go within the five months were you get to a point where everybody who will be on any type of list to be advised, that you will not continue in this position? if we cannot come to a resolution in the house, which i think both parties will try to do, at what point are you in that five-month period of time where you have to start notifying? that is based on the labor laws of what ever, but give me an idea of that element. also, if you would, how do you anticipate the threat to the

mental health programs within the department of defense? >> thanks for asking that question. i absolutely share your concern. we have, of necessity and sadly, learned a lot about the mental health consequences of combat over the last decade. we have tried to advance our service of wounded warriors. there is no question about it. this is caught up and everything else we do. in sequester, we try, as everywhere, within the brutal constraints of the law, to maintain the most essential aspects of treating ptsd, traumatic brain injury, and so forth. we're not in a position where

we can say we can successfully do that because we have big cuts indiscriminately applied, but we will certainly try. i appreciate the community's support. you are great for our people down there. i am grateful for that. >> thank you very much. in december, there was that resolution by congress. then, the process starts. or does it start before december? if there is no resolution by congress to stop sequestration? >> we will be very mindful of being ready and, at the same time, not doing things that are wasteful and destructive. if we're going to have a very unfortunate situation where the sequestration order needs to be issued january 2, we will be ready to do so.

>> i would like to thank the witnesses. i think we can stipulate that just about everybody on this committee thinks sequestration is a bad idea. i do. we do not want to see it happen. i think we can also stipulate that it is bad for the economy, bad for civilian workers in the defense department and people who work for contractors who get laid off -- i think it is equally bad for the economy for teachers, firefighters, and people who work for highway contractors to get laid off. i want to apologize for witnesses. i believe you've done a good job explaining an indefensible problem you have been saddled with. i normally like to ask questions, but i think that is not the right thing to do.

the answer to the problem lies on our side of the table, not yours. i would just say that, with great respect and affection for my colleagues, brit is time for us to start saying we are for and not against. understand that repealing sequestration increases the national debt by $1 trillion. that is what it does. so if repeal this, we have to take responsibility for what we do instead. i think that replacing that $1 trillion is not nearly enough. i think we need a $4 trillion deficit reduction plan. i would stick with the $1 trillion that most of us voted for last august, and i would do the following on top of that. in medicare, i would say that people have to wait a little longer before the bank and get the medicare benefits. i supported a plan that would say that, for each year that you are under 55 years of age,

you have to wait one month to get medicare benefits divested beyond 65. a person 45 years old can get medicare when you are 65 years and 10 months old. i would do the same with social security. i know there are things you cannot say in american politics. i would favor some reductions in domestic areas of the budget. i am from new jersey. i would favor reductions and beach erosion of funds from the federal government if we also had reductions in crop subsidies and other forms that benefit other areas of the country. it is time we have to do those things. i do not think every housing authority should have a job training program. the department of labor has many programs. i think we can do that. i think the wealthiest 2% or 3% of americans should pay a slightly higher income tax.

i think every dollar they patient go to deficit reduction. i think we should reduce defense spending, personally, below the level in the sequestered. i would not go to the $495 billion, but we can do a little beyond what is already in the bill. the way we ought to do it is have statutory caps on defense appropriations, where each year this committee and the defense appropriations subcommittee would make decisions on a rational and intelligent ways to allocate the reductions. for example, our footprint in asia and europe is a bit too large and could be reduced. i think that a nuclear arsenal that can blow up the world 24 times is quite sufficient and could be modernized and reduced in cost. i frankly think that changes in the military health-care system, which would be painful and politically unpopular -- we

have an obligation to consider them in a fair and balanced way. i do not expect any of my colleagues to agree with all or any of what i have said. if you agree with it, fine. but i think it is fair to expect each of our colleagues on this committee, if they want to say they are against sequester, say what they then would do instead. if you are not prepared to say how you would replace that $1 trillion of additions to the national deficit, i think that is unfair to witnesses here. i hope and pray that on january 2 the sequester order is never issued. it is very bad for the country and the economy, but the power to stop that is with us, not with the gentleman here testifying. the chair of the committee deserves great credit for a long time, for 10 months of

educating the congress and the country on the consequences of sequester. i commend him on for that. we as a group have to move to the next step. we can stipulate that we all do not like this. what will we do about it? i support some ideas that i know are quite controversial. others should put their ideas forward. then let's go about our business, passed a law, put it on the president's desk and repeal sequester that way. i yield back the balance of my time. >> i thank the gentleman. i mentioned earlier that we had passed legislation not to get rid of the $1 trillion, not to eliminate that, merely to pay for the first year of it to move it out of -- you have presented some items which i applaud. however, many who are facing election in november who are in

tighter races are not going to step up. >> if you would yield, might race may have just gotten a lot tighter. [laughter] i say this with great respect for the chairman. we have been pushing things out for 40 years. we keep having commissions and delays. that is what got us into that -- this problem. it is time to make a decision. >> i am in agreement with you on that. we have five months left. we have two legislative weeks left before we leave for the election to go home and tell people what a great job we're doing. then we come back after the election and, you know what the environment will be like. people who have lost their elections, don't miss any votes to try to solve something that is very important that we have not been able to solve for a year-and-a-half.

i'm frustrated with that. it is important that we do that. in the meantime, they had a responsibility to let the people know what they can expect. we have a responsibility to fix this, i am just not very optimistic at how we are going to go about that. mr. forbes. >> thank you. mr. zients, you open the door to my questions when he said that the administration stands ready to work for congress. you are willing to opine as to which action of the administration or congress you thought were responsible or not responsible, and also which ones you thought were realistic or not realistic. my first question to you -- you heard mr. carter about how devastating the atrocities are in sequestration.

you heard the ranking member say he voted against that. i voted against that. do you believe it was reasonable to use a draconian method such as sequestration to force congress to do anything? >> let's go back and review the history. >> no, sir. i only have five minutes. >> the vast majority of members of this committee, democrats and republicans, voted for the balance control at. >> you stated in your testimony that you thought certain members of congress were irresponsible. do you think it was responsible to use an action as draconian as sequestration to force congress? >> the budget control act was a law in order to force a balanced deficit. >> are you willing to say it is responsible when it is to your favor? >> do i think it was

responsible to implement the sequestered? absolutely not. >> do you think it was responsible to use it as a forcing mechanism? >> you all wrote the law -- >> i am asking if you think is responsible. do you think it is responsible to use draconian methods? >> whatever it takes to get balanced deficit-reduction. >> do you think it was responsible for the president to sign that measure into law? >> given the situation with the debt ceiling, the president was presented that bill. the president signed the bill. >> you testified on february 14 -- this was a quote. the sequester is a very important force in function for us to do deficit reduction. is your thought that sequestration, even though it

may be in effect holding national defense blackmail, is a proper tool in that it forces deficit reduction? >> there are five months remaining for congress to act. what is holding up is congress -- for the top 2% to pay their share. partisango to your statement you just made and say this. you mentioned the fact that the president has put forward a realistic alternative to this. you come in and say that is the job of congress to fix this. do you acknowledge that the president has the least some responsibility to come in and stop sequestration? >> the president has put forward on two occasions, in september and 2011, a balanced deficit -- >> do you feel he has some responsibility to put forth a realistic proposal? >> he has done on two occasions. >> one thing you mentioned is his budget.

this is a copy of his budget. do you know how many votes this budget got? >> that budget was not voted on in the senate. >> it was voted down 99-1. >> it was a republican gimmick. it did not have the president's policies included. >> day know how many votes that budget got? >> it was voted down by every member of congress. don't you think a realistic proposal should have a single vote by at least one out of 535 members of congress in some committee? can you tell me a single proposal that the president of united states has put forward to stop sequestration that has gotten a single boat out of the senate or house? >> that is not the president's budget. >> can you tell me if there is any proposal you can put forward today, any proposal the president has put forward to stop sequestration that has

gotten a single vote on the senate floor, a house committee or a house for? >> the root problem is the republican -- >> i understand your partisan agenda. i am just asking you if you can tell me -- can you point to any proposal? >> there are specific? >> your answer is no. if you cannot point to any such proposal, can you honestly sit there and say that the president has a realistic proposal if it cannot garner a single vote in the senate or the house? with that, i yield back. >> thank you. mrs. davis. >> thank you, mr. chairman. i appreciate the opportunity for the hearing today. i want to share with my colleague that he was asking about the administration, but in actuality, before the rules committee the president did support the proposal to offset sequestration.

that did not go very far. there are opportunities to do that. unfortunately, as was just mentioned, if we do not address the top 2% paying their fair share we will not get where we need to go. one thing that you brought forward today is really the impact on our military families. i know that everybody on this committee has consistently and very strongly, when it comes to our military families -- in addition to the problems with sequestration, we also have tax cuts that would go away for our military families that would remain significant problems to them, whether it is the child tax credit, a number of other opportunities they have had over the last number of years. i wonder if you could comment on that?

we would have a real impact on our families if we are not able to move forward. one thing that struck me the other day -- the defense industry suggested that, in order to solve this problem, everything has to be on the table. would you be willing to look at a deficit reduction package? >> my understanding is that the house and the senate, republicans and democrats, agreed that middle-class families should not experience a tax increase at the end of this year. mike understanding is there's a consensus. the senate has passed the bill that will make sure that families earning under $250,000 and all americans on their first $250,000 would have no increase. i would encourage the house to pass the bill so we can take away uncertainty for middle-

class americans that their taxes will not go up on january 1. why not, where there is agreement, go ahead and provide certainty to those families and individuals and to our economy that taxes will not go up? >> i appreciate that. i would challenge my colleagues on that as well. that is the one way that we can begin to give some certainty to the economy as a whole. >> absolutely. >> could you comment on additional cuts that would occur under sequestration for our military families? how would those be felt? you have had a lot of contact with the industries that support our defense. what have you heard from them in terms of what they really feel congress should be focusing on right now? >> you captured it a moment ago.

my colleagues and the defense industry are beholding this situation unfold with the same kind of alarm that we are expressing in the departments and agencies that have to manage things. this is no way to do business. the best of them have a very carefully tried to give us good value and manage their facilities and their programs and their technology and people in an optimal way for us. this throws everything they are trying to do away. they are hoping for the same thing everybody here has been talking about, which is that we can find a way not to do this to ourselves. associate myself with them in every way. they are trying to manage on our behalf the situation that is really untenable. >> thank you. i yield back.

>> mr. miller. >> my colleagues will find consolation in the fact that will be given the opportunity to vote on the floor tomorrow to extend all of the bishkek and europe tax cuts, including those for the middle-class. as acting director of the omb, what is the law today regarding the bush tax cuts? how do you interpret the law >> they are set to expire. >> when that? >> the end of the year. >> do you make any forecasting that there will be more revenue brought in to the government because they expire? >> the plan assumes that there will be no tax increases on families.

>> that's not my question. as the bush tax cuts are today, what is the lot? they will expire at the end of the year. at the end of the year, what type of forecasting do you do to ?repare for that bo plan is toident's have them not end for those making less than $250,000. >> that is not the law. you have to prepare for those tax cuts expiring, correct? >> i do not understand. what type preparations are you talking about. >> do you forecast additional revenue coming in to the government?

>> we have money coming into the government under the assumption that the top two will not have. >> how much will that be? >> override decade, about $1 trillion in the expiration of the tax cuts and state taxes. but you are not planning on sequestration. who said that sequestration was never intended to happen? >> i never said if anyone was intending sequestration to happen. the refusal of republicans to of knowledge the top 2% have to pay their fair share. >> was the president's budget never voted on in the senate? >> the president's budget was

never voted on in the senate. >> was it ever voted on in the senate? >> no. >> the the concern you in a democratically controlled senate that harry reid would not even have a vote. >> there is refusal to of knowledge -- >> this is my time. does it concern you and the president that the democratic controlled senate would not, in your words, vote on the proposal. >> we have five months. >> i will ask you again and by last year until the time runs out. does it concern the president

that harry reid would not bring up the president's concerning budget? >> what concerns me is the vast majority of people on this committee voted in favor which has a sequestration and there has been no progress by republicans to of knowledge made a balanced package that includes further spending cuts and require the top 2% to pay their fair share. >> i would expect you to be political, but you have not answered my question. does it concern you were the president that the budget was not voted on in the united states senate? >> my energy and concern is how to use the next five months to balance the opposite reduction. >> can you explain to me why you waited until yesterday to put out any type of discussion with regards to what was going to be exempt from what agency?

we had six months prior to that. say that it is not good policy. they will be ready in the very unfortunate situation. >> i would just like to walk through to clients with the witness. it was almost one year ago when the budget control act was passed. they initially asked for a clean bill on the full faith and credit of this country. there were not the ones insisting on the sequestration- backed mechanism. >> republicans refused to do balanced deficit-reduction last summer. the threat of default led to the

budget control act. you mentioned the fact that the design of the budget control act actually inc. the sequestration 1985 act which is the basic structure of how sequestration would take place. the inventor 80 rodeos in terms of past budgets. he was on the books for a number of years. this was in the early 1990's. i would just note that when it passed, congressman graham said it was never the objective to trigger a sequester but to have the threat of the sequester for some action. that is the thinking with the budget control act. it was enacted one year ago.

"that is my understanding as well. >> the speaker was boasting that he got 98% of what he wanted in terms of from the white house. this have more than bipartisan participation. i would've liked to go to one point which my good friend mr. forbes was trying to claim, that there was not a single proposal that has been voted on and approved in terms of deficit reduction. i would point out that in the 2011 republican budget plan, where they claim $5.70 trillion in savings, $1 trillion in savings was from the oco account. today, the chairman, someone i

have a great deal of respect for, claims that it is a gimmick. we will spend $98 billion in afghanistan this year. >> that's correct. the cbo scores this savings by capping oco that we are closing the door on discretionary spending. it closes the door and is scored by the cbo. >> i am not doing this as a gotcha point. there is some overlap between budget documents that had been voted on by the vast majority of republicans in the house and what the president put forward. i think we should go back to mr. graham's admonition when the sequestration was first passed, that it was a mechanism to force compromise. there are some working parts

that we can begin to get to that point and avoid the cataclysmic results. >> five months remained. there is plenty of time to do a balanced deficit reduction and avoid the sequester. >> back in eastern connecticut, people get it. we have fought two wars on a credit card. after 2014, we will be bringing down that process of pouring money into afghanistan. those are real savings. that is real money that this government will not be spending. to me, for the administration to offer that as a way of reducing the budget and hitting the target which, again, the republican budget of 2011 used precisely the same measure, it is at least one piece of how we can solve this problem. i do not know if you want to

comment on that. >> it is driven by the policy of ending the war in iraq and drawing down in afghanistan. >> thank you. i would think that the gentleman would know, serving on this committee, that whether it be republican or democrat proposing using funding, we are carrying out into the future $1 trillion, it 1 not be spent. we will pull the troops out of afghanistan, so we do not need to carry that into the future. i have said it is a gimmick, whether republican or democrat. >> your caucus supports that kind of approach. i yield back. >> mr. turner. >> thank you. it has been a pleasure having you here in front of the armed services committee. we are not usually of the habit of hearing such partisan

statements and what is really a bipartisan committee. we do not usually hear people throw around republican and democrat, but you have -- i want to commend you on your broken record of partisanship with respect to the fiction that this administration has a budget or a plan. although you have tried to deny it over and over again, there has been not one single vote of support in the house or senate who supports the president's so-called budget. the lack of that support means you have no plan. we are in august. there is not one thing on the table that we could pick up that has support of the house or senate that would solve this problem that comes from the president.

i cannot imagine what it would be like to have the title of the director of office management and budget and have no support in congress for a budget. if are you, i probably would want to blame congress in stead of blending the fact that you have no plan. you keep saying congress should act. by the constitution, we cannot do it alone. we have to have the president. just as the president signed the act that caused sequestration, a bill i voted against, the president has full responsibility for sequestration, having in dorset coming out of the house and senate and signing it himself. having recently pulled out of the super committee, having provided no plans to have an action that would have been, in the fact, avoiding sequestration. what we are dealing with now is to ban things.

one, your statements on the warren act. we had people faced with the effects of sequestration. we have contractors concerned that they will have civil penalties and additional actions against them as a result of failure to notify employees that they may be laid off as a result of the threat of sequestration. you say the department of labor issued a guidance so that nobody needed to provide those notices. let me ask you first -- you said you might not be a lawyer, but i know you have an understanding of the authority of the position. do you have any legal authority to waive the penalties in the warren act for noncompliance under the threat to sequestration? >> i do not. >> let me go to the department of labor's guidance.

we have the department of labor's fact sheet with respect to the warren act. they expressly state that an employer who violates the provisions by ordering a plant closing or mass layoff without appropriate notice is liable for -- it lists all these things. then, it says that the department of labor -- this is their document -- since it has no enforcement responsibility, cannot provide specific advice with respect to individual situations. i am assuming you do not

disagree. >> they are the experts. >> the requirements work through the united states district courts. the regulations, with respect to the warn act, it says that the department of labor has no legal standing in any enforcement action and therefore will not be in a position to issue advisory opinions on specific cases. although you will not the knowledge it, there documents acknowledge the statement that people need not provide warren notices under the threat of sequestration has no effect. it is not worth the paper it is printed on. it may be the desire that nobody do that, but this certainly not reality. it is a fiction. >> may i respond? >> the reason people say that is that there are no plans in this administration. we have no understanding about what the sequestration affects would be. you cannot provide as one document about what will happen if this hits. >> in our testimony, both dr. carter and i illustrated -- >> you have documents the specifically shows what programs stop and who gets what? >> the answer is no -- >> you have not done it. >> if you want to give a speech, you can give a speech. the witness has to get more than two seconds. if you just want to badger your

witnesses, you can do that and not put it in the form of a question. >> the answer is no. >> the gentleman's time has expired. mr. johnson. >> thank you. just a few questions -- a couple of statements i would like to make. i want to thank you all for joining us. i'm sorry to drag you from your actual governing responsibilities to attend this spectacle. this attempt by house republicans to wash their hands of their own mass and lay the blame on the president. it is an election year, after all. the responsibility to govern is something i know both of you take seriously, which is more than i can say about this tea party republican house of representatives. this brings me to an important point. why exactly are we here?

i will answer that question. we are here because last summer the house republicans, bowling down to their tea party base, refused to honor the financial commitments of the united states government and threatens to undermine the full faith and credit of their own country. scrambling to deal with that manufactured crisis, congress broke the gridlock and enacted legislation that would impose sequestration unless we agree on a balanced approach to meeting our budget targets. now, instead of working on a balanced approach, the approach every serious economists as is necessary, what do the house

republicans do? they passed the ryan budget that cut employment training programs, food stamps, low- income homes, energy assistance, health care for children, the sick, and the poor, foreclosure prevention, taxes for the rich, and loaded the defense authorization with pork. an east coast missile shield, nuclear facilities nobody wants -- billions of dollars of waste. they wants to have their cherry pie and eat it 2. this hearing is not about the obama administration. it is about the republican party's abdication of its responsibilities to govern and the terrible results. the tea party republicans, during the debt ceiling negotiations, insisted on sequestration as a part of the deal to keep america from

defaulting on its debt for the very first time in our history. what would have happened if we had not broken that gridlock, and which branch of government was responsible for this sequestration policy? last but not least, i would like to ask whether or not the administration is willing to meet their budget targets by adopting a balanced approach that involves a measure of spending reductions and a measure of revenue increases? >> in terms of the debt ceiling negotiation, i think it had a bad impact on the economy during that period of time. i cannot imagine and not even want to think about the impact it would have had on the economy if we had actually defaulted. >> in fact -- >> the threat of it alone had a

bad impact. we can hardly afford further bad news. balance deficit reduction is the key. a further spending cuts and revenue, with the top 2% paying its fair share -- independent economists, all of them have at the center of their plan balance, spending cuts and revenue. it is the lack of balance, the insistence of that that is the root problem here that has us in the situation where we are five months out and have not yet replaced the sequestered. a balanced plan is the key to moving forward and making sure we do not have to implement what we all agree is a bad policy. >> what you are suggesting is that it is this very congress that is the very problem you have -- >> congress needs to pass balanced deficit-reduction that the president can sign into law. >> i thank you and your back.

>> thank you, mr. chairman. thank you for being here today. i would like to remind everybody that the house republicans have acted. we passed a budget. the senate has not acted. i would encourage the president to do like he did on the cyber bill and show leadership. the senate starts to take up a cyber bill. he needs to write another op-ed and insist that the senate passed something. it into conference. let's talk about it. to say we have done nothing is not accurate. we have passed a budget.

that is something that needs to be corrected in the record. my question goes to dr. carter. concerts in multi-year procurement authority, the contract, what percentage of what we procure today are in those multi-year contracts? >> i cannot give the exact percentage. i can find it out for you. it is fairly small, but they then are important. your contract can be much more efficient because to lengthen the horizon of the manufacturing base, so it is much more efficient. sequester, if it occurs, would effect the payment on those contracts in the future. it is a partial exception to the thing i was describing earlier about obligated funds. >> it is the determination liability consideration? >> in general, the kinds of changes called for in sequestration, when you negotiate a multi-year contract to negotiate a variable numbers. we never know what our

preparation will be year by year. >> if we break this contract -- >> it is less efficient if quantities go down. >> has the department of defense taken into consideration what kind of balance we are talking about? if we cut those contracts, there will still be a cost there. has there been an analysis on this multi-year contract? >> you are right, there will be tremendous inefficiencies. quantities have been to the date -- decrease -- that delays things. >> have you done any analysis on that? >> no specific analysis at this point. >> is that something you could shield? the f-35 -- could we shield those? >> it is not at this time subject to multi-year contracts. we know how to make those

adjustments. they are just grossly inefficient. >> would you be able to adjust those? >> it is across the board. you have to go ppa by ppa. >> you have some ability to do that, to shield some of those multi-year contracts. >> you have to go ppa by ppa. >> that begs the question, are you considering that? >> we would certainly take advantage of any flexibility that we could find. >> that is something you should be doing. >> unfortunately, there is just so little flexibility in sequester. it is not much help, but we will take a advantage of every bit of flexibility can if this happens to us to continue to try to deliver the best body we can for the taxpayers and defend our country.

i am sure all the other managers will try to do the same. >> that brings me back to where i started -- house republicans have backed it. i urge you to go talk to the president to have him show some leadership to get the democratic-controlled senate -- to sit here and say that we have not acted is just not true. >> in 20 years in the private sector, you inevitably do a lot of negotiations. in order to come to the table, you have to have two reasonable parties. this approach -- >> get it past the senate. >> where people are not paying their fair share is not -- >> what is clear about that? single people earning over $200,000? couples over $250,000? >> it is the package coming before you that insures there is no tax increase for 90% of americans. >> as a former small business

owner, sometimes my tax return will show over $300,000. i do not take that money home. i take that money and invested in my business. >> this will protect -- >> it will hurt job creators. >> the gentleman's time has expired. >> thank you, mr. chairman. thank you to our witnesses for testifying here today. as the newest member of congress, i was not here to vote on sequestration, thank goodness. had i been here, i would not have voted for this irresponsible plan. this is an irrational way to deal with the budget deficit and our national debt. sequestration represents a failure of leadership in congress and is absolutely the wrong approach to getting our

fiscal house in order. it would have a devastating impact on the two military installations, service members, civilian personnel and defense contractors that are the major economic drivers in my district. it would bring serious harm to funding for border security, a priority for me and my district, to education, to public safety, disability services, and essential services for the most honorable members of my district. if a family took an approach of sequestration to manage its budget, it would cut mortgage payments, utility bills, food, clothing purchases, child care, and all the rest by same amount across the board. obviously no family would or could do this. while i was not here to vote

against sequestration last fall, i am here now to help stop it. i came here with the full intention of working across the aisle to solve problems. i have been told countless times that this is a 90 proposition. but i remain hopeful that common sense and bipartisanship will yet prevail. my question is for you, dr. carter. i am very concerned about all of these potential cuts across the board to military and to domestic spending. but i would like to focus, with your help, on the department of defense, a critical area in my district and in many others. could you please help us by identifying three critical

national security priorities that absolutely must be protected, whether we have deep cuts under sequestration or some other formulation? congressman jones spoke to one how we treat our military members for post-traumatic stress disorder and tbi. if we could have your view on the three most critical national security priorities. >> the first one that obviously comes to mind is our wartime spending and support to the forces that are engaged in the fight in afghanistan. i indicated that the opening that the that is largely but not exclusively oco funding. the bad news is that oco is subject to sequestration. the only slight silver lining on that cloud is that the operations and maintenance part of oco and the base part become one account in the year of execution.

what that means is that we can take money from ordinary training, readiness here at home in order to keep the troops in the field funded in a way that we really owe to them. that makes the hit on the readiness hear back at home even harder. you are shifting the pain away from the field, which is the responsible thing to do, but you make it even heavier. the second thing is that that is not entirely possible for the other parts of oco that are not operations and maintenance. we will have to find other ways there to provide the materiel and so forth to the troops need in the field. otherwise, i could go on and on, but military medical care was cited already, obviously.

that is an area where we will work very hard within the limits of this rigid lot to do everything we can to make sure there is no impact on the care that we give to wounded warriors, families, and so forth. of course, the exemption of military personnel is one way as signifying their faith in the importance of ordinary soldiers, sailors, and marines. those are four or five responses to your question. >> thank you. >> it looks to me like there will be contracts that will need to be terminated or scope of the

part of the sequestration. do you have any idea with the associated costs will be with terminating and scoping the contracts? >> it is not required in the sense that you have already obligated money on contracts, it is not subject to sequestration. >> or not anticipating terminating contracts that have not yet been funded. >> not on account of sequestration. >> government-wide this will mean thousands of contracts and obligations. would you anticipate you have the authority to do a class labor costs deviation or would you have to go contract by contract? >> there are hundreds of thousands of contracts.

the other third, i think you have to go contracts by contract. where we will make modifications, where you need to conserve -- it considered. >> have you given guidance to the executive branch agencies and everyone? this falls under your umbrella of responsibility. heavy started to give that guidance? are you giving guidance? >> it is focused on exempt and non exempt accounts. if we get to a point where the sequestration order is kicking in, we will prepare them on other issues. >> they will have a workforce in place trained and ready to go? >> the acquisition work forces

stretched to make sure that we are moving to competition to fixed place contracts. >> we think you will be about $55 billion the first year. once you start doing these adjustments, it triggers penalty payments and other things as well as the cost of defending. do we know what the gross is going to be to get back to net? >> it means the money have left will be less efficiently spent. >> can give us a guess as to what the gross expenditures will be at in order to make it?

>> you are cutting $55 billion. the remaining money will not be as well spent because of the inefficiencies we described. >> let me ask you this question. you said earlier that during the first quarter, all the agencies get their money obligated and pushed out. it is not subject to sequestration at that point in time. mechanically, how does that work? will we have a mass rush across government to get everything spent and done in the first quarter and pushed out to the recipients? how do you cut at that point in time? >> it is what it is. if they have obligated --

>> how did they comply with -- >> they have to meet their sequestration target with the amount of funds that are not obligated at that date. this is a subject we will go through with our program managers one by one. >> this is just the department of defense? >> it would apply to any agency doing contract in. that is the way the law works. >> collectively the administration seems to be taking the attitude with respect to sequestration of the fellow who fell off a 10-story building. as he is passing the fifth floor he says so far so good. we have a five months left and i am not sensing a lot of leadership. i respect the mantra that you have to pound away, but there are those of us who have similar opinions just as strongly that we have a spending problem and not a revenue problem. these horrible rates that this president extended, it increases federal revenues so fast. that would be a balanced approach. i yield back. >> thank you mr. chairman.

thank you for being here. my questions are more about clarification. you had mentioned not extending the tax cuts for the tot two%. are you talking about on in come -- the top 2%. are you talking about anyone who earned $200,000? >> the first would still receive the tax cuts. the income above that -- that group needs to pay their fair share so we have a balanced approach. >> is the estimate of how much money that would raise? i think the estimate is over nine years. >> >> 10 is about $850 billion. >> sequestration is 1.2 trillion dollars. but i guess with -- interest savings -- that leaves $134 billion debt would have to come to cut if we used all of the

income or revenue from elimination of the tax cuts to go definitely towards sequestration. >> president's plan has a buy $1.20 trillion of revenue that goes beyond the expiration of the $103 billion. there are further spending cuts. the balance here is not simply the 2% paying their fair share, it is for their spending cuts in health care and other non mandatory programs. -- other mandatory not health care programs. >> if we have $134 billion over nine years to cut, that works out to be $10 billion or $15 billion per year. $7.5 billion defense and domestic programs. >> you are correct, but discretionary, we have already saved one trillion dollars. there are mandatory programs mentioned on the health care side and not health care side that the president was a budget

and his submission to the joint committee last encumber our savings in that area. >> just to clarify, the bill that i believe we will vote on tomorrow that has come over from the senate, well but have the $850 billion in revenue? >> the senate bill ensures no family with less than $250,000 has any tax increases as you point out for families with more than $250,000, the first $250,000 is also protected. it extends the middle class tax cut for one year while not extending the tax cuts for a the wealthiest 2% consistent with the wealthiest 2% the need to pay their fair share.

>> and that will raise the $850 billion? >> in essence, yes. >> just to clarify because you both have said it, sequesters and takes effect january 2. it becomes law or it is law but it becomes effective january 2, but it is really until the each -- the end of the fiscal year that each agency has to show savings. education has to take it out of the next -- same with defense. if they have already obligated money for the end of this year, whatever is left -- >> january 2 will be a quarter of the way through the fiscal year. the cuts are actually higher percentages that have to be applied. >> right. i just wanted some clarification and i appreciate your indulgence. i yield back. >> thank you. mr. e -- mr. wilson.

>> i think it has been very revealing the information the american people are receiving today -- it is very important to the american people. it has direct impact on the citizens are represent. i am grateful i represent for jackson. we are very proud of the marines trained there. i represent north airfield. in the new district i now will be in the neighborhood of fort gordon and the eisenhower medical center. i have wonderful people and the military families. as chairman of the military personnel subcommittee, i am concerned about what i have heard today. in particular, yesterday in advance of this hearing, the president announced he would exempt military accounts from sequestration. can you describe whether they will be exempt in whole or in part and to what extent?

>> the law gave the president until early august to make that determination. he did decide to exempt medical personnel in total. that part of the budget will be exempt from sequestration. that means the rest of the budget has to bear a larger share of the cuts. we certainly think that is a fair and practical thing to do. it is fair because it is the right thing to do by our troops in a time of war. it is a practical thing to do because the way the military personnel regulations and laws work, it would be very difficult to take that much money out of the personal account of it or not exempted.

we cannot furlough military personnel. we can furlough civilian personnel, and sadly might have to do that. the only way we can accommodate a cut of that size would be to do things like stop exceptions, which is very unhealthy for the forest. stop bringing in new people. stop permanent move is where everybody freezes employees and we cannot move anybody around. it is particularly unpleasant. sequestering is very unpleasant and that general to everything we do. in a bad situation, this is making the best of a bad situation to exempt military personnel. >> you actually said it was stupid. that is unfortunate for our country.

as you mentioned about furloughs, the exemption of military personnel accounts from sequester means that even more military personnel will have to be separated to offset the loss of savings from pay and benefits. >> no, because the entire military personnel account is protected in this way. what will suffer disproportionately as a consequence is readiness, the force that exists, modernization, research development, evaluation, all of the other major accounts will suffer as a consequence. >> in your testimony, you indicated this will affect service members who are serving overseas. in an june, he expressed concerns about a hollow force, the same statement the secretary panetta. do you agree with the

commandant? if they are sequestered, how will the department's ensure service members are trained and equipped? >> this is the kind of turned off one does not want to have to make but is made under sequester. past 2013 when these mechanical cuts are imposed, i think the entire leadership of the department has made it clear and the president made clear in the budget that we submitted for fiscal year 2013, which did not presume sequestration but did it contain his intent on this matter, we do understand the military personnel will have to be part of meeting our budget target in the future. we already have $489 billion of cuts. we have already taken that and then defense. we did include military personnel. to do otherwise would be unbalanced.

we would have a hollow force of the same size. >> thank you. mr. whitman. >> thank you mr. chairman. thank you for joining us today. we appreciate you taking the time. let me ask you, you had previously testified before us that sequestration would affect our lcs programs. could you elaborate more on that and how it will affect different accounts and how it will affect the ohio class replacement submarine? we know what of the models for procurement has been the virginia class submarine. it is critical to our force projection their -- we know how important that is. can you comment on how sequestration would affect our shipbuilding industrial base, specifically the suppliers and vendors that support the

industrial base? >> that is an excellent question. i share all the concerns implied. a sequester doesn't lie to each and every program like -- a sequestered does apply to each and every program. it applies separately to the r&d line. this is a detailed pain for each and every management and each and everyone of our programs that leads to inefficiencies. our shipyards plan out to their work years in advance. they operate in the most efficient way. this will have caused us to make a very inefficient adjustments in each and everyone of them. it is a sad waste of the tax

payer's procurement dollars to run things this way. >> how would it affect the ohio oppose a plan of displacement? >> will get back to you with a more detailed answer. at this point he will have a program that is largely are in the money. it will affect the rate we accumulate the design content. obviously, we will work as hard as we can to make sure we do not slow the project down as a consequence. >> in your understanding of the ship building supply industrial base, at do you think with the uncertainty building with sequestration, is there a possibility any of the small businesses would go out of business? >> i do. the bottom of the supply chain is particularly vulnerable in times of economic inefficiency, at which this would engender. we worked very hard to protect

small businesses that supply defense. the reason is that small businesses are particularly vibrant good sources of technology. they breathed new life and talent into the defense sector. we are always concerned about new businesses and we will work hard to keep them in the game. >> how difficult would it be to reconstitute the small-business suppliers industrial base for shipbuilding if it were affected by sequestration? >> we worry all the time in about exactly that. not just in the context of sequestration, but budget cuts in that general. it is very hard once you lose a specialized supply chain contributor to regain that specialized expertise. it is better to keep it in the business for the long run. that is why our industrial base policy is such an important

part of what we do in defense. >> i want to point to comments that have been made. when secretary panetta came and testified before us february 15, he said that in looking at the total context of defense spending, the administration opposed the policy was to pursue a i put an amendment and that set aside in 2013. i was surprised when president obama visited richmond, virginia and did an interview. his " was this. as you know i do not thing now is the time for brac. he said we just went through some base closings. the strategy that we have does not call for that. i am wondering, was the president missed speaking because it was clear to me that secretary panetta said it was this administration oppose a

policy to pursue brac. >> the president is right. we did not build into our 2013 budget submission any savings or presumption for the very simple reason that that is not an authority that we have. there was never any prospect and is no prospect of any brac in 2013. down the road if we continue to have reductions in overall defense spending, it will be a necessary thing we will have to revisit. >> i want to be clear that it is not only no savings in 2013, there are no savings in the five-year window.

this is not the economic time given the fragility of the economy. >> very good. >> mr. scott. >> thank you for being here. i did not vote for sequestration. i no commitments were made at the highest level of both parties this would ever happen. we are. unfortunately for me as a man with a wife and a soon-to-be 13-year-old boy i am quite honestly tired of the blame game. i will live under whatever we do for a long time in this country. i and the rest of the freshman class want to get this resolved. if i could, i would like to talk to you about a couple of things. the president has essentially said, if you will pass my budget everything will be ok. he did not get a single vote from democrats are republicans. that is not my fault it did not

pass. it was not supported by his own party. same with the jobs bill. as i have listened to the president come out and talk, he has talked more about the buffet rule than anything else. i take you at your word that his tax bill is coming to the house. i will soon have his total language and you said it would generate $850 billion over 10 years. we spend approximately $10 billion a day in this country. is that fair enough give or take? the buffet rule generated $750 billion over eight years. i have listened to my president propose a tax that would fund the government for 45 minutes and a buffet rule for 10 or 11 hours. this tax code we are living under today, the one we are

living under today generated $2.70 trillion in 2007. it generates less than that today. part of it is a global recession. part of it is the class warfare he is perpetuating. with due respect, there is a difference in taxing schedule bus and come and taxing w-2 income. you are a smart guy. if you are a schedule s business owner and you will pay schedule s taxes at 40% under the president's proposal or you can convert to a schedule c and pay him at what he says should be a lower rate than today, why would you not convert to a schedule c and pay at the lower rate? >> first of all, the president presented a detailed plan to the joint committee. i operated in the economy

during the clinton administration which was a level of taxation we're talking about returning to. i can say there were plenty of incentives to grow by businesses. they employ about 4000 people. what he proposes we return to so that the top 2% are paying their fair share. >> are those paying nothing paying their fair share? >> nobody with income under $250,000 is paying any more. to your. -- to your point, the president is in favor of tax reform so we have a simpler system. he has set forward principles -- >> he has not presented a proposal.

it is time for him and the administration to stop blaming george bush. the bottom line is, we are spending $10 billion a day in this country. your revenue estimates rigid i ask this of another member of the administration, the only member that he has allowed it to meet with the freshman class which is 20% of congress, the revenue estimate you have, how is that derived? >> in the presidents proposal of $1.60 trillion? >> the total receipt -- >> it is derived by having the top 2% pay its fair share by us returning to the clinton era tax rates and by ensuring deductions are limited to 28% for the wealthiest 2%. there are some other specific proposals like the corporate tax peace.

the president would love to do tax reform to simplify rates. >> you are the director with the budget office. with all due respect, the assumptions as soon as the revenue from corporate taxes doubles in the 24 months between 2011 and 2013. >> i do not believe that to be the case. you have the economy growing and picking up pace. we are not where we need to be. >> that is part of the problem that his definition of growth as 1.5% to 2%. >> if congress would enact the jobs act would have better growth. >> the president was asked to give us -- isthe gentleman's time expired. just to clarify something that mr. whitman brought up, i remember in a meeting with secretary panetta in my office,

i do not know if you were there, but the request of us was that we have two bracs going forward in the strategy. is that correct? >> he has asked for authority to begin brac in 2013. that would not have led to any brac activity. there is a commission and so forth. >> there was a request of us. we did not put it in our bill. it was his request. >> that was. >> thank you. >> thank you, mr. chairman. i would like unanimous consent to introduce a report titled "long run macro economic impact

of tax rates on high-income taxpayers and 2013." can i enter that for the record? >> no objections. >> i will quote from it for a second. we ask ourselves why we are here. if we are honest with ourselves, we can look back over decades of fiscal mismanagement by both parties. both republican and democrat and maybe one or two independence if they were out there at the time. we have made it for fiscal choices year after year. -- core fiscal choices year after year at this time. you have mentioned over and over on this panel that we have five months to avert sequestration. we need to be working together. we do not need to be engaging in partisanship or playing the

blame game whether you voted for the bill or did not vote for the bill. it is coming at us a very quick. sequestration is allowed to take affect, we know it is irresponsible and the damage it will do is irreversible. you did mention some things on the president's plan to raise the revenue through tax and the 2%. i think 5% of the top earners pay almost 40% of our total revenues. that report i mentioned analyzes what the president's plan is. those businesses you are talking about employee 50 4% of the private work force. the number of workers employed by long businesses is significant. 21 million workers are employed by flow through businesses.

these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages. it will have adverse effects in the long run. lower output and investment, at the capital stock, and after tax wages. that is to forethought. i would like to ask some questions. we are here to talk about the house armed services committee. i want to get some questions to carter.ry karche the out your cuts would force the department to make substantial reductions in military personnel beyond fy13. with the president announcing

the accounts are exempted, could you please clarify when additional military personnel would commence? with the department have to start taking steps in fy13 to start driving it down? >> the president did exempt from sequestration in fiscal year 13. that was a decision made on principle and one that was practical given the limitations on how the draconian way such cuts would have had to be taken. in longer run, over the course of the next 10 years, as a bazaar of the $489 we have absorbed, military budget will

be taken into consideration. as it was in the budget we submitted. otherwise it would be to balance it. the president is avoiding sequestration. it is particularly absurd of an impact in 2013. otherwise we would have had to done some very drastic things. >> with any of these reductions rely heavily on involuntary separations? >> we are trying. we would continue in whatever circumstances we found ourselves to avoid voluntary separations.

we built our whole drawdown on the principle of minimizing. >> i know you're planning on leaving at 1230. we do have one more member. but thank you for being here. i appreciate that. what is the omb position on fiscal year 12 appropriations but aexecuted in fiscal year 2013? will they be able to delay contracts or accelerate them prior to january 2 to protect programs? >> we are instructing agencies to continue their normal business operations. contracts that are fully obligated will not be impacted.

on obligated balances are subject to sequester. >> in the event that fiscal year 15 begins under a resolution, how will sequestration calculations be applied? if fiscal year 13 begins under a resolution, would omb consider a apportioning? >> we will assume business as usual. january 2 the sequestration border is implemented. we will be ready to implement. >> do you have anything to added that? >> i do not. that is accurate. >> will changes be directed to the fiscal year once the bills

are passed? >> no. >> ok. >> same answer. i appreciate you both being here. i yelled back. -- yield back. >> thank you. i want to thank both of our witnesses for being here. about half was a useful discussion on how to get out. the other half was tried to blame it ministration for the problem. -- was trying to blame the at illustration for the problem. the members of the committees are very partisan. the witnesses are the dod are usually not willing to fight back. these are. if we're going to witnesses in the white house, do not get them off every two seconds. if you're not getting the answer

you what, that is fine. otherwise, it is embarrassing to the committee to not let the witnesses get two words out. the intentions were very good. to finally start having the discussion on how we get out. the discussion is moving forward. i think it is very useful to have people from the white house on how we can get out of what we all agree is a problem that we must avoid. the sooner the better. not a january 2 problem. the sooner we come up with a solution, the better we can tehelp turn things around. i yield back. >> thank you. i think this is a bipartisan committee. i think is probably the first time we have had a witness come that has actually told us what

republicans should do and what democrats should do. that got us off on a track that i was uncomfortable with. i wish it had not happened. for you to state your position that the worst thing that could happen is republicans are not willing to raise revenue, as i said an hour earlier meeting, we have taken action. this is not private industry. we talked about how that works. this is the congress of the united states. we are directed by the constitution which lays out a framework where we resolve problems. one body passes legislation. the other body passes legislation. then you have a conference and try to resolve the differences.

we find ourselves hung up because the senate has not taken action. one final follow up question. is it the case that the president's negotiators first raised the sequestration mechanism during the debt ceiling negotiations with the house? >> i do not know the history of that negotiation. >> ok. that has been my unde understanding that is where it came from. can you get back to us that's what i was not part of those negotiations. -- us? >> i was not part of those the case stat negotiations. >> i did not vote for them.

i understand members to did. nobody likes sequestration. no one wanted the debt ceiling to be breached either. the members to voted for it, it was not "yay, sequestration." it was that we had to stop the debt ceiling from being increased. i understand the members to said that. >> we are where we are. it is the law. we have five months. we all agree that we need to avoid it. >> thank you very much. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

quite the political parties are holding their platform hearing with democrats voting next weekend on their final platform recommendations in detroit. republicans are their program. the coverage of the party conventions began august 10 with a reform party. follow by live gavel-to-gavel coverage beginning monday august 22 and the democratic national convention live from charlotte n.c. starting monday september 3.

>> general services administration officials testified on overspending at their agency to the house transportation committee. questions focused on, as a whole this focused on the administration. this is one hour and 50 minutes. >> good morning. i would like to call a house infrastructure committee to order. this hearing is going to address the general services administration. it is a review of agency mismanagement, wasteful spending, part two. i am pleased to have members

join us and i apologize for the slight delay on the start. somebody should do something about traffic in washington. we are pleased to have you here today and also to be holding this important oversight committee and investigated hearing regarding the latest round of gsa spending abuses that have seriously called into question the ability to save our taxpayers' money. the order of business, i will start with my opening statement and then i will recognize other me -- members and then we'll get to our panel of witnesses. we will proceed with questions after we hear from those witnesses. we are focusing on some of the

problems we have had in the waste and abuse of taxpayer funds. this is particularly alarming because the general services administration is the cheap trick german agency for the federal government, also responsible for maintaining many of the public assets. when you have adduces in agency ou haveat mission, y serious problems. i think everyone was appalled we appreciate the work of the inspector general. they were appalled when they set up and $800 million conference

that featured clowns in mind readers in the infamous image that all of us were called. we hope this is a limited occurrence and it is not indicative of the behavior or the management of the agency. from the very beginning index s beginning i asked him to oversee it disappeared from the first hearings we requested information for soaring s that soaredn cost us a score

300%. we have tried to ascertain why these expenses were so high. our focus from this committee is not just something related to what we found with these conferences. one of our intents only published a report saying the federal government must stop sitting on its assets. that was october of 2010, the same month this conference that was so of yusuf was held. that highlighted the multibillion-dollar loss of taxpayer revenues and potential utilization of the assets. we found that gsa and the

federal government have 14,000 properties or buildings across the nation that are either vacant or underutilized. i went down on other members at the old post office in and next. the amex have been vacant for fixing -- the annex had been vacant for 15 years. this property is costing taxpayers a loss of $8 million a year. it was 32 degrees outside. we held the hearing in the annex that should have been vacant. most people that testified before us were unfortunately also involved in some of the abuses. almost all of them have been removed or replaced or resigned.

meantime with miss norton's help, we have turned the first property from a money-losing asset to 1000 people being in played and revenue for the tax payers. since that we have done two subsequent hearings in vacant buildings in our nation's capital. one in the annex, a huge swath of lands. several weeks ago we conducted another hearing in an empty power facility behind the ritz carlton georgetown on 2 acres, the vacant for 11 years. some examples of the huge waste

that are huge expenses. next week we will be doing a hearing in miami. there is a federal court house that has been vacant for a number of years. we will continue during the august recess. i think we will be in los angeles to look at the situation there with underutilized or excess property sitting idle. that sets the stage for today's hearing. we have been working diligently with the inspector general. do you have a very limited investigative staff. the inspector general is doing as good a job as he can. unfortunately, we have now received information that there may be as many as 77 conferences

and award ceremonies that are now under review by the inspector general and the investigative committee of our staff. that is quite disturbing. we are told in addition to the october conference, which was $800,000, that now there is a one day conference. people have already seen the videos of $20,000 worth of drumsticks' that were purchased, $35,000 and picture frames, and $104,000 of a conference all paid. that is disturbing. there may be as many as 77. he will address one particular that we have heard of.

hours. last 24 not all of them are in the dollar amounts. we are now examining the cost per attendee. some of that is over the top. it does raise the concerns. it'll take a while to sort through the good, that, and ugly of what is taking place. not a pretty picture for taxpayers. ugly. not a pretty picture for taxpayers. i have to raiseext before the committee question of the bonuses. we were informed by gsa about bonuses, the administration and president asked not to issue bonuses or they be limited and we were, in our questioning we discovered about $10 million of what was reported from gsa in

bonuses. now it appears that, i have to thank that media and fox news and i guess cbs and others who have also pursued this matter for some time. when you do an inquiry and ask an agency a question and get back an answer and they give us back a $10 million answer to these bonuses, the media discovers $34 million on top. we have $44 million in bonuses. absolutely stunning amount. to put this in context and again

i thank the media for also working this. i see also the washington times had a request. all of theseomned we've now uncovered about $44 million in bonuses. do we have a spreadsheet on that? this is absolutely incredible amount of moey. now, gsa has 1% of the employees of the federal government. 1%. they received 10% of the bonuses

to show you how dramatically out of kilter this is. that's outrageous. furthermor we went through some of the expenditures on bonuses and payments to some of the gsa employees and who got them. a $50,000 bonus went to the regional commissioner who is under investigation for the las vegas conference. not only were they giving out an incredible amount of bonuses but those who got them, for example, were some of the abusers. he ended up with almost quarter of a million dollars in his pocket. an employee with a base salary

of $84,000 got $150,000 in overtime pay. we saw a quarter of a million dollar distributions to a number of employees that were also investigated. a 79,000 there are for one bonus with compensation went as high as $260,000. there's something wrong in gsa when you have to pay an employee $115,000 in overtime. then we found multiple $50,000 bonuses in this agency. conferences are one thing. multimillion dollar bonuses, outrageous. despite a specific guidance by the administration in 2011 and let me read it that bonuses or this extra compensation would be awarde in manner that's cost

effective for agencies and successfully motivate strong employee performance. this is a little bit long but i want to highlight some of what we found tdate. this is only the preliminary results of our investigation. we've got, we're getting this in drips and drabs. this wasn't a coordinated effort. these were independent. all this is sort of come together and uncovered an incredible array of waste, abuse, possible fraudulent activity. we have to be a bit careful today. i respect the work of the inspector general and he will be somewhat limited in some

commentary. his responsibility and our responsibility will be after this investigationing to make criminal referrals to the department of justice for their review. we want to make certain that our investigations comply with proper ptocol and we respect him and at any point our at any question we respect your position and ongoing investigation. we will continue to work hand in hand with the inspector general and our investigative staff. to one, uncover balance of this waste, fraud and abuse. two, to tiends out wfind out wh responsible and hold them accountable. >> we're determined to make

certain this is cleaned up. it does not happen again. if we need to change administrative procedures or the law, we will do that. you have my commitment that we will continue to pursue this to this mess is cleaned up. finally, let m say this. i do not have witnesses in any of those other chairs today because what we wanted to do was hear from the inspector general from gsa. i asked other gsa officials to come here. most of the first tier has been removed, resigned or left. the second tier is not as cooperative as i hoped. we had one take a medical leave last week who possibly was volved and others are not coming forward today. additionally, not having gsa here today, i do not have

witnesses which i would like to have from the private sector. there are people who are professionals who have management skills and can handle the it in a fast fashion. the management, sale and better utilization of these incredible assets. we have thousands of federal properties, buildings vacant or under yutilized. all of those potential participants are so intimidated by gsa that thehave stayed away and are not with us. each one has backed out of

hearing, participating in this hearing. that's unfortunate. they have so much power and control the rental market. i intend to find anotherway and other witnesses to ce in and guide our committee in trying to reform this whole process. i know this is a very long statement. i appreciate it. withhose comments i'd like to yield to ms. norton. >> thank you. this is addressing a conference that's gone off rails.

much like the october 2010 western regions conference, a conference that ran amuck near las vegas, nevada, we now have another conference closer to home that occurred just a month later. this time in crystal, virginia, where there are serious allegations of excessive spending. he's already bearing fruit. administrator tangellina said he would conduct a top to bottom review of the agency when he appeared before us. we will need a careful inspector general report like the one

received concerning the western regions conference. administrator tangelini's action indicate he's trying to get to the root of the issues at gsa. the acting administrator quickly implemented some common sense reforms in the wake of the prior embarrassing gsa scandal. particularly, consolidating conference oversight in the new office of administrative services, which is now responsible for oversight of contracting for conferences, related activities and amenities and for review and approval of proposed conferences for their relation to gsa's mission. i am also pleased that gsa has brought all public buildings service regional budgets under the direct authority of gsa's

chief financial officer centralizing authority or these accounts to ensure there are checks and balances and how gsa prioritizes spending. this change alone might have had the affect of putting a stop to the overspending of the gsa conferences in las vegas and crystal city. i look forward to hearing the testimony this morning about how we can continue to make improve at gsa and going forward. i yield back. >> thank you. mr. denim. >> thank you. certainly it's frustrating to

have yet one more hearing on some of the frauds and waste that's happening in gsa. the agency that is supposed to be tasked with setting an example, setting the standard for every other agency. after the las vegas celebration that they ha you would have thought that things would have changed. yet we see conference after conference and not just conferences, we found out now that rather than callhem as conferences, they call them as celebrations so they can get around the executive order of calling it a conference. we see the outrageous bonuses that aren't just performance bonuses which are bad enough which under an executive order were supposed to be stopped and we find out there's not only performances bonuses but tier bonus bonuses. there are special act bonuses. there are huge overtime payments, employees department heads ceiving hundreds of thousands of dollars in

additional pay. this was supposed to be hearing focused on yet one more conference dealing with the celebration, the key bridge award ceremony where awards were passed out at $3.7 million at one awardceremony alone. after the president issued his executive order we found there were 77 more conferences around the nation. i think the question the taxpayer wants answered is why? why are these agencies ignoring the president of the united states? now what's most outrageous is the administration feels they can bypass congress breaking three different laws written in stute. i think there are many members of this committee and of congress that will have lot of questions about that. if you can get around the

prospectus here in this committee and this body of government that does control the pursestrings for the world trade center then you can do it in ms. norton's district and ms. edwards district. there's a $2 billion lease on the fbi building coming up. billions of dollars of taxpayers dollars. if you can't manage conferences and bonuses, how do you expect congress will allow you to handle billions of dollars worth of leases. >> mr. denham would you yield for a second? i want to explain the issue he is raising right n and because we have leadership of the committee here. this is a very important issue and ms. norton, our committee is responsible basically under law and for yearsny lease that gsa

signs over $2.7 million needs to come back for our approval and then we approve them. we had pending $350 million lease of the world trade center. the administration, gsa signed that lease without approval. how long is the term? 20 years. signed a 20-year, on top of everything else you've hear today with the kvrconferences, bonuses, waste and abuse. now they have just stuck the finger in the eye of the committee. i want to make sure everybody hears what mr. denham is saying. $350 million subverting this committee. we have major crisis. they went ahead and signed that

without approval of this committee. thank you. i yield back. >> thank you, mr. chair. if you can sense my frustration and outrage, it is not partisan. this is about an agency that is ignoring the commander in chief. whether it's republican or democrat, this body has a responsibility to make sure that the law is being upheld. i want to just conclude, at a time when so many american families are struging to make ends meet, i'm committed to making sure they are spending money wisely. i'm committed to ending programs that do not work, streamlining those that do and bringing a new

responsibility for stewardship of tax dollars. we are tightening the belt. as a next step in this effort i suspend cash awards, quality step, bonuses, similar discretionary payments or salary adjustments to any politically appointed federal employee commencing immediately and continuing through the end of the fiscal year 2011. i direct the office of personnel management to issue guidance and consultation with the office of management and budget to assist departments and agencies in implementing this policy. that's the presidential memorandum august 3, 2010 yet 77 more conferences went on after that. executive order deliver an efficient and effective and accountable government. government operations wl be

curving uncontrolled growth, terminating poor performing projects, focusing agency leaders on achieving improvements in high quality areas and opening government up. that was june 13th, 2011. september 21st, 2011. the vice president was then tasked with getting every agency head together to deliver an efficient, effective and accountable government which launched the camign to cut waste. the vice president convened the heads to discuss the campaign to cut waste. the vice president asked partment agency head to undertake thorough review of wasteful spending and report back on the meases.

the president has instructed me to review policies and controls related to activities and expenses. approval of conference related activities and expense ls shall be clear through the deputy secretary or equivalent. executive order 13589 on november 2011. i'll go to section seven of that. agencies should limit the puhase of promotional items, plaques, clothing in particular where theyre not cost

effective. conference fter conference, cebration after celebration, several layers of overtime and now gsa wants to have authority over leases in the hundreds of millions of dollars. it stops here at this committee. i yield back. >> thank you. others seek recognition? >> mr. speaker. i love the title but i settle for chairman. as nice as you were, i'm going to recognize mr. duncan first. >> thank you. i appreciate you calling this hearing. all the publicity that's being given to these conferences and these terrible abuses of the taxpayers have shown once again that the easiest thi in the world is to spend other people's money and that it's far too

easy. in fact, governor randellwhen he was mayor of philadelphia and having a problem with some of the city unions testified in front of one of our congressional committees many years ago and said the problem with government is there's no incentive for people to work hard so many do not. there's no incentive for people to save money so much of it is squandered. those words were true many years ago and they're true today and maybe even more so as all of the abuses of the taxpayers that we're talking about here today show. i appreciate you having this hearing and looking into ese matters. i yield back.

>> thank you for calling this hearing. i have two other hearings so i'll be in and out for most of the morning. it does appear that sound fiscal management has been cast aside and replaced by wasteful, mismanagement, recklessness. we'll hear more about that today. i thank you for having called the hearing. i yield back. >> thank you. >> i'm not going to be able to stay for testimony but i have a couple of questions. it's been brought to my attention that there's a situation in san antonio, texas involving gsa that made headlines. the local social security office is asked to move to a new office. while the new location will provide additional space will also double the cost of the lease. it will be more than one million per year. i understand the social security

administration has spent $1.7 million in renovations. a commission for the new lease total 178,000. this is not taken into account the cost of the actual move. i recognize this is just one lease in one part othe country and i'm interested in understanding why this situation has occurred in light of all the other things that's been happening with gsa. i have a series of questions i'd like to submit and get bck in writing. with that i yield back. >> others seek recognition? >> thank you. >> i want to thank you for providing this hearing for us to get this off our chest. i was a mayor of amall town in pennsylvania. the city was broke. it doesn't have money to hire the police that we needed. now i come to congress and the country is broke. i'm beginning to believe that

it's me. i have to ask the simple question. when we deal with so many iues like we don't have money to fix our roads and bridges, but yet we're giving out hundreds of millions of dollars in bonuses, it's hard for me to conceive where the real problem lies. i've come to this conclusion that, yes, there's horrible abuses of gsa but you're not the only agency. this not the only agency i've seen waste and abuse. we can go agency by agency and find it over and over again. i've come to the conclusion that we are the problem. we in congress have failed. it's great to get this off our chest and point out to the american people how you've wasted their tax dollars but who are the enablers?

it's congress. we've allowed these agencies to do this. if anybody understands zero based budgeting we implemented a fundamental actice that most businesses use. rather than allowing agencies to budget by what they spent last year and this is what we're requesting this year, zero based budgeting would eminate all this. we wouldn't be having this hearing today. every agency would start out with the same amount, zero. you would have to justify every line item. they would never be able to budget millions of dollars for bonuses. this would never happen. this congress can't pass a budget. the senate hasn't voted for a budget in three years. this is like paren who is are going away on vacation and they load their house up and are going to leave their teenage children at home but before they leave they load the house up with booze and leave the credit card on the table and when they

go away they act surprise that there are beer bottles over the house and the house is a wreck and they ask what happened. we've allowed this to happen. we've allowed this to happen. i'm going to ask the american people who are watching these hearings to take this matter into their hands before this next election, ask everyone who is running for this office if they support zero based budgeting. ask everyone who is running for e united states sate if they promise the american people that they will pass a budget. if the answer to those questions are no, then i would suggest they hire new baby sitters. thank you. >>thers seek recognition? ms. johnson. >> thank you. i want to ask unanimous consent to place my entire statement in

threcord. >> without objection. >> what i'd like to say is we are in dire straits for dollars. we have some excellent federal employees. i know that in this very partisan environme it seems like you're all bad, but that's not the case. it appears to me that that was no attention given to clearing the problems when they were called to your attention. i think that for that reason social security very difficult to try to justify the ill decisions that were made. this makes it very hard for law enforcement officials, air traffic controllers, educators that are all federal employees that work very hard, make a lot less money and get tainted with this kind of behavior with this agency.

i think it's unfortunate and thank you mr. chairman. i yields back. i'll put my entire statement in ro the record. >> thank you. in listening to my colleagues i can't agree with them more. i was yor of small city. the budget is something we looked over very carefully. that's at a smaller level. i know you have tremendous responsibilities in the oversight is probably a little harder. every single agency is expected to do their best and act prudently. i'm hoping that the amecan people that are listening will understand that they have a right to be tight government when they hear these stories and worn out by facts that are brought out to the general public's view. i think it's important for us to support that. we continue to go after any

agency that is mismanaging, that is not following the intent of the law, and that the people, the supervisors there, their leadership is understanding that they have a right to be able to carry out the intent of the charge they are giving and understand we will be able to follow through. i hope there will be lots of inquiries and discipline to those that have thought that they could just move ahead without any punitive action or consequences. we are facing the same buets in our city. en in our staff we don't get bonuses. we can't. we don't have the funds. to have the american public see this outrageous expenses, the taxpayer dollar, it's their

money. i'm totally looking forward to listening and hopefully finding some so i am totally looking forward to listening and hopefully finding some solutions to be effective in dealing with the future of our employees, that is the american public's employees. thank you, mr. chair. i yield back. >> other members seek recognition. >> if no other members seek recognition, when we do have our panel that we'll turn to. and today we have two witnesses. the first witness is the norable brian miller, who is the inspector gener of the general services administration. and then we have miss cynthia metzler. she's chief administration services officer of the general services administration. we will, of course, welcome your testimony. we'll start withive minutes or so. there are only two of you, so we won't hold you to that. if you have additional information, doum menation that you would like to be made part

of the record, we'll be glad to do that. i want to thank him for his willingness to work with us. we have what started out as a small scandal. now it's turning into a massive scandal with a number of people who have been involved. in fact, it's getting hard to find someone who isn't invved who we can get to testify without having them put into some jeopardy because of the judicial process that probably will unfold here. i thank mr. miller for working so diligently with our investigative staff to uncover what's going on and also bring it to light. so mr. miller, you're

recognized. welcome. >> thank you, mr. chairman. >> chairman denham, ranking member norton, members of the committee, thank you for inviting me here to testify this morning. i appreciate this committee's support of inspector general and it's my office's mission to weed out instances of fraud, waste and abuse at the general servicesed a medication. it was with that mission in mind that i wrote my july 19th letter to our committees and jurisdiction, some of which had requested that igs bring matters to their attention earlier in an investigation. in my letter, i had an incident that advised me that gm planned to have similar information in reonse to information acts.

on november 17, 2010, the federal acquisition services, fas, held with a one-day performance awards cerony in washington, in the washington, d.c. metropolitan area. the ceremony featured a team building drum band exercise conducted by a third party vendor. and speeches by current and former gsa officials. our findings, though subject to further investigations and change show costs over $34,000 for the venuvenue, $28,000 for picture frames and $148,000 for coordination and logistical transportation. and presentation called mission possible agent "x." as i have stated in my letter,

we began a -- we have begun a preliminary analysis of the information we receive from gsa and have opened an administrative investigation. since our investigation had begun just a few weeks ago, we have aeady got some changes in cost figures and new facts. this may be a good opportunity to explain how an oig investigation is conducted. oig investigations originate with any number of sources. gsa employees, gsa senior mlgt, other government employees, contractors and concerned citizens a mechanism to report instances of fraud and abuse. my office of investigation receives between 2,000 and 3,000 hot line tips annually and will assess each complaint or tip for credibility and open up an investigation if approprie. additionally some matters warranted an investigation are

brought to our attention by gsa senior management, as was the case with the fas ceremony. in other scenarios, our auditors may bring a matter discovered during an audit to our investigation or special agents may be tipped off by an informant. no matter what the source, they conduct their investigation with professionalism, objectivity and diligence. they interview witnesses and collect available evidence and documents. our agents compile the evidence in a written report of investigation commonly known as an roi, reportive investigation with relative evidence attached. in the last semiannual reporting period, our office of investigations made 486 referrals for criminal prosecution, civil litigation, and administrative act. court ordered and investigative recories for the same six-month period. totalled 218 million,$218 milli.

because it can have, accuracy is of the utmost importance. inaccurate reports can threaten the integrity of an oig investigation and damage the oig's reputation as a mechanism for dependable oversight. because our investigation to the fas ceremony is on going, the preliminary figures in the confines of my letters to committees are the extent to which i can discuss the incident. those numbers were based on information provided by the agency. information that i understand was going to be released publicly. my office will continue to look into this ceremony and will update the committee when our investigation concludes. thank you for the opportunity to provide testimony. i would be happy to answer any questions. thank you. >> thank you, mr. miller.

zwl we'll now turn to cynthia metzler, chief administrator of the office. >> good morning -- >> i would pull that up as close as you can. thank you. >> is that better? my name is cynthia metzler. i am the chief administrative services officer of the general services administration. in that capacity i coordinate internal management and sport services to promote efficiency twn agency, covering a wide variety of issues, including travel and conferences. as you were aware our acting administrate member was not able to appear. we reached out to request this hearing be scheduled at a mutually convenient date so that he could personally appear, but informed that the chee was electing to proceed with today's hearing with the awareness that he was unavailable. he looks forward to