U.S. GOVERNMENT PRINTING OFFICE

71–299 cc WASHINGTON : 2001

S. Hrg. 107–39

NOMINATION OF SEAN O’KEEFE

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON THE

NOMINATION OF SEAN O’KEEFE TO BE DEPUTY DIRECTOR, OFFICE OF

MANAGEMENT AND BUDGET

FEBRUARY 27, 2001

Printed for the use of the Committee on Governmental Affairs

(

For sale by the Superintendent of Documents, Congressional Sales Office

U.S. Government Printing Office, Washington, DC 20402

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

JUDD GREGG, New Hampshire

ROBERT F. BENNETT, Utah

JOSEPH I. LIEBERMAN, Connecticut

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

HANNAH S. SISTARE, Staff Director and Counsel

ROBERT J. SHEA, Counsel

JOHANNA L. HARDY, Counsel

JOYCE A. RECHTSCHAFFEN, Democratic Staff Director and Counsel

DEBORAH C. LEHRICH, Democratic Counsel

PETER A. LUDGIN, Democratic Professional Staff Member

DARLA D. CASSELL, Chief Clerk

(III)

C O N T E N T S

Page

Opening statements:

Senator Thompson ............................................................................................ 1

Senator Stevens ................................................................................................ 3

Senator Lieberman ........................................................................................... 5

Senator Domenici ............................................................................................. 7

Senator Voinovich ............................................................................................. 8

Senator Bennett ................................................................................................ 11

Senator Levin .................................................................................................... 24

WITNESSES

Hon. James T. Walsh, a Representative in Congress from the State of New

York ....................................................................................................................... 4

Sean O’Keefe to be Deputy Director of the Office of Management and Budget . 12

ALPHABETICAL LIST OF WITNESSES

O’Keefe, Sean:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 27

Biographical and financial information .......................................................... 29

Pre-hearing Questions and Responses ............................................................ 40

Additional Pre-hearing Questions and Responses from Senator Lieberman

for Mr. O’Keefe .............................................................................................. 70

Additional Pre-hearing Questions and Responses from Senator Lieberman

for Mr. O’Keefe .............................................................................................. 76

Post-hearing Questions and Responses from Senator Lieberman for Mr.

O’Keefe ........................................................................................................... 81

Post-hearing Questions and Responses from Senator Voinovich for Mr.

O’Keefe ........................................................................................................... 87

Post-hearing Questions and Responses from Senator Akaka for Mr.

O’Keefe ........................................................................................................... 93

Walsh, Hon. James T.:

Testimony .......................................................................................................... 4

(1)

NOMINATION OF SEAN O’KEEFE TO BE DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

TUESDAY, FEBRUARY 27, 2001

U.S. SENATE,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 10:38 a.m., in room

SD–342, Dirksen Senate Office Building, Hon. Fred Thompson,

Chairman of the Committee, presiding.

Present: Senators Thompson, Stevens, Voinovich, Domenici, Bennett, Lieberman, and Levin.

OPENING STATEMENT OF SENATOR THOMPSON

Chairman THOMPSON. The Committee will be in order, please.

This morning we are holding a hearing to consider the nomination

of Sean O’Keefe to be Deputy Director of the Office of Management

and Budget. OMB has responsibility for implementing a number of

statutes, aimed at ensuring the efficiency and effectiveness of government operation. As deputy director of OMB, the person who assists the director daily in his many responsibilities, you can have

a great impact in this area. As I mentioned to Mitch Daniels when

he was before the Committee, I believe that OMB’s responsibilities

for the management of the Federal Government have been neglected.

I was gratified by his February 14 memo to agency heads, asking

that they set goals for achieving major government-wide management reforms in their fiscal year 2002 performance plans. That

same memo made the point that agencies should have goals for

achieving any reforms that will significantly enhance the administration and operation of the agency. That is a very good start. As

you know, this Committee is the recipient of endless agency, inspector general, and General Accounting Office reports that detail

the poor state of management in today’s Executive Branch. This

mismanagement is not outrageous just because it wastes scarce resources. Mismanagement means that those resources are diverted

from the purposes for which they were appropriated.

When a benefit program makes improper payments the intended

beneficiaries suffer. When major information technology products

are mismanaged, not only are tax dollars wasted, but we miss opportunities to benefit from greater efficiency and increased productivity. The financial management woes that befall most Federal

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agencies mean that we cannot even say with certainty that the

American people have gotten what they paid for.

The information technology area is a particular problem with the

Federal Government. The Federal Government finds it extremely

difficult to use information technology to enhance its efficiency and

effectiveness. The Federal Aviation Administration spent $4 billion

on an air traffic modernization program that did not work and was

shut down before completion. The Internal Revenue Service spent

$7 billion on its tax systems modernization project before they had

to scrap it.

I recently met with Commissioner Rossotti to discuss reform efforts at the IRS and he reported that after 3 years they have just

completed the consolidation of its major systems, which is just the

beginning of the IRS’ modernization program. This Committee’s investigation also uncovered weaknesses in government information

systems that make them vulnerable to computer attacks from

international and domestic terrorists, crime rings and everyday

hackers.

As a result, Senator Lieberman and I worked to enact the Government Information Securities Act, a bill to provide a new framework for protecting the security of the government’s computers

from outside attacks by hackers. These weaknesses jeopardize government operations and threaten the privacy of our citizens and I

hope that OMB will help to ensure that the bill is implemented

properly.

Human capital is also an area where the government has fallen

short. In recent years, the Federal Government reduced staffing

without cutting back on anything it does. Workforce downsizing became just a numbers game carried out randomly, rather than strategically. Consequently many agencies now face severe shortages of

employees with the necessary skills and expertise to carry out

agency missions. It is quite clear, based on the work of this Committee, especially Senator Voinovich, that there is mounting evidence that workforce deficiencies are an impending crisis for the

Federal Government.

I believe, Senator Voinovich, you have told us that within the

next 5 or 6 years, half of the workforce today is eligible for retirement. We need your expertise, Mr. O’Keefe, and input in crafting

solutions to these problems. Over the last decade Congress enacted

a number of laws designed to change how Washington works. The

Government Performance and Results Act, which seeks to change

the mind set of Washington from what government does, such as

spending money, and issuing regulations to what actual results and

activities those actions produce.

Now, more than 7 years later, we still find that most agencies

have difficulty explaining what results they are trying to achieve

in measuring how well they are performing. Integrating budget and

performance information would be a step in the right direction of

finding out just how well the government is doing. That is something obviously we could spend a lot of time just listening to you

and Senator Stevens discuss.

I think it is becoming more and more apparent that until we integrate some of these performance measures into the budget submissions and then we, in our appropriations process, take that into

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1The biographical and financial information appear in the Appendix on page 29.

Pre-hearing questions and responses appear in the Appendix on page 40.

Post-hearing questions and responses appear in the Appendix on page 70.

account, nobody is going to take the Results Act seriously. I think

we are on trial. I think OMB is on trial and Congress is on trial

as to whether or not this is our last best chance to get a resultsfocused government.

I am heartened by the management experience, Mr. O’Keefe,

that you bring to this position, especially the exposure that you

have had to some of the government’s management statutes, and

I am particularly interested to learn how you will leverage the

power of the purse to obtain some of the management improvements that we are seeking. The only answer to these problems is

strong leadership, and I hope you will bring that to your stewardship of the budget process and that we will see a marked improvement in the efficiency of government operations under your watch.

Mr. O’Keefe has filed responses to biographical and financial

questionnaires, answered pre-hearing questions submitted by the

Committee, and had his financial statements reviewed by the Office of Government Ethics. Without objection, this information will

be made a part of the hearing record with the exception of the financial data, which is on file and available for public inspection in

the Committee files.1

Gentlemen, I am amenable to proceeding however you wish. I do

not know what the schedules of Senator Stevens and Congressman

Walsh are. Senator Lieberman, I do not know what your schedule

is. Would you care to make your statement now?

Senator LIEBERMAN. Well, Mr. Chairman, operating on the rule

that I learned early in my time in the Senate, that it never hurts

to do a favor for the Chairman of the Appropriations Committee,

I would ask Senator Stevens if he is in a hurry. I am going to be

here awhile. You are welcome to go forward.

Chairman THOMPSON. Senator Stevens.

OPENING STATEMENT OF SENATOR STEVENS

Senator STEVENS. Well, thank you very much. As a matter of

fact, I do have some problems. I have already told my friend Sean

O’Keefe that I will have to leave soon, but gentlemen, I think one

of the most gratifying parts of serving in this institution that I

have had for more than 30 years now is to observe and share in

the advancement of someone that you really care about; 12 years

ago, I introduced Sean O’Keefe to the Senate Armed Services Committee when he was nominated to become the comptroller of the

Department of Defense.

I said then that Sean has the integrity and dedication to public

service that it takes to move into a position like this. I also observe

that if there is anyone who knows how to crunch numbers and

make them meaningful to the people who try to understand them,

Sean can do that. It is a privilege to be here with Sean, who is now

the nominee to become Deputy Director of the Office of Management and Budget. There is a lot I could say about him this morning.

I think you know he was staff director of the Defense Subcommittee when I was chairman of that Subcommittee, and he

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served as comptroller at DOD and also as Secretary of the Navy,

and as Senator Thompson has indicated, you have a lot of materials now. He has provided the answers to questions that we all

have available to us as members of this Committee, but I am here

for one purpose, and that is to tell you that I not only have worked

with Sean and I recommend him as a person I know and personally

trust, but I can also tell you that while I worked with him on the

Committee, I have also fished with him at 5 a.m. on the Nacdec

River in Alaska. You get to know a man when you are out on trips

like that, and I can tell you Sean’s word is more than his bond; it

is a real commitment, and I think it is a great thing to see a person

who has come through both positions in the Executive Branch— and worked here as long as he did, here in the Senate—take this

position.

Let me make sure that we understand each other. I do not think

each one of us here will agree with Sean every time. I know I will

not. But he has got a job to do and he will do it. The difference

between Sean and others I have known is that when you disagree

with him, he will look you in the eye and tell you why he did what

he did, and you can trust his answer will be truthful. He will not

evade and he will not try to duck the problems of confrontation, as

you will probably see this morning.

But I do think that he has the background and the ability to do

just what the Chairman said, make some difference at the Office

of Management and Budget. I hope as a Member of the Committee

that the Committee will see fit to consider this appointment and

report it out as quickly as possible so that someone will be down

there who does understand this. I am a little bit worried about

some of the things I am hearing already. Maybe the Chairman of

the Budget Committee can take that on, but I do believe that there

ought to be more understanding of the process of the Congress in

terms of reviewing some of these changes in the budget, and Sean

has that ability.

What the total impact of that will be remains to be seen, but he

is a good man for the job and I am pleased to recommend him to

the Committee, and I thank you very much. I thank you, Congressman, for allowing me to go first, and I will go back to my Committee, if I might, unless you have some questions, George.

Chairman THOMPSON. He will submit them in writing. Thank

you very much.

Senator VOINOVICH. I am afraid of the answers.

Chairman THOMPSON. Congressman Walsh, thank you for being

with us.

STATEMENT OF HON. JAMES T. WALSH, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF NEW YORK

Mr. WALSH. Thank you, Mr. Chairman, Members of the Committee. I am here this morning with Senator Stevens to lend my

support to Sean O’Keefe and his candidacy for the position of Deputy Director of the White House Office of Management and Budget.

I think it is interesting that two appropriators are here to introduce him before your Committee. Obviously, we have an interest

in our relationships with OMB, and we are delighted that he will,

with your assistance and your affirmation, be joining OMB. Sean

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is currently the Louis A. Bantle professor of Business and Governmental Policy at Syracuse University’s Maxwell School of Government and Citizenship—Public Affairs. Prior to his arrival in Syracuse, my hometown, he was professor of business administration

and assistant to the dean of the graduate school of Penn State University.

As you know, he served as Secretary of the Navy and comptroller

and chief financial officer for the Department of Defense during the

first Bush Administration. He also has significant experience on

Capitol Hill. As Senator Stevens mentioned, he served as staff director of the Defense Appropriations Subcommittee. It is hard to

believe that Sean and his family are interested in relocating to

Washington at this time of year, especially considering Syracuse’s

balmy temperatures and snow-free skies, but in spite of that questionable judgment, I felt it my responsibility to be here to offer my

enthusiastic support for his nomination.

Throughout his previous public service to our Nation, Sean has

conducted himself with the utmost integrity and respect for the institutions that define our government. He unquestionably possesses

the experience and background necessary to be successful in this

position. His even temperament will hold him in good stead as he

works closely with members of the Senate and House to develop

our budget allocation and appropriate those funds.

It has been reported that Professor O’Keefe’s imparts a vigorous

work ethic to all of his students, an attribute that he has maintained throughout his professional life, and I believe that, too, will

serve him well here. I know I speak for my colleagues on the House

Appropriations Committee when I say that I am looking forward to

working with Sean O’Keefe in his new capacity at OMB for years

to come, and I encourage your affirmative and timely consideration

of his nomination and I thank you very much for your time and attention.

Chairman THOMPSON. Thank you very much, Congressman

Walsh.

Senator Lieberman.

OPENING STATEMENT OF SENATOR LIEBERMAN

Senator LIEBERMAN. Thanks, Mr. Chairman. Thanks, Congressman. Welcome, Mr. O’Keefe, good to see you. Welcome back, I suppose I should say, after the years you have been on the Hill—probably should keep this a secret, because it might affect your confirmability, but I had the pleasure, Mr. Chairman, of working with Mr.

O’Keefe on a task force on defense national security awhile ago and

I was really most impressed with your service. Overall, you have

a very impressive resume. Your background in navigating the ins

and outs of the Federal bureaucracy and your experience in teaching executive leadership seems to me to be extremely well-suited

to the position for which you have been nominated, a position that

demands at the very least knowledge of fiscal and budgetary affairs, but also preferably an understanding of the broad implication

of Federal policies on the lives of average Americans.

As you well know, OMB has authority over a vast domain; that

is, how every Federal dollar is spent and how every Federal program is managed, no doubt few people outside of the beltway are

6

aware of the power vested in the agency, not just to manage the

money, but really to help shape the core policies of the administration. I have some concerns about the budgetary core policies of the

administration.

This is not really the place to go into them in detail, but I want

to come to one part of it, and my concerns are, as you have probably heard from others, if not from me, the tax cut is too large. I

fear it will crowd out our ability to spend on other priority programs and perhaps take us back into debt. But based on your background in national security, I do want to make this appeal to you.

I think you have, from that background, the credibility to be an

advocate within the inner circles of this administration for adequate funding for our national security. Some of the steps that Secretary Rumsfeld has taken in recent weeks to initiate strategic review are quite heartening to me. Obviously this is only the beginning. We do not know what it is going to produce, but I think he

is turning to people such as Andy Marshall and others, who are

independent and fresh thinkers. So I am hopeful that we are going

to have some innovative and bold recommendations here.

We know that change is going to be difficult, both because of resistance to it from within the Pentagon and from within Congress,

but I hope we can make that happen. What I want to stress here

is, I think, that not only do we need more funding to take care of

our military in terms of quality of life of the people in uniform, in

terms of maintenance and operation and repair parts, and the systems and equipment we are depending on now, but if we embark

on a bold course of transformation of our national security structure, as is at least suggested by some of the steps that Don Rumsfeld has taken, personally I think that is going to cost money, too.

In other words, I think, its money well-spent, depending on how

we spend it, but that, too, will cost. So my appeal today, based on

your experience in defense appropriations here and your service as

Secretary of the Navy and your previous experience as comptroller

and chief financial officer at the Pentagon, is that you be a vigorous advocate within the counsels of the administration for exactly

that kind of support.

I want to mention briefly one other matter, and that is OMB’s

oversight of the Executive Branch regulatory process. The new administration’s intentions as expressed in the so-called Card memo,

which is Andy Card’s memo to delay already finalized Federal regulations, I fear, could jeopardize a number of health, safety, worker, consumer and environmental protections. This Committee was

actively involved in sorting out problems in the early years of regulatory review, problems that genuinely did undermine public trust

in the fairness of the process.

So I wanted to ask you as you go forward to be vigilant and oppose those who would use the process as a conduit to influence

rule-making off the record and without disclosure, which is something we on this Committee are very concerned about. As you may

know, along with several colleagues, I have written to OMB Director Mitch Daniels seeking information on the administration’s

plans in this regard, because I think it is very important that regulatory agencies be able to do what Congress asked them to do in

order to protect the public interest, and I hope in your role you will

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encourage cooperation at OMB to help us conduct our oversight duties of this serious matter.

Bottom line, you are extraordinarily well-prepared for this position. I thank you for being willing to take it. You have your adorable lovely family with you. I thank them for being willing to support your interest and service here. I just want to ask you one

question. You can answer it now or on the record later. Did Stevens

or you catch the bigger fish?

Mr. O’KEEFE. He always catches the bigger fish.

Senator LIEBERMAN. That is the right answer. Thank you.

Mr. WALSH. Mr. Chairman, if there are no questions, I will excuse myself and return to my office.

Chairman THOMPSON. Thank you very much. Senator Domenici,

I know you have a Committee to chair, so with Senator Voinovich’s

indulgence, I will call on you.

OPENING STATEMENT OF SENATOR DOMENICI

Senator DOMENICI. Thank you, Mr. Chairman. I will not take

long. Sean O’Keefe, it is great to see you here in this position. I

wish you the best of luck. I might observe for you and perhaps for

this Committee that your biggest job is based on the following that

has already occurred. For the last 2 years in a row, the appropriated accounts of our government have grown 8 percent and 9

percent respectively. Prior to that we had 3 years when we grew

at less than 4 percent. The only thing I can find that distinguishes

the 3 years or 4 years is that we spent 8 percent because we had

a surplus, and we spent 9 percent because we had a surplus.

It seems to me that you will not be able to spend 9 percent. Obviously, if you spent 9 percent, and I am talking about growth year

over year, if you spent 9 percent each year, there would be no surplus for anything at the end of the decade. You would have eaten

almost all of it up. So obviously that is not the right thing to do,

and it is not right to grow at 9 percent a year just because there

is a surplus. That is the challenge. We must decide around here

that there are some other things to do with the surplus, besides

end-of-the-year ballooning budgets.

I think you are up to that challenge. It is obvious that right off

the bat, while you did not prepare this budget because you are not

over there doing it, what I am describing is going to present the

most difficult case for explanation by the OMB Director and the

President, because you could not even grow the accounts at 4 percent if in fact you let the whole budget increase at 4 percent and

have a number of increases, which the President has asked that we

do. Some will go down below that level and some will be partially

eliminated, and that will be the tough part to explain to those who

would like the President’s plans not to work.

For some, perhaps even including this Senator, there will probably be decisions made that in some areas you are not spending

enough and that we cannot quite live with it. But I think you are

experienced enough to work with us in that regard and understand

the situation. You are aware of the facts that I just told you; are

you not?

Mr. O’KEEFE. Yes, sir.

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Senator DOMENICI. And you know that is a very difficult problem

to bring something down from growing at 9 percent to less than

that, but you understand you are going to have to do that; right?

Mr. O’KEEFE. Indeed.

Senator DOMENICI. Let the record reflect that he is nodding.

Mr. O’KEEFE. I am sorry. Yes, sir.

Chairman THOMPSON. He is not under oath yet, but I think we

will get him on that later.

Senator DOMENICI. Thank you very much. I look forward to

working with you first on the budget resolution and you will be

very important to us as we try to put it together—finish it. Thank

you, Mr. Chairman.

Chairman THOMPSON. Thank you very much. Senator Voinovich.

OPENING STATEMENT OF SENATOR VOINOVICH

Senator VOINOVICH. Good morning and welcome. We are pleased

that you have brought your family with you today and I want to

thank them for the sacrifice that they are going to make, of their

time with you, so that you can serve your country. I told Mitch

Daniels when he appeared before this Committee last month that

he was going to have his work cut out for him, because the Director

of the Office of Management and Budget is one of the most important positions in Washington.

With the state of the economy, I think that was an understatement. Since you will be Director Daniels’ right-hand man, that

means you will have one of the most important jobs in Washington,

and I hope that the deputy director for management, when he or

she is found, can match the exceptional quality and experience that

you possess, because as I mentioned to you when you were in my

office, the observation I have made is that there is no M in the Office of Management and Budget, and that individual is going to

have to get up early in the morning and go to bed late at night to

make sure that we deal with the human capital crisis that we

have. The comptroller general was here to talk about it and it is

now on the GAO high-risk list, and I think you are aware that

human capital has to have renewed emphasis in the Office of Management and Budget.

Mr. O’Keefe, as you probably know, for the past 2 years in the

Senate I have been a debt hawk. One of the reasons I ran for the

Senate was to bring fiscal discipline to Washington, just as I tried

to do as Mayor of Cleveland and Governor of Ohio. The 106th Congress, my first as a Senator, was a mixed bag in terms of fiscal discipline. Senator Domenici made reference to that. We did not use

the Social Security surplus in 1999, 2000, and 2001 budgets, and

in 2000 and 2001 we did not use the Medicare surplus.

We have in effect lock-boxed Social Security and Medicare. We

took the money off the table and used it to pay down the debt.

However, the downside of the 106th Congress is that we spent too

much money. I am sure you know the numbers, but non-defense

domestic budget authority for the year 2001 rose 14.3 percent over

fiscal year 2000—14.3 percent—this despite an inflation rate of less

than 3 percent. Alan Greenspan, in his testimony before the Budget Committee, politely stated that he hoped it was an aberration.

I refer to it as Congress spending money like drunken sailors.

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According to the latest report by the Congressional Budget Office, legislative changes made in the waning months of the 106th

Congress reduced the 10-year surplus budget projections by $598

billion. That is over one-half trillion dollars over 10 years. This is

the hangover I said the incoming President would inherit as a result of Congress’ spending. Unfortunately, most people are unaware of what happened because the media did not highlight this

fact, but when I tell people these figures they go absolutely nuts.

I can tell you that as a governor or a mayor or a county commissioner, if I had spent money like this, they would have run me out

of office. Even with all the spending that Congress did, thank God

we were able to put $87 billion in fiscal year 2000 on-budget surplus, straight to debt reduction. We cannot take credit for most of

our good fortune on the fiscal front. We owe it to terrific economic

growth because of significant increases in worker productivity

which resulted in tax revenues far beyond what was expected.

While our economy has been strong, there have been numerous

signs lately that it is weakening. The Dow and the NASDAQ have

slid. Consumer confidence is down and unemployment is up, and

people, I can tell you, are skittish. In addition, high energy costs

have dampened consumer spending and negatively impact on

America’s competitiveness and are threatening the least able in our

society.

I had a meeting in Cleveland to hear from Catholic charities, Lutheran housing, and other groups, and the impact that these high

energy costs are having on ordinary citizen. Business people are up

in arms about those costs and are losing money and are less productive. It is impacting agriculture. Federal Reserve Chairman

Alan Greenspan said in recent testimony that the economy has

stalled and we are at zero growth. Many of us agree that to stave

off a recession and maintain fiscal discipline, we need a threelegged stool approach to the budget, along the lines of what Chairman Greenspan proposed; that is, reduce the debt; implement real,

effective limits on Federal spending and provide a reduction in

taxes.

Like a three-legged stool, all three aspects of a plan must be of

equal importance. Too much or not enough on one leg or even two

legs and the stool just does not stand. It is important that we have

all three of those things. While a tax cut is now needed to stimulate our economy and prevent a recession or reduce its length, in

my view it must fit into a larger budget plan that controls spending

and ensures debt reduction. Congress and the White House must

hold the line on new spending. I think Senator Domenici underscored that.

I want to cap spending in a real way to get Federal programs

and agencies under control. That way we will have the money

around to provide a tax cut that we can keep in place over time

and continue to pay down our national debt. I am hopeful that

given our present economic situation, the new administration and

this Congress will hold down spending, make a substantial reduction in the debt and, yes, reduce the tax burden on hard-working

Americans.

If we can get on a glide path to doing all three in a real and substantive manner, the future should be bright. In addition, this apVerDate 11-MAY-2000 15:20 Jun 05, 2001 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 71299.TXT SAFFAIRS PsN: SAFFAIRS
10

proach will help us address the current economic situation. Many

of us on Capitol Hill are very concerned about the growing signs

of recession in our Nation. Over the past 10 days I have visited

with business leaders from across the country, and they tell me we

are in a recession. I know it is not good to use the R-word, but they

have said we are in a recession.

Mr. O’Keefe, I have been through two major recessions in the

past 20 years, and I do not want to go through another one, a deep

one. A lot of people are not aware of the fact that I was mayor of

Cleveland during the recession of 1981 and 1982. It was devastating. Just remembering those tough times makes me pleased

that the administration is giving consideration to jump-starting the

economy through a marginal rate income tax reduction this year.

Over the past 2 years, I have advocated using every dime of our

on-budget surplus for debt reduction, and I am one of the only Republicans that voted against the reduction on the marriage penalty

and on estate taxes, because I thought, with the robust economy

that we had, that we ought to use that money to pay down the

debt. However, as Chairman Greenspan has pointed out, we are on

the road to pay down the debt much sooner than any of us anticipated, and we might find ourselves unable to redeem additional

debt without paying large premiums.

Therefore, in order to fend off a deep recession like the one we

had in 1981 and 1982, I think it would be prudent to use the nonMedicare portion of the projected 2001 $125 billion on-budget surplus to reduce tax rates this year, and to have the rate reduction

reflected in this year’s withholding tables. It may be hard to do

that, but I think people have to see it this year. Based on recent

Treasury reports, I am confident that the 2001 on-budget surplus

will also exceed earlier projections.

We need a psychological boost for the American people, something that will make them understand that there will be a tax reduction coming not next year, but this year, and they need it now.

We must remember that consumer spending makes up 68 percent

of our gross domestic product and it is essential that we turn consumer confidence around in a positive direction. We really need

something very significant.

Mr. O’Keefe, tomorrow the White House will submit its budget

blueprint to Capitol Hill. I hope that OMB presents a budget that

will adopt the three-legged stool approach that I have outlined, and

will work with Congress to develop a bipartisan budget resolution,

one that is respected by the financial markets, the opinion makers

and the American people. I am hopeful that some of the people on

the other side of the aisle will be willing to work on this, and it

will require some compromise, and I think it is essential that we

do have a bipartisan approach to this, because if we do not, I think

we will spoil it. We need to restore people’s faith. If Congress can

demonstrate that it has worked something out and people can say

they are putting their country first, that they have worked out

their differences, it will be a positive stop. We should not end up

with people throwing bricks at one another. We have had too much

of that around here.

If you couple that with an immediate marginal rate cut, another

cut in interest rates, and some real possibilities that energy costs

11

can come down, it will give a gigantic boost to consumer confidence

and hopefully a return to economic growth. I cannot stress enough

we must do what we can to avoid the economic scenario that

plagued us in 1981 and 1982.

Mr. O’Keefe, you, Mr. Daniels, Mr. O’Neill, Larry Lindsey, the

President, have to work together with Congress, and what we do

together is going to have an enormous impact on the future of our

country. I was impressed with you at our meeting in my office and

appreciate the time you spent with me. You bring a wealth of government and non-government experience to this position. I hope

that it is going to teach you how to deal with those appropriators.

Chairman THOMPSON. All right, sir.

Senator VOINOVICH. You appear to have the interpersonal skills

that will make you a great member of the team. You have your

work cut out for you, but I have faith that you will succeed, and

I just want you to know I look forward to working with you in the

future.

Mr. O’KEEFE. Thank you, Senator.

Chairman THOMPSON. Senator Bennett.

OPENING STATEMENT OF SENATOR BENNETT

Senator BENNETT. Thank you, Mr. Chairman. Mr. O’Keefe, welcome to the Committee, welcome back to government service. You

are a glutton for punishment to keep coming back to this, but the

country is grateful to you, that you would be willing to do this. I

remember when your agency was called BOB, or the Bureau of the

Budget, and it was Richard Nixon who changed the name to Office

of Management and Budget, and it took a long time for some of us

to get the new nomenclature, and we kept calling it BOB.

Some others have mentioned this, but I have not seen a lot of

change since the name was changed; that there has been that

much focus on management. The budget process dominates everything, takes all of your time. You just get it done when you have

to do another one, to get ready for next year, and the kinds of skills

that you bring to this position get subsumed in the activities with

respect to the budget. Can you talk to us a little bit, or to me anyway, about anything you might be able to do to improve the management style in the government?

We do not automatically think of the Federal Government as the

place to go when we are looking for heroes of management skills.

Mr. O’KEEFE. Indeed. No, I look forward to having the opportunity to dialogue with you about how that could be approached.

There are number of things, I think, could be initiated on that

front. Appreciate it.

Chairman THOMPSON. We have not sworn the witness in yet. Do

you want to swear him in now and ask your questions?

Senator BENNETT. Oh, this is not a question time?

Chairman THOMPSON. No, just if you have any preliminary statements.

Senator BENNETT. I do not have any preliminary statements. I

am for the tax cut. Thank you.

Mr. O’KEEFE. Thank you, Senator.

Chairman THOMPSON. Our Committee rules require that all witnesses at nomination hearings give their testimony under oath, so

12

1The prepared statement of Mr. O’Keefe appears in the Appendix on page 27.

The biographical and financial information appear in the Appendix on page 29.

Pre-hearing questions and responses appear in the Appendix on page 40.

Post-hearing questions and responses appear in the Appendix on page 70.

Mr. O’Keefe, would you please stand and raise your right hand? Do

you solemnly swear to tell the truth, the whole truth, and nothing

but the truth, so help you, God?

Mr. O’KEEFE. Yes, sir.

Chairman THOMPSON. Thank you and please be seated. At this

point I would like to give Mr. O’Keefe an opportunity to introduce

any family members he may have in the audience here today.

Mr. O’KEEFE. Thank you, sir. A brief opening statement will accomplish that task, if you would permit me, sir.

Chairman THOMPSON. All right. Proceed.

TESTIMONY OF SEAN O’KEEFE,1 NOMINATED TO BE DEPUTY

DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

Mr. O’KEEFE. Thank you, sir. Good morning, Mr. Chairman and

Members of the Committee. It is an honor and a pleasure to be

here. This is a very special occasion for me and my family, made

all the more memorable by your opening statements, and the most

thoughtful introductions just offered by two distinguished members. We are fortunate constituents of Congressman Jim Walsh, a

gentleman of the House who serves his district with great distinction and integrity, but I also count myself among his legion of admirers and friends who are the beneficiaries of his distinguished

public service.

To Senator Ted Stevens, I am forever in his debt for the extraordinary friendship he has shown me and my wife Laura for more

than 20 years. He has been my mentor, career counselor, and advocate throughout my professional life, and he has set me straight on

more than one occasion and always with my best interest in mind.

I am honored and particularly grateful to him for his presence and

the time he spent to support me here today.

Mr. Chairman, I also want to express my gratitude to the Committee for the expeditious consideration of my nomination. Having

received the formal paperwork just before the scheduled Senate recess and now turning your attention to the matter immediately

upon your return, this is an extraordinary courtesy and I am most

grateful to you, Mr. Chairman, and to you, Senator Lieberman, for

that consideration. During the break the Committee staff and the

personal staff expended a lot of effort in preparing for this particular hearing.

They very helpfully met with me just after the recess began to

familiarize me with the process, policies and issues which are of

importance to this Committee. Having served in the Senate staff in

my previous public service experience, I know what a sacrifice it

is to expend precious time during rare periods when the Senate is

out of session, so I am particularly grateful to them for their helpful and dedicated effort. I thank you.

It is indeed a privilege and an honor to be the President’s nominee for this challenging post. Few are afforded the opportunity to

participate and contribute in such appointed capacities, much less

for a third time. I am filled with great anticipation and a very subVerDate 11-MAY-2000 15:20 Jun 05, 2001 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 71299.TXT SAFFAIRS PsN: SAFFAIRS
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stantial dose of humility for what I know will be the important

challenges ahead. Public service is never to be taken lightly and

particularly so given the challenging portfolio, I think as Senator

Bennett referred to, in the Office of Management and Budget itself.

But having spent the last several years teaching graduate students who are aspiring public servants at the Maxwell School at

Syracuse University, the Nation’s top-ranked school of public affairs, this is a responsibility to step up and do what I have been

preaching.

Explaining the stakes involved to my children has been a difficult and different kind of challenge. I am so pleased that they are

all here this morning. Our oldest, 14-year-old daughter Lindsey,

who possesses the intellectual maturity of twice her age, appreciates the significance and understands that I am afforded an exceptional privilege. For our two sons, 11-year-old Jonathan and

Kevin, who will turn 10 tomorrow, explaining this has required a

little more imagination. As active youth program athletes in our

community, they took aboard the significance when I likened this

particular experience to go to fantasy baseball camp with the New

York Yankees.

Indeed, the President has assembled the public service equivalent thereof, by his leadership selections. I am excited with the

prospect of working with such a distinguished group, most particularly for a gentleman with the professionalism and intellectual capacity of Mitch Daniels. It promises to be a great challenge and an

even greater opportunity for me to learn from him as we forge our

partnership in advancement of the President’s agenda.

Explaining the significance of this opportunity to my wife, Laura,

my partner and my best friend, was perhaps the easiest of all because she is so thoroughly supportive of the President and the policy he plans to champion. She understands the historic significance

of this time and shares my commitment to the importance of public

service. But she also fully appreciates the hardships and the sacrifice this profession entails. Her willingness to be a part of this

public service odyssey yet again speaks volumes for her love and

extraordinary tolerance, far greater than I deserve in both instances.

This is an important time and important work lies ahead. My fitness for this office is of course for this Committee to judge, and for

the U.S. Senate to decide. But if I am fortunate to be confirmed,

I will do my best. I thank you, Mr. Chairman and Members of the

Committee, for the opportunity to be here. I look forward to what

I hope will be the first of many opportunities to dialogue with you.

Thank you.

Chairman THOMPSON. Thank you very much. As I indicated earlier, the Committee submitted some substantive pre-hearing questions to the nominee and the nominee has also met with Committee staff to discuss a variety of issues. I will start with the questions that we ask of all nominees, Mr. O’Keefe. Is there anything

that you are aware of in your background which might present a

conflict of interest with the duties of the office to which you have

been nominated?

Mr. O’KEEFE. No, sir.

14

Chairman THOMPSON. Do you know of anything personal or otherwise that would in any way prevent you from fully and honorably

discharging the responsibilities of deputy director of OMB?

Mr. O’KEEFE. No, sir.

Chairman THOMPSON. Do you agree without reservation to respond to any reasonable summons to appear and testify before any

duly constituted Committee of Congress, if you are confirmed?

Mr. O’KEEFE. Yes, sir. I do.

Chairman THOMPSON. All right. I appreciate your appearing here

today. With those questions out of the way, I would like to start

the questioning by weighing in on the subject that is on all of our

minds today, and that is the President’s budget message and the

President’s budget. There is just one thought that I would like to

leave with you from one Senator’s vantage point, and that has to

do with the mandatory side of the ledger. We are still focusing on

the tail of the dog instead of the dog. We constantly are crunching

and arguing over the discretionary side of the budget, which is getting smaller and smaller. We have to do that. I think obviously the

President’s budget is going to have some increases in some areas

on the discretionary side. It apparently is going to have some cuts

in some areas on the discretionary side and probably more likely

some reductions in the increase on the discretionary side.

But now, with the mandatory side taking up almost 70 percent

of the budget, we have to ask ourselves if we are going to really

make any difference and where are we going to make that difference up? The fact of the matter is that although the statements

that were made here earlier today certainly are true in terms of

the dollar amounts of the discretionary spending and that we do

have to do a better job on that, the fact of the matter is that discretionary spending as a percentage of GDP is at a historical low.

As a percentage of GDP, my figures indicate for the year 2000,

it was 6.3 percent, and this chart goes back to 1962. It is the lowest

that I see on the entire chart as a percentage of GDP. So we cannot

keep squeezing in that area alone, because the most conservative

of us must acknowledge that we have got some chickens coming

home to roost in terms of our infrastructure, such as our national

laboratories, which in some cases are physically crumbling.

If there is one document I would ask you to read, if you have not

already, is the U.S. Commission on National Security, 21st Century’s latest report, known as the Hart-Rudman report. This is

their latest iteration. I do not know if you have had a chance to

look at that or not, but they make a very good case that we have

to do some things better and differently from the standpoint of our

national security, not a matter of what we wish, but things that

we have to do.

It talks about the science and education, for example, and how

we are falling behind in basic research. They recommend that we

double the NIH budget, but we have not yet addressed the thing

that underlies, in their estimation our national security, and that

is the basic science and education budget. They are recommending

doubling R&D in those areas by the year 2010. They talk about our

national laboratories and what is happening to them and they go

on in other areas.

15

So as I say, the most rabid conservative, I think, has to acknowledge we have to build the bridges, our national parks, and things

that the Federal Government properly ought to be doing. We all

have to acknowledge that there is a role for the Federal Government and that these are certainly things that ought to be done. We

are now coming to the conclusion that education has become a national security issue also. So does all of that mean we cannot afford

a tax cut? Not in my estimation.

I think unless we have long-term economic growth, we are not

going to make our numbers in any of these areas. I think that is

essential for long-term economic growth, but we are going to have

to do something on the mandatory side. We are going to have to

have Social Security reform. We are going to have to have Medicare

reform or none of the rest of this stuff is going to matter. We cannot tax our way out of this problem.

We cannot even grow our way out of this problem, especially

when the baby boomers start retiring. We all know that. We all

keep talking about it and we do nothing about it while we still

focus more narrowly on the tip of the dog’s tail, on the little details

of the discretionary spending side. That is a long-winded non-question. I would just ask you, although and a lot of this you do not

really have jurisdiction over, you have a bully pulpit, and I would

ask of you the same thing I asked of Mr. Daniels, to use that bully

pulpit to speak the truth, and that is until we get a handle on the

dog, as well as the tail, we are going to have big problems in this

country and we are not going to be able to keep our commitments

to the American people with regard to the entitlement programs

themselves. Further, in the process we are not going to be able to

keep our commitment to the vital national security requirements of

this country.

Mr. O’KEEFE. I agree, Mr. Chairman. I agree with you wholeheartedly. As a matter of fact, just sorting through the issues that

you have raised here as it pertains to mandatory versus discretionary spending in particular, I could not help but think that 20

years ago, about exactly this period of time, when Ronald Reagan

was submitting his very first budget to the Congress in the late

winter of 1981, the percentages of discretionary to mandatory were

precisely reversed.

It was about 70 percent, 65 to 70 percent discretionary spending

at the time relative to about 30 to 35 percent mandatory, versus

today’s percentage, which is exactly opposite. In the span of 20

years, that has taken effect. So as a consequence the focus and attention that you have referred to on the discretionary side of the

equation positively has been one of the more focused endeavors,

certainly in the last 20 years, with Gramm-Rudman-Hollings and

every attempt at budget enforcement acts and so forth. Nonetheless, I am impressed by, I guess, the effect that occurs, to the extent that there is not a constraint on discretionary spending that

I would otherwise consider one of the very best things that the

Congress has done. I think, in the last few years, and I certainly

have been part of that in the last Bush Administration, in dealing

with the Budget Enforcement Act at that time and the omnibus

budget reconciliations that went on at that point, was to establish

some limitations, caps on spending, so as to avoid those kinds of

16

issues. Because just a simple projection, the reference that Senator

Domenici made and a point that Mitch Daniels has talked about

repeatedly, is that in the last 3 years the average growth has been

on the order of about 6 percent of discretionary spending.

If that were to be left and just continued along for the next 10 years, that equates to $1.5 trillion right there. As a consequence,

that growth in the overall discretionary spending, if not constrained or at least managed—moderated to some point, could have

the effect each year of building on the base. It is a phenomenon I

think the President has referred to on several occasions in which

he has talked about the consequences and the approach that is

typically taken in examining budget alternatives in Washington;

that is unless there is an increase commensurate with expectations, it is considered a cut. So as a result that has the exact opposite view. So that kind of mind set is one that certainly we need

to work with, we have to sort through. You are right. There is more

attention to it in the last 20 years, but the focus on the mandatory

side of the equation, I agree with you, requires every bit as much

of the attention, and we hope to implement the kind of objectives

to make that happen over the course of this next year.

Chairman THOMPSON. Senator Voinovich.

Senator VOINOVICH. I would like to focus on GAO’s recently released high-risk list, which included human capital. We have 22

high-risk areas in the Federal Government. Some of them, such as

DOE and NASA contract management, DOD inventory management, student financial aid programs and the Medicare program,

have been on the high-risk list since 1990. From my perspective

very little was done to address these high-risk areas by the past

administration.

Are you familiar at all with that report?

Mr. O’KEEFE. I have a very specific recollection of having signed

off on those, as comptroller and CFO at Defense, at the beginning

of some of these reporting periods, under the Federal Financial

Management Integrity Act compliance requirements for reporting

material weaknesses. Having signed off on a number of them and

reporting that there were material weaknesses in accounting systems, in the inventory process, in a range of different things, I

share your concern that that does not appear to have altered dramatically since those reporting requirements were issued better

than 10 years ago.

So I guess it is the equivalent of being asked to watch a bad

movie yet again, to look at precisely the same kinds of issues, but

that appears to be the case and it is one that I have got to focus

some attention on. I understand that.

Senator VOINOVICH. How many of them can we count on being

removed during the 4 years of the Bush Administration and what

do you intend to do to make sure that some of them are not on this

list 4 years from now?

Mr. O’KEEFE. My fondest hope is that the answer is all of them,

in order to sort through that. I guess my concern in a lot of the

areas of dealing with FMFIA—the Federal Managers’ Financial Integrity Act—is that there is a tremendous amount of effort that is

poured in on the administrative side with compliance, with trying

to attempt to determine where the material weaknesses exist, how

17

to describe them best, understand exactly what the limitations are,

and not nearly as much attention placed to trying to correct or implement means to correct those kinds of problems.

So as a result it is a repetitive cycle in which we are awfully

good at reporting compliance failures, but not particularly great at

figuring out what the solutions are. If we put as much attention

to the implementation side of the equation on the management side

of the arguments that are necessary, as the Federal Government

typically is, on the reporting requirement side, I think we would be

able to lick this in fairly short order.

Senator VOINOVICH. How high a priority is it going to have in

your operation?

Mr. O’KEEFE. I think it has to have a very high one. In my view,

until you get, first and foremost, the financial systems to the point

where they are in compliance with the CFO Act and that we can

get clean, auditable statements each year, until we can say that

with success across the board for every department across the Federal Government, we are going to continually be into the situation

of trying to put band-aids on problems. So I see that as a very high

priority and one that requires the earliest and most concentrated

attention; trying to deal just with that one focus alone. There are

so many others that are included within the material weaknesses

report that you have referred to, that to include all of them simultaneously is something I am not sure how that would shake out,

but certainly on a financial systems side of it, that is the first order

of magnitude issue that I think would get focused on.

Senator VOINOVICH. How about the human capital side?

Mr. O’KEEFE. I share your deep concern there, in part as a consequence of some very recent experiences that I have had in the

last couple of years, chairing a commission that dealt with looking

at the human resource, human capital kinds of difficulties and

challenges that the Defense Department is about to encounter in

that area. I came to find, as a result of that endeavor and by working very closely with the National Academy of Public Administration, who are doing some very similar things across the Federal

Government, that I know you are aware of from our conversations,

looking at the civilian piece of this equation, the problems are identical. As a result, the statistics that you have talked about and the

effort that you put into raising the standing of this particular question and issue, is one that I think is a matter that has to be at

the very top of the management agenda we have to take on. Because if we do not, the consequences are, as you have suggested.

The retirement rates are going to dissipate the preponderance of

the competence of the force very quickly and in a very short period

of time the middle management layers that are there, primarily vacancies, not folks who have spent a lot of time in grade, and as a

result of that the experiences that the Federal Government is having across the board, particularly in technical skill areas, is failure

to compete successfully with industry and other kinds of comparable circumstances where they would otherwise be recruitable.

So the findings we came up with and the reports that we were

able to put together to try to deal with that cover a range of management agenda issues that I think can be taken on administratively; some of which will require very close cooperation with ConVerDate 11-MAY-2000 15:20 Jun 05, 2001 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 71299.TXT SAFFAIRS PsN: SAFFAIRS
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gress. But by and large the authorities exist to deal with a number

of those issues right now. I will seek to pursue those in a larger

context in resurfacing some of these issues from the national academy.

Senator VOINOVICH. One of the things that I am going to be looking at in this budget is the commitment of the administration to

funding those things. For example, as I mentioned to you, there is

no government-wide number on training. There are many incentives that are available to maintain and recruit people in the Federal Government, but the budget has not been available to the departments to do it, either because the administration had not suggested it or the departments did not ask for it.

In addition to that, we worked very hard last year to pass a Department of Defense civilian workforce reshaping bill, for fiscal

2001, and we had it funded, but we will be looking at whether or

not the administration funds the authorities for 2002 and 2003. We

have some crucial challenges in Defense civilian workforce, and

without the money, they are not going to be able to continue with

the workforce reshaping effort.

Mr. O’KEEFE. Senator, my guess, though, is that the fiscal year

2002 budget that is going to be presented before Congress, if there

are very close relationships between the budget requirements and

the numbers that are presented and the kind of performance characteristics that you have just talked about in terms of linkages between training, education and so forth for the career force, it will

be purely coincidental, because the mechanics of how this process

has been put together this year, as best I have observed, is one in

which the imperatives are very focused.

For fiscal year 2003, with a period of time where we have the opportunity to develop it over a period of time, I think the chances— well, at least it will be a more deliberate expression of exactly the

points you are raising. Throughout the course of the development

of that budget which will begin in earnest late this spring and

summer, throughout the fall, to be presented this time next year—

that is when the opportunity, I think, of this administration to put

a very strong imprimatur on it. If I am fortunate enough to be confirmed, that is one of the areas that I think will be a very high

focus, of trying to establish those linkages on exactly the points you

are raising. This time around, it will be coincidental, is my guess.

Chairman THOMPSON. Senator Bennett.

Senator BENNETT. Thank you, Mr. Chairman, and again I apologize for getting out of sync.

Chairman THOMPSON. We were proceeding a little out of sync

this morning anyway.

Senator BENNETT. Let me go back to the line of questioning I

started about management, and the question arises of whether or

not there is any real management discipline imposed from the

White House. You are an agency of the White House—on the various departments. Let me give you an example of what I consider

to be the most egregious mismanagement that we have seen just

recently—HCFA, Health Care Financing Administration.

We have had the experience up here, as appropriators, of dealing

with what HCFA insisted was Congress’ fault with respect to home

health care, HMOs and teaching hospitals. Everywhere I went, I

19

ran into people that were in serious trouble in those areas and they

all blamed it on the Balanced Budget Act, and it was Congress that

has taken this money out of us and is threatening to shut these

things down.

I could give you solid examples out of my own State of real hardship. Now, the amount of money, if we are talking on the budget

side, that was projected to be saved by the Balanced Budget Act

in this area, turned out to be roughly one-fifth of the amount that

HCFA in fact took out of the area by virtue of their administrative

actions. Former Secretary Shalala has defended HCFA on this, and

said we acted properly and there was that much waste, fraud and

abuse.

I would like to take her to some folks in my State that lost their

health care because of HCFA’s actions. We lament here in the Congress that we do not exercise our oversight ability. It is a little difficult when the Congress is in one party and the Executive Branch

is in another and so you are fighting each other, but this became

a real political issue, with members of the former President’s party

saying, if you do not have decent health care and home health care,

and if you are seeing the research on the medical hospitals cut

back, go blame the Congress because they are the ones who did it

by passing that terrible Balanced Budget Act, which, by the way,

the President signed.

As nearly as I can tell, this was entirely administrative overreach on the part of HCFA, and they were acting on bad data. They

were going off of information that was 2 and 3 years old and cutting back on the basis of that information, and ignoring the devastation that they were creating out there in the real world. We finally had to fix it in the last Congress with an appropriation that

added significantly to the increased percentage in discretionary

spending that Senator Domenici talked about, to virtually order the

administration to do what we thought we had told them to do when

we passed that act.

Now, I give you that example, is there a watchdog function that

OMB can play where you could call HCFA and say wait a minute,

you are going way beyond what you should be doing, or do you just

say, well, that is the jurisdiction of the agency and we are busy getting up next year’s budget, so we do not really have any management role? I give you that real-life example to have you tell me

what you see, and hopefully your director sees, as the management

function of OMB.

Mr. O’KEEFE. Sure. Well, there is no question that the Congress

in my judgment, in the last 10 years, has significantly strengthened the hand of the Office of Management and Budget on the

management side of the equation. With the enactment of the CFO

Act, the Government Performance Results Act, the string of efforts

that have been put into this in the last 10 years are very clearly

focused on that objective.

First and foremost, I think the requirement then on the part of

the Office of Management and Budget, in sorting with these particular management kind of initiatives, is to look at the applicability of best standards, practices, etc., across the Federal Government in a uniform manner, in the way that tries to implement

those in a way that can transport what the best experiences have

20

been, as well as deal with, and I think to your example, to your

very human analogy that you have raised with HCFA, to look at

those cases where it clearly is failing as a consequence of either

systemic or failure of compliance to respond to the law in a way

that is appropriate.

So that becomes an important function of OMB, again, not to be

a micromanager, and I learned a long time ago that the best definition of a micromanager is whatever the person or organization

right above you does, and that is the usual descriptor. As a consequence, we really need to steer clear of that kind of concept, in

trying to intrude on those who are charged by the President to be

the appropriate administrators for those kinds of programs and certainly in this kind of case, Governor Thompson, now Secretary

Thompson, will have a very strong interest and influence, and I

cannot imagine him being a wallflower about issues like this one

in the future.

So as a result that is going to be the best relief or best opportunity to implement and see that kind of management attention

faced. Having said that, there is nonetheless, I think, ample tools

that the Congress has seen fit to bestow upon OMB, to strengthen

the kind of oversight and enforcement role that we can play or

could play within the management arena, to look at standard function best practices across the board and to find those cases in

which it is failing, to identify what the solutions may be.

Senator BENNETT. One quick observation. A slightly different

area, but it may be related. It is my understanding that a number

of agencies have been unable to pass an audit for years, and the

cry is raised, why give them more money if they cannot tell us

what they did with the past money, if it just gets lost and you cannot come in and audit them? Does OMB perform the function of an

outside audit? Is that GAO’s function? GAO is a creature of the

Congress and so they go wherever we tell them, and this Committee is the primary Committee to tell them, but do you have any

sense of what do you do with a department, a cabinet level department, that at the end of the year says we cannot really tell you

what happened to all the money because we could not pass the

kind of audit that, say, General Motors would have to pass, or go

to jail?

Mr. O’KEEFE. Well, the CFO Act very specifically, as I remember

the mechanics of this, in part, I guess, it impressed me most because I had the great fortune, circumstance or just being in the

right place at the right time or whatever, to be the very first CFO

to be appointed under the act in January 1991. Having been in a

position of being the comptroller as a result of the act having been

passed, it was therefore conferred, that responsibility. The act is

very specific. The General Accounting Office is—and the comptroller general is the auditor of record for the independent audit

finding and for examining the financial statements and the annual

reports thereof.

The problem I always found with this, and again I am really

looking forward to getting a little more updated on where this has

moved in the last several years. But the problem I remember very

specifically of dealing with this question, and have since had a

stronger view of why, as a consequence of some corporate experiVerDate 11-MAY-2000 15:20 Jun 05, 2001 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 71299.TXT SAFFAIRS PsN: SAFFAIRS
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ences, is that, in and of itself, a corporate, private sector financial

statement imposed on a public agency as a reporting requirement,

while it should be done and is an appropriate kind of way to translate or transfer the information, is used for entirely different purposes.

There are the quarterly statements and the annual statements

of any corporation, having served on boards of directors, on audit

committees of those companies in several instances here over the

last few years, that becomes the governing management information tool that outside independent directors can use for the purpose

of judging performance and capability of the company, independent

of what the internal management may be offering or providing.

It does not serve the same purpose on the public sector side. It

is prepared by the same people. As a consequence it is all being

dealt with as a different kind of arrangement, and so it has a different standing in that respect. The second one is it is more again

developed—and again I am prepared to be corrected on this one

once I get a chance to dig into it a little more—but my recollection

of it is this was viewed as a compliance or reporting requirement

as opposed to a management tool, for the purpose of giving the senior management, as well as the equivalent of the board of directors

in Congress, an understanding on a routine, regular basis of exactly what the financial performance has been of the agency or department involved.

That is exactly the purpose that it serves within any corporation,

and it does not have that requirement at all. It is more of a reporting challenge to go deal with and try to figure out how to reconcile.

So until that mind set changes and until we can find, in each of

those agencies and departments, a means to make it an important

management information tool, for exactly the same or at least similar purposes that you would see in any corporation, its utility and

its completeness are always going to be questionable in my view.

But again, digging into how this has changed in the last few years,

I am really looking forward to seeing, by department, what the alterations are, because in many respects the ones that still seem to

fail the clean statement requirement from GAO are the same ones

that had trouble organizing and getting ready for this kind of stuff

10 years ago.

Senator BENNETT. That is the point.

Mr. O’KEEFE. There is a correlation there.

Senator BENNETT. I agree completely that it is a different circumstance, because I am not planning to invest in HUD, so I do

not really care about their audited statements, but on the other

hand, if an agency cannot get its act together sufficiently well to

tell GAO where we are, I really think that is something you ought

to be looking at. I have run a business and I have watched the difference between a comptroller who simply says to the outside auditor, ‘‘Well, here are our books, audit them,’’ and the comptroller

who says, ‘‘The auditors are coming and I had better have everything lined up.’’ You have the second kind of comptroller, you have

a much tighter ship and a much firmer grip on management, and

quite frankly you have a lower audit bill when you pay the outside

auditors.

Mr. O’KEEFE. Indeed.

22

Senator BENNETT. So I think if you are the head of—you and

your director are the head of management throughout the Executive Branch, you ought to pay attention to that and I am delighted

with your answers. Thank you.

Mr. O’KEEFE. I appreciate it. Thank you, Senator.

Chairman THOMPSON. Thank you very much. Just to continue

with that a little bit, I will be interested in seeing your assessment

a little bit later on about how all these various laws we passed in

the last few years, Clinger-Cohen, Paperwork Reduction, and all

those have worked. Apparently they have not worked very well,

and we need to see whether or not we need to change them or

whether or not it is strictly a management issue.

The reason you are getting so much from the management side

when we are right on the eve of the budget is because we have

been seeing, day after day after day in this Committee, the evidence of mismanagement. We get GAO reports as high as an elephant’s eye on our deficiencies on one thing or another. It is amazing to me, coming into government like this for the first time, how

many warnings and reports and terrible reports and analyses of

problems it takes before it gets anybody’s attention.

We have seen, on the financial management side, great deficiencies. Not being able to pass an audit is certainly a part of it,

but you get into the waste, fraud and abuse, and our Committee

came up with $220 billion worth the other day, $30 billion in 1

year alone, sending out payments to dead people and things of that

nature. But the real story is we have no clue because these were

just voluntary reports that certain agencies made. Most of them

are not even required to make reports along those lines in terms

of how much has been lost because of waste, fraud and abuse.

Regarding information technology, we are way, way behind and

vulnerable in so many ways. GAO has told us that in definitive

terms over and over again. There are computer systems that do not

talk to each other; billions of dollars spent and they still do not

work; an infrastructure like the one in IRS, are in trouble. They

are doing the best they can over there. I think they have good management now. We have given them some flexibility in terms of hiring some people over there and I think they are putting it to good

use. But they are having to start from scratch; terrible infrastructure problems over there.

Regarding human capital, as we were talking about earlier

today, we are needing, as industry is, more and more people in the

high-tech areas, specialized areas. Though we downsize, we pay no

attention to retaining those type of needs, and therefore we are not

meeting them, plus government service altogether is going downhill. There is this report that I referred to awhile ago. I saw a survey recently which stated that over 70 percent of young people that

were interviewed said they would never consider government service. So that is the reason you are getting this, and I know you are

going to OMB and spend just about all your time on the budget,

just like everybody else does. And I know that your life is probably,

in most regards, going to be determined by the priorities of the director. That is the setup and that is understandable.

But between the two of you, please keep these things in mind.

We cannot continue to go down this path where we are behind the

23

curve so badly in terms of not only private industry, but what a

lot of other countries are doing. We have got people coming in here

from New Zealand, trying to tell us how to do better. So I would

just urge you to keep that in mind and think of ways where the

OMB staff could be more dedicated to the management functions

of the job.

I have one more area that I would like to touch on, and that is

getting back to the question of ensuring that agencies and OMB

factor in performance data and results in their budget submissions.

We have the Results Act on the books now. That is another law

that was passed, about 6 or 7 years ago, and the jury is still out

in terms of whether or not it is going to mean anything. It is not

going to mean anything until those people out there in the agencies

feel like somebody is watching them or feel like there is going to

be some reward or some detriment based upon performances.

If we continue to fund the same programs that are not working

at the same levels in the same ways that we are funding programs

that are working, then the act is going to be meaningless. For it

to mean something, it seems to me like you need to incorporate the

results of what these agencies are doing or are not doing into the

budget submissions and let them know that is going to happen,

and then we in Congress have a responsibility to take that and incorporate that into the appropriations process. Do you acknowledge

that?

Mr. O’KEEFE. Yes, sir; absolutely. As a matter of fact, the distinction here, and it is along the same lines as Senator Voinovich

raised, too, on the issue of material weaknesses and reporting requirements and so forth, is that the attention and the focus, if it

is on the issue of either comply or there will be a penalty, always

has mixed results. If you are really brutal about the penalties or

if you are really brutal about enforcing the compliance, it is astounding how much more focus and attention can be there. But

that means you are also then ignoring a range of other things as

you look at that particular set of issues.

If instead you design the requirements, and this is what I find

so interesting about the Results Act itself, in terms of how to organize this as a way to, now that it has been in currency for 7 years

since its enactment and has gained some standing and understanding, is to try to demonstrate to agencies and departments how

it can be revealing management information system and an information tool for the purpose of managing differently and looking at

performance as a primary criteria therein.

One of the projects that was conducted at the Maxwell School at

Syracuse in the last 4 years is a Government Performance Results

Act-oriented kind of effort in looking at State and localities, and

their performance on a variety of different fundamental, basic public services. The provisioning of passing or very exceptional grades

got great headlines, and for places like my home city of New Orleans, Louisiana, which failed on every count, made front headlines

in the newspaper and raised the interest of the business community in forcing the city management and the mayor to consider

what the deficiencies were in those public services and identify how

those corrections were going to be obtained.

24

So as a consequence the efforts to organize and to focus the way

GPRA has in so many different areas, to include, I am delighted

to tell you, on the State and local front, as a result of this particular project that the Maxwell School did, it has a very sallying

effect in many respects on public service agencies and departments

that are having difficulties, but I think the most effective way is

to make it an incorporated management information or management tool for the purpose of improving performance, and that is

when you really have achieved success.

Chairman THOMPSON. Let me tell you, if you do not know what

you are walking into now—you know the Results Act has been on

the books several years now, and we have gone back and forth with

the plan. As you know the basis of all of it is setting goals, and

we, in our review of agency performance plans, found that some

agencies had set no goals, not just bad goals or improper goals, no

goals for any of the management problems that we identified; GSA,

AID, SBA, NRC, no goals. What do you do about it? That is just

somebody does not feel accountable. Somebody does not feel that

they are going to be held accountable when they send something

like that up to us.

We do not have enough hearing days to get every one of them

up here and spend a day chastising them over what they are supposed to do. Maybe you feel the same, but somebody over there

needs to ride herd on it.

Mr. O’KEEFE. Yes, sir, Mr. Chairman.

Chairman THOMPSON. Senator Levin.

OPENING STATEMENT OF SENATOR LEVIN

Senator LEVIN. Mr. Chairman, thank you and let me add my welcome to Mr. O’Keefe and my congratulations to him and his family

on this nomination. First, you and I have had a chance to talk

about the role of the OMB in reviewing rules, and I want you to

comment on that issue for us, and let me ask you this question.

Since one of the important offices in the OMB is the Office of Information and Regulatory Affairs, or OIRA, and under every President since President Reagan, the office has had the responsibility

to review proposed and final rules of significance, and given the

fact that after some very difficult negotiations, we have achieved

an agreement for the last three administrations, I believe, on a

number of disclosure procedures which have gone a long way to

keep the public informed as to the OMB’s involvement and who is

lobbying OMB, would you recommend that those disclosure rules

be kept in place?

Mr. O’KEEFE. Well, I thank you for your comment, Senator, and

since the opportunity to visit with you, I have looked into that a

little bit, and again my personal disposition and leaning in these

kinds of circumstances is toward full disclosure. There is just no

question that that is a far more prudent approach in any context,

in any approach involved here, and at this juncture I see no reason

to alter the procedures you have described. I again asked for, and

you were kind enough to grant to me, the opportunity to dig into

it a little further to figure out where we are on this, and I have

just had a passing opportunity here to do that lately.

25

I do not see anything that would change that procedure at this

time, and I will certainly be in touch to the extent that we discover

or come across anything that would otherwise suggest to the contrary.

Senator LEVIN. If there is a proposal to amend those executive

orders that have been in place now for some years, to change that

procedure, would you alert this—or would you at least recommend

to the OMB Director, that he alert this Committee prior to any

change in the executive order, so that the Committee could take

whatever action it saw fit, relative to weighing in on that subject?

Mr. O’KEEFE. I see absolutely no reason whatsoever why we

should not, on all matters, this one in particular, consult with the

Committee and determine where those interests lie. To do something that will fundamentally put us at odds with the Committee

over a procedural set of questions, I do not think is in anybody’s

best interest.

Senator LEVIN. As you know, I support the OMB review of rules.

I think it is important for accountability that we have basically the

elected officials of this country, be it in the White House or here

in Congress, be accountable for regulations. I came to this town believing passionately in that requirement and I have hung on to

that for dear life ever since. So I just welcome your comments on

that and your assurances on that.

Mr. O’KEEFE. Thank you, sir.

Senator LEVIN. A number of Committees are involved in the

issue of contracting, and one of those issues is the contracting-out

process. Do you believe that Federal employees should be given the

opportunity to fairly and fully compete with the private sector

when there is the possibility of contracting out government work?

Mr. O’KEEFE. I do indeed.

Senator LEVIN. Just one question on the budget. We have a

Budget Act, which requires—that is the Budget Enforcement Act of

1990—which says that the Social Security trust fund shall not be

counted relative to budget authority, outlays, receipts, deficit or a

surplus, for purpose of the budget of the U.S. Government as submitted by the President. Are you familiar with that requirement?

Mr. O’KEEFE. No, sir, I am not. I have to become more so.

Senator LEVIN. It is very important that you do so, because there

are a lot of words out there and rhetoric that we all use about protecting Social Security, and I want to be sure that we do not count

the Social Security surplus for any purpose. It is by law dedicated

to Social Security, for that fund, and this law is very explicit that

it must not be used as part of new budget authority, outlays, receipts or deficit, or a surplus for purposes of the budget of the U.S.

Government as submitted by the President.

Would you agree that we should not count that surplus?

Mr. O’KEEFE. The unified budget concept that I have always

grown up with in this process makes no distinction with the notable exception of a very small number of funds, and as a consequence, revenues received, general revenue by the Federal Government and disbursed as amended herein, which is the reason I

need to very specifically go do my homework on the matter you

have just raised in terms of the specific provisions of the law which

now are contrary to what my understanding has been, typically has

26

been controlled by a unified budget process, and so absent any argument to the contrary, the principles that govern a unified budget

are the ones that I think are most useful.

Senator LEVIN. Well, I want to make sure you look at this section. This is a pretty important piece of law, Section 13.301 of the

Budget Enforcement Act of 1990, and I am going to read it to you.

It says: ‘‘Off-budget Status of OASDI Trust Fund, Off-budget Status, A, Exclusion of Social Security from all budgets,’’ that is the

heading. ‘‘Notwithstanding any other provision of law, the receipts

and disbursements of the Federal Old Age and Survivors Insurance

Trust Fund and the Federal Disability Insurance Trust Fund shall

not be counted as new budget authority, outlays, receipts or deficit

or surplus, for the purposes of, one, the budget of the U.S. Government as submitted by the President; two, the congressional budget;

or three, the Balanced Budget or Emergency Deficit Control Act of

1985.’’

If you would submit for the record your answer to my question

about whether or not Social Security surplus should be counted in

calculations, and if so, how, or if so, why, given this law, I would

find that answer for the record very essential and useful and hopefully helpful.

Mr. O’KEEFE. Yes, sir. I would be pleased to do that.

[The information follows:]

INFORMATION RECEIVED FROM MR. O’KEEFE

Question from Senator Levin: ‘‘If you would submit for the record your answer to

my question about whether or not Social Security surplus should be counted in calculations, and if so, how, or if so, why, given this law, I would find that answer for

the record very essential and useful and hopefully helpful.’’

The President’s budget blueprint presents the Social Security trust funds

in the same basic manner as in prior years—that is, the trust funds are

off-budget and are not included in the on-budget totals, consistent with the

budget process laws cited.

The administration does not believe Social Security’s status as off-budget

should be changed at all. In fact, the budget ensures that all $2.6 trillion

of the surpluses in these trust funds are reserved just for Social Security

and debt retirement and cannot be used to offset other spending or tax relief.

Senator LEVIN. Mr. Chairman, I want to thank you. I am done

with my questions.

Chairman THOMPSON. Thank you very much. Mr. O’Keefe, thank

you very much for coming today and your forthright responses. You

have already a long history of public service. I know you will continue in that same fine way. I look forward to bringing this nomination to the Committee’s attention in the near future. Thank you

very much.

Mr. O’KEEFE. Thank you, Mr. Chairman. I appreciate your courtesy.

Chairman THOMPSON. We are adjourned.

[Whereupon, at 12:03 p.m., the Committee was adjourned.]

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