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tv   U.S. Senate  CSPAN  August 4, 2011 12:00pm-4:59pm EDT

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but do we have -- have we encounter problems are challenges fired have to say that even in the family there is some disclosures were some fictions, but as long as we properly handle them we will properly resolved as i said if we have better communication and a bitter understanding, we will be able to address these differences. and in terms of trade, the topic i was talking about in a trade we may face something particularly difficult. for the simple, the trade barriers or can we remove some of the barriers so that the trade is done more easily? what does america need, what can
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we produce for the americans? we can look at all of these demand and supply coming and address the fair demand in the supply you can tell us what you need and what we want, so i think these exchanges are a very helpful for our cooperation of the national level, and that's why i believe it's important that we need to make our policies open and transparent and advance our cooperation in a wide range of areas. >> i ask if one of our colleagues from china has a question they would like to ask of the governors of the united states. >> [speaking in native tongue] >> translator: i have a question on education. actually, the institutions of
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higher learning have to tasks, one is to complement talent and the everest to do research and development. after the students graduate from universities, they will come into the industrial sector and the government has done a lot in assisting them. but how can we better translate the research results into real productivity? i don't know whether or not the united states has the similar problems and what is your experience, and we are very interested to learn from you. >> it is a constant challenge for all of us. we have a number of methods in which we are trying to join up education, jobs, research and business. one is our community college
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system to have worker training directly contacting the jobs that are there, so the people that employ people come to those schools, say with the need as far as murderers. we customized training right to them so that the workers are literally working that job before they are joining the business. on the research side, what we are trying to do is begin to get a series of innovation centers where the research, and then turning that into a business model touch each other. and all of us in some way or another have incubation centers on the university's which tied directly the fault process and the ideas to more capital for business ventures. but to say that we have this problem completely solved will be to overstate where we are. it is something all of us spend a great deal of time trying to
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do much better. >> governor, i have to join with my colleague governor nixon and say this is a mutual issue for us. in my state, we have one of the largest numbers of startup companies in the united states. that's a nice reputation to have. we don't want to know how many field. but we foster it because we believe only if you continue to push for startup in cooperation in the research institutions are going to have the opportunity to create the companies of tomorrow. so we struggle with it. we struggle with it not only start up how to make them for bush and growing and be successful. so, thank you. last question is from american governors. governor abercrombie, aloha from the great state of hawaii. >> not a question, just a quick comment as a follow-up to
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governor herbert's question. two words, these of weavers. i mean it. fees' the wafers are grateful to our guests for their courtesy and of the polite way in which the answer to that question but it's up to us these are visa waivers, everything opens up. trade, conversation, education, environmental investment it all comes with a visa waivers and it is up to us to make these reaction to the courtesy and the openness of our chinese friends and if we do that i think you will see everything else opens up, the visa waivers for. [applause] >> we have a second question from a u.s. governor? >> i will ask a question. i've done trade missions to china. i recently did one last fall in
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my state. i have some measure of what i consider to be success, whether we've been able to find an agreement like the 20 that you signed yesterday. agreements not just with a business that is in higher education institutions, but from your perspective, what would you like to see in a trade mission from an american governor to your province or your country? >> [speaking in native tongue] >> translator: just now, governor gregoire raised a very tactical question. we do want cooperation with the
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united states. we shall put more american delegations will come to china, in particular to the western part of china come to the western provinces coming and we also hope that you will bring more investment to our provinces >> last question from chinese colleagues. you have a question as i understand it? >> [speaking in native tongue] >> translator: the united states is one of the first countries to formulate a policy, and then it's launched a 1 million roel initiative. china is mostly interested in
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developing the tv sector, so i really want to know what measures you have taken to push for word the development of this sector. >> please, governor o'malley? >> a couple things we have done in maryland is number one, to have a renewable portfolio standard of 20% by 20 to come and that contains within it certain requirements that the utility companies increasingly larger portion of their energy from renewable sources and within that, we have a card out for solar. and that's probably the most important thing that we have done is to create that predictability if you will come and that car felt within the renewables portfolio standard that is starting to inspire
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larger foot of fuente installations. as far as the broader question of the advanced manufacturing and how we inspire that here in our country, that's an issue that we are all wrestling with right now. but on the demand side, we believe the renewables portfolio standard and the carved out for solar is a way that we can start to see that industry take off in our state. >> governor fortuno? >> if i may add to what governor o'malley had to say in the case of puerto rico for the production, we have extremely attractive tax incentives, and we are part of the united states market. so what ever you produce in puerto rico can be sold in the u.s. to read something we are doing, extreme tax incentives for the production of the other technologies. in terms of the actual
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installation in our case to jump-start it, we created the green energy fund and the green energy fund, what it does is we assist private sector investors that wish to develop wind and solar energy alternatives, we assist them and they have to complete the amount of money every year there's a competition. you do it online. this last one. next year there will be a new one. >> thank you. again, thank you to all of our participants. all of those who have come to join us today. it has been a wonderfully good exchange. it is a historic event. yesterday with a 20 agreements signed was a historical event. this has been productive and i
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want to thank all of our participants. i also would like if i could to spend a moment and say thank you to some folks who made this first ever historic forum possible. that includes the host governor, governor herbert from the great state of utah. thank you, governor herbert. [applause] reva joe louis from this department. thank you for all you've done. [applause] the chinese embassy and ambassador, thank you very much. [applause] madame li, mr. secateurs, governors from china, our fellow governors from the great united states, thank you all for all your participation and of course a big thank you to the nga staff, without whom this would not have been possible as usual. thank you very much for all you did. [applause]
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so let me just say we've got a lot of work to do. let's make with sunshine as the psychiatry put it, and those involved in the press conference, please go immediately to the grand ballroom because we are late. [inaudible conversations] [inaudible conversations]
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[inaudible conversations] who will be addressing this told federal aviation administration authorization bill which has caused a partial shutdown of the agency leaving thousands without jobs. earlier this year congressman walter that joined by jerry costello, a democrat from illinois, sponsored an amendment and would have made permanent national mediation board decision from 2010 making it easier to unionize the decision
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allowed unions to be formed only on the votes of the voting workers prior to last year's change nonvoting workers were counted as no votes, and the amendment was voted down by house republicans. so far the senate has yet to take up the faa authorization bill and this morning transportation secretary ray lahood said he is on the vote several times with harry reid and john mica, the chairman of the house transportation committee, but neither the senate democrat majority or house republican majority have suggested a willingness. that you can see here in the noon news conference coming up on c-span with steve latourette at 1:30 eastern. on c-span2 in just a couple of minutes it will get underway a conference on retirement, and you're going to hear from treasury department's official involved in helping to implement the 2010 health care law and promoting retirement savings. this is an event being hosted in washington by the boston college
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center for retirement research and should get underway shortly. taking you back live to the national press club, even with boston college on research expected to get underway shortly.
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[inaudible conversations] [inaudible conversations] [inaudible conversations]
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mark iwry is the assistant treasury for the health policy and he will be speaking here of the national press club in washington at an event hosted by the boston college center for retirement research. mr. iwry was involved and helping implement a 2010 health care law and pushing policies aimed at increasing retirement savings. it should get under way shortly. [inaudible conversations]
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[inaudible conversations] [inaudible conversations] if [inaudible
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[inaudible conversations] >> this is the national press club waiting to hear from treasury officials on retirement research. retirement savings and the 2010 health care law as well. this is the boston center, boston college center for retirement research, and it should get underway in just a bit. we are also covering today at this hour over on c-span a discussion on u.s. border security shooting from the commissioner of customs and border protection, and that is under way now. you can follow that on c-span. later this afternoon at 1:30 you are going to hear from congressman steve latourette of ohio who sits on the appropriations subcommittee on transportation. the issue is the faa authorization bill, which the house has passed, the senate has not to read and as a result, about 4,000 faa workers have been furloughed since the end of july because the house and senate haven't agreed on a
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short-term bill and there's been numerous calls for the house and senate to return from their august recess and finish work on that. we will share more about that at 1:30 with congressman latourette, and i will be live on c-span. [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations]
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[inaudible conversations] >> the boston college center for retirement research will cure from the treasury department official about retirement, but the 2010 health care law but is yet to get under way and when it does we will have it live on c-span2. in the meantime, the washington journal viewers from this morning's program on the debt ceiling bill and what is ahead for the new joint committee. >> awfully story this morning moe new in congress next budget by phase. robert reich republicans and democrats maneuver of vantage on wednesday the next battle over federal spending to influence the choice of members to find
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three months until november 23rd to forge an agreement you can hear all of today's program lives every day at 7 a.m. eastern and of course on our video library. we are going to leave this and take you live to the national press club for an event with the
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assistant secretary treasury secretary for health policy j. mark iwry speaking to the boston college center for retirement research. it's just getting under way of life here on c-span2. >> that is marked and an understated way mark has been a major force behind improvements and pension and health care policy for decades. chief among his accomplishments is the trend towards although 401k and although escalation default rate, which in my view is the biggest positive development since 401k is were created. he is also an architect of the savers credit, and she co-authored president was's proposal to expand coverage through the although ira. i really don't have time to list all of his impressive accomplishments, but i do want to stress that mark is sought out by decision makers of all
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political persuasions in both the public and private sector for his expertise, his insight and his skill and actually making things happen marcus truly an unsung hero in the retirement policy community for his ability both to develop and implement sensible policies for pressing problems. and if you haven't already guessed my feelings, mark is simply a terrific human being. we are very lucky to have him here today. please come join me in welcoming mark iwry. [applause] >> alisa, thank you for the gracious act of perjury on my behalf. [laughter] i'm delighted to be here. this is a fantastic collection of brains and talent. i would like to thank mike,
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deputy commissioner david ross, david weaver and everyone who put this conference together. the consortium is a wonderful effort, it's been productive, it's added great value to the thinking about policy in this area and the three retirement research centers do a remarkable and extraordinary job. i have a strong sense that dealing with a thoughtful group of my time right now probably would be to close my remarks and go around the room and solicit
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ideas, collect your best thoughts and suggestions, but i've been asked to talk a bit first so i will dutifully complied. it's a theme of the conference, innovations in retirement security is highly appropriate and timely. within the private pension system and the retirement savings system, which of course supplements the fundamental bedrock protection that the social security system provides to the american workforce. within the private pension system, our second pillar or the second tier of retirement security in this country the market is innovating in a variety of important ways. there is a great deal of credit
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for activity having to do with 401k plans as alicia mentioned, having to do it the benefit plans and hybrids breaking down the traditional barrier between the traditional kind of tension, the defined benefit that promises a particular dollar amount typically per month for life in the traditional format as opposed to the defined contribution plan that as we know it's a particular amount of input into the plan and the contribution that then grows with investment and experience to produce an output that's not necessarily determined at the outset. breaking the barrier between the two classic formats is something innovative the market has done in its own policy makers have
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not taken the initiative to do that the creativity in the market has done that, has gotten beyond the labels and focused on and the specific attributes of these programs and vehicles. what characteristics should they have in order to best help people get retirement security and provide for their retirement security. our private pension system right now is in the state one might characterize as the glass half full or half-empty. the half full part quite obvious and salient. 65 or more million american workers are covered by private pension and retirement programs.
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millions of middle-income and lower-income families have been receiving benefits for decades now for a defined benefit pensions for the 401k profit sharing and other plans and the ira have supplemented their retirement savings virginia on the taxpayers basis for folks that don't have an employer plan available to them, and we have accumulated the largest pool of investment capital perhaps in the world. the latest estimates for the first quarter 2011 by the federal reserve that there were a $11 trillion in the combination of defined benefit contribution and the ira
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programs with something like 2.3 trillion in the defined benefit pensions, something like 4 trillion now in the 401k and a defined contribution, and 4.7 trillion in the ira. as we know, the ira have been taking rollovers, large transfers on a tax-free basis from the other two types of plans so that much of the ira money is attributable to these employers sponsored plans that have had the benefits rolled over to the individual retirement account while other portions of the assets are attributable to the continuing contributions by millions of americans in particular people who don't have access to an employer plan.
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the employer sponsored system covers about half the workforce, perhaps a little more, and those are key features of the glass being half full. the glass is half-empty in the sense that the employer sponsored system covers about half of the work force, perhaps a little more. the rest are disproportionately minorities, lower income people, women who are not in the work force steadily for 40 years on end. the folks who are left out are in some cases contributing to these individual retirement accounts, but only something like one out of ten of the
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people who have no employer plan and are eligible to contribute on a taxpayer's basis to the ira would actually be be contributing in an average year. the rate at which people use the tax favored savings opportunities is not where it could be. the system is also driven by tax preferences which are designed as we know to encourage the private sector to supplement social security as it has done in such a formidable way. but those tax preferences are designed in a way that may not be ideal when it comes to how best to address the need of the majority of american workers.
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the system of tax preferences is a deduction base. by that, i mean as most of you know when you contribute a dollar to a 401k account for example or a similar kind of pension, or when an employer contributes a dollar on your behalf to a retirement program, it does not appear on the w-2. it doesn't get included in your taxable income until years later typically when the dollar has grown and accepts the plan as a withdraw when you are ready to take it as benefits. typically when it goes into the plan it disappears from your tax base. it doesn't appear on your w-2 which is a value in proportion to how high your tax bracket is. if you are in let's say the federal plus state 40% or so tax bracket, saving a dollar
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generates 40 cents of that savings because that dollar would have been taxed to the tune of 40 cents. so, to you, the after-tax cost, the cost of putting the dollar in the plan after taking into account the tax savings is the dollar - 40 cents you save or 60 cents. if, however, your tax bracket is 10%, you're getting a dime's worth of tax benefits for the dollar's worth of savings that you or your impleader did on your behalf. so the net after-tax cost to you and the 10% bracket of saving the the dollar as 90 cents rather than 60 cents. you have a dime's worth of tax benefits for saving the dollar. many in the economics profession have referred to this as an upside-down kind of incentives in the sense that the people who
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need the help the most to encourage them to save are given the least incentive, and as a result, the congress in 2001 passed a savers' credit, a tax credit designed to level the playing field on behalf of a majority of the american workforce. a majority of our work force are in the lower tax bracket. many are working hard paying their payroll taxes and not allowing any income tax, rather paying their payroll taxes which are a substantial amount, substantial percentage of their income for these people, the income tax savings when they contribute is zero beauvis may
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have fay fica tax break when the employer contributes. this situation can be remedied by expanding the tax credit, which congress enacted the savers of credit. this gives people an additional financial incentive for saving when their tax bracket is not the highest. if you save a dollar in a retirement program, you could get 50 cents back as a tax benefits. the current savers' credit unfortunately because of revenue constraints gives most people who qualify for it 10 cents on the dollar back or some 20 cents on the dollar. very few get 50 cents on the dollar but it could be expanded in order to give more people a more substantial financial
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reward for savings that blood and as i say level the playing field in those in the lowest tax bracket. it could also be made refundable , meaning folks who pay their payroll taxes but don't owe any income tax would actually get a deposit, a refund in the form of dollars contributed to their plan. 401k, the ira, whatever plan they contributed to voluntarily as an incentive to contribute. another shortcoming of the current system is that even of the people who do have an opportunity to save in the workplace through an employer plan, many don't. one of the key innovations in the private sector that has
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addressed that shortcoming to a considerable and increasing extent -- and this is something that alicia munnell has written on brilliantly -- is the automatic 401k. the notion here has been that one reason people don't participate as much in retirement savings opportunities that they have is that it takes initiative. it takes getting up off the couch, deciding where to contribute. if you have an employer plan it's clear where you contribute, but it may not be clear to you whether to contribute, how much to contribute, how to invest, and the choices can come else be a neuroeconomics have demonstrated, be daunting. they can keep people in a state
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of inertia where they don't get around to making the decisions and closing the deal and actually saving. we have had traditionally and the 401k space something like a 70%, 75% take up rate. somewhere between two-thirds to three-quarters of the folks eligible to save take advantage of it, and all the rest don't. the rest in fact typically leave money on the table as the expression goes because the employer often matches what the employee contributes perhaps at a rate of 50 cents to the dollar. so there is that impleader matching contribution that the nonparticipant is leaving on the table that they could get by putting in some of their own money. the employer plan is a powerful vehicle. it makes saving a pretty easy. but traditionally, not easy enough. the need to take the initiative to sign up for the 401k to
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make the decisions, how much to put in and how much to invest as the toured a lot of people. you may take the form home after you are hired and tell a chart you will get it back to them after this weekend when you are going to sit down with your spouse or partner or whoever and think about it and make the decisions and then you will bring it back next week. if you're like me, by the time the weekend is over you can't find the form. [laughter] you haven't had a chance to discuss this with your spouse or whoever else, perhaps an adviser. and pretty soon time starts to go by and inertia takes its toll back in the 90's one of my staff came to me when i was at the treasury back then and said there is an obscure legal question that we've been asked to consider. suppose the 401k plan put
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someone in the plan, and rolled them and didn't make them sign up but let them sign out if you will, opt out of the plan. would that be legal under the 401k for all? should we spend time taking that question on? my job involved hundreds of legal and policy issues, and my staff and i were swamped with things to do, and i remember saying that we've got all these major policy concerns trying to encourage savings, trying to promote a more secure system, promote retirement security in various ways and so many legal issues on our plate already i don't think we have time to deal with this. let's put it off. the light bulb did not go off until a little impleader, it was a couple of months and then all
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of a sudden it became clear putting somebody in a 401k plan but giving them the choice to step out of that might actually overcome the inertia that keeps one third or a quarter of the eligible folks out of the plan. it was framed as an - election. that was how the question arose instead of having people elect and participate in the plan and submit a form could we have a negative election where the form is only if they want out of the plan. we then realized that actually when it came time to encouraging saving and good policy to promoting retirement security this was not an abstruse legal question, but a very good idea that we ought to focus on immediately. and if it wasn't legal, making it legal and promote it. we proceeded to do that.
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the plans that had been thinking about this were trying this were given reassurance that it is consistent with all the rules etc., and in 1998 we issued a rule defining this practice and naming it, approving it, promoting it. negative election didn't seem like a great name. this is washington after all, and people wanted to understand that this is a positive and constructive idea consistent with individual choice but helping people find it easier to save, facilitating savings so that inertia perhaps the most powerful force in human affairs could be on the side of savings rather than the side of not
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saving. >> i must also confess i stuff and i gathered over lunch one day and spent a half an hour discussing the name what should we call it automatic enrollment. just because it is descriptive of what is it is automatic in the sense as an employer your in the plan automatically even if you do nothing but it's not automatic in the sense you have to stay in, it's the desalt, the presumptive thing that happens you can opt out. we called it that because we wanted to also plant the seed that may be all phases of savings could be automated in that sense made easier. if you have enrollment made automatic so people are in unless the opt out, what about investment? why not investment that way, too? give people the choice to let them decide what they want but
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make it an automatic option available to people can decide or want to procrastinate to decide later after they get more financially literate so automate all phases, enrollment, contributions, investment, and what about the notes from the plan? walz of the funds that are accumulated in the private pension system leak out of the system in the form of consumption that may not be for an emergency, may not be defeat the family while someone is unemployed, and may not be for a long-term investment in security like maybe purchase of a home or education for one's self or one skid. it may be as the expression sometimes goes to take a
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vacation or what have you. i don't think -- i'm not one that thinks the government ought to tell people what they ought to do and use savings for retirement or college tuition, but we are providing tax preferences. the tax payers r paying more to this particular public policy purpose. so we have some stakes in at least encouraging people in a certain direction. the purpose of the tax preference being of course supplementing social security by providing more retirement benefits and retirement security. so, automatic rollover of it is transferring the money when it comes out of the plan if you are not ready to retire in the 20s, 30's, 40's the 50's and are not ready to retire, transferring it to the new employer plan will
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lead to will have a new employe year if you leave the old employer or transferring it to your individual retirement account to continue to grow on a tax-deferred basis, that so-called portability tax-free rollover from an employer plan to the new employe your plan or an ira is something we perhaps make more automatic and indeed the system has moved in that direction. if the employee who leaves the job doesn't ask for their money, the money stays in the plan. if the employee has less than $5,000 in the plan it used to be that the employer could catch the person out in voluntarily just write them and checked and it appears in your mailbox and it tends to be suspect. once people get their hands on the money especially the smaller the amount, it's harder to visualize to make a difference
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to the ultimate security in old age it's more likely to be spent. certainly that is true in my family. so, what we did, congress and the executive branch was developed a way to automate these fields to some degree and employers are voluntarily cashing out small decisions, $5,000 or less that is the account balance in the plan that they would instead keep the money in the plan unless the individual asked for it. as the person wants it, a formative leases give it to become a great, they've got it, but if the person is silent as people often are they are distracted, they changed their address and what have you with the money either stays in the plan to continue to accumulate on the tax-deferred basis or gets rolled over to an ira and that person's name even if they didn't sign up for it. automatic rollover to an ira.
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either way, it stays in the tax-deferred retirement system. so the phases of savings in the 401k world had been automated increasingly pivot plans onto automatic enrollment to an appreciable extent large plans roughly half have now converted from the traditional way of telling people if you want to be in you've got to sign up to telling people you are in at a particular contribution rate like 3%, it might be six per cent of the pay. it certainly doesn't have to be a particularly low rate. it's whatever the plan sponsor describes and by the we come in the obama administration we've been at pains to emphasize that the rate does not have to be the 3% a lot of plans to use which is the rate we used in the 1998 ruling approving automatic enrollment and as a very initial
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toe in the water for this concept of automatic enrollment. so plans are increasingly also enrolling people, not so much the small the larger plans, and employees are participating no longer in the auto enrolled plans at eight 2/3 rate or 70% or 75% rate but much more typically 90, 95% of the eligible employees. to take uprate has been dramatically increased and who has benefited most from it? lower-income people, minorities, folks who were not signing up for the plan at their own initiative often enough and are now doing so. those who don't want to save are free to opt out and consistently is significant number of people whether it is 5% or 10% of those
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eligible a search that choice. these automatic 401k is represent a kind of first generation of making savings easier. there's a second generation that's coming on a lot of creativity in the market is spurring. taking the contributions it might be 3% of pay for people who are newly hired and hiking nicheify 46% of pay the real people newly hired will be a plan of 546% of their pay unless they choose otherwise they can choose to go down to zero or one per cent or up to 15%, whatever the maximum is that is permitted in their plan. but when you use fifer 6% of the default, the anecdotal evidence suggests you don't get a lot more people opting out. maybe a few but small lot more.
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second, the contribution can ratchet up over time automatically the employer can say we started at 31 of 5% cut in the second year of the firm they've gone up to 6% and the third year, 7%. you can get off the escalator any time you like, but a is a default if you do nothing you are -- your seeking level will go up in pursuit of greater and advocacy of the retirement savings. that stepup technique has been spreading steadily in the 401k universe. the investments likewise have been automated so there's a default investment and the labor department has issued a guidance some years ago, the qualified stifel enzus mick alternatives that has been used to a private sector and this success story in
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the 401k world is one that has helped i think millions of people get into savings to were not sitting before. but what about the other portion of the population that doesn't have access to a 401k? you can and will someone automatically in something they don't have. the idea has taken hold in my colleagues david john, senior fellow at the heritage foundation who with bill gayle senior fellow with the brookings institution and formerly peter orszag when he was at brookings and is a part of the retirement security project nonprofit venture some years ago, worked on these approaches, and david, john and i put forward a way to
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automate enrollment for people who don't have an employer plan. we have a voluntary pension system employers on offer required to sponsor plan and many employers feel they are not ready to. if a however have an asset that their employers could use to make savings easier which is their payroll system. one of the great strengths of our private pension system is that it is employer based using the payroll system to make savings easier. rather than having to announce a certain amount of liquidity, a few of thousand dollars worth of cash to contribute to an ira for example, although you can contribute to smaller amounts subject to the ira trustees rules but rather than having to think about where a line going to get a lot of money in order to make a meaningful contribution, the employee with
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payroll deduction can benefit from the slow gradual allocation of a few percentage points of their pay, every paper go into the tax-deferred savings. drip, drip, over time it is pretty painless, but it adds up. and that paleface mechanism which is part of the 401k can be replicated for the millions of folks who don't have access to the defined pension or anything else by way of savings plan that work. we can extend automatic indolent to them by asking their employers to let the individual salary reduced that is elected to have part of their salary go into their own individual centex favored savings account and individual retirement account. rett of the employer having to sponsor a plan without the employer have to contribute
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profits on funds matching or otherwise and pay for the labor law rules and tax code plan a qualification rules apply to the 401k or other plans, and as a matter of policy, i know the administration and i think most people here want employers to want to sponsor the plans. we encourage employers to sponsor defined benefit pensions, defined contribution plans, with its performance plan they are willing to adopt for their employees. but those who are not ready to do that could at least let their employers use it as a conduit as a delivery mechanism to get the money from the employee's own paychecks if the employee wants to. if the employee wants to to be tax-free for account like an ira in which the employee could save.
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that we called the automatic ira. it's like automatic enrollment in a 401k and we propose to heritage foundation has been supportive of this. been supportive of this. miniet organizations, aarp has been tremendously supportive, members of congress on both sides of the aisle, the concept which the retirement security project launched some years ago was then adopted by the candidates and senator obama and senator mccain. both of them indicated support for the command center obama put it in his platform, his retirement program as a central component and as president has continued to propose this in his budget proposal.
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.. >> our hope is that something along these lines automatic ira proposal, which members of congress, congressman neal and
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others in the house, senator bingaman, senator kerry and other senators have proposed and which has attracted support from a variety of quarters over time. our hope is that this will help address the people who are not in the system. now and make it easy for them to save. there are many other potential innovations and constructive ideas that would be desirable to pursue, and that i'd love to discuss with all of you, but we undertook to save some time for q&a and exchange. so alicia, if you'd like to begin that. >> i would love to. so, if you have questions, write it down on a piece of paper. there are people all over who will collect. and he gave me some.
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one is i think your bid was attacked by "the wall street journal." there was a recent article that indicated the pda may have had unintended effects on 401(k) savings. this is your chance. >> for those who are not familiar with the acronym, the initials, pension protection act of 2006, was one of the things that after initial ruling from treasury and irs promoted automatic enrollment. alicia is referring to a point of view that very validly points out that if you automatically enroll people in a plan, some of them might go along with inertia even if instead of not participating otherwise they would have participate otherwise at a higher level than the default contribution. maybe i would have contributed 6% but the plans default is 5%, so i do nothing and i'm in a 5%
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rather than 6%. that is a phenomenon that some people called anchoring, anchors people at a lower level. and bridget at harvard has very helpfully pointed out that that also can happen when you automatically enroll people. but as bridget would enthusiastically agreed, you can address this very readily by escalating the contribution level from year to year. you can, as dick and others have suggested, every time someone gets a raise, you can give them an increase in the contribution automatically, unless they want to do otherwise. so that they don't see their take-home pay going down. or as many companies do, even without regard to the timing of a raise, you can increase the contribution level automatically every year unless the employee ops otherwise.
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apart from that, it is so significant to have people who are not contributing at all, enter the plan for the first time and become savers. by reason of automatic enrollment. that that tens to swamp the effected people who might otherwise have contributed a little more, but to buy a new ship might be drawn down to the default level of contribution. to take a zero contributor and bring them up to 5%, i would argue is more of a social benefit for all of us than to take a 10% contributor and have them contribute at 5% because they go along with inertia. you've created a new saver. you've encouraged someone to come into the system. then if you increase that 5% gradually over time, you will take care of the problem entirely. >> people write really fast.
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so, there are a couple that are related. one is that you've talked a lot about the accumulation phase of the 401(k) plan. should there be emphasis on people getting some sort of lifetime income out of a 401(k) plan? and then, you may disport yourself, that all the money is moving from 401(k)s to iras there's even as we get something from 401(k)s, that's not where the money is these days. >> the contributions are being generated far more an employee base plans like 401(k)s than they are in iras, even though there are lots of contributions to iras, fortunately as well. so focusing our policy on how to get people into 401(k)s and had to contribute more as you've said very often, is well worth it. the problem you are alluding to, at least i think another one of the shortcomings of our system, that over time as we have
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shifted famously from defined benefit plans to, i would say defined contribution plans, to 401(k)s, in particular, that is not so much defined benefit to defined contribution as an employer funded, employer and issued, employer directed, employer investments directed. to do-it-yourself plans that people direct on their own. that shift has been associate with decline in lifetime income, a decline in income payments as opposed to single cash payments. more people are taking money out of their plans in a cash payment and investing it on their own, then my traditionally have been the case, when plans were more prevalent, that paid out lifetime income. and an uzi, a monthly check that
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you got for your entire life and the life of your surviving spouse typically, they guarantee that you would not run out of assets. during retirement, at least to the extent of that monthly check. in addition to social security. so these traditional pension plans that paid annuities were innocent similar to mimicking some aspects of social security in a lifetime income, most of them don't have cola but in earlier times some of them did. out lifetime income has been declining, even the defined benefit pensions are paying more lump sums and less lifetime income. notwithstanding that the default in a defined benefit pension, the automatic form, is a lifetime annuity. people a lift against the default sometimes. our behavioral strategies need to be more sophisticated than simply relying on a default.
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and, therefore, what the market has been doing by way of innovation, and whether treasury and labor departments have been doing has been focusing on how we can encourage more restoration of lifetime income to our system. for people who want it, more substantial options. options that are easier for employers to choose to put in their plans, easier for individuals to take seriously as an alternative that they might want to use for their retirement security. and that lifetime income protection, for retirement income whether it's guaranteed for life or whether it's a long stream of payments for decades, that may or may not be technically and annuity that is guaranteed for life, that is something that is coming back to our system, slowly. and we are labor and treasury
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encouraging a national conversation about this. we've got many comments at our request, including from many of you here. and we are about to come out with, to start to come out with some administrative guidance that would be designed to encourage people to consider options for lifetime income. in various formats, whether commercial annuities, defined benefit plan annuities, individual retirement accounts, ways to help people manage their assets in retirement. accumulated assets in the first place is critical, and we are far from having reached our goals there. but happily, many middle-income people are reaching retirement now with some more accumulation of assets in addition to whatever guaranteed income they have from social security and from any defined benefit
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pension. and those people need help center in deciding how do i make this money last, and how do i ensure that i won't run out, in old age. and that's the issue that is being addressed, and we very much invite all of you to counsel with us on how best to promote that. we used to have something we called a private pension system. we still call it a private pension system, but the term pension traditionally has been noted lifetime income, a stream of payments that is guaranteed for life, the way social security is, the way many defined benefit plans still provide income. and returning to that as a viable option, not mrs. or as something that someone dashed and what you do, not necessarily people should do with all of their retirement savings. unique flexible assets. many people feel for
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emergencies, what have you, expenses, long-term care, medical shocks. but to at least put this option more solidly back on the table. >> you're going to have to have a truck or a wheelbarrow of something when you leave here because there are so many questions. one person asked, do you have any thoughts about limiting the number of investment options in a 401(k)? your whole deal is to make these easy and automatic. a lot of investment options are confusing. is there any thought about limiting the number? >> you're right, alicea come in a sense our whole deal has been made to make savings each year, and much more to make it automatic. a part of that whole deal has also been to recognize the voluntary nature of our private pension system. and recognize that the market and the private sector is in the driver's seat, that that's appropriate. so what we're trying to do is
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encourage, make it easier rather than require. 401(k) plans i think are finding that they can make the choices easier. in some cases not by reducing the number of options, but as you know and as you have written very eloquently on this, by having one be the culprit if you have one automatic investment option, then it's easy for people who would otherwise be paralyzed by the range of choices, to go along with that. and then think over time about whether to diversify into other choices. >> said this when i have no idea what the answer is. could an investment company such as vanguard or a single state implement an auto ira if congress doesn't enact such legislation? >> well, that's a creative thought. >> these are creative people spent and that's why we are here.
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there is i think room for all sorts of innovation along those lines. employers now can voluntarily adopt a payroll deduction ira. that is, if they are not ready to have a plan, and we helped by the way the automatic iras, if enacted, would act to encourage more employers to adopt 401(k)s, to adopt plans when they see how effective payroll-based savings is and how their employees appreciate it. but employers that don't have a plan can have a payroll deposit just the way they send direct deposit of paychecks to peoples financial accounts, instead of writing a paper paycheck out and hand it to folks on friday afternoons. that direct deposit of paychecks is a kind of model we're taking perhaps 5% of the paycheck at the employee's behest and sending it to wherever the employee wants to send it, like an ira.
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[inaudible] >> well, you could do, you can automatically enroll employees in the automatic ira would automatically enroll employees in these iras. and let employees opt out. you could do something like that in another context, but employers right now haven't taken up the payroll deposit ira. either they've adopted a 401(k) or a so-called simple ira plan, for small businesses, or typically they haven't had a plan. obviously, employers have adopted more elaborate plans like to find business, but small businesses you're focused on, typically they're not doing this voluntarily. the payroll deposit ira. that's why the automatic ira proposal would call for employers who are large enough but aren't willing to sponsor a plan to at least make their payroll system available to their employees with a tax credit for the employer that
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would defray whatever small administrative costs might be entailed spent one last one, and then we let you go because you're only a day from vacation, right? so, given the emphasis on automatic features, is there still able for financial education? >> that is something i'm very glad has been raised. financial education, i would argue, is crucial. and even more so with automatic features. the fact that financial education by itself is not sufficient to generate a breakthrough in savings in the united states. does not mean that it isn't necessary, or tremendously important. i think that it is. if you're going to automatically enroll people in saving at a certain level with a certain investment, you want them to assert their choice.
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the best thing is for the individual to decide exactly what they want. the auto features are just to help people get off the couch and start saving, to help people get into the system. once they're in the system if you haven't already a third of their choice, they ought to have the opportunity to learn enough about these choices in order to make the choice that is best for them. and i think that is, it is critical that we promote the financial capability and financial literacy efforts. i know that you, anna marie, olivia mitchell, others here have been leaders in, the social security administration has been a leader in that, the treasury and the obama administration are strongly supportive of it. and have also been trying to advance that it and let me add, to connect these themes in closing, alicia, lifetime income, the idea that people need help, advice, other types
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of assistance in figuring out how to make their savings last and how to make sure they neither run out during retirement nor they're not living up to the standard of living they could have had because they are overly fearful of running outcome helping people with those issues is so education intensive project. is not only giving them easier mechanisms and methods like lifetime income arrangements, but it's also helping them understand how it all works out how an account balance translate into a stream of income, and frame the issues that people will become used to thinking in terms of a retirement or pension paycheck that they need to provide for themselves, rather than just a sum of money whose duration is uncertain.
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so, this has been great. i very much hope that we can continue as we have been doing a dialogue with all of you here. we very much welcome, i say we, the administration, treasury department included, welcome your continued suggestions, ideas, input, and collaboration on what needs to be a thoroughly bipartisan, nonideological effort to promote retirement security for all of americans. >> mark, thank you so much. [applause] >> john, you should probably come up and take over.
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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> some good news from retirees, for retirees this section from the administration. the associate press reports the average monthly premium for medicare's doctor prescription program will not go up next year. seniors may see a dip in the cost according to "the associated press." here's how our live coverage looks over the next couple of hours. it on c-span2 and also on c-span, coming up at 1:30 p.m. on c-span, ohio republican who is on the transportation subcommittee and appropriation will talk about the stalled faa
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authorization bill that passed the house but hasn't passed the senate. will talk about issues including the air service subsidies and changes the aviation unit election will. that's coming up at 1:30 p.m. on c-span. on c-span2 at 2:30 p.m. will bring are sent home and secure a subcommittee hearing looking at the costs and management concerns of property leasing by federal agencies. that would be live at 2:30 p.m. >> and the associated minister of u.n. development program participate in a forum hosted by the society for international development. this is an hour and 15 minutes. >> i think we're going to have a
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very lively opening plenary. voices from the leadership and development. and, of course, we do have very distinguished panel before you. but first let me introduce myself. my name is juma mwapachu. i am the immediate former secretary-general of east african community, but i also served my country in tanzania as ambassador. i suggest you read the rest of my bio. the conference booklet in which you have. but let me introduce you to the panel before i say one or two words. we do have before you, first of all rebeca grynspan. rebeca is native of costa rica.
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she has been vice president of our country. she now works with the united nations in the undp where she is the deputy administrator. rebeca took a degree in economics from costa rica, but she also received a masters of science in economics. she is an alma mater of the university of suffix in the united kingdom. my friend, donald kaberuka, is in a way for which i'm very proud, but by nationality. he grew up in tanzania because
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of the accidents of history in africa. his parents were in exile. so went through most of his education in tanzania. but after that ugly genocide, he was able to go back to his native country. where he served in the central bank as deputy governor. he later became the minister of finance and overseeing very remarkable transformation of that country. to the stage where today in africa we pride ourselves of rwanda being one of the most robust economic borders in africa. and, of course, donald was very
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much the architect of economic transformation. he is now, or since 2005 the president of the african development bank. he started at the university, my alma mater. took his degree in economics from there. and later went to glasgow in scotland where he obtained his doctorate in economics. so you can understand that we do have a formidable panel before you. i think will have a very lively conversation. so, let me begin by asking both of them a very general question. over the last 40 years, rebeca and donald, we have seen within the global society a number of
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looking at north-south relations, looking at how we can build a more just and more humane global society. what richard and his colleagues in the '70s and '80s described development, described as a developer of the human faith. so we went to the commission, we went through other commissions in terms of the environment, climate justice. we went to the south commission which was chaired by the founding father of tanzania, and, of course, we can also speak a lot about our dear friend, a very strong member who started the human development. around all these commissions and
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all these reports, it's really been the ethos about how to bridge a gap between the rich and poor and how to alleviate and make international cooperation realize the objectives of realizing social justice in the world today. but 20 years down the line, dr. grynspan, do we, what is the balance sheet? what do you think is the balance sheet? have these commissions, this whole idea delivered, or do you think this is work in progress? >> well, i really think that a lot has been achieved. what we are seeing right now, we see the emerging south, the south, the emerging african continent that we were talking about, the improvement and progress made on the development
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goals. even in the herald africa that sub-saharan african we are seeing despite many of the challenges some progress. so i think that a lot of progress has been done and has been achieved. but i would say that the main thing that is happening right now, because i think that we are shifting in what we are seeing in the world. you mentioned that has happened, is that many of the ideas that we are completing in terms of development, because there has always been competing ideas in terms of development. that's only one part of that. but what is happening now that is different from the past is that those competing ideas have more power to be put on the table as options. and getting away from one size fits all type of policies.
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and the reason for that, in my opinion, is because you are seeing the emergence of new path to development that are successful, that are coming from the south. so, part of what is happening now is that there are more options in the table for the developing world that are being a power, powerfully put forward. because of the success of many of the countries of the south. so the main options that are open, are opening up to the developing world are much more than they were in the past, where they were pretty much a very strong one paradigm type of you. so in terms of those of us who have been in the developed you for a long time, this is very good news because it's precisely the discussion and the diversity
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of the policy options in front of countries that rely really, the richness of the possibilities for the future. ..
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>> in much more slowly than the role. but if you are in latin america, then financial crisis, asia, the asian market, africa. today is a different world. now, if the combination of that. however, the idea to fight. if you look at what's happening in the horn of africa, you could
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say of what went wrong. because it cannot be when the world is making so much progress, we could see in the 21st century century. and the goal you could blame mother nature for the drought but you cannot blame mother nature for the famine. it's a man made policy flourish. and children are dying for lack of food. i think it's an indictment all of us. go to the arab world and what they're doing in the arab world at this moment. where i live, it was 7,000 in growt
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growth. >> i think two things from the experience. is interesting. one of them is it some way can deliver development and democracy is gone for another. forget it. and i think the use of tunisia will decide in 2011 how there. and we have come a long way. in terms of growth, in terms of the economy but we have a challenge and that it's exclusive and that it reaches
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everyone but also that it expands freedoms for people. people with impressive numbers. and for me this is where i think it is the biggest item. >> thank you very much indeed. if we -- if we have this whole debate about the competing ideas on sound development and they have a book and dr. grynspan brought a copy on the table there. new ideas of the development after the financial crisis. do you really think that the management and leadership of global affairs have undergone such a radical transformation as to bring out this competing ideas? i know inspector general the international community whenever i traveled to europe over the
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last two years, attaining various discourses of this nature. the reason this feeling in europe and i think in the united states as well that there's a new model of development that has emerged that the chinese, for example, in terms of their of their participation in the development of africa have taken a different model from the rest of the world. and you hear rather negative settlements about this model of supporting african development. would you say this would constitute of competition in
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terms of what will work best for poor countries? yeah, it's an interesting question. i really think that the whole aids think is changing dramatically. first of all, when our institutions were build on the north/south paradigm to channel them in the south at the same time you channel money, you channel the solutions from the north to the south. and i think what we are living today -- we don't have anymore, this varies from the traditions from these countries. you have countries that are donors and recipients at the same time. that have developing challenges at the same time that have important of flows of investment
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going to the other developmenting -- developing part of the world. china is an example. it is not only china. it's brazil and it's india and it's turkey. and you say well, korea has now joined that community. we are in that cooperation space that now have a much more access in terms of shaping the way in which this partnership is happening. and i think this is a very good thing. in my experience now, when we go to the countries, many of them what they ask us to do more and more is to bring the solution of the south to the realities of the south. you know, of the problems of the south. working more and more, being new
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fashion in which cooperation will happen in the world. but the second -- the second part in terms of one model is that i'm a true believer that you have to go to the countries and work what's best for them. that the issue of ownership in countries being in the driver's seat of development is not -- it's not only a restore cal, you know, a good political thing to say, but it's really key for development to be successful. if we don't do that, if we don't strengthen that part of the equation so we want to get the resources that we are looking for, so when people talk about one model -- a new emerging model in corporations, i really don't think.
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i said so in the beginning what we have to strengthen is all the models that will work and those are the countries to see and allow them to drive the transformation that they need. and all success stories that we are seeing in the world are stories of countries taking their development challenges. there are stories will leadership, about national building, about social cohesion. those are the stories of success that we are seeing. so these ideas that it's only one model the one that is emerging sometimes i think that's an excuse to get around some of the things and norms that we need to establish as principles in the development cooperation to lower the bar in some of the things that we don't want to do. >> thank you, rebeck, we are
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very lucky this morning that we do have the audience with the prime minister and the president from kenya whom i hope will be able to share with us this particular experience in terms of the chinese model of development and house how they are working with african government. from your perspective, do you really think that there is a competing model of development in particularly in the context of the chinese as well as brazilian engagement in african? at the developmental, in particularly in infrastructure development.
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first of all, when it was done in the context, we all know bad policies when we see them. if you see high inflation in the country, if you see growth which is not inclusive, you know these are bad policies, whatever what i think is important we don't know our policies. that's most important. they have come from different path paths. >> they are different models. do you want the turkish model
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the american model, no. here we have a continent of 1 billion people. with natural resources and who like to unload the potential for the rest of the world and for the good of the country. how we do this. we could begin with daycare policies. then there's a set of sequencing and timing we have to do which must be different from country to country. china's model is from a different part. and so for me, when i mention
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infrastructure at this point in time, it's in the 90s of the so-called africanism when they said it was the lost decade the transition from one part of the states to another part of the united states. in those days, if you get international aid you must invest in the social sector. so from the continent what you note in interconnectivity in energy. and with the markets there's connectivity and infrastructure it's the highest in the world. 40% part of the world. let's make a deal. this is not the africans adopting a chinese model, far from it. this is where we have a problem, connectivity and for our oil. i don't think africans sitting in this room who are prepared for anyone but it's a problem to be solved and at the moment that happens to be mainly infrastructure and the whole issue of integrating our
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economies. and this is for the six boundaries for the six ministers for the six governors and for us infrastructure is important to the business. now, whether we're helped by the talks the malaise, the indians. >> thank you. let me now turn to this broader panel her, you on the floor. would anybody wish to intervene at this stage with a question or a view on what we so far discussed? can i welcome some involvement from the floor? president, would you like to say
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something? do we have mics? yeah. please. >> you put me up in the front. i thought of the questions broadly. i don't like the idea of tying development down to the economy. i believe all the efforts to be made to improve the quality of life for the individual citizen. and while economic development
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may be optimistic, i tell you if the economic development is not based on good governance, governance on an individual has to say who should govern and who should step down if it's not delivering with governance. then i say it's not developed. china doesn't come in with the communist ideology. it comes in like a contractor. you want to do infrastructure, i'm ready to do it. i want some of it. this is what is happening with china. i don't know you would call that development model imported from china. >> uh-huh. >> so i believe we are talking about development in the future.
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and through the development and then allow the people seeking development. this is on the planet for the development and i think it's a sustainable future; otherwise, it will be lopsided and the world development matter will remain a football. geopoliticalic will determine. >> thank you, president. [applause] >> mr. chairman, yes, steve. i'm from tanzania. there's a certain nervousness about chinese or asian engagement with africa. and i'd like to get your
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perspective as to why you think that -- that nervousness i'm detecting from washington and london and paris why do you think that might be the case the west is nervous about african engagement with the east? >> nervousness about chinese engagement in africa. i hope that the panelists will be able to respond to do this. you want to share with us from your perspective from the indian perspectiv perspective? >> there is a question? yes, please.
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>> there may be different models but it's useful to have goals and the millennium development goals have indeed spurred a number of actions. the development community really now wonders how you see the
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>> thank you. i don't know if you're picking on the politicians. [laughter] >> but i'll give it a shot. now, i think one of the issues that we need to perhaps look at is that is china's renewed engagement with africa or the south for that matter useful. i think it is. because it is now bringing a new reawakening from the west because for quite a while, the west have been disengaging from
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investment. but speaking from a kenyan perspective, i started seeing a reentry of very many big investors who want to look at kenya a-fresh. and i don't think there's a polity here. a few weeks ago, we had the opportunity to host the chairman chancellor in nairobi. and a gentleman in the audience did ask but with this new relationship that is beginning to emerge where china is coming in so forcefully, do you think it's going to harm your respondent was very interesting. he said, i think we should move away from the fear of trying to
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choose friends for africa. let africa have an opportunity to decide who can be their friends, others who will be providing to what needs to be there in the past. but the issue is, can this friendship be meaningful or not? so i think this friendship and this latitude must be led to function. thank you. >> thank you, prime minister. [applause] >> let me return now to rebeca and donald. i think three fundamental issues
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have arisen. one is about the governance issue that really -- governance is what defines development. good governance in particular. and that, you know, in terms of the economic or the development model maybe sometimes we do not look so much at the development -- i mean, at the governance perspective. and, of course, one of the major criticisms about chinese investments or chinese engagement in africa is precisely that there is a sensitivity about do they really care about the state of governance in a particular country where they're involved? and across the very large -- a very large question which i think you might want to respond. but aiden from tanzania has also
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raised this whole issue of nervousness. why should there be a nervousness about chinese aid and bob has raised a very fundamental question which i was going to raise also which also revolves around the economic model for development and, of course, npgs were seen in that particular context unless you are able to address this particular development challenges, you might be able to have the kind of economic growth that you need to sustain the economy of a country. so can i -- can you respond to some of these perspectives that have come from the floor? >> sure. i don't believe the nervousness about china.
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i don't know. china is the biggest user and in africa the whole world is doing business with china. and that's isn't a sign of nervousness but a relationship to manage. in 1980, you and i lived there, 80% of china's people were ruling people. today, it's economic power. and people look and wonder how it is. india in the 1980s were the biggest recipient of foreign aid. vietnam it's a build economy. what has happened and what can we learn from those experiences? so that's the first thing. number 2, i would like to link
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your two questions of npgs and governors. i think when adopted they were really the best in terms of advocacy. what human kind can do what's the best. but i think it was a critical mistake we made which we must now accept. i think we predicated too much on foreign aid. and it's a whole set of thing. now we know about 2015. now we know that the best way to make progress is by economic growth. and that requires what? investment. and investment is coming to africa. and they're coming in large
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numbers. in large numbers. they're not going to take time to do infrastructure. they know that. in fact, some of us want to work on us on the issue of energy and they see opportunities. but they're looking for stability. they're looking for rule of law. they're looking for institutions that work for everybody. and what's what's the governance about africans and non-africans to invest. to put their capital on the table and so from me, a link the whole of governance, sound institutions, investments and, of course, the possibility of getting to the millennium. it is not an objective itself or that you expand human freedoms and horizons. but i think sound institutions,
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sound governance is a need to increases to get the confidence for investors, for africans. >> i think that there is and bring back a discussion of the development the economic perspective. in a way, you know, the npgs that were so important. i think it was the best we could do in 2000. that's why so much has been achieved and many of them all countries and a lot of progress has been made but one of the things we're lacking was the economic perspective. we have the discussions from economics. and i think we need to get back that on track. it has happened the same with the human development paradigm
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that at the beginning it was an important discussion about the economic option that made human development possible and sustainable. and we are much more what i will call like the premarket conditions. and we are marginalize the discussion of what happens in the markets for economic growth to be inclusive and sustainable. so i think that's very important. but a word of caution. that i'm seeing again to talk about growth with no objectives, you know? growth again being disillusioned to all social problems and all governance problems. and we know that that's not the case. we know that we can have growth with exclusions. we know we can have growth with economic and political
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exclusion. we know that. so i think it's very important when we talk about the agenda for the post-2016 period that we will take inclusive growth in a meaningful way. not all growth will bring about sustainability of the agenda that we invested so much on, on the npgs. that's my first one. let's be careful because i see a restructuring of the discourse again trying to put only growth at the center of the agenda with no other considerations and growth will be again whatever growth will be for the pro-npgs that you need to make and intervene and make the right policy choices for growth to be inclusive and bring the vulnerable groups to the table.
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that's my first point. it has a relation with two things that the international assessment that we made about npgs. and i want to bring to the table. one of them is that in many of the countries for growth to be inclusive the rural development and agricultural agenda has to be brought back, very forcefully in terms of policy. the agriculture sector in the small holders part of it has been left out of the investment and the care of the -- of the police and a lot in terms of also of investment in the international community. so to bring back the issue of rural development, of agriculture, i think, that is key. and so when we talk about investment that i totally agree on -- when we talk about investment, i think that is very important to talk about the
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investment that also will be exclusive because we can make big roads and high bridges and it may happen that again we don't bring the water and the roads that will make rural development possible and will bring those vulnerable groups into the mainstream of development. so my second point is, yes, growth, and investment and everything for growth to be inclusive let me make this point only time is only like at the end economic empowerment of women is key. economic empowerment of women is key. and that doesn't happen alone. it needs a set of policies and rules and laws that will unleash the potential of women to be a very important partner of development. and my last point is the energy
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agenda. we have more than 1.4 billion people who are energy poor and to think of the post-2015 agenda, the linkage between poverty, energy and environment has to be a very important one. you know, if we don't get access, energy access, to the poor in the world, that are lacking the minimum -- that is required to make it happen, you know, productivity suffers, et cetera. but we can do that. in a sustainable way or an unsustainable way. and solve the energy questions in terms of maintenance, energy, accessible but also the solutions being sustainable in terms of climate change and the environment will be a
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centerpiece, i think, of the discussions for the post-2016 era. >> thank you, thank you, rebecka. [applause] >> i was going to come back to you, rebecka, later to share the latin american experience. i hope we'll have a bit of time to do that because i think some of the fundamental points when you have a raised about growth without inclusion and marginalization and qualities that i imagine the encroachment into the ecological balance in latin america seems to reflect poorly on the kind of transformations and the miracle that is happening in latin america but we'll come back to that point.
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but donald, now you have been one of the leading painters of a very rosy picture about an african resurgence and i know mckinsey has brought up a number of writings during the past year showing -- or reflecting on the roaring african lion and, of course, you participated in some of that literature but i know that you're a leading advocate of the view that this is to quote president obama -- that this is africa's moment. that africa is ready to scale up development. and you see some very key alliances that support the
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africa and can you share some perspectives why you have this very optimistic picture about a new resurgent africa? >> thank you very much. i'm glad for being here. forgive what i'm going to say in 1960 people like to say to compare ghana with korea. you've heard this before. in 1981 i visit ghana and i found complete economic breakdown. because of the economic power and they began on a long hole of economic advance and then to begin political funds. and now ghana has yet to develop gdp to be a country that should have been a long time ago.
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until the following conditions. that is the ability to rule in that country. the institutions continue to be stable. development of the infrastructure that they are trying to do. but above all ghana develops its new oil wells. for me these are the critical issues around an agenda which can enforce what you found in mckinsey. mckinsey did not say anything that was not said before. that basically from around 2000, africa is getting new momentum which my in my judgment cannot be solved. because it's underlined by the democratic changes, and some of the other things. a young population. it's with the middle class with a large discretion of incomes. now, those are facts on the ground but the risks which i mentioned are real. that's in the political realm managing of natural resources
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and of infrastructure. but until my friends here things are happening in africa which may be -- for those who don't deal with africa on a day-to-day basis you wouldn't see. but i'm here from the bank and all of them coming, look, we can't define africa's risk. and i'm talking about billions of money every year. and so i'm encouraged and by the way, today if you're looking at a -- at some other european countries on the periphery, africa in the past has been so i think we're on the right path. we have been talking to those. inclusive growth is one of them. managing natural resources.
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but i'm confident about where we're going. >> thank you. can i bring the rest of the participants here to share their insights? anybody with a burning question? yes, please. >> i have two questions or actually three. on different topics. one is for mr. kaberuka on the chinese on africa. and you also mentioned the famine in the horn of africa. and i understand it's good for african countries to have more of an option in who they view is
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their foreign friend. but same time you see see large piece of land is being leased for chinese to grow their own products or to grow plants for a biofuel. and you say the famine in the horn of africa was human made. hasn't that got to do with the way we are promoting economic growth and also the way africa deals with china in making large projects that support economic growth there's investors doing work for africa but not necessarily good for the small scale farmers or who are pushed aside. i don't think it's a nervousness from the western donors. i think it's more -- also, a concern for ordinary people.
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and my second question to you would be, to what extent do african countries take into account demographic changes and the fact that there are so many young people in africa do you think that is an opportunity or a risk for development of africa? and my third question would be to mr. grynspan. she said the npgs are out and that's true and they came in because there was response to the structural process. and if i read the literature, then i still fear that levels of poverty, reduction strategy papers of the world bank are stel emphasizing structural adjustments and not always emphasizing npgs so there's literature for the social sectors and see if we can
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separate that from the economic growth. the private sector doesn't need healthy people that are educated to work for them. so -- >> thank you. i think that's enough. [laughter] >> yes. >> i have a fourth question but it fits in well to the youth. to me the lesson of tunisia is not just the inclusive parts and all that. it's youth unemployment and frustrated resentments at growing inequality. and i'd love to hear from both our panelists. do they think that is a problem? is it one which now needs to be tackled? what can be done? and if it's not done, are the growing number of billionaires and big money interests going to prevent the democracy to tackle those issues. thank you. >> yes.
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>> thank you very much. my name is mohammed hasan. i am cochair of the intra-academy finals and the academy of science worldwide. i was also former executive director for the developing world and i just want to bring in the voice of the scientific ecological community and development which has been so far quite absent from the discussion. and we all know and understand without proper resentment in science, technology and education there would be no sustainable growth and i think this is one of the key problems facing the poor countries especially africa. proper investment in education especially quality education in
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science and technology. and i was by the way, for instance, kaberuka in lisbon in the annual meeting of the african development group and i was very delighted for the first time the african republican group is having a strategy dealing with high education, science and technology investment in africa. and my question is, can you highlight some of the key issues in the strategy and how the african development bank is helping. thank you. >> thank you very much indeed. that is a very interesting question, yes, please. >> you're very strategic. >> yes, thank you very much. my name is christopher from canada and i'm with the state governing council and my question directed to mr. kaberuka. and it's the -- in the context of the role of leadership in development in africa. clearly, throughout africa's history and even into the present day we've seen shining
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examples of good leadership and the impact that that has had. a number of examples, there's several people that i had the privilege of visiting rwanda last summer and i was impressed with what i saw genuine progress in light of the tragic past. so what i would like to know from your perspective is, in all that we've discussed so far, the extent to which leadership is important and what is your prognosis for the future and the role that leadership will continue to play in development? thank you. >> yes. maybe we'll start with dr. grynspan because when we talk a role of leadership, brazil, for example, has seen that kind of remarkable leadership with lula over the
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last few years. but really, dr. grynspan if you could give us very quickly perspective on the economic transformation that has taken place in latin america. and yet, you know, you do have these clashes, erosions into the success in terms of the emerging inequalities in terms of the environmental concerns that go with this kind of development. and, of course, then you can also respond to the questions of education because talking to my friend, professor juma who was a kenyan teaching at harvard school of government, his doctorate thesis is from brazil. and he raising some very
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fundamental issues regarding the role of science and technology in bringing about social and economic transformation in the developing world, really underscoring the importance of education and i think dr. kaberuka would like to respond to that. >> thank you very much, juma. let me clarify if i get the impression that the lady made the question hard i want to clarify that. i think the npgs were great. and we -- if we didn't do it, we should have to invent it. i think it's the agenda of the npgs is great. what i think is that these targets that we're to track progress were less the millennium declaration.
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it was more than the npg targets and goals. the play of economic reality should be much more in because if not, you have these two different agenda one for economic growth and one for the npgs and i think we need to bring them together but not forgot the npgs. it's precisely bring the npgs to the center or the economic policies of the countries. that was my point and i totally agree with her. in latin america, the main factor that we sometimes forget for the transformation of latin america is that democracy came to democracy in 2008. you have in latin america a very
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democracy where many of the policies and distributions came about. because within democracy the voice really of the people was heard much more for health improvements and for policy interventions that may made the economy grow in a more economicable way so when you look at all the studies about latin america not only about economic growth but about the declining of inequality, the inclusion was inequality was falling not because it was a natural way but the intervention of the states for the public policy here. democracy is a big part of the
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success of latin america america. the expansion of education is a second major factor. the third factor is economic policies that we learn very hard from our crisis in the '80s. policies for more equipable growth as i say and they are of two types. on the one hand, the transfer of resources via pensions in the resources of cash transfers were very well designed and ways that was for the first time in latin america a way and by the different interests and 100
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million people in latin america are under some kind of cash transfers of cash schemes. and in the literature was the intervention with the labor market and the regulations for wages and for increased real wages in the labor market and that part has been cited by the literature and it has been a very important part of the access. just two points left in terms of the challenges. that coincide with what you say. one is that the youth challenge in latin america is also huge. let me give you one other number. one of every four young people
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in the region is not working. if that's not exclusive i don't know what exclusion is. you have 25% of the young between 15 and 24 years old that are out of the labor market and out of the education system. and it is a huge problem for the region and one that will need much more effort to that solved. by the second one is that we have to avoid the middle incomed group is precisely the issue about science and technology. it's to come to an agenda of knowledge, science and technology investments. and latin america is really behind asia in science and
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technology. and something that goes with it that goes beyond the expansion of education of basic education and to go to the next step that is the expansion of tertiary education for the science and technology agenda to be coupled -- >> thank you, thank you, rebecca. donald, there have been a question about the food insecurity particularly in the horn of africa going all the way down to northern kenya and also there's been a question of the demographic position. i know that in your current economic outlook report, you do make a great deal of reference to the youth and the impact it might have on social stability
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in africa. and, of course, that is also related to all question of education. give us your perspective on some of these issues? >> thank you, sir. i begin with the question of leadership. >> leadership and development. >> you know, a ship i'm sure of the context. leadership -- leadership is important. it's even decisive. but a critical factor is institution. leadership is something which is in its human honor. and the human can go to very good to very bad. or the other way around. and leaders who have touched on
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their countries and maybe obtaining power or some of the reasons they go very, very bad. because institutions were weak. and i think it's critical to have leadership but more important to have strong institutions to have function. this is where i find and you can decide leadership and to me it's critical. number 2, on china and africa it's natural resources. i agree. it is important that africans decide how to manage natural resources because they're depletable they're exhaustible. that whether you're trading with asia or the americas or europe, these are resources become -- would be exhausted at some point. to build a base that would be a
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long time. i think in the '60s and '70s of simply being exporters. that applies by those. i believe the many countries on my continent you have oil exporting countries that people who live below the poverty line. that is completely unacceptable. it's important is foods into the country and agriculture and the rest of it. i want to be clear on this. it was said writing minutes ago on bangladesh and the families. he said the problem was not so you set up food or such. that it's called entitlements. in other words, people like others have died or some others
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issues for food development. the longest questions on the african continent. 20s. so that is a big failure. and if it's a failure of african leaders of ourselves. all those included. and how do we resolve the issue of somalia. how do we have a long planning developing system which is harmed and this is not rocket science and we have to prepare now the head and we're trying to talk with other international institutions to submit the whole long term planning for the area but the somali question is about it. there was an issue about land grabs. land grabs, ie, countries for
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their own people as opposed to growing for their country and domestic markets which is a big difference. i think investing in african agribusiness is something that's workable. because that is being done already in terms of flowers, coffee, tea and the rest of it so why not maize and rice? so actually coming to the african land to export food out of africa that is problematic. but at the end you're not losing that land you're losing water, which in the future could be an issue. and there's some by the african union and practices for these kind of relationships and those best practices exist. and i hope we can find a way in which we can encourage investment in family, at the
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same time the interests of the famine in the future and the interests that they can take into account. >> what about the youth? >> the youth? >> yes. >> the youth -- i don't want to disagree with my brother to think about inequality. it's more than that. tunisia was a failure, a perfect failure of this model of what i call authoritarian model. that is to say that will give you education, social services even jobs as long as they can rely on the democratic side. now, it is okay for some time but the youth educated and denied internet could not go far. you see in tunisia the night he left power the last thing he did was free internet for the people. but how did the educated people be denied access knowledge.
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and the model was the biggest failure. inequalities and exclusions and i think now in arab spring -- >> and you can follow the rest of this discussion online in our video library at next here on c-span2 we're going to take you live to a hearing examining the federal leasing process and its management and investigate whether or not federal leasing is an efficient use of taxpayer dollars. it's estimated that federal agencies occupy millions of acres domestically in 2009. this is the senate homeland security subcommittee on federal financial management. the chairman is senator carper of delaware. scott brown of massachusetts. the ranking republican.
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>> good afternoon, everyone. on behalf of senator brown and myself welcome to today's hearing. i was saying to senator brown we may be the only hearing in the senate today. i don't know. [laughter] >> but the others are dropping like flies. but you got -- you see the two of us and you know we're serious about saving some money. and we are for our country. but we're glad our witnesses could be here today and all other guests today. we're going to it off manage the property and in particular it's lease to determine long-term real estate needs. i just addressed a group over on the house side a little while
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ago, scott, and they come from the accounting industry and do a whole lot of work as a firm to support the gao's efforts with respect to high risk -- high risk for using a lot of money, taxpayer money, but we have had a number of hearings in the past about real estate high risk and have had literally thousands of pieces of property that the federal government owns and we pay utilities for, maintenance for, security for that we got to get rid of. we don't use them. and we also find out that there's something else that we're spending a lot of money for and that's -- gao has been telling us for a couple of years we have a lot of agencies that lease space for years and decades. they'd save a lot of money instead of leasing we'd actually buy the stuff. and there's a lot of instances where it actually makes a lot of sense to lease. like the department of the
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census office. every 10 years you do a census it doesn't make sense to pie all those pieces of property they're going to use every 10 years. that's a little bit of background here. but there's a general consensus that the government has to get smarter about the ways we manage our buildings and lands. the president and both parties have made it a top priority and with concerns of the implications of national debt mounting eliminating waste, achieving cost-savings in this area remains a top priority. for us and i hope for the rest of our colleagues in the house and the senate and the administration. between 2001 and 2009 we ran as up debt. as we did the first 208 years of our nation's history. we ran up what may be the largest budget deficit at our nation's history. with most of here in washington -- while most of us here in washington are united in our desire to find a solution to our nation's fiscal problems we're still facing an ocean of red ink as far as the eye can see even after enactment earlier
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this week of spending cuts included in the legislation to raise our country's debt ceiling. a wide variety of ideas have been put forward on how to reduce our budget deficit and begin whittling down our debt. last fall the majority of the bipartisan deficit commission appointed by president clinton co-chaired by allen simpson a former senator from wyoming and ersk and bowles. and at the same time getting reform of our entitlement programs, tax reform, pretty comprehensive approach, a bipartisan comprehensive and would actually not be -- like a deal. it would actually have been a solution to the challenge that we face. and their work is reinforced by the gang of six, 3 democrats, 3 republicans and, unfortunately,
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in my view, unfortunately, the president eventually filed it too late as it turned out and the leaders of the house and senate democrats and republicans didn't follow it at all but it's sad for our country. we settled for a bill that ranged in discretionary spending and does little to tackle our long-term financial challenges and it was a deal not a solution and not a good deal as far as i'm concerned. it only addresses the symptoms of our physical ailments specifically the debt ceiling and to cure the debts and deficits and we largely put off tomorrow maybe early next week what we ought to have been doing right now. and as senator brown has heard me say, my staff certainly feels that way but i'm going to keep saying it from as long as i'm around here. a lot of americans believe that those of us here in washington aren't capable of making the difficult steps that are necessary to put our country
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back on the right fiscal track and given what happened in recent weeks it's easy to see why they feel that way. they don't think we can do the hard work that we're hired to do. that is to effectively manage the tax dollars that they entrust us with. they look at the spending and the tax decisions we made in recent years and also to support managements could the government and determine if the culture here is broken. they question whether we're capable of making the kind of tough decisions that american families make with their own budgets. and i don't blame folks for being skeptical especially in light of the debate we've seen in recent months. now, more than ever we need to establish a different kind of culture here in washington when it comes to spending. we need to move from what i described here many times as a culture of spendthrift to a culture of thrift. and this shift must involve looking in every nook and cranny of the federal government and asking this question about all kinds of programs. domestic programs, discretionary programs, entitlement programs. how do we get a better result for less money? or how do we get a better result
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from the same amount of money? when it comes to property managements it's clear to me and others we can get better results and we can save money. federal property management has been on the government accountability offices high risk list since january of 2003. in part due to significant amounts of underutilized and excess property. this problem is coupled with the fact that federal agencies depend on costly too often depend on costly leased space to meet new space requirements although building ownership has proven to be more cost-effective over time. not always. but oftentimes. the most recent comprehensive data available those the federal agencies apparently possess more than 45,000 underutilized buildings totaling more than 340 million square feet in space. they cost $1.7 billion annually to secure and to maintain. fixing that problem doesn't balance the budget but it's a great step in the right direction. but in addition for the past 20
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years gao has been telling us that we've been too reliant on leasing since 2008, gse has leased more property than it owns and in fiscal 2011 the agency will spend over $5 billion to houses federal employees in 184 million square feet of private office space. in addition, while gsea serve as the central leasing management for the federal government and maintaining space for the agencies and in doing so have chosen not to take advantage of gsa's expertise in federal real estate. given they lack experience they often bind government into long-term lease obligation that result in millions of dollars of costs to the federal government. maybe tens of millions, maybe even hundreds of millions of extra dollars inst comes. for example, the u.s. security and exchange commission we know this all too well is an agency
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that has been granted independent agency as well as other agencies. in july 2010, the commission entered into a sole source lease for 900,000 square feet space of a privately owned building called constitution center in washington. that lease would have cost taxpayers some $556 million over 10 years. although the sec has held independent leasing authority for more than 20 years, did commission's inspector general has found the agency still lack adequate policies and procedures for managing its leasing actions. in fact, this was the second time within the past five years in which the sec -- fcc was involved in an unnecessary leasing way. similarly in 2006, the fbi executed a 30-year operating lease to house employees in its chicago field office. that cost an estimated $40 million more than construction over a 30-year period.
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fortunately, both congress and the obama administration are united in their commitment to address these issues. the president's latest budget included a recommendation from a civilian property realignment board to review the government's property portfolio and dispose of those deemed excess in an expedited manner. i think if i'm not mistaken, i think senator brown may have introduced legislation to codify that proposal. this is a proposal that my colleagues and i on the homeland security and the government affairs committee had an opportunity to examine on our june 9th real property hearing. and while the proposal focuses primarily on assisting agencies in the disposal of excess and underutilized buildings it does provide opportunities to colocate operations which could ultimately reduce the government's leasing portfolio. i have concerns about the cost and effectiveness of the president's approach but i look forward to taking what works in his proposal and senator brown's
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legislation along with other ideas and introducing a bill in the fall that will help right size the government's portfolio in a way that is advantageous for federal agencies, for community stakeholders and the clientele served by those agencies. clearly, the momentum is building to address a widely recognized problem. yet in all of our deal to say we must be intelligent in our approach. rome i'm told wasn't built in a day. the federal government bloated property portfolio cannot be unbuilt in a day. we have an opportunity, though, to do this right and change the way the federal government manages its hundreds of billions of dollars worth of assets. that said the agency shouldn't be waiting for civilian brac to begin to solve their property management problems now. in an era of shrinking budgets and scarce resources, it's critical that agencies come up with innovative property management tools that will identify opportunities to right size our real estate.reduce costs and achieve savings by
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eliminating unneeded assets and expensive long-term space. before i turn it over to senator brown, i would say every now and then and i'm sure we miss align incentives. we misalign incentives in the federal government. we incentivize the wrong kind of behavior and we get the wrong kind of results and what we do in the federal government and we incentivize the government to lease. and if you want to buy buildings like that up front, maybe that makes sense long term we incentivize them with the way we score that expenditure in the first year as opposed to leasing which could be scored for 10, 20, 30 years or even more. and one of the things i hope comes out of this hearing today in terms of some good discussion of how we change those incentiv incentives. now, we meet the space needs of our agencies and we meet the better needs of the fiscal constraints of our country.
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and i look forward from hearing from our witnesses and you share with us your thoughts on how to transform our asset generates it. >> i thank you to your witnesses. i would venture to guess we are the only hearing in dc right now. and it's interesting listening to you, mr. chairman, and i want to thank you for holding this important hearing through a lot of our efforts, your efforts we've been able to help put the spotlight on some of the programs that just aren't doing it right. and it's funny, half a billion dollars for leased office space -- it just blows my mind how we get in these situations. and people wonder where the money's going. well, it's very clear where it's going. it's going some places very poorly chosen whether it's leased spaces, programs, whether they be military programs that are not working or obsolete. we're just wasting money all
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over the place. and in the middle of a financial emergency i find that very disturbing. and that's why i was proud to put party politics aside and work with the president and congressman denim on the civilian property realignment act or cpra. the bipartisan legislation that you reference will bring private sector discipline to the management of federal real estate. it will empower an independent commission to break through the long-standing barriers created by red tape and politics to facilitate the efficient disposal and realignment of unneeded federal property. this bipartisan approach will address a problem gao has designated as a high risk area and would achieve savings of approximately $15 billion and that's real money when we're trying to make some very real and stuff decisions in the next couple of years. and it's funny, time and time again, government agencies have proven they can't properly manage their own real estate and today as we already referenced
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both of us that half a billion dollars in market -- on leased space that really will never be used efficiently or properly. and not only did they enter into this wasteful lease but the if he can was referenced and so they could spend their day in a lavish building, limestone floors, marble walls and a landscaped courtyard that was transformed into a 1 acre private garden. i guess it's nice when you can get it especially when it's at the taxpayers expense. that being said kay to washington to look at the way we spend our dollars and to be a fiscal watchdog, senator, to address our fiscal challenges so we don't have to tab. and i'm looking forward to making those tough decisions. we started already and we'll continue to work in that vein
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and hopefully gain the confidence of the american people once again. i look forward from hearing from our witnesses. >> thanks very much for that statement. and let me take a moment to introduce each of our witnesses. a hokie from virginia tech. david foley, the u.s. general services administration in 2010. he's responsible for the real estate acquisition operations of the agency, previously served as the deputy assistant commissioner for portfolio management, a gsa and worked in a number of leadership rolls in gsa offices and get this dallas, kansas city and atlanta. mr. foley is a graduate of missouri state university. has a master's in business administration from home of the hokies, virginia tech. sir james sullivan also known as james is director of the asset enterprise management. it seems like we pick on the va
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a lot. and we actually use them a lot of times as an example of agencies that do things well and an agency that does things well. sometimes folks in these hearings just like -- they like to conduct by gotcha hearings. and what we like to do is -- when folks are behaving in inappropriate ways or managing inappropriate ways like to put a spotlight on that but when agencies are actually managing and serving as an example we like to put a spotlight on them on any number of times we've done that with the va. but mr. sullivan is assuming this new leadership role in 2009 after serving as a deputy director since -- may, 2002 something like that. but you're the director of asset enterprise management of va and mr. sullivan has 25 years of experience in capital budget, budgeting and planning and asset management. he plays a pivoting role one of the largest portfolios in the property in the federal
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government including in delaware. the honorable david is it cots like i want to sleep on a cots and served since december 2007. prior to joining the fcc he served as the inspector general for the peace corps and practiced federal administrative law for a decade in the private sector. inspector general kotz is a graduate of the university of maryland which makes him a terrapin. and jeff heslop was named the u.s. securities and exchange commissioners first ever chief operating officer in may of 2010. he's responsible for the agency's information technology. financial reporting and records management duties. prior to joining the fcc, mr. heslop was managing vice president of capital one which
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is about to secure ing. and there at capital one he was responsible for the risk management operations. he received his bachelor of arts degree from davidson college. davidson college. when did you graduate? >> '76. >> '76. congressman john spratt. do you know who the president there is now? [inaudible] >> she's from delaware. delaware. she just became your president the first of the this month and i think the first woman in the history of the college. and you have your master's in business administration from college of william and mary where our youngest son is starting his senior year this year. great school. david wise is senior administrator at the u.s. government accountability office affectionately known as gao. he specializes in transportation and communication and federal real property issues. his career in gao dates back to
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1981. mr. weiss has a bachelor of arts in political science from the university of pittsburgh and a master's in public administration's degree from pitts graduate school of public and international affairs and now that the nfl strike has been averted the lockout has been averted i was going to ask -- my my question would be what nfl football team would be rooting for with that kind of bio? [inaudible] >> all right. welcome one and all your entire statement will be made part of the record. if you would like to summarize that'd be great. we're asking you to keep remarks to roughly 5 minutes. if you go a little beyond that that's okay. if you go way beyond, that's not okay. so just go ahead and once you're all finished, senator brown and i will take questions just asking questions of you. thank you all for coming. >> thank you. good afternoon, chairman carper, ranking member brown. i appreciate being invited here today to discuss gsa's efforts to reduce our reliance on lease space. our approach to lease acquisition and how we manage delegations of authority.
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gsa searches for the most cost-effective ways to provide space for federal agencies to help them achieve their missions. our first priority is to use existing government-owned space and then lease space already under contract to the government. when existing space is not available, gsa determines the best method to acquire new space, whether through leasing or new construction. we consider the size, duration, cost and complexity of the requirement. for most long-term needs, especially those with unique requirements like courthouses or land ports of entry, it is more cost-effective for the government to build and own these facilities. for small short-term general office requirements, leasing from the private sector is typically more economical. gsa currently manages an inventory of over 370 million square feet of space of which roughly 191 million is leased from the private sector. approximately 80% of our 9,000-plus leases are for the smaller short-term needs that are less than 20,000 square
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feet. it includes steps to ensure adequate competition and a fair rental rate for taxpayers which are outlined in my written statement. gsa has multiple internal controls in place for our largest leases with annual rental payments that exceed $2.8 million. these leases require additional reviews within the gsa and omb along with perspective's approval by gsa's congressional authorizing committees. this process ensures any growth in costs from staffing or space increases are supported in the president's budget and are transparent to congress and the public. since real property was identified as a high risk area by gao in 2003, gsa has worked closely with federal agencies to maximize the utilization of leased space. at the end of fy 2010, the vacancy in gsa's leased inventory was less than 1%. gsa and the administration have also made it a priority to reduce the cost of leasing by minimizing the need for build to
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suit projects, adjusting requirements to maximize competition for exist space and to create loan ownership and prevent costly proposals into building projects. for instance, in 2010 gsa exercised a purchase option for columbia plaza, a long-term lease here in washington, d.c. the fy 2010 budget also provided funding for the fbi field office in miami. this projected previously been authorized as a lease proposal. in fy 2012 gsa's budget had funding that the retrofit the building in san francisco, california. this would satisfy an fbi requirement and avoid a costly lease proposal saving taxpayers almost $100 million over the next 30 years. congressional cuts to the president's budget threatened this progress. in fy 2011 alone several key projects in the president's budget were not funded.
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including the next phase of the dhs consolidation at st. elizabeth and a purchase option for an irs lease in martinsburg west virginia. failing to move forward with these projects cost taxpayers millions more in the long run. additional cuts in fy 2012 would only make the situation worse. gsa has been aggressive with another opportunity for savings by improving the efficiency of the federal inventory to facilitate consolidation of leases into government-owned space. our gsa headquarters is a good example. by renovating the building and opening up the floor plan, we can increase the number of occupants from approximately 2500 to 6,000 people. this will allow us to eliminate multiple leases saving taxpayers millions of dollars annually. gsa as you mentioned is not the only agency that leases on behalf of the federal government. more than 25 agencies and commissions like the va and sec have their own statutory
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authority to hold land and acquire leasehold interests. gsa is not usually involved in these transactions. some agencies also lease space under a delegation of authority from gsa. agencies using this delegation must abide by the same laws and controls that govern gsa and certify that they have a properly warranted lease contracting officer to conduct the procurement and execute the lease. we are involved in these transactions to provide the appropriate levels of oversight. in conclusion, gsa strives to maximize space utilization and minimize the cost associated with leasing. we are continually looking for ways to streamline, standardize and simplify our leasing process with the appropriate controls to maximize competition and find the optimal solution for taxpayers. while helping agencies achieve their missions effectively. thank you for inviting me to appear before you today. i appreciate the opportunity to discuss gsa's leasing practices and expertise and i welcome your
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questions. >> thanks. thanks so much for your testimony. >> thank you chairman carper and ranking member brown, thank you for the opportunity to discuss the department of veterans affairs management of its capital asset portfolio and more specifically its lease property portfolio. at the outset let me say va evaluates all of its capital decisions including leasing based out of three following critical principles. first, does it directly benefit veterans and their families? second, it improve the operations of va and third, and lastly, does it allow us to be a good member of the local community? va is the operator of one of the largest health care real estate portfolios in the country. va also maintains facilities for the veterans benefits administration national cemetery administration as well. leasing has been and continues to be an essential part of va's capital portfolio management practice. va is authorized to require facilities including leased facilities for medical and
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nonmedical purposes which include hospitals, community-based clinics, cemeterys, and other medical-related functions. va enters into leases to meet veteran' needs across the nation. one of va's primary goals is to provide services to veterans and their families where they live, not where old hospitals are but where veterans need the care. in many cases leasing provides a more flexibility to have construction to meet shifts, changing service demands, technology improvements in terms of medical care and benefit care delivery to our nation's veterans. the need for space is supported by va's mission as identified through the strategic capital investment planning process at va. through skip, va systematically reviews capital investments based on you a well they address these gaps, these gaps identify infrastructure or services needed to enhance or to meet needs of current and more importantly future veterans.
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only investments in these -- only investments that have scored well against these performance gaps are presented to congress for funding and authorization. va considers the size and mission of criticality when deciding building and leasing. new construction of large inpatient and specialty care facilities that we will be in for the most effective solution for our needs. smaller facilities such as outpatient or ambulatory service service can use leasing as they provide more flexibility to meet changing demands in technology. va does follow gsa regulation and complies with competition and contracting requirements in the federal act regulation in conducting its lease procurements. va's real property service has years of experience in managing the department's robust leasing program employing skilled workers comprised of realty services and contracting
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officers. oversight of va's leasing program is provided internally through an extensive series of checks and balances in va. externally all leases in excess of $1 million requires congressional notification and more importantly authorization. congress also is notified of any significant change in the cost or scope of any authorized lease or for that matter authorized construction projects. in addition, va has -- va has been granted by congress enhanced use leasing authority. this tool provides va with a innovative tool for private and public sector. and in turn va has a monetary or in kind consideration. the leased property is developed used and maintained for uses that support va's mission. enhanced used leases have properties to meet mission related needs such as veterans homeless housing. the program results have included significant cost-savings of substantial private investment in the
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department's capital infrastructure. and the last six years, va has received in consideration more than $260 million from this program. va's authority to enter into this program will expire on december 31st of this year. without reinstatement, va will lose a well needed tool to help us manage our property more effectively. mr. chairman, the department understands the importance of a balanced real estate portfolio to address its needs. va has a rigorous capital process that makes it into account future needs of veterans. they have the optimal mix of investments both leased and owned investments for the strategic goals and to ensure the highest level performance of our assets. i thank you and the subcommittee for the opportunity to be here today and we'll be happy to answer any questions. thank you. >> the pleasure's ours. thanks so much. mr. kotz, please proceed. >> i appreciate the interest of the chairman and the ranking member and the sec and the office of inspector general.
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on november 16th, 2010, we opened an investigation as a result of receiving numerous written complaints concerning the sec's decisions and actions relating to the leasing of space at the constitution center office building in washington, d.c. as part of our investigative efforts we analyzed thousands of pages of documents and interviewed 29 witnesses with knowledge of facts or circumstances surrounding the sec's leasing of the space. we also searched over 1.5 million emails for various time periods pertinent to the investigation. on may 16th, 2011, we issued a comprehensive report of an investigation containing over 90 pages of analysis and 150 exhibits. ..
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>> this death was an all-inclusive number that included, space and amenities, an additional 10% of contractors, tends% for interns and staff in 5% for future growth. we found a 400 square feet per person standard was described in the back of an envelope calculation. moreover, notwithstanding this inclusive number when oas did his speculations to justify the least it added more unnecessary space by double can for contractors, interns and temper his death. we found each one of these estimates was wildly inflated and unsupported by the data being used by oas. the 10 year lease term at a cost
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for $556 million, it entered into a justification and approval for other than full and open competition. the document required far, permits open and full competition when agencies need is of such an unusual and compelling urgency that the agency would be suicide injured unless the agency is permitted to limit the number of sources from which it solicits bids. we found a justification and approval to lease space the constitution center without competition was inadequate, not properly reviewed and backdated. the oas official who signed a justification and approval at the sec's advocate acknowledged the test with the sec would, in fact, not be seriously injured if it lost the opportunity to render constitution center space. she admitted she took no steps to verify the information in a justification and approval and when she signed the document she was unaware the funding have not been appropriated. and that she did not have an understanding of when the projected personnel were
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expected to be hired. the justification and approval be posted publicly within 30 days after contract award. as the letter contract prosecution said was signed on july 28, the deadline for publication of a justification and approval was august 27. the sec did not post the justification until september 3. the doctor was signed by four individuals as dated august 2. the investigation found a justification and approval was, in fact, not finalized until september 2, 2010, and substantial revisions were being made up to that day. we found three of the four signatories execute the signature page on august 2 before a draft remotely close to the final version existed. we found the competition advocate ask you the signature they don't august 31. initially backdated signature to august 27. she subsequently wide out the seven to make it appear she signed a document on august 2. the actions suggest the public
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the doctor was finalized a few days after the letter contract was signed. in light of her findings and recommend sec chief operating officer conduct a thorough and proper interview and assessment of all matters currently under the purview of oh, yes. we further recommend the chief operating officer determine the appropriate disciplinary actions. we specified such discipline action should include at a minimum action up into including dismissal against two senior individuals, and discipline action against a third. finally, we recommend the sec requested for an opinion, comptroller general as to whether the commission violent anti-deficiency act-to obligate funds. subsequent to the issuance of our investigation we received a corrective action plan with regard to substantive recommendations we made. we will monitor the plan activities carefully to ensure that the necessary improvements are made and to ensure the individuals who we identified as being responsible for the failures and improprieties in our report are held accountable for their actions.
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thank you and i be happy to answer any questions. >> just an editorial comment. i leaned over to senator brown when you're going to do and i said what were they thinking about? what would be thinking about? my lord. please proceed. >> thank you for the opportunity testified today on have of -- can you hemi? can you hemi now? >> i can hear you now. >> thank you for the opportunity testified today on behalf of chairman of the sec regarding lease of office space and the steps were taken going forward. the report by the commission's office of inspector general pension constitution center identified a number of significant flaws in the sec's pleasing process. where extreme disappointed by the failures that have been identified and regret they've taken us all away from our primary mission of protecting investors, for something capital formation in ensuring stability in the financial markets.
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the fact the sec has not paid any rent today for this property and the bulk of the space has been leased to other tenants does not adequately address the situation that should never have occurred. the only appropriate response by the sec is to resolve the main doesn't remain space issues, corrective process by working with gsa and omb, with respect to future space needs and to ensure accountability for the events surrounding this lease. by way of background in spring of 2010, the sec crack anticipated that it would receive significant new responsibilities under the dodd-frank act for derivatives, hedge fund advisers, credit rating agencies and much, much more. this was of course on top of our long-standing core responsibility's. as a result we believed and continue to believe that the sec needed additional staff to fulfill its mission to help further restore investor confidence in our markets. at that time the agency was considering leasing decisions, chairman schapiro indicators or preferences for hiring new staff in the regions rather than in
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headquarters. and she indicated to staff or preference that any new space in washington be within walking distance of the commission station plays building to eliminate the need for expensive shuttle services. in july 2010, but then executive director who was responsible for the agency's leasing activities inform the chairman that all of our leasing options no longer existed, the space at constitution center was her only option given our space needs and that pricing was advantageous and that we had to move quickly as there was competition for the space. given the previous discussion with the staff, the chairman of to the proposal is consistent with both our budget projection, future employee growth, and her preference for the staff to the house were possible in the region's. when it subsequently became clear that the sec would not receive the funding necessary to implement its new responsibilities we took immediate steps to release the space to others and to reduce the sec's exposure. my written testimony details what we have learned and how we
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intend to address them. i'd like to emphasize a few of these. first we are probably implement the ig's recommendations and of all resubmitted as he indicated a written corrective action plan to him. secondly, in light of the players identified the sec recognizes the benefits of having gsa managed the commission future lease acquisitions. leasing is not part of the commissioned corps mission and as an agency we cannot allow it to impede that mission. gsa by contrast has long experience in leasing. in a recent meeting chairman schapiro and i discussed with g. essay administered in which gsa criticism the commission our leasing efforts going forward. gsa indicated it was open to playing a significant role in these efforts and following that meeting commission staff has had further multiple discussions with the gsa staff. earlier this week the sec and the gsa entered into a memorandum of understanding, i contemplate an immediate role for gsa and managing upcoming sec leasing activities as well
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as all of the future leasing needs as they arise. third the oig report recommended the sec initiate disciplinary proceedings for three individuals involved in the constitution center facing process, and we have begun that process. chairman schapiro's expressed desire for this process to move forward as quickly as the laws and regulations permit, consistent with fundamental fairness to assessing intimate remedial measures and discipline as appropriate. in the meantime, the individuals for whom the oag report recommended a disciplinary review have been reassigned. their current duties do not involve any leasing or any other authority that could bind the commission noted they involve activities that relate to the expenditure or appropriated funds. as our chairman indicated, the true test of an organization is not whether things go wrong, but how an organization response to problems and whether its leaders take such opportunities to make necessary improvements. we are committed to doing that. i'd be happy to answer your questions. >> thank you, transit.
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mr. weitz, you want to wrap it up and then we'll go to q&a. >> chairman carper, ranking member brown and members of the subcommittee, thank you for the opportunity testified today on a work related to real property leasing among federal agencies. the federal real property -- worth billions of dollars. my testimony will address three topics. one, the factors that contributed government relies on costly leasing. too, had administrations growth of civil improper alignment act may provide an opportunity reduce reliance on leasing, and three, federal agencies independent leasing authority and gsa delegation. one of the primary reasons we decimate federal real property management as high risk was the federal government's overreliance on costly space to meet its needs. our work over the years has shown that operating leases often cost more than ownership especially for long-term needs. increasing ownership when appropriate will save millions of dollars over the long term.
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federal agencies rely extensively on leasing and leased building to at the end of fiscal year 2010, for several gsa's least square footage exceeded owned 191 million, 291 million. the decision to lease rather than own space from federal operations is often influenced by factors other than cost effectiveness. including budget issues and operational requirements. the budget enforcement act of 1990 direct the budget authority to meet the governments will probably need is to be scored, meaning record in the budget in an amount equal to the government's total giggle commitment. if gsa buys or construct a building, the budget authority for the full cost must be required up front to reflect the government's financial commitment. however, for operating leases, gsa is only required to record the governments commit for an annual lease payment and any potential fee for canceling the lease. this reduces the up front funny commitment to gym across the
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federal government more over time. we have raised the scorekeeping issue as a challenge that needs to be addressed in several reports. we believe that if the issues not addressed the reliance on leasing will likely persist. accordingly in 2007 and 2008 we recommended that only be develop a strategy to reduce agencies reliance on costly leasing where ownership could result in long-term savings. omb agreed to the strategy but has not yet implemented one. agency operation requirements are among the reasons why leasing is often preferred by agencies. for example, officials said more than 200 gsa owned and leased buildings were damaged by hurricane katrina, and assisting the relocation of 2600 federal employees on 20 federal agencies, many of which were gsa tenant agencies. and meet this need gsa expand its use of leases vast agencies in temporary space to fill a short-term need. in may 2011 the administration proposed cipra which may provide an opportunity to -- does not
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expose way to address this issue one of its purpose is to relying civilian real property by consolidating, co-locating and reconfiguring space to increase its efficiency could help to reduce the government's reliance on leasing. cipra provide for the potential code location of federal civilian offices and postal properties many of which are already owned. we're currently examined the potential for consulting leased facilities in the federally own site for the subcommittee. congress has authorized many agencies independent statutory leasing authority allowing them to acquire leased space. the authority may be for particular type of space or for general leasing authority. agencies with such authority and the respective authority are listed in appendix one of my written statement. gsa may delegate leasing authority to agencies. for example, all federal agencies may acquire a specific type of space such as depots, peers and greenhouse. 13 federal agencies are authorized to lease their own special-purpose space subject to
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limitation. for example, the commerce department has delegated authority to conduct a consensus. in november 20 -- 2007, gsa landed its delegation to increase oversight after audits found agencies failed to meet the conditions of their leasing delegation. although gsa's goal is to cover the administrative costs of private-sector leases with ease, the agencies it has been unable to do so in recent years. losing more than $100 million in fiscal year 2009, raising concern about the agency's management of its leased properties. we have an ongoing engagement examining this issue among others for your subcommittee. mr. chairman, this concludes my statement. i be pleased answer questions from you and other members of the subcommittee. thank you. >> thanks. i descent around if you'd like to lead off. he had agreed to do so. >> thank you, mr. chairman. mr. kotz, i appreciate your initial opening. during the time period where you made the recommendations of disciplining up to three people,
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what impact has been done at this point? do you know? >> i've been told that there's a process in place but i don't believe anybody has been disciplined as of yet, or any proposal for discipline has been made. >> so it's been almost, it's been over a year now since they entered into this lease arrangement. and i guess my question is what does it take to get fired or disciplined at an agency when you enter into a lease that is basically half a billion, billion, talking a billion dollars, and i guess i should ask you, mr. heslop, what does it take to get discipline and fired at your agency when something like this happens? >> the disciplinary process essentially your report was issued, mr. heslop, idly the 17th of may of this year. and since that time we have followed mr. cox's guidance. where do you that report. our general counsel has analyzed in great detail.
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we have conducted supplement investigations and supplementary interviews. there was a slight told basically went mr. kotz refer to the department of justice, the individuals mentioned in the report, by as a matter of practice, we don't complete investigations or interview the individuals named until the department of justice comes back to us and gives us they're okay that we can so that it doesn't interfere with their investigation. we receive it okay. the investigation then began to proceed. it became apparent that in the interest of objectivity and fairness it would be in our best interest to hire an external party to help us conduct that began investigation. no, in the process right now of employing that. >> it's like fairness for the individual. what about fairness to the taxpayers and getting the best thing for our dollar? you were in commune with the sec
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back then when this all happened, right? >> i retired a 17th of may of 2010. >> okay. so you had no knowledge of any of this step? >> no. this was not under my purview. >> mr. kotz, so based on these types of failures, we seem to hear it over and over, let's just talk about the sec, for example. do you think congress should simply revoke their independent leasing authority? >> i think that, you know, certainly congress should give very series consideration to that. i had not previously perhaps sec completely revamped its leasing area mib given another opportunity. but i do understand that chairman schapiro and mr. heslop have said they intend to get out of the leasing business, that they don't feel there's enough confidence at the sec to handle that. so i do think at this point they would be prudent to take away their independent leasing authority, yes. >> thank you. and mr. wise, thank you for your testimony as well, your
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introduction. as you know i am filing and have filed a bill that basically mirrors the presidents idea on how to address these issues when it comes to leasing and buying and the like. i was wondering if you could describe how one of the sea prts purposes which is relying of civilian real property by consolidating collocated and reconfiguring space to increase, do you think that could help reduce the government's overreliance on leasing? i think you kind of hinted on it in your initial opening. >> senator brown, thank you for the question. actually to be perfectly honest with you, the cipra doesn't specifically discuss leasing, but as i think would point out in our testimony it certainly has a provision in it that we think would be very useful to help alleviate some of the reliance on leasing the government has. especially with the talk about,
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a discussion about consolidation, code location and realigned of the federal footprint. so we think as we go forward if cipra does become codified there is a good possibility that it could be a concluding factor toward helping to reduce the government's reliance on costly leases. >> i remember your testimony when he said it takes about 1.66 billion annually to operate. and basically keep open some of the underutilized buildings. and i found that really fascinated, but to the office, we talked about as a result, we are trying to come up with ways to address it and get those properties out the door and get them back into the tax rolls and the like. one of my goals in my legislation is to address these. how do you think we could unlock the savings for the taxpayers? >> well, as i think, as you alluded to in your statement there, the key thing for the
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federal government is to get out from under costly leases that aren't really useful for the government. because as you noted the operations, the maintenance costs, cost to keep occurring year after year after year. so as we move forward and cipra does become law, hopefully this will lead towards the governments ability to get out from under leases that are not useful and be able to shift property that is not being utilized in various ways. >> i note in massachusetts when they have some financial difficulty, a lot of the registries in motor vehicles were closed and a lot of the leases were canceled at the governments convenience. we were able to find spaces that were already own the commonwealth of massachusetts to put them in, whether it be at a post office, not a post office by city hall or state on building, or work out an original with the government. i would hope we can do the same thing. there's plenty of federal buildings around the weekend collocate and combined.
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mr. fuld, how with the gsa leverage its expertise in asset management to support the cipro process and specifically lee's consolidation do you think? >> sure. senator broun, thanks for the question. gsa is a leader in asset management for the federal government. as allen witnessed on leasing process. i think we're working with client agency as a part of helping -- >> can interrupt for one second. i don't understand how to get into these messes with the sec and others. where's the breakdown if you could please finish her statement and then like where's the breakdown? why i'm even here? why are we having this hearing today? because they get such a great process, where's, you know, how can we are not doing it right? >> let me finish and then come back and address that. one of the key things is working with agencies up front to make sure that we are probably shape the requirement so that we know how many people we in sure that we're getting the most utilization out of it. and that we can make sure that we can fit into existing federal
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space wherever possible, or minimize the amount of space we have to lease from the private sector. so we're working with agencies on that. i think you for your support of the cipra bill and was a 40 working with you on that. i think that will do several key things that can help us with consolidation. one, it incentivizes agencies to get rid of property, and two, probably more critically it provides a source of funds to do with some of the up front costs. and i know people think that's towards getting a property ready for sale. one of the intense is also to help with existing federal property and let us retrofit those, make them efficient and allow us to consolidate out of leases or perhaps build or buy a new facility to consolidate and shrink the federal footprint. i think we have an opportunity under the cipra legislation and we look for to working with you on that. as far as your question, we have a solid process in place. how do we end up in these situations? as i mentioned, there are
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multiple agencies with multiple different authorities. the sec lease was done outside of gsa's authority under their own independent authority. and so we would have involved in the transaction. we are working closely with them moving forward and willing to lend our expertise. and as mr. heslop indicated, we signed in m.o.u. with an earlier this week where we will be doing their leasing actions for them moving forward. and following the transfer process that we can't use at gsa. >> thank you. tremont. >> thank you for this question. thanks for the responses as well. i spent all a bit of time this week, in light of the deal to avoid default on the nation's debt, i spent a fair amount of time talking to my colleagues and to the american people about how we have a tendency around here to focus on addressing symptoms rather than addressing
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underlying, if you will, the underlying cause of disease. and in a situation where federal government, the symptom is a debt crisis, debt ceiling crisis. the cause, the cause of the illness is the fact we don't spend money wisely, we don't collect all the money that is owed, and so what we ended up doing was not addressing the underlying cause, unfortunately. lead to another day addressing the real underlying cause. been reading to the tesla, especially especially gsa owes testimony, i came back to the question, let me move back up. one of the things we look at federal agencies, summoned a pretty good job of disposing of surplus properties. vhs a good job with their others as well.
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one of the reasons why some agencies do their job is we incentivizes them. not to keep underutilized, unused property around. but we allow them to sell, keep some of the proceeds to fund their operations. looking now at the situation with lease versus purchase, if you look at the way cdo scores of these verses a purchase, we incentivizes agencies to lease even when it got to be purchasing. i'm going to ask, mr. wise, i'm going to ask you, kind of walk us through why we have this incentive. i think this incentive. distancing. why do have the wrong incentive? how do we fix, what will it take to fix it? does it take cbo changing their script approach? is is something we need to do legislatively to empower direct
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cbo to change the way they scored lease versus purchase, please? >> thanks for the question. you bring up really an important point, and we recommended a couple of different times and we've often discussed in other testimony the really important, though only be is a key player because they're kind of the orchestra of all federal property environment, we've recommended that they really need to work within the federal real property counsel and come up with a strategy to take a look out the entire federal property portfolio is managed. while they've agreed that that is a good idea that needs to be done to kind of rationalizing that process, they've yet to implement such a strategy because as you know, as you mentioned in your opening remarks and subsequent remarks, the issue having to do with the scoring is a major issue for agencies to be able to come up with the needed capital in order to take a look at a rational process. another really important point
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is the necessary analyses that need to be done in order to make sure that you're making the right kind of decision. as you mentioned earlier, generally building is a less expensive option in the long run than his leasing. it's not always the case, but you need to do the economic analyses in order to do that. and so, it's important to do the thirty-year net present via announces so you see how things will play out over time. and this going into the comparison so that we can make the right decisions. you look at commercial real estate market. it maybe makes sense to lease something where the real estate market is relatively soft compared to boston or new york or chicago, versus dallas or atlanta, perhaps. so it's a pretty complex formula that goes into making these kinds of decisions but in order to come up with the right decision you need to approach in a multifaceted way so that at
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the end of the year making the best call for the taxpayer. >> let me just ask you to cut through all the. i appreciate what you said. what do we need to do, what needs to be done, so that cbo in the future will not say almost routinely that even when it makes economic sense to purchase, we're not going to score it that way. instead, we're going to score in a way that almost mandates and agencies lease. how do we change that? >> will come it gets to a policy area that is really not so much our purview, but as we have discussed or as we noted, we've made recommendations to omb that they need to come up with a strategy in order to rationalize this process. and so agencies can make the right kind of decision of whether to lease or to build. we really believe that omb is the key player that needs to address this court keeping issue.
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otherwise the reliance on leasing as we noted in her testimony is likely to persist. >> all right. let me turn to others on the panel. same question, same question. what i'd like for you, just give senator brown and the and those on our committee, my colleagues in the senate, give us a to do list. some -- puts on the honor do list, to really change the culture. does anybody have an idea? a good idea. a good idea. [inaudible] >> mr. chairman, i will swim upriver. via his position is different than other federal agencies. part of our portfolio, only about 11% is lease. so i wonder cities that money square feet we lease about 12 million square feet. our real problem is our existing infrastructure, not least of. what do we do to consolidate, what do we do to get rid of the
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old infrastructure that can be fixed easily, and in some places we don't need it. right now we have an estimate to fix our current portfolio based upon the needs rejected for veterans in 2020. we will need $60 billion to invest in our infrastructure. clearly that's not going to be able to be provided for indirect appropriation. i think the key to unlock that from israel to attack private sector financing and working with public-private ventures, or joint ventures or with localities or other nonprofit to be able to find uses for the repurposing of federal property, to get off the federal rules, to get it back on the tax rolls, and to relieve agencies the large net cost. the biggest drag for va is, for some of the agencies is the cost that we have to maintain facilities. that could be made more
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efficient and/or consolidate. so i think it's a little bit different in a big issue about third party financing, or private sector might is the other side of the score. cbo scoring treatment of the use of third party funds, even if it's for nonprofits or for non-government entities, they scored as if it was direct federal spending which basically turns off third party spigot of trying to utilize them to unload unneeded inventory. >> i'm going to go back to the round, but before i do, i may as this in the next round of questions, but i spoke earlier for comprehensive bipartisan approach on deficit reduction along the lines co-chaired by erskine bowles and alan simpson. my senses listen to your testimony and earlier hearings we've had is that we also need a conference approach with respect to real property management. not just to do with a lease
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versus purchase issue, but to do with all this underutilized or unutilized federal properties that we do have. one of the things i want, maybe at this hearing, if not, i want to invite him is is get your input on what should be the components of the comprehensive approach. and to the extent that we can craft a conference of approach where we harness market values, we change incentives for misaligned, more online a, i would appreciate your input on that. senator brown. >> thank you, mr. chairman. mr. sullivan, to follow familiar hearing as result of your testimony, documents and the challenges with some of the prime va properties that potentially could be sold and taken off your roles and put you back, having more money for the veterans that need our help, instead of using it to heat buildings open and the light. you testify as to how cipra was a welcome addition to the
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toolkit, that you did in reducing unneeded assets. could you just elaborate on that as our that will complement your existing tools. and also, what role did the politicians have an individual come in interfering with you doing your job? i mean, if you have some assets and you want to sell them, how often do state or local, state or federal government come up and can put a monkey wrench in the plan? >> senator, i will try to answer that a couple different ways. this would be our toolkit right now is to use our enhanced lease authority. and in this case is where can develop, if you will, a win-win strategy with the local community, the veterans, the veterans servic, the veteran see organizations and private interest in that area. we can forge out leasing in a public private venture under that authority. we have done that in many places. and it works. we can reach consensus.
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where we can't reach consensus at the local level with all the interested parties, especially local communities, the cipra process would be a welcome addition to give to deal with those hard to do properties. around the country. so i think using both of those laces were have something that works and can continue to flourish and shrink our footprint and deal with our underutilized properties, we want to maintain but there are some places that cipra wic assistance in addressing those issues. there are a lot of stakeholders involved in real property. va, gsa has experienced stakeholders have different interests. and when we can't align those interests that's where things done. constant challenges in dealing with them and we face everyday. as we move down distractor needs to be away to deal with those interests. >> so getting back to my final question, i think you have answered it without wanting to
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really say it, but what role do state or federal politicians and politics not effective, to a specific call and/or stop your reference when you try to do some things for the benefit of the va? >> in some cases, yes. when we can get a line of interests we of local interest that may not have the same interests that va has. and in case it that happens and things come to a grinding halt. >> very smooth. that was a good answer. very nice. and that's unfortunate because senator carper, chairman carper just asked for recommendations that i would think one of the recommendations is to leave the politics out of it and let us do our jobs based on fact and based on the necessity to deal with these issues without any type of outside influences. i would hope if you make that recommendation you would include that very frankly so we don't really be about bush in that regard. mr. wise, generally larger
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perspectives level projects over 2.7 million lasting over 10 years, net present value analysis indicates is more advantageous to purchase rather than lease. i was wondering in the cipra legislation, it requires a net present by analysis of the cost of the lease compared to the cost of constructing new space. how important is it to provide this information to congress, do you think? >> i think it's very important, senator. because through using analyses like net present by and scoring, you can then be comparing basically apples to apples because this is something that gsa had done previously and it then enables you, enables agency or the decision-makers to be able to come up with a decision based on what the dollar value is today versus what it would be 30 years onwards, including any potential inflation returns and other factors that get put into
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the mix. so we believe net present by analysis is certainly a key aspect of the entire economic analysis picture in order to make these kinds of decisions. >> thank you. mr. foley, what steps does gsa taken make sure the lease contract on behalf of the federal clients achieve the best value for the taxpayer also supporting the mission-critical requirements? >> share. we do a couple of things. we do perform a net present by analysis we compare the cost of building a nuclear facility, renovating an existing facility and the cost of leasing. so we do the thirty-year net present by analysis to evaluate the financial aspect. again as a mentioned earlier, one of the key things is making sure we have a firm understanding of the requirements, and we work with the agency to understand how they may be able to adjust the requirements slightly to get a better deal for the taxpayer. so for instance, instead of having to be in one building of
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a particular size, might drive construction or limit competition to want to buildings that have a certain amount of space available, if they can be into proximate buildings within a block of each other are right next door are perhaps on the same campus, that opens up the competition and drive down the cost of leasing. so there are a lot of simple things we could be working with client agency to make sure we can still find a way to meet the mission requirement, but leverage our expertise in the real estate market to make sure we get the best value for the taxpayer. >> in previous testimony i know you said you are continually assessing your performance against other rental rates in same or similar markets relative to market measure. so how is the gsa doing in comparison to the commercial market in various sectors? >> we continue to lease cost below the market. i believe that in a flash in the summer around 10% below the private sector benchmarks. we were using.
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>> and is that geographically driven or just overall? >> yes, we do it based upon geographic market in the submarkets we look at where we are leasing and then we find comparable rental rate from the private sector in that particular market. >> i will just divert you, mr. chairman. >> okay, we'll have a third round. if you will -- feel free. i've been jotting down some questions sensual testified and responded to questions from senator brown and myself. and i just want to kind of walk through this list briefly if i could. one of the areas of jurisdiction that we also have is u.s. postal service. the situation with the postal service could literally run out of money, out of cash later this year. if not later this year next year. be unable to make payroll. a huge mess. i think about 8 million jobs
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depend on the mailing industry. so we are looking hard for ways of the postal service right itself. twitter, e-mail, facebook age to be able to meet our needs, daily needs. do so in a way they cover their costs. there's been some discussion here today about consolidation, consolidating properties, consolidating activities in a way that makes sense. think out loud for me, think out loud for us. about how the u.s. postal service might play a role here that would enable us to kill two birds with one stone. ways to make a property needs of a number of federal agencies who have nothing to do with the postal service. and yet help the postal service to better meet its revenue obligations in order to free
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themselves of support from the federal government, federal taxpayer. okay, whoever wants to take the for shot at that, go right ahead. >> i will start first. gsa we worked with the postal service for a number of years. they are attending any of our federal buildings and we also lease space from the postal service. so we have many federal agencies that are located in both postal service buildings. we have work with him close as they've been disposing of property to identify it makes sense for us to acquire those, where we have existing federal needs. as well as we work with them to figure out where we're disposing of properties, we have available underutilized properties, where they might be able to utilize that. and several years ago going back as far as 1985 we set up an m.o.u. with the postal service that allow for an exchange of properties that basically and getting a market value of that, and it's been very effective i think for both agencies. another area where we've been able to partner with them,
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mr. sullivan mentioned sort of the enhanced use leasing authority. they have some authorities that we don't at gsa and so we've been able to lease from them and develop properties to. >> if -- to specific where we've been able to use a former postal service facility, renovate that can use their authority to create honor and efficient space for the irs. and help find a good site for the taxpayer. >> that's very encouraging to anyone else? that's good stuff, thank you. anyone else? >> i'm sure if the post office had sites that become available due to to a downsizing and they were available, and for us it would be key, would they be located in the place where we need space, that would be the critical point of how close it would be to wear veterans needs are. and if they could be easily adapted to deliver health care, i'm sure we would look at those and see if there was a match and take advantage of any economies that was a.
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>> okay, thanks. i'm just asking our staff both democrat and republican staff to please know that. if there's a snare where we can help the post office help themselves, and in response of the federal agency get better value. does anybody else have a comment? okay. we've had some discussion delegation leaves authority, some some instances where it's done well. and some instances, most certainly as he sees what it was not. you used to work at capital one, correct? >> that's correct. >> if you have employees at capital one who are, i'll use the term giunta, the kind of gross bad judgment in terms of preparing sec, for meeting its space needs, going forward, how would those, how were those
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employees dealt with? what kind of accountability would have been brought to them? >> i think in a relatively similar manner. obviously there aren't the same level of rules and revelations the federal government has as relates to their employment practices but there are rules and procedures that apply. and so employees in a situation like that would be, they would have some availability of due process. and it wouldn't be an arbitrary summary of dismissal, if you appear but that would be an investigation. and upon a result of that investigation, appropriate action will be taken. >> i would hope at the end of the day appropriate discipline action i think for both of us, one of the things that really -- taxpayers, those of us who represent, is when we have bad behavior, grossly bad behavior on the part of federal employees or others are using federal
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contractors, and just little, if any, accountability or that's not right. coaches ask you to keep that in mind. we want to be there but we also want tough love. tough love situation. i think needs to be tough, we need to provide an example. at the beginning i think your testimony, mr. sullivan, i think you may have passed, there were three questions to be asked. would you just say those questions again for us please? i looked through test might see if i can find them. >> when we may capital decisions, real property decisions with the hope to renovate, sell it, whatever, our primary priority is how will the impact, how about affect veterans and veterans families, number one pick we will do anything that will negatively impact them. our second priority is to make sure that decision improves operational efficiency and cost effectiveness of the operations, whether it's consolidating, building a new building, building a piece of property.
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the third one is want to be a good neighbor. we are located in 165 communities around this country. with major presence. sometimes we are the presence in that community. and we do to the extent possible want to be a good neighbor to the temerity and reach a decision that helps us but helps the local community. we take him in that priority. first for veterans and families, efficiency, and then she tried to be a good neighbor. >> let me ask the other panels, but those three questions that we could use, not just in the va but with a little bit of modification use outside the va? >> it's very similar to the process gsa uses, and we are a broad range but first we consider it is there, what is the requirement, is very federal need for the asset? so if it's the va is what houses are the va and their customers, if it's the irs how does it serve the irs and their customers or social security. answer that is the first consideration of the operational
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peace. the second piece we look at is the efficiency, cost effectiveness as mr. sullivan said. and then the third we do look at being a good neighbor in the community. we are in over 2000 communities in all 50 states and six u.s. territories with government owned or leased facility. so we have a critical role across the country that we play. and particularly a focus on transit oriented development and sustainability as well. >> okay. any other thoughts, please? okay. i want to go back to the issue of delegation. some instances where it's done well, somewhere it has gone badly. as i understand it, correct me if i'm wrong and i guess we asserted that we actually, release more -- we lease for space that we don't come is that correct? >> yes, that is correct. >> hasn't always been the case or is that something happened in the recent your? >> is relatively new.
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spent why do you think that change is? >> i think a couple of things. some of it is just purely shifting demographics where we had federal buildings, populations have shifted. agency missions and needs to serve the public have moved, and for a lot of the smaller locations, leasing has become the default mechanism to meet those requirements. because you would build a 5000 square foot building in a small community with federal construction dollars. we put our focus towards building land ports of entry, court houses, the major headquarters agencies and consolidations like the food and drug administration, the saint elizabeth or the department homeland security here in washington, d.c.. and so it is about prioritizing the limited dollars, and then for the more generic requirements that are basic manila office space, they often do end up in leased space instead of federal building. >> thanks. thanks a much. senator brown.
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>> thank you, mr. chairman. just a couple more. mr. heslop, can you explain, i'm still having trouble wrapping my arms around the whole concept of having the sec, hear the sec is being used to regular wall street. in fact, it looks like wall street, lavish surroundings, the fact that they would even pick up in an area like this. gosh, i would think they want to go to a blighted area in washington and bring some economic, get a good guide for the taxpayers. and you know, it is a win-win all around. so i guess i know you were there%, but but i mean, you are still there now, right? >> i answer now, right, yes or. >> how do you explain those kind of lavish surroundings when we're in a period of austerity? >> it is my understanding, the
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situation that occurred, i don't believe that the lavish surroundings was as much of a motivator as a very flawed process to develop a space as the and in a very flawed process to get the decision made to take the building. you have to remember that at the time, dodd-frank act had just passed. the sec was given a significant amount of new responsibilities. derivatives oversight of a trillion dollar integer, registration of hedge funds. as i mentioned in my testimony a number of new responsibilities. it was going to drive the hiring of a significant number of new employees. and those new employees needed space to be housed. there is a housing prices hiring mismatch. we typically can bring employees on at about 90 days. as you know, it takes indefinitely longer to house them. and so i think it's my understanding but i believe the people at the time felt very much under the gun to try to obtain space sufficient for the resources we were bringing in. because they used a flawed space estimate, we were originally
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looking at for properties in the d.c. area, oh by the way, against the chairman's guidance. she wanted to look and regions for housing -- >> which chairman? >> chairman schapiro. you want them to look at the regions for both our enforcement and examination staff because that's where a lot of the activity occurs, for whatever reason in this broken process a step and the facilities group disregard that directed. and then tried to look for space, and when he went to the estimate process that transit described and it was if later they arrived at a number of 900,000 square feet. once they hit that number and landed on that, the other three properties that were being considered were suddenly out of the equation. and so they believed they were left with one and only one property. it was an emergency situation. and they felt at the time i think that they were getting a good deal because the rental rate received was below the market rate appetite. so that's the way it was presented. >> okay. i'm just wondering if the type of office space is appropriate
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for a federal agency quite honestly that's top of the line space and i guess i'm wondering, i think would be probably, mr. foley then, what is the square footage rent for the clients that i guess are now subletting, or are we so blending with clients and are now? how is it working? there in the space but they are not -- city of other federal indices in that space, right? >> we are working with the sec to take it on but we have not come to agreement on a lease and a term within. we're still trying to figure out which agencies we might online. i understand they have subleased some space director with other agencies. but we were not a party to that. >> other federal agencies. what are you getting for rent on those? >> i don't know what they're getting. i do know it's at a higher rent than we had originally been on the hook for. >> so another federal agency is paying a higher rent?
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>> yeah, it's not a sublease. it's another federal agency. as i understand it, is paying a high rate. >> so you guys are paying basically a half a billion dollars and in your subletting its -- >> we are not subletting it. we been completed released on two-thirds of the space. >> okay. so that entity is now paying the landlord a higher rent? it has nothing to do with you. so another federal agency is now paying a higher rent and you are ultimately paying, is that right? >> that's my understanding, yes or. >> have you been working with those other agencies if it's a high-risk? >> we have not. as i mentioned, for large leases we have a number of controls in place and particularly for the district of columbia and the national capital region. we actually have rent caps that we put in place for all of our leasing actions to ensure that we did a good deal and we stay at or below the market. >> so let me just make sure i understand this. so you entered into a lease, i
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understand all the background. you've been released on two-thirds of that. and now that two-thirds is now being rented to another federal agencies, now a higher amount than the half a billion dollars that you ultimately working. i we just repeating what we went through? our other agencies? do we need to find to those are? this is like groundhog day. thank you for laughing. i don't even know how to respond. i didn't even realize that in my line of questioning, but i guess if you keep digging like we're doing we find more and more and more. i would like to find out, mr. chairman, whether we do, i don't know who to ask, who's the new entity? did they go through the process that we been talking about here? are we doing the same exact thing that the sec did? i mean, i'd love to have those answers because it's just not passing the smell test today. and maybe because we are the only hearing here today, that we are on top of this.
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because i think that's so critical to if you're developing and you have in place appropriate leasing guidelines based on all the foreigners and everything, and you entered into an m.o.u. with the sec, correct? >> the m.o.u. is for all leasing actions going forward. >> going for. and other things they may want to lease. basically i understand that. but how about the entities that are now taking over? you don't even know who they are, right? >> that was under their own independent authorities i believe. >> senator brown, if i might. fhfa, occ, are in that property now. >> so we are working with them today, i believe 350,000 square feet and we're working through our typical process to find a tenant and make sure that the rent is appropriate. >> great. listen, and you, mr. chairman, pulling this. again is another area. every time you hold a hearing i learn more and more about where
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we're wasting money. i'm hopeful the president and both houses are listening to what we are doing because we're giving them great things to just go and fix. executive order number one, fix it. >> as i said before, the gao gives us a to do list. and it's not just a high-risk for this committee or the center for the house. high risk for all of us including the president and his folks. the federal agencies and certainly of us. i want to just follow up on what senator brown's of questions, for the space that the sec is now occupying were about to occupy in the constitution center, sounds like they we occupying not as much space as richly thought, is that correct? >> we are on the hook for one-third of the space. we have no intent to occupy that space. >> at all? >> at all. >> all right.
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if you look -- >> went will be due in january 2013. and we firmly believe and are very optimistic in terms of our partnership with gsa that we'll be able to find a tenant between now and january 2013. >> that's good. give me some idea what the cost per square foot of that space would be if the sec were occupying the space in january of 2013, what are we talking a? >> at the time we're talking about $44, which would have jumped to $47 per square foot in six years. >> okay. somebody here at the table is better -- i know -- $44.447 hours per square foot, that would be pretty steep. maybe not so much year. but give us some idea, how does that number --
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>> i mean, all real estate is local. they are number of submarkets in the washington, d.c., area. and so rent is very, you know, fairly extreme it, but our rent cap for the district of columbia is $49 a square foot. so $44 is below the prevailing market rate. that said, there's some submarkets and locations within the district where you can get rent below that. >> so the other agencies, occ, what was the other one? >> fhfa. >> okay. that will come in and lease space at the constitution center but if they come i in the same rate, $44, $47, are you saying they would be under the overall office space for the? >> for the rent cap, yes. we have seen deals that are below that as i said in some locations. u..
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one of the advantages at gsa is we work with the office of management and budget and one of the issues the sec had in here in our testimony and working with them was developing that up front requirement and figuring out how many people they had and
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the rate utilization rate and were they going to be fully funded so for all our leasing actions we not only work with the agency to make sure we understand that but also work with our budget examiner and their budget examiner as i mentioned in my opening testimony to make sure the staffing levels are supported and the rental payment will be supported in the president's budget so we know the funding will be there to pay for it before we proceed on an acquisition like this. >> mr. heslop, the sec granted in 1990 -- a pointed out it took the fcc 19 years to establish a centralized assets to manage its facilities. >> that is my understanding. >> they established within its office of the ministry of
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service in april of 2009 and the policies and procedures until august of 2010. how many leases might have been awarded over that 19 year period of time? and you can do this with 20/20 hindsight. why did it take the sec so long to put a system in place that would allow organizations to effectively manage its leasing activity? >> it is my understanding we entered 32 leases over 20 years. i really can't speculate as to why they wouldn't put one in place. 32 leases in 20 years might say you need a full time leasing staff but i can't speculate. what i can say it is very
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apparent to us this is not a core competency the sec needs to be engaged in and that is why we are moving into a partnership with the gsa. >> you are the master of understatement. >> gsa is great in helping us out of this situation. >> good to hear. mr. heslop, how many does the sec manage? >> 15 in the portfolio. 11 regional offices and the constitution center we are still on the hook for and the station place facility where our headquarters is an operations center in northern virginia and we share space with other federal agencies and a small group site in southern virginia. >> how long did you working capital one? >> 12 years. >> taking your private sector experience at capital one and
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putting it side by side with the sec? >> 14 months. >> what kind of lessons learned would you like to impart to the rest of our federal government given what you have seen in real property management? >> in terms of real property management lesson learned for a small agency like ours, 3900 people with 700 contractors but it is about determining your core competency and divesting of those that are not. i was hired to be a change agent similar to your remarks earlier today. i am a taxpayer at heart and i was brought in to create change and move the sec to a more well managed environment. i tried moving us out of areas that are not our core competency
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and giving those 2 agencies that can do them better. we are doing the same with our financial management reporting system and federal shared service provider going in directions like that for small agencies is good advice. >> given the size of the constitution in terms of first quarter square footage and funding why didn't the sec seek assistance from gsa before entering into the lease? why do you suppose they didn't seek the assistance of gsa? >> i wish i could answer that. i can't monday morning quarterback that one. >> mr. wise, you indicated there are 46 agencies that have independent authority. some of these agencies with independent leasing of 40 have
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adequate expertise to in short -- ensure they are getting the best terms for themselves and their clients? >> we don't have a large body of work looking at that question but we did have a look where the national transportation safety board had some issues with the lease for its training facility in dallas dulles which should have been a capital lease which caused some real issues with the agency in terms of its accounting and getting its fiscal house in order. that leads to the larger point at mr. heslop talked about which you mentioned in your opening remarks. for smaller agencies that are not heavily engaged in real-estate activities as you know better than anyone it is our complicated environment to
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deal with leases and construction. if it is not a core mission or significant one for a small agency it is logical that they need to tread carefully in this area because it is easy to fall into problems when you have capacity issues or a challenge for the administrative side to deal with these things. >> agencies can purchase space. they can get designations somehow or they can go to the gsa and lease. how prevalent is the notion of lease purchase? is that something agencies do from time to time? and where it is more common? a smarter approach in certain
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instances? >> lease purpose is something gsa has done but that was prior to the budget enforcement act. it is one of those things that triggered capital lease if you have a -- leasing the other one is prohibited because it is scored up front. that said some of our releases prior to 1990 like the columbia example i mentioned were able to acquire that. we had a purchase option for $100 million. the building was worth $200 million and saving rent in the ballpark of $50 a square foot that we no longer have to pay once we take ownership of the buildings so there are a lot of advantages to doing something like that but it is an area similar to mr. sullivan said the budget enforcement act and scorekeeping rules limit flexibility we have had in the
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past. >> good to know. do you want to jump in? senator brown? >> i don't want to beat a dead horse but when you say we are on the hook for the space we are not using so you are not physically in the space. when you say the taxpayers are on the hook? >> the sec is funded by fees. we get appropriation from congress with a mixed trade off. it isn't direct taxpayer dollars but there is an obligation that will come do in january of 2013 if we are unable to find a tenant but the conversation is very optimistic between now and then. >> you are in another space you are paying for right now that you indicated throughout the
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region. >> right. 11 regional offices. >> thank you. >> mr. kotz. in your may of 2011 report you indicated the sec grossly overestimated the amount of office space it needed and might have violated federal law with $506 million. can you at constitution center, based on your findings what internal controls did the sec have in place to ensure leasing the appropriate amount of space at the most advantageous location? >> i don't think they had any significant internal control. that was part of the problem. they're putting controls in. >> what were they thinking? >> i don't know what they were thinking. >> did you ever ask?
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>> we did. what it came down to was a misunderstanding whether they needed the space. some folks did fall in love with the space and decided that was where they wanted to be. to be in one building and they wanted to have as much of the building as possible. the process that move forward in relatively quick time with a lot of for review or analysis and end up with a flawed process. >> as part of the opposition process for new agencies required to receive congressional approval for releases valued at $2.8 million or more. how was the sec able to enter the lease without congress being aware of problems associated with the lease? did their authority preclude them from having to receive
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congressional approval prior to executing the lease? >> one was the independent leasing authority and the other you mentioned several times, scoring issues. when you have the least you can allocate a certain amount for each year. if you allocate a certain amount you don't get over a particular threshold. if you purchase your allocate the whole thing and get over the threshold. by using a lease you can not be subject to certain notifications and in this case that was a big negative factor because had there been notification to omb, congress for gsa someone would have looked at it more carefully and come to a different conclusion. >> two more questions if i could. what would be the consequence if the sec were required to go through gsa for all future lease acquisition? >> i think there would be someone looking at the leases
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who is competent ensuring the taxpayer got the most value. it would be a very good thing. >> the constitution center lease was an anomaly or did the sec lacked internal controls insuring their rig getting the best possible term? i know the answer to the question. you don't have to answer. mr foley, when gsa are choir's space for federal agencies as you testified it delegated that according to many others. how many agencies delegated authority to lease agreements? >> delegated from gsa? i have that list here. just a second. looks like it is probably -- the largest user is usda. they have two thirds of the least delegations from gsa.
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many of the others are much smaller in terms of one or two specific transactions. >> what criteria does gsa used to determine if they -- >> we have a number of different criteria. the first is we look at the size of the requirements and for the most part we do not delegate anything over 20,000 square feet that comes into our agency. for the smaller requirements we look at their management plan and make sure they have a warranted contracting officer who can execute the lease and procurement and make sure they have a plan to follow appropriate procurement rules and regulations that would be under gsa and provide oversight to make sure there are following through with that. >> what type of oversight does gsa perform with delegated authority and these contracts?
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perez gsa verify the agency did not lease more space than it needed? >> that is an issue for us so we work with the agency's post award and we look at the lease contract to make sure it is in line with what we delegated. >> one of the things i like to do when we come to the end of a hearing and i will do it today is to just ask we had the opportunity to prepare for today and present your testimony and respond to our questions and let me ask you take a apiece and give us concluding remarks. we ask fningor ope remarks and the most valuable is a retrospective concluding remarks. we will start with mr. wise.
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what i focus on is how to develop consensus within executive legislative branch. how do we do that to get better results for less money? i am interested in getting things done and i think you are as well. the goal is consensus and do it to get better results. >> i conclude with two points. when you talk about building a consensus and bipartisanship, it is a promising start in that direction that will hopefully lead to some efficiency and cost savings for the taxpayer. it is a good start for good thought process to be developing as this moves forward and the differences are reconciled between the three versions. the second point is we think it is important in terms of looking
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at the issue of leasing purchasing and scorekeeping that omb work toward a strategy that will rationalize the process. >> thanks. >> i would say two things. has attacks their i would be supportive of this approach approach as opposed to the -- as a former army officer i have seen benefits added and also would come back to the comments i had for small agencies determining core competence and when it is not and finding a home for those things that would hit your agenda about saving tax dollars. >> what did you do in the army? >> i had a variety of assignments. it ranged from troop leader through operations research analyst through working as chief of staff to the chief of staff of the army.
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a wide variety. >> how long did you serve? >> 22 years. >> thanks for that service. mr kotz? >> what struck me is what you said about disincentives. there should be an incentive to leave churches -- first is purchasing. maximizing value for the taxpayers where the incentive needs to be whether it is purchasing or leasing and we have grown away from that by focusing on one particular effort. if something was done to put the appropriate incentives in place we would be in better shape. >> there might be an exception when leasing makes more sense. we need a lot of space every ten years. >> if the incentive was to maximize value it would be -- >> thanks. mr. sullivan.
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>> we heard the critical nature of good internal control and professionally groomed contract and project management staff spending significant time and resources to make sure our leasing staff is fully trained and meets all requirements and has a strict internal controls. every lease is reviewed by numerous offices including general counsel and the secretary. i can assure you most of the folks think too much review. i don't agree with that but we have strict internal controls. the underwriting in terms of providing medical service is different from office space. leases work well because the population may shift who we provide service to and one thing that is more apparent over time is the technology of providing medical service changes so if we
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do a ten year lease the way we provide m r is ten years ago radiology treatment and all those things have changed. the building needs to be updated for the latest medical technology and radiology and other medicines. leasing it works well for that. the third thing that is key to this is to find a way to incentivize the scoring process to be more rational and to help us to invest where we need to. >> mr foley, you get the next to the last word. >> appreciate your comments about consensus. gsa has a well-trained professional staff across the country. the area where everyone is in agreement there is very and approaches on where to deal with this but there needs to be some reform in terms of real property. we need to give agencies the
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tools to manage their property effectively. the administration's proposal for surprise as much as $50 billion in savings that could be achieved. by giving them incentives to get rid of property they don't need and help them fund those up front costs to utilize existing space or dispose of property they don't need and creating an independent panel that offsets competing stakeholder interests that you mentioned and we spoke about in the hearing today there are ways to streamline the process and make it much more effective for the taxpayers and save billions of dollars. >> let me ask a question of our staff. how long do members have to submit questions for witnesses? two weeks. what period of time for submitting additional statements or materials for the record?
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maybe two weeks. we will double check that. we say to republican staff anything you have for our witnesses? how did they do? pretty good? anything else? on behalf of senator brown and myself and those who have we not been able to join us we appreciate your testimony. i was talking with staff yesterday about whether to go forward with the hearings. a lot of house members and senators left on monday and some are still around but most are gone. this is not the sexiest topic to be holding a hearing on. we are delighted to have media
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coverage demonstrated here today. we are talking about a lot of money here. we are talking about a lot of money not being spent wisely. going forward, almost everything we do in this government we have to get better results for less money and in this case the leases are paid by user fees or appropriation just have to find ways to do almost everything whether it is defense for non-defense, got to get better results for less money. this is an area that is best for years. for one reason or the other we have risen to the occasion. we talk about being on watch. i am on watch until next year. as the chair of this committee a number of colleagues surge on we
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are going to fix this problem. we will put in place a solution to fixing this problem and we appreciate your help getting his head in the right direction and we appreciate the willingness to help us going forward to make sure we get to the destination that we would arrive that. thank you all for joining us today and your testimony and preparation and responses and willingness to helped make sure we get the ship headed to the right port. thanks so much. [inaudible conversations]
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[inaudible conversations] [inaudible conversations] >> could be some movement on the f a bill. the partial shutdown of the federal aviation administration to come to an end soon. senate majority leader harry reid saying there's an agreement on a bipartisan compromise to
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end the shutdown which left 74,000 transportation and construction workers are told. officials expect the senate to accept a measure passed by the house as early as tomorrow. said it is in session tomorrow. it is designated a pro forma session but could be more. we will have live on 10:00 a.m. friday. starting at 8:00 p.m. eastern a house foreign affairs subcommittee holds a hearing on ethnic cleansing and continuing humanitarian crisis in sudan. republican congressman jim jordan speaking to members of the young america foundation. after that bloomberg business week economics editor peter corley talks about why he believes that that is worse than americans think and remarks from assistant treasury secretary mark every on retirement issues facing baby boomers and what can be done to reach financial stability in old age. >> on booktv john farrow on a
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life and times of clarence darrow. afterwards amanda foreman on a british citizen who fought for the union and the confederates. live sunday at noon eastern three hours of your calls and questions. in depth with ann coulter. her latest is the monarch? how the liberal mob is endangering america. sign up for booktv alerts. >> c-span radio features more lbj tapes caring for the first time. final releases from the johnson library. hear conversations between the president and the secretary of state and richard russell. >> i am trying as hard as i know how to get peace in viet nam as quickly as i can. for the reason i am not running.
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>> listen to c-span radio in the washington d.c. area at 91 f m and satellite channel 119 and online at >> with thises before a senate banking committee said 30 year fixed mortgages could become a thing of the past if government backing for home mortgages goes away. those low in terms our product of the to be announced market where government-backed securities are sold. those securities are issued by fannie mae and freddie mac, companies controlled by the government since the 2008 financial crisis lawmakers are exploring different options for reducing government's role in the home mortgage market. this is just over an hour.
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>> in may the subcommittee conducted a hearing on the securitization. this morning's hearing continues examination of the securitization market with particular focus on part of the securitization system important to for housing finance and this is part of the to be announced market. in nearly 70s they began as a trading venue for securities issued by ginnie mae and expanded as fannie mae and freddie mac began issuing mortgage-backed securities. this market has evolved and is one of the most liquid markets in the united states with average daily trading volume in excess of $320 billion second only to the united states treasury securities. the name of the market to be announced is from the way the market functions. unlike the traditional marketplace investors did not know the pools of loans they agreed to purchase until months
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later. the collateral is designated to be announced at a date in the future. many argue the tb a market is vital to preserving key markets consumers rely upon such as 30 year fixed rate loan. and ability to lock in an interest rate prior to closing a mortgage. the only securities traded in the tb a market are eight securities the find as those issued or guaranteed by fannie mae and freddie mac and jenny made it serves as a benchmark for privately issued securities which are priced relative to the tb a price. in addition original issues to purchase and sell positions to hedge the origination of loans that are not eligible for trading for example adjustable rate loans and jumble loans. as we continue to explore different approaches to reforming the housing finance
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system is critically important we understand how the tea be a market works and what impact reforms have on this market and how many changes affect the mortgage product by consumers, what characteristics of this market should be preserved. i look forward to hearing from all of our witnesses on these issues. this is a vitally important part of our mortgage industry. we have to understand the basics before we move forward. have all of our hearings the point is to accumulate the information and insight to deal with major issues with respect to housing. i would like to introduce the ranking member. >> thank you. appreciate your kind words. i enjoyed our working relationship. i appreciate the opportunity to have this hearing on the tee be a market.
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it serves a valuable role in the mortgage finance system and we need to better understand the mechanics as we move forward with housing finance reform. today's witness have deep expertise with respect to the tb a market and we will explain our allies mortgage originators to hedge their risk in interest rates between the time the mortgage is locked in and the time it is actually closed and securitized. the main components are the standardization and securities and market practices and government guaranteed timely payments. according to a federal reserve report on the tee be a market that the liquidity of agency mortgage-backed securities cannot be attributed solely to the implicit government guarantee of mortgage-backed securities. going forward the question is how the tea be a market might change and develop without fannie mae and freddie mac
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guarantee and what tradeoffs do we need to consider? to answer that question we need to understand the feasibility of a private tv a market and whether it would have the liquidity sufficient for mortgage companies to hedge their interest-rate risk. mr. chairman i appreciate this hearing and look forward to what our witnesses share with us today. >> would you like to make opening comments? >> looking forward to the witnesses and appreciate you calling the hearing. >> let me introduce our panel. first is mr. thomas hamilton, managing director of barclays capital. he securitized products trading at barclays including residential and commercial mortgage-backed securities and other asset backed securities. he joined barkleys capital in 2004 after 15 years at citigroup where he was managing director. he securitized the product division and held that position
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for seven years. paul van valkenburg with mortgage advisory corp. registered investment adviser which he helped perform prior to m i ac he worked in research with major wall street firms including goldman sachs and co.. he has worked on loan portfolios for that institutions actively restructuring their asset liability composition developing pricing models for whole loans and mortgage-backed securities and analyze prepayment risk in mortgage-backed structured product. selections were published in the handbook of mortgage-backed securities and interest-rate risk model theory and practice. andrew davidson is president of andrew davidson and company. new york firm specializing in development and application of analytical tools for the mortgage-backed securities market that surge 150 financial institutions. he has written on mortgage-backed securities,
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product development and hedging. prior to the founding of andrew davis and co. he worked at merrill lynch as managing director in charge of 60 financial and systems analyst. we begin with mr. hamilton. your testimony is part of the record. please feel free to summarize and make the points. >> good morning members of the subcommittee. i am thomas hamilton, managing director of barclays capital responsible for secure a ties product trading business. i am pleased to testify on behalf of the financial markets association. housing is a critical component of our economy and the center of a virtuous circle. housing gets jobs which the get housing. consequently the u.s. mortgage market is the enormous. the home mortgage market is approximately equal in size to the size of u.s. bank balance sheets.
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given banks engage in activities other than residential mortgage lending their balance sheets alone cannot meet the country's need for mortgage credit. jenny may, fannie mae and freddie mac and private institutions use securitization to provide capital that allows growth of mortgage lending beyond the capacity of bank balance sheets. today private securitization in agency's finance 70% of outstanding home mortgages and it is imperative securitization play a key role in future mortgage finance system. the market issued by the agency's is three times the size of the outstanding non agency private-label m b s market. in this agency and be as market the tb a market is the largest component. it is the key to funding mortgage lending and because of this place a critical role in housing and the u.s. economy. the liquidity of the market in
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contrast has a lack of issuance in the am be as market preserving the availability of mortgage credit in the recent crisis. the ability to maintain liquidity in stressed periods is the key benefit of the market. the liquidity and resilience of tb a market attracts a wide range of investors who provide capital cycle and to mortgage lending including retirement savings insurance companies and foreign investors. the vast liquidity and trading major of the tee be a market provides key benefits to consumers such as broad availability of 30 year fixed mortgages that may be prepaid without penalty and significant and significant liquidity in the secondary mortgage market. this results in a stable and attractive funding source providing lower mortgage rates and longer-term rate locks for
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borrowers ku enabled another round of mortgage lending. the market is facilitated by the guarantee of the agency and the support of the government stands behind them. currently over 90% of mortgages are financed through one of these agencies. this level of support is possible because agency m b s did not expose investors to credit risk and the market is attractive to risk averse investors with vast sums of capital for investment. without the tee be a market we believe the majority of investment capital would be directed elsewhere reducing funding for and raising cost of mortgage lending. therefore maintaining a liquid and viable market should be considered as congress addresses reform. with that said the reality is
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this current outside role of the government is not sustainable over the long term and should be reduced. that tee be a market role and the government's role should shrink as markets regenerate overtime. the means of achieving this rebalancing are complicated and consequential on a national, financial and personal level. the tb a market should play a role in the future and certainly should not be 90% of a market. there are a number of challenges for the resurrection of the private label on agency market including uncertainty faced by not agency m b s investors and issuers. the rules of the road for both sides are not clear. until they are it will be challenging for issuers and investors to see eye to eye and securitization transactions. at least in the volume and frequency necessary to fund mortgage credit demand. being able to withdraw the government for mortgage markets will require carefully planned
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and sequenced transition which could take many years. it is essential to remember the necessary volume of non agency investors will not simply appear because we would like them to. they must be drawn back in, made comfortable with private label securitization and regulatory environment. it is critical the planning and execution of significant changes to the funding of mortgage loans be done with attention to detail, based on sound analysis of costs and benefits, mindful of unintended consequences and create long-term beneficial and stable environment. we cannot predict the future but we can use the past as a guide to and apply lessons learned and mistakes made. the good and bad to design a system that will stand the test of time. we hope the testimony we presented they will be helpful in educating policymakers about
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how mortgage loans are funded in capital markets. the critical role of the tb a market and the critical issues that must be considered to move forward. thank you for this opportunity and i am happy to take questions. >> mr. van valkenburg. turn on the microphone. >> good morning members of the subcommittee. thank you for the opportunity to testify today on current and prospective role of the tb a market in the housing finance system. in my written testimony offered a description of how the current t be a market in direct with the mortgage industry and prospective borrowers. it is a complex process but hopefully useful to the committee. t b a markets provide the exit price to long-term fixed-rate mortgages and enable the bar were to accept capital that otherwise would not be available. that he be a market is principal mechanism for the flow of capital into the housing finance
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system. in the proposed solution must preserve the market liquidity in order to enable mortgage companies and borrowers to access this capital efficiently. given gsas current and prior system is clearly flawed i would argue the principal cause of the failure of the undercapitalized against the anticipated credit events requiring the gsas to restrict them to only investing in u.s. residential mortgage investment. amid pricing of the guaranty fees loosening of loan underwriting standards and lack of independence from political goals. a fully functioning housing system should share the goal of the administration's option 1 to, quote, minimize distortion in capital allocation across sectors. the reduce moral hazard and
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mortgage lending and direct taxpayer exposure to private lenders losses. date stated concern over this option from the treasury secretary is the credit risk will be transferred to the banking system and as a result expose the insurance bond to this risk. i disagree with this conclusion. i believe the credit risk providers could be a mix of private insurance companies the personal credit default swaps and if necessary government guarantors'. the risks could be in the banking system but not all of it. gsas provide 30-year guarantees to investors, this guarantee is a case of pool insurance and a case of credit default swaps. when asked whether credit defaults what is i usually
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answer gsa guarantee is a classic example because it is the largest credit default protection rider. of mortgage pool pays a guaranteed fee in exchange for payment of principal and interest on the mortgage pool. significant difference the windy gst guarantee and actual td s is the trade in an active market with real price discovery and risk transference. the amount of credit risk of mortgages with psc guarantee is enormous and there's ample room for private market to develop to price and exchange of the credit risk. i believe private financial institutions will price and trade this risk and spread this risk across the financial system and reduce exposure to taxpayers. with such a mechanism to provide credit risk the tb a investor will be protected. the mortgage borrower will be benefited and systematic risk will be reduced. i believe the preference of the
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committee should be to explore how to create privately guaranteed residential credit market that will be private or if the costs are too high as the market develops private guarantees the development of a private market will take time and involve continual oversight. the psc exists today and we have time to transition to private credit markets to let it develop. i believe the committee should explore hybrid private government solutions to avoid reduce the problems of government guarantees. a private market solution be developed the liquidity of the future tb a market would be sufficient for mortgage companies to hedge their interest-rate risk and benefits would be substantial. thank you. >> mr. davidson. >> you heard from the other
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witnesses the tb a marketplace role in the mortgage market. with monthly trading totaling $5 trillion it is an incredible achievement of the financial system. it helps lower mortgage rates, facilitates rate loss for bar were seeking to buy homes and made mortgages available for the financial crisis. i appreciate the opportunity to discuss this market with you. next few minutes i would like to highlight key points of my reinstatement. we can point to futures of a market that make it useful it is not easy to predict which market innovations will succeed. much success depends on the confidence of a participants. a shift in confidence can lead to a rapid change in the viability of the market. currently the tb a market enjoys a degree of confidence. this confidence is not just the result of good institutional design but a long history of successful and dedication to
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change. whether or not the tb a market will be able to adopt changes in the housing finance market and the gsa is difficult to predict with accuracy. i can't provide a definitive answer but i can give you my views on several proposed changes based on 25 years of experience in the mortgage market. most important change would be the elimination of government guarantee on congressional loans. it was only implicit until the conservative ship -- it guaranteed an important role in the structure of the tee be a market. i do not believe it could survive the loss of government guarantee. if the tb a does not survive the market will develop other mechanisms to facilitate hedging and funding of mortgage loans but mortgages especially fixed rate mortgages would be more expensive, less available and more subject to market structure. other proposals suggest
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increasing the number of issuers. the idea that multiple issuers would increase competition and decrease concentration risk. such a proposal has other benefits but this would be negative to the tb a market of marble issuers make good delivery rules more complex and less workable. in the end it is likely one or two issuers would dominate the market. some proposals recognize this problem and recommend a single government issuer with multiple insurers. such a proposal is consistent with the survival of the tv a market as jenny may operate in a similar fashion. a single government program for all mortgages runs the risk the issuer will be unable to adapt to changing conditions and will be less flexible than the gsas have been. many proposals require any government guarantee beyond and bs and other -- not other obligations of the guarantor and
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this is a positive step in the tb a market if successors are primarily focused on securitization they will continue to maintain the liquidity of the and the s and t be a market. many proposals recommend the government guarantee only a catastrophic guarantee that reduces risk to the taxpayer while enhancing the liquidity of m b s. this will be consistent with the tb a market provided investors in mortgages to not face credit risk. this means the credit risk must be a absorbed by private capital outside the tee be a mechanism and government guarantee must fully protect investors in the eligible mortgages. the approach i favor is to provide private capital in the form of support that bonds. private capital would provide funding for subordinate bondss and the government provide a guarantee on senior bonds.
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protected by laws of private capital would facilitate liquidity on the senior guaranteed bond. such a program could be structured to be consistent with the tb a market. as an important direction of reform, the pace of change. given the weak state of the housing market and lack of currently viable alternatives to government guaranteed am b.s. it would be disruptive to move too quickly to eliminate fannie mae and freddie mac and replace them with an alternative structure even if that alternative was better designed and more economically sound. on the other hand it action poses dangers as most mortgage loans are still relying on government guarantees and conservatorship is not a viable long-term option. instead of wholesale replacement of gsas or not taking action at all i believe it is possible to transform the existing gsas step-by-step to a new system.
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in particular i recommend they be encouraged or required to stand in front of the taxpayers'. even in conservatorship with mortgage insurance, subordinated bonds could be used as templates for the long-term restructuring of the system. thank you for your interest in my comments and look forward to your questions. >> thank you for your testimony about an important and challenging topic. we will do seven minute rounds but i will entertain a second round if there are additional questions. we have the luxury of excellent panelists and three -- to take some time. you highlighted the fact that the market highlights
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availability of certain mortgage products with fixed mortgage loans and lock in interest rates. changes we are talking about how would they affect these characteristics? the other way to ask is will this be a trade-off in terms of what we expect of fixed rates locked in 30 years? how is this going to interact? i would like your general comments. >> there's a trade off. one of the benefits is we were able to get 30 year fixed mortgages and keep monthly payments low. the elimination of that will force us into a floating market or something with shorter duration and more volatility for the homeowner in their monthly
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payments. >> mr. van valkenburg. >> the government guarantee enables the risk to be absorbed by the investor or transferred to the homeowner. the guarantee is functioning that the mechanism the borrowers and mortgage companies are price takers taking the information and if they have an outlet to sell the loans they used the mechanics in place so having a liquid market and 30 year mortgages, the means by which they can execute the transaction. >> mr. davidson? >> without some guarantee we will have fewer fixed mortgages and rates would be higher but
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more importantly the stability of the availability of mortgage credit would be much lower. private markets when you go through a shock to the financial system is that back for a while and it takes a while to recover. during that time mortgages would be less available. >> let me ask the question again. a lot depend on what goals we have when we go into it. if the goal is to maintain what people assume is the american mortgage, long term, not 30 years but 20, fixed rates and relatively low monthly payment, can we do that without a guarantee from the federal government? >> certainly much less likely
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that the percentage in 30 year fixed rate mortgages without government guarantee. turned out there are some investors who want to take prepayment risk but don't want to deal in credit risk but engage in transactions where they can by hundreds of millions of dollars of securities at one point in time and without removing the credit risk is difficult to see how to create that market. >> if we said tomorrow let's start a market it would obviously failed to transfer the risk involved in a 30 year mortgage but if we develop a process where this could be transferred to private holders of the risk it all comes down to a price. we don't know what the price would be because the government assuming that risk and subsidizing that risk so the
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market would take years to developed in order for the risk to be priced at risktakers to develop before we could understand what potential investors would require to aboard the risk. >> your comments? >> the market will develop whatever rules are brought to them. 30 year mortgage would be less available and credit availability that you could access would be a significantly higher price with significant impact on the housing market. >> let me ask another question alluded to by your testimony which is there's a lot of capital going into this market because the way it is
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structured, the aspects -- the presumption from your comments is in some respect that capital won't go there any longer if guarantees change and it raises the question where does the capital go? is that a good thing or a bad thing? in terms of the overall economic performance of the country. >> there's a lot of foreign investment, money-management, retirement funds putting large amounts of dollars into the u.s. mortgage market due to the fact they don't want to take credit risk. is there a market for that credit risk? i believe there is but we're
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talking a large transition from a market determined by rates and investors who don't care about rates to investors who cares about credit and the transition to do it in orderly fashion we are talking ten or 15 years. is not an easy scenario. >> mr. van valkenburg and mr. davidson and my time is done. >> whatever you subsidize you get more of it but the government is subsidizing the housing sector in many ways along the food chain particularly the guarantees in one area so we get a little more access to consumer credit that we would otherwise. hard to quantify without price discovery about what private institutions would pay for that risk. >> part of the transition phase -- >> if we develop credit markets


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