FROM: U.S. JUSTICE DEPARTMENT
Monday, February 24, 2014
Attorney General Holder Urges Congress to Create National Standard for Reporting Cyberattacks
In a video message released today, Attorney General Eric Holder called on Congress to create a strong, national standard for quickly alerting consumers whose information may be compromised by cyberattacks. This legislation would strengthen the Justice Department's ability to combat crime, ensure individual privacy, and prevent identity theft, while also helping to bring cybercriminals to justice.
The complete text of the Attorney General’s weekly address is available below:
“Late last year, Target – the second-largest discount retailer in the United States – suffered a massive data breach that may have compromised the personal information of as many as 70 million people, in addition to credit and debit card information of up to 40 million customers. The Department of Justice is currently investigating this breach, in close coordination with the U.S. Secret Service. And we are moving aggressively to respond to hacking, cyberattacks, and other crimes that harm American consumers – and expose personal or financial information to those who would take advantage of their fellow citizens.
"As we’ve seen – especially in recent years – these crimes are becoming all too common. And they have the potential to impact millions of Americans every year. Just days after the Target breach was made public, another major retailer – Neiman Marcus – reported that it also suffered a suspected cyberattack during the holiday season. And although Justice Department officials are working closely with the FBI and prosecutors across the country to bring cyber criminals to justice, it’s time for leaders in Washington to provide the tools we need to do even more: by requiring businesses to notify American consumers and law enforcement in the wake of significant data breaches.
“Today, I’m calling on Congress to create a strong, national standard for quickly alerting consumers whose information may be compromised. This would empower the American people to protect themselves if they are at risk of identity theft. It would enable law enforcement to better investigate these crimes – and hold compromised entities accountable when they fail to keep sensitive information safe. And it would provide reasonable exemptions for harmless breaches, to avoid placing unnecessary burdens on businesses that do act responsibly.
“This legislation would strengthen the Justice Department’s ability to combat crime and ensure individual privacy – while bringing cybercriminals to justice. My colleagues and I are eager to work with Members of Congress to refine and pass this important proposal. And we will never stop working to protect the American people – using every tool and resource we can bring to bear.”
Showing posts with label CONGRESS. Show all posts
Showing posts with label CONGRESS. Show all posts
Tuesday, February 25, 2014
Saturday, January 11, 2014
NATIONAL TAXPAYER ADVOCATE DELIVERS REPORT TO CONGRESS
FROM: INTERNAL REVENUE SERVICE
National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Taxpayer Bill of Rights and IRS Funding
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her 2013 annual report to Congress, urging the Internal Revenue Service to adopt a comprehensive Taxpayer Bill of Rights – a step she said would increase trust in the agency and, more generally, strengthen its ability to serve taxpayers and collect tax. The Advocate also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that the IRS annually receives more than 100 million telephone calls from taxpayers and that, in fiscal year 2013, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with an IRS customer service representative.
“The year 2013 was a very challenging one for the IRS. Because of sequestration, the IRS’s funding was substantially cut, which translated into a reduction in taxpayer service,” Olson said in releasing the report. “Public trust in its fairness and impartiality was called into question because of reports the IRS subjected certain applicants for tax-exempt status to greater review based on political-sounding names. And because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds.”
Olson continued: “From challenges can come opportunities, and this report presents a ‘21st century vision’ designed to meet taxpayer needs and enhance voluntary tax compliance.”
TAXPAYER BILL OF RIGHTS RECOMMENDED
The report reiterates the Advocate’s longstanding recommendation that the IRS adopt a Taxpayer Bill of Rights (TBOR). In a prior report, Olson analyzed the IRS’s processing of applications for tax-exempt status and concluded its procedures violated eight of the ten taxpayer rights she has proposed. Today’s report argues that the rationale for a TBOR is much broader.
“Taxpayer rights are central to voluntary compliance,” the report says. “If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply.”
The report emphasizes that the U.S. tax system is built on voluntary compliance. Ninety-eight percent of all tax revenue the IRS collects is paid timely and voluntarily. Only 2 percent results from IRS enforcement actions. For the taxpayer, voluntary compliance means not having to face IRS enforcement. For the government, voluntary compliance is cheapest, because enforced compliance requires the IRS to devote resources to detecting and collecting amounts that are not voluntarily reported or paid.
While arguing that knowledge of taxpayer rights promotes voluntary compliance, the report cites a survey of U.S. taxpayers conducted for TAS in 2012 that found less than half of respondents believed they have rights before the IRS and only 11 percent said they knew what those rights are.
“The Internal Revenue Code provides dozens of real, substantive taxpayer rights,” the report says. “However, these rights are scattered throughout the Code and are not presented in a coherent way. Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them.”
The report calls on the IRS to take the taxpayer rights that already exist and group them into ten broad categories, modeled on the U.S. Constitution’s Bill of Rights. The report says the “simplicity and clarity” of a thematic, principle-based Taxpayer Bill of Rights would help taxpayers understand their rights in general terms.
“A Taxpayer Bill of Rights would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS,” the report says.
The ten rights the Advocate is proposing are detailed in the report. Olson has been in discussions with senior IRS officials about publishing a TBOR, and TAS has just completed a series of focus groups with taxpayers and preparers to gauge reaction to, and comprehension of, the proposed list. Olson said the IRS has been open to publishing a proposed TBOR, and she will continue to work with the IRS leadership to refine and publish a TBOR during the coming year.
IRS FUNDING INADEQUATE
The report identifies the lack of adequate IRS funding as a top problem for taxpayers. Each year, more than 100 million taxpayers call the IRS for help and millions more visit IRS walk-in sites or send correspondence. Key metrics show the agency is increasingly unable to keep up with taxpayers’ demand for help in complying with their tax obligations.
“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report says. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.” The report also points out that federal spending cuts, which are designed to reduce the budget deficit, have the effect of increasing the deficit when applied to the revenue collection agency.
Impact on Taxpayer Service. The report says the IRS’s workload has increased over the past decade, and since FY 2010, IRS funding and staffing have been cut by 8 percent. The report highlights key areas in which the quality of taxpayer service has dropped to unacceptable levels:
Last year, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with a customer service representative (CSR). That’s down from 87 percent ten years earlier, with half the decline occurring since FY 2010. In FY 2013, 39 percent of calls (some 20 million) simply did not get through.
Taxpayers who did get through had to wait on hold approximately 17.6 minutes before speaking with a CSR. That’s up from 2.6 minutes ten years earlier, a nearly six-fold increase, with nearly half the increase occurring since FY 2010.
Millions of taxpayers visit IRS walk-in sites each year for assistance. Ten years ago, the IRS answered some 795,000 tax law questions in the sites during the filing season. Last year, it handled about 110,000 tax law questions during the filing season – a reduction of 86 percent.
The IRS historically has prepared tax returns for taxpayers seeking its help, particularly for low income, elderly, and disabled taxpayers. Ten years ago, it prepared some 476,000 returns. That number declined significantly over the decade, and the IRS recently announced it will no longer prepare returns at all.
Last year, the IRS received about 8.4 million letters from taxpayers responding to proposed adjustments to their tax liabilities. As of the end of the fiscal year, 53 percent of taxpayer letters in the IRS’s “adjustments” inventory were considered “over age” (generally, more than 45 days old). That compares with “over age” percentages of 12 percent ten years earlier and 28 percent in FY 2010.
The IRS recently announced it will only answer “basic” tax law questions on its telephone lines and in its walk-in sites during the upcoming filing season and it will not answer any tax law questions after the filing season, including questions from the millions of taxpayers who obtain filing extensions and prepare their returns later in the year.
Olson made clear that the deficiencies in taxpayer service are attributable primarily to a lack of resources. Regardless of cause, she wrote, “it is a sad state of affairs when the government writes tax laws as complex as ours – and then is unable to answer any questions beyond ‘basic’ ones from baffled citizens who are doing their best to comply.”
The Advocate expressed particular concern about the magnitude and impact of cuts to the IRS’s training budget. Since FY 2010, the IRS’s training budget has been cut from $172 million to $22 million. “If IRS customer service representatives are not well trained, taxpayers calling for help are more likely to receive incorrect information or no information,” the report says. “If IRS enforcement employees are not well trained, auditors may make inappropriate adjustments and assessments, and collection employees may issue inappropriate levies or file inappropriate liens.”
Impact on Voluntary Compliance and Revenue Collection. The report notes that the cuts to IRS funding since FY 2010 have been made as part of across-the-board reductions to federal discretionary spending designed to reduce the budget deficit. But “the logic behind budget cuts simply does not apply to the funding of the IRS,” the report says. The IRS collected $255 for each $1 it received in appropriated funds in FY 2013. “If the Chief Executive Officer of a Fortune 500 company were told that each dollar allocated to his company’s Accounts Receivable Department would generate multiple dollars in return,” the report says, “it is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed. Yet that is essentially what has been happening with respect to IRS funding for years.”
Olson said IRS funding is shortchanged because the federal budget rules treat the IRS the same way they treat all spending programs – with no “credit” given for the revenue it collects. “This procedure makes little sense when applied to the IRS,” she wrote. “For virtually every other spending program, a dollar spent is just that – it increases the deficit by one dollar. But a dollar spent on the IRS generates substantially more than one dollar in return – it reduces the budget deficit.”
The report reiterates the Advocate’s longstanding recommendation that the relevant congressional committees work together to develop new procedures to fund the IRS, with the goal of maximizing tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.
OTHER KEY ISSUES ADDRESSED
Federal law requires the Annual Report to Congress to identify at least 20 of the “most serious problems” encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 25 problems, makes dozens of recommendations for administrative change, makes five recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.
Among the “most serious problems" addressed are the following:
Need for Return Preparer Oversight. In 2002, the National Taxpayer Advocate began advocating for regulation of unenrolled tax preparers to protect taxpayers from incompetent and unscrupulous preparers. In 2011, the IRS began implementing regulations to register, test, and require continuing education for unenrolled preparers. In 2013, a U.S. District Court invalidated regulations governing the IRS’s testing and continuing education requirements, holding that they exceeded the authority of the Treasury Department to impose absent authorizing legislation. If the district court’s decision is upheld on appeal, the Advocate urges the IRS to adopt a multi-pronged strategy to protect taxpayers by pursuing education and enforcement options that are unambiguously within its purview. Of particular note, the Advocate recommends that the IRS give unenrolled preparers an opportunity to earn a voluntary testing and continuing education certificate and limit the ability of unenrolled preparers who do not earn the certificate to represent taxpayers in audits of returns they prepare. The Advocate also recommends Congress enact legislation to clarify that the IRS may regulate unenrolled paid preparers directly.
The IRS’s Conceptual Approach Toward Collection of Delinquent Tax Liabilities. The report urges the IRS to fundamentally reassess its traditional approach toward Collection. In her preface to the report, Olson cites third-party studies that often use the number of levies served and liens filed as a measure of the Collection function’s effectiveness. Contrary to this “conventional wisdom,” she notes, IRS Collection revenue actually increased in the aftermath of the IRS Restructuring and Reform Act of 1998 when the IRS reduced levies served by 94 percent and liens filed by 47 percent. Similarly, she notes that Collection revenue has increased slightly over the last few years, despite a 51 percent reduction in levies since FY 2011 and a 45 percent reduction in liens since FY 2010. Olson says that earlier personal contacts with delinquent taxpayers and more flexible use of payment options for financially struggling taxpayers, such as installment agreements and offers in compromise, would be more effective than increasing the number of levies and liens filed by automation. The report acknowledges that the use of levies, liens, and seizures remains appropriate with respect to taxpayers who can afford to pay their tax liabilities but refuse to do so.
The Impact of the IRS’s Offshore Voluntary Disclosure Programs on Taxpayers Who Make Honest Mistakes. The IRS has sought to increase enforcement of Foreign Bank and Financial Accounts (FBAR) reporting and similar information reporting requirements in recent years and has offered a series of offshore voluntary disclosure (OVD) programs to settle with taxpayers who have failed to file the required forms. However, the report says, the programs impose excessive penalties on taxpayers whose failure to file was not “willful.” Analyzing results from the IRS’s 2009 OVD program, the Advocate found the median offshore penalty was about 381 percent of the additional tax assessed for taxpayers with median-sized account balances, and 580 percent of the tax assessed for taxpayers with the smallest account balances (i.e., the bottom 10 percent, with an average $44,855 account balance). Taxpayers who “opted out” of the OVD program and agreed to subject themselves to audits fared better but still faced penalties of nearly 70 percent of the tax and interest. While FBAR penalties are computed as a percentage of account balances rather than tax liabilities, the report offers the comparison to illustrate that the penalties are often Draconian and may deter other taxpayers from coming into compliance.
New TAS Research Studies on Tax Compliance. Volume 2 of the report contains six research studies, including three that relate directly to tax compliance:
An assessment of accuracy-related penalties imposed on Schedule C filers found that penalties do not increase future reporting compliance.
A comparison of the effectiveness of Revenue Officers (ROs) and the IRS’s Automated Collection System (ACS) in addressing employment tax liabilities found that ROs collected more dollars and resolved delinquencies more quickly than ACS, but neither channel was effective at promoting future tax compliance.
A study regarding tax compliance by sole proprietors found that taxpayer service and social norms were the two most influential factors affecting compliance behavior. Contrary to expectation, the study found that traditional deterrence theory did not play a role in promoting compliance, possibly because sole proprietors were particularly motivated by short-term cash flow needs.
Volume 2 also contains an analysis designed to further the National Taxpayer Advocate’s 2009 recommendation that the IRS develop a plan and timeline to achieve an accelerated third-party information reporting and document-matching system. The analysis describes the steps that must be taken and the benefits to taxpayers and the IRS of accelerating receipt and processing of third-party information reports, such as Forms W-2 and 1099.
National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Taxpayer Bill of Rights and IRS Funding
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her 2013 annual report to Congress, urging the Internal Revenue Service to adopt a comprehensive Taxpayer Bill of Rights – a step she said would increase trust in the agency and, more generally, strengthen its ability to serve taxpayers and collect tax. The Advocate also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that the IRS annually receives more than 100 million telephone calls from taxpayers and that, in fiscal year 2013, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with an IRS customer service representative.
“The year 2013 was a very challenging one for the IRS. Because of sequestration, the IRS’s funding was substantially cut, which translated into a reduction in taxpayer service,” Olson said in releasing the report. “Public trust in its fairness and impartiality was called into question because of reports the IRS subjected certain applicants for tax-exempt status to greater review based on political-sounding names. And because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds.”
Olson continued: “From challenges can come opportunities, and this report presents a ‘21st century vision’ designed to meet taxpayer needs and enhance voluntary tax compliance.”
TAXPAYER BILL OF RIGHTS RECOMMENDED
The report reiterates the Advocate’s longstanding recommendation that the IRS adopt a Taxpayer Bill of Rights (TBOR). In a prior report, Olson analyzed the IRS’s processing of applications for tax-exempt status and concluded its procedures violated eight of the ten taxpayer rights she has proposed. Today’s report argues that the rationale for a TBOR is much broader.
“Taxpayer rights are central to voluntary compliance,” the report says. “If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply.”
The report emphasizes that the U.S. tax system is built on voluntary compliance. Ninety-eight percent of all tax revenue the IRS collects is paid timely and voluntarily. Only 2 percent results from IRS enforcement actions. For the taxpayer, voluntary compliance means not having to face IRS enforcement. For the government, voluntary compliance is cheapest, because enforced compliance requires the IRS to devote resources to detecting and collecting amounts that are not voluntarily reported or paid.
While arguing that knowledge of taxpayer rights promotes voluntary compliance, the report cites a survey of U.S. taxpayers conducted for TAS in 2012 that found less than half of respondents believed they have rights before the IRS and only 11 percent said they knew what those rights are.
“The Internal Revenue Code provides dozens of real, substantive taxpayer rights,” the report says. “However, these rights are scattered throughout the Code and are not presented in a coherent way. Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them.”
The report calls on the IRS to take the taxpayer rights that already exist and group them into ten broad categories, modeled on the U.S. Constitution’s Bill of Rights. The report says the “simplicity and clarity” of a thematic, principle-based Taxpayer Bill of Rights would help taxpayers understand their rights in general terms.
“A Taxpayer Bill of Rights would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS,” the report says.
The ten rights the Advocate is proposing are detailed in the report. Olson has been in discussions with senior IRS officials about publishing a TBOR, and TAS has just completed a series of focus groups with taxpayers and preparers to gauge reaction to, and comprehension of, the proposed list. Olson said the IRS has been open to publishing a proposed TBOR, and she will continue to work with the IRS leadership to refine and publish a TBOR during the coming year.
IRS FUNDING INADEQUATE
The report identifies the lack of adequate IRS funding as a top problem for taxpayers. Each year, more than 100 million taxpayers call the IRS for help and millions more visit IRS walk-in sites or send correspondence. Key metrics show the agency is increasingly unable to keep up with taxpayers’ demand for help in complying with their tax obligations.
“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report says. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.” The report also points out that federal spending cuts, which are designed to reduce the budget deficit, have the effect of increasing the deficit when applied to the revenue collection agency.
Impact on Taxpayer Service. The report says the IRS’s workload has increased over the past decade, and since FY 2010, IRS funding and staffing have been cut by 8 percent. The report highlights key areas in which the quality of taxpayer service has dropped to unacceptable levels:
Last year, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with a customer service representative (CSR). That’s down from 87 percent ten years earlier, with half the decline occurring since FY 2010. In FY 2013, 39 percent of calls (some 20 million) simply did not get through.
Taxpayers who did get through had to wait on hold approximately 17.6 minutes before speaking with a CSR. That’s up from 2.6 minutes ten years earlier, a nearly six-fold increase, with nearly half the increase occurring since FY 2010.
Millions of taxpayers visit IRS walk-in sites each year for assistance. Ten years ago, the IRS answered some 795,000 tax law questions in the sites during the filing season. Last year, it handled about 110,000 tax law questions during the filing season – a reduction of 86 percent.
The IRS historically has prepared tax returns for taxpayers seeking its help, particularly for low income, elderly, and disabled taxpayers. Ten years ago, it prepared some 476,000 returns. That number declined significantly over the decade, and the IRS recently announced it will no longer prepare returns at all.
Last year, the IRS received about 8.4 million letters from taxpayers responding to proposed adjustments to their tax liabilities. As of the end of the fiscal year, 53 percent of taxpayer letters in the IRS’s “adjustments” inventory were considered “over age” (generally, more than 45 days old). That compares with “over age” percentages of 12 percent ten years earlier and 28 percent in FY 2010.
The IRS recently announced it will only answer “basic” tax law questions on its telephone lines and in its walk-in sites during the upcoming filing season and it will not answer any tax law questions after the filing season, including questions from the millions of taxpayers who obtain filing extensions and prepare their returns later in the year.
Olson made clear that the deficiencies in taxpayer service are attributable primarily to a lack of resources. Regardless of cause, she wrote, “it is a sad state of affairs when the government writes tax laws as complex as ours – and then is unable to answer any questions beyond ‘basic’ ones from baffled citizens who are doing their best to comply.”
The Advocate expressed particular concern about the magnitude and impact of cuts to the IRS’s training budget. Since FY 2010, the IRS’s training budget has been cut from $172 million to $22 million. “If IRS customer service representatives are not well trained, taxpayers calling for help are more likely to receive incorrect information or no information,” the report says. “If IRS enforcement employees are not well trained, auditors may make inappropriate adjustments and assessments, and collection employees may issue inappropriate levies or file inappropriate liens.”
Impact on Voluntary Compliance and Revenue Collection. The report notes that the cuts to IRS funding since FY 2010 have been made as part of across-the-board reductions to federal discretionary spending designed to reduce the budget deficit. But “the logic behind budget cuts simply does not apply to the funding of the IRS,” the report says. The IRS collected $255 for each $1 it received in appropriated funds in FY 2013. “If the Chief Executive Officer of a Fortune 500 company were told that each dollar allocated to his company’s Accounts Receivable Department would generate multiple dollars in return,” the report says, “it is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed. Yet that is essentially what has been happening with respect to IRS funding for years.”
Olson said IRS funding is shortchanged because the federal budget rules treat the IRS the same way they treat all spending programs – with no “credit” given for the revenue it collects. “This procedure makes little sense when applied to the IRS,” she wrote. “For virtually every other spending program, a dollar spent is just that – it increases the deficit by one dollar. But a dollar spent on the IRS generates substantially more than one dollar in return – it reduces the budget deficit.”
The report reiterates the Advocate’s longstanding recommendation that the relevant congressional committees work together to develop new procedures to fund the IRS, with the goal of maximizing tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.
OTHER KEY ISSUES ADDRESSED
Federal law requires the Annual Report to Congress to identify at least 20 of the “most serious problems” encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 25 problems, makes dozens of recommendations for administrative change, makes five recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.
Among the “most serious problems" addressed are the following:
Need for Return Preparer Oversight. In 2002, the National Taxpayer Advocate began advocating for regulation of unenrolled tax preparers to protect taxpayers from incompetent and unscrupulous preparers. In 2011, the IRS began implementing regulations to register, test, and require continuing education for unenrolled preparers. In 2013, a U.S. District Court invalidated regulations governing the IRS’s testing and continuing education requirements, holding that they exceeded the authority of the Treasury Department to impose absent authorizing legislation. If the district court’s decision is upheld on appeal, the Advocate urges the IRS to adopt a multi-pronged strategy to protect taxpayers by pursuing education and enforcement options that are unambiguously within its purview. Of particular note, the Advocate recommends that the IRS give unenrolled preparers an opportunity to earn a voluntary testing and continuing education certificate and limit the ability of unenrolled preparers who do not earn the certificate to represent taxpayers in audits of returns they prepare. The Advocate also recommends Congress enact legislation to clarify that the IRS may regulate unenrolled paid preparers directly.
The IRS’s Conceptual Approach Toward Collection of Delinquent Tax Liabilities. The report urges the IRS to fundamentally reassess its traditional approach toward Collection. In her preface to the report, Olson cites third-party studies that often use the number of levies served and liens filed as a measure of the Collection function’s effectiveness. Contrary to this “conventional wisdom,” she notes, IRS Collection revenue actually increased in the aftermath of the IRS Restructuring and Reform Act of 1998 when the IRS reduced levies served by 94 percent and liens filed by 47 percent. Similarly, she notes that Collection revenue has increased slightly over the last few years, despite a 51 percent reduction in levies since FY 2011 and a 45 percent reduction in liens since FY 2010. Olson says that earlier personal contacts with delinquent taxpayers and more flexible use of payment options for financially struggling taxpayers, such as installment agreements and offers in compromise, would be more effective than increasing the number of levies and liens filed by automation. The report acknowledges that the use of levies, liens, and seizures remains appropriate with respect to taxpayers who can afford to pay their tax liabilities but refuse to do so.
The Impact of the IRS’s Offshore Voluntary Disclosure Programs on Taxpayers Who Make Honest Mistakes. The IRS has sought to increase enforcement of Foreign Bank and Financial Accounts (FBAR) reporting and similar information reporting requirements in recent years and has offered a series of offshore voluntary disclosure (OVD) programs to settle with taxpayers who have failed to file the required forms. However, the report says, the programs impose excessive penalties on taxpayers whose failure to file was not “willful.” Analyzing results from the IRS’s 2009 OVD program, the Advocate found the median offshore penalty was about 381 percent of the additional tax assessed for taxpayers with median-sized account balances, and 580 percent of the tax assessed for taxpayers with the smallest account balances (i.e., the bottom 10 percent, with an average $44,855 account balance). Taxpayers who “opted out” of the OVD program and agreed to subject themselves to audits fared better but still faced penalties of nearly 70 percent of the tax and interest. While FBAR penalties are computed as a percentage of account balances rather than tax liabilities, the report offers the comparison to illustrate that the penalties are often Draconian and may deter other taxpayers from coming into compliance.
New TAS Research Studies on Tax Compliance. Volume 2 of the report contains six research studies, including three that relate directly to tax compliance:
An assessment of accuracy-related penalties imposed on Schedule C filers found that penalties do not increase future reporting compliance.
A comparison of the effectiveness of Revenue Officers (ROs) and the IRS’s Automated Collection System (ACS) in addressing employment tax liabilities found that ROs collected more dollars and resolved delinquencies more quickly than ACS, but neither channel was effective at promoting future tax compliance.
A study regarding tax compliance by sole proprietors found that taxpayer service and social norms were the two most influential factors affecting compliance behavior. Contrary to expectation, the study found that traditional deterrence theory did not play a role in promoting compliance, possibly because sole proprietors were particularly motivated by short-term cash flow needs.
Volume 2 also contains an analysis designed to further the National Taxpayer Advocate’s 2009 recommendation that the IRS develop a plan and timeline to achieve an accelerated third-party information reporting and document-matching system. The analysis describes the steps that must be taken and the benefits to taxpayers and the IRS of accelerating receipt and processing of third-party information reports, such as Forms W-2 and 1099.
Friday, January 10, 2014
READOUT: PRESIDENT OBAMA'S MEETING WITH CONGRESSIONAL MEMBERS
FROM: THE WHITE HOUSE
Readout of the President's Meeting with Members of Congress
Today President Obama met with Members of Congress to discuss the Administration’s ongoing review of signals intelligence programs, including our study of the Review Group on Intelligence and Communications Technologies report. In August, the President committed his Administration to working with Congress to pursue reforms to our nation’s surveillance programs and the Foreign Intelligence Surveillance Court. This meeting was an opportunity for the President to hear from the Members about the work they have been doing on these issues since they last met and solicit their input as we near the end of our internal review. The President thanked the Members for their ongoing work on these challenging issues.
The following Members of Congress attended:
Senator Dianne Feinstein, D-CA, Chairman, Select Committee on Intelligence
Senator Saxby Chambliss, R-GA, Vice Chairman, Select Committee on Intelligence
Senator Patrick Leahy, D-VT, Chairman, Judiciary Committee
Senator Chuck Grassley, R-IA, Ranking Member, Judiciary Committee
Senator Dick Durbin, D-IL, Assistant Majority Leader and Chairman, Appropriations Subcommittee on Defense
Senator Thad Cochran, R-MS, Ranking Member, Appropriations Subcommittee on Defense
Senator Richard Blumenthal, D-CT
Senator Mark Udall, D-CO
Senator Ron Wyden, D-OR
Representative Mike Rogers, R-MI, Chairman, Permanent Select Committee on Intelligence
Representative Bob Goodlatte, R-VA, Chairman, Judiciary Committee
Representative John Conyers, D-MI, Ranking Member, Judiciary Committee
Representative Rodney Frelinghuysen, R-NJ, Chairman, Appropriations Subcommittee on Defense
Representative Peter Visclosky, D-IN, Ranking Member, Appropriations Subcommittee on Defense
Representative Adam Schiff, D-CA
Representative Jim Sensenbrenner, R-WI
Readout of the President's Meeting with Members of Congress
Today President Obama met with Members of Congress to discuss the Administration’s ongoing review of signals intelligence programs, including our study of the Review Group on Intelligence and Communications Technologies report. In August, the President committed his Administration to working with Congress to pursue reforms to our nation’s surveillance programs and the Foreign Intelligence Surveillance Court. This meeting was an opportunity for the President to hear from the Members about the work they have been doing on these issues since they last met and solicit their input as we near the end of our internal review. The President thanked the Members for their ongoing work on these challenging issues.
The following Members of Congress attended:
Senator Dianne Feinstein, D-CA, Chairman, Select Committee on Intelligence
Senator Saxby Chambliss, R-GA, Vice Chairman, Select Committee on Intelligence
Senator Patrick Leahy, D-VT, Chairman, Judiciary Committee
Senator Chuck Grassley, R-IA, Ranking Member, Judiciary Committee
Senator Dick Durbin, D-IL, Assistant Majority Leader and Chairman, Appropriations Subcommittee on Defense
Senator Thad Cochran, R-MS, Ranking Member, Appropriations Subcommittee on Defense
Senator Richard Blumenthal, D-CT
Senator Mark Udall, D-CO
Senator Ron Wyden, D-OR
Representative Mike Rogers, R-MI, Chairman, Permanent Select Committee on Intelligence
Representative Bob Goodlatte, R-VA, Chairman, Judiciary Committee
Representative John Conyers, D-MI, Ranking Member, Judiciary Committee
Representative Rodney Frelinghuysen, R-NJ, Chairman, Appropriations Subcommittee on Defense
Representative Peter Visclosky, D-IN, Ranking Member, Appropriations Subcommittee on Defense
Representative Adam Schiff, D-CA
Representative Jim Sensenbrenner, R-WI
Monday, November 18, 2013
USDA REMINDS FARMERS OF AFFECTS OF SEQUESTRATION ON FARM PROGRAMS
FROM: U.S. DEPARTMENT OF AGRICULTURE
FSA Advises Producers to Anticipate Payment Reductions Due to Mandated Sequester
WASHINGTON, Nov. 15, 2013 ---USDA’s Farm Service Agency (FSA) is reminding farmers and ranchers who participate in FSA programs to plan accordingly in FY2014 for automatic spending reductions known as sequestration. The Budget Control Act of 2011 (BCA) mandates that federal agencies implement automatic, annual reductions to discretionary and mandatory spending limits. For mandatory programs, the sequestration rate for FY2014 is 7.2%. Accordingly, FSA is implementing sequestration for the following programs:
Dairy Indemnity Payment Program; Marketing Assistance Loans; Loan Deficiency Payments; Sugar Loans; Noninsured Crop Disaster Assistance Program; Tobacco Transition Payment Program; 2013 Direct and Counter-Cyclical Payments; 2013 Average Crop Revenue Election Program; 2011 and 2012 Supplemental Revenue Assistance Program; Storage, handling; and Economic Adjustment Assistance for Upland Cotton.
Conservation Reserve Program payments are specifically exempt by statute from sequestration, thus these payments will not be reduced.
“These sequester percentages reflect current law estimates; however with the continuing budget uncertainty, Congress still may adjust the exact percentage reduction. Today’s announcement intends to help producers plan for the impact of sequestration cuts in FY2014,” said FSA Administrator Juan M. Garcia. “At this time, FSA is required to implement the sequester reductions. Due to the expiration of the Farm Bill on September 30, FSA does not have the flexibility to cover these payment reductions in the same manner as in FY13. FSA will provide notification as early as practicable on the specific payment reductions. ”
FSA Advises Producers to Anticipate Payment Reductions Due to Mandated Sequester
Saturday, November 9, 2013
TRANSCRIPT: PRESIDENT OBAMA'S WEEKLY ADDRESS FOR NOVEMBER 9, 2013
FROM: THE WHITE HOUSE
Weekly Address: Honoring America’s Veterans
WASHINGTON, DC— In this week’s address, President Obama commemorated Veterans’ Day Weekend by thanking the brave men and women who have worn this country’s uniform. The President said he is proud of their service and will do everything possible to ensure America always has their back and always honors their sacrifice.
Remarks of President Barack Obama
Weekly Address
The White House
November 9, 2013
Hello everyone. Veterans’ Day Weekend is a chance for all of us to say two simple words: “Thank you.” Thank you to that greatest generation who fought island by island across the Pacific, and freed millions from fascism in Europe. Thank you to the heroes who risked everything through the bitter cold of Korea and the stifling heat of Vietnam. And thank you to all the heroes who have served since, most recently our 9/11 Generation of veterans from Iraq and Afghanistan.
Now that more of them are coming home, we need to serve them as well as they served us. That requires more than a simple “thank you” – especially from those of us who’ve been elected to serve.
I’ve often said that my top priority is growing the economy, creating new jobs, and restoring middle-class security. And a very important part of that is making sure that every veteran has every chance to share in the opportunity he or she has helped defend. In addition to the care and benefits they’ve earned – including good mental health care to stay strong – that means a good job, a good education, and a home to call their own.
If you fight for your country overseas, you should never have to fight for a job when you come home. I’ve made sure the federal government leads by example, and since I took office, we’ve hired about 300,000 veterans to keep serving their country. Our new transition assistance program is helping veterans and their spouses find that new job and plan their career. And I’m going to keep calling on Congress to do the right thing and pass the Veterans Jobs Corps. Put our veterans to work rebuilding America.
Our troops gain unmatched skills while serving in harm’s way. So we’re also doing everything we can to connect more businesses with highly-skilled veterans. More help with job searches. More tools to connect veterans to job openings. More chances to earn licenses and credentials for civilian jobs. And new tax credits for companies that hire veterans and wounded warriors – tax credits which Congress should make permanent.
And America’s businesses have worked with Michelle and Jill Biden’s Joining Forces campaign to help returning heroes find jobs in the private sector. They’ve already hired or trained 290,000 veterans and military spouses, and they’ve committed to hiring over 400,000 more.
We’re also committed to giving today’s veterans and their families the same shot at a great education this country gave my grandfather when he came home from World War II. We’re helping more of them earn their degrees under the Post-9/11 GI Bill. We’ve worked with thousands of schools across the country to set new standards to protect against dishonest recruiting and predatory lending practices that target our veterans. And we’re helping hundreds of community colleges and universities do more to welcome and encourage our veterans on campus.
Thanks to these efforts, and the efforts of the private sector, we’ve made progress getting our vets back to work. But we’ve got a lot more to do. And as more than a million of our troops return to civilian life, we’re going to have to work even harder. Because the skill, dedication, and courage of our troops is unmatched – and when they come home, we all benefit from their efforts to build a stronger America and a brighter future for our kids.
So to all our veterans, on behalf our entire nation, thank you for everything you’ve done and will continue to do for our country. As your Commander-in-Chief, I’m proud of your service, and grateful for your sacrifice. And as long as I'm your President, I will make it my mission to make sure that America has your back, not just on one day or one weekend, but 365 days a year.
Thanks. God bless you, and have a great weekend.
Weekly Address: Honoring America’s Veterans
WASHINGTON, DC— In this week’s address, President Obama commemorated Veterans’ Day Weekend by thanking the brave men and women who have worn this country’s uniform. The President said he is proud of their service and will do everything possible to ensure America always has their back and always honors their sacrifice.
Remarks of President Barack Obama
Weekly Address
The White House
November 9, 2013
Hello everyone. Veterans’ Day Weekend is a chance for all of us to say two simple words: “Thank you.” Thank you to that greatest generation who fought island by island across the Pacific, and freed millions from fascism in Europe. Thank you to the heroes who risked everything through the bitter cold of Korea and the stifling heat of Vietnam. And thank you to all the heroes who have served since, most recently our 9/11 Generation of veterans from Iraq and Afghanistan.
Now that more of them are coming home, we need to serve them as well as they served us. That requires more than a simple “thank you” – especially from those of us who’ve been elected to serve.
I’ve often said that my top priority is growing the economy, creating new jobs, and restoring middle-class security. And a very important part of that is making sure that every veteran has every chance to share in the opportunity he or she has helped defend. In addition to the care and benefits they’ve earned – including good mental health care to stay strong – that means a good job, a good education, and a home to call their own.
If you fight for your country overseas, you should never have to fight for a job when you come home. I’ve made sure the federal government leads by example, and since I took office, we’ve hired about 300,000 veterans to keep serving their country. Our new transition assistance program is helping veterans and their spouses find that new job and plan their career. And I’m going to keep calling on Congress to do the right thing and pass the Veterans Jobs Corps. Put our veterans to work rebuilding America.
Our troops gain unmatched skills while serving in harm’s way. So we’re also doing everything we can to connect more businesses with highly-skilled veterans. More help with job searches. More tools to connect veterans to job openings. More chances to earn licenses and credentials for civilian jobs. And new tax credits for companies that hire veterans and wounded warriors – tax credits which Congress should make permanent.
And America’s businesses have worked with Michelle and Jill Biden’s Joining Forces campaign to help returning heroes find jobs in the private sector. They’ve already hired or trained 290,000 veterans and military spouses, and they’ve committed to hiring over 400,000 more.
We’re also committed to giving today’s veterans and their families the same shot at a great education this country gave my grandfather when he came home from World War II. We’re helping more of them earn their degrees under the Post-9/11 GI Bill. We’ve worked with thousands of schools across the country to set new standards to protect against dishonest recruiting and predatory lending practices that target our veterans. And we’re helping hundreds of community colleges and universities do more to welcome and encourage our veterans on campus.
Thanks to these efforts, and the efforts of the private sector, we’ve made progress getting our vets back to work. But we’ve got a lot more to do. And as more than a million of our troops return to civilian life, we’re going to have to work even harder. Because the skill, dedication, and courage of our troops is unmatched – and when they come home, we all benefit from their efforts to build a stronger America and a brighter future for our kids.
So to all our veterans, on behalf our entire nation, thank you for everything you’ve done and will continue to do for our country. As your Commander-in-Chief, I’m proud of your service, and grateful for your sacrifice. And as long as I'm your President, I will make it my mission to make sure that America has your back, not just on one day or one weekend, but 365 days a year.
Thanks. God bless you, and have a great weekend.
Friday, November 8, 2013
CFTC CHAIRMAN GENSLER'S REMARKS BEFORE FUTURES INDUSTRY ASSOCIATION
FROM: COMMODITY FUTURES TRADING COMMISSION
A Transformed Marketplace – Remarks of Chairman Gary Gensler's before the FIA 2013 Futures & Options Expo
November 6, 2013
Thank you, Walt, for that kind introduction. I also would like to thank the Futures Industry Association (FIA) for the invitation – I’m honored that you’ve invited me to speak each of these last five years.
Ever since Adam Smith and the Wealth of Nations, economists have consistently written that access to and transparency in markets benefits the broad public.
President Roosevelt understood this when he asked Congress during the Great Depression to bring transparency, access and competition to the commodities and securities markets.
The reforms of the 1930s transformed markets. They helped establish the foundation for the U.S. economic growth engine for decades.
Those reforms have given farmers, ranchers, producers, merchants and commercial companies confidence to use the futures market to manage their risks. They are able to lock in the price of a commodity at harvest time, or lock in an interest rate or currency rate, and focus on that which they do best – producing goods and services for the economy.
The swaps market emerged in the 1980s. It remained outside these time-tested reforms until last year.
Both futures and swaps, though, are just two forms of the same thing – derivatives. Both had become essential to our economy and to the way people and businesses manage risks.
The swaps market also had grown to dwarf the futures market in total notional outstanding. We now know the swaps market is $400 trillion in size, compared to the $30 trillion futures market.
Lacking of common-sense rules of the road, the swaps market contributed to the 2008 crisis. Need I remind anyone about AIG.
It became time to bring this vast, dark market into transparency. It became time to ensure that the broad public gained the benefits of central clearing and oversight of dealers.
Thus, the President and Congress passed reform borrowing from what had worked best for decades in the futures market.
Now, the swaps marketplace has been transformed.
It’s been a remarkable journey these past five years – and all of you have been part of this journey. It not only took 65 finalized rules, orders and guidances by the CFTC. Your thousands of comments, meetings and questions were a critical part of the process as well. You worked hard – with real costs and against deadlines – to implement these reforms to bring us to a new marketplace.
Transparency
Foremost, the swaps marketplace now has transparency that simply did not exist in 2008.
The public now can see the price and volume of each swap transaction as it occurs. This post-trade transparency spans the entire market, regardless of product, counterparty, or whether it’s a standardized or customized transaction.
This information is available, free of charge, to everyone in the public. The data is listed in real time – like a modern-day tickertape – on the websites of each of the three swap data repositories.
Regulators get even greater transparency. Though there is more work to be done regarding the data flowing into data repositories, we now are able to see and filter the details on each of the 1.8 million transactions and positions in the data repositories.
Further, starting last month, the public – for the first time – has been benefitting from new transparency, access and competition on regulated swap trading platforms.
Economists have known the benefits of such transparency since the time of Adam Smith; it just wasn’t a reality in the swaps marketplace.
Now, as a result of reforms, swap execution facilities (SEFs) are required to provide all market participants with impartial access. They must provide dealers and non-dealers alike the ability to make and respond to bids, offers and requests for quotes. This is a basic tenant that Adam Smith and so many economists have laid out – that access and transparency promote competition and benefit the economy.
We now have 18 temporarily registered SEFs where more than a quarter of a trillion dollars in swaps trading is occurring on average per day. That is a big number by any measure.
We’ll continue to address questions as they arise to help smooth the transition to the transparency and impartial access of exchange trading.
Addressing one such question, as our cross border guidance directs, if a multilateral trading platform is a U.S. person, or it is located or operating in the U.S., it should register.
A multilateral trading platform that provides persons located in the U.S. with the ability to trade or execute swaps on the platform’s market (either directly or indirectly through an intermediary), should register.
Registration applies whether those persons are U.S. persons or non-U.S. persons whose personnel or agents are located in the U.S. This is regardless of the location where the swap is ultimately booked, including in circumstances where a swap dealer arranges, negotiates, or executes the terms of a swap in a non-U.S. branch, but trades swaps on a multilateral swaps trading platform using personnel or agents of the swap dealer located in the U.S.
This will trigger some SEF registrations for foreign-based platforms that are already registered with their home country. For instance, one Australian platform is going to register with the CFTC, and we’re working with the Australian home country regulators. We’re prepared to figure out where we might defer to those home country regulators.
Clearing
Second, the swaps market has been transformed to a market with mandated central clearing for financial entities as well as dealers.
Customers now gain the benefit that until recently only dealers had. Central clearing of swaps lowers risk and allows customers more ready access to the market.
Clearinghouses have operated successfully at the center of the futures market for over 100 years – through two world wars, the Great Depression and the 2008 financial crisis.
Reforms have taken us from only 21 percent of the interest rate swaps market being cleared in 2008 to 80 percent during the week ending October 25, 2013.
That same week, we saw 62 percent of new credit index swaps being cleared.
Further, we no longer have the significant time delays that were once associated with swaps clearing.
Five years ago, swaps clearing happened either at the end of the day or even just once a week. This left a significant period of bilateral credit risk in the market, undermining one of the key benefits of central clearing.
Now reforms require pre-trade credit checks and straight-through processing for swaps trades intended for clearing.
As a result, 99 percent of swaps clearing occurs within 10 seconds, with 93 percent actually doing so within three seconds. No longer do market participants have to worry about credit risk when entering into swaps trades intended to be cleared.
Thus, breakage agreements – agreements that had been requested by dealers in the event a swap wasn’t accepted for clearing – are not needed and should not be required for access to trading on a SEF or designated contract market.
Taken as a whole, these reforms have completely transformed the swaps market to a new marketplace.
Swap Dealers
Third, the market has been transformed for swap dealer.
In 2008, swap dealers had no specific requirements with regard to their swap dealing activity.
Today, with 90 swap dealers registered, all of the world’s largest financial institutions in the global swaps market are coming under reforms.
These reforms include new business conduct standards for risk management, documentation of swap transactions, confirmations, sales practices, recordkeeping and reporting.
Just to note how significant this is – this past summer, swap dealers and their over 10,000 counterparties around the globe changed their swap documentation, lowering risk by cleaning up the back office.
These documentation reforms build on what the Federal Reserve Bank of New York had tried to achieve with dealers voluntarily.
I would note from my own experience in the financial community, those back office documents really matter in a bankruptcy or other crisis.
International Coordination on Swap Market Reform
Further, the transformed marketplace covers the far-flung operations of U.S. enterprises.
Congress was clear in the Dodd-Frank Act that we had to learn the lessons of the 2008 crisis.
AIG nearly brought down the U.S. economy through its guaranteed affiliate operating under a French bank license in London.
Lehman Brothers had 3,300 legal entities when it failed. Its main overseas affiliate was guaranteed here in the U.S., and it had 130,000 outstanding swap transactions.
A decade earlier, Long-Term Capital Management was operating out of Connecticut but actually booked their $1.2 trillion derivatives book in the Cayman Islands.
Based upon CFTC guidance, swaps market reform covers transactions between non-U.S. swap dealers and guaranteed affiliates of U.S. persons, as well as swaps between two guaranteed affiliates.
As of last month, offshore branches and guaranteed affiliates, as well as hedge funds, like Long-Term Capital Management, all had to come into central clearing and the other Dodd-Frank reforms.
Customer Protection
Market events of the last two years also highlighted the need to further ensure the protection of customer funds.
Segregation of customer funds is the core foundation of the commodity futures and swaps markets.
Segregation must be maintained at all times. That means every moment of every day.
The CFTC went through a two-year process with market participants, including significant input from the FIA, to ensure that customers have confidence that their funds are segregated and protected. Last week, the sixth set of customer protection rules were finalized by the Commission.
The Future
Before I take questions, I wanted to share a few thoughts looking forward.
First there will be the continued implementation of reforms. Among the highlights is the trade execution mandate likely going live in the first quarter of 2014. Also, there is the critical implementation of the recently completed customer protection rules. The CFTC will continue pivoting from rulewriting to ensuring compliance with these reforms.
Second, it is critical that we preserve the pre-trade transparency that has been a longstanding hallmark of the futures market. The Commission finalized a block rules for swaps and soon will consider staff recommendations for a proposal on a futures block rule.
Third, we have witnessed a fundamental shift in markets from human-based trading to highly automated trading. The Commission looks forward to hearing back on our concept release on automated and high frequency trading.
Fourth, we must deal with the fact that LIBOR is more akin to fiction than fact. Through five settlements the CFTC has brought against banks, we have seen how the public trust can be violated through bad actors readily manipulating benchmark interest rates. As LIBOR and Euribor are not anchored in observable transactions, they have been and can be again readily and pervasively rigged.
The work of the Financial Stability Board to find alternatives and consider potential transitions to these alternatives is critical. This will mean significant changes in the futures and swaps markets. There is a need for these reforms, though, if we’re going to protect the integrity of the markets.
CFTC Resources
Lastly, one of the greatest threats to well-functioning, open, and competitive futures and swaps markets is that the CFTC – the agency tasked with overseeing your markets – is not sized to the task at hand.
That the CFTC completed 65 rulemakings should not be confused with the agency having sufficient people and technology to oversee the markets.
At 673 people, we are only slightly larger than we were 20 years ago. Since then though, the futures market has grown and changed significantly. Further, we have this new job of overseeing the vast swaps market.
The overall branding of these markets is dependent on customers having confidence in using them.
It’s also critical that we have the resources for the timely reviews of applications, registrations, petitions and answers to market participants’ questions.
The President has asked for $315 million for the CFTC. This year we’ve been operating with only $195 million.
Worse yet, as a result of continued funding challenges, sequestration, and a required minimum level Congress set for the CFTC’s outside technology spending, the CFTC already has shrunk 5 percent, and was forced to notify employees of an administrative furlough for up to 14 days this fiscal year.
Congress and the President have real challenges with regard to our federal budget. I believe, though, that the CFTC is a good investment for the American public. It’s a good investment for transparent, well-functioning markets.
Conclusion
Let me close by thanking all of you. These last five years have been a remarkable journey. The futures market performed well straight through the crisis. That’s why we borrowed so much from the futures market in an effort to bring much-needed reform to the swaps market.
On a personal note, I want to thank you for all that we’ve achieved together. I want to thank you because this may be my last speech as the CFTC’s Chairman at an FIA conference. I assure you, though, if invited, I’ll be with you again.
Thank you, I look forward to answering your questions.
A Transformed Marketplace – Remarks of Chairman Gary Gensler's before the FIA 2013 Futures & Options Expo
November 6, 2013
Thank you, Walt, for that kind introduction. I also would like to thank the Futures Industry Association (FIA) for the invitation – I’m honored that you’ve invited me to speak each of these last five years.
Ever since Adam Smith and the Wealth of Nations, economists have consistently written that access to and transparency in markets benefits the broad public.
President Roosevelt understood this when he asked Congress during the Great Depression to bring transparency, access and competition to the commodities and securities markets.
The reforms of the 1930s transformed markets. They helped establish the foundation for the U.S. economic growth engine for decades.
Those reforms have given farmers, ranchers, producers, merchants and commercial companies confidence to use the futures market to manage their risks. They are able to lock in the price of a commodity at harvest time, or lock in an interest rate or currency rate, and focus on that which they do best – producing goods and services for the economy.
The swaps market emerged in the 1980s. It remained outside these time-tested reforms until last year.
Both futures and swaps, though, are just two forms of the same thing – derivatives. Both had become essential to our economy and to the way people and businesses manage risks.
The swaps market also had grown to dwarf the futures market in total notional outstanding. We now know the swaps market is $400 trillion in size, compared to the $30 trillion futures market.
Lacking of common-sense rules of the road, the swaps market contributed to the 2008 crisis. Need I remind anyone about AIG.
It became time to bring this vast, dark market into transparency. It became time to ensure that the broad public gained the benefits of central clearing and oversight of dealers.
Thus, the President and Congress passed reform borrowing from what had worked best for decades in the futures market.
Now, the swaps marketplace has been transformed.
It’s been a remarkable journey these past five years – and all of you have been part of this journey. It not only took 65 finalized rules, orders and guidances by the CFTC. Your thousands of comments, meetings and questions were a critical part of the process as well. You worked hard – with real costs and against deadlines – to implement these reforms to bring us to a new marketplace.
Transparency
Foremost, the swaps marketplace now has transparency that simply did not exist in 2008.
The public now can see the price and volume of each swap transaction as it occurs. This post-trade transparency spans the entire market, regardless of product, counterparty, or whether it’s a standardized or customized transaction.
This information is available, free of charge, to everyone in the public. The data is listed in real time – like a modern-day tickertape – on the websites of each of the three swap data repositories.
Regulators get even greater transparency. Though there is more work to be done regarding the data flowing into data repositories, we now are able to see and filter the details on each of the 1.8 million transactions and positions in the data repositories.
Further, starting last month, the public – for the first time – has been benefitting from new transparency, access and competition on regulated swap trading platforms.
Economists have known the benefits of such transparency since the time of Adam Smith; it just wasn’t a reality in the swaps marketplace.
Now, as a result of reforms, swap execution facilities (SEFs) are required to provide all market participants with impartial access. They must provide dealers and non-dealers alike the ability to make and respond to bids, offers and requests for quotes. This is a basic tenant that Adam Smith and so many economists have laid out – that access and transparency promote competition and benefit the economy.
We now have 18 temporarily registered SEFs where more than a quarter of a trillion dollars in swaps trading is occurring on average per day. That is a big number by any measure.
We’ll continue to address questions as they arise to help smooth the transition to the transparency and impartial access of exchange trading.
Addressing one such question, as our cross border guidance directs, if a multilateral trading platform is a U.S. person, or it is located or operating in the U.S., it should register.
A multilateral trading platform that provides persons located in the U.S. with the ability to trade or execute swaps on the platform’s market (either directly or indirectly through an intermediary), should register.
Registration applies whether those persons are U.S. persons or non-U.S. persons whose personnel or agents are located in the U.S. This is regardless of the location where the swap is ultimately booked, including in circumstances where a swap dealer arranges, negotiates, or executes the terms of a swap in a non-U.S. branch, but trades swaps on a multilateral swaps trading platform using personnel or agents of the swap dealer located in the U.S.
This will trigger some SEF registrations for foreign-based platforms that are already registered with their home country. For instance, one Australian platform is going to register with the CFTC, and we’re working with the Australian home country regulators. We’re prepared to figure out where we might defer to those home country regulators.
Clearing
Second, the swaps market has been transformed to a market with mandated central clearing for financial entities as well as dealers.
Customers now gain the benefit that until recently only dealers had. Central clearing of swaps lowers risk and allows customers more ready access to the market.
Clearinghouses have operated successfully at the center of the futures market for over 100 years – through two world wars, the Great Depression and the 2008 financial crisis.
Reforms have taken us from only 21 percent of the interest rate swaps market being cleared in 2008 to 80 percent during the week ending October 25, 2013.
That same week, we saw 62 percent of new credit index swaps being cleared.
Further, we no longer have the significant time delays that were once associated with swaps clearing.
Five years ago, swaps clearing happened either at the end of the day or even just once a week. This left a significant period of bilateral credit risk in the market, undermining one of the key benefits of central clearing.
Now reforms require pre-trade credit checks and straight-through processing for swaps trades intended for clearing.
As a result, 99 percent of swaps clearing occurs within 10 seconds, with 93 percent actually doing so within three seconds. No longer do market participants have to worry about credit risk when entering into swaps trades intended to be cleared.
Thus, breakage agreements – agreements that had been requested by dealers in the event a swap wasn’t accepted for clearing – are not needed and should not be required for access to trading on a SEF or designated contract market.
Taken as a whole, these reforms have completely transformed the swaps market to a new marketplace.
Swap Dealers
Third, the market has been transformed for swap dealer.
In 2008, swap dealers had no specific requirements with regard to their swap dealing activity.
Today, with 90 swap dealers registered, all of the world’s largest financial institutions in the global swaps market are coming under reforms.
These reforms include new business conduct standards for risk management, documentation of swap transactions, confirmations, sales practices, recordkeeping and reporting.
Just to note how significant this is – this past summer, swap dealers and their over 10,000 counterparties around the globe changed their swap documentation, lowering risk by cleaning up the back office.
These documentation reforms build on what the Federal Reserve Bank of New York had tried to achieve with dealers voluntarily.
I would note from my own experience in the financial community, those back office documents really matter in a bankruptcy or other crisis.
International Coordination on Swap Market Reform
Further, the transformed marketplace covers the far-flung operations of U.S. enterprises.
Congress was clear in the Dodd-Frank Act that we had to learn the lessons of the 2008 crisis.
AIG nearly brought down the U.S. economy through its guaranteed affiliate operating under a French bank license in London.
Lehman Brothers had 3,300 legal entities when it failed. Its main overseas affiliate was guaranteed here in the U.S., and it had 130,000 outstanding swap transactions.
A decade earlier, Long-Term Capital Management was operating out of Connecticut but actually booked their $1.2 trillion derivatives book in the Cayman Islands.
Based upon CFTC guidance, swaps market reform covers transactions between non-U.S. swap dealers and guaranteed affiliates of U.S. persons, as well as swaps between two guaranteed affiliates.
As of last month, offshore branches and guaranteed affiliates, as well as hedge funds, like Long-Term Capital Management, all had to come into central clearing and the other Dodd-Frank reforms.
Customer Protection
Market events of the last two years also highlighted the need to further ensure the protection of customer funds.
Segregation of customer funds is the core foundation of the commodity futures and swaps markets.
Segregation must be maintained at all times. That means every moment of every day.
The CFTC went through a two-year process with market participants, including significant input from the FIA, to ensure that customers have confidence that their funds are segregated and protected. Last week, the sixth set of customer protection rules were finalized by the Commission.
The Future
Before I take questions, I wanted to share a few thoughts looking forward.
First there will be the continued implementation of reforms. Among the highlights is the trade execution mandate likely going live in the first quarter of 2014. Also, there is the critical implementation of the recently completed customer protection rules. The CFTC will continue pivoting from rulewriting to ensuring compliance with these reforms.
Second, it is critical that we preserve the pre-trade transparency that has been a longstanding hallmark of the futures market. The Commission finalized a block rules for swaps and soon will consider staff recommendations for a proposal on a futures block rule.
Third, we have witnessed a fundamental shift in markets from human-based trading to highly automated trading. The Commission looks forward to hearing back on our concept release on automated and high frequency trading.
Fourth, we must deal with the fact that LIBOR is more akin to fiction than fact. Through five settlements the CFTC has brought against banks, we have seen how the public trust can be violated through bad actors readily manipulating benchmark interest rates. As LIBOR and Euribor are not anchored in observable transactions, they have been and can be again readily and pervasively rigged.
The work of the Financial Stability Board to find alternatives and consider potential transitions to these alternatives is critical. This will mean significant changes in the futures and swaps markets. There is a need for these reforms, though, if we’re going to protect the integrity of the markets.
CFTC Resources
Lastly, one of the greatest threats to well-functioning, open, and competitive futures and swaps markets is that the CFTC – the agency tasked with overseeing your markets – is not sized to the task at hand.
That the CFTC completed 65 rulemakings should not be confused with the agency having sufficient people and technology to oversee the markets.
At 673 people, we are only slightly larger than we were 20 years ago. Since then though, the futures market has grown and changed significantly. Further, we have this new job of overseeing the vast swaps market.
The overall branding of these markets is dependent on customers having confidence in using them.
It’s also critical that we have the resources for the timely reviews of applications, registrations, petitions and answers to market participants’ questions.
The President has asked for $315 million for the CFTC. This year we’ve been operating with only $195 million.
Worse yet, as a result of continued funding challenges, sequestration, and a required minimum level Congress set for the CFTC’s outside technology spending, the CFTC already has shrunk 5 percent, and was forced to notify employees of an administrative furlough for up to 14 days this fiscal year.
Congress and the President have real challenges with regard to our federal budget. I believe, though, that the CFTC is a good investment for the American public. It’s a good investment for transparent, well-functioning markets.
Conclusion
Let me close by thanking all of you. These last five years have been a remarkable journey. The futures market performed well straight through the crisis. That’s why we borrowed so much from the futures market in an effort to bring much-needed reform to the swaps market.
On a personal note, I want to thank you for all that we’ve achieved together. I want to thank you because this may be my last speech as the CFTC’s Chairman at an FIA conference. I assure you, though, if invited, I’ll be with you again.
Thank you, I look forward to answering your questions.
Wednesday, October 30, 2013
CONTINUATION OF NATIONAL EMERGENCY REGARDING SUDAN
FROM: THE WHITE HOUSE
Message to the Congress -- Continuation of the National Emergency with Respect to Sudan
TO THE CONGRESS OF THE UNITED STATES:
Section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)) provides for the automatic termination of a national emergency unless, within the 90-day period prior to the anniversary date of its declaration, the President publishes in the Federal Register and transmits to the Congress a notice stating that the emergency is to continue in effect beyond the anniversary date. In accordance with this provision, I have sent to the Federal Register for publication the enclosed notice stating that the Sudan emergency is to continue in effect beyond November 3, 2013.
The crisis constituted by the actions and policies of the Government of Sudan that led to the declaration of a national emergency in Executive Order 13067 of November 3, 1997, and the expansion of that emergency in Executive Order 13400 of April 26, 2006, and with respect to which additional steps were taken in Executive Order 13412 of October 13, 2006, has not been resolved. These actions and policies are hostile to U.S. interests and continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. Therefore, I have determined that it is necessary to continue the national emergency declared with respect to Sudan and maintain in force the sanctions against Sudan to respond to this threat.
Message to the Congress -- Continuation of the National Emergency with Respect to Sudan
TO THE CONGRESS OF THE UNITED STATES:
Section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)) provides for the automatic termination of a national emergency unless, within the 90-day period prior to the anniversary date of its declaration, the President publishes in the Federal Register and transmits to the Congress a notice stating that the emergency is to continue in effect beyond the anniversary date. In accordance with this provision, I have sent to the Federal Register for publication the enclosed notice stating that the Sudan emergency is to continue in effect beyond November 3, 2013.
The crisis constituted by the actions and policies of the Government of Sudan that led to the declaration of a national emergency in Executive Order 13067 of November 3, 1997, and the expansion of that emergency in Executive Order 13400 of April 26, 2006, and with respect to which additional steps were taken in Executive Order 13412 of October 13, 2006, has not been resolved. These actions and policies are hostile to U.S. interests and continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. Therefore, I have determined that it is necessary to continue the national emergency declared with respect to Sudan and maintain in force the sanctions against Sudan to respond to this threat.
Thursday, October 17, 2013
SECRETARY OF DEFENSE HAGEL TOUTS VALUE OF WORKFORCE AFTER SHUTDOWN
FROM: U.S. DEFENSE DEPARTMENT
Hagel Stresses Workforce's Value After 'Manufactured Crisis'
American Forces Press Service
WASHINGTON, Oct. 17, 2013 - Defense Secretary Chuck Hagel issued a message to the Defense Department's workforce today, welcoming back employees furloughed by the 16-day government shutdown and emphasizing their value to the nation.
Here is the text of the secretary's message:
Today the Department of Defense is resuming normal operations across the world, now that Congress has finally restored funding for DoD and the rest of the federal government. This manufactured crisis was an unwelcome and unnecessary distraction from our critical work of keeping the country safe.
I know that each of your lives has been disrupted and affected in different ways. I regret the impact that this shutdown had on so many of our civilian personnel, particularly those who I was previously unable to recall from emergency furlough.
Starting today, we will be welcoming all of our civilians back to their normal duties. To those returning from furlough: know that the work you perform is incredibly valued by your military teammates and by me. I appreciate your professionalism and your patience during this difficult period of time, which came on top of last summer's sequestration-related furloughs. Your managers will have more information about this, but I can assure you that you will be paid in full for the time you were furloughed during the shutdown.
Now that this latest budget crisis has come to an end, we have an opportunity to return to focusing on the critical work of this department. Unfortunately, Congress did not end the budget uncertainty that has cast such a shadow of uncertainty over this department for much of the year. In the months ahead, they will have an opportunity to do so. My hope is that they will realize that these kinds of crises do great damage to our people, our national security, our economy, and America's standing in the world. Congress has a responsibility to govern, and it must fulfill those basic responsibilities in order to keep our country strong.
Hagel Stresses Workforce's Value After 'Manufactured Crisis'
American Forces Press Service
WASHINGTON, Oct. 17, 2013 - Defense Secretary Chuck Hagel issued a message to the Defense Department's workforce today, welcoming back employees furloughed by the 16-day government shutdown and emphasizing their value to the nation.
Here is the text of the secretary's message:
Today the Department of Defense is resuming normal operations across the world, now that Congress has finally restored funding for DoD and the rest of the federal government. This manufactured crisis was an unwelcome and unnecessary distraction from our critical work of keeping the country safe.
I know that each of your lives has been disrupted and affected in different ways. I regret the impact that this shutdown had on so many of our civilian personnel, particularly those who I was previously unable to recall from emergency furlough.
Starting today, we will be welcoming all of our civilians back to their normal duties. To those returning from furlough: know that the work you perform is incredibly valued by your military teammates and by me. I appreciate your professionalism and your patience during this difficult period of time, which came on top of last summer's sequestration-related furloughs. Your managers will have more information about this, but I can assure you that you will be paid in full for the time you were furloughed during the shutdown.
Now that this latest budget crisis has come to an end, we have an opportunity to return to focusing on the critical work of this department. Unfortunately, Congress did not end the budget uncertainty that has cast such a shadow of uncertainty over this department for much of the year. In the months ahead, they will have an opportunity to do so. My hope is that they will realize that these kinds of crises do great damage to our people, our national security, our economy, and America's standing in the world. Congress has a responsibility to govern, and it must fulfill those basic responsibilities in order to keep our country strong.
Saturday, October 12, 2013
TRANSCRIPT OF PRESIDENT OBAMA'S WEEKLY ADDRESS
FROM: THE WHITE HOUSE WEEKLY ADDRESS
Weekly Address: End the Government Shutdown
WASHINGTON, DC— In this week’s address, President Obama said that Republicans in the House of Representatives chose to shut down the government over a health care law they don’t like. He urged the Congress to pass a budget that funds our government, with no partisan strings attached. The President made clear he will work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul – but not under the shadow of these threats to our economy.
Remarks of President Barack Obama
Weekly Address
The White House
October 5, 2013
Good morning. Earlier this week, the Republican House of Representatives chose to shut down a government they don’t like over a health care law they don’t like. And I’ve talked a lot about the real-world consequences of this shutdown in recent days – the services disrupted; the benefits delayed; the public servants kicked off the job without pay.
But today, I want to let the Americans dealing with those real-world consequences have their say. And these are just a few of the many heartbreaking letters I’ve gotten from them in the past couple weeks – including more than 30,000 over the past few days.
Kelly Mumper lives in rural Alabama. She works in early education, and has three children of her own in the Marines. Here’s what she wrote to me on Wednesday.
“Our Head Start agency…was forced to stop providing services on October 1st for over 770 children, and 175 staff were furloughed. I am extremely concerned for the welfare of these children. There are parents who work and who attend school. Where are they leaving their children…is it a safe environment…are [they] getting the food that they receive at their Head Start program?”
On the day Julia Pruden’s application to buy a home for her and her special needs children was approved by the USDA’s rural development direct loan program, she wrote me from Minot, North Dakota.
“We put in an offer to purchase a home this weekend, and it was accepted…if funding does not go through, our chances of the American Dream [are] down the drain…We have worked really hard to get our credit to be acceptable to purchase a home…if it weren’t for the direct lending program provided by the USDA, we would not qualify to buy the home we found.”
These are just two of the many letters I’ve received from people who work hard; try to make ends meet; try to do right by their families. They’re military or military spouses who’ve seen commissaries closed on their bases. They’re veterans worried the services they’ve earned won’t be there. They’re business owners who’ve seen their contracts with the government put on hold, worried they’ll have to let people go. I want them to know, I read the stories you share with me.
These are our fellow Americans. These are the people who sent us here to serve. And I know that Republicans in the House of Representatives are hearing the same kinds of stories, too.
As I made clear to them this week, there’s only one way out of this reckless and damaging shutdown: pass a budget that funds our government, with no partisan strings attached. The Senate has already done this. And there are enough Republican and Democratic votes in the House of Representatives willing to do the same, and end this shutdown immediately. But the far right of the Republican Party won’t let Speaker John Boehner give that bill a yes-or-no vote.
Take that vote. Stop this farce. End this shutdown now.
The American people don’t get to demand ransom in exchange for doing their job. Neither does Congress. They don’t get to hold our democracy or our economy hostage over a settled law. They don’t get to kick a child out of Head Start if I don’t agree to take her parents’ health insurance away. That’s not how our democracy is supposed to work.
That's why I won't pay a ransom in exchange for reopening the government. And I certainly won't pay a ransom in exchange for raising the debt ceiling. For as reckless as a government shutdown is, an economic shutdown that comes with default would be dramatically worse.
I'll always work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul. But not under the shadow of these threats to our economy.
Pass a budget. End this government shutdown.
Pay our bills. Prevent an economic shutdown.
These Americans and millions of others are counting on Congress to do the right thing. And I will do everything I can to make sure they do.
Thank you.
Weekly Address: End the Government Shutdown
WASHINGTON, DC— In this week’s address, President Obama said that Republicans in the House of Representatives chose to shut down the government over a health care law they don’t like. He urged the Congress to pass a budget that funds our government, with no partisan strings attached. The President made clear he will work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul – but not under the shadow of these threats to our economy.
Remarks of President Barack Obama
Weekly Address
The White House
October 5, 2013
Good morning. Earlier this week, the Republican House of Representatives chose to shut down a government they don’t like over a health care law they don’t like. And I’ve talked a lot about the real-world consequences of this shutdown in recent days – the services disrupted; the benefits delayed; the public servants kicked off the job without pay.
But today, I want to let the Americans dealing with those real-world consequences have their say. And these are just a few of the many heartbreaking letters I’ve gotten from them in the past couple weeks – including more than 30,000 over the past few days.
Kelly Mumper lives in rural Alabama. She works in early education, and has three children of her own in the Marines. Here’s what she wrote to me on Wednesday.
“Our Head Start agency…was forced to stop providing services on October 1st for over 770 children, and 175 staff were furloughed. I am extremely concerned for the welfare of these children. There are parents who work and who attend school. Where are they leaving their children…is it a safe environment…are [they] getting the food that they receive at their Head Start program?”
On the day Julia Pruden’s application to buy a home for her and her special needs children was approved by the USDA’s rural development direct loan program, she wrote me from Minot, North Dakota.
“We put in an offer to purchase a home this weekend, and it was accepted…if funding does not go through, our chances of the American Dream [are] down the drain…We have worked really hard to get our credit to be acceptable to purchase a home…if it weren’t for the direct lending program provided by the USDA, we would not qualify to buy the home we found.”
These are just two of the many letters I’ve received from people who work hard; try to make ends meet; try to do right by their families. They’re military or military spouses who’ve seen commissaries closed on their bases. They’re veterans worried the services they’ve earned won’t be there. They’re business owners who’ve seen their contracts with the government put on hold, worried they’ll have to let people go. I want them to know, I read the stories you share with me.
These are our fellow Americans. These are the people who sent us here to serve. And I know that Republicans in the House of Representatives are hearing the same kinds of stories, too.
As I made clear to them this week, there’s only one way out of this reckless and damaging shutdown: pass a budget that funds our government, with no partisan strings attached. The Senate has already done this. And there are enough Republican and Democratic votes in the House of Representatives willing to do the same, and end this shutdown immediately. But the far right of the Republican Party won’t let Speaker John Boehner give that bill a yes-or-no vote.
Take that vote. Stop this farce. End this shutdown now.
The American people don’t get to demand ransom in exchange for doing their job. Neither does Congress. They don’t get to hold our democracy or our economy hostage over a settled law. They don’t get to kick a child out of Head Start if I don’t agree to take her parents’ health insurance away. That’s not how our democracy is supposed to work.
That's why I won't pay a ransom in exchange for reopening the government. And I certainly won't pay a ransom in exchange for raising the debt ceiling. For as reckless as a government shutdown is, an economic shutdown that comes with default would be dramatically worse.
I'll always work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul. But not under the shadow of these threats to our economy.
Pass a budget. End this government shutdown.
Pay our bills. Prevent an economic shutdown.
These Americans and millions of others are counting on Congress to do the right thing. And I will do everything I can to make sure they do.
Thank you.
Tuesday, October 1, 2013
E-MAIL SENT FROM ATTORNEY GENERAL HOLDER REGARDING GOVERNMENT SHUTDOWN
FROM: U.S. JUSTICE DEPARTMENT
Message from the Attorney General and the President to Employees
~ Tuesday, October 1, 2013
The following message from the Attorney General was emailed to Justice Department employees on October 1, 2013.
Dear Colleagues,
As we enter this unnecessary and harmful government shutdown, I have been asked to pass on the attached message to all federal employees from President Obama.
I also want to reiterate that I am grateful for your dedicated service and I am mindful of how difficult this shutdown is on you, the Department's hard-working employees. While I hope that Congress will act to resolve this situation quickly, I will make every effort to keep you informed over the coming days.
As always, I am proud of the work that we do together to keep our nation and the American people safe each day.
Sincerely,
Eric H. Holder, Jr.
Attorney General
Message from the Attorney General and the President to Employees
~ Tuesday, October 1, 2013
The following message from the Attorney General was emailed to Justice Department employees on October 1, 2013.
Dear Colleagues,
As we enter this unnecessary and harmful government shutdown, I have been asked to pass on the attached message to all federal employees from President Obama.
I also want to reiterate that I am grateful for your dedicated service and I am mindful of how difficult this shutdown is on you, the Department's hard-working employees. While I hope that Congress will act to resolve this situation quickly, I will make every effort to keep you informed over the coming days.
As always, I am proud of the work that we do together to keep our nation and the American people safe each day.
Sincerely,
Eric H. Holder, Jr.
Attorney General
PRESIDENT OBAMA EXPRESSES DISAPPOINTMENT WITH CONGRESS
FROM: U.S. DEFENSE DEPARTMENT
Obama Lauds DOD Workforce, Encourages Budget Resolution
By Army Sgt. 1st Class Tyrone C. Marshall Jr.
American Forces Press Service
American Forces Press Service
WASHINGTON, Oct. 1, 2013 - President Barack Obama thanked the Defense Department workforce today in a video message and expressed his disappointment in Congress' failure to approve a budget, resulting in a government shutdown.
"As president, and as your commander-in-chief, I've worked to make sure you have the strategy, the resources and the support you need to complete the missions our nation asks of you," he said.
"And every time you've met your responsibilities and performed with extraordinary professionalism, skill and courage," Obama said.
Unfortunately, the president said, Congress has not fulfilled its responsibility and failed to pass a budget.
"As a result, much of our government must now shut down until Congress funds it again," Obama said.
Obama noted Defense Secretary Chuck Hagel, Army Gen. Martin E. Dempsey, chairman of the Joint Chiefs of Staff, and other commanders would provide more information on how the shutdown will affect the DOD civilians and their families.
"Today, I want to speak directly to you about how what happens next," he said. "Those of you in uniform will remain in your normal duty status. The threats to our national security have not changed, and we need you to be ready for any contingency."
"Ongoing military operations, like our efforts in Afghanistan, will continue," Obama said. "If you're serving in harm's way, we're going to make sure you have what you need to succeed in your missions."
The president said Congress has passed, and he would sign into law, legislation ensuring those personnel receive their paychecks on time.
"We'll continue to work to address any impact this shut down has on you and your families," Obama said.
"To all our DOD civilians, I know the days ahead could mean more uncertainty, including possible
furloughs," he said. "And I know this comes on top of the furloughs that many of you already endured this summer."
Obama said DOD civilians and their families deserved "better than the dysfunction we're seeing in Congress."
"Your talents and dedication help keep our military the best in the world," he said. "That's why I'll keep working to get Congress to re-open our government and get you back to work as soon as possible."
Obama said the shutdown is occurring against the background of broader changes with the war in Iraq over and the war in Afghanistan slated to end next year.
"After more than a decade of unprecedented operations, we're moving off a war footing," he said. "Yes, our military will be leaner, and as a nation, we face difficult budget choices going forward."
"But here's what I want you to know. I'm going to keep fighting to get rid of those across-the-board budget cuts the sequester which are hurting our military and our economy."
We need a responsible approach, Obama said, that deals with our fiscal challenges and keeps our military and our economy strong.
"I'm going to make sure you stay the greatest military in the world bar none," he added. "That's what I'm fighting for. That's what you and your families deserve."
The president thanked the Defense Department for their commitment to protecting the nation.
"On behalf of the American people, thank you for your service which keeps us free," Obama said. "And thank you for your sacrifice which keeps our nation and our military the greatest force for freedom that the world has ever known."
PRESIDENT OBAMA'S STATEMENT MONDAY ON THE GOVERNMENT SHUTDOWN
FROM: THE WHITE HOUSE PRESIDENT OBAMA
James S. Brady Press Briefing Room
5:00 P.M. EDT
THE PRESIDENT: Good afternoon, everybody. Of all the responsibilities the Constitution endows to Congress, two should be fairly simple: pass a budget, and pay America’s bills.
But if the United States Congress does not fulfill its responsibility to pass a budget today, much of the United States government will be forced to shut down tomorrow. And I want to be very clear about what that shutdown would mean -- what will remain open and what will not.
With regard to operations that will continue: If you’re on Social Security, you will keep receiving your checks. If you’re on Medicare, your doctor will still see you. Everyone’s mail will still be delivered. And government operations related to national security or public safety will go on. Our troops will continue to serve with skill, honor, and courage. Air traffic controllers, prison guards, those who are with border control -- our Border Patrol will remain on their posts, but their paychecks will be delayed until the government reopens. NASA will shut down almost entirely, but Mission Control will remain open to support the astronauts serving on the Space Station.
I also want to be very clear about what would change. Office buildings would close. Paychecks would be delayed. Vital services that seniors and veterans, women and children, businesses and our economy depend on would be hamstrung. Business owners would see delays in raising capital, seeking infrastructure permits, or rebuilding after Hurricane Sandy. Veterans who’ve sacrificed for their country will find their support centers unstaffed. Tourists will find every one of America’s national parks and monuments, from Yosemite to the Smithsonian to the Statue of Liberty, immediately closed. And of course, the communities and small businesses that rely on these national treasures for their livelihoods will be out of customers and out of luck.
And in keeping with the broad ramifications of a shutdown, I think it’s important that everybody understand the federal government is America’s largest employer. More than 2 million civilian workers and 1.4 million active-duty military serve in all 50 states and all around the world. In the event of a government shutdown, hundreds of thousands of these dedicated public servants who stay on the job will do so without pay -- and several hundred thousand more will be immediately and indefinitely furloughed without pay.
What, of course, will not be furloughed are the bills that they have to pay -- their mortgages, their tuition payments, their car notes. These Americans are our neighbors. Their kids go to our schools. They worship where we do. They serve their country with pride. They are the customers of every business in this country. And they would be hurt greatly, and as a consequence, all of us will be hurt greatly, should Congress choose to shut the people’s government down.
So a shutdown will have a very real economic impact on real people, right away. Past shutdowns have disrupted the economy significantly. This one would, too. It would throw a wrench into the gears of our economy at a time when those gears have gained some traction.
Five years ago right now, our economy was in meltdown. Today, our businesses have created 7.5 million new jobs over the past three and a half years. The housing market is healing and our deficits are falling fast. The idea of putting the American people’s hard-earned progress at risk is the height of irresponsibility.
And it doesn’t have to happen. Let me repeat this: It does not have to happen. All of this is entirely preventable if the House chooses to do what the Senate has already done -- and that’s the simple act of funding our government without making extraneous and controversial demands in the process, the same way other Congresses have for more than 200 years.
Unfortunately, right now House Republicans continue to tie funding of the government to ideological demands like limiting a woman’s access to contraception, or delaying the Affordable Care Act, all to save face after making some impossible promises to the extreme right wing of their party.
So let me be clear about this. An important part of the Affordable Care Act takes effect tomorrow no matter what Congress decides to do today. The Affordable Care Act is moving forward. That funding is already in place. You can’t shut it down. This is a law that passed both houses of Congress; a law that bears my signature; a law that the Supreme Court upheld as constitutional; a law that voters chose not to repeal last November; a law that is already providing benefits to millions of Americans in the form of young people staying on their parents’ plan until they’re 26, seniors getting cheaper prescription drugs, making sure that insurance companies aren't imposing lifetime limits when you already have health insurance, providing rebates for consumers when insurance companies are spending too much money on overhead instead of health care. Those things are already happening.
Starting tomorrow, tens of millions of Americans will be able to visit HealthCare.gov to shop for affordable health care coverage. So Americans who’ve lived for years in some cases with the fear that one illness could send them into bankruptcy, Americans who’ve been priced out of the market just because they’ve been sick once, they’ll finally be able to afford coverage -- quality coverage -- many of them for the first time in their lives.
Some of them may be sick as we speak. And this is their best opportunity to get some security and some relief. Tens of thousands of Americans die every single year because they don’t have access to affordable health care. Despite this, Republicans have said that if we lock these Americans out of affordable health care for one more year -- if we sacrifice the health care of millions of Americans -- then they’ll fund the government for a couple more months. Does anybody truly believe that we won’t have this fight again in a couple more months? Even at Christmas?
So here’s the bottom line: I’m always willing to work with anyone of either party to make sure the Affordable Care Act works better, to make sure our government works better. I’m always willing to work with anyone to grow our economy faster, or to create new jobs faster, to get our fiscal house in order for the long run. I’ve demonstrated this time and time again, oftentimes to the consternation of my own party.
But one faction of one party, in one house of Congress, in one branch of government doesn’t get to shut down the entire government just to refight the results of an election.
Keeping the people’s government open is not a concession to me. Keeping vital services running and hundreds of thousands of Americans on the job is not something you “give” to the other side. It’s our basic responsibility. It’s something that we’re doing for our military, and our businesses, and our economy, and all the hardworking people out there -- the person working for the Agricultural Department out in some rural community who’s out there helping some farmers make sure that they’re making some modest profit for all the hard work they’re putting in. They’re the person working for HUD who’s helping somebody buy a house for the first time. They’re somebody in a VA office who’s counseling one of our vets who’s got PTSD.
That’s who we’re here to serve. That’s why we’re supposed to be carrying out these responsibilities. It’s why we should be avoiding these kinds of constant brinksmanship. It’s something that we do in the ordinary process of this extraordinary system of government that we have. You don’t get to extract a ransom for doing your job; for doing what you’re supposed to be doing anyway; or just because there’s a law there that you don’t like.
The American people sent us here to govern. They sent us here to make sure that we’re doing everything we can to make their lives a little bit better -- to create new jobs, to restore economic security, to rebuild the prospects of upward mobility. That’s what they expect.
And they understand that there are differences between the parties and we’re going to be having some tough fights around those differences. And I respect the fact that the other party is not supposed to agree with me 100 percent of the time, just like I don’t agree with them. But they do also expect that we don’t bring the entire government to a halt or the entire economy to a halt just because of those differences.
That’s what they deserve. They’ve worked too hard, for too long to recover from previous crises just to have folks here in Washington manufacture yet another one that they have to dig themselves out of.
So Congress needs to keep our government open, needs to pay our bills on time, and never, ever threaten the full faith and credit of the United States of America.
And time is running out. My hope and expectation is that in the eleventh hour, once again, that Congress will choose to do the right thing and that the House of Representatives, in particular, will choose the right thing.
Thank you very much.
END 5:12 P.M. EDT
James S. Brady Press Briefing Room
5:00 P.M. EDT
THE PRESIDENT: Good afternoon, everybody. Of all the responsibilities the Constitution endows to Congress, two should be fairly simple: pass a budget, and pay America’s bills.
But if the United States Congress does not fulfill its responsibility to pass a budget today, much of the United States government will be forced to shut down tomorrow. And I want to be very clear about what that shutdown would mean -- what will remain open and what will not.
With regard to operations that will continue: If you’re on Social Security, you will keep receiving your checks. If you’re on Medicare, your doctor will still see you. Everyone’s mail will still be delivered. And government operations related to national security or public safety will go on. Our troops will continue to serve with skill, honor, and courage. Air traffic controllers, prison guards, those who are with border control -- our Border Patrol will remain on their posts, but their paychecks will be delayed until the government reopens. NASA will shut down almost entirely, but Mission Control will remain open to support the astronauts serving on the Space Station.
I also want to be very clear about what would change. Office buildings would close. Paychecks would be delayed. Vital services that seniors and veterans, women and children, businesses and our economy depend on would be hamstrung. Business owners would see delays in raising capital, seeking infrastructure permits, or rebuilding after Hurricane Sandy. Veterans who’ve sacrificed for their country will find their support centers unstaffed. Tourists will find every one of America’s national parks and monuments, from Yosemite to the Smithsonian to the Statue of Liberty, immediately closed. And of course, the communities and small businesses that rely on these national treasures for their livelihoods will be out of customers and out of luck.
And in keeping with the broad ramifications of a shutdown, I think it’s important that everybody understand the federal government is America’s largest employer. More than 2 million civilian workers and 1.4 million active-duty military serve in all 50 states and all around the world. In the event of a government shutdown, hundreds of thousands of these dedicated public servants who stay on the job will do so without pay -- and several hundred thousand more will be immediately and indefinitely furloughed without pay.
What, of course, will not be furloughed are the bills that they have to pay -- their mortgages, their tuition payments, their car notes. These Americans are our neighbors. Their kids go to our schools. They worship where we do. They serve their country with pride. They are the customers of every business in this country. And they would be hurt greatly, and as a consequence, all of us will be hurt greatly, should Congress choose to shut the people’s government down.
So a shutdown will have a very real economic impact on real people, right away. Past shutdowns have disrupted the economy significantly. This one would, too. It would throw a wrench into the gears of our economy at a time when those gears have gained some traction.
Five years ago right now, our economy was in meltdown. Today, our businesses have created 7.5 million new jobs over the past three and a half years. The housing market is healing and our deficits are falling fast. The idea of putting the American people’s hard-earned progress at risk is the height of irresponsibility.
And it doesn’t have to happen. Let me repeat this: It does not have to happen. All of this is entirely preventable if the House chooses to do what the Senate has already done -- and that’s the simple act of funding our government without making extraneous and controversial demands in the process, the same way other Congresses have for more than 200 years.
Unfortunately, right now House Republicans continue to tie funding of the government to ideological demands like limiting a woman’s access to contraception, or delaying the Affordable Care Act, all to save face after making some impossible promises to the extreme right wing of their party.
So let me be clear about this. An important part of the Affordable Care Act takes effect tomorrow no matter what Congress decides to do today. The Affordable Care Act is moving forward. That funding is already in place. You can’t shut it down. This is a law that passed both houses of Congress; a law that bears my signature; a law that the Supreme Court upheld as constitutional; a law that voters chose not to repeal last November; a law that is already providing benefits to millions of Americans in the form of young people staying on their parents’ plan until they’re 26, seniors getting cheaper prescription drugs, making sure that insurance companies aren't imposing lifetime limits when you already have health insurance, providing rebates for consumers when insurance companies are spending too much money on overhead instead of health care. Those things are already happening.
Starting tomorrow, tens of millions of Americans will be able to visit HealthCare.gov to shop for affordable health care coverage. So Americans who’ve lived for years in some cases with the fear that one illness could send them into bankruptcy, Americans who’ve been priced out of the market just because they’ve been sick once, they’ll finally be able to afford coverage -- quality coverage -- many of them for the first time in their lives.
Some of them may be sick as we speak. And this is their best opportunity to get some security and some relief. Tens of thousands of Americans die every single year because they don’t have access to affordable health care. Despite this, Republicans have said that if we lock these Americans out of affordable health care for one more year -- if we sacrifice the health care of millions of Americans -- then they’ll fund the government for a couple more months. Does anybody truly believe that we won’t have this fight again in a couple more months? Even at Christmas?
So here’s the bottom line: I’m always willing to work with anyone of either party to make sure the Affordable Care Act works better, to make sure our government works better. I’m always willing to work with anyone to grow our economy faster, or to create new jobs faster, to get our fiscal house in order for the long run. I’ve demonstrated this time and time again, oftentimes to the consternation of my own party.
But one faction of one party, in one house of Congress, in one branch of government doesn’t get to shut down the entire government just to refight the results of an election.
Keeping the people’s government open is not a concession to me. Keeping vital services running and hundreds of thousands of Americans on the job is not something you “give” to the other side. It’s our basic responsibility. It’s something that we’re doing for our military, and our businesses, and our economy, and all the hardworking people out there -- the person working for the Agricultural Department out in some rural community who’s out there helping some farmers make sure that they’re making some modest profit for all the hard work they’re putting in. They’re the person working for HUD who’s helping somebody buy a house for the first time. They’re somebody in a VA office who’s counseling one of our vets who’s got PTSD.
That’s who we’re here to serve. That’s why we’re supposed to be carrying out these responsibilities. It’s why we should be avoiding these kinds of constant brinksmanship. It’s something that we do in the ordinary process of this extraordinary system of government that we have. You don’t get to extract a ransom for doing your job; for doing what you’re supposed to be doing anyway; or just because there’s a law there that you don’t like.
The American people sent us here to govern. They sent us here to make sure that we’re doing everything we can to make their lives a little bit better -- to create new jobs, to restore economic security, to rebuild the prospects of upward mobility. That’s what they expect.
And they understand that there are differences between the parties and we’re going to be having some tough fights around those differences. And I respect the fact that the other party is not supposed to agree with me 100 percent of the time, just like I don’t agree with them. But they do also expect that we don’t bring the entire government to a halt or the entire economy to a halt just because of those differences.
That’s what they deserve. They’ve worked too hard, for too long to recover from previous crises just to have folks here in Washington manufacture yet another one that they have to dig themselves out of.
So Congress needs to keep our government open, needs to pay our bills on time, and never, ever threaten the full faith and credit of the United States of America.
And time is running out. My hope and expectation is that in the eleventh hour, once again, that Congress will choose to do the right thing and that the House of Representatives, in particular, will choose the right thing.
Thank you very much.
END 5:12 P.M. EDT
Sunday, September 29, 2013
UNDER SECRETARY OF DEFENSE HALE'S BRIEFING ON PLAN FOR GOVERNMENT SHUTDOWN
FROM: U.S. DEFENSE DEPARTMENT
Presenter: Under Secretary of Defense (Comptroller) Robert F. Hale September 27, 2013
News Briefing on the Department Of Defense's Plan for a Possible Government Shutdown
UNDER SECRETARY OF DEFENSE ROBERT F. HALE: Ready to go? All right. So I think you know who I am. I'll say good afternoon. That's probably the high point of this discussion.
So I'm going to start with a few words, then I'll turn to your questions. Let me start by saying the administration firmly believes that a shutdown due to a lapse of appropriation should not occur.
The administration is working with Congress to try to prevent a lapse. Unfortunately, we may not know the outcome of those efforts until next Monday, conceivably even Monday night.
So we have to be prudent and plan for a lapse of appropriations. So what is involved in this planning? As I answer this question and everything I say today, let me say I'm going to focus on the Department of Defense, solely on DOD., but other federal agencies are definitely affected. I just don't -- I know less about them, so I'll focus on DOD.
First it's important to recognize that if DOD's appropriations lapse, we can only conduct limited activity specifically authorized by law. The lapse could lead to civilian furloughs, it will, in fact.
But these furloughs are very different than the sequester furloughs that occurred this summer. The sequester furloughs sought to reduce costs. And we had the authority to design them to reduce costs and to reflect policies like minimizing effects on readiness.
In the case of a lapse of appropriations, law governs, not policy. Specifically the law says that in the event of a lapse of appropriations, DOD can only conduct activities designed to protect safety of life and property and carry out a few other activities.
Administration lawyers interpret this to mean that DOD can support specific military operations that the secretary of defense has approved: Afghanistan, for example, and a number of others.
We can also maintain emergency services, police, fire, emergency medical. We label the activities that can continue as excepted activities, and you will hear me use that word repeatedly in the next couple of minutes.
So what would happen under a lapse of appropriations? First, government employees would be significantly affected. In the event of a lapse, all of our military personnel would be directed to remain on a normal duty status. Their military status means they can't be placed in a non-pay status, so we would direct them to continue in normal-duty status. Civilian workers who support these excepted activities, again Afghanistan emergency activities, they -- they would be directed to continue to work.
But all other civilian workers who do not primarily support excepted activities would be placed in a non-duty, non-pay status on an emergency no-notice basis at the time the lapse occurs. Based on planning in 2011, we would expect roughly half of our civilian personnel would go into this status, essentially a non-pay furlough status.
Pay of government employees could also be seriously affected, especially if the lapse continues for a period of time. During a lapse, DOD cannot pay military personnel and civilian personnel, even if they have been directed to work. Military and those civilians directed to work would be paid retroactively once the lapse of appropriation ends. Civilians on emergency furloughs, and those for the -- primarily doing non-excepted activities would be paid retroactively only if a law is enacted providing the authority to pay them.
Training and travel of military and civilian employees would be disrupted. Unless connected with excepted activities, training and travel would have to be stopped. It would either be stopped before it started, or if it's going on at the time the lapse occurs, then folks associated with -- on TDY associated with non-accepted travel would have to pack up and come home, although they could do that in an orderly fashion.
We would also be required to do some other bad things to our people. Just some examples, we couldn't immediately pay death gratuities to those who die on active duty during the lapse, we would have to close stateside commissaries, promotion boards and other similar important personnel activities would be disrupted, probably would have to be stopped, and a number of other actions.
DOD vendors would also be affected, especially if the lapse continues for a substantial period of time. Vendors working on contracts with funds obligated prior to the lapse in fiscal '13 or earlier funds could continue to work, assuming government personnel are available to provide any needed supervision. And, they could be paid for that work, but during the period of the lapse, we can't sign new contracts or extend old ones unless they're directly in support of excepted activities.
So if I haven't already confused you, let me try to sum up by saying how all these confusing actions affect the DOD mission. We can and will continue to support key military operations. We're allowed to do that by law, but the law would force us to disrupt many of our support activities. We wouldn't be able to do most training, we couldn't enter into most new contracts, routine maintenance would have to stop, we couldn't continue efforts to improve contracting and financial management, including our auto improvement efforts, for example. Even worse, a lapse of appropriations causes civilian furloughs and is one more blow to the morale of our civilian workforce, and that morale is already low and I think would get lower. And that adversely affects productivity and costs the taxpayers money.
Even if a lapse never occurs, the planning itself is disruptive. People are worrying right now about whether their paychecks are going to be delayed, rather than focusing fully on their mission. And while I can't quantify the time being spent to plan, it has or will consume a lot of senior management attention, probably thousands of hours in employee time better spent on supporting national security. For all these reasons, I very much hope that Congress acts to avert a lapse of appropriations, and though it will probably sound contradictory, I hope you will understand when I say that I hope we are all wasting our time planning for this lapse.
With that, I'll stop and I'll be glad to try to answer your questions. I'm going to get George, here.
Q: (inaudible), can you, since everyone lived through the furloughs recently, can you explain a little bit in detail the difference between the civilians who were furloughed under that, and the fact that there are fewer numbers being furloughed now?
If you could maybe give -- maybe an example, it would help so that people would understand what -- how that difference is, and I just have a second, one other, second question. I know contractors is a really hard thing to get your arms around, but is there any way to talk about the number of contractors as in people that could be affected by this?
UNDER SEC. HALE: Well, first on the furloughs. The ones we did in the summer were called administrative furloughs. It's a long notification process, if you remember, that we need to go through. They were designed to save money.
And, therefore, as I mentioned, we can -- we have the authority to design them based on criteria like readiness and cost-savings. These are specified by law. Anybody who is not -- any civilian not primarily working on an excepted activity has to be placed on furloughs.
Can I think of good examples for you? Well, here's one. Most of our working capital fund employees are going to not be furloughed immediately because the working capital funds have a cash balance that's based on funds obligated before the lapse, if you're following me. And so we have the funds and they don't have to be furloughed right away.
Now that would have to be gradually some of them if we run out of cash. Whereas most of our working capital fund employees were furloughed in the summer because we wanted to reduce costs.
As far as the contractors, just briefly, all of the ones working on contracts, as I said, that were obligated with money before the lapse would be able to continue if supervision was available.
I think in the early stages of a lapse, that would be the majority of our contractors because most are going to be working on contracts just almost by definition that were funded before. If the lapse continued, that number would fall. But I don't have specific numbers.
Q: I'm sorry, clarify on the difference between the contractors. If I'm not mistaken, there are about 650,000 that were affected over the summer. Now it's about 400,000. So a difference of a couple hundred thousand seems to be a lot. Am I...
UNDER SEC. HALE: Again, it's -- yes, the numbers are roughly right. I mean, I don't know exactly how many. Probably around half. So it will be close to that.
I mean, again, working capital funds alone are probably 100,000, 150,000 people that we'll keep this time and there are many others. And they're just totally different animals just because one is driven by law, one was driven by policy to save money. One is driven by law -- a specific law about excepted and non-excepted activities.
Q: But they weren't contractors, correct? I mean, these are government...
UNDER SEC. HALE: No. I'm talking government employees now. Contractors, most of them are probably going to be able to continue working if supervision is available because I think most of them would -- although I don't have numbers, most of them are going to be funded by contracts already that were funded with fiscal '13 or earlier money.
Q: For (OFF-MIKE) are looking towards that October 15th paycheck, can you give them a sense of how long this government shutdown might be able to go before their paycheck was definitely delayed? I mean, if Congress reached an agreement on the 4th, would these...
(CROSSTALK)
UNDER SEC. HALE: Yes, I think so. I think the earliest we'd start having trouble would be October 7th. And that's not a hard date. We'll push it as far as we can. But at some point we have to run the payroll.
Frankly, I'm in triage mode right now. I'm trying to help coordinate getting the department ready to shut down if we have to. And so I haven't focused on the problems that will occur if a lapse -- like that one, if the lapse occurs. I'll have to work with the Defense Financing and Accounting Service. We'll put it off as long as we can.
Clearly if the lapse extends to October 15th, there won't be a question. There may be some time prior to that when we'd be faced with either having to take a chance and go ahead and run the payroll and be ready, or delay it. But we have got a while.
Q: Can you talk about what happens to ships at sea, particularly those in the Mediterranean, and whether operations -- kinetic operations could be launched, such as by Special Operations Forces or even a hypothetical strike in Syria?
UNDER SEC. HALE: I mean, it would depend on whether it was a military operation. In the case you just mentioned, I think it surely would be and therefore it would be -- that is if we were -- hypothetically, the president were to authorize some action against Syria, it would be a military operation approved by the secretary and so it would be an excepted activity and, yes, we could go forward with it.
Q: And then ships at sea that are basically...
UNDER SEC. HALE: Well, again, the issue is, are they in direct support of excepted activities? I think many of them will be and therefore they will be excepted. And I might add the great majority of the people on there are military and they're going to remain at work. And so I don't think many of them will be disrupted.
But these are the sort of gray area decisions that our managers and commanders are making right now as they identify excepted and non- excepted. But I think most of the ships at sea would stay there.
If there were some that stayed strictly in training and weren't excepted, they would be able to stand down if they had to in an orderly fashion. And we'll have to make some judgment about what that means. Obviously you can't get the ship back immediately.
Q: Right. But obviously part of the mission at sea often involves planes going on training mission, it requires refueling, purchasing. Can those activities continue?
UNDER SEC. HALE: Again, and I don't want to sound like a stuck record. But it is going to depend on whether the judgment is that this is directly related to an excepted activity, which would be a military operation. I think in many cases, if they're in the Med, that's going to be true.
It would be harder if they're training off Newport -- or Norfolk, for example. That might not be true. Then the question is, are there civilians involved? Or can we go ahead and do it with the military? And I'm -- these are things that get delegated, and our commanders and managers are considering those issues right now.
(UNKNOWN): (OFF-MIKE)
Q: The memo talks about limiting movements from excepted areas. And I'm wondering if it could affect the draw-down from Afghanistan.
UNDER SEC. HALE: Well, Afghanistan is excepted. So let me think. I mean, the -- the PCS [Permanent Change of Station] is -- we can move to an excepted area, so the troops going over to Afghanistan would be OK. From an excepted area if the commander judges that there would be problems created if the move is not carried out.
So that's a judgment General Dunford and his staff will have to make. And I'm not sure where they are on that. Again, I'm sounding like a stuck record, but I don't have all these details. This is what we've passed out to our commanders, managers, and asked them to make these judgments.
Q: (OFF-MIKE)
UNDER SEC. HALE: Well, it's an excepted activity, so -- my lawyer here -- sounds like we should be able to go ahead with that.
Q: So just wondered if you could think back -- I don't know if you were comptroller in '95 and '96.
UNDER SEC. HALE: No.
Q: Probably not.
UNDER SEC. HALE: [inaudible]. I was the Air Force comptroller. (CROSSTALK)
Q: OK. So I know that in one of those shutdowns, Congress had passed an appropriation for DOD. And so -- but I can't remember which one. So just, could compare, you know, the two scenarios...
UNDER SEC. HALE: Yeah.
Q: ... and why this would be...
UNDER SEC. HALE: Well, we shut down in '95, if my memory serves me right, for about a week in DOD. It was longer in the non-defense agencies. So they passed, I guess it was a CR [Continuing Resolution] -- I can't remember -- or whether it was a full appropriations bill earlier for defense.
I mean, there was a lot of similarity. We went through all of these machinations that we are engaged in right now to decide what to do at that time, and then of course executed that plan.
One thing I distinctly remember is that it was a horrendous blow to the civilians. I mean, there was months after that that I was hearing from them. We used a phrase that we have stopped using because it was wrong, essential and non-offensial -- essential back then.
And it's just not right because it's not whether you're essential. It's whether the law says you're doing an excepted activity. There are lots of essential items to keep this military going that don't deal directly with excepted activities.
We've stopped that. Maybe it'll help, but not too much, I mean, especially coming on the heels of the summer furloughs. I am very concerned about the effect this is going to have on our civilian work force.
Q: Just one last -- one other related question is, the shut-down plans in 2011 versus what you're having to, you know, come up with now, are there, you know, differences in operations now that make those shut-down plans not a complete blueprint for what you're doing?
UNDER SEC. HALE: Not many differences. I mean, we made a few exceptions kind of based on recent events. For example, because of the potential flaws to our security system, we exempted the Navy Yard investigation. Obviously, in 2011, that wasn't an issue. But they were pretty minor. I'd say the vast majority of the guidance is the same.
Q: Just to confirm, like troop death benefits would be delayed? Can you provide a little more information about that?
UNDER SEC. HALE: If the -- if the death -- this is ghoulish, but it's the law, not policy. Remember that. If the death occurred after the lapse took place, then the money would be obligated after the lapse took place, and we would have no authority to pay based on that money until the lapse ended. So in that case, they could be delayed.
If the death occurred prior to the lapse, then I -- and assuming we had enough people to process the payment, then I think it wouldn't be delayed.
Q: If the government doesn't shut down, you're still gonna be stuck with a CR come next Tuesday. In the past, you've communicated to Congress provisions you'd like to see in the CR to -- so programs such as ship building wouldn't be hampered. Have you done anything like that? And what...
UNDER SEC. HALE: Yes, we always do through the Office of Management and Budget. I will say there are very few of them in the CR passed by the House and just passed by the Senate. But it's fairly short. This one I believe will go through November 15th.
So we can probably hold our breath for a while, but we would certainly appreciate it, and we would have liked more flexibility for new starts, for example, rate increases, and a variety of other activities that we won't be able to carry out under this CR. But yes, we did ask. We always ask.
Q: Also, if - if you do get funding, you will be facing sequestration again, right? How can you - have you thought about how that will affect?
UNDER SEC. HALE: Yes, potentially. I mean, this CR will be only through, if it - if it's passed as the Senate version, through November 15th, and if it were extended through the whole year in that form, yes, it would generate a sequestration in January, probably around 4 percent, so we could be facing it. Just in general, I think whereas a year ago we said, I think I may have stood at this podium and said we're not going to sequester ourselves, we really thought this would be resolved, I think this time we will start operating at a somewhat lower level than - than certainly than the President's request. The CR itself cuts the DOD budget, or would result in a cut of around $30 billion. The sequester would take out another $20 [billion] or so, so we will start at a level below the President's budget in order to conserve resources until we get a better sense of where we're actually headed.
Q: (inaudible).
Q: Just one quick clarification, so that October 1st, all paychecks will go out October 1st, right?
UNDER SEC. HALE: Correct. There's a payday today for the civilians that of course is not affected, and one on October 1st to the military, and it's not affected because it's all for time before any lapse would occur, and then the reserves are trickier because they are paid at various times, and we're already struggling with some of that, but I mean, I'm hoping we can minimize or avoid any disruptions there too.
Q: And then I (inaudible) clarification of, so one of the things that - that's listed as excepted, and I guess this is under the - this is under the law, (inaudible), but is activities necessary to continue recruiting? So are we talking like air shows, and that kind of ...
(CROSSTALK)
UNDER SEC. HALE: No, I mean, we'll be talking about probably recruiting offices, the military entrance examination centers, the things more directly related to it.
Q: And I mean I know this is a - this is a - putting a linear question on like - on a very three-dimensional problem here, but - but I - I mean, why is it that if there is money that would be available if something were to happen and - and there was a need to send a force to, we'll just say Syria since it's, you know, topic of the day, but to Syria, but there's not money that's available somewhere to pay people. Is there a good reason?
UNDER SEC. HALE: It's - it's the - yeah, it's the difference between obligations and our ability to disperse. The law says that in the lapse of appropriations, we can obligate money, which means we can enter into a contract and legally commit the government, we can obligate money for items related to safety of life, preservation of property, that's with all military operations, but we can't disperse anything, actually send a check until we get an appropriation, so we can go ahead with the operation, we'd be committing the government, but they're not going to get paid, or the - the personnel at least aren't going to get paid until we actually get an appropriation. Does that make sense?
Q: Yeah, absolutely. Thank you.
Q: Are there any specific upcoming multinational training exercises that would have to be canceled if there's a shutdown?
UNDER SEC. HALE: I don't know. My guess is, I don't know. As I say, you know, I assume nobody knows of it either. If we get into this, you know, we're going to have to go one level of indenture down. I mean, somebody knows, PACOM [U.S. Pacific Command] or EUCOM [U.S. European Command] they certainly would know, but I'm not aware of any.
(CROSSTALK)
Q: (inaudible) Roughly 400,000 DOD employees?
UNDER SEC. HALE: Based on - Tony, we don't have the numbers yet. We're still gathering them for this year, but it was around 50 percent of our civilians who were excepted two and a half years ago. I would expect it to be in that vicinity again. That would be around 400,000 maybe a little less. Our foreign national employees who are part of that 800,000 are excepted if they are paid by foreign governments, so we take them off the top, it would probably be a little less than 400,000 when we're done.
Q: They should be around 800,000 of which 400,000 potentially could be, and most of those are outside of the Washington, D.C. area, is that?
UNDER SEC. HALE: Eighty-six percent of our overall civilians are outside of Washington, so I think it's fair to say the majority of them will be.
Q: What is the thinking in terms of when RIF [Reduction in Force] notices or RIF packages would have to be pulled together, since you're not planning for furloughs in 2014?
UNDER SEC. HALE: Well, I mean, you will - we have planned some of them based on accommodating a $487 billion 10-year cut that we took in prior budgets, that - that over the next few months, I think some of those would be announced. The ones associated with these cuts takes awhile to formulate these, and - and so it will probably be a period of time and I'm not sure exactly when before we'll have those out. But you're going to see some reductions in force actions over coming months, and some involuntary separations in the military as we begin this drawdown.
Q: (OFF-MIKE) potentially it was like 6,200 a couple - back in early August you were thinking of -- you and the department, any rough number of potential RIFs?
UNDER SEC. HALE: No, I don't want to give you a number, because I don't think we're far enough along to be specific. And that number is headline stuff. So I'd prefer not to.
Q: How will Arlington burials be affected?
UNDER SEC. HALE: Yeah, we will exempt -- Arlington is actually paid to the Army. And I believe it will stay open, but I'd kind of like to check that.
We have decided -- based on mental health and other reasons -- to except funerals and dignified transfers. And so the people supporting those would be excepted and they will continue.
Q: And then just a follow up on the civilians expected to work but no guarantee of pay, is that unless something is passed in Congress?
UNDER SEC. HALE: It comes in two flavors. The ones who are associated with excepted activities, they will be directed to work. They will be paid retroactively -- as soon as we get an appropriation. And that will be automatic. The ones who are put on furlough, that would require an act of Congress in order to pay them retroactively.
Q: Are there any very significant differences between this guidance and the guidance from April 2011 or any of the ...
UNDER SEC. HALE: No, it's pretty modest -- I gave you the one example of the Navy Yard investigation, and there may be a couple others, but they are very modest. Unfortunately, we're getting good at this.
Q: In addition to having to worry about FY [fiscal year] '14, you have to develop an FY '15 budget concurrently. Can you update us on how that's going, and is all the time and attention you have to deal with for planning for a shutdown taking away from that?
UNDER SEC. HALE: I mean, absolutely. It's taking away from everything we do, at least anything of the people who are related to budget. Yes, it's slowing it down.
But we have to press forward, and it's a particularly demanding task this year, because we really feel we have to plan for a range of outcomes. We just don't know where we're gonna end up. A decision the president will ultimately make in December as to the size of the '15 budget and the plan beyond. So we're really planning for a pretty wide range of spending.
Q: Have the services given you everything they need for that?
UNDER SEC. HALE: They are in the process of doing that. They have submitted briefings on what we call our program objectives memoranda, and are submitting detail data right now.
Q: You had mentioned some ability to do -- to sign new contracts in the event of a government shutdown. The guidance mentions that it would be allowed when delaying contracting would endanger national security, but I wonder for some of your bigger weapons programs and vehicles and things how would you legally be able to decide what delays would endanger?
UNDER SEC. HALE: I mean, we can (inaudible) sign new contracts or extend old ones if they are in direct support of excepted activities. I think it would probably be a stretch for a major acquisition to qualify there, although it's extremely important -- that's another good difference between excepted and non-excepted and essential and non-essential. I mean, we need these weapons, but they'd probably be hard to relate them directly to a current military operation.
Now, the good news is, this coming at the beginning of the year, you don't tend to have a lot of those decisions facing you early on. So -- and those that you have, you could delay. I think if a lapse occurs, I definitely hope it doesn't, but the severity of the effects would grow quickly as it - if it turns out to be long. If it's short, it will be damaging, but less so. If it's long, it will be increasingly so, because it will catch more issues like that.
Q: Can you talk some more about the extent to which you would expect military personnel to be performing the duties of furloughed civilians as opposed to their normal day jobs? And I guess the same question for any contractors who might be able to stick around because they're paid the prior years.
Well, on the military side, I mean, they would have their normal jobs and they would continue that. I think there could be circumstances, for example, if there was an important contract funded with money before the lapse, and supervision was needed and the civilian was furloughed that, maybe the person had the capability to do that, I could see them doing that. But I think for the most part they will be doing their same jobs.
Same with the contractors, in general, they're going to be doing the jobs they were assigned. They can't -- the contractors would never be allowed -- furlough -- shutdown or not, to do inherently governmental work. There could be some circumstances, an admin assistant who was a contractor answering phones because a -- a person – a civilian was furloughed. It could be some of that, but for the most part, they're gonna go ahead and do the jobs they were assigned to.
(UNKNOWN): Thank you very much. Mr. Hale, thanks.
Presenter: Under Secretary of Defense (Comptroller) Robert F. Hale September 27, 2013
News Briefing on the Department Of Defense's Plan for a Possible Government Shutdown
UNDER SECRETARY OF DEFENSE ROBERT F. HALE: Ready to go? All right. So I think you know who I am. I'll say good afternoon. That's probably the high point of this discussion.
So I'm going to start with a few words, then I'll turn to your questions. Let me start by saying the administration firmly believes that a shutdown due to a lapse of appropriation should not occur.
The administration is working with Congress to try to prevent a lapse. Unfortunately, we may not know the outcome of those efforts until next Monday, conceivably even Monday night.
So we have to be prudent and plan for a lapse of appropriations. So what is involved in this planning? As I answer this question and everything I say today, let me say I'm going to focus on the Department of Defense, solely on DOD., but other federal agencies are definitely affected. I just don't -- I know less about them, so I'll focus on DOD.
First it's important to recognize that if DOD's appropriations lapse, we can only conduct limited activity specifically authorized by law. The lapse could lead to civilian furloughs, it will, in fact.
But these furloughs are very different than the sequester furloughs that occurred this summer. The sequester furloughs sought to reduce costs. And we had the authority to design them to reduce costs and to reflect policies like minimizing effects on readiness.
In the case of a lapse of appropriations, law governs, not policy. Specifically the law says that in the event of a lapse of appropriations, DOD can only conduct activities designed to protect safety of life and property and carry out a few other activities.
Administration lawyers interpret this to mean that DOD can support specific military operations that the secretary of defense has approved: Afghanistan, for example, and a number of others.
We can also maintain emergency services, police, fire, emergency medical. We label the activities that can continue as excepted activities, and you will hear me use that word repeatedly in the next couple of minutes.
So what would happen under a lapse of appropriations? First, government employees would be significantly affected. In the event of a lapse, all of our military personnel would be directed to remain on a normal duty status. Their military status means they can't be placed in a non-pay status, so we would direct them to continue in normal-duty status. Civilian workers who support these excepted activities, again Afghanistan emergency activities, they -- they would be directed to continue to work.
But all other civilian workers who do not primarily support excepted activities would be placed in a non-duty, non-pay status on an emergency no-notice basis at the time the lapse occurs. Based on planning in 2011, we would expect roughly half of our civilian personnel would go into this status, essentially a non-pay furlough status.
Pay of government employees could also be seriously affected, especially if the lapse continues for a period of time. During a lapse, DOD cannot pay military personnel and civilian personnel, even if they have been directed to work. Military and those civilians directed to work would be paid retroactively once the lapse of appropriation ends. Civilians on emergency furloughs, and those for the -- primarily doing non-excepted activities would be paid retroactively only if a law is enacted providing the authority to pay them.
Training and travel of military and civilian employees would be disrupted. Unless connected with excepted activities, training and travel would have to be stopped. It would either be stopped before it started, or if it's going on at the time the lapse occurs, then folks associated with -- on TDY associated with non-accepted travel would have to pack up and come home, although they could do that in an orderly fashion.
We would also be required to do some other bad things to our people. Just some examples, we couldn't immediately pay death gratuities to those who die on active duty during the lapse, we would have to close stateside commissaries, promotion boards and other similar important personnel activities would be disrupted, probably would have to be stopped, and a number of other actions.
DOD vendors would also be affected, especially if the lapse continues for a substantial period of time. Vendors working on contracts with funds obligated prior to the lapse in fiscal '13 or earlier funds could continue to work, assuming government personnel are available to provide any needed supervision. And, they could be paid for that work, but during the period of the lapse, we can't sign new contracts or extend old ones unless they're directly in support of excepted activities.
So if I haven't already confused you, let me try to sum up by saying how all these confusing actions affect the DOD mission. We can and will continue to support key military operations. We're allowed to do that by law, but the law would force us to disrupt many of our support activities. We wouldn't be able to do most training, we couldn't enter into most new contracts, routine maintenance would have to stop, we couldn't continue efforts to improve contracting and financial management, including our auto improvement efforts, for example. Even worse, a lapse of appropriations causes civilian furloughs and is one more blow to the morale of our civilian workforce, and that morale is already low and I think would get lower. And that adversely affects productivity and costs the taxpayers money.
Even if a lapse never occurs, the planning itself is disruptive. People are worrying right now about whether their paychecks are going to be delayed, rather than focusing fully on their mission. And while I can't quantify the time being spent to plan, it has or will consume a lot of senior management attention, probably thousands of hours in employee time better spent on supporting national security. For all these reasons, I very much hope that Congress acts to avert a lapse of appropriations, and though it will probably sound contradictory, I hope you will understand when I say that I hope we are all wasting our time planning for this lapse.
With that, I'll stop and I'll be glad to try to answer your questions. I'm going to get George, here.
Q: (inaudible), can you, since everyone lived through the furloughs recently, can you explain a little bit in detail the difference between the civilians who were furloughed under that, and the fact that there are fewer numbers being furloughed now?
If you could maybe give -- maybe an example, it would help so that people would understand what -- how that difference is, and I just have a second, one other, second question. I know contractors is a really hard thing to get your arms around, but is there any way to talk about the number of contractors as in people that could be affected by this?
UNDER SEC. HALE: Well, first on the furloughs. The ones we did in the summer were called administrative furloughs. It's a long notification process, if you remember, that we need to go through. They were designed to save money.
And, therefore, as I mentioned, we can -- we have the authority to design them based on criteria like readiness and cost-savings. These are specified by law. Anybody who is not -- any civilian not primarily working on an excepted activity has to be placed on furloughs.
Can I think of good examples for you? Well, here's one. Most of our working capital fund employees are going to not be furloughed immediately because the working capital funds have a cash balance that's based on funds obligated before the lapse, if you're following me. And so we have the funds and they don't have to be furloughed right away.
Now that would have to be gradually some of them if we run out of cash. Whereas most of our working capital fund employees were furloughed in the summer because we wanted to reduce costs.
As far as the contractors, just briefly, all of the ones working on contracts, as I said, that were obligated with money before the lapse would be able to continue if supervision was available.
I think in the early stages of a lapse, that would be the majority of our contractors because most are going to be working on contracts just almost by definition that were funded before. If the lapse continued, that number would fall. But I don't have specific numbers.
Q: I'm sorry, clarify on the difference between the contractors. If I'm not mistaken, there are about 650,000 that were affected over the summer. Now it's about 400,000. So a difference of a couple hundred thousand seems to be a lot. Am I...
UNDER SEC. HALE: Again, it's -- yes, the numbers are roughly right. I mean, I don't know exactly how many. Probably around half. So it will be close to that.
I mean, again, working capital funds alone are probably 100,000, 150,000 people that we'll keep this time and there are many others. And they're just totally different animals just because one is driven by law, one was driven by policy to save money. One is driven by law -- a specific law about excepted and non-excepted activities.
Q: But they weren't contractors, correct? I mean, these are government...
UNDER SEC. HALE: No. I'm talking government employees now. Contractors, most of them are probably going to be able to continue working if supervision is available because I think most of them would -- although I don't have numbers, most of them are going to be funded by contracts already that were funded with fiscal '13 or earlier money.
Q: For (OFF-MIKE) are looking towards that October 15th paycheck, can you give them a sense of how long this government shutdown might be able to go before their paycheck was definitely delayed? I mean, if Congress reached an agreement on the 4th, would these...
(CROSSTALK)
UNDER SEC. HALE: Yes, I think so. I think the earliest we'd start having trouble would be October 7th. And that's not a hard date. We'll push it as far as we can. But at some point we have to run the payroll.
Frankly, I'm in triage mode right now. I'm trying to help coordinate getting the department ready to shut down if we have to. And so I haven't focused on the problems that will occur if a lapse -- like that one, if the lapse occurs. I'll have to work with the Defense Financing and Accounting Service. We'll put it off as long as we can.
Clearly if the lapse extends to October 15th, there won't be a question. There may be some time prior to that when we'd be faced with either having to take a chance and go ahead and run the payroll and be ready, or delay it. But we have got a while.
Q: Can you talk about what happens to ships at sea, particularly those in the Mediterranean, and whether operations -- kinetic operations could be launched, such as by Special Operations Forces or even a hypothetical strike in Syria?
UNDER SEC. HALE: I mean, it would depend on whether it was a military operation. In the case you just mentioned, I think it surely would be and therefore it would be -- that is if we were -- hypothetically, the president were to authorize some action against Syria, it would be a military operation approved by the secretary and so it would be an excepted activity and, yes, we could go forward with it.
Q: And then ships at sea that are basically...
UNDER SEC. HALE: Well, again, the issue is, are they in direct support of excepted activities? I think many of them will be and therefore they will be excepted. And I might add the great majority of the people on there are military and they're going to remain at work. And so I don't think many of them will be disrupted.
But these are the sort of gray area decisions that our managers and commanders are making right now as they identify excepted and non- excepted. But I think most of the ships at sea would stay there.
If there were some that stayed strictly in training and weren't excepted, they would be able to stand down if they had to in an orderly fashion. And we'll have to make some judgment about what that means. Obviously you can't get the ship back immediately.
Q: Right. But obviously part of the mission at sea often involves planes going on training mission, it requires refueling, purchasing. Can those activities continue?
UNDER SEC. HALE: Again, and I don't want to sound like a stuck record. But it is going to depend on whether the judgment is that this is directly related to an excepted activity, which would be a military operation. I think in many cases, if they're in the Med, that's going to be true.
It would be harder if they're training off Newport -- or Norfolk, for example. That might not be true. Then the question is, are there civilians involved? Or can we go ahead and do it with the military? And I'm -- these are things that get delegated, and our commanders and managers are considering those issues right now.
(UNKNOWN): (OFF-MIKE)
Q: The memo talks about limiting movements from excepted areas. And I'm wondering if it could affect the draw-down from Afghanistan.
UNDER SEC. HALE: Well, Afghanistan is excepted. So let me think. I mean, the -- the PCS [Permanent Change of Station] is -- we can move to an excepted area, so the troops going over to Afghanistan would be OK. From an excepted area if the commander judges that there would be problems created if the move is not carried out.
So that's a judgment General Dunford and his staff will have to make. And I'm not sure where they are on that. Again, I'm sounding like a stuck record, but I don't have all these details. This is what we've passed out to our commanders, managers, and asked them to make these judgments.
Q: (OFF-MIKE)
UNDER SEC. HALE: Well, it's an excepted activity, so -- my lawyer here -- sounds like we should be able to go ahead with that.
Q: So just wondered if you could think back -- I don't know if you were comptroller in '95 and '96.
UNDER SEC. HALE: No.
Q: Probably not.
UNDER SEC. HALE: [inaudible]. I was the Air Force comptroller. (CROSSTALK)
Q: OK. So I know that in one of those shutdowns, Congress had passed an appropriation for DOD. And so -- but I can't remember which one. So just, could compare, you know, the two scenarios...
UNDER SEC. HALE: Yeah.
Q: ... and why this would be...
UNDER SEC. HALE: Well, we shut down in '95, if my memory serves me right, for about a week in DOD. It was longer in the non-defense agencies. So they passed, I guess it was a CR [Continuing Resolution] -- I can't remember -- or whether it was a full appropriations bill earlier for defense.
I mean, there was a lot of similarity. We went through all of these machinations that we are engaged in right now to decide what to do at that time, and then of course executed that plan.
One thing I distinctly remember is that it was a horrendous blow to the civilians. I mean, there was months after that that I was hearing from them. We used a phrase that we have stopped using because it was wrong, essential and non-offensial -- essential back then.
And it's just not right because it's not whether you're essential. It's whether the law says you're doing an excepted activity. There are lots of essential items to keep this military going that don't deal directly with excepted activities.
We've stopped that. Maybe it'll help, but not too much, I mean, especially coming on the heels of the summer furloughs. I am very concerned about the effect this is going to have on our civilian work force.
Q: Just one last -- one other related question is, the shut-down plans in 2011 versus what you're having to, you know, come up with now, are there, you know, differences in operations now that make those shut-down plans not a complete blueprint for what you're doing?
UNDER SEC. HALE: Not many differences. I mean, we made a few exceptions kind of based on recent events. For example, because of the potential flaws to our security system, we exempted the Navy Yard investigation. Obviously, in 2011, that wasn't an issue. But they were pretty minor. I'd say the vast majority of the guidance is the same.
Q: Just to confirm, like troop death benefits would be delayed? Can you provide a little more information about that?
UNDER SEC. HALE: If the -- if the death -- this is ghoulish, but it's the law, not policy. Remember that. If the death occurred after the lapse took place, then the money would be obligated after the lapse took place, and we would have no authority to pay based on that money until the lapse ended. So in that case, they could be delayed.
If the death occurred prior to the lapse, then I -- and assuming we had enough people to process the payment, then I think it wouldn't be delayed.
Q: If the government doesn't shut down, you're still gonna be stuck with a CR come next Tuesday. In the past, you've communicated to Congress provisions you'd like to see in the CR to -- so programs such as ship building wouldn't be hampered. Have you done anything like that? And what...
UNDER SEC. HALE: Yes, we always do through the Office of Management and Budget. I will say there are very few of them in the CR passed by the House and just passed by the Senate. But it's fairly short. This one I believe will go through November 15th.
So we can probably hold our breath for a while, but we would certainly appreciate it, and we would have liked more flexibility for new starts, for example, rate increases, and a variety of other activities that we won't be able to carry out under this CR. But yes, we did ask. We always ask.
Q: Also, if - if you do get funding, you will be facing sequestration again, right? How can you - have you thought about how that will affect?
UNDER SEC. HALE: Yes, potentially. I mean, this CR will be only through, if it - if it's passed as the Senate version, through November 15th, and if it were extended through the whole year in that form, yes, it would generate a sequestration in January, probably around 4 percent, so we could be facing it. Just in general, I think whereas a year ago we said, I think I may have stood at this podium and said we're not going to sequester ourselves, we really thought this would be resolved, I think this time we will start operating at a somewhat lower level than - than certainly than the President's request. The CR itself cuts the DOD budget, or would result in a cut of around $30 billion. The sequester would take out another $20 [billion] or so, so we will start at a level below the President's budget in order to conserve resources until we get a better sense of where we're actually headed.
Q: (inaudible).
Q: Just one quick clarification, so that October 1st, all paychecks will go out October 1st, right?
UNDER SEC. HALE: Correct. There's a payday today for the civilians that of course is not affected, and one on October 1st to the military, and it's not affected because it's all for time before any lapse would occur, and then the reserves are trickier because they are paid at various times, and we're already struggling with some of that, but I mean, I'm hoping we can minimize or avoid any disruptions there too.
Q: And then I (inaudible) clarification of, so one of the things that - that's listed as excepted, and I guess this is under the - this is under the law, (inaudible), but is activities necessary to continue recruiting? So are we talking like air shows, and that kind of ...
(CROSSTALK)
UNDER SEC. HALE: No, I mean, we'll be talking about probably recruiting offices, the military entrance examination centers, the things more directly related to it.
Q: And I mean I know this is a - this is a - putting a linear question on like - on a very three-dimensional problem here, but - but I - I mean, why is it that if there is money that would be available if something were to happen and - and there was a need to send a force to, we'll just say Syria since it's, you know, topic of the day, but to Syria, but there's not money that's available somewhere to pay people. Is there a good reason?
UNDER SEC. HALE: It's - it's the - yeah, it's the difference between obligations and our ability to disperse. The law says that in the lapse of appropriations, we can obligate money, which means we can enter into a contract and legally commit the government, we can obligate money for items related to safety of life, preservation of property, that's with all military operations, but we can't disperse anything, actually send a check until we get an appropriation, so we can go ahead with the operation, we'd be committing the government, but they're not going to get paid, or the - the personnel at least aren't going to get paid until we actually get an appropriation. Does that make sense?
Q: Yeah, absolutely. Thank you.
Q: Are there any specific upcoming multinational training exercises that would have to be canceled if there's a shutdown?
UNDER SEC. HALE: I don't know. My guess is, I don't know. As I say, you know, I assume nobody knows of it either. If we get into this, you know, we're going to have to go one level of indenture down. I mean, somebody knows, PACOM [U.S. Pacific Command] or EUCOM [U.S. European Command] they certainly would know, but I'm not aware of any.
(CROSSTALK)
Q: (inaudible) Roughly 400,000 DOD employees?
UNDER SEC. HALE: Based on - Tony, we don't have the numbers yet. We're still gathering them for this year, but it was around 50 percent of our civilians who were excepted two and a half years ago. I would expect it to be in that vicinity again. That would be around 400,000 maybe a little less. Our foreign national employees who are part of that 800,000 are excepted if they are paid by foreign governments, so we take them off the top, it would probably be a little less than 400,000 when we're done.
Q: They should be around 800,000 of which 400,000 potentially could be, and most of those are outside of the Washington, D.C. area, is that?
UNDER SEC. HALE: Eighty-six percent of our overall civilians are outside of Washington, so I think it's fair to say the majority of them will be.
Q: What is the thinking in terms of when RIF [Reduction in Force] notices or RIF packages would have to be pulled together, since you're not planning for furloughs in 2014?
UNDER SEC. HALE: Well, I mean, you will - we have planned some of them based on accommodating a $487 billion 10-year cut that we took in prior budgets, that - that over the next few months, I think some of those would be announced. The ones associated with these cuts takes awhile to formulate these, and - and so it will probably be a period of time and I'm not sure exactly when before we'll have those out. But you're going to see some reductions in force actions over coming months, and some involuntary separations in the military as we begin this drawdown.
Q: (OFF-MIKE) potentially it was like 6,200 a couple - back in early August you were thinking of -- you and the department, any rough number of potential RIFs?
UNDER SEC. HALE: No, I don't want to give you a number, because I don't think we're far enough along to be specific. And that number is headline stuff. So I'd prefer not to.
Q: How will Arlington burials be affected?
UNDER SEC. HALE: Yeah, we will exempt -- Arlington is actually paid to the Army. And I believe it will stay open, but I'd kind of like to check that.
We have decided -- based on mental health and other reasons -- to except funerals and dignified transfers. And so the people supporting those would be excepted and they will continue.
Q: And then just a follow up on the civilians expected to work but no guarantee of pay, is that unless something is passed in Congress?
UNDER SEC. HALE: It comes in two flavors. The ones who are associated with excepted activities, they will be directed to work. They will be paid retroactively -- as soon as we get an appropriation. And that will be automatic. The ones who are put on furlough, that would require an act of Congress in order to pay them retroactively.
Q: Are there any very significant differences between this guidance and the guidance from April 2011 or any of the ...
UNDER SEC. HALE: No, it's pretty modest -- I gave you the one example of the Navy Yard investigation, and there may be a couple others, but they are very modest. Unfortunately, we're getting good at this.
Q: In addition to having to worry about FY [fiscal year] '14, you have to develop an FY '15 budget concurrently. Can you update us on how that's going, and is all the time and attention you have to deal with for planning for a shutdown taking away from that?
UNDER SEC. HALE: I mean, absolutely. It's taking away from everything we do, at least anything of the people who are related to budget. Yes, it's slowing it down.
But we have to press forward, and it's a particularly demanding task this year, because we really feel we have to plan for a range of outcomes. We just don't know where we're gonna end up. A decision the president will ultimately make in December as to the size of the '15 budget and the plan beyond. So we're really planning for a pretty wide range of spending.
Q: Have the services given you everything they need for that?
UNDER SEC. HALE: They are in the process of doing that. They have submitted briefings on what we call our program objectives memoranda, and are submitting detail data right now.
Q: You had mentioned some ability to do -- to sign new contracts in the event of a government shutdown. The guidance mentions that it would be allowed when delaying contracting would endanger national security, but I wonder for some of your bigger weapons programs and vehicles and things how would you legally be able to decide what delays would endanger?
UNDER SEC. HALE: I mean, we can (inaudible) sign new contracts or extend old ones if they are in direct support of excepted activities. I think it would probably be a stretch for a major acquisition to qualify there, although it's extremely important -- that's another good difference between excepted and non-excepted and essential and non-essential. I mean, we need these weapons, but they'd probably be hard to relate them directly to a current military operation.
Now, the good news is, this coming at the beginning of the year, you don't tend to have a lot of those decisions facing you early on. So -- and those that you have, you could delay. I think if a lapse occurs, I definitely hope it doesn't, but the severity of the effects would grow quickly as it - if it turns out to be long. If it's short, it will be damaging, but less so. If it's long, it will be increasingly so, because it will catch more issues like that.
Q: Can you talk some more about the extent to which you would expect military personnel to be performing the duties of furloughed civilians as opposed to their normal day jobs? And I guess the same question for any contractors who might be able to stick around because they're paid the prior years.
Well, on the military side, I mean, they would have their normal jobs and they would continue that. I think there could be circumstances, for example, if there was an important contract funded with money before the lapse, and supervision was needed and the civilian was furloughed that, maybe the person had the capability to do that, I could see them doing that. But I think for the most part they will be doing their same jobs.
Same with the contractors, in general, they're going to be doing the jobs they were assigned. They can't -- the contractors would never be allowed -- furlough -- shutdown or not, to do inherently governmental work. There could be some circumstances, an admin assistant who was a contractor answering phones because a -- a person – a civilian was furloughed. It could be some of that, but for the most part, they're gonna go ahead and do the jobs they were assigned to.
(UNKNOWN): Thank you very much. Mr. Hale, thanks.
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