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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                   H.R. 853, THE COMPREHENSIVE BUDGET
                       PROCESS REFORM ACT OF 1999

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, MAY 20, 1999

                               __________

                            Serial No. 106-4

           Printed for the use of the Committee on the Budget

                               ----------

                      U.S. GOVERNMENT PRINTING OFFICE
56-869 CC                     WASHINGTON : 1999

                        COMMITTEE ON THE BUDGET

                     JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia,            JOHN M. SPRATT, Jr., South 
  Speaker's Designee                     Carolina,
CHRISTOPHER SHAYS, Connecticut         Ranking Minority Member
WALLY HERGER, California             JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey                 Leadership Designee
NICK SMITH, Michigan                 LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa                     BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan             DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California     KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota             ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee              EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire        DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania           EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan            GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas                BOB CLEMENT, Tennessee
JIM RYUN, Kansas                     JAMES P. MORAN, Virginia
MAC COLLINS, Georgia                 DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee                 KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky             JOSEPH M. HOEFFEL III, 
GARY MILLER, California                  Pennsylvania
PAUL RYAN, Wisconsin                 TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania

                           Professional Staff

                    Wayne T. Struble, Staff Director
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, May 20, 1999.....................     1
Statement of:
    Hon. Jim Nussle, a Representative in Congress from the State 
      of Iowa....................................................     4
    Hon. Benjamin L. Cardin, a Representative in Congress from 
      the State of Maryland......................................    13
    Hon. David Minge, a Representative in Congress from the State 
      of Minnesota...............................................    19
    Hon. Jacob J. Lew, Director, Office of Management and Budget.    38
    Carol Cox Wait, President, Committee for a Responsible 
      Federal Budget.............................................    53
    Hon. Dan L. Crippen, Director, Congressional Budget Office...    61
    Rudolph G. Penner, former Director, Congressional Budget 
      Office, Senior Fellow, the Urban Institute.................    71
    Robert Greenstein, Executive Director, Center on Budget and 
      Policy Priorities..........................................    75
Prepared statement of:
    Congressman Nussle...........................................     8
    Congressman Cardin...........................................    16
    Congressman Minge............................................    20
    Director Lew.................................................    39
    Ms. Wait.....................................................    56
    Director Crippen.............................................    64
    Mr. Penner...................................................    73
    Mr. Greenstein...............................................    79
    Larry Bossidy, Chief Executive Officer, AlliedSignal, 
      representing the Business Roundtable.......................    98
    Hon. Porter Goss, a Representative in Congress from the State 
      of Florida.................................................   100
    Martha Phillips, representing the Concord Coalition..........   101
    Bill Frenzel, Co-Chairman, Committee for a Responsible 
      Federal Budget.............................................   105
April 6, 1999, letter from Director Lew to Congressman Spratt....    46

     H.R. 853, THE COMPREHENSIVE BUDGET PROCESS REFORM ACT OF 1999

                              ----------                              

                         THURSDAY, MAY 20, 1999

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 11 a.m. in room 
210, Cannon House Office Building, Hon. John R. Kasich 
(chairman of the committee) presiding.
    Members present: Representatives Kasich, Chambliss, Shays, 
Herger, Franks, Smith, Nussle, Gutknecht, Knollenberg, Ryun of 
Kansas, Collins, Wamp, Green, Ryan of Wisconsin, Toomey, 
Spratt, McDermott, Minge, Bentsen, Clayton, Price, Moran, and 
Holt.
    Chairman Kasich. The committee will come to order. Today we 
are going to have a hearing on, obviously, budget process 
reform. We will have the first panel, followed by a third 
panel, and then sandwiched in between, Jack Lew, who will be up 
here to talk about the administration's feelings about the 
bill.
    It is a long time coming. I am not sure this bill will at 
the end of the day make it all the way through law, but if we 
don't get moving here and get ourselves in a position of where 
we can start creating the precedent of being able to deal with 
budget process reform, then I think we are not taking advantage 
of some opportunities.
    This process reform does take some important steps. It 
gives the budget the force of law and encourages Congress and 
the President to start negotiating earlier, rather than later, 
each year. We could figure that out. If this could actually 
make that happen, that would be a wonderful thing.
    It causes us to establish a kind of rainy day fund for 
emergencies. So I think this is a breakthrough also, because it 
says we should start paying attention to emergencies.
    It also begins to force us to address some of the long-term 
liabilities. It also addresses some of the higher spending 
biases that we have hidden in the budget procedures and 
contains a provision that would prevent government shutdowns. 
Under the bill, if the President and Congress can't reach all 
their agreement by the time their fiscal year starts, they 
can't play games with the operation of the government, which is 
great.
    I want to particularly heap high praise, medals, and crowns 
on Jim Nussle in particular and his partner in this, Ben 
Cardin, two who really over the last year have really dug into 
this effort. I want to give them my personal thanks and a 
salute to them, and particularly Jim for the work he has done. 
I will give a smaller crown, fewer medals, to David Minge, who 
is just sharing in the glory here this morning. They were able 
to work together--are you running for the Senate, David?
    Mr. Cardin. Are you running for President?
    Chairman Kasich. There is a quote of the day. Get that 
down, Bud.
    Anyway, I think this is really a good process. We will just 
have to see how it all plays out.
    So let me just say to John, before we start the hearing, we 
will try to mark this bill up when we come back from Memorial 
Day. We are going to have some work to do on the airport bill 
and what we do with the on-budget/off-budget. John and I have 
to have some conversations. My colleagues on my side, we have 
to figure out where we are on all of this.
    So anyway, I want to, John, give you the floor and tell you 
that is the first time I have seen that Panetta picture. It is 
pretty good, but it is a little dark. Good for Leon. OK.
    Mr. Spratt. Thank you, Mr. Chairman. Let me join you and 
commend Chairman Nussle and Ben Cardin for working together, 
working in earnest, and, according to Ben, Jim has been more 
than cooperative and more than bipartisan, and I congratulate 
you. I think you have put your shoulder to the wheel and really 
worked on something that you think will be an improvement to 
the process.
    I have to disagree with many parts of it, unfortunately. I 
don't criticize you for the effort; we just don't agree as a 
matter of process on many of your recommendations, starting 
with the notion that the budget should be a joint resolution 
rather than a concurrent resolution.
    I wholly agree the President and the Congress should get 
together sooner rather than later. The best example I can give 
of that is 1997 when the President insisted that we come 
together and begin negotiating a budget early in the spring. 
The product of that was the Balanced Budget Act of 1997. I 
think that is a good example of the kind of cooperative 
bipartisan by-product that can come from that kind of endeavor.
    I am not sure that your own resolution leads you in that 
direction. In fact, I think the joint resolution could delay 
rather than expedite the process. It could create some 
unintended problems since it does become a law, even though you 
would prohibit it in your statute that implemented these 
concepts. Since a joint resolution is law and a concurrent 
resolution is not, it would be an invitation for some across-
the-board riders that would deal with things like abortion. You 
may say no, we can take care of that, but who would have ever 
thought you would see an abortion issue holding up a U.N. 
funding bill? Abortion is so many places that it does crop up. 
So the temptation and the urge and the compulsion to put it 
somewhere might make this the greatest target of all, because 
it cuts across the whole budget. It has a wider swath than 
anything else.
    That would be one problem. But I am more concerned about 
the occasions when the President really is bent upon getting 
his way, not willing to compromise; or when the Congress is of 
the same mind, you can't come together, and this joint 
resolution requirement, while it can be sidestepped eventually, 
nevertheless involves wheel-spinning for several months and 
loss of time rather than gain of time.
    Ironically, the end result that you propose, after saying 
we are going to elevate the budget resolution to the status of 
a joint resolution instead of a concurrent resolution, the end 
result of all this effort is less of a budget resolution than 
we have today, because you would take the 20 functions which 
are the main product of our effort here, take the 20 functions 
out of the budget resolution and put them in the committee 
report.
    If there is to be a joint resolution and if the object is 
to have a meeting of the minds between the President and the 
Congress, then probably the end result should not be a 302 
allocation agreement, but a 302(b) allocation agreement, where 
the President and the Congress would come together and say 
these 13 allocations are what we agree upon.
    I know this is heresy, this is radical talk, but if you are 
going to have a meeting of the minds, that is really a road map 
for the budget process so that the President and the Congress 
are more or less agreed. You haven't agreed on spending items 
but you agreed on the broad 13 categories, then this would be, 
I think, the desirable end product of all of this effort.
    Chairman Kasich. I just wanted to say to the gentleman that 
that is a very interesting suggestion, a very interesting 
suggestion, about the 302(b)s. Anyway, not that I am telling 
you to put it in, but it something to really think about. I 
don't think it is a radical suggestion. I think it is a pretty 
darn good suggestion.
    Mr. Spratt. I told Jim Nussle, if you want to see something 
bipartisan, you would see bipartisan opposition, I am sure.
    Second thing, I will give these as examples and quit, 
because we have witnesses to hear from and I don't need to 
occupy the time of the committee with a lengthy opening 
statement. One of the reasons we find ourselves in the happy 
position of having surpluses and soon having on-budget 
surpluses is because we adopted some rules in 1990 which have 
been very easy to display. The PAYGO rule is one, the 
discretionary spending caps is another. I am concerned this 
bill may weaken the discretionary spending caps in a couple of 
ways. First of all, it allows for the PAYGO rule--it changes 
the PAYGO rule so that you can use on-budget surpluses to 
offset either tax increases or entitlement cuts. I don't think 
we can allow the on-budget surplus to accumulate forever and 
say it cannot be used as an offset for any of these things. But 
before we sanction the use of it, I think we first should deal 
with Social Security. I know that is a political mantra of our 
party, but I think it is a high priority.
    Secondly, Mr. Kasich, our Chairman, has just told us that 
in a week or two we are going to take up the request of the 
Transportation Committee, the infrastructure committee, to take 
the Aviation Trust Fund off budget. The land and water 
conservation supporters also want to take it off budget. The 
nuclear power generators want their millage taken off budget as 
well. There is a big effort now to take these trust funds off 
budget, and frankly, they have a valid argument. These are 
dedicated revenue streams that are being used in part for other 
purposes.
    If we were to allow the on-budget surpluses to accumulate 
for the next several years, about 3 or 4 years, it would 
actually be enough on-budget surplus there to nearly fully fund 
all the 150 trust funds and still maintain the approximate 
level of expenditure we have got for discretionary spending 
now. I think we ought to consider that objective, going back to 
the budget and straightening the budget out so we can take care 
of these dedicated funds, put them to their earmarked purposes, 
and still have enough left for other purposes without having to 
invade the corpus of these funds.
    This just gives you sort of a low-level concern, micro-
concern, that you derive if you really read the text of this 
bill and game how it might work. Somewhere toward the end of 
the bill it says, in projecting CBO's projections and OMB's 
projections of future levels of expenditure, the assumption 
with respect to discretionary spending should not be the capped 
baseline which CBO uses, which is discretionary spending today 
adjusted by inflation, but it should be an extrapolation or 
extension of the existing discretionary spending cap at the 
level for which it is last established.
    So if our cap runs out in the year 2002 and if it is at 
$575 billion then, for the next, however long you are 
projecting, according to the text of this bill, that would be 
the assumption for discretionary spending.
    This would artificially inflate the on-budget surplus 
because it would artificially understate, I think, the level of 
discretionary spending. I don't think we are already having 
trouble meeting the levels this year. It will get harder and 
harder as we go on. If you statutorily assume that this will be 
the level and that on-budget surpluses will be computed with 
this cranked into the calculation, you are inflating the on-
budget surplus and encouraging tax cuts to be made that 
probably can't be supported by spending cuts downstream.
    These are some of the problems I have with the bill that 
cause me to oppose it. But I don't want to end without saying 
once again I admire the effort you have made, and I don't rule 
out the possibility we may find some ground for common 
agreement. But there are lots of disagreements we have with the 
mechanics of this bill you are presenting before us.
    Thank you very much, Mr. Chairman.
    Chairman Kasich. Mr. Nussle, you may proceed.

STATEMENT OF THE HON. JIM NUSSLE, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF IOWA

    Mr. Nussle. Thank you, Mr. Chairman. Let me start by 
thanking you and Mr. Spratt for not only your kind remarks this 
morning about the work product, even notice there may still be 
some heartburn, some concern, and maybe some disagreement and 
opposition. We appreciate the high praise that you have given 
us and the opportunity to form this task force to work on this 
effort.
    I want to thank all of the task force members, particularly 
Ben Cardin and David Minge, for their work and their interest 
in this.
    Mr. Chairman, you were handing out medals before. Let me 
suggest to you that the work product we have come up with today 
is really one of those items that has been gleaned from the 
work products of many, many representatives over many years. We 
weren't the first ones to discuss some of these ideas, such as 
the joint resolution idea. If I am not mistaken, I think Mr. 
Spratt was even on a bill at one time that favored at least 
some form of joint resolution. Chris Cox from our side. So 
there are many people who have come up with many good ideas in 
an incremental way for budget reform, and I want to thank all 
of them, because we have gleaned through our hearings, their 
advice, their counsel, their ideas and put them into this bill.
    The other thing I would just comment on is that this is not 
a science. When I came here to Congress, I maybe falsely 
assumed, and my constituents probably assumed too, that 
budgeting is a science. It is really an art. What we tried to 
do in our budget process reform bill is not stand in the way of 
the art, not stand in the way of the substance or the 
conclusion of a budget, but make that conclusion more possible, 
easier to achieve.
    So we didn't game this process toward a certain outcome. 
Mr. Spratt mentioned a moment ago that it may allow it to favor 
tax cuts or cuts in discretionary programs. ``May'' is 
different than it ``will,'' and many budget process reform 
bills that have come down the pike in recent years gamed the 
process toward a particular outcome.
    What we have done in our process reform bill is tried to 
say this is the process to get you to the decision, but the 
decision is still ours. The decision is still the Congress of 
the United States working in concert with the President, and 
then we step back from the process to allow the appropriations 
mechanism, the spending and tax committees, to make their final 
determination.
    So as we work through this, please recognize that we really 
did try, there was a sincere attempt on all of our parts, to 
never get into the substance of the decision itself, but only 
talk about the game rules, the Board itself, how you played the 
game to get to that decision.
    Finally, as far as thank you's, let me also mention some 
staff people. These are folks who know this budget inside and 
out, the budget process bills. In fact, if I am not mistaken, 
one of them was there at the infancy of the 1974 act and helped 
write the original bill. Jim Bates, Richard Kogan, David 
Koshgarian, Rich Meade and Scott Bruns all helped in putting 
this together. I want to thank all of them. They are both from 
the Majority and Minority staffs of the budget and from our 
personal staffs.
    If I may, Mr. Chairman, let me walk through some of the 
basics of the bill for those Members who have not had a chance 
to sink their teeth into this.
    What we are basically doing is we are changing the way the 
budget is arrived at. As most of you know now, we have what is 
called a concurrent budget process and concurrent resolution 
for the budget, which means it doesn't have the force of law. 
It has the force of Congress' resolution. But, as you know, 
that doesn't mean all that much all that often and can be 
changed quite often.
    What we decided was based on the success of what Mr. Spratt 
and John Kasich, our Chairman, and the administration went 
through, as well as Senate budgeteers in 1997, in early on 
setting some aggregate numbers, putting them into a memorandum 
of agreement, and then setting that out as the box from which 
we work the rest of that year.
    We decided to try and codify that process. So what we came 
up with was a joint resolution. So the President would submit 
his budget, Congress would pass a joint resolution, meaning a 
resolution that would require the President's signature for it 
to have the force of law.
    What does that mean? It means we have to have an agreement, 
and we have to have it before April 15th. It means the Chairmen 
of the Budget Committees and the Ranking Members of the Budget 
Committees, together with the administration, regardless of 
what parties they may be, including if they are from the same 
party, would have to sit down early in the process, and instead 
of these budgets since 1974 which arrived on Capitol Hill dead 
on arrival, we would have a process similar to 1997 that the 
budgets would tend to be more realistic, they would tend to be 
more honest, they would tend to have the opportunity at least 
for negotiation early on, so that most of that discussion and 
good work done by both sides would not be for loss.
    Let's assume for a moment the President doesn't like the 
budget that is submitted. Let's assume there is a breakdown in 
those negotiations. It doesn't mean the process stops. What it 
means is that Congress can fall back to its regular order, 
which is the concurrent process. It means Congress is not 
stymied under its constitutional duty under Article I to be the 
holders of the purse. We would still be able to set all of the 
302s, we would still be able to pass a budget, and we would 
still be able to submit those appropriation bills to the 
President at the end of the year.
    However, early in the process, we would know that there was 
a problem. We would know that there wasn't agreement. The 
press, our constituents, the people watching, would know. 
Instead of waiting until October and seeing some bill that is 
6,000 pages long come before us at about 12:30 at night, they 
would know there is a problem, and the pressure would start 
mounting for agreements and discussions to move back toward a 
more orderly process.
    If in fact there is a joint resolution, of course, that 
would set the wheels in motion for a regular order similar to 
what happened in 1997. It wouldn't take away the opportunity 
for discussion. It wouldn't take away anything from the 
appropriation and tax writing committees, but it would, by the 
end of the time, give us an opportunity for a much more orderly 
process as a result of having that box.
    What would the concurrent resolution--excuse me, what would 
the joint resolution look like? The current format, which is in 
the materials you have, have the 20 functions which, as Mr. 
Spratt said, would now as a result of our bill be put into 
report language. Part of the reason we did that is because who 
can tell me the relevance of these 20 functions anymore? Do 
they have any relevance, really, in all seriousness, toward the 
13 appropriation bills? First of all, there is very little 
correlation.
    So what we did was put all those budget functions into 
report language. Instead, we came up with a one-page budget 
that is similar to the memorandum of agreement that was arrived 
at back in 1997 which set the aggregate numbers for total 
spending revenue, surpluses and debts subject to limits as well 
as mandatory spending and discretionary spending.
    We didn't go as far as Mr. Spratt's suggestion about 
putting the 302(b)s in here. I have a feeling, as he suggested, 
we would lose in a very fast manner most of the bipartisan 
support, particularly from the appropriators. But we did at 
least try and set the bigger box so that the rest of the work 
could be done.
    The other part of this that I wanted to just bring up 
before I turn it over to my colleagues is emergency spending. 
One of the biggest areas of heartburn over the last 4 or 5 
years in particular has been emergencies and our supplemental 
appropriations.
    What we tried to do here is we tried to put more orderly 
process into that as well, starting with budgeting for 
emergencies. On a 5-year rolling average, according to 
recommendations by our FEMA Director, James Lee Witt, who has 
had an opportunity to research this and give us his impression, 
he suggested a 5-year rolling average for emergencies, except 
for, of course, situations, as we find ourselves in, where we 
are at war. But most of the other emergencies that we have been 
able to deal with, we could put in a 5-year rolling average and 
actually budget for that as part of the budget process.
    Then, as long as you stayed within that rainy day fund, if 
you will, the appropriators would have not much more to do with 
the Budget Committee except every time there was an emergency, 
it would have to meet the definition, which is a definition we 
took from the Senate definition of emergencies as well as one 
submitted by the administration for emergencies. We suggested 
that was a good definition and we worked out that as long as it 
stayed within that rainy day fund, there would be very little 
more discussion other than the bill would come to the floor for 
passage.
    If it goes over that, if the amount is more than the 
reserve total, then the Budget Committee would have to come in 
and amend or exempt the emergency from PAYGO and would have to 
exempt the emergency spending from the allocations and the 
aggregates under the caps. After that, of course, it would 
follow the same process.
    Let me just comment on a couple of things that Mr. Spratt 
said on his different concerns, because I think there are a 
couple of them that are--first of all, I appreciate the tenor 
of his remarks. We have been able to keep this out of any kind 
of partisan discussion, and I respect his concerns about the 
process.
    First, on the caps and what that would do to CBO 
projections, we purposefully in here decided not to set caps, 
again because that is a substantive decision: where the caps 
are, where they go; higher, lower. Wherever they might 
eventually arrive is something that Congress and the President 
need to work out prior to 2002 and arguably needs to be part of 
the first joint resolution as part of our new budget process.
    So as a result, what did we do as a result of not having 
those caps? We told CBO that one of the ways to apply pressure 
to the budget process is say that if there are no caps, we 
assume everything is just flat. What does that do? Of course, 
nobody is going to allow flat spending. As much as the 
Republicans like to talk about being the ones that like smaller 
government and smaller spending, we would probably rush in too 
and talk about the need for increasing spending. In my area, 
probably in agriculture, everybody has got an area that they 
are concerned about for increased spending or increased 
priority.
    So I have no doubt that this will help provide pressure as 
opposed to, as has been suggested, assuming that the amount of 
money left over would immediately go to either pay down the 
debt or go to tax cuts.
    Finally, let me just suggest that with regards to the on-
budget/off-budget situation, we felt the discussion in a 
partisan way had gone far enough and that really last year when 
this was negotiated, it was important for us to set aside that 
money that came in which was Social Security and to set that 
aside off-budget for Social Security.
    This does not preclude, however, as Mr. Spratt suggested, 
the use of the on-budget surplus for Medicare or Social 
Security if that is in fact the will of the Congress, and it 
would require that will of Congress in order to do it now under 
current law. All we are suggesting is that under our process, 
let's at least agree that there is money that goes into Social 
Security that ought to be off-budget and not touched, and at 
least agree on that. The rest of the discussion, whether it 
goes to tax cuts, Social Security, Medicare, increased 
spending, whatever it might be, is the will of the Congress, 
and, again, we try to stay as a result of our bill away from 
the discussion of outcome on that substantive point.
    There are many other points within our bill. I talked about 
some of the highlights that I felt were important, and I 
appreciate your interest in listening. I would just point out 
too, as Mr. Spratt suggested and Mr. Kasich suggested, I had 
already today 2 people come up to me with new suggestions for 
the bill. So I have a feeling that--and they were constructive 
and not partisan. My hope would be regardless of the outcome 
today and regardless of people's impression from the hearing, 
that there may be some support or not support, or people are 
counting noses already, let's keep the conversation alive. We 
cannot have the train wreck we had when the government shut 
down in 1996, and we cannot have the kind of really 
embarrassment that occurred in 1998 either. I don't think 
either party from any perspective can be proud of either one of 
those two instances.
    So, please, let us work together to come up with a new 
process that meets some of those challenges, even though you 
may not appreciate every single punctuation point in this 
particular bill.
    With that, I appreciate the time.
    [The prepared statement of Jim Nussle follows:]

  Prepared Statement of Hon. Jim Nussle, a Representative in Congress 
                         From the State of Iowa

    I want to thank my Chairman, Chairman Kasich, for calling this 
important hearing on our bipartisan budget process reform bill (H.R. 
853) and for allowing me and my friends and colleagues, Representative 
Ben Cardin (D-MD) and Representative David Minge (D-MN), to testify. We 
all appreciate Chairman Kasich's leadership and assistance in helping 
us move forward with budget process reform legislation. I also want to 
thank two additional members of this committee, Representatives Sununu 
(R-NH) and Radanovich (R-CA), for the important roles they have played 
with H.R. 853.
    Before I begin my testimony, I would be remiss if I did not also 
thank Chairman Goss of the Rules Committee's Subcommittee on 
Legislative and Budget Process for his leadership and hard work in the 
development of H.R. 853. As you know, Chairman Goss did fine work as 
Co-Chairman of the joint budget process reform task force formed 
between our committees.
    I would also like to recognize the contributions of the many 
talented staff members who have logged numerous hours in this process. 
Jim Bates of the Budget Committee Majority Staff as well as Richard 
Kogan of the Budget Committee Minority staff proved to be valuable 
resources and reliable counselors in this process. Additionally, David 
Koshgarian of Representative Cardin's staff and Rich Meade and Scott 
Bruns of my staff were also instrumental in the development of this 
legislation.
    In February 1998, Chairman Kasich appointed a bipartisan task force 
on budget process reform to address such issues as the nature and 
structure of the budget resolution, the budgetary treatment of 
emergencies, budgeting for contingent liabilities, and baselines and 
budgetary projections. Chairman Kasich deserves much of the credit for 
this bill as he urged me to work with the Democrats on the Task Force 
and gave me the necessary support at critical junctures in the process 
to produce a bill (H.R. 4837) before the end of the 105th Congress.
    Going into this process, we all knew that congressional budgeting 
practices could be improved. We also knew the Congressional Budget Act 
of 1974 needed to be examined with an eye toward an era of balanced 
budgets and ``surplus'' revenues. What we did not envision, however, 
were the difficulties experienced with the budget resolution for fiscal 
year 1999 or the manner in which the final spending bills were cobbled 
together.
    Our task force held a series of topical hearings on budget process 
reform in the spring of 1998. We heard a number of very good 
suggestions and ideas from outside experts in budget policy, such as 
the distinguished former Representative Tim Penny who co-chairs the 
Committee for a Responsible Federal Budget; Dr. James Lee Witt, 
Director of the Federal Emergency Management Agency (FEMA); Allen 
Schick, Visiting Fellow, Brookings Institution; Rudolph Penner, the 
former Director of the Congressional Budget Office; and Susan Irving, 
the Director of Budget Issues of the General Accounting Office. Our 
task force also heard testimony from nine of our colleagues in the 
House who have a long-standing interest in budget process reform.
    During the summer and early fall we began drafting legislation 
based on the lessons learned from our hearings. We worked in a 
deliberate and bipartisan manner to craft this legislation over a 
period of almost 3 months. As a result of our efforts, we were able to 
secure the support of a majority of the members of the task force on 
both sides of the aisle. We also drew the attention of Representatives 
who do not serve on the Budget Committee and won the support of 
respected Members such as Representative Stenholm (D-TX), 
Representative Barton (R-TX) and Representative Castle (R-DE).
    Unfortunately, the fruit of our labor could not be harvested during 
the hectic closing days of the 105th Congress. Since we had crafted our 
bill in a bipartisan manner, we did not want it to become the object of 
a partisan attack from either side of the aisle. We've updated and made 
technical changes to our bill and reintroduced it in this Congress as 
H.R. 853.
    Our bill is based on the assumption that the following fundamental 
principles should be used while developing a new budget process. 
Congress should adopt and conduct a budget process that:
    1. gives the budget the force of law;
    2. budgets for emergencies;
    3. discloses the unfunded liabilities of Federal insurance 
programs;
    4. strengthens the enforcement of budgetary decisions;
    4. mitigates the bias in the budget process toward higher spending;
    5. displays the unfunded liabilities of Federal insurance programs;
    6. prevents government shutdowns; and
    7. increases budgetary flexibility when there is an on-budget 
surplus.
    The following is an outline of the major provisions of the bill.

                        Joint Budget Resolution

    Perhaps the most important element of the Comprehensive Budget 
Process Reform Act is the conversion of the existing concurrent 
resolution into a joint budget resolution which would have the force of 
law when signed by the President. Under the current budget process, 
Congress and the President are required to agree on individual tax and 
spending bills but not the overall framework of the budget. Each year 
the President presents a detailed, programmatic budget and the Congress 
passes a concurrent resolution that establishes a common Congressional 
framework for the consideration of subsequent tax and spending bills. 
The only way that the President can affect total spending and revenue 
levels is by vetoing individual bills. Consequently, the budget process 
bogs down as the President may reject individual bills because he does 
not concur with the overall levels on which they are based.
    This dynamic was clearly in play in the 104th Congress when the 
President repeatedly vetoed appropriations bills in part because they 
were based on an overall level of discretionary spending that he found 
unacceptable. Finally in 1997, the Congress and the President committed 
to a common budgetary framework in a Memorandum of Understanding 
between the Congress and the President. The MOU essentially served as a 
joint budget resolution establishing the overall parameters for 
subsequent tax and spending legislation. In fact, Congress and the 
President have turned to such MOU's each time there has been a major 
budget agreement and the Congress and the President were controlled by 
different political parties.
    Our bill was developed with the hope that we can regularly repeat 
the great cooperation between Congress and the President that led to 
the historic Balanced Budget Act of 1997. That process worked because 
Congress and President Clinton agreed to basic principles and a 
framework at the beginning of the budget negotiations process, and 
weren't forced to negotiate under pressure of a deadline at the end of 
the budget process.
    If the President signs the joint budget resolution, Congress would 
move tax and spending bills, which would be governed by the spending 
limits established in the joint budget resolution. The President would 
still sign or veto each spending bill as it passed Congress. If the 
President refused to sign the joint budget resolution, Congress could 
quickly pass a concurrent budget resolution and operate in a manner 
similar to the current process.
    In order to focus initial negotiations on the broad framework of 
the budget, the Comprehensive Budget Process Reform Act would 
restructure the budget resolution. The bill replaces the 20 functional 
categories of spending in the budget resolution with seven categories 
of budget aggregates: defense discretionary, non-defense discretionary, 
total discretionary, mandatory spending, revenue, debt, and a reserve 
fund for emergencies. The budget resolution would become a device for 
reaching an agreement on overall spending and revenue levels. Policy 
and distributional issues would be settled in subsequent negotiations 
over individual tax and spending bills.

                      Reserve Fund for Emergencies

    Another key element of the Comprehensive Budget Process Reform Act 
is its reform of the treatment of emergency spending. In recent years, 
emergency spending has increased dramatically, primarily as a 
consequence of devastating events such as the Northridge earthquake and 
Hurricane Hugo. However, higher emergency spending has also been driven 
in part by the fact that emergency spending does not count against the 
statutory spending caps under current budgetary rules, making it 
essentially ``free'' money.
    As was seen at the end of the last Congress in the Omnibus 
Appropriations Act, emergency spending is basically defined as whatever 
the President and Congress say it is. The Comprehensive Budget Process 
Reform Act sets forth clear, concise criteria as to what constitutes an 
emergency. These criteria, which are based upon the OMB definition of 
emergency spending adopted following the Gulf War, are that the 
spending must be for the prevention or mitigation of, or response to, 
loss of life or property, or a threat to national security; and is 
unanticipated. Unanticipated means that the situation is sudden, 
urgent, unforeseen, and temporary.
    The more concise definition of emergency included in the 
Comprehensive Budget Process Reform Act should help curb some of the 
more flagrant examples of abuse. For example, while I agree with those 
who contend that the Year 2000 computer problem (Y2K) is a serious 
issue, it would not constitute an emergency under the definition 
included in this bill. Nor should Y2K be considered an emergency, we've 
known about the challenges the year 2000 will present for a number of 
years.
    The bipartisan Comprehensive Budget Process Reform Act would also 
reduce the incentives to mischaracterize spending as emergency spending 
by creating a reserve fund for emergency aid, and reserve that money 
exclusively for emergencies. By contrast, under current law there is no 
limit to how much money can be spent on emergencies. The bill would 
require Congress and the President to set aside an amount equal to the 
5-year historical average spending for emergencies. That money could 
not be spent unless the situation in question meets the criteria of 
emergency defined in the bill.
    I believe there is much to commend this approach. First of all, it 
provides a reasonable assurance that emergency spending will go to 
legitimate emergencies. Second, it preserves Congress's power over the 
purse because it is the Congress that determines whether a legitimate 
emergency exists. Third, it could relieve the Congress of the time-
consuming task of finding offsets for individual emergencies because 
the reserve would come out of the caps. Fourth, it is based on a tried 
and tested mechanism for augmenting the budget for bills that provide 
funds for specified purposes. Since the enactment of the Budget 
Enforcement Act in 1990, the Chairmen of the Budget Committees have 
adjusted committees' allocations for such factors as continuing 
disability reviews, arrearages, and land acquisitions. Finally, the 
beauty of the reserve fund concept is that if we set aside more money 
for disasters than is required, that amount simply increases the 
surplus, because the money actually never was appropriated.

                Accountability for Entitlement Spending

    Our bill would establish several procedures to curb the 
proliferation of new entitlement programs. Entitlements provide direct 
spending because, once they are authorized, the spending occurs 
automatically unless the underlying law is amended or repealed. The 
funding levels for these programs are determined by the number of 
eligible participants, the eligibility requirements and the benefit 
levels in the underlying law.
    Despite measures in the 1974 Budget Act designed to curb so called 
non-controllable spending, the number of new entitlement programs has 
dramatically increased. According to the General Accounting Office, 
there were 145 more mandatory programs in 1996 than there were 10 years 
earlier.
    The Comprehensive Budget Process Reform Act requires that any 
proposal for new entitlement spending, whether included in the 
President's budget or Congressional bills, include a justification for 
not subjecting the spending to annual appropriations. This will 
encourage those proposing new entitlement spending to at least take 
closer look at the programs and determine whether they really need to 
be entitlements.
    This bill also allows Members to offer amendments to subject 
proposed entitlement programs to annual appropriations. It limits the 
ability of the House to waive this right and makes any such amendment 
germane to the bill. To facilitate the conversion of entitlements into 
discretionary programs, the bill holds the Appropriations Committee 
harmless for new discretionary spending that is offset by designated 
reductions in direct spending.

                   Sunsetting and Expanded Oversight

    The bill includes a series of small but enforceable steps toward 
requiring all committees to systematically re-authorize all Federal 
spending programs. I take as an operating premise that no program, 
however important, should be immune from Congressional oversight.
    The bill requires all committees to submit a plan for re-
authorizing all programs, both mandatory and discretionary, at least 
once every 10 years. The House is prohibited from considering the 
expense resolution of any committee that fails to submit a 
reauthorization plan.
    The bill prohibits the consideration in the House of any bill that 
creates a new program that is not sunset within 10 years. Any bill that 
authorizes a program for more than 10 years would be subject to a point 
of order. Significantly, this requirement would only apply to new 
programs, and neither new nor existing programs would automatically 
sunset if they were authorized for a shorter period.

                    Automatic Continuing Resolution

    We take the bold step of agreeing to an automatic continuing 
resolution in order to prevent future government shutdowns. Our bill 
would provide for an automatic interim appropriation for any program, 
project or activity for which an appropriation bill is not enacted by 
the beginning of the fiscal year. Funding would continue at the prior 
year's level indefinitely, or until Congress and the President are able 
to reach agreement on the appropriate spending levels.
    I believe that an automatic CR will take away from both the 
President and Congress the incentive to refuse to negotiate in good 
faith on appropriation bills on the assumption that one side or the 
other will bear the wrath of the public for shutting down the Federal 
Government.

                         ``Baseline'' Budgeting

    The bill takes a small step toward changing the baseline mentality 
that contends that any attempt to slow down the growth in spending 
constitutes a cut. Drawing from a House-passed bill offered by 
Representatives Stenholm and Penny during the 103rd Congress, our bill 
requires that Presidential budget submissions, budget resolutions, 
appropriations reports, and cost estimates compare proposed spending 
and revenue levels with the actual spending levels of the prior year.
    We also try to shed light on the sources of projected growth in 
entitlement spending which is expected to explode early in the next 
century. The bill requires both the Office of Management and Budget and 
the Congressional Budget Office to periodically report on such sources 
of projected growth in mandatory spending as inflation, changes in 
medical technologies, and program enrollment.

                   Budget for Contingent Liabilities

    During the Task Force hearing and discussion with GAO, CBO, and 
OMB, it became clear that existing cash-based, short-term budgeting and 
accounting procedures do not capture the contingent liabilities and 
other long-term programmatic costs of Federal insurance programs. 
Accordingly, this bill provides for a shift to accrual budgeting for 
Federal insurance programs, as well as other measures intended to 
capture the medium-term costs of proposed legislation and the long-term 
budgetary implications of current and proposed budget priorities.
    Currently, the budget shows the short-term cash flows for such 
Federal insurance programs as deposit, pension and political risk 
insurance. Frequently, the premiums paid into the insurance programs do 
not reflect the program's long term costs to the Federal Government. 
Not surprisingly, policy makers have little incentive to take measures 
that would minimize the financial risk posed by these programs over the 
long term. There is a strong incentive for policy makers to embrace 
policies that provide short-term budgetary relief but exacerbate 
financial problems over the long run.
    Building on the principles of credit reform for loans and loan 
guarantees, this bill requires OMB, CBO and Federal agencies to 
estimate the expected loss from Federal insurance programs instead of 
short term cash flows. Congress and the President would ultimately be 
required to budget each year for the expected losses from new and 
expanded insurance programs.
    Additional changes are made in the budget process to capture other 
long-term costs that are not reflected the budget. Most importantly, it 
extends the horizon for the cost estimates of proposed legislation from 
five to ten fiscal years. Additionally, it requires OMB and CBO to 
periodically report on long- term budgetary trends under current law 
and as proposed by the President.

                 ``PAYGO'' Requirements and the Surplus

    We were even able to find common ground on permitting the surplus 
to be used for tax cuts and other initiatives if the budget is in 
balance without counting Social Security surpluses. Under existing 
PAYGO requirements, tax and entitlement legislation must be offset by 
entitlement cuts or tax increases. Our bill permits tax cuts without 
offsets so long as the Federal Government is running an on-budget 
surplus. Notwithstanding our agreement on this element of the bill, we 
may very well disagree on what the surplus should be used for whether 
further PAYGO reforms are in order.

                     ``Lock-Box'' for Spending Cuts

    Our bill establishes procedures to lock in savings from floor 
amendments to increase the surplus. The provision is similar to lock 
box provisions that have passed the House with bipartisan majorities. 
Under the lock-box, both the caps and appropriate levels in the budget 
resolution are automatically reduced by the amount of a floor amendment 
that reduces an appropriation line-item. This mechanism effectively 
prevents the Appropriations Committee from reprogramming savings from 
floor amendments to other programs in the same or another subcommittee 
allocation.
    Budget process reform is vitally important. Last fall the 
conclusion of the fiscal year 1999 appropriations bills illustrated the 
need for budget process reform. I am pleased our two committees have 
been able to work so well together in crafting the Comprehensive Budget 
Process Reform Act of 1999. I look forward to continuing our work 
together as this bill makes its way through the legislative process.

    Mr. Chambliss [presiding]. Thank you, Jim. In order of 
seniority, Ben, we will go to you next. Jim alluded to 
something in his testimony that I think is critical to this 
process, which is the bipartisanship with which this 
legislation was put together.
    Ben, if you don't mind, in the course of your comments, you 
will save me a question later by just talking about the 
openness of these discussions and whether or not you and Jim 
and Dave all feel that there has been real input from both 
sides of the aisle and if this is a true, in your mind, 
bipartisan effort.

 STATEMENT OF THE HON. BENJAMIN L. CARDIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Cardin. Thank you, Mr. Chairman. I appreciate the 
manner in which you have posed that question.
    Jim Nussle in his final comments here has really made an 
invitation to all of us to join together and try to make this 
the best possible bill we can. That is the manner in which he 
conducted our subcommittee or task force during the past year. 
As has been pointed out, I was appointed as the Ranking 
Democrat, Jim was the Chair of the Budget Review Task Force.
    At all times during the process, Jim made it absolutely 
clear that his door was open for discussion and debate, he 
wanted to make sure that any issue that was perceived to be 
highly partisan, that we got that out of the discussion, and 
that we stayed on target to deal with the real substance of the 
budget process.
    He also wanted to remove it from any specific budget 
resolution or any specific year, and I appreciate those 
efforts.
    I know the pressure he was under, I know the pressure came 
from both sides of the aisle, and he stood up to that, and I 
applaud him. Mr. Chairman, I can assure you that this 
recommendation is very much on a bipartisan basis from the 
point of view of the work of our task force.
    I also want to underscore another point, until I think the 
Rules Committee scheduled their hearings and now you are 
scheduling your hearings, many Members haven't really focused 
in on our recommendations. That may be understandable. It 
wasn't pressing at the time. It is a difficult subject. It is 
not as interesting to most Members as dealing with the 
substantive effects of the budget rather than the process, so I 
really applaud this committee, and I applaud the comments of 
John Spratt, that we need to look at this. We need to debate 
it.
    I am also happy to see you are not marking up until after 
the holiday. That gives us an opportunity to discuss some of 
these issues and see whether we can't improve some of the 
provisions. I expect there are going to be some areas where we 
are going to have policy differences. But I think some of the 
issues raised are ones in which we can improve the final bill 
that is recommended, I hope, to the floor and ultimately 
passed.
    We had, Mr. Chairman, three objectives. The first was to 
make Congress more effective as an entity in dealing with 
fiscal policy of this Nation.
    As way of background, I served 8 years as the Speaker of 
the Maryland legislature, so I take a little bit of pride in 
understanding how a legislature should operate on fiscal 
policy. When I came to Congress, I was appalled by the way our 
budget process works. I disagree with those that believe that 
this process is working. I don't think it is. Just look at our 
vote this past week on emergency spending or our vote at the 
end of last Congress on the omnibus spending bill. That is not 
a process that has you and me involved in determining the 
fiscal policy of this country as we should. We can do better, 
we should do better, and our recommendations are aimed at that.
    Secondly, we wanted to hold Congress more fiscally 
responsible for our actions. We wanted to make sure that our 
budget rules made sense from the point of view of doing what is 
fiscally right for the people that we represent.
    Third, Mr. Chairman, as you have already pointed out, we 
wanted to make sure that our recommendations were bipartisan.
    First, in the areas of making Congress more effective, I 
believe a joint resolution signed by the President makes us as 
an institution stronger; because, you see, under the current 
system, we pass budgets that don't mean very much, in all due 
respect to this committee. I served on it in the last Congress. 
In the last Congress we were unable to pass a budget resolution 
in our final year, and the budget resolution that has been 
passed this year, very few people believe will become the 
realistic blueprint for the adoption of the appropriation bills 
or the tax bill that ultimately we hope will make its way 
through Congress and be signed by the President.
    So the process has us really doing an awful lot of work 
right now, and it is unlikely it is going to mean very much. 
What happens is in September or October we finally get together 
with the White House, and I would argue with you that the 
executive branch is in a much stronger position than Congress 
when we meet in the fall of the year to determine what the 
budget of this Nation should be.
    That is true whether there is a Democrat in the White House 
or a Republican in the White House.
    Congress, the entity that represents directly the people of 
this Nation, should have a stronger voice in the budget 
process. By getting the President engaged earlier, we have a 
much better chance in order to accomplish that.
    Just look at our history on that as to how effective budget 
resolutions have been.
    Now, I understand John Spratt's concern about delay, but 
let me just make two points about that. I would suggest that we 
waste a lot of time right now in the budget process of this 
country because we act on appropriation bills or tax bills or 
reconciliation bills that have very little chance of ever 
becoming law. I can remember how many years I worked on 
different bills, just trying to find some vehicle that 
ultimately would be signed into law.
    We don't know that, and it is difficult in September to 
have much impact as an individual member on what is going to be 
finally included in a summit. So we waste a lot of time under 
the current process.
    But just to make sure that we don't paralyze Congress, we 
have what is known as a ``soft landing'' on the joint 
resolution. If we are unable to get a joint resolution, we 
revert to a concurrent resolution. That is a very minor delay 
in the process, but we hope we will have a joint resolution. We 
hope to have a document signed by the President. We hope our 
work will be meaningful, that each of us in our own capacities 
on our respective committees that deal with the subjects that 
are included in the budget will have a real role to play in 
what is ultimately signed into law.
    The second part about making Congress more effective is the 
automatic continuing resolution. I know there are different 
views on that. I think by having an automatic CR, there is more 
likelihood that we will succeed in passing our appropriation 
bills on time, because a CR is a failure and we shouldn't be 
holding our constituents hostage.
    The second major issue is to make us more fiscally 
accountable. Jim talked about emergency spending. The way we 
handle emergency spending in this institution is wrong. No one 
can justify this process. The bill we passed this week was not 
what we should have done under a regular budget process of 
fiscal accountability.
    The process, as outlined by Jim, is one that I think has a 
lot more appeal to it by including it in a much more regular 
process, but yet understanding there will be emergencies that 
go beyond any planning that we can make, and for them to be 
considered in due course.
    We have also started accrual accounting. Just test this out 
on your business leaders. Tell them you are on a cash basis 
accounting system because we are too small of an entity to move 
toward accrual accounting and budgeting. We start to move 
toward accrual accounting in the insurance programs. I think 
that is a step in the right direction. We have more entitlement 
oversight in this proposal, which that is a step in the right 
direction.
    Lastly, on the bipartisan provisions. We limit the joint 
resolution, and, Mr. Spratt, if it is not strong enough, let's 
draft it better, because I share your concern on that. I don't 
want to have a document out there that can cause some problems. 
All we want to do is what is spelled out here, I think we are 
very clear in the bill: general directions to our committees, 
and one additional item that could be included in that, and 
that is the debt limit issue.
    On emergency spending we have been very careful from a 
partisan point of view not to have it affect the caps. We think 
that makes sense, so we are not prejudicing what we believe are 
the current rules on funding emergency spending because they 
were not considered when we adopted the caps. We think the CR 
is neutral, it doesn't reduce or increase spending. That was 
another partisan issue.
    Let me talk lastly on the surplus and whether the PAYGO 
rules apply to on-budget surplus. We make it clear it does 
apply to the off-budget surplus. I think everyone here agrees 
that the surplus generated through Social Security needs to be 
firewalled for the Social Security situation or whatever we do 
on that.
    Last year when we worked on this proposal, we weren't 
really that concerned about on-budget surpluses because we 
didn't think it would materialize. It was our distinct 
impression in talking to OMB that they believed that the PAYGO 
rules did not apply to on-budget surplus. So let's talk about 
it from a policy point of view. What is the right policy?
    Now, it is interesting to me that OMB believes it is OK to 
waive the PAYGO rules on on-budget surplus if we have an 
autocratic summit, but it is not OK if we use a regular 
legislative process in working on our budgets.
    That doesn't seem to make any sense to me. The President's 
proposal on dealing with Social Security cannot be done within 
our PAYGO rules. You can't do what the President wants within 
our PAYGO rules. What Mr. Archer has suggested in regards to 
Social Security can't be done within our current PAYGO rules. 
Both will require changes.
    Mr. Spratt is very direct in saying we are going to have to 
deal with changes in our PAYGO rules as it relates to on-budget 
surplus. So why don't we trust ourselves to do the right thing, 
to make the priorities between discretionary spending, between 
entitlement spending, between tax cuts and paying off the debt?
    Now, I share Mr. Spratt's concern on making sure we deal 
with Social Security first. I am not going to support 
legislation that doesn't protect Social Security and get that 
done first. That is not what a process does. That is what the 
bills will do when we finally consider bills in this 
institution. I think many of us are very much on record in that 
regard.
    So I would just urge us to try to do what is right in the 
process issues, and maybe--I want to make sure we protect the 
revenues to be there when we incur obligations. I want to make 
sure we pay down the debt as part of our priorities. If you 
have better suggestions on how to handle this, come forward and 
let us know. We came forward with what we thought was the best 
way, protecting the prerogatives of this institution to do its 
work, but also understanding that we do need budget discipline.
    So I would hope as this process moves forward that the 
invitation that has been extended both by the Chair, Ranking 
Member, and by the two of us, the three of us, will be 
accepted. Sit down, let us look at these different provisions, 
let us engage our colleagues in this debate, because we can do 
better in a budget process. I believe that this legislative 
proposal would move us forward in the right direction and we 
hope it will be improved and move forward during this term of 
Congress.
    Mr. Chambliss. Thank you very much, Ben.
    [The prepared statement of Benjamin Cardin follows:]

    Prepared Statement of Hon. Benjamin Cardin, a Representative in 
                  Congress From the State of Maryland

    Chairman Kasich, Congressman Spratt, it is a pleasure to return to 
the Budget Committee this morning to testify on reform of the 
congressional budget process.
    It is certainly time for a review of the process by which we in 
Congress, as well as the executive branch, make budget decisions. It 
has been a quarter century since the creation of the congressional 
budget process, including the Budget Committees, the Congressional 
Budget Office, and the existence of a budget resolution.
    We began this process in the House more than 1 year ago when 
Chairman Kasich created the Task Force on the Budget Process. I was 
honored when John Spratt appointed me as the ranking Democratic member 
of the task force, and I took the responsibility seriously.
    The deliberations of the task force was marked by a truly 
bipartisan approach. I believe this approach is crucial to the 
consideration of these issues. While we have strong partisan 
differences regarding the substance of budget policy, I believe we must 
seek to keep the budget process free of partisan biases.
    There is nothing inherently Democratic or Republican, liberal or 
conservative about supporting a budget process that improves 
accountability and gives the American people an accurate and clear 
picture of the Federal budget. Six months of hearings on a wide range 
of issues was followed by bipartisan consultations and discussion. As a 
result of those efforts, Congressman Nussle and I introduced the 
Comprehensive Budget Process Reform Act, H.R. 853.
    The bill Rep. Nussle and I introduced proposes a number of 
important reforms. I would like to highlight a few of them for you.
    We stand at an interesting time in the evolution of the 
congressional budget process. On one hand, our fiscal outlook is 
stronger than it has been in decades. When we contemplate the prospect 
of trillions of dollars of budget surpluses over the coming years, on 
the heels of the largest deficits in our country's history, there is 
reason for satisfaction over the direction of fiscal policy.
    On the other hand, we have seen troubling failures of the 
congressional budget process. In the past few years we have had 
government shutdowns, gridlock between the executive and legislative 
branches, and the breakdown of the process in Congress. These events 
demand a careful review to determine how we can do our work more 
efficiently.
    The legislation we have introduced offers protections against 
future recurrences of the problems that have arisen under the existing 
system. One such reform is that we propose that the concurrent 
resolution on the budget be transformed into a joint resolution, 
requiring the signature of the President.
    This change would bring the President into the budget process 
earlier in the year. Under the current system, after submitting a 
budget proposal in February, the president withdraws from the process. 
He does not fully engage until the final negotiations on budget 
reconciliation legislation and the appropriations bills in the days 
leading up to the start of the new fiscal year. The result, as we have 
seen too often, is the reality or the threat of government shutdown.
    This proposal would require Congress and the President to resolve 
their differences much earlier in the legislative year, thereby helping 
to avoid crisis as the end of the fiscal year approaches. The evidence 
that there is a need for a new approach is clear in the past 2 years.
    Last year, as you know, the Congress failed to adopt a budget 
resolution. The breakdown in the process led to an endgame in which the 
Federal Government's fiscal decisions were rolled into one massive 
omnibus bill, which Members were forced to vote without having had the 
opportunity for a careful review of the provisions of the bill.
    This year's budget cycle has offered a new variation of the 
failure. While Congress adopted a budget resolution on schedule, it did 
so by narrow partisan margins. I respectfully submit that the policies 
envisioned in the budget cannot be achieved without the President's 
signature on the appropriations bills or the tax and mandatory spending 
changes, and it is unlikely that will happen. By bringing the President 
into the process earlier, we would avoid last-minute deals that 
frequently meet with the strong disapproval of the American people.
    An additional provision of this legislation that is designed to 
guard against the uncertainty and instability of future government 
shutdowns would provide for an automatic continuing resolution. This 
proposal addresses the situation in which any of the annual 
appropriations bills has not been enacted by the start of the fiscal 
year. It provides that in that circumstance, the agencies covered by 
the appropriation will receive the same level of funding they received 
in the previous year, until such time as the regular appropriation bill 
is enacted.
    It is important to point out that this provision does not prejudice 
the deliberations of the Congress. An automatic CR provision can only 
work if it is neutral in effect. That is, it should not be a tool that 
either increases or reduces spending for the affected agencies.
    The automatic CR has generated significant concern about the 
dangers of putting the government on auto-pilot. I understand those 
concerns. Decisions on the basic spending levels of the government 
should be made by the people's elected representatives. When this bill 
comes to the floor, I would support a clean up-or-down vote on this 
provision of the bill.
    In addition to these broad changes in the budget process, the bill 
also addresses a number of more discreet issues. We propose an overhaul 
of the process by which we fund emergencies. For too long, the Federal 
response to emergencies has been funded almost entirely through 
supplemental appropriations. We should bring basic planning principles 
to bear on this area of Federal spending.
    We will always have occasions that will demand supplemental 
appropriations to respond to natural disasters and other emergencies. 
But we can do a much better job of including emergency funding in the 
regular budgetary process. We propose to do that by using a rolling 5 
year average of emergency spending. Importantly, this change would not 
affect the current caps.
    In addition, we provide, for the first time, a definition of 
emergency. We have all been troubled by the inclusion of non-emergency 
items in emergency supplemental bills. As recently as last week, we 
passed an `emergency' spending measure that included funding for many 
priorities which would not satisfy the criteria established for 
emergencies. By defining the term, we can help limit the spending items 
that are included.
    I would also like to call special attention to one of the more far-
reaching and innovative proposals in our bill. As you know, the Federal 
Government, unlike virtually every other large organization in this 
country, reports all its outlays and receipts on a cash basis. While 
this approach accurately portrays some aspects of the budget, it also 
creates significant inefficiencies and distortions in the policy 
decisions we make.
    Our bill proposes the application of accrual accounting principles 
to certain Federal insurance programs. It simply makes no sense for us 
to continue to ignore the long-term budget consequences of our actions. 
When we issue a flood insurance policy, we have a reasonable 
expectation of the costs that will ultimately be imposed on the 
treasury. We should enter that liability on our books then, recognizing 
that the premiums paid on the policy are obligated for the purpose of 
paying future claims, rather than providing a source of easy money for 
making that year's bottom line look good.
    There are several other important budget reform provisions in the 
bill which address the sensitive issues of enforcement and 
accountability. They are the result of extended give-and-take, and I 
look forward to further discussions as we consider this legislation.
    One provision that especially requires discussion is the bill's 
relaxation of the PAYGO rules in time of on-budget surpluses. For the 
past 9 years, as we have struggled to dig our way out of the massive 
deficits of the previous decade, we have been governed by the PAYGO 
rules. The rules were adopted in the 1990 budget agreement as a tool to 
impose fiscal discipline in a time of $300 billion deficits.
    This bill would settle a question that was almost unimagined at the 
time the PAYGO rules were adopted. The question of whether the PAYGO 
rules were intended to apply during a time of budget surpluses was not 
relevant in 1990. In FY '91, the on-budget deficit was $321 billion, 
the off-budget, or Social Security, surplus was $52 billion, and the 
unified budget deficit was $269 billion. There wasn't much question 
about whether to apply PAYGO in time of surplus.
    H.R. 853 would waive the PAYGO rules in times of on-budget 
surpluses. It would not affect surpluses attributed to Social Security. 
Let me point out first that when the Task Force considered this 
provision, we were working under the impression that this was OMB's 
position. I understand that OMB has now issued a statement to the 
contrary effect.
    This provision of the bill has generated considerable concern on my 
side of the aisle that it will result in the passage of massive tax 
cuts and drastic reductions in discretionary spending, or deep 
sequestration of entitlement spending. I would vigorously oppose such 
policies. The existing caps on discretionary spending for both domestic 
and defense spending are unrealistically and unacceptably low. Our 
country's two hallmark entitlement programs, Social Security and 
Medicare, are both in need of new resources. Other mandatory programs 
will not stand significant cuts.
    The point of the provision waiving the PAYGO rules in times of on-
budget surpluses is to allow the Congress to work its will without 
artificial procedural restraints. The fact is that both the President 
and the Republican leadership have every intention of using the on-
budget surpluses for entitlement spending and/or tax cuts. The 
President's Social Security reform proposal is built on the prospect of 
using significant general revenues to bolster the long-term stability 
of the program. Similarly, Chairman Archer has put forward a plan that 
would consume almost all the on-budget surpluses for tax cuts designed 
to preserve Social Security.
    Opposition to this provision of the bill is based on the notion 
that those decisions can be taken only in the context of a negotiated 
budget settlement, or summit, but not by Congress acting in the normal 
course of legislative business. I reject that view. Members of Congress 
are willing to exercise responsibility in their votes.
    The budget process, beginning in 1974, has benefited by the 
expanded capacity and involvement of the Congress. The legislation Rep. 
Nussle and I have introduced will further improve coordination between 
the legislative and executive branches. It will help reduce the threat 
that a breakdown in the budget process leads to a shutdown of the 
government. It will improve the management and accountability of 
Federal resources. Perhaps most important, it will restore 
responsibility for the tax and spending decisions--the constitutional 
power of the purse--to the people's elected representatives, where it 
belongs.
    I appreciate the opportunity to appear before you today, and I 
would welcome any questions you might have.

    Mr. Chambliss. Now, Mr. Minge. Dave, I know better than to 
think you are here just for the glory. I know that anybody who 
is smart enough to figure out the dairy program is very capable 
of writing a budget process bill. So I know you are the real 
brains behind this. Dave, we look forward to hearing from you.

STATEMENT OF THE HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF MINNESOTA

    Mr. Minge. Thank you. I would like to talk about the dairy 
program now.
    I would like to join in the comments made by my colleagues 
and just refer to the testimony that is prepared and submitted 
to the committee by reference, and at this point proceed to 
make a couple of very basic points.
    First, this effort is much like campaign finance reform. It 
is very easy to criticize everybody else's product, but it is 
very difficult for us as a body to move ahead. It is something 
that is frustrating to work on because no matter what one comes 
up with, it is always criticized.
    In this context I would like to speak especially to my 
colleagues on the Democratic side. I think it is important to 
recognize that this proposal contains in it many compromises 
that were made by the Majority to accommodate criticisms of the 
budget process as we have experienced it in the last 4 years, 
where we have been unhappy as a Minority with some of the 
things that the Majority has done.
    So these accommodations, if you will, to our criticisms, 
are points that we should not overlook. Let me just quickly 
mention five of them.
    It would permit the Minority to raise a point of order to 
enforce the budget resolution to unreported bills, bills that 
come out of leadership task forces and other sort of sources 
within the body. This is something that Mr. Moakley had 
recommended and urged in the bill that he introduced, and I 
know it rankled many of us on the Democratic side, especially 
in the 104th Congress.
    Secondly, to fully phase in the accrual or the risk assumed 
budgeting for Federal insurance programs, again, this is 
something that we on the Minority side, Democrats, have urged.
    Third, the continuing resolution, the automatic continuing 
resolution. As I recall in 1995-1996, the proposal was that it 
would be at 95 percent of the prior year's expenditures, and we 
were outrage. Well, this proposal does not continue that 95 
percent position. Instead, it is funding at the prior levels of 
expenditure 100 percent.
    So there is an accommodation here, again, to the point of 
view that we were urging in that troubled year of the 104th 
Congress, troubled session.
    Fourth, the use of the on-budget surplus and the changing 
of the PAYGO rules allows for that surplus to go to entitlement 
expansion or enhancements. It is not just tax cuts.
    Now, I agree with Mr. Spratt that we ought to have more 
discipline as to how we use that surplus, and I would like to 
see it used for debt reduction. But I recognize that this 
particular proposal is at least evenhanded. The surplus could 
be used either for tax cuts or for entitlement enhancements, 
and that is something that I know many of my colleagues on the 
Democratic side would urge.
    Finally, this proposal takes a whack at the, as I 
understand it, the so-called Byrd rule, which prevents the 
Senate from raising points of order against provisions in a 
conference report that the Senate deems extraneous to 
reconciliation. I know that the former Chairman of this 
committee, Martin Sabo, was very upset with that prerogative on 
the Senate side. So we attempt to address that, and hopefully 
the Senate would at this point recognize that such an 
adjustment is one that is long overdue.
    I make these points not to say, again, that this bill is 
the best possible budget reform proposal that could be drafted, 
but instead to say it represents a bipartisan, evenhanded set 
of reforms that all of us ought to very seriously study and 
hopefully we can get behind.
    If there are improvements that can be made to it, and some 
of the points you made, John, are improvements that I concur 
with, let's try to convince our colleagues that these 
improvements should be accepted as a part of a final reform 
package. But like the campaign finance reform debate, let's not 
let the improvements be the occasion to defeat a proposal. I 
think that that would take us in the wrong direction.
    Thank you.
    Mr. Chambliss. Thank you, David.
    [The prepared statement of David Minge follows:]

 Prepared Statement of Hon. David Minge, a Representative in Congress 
                      From the State of Minnesota

    Mr. Chairman and fellow members of the committee:
    Thank you for allowing me to testify today on H.R. 853. I want to 
commend the Chairman for forming the Budget Process Reform Task Force 
during the last Congress, which provided a helpful forum in which to 
discuss budget process issues. I also wish to congratulate Mr. Nussle 
and Mr. Cardin on their efforts in crafting this bill, and for the 
hours of work they devoted to hearings and discussion of the 
provisions.
    I would like to begin my remarks today by reaffirming that this 
bill is truly a product of bipartisanship. While there are items in the 
bill that I might change (and I am sure my colleagues can say the same) 
if offering the bill myself, this is a bill that deserves support, as 
well as swift passage by the House of Representatives.
    The bill has many strengths, as my colleagues have outlined in 
their testimony. Rather than duplicate their statements, I would like 
to comment on a few provisions that I find particularly important. The 
first that I would like to highlight is the emergency spending 
provision.
    Unfortunately, the current emergency designation has become a way 
for Congress to skirt the discretionary caps and disregard the Pay-As-
You-Go (PAY-Go) Rules. These important enforcement tools, along with a 
strong economy, have put a Federal budget surplus within reach. H.R. 
853 offers a needed solution to budget-busting supplemental 
appropriations bills that undermine budget discipline. While much of 
the recent emergency appropriations bills have gone to fund legitimate 
emergencies, Congress is often tempted to throw in spending that ought 
to be allocated in regular appropriations bills. By creating an 
emergency reserve account, H.R. 863 would force Congress to stop 
misusing the emergency spending designation by using a cap based on the 
5-year rolling average for emergency spending.
    Another important component of H.R. 853 is the shift to ``accrual'' 
accounting for certain Federal insurance programs. While some 
Administration officials have expressed mild reservations about the 
implementation of this provision, I believe it is an important step in 
the right direction. Current estimates about the liabilities of these 
programs are unrealistic, and this is a needed change to the budget 
process. I believe it is far better to use an imprecise estimate of the 
right concept than a solid estimate of the wrong one.
    I will admit that I am a bit concerned about the relaxation of the 
PAY-Go Rules with regard to on-budget surpluses under the bill. I 
appreciate the need for tax cuts. Indeed, the Blue Dog budget which I 
helped write outlined a plan that would have required some loosening of 
the PAY-Go Rules. It would be my preference, however, to retain this 
budget enforcement provision for half of the on-budget surpluses, 
relaxing the PAY-Go Rules to use only half of the on-budget surplus for 
tax cuts or spending, with the other half used to reduce the debt. But 
I recognize and want to commend the Chairman and Ranking Member of the 
Task Force for the spirit of compromise and bipartisanship that went 
into this bill. I am not willing to temper my support for the bill as a 
result of my doubts about this one provision, because I am certain that 
most of the bill's cosponsors have made modest concessions on ideas 
that are equally important to them. I believe this productive climate 
has resulted in a solid, meaningful measure that deserves wide support.
    In closing, I would like to address some of the concerns that have 
been raised about this bill. While each provision of this bill may have 
a predictable downside, one must always address whether a proposed 
improvement is worth the risk. I believe there are some who think 
nothing is wrong with the current system, so there can be no risk worth 
taking. Others, like me, would disagree that the current system is 
working just fine.
    If you truly believe we need budget process reform, there is very 
little, on balance, to criticize in this bill. The bill is a product of 
a bipartisanship at its finest, and was an honest attempt to improve 
the budget process.
    Those who do not agree that we need reform will oppose this bill, 
and they should. But their concerns ought to be measured in light of 
their opposition to any changes at all. We must debate the merits of 
the bill, especially in comparison to the current process and in 
relation to other options for reform. But we should not hide the debate 
about whether reform is needed inside the debate about the merits of 
this bill.
    Thank you, Mr. Chairman.

  Specific Provisions in H.R. 853 of Interest to Representative Minge

              provisions of special interest to democrats
    The following provisions were either done at the request of 
Democrats, taken directly from Democratic bills, or primarily intended 
to benefit the minority:

     Provide for fall back concurrent resolution if the joint 
resolution is vetoed and not overridden.
     Permit the minority to raise points of order that enforce 
the budget resolution to non reported bills (Moakley bill). Eliminates 
a key loophole that the Leadership uses for bills that breach the 
allocations and aggregates in the budget resolution in order to avoid 
waiving the Budget Act.
     Fully phase in accrual (or risk-assumed) budgeting for 
Federal insurance programs. Initial proposal did not fully integrate 
accrual concepts into the Federal budget without a subsequent act of 
Congress.
     Permit minority amendment to cap-adjusted programs (i.e. 
IMF, continuing disability reviews) by providing for an automatic 
adjustment of the 302(b) allocations). Currently the minority is 
prevented from offering amendment to these programs until the 
Appropriations Committee revises the 302(a) allocation which is long 
after the bill has passed the House.
     Establish the level of the automatic continuing resolution 
at the prior year's levels rather than 95% of the prior year (or lower 
of House and Senate levels or even lower level for unauthorized).
     Prohibits budgetary projections from including Social 
Security in the budgetary aggregates (Rep. Minge).
     Exclude existing entitlement programs from point of order 
against against legislation that does not have to be reauthorized at 
least every 10 years.
     Allow on-budget surplus (i.e. non Social Security) to be 
used for both tax cuts and entitlement expansions.
     Require cost estimates and other budgetary documents to 
compare proposed levels to corresponding levels from the prior years 
(Reps. Penny, Stenholm and Minge).
     Require the enactment of additional offsets for tax cuts 
if the on-budget surplus fails to materialize (also applies to 
entitlement increases).
     Require annual reports on long-term budgetary trends for 
major entitlement programs (Kerry Commission recommendation).
     Prevent Senate from raising a point of order against 
provisions in a conference report that the Senate deems ``extraneous'' 
to reconciliation (Rep. Sabo).
     Enable the sponsors of floor amendments to designate 
savings from amendments for deficit reduction (Reps. Schumer and 
Crapo).

    Mr. Chambliss. Let me just say that Ben said it directly 
and the other two of you have alluded to it, which is the fact 
that your process bill will certainly not only make Congress 
more accountable, but it will put us in the loop more and it 
will change the way we do business around here. I don't think 
anybody disagrees, Ben, with what you said about the way we 
pass supplemental bills. That is just wrong. It is not fair to 
the American people that we do things that way. Obviously it 
appears that your bill's chain of command, will change that and 
it is going to change it for the better.
    I am hearing all of you say that you don't consider this to 
be a perfect bill. You are still willing to listen to anybody 
on this committee or any other Member of Congress over the next 
several days, couple of weeks, whatever it may be, until we 
take this bill up. And I would just encourage everybody who has 
an idea to sit down with them collectively or individually and 
let's see if we can't develop further what they have come up 
with to this point or at least give them your ideas and 
suggestions. Don't wait until we get to the markup and 
criticize them. That is a good point, David.
    At this time I yield to Mr. Spratt for any questions he may 
have.
    Mr. Spratt. Well, I have had the opportunity to talk with 
Jim Nussle and Ben Cardin and to some extent David Minge, so I 
will let other members ask questions. Let me just for 
clarification ask, do you agree the bill as it is currently 
drawn provides that the discretionary spending baseline for 
projection purposes is assumed to be frozen or flat at the 
level of the last year for which the cap is established?
    Mr. Nussle. Assuming that new caps are not established, 
that is correct.
    Mr. Spratt. So this would, wouldn't you agree, artificially 
inflate the appearance of the on-budget surplus in many cases?
    Mr. Nussle. Well, it depends. See, I think it is a--the 
point you are making is a good one, and it depends on how you 
look at the future. If you look at the future and assume that 
the Congress of the United States is going to cut education and 
cut farm programs and cut Medicare and cut Medicaid, if you 
assume that that is automatically going to happen when that day 
comes and that all of that money would then therefore go in a 
large tax increase, then I suppose you can continue to assume 
that that is what it will do.
    But I don't assume that, and I don't think anybody 
realistically does. For rhetoric purposes, you can make that 
comment. Realistically, we all know, as has always happened, 
that some agreement between the Congress and the President 
would change that future. All we are suggesting here is we want 
to be realistic. Without that cap, that is exactly what would 
happen. Without any discipline into the future, that is exactly 
what would happen. Nothing would change.
    We want to illustrate for not only the Congress and the 
President, but for the American people, that we are maybe 
behind, and hopefully what this could do is apply pressure, 
could apply pressure to an agreement between the President and 
the Congress to make new adjustments to those caps so that in 
fact what we are both discussing here would not be a realty in 
the future.
    Mr. Cardin. Let me just give a view on this. We drafted 
that with the assumption that there would be budget caps in 
place before Congress would be using projected surpluses based 
upon baselines beyond 2002. That was the assumption that we 
made.
    I don't think any of us want to see Congress encumber 
surpluses projected on baseline freeze for programs such as tax 
cuts or additional entitlement spending. So I share your 
concern on that. But it was based on the assumption that the 
budget resolution that would be first considered would deal 
with the caps beyond 2002.
    Mr. Spratt. With respect to the CR, I think it was Mr. 
Nussle who said that having an automatic CR would spare us from 
the embarrassment of shutting the government down again. But in 
addition, it would shield us from the embarrassment of having 
to acknowledge that we hadn't done our work, we had not 
addressed spending for the next year and pared back those 
things that weren't justified and provided for increased 
spending in those areas where there could be justification. 
Consequently, it would take away some of the urgency and 
compulsion for us to make compromises and get the work for the 
year done and put it behind us. Instead, we would always have 
this to fall back upon. It might become sort of the default 
mechanism for a number of different appropriation bills.
    I could easily see, for example, the foreign aid and 
operations bill becoming just a CR every year. Does that 
concern you? Is that a concern of yours, too?
    Mr. Nussle. You are correct. As you know, we have operated 
under continuing resolutions many times in the past for certain 
appropriations bills. That does not, however, mean that it 
would be automatic for all appropriation bills.
    When you say it could for us be a shield, who is the ``us'' 
you are talking about? It won't be for me in those areas where 
I wanted to increase those priorities or in the areas where I 
wanted to make tax changes. It wouldn't be for, let's say, the 
people on your side that have priorities for spending 
increases. So I think a majority of us would suggest that that 
would be failure, and hopefully a majority of us every year 
would suggest that that is failure. It is that failure, not 
failure necessarily to the American people, because, you are 
right, if the government doesn't shut down and we all go home 
on September 29th or whatever, full well knowing that we have a 
continuing resolution, certainly that might be a shield for us.
    But if you were trying to increase a priority, if you were 
trying to change a focus or have a new program or a new 
entitlement or change the Tax Code, that would certainly be 
failure. And my guess is, based on the amount of requests that 
the Appropriations Committee has received already this year 
from Members on both sides, that would be a failure for a large 
majority of this Congress.
    Mr. Spratt. One other feature, and then I will let others 
ask questions, is the lockbox which we voted on the floor for. 
I think I probably voted for various versions of it, but with 
some apprehension, to be quite honest about it. As I read your 
particular lockbox, I get apprehensive too.
    Let me paint a scenario as an example. The House could on 
the floor knock out an item in the energy and water 
appropriations bill for, say, a water project on the Sacramento 
River in California, and the Senate could knock out a project 
for the Tennessee River, the same amount of money, same bill.
    As I read your bill, before the conference even started, 
there would be entries to the so-called lockbox ledger of, 
let's say it is $500 million each project. There would be a 
$500 million entry in both sides, and those two would average 
out to be $500 million. There would be, therefore, an automatic 
deduction in the level of expenditure for that particular 
conference committee.
    There may be no meeting of the minds whatsoever between the 
House and the Senate. The Sacramento project might get funded, 
the Tennessee project might get funded, but they would have 
$500 million left to take out of their hide, not only that year 
out of that bill, but then that $500 million would be deducted 
from the discretionary spending cap for as long as there is a 
cap.
    That strikes me as anomalous, something we wouldn't want to 
see happen, unless there was a meeting of the minds to take it 
out. Even then I am not sure we would want to extend the amount 
of money indefinitely into the future.
    Do you have any concerns or problems about this mechanism?
    Mr. Nussle. First of all, you are technically correct, if 
the amendment on the floor doesn't specify where that money 
would go.
    Mr. Spratt. I am assuming it would be designated for the 
lockbox in both houses.
    Mr. Nussle. There has been another alternative used more 
often than that, and that is the money is directed to another 
priority within the same appropriation bill. If that occurs, 
then in fact you don't lose the money from the cap and it could 
be--that adjustment could be made later on. Let's assume you 
are correct; it is undesignated. You are correct then still 
that that money would not be there at the conference at the end 
of the day.
    This is, quite frankly, one of the areas that we had quite 
a bit of discussion about. We want to be able to allow Members 
on the floor to work their will without just assuming that the 
appropriators have the ultimate say of the 302s. This is one of 
the ways we were trying to achieve allowing Congress to work 
its will within the 302(b) allocations without giving them a 
resolution up front.
    It is probably not perfect, but we had quite a bit of 
support throughout the Congress on this provision, and that is 
why we placed it into the bill. I think Mr. Minge was one of 
the authors. Maybe he wants to comment on it.
    Mr. Minge. I think one of the fears is that the House and 
the Senate and the conference committee have worked a fair 
amount of mischief in dealing with the good intentions that 
might arise in both bodies, and that having a provision 
structured the way it is will make the conferees much more 
sensitive to their responsibility to work through the wills of 
each body in the final conference report and actually observe 
the lockbox principle, because it is going to place, whether it 
be the appropriations process or some other committee in 
Congress, in a rather delicate position if they don't pay 
attention to what is happening based on the cutbacks and the 
lockbox commitment that arose in each body.
    So I think there is sort of an enforcement concept built 
into it, and that has, I think, a positive side to it.
    Mr. Spratt. Thank you. And, David, I want you to explain 
the dairy program to me someday.
    Mr. Nussle. If I could interrupt one more moment, just to 
clarify one thing, the amendment on the floor by the Member 
introducing a cutting amendment could also designate, let's 
say, the $500 million cut from the Sacramento River project 
would be cut, but that the appropriators would not lose that 
allocation, would not lose that money from their allocation. It 
could be directed as a cut, but they would not have--they would 
have money left over. So there is a third alternative.
    Mr. Chambliss. One other thing that occurred to me, has the 
White House been involved in your discussions at all?
    Mr. Nussle. They declined to testify when we were holding 
task force hearings. However, they were consulted on the 
insurance provisions. We did have administration officials that 
came down; for instance, James Lee Witt from FEMA. I don't know 
if you had any other specific contacts. But I don't know if 
anyone took it seriously, quite honestly, to start with.
    That is the reason why people have woken up today and said 
Republicans and Democrats can agree on the way the budget ought 
to be done. This is interesting. So I think there has been a 
renewed interest in this as a result of the product itself. But 
during the process of coming up with this product, they 
declined to get too involved in this.
    Mr. Cardin. I heard from the White House on some of the 
provisions. I think they have been rather negative on budget 
reform process. My personal read on it is that they sort of 
like having the upper hand.
    Mr. Chambliss. Mr. Shays.
    Mr. Shays. Thank you. I just want to congratulate you, Jim, 
Ben and David, for what you have done, and say one of my hopes 
had been that given that we had a Congress that is pretty 
balanced between Republicans and Democrats, we both would be 
able to think as Majority and Minority. I mean, Republicans 
could be in the Minority, and how would we want to function 
under that? Democrats could be in the Majority.
    I am concerned with the criticism that the automatic CR 
reduces the President's leverage in the end-of-the-year budget 
negotiations. My reaction is you could have a Republican 
President, and Democrats should realize that there are reasons 
why you don't want a President to have this kind of 
overextended power.
    The elimination of the baseline budgeting is the same. We 
should take into consideration inflation in current services. 
Take it into consideration but know you are going to be 
spending more money.
    But I want to say the creation of the joint resolution, the 
criticism that it needlessly delays the process, I think it 
puts it up front, because right now we are in a bind. We are in 
a bind. We know the President is going to want to spend more 
money. We also know that the President is going to want to 
spend more money in certain areas. Why don't we know that up 
front and let's have an agreement? If the President wants to 
spend more money here, we want to spend more money here or cut 
here, have an agreement, and then really have a realistic 
debate when it goes before the appropriators.
    Admittedly, it gives the President a disadvantage, because 
he has to come up front. He is a Democrat now, but it may be a 
Republican. I just hope we can kind of put that behind us and 
get on with it. It is a comment. I would yield the rest of my 
time to Mr. Smith.
    Mr. Smith. Thank you. Part of my concern, is how much more 
clout this gives the President of whichever party. Congress has 
lost control of the purse strings, to a great extent, almost 
completely. If we are so fearful that government might be shut 
down that we have to compromise like the $20 billion 
supplemental that we did last fall, there is a problem.
    So I am looking at roughly 16 percent of the budget in the 
12 appropriation bills, not including defense, that we still 
have control over, but even that control is somewhat 
dissipated. So I am concerned that requiring the President's 
signature might reduce even further Congress' ability to guide 
spending.
    I would like to especially ask questions relating to the 
debt limit and Social Security. I have been very concerned in 
our existing rules that we automatically pass an increase in 
the debt limit. If the budget resolution calls for more 
spending, it could be accommodated by an increase in the debt 
limit. So we repeal what used to be Rule 49. I think it is Rule 
20 or 21 now. That is repealed. But in its place we put 
something almost as bad.
    On page 8, I see line 16, we say that we can include in 
this whole joint resolution an increase in the debt limit. So 
my preference, of course, would be to have that more prominent, 
out front, so we have to be bold and more up front in 
increasing the debt limit.
    If you care to respond to that, good. Otherwise, I will 
proceed with my next concern.
    Mr. Cardin. It has to be reported from the Committee on 
Ways and Means and would be voted on. So you are not avoiding a 
vote, if that is what you are concerned about.
    Mr. Smith. It would be included in the joint resolution as 
I read it.
    Mr. Cardin. It could be. It doesn't have to be. I am not 
sure I understand the difference, why you would be concerned 
about it in a joint resolution versus in the final 
reconciliation bill that is voted on.
    Mr. Smith. That is a good point. I am a little concerned 
about both, to the extent it clouds the decision on the debt 
ceiling and puts it aside as a less prominent or dominant 
concern.
    Mr. Cardin. To answer your question, you should understand 
when you approve a particular budget, that is what you are 
approving. It is part of the consequence of the budget that is 
on the floor. It makes more sense to include it in the budget 
resolution than it does in the reconciliation bill, which is 
sort of after the fact and it gets buried. Here you are dealing 
with it up front where you have a chance to do something about 
it if you don't like it.
    Mr. Nussle. Could I also jump in? Because I know this is an 
important point to the gentleman from Michigan. If you put it 
in the reconciliation or the continuing resolution, wherever 
you put it at the end of the year, omnibus bill, it is buried 
in about 1,500 pages. If you put it in a joint resolution, 
right here, it is right on the front page.
    Mr. Smith. You haven't totally satisfied me, but I will 
move on.
    Mr. Nussle. The difference is you know what you are voting 
on. Most people don't know in the omnibus bill or a 
reconciliation that it is in there. That is my only point. I 
think it is highlighted differently.
    Mr. Smith. That is a somewhat good point.
    Otherwise, let me just say, on page 25, it says, 
notwithstanding any other provision of law, the disbursements 
to Social Security cannot be part of this joint resolution and 
shall not be counted as outlays.
    I haven't studied this enough, but I would like to be 
comfortable that, starting at the estimated time in 2013, that 
when we have to start paying back to the Social Security Trust 
Fund, when it becomes an expense from, if you will, the general 
fund, somehow I want to be comfortable that that doesn't 
preclude having an appropriation out of the general fund to 
cover what is owed in the Social Security Trust Fund.
    Mr. Nussle. Which it wouldn't.
    On your first point, that is current law. It just would now 
apply to a joint resolution is all we are suggesting.
    Mr. Smith. Yes. Well, maybe that is true.
    Mr. Nussle. That is the only change we made on that 
particular page.
    Mr. Smith. It just says, no disbursements from this joint 
resolution can be used for Social Security. So do we 
technically say that any disbursement to pay back the trust 
fund is not a disbursement from the general fund?
    Mr. Nussle. Why don't we get back to you on that? Let's 
research that and find back. It is a good question. I don't 
know right off the cuff.
    Mr. Smith. I yield back.
    Mr. Chambliss. Mr. McDermott.
    Mr. McDermott. I thank the task force for their efforts.
    There is a bit of historical revisionism going on here. 
People are now worried about giving the President too much 
power. But this was the Congress that wanted to give the line 
item veto, and as soon as the President had it, they didn't 
like what he did with it. So I think you have to be careful and 
think of swords cutting both ways.
    Mr. Smith. If the gentleman will yield, I didn't vote for 
the line item veto.
    Mr. McDermott. Neither did I.
    I think this automatic CR is sort of an interesting sword. 
I was thinking to myself, if I look as a physician at what 
happened, why are we worried about the budget process? What is 
it we don't think works?
    Well, we had the government closed down, and last year we 
didn't have a resolution--that is because one party tried to do 
it all inside of their own party. I liked the CR, because with 
President Gore and the Democrats in charge of the House of 
Representatives, a minority of the Democratic Party will not be 
able to close the government down and use that leverage to stop 
the government from operating. I think that the minority inside 
the majority party is as much to be feared as the President. I 
think you have to think how your legislation is actually going 
to work.
    So I kind of like your automatic CR, because we are going 
to go ahead no matter what.
    What does worry me is the President setting high 
expectations. I can't figure out from this process who says how 
much money there is going to be out in the next year.
    But if you set it up high and then calculate your tax 
breaks and set them out there and then the money doesn't come 
in, the automatic sequester that, from my reading of this bill, 
comes out of Medicare and student loans and crop supports and 
the social service block grant, when I think about putting us 
on automatic once we have had somebody give us a high-flown 
estimate, then we give the tax breaks based on that, and if it 
doesn't work, we got to cut the entitlements----
    Do I understand how this thing would work? Is that your 
understanding of what would happen? If we put a budget 
resolution together, is that your understanding? That had high 
estimates, that then----
    Mr. Cardin. Not a budget resolution. If we put a bill on 
the floor that would accomplish that, it would have to take 
legislation.
    Mr. McDermott. Would the resolution itself do that?
    Mr. Cardin. No, the resolution is direction to the 
committee. It is what we finally enact into law.
    Mr. McDermott. If the committee acted on the basis of that 
resolution.
    Mr. Cardin. If there is policy enacted under current budget 
rules or whether this is changed and we don't comply with the 
requirement on revenue, there is a sequestration. That is the 
current enforcement mechanism that we put into law. So if we do 
not comply to what we have, if the revenues don't come in the 
way we expect it to, then you run into a sequestration problem.
    Mr. McDermott. What this does is to repeal the PAYGO 
restrictions on the use of on-budget surplus. It opens it up, 
loosens it up.
    Mr. Cardin. Again, I would say that we were--no one 
envisioned what we were going to do with surpluses. When we 
passed the PAYGO rules, it was very clear from all the 
discussions at that time that the PAYGO rules were to deal with 
deficits and to deal with off-budget potential surpluses. But 
no one envisioned how the PAYGO rules would work when we had 
on-budget surpluses when we passed this in the 1990's.
    You raise a good question, and that is the point I tried to 
cover in my direct testimony. How should we handle on-budget 
surpluses? If you think these provisions--that we need more 
budget discipline, come in with a suggestion. But I don't think 
anyone on this committee is suggesting that every dollar of on-
budget surplus must be used for deficit reduction. I don't 
think anyone is suggesting that. That is what PAYGO would tell 
us. I don't think that what is being said to us.
    Mr. McDermott. You are saying that now that we have a 
surplus, we can loosen up on the PAYGO rules. Because the CBO 
gave us a letter in 1997 saying that the PAYGO applied to the 
on-budget surplus as well. When the task force----
    Mr. Cardin. When did they give you that letter?
    Mr. McDermott. October 29, 1997.
    Mr. Cardin. They gave you a letter that PAYGO rules apply 
to on-budget surplus? Who gave you that?
    Mr. McDermott. OMB. You are saying now that we have a 
surplus we don't have to be so tight with the PAYGO.
    Mr. Cardin. I am saying the PAYGO rules will not work for 
on-budget surplus. If we do not change the budget rules, we 
will be waiving PAYGO on the use of the budget surplus in every 
Congress. We will not adhere to the PAYGO rules for on-budget 
surplus. That is clearly the President's intent, it is clearly 
the Republican leadership's intent, and I would suggest it is 
also the intent of the Democrats in the House and Senate.
    Mr. Nussle. If I could just add, part of our purpose in 
adding this in here in a little bit more realistic way was 
actually to extend PAYGO, because, as you know, it expires. We 
thought that part of the reason we found ourselves in a surplus 
is because we had some of that discipline, but we wanted to 
extend it in a responsible way. I don't know if--I know that 
doesn't entirely get to your point, but it does leave open the 
question of whether--of how that surplus can be spent.
    It is just as likely that a Congress, depending on who is 
in the majority, as the gentleman clearly stated, that that 
surplus would be spent for spending--used for spending, any 
more than it would be used for tax cuts.
    Again, depending on who is in the White House, that 
discussion would have to happen, under our joint resolution, in 
order for that final determination to be made. Otherwise, it is 
not used for anything. If there is a train wreck, it is not 
used for anything.
    So all we are saying is if there is a vacuum or--if there 
is a vacuum, we know how it is done. But if we can create an 
agreement between the Congress and the President, let's at 
least get Social Security off the table. The rest of it, let's 
have a good discussion about it. Like minds may disagree--or 
great minds may disagree. Like minds would agree, but great 
minds might disagree. But at least let's have that separate 
from an automatic process that would direct where that goes.
    Mr. McDermott. You want to not take Medicare off. You would 
take Social Security off but not Medicare?
    Mr. Nussle. Part of that is because we knew there was more 
direct opportunity to use that surplus for Medicare than the 
Social Security Trust Fund.
    Mr. Minge. If I may also address the question you raised, 
Jim, the problems that we maintain under the PAYGO rules are 
just as apt to arise out of an expansion of the entitlement 
program if there is a surplus. That program may cost more than 
anticipated, or it may be that our other government costs would 
be more and we would not have the surplus we hoped for when we 
enacted the entitlement expansion. That would trigger the 
sequestration. So this can come from both directions.
    From what I have seen in this body, I think that people are 
just as much tempted to expand entitlement programs as they are 
to pass tax cuts.
    Mr. McDermott. So Medicare would get so big it would just 
take up the surplus and therefore would trigger a cut on 
itself?
    Mr. Minge. Or on the whole budget. A scenario of an 
expansion of an entitlement program, just like a tax cut 
triggering a sequestration because of the budget problems, I 
think is something that haunts us. It is not just one way, it 
is both ways under this. I don't think any of us would be 
comfortable with the sequestration for the reasons you 
mentioned. So the sequestration is only a viable option to 
those that would like to bring the temple down on top of us. 
Hopefully, there are not a majority in Congress that are of 
that perspective.
    I think the point you are raising and that Mr. Spratt 
raised, which is the same point, just earlier here, is one that 
we ought to go through and see if we can't improve this product 
so that it is best designed to deal with the type of 
eventuality that you are asking about. I think it is a valid 
point, and I think we ought to strengthen this to try to meet 
it as best we possibly can.
    Mr. McDermott. Mr. Chairman, may I have one yes and no 
question?
    Mr. Chambliss. Just one.
    Mr. McDermott. Do I understand that the chairman of the 
Budget Committee will decide what an emergency is?
    Mr. Nussle. No.
    Mr. McDermott. No. Who is it?
    Mr. Nussle. It is first going to be based on a statutory 
definition.
    Mr. McDermott. OK. We are going to define an emergency.
    Mr. Cardin. Within the 5-year average.
    Mr. Nussle. But that is an important point. I mean, no one 
person is going to hold that----
    Mr. McDermott. I want to be chairman.
    Mr. Nussle. Don't we all?
    Mr. Chambliss. Mr. Knollenberg.
    Mr. Knollenberg. Thank you very much.
    Gentleman, I appreciated all of your testimony, Jim, Ben 
and David. I realize the work you went through, some of it is 
thankless, and you have come up with a process, most of which I 
support, but there are a couple of things I don't support.
    One of those is the lockbox, and my concern there, very 
briefly, is that I don't know how you can write that language 
to give you the proper implementation. But perhaps you are 
wiser than I, and if you are, fine.
    Let me go to the provision I am bothered by more greatly 
than the lockbox, the automatic CR. I know there is an aura 
about the automatic CR that suggests we don't have to do 
anything, we can just put it on automatic pilot and everything 
will be fine. But, you know, no matter how well written an 
automatic CR would be, you still have some problems along the 
way.
    For example, you have problems with special cases, like the 
census, research, construction projects. Then there is national 
defense.
    In practice, this CR prevents Congress from being able to 
make any changes to any departments or programs. Because of 
this, because of the reality of this automatic CR, I think that 
it impacts what we can do in appropriations.
    I happen to sit on both committees. It takes away some of 
the resolve of the Appropriations Committee if they know they 
don't have to worry about a shutdown. But it doesn't get the 
work done. Our backbone isn't straight. We become weak.
    In fact, I think, Ben, I have heard you speak to this and I 
think some others, including Congressman Shays. I believe we 
give the President, whomever it is, a Republican or a Democrat, 
more leverage, with an automatic CR. I think the President 
would probably rather have last year's funding levels or an 
omnibus bill where the administration can get more of what they 
want than if Congress has the power to deal with each 
appropriations bill and come up, if they can, with a solution 
to each and every one. If you look back over history, that is 
not always possible, I know.
    I am concerned about the real effect of a CR, because I 
think it might prolong negotiations between the administration 
and Congress. And this business of not being in a must-pass 
mode, those of us on the Appropriations Committee I think know, 
turns over a huge amount of power to the administration, 
whichever party happens to be in power.
    The other thing, I know there are many concerns that people 
have about the effects of a government shutdown, probably our 
party more than the Democratic Party. But government shutdowns 
can be avoided. They can be avoided without an automatic CR. 
There is a thing called a clean CR. Prior shutdowns have not 
been over appropriations issues, but they have been over 
extraneous issues. We don't have to mention them. You all know 
what they are.
    Short-term CRs, if written cleanly, can be the vehicle we 
need. So I would like to have a response from any one of you. I 
know, Ben, you talked about it; and, David, you did as well. Do 
you see this in this fashion? Do you see the CR as being a 
strengthener?
    Obviously, I have made my point clear. I would like to have 
your thoughts.
    Mr. Nussle. It is interesting, because I know you have an 
appropriator's perspective on this, and that is one that none 
of us at the table here have. So, obviously, we have to defer 
to your judgment and the judgment of other appropriators on how 
best to manage your committee.
    I have heard--I have had an opportunity to talk with 
Chairman Young and, as you know, we have had an opportunity to 
discuss this as well. It is going to be impossible for me to 
sell to you as appropriator to the Appropriations Committee 
that this will solve all the problems. I don't think anything 
can.
    It is interesting, though. I think that one of the areas 
that is being missed by the appropriators is the perspective of 
the fact that the CR is looming all year long, as opposed to 
just in the last 11th hour. Typically, what happens now, as you 
know, is a continuing resolution comes in at the 11th hour. 
Because all of a sudden at the 11th hour, almost the 12th hour, 
you discover you can't get your work done. A CR, clean or 
otherwise, is rolled out, and a few days or a week is granted.
    If you know at the beginning of the process, all the way in 
the beginning of the process, that you have a CR at the end, I 
wonder how that would change the dynamic?
    It is because of that that we put this in here, because we 
felt that was different than just trying to get your work done 
in the 11th hour, which is how a CR is used now. The way it is 
used under this scenario is it suggests failure. It suggests 
that the only way you get to a CR at the end of the process is 
if first the joint resolution failed, meaning the President 
didn't come to Congress or vice versa, that the minority and 
majority and the Budget Committee in Congress didn't come 
together, that the 302s were unrealistic, that the 
appropriation bills were unrealistic, there was no discussion 
with the administration, and so on. And all of a sudden at the 
end of the year there is a train wreck, and you knew it. 
Because it started off on the wrong foot, different from now 
when it is the 11th hour and you roll it out. That changes the 
dynamic I think.
    Mr. Knollenberg. If you were to follow and succeed in each 
step of the process you just outlined, we wouldn't be in the 
position of having a train wreck on our back. So I am saying to 
you that that is aside from the fact that you put the CR into 
the bill, because now I think it becomes a trip wire to say, 
well, we don't have to worry too much about it. It is July. 
September is coming. Now we don't have to do anything because 
we have that automatic CR there.
    By the way, I am going to support this through, and I think 
you know that, but I just have some concerns. I think it will 
reach proportions of debate on the floor at some point. I can't 
give you an idea what the future will bring, but we ought to 
look very carefully at what we are doing here. I don't want to 
give any leverage to the President, whoever it is. We are the 
legislative body. I don't want to create a train wreck either.
    But, frankly, I think we are dangerously close to talking 
about those things by giving up ground, high ground, as Members 
of Congress.
    Mr. Chambliss. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman.
    I want to thank my colleagues for being here this morning 
and for the good work that has gone into this. I understand 
from the perspective of the discussions you have engaged in for 
months now that there has been a lot of cooperation, a lot of 
give and take and that this is a product in which you have some 
pride. So in asking you some critical questions, I don't mean 
to denigrate the overall product. But naturally, in a setting 
like this, we do focus on things we see that might be 
problematic.
    I want to ask you to think as experienced politicians this 
morning about what some of these provisions might do to the 
dynamics of the budget process. In thinking about this, it 
might be instructive to recall our experience with the line 
item veto. I think as the line item veto was enacted and people 
anticipated where it might lead, it slowly dawned on a number 
of people that the line item veto was really not so much about 
budgeting so much as it was about political power, and that far 
more important than any specific instances in which the line 
item veto might be used, the far greater impact was likely to 
be on anticipated reactions and on the kinds of powers the 
President in particular would have at the front end of the 
budgeting process; and the whole dynamic of the way budgeting 
and appropriations work would likely be influenced by the 
President having this power.
    Similarly, I think a number of the provisions in this 
proposed reform call for that kind of analysis. Let me just 
mention three briefly and ask you to pick and choose what you 
would like to comment on and tell me if you think I am wrong 
about this or off base.
    First, we have had some discussion already, Mr. Spratt 
brought this up, about the way the discretionary spending 
baseline is dealt with in the legislation. The current baseline 
assumes discretionary spending will be at its capped level, of 
course, while caps are in place, and then if new caps are not 
in place, it will grow with inflation. That, according to the 
present timetable, would be in 2003.
    This legislation assumes that if new caps are not in place, 
that it will be frozen at the 2002 level unless and until new 
caps are enacted.
    My question is, what kind of temptations does that provide 
and what kind of incentives might it provide?
    One thinks about tax cuts that might assume that a greater 
surplus is going to be out there than under the current 
baseline assumptions. A temptation might exist to enact tax 
cuts that would be in place permanently, of course, and would 
eat up that projected surplus.
    One thinks about possible gaming to block enactment of new 
caps by people who might have a tax cut agenda or other sorts 
of agendas. This may not be as neutral a provision as some have 
suggested. What kind of incentives does it provide?
    The second area is the automatic CR. What kind of 
disincentives does that provide for coming to agreement, for 
either those who are resistant to substantial increases in 
spending or, for that matter, those who are resistant to 
substantial decreases in spending? Or those who are opposing 
new priorities?
    If the enactment of a regular appropriations bill would no 
longer be essential, then a Senate minority, for example, could 
use the filibuster to lock in the status quo on a given 
appropriations bill. The President could do the same thing with 
his veto. What might be the dynamics of the process with that 
automatic CR looming out at the end of the fiscal year?
    Then, finally, let me ask you to reflect as experienced 
politicians on what difference it might make to require 
presidential approval of the budget resolution? We have all 
talked in past years about how desirable it would be for the 
President to have more of a sense of ownership of the budget 
resolution, the budget process, at an early point. But this 
process that you have put out here says appropriations couldn't 
go forward without that approval. I know there is a fast track 
if the approval doesn't come, but there would be a lot of 
pressures to secure presidential approval. What incentive would 
that provide, maybe on both sides, to hold this process 
hostage?
    And in spite of the kind of things you have said about 
keeping this budget resolution clean, I think, inevitably, 
reconciliation-type provisions and agreements and 
understandings would be moved to the front of the process. Do 
you think that is a legitimate concern?
    Those are three areas where it seems to me we need to think 
about the political dynamics. I would like to hear your 
reflections.
    Mr. Cardin. Let me thank you for your thoughtful questions, 
David, some of which I have already commented on.
    The budget resolution is limited by statute what we put in 
there. If that is not strong enough, let's put in stronger 
language. I share that concern and Jim Nussle does also, and 
that is why we limited it to the broad outline and the 
potential for the Ways and Means Committee to bring forward a 
debt limit.
    The budget resolution I think makes us stronger. Talk about 
the line item veto, right now the President can hold all of his 
cards, we have to put ours on the table, and we meet with him 
in October or November, whatever the month, and we basically 
concede to whatever he wants. That is what happened when we 
have not had an agreement between the Congress and the White 
House on a budget document. So I think the President here has 
the upper hand.
    Having a budget resolution that is signed by the President 
engages the White House earlier, gives us a more honest attempt 
to use our procedures, whether it is in the Appropriations 
Committee or in the Ways and Means Committee or in the 
Agriculture Committee, to do our work and each of us to have 
impact in what is in the budget. We don't have that today. We 
don't have that today. So it only makes us stronger.
    In regards to the CR, we have had a lengthy discussion on 
it. I think the automatic CR can rise or fall on its own. It is 
a separate issue within our recommendations. Jim and I have 
talked about it. I think we should make a decision whether we 
think it is good or bad and move on to the other issues. People 
just disagree as to whether it is going to be positive or 
negative. I have already expressed my view on it.
    In regards to the baseline, we talked about that before. 
Our intentions were very clear and that we expect that the 
budget resolution will reestablish the caps. We expect that, 
and we assume that. Now, if you are uncomfortable that Congress 
may not adopt caps and then use the projected surplus for 
irresponsible tax cuts or irresponsible spending on 
entitlements, if you don't have confidence in future 
Congresses, if you are that suspicious, let's figure out some 
additional provisions to put in to protect ourselves in the 
future from doing that.
    I personally don't have that fear. I have a little bit of 
confidence we are going to do what is right. We are not going 
to do something that is totally irresponsible in that regard. 
Knowing full well that the budget caps that are currently to 
expire will need to be adjusted upwards, we are not going to 
have freezes in the future. It is not realistic for defense 
spending, for non-defense discretionary spending, we all know 
that. And we assume the first budget resolution for 2002 would 
deal with the caps for the future; and, therefore, we would not 
have the problem you are referring to.
    Mr. Nussle. One of the interesting things that comes out of 
this is part of the reason why I think there was so much 
interest in just having a freeze at that point, is there was a 
real desire, sincere desire, that we get away from, and it 
happens on both sides, we get away from this automatic nature 
to spending. That there is an automatic inflationary device in 
there that suggests that if it is changed from that 
inflationary device, if programs change, if they are adjusted, 
somehow you are cutting something, somehow--so we wanted to try 
and again sincerely take that out. But I think you raise a good 
point.
    The opposite argument you are making is then others could 
have the suspicion that it is going to tax cuts. That is fine. 
I think there is room for us to make an adjustment there. We 
just didn't want to make an assumption that had not 
substantively been made yet. That was the only reason we had 
that freeze. We thought that was also maybe a mechanism to help 
move the budget process along, because freezes are not good to 
either side, as much as some might suspect that.
    On the issue of mischief, and Mr. Spratt brought this up, 
because this is a joint resolution, therefore the force of law, 
would people try mischief on this, riders of some sort? It was 
a good point, and I think on the House side we see that because 
of our particular rules.
    I am told, and I am far from any expert on Senate rules, 
but I am told that because of the changes we made in our law 
here, in the proposal we are moving forward, that if it is 
attempted that Senate rules will preclude that from occurring 
on the floor, either through filibuster or points of order.
    I am not going to try to compete--there are a couple on the 
staff back there smiling or shaking their heads. I don't know. 
But my point is I think the Senate may be a backstop here 
automatically. But if it is not, let's look for maybe a 
mechanism.
    Because I agree with you. This should be what we are 
asking. It is a budget, and that is it. And I agree.
    On the CR, we have made those points. The only thing I 
would add to the points we have already made is if a majority 
in this Congress suggests that a status quo is what we ought to 
have, then that is what we ought to have. It is unfortunate 
that that happens, because I don't think anybody--think most of 
our constituents would suggest, whether they are for cutting or 
changing or whatever, most would be suggesting that status quo 
is not good. So I think there still is a mechanism in there 
that moves that way.
    The final point I would make, and you brought this up in 
the very beginning about joint resolutions. You were talking 
about the unintended consequences of the line item veto. The 
only thing I would add to this is that it is not just the 
President that is brought into this process. The minority party 
is also brought into the process, whoever that is.
    My point is that, as you know on your side of the aisle, we 
can bring a budget to this committee, we can vote on it, we can 
pass it, we can railroad it, you can have 30 or so amendments--
maybe you have heard of this scenario before. Thirty or so 
amendments are defeated automatically on a party line vote, and 
you get no say in the process.
    In what we are proposing, Mr. Spratt and the rest of the 
Democrats in this instance, and that may change in the future, 
would have to be brought in. You couldn't just railroad a bill 
automatically without any discussion. In order for it to be a 
joint resolution, at least I think there would be more 
safeguards now under our bill than there would be now.
    I just throw that out. It is not just the President that is 
brought into this process. I believe the minority party would 
also be brought this. Just another observation.
    Mr. Price. Good. I think a subtext of a lot of these issues 
is the question of whether, the minority party aside, they 
would give an advantage to a determined minority, determined to 
work its will. I do think we need to work that through.
    Mr. Chambliss. Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman. I just really 
believe that this may be one of the most important things this 
Congress could pass this year, particularly after this week.
    I was embarrassed, and frankly I hope all Members were 
embarrassed, by this emergency supplemental bill and the way it 
was put together and the things that were tucked into that 
bill. I was embarrassed last year at the way the Congress ended 
with the omnibus bill.
    It seems to me we all lose when that is the process and 
that is the way it works. I think we all are diminished, and I 
think the respect for this institution, the Federal Government, 
our entire budget process, it seems to me we are all diminished 
when that happens. So I really do believe that it is time, and 
I thank you all.
    I think I will do everything I can to see that this thing 
ultimately at least gets passed by the House, and hopefully the 
Senate, because I think this is a very, very important thing. I 
agree with you, David, it is important it was done on a 
bipartisan basis. You can talk about campaign finance reform, 
but until you get Republicans and Democrats actually talking 
together, then it is more or less just political posturing. 
This is an important issue.
    What it really is, and I think we have to get back to 
focus, what this is, it sort of is like setting up a set of 
rules, Marquis of Queensberry type rules, of how this whole 
negotiation process is going to work. And it is all about 
negotiations.
    I know there is a lot of concern about who is going to have 
an advantage, disadvantage, and whatever. I come back to a 
story, one of the great negotiators of the 20th century was a 
guy by the name of Al Capone. Al Capone said you can achieve 
more with a soft voice and a loaded gun than you can with a 
soft voice. And I think there is too much worrying about who 
has got the biggest gun in this negotiation.
    But I think we forget at the end of the day what happens at 
the end of September when we approach the end of the fiscal 
year, the beginning of the next fiscal year, we both get out 
our guns. But what we do is we hold--the people who we are 
putting the guns to the heads of are people that work for the 
Federal Government, honest, decent hard working people who work 
for the Federal Government, and people who depend on the 
Federal Government for some level of service. And we say you 
know, if you don't do what we want, we are going to shoot this 
guy.
    In my opinion, that is reckless, that is irresponsible, 
that is not the way the process should work, and I just have to 
congratulate you.
    The other thing that amazes me, some of the comments when 
you started, even though you spent all of this time on this 
project, and there is another old expression that ideas and 
children are brilliant when they are your own. And to hear 
criticism of what you have been working on now for over a year, 
I think has got to take a certain kind of character to do that.
    And then offer, say if you have better ideas, we will 
listen to you, I hope we all will keep open minds and realize 
this is nothing more than setting up a new set of rules by 
which the negotiation process will go forward and bringing the 
executive branch into that discussion early as we found until 
1997 with the balanced budget agreement, yielded some very 
beneficial results, not just for the executive branch, not just 
for the Congress, but for the American people.
    So I hope that we can minimize some of the partisan 
differences on this. I pledge from my perspective to do 
whatever I can to help you. I thank you.
    I don't have any particular questions to ask, because you 
have done an excellent job of explaining it from my 
perspective. There will be questions; there are concerns.
    You know, if we wait until every single objection is 
completely responded to, we are never going to do anything and 
we are going to wind up right where we have always been at the 
end of September. And we are going to look bad. In some 
respects, the administration is going to look bad. And the 
American people look at this, and say there must be a better 
way. Thank you for offering a better way.
    Mr. Chambliss. Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. I regret that I had 
to leave the committee prior to listening to your testimony and 
your explanation of what you are trying to do.
    I can take a few minutes and have taken a few minutes to 
review the bill that you are proposing. I think it is long 
overdue to reform the budget process. I commend you for the 
work you have done. I pledge my support to move forward in 
reforming this system and with an open mind.
    If there are, and I agree with you, if someone has a better 
idea they want to inject in the process as we go, let's hear it 
and decide if it is a better idea. But we appreciate the work 
you have done and look forward to working with you in the 
future to move this forward.
    Chairman Kasich [presiding]. I want to thank the panel--
yes?
    Mr. Nussle. Could I make one final observation? I want to 
again thank you and Mr. Spratt for appointing the task force. I 
would just point out to the members of the committee and 
Members of the House that part of the reason why we were 
appointed, if you recall, is that we were in an era, a few 
months, a few years, where we had ad hoc budget reform measures 
coming to the floor, piecemeal.
    All of a sudden somebody would have a, hey, I know kind of 
idea. Let's try this to rein in the budget or change the 
process. Part of the reason you appointed us was to gather all 
those ideas together.
    So all I would say in conclusion is that we have gathered 
those ideas together. I would hope that we move something 
forward, if for no other reason than to prevent what Mr. Price 
was suggesting. With ad hoc proposals coming to the floor with 
unintended consequences being the result, we have tried to put 
this together, it is not perfect. We hope that you will 
continue to work with us, and we appreciate the hearing that 
you have given us today.
    Chairman Kasich. Thank you very much. I hope you all stay 
for Mr. Lew. We will now ask Mr. Lew to come up and proceed 
with his testimony.
    I would like to welcome our witness. Jack, it is all yours. 
The floor is yours

   STATEMENT OF HONORABLE JACOB J. LEW, DIRECTOR, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Lew. Thank you, Mr. Chairman. I submitted a statement 
for the record which I hope will be included in the record, but 
I would like to just begin with a few brief summary remarks.
    I would like to join the Members who commended the efforts 
of the task force to look at these very difficult questions in 
a thoughtful way. The fact that we disagree with the 
conclusions they have reached in no way suggests that we don't 
have a lot of respect for the effort that they have gone 
through.
    I would like to begin by saying that the Budget Enforcement 
Act has worked. I think back to 1997, to the hours and weeks 
that the chairman, the ranking member and many of us spent 
together; to me that is proof that the current system has 
worked. It has provided a basis for resolving differences and 
for moving forward with fiscal discipline and with policy that 
has bridged differences that began as very large.
    However, I look at the proposed changes that are in the 
task force report, and I am troubled by a number of them, as 
set forth in H.R. 853.
    First of all, the PAYGO rules. The PAYGO rules have worked 
very well since 1990, and I think it would be a mistake to 
eliminate the discipline that they have imposed on the process.
    The PAYGO rules are most important not at the moment that 
there is a budget negotiation. They are most important in 
between. They are most important in maintaining fiscal 
discipline so that at the moment when large decisions are made, 
they can be made in a balanced way, taking into account the 
full consequence of the effect of those decisions. That is what 
happened in 1997, and that was I think a good thing. The 
Balanced Budget Act was good policy and it was consistent with 
the process set up by PAYGO.
    Eliminating PAYGO at a time of surplus invites a series of 
decisions that I think we would look back on and regret. We 
would look back and regret decisions that treated the surplus 
as a certainty at a moment when estimates turned out not to be 
correct, and it didn't appear.
    The mechanism in the bill I think is very troubling. It 
takes a system which now is based on scoring a bill at the time 
it is passed and substitutes for it what is really, in a way, a 
throw back to the fixed deficit approach of the original Gramm-
Rudman-Hollings law. Rather than basing our judgment on what is 
within the four corners of proposed legislation, we would be 
entering onto the books a negative PAYGO entry. So if our 
estimates turn out to be wrong, when we get out to the future, 
we would have to do an across-the-board cut. And in all 
likelihood--the reason we would be wrong is because the economy 
had taken a downturn, which would be the very worst time to 
have an across-the-board cut. It is not a workable mechanism.
    The automatic continuing resolution is something we have 
debated over the years. The President has vetoed it in the 
past. The notion of an automatic continuing resolution I think 
is very troubling.
    First, it is policy that doesn't make any sense. There is 
no rationale for continuing at last year's level rather than 
making decisions about this year's level. In the earlier 
question and answer period, some of the best examples were 
cited. You look at an example like the census, and it is a 
perfect example of how a continuing resolution can't possibly 
deal with the year-to-year changes. Every 10 years there is a 
spike in census costs. An automatic continuing resolution 
couldn't take account of that.
    You look at programs where participation is based on the 
number of people who are eligible, and one year's numbers don't 
suggest next year's needs.
    There is really no substitute for doing the work each year. 
We have engaged over the last few years in some very difficult 
debates. But I would note in each case, we did reach a 
conclusion. It is only in 1995 that there was a government 
shutdown. For the preceding period of time and the period of 
time since, there has not been, and there should never be 
another shutdown. I don't think the right comparison is between 
government shutdown and an automatic continuing resolution. The 
right outcome is to work through the legislation and to resolve 
the issues.
    There are a number of other issues in the legislation which 
I have addressed in some detail in my prepared statement, but 
in the interest of time, I think I will stop there and be 
delighted to answer any questions that you might have.
    [The prepared statement of Jacob J. Lew follows:]

Prepared Statement of Hon. Jacob J. Lew, Director, Office of Management 
                               and Budget

    Mr. Chairman, Representative Spratt, and members of the committee:
    Thank you for the opportunity to appear before your committee today 
to discuss H.R. 853, the ``Comprehensive Budget Process Reform Act of 
1999,'' as introduced by Representatives Nussle and Cardin on February 
25, 1999.
    I would like to begin by emphasizing that the Budget Enforcement 
Act (BEA) has worked. The BEA has imposed an essential discipline on 
discretionary spending by means of enforceable discretionary spending 
caps. And the statutory pay-as-you-go (PAYGO) requirements have ensured 
that new mandatory spending and new tax cuts are paid for with 
offsetting spending reductions and revenue increases.
    In short, the BEA's spending caps and PAYGO requirements have, over 
the last decade, helped reduce and eliminate the deficit and produce a 
surplus for the first time in 29 years. These tools for fiscal 
discipline, together with the 1993 and 1997 Budget Reconciliation Acts, 
have been key to our success.
    Moreover, it should be noted that the PAYGO rules have been 
instrumental in the President's commitments to ``save Social Security 
first'' and to strengthen Medicare. By requiring that new spending and 
tax cuts be fully paid for, PAYGO has effectively prevented the 
spending of projected surpluses before the solvency of Social Security 
and Medicare have been secured. In addition, PAYGO has started us down 
the road toward substantial debt reduction.
    We have a process that has worked. Before we make any changes to 
the current budget rules, we need to ask why the changes are needed, 
and to consider very carefully all of their consequences.
    H.R. 853 would make several far-reaching changes to the current 
budget process. Transforming the Concurrent Budget Resolution into a 
Joint Budget Resolution presented to the President for signature, is a 
concept which this Administration has in the past supported.
    However, as I will explain, the Administration is strongly opposed 
to the bill's serious weakening of the PAYGO rules and its 
establishment of an automatic continuing resolution. In addition, we 
have concerns about changes to the emergency procedures, the 
appropriations ``lockbox'' and other provisions in the bill.

               I. Repealing PAYGO in an Era of Surpluses

    H.R. 853 would effectively repeal PAYGO in an era of surpluses. It 
would amend the BEA to permit on-budget surpluses to be spent on tax 
cuts or mandatory spending increases, without pay-as-you-go offsets. To 
understand fully the implications of this change, a brief review of the 
PAYGO rules will be useful.
    Background.--The Budget Enforcement Act of 1990 set up separate 
enforcement mechanisms for: (1) discretionary spending; and (2) 
revenues and direct spending. These mechanisms--annual caps on 
discretionary spending and a pay-as-you-go requirement for revenues and 
direct spending--replaced the largely ineffective Gramm-Rudman-Hollings 
regime of declining annual deficit targets.
    The PAYGO process originally required that changes in direct 
spending and revenues, combined, not increase the deficit in any year 
through FY 1995. The Budget Reconciliation Act of 1993 (OBRA-93) 
extended this requirement through FY 1998, and the 1997 Balanced Budget 
Act (BBA) further extended PAYGO for all legislation enacted through 
2002.
    PAYGO applies not to each new law individually, but to the 
cumulative effect of all new laws enacted since a designated starting 
point. The original starting point was all legislation enacted 
subsequent to the 1990 BEA. The current starting point for PAYGO 
calculations is legislation enacted since the BBA in 1997. OMB is 
required to maintain a ``PAYGO scorecard'' of both deficit and savings 
effects from all direct spending and revenue legislation enacted since 
the BBA and through 2002. Deficit effects of such legislation are 
calculated for the budget year and each of the ensuing 4 years (so that 
PAYGO will be enforced through 2006, for legislation which is enacted 
in 2002.)
    OMB enforces the PAYGO requirements through ``sequestration.'' If 
at the end of a congressional session, the scorecard shows a combined 
net deficit increase (or surplus reduction) for the fiscal years just-
beginning and just-ended, OMB is required to implement across-the-board 
cuts in all non-exempt direct spending programs in amounts sufficient 
to eliminate the deficit increase (or restore the surplus). These 
across-the-board cuts are called sequestration. About 80 percent of 
outlays associated with direct spending programs are statutorily exempt 
from automatic sequestration cuts. Exempt programs include Social 
Security, Federal retirement and disability programs, net interest, 
certain low-income programs, veterans' compensation and pensions, and 
regular State unemployment insurance benefits.
    Under the automatic sequestration of non-exempt programs, the 
sequester calculations are made so that two programs with automatic 
spending increases (COLAs)--the special milk program and vocational 
rehabilitation--are cut first, followed by two special-rule programs 
(Stafford loans, formerly called guaranteed student loans, and foster 
care and adoption assistance), and then Medicare and the remaining non-
exempt direct spending programs. Automatic cuts in Medicare under PAYGO 
are limited to 4 percent, but there is no limit to the cuts which can 
be imposed on non-exempt direct spending programs.
    The PAYGO requirements apply only to new legislation, not to 
changes in spending levels under existing law. For example, the 
estimated increase in mandatory spending resulting from a new law that 
broadened a beneficiary population would have to be offset, or it would 
trigger a sequester. However, if a beneficiary population as defined 
under existing law simply grew, the increased spending would not have 
to be offset. This is the key to PAYGO's success: it holds people 
responsible for legislative changes they can control not for economic 
changes beyond their direct control.
    Under current law, PAYGO applies whether the Federal Government is 
running a deficit or a surplus. Therefore, tax cuts or direct spending 
increases that would cause a reduction in on-budget surpluses must be 
fully offset, just as legislation causing or increasing on-budget 
deficits must be offset.
    Title VII of H.R. 853 would fundamentally change current law by 
permitting tax cuts or new direct spending legislation to be enacted 
without offsets--up to the amount of projected on-budget surpluses. For 
example, the bill would permit a large tax cut or more spending to be 
enacted without any offsets, as long as the amount of the tax cuts does 
not cause or increase an on-budget deficit. This effectively repeals 
the pay-as-you-go requirement in an era of surpluses.
    The Administration strongly opposes this repeal of the PAYGO rules. 
The Administration has proposed a framework for allocating projected 
budget surpluses over the next 15 years, but strongly believes that 
after Social Security and Medicare have been strengthened the pay-as-
you-go disciplines should continue as they did following OBRA-93 and 
the BBA of '97. H.R. 853, however, would set into permanent law the 
principle that any amount of projected on-budget surpluses could be 
spent on new tax cuts or new direct spending programs without offsets.
    To understand the dangers of this approach, consider this year's 
Congressional Budget Resolution, H.Con.Res. 68 (Budget Resolution). The 
Budget Resolution calls for a tax cut of $778 billion over the next ten 
fiscal years--which amounts to nearly all of the currently projected 
on-budget surpluses for that period. The PAYGO repeal called for in 
H.R. 853 would permit enactment of these permanent, and very expensive, 
tax cuts without any offsetting revenues or spending cuts. The tax cut 
would create large negative balances on the PAYGO scorecard for each of 
the subsequent years on the assumption that these negative balances 
will be offset by the actual surpluses when the time comes.
    Now consider what would happen if the economy grows a bit more 
slowly than is currently projected, and the on-budget surpluses over 
the next 10 years, in the absence of legislation, turn out to be half 
of what is currently projected. The tax cuts would already be in 
permanent law, but the surpluses which were supposed to finance the tax 
cuts would not have materialized. We could face a net deficit big 
enough to trigger a 100 percent PAYGO sequestration. That means that 
Medicare spending would be automatically cut by 4 percent; spending for 
all of the non-exempt mandatory spending programs--child support 
enforcement, social services block grants, veterans education and 
readjustment benefits, CCC, crop insurance, and others would be 
eliminated; and there might still be some deficit remaining. Or, to 
avoid such a sequestration, Congress and the Administration would be 
forced to slash selected mandatory and discretionary spending programs. 
One of the principal reasons we need to maintain the fiscal discipline 
of the PAYGO rules during a time of surplus, as well as during deficit 
periods, is the relative uncertainty of budget forecasting.
    The PAYGO rules have been and continue to be a pillar of fiscal 
discipline. They have saved the surpluses for Social Security and 
Medicare, and have reduced our public debt. We urge the committee to 
maintain this discipline.

                  II. Automatic Continuing Resolution

    Title VI of H.R. 853 would establish an automatic continuing 
resolution (auto-CR) which would continue funding at the previous 
year's levels, in the absence of regular appropriations. Similar 
proposals have been under discussion in the past, particularly since 
the government shutdowns of 1995. The government shutdowns during the 
104th Congress were unnecessary and very costly, and--as the President 
has said--should never happen again.
    However, an auto-CR is an irrational and unworkable response. 
Congress should not undermine the ability to respond to a changing 
world by substituting an automatic funding mechanism for the hard work 
and judgment that results from bicameral action and presidential 
approval.
    In addition, under this bill, auto-CRs would last for the whole 
year, unless replaced by regular appropriations. Full year CRs could 
therefore trigger a sequester if they result in spending levels greater 
than the caps of that year.
    An auto-CR could disrupt the funding of government programs in 
other ways. For example, an auto-CR could be a powerful incentive for 
filibusters in the Senate. A minority of 41 in the Senate could impose 
a freeze on selected programs defense or non-defense--simply by 
filibustering the relevant appropriations bills. Alternatively, a 
minority of 41 could prevent program reductions, where the savings are 
needed to fund higher priorities. In fact, such a minority could 
perpetuate programs with no review or reform whatsoever.
    In short, it is the Congress' constitutional responsibility to make 
decisions about appropriate funding levels for the government's 
activities. Putting appropriations on auto-pilot would be a mistake.
    I would remind the committee that in 1997, the President vetoed an 
emergency flood supplemental because it attempted to enact an auto-CR 
that would have undermined the appropriations process.

                        III. Emergency Spending

    Title II of H.R. 853 would repeal the BEA ``emergency'' procedures. 
Those procedures currently provide for the upward adjustment of the 
discretionary spending caps to accommodate emergency spending. For this 
purpose, spending is deemed an ``emergency'' when it is jointly 
designated as such by the President and the Congress. (Though seldom 
used, the BEA also permits designation of direct spending and revenue 
provisions as emergencies; in such cases, the costs of such legislation 
are not placed on the PAYGO scorecard.)
    H.R. 853 would replace the current-law emergency procedures with a 
requirement that both the President's Budget and the Congressional 
Budget Resolution include a ``reserve'' for emergencies that is not 
less than the average for emergency spending in the preceding 5 years.
    Use of the reserve fund is made contingent upon the Budget 
Committee Chairmen certifying that the spending meets a new statutory 
definition of ``emergency.'' ``Emergency'' is defined in the bill as a 
``situation that requires new BA and outlays...for the prevention or 
mitigation of, or response to, loss of life or property, or a threat to 
national security; and is unanticipated"; the bill defines 
``unanticipated'' as ``sudden, . . . urgent, . . . unforeseen, . . . 
and temporary.''
    In addition, under H.R. 853, any legislation which proposes 
emergency spending that would exceed the emergency reserve would be 
automatically referred to the Budget Committees for not more than 3 
days. The Budget Committees would determine whether to report an 
amendment exempting the emergency spending from the discretionary caps 
or PAYGO requirement, as appropriate.
    H.R. 853, as introduced, does not address the issue of whether the 
discretionary spending caps would be adjusted upward to levels 
sufficient to accommodate inclusion of an ``emergency reserve.'' If 
there is an insufficient upward adjustment, the fencing off of funds 
for this emergency reserve would make already extremely tight spending 
caps that much tighter. The Administration would strongly oppose a 
significant tightening of the discretionary caps.
    But even if there is an intention to fully adjust the caps for such 
a reserve, the Administration would still have concerns about the 
advisability of this proposal in its current form. Consider Table 1, 
which shows emergency spending in each year since enactment of the BEA. 
As the table shows, emergency spending is by its very nature inherently 
unpredictable. If an emergency reserve is created, based on a 5-year 
average, it could end up being too little to cover emergencies in some 
years; while in other years, it would end up being too much, which 
would divert scarce resources from other needs.

                                  TABLE 1.--EMERGENCY SPENDING FY 1991-FY 1999
                                         [Budget authority, in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                         FY 1999
                                FY 1991  FY 1992  FY 1993  FY 1994  FY 1995  FY 1996  FY 1997  FY 1998     \1\
----------------------------------------------------------------------------------------------------------------
Desert Shield/Storm...........   44,253   14,063      758        4        0        0        0        0         0
Legislative Branch............        7        0        0        0        0        0        0        0       224
Judicial Branch...............        0        0        0        0       16        0       10        0        13
Agriculture (discretionary)...        0      226      190      623      364      333      738      215       133
Agriculture (mandatory).......        0    2,185    1,450      130    1,000        0        0        0     5,744
Commerce......................        0       87      110      235      103       26       76        0        54
Defense.......................        0        0        0    1,497    2,447      982    2,073    2,832     7,027
Education.....................        0      102      120      245        0        0        0        0         4
Energy........................        0        0        0        0        0        0        0      208       549
Health and Human Services.....        0      106        0      417      121      197      247      160       406
Housing and Urban Development.        0       24      420      862      222       50      250      250       142
Interior......................        0       69       99       53        5      214      393       48        93
Justice.......................        8       57        0        0      114        0      231        0        74
Labor.........................        0      500       85       33        0        0        0        0        20
State.........................       49        6        0       30        0        0       49        0     1,715
Transportation................        0       91      131    1,342      -76      300      951      269       582
Treasury......................        9       36        0        0       44        0      153        0       915
Veterans Affairs..............        0       16        0      116        0        0        0        0         0
Corps of Engineers............        0       46      175      130        0      165      604      105       103
Environmental Protection              0        0       34        0        0        0        0        0         0
 Agency.......................
Executive Office of the               0        0        0        0        0        0        0        0        43
 President....................
Federal Emergency Management          0    4,008    1,735    5,146    3,289    2,282    3,300    1,605       461
 Agency.......................
General Services                      0        3        0        7       67        0        0        0        18
 Administration...............
International Security              850        0        0        0        0        0        0        0         0
 Assistance...................
National Aeronautics and Space        0        0        0       21        0        0        0        0         0
 Administration...............
Small Business Administration.        0      659       70    1,248        0      225        0        0        66
Social Security Administration        0        0        0        1        0        0        0        0         0
Other.........................       14        0        2       26        0      248      158       19       282
Unreleased Contingent             2,680  .......  .......  .......  .......  .......  .......  .......  ........
 Emergency Funding............
                               ---------------------------------------------------------------------------------
    Total, Emergency Spending.   45,190   22,284    5,379   12,166    7,716    5,022    9,233    5,711    21,348
----------------------------------------------------------------------------------------------------------------
\1\ FY 1999 includes unreleased contingent emergency funding of $2.7 billion.

    Moreover, the President, the Congress, and the Nation need to be 
able to respond quickly to emergencies whether it is for military and 
humanitarian needs in Kosovo, aid to victims of tornadoes, farmers 
struggling with low prices, or assistance desperately needed by 
hurricane or earthquake victims. The current process, which permits 
emergency spending only when it is jointly designated, in law, by the 
President and the Congress, can already take months. H.R. 853, by 
contrast, would further encumber the process by requiring the Budget 
Committees to determine whether particular emergencies meet a rigid 
statutory definition. This additional encumbrance is unnecessary and 
could have very negative consequences when emergency relief is urgently 
needed.

  IV. Putting the Squeeze on Appropriations: the Lockbox and Baselines

    Title VI of the bill would establish procedures to give Members 
offering Floor amendments cutting appropriations the option to allocate 
the savings either as offsets for other spending, or as savings to go 
into a ``lockbox.'' The lockbox savings would automatically reduce the 
Appropriations Committees' 302 allocations; and by operation of 
language to be included in the appropriations bills, would also reduce 
the statutory caps.
    The Administration has concerns about this proposal because it has 
the potential to further reduce already tight discretionary spending 
caps. In an era of very tight discretionary spending limits, savings 
from lower priority appropriations should continue to be available for 
higher priorities.
    In addition, the lockbox mechanism itself, is unworkable. For 
example, a Senator could offer an amendment to reduce funding in a 
particular appropriation bill and direct all of the savings to the 
lockbox. Even if the House cuts nothing from that bill, H.R. 853 
requires that one-half of the Senate's cut would remain in the 
lockbox--automatically reducing the 302(a) allocations in the Senate 
and in the House. So you could end up with a circumstance where a 
Senate amendment has lowered the House Appropriations Committee's 
302(a) allocation--contrary to the levels the House had adopted in the 
Budget Resolution.
    In addition to appropriations being squeezed by a lockbox 
mechanism, H.R. 853 purports to mandate that the Congressional Budget 
Office (CBO) and OMB use the prior fiscal year's level without 
adjustment for inflation as their baselines for projections of 
discretionary spending in future years. The results would be that when 
estimating future surpluses or deficits, the Congress would be assuming 
a hard freeze on discretionary programs, rather than estimating the 
inflation-adjusted costs of continuing current services. The result 
would be a substantial under-estimate of what it would cost to continue 
current government operations and services resulting in more pressure 
on discretionary appropriations.

            V. Accrual budget for Federal insurance programs

    Title VI of the bill mandates budgeting for Federal insurance 
programs on the basis of the net present value of the risk assumed in a 
given year, instead of the traditional cash basis of payouts minus 
premium collections. This approach is generally analogous to budgeting 
for credit programs under the Federal Credit Reform Act. The 
requirements would apply to deposit insurance, pension guarantees, 
flood and crop insurance, the Overseas Private Investment Corporation's 
insurance program, and other insurance programs. The bill provides for 
several years of experimentation, publication of advisory estimates, 
and transparency for the models and data used. In addition, it would 
require reports by OMB, CBO, and GAO on the feasibility of risk-assumed 
budgeting for insurance programs. It would require the President 
actually to base the budgets for insurance programs on risk-assumed 
estimates beginning with the FY 2006 budget.
    We agree that risk-assumed estimates--if they are reliable and well 
understood--would have considerable merit for scoring insurance 
programs in the budget. However, the use of this methodology, outside 
of the comparatively ordered world of contractual arrangements between 
lenders and borrowers, is sufficiently difficult that OMB would oppose 
a statutory deadline for its implementation. Estimates for some 
programs could change substantially from year to year with shifts in 
interest rates and other long-range assumptions. Producing the 
estimates would require highly sophisticated estimating models that 
neither we nor the private sector have now or are likely to have any 
time soon. Whether such models could be developed in time to meet the 
requirements of the bill is highly uncertain. While we understand the 
bill sponsors' desire to set a firm target date for implementing this 
change, we do not believe it is realistic at this time.

     VI. Ten-year Limits on Program Authorizations and Entitlements

    Title IV of H.R. 853 requires committees to submit schedules for 
reauthorizing, within 10 years, all programs in their jurisdiction, 
including entitlements. It also prohibits the consideration of new 
direct spending programs unless their duration is limited to 10 or 
fewer years. And it guarantees Members the right to offer amendments 
subjecting proposed entitlements to the appropriations process.
    The apparent objective of this title is to limit the enactment of 
new entitlement benefits. The Administration believes the right 
approach is not to put arbitrary roadblocks in the way of new direct 
spending, but to maintain the current law PAYGO rules so that new 
direct spending is paid for, and must compete against alternative uses 
of available funds. It is highly ironic that H.R. 853 on the one hand 
seeks to rein in the creation of new entitlement authority, at the same 
time that it repeals the pay-as-you-go requirements when surpluses 
exist.
    I want to thank the committee for this opportunity to present the 
Administration's views on H.R. 853 and would be happy to answer any 
questions you may have.

    Chairman Kasich. Jack, just one question from me, and that 
is the notion that we shouldn't have an automatic CR. What 
would you say would the option be? In other words, every time 
we get to the end, there is a game of chicken and everybody is 
trying to say well, I didn't shut the government down. You say 
well, we didn't shut the government down.
    Then we go we are not going to shut it down this year, and 
you say well, of course, we are not going to shut it down this 
year. And then at the very end we pass some lousy bill. What is 
wrong with the notion that there be pressure on not just the 
Congress? It is interesting.
    It shows you how effective Bill Clinton is in 
communicating, because I can remember, I have been here a long 
time, even though I am so amazingly young looking. But I 
remember when the government shutdown when George Bush was 
President, and a couple people couldn't get in the Washington 
Monument and boy, we couldn't move fast enough to reopen the 
government because it was all being blamed on George Bush.
    Then when the government shutdown in 1995, President 
Clinton was able to make sure that he did a good job of being 
able to blame the Congress for shutting down the government. 
The fact is though there doesn't appear to be at this point in 
time any pressure on the President to reach an agreement unless 
it is kind of his way.
    Shouldn't there be pressure both on the Congress and on the 
President to have some leverage in terms of getting a 
settlement? I am not sure this works in my long-term best 
interests, but the fact is that it just seems to me as though 
there is no pressure on a very able communicating executive, 
while all the pressure falls on the Congress.
    Mr. Lew. Mr. Chairman, I think that it is easy for that to 
be avoided by doing short-term CRs. While there are ongoing 
budget negotiations, there is not a need for there to be a 
government shutdown if there is an ongoing, even a prolonged 
negotiation. It is not a new phenomenon. Short-term CRs go back 
decades.
    I don't consider it a shameful thing for Congress to pass a 
short-term CR during a negotiation. I think the name CR has 
gotten sort of a bad name, but it is necessary sometimes to 
have stopgap funding to permit differences to be worked out.
    I think if the interest is trying to have a more neutral 
approach so that both parties, both branches of government, 
have an incentive to negotiate, the current system actually has 
a lot of very positive attributes.
    Chairman Kasich. But the problem is, Jack, let's go back to 
the short-term CRs. If we don't give you a short-term CR at the 
spending level you want, then you threaten to veto it, the 
government gets shutdown.
    Mr. Lew. Short-term CRs are very different from automatic 
CRs that could potentially become full-year bills. For a short 
period of time, there are always anomalies that occur that we 
actually have worked through on a collegial basis, so that 
short-term CRs have no technical problems. So we don't have 
examples of programs where there are irrational results for 2 
or 3 weeks. There is actually a fine tradition of making sure 
that works.
    Chairman Kasich. Irrational results, I guess that is like 
irrational exuberance, they are in the eye of the beholder.
    Mr. Lew. Unintended consequences is really what I mean. I 
mean, there is no desire to have a program reach a crisis, but 
because a CR would have that effect, you need to address that.
    Chairman Kasich. I got you.
    Mr. Lew. The current system is a matter of perspective, 
perhaps, but from our perspective, the bills are written by 
Congress. We have to be invited into a negotiation. We have a 
relatively blunt instrument, and it is an instrument that we 
don't like to use.
    I think the goal, and I hope most of the Members here 
agree, is to work through these differences in a collegial 
manner, where neither side wins or loses everything. If the 
objective in a negotiation is for one side or the other to lose 
completely, you end up with confrontation.
    If the attempt is to work out differences, you don't need 
automatic CRs. In 1995, I would argue we didn't have a process 
problem. We had a strategic difference that was really big; we 
had policy issues----
    Chairman Kasich. One group wanted to balance the budget, 
and the other one didn't. That is right. I am just kidding.
    Mr. Lew. We won't relitigate that.
    Chairman Kasich. Come on, Jim. Just kidding. But I 
understand where you are on this. I just think the current 
system really doesn't provide equal leverage. It depends who 
the executive is and how effective a communicator the executive 
is also. So that is at play.
    But to me I think it is not necessarily in either party's 
interest to go to last year's spending level, because those 
priorities do change. But to me it creates the greatest amount 
of leverage. But that, of course, is just a matter of opinion.
    Mr. Spratt is recognized.
    Mr. Spratt. Mr. Lew, the House Budget Committee report for 
the fiscal year 2000 budget resolution has a statement reading 
as follows: PAYGO is enforced through a sequestration applied 
to all nonexempt entitlement programs. The law is somewhat 
unclear whether PAYGO lapses when there is an on-budget 
surplus. CBO has hinted that PAYGO would indeed lapse if the 
budget was in balance without counting excess Social Security 
receipts.
    Is that your position now or has it ever been your position 
that PAYGO would lapse if we had an on-budget surplus?
    Mr. Lew. Mr. Spratt, it has never been our position that 
PAYGO would lapse. We have been asked a series of questions 
over a number of years and, under different circumstances, have 
answered based on the period of time in question. I think the 
fact is that some years ago none of us predicted an on-budget 
surplus in the 5 year window. All of the discussion was about 
unified surplus with an off-budget surplus driving it.
    At the moment we were confronted with an on-budget surplus 
quite immediately and we were asked the question, we opined 
that we believe PAYGO continues to apply. I believe I wrote a 
letter to you in April indicating that officially. But we have 
informally indicated that on quite a number of occasions as 
well.
    Mr. Spratt. Mr. Chairman, I would ask unanimous consent 
that the letter to me on April 6 from Mr. Lew about the OMB 
position on PAYGO be made part of the record.
    Chairman Kasich. Without objection.
    [The information referred to follows:]

                 Executive Office of the President,
                           Office of Management and Budget,
                                     Washington, DC, April 6, 1999.
Hon. John Spratt,
Committee on the Budget, U.S. House of Representatives, Washington, DC.
    Dear Representative Spratt: Your staff requested the Office of 
Management and Budget's (OMB) opinion with reference to the following 
statement in the House Budget Committee Report on the FY 2000 Budget 
Resolution:

          ``PAYGO is enforced through a sequestration applied to all 
        non-exempt entitlement programs. The law is somewhat unclear 
        whether PAYGO lapses when there is an on-budget surplus. OMB 
        has hinted that PAYGO would indeed lapse if the budget was in 
        balance without counting excess Social Security receipts.'' 
        (H.Rpt. 106-73)

    The Report's statement regarding OMB's position is not correct. We 
believe that PAYGO does apply when there is an on-budget surplus. We 
also concur with the reasoning about legislative content contained in 
CBO's October 29, 1997, letter to Chairman Domenici.
    If you or your staff have any further questions related to this 
issue, please do not hesitate to contact us.
            Sincerely,
                                              Jacob J. Lew,
                                                          Director.

    Mr. Spratt. Mr. Lew, one of the objectives of this bill is 
to bring together the executive branch and the Congress sooner 
in the process rather than later. We did that in 1997, and that 
was the President's very purpose in sort of summoning the 
principals on the Budget Committee together to start 
negotiating in late February and early March; and culminated in 
the balanced budget agreement of 1997.
    I think it is objective, but I don't think a joint 
resolution necessarily accomplishes that end. Number one, how 
do you regard a joint resolution as opposed to a concurrent 
resolution, and, number two, do you have any other alternatives 
for engaging the executive branch earlier?
    I would think you would like to be engaged. You would like 
to be invited into the conference committee meetings and things 
of this nature at an earlier point so you could affect the 
process before it got to the very endgame.
    Mr. Lew. I think that it is highly desirable for the two 
branches to engage as early as possible. The procedural device 
of a joint resolution versus a concurrent resolution is 
therefore an interesting one. As you know, my predecessor 
endorsed the idea. I will confess to some personal misgivings, 
only because I fear that it would slow the process down, and if 
you can't reach agreement at the front end, there are real 
problems with delaying taking the first steps.
    It certainly is something that the executive branch I think 
would welcome, being invited into the discussions early. The 
notion of a joint resolution is certainly one that is not 
troubling in an executive-legislative sense.
    The only concern I have, and it doesn't rise to my 
objecting to it, is the consequences. If there is an early 
negotiation and Congress can't begin its work until very late, 
there is a question whether you can catch up. If there is a way 
to keep going with some of the steps in the process while you 
are working through those differences, I think it would be the 
perfect combination.
    Last year we saw without a budget resolution that the 
appropriation bills could continue to move. I think if you go 
to a joint resolution approach, you need to think in terms of 
how to keep the process moving. Otherwise you get to September-
October, and there is just an awful lot of work to do.
    Certainly from the point of view of sort of a constructive 
engagement early, it is very attractive. I personally believe 
there is no substitute for the parties wanting to engage. In 
1997, it wasn't a matter of process, it was a matter of 
commitment on your part, on the Chairman's part, on the 
President's part, and comparable participation from the Senate. 
And whatever the process, that is what it takes. We have to not 
look for clubs, but ways to get together.
    Mr. Spratt. I think you struck upon a fundamental point. 
When the parties, the President and the Congress, want to 
negotiate earlier, there is no barrier that prevents them from 
doing it. On the other hand, if you have a barrier that 
requires us to come together and spend a certain amount of time 
working on a CR, which neither party is ready to compromise 
enough to really put over the top, it could badly delay the 
process.
    Mr. Lew. That is a concern. I mean, the system has a 
tendency to slow down more easily than to speed up. Having 
begun my career here in the House, it is something I am 
particularly sensitive to. If you don't make a certain amount 
of progress by the summer, there is just not enough time in the 
fall to catch up.
    Mr. Spratt. Looking at the bill as a whole, if it came to 
the President in the form that it has been filed and now stands 
before the committee, what recommendation would you make to the 
President with regard to signing the bill?
    Mr. Lew. As I indicated in my opening remarks, we are very 
troubled by the number of provisions in this bill. As you know, 
the President has vetoed provisions similar to the automatic CR 
provisions in this bill. I would have to say that on balance, 
looking at all of the concerns we have in this bill, it would 
be my recommendation that he not sign the bill, that he veto 
the bill. But this is a very early point in the process, and I 
would only make that comment to respond to the question. We 
would certainly hope not to be in a position where there is a 
bill that has to be vetoed.
    Mr. Spratt. Thank you very much.
    Chairman Kasich. Mr. Chambliss.
    Mr. Chambliss. Mr. Lew, I think it takes a certain amount 
of political arrogance to come in here, after having been 
invited to participate in the process and apparently refusing 
to participate in the process of developing the guts of this 
bill, to now say you would recommend that the President veto 
this bill if it passes in its current form, I really don't 
understand that.
    I think it kind of goes along with what you alluded to 
earlier, that you don't agree that we need a joint resolution 
process where the White House engages in the process early on 
and we try to do what Congress thinks is the best way of 
engaging Congress and the White House to achieve a joint 
resolution early in the game every year, rather than the 
American people sitting out there and watching us battle, as 
they are doing right now. And as they are going to do all 
through the summer and into the fall.
    Instead of engaging early, resolving our problems early, 
moving forward in a smoother manner, the only thing I can 
surmise from your comments is that you think there is some 
political advantage to not having a joint resolution and 
engaging the White House early on. Otherwise you would have 
done it. I am a little dismayed by the attitude that you 
apparently have about this. The one thing I say is you are 
absolutely correct, your predecessor supported this type of 
process, this type of bill.
    In the analytical perspectives attached to the 1998 budget 
submitted by the White House, your predecessor alluded to just 
exactly this type of process as being a very favorable course 
of action for Congress to take and that the White House urged 
Congress to take such action.
    I disagree with your comments that you haven't flip-flopped 
on PAYGO. I think it is pretty obvious you have. You personally 
did send a letter to Mr. Spratt in which you say PAYGO applies 
even though we have an on-budget surplus. But again, a year ago 
your predecessor seemed to state otherwise. So there obviously 
has been a change of heart there.
    But I don't know, I want to give you a chance to respond to 
that. Am I wrong? Are you thinking there is a political 
advantage? That is why you don't want this? What is your real 
reason?
    Mr. Lew. Let me respond first by clarifying. I didn't say I 
opposed the joint resolution. I raised a concern, which I think 
may be addressable. It was an attempt to be constructive, not 
to be in opposition. I am not disagreeing with the effort of 
trying to design a mechanism. I was just setting forth a 
concern that I think would need to be worked through.
    I don't necessarily object to it. I was trying to 
distinguish my comments from objecting to it. So let me just 
clarify that. I am substantially more neutral than opposing it.
    As far as the issue of the PAYGO matter, I think there was 
a misunderstanding of the earlier correspondence that was 
signed by my predecessor. It was addressing a very narrow set 
of circumstances.
    It was addressing a question of what happens during a 
period of time during which there was a unified surplus, but an 
on-budget deficit. At the moment when that issue was presented, 
we addressed that specific scenario for the first time. We have 
never reversed.
    We tend to try and answer questions narrowly rather than 
broadly and not reach major policy decisions until we need to. 
The first moment when this policy issue presented itself, I 
know I was very clear in all of my verbal comments. And the 
first time I was asked to respond in writing, I responded as I 
indicated at this hearing. So the only time the Office of 
Management and Budget has ever indicated its position on this 
issue has been consistent with what I testified to.
    So sometimes letters are taken out of context and don't 
necessarily reflect the full circumstances. I hope I have 
clarified that a little bit in this testimony.
    Mr. Chambliss. Well, I think you have, and I guess we could 
argue about what was said and what wasn't said. I don't know if 
that is material. We understand what your position is, and I 
think that is fair enough.
    If I misunderstood you in saying that you don't think this 
is the right direction for us to go in and that you are willing 
to try to work to resolve something that is mutually agreeable 
to the administration as well as to Congress, I would hope that 
you would be willing to work with Mr. Nussle and Mr. Cardin and 
Mr. Minge to try to resolve whatever problems you have with the 
process, because I think we are headed down the right track.
    This may not be a perfect bill, but, Jack, I would hope you 
all are not going to be walking down the road with blinders and 
saying you are just not going to be willing to cooperate, 
period.
    Mr. Lew. No, I certainly hope there is no impression of a 
lack of willingness to cooperate. We responded to every request 
for participation in conversations and commenting on ideas. To 
my knowledge, there has been no invitation for us to 
participate that we haven't accepted, and we have even offered 
some of our own ideas when they weren't invited. So we have 
been part of the discussion.
    To the extent that there are very serious concerns with 
this bill, I tried to identify them in my opening remarks. The 
most serious concerns are on this matter of weakening PAYGO and 
on the question of the automatic continuing resolution. Those 
are very fundamental problems. But we have addressed 
fundamental problems before where one can work through 
differences. I am not saying there is absolutely no way this 
could be worked through. I was trying to be very careful in 
responding to Congressman Spratt's question to indicate this is 
an early stage in the process. There should be no 
misunderstanding of how strongly we view the bill as it stands 
now, but we are not anxious to get into a big fight early on. 
If there are discussions that would be constructive, we are 
always pleased to participate.
    Mr. Chambliss. Thank you.
    Mr. Spratt. Mr. Chairman, in fairness to Mr. Lew, I asked 
that question because I knew the administration had strong 
objections, and I think everybody needs to know that. In moving 
forward, it would be a lot more arrogant to have this happen at 
the 11th hour than to happen right now. Everybody needs to be 
on notice that the administration has strong objections to some 
of these provisions, and it may influence or affect our efforts 
to work toward some common ground.
    Mr. Nussle. Would the gentleman yield? I understand that 
because you have the letter. The thing that is interesting to 
me about this, and I understand that words can be taken out of 
context, but I don't think actions can.
    The current administration's budget proposal that was sent 
up here to Capitol Hill had--I mean, unless somebody can 
describe to me how it is going to work, needed a very dramatic 
change in PAYGO in order for it to take effect. So I understand 
that now, as a result of this bill, and in fairness, we need to 
have in discussion, you and I talked about that.
    But to come up here and to suggest now all of a sudden that 
well, you know, we don't like changes in PAYGO, we kind of like 
the way PAYGO is now, I think is a little bit strange when 
their proposal in and of itself had to have dramatic changes in 
PAYGO to be realistic.
    Mr. Spratt. Those changes took place after Medicare and 
Social Security were made solvent.
    Chairman Kasich. There is no end to this movie, huh? This 
is like one of those movies you watch over and over and over 
again.
    Jack, you don't want to say any more now, do you? You 
already have Saxby stirred up. That is a prescription for total 
failure. We got 3 or 4 votes. How do you want to proceed? Jim, 
do you have anything you want to say to Jack? Why don't you go 
ahead and ask your questions.
    Mr. Nussle. I have a couple of quick things, and I suppose 
you can respond in writing too. But the biggest thing I have a 
question about is in your testimony you were very--you were not 
critical, but your comments were--they were critical, and your 
comments were directed at about just about every portion of the 
bill, except you kind of let go the whole notion of joint 
resolution. As you know, I think the administration has been 
supportive of a joint resolution concept in the past.
    Is that something just as we discussed this and begin our 
first opportunity here today, is that something that the 
administration is interested in?
    Mr. Lew. I think it is fair to say we are interested in it, 
and have in the past supported the idea. In the context of this 
bill, I had concerns when I read all of the different 
provisions, that there was the risk of pushing the business of 
the year to the end. I am raising that concern not to say----
    Mr. Nussle. In this bill.
    Mr. Lew. In this bill. In the context of sort of an overall 
discussion of budget process, the notion of a joint resolution 
is attractive from a White House perspective; having the 
President involved in the process, if it can work, is 
attractive, yes. I am just suggesting as you work it through, 
as you go through the mechanics, you have to look at the 
Congressional side of it and make sure everything isn't 
backloaded.
    I am not opposing the idea. I am trying to suggest there is 
a need to fine-tune the approach to make sure that it isn't the 
enemy of the good.
    Mr. Nussle. On emergencies, we took your definition. In the 
bill, you were critical of the definition. But yet we took the 
definition that you wrote, that OMB wrote.
    Mr. Lew. The definition of emergencies was actually put 
forth by Director Darman during the Bush administration. We 
have continued to use it as our guidelines for analyzing 
emergencies, and I think it has served us well.
    Mr. Nussle. The buck stops here, because it has been in 
your memorandums to your administration.
    Mr. Lew. That is right. I was just giving the lineage of 
it. I wasn't walking away from it. I have defended the 
criteria.
    Mr. Nussle. You walked away from it in your testimony is 
the reason I was concerned.
    Mr. Lew. I think there is a difference between 
administrative determinations and statutory procedures. If you 
look the at the experience we have had even this year, the 
Central America emergency, the agriculture emergency, they were 
included in the President's budget. They have been up here 
since the first week, February. Today hopefully the Senate will 
pass it, but they may or may not. They haven't acted yet. That 
is a long time.
    I think that if you look at the items in this emergency, 
there is not an item in it that doesn't meet all of the 
criteria.
    Mr. Nussle. In the current bill?
    Mr. Lew. I am talking about the proposal the President set 
forth. The delay in considering the pieces that the President 
sent forward just suggests that if you put hurdles in the way, 
you can lose the opportunity to address emergencies. As you 
create multiple bodies that rule on definitions of emergencies, 
I am just concerned about delay.
    Chairman Kasich. There is 4\1/2\ minutes to go. Paul wants 
to ask a question. What we will do is let you go. We have four 
votes. Then we will come back and take the panel.
    Mr. Ryan. If I could ask you quickly, Jack, if you could 
maybe submit your response in writing, I see a discrepancy in 
your budget with respect to PAYGO. I have heard you mention 
that you want PAYGO to stay as it is.
    Could you reconcile that comment with the fact that it 
appears that the administration is using tax increases to 
offset discretionary spending increases, which is a violation 
of PAYGO? Specifically your budget contains about $154 billion 
in spending increases in discretionary programs, partially 
offset with $68.9 billion in tax increases, which cannot be 
used to pay for the other, by PAYGO's definition. Even if we 
are going to go vote, could you please outline that?
    Mr. Lew. I would be happy to respond verbally or in 
writing. I think under the scoring rules, our interpretation is 
perfectly consistent with current law.
    Mr. Ryan. Under CBO scoring, the fact is that PAYGO has 
been breached.
    Mr. Lew. I am looking to the Chairman for guidance on the 
committee's schedule.
    Chairman Kasich. We have your response. You think what you 
are doing is OK.
    Mr. Lew. I was going to offer a more eloquent explanation.
    Chairman Kasich. Leon is watching you. He would be very 
proud of this. We appreciate your coming.
    I would just say to you that I wish you would privately get 
together with Mr. Cardin and Mr. Nussle and Mr. Minge and tell 
them whether you really are interested in working something out 
or not, because we are just--we don't want to play games. We 
can decide what we are going to do. Let's just try to get that 
resolved. You don't need to go on the records, just give them--
jingle their phone late at night and tell them where you are.
    We will stand in recess and come back for the last panel.
    [Recess.]
    Mr. Chambliss [presiding]. All right, we will proceed now 
with our third panel. Let me just apologize to the panel and 
tell you all we appreciate very much your patience with us. 
Hopefully we will be able to proceed forward with this panel 
without the interruption of a vote. Obviously we never know 
that.
    First of all, let me just recognize and welcome former 
congressman John Rhodes from Arizona. John, it is a pleasure to 
have you here. Is a pleasure for me to meet you. I appreciated 
your comments earlier as we were talking with the fact that you 
were here when the original Budget Control and Impoundment Act 
was passed in 1974, and you were a leader in that process.
    We appreciate your being here and would welcome any 
comments you might like to make to the committee here today.
    Mr. Rhodes. Mr. Chairman, I thank you for that. I certainly 
appreciate the opportunity to appear before this committee. As 
you have said, I was on the committee that the Speaker put 
together to study the possibility of a congressional budget. It 
took awhile, but we were getting aware of the fact that what 
the Congress did was to take the President's budget and either 
enact it in parts or in whole without looking ahead as to what 
we were really doing to the economy of the country and what we 
were doing with regard to budget deficits or lack of deficits 
in the future.
    So that was really the main reason that the congressional 
budget process was born. I have to tell you, when we finished 
it, we were well aware of the fact that the act was faulted in 
some ways. But there was a legislative situation at that time 
consisting mainly of the fact that practically every committee 
chairman thought that this was a terrible invasion of his turf 
and there had to be some compromises made that weakened the 
whole thing.
    Nevertheless, I am well aware of the fact that if we didn't 
have this Budget Committee and if we didn't have the budget 
process, I think that the fiscal situation of the government 
would be much worse than it is today.
    Now, I am not saying I like what it is today, but I think I 
would be safe in saying that I like it a lot better than the 
way I would feel about it if you weren't doing what you are 
doing.
    So I do want to congratulate the committee. When I got out 
of Congress, I became a co-chairman of the Committee for a 
Responsible Federal Budget, and I learned an awful lot about 
the things that go into budget and budget preparations from 
Carol Cox Wait and Rudy Penner and a lot of the really good 
professionals who we have working on the budget.
    Again, I want to thank you. I was on the first Budget 
Committee. At that time the law provided that the leadership of 
the two parties would be represented on the committee. Since I 
had been on the committee that put the act together, I wanted 
to be on this committee, and I was.
    I came to realize that the job was so big that I couldn't 
very well be minority leader and also carry out my duties as a 
member of this committee. I reluctantly gave up my position, 
but I still have a lot of interest in what you are doing and 
how you are doing it.
    I congratulate you.
    Mr. Chambliss. Thank you, John very much. You have been a 
real pioneer in the budget process, and we appreciate your 
insight. Again, thank you for being here today.
    Our panel members are really no strangers to this group. 
Carol Cox Wait, of course, is president and CEO of the 
Committee for a Responsible Federal Budget. Carol, thank you 
for being here. John gives you all the credit for everything he 
knows about budgets, so we expect great words of wisdom from 
you. We know that will be forthcoming.
    Our friend, Dan Crippen--certainly Dan is no stranger to 
us, and, as Director of CBO, we are always glad to have you 
visit with us.
    Mr. Rudy Penner, a former Director of CBO, Mr. Penner, your 
knowledge and insights into the budget process are well-
recognized, and we thank you for being here today.
    Robert Greenstein, executive director of the Center for 
Budget and Policy Priorities, again, your knowledge of the 
budget process is known to all of us, and we thank all of you 
for being here.

   STATEMENTS OF DAN CRIPPEN, DIRECTOR, CONGRESSIONAL BUDGET 
   OFFICE; RUDOLPH G. PENNER, FORMER DIRECTOR, CONGRESSIONAL 
 BUDGET OFFICE, SENIOR FELLOW, THE URBAN INSTITUTE; CAROL COX 
 WAIT, PRESIDENT, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET; 
AND ROBERT GREENSTEIN, EXECUTIVE DIRECTOR, CENTER ON BUDGET AND 
                       POLICY PRIORITIES

    Mr. Chambliss. Carol, we are going to start with you and 
just proceed in this order, unless somebody has a scheduling 
problem. If you do, let us know. But if not, that is the order 
we will proceed in.
    So, Carol.

                  STATEMENT OF CAROL COX WAIT

    Ms. Wait. Mr. Chairman, thank you.
    Mr. Chairman, Mr. Spratt, Mr. Nussle. Mr. Cardin isn't 
here. Mr. Minge, with whom I have worked over the years a great 
deal on budget process, thank you for having me here today. The 
Committee for a Responsible Federal Budget originally was 
formed out of concern for sound budget process. Very soon after 
we organized persistent record peacetime deficits diverted our 
attention and have continued to consume a lot of our time ever 
since.
    But the underlying organizing principle of our organization 
continues to be budget process. It will continue to be so, as 
long as we stay together, and I am here today on behalf of our 
Republican co-chairman, Bill Frenzel, who used to be ranking 
member of this committee; on behalf of Tim Penny, our 
Democratic co-chairman, who tried mightily to arrange his 
schedule so he could be with you, but could not; and the other 
members of our board who collectively have hundreds of years of 
experience with the congressional budget process.
    You have my written testimony, and I am not going to bore 
you by reading it to you. I want to take a little bit of time 
to discuss some of the issues that that testimony touches on, 
using as my focus point H.R. 853. As I understand it, this is 
the vehicle you all will be using. It is the product of your 
bipartisan task force led by Mr. Nussle and Mr. Cardin, working 
with Mr. Goss.
    It is a good bill and we can support it. It does not go as 
far as we would like. To illustrate ways in which we think it 
could constructively go further, I will from time to time refer 
to proposals by Representatives Barton, Stenholm, Minge and 
others, as well as to some proposals by Senator Domenici, the 
Chairman of the Senate Budget Committee.
    In three major areas, H.R. 853 proposes highly constructive 
changes. Changes such as these, or something similar, simply 
must occur if we are going to continue any sort of budgetary 
discipline in this brave new world of budget surpluses. The 
first area is a joint budget resolution.
    Until the two policy branches of government finally reach 
agreement on one budget for the United States Government, the 
government really doesn't have any budget at all. That 
condition ought to be unacceptable to you and to all Americans. 
A joint budget resolution would bring real political 
accountability to the budget process and it could assuage, if 
not eliminate, most, if not all, of the problems that we 
describe as baseline problems.
    We would prefer to see your joint budget resolution spin 
off when Congress adopts a concurrent resolution on the budget, 
as would have been the case under a bill introduced in earlier 
Congresses by Representatives Panetta and Spratt.
    Given the simplified form of your proposed joint 
resolution, we believe this to be entirely feasible. We believe 
Members would have no difficulty understanding the substance of 
the law to be sent to the President for signature. This 
approach would permit you to confine matters essential to 
internal congressional deliberations and policing of the budget 
to the concurrent resolution, and to limit the joint resolution 
to overall fiscal policy plans and enforcement matters on which 
Congress and the President must agree.
    Somebody has to do something soon to cauterize what Bill 
Frenzel calls ``the running sore,'' which is the so-called 
emergency loophole in today's budget process. The emergency 
part of appropriations enacted at the end of last year, $22 
billion, was more than the total budgets of all but 10 States 
in the country. That is outrageous.
    We support your proposals to address the emergency problem. 
We wish you had gone further and done more to dampen the 
instinct of State and local officials to get all they can while 
the getting is good when they have a disaster. We address those 
issues in more detail in our written testimony.
    I would associate myself with Rudy's concerns about how you 
establish the level for emergencies. We do prefer the approach 
that Rudy suggests, which is to take some percentage of 
discretionary appropriations available each year and set that 
amount aside for contingencies, rather than the 5-year rolling 
average. We are concerned that the 5-year rolling average will 
give you a constant upward bias in the amount of money that you 
set aside for emergencies.
    As I say in my written testimony, budgeteers tend to react 
viscerally and negatively to anything that spends money 
automatically. However, our committee has concluded that 
something like your proposed automatic stopgap spending bill is 
much the lesser of two evils. The greater evil being the 
current state of affairs in which the administration and 
individual Members may use the threat of a government shutdown 
as a lever to help get their own priorities funded.
    Every time one Member gets their own priorities funded, 
every time Congress acquiesces to an administration priority, 
there arises a need to take care of somebody else's priority. 
That creates constant, inexorable upward pressure on total 
Federal spending.
    We admit to the committee of a bias, all things being 
equal, toward a budget process that operates somewhat as a 
constraint. We come to this conclusion reluctantly, but now we 
are enthusiastic supporters; and we commend to you the idea of 
the automatic continuing resolution. We would prefer to see it 
at a level lower than last year's level. We deal with that in 
more detail in our written testimony.
    With regard to PAYGO, we note in our written testimony that 
Mr. Barton, Mr. Minge, Mr. Stenholm were prepared to introduce 
language in 1997 very similar to that in H.R. 853. Our 
organization can support that language today.
    Given time and space to think, however, about a world in 
which we may actually have budget surpluses over and above 
Social Security surpluses, and to think about how the world 
might work if you really did have a real budget represented by 
joint budget resolutions, it seems to me that you could write 
into the joint resolution each year, or each biennium, the 
levels above or below which the PAYGO proscriptions would 
apply.
    I guess the older I get, the less comfortable I am with 
rigid rules that try and make value judgments today and impose 
them forever on future Congresses. One virtue of having a real 
policy document as a budget is that when Congress makes other 
fiscal policy decisions, you can also decide what part of the 
surplus ought to be available in the upcoming budget window and 
what part of it ought to be subject to PAYGO restrictions.
    Also I would suggest to you that you consider taking 
technical changes off the table and limiting permissible 
adjustments for changes in economics to current law revenues, 
when you determine whether or not the use of PAYGO balances 
will trigger sequestration. Even that may not be the perfect 
formulation, but you should seek an approach that captures as 
contemporaneously as possible changes in economics and enforces 
policy.
    I think that the mechanism, as described in H.R. 853, is 
somewhat weaker than it might be in that regard.
    The foregoing discussion serves to underline one of the 
strengths of the joint resolution, the ability of Congress and 
the President to agree on policy, and enforce the policy that 
they set until they take responsibility for changing it.
    There is no right or wrong level of Federal spending. There 
is no right or wrong level of revenues. There is no objective 
case, no scientific test you can do, to say that the government 
ought to be 21 percent of GDP or 19 percent.
    The right amount is the amount that Congress and the 
President agree to and are willing to be held accountable for 
at any given point in time. If you have a multiyear joint 
budget resolution that contains caps for 3 or 5 or 6 years at a 
time, I suspect that those caps in time will become a serious 
incentive for Congresses and Presidents to enact new budgets, 
because priorities will change over time.
    You may want a different disaggregation of the caps. You 
may want different levels of caps. But the caps themselves over 
time will create a compelling incentive for Congresses and 
Presidents to adopt new budgets.
    I want to make a comment here, also, about three major 
areas where we would strengthen budget process reform further. 
All three get somewhat more detailed attention in our prepared 
testimony, but I feel compelled to mention that we hope to see 
progress in the future toward biennial budgeting, entitlement 
caps and enhanced rescission.
    Especially in the case of enhanced rescission, we are hard 
pressed to understand why a Congress that enacted line item 
veto legislation would not, the court having struck down that 
law, want to enact something that operates as a kind of a proxy 
for the line-item veto. We do think that Congress should vote 
up or down when the President proposes to rescind money.
    For now, however, let me say that you and your task force 
and Mr. Goss have done an outstanding job. We support your 
efforts. We hope to work with your staff to write better budget 
process into law, and we do need to write better budget process 
into law.
    Thank you, Mr. Chairman.
    Mr. Chambliss. Thank you.
    [The prepared statement of Carol Cox Wait follows:]

Prepared Statement of Carol Cox Wait, President of the Committee for a 
                       Responsible Federal Budget

    Mr. Chairman, Mr. Spratt, thank you for inviting me to testify 
today on behalf of the Committee for a Responsible Federal Budget. Our 
group originally was formed out of concern for sound budget process. 
Our Republican Co-Chairman, Bill Frenzel, recently testified before the 
Rules Committee on the subjects before you today. Our Democratic Co-
Chairman, Tim Penny, wanted very much to be here today. But your 
schedule and Tim's could not be made to mesh, so you get me. Budget 
process reform has been a major focus for our organization for more 
than a decade. We have worked with the American Business Conference, 
The Business Roundtable, The Concord Coalition and many other groups--
and with literally hundreds of Members--to formulate recommendations to 
make the budget process more effective, more efficient and more 
accountable. We are impressed with the work of your task force. We are 
glad to have this opportunity to share our views with you. We have 
submitted written testimony for the record. I will take a few minutes 
today to highlight that testimony.

                                History

    The Congressional Budget and Impoundment Control Act was born of 
frustration:
     First, over President Nixon's exercise of impoundment 
authority; and
     Second, that Congress had no mechanism, nor vehicle, to 
articulate a coherent alternative to the President's Budget proposals.

                              Impoundment

    Ironically, the Federal Courts effectively eliminated presidential 
impoundment authority before the Budget Act became law. Presidents 
impounded appropriated funds for nearly two hundred years, and nobody 
sued.
    When grantees, who anticipated receipt of Federal funds pursuant to 
appropriations President Nixon impounded did sue, however, Courts rules 
that Presidents cannot unilaterally reverse the law. The courts found 
that it takes an Act of Congress to reverse an earlier Act of Congress.
    Nonetheless, Congressional desires to put stringent limits on 
Presidents' ability to withhold appropriated funds provided powerful 
impetus to passage of the Budget Act in 1973.

                     Coherent Congressional Budgets

    Prior to the Budget Act, the President transmitted a budget to 
Congress. The President's budget was virtually disassembled, and the 
parts were sent to relevant committees. Appropriations Committees 
disposed of presidential requests for discretionary funds in at least 
thirteen separate bills each year (usually more). Committees of 
jurisdiction dealt with presidential proposals for new direct spending, 
or for changes to existing entitlements. Tax committees acted (or 
failed to act) on revenue proposals. Congress could not gauge the 
aggregate fiscal policy impacts of their spending and revenue decisions 
until after the end of the fiscal year, when Treasury reported actual 
receipts, outlays, deficits or surpluses and debt. Periodically, 
Congress acted to increase the debt limit, but debt limit votes simply 
recognize and accommodate past decisions after-the-fact.
    Democrats controlled Congress. They believed that the President's 
budget provided a powerful advantage as it permitted the Administration 
to describe their entire legislative program and goals, in context, in 
one document. They believed that a congressional budget could mitigate 
that advantage.

                                Reaction

    The impetus for congressional budget legislation was reactionary. 
There were few in Congress arguing constructively the need for a new 
budget process.
    Ironically, fury over impoundment was a more forceful imperative, 
at that time and in the view of most Members, than the desire for a 
coherent congressional budget process.
    The people who wrote the law labored to put these reactionary 
forces to good use. They tried hard to bring some order to 
Congressional decision-making processes. They were hamstrung by the 
imperative to protect all existing centers of power and to make the new 
process appear as benign as possible.
    The drafters of the Budget Act knew the new process would not work. 
I know, because most have been on our Board, and they told me so.

                               Evolution

    The process described in the Budget Act was fundamentally flawed:
     First, it was iterative; and budgeting is by definition a 
distributive process;
     Second, it was unrealistic. There were too many budget 
resolutions; and the Act envisioned budgeting 1 year at a time. The 
first resolution did not really count. Reconciliation came at the end 
of the process and would have reversed work that consumed most of a 
congressional session. There was no effective enforcement mechanism.
     The Budget Committees had no legislative jurisdiction and 
no real power.
    The process was supposed to be outcomes neutral--but large and 
rising deficits overshadowed all other fiscal policy concerns for the 
first two decades under the Budget Act, and Members soon sought to 
create biases in the process to encourage deficit reduction.
    A series of deficit reduction initiatives that failed to produce 
advertised outcomes led to increased focus on enforcement.
    For the first half of the 1980's, Congress used the ``elastic 
clauses'' in the original Budget Act to make the process more 
responsive to immediate concerns. In 1985, 1987, 1990, 1993 and 1997 
they amended the law as well as the process and eventually achieved the 
desired outcome (budget balance) last year.

                     Why Reform the Budget Process?

    There are four main reasons we are here discussing budget process 
reform:
     Frustration. Some, who accepted restrictive rules such as 
PAYGO when that seemed necessary to reduce the deficit or balance the 
budget, resent restraints on the allocation of some or all budget 
surpluses for new programs and or tax reductions.
     Complexity. The current budget process, having grown like 
topsy, is ridiculously complex. Duplication and overlap spawn 
redundancy and lead to conflict between and among those charged with 
disposition of the same issues at different points in the process.
    You probably have, on this panel, a third or half the folks outside 
Congress who understand the budget process. This is a product of 
evolutionary change, of some changes codified in law, others buried in 
unanimous consent agreements, and some rules resulting from tacit 
understandings. It seems to many Members and staff that Congress is 
governed by arcane rules known to very few and subject to change almost 
without notice.
     Disappointment. The process rarely produces outcomes 
consistent with the promises made when Congress adopts a budget. 
Congress and the President rarely complete a budget cycle on time. 
Fiscal policy decisions seem never to be final. Members tire of 
debating the same issues over and over again.
     Future Challenges. We are getting older! This committee is 
keenly aware of building budget pressures. Budget surpluses are good 
news in every way except for what they mean to fiscal discipline. 
Discretionary spending caps are under fire. ``Emergencies'' are now 
welcome events because they provide the opportunity to spend more. 
Medicare changes enacted in 1997 are being attacked for saving too 
much. The budget process cannot withstand these pressures because it 
focuses on short-term needs, not long-term challenges.
    The reasons listed above may provide the push necessary for 
Congress to consider serious budget process reforms, but we think there 
are many more, and far more compelling, reasons to do so.
     One budget for the U.S. government. There really is no 
such thing as a budget for the United States Government. The two policy 
branches of government operate off of separate budgets. The absence of 
one budget is the principal cause of most so-called ``baseline'' 
problems. The absence of an agreed budget invites confusion and 
undermines accountability. We believe it is imperative for Congress and 
the President to agree to one budget and agree to be bound by that 
blueprint until they can agree on a new version.
     Accountability. Political leaders should be accountable 
for decisions about the size and role of government, deficits or 
surpluses, rising or declining national debt, and tax burden, i.e., 
Federal fiscal policy. The current budget process fails this test.
     Better enforcement. Current budget enforcement mechanisms 
are designed almost exclusively to reduce the deficit. Often, the focus 
is wrong. The process advantages past decisions at the expense of 
current and future priorities.

                       Specific Reform Proposals

    It is our understanding that this hearing is to focus on H.R. 853, 
introduced this year by Mr. Nussle (R-IA), Mr. Cardin (D-MD), and Mr. 
Goss (R-FL)--the product of your Budget Committee bipartisan task force 
on budget process reform and Mr. Goss' Rules Committee Process 
Subcommittee. I will also refer the pioneering work Representatives 
Barton (R-TX) and Stenholm (D-TX) have done in the last two Congresses 
and to some proposals by the Senate Budget Committee Chairman, Mr. 
Domenici (R-NM). I would be remiss, if I did not mention that the 
Barton-Stenholm bills owe a lot to the thought and work of our 
Democratic Co-Chairman, Tim Penny, when he was a member of this august 
body.
    The following comments, however, are organized around the form 
followed by the Highlights of your Task Force bill, H.R. 853.
                        joint budget resolution
    Replacing the concurrent resolution on the budget with a joint 
budget resolution is absolutely essential to make the budget process 
real, meaningful, enforceable and accountable.
    As noted above, the United States government today operates without 
a real budget. Congress and the President agree each year on 
appropriations for discretionary programs. But discretionary spending 
represents a steadily declining proportion of total Federal spending. 
From time to time, Congress and the Administration agree to changes in 
some existing direct spending programs and /or tax laws and policies, 
to conform to agreed budgetary outcomes. Those changes almost always 
take the form of reconciliation bills. But the President and Congress 
do not agree on aggregates for receipts and expenditures, deficits or 
surpluses and debt--much less on the allocation of spending among 
competing priorities.
    A joint budget resolution would put to rest most of the problems 
generally attributed to baselines.
    A joint budget resolution would force the policy branches of 
government to reconcile your differences earlier--rather at the end of 
each session of Congress.
    A joint budget resolution containing binding multi-year expenditure 
limits could create a compelling incentive for future Congresses and 
Presidents to reach budget agreements in a timely fashion. The 
Committee for a Responsible Federal Budget believes strongly that joint 
budget resolutions should contain nominal dollar expenditure limits for 
five or 6 years into the future. Continuing those limits in force until 
and unless a new joint resolution is adopted will help tremendously to 
prod Congresses and Presidents to reach agreement on new budgets in a 
timely fashion.
    Reducing the number of budget functions required to be included in 
the resolution is a very good idea. We are not certain what is the 
optimum number. We are comfortable with the H.R. 853 construct--defense 
and non-defense discretionary, direct spending, and such other 
categories as may be deemed necessary (which could change from year to 
year).
                              emergencies
    We are gratified that almost everybody is agreed we must do 
something to narrow (if not close) the so-called ``emergency'' loophole 
in the current budget process. The ``emergency'' portion of 
appropriations enacted at the end of the 104th Congress was equal to or 
greater than the total budgets of all but ten states in the nation. 
When Congress and the President agree to call something an emergency, 
they exempt that spending from the trade-offs that apply to 
appropriations subject to statutory caps. Is it any wonder, every time 
one of these bills comes down the pike, everyone wants to get into the 
act? Everybody would like to include their pet project, their highest 
priority, in this privileged category where it would not have to 
compete with anything else.
    The provisions in H.R. 853 are a vast improvement over current 
rules for ``emergencies''. Setting aside specific amounts tied to 
actual recent experience is a good idea. Budget Committee scrutiny of 
``excess emergency'' proposals could bring more sanity to the process. 
We only hope, if these provisions are enacted, the Budget Committees 
follow all the proscriptions contained in the bill, with regard to any 
recommendations for emergency spending to be exempt from the caps. In 
this regard, we continue to believe that the additional safeguards 
contained in the Barton/Stenholm bills almost certainly will be needed 
to cauterize what our Republican Co-Chairman, Bill Frenzel, calls ``one 
of the worst running sores of the current process''.
     So long as States can recoup 100% of emergency service 
costs in designated disaster.
     So long as the President unilaterally can waive the State 
match, and/or waive repayment of loans to pay required State match.
     State and local elected officials will be tempted to 
expand disaster and emergency needs to fill whatever resources 
Washington is willing to provide for those purposes.
     The purpose of matching requirements is to provide State 
and local officials incentives to use Federal resources as judiciously 
as they would use their own funds. . Absent such restraints, Federal 
disaster assistance is ``free money''. The pressure on Washington to 
provide ever more resources likely will continue to escalate and prove 
irresistible.
     And, when disaster areas seem to benefit from Federal 
spending for non-disaster purposes, the will deny similar treatment to 
other non-emergencies, for other constituencies may weaken.
    In short, H.R. 853 adopts many of the provisions we believe can 
help limit the expansion of emergency designation to non-emergency 
items. But we fear that pressure may continue at the other end of the 
pipeline, and that pressure could undermine resolve in Washington, 
until and unless something is done to change incentives for State and 
local officials to get all they can while the getting is good.

                              Enforcement

    We hope we misunderstand the enforcement provisions in H.R. 853 as 
they apply to discretionary spending caps. If the bill proposes to 
include in each joint budget resolution spending caps for the budget 
year only, we think that is a serious mistake.
    As noted above, we are convinced that multi-year caps, enacted as 
part of each year's joint budget resolution, can create compelling 
incentives for Presidents and Congresses to reach agreement on 
subsequent budgets in a timely fashion.
    Moreover, those of us who have been around since the beginning of 
the modern budget process remember how difficult it was to measure 
sensible the impact of fiscal policy decisions 1 year at a time. You 
need a budget window of at least 3 years--preferably 5 or 6 years--to 
get a real sense of the impacts of decisions you make for the budget 
year.
    It will come as no surprise to most of you, the Committee for a 
Responsible Federal Budget supports caps for direct spending, as well 
as discretionary spending programs. We continue to support the 
construct included in the several bills introduced by Representatives 
Barton and Stenholm:
     Global caps for total direct spending;
     Discrete caps for large programs (Barton Stenholm define 
as $20 billion per year or larger);
     Sequestration triggered by breech of the global caps;
     Sequestration affecting only those programs in offending 
categories (the ones that caused the breech).
                        increased accountability
    The 10-year sunset for new programs in H.R. 853 is a very good 
idea. We are less enthusiastic about separate debt votes.
                           accrual budgeting
    By and large, keeping the government on a cash basis makes sense. 
Insurance programs are the exception that proves the rule. Here, H.R. 
853 has it right. Accrual accounting makes sense for this category of 
activity, although budget technicians are concerned about estimating 
subsidies and other implementation problems.
                     reducing the big spending bias
    Talk about transparency, most Americans would welcome a world in 
which we compare spending year-over-year.
    It may be just as important, however, to compare spending 3 years 
from now to what we say those amounts should be in the budgets we adopt 
today. Thus, we urge two comparisons--one to last year; and the other 
against plan. This is especially important when you plan to increase 
spending for specific purposes--or to reduce/phase out a program. But, 
keep in mind that you will always have to have current law estimates 
for mandatory spending and revenues. Last year's level and the plan 
don't control outcomes in these areas. Whether it is called a 
``baseline'' or not, you need to know where existing substantive law 
would produce different results than projected under a budget 
resolution.
                   automatic stop-gap appropriations
    Generically, budgeteers hate automatic spending. Why spend anything 
on old low priority programs? In this instance, however, the Committee 
for a Responsible Federal Budget concludes that automatic spending at 
reduced levels is the lesser of two unattractive choices. We would 
prefer an automatic CR at 95% of last year's level--or the lower of 
last year, the President's request, or latest House or Senate action--
but last year's level is better than the alternative we have witnessed 
in recent years. Administrations and individual Members use the threat 
of government shutdowns as leverage to force others to accommodate 
their demands. The ``others'' almost always want something in return. 
This creates a clear bias toward ever higher spending. The threat that 
poses to budget discipline leads us to support the automatic stopgap 
spending approach.
                    pay-as-you-go in surplus budgets
    This is one instance where you must ask yourselves: what biases do 
we want to build into the budget process?
    We understand that Congresses and Presidents object to PAYGO as we 
know it in times of surplus. Why not spend some of the surplus for tax 
cuts, or new programs?
    Joe Barton and Charlie Stenholm were prepared in 1997 to offer 
language similar to that in H.R. 853, and we were prepared to support 
it.
    On the other hand, we raise the following question:
     If you enact a joint budget resolution, why not include in 
the resolution each year levels above or below which PAYGO will or will 
not apply? For example, the resolution could exempt on-budget surpluses 
for PAYGO purposes by writing unified budget surpluses equal to Social 
Security surpluses into the resolution bottom line.
     One real advantage of joint budget resolutions is that 
they provide opportunities to write policies such as this into law--and 
to modify such policies as imperatives change.
    However, we are inclined to be very cautious about any relaxation 
in fiscal discipline until Congress and the President address Social 
Security and Medicare reform. Projected surpluses may not be an unmixed 
blessing:
     Projected surpluses are projections. They could disappear 
if economic conditions deteriorate, but new spending or tax cuts 
enacted in the expectation that surpluses will be available to finance 
costs would go on and on;
     The longer-term outlook seems brighter, precisely because 
official projections assume surpluses will be used to retire debt and 
future interest costs. The longer-term outlook would look considerably 
less Rosy if substantially smaller amounts were used to reduce 
outstanding debt held by the public. The bigger the surpluses the 
better. Social Security surpluses are not enough to meet Social 
Security's future needs, let alone projected Medicare requirements. If 
Social Security surpluses are not ``saved'' (that is, used to reduce 
outstanding publicly held debt), then, economically speaking, you might 
as well not have them at all.
                     other reforms not in h.r. 853
    Biennial budgeting. Barton-Stenholm and Domenici both would enact 
biennial budget and appropriations processes. The Committee for a 
Responsible Federal Budget continues to support that approach and we 
recommend you consider adopting it as you go further with budget 
process reform.
    Enhanced rescission. We do not understand why you pass up this 
opportunity to put in place tough enhanced rescission language--in the 
place of line-item veto struck down by the Court. Our Committee 
believes that Congress ought to be forced, at least, to vote up or down 
on the specific items President's want to rescind (especially as 
Presidents almost always argue such spending is wasteful or 
unnecessary). We encourage you to give this issue careful 
consideration. You may not have another opportunity soon to do 
something about it.
    Entitlement Caps. We harbor no illusion that this Congress likely 
will jump off this cliff but the Committee for a Responsible Federal 
Budget continues to be convinced that expenditure limitation is the key 
to accountable budget process.
    There is no objectively right level of public expenditure; but 
Congress and the President should agree on the appropriate level when 
you adopt a budget; and you should be bound by that limit until and 
unless you adopt a new budget or otherwise revise it in law.

                               Conclusion

    In conclusion, our committee and I want to congratulate Mr. Nussle, 
Mr. Cardin, and Mr. Goss--and all the Members and staff who worked with 
them to produce H.R. 853. You have done a good job. You have not done 
all we would like. Assuming, however, that you do not mean to eliminate 
multi-year caps for discretionary spending, we can wholeheartedly 
support the bill.
    Mr. Chairman, this is as important as any project your committee 
likely will undertake in the course of this Congress. The budget 
process as we know it is strained to adjust to the pressures put upon 
it as a result of radically changed fiscal policy reality. Congress 
cannot go back to the pre-1973, no-process days.
    Budget processes are certain to frustrate--no matter how well 
conceived. After all, budget processes are designed to constrain the 
political process. And no budget process ever will be 100 percent 
effective to produce promised outcomes.
    Budget processes are like policemen. The only way you would know 
how effective is the cop on the beat would be to give him a vacation. 
Similarly, the only way to measure the success of any budget process is 
to consider what likely would have occurred in its absence.
    Today, we think you are moving toward a highly constructive answer 
to that question. Buy reforming the process, replacing it with a more 
effective model. We look forward to working with you in that effort.
    Thank you.

    Mr. Chambliss. Mr. Crippen.

                  STATEMENT OF DAN L. CRIPPEN

    Mr. Crippen. Thank you, Mr. Chairman.
    I want to join those who already this morning have 
congratulated the task force--particularly Congressmen Nussle, 
Cardin, and Minge--for their work on the bill thus far and, I 
am sure, for the many more hours they are going to spend on it. 
The bill responds to many of the concerns and complaints about 
the budget process that have been voiced by Members of Congress 
and others in recent years.
    Before I get to the content of the bill, Mr. Chairman, I 
would like to return to where we started, these many years ago. 
It is occasionally useful to remember from whence we have come, 
and this might be one of those times.
    As many of you know, the Budget Act was actually titled the 
Budget and Impoundment Control Act. Its genesis was the 
impoundment of appropriations by President Richard Nixon. The 
act was the Congress's response, enacted over the President's 
veto. The budget process and its institutions--this committee 
and the Congressional Budget Office--were born of the 
constitutional tensions over spending. The act was designed to 
reassert the control of Congress in developing and executing 
the budget.
    Those tensions and that purpose still exist today. It is 
not surprising to hear the Director of the Office of Management 
and Budget [OMB] endorse the parts of the bill that would 
enhance Presidential power and object to those that might 
diminish it. Jack could accurately characterize the comments I 
am about to make using the same framework but with the opposing 
conclusion.
    Ultimately, the budget process, like any other process, 
does not determine the outcome; it merely facilitates it. It 
provides, if you will, an institutional rumble strip in the 
road to wake you up, to remind you of what you are doing. But 
changes to the process can alter the balance of power at the 
margins, and that is what brings us here today.
    I would only caution that what appears attractive at the 
moment--shifting power in even subtle ways--can have unintended 
consequence down the road. Although the process is limited in 
its ability to promote or prevent any particular outcome--
indeed my distinguished colleague and predecessor to my left on 
the panel today reportedly once said, ``The process is not the 
problem; the problem is the problem''--I am not as sanguine as 
Jack about how well it has worked since 1990. We can all take 
some comfort from the current outlook, but we also know that 
most of the improvement is attributable due to the performance 
of the economy and the growth of revenues, not to the 
performance of the process.
    Since 1990, we have witnessed a government shutdown; that, 
presumably, no one wants to repeat. A change in process might 
help prevent another shutdown. The Balanced Budget Act of 1997 
was less a product of the process and much more a product of 
the politics. Last year the Congress failed to achieve a budget 
resolution. Most recently, the designation of emergency 
spending has grown dramatically and threatens to remove fiscal 
discipline.
    Many of you have expressed, even this morning, 
disgruntlement with the current supplemental. The OMB Director, 
while extolling the virtues of the current system, presented a 
budget to you that exceeds the discretionary appropriation caps 
by some $30 billion. So it will take a great deal of discipline 
by the Congress and the President to prevent the surplus from 
being spent, no matter what budget process is in place. But 
recent history suggests that there is certainly room for 
improvement.
    Turning now to the legislation before us today, I will 
summarize the major point of my prepared statement. First, a 
joint budget resolution inviting the President to negotiate 
early in the year on the budget has merit but is obviously no 
panacea. If there were wide disagreements, the joint resolution 
might actually delay the process. If the disagreements were not 
wide, a joint resolution would be unnecessary.
    Whatever its merits, that provision would present a major 
shift from the original purpose underlying the Budget Act--to 
give the Congress, through the adoption of a concurrent 
resolution on the budget, a means to establish and enforce its 
own budget priorities, independent of the President.
    Second, an automatic continuing resolution [CR] has merit, 
especially to avoid a government shutdown. It would, however, 
bring an end to one of the only action-forcing deadlines in the 
budget process, giving an important legislative advantage to 
defenders of the status quo over those who would prefer 
dramatic changes in spending, up or down. In the current 
political climate, an automatic CR would appear to diminish the 
power of the President in achieving his spending priorities.
    Third, the bill would clarify the pay-as-you-go [PAYGO] 
process to affirm that it is possible to enact legislation that 
increases mandatory spending or cuts taxes without offsets up 
to the amount of the projected on-budget surplus for the year. 
That clarification would not jettison the overall budgetary 
discipline that it now imposes, since legislation causing an 
on-budget deficit would still have to be offset. Further, since 
PAYGO is enforced one year at time, PAYGO legislation could in 
later years require legislative offsets or even trigger a PAYGO 
sequestration if sufficient on-budget surpluses were not also 
projected in the sequestration reports for those years.
    Because the PAYGO requirement is enforced with OMB 
estimates, the future use of this change would rely on the 
administration's budget projections. The current budget 
resolution makes it clear that the Congressional Budget Office 
is to score PAYGO in a fashion consistent with the 
clarification requested in this bill.
    Fourth, one of the most vexing reform issues facing 
lawmakers now is how to achieve a proper balance between the 
rigors of the budget process and the need for effective program 
oversight. As of the beginning of this year, nearly one-fifth 
of the total discretionary appropriations for 1999 that funded 
programs for the underlying authorizations had expired.
    In 1993, the Congress enacted the Government Performance 
and Results Act [GPRA] to require Federal agencies to establish 
strategic plans and performance measures. Regular legislative 
review of Federal programs, as envisioned by the bill before 
you today, may help to support the goals underlying GPRA.
    Fifth, insurance reform is terrific in theory but difficult 
in practice. One of the major challenges posed by the proposed 
reform is the difficulty of assessing future losses under 
various Federal insurance programs. Although some forms of 
insurance that have close analogs in the private sector might 
prove relatively easy to make, others, such as deposit 
insurance, would probably be very difficult. The 6 years 
envisioned for implementation is probably a minimum, although 
some types of insurance might be scored before that.
    Sixth, if you were to do nothing else, simply codifying the 
definition only of emergency spending would be helpful. Without 
a definition of what constitutes an emergency, it matters 
little what else you do.
    Finally, the extensive changes proposed by the bill also 
suggest a broader issue of budget process reform that I think 
should be addressed. It is time to convene a new Commission on 
Federal Budget Concepts. In general, Federal budget concepts 
are based on the recommendations of the 1967 President's 
Commission on Budget Concepts. Although the Commission's 
guidelines continue to apply broadly in the budget process, 
they do not address certain fundamental issues that lawmakers 
and budget scorekeepers currently face. For example, various 
proposals to reform Social Security, especially those that call 
for personal retirement accounts, raise thorny issues about the 
appropriate budgetary treatment. Further, the dividing line 
between Federal spending and revenue law has become blurred, as 
evidenced by the increasing use of refundable tax credits as a 
device for expanding budgetary resources. The use of public/
private partnerships, such as those involving military housing 
and various lease-purchase arrangements, also raises questions 
of budgetary treatment for which the Commission's original 
recommendations provide little or no guidance.
    These and other issues put budget scorekeepers in a 
difficult position as they seek to apply outdated or incomplete 
concepts to novel policies. That situation suggests the need to 
reevaluate current budgetary concepts and to try to reach a 
consensus on changes that will make them clearer, more 
comprehensive, and more effective.
    I encourage the committee, as part of the process of 
reviewing this bill, to consider that enough has changed in the 
past 30 years to warrant another look at those rules as well.
    Thank you, Mr. Chairman.
    Mr. Chambliss. Thank you, sir.
    [The prepared statement of Dan L. Crippen follows:]

 Prepared Statement of Dan L. Crippen, Director, Congressional Budget 
                                 Office

    Mr. Chairman, Congressman Spratt, and members of the committee, 
thank you for the opportunity to testify on H.R. 853, the Comprehensive 
Budget Process Reform Act of 1999. That bill reflects the work of the 
committee's Task Force on Budget Process from the 105th Congress, which 
was headed by Congressmen Nussle and Cardin. It responds to many of the 
concerns and complaints about the budget process that have been voiced 
by Members of Congress and others in recent years.
    The task force, which worked closely with the House Rules 
Committee, held several hearings on major reform issues and heard from 
many witnesses. The members of the task force should be commended for 
their hard work and thorough analysis of these thorny budget reform 
issues. They have produced a wide-ranging and ambitious measure.
    The major purposes of H.R. 853 are to encourage early budget 
agreement between the President and the Congress, improve planning for 
emergencies and budgeting for Federal insurance, reinvigorate 
legislative oversight and review of Federal programs, end the threat of 
disruptive government shutdowns, and allow more flexibility in the use 
of budgetary offsets. It would seek to accomplish those goals by 
converting the budget resolution into a measure that would become law, 
creating a reserve-fund procedure for emergency spending, establishing 
new requirements for the review and reauthorization of Federal 
programs, moving toward an accrual basis of accounting for Federal 
insurance programs, putting in place automatic continuing 
appropriations, modifying pay-as-you-go (PAYGO) rules to clarify the 
use of projected on-budget surpluses, and making other changes.
    My testimony will make the following major points about H.R. 853:
     Enacting the budget resolution into law could change the 
Congressional budget process into a joint legislative/executive budget 
process. That change might have significant advantages, including 
potentially swifter resolution of policy differences between the 
President and the Congress and more timely action on budgetary 
legislation. However, when broad policy differences were substantial, 
the President could veto the joint budget resolution, and a budgetary 
stalemate could emerge. In that case, fallback procedures in the bill 
would allow the Congress to adopt a budget resolution under the 
legislative-only process that is currently in place.
     Automatic continuing appropriations would address a major 
problem in the budget process the annual threat of a government 
shutdown caused by lapsed funding authority. That change is intended to 
eliminate the funding crisis that awaits policymakers and Federal 
agencies each year and may also have beneficial effects on the 
legislative process. However, enacting automatic funding for 
discretionary programs would also remove one of the true action-forcing 
deadlines in the budget process and could favor the continuation of 
funding at the current rate.
     The procedures for an emergency spending reserve and the 
new accounting provisions for Federal insurance have the potential to 
improve planning for unanticipated expenses and provide explicit 
information on long-term budgetary commitments. Whether those changes 
would be likely to improve budgetary control and accountability is 
unclear.
     Proposed changes that would require the periodic review 
and reauthorization of Federal programs might also help promote the 
goals underlying the Government Performance and Results Act of 1993.

                   Overview and Analysis of H.R. 853

    The following is a brief overview and analysis of the major 
features of the bill.
               converting the budget resolution into law
    Title I of the bill would convert the concurrent resolution on the 
budget into a joint resolution that would become law. April 15 would 
remain the target date for final enactment. The contents of the joint 
resolution would generally be restricted to aggregate budget levels 
(total spending, revenues, deficit or surplus, and debt) and broad 
spending breakdowns for mandatory, discretionary (defense and 
nondefense), and emergency spending. Functional categories of spending 
and reconciliation instructions would be included in the accompanying 
committee reports instead of in the text of the resolution itself. If 
the President vetoed the joint budget resolution, the Congress would be 
authorized to adopt, under expedited procedures, a concurrent 
resolution that would serve as the budget resolution for Congressional 
enforcement purposes (points of order, committee allocations, and 
reconciliation instructions).
    Providing for a budget resolution in law could make overall budget 
agreement with the President a primary focus of the Congressional 
budget process. Whatever its merits, that provision would represent a 
major shift from the original purpose underlying the Congressional 
Budget Act of 1974. That act was intended to give the Congress, through 
the adoption of a concurrent resolution on the budget, the means to 
establish and enforce its own budget priorities independent of the 
President.
    Some Members and observers trace the recent record of budgetary 
delay and gridlock to the budget process set forth by the 1974 act. But 
it is not clear that the existence of an independent Congressional 
budget process has exacerbated delays. It is also not clear that 
carving out a formal role for the President in that process will foster 
overall agreement and pave the way for timely action on budgetary 
legislation. However, in years when budgetary conflict between the 
President and the Congress is intense, having a formal mechanism for 
reaching broad agreement may have advantages. As proponents point out, 
converting the budget resolution into a law effectively formalizes the 
informal budget summitry of recent decades, but it has the added 
advantage of scheduling summits early each year. When overall 
differences were large and could not be bridged, the President would 
veto the resolution and the Congress, using the bill's fallback 
procedure, could move forward with its own alternative plan much as it 
does now. When overall differences were small, the statutory budget 
resolution would seem to make little difference one way or the other.
    By formalizing budget summitry, however, the joint budget 
resolution might also change the dynamics for reaching agreement. 
Budget summits have been informal and irregular, and the number and 
composition of the participants have varied. Budget summits have not 
occurred every year and have not always led to final agreement. In some 
years, particularly following multiyear budget agreements, they have 
not been needed. In others, the magnitude of the differences precluded 
agreement. Simply formalizing the process through a joint budget 
resolution would probably not make overall budget agreement easier, and 
it might simply highlight and sharpen differences by eliciting a veto 
when agreement could not be reached.
    Because of the bill's fallback procedure, the Congress would still 
be able to adopt a concurrent budget resolution in the event of a veto. 
That provision would guard against some of the procedural delays on 
budgetary legislation that the Congress would face because of an 
impasse with the President over the budget resolution. However, since 
the fallback procedure would not go into effect until a veto occurred, 
the Congress would still have to reach its own consensus on the budget 
resolution before it could move forward under that procedure.
    The bill would simplify the budget resolution principally by 
removing functional categories of spending and reconciliation 
instructions from the text of the resolution and placing them in the 
committee report. That change could help to better focus Congressional 
debate on broad budget priorities. It would also remove provisions of 
the resolution that could create further obstacles to final agreement 
with the President and might have uncertain meaning if enacted into 
law. However, such a change could also make the resolution less clear 
as a guide to policy and might raise questions about the status of 
reconciliation instructions to committees under House and Senate rules.
                creating a reserve fund for emergencies
    Title II of the bill would set up a reserve fund for emergency 
spending that is intended to encourage planning for emergencies, 
subject emergency spending to budgetary constraints, and establish 
criteria for emergency spending. The current exemption for designated 
emergencies from enforcement under the discretionary caps and PAYGO 
would be repealed.
    The bill provides a statutory definition of emergency. In general, 
it defines a budget emergency as any unanticipated situation that 
requires Federal spending to mitigate, prevent, or respond to ``loss of 
life or property, or a threat to national security.'' The President's 
budget and the joint budget resolution would be required to include 
emergency spending levels as a separate spending category (divided into 
discretionary and mandatory amounts). Those levels would have to equal 
the average of the amounts enacted for emergencies over the previous 5 
years.
    When the House or Senate considers legislation with emergency 
spending, the Budget Committee Chairman must certify that those amounts 
are for an emergency as defined by law. Any legislation that would 
exceed the emergency spending levels established in the budget 
resolution must be referred to the Budget Committee. If the committee 
decides that the spending fits within the statutory definition of 
emergency, it may then amend the legislation with a provision exempting 
the emergency spending from the discretionary caps or PAYGO 
requirement, as appropriate.
    Budgeting for emergency spending is inherently difficult and 
uncertain. Emergency funds are provided for a wide variety of purposes, 
are administered by many agencies, and are often unpredictable. Yet 
experience shows that emergencies will indeed arise and on a fairly 
regular basis. Since the Budget Enforcement Act of 1990 (BEA) went into 
effect, annual emergency spending unrelated to the Persian Gulf War 
(which was offset by foreign contributions) has fluctuated between 
about $1.5 billion in 1991 and about $21 billion this year, averaging 
nearly $9 billion a year. The exemption for emergency spending from BEA 
enforcement procedures may have been used as an excuse to avoid 
planning for emergencies and may also have served as a loophole in some 
years for unnecessary or excessive spending.
    The bill's reserve-fund procedure would help to promote better 
planning for emergencies. It would establish useful guidelines and 
budgetary controls, enforced under the budget resolution, that would 
inform the debate and help policymakers more effectively judge both the 
merits and the appropriate magnitude of emergency funding measures. In 
particular, the codification of an accepted definition of emergency 
spending would clearly be an improvement over the current ``anything 
goes'' situation.
    Under certain circumstances, the reserve-fund procedure could 
become cumbersome and could slow consideration of measures to fund 
emergencies. Emergency spending typically is included in a number of 
regular and supplemental appropriation bills each year. Depending on 
when the budget resolution is adopted, action tends to be concentrated 
between June and September. Under H.R. 853, emergency reserve amounts 
would be released by the Budget Committee Chairmen as qualified bills 
were reported and considered. That could become a daunting task when 
multiple appropriation bills were reported or were pending before the 
Congress.
    Whether the bill's emergency spending reserve would hold costs 
below historical averages is unclear. Fashioning a purely budgetary 
mechanism to reduce or eliminate the need for emergency spending would 
be difficult at best. To reduce the pressure to provide emergency 
funds, the Congress would need to make changes in the programs that 
fund emergency needs for example, to incorporate measures to mitigate 
the costs of natural disasters. Uncertainty is likely to remain a 
central and unavoidable element of any process designed to budget for 
and control emergency expenses, but with or without a new emergency 
spending reserve, enacting into law an appropriate definition of what 
constitutes an emergency should help reduce abuses.
           strengthening accountability for federal spending
    Title IV of H.R. 853 would make several changes intended to improve 
the accountability and legislative oversight of Federal programs. It 
would require Congressional committees to establish a timetable for 
reviewing all programs within their jurisdiction including existing 
entitlements at least once every 10 years. It would also prohibit the 
Congress from considering legislation that provides mandatory spending 
for a new program or authorizes discretionary appropriations unless the 
legislation would expire after 10 or fewer years. The bill would allow 
the Chairman of either the House Budget or the House Appropriations 
Committee to offer a floor amendment that would make mandatory spending 
for a new program subject to annual appropriation.
    One of the most vexing reform issues facing lawmakers is how to 
achieve a proper balance between the rigors of the budget process and 
the need for effective program oversight. Many lawmakers and observers 
are concerned that too much attention is focused each year on budgetary 
matters and that the important work of reviewing and evaluating the 
performance of Federal programs is too easily pushed aside. For 
example, as of the beginning of this year, nearly one-fifth of total 
1999 discretionary appropriations funded programs for which the 
underlying authorizations of appropriations had expired.
    The changes proposed by H.R. 853 are designed to enhance oversight 
and accountability. They also implicitly acknowledge the link between 
effective oversight and budgetary discipline. In 1993, the Congress 
passed the Government Performance and Results Act (GPRA) to require 
Federal agencies to establish strategic plans and performance measures. 
Performance measures for Federal programs are now included in the 
President's budget alongside the funding requests for those programs. 
The act's basic intent is to provide performance measures that can help 
lawmakers hold agencies accountable for achieving program objectives 
and to allow funding priorities to be based in part on whether agencies 
have lived up to their own standards of performance. Regular 
legislative review of Federal programs, as envisioned by H.R. 853, 
could help support the goals underlying GPRA.
    The new requirements, however, could at times impose a heavy burden 
on the legislative process. For example, one goal of H.R. 853 seems to 
be converting permanent authorizations of appropriations to a periodic 
cycle. But doing so might only exacerbate the current problem of 
unauthorized appropriations. Expired authorizations are one of the 
factors that delay the annual appropriation process. Lawmakers must be 
careful to avoid requirements that will only lead to further 
bottlenecks for annual appropriations. One option would be to stagger 
the program- review schedule for committees so that not all such 
reviews were considered at or around the same time.
                    budgeting for federal insurance
    Title V of the bill, the Federal Insurance Budgeting Act of 1999, 
would change the budgetary treatment of Federal insurance from a cash 
basis to a more prospective method of recognizing the long-term cost of 
such programs. The objective is to provide decisionmakers with 
information and incentives to better control losses in Federal 
insurance. The current budgetary treatment obscures the government's 
exposure to risk over the long term and fails to motivate a balancing 
of premiums against losses.
    Specifically, this reform would require agencies to estimate the 
projected insurance premiums and costs, including claims payments and 
recoveries, over the life of insurance commitments. The change in the 
present value of projected multiyear losses (or gains) to taxpayers 
would be reported as outlays (or collections) in the budget. Thus, the 
effect of an insurance program on the budget surplus or deficit would 
be the change in the expected long-term gain or loss to the government 
in the budget year.
    For the largest Federal insurance programs, including pension and 
deposit insurance, the effects on the budget would be significant. The 
key feature of those programs is that their commitments extend far into 
the future; premium income is likely to arrive steadily, while losses 
occur episodically and unexpectedly. Under cash-basis accounting for 
insurance, the current and projected budget years usually show net cash 
inflows to the government from premiums, with few losses anticipated 
from insured events. Showing net cash inflows is the norm because 
premium receipts are expected, but identifying specific future years in 
which large numbers of pension or bank failures will occur is 
difficult.
    Consider, for example, the Pension Benefit Guaranty Corporation 
(PBGC), the Federal program that insures the defined benefit pension 
plans of private-sector companies. Every year since it came on-budget 
in 1981, PBGC has collected more in premiums and other income than it 
has paid in pension benefits and administrative expenses. In 1998, when 
its net inflow totaled $1.2 billion, the Federal deficit was 
consequently $1.2 billion lower. For 1999 and 2000, the President's 
budget projects net cash inflows for PBGC of $843 million and $1 
billion, respectively.
    Although that budgetary picture makes PBGC appear to be a 
moneymaker for the U.S. government, cash-based accounting does not 
acknowledge the liabilities that the agency has accrued but has yet to 
pay and does not address taxpayers' exposure from the insurance 
commitments. Although PBGC has assets totaling about $18 billion, it 
has also accumulated liabilities to current and future retirees that 
total over $12 billion. PBGC's net assets of $5.4 billion stand in 
contrast to the agency's report of $15 billion to $17 billion in future 
losses that are ``reasonably possible.'' Thus, PBGC's overall financial 
position may not be nearly as strong as that implied by cash-based 
accounting.
    The proposed budgetary treatment of PBGC would balance projections 
of premium income with the likelihood that claims will eventually be 
paid in whole or in part from those premiums. That approach would 
report on the long-term financial status of PBGC but by doing so could 
reduce or even eliminate the reported financial gain to the government 
from pension insurance. The proposed accounting reform could have a 
similar offsetting effect on projected premium income from deposit and 
other long-term insurance programs, whose net effect on the budget 
under current practice is also to move the budget in the direction of 
surplus.
    One of the major challenges posed by the proposed reform is the 
difficulty of assessing future losses under various Federal insurance 
programs. The proposed approach has an advantage over cash-basis 
budgeting in that assigning losses to specific years in order to budget 
for anticipated costs would not be necessary. Nonetheless, estimating 
future losses from insurance commitments would require substantial data 
collection and analysis, and there is no assurance that reliable 
estimates could be obtained.
    The proposed legislation acknowledges the magnitude of that task 
and the uncertainty of success by authorizing appropriations to pay the 
cost of the analytical work, delaying full implementation until fiscal 
year 2006, and terminating the act at the end of fiscal year 2007. The 
lengthy transition is appropriate and would give agencies with 
operating responsibilities for insurance programs as well as the Office 
of Management and Budget (OMB) and the Congressional Budget Office 
(CBO) some time to collect the relevant data, develop and test 
financial models of those processes, and display the results in the 
budget documents on a trial basis. The bill would also require 
extensive public disclosure of the methods used to project losses and 
provide for public comment and subsequent revision of those methods. 
Finally, in fiscal year 2005, OMB, CBO and the General Accounting 
Office would each report to the Congress on the advisability and 
appropriateness of the new budgetary treatment of Federal insurance 
programs. If the assessments contained in those reports were 
sufficiently negative, the Congress might want to reevaluate the 
changes before they were carried out.
    A sharp contrast exists between the deliberate approach envisioned 
in H.R. 853 and the much faster timetable of credit reform, a closely 
related change in budgetary accounting adopted in 1990. Accounting 
under credit reform is more straightforward than the proposed 
accounting change for insurance programs because loans and loan 
guarantees generally cover fixed periods, whereas the government's 
insurance commitments extend indefinitely. The new methods that 
agencies developed for anticipating insurance losses during a period of 
experimentation and evaluation would be of particular interest.
              creating automatic continuing appropriations
    The bill would provide for automatic continuing appropriations in 
the event that one or more of the 13 regular appropriation bills were 
not enacted by the beginning of the fiscal year. It would fund programs 
at the current rate the level that was provided for the prior fiscal 
year.
    That reform would address the problem of the potential budgetary 
``train wreck'' that awaits lawmakers at the beginning of each fiscal 
year because of delays in enacting annual appropriations. In the post-
World War II era, continuing appropriations (referred to as continuing 
resolutions, since they are typically enacted in the form of a joint 
resolution) have been enacted in most years. Until the early 1970's, 
those measures engendered relatively little controversy. Since then, 
however, the intensity of overall budgetary conflict has sometimes made 
it difficult even to enact short-term continuing resolutions, 
occasionally leading to brief government shutdowns for nonessential 
activities. In some years, continuing appropriation laws have also 
become last-minute vehicles for major substantive legislation.
    Enacting automatic continuing appropriations would end the crisis 
atmosphere that surrounds the appropriation process at the end of each 
session. It would also end the disruptive effects of potential and 
actual government shutdowns. Further, without the availability of a 
must-pass continuing resolution, there would be no year-end legislative 
vehicle to which lawmakers could attach unrelated policy riders.
    However, certain cautions are in order. Automatic appropriations 
would bring an end to one of the only action-forcing deadlines in the 
budget process, giving an important legislative advantage to defenders 
of the status quo. For example, a determined minority in the House or 
Senate that opposed changes in current funding levels could more easily 
thwart a prevailing consensus in support of those changes. In some 
cases, that might work to the President's advantage, especially if he 
had enough legislative support to uphold his veto power. Members of the 
committee may wish to work with the Appropriations Committee, to which 
H.R. 853 was jointly referred, to devise a formula for automatic 
continuing appropriations that ensures a reasonable level of continued 
funding but also includes procedures to encourage timely action on 
regular appropriation bills.
                    budgeting in an era of surpluses
    The bill would change the PAYGO process to require an on-budget 
surplus (essentially, a surplus excluding the Social Security trust 
funds) projected for the upcoming fiscal year to be included on the 
PAYGO scorecard for that year. In general, such a change would make it 
possible to enact legislation increasing mandatory spending or cutting 
taxes without offsets up to the amount of a projected on-budget surplus 
for the year.
    That change would add some flexibility to the PAYGO rules without 
jettisoning the overall budgetary discipline that they now impose, 
since legislation causing an on-budget deficit would still have to be 
offset. Further, since PAYGO is enforced 1 year at a time, PAYGO 
legislation enacted after the change took effect could require 
legislated offsets or even trigger a PAYGO sequestration in later years 
if sufficient on-budget surpluses were not also projected in the 
sequestration reports for those years. Because the PAYGO requirement is 
enforced with OMB estimates, the future use of that change would rely 
on the Administration's budget projections.
        using current-year levels in baseline budget projections
    In general, H.R. 853 would require the budget projections used for 
the President's budget and the budget resolution to be compared with 
unadjusted current-year levels in addition to current-law baseline 
levels. The bill would also require CBO's annual economic and budget 
outlook and cost estimates to include comparable levels for the current 
year, although CBO already complies with that requirement for the most 
part.
    Some people have expressed concern about the effects of ``baseline 
budgeting.'' In general, they contend that the future budgetary effect 
of proposed policy changes should be measured from current unadjusted 
spending and revenue levels instead of levels that reflect the 
estimated effect of current policies and economic assumptions carried 
forward into future years. Although current-year data are available and 
are typically used in the annual appropriation process to evaluate 
proposed changes in discretionary appropriations, they are not 
routinely used in describing the effects of proposals that would change 
mandatory spending and revenue laws.
    Highlighting current-year data in the President's budget, the 
budget resolution, and CBO's analyses and cost estimates could make 
those data more accessible and easier to use. However, the current-law 
baseline remains essential for lawmakers when considering changes to 
mandatory spending programs and taxes.
                  adding a spending-reduction lockbox
    The bill also includes a ``lockbox'' procedure intended to preserve 
the savings from amendments to appropriation bills that reduce 
spending. The House passed similar legislation in both the 104th and 
105th Congresses.
    Under the bill's lockbox procedure, any Member offering a spending-
reduction amendment to an appropriation bill would be allowed to 
designate whether the savings would be credited to the lockbox, used as 
an offset for other appropriations, or remain under the Appropriations 
Committees' spending allocations. The Budget Committees would be 
responsible for maintaining a ledger of the appropriate distributions 
for amendments approved by the House or Senate. For amounts credited to 
the lockbox, the discretionary spending limits and Appropriations 
Committee allocations would be lowered by an amount that split the 
difference between the House and Senate savings.
    The bill's lockbox procedure addresses a concern of some Members 
that the savings from spending-reduction amendments to appropriation 
bills approved by the House or Senate tend to be restored or shifted to 
other accounts once the bill reaches the conference committee stage. 
The new procedure would ``lock in'' those savings by reducing the 
allocations of spending to the Appropriations Committees made under the 
budget resolution (after appropriation bills had passed the House and 
Senate) and by reducing the statutory discretionary spending limits 
(after the bills were enacted into law) by an amount of estimated 
savings. A lockbox concept was used in the Line Item Veto Act under 
which the discretionary spending limits were reduced by the total 
amount of savings from any item vetoes that were not overturned.
    The lockbox procedure could improve budgetary discipline, but it 
might also make the annual appropriation process more complex and less 
flexible. It might be more efficient and less cumbersome for lawmakers 
to reevaluate the discretionary spending limits when considering the 
joint budget resolution than to do so in piecemeal fashion as 
individual appropriation measures were considered and approved.

                               Conclusion

    H.R. 853 is a major budget reform bill. Elements of the measure 
such as the emergency spending reforms, the changes in the budgetary 
treatment of Federal insurance, and the new requirements for 
legislative review and program evaluation could take positive steps 
toward addressing certain problems. The major structural reforms in the 
bill principally the joint budget resolution and automatic continuing 
appropriations could also lead to improvements in the annual budget 
process but would not be without potentially significant drawbacks.
    To some extent, however, the same could be said of all of the major 
budget process reforms enacted since 1974. In general, major budget 
reforms should be approached cautiously. They tend to increase overall 
complexity, shift power, and have unintended effects. Lawmakers will 
want to weigh all of those factors as they consider the significant 
changes proposed by H.R. 853 or any other major budget reform proposal.
    The extensive changes proposed by the bill also suggest a broader 
issue of budget process reform that should be addressed at some point: 
is it time to convene a new commission on Federal budget concepts? In 
general, Federal budget concepts are based on the recommendations of 
the 1967 President's Commission on Budget Concepts. Although the 
commission's guidelines continue to apply broadly in the budget 
process, they do not address certain fundamental issues that lawmakers 
and budget scorekeepers face. For example, various proposals to reform 
Social Security, especially those that call for personal retirement 
accounts, raise thorny questions about appropriate budgetary treatment. 
Further, the dividing line between Federal spending and revenue law has 
become blurred, as evidenced by the increasing use of refundable tax 
credits as a device for expanding budgetary resources. The use of 
public/private partnerships, such as those involving military housing 
and various lease-purchase arrangements, also raises questions of 
budgetary treatment for which the commission's recommendations provide 
little or no guidance.
    Those and other issues put budget scorekeepers in a difficult 
position as they seek to apply outdated or incomplete concepts to novel 
budget policies. That situation suggests the need to reevaluate current 
budget concepts and to try to reach a consensus on changes that will 
make them comprehensive, clearer, and more effective.

    Mr. Chambliss. Mr. Penner.

                 STATEMENT OF RUDOLPH G. PENNER

    Mr. Penner. Mr. Chairman, members, thank you for the 
opportunity to testify. I believe that H.R. 853 is a thoughtful 
effort to improve the budget process and to adjust it to an era 
of surpluses. However, I think there are a few places where 
modifications could improve the incentives inherent in the 
bill.
    Before getting into those issues, let me first support the 
proposal to make a budget resolution a joint resolution, rather 
than a concurrent resolution. I have long thought that it would 
be useful to bring the President into the bargaining process 
early. By creating the fall-back of allowing a rapid 
consideration of a concurrent resolution if there is no 
agreement, you would address the most compelling criticism of a 
joint resolution, and that is, the bargaining process could be 
very time-consuming and inordinately delay the passage of a 
complete budget. Nevertheless, the problem of delays remains a 
serious issue.
    It would be my hope that in a typical year the time spent 
bargaining over aggregates could smooth the way for more rapid 
agreements regarding individual policy issues as the year 
progresses. But there are risks. While I think it certainly is 
worth trying a joint resolution, the Congress should 
continually reconsider how it is operating.
    I like the bill's approach to insurance programs. As Dan 
Crippen just said, conceptually, there is little doubt they 
should be estimated on an accrual basis. Practically, there are 
problems. It cannot be denied that there are areas where it is 
extremely difficult to make the credible estimates needed for 
implementing this provision. But as he said, you do allow 
considerable time for the agencies doing the estimation work to 
work on methodologies, and it is my expectation that they will 
be successful.
    The bill provides an exception for certain social insurance 
programs. For information purposes, I believe that it would be 
useful to estimate the contingent liability in the social 
insurance programs as well, especially Social Security and 
Medicare.
    Turning to some areas where I believe that the incentives 
created by the bill could be improved, I would especially 
single out the portion that attempts to avoid disruptive 
closures of government agencies when appropriations actions 
have not been completed. Here I come out exactly where Carol 
Cox does. I think that allowing spending to continue at last 
year's level is too lenient. I think it has to be more painful 
to delay action. The automatic appropriation could be set at 
the lower of the levels passed by the House or Senate, or if 
nothing has been passed, at 95 percent of last year's level.
    H.R. 853 makes a valiant attempt to deal with emergency 
spending. In considering these provisions, it is important to 
recognize that the main problem does not stem from the 
procedures for handling emergencies. Severe pressures have been 
imposed on those procedures because the Congress is now faced 
with caps on discretionary spending that are so severe as to be 
impractical politically.
    The problem arises because the caps have no programmatic 
content when they are passed. That allows them to be lowered 
arbitrarily, especially in the outyears. When the outyears 
arrive, the Congress is faced with a severe problem. A vast 
majority wants to pass programs that violate the caps, but they 
do not want to increase the caps implicitly for fear of being 
labeled spendthrifts. I doubt that any emergency procedure will 
work well unless the Congress faces up to this basic problem.
    Obviously, it is not useful to have caps that cannot and 
will not be adhered to. I suggest some arbitrary rules for 
determining caps which may or may not be very good, but I think 
the main point is that we need an explicit debate on the levels 
of the caps. If that debate reaches a reasonable conclusion 
that a majority accepts, it will be less essential to amend the 
emergency procedures.
    The emergency procedures established by the bill have one 
flaw that could become serious if the current approach for 
formulating discretionary caps does not change. It bases the 
reserve for emergencies on a 5-year moving average of past 
expenditures. I fear that there will be severe pressure to 
spend at least the reserve, and because there will be years in 
which true emergencies push spending above the reserve, the 5-
year moving average will be placed on a strong, upward trend.
    As Carol suggested, I would equate the reserve to some 
other variable, perhaps some percent of last year's outlays.
    I think the most difficult issue faced by the bill 
conceptually involves the effort to retain the discipline 
imposed by pay-as-you-go rules while allowing the surplus to be 
used for spending increases or tax cuts: PAYGO rules were 
clearly designed for an era of deficits. They are no longer 
appropriate and probably cannot survive without modification.
    I worry, however, about the proposed structure because it 
creates a strong incentive for an administration bent on tax 
cuts or entitlement increases to promulgate a very rosy 
economic scenario and/or to artificially lower discretionary 
caps in the out-years hoping that future Congresses will simply 
change the goals when deficits emerge, much as happened under 
Gramm-Rudman.
    This problem could be greatly reduced if the Congress 
administered this provision based on CBO estimates rather than 
OMB estimates. As I understand the bill, it suggests using OMB 
estimates for this particular provision. CBO is much more 
constrained in what they can forecast.
    Regardless of whether CBO or OMB estimates are used, I 
think one should drop or perhaps modify, as Carol suggested, 
the requirement that when a deficit does emerge, that past 
policy actions must be reversed to the extent they contributed 
to the deficit. If you drop that provision, you can avoid the 
economic and programmatic disruptions that would stem from 
abrupt reversals of policy.
    In other words, I am saying that bygones should be bygones. 
You will be constrained to some degree by the first estimate of 
future surpluses, and hopefully it will be an honest estimate. 
After that, I think you should take other measures to rein in 
the deficits, if they occur.
    It should be understood, however, that if past legislation 
phases in tax cuts in a series of steps or entitlement 
increases in a series of steps, any remaining steps should be 
cut off whenever a deficit emerges.
    Thank you, Mr. Chairman.
    Mr. Chambliss. Thank you.
    [The prepared statement of Rudolph G. Penner follows:]

   Prepared Statement of Rudolph G. Penner, Senior Fellow, the Urban 
                               Institute

    [The views expressed in this testimony are those of the author and 
do not necessarily reflect the views of the trustees and employees of 
the Urban Institute.]

    Mr. Chairman and members of the committee, thank you for this 
opportunity to testify. I believe that H.R. 853 is a thoughtful effort 
to improve the budget process and to adjust it to an era of surpluses. 
However, I think that there are a few places where modifications could 
improve the incentives inherent in the bill.
    Before getting into those issues, let me first support the proposal 
to make the budget resolution a joint resolution rather than a 
concurrent resolution. I have long thought that it would be useful to 
bring the President into the bargaining process early. It slightly 
enhances his or her influence over budget strategy, which I believe to 
be appropriate given our severe constitutional limits on the 
President's power over budgetary matters. By creating the fallback of 
allowing rapid consideration of a concurrent resolution if the Congress 
and the President fail to reach agreement, you address the most 
compelling criticism of a joint resolution and that is that the 
bargaining process could be very time consuming and inordinately delay 
the passage of a complete budget.
    Nevertheless, the problem of delays remains a serious issue. 
Bargaining over a resolution could take a long time before it is 
recognized that there are no grounds for an agreement. It is my hope 
that in a typical year, the time spent bargaining over aggregates could 
smooth the way for more rapid agreements regarding individual policy 
issues as the year progresses. It has to be recognized that there will 
be periods in which this will not be true, however. During the Reagan 
Administration, there was remarkably little disagreement between the 
President and the Congress over total spending. There were, however, 
profound disagreements over the division of spending between defense 
and nondefense programs. Consequently, some caution is required. My 
overall conclusion is that a joint resolution has enough merit to be 
tried, but the Congress has to be ready to reconsider if it becomes 
evident that the approach is not working efficiently.
    I like the bill's approach to insurance programs. Conceptually, 
there is little doubt that they should be estimated on an accrual 
basis. Practically, it cannot be denied that there are areas where it 
is extremely difficult to make credible estimates of the appropriate 
accrual amounts. The most difficult issues arise in those areas, such 
as deposit insurance, in which there is a tiny probability of a 
catastrophic event. Small changes in the absolute value of the 
probability can create large changes in the appropriate accrual 
estimate. But you allow considerable time for the agencies doing the 
estimates to work on methodologies and the results of that work will 
determine whether or not this is a practical reform. I suspect that the 
CBO will, in fact, be able to resolve most of the difficult conceptual 
issues.
    The bill provides an exception for certain social insurance 
programs. For information purposes, I believe that it would be useful 
to estimate the contingent liability in the social insurance programs 
as well, especially Social Security and Medicare. This is done, in a 
way, when the trustees of those programs examine the financial future 
of the trust funds. However, this is not a very useful economic 
concept, because the economic burden imposed by those programs is not 
directly influenced by the amount of resources held by the trust funds. 
Routinely providing an estimate of the present value of the expected 
liability and the present expected value of the earmarked payroll tax 
would provide valuable complementary information.
    Turning to some areas where I believe the incentives created by the 
bill could be improved, I would especially single out the portion of 
the bill that attempts to avoid disruptive closures of government 
agencies when appropriations actions have not been completed. Allowing 
spending to continue at last year's level is too lenient in my view. We 
all know how easy it is for a determined minority to delay action in 
the Congress. I fear that if a majority of the Congress wishes to cut a 
program, it may not get done under this rule. Conversely, a minority 
may find it easy to thwart increases in a program.
    I think that it has to be more painful to delay action. The 
automatic appropriation could be set at the lower of the level passed 
by the House or Senate, or if nothing has been passed, at 95 percent of 
last year's level.
    H.R. 853 makes a valiant attempt to deal with ``emergency'' 
spending. Last year, a particularly large amount of spending that could 
not be related to any real emergency was funded by so-called emergency 
legislation, thus circumventing the previously legislated caps on 
discretionary spending. The bill tightens the definition of an 
emergency, gives the Budget Committee Chairman considerable power to 
enforce the definition, and sets aside a reserve fund to cover normally 
expected natural disasters and other true emergencies.
    In considering these provisions, it is important to recognize that 
the main problem does not stem from the procedures for handling 
emergencies. Severe pressures have been imposed on those procedures, 
because the Congress was faced with caps on discretionary spending that 
were so severe as to be impractical politically. The problem arises 
because the caps have no programmatic content when they are passed. 
That allows them to be lowered arbitrarily, especially in the out-
years. When the out-years arrive, the Congress is faced with a severe 
problem. A vast majority wants to pass programs that violate the caps, 
but they do not want to increase the caps explicitly for fear of being 
labeled spendthrifts.
    I doubt that any emergency procedure will work well unless the 
Congress faces up to this basic problem. Because the caps are 
inherently arbitrary when passed, the Congress might wish to consider 
an arbitrary rule regarding their growth. The rule would attempt to 
strike a balance between realism and fiscal prudence. For example, caps 
that allowed 1 percent real growth per year would provide considerable 
more flexibility than the current caps while still ensuring that 
discretionary spending would not grow faster than the GDP. Such a rule 
would have to be revisited from time to time and there would likely be 
instances where special provisions and fire-walls are needed for 
specific types of spending, e. g. defense. But my main point is that we 
need an explicit debate on the levels of the caps. If that debate 
reaches a reasonable conclusion, it will be less essential to modify 
emergency procedures.
    The emergency procedures established by the bill have one flaw that 
could become serious if the current approach for formulating 
discretionary caps is not changed. It bases the reserve for emergencies 
on a 5-year moving average of past expenditures. I fear that there will 
be severe pressure to spend at least the reserve and because there will 
be years in which true emergencies push spending above the reserve, the 
5-year moving average will be placed on a strong upward trend. I would 
equate the reserve to some other variable. For example, it could be 
equated to some percent of last year's outlays. One percent would 
provide somewhat less than was spent last year. One half of 1 percent 
would provide something less than was spent on average over the last 5 
years.
    Another change included in the bill would have the baseline for 
discretionary spending defined as last year's nominal spending level 
instead of defining it to be last year's level plus an adjustment for 
inflation. I do not think that this change will have as important an 
effect as some believe, but I have no strong objection so long as CBO 
continues to report amounts adjusted for inflation. That will help 
policy analysts in and out of government understand what is happening 
to the real level of goods and services provided by various programs.
    Those who argue that the baseline should hold nominal levels of 
discretionary spending constant believe that the current approach 
imparts an upward bias to spending. I am not so sure this is the case, 
because there are also biases the other way. When I was at CBO, I had 
pressures from some committees to raise the baseline for programs that 
they were intent on cutting. It was as though they would not initiate 
cuts unless they got credit for more significant savings than they got 
with the traditional baseline concept. Similarly, a committee may be 
more inclined to increase spending on a highly popular program, if they 
get credit for a bigger increase relative to the baseline.
    The most difficult challenge faced by the bill involves the effort 
to retain the discipline imposed by pay-as-you-go (PAYGO) rules while 
allowing the surplus to be used for spending increases or tax cuts. 
PAYGO rules were clearly designed for an era of deficits. They prohibit 
policy changes involving taxes or entitlements that would increase any 
deficit during the projection period, which was defined to be 5 years 
when PAYGO was first adopted. These same rules now prohibit any 
reduction in the projected surplus because of tax or entitlement 
changes. Although I favor saving a considerable portion of the 
projected unified budget surplus, this is a policy decision and the 
formal budget process should not so strongly favor one policy outcome 
over another.
    The proposed rule would allow projected surpluses to be used up by 
tax cuts or entitlement increases. If the projections prove too 
optimistic and a deficit emerges, a sufficient portion of the cost of 
the previous policy action has to be made up in order to eliminate any 
deficit. Otherwise, a sequester will be imposed. If, however, a deficit 
emerges because of a recession, the rules would be suspended and there 
would be no need to make up for past policy actions. OMB estimates and 
projections will be used to enforce these rules.
    There are a number of problems with this approach. First, budget 
projections might be adjusted by large amounts even if the economy does 
not go into a recession. For example, growth can be weaker than 
expected, interest rates might be higher, and medical cost growth may 
rise faster than expected. The required policy adjustment could be 
large enough to impose a substantial negative shock on the economy, or 
more likely, the goals will have to be changed as under Gramm-Rudman, 
and the whole process will lose credibility.
    This problem could arise even if all projections are done honestly. 
However, the proposed change creates a strong incentive for the 
promulgation of rosy economic scenarios, thus leaving future policy 
makers to deal with the problems that arise when the scenarios do not 
materialize. The change also creates an incentive to promulgate 
unrealistically low caps for discretionary spending in the long-run, 
thus making it appear as though there is more room for a tax cut or 
entitlement increase. These incentives will tend to increase the size 
of future deficit reducing actions, thus increasing the probability of 
destabilizing corrective actions.
    These problems are formidable, but on the other hand, current PAYGO 
rules are so inappropriate for an era of surpluses that I suspect they 
will not survive without modification. What then, should we do?
    I think that we are better off with a weak variant of PAYGO rather 
than with no PAYGO at all. The propensity to promulgate rosy scenarios 
and to set unrealistically low spending caps would exist even if there 
were no PAYGO. But because the danger of forcing destabilizing shocks 
is very real in the PAYGO variant described in this bill, I would 
suggest a weaker variant in which bygones are bygones and corrective 
action is not required if a deficit emerges. The only thing that 
happens is that we go back to traditional PAYGO rules.
    One might say that this increases the propensity to assume rosy 
scenarios and to lower future discretionary spending caps, because all 
future penalties for doing so are removed. That is true. The problem of 
the caps would not be so severe, however, if my previous suggestion was 
adopted and we had an explicit debate about setting caps in a 
realistic, but fiscally prudent manner.
    The problem of rosy scenarios is somewhat different. Unless OMB 
became totally outrageous in their estimates, the errors in a rosy 
scenario are likely to be relatively small for the budget year, but 
then they grow mightily in future years. Rosy scenarios are, therefore, 
not suited for justifying large initial tax cuts or entitlement 
increases. Instead, they work better as a means for justifying large 
surplus reducing measures that have a small effect immediately, but are 
then phased in over time. If the bill built in a mechanism for cutting 
off phase-ins when future deficits were projected, I believe that the 
danger posed by rosy scenarios would be greatly reduced.
    The danger of rosy scenarios would be further reduced if the 
weakened PAYGO rule were based on CBO rather than OMB estimates. CBO 
forecasts cannot stray far from that of a consensus of outside 
economists. Administrations have more scope for playing with the 
numbers. Although not a lawyer, I believe that the rule could be 
written in a constitutionally acceptable fashion. When the Supreme 
Court ruled that CBO could not play an operational role in 
administering Gramm-Rudman, it left intact the ability of CBO to 
declare a recession, which in turn allowed the Congress to turn off 
Gramm-Rudman.
    It is true that sequestration is based on OMB rather than CBO 
estimates, but since we are worried about rosy scenarios, the OMB 
estimates would not be constraining. When OMB turns out to be less 
optimistic than CBO, the difference is seldom very large and in those 
times the Congress would have to pay a lot of attention to where OMB 
was coming out, but that should not be difficult.

    Mr. Chambliss. Mr. Greenstein.

                 STATEMENT OF ROBERT GREENSTEIN

    Mr. Greenstein. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify here today, and like the other members 
of the panel, I recognize clearly that the authors of this 
legislation spent many months and much hard work putting it 
together, and clearly the legislation includes some useful 
provisions, such as the provision changing the accounting of 
Federal insurance programs.
    Unfortunately, however, I believe the legislation contains 
a number of other provisions that would have unintended, but 
nevertheless, harmful effects, both on the budget process and 
on the maintenance of fiscal discipline; and that the drawbacks 
of the legislation substantially outweigh its advantages.
    The problems fall primarily in two broad categories: the 
changes in the pay-as-you-go rules and a series of provisions 
in the legislation that, taken together, have the effect, even 
if unintended, of tilting in favor of tax cuts and entitlement 
spending over discretionary spending. Let me take each of those 
areas separately.
    I should also note, before going into them, the combined 
effect here, particularly of the PAYGO change, which I will 
discuss first: I think it would be to weaken fiscal discipline 
significantly, and while other provisions of the bill 
strengthen fiscal discipline, that the net effect of the bill 
as a whole is a weakening of the discipline because of the 
PAYGO change.
    I know Mr. Minge well; we have spent many meetings talking 
about budget process issues. I know the last thing in the world 
he wishes is to weaken fiscal discipline. I know that is not 
the intention of the authors of the bill, but I think it would 
be the outcome of the bill.
    The fundamental problem in the PAYGO area in this bill is 
the change that would enable projected budget surpluses to be 
used in full to finance tax cuts or entitlement increases, even 
though those surpluses might not fully materialize. CBO 
recently conducted an analysis in which it looked at how close 
to the mark its estimates of deficits or surpluses for 5 years 
out had been over the last--I can't remember now exactly if it 
was 15 years or 20 years, somewhere along that line.
    CBO noted that, if you took the average amount by which its 
forecast was either too high or too low for 5 years out, and 
you applied it as a percentage of GDP to today, it would mean 
that the forecast for 2004, 5 years from now, could be too high 
or too low by somewhere in the vicinity of $250 billion a year 
or more.
    The CBO forecast of the on-budget surplus for 2004 is $63 
billion. Let's suppose that this legislation passed and changes 
were made that consumed those $63 billion between taxes and 
spending. Let's also assume for the moment that the surplus 
projection turned out to be too high by about $50 billion; that 
is a small fraction of the historical average by which the 
forecast has been off.
    The $50 billion overage would require a sequester that 
would entail not only a 4 percent reduction in Medicare 
provider payments, but complete elimination--100 percent 
sequestration--of farm price supports, crop insurance, child 
support enforcement, social services block grants and other 
programs.
    One may say, well, that would not happen, and the idea is 
to get Congress and the President to agree to $50 billion a 
year in savings. But $50 billion a year is about double, or 
close to double the biggest deficit reduction in the first year 
of any major deficit reduction plan Congress has considered in 
recent memory, including the one that was vetoed in 1995, which 
didn't have anything close to $50 billion in first-year 
savings.
    Where I am heading is that faced with a sequester of that 
magnitude, the Gramm-Rudman experience of the late 1980's would 
most likely repeat itself. We would change the targets, we 
would live with the deficits. Fiscal discipline would have been 
weakened.
    Adding to this problem, the bill specifies that in 
projecting the future on-budget surpluses, CBO and OMB are to 
assume that the discretionary spending level for all years for 
which there isn't a cap is a frozen at the level of the last 
year for which a cap exists.
    If that procedure had been used in the CBO forecast that is 
now in use for the period through 2009, it would show a surplus 
forecast about $430 billion larger during that period than the 
CBO forecast we have been using over the last several months. 
That wouldn't be a realistic forecast.
    Congress wouldn't be able to live with freezes that went 
that far out, as the current struggle over the discretionary 
caps is indicating this year. But it would create a bias toward 
the larger tax cuts and entitlement increases now, because the 
projection of the surplus would be greater and then when we got 
to the future, we would be in very serious trouble if those 
outyear numbers for discretionary spending could not be made to 
stick.
    This leads me into a third related problem with the PAYGO 
changes. Under current budget rules, one cannot lower the 
discretionary caps to finance tax cuts or entitlement 
increases. That rests on the very reasonable proposition that 
discretionary caps last only a few years and most tax cuts and 
entitlement increases are permanent. Under this bill, I think 
it is too easy to set unrealistically low caps for the outyears 
or even lower them for the outyears, while making sure there is 
enough money for the current year or two for discretionary 
spending and then getting us into fiscal trouble down the road.
    It is easy to design entitlement increases that phase in 
and don't cost a lot in the first few years. It is easy to 
design tax cuts that pay for themselves by accelerating 
revenues for a year or two, and then lose a lot of money. Under 
this bill it is too easy to have artificially low discretionary 
caps in the outyears that give you the surplus funds to cover 
the entitlement costs and tax increases, but which can't be 
sustained when we get to the outyears.
    The current experience with the caps set under the 1997 
budget agreement, I think should be a warning here about how 
easy it is to set unsustainably low caps in the outyears.
    For all of these reasons, I fear that this bill would lead 
to a significant weakening of fiscal discipline. Does this 
suggest we should maintain the current pay-as-you-go rules 
forever, regardless of the magnitude of a projected on-budget 
surplus? Well, no, that would not be realistic, but it suggests 
to me two steps we could take.
    First, our biggest challenge is not only in policy, but in 
long-term fiscal discipline--where are we going to be, what are 
our budget projections 20, 30 years from now when the baby 
boomers retire and the demands that Social Security and 
Medicare place on the budget will be most severe? I think it is 
unwise to allow the projected surpluses to be consumed before 
we know whether we might need some part of them to work out a 
bipartisan agreement that shores up Social Security and 
Medicare and eases their effect on the budget down the road.
    Secondly, I think even after Social Security and Medicare 
reforms are resolved, it is very unwise to allow 100 percent of 
a projected surplus 5 years down the road to be used now for a 
tax cut or entitlement increase. It seems a more prudent course 
would be to have some percentage--what is the right percentage, 
is it 50 percent; I am not sure exactly what it is, but some 
percentage, not 100 or very near 100--that could be used and, 
better yet, that that percentage be varied.
    A larger percentage could be allowed in the first year or 
two, but the percentage of the projected surplus that should be 
allowed to be spent in this fashion should decline the farther 
one gets into the future because the projections are more 
uncertain; the farther one gets into the future, the greater 
the risk the surpluses wouldn't materialize. That would be a 
much better way to go than a look-back provision, as the 
current bill has, that says, gee, if the surpluses turned out 
not to materialize in the way we projected 5 years earlier, we 
are going to set up a big sequester that probably would never 
happen.
    On the discretionary side, I referred to a tilt in favor of 
tax cuts and entitlements over discretionary that is in part 
what I have already mentioned, the ability to place low or 
reduced cap levels in the outyears to fund tax cuts or 
entitlement increases. It also relates to several other 
provisions in the bill.
    The lockbox provision I think is a troublesome one. It 
would allow the caps to be lowered for all years for which 
there is a cap, whenever either the House or the Senate pass a 
cut in an appropriations bill on the floor, even if the other 
House might reject the cut by such a wide margin that it could 
not be sustained in conference.
    More troubling, it would allow a cut passed on the floor in 
a pork-barrel project that only had a 1-year effect on 
spending, a one-time item, to result in a reduction in the caps 
for every year for which the cap remained. In fact, because of 
that effect, I believe it could make it harder to cut some 
pork-barrel projects, because some Members who otherwise would 
be willing to vote for that cut would not be willing to vote 
for it if the result was a reduction in the caps for every year 
for which a cap remained.
    I recognize that the bill allows a member to designate that 
a cut not go into the lockbox, but I actually think by forcing 
a member to say it does or doesn't go into the lockbox, the 
legislation runs the risk of dividing supporters on the floor 
who might vote for a cut in a discretionary program. It divides 
them between those who are not that interested in voting for 
the cut, if it doesn't reduce overall discretionary spending, 
because they are the shrink-government faction, and those who 
think that it represents good policy but they don't want to 
reduce the caps.
    If Members do not designate a cut as going into the 
lockbox, the shrink-government faction will vote against it; if 
Members go the other way and say it does go into the lockbox, 
some Members who agree it is an unnecessary expenditure will 
vote against the cut because they don't want to lower the caps 
for all years for which there a cap.
    I think the job is to set the caps at an appropriate level, 
enforce them and tighten up on emergency designations, not to 
go the lockbox route.
    I also share the fear of a number other people that 
testified today that a 12-month automatic, continuing 
resolution makes it too easy to have automatic CRs that 
maintain the status quo supplant regular appropriations bills. 
The risk of that is enhanced by the fact that under the joint 
resolution provision of the bill, appropriations bills would no 
longer be able to come to the floor after May, even if a budget 
resolution had not been agreed to. This would mean that in 
years in which there were long negotiations between the 
President and the Congress on a joint resolution, but not a 
veto, the movement of the regular appropriations bills would be 
delayed on the front end; and then if you didn't get them done 
by September 30th on the back end, bingo, you get an automatic 
12-month CR.
    It seems to me that in years for which there are budget 
caps about which there is not big controversy--and most years 
we have had budget caps haven't been like this year; they have 
been years in which the caps have been sustained--why for years 
in which there is a budget cap on discretionary already in law, 
appropriators should be allowed to take their bills to the 
floor by May, as they can today, if a resolution hasn't been 
worked out.
    If there is an interest in doing automatic CRs, they ought 
not to be for 12 months. Maybe they should be for a month. I am 
not sure of the exact time frame, but they shouldn't be for 12 
months, because that makes it too easy for them to substitute 
for regular bills.
    For all of these reasons, I come to the conclusion, as I 
mentioned at the start, that the bill poses some serious 
problems that outweigh its advantages, and that absent major 
changes, it would weaken fiscal discipline, and enhance the 
tilt we already have toward taxes and entitlement spending over 
discretionary spending. It would increase problems more than it 
would alleviate them.
    Thank you.
    Mr. Chambliss. Thank you, Mr. Greenstein.
    [The prepared statement of Robert Greenstein follows:]

Prepared Statement of Robert Greenstein, Executive Director, Center on 
                      Budget and Policy Priorities

    I appreciate the invitation to testify before the committee. I am 
Robert Greenstein, executive director of the Center on Budget and 
Policy Priorities. The Center is a non-profit, non-partisan policy 
institute here in Washington that specializes both in fiscal policy and 
in programs and policies affecting low- and moderate-income families 
and individuals. The Center is funded primarily from foundation grants. 
It receives no Federal funding.
    Some of the provisions of H.R. 853, the Comprehensive Budget 
Process Reform Act, would make useful improvements in the Federal 
budget process. I would take special note of the legislation's proposed 
changes in the budgetary treatment of Federal insurance programs.
    Unfortunately, the legislation also contains provisions that would 
have quite undesirable effects. Various provisions of H.R. 853 could 
make the budget process less efficient than it is today and lead to 
long delays in action on appropriations bills. H.R. 853 also could lead 
to larger reductions in discretionary programs than the reductions 
already envisioned under the 1997 Balanced Budget Act. In addition, it 
could lead to automatic cuts in Medicare and other programs during 
economic slowdowns and weaken budget mechanisms that are preserving 
budget surpluses which may turn out to be needed for Social Security 
reform. Overall, I believe the legislation would damage the budget 
process significantly and that its drawbacks substantially outweigh its 
advantages. I would recommend against enacting this legislation.
     The bill would be likely to squeeze discretionary programs 
inordinately. It would likely have this effect because of the combined 
effect of a number of features of the legislation. H.R. 853 would 
effectively allow the caps on discretionary spending to be reduced to 
pay for tax cuts and entitlement expansions. It also would lower the 
discretionary caps when either the House or Senate passed an amendment 
to an appropriations bill reducing funding for a discretionary program.
     The bill would likely lead to delays in consideration of 
appropriations bills because it would repeal the provision of current 
law allowing appropriations bills to be brought to the House floor 
after May 15 if a budget resolution has not yet been approved; it would 
bar floor action on appropriations bills until work on the budget 
resolution has been completed. Moreover, the bill would lengthen the 
time it takes to finish work on a budget resolution because it would 
convert the resolution into a joint resolution that requires a 
Presidential signature.
     Under H.R. 853, if projected surpluses are used to pay for 
tax cuts and the surpluses subsequently fail to materialize as forecast 
which could easily happen if the economy performs less well than 
forecast or tax cuts turn out to be more expensive than was assumed at 
the time they were enacted cuts in Medicare, student loans, farm price 
supports, and various other entitlements would be triggered through the 
sequestration process.
     The bill would alter the ``pay-as-you-go'' rules, allowing 
projected surpluses in the non-Social Security budget to be used to 
finance tax cuts and entitlement increases before Social Security 
reform is approved and before it is known whether a portion of these 
funds are needed to fashion Social Security or Medicare solvency 
legislation that can secure majority support in both houses.
    I will elaborate on these points below. Before doing so, I would 
like to caution that we should be very careful about making large 
changes in the budget rules established under the Budget Enforcement 
Act of 1990. While it is sometimes said that the budget process is 
broken, most budget experts I know think otherwise and believe the 
Budget Enforcement Act of 1990 has been remarkably effective. The 
regimen it established of discretionary caps and pay-as-you-go 
requirements has been instrumental in helping us get from multi-hundred 
billion dollar deficits as far as the eye can see to budget surpluses.
    When the BEA was enacted, some predicted the discretionary caps 
would routinely be busted by large amounts and the pay-as-you-go 
requirements would not last long. Both predictions proved mistaken. 
That the emergency designation of the law was stretched last fall and 
again in the current Kosovo supplemental reflects the fact that the 
1997 budget agreement set unrealistically austere caps, not that the 
process as a whole has broken down. Moreover, changes to tighten the 
procedures for handling emergencies and making emergency designations 
can be instituted without the more sweeping changes that H.R. 853 would 
make.
    Let me turn to what I regard as the principal shortcomings of the 
legislation.

                    Impact on Discretionary Programs

    Discretionary programs constitute a declining share of the budget. 
At $575 billion in fiscal year 1999, discretionary spending accounts 
for 34 percent of the budget and 7 percent of the economy (i.e., of the 
Gross Domestic Product). The Congressional Budget Office projects that 
if discretionary spending stays within the caps through 2002 and grows 
with inflation thereafter, discretionary spending will decline to 29 
percent of the budget and 5 percent of GDP by 2009. By contrast, 10 
years ago in 1989, discretionary spending constituted 43 percent of the 
budget and 9 percent of GDP.
    Various provisions of H.R. 853 would directly or indirectly place 
additional downward pressure on funding for discretionary programs. The 
bill contains a ``lock-box'' provision that would cause reductions in 
the discretionary caps. After the House and Senate had completed floor 
action on any appropriations bill but before conference on the bill, 
the total amount of funding cuts each chamber had approved in floor 
action on the bill would be averaged.\1\ The discretionary caps would 
be reduced by this average amount for the fiscal year in question, as 
well as for all succeeding years for which a cap has been established. 
These cap reductions would be instituted even if one house had approved 
a cut by a narrow margin and the other house had decisively rejected 
it. As a result, one house's decision to cut a bill would force the 
other house to lower total appropriations without any concordance from 
that other chamber through normal conference procedures.
---------------------------------------------------------------------------
    \1\ A Member offering an amendment on the House or Senate floor 
could specify that the savings the amendment produced not go into the 
lock-box.
---------------------------------------------------------------------------
    In addition, the lock-box mechanism could lead the discretionary 
caps to be reduced by more than the amount needed to ``lock away'' 
savings created by cutting a particular project. Amendments reducing 
funding for an appropriations bill would result in a reduction in the 
discretionary caps not just for the fiscal year covered by the 
appropriations bill but for each fiscal year after that for which there 
is a statutory cap. If appropriations are cut for a one-time project 
say, providing fewer funds for a NASA space-shuttle procurement or a 
particular construction project future cuts in other programs would be 
required.
    (Ironically, one effect of this provision might be to make it more 
difficult to reduce low-priority spending, an effect that is the 
opposite of what the bill's sponsors seek to achieve. Suppose an 
amendment to cut a big-ticket item, such as a NASA procurement, is 
offered. Those who favor the cut are likely to fall into two groups 
those who want to use the savings to shrink government and those who 
want to shift the funds to other areas. Under current rules, both 
groups will join to vote for the cut. Under the procedures H.R. 853 
would establish, the two groups may divide. If the amendment making the 
cut places the savings in the ``lock-box,'' many in the ``reorder 
priorities'' faction may oppose it, as it will shrink the overall 
resources available for discretionary programs. If the amendment does 
not place the savings in the lock box, the ``cut government spending'' 
faction may oppose it. The result could be that fewer amendments to cut 
low-priority spending are approved and more, rather than less, of the 
status quo is maintained. If that occurred, the provision would retard 
efforts to reorder budget priorities.)

 Using Discretionary Cuts to Finance Permanent Tax Cuts or Entitlement 
                               Increases

    H.R. 853 also would enable tax cuts and entitlement expansions to 
be financed by reductions in the discretionary spending caps, since it 
would allow non-Social Security surpluses to be used for tax cuts and 
entitlement increases, and reductions in the discretionary caps would 
enlarge these surpluses. Allowing tax cuts and entitlement expansions 
to be financed by reducing the discretionary caps raises several 
concerns.
    The discretionary caps typically are set for only a few years at a 
time; currently, the caps are in place through 2002. Lowering the caps 
would thus assure savings for only several years. Tax cuts and 
entitlement expansions, by contrast, are usually permanent and often 
grow in cost over time. Allowing policymakers to pay for permanent tax 
cuts and entitlement expansions with reductions in the discretionary 
caps that provide short-term savings could lead to significantly 
smaller surpluses or larger deficits in years to come. In addition, 
because reducing the discretionary caps for future years does not 
itself entail cutting specific programs, it could become too easy for 
policymakers to pay for popular tax cuts or entitlement increases by 
lowering the discretionary caps.
    Moreover, because the effects of reducing the discretionary caps 
are not felt immediately, these caps could be lowered by unrealistic 
amounts to pay for tax cuts, with the result that the caps subsequently 
are raised back up and the anticipated savings not secured.
    The savings in discretionary programs assumed as part of the 1997 
budget agreement may be a case in point. The 1997 budget agreement 
instituted caps to keep discretionary spending at a virtual freeze over 
5 years, requiring substantial reductions in discretionary programs in 
inflation-adjusted terms, with these reductions concentrated in the 
last several years of the 5-year budget period. It now appears the caps 
are unrealistically tight and will probably be raised.
    Exacerbating this problem, the bill specifies that in determining 
the size of the budget surplus and hence the amount available for tax 
cuts and entitlement increases a ``baseline'' must be used that assumes 
discretionary spending is frozen in all future years for which a 
statutory cap is yet to be established, with no adjustment for 
inflation. This represents a departure from current practice under 
which baseline levels for discretionary spending for future years 
without a cap are set equal to the prior year's levels, with an 
adjustment for inflation. Under H.R. 853, the baseline would assume 
large reductions over time in the levels of services that discretionary 
programs would provide. For example, using CBO's inflation assumptions, 
a baseline that contains no adjustment for inflation would assume a 12 
percent cut in service levels after 5 years and a 23 percent cut by the 
tenth year.\2\
---------------------------------------------------------------------------
    \2\ Some historical background may be of use here. After passage of 
the Congressional Budget and Impoundment Control Act of 1974, decisions 
were needed as to how to construct baselines for discretionary 
programs. A debate ensued concerning whether the baseline for 
discretionary program spending should reflect the prior year's level 
adjusted for inflation and population or the prior year's level 
adjusted only for inflation. Some budget experts, such as Robert 
Reischauer--then a high-ranking CBO official--argued the baseline 
should represent the funding level that would maintain current levels 
of service per person--and, hence, that the baseline should adjust for 
both inflation and changes in population. The course of adjusting only 
for inflation was adopted. Current baseline procedures show the levels 
needed to maintain the general purchasing power of discretionary 
programs; under these procedures, discretionary spending as adjusted 
for inflation declines over time on a per capita basis.
---------------------------------------------------------------------------
    Altering the baseline procedures that have been in place for nearly 
a quarter of a century and eliminating inflation adjustments in 
projecting discretionary spending levels, as H.R. 853 does, will make 
budget surpluses look much larger and hence enable tax cuts to be 
substantially bigger. This one provision of the bill would artificially 
swell the non-Social Security surplus by more than $436 billion over 
the next 10 years. (See Table 1.) This could lead to much larger tax 
cuts and entitlement increases that, in turn, could lock in frozen or 
otherwise low levels of discretionary spending, necessitating 
substantial reductions in the levels of service that discretionary 
programs provide, since the tax cuts or entitlement expenses would have 
consumed the resources needed to support discretionary appropriations 
at a more adequate level.
    In fact, under H.R. 853, if tax cuts had been approved that 
consumed the on-budget surplus, subsequent action to raise the 
discretionary caps to facilitate the passage of appropriations bills 
could trigger a sequester of Medicare and other entitlement programs. 
This would make it very difficult to raise the discretionary caps if 
the caps proved excruciatingly tight. In short, H.R. 853 could lead to 
deep cuts in discretionary programs.

                    TABLE 1.--DISCRETIONARY SPENDING: CURRENT BASELINE, COMPARED TO FROZEN BASELINE UNDER NUSSLE-CARDIN-GOSS PROPOSAL
                                                                [In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Fiscal Year
                                                            --------------------------------------------------------------------------------------------
                                                                                                                                                10-year
                                                                                                                                                 total
                                                               2002     2003      2004      2005      2006       2007       2008       2009     2000 to
                                                                                                                                                  2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total discretionary spending:
    Current baseline\1\....................................   $568.4    $583.2    $598.3    $613.9    $629.9     $646.2     $663.0     $680.3   $6,130.7
    Nussle-Cardin-Goss proposed baseline\2\................   $568.4    $568.4    $568.4    $568.4    $568.4     $568.4     $568.4     $568.4   $5,694.7
Nussle-Cardin-Goss baseline, as dollar reduction from           $0.0    -$14.8    -$29.9    -$45.5    -$61.5     -$77.8     -$94.6    -$111.9    -$436.0
 current baseline..........................................
Nussle-Cardin-Goss baseline, as percentage reduction from       0.0%     -2.5%     -5.0%     -7.4%     -9.8%     -12.0%     -14.3%     -16.4%      -7.1%
 current baseline..........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The current baseline assumes that discretionary spending will be at its capped level while the caps are in place, and will grow with inflation
  starting in 2003, when there are no caps.
\2\ Under the Nussle-Cardin-Goss proposal, the baseline would assume that discretionary spending will be at its capped level while the caps are in
  place, and be frozen at the prior year's levels starting in 2003, when there are no caps.

Source: CBO January 1999 Baseline Budget Projections, Assuming Compliance with Discretionary Spending Caps.

                     Delays on Appropriations Bills

    H.R. 853 would be likely to lead to lengthy delays in action on 
appropriations bills. The appropriations committees would be prevented 
from sending appropriations bills to the House floor until work on the 
budget resolution had been completed. By contrast, current budget rules 
allow the House Appropriations Committee to send appropriations bills 
to the floor if action on the budget resolution has not been concluded 
by May 15.
    In addition, the bill would change the budget resolution from a 
concurrent resolution to a joint resolution. Getting the two houses of 
Congress to agree on a budget resolution has often proved to be a 
lengthy process even when the same party controls both houses. 
Developing a budget resolution that also must win the President's 
approval and signature, and would have the force of law, almost 
certainly would be a lengthier undertaking. (H.R. 853 would allow a 
concurrent resolution to be used instead of a joint resolution if a 
joint resolution had passed Congress and been vetoed by the President.)
    H.R. 853 consequently would make the process of passing a budget 
resolution more difficult and time consuming, while barring 
appropriations bills from coming to the House floor until the budget 
resolution had been approved, regardless of how long that might take. 
In many years, floor action on appropriations bills probably would not 
be able to commence until late in the year. In years in which budget 
agreements are delayed, the appropriations committees could lose months 
of valuable time and find themselves under great strain to put together 
and pass bills in compressed timeframes late in the year.
    H.R. 853 would bar action on appropriations bills prior to approval 
of a budget resolution even if statutory caps are in place on 
discretionary spending. Yet such caps make the budget resolution 
largely superfluous insofar as discretionary spending levels are 
concerned. When caps are in place, there is little reason to delay 
appropriations actions for long periods until a budget resolution is 
adopted; most budget resolutions simply adopt the discretionary caps 
already in law. This aspect of the legislation seems particularly ill-
advised.

                              Automatic CR

    H.R. 853 also could make it more difficult in another respect to 
pass appropriations bills. It would establish an ``automatic continuing 
resolution'' that would maintain funding at the prior year's level for 
programs in appropriations bills not enacted when a fiscal year 
commenced. The automatic CR would not expire after a few weeks or 
months, but would last for the full fiscal year unless superseded by 
passage of the appropriations bill in question.
    Although the automatic CR provision is intended to avert government 
shutdowns, its principal effect could be to make it more likely that 
Congress would fail to work out agreements on controversial 
appropriations bills because a year-long CR would kick in 
automatically. The fact that the automatic CR could remain in effect 
for a full year, rather than expiring after a few weeks as most current 
CRs do, would ease pressure to work out agreements on regular 
appropriations bills. Moreover, the automatic CR provision could 
encourage minority Senate factions of 41 or more Senators to use 
filibusters to block appropriations bills to which they objected, since 
doing so would not threaten to disrupt government operations.
    The result could be that automatic CRs would begin to supplant some 
appropriations bills. If so, the effect would be unfortunate. Relying 
upon automatic CRs rather than passing regular appropriations bills 
would reduce government efficiency and effectiveness since it would 
keep Congress from addressing changing priorities. Funding levels for 
programs covered by automatic CRs would be stuck at the prior year's 
level rather than increased for some programs and decreased for others 
to reflect changes in need. Permanent CRs frustrate efforts both to 
fund promising new initiatives and to pare back less-effective, 
outdated, and less-important programs. If this provision of the H.R. 
853 led to more reliance on CRs and fewer enacted appropriations bills, 
the status quo would be reinforced at the expense of more responsive 
and effective government.

                   Effects on Social Security Reform

    The ``pay-as-you-go'' budget rules currently in place require that 
entitlement increases and tax cuts be paid for with reductions in other 
entitlement programs or revenue-raising measures. These rules apply 
whether the budget is in deficit or surplus. Enacted in 1990, the pay-
as-you-go rules have played a large role in eliminating deficits and, 
over the past year, in preserving projected surpluses.
    H.R. 853 would alter these rules to allow policymakers to use non-
Social Security surpluses to finance tax cuts and entitlement 
increases. Offsetting tax increases or entitlement reductions would not 
be needed. Although a provision of this nature may ultimately make 
sense, enacting it now could make it more difficult to reform Social 
Security and Medicare.
    Plans to restore long-term Social Security and Medicare solvency 
may require more resources than the Social Security surplus itself 
provides; some temporary general revenue transfers from the non-Social 
Security surplus to the Social Security and/or Medicare trust funds may 
be necessary to fashion solvency legislation that can pass. If action 
is taken to alter budget rules so the non-Social Security surplus can 
be consumed by tax cuts and entitlement increases before legislation 
restoring Social Security and Medicare solvency is approved, resources 
that may prove necessary for solvency legislation may disappear. That 
could make it more difficult to secure agreement on Social Security and 
Medicare legislation. (It also could mean that whatever Social Security 
and Medicare solvency legislation ultimately is enacted would have to 
contain larger benefit reductions than might otherwise be the case, 
because resources that could have been used to bolster the trust funds 
would be gone.)

               Sequesters If Surpluses Do Not Materialize

    This provision of the bill also poses another problem. Projected 
surpluses in the non-Social Security budget would essentially be used 
as contingent offsets for tax cuts or entitlement increases. If the 
surplus for a fiscal year subsequently turned out smaller than had been 
projected, the tax cut or entitlement expansion financed from the 
projected surpluses would no longer be considered to have been fully 
financed. To secure the needed financing, a sequester that cut Medicare 
and other various entitlement programs (including guaranteed student 
loans, the child support enforcement program, the social services block 
grant, farm price supports, and crop insurance, among others), would be 
triggered unless Congress and the President acted swiftly to fill the 
financing hole by cutting entitlement programs, raising taxes, or 
lowering the discretionary caps.
    This provision of the H.R. 853 poses dangers to Medicare and 
various other entitlements. Policymakers would pass permanent tax cuts 
and/or entitlement increases based on projections of surpluses that 
could prove too optimistic. CBO and OMB deficit and surplus projections 
have been off by large margins in recent years, underestimating 
deficits substantially in some years and overestimating deficits or 
underestimating surpluses in others. If this provision of the bill 
becomes law and paves the way for large tax cuts this year, but 
surpluses subsequently turn out much smaller than current projections 
assume, Medicare and other entitlement programs could face large 
across-the-board cuts unless Congress acted swiftly to pass deep 
program reductions or sizable tax increases.
    For example, CBO's January 1999 forecast shows a $63 billion non-
Social Security surplus in 2004. Congress might pass a tax cut that 
costs $63 billion in 2004 without any offsets and assume the surplus 
would cover it. Suppose that when 2004 arrives, however, the non-Social 
Security surplus for that year is only $5 billion (not counting the 
effects of the tax cut). CBO deficit and surplus estimates made 5 years 
in advance have, on average, been off by more than that amount.\3\ If 
this occurred, the President would have to order an across-the-board 
cut of $58 billion unless Congress passed legislation cutting programs 
or raising taxes by that amount.
---------------------------------------------------------------------------
    \3\ See Congressional Budget Office, The Economic and Budget 
Outlook: Fiscal Years 2000-2009, January 1999, p. 81.
---------------------------------------------------------------------------
    A $58 billion sequester would be larger than the biggest first-year 
savings ever considered in any congressional budget plan of the last 
two decades. It would cut Medicare provider payments by 4 percent and 
entirely eliminate a number of programs, including farm price supports, 
crop insurance, the Social Services block grant, and payments to states 
for the child support enforcement program.
    This would be particularly problematic for another reason as well. 
One of the most common reasons a surplus projection can turn out to be 
too high is that the economy has slowed since the projection was made. 
During economic slowdowns, revenues are lower than forecast, while 
expenditures for unemployment insurance, food stamps, and other 
programs are higher.
    Most economists agree that cutting spending or increasing taxes 
when the economy is weak can push a faltering economy into recession. 
This, however, is precisely what would be required under H.R. 853 if a 
large tax cut or entitlement increase were enacted on the basis of 
projected surpluses but the surpluses failed to materialize because the 
economy weakened. Congress would have to raise taxes or cut spending or 
an automatic across-the-board spending cut would occur while the 
economy already was heading south.
    This feature of H.R. 853 would essentially resurrect one of the 
components of the 1985 Gramm-Rudman-Hollings law most responsible for 
that law's failure. The Gramm-Rudman-Hollings legislation established 
fixed deficit targets, enforced by across-the-board cuts if the targets 
were missed. It ignored the fact that because deficits swell when the 
economy slows and for other reasons beyond policymakers' control, the 
law required deepening cuts as the economy weakened. As a result, large 
sequesters would threaten, especially when the economy could least 
absorb them. Since Congress and the President could not tolerate large 
cuts when the economy weakened or when deficit targets were missed by 
large margins for other reasons beyond policymakers' control, they 
would engage in large-scale budget deception to make it appear as 
though deficit targets would be met when everyone knew otherwise, and 
ultimately, when all else failed and crisis loomed, they would change 
the targets. Eventually, the unsuccessful Gramm-Rudman-Hollings process 
was replaced with the much more realistic and successful procedures the 
Budget Enforcement Act of 1990 established. The BEA has maintained and 
enforced fiscal discipline without requiring fiscal retrenchment when 
the economy weakens or deficit forecasts become more adverse due to 
factors that policymakers cannot control.
    The problems that this feature of H.R. 853 could cause would not be 
limited to periods when growth was slowing. For example, tax-cut 
legislation could turn out to cost more than projected because 
inventive tax lawyers and corporate finance departments found ways to 
create tax shelters Congress had not intended. If tax-cut legislation 
turned out to cost more than forecast and hence was not fully offset, 
H.R. 853 could trigger a sequester of Medicare and other entitlements. 
The sequestration would not touch the tax provisions that had caused 
the problem.
    CBO and OMB forecasts of future surpluses also could prove too 
optimistic for a number of other reasons. CBO has cautioned that its 
surplus forecasts may be off by large amounts if revenues grow more 
slowly than it has forecast. Analysts do not fully understand why 
revenues have grown more rapidly than projected in recent years, and 
they consequently do not know the extent to which the factors that have 
caused this unexpected revenue growth are temporary or permanent. 
Revenue growth in future years could be either lower or higher than CBO 
currently projects and by substantial amounts. If revenue growth turns 
out to be significantly lower but the projected surpluses have been 
used to finance large tax cuts and other expenditures, as H.R. 853 
would allow, deficits in the non-Social Security part of the budget 
would threaten, and large sequesters would loom.
    Similarly, a drop in the stock market would result in lower-than-
expected revenue collections, since less would be collected in capital 
gains taxes. That, too, could trigger a large sequester of Medicare and 
other programs.
    CBO this year devoted a full chapter of its annual report on the 
budget and the economy to the uncertainty of its projections. It warned 
that ``considerable uncertainty'' surrounds its budget estimates 
``because the U.S. economy and the Federal budget are highly complex 
and are affected by many economic and technical factors that are 
difficult to predict. Consequently, actual budget outcomes almost 
certainly will differ from the baseline projections . . .'' \4\ CBO 
reported that if its estimate of the surplus for 2004 proves to be off 
by the average amount that CBO projections made 5 years in advance have 
proven wrong during the past decade, the forecast for 2004 could be too 
high or too low by $300 billion.
---------------------------------------------------------------------------
    \4\ Congressional Budget Office, The Economic and Budget Outlook: 
Fiscal Years 2000-2009, January 1999, p. 81.
---------------------------------------------------------------------------
    This is a reason for exercising caution in the use of projected on-
budget surpluses and not enacting changes in budget rules that allow 
the projected surpluses to be used in full for tax cuts and entitlement 
expansions. If large tax cuts or entitlement expansions are passed but 
surpluses of the magnitude projected do not materialize, H.R. 853 could 
lead to large sequesters of Medicare and certain other mandatory 
programs, large cuts in other parts of the budget, or perhaps most 
likely changes in law to evade these requirements, with the result that 
deficits would return.

                     Emergency Spending Procedures

    H.R. 853's provisions to change procedures relating to emergency 
spending also warrant mention. There is broad agreement that reforms 
are needed in this area, and many of H.R. 853's emergency spending 
provisions seem useful. But these provisions also include several 
questionable changes. Of greatest concern, the emergency and the PAYGO 
provisions of H.R. 853 seem inconsistent; under the bill, emergency 
spending could trigger a sequester of Medicare and other entitlements.
    H.R. 853 would establish an emergency reserve fund, funded within 
the discretionary caps. When a discretionary spending item is 
designated an emergency, funding would come from the reserve fund. (The 
amount placed in the reserve fund would be based on a historical 
average of the annual levels of emergency spending in recent years, 
which would be about $9 billion a year. If, in a given year, 
emergencies required more money than was available in the reserve, the 
budget committees could agree to exempt the additional funding from the 
caps.) This provision would not take effect until the discretionary 
caps are raised so that the caps could be set at a level that takes the 
reserve fund into account.
    While these provisions seem reasonable, they do not mesh with the 
provisions of the bill that can trigger sequesters if on-budget 
deficits threaten to return. Suppose the projected surpluses have been 
used for tax cuts and some spending increases, and a major disaster or 
foreign military involvement occurs that requires emergency spending 
beyond the amount in the reserve. Congress could agree to designate the 
additional disaster or defense spending as emergency spending, but 
because this spending would result in a deficit, a sequester of 
Medicare and other entitlements would be triggered.
    The bill also appears somewhat too restrictive in attempting to 
define what an ``emergency'' is. To be considered an emergency, five 
criteria would have to be met. Two of these criteria are that the 
emergency be both ``sudden, which means quickly coming into being or 
not building up over time'' and ``unforeseen, which means not predicted 
or anticipated as an emerging need.'' The requirement that an emergency 
be both sudden and unforeseen would appear to bar emergency 
appropriations that are intended to address problems that were foreseen 
or developed gradually but turn out to be considerably more severe or 
long-lasting than had been anticipated, such as, potentially, needs for 
additional funding for peace-keeping in Bosnia. If problems such as 
these did not meet the new definition of emergency, other discretionary 
programs would have to be cut when urgent funding needs for matters 
such as these arose.
    The bill also would accord unusual power in implementing its 
emergency provisions to the Budget Committees. Whenever any committee 
approved legislation that sought to designate an item as an emergency, 
the Budget Committees would determine whether the item met the 
definition of emergency and consequently could receive funding from the 
emergency spending reserve. Moreover, it would be very difficult for a 
floor amendment to be offered to fund an emergency need; H.R. 853 
includes no mechanism to handle emergencies through a floor amendment. 
A proposal to offer such an amendment on the House floor would 
generally trigger a point of order.

                       Federal Insurance Programs

    Having been critical of a number of the provisions of H.R. 853, let 
me indicate support for the bill's proposals to change the accounting 
of Federal insurance programs. The Federal budget currently treats 
Federal insurance programs (such as flood, pension, crop, and deposit 
insurance) under cash-based accounting methods. Under these methods, 
the government is credited with revenue at the time the government 
collects insurance premiums and is charged with expenditures at the 
time the government makes claim payments. Under the accrual-based 
accounting methods that H.R. 853 would establish, instead of recording 
the flow of cash each year, the budget would record the risk that the 
government ultimately would have to make payments not offset by the 
premiums it collects.
    The procedures H.R. 853 would establish would reflect the 
government's liabilities at the time the government assumes them. The 
expected net losses the government would incur over the life of an 
insurance contract would be recorded as a cost at the time the 
contractual arrangement was made. This would help policymakers 
understand the true costs of policies affecting government insurance 
programs.
    There are some important concerns about how OMB and CBO would 
estimate the expected net losses that result from insurance contracts. 
For this reason, this change in accounting methods would be phased in 
over 5 years, and studies would be conducted by OMB, CBO and GAO during 
the phase-in period. Two years after the accounting methods were fully 
implemented, they would expire, and Congress could decide whether they 
had been sufficiently successful to continue their use. This seems a 
prudent course to follow.

                               Conclusion

    H.R. 853 contains some improvements in the budget process, such as 
its provisions reforming the accounting of Federal insurance programs. 
Unfortunately, its deleterious aspects are serious and substantially 
outweigh its beneficial aspects. For these reasons, I would strongly 
recommend against enacting this legislation.

    Mr. Chambliss. Let me just say that all the Members here 
have great appreciation, but promise not to tell the Senate 
that you refer to them as the other House. We like to think of 
them as that too.
    I want to, while it is fresh on my mind and you are talking 
about continuing CRs, frankly say, I like what Mr. Penner said 
with respect to putting some sort of penalty provision in 
there. What you allude to is maybe not doing it on a 12-month 
basis, but maybe a 30-day, 90-day--I don't know--basis may be 
preferable also.
    What is your feeling about his idea of making it 95 percent 
of the previous year, or if we did a 30-day CR, maybe do 2 
percent every 30 days, a 2 percent reduction every 30 days? I 
don't know whether that is possible or not. But off the top of 
my head, I am thinking he makes a good point there, that it 
needs to hurt. There needs to be some sort of real inducement 
for Congress to move forward and get the work done.
    What is your reaction?
    Mr. Greenstein. I think Rudy and I have a similar goal 
here. Our concern is that automatic CRs not supplant regular 
appropriations bills.
    I have concerns about his recommendation, however. My 
concern is the following: Under any kind of 12-month automatic 
CR, if there is a minority faction, 41 votes in the Senate that 
can filibuster an appropriations bill--at least filibuster it 
until they are granted something they want--they can throw the 
bill into the automatic CR mode.
    Having the automatic CR have a 5 percent cut in it is not 
necessarily something that would prevent that from occurring if 
those 41 Members were Members who opposed that particular 
appropriations bill, or if they were Members who wanted to 
further lower discretionary appropriations to get more money 
for tax cuts or entitlement increases.
    I think the existing system already puts constraints on 
discretionary spending, especially with the caps. I wouldn't 
favor furthering them by setting up a mechanism where we could 
go to 95 percent.
    I guess I think there is less need for an automatic CR than 
some other people do, but to the degree there is a need, in my 
view, the idea is to make it short-term and temporary, not 12 
months long. If you do that, I wouldn't see the need, and I 
wouldn't favor going from 100 percent down to 95 percent.
    Mr. Chambliss. Does anybody else have a comment on the 
length of the CR?
    Ms. Wait. I will only say, Mr. Chambliss, at one point we 
actually did toy around with the thought of an automatic CR 
that declined in value with every passing month. I am not sure, 
as you said, whether that is practical or not.
    I share the view that automatic CRs ought not to become a 
regular way of doing business and that they ought to involve 
some pain. I would like to see the price increase as time went 
on, if the automatic CR stayed in place. But I don't think that 
a 30-day or 60-day or 90-day automatic CR, with all deference 
to Bob, will answer the problem you are trying to get at. It 
simply puts off for another 30, 60 or 90 days the point when 
the government is going to shut down. The people who are 
sufficiently intransigent once again have leverage, to insist 
on funding for some specific priority. You would continue to 
get this ratcheting-up effect to which we object very much.
    Mr. Chambliss. Mr. Penner, concerning your using CBO 
forecast to value PAYGO versus OMB, Mr. Minge and Mr. Nussle 
are here and may correct me on this, but I think there was some 
sort of constitutional problem in using OMB. If you have any 
thoughts on that or any ideas on that, I am sure that we would 
welcome those thoughts and ideas.
    Mr. Penner. Well, I would be the last to claim that I am a 
constitutional lawyer and that I am able to predict what would 
pass muster with the court.
    I think there are two different issues. One, as you do your 
ordinary management of legislation, now you use CBO estimates. 
Sometimes you direct CBO, as you did in my time there, to use 
the administration's economic assumptions in costing out 
various provisions, but basically it is CBO that does the work 
for you.
    In terms of doing the management of legislation, I think 
that it would be OK to use CBO estimates. There may be a 
problem, because with regard to this provision, you are 
shutting off and turning on PAYGO depending on whether a 
surplus is projected. But I don't really think that this would 
be an issue.
    If you went so far as to have the CBO estimates determine 
whether there was a sequester or not, that is more troublesome. 
However, I do refer in my testimony to the fact that in 
responding to a recession, the Supreme Court left in place the 
notion that CBO could announce a recession and then that would 
expedite certain laws that you would pass.
    I wonder if some kind of arrangement like that might be 
used to enforce some kind of sequester. That is to say, CBO 
wouldn't do it precisely by its estimate, but CBO's judgment 
would put in motion certain privileged legislation that might 
end up with the same result.
    Mr. Chambliss. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. First, let me talk 
briefly about the automatic CR. I appreciate what our 
colleagues are trying to accomplish with that. I opposed the 
line item veto not because of the economic or accounting 
question, but because I thought it was an incredible transfer 
of power from the legislative branch to the executive branch. I 
think to some extent the court concurred with that.
    I thought about it in terms of what a Richard Nixon or a 
Lyndon Johnson from my home State would have used the line item 
veto for. They wouldn't have used it to cut pork, they would 
have used it to legislate, get their legislative agenda 
through.
    At the same time, I have a concern with this automatic CR, 
certainly at the current year's level of the ability of the 
Congress to shift away from the executive, democratic structure 
of government that we have to a parliamentary system of 
government where, if the Congress decides the President is 
never going to agree with them on budget policy, then they can 
say, fine, we will take a painful, but minimally painful 
option, and strip the budgetary power away from the President 
as much as we can.
    I think that is something we have to be concerned about.
    The idea of a 5 or 10 percent reduction which has been used 
in short-term CRs from the past, or the lower of whichever 
House passed in their appropriations bills, I think is more of 
a question of bleeding to death rather than forcing the 
Congress to face up to their ultimate responsibility of passing 
these bills.
    So I think we would be wiser to look at a short term, as 
Mr. Greenstein proposes, or if not that, some draconian 
reduction of 50 percent or whatever is necessary to run the 
central functions of the government, so it makes us do our job.
    I am really even more interested in the changes in the 
PAYGO rules and I have a couple of questions about that, and 
let me just list these out. The first is, don't you think the 
PAYGO rules, since 1990, have worked, and worked if the goal 
was to get our fiscal house in order?
    The second is, do you have any real fear that adjusting the 
PAYGO rules where you can leverage long-term budgetary 
assumptions that could result in potential mistakes and result 
in sequestrations that we couldn't meet, that this is Gramm-
Rudman-Hollings all over again, where we are going to set these 
targets and then not meet them and then exempt everything; and 
in the end result in adding a great deal of debt? And isn't 
this just unshackling us from the fiscal responsibility that 
the 1990 act put in place?
    I was staff here in the 1980's when we passed Gramm-Rudman-
Hollings. I was staff in the Appropriations Committee, and I 
remember talking about this. Jamie Whitten added another line 
to his speech about how he didn't like the Budget Act and he 
was here when it started and he did not think it was a good 
idea, but he complied with it, sort of, and this was going to 
make it worse. And then it took us all the way to the 1990 act 
to do it.
    But the fear I have--and I'm not being critical of my 
colleagues--but, boy, this will just open up the floodgates 
now. We can say we have a 15-year projection of a $4.5 trillion 
unified budget surplus, a $2.8 trillion on-budget surplus. 
Let's go. And I think the likelihood of that occurring is 
highly, highly--I'm highly skeptical of that.
    Mr. Penner. Let me comment on your first point. I agree 
that PAYGO has worked extremely well. Indeed it has worked a 
lot better than I expected it to when it was first passed in 
1990. I thought there would be much cheating and much 
manipulating of the numbers to evade PAYGO rules. There has 
been some of that, mind you, but not a lot.
    But it was very clearly designed to confront a situation 
where we had deficits that had some probability of getting 
totally out of control. And what it did was prevent the 
Congress from increasing that deficit in any way. It didn't 
push them to reduce it, but it prevented them from increasing 
it.
    Now, as the budget balance has changed, it has the effect 
of preventing you from reducing an on-budget surplus. And while 
I am one who thinks it would be good to save a large portion of 
the on-budget surplus, I really don't think that is a policy 
outcome you want to try to build into a budget process.
    Now, I agree that what I am proposing weakens PAYGO quite 
considerably because of the fears that you voice. My greatest 
fear is not the sequesters or the policy reversals that would 
come out of the proposal made by the task force, but rather 
that it would just be ignored like Gramm-Rudman. The goal line 
would be moved. I think that is the most likely result of that 
proposal.
    So that is why I suggest doing it the way they suggest but 
without reversing policies if deficits emerge. In other words, 
bygones would be bygones. But I am the first to admit that that 
weakens the provision quite considerably, and it does make me 
somewhat nervous. But that's the direction I would go.
    Ms. Wait. I may be the only person in town that actually 
represents a substantial group of folks who would like to see 
current PAYGO rules carried forward indefinitely, or the policy 
that likely would produce. That is to say, when I had the 
temerity to write testimony earlier this year urging Congress 
to save 100 percent of Social Security trust fund surpluses, 
the nearly unanimous response I got from my board was, why not 
save 100 percent of all budget surpluses for as long as we have 
surplus projections?
    So my views are not due to any distaste for that policy 
outcome----
    Mr. Bentsen. If I might interrupt you briefly, I introduced 
that amendment when we considered our budget resolution, and it 
didn't fail for a second, but damn close to that.
    Ms. Wait. That position didn't get a whole lot of support. 
I didn't hear a whole lot of rousing applause anyplace else 
when I voiced the sentiment of our board before the Ways and 
Means Committee earlier this year either. Having said that, we 
should not write, nor continue rules we are unwilling to 
enforce or cannot enforce. That is worse in some respects than 
not having any rules at all. We just become scofflaws.
    I don't believe for one minute that Congress is going to 
observe the PAYGO rules as they are written today for any 
prolonged period of time, if we continue to see very large 
surplus projections.
    So the question is, how do you write a different set of 
rules that will operate effectively to impose the kind of 
restraints that we can agree are appropriate? As I said in our 
testimony, I am not sure that Mr. Nussle and Mr. Cardin have 
that absolutely right; and I am sure, having helped to write 
similar legislation in the past, even once you know what you 
think you want to do, you need to sit down and very carefully 
draw a picture of it. You need to make sure your legislation 
will produce the outcome you want it to produce.
    I keep coming back to the fact that I think that this is 
one area where trying to write arbitrary rules for the long 
term may get you in real trouble. I think it is appropriate 
every year, every couple of years, to revisit what we think is 
the appropriate percentage of the surplus to put off the 
reservation. And I am now talking about on-budget surpluses. I 
hope we have all agreed to save the Social Security Trust fund 
surplus.
    I share entirely Bob Greenstein's and Rudy's concerns about 
projections. I think you have to be very careful about spending 
projected money, and I would be for almost any reasonable 
safeguards to keep us from doing stupid things in that regard. 
I think your bill moves in the right direction. But, I think 
that there is some more thought needed in this area.
    But I think you are kidding yourself if you think you can 
actually enforce what is on the books today.
    Mr. Greenstein. In answer to your question, I think, as 
Rudy said, the PAYGO rules have worked well. I think you are 
right that this has a lot of similarities to Gramm-Rudman in 
the way it would play out.
    I think Carol is right, that the current pay-as-you-go 
rules, exactly as they are on the books today, would not endure 
for a long time, in a period of large on-budget surpluses. But 
I don't think the only alternative is the one that is in H.R. 
853, to essentially eliminate those rules other than in a look-
back kind of sense.
    Rudy made the very important point that these rules were 
put in place when we had a period of substantial deficits. I 
worry that we don't remember enough; that we are now entering 
what Rudy's colleague at the Urban Institute, Gene Steuerle, 
sometimes calls the eye of the hurricane. When you look at the 
CBO forecast down the road, I think somewhere between 2020 and 
2030, CBO projects the deficits return and begin to rise pretty 
substantially. And that is a baseline projection of what would 
happen if we saved 100 percent of both the on-budget and the 
off-budget surplus, which we are clearly not going to do. So 
under some other framework those deficits return earlier.
    Given the serious problems we face out there, given the 
somewhat discouraging debates we are having over Social 
Security, where both sides rush to put forward proposals that 
don't touch one hair on anybody's head or raise one penny in 
additional revenue from anybody and just say we will somehow 
pay for it all out of general revenue transfers somewhere down 
the road, I think we have reason to be concerned.
    And this ought to add to our concern, about not completely 
blowing away these PAYGO rules before we know what we are doing 
about these long-term problems that are going to be here when 
the baby boomers retire.
    Mr. Bentsen. I have some other questions, but I assume you 
want to go around the horn.
    Chairman Kasich. Mr. Nussle.
    Mr. Nussle. Thank you very much. You sounded surprised in 
your last comment that Congress would actually try to attempt 
Social Security reform without touching beneficiaries. Don't be 
surprised.
    Mr. Greenstein. I feel a little discouraged, not surprised.
    Mr. Nussle. First of all, I want to thank you for your 
interest and for your testimony and for your careful analysis. 
Right, wrong, or indifferent, I am just happy that we have 
taken a sober moment in time in between budgets to take a look 
at this, and I appreciate all of your interest.
    Certainly you folks are the pillars as far as outside 
influences on the Congress in budget reform, and I want to 
thank you for that, even though we may not agree on every 
single item.
    First, I wanted to visit the issue of PAYGO. One of the 
things that we tried to attempt, Ben Cardin and I, when we 
wrote this, is to be as neutral as possible in the decision 
that will need to be made. And we know it is going to have to 
be made. But we also didn't want to make it today, because it 
is a policy decision. Whether we use it for Social Security, 
whether we use it for Medicare, whether we use it for tax cuts, 
whether we use it for special education, for my farmers back 
home, no matter what it is, it is a policy, political decision 
that needs to be made sometime in the future.
    And instead of attempting to put it into process today and 
game the outcome, we said Congress should decide, which is I 
think the right approach. And when you say it is unwise, Mr. 
Greenstein, to use that, I don't disagree. If you and I sat in 
a room and said how would we spend or use or utilize those 
surpluses into the future, I think we might agree based on the 
testimony we have heard today. Sounds like you would pay down 
the debt, sounds like you would shore up some of those 
accounts. So would I. Unfortunately, we are in a minority of 
people who want to use that.
    So, again, for that reason, we didn't segregate. All we 
knew is that there tended to be agreement in the Congress to 
set aside Social Security; and, therefore, we did that. When 
you talk about not adjusting the PAYGO and being concerned 
about its utilization and how it has gotten us to this point 
today, I again tend to agree with you. However, are you aware 
of how many times since 1990 PAYGO has been suspended and in 
what instances?
    Mr. Greenstein. But I think as Rudy said, and I agree with 
his comment here----
    Mr. Nussle. But just for the record, are you aware of when 
those occurred?
    Mr. Greenstein. I don't know the exact number.
    Mr. Nussle. There are two times that I remember, that I 
have been told about, that are very poignant, and one is 1993, 
the budget agreement of 1993, which the Democrats herald as the 
reason we are here today in surplus; and the other is 1997, 
which is what the Republicans herald as the reason why we are 
here in surplus. Both times PAYGO was suspended.
    So my question to you is, even though you are advocating 
that we should never touch this, this has worked and please 
don't pollute it, haven't we polluted it in the past when it 
has suited our situation?
    Mr. Greenstein. I am not sure exactly what you are 
referring to in 1993 or 1997. 1993 had, on net, both 
substantial entitlement reductions, primarily in Medicare and 
certainly substantial tax increases; and my understanding of 
what happened was we then took all those savings and did not 
put them on the PAYGO scorecard so they couldn't be spent. We 
actually were tougher in 1993 and 1997 than regular PAYGO would 
have required us to be, not more lenient.
    Mr. Nussle. Well, but that is still a change in PAYGO. I 
mean, a different President and a different Congress could do 
the same thing. I am not suggesting you are wrong. Please don't 
misunderstand me. We agree that PAYGO is one of the reasons, 
the caps are one of the reasons why we find ourselves in this 
luxury right now of even being able to have this discussion 
about this ``S'' word called surplus. I understand that.
    But I am just saying that Congress, at its whim, or make 
fit in a reconciliation, can make that change, and has quite 
frequently. In fact, the President's budget that was sent up 
this year would require changes in order for it to fit into 
law.
    So the concern over PAYGO, I think, is a legitimate one. I 
am not suggesting it is not. But to suggest that the decision 
has automatically been made because we are silent on PAYGO, 
because we say on-budget surpluses, basically, Congress can do 
whatever it wants with that.
    Because we are silent on that doesn't mean it is going to 
go for tax cuts. It could go for spending increases; it could 
for entitlements; it could go to pay down the debts, which is 
what you and I would like to have happen. But it is still a 
political decision.
    The second area you talk about is on CRs, and the 
interesting thing that came out in both our task force 
discussion as well as what is coming out here today is that 
there are people who think it is too high at 100 percent, and 
there are people who think it is too low at 100 percent.
    The interesting thing about that is that it probably means 
it is pretty close to on target. Number one, I would suggest, 
or I would ask, what number should it be at, if this is either 
too high or too low? Just saying it is too high or too low I 
think is interesting, but to find a number that works in a 
majority of the Congress, I think, is difficult and that is the 
reason why we came at status quo.
    The second is when you talk about a shorter-term CR being 
more effective. The only thing I can think of, as far as a 
short-term CR being effective, the only reason is because 
brinkmanship, of a government shutdown. The only reason it 
works is because you flow in 3 days, in 1 week, in 10 days the 
lengths of the CR, there will be a shutdown of those services.
    Is there any other reason why a short-term CR is effective? 
Because if that is the only reason why a short-term CR is 
effective, that is not what we want. One of the goals was to 
move away from the brinkmanship of the short-term CR strategy 
and move to one that had a little bit more regular order.
    So those are my kind of questions on CR for you. Do you 
have any thoughts on those?
    Mr. Greenstein. Let me try to respond to several of these. 
I was not saying, I am not sure if other witnesses were, I 
don't think so, that the 100 percent automatic CR figure was 
too low. What I was saying was it was too long, 12 months is 
too long, not that the 100 percent is too low.
    Mr. Nussle. What number, then, would be the right length, 
as far as time?
    Mr. Greenstein. I have some discomfort with the whole 
concept of the automatic CR, because I think it makes it too 
easy to supplant the regular appropriations bills.
    Mr. Nussle. OK. Let us not make it automatic, then. How 
would you operate the CR?
    Mr. Greenstein. I haven't really thought this all the way 
through. I don't know exactly what the best answer is, but I 
think relatively short.
    If the goal of an automatic CR is to avert an actual 
shutdown when agreement can't be worked out, and you cannot 
even get agreement on a short-term CR in the conventional way, 
then I don't know why you would need something more than 30 
days, if even that long.
    Mr. Nussle. What happens at the end to have 30 days, then?
    Mr. Greenstein. It gives you 30 more days to try to work 
something out. I would not favor something where you do an 
automatic CR every 30 days until the whole thing works out. I 
think some of the people who favor an automatic CR look at what 
happened, particularly in the shutdown in 1995 and really don't 
want to repeat that.
    And the question is how much of a risk do we have that we 
would constantly repeat that. I think there is a greater risk 
in this concept of not making the choices we need to make each 
year.
    In my view, already in the current appropriations process 
we don't do enough to decrease funding for programs that should 
be decreased and favor new initiatives that really have merits. 
It is hard enough to get changes because of the inbuilt 
political special interest pressures that are already there. 
And I worry that the whole concept of an auto CR strengthens 
that.
    One other quick point. I guess I view the bill as not being 
silent on PAYGO, because it does change it to remove PAYGO 
entirely with regard to projected surpluses. And I guess I 
don't think the 1993 to 1997 analysis holds. We didn't preach 
PAYGO then. We did more than PAYGO would otherwise be required 
to do.
    Over the years I have been in Washington, particularly in 
the 1990's, over the 1990's I have been in discussions, behind-
the-scenes discussions, bipartisan discussions, on many bills 
where in the absence of the PAYGO rule, at the end of the day, 
both parties and both Houses would have agreed to spend more or 
to cut taxes more.
    And putting aside the particular instance of 1993 or 1997, 
if there is nothing to require fiscal discipline at all, I 
think the bias would be too heavily against the debt repayment 
that you and I want to see. I think there has got to be 
something that is somewhere in between the current PAYGO rules 
forever, despite the magnitude of budget surpluses, and not 
having anything at all. And you should not be able to spend all 
of those surpluses regardless of how uncertain the outyear 
projections are.
    Exactly what it is that fits in between, I don't have a 
precise answer. It would have to be thought through. But I 
think we have to find something in between or we tilt too 
heavily in a direction that it sounds like, with your interest 
in debt repayment, is not where you would want to end up 
either. And while your intention is to be neutral, I think the 
political dynamic it would set in motion would tilt against the 
debt repayment outcome.
    Chairman Kasich. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. I have a couple other 
questions. Let me also say at the outset, I want to make clear 
that there are elements within the bill that I think are quite 
good. I do have concerns about the PAYGO provision in 
particular and the automatic CR.
    I think trying to define emergency spending is quite 
admirable, because that is, particularly as caps get tighter, 
that is becoming a huge loophole. And I think the insurance, 
trying to move to an accrual basis of Federal insurance--and I 
appreciate Mr. Crippen's point that we ought to, if I read your 
testimony correctly, that we ought to be looking at other 
programs, like the military housing, 801 military housing 
programs, and some of those things, which I think are scored 
unlike anything else in the world.
    Let me go back to the PAYGO for a second. I agree with the 
points you made, Ms. Wait, I think your point about looking at 
these things every couple of years. If I had my druthers, we 
would go back and look at the 1997 agreement, because I think 
the worst kept secret in Washington is the caps are going to be 
adjusted later this year and we are all going to try to figure 
a semantical way of not taking credit for that. But while 
multiyear programs don't always work, we should have a 
multiyear game plan, like any business would have.
    In my opinion, it would include staying as close to the 
caps as possible and paying down as much of the debt as 
possible, because I think we have an abnormally high debt 
level. And if we want to increase defense spending, which I 
think we want to, Kosovo notwithstanding but just in other 
areas, and if we want to increase education spending, whatever, 
we should be willing to step up to the plate, tell the American 
people that is what we want to do, and pay for it.
    I think the elimination of the PAYGO rules in this bill is 
too loose. And even if you make the point that it is unlikely 
Congress is ever in the long run going to stay by the existing 
1990 PAYGO rules, I think completely doing away with them goes 
too far in the other direction.
    The question I have is, is it worth exploring maybe looking 
at the Nussle-Cardin proposal and tweaking it a little bit to 
tie in overall debt level? This is something the Europeans have 
looked at with their monetary union. And I'm not sure we want 
to follow that model, but it is something they have looked at 
where they have set certain debt levels as far as their fiscal 
policy in being part of the European Monetary Union. Is it 
something we may want to say that we are not going to just 
include the discretionary side, the nonentitlement side of the 
budget for a look-back, but we include the tax side of the 
budget as well?
    Now, the typical response may be you are about as unlikely 
to repeal a tax cut as you are to cut Medicare, as this would 
require, but what would your thoughts be on that?
    Ms. Wait. Two things. Let me start with the last part of 
your question and reference something Rudy said earlier. In 
1997, when we worked with Mr. Minge and Mr. Barton, Mr. 
Stenholm, and many others to try and put more enforcement teeth 
into the Balanced Budget Agreement, the enforcement was tied to 
assumptions in the budget and the enforcement mechanism, 
affected the revenue side of the budget. It worked similarly to 
what Rudy was describing. It simply would have delayed 
implementation of any changes in revenues that hadn't taken 
effect if you were behind plan.
    That proved not to be the most popular provision in the 
bill. I think you are right. I don't think you are going to go 
back and retrospectively cancel tax cuts. However, Jim Jones 
and Carol Campbell, in 1980, suggested suspending indexing on 
both sides of the budget. There is a certain apparent symmetry 
to that, whether there is logical symmetry. There are things 
you can do if you are interested to delay changes in law that 
haven't already gone into effect from going into effect.
    Having said that, let me go back for just a minute to the 
fundamental concept that I think gets overlooked all too often 
in this whole debate about a joint budget resolution.
    I get kind of hokey when I talk about this, so I hope you 
all will forgive. In our system of government the polling booth 
is supposed to be the market clearing mechanism. That is the 
only place where this government really is accountable. And 
voters can't hold political leaders accountable if they don't 
understand what you are doing. If you can find anybody on the 
streets in any of your districts who purports to understand 
what you are doing in the budget process today, I wish you 
well.
    We need somehow, someplace a process that produces a plan 
for the United States Government. None of us are going to be 
happy with that plan because our system of government doesn't 
produce outcomes that any of us love entirely. Compromises that 
are endemic to anything you-all produce. But you need a plan 
that is understandable. That is why we like nominal dollar caps 
you can measure yourself against caps as time goes on. They 
force you from time to time, Congress and the President both, 
to stand up and be counted if you want to change the levels you 
last wrote into law.
    I know that is a very simplistic set of concepts, but I 
think it is a set of concepts that could help bring political 
accountability to fiscal policy in this country that would be 
highly salutary.
    I would like to see whatever biases you build into whatever 
PAYGO changes you make safeguards against spending surpluses 
that are not going to materialize. But I would like more than 
anything else to see you adopt a process sufficiently 
transparent as to hold you accountable when you say however 
problematic these projections may be, we think X percent of 
this surplus ought to be set aside, before you start spending 
the money.
    When you have all of the other priorities of the Nation in 
front of you, and you all have to stand up and vote, when you 
and the President have to reach some kind of agreement on the 
budget, that is the time to make such decisions. That is the 
way our system of government works. I think that is the genius 
of the joint resolution.
    I think you may have very great difficulty getting the 
first joint resolution enacted; but I think once you do, you 
will have less difficulty than you think enacting subsequent 
resolutions because priorities do change and imperatives alter 
over time. You will have to change the joint resolution before 
you can do the things you want to do as time moves on.
    I think that is a very worthwhile undertaking.
    Mr. Penner. If I understand the practical import of your 
suggestion, it would be something like keeping current PAYGO in 
effect until the debt to GDP ratio reaches 25 percent or some 
number like that.
    Mr. Bentsen. Right.
    Mr. Penner. Well, I guess I very much agree with Mr. Nussle 
that you don't want to build policies like that into the 
process. It may be an excellent policy, but I just think that 
such a provision creates too big a bias in favor of a 
particular fiscal policy even though I would support that 
policy.
    I think what the budget process should try to do is nudge 
the Congress toward fiscal prudence. And I don't think a 
process can push the Congress very far. I think you just nudge 
them. And I guess I would not go as far as you do in advocating 
a very specific surplus policy for that long a time as part of 
the process.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Chairman Kasich. Miss Wait and gentlemen, thank you all 
again very much for being here and providing great insight into 
this process; and I am sure that there will be additional 
questions down the road that we may be calling each of you 
individually on as we proceed down this road. So thank you very 
much for being here.
    I ask unanimous consent to include in the record statements 
prepared by The Business Roundtable, Representative Porter 
Goss, the Concord Coalition, and Bill Frenzel, co-chairman of 
the Committee for a Responsible Budget.
    [The prepared statement of the Business Roundtable 
follows:]

 Prepared Statement of Larry Bossidy, CEO, AlliedSignal, Representing 
                        the Business Roundtable

    Mr. Chairman, as chairman of the Business Roundtable's (BRT) 
Federal Fiscal Policy Task Force, I am very pleased to have this 
opportunity to express my support for Federal budget process reform and 
to comment on the many positive aspects of H.R. 853, the Comprehensive 
Budget Process Reform Act of 1999. I commend Chairman Kasich and the 
members of the House Budget Committee for holding a hearing on this 
important topic and I hope the committee will soon report budget 
process reform legislation to the full House of Representatives for its 
ultimate approval.
    With the enactment of the Balanced Budget Act of 1997, plus the 
higher than expected revenues and lower than projected spending for 
Medicare and other programs, it appears the Federal budget has entered 
a new era of budget surpluses. After more than 30 years of chronic 
budget deficits, the Federal budget is projected to have surpluses 
throughout the next 10 years, which is truly an amazing achievement. 
Congress' work, however, is far from finished. Immediate attention must 
be given to maintaining the fiscal discipline that contributed so 
greatly to these surpluses and to reforming the entitlement programs 
that are the root cause of overspending.
    The BRT also believes this new era of budget surpluses provides 
Congress with a perfect opportunity to undertake a broad overview of 
how Federal budget policy is established. Rather than taking the 
traditional incremental approach to addressing budget challenges, 
Congress, with the support of the Clinton Administration, should commit 
itself to developing a new budget paradigm that stresses continuation 
of budget surpluses, institution of a long-term effort at debt 
retirement, implementation of entitlement reform, simplifying the tax 
code, and consideration of needed solutions to the unfunded liability 
crisis inherent in many Federal programs.
    A new budget paradigm also is needed to help policymakers avoid 
repeating the mistakes of the past and replace political expediency 
with decisions that instill the long-term economic health of the nation 
as the first priority. More government and higher taxes are not the 
answer. Every decision affecting the way taxpayers' dollars are spent 
should be focused on fostering continued low unemployment, low 
inflation, low interest rates, and rising family incomes.
    The current process of crafting the Federal Government's $1.8 
trillion budget is unquestionably complex, time consuming, and 
incomprehensible to the American people. There is also an apparent bias 
within the process that encourages increased spending and penalizes 
efforts to make government less intrusive and more responsive to the 
needs of our nation's citizens. Equally troubling, the current budget 
process does not seem well suited to deal with the emerging issues 
resulting from budget surpluses or the looming challenges of Social 
Security and Medicare reform that threaten our country's economic 
security.
    In our view, budget process reform must focus on three key points: 
(1) help Congress fulfill its past commitments to fiscal discipline; 
(2) improve the ability of policymakers to deal with the unavoidable 
challenges facing upcoming Federal budgets; and (3) promote non-
inflationary economic growth for current and future generations. The 
BRT is pleased to see that H.R. 853 contains a number of provisions 
that move Federal budget process reform in the proper direction. For 
example:
    Giving the budget resolution the force of law. Requiring Congress 
and the President to reach consensus during the early stages of the 
taxing and spending process is an important improvement over the 
current system. Since the current budget resolution does not require 
the President's signature, there are no incentives for the legislative 
and the executive branches to resolve budget and tax differences until 
the end of the fiscal year when a government shutdown becomes a real 
possibility.
    Defining emergency spending. A major flaw with the current 
discretionary spending caps has been the inclusion of an ``emergency 
clause'' that permits spending to exceed those caps in order to address 
natural disasters and international crises. However, this special 
exception has been used in almost every fiscal year as an escape valve 
to avoid the difficult decisions involved in reestablishing spending 
priorities in order to address unanticipated spending emergencies. 
Placing an enforceable definition of what constitutes a ``budget 
emergency'' is long overdue and is one of the most constructive 
improvements that Congress can provide to the budget process.
    Creating an emergency/reserve spending fund. Rather than continuing 
the current practice of spending the full statutory limit, a more 
rational approach would be to have the appropriations process spend 
less than the amount permitted under the discretionary spending caps. 
H.R. 853's provision of creating a reserve fund equal to the average 
``emergency'' spending over the last 5 years seems reasonable and 
prudent. This reserve fund will help assure that budgetary resources 
under the discretionary caps will be available when natural disasters 
and international crises occur.
    Budgeting for unfunded liabilities. The untold story behind current 
budget surpluses is that these cash balances do not take into account 
the trillions of dollars in unfunded liabilities that future Federal 
budgets must address. For example, the Federal Government's future 
unfunded liabilities total more than $14 trillion for Social Security 
and Medicare benefits, $2 trillion in pension and health care costs for 
military and Federal civilian retirees, and $4.9 trillion in Federal 
insurance programs. These unfunded liabilities mean that the Federal 
Government has promised benefits to our nation's citizens, yet there 
are no budgetary resources available to pay for them. Although H.R. 853 
does not require specific reforms to these unfunded programs, the 
legislation creates an important first step by identifying these 
liabilities within the budget process and within the budget document. 
This information, in turn, will help educate policymakers and the 
American people as to the magnitude of the unfunded liability problem 
and will force policymakers to start considering needed structural 
reforms.
    All of these reforms within H.R. 853 are important contributions 
toward improving how Congress and the Administration spend taxpayers' 
money. The current budget process is confusing to the American people 
and these proposals begin the process of streamlining how budget and 
taxing decisions are made.
    However, the Business Roundtable encourages the House Budget 
Committee and the entire House of Representatives to examine additional 
reforms to the Federal budget process that we believe will further 
advance the fundamental changes that are required. For example, we hope 
Members of Congress will consider: (1) restoring a constitutional 
version of the line-item veto; (2) establishing biennial budgeting; (3) 
enacting entitlement spending limits to bring entitlement spending 
under greater congressional control; and (4) establishing a mechanism 
that preserves Social Security surpluses and uses them to help retire a 
portion of the national debt.
    Mr. Chairman, I greatly appreciate your willingness to permit the 
BRT to discuss its views concerning H.R. 853 and the need for 
comprehensive reform of the Federal budget process. The Business 
Roundtable stands ready to assist Congress in any way possible to 
streamline and improve the current budget process. BRT further commends 
the leadership and hard work that Representatives Nussle, Cardin, and 
Minge have shown in fashioning a bipartisan approach that will greatly 
improve the chances of budget process reform being enacted during the 
current Congress. Thank you much for your attention and consideration.

    [The prepared statement of Mr. Goss follows:]

 Prepared Statement of Hon. Porter Goss, a Representative in Congress 
                       From the State of Florida

    Mr. Chairman, I am pleased to be here today to discuss the specific 
proposals outlined in H.R. 853. First, I would like to commend you and 
particularly Reps. Nussle, Cardin and Minge for their tireless efforts 
to develop this bipartisan reform plan. It has been a long road but I 
do think we have a very fine work product one that we should be quite 
proud of.
    As the committee is aware, two of the major pillars of H.R. 853 the 
joint budget resolution and the emergency reserve fund properly fall 
under the jurisdiction of the Budget Committee. I firmly believe that 
the joint budget resolution will provide greater opportunity for 
agreement between the White House and Congress earlier in the process, 
while maintaining the requisite flexibility to move alternatives should 
we disagree. The emergency reserve fund should make sense to most 
Americans who are forced to budget up-front for their own emergencies.
    But I would like to focus most of my comments today on the 
provisions in H.R. 853 that fall under the jurisdiction of the Rules 
Committee. As Chairman of the Subcommittee on Legislative and Budget 
Process, I have been working on reforming our broken budget process for 
several years and I am grateful that we have been able to work so well 
with our counterparts on the Budget Committee. By working closely 
together at the Member and staff level, we have been able to ensure 
that the provisions in our jurisdiction complement the important 
reforms under your watch.
    Mr. Chairman, as you well know, our budget process is broken. As 
Rep. Minge alluded to on the house floor this week, we are 
unfortunately seeing a repeat of last years's omnibus appropriation 
debacle with the emergency supplemental we approved this week. In a 
way, this may be a blessing in disguise as it has placed this sometimes 
arcane subject directly on the radar screen of Members. The cloakrooms 
are buzzing about the need for reform, and H.R. 853 provides a common 
sense, bipartisan answer.
    The Rules Committee-specific elements in H.R. 853 intend to bring 
some overdue accountability to the budget process. We create a 
requirement that committees include a budget compliance statement in 
reports to accompany legislation. The statement would be furnished by 
your committee to indicate whether the bill falls within allowable 
levels of spending. On a bipartisan note, we have added a long time 
proposal of our ranking member, Rep. Moakley, to apply Budget Act 
points of order to unreported bills as well, closing a loophole for the 
larger pieces of legislation that are not reported out of committee.
    I am particularly excited about a provision in H.R. 853 to require 
committees to submit schedules for reauthorizing programs within their 
jurisdiction within 10 years or less. We go further and prohibit the 
consideration of new spending programs unless their duration is for 10 
or fewer years. As the chairman well knows, programs tend to take on a 
life of their own around here and this is an incremental, but 
important, step toward enhanced oversight and committee accountability.
    We also decided to get tougher on ourselves by requiring our 
committee to justify waivers of budget act points of order and to 
estimate the costs of those waivers. We all recognize that waivers will 
be necessary from time to time. However, Members and the public should 
know the reasoning behind the waiver so they can make better, more 
educated decisions about the underlying piece of legislation.
    Finally, we incorporate a number of popular proposals of Members. 
We include a provision long championed by a member of the Budget 
Committee, Rep. Nick Smith, to require an up or down vote on increasing 
the debt limit. By repealing the so-called Gephardt rule in this 
manner, we hope to move toward more sunshine and more accountability. 
We have also established procedures for a spending cuts lock-box to 
``lock away'' savings in appropriations bills a bipartisan provision 
whose time has clearly come.
    Mr. Chairman, the time is ripe for budget process reform. The 
American people recognize the process is flawed and outdated and 
Members on both sides of the aisle are frustrated with the current 
system. H.R. 853 does not answer all the questions and it does not move 
as far in some areas as some of us would have liked. But it is a 
serious, thoughtful and comprehensive approach to a very real problem. 
It is designed to make a difference, and not just a political 
statement. Thanks again for holding this hearing and I look forward to 
working with you in the near future to pass H.R. 853.

    [The prepared statement of the Concord Coalition follows:]

    Prepared Statement of Martha Phillips, Representing the Concord 
                               Coalition

    I am pleased to appear today in support of H.R. 853, a bipartisan 
bill to strengthen the budget process. I am representing the Concord 
Coalition, a nationwide, grassroots bipartisan organization dedicated 
to strengthening the nation's long term economic prospects through 
prudent fiscal policy.

                               Background

    Concord's co-chairs are former senators, Warren Rudman (R-NH) and 
Sam Nunn (D-GA). They, along with our approximately 200,000 members who 
hail from every state, have worked hard in recent years to help build a 
political climate that encourages elected officials to make the tough 
choices required to 1) balance the Federal budget, 2) keep it balanced 
during times of peacetime prosperity, and 3) prepare for the budget 
problems that will occur as the nation's population becomes sharply 
older in coming decades.
    Balancing the Federal Government's books is the single most 
effective policy we have to increase savings, which in turn are the key 
to long term economic growth. Savings provide the capital needed to 
increase the productivity of American workers, something that will 
become especially urgent when the retirement of the huge baby boom 
generation virtually halts growth in the size of the U.S. work force. 
With a fixed-size work force, economic growth and an improving standard 
of living will depend almost entirely on how much we invest in gaining 
additional output from each person working in our economy.
    Concord believes that not only should we put the rest of the 
government's accounts into balance, we should also use the current 
economic, fiscal, demographic and political windows of opportunity to 
address the long-term Social Security and Medicare deficits that will 
accompany the aging of America. These looming and unsustainable 
deficits threaten to undo the hard work and fiscal discipline of recent 
years and undermine our potential for future economic growth.

                         Budget Process Reform

    Given this mission and set of concerns, it should be readily 
apparent why the Concord Coalition strongly supports establishing tight 
fiscal discipline procedures and enforcing them scrupulously.
    The Congressional budget process that has been developed over the 
last couple of decades has helped enormously in improving fiscal 
discipline compared to the situation in the 1960's when there simply 
was no Congressional budget process and only the aversion to increasing 
the public debt to hold things in check. The president submitted his 
budget each year, Congress enacted appropriations, and in most election 
years, tax cuts. Sometime after the dust had settled, a report came 
from the Treasury Department adding up the damage. An obscure two-
person staff attached to the Appropriations Committee was what passed 
for congressional scorekeeping and few people knew what they did or 
thought that it mattered.
    Budget enforcement procedures enacted in 1974 have been continually 
refined through trial and error, the reconciliation process launched in 
President Carter's last year in office, Gramm-Rudman in 1985, mini-
budget summits and establishment of discretionary and mandatory 
aggregates in 1987 and 1988, and the Budget Enforcement Act in 1990. 
These changes have helped Congress manage the political pressures 
inherent in our competitive democratic (small d) political system in 
which the rewards are for reducing taxes and delivering helpful 
benefits, services and public works are more immediate and direct than 
the distant, diffuse and indirect rewards for prudent financial 
management.
    As the authors of H.R. 853 understand, budget discipline require 
observing not just the letter of the law, but also the spirit of the 
law. In other words, no matter now clever the budget mouse trap, it 
will not work without political will. But budget rules and disciplines 
can raise the hurdles and make it more difficult to fling fiscal 
probity aside. H.R. 853 proposes a number of very useful improvements 
in the evolving budget process and changes that are needed as the 
politics of surplus replace the politics of deficit.
    The budget process is complicated, confusion and often confounding. 
The first Congressional budget procedures were drafted largely in 
response to Congress's dismay over the Nixon Administration's 
impoundment practices; and the intention of the budget process in the 
early years was not to reduce the growing deficit, but rather to bring 
information, rationality, and advance planning to Congressional 
enactment of spending and taxing authority.
    Today, the budget process is first and foremost a tool of fiscal 
enforcement. It is a detailed set of rules about what can and cannot be 
done, how and where limits are set. As with discipline in almost any 
situation, it's understood that limits are, on balance, good for us. 
But we often don't like them when they get in the way of what we want 
to do. So the natural response is to test the limits in an attempt to 
get our way without getting caught.
    Looking at the Congressional budget process as it is currently 
practiced, where are changes needed in order to establish and 
enforcement such limits? H.R. 853 addresses the very places where 
budget enforcement has broken down most flagrantly in the recent past--
emergency spending, end-game tactics, scoring of Federal insurance 
programs, creation of new entitlements, and lack of enforcement of the 
existing budget discipline rules.

                          Budget Format Change

    The budget process since 1974 has evolved from one that aimed at 
providing information to one that drives fiscal discipline. The 20 
budget functions provide useful information, but they have nothing to 
do with budget enforcement. Instead, budget discipline is enforced 
through aggregate limits on direct spending, discretionary defense and 
discretionary non-defense spending, revenues, deficits and the debt.
    H.R. 853 would simplify the budget resolution to these aggregate 
categories. Agreements on large aggregates are often easier to reach 
than agreements on the component parts, since all parties can assume 
that their own highest priorities will be accommodated and someone 
else's will come at the end of the list if there isn't sufficient room 
to do everything. Parties to the agreements undoubtedly will have their 
own list of specific spending levels that they assume can be 
accommodated within the aggregates, and under the bill, budget 
functions will continue to be displayed in the committee report for 
informational purposes and will reflect the majority's assumptions.
    However, agreeing at the beginning of the year on the enforceable 
totals for direct mandatory spending, discretionary defense and non 
defense spending, emergency spending and revenues is a vast improvement 
over the current process. These levels will function as decision-
forcing limits. The issue is not ``how much shall we spend?'' but 
rather, ``how shall we divide up the allowable resources?'' The 
proposed change simply makes explicit what has become implicit as 
policy makers have gained experience with budget enforcement.
    Concord is pleased to see that the proposed legislation continues 
to exclude Social Security revenues and benefit payments from the 
aggregate totals for revenue and spending. This is appropriate, since 
the Social Security surplus funds have too long been used to finance 
deficit spending by the rest of the government.

                            Joint Resolution

    I personally have long advocated changing the budget resolution to 
a Joint Resolution that requires the President's signature. The 
allocation of constrained resources is a tough political process, and 
the earlier in the year that agreement can be reached on at least a 
general framework, the better. If the budget resolution continued to 
require function-by-function detail, the Congress and the White House 
would seldom be able to agree on a joint resolution, particularly 
during times of divided party control. However, even with different 
parties in control of different chambers or branches of government, it 
should be possible most years to agree on aggregates.
    The bill provides that if agreement cannot be reached, Congress 
will fall back to the current practice of enacting a concurrent 
resolution, which does not require the President's signature.But if 
agreement can be reached on a Joint Resolution that the president 
signs, then both ends of Pennsylvania Avenue will be more likely to 
cooperate on enforcement, and less prone to driving Sherman tanks 
through loopholes.
    Passage of a joint budget resolution signed by the president should 
also be of considerable help in managing the difficult end-game at the 
close of each session of Congress. Lately, the closing days of the 
session have become a very costly and unattractive combination of food-
fight and budgetary chicken in which the aim of each side seems to be 
to inflict maximum political embarrassment on the other while getting 
as much as possible for one's own spending or tax priorities. In the 
melee, scoring doesn't have a chance to keep pace with the action. 
After the session is over and the dust settles, the results are toted 
up and the taxpayer finally gets an assessment of the damage. A joint 
budget resolution linked to strengthened enforcement procedures could 
help prevent these end-game spending gluts in the future.
    The bill also provides for an automatic continuing resolution to 
provide funding in lieu of any regular appropriation bills that have 
not been enacted before the beginning of the fiscal year. An automatic 
CR should also result in eliminating the worst end-game practices, 
since the threat of shutting down the government will no longer be 
relevant. The bill would set the automatic CR level at the prior year's 
level. Thus some pressure would still exist for those who wished to see 
appropriations for particular programs set either higher or lower than 
the previous year to work out compromises that would result in a 
regular appropriation.

                           Emergency Spending

    Emergency spending, particularly appropriations at the end of the 
session, arguably has become the largest loophole in the Congressional 
budget process.
    The current emergency spending provisions were enacted in 1990 when 
the Budget Enforcement Act was devised. Those of us who were in the 
room in 1990 recall that many long hours of bipartisan effort went into 
trying to write criteria for what would qualify as emergency spending. 
It seemed that for every definition that we attempted, someone could 
come up with an example that we all agreed was truly an emergency but 
somehow didn't fit the proposed definition, or an example that we all 
agreed was not an emergency but somehow did seem to fit the proposed 
definition. At last it was agreed that since Congress and the White 
House undoubtedly would observe the spirit of the budget process, it 
was sufficient to say that an emergency was whatever both Congress and 
the President designated it to be. That has not worked.
    One serious problem has been that not enough is appropriated 
through the conventional appropriations process to finance adequate the 
disaster relief programs. Scarcely a year goes by without a devastating 
fire, flood, drought, earthquake, tornado, hurricane somewhere in the 
nation. About the only things that are predictable about such disasters 
is that they will occur, and that Americans will willingly provide 
assistance to the devastated victims. Over time, the cost of responding 
to these tragedies is also roughly predictable. We don't know what 
disaster or emergency lies ahead, but we must assume that there will be 
one. Yet, year after year, insufficient funds are appropriated through 
the basic 13 appropriations bills to finance even an average level of 
disaster spending. All the allocated discretionary funding get used up 
for other purposes. Then when disaster strikes, it's too late to say, 
``we should have kept some funds in reserve.'' The spending limits have 
already been reached and it is necessary to exercise the emergency 
spending provision.
    Another serious problem is that in the last several months, all 
sense of restraint and proportion regarding the emergency designation 
have broken down. The glut of emergency spending at the end of the 
105th Congress was a major breach of the spirit of the budget process 
and resulted in a hemorrhage of tens of billions of dollars of non-
emergency spending financed out of the Social Security surplus. The 
supplemental appropriation currently in process, which responds to 
unanticipated needs for defense spending related to the Kosovo 
situation, to aid Hurricane Mitch victims in Central America is showing 
every sign of turning into an undisciplined ``pile on.'' The amounts 
requested by the Administration have been doubled, with most of the 
extra funds going to pay for defense spending that normally would be 
provided in the Fiscal Year 2000 appropriations process. Since 
discretionary appropriation limits are extremely tight, Congress is 
succumbing to the temptation to use the emergency spending loophole to 
cram in regular defense spending now in a way that doesn't count toward 
the appropriations limits. Particularly egregious provisions are those 
that expand entitlement spending by rolling back military pension 
reforms. Any notion of enacting offsets to pay for the phony emergency 
items seems to have long since been forgotten.The emergency spending 
procedures, in short, have given way to sheer budget hypocrisy.
    H.R. 853 proposes several useful changes to address the situation. 
The automatic increases in discretionary and mandatory limits to 
accommodate emergency spending would be repealed and any spending that 
exceeds the enforceable limits in mandatory and discretionary spending 
would result in a sequester. A clear procedure for determining whether 
an emergency exists would be established along with a definition of 
what constitutes an emergency: namely that it is needed to address 
``loss of life or property, or a threat to national security,'' and 
that it is unanticipated, which is defined as sudden, urgent, 
unforeseen and temporary. As part of the budget resolution, a reserve 
fund would be set aside in advance of the appropriations process to 
finance emergencies up to a level equal to a 5-year rolling average. 
Finally, a fall back procedure would be established to deal with truly 
extraordinary emergency spending beyond what can be financed through 
the reserve fund.
    In combination, these changes would help to restore budget 
discipline in the case of emergency spending, and the Concord Coalition 
endorses their enactment. Indeed, in terms of sheer dollar amounts, the 
proposed package of emergency spending provisions may be the most 
important part of the bill.

                    Long-Term Insurance Liabilities

    The current scoring procedures do not accurately reflect the long 
term Federal liabilities associated with various government insurance 
programs such as bank and credit union deposit insurance, crop 
insurance, flood insurance, pension insurance, political risk insurance 
(OPIC) and Federal employees' and veterans' life insurance. The 
premiums paid by purchasers of the insurance are booked immediately and 
appear to improve the government's bottom line. But the government's 
obligation to make payments in satisfaction of insurable events do not 
appear on the government's books until they occur. If premiums are too 
low to pay insurance benefits when they come due, the government must 
cut other spending, raise taxes, or borrow from the public to meet 
those obligations.
    H.R. 853 proposes setting up a new scoring and accounting system 
for Federal insurance programs to deal with these problems. It would be 
similar in many respects to the scoring that was devised for Federal 
credit programs in 1990. Insurance programs would, in essence, be 
subject to accrual accounting, and methods would be developed for 
estimating the government's long-term liabilities and integrating these 
estimates into the budget process.
    Experience with developing a new accounting system for Federal 
credit programs shows that while such methodology can be developed and 
successfully implemented, it is not easy to do so. Nevertheless, the 
attempt should be made to update scoring methodology for Federal 
insurance programs.
    The largest Federal insurance programs--Social Security and 
Medicare--are specifically exempted from these new procedures. Yet 
these programs, which will be severely impacted by the aging of our 
nation's population in the next few decades, have enormous unfunded 
liabilities, amounting to XX trillion, if not more. The bill does 
propose that both OMB and CBO report on long-term budgetary trends for 
these large entitlement programs, over a 75-year horizon, analyzing how 
present law and proposed changes would affect spending, revenues, 
deficits or surpluses. However, much of that information is already 
available and has little impact on the willingness of either branch of 
government to address the unfunded liabilities of these two large 
programs.

                     New and Existing Entitlements

    Entitlement programs are the most difficult to manage under the 
budget process since they are guaranteed what ever funds are required 
to meet their obligations, sometimes long after current priorities 
would support them. In contrast, discretionary programs must have their 
funding renewed annually or every few years, and appropriations for 
each discretionary program must compete for scarce resources against 
all the other valid and attractive uses for the same money. Someone 
once suggest a working definition of an entitlement: ``a discretionary 
program that has died and gone to heaven. It always gets its funding, 
never has to go to the Appropriations Committee, and never has to 
justify why it should get money ahead of other programs.''
    H.R. 853 will address this situation in several ways. New 
entitlements would be subject to annual appropriations. Legislation 
authorizing new entitlements lasting longer than 10 years would not be 
allowed. If the Appropriations Committee offsets new discretionary 
programs with reductions in entitlements, it would be held harmless 
through cap and PAYGO scorecard adjustments. Creation of new 
entitlements or expansions of existing ones would have to be justified 
by the Budget Committee. And an oversight review of all programs, 
including entitlements,would be required within a 10 year time frame

                     Spending Government Surpluses

    The prospect of on-budget surpluses raises an entirely new 
dimension to the budget process. The Concord Coalition is very 
concerned about the large unfunded liabilities in the Social Security 
and Medicare programs when baby boomers retire and begin claiming 
benefits. We strongly oppose using Social Security surpluses to finance 
deficits in the rest of the government.
    However, the use of surpluses resulting from revenues and 
expenditures in the rest of the government, excluding Social Security, 
are a different matter. There is room for a legitimate debate over how 
these ``rest of government'' surpluses should be used. Concord would 
assign highest priority to reducing the public debt. We believe this 
would increase national savings available for investments in future 
productivity and would have a greater payoff than most tax cuts or 
government spending. Others disagree and would prefer to use ``rest of 
government'' surpluses for tax cuts, investments in education, 
infrastructure, research and development that promise to spur economic 
growth in the future. And some would choose to use the money to provide 
services that would benefit citizens today.
    H.R. 853 allows for the use of ``rest of government'' surpluses. 
Concord does not oppose this provision. However, we are concerned that 
spending increase or tax cut commitments might be made in anticipation 
of budget surpluses that either do not materialize at all or are not as 
large as expected. The authors of the bill have anticipated this by 
providing that if legislation is enacted that exceeds the actual 
surpluses, a sequester will occur unless the shortfall is made up..

                            Other Provisions

    The bill contains a number of other helpful and useful provisions 
for improving budget discipline and providing timely information. The 
requirement that the Congressional Budget Office produce cost estimates 
of conference reports is particularly helpful. Applying budget 
enforcement rules to legislation that somehow makes it to the floor 
without being reported from committee is another useful provision.
    A 60-vote requirement in the Senate raises the hurdle for bypassing 
budget enforcement points of order, but in the House, rules for 
consideration of legislation frequently waive budget enforcement points 
of order, and there is no recourse for Members who wish to enforce the 
budget process other than to defeat the rule. There is no point in 
having budget enforcement rules if they are constantly ignored. The 
bill addresses this situation by requiring the Rules Committee to 
justify any rule that waives budget points of order. Until such 
justifications become pro forma, this provision might have a dampening 
effect on ignoring budget discipline.

    [The prepared statement of Mr. Frenzel follows:]

    Prepared Statement of Bill Frenzel Co-Chairman, Committee for a 
                       Responsible Federal Budget

    Thank you from myself, and from the Committee for a Responsible 
Federal Budget, for the opportunity to testify on this important 
subject. Because I expect to be out of the country at the time of the 
hearing, this written testimony will have to do for now. However, 
because I believe the Bill, and the reforms, you are discussing are so 
important, I will be glad to sit down with you, or any member of this 
distinguished committee, to review at length any of these matters at a 
mutually convenient time.
    It is my understanding that your hearing will focus on the reforms 
contained in H.R. 853, introduced this year by Mr. Nussle (IA), Mr. 
Cardin (MD) and Mr. Goss (FL), the latter of whom is the Chairman of 
your Process Subcommittee, and others, including yourself, Mr. 
Chairman, and the Chairman of the House Budget Committee. I will also 
refer to the pioneering work done by Mr. Barton (TX) in H.R. 2599 
(1995). H.R. 4142 (1996), and H.R. 2003 (1997), and to some of the 
ideas of the Chairman of the Senate Budget Committee, Mr. Domenici, 
mostly expressed in S. 92 and S. 93, which has now been divided into a 
number of other bills.
    Following the form of the authors' highlights of H.R. 853, provided 
by your staff, my comments are as follows:

                       I. Joint Budget Resolution

    Junking the present Concurrent Resolution, and substituting a Joint 
Resolution which must be signed by the President, is essential to 
making the Budget Process into a serious exercise. The fact that we now 
we have two budgets is source of considerable mischief, and of infinite 
confusion about ``baselines''. One single budget is easier for the 
public to understand. It would create a new level of political 
accountability sadly lacking in the current process.
    It would be easier for the Congress, CBO, OMB and the President to 
deal with. It should move much of the negotiations which now clog the 
end-of-the-fiscal-year period up into the end of the second quarter of 
the year.
    The enforceable discretionary caps long sought by Mr. Barton, and 
supported by Mr. Domenici, would become a matter of law with a firewall 
between defense and non defense spending. We would still strongly 
prefer a 5 or 6 year extension of the caps in the Joint Resolution.
    Reducing the 20 present budget functions to total spending and 
revenue levels with separations for discretionary and mandatory 
spending is a useful simplification, similar to the recommendations of 
S. 93.

                     II. Budgeting for Emergencies

    The requirements of H.R. 853 are essential to bandage one of the 
worst running sores of the current process. When the Congress and the 
President wave the magic wand of ``emergency'' over routine 
expenditures, they give the process a bad name and weaken public trust 
and understanding. No language, outside of capital punishment, is 
strong enough, but this helps.
    We still prefer the stronger protections of Mr. Barton's H.R. 2599.

                            III. Enforcement

    The strengthened enforcement procedures of H.R. 853 are the very 
least that should be considered. Waiver approval, by this committee, is 
another good proposal. I pray the committee will set a strong precedent 
of gimlet-eyed scrutiny and a willingness to say no when it needs to be 
said.

                      IV. Increased Accountability

    This is another set of useful proposals. The 10 year sunset of new 
spending proposals is a particularly good.
    Because of the Senate's lack of a germaneness rule and its 
willingness to amend anything, I am less enthusiastic about having 
separate votes on the debt. Such votes have the odor of accountability 
about them, but, in fact, they have not improved fiscal sobriety in 
budgeting. In my judgment, they simply offer fresh opportunities for 
mischief.

                          V. Accrual Budgeting

    For non-CPAs, it is often useful to peek into the till, but accrual 
accounting is the right way to handle the long term insurance programs 
covered here.
    With respect to protection of Social Security, the provisions are 
important and necessary for public confidence in the American Social 
Contract. Mr. Barton has expressed similar ideas, and Mr. Domenici's 
lock box language is even better.

                   VI. Reducing the Big Spending Bias

    Comparisons with last year's spending is a huge step forward. The 
public will understand the comparisons, and love them!
    Stop-gap appropriations at last year's spending levels may be an 
improvement over the present process. They will protect the Congress 
from its own folly, but they represent a power shift from the 
legislative branch to the executive. We prefer the Barton figure of 
95%, or lower, rather than the 100% in H.R. 853. At 100%, we believe 
that there may be insufficient incentive to negotiate.
    The discretionary savings' lock-box provisions will provide 
incentives for spending reduction amendments, and may be one of the 
great ``sleeper'' provisions of the bill.

                    VII. Pay-Go in Times of Surplus

    It may accurate to describe our committee as elderly and unable to 
think in terms of the modern ``surplus'' economy. Nevertheless, it 
makes me nervous to relax any hard-won restrictive rules. This feature 
may be a reform, but we remain unconvinced of its value. It opens doors 
we would prefer to keep closed. This feature is may be necessary in 
this modern era, and is similar to provision prepared by Mr. Barton in 
his 1998 version which was not formally introduced.

                  VIII. Other Reforms Not in H.R. 853

    1. Biennial Budget--Both Mr. Barton and Mr. Domenici favor. Our 
committee recommended it to Congress in 1994. You may have to consider 
it somewhere in the process of reform. But, in my judgment, Biennial 
budgeting pales in comparison to the many other splendid reforms in 
H.R. 853.
    2. Enhanced Rescission--Since the Court decision on the Line-Item-
Failure, I believe it is now responsible to revisit this subject. The 
committee and I have always thought that, at the very least, a vote 
ought to be required to give a rescission item a proper burial.
    3. Entitlement Caps--Neither H.R. 853 nor Mr. Domenici includes 
this subject. We still stand with Mr. Barton on his 1995 proposal, but 
we harbor no illusions that your committee is going to jump off this 
cliff.
    Mr. Chairman, your committee is engaged in as important a labor as 
the Congress will work on this biennium. The Committee for a 
Responsible Federal Budget congratulates you, and the distinguished 
members of your committee, for this undertaking. Our committee would 
love to term limit itself as soon as a responsible Federal budget is no 
longer an oxymoron. If you can enact what is now before you, you will 
be helping us toward the retirement we so earnestly seek and richly 
deserve.

    Chairman Kasich. And with that, we will stand adjourned.
    [Whereupon, at 3:40 p.m., the committee was adjourned.]

                                
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