CBO

TESTIMONY

Statement of

Donald B. Marron

Acting Director

CBO’s Comments on S. 2381,

the Legislative Line Item Veto Act of 2006

before the

Committee on the Budget

United States Senate

May 2, 2006

This document is embargoed until it is delivered at 9:30

a.m. (EDT), Tuesday, May 2, 2006. The contents may not

be published, transmitted, or otherwise communicated by

any print, broadcast, or electronic media before that time.

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

Mr. Chairman, Senator Conrad, and Members of the Committee, I am pleased to

appear before you today to discuss S. 2381, the proposed Legislative Line Item

Veto Act of 2006, which would provide for expedited legislative consideration of

certain Presidential proposals to rescind budget authority and targeted tax

benefits.

In my testimony this morning, I offer the following thoughts:

 The current process of rescissions (cancellations of budget authority) has

generally had very little net impact on the overall budget.

 S. 2381 would address some of the reasons that the current process is believed

to be limited in its ability to reduce deficits.

 In analyzing such legislation, it is important to distinguish between the visible,

direct effects that the legislation may have (the rescissions that are proposed

and enacted) and the subtle, indirect effects it may have on the legislative

process and fiscal policies.

 It is difficult to predict how S. 2381 would affect the legislative process and,

consequently, whether the changes proposed in the bill would actually

improve fiscal discipline or would simply shift spending priorities to those

favored by the President.

The Current Rescission Process

Following increasingly frequent conflicts between Presidents and the Congress

over funding priorities, which peaked during the Nixon Administration, the

legislative branch reasserted its constitutional control over the power of the purse

with enactment of the Congressional Budget and Impoundment Control Act of

1974. That law instituted a formal process, centered on a concurrent resolution of

the budget, through which the Congress could develop, coordinate, and enforce its

own budgetary priorities independently of the President. The budget law created

legislative institutions to implement the new Congressional budget process: the

House and Senate Budget Committees to oversee execution of the budget process

and the Congressional Budget Office (CBO) to provide the budget committees

and the Congress with an independent, nonpartisan source of budgetary and

economic information. As a check on unilateral action by the President to

impound or cancel appropriated funding, the law established a new rescission

process for controlling Presidential impoundments of funds.

Under the provisions of the 1974 law, the President can propose to rescind

spending authority previously enacted into law. The Congress has 45 days of

continuous session to approve the President’s requests, but it does not have to act

on the proposals. During the 45-day period, the President can withhold the funds
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Table 1.

Rescissions of Budget Authority, Fiscal Years 1976 to 2005

(Billions of dollars)

1976-

1980

1981-

1985

1986-

1990

1991-

1995

1996-

2000

2001-

2005

Total,

1976-

2005

Rescissions Proposed by

the Presidenta

Dollar amount 9.3 27.3 16.7 17.5 2.0 0 72.8

Dollar amount enacted

by the Congress 3.0 15.5 0.2 4.7 1.3 0 24.6

Percentage enacted 32 57 1 27 63 n.a. 34

Rescissions Initiated by the

Congress (Dollar amount) 3.5 11.7 24.3 47.4 25.4 29.8 142.1

Total Dollar Amount

of Rescissions 6.5 27.2 24.5 52.1 26.7 29.8 166.7

Congressionally Initiated

Rescissions as a Percentage

of Total Rescissions 54 43 99 91 95 100 85

Memorandum:

Total Discretionary

Budget Authority 1,291.8 1,965.1 2,304.7 2,614.5 2,708.0 4,140.6 15,024.6

Total Rescissions as a

Percentage of Discretionary

Budget Authority 0.5 1.4 1.1 2.0 1.0 0.7 1.1

Source: Congressional Budget Office based on data from the Government Accountability Office and the

Office of Management and Budget.

Note: n.a. = not applicable.

a. “Rescissions proposed by the President” include proposals submitted under 1974 Act procedures and do not

include other proposed budget authority cancellations.

proposed for rescission. But once that period has expired, the funds must be made

available for obligation.

Presidents have made very little use of the authority to recommend rescissions.

From 1976 through 2005, Presidents proposed about $73 billion in rescissions,

about one-half of 1 percent of the more than $15 trillion in total discretionary

budget authority legislated in those years (see Table 1). Moreover, in dollar terms,

the Congress enacted only about one-third of the proposed rescissions. At the

same time, the Congress initiated considerably more rescissions (that were

ultimately signed into law by the President) than those proposed by the

Administration.
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President Clinton operated under the Line Item Veto Act of 1996, effective on

January 1, 1997, until it was declared unconstitutional by the Supreme Court in

June 1998. That statute had authorized the President to cancel discretionary

appropriations, any new item of direct spending, and certain new limited tax

benefits. In order to overturn such a veto, the Congress would have to pass a

resolution of disapproval within 30 days. The President could veto that resolution

and force an override vote in each House. President Clinton’s 82 cancellations

would have saved about $355 million in 1998 and just under $1 billion from 1998

to 2002. The total savings over five years from cancellations that were not

overturned (by the Congress or the courts) were less than $600 million. By

comparison, total spending and revenues in 1998 were both about $1.7 trillion.

The experience under President Clinton may not indicate how the line-item veto

might have been used in other situations by other Presidents; nevertheless,

President Clinton’s use of the 1996 line-item veto statute is consistent with how

little the 1974 law’s rescission system has been used.

There are a number of reasons for the limited budgetary impact of the current

process. First, under current law, the Congress need not act on the President’s

rescission proposals. Members never have to go on record in favor of or against

items that the President has identified as unnecessary or wasteful. Proponents of a

more effective rescission process believe that strengthening the President’s role

could serve as a deterrent to lawmakers’ inserting into broader legislation

provisions of little benefit to the general public interest. A more effective

rescission process, proponents contend, would make it easier for the President to

eliminate “pork-barrel” provisions that benefit narrow constituencies.

Second, the 1974 law applies to a limited portion of the budget. Presidents may

propose to rescind only discretionary spending, which currently makes up just 38

percent of federal spending⎯a share that may decline even further if mandatory

spending continues its rapid growth.

Third, under current practice, rescissions seem to have been used primarily to pay

for other spending, rather than to reduce spending overall.

Fourth, and perhaps related to the third reason, rescissions often appear to be

focused on spending items for which outlays would be significantly less than

budget authority⎯at least in the first years and possibly altogether. Such budget

authority could be most easily used to offset additional spending without

compromising existing programs.

In assessing the impact of rescissions enacted from 2000 to 2005, CBO estimates

that about half of the amounts rescinded will not result outlay savings. The bulk

of such rescissions applied to the Department of Housing and Urban

Development’s Housing Certificate Fund, which accounted for about one-third of

all rescissions during that period. Those rescissions of housing funds generally

canceled excess budget authority from one of two sources: funds that had
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originally been provided to finance vouchers for the tenant-based program but had

not been used and funds that had been obligated for long-term contracts for

project-based units but ultimately were not needed to pay for those contracts. Just

how much of those funds would have been spent in subsequent years had they not

been rescinded is unclear. (Congressionally initiated across-the-board reductions

in discretionary spending enacted in six out of the past seven years are examples

of rescissions under current law that have clearly reduced outlays.)

Proposals for Change

Persistent deficits and rapid growth in federal spending in the 1980s, most of the

1990s, and now in the 2000s have generated interest in changing the rescission

process to enhance fiscal discipline and improve accountability.

Generally, proposals to reform the rescission process would shift authority back to

the executive branch by enhancing the President’s power to cancel budget

authority. Every President for the past 25 years has advocated some form of lineitem veto. President Reagan advocated such a veto, which he had used while

Governor of California. President George H.W. Bush called for expanded

rescission authority. President Clinton advocated a line-item veto as a candidate

for President and after his election operated under the Line Item Veto Act of 1996

until it was held to be unconstitutional. President George W. Bush advocated a

line-item veto as a candidate and has continued to do so in several of his budget

submissions, including the one for fiscal year 2007.

Reform proposals have taken several forms:

 A constitutional amendment to allow the President to veto portions of bills

presented for his signature.

 Separate enrollment of funding provisions as discrete “bills” once a larger bill

is passed by the Congress. Each provision would be presented separately to

the President for signature, allowing the President to veto some “bills”

according to constitutional procedures while signing the rest.

 Enhanced rescission, which would allow the President to continue to withhold

funds unless the Congress acted to overturn the rescission proposals. That was

the approach adopted in the Legislative Item Veto Act of 1996 and later found

unconstitutional.

 Expedited rescission, which would establish “fast-track” procedures to help

ensure that the President’s proposed cancellations received an up-or-down

vote by the Congress within a specified period of time. Expedited rescission

would not shift as much power to the executive branch as other approaches

described above. Although the President would not have unilateral authority
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to cancel provisions of law, Presidential proposals could not be ignored by the

Congress. This is the approach of S. 2381.

However, most of the proposals for strengthening the rescission process,

including S. 2381, would be unlikely to have a significant effect on overall

spending.

S. 2381, the Legislative Line Item Veto Act of 2006

S. 2381 includes provisions to address many aspects of the current system that are

thought to limit its effectiveness for deficit reduction, including these:

 Provisions intended to prevent rescinded funds from being used to offset

additional spending. The legislation would require that, after enactment of a

rescission bill, the budget committees adjust committee allocations in the

budget resolution to reflect the rescissions and the appropriations committees

revise allocations to subcommittees.

 Explicit authority for the President to propose rescission of new authority for

mandatory spending and targeted tax benefits in addition to discretionary

budget authority.

 Expansion of the definition of budget authority that may be proposed for

rescission to include matters generally referred to as earmarks in legislative

language and committee reports––thus addressing concerns about “porkbarrel” spending.

 Fast-track procedures that would require the Congress to vote expeditiously

on rescissions proposed by the President.

In addition, the bill would authorize the President to defer for up to 180 calendar

days the obligation of any discretionary budget authority that he proposed to be

rescinded. Similarly, the President could defer for up to 180 days execution of any

direct spending proposed for rescission. Those deferrals would not end upon the

Congress’s rejection of the rescission proposals. In contrast, under current

authority, the President may withhold from obligation funds proposed for

rescission for only 45 days (or until the Congress approves a rescission bill if that

occurs sooner).

To the extent that the Legislative Line Item Veto Act would shift power from the

Congress to the President, it might change behavior in subtle ways that are

difficult to predict and observe. For example, the fast-track process for

Congressional consideration of rescission proposals would decrease

Congressional leaders’ control over the legislative process by forcing the

President’s requests to the top of the list of matters for consideration.
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The threat of the President’s authority to propose rescission of discretionary

budget authority and items of direct spending could restrain the Congress from

including some provisions in legislation that it might otherwise have incorporated.

They could even include items of direct spending that might have been added in

order to generate support for overall reductions in direct spending, as is

sometimes the case with reconciliation bills. Conversely, the Congress might

accommodate some of the President’s priorities in exchange for a pledge not to

propose rescission of certain provisions, thereby increasing total spending. As

CBO has previously testified, studies of the line-item veto at the state level have

documented similar devices employed by state legislatures over the years to limit

the budgetary impact of governors’ item-veto authority. Additionally, Members

might find it difficult to obtain support for a bill by including items favored by

other Members but opposed by the President, who might propose rescinding

them. The President’s power to unilaterally defer spending for six months,

thereby effectively canceling some budget authority and some programs

altogether (for which the funding would lapse at the end of the fiscal year), would

be a powerful tool to negotiate passage of the Administration’s spending

priorities.

Moreover, the President’s inclination to exercise his authority to propose

rescissions and to defer obligation and spending may depend on a host of political

factors, including whether he and the Congressional majorities are of the same or

opposing political parties.

Finally, although S. 2381 includes the authority to propose rescissions of new

mandatory spending, it would not apply to existing mandatory spending authority.

Some mandatory programs must be periodically reauthorized, and thus, the

authority in S. 2381 could be used to propose rescissions of the newly

reauthorized spending. However, the largest mandatory programs are

permanently authorized, and, therefore, existing provisions of those programs

would not be within the scope of S. 2381. Those programs now constitute the

majority of the federal budget and are likely to pose significant fiscal challenges

in coming years.

Conclusion

Additional budgetary tools can assist in bringing about budgetary restraint, and

improved accountability is desirable, whether the budget is in surplus or deficit

and whether the amounts involved are large or small. Such tools, however, cannot

establish fiscal discipline unless there is a political consensus to do so, competing

priorities can make such consensus difficult to reach. In the absence of that

consensus, the proposed changes to the rescission process included in S. 2381 are

unlikely to greatly affect the budget’s bottom line.

Moreover, in contemplating the bill, the Congress will have to weigh the potential

for possibly modest budgetary benefits against possible drawbacks, which include

a shift of power to the executive branch and effects on the legislative process.