U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

74–174 DTP 2002

FEDERAL BUDGET PROCESS

STRUCTURAL REFORM

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, JULY 19, 2001

Serial No. 107–14

Printed for the use of the Committee on the Budget

(

Available on the Internet: http://www.access.gpo.gov/congress/house/house04.html

(II)

COMMITTEE ON THE BUDGET

JIM NUSSLE, Iowa, Chairman

JOHN E. SUNUNU, New Hampshire

Vice Chairman

PETER HOEKSTRA, Michigan

Vice Chairman

CHARLES F. BASS, New Hampshire

GIL GUTKNECHT, Minnesota

VAN HILLEARY, Tennessee

MAC THORNBERRY, Texas

JIM RYUN, Kansas

MAC COLLINS, Georgia

ERNIE FLETCHER, Kentucky

GARY G. MILLER, California

PAT TOOMEY, Pennsylvania

WES WATKINS, Oklahoma

DOC HASTINGS, Washington

JOHN T. DOOLITTLE, California

ROB PORTMAN, Ohio

RAY LAHOOD, Illinois

KAY GRANGER, Texas

EDWARD SCHROCK, Virginia

JOHN CULBERSON, Texas

HENRY E. BROWN, Jr., South Carolina

ANDER CRENSHAW, Florida

ADAM PUTNAM, Florida

MARK KIRK, Illinois

JOHN M. SPRATT, Jr., South Carolina,

Ranking Minority Member

JIM MCDERMOTT, Washington

BENNIE G. THOMPSON, Mississippi

KEN BENTSEN, Texas

JIM DAVIS, Florida

EVA M. CLAYTON, North Carolina

DAVID E. PRICE, North Carolina

GERALD D. KLECZKA, Wisconsin

BOB CLEMENT, Tennessee

JAMES P. MORAN, Virginia

DARLENE HOOLEY, Oregon

TAMMY BALDWIN, Wisconsin

CAROLYN MCCARTHY, New York

DENNIS MOORE, Kansas

MICHAEL E. CAPUANO, Massachusetts

MICHAEL M. HONDA, California

JOSEPH M. HOEFFEL III, Pennsylvania

RUSH D. HOLT, New Jersey

JIM MATHESON, Utah

PROFESSIONAL STAFF

RICH MEADE, Chief of Staff

THOMAS S. KAHN, Minority Staff Director and Chief Counsel

(III)

C O N T E N T S

Page

Hearing held in Washington, DC, July 19, 2001 .................................................. 1

Statement of:

Bill Frenzel, Co-Chairman, Committee for a Responsible Federal Budget . 48

Hon. Robert L. Livingston, Member of Congress (retired) ............................ 52

Robert D. Reischauer, President, the Urban Institute .................................. 56

Barry B. Anderson, Deputy Director for Federal Budget Analysis, General

Accounting Office .......................................................................................... 78

Hon. Christopher Cox, a Representative in Congress from the State of

California ....................................................................................................... 84

Susan J. Irving, Director for Federal Budget Analysis, General Accounting Office ........................................................................................................ 87

Prepared statement of:

Chairman Nussle .............................................................................................. 2

Hon. Charles F. Bass, a Representative in Congress from the State of

New Hampshire ............................................................................................ 3

Mr. Frenzel ....................................................................................................... 49

Mr. Livingston .................................................................................................. 54

Mr. Reischauer .................................................................................................. 58

Mr. Anderson .................................................................................................... 80

Ms. Irving .......................................................................................................... 89

Committee for a Responsible Federal Budget: ‘‘Recommendations for Reform’’ .............................................................................................................. 108

(1)

FEDERAL BUDGET PROCESS STRUCTURAL

REFORM

THURSDY, JULY 19, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC.

The committee met, pursuant to call, at 10:25 a.m. in room 210,

Cannon House Office Building, Hon. Jim Nussle (chairman of the

committee) presiding.

Members present: Representatives Nussle, Sununu, Gutknecht,

Toomey, Culberson, Granger, Spratt, McDermott, Thompson, Bentsen, Price, Clement, Moran, and Moore.

Chairman NUSSLE. Good morning. This is the full committee

hearing on the budget with regard to the Federal budget process

structural reform. We have three panels today to discuss the very

exciting topic of budget process reform. I know it’s exciting because

the world press is here, led by Bud Newman, and waiting with

bated breath for exactly what we will decide and what we will discuss here with regard to budget process reform.

Obviously, I am saying that tongue in cheek, because for many

people the process of the budget is probably one of the most frustrating, least understood, easily disregarded and driest topics that

you can possibly want to know about. But I can tell by the Members that are present here today, as well as the interest on the part

of our panelists, that there are quite a few people who are interested in the way the process of our budget works—in some instances, does not work.

For the past 15 years, Congress has made a few attempts to improve the process with limits on spending and other budgetary controls, but there are still weaknesses that remain within this process. Some of the most common criticisms that you hear about the

budget process are inherent weaknesses within the Congressional

budget controls, the ‘‘emergency’’ loophole that remains within the

process, the insufficient attention to long term obligations within

the budget, unrealistic spending levels, lack of control over special

projects or pork barrel spending—you hear a number of weaknesses and criticisms from just about every corner of the Congress

and every corner of the country.

Despite widespread complaints about these weaknesses, Congress has really had very few opportunities to consider structural

reforms. This committee is fulfilling its responsibility to remedy

that. It’s up to the Budget Committee, who has primary jurisdiction over this issue, to make these decisions and to review this and

provide oversight of that process.

2

Just a couple of weeks ago, we held a hearing, as an example,

to examine budgetary enforcement tools such as discretionary

spending caps and Pay-As-You-Go rules. Today, we’re hoping to

build on that by examining ways that you can improve how we

make budget decisions. Our aim today is to identify the basic weaknesses in the current budget process and examine various ways to

strengthen and improve it. We’re going to look at some specific

structural reforms of the budget process, such as joint budget resolution, emergency reserve funds and super-majority requirements

for waiving budget rules.

We’re also going to look at and assess some of the problems

posed by doing what we might refer to as ad hoc reforms that

would, for example, change the frequency with which Congress

makes budgetary related decisions but not the process by which

those decisions were made.

I take the job as chairman of this committee very seriously. I

know that members, all members on the committee take the role

and responsibility of looking at our process very seriously. We are

all committed, including Ranking Member Spratt and all the members of this committee, to fixing and repairing the budget process,

making it the strongest, most honest, most realistic process that we

have possible.

I don’t believe that one reform in and of itself can fix what ails

us. I think that, I believe the best way to approach these reforms

is to look at a number of reforms, try and package them in a realistic vehicle and then attempt to move them through the process.

I will report to you that the administration, in its budget submission, as we may remember, in a title in the budget that was probably the easiest to overlook, because most pored over the numbers

themselves, the administration is interested in moving budget reforms through the Congress. Having had the opportunity to meet

with and work with Senator Domenici during the first part of this

year, I know he has been interested in this. And in my recent conversations with Senator Conrad, he also is aware of and willing to

consider reforms in the Senate.

So we have some fertile ground. It may not be the most fertile

ever, but it’s ground that we have to work with and we should

make some attempts.

With that, let me turn it to Mr. Price for any comments that he

would like to make on behalf of Ranking Member Spratt.

[The prepared statement of Chairman Nussle follows:]

PREPARED STATEMENT OF HON. JIM NUSSLE, CHAIRMAN, HOUSE COMMITTEE ON THE

BUDGET

The Federal budget process has been widely criticized as unenforceable, inefficient, and preoccupied with the short term.

Over the last 15 years, Congress has made a few attempts to improve the process

with limits on spending and other budgetary controls but weaknesses remain.

Some of the most common criticisms of the budget process are:

• Inherent weakness of congressional budget controls

• ‘‘Emergency’’ loopholes

• Insufficient attention to the long term

• Decentralization

• Unrealistic spending levels

• Lack of control over pork-barrel spending.

Despite widespread complaints about these weaknesses, Congress has had very

few opportunities to consider structural reforms.

3

This committee is fulfilling it’s the responsibility remedy that.

Just a couple of weeks ago we held a hearing to examine budgetary enforcement

tools like discretionary spending caps and PAYGO rules. Today, we are hoping to

build on that by examining ways we can improve how we make budget decisions.

Our aim today is to identify the basic weakness in the current budget process and

examine various ways to strengthen and improve it.

We’re going to look as some specific structural reforms of the budget process, such

as a joint budget resolution, emergency reserve funds, and supermajority requirements for waiving budget rules.

We’re also going to assess the problems posed by ad hoc reforms that would, for

example, change the frequency with which Congress makes budget-related decisions

but not the process by which these decisions are made.

I take my job as chairman of this committee very seriously and I know the ranking member, Mr. Spratt shares that feeling. We are both committed to making the

budget process the strongest, most honest possible process.

Mr. PRICE. Thank you, Mr. Chairman. I don’t have an opening

statement and Mr. Spratt will be along shortly.

But I want to commend you for convening these hearings and for

helping the institution take account of how the budget process is

working and how it might be improved. I think it’s useful to look

with an open mind at a wide range of proposals that have been

made. I also think maybe one of the main uses of a hearing like

this could be to point out some of the shortcomings of reform proposals.

You know, we’re sometimes tempted to think that a little tinkering of the rules here and there will work wonders. The fact is that

we need to write the best rules we possibly can for this process, but

we also need to execute those rules responsibly. There’s no substitute for responsibly carrying out our duties. I think it’s an evasion often, to think that endless tinkering with the rules will be a

substitute for that.

So we’ll no doubt discover some of the possibilities and some of

the limitations of reform, and I think we all should welcome that.

I also want to add a personal note of welcome to our former colleagues, Bob Livingston and Bill Frenzel. Great to have you here.

And also Bob Reischauer, who certainly qualifies as a veteran of

the Congressional budget wars. Welcome to all of you, we look forward to your testimony.

Chairman NUSSLE. I ask unanimous consent that members be

given 7 days to submit written statement for the record. Without

objection, so ordered.

PREPARED STATEMENT OF HON. CHARLES F. BASS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEW HAMPSHIRE

Mr. Chairman, thank you for convening this hearing today, and I thank the witnesses for taking the time to appear before us.

Many might quip that budget process reform is the best legislative remedy for insomnia, but in fact it is central to our very role as Members of Congress. Responsible budgeting is the single most important job of Congress, and an effective, efficient budget process is vital to accomplishing that job.

There are several important reform proposals before this and other committees,

and the House will have an opportunity to debate them later in this Congress.

But in my view and the view of many of my colleagues, there is no more important reform than biennial budgeting, moving to the adoption of two-year budget and

appropriation bills.

The case for biennial budgeting is solid:

• It will remove the bulk of budget and appropriations work from election years,

thereby reducing runaway spending and political brinkmanship.

• It will encourage more responsible and long-term budget planning by Congress

and Federal agencies.

4

• It will significantly reduce the time wasted on routine and repetitive appropriations work for both Congress and executive agencies, thereby increasing time for

better and more detailed review and oversight by Congress, and time for other substantive work by both Congress and Federal agencies. • Finally, it will provide greater budget stability for Federal agencies and programs, as well as the states.

As I have already noted to the Chairman, I am concerned that the array of witnesses today and the preparation for this hearing might not result in a fair and balanced attempt to discuss biennial budgeting. In an attempt to bring better balance,

I am including with my statement some testimony and related materials from a series of hearings before the Rules Committee last year.

I look forward to the debate on budget process reform during this Congress, and

look forward to taking important steps forward.

Attachments: Selected testimony and related materials from ‘‘Biennial Budgeting:

A Tool for Improving Government Fiscal Management and Oversight’’, hearings before the House Committee on Rules, February 16 and March 10 and 16, 2000.

PURPOSE OF HEARINGS

The purpose of these hearings is to examine proposals from various Members of

Congress, the Executive Branch and outside experts on establishing a two-year

budget and appropriations cycle in an effort to develop consensus legislation that

will streamline the budget process, enhance programmatic oversight, strengthen the

management of government programs and bureaucracies, and reform Congress.

Most biennial budgeting proposals would require the President to submit a twoyear budget and Congress would consider a two year budget resolution and 13 twoyear appropriation bills during the first session of a Congress. The second session

would be devoted to consideration of authorization bills and for the programmatic

oversight of government agencies.

The Rules Committee’s effort reflects the growing, bipartisan interest among

members of the House and the Senate in streamlining and consolidating the annual

budget process, reducing the number of duplicative votes and allowing more time

for programmatic oversight and management to determine whether taxpayers resources are being put to their best use. Interest in biennial budgeting extends beyond the Congress, including the administration and a wide range of outside groups.

The Rules Committee intends to hold several hearings on this topic prior to developing a legislative proposal for House consideration later this year.

BACKGROUND AND LEGISLATIVE HISTORY

The case for biennial budgeting

Since its inception with the Congressional Budget and Impoundment Act of 1974,

the Congressional budget process has revolved around an annual ritual of development of a non-statutory budget resolution and subsequent enactment of appropriation bills. In some years, mandatory spending and revenue changes have also been

pursued through reconciliation, driven by the budget resolution.

The process of Congressional review of the programs and agencies that comprise

the Federal Government is designed to function in distinct stages meeting specific

deadlines, including: the submission of a budget by the President at the beginning

of a session of Congress; development of the budget resolution by the Congress in

the early Spring; passage of 13 appropriation bills by both Houses of Congress before September 30; and, if required in a given year, completion of reconciliation legislation to effectuate changes in mandatory spending programs and revenues. As an

overlay to this set of actions, the process envisions that authorizing committees will

conduct rigorous, ongoing oversight of Federal programs, embodied in completion of

annual or multi-year authorizations.

The reality in recent years, however, has been much less methodical or organized.

During the 26 year history of the Budget Act, the deadline for completion of the

budget resolution has been met only four times. Since 1950, the requirement for enactment of 13 appropriation bills prior to the beginning of the new fiscal year has

been met only three times (1988, 1994 and 1996). As the calendar has wound down

each year toward the September 30 deadline, legislation has been cobbled together

to ensure funding for agencies and programs at a frantic pace that has crowded out

the legislative schedule, preventing orderly consideration of authorization measures

and sowing mistrust and confusion among the public.

Likewise, the annual process of developing budgets and justifications has kept

Federal agencies on a perpetual budget cycle treadmill, leaving little time to step

back and review the management and effectiveness of the programs they run. ExeVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
5

cuting an annual budget requires nearly three years of combined effort by the Congress and the administration. The Federal Government expends an enormous effort

to prepare, review, submit and ultimately legislate the budget. The process begins

with the President’s budget submission, a document that comprises six volumes and

more than 2,000 pages. This budget is in turn supported by individual budget justifications for each agency and program, which adds exponentially to the sheer

weight and magnitude of the paperwork associated with the budget. For example,

the civil works program of the Army Corps of Engineers has a budget of roughly

$3.7 billion, which makes up only 0.2 percent of the total Federal budget. The annual budget justification for the Corps alone makes up eight volumes of more than

2000 pages.

With regard to the competition for Members’ time and attention, as well as floor

time, the annual budget process places great constraints on the workings of Congress and its committees. As a result, the authorization process has suffered—leaving large portions of the discretionary Federal budget unauthorized each year. This

means that programs which receive taxpayers’ dollars to function each year are not

receiving the careful scrutiny they should get from the committees in Congress with

the greatest expertise. Every year the Congressional Budget Office (CBO) generates

a thick report identifying the programs that are operating without current authorization. In fiscal year 2000, $121 billion in appropriations were provided for 137

Federal programs whose authorizations had expired.

Whereas most of the uncertainty in the Federal budget lies in the area of mandatory spending and revenues, the discretionary accounts for most agencies and programs is actually remarkably stable from year to year. A 1999 CBO analysis indicates that only 4.7 percent of discretionary spending in FY 1998 ($24 billion of the

$531 billion appropriated) actually required annual funding as a result of unpredictable funding patterns. From 1997 to 1998, 70 percent of the 872 spending accounts

that comprise the discretionary portion of the budget saw change of less than 10

percent.

Proponents of biennial budgeting cite all of these trends and facts as overwhelming arguments in favor of making a fundamental change in the way the Federal

budget is developed and implemented. Members on both sides of the aisle, in both

Houses of Congress have concluded that the year-end ‘‘train wrecks’’ and gamesmanship that have characterized nearly every September and October in recent

memory are damaging to the National and the institution and are unnecessary.

On the other hand, those who do not support biennial budgeting have argued that

no process change will alleviate these problems. Further, some have expressed concern that biennial budgeting could actually weaken Congress’ control over and oversight of Federal agencies. In addition, the argument has been made that biennial

budgeting would disadvantage members of the House with respect to their colleagues in the Senate, providing House members with only ‘‘one bite at the apple’’

of allocating Federal funds during their two-year terms. Lastly, concern has been

made about the ability to accurately predict economic conditions for two years, raising the possibility that the current annual process will simply be replaced by a biennial process in name only, as additional supplementals and budget revisions will be

necessary during the second year of the biennium.

Legislative history

Ever since the enactment of the Budget Act biennial budgeting proposals have

surfaced. The first actual legislative proposal was introduced in 1977 by then Representative Leon Panetta of California (H.R. 9077). Since then, more than 50 different variations have been introduced, 10 biennial-budget related provisions have

been reported by a Congressional committee, seven such provisions have passed either chamber and four have been enacted into law. The four that were enacted during the 1980’s included directions for submission of plans for implementation of biennial budgeting and an effort to try biennial budgeting in certain areas of the

budget like the Department of Defense and the Internal Revenue Service. In addition, Congress has adopted two-year funding cycles for committee funding resolutions—the Senate in 1990 and the House in 1995.

More than 40 Congressional or Special Committee hearings have addressed the

topic of biennial budgeting, which has over the years been endorsed or received recommendations for further study by the CBO, OMB and at least five different special

task forces or committees. Biennial budgeting was also a key recommendation of the

1993 Joint Committee on the Organization of Congress and the Vice President’s National Performance Review in 1993.

In the 106th Congress, several variations have been offered including: H.R. 232

by Representative Ralph Regula (R–OH); H.R. 493 by Representative Cliff Stearns

(R–FL); H.R. 2985 by Representative Charles Bass (R–NH) and H.R. 3586 by RepVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
6

resentative Callahan (R–AL). In addition, Senate Budget Committee Chairman Pete

Domenici (R–NM) has introduced S. 92, which has been discharged by the Senate

Budget Committee and reported by the Senate Governmental Affairs Committee.

In addition, Rules Committee Chairman David Dreier (R–CA) garnered 245 cosponsors (200 Republican, 44 Democrat and 1 Independent) on H. Res. 396, a resolution expressing the Sense of Congress that a biennial budget and appropriations

process should be enacted during the second session of the 106th Congress.

President Clinton recommended biennial budgeting in his FY 2001 budget submission. ‘‘The administration anticipates that Congress will continue efforts to reform the budget process during the coming months and urges Congress to consider

two budget process changes in particular—biennial budgeting and expedited rescission authority . . . . Biennial budgeting. Reaching agreement on budget priorities

for two years would provide greater predictability and planning certainty for program administrators and beneficiaries. Making appropriations that cover two fiscal

years would also permit congressional committees to perform their oversight functions in the off-year with less distractions.’’

The State experience

While the nature of the Federal budget is considerably different than that of state

budgets, the experience of state governments can be informative in this area. In

1940, forty-four states practiced biennial budgeting. In 1987, nineteen states practiced biennial budgeting. Twenty-three states currently use a biennial budget cycle,

including two that employ a combination of biennial and annual cycles (Kansas and

Missouri). The twenty-three states include Arizona, Arkansas, Connecticut, Hawaii,

Indiana, Kansas, Kentucky, Maine, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, North Dakota, Ohio, Oregon, Texas, Virginia, Washington, Wisconsin and Wyoming. Nebraska and Connecticut adopted

two-year budgeting in 1987 and 1991 respectively and the idea has recently been

under consideration more recently in Michigan, California and New Jersey.

Of the 23 biennial budget states, including most recently Arizona, 13 have legislatures that meet every year. In these states, the legislature may open the budget for

review and revision in the non-budget year. Twelve states have a biennial enactment of two annual budgets: Arizona, Arkansas, Connecticut, Hawaii, Kentucky,

Maine, Montana, Nebraska, Nevada, Ohio, Virginia, and Wisconsin. Nine states

have a biennial enactment of one biennial budget: Indiana, Minnesota, New Hampshire, North Carolina, North Dakota, Oregon, Texas, Washington, and Wyoming.

Kansas enacts an annual budget but budgets biennially through two annual budgets

for 20 regulatory agencies. Missouri has an annual operating budget and a biennial

capital budget. Twenty of the twenty-three biennial budget states allow for some

form of ‘‘rainy day’’ or emergency contingency fund. Only Arkansas, Kansas and

Montana do not. The average number of appropriation bills states use ranges from

one bill in about a third of the states to 500 bills in Arkansas. Ten states have either two or three individual bills.

Since World War II many states have shifted from biennial budgeting as their legislatures transformed from biennial to annual sessions. Furthermore, states have

also moved away from biennial budgeting due to the unpredictability of Federal

funding for many programs that are joint ventures between state and Federal budgets. However, over the last 10 years states have again begun to examine shifts to

biennial budgeting.

The Defense Department experiment

The Defense Authorization Act for Fiscal Year 1987 mandated that the President

submit a biennial defense budget for fiscal years 1988–1989 and that the Secretary

of Defense report ‘‘on the implications of moving to a two-year budget.’’ At the time,

a two-year budget cycle—authorization and appropriation—for the Pentagon was endorsed by Secretary of Defense Caspar Weinberger, the Congressional Budget Office,

leading research institutions, and Senators Sam Nunn, Ted Stevens and Dan

Quayle as well as Representatives Les Aspin and Ike Skelton The Congress and the

President both favored the change, albeit for different reasons. The major issues

that prompted support for biennial budgeting were the large amount of time consumed by the annual budget process; the perceived redundancy in the defense authorization and appropriation processes; the perceived lack of general defense policy

review; and the perceived need for more effective oversight of Department of Defense programs.

As required, the Reagan Administration submitted a biennial defense budget in

1987. However, despite the support of both branches, Congress subsequently authorized only part of the two-year budget and appropriated only one year of it. The two

year budget that the Pentagon submitted in January 1987 became enmeshed in a

7

partisan struggle between the Democratic Congress and the Republican President

over national priorities. This struggle led to a budget summit in the Fall of 1987

which led to the single year defense appropriation bill for fiscal year 1988.

While Congress did not avail itself of the opportunity to experiment with the implications of a biennial defense budget, the Pentagon did prepare and submit a two

year budget. Dr. Robert J. Art, Herter Professor of International Relations at Brandeis University and a research associate at Harvard’s Center for International Affairs has produced the only academic evaluation of the Federal experiment with biennial budgeting and its adoption in the Defense Department (‘‘The Pentagon: The

Case for Biennial Budgeting,’’ Political Science Quarterly, 1989). Art called this experiment a ‘‘half success.’’ Since Congress refused to authorize and appropriate

funds on a biennial basis, agency stability was not enhanced. Nevertheless, Pentagon comptrollers and service programmers unanimously agreed that biennial budget

preparation was beneficial. Art found that the two-year schedule reduced problems

associated with overlapping budget cycles and enabled the introduction of analyses,

evaluations, and plans widely viewed as having improved agency operations. He

wrote that biennial budgeting allowed Department of Defense officials time ‘‘to do

things they should have been doing but never could do because of the rat race of

annual budgeting.’’

Art further contended that, although specifying dollar amounts in a biennial plan

is difficult, gains associated with better evaluation and planning are not trivial. Biennial budgeting’s procurement savings are much more easily calculated—per unit

savings could be 50 percent or greater for some weapon systems. In his view, betterquality decisions and more efficient resource utilization are the ultimate benefits of

biennial budgeting.

PREPARED STATEMENT OF CONGRESSMAN J. DENNIS HASTERT, SPEAKER OF THE

HOUSE

Mr. Chairman, Mr. Moakley, and Members of the Rules Committee—Thank you

for asking me to open your important hearings on biennial budgeting.

First I would like to commend the Members of this Committee for their diligent

service to the House in moving bills to the floor on an almost daily basis. I understand the committee has strange hours, and you are sometimes tempted to just lock

the door, but the House is grateful for your service.

As the House was concluding the appropriations cycle at the end of last year, you

Mr. Chairman, along with Chairman Young of Florida, and other members of this

committee on a bipartisan basis, introduced a resolution calling on the Congress to

enact a biennial budget process in the second session of the 106th Congress.

Mr. Chairman, I commend you for initiating this inquiry and beginning a public

dialogue on this subject. The current budget process is broken, and we need to fix

it.

Since I became Speaker last year, I have emphasized the need for Congress to

do its job under the Constitution. The public respects us when we get our work done

on time and in a credible fashion.

When I came to Congress, I was not sure if I would ever see a balanced budget

in this town. We are fortunate to live now in a time of budget surpluses. These

budget surpluses have been created by hard-working Americans, investors, and are

also the result of positive legislation enacted by the Congress and the President in

recent years. However, despite the positive budget forecasts, we continue to do business under antiquated budget rules and procedures.

It has become clear that we can’t do our jobs with the current cumbersome budget

system in place. Every year, the appropriations process consumes a great deal of

our time, with numerous and lengthy debates, and often repetitive votes.

Appropriators are obviously consumed with grinding their bills through committee, the floor, the Senate, and seemingly never-ending conferences with the other

body.

All too often, these conferences in particular are consumed with non-budget, nonappropriations policy issues. This, of course, soaks up the time of congressional leaders, executive branch budget experts, appropriators, and of course, authorizers

whose laws these amendments often effect.

A biennial budget process would free up more time an the calendar for thorough

consideration of authorizing measures.

Under House rules, appropriations bills must conform to authorizing legislation.

But all too often, we dispense with those rules because the authorization bills don’t

get enacted. We need to restore the power and the purpose of the authorizing committees.

8

Mr. Chairman, I served on authorizing committees in the House and I have observed first hand the difficulty of moving bills through the House and getting them

considered in the Senate. It is frustrating and hard work. I am sure most authorizing chairmen are used to hearing the phrase, ‘‘get in line behind the appropriators’’

when they ask the leadership for floor time in both the House and the Senate.

If we have a biennial budget process, the authorizing committees won’t have to

get behind the appropriators anymore.

The House through its committee system must also do a better job of conducting

programmatic oversight and management of the vast accounts of the U.S. government. One of the powers of Congress is the power of the purse, and we need to ensure that we have a system in place, which allows us to carefully scrutinize the programs we fund.

Programmatic oversight is a critical feature of Congress funding and lawmaking

process. In a bipartisan manner, it allows us to shine the spotlight on how and

where the executive branch is spending the money we appropriate.

Biennial budgeting would give congressional committees the ability to devote

more time and resources to programmatic oversight. This must be a thorough and

ongoing process, and I have found that it is most successful when conducted in a

bipartisan manner.

Mr. Chairman, another area that a biennial budget process would improve the

current system would be in the area of budgeting for emergencies. I am sure many

of the Members here remember the catastrophic Mississippi River flood from 1993,

and the difficulty of moving the supplemental appropriations for flood relief through

the Congress. Other natural disasters occur, and create pressure to move expensive

legislation quickly. Unanticipated military operations, such as our intervention in

Kosovo last year, also create the need for supplemental appropriations bills during

the fiscal year. Biennial budgeting would force the Congress and the President to

plan ahead for unanticipated needs.

Mr. Chairman, the U.S. government should follow the model of 23 states who

have a biennial budget cycle,

The President’s budget, just two weeks ago, recommended that the Congress enact

biennial budgeting. Your sense of congress resolution in support of biennial budgeting has garnered the support of 244 Members of the House, which spans the ideological spectrum and includes authorizers and appropriators.

I urge you to use your expertise in the rules and procedures of Congress, work

with the House Budget Committee and with the Senate, continue to work in a bipartisan fashion, and produce a biennial budget package for the House to consider.

Mr Chairman, thank you for the opportunity to appear before your committee

today.’’

PREPARED STATEMENT OF CONGRESSMAN C.W. BILL YOUNG

Mr. Chairman, it is a pleasure to appear before your panel to give you my

thoughts on biennial budgeting.

The fiscal year 2001 budget is the 27th budget I will have worked on since I

began serving on the Appropriations Committee. During nearly every one of those

budgets, my committee was either rushed for time or was late in completing its

work or both. We receive the budget in early February. By this time, over one-third

of the fiscal year is gone, and we have less than eight months to get all the appropriations bills enacted.

My committee is supposed to receive its overall allocation against which we mark

up our appropriations bills by April 15th. I am not going to provide the history of

how many times the Congress has been able to do that, but the record is very bad.

The reason is that it’s hard to do a budget resolution given the conflicting priorities

that are inherent in the effort and the fact that we have had a divided government

for most of the recent past. Even if we got a budget resolution completed by April

15th, we have less than five and one-half months left to get our work done.

This year we are trying to get the budget resolution done by March 15th. As you

can see by the calendar, that would leave still only six and one-half months for appropriations. This would be better, but may not be enough.

I think we need more time than this to develop and enact appropriations bills.

This is why we should take a look at how biennial budgeting might help us.

I believe that any biennial budgeting legislation should be developed to provide

additional time for Congress to consider appropriations bills. Whether this might

mean moving the date for budget submission back, shortening the time for development of a budget resolution, or moving the beginning of the fiscal year ahead or a

9

combination of all of these, I don’t have a preference. I just feel that we need more

time for the appropriations process.

While doing this might seem like we’re taking more time on appropriations rather

than less, which is one of the assumed goals of biennial budgeting, we would really

be freeing up legislative time. This is because even though we need more time during a year for appropriations, we would only have a major appropriations effort

every other year. The off years would be devoted to oversight and authorizing work

plus some fine tuning of the appropriations bills we passed the year before.

While my main reason for looking at biennial budgeting is to get more time for

the appropriations process, one of the stated reason of others I have heard has been

to give more time for oversight and authorizing activities. One of the reasons appropriations takes so much time is because so many programs are unauthorized at the

time we consider appropriations for them. The controversial legislative issues get inappropriately included in appropriations bills rather than authorizing bills. I strongly believe that any biennial budgeting legislation should not only address the budget

schedule of the Congress, but also the authorization process. If all that biennial

budgeting achieves is a two year appropriations cycle, we will be as bad off with

the two year appropriations bills as we are with the one year bills.

We need multi-year authorizations, and we need them in advance of the consideration of appropriations bills in order for biennial appropriations to work. While biennial budgeting will give additional time for oversight by authorizing committees,

they must develop and get enacted authorizing legislation with this extra time.

I want this committee to know that the Appropriations Committee also does a lot

of oversight. We will continue to do a lot under a biennial budgeting calendar. I

think it would be good for the authorizing committees to do more, too. But, they

need to use the information they learn to review and modify the permanent legislation that’s on the books and to pass authorizations to appropriate. Requirements to

bring this about should be included in any biennial budgeting legislation.

I have also heard that biennial budgeting legislation might become the vehicle for

other budget process reform. I want to make sure this committee understands that

we need reform that will serve the American taxpayer better. I would urge you to

be very careful not to load up any biennial budgeting legislation with other controversial budget process legislation. Support for and the success of any biennial legislation may well be contingent on what else, if anything, might be included in this

legislation.

For the reasons I outlined, I believe that now is a good time to look at implementing biennial legislation. I urge the committee to hear from a broad range of experts

on the matter. Listen to their concerns and see if we can improve the budget and

appropriations process.

Thank you for the opportunity to testify.

I would be happy to answer any questions you may have.

PREPARED STATEMENT OF JACOB J. LEW

Mr. Chairman, and Members of the Committee, I am pleased to be here this

morning to discuss biennial budgeting and other budget reform proposals.

This administration has strongly supported many reforms to improve the efficiency and effectiveness of the Federal Government. Beginning with the Vice President’s National Performance Review in 1993, the administration has sought to reinvent the Federal Government, so that it will work better and cost less.

We have already seen a number of successes. For example, since President Clinton took office, the number of Federal, executive branch civilian employees has

dropped by over 360,000 to the lowest level in 39 years. In addition, when the administration took office, the Federal budget routinely ran deficits of well over a hundred billion dollars per year, deficits then projected to continue into the indefinite

future. This trend has been decisively reversed, with the Federal budget running

a surplus in the last two fiscal years—FY 1998 and FY 1999. Prior to these surpluses, the last balanced budget had been in fiscal year 1969, and the last time that

the Federal Government had two consecutive balanced budgets was in fiscal years

1956 and 1957.

The fact that we are running a surplus does not mean, however, that fiscal discipline is no longer needed. To the contrary, fiscal discipline is essential to protect

Social Security and strengthen Medicare, so that both will be there in the years

ahead. Reducing the accumulated Federal debt will help us to protect these important programs, improve our ability to respond to future fiscal problems or crises,

lower both interest rates and Federal interest costs, and encourage continued strong

economic growth. Accordingly, the Presidents’ Budget for Fiscal Year 2001 proposes

10

a new framework for the budget process that includes tools for ensuring continued

fiscal discipline. These tools include a Social Security Solvency Lockbox to ensure

that Social Security surpluses are not used for other purposes, as well as measures

to strengthen Medicare and reduce the publicly held debt. In addition, the framework proposes to extend to 2010 both the ‘‘paygo’’ and discretionary spending caps

enforcement mechanisms.

In this context, the administration continues to believe that biennial budgeting offers a management tool with potential to contribute to the enhanced performance

of the Federal Government. In 1993, Vice President Gore’s ‘‘Report of the National

Performance Review’’ proposed moving to biennial budgeting. The potential benefits

of biennial budgeting were also outlined in testimony presented by two of my predecessors as OMB Director—Leon E. Panetta and Franklin D. Raines—in their testimony before the House Governmental Operations Committee (in 1993), the Senate

Rules Committee (in 1994) and the Senate Governmental Affairs Committee (in

1997).

Most recently, the President’s FY 2001 Budget states that ‘‘Reaching agreement

on budget priorities for two years would provide greater predictability and planning

certainty to program administrators and beneficiaries. Making appropriations that

cover two fiscal years would also permit congressional committees to perform their

oversight functions in the off-year with less distraction.’’

In their testimony in support of biennial budgeting, OMB Directors Panetta and

Raines focused on its potential benefits. I would like to first reiterate the substantial

advantages of biennial budgeting. In addition, given the serious consideration being

given to biennial budgeting this year, it is particularly important to discuss some

of the practical considerations for biennial budgeting to succeed.

The potential benefits from biennial budgeting can best be appreciated by considering what happens nearly every fall under the current process. During the months

of September and October, Congress and the administration are typically negotiating final appropriations levels for the new year and reaching agreement on one or

more continuing resolutions. Simultaneously the agencies and departments of the

Executive Branch are beginning the new fiscal year operating under continuing resolutions while also expending great amounts of time developing their budget requests for the subsequent fiscal year.

The current process does not serve us well. It is very inefficient, and the task of

budgeting consumes a great deal of time and energy that could be better devoted—

by the Congress, the President, and the agencies—to addressing programmatic

issues from a longer-term and more in-depth perspective. In sum, the primary potential benefit from biennial budgeting is that, by concentrating budget decisions in

the first year of each two-year period, time would be freed up in the second year

that could be redirected to management, long-range planning, and oversight.

These are familiar arguments that have helped build the growing interest in biennial budgeting. By contrast, many of the criticisms of biennial budgeting focus on

concerns about how it will function in practice. These important concerns must be

kept in mind when crafting legislation. Because of growing support for biennial

budgeting, I want to spend time on problems that could arise under it, and the challenges that the Congress and the Executive Branch will have to address to ensure

that it succeeds.

First, for biennial budgeting to work, the two branches in the first year of the biennium will have to negotiate, and reach agreement on, appropriations that span

two years instead of only one. This will be difficult. The problems with the current

process result from the difficulties that Congress and the Executive Branch have encountered in negotiating, and reaching agreement, on appropriations that cover one

year. Having to negotiate and reach agreement on two years of appropriations will

inevitably be more complex.

As a result, the two branches will have to exercise discipline in carrying out negotiations, to ensure that they reach a successful conclusion within about the same

time frame as we now do for the thirteen appropriation bills. If the negotiations

drag on into November and December, then the time that is saved in the second

year of the biennium comes at the expense of having to devote more time to budgeting in the first year. Alternatively, if the two branches give up and enact only annual appropriations, then we will have essentially created a more time-consuming

version of the current process.

Second, the two branches would have to ensure that, during the second year of

the biennium, the Federal Government remains able to respond to changing and unforeseen circumstances, as well as evolving priorities. It is not reasonable to expect

that appropriations could be proposed, and decided upon, in the first year of the biennium, with no changes needed during the next two years. Under biennial budgeting, a midcycle review would have to occur and necessary corrections made. Thus,

11

there will be a need for the President to have the opportunity to propose orderly

changes, and for Congress to provide updates. Should the supplemental become thirteen appropriations bills, the efficiencies of biennial budgeting would be lost. There

will also be a need to provide agencies with additional flexibility in how they use

their funding, to enable them to address changing conditions and evolving priorities

without the need for a legislative change in each and every case.

We should not expect the answer to this challenge to be immediately obvious. It

will likely take the two branches some period of time, as they implement biennial

budgeting, to learn how the benefits of biennial budgeting can be realized without

sacrificing necessary Government flexibility. We should endeavor to meet this challenge. Biennial budgeting will not work if the process either becomes too inflexible

or too open-ended. On the one hand, the Federal Government will not be able to

carry out its responsibilities properly if it finds itself locked into long-term appropriations that are open to review and revision only once every two years. On the

other hand, the potential benefits from biennial budgeting—namely, the time that

can be saved and redirected to longer-term reviews and initiatives—will not be realized if in place of the current system with structured annual budget reviews, we

produce a system in which the two branches become so accustomed to considering

and passing supplemental bills that the task of budgeting becomes an unstructured

and unending process.

For biennial budgeting to work, then, the two branches will have to avoid these

extremes, and find the proper balance under which the major task of budgeting is

carried out once every two years. Furthermore, mid-course corrections should be

limited to those changes needed to address changing and unforeseen circumstances,

as well as significant changes in priorities. That balance will require cooperation between the branches. Supplemental appropriations bills will require both congressional and presidential action. I would anticipate that additional flexibility for agencies will be accompanied by appropriate congressional consultation and notification

requirements. Efforts should be made to avoid a process that enables single parties

to block agency activities at a very low level of detail.

Finally, there will also have to be an appropriate transition period before the Federal Government converts over to biennial budgeting. It must be recognized that biennial budgeting will constitute a very fundamental change in how the Federal Government operates. A conversion to biennial budgeting will have to take into account

the magnitude of the change that would be required, both in terms of the need to

make necessary conforming changes to those laws that presume the proposal and

enactment of annual appropriations, as well as in terms of the need for Congress

and the Executive Branch to develop and implement new practices for proposing,

considering, and enacting biennial budgets. For example, we will need to ensure

that an incoming President has sufficient time, upon taking office, to prepare a

budget proposal that will cover two years rather than one. Additional time may be

necessary for the administration to prepare the first biennial budget proposal as

well as for Congress to pass the first set of biennial appropriations bills. We can

expect a challenging process in the first year, and the legislation should allow for

that.

In order to realize the many potential benefits of biennial budgeting, we must

think through carefully how it would work in practice, so that we can successfully

meet the challenges that will be involved in carrying out the transition and in implementing the new system. Indeed, careful attention must be devoted to crafting

biennial budgeting legislation to ensure that the adoption of biennial budgeting will

work in practice, with the intended results.

As I have explained, biennial budgeting has the potential to enable the Congress

and the Executive Branch to save time that can be devoted to more in-depth and

longer-term reviews and initiatives. By itself, however, biennial budgeting cannot

remedy all of the shortcomings of the existing budget process. In order to strengthen

the budget process and maintain the fiscal discipline that has brought us so far, we

need to also address the budget process proposals presented in the President’s

Budget.

As I noted earlier, the President’s Budget for FY 2001 proposes a new framework

for the budget process. The reforms that the administration has proposed will protect Social Security, strengthen Medicare, and ensure continued fiscal discipline. Establishing budget protections for Social Security and Medicare, along with other

budget reforms such as extending paygo and the discretionary caps, will strengthen

the framework for fiscal discipline for the long term and ensure our continued success in getting our fiscal house in order.

It is also important that biennial budgeting not be used as a vehicle to make other

potentially damaging changes in the budget process, such as ending the paygo requirements for tax cuts and new mandatory spending. Finally, it should be noted

12

that points of order can be used to block non-conforming action, but not to compel

agreements on a two-year cycle. It will take cooperation and constructive negotiations to reach a two-year agreement.

Carefully crafted biennial budgeting legislation, particularly if it is combined with

the budget process reforms in the President’s budget, can be an important tool to

improve management of our Government. I look forward to working with you in that

process and would be pleased to respond to your questions.

SUBMITTED QUESTIONS AND ANSWERS—THE HONORABLE JACK LEW, DIRECTOR OF

THE OFFICE OF MANAGEMENT AND BUDGET

1. One of the concerns that has been raised with biennial budgeting is the difficulty

of projections. In your prepared testimony you mention the need for the President to

do a mid-cycle review and to have the opportunity to propose orderly changes and

for Congress to have the opportunity to respond. Could you elaborate on how both

the President and Congress could do this?

I believe that the mid-cycle review could be largely based on the existing mechanisms that the Executive and Legislative Branches have for identifying areas where

spending revisions need to be made, to respond to changing circumstances or evolving priorities. Having enacted appropriations for each year of the biennium, Congress and the President would not need to revisit the entire Budget, as we do now

each year. Instead, in the mid-cycle review, the two Branches could focus on those

areas where change is needed.

A formal process for a mid-cycle review could serve to help address the increase

in supplemental requests and appropriations bills or the need for rescission proposals that would likely result from a shift to biennial budgeting (a concern raised in

question 10). Of course, additional supplementals and rescissions could still be considered outside a mid-cycle review, just as they are under the existing annual process. But a mid-cycle review could create an orderly process to minimize the increased burden.

I believe that this would allow both Branches to devote the proper attention to

ensuring that the Budget responds to changing circumstances and evolving priorities, while still saving a substantial amount of time that is currently devoted to

budgeting and which could be redirected to longer-term planning and management

initiatives.

2. In testimony before the Senate Governmental Affair’s Committee in 1997, OMB

Director Frank Raines with respect to biennial budgeting legislation (S. 261) stated:

‘‘If there is any one area that I have found, since I have been in this job, to be

lacking, it is time for the senior managers in the government to focus on actually

implementing the laws that Congress has passed. This bill, I believe, would go a long

way to focusing the attention of managers on actually performing, as opposed to

planning and looking forward to the budget process in subsequent years.’’

Do you agree that biennial budgeting would allow program managers more time

and resources to devote to actually managing programs in the short run and planning for programs in the long run?

Yes, I do believe that biennial budgeting has the potential to allow program managers to spend less time on budgeting, and to devote the time that is saved to

longer-term planning and management initiatives.

3. Can you describe the steps involved in the process for developing a President’s

budget? Congress seems to be constantly working on the budget. Are the agencies and

OMB also constantly working on the budget?

Yes, OMB and the agencies are always working on the budget. In fact, we are

always—or almost always—working on three budgets at the same time: (1) We are

executing the enacted appropriations acts, other spending laws, and revenue laws

in effect for the current fiscal year; (2) we are working with Congress as it drafts

and passes such laws for the upcoming fiscal year; and (3) we are working on the

President’s budget for the fiscal year following the upcoming fiscal year.

Here, briefly, are the steps that are involved in developing the President’s Budget:

(1) in the spring before the President submits the Budget to Congress, OMB—working with other Presidential advisors and within general budget and fiscal policy

guidelines established by the President—develops planning guidance for the agencies, to be used in developing their budget requests, which the agencies submit to

OMB in September; (2) in the spring and summer, each agency carries out an internal budget process to develop their budget requests; (3) during the summer, OMB

and the agencies have a continuing dialogue on budget issues; (4) in September,

agencies submit their budget requests to OMB; (5) during the fall, OMB conducts

an intensive review of the agencies’ requests, resulting in OMB ‘‘pass-backs’’ to the

13

agencies, and the resolution—in coordination with the President and his senior advisers—of the agency appeals of the ‘‘passbacks,’’ with final decisions reached usually by late December; and (6) in December and January, OMB and the agencies

carry out the intensive work required to produce the budget documents that are

transmitted to Congress on the first Monday in February.

4. One of the perceived benefits of biennial budgeting is the ability of the executive

branch to devote more time and resources to the management of programs. As you

know, under the current annual budget process, agency heads are required to provide

OMB with periodic data updates during the course of a year. Under biennial budgeting how would you envision these internal control mechanisms operating?

If biennial budgeting legislation were enacted, OMB and the agencies would have

to review our procedures, to determine what changes to our budgetary reporting

procedures would be necessary or desirable. That is among the reasons why a transition period is needed before biennial budgeting becomes fully effective. At the

present time, I would expect that OMB would generally maintain the existing internal control mechanisms in their current form.

5. Do you think that under the current budget process there is a preoccupation with

budget projections and resources allocation as opposed to actually running programs

and reviewing how they are operating?

I would not say that there is a ‘‘preoccupation’’ with budget matters as opposed

to program management and review. Making budgetary decisions is a very important governmental responsibility—and so is program management and review. To

be effective, the Government needs to do both well. I do believe, though, that budgeting does take up a substantial amount of time, and that the time which has to

be devoted to budgeting appears to be increasing over the years. It would be desirable if we could reduce the amount of time that is devoted to budgeting, and redirect

this saved time to program management and review.

6. As you know, the current budget process only accounts for changes in mandatory

spending and revenues that result from legislative action. OMB and CBO hold the

budget harmless for changes in spending or revenue levels caused by administrative,

economic or technical changes. Do you think it would be possible and advisable to

utilize this existing mechanism (or a modification thereof) as a way of handling such

changes in the budget under a biennial process?

I believe that the existing ‘‘paygo’’ system could, and should, continue to be used

under a biennial budgeting process. One of the issues that will need to be addressed

as biennial budgeting legislation receives further consideration is whether any technical revisions are needed to the paygo system so that it will reflect a biennial budgeting process.

I do not believe, however, that a conversion to biennial budgeting would require

that any substantive changes be made to the paygo system. Any proposals for making substantive changes to the paygo system need to be addressed on their own merits.

It is true that administrative, economic, or technical changes are likely to have

a greater impact during a two-year period than during one year. A mid-cycle review

could help Congress and the administration address those concerns, as well as

changes in discretionary programs.

7. In your prepared testimony, you state that a conversion to biennial budgeting

will need to take into account ‘‘the need to make necessary conforming changes to

those laws that presume the proposal and enactment of annual appropriations, as

well as in terms of the need for Congress and the Executive Branch to develop and

implement new practices for proposing, considering, and enacting biennial budgets.’’

Which exact laws are you referring to here and what new practices for the Executive

Branch did you have in mind?

In terms of the conforming changes to laws that will need to be made to adjust

to a biennial budgeting process, three such laws are the Congressional Budget Act,

the provisions of Title 31 of the U.S. Code that address the budget process, and the

Government Performance and Results Act. A review will also need to be made of

the Budget Enforcement Act to determine whether any conforming changes are necessary.

In terms of the new practices that will have to be developed and implemented,

I believe that this area will be a principal focus of the Legislative and Executive

Branches during the transition period from annual budgeting to biennial budgeting.

The existing practices are the product of annual budgeting for over two hundred

years. It will take some time to ‘‘reinvent’’ these processes so that they will work

effectively for a biennial budgeting process.

8. During the hearing there was a detailed discussion of the need for a thorough

and well thought out transition plan to be included in any legislative vehicle implementing biennial budgeting. There are a couple of follow up questions on that topic:

14

How long of a ramp up period do you think is necessary to ensure that both the

executive and legislative branches are ready to implement this new process?

Specifically, now long will it take agencies to obtain the ability to prepare, propose

and manage two year budgets?

Would you suggest that biennial budgeting be phased in over some set time period

with certain portions of the budget moving to a biennial schedule one year followed

by others? If not, would you advocate not moving any budget submissions to a biennial schedule until the entire budget is ready to proceed in that direction? If so,

would the Department of Defense be the most likely first candidate for such a transition?

If biennial budgeting legislation were enacted this year, I believe that a transition

period would be necessary under which the complete transition to biennial budgeting would not occur until the third year of the incoming administration. As I testified, it is a substantial enough task for an incoming administration to develop and

submit a one-year Budget proposal soon after the President takes office. It would

be too much to expect any incoming administration, upon taking office, to have to

develop and submit the Federal Government’s first-ever biennial Budget proposal.

In addition, to convert from annual to biennial budgeting, OMB and the agencies

will need some time to develop and test new procedures, and I expect that the Congress will also need some time to do so as well.

A phase-in will be necessary if the transition to biennial budgeting is to be successful. One possible approach would be to convert certain parts of the budget first,

with other parts of the budget converted later. If this approach were adopted, however, it should involve not only the President proposing a biennial budget for the

first wave of agencies, but also the Congress passing biennial appropriations for

those agencies. Although biennial budgeting has been required for the Defense Department, and the President has proposed biennial budgets, Congress has continued

to pass only one-year appropriations. We do not believe that continuing this approach makes sense, and that is why the administration has proposed the repeal

of this agency-specific biennial budgeting requirement for the Defense Department.

Another approach for a phase-in is the non-binding, ‘‘notional’’ second-year budget

I discussed in my testimony. This would involve a ‘‘notional’’ budget for the second

year of the first two-year cycle, even though funds for that cycle would continue to

be provided on an annual basis. During the budget process for that second year,

OMB, the agencies, and Congress could compare the notional budget to what is actually happening in the ‘‘real’’ process for that year.

A third option would be to begin full-fledged biennial budgeting in the third year,

without using selected agencies or another type of formal phase-in. Congress, OMB,

CBO, and the agencies could use the two year transition period to prepare their internal budgeting systems and procedures.

There are likely other approaches to the transition to biennial budgeting that

merit careful consideration. Determining the best approach and ensuring a smooth

transition will require extensive discussions between OMB, the agencies, Congress,

and the CBO. These discussions will be necessary both as we develop and consider

biennial budgeting legislation and after its enactment.

9. What role would you envision reconciliation playing under a biennial process

specifically in the off year?

Reconciliation has come to be used to make substantive changes in mandatory

spending and revenue laws, in conjunction with appropriations acts and as part of

an overall budget plan. Ideally, under a biennial budgeting process, such changes

would be made in the same year that the biennial appropriations are enacted. The

Legislative and Executive Branches could devote the second year of the biennium

(the off-year) to undertaking a closer programmatic examination of these programs

and laws.

However, it is no more realistic to assume that we will never want to make

changes in mandatory spending and revenue laws in the second year of a cycle than

it is to assume that we will never want to consider supplemental appropriations or

rescissions in the second year. If a mid-cycle review suggests the need for changes

in mandatory spending or revenue laws in the second year, then reconciliation could

be an appropriate vehicle for such changes, just as it is today.

10. There has been concern expressed that a biennial budget process would yield

more and larger supplemental spending bills in the non-budget years, as Congress

and the administration sought to make corrections or changes to the budget laid out

in the prior year. Do you share this concern? What if any procedural technical provisions should we be considering to ensure that the supplemental spending process does

not spiral out of control?

As I noted in my testimony, there will be a need for supplemental appropriations

during the second year of the biennium. However, supplemental appropriations will

15

need to be addressed in an orderly manner, so that we don’t end up adopting an

essentially disordered and endless budgeting process—which would not be an improvement over the current process. One approach that would assist the Branches

in reaching this balance would be to have the President submit a mid-cycle budget

proposal—in which the President would propose, in a consolidated manner, the

changes that he believes need to be made to address changing circumstances and

evolving priorities. It will require more than procedural changes, however. To make

biennial budgeting work effectively, both Branches will have to proceed in a spirit

of comity and will have to be sensitive to the need to ensure a balance between having a budgeting process that is too rigid, on the one hand, and a budget process that

becomes endless or chaotic, on the other. This kind of ‘‘cultural’’ approach cannot

be legislated or imposed through procedures.

11. Some people consider the issue of biennial budgeting to be one of institutional

concern, arguing that by giving up annual action on appropriations the Congress

would be ceding power to the Executive branch. What is your assessment? Do you

think that agencies would be less responsive to Congress under a biennial budget

process?

While I respect the concerns of those who believe that biennial budgeting will

shift power between the two Branches, I do not share this concern. I have spent

nearly two decades working in the Legislative and Executive Branches. Based on

this experience, my belief is that Executive Branch officials are very responsive to

Congress. I do not believe that, under biennial budgeting, Executive Branch officials

would become less responsive to Congress. That is because biennial budgeting would

not alter the fundamental reality that, under the Constitution, Congress has ‘‘the

power of the purse.’’ Rather than reducing the power of Congress, biennial budgeting could make agencies even more responsive to Congress, because Congress could

devote the time that is saved during the second year to increased programmatic review and oversight. Moreover, mid-course corrections would continue to require cooperation between the Legislative and Executive Branches.

PREPARED STATEMENT OF DAN L. CRIPPEN

Mr. Chairman and Members of the Committee, thank you for giving me the opportunity to testify on the idea of converting the annual budget process to a two-year

cycle. Under the major proposals for biennial budgeting, the first session of each

Congress would be devoted to budget action—the President’s budget, the budget resolution, and appropriation and reconciliation bills. The second session would focus

on oversight of Federal programs, authorizing legislation (laws that set underlying

policies for Federal programs and that are generally a prerequisite for appropriations under House and Senate rules), and legislation needed to adjust budget laws

for changing conditions or unforeseen events.

Biennial Federal budgeting is a relatively long-standing idea (specific proposals

date back to the late 1970s), and the battle lines over whether it should be adopted

have been clearly drawn for some time. Proponents are convinced that devoting a

separate session of Congress to authorizing and other nonbudget legislation would

improve oversight of Federal programs and ease the stresses under which lawmakers labor to complete action on the budget—especially appropriation acts. Opponents are as firmly convinced that a biennial budget cycle would lead to the use

of large supplemental appropriation bills and other ad hoc measures to deal with

unforeseen budget and economic changes and would shift the balance of budgetary

power to the President.

My testimony this morning will make the following points:

• The success of a biennial budget cycle would depend on whether lawmakers

were able to separate budget and nonbudget issues in the way that proponents envision. Various practical hurdles could make separating the two types of issues difficult.

• Biennial budgeting could make two major improvements to the budget process.

First, it might give lawmakers and agency officials time to evaluate Federal programs more effectively and help them carry out the requirements of the Government

Performance and Results Act of 1993 (GPRA). Second, it could help ease the annual

logjam of budget legislation that has contributed to recent difficulties in the annual

appropriation process.

• A biennial budget cycle would not come without costs. Members would need to

weigh the potential gains from more time for oversight and a more efficient appropriation process against the potential drawbacks of weakened Congressional control

of the budget, less accountable Federal agencies, and a budget process that might

be less responsive to changing conditions.

16

THE DIFFICULTY OF SEPARATING BUDGET ISSUES FROM OTHER ISSUES

The idea that Congressional oversight and the budget process will improve under

a biennial cycle rests largely on the assumptions that public policy issues can be

divided into budget and nonbudget components and that each can be confined to a

single session of Congress. A number of practical hurdles could make it hard to separate the two types of issues and thus could jeopardize the benefits of shifting to

a two-year budget cycle.

All of the major proposals for a biennial process distinguish between budget and

nonbudget issues by specifying a timetable of budget actions in the first session of

each Congress. Those actions—submitting the President’s budget, adopting the

budget resolution, and enacting appropriation and reconciliation acts—would generally parallel the current yearly schedule. The second session would be reserved

for authorization laws and for legislation making any necessary adjustments to

budget laws enacted in the first session or in earlier years. To enforce the separation between the budget and nonbudget sessions, some proposals would also bar the

Congress from considering any authorizing legislation or nonreconciliation (freestanding) revenue measures during the first session until it had finished acting on

the budget resolution, all regular (biennial) appropriation acts, and any reconciliation legislation.

Although distinguishing between budget and nonbudget legislation in that way

sounds straightforward, it could be confusing and might create new difficulties in

the budget process. For example, authorizing legislation can sometimes include significant amounts of mandatory spending. In addition, tax legislation is often considered in the form of free-standing bills outside the reconciliation process. Legislation

in those categories raises certain questions. For example, should those types of

measures, even if they include significant spending or revenue effects, be confined

to the nonbudget session? If the budget effects of such legislation are offset, so there

is no net change in the deficit or surplus, should the legislation be considered budgetary or nonbudgetary?

The rules governing reconciliation in the Congress raise additional issues. In general, reconciliation is a process for changing permanent spending and revenue laws

to make them conform with the budget resolution. The rules of that process are intended largely to ensure that reconciliation bills are consistent with the directives

in the resolution and to expedite their consideration. Those rules, especially in the

Senate, make reconciliation bills important legislative vehicles for changing Federal

programs and revenue laws. But they may also limit the extent to which broad,

structural reforms in Federal programs (such as those dealing with long-term imbalances in Federal retirement or health care programs or certain proposals to reform

the tax code) can be made through the reconciliation process. Such reforms may

have significant budget effects. If that type of reform legislation may not be included

in a reconciliation bill, should it be considered budgetary or nonbudgetary under a

biennial budget cycle?

In part, the difficulty of distinguishing between budget and nonbudget issues may

be related to the nature of the legislative process. Legislation is divided among Congressional committees with jurisdictions that do not fall neatly into budget classifications. Because biennial budgeting relies on distinguishing between budget and

nonbudget issues, lawmakers should carefully evaluate the possible unintended consequences of making that distinction. One possible outcome is that the legislative

and budget processes could become more rigid if rules to enforce the distinction were

put in place.

POTENTIAL IMPROVEMENTS UNDER A TWO-YEAR BUDGET CYCLE

Proposals for biennial budgeting have been prompted largely by Members’ understandable frustration about the extent to which budget issues have come to dominate the annual legislative agenda. Increasingly, Members worry that budget matters are crowding out other, equally important duties, such as Congressional oversight. As a result, they say, the Congress either ignores those other duties or conducts them as part of its annual action on appropriation bills. But in their view,

the rigors of annual budgeting tend, first, to make oversight conducted at that point

more ad hoc and less effective and, second, to bog down appropriation bills with unrelated and controversial issues that ought to be considered carefully, systematically, and separately.

IMPROVING OVERSIGHT

Some evidence appears to support the view that Congressional oversight by authorizing committees has suffered. Over the past five years, the total amount of unVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
17

authorized appropriations (appropriations for which the applicable authorization law

has expired) has averaged about $100 billion annually. That amount-which represents nearly one-fifth of total discretionary budget authority—is spread over some

100 different laws covering the jurisdictions of nearly every authorizing committee.

Several factors are likely to have contributed to the problem of unauthorized appropriations. Prominent among them is the difficulty that lawmakers face in reaching a consensus about the controversial issues that often arise during Congressional

action on expiring authorization laws. A biennial budget cycle would not make it

any easier to reach a consensus on those issues. But it might make it easier for lawmakers to separate policy and funding decisions and thus increase opportunities for

authorization laws to be enacted in a timely fashion.

The Government Performance and Results Act adds an important element to the

debate about possible improvements to Congressional oversight under a biennial

budget. Under GPRA, Federal departments and agencies are required to establish

strategic goals, performance plans, and performance measures for Federal programs.

Law-makers are supposed to use that information to evaluate those programs and

to allocate Federal resources in the budget process. A governmentwide performance

plan has been included in the President’s budget for the past three years. By March

31, 2000, Federal agencies are required to submit the first reports that evaluate

their progress toward meeting the performance goals set out in their 1999 performance plans.

With the GPRA framework of reporting and other requirements nearly phased in,

lawmakers now face the issue of how best to integrate that information into the

budget process. One question involves whether the annual budget cycle provides the

best setting for making effective use of GPRA performance data. Although the law’s

ultimate goal was to have performance data used routinely in the budget and appropriation processes, lawmakers may find it easier to employ that information if they

have a session of Congress devoted principally to oversight and evaluation. In addition, authorizing committees have an important role in evaluating and using agency

performance data and may be better able to apply that information in a nonbudget

session as they craft authorizing statutes.

IMPROVING THE APPROPRIATION PROCESS

In some respects, biennial budgeting would not depart significantly from current

practice. Although lawmakers act on the budget annually, most spending (principally for entitlement programs and net interest) and revenues flow from laws that

are either permanent or remain in effect for more than one fiscal year. In the appropriation process, however, lawmakers both act and provide funds one year at a time.

Thus, a biennial budget cycle would be likely to have its greatest effect on that process.

Lawmakers have grown increasingly concerned about the difficulties and delays

that accompany the appropriation process, particularly during the past two years.

Congressional action on most of the appropriation bills for 1999 and 2000 occurred

behind schedule, with final action completed well after the beginning of the fiscal

year. Most of the major appropriation bills for those years were incorporated into

a single consolidated appropriation act, which included numerous authorization and

policy provisions generally unrelated to the routine and ongoing appropriations for

most Federal agencies.

Those problems are not new. As with the difficulties in enacting authorization

laws, other factors—especially underlying political disagreements—may be the root

cause. But a biennial cycle of regular appropriations could give lawmakers and

other officials enough time to resolve those disagreements and could make the appropriation process smoother and more efficient.

In particular, biennial budgeting could have two broad benefits for the appropriation process. First, if lawmakers were successful in separating budget and nonbudget sessions and in enacting authorization laws in a timely fashion, they might

be less likely to add controversial policy riders to appropriation measures. Second,

oversight during the appropriation process might actually improve. For example, the

appropriations committees could focus more closely in the nonbudget session on how

appropriated funds were being spent, which could help them prepare for the next

two-year appropriation cycle.

POTENTIAL PROBLEMS OF A TWO-YEAR BUDGET PROCESS

Acting on the budget every other year would have drawbacks. Members would

need to weigh the potential gains described above against a potential decline in Congressional control of the budget, the effect of using outdated budget information, and

a less responsive budget process.

18

Although biennial appropriations might have payoffs in improved planning for

Federal agencies and more time for Congressional oversight, they might also diminish Congressional control of spending because lawmakers would have half as many

opportunities to adopt regular appropriation bills. Moreover, Congressional oversight that is divorced from the purse strings may be less effective than oversight

that is conducted through annual appropriation hearings linked to agencies’ funding

requests.

Certain appropriated programs with stable or predictable funding patterns might

be good candidates for two-year appropriations. But the current annual process already accommodates multiyear appropriations. Also, the benefits to the executive

branch of having more time to plan and prepare appropriation requests could be offset by the uncertainty of making those requests for a longer period. Consequently,

agencies might be more likely to need or request supplemental appropriations.

Although most spending and revenue laws cover multiyear periods, annual action

may be needed to ensure the use of up-to-date budget and economic information.

If the economic and technical assumptions underlying the two-year budget were not

revised before the end of the biennium, the information and estimates that policymakers used would become less reliable. Consequently, budget enforcement procedures and cost estimates for pending legislation would be distorted. That problem

could be alleviated by including procedures in the budget resolution that would

allow budget totals and allocations to be updated automatically for changing conditions. But if conditions changed significantly, such an automatic process might lead

to far different budget outcomes than the resolution originally recommended.

Considering budget matters every other year could also make the budget process

less responsive. For example, if disagreement about budget policies produced a

stalemate beyond the first year of a biennium, the Congress and the President

would have no formal mechanism for carrying on the budget debate the following

year. Policymakers, knowing they were acting under a two-year cycle that called for

budget action only in the first session, might be more inclined to resolve budget conflicts before that session ended. But if they did not resolve those conflicts at that

time, they would have to pursue the budget debate in the next session in an ad hoc

manner. A budget process that is less responsive could be particularly problematic

in a period of rapid changes in the budget and economic outlook—such as those that

have affected projections of budget surpluses for the past three years or so.

Finally, it is unclear whether the root cause of the problems cited by proponents

of biennial budgeting is the annual budget timetable or other factors that would be

largely unaffected by a switch to two-year budgeting. For most of the past two decades, the administration and the Congress have been controlled by different political

parties, making basic agreement on major issues, including budget issues, difficult

to reach. That disagreement, not the budget cycle, may be the biggest hurdle to

smoother budget deliberations in the Congress.

CONCLUSION

Supporters of biennial budgeting are increasingly concerned that the requirements of the annual budget process are overwhelming policymakers and public officials. They argue that the seemingly incessant demands of that process detract from

other functions of government—such as long-range planning and oversight—that are

equally, if not more, important. If budget and nonbudget issues can be separated

in the legislative process, biennial budgeting could help ease those problems, improve oversight, and relieve the pressures on the appropriation process. However,

potential gains from changing to a two-year cycle could be offset by the loss of Congressional control over the budget and by the effects of changing conditions on the

budget process.

DAN L. CRIPPEN, DIRECTOR, THE CONGRESSIONAL BUDGET OFFICE, RESPONSES TO

QUESTIONS

1. ‘‘How would a biennial budget process impact upon the work done by CBO?

What changes would need to be made in order to ensure that CBO could provide

proper support to Congress in a biennial process?’’

In general, a biennial budget cycle is unlikely to have a major effect on CBO’s

duties, responsibilities, or workload. CBO’s work is closely tied to that of the Congress; as long as the Congress continues to meet and consider legislation annually,

our workload would not change appreciably. For example, CBO would continue each

year to prepare its annual budget and economic outlook report and would continue

to update that report in the summer. CBO would also continue to prepare cost estimates on all reported legislation, scorekeeping reports of legislative action affecting

the budget, and analyses of various budget and program issues as requested.

19

Moreover, although the Congress would adopt a budget resolution only in the first

session, it would probably consider revisions or adjustments to the resolution during

the second session that could require substantial assistance from CBO. CBO would

also continue to review and evaluate the administration’s budget submissions, including any midcourse budget proposals or reestimates.

In sum, it does not appear that a biennial budget process would necessitate any

changes at CBO to ensure that the agency continued to support the Congress in its

budgetary deliberations.

2. ‘‘Taking your point about the potential difficulty in separating budget and nonbudget issues to fit the cycles of a biennial budget process, what specific criteria and

enforcement mechanisms would you suggest should be adopted to ensure that a biennial system could be made to work in practice?’’

If most lawmakers were firmly committed to a biennial budget process, additional

rules to ensure that it worked would not be necessary. One potential benefit of a

biennial budget cycle is that it could help smooth the appropriation process by providing additional time for lawmakers to consider separately and enact the authorizing legislation and other matters that have sometimes delayed consideration of

major budget legislation, especially appropriation bills. If lawmakers choose not to

use a biennial budget process in that way, additional rules seem unlikely to force

that separation or to make the legislative process smoother.

3. ‘‘Some critics of biennial budgeting have suggested an interim step of applying

the two-year process to only certain agencies or programs as a sort of ‘pilot’ project.

Do you see any value in taking this incremental approach? What would be the pros

and cons of implementing biennial budgeting on a case-by-case basis?’’

A pilot-project approach to biennial budgeting is unlikely to yield the benefits

sought from a complete conversion to a two-year budget cycle. If the budget process

remains on an annual cycle generally, then two-year appropriations for certain programs would essentially provide regular appropriations for the first year and advance appropriations for the second year. Lawmakers would continue to consider

budget and appropriation legislation for most other activities on an annual basis.

Such an experiment might garner useful information from executive branch agencies about the advance planning needed under a two-year system. But it might not

give the Congress the additional time it is seeking for program oversight and review.

4. ‘‘There has been concern expressed that a biennial budget process would yield

more and larger supplemental spending bills in the non-budget years, as Congress

and the administration sought to make corrections or changes to the budget laid out

in the prior year. Do you share this concern? What if any procedural/technical provisions should we be considering to ensure that the supplemental spending process does

not spiral out of control?’’

Whether lengthening the budget cycle to two years would cause greater reliance

on supplemental appropriations is not clear. On the one hand, appropriating for two

years at a time increases the chances that unforeseen events and demands on

spending from other sources will overtake appropriations enacted over a year earlier. Those factors make supplemental appropriations a routine part of the annual

appropriation process and are likely to be even more prevalent in a longer budget

cycle. On the other hand, a two-year appropriations cycle might improve the ability

to plan and to manage resources, thereby enhancing efficiency and spending control.

There are other factors unrelated to the length of the budget cycle that may also

create conditions that give rise to supplemental appropriations. For example, in recent years the size of supplemental appropriation acts may have been influenced by

the relatively restrictive limits on total discretionary appropriations set forth under

the Balanced Budget Act of 1997. Those limits have prompted lawmakers to rely

increasingly on emergency appropriations, which are effectively exempt from the

limits, to maintain higher levels of total appropriations than the limits would have

allowed. Substantial amounts of those emergency appropriations have been included

in supplemental appropriation laws.

In making procedural changes to control supplemental appropriations, whether in

a biennial cycle or in the current annual process, lawmakers should be careful to

balance the need to respond quickly to genuine emergencies or other unexpected

events with the need to control spending. One possible method for controlling such

appropriations would be to create a strict statutory definition of ‘‘emergency’’ that

could be used to certify the types of provisions that may be deemed emergencies.

Of course, that change could be implemented in either a biennial or an annual cycle

of appropriations.

5. ‘‘Some people consider the issue of biennial budgeting to be one of institutional

concern, arguing that by giving up annual action on appropriations the Congress

would be ceding power to the Executive branch. What is your assessment? Do you

20

think agencies would be less responsive to Congress under a biennial budget process?’’

It seems unlikely that agencies would be less responsive to the Congress simply

because they would be requesting regular appropriations every other year. Also, a

biennial budget cycle, by setting aside time for Congressional action on oversight

and authorizing legislation, might relieve the appropriation process of time-consuming debates on substantive policy issues, which could actually improve Congressional control of spending.

6. ‘‘As a budget technician, you are in a good position to judge whether there would

be tangible savings in terms of time and effort on the part of the people whose job

it is to put together budgets and implement them. Do you subscribe to the view that

biennial budgeting would save significant time and resources which then could be

applied to better program management and long-term efficiency?’’

Yes, savings of time and resources are likely under a biennial budget process, although the extent of those savings is unclear. Although the duties of CBO are unlikely to change significantly, the resources used for budget preparation in the Executive branch could be reduced dramatically. Those savings would be partially offset

by the need to monitor spending, revise budget estimates, and modify budget proposals and laws as conditions change during the two-year cycle. However, if a twoyear budget cycle enabled program managers to devote more attention to reviewing

and evaluating Federal programs, programmatic cost savings or other efficiencies

could also be achieved.

7. ‘‘In your prepared testimony you raised the issue of updating a two year budget

for changing economic and budget conditions. You suggest that the problem could

be alleviated by including procedures in the budget resolution that would allow

budget totals and allocations to be updated automatically for changing conditions.

Would you elaborate more on what type of procedures you are suggesting?’’

Such procedures could be patterned after the so-called reserve fund provisions

now used to revise the budget resolution under specified circumstances. In general,

reserve fund provisions empower the Chairmen of the House and Senate Budget

Committees to revise budget resolution totals and spending allocations to committees under certain conditions—for example, when legislation is reported in a particular policy area or for updated budget projections. In some cases, the extent to

which the Congress may consider certain spending or tax initiatives is contingent

on those reserve fund adjustments. Such a process might be useful for updating a

two-year budget resolution for new budget estimates or other changes.

8. ‘‘As you know, the current budget process only accounts for changes in mandatory spending and revenues that result from legislative action. OMB and CBO hold

the budget harmless for changes in spending or revenue levels caused by administrative, economic or technical changes. Do you think it would be possible and advisable

to utilize this existing mechanism (or a modification thereof) as a way of handling

such changes in the budget under a biennial budget process?’’

A biennial budget cycle could be meshed with the current mechanisms and practices for ensuring that budget legislation is consistent with the budget levels and

other requirements that are enforced in the budget process. However, in a biennial

budget cycle, it might be advisable to allow the underlying baseline used for budget

enforcement to be adjusted for current economic and technical data in the second

year of the cycle. Otherwise, spending or revenue legislation considered in the second session of a Congress would be based on less timely information and estimates

of the legislation’s budgetary effects could be less accurate.

9. ‘‘During the hearing, there was a detailed discussion of the need for a thorough

and well thought out transition plan to be included in any legislative vehicle implementing biennial budgeting. There are a couple of follow up questions on that topic:

How long of a ramp up period do you think is necessary to ensure that both the

executive and legislative branches are ready to implement this new process? Specifically, how long will it take agencies to obtain the ability to prepare, propose and

manage two year budgets? Would you suggest that biennial budgeting be phased in

over some set period with certain portions of the budget moving to a biennial schedule one year followed by others? If not, would you advocate not moving any budget

submissions to a biennial schedule until the entire budget is ready to proceed in that

direction? If so, would the Department of Defense be the most likely first candidate

for such a transition?’’

The major proposals for biennial budgeting call for the President to submit a

budget and for lawmakers to act on budget legislation during the first session of

each Congress. If a biennial budget process were to become law at the end of the

106th Congress, it might be advisable to use the 107th to phase in the new cycle,

delaying its full implementation until the beginning of the 108th. During the 107th

Congress, agencies could begin preparing budgets, especially appropriation requests,

21

for two-year periods. (For example, they could include second-year requests for planning purposes in the budget submitted during the second session of the 107th Congress.) At the same time, Congressional committees could begin to identify any problems or issues involved in fully implementing two-year budgets and appropriations

and start to modify the cycle of expiring authorization laws to make them conform

to a two-year budget cycle that would begin with each new Congress.

10. ‘‘What role would you envision reconciliation playing under a biennial process

specifically in the off year?’’

All of the major proposals for a biennial budget call for any reconciliation legislation to be enacted in the first session of each Congress. Because such legislation is

a major vehicle for carrying out the policies reflected in the Congressional budget

resolution, it would seem to make sense to consider reconciliation legislation as soon

as possible after the resolution is adopted. However, if Congressional action on reconciliation legislation was pushed back into the second session to spread out the

budget workload facing the Congress—or if it was simply delayed until that time—

the budget baseline and the budget resolution levels, amounts, and reconciliation instructions would need to be adjusted for current economic and technical budget

data.

PREPARED STATEMENT OF THE HONORABLE LEE HAMILTON

Mr. Chairman, Mr. Moakley, Members of the Rules Committee—thank you for

giving me this opportunity to offer you my thoughts on biennial budgeting.

First, let me commend you for holding these hearings. I believe biennial budgeting

holds real promise for improving the operations of government. I am pleased that

its potential is being examined closely by this committee. I am also encouraged by

the support that has been given by Members on both sides of the aisle to Chairman

Dreier’s sense of the House resolution in support of biennial budgeting.

In 1993, I served as co-chairman with Chairman Dreier, as well as Senators

David Boren and Pete Domenici, on the Joint Committee on the Organization of

Congress. One of the main recommendations we made for reforming the Congress

was to adopt biennial budgeting. Although that recommendation was not then

adopted by Congress, I believe that it remains sound.

There are both pluses and minuses to biennial budgeting, but overall I think it

would improve government operations—primarily because of its potential to free up

Members’ time for important work that is now being squeezed out by competing

pressures. Biennial budgeting is not a cure-all for every obstacle to the efficient

functioning of government. We must not have exaggerated expectations of what it

can do. However, moving to biennial budgeting would create greater budget and program stability, strengthen programmatic oversight and promote more long-range

strategic thinking.

By not having to pass a new budget every year, Congress would have more time

to review how laws are working, and the executive branch and state and local governments would have a more stable budget environment to plan and carry out their

programs. During the second year of a two-year budget cycle, Congress would still

have to spend some time adjusting or supplementing the budget for changing conditions or unforeseen events, but overall it would be able to focus more on identifying

problem areas in government operations and looking ahead to the policy needs of

the next biennium and beyond.

The current appropriations process is too cumbersome and time-consuming. Senate Majority Leader Lott has estimated that Congress is now spending two-thirds

of its time on the budget and appropriations. That is simply too much. It seems Congress is in a perpetual budget cycle, with budget crises nearly every year. The deadlines for the budget process are rarely met—Congress has met the deadline for completion of the budget resolution only four times during the 26 year history of the

Budget Act—and appropriations bills end up being dumped into enormous omnibus

bills which are, from the standpoint of good process, if not content, abominations.

The authorization committees are often simply bypassed. Members also have little

time for non-budget activities because Congress is working a reduced schedule, with

most congressional business taking place only between Tuesday and Thursday for

much of the year. This process does not serve the American people well.

Biennial budgeting would help remedy some of these problems. It would allow the

authorizing committees—where the greatest policy expertise lies—to regain some of

their lost influence. It would give Congress more time in the second year to resolve

policy differences, fostering a smoother budget process in the subsequent year and

potentially reducing the number of controversial policy riders attached to appropriaVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
22

tion measures. These changes could markedly improve the effectiveness and efficiency of Congress.

For the executive branch and state and local governments, biennial budgeting

would mean more budget predictability and program stability, enabling them to use

their funding more efficiently, focus more on program implementation and plan farther in advance. The levels of the vast majority of Federal funding are predictable.

They do not change dramatically from year to year. Biennial budgeting would reduce the amount of documents agencies must produce and the number of times administration officials must testify to justify their budget requests.

Some opponents of biennial budgeting argue that it would take control over programs away from the Congress in the second year and thereby reduce government

accountability. But Congress would retain the capacity to enact supplemental spending measures in the non-budget year to deal with unforeseen problems. This flexibility would allow Congress to react to new developments and remain in control of the

purse strings. Moreover, if oversight is performed rigorously, Congress will be monitoring the operations of government agencies and programs more closely than it

currently does.

So let me turn to two of the most important reasons for adopting biennial budgeting: to strengthen congressional oversight and encourage long-term strategic thinking.

OVERSIGHT

Oversight of how effectively the executive branch is carrying out congressional

mandates is an enormously important function of Congress. It is at the very core

of good government. Congress must do more than write the laws; it must make sure

that the administration is carrying out those laws the way Congress intended.

That is why I was frequently frustrated during my years in Congress by the small

amount of time available for conducting oversight. On many committees I served on,

I would have liked to do much more oversight, but we simply did not have time for

it because of the various other demands of the job. As the pressures of fund-raising,

media attention, and working out the budget and appropriations have increased

over the years, programmatic oversight has declined. Biennial budgeting would not

take away all of these competing pressures, but it would give committees more time

overall to pursue rigorous oversight of programs and agencies. Congress would be

able to focus greater attention on how Federal funds are being spent.

Oversight has many purposes:

• to make sure programs conform to congressional intent;

• to ensure that programs and agencies are administered in a cost-effective, efficient manner;

• to ferret out (in the oft-heard phrase) ‘‘waste, fraud, and abuse’’;

• to see whether programs may have outlived their usefulness;

• and to compel an explanation or justification of policy.

Oversight can sometimes get off-track—becoming excessively partisan and focused

on personal investigations and possible scandals rather than programmatic review.

But when done properly, oversight is one of the most important and effective tools

of Congress.

Oversight can protect the country from the imperial presidency and from bureaucratic arrogance. It can expose and prevent misconduct, and maintain a degree of

constituency influence in an administration. The responsibility of oversight is to look

into every nook and cranny of government affairs, uncover wrongdoing and put the

light of publicity to it.

Congress needs a large number of oversight methods to hold agencies accountable

because different methods have their own strengths and weaknesses. Periodic reauthorization, personal visits by Members or staff, review by the General Accounting

Office or inspectors general, subpoenas, and reports from the executive branch can

all be useful. The authorization, appropriations, and governmental affairs committees, as well as special ad hoc committees, can all play important roles in oversight.

In many ways Congress underestimates its power in oversight. Agencies start to

get a little nervous whenever someone from Congress starts poking around, and

that is probably to the good overall. Federal bureaucracies do not stay on their toes

unless they expect review and oversight from Congress.

My personal belief is that conducting oversight is every bit as important as passing legislation. President Woodrow Wilson thought that ‘‘the informing function of

Congress should be preferred even to its legislative function.’’ Our founding fathers

clearly recognized that ‘‘eternal vigilance is the price of liberty’’.

A strong record of congressional oversight—of ‘‘continuous watchfulness’’—will do

a lot to restore public confidence in the institution. It will show that Congress is

23

taking its responsibilities seriously and is able to work constructively to improve

government performance.

That is why I am encouraged by the efforts of Speaker Hastert, Chairman Dreier

and others to have the House return to its traditional programmatic oversight functions.

Moving to biennial budgeting would give oversight a significant boost by freeing

up the committee workloads over the two-year cycle.

STRATEGIC THINKING

Biennial budgeting would also free up time that could be used by Congress and

the executive branch to focus more on long-term strategic thinking—examining the

challenges our country will face over the coming decades.

Some years ago a careful observer of Congress advised me that the worst thing

about congressional service was that Members never have time to put their feet on

their desks, look out the window, and think about the long-range needs of the country. I have come to appreciate the wisdom of that remark.

The Federal Government simply does not do enough long-term thinking. It may

be unavoidable that policymakers focus mainly on urgent problems, headlines and

crises, but far too little attention is given to challenges that lie just over the horizon.

Federal programs that involve long-term investments—for infrastructure, research

and development, and education—are dwarfed by Federal spending for current

needs and consumption. In contrast to the strategic, long-term planning of most

businesses, there is typically little systematic discussion in Congress of the most important long-term challenges facing our National.

These challenges are numerous: What are our long-term national security needs?

How can we maintain a prosperous and open economy well into the future? How

can we make sure Americans will have the skills they need to succeed in that economy? What long-term environmental challenges—both domestic and international—

will we face? What problems will be posed by the growth of information technology,

biotechnology and genetic engineering? How can we ensure that we will continue

to have adequate food and energy supplies? What will America’s changing demographic make-up—which, 25 years from now, will include a much higher proportion

of older Americans, Latinos and other nonwhites—mean for our political, economic

and social life? What will be the consequences of continued or growing global economic inequality?

Certainly some work is done by Congress—and done well—on long-term issues.

Committees hold hearings on topics ranging from human cloning to the babyboomer

Social Security crunch to future terrorist threats. But overall, I believe Congress

should be doing much more. If we fail to adequately address these long-range questions, we may miss opportunities and overlook steps we should be taking today that

could make tomorrow’s problems far more manageable.

Looking carefully at the challenges of the future is not esoteric speculation or

crystal ball-gazing. Many future challenges are predictable. I recently met with one

of our country’s top demographers, who laid out a variety of changes that are likely

to flow from the increased immigration of recent decades. The CIA, recognizing the

importance of looking at future challenges, is now working to free up more of its

analysts’ time for future studies, and is reaching out to tap the long-range thinking

of more academics and private sector experts.

Congress does have some stipulations for long-term thinking. Since 1974, the

House has required committees to ‘‘undertake futures research and forecasting’’ on

matters within their jurisdiction. The Congressional Research Service and the General Accounting Office are authorized to undertake anticipatory research.

But Congress remains predominately focused on short-term needs, in part because

the one-year budget cycle leaves congressional committees with little time to look

ahead.

To bolster long-range strategic thinking, it might be helpful to require committees

to report regularly on their work looking at emerging trends and long-term challenges. It might also be helpful to require the President to report every few years

on the critical challenges facing the Nation in future decades.

One of the initiatives I have begun at the Wilson Center is to develop a coordinated focus on examining future domestic and international challenges. As we

launch this initiative, we will be recruiting scholars to help identify the emerging

challenges most in need of attention and the top thinkers and practitioners who can

propose approaches and solutions to them. The Center would be pleased to be of

help to Members and congressional staff on these issues in any way it can.

I also encourage Congress to make use of the great resources of the Congressional

Research Service, which can provide excellent forecasts of future trends and chalVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
24

lenges. [Attached to this testimony as an example of this kind of forecast is a copy

of an outstanding report on future trends written by Walter Oleszek of CRS in

1998.]

The point of this kind of long-term thinking is not that the Federal Government

could, or should, resolve all of America’s long-term problems, but that we should at

least be considering these issues and examining how best to deal with them.

Moving to biennial budgeting would allow Congress to focus on America’s future

challenges much more than it currently does.

CONCLUSION

Biennial budgeting will not resolve all of the problems in the budget process and

the operations of government, but I believe it will improve the effectiveness of government by providing a more stable budget environment and allowing for a greater

focus on oversight and long-range thinking.

I look forward to answering any of your questions.

Thank you.

SUBMITTED QUESTIONS AND ANSWERS—THE HONORABLE LEE HAMILTON, DIRECTOR

OF THE WOODROW WILSON CENTER

As I mentioned in my testimony, I strongly believe that moving to biennial budgeting would give oversight a significant boost by freeing up the committee workload

over the two-year cycle.

Oversight of how effectively the Executive Branch is carrying out congressional

mandates is an enormously important function of Congress. Congress must make

sure that the administration is carrying out laws the way Congress intended.

Biennial budgeting would also free up time that could be used by Congress and

the Executive Branch to focus more on long-term strategic thinking—examining the

challenges our country will face over the coming decades. Congress’ efforts in longterm thinking in the off-year could be significantly aided by requiring the President

to submit a report every few years on the long-term challenges facing the country.

In these two ways, biennial budgeting could improve the effectiveness of government by providing a more stable budget environment and allowing for a greater

focus on oversight and long-range thinking.

1. Is the current lack of time the reason for inadequate oversight or is it that Members aren’t interested in doing oversight regardless? Are additional process changes

needed to remedy this?

Time is only part of the problem. The key is leadership and the will of individual

Members. Structural reforms can be helpful, but for oversight to really work it takes

a clear message from congressional leadership that oversight is a priority and that

it will be done in a bipartisan, coordinated, systematic way. The key role of the

House Speaker, the Senate Majority Leader and the Minority Leaders cannot be

overstated.

The will of individual Members to do oversight will ultimately depend on incentives and rewards to do the necessary work. Perhaps a better coordination between

party and committee leaders on the existing oversight agenda requirement would

produce more meaningful agendas that are more the result of a committee process.

The more Members feel they are part of the larger project and play a role in devising it, the more they will be inclined to make it succeed.

2. Will biennial budgeting degenerate into a more ad hoc annual process with frequent revisions and more supplementals? Are there procedural changes that can prevent this from happening?

Any new process can produce unintended consequences. Though it is tempting to

limit the number of supplementals, this would defeat the purpose of truly emergency supplementals needed to deal expeditiously with unexpected needs resulting

from disasters, war, etc. It is clear that supplementals are increasingly being used

for nonemergency matters and to circumvent the spending caps. Leadership controls

and presidential veto threats remain the best safeguards against allowing these

trends to get out of control.

3. How can the problem of revised projections be effectively integrated into a biennial system?

Ideally, if you are going to plan on a supplemental in the second session, the

President’s revised estimates should be sent to Congress no later than June 1 so

that any supplemental spending could be acted on by the July or August recesses.

4. What role would reconciliation play under a biennial process, especially in the

off-year?

25

Reconciliation should not be done in an off-year unless it is needed for emergency

purposes. In election years, too many games will be played with it to either increase

entitlement spending and/or cut taxes. It should be dealt with as a follow-on to the

budget resolution’s implementation, in the first session.

5. What role does the authorization process currently play in the budget process

and should that role change? Will a changing role for authorizing committees improve programmatic oversight?

Generally, I favor an increased role for authorization committees, which under the

present system are often simply bypassed. Under biennial budgeting, authorizers

could submit their estimates to the budget committee for the upcoming biennium.

The real problem will be projecting what the need will be three and four years into

the future. While authorizers will be forced by biennial budgeting to think three and

four years out, they will also be able to spend less time guessing at authorizing ceilings and more time focusing on how well existing polices and programs are designed

and being implemented. The need for fine tuning and for occasionally passing new

program in odd-years will decrease if authorizers focus more on devising far-sighted

authorizing policies based on better policy oversight and long-range thinking. An increased role for authorizing committees should improve programmatic oversight because they possess the greatest expertise and capacity to rigorously monitor and

oversee various government programs.

PREPARED STATEMENT OF CHARLES J. WHALEN

Mr. Chairman and Members of the Committee, thank you for inviting me to contribute to your hearing on the possibility of establishing a two-year Federal budget

and appropriations cycle. I have followed discussions and research on this issue for

more than a decade. My remarks build on previous Senate testimony and an article

written for Policy Studies Review.1)

Highly divergent views have been expressed on this issue. Some argue biennial

budgeting would be a ‘‘dramatic improvement in the way Congress does business’’

and promises a more efficient and responsive government. I hope this proves to be

the case, but there is certainly no guarantee. Others warn of a ‘‘collapse’’ of the

budget process. At worst, however, budgeting would be biennial in name only—a

condition that would undoubtedly lead to the eventual return of our present system.

My prior writings have suggested, primarily on the basis of state experience, that

biennial budgeting could have significant benefits if adopted at the Federal level.

I continue to hold that position. What follows is some of what we know about biennial budgeting, in addition to my analysis of some of the major issues.

STREAMLINING THE BUDGET PROCESS

There seems to be consensus in Congress that its Members suffer from what Senators Robert Byrd and Pete Domenici call ‘‘fractured attention’’—an overwhelming

schedule that prevents important issues from receiving sufficient consideration. Last

month, for example, more than a dozen Members of Congress offered statements at

a hearing regarding the budget process (February 16). Their statements suggest

widespread agreement not only that budgeting consumes enormous amounts of time

but also that there is insufficient time for oversight, authorization, policy reform,

or even a thorough review of spending measures. Even Congressman David Obey,

who is uncomfortable with the biennial budgeting idea, observes a lack of oversight

and a budget process that is ‘‘a mess.’’ 2

Given the aforementioned problems, a central question is whether biennial budgeting would streamline the budget process—that is, would it reduce Legislative

Branch and/or Executive Branch time devoted to budgeting in a two-year period?

To answer this question, one would like to examine international experience. But

the almost universal use of annual budgeting by other nations makes that impossible. Still, an international perspective on this issue generates two findings worth

noting. One is that legislators devote considerably less time to budgeting in parliamentary democracies—interminable budgeting is largely an American phenomenon. The other finding is that annual budgeting is a product of custom and tradition, not fiscal theory.

Turning to examine the very limited Federal experience with biennial budgeting,

one finds only a single academic study—on the Department of Defense’s formation

of a biennial budget for Fiscal Years 1988 and 1989.3 In that article, Professor Robert J. Art of Brandeis University indicates there were various reasons for the Congress, President and Pentagon to experiment with a two-year budget. Some were attracted by the perceived opportunity to avoid spending cuts, insulate the Department from the 1988 election, and ‘‘get Congress off their backs.’’ Others saw the biVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
26

ennial budget as a chance for Congress and Pentagon managers to conduct more effective program oversight, evaluation and planning.

Professor Art concludes the experiment was a ‘‘half success.’’ He writes: ‘‘Biennial

budgeting yielded no payoff for program stability but a great deal of programmatic

and policy oversight. The vagaries of deficit reduction and electoral politics subverted the former [i.e., Congress authorized only part of the two-year budget and

appropriated only one year of it]; the free time provided by the off year made possible the latter.’’ 4

Pentagon comptrollers, service programmers and civilian managers agreed that

biennial budget preparation was beneficial. The two-year schedule reduced their

problems related to overlapping budget cycles, and enabled analysis, evaluation,

database updating, and planning. Services chiefs collaborated on the shared problem

of pilot retention. The Navy conducted long-range studies on anti-submarine warfare, future ship operating characteristics, and naval aviation needs. Planning for

withdrawal from Panama was also begun. Art reports that biennial budgeting allowed Defense Department administrators ‘‘the time to do the things they should

have been doing but never could because of the rat race of annual budgeting.’’ 5

In short, even as a ‘‘half success,’’ biennial budgeting at the Pentagon saved time

relative to annual budgeting.

Recognizing that states provide natural ‘‘laboratories of democracy,’’ many studies

have examined state experiences in search of insights relevant to Federal biennialbudgeting discussions. There is disagreement about looking to the states for lessons

on this issue. On the one hand, some observe that biennial budgeting is found primarily in small states. On the other hand, the executive director of the National

Association of State Budget Officers argued in 1986 that many state budgets are

‘‘every bit as complex’’ as the Federal budget.6 In my view, an examination of state

experience is warranted, especially since other forms of evidence are scarce.

It is often argued that the state-level trend is toward annual budgeting. This was

true from 1940 through 1986. Since 1986, however, there have been four changes—

all in the direction of two-year budgeting. Table 1 identifies states that currently

employ two-year budgeting. States changing their budget process since 1986 are

noted along with the year of the change.

Biennial-budgeting states devote one year (or a portion thereof) to budgeting and

appropriations, and the following year to oversight, planning and evaluation. In my

1996 article, ‘‘Biennial Budgeting for the Federal Government: Lessons from the

States,’’ I reviewed seven studies of state budgeting published between 1972 and

1995.7 The studies, including examinations of states changing from one budget

length to another, reveal that biennial budgeting is less time consuming and expensive than annual budgeting. In other words, even after mid-term adjustments are

taken into consideration, two-year budgeting eases budgetary burdens on the legislature and public agencies. As for the possibility of a correlation between biennial

budgets and increased reliance on supplemental appropriations and rescissions, evidence from older studies is mixed while the two most recent studies (published in

the mid-1990s) find no correlation.

Concrete estimates of time saving are hard to find. But estimates provided by

state budget officers in both the 1970s and 1990s suggest that off-year budget work

is about one-third as time consuming as annual budgeting. Estimates of direct cost

savings, meanwhile, range from a few thousand dollars to half the price of an annual budget.8

TABLE I.—BIENNIAL BUDGETING IN STATES

Biennial enactment of two annual

budgets

Biennial enactment of a two-year

budget Mixed budget cycle

Annual legislative session.Arizona (1999), Connecticut

(1991), Hawaii, Maine, Nebraska (1987) Ohio, Virginia, Wisconsin.

Indiana, Minnesota, New

Hampshire, North Carolina,

Washington, Wyoming (Wyoming’s legislature meets 20

days in the non-budget

year.).

Kansas Missouri (1994) (In

Kansas, 20 regulatory

agencies are budgeted via

two annual budgets; in

Missouri, the operating

budget is annual while the

capital budget is biennial.)

Biennial legislative session.Arkansas, Kentucky, Montana,

Nevada.

North Dakota, Oregon, Texas.

Total ............................. 12 ............................................ 9 .............................................. 2

Source: National Council of State Legislatures.

27

MAKING GOVERNMENT MORE EFFECTIVE

Streamlining the budget process might help reduce the ‘‘fractured attention’’ problem mentioned earlier. But is this change likely to make the U.S. Government more

effective? If the experience of the Defense Department and the states is any indication, the answer is yes.

According to the aforementioned study of the Defense Department’s experiment,

biennial budgeting produced better evaluation of policy execution and more effective

long-range planning. The study’s author adds that such results can have significant

budgetary consequences, since gains in the realms of evaluation and planning can

improve the future allocation of resources. Thus, the ultimate benefits of biennial

budgeting are better-quality decisions and greater government efficiency.

While Professor Art does not provide an estimate for the total of potential indirect

cost savings, he insists they can be sizeable—especially as a result of lower procurement and weapons-production costs. His report suggests that biennial budgeting

could help reduce the unit cost of some weapons by over 50 percent.

State-level experience, meanwhile, suggests that biennial-budgeting states give

greater attention to legislative oversight, agency management, analyses of program

outcomes, and long-term planning.9 While it is too early to evaluate Arizona’s recent

move to a two-year budget, Governor Jane Hull’s recent mid-biennium report indicates her budget office and other agencies have already devoted more time to program evaluation.10 According to the studies of state experiences, there is widespread

belief in the states that this non-budget work improves government performance.11

In addition to promoting increased program effectiveness, biennial budgeting at

the Federal level could enable Congress to give closer scrutiny to particular outlays,

especially in the difficult realm of ‘‘mandatory’’ spending. Two-year budgeting also

permits changes to be imposed gradually—and without an automatic annual revisiting of decisions. Although some have suggested that biennial budgeting will cause

agencies to seek greater spending cushions (i.e., budget ‘‘padding’’), published examinations of state budgets do not support this contention.

ENHANCING ECONOMIC STABILITY

As in the states, biennial budgeting at the Federal level would require provisions

allowing for changes in response to major unanticipated developments and emergencies. But even with such provisions, state-level studies find that biennial budgets

promote increased stability and certainty. This is clearly advantageous to agencies—

and compatible with the objective of enabling public managers to focus on improving

program results. Yet government contractors, grantees and program recipients also

benefit.

In 1997 testimony before the Senate Committee on the Budget, Dr. John McTague

discussed the benefits of enhancing predictability with respect to investments in

science, technology and capital-intensive projects.12 More than a decade earlier, Dr.

Alice Rivlin went further and suggested the increased continuity of biennial budgeting would benefit all Americans.13 I agree with Dr. Rivlin that we can prevent oftencostly disruptions of public and private activity by minimizing unexpected changes

in tax and spending policies.

Some say biennial budgeting would seriously weaken Legislative Branch control

over the budget and the Executive Branch. Others disagree by maintaining ‘‘the

grounds [for this belief that control will be lost] are quite shaky’’ and suggesting

that Congress would retain its authority by using two-year budgeting as an opportunity to intensify oversight.14 My position falls in the middle. On the one hand,

the appropriations process ‘‘provides a helpful hammer;’’ 15 on the other hand, annual use of that hammer seems to contribute greatly to the problem of fractured

attention.16

SUMMARY AND CONCLUSION

Taking the problem of fractured attention as my starting point, I have examined

available Federal and state evidence and suggested that biennial budgeting would

streamline the budget process, enabling both the Executive and Legislative

Branches an opportunity to make government more effective. I have also argued

that a two-year budget and appropriations cycle could enhance economic stability

through increased policy continuity and the gradual imposition of major changes.

Biennial budgeting will not make budget decision-making easier. And its success

will depend on Congress’ ability to engage in vigorous agency oversight during nonbudget years. But such budgeting can complement the Government Performance

and Results Act and other recent initiatives that demand attention be given to

28

measures of outputs and impacts, not just dollars spent. I hope you find this information useful as you consider the challenges of the current budget process.17

FOOTNOTES

1 Charles J. Whalen, ‘‘Prepared Statement’’ before the Committee on Governmental Affairs,

U.S. Senate, S. 261—Biennial Budgeting and Appropriations Act (Washington, DC: U.S. Government Printing Office, 1997); and ‘‘Biennial Budgeting for the Federal Government: Lessons from

the States,’’ Policy Studies Review 1996 (vol. 14, nos. 3–4, pp. 303–322). 2 It should be noted that views similar to those heard on February 16, 2000 can be found in

the record of numerous hearings held since the mid-1970s. 3 Robert J. Art, ‘‘The Pentagon: The Case for Biennial Budgeting,’’ Political Science Quarterly

1989 (vol. 104, no. 2), pp. 193–200. 4 Ibid., p. 208.

5 Ibid., p. 206.

6Gerald H. Miller, quoted in Jonathan Rauch, ‘‘Biennial Budgeting Taking Root,’’ National

Journal, September 27, 1986, p. 2318. 7This article is cited in footnote 1 above.

8 New Jersey Office of Management and Budget, ‘‘Biennial Budgeting Survey,’’ February 1995.

9See, for example, my ‘‘Biennial Budgeting for the Federal Government: Lessons from the

States,’’ and General Accounting Office, Current Status and Recent Trends of State Biennial and

Annual Budgeting (GAO/AFMD–87–53FS, July 1987). 10State of Arizona, ‘‘ The Executive Mid-Biennium Update: Fiscal Years 2000 and 2001,’’ January 2000. 11 Consistent with this finding is the February 16, 2000 testimony (before the Committee on

Rules, U.S. House of Representatives) of the following Members of Congress—all former legislators in biennial-budgeting states: Hon. Charlie F. Bass, Hon. Doc Hastings, Hon. Bill Luther,

Hon. Karen McCarthy, and Hon. Robert W. Ney. 12 John P. McTague, ‘‘Statement’’ and ‘‘Written Questions and Responses,’’ in Concurrent Resolution on the Budget for Fiscal Year 1998 [February 13, 1997—Biennial Budgeting]. (Washington, DC: U.S. Government Printing Office, 1997), pp. 110–114. 13 Alice M. Rivlin, quoted in Congressional Record—Senate (November 24, 1981), p. 28954. See

also her related article: ‘‘Congress and the Budget Process,’’ Challenge (March–April 1981), pp.

31–37. 14 Roy T. Meyers, ‘‘Late Appropriations and Government Shutdowns: Frequency, Causes, Consequences, and Remedies,’’ Public Budgeting and Finance 1997 (vol. 17, no. 3), pp. 25–38. 15Louis Fisher, ‘‘Biennial Budgeting in the Federal Government,’’ Public Budgeting and Finance 1997 (vol. 17, no. 3), p. 90. 16 It is worth noting that agency managers also experience fractured attention under annual

budgeting. In his article on the Defense Department, Art writes ‘‘The Department cannot both

budget and review annually, or, if it does, . . . [it does] both poorly.’’ 17This statement was prepared for delivery at ‘‘Biennial Budgeting: A Tool for Improving Government Fiscal Management and Oversight,’’ Committee on Rules, U.S. House of Representatives, March 16, 2000. The author is Senior Institute Economist, Institute for Industry Studies,

Cornell University.

SUBMITTED QUESTIONS AND ANSWERS—PROFESSOR CHARLES WHALEN, SENIOR

INSTITUTE ECONOMIST, INSTITUTE FOR INDUSTRY STUDIES, CORNELL UNIVERSITY

1. In your prepared testimony you state that ‘‘an international perspective on this

issue generates two findings worth noting. One is that legislators devote considerably

less time to budgeting in parliamentary democracies—interminable budgeting is

largely an American phenomenon. The other finding is that annual budgeting is a

product of custom and tradition, not fiscal theory.’’ Can you elaborate more on these

two findings?

(i) Parliamentary democracies feature a more unified government structure. Critical budget decisions are negotiated within the cabinet; parliaments usually debate

and enact a budget in only one or two months.

Moreover, reliance on a parliamentary structure is not the only way other nations

achieve budgetary stability. Nearly all employ multiyear budgets for certain expenditure categories such as military spending. In addition, some nations, such as Sweden, place annual budgets in the context of multiyear budget frameworks [see, for

example, Allen Schick, The Capacity to Budget (Washington, DC: Urban Institute,

1990, p. 220]. (ii) The roots of annual budgeting are not found in economic or political theory. Rather, this fiscal period was initially employed because it corresponds

with a full cycle of nature’s seasons. The practice of annual budgeting may have

considerable merit in an agrarian society. It loses much significance, however, in a

highly industrial nation.

At the state level, trends in fiscal practices moved from an initial heavy reliance

on annual budgeting to almost exclusive use of biennial budgeting (and biennial legislative sessions) by the early Twentieth Century. After World War II, many states

reverted back to annual budgeting. Since 1986, four states have turned once again

29

toward biennial budgeting. Today, 23 state budgets have at least some biennial components.

2. You discussed the Defense Department experience. Since the Defense Department

continues to be required by law to submit a biennial budget request, would the Pentagon be a good first candidate for a transition from an annual to a biennial process?

Also, since this submission requirement still exists, has any of the benefit of this

preparation remained for the Department even though they have received annual appropriations?

In the mid-1980s, Representative Les Aspin and Senator Sam Nunn—respective

chairs of the House and Senate Armed Services Committees—concluded that a twoyear defense budget could help their committees focus less on the details of budgeting and more on defense oversight, direction-setting and policy analysis. Defense

Department managers also saw biennial budgeting as an opportunity to devote

greater attention to program evaluation and agency planning. (See Robert Art, ‘‘The

Pentagon: The Case for Biennial Budgeting, Political Science Quarterly, 1989’’.)

According to research by Professor Robert Art (cited above), the Defense Department’s submission of biennial budgets yielded benefits in the form of increased

agency evaluation, better planning and reduced procurement costs—despite the continued reliance on annual appropriations (see my testimony and the Art study for

further details). A study that takes an updated look at the Defense Department experience would indeed be worthwhile.

Two comments are warranted in response to the question of whether the Pentagon’s budget would be a good first candidate for a transition to biennial budgeting.

On the one hand, oversight and planning needs seem to make the Defense budget

a good candidate—and there are certainly many highly predictable elements within

the defense budget. On the other hand, overall defense spending is widely considered one of the most difficult items to place on a two-year cycle, since some military

expenditures are often neither predictable nor deferrable.

3. You suggest that government contractors, grantees and program recipients will

benefit by program managers having more resources and ability to devote to focusing

on improved program results. Could you give some specific examples of how this

would be the case?

Contractors, grantees and program recipients benefit from greater certainty with

respect to funding over time. As indicated in Professor Art’s study, contractors ‘‘can

strike more advantageous deals’’ with subcontractors and parts suppliers—and thus

reduce procurement costs—when operating with a multi-year time horizon. Moreover, instability of weapons-system production also increases costs for both the government and its contractors.

In my testimony, I make reference to remarks offered by Dr. Alice Rivlin. On this

topic, she writes: ‘‘Transfer payments, especially for the elderly, need to be predictable, so that people’s lives are not disrupted. Military capability suffers if signals

change too frequently. . . . Moreover, service delivery—whether roads, schools,

health, or whatever—requires planning time. Frequent change and uncertainty of

funding are costly and disruptive. Annual review of research grants increases the

ratio of proposal writing to actual work. Indeed, almost all programs would work

better if authorizations and appropriations were enacted for several years. Exceptions would appear to be few: natural disasters; military actions; and counter-cyclical programs where triggering mechanisms are not appropriate’’ (Challenge, MarchApril 1981, p. 36).

4. In your prepared testimony you state that ‘‘as for the possibility of a correlation

between biennial budgets and increased reliance on supplemental appropriations and

rescissions, evidence from older studies is mixed while the two most recent studies

(published in the mid-1990s) find no correlation.’’ Can you elaborate more on the

findings of these studies?

In 1972, a report by the Council of State Governments indicated legislators in

states that switched to annual budgeting identified a need for fewer emergency appropriations as one reason for keeping the new system (Annual or Biennial Budgets?, p. 15). A 1984 study, conducted by researchers at Texas A&M University, interviewed officials and observers in states that moved to annual budgeting. That study

reported no discernible link between the budget period and the need for supplemental appropriations (Annual versus Biennial Budgeting?, section 3, pp. 13–14).

A 1987 General Accounting Office (GAO) report provides mixed results on the

basis of interviews conducted with state legislative and executive officials. ‘‘No

strong pattern’’ on the use of budget adjustments emerged from the interviews. Nevertheless, the report did find ‘‘a slight indication’’ that some states which moved to

annual budgets experienced fewer adjustments while some which moved to biennial

budgets experienced an increase in adjustments (Budget Issues: Current Status and

Recent Trends of State Biennial and Annual Budgeting, pp. 14, 19, 25).

30

Another GAO report with information relevant to this question was released in

1993. After stating that 49 states must keep their budget balanced, the report indicated 85 percent of annual budgeting states took action to close a budget gap in the

prior budget period, while only 47 percent of biennial budgeting states did so. (See

Balanced Budget Requirements: State Experiences and Implications for the Federal

Government; percentages based on Tables 3.1–3.3.)

According to a 1994 report by Ronald Snell of the National Conference of State

Legislatures, supplemental appropriations since 1989 have been driven by unpredictable national economic developments that affected all states regardless of the

budget period employed (Annual and Biennial Budgeting: The Experience of State

Governments, p. 8).

5. In your testimony you point to the need for ‘‘provisions allowing for changes in

response to major unanticipated developments and emergencies.’’ Could you elaborate

on what these ‘‘provisions’’ might look like?

Supplemental appropriations and rescissions should be permitted each year. Just

as the current process permits budget adjustments during the fiscal period, so to

should biennial budgeting.

6. One argument against biennial budgeting is that it would exacerbate the need

for supplemental spending bills, which can tend to balloon as they move through the

process. Do you have any suggestions for the Committee about how to control the supplemental process to ensure that we do not slide back into a defacto annual process

should a biennial budget be implemented?

Avoiding over-use of the supplemental appropriation process requires minimizing

the need for ‘‘must-pass’’ supplemental bills and controlling legislators’ ability to attach extraneous amendments to such bills. One way to avoid the need for ‘‘mustpass’’ supplemental bills is to create ‘‘rainy day’’ funds for certain events such as

natural disasters. (Representative Obey has even taken this idea a step further and

suggested creating a system by which states could ensure themselves against such

disasters.) Dan Crippen, Director of the Congressional Budget Office, suggests another alternative worth considering: including procedures in the budget resolution

that would allow budget totals and allocations to be updated automatically for

changing conditions.

7. You state in your testimony that you agree with Dr. Alice Rivlin in a conclusion

that, under a biennial budget model, we should ‘‘minimize unexpected changes in tax

and spending policies.’’ Does this mean that you would argue that the process should

seek to prevent the consideration and enactment of reconciliation bills in the nonbudget year?

Reconciliation bills should generally be passed in the budget year. Freestanding

revenue measures and authorization legislation would be considered in the nonbudget year—and their changes would become effective (except in extraordinary

cases) at the start of the next biennium.

8. As you note in your remarks, a major argument in support of biennial budgeting

is that it would free up the Congress and its committees to focus on more in-depth

oversight during the non-budget year. We have plenty of evidence that under the current system, major portions of the budget go from year to year without authorization.

Do you think that we need to make additional process changes, in conjunction with

enacting a biennial cycle, to strengthen the authorization process?

There are presently a number of ways to circumvent House rules that were designed to ensure authorization precedes appropriation. With biennial budgeting, it

may be desirable to make such circumvention more difficult.

9. Some have suggested that biennial budgeting will cause agencies to seek greater

spending cushions for the second year of a biennial budget. You discussed this in

your written testimony and stated that ‘‘published examinations of state budgets do

not support this contention.’’ Could you comment further on the findings of these examinations in this area?

In 1984, Texas A&M researchers conducted interviews with officials and budget

observers in states that had moved from biennial to annual budgets. They report

‘‘no agreement among the respondents as to the effects of [a switch to] annual budgets on the need for agency cushions’’ (section 3, pp. 13–14).

In 1994, Ronald Snell of the National Council of State Legislatures (NCSL) considered whether the budget period affects state spending. In particular, he examined

evidence summarized in a prior NCSL report and a more recent academic study.

The prior NCSL report, which reviewed the Texas A&M research and four additional studies, produced the conclusion that the budget period does not have any

clear effect on state spending. Snell added that the more recent study ‘‘failed to find

strong evidence on either side of the issue’’ (Annual and Biennial Budgeting: The

Experience of State Governments, 1994, p. 8). [Snell’s references: Barbara Yondorf,

Annual versus Biennial Budgeting: The Arguments, The Evidence, NCLS, 1987;

31

Paula Kearns, ‘‘State Budget Periodicity: An Analysis of the Determinants of the Effect on State Spending,’’ unpublished paper, Department of Political Science, Michigan State University.]

10. What role do you see the authorization process currently playing in the budget

process and do you think that role should change? Do you think changing or

strengthening its role would improve the role and condition of programmatic oversight?

I would agree with former Representative Lee Hamilton, who recently argued that

oversight is currently underused and its value is often underestimated. The twostage authorization-appropriation process makes sense only if authorization committees engage aggressively in oversight. Biennial budgeting provides an opportunity

for congressional committees to conduct such oversight—and to introduce more longterm thinking into policymaking.

Biennial budgeting enables Congress to make full use of agency performance data

required by the Government Performance and Results Act. A legislative session devoted primarily to oversight, evaluation and authorization is consistent with the bipartisan goal of devoting greater attention to measures of program outputs and effectiveness. In short, biennial budgeting is consistent with the goal of making government more efficient.

PREPARED STATEMENT OF ROY T. MEYERS

Thank you, Mr. Chairman Dreier and members of the committee, for the invitation to testify on biennial budgeting. Twelve years ago, when I was working for the

Congressional Budget Office (CBO), I wrote a long paper on this topic that was published by the Senate Governmental Affairs Committee. Discontent with the budget

process was then at its peak, as was the deficit. Now, deficits are only a vanishing

memory, yet complaints are still raised about the budget process. Some are as perennial as the daffodils that grace Washington this month: ‘‘the budget process is

too time-consuming,’’ ‘‘deadlines are usually missed,’’ and ‘‘budget decisions are often

repetitive.’’

In my opinion, such discontent is sometimes misdirected. A budget process that

allocates one-fifth of the Nation’s gross domestic product cannot run as smoothly as

the Swiss train system. That would also be undesirable, for democracies work only

when elected officials argue about how government spends, taxes, and borrows. To

paraphrase the wisdom of Finley Peter Dunne’s fictional Mr. Dooley, ‘‘budgeting

ain’t beanbag.’’ I suggest that we should celebrate that.

Yet the budget process does have serious flaws, and the Congress should consider

how to improve it. Twelve years ago, my paper used the typical ‘‘on the one hand,

on the other hand’’ approach of the CBO, but on balance it suggested that biennial

budgeting had serious disadvantages. In contrast, my testimony today is somewhat

more favorable, because budgeting has changed in two significant ways: there is

much less interest in using the budget for discretionary macroeconomic stabilization, and multiyear budget agreements have become common practice.

RESPONDING TO UNANTICIPATED EVENTS

Opponents of biennial budgeting often argue that it would prevent the Congress

from responding quickly to unanticipated events. Since this is implausible regarding

national security crises, the typical specter is a recession hitting hard in the secondyear of the biennium, with the Congress having to wait a year to respond. But think

back to 1993, when the Congress rightly killed the President’s so-called ‘‘economic

stimulus’’ bill. That proposal was minuscule in amount and offset by deficit reduction proposals, poorly targeted, and timed too late in the recovery from the recession. In fact, the long record of discretionary counter-cyclical fiscal policy is dismal;

economists showed long ago that relying instead on the budget’s automatic stabilizers is a preferable response, and most elected officials now agree. If biennial budgeting would further deter the Congress from displacing the Federal Reserve’s critical

role in stabilizing the economy, this is a strong argument for its adoption.

Note in this regard that some opponents of biennial budgeting also observe that

more states have switched from biennial budgeting to annual budgeting than in the

reverse direction, in part to provide maximum flexibility to meet the states’ balanced budget rules during a recession. From the macroeconomic perspective, however, state balanced budget rules are strongly procyclical and therefore dysfunctional for stabilization. State balanced budget rules should not serve as a model for

the Federal Government. Nor is it likely that most Members of Congress would

want to copy a typical mechanism for state fiscal flexibility—many governors have

32

impressive powers to cut authorized spending without legislative involvement;

should the President have such powers as well?

PROMOTING A MEDIUM-TERM PERSPECTIVE

The second reason that biennial’s time may have come is that the country now

has enough experience with multiyear budget agreements to understand how long

they should last. You may remember the harsh argument in 1995 and 1996 about

whether 7 years or 9 years was the right time frame for a balanced budget agreement. In retrospect, the extraordinary economic performance of the past few years

makes this dispute seem a bit overdone. Nevertheless, that many-year agreement

was preferable to a one-year agreement, because it acknowledged the political need

for a fiscal glide path. But now that deficits have been eliminated, a biennial period

may provide even greater political realism than a many-year period. The two-year

electoral cycle for the House is the timing belt for our political system; comprehensive political agreements do not usually last much longer than the next election.

Biennial agreements may also be more realistic from the economic perspective.

Budget experts have long cautioned that the annual budget is myopic, so it is good

that budget proposals now project effects for five, ten or more years. However, it

is clear that a desire for good budgeting is not the only cause of this practice; assuming a strong economy over a long period provides more-than-enough resources

to finance many proposals. The problem is that the great sensitivity of these longrun projections to some critical assumptions is being ignored. When projections are

too optimistic, the government can approve too much spending and cut taxes too

much, quickly frittering away the fiscal discipline that has been purchased at high

cost. Using long-run forecasts poorly may be worse than the myopia of the annual

budget; biennial budgeting’s implicit focus on the next two years may be more prudent than current practice.

THE INEVITABILITY OF LATE DECISIONS

If biennial budgeting would promote budgetary planning over the medium-term,

it is still unlikely to make budgeting timely. It is human nature to postpone difficult

decisions until a deadline approaches. Since a two-year budget would require more

decisions than a one-year budget, biennial budgeting threatens to increase the problem of missed deadlines.

Now it is true that a single-issue bill is sometimes more difficult to pass than an

omnibus bill. And it’s possible to imagine that some legislators would oppose a oneyear budget because their projects weren’t included, but would support a two-year

budget which added their projects in the second year of the biennium. The second

budget year would permit the budget’s managers to make commitments that are

more credible than ‘‘wait until next year.’’ However, it is doubtful that this benefit

would exceed the costs of negotiating another year of budget allocations.

Expecting a biennial schedule to speed up budgeting forgets that legislatures are

deliberative bodies—they usually take time to reach conclusions. You may know

that a very significant percentage of health care spending occurs in the last week

of a typical person’s life, even if that person has had good preventative care. Similarly, legislatures make many important decisions the week before sine die—not earlier, regardless of good intentions.

LIMITS ON ‘‘EMERGENCY’’ SUPPLEMENTALS

Predicting other potential effects of biennial budgeting is more difficult. Some of

the claimed effects—both positive or negative—appear overstated to me. This is because the biennial bills would make no changes to other aspects of the process, or

more importantly, to critical incentives faced by Members, Senators, or the President.

The most popular approach to biennial budgeting would use odd-numbered calendar years to pass a budget resolution and appropriations bills, both of which

would cover the next two fiscal years. In even-numbered calendar years, the Congress would turn to oversight, authorizations, and campaigning. However, unanticipated situations would surely require the Congress to spend part of the even-numbered calendar year adjusting some of the appropriations made in the previous year.

The risk is that some would be turned into most. A nearing election day, and the

desire to take popular positions just before it, would stimulate many Members and

the President to propose significant budget amendments in hopes of catching the

last train. Consequently, there is a very real potential for a huge supplemental that

would dominate the spring and summer of the even-numbered calendar year. Therefore—and I hesitate to suggest this because of the budget process is already overVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
33

burdened with rules—the committee should consider supplementing any biennial

budgeting bill with the part of H.R. 853 that dealt with emergency spending.

A JOINT BIENNIAL BUDGET

Another proposal in H.R. 853—converting to a joint budget resolution—should

also be considered in conjunction with biennial budgeting. The concurrent budget

resolution was invented with the hope that the Congress could plan as well as enact

budgets, but history has shown that planning is a more demanding task for the

Congress than it is for the executive branch. Similarly, while the traditional view

of appropriations bills is that they are ‘‘must-pass vehicles’’ which equalize the bargaining positions of the Congress and the President, I understand that many in the

Congress now feel otherwise. One reason the Congress has great difficulty passing

the budget resolution and the appropriations bills is that the Congress does not seek

and reach an early accord with the President over the budget’s general parameters.

I will admit that a joint budget resolution process would not guarantee that the

branches could reach such an accord, but there is little risk in trying. It may be

overly ambitious for the Congress to go it alone for a two-year budget.

COMMITTEE REORGANIZATION AND EARMARKS

A final hope for biennial budgeting is that it would enable the Congress to better

design programs and oversee agency performance. These would be extremely valuable outcomes, but they will not be produced simply by reducing the time spent on

budgeting. In fact, as Members of the Appropriations Committee have correctly

pointed out to your committee, authorizing committees are not the only committees

that oversee agencies, and appropriations bills are powerful message senders to

agencies.

Members of the Rules Committee know better than anyone on Earth the institutional disadvantages of turfing between authorizing and appropriations committees

and between different authorizing committees. The logical implication is that some

committee overlaps should be reorganized out of existence, as Chairman Dreier has

suggested in the past. A more radical approach would be to combine authorization

and appropriation activities within committees specialized by functions of government. This would help the Congress link plans, performance measures, and budgets

as envisioned by the Government Performance and Results Act (GPRA). It would

also better connect committee allocations in the budget resolution to the resolution’s

consideration of priorities among budget functions. While I understand the huge political barriers in the way of this proposal, I submit that moving to a logical committee structure would more likely improve policy design and oversight than would

changing the budget schedule.

Advocates of biennial budgeting often complain that excess time spent on budgeting reduces oversight activity in the Congress. While the Congress is actually the

world leader in quality legislative oversight, there is no question that it can improve

oversight of agency performance, and also its earlier authorization of programs.

Again, GPRA provides a logical framework for increasing the clarity and consistency

of agency goals, measuring how well agencies attain these goals, and connecting

goals and performance to budget allocations.

Some of the biennial budgeting bills would adjust GPRA by linking two-year

availability of funds to two-year performance reports. While this is a necessary condition for success, it is insufficient. At least as necessary is good faith between the

branches. Over the past few years, the Congress has released some critical reports

of agency plans and performance measures. In many cases, the complaints were justified. From the agency perspective, however, Congressional complaints would be

more credible if the Congress spent less time stuffing appropriations and authorizing bills and reports with earmarks that are guaranteed to reduce agency effectiveness and efficiency. Members naturally want to deliver benefits to their individual

districts, and to some degree, it is useful for the Congress and the country when

they succeed. But if self-restraint is the only major barrier to earmarking, the practice can get out of hand. If the Congress wants to promote better program authorizations and oversight, it needs to make earmarking much more difficult. Without that

easy option, more legislators will develop the expertise in programs and agencies

that is essential for our democratic system to function well. A simple change to the

timing of the budget process may help promote oversight, but it is more important

to create the conditions under which oversight is highly valued by both Members

and their constituents.

34

CONCLUSION

In conclusion, the committee should seriously consider biennial budgeting.

Multiyear budgeting can properly focus attention on the controllable medium-term,

but passing a simple biennial budgeting bill will not ensure this. Any shift to biennial budgeting should be coordinated with other complementary changes to the

budget process, and a modified H.R. 853 would be a good starting point for such

an omnibus bill. Biennial budgeting could also better connect decisions about budget

allocations to related decisions about program goals and agency performance. However, it is unlikely that biennial budgeting will have this effect unless the Congress

revisits the question of whether committee jurisdictions and responsibilities should

be modified.

Thank you, and I’d be glad to answer any questions you might have.

SUBMITTED QUESTIONS AND ANSWERS—ROY MEYERS, ASSOCIATE PROFESSOR,

DEPARTMENT OF POLITICAL SCIENCE, UNIVERSITY OF MARYLAND, BALTIMORE COUNTY

1. As you know, the current budget process only accounts for changes in mandatory

spending and revenues that result from legislative action. OMB and CBO hold the

budget harmless for changes in spending or revenue levels caused by administrative,

economic or technical changes. Do you think it would be possible and advisable to

utilize this existing mechanism (or a modification thereof) as a way of handling such

changes in the budget under a biennial process? Is this a way to address part of the

difficulties with long term projections?

A biennium is a relatively short time compared to the period used in long-term

budget projections—typically 10 years for the aggregate budget and up to 75 years

for selected programs like Social Security. Budget projections made over such long

time periods tend to be quite inaccurate, for two reasons. First, the projections are

highly sensitive to changes in underlying assumptions (e.g., the rate of wage

growth). Second, the ebb and flow of political forces in society, and the responsiveness of our political leaders to these forces, cause strong demands each year to adjust budgetary policies.

Reducing the first difficulty would require better data and better modeling. However, because extensive data is already collected and budget forecasters are already

quite professional, a significant reduction in long-run forecasting errors is unlikely.

The major difficulty in this regard is to convince political decision-makers to take

seriously the fact that estimates are likely to be wrong. An automatic adjustment

procedure for a many-year budget agreement may prevent that agreement from becoming wildly unrealistic. On the other hand, the availability of such an adjustment

procedure may also encourage political decision-makers to extend budget agreements for longer periods than are politically realistic. Elections always shift the balances of partisan power within the Congress and between the branches. Because

elections occur every two years, any budget agreement planned to last for more than

2 years is likely to be challenged successfully. Biennial budgeting therefore would

establish a more realistic time frame for negotiating budget agreements than would

current practice.

2. In your prepared testimony you state that ‘‘biennial budgeting may be more realistic from the economic perspective.’’ Would you elaborate on how this may be the

case?

In my testimony, I argued that many-year budget agreements implicitly expect

budget forecasts to be highly accurate for much longer than two years. When those

forecasts are made at the peak of the business cycle, as is the current experience,

they show large amounts of uncommitted financial resources. Some political decisionmakers have responded by proposing to allocate, in just this year, all of those

resources that are expected to materialize over a much-longer period. Yet there is

a significant risk that those expectations are overly optimistic. This risk receives little mention in public debate, which is probably due in part to the fact that official

estimates made in the early-to-mid 1990s were overly pessimistic.

I am not arguing that the Congress should neglect what might happen in the outyears beyond the biennium. Far to the contrary, for much of what the Federal Government does in the budget has long-term impacts, whether as capital investments,

loan obligations, tax provisions, debt burdens, or benefit commitments. The most realistic approach to budgeting would attempt to project the long-term effects of these

decisions while taking uncertainties into account through the use of sensitivity analyses. A focus on the biennium would be second-best to this approach, compared to

the even worse approach of assuming that the U.S. has entered a new golden eon

of economic growth.

35

3. You discuss the issue of which of the two years should be devoted to consideration of budget-related legislation. You raise concerns about using the odd-numbered

year for consideration of such bills. Do you think the even-numbered year would be

a better approach? Could you elaborate more on these concerns?

If one purpose of biennial budgeting is to require that most budget decision-making take place in one calendar year of a Congress, then the odd year should be the

preferred year. The odd year follows the election, enabling quicker legislative action

in response to an electoral mandate than would the even year. The odd year also

allows more time for legislative action than the even year does, because of the practice in the even year to adjourn a month before the November election and the associated pressure on individual Members during their primary elections.

However, it is unrealistic to expect all budgetary actions to be completed in the

odd year. Every legislature on earth tends to postpone some major decisions until

shortly before sine die adjournment. Some budget issues would therefore be delayed

until the even year. In addition, unanticipated events would likely create a need for

even-year amendments to the budget that was just enacted in the odd year. And

last, but certainly not least, an upcoming election would tempt Members to propose

budget amendments in order to help them campaign effectively.

If the Congress is to budget biennially, it needs rules that would prohibit most

nonemergency budget amendments from being adopted in the even year. At the

same time, it would also have to use flexible scorekeeping to allow selected, major

legislative proposals with budgetary impacts to be considered during the even year.

A current example of the latter might be the possibility of enacting a prescription

drug benefit in Medicare.

4. What role do you see the authorization process currently playing in the budget

process and do you think that role should change? Do you think changing or

strengthening its role would improve the role and condition of programmatic oversight?

Based on rate of passage of authorizations bills, the process has significantly

weakened over several decades. I also suspect that the authorizations process has

become worse in its review of the ‘‘big picture’’—the attention to strategic direction

called for by the Government Performance and Results Act (GPRA)—and consequently, in the connection of the oversight of administration to statutory goals.

Unfortunately, improving the authorizations process would require more significant changes than simply reserving more time for authorizations committees to

draft bills and for the floor to consider these bills. I suggested in my testimony that

the crucial needed change is a commitment by Members to emphasize this responsibility; this is out of the range of Rules Committee influence. However, I do suggest

that organizational restructuring could make it more likely that the authorizations

function could be carried out much better.

In practice, appropriations bills ‘‘must pass’’ if agencies are to operate. In theory,

authorizations bills also ‘‘must pass’’ if appropriations are to be enacted without facing a point of order. However, in practice, this requirement is waived so often, or

made irrelevant by permanent authorizations, that the appropriations process has

captured much of the importance intended for the authorizations process. Those

practices are partially justified by the tendency of negotiations over authorization

bills to reach impasses over sticking points. For example, a President might safely

assume that disagreeing with an authorizing committee will not prevent an appropriations committee from enacting an unauthorized appropriation.

My suggestion for improving on this situation is to end any separation of authorizing and appropriating responsibilities. Committees with mandatory spending jurisdiction already combine these functions. The separate authorizing and appropriations committees on the discretionary side of the budget could be similarly combined. In practice, this would require a redistribution of authority between different

committees. For example, the irrational split of jurisdiction for health programs

could be realigned within a health committee. Though the political barriers to this

reform are immense, it is also the case that the Congress faces a continuous challenge to its capacity if it refuses to improve on an internal structure that encourages

excessive conflict.

It might be argued that one of the dangers of combining authorizing and appropriating functions within one committee is that budgeting would drive out other activities. Of course, from the perspective of some authorizing committees, this is already the case. When the two responsibilities are combined, each committee would

be able to determine the proper balance of budgetary and other activities. Moreover,

the message of GPRA is that the two activities are inextricably linked.

36

PREPARED STATEMENT OF ROBERT L. BIXBY

1. BACKGROUND

Mr. Chairman and members of the Committee, thank you for inviting me to appear today to discuss Federal Government biennial budgeting. I am here representing the Concord Coalition, a nationwide, grassroots bipartisan organization dedicated to strengthening the Nation’s long-term economic prospects through prudent

fiscal policy.

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 for eight years since the organization’s founding by Paul Tsongas, Warren Rudman, and Peter G. Peterson in 1992 to help build a political climate

that encourages elected officials to make the tough choices required to:

• Balance the Federal budget

• Keep it balanced on a sustainable basis, and

• Strategically deploy any budget surpluses that develop to prepare for the fiscal

and economic challenges that will occur as the Nation’s population becomes sharply

older in coming decades.

Given these objectives, The Concord Coalition is greatly heartened by the dramatic improvement in the Federal Government’s fiscal condition over the past several years. When the 1990s began the Nation was mired in large and growing deficits. The budget process was primarily aimed at reining in and ultimately eliminating the deficit. The Budget Enforcement Act of 1990 established caps on discretionary spending, and a pay-as-you-go limitation on mandatory spending and revenues. By helping to constrain spending these budget enforcement mechanisms made

a direct contribution to the more favorable fiscal position we now enjoy.

The lesson to be learned from the overall success of the BEA is that budget process

reform, while not everything, can be an important tool in achieving strategic longterm goals.

Today, for the first time in a generation, the budget is in surplus. Indeed, fiscal

year 1999 marked an important milestone as the budget was balanced without

using the legally ‘‘off-budget’’ Social Security surplus—the first such ‘‘on-budget’’

surplus since 1960. Debt held by the public has declined for two years running, and

a further reduction is expected in the current fiscal year. Not coincidentally, the

1990s was a decade of accelerating economic growth.

So why doesn’t the Concord Coalition declare victory and go home? Its because

our goal has never been to achieve a balanced budget for one, two, or even three

years, but to help bring about fiscal policies which can be sustained over the longterm in a much changed demographic climate. In that regard, there is much work

remaining to be done. Unfortunately, today’s prosperity, welcomed as it is, has not

repealed the coming age wave. Nor has it erased the projected growth in age-related

entitlement programs such as Medicare, Social Security, and Medicaid. Nor does it

signal an end to the need for fiscal discipline and careful scrutiny of the manner

in which taxpayer dollars are spent.

As the General Accounting Office and the Congressional Budget Office continually

remind us all, the challenges of an aging society include fiscal pressures which cannot be remedied simply by assuming that projected budget surpluses will bail us

out. The inevitable growth in spending on age-related entitlement programs will put

pressure on discretionary spending, revenues, and public debt. Unless we are prepared to accept a permanent level of government spending and revenues as a percentage of the economy (GDP) that we have not experienced, other than temporarily

in times of war, tough choices will need to be made to avoid burgeoning public debt

in the future.

Given this set of concerns, it should be readily apparent why the Concord Coalition is interested in establishing tight fiscal discipline procedures and observing

them scrupulously. While no amount of process reform can substitute for the hard

policy choices you face as the demographic tidal wave approaches, The Concord Coalition believes that moving the budget to a biennial cycle would help shift the emphasis from the immediate, and often repetitious, year-to-year battles over budget

resolutions and appropriations bills to the broader questions of strategic planning,

oversight, and reform.

Just as the budget process was reformed to respond to the deficit challenges of

the late 1980s and 1990s it is now appropriate to consider new reforms which will

help you prepare for the challenges of the early 21st Century—wise management

of our surpluses, a thorough examination of the role and scope of the Federal Government and careful scrutiny of the programs deem worthy of a commitment of taxpayer dollars.

37

II. BIENNIAL BUDGETING FITS THE TWO-YEAR CONGRESSIONAL CYCLE

The Concord Coalition has always favored moving to a two-year budget process.

Putting the President’s Budget, the Congressional Budget Resolution, appropriations and oversight on a two-year cycle that coincides with sessions of Congress

makes excellent sense for a number of reasons.

To begin with, the Congressional Budget Resolution is as much a political statement as a management tool (the same is true, of course, with the President’s budget.) As such, it makes sense for each 2-year Congress to adopt a single such statement, use it for guidance throughout the remainder of the session and change it

only if economic or political events make it completely unworkable. Overall decisions

on how much defense and non-defense spending to permit, how much entitlement

expansion or reduction to permit, and how tax policy should be changed are matters

that should not alter much within any given session of Congress. And, with budget

deficits at least temporarily erased, there is no longer the need for an annual reconciliation bill, or for a Congressional Budget Resolution requiring it.

Indeed, from Concord’s perspective, one of the most attractive features of biennial

budgeting is that it would lessen the opportunities for fiscal irresponsibility. Some

traditional opponents of biennial budgeting have contended that by moving from an

annual to a biennial process, policy makers would relinquish half their opportunities

to enact reconciliation bills and reduce the deficit. Now that we appear to be entering a period of budget surpluses, the reverse argument can be made in support of

biennial budgeting: with a two-year process, policy makers will have only half as

many opportunities to reduce the surplus. That’s desirable.

III. BIENNIAL BUDGETING FITS THE DEMAND FOR IMPROVED OVERSIGHT

Another advantage of biennial budgeting is that it would enhance the opportunities for congressional oversight. Congress functions in a biennial mode, and conforming the budget cycle to the congressional rhythm is a sensible change that could replace wheel spinning with productive work, including more attention to oversight.

Ideally, the first session of each Congress would be spent on setting priorities and

establishing funding levels, and the second session would be devoted to long-term

planning and oversight.

Granted, the work of oversight is a more painstaking, and perhaps not as immediately rewarding, task than appropriating. And, as many of your prior witnesses

have noted, moving to a biennial cycle would not guarantee that time would be

made available for oversight or that oversight would be any more thorough than it

is now.

But perfection should not be made the enemy of the good. The key question in this

regard is whether biennial budgeting, if successfully implemented, would improve the

current situation. Perhaps one of the strongest arguments in favor of biennial budgeting is that so many members of Congress have come to believe that the annual,

repetitive, tussle over the budget makes it impossible to engage in any meaningful

oversight. Evidence in support of this perception is the fact that according to CBO

some $121 billion worth of FY 2000 appropriations were made for programs and activities with expired authorizations.

In the final analysis, you are the experts on whether biennial budgeting will free

up a meaningful amount of your time. If in your experience you believe that biennial budgeting will give you more time for oversight and planning, then The Concord Coalition is prepared to take you at your word.

It is also important to note that the potential benefits of biennial budgeting are

not limited to congressional oversight. A two-year cycle would improve the efficiency

and efficacy of both the Executive and Legislative Branches. Too much time is consumed needlessly in repetitious budget preparation, justification, and appropriation.

This energy could be more usefully put to work on improving government performance.

Another relevant consideration, involving both the congressional and executive

branches, is how you can best make use of the Government Performance and Results Act of 1993. You will now be receiving a wealth of material to absorb in monitoring the performance of government agencies. Adequate time must be made available to properly integrate the GPRA results into your decision making. In that regard, biennial budgeting makes great sense. It would be far better to free up time

to absorb the new information provided under GPRA than to continue the amount

of time and energy that now goes into repetitiously renewing or disputing budgetary

‘‘decisions’’ that often have been made ‘‘final’’ only a few months earlier.

38

IV. BIENNIAL BUDGETING WILL HELP IN ‘‘REINVENTING’’ GOVERNMENT

Now that the budget process need not be focused exclusively on deficit reduction,

you have a window of opportunity to do some weeding out, modernizing, and updating of government programs before the demographic and fiscal pressures of the baby

boomers’ retirement hit. If there was ever a time to ‘‘reinvent’’ government, now is

it. In Concord’s 1993 Zero Deficit Plan we suggested that you look to eliminate:

• Programs that are no longer needed

• Programs that don’t work or are inefficient

• Programs we can no longer afford

• Subsidies to narrow interests

The Comptroller General recently gave the Congressional Budget Committees a

similar list of suggestions. And, last week the Congressional Budget Office released

its annual Budget Options book containing some 250 spending and revenue options.

In short, there is a general recognition that simply achieving a ‘‘zero deficit’’ does

not mean that there is no further need for fiscal discipline. It does not mean that

we should continue to fund programs that are no longer needed, or that are inefficiently run, or that return little public benefit for the amount of dollars committed

to them, or that provide subsides to narrow interest.

If biennial budgeting results in Congress having more time to engage in oversight,

then American people should expect to see a more productive government in which

performance counts, and programs are not simply continued from year-to-year simply because no one has the time to ask whether or not they are still needed.

While I have no polling data to back this up, I firmly believe that the American

people would support your moving to a biennial cycle. Doing so would send a powerful signal to your constituents that you are at least as interested in monitoring and,

if necessary, reforming the way in which taxpayers dollars are spent as you are in

simply determining how much is spent.

V. CONTINUATION OF A LENGTHENING CYCLE

Moving to a biennial budgeting process would constitute a continuation of the

gradual lengthening of the budget cycle that has occurred since adoption of the Congressional Budget process in 1974. When the Congressional budget process was

launched in calendar 1975, the process began with two budget resolutions for fiscal

1976. By the next cycle, there were three budget resolutions for fiscal year 1977,

enacted on April 29, 1976, September 9, 1976, and March 2, 1977.

For the remainder of the first decade of the Congressional budget process, there

were two budget resolutions annually, plus a formal revision of the second budget

resolution in the following year. By 1982, the second budget resolution was settling

into a pro forma exercise that essentially reaffirmed the figures contained in the

first resolution. However, not until Gramm-Rudman was enacted in 1985 was the

requirement for a second budget resolution abolished. In some ways 1998 marked

a new, though unintentional, point on this continuum when Congress was unable

to agree on any budget resolution at all. Without the discipline provided by a budget

resolution, the end-game antics during the pre-election closing weeks of the 105th

Congress became needlessly expensive. Certainly it is possible to improve on this

first unsatisfactory experience with a two-year budget cycle.

Formally converting the annual appropriations process to a two-year cycle would

be a significant change, but perhaps not as large as it might seem. Some two-thirds

of the budget accounts on the annual appropriations cycle already provide multipleyear or no-year funding. Advance appropriations are already made for programs,

such as education, where there is a clear need to have funds immediately available

at the beginning of the fiscal year. The Department of Defense already submits a

two-year budget, though Congress has yet to authorize or appropriate for defense

on a two-year basis.

VI. BIENNIAL BUDGETING WOULD NOT BE A FISCAL STRAIGHTJACKET

In considering biennial budgeting, it is fair to ask whether the priorities established in the first year would hold up for two years? And if adjustments were required, how would Congress respond?

On the first question, there is little reason why priorities established at the beginning of each two-year Congress ought not to provide a workable guide for a twoyear period, particularly during the current era of extraordinary peacetime prosperity. While there is always uncertainty in budgetary forecasts, the greatest danger

in this regard is in using long-range surplus projections to ‘‘pay for’’ entitlement expansions, or revenue reductions. The existence and size of any such surpluses is far

too speculative to serve as a reliable source of financing for new permanent commitVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
39

ments. This danger exists whether we stay with an annual budget cycle or move

to a biennial one.

On the discretionary side of the budget, a biennial process would create the need

for a mid-session ‘‘corrections’’ bill. But the usual fiscal ups and downs on a yearto-year basis should not be so great as to necessitate major changes. A larger surplus than expected could always be used to reduce the debt, or released for high

priority items. A larger deficit than expected could be addressed through recissions,

or if necessary, be absorbed until the next Session.

Should there be substantial and unanticipated changes in the economy, alarming

international developments or extraordinarily severe natural disasters, Congress

and the White House would unquestionably respond. The point is that moving the

discretionary budget to a biennial cycle would not be tantamount to putting the government on autopilot.

VII. BIENNIAL BUDGETING DOES NOT MEAN RUNAWAY SUPPLEMENTAL SPENDING

Moving to a biennial system would mean that some regular mechanism for considering mid-course corrections would need to be established. The machinery for

supplementals and rescissions is well developed. The chief challenge therefore would

be not whether there could be a timely and appropriate response to new priorities

during the two-year period, but rather how to hold to a minimum the number of

such extraordinary responses and their dollar level. If ‘‘urgent’’ supplementals for

routine and unnecessary increases are permitted to become the commonplace rule

rather than the rare exception, the rationale for moving to a two-year budgeting

cycle will have been defeated.

Moreover, if you decide to move to a two-year budget cycle, the likelihood will increase that necessary, sudden, urgent, unforeseen and temporary needs will arise

after the budget plan has been adopted (i.e., emergency spending). It is even more

likely that merely desirable, helpful, useful or popular needs for additional spending

will increase, particularly as election day nears. The record of the past two years

has been dismal in this regard. A legitimate safety valve in the budget process was

widened into a huge loophole through which Congress and the White House jointly

enabled each other to permit more than $30 billion to leak away each year. In fact,

the fiscal year 2000 leakage is still an ongoing proposition.

A key element of any transition to biennial budgeting would, therefore, be establishing a way to ensure, or at least protect, against the danger of ‘‘death-bysupplementals.’’ It should be made clear that the method of adjusting second-year

spending levels would be through one mid-session correction bill, rather than

through an ad hoc series of smaller, less scrutinized bills. Bipartisan cooperation at

the leadership level (including the administration) would be required to keep the

supplemental process from deteriorating.

While there is always a danger that second year supplementals would get out of

hand in a biennial cycle, this need not happen if:

• Realistic discretionary spending assumptions are used in the Congressional

Budget resolution;

• Rosy economic assumptions are avoided; and

• A regular mechanism is put in place to consider the second session update.

These elements would help prevent an avalanche of supplementals; something

Concord believes should clearly be avoided.

VIII. PLANNING FOR EMERGENCIES

The Concord Coalition also agrees with Speaker Hastert and others who have argued that biennial budgeting would encourage Congress and the President to plan

ahead for emergencies. Concord favors enacting appropriations in the regular appropriations bills for the principal emergency relief programs at their long-term average levels. Natural disasters—floods, droughts, fires, hurricanes, tornadoes, and

earthquakes—occur with dismaying regularity. Expenditures in response to these

occurrences tend to fall within a predictable range. To budget in anticipation that

there will be no disasters is disingenuous.

Others have suggested that a reserve fund be set aside within the annual discretionary caps at amounts equal to the five-year rolling average. This would provide

budgetary resources within the discretionary caps in advance of emergency needs

and would eliminate the need for most supplemental emergency appropriations. At

issue would be how funds would be released from the reserve, under what circumstances, and what to do with unused funds at the end of the fiscal year. If such

an advance funding reserve were created, Concord would oppose establishing it as

a trust fund or investing reserves in government interest-bearing debt. Instead, we

would prefer to see it function as a score-keeping entry in which credit for unused

40

funds could be rolled into future years for possible appropriation should the need

arise.

One potential partial solution would be to withhold allocation to the Appropriations Committee of a small portion of the two-year total until the second year. This

specific ‘‘pot’’ of set-aside funds could function as a safety valve to accommodate

new, unexpected needs that, while useful and beneficial, do not constitute true

emergencies.

Mr. Chairman, it is clear that no amount of process reform will cure all of the

perceived problems with the current system. But the fact that perfection will not

be achieved should not deter you from trying to reform the system in a positive way

that is responsive to the challenges ahead, and that addresses the frustrations so

many of you have expressed with the current system.

SUBMITTED QUESTIONS AND ANSWERS—ROBERT L. BIXBY, EXECUTIVE DIRECTOR OF THE

CONCORD COALITION

1. Could you explain your point of view with regard to the statement in your testimony that, in an era of surplus, reconciliation bills are no longer necessary? Reconciliation is a process designed to bring about changes in entitlement and revenue

policies—changes that might not occur under the regular order, especially in the Senate. Your testimony appears to argue that without a deficit there would be no reason

to want to seek to make such changes in law. Please elaborate on why do you believe

that, in times of surplus, we should not be considering revenue changes that might

include tax relief for the American people?

In my prepared testimony, I noted that, ‘‘with budget deficits at least temporarily

erased, there is no longer the need for an annual reconciliation bill, or for a Congressional Budget Resolution requiring it.’’ (emphasis added).

The fact that we have projected surpluses, or that we may move to a biennial

budget cycle, does not mean there would be no further need for reconciliation bills.

Presumably, Congress would still use reconciliation as a vehicle for tax and entitlement changes. But any such changes as may be deemed appropriate could easily be

handled through reconciliation bills enacted in the first year of the two-year cycle.

Indeed, frequent changes to the tax code and in entitlement programs can be destabilizing and confusing both to the public and to the agencies charged with administering them.

Moreover, it should be noted that there is a significant difference between an era

of projected escalating deficits and projected escalating surpluses. In the former situation, there is a critical need for action to prevent a fiscal meltdown. Annual reconciliation bills provide the opportunity to take such action. In the later situation,

there is not the same need for immediate action. Unlike deficits, projected surpluses

are consistent with the new bipartisan consensus to truly wall-off the Social Security surplus, and to pay down the publicly held debt. Even with the longest economic expansion in our Nation’s history the budget in fiscal year 1999 was in surplus, excluding Social Security, by just $704 million. Future surpluses are contingent upon continued strong economic growth, slow growth in health care costs, and

fiscal discipline 3⁄4 none of which is guaranteed. In Concord’s view, a biennial budget

cycle, including reconciliation bills, would provide ample opportunity to address

needed changes in permanent law, while limiting the temptation to dissipate the

surplus.

2. You discuss the likelihood that, under a biennial process, there would be a need

for a mid-session ‘‘corrections’’ bill. How likely do you feel it to be that procedural

constraints could be enacted and enforced to keep the biennial process from degrading back into a defacto annual cycle?

The benefits of biennial budgeting would be lost if the process were allowed to

fall back into a defacto annual cycle with 13 supplemental bills, or a like amount,

replacing today’s 13 regular appropriations bills. But there is no reason to assume

that this will happen. Under the current annual cycle the administration and Congress routinely handle supplemental bills to deal with unforeseen emergencies, and

in some cases, to reorder priorities. These bills can be contentious, but they do not

require anywhere near the time it takes for full consideration of 13 annual appropriations bills. Thus, if the midsession corrections bill is treated more as a supplemental bill and not as a reopening of the basic budgetary framework agreed to in

the first year of the session, it should be possible to prevent falling back into a

defacto annual cycle.

Of course, no one can guarantee that this will not happen. But the possibility of

failure should never deter innovation. Obviously, any process reform, indeed any

new idea, might not work. In this case, the question of success or failure largely

41

depends upon the good faith effort of the people in the congressional and executive

branches who will have to make it work. I am confident that if Congress chooses

to adopt biennial budgeting it will not turn around and squander the benefits of this

change by allowing the supplemental process to get out of control.

In addition to good faith efforts, other process reforms might help make biennial

budgeting work. One is the idea of converting the Budget Resolution from a Concurrent Resolution, which does not require the President’s signature, to a Joint Resolution, which does. Bringing the President into the process at an earlier point, as

would occur with a Joint Resolution, would help ensure that the framework established in the first year would hold up over the second year, with only minor adjustments.

Another process reform that might help is setting aside a realistic amount for legitimate emergencies, particularly natural disasters. One major problem has been

that not enough is appropriated through the conventional appropriations process to

finance adequately the disaster relief programs. Scarcely a year goes by without a

devastating fire, flood, drought, earthquake, tornado, or 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. Although we never know what disaster or emergency lies ahead, it’s safe to

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. Instead, minimal amounts are appropriated for FEMA and the

other disaster relief accounts, and the rest of discretionary funding is used up for

other purposes. Then when disaster strikes, it’s too late to say, ‘‘we should have

kept some funds in reserve,’’ or, ‘‘we should have originally provided more disaster

funding.’’ By then, spending limits have already been reached, and the only way to

provide disaster relief is through emergency spending.

A third factor that would help prevent supplemental bills from getting out of control would be the establishment of realistic discretionary spending caps. Much of the

recent explosion in dubious emergency spending, and other budgetary gimmicks,

stems from having discretionary spending caps set at an unrealistically low level.

Tough, but realistic spending caps would help ensure that second year ‘‘corrections’’

bills do not necessitate whole new budgets.

3. Some have suggested possibly including a sunset provision for biennial budgeting. How long do you think it would take before we could assess whether a biennial

process is working? What would be the criteria you would use to judge its success

or failure? Do you have any thoughts on another suggestion that has been made that

we should consider implementing biennial budgeting on a pilot basis just for certain

segments of the budget?

The Concord Coalition would prefer that biennial budgeting be adopted on a permanent basis for the entire budget. Doing otherwise would signal a lack of commitment to the concept, resulting in confusion, and potentially, reluctance to fully comply with the new procedures. As noted above, good faith cooperation will be required

to make the biennial budgeting work. It can be anticipated that there will be implementation problems in first one or two cycles. If those opposed to the new system

know there is a clock running, their temptation may be to run out the clock rather

than figure out how to make the new system work. But, in any event, it is clear

that Congress can always undo any process reform that turns out to be untenable.

So, even without a sunset provision biennial budgeting would only survive if those

who must abide by it find it to be an improvement over the current system.

It is difficult to say how long it will take to assess whether biennial budgeting

is working. At a minimum, I would allow three biennial cycles to make a fair test.

The first cycle, almost by definition, will be experimental. Allowing two more cycles

to work out the bugs and to see whether two-year agreements can hold up through

a couple of election cycles will be important measures of success.

There are probably no objective criteria to use in judging whether biennial budgeting works. But much of the desire for biennial budgeting comes from a sense that

Congress has insufficient time for long-range planning and government oversight.

Thus, one measure of success would be whether biennial budget actually frees up

time for such activities, and whether Congress actually takes advantage of this time

to engage in more effective planning and oversight. Other measures of success

would be the extent to which budgetary gridlock is alleviated, particularly in the

second year of the cycle, and whether the level of unauthorized appropriations

comes down. It would also be important to receive feedback from the executive

branch and the General Accounting Office on whether biennial budgeting results in

better program management.

42

Requiring separate cycles for different parts of the budget would be counterproductive. One of the perceived benefits of biennial budgeting is that it would help

streamline the budget process. Putting the budget on two different cycles may well

result in added confusion. If so, this would not be a fair test of biennial budgeting,

which might be blamed for the added confusion. Such a pilot test might also provide

the opportunity for new gimmicks, such as shifting funds between annual and biennial cycles. It would be best to set the same rules for the entire budget.

PREPARED STATEMENT OF MARTIN A. REGALIA

My name is Dr. Martin A. Regalia, and I am Vice President and Chief Economist

of the U.S. Chamber of Commerce. The U.S. Chamber is the world’s largest business

federation, representing more than three million businesses and organizations of

every size, sector and region. This breadth of membership places the Chamber in

a unique position to speak for the business community. Mr. Chairman, we appreciate this opportunity to testify on behalf of biennial budget provisions, such as

those contained in the Biennial Budgeting and Appropriations Act (S. 92), introduced by Senator Domenici, and in several bills introduced in the House of Representatives (H.R. 232, H.R. 493, H.R. 2985, and H.R. 3586), and we commend you

for holding these hearings.

OUR ANNUAL BUDGET SYSTEM IS TOO INEFFICIENT

Increasingly, the existing Congressional budget process is unable to produce a

budget in a timely fashion. The system is fraught with wasteful repetition and duplication of effort, allowing inadequate time for oversight and management of government programs, suboptimal budget predictability and stability, and even more

frenetic activity during election years. The Chamber believes that the adoption of

a biennial budget cycle will alleviate some of these by-products of the Federal budget process.

BIENNIAL BUDGET PROPOSALS

As provided in the proposals contained in current House bills and S. 92, a biennial

budget would require the President to submit a two-year budget, and would devote

the first session of a Congress to developing a two-year budget resolution and attending to 13 two-year appropriations bills. A point of order would be established

against consideration of appropriations legislation covering less than two fiscal

years and consideration of authorization legislation during the first session until all

action on budget-related legislation has been completed. The second session would

have Congress concentrate on authorization activities and programmatic oversight

of government agencies. If necessary, modifications to the appropriations would be

handled through the mechanisms of supplementary appropriations or rescissions in

the latter session.

PROBLEMS WITH THE CURRENT PROCESS

Lack of timeliness

Within the current budgetary framework, deadlines are repeatedly missed. The

government regularly fails to timely enact all individual appropriation bills to fully

fund the government by the beginning of the fiscal year. Since 1950, Congress has

enacted all thirteen appropriation bills by the beginning of the fiscal year only three

times. During the 26-year history of the Budget Act, Congress has met the deadline

for completion of a budget resolution only four times. A timely completion of this

year’s budget resolution would mark the first time that Congress has met the April

15th statutory deadline two years in a row.

The adoption of multiple continuing resolutions to keep the government in operation has become a commonplace event—the status quo. The threat of government

shutdowns—and the occasional reality of actual ceasing of operations—is a very disruptive and disheartening aspect of our system of government. It’s no wonder that

many Americans have lost faith in their leaders, and feel that elected officials are

‘‘out of touch’’ with their constituents. This annual quandary serves no one’s best

interests—regardless of political affiliation.

This manner of conducting ‘‘business as usual’’ would not hold up to scrutiny in

the business world. This is no way to run a business, and it is certainly no way

to run a country. Adoption of a biennial budget system would help free the government from this threat of chaos and paralysis.

43

Wasteful Repetition

Vast resources, both in terms of human and financial capital are wasted on repeating the budgetary process each year. The current budgetary process is very time

and resource-intensive, requiring nearly three years of combined effort by the executive and legislative branches to produce and execute each annual budget. Immense

amounts of time and manpower are required for budgetary preparation, review, submission and legislation. This, in turn, siphons these valuable and limited resources

away from the tasks of managing and adjusting existing programs to keep pace with

today’s changing times, and from attending to other, non-budgetary matters. Congress often debates the same issues year after year, and seems to be mired in an

ever-expanding pool of budgetary quicksand that swallows up its time and saps its

energies. Agencies, too, are left drained by their continual engagement in hearings,

markup sessions, conference reports, and planning for the following year’s budgetary

process. Biennial budgeting would streamline the budget process, reduce needless

repetition of effort, and free Federal agencies and Congress to better attend to the

interests of the American people.

Inadequate Time for Oversight and Management

Congressional oversight is vital to maintaining the integrity of our country’s fiscal

health. Our system of checks and balances requires that Congress reviews, monitors, and supervises the executive branch’s conduct of Federal programs and implementation of national policy. Oversight ensures compliance with legislative intent;

improves the efficiency, effectiveness, and economy of government operations; evaluates program performance; reviews and determines Federal financial priorities; reviews agency rulemaking processes; and acquires information useful in future policymaking. Congress is charged with the power and responsibility to observe and

control the government, so that it may rein in its excesses and correct its flaws. Effective oversight of Federal programs results in improved management, efficient

evaluations of program goals and performance, and opportunities to remedy problems and prevent waste or abuse of resources.

Unfortunately, the annual appropriations process is so time-intensive that insufficient time remains for systematic and programmatic oversight of Federal programs.

This results in the abbreviation of the authorization process, where most programmatic oversight is conducted.

Lack of sufficient oversight has resulted in the squandering of our tax dollars on unauthorized programs. In fiscal year 1999, $101 billion was appropriated for 118

programs whose authorization had expired. Likewise, the Congressional Budget Office has reported that Congress provided another $120.9 billion for 137 unauthorized

programs in fiscal year 2000.

Adoption of a biennial budget system would allow the President and his administration more time for management of Federal programs and the Congress more time

for programmatic oversight over the course of the budget cycle. Identification and

elimination of wasteful and unnecessary Federal spending would thereby be facilitated, making our Federal budget process more effective and economically efficient.

Furthermore, agencies would be better able to focus on executing their programs,

due to less frequent preparation and justification of future year budgets.

Budget predictability and stabfift

A biennial budget would provide more accurate predictability of funding streams

for Federal programs and for state and local programs that rely on the receipt of

Federal funds or represent joint ventures between state and Federal Governments.

Because a biennial budget necessitates forecasting revenues and expenditures for a

longer time frame, agencies and lawmakers will engage in longer-range planning.

It is our hope and expectation that this will result in well-reasoned, better thoughtout undertakings than those borne by annual budget-making.

Agencies may spend less in the first year of a biennial budget cycle because their

appropriation authority extends into the next year. There is no incentive to deplete

funds at the end of that year because of that carryforward of funding. Furthermore,

longerterm planning can be expected to increase governmental efficiency.

Budgeting for the longer-term will entail greater uncertainties in forecasting revenues or projecting funding requirements of agencies or programs for the course of

a budget cycle. However, supplemental appropriations and rescissions can compensate for these shortfalls, as well as for the need to adapt to changing economic

and programmatic conditions.

CONCLUSION

In conclusion, adoption of a biennial budget process will greatly improve the efficiency and effectiveness of the Federal Government, and foster a new sense of trust

44

in our elected officials and in our government institutions. We urge that Congress

and the administration join together to enact biennial budget legislation that will

achieve these goals. Thank you.

SUBMITTED QUESTIONS AND ANSWERS—DR. MARTIN REGALIA, VICE PRESIDENT OF

ECONOMIC POLICY AND CHIEF ECONOMIST, U.S. CHAMBER OF COMMERCE

1. As a representative of many businesses, both large and small, could you elaborate on your point that biennial budgeting increases budget predictability and stability for those served by Federal programs and those who receive Federal money such

as research grants, etc.?

In any budget system, the providers and users of public goods and services are

subject to two types of uncertainty: planning uncertainty and outcome uncertainty.

The first arises because the authorizers and appropriators may change their minds,

and the second arises when factors beyond the control of the authorizers; and appropriators change the economic environment. Clearly, a biennial budget cycle reduces

the first type of uncertainty and should make it easier for both users and providers

of public goods and services to plan ahead over the budget cycle.

2. One of the arguments against biennial budgeting is that the ability to make twoyear projections is too unreliable. Do you have any thoughts on that contention?

As I said in the answer to the first question, there are two types of uncertainty.

This question refers to our ability to predict or adjust to the second type of uncertainty outcome uncertainty. Clearly, the farther ahead one attempts to forecast or

predict the greater is the likelihood that conditions will change, and the poorer will

be our forecast. The relationship between predictive accuracy and length of the forecast is not monotonic: for example, 10-year ahead forecasts are not simply twice as

inaccurate as five-year forecasts. One must choose a degree of error that is acceptable given parameters, such as the political structure and the benefits of planning

certainty. I believe that the benefits from reducing the planning uncertainty balance

well against the somewhat higher predictive inaccuracy of a biennial budget, especially when one considers that we have a two-year political cycle.

3. In economic theory and in the private sector, is there anything inherently superior in an annual cycle as opposed to a longer cycle? Alice Rivlin has pointed out

that the longer the cycle and view in budgeting, the better the benefits, but realizes

that our political system has place a limit on how long we can actually set the budget

cycle on discretionary spending with our biennial elections. Could you comment on

this as well?

I would agree with Ms. Rivlin’s assessment. As I said in my answers to the previous questions, the benefits from planning certainty, in my opinion, outweigh the

problems in forecasting error when moving from a single year to a biennial budget

cycle. I’m not sure that this would be the case if one were to go much beyond a

two-year cycle to say a five or 10-year cycle. The fact that the two-year cycle coincides with an election cycle of the same length is an added benefit. The parties authorizing and appropriating projects in the first year will also be the same individuals reviewing and providing oversight in the second year of a biennial budget cycle,

and I believe this would be a positive development.

PREPARED STATEMENT OF THE HONORABLE LEON E. PANETTA

Mr. Chairman and Members of the Committee, I am pleased to have this opportunity to discuss biennial budgeting and other budget reform proposals. While I regret not being able to be with you personally in Washington, I appreciate your willingness to do this by video.

In my first term as Congressman from the 16th District in California during the

95th Congress, I had the honor to introduce the very first biennial budgeting bill

in the House in 1978. I reintroduced the legislation in subsequent years, with over

40 cosponsors. I am pleased that some 20 years later, in the year 2000, the Committee on Rules and the House is now seriously considering this important reform.

As you know, there have been a number of studies and hearings over the years

on serious budget reform issues, including biennial budgeting. I personally participated in a number of hearings before both the Budget and Rules Committees. Reform Task Forces of the Rules Committee were headed up by our former colleagues—Congressman Butler Derrick and Congressman Tony Beilenson. I do hope

that you and your staffs will take the time to analyze all of this previous good work

in order to get both a sense of the history of this proposal as well as the various

viewpoints of the Members.

45

It suffices to say that one Member’s reform is another’s demise. Reform proposals

are often viewed as threats to the status quo and Committee jurisdictions. But when

the existing budget process is not working effectively or efficiently, it makes sense

to consider possible improvements. The challenge for this Committee is to determine

whether the reforms will give the Congress the opportunity to truly improve the

way it does the business of the people, or whether continuing crisis is the only political alternative. While a biennial budget will not resolve all of the current budget

problems, it will, in the very least, provide a more rational time frame for responsible budgeting. And after all, establishing a process for controlling spending is why

the budget was established in the first place.

The modern day budget process itself developed in the cauldron of political intrigue, disputes and concerns that produced the Congressional Budget and Impoundment Control Act of 1974. While the principal goal of the legislation was to

restrict the President’s ability to impound spending, Congress realized that it could

not limit the President without taking steps to control its own spending habits.

The original authors tried hard to bring some order to the Congressional decisionmaking process. 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 have a difficult time working,

but they also recognized that Congress could not continue to operate without any

overall budget constraints.

While the first budgets were the result of extensive negotiations between the leadership and the key Chairmen, as deficits continued to grow, it was obvious that

stronger steps had to be taken. This dilemma was ultimately confronted through a

series of legislative and negotiated agreements focusing on increased budget enforcement. Having participated in most of those early budget summits as a Member and

then Chairman of the Budget Committee, the results of many of these changes are

reflected in the existing budget process:

The Balanced Budget and Emergency Deficit Control Act of 1985—the so-called

Gramm-Rudman Law—established deficit reduction targets and enforcement procedures (sequestration); the 1987 Budget Agreement negotiated between Congress and

the Reagan Administration produced further deficit reduction targets; the 1990

Budget Agreement negotiated between Congress and the Bush Administration established fixed discretionary caps and the pay-as-you-go requirement; the 1993 Omnibus Budget and Reconciliation Act extended discretionary spending caps and paygo requirements through 1998; and the 1997 Balanced Budget Act further extended

discretionary spending caps and pay-go requirements through 2002.

The purpose of these reforms was very simple—it was obvious that, absent strong

enforcement tools, the targets set for deficit reduction would never be achieved.

There is no question in my mind that were it not for the reforms built into law by

the various budget and reconciliation proposals over the years, we would have no

balanced budget today.

While it must be emphasized that reforms alone cannot substitute for the substantive decisions that have to be made on budget policy, they can assure that once

those decisions are made, they will be carried out.

The point is that reforms can make a difference to the efficiency and effectiveness

of the budget process if they are carefully designed and implemented. Of course, any

reform is only as good as a majority vote on the floor of the House. Since any requirement can be waived by the Rules Committee, supported by a majority vote of

the Members, it is essential that for any reform to succeed, it must enjoy the support of the leadership, the key Chairmen and ranking Members of Committees, and

a strong bipartisan crosssection of both parties.

In addition, I do not have to remind you that there are no silver bullets in the

budget process. For as long as I can remember, there have been Members searching

for that one simple and elusive answer to all of the budget burdens that have to

be confronted—a Constitutional amendment to balance the budget, the line item

veto, the Gramm-Rudman law, and on and on. There has always been the hope that

somehow the budget process could be saved with a single legislative act of some

kind. That is not the case.

The budget process is a legislative process, and in that reality lies both its

strengths and its vulnerabilities. Nothing can replace the fundamental trust between Members that is essential to making any budget process work. When good

members like Bill Gradison and Bill Frenzel were my ranking Members on the

Budget Committee, we enjoyed and maintained a relationship of trust and confidence that no reform can replace. If somehow you can restore that kind of personal

trust in the budget process, than there isn’t a reform you can enact that will not

work. In the absence of that trust, few if any reforms can succeed.

46

But assuming that a better relationship can develop between the parties and the

administration, I believe that biennial budgeting is one of those reforms that makes

good sense for both the Congress and the Executive Branch for the following reasons: 1. The present budget process is seriously broken. The present budget process is

now driven by crisis. Each year, budget resolutions are often delayed past their statutory deadlines, with resulting delays in the appropriations process. When a budget

resolution is finally enacted, the targets established are often so unrealistic that the

appropriators have to delay the larger and more controversial bills till late in the

fiscal year. The result is a continuing resolution, or several continuing resolutions,

until a negotiated agreement is arrived at between the Congress and the President.

The sad reality is that, in a government split by party, crisis has become the key

ingredient to force budget decisions. The result is that more and more decisions are

delayed well into the new fiscal year when spending is already occurring in many

programs. Ongoing spending needs, rather than a careful evaluation of programs,

is what drives decision making. While it may be too much to expect that a two-year

budget cycle will eliminate all crisis in the first year, it will in the least confine the

larger budget battles and negotiations to every other year, allowing both the Congress and the Executive Branch the time and the stability to better prepare and implement budget planning.

2. Better budget planning and management. Too many budget decisions by both

the Congress and the administration are made on a short-term basis. Rather than

focusing on long-term funding needs, the crisis management approach to budgeting

forces ad hoc spending decisions that are not based on any kind of long-range planning. As a consequence, the current process is very inefficient, and the task of budgeting consumes a great deal of time and energy that could be better devoted to addressing programmatic issues from a longer-term and more in-depth perspective.

Not only is the Congress constantly in the crunch of making hit-and-miss budget

decisions on programs, the Executive Branch is caught in the same turmoil. During

the months of September and October, when Congress and the administration are

typically negotiating final appropriations levels for the new year, the agencies and

departments of the Executive Branch are beginning the new fiscal year operating

under continuing resolutions while also expending great amounts of time developing

their budget request for the subsequent fiscal year. The problem is that, until final

decisions are made on the current spending year, it is impossible to determine what

the spending levels should be for the next. Both the Congress and the Executive

Branch need the time to more carefully evaluate current programs, and plan and

manage the funding needs of existing programs. Clearly, a two-year budget cycle

would provide that needed time.

3. Greater program oversight by both the Congress and the administration. The

reality is that very few Committees of the Congress conduct the kind of thorough

and essential oversight of existing programs that fall within their jurisdictions. It

is only when a scandal occurs or a critical GAO audit is published that Committees

take the time to review certain programs, but that’s often too late. Most Committees

will work on new authorizing legislation, but give little attention to the thousands

of programs currently in the Federal budget. The additional year would allow for

the Committees to spend the required time reviewing the effectiveness of programs

that spend over $1.4 trillion. In addition, the various Appropriations Subcommittees

which do their annual reviews of programs under their jurisdiction could do even

more careful hearings and studies. The reality is that both the administration and

the Congress have fallen into a pattern each year where the same testimony is presented, the same questions asked, and the same favorite programs funded. It would

not hurt either the Members of the Committee or those testifying to be subject to

greater scrutiny. The same oversight responsibilities could also be implemented

within the Executive Branch. The Office of Management and Budget is supposed to

be constantly reviewing the effectiveness of existing programs. But the year-to-year

budget process makes this at best a hit-and-miss process. They could use the additional time to better fulfill their responsibilities as well.

4. Improved economic projections make two-year budgets realistic. The reality is

that the current state of economic and spending projections have improved, so that

both the Congress and the Executive Branch have a pretty good idea of what a program can or cannot spend over a two-year period. Indeed, current budgets have gone

beyond the five-year projections to ten-year projections. While that is not to say that

projections that far out are exact, it is to say that two-year projections are well within the margin of error. It is important that Congress and the administration always

maintain the right to make necessary adjustments. However, it is also important

that revisions are limited and based on emergency needs, and not just on additional

spending appetites. The one thing that could destroy the two-year budget is if a

47

huge supplemental, covering all 13 appropriations bills, appears every other year.

I realize the temptation to do this, but both the President and the leadership must

ensure that any supplemental is limited to essential revisions and emergencies.

As with all reforms, a biennial budget will take careful work and preparation.

Like any reform, biennial budgeting will not work if the process either becomes too

inflexible or too open-ended. For the process to work, the two branches will have

to avoid these extremes and find the proper balance under which the major task

of budgeting is carried out every two years. That balance will require essential cooperation between the branches.

In addition, there will also have to be an appropriate transition period before the

Federal Government and the Congress converts over to biennial budgeting. It must

be recognized that this reform will constitute a very fundamental change in how the

budget process operates. A conversion to biennial budgeting will have to take into

account the magnitude of the change that would be required, both in terms of the

need to make necessary conforming changes to those laws that presume the proposal and enactment of annual appropriations, as well as in terms of the need for

Congress and the Executive Branch to develop and implement new practices for proposing, considering, and enacting two-year budgets.

A biennial budget system, built around the two year life of each Congress, offers

a better way for Congress to commit itself to continuing fiscal discipline and to better planning for the coming years. Besides improving budgeting and planning capabilities, such a system would allow sufficient time to examine programs and find

areas within current-year budgets where responsible cuts, reductions, and funding

increases can be made.

The present system is not working. In the very least, this reform will provide the

time necessary to move toward more sound, effective, and responsible budget making. Is there a risk involved in enacting this reform? Of course. Is it a risk work

taking, considering the crisis of the present budget process? I believe it is. I would

urge the Committee to support, and the Congress to adopt, a biennial budget process.

Chairman NUSSLE. I did not mean to suggest that our witnesses

today are in and of themselves going to be boring. [Laughter.]

Unfortunately, the topic that we’ve selected is one that is easily

overlooked and one that is easily misunderstood. But we have three

experts, both from practical, personal, political and technical expertise, to give us their thoughts on this topic. The way I describe it

to folks back home when we talk about the rules of the budget

process is, it’s like opening the game Monopoly and looking on the

back of the box to see what the rules are. Those are pretty important rules, and they help determine the outcome, in many instances, over some pretty dicey subjects, who gets Park Place,

where the hotels go, etc.

It’s no different with our budget process. These rules are pretty

important to determine the outcome, how well they work and how

easily they are understood, how realistic they are is, I believe, very

important in helping us have a smooth process.

One other point I would make, or that I make with them back

home is that the rules are fair for everyone, though. These rules

should be objective. They are not meant to game the outcome substantively of the process. They should be objective. They should

work equally for both sides philosophically and for both outcomes

and allow for fair discussion and determination.

The folks that we have here today have, as I say, some great

ideas and expertise with regard to that. We have today former

Member Bill Frenzel, former Member Bob Livingston and former

Director of the Congressional Budget Office Reischauer. We welcome all three of you today. We’re honored to have your input.

Your entire testimony will be placed in the record at this point,

and you may summarize as you see fit. We’ll begin with Mr. Frenzel. Welcome to the committee, welcome back to the committee, as

48

an alumnus of the committee as well, we appreciate the fact that

you would come and give us your testimony.

STATEMENT OF BILL FRENZEL, CO-CHAIRMAN, COMMITTEE

FOR A RESPONSIBLE FEDERAL BUDGET; ROBERT L. LIVINGSTON, MEMBER OF CONGRESS (RETIRED); AND ROBERT D.

REISCHAUER, PRESIDENT, URBAN INSTITUTE

STATEMENT OF BILL FRENZEL

Mr. FRENZEL. Thank you very much, Mr. Chairman, thank you,

Mr. Price. And thanks to the whole committee for your attention

to what to me is still a very important subject, even if, in the chairman’s description, it is a bit boring. So I will drone on and try to

push you into the proper form of somnolescence. [Laughter.]

Mr. Chairman, The Budget and Anti-Impoundment Act was enacted in 1974. Before that, there was not much in the way of rules.

It was the law of the jungle with respect to appropriation. In the

27 intervening years, we haven’t done a great job of providing

rules, or providing process.

As we are seeing this year, it is still the law of the jungle. The

budget resolution exceeds the caps, and so forth. We have emergencies that exceed all of our expectations. We have a process that

still depends on the individual members and collective will if we

are to have any discipline at all. For me, there never probably can

be enough discipline.

But suffice it to say that over the years, the Budget Act has not

been forcing on the Congress. Congress has still done what it feels

it wants to do. Whether we were into reconciliation, and I remember those glorious days in 1981 when we did do reconciliation, or

whether we’re into Gramm-Rudman, we never really bothered

much about the rules. If we didn’t like them, we simply wrote a

new set of rules.

Sort of the net of this is, no matter what rules you have, in a

perfect budget process, they will not ensure a perfect budget outcome. The players still are going to be the ones, who make the decision. This is a political decision, and it should be.

I think the best we can expect is that we get a rational process

that the public can understand, that the members understand, and

it applies modest pressure on the members, although not forcing,

to follow some kind of fiscal discipline.

Congress is having as much trouble dealing with surpluses as it

had dealing with deficits. The problems are different. Many of the

structures or the restrictions that we tried to put into the process

are designed to work against deficits, rather than for them, in a

time of surplus. These things are going to require some major

changes. As Mr. Price has suggested, a little tinkering isn’t going

to help much.

But in the history of the budget process, we haven’t been successful with a lot of tinkering. As I indicated in my statement, there

are a number of things that really must be done. In the first place,

your caps and your PAYGO expire in 2002. That gives you an opportunity, while re-installing those restrictions to put some other

things into the system that will help, too.

49

As you know, I’m very strong for a joint budget resolution. I

think that getting the President together with the Congress and

having a national budget rather than competing budgets is good.

It should happen as early in the process as is possible, rather than

at the end, and then having a giant fist fight between the branches

at the expiration of the fiscal year.

I am satisfied with the biennial cycle, if that’s to be a part of the

solution. To me, that’s the spoonful of sugar that may make some

of the medicine go down. I hope that we will have some kind of an

automatic CR included in the budget process as an incentive to appropriators to complete their job quickly.

A number of you have suggested that we need some kind of a reserve for emergencies, or ‘‘rainy day’’ fund. I am always amused to

see that at the end of the year, Congress is surprised to see that

we’ve had some emergencies.

We also need to work on our concepts. We have—oops, if you’ll

give me 30 seconds, Mr. Chairman, I think we’ve got to go back to

improving the rescission system, since the line item veto was declared unconstitutional.

It would be a good idea to have this committee, like its Senate

counterpart, permanentized. I look around here and it’s a fairly

junior committee. In some respects, that’s a good idea. You haven’t

got all those bad habits that we gain when we’re around here for

a long time. But it would help, I think, if we had more permanence

here.

And finally, one of the ideas that has come up a little more recently is that it would be a good idea to hold a pre-conference between the House and the Senate, what I think we’re now calling

602(b) limits. We used to call them 302s. The process has become

a way to game the system, that is to gun up limits on appropriation subcommittee one through six in the House and seven through

thirteen in the Senate. Then when the top members of all subcommittees are enacted, it is a surprise. The total is over the budget. I think that would be helpful in adding discipline.

Mr. Chairman, if I had really known how to do it, you wouldn’t

be holding this testimony today, because I would have done it. But

it ain’t all that easy, I wish you lots of luck. I hope you are successful.

Again, finally, let me say, I hope you build on the extension of

PAYGO and the discrete caps and discretionary spending, and try

to put in as much of this reform as you possibly can do, knowing

that you’re not going to be able to make any system that will make

the herd here totally manageable. Congress is still going to do what

it wants to do, and that’s why it was invented.

Thank you, Mr. Chairman, thank you, Mr. Spratt.

[The prepared statement of Mr. Frenzel follows:]

PREPARED STATEMENT OF BILL FRENZEL, CO-CHAIRMAN, COMMITTEE FOR A RESPON- SIBLE FEDERAL BUDGET, AND FORMER RANKING REPUBLICAN, HOUSE COMMITTEE

ON THE BUDGET

Mr. Chairman, Mr. Spratt, and members of the committee thank you for the opportunity to testify today. I would like to open with a quote from the 1967 President’s Commission on Budget Concepts.

‘‘The budget is the key instrument in national policymaking. It is through the

budget that the Nation chooses what areas it wishes to leave to private choice and

what services it wants to provide through government * * * Budget formulation is

50

a highly political exercise in the American democratic system, and it should not be

otherwise. It is therefore essential that the budget be understandable, at least in

broad outline, to as many of the public and their elected representatives as possible.’’

Winston Churchill described the Soviet Union as a riddle wrapped in a mystery

inside an enigma. The budget process is not that opaque. Neither, however, does it

meet the standards of transparency and universality that should be hallmarks of

good public sector budgeting practice. The current process is outcomes-driven, i.e.,

it is designed to reduce deficits and balance the budget. The process should be redesigned to make it more outcomes neutral and to promote political accountability.

The Committee for a Responsible Federal Budget published a report on budget

process reform just over a year ago. We have provided copies of that report for all

members of your committee and for the press. Anybody who wants more copies can

get them from our offices. I shall not take time today to reiterate all that report

says and recommends. Rather, I shall highlight our most serious concerns and summarize our group’s recommendations.

Comprehensive, honest budgets promote accountability. Sound budget process promotes fiscal discipline. When politicians cannot agree on policy they tend to fall

back on budget process. But no process can compel consensus and no process is impervious to political leaders determined to avoid budget discipline.

The Congressional budget process has succumbed to an all too human tendency.

As soon as you write rules, people tend to bend and break them. When you build

fences and fail to tend them, people will find ways to breach them. So many rules

and concepts have been bent, broken or abused that the total damage to the process

is greater than the sum of the parts. As a result, even well intention and, well-informed people have difficulty understanding the budget today and our broad public

policy debates suffer as a consequence.

There are two big problems in the current budget process.

The first problem is caused by surpluses. Surpluses are not the problem. But a

process designed to ensure that policy actions do not increase the deficit can be frustrating in the current surplus environment.

The budget process must accommodate changing priorities. If it does not, eventually it will break down.

The existing process is heavily biased toward deficit reduction. Barriers to amending enforcement provisions probably are higher than they ought to be. As the budget

has shifted from deficits to surpluses some question the need for continued fiscal

restraint. As surpluses grow, political leaders become frustrated with rules they perceive to be unrealistic.

There are, however, problems unrelated to deficits or surpluses. For example, the

use of creative definitions has hampered our ability to measure the size of the Federal sector relative to the overall size of the economy. Revenues are considered negative expenditures. Tax credits mask spending entitlements. Current definitions and

budget concepts do not inform analyses, as they ought to do. Congress and the

President seem to spend an inordinate amount of time on budget-related matters

but they never agree on an overall fiscal policy plan for the national government.

Since 1990, caps have acted as a reasonably effective constraint on discretionary

spending. But Congresses and Presidents tend to brush aside caps that they consider to be unrealistic. Because entitlements have grown so rapidly, growing discretionary appropriations represent a shrinking part of the budget pie, thus whetting

appropriators’ appetites. PAYGO acts as a break on new entitlements and revenue

reductions. But there is no effective limit on direct spending or revenue losses under

existing laws and there can be no effective bar to Congressional majorities and

Presidents determined to use part of the surplus for new/expanded tax cuts and direct spending.

Tax expenditures that walk, talk and look like expenditure programs understate

both revenues and expenditure. Refundable tax credits, on the spending side of the

budget, are hard to distinguish from other entitlement programs. Netting, i.e., subtracting income from expenditures at the account level for selected programs and

showing the net figure as programs outlays understates costs and distorts the budget picture.

The Committee for a Responsible Federal Budget has made budget process a priority for the entire twenty years that we have been in business. In the last 5 years,

we have worked closely with groups inside and outside government to develop specific recommendations for reform. The most important of those recommendations is

a Joint Budget Resolution.

Congress and the President should agree on fiscal policy goals, i.e., aggregate revenues, expenditures, surpluses or deficits, debt levels or debt reduction targets, etc,

and incorporate those agreements in a Joint Budget Resolution (JBR). The JBR

51

should include enforceable expenditure limits for discretionary and direct spending.

If political leaders are unwilling to establish hard limits for entitlement spending,

the JBR should at least contain targets for major direct spending categories. That

would provide guidelines to judge whether and by how much actual outlays exceeded or threatened to exceed budget guidelines.

Other recommendations for reform are spelled out at the beginning of our report.

They include the following:

PAYGO discipline should be maintained. The sooner new limits are enacted, the

more disciplined the budget process will be. Congress and the President should include limits on the amounts of any projected surpluses available to offset new entitlements/revenue reductions. Legislation that would commit surpluses in excess of

the amounts contained in the budget should be subject to PAYGO rules and, if enacted, trigger sequestration.

We favor a biennial cycle for budgets, appropriations and revenue legislation.

That could free up time for congressional oversight and serious attention to authorization legislation.

An automatic continuing resolution, at or below the level of the caps contained

in the most recently enacted budget resolution, should provide stop-gap funding in

the event that Congress and the President fail to reach agreement on some or all

regular appropriations bills. Automatic continuing resolutions should be very restrictive. If sufficiently restrictive, they could create compelling incentives for Congress and the President to agree on and enact regular appropriations bills.

Notwithstanding the disposition of the President’s recommended reserve funds

this year, sound budget practice suggests that you set aside a ‘‘rainy day’’ fund. Regularly recurring emergencies surprise no one except the Congress. Coupled with reasonable limits on emergency spending, the ‘‘rainy day’’ fund could help make budgets more realistic and enforceable.

This sounds obvious, but the budget should distinguish clearly between spending

and receipts. There should be very strict limits on receipts scored as negative outlays. Activities that have all the characteristics of spending programs should not be

scored as tax expenditures. There is a difference between spending and taxes and

budgetary presentations should distinguish clearly between the two.

You should enact enhanced rescission legislation to take the place of line item

veto. The Supreme Court having declared item veto to be unconstitutional, Congress

and the administration still should do all you can to strengthen the President’s

hand to curb wasteful and unnecessary spending.

It is time for Congress and the President to revisit some basic budget concepts.

We highly recommend that you set up a commission to do so. If you do not, we fear

that you will find current concepts woefully inadequate when you move to consideration major reforms in huge programs such as Medicare and Social Security.

For example, Medicare Part ‘‘B’’ premiums are treated as negative outlays in the

budget. As a result, any Medicare reform that relies more heavily on private intermediaries than the current system will be sorely disadvantaged due to budget

scorekeeping.

A concepts commission is the best approach to resolve technical issues and address new issues as they arise. A new concepts commission should meet at regularly

scheduled intervals-perhaps every 10 years or so.

We bring you two additional recommendations today that go beyond those included in our report.

The House needs a permanent Budget Committee and the House and Senate Appropriations Committees should agree on subcommittee allocations.

Senate Budget Committee members stay on the committee and accrue seniority

as they do on other standing committees. House Budget Committee members rotate.

This puts the House at a disadvantage vis a vis the Senate.

Senate Members develop institutional memory and loyalty to the committee and

the process. House members do not. That can only hurt the House in conference.

Changing to a permanent House Budget Committee would be good for the institution and it would tend to strengthen the budget process. We believe both are laudable goals.

The Appropriations Committees are the only House and Senate committees with

exactly similar jurisdictions and identical budget allocations. Also, they are the only

committees that receive allocations every year for spending in the jurisdiction of

several subcommittees and for many different purposes.

Expenditure allocations to other committees almost always are for specific programs or purposes and everyone knows what they are. Even though allocations for

the same program go to different House and Senate committees, therefore, there is

little chance that the money will be divided differently to cover different purposes

in the two bodies.

52

Not so with Appropriations. The House Appropriations Committee may give more

money to subcommittees 1 through 6 and the Senate committee may give more to

subcommittees 7 through 13. Each subcommittee (quite reasonably) believes that it

can spend up to their allocation. The tendency, therefore, is for conferences between

the two bodies to settle on amounts at least equal to the higher of the House or

Senate subcommittee allocation. This tends to undermine budget discipline. It could

be remedied by having the Appropriators conference their 302(b) allocations before

they file with the Clerk of the House and the Secretary of the Senate respectively.

Mr. Chairman, this concludes my testimony. I would be happy to address any

questions that members of the committee may have.

Chairman NUSSLE. Thank you.

Next we will hear from Chairman Bob Livingston. I hope you understand, Mr. Chairman, that by being here today, the Appropriations Committee is finally acknowledging the presence of the Budget Committee. [Laughter.]

Mr. LIVINGSTON. But you have to understand, Mr. Chairman, I

am retired. [Laughter.]

Chairman NUSSLE. Oh, well, I was close then. But we appreciate

your presence here today and we welcome you to provide us with

your thoughts on the budget process. Welcome.

STATEMENT OF ROBERT L. LIVINGSTON

Mr. LIVINGSTON. Thank you very much, Mr. Chairman. Congratulations on your chairmanship, and members of the committee,

it’s a pleasure to be here, especially with my friend Bill Frenzel

and Bob Reischauer.

Five minutes is a short time to cover these subjects, but let me

simply say that I have always had misgivings about the length of

time that the Congress on the floor works on budget issues. I would

like to see a much more compact, concise process, not to oversimplify what you do, because I think what you do is absolutely

critical to the fiscal health of the government, and in turn, the fiscal health of the country.

But I think it’s the process, not the substance, that needs addressing and can be improved upon. And I congratulate you for

holding these hearings. I would say also, that I quarrel with the

premise that Congress needs to worry about the impact of any law

10 years out into the future. As you well know, Mr. Chairman,

things change day to day around here. And Congress has the

power, with the consent of the President, to change the law momentarily if we have a crisis. To project budget impact 10 years

from now, is frankly, a joke.

I was opposed to it at 5 years, and then we went to 10 years.

Frankly, I think that was just an evolution because it meant something at some time that we’ve adopted as sacrosanct and I think

it needs to be changed.

Really, to do things realistically for this country, we need to

project out two or 3 years. Do we need to know what’s going to be

the impact 20 or 30 years from now on Social Security or Medicare?

Of course we do. But that doesn’t mean we need to guide our daily

fiscal affairs by projecting out to then. Because life is going to

change. You’ve got to expect that. Let’s keep our attention focused

on what happens now and over the next couple of years.

In addition, clearly the appropriations process needs adjustment.

I think that in order to get to that adjustment, the Budget Committee should keep its process short and concise, give the AppropriaVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
53

tions Committee their marching orders, set the cap we’re going to

have to serve under, and let them abide by it or not. If they don’t,

then we face the consequences later on.

But today, you’ve got such a hair brained process; by the time

you get through the 13 appropriations bills, continuing resolutions,

omnibus spending bills, and emergency spending bills that come up

that invariably break the caps anyway, there’s no common thread

of rationality in the process. And we really do need to bring about

some sort of process that’s not only understandable for the key

Members of Congress, but to all Members of Congress, to all the

public in general, so that there is credibility in running the fiscal

affairs of the Nation.

There has been a phenomenon, Mr. Chairman, in the budget

process, that needs to be addressed. If the gentleman over here will

pull that first chart. What we don’t recall is how things appear

today versus how they were back in 1962. I used to walk around

with my pie charts that illustrated this point, and I can’t escape

an opportunity to talk about them again, because it is a point that

needs to be addressed.

Mandatory spending in 1962, in the middle of Jack Kennedy’s

presidency, was 26 percent of the budget. Interest was 6 percent

of the budget, and discretionary spending, which we spend most of

the year talking about in this Congress, then was 68 percent of the

budget. There was cause for spending time on the discretionary

budget with all these multiple bills and conflicts that we have back

in 1962.

But if you’ll pull that next chart; I don’t have the pie chart for

2001, but this is it for 2000. Look at the changes, Mr. Chairman.

Interest has grown from 6 percent to 12 percent, and I think we’re

addressing that, finally, by getting the surplus back after some 40

years. But mandatory spending has grown from 26 percent to 54

percent of the budget and discretionary spending has shrunk from

68 to 34 percent.

Now, Congress spends all of its time accusing the appropriators

of spending too much or spending too little. By the way, let me not

lose this opportunity to say, you guys don’t work long enough on

regular days. How many people are here? Where are they? They’re

in other committee hearings. Why are they in other committee

hearings? Because this is the only time you can hold a committee

hearing; on a Thursday morning or a Wednesday morning, because

Members don’t come in until Tuesday night, and leave town on

Thursday afternoon.

Now, what other operation in the entire Nation operates that

way? Mr. Chairman and Members, come and do what we used to

do 20 years ago. Members of Congress should come to work on

Monday afternoon, discuss things, have votes all day Tuesday, all

day Wednesday, all day Thursday, leave Friday afternoon. Then

you can get some committee hearings done. Once you have the

committee hearings, then you can provide oversight. Because what

is lacking in the Federal budget most of all, if you take all the rest

of the stuff that we talk about and put it on the side, the one purpose that Congress has in the fiscal process of the United States

is to provide oversight. And if we don’t have time for oversight, if

we don’t have hearings for oversight, if we don’t come to those

54

hearings for oversight, then you can just talk all you want, because

none of the rest of the process means anything and the buisness

of Congress doesn’t get done.

In the final analysis, I would say that Congress needs to

prioritize. We need to spend more money on the good programs,

and eliminate or reduce the bad programs. And you can’t do that

if you don’t have hearings. You can’t do that if you don’t come to

hearings. You can’t do that in a process that is not understandable.

And you can’t do it if you’re wasting your time debating on issues

that don’t matter.

So as I say, 5 minutes is a very short time. I would say simply

that you’ve got to change the process, you’ve got to get the mandatory programs under control. If there is no oversight, no discussion,

no attention to mandatory spending, which has now gotten to be

54 percent of the budget, except for a hearing on it once in a while,

every few years.

And what are we hearing now? ‘‘Lockboxes’’ are the solution.

Thankfully, that’s gone. I mean, that was a gimmick that didn’t

work. Now we’re going to biennial budgets. What do biennial budgets do? Biennial budgets say, ‘‘Well, we’re not doing a good enough

job paying all of our attention every day on appropriations every

year, so we’ll not do a good enough job paying not enough attention

to the budget every other year.’’ That’s the ‘‘Manana syndrome,’’

Mr. Chairman. That means, we can’t fix it doing the process today

and tomorrow, so we’ll just fix it tomorrow.

The process needs attention. It needs common sense. It needs

consolidation. And you’ve got to remember what the priority is. The

priority is to spend more money on good programs and less money

on bad programs and figure out how you’re going to do that. If

you’re not going to do that, then Congress can set up shop back in

their districts and tell people what a good job they’re doing in constituent relations, because they might as well not be here.

Thank you.

[The prepared statement of Mr. Livingston follows:]

PREPARED STATEMENT OF HON. ROBERT L. LIVINGSTON, MEMBER OF CONGRESS

(RETIRED)

Mr. Chairman and members of the committee, it is a pleasure for me to return

to these historic and familiar surroundings to appear before you on the issue of the

budget. I deeply appreciate the invitation to appear, and welcome the opportunity

to join my long time friend and colleague, Bill Frenzel, with a little insight into the

mysteries of this all-important process.

As a former Member of Congress for 22 years, a member of the Appropriations

Committee for 19 of those years, and as the chairman of that committee for 4 years,

I have some strong views on the process, some of which might be worth heeding,

and others which likely belong in the circular files of other long forgotten testimony.

But for whatever its worth, let me say that I have long felt that far too much

attention is spent in a calendar year on the budget. I truly believe that the issue

of the budget need not cover a span of 10 years, or even 5 years, since conditions

in the country change so rapidly, that predictions today are often overridden in 6

months, let alone 5 or 10 years. Analyses of tax bills and appropriations based on

such long term outlooks are generally not worth the paper they are written on, since

when things go awry, Congress can always rally and change the premise on which

they are written in a matter of days, weeks and most certainly months, without regard to the rationale for previous legislation. Budgets should be projected for 2 or

3 years at the most; beyond that, nothing really matters.

I have frequently joked that to set a budget for the government, we need only

spend a couple of hours assessing: A) How much did we raise last year; B) How

much did we spend; C) How much do we expect to raise this year; and D) How much

55

of that (or more) do we want to spend? Then let the Ways and Means and Appropriations Committees confine themselves to the amounts expected of them, and be

done with it. Now I realize that this is a gross simplification of the necessary process, but not that gross, and not really that far from reality.

Assuming for the sake of argument that this will not be the order of process anytime in the near future, then there are some other rules that I think are worthy

of consideration. One important one is the need for reconsideration of the whole

process.

Congress passes 13 appropriations bills, and some odd number of continuing resolutions, Omnibus spending bills, and emergency spending bills every year. The

Budget Committee, the press, and the opposing political parties spend billions of

man-hours condemning the Appropriators for either spending too much or too little.

But when one considers that the appropriations process only governs the discretionary portion of the budget, and that that portion has shrunk from over 2/3 of the

budget in the early 60’s, to less than 1/3 of what the government spends today,

something is woefully wrong. Entitlements, those programs which have become for

whatever reason, some good and some worthless, entrenched and eternally engraved

in the process without review or diminution, are slowly consuming all available cash

in the Federal budget. When the rest of the world argues over small portions of the

discretionary budget, they are in essence quibbling about angels on the head of a

pin, instead of striking at the heart of budget imbalances. The real threat to the

long-term fiscal stability of the United States is not the Appropriated Discretionary

Budget, which is shrinking as a percentage of the whole pie while it is interminably

scrutinized every year, but rather those entitlement programs, which are locked in

and are rarely if ever scrutinized or reigned in.

That being said, the discretionary budget is not without it faults, and can most

certainly be reduced in a bipartisan fashion, where Congress goes on a witch-hunt

for truly inoperable, wasteful, unnecessary, unproductive, redundant programs. And

they are everywhere. Do we really need 200 drug programs, or almost 500 education

programs, or thousands of other programs, which do little for American citizens

other than select special interests and lobbyists who support them? I think not, but

it takes the collective will of Congress in bipartisan fashion to weed out those programs and eliminate them, or they will surely never be eliminated. That’s too bad,

because by their continuation, less money is available for the truly necessary, productive and helpful programs, of which there are many indeed.

Cutting the budget across the board by restraining overall numbers is counterproductive to the growth and survival of truly necessary programs, since the good

get cut with the bad. Conversely, raising spending limits without prioritizing the increases does nothing for efficiency, and again, the bad programs prosper, to the detriment of the good ones. I will not in this discourse single out programs which are

good or bad to be cut by Congress, for that is the role of the Congress, with or without the concurrence of the President, since the Constitution endowed Congress with

the power of the purse for the Nation. But without proper oversight of individual

programs, whether discretionary or mandatory, adequate prioritization cannot be

had, and efficiencies in the budget process are unattainable. Seek out the wasteful

programs and repeal them! That is the only way to get the process under control!

I have never been a proponent of gimmicks, like biennial budgets, lockboxes, and

other gimmicks, which keep Congress from asserting priorities in the spending process. Biennial budgets are proposed by those who think we spend too much time on

the appropriations process. But that process is one of oversight, and if we don’t do

it in one way, we’ll have to invent another to do the same thing. By not appropriating every year, do we really think there won’t be emergency supplementals to cover

the additional costs incurred by a society as complex as our own? And if you make

a process for appropriating every 2 years, what makes you think the Congress will

hold the hearings that must be held, especially when there are no deadlines to meet.

And if they don’t hold hearings, how do they ever weed the productive programs

from the nonproductive? The truth is that by trying to solve a much more complex

problem by waiving a wand and saying that instead of working on it every year,

we will work on it only every other year, Congress will be lapsing from indolence

to wholesale irresponsibility. ‘‘We can’t fix it today, so we’ll fix it tomorrow!’’ is the

quintessential ‘‘Manana’’ approach, and it won’t work.

The ‘‘lockbox’’ is another idea to avoid doing what is essentially the job of Congress to set priorities. Putting money aside in the midst of the appropriation process

only prevents the negotiators in the appropriations process from exerting the leverage they need to confect deals that may in fact lead to curtailing spending.

There is one major exception to this rule that I not only support; I helped start

it. That’s the concept of a ‘‘lockbox’’ for Social Security and Medicare. In effect, the

‘‘lockboxes’’ are meaningless, since there is no real tangible account into which

56

money is poured to provide for benefits for our elderly populations. But from 1969

until the surpluses began in about 1997, the government had no concern for the

IOU’s it was racking up in these programs, and receipts from these programs were

used to offset existing spending demands without regard to the future. Only in 1999,

did the Congress say, ‘‘Enough!’’ and begin setting aside enough of the surplus so

that programmatic receipts were no longer flowing in to the abyss of the Federal

debt. Now, Congress is rightly concerned that those programs not be shoved further

into the degree of insolvency they were facing only a few short years ago. But to

hear some Members cry about the threat to the sanctity of the programs when for

30 years they were not especially concerned with the excessive spending habits of

Congress and it’s impact on those programs is somewhat amusing.

In keeping with the sentiment for saying what I support, as well as what I oppose, let me say that I think it would be most helpful to change the budget blueprint from a concurrent resolution to a joint resolution which would require the

President’s signature. By having the President be a party to the annual overall

budget plan, Congress would avoid the potential for vetoed bills and continuing resolutions. The process would require some strict limits against the President or Congress imposing too high a level of detail in the budget plan, but if set forth in general but definitive terms, and approved by both legislative and executive branches,

the process would become binding, and the chances for subsequent disputes would

be minimized.

And, that brings me to the final, and I would think obvious point that unfortunately has proven the exception rather than the rule over the last 50 years. That

is the simple dictate that Congress should to the best of its ability live within its

means, and should in turn govern the country in like manner. In a budget running

into the trillions of dollars, that has only been thought possible in the last few

years, but we now see that it is possible, and in fact is happening. But it’s terribly

important to get the budget process under control through legitimate reform if we

are to stay that way. If the process is not reigned in, we will be most certainly looking at billion, nay, trillion dollar deficits in the future. That would be disastrous for

our children and their children, so I pray that does not happen, and I wish you all

much luck. Thank you.

Chairman NUSSLE. The Sergeant at Arms has been notified——

[Laughter.]

Chairman NUSSLE [continuing]. And he is in the process of

rounding up all the Budget Committee members for their compulsory attendance.

Thank you. You were on a roll. I wasn’t going to stop you, no

way. We really appreciate your testimony. I’m sure members will

have questions and you’ll be able to amplify. Maybe that wasn’t the

right word, but——

[Laughter.]

I appreciate your testimony and I, too, am frustrated by some of

the quick fix ideas that are out there. I appreciate your dose of reality.

Mr. Reischauer, see if you can top that.

STATEMENT OF ROBERT D. REISCHAUER

Mr. REISCHAUER. Well, I won’t even try, Mr. Chairman. As I was

listening to Bob Livingston speak, I realized that things were getting too animated and interesting for a process hearing. [Laughter.]

So my challenge will be to bring us back down to the level which

you led the audience to expect. I do appreciate the opportunity to

participate in this hearing, and I’d like to commend you, Mr. Chairman, for the interest that you’ve shown over the years in the cause

of rationalizing and strengthening the budget process.

As Mr. Frenzel pointed out, some important components of the

current procedures expire at the end of the next fiscal year, and

therefore, Congress is going to have to decide soon whether to tune

up and extend the process that we now have, or to come up with

57

an entirely new set of procedures that involves some more fundamental reform. I for one would opt for the latter course in large

measure because the current procedures were conceived of and implemented in an era of persistent and large deficits. They had as

their stated objective balancing the unified budget and we achieved

that a number of years ago, and in a sense, it’s an irrelevant fiscal

objective at this point.

We have entered into a new era, and it is an era in which few

budget experts believed was it possible as recently as 4 years ago.

If you had come to me and tried to get a bet that we would balance

the budget, the unified budget, let’s say in 1997, I would have

given you pretty good odds against meeting that goal. If you had

come to me and said, I think within the next 5 or 6 years, we’re

going to have balance in the non-Social Security part of the budget,

I would have given you the odds of the Maryland lottery.

But here we are in a situation that no person outside of St. Elizabeth’s would have thought possible 5 years ago. What we need is

a budget process that reflects the budget reality that we live in

right now, and that really requires, I think, some more fundamental reforms.

I do believe that there are many elements of the Congressional

Budget Act and the Budget Enforcement Act that should be retained and modernized. But we really do need more than simply

an extension and updating of the discretionary spending caps, revision of the Pay-As-You-Go rules, and some redesign of sequestration. I’ve suggested in my prepared statement and elsewhere that

budget process reforms should include two important steps.

The first of those is a clear articulation of the fiscal goal that the

process is designed to achieve. Are we trying to achieve or maintain balance in the unified budget, as was the case with the BEA

and the Gramm-Rudman-Hollings procedures? Are we trying to

maintain at least a balance in the non-Social Security portion of

the budget? Or are we trying to achieve some more difficult objectives, like using Medicare and Social Security surpluses for debt repayment and balancing the remainder of the budget?

Whatever fiscal goal Congress decides is appropriate, a second

important component of a reformed budget process is the establishment of a set of procedures that relates to the disposition of resources that are in excess of the fiscal goal. If we decide that what

we want to do is maintain a balance in the non-Social Security portion of the budget, what rules should govern the excess resources

that are projected in the future?

I have suggested in my prepared statement that it might make

sense to set an allowance for each incoming Congress that would

consist of a declining percentage of the projected excess amounts,

so that the current Congress would be able to pass legislation, tax

and spending legislation, that would absorb 80 percent of the excess surplus over the next 2 years, 70 percent of the surplus over

the following 2 years, on down to the 9th and 10th year, for which

40 percent of the surplus would be available for disposition. When

the Congress comes in 2 years from now, it would have a new allowance provided to it.

Let me end by reiterating something that Congressman Price

mentioned in his opening remarks, and that is that the budget

58

process is a consensual set of rules that can’t force members or parties to go against the political forces that they face. While we might

have great visions of what a rational budget process might look like

we have to temper those visions by the reality that this is a political process, embedded in a political institution, and the rules, if

they deviate too far from that reality, will end up being ignored as

they have in the last several sessions of Congress.

I will end on that note. I’ll be glad to answer questions relating

to joint budget resolutions, biennial budgeting, automatic CRs and

the like. Unlike Mr. Frenzel, I think virtually all of these reforms

would not be a step in the right direction. Thank you.

[The prepared statement of Mr. Reischauer follows:]

PREPARED STATEMENT OF ROBERT D. REISCHAUER, PRESIDENT, THE URBAN

INSTITUTE

Mr. Chairman and members of the committee, I appreciate this opportunity to

discuss with you the need for structural reforms in the Federal budget process. For

the past decade, Congress and the executive branch have been operating under a

complex and confusing amalgam of procedures established by the Congressional

Budget and Impoundment Control Act of 1974 (CBA), the Balanced Budget and

Emergency Control Act of 1985 (Gramm-Rudman-Hollings or GRH), and the Budget

Enforcement Act of 1990 (BEA). While these procedures have helped transform the

large and seemingly intractable budget deficits of the past into significant surpluses,

they have been abused, misused, ignored and circumvented in recent years.

With the budget outlook better than it has been in generations and various provisions of the current process set to expire at the end of fiscal 2002, now is an appropriate time to review the efficacy of the current procedures. Should the expiring provisions be allowed to lapse, extended in their current form, or renewed in some revised configuration? Alternatively, would some entirely new procedural approach

better serve the Nation’s interests in the new budget environment?

In an effort to help Congress address these questions, my statement:

• Describes a few of the major dimensions of an effective budget process;

• Discusses some limits on what we should expect the budget process to accomplish; and

• Lays out a new framework that, I believe, would better serve the needs of the

Nation in the future.

CHARACTERISTICS OF AN EFFECTIVE BUDGET PROCESS

A well functioning budget process provides a framework for making decisions

about the appropriate levels and allocations of scarce government resources, the

ways in which those resources are raised, and the degree to which fiscal policy stimulates or restrains the economy. It should establish the order in which various participants act; set out the limits of their actions; provide mechanisms to enforce decisions once they have been made; and spell out clearly the circumstances under

which the process can be waived.

In democracies like that of the United States where the executive and legislative

branches are elected independently, the budget process must command widespread

support if it is to be effective. When it doesn’t, one party, legislative chamber or

branch of government can and will easily circumvent, paralyze, or game the process.

This occurs because few outside the Beltway understand or care much about the

process and so rarely do those who flout procedures pay a significant political price.

Recently, we have experienced the consequences of an erosion in support for the

budget process.

An effective budget process must also be aligned with the Nation’s fiscal policy

goals. The objective which our current procedures were designed to achieve a balanced budget has been realized and, as a result, the process recently has become

somewhat disconnected from reality. The difficulty lawmakers have had adhering to

the discretionary spending caps established by the BEA illustrates the problems

that can arise when a disconnect develops between the goals the process is designed

to pursue and the fiscal reality.

An effective budget process should also encourage transparency and honesty. Dollars, the metric of budgets, are malleable and elusive. Revenues, program costs and

savings can be hidden or exposed, minimized or exaggerated, delayed or accelerated.

59

As much as possible, the budget process should make it difficult to distort reality

in these ways.

Given the diverse scope of government activity, it is inevitable that dollars will

be used to measure actions that have quite different fiscal consequences. A budget

process must try to create a conversion system that strives for fiscal equivalency.

Yet, such a system cannot be so divorced from the numbers used in day to day discussion that it becomes incomprehensible to all but the budget experts. The credit

reform system adopted as part of the BEA represented a significant accomplishment

of this sort.

While budgeting is an annual process, the consequences of 1 year’s budget decisions invariably extend far into the future. For this reason, an effective budget process must reveal, in as objective a fashion as possible, the most likely long-run fiscal

impacts of current decisions. The process surrounding consideration of the Economic

Growth and Tax Relief Reconciliation Act of 2001 was an egregious example of failure to follow this tenet.

Because the environment in which budget decisions are made is fluid and unpredictable, flexibility is an essential characteristic of any sustainable budget process.

The economic outlook can change abruptly. Elections, natural disasters, the weather, and international crises can suddenly cause significant shifts in National priorities. An effective budget process must be able to adapt to the unexpected while at

the same time not appearing too malleable or capricious. But even an appropriately

flexible budget process should be reviewed critically at least once a decade. While

a flexible process may be able to evolve through incremental modifications to accommodate changing circumstances and new priorities, there may be some completely

different approach that would better serve the Nation’s interests.

These and other characteristics of an effective budget process often are in conflict.

Tradeoffs inevitably must be made. Simplicity and transparency sometimes must be

sacrificed to obtain a greater degree of fiscal equivalency or equity. Flexibility can

undermine discipline. And the desire for full discussion of the issues can conflict

with the need for timeliness.

THE LIMITS OF AN EFFECTIVE BUDGET PROCESS

Budget procedures are not laws of nature or constitutional strictures. They are

the rules and conventions by which lawmakers agree to play when they consider the

budget. They are the road markers and speed limits on the fiscal highway. As such,

they will be violated when the benefits of doing so exceed the costs and when no

one is paying much attention in other words, when budget issues are not in the center of the political debate.

Because budget procedures are intended to guide the behavior of elected officials,

it is important that they be compatible with the political pressures and constraints

lawmakers face. No process can ask lawmakers to make decisions that will cost

them their jobs. The budget process must also fit within, not attempt to change, the

larger institutional structures within which lawmakers work.

Because lawmakers have a very imperfect ability to control budget outcomes

spending, revenues, and the budget balance the budget process should not hold

them strictly accountable for budget outcomes. This was one fundamental flaw in

the Gramm-Rudman-Hollings procedures which imposed sequestration if specific

deficit targets could not be achieved, even if the failure was the result of a weatherinduced surge in farm price supports or a revenue shortfall associated with a slowing economy, developments over which elected officials have no control.

No budget process can force agreement. At best, procedures can facilitate and create an environment conducive to agreement and provide some political protection for

those who must make the difficult decisions.

TOWARD A NEW BUDGET PROCESS

Congress must consider whether to tune up and extend the existing budget process or turn to some new approach for the future. I recommend that you develop a

new approach, one which is specifically designed for today’s improved fiscal environment, rather than the era of persistent deficits.

No matter which course is taken, the first challenge must be to agree on the fiscal

goal for the procedures that will guide future budgeting. When the Congressional

Budget Act was enacted, there was, at most, a very weak consensus that the budget

should be balanced over the business cycle. Reflecting this ambiguity, the new process was structured to be neutral with respect to the fiscal outcome. It did not favor

a balanced budget or any other fiscal result. Instead the objective of the process was

to ensure that Congress both could evaluate the consequences of different fiscal outVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
60

comes and had the tools it needed to fashion a budget, independently of the executive branch, that would produce the fiscal result it wanted.

In the 1980’s when a bipartisan consensus developed that large and persistent

deficits were a serious National problem, balancing the unified budget became the

explicit objective of the budget process. The Gramm-Rudman-Hollings procedures

launched a frontal, but unsuccessful, assault on the deficit by requiring annual

decrements in the deficit until a balanced budget was attained in fiscal 2001. The

Budget Enforcement Act’s approach was more subtle. It placed procedural hurdles

in the path of those who would renege on the spending cuts and tax increases that

were embodied in the multi-year deficit reduction packages that Congress and the

President agreed to in 1990, 1993, and 1997. Nevertheless, the underlying objective

of the BEA procedures was to achieve balance in the unified budget.

When the unified budget first registered a surplus in fiscal 1998, the goal of the

process was no longer aligned with the reality of the budget. Because the budget

had gone from deficit to surplus so quickly and unexpectedly, there was no time for

a consensus to develop around a new fiscal objective. Frozen by a sense of disbelief

over the Nation’s rapidly improving fiscal fortunes, paralyzed by partisan disagreements over priorities and constrained by the BEA’s procedures, legislation that

could have dissipated the emerging unified budget surplus was not enacted and an

even more unexpected situation developed surpluses appeared in the government’s

on-budget accounts starting in fiscal 1999.

Looking ahead, Congress must now decide whether the budget process should

have an underlying fiscal objective and, if so, what that goal should be. One option

is to return to that of the pre-1985 process which was neutral with respect to fiscal

outcomes. That process, which was formulated at a time when public debt amounted

to only 24 percent of GDP and there was not full understanding of the burden that

the baby boom generation would impose on the retirement programs, would probably not command much support today. Many would fear that the competition for

votes in the current political environment, in which neither party has a firm or assured majority in either chamber, would lead to an era of fiscal profligacy if there

were no clearly articulated fiscal goal.

Another option is to reaffirm the goal underlying the current process which is to

attain and maintain balance in the unified budget. This goal would accommodate

the many priorities that the President and Members have advocated over the last

6 months including increased spending for defense, education, agriculture and Medicare prescription drugs; further reductions in taxes; and added resources to seed private accounts in a reformed Social Security system.

A third option, one that has garnered the most support at the rhetorical level, is

to establish as the goal of the process maintaining a fiscal balance in the government’s operating budget while saving the annual surpluses generated by the retirement programs for which the Federal Government faces unfunded future liabilities.

At a minimum, this involves using the Social Security surplus to pay down public

debt; at the maximum, it involves using the surpluses in the Medicare Hospital Insurance (HI), military retirement, and civil service retirement programs to retire

public debt.

To the extent that there exists a consensus in Congress about the appropriate fiscal objective, it appears to include devoting both the Social Security and HI surpluses to debt reduction while attaining at least a balance in the government’s other

accounts. By overwhelming bipartisan majorities, the House of Representatives endorsed this position in each of the last 3 years (H.R. 1259, May 26, 1999; H.R. 3859,

June 20, 2000; H.R. 2, February 13, 2001). And some support for the Fiscal 2002

Budget Resolution was conditional on assurances from the managers in both the

House and the Senate that the resolution did not violate this fiscal goal. The Bush

Administration, however, has explicitly rejected this fiscal goal but has conditionally

endorsed the goal of saving the Social Security surplus and maintaining a balance

in the government’s non-Social Security accounts.

No matter what particular fiscal objective is adopted, any new or revised budget

procedures should establish rules to govern actions when the fiscal objective has

been exceeded or is projected to be exceeded in the future. This represents a new

challenge. Few of the architects of the GRH and BEA legislation ever expected to

live in an era of comfortable unified budget surpluses. However, that has been the

reality for the past 4 years. And the January 2001 CBO projections clearly show

that, under baseline assumptions, a long period lies ahead during which any of the

fiscal policy objectives I have discussed would be exceeded. While the tax cut and

the other promises made in the budget resolution and the weakening economy have

changed the short run outlook, it is highly likely that policymakers will find that

future budget projections show considerable fiscal flexibility five to 10 years out.

61

Considering this possibility, any reform of the budget process should address the

question: When and how should amounts in excess of the fiscal goal be dissipated?

There are two strong arguments for establishing procedures that sharply limit lawmakers’ abilities to dissipate projected excess amounts. The first is the inherent uncertainty of budget projections, particularly projections that depict conditions more

than two or 3 years in the future. If lawmakers enact tax cuts and spending increases now that absorb all of the excess amounts projected for the future, later on

if the economy does not perform as expected or if entitlement programs grow more

rapidly than projected they could be forced to choose between approving painful tax

cuts or spending cuts or falling short of their fiscal goal. The second is an issue of

equity. Even if budget projections were perfectly accurate, future Congresses should

be given some say over the fiscal leeway that is projected to emerge on their watch.

The priorities today’s lawmakers see for the future will almost certainly not turn

out to be the priorities of lawmakers and the public five or 10 years from now. Economic, social, and international conditions will be different in ways that we cannot

predict today.

For these reasons, it makes sense for the budget process to limit the extent to

which lawmakers can commit, through legislative action, resources that are projected to be in excess of the fiscal goal in the future. I have outlined elsewhere a

budget process reform which would allow each new Congress to encumber only a

declining fraction of the resources that exceed the fiscal goal under the baseline projection. No more than 80 percent of the excess resources predicted for the first 2

years would be available for commitment. For the next 2 year period the allowance

would drop to 70 percent, for the subsequent period to 60 percent, and so on until

the 9th and 10th years of the projection period for which the new Congress would

only be able to encumber 40 percent of the resources that were projected to exceed

the fiscal goal. When each new Congress convened, the Congress would calculate a

new allowance using CBO estimates.

This system would be enforced through variants of the pay-as-you-go and discretionary cap systems that are parts of the current process. To determine whether future allowances were likely to be breeched, all discretionary spending would be projected forward using the baseline projection methods. The future costs of newly enacted entitlement and tax legislation would be projected under the assumptions that

all provisions were fully implemented by the seventh year and that no provisions

expired or were cut back in the out years. These safeguards would ward off some

of the gimmicks that have been used recently to minimize the apparent budget impacts of program expansions and tax cuts.

CONCLUSION

While many elements of the CBA, GRH, and BEA processes should be retained

and, in fact, should form the core of the new budget process, more in the way of

fundamental reform is also needed. It will not be enough to make some incremental

changes in the discretionary spending caps, the pay-as-you-go system and the rules

governing sequestration. Since our current processes were formulated, the budget

environment has changed significantly in ways that no one could have predicted. A

new set of procedures, one that reflects the new reality, is needed. While it may be

too late to consider such reforms this year, time is short. Confidence in budget procedures has eroded markedly over the past 3 years. Too often decision makers at

both ends of Pennsylvania Avenue have viewed the process as an elaborate game

through which to gain short run political advantage rather than a set of consensual

restraints designed to further the common good and preserve some modicum of fiscal flexibility for the future.

Chairman NUSSLE. Thank you. Let’s begin, then, with joint resolutions, since you brought it up. I happen to be a proponent of that,

as well as a number of other reforms. Again, as I stated in the outset, I don’t believe that any one reform in and of itself will do the

job. I am not advocating that a joint resolution or, in other words,

making the budget a law in and of itself will require or will fix

what ails us.

My purpose in advocating a joint resolution as part of a package

of reforms is to do two things. One is to make the process realistic

and real up front, making that decision binding, as binding as you

can make it. Certainly more binding than you have in this current

process, and secondly, to bring the administration in earlier.

62

Currently, the President has the ability, and we’ve seen it in

some instances, to throw the budget on the table on February 3rd

and walk away until October and have very little to do with negotiations until it appears to be in their political best interest to join

in the discussion or in the fight. And bringing the President and

the administration earlier into the process, I believe could help

that.

There are some, however, who suggest that this gives the President too much authority and too much power. So the first question

I would have for all three of you is, give me the pluses and minuses

from your side of the table when it comes to a joint resolution. I’ll

begin, since you were bringing it up, Mr. Reischauer, I’ll begin with

you and we’ll work across.

Mr. REISCHAUER. I think you have laid out the plus side for a

joint resolution. And I think a good argument can be made on that

side.

What I am concerned about is the possibility that wrangling between the Congress and the President, which now begins in September and lasts through October, might begin in March and end

in October. I see a certain advantage to a system like the one we

have now, which I would say, is one of sequential shame in the

sense that the spotlight of press and public attention focuses first

on one branch of Government, have you proposed a budget? Is the

budget realistic?

And there’s a food fight over these issues. Then it focuses on the

Congress; is the Congress doing gimmicks, is it doing its job in a

timely fashion? Is it meeting the deadlines?

When you have separation of powers but joint responsibility for

an activity like putting together the joint resolution, it will be unclear who is responsible for the lack of forward progress. We have

seen that when that is the case, the process can drag out interminably.

Chairman NUSSLE. Chairman Livingston.

Mr. LIVINGSTON. Mr. Chairman, I share your support for the

joint budget process. I also share in the remarks of Mr. Reischauer.

I would say, I would fear that there would be a tendency of such

a degree of interaction between Budget Committee and the President, that each side would want to assert its priorities and start

appropriating bills right from the beginning, and there wouldn’t be

any need for an appropriations committee. Lord knows I’d hate

that.

But apart from that, I think that if you focus on targets, and essentially say, ‘‘Look, the last 5 years we’ve raised so much money

through the Ways and Means Committee, and there’s so much

money available, and this is what we project this year; and for the

last several years we’ve spent so much money, and this is what we

project we need to spend this year,’’ and set your targets accordingly.

Then the President would give a thumbs up or down. If he wants

more money, he can argue about it. If he wants less money, he can

argue about it. But once it’s signed, and the overall caps are locked,

then that’s it. That’s a straitjacket. And Congress can’t exceed or

decrease that amount any significant degree.

63

And I do think that sort of process would lead to a lessening in

the divisiveness at the end of the process, fewer vetoed bills, fewer

continuing resolutions and certainly fewer emergency

supplementals.

Chairman NUSSLE. So a joint resolution of the macro numbers,

not the micromanagement?

Mr. LIVINGSTON. Macro numbers. If you try to get down at the

lower detailed level, I don’t think it could possibly work.

Chairman NUSSLE. Would that proposal help persuade you that

that might work a little bit better, Bob Reischauer?

Mr. REISCHAUER. No. And let me explain why. It’s very easy for

people to agree to grand principles or to the abstract. But what you

deal with is the nitty-gritty in the appropriations process. And

while the overall amount for defense or the amount for domestic

discretionary might seem reasonable in March, when you aren’t

considering the sum of the line items, it won’t seem reasonable in

September and October. And given that, I think you will devise, as

you have done in the past, gimmicks and ways around the limits

that are imposed, even though they are legislated.

Mr. LIVINGSTON. I think they have more impact than current

law. And right now——

Mr. REISCHAUER. I have more faith in your ability to evade than

Mr. Livingston.

Mr. FRENZEL. Mr. Chairman, I think you’ve heard most of the arguments that I would raise on either side of this. I like the idea

of getting the President and the Congress together earlier rather

than later. I think our untidiness at the end of the fiscal year is

a real pain when we scrap over the last of the appropriations and

have those kinds of fist fights. Maybe we can never get away from

that.

I also like the idea of having a budget that is a national budget.

Right now, we have a President’s budget, we have a Congressional

budget, nobody knows which is which or understands them. Once

the President signs your budget, then at least some of that confusion would be laid aside.

I agree that a President or a Congress could stall those negotiations for a long time, and that it is conceivable in the range of possibilities or probabilities that it could be worse than the present

system. There are some people who will tell you that this gives the

President more power and causes a power shift between the Congress and the President.

I don’t believe that. I’ve never been a President, I have been a

legislator. If I really believed that, I think I would not like that solution. But I believe Congress has the constitutional power of the

purse, and it’s pretty hard to pass it over to the President.

Next, I think it’s a good idea, but I think Mr. Reischauer has

good arguments against it.

Chairman NUSSLE. Mr. Price.

Mr. PRICE. Thank you, Mr. Chairman. Let me add my thanks to

all the witnesses for some testimony that’s actually more stimulating than budget discussions usually are. I think we’ve had some

important issues opened up.

I do think this idea of a joint budget resolution is a pretty good

example of what a couple of you were referring to earlier. That is,

64

the conflict that often arises between our aspirations, the way

things look and are supposed to work on paper and political reality.

We’ve already begun, I think, to explore some of the possible unanticipated consequences of the joint resolution format. I expect all

of us would like to have the Executive engaged earlier in the process. We would like to have budget resolutions that mean something

and that stick. And we’d like to have a cleaning up of the messiness of the end of session scramble to finish appropriations bills.

Whether this particular remedy would do the trick is another

question. And I think it was you, Mr. Reischauer, who suggested

the effect might be, particularly under circumstances of a divided

government, divided party control of the White House and Congress, simply to bring all that end of session conflict up to an earlier point and then make it even more difficult to get a degree of

resolution that would let us proceed with the appropriations bills.

I think we have to acknowledge how that could happen and how

that could be an unanticipated result of this.

Let me move to the question of biennial budgeting. Some of you

touched on this. I think it’s striking. I think Mr. Frenzel referred

to biennial budgeting as the spoonful of sugar that might make

some less popular proposals go down, which indicates this is a proposal that has a good deal of support, at least superficially. A number of people think that it would be nice to go through the entire

appropriations process not every year, as messy as that has become, particularly in the latter months of the session.

Presidents of both parties tend to support biennial budgeting. In

fact, the last four Presidents, are on record as supporting this, including the present President and President Clinton. I guess my

own suspicion is, if that suggests biennial budgeting isn’t a sharply

partisan issue, it should suggest it may be an institutional issue.

And we’d better think about the institutional implications of passing our budget and our appropriations bills in the first few months

of a 2-year Congress and then being fiscal lame ducks thereafter.

I don’t want to show my own hand so much, though. I’d like to

hear your remarks on that. What are the institutional implications

of biennial budgeting? And I put it that way deliberately. What are

the implications for the power, the responsibilities, the place in the

overall constitutional scheme of things of the U.S. Congress of biennial budgeting?

Mr. FRENZEL. Well, I’d be glad to start. I have to confess as I did

in my testimony, that I am not the most ardent advocate of biennial budgeting. I became a supporter at a time when certain Members of Congress who didn’t like any other reforms thought that

was a pretty good one. So I thought that made a nice sugar coating,

if nothing else would work.

I don’t see that it is an institutional matter. I guess I would say,

judging from what my appropriator colleague suggests, is that it

might give the Congress a little more time to think about what it’s

doing, and do the oversight. Although I have never been a real believer that Congress really wants to do oversight at all. But again,

maybe some kind of a process to perhaps not compel but at least

give some incentives for more oversight.

I think that would make the legislative branch stronger, if that

in fact would work. But to tell you the truth, I don’t see that as

65

a down side, and I do not see that it is complicating in ventures

at all.

I’m with Bob Livingston, 10 years is absurd, and we’ll all be living on the moon in 10 years—or dead or something. On the other

hand, that’s not a problem for this House, that’s a problem for the

other body.

But I don’t see institutional ramifications, or at least ramifications that would lead me to believe that it would diminish the legislature’s role in any of these processes.

Mr. PRICE. Mr. Livingston?

Mr. LIVINGSTON. Thank you, Mr. Price. I appreciate the question.

If biennial budgeting were proposed, would it reduce the workload on Congress? Yes. But I think the responsible workload would

be reduced and not necessarily some of the stuff we just waste time

on.

First of all, if it were passed, you’d have it in year one and year

three and you wouldn’t have it in year two. What happens in year

two? Well, the argument is, that’s more time for oversight. I daresay that Congress will display, in its innate wisdom, the same

tendency it displays in every other instance, and that is, well, we

don’t really have to do it now, so we can do it later. And they’ll be

running up to the wall, and invariably, the oversight hearings

aren’t going to be held, because Congress is going to find other

things to do.

We’ve got 270 million hard working people out there, and they

have immediate needs. So, to think that there’s not going to be an

appropriations process in year two is a pipe dream. You’re going to

go through the same process, you’re just going to call it something

else. But you’re going to only be dealing with the emergencies, and

the oversight hearings are going to be shoved to the side, and

they’re not going to happen.

And I think the better recommendation is that Congress comes

to work on Monday afternoon and leaves on Friday afternoon. That

way you’ll get things done.

Mr. PRICE. Of course, what the appropriators do is itself probably

the most careful oversight we engage in around here. Without

being tied to the actual power to appropriate, you might lose some

of the incentives and some of the teeth that oversight now has.

Mr. LIVINGSTON. I agree with you. Frankly, again, it’s what you

have to do. Look, oversight is a function of every committee in this

Congress. But I daresay that you can find committees, and I don’t

want to point fingers, but you can find committees that don’t do

much of it. And why? Not because they don’t have the time, because they’ve got other things to do.

I think if you go to a biennial budget process where the Appropriations Committee really doesn’t have to, so they can but they

don’t have to provide oversight, they’re not going to.

Mr. PRICE. Mr. Reischauer.

Mr. REISCHAUER. I agree strongly with the points that have just

been made. I’m a believer, unlike Mr. Frenzel, that inevitably, a biennial process would lead to a strengthening of the Executive over

Congress. In every State that has biennial budgeting, the Governor

or somebody under the Governor’s control has considerable discretion to adjust budgeted amounts during the biennium. Some flexiVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
66

bility of that sort inevitably would have to be granted to the executive branch.

I think it is a pipe dream to expect that this will speed up the

process or reduce the amount of time that is spent on budgeting.

If we’re going to make these decisions once every 2 years, the

stakes are going to be a lot higher, and the combatants are going

to fight a lot harder because this could be it for 2 years, and after

a lower appropriation has been in place for two years, it looks like

history and it might be in there forever.

So I can see this bringing about, in fact, tremendous gridlock. If

that isn’t the case, the other alternative will be what Mr. Livingston pointed out, which is large supplementals in the off years.

Those supplementals will be less visible, they will be decided by

smaller groups of legislators and they won’t have the full consideration of the Congress. I think that would definitely make things

worse.

I also agree that oversight is something that is often carried out

most effectively through the appropriation process—through the

appropriators having strings through which they can get agencies

to answer specific questions. Furthermore, a 1-year time frame,

while it might be inconvenient for those in the agencies, is not

wrong for a world which is changing very rapidly and in very unpredictable ways.

Finally, let me point out that we should just look at what has

happened over the last 6 months to realize the rapidity with which

conditions that affect budgeting change. The world looks very different now than it did 6 or 8 months ago. If we were making decisions in March basically for the next 2 years, we might find ourselves making decisions that didn’t meet the Nation’s needs.

Mr. PRICE. Thank you.

Thank you, Mr. Chairman.

Chairman NUSSLE. Mr. Sununu.

Mr. SUNUNU. Thank you, Mr. Chairman.

I’d like to ask two questions and have each of you respond to

both, if possible. The first is about institutional change, not necessarily legal reform or process reform. Congressman Livingston

mentioned the potential value of quite literally changing the structure of our work week and improving oversight. I have from time

to time thought about another similar change in the institutional

structure, which is to have Members serve on fewer committees.

We have Members who serve on two and three committees.

It’s outstanding that they’ve expressed interest in those areas,

but it can be incredibly time consuming. To have a Member serve

exclusively on a single committee, for better or for worse, forces

them to put an extra effort into developing an expertise and devoting time and resources to making a difference on that committee.

I do think that leads to better oversight.

But my first question is, are there any other institutional

changes that we haven’t talked about yet, that any of you might

think would lead to better oversight? The second question is about

emergency powers, emergency appropriations and the process for

funding emergencies; what kind of changes or improvements to

that process do you think might be possible, recognizing that at the

end of the day, even if it’s just a matter of having the votes, any

67

process or law you have in place, that we have the votes to waive

that law or overcome it in the appropriations process, that the will

of the House or the Senate will prevail?

Why don’t we start with Congressman Frenzel.

Mr. FRENZEL. Thank you. With respect to institutional change,

oversight, budget process, etc.——

Mr. SUNUNU. Very specifically oversight, changes related to oversight, because I agree very much that it’s an enormous weakness.

Mr. FRENZEL. I have to say that my colleague Bob Livingston

had that about right when he suggested it would be nice to put in

a full week of work here, and schedule accordingly. But with respect to your suggestion about fewer committees, I did get involved

in a lot of reform efforts, for jurisdictional reform and committee

assignments and so on. I broke my pick there even worse than I

did on budget reform.

It is really difficult to get Members to give up anything that they

now enjoy in favor of a rational alignment of the talents of 440 people into a couple dozen committees where everyone has one good

one, or one and a half good ones, and puts his or her heart and

soul into it. That would be the right way to do it. But I don’t see

how you get there from here.

And if that were the case, I would agree with your thesis that

that would be likely to produce better oversight work. But to me,

it is another one of those lost causes that’s just too hard.

With respect to emergency appropriations, we will always have

emergencies. I believe that, however, we can plot pretty clearly

what we spend on so-called emergencies. And we can plan that we

are going to spend ‘‘X’’ dollars in fiscal year whatever for emergencies. And the fact that we don’t plan, means that we spend all

the money available on other things, so the emergencies get piled

on top. It simply means that we spend more of the people’s money.

We’re never going to neglect emergencies. But I believe in planning ahead for them we can at least get a more rational allocation

of assets to other expenditures and then if we have some extras on

top, it won’t be as large as it is now when we declare everything

an emergency. So called ‘‘rainy day’’ funds that are reserved for

emergencies are a very important part of budget discipline, and I

hope you do something about it.

Mr. LIVINGSTON. Just to follow up on that, I think they would be

very helpful. Our experience in setting up ‘‘rainy day’’ funds over

the last years has been that somebody always found out about and

spent the money. I don’t know how you structure it. I agree in principle it’s got to be done, it would be helpful if you have it. You’re

always going to have natural disasters, frankly, that bring about

the need for the ‘‘rainy day’’ fund. But there’s invariably somebody

out there with his eye on that pot of money, who finds another use

for it, and you’re back where you started.

In answering your second question first, Mr. Sununu, I would

say that one thing that was in my written statement that I didn’t

mention is a process that has already been undertaken by this

Congress that I think is probably one of the most significant accomplishments of modern times in the fiscal world. And that is, apart

from the fact that we have a budget surplus versus a budget deficit, we put together a setaside and said we’re not going to spend

68

the current receipts of the Social Security trust fund, and the Medicare trust fund.

From 1969, when President Johnson had to pay for the Vietnam

War, we abandoned that principle, and we stayed off of that principle for some 30 years, until just about 3 years ago. Frankly, I

take a little credit at awakening people that we could do this, and

the Congress is now doing it. I am very, very pleased at that, because at the very least, while we won’t have Social Security coverage forever, we’re gradually setting aside the surplus revenues

and designating them as sacrosanct for the Social Security and

Medicare trust fund. We are ensuring that the deadline when those

programs ultimately go broke, even if we don’t address the fundamental problems will be pushed further and further into the future.

And that’s a very significant change. So I hope Congress will stay

on track with that particular change.

As far as your question of the committees is concerned, I look

around here and counted, I think, 56 members on the Budget Committee. I bet you don’t need that many members. I bet the Appropriations Committee doesn’t need 64 members or whatever they

have. I bet the Infrastructure Committee doesn’t need the 82 members that it has.

That phenomenon has existed in increasing numbers every year

and gets worse with each close election and it ultimately has to be

changed. But you will not change it now, or after any close election.

The only way you’re going to get it under control is to have one

party blow out the other. That’s the only way it’s going to happen.

Then the new Speaker for the Majority party has to say, ‘‘These

committees are too doggone big, and they have to be reduced. And

by the way, the losing party, you’re out of luck, because you’re

going to have a lot fewer seats!’’ The sitting party simply will not

replace the seats that have been lost. That way you’ll get the committee sizes down.

Why is that important? It is important because as you say, you

can’t be in every place at once. I think every Member ought to have

two committees, and that anything more than two committees is

unworkable. You ought to have a limit on the number of subcommittees, four, five or six, to each Member. Four is probably a

good number. Then Members can do their work. Otherwise, they’re

just shooting the breeze.

Chairman NUSSLE. We’re working on that blowout reform that

you’re speaking of and will get back to you.

Mr. LIVINGSTON. Notice, Mr. Chairman, those were non-partisan

comments.

Chairman NUSSLE. We noticed that. Mr. Moore.

Mr. MOORE. I appreciate the testimony of each of the distinguished panelists here. I think this is anything but boring, too.

I had a proposal last year that would have, and I guess I’m talking to Congressman Livingston here, because he mentioned the

smoke and mirrors, I guess, of 10 year budgets, and really the difficulty in projecting what’s going to happen 10 years from now. I

had an amendment, a proposed amendment, last year that would

have gone back to a 5-year budgeting process, and also an instruction to the Ways and Means Committee that any change to revenue

69

reducing laws would be phased in over 5 years. I’m going to point

my finger at everybody on this side and three fingers back at me,

because I voted for the tax cut bill as well.

But we passed a tax cut law that essentially says, we’re going

to repeal the estate tax. And what we did was phase in a repeal

over 10 years and finally repeal it in the eleventh year beyond the

10 year budget window, and then sunset it the next year, which is

highly deceptive to the people in this country. I just don’t think we

as an institution should be doing that. When we’ve set these 10

year windows out, we’re just tempted to try to do that to make this

$1.35 trillion tax cut fit within that 10 year period.

And by the same token, what we said was, we’re going to fix or

repeal the marriage penalty tax, and in essence what we did was

do that, but we waited until 2005 to even start addressing that.

So I think we need to, as an institution, and again, I’m being

critical of myself, not just you, us in Congress, I think, need to

start being more honest with the people in this country in terms

of the budget process and in terms of the appropriations process,

especially the budget process. I’d like to see us on that.

I told Mr. Livingston the first time I met him that right after I

was elected in November 1998, I read in the Kansas City Star that

he had proposed, he was going to be the next Speaker of the House,

to take Social Security out of the unified budget. I told my staff—

my meager staff at that time, I was just starting to hire—I want

to sign on that bill, that’s a good idea, I don’t care if it’s a Republican idea or Democrat idea, it’s a good idea and it should be the

law.

So when he unfortunately didn’t stay in Congress and I couldn’t

call him Mr. Speaker, I had to put my name on his proposal. I

learned very quickly that being a member of the minority party,

sometimes your legislative proposals don’t go far. It would have

been law had he still been in Congress.

But my point is, I think, and I guess I’d just like to ask the question very briefly to each of you, to comment on going back to a 5-

year budget. I sort of heard Mr. Livingston talk about this. But it

just seems to me, I guess, that it’s a lot more honest, a lot more

workable, and very quickly, I want to read one thing here.

The first 10 year projections made in 1992 predicted a deficit of

$407 billion for fiscal year 2002. In January of this year, CBO projected a fiscal year 2000 surplus of $313 billion, which is a disparity of over $700 billion. I think that just to me at least points out

the difficulty in trying to project out 10 years from now what’s

going to be happening in our country in terms of the economy. So

I guess I’d just like to hear your comments briefly, each of the panelists, if I can, on a 5-year budget process.

Mr. Reischauer.

Mr. REISCHAUER. I guess I’m at a bit at a disadvantage, because

I’m one of the fellows who brought you the 10 year process. We

started it at the Congressional Budget Office for a very particular

reason, and that was that in 1990, Congress passed a deficit reduction act, many provisions of which expired at the end of 1995. And

had we stopped the projections at 5 years, it would have given the

false impression that we were home free. Of course, the economy

didn’t turn out as expected, so that was not the case, anyway.

70

But it was an attempt to point out that temporary measures

adopted by the Congress would have to be renewed and added to

if you wanted to maintain a balanced budget.

I share your concerns about the uncertainty of budget projections. But that doesn’t mean, I think, that we should close our eyes

to the best estimates. Whether we should have enforceable procedures that carry out 10 years is another matter. But before I went

along with a 5-year budget window, I would want a rule that said,

all legislation must be fully implemented by year three and not

sunsetted in year four or five.

Mr. LIVINGSTON. Thanks, Mr. Moore. Obviously, I do feel that it

ought to be shortened. I would even shorten it lower than the 5

years. On your comment about the tax cut, obviously I would support the tax cut and any others that you happen to be able to pass,

the sooner the better.

But I have to tell you just a little story about a former colleague,

friend of perhaps all of ours, who told me recently regarding the

point that was made about the estate tax. He said, ‘‘You know, I’m

getting on up there.’’ He’s 74 years old. He said, ‘‘I look at this tax

code, and I realize, I’ve got to die in 2010.’’ He said, ‘‘if I don’t, my

kids are going to kill me.’’ [Laughter.]

Mr. FRENZEL. I think that Bob Reischauer has a very good point.

We do need analysis, you have to know what the costs are. The

reason we went to five years and ultimately to ten, it seems to me,

was we had all these wonderful authorizers, not appropriators, who

built these back-end loaded programs that exploded in the out

years. In those days it wasn’t the tax problem, it was an expense

problem.

But we had the same trouble in taxes. I can remember, I served

on the Ways and Means Committee. Every year we would let certain taxes expire for budget purposes. Everybody knew, that certain tax credits, particularly the RD&E credit, were going to be extended, but because they fit the budget that way, we let them go

appear to expire annually.

So you need to have the information. Whether you decide five or

ten is the right number of years, my understanding is that the

problem is with the Senate. They got a Byrd Rules problem if you

don’t do 10 years. So you have to go over to the Senate and make

your case over there if you want to get it back to five.

I still think it’s valuable to know what happens in those out

years, as Bob has suggested. Because everybody, whether it’s taxes

or spending, every smart Congressman is going to back-end-load

his program if he can get away with it.

Chairman NUSSLE. Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman. I want to thank

staff and particularly our distinguished panel for coming in today

and sharing some of their insight.

Mr. Frenzel, I think you were fortunate, as I was, to serve in the

State legislature back in Minnesota. Talking about legislative reform, it strikes me how we seem to be able to get things done in

the State legislature in a much shorter period of time. I apologize,

I’ve been in and out, because I have an Agriculture Committee

meeting that’s going on at exactly the same time this committee

was meeting.

71

In the State legislature, this was before computers, they figured

out that if you served on the tax committee you couldn’t also serve

on the regulated industries committee, because they both met at 8

o’clock. Then at 10 o’clock there was another set of committees that

met, then at noon or 1 o’clock we went into full session. If you

needed additional hearings, they had them in the evening.

Now, occasionally you’d have two hearings going on in the evenings. But it was just amazing how much work we could get done

under that regimen. And as I say, that was done before they even

had computers. This was all figured out by staff that if you were

on regulated industries, you couldn’t be on taxes, or if you were

on—I can’t even remember the names of all the committees now.

But in some way we got it all done. And I do agree with what

Mr. Livingston said, we do need legislative reform. I think the way

this system works here in Washington leaves a whole lot to be desired, and we could learn a lot from the States.

Mr. Frenzel, would you want to comment on that? I think you

had some experience just a few years ago.

Mr. FRENZEL. I would agree with you. We didn’t have computers.

A scratch pad and a lead pencil worked just fine to figure out that

you couldn’t put a person on six or eight committees and expect the

person or the committees to do any good.

And if the States could figure that out, certainly one would think

the Federal Government could as well. The difficulty of course is

that people get slotted on committees, they think that’s a big deal

and they don’t ever want to give up one that they’re assigned to.

If they have two, they want three, and if they have three, they

want four. Like everything else in this world, a little discipline is

required.

But you mentioned the legislature. Let me go back to the point

that somebody raised, that in the second session of a biennial session, a Governor would have great powers. Minnesota is known as

a legislative State. While we do allow the Governor and some legislative leaders to make changes in the second year of the biennium,

or did, nobody ever accused the Governor of controling the money

or doing the legislature’s job.

So yes, there’s a way to do it. It takes discipline, it takes a willingness to make the assignment. That’s as tough as changing jurisdiction on committees.

Mr. GUTKNECHT. It seems to me, I really believe that you could

be very helpful in maybe moving this, the whole thing forward.

Mr. FRENZEL. You’ll have the Livingston-Frenzel vote.

Mr. GUTKNECHT. That sounds good to me. But one of the real

problems we’re potentially going to face this year, have faced in

previous years and in some respects, gives the chief executive enormous bargaining authority, at least it has in the past, over the

budget negotiations in the ‘‘end game,’’ is the now threat of a Government shutdown. And I’m sorry if I missed, and I certainly don’t

ask you to be redundant, I can read it in the record.

But we would appreciate any advice that particularly you would

have what we can do between now and September 15th to begin

perhaps some kind of reforms that preempt the notion that we’re

going to hold a gun to the heads of all the Federal employees and

72

say, if we don’t get our way, we’re going to shoot this one in the

head. Because that’s essentially what happens.

I see my time has almost expired, so you have 1 minute to deal

with that very important issue.

Mr. LIVINGSTON. Thank you, Mr. Gutknecht. I understand, and

I just learned this morning, that if you don’t pass or comply with

the Budget Act because of the tax bill provisions that you may be

many billions, perhaps as many as $78 billion, short at the end of

the year.

I would urge you and Congress to go ahead and meet that responsibility now rather than later because at the end of the year

if you are $70 billion out and you say ‘‘Take it out of discretionary,’’

you are going to have a very hard time.

But apart from that, and more institutionally, I would suggest to

you that the prospect of government closure is not all bad, not because I want to see government shut down, but it is the Sword of

Damocles that hangs over the head of every Member of Congress

to get the job done.

When you don’t have to meet the deadlines, you don’t meet the

deadlines. It goes back to my business about biennial budgeting.

Congress collectively procrastinates. It is no one person; it is just

collective procrastination, and Congress is not going to do the job

until they absolutely have to.

You can look at one committee after another. They basically don’t

pass bills until they absolutely have to do it. In the appropriations

process, that is especially true. If you see that old Sword of Damocles, focus the attention of Members of Congress, and the attention

of the President, they will come to the table, and finish their business.

One of the big objections I have had with that propaosal to

‘‘never close government services,’’ I have forgotten what it was

called, but one of our Members offers it all the time. But it is to

say, ‘‘Oh, we are never going to close down government.’’

What that means is you never have to reach a resolution on appropriations and you just operate the government on a continuing

resolution year after year after year. I think that is an abdication

of responsibility. It is a refusal to prioritize between good programs

and bad programs. It is just unworkable.

Accept the fact that if you don’t do your job, the government will

shut down. Then you will get the job done.

Mr. FRENZEL. I do think its right that CRs are worse than shutdowns. I like to have a little pressure out there building for Congress and the President. There is no way to bulletproof yourself

against a shutdown.

Pretty clearly, if you get the appropriations to the President in

a timely way, you are going to lessen any possibility. The problem

is when you are sitting here with a five-vote majority in the House

and a no-vote majority in the Senate, it is pretty hard to move stuff

along.

I don’t know how, in that kind of environment, how you can do

it. I served the Minority for a long time. The Democrats had very

large majority. By passing their bills promptly, they could sustain

vetoes by the President and even vetoes that were sustained by the

Congress and then re-pass them later with small changes made.

73

I remember President Ford vetoed six appropriation bills in a

row. Every one of them was sustained. Every one of them was repassed very promptly, a couple after the turn of the fiscal year. The

Congress had to cut some spending, but the enacted bills were very

similar to the vetored bills.

If you can get the process moving you will do it better and of

course part of it depends on you, how quickly you get your budget

resolution passed so the appropriators can get back to work. But

that is the only way I know.

To tell you the truth, before President Clinton stuffed the Republicans in 1995, the general conventional wisdom around here was

that a potential closing of government put more pressure on the

President than on the Congress. Unfortunately, Clinton proved to

be smarter than we were. But it works both ways.

Chairman NUSSLE. Mr. Moran.

Mr. MORAN. I want to thank our three witnesses for taking the

time out to share their thoughts with us today and especially for

their candor.

I was a Senate Appropriations staffer under the chair of the Senate Appropriations Committee in the early 1970’s when the Budget

Act legislation that created the Budget Committee was established.

What Senator Magnuson predicted then, I think, is about to come

around full circle.

I do want to ask the former chair of the Appropriations Committee and the former chair of the Budget Committee what they feel

about the language that was in the most recently passed budget

resolution giving the chairs of the Budget Committee the ability to

second-guess or determine the definition of emergency spending

even if their definition is at odds with the Appropriations chairs.

Chairman Nussle can reinterpret that, but that is the way it is

seen, I think, the way it is intended to work. As we speak, the supplemental appropriations bill is being considered. Most of it is classified as emergency spending. Much of it is anything but. Much of

the reform efforts that have transpired over the last generation

would lead you to become fairly cynical.

They have had very marginal improvement on the process, although I think the PAYGO mechanism has been acting as something of a break and has subjected some greater sense of fiscal responsibility.

But I think in large part we are focusing on trees without looking at the forest. I think the paradigm really has changed and I

want to refer to the charts that Chairman Livingston has shown

here because they do illustrate the reality that much of what we

talk about in the budget process and the appropriations process,

particularly, is become moot. Of the mandatory spending, including

interest on the debt, it is now two-thirds of the budget. It should

also be recognized that of the third of the budget that is left, 95

percent of the appropriations governing that are incremental.

The one aspect of it that is not incremental are the so-called special projects that we get beaten up in the newspapers for, but those

actually are a reflection of what individual Members priorities are.

They are not incremental. One of them is the Wilson Bridge, for

example, which is considered a pork project, but it would stop the

interstate commerce along the east coast if we don’t get that

74

money. So, I think that some of the efforts and the alleged deeds

for reform are a bit overstated.

With regard to biennial budgeting, it would require the budget

to be put together 30 months in advance. I don’t understand. I

can’t imagine how we could responsibly expect the executive branch

to under take that effort.

The reality is that if we do it right under good leadership and

particularly in a constructive, cooperative attitude between both

parties, we can get the appropriations bills done on time. If we are

going to exercise oversight, the only way to get the executive

branch to really pay attention to it is to hold up the funding capability. Otherwise, it is an exercise for media attention, but little

else.

If it is within the context of the appropriations process and it can

actually cost them if they don’t comply with the intent of Congress

and particularly the appropriators, then oversight means something and it works.

So, those are some comments. I guess the only real question that

I would want to get from Mr. Reischauer—because he has been

very much involved in this process—is whether you think there

may not be a clash coming between the budget and the appropriators instigated by the ability in the last budget resolution to determine on the part of the budget chairman what is emergency spending.

I think Chairman Livingston’s, Speaker Livingston’s comments

might be most critical given your most recent perspective as chair

of the committee.

Mr. Livingston?

Mr. LIVINGSTON. Thank you, Mr. Moran. I think that is a real

issue for Congress to hash out. I don’t think that there is any one

answer. I think the answer is in the collective wisdom of Congress,

reached with all of the partisan debate that comes to the floor.

‘‘Emergency spending’’ can clearly be misused, and can be put on

anything that you don’t want to encompass within the budget. That

is a way to evade the budget caps. So, you declare it emergency

spending.

Both parties can be equally culpable, depending on who is calling

the shots on what day. But the only way to hash it out is for you

to meet and let the majority win.

Mr. MORAN. What would you do if you were still chairman?

Mr. LIVINGSTON. I would probably do the same thing you would,

I mean, I would say my projects are emergencies.

But you made another point that I mentioned and I didn’t highlight it, but you highlighted it very well. By the time you eliminate

the mandatory spending of interest and all the entitlements that

we have thrown into process that we rarely review and realize that

of discretionary spending, half of which is defense, which we are

always raising whenever we can, even though since 1962, defense

it has gone from half of the budget to less than one-sixth.

By the time you start realizing what programs you are actually

going to be adusted up or down with new priorities you are talking

about 1 percent of the budget, only 1 percent. That illustrates, I

think, more clearly than anything else, that the budget really is

out of control.

75

We are spending time year-round on the floor on appropriations

bills and the Budget Act, only to change 1 percent of the budget,

more or less? Something is wrong here. We need to prioritize.

When I say we need to assess priorities, I mean the whole budget, not just that 1 percent.

Chairman NUSSLE. We have two votes on the floor or a series of

votes. So, as a result, we are going to have to end this panel. But

before we do so, before we go and vote, I know Mr. Toomey and

Mr. Clement have been here a long time.

Let us go to Mr. Toomey first for a question or two and then we

will see if there are any others before we go vote.

Mr. TOOMEY. I think I can do this in less than my allotted time.

I wanted to start with a statistic that I have. If you include what

is in the Budget Resolution for 2002, it is my understanding that

during the 4 years before the surplus emerged, say in 1993 through

1997, total discretionary actually declined about 2.2 percent.

Over the 4 years since the surplus emerged, discretionary spending has increased about 24 percent. We could quibble about the

exact numbers. But the point is, I think this is extremely interesting and I think it reflects that prior to the emergence of the surplus there was at least some degree of consensus that one of the

priorities of the budget process ought to be to reach a balance, to

eliminate the persistent deficits and that we ought to find a way

to do that.

I think arguably previous budget process measures enacted before I got here had that bias sort of built into them, to find a way

to bias the system in the direction of a balance.

It seems to me that now that we have crossed this threshold into

the era of surpluses, we don’t have a consensus on what to do with

the surplus. Some of us want to cut taxes massively. Some of us

want to spend more on entitlements; others on discretionary and

others to pay down debt.

My question is, absent a consensus on what to do with the surplus, can we really reach meaningful budget process reform that is

going to work? Is that an important precondition or not?

Mr. REISCHAUER. Yes, I think you can. The issue is not what you

do with the surplus. It is what you define the surplus to be. Then

the legislative process, the process with the executive branch, will

involve fighting out each year what you do with the resources that

you think are excess in a sense.

Do you give them back as a tax cut? Do you save them for some

future investment? Do you spend them on some discretionary needs

that are in front of the Nation now? That is what the budget process is all about. The first thing, as I suggested in my testimony,

that you need to do is to define what fiscal objective you want to

achieve. We have one now which is balancing the unified budget

but that is irrelevant because we are so far beyond that goal at this

point. That is what is causing the problem.

We have a process that was designed to achieve something that

we are way beyond at this point.

I would just like to say one thing about the emergency process.

I think a lot of people have slammed the misuse and abuse of the

emergency process inappropriately over the last few years. That

abuse and misuse is a reflection of the fact that the discretionary

76

spending caps have been unrealistic and this is the safety valve.

This is the flexibility.

I agree completely with Mr. Livingston that what is a emergency

should be in the eye of the Congress as a whole and the President

because the President has to designate an activity to be an emergency, too.

What we really are saying is that there is a political consensus

behind this designation, even if the Webster’s dictionary would

never define the particular activity as a true emergency.

Chairman NUSSLE. Mr. Clement.

Mr. CLEMENT. Thank you panel for being here today. You have

been very helpful to all of us. I want to ask a question first of Mr.

Livingston, my neighbor. I am one of those attracted to biennial

budgeting simply because of oversight, which I think is really lacking now.

We are always trying to prioritize how much time we have to

spend on appropriations so why shouldn’t we have biennial budgets?

Mr. LIVINGSTON. Mr. Clement, we did touch on it. But I agree

with you, prioritization is the number one responsibility of Congress when it deals with the budget, absolutely. One would think

that you could have plenty of time to do that. But what I have

come to believe in my cynical old age is that Congress won’t do

anything unless it absolutely has to.

If they don’t do it, if they don’t provide the oversight, if we don’t

have the hearings, if we don’t spend the time to have those oversight hearings, which I don’t think that we will, then you have just

wasted time. Congress might as well be back in their districts, because the job is just not going to get done.

I would like to think it was going to be done, but with this schedule that Congress is engaged in, coming in Tuesday night and leaving Thursday afternoon, it is impossible. You can’t have the hearings; there is no time for them.

If you wanted to come in four and a half days a week and say

we are definitely going to have oversight hearings and this is the

way it is going to be, then I would have more faith it would get

done. Otherwise, I think you are just putting off the inevitable

every other year.

I believe that you have to provide oversight all the time. Everything Congress does should involve oversight and prioritization. It

is a constant process. The country is so complex that it needs attention year in and year out, day after day.

With a biennial budget, you can push off the tough decisions next

year.

Mr. CLEMENT. As you know, the argument also, on behalf of

some like Howard Baker and others in the past is that we ought

to meet half the time, you know, have a part-time Congress.

Mr. LIVINGSTON. Well, you can make an argument for that, I

don’t know how much you will get done.

Mr. FRENZEL. Mr. Clement, I have some similar feelings. I am in

technical support of a biennial budget. One of the reasons for having it is that it would allow time to do oversight in the off year.

Like Bob, however, I have been around here long enough and waitVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
77

ed in vain for any oversight, particularly from authorizing committees.

My own judgment is that it only gets done in the Appropriations

Committee anyway. So I am not really optimistic that alleged virtue of the biennial budget would work. But, I will pray heartily for

it.

Chairman NUSSLE. I appreciate members allowing us to accomplish this before the votes.

Panelists, thank you very much for your time and testimony

today. We look forward to your continued interest in this.

The committee will stand in recess subject to these votes. Then

we will take up the hearing as soon as the votes are completed on

the floor.

[Recess.]

Chairman NUSSLE. I call the hearing back to order and to resume. We are now at a combined Panel 2 and 3. It is actually

somewhat poetic that we need to do this because it falls right in

line with the counsel that was given to us by the witnesses on the

first panel, that there is just too much going on around here.

We are bringing Members from all sorts of committees, dividing

their time and their concern. As a result, we had Members that

were going to be testifying today, the very distinguished Ranking

Member of the House Appropriations Committee is in the middle

of a markup, as is appropriate this time of year.

Mr. Obey caught me on the floor last night. He is very passionate

about budget issues and budget reform. He offered if it can’t be

done at some official hearing, he would love the opportunity to just

talk to the Members at some time. I know that will occur.

Chris Cox is in a markup as well. He will be back. When he gets

here we will try to fit him in because I know he has votes. I do

not suggest that our other witnesses don’t have time constraints.

They do. They are very busy and we very much appreciate their attendance.

Barry Anderson carried the ball for the Congressional Budget Office earlier this year and did an expert job. We really appreciate

not only your work at that point in time in getting our budget

ready for my first go at it, I appreciate that personally as well.

Susan Irving, who is the Director of the Federal Budget Analysis

from the General Accounting Office, has always been a real partner

with the Budget Committee and with the House in total, but particularly with the Budget Committee. We very much appreciate the

work that GAO continues to do on behalf of the Congress.

We are here, as you know, talking about Federal budget process,

structural reform. You have some good ideas, I know, from your

testimony. Your testimony will be in the record in total and you

may summarize as you would like.

We will begin with you, Mr. Anderson. Welcome.

78

STATEMENT OF BARRY B. ANDERSON, DEPUTY DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, SUSAN J. IRVING, DIRECTOR FOR FEDERAL BUDGET ANALYSIS, GENERAL ACCOUNTING OFFICE, AND HON. CHRISTOPHER COX, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

STATEMENT OF BARRY A. ANDERSON

Mr. ANDERSON. Thank you. Thank you very much, Chairman

Nussle and Congressman Price. Thank you for having me here to

testify today on structural reform of the Federal budget process.

Next year, as you know, the major provisions of the Budget Enforcement Act will expire. That law has provided the basic enforcement framework for lawmakers’ budgetary deliberations for the

past decade.

As lawmakers consider whether or how it should be extended,

they should also consider other changes in the budget process and

in the fundamental budget concepts that would address broader

concerns that have surfaced over the years.

Today in my testimony I would like to concentrate not on what

the others have testified before me. That is, I would not like to

spend time on the BEA framework of discretionary spending limits

and PAYGO and the enforcement mechanisms and other changes

related to that.

Instead, I would like to spend some time talking about a reevaluation of the broad budget concepts on which the Federal budget

process is based. Budget concepts were last reviewed comprehensively in 1967 as part of President Johnson’s Commission on Budget Concepts.

During the intervening years, changes in the Federal budget and

modern legislative proposals affecting the budget have raised significant issues about appropriate budgetary treatment that are not

covered by the commission’s recommendations.

This suggests that a new budget concepts commission or some

other form of consensus is really important. So, in addition to extending the BEA enforcement mechanism and considering changes

to the budget process, I suggest that lawmakers should, as part of

any structural reform, revisit the framework of fundamental budget concepts and accounting principles.

Although the guidelines of the 1967 commission continue to

apply broadly to the budget process, they do not accommodate

many of today’s complex budget proposals and institutions.

For example, lawmakers and budget scorekeepers now face four

fundamental questions: One, what is the appropriate scope of the

budget? The commission’s recommendations that the budget should

include all Federal activities provides little or no guidance on how

to treat areas and entities such as Amtrack.

Two, what should be classified as spending or as an offset to

taxes? The line dividing Federal spending and revenues has become blurred as shown by the increasing use of so-called refundable tax credits and certain fees as devices for expanding budgetary

resources for spending programs.

Three, does the use of trust funds for tracking earmarked revenues confuse lawmakers and the public, or does it do more fundamental good? The proliferation of Federal trust funds, which now

79

exceed over 200, raises important questions about the extent to

which these and other earmarked devices in the Federal budget

may distort overall budgetary choices that lawmakers make each

year.

Four, how do we accurately measure the Federal Government’s

effect on the economy? The purchase and sale of non-Federal debt

and equities, important components of many proposals to reform

Social Security raise thorny issues about budgetary treatment that

are important for estimating the costs associated with those proposals.

Let me address each of these questions in turn very briefly. First

of all, with respect to budget coverage, as the 1967 commission recommended, the Federal budget should encompass the full scope of

programs. It suggested certain broad criteria to make such determinations. For example, who owns an entity? Who selects the managers? Do the Congress and the President have control over the entities programs and budget or are its policies set primarily in response to private owners and not to accomplish some broader purpose?

It is these kind of fundamental questions that need to be addressed when looking at such arrangements as we have now, for

example, with Amtrak. Do we own and control Amtrack in any

sense or through its preferred stock?

In addition, to use the example of Amtrak, which has not earned

profits in its more than 30-years of existence, is that the kind of

company that really could exist outside the rubric of the Federal

Government?

Next, I’ll address the line between spending and revenues. Over

the 30-plus years since the Budget Concepts Commission, that line

has become more muddled, particularly with the creation of refundable tax credits. Right now we have tax credits for alternative fuels

or reforestation or education for income support. The generous use

of tax credits understates the size of government and distorts information about Federal spending priorities.

Third, with respect to trust funds, the Federal Government accounts for activities through two broad categories of funds; Federal

funds and trust funds. Trust funds are generally created to earmark receipts for specific programs and purposes.

The General Accounting Office has stated that there are currently over 200 trust funds. But trust funds differ fundamentally

in the Federal Government than those in the private sector.

For one thing, claims against private trust funds are limited by

the value of the assets in the trust. That is not true with Federal

trust funds. They are mere accounting mechanisms that track the

amount of fees and collections and the amount of associated expenditures.

In addition, when trust fund receipts exceed expenditures, the

government books show trust fund balances. However, those balances are claims on the Treasury that, when redeemed, will have

to be financed either by raising taxes, cutting spending, or borrowing from the public.

The existence of trust fund balances in the Federal Government

is much different from the existence of balances in the private sector.

80

Furthermore, the beneficiaries of private trust funds own the

trust fund’s assets. That is not true for Federal trust funds. The

beneficiaries of Social Security or Medicare do not own the assets.

The benificiaries do posses the Federal Government’s obligation to

them to pay certain benefits, but they do not own the assets.

The last point I want to talk about is, the budgetary treatment

of government investments in private securities. Government purchases of private securities, including corporate bonds and equities,

pose an interesting and unprecedented dilemma for the Federal

budget.

Should those purchases be part of the Federal Government expenditures? Right now we treat government purchases of financial

securities the same way we treat purchases of non-financial assets,

as a cash outlay. But there is an argument that because the purpose of financial assets is different from that of non-financial assets, they should not be treated as an outlay.

If we were to not treat them as an outlay however, we would disguise the extent to which the Federal Government intervenes in

the economy, and this treatment. That would be counter to one of

the major principles of the 1967 Budget Concepts Commission.

These are four important issues that I think need to be addressed, consistent with the review that the committee is doing

now on the extension of the Budget Enforcement Act.

There are implementations for trust fund accounting in general

and particularly for State reform that are very important. Also important is that I don’t think it is appropriate for the Congressional

Budget Office, the General Accounting Office, the Office of Management and Budget or scorekeepers to address these issue unilaterally.

We need the guidance of the Congress and the President on how

to treat these fundamental budget concepts. Thank you very much.

[The prepared statement of Mr. Anderson follows:]

PREPARED STATEMENT OF BARRY B. ANDERSON, DEPUTY DIRECTOR, CONGRESSIONAL

BUDGET OFFICE

Chairman Nussle, Congressman Spratt, and members of the committee, thank

you for inviting me to testify today on structural reform of the Federal budget process. Next year, the major provisions of the Budget Enforcement Act of 1990 (BEA)

will expire. That law has provided the basic enforcement framework for lawmakers’

budgetary deliberations for the past decade. As lawmakers consider whether or how

it should be extended, they could also consider other changes in the budget process

and in fundamental budget concepts that would address broader concerns that have

surfaced over the years.

My testimony today will make the following major points:

• Despite recent difficulties, the BEA framework of discretionary spending limits

and Pay-As-You-Go (PAYGO) enforcement has generally promoted budget discipline.

Also, broader changes in the budget process, such as certain changes proposed in

the Nussle-Cardin budget reform legislation of the 106th Congress (H.R. 853), could

help to improve that process.

• It is time to reevaluate the broad budget concepts on which the Federal budget

process is based. Budget concepts were last reviewed comprehensively in 1967, by

the President’s Commission on Budget Concepts. During the intervening years,

changes in the Federal budget and in modern legislative proposals affecting the

budget have raised significant issues about appropriate budgetary treatment that

are not covered by the commission’s recommendations. This suggests that a new

budget concepts commission, or some other forum for reaching a consensus on those

issues, may be needed.

81

1Office of Management and Budget, Report on the costs of Domestic and International Emergencies and on the Threats Posed by the Kuwaiti Oil Fires as Required by P.L. 102–55 (June

1991).

EXTENDING THE BEA AND OTHER BUDGET PROCESS CHANGES

Lawmakers enacted the Budget Enforcement Act as part of a multiyear agreement to reduce deficits. That law amended the Balanced Budget and Emergency

Deficit Control Act of 1985, replacing its regimen of fixed deficit targets with a new

system of procedures for controlling deficits. The BEA established statutory limits

on discretionary spending and a PAYGO requirement for new mandatory spending

and revenue laws. In general, the BEA disciplines now scheduled to expire at the

end of fiscal year 2002 were intended to ensure that new spending and revenue laws

did not increase projected deficits. The discretionary caps and PAYGO requirement

(like the deficit targets before them) are enforced by sequestration, a process that

imposes automatic, generally across-the-board cuts in spending if those disciplines

are not met.

As the Congressional Budget Office (CBO) testified before the committee last

month, the BEA framework has provided a solid foundation for budget discipline for

most of the past decade. From 1991 through 1997, the law’s limits on discretionary

appropriations and its PAYGO requirement helped to control deficits. The growth

of total discretionary outlays was held well below the overall rate of inflation. (Within that total, however, growing appropriations for many nondefense discretionary

accounts were offset by a steep decline in defense spending in the aftermath of the

cold war.) New mandatory spending and revenue laws enacted during the period did

not increase net deficits.

With the emergence in 1998 of large and growing surpluses, however, the fiscal

environment changed. Yet the BEA framework, which had been recently extended

through 2002 by the 1997 Balanced Budget Act, remained in effect. Surpluses put

increasing pressure on lawmakers to circumvent the discretionary spending caps

and the PAYGO requirement, making those disciplines much less effective.

In 1999 and 2000, lawmakers enacted record levels of emergency appropriations

which are effectively exempt from budget enforcement procedures and used other

funding devices to boost discretionary spending well above the caps set in 1997. Although lawmakers set higher caps for 2001, CBO’s baseline estimates of total discretionary spending for 2002 exceed the adjusted caps, which lawmakers have not yet

reset, by more than $100 billion (for both budget authority and outlays).

Despite recent experience, the underlying philosophy of the Budget Enforcement

Act that appropriations should be enacted within enforceable limits, and the estimated costs of new mandatory spending and tax legislation should generally be offset has proven to be effective. It could continue to be an important component of

overall budget discipline. Even in a period of surpluses, maintaining an effective

framework of budget discipline is an important hedge against uncertain budget projections and political pressure to increase spending.

As lawmakers consider extending the BEA, they may also want to make changes

to improve its framework. For example, they may want to add specific criteria in

law that would set out the purposes for which the emergency spending designation

should be used. In 1991, as part of a mandated report on the costs of certain emergencies in that year, the Office of Management and Budget identified several criteria used in the executive branch for deciding the type of provisions that would

qualify for emergency appropriations.1 The criteria specify that the emergency designation should be used only for spending that is necessary, sudden, urgent, unforeseen, and temporary. They were never codified, and in the past few years lawmakers have chosen to disregard them. Formal guidelines codified into law would

help to inform the debate over emergency spending and to minimize abuses of the

emergency spending designation.

Lawmakers may also wish to adapt the BEA framework to an environment of surpluses. Many lawmakers have expressed their commitment to preserving off-budget

surpluses for debt reduction. The BEA framework could be modified to enable lawmakers to enact legislation that would use some portion of the projected on-budget

(non-Social Security) surpluses for new spending or revenue policies, while protecting the off-budget surpluses using the BEA’s sequestration process.

Because the context for the coming debate about extending the BEA is likely to

differ considerably from the context in earlier years, it may also prompt a wider look

at the budget process. Indeed, last year, the House considered legislation that would

have changed the process in ways that could help to improve budgetary decisionmaking. That legislation (H.R. 853) was developed by the Task Force on Budget

Process (the Nussle-Cardin task force) of the House Budget and Rules Committees.

82

2President’s Commission on Budget Concepts, Report of the President’s Commission on Budget

Concepts (October 1967).

For example, a number of lawmakers worry that the budget process is too complex and confusing; they would like to make it simpler, easier to understand, and

more efficient. They contend that excessive complexity in the budget process, among

other factors, has led to delays in enacting budget legislation especially appropriation laws. They favor converting the annual budget cycle to a 2-year timetable, providing for automatic continuing appropriations, and turning the Congressional budget resolution into a joint resolution signed by the President (proposals that were

considered during the debate on H.R. 853). Although those proposals may help to

ease delays and reduce complexity, no procedural changes can guarantee agreement

on budget policies.

REVIEWING FEDERAL BUDGET CONCEPTS

In addition to extending the BEA enforcement mechanisms and considering other

changes to the budget process, lawmakers should, as part of any structural reform,

revisit the framework of fundamental budget concepts and accounting principles

that underlies their annual deliberations over the Federal budget.

The basic accounting rules generally followed in the modern budget process are

set forth in the 1967 Report of the President’s Commission on Budget Concepts.2 Although the report has no legal status, it remains to this day the most authoritative

statement on Federal budgetary accounting concepts and principles. The commission’s most important recommendation was for a comprehensive Federal budget. It

recommended that the budget cover the full range of Federal activities and that

even borderline activities and transactions be covered unless there were compelling

reasons to exclude them.

Although the commission’s guidelines continue to apply broadly to the budget

process, they do not accommodate many of today’s complex budget proposals and institutions. Lawmakers and budget scorekeepers now face fundamental questions:

• What is the appropriate scope of the budget? The commission’s recommendation

that the budget should include all Federal activities provides little or no guidance

on how to treat various public/private partnerships such as Amtrak and similar hybrid entities.

• When should a program be classified as spending rather than an offset to taxes?

The line dividing Federal spending and revenue law has become blurred, as shown

by the increasing use of so-called refundable tax credits and certain fees as devices

for expanding budgetary resources for spending programs.

• Does the use of trust funds for tracking earmarked revenue confuse lawmakers

and the public? The proliferation of Federal trust funds, which now exceed 200,

raises important questions about the extent to which those and other earmarking

devices in the Federal budget may distort the overall budgetary choices that lawmakers face each year.

• How do we accurately measure the Federal Government’s effect on the economy? The purchase and sale of non-Federal debt and equities, important components of some proposals to reform Social Security, raise thorny issues of budgetary

treatment that are important for estimating the costs associated with those proposals.

Those questions are examined in more detail below.

BUDGET COVERAGE

As the 1967 Commission recommended, the Federal budget should encompass the

full scope of Federal programs and entities. It suggested certain broad criteria to

help make such determinations. For example, who owns an entity and selects the

managers? Do the Congress and the President have control over an entity’s program

and budget, or are its policies set primarily in response to private owners and not

to accomplish some broader public purpose?

Despite the broad scope of the commission’s guidelines, they do not clarify the appropriate budgetary treatment of certain partnerships between the Federal Government and the private sector that appear to be largely Federally-controlled. For example, the business operations of Amtrak are generally excluded from the Federal

budget, but Amtrak’s board members are appointed by the President, its preferred

stock is owned by the Department of Transportation, and the Federal Government

controls the routes that Amtrak uses. In addition, Amtrak has not earned any profit

in its more than 20 years of existence. Our economic system would not permit any

truly private entity to continue under those conditions. Other examples of hybrid,

83

3General Accounting Office, Federal Trust and Other Earmarked Funds: Answers to Frequently Asked Questions, GAO–01–199SP (January 2001), available at www.gao.gov.

public/private entities include the Metropolitan Washington Airports Authority and

agricultural marketing boards.

If lawmakers determine that the budget should continue excluding such entities,

then perhaps a new or more complete list of criteria should be developed to better

distinguish between Federal and non-Federal entities for budgetary purposes.

THE LINE BETWEEN SPENDING AND REVENUES

Over the past 30-plus years, the division between taxes and spending has become

muddled. Maintaining a consistent and clear distinction in the budget between

spending and taxes would give lawmakers and the public a more accurate picture

of the size of the Federal Government and the amount of budgetary resources it

committed.

For example, the tax code has been changed extensively in recent years to grant

taxpayers credits against their tax liability for a diverse array of public policy goals.

Those tax credits generally are classified as affecting receipts, but in many cases

they establish benefits that may be completely unrelated to the amount of taxes otherwise due or that exceed a taxpayer’s liability. Known as refundable credits, tax

credits that exceed a taxpayer’s liability appear to resemble spending for public policy purposes rather than receipts.

Tax credits now exist for such diverse activities as the production of alternative

fuels, reforestation, education, and income support. The generous use of tax credits

understates the true size of the government and distorts information about Federal

spending priorities. Also, the Congress may be more willing to create a new tax

credit than a new spending program.

In addition, the distinction between revenues and offsetting collections, which are

treated as offsets to spending, is also a concern. Offsetting collections from the public typically are linked to a business-type activity or service provided to the public

by a Federal agency. In the budget process, they are distinguished from revenues

collected under the Federal Government’s sovereign power to tax or regulate. Over

the years, laws have been enacted that classify certain revenues as offsetting collections. However, revenues that are improperly classified as an offset to spending provide a distorted picture of government finances.

A prominent example is fees collected by the Securities and Exchange Commission

(SEC). Normally, those fees would be classified as revenues, not as offsetting collections, in part because they are not associated with a business-type transaction but

rather collected, as are other taxes, under the government’s sovereign powers. However, laws have been enacted requiring some of those fees to be counted as offsetting

collections credited to the appropriation account for SEC salaries and expenses,

while some existing SEC fees are recorded as governmental receipts (that is, revenues). Without such laws directing the budgetary accounting, all SEC fees would be

counted as general revenues.

TRUST FUNDS

The Federal Government accounts for its activities through two broad groups of

funds: Federal funds and trust funds. In general, trust funds are created in law to

earmark receipts for specific programs and purposes. The General Accounting Office

has identified over 200 trust funds in the Federal budget, although fewer than a

dozen account for the vast majority of trust fund receipts and spending.3

Federal trust funds differ significantly from private-sector trust funds. For example, claims against private trust funds are limited by the value of the fund’s assets.

By contrast, Federal trust funds function as accounting mechanisms that record tax

receipts, user fees, and other credits and associated expenditures. When trust fund

receipts exceed expenditures, the government’s books show trust fund balances.

However, those balances are claims on the Treasury that, when redeemed, will have

to be financed by raising taxes, borrowing from the public, or reducing benefits or

other expenditures. The existence of large trust fund balances, therefore, does not

by itself have any impact on the government’s ability to pay benefits.

Further, the beneficiary of a private trust fund usually owns the fund’s income

and often owns its assets. The trustees of the fund also have a fiduciary responsibility to manage the fund on behalf of its beneficiaries and cannot make unilateral

changes to the provisions governing the trust. In contrast, Federal trust funds generally are owned by the Federal Government. They are created in law, and lawmakers can change those laws or repeal them.

84

Those and other distinctions between Federal and private trust funds create confusion among lawmakers and the public and cause some people to argue that the

spending and revenues credited to Federal trust funds should be treated differently

in the budget process. That puts pressure on lawmakers to favor those trust funds

in their annual budgetary deliberations and potentially limits their flexibility in setting broad budget policies and priorities for the budget generally.

BUDGETARY TREATMENT OF PRIVATE EQUITIES

Government purchases of private securities, including corporate bonds and equities, pose an interesting and unprecedented dilemma for the Federal budget. Such

purchases are a part of certain major proposals to reform Social Security.

Under current budgetary guidelines, purchases of private financial securities are

recorded as cash outlays; the sales of the securities and returns such as dividends

and interest payments are recorded as offsetting receipts. The budgetary treatment

is the same for investments in private financial securities as it is for investments

in nonfinancial assets.

On the one hand, important distinctions exist between financial and nonfinancial

assets. In general, financial assets are acquired to generate a flow of income rather

than to provide public services such as national security, health care, or recreation.

This suggests that government purchases of private equities should be treated differently in the budget than purchases of nonfinancial assets. On the other hand, if

equity purchases were not counted as outlays, the budget would not accurately reflect the level of the Federal Government’s ownership and control of the private sector. That would seem to violate one of the fundamental principles of the 1967 Commission that the budget should reflect the true extent of the government’s interactions with the economy.

CONCLUSIONS

On balance, the BEA framework has improved budget discipline. Extending that

framework, under the right circumstances, would contribute to continued budget

discipline. As lawmakers consider extending the BEA, they may wish to add criteria

for the emergency spending designation and make changes that would adapt the

BEA to a period of surpluses. Other changes in the budget process, such as some

of those recommended in the Nussle-Cardin bill, may help to address lawmakers’

broader concerns about the budget process.

As important as those concerns, however, is the issue of the status of the fundamental budget concepts that underlie the Federal budget process. Those concepts

have not been comprehensively reviewed since the President’s 1967 Commission on

Budget Concepts. The 1967 guidelines leave unanswered a number of thorny questions about the budgetary treatment of modern budgetary legislation.

The answers to those questions have significant implications for certain major

budget policy proposals, including Social Security reform, and how those proposals

should be accounted for in the Federal budget. Consequently, they should not be left

to budget technicians and scorekeepers to resolve. One approach would be to create

a new budget concepts commission that could sort through the various options and

make appropriate recommendations, much as the President’s Commission did over

30 years ago. Such an approach would help lawmakers to review conceptual issues

comprehensively and may help to promote a consensus on how those issues should

be resolved.

Chairman NUSSLE. Thank you.

If you are prepared, Congressman Cox, I don’t mean to rush you,

but I also understand your time constraints.

STATEMENT OF HON. CHRISTOPHER COX

Mr. COX. Well, as you know, Mr. Chairman and Mr. Price, I was

happy to be here for the morning’s hearing, even as my own markup was proceeding and I barely made the vote on final passage, but

missed about six recorded votes.

It was worth it because the testimony here was very, very illuminating. I learned a lot. I want to congratulate you for doing this.

I know, Mr. Chairman, that you have invested a lot of intellectual

energy as well as physical time in this process.

85

I was very happy to see our former colleagues here to help in

that process, as well as an alumnus of the Congressional Budget

Office.

I think it is appropriate to turn to former Members because of

their unique perspective. In that spirit of looking to experience, I

went back into the archives of the Policy Committee, which I currently chair. In 1975, Representative Barber Conable was the

chairman of the House Republican Policy Committee. He is now a

member of the History of the House Advisory Board, by the way.

On April 29, 1975, in the wake of the enactment of the 1974

Budget Act and on the threshold of the floor debate on the first resolution on the budget, the first in both senses. It was literally the

first. In this committee you unanimously approved a prescient

statement which I have made available to you. It should be on your

desk. I will just read from the first paragraph of that statement

and then its conclusion, if I might.

‘‘Last year,’’ which would have been 1974, ‘‘Congress undertook

a major overhaul of the budget process. Instead of considering each

spending measure separately on its merits and then adding them

all up at the end of the year to find out the total, Congress, under

the new procedure, is supposed to set spending and revenue totals

in advance and then discipline itself to see that individual spending

and revenue measures adhere to the overall plan.’’

So far, so good. That is what the 1974 Act was supposed to do.

It is saying simply ‘‘Budget first and spend second,’’ a sound discipline when one adheres to it.

In 1975, however, things didn’t turn out so well. The statement

concluded as follows:

‘‘The Budget Committee’s first resolution comes just in time to

reveal a government out of control and sliding into a state of fiscal

disaster. Major legislative efforts are needed to rein in ’uncontrollable items,’ and to establish a new pattern of legislative authorizations and appropriations. The new budget procedure is no panacea.

‘‘The first resolution on the budget makes it clear that our whole

legislative process must be rededicated to a will to govern.’’

So, at the inception what they saw is that procedures not withstanding, it was going to take sheer political will in order to exert

any budget discipline. That, a quarter of century later, is where we

find ourselves.

We have a process that is well designed to the extent that it encourages us to have a budget first and spend second. But, because

it utterly lacks in enforcement, we still need to rely on sheer political will to get the job done.

Congress approved a record deficit in 1975, but the budget resolution itself didn’t even predict just how bad things would get that

year, how much spending would be over the limits set in that budget.

President Carter remarked—and you remember his Budget Director Burt Lance said so as well—that the new law actually

stripped the President of powers to participate in the budget process and to exert fiscal discipline.

When President Reagan came to office he certainly had the political will to rein in spending, but he couldn’t control it either and

spending growth continued unabated.

86

To sustain a rate of government spending growth that has far

surpassed the Nation’s economic growth, the Federal Government

today takes more from the national economy in taxes than at any

time in our peacetime history, as you on this committee are well

aware.

The fact that Congress has balanced the budget for 4 years in a

row, the first time that this has happened in over 70 years, is actually a representation of what an oddity it is and how aberrational

it is.

What we need to do is make it institutional and not aberrational.

We need, in short, enforcement of the budgets that you on this

committee enact. An effective budget process reform will make enforcement a centerpiece so that we will require ourselves to live

within a budget.

Otherwise, the budget that you adopt here, the work of this committee and all of its members will amount to so much sound and

fury, signifying nothing.

The budget resolution, it is an odd term because this flaccid and

weak resolution is utterly lacking in resolution. It is not resolute.

It is sort of Orwellian to think of it that way.

The bill that this committee worked with in the 106th Congress

contained a lot of the items that were discussed today. But I want

to emphasize among all of them what I believe is the most important, and that is enforcement. A super-majority vote to break the

budget that Congress enacts by majority vote by choice will require

that we commit ourselves in a solemn way to living within a budget.

If you can get out of the budget simply by breaking it in some

other legislative enactment, as easily as you passed the budget in

the first place, then there is no such thing as budget discipline.

I would also give the President line item reduction; not line item

veto, but the opportunity to pare back the budget levels jointly

agreed upon in a joint resolution as many of the panelists have discussed earlier today, the levels of spending originally stipulated by

a majority of the Congress and signed into law by the President.

Lastly, biennial budgeting is certainly a big part of the discussion. Biennial budgeting of itself doesn’t provide budget discipline,

although it can. The fact that it was rejected on the floor on a nearly even split vote last year I think reflects the ambivalence that is

felt about it among Democrats and Republicans alike.

This committee knows full well that if you double the period of

time that you are forecasting, that the emergencies that come up

will be just that much more and that the excuses and the reasons

will actually be much better—who could have predicted?

Therefore budget by supplemental will become the order of the

day unless you exert a discipline on supplementals that is just as

sturdy as anything that we would enforce within the budget itself.

Coupled with super-majority votes and the line item reduction,

a biennial budget, therefore could, in fact, enhance budget discipline.

I want to thank you for the time that you are spending on this.

The President has said that budget process reform is important to

him. He has made it a part of his own budget proposal.

87

Your leadership and your focus on this means that the stars are

now aligned to get something done. We have a legacy to preserve.

We have these four consecutive balanced budgets that I hope we

can extend. But every day brings news that we may dip into the

Social Security or Medicare trust funds. Avoiding that calamity is,

in the first instance, the job of this committee. The men and

women on this committee stand to thwart that calamity. You can

prevent it from happening through the exertion of spending discipline.

But sheer will, sheer political will won’t be enough. You have to

turn from a system that relies exclusively on that to one of the institutional enforcement.

So if I can leave you with any thought at all, it is that, enforcement, enforcement, enforcement.

Thank you, Mr. Chairman.

Chairman NUSSLE. Thank you, Chairman Cox.

As one of our most consistent advocates for budget process reforms, we appreciate your willingness to come here to testify. We

understand that you have other scheduling constraints. So, if you

need to leave, we understand that. We appreciate your flexibility

in your schedule to come and testify today.

Mr. COX. Well, Mr. Chairman, I observe that there are only two

members to ask questions, so I would be happy to stay if you have

any.

Chairman NUSSLE. Sounds good.

Ms. Irving, thank you very much for your attendance. Again,

your entire testimony will be in the record and you may summarize

as well.

STATEMENT OF SUSAN J. IRVING

Ms. IRVING. Thank you, Mr. Chairman and Mr. Price. Mr. Cox,

it is always intimidating to be on a panel with someone who actually has to live in the fray that those of us who work for you talk

about.

First of all, I would like to dissent from the idea that process conversations always have to be boring. It is a little like the complaint

that the budget debate takes too much time. Let us stand back a

minute.

The budget debate is a debate about how much of the wealth produced in this country shall be taken by its representatives to be

used collectively. It is hard to believe that there is something more

important to be debating, given that we are lucky enough to not

be at war.

The real complaint is that we can get focused on the wrong

thing. In a way I think it is quite fortuitous that this is the year

the BEA expires because you have a process that was designed

with the goal of getting rid of a deficit, and that is not the same

process you will use for managing a surplus.

It is important to step back and recognize that the process itself

need not be aimed at a specific outcome. Think about what drove

the 1974 Act. It was designed to reassert Congress’ role in the fiscal policy debate. That it is important and worth restating when

you look at some of the proposals that appear to be designed to let

Congress take a back seat in its power.

88

Prior to 1974, Congress was clearly a junior player in fiscal policy and in the debate about overall allocation across mission. So,

the fact that the budget process has not worked perfectly as envisioned doesn’t mean it hasn’t made a major step forward in asserting Congressional control. As a legislative staff member, I care

about that.

I am happy to answer questions on some of the specific issues

you raised, but I first would like to look at some broader principles.

You cannot ask the process to determine the decisions you

make—not the answers you come up with. You can ask the process

to surface the right questions so that your energy and time are focused on the right issues, the important issues.

It is important that a budget process be designed to let you look

at the important big macro questions, both near-term and longterm. Previous witnesses and Members talked about the uncertainty of 10-year and long-term projections, and they are right.

Barry, who has to be in the business of making them—he wouldn’t

put a certainty estimate on his 10-year number.

But if you don’t have a sense about what looms beyond the fiveand even the 10-year horizon, you are not able to deal with your

obligation to the future.

You want to think differently about the 2-year numbers, the 5-

year numbers, the 10-year numbers which are essentially just for

enforcement, the kind of situation Mr. Reischauer discussed.

But I would suggest you are also going to have to look longer

than that. In a way you already do. The fight today about how

much of the surplus should be used for tax cuts, for spending increases or for debt reduction is in part driven by a recognition that

the long-term budget outlook looks a lot worse than the next 10

years.

You would like a budget process to help you allocate priorities

across mission areas, to think about how much you want to spend

on defense, on education, on income support, etc. You would like

the process to help you pick tools by what works better rather than

by jurisdiction. Should a goal be addressed through the tax code or

through a spending program or a credit program? You want to be

able to determine that in some analytic sense based on what you

think will work best, not where the legislation originates.

Of course, you would like a process to provide for, enforceability,

which I think is driven in part by accountability. In fact, one of the

BEA’s great strengths is that by separating the world into discretionary and PAYGO, you made accountability easier.

Let me just focus for a minute on the long term issue, in part

because, as you know from the work we have done for you and

some of your predecessors, that is a particular concern of the General Accounting Office and our head, Mr. Walker.

Again, I say that with Social Security and Medicare, the problem

is not that the process has not told you there is a problem. The

process has not told you how to fix it. I don’t know that any process

will force you to come to grips with Social Security and Medicare.

Maybe if you are willing to set targets for how much of the economy you think those programs should take up or how much you

would like their rate of growth slowed, the process can be used to

create speed bumps.

89

But there are a lot of other programs where the budget today

gives you the wrong signal. There are other programs which have

long term cost implications. I would suggest you think about extending BEA and revising its structure, you think about improving

the structure and process to include better information on the longterm cost implications of some of these programs. At the time you

create, renew or expand an insurance program, it would be good to

have some idea of what you are committing the government to in

the future.

What about government pension programs? What about a retiree

health? Today the government’s budget doesn’t reflect all of the

long-term cost commitments made by the Federal budget.

In my written testimony I include more about issues in the expiration of the caps and their design. I think I would be about the

sixth witness here today to say that caps don’t work when they are

unrealistic. You need an emergency escape hatch, but it is going to

be broadened more the less realistic the caps are.

If you choose to extend PAYGO, you need to think about how to

design it. It is entirely unrealistic to assume that none of the surplus will be used to respond to needs of society.

Finally, I think that Barry is right, that you need to think about

how you want to make the concepts, the scoring and the structure

match the issues that confront you today. The forum in which you

want to do that I think is really an issue for you all to decide. But

I think the issues are important.

I would be happy to answer any questions.

[The prepared statement of Ms. Irving follows:]

PREPARED STATEMENT OF SUSAN J. IRVING, DIRECTOR, FEDERAL BUDGET ANALYSIS,

U.S. GOVERNMENT ACCOUNTING OFFICE

Mr. Chairman, Mr. Spratt, members of the committee, it is a pleasure to join you

as you think about how to extend and adapt the Budget Enforcement regime. The

discretionary spending limits and Pay-As-You-Go (PAYGO) mechanism established

by the Budget Enforcement Act (BEA) will expire in fiscal year 2002.1 Perhaps this

timing is appropriate; although most of us would argue that some controls are necessary even in a time of surplus, the details will be different in a time of surplus

than a time of deficit.

Among the issues your staff asked me to cover is whether—and if so how—the

budget process can be designed to help avoid what has been described as the yearend ‘‘train wreck.’’ Later in this statement I will talk about some of the particular

ideas that have been proposed in this area. First, however, I’d like to talk a bit

about what a process can and cannot do. A process can surface important issues;

it can seek to focus the debate on the important choices. But it is not a substitute

for substantive debate—no process can force agreement where one does not exist.

We ask a great deal of our budget process. We use it to determine aggregate fiscal

policy and to allocate resources across different claims. We use it to drive program

management. In the context of the Government Performance and Results Act of

1993, we turn to the budget to tell us something about the cost of obtaining a given

level of results. Asking the process to take on the job of avoiding a ‘‘train wreck’’

may be more than can reasonably be expected.

A year-end ‘‘train wreck’’ is the result of failing to reach agreement—or at least

a compromise acceptable to all parties—earlier in the year. Although it is possible

that reaching agreement on some broad parameters early on could facilitate a

smoother process, it is not clear that such an agreement will always prevent gridlock—it may just come earlier. The details of implementing broad agreements are

often the subject of heated debate.

BEA, when first developed and later when it was extended, was a process established to enforce a previously reached substantive agreement. As we move from

seeking to reduce the deficit to debating how much of the surplus should be used,

agreement on a broad fiscal policy posture might help. How much of the surplus

90

should be used to meet demands for tax cuts and/or spending increases and how

much for debt reduction? The Congress and the President seem to have reached a

tacit agreement that the Social Security surplus should be used for debt reduction.

While this agreement sets the outside parameters for the budget debate, it does not

settle either the distribution between tax cuts or spending increases or the allocation of either one. It is already evident that, by itself, this broad framework is unlikely to make for smooth sailing.

While an orderly process may be important, and avoiding a ‘‘train wreck’’ desirable, I believe there are other important issues to consider in designing the budget

process. As I have testified before, the budget represents the decisions made about

a large number of often conflicting objectives that citizens want the government to

address. We should not be surprised that it generates controversy. As BEA expires

and you move from fighting current deficits to prudent management of surpluses,

you face a wealth of options and choices. I appreciate the invitation to talk about

some of these today. Some of these points are discussed more fully in our recent

BEA compliance report2 that we prepared at your request, Mr. Chairman.

PRINCIPLES FOR A BUDGET PROCESS

In the past, we have suggested four broad principles or criteria for a budget proc- ess.3 A process should: • provide information about the long-term impact of decisions, both macro-linking

fiscal policy to the long-term economic outlook—and micro—providing recognition of

the long-term spending implications of government commitments; • provide information and be structured to focus on important macro trade-offs—

e.g., between investment and consumption; • provide information necessary to make informed trade-offs between missions (or

national needs) and between the different policy tools of government (such as tax

provisions, grants, and credit programs); and • be enforceable, provide for control and accountability, and be transparent, using

clear, consistent definitions.

The lack of adherence to the original BEA spending constraints in recent years,

the nearing expiration of BEA, and the projection of continued and large surpluses

in the coming years suggest that now may be an opportune time to think about the

direction and purpose of our Nation’s fiscal policy. In a time of actual and projected

surpluses, the goal of zero deficit no longer applies. Rather, discussion shifts toward

how to allocate surpluses among debt reduction, spending increases, and tax cuts.

Only then can limits on subcategories of spending be set. Will the entire Social Security surplus be ‘‘saved’’? What about the Medicare Part A surplus? In our work

on other countries that also have faced the challenge of setting fiscal policy in times

of surplus, we found that as part of a broad fiscal policy framework some countries

adopted fiscal targets such as debt-to-gross domestic product (GDP) ratios to serve

as guides for decisionmaking.

Complicating the discussion on formulating fiscal policy in a time of surplus is the

fact that the long-term picture is not so good. Despite current projections that show

surpluses continuing over the 10-year budget window, our long-term budget simulations show a resumption of significant deficits emerging after the anticipated demographic tidal wave of population aging hits. These demographic trends serve to emphasize the importance of the first principle cited above—the need to bring a longterm perspective to bear on budget debates. Keeping in mind these principles and

concerns, a number of alternatives appear promising.

ALTERNATIVES FOR IMPROVING THE BUDGET PROCESS

There is a broad consensus among observers and analysts who focus on the budget both that BEA has constrained spending and that continuation of some restraint

is necessary even with the advent of actual and projected surpluses. Discussions on

the future of the budget process have primarily focused on revamping the current

budget process rather than establishing a new one from scratch.

Where discussion has moved beyond a general call for continued restraint to specific control devices, the ones most frequently discussed are:

(1) Extending the discretionary spending caps, (2) extending the PAYGO mechanism, and (3) creating a trigger device or a set of rules specifically designed to deal

with the uncertainty of budget projections. A new budget process framework could

encompass any or all of these instruments.

EXTENDING CAPS ON DISCRETIONARY SPENDING

BEA distinguished between spending controlled by the appropriations process—

‘‘discretionary spending’’—and that which flowed directly from authorizing legislaVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
91

tion provisions of law—‘‘direct spending,’’ sometimes called ‘‘mandatory.’’ Caps were

placed on discretionary spending—and the Congress’ compliance with the caps was

relatively easy to measure because discretionary spending totals flow directly from

legislative actions (i.e., appropriations laws). There is broad consensus that, although the caps have been adjusted, they have served to constrain appropriations.

This consensus combined with the belief that some restraints should be continued

has led many to propose that some form of cap structure be continued as a way of

limiting discretionary appropriations. However, the actions in the last 2 years have

also led many to note that caps can only work if they are realistic; while caps may

be seen as tighter than some would like, they are not likely to bind if they are seen

as totally unreasonable given current conditions.

Further, some have proposed that any extension of BEA-type caps be limited to

caps on budget authority. Outlays are controlled by and flow from budget authority—although at different rates depending on the nature of the programs. Some

argue that the existence of both budget authority and outlay caps has encouraged

provisions such as ‘‘delayed obligations’’ to be adopted not for programmatic reasons

but as a way of juggling the two caps. The existence of two caps may also skew authority from rapid spendout to slower spendout programs, thus pushing more outlays to the future and creating problems in complying with outlay caps in later

years. Extending only the budget authority cap would eliminate the incentive for

such actions and focus decisions on that which the Congress is intended to control—

budget authority, which itself controls outlays. This would be consistent with the

original design of BEA.

Eliminating the outlay cap would raise several issues—chief among them being

how to address the control of transportation programs for which no budget authority

cap currently exists, and the use of advance appropriations to skirt budget authority

caps. However, agreements about these issues could be reached—this is not a case

where implementation difficulties need derail an idea. For example, the fiscal year

2002 budget proposes a revision to the scorekeeping rule on advance appropriations

so that generally they would be scored in the year of enactment. If the Budget Committees and CBO agree, this change could eliminate the practice of using advance

appropriations to skirt the caps. The obvious advantage to focusing decisions on

budget authority rather than outlays is that the Congress would not spend its time

trying to control that which by design is the result of its budget authority decisions—the timing of outlays.

There are other issues in the design of any new caps. For example, for how long

should caps be established? What categories should be established within or in lieu

of an overall cap? While the original BEA envisioned three categories (Defense,

International Affairs, and Domestic), over time categories were combined and new

categories were created. At one time or another caps for Nondefense, Violent Crime

Reduction, Highways, Mass Transit, and Conservation spending existed—many with

different expiration dates. Should these caps be ceilings, or should they—as is the

case for Highways and Conservation—provide for ‘‘guaranteed’’ levels of funding?

The selection of categories—and the design of the applicable caps—is not trivial.

Categories define the range of what is permissible. By design they limit trade-offs

and so constrain both the Congress and the President.

Because caps are phrased in specific dollar amounts, it is important to address

the question of when and for what reasons the caps should be adjusted. This is critical for making the caps realistic. For example, without some provision for emergencies, no caps can be successful. At the same time, there appears to be some connection between how realistic the caps are and how flexible the definition of emergency is. As discussed in last year’s compliance report, the amount and range of

spending considered ‘‘emergency’’ has grown in recent years. There have been a

number of approaches suggested to balance the need to respond to emergencies and

the desire to avoid making the ‘‘emergency’’ label an easy way to raise caps. In the

budget resolution for fiscal year 2001 [H. Con. Res. 290], the Congress said it would

limit emergencies to items meeting five criteria: (1) necessary, essential, or vital (not

merely useful or beneficial), (2) sudden, quickly coming into being, and not building

up over time, (3) an urgent, pressing, and compelling need requiring immediate action, (4) unforeseen, unpredictable, and unanticipated, and (5) not permanent, temporary in nature. The resolution further required any proposal for emergency spending that did not meet all the criteria to be accompanied by a statement of justification explaining why the requirement should be accorded emergency status. The fact

that this provision was ignored during debates on fiscal year 2001 appropriations

bills emphasizes that no procedural hurdle can succeed without the will of the Congress. Others have proposed providing for more emergency spending—either in the

form of a reserve or in a greater appropriation for the Federal Emergency Management Agency (FEMA)—under any caps. If such an approach were to be taken, the

92

amounts for either the reserve or the FEMA disaster relief account would need to

be included when determining the level of the caps. Some have proposed using a

5- or 10-year rolling average of disaster/emergency spending as the appropriate reserve amount. Adjustments to the caps would be limited to spending over and above

that reserve or appropriated level for extraordinary circumstances. Alternatively,

with additional up-front appropriations or a reserve, emergency spending adjustments could be disallowed.4

Even with this kind of provision only the commitment of the Congress and the

President can make any limit on cap adjustments for emergencies work. States have

used this reserve concept for emergencies, and their experiences indicate that criteria for using emergency reserve funds may be useful in controlling emergency

spending.5 Agreements over the use of the reserve would also need to be achieved

at the Federal level.

This discussion is not exhaustive. Other issues would come up in extending BEA.

Previously, we have reported on two issues—the scoring of operating leases and the

expansion of user fees as offsets to discretionary spending; because I think they

need to be considered, let me touch on them briefly.

MISCELLANEOUS DISCRETIONARY CHALLENGES: LEASES AND USER FEES

We have previously reported that existing scoring rules favor leasing when compared to the cost of various other methods of acquiring assets.6 Currently, for asset

purchases, budget authority for the entire acquisition cost must be recorded in the

budget up front, in the year that the asset acquisition is approved. In contrast, the

scorekeeping rules for operating leases often require that only the current year’s

lease costs be recognized and recorded in the budget. This makes the operating lease

appear less costly from an annual budgetary perspective, and uses up less budget

authority under the cap. Alternative scorekeeping rules could recognize that many

operating leases are used for long-term needs and should be treated on the same

basis as purchases. This would entail scoring up front the present value of lease

payments covering the same period used to analyze ownership options. The caps

could be adjusted appropriately to accommodate this change.

Many believe that one unfortunate side effect of the structure of the BEA has

been an incentive to create revenues that can be categorized as ‘‘user fees’’ and so

offset discretionary spending—rather than be counted on the PAYGO scorecard. The

1967 President’s Commission on Budget Concepts recommended that receipts from

activities that were essentially governmental in nature, including regulation and

general taxation, be reported as receipts, and that receipts from business-type activities ‘‘offset to the expenditures to which they relate.’’ However, these distinctions

have been blurred in practice. Ambiguous classifications combined with budget rules

that make certain designs most advantageous has led to a situation in which there

is pressure to treat fees from the public as offsets to appropriations under BEA

caps, regardless of whether the underlying Federal activity is business or governmental in nature. Consideration should be given to whether it is possible to come

up with and apply consistent standards—especially if the discretionary caps are to

be redesigned. The administration has stated that it plans to monitor and review

the classification of user fees and other types of collections.

EXTENDING AND REFINING PAYGO

The PAYGO requirement prevented legislation that lowered revenue, created new

mandatory programs, or otherwise prevented direct spending from increasing the

deficit unless offset by other legislative actions. As long as the unified budget was

in deficit, the provisions of PAYGO—and its application—were clear. The shift to

surplus raised questions about whether the prohibition on increasing the deficit also

applied to reducing the surplus. Although the Congress and the executive branch

have both concluded that PAYGO does apply in such a situation, any extension

should eliminate potential ambiguity in the future.

This year, the administration has proposed—albeit implicitly—special treatment

for a tax cut. The budget states that the President’s tax plan and Medicare reforms

are fully financed by the surplus and that any other spending or tax legislation

would need to be offset by reductions in spending or increases in receipts. It is possible that in a time of budget surplus, the Congress might wish to modify PAYGO

to permit increased direct spending or lower revenues as long as debt held by the

public is planned to be reduced by some set percentage or dollar amount. Such a

provision might prevent PAYGO from becoming as unrealistic as overly tight caps

on discretionary spending. However, the design of such a provision would be important—how would a debt reduction requirement be specified? How would it be measured? What should be the relationship between the amount of debt reduction reVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
93

quired and the amount of surplus reduction (i.e., tax cut or direct spending increase)

permitted? What, if any, relationship should there be between this calculation and

the discretionary caps?

While PAYGO constrained the creation or legislative expansion of direct spending

programs and tax cuts, it accepted the existing provisions of law as given. It was

not designed to trigger—and it did not trigger—any examination of ‘‘the base.’’ Cost

increases in existing mandatory programs are exempt from control under PAYGO

and could be ignored. However, constraining changes that increase the cost of entitlements and mandatories is not enough. Our long-term budget simulations show

that as more and more of the baby boom generation retires, spending for Social Security, Medicare, and Medicaid will demand correspondingly larger shares of Federal revenues. The growth in these programs will increasingly restrict budgetary

flexibility. Even if the Social Security surpluses are saved and used for debt reduction, unified deficits are projected to emerge in about two decades, and by 2030 Social Security, Medicare, and Medicaid would require more than three-fourths of Federal revenues.7

Previously we suggested some sort of ‘‘lookback’’ procedure to prompt a reexamination of ‘‘the base.’’ Under such a process, the Congress could specify spending targets for PAYGO programs for several years. The President could be required to report in his budget whether these targets either had been exceeded in the prior year

or were likely to be exceeded in the current or budget years. He could then be required to recommend whether any or all of this overage should be recouped—and

if so, to propose a way to do so. The Congress could be required to act on the President’s proposal.

While the current budget process contains a similar point of order against worsening the financial condition of the Social Security trust funds,8 it would be possible

to link ‘‘tripwires’’ or triggers to measures related to overall budgetary flexibility or

to specific program measures. For example, if the Congress were concerned about

declining budgetary flexibility, it could design a tripwire tied to the share of the

budget devoted to mandatory spending or to the share devoted to a major program.

Other variations of this type of tripwire approach have been suggested. The 1999

Breaux-Frist proposal (S. 1895) for structural and substantive changes to Medicare

financing contained a new concept for measuring ‘‘programmatic insolvency’’ and required congressional approval of additional financing if that point was reached.

Other specified actions could be coupled with reaching a tripwire, such as requiring

the Congress or the President to propose alternatives to address reforms or, by

using the congressional budget process, requiring the Congress to deal with unanticipated cost growth beyond a specified tripwire by establishing a point of order

against a budget resolution with a spending path exceeding the specified amount.

One example of a threshold might be the percentage of GDP devoted to Medicare.

The President would be brought into the process as it progressed because changes

to deal with the cost growth would require enactment of a law.

IMPROVING THE RECOGNITION OF LONG-TERM COMMITMENTS

In previous reports we have argued that the Nation’s economic future depends in

large part upon today’s budget and investment decisions.9 In fact, in recent years

there has been increased recognition of the long-term costs of Social Security and

Medicare.10

While these are the largest and most important long-term commitments—and the

ones that drive the long-term outlook—they are not the only ones in the budget.

Even those programs too small to drive the long-term outlook affect future budgetary flexibility. For the Congress, the President, and the public to make informed

decisions about these other programs, it is important to understand their long-term

cost implications.

While the budget was not designed to and does not provide complete information

on long-term cost implications stemming from some of the government’s commitments when they are made, progress can be made on this front. The enactment of

the Federal Credit Reform Act in 1990 represented a step toward improving both

the recognition of long-term costs and the ability to compare different policy tools.

With this law, the Congress and the executive branch changed budgeting for loan

and loan guarantee programs. Prior to the Credit Reform Act, loan guarantees

looked ‘‘free’’ in the budget. Direct loans looked like grant programs because the

budget ignored loan repayments. The shift to accrual budgeting for subsidy costs

permitted comparison of the costs of credit programs both to each other and to

spending programs in the budget.

Information should be more easily available to the Congress and the President

about the long-term cost implications both of existing programs and new proposals.

94

In 1997 we reported that the current cash-based budget generally provides incomplete information on the costs of Federal insurance programs.11 The ultimate costs

to the Federal Government may not be apparent up front because of time lags between the extension of the insurance, the receipt of premiums, and the payment of

claims. While there are significant estimation and implementation challenges, accrual-based budgeting has the potential to improve budgetary information and incentives for these programs by providing more accurate and timely recognition of

the government’s costs and improving the information and incentives for managing

insurance costs. This concept was proposed in the Comprehensive Budget Process

and Reform Act of 1999 (H.R. 853), which would have shifted budgetary treatment

of Federal insurance programs from a cash basis to an accrual basis.

There are other commitments for which the cash and obligation based budget does

not adequately represent the extent of the Federal Government’s commitment.

These include employee pension programs, retiree health programs, and environmental cleanup costs. While there are various analytical and implementation challenges to including these costs in budget totals, more could be done to provide information on the long-term cost implications of these programs to the Congress, the

President, and the interested public. At the request of this committee, we are continuing to address this issue.

DEALING WITH THE UNCERTAINTY OF PROJECTIONS

As the budgeting horizon expands, so does the certainty of error. Few forecasters

would suggest that 10-year projections are anything but that—projections of what

the world would look like if it continued on a line from today. And long-term simulations are useful to provide insight as to direction and order of magnitude of certain

trends—not as forecasts. Nevertheless, budgeting requires forecasts and projections.

Baseline projections are necessary for measuring and comparing proposed changes.

Former Congressional Budget Office (CBO) Director, Rudy Penner, suggested that

5-year and 10-year projections are useful for and should be used for different purposes: 5-year projections for indicating the overall fiscal health of the Nation, and

10-year projections for scorekeeping and preventing gaming of the timing of costs.

No 10-year projection is likely to be entirely correct; the question confronting fiscal policymakers is how to deal with the risk that a projection is materially wrong.

This year some commentators and Members of the Congress have suggested dealing

with this risk by using triggers. Triggers were part of both Gramm-Rudman-Hollings (GRH) and BEA. The GRH triggers were tied to deficit results and generally

regarded as a failure—they were evaded or, when deficits continued to exceed the

targets, the targets were changed. BEA triggers have been tied to congressional action rather than to deficit results; sequesters have rarely been triggered—and those

were very small. This year the discussion of triggers has been tied specifically to

the tax debate and to whether the size of the tax cut in future years should be

linked to budget results in those years. There could be several variations on this

trigger: actual surplus results, actual revenue results (this with the intent of avoiding a situation in which spending increases can derail a tax cut), and actual debt

results. There is little consensus on the effectiveness of any triggers.

Although the debate about triggers has been tied to the tax debate in 2001, there

is no inherent reason to limit the discussion to taxes. Some might wish to consider

triggers that would cause decision makers to make proposals to address fiscal results that exceed some specific target, such as debt or spending as a share of GDP.

Former CBO Director Robert Reischauer suggested another way of dealing with

the fact that forecasts/projections become less certain the further they go into the

future. Under his proposal, a declining percentage of any projected surplus would

be available—either for tax cuts or for spending increases. Specifically, 80 percent

of the surplus would be available to legislators in years 1 and 2, 70 percent in years

3 and 4, 60 percent in years 5 and 6, until reaching the 40-percent level in years

9 and 10. The consequence of not adhering to these limits would be an across-theboard sequester. When a new Congress convenes, it would be given a new budget

allowance to spend based on a new set of surplus projections.

OTHER IDEAS PROPOSED TO SMOOTH THE PROCESS

Others have suggested that mechanisms such as a joint budget resolution and/or

an automatic continuing resolution could avert the year-end disruption caused by

an inability to reach agreement on funding the government. Biennial budgeting is

also sometimes suggested as a better way to budget and to provide agencies more

certainty in funding over 2 years. Let me turn now to these ideas.

Since agreement on overall budget targets can set the context for a productive

budget debate, some have suggested that requiring the President’s signature on

95

budget resolutions would facilitate the debate within such a framework. Proposals

to replace the Concurrent Resolution with a Joint Resolution should be considered

in the light of what the budget resolution represents. Prior to the 1974 act only the

President had a budget—that is, a comprehensive statement of the level of revenues

and spending and the allocation of that spending across ‘‘national needs’’ or Federal

mission areas. Requiring the President to sign the budget resolution means it would

not be a statement of congressional priorities. Would such a change reduce the Congress’ ability to develop its own budget and so represent a shift of power from the

Congress to the President? Whose hand would it strengthen? If it is really to reduce

later disagreement, would it merely take much longer to get a budget resolution

than it does today? It could be argued that under BEA the President and the Congress have—at times—reached politically binding agreements without a joint budget

resolution.

The periodic experience of government ‘‘shutdowns’’—or partial shutdowns when

appropriations bills have not been enacted has led to proposals for an automatic

continuing resolution. The automatic continuing resolution, however, is an idea for

which the details are critically important. Depending on the detailed structure of

such a continuing resolution, the incentive for policymakers—some in the Congress

and the President—to negotiate seriously and reach agreement may be lessened.

What about someone for whom the ‘‘default position’’ specified in the automatic continuing resolution is preferable than the apparent likely outcome? If the goal of the

automatic continuing resolution is to provide a little more time for resolving issues,

it could be designed to permit the incurrence of obligations to avoid a funding gap,

but not the outlay of funds to liquidate the new obligations. This would allow agencies to continue operations for a period while the Congress completes appropriations

actions.

Finally, you asked me to discuss proposals for biennial budgeting. Some have suggested that changing the appropriations cycle from annual to biennial could (1) provide more focused time for congressional oversight of programs, (2) shift the allocation of agency officials’ time from the preparation of budgets to improved financial

management and analysis of program effectiveness, and (3) enhance agencies’ abilities to manage their operations by providing more certainty in funding over 2 years.

Given the regularity with which proposals for biennial budgeting are made, I believe

that at least some will consider the upcoming necessity to decide whether to extend

BEA as an opportunity to again propose biennial budgeting.

Whether a biennial cycle offers the benefits sought will depend heavily on the

ability of the Congress and the President to reach agreement on how to respond to

uncertainties inherent in a longer forecasting period, for there will always be uncertainties. How often will the Congress and the President feel the need to reopen the

budget and/or change funding levels?

Budgeting always involves forecasting, which in itself is uncertain, and the longer

the period of the forecast, the greater the uncertainty. Our work has shown that

increased difficulty in forecasting was one of the primary reasons states gave for

shifting from biennial to annual cycles.12 The budget is highly sensitive to the economy. Economic changes during a biennium would most likely prompt the Congress

to revisit its decisions and reopen budget agreements. Among the issues that would

need to be worked out if the Congress moves to a biennial budget cycle are how to

update the CBO forecast and baseline against which legislative action is scored and

how to deal with unexpected events. The baseline is important because CBO scores

legislation based on the economic assumptions in effect at the time of the budget

resolution. Even under an annual system there are years when this practice presents problems: in 1990 the economic slowdown was evident during the year, but

consistent practice meant that bills reported in compliance with reconciliation instructions were scored based on the assumptions in the budget resolution rather

than updated assumptions. If budget resolutions were biennial, this problem of outdated assumptions would be greater—some sort of update in the ‘‘off-year’’ likely

would be necessary.

In any consideration of a biennial budget, it is important to recognize that even

with annual budgets, the Congress already has provided agencies with multiyear

funding to permit improved planning and management. As you know, it is not necessary to change the frequency of decisions in order to change the length of time

funds are available. Nearly two-thirds of the budget is for mandatory programs and

entitlements on which decisions are not made annually. Even the remaining portion

that is on an annual appropriations cycle is not composed entirely of 1-year appropriations that expire on September 30 of each year. The Congress routinely provides

multiyear or no-year appropriations when it seems to make sense to do so. Thus,

to the extent that biennial budgeting is proposed as a way to ease a budget execuVerDate 11-MAY-2000 17:56 Jan 22, 2002 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-14\HBU200.000 HBUDGET1 PsN: HBUDGET1
96

tion problem, the Congress has shown itself willing and able to meet that need

under the current annual cycle.

If BEA is extended in conjunction with biennial budgeting, a whole host of technical issues needs to be considered. Would biennial budgeting change the timing of

the BEA-required sequestration report? How would sequestrations be applied to the

2 years in the biennium and when would they occur? For example, if annual caps

are continued and are exceeded in the second year of the biennium, when would the

Presidential Order causing the sequestration be issued? Would the sequestration affect both years of the biennium? Would forecasts and baselines be updated during

the biennium? These are just of few of the many questions that would need to be

resolved.

Regardless of the potential benefits, the decision on biennial budgeting will depend on how the Congress chooses to exercise its constitutional authority over appropriations and its oversight functions. We have long advocated regular and rigorous congressional oversight of Federal programs. Annual enacted appropriations

have long been a basic means of exerting and enforcing congressional policy. Oversight has often been conducted in the context of agency requests for funds. A 2-year

appropriation cycle would change—and could lessen—congressional influence over

program and spending matters since the process would afford fewer scheduled opportunities to affect agency programs and budget.

Biennial budgeting would bring neither the end of congressional control nor the

guarantee of improved oversight. It would require a change in the nature of that

control. If the Congress decides to proceed with a change to a biennial budget

cycle—including a biennial appropriations cycle—careful thought will need to be

given to implementation issues.

CONCLUSION

To affect decisionmaking, the fiscal goals sought through a budget process must

be accepted as legitimate. For many years the goal of ‘‘zero deficit’’—or the norm

of budget balance—was accepted as the right goal for the budget process. In the absence of the zero deficit goal, policymakers need an overall framework upon which

a process and any targets can be based. Goals may be framed in terms of debt reduction or surpluses to be saved. In any case, compliance with budget process rules,

in both form and spirit, is more likely if end goals, interim targets, and enforcement

boundaries are both accepted and realistic.

Enforcement is more successful when it is tied to actions controlled by the Congress and the President. Both the BEA spending caps and the PAYGO enforcement

rules were designed to hold the Congress and the President accountable for the

costs of the laws enacted each session—not for costs that could be attributed to economic changes or other factors.

Today, the Congress and the President face a different budgetary situation than

in the past few decades. The current budget challenge is not to achieve a balanced

unified budget. Rather, budgeting today is done in the context of projections for continued and growing surpluses followed over the longer term by demography-driven

deficits. What process will enable policymakers to deal with the near term without

ignoring the long term? At the same time, the challenges for any budget process are

the same: What process will enable policymakers to make informed decisions about

both fiscal policy and the allocation of resources within the budget?

Extending the current BEA without setting realistic caps and addressing existing

mandatory programs is unlikely to be successful for the long term. The original BEA

employed limited actions in aiming for a balanced budget. It left untouched those

programs—direct spending and tax legislation—already in existence. Going forward

with new challenges, we believe that a new process that prompts the Congress to

exercise more foresight in dealing with long-term issues is needed. The budget process appropriate for the early 21st century will have to exist as part of a broader

framework for thinking about near- and long-term fiscal goals.

Mr. Chairman, this concludes my statement. I would be happy to answer any

questions that you or the Members of the Committee may have.

ENDNOTES

1. Although the overall discretionary spending caps expire in 2002, the Highway

and Mass Transit outlay caps established under Transportation Equity Act for the

21st Century (TEA-21) continue through 2003, and the conservation caps established as part of the fiscal year 2001 Interior Appropriations Act were set through

2006. In addition, the sequestration procedure applies through 2006 to eliminate

any projected net costs stemming from PAYGO legislation enacted through fiscal

year 2002.

97

2.Budget Issues: Budget Enforcement Compliance Report (GAO-01-777, June 15,

2001).

3. For a fuller discussion of these criteria, see Budget Process: Evolution and

Challenges (GAO/T-AIMD-96-129, July 11, 1996), Budget Process: History and Future Directions (GAO/T-AIMD-95-214, July 13, 1995), and Budget Process: Comments on H.R. 853 (GAO/T-AIMD-99-188, May 12, 1999).

4. The administration’s fiscal year 2002 budget submission included a proposal to

set aside a reserve for emergency needs in the annual budget and appropriations

process, arguing that this would limit the need for emergency supplementals to extremely rare events.

5. Budgeting for Emergencies: State Practices and Federal Implications (GAO/

AIMD-99-250, Sept. 30, 1999).

6. Budget Issues: Budget Scorekeeping for Acquisition of Federal Buildings (GAO/

T-AIMD-94-189, Sept. 20, 1994).

7. Long-Term Budget Issues: Moving From Balancing the Budget to Balancing

Fiscal Risk (GAO-01-385T, Feb. 6, 2001).

8. 2 U.S.C. 632 (i), and Medicare Reform: Issues Associated With General Revenue Financing (GAO/T-AIMD-00-126, Mar. 27, 2000).

9. See Budget Process: Evolution and Challenges (GAO/T-AIMD-96-129, July 11,

1996) and The Deficit and the Economy: An Update of Long-Term Simulations

(GAO/AIMD/OCE-95-119, Apr. 26, 1995), among others.

10. Budget of the United States Government, Fiscal Year 2002, OMB, Apr. 9,

2001; The Budget and Economic Outlook: Fiscal Years 2002-2011, CBO, Jan. 2001;

GAO-01-385T, Feb. 6, 2001; and Medicare: Higher Expected Spending and Call for

New Benefit Underscore Need for Meaningful Reform (GAO-01-539T, Mar. 22,

2001).

11. Budget Issues: Budgeting for Federal Insurance Programs (GAO/AIMD-97-16,

Sept. 30, 1997).

12. Since the mid-1960’s, 18 states have changed their budget cycles: 11 from biennial to annual, 2 from annual to mixed, 4 from annual to biennial, and1 from biennial to annual and back to biennial.

Chairman NUSSLE. Thank you very much, all three of you, for

your testimony.

Let me ask you, Chairman Cox, a question because it came up

this year and I see it in your outline. Actually, looking through

your outline, you mention spending. ‘‘Before a budget Congress

should be prevented from considering spending bills in committee

or on the floor without first passing a budget.’’

I think I understand where you are heading with this. Number

one, doesn’t that slow down the process? That is number one.

Number two, would you also apply that to the Ways and Means

and Finance Committee with regard to consideration of tax legislation?

Mr. COX. Well, you are right to point out that—I think you are

pointing out—that at present this is a procedure we observe. In recent years we have not been bringing spending bills to the floor

without having a budget.

But as you know from past experience, this is a problem. In some

years, notwithstanding the outline of the 1974 Budget Act, Congress has turned to spending first and budget second. That is simply out of order.

The Ways and Means Committee dealt recently with the issue of

whether or not they could bring a tax bill to the floor without a

budget. As you know, we settled that with some fine attention to

detail. But I think the principle is the same. We ought to have a

budget in place before we appropriate or before we tax for future

years.

Chairman NUSSLE. I am not questioning whether or not the

Ways and Means Committee could have considered that. I mean,

we did. I am on the committee. I was one of the ones who was on

98

the hot seat at the time. I am not suggesting that we should not

have done it. Technically, we could.

I am just wondering, because you are suggesting, I think, an active provision that would preclude that, whether or not you would

also include tax bills.

Mr. COX. My concern is much more, I should say, on controlling

the spending process because what we are mixing in a certain

sense is apples and oranges when we put together our budget forecast. Congress actually controls appropriations. We decide how

much to put on the check.

But Congress doesn’t control revenues. There are a lot of external effects and variables that we don’t control. So, we are just trying to estimate that figure. It is very, very important for us to

tightly control our spending process.

Chairman NUSSLE. We are considering marking up a budget enforcement act legislation here in the committee. Just to get your

advice on the caps and PAYGO, would you extend both of them, or

either one of them? And if so, for how long would be your advice

and are there any other reforms that you think are so definitely

and drastically needed that they should be included immediately in

the bill that we produce out of this committee in the near future?

As you know, we are running up against a caps issue this year

and there will also be a PAYGO issue. So, we have to do something. If we don’t do it, someone else will do it for us.

Mr. COX. Well, our budget caps are a little bit like our immigration policy. There are millions of illegal, undocumented people living in America. We have immigration laws that say that that can’t

happen.

Likewise, we have budget caps that we do because there has to

be law and order in this Congress when it comes to spending, but

we have all sorts of spending that is not anywhere within the caps.

I think it is time that we recognize the wasted motion involved

and come up with a budget, whether you call the budget figures

caps or not, come up with a budget that we mean and then come

up with a way to live within it. We don’t do that yet.

Anything short of that, I think, short changes the whole process

in the whole country.

With respect to PAYGO specifically, it is weaker than it should

be. PAYGO shouldn’t apply only to part of the budget, the entitlement part. It should apply to the whole budget. That would

strengthen PAYGO. It would also rationalize our choices because

right now, for example, if one wants to consider a change in tax

rates, you have to offset it only through the entitlement part of the

budget.

Why is that? There isn’t any good policy for that. As a matter

of fact, most people would stipulate that we would be less inclined

to want to cut Social Security or Medicare for example. Yet, does

that mean that we can never change tax policy? It ought not to.

The PAYGO discipline ought to operate against the entire budget.

I would extend it on that basis.

Chairman NUSSLE. Mr. Price.

I have questions for Barry and Susan as well, but I want to stay

within my time.

99

Mr. PRICE. Thank you, Mr. Chairman. Let me also focus on Mr.

Cox and reserve some of the other questions until the second

round.

Mr. Cox, we appreciate your being here and we appreciate your

patience this morning.

Let me just pick up on a couple of points that the Chairman has

already raised. I, too, have been looking at your specific recommendations for a better process.

As you said, the simple, straightforward notion that Congress

should be prevented from considering spending bill without first

passing a budget, that, of course, is the concept at the heart of the

budget process as it now stands, although it is often honored in the

breach.

If that is to hold though, if we are to return to that as our standard, there are a couple or requirements, aren’t there? First of all,

the budget resolution should not be simply a political document or

a campaign bumper sticker. It should be a realistic estimate based

on sound estimates of revenue and the likely demands on the appropriations process. It should be a realistic number that accommodates our needs and isn’t just out there as a political symbol that

then won’t allow the necessary appropriations bills to be passed in

a timely fashion.

Secondly, it seems to me it is going to require some degree of

agreement with the Executive. Of course, that is what you are getting at in your fifth point, that there been a budget in the form of

a law with the President’s approval.

I wonder, though, if maybe those conditions don’t at least threaten to contradict one another, especially under the conditions of a

divided government. This was discussed by the first panel.

If you are working out the problems, the conflicts between the

Executive and the Congress at the stage of this budget resolution,

does not that threaten to not only move all that conflict forward in

the process, but actually delay the passage of a budget resolution,

make it even more difficult to keep our spending bills and our tax

bills within the constraints of the budget resolution?

Might we not delay and confuse that process even further?

Mr. COX. Well, I did appreciate the discussion on the first panel.

This was the point that was touched upon by Bob Reischauer. If

you move the whole kit and caboodle to step one, then it will collapse of its own weight.

So, what you have to do if you are trying to have a budget in

the form of a law that puts the Executive and the Congress on the

same page to begin with is to simply the task. Don’t ask them to

do everything in step one. Ask them to do something in step one.

I believe if you go back and read the testimony and the responses

that Bob Reischauer gave this morning, he said, almost exactly

this. He said, ‘‘It is very easy to agree at a high level of abstraction

on how much money to spend on defense and so on. But the difficult choices come when you figure out how much you need for ’X’

and how much you need for ’Y’ and so on.’’

The budget resolution that is agreed upon between the Executive

and the legislative in the form of a law should be a highly abstract

document. It should be in the aggregate because that facilitates

agreement, even between warring political parties.

100

It is much easier to recognize what are appropriate totals by

function, than it is to decide whose program is better and so on.

I would ask only that of the process at that point. Insofar as getting realistic numbers for those aggregates is concerned, that is the

best justification that I can think of for having this committee

being a year-round committee and for having the Appropriations

Committee be a year-round committee.

Of course, CBO and OMB are year-round, as are the staffs of the

other Cabinet departments and legislative committees of the House

and the Senate. So, we have the capacity, providing we are paying

attention to a newly designed process, to come up with a new idea

of the aggregates early on and then get to the more difficult choices

within that budget.

But something that Bob said troubled me a great deal. He almost

implied that before we come up with the aggregate number, we

should figure out everything we want and total it. To me, that is

like you and I moving into an apartment on limited student budgets and deciding we need new drapes, refrigerator, TV set and we

go through our whole wish list and then we total it up.

We would never do that in real life. We would say, ‘‘Well, you and I have $500. So how shall we spend it?’’

That is what the government has to do.

Mr. PRICE. Yes, I thought that was an interesting comment. I

thought his point also was, though, that if you do bring the President into the process in a definitive way at that early point, then

you are escalating those discussions and you are, almost by definition, importing into the budget resolution discussions a great many

matters that could be finessed or could be left in less resolved form

if the budget resolution did not have that status.

Mr. COX. That is true. The world is divided into people who are

over-prepared and the people who are procrastinators and some

variation in between. I think our process has been skewed toward

procrastination for far too long and everybody here on both sides

of the aisle with the management of both Republicans and Democrats in Congress has seen too many October firsts and sometimes

January firsts with unresolved issues.

The Civil Service, if anyone else, would be thrilled if we were a

little bit more organized and did our work up front.

Mr. PRICE. Let me just quickly make one final comment. I was

interested in your response to the chairman on the question of

whether the tax bills ought also to be prevented from being considered until the budget resolution is in place.

It is true, of course, there is an estimating procedure that applies

to the revenue bills, whereas the appropriations bill, as you say,

are a matter of simply writing a check.

But entitlement expenditures, of course, are also estimates.

Those bills are going to be paid, whatever they end up being.

Wouldn’t you agree that given the equivalent comparable impacts

on the budget, that all three categories ought to in some sense be

subservient to the budget process and fit within the budget process:

discretionary spending, entitlement spending and revenues?

Mr. COX. Yes, I agree with that. That is what I meant to say to

Chairman Nussle. I only added that there are differences and that

if I had to prioritize the importance of aiming this discipline at

101

some part of it, I would aim it at that over which we all understand we have plenary control. We ought to have control, by the

way, over a bigger slice.

I have been staring at these charts all morning. I am sure it is

high on your mind that these are Bob Livingston’s charts. That

slice that is labeled ‘‘mandatory,’’ whoever gets to apply the labels

in political debate tends to win.

Once it is mandatory, we have absolved ourselves of responsibility because we have to do it. But, of course, that is not true. It is

not just Social Security or Medicare that are so-called entitlement

programs that are permanent, indefinite appropriations.

There are a lot of things on the list of permanent and indefinite

appropriations. We ought to take a look at those and pare them

back, put as much as possible the budget under Congress’ routine

control and under this committee’s control, which I am sure you

wouldn’t object to.

Mr. PRICE. I don’t have any more questions for you, Chairman

Cox.

Mr. COX. I very much appreciate it. I will now go and do the

things that I have to do instead of this, which I would like to do.

Chairman NUSSLE. For our other two witnesses, Barry, I am very

interested in your budget concepts commission and the structure.

One of the questions I would have for you is, is this a macro or

micro concepts examination? How big conceptually can we discuss

it? Is this so in the weeds that we want to send you off for a few

years or whatever it is and let you guys talk about it without any

influence from the politicos?

In other words, can you help us with a commission like this on

some of these bigger picture items such as joint resolution biennial

budgeting or are you in the weeds when it comes to how tax credit

affect it and all those kinds of things?

Mr. ANDERSON. Well, I believe that a budget concepts commission should look at broader things than just a joint resolution or

just biennial budgeting. In fact, I think that a joint resolution, biennial budgeting, emergency definitions, and a lot of the items discussed this morning are more things that can be handled right now

by the Congress, by the Budget Committees getting together with

the executive branch, perhaps, than the larger things that I tried

to address.

So, I think a commission should look at more fundamental

things. One is this fundamental concept of how we treat equity

purchases by the Social Security system if they ever do come about.

There was a proposal by President Clinton to treat the equity

purchases for the first 10 years as they are treated now, as outlays.

But then beyond that, do not treat them in that way. Well, that

is a fundamental decision that I don’t think ought to be unilaterally made by either OMB or CBO. I think it involves a commission

that would be very broad, very macro.

The impacts on the economy of that kind of decision are as broad

as can possibly be. So, at the same time that you might be looking

into biennial budgeting or the emergency definition or things like

that, a budget concepts commission, for example, or perhaps another group made up of Budget Committee, OMB, CBO, and GAO

folks could sit down and try and address these larger global issues.

102

One is narrow and one is global, I guess, is how I would look at

it.

Chairman NUSSLE. There are many complaints that Members

have, Mr. Cox certainly is one of them. We have members on the

committee who have been very frustrated about scorekeeping, dynamic versus all sorts of things. Is that another kind of area that

could be considered under this commission format?

Mr. ANDERSON. Yes. Congressman Cox has mentioned

scorekeeping a number of times. He has mentioned the baseline.

We have recently had information or have been asked for information on how to redefine the baseline.

From CBO’s perspective, first of all, the first thing we want is

as much guidance as we can get from you. We don’t like to make

up the rules ourselves. We prefer to be told what the rules are and

then implement them.

For example, lately some have been saying, the baseline ought to

be revised to disregard the expirations of the recently passed tax

law. Well, that is not a decision we are going to make. We are

going to clearly do the baseline in August and next January taking

into account the current rules that say, ‘‘If a law expires, we allow

it to expire.’’

Yet another trend that Congressman Cox mentioned is talk

about discretionary spending. There have been some people who

have been saying that the baseline for discretionary spending

ought not to be just the enacted level, or the enacted level plus inflation, but the enacted level plus inflation and population growth.

Well, again, we will do it however you tell us to. However, if we

do it that last way, enacted plus inflation plus population, then we

have really eliminated the distinction between mandatory and discretionary spending. Maybe that is appropriate. Maybe that is the

goal. But that is what the result would be.

So, certainly looking at dynamic scoring, looking at the baseline,

looking at several of the other things that Congressman Cox mentioned are the more fundamental, broader issues that are appropriate for a commission.

Chairman NUSSLE. Well, this is not to suggest or imply that anybody’s intentions are wrong. But the frustration I have always had

about the way the issues come up is when somebody is bit by a

CBO score, then all of a sudden they get on the bandwagon because they didn’t like the score. That is what precipitates the reform, because they didn’t like the outcome.

It is not done in a vacuum where it is done objectively and where

it is discussed soberly about how this actually should be done. It

is when they get bit and they do something.

That is what concerns me about all of these reforms, that they

shouldn’t be done in order to determine an outcome that somebody

pre-determines is what they want. It ought to be done fairly so that

we can start predicting this stuff.

I know you are as frustrated about this stuff as I am. But even

what is going to happen here in August you know, I am new to this

position of having to be in the hot seat, but it is amazing to me

that from May to August, you know, the numbers can be that different. How is it possible? How can you make decisions based on

that?

103

I don’t think anybody would fault a decision that you make in

February or that you make in May, but my gosh, it looks like a

crazy way to do business if your projections can’t even last that

long.

I am not faulting. I am just saying that if based on that we come

rushing in and saying, ‘‘Well, my gosh, your projections are wrong,’’

therefore Congress politically decides because we didn’t like the

outcome to make some grandiose reform telling you how to change

your rules. I don’t think that makes sense either.

That is why I like your budget concepts idea. I would be interested in anything further you have on that at the appropriate time

because I think it is something worth considering.

When was the last one?

Mr. ANDERSON. In 1967.

Chairman NUSSLE. Well, maybe things have changed since then.

In 1967 I was 7 years old. Things have certainly changed for me.

I know that.

Susan, the question I had for you had to do with long-term obligations. I totally agree with you on the whole issue. We have a

number of obligations out there. Whether it is the way we do our

accounting, how it is portrayed in the budget, you mentioned a couple of them.

You mentioned a couple of them. I would be very interested in

whether it goes hand in hand with Barry’s concepts. Maybe that

is the place for this discussion to occur. Are there ways that in the

short term we can add a reform to the way we do budgets to more

fairly and more accurately which is the issue here, I think they depict the obligation and how the impact will affect the obligations

of the Federal Government.

That is my question. I am not sure how to phrase it. But I am

interested in how do you fix it and maybe even where do you fix

it?

Ms. IRVING. I guess this sounds like a cop-out answer, but maybe

the answer is both. I think you have enough information to do

some things now. For loans we have already gone to showing the

subsidy cost accrual so that we could put direct loans and loan

guarantees on the same playing field.

We already have enough information to begin to provide additional information in the budget about retiree health, about government pensions. I would argue to begin to provide at least supplemental information on Federal insurance programs and maybe

even to begin to provide additional information on environmental

liabilities.

Now, on some of those you are not at a point where you are

ready to leap all the way to where you went on credit reform and

say, ‘‘OK, I am going to put it in the budget totals.’’

But, just because you can’t go all the way yet, doesn’t mean you

should be operating in a vacuum where it appears that a reasonable way to offset the costs of GATT was to broaden PBGC coverage and the PBGC premium when in fact that increases the liability.

I think you need to begin to explore ways at a minimum to create

a supplemental column in the budget. You don’t need to have to

begin having points of order and scorekeeping and all of that right

104

now. Right now you all operate in the dark when you extend an

insurance program. I believe OMB is going to propose moving to

some improved cost accounting in the budget where you begin to,

at least at the agency levels, improve the budgeting for retiree

health and for pensions.

On the others, you will have to keep studying it.

Chairman NUSSLE. In part, that is when Mr. Cardin and I wrote

our reform bill a couple of years ago on the rule. Part of the reason

we had to keep watering it down and watering it down is because

everyone found out that if you actually put it in there it actually

showed some bad news. Heaven forbid we put bad news into the

budget.

Ms. IRVING. But your timing in a way is really fortuitous because

you know you are going to have to raise the caps this year. So,

when you raise them, you may want to think about what are you

going to raise them to cover more of? Are you just going to raise

them to recognize you already got to balance, or are you going to

say, ‘‘No, I want to put more emergency spending under the cap.’’

Some emergency spending is going to be unforeseen. But you can

put more under the cap this year. This is the year you can raise

the caps.

Chairman NUSSLE. Mr. Price?

Mr. PRICE. Well, let me just follow up. You stressed in your

statement at some length the need to grapple with these long-term

commitments and to do what we can to reduce the uncertainty of

these projections.

There has been a great deal of discussion around here, as you

know, concerning the 10-year timeframe that has been used of late.

It is too long for some purposes and too short a timeframe for others.

You mentioned in your testimony in a neutral fashion Mr.

Reischauer’s proposal that the 10-year timeframe be dealt with in

a more cautious fashion than is now our practice, that there been

rules which dictate that no more than 80 percent of excess resources predicted would be committed for the first 2 years. For the

next 2-year period, 70 percent and then 60 percent and so on until

the 9th and 10th years of a budget projection.

Have you done much thinking about the possibility or the desirability of imposing such constraints on the disposition of the surplus, assuming that one of our major jobs here is to rethink this

process in an era of, we hope, continuing surpluses as opposed to

the economic conditions when the budget process was first formulated?

Ms. IRVING. Well, like a lot of Bob’s ideas, I think it is really intriguing and worth studying. It would be hard to find a more

thoughtful observer.

I think you would be foolish to get rid of 10-year numbers, but

you also don’t want to treat them like they are as certain as 5-year

numbers. So, there is a lot to be said for designing a system that

allows you to recognize the increasing uncertainty as you go out in

the projections.

I have not given the amount of thought to Bob’s specific proposal

that would let me walk through how I think you could actually

105

make it work or enforce it if you chose to. I don’t think either of

us would want to hang our hat on the particular percentages.

It is worth erring on the side of caution when you are working

with outyears. If it turns out you under-guessed and the economy

performs even better than you expected, and you have more surplus—whatever you are defining as the available surplus—you can

always come back and use it. It is harder to take it back.

Recognizing uncertainty when you enact laws is a really good

idea. In addition, a look-back, where you have targets and you periodically re-evaluate progress, can help. Because the only thing you

really do know about 10-year numbers is that they are probably

going to be wrong. How wrong is a different question.

Mr. PRICE. Well, thank you.

Mr. Anderson, let me turn to you. The aspect of your testimony

that interested me most—I think, partly because it is a complex

and rather explosive issue—is the treatment of trust funds.

I just want to make sure that I understand where you are going

with that discussion. It is a brief discussion. I don’t want to put

more weight on it than it will bear. You will notice here the significant difference between Federal trust funds and private sector

trust funds.

For example, claims against a private trust fund are limited by

the value of the fund’s assets. The fact that the beneficiary for a

private trust fund usually owns the fund income and often owns it

assets, where that is not true with the Federal trust funds.

It does seem to me, though, that the discussion tends to underestimate the constraints that surround these trust funds. You say

they are created by law and lawmakers can change those laws or

repeal them. That sounds pretty cavalier. I don’t think most of us

feel that way about the trust funds, nor would we dare act that

way with respect to the trust funds.

You talk about pressure on lawmakers to favor the trust funds.

What do you mean? Are those salutary pressures or not? I am just

not clear what we are to conclude from these distinctions that you

are drawing between Federal trust funds and private trust funds,

what implications you are drawing in terms of the way that we

should handle these in the budget process?

Mr. ANDERSON. Congressman Price, I have been in budgeting for

over 20 years. During that time, as has been mentioned earlier

today, there has been a lot of complexity and the complexity has

grown.

I talk to a lot of people, not only media people and people from

academia, but also citizens who call CBO, understandably, for an

explanation. There is no subject that we get more confused questions about than trust funds.

Mr. PRICE. Let me just interject that that confusion extends far

as wide. How many times have we heard ‘‘raiding the trust fund’’

when that really isn’t what we are talking about?

Mr. ANDERSON. Yes. I believe, and that is why I put it in my testimony, that one of the fundamental reasons for this source of confusion is that people understandably think of trust funds in the

sense that they know of, that is in a trust fund that they set up

for their children or a trust fund that they set up for their retirement or something like that.

106

I am not trying to criticize the purpose of the Social Security

trust funds. For example, I think Social Security was the first trust

fund, set up in 1935, and it has been a government success program. It has accomplished many if not most of the things that the

government set out to do in 1935 and has continued those goals

through the succeeding decades.

But nevertheless, we have this source of confusion about what a

government trust fund is and what it is not. For example, as we

are sitting here I believe other committees are taking a look at

changing the Medicare trust fund, either through the Patient’s Bill

of Rights legislation or through the legislation to provide new drug

benefits. Both of those would impact the Medicare trust fund.

Their impact won’t necessarily be only in the direction of adding

new benefits. Some of those provisions are cutting back some portion of the benefits in order to finance additional new benefits.

So, it is not a trust fund in the same sense as that fund I have

set up for my little grandchild who was just born recently because

for that trust fund I control the assets. What my grandchild is

going to draw out of that trust fund is going to depend on how well

I succeed in making investments and how well that corporation, or

whatever it is I invest in, pays off.

In the case of Medicare, it is not a function of the current balances in the HI or SMI or other trust funds. It is really a function

of what the Congress and the President decide.

That is not to criticize the fact that the Congress and the President have made obligations to the elderly or to civil servants or to

the population in general for Social Security benefits. But the

mechanism or the words we use to describe those obligations I fear

mislead more than they educate and that is the reason for what

I said in my testimony.

In particular, I think they mislead in the Social Security context

because the whole concept of Social Security from the very beginning and still today is an inter-generational transfer. It is not a

store of assets for future use, but rather I pay now so that the generations before me can draw money and live better. They paid for

the generations before them.

I am hoping my children and grandchildren will be able to pay

for me. But this intergenerational transfer is a fundamentally different concept than what the public perceives most of all when it

looks at a trust fund. So, that is what I was trying to get across.

I think there is a benefit to addressing this issue in a larger

sense in a budget concepts commission. The benefit may well be

educational more than anything else.

Mr. PRICE. Mr. Chairman, I think this would be the subject of

another week of hearings. I don’t want to prolong it. But let me

make this comment, and ask for your reaction.

It does seem to me that the corollary of our scolding our colleagues for the overly-loose use of terms like ‘‘raiding the trust

fund,’’ the corollary of that is that we do take the idea of a trust

fund seriously and that we regard those assets as held, for example, by the Social Security trust fund as a solemn obligation of this

government—that we don’t engage in the kinds of comments that

unfortunately I think our Secretary of Treasury has been inclined

to make of late, talking about mere IOUs, mere paper sitting there

107

in that trust fund, as though it didn’t constitute that sort of solemn

obligation or it wasn’t really comparable to other kinds of Treasury

securities in terms of their worth and their safety and soundness.

It is, in fact, a trust fund which is holding $1 trillion worth of

assets, which we are going to have to make good on when the cash

flow in Social Security reverses in 15 years. Is that not true?

Mr. ANDERSON. You used the phrase ‘‘solemn obligation’’ I believe, Mr. Price. I much prefer using phrases like that because the

Federal Government has made an obligation to the beneficiaries of

Social Security and Medicare.

I would much rather deal with talking about the obligations the

Federal Government has made to those beneficiaries than talking

about, as former CBO Director Rudy Penner called it, the accounting device of the trust fund.

I am not saying that the trust fund as we set it up with its assets in Treasury securities does not have value. On the contrary,

I believe that if properly presented, use of the statistics that we

have for the trust fund has real value, real value not only to us

here in Washington in terms of making public policy, but also

value to the public.

My point is that there is just this fundamental confusion between what a private trust fund is and what a public trust fund

is. The confusion, I fear, is growing.

Ken Apfel, who used to work at OMB in the office right next to

me and was the Commissioner of the Social Security Administration, sends out a statement once a year to everybody. You take a

look at that statement and you get the feeling that it is the kind

of trust fund very similar to the trust fund I have set up for my

grandkids.

Well, there are some benefits to that statement. I am glad he is

sending it out. But there is also a downside. The downside is that

sometime in the future, maybe in the near future and maybe in the

longer future, the Congress and the President may have to look at

those long-term obligations and change them, as they have done in

the past.

For example my mother is drawing a Social Security benefit, and

she started drawing at the age of 65. I cannot. I will have to wait

until the age of 67 to draw full benefits. That is because of changes

that the Congress made in 1983, I believe it was.

Well, we need to make sure those fundamental points are gotten

across and that the statements that come out from Social Security

or the words we use here don’t confuse, but educate people.

Mr. PRICE. Well, all I would say is I appreciate the distinctions

you are making and I appreciate your testimony. I would hope,

though, in drawing these quite legitimate distinctions that we don’t

send the wrong signals, either in terms of the obligations that we

as office holders have to the commitments that we have made via

these trust funds, that we not compromise that nor do we compromise the confidence our citizens have that those assets are there

to be drawn upon when they are needed.

Thank you, Mr. Chairman.

Chairman NUSSLE. Ms. Irving, do you want the last word? We

will give you the last word for the hearing today.

108

Ms. IRVING. Mr. Chairman, I would like to go back to Barry’s

first statement about trust funds, about the fact that there are 200

of them in the budget.

In part in response to all of this confusion, we produced a question-and-answer document on earmarked funds, because it is too

easy to let the trust fund discussion be dominated by the biggest,

most salient, most important trust fund that we have, Social Security.

But beyond Social Security this is an issue. There are funds in

the budget that are labeled trust funds and there are other funds

in the budget that are labeled special funds. If I showed them to

you without the label I would defy you to tell which is which. They

walk, talk and quack exactly the same, except that the Congress

put the word ‘‘trust’’ in the label for one fund and not for the other.

I think if you are talking about cleaning up the budget and reducing confusion, you may in fact want one set of rules for Social

Security and Medicare or for the ones that represent long-term

commitments.

But you might want to think about whether you want to get rid

of a term that is so misunderstood and so misused. For example,

today you have two funds with simalr purposes—EPA’s Hazardous

Substance Superfund (a trust fund) and Department of Engergy’s

Nuclear Waste Fund (a special fund).

Well, I don’t know why one is a trust fund and one is a special

fund. That is some of what we talk about as confusion.

Mr. PRICE. You are also talking about political resistance, anything that appears to weaken the commitment. I understand your

point. I think it is well taken.

Ms. IRVING. I will bet the special fund people think they are just

as big a deal.

Mr. PRICE. Try to change them and you would soon find out. Try

to change them and you will see the defenders come out of the

woodwork, perhaps.

Thank you. That is a helpful clarification. Thank you both for

very helpful testimony.

Chairman NUSSLE. I will also add my word of thanks. Thank

you, Mr. Price, for sticking this out here with me today and working through some of these issues. I appreciate that.

I think you are right, Ms. Irving. I have to say on second glance

today I am pretty excited by the hearing and pretty excited about

the discussion I heard today. I am going to smile a little bit better

when I talk about budget process reform.

Hopefully, between the two of us we can get people more ginned

up, more excited about these concepts as we work through them.

We will do the best we can at least.

Ms. IRVING. Well, we stand ready to help, of course.

[The report ‘‘Recommendations for Reform’’ by the Committee for

a Responsible Federal Budget follows:]

FEDERAL BUDGET PROCESS: RECOMMENDATIONS FOR REFORM

Committee for a Responsible Federal Budget, March 2000

RECOMMENDATIONS 1

Joint Budget Resolution—Congress and the President should agree on fiscal policy

goals, i.e., aggregate revenues, expenditures, surpluses or deficits, debt levels or

109

debt reduction targets, etc., and incorporate those agreements in a Joint Budget

Resolution.

Exependiture Limits—Joint Budget Resolutions should include enforceable nominal dollar limits for both discretionary 2 and direct spending.3

Pay-As-You-Go (PAYGO) 4—Discipline should be maintained. Joint Budget Resolutions should include limits on projected surpluses available to offset new entitlements/revenue changes without PAYGO offsets.

Biennial Budgets, Appropriations and Tax Cycles should free up significant resources for other more productive purposes.

Automatic Continuing Resolution—An automatic continuing resolution at or below

the level of the caps contained in the most recently enacted Joint Budget Resolution

should provide stop-gap funding in the event Congress and the President fail to

reach agreement on some or all regular appropriations bills. Automatic continuing

resolutions should be very restrictive. They could create compelling incentives for

Congress and the President to agree on regular appropriations bills.

Rainy Day Fund—‘‘Emergencies.’’ Joint Budget Resolutions should include reasonable reserves against emergencies and other unforeseeable contingencies. ‘‘Emergencies’’ should be carefully and narrowly defined. There should be strong rules to

govern expenditure of such funds. This could help to limit the number and frequency of very large so-called emergency appropriations.

The Budget should distinguish clearly between spending and revenues. There

should be strict limits on any receipts scored as negative outlays. Activities that

have all the characteristics of spending programs should not be scored as tax expenditures. There is a difference between spending and taxes and budgetary presentations should make clear distinctions between the two.

Enhanced rescission should be enacted to take the place of line item veto.

Budget concepts commission—It is time for another Budget Concepts Commission.

A concepts commission is the best approach to resolve technical issues and to address new issues as they arise. A new concepts commission should meet at regularly

scheduled intervals of not less than 10 years.

EXECUTIVE SUMMARY

The budget should provide an accurate reflection of policies proposed and adopted.

Comprehensive and honest budgets promote accountability. Sound budget process

promotes fiscal discipline. When politicians cannot agree on policy they tend to fall

back on process. But no process can compel decision-makers to reach consensus. Policymakers may be tempted to resort to ‘‘blue smoke and mirrors’’ rather than admit

that they cannot reach agreement on hard choices. Perversely, therefore, policy

stalemates and effective budget process can combine to make it difficult to keep the

budget comprehensive and honest.

The Congressional Budget process evolved in an era of persistent record high

peacetime deficits and debt. For all the criticism here and elsewhere, the process

helped to frame decisions that produced current surpluses. The Budget Enforcement

Act (BEA) in particular was a significant first step toward cooperation between Congress and the Executive branch to achieve specific goals. In many respects, the recommendations contained in this report build on the successes of the BEA.

The Congressional budget process has succumbed to an all too human tendency.

When we write rules, people tend to bend and break them. When we build fences

and fail to tend them, people will find ways to breach those barriers. So much has

happened, so many rules and concepts have been bent or broken that the total damage to the process is greater than the sum of the parts. As a result, even well intentioned, well-informed people have difficulty understanding the budget today and our

broad public policy debates suffer as a consequence.

Current budget process debates revolve around two distinctly different kinds of

problems.

The first is caused by surpluses. Surpluses are not the problem. But a process designed to ensure that policy actions do not increase the deficit can be frustrating

in the current surplus environment.

For example, in 1990 PAYGO was designed to prevent Congress from adding to

the deficit. It seemed clear to almost everyone involved in the 1990 budget debate

that adding to the deficit (which was 4 percent of GDP and rising) would have been

downright dangerous. PAYGO now makes it difficult to reduce the projected surplus. Reducing the surplus is a policy issue. It may or may not be desirable. But

there is no broad consensus that spending increases and/or tax cuts that reduce deficit projections are dangerous to the economy or the Nation.

Budget process must accommodate changing priorities. If it does not, eventually

the process will break down. The existing process is heavily biased toward deficit

110

reduction. Barriers to amending enforcement provisions probably are higher than

they ought to be. As the budget shifts from deficits to surpluses, some question the

need for continued restraint.

Political leaders are becoming more frustrated with rules they perceive to be unrealistic as surplus projections grow.

There are, however, budget process problems unrelated to deficits or surpluses.

For example, our inability accurately to measure the size of the Federal sector relative to the overall economy would be a problem in any fiscal environment. Traditional definitions and budget concepts have become so blurred that they do not inform analysis, as they ought to do.

The budget process is the product of a series of compromises over 25 years. It is

complicated, some would say convoluted. There is so much duplication and overlap

that no decision ever seems to be final.

Though Congress and the President seem to spend an inordinate amount of time

on budget-related matters, they never reach agreement on an overall fiscal policy

plan for the national government.

Since 1990 nominal dollar caps have acted as a reasonably effective constraint on

discretionary expenditures, but the more restrictive caps became the less effective

they proved to be, and discretionary appropriations represent a shrinking piece of

the budget pie.

PAYGO acts a brake on enactment of new direct spending legislation. But there

is no effective limit on direct spending that results from laws already on the books.

The Federal budget includes a number of terms and presentations that are unusual, misleading or employed in unusual ways. Examples: • Tax Expenditures that walk, talk, look and act like expenditure programs. The

current lexicon frequently labels such items ‘‘targeted tax cuts’’. Examples include

the higher education tax credits enacted as part of the 1997 Balanced Budget Act

and tax credits for corporations that build plants and employ people in ‘‘empowerment zones’’. Decisionmakers are drawn to such devices to avoid budgetary and political restraints. The effect often is to understate both expenditures and governmental receipts. • Refundable Tax Credits, on the spending side of the budget, are indistinguishable from other entitlement outlays. For example, the refundable portion of the

Earned Income Tax Credit (EITC) is the second largest welfare program in the

budget—and four times greater than revenue losses for that program. • Netting, i.e., subtracting income from expenditures at the account level for selected programs and showing the net figure as program outlays understates costs

and distorts the budget picture. • There is a serious need to revisit some basic budget concepts. Transparency and

Universality are recognized as hallmarks of sound systems for public sector budgeting.

• Transparency refers to budgets that are easy to penetrate and understand.

• Universality means simply that all governmental financial transactions should

be reflected in the budget.

The budget has become less universal and less transparent over time as policy

makers tried to avoid hard choices and/or escape accountability for the choices that

they made. Too many decisions are made at the end of congressional sessions, in

small rooms, with few participants. Too few Members of Congress fully understand

the import and impact of such decisions. Too few feel invested in the outcomes of

such deliberations. There is very little accountability when decisions are reached in

this manner.

Thus the budget process is unsatisfactory in several ways. It places both too little

and too much restraint on fiscal policy decisions. It does not produce an accurate

picture of the government’s financial condition and activities. It does little to hold

Members of Congress accountable to constituents.

Historically, impetus to enact and amend the congressional budget process was

essentially reactive.

In the 1970’s, two overriding concerns led to enactment of the Congressional

Budget and Impoundment Control Act. There was backlash against President Nixon’s impoundments of funds contained in appropriations bills he had signed into

law; and many Members of Congress were frustrated that they had no mechanism

to articulate a coherent alternative to the President’s Budget.

Subsequent amendments to the process were driven by two concerns that very

often clashed. On the one hand there was a need to control and ultimately eliminate

record peacetime deficits. On the other hand, many Members resented the modest

restraint that the budget process imposes on congressional prerogatives.

The current impetus for reform also is reactive but the specific stimuli are different. After 25 years of amendment and interpretation, many are disappointed with

111

the process. Some problems are common to most public sector budgeting. For example, accountability, enforceability, measurement and the question of how to frame

future challenges.

• Bias. There is a legitimate question whether the process ought to be biased at

all, and if so toward what goal(s).

• The role budgeting should play in the overall decision-making process is an

open question. Should it simply provide a framework to keep track of receipts and

expenditures, deficits or surpluses, and debt? Should the process provide a mechanism through which Congress and the President set priorities, make choices and enforce fiscal policy limits once a budget is adopted? Should it do both?

Should the two policy branches of government reach agreement on one budget or

should they continue to work on separate tracks?

• Definitions. ‘‘Offsetting receipts,’’ ‘‘tax expenditures,’’ ‘‘net’’ receipts and outlays

have been so stretched as to defy definition and distort budget presentations.

BEYOND PROBLEMS COMMON TO ALL PUBLIC SECTOR BUDGETS,

THERE ARE ISSUES UNIQUE TO U. S. BUDGET such as:

• Timing, e.g., annual or biennial budgets;

• Scope, i.e., 20 functions versus broader categories such as discretionary, direct

spending, receipts, etc. versus some other aggregation and/or different aggregations

in different years to reflect topical concerns;

• Enforcement. What to enforce and how to enforce it?

• Emergencies, Contingencies and other exceptions to regular budget rules.

• Technical issues unique to U.S. Budget. Technical issues may take on political

importance as they affect decisions regarding popular programs or activities.

Technical issues include, but are not necessarily limited to the following:

• Accrual Accounting for certain categories of receipts and/or expenditures;

• Taxes versus mandates—For example, the Congressional Budget Office labeled

proposed premium mandates in President Clinton’s health care reform proposal

taxes.

• Capital Budgeting and Trust Funds. The President’s Commission to Study Capital Budgeting made major contributions to the debate about this topic and they also

recommended a Budget Concepts Commission.

The next Congress and the new President almost certainly will have to address

budget process reform and fashion a more workable framework for debates on fiscal

policy for the future.

We hope that this report will be of use to them and to that process. We thank

the ‘‘Big Five’’ accounting firms for their support. Without that support, we could

not have completed this project.

EVOLUTION—A BRIEF HISTORY

The Congressional Budget and Impoundment Control Act was born of frustration

over President Nixon’s exercise of impoundment authority. Also, in 1973 Democrats

controlled Congress. Congress believed that the President’s budget gave the administration an incredible advantage: The President could describe economic goals and

an entire legislative program in context, in one document. Congress had no vehicle

similarly to describe alternative goals, policies and programs. Congressional leaders

believed that a congressional budget could diminish if not eliminate the administration’s advantage in this regard.

Congressional desires to put stringent limits on Presidents’ ability to withhold appropriated funds provided powerful impetus to passage of the Budget Act. Ironically

the Federal courts effectively eliminated presidential impoundment authority before

the Act could become law. But the great impoundment debate is a good example the

law of unintended consequences at work.

For nearly two hundred years, Presidents determined not to spend, i.e., impounded, appropriated funds. President Nixon’s 1974 budget impounded funds for

102 programs. The President maintained that those programs were wasteful. Previous impoundments generally had been accepted, but this time States and local

governments, and other potential recipients of the impounded funds sued in Federal

court.

The President took the position that congressional authorizations and appropriations provided authority to the executive to spend money but did not mandate expenditures. Plaintiffs held otherwise. Few cases were tried. In all but one (HUD)

plaintiffs prevailed. (The court rulings became known as the ‘‘Ash’’ decisions after

Roy L. Ash who was OMB Director when the suits were filed.)

None of the decisions reached the Supreme Court. Nobody knows how the Court

would have ruled. But the plaintiffs might have thought twice before filing their

suits had they anticipated the evolution of budget rules under the Congressional

112

Budget Act. Congressional leaders might have left well enough alone if they had

foreseen budget caps, Pay-As-You-Go rules, reconciliation and sequestration.

Dick Bolling, John Rhodes, Ed Muskie and others who helped to write the 1973

Act said that Congress passed the law primarily because they thought it would put

an end to impoundments. The Drafters of the Act knew it would not work. We know

because they told us so. But none of them anticipated the evolution of the budget

process as it actually has occurred.

Prior to the Act, Congress received the President’s budget and for all practical

purposes disassembled it. The parts were referred to relevant committees.

Appropriations Committees acted on requests for discretionary funding in at least

thirteen separate bills each year. (Congress generally passed one or more supplemental bills as well).

Authorizing Committees dealt with proposals for new direct spending or for

changes to existing entitlements. They wrote laws describing program designs and

rules and authorizing appropriations to carry out discretionary programs and activities.

Tax Committees acted (or didn’t act) on revenue proposals.

The parts of the Budget never were reassembled. As a result of this piecemeal

approach, 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 spending and revenue decisions taken in the past.

The process described in the Congressional Budget and Impoundment Control Act

of 1973 was fundamentally flawed. It was designed more to keep track of Congressional decisions than to enforce them. Final decisions were not supposed to be made

until the end of the process—just before the beginning of a new fiscal year and after

Congress disposed of most spending and tax legislation.

There were too many budget resolutions and Congress was supposed to budget 1

year at a time.

The first budget Congress adopted each year did not really count. Reconciliation

came at the end of the process. If invoked it would have reversed work that had

consumed much of the congressional session. But Congress never implemented the

reconciliation process as it was described in the Act. Congress first passed reconciliation instructions in the spring of 1980. That effectively ended the two-budgets-ayear regime; but they did not change the law to eliminate the Second Budget Resolution until the Gramm-Rudman-Hollings Act in 1985. (Reconciliation instructions

are included in budget resolutions. They tell specific committees to report by a date

certain changes in laws to reduce spending, raise or lower taxes by specified

amounts.) The original Act contained no effective enforcement mechanism. Budget

committees had no legislative jurisdiction and no real power.

The process was supposed to be outcomes neutral. But large deficits overshadowed

all other fiscal policy concerns for nearly two decades and Members soon sought to

bias the process toward deficit reduction.

A series of deficit reduction initiatives failed to produce advertised outcomes. Consequently, there was increasing focus on enforcement. For the first half of the 1980’s

Congress used the ‘‘elastic clause’’ 5 in the Budget Act to make the process more responsive to topical concerns.

In 1985, 1987, 1990, 1993 and 1997 Congress passed, and the President signed,

laws formally to amend the Act and change the process.

Eventually Congress and the President achieved the desired goal. In Fiscal 1998,

the consolidated budget was in balance for the first time in thirty years. In Fiscal

1999, there was an on-budget surplus.

There is a legitimate debate about whether the budget process ought to be outcomes neutral or whether it should be biased in favor of specific fiscal policy outcomes.

A biased process presupposes broad agreement around desired outcomes. For a

quarter century, there was such a consensus around the goal of deficit reduction and

budget balance. Now that the budget is in balance, the absence of consensus around

appropriate fiscal policy goals impedes both budget formulation and budget process

reform.

BASIC BUDGET CONCEPTS

TRANSPARENCY

To say that budgets are transparent is to describe our ability to look inside them

and understand what we see. Citizens of average intelligence, willing to spend a

113

reasonable amount of time to follow public policy debates, should understand the

amount politicians propose to raise in taxes and how they would spend the money.

In addition, citizens should be able to weigh competing policy proposals without attending a seminar or taking a tutorial.

The 1967 Budget Concepts Commission contributed significantly to the Budget

process. For two decades following enactment of the Budget Act, historically high

peacetime deficits dominated budget debates.

The budget picture got bleaker. Choices became more difficult. The Budget Act demanded disclosure of a great deal of information that previously was not generally

available.

Administrations of both parties abandoned traditional budget presentations. Administrations and Congresses resorted to complex accounting, shifting baselines and

old fashioned ‘‘blue smoke and mirrors’’ to obscure budget options and outcomes.

Transparency was a major casualty.

Today, it takes a real expert, a great deal of time, and access to considerable unpublished data to pierce the fog that shrouds most budgetary presentations. This

is unhealthy.

Representative governments depend on the consent of voters for their legitimacy.

Citizens need and deserve to know from where government gets revenue and how

our tax dollars are spent. The polling booth is supposed to function as a market

clearing mechanism. The political marketplace depends on transparency to function

effectively. Thus, it is impossible to overstate the importance of transparency to the

fundamental health of representative governmental systems.

UNIVERSALITY

Universality means that all financial transactions of the government should be reflected in the budget. We play games with ourselves when we take Social Security,

the Postal Service, Highway Trust Funds and other programs ‘‘off-budget’’.

Taking something ‘‘off-budget’’ does not take it ‘‘off government’’. There are legitimate issues around the use of dedicated receipts;,but we should be able to answer

those concerns and recognize the aggregate impact of all financial activities of government in the budget.

Given current and projected surpluses, Social Security Trust Fund surpluses serve

as convenient proxy for a more analytic approach to determine minimum amounts

that will be devoted to debt reduction. This example illustrates that it may be politically attractive, even useful, to treat certain pots of money as special. Most economists agree that using budget surpluses to retire public debt is prudent policy. Debt

reduction increases savings available for productive private investment and thus

contributes to productivity and economic growth.

Thus, debt reduction can help the country meet the challenges that will arise as

the baby boom generation retires. But there is no empirically correct amount of debt

reduction. Social Security Trust Fund surpluses serve as a convenient ‘‘line in the

sand’’.

There is no logical relationship between the size of the trust fund surplus and the

amount of debt reduction that makes sense in a broader fiscal policy context.

Politics may compel decision-makers to dedicate 100 percent of those trust fund

surpluses to debt reduction. Earmarking trust fund surpluses for that purpose probably will produce greater debt reduction than would be the case in the absence of

that policy.

But in the final instance, the size and scope of government matters. A decision

to raise or cut taxes or benefits for one program inevitably impacts on other areas

of the budget. That is why it is important to include all governmental financial

transactions in one comprehensive consolidated budget.

That is why the administration and Congress continue to report consolidated receipts, outlays, deficits and surpluses, and debt—notwithstanding the fact that they

have taken Social Security ‘‘off-budget’’ several times.

BIAS

Bias is a value laden word to describe the tendency of processes to produce certain

kinds of outcomes. It is difficult, if not impossible, to design completely unbiased

processes. Thus it is worthwhile to ask ourselves what kinds of outcomes we prefer—all else being equal—and take those preferences into account as we consider

the biases that specific reforms may produce. In 1973 liberals argued successfully

that the budget baseline should take into account current year spending, projected

obligations, inflation, demographic changes and other factors to hold programs and

service levels constant throughout the forecast period.

114

Conservatives have argued ever since to exclude from the baseline inflation and

other factors—except as required by law. They say current spending should be the

departure point for comparisons.

Neither baseline projections nor previous years’ policies are the best starting point

for formulating future policy. Budgets should include planned expenditures and receipts for future years. Budget debates should make comparisons to current levels,

planned levels and a current policy baseline. Combined, the three tell us how much

spending and receipts are going up or down, whether the changes were contemplated in the last budget cycle and whether planned or projected changes will

result in increased or decreased program levels.

If Congress and the President budget to phase out the xyz program, that activity

is best described in future years as adhering to plan—not as a cut. If decision-makers plan a series of spending increases for a specific function, subsequent budgets

should describe such changes as ‘‘according to plan’’.

The actual and current policy comparisons are useful, but tracking progress based

on past budget decisions could interject a level of political accountability that is absent from current budget debates.

Discretionary caps currently require Congress and the administration to compare

proposed and projected spending to past budget decisions. Notwithstanding so-called

‘‘emergency’’ appropriations that evade the caps, those statutory limits have proven

to be more effective than any other approach to discipline the Federal budget process.

In the current debate over changing ‘‘PAYGO’’ rules we see an odd juxtaposition

of liberal and conservative positions. By and large, liberals argue to maintain the

current Pay-As-You-Go rules, or relax them as little as possible, even though that

could impede passage of entitlement expansions they support.

Some fear a large tax cut that could reduce total resources available to meet public needs at the Federal level; and some fear the impact of growing entitlements and

tax cuts on discretionary spending for activities such as education, the environment,

transportation, etc.

The budget process ought not to predetermine budget outcomes. But policy makers ought to consider the default option as they debate budget process reform.

If we are wrong about policy outcomes, do we prefer the result to be more or less

expansive fiscal policy? What happens if Congress and the President reach an impasse—if they do nothing at all?

Political biases strongly favor expansive fiscal policy. Perhaps, therefore, process

biases ought to be more restrictive. That could interject one more ‘‘check and balance’’ into the political system.

THE ROLE OF BUDGET PROCESS

Should the budget be a mirror, reflecting societal goals and aspirations or should

it be a fence or series of fences to place limits around political behavior?

Adding up all the programs and policies you would like government to pursue

may be an interesting and gratifying activity, but it is not budgeting.

When government budgets, it first divides national incomes between the public

and private sectors. Government can make this decision because it has theoretically

unlimited taxing authority. Within the public sector, the Federal budget allocates

resources among competing priorities.

The 1973 Congressional Budget Act articulated a process better suited to keep

track of spending and revenue legislation than to frame or constrain decisions on

fiscal policy legislation. Congress was to pass a draft budget in the spring. Then

they acted on individual spending and tax bills. At the end of the process, Congress

adopted a final budget. They were supposed to change spending and tax laws just

passed to fit within the budget, or change the budget to accommodate enacted legislation.

Not surprisingly, Congress changed the budget. In fact, Congress frequently

adopted a second (amended) budget resolution in the fall—and a third (further

amended) resolution the following spring.

Eventually, Congress did attempt to change spending and tax laws, i.e., reconcile

them, to fit within the budget. But it was impossible to do so at the end of the year.

Without changing the Act, Congress made the first budget resolution binding, effectively eliminated the second resolution, and institutionalized ‘‘reconciliation’’.

The reconciliation process as we know it is to be found nowhere in the 1973 Act.

Reconciliation rules and guidelines were written ‘‘on-the-job’’—sometimes in budget

resolutions, sometimes through consultation and negotiation in leadership offices, on

the floor of the House or Senate, and sometimes through parliamentary challenges.

115

Reconciliation rules have tended to be formalized, and incorporated in law, after the

fact.

It is neither desirable nor possible to go back to a budget process that forces no

choices and contains no teeth. Any effective budget process will impose some constraint on the committees that have jurisdiction over specific spending and revenue

policies. Members will take issue with that. But ‘‘budget’’ and ‘‘restraint’’ are nearly

synonymous concepts.

DEFINITIONS AND CONCEPTS

Definitions and concepts are easier to deal with than many other elements of the

budget process. Labels neither determine, nor alter, the fundamental nature of a

transaction, program or policy.

The Health Care Reform debate in the first Clinton Administration illustrates

this point. Calling that proposal an employment-based private system did not make

it so.

Calling taxes mandates did not fool anyone. It serves no useful purpose to kid ourselves about the nature of spending programs and tax policies. We ought not to label

spending programs as tax cuts—nor tax receipts as ‘‘fees’’—nor label some revenues

as ‘‘negative outlays’’.

The revenue side of the budget should reflect all governmental receipts; the expenditure side should reflect executive branch authority to incur obligations on behalf of the Federal Government (budget authority) and actual expenditures (outlays).

‘‘Offsetting receipts’’, as defined by the 1966 Budget Concepts Commission, were

supposed to account for ‘‘revolving funds’’.

‘‘Netting’’ repayments against disbursements in direct loan funds—or user fees

against outlays for related business-like activities and services of government was

supposed to reveal the governmental cost of such activities, i.e., the cost to be

charged to the tax base.

‘‘User Fees’’, as described in the report of the Budget Concepts Commission were

supposed to be charges for business-like activities of government. For example, receipts from operations of House and Senate Restaurants, or from the sale/lease of

mineral rights. FDA charges for expedited processing of applications for approval of

new food and drug products would appear to be consistent with this definition. Fees

should be scored as receipts. Offsetting receipts are scored as negative outlays. Royalties from drilling rights on the outer continental shelf offer an example of offsetting receipts. Administrations and Congresses, without respect to political party affiliation, have expanded the concepts of ‘‘Offsetting Receipts’’ and ‘‘user fees’’ beyond

recognition. There are two reasons for this. They hope to avoid the ‘‘tax increase’’

label; and they want to increase spending; but they do not want to increase the

budget caps or bust them.

Today, user fees and offsetting receipts both are ‘‘scored’’ as negative outlays. Negative outlays make it possible to increase expenditures without reporting an increase in total Federal spending. User fees may be good policy but this scorekeeping

convention distorts budget reporting and should be severely curtailed.

The term Tax Expenditures describes revenue laws/policies that reduce, rebate or

eliminate taxes that otherwise would apply to specific classes of individuals and/or

activities. This may include deductions and credits that apply to millions of individuals and huge classes of activity, e.g., deductions for home loan mortgage interest

and health insurance costs; it may describe provisions written vary narrowly to benefit a small group of people and/or uncommon activities.

A number of tax expenditures seem more like spending programs than tax policy.

Higher education tax credits might as well be grants to individuals from families

that meet statutory income limits to pay for post-secondary education. Corporations

may apply for certain tax credits if they set up shop in specific areas of specific

towns and cities, employ people who meet statutory guidelines, and otherwise meet

statutory criteria.

Refundable tax credits actually are grants. Some people don’t pay taxes. Many

pay little or no income tax. Treasury writes a check for the amount of refundable

credit, for which the taxpayer is eligible, in excess of his or her tax liability.

The Earned Income Tax Credit is meant to offset some or all of the impact of

FICA taxes for low-income workers. The refundable (grant) portion of the program

has grown larger than regular Federal welfare costs. The more politicians attempt

to subsidize the purchase of specific goods and services, e.g., education and health

care, the more refundable tax credits we will see. Low-income families don’t pay

enough income taxes to take full advantage of credits large enough to meet all those

social policy objectives.

116

‘‘Net outlays’’ distort the impact of governmental receipts and spending on incomes and the economy even more than scoring ‘‘Offsetting Receipts’’ as negative

outlays.

With offsetting receipts, we generally record separately expenditures (outlays) and

receipts (negative outlays). This distorts bottom line outcomes but discloses the

gross as well as net cost of a program.

Subtracting receipts from outlays, and recording only the difference in the budget

may drastically understate the cost of a program. Indeed, exaggerating to make the

point, we could report negative net outlays for the entire government this year.

Treasury receipts will exceed total Federal expenditures, but that does not make

government free. Government will spend nearly two trillion dollars.

Budget process reform should examine the basic concept of ‘‘net outlays’’ and

whether this convention is needed or desirable.

The same holds true on the revenue side of the budget. There are a few programs,

e.g., payments to states for their shares of offshore oil revenues, where we record

net income in the budget, i.e., governmental receipts, less payments associated with

those receipts.

This is as deceptive as the practice of recording net outlays and should be subject

to the same degree of scrutiny in budget process reform.

Beyond being able to measure the size of government—beyond the potential to

mislead—policymakers should be able to assess the likely efficacy of alternative approaches to meeting specific policy priorities. Treating expenditures and receipts as

if they were fungible makes this task more difficult. Choosing among possible approaches to fund priorities based on political expediency is the antithesis of choice

based on efficacy and efficiency, and the latter is most likely to deliver high-quality

public goods and services.

NEW CHALLENGES IN THE NEW MILLENNIUM

In the current environment, four principal factors drive debates on budget process

reform.

1. Frustration. Some who accepted restrictive rules such as PAYGO and discretionary caps, when that seemed necessary to reduce the deficit and balance the

budget, resent restraints on the use of some or all projected on-budget surpluses to

offset the cost of new programs and tax reductions.

2. Complexity. The current budget process grew like topsy. It is ridiculously complex. Duplicative roles and overlapping responsibilities spawn redundancy and lead

to conflict between and among those charged with disposition of the same issues at

different points in the process.

Many Members of Congress and their staffs believe that Congress is governed by

arcane rules known to very few and subject to change almost without notice. Few

outside government have the time, patience, or sufficient information to follow the

budget process. This is one product of evolution. Some changes are codified in law.

Others are buried in unanimous consent agreements. Some rules began as tacit understandings. That puts tremendous power in the hands of those who know the

rules, but it also and inevitably irritates almost everybody else.

3. Disappointment. The process rarely produces outcomes consistent with the

promises budget resolutions seem to make. Sometimes it seems that likely budget

outcomes are no clearer at the beginning of the fiscal year than before the budget

process was enacted. 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.

4. Future Challenges. The U. S. population is aging. In little more than a decade,

the baby boom generation’s retirement, and a slower growing workforce, will put extraordinary demands on the budget and economy.

Current and projected Surpluses could mitigate transition pressures in Social Security reform, Medicare reform, tax reform, etc., the very actions necessary to meet

baby boomers’ needs in retirement and to meet the public service needs of the rest

of the population at the same time. If we squander current and projected surpluses,

it will be much harder to deal with the pressures that like ahead. Thus, budget surpluses are good news in every way except the impact that they appear to have on

fiscal discipline. And current budget rules do not lend themselves to debates on how

best to use surpluses to address challenges that lie ahead.

Discretionary caps may constrain somewhat the urge to spend—but ‘‘emergencies’’

have become welcome events because they provide opportunities to increase spending above the caps. (Sometimes the only ‘‘emergency’’ is an uncontrollable urge to

spend money.)

117

Legislation enacted in 1999 reversed some of the Medicare savings enacted in the

1997 Balanced Budget Act. It is not clear whether current rules permit the use of

on-budget surpluses to offset the cost of such legislation; but that did not matter.

Congress and the administration seem to have reached an informal agreement that

anything goes, so long as they do not have to dip into Social Security Trust Fund

surpluses to pay the bills.

The budget process is a week bulwark against such pressures. It focuses on shortterm priorities, not on longer-term challenges. The budget process advantages anything that is in the base, i.e., the baseline assumes that every program and tax policy on the books now will continue indefinitely into the future. Proponents must

come up with offsets, i.e., cut an existing program or raise new revenue to pay for

new priorities.

For example, if Congress appropriated money last year to build a dam, eliminating the cost of that dam from the current budget inevitably will be described as a

cut—even though we may not need to build another dam this year. If they want

to build new prisons, those costs are described as increases. A proposal to transfer

the dam money to pay for prisons may be twice cursed: first for cutting water

projects; and second for proposing to increase spending.

The bias in favor of the status quo is especially strong in the case of entitlement

programs. Entitlement benefits continue until and unless Congress passes and the

President signs a law to change the rules. And you can ask any lobbyist, it is much

more difficult to enact a new law than to stop passage of any piece of legislation.

All of these concerns argue for budget process reform today. We believe, however,

that the budget process debate should be expanded to include all of the issues addressed in our recommendations.

ISSUES UNIQUE TO CURRENT U.S. BUDGET DEBATES

TIMING

The Senate Budget Committee Chairman Pete V. Domenici, (R-NM), a majority

of House Members, and many other experts believe the country and the Federal

Government would be better served by biennial budget and appropriations processes. Proponents of annual budgeting argue that Congress and the President would

give up too much flexibility to meet changing priorities if they changed to a biennial

process.

In any event, much of government remains relatively unchanged over time. Proponents of biennial budgeting say that a 2-year process would free up resources and

encourage Congress to devote more time and attention to authorizations and oversight.

Finally, some say that biennial budgets would reduce upward pressure on spending and bring more stability to governmental financial transactions.

SCOPE

The Congressional Budget and Impoundment Control Act of 1973 deliberately set

up budget functions different from appropriations categories. Government is managed departmentally. Thus it is appropriate to ask how much should be appropriated to the Secretary of Education, or Defense, etc. But we plan functionally. The

Department of Defense manages most national security programs, but the Department of Energy manages nuclear weapons research. Nuclear weapons research belongs in the national defense function of the budget—but the money is appropriated

to the Secretary of Energy.

Budgets are supposed to be broad fiscal policy plans. Over time, Congressional

budgets have come to include specific assumptions at the sub-function or even program level-angering authorizers and appropriators and getting away from the basic

idea of a budget.

With the advent of discretionary budget caps and Pay-As-You-Go rules, it has become necessary to include ‘‘mandatory’’ and ‘‘discretionary’’ totals in the budget.

Many argue that functional detail is unnecessary. Should budgets contain 19 or 20

or more functions; or should the budget be limited to broader categories—e.g., direct

and discretionary spending and such levels of detail as seem appropriate given current budgetary concerns?

JOINT V SEPARATE EXECUTIVE AND LEGISLATIVE BRANCH BUDGETS

The President sends a budget to Congress every year. Most years, Congress

passes a concurrent resolution on the budget or Congressional Budget. Congress

rarely votes up or down on the President’s Budget—and never in modern memory

118

has adopted the President’s Budget. The President does not sign and cannot veto

concurrent resolutions. Thus, Congress and the President never do agree on a budget.

The executive and legislature eventually do agree on appropriations for discretionary programs for the budget year, generally just before or after the beginning

of a new fiscal year. Sometimes they agree on changes to specific direct spending

programs or revenue laws.

Many political leaders and budget experts agree that it is imperative for Congress

and the President to agree on one plan.

The existence of an agreed plan would diminish the importance of so-called ‘‘baseline’’ debates. Moving many of the big budget compromises forward would be conducive to more deliberate consideration of substantive tax and spending legislation and

ultimately to better public policy.

ENFORCEMENT/CONTROLS

The most important enforcement mechanisms in the 1973 Act were:

• A point of order in the House and Senate against any bill, amendment, or conference report that would cause total budget authority and/or outlay amounts contained in the most recently enacted budget to be exceeded; • Points of order against consideration of any legislation that would create new

spending authority or reduce receipts first effective in a year for which no budget

resolution had been adopted; and • A requirement that new direct spending legislation be referred to the Appropriations Committees of the House or Senate, so they could comment on possible

impacts on future discretionary spending.

The point of order against breaching the aggregate spending limits in the budget

did not work. Most often it lay against the last bill Congress considered.

Frequently, the last bill was Defense Appropriations or other ‘‘must’’ legislation.

Congress could choose to waive the point of order, to cut bills recently enacted or

force the last bill they considered each year to bear the brunt of aggregate budget

overages throughout the year. Obviously, they almost always waived the point of

order.

The rules have been amended to permit House consideration of appropriations beginning May 15, even if Congress has not adopted a budget by that time.

Clearly, however, enforcement provisions contained in the 1973 Act were not

equal to the deficit reduction task Congresses and administrations faced in the

1980’s and into the 1990’s.

GRAMM-RUDMAN-HOLLINGS

The Emergency Deficit Control and Balanced Budget Act of 1985, better known

as Gramm-Rudman-Hollings or G-R-H for the authors, was Congress’ first serious

attempt to limit spending under existing laws and policies. Previous enforcement

mechanisms had attempted to put a break on enactment of new budget busting legislation.

SEQUESTRATION

• First enacted as part of Gramm-Rudman-Hollings, sequestration is a system of

automatic semi-across-the-board cuts, triggered by circumstances spelled out in law. • Almost all discretionary spending is eligible to be sequestered. The President

can protect Military pay. Some other programs/activities are protected wholly or in

part by statute. • Social Security cannot not be sequestered, but within limits Medicare can. • The initial G-R-H statute relied on the Comptroller General, as mediator between the Office of Management and Budget and the Congressional Budget Office

to determine whether sequestration would be triggered—and if so how large it

should be. Members of Congress (led by Mike Synar (D-OK)) sued. The courts held

that this was an unconstitutional delegation of executive authority to the Comptroller General who does not serve at the pleasure of the President. The courts upheld

Synar.

• Subsequently, Congress amended G-R-H, giving OMB the final say on whether

sequestration is triggered and how big any cuts would be. At the same time, Congress reaffirmed the sequestration that already had gone into effect lest the courts

overturn that action based on the Synar decision.

G-R-H failed for two reasons:

1. It attempted to enforce deficit levels. That is the wrong target because deficits

are derivative of expenditure and revenue levels, and because very minor changes

in economic conditions and technical estimates can cause wide swings in the deficit.

119

2. The limits established in law were unrealistic. Actual deficits were bound to

be much higher than the limits contained in the law every year. There never was

a real chance that actual deficit levels would conform to the statutory limits.

BALANCED BUDGET ACT (BBA).

Twice having amended G-R-H, and having conjured up a fair amount of blue

smoke and mirrors to limit or avoid sequestration, Congress and the President

adopted a new approach to enforce the 1990 Balanced Budget Act. The Budget Enforcement Act was an important first step toward forging agreements between the

executive and the legislature to achieve specific fiscal policy goals.

Most of the committee’s current recommendations for budget process reform are

based on successes of the BEA. • The BEA wrote nominal dollar expenditure caps into law—separate caps for defense, international and domestic spending in the early years, aggregate budget authority and outlay caps in the last 3 years.

Establishing a pattern that has obtained since that time, the caps were quite generous in the first year, becoming more restrictive with the passage of time.

If discretionary spending is projected to cause one or more cap to be exceeded, sequestration reduces pro-rata all eligible programs and activities under that cap. It

does not matter whether outlays derive from prior year budget authority or new legislation—or some combination thereof—any overage causes a sequester. (There is a

fudge factor to keep a very small breach from triggering sequestration.)

• Pay-As-You-Go or ‘‘PAYGO’’ rules are designed to ensure that enactment of new

legislation does not increase direct spending, reduce revenues, or widen the deficit.

Entitlement increases or revenue reductions must be offset by reductions in entitlement spending or revenue increases.

If spending under current laws and policies exceeds budget estimates nothing

happens. If new legislation is enacted that widens the deficit due to increased direct

spending or reduced revenues, sequestration is triggered and applies to all eligible

direct spending accounts.

SINCE 1990, THE BEA HAS BEEN AMENDED TWICE—as part of the 1993

Omnibus Budget Reduction Act, and in the 1997 Balanced Budget Act. Both times,

existing discretionary spending caps went up a lot for the budget year but got tighter in subsequent years, contributing significantly to the savings and deficit reduction each bill was supposed to achieve. Both times, Congress and the administration

tweaked the rules for adjustments to the caps and gave themselves a little wiggle

room. The sequesterable base has expanded somewhat since 1990.

So-called ‘‘emergency’’ spending is not subject to the caps. Congress and the administration must agree to designate something an emergency. Otherwise, there is

no real limit to what they can call an emergency. The outlay caps for 1999 and 2000

have been adjusted upward by $25–$30 billion 6 for emergencies and other requirements, most of it for routine operating costs of government. (Only 8 states have total

budgets in excess of $25 billion per year.7)

In 1997, a bipartisan group of House Members attempted to amend the balanced

budget act to require the President and Congress to agree on a Joint Budget Resolution, to add nominal dollar caps for entitlement spending (enforced by sequestration), revenue enforcement, and rules to close the ‘‘emergency’’ loophole.

Elements of that amendment are reflected in most subsequent budget process reform legislation.

BUDGET PROCESS REFORM THIS YEAR

The President’s Budget last year raised the possibility of a joint budget resolution

and argued the need to tighten controls over emergency spending. This year’s Budget proposes to change the discretionary spending caps. It argues that the new caps

should grow to keep pace with inflation. The Budget also supports enhanced rescission.

The Senate Budget Committee maintains that paygo rules do not apply to legislation, the effect of which would be to diminish an on-budget surplus but not cause

the government to incur an on-budget deficit.

A number of bills have been introduced to codify the Senate Budget Committee

position, including the Nussle-Cardin bill H.R. 853.

Several bills (including Nussle-Cardin) would require Congress to pass a joint

Resolution. (See diagram at page 42.)

The Nussle-Cardin bill, reported from the House Budget Committee, addresses

most of our Committee recommendations, with one major exception. The joint resolution would contain amounts for entitlement spending, but it would not include enforceable entitlement caps.

120

Congressman John Spratt (D-NC), Ranking Democrat on the House Budget Committee, has introduced enhanced rescission legislation. It seems likely that the same

majorities in both bodies that supported line item veto (since declared unconstitutional) will support enhanced rescission in its place.

The Senate Budget Committee Chairman has introduced legislation to shift to a

biennial budget and appropriations cycle. Two hundred forty-five House members

signed on to House Resolution 396 supporting biennial budgets and appropriations.

Several bills and resolutions seek to ensure that Social Security Trust Fund surpluses cannot be used to pay for non-Social Security activities—and once again to

‘‘take Social Security off-budget’’.

Heaven knows how many times Congress will pass such legislation, but the

amount they spend for everything else ultimately will determine whether or not Social Security Trust Fund receipts are used to pay for other programs, activities and

functions of government.

Most of the legislation currently before congress is intended to scratch this year’s

itch, i.e., to rewrite (or clarify) paygo rules for an era of surpluses, to address in

some fashion the embarrassment surrounding emergency spending, and/or to convert to a biennial budget cycle.

Most of these bills would not eliminate the duplication, overlap and redundancy

in existing law nor truly reform the process to meet future needs. Most do not claim

to do so.

ENFORCEMENT BASED ON EXPENDITURE LIMITS

Decision-makers in democracies that have balanced budgets (including our own)

by and large agree—the key to budget discipline is expenditure discipline. H.R. 853

would not establish limits on entitlement spending, but it moves in that direction—

proposing to write into law direct spending targets.

There is no objectively right level for Federal spending. The right level best is

judged by taxpayer support expressed as a willingness to pay taxes sufficient to pay

the bills. If political leaders reach agreement on how much government should

spend, and keep spending within budgetary limits, we are unlikely to return to a

regular regime of rising deficits and debt.

The Committee for Responsible Federal Budget supports H.R. 853, but we believe

that there should be caps for mandatory as well as discretionary spending. Caps

should be expressed in nominal dollars. They should be adjustable for actual

changes in economic conditions and demographics, where such factors affect spending levels, e.g., entitlement caps should go up to accommodate rising unemployment.

Automatic changes to the caps should be rare and strictly proscribed in law. Congress and the President should be able to change the caps at any time—provided

any Member of the House and Senate may demand a separate vote solely on that

issue.

The caps contained in the most recently enacted joint budget resolution should

continue in force until new or amended caps are enacted.

Caps should be enforced through sequestration, and sequestration should operate

to create incentives for committees to conform expenditures for programs within

their jurisdictions to the limits contained in the budget. Thus sequestration should

be triggered only when aggregate spending for a major category (discretionary or direct spending) exceeds the total cap. But once triggered, sequestration should reduce

spending only for programs in the offending categories, i.e., categories that caused

the overage.

Sequestration should be triggered, at the beginning of the year, if spending is projected to exceed statutory limits. Sequestration should be triggered any time in the

first three-quarters of a fiscal year, if new legislation is projected to cause an overage. If legislation enacted in the final quarter of a fiscal year is projected to cause

an overage—or if actual expenditures for the fiscal year just completed exceed statutory limits—the caps for the new budget year should be adjusted downward to make

up the difference.

EXCEPTIONS, E.G., CONTINGENCIES, EMERGENCIES, AND NEW PRIORITIES

The foregoing enforcement section points out that so-called emergency spending

is exempt from statutory caps that otherwise limit discretionary spending. The administration and many Members of Congress criticize the abuse of this provision.

Most budget process reform proposals attempt to address the problem.

Many would establish a contingency fund as part of the fix.

With the advent of expenditure caps, however, another issue has arisen. The caps

tend to become floors. Outlays from prior years’ budget authority may crowd out

121

current priorities. Caps have tended to become more restrictive, in the out-years, 3–

5 years after adoption of the most recent revisions.

Caps are the most effective expenditure mechanism ever attempted to place real

limits on Federal spending and enforce the limits we set. But Members of Congress

begin to feel as if there is no truly discretionary money in the budget at all.

The question is: How to create room under the caps to fund new high priority programs and initiatives—or at least to put such new initiatives on equal footing with

programs and activities that are ‘‘in the base’’?

Should there be some sort of ‘‘Sunset’’ rule that requires Congress and the President to reauthorize all existing expenditure programs, on a rotating basis, over some

period of time?

Should there be a higher barrier than exists in current law, e.g., points of order

or super-majority votes, to impede funding for programs that are not reauthorized

on schedule?

Is there a way to create a pot of truly discretionary money under the caps?

How much is too much? Demand truly does appear to expand to subsume available resources—and in subsequent years seems to equal last year’s spending, plus

inflation, plus an allowance for new initiatives.

Political pressures to increase spending are not new. What is new, or worse than

it used to be, is the assumption that everything in the base is inviolable. Therefore,

any new program, activity or priority must mean a real increase in government expenditure. It appears that part of the emergency problem is the desire to take credit

for spending above the baseline for high priority initiatives.

Is there a way to accommodate that demand within an expenditure-limited environment and if so how?

Is it possible to provide a real contingency fund—one that would not be expended

as part of the regular annual appropriations process? How?

TECHNICAL ISSUES

Accrual Accounting. Government operates a number of insurance programs and

accounts for them on a cash basis. The annual inflows and outflows of cash provide

little indication of the long-run subsidies provided to the beneficiaries of those programs. The cash flows provide little warning of problems looming over the horizon.

For example, the problems of the thrift industry and the consequent threat to the

financial health of the government’s deposit insurance fund were known long before

the extent of the problem showed up in the fund’s cash flows.

If accounting for the fund had been done on an accrual basis, the Congress might

have been induced to act more quickly, thus saving tens of billions of dollars.

Similar problems afflicted the government’s credit programs before the Credit Reform Act of 1990 (CRA).

Cash accounting often made it appear as though a new loan guarantee program

reduced the deficit because of the fees it charged.

In actuality, those fees were not sufficient to cover the contingent liabilities created for the government in the long run. Conversely, direct loan programs looked

far more expensive than they actually were in that the large cash disbursement occurring when the loan was made was recorded immediately, whereas loan repayments were reflected in the budget as funds were received.

The CRA fixed the problem by accounting for credit programs on a present value

basis. The excess of the present value of the outlays associated with a program compared to the present value of its receipt measures the subsidy provided to borrowers.

Many advocate a similar approach to accounting for insurance programs. Estimating future liabilities may be more difficult than with credit programs, because insurance programs often insure against catastrophic events that have a very low probability; e.g. the explosion of a nuclear plant. Small changes in the analysts’ estimate

of the probability of a catastrophe can mean very large changes in the estimated

cost of a program and the subsidy that it conveys. But underwriting, i.e., projecting

risks and costs accurately, is the essence of insurance. The subsidy conveyed by

many insurance programs is much easier to estimate; e.g. veterans’ life insurance

and mortgage insurance. It has been suggested that we start gradually with the

easiest cases and further study how to deal with those that pose difficult conceptual

problems.

There also arguments for applying accrual concepts to the analysis of tax provisions that have long-run impacts that differ considerably from their short-run impacts, e.g., under reasonable assumptions traditional IRAs and Roth IRAs impose

the same revenue loss over the long run. However, the truncated time horizons used

by the budget process to evaluate tax changes makes the Roth IRA appear much

cheaper.

122

CAPITAL BUDGETING

Capital budgeting is a very popular concept with many individuals and groups for

many reasons. On the one hand, proponents argue that the private sector, State and

local governments use capital budgeting to match expenditures that have long-term

benefits to streams of revenue to be realized over the useful life of physical assets.

On the other hand, many experts fear that a capital budget for the Federal Government would create a privileged class of expenditure. They fear an overwhelming

temptation to include high priority items, along with a lot of pork barrel spending,

in the capital budget.

Many differences derive from discussions of a Federal capital budget as if it applied only to the expenditure side of the budget. If it were necessary to identify and

raise revenues to pay for capital expenditures—and budget for depreciation—the

capital expenditures would appear as costly as any other budget outlays.

Even if capital expenditures appeared as costly as other government programs,

there is a risk that the label ‘‘investment’’ could create a cache and advantage expenditures included in that category.

That leads to the problem of definitions. Reasonable people can and do disagree

about just what constitutes capital expenditures in the Federal sector. Education is

included as a capital expenditure in the Special Analysis that accompanies presidential budgets. Some experts say all defense spending—including hardware—

should be scored as an operating cost to the government. Thus, they worry about

the capital budget concept expanding to include inappropriate (but popular) programs.

The President’s Commission to Study Capital Budgeting report makes major contributions to this debate, especially in the area of definitions. That Commission

reached the conclusion that the issue should be considered in broader context by a

new budget concepts commission.

The Federal budget already reflects ‘‘budget authority’’, ‘‘contract authority’’, or

‘‘new obligation authority’’ in the year in which we commit to major long-term investments. Investment outlays are recorded as they occur. The budget impacts

would not be much different if we had a capital budget.

The real problems around Federal investment spending derive from competing

priorities and presentation.

Outlays from prior year commitments impinge on high priority spending in the

budget year. Decision-makers may be tempted to lease rather than purchase physical assets to avoid very large commitments of budget authority up front and very

large outlay tails.

Leasing may prove counterproductive. Leases may impose a larger mortgage on

future resources than purchases because the government will have to enter new

agreements when the leases expire.

Future costs are not reflected in the budget. The budget does record contractual

commitments for as long as those commitments continue. Nonetheless, it is not at

all clear that investment spending is disadvantaged in current budget debates.

Spending for programs that create jobs and other visible benefits are very popular

back home. Spending for highways and airports received preferential treatment in

legislation before Congress last year, notwithstanding generally tight budgetary restraints.

Capital budgeting is one of a series of problems around presentation and priorities

posed by the current budget process. Reform should address all of those issues.

Given the attention focused on capital budgeting in recent years, reformers probably

should pay close attention to any bias against investment spending that may exist

in the current or proposed budget processes.

TRUST FUNDS

Experts and non-expert cynics both have remarked that there is no trust in Federal trust funds. That is unfortunate because such funds exist largely to assuage

anxiety around very popular programs. The ‘‘trust fund’’ nomenclature is familiar

to most people and we think we know what it means. But Federal trust funds are

subject to none of the rules and regulations intended to protect and maintain fiduciary responsibilities in private trust funds.

Federal trust funds are an accounting device, generally intended to keep track of

dedicated receipts and calculate obligations (implied or statutory) for government to

deliver specific payments or services based on those payments.

We probably ought to abolish the term trust fund from the budget vocabulary. But

that would be very hard to do.

Budget process reformers should consider creating substantial barriers to the establishment of new trust funds. To the extent possible a reformed budget process

123

should more accurately describe trust fund programs in terms that describe what

they are supposed to do and how they are supposed to work—in language most people can understand.

When Congress and the President dedicate revenues from specific sources to pay

for particular programs, they create a presumption with regard to appropriate expenditure levels. Sometimes they write those expenditure levels into law, in the

form of entitlement benefits and formulae. If dedicated receipts fall short of

amounts needed to fund planned expenditures, there often is tremendous pressure

to make up the short-fall from general revenues.

In the case of the Highway program, Congresses and Presidents have spent significant general fund resources on trust fund programs since the trust fund was established. Nonetheless, there is tremendous pressure to spend all trust fund collections on highway trust fund program.

The difficulty with this presumption about appropriate levels of expenditure for

specific programs best can be illustrated by an extreme example. If we found ourselves in another World War, almost everybody would agree that we could cut back

on trust fund programs, and redirect resources to fight the war. The principal also

holds true in less extreme circumstances.

Priorities change over time. Congresses and Presidents must be able to redirect

resources away from lower priorities as new, higher priorities emerge. That is the

difficulty with earmarking huge parts of the budget years into the future. And that

kind of earmarking is the main point of most so-called trust funds in the Federal

budget.

Budget process reform should focus on ways to clarify the fact that those trust

fund reserves held in the form of U.S. government debt are liabilities, not assets,

on the government’s balance sheet.

A reformed process should disclose whether dedicated taxes likely would be sufficient to meet future commitments.

The process should disclose future claims on general funds to meet trust fund obligations—and the implications for other programs, for future flexibility, the overall

size of government, tax burdens and future borrowing.

MANDATES

There are two major issues around mandates:

1. Almost all economists, experts and analysts agree that political decisions to direct the use of resources toward public policy purposes ought to be transparent—

that political leaders be accountable for such actions.

2. There is a great deal of controversy within the economic/ analytic/ expert community about the budgetary treatment of mandates, i.e., when a mandate becomes

a tax.

The Clinton Administration proposed health care reform, and recent Social Security reform debates, illustrate dramatically the temptation to employ mandates to

direct resources to specific public purposes without raising taxes. It is not always

easy to determine exactly at what point a mandate stops being a mandate and becomes a tax. This may be a topic for a new budget concepts commission. In the

meantime, it is imperative to make such distinctions based on the characteristics

of the proposed activity—not on labels.

RELIANCE ON ‘‘SCOREKEEPERS’’

Budget enforcement relies to an extraordinary extent on Congressional Budget Office and the Office of Management interpretations of budget concepts and

scorekeeping conventions.

Experts play a crucial role to inform the political debate. Policymakers ought to

have the best possible estimates of likely impacts of proposed actions before they

enact economic policy legislation. But the experts are most comfortable and effective

when there exists broad consensus around concepts and clear definitions of terms.

The professionals at CBO and OMB are not supposed to make policy. CBO and

OMB are no more comfortable than their political masters when their decisions

seem to direct rather than inform policy. Both policymakers and the professionals

who serve them do best when there is wide understanding of and agreement about

what ought to be reflected in the budget, how and why.

124

RECOMMENDATIONS

1. Joint Budget Resolution. Congress and the President should agree on one budget for the country. So long as the two policy-making branches of government work

from separate budgets, there really is no such thing as a budget or fiscal policy plan

for the country.

The Joint Budget Resolution should include fiscal policy goals—aggregate revenues and expenditures, surpluses or deficits, debt levels and/or debt reduction targets.

2. Expenditure Limits. Expenditure discipline is the key to budget discipline.

There is no objectively right level for Federal spending. The right level is the one

we will pay taxes to support over a reasonable period of time. If political leaders

agree on expenditure limits, and keep spending within the limits they set, we are

unlikely to return to a regular regime of rising deficits and debt.

There should be separate caps for defense, and non-defense discretionary spending—separate caps for large entitlement

programs and a residual category for ‘‘all other’’ direct spending—and additional

caps as needed. Caps should be enacted as part of the joint budget resolution.

125

Caps should be enforced through sequestration. Sequestration should be triggered

by a breach of the aggregate limit(s) for discretionary or mandatory spending. Automatic reductions ought to apply only to the categories that cause the breach.

3. Pay-As-You-Go (PAYGO) discipline should be maintained. Joint Budget Resolutions should spell out the amounts of any projected surpluses available to offset entitlement increases and/or revenue reductions. Entitlement increases and revenue

reductions, in excess of amounts contemplated by the budget, should be subject to

Pay-As-You-Go rules.

4. Rainy Day Fund—‘‘Emergencies.’’ Most States maintain ‘‘rainy day’’ funds as

buffers against unanticipated budgetary pressures. Surprises almost always cost

money. It is important to set aside a reasonable reserve against emergencies and

other unforeseeable contingencies.

Nothing can keep Congresses and Presidents from enacting so-called emergency

spending in excess of any amounts set aside for contingencies. Coupled with strong

rules governing the use of such funds, however, budgeting for contingencies could

do much to eliminate the embarrassing, recurring pattern in recent years of very

large so-called emergency appropriations bills. Further to ease pressures for emergency appropriations, Presidents should not be permitted unilaterally to make loans

to States to meet matching requirements, nor should they be able unilaterally to

waive repayment for such loans.

5. Biennial Budgets, Appropriations, and Tax Cycles. A biennial budget cycle

should free up significant resources in the executive branch and on Capitol hill—

resources that could be redirected to more pressing priorities.

But biennial budgets coupled with annual appropriations and tax legislation almost certainly would prove to be unsatisfactory.

There should be substantial barriers to enactment of spending and tax legislation

in non-budget years, else Congresses and Presidents well might drift back toward

an annual cycle as spending and tax legislation seems to be more compelling than

authorizations and oversight.

7. Automatic Continuing Resolution. An automatic continuing resolution at or

below the level of the caps contained in the most recently enacted budget should

provide stop-gap funding in the event Congress and the President cannot agree on

some or all regular appropriations bills.

If there are no caps, the automatic continuing resolution should hold spending

below the current level, to provide an incentive for passage of regular appropriations

bills.

8. Spending is spending and receipts are receipts. The Budget should distinguish

clearly between outlays and revenues. There should be strict limits on offsetting receipts, user fees and other net outlays. ‘‘User fees’’, ‘‘offsetting receipts’’ and ‘‘negative outlays’’ have been sorely abused in recent years to make the government seem

smaller, and spending seem lower, than actually is the case. There should be carefully crafted rules to define what constitutes a user fee, and what ought to be netted

against program outlays, and those rules ought to be rigidly enforced.

Programs that have all the characteristics of Federal grants should not be reflected in the budget as tax expenditures.

9. Enhanced Rescission. The House and Senate Appropriations Committees should

be required to report, and the leadership in both bodies should be required to schedule votes on presidential rescission proposals within a specific period of time. Otherwise, any Member of Congress should be able to offer a highly privileged, non-debatable motion to proceed immediately to consideration of the President’s rescission

proposal(s).

11. Budget Concepts Commission. Basic budget concepts and definitions best may

be addressed in a Budget Concepts Commission comprised of experts including, but

not dominated by, representatives of the administration and Congress.

Much has changed since the last Budget Concepts Commission in the 1960’s. The

Committee believes that it is time for a new Commission.

Moreover, the Committee believes that new Budget Concepts Commissions should

meet at regularly scheduled intervals—perhaps every decade or every 25 years.

A concepts commission is the best venue in which to address technical issues such

as:

• A shift from strict cash accounting to accruals for insurance programs—and perhaps for a limited number of other governmental financial activities. For example,

employees’ full accruing retirement costs under the old military and civil service retirement systems could be charged as agency cost and recorded as budget authority.

That is the way FERS is treated in the budget today.

• The distinction between mandates and taxes. There always will be political dimensions to any budget-related issue; but issues such as accrual accounting and

126

what to include in the budget can seem downright arcane. Political discourse around

such issues should be informed by expertise.

• How to account for or score Federal Government investments in private securities. There are a number of proposals currently under consideration for Treasury to

make such investments. The 1967 Budget Concepts Commission never considered

the issue. There is no consensus among experts regarding the proper budgetary

treatment of such investments. The Committee believes that a Budget Concepts

Commission can best address these issues.

ANOTHER POINT OF VIEW

Robert Reischauer, President of the Urban Institute, a member of our Board and

former Director of the Congressional Budget Office articulated the views of experts

who disagreed with those of the Committee at the meeting we convened last fall to

discuss these issues. We have invited Bob to summarize his comments here.

1. Joint Budget Resolution. This sounds good in theory but it won’t work. Congress and the President would wrangle over the contents of the JBR until August

and it would become another source of delay. Messy as the Congressional Budget

Resolution (CBR) may be, it reflects and is consistent with the system of divided

government.

In the 1980’s I suggested a two-step process. The President would send a budget

to Capitol Hill and Congress would pass a skeletal CBR containing economic assumptions, total revenue and spending (and dividing spending among defense, nondefense and mandatory categories).

Once Congress passed the CBR, the President would prepare a second budget,

conforming to the CBR plan. Then Congress would pass another concurrent resolution, containing committee allocations and reconciliation directions.

Finally, Congress would pass, and the President could sign or veto appropriations

and reconciliation legislation. That system would have been very cumbersome. At

the time, however, we were facing huge deficits; Congress and the President seemed

incapable of cooperation, and I thought my cumbersome system was preferable to

Gramm-Rudman-Hollings. Now I am not even sure about that.

2. Expenditure Limits. Expenditure limits are fine for discretionary spending, providing they are set for no more than 5 years at a time. There must be a mechanism

for revisiting the limits and there must be wiggle room such that provided by the

emergency provisions in current law. I do not believe that there ought to be separate

caps for defense and non-defense spending. Separate caps may preclude tradeoffs

and that is unwise.

I do not favor entitlement caps. They would undermine the basic reason for establishing certain programs as entitlements.

3. PAYGO in some form is desirable. I favor redefining the part of the budget that

is ‘‘in play’’ to exclude Social Security, Medicare and Unemployment Compensation

surpluses. Having set aside those amounts, I believe the budget should divide remaining surpluses into three slices—on a year by year basis: one for tax cuts, one

for changes to mandatory spending, and one for debt reduction.

4. Rainy Day Funds don’t make a lot of sense at the Federal level unless you want

to count the ‘‘debt reduction’’ slice I suggest above as a rainy day fund. I always

have been for amortizing emergencies voted in the current year over the next 5

years, unless an explicit stand-alone vote said that they could be treated as ‘‘water

over the dam’’.

127

OTHER EXPERTS’ OPINIONS—FEEDBACK FROM FALL MEETING

Barry Anderson, Deputy Director, Congressional Budget Office, took advantage of

this opportunity to make a strong case for a new budget concepts commission. He

said that the environment today is similar to the environment that argued for a

commission in the 1960’s.

In the 1960’s confusion arose because the President’s Budget contained three separate budget presentations: national income accounts budget, administrative budget,

and consolidated cash budget. Today there is just as much confusion around onbudget, off-budget, and unified budget presentations. Congressional and public understanding of the budget is no better today than in the 1960’s.

In the 1960’s technicians and policymakers were unhappy with accounting for

loans, business-type receipts, and debt financing other than borrowing.

Today their counterparts are concerned about budgetary treatment of tax credits

and a large number of purely financial transactions including transfers of Treasury

securities to trust funds and Federal purchases of private marketable securities.

We continue to benefit from the legacy of the 1967 commission, especially the

forceful case they made for a single Federal budget that comprises all Federal fiscal

activity.

But that was then and this is now. The budget process and the environment in

which it functions have changed and today there is a real need for a new commission on budget concepts.

128

In 1967, there was no explicit Congressional Budget Process and no BEA8. The

country had not experienced runaway peacetime budget deficits. Uncontrolled mandatory spending was primarily an academic concern.

Baby boomers were entering the labor force, not preparing to retire. The tax code

and most Federal policies seemed much simpler then.

The case for a single comprehensive budget remains as compelling today as in the

1960’s, but that does not answer questions about when, how and what Federal activities are to be scored in the unified budget. To illustrate that point, Barry offered

a series of examples:

• What is the right budget horizon?

• Shift from cash to accruals—for what?

• Expenditures and Receipts—how to distinguish between them?

• Seigniorage and coinage—similar activities should be treated similarly.

• Potential Arbitrage—how to treat gains and loses due to government borrowing

at the risk-free rate and investing in risky assets.

• Probabilistic budget scoring.

• Assets acquired through long-term leasing.

• Non-appropriated fund instruments, eg., military PXs.

In conclusion, Barry pointed out that this is not an exhaustive list of issues—but

that the list certainly is long enough and weighty enough to argue the need for a

new commission. He said that public scrutiny of budgetary gimmickry is useful but

no substitute for careful assessment of larger conceptual issues. What exactly is an

outlay? What is a receipt? What is a trust fund? How should the budget recognize

long-term commitments?

Technicians cannot answer such important questions alone. The policy dimensions

are too far-reaching.

A new nonpartisan commission on budget concepts would greatly enhance and

bring order to the current debate on reforming the budget process.

SUSAN IRVING, ASSOCIATE DIRECTOR FOR FEDERAL BUDGET ISSUES, GENERAL

ACCOUNTING OFFICE

It is important to remember that the 1974 Act did not seek a specific result in

terms of the deficit. Rather, it sought to assert the Congress’ role in setting overall

Federal fiscal policy and establishing spending priorities and impose a structure and

timetable on the budget debate.

Underlying the 1974 Act was the belief that the Congress could become an equal

player only if it could offer a single ‘‘budget statement’’ with an overall fiscal policy

and an allocation across priorities. Prior to 1974, the congressional budget was the

cumulative result of individual pieces of legislation. The Congress did not examine

or vote on overall spending or revenues.

The Act was crafted in recognition of existing power structures in the Congress.

It carefully avoided giving the budget committees anything like the power, or even

the coordinating role, of OMB. Among its most important elements was the creation

of CBO. This eliminated the Congress’ dependence on OMB for numbers and analysis by giving Congress an independent source of budget numbers.

It is not until the deficits of the 1980’s that we see the budget process changed

into a process designed to drive deficit reduction.

It is not until 1985, and the law commonly referred to as Gramm-Rudman-Hollings that the Act was amended to reflect the changing focus of the process—from

increasing Congressional control to reducing the deficit.

Both the original GRH and the 1987 amendments sought to achieve a balanced

budget by establishing annual deficit targets to be enforced by sequesters if legislation failed to achieve them. Measured against its stated objective, GRH failed.

The perceived failures of GRH led to the Budget Enforcement Act (BEA). BEA

seeks to limit congressional action and so to influence the result.

Unlike GRH, BEA holds Congress accountable for what it can directly control

through its actions, and not for the impact of the economy or demographics, which

are beyond its direct control. And on those terms, BEA has been a success.

GRH showed us that no process could force agreement where one does not exist.

In contrast, BEA established a process to enforce a previously reached agreement.

One could argue that the recent experiences with the discretionary caps under BEA

emphasize the first point. There no longer exists substantive agreement that the

caps are realistic so there is greater use of exemptions.

I would argue that the BEA succeeded on its own terms. The PAYGO mechanism

succeeded in preventing either significant entitlement expansions or significant revenue reductions. For most of its history, the caps held. For most of its existence,

the issue in BEA has not been whether it succeeded or failed but on the limitations

129

of its ambition. BEA did not seek to trim existing entitlement programs—and it has

not done so. What then about a budget process for the future?

We ask a great deal of our budget process. We want it to surface the important

choices in a way we can understand and focus on them. We use it both to determine

fiscal policy and to drive program management. In the Results Act world, we turn

to the budget to tell us something about the cost of obtaining a given level of results. We want to understand the full cost of choices when we make them.

GAO has previously suggested some broad goals for a budget process. It should:

• Provide information about the long-term impact of decisions while recognizing

the increased uncertainty that comes with long-term projections or simulations;

• Provide information and be structured to focus on the important macro tradeoffs.

• Provide information necessary to make informed trade-offs between different

tools; and

• The process must be enforceable, provide for control and accountability and be

transparent.

It is still an open question whether a budget process must be designed to advance

a particular fiscal goal or whether it could be designed as a vehicle for Congress

to assert a fiscal goal and its priorities.

It can be instructive to look at how other countries have thought about the advent

of budget surpluses. In a report GAO issued last fall, we discovered that a number

of industrial nations had found ways to look behind the immediate budget window

and move beyond single deficit measures.

They sought to adopt a new fiscal paradigm and a family of measures that included debt as a share of the economy.

Clearly, the budget debate must find a way to deal with the near-term and the

certain knowledge that these surpluses, although welcome, will be overwhelmed by

a demographic tidal wave unless there are changes in the structure of Social Security and Medicare. And these are not the only long-term cost pressures facing us.

REPRESENTATIVE JOE BARTON (R-TX)

Congress passed bipartisan balanced budget agreements in 1982, 1985, 1987 and

1990. None balanced the budget. The strong economy deserves more credit than

anything Congress or the President have done to balance the budget and produce

projected surpluses.

Nonetheless, we learned from our earlier experiences: what matters in budget

agreements is what Congress and the administration agree to enforce and how they

enforce it.

In 1995 and again during consideration of the 1997 budget agreement, Charlie

Stenholm, David Minge and a lot of other Republicans and Democrats joined me to

introduce budget process reform legislation based on effective expenditure limitation. We continue to believe that the budget process needs reform and we continue

to work with other members and groups outside government toward that goal.

Priorities for reform should include:

• Joint Budget Resolution. For all the reasons articulated in the discussion paper

prepared for this meeting and by many of the speakers here, it is imperative for

Congress and the President to agree on one budget for the country.

• Caps for both Discretionary and Entitlement Spending. There should be separate Defense and Non-Defense discretionary caps. There should be separate caps for

big entitlement programs. Sequestration should be triggered by breech of the overall

limit for discretionary or entitlement spending—but it should reduce only the categories that caused the overage. Caps should be adjusted for changes in actual economic conditions and numbers of human beneficiaries.

Congress and the President could change the caps by simple majority vote. There

should be no super-majority vote requirement. But congress should be forced to vote

up or down on whether to increase spending over the amounts contained in the most

recently enacted budget. That vote should not be buried inside a big omnibus bill.

Establish a Rainy Day Fund and close the emergency loophole. I support the

Nussle-Cardin bipartisan budget process reform bill. It does not go as far as I would

like, but it would be a big step in the right direction.

Biennial Budgeting is important to reduce the time and resources that the executive and legislative branches devote to budgeting, provide greater certainty to program managers and mitigate upward pressure on spending. But biennial budgets

would not produce those desirable outcomes. Appropriations and tax legislation also

would have to shift to a biennial cycle. Of course, a 2-year cycle would be most effective in concert with the other changes recommended above.

130

REPRESENTATIVE PORTER GOSS (R-FL)

With Representatives Nussle, Cardin and many others on both sides of the aisle,

I have worked to produce a bipartisan approach to reform the budget process.

More recently, the Rules Committee has focused on biennial budgeting. There is

so much support for that idea that this Congress just might pass a law at least to

test a 2-year budget cycle.

As Chairman of the Subcommittee of the Rules Committee that has jurisdiction

over congressional process, including the budget process, I am keenly aware that

even H.R. 853 goes too far for some and does not go far enough for others.

The most contentious items in the bipartisan bill are the automatic continuing

resolution and the PAYGO rules. I am confident that we will work out something

on those issues, to satisfy a majority of the House, and I expect that we will take

up budget process reform in this Congress.

We look forward to working with all of you to enact sound budget process reforms.

The current process is not working well. We have to fix it. I congratulate Jim

Nussle, Ben Cardin and all the other Members who have worked so long and so

hard to get the issue to this point. And I hope that all of you will work with us

to help us write a good bill into law.

REPRESENTATIVE JIM NUSSLE (R-IA)

The chart at page 41 illustrates the budget process under H.R. 853, the Comprehensive Budget Process Reform Act of 1999. That bill creates a joint budget resolution and a reserve fund for emergencies, a lock box to ensure savings from floor

amendments actually reduce spending, and an automatic continuing resolution to

avoid government shutdowns.

It reaffirms the special budgetary status of Social Security, strengthens budget

enforcement and accountability for Federal spending and the debt limit, lengthens

the budget horizon to 10 years, improves budgeting for long-term liabilities, relaxes

existing PAYGO rules and reforms the Byrd rule.

REPRESENTATIVE MINGE (D-MN) AND STENHOLM (D-TX)

Both of these Members stressed the difficulty of passing any budget process reform legislation. Representative Stenholm recalled that he worked on budget process reform legislation with the Co-Chairman of the Committee for a Responsible

Federal Budget, Tim Penny, before Tim left Congress. More recently, he and Representative Joe Barton have worked on these issues. Representative Stenholm reiterated his support for extending expenditure caps to cover entitlements as well as

discretionary spending—providing that sequestration if necessary affects only those

categories of entitlements that caused the spending overage.

Representative Minge reminded the group that many Democrats are very concerned about any change in PAYGO rules. He said Democrats seek to enforce revenue levels in the budget as well as direct spending. Mr. Minge emphasized that the

Nussle-Cardin bill is a carefully crafted compromise, that more changes may yet

need to be made before any bill can be written into law and asked the group to continue to work with them to enact good, strong budget process reforms.

CONCLUSION

Budget process reform is inevitable. The current rules impose politically unrealistic limitations on Congress and the President given large and growing surplus projections. Further, existing rules do little to inform debates about long-term challenges such as Social Security, Medicare and tax reform.

We hope that this project and this publication will prove helpful as Congress and

the administration consider changes to the process this year and in the future.

131

132

133

ENDNOTES

1. These are consensus views of our Board of Directors but do not necessarily represent the views of all directors on all issues. Neither do the recommendations necessarily reflect positions of the ‘‘Big 5’’ accounting firms that co-sponsored this

project. For balance, we include with a fuller explication of the Committee’s recommendations at the end of this report, the views of one of our Directors, Robert

Reischauer. Dr, Reischauer disagrees with many of the Board’s consensus recommendations.

134

2. ‘‘Discretionary spending’’ comprises programs, projects and activities subject to

annual appropriations.

3. ‘‘Direct Spending’’ includes entitlements and other mandatory spending.

4. Pay-As-You-Go’’ or ‘‘PAYGO’’ rules require revenue increases or reductions in

direct spending to offset new legislation that would reduce revenues or increase direct spending.

5. §301 of the Act spells out (in subsection (a) ‘‘Content of concurrent Resolution

on the Budget’’; and in subsection (b) ‘‘Additional Matters in Concurrent Resolution’’. §(b) (4), sometimes referred to as the ‘‘elastic clause’’, says, ‘‘set forth such

other matters and require such other procedures, relating to the budget, as may be

appropriate to carry out the purposes of this Act.’’

6. The Budget and Economic Outlook, Fiscal Years 2001-2010. January 2000, Congressional Budget Office.

7. Statistical Abstract of the United States, The National Data Book, U.S. Department of Commerce, Economics and Statistics Administration, Bureau of the Census.

8. The Budget Enforcement act, Title XIII of the Omnibus Budget Reconciliation

Act of 1990, amended as part of reconciliation bills in 1993 and 1997.

Chairman NUSSLE. Well, thank you very much.

With that, the hearing is adjourned.

[Whereupon, at 1:30 p.m. the committee was adjourned.]

Æ