Hearings of the
House Committee on Rules
H.R. 853, The Comprehensive Budget Process Reform Act of 1999
Mr. Robert Greenstein
The Center For Budget Policy And Priorities
1. You mentioned your service on the Kerry-Danforth Bipartisan Commission on Entitlement and Tax Reform. One of the first and most important recommendations endorsed by a majority of the members of the Bipartisan Commission was the issue of long-term budgeting.
H.R. 853 would require the Director of the OMB and the Director of the CBO to provide 75 year estimates of the total levels of budget authority, budget outlays, revenues and surpluses for each major Federal entitlement program in their respective analyses of the federal budget. The bill also requires each of these entities to determine if there are certain economic indicators such as unemployment, health care inflation or GDP growth that contribute significantly to the wide swings in these long term estimates.
The sponsors of the bill argue that it is important for Members to have a wider "snapshot" picture of the economic effects of proposed budget resolutions because the current short term outlook lulls Members into complacency about the long term effects of the budget. The provisions of this bill are almost identical to S. 823, legislation introduced in the 104th Congress by Senators Simpson (R-WY) and Kerrey (D-NB). When discretionary spending was the largest share of our budget, it seems that five year planning may have been appropriate. But now that the vast majority of federal spending is direct spending, we need to have a larger framework in which to make budgetary decisions.
Would you care to comment on this particular proposal?
Answer. I had the honor of serving on the 1994 Entitlement Commission with Senators Kerrey and Simpson. I think all of us who served on that Commission gained a deep appreciation of the importance of long-term forecasts.
I strongly support the recent move from a five-year to a 10-year time horizon in federal budgeting and also favor more of a focus on long-term budget trends. The question is how best to accomplish this. I'm not sure of the answer.
I worry that trying to project 75 years in advance for each major entitlement would result in such a high degree of uncertainty about these forecasts as to limit their usefulness. I think I'd rather see long-term forecasts by major budget category - the unified budget, the non-Social Security budget, discretionary programs, Social Security, Medicare, and so forth. Producing such a forecast for each major entitlement shouldn't be necessary if we do it so for major categories like this.
Also, I very much support 75-year budgeting for Social Security but think a 50-year forecast for the rest of the budget probably is sufficient. The degree of uncertainty between the 50th and 75th years is high.
Finally, I believe such a requirement should include a requirement to compute the long-term fiscal gaps. The fiscal gap is the tax increase or spending cut needed to hold the debt/GDP ratio at or below its current level indefinitely. A constant debt/GDP ratio means that the debt is increasing only as quickly as the nation's ability to pay the debt; hence, the debt burden is not growing. By definition, a constant debt/GDP ratio constitutes a sustainable budget policy.
I would add a few other observations:
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The long-term estimates for Medicare and Medicaid are likely to be off by large amounts, although we don't know in which direction. There is no way to know what health care will cost 25 years from now, much less 50 or 75 years.
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We should be mindful that projections are quite unstable. For instance, CBO's first projection of a fiscal gap (May 1996) estimated the fiscal gap at 4.8% of GDP. Most recently, however, CBO estimated the fiscal gap at 0.6% of GDP. This volatility suggests we should be cautious about banking on too much good news. Moreover, the fact that a fiscal gap still remains under the highly unrealistic assumption that all tax cuts or spending increases will be fully paid for in perpetuity, even after the entire national debt is retired, suggests that weakening the PAYGO rules to the degree that H.R. 853 does is not prudent long-term budget strategy.
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H.R. 853 requires these very long-term projections be made annually. That may be more frequently than necessary. Every other year may well be enough.
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As currently drafted, other provisions of this bill may render this provision meaningless. For example, one provision of the bill requires that Social Security be excluded from any overall budget figures, presumably including these long-term projections. Another provision unrealistically requires that discretionary spending be projected on the basis of a permanent nominal freeze. Either requirement would make the resulting long-term projections of much less value.
2. In your prepared statement you asserted that some of the provisions contained in H.R. 853 would lead to delays in the Appropriations Process. Specifically, you highlight the elimination of the May 15th timing exception for appropriation bills from the prohibition on considering spending bills prior to the adoption of the budget resolution.
If the intent of the joint budget resolution is to provide incentives for the Executive and Legislative branches to reach an agreement on the big ticket items early in the fiscal year, is not the elimination of exceptions such as this exactly the type of incentive that will spur the process in the direction of negotiation?
Answer. Holding the consideration of appropriations bills hostage to completion of the budget resolution is not an incentive: it's not a carrot, it's a stick. History suggests that budgetary sticks don't work so well in forcing disagreeing parties to agree. GRH I and II were very big sticks, in which major sequesters of key programs could occur unless Congress and the President enacted legislation to reduce the deficit as necessary. As it turned out, however, agreements were hard to come by because of profound policy disagreements. If the GRH targets could not be met through evasion and rose-colored glasses, the targets were changed. In addition, the proposed House rule (that appropriations bills not be considered until a budget resolution has been approved) already exists in the Senate. Yet that has not served to expedite agreement on budget resolutions. Usually, after some weeks of stalling, the Senate finds a way to waive or bypass the Senate rule against considering appropriations bills. In the Senate, this rule has not speeded up budget agreements. It has, however, slowed down appropriations.
3. You also cite the requirement of a joint budget resolution as another cause of delay in the appropriation process. However, the bill also provides for a fall-back concurrent resolution in the event that the Executive and Legislative branches cannot reach an agreement.
Also, how does your assertion take into the account that the very nature of the joint budget resolution is different from the existing nature of the concurrent resolution? Instead of 20 unenforceable budget functions, the budget resolution would basically only contain 7 aggregate figures relating to the big ticket items:
| 1. Total discretionary spending | 5. Total mandatory spending |
| 2. Total defense discretionary spending | 6. Total Emergency spending |
| 3. Total non-defense discretionary spending | 7. The level of deficit, surplus, debt |
| 4. Total revenue |
Would not this simplified budget resolution actually lead to a more orderly and timely budget process when viewed from fiscal year to fiscal year?
Answer. The fall-back provision (if a joint resolution is vetoed) only mitigates the delay inherent in any major and high-level negotiation between the branches. And in any negotiations, one or both sides may calculate they will gain more in the end by delay.
You also ask if a simplified budget resolution would create a more orderly process - would the removal of the budget functions make it easier for the President and Congress to agree on a joint budget resolution? I wouldn't be too sanguine on this point. Serious negotiators often want to work out the major details. They often don't want to engage in high-level dealmaking only to find out they agreed on an outline so broad and vague that it could accommodate budget priorities of which they strongly disapprove. In the high-level negotiations that occurred in 1987, 1990, and 1997 - when Congress and the presidency were held by opposite parties - the budget negotiators felt a need to work out many quite small elements of budget policy.
4. With respect to your submitted comments on the emergency spending proposals, you seem to disagree with the suggested reforms, yet you recognize that reforms to the process are needed.
What specific reform proposals would you suggest to reform this aspect of the budget process?
5. You specifically objected to the role of the Budget Committees in the verification of what constitutes an emergency spending proposal. Under the current budget process, an emergency item is whatever the President and Congress deem to be so.
Does it not make sense to separate the entity responsible for providing spending from the entity tasked with deciding what constitutes emergency spending? H.R. 853 allows for the Appropriations Committee to provide spending on an emergency basis but provides that the Budget Committee must certify it as emergency spending in order for it to be appropriated as such. This two step process builds in more accountability and enforcement in the manner in which Congress and the President utilize the emergency spending process.
Do you agree with this assessment?
Answer to 4 and 5. The bill's emergency title makes a step forward by requiring both the President's budget and the Congressional budget to contain, within the totals, an amount equal to the historical average of emergency funding. (The bill should require that the President's budget and the congressional budget also include amounts for the other "cap-adjustment items" under section 251(b) of the BBEDCA, such as the EITC compliance funding or the funds for continuing disability reviews. This funding is supposed to happen; that's why it is given special protected status under the BBEDCA. It is disingenuous to leave the expected spending out of the budget resolution totals.)
However, there are a number of aspects of the emergency provision that should be improved.
First, the bill removes the President's independent authority to decide that funding is not for an emergency. Currently, emergencies are outside the caps only if Congress and the President independently agree. Presidents can, and have, signed supplementals that contained emergency designations but decided that a portion of the funds were not emergencies. That funding has therefore counted against the caps, notwithstanding the Congressional designation. Thus, under current law, each body acts as a check on the other. Under the proposed bill, the only way a President can decide that Congress went too far in calling some funding an emergency is by vetoing the bill, which may be unrealistic. The President's independent authority should probably be restored.
Second, the bill goes too far in placing the sole congressional power for emergency designations in the hands of the Budget Committee. While the current system is too undisciplined, the prescription is too narrow. There needs to be some other institutional way to balance the role of the Appropriations Committee, the Budget Committee, and the membership of the House as a whole.
Third, the bill creates a clumsy mechanism for dealing with emergencies that happen to exceed the historical average. Suppose two large hurricanes strike in a single year. Why should funding for the first go through a different procedure than funding for the second? As long as the historical average is accurately calculated and the institutional procedures for designating emergencies are fair and unbiased, it should not matter whether one year turns out to be better than average and a different year, worse than average.
Fourth, the bill has no mechanism for dealing with floor amendments to provide emergency funding. Even if the President, the House, and the Budget Committee all agree that a specific floor amendment is legitimate, there is no way to declare it an emergency and therefore no way to free it from the likely point of order against breaching an allocation.
Each of these four aspects can be rectified by drafting changes, without altering the two basic points made by the emergency provisions of the bill - that budgets should reflect the inevitability of emergencies by including the historical average, and the decision to exempt some funding from budget procedures on the grounds that it is an emergency should not be exclusively the prerogative of the Appropriations Committee.
6. You spend a great deal of your prepared statement commenting on the role the PAYGO reforms would play in the budget process, specifically as to the new situations which may trigger a sequester under the Budget Act.
In this discussion you assert that tax cuts or increases in entitlement spending that seek to utilize projected portions of the on-budget surplus (and hence are not required to have entries on the PAYGO scorecard) would lead to a sequester of Medicare and other programs if the projections prove inaccurate.
By this conclusion are we to conclude that you also would oppose locking away projected social security surpluses from being used by other portions of the budget?
By your logic if the projected surpluses for Social Security also proved to be inaccurate, a law would be on the books that required a larger amount of the budget surplus to be set aside for Social Security than actually was a result of an over-payment of payroll taxes. This could in turn also trigger a sequester of Medicare and other important government programs to remove the strain placed on the general fund of the budget.
Answer. In your question you said that tax cuts or entitlement increases that "seek to utilize projected portions of the on-budget surplus" would hence "not [be] required to entries on the PAYGO scorecard." But under H.R. 853, they would be; such legislation would still be entered as a debit on the scorecard, and that's the problem. Likewise, on-budget surpluses (calculated without the effects of the tax cuts or entitlement increases in question), as reestimated annually, would be entered as credits. Congress presumably would hope that on-budget surpluses would emerge in sufficient magnitude to cover the debits, but if they did not materialize, the debits would trigger a sequester -- potentially, a very hefty one.
From my perspective, this type of approach is fundamentally flawed because it establishes a specified, fixed deficit or surplus target as the sine qua non of budgeting. (In this case, the target is on-budget balance.) But the approach would be equally flawed if the target were unified budget balance, a specified unified budget deficit, or a specified unified budget surplus. My concern is not based on which fixed target is chosen, but rather that a fixed target is used.
The drawback to fixed surplus or deficit targets is that budget estimates and actual budget outcomes are volatile. The economy and technical factors can mean that actual outcomes will differ from the targets by perhaps hundreds of billions of dollars within relatively short amounts of time.
Fixed targets could induce us to raise taxes or cut spending just when the economy can least afford it -- when a recession may result. Similarly, fixed targets may allow us to cut taxes and raises spending just when fiscal restraint is most called for, as when an acceleration in inflation may result. The history of fixed targets during the Gramm-Rudman era also shows that the President and Congress have a tendency to avoid the worst swings in budget policy by manipulating the estimates or by enacting subtle or obvious timing shifts, which engenders public contempt. The great virtue of the current Pay-As-You-Go rule is that it is independent of massive reestimates of overall outlays and revenues; instead, budget enforcement rests entirely on achieving a goal that is within the control of Congress - paying for all legislation.
The flaw with the PAYGO title of the Nussle bill is that if Congress enacts tax cuts or entitlement increases based on anticipated on-budget surpluses, the bill recreates a fixed target. It recreates the adverse incentives of Gramm-Rudman.
If Congress really wants to cut taxes or increase entitlements without paying for the cost of that legislation, it should simply do so. But it should not pretend virtue by establishing a potentially huge automatic sequester if current overall budget projections prove wrong. (As a matter of policy, I would prefer Congress not be able to consume most or all of projected on-budget surpluses.)
Finally, it is eminently possible to design sensible Social Security lock-box legislation, which I favor, that does not rigidly impose fixed deficit targets. For example, one could erect points of order against legislation that creates or enlarges on-budget deficits, with exceptions for wars, recessions, and emergencies.
