Hearings of the Committee on Rules
"Biennial Budgeting: A Tool for Improving Government Fiscal Management and Oversight"
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 Affairs 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 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.
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 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.