Hearings of the
House Committee on Rules
H.R. 853, The Comprehensive Budget Process Reform Act of 1999
I am pleased to appear today in support of H.R. 853, a bipartisan bill to strengthen the budget process. I am representing the Concord Coalition, a nationwide, grassroots bipartisan organization dedicated to strengthening the nation's long term economic prospects through prudent fiscal policy.
Background:
Concord's co-chairs are former senators, Warren Rudman (R-NH) and Sam Nunn (D-GA). They, along with our approximately 200,000 members who hail from every state, have worked hard in recent years to help build a political climate that encourages elected officials to make the tough choices required to 1) balance the federal budget, 2) keep it balanced during times of peacetime prosperity, and 3) prepare for the budget problems that will occur as the nation's population becomes sharply older in coming decades.
Balancing the federal government's books is the single most effective policy we have to increase savings, which in turn are the key to long term economic growth. Savings provide the capital needed to increase the productivity of American workers, something that will become especially urgent when the retirement of the huge baby boom generation virtually halts growth in the size of the U.S. work force. With a fixed-size work force, economic growth and an improving standard of living will depend almost entirely on how much we invest in gaining additional output from each person working in our economy.
Concord believes that not only should we put the rest of the government's accounts into balance, we should also use the current economic, fiscal, demographic and political windows of opportunity to address the long-term Social Security and Medicare deficits that will accompany the aging of America. These looming and unsustainable deficits threaten to undo the hard work and fiscal discipline of recent years and undermine our potential for future economic growth.
Budget process reform:
Given this mission and set of concerns, it should be readily apparent why the Concord Coalition strongly supports establishing tight fiscal discipline procedures and enforcing them scrupulously.
The Congressional budget process that has been developed over the last couple of decades has helped enormously in improving fiscal discipline compared to the situation in the 1960s when there simply was no Congressional budget process and only the aversion to increasing the public debt to h old things in check. The president submitted his budget each year, Congress enacted appropriations, and in most election years, tax cuts. Sometime after the dust had settled, a report came from the Treasury Department adding up the damage. An obscure two-person staff attached to the Appropriations Committee was what passed for congressional scorekeeping and few people knew what they did or thought that it mattered.
Budget enforcement procedures enacted in 1974 have been continually refined through trial and error, the reconciliation process launched in President Carter's last year in office, Gramm-Rudman in 1985, mini-budget summits and establishment of discretionary and mandatory aggregates in 1987 and 1988, and the Budget Enforcement Act in 1990. These changes have helped Congress manage the political pressures inherent in our competitive democratic (small d) political system in which the rewards are for reducing taxes and delivering helpful benefits, services and public works are more immediate and direct than the distant, diffuse and indirect rewards for prudent financial management.
As the authors of H.R. 853 understand, budget discipline require observing not jsut the letter of the law, but also the spirit of the law. In other words, no matter now clever the budget mouse trap, it will not work without political will. But budget rules and disciplines can raise the hurdles and make it more difficult to fling fiscal probity aside. H.R. 853 proposes a number of very useful improvements in the evolving budget process and changes that are needed as the politics of surplus replace the politics of deficit.
The budget process is complicated, confusion and often confounding. The first Congressional budget procedures were drafted largely in response to Congress's dismay over the Nixon Administration's impoundment practices; and the intention of the budget process in the early years was not to reduce the growing deficit, but rather to bring information, rationality, and advance planning to Congressional enactment of spending and taxing authority.
Today, the budget process is first and foremost a tool of fiscal enforcement. It is a detailed set of rules about what can and cannot be done, how and where limits are set. As with discipline in almost any situation, it's understood that limits are, on balance, good for us. But we often don't like them when they get in the way of what we want to do. So the natural response is to test the limits in an attempt to get our way without getting caught.
Looking at the Congressional budget process as it is currently practiced, where are changes needed in order to establish and enforcement such limits? H.R. 853 addresses the very places where budget enforcement has broken down most flagrantly in the recent past – emergency spending, end-game tactics, scoring of federal insurance programs, creation of new entitlements, and lack of enforcement of the existing budget discipline rules.
Budget format change:
The budget process since 1974 has evolved from one that aimed at providing information to one that drives fiscal discipline. The 20 budget functions provide useful information, but they have nothing to do with budget enforcement. Instead, budget discipline is enforced through aggregate limits on direct spending, discretionary defense and discretionary non-defense spending, revenues, deficits and the debt.
H.R. 853 would simplify the budget resolution to these aggregate categories. Agreements on large aggregates are often easier to reach than agreements on the component parts, since all parties can assume that their own highest priorities will be accommodated and someone else's will come at the end of the list if there isn't sufficient room to do everything. Parties to the agreements undoubtedly will have their own list of specific spending levels that they assume can be accommodated within the aggregates, and under the bill, budget functions will continue to be displayed in the committee report for informational purposes and will reflect the majority's assumptions.
However, agreeing at the beginning of the year on the enforceable totals for direct mandatory spending, discretionary defense and non defense spending, emergency spending and revenues is a vast improvement over the current process. These levels will function as decision-forcing limits. The issue is not "how much shall we spend?" but rather, "how shall we divide up the allowable resources?" The proposed change simply makes explicit what has become implicit as policy makers have gained experience with budget enforcement.
Concord is pleased to see that the proposed legislation continues to exclude Social Security revenues and benefit payments from the aggregate totals for revenue and spending. This is appropriate, since the Social Security surplus funds have too long been used to finance deficit spending by the rest of the government.
Joint resolution:
I personally have long advocated changing the budget resolution to a Joint Resolution that requires the President's signature. The allocation of constrained resources is a tough political process, and the earlier in the year that agreement can be reached on at least a general framework, the better. If the budget resolution continued to require function-by-function detail, the Congress and the White House would seldom be able to agree on a joint resolution, particularly during times of divided party control. However, even with different parties in control of different chambers or branches of government, it should be possible most years to agree on aggregates.
The bill provides that if agreement cannot be reached, Congress will fall back to the current practice of enacting a concurrent resolution, which does not require the President's signature.But if agreement can be reached on a Joint Resolution that the president signs, then both ends of Pennsylvania Avenue will be more likely to cooperate on enforcement, and less prone to driving Sherman tanks through loopholes.
Passage of a joint budget resolution signed by the president should also be of considerable help in managing the difficult end-game at the close of each session of Congress. Lately, the closing days of the session have become a very costly and unattractive combination of food-fight and budgetary chicken in which the aim of each side seems to be to inflict maximum political embarrassment on the other while getting as much as possible for one's own spending or tax priorities. In the melee, scoring doesn't have a chance to keep pace with the action. After the session is over and the dust settles, the results are toted up and the taxpayer finally gets an assessment of the damage. A joint budget resolution linked to strengthened enforcement procedures could help prevent these end-game spending gluts in the future.
The bill also provides for an automatic continuing resolution to provide funding in lieu of any regular appropriation bills that have not been enacted before the beginning of the fiscal year. An automatic CR should also result in eliminating the worst end-game practices, since the threat of shutting down the government will no longer be relevant. The bill would set the automatic CR level at the prior year's level. Thus some pressure would still exist for those who wished to see appropriations for particular programs set either higher or lower than the previous year to work out compromises that would result in a regular appropriation.
Emergency spending:
Emergency spending, particularly appropriations at the end of the session, arguably has become the largest loophole in the Congressional budget process.
The current emergency spending provisions were enacted in 1990 when the Budget Enforcement Act was devised. Those of us who were in the room in 1990 recall that many long hours of bipartisan effort went into trying to write criteria for what would qualify as emergency spending. It seemed that for every definition that we attempted, someone could come up with an example that we all agreed was truly an emergency but somehow didn't fit the proposed definition, or an example that we all agreed was not an emergency but somehow did seem to fit the proposed definition. At last it was agreed that since Congress and the White House undoubtedly would observe the spirit of the budget process, it was sufficient to say that an emergency was whatever both Congress and the President designated it to be. That has not worked.
One serious problem has been that not enough is appropriated through the conventional appropriations process to finance adequate the disaster relief programs. Scarcely a year goes by without a devastating fire, flood, drought, earthquake, tornado, hurricane somewhere in the nation. About the only things that are predictable about such disasters is that they will occur, and that Americans will willingly provide assistance to the devastated victims. Over time, the cost of responding to these tragedies is also roughly predictable. We don't know what disaster or emergency lies ahead, but we must assume that there will be one. Yet, year after year, insufficient funds are appropriated through the basic 13 appropriations bills to finance even an average level of disaster spending. All the allocated discretionary funding get used up for other purposes. Then when disaster strikes, it's too late to say, "we should have kept some funds in reserve." The spending limits have already been reached and it is necessary to exercise the emergency spending provision.
Another serious problem is that in the last several months, all sense of restraint and proportion regarding the emergency designation have broken down. The glut of emergency spending at the end of the 105th Congress was a major breach of the spirit of the budget process and resulted in a hemorrhage of tens of billions of dollars of non-emergency spending financed out of the Social Security surplus. The supplemental appropriation currently in process, which responds to unanticipated needs for defense spending related to the Kosovo situation, to aid Hurricane Mitch victims in Central America is showing every sign of turning into an undisciplined "pile on." The amounts requested by the Administration have been doubled, with most of the extra funds going to pay for defense spending that normally would be provided in the Fiscal Year 2000 appropriations process. Since discretionary appropriation limits are extremely tight, Congress is succumbing to the temptation to use the emergency spending loophole to cram in regular defense spending now in a way that doesn't count toward the appropriations limits. Particularly egregious provisions are those that expand entitlement spending by rolling back military pension reforms. Any notion of enacting offsets to pay for the phony emergency items seems to have long since been forgotten.The emergency spending procedures, in short, have given way to sheer budget hypocrisy.
H.R. 853 proposes several useful changes to address the situation. The automatic increases in discretionary and mandatory limits to accommodate emergency spending would be repealed and any spending that exceeds the enforceable limits in mandatory and discretionary spending would result in a sequester. A clear procedure for determining whether an emergency exists would be established along with a definition of what constitutes an emergency: namely that it is needed to address "loss of life or property, or a threat to national security," and that it is unanticipated, which is defined as sudden, urgent, unforeseen and temporary. As part of the budget resolution, a reserve fund would be set aside in advance of the appropriations process to finance emergencies up to a level equal to a 5-year rolling average. Finally, a fall back procedure would be established to deal with truly extraordinary emergency spending beyond what can be financed through the reserve fund.
In combination, these changes would help to restore budget discipline in the case of emergency spending, and the Concord Coalition endorses their enactment. Indeed, in terms of sheer dollar amounts, the proposed package of emergency spending provisions may be the most important part of the bill.
Long-term insurance liabilities:
The current scoring procedures do not accurately reflect the long term federal liabilities associated with various government insurance programs such as bank and credit union deposit insurance, crop insurance, flood insurance, pension insurance, political risk insurance (OPIC) and federal employees' and veterans' life insurance. The premiums paid by purchasers of the insurance are booked immediately and appear to improve the government's bottom line. But the government's obligation to make payments in satisfaction of insurable events do not appear on the government's books until they occur. If premiums are too low to pay insurance benefits when they come due, the government must cut other spending, raise taxes, or borrow from the public to meet those obligations.
H.R. 853 proposes setting up a new scoring and accounting system for federal insurance programs to deal with these problems. It would be similar in many respects to the scoring that was devised for federal credit programs in 1990. Insurance programs would, in essence, be subject to accrual accounting, and methods would be developed for estimating the government's long-term liabilities and integrating these estimates into the budget process.
Experience with developing a new accounting system for federal credit programs shows that while such methodology can be developed and successfully implemented, it is not easy to do so. Nevertheless, the attempt should be made to update scoring methodology for federal insurance programs.
The largest federal insurance programs – Social Security and Medicare – are specifically exempted from these new procedures. Yet these programs, which will be severely impacted by the aging of our nation's population in the next few decades, have enormous unfunded liabilities, amounting to XX trillion, if not more. The bill does propose that both OMB and CBO report on long-term budgetary trends for these large entitlement programs, over a 75-year horizon, analyzing how present law and proposed changes would affect spending, revenues, deficits or surpluses. However, much of that information is already available and has little impact on the willingness of either branch of government to address the unfunded liabilities aof these two large programs.
New and existing entitlements:
Entitlement programs are the most difficult to manage under the budget process since they are guaranteed what ever funds are required to meet their obligations, sometimes long after current priorities would support them. In contrast, discretionary programs must have their funding renewed annually or every few years, and appropriations for each discretionary program must compete for scarce resources against all the other valid and attractive uses for the same money. Someone once suggest a working definition of an entitlement: "a discretionary program that has died and gone to heaven. It always gets its funding, never has to go to the Appropriations Committee, and never has to justify why it should get money ahead of other programs."
H.R. 853 addres this situation in several ways. New entitlements would be subject to annual appropriations. Legislation authorizing new entitlements lasting longer than 10 years would not be allowed. If the Appropriations Committee offsets new discretionary programs with reductions in entitlements, it would be held harmless through cap and paygo scorecard adjustments. Creation of new entitlements or expansions of existing ones would have to be justified by the Budget Committee. And an oversight review of all programs, including entitlements,would be required within a 10 year time frame
Spending government surpluses:
The prospect of on-budget surpluses raises an entirely new dimension to the budget process. The Concord Coalition is very concerned about the large unfunded liabilities in the Social Security and Medicare programs when baby boomers retire and begin claiming benefits. We strongly oppose using Social Security surpluses to finance deficits in the rest of the government.
However, the use of surpluses resulting from revenues and expenditures in the rest of the government, excluding Social Security, are a different matter. There is room for a legitimate debate over how these "rest of government" surpluses should be used. Concord would assign highest priority to reducing the public debt. We believe this would increase national savings available for investments in future productivity and would have a greater payoff than most tax cuts or government spending. Others disagree and would prefer to use "rest of government" surpluses for tax cuts, investments in education, infrastructure, research and development that promise to spur economic growth in the future. And some would choose to use the money to provide services that would benefit citizens today.
H.R. 853 allows for the use of "rest of government" surpluses. Concord does not oppose this provision. However, we are concerned that spending increase or tax cut commitments might be made in anticipation of budget surpluses that either do not materialize at all or are not as large as expected. The authors of the bill have anticipated this by providing that if legislation is enacted that exceeds the actual surpluses, a sequester will occur unless the shortfall is made up..
Other provisions:
The bill contains a number of other helpful and useful provisions for improving budget discipline and providing timely information. The requirement that the Congressional Budget Office produce cost estimates of conference reports is particularly helpful. Applying budget enforcement rules to legislation that somehow makes it to the floor without being reported from committee is another useful provision.
A 60-vote requirement in the Senate raises the hurdle for
bypassing budget enforcement points of order, but in the House, rules for
consideration of legislation frequently waive budget enforcement points
of order, and there is no recourse for Members who wish to enforce the
budget process other than to defeat the rule. There is no point in having
budget enforcement rules if they are constantly ignored. The bill
addresses this situation by requiring the Rules Committee to justify any
rule that waives budget points of order. Until such justifications
become pro forma, this provision might have a dampening effect on
ignoring budget discipline.
