Thank you for inviting me to testify before your Committee on "guaranteed spending rules." The enactment of last year's highway bill, TEA-21, and the passage by the House this year of the aviation bill, AIR-21, have sparked new interest in the methods that can be used to bypass the appropriations process or dictate spending at certain levels. There are arguments for the special guarantees in TEA-21 and AIR-21, which I'll address later, but first I would like to express some concerns.

The Procedures in TEA-21: Both TEA-21 and AIR-21 contain provisions restricting the ability of the Appropriations Committee or the Budget Committee to set priorities. Those provisions change the Rules of the House, the Congressional Budget Act, and the procedures by which the President enforces agreed-upon spending targets. When you consider that these changes did not fall in jurisdiction of the Transportation Committee, but in the jurisdiction of the Budget and Rules Committees, they are extraordinary changes in our rules.

 

• TEA-21 legislated an increase in the total caps on discretionary spending.

   

• Within the increased total, TEA-21 carved out amounts for highways and mass transit by establishing these as two new "categories" of discretionary spending.

   

• TEA-21 provided an automatic adjustment to the caps to account for increases or decreases in gas tax revenue.

   

• TEA-21 exempted the new highway category and the new mass transit category from control by the Budget Enforcement Act. It did this by providing that if highway or mass transit spending exceeded its so-called "caps," instead of a sequestration of highway or mass transit funding to offset the excess, the excess would count in the "general purpose" category. In other words, if too much highway money was appropriated, the excess would be spent on highways but there could be an offsetting sequestration of Head Start, military personnel, education aid, and so on.

   

• Finally, TEA-21 established a new House rule against any appropriations bill that funded highways or mass transit at less than the authorized level.

AIR-21 has taken a different, but equally convoluted, approach to achieve a similar result.

Objections to the Special Procedures: On their face, these provisions of TEA-21 are problematic for a variety of reasons.

First, they seriously diminish the ability of the appropriations process to make trade-offs among discretionary programs within the overall cap. It is useful and appropriate for Congress to decide each year, or from time to time, the relative importance of highways and mass transit versus veterans, medical research, child care, education, national parks, defense pay and personnel, the FBI, and so on. All of these functions are important, and their relative importance varies over time. Congress should be able to decide by majority vote which are the most important in any given year. Certain programs can enjoy a presumptive claim to funding without having an overwhelming advantage, a trump card, over others. In the end, funding should turn on the substantive merits, and advocates of one program should be able to gain more for their program if the strength of their arguments warrant it.

In contrast, under TEA-21 and AIR-21, "all programs are equal, but some are more equal than others."

Second, the annual budget resolutions are instruments by which Congress can make choices and trade-offs. The appropriations process divides a fixed pie among competing claimants. The budget process can deal with broader questions: should we enlarge the pie with more revenues, or cut entitlements, or allow benefit increases because of unmet needs? How about tax cuts? How much should we reduce the deficit? What would an immediate change in the deficit or surplus do to the economy in the short term? How about the long term? If there is a surplus, how much should be dedicated to reducing the national debt? How should the long-term consequences of the baby boomers' retirement shape our policies?

All of these questions are addressed more easily, and more equitably, if programs are not put outside the budget process or otherwise made untouchable.

Third, the degree of special protection given to highways and mass transit under TEA-21 exceeds that bestowed on any other program. Let me give you two examples: Unemployment Insurance and Social Security. Both are entitlements, both are financed by a trust fund from earmarked taxes, and both are exempt from sequestration under the Budget Enforcement Act. UI and Social Security are privileged because they are important, critically important. Yet neither enjoys the degree of protection provided by TEA-21.

 

• Unemployment insurance is subject to reconciliation. The Budget Committee can decide that it should be cut, and Ways & Means can respond to the reconciliation directive by cutting it. Furthermore, under budget rules, the Appropriations Committee can use "limitations" to cut UI benefits, and if it chooses, the savings can be made available to meet the overall discretionary caps or to cover the cost of other discretionary funding. Finally, the administrative costs of UI can be cut by the Appropriations Committee, and the savings used to meet the overall caps or the cost of other programs, even though the administrative costs are paid from the UI trust fund.

   

• Social Security cannot be included in the budget resolution or in a reconciliation bill, which gives it a very high level of protection. But even Social Security benefits can be cut directly by legislation from Ways and Means, or can be cut by Appropriations limitation. And the administrative costs of Social Security can be cut directly by the Appropriations Committee, and the savings can be used to meet the overall caps or cover the cost of other programs, although those administrative costs are appropriated from the trust fund.

In contrast, TEA-21 would require action by the Transportation, Budget, and Rules Committee to make direct cuts in the program, and it prohibits by point of order any cuts accomplished through Appropriations action.

How about Entitlements? My arguments for facilitating trade-offs among competing programs, if taken to their logical conclusion, suggest that all programs should be discretionary. Obviously, that goes too far. There are good reasons programs should be entitlements. For example--

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• Equity calls for some individual benefit programs to be entitlements. An example is veterans compensation. It is only equitable that each veteran with the same disability get the same benefit, whether there is a upsurge in military service or a dramatic decline because of peace. Since this is an individual benefit, the money goes to the beneficiaries irrespective of where they live. Congress doesn't have to readjust regional formulas if the number of disabled veterans grows more in one state than another.

   

• The need for long-run planning calls for retirement benefits to be entitlements. While Congress can and occasionally does change benefit levels, we tend to phase in such changes over long periods. Individuals can best plan their own savings, and companies their pension plans, when programs such as Social Security keep benefit rules stable over time. These programs are not suited to the ups and downs of annual appropriations.

Highway, mass transit, and aviation programs basically do not have these characteristics, which would qualify them to be entitlements.

What About the Trust Funds? So, the argument that some programs are more equal than others does not mean that any program should be allowed to claim special treatment. But we have to be sympathetic to the argument that when a special tax is imposed for a special purpose, the revenues raised should be used for that purpose. Basically, this is a way of saying that promises should be kept and representations upheld.

Nevertheless, Congress promises far more than one goal, and old promises become less compelling as new needs arise. Let me give a few examples.

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• On a number of occasions in the 1980s and 1990s, a majority of the House voted for constitutional amendments to require balanced federal budgets. Although those amendments were not enacted, many members may have viewed them as promises to do everything within their power to achieve a balanced budget, up to and including restraints on highway or mass transit spending.

   

• In 1990 and again in 1997, transportation programs were explicitly identified as "discretionary" in the conference reports on deficit reduction bills that were enforced by discretionary spending caps. Members who voted for those bills — and both were enacted into law — can argue that they wanted to subject these programs to the annual appropriations process.

   

• Recently, this House voted overwhelmingly in favor of new procedures militating against any measures that would use the Social Security trust fund surplus for anything other than reducing federal debt. Some people call this "saving the Social Security surplus." One can imagine circumstances in which fully funding TEA-21 would compete with one's promise to use the Social Security surplus only to retire debt.

   

• Some longstanding promises, such as our oath to preserve and protect the Constitution, are financed from the general fund rather than trust funds. The general fund, for example, funds the federal judiciary and the armed forces.

My purpose is not to diminish the promise implied by trust funds, but to point out that some promises apply to the budget as a whole and they too have weight, sometimes more compelling weight than competing promises applicable to the trust funds. And it is the duty of Congress continually to weigh each such promise against others. Special procedures that insulate promises to certain programs, like transportation, conflict with promises made to other programs and the free competition and continual examination of programs in the budget process.

Summary of Testimony

The Procedures in TEA-21: Both TEA-21 and AIR-21 contain questionable provisions that hinder the ability of the Appropriations Committee or the Budget Committee to re-order priorities. On their face, these provisions of TEA-21 are objectionable.

First, they diminish the ability of the appropriations process to make choices and trade-offs among discretionary programs within the overall cap. It is useful for Congress to decide, each year, the relative importance of highways and mass transit versus, for example, veterans hospitals, scientific and medical research, child care, education, national parks, defense pay and personnel, the FBI, and so on.

Second, the annual budget resolutions deal with even broader questions: How about tax cuts? How much should we reduce the deficit? What would an immediate change in the deficit or surplus do to the economy in the short term? How about the long term? If there is a surplus, how much should be dedicated to reducing the national debt? How should the long-term pressures of the baby boomers' retirement affect our thinking? All of these questions are addressed more easily, and more equitably, if programs are not put outside the budget process or otherwise made untouchable.

Third, the degree of special protection given to highways and mass transit under TEA-21 exceeds that given to any other program, even Social Security. Specifically, although Social Security is off-budget and exempt from reconciliation, even Social Security benefits can be cut directly by legislation from Ways and Means, or can be cut by Appropriations limitation. And the administrative costs of Social Security can be cut directly by the Appropriations Committee, and the savings used to meet the overall caps or cover the cost of other programs, even though those administrative costs are appropriated from the trust fund.

How about Entitlements? The arguments for facilitating trade-offs among competing programs, if taken to their logical conclusion, suggest that all programs should be discretionary. That goes too far. There are many good reasons that some programs should be entitlements: counter-cyclical economic policy, as under UI; equity among individuals, as under veterans' compensation; and long-term retirement planning, as under Social Security. But these considerations do not appear to apply to the transportation programs.

What Sanctity Should We Give the Trust Funds? I am sympathetic to the argument that when a special tax is imposed for a special purpose, the revenue raised should be committed to that purpose. These are often user fees, and users have a right to see their fees put to the function they use. But the government has other promises to keep, and sometimes other promises are more urgent or compelling. When these promises conflict with highway spending, members can be held accountable for their use of dedicated funds, yet still be allowed to use their judgment as to the best allocation of resources

If we want to give more sanctity to trust funds and ensure that earmarked revenues are used for their intended purposes, the surplus offers us an opportunity. According to CBO, there are annual trust fund surpluses (excluding Social Security) of about $50 billion. Most of these surpluses derive from the Civil Service and Military Retirement Trust Funds and the Railroad Retirement Fund, and as we rethink how the Social Security Trust is used, we should probably should be rethinking how these trust fund surpluses are used. The rest are relatively small, and if the increasing budget surplus is not committed entirely to tax cuts, we can in time begin fully paying out these trust funds without impinging on other non-trust fund discretionary spending.