[Senate Hearing 106-24]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 106-24


 
                   TO CONSIDER BUDGET PROCESS REFORM

=======================================================================


                             JOINT HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET

                                AND THE

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 27, 1999

                               __________

 Printed for the use of the Committee on Governmental Affairs and the 
                        Committee on the Budget


                                


                      U.S. GOVERNMENT PRINTING OFFICE
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
                      Dan G. Blair, Senior Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                 Kevin Landy, Counsel for the Minority
                Debbie Lehrich, Counsel for the Minority
                       Lynn L. Baker, Chief Clerk

                                 ------                                

                        COMMITTEE ON THE BUDGET

                 PETE V. DOMENICI, New Mexico, Chairman
CHARLES E. GRASSLEY, Iowa            FRANK R. LAUTENBERG, New Jersey
DON NICKLES, Oklahoma                ERNEST F. HOLLINGS, South Carolina
PHIL GRAMM, Texas                    KENT CONRAD, North Dakota
CHRISTOPHER S. BOND, Missouri        PAUL S. SARBANES, Maryland
SLADE GORTON, Washington             BARBARA BOXER, California
JUDD GREGG, New Hampshire            PATTY MURRAY, Washington
OLYMPIA J. SNOWE, Maine              RON WYDEN, Oregon
SPENCER ABRAHAM, Michigan            RUSSELL D. FEINGOLD, Wisconsin
BILL FRIST, Tennessee                TIM JOHNSON, South Dakota
ROD GRAMS, Minnesota                 RICHARD J. DURBIN, Illinois
GORDON SMITH, Oregon
                  G. William Hoagland, Staff Director
                Austin Smythe, Assistant Staff Director
              Bruce King, Staff Director for the Minority
            Lisa Konwinski, General Counsel for the Minority



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Domenici.............................................     1
    Senator Thompson.............................................     3
    Senator Lautenberg...........................................     5
    Senator Lieberman............................................     7
    Senator Gorton...............................................    10
    Senator Grams................................................    16
    Senator Voinovich............................................    17
    Senator Grassley.............................................    21
Prepared statement:
    Senator Roth.................................................    11

                               WITNESSES
                      Wednesday, January 27, 1999

Hon. John McCain, a U.S. Senator from the State of Arizona.......    11
Hon. Benjamin L. Cardin, a Representative in Congress from the 
  State of Maryland..............................................    18
Hon. Jim Nussle, a Representative in Congress from the State of 
  Iowa...........................................................    23
Timothy J. Muris, Professor of Law, George Mason University 
  School of Law..................................................    36
Van Doorn Ooms, Senior Vice President and Director of Research, 
  Committee for Economic Development.............................    50
Martha Phillips, Executive Director, The Concord Coalition.......    57

                     Alphabetical List of Witnesses

Cardin, Hon. Benjamin L.:
    Testimony....................................................    18
    Prepared statement...........................................    19
McCain, Hon. John:
    Testimony....................................................    11
    Prepared statement...........................................    14
Muris, Timothy J.:
    Testimony....................................................    36
    Prepared statement...........................................    38
Nussle, Hon. Jim:
    Testimony....................................................    23
    Prepared statement...........................................    27
Ooms, Van Doorn:
    Testimony....................................................    50
    Prepared statement...........................................    52
Phillips, Martha:
    Testimony....................................................    57
    Prepared statement with an attachment........................    60

                                Appendix

Prepared statement of Rep. Porter Goss submitted by Rep. Nussle..    32
Questions of Senator Voinovich with responses from:
    Senator McCain...............................................    71
    Martha Phillips..............................................    72
    Congressman Nussle...........................................    72
    Congressman Cardin...........................................    74



                   TO CONSIDER BUDGET PROCESS REFORM

                              ----------                              


                      WEDNESDAY, JANUARY 27, 1999

                                       U.S. Senate,
                       Committee on Governmental Affairs,  
                           and the Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:40 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Fred 
Thompson, Chairman of the Committee on Governmental Affairs, 
and Hon. Pete V. Domenici, Chairman of the Committee on the 
Budget, presiding.
    Present: Senators Domenici, Thompson, Stevens, Grassley, 
Gorton, Grams, Voinovich, Lautenberg, Conrad, Lieberman, and 
Durbin.

             OPENING STATEMENT OF CHAIRMAN DOMENICI

    Chairman Domenici [presiding]. The hearing will please come 
to order.
    Good morning. We are having not only an interesting 
hearing, but a rare one for the U.S. Senate, in that two 
committees are meeting simultaneously together here today to 
open a dialog with reference to a bill that would have far-
reaching ramifications for the processes around the U.S. 
Congress.
    Essentially, there are many subsets to this bill, but the 
big issues are should we appropriate biennially and should we 
budget biennially instead of every year.
    I do not choose, today, to go into any detail other than to 
comment that that aspect of this bill has already cleared both 
of these committees last year, and it came out of each 
committee separately. That biennial reform legislation went to 
the desk in the Senate, but the leadership could not find time 
and we went out of session before we got an opportunity to take 
up that legislation.
    The budget laws and procedures, everyone should know, grew 
largely out of laws enacted about 25 years ago to combat the 
budget deficit. It should be obvious to everyone that today we 
face different challenges. We need to find a way to set aside 
the surpluses generated by Social Security trust funds for 
Social Security, and we need to tighten controls over emergency 
spending, so that we do not face the situation we faced last 
year every year.
    Last year, I agreed with the President that every penny of 
the surplus generated by Social Security should be used first 
to save Social Security. However, in the end, while the U.S. 
House was clearly reprimanded for moving a tax bill that would 
have reduced revenues by $6 billion in the first year, we ended 
up spending $27 billion of the surplus on emergencies last 
year.
    Finally, we need to find a way to reform the authorization, 
appropriations and budget processes. Suffice it to say that we 
are obligated now to produce 13 separate appropriations bills 
and a budget resolution every year. It is my own opinion that 
this has led to a situation in the U.S. Congress where the 
authorizing committees are weaker because they do not have much 
time to get their job done. We seem to be budgeting and 
appropriating all of the time.
    It would seem that the laws of the lands, as numerous as 
they are, cry out for oversight, and it is pretty obvious that 
there is not a lot of time for oversight if we stick to the 
processes that both the House and the Senate are following 
today.
    Now, there obviously are many other views that have to be 
heard with reference to this, but let me quickly go through a 
summary of this bill and then yield to the Chairman of the 
Governmental Affairs Committee, and then we will rotate back 
and forth, if I understand correctly.
    First, streamline the process to enhance oversight of 
Federal programs by moving to a biennial budgeting and 
appropriations process;
    Second, curb the abuse in some way of emergency spending or 
the ease with which it seems to be enacted;
    Third, set aside and protect the Social Security surplus 
until we ensure that Social Security will be there for every 
generation;
    Fourth, make way for tax relief that does not tap Social 
Security surpluses; and
    Fifth, provide that we never again incur a government 
shutdown because of our failure to enact appropriations.
    I am going to close with that. Now, if I understand 
correctly, it is your turn, Chairman Thompson.
    [The prepared statement of Chairman Domenici follows:]

                PREPARED STATEMENT OF CHAIRMAN DOMENICI
    Today, the Budget and Governmental Affairs Committees meet jointly 
to review budget process reform legislation. This is both an arcane and 
controversial topic. While it is always difficult to enact budget 
process changes, the last time we had a joint hearing, it led to the 
enactment of the Unfunded Mandates Reform Act.
    Our budget laws and procedures largely grew out of laws enacted 
over the past 25 years to combat the budget deficit. Today, we face new 
challenges. We need to find a way to set aside the surpluses generated 
by Social Security trusts fund for Social Security. We need to tighten 
controls over emergency spending so that we don't face the absurd 
situation we faced last year.
    Last year, I agreed with the President that every penny of the 
surplus generated by Social Security should be reserved to save Social 
Security first. However, in the end, the House was lambasted for moving 
a tax bill that would have reduced revenues by $6 billion in the first 
year, while we ended up spending $27 billion of the surplus last year 
for ``emergencies.''
    Finally, we need to find a way to reform the authorization, 
appropriations, and budget processes. Over one-third of domestic 
discretionary spending is unauthorized. Only twice in the past 50 years 
have we enacted 13 separate appropriations bills by the fiscal year 
deadline without relying on a continuing resolution (CR). We also 
regularly miss the deadline for completion of budget resolutions.
    I have been working closely with the distinguished Chairman of the 
Governmental Affairs Committee to correct these problems. On January 
19, along with Senator Lieberman, we introduced S. 92, the Biennial 
Budgeting and Appropriations Act. That same day I also introduced a 
comprehensive budget process reform bill, S. 93, the Budget Enforcement 
Act of 1999. This comprehensive bill would:

    First, streamline the budget process and enhance the oversight of 
Federal programs by moving to a biennial budgeting and appropriations 
process;
    Second, curb the abuse of emergency spending;
    Third, set aside and protect the Social Security surplus until we 
ensure that Social Security will be there for every generation;
    Fourth, make way for tax relief that does not tap Social Security 
surpluses; and
    Fifth, provide that we never again incur a government shutdown 
because of our failure to enact appropriations.

    Under the Senate's rules, both of these bills have been referred 
jointly to our two committees. I hope our two committees can quickly 
act to reform the budget process to guarantee that Social Security's 
surpluses are saved for that program, to stem the abuse of emergency 
spending, and to find a way to lesson the historically high burden of 
taxation on the American people.

             OPENING STATEMENT OF CHAIRMAN THOMPSON

    Chairman Thompson. Thank you very much, Mr. Chairman, and 
thank you for what you have done to move this process along 
while taking the lead and highlighting for the rest of us the 
needs we have in this area.
    I think the problems that we have with the current budget 
process are well known. It consumes us all the year. We have a 
difficulty getting our appropriations bills in on time. We are 
writing the final chapter at the last minute of the last hour. 
It is basically written by a handful of conferees at the last 
minute. Few know what is in the final product. We exceed our 
budget caps by so-called emergency spending that requires no 
offsets; $21 billion this last time. We have a flurry of last-
minute amendments to the budget resolution and reconciliation 
bills producing a vote-a-thon, where we bleary-eyed walk over, 
trudge over hour after hour to vote on amendment after 
amendment, of which very few of us even know what the 
ramifications of these amendments may be, all under the 
imminent threat of a government shutdown if we do not get our 
work done, and we finish just in time to start over the next 
year. I think most of us have decided that this is no way to 
run a railroad.
    Chairman Domenici mentioned the need for additional 
oversight, and I think we see that more and more every year. 
The Governmental Affairs Committee, I believe, has broader 
jurisdiction than any other committee in that regard and 
broader responsibilities. We are supposed to be overseeing how 
the various agencies are doing under the Government Performance 
and Results Act, for example. They are supposed to be 
submitting annual performance plans. We are supposed to be 
analyzing those plans, seeing how the agencies are doing.
    Frankly, we have very little time to properly do that, much 
less relaying to the authorizing committees the information 
regarding the operations of agencies which fall within their 
jurisdiction. We see the high-risk list appear before us every 
year, where these agencies have problems with waste, fraud and 
abuse. We recognize those problems, chastise the agencies a 
little bit, and they return the next year without anything 
happening.
    So that is the oversight problem that we have and the very 
great difficulty that we have in finding the time to properly 
deal with that.
    So Senator Domenici, Senator Lieberman and myself, and 
other Senators have sponsored a 2-year budget and other plans. 
As the Senator pointed out, the Governmental Affairs Committee 
in the last Congress passed the biennial budget by a vote of 13 
to 1, and we want to do that early again this time.
    We welcome our witnesses today, including our good friend 
and colleague, John McCain; the second panel of witnesses, 
Congressman Nussle and Ben Cardin. We really appreciate your 
taking the time to come over and be with us here today and give 
us your ideas as to prospects for budget reform from the House 
standpoint. We also extend our welcome to a third panel of 
private-sector experts who have a long history and knowledge in 
this process.
    Following this hearing, I would like the Governmental 
Affairs Committee to take up these budget reform measures as 
expeditiously as possible in order to achieve these goals.
    I now yield to Senator Lautenberg for his opening comments.
    [The prepared statement of Chairman Thompson follows:]

              PREPARED STATEMENT OF SENATOR FRED THOMPSON
    Good morning. On behalf of the Members of the Governmental Affairs 
Committee, we are pleased to join Chairman Domenici and the Members of 
the Budget Committee in holding this important hearing today on budget 
process reforms. Both the Biennial Budgeting and Appropriations bill 
and the Budget Enforcement Act of 1999 address serious problems with 
our current budget process.
    We need only to look at the events last year to see that our 
current process is broken and in need of repair. While the Senate 
adopted a Budget Resolution, we were unable to reach a conference 
agreement with the House. In the interim, the appropriations process 
was taking place, but stalled as we moved into the fall election cycle. 
The 4,000 page, 40-pound Omnibus Appropriations bill included the 
provisions of eight appropriations bills and was not enacted until 
October 21. We included $21.7 billion in spending for programs deemed 
``emergencies,'' yet many of these programs were foreseeable and 
expected. By treating this funding as emergency spending, we raided our 
first budget surplus in a generation.
    I believe the bills we have before us today make sensible changes 
to our budget process.
    S. 92 establishes a biennial budgeting and appropriations cycle. I 
am pleased to join Senator Domenici and Senator Lieberman in sponsoring 
this legislation. This legislation was reported by the Committee on 
Governmental Affairs by a vote of 13-1 in the 105th Congress.
    Our current annual budget and appropriations process results in 
unnecessarily repetitive and duplicative work, oftentimes at the 
expense of effective oversight of Federal programs. What a biennial 
budget can do is give Congress time for the important tasks that often 
get short shrift these days, such as conducting oversight and long-
range planning, and spending more time at home with the people who sent 
us here.
    A 2-year budget dovetails with the 2-year time period for a 
Congress. Under this process, the first session is reserved for 
establishing a 2-year budget and completing the appropriations bills. 
The second session is reserved for authorizations and oversight.
    Two-year budget cycles will permit agencies to plan for the longer 
term, a failure of the current system. The 2-year finding cycle gives 
agencies a degree of certainty in policy planning that they have never 
had, and will minimize the constant budget planning process that has 
accompanied the current appropriations cycle.
    A biennial budget will also provide greater funding stability and 
predictability in Federal funding, benefiting those entities, such as 
State and local governments, affected by the Federal budget cycle.
    S. 93, the Budget Enforcement Act of 1999, also proposes reasonable 
changes to the current process. In addition to a biennial budget, the 
bill proposes to change the way we treat emergency spending, reform 
Pay-As-You-Go procedures to provide that on-budget surpluses--which 
exclude Social Security funds--can be used for tax cuts, create an 
automatic Continuing Resolution to prevent a government shutdown should 
appropriations bills be vetoed or fail to pass, and reform Senate 
procedures surrounding consideration of budget bills.
    I look forward to hearing from our witnesses today. I want to 
extend my wand welcome to our colleague, Sen. John McCain. Sen. McCain 
has been an effective advocate for budget process reforms and I know we 
all look forward to his testimony and discussion of these proposals 
here today.
    I want to welcome our second panel of witnesses, Congressman Jim 
Nussle and Congressman Ben Cardin. I am glad you could take time to 
cross the Capitol today and discuss with our Committees the proposals 
and prospects for serious budget process reforms for this Congress. The 
proposals contained in Senator Domenici's Budget Enforcement Act are 
similar to the one you incorporated in your bipartisan bill from the 
last Congress. I hope we can continue to find common ground, both on a 
bipartisan and bicameral basis, in moving forward with budget reforms.
    On our third panel, we have private sector experts with a long 
history and knowledge of the budget process. Let me extend our welcome 
to Martha Phillips, Executive Director of the Concord Coalition, Tim 
Muris, Professor of Law at George Mason University, and Van Ooms, 
Senior Vice President and Director of Research of the Committee for 
Economic Development. I look forward to hearing your views today on 
biennial budgeting and other reforms.
    I believe the hearing record will establish today the overwhelming 
need to reform the budget process. While these proposed reforms may not 
cure all the ills of our present system, they represent sound progress 
in addressing the problems. We need to remember that current rules were 
designed to address budget deficits and we now--for the moment anyway--
find ourselves in the enviable position of addressing how we should 
treat our budget surpluses. I hope we can maintain the discipline to 
manage this surplus without throwing caution to the wind.
    We have made great strides in recent years and our balanced budget 
reflects this progress. However, our work is not yet complete. We need 
to take action to protect and ensure the long-term viability of our 
Social Security system, while returning any remaining surpluses to the 
American people .
    Following this joint hearing, I would like the Governmental Affairs 
Committee to take up these budget reform measures as expeditiously as 
possible in order to achieve these goals.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you, Mr. Chairman. I commend both 
of the Chairmen for holding this hearing and allowing us to 
review a problem that is a festering sore that we have got to 
deal with.
    We are going to be talking a lot this year about reforming 
the budget process. It has been an interest and a topic that 
Senator Domenici has elicited on a regular basis. I think we 
can agree on some of the things that he is proposing.
    But when we look at the experience of last year, for 
instance, it was the first time since the Budget Act was passed 
in 1974 that we failed to pass a budget resolution. We also 
failed to pass several appropriations bills, and that led to 
closed-door negotiations at the end of the year in which a 
handful of individuals produced a mammoth appropriations bill. 
It is a poor way to legislate, and we ought to do it better.
    As I think most of you know, the current budget rules 
effectively exempt emergencies from the discretionary spending 
caps and the Pay-As-You-Go rules. That is as it should be 
because, after all, when floods or other disasters devastate a 
community or our Nation confronts threats from abroad, we need 
to respond immediately.
    Unfortunately, the emergency exception can be abused.
    Last year's omnibus appropriations bill, as we heard from 
the Chairman, included $21.4 billion in emergencies. In light 
of that experience, I believe that we need to tighten the rules 
on emergencies. Currently, there is no definition of an 
emergency, and we ought to establish one, and I think we ought 
to require Members, for the first time, to be more explicit 
when trying to justify a particular item.
    At the same time, we need to ensure that any cure is not 
worse than the disease because genuine emergencies, by their 
very nature, tend to involve threats to national security, 
public health and safety and the economy.
    Now, given the high stakes involved, it is critical that 
Congress have the flexibility it needs to respond immediately 
and effectively. I am concerned, for example, that some pending 
proposals propose definitions of emergencies that are 
excessively restrictive.
    Now, take the requirement in S. 93 that an emergency be 
sudden and unforeseen to qualify. This could rule out problems 
that were anticipated, but are nevertheless severe. The Y2K 
problem was foreseen by almost everybody on the globe, and one 
could argue that the Congress should have responded more 
promptly. But if Congress now concludes that the Nation faces a 
serious crisis, should we abandon any emergency effort to get 
the job done?
    I also question the wisdom of allowing a minority of 
Senators to veto the designation of an emergency as proposed in 
S. 93, keeping in mind that if Senators are concerned about 
perceived abuses of the emergency designation, we already have 
a remedy: An amendment to strike the provision. Such an 
amendment now can be approved with 51 votes. To the extent that 
the omnibus appropriations bill included illegitimate 
designations, the problem was not that the amendments to strike 
needed a majority of votes to pass; the problem was that no one 
offered such an amendment in the first place.
    I would ask my colleagues to imagine that your State 
suffers a flood or an earthquake, leaving lots of your 
constituents without shelter, electricity or their health 
service needs. If 59 Senators agreed that this disaster 
required emergency aid, then why should 41 Senators be allowed 
to veto the funding? I do not think we need to go that far to 
prevent abuses. In my view, if we simply required committees to 
specifically explain in writing the justification for an 
emergency designation and established a 60-vote point of order 
if they fail to do so, most abuses would be eliminated.
    Let me now turn to a proposal that Senator Domenici has 
been promoting: Biennial budgeting. Now, I know that our 
Chairman feels strongly about this, and I greatly respect his 
views, but I do have some concerns.
    First, I fear that biennial budgeting would weaken 
Congressional oversight of the Executive Branch, since it is in 
the annual appropriations process that Congress performs or 
should perform oversight. And I am also concerned that 2-year 
budgeting could force agencies and the Congress to rely on 
speculative, long-term projections when setting budgets and 
could limit our ability to adapt to changing needs and 
circumstances.
    Perhaps most importantly, in my view biennial budgeting 
almost inevitably would lead to massive and unwielding 
supplemental appropriations bills, and we ought to be moving in 
the opposite direction. So I hope my colleagues will give 
careful review to biennial budgeting. It sounds good, but the 
reality may be more problematic than the current process.
    I would also like to express my concern about proposals to 
change the Pay-As-You-Go rule to allow surpluses to be used for 
tax cuts before we have truly saved Social Security and 
strengthened Medicare. In my view, Congress should do all 
three: Strengthen Social Security, fix Medicare, and cut taxes. 
But we should not allow tax breaks, especially those that would 
be disproportionately beneficial to higher income people, to 
consume funds needed for Social Security or Medicare. That is 
why, in my view, it would be a mistake to weaken the Pay-As-
You-Go rule now.
    Mr. Chairman, I have only touched the surface of the many 
different budget process changes that are before us. But I 
would like to emphasize that, in my view, these are not the 
issues that ought to be rushed through before they have had a 
chance to be fully vetted.
    Many process changes sound good, but have various practical 
problems that are difficult to identify. We need to consider 
them carefully. The need for caution is especially true now 
that we face the new challenge of allocating budget surpluses. 
In fact, I would propose that we decide first how we want to 
allocate those surpluses. Then we can decide how to structure 
budget rules to implement and enforce that agreement.
    Once we have a consensus on the former, the latter should 
be relatively easy.
    So, once again, I thank both of you for holding this 
hearing. I look forward to working with you on these matters.
    Chairman Domenici. Senator Lieberman.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Senator Lieberman. Thanks, Mr. Chairman. Thanks to you and 
Senator Thompson, Senator Lautenberg, and colleagues. Thanks to 
the Chairman for giving us the opportunity this morning to 
focus on something other than the impeachment trial and I hope 
that we will, once again, return full-time to our Senate work.
    I have a full statement that I would like to have included 
in the record and then just draw very briefly from it now.
    Mr. Chairman, this hearing into our budget process occurs 
during a very exciting new era of our budgetary history. We are 
obviously entering a brave, new world of, not only balanced 
budgets, but of budget surpluses. And while there is 
understandable and widespread joy over these budget surpluses, 
there is, nonetheless, widespread frustration over much of the 
budget process. We have the opportunity, I think, in this 
session to correct what rightfully bothers many of us inside 
the system and many outside.
    I am particularly happy to co-sponsor with Chairmen 
Domenici and Thompson the Biennial Budgeting and Appropriations 
Act, which I believe is the most important of the measures 
before us. I support it as a common-sense reform, which will 
provide greater stability and predictability in the budget 
process and will free up more time for Congress to do oversight 
and management of Federal programs to assure, in a time of 
surplus, that, nonetheless, we are careful about how we are 
spending taxpayer money.
    As to some of the other proposals before us today, the Pay-
As-You-Go system is one of those measures that we have adopted 
that has served us well as a fiscal discipline tool. It has 
forced us to think twice before considering new programs or tax 
cuts. It has helped us to shrink the deficit to zero and make 
sure that important and necessary programs could still be 
implemented.
    I intend to keep an open mind regarding proposed changes to 
the Pay-As-You-Go statute and corresponding Senate rules until 
the implications of the changes are more fully discussed and 
better understood.
    With the future solvency of our Social Security system and 
Medicare still very much in doubt, I think we have to look 
beyond our present needs and think of what we are going to hand 
over to our children and our grandchildren. Some changes to 
Pay-As-You-Go may be in order, but these changes must not 
undermine the underlying fiscal discipline that has brought us 
this far.
    Very briefly, on the vote-a-thons, as we call them; what 
seems to be never-ending voting that occurs at the end of the 
budget reconciliation process. Every time this happens, I find 
myself just standing back, as most of my colleagues do, and 
saying there's got to be a better way. Senators should not be 
asked to vote on amendments that truly very few have read, 
basing their votes, at most, on 30-second synopses offered by 
the proponents of the amendments.
    It is really fair to also question whether the lengthy 
round of nonbinding, sense-of-the-Senate amendments offered 
during our annual budget debates serve any useful governmental 
purpose. They may serve a political purpose, but they do not 
really serve a governmental purpose.
    S. Res. 6 raises these issues, among others, and I see it 
as a constructive first effort to improve our budget 
procedures.
    Finally, another resolution offered this month by the 
Senate majority leader would tighten emergency spending by 
establishing a 60-vote point of order against any emergency 
spending provision. Here, again, we know that the title 
``Emergency Spending'' has been stretched beyond any common 
understanding of the term ``emergency.'' It simply should not 
be expanded to include every-day budget needs which could 
clearly have been anticipated and included within the regular 
spending caps.
    I look forward to working with colleagues to find a 
sensible mechanism which would change the rules in this area. 
But I do want to hear the testimony before deciding what type 
of mechanism would be most effective.
    In conclusion, in my view, the common thread through these 
various budget reform proposals is that none of them is or 
should be partisan in nature. Regardless of which party is in 
the majority or minority and, therefore, which sees some 
tactical advantage in some of the loopholes that may exist in 
the current process, the truth is we all have an interest in 
the budget process operating more smoothly, and more 
efficiently and more honestly than it sometimes has.
    We may partake in partisan debates over the substance of 
the budget, as the budget is clearly one of our most important 
blueprints governing the future direction of the government and 
the Nation. But these policy disagreements should not diminish 
our common interest in improving the process, in conducting the 
Nation's budget business in an orderly, open, efficient and 
constructive fashion.
    Thank you, Mr. Chairman.
    Chairman Domenici. Thank you very much.
    [The prepared statement of Senator Lieberman follows:]

                PREPARED STATEMENT OF SENATOR LIEBERMAN
    Thank you Chairmen Thompson and Domenici, for calling this hearing 
into the budget process. I am heartened by the constructive spirit with 
which we are setting out to consider possible reforms, and I am hopeful 
that through cooperation and, where necessary, compromise, we may 
achieve tangible accomplishments this Congress.
    I am particularly happy to co-sponsor with Chairmen Thompson and 
Domenici the Biennial Budgeting and Appropriations Act. This 
legislation enjoyed bipartisan support last year. I support biennial 
budgeting as a common-sense reform, which will provide greater 
stability and predictability in the budget process and will free up 
more time for oversight and management of Federal programs.
    This hearing into our budget process occurs during an important new 
era of our budgetary history. We are entering a brave new world of 
balanced budgets, indeed of budget surpluses. For the next several 
years we will be operating in a very different fiscal environment and 
this new challenge calls for caution.
    But just as this new era will have challenges, it will also have 
many wonderful new opportunities. How we define these opportunities and 
take advantage of them will define the new era of budget surplus 
politics. Will the new surplus promote cooperation, or will it make the 
politics of governing more divisive? Will the luxury of a surplus cause 
us to lose our discipline? Or will it energize us to invest wisely in 
dealing with society's worst problems?
    In my view, our priority in these brave new economic times must be 
to maintain a balanced Federal budget. For the past several years, a 
declining Federal budget deficit has contributed to the decline in 
interest rates. Less government debt on the markets has translated into 
lower interest rates and lower interest rates have promoted greater 
investment and growth in our economy. And now with a balanced budget 
and a projected surplus in the next 10 years, we can be cautiously 
optimistic that interest rates will continue to remain low and that 
economic fundamentals will remain favorable for continued expansion of 
our economy.
    Achieving a balanced budget has required some very strong measures 
and has come at some cost. It was not long ago that Congress adopted 
the Budget Enforcement Act to curb our appetite for spending. Since 
then we have managed our spending and tax cutting through a number of 
important rules and statutes. In this new era of surplus politics, the 
time has come for us to take a hard look at some of those budget 
processes and to determine if they are necessary, appropriate, or in 
need of modification.
    The Pay-As-You-Go system has served us very well as a fiscal 
discipline tool. It has forced us to think twice before considering new 
programs or tax cuts. It has helped us shrink the deficit to zero and 
make sure that important and necessary programs could still be 
implemented. When the law was enacted its authors assumed a world of 
deficits. It imposed an equal discipline on those who wanted tax cuts 
and on those who wanted to increase spending.
    I intend to keep an open mind regarding proposed changes to the 
pay-go statute and corresponding Senate rules, until the implications 
of the changes are more fully discussed and better understood. Although 
we are currently forecasting budget surpluses for years to come, 
changed economic conditions could easily alter those forecasts. And we 
are still carrying a mountain of debt, more than five and a half 
trillion dollars. With the future solvency of our Social Security 
system and Medicare still very much in doubt, we must look beyond our 
present needs and think also of the legacy we will hand to our children 
and grandchildren. Some changes to pay-go may be in order, but those 
changes must not undermine the underlying fiscal discipline that has 
brought us this far.
    Another significant reform that we will consider today would 
provide for automatically continuing appropriations in the event a 
fiscal year has expired without a completed appropriations bill. The 
idea is to prevent government shutdowns, but I wonder whether a 
continuing resolution would create more problems than it solves. We all 
know how hard it can be to pass appropriations bills, especially during 
a period of divided governments, and this reform may have the effect of 
encouraging inertia, especially since it could enable small voting 
blocks to hold out for the expenditure levels from the previous year. 
Without the specter of an imminent deadline spurring us on, will the 
government plod along, as if an automatic pilot? I believe we may be 
better off fighting the bruising battles and making the tough choices 
that are required of us, by nature of our offices.
    I have often found myself scratching my head during budget 
reconciliation vote-a-thons and feeling there just has to be a better 
way to conduct business. Senators should not be asked to vote on 
amendments that no one has ever read, basing their votes entirely on 
thirty-second synopses offered by the proponents of the amendments. 
It's also fair to question whether the lengthy round of non-binding 
Sense of the Senate amendments, offered during our annual budget 
debates, serve much useful purpose. Senate Resolution 6 raises these 
issues, among others, and I see that resolution as a constructive first 
effort to improve our budget procedures.
    Another resolution offered this month by the Majority leader would 
tighten emergency spending by establishing a 60 vote point of order 
against any emergency spending provision. I agree that the label 
``emergency spending'' must not be stretched to include every-day 
budget needs which could clearly have been anticipated and included 
within the regular spending caps. I am open to a rules change in this 
area, but I want to hear the testimony before deciding what type of 
mechanism would be most effective here.
    Perhaps I am being overly optimistic, but in my view the common 
thread to these various budget reform proposals is that none of them 
should be partisan in nature. Regardless of which party is in the 
majority, we all have an interest in the budget process running 
smoothly. We may partake in partisan skirmishes over the substance of 
the budget, as the budget is one of our most important blueprints 
governing the future direction of the Nation. But these substantive 
disagreements do not obviate our common interest in conducting the 
Nation's business in an orderly, open, and constructive fashion.

    Chairman Domenici. We would usually proceed with the 
witnesses. Since we only have one Senator here, why don't we 
let him make an opening statement. If we had a whole array of 
Senators here this morning, we would ask you to make your 
opening statement with time for questions. But, Senator, we 
know you are familiar with this, and we would love to hear your 
comments.

              OPENING STATEMENT OF SENATOR GORTON

    Senator Gorton. Mr. Chairman, I appreciate your comments 
and those of Senator Thompson.
    I guess, of the Senators here now, I am the only one who 
was consistently behind those notorious closed doors last 
October, and I can tell you it was every bit as frustrating for 
those Senators as it was for those who were not there to be 
involved in what was the chaos of that final decision-making 
procedure last year. I knew very little more when I was 
finished than did other Senators about all of the content of 
that long, long bill, having worked on only a portion of it.
    But, clearly, it was an extremely flawed process. 
Therefore, it seems to me that a search for a different and 
better way is overwhelmingly essential. I hope that Senator 
Lautenberg will join in that search. If we do nothing, it seems 
to me that we are inevitably sentenced to the same kind of 
procedure this year and in future years that has worked so 
poorly in the past.
    An orderly debate on a budget resolution on its general 
principles, rather than a flurry of amendments, with one minute 
on each side, is devoutly to be sought, whichever party is in 
the majority. A way in which to consider all appropriations 
bills on their own merits rather than the way in which we did 
last year is a goal devoutly to be sought, whether or not we 
are in a majority or a minority.
    Chairman Domenici knows that I have been very reluctant to 
go to a biennial system probably because of my experience in 
the Washington State legislature, where the great reform, while 
I was there, was to go from biennial to annual budget cycles. I 
have come full circle.
    But I am convinced now that we do so much here in the U.S. 
Senates, and we have such an overload, that to go to a biennial 
system would probably cause us to do it in a somewhat more 
orderly fashion. So reform--dramatic reform--is necessary.
    I believe that you, as Chairmen, have come up with a very 
good road map, at least, of the way to that reform, and I hope 
we at least are privileged to debate it on the floor of the 
Senate promptly.
    Chairman Domenici. Thank you very much, Senator. I want to 
stress how delighted I am that we have already had two 
Senators, one from each side, speak about the bipartisan nature 
of this problem and the fact that we need bipartisan solutions, 
and I think that is absolutely correct. This is not one of 
those issues that is ours and not yours. Clearly, we all have a 
stake in whether our process is workable and being worked the 
best way possible. I would like to insert into the record at 
this time a prepared statement from Senator Roth.
    [The prepared statement of Senator Roth follows:]

                   PREPARED STATEMENT OF SENATOR ROTH
    Mr. Chairman: I am pleased that the Senate Governmental Affairs and 
Budget Committees have joined today to review the concept of biennial 
budgeting. Senator Domenici has again introduced legislation to 
establish a biennial budget process. I, and many Members of both of 
these committees, have joined in cosponsoring this important and 
necessary proposal. I first introduced legislation very similar to this 
bill in 1981. Since that time the need to change the Congressional 
budget process to a 2-year approach has only increased.
    The current system reinforces the effectiveness of gridlock as a 
legislative strategy. Legislative stalemates like the one we 
encountered last year allow purely political dynamics to drive debate 
on appropriations and further dilute the role of oversight in 
Congressional budgeting. Clearly, this is not in the best interests of 
the American people.
    Chairman Domenici's proposal is designed to correct the flaws in 
the current system by putting the budget on a 2-year basis. The first 
session of each Congress would be devoted to the budget resolution and 
appropriations, culminating in a 2-year budget. The second session 
would be devoted to oversight and authorizations for the next 2-year 
period.
    I believe reforms along these lines would be a clear improvement 
over the status quo. It is my belief that too much money is being spent 
without the proper review and understanding required of such a 
tremendous budget. A 2-year budget process will reassert the importance 
of oversight in Congressional budgeting and help restore the public's 
confidence in our decisions.
    Senator Dominici has also introduced legislation to improve and 
strengthen the budget process through other reforms beyond biennial 
budgeting. I have long opposed the current budget constraints which do 
not allow spending cuts to offset tax cuts. A reconsideration of these 
budget rules is, in my view, long overdue.

    Chairman Domenici. Senator McCain, we welcome you as a 
witness. If you have a statement, it will be made a part of the 
record. Proceed as you would like.

STATEMENT OF HON. JOHN McCAIN, A U.S. SENATOR FROM THE STATE OF 
                            ARIZONA

    Senator McCain. Thank you very much, Mr. Chairman, and 
Chairman Thompson and Members of the Committees. I will be 
brief, Mr. Chairman. I thank you for allowing me to speak to 
you today.
    Obviously, I come to you from the perspective of Chairman 
of an authorizing Committee, one which, arguably, has probably 
more oversight of more government agencies; therefore, 
requiring more reauthorizations than many of the other 
committees combined. The FCC, the FTC, the FAA, the alphabet 
soup of government agencies, bureaucracies, and oversight and 
independent organizations is myriad.
    I agree with the statements that have just been made. We 
find ourselves, to state the obvious, in a situation where, 
because of the time that we spend on appropriations bills, we 
are, therefore, unable to address the authorization side. And 
then we find ourselves, of course, in the inevitable listening 
to siren song of, well, we'll add this on an appropriations 
bill, which means that we continuously--and I believe in my now 
going in the 13th year here--growing tendency to have the 
authorizing on the appropriations bills which lead us to the 
bizarre, unfortunate and tragic situation that took place last 
year.
    The second session of the 105th Congress convened on 
January 27 and adjourned on October 21, 1998. A total of 266 
calendar days in which the Congress completed work on 4 of the 
13 regular appropriations bills, yet it took us 24 hours to 
debate and pass a 4,000-page, 40-pound, nonamendable, budget-
busting, omnibus appropriations bill that not only provided 
more than a half-a-trillion dollars to fund 10 Cabinet-level 
Federal Departments for the fiscal year that had started 21 
days earlier, which changed the law in a huge number of other 
areas.
    This wasn't just a bad appropriations bill, Mr. Chairman, 
it was a legislative abomination. I am intrigued to hear the 
comments of the Senator from Washington who said that he, as an 
appropriator, had no knowledge or influence over the process. I 
cannot dictate the conduct of others, nor even give advice, but 
that is incredible. That is an incredible comment that the 
Senator from Washington just made, as a member of the 
Appropriations Committee. That is not why we were sent here. I 
was sent here to represent the interests of the people of my 
State.
    And if we have a closed-door hearing which not even a 
member--a decision-making process--where not even members of 
the Appropriations Committees play a role, then there is 
something terribly wrong.
    One small example, in the so-called emergency category, we 
appropriated $9 billion for defense. Where did that $9 billion 
go, Mr. Chairman? It went to buy executive jets. It went to buy 
helicopters for Columbia. Of the $9 billion, $1 billion went to 
the compelling and overriding priority of the Chairman of the 
Joint Chiefs of Staff who testified before the Armed Services 
Committee was their priority, and $1 billion went to readiness 
and not a penny went to their highest priority, which was 
fixing the retirement system in the military--not one penny.
    If it sounds like I am exercised by this, obviously, it is 
because I am. I am proud to serve in this body. We have had 
some very proud moments in the last couple of weeks. Many of us 
have discussed it behind closed doors as well as in the open. 
But we cannot continue a process which deprives the people of 
our States of representing them in the legislative process.
    I am, frankly, surprised at Senator Lautenberg's comment, 
and I wrote it down, that the result may be more problematic 
than the current system. I would like to know how it could be 
more problematic.
    I would urge all of my colleagues two things; one, if you 
believe the system is fine, then do not do anything. But if you 
believe it is broken, let us try to fix it. I would argue to 
the Chairmen of both committees, if we find that the biennial 
budgeting system does not work, we can always go back to the 
previous system if it is not an appropriate way to do things. 
But to do things the way we are doing them now, is obviously 
unacceptable to the overwhelming majority, not only of the 
members of Congress, but to the people that we represent.
    There are several reasons why we had the lowest voter 
turnout in the last election since 1942, when this Nation was 
engaged in a great World War. One of the reasons is that they 
do not believe that we represent them any more adequately as 
their elected representatives.
    I do not know the down side, very frankly, to trying this 
proposal that seems to have significant bipartisan support.
    My other point is do it soon. Mr. Chairman, do it soon. We 
have seen time after time a situation arise, and it is eroded 
by failure of our attention span, other events, other 
situations. And if we drag this proposal out, then I think it 
is pretty clear we are not going to change it, and then we are 
going to be faced with the same train wreck that we were on 
before.
    Finally, I would like to say, Mr. Chairman, we also need to 
have a Government Shutdown Prevention Act, which means, 
basically, that if we reach the expiration of the previous 
year's appropriation, then the previous year's appropriation's 
levels should kick in. We're all tired of this game of chicken 
that we play around the first of October about the shutdown of 
the government.
    And also I think we need to change some of the Senate 
rules. Obviously, we should not, and cannot, continue 
authorizing on appropriations bills.
    And that point of order should also apply to conference 
reports, perhaps conference bills. Perhaps one of the most 
egregious abuses of the process is when neither bill contains 
language that directly affects authorization and all of a 
sudden this conference report appears, and it has authorizing 
legislation on it, and we have no choice except to vote up or 
down. So I would argue a point of order should lie against a 
conference report, as well as an appropriations bill on either 
side.
    Mr. Chairman, I want to thank you and applaud you and 
Senator Thompson, both Chairmen, for your efforts to try to fix 
this system. It is very badly in need of repair.
    We are losing the confidence of the people we represent, 
with an additional 20-some-odd-billions of dollars that we 
labeled as an emergency. When we call something an emergency, 
we should at least be able to look people in the eye and say, 
``This is an emergency.'' If we are saying we are saving Social 
Security, let us save Social Security. If there is an emergency 
requirement to defend this Nation's national security 
interests, let us have that money for a true emergency for our 
national security interests. We are not doing that. It erodes 
our credibility and, frankly, it erodes very dramatically our 
ability to maintain the confidence of the American people.
    I thank you for allowing me to appear here today. And, 
again, I want to pledge to you that I will do everything, in 
whatever manner I can, to help you move this proposal forward 
as expeditiously as possible.
    I thank you, Mr. Chairman. Thank you.
    [The prepared statement of Senator McCain follows:]
               PREPARED STATEMENT OF SENATOR JOHN McCAIN
    Mr. Chairmen and distinguished Ranking Members, thank you for the 
opportunity to address this joint hearing of the Budget and 
Governmental Affairs Committees on reforming the Congressional budget 
process. Clearly, as we saw last year, restoring fiscal responsibility 
and integrity to the way we review the Federal budget must be a high 
priority for this Congress.
    As critical as I have been of Congress' wasteful spending practices 
over the 16 years I have served here, I had never seen such an 
egregious piece of legislation as the Fiscal Year 1999 Omnibus 
Appropriations bill that we passed last year. The only good thing I can 
say about the bill is that it has brought us to the table today to 
discuss meaningful budget process reform.
    Let me remind my colleagues of what happened last year.
    The second session of the 105th Congress convened on January 27 and 
adjourned on October 21, 1998--a total of 266 calendar days in which 
Congress completed work on only 4 of the 13 regular appropriations 
bills that keep the Federal Government open and functioning. Yet, it 
took us just 24 hours to debate and pass a 4,000-page, 40-pound, non-
amendable, budget-busting omnibus spending bill that provided more than 
a half-trillion dollars to fund 10 Cabinet-level Federal departments 
for the fiscal year that had started 21 days earlier.
    The bill exceeded the budget ceiling by $20 billion for what is 
euphemistically called emergency spending, much of which is really 
everyday, garden-variety, special-interest, pork-barrel spending 
projects. Sadly, these projects were paid for by robbing billions from 
the budget surplus--a surplus that we say should be used to shore up 
Social Security, pay down the $5.5 trillion national debt, and provide 
much-needed tax relief to the American people.
    The omnibus bill made a mockery of the Congress' role in fiscal 
matters. We failed to do our work throughout the year, and then, with 
the threat of a politically ruinous government shutdown, we rushed to 
pass a fiscal monstrosity without even knowing what was in it.
    My friends, we have a duty to the American people to spend their 
tax dollars wisely. We do not fulfill that duty when we squander 
billions of dollars on pork-barrel projects, like the 52 pages of 
wasteful, low-priority, and unnecessary spending I discovered in the 
omnibus appropriations bill. We must take action now, or we will wake 
up 10 years from now and wonder what happened to our over $700 billion 
Federal budget surplus.
    So, what can we do to fix the flawed Congressional budget process?
Government Shutdown Prevention Act of 1999
    First, we must enact the Government Shutdown Prevention Act of 1999 
to ensure that essential government services continue to reach the 
American people, even if the Congress and the Administration cannot 
agree on our budget priorities in a timely fashion.
    I and others introduced this legislation again this year to put in 
place a mechanism to continue funding for any department or agency 
whose regular appropriations bill is not enacted by the beginning of 
the fiscal year. Our bill, S. 99, would make it impossible for the 
threat of a government shutdown to be used as political leverage to add 
billions of dollars to an omnibus bill at the very end of the process. 
Instead, because funding would be provided under an automatic 
continuing resolution to keep the government open, the Congress would 
be able to resist the pressure to throw everything but the kitchen sink 
into a last-minute spending bill just to get a deal and prevent a 
shutdown, especially in an election year.
    The clear lesson of the 1995 government shutdown and the fiscal 
debacle of last year is that we cannot allow the government to be shut 
down again, nor can we allow the threat of a government shutdown to be 
so imminent that we fiscal conservatives are forced to acquiesce to the 
appropriation of billions of dollars for projects that do not serve our 
nation's interests.
    I am pleased that the Republican Leader, Senator Lott, and the 
Chairman of the Appropriations Committee, Senator Stevens, are 
cosponsors of S. 99, and I am assured we will move forward quickly on 
this much-needed measure.
Biennial Budgeting
    As you know, we spend the majority of our time every year deciding 
how we are going to fund the government in the annual appropriations 
bills. This is a tremendous waste of resources. There is an endless 
list of policies and issues we should be dealing with, such as tax 
cuts, saving Social Security, paying down the national debt, military 
readiness, foreign policy, and so forth. But these issues are given 
short shrift because our time is consumed with the budget process.
    To address this problem, I joined Senator Domenici and others in 
sponsoring S. 92, the Biennial Budgeting and Appropriations Act. The 
bill essentially requires the President to submit and Congress to enact 
two-year authorization and appropriations bills. Rather than the 
current process where the Congress passes budgets and appropriates 
funding on an annual basis, under a biennial budget we would pass bills 
that provided 2 years worth of funding.
    Annual budgeting encourages budgeting by brinksmanship, where we 
scramble at the end of each fiscal year to complete a new budget and 
avoid a government shutdown. Biennial budgeting would avoid the annual 
showdown over spending priorities and provide needed predictability and 
stability for government agencies and programs. Two-year budgeting 
would also allow us to focus attention on fiscal matters during the 
first full year of a Congress, then turn to other pressing matters of 
national policy the second year.
Changes in the Senate's Rules
    Some of the problems we face can be corrected simply by changing 
the Senate's own rules governing the budget process, and I have 
proposed three measures that will streamline the process and eliminate 
unauthorized spending.
    One procedural change, contained in S. Res. 4, reestablishes the 
point of order against legislation on an appropriations bill. This 
proposal would prevent the kind of policy ``riders'' that bog down the 
appropriations process and trample on the prerogatives of the 
authorizing committees.
    S. Res. 25 contains two additional rules changes. The first 
establishes a 60-vote point of order against any item in an 
appropriations measure that provides more than $1 million for any 
program, project, or activity which is not already specifically 
authorized in a law other than an appropriations act. This is the 
system of checks and balances that is envisioned in the law, and the 
Senate should adhere to the law.
    The second proposal allows the Leader to move, without debate, to 
proceed to any appropriations measure after June 30. The Budget Act 
establishes June 30 as the date by which the House is expected to 
complete action on all the appropriations measures. By allowing this 
privileged motion, and thereby eliminating the need to debate, file 
cloture, and vote on a motion to proceed to appropriations measures 
after that date, the Senate could save a full week's time, and could 
instead spend that time working on the bill itself.
    These simple procedural changes do not require the concurrence of 
the President or the House of Representatives. We can adopt them 
quickly, before the appropriations process begins in earnest, and we 
should do so to avoid the kind of fiscal brinksmanship that occurred 
last year.
    Mr. Chairmen and members of the Committee, we must adopt meaningful 
budget process reform this year to restore openness, fairness, and 
public input in the process of spending the taxpayers' dollars. If we 
do not, we risk new fiscal monstrosities like the fiscal year 1999 
Omnibus Appropriations Bill, as well as a further loss of the American 
people's respect.
    Thank you again for the opportunity to present my views today. I 
would be happy to answer any questions.

    Chairman Thompson. Thank you very much, Senator McCain.
    First, I want to welcome the newest Member of our 
Committee, former Governor Voinovich, to the Governmental 
Affairs Committee. Thank you for being here today.
    Senator McCain, thank you for lending such a strong voice 
to this cause. You are able to take what some people might 
consider to be a rather esoteric, dry subject and put it into 
human terms, and I appreciate that, especially, from an 
authorizer's perspective.
    We have several Members here. I am just going to ask you 
one question. Some have proposed allowing for a Biennial Budget 
Resolution and Reconciliation Bill, while retaining the annual 
appropriations process. What do you think of that proposal?
    Senator McCain. I do not see how that works. I would bow to 
the expertise of Senator Domenici, who is the most 
knowledgeable, I believe, on these issues. I know that Senator 
Lautenberg and many others are equally knowledgeable, but it 
seems to me I do not know how you have a biennial budgeting 
process and then have an annual appropriations process. I do 
not see how that solves the problem to any significant degree. 
But I would certainly be willing to listen to that argument.
    I do not see how it addresses the fundamental problem we 
have, and that is all of our time, effort, energy is devoted to 
an annual appropriations process.
    Chairman Thompson. Thank you very much. I am going to pass.
    Chairman Domenici. Well, I do not have a question. So now 
we go to the Democrats to see if they have any.
    Senator Lautenberg.
    Senator Lautenberg. No. Thank you.
    Chairman Domenici. Does anybody on this side have questions 
or comments?

               OPENING STATEMENT OF SENATOR GRAMS

    Senator Grams. I just wanted to ask one.
    First, again, thanks very much, Mr. Chairman, for holding 
this hearing. I think this is very important that we look at 
this. But one thing the Senator had mentioned was the anti-
government shutdown provision, which I strongly support.
    I just wanted to ask the Senator do you believe that 
Congress' fear of a possible government shutdown has, in the 
last couple of Congresses, anyway, led to excessive spending or 
more spending than we would have if we would not have had it?
    Senator McCain. Senator Grams, I would just say I think it 
is obvious that, speaking from a Republican viewpoint, that we 
experienced a catastrophe in 1995. The American people, rightly 
or wrongly, placed the responsibility or blame on Republicans 
for not allowing essential functions of government to proceed. 
I still remember graphically when the Grand Canyon was shut 
down. That had a pretty interesting impact in my State.
    And we Republicans, because of a fear of a repetition of 
that, have basically agreed to demands for additional spending 
from the Administration that we otherwise would never agree to. 
I think it is just that clear.
    Now, why should people on the other side of the aisle care 
about that? My friends, because someday we will have a 
Republican President, and we will have exactly the same 
situation, only the shoe will be on the other foot. And so I 
would argue, also, that we have to, we must address this issue 
in a bipartisan fashion because of that.
    And the fact is I think that when we saw the final product, 
that none of us were happy; in fact, most of us, on both sides 
of the aisle, were deeply unhappy about what the final product 
has been over the last couple of years, including this last 
one.
    Senator Grams. Thank you, Senator. Thank you, Mr. Chairman.
    Chairman Domenici. Any further questions? Senator 
Voinovich.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. I have no questions.
    I would just like to comment that I agree with Senator 
McCain and, as a former Governor who had a biennial budget, I 
found that having the concentration of the Administration and 
the legislature on that budget during that first year and 
getting it over with gave us the opportunity, in terms of the 
management of State Government; in other words, the 
administrative side of government, an opportunity to spend more 
time trying to reform the agencies and do a better job of 
delivering services. And, at the same time, it gave the 
legislative body an opportunity to really concentrate on the 
oversight.
    There is just no question--I have lobbied this Congress for 
18 years as President of the National League of Cities and 
Chairman of the Governors Association, and it just seems that 
everyone is driven by this budget, and it is every single year.
    And it appears to me that too often a lot of things that 
ought to be looked at aren't looked at because everyone is 
engrossed in just trying to deal with that budget.
    I think that it would provide a much better opportunity for 
us to do the job. And I think it would be a real advantage to 
the administrative side of the government because, again, their 
energies are being directed toward that budget process, and 
they cannot think of anything else but that. But once that 
pressure is off, then they can look at some of the other things 
that need to be done to do a better job in providing services 
to the people that we have been sent here to serve.
    Chairman Domenici. Mr. Chairman, I am going to let you take 
over the management of the hearings now.
    But I wanted to ask our new Senator, a long-time friend of 
mine, when you use the word ``budget''--so that we have 
everything understood--there are some who refer to budget, and 
it is just the budget. When you refer to the budget, you are 
talking about both appropriations and the budget resolution, 
are you not?
    The budget resolution does not spend any more or do any of 
the things that an appropriations bill does. And you have just 
been referring to going to 2-year budgeting. You mean our 13 
appropriations bills and the budget resolution?
    Senator Voinovich. That is exactly what I mean.
    Chairman Thompson [presiding]. If there is nothing further, 
thank you very much.
    Senator McCain. Thanks to the Committees.
    Chairman Thompson. We appreciate your being here.
    Our second panel will be Representatives Jim Nussle, a 
Republican from Iowa, and Ben Cardin, a Democrat from Maryland.
    They sponsored legislation in the closing days of the last 
Congress to reform the Federal budget process.
    Gentlemen, thank you for coming over and being with us this 
morning.
    Would you care to make any opening comments, Representative 
Cardin?

   STATEMENT OF HON. BENJAMIN L. CARDIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Cardin. Thank you, Chairman Thompson.
    I want to thank first my colleague, Jim Nussle, for 
allowing me to proceed first. I have a conflict where I need to 
leave shortly and I would appreciate the Committee's 
consideration of allowing me to be excused.
    Chairman Thompson, Chairman Domenici, Senator Lautenberg, 
Senator Lieberman, and the other Members of the Budget 
Committee and Governmental Affairs Committee, it is a real 
pleasure for me to testify with Jim Nussle today on budget 
reform. It has been a quarter of a century since we passed the 
Congressional budget process and it is right for us to take a 
look at reforming that process.
    In the House, Mr. Kasich and Mr. Spratt formed the task 
force of the Budget Committee which Jim Nussle chaired. I was 
the ranking Democrat to take a look at the budget process. We 
have been working for about a year in a bipartisan manner and I 
want to really complement Mr. Nussle for the manner in which he 
conducted our inquiry during this past year.
    We had tough negotiations. We had tough issues. But we 
always worked in a bipartisan way to try to come together on 
some changes in the budget process that would make us more 
accountable and make the process more accountable. There is 
nothing partisan about supporting a budget process that 
improves accountability and gives the American people an 
accurate picture of the Federal budget process. And that was 
how we proceeded, to try to come up with some changes that 
would deal with some of the problems that we have confronted.
    We are in interesting times. We are now looking at 
trillions of dollars of budget surpluses and making sure that a 
budget process will deal with budget surpluses in a responsible 
way so that we can have a fiscally responsible future for our 
country, but we also are mindful that in recent years we have 
had government shutdowns, gridlock between the Executive and 
Legislative Branches of Government and the breakdown of the 
process in Congress, itself.
    And, therefore, it is appropriate that we look at changes 
in the budget process. Our bill recommends major changes in the 
current system. We believe that we should go from a concurrent 
resolution to a joint resolution requiring the President's 
signature on the budget, itself.
    We do that for many reasons. The most important is to 
engage the President much earlier in the process; in the spring 
of the year rather than in the fall of the year, so that if we 
have a conflict between the Executive and Legislative Branches 
we work out a system to resolve it at an earlier process so 
that we can have an orderly legislative process in the 
consideration of the budget.
    It would also allow us to deal with the debt ceiling at the 
same time that we pass the budget resolution, itself; since it 
becomes law we can deal with the debt ceiling which is the 
consequence of whatever budget is enacted by Congress.
    In order to avoid government shutdowns we provide for an 
automatic continuing resolution if Congress is unable to get an 
appropriations bill passed and signed by the President. But it 
is very important, Mr. Chairman, to point out that we do that 
in a neutral way. We do not take sides. The continuing 
resolution is the same as last year's approved level.
    This process creates incentives for Congress to, in fact, 
get its job done. To those who want to see different spending 
or more spending or less spending, we do not take a position on 
that--but we prevent a government shutdown.
    We overhaul the entire process on emergency spending--and I 
know there is great interest on this Committee to do something 
different and I must tell you, in the House, to do something 
different than how we have handled emergency spending in the 
past.
    We recommend that we appropriate on an annual basis a sum 
for emergency spending which represents the historical average 
over the past 5 years, and that becomes the base for which 
emergency spending is dealt with on an annual basis. We also 
recommend that the caps be adjusted in order to deal with this 
reality of emergency spending.
    Now, we recognize that there may be needs for even going 
beyond that and we have developed a process to go beyond that 
if necessary but the decisions as to whether that is truly an 
emergency is changed to make it clearer that you cannot do that 
just because you want to have more spending.
    We also deal with the accounting procedures. I find it 
amazing that our budget is on a cash-basis accounting system. 
The Federal Government, one of the largest entities in the 
world if not the largest entity in the world, cannot figure out 
how to do more accrual accounting.
    Our recommendations start us down this path by gently 
moving into accrual accounting for Federal insurance programs. 
That is probably the easiest way for us to get started and, 
quite frankly, I hope it is the start of more accrual 
accounting in our budget process because it represents a truer 
way in which to budget funds.
    We deal with many other important issues and some very 
sensitive issues of enforcement and accountability. I really 
welcome the opportunity to be here because it is important to 
try to bring more consistency between how the Senate and the 
House operates on budget processes. We need to work together, 
we need to modernize the system.
    There are many problems that we need to try to work out, 
but the bottom line is we have to do this in a bipartisan way, 
we have to do it with the Senate and House working together, we 
need a system that is more accountable for the current 
realities of our legislative process and I look forward to 
working with the Committee and hopefully coming out with some 
significant reform.
    Thank you.
    [The prepared statement of Mr. Cardin follows:]
             PREPARED STATEMENT OF THE HON. BENJAMIN CARDIN
    Chairman Domenici, Chairman Thompson, Senator Lautenberg, and 
Senator Lieberman, I am pleased to have the opportunity to appear 
before you this morning to testify on the reform of the Congressional 
budget process.
    It is certainly time for a review of the process by which we in 
Congress, as well as the Executive Branch, make budget decisions. It 
has been a quarter century since the creation of the Congressional 
budget process, including the Budget Committees, the Congressional 
Budget Office, and the existence of a budget resolution.
    We began this process in the House almost exactly one year ago when 
Chairman Kasich created the Task Force on the Budget Process. I am 
particularly encouraged by the bipartisan approach which has marked the 
establishment of this task force. While we have strong partisan 
differences regarding the substance of budget policy, I believe we must 
seek to keep the budget process free of partisan biases. There is 
nothing partisan about supporting a budget process that improves 
accountability and gives the American people an accurate and clear 
picture of the Federal budget. Six months of hearings on a wide range 
of issues was followed by bipartisan consultations and discussion. As a 
result of those efforts, Congressman Nussle and I introduced H.R. 4837.
    The bill Rep. Nussle and I introduced proposes a number of 
important reforms. I would like to highlight a few of them for you.
    We stand at an interesting time in the evolution of the 
Congressional budget process. On one hand, our fiscal outlook is 
stronger than it has been in decades. When we contemplate the prospect 
of trillions of dollars of budget surpluses over the coming years, on 
the heels of the largest deficits in our country's history, there is 
reason for satisfaction over the direction of budget policy.
    On the other hand, we have seen troubling failures of the 
Congressional budget process. In the past few years we have had 
government shutdowns, gridlock between the Executive and Legislative 
Branches, and the breakdown of the process in Congress. These events 
demand a careful review to determine how we can make it work more 
efficiently.
    The legislation we have introduced offers protections against 
future recurrences of the problems that have arisen under the existing 
system. We propose that the concurrent resolution, requiring the 
signature of the President.
    This change would bring the President into the budget process 
earlier in the year. Under the current system, after submitting a 
budget proposal in February, the president withdraws from the process. 
He does not fully engage until the final negotiations on budget 
reconciliation legislation, in the days leading up to the start of the 
new fiscal year. The result, as we have seen too often, is the reality 
or the threat of government shutdown.
    This proposal would require Congress and the President to resolve 
their differences much earlier in the legislative year, thereby helping 
to avoid crisis as the end of the fiscal year approaches. By making the 
budget resolution a joint resolution, which has the force of law, we 
could also deal with any required increases or extensions of the debt 
ceiling in the budget resolution. Extensions of the debt ceiling are 
direct consequences of the fiscal policies adopted in the budget 
resolution. Common sense dictates that we should, in passing a budget 
resolution, recognize the consequences that flow from it.
    An additional provision of this legislation that is designed to 
guard against the uncertainty and instability of future government 
shutdowns would provide for an automatic continuing resolution. This 
proposal, which has drawn bipartisan support from both sides of the 
Capitol, including in the proposal put forward by Chairman Domenici, 
addresses the situation in which any of the annual appropriations bills 
has not been enacted by the start of the fiscal year. It provides that 
in that circumstance, the agencies covered by the appropriations will 
receive the same level of funding they received in the previous year, 
until such time as the regular appropriations bill is enacted.
    It is important to point out that this provision does not prejudice 
the deliberations of the Congress. An automatic CR provision can only 
work if it is neutral in effect. That is, it should not be a tool that 
either increases or reduces spending for the affected agencies.
    In addition to these broad changes in the budget process, the bill 
also addresses a number of more discreet issues. We propose an overhaul 
of the process by which we fund emergencies. For too long, the Federal 
response to emergencies has been funded almost entirely through 
supplemental appropriations. We should bring basic planning principles 
to bear on this area of Federal spending.
    We will always have occasions that will demand supplemental 
appropriations to respond to natural disasters and other emergencies. 
But we can do a much better job of including emergency funding in the 
regular appropriations process. We propose to do that by using a 
rolling 5 year average of emergency spending. Importantly, this change 
should not affect the current caps.
    In addition, we provide, for the first time, a definition of 
emergency. I have noted that your proposal, Chairman Domenici, also 
addresses the need to provide a description of what is a legitimate 
emergency. We have all been troubled by the inclusion of non-emergency 
items in emergency supplemental bills. By defining the term, we can 
help limit the types of spending that can be included in these bills.
    I would like to call special attention to one of the more far-
reaching and innovative proposals in our bill. As you know, the Federal 
Government, unlike virtually every other large organization in this 
country, reports all its outlays and receipts on a cash basis. While 
this approach accurately portrays some aspects of the budget, it also 
creates significant inefficiencies and distortions in the policy 
decisions we make.
    Our bill proposes the application of accrual accounting principles 
to certain Federal insurance programs. It simply makes no sense for us 
to continue to ignore the long-term budget consequences of our actions. 
When we issue a flood insurance policy, we have a reasonable 
expectation of the costs that will be imposed on the treasury. We 
should enter that liability on our books then, rather than at some 
future time when the claim must be paid.
    There are several other important budget reform provisions in the 
bill which address the sensitive issues of enforcement and 
accountability. These proposals are the result of extended give-and-
take, and I look forward to further discussions as we consider this 
legislation.
    The fundamental process by which we budget has benefited by the 
expanded capacity and involvement of the Congress. The legislation Rep. 
Nussle and I have introduced will further improve coordination between 
the Legislative and Executive Branches. It will help reduce the threat 
that a breakdown in the budget process leads to a shutdown of the 
government. It will improve the management and accountability of 
Federal resources.
    I appreciate the opportunity to appear before you today, and I 
would welcome any questions you might have.

    Chairman Thompson. Thank you very much, Representative 
Cardin.
    And do you need to leave now?
    Mr. Cardin. I would appreciate that if that would be 
possible, Mr. Chairman.
    Chairman Thompson. Well, sir, whatever your needs are. We 
appreciate your being with us this morning.
    Mr. Cardin. And Mr. Nussle can respond for me. I have all 
the confidence in the world with everything he says. He did a 
great job and we really have tried to speak with one voice.
    Chairman Thompson. All right.
    Senator Lautenberg. One quick question, if I might.
    Chairman Thompson. Certainly.
    Senator Lautenberg. Mr. Cardin, what would you do with any 
remaining unused funds in that emergency fund? Carry it over? 
What would you do? Return that to the budget?
    Mr. Cardin. It becomes part of the surplus. It just is 
returned back. It is like any other appropriation that is not 
spent at the end of the year.
    Senator Lautenberg. Thank you.
    Chairman Thompson. Thank you very much for being with us.
    Mr. Cardin. Thank you.
    Chairman Thompson. Senator Grassley, we have your colleague 
with us today. Do you want to make some comments?

             OPENING STATEMENT OF SENATOR GRASSLEY

    Senator Grassley. It is my privilege to welcome Congressman 
Jim Nussle from my district of residence in the State of Iowa, 
a leader in reform of the budget process in the House of 
Representatives; more importantly, a long time member of the 
House Budget Committee. I welcome him and, in the same vein I 
would like to associate myself with the movement for reform 
that these two Chairmen, distinguished Chairmen, have brought 
in for our consideration. Hopefully, as we move the budget 
process along.
    I am very happy to be associated with them. I would like to 
put a statement in the record instead of speaking it.
    Chairman Thompson. It will be made a part of the record.
    Senator Grassley. Thank you very much.
    [The prepared statement of Senator Grassley follows:]
                 PREPARED STATEMENT OF SENATOR GRASSLEY
    Mr. Chairman: I commend Senators Domenici and Thompson for holding 
this joint hearing on budget process reform. Reform of anything in 
Congress is difficult at best. In the past we have talked about budget 
process reform. This year we have the opportunity to actually enact 
much needed reforms. We have already started the process with much 
needed changes in the Senate rules dealing with the budget.
    This is a very important, historic time for the Federal budget and 
the budget process. Instead of sitting here talking about how changes 
in the Federal budget process will affect Federal deficits, we can 
discuss the budget process in the context of budget surpluses. This is 
a tremendous sea-change in attitude. We have a different playing field 
than we have ever had before. We have an opportunity which has not 
presented itself at any other time in the history of the current budget 
process.
    It is time to fix a budget process that is very obviously broken. 
We consistently fail to meet the statutory deadlines which we set for 
ourselves. In fact, they have only been met for three times since 1974. 
This is unacceptable. Last year we did not even have a meaningful 
budget resolution at all. The appropriations process went on without 
us. This cannot happen again without the direst of consequences for the 
budget process.
    I have joined with Chairman Domenici and Chairman Thompson in 
cosponsoring S. 92, the Biennial Budget and Appropriations Act, which 
provides for a biennial budget and appropriations process. This bill 
will help to streamline the budget process by requiring the President 
to submit a 2-year budget. The Congress would then pass a 2-year budget 
resolution and 13 2-year appropriations bills. This would give 
lawmakers more time to concentrate on the oversight of Federal 
agencies. Oversight is a very important function of government. It is a 
subject that I have always felt very strongly about. A consistent 
amount of time to do proper oversight can go a long ways to helping 
reduce fraud, abuse and waste in the Federal bureaucracy. A biennial 
budget process helps to free time for this most necessary of 
Congressional functions.
    I have also joined Senator Domenici in introducing S. 93, the 
Budget Enforcement Act of 1999. This legislation includes S. 92, makes 
a much needed reform in the definition of ``emergency spending,'' 
redefines the Pay-As-You-Go rule, provides for an automatic continuing 
resolution, and clamps down on the ``vote-a-thons'' which have been 
occurring lately on the budget resolutions.
    We need this type of house cleaning. We need to clamp down on the 
loophole of ``emergency spending'' before we get further caught up in 
spending frenzies. Last year's massive Omnibus Consolidated and 
Emergency Supplemental Appropriations bill was a clarion call for 
reform on this point. I am proud that I voted against it.
    With the new era of budget surpluses dawning upon us, we have an 
opportunity to wisely use the so-called on-budget surpluses. These are 
the surpluses that do not include social security surpluses. If we have 
an on-budget surplus, it is clear to me that the American taxpayer is 
paying much to much in taxes and deserves a refund. The taxpayer knows 
best how to spend, and hopefully save, their own money.
    We should also put government employees at ease as to whether or 
not they will be paid when the fiscal year runs out, by having an 
automatic continuing resolution.
    And we need to eliminate the ``vote-a-thon'' during our 
consideration of the budget resolution.
    Mr. Chairman, I believe that S. 92 and S. 93 provide the 
cornerstones for meaningful budget process reform. They incorporate 
sound principals to guide us.
    The American voters expect a lot from their elected 
representatives. Not the least of which is for us to produce a budget. 
By enacting these reforms, I believe that we can better keep faith with 
the voter. By keeping that faith we can help to remove some of the 
cynicism that the public has about Congress and the Congressional 
process.
    It is my pleasure to welcome to the joint hearing my colleague from 
Iowa, Congressman Jim Nussle. Congressman Nussle, long with Congressman 
Cardin, has been very active in trying to define and promote 
Congressional budget reform. Together, they have introduced legislation 
in the House of Representatives on budget process reform. Welcome, 
Congressman Nussle.

    Chairman Thompson. Congressman Nussle.

STATEMENT OF HON. JIM NUSSLE, A REPRESENTATIVE IN CONGRESS FROM 
                       THE STATE OF IOWA

    Mr. Nussle. Thank you, Mr. Chairman, and Senator Grassley. 
It has been a distinct honor to represent you and Barbara and 
the U.S. House of Representatives and I appreciate the kind 
words and introduction. Senators, colleagues, I would like to, 
first of all, associate myself with my colleague from 
Maryland's comments, Mr. Cardin.
    It has been fun working with him to craft a budget process 
reform. And I say that and I suppose there are probably a few 
people watching or out in the audience or maybe even a few of 
you who could think how could budget process be fun? There are 
only a few people in the world that could think any kind of 
process reform would be interesting or fun. But it has been a 
distinct honor to work with Representative Cardin to work 
through a process that I would suggest to you has almost never 
worked.
    As you think back toward 1974 and the myriad of budgets 
that have come forth since 1974, can you think of a year where 
the exact process that was put into place in 1974 has worked? 
It has come close a few times, but I would suggest to you that 
we have almost never had a process that has actually worked.
    Now, some of that may be, in our opinion, good, that it is 
flexible enough to meet the challenges of the different 
pressures from 1 year to the next. But I would suggest to you 
that within that we looked, as a task force, to a year that 
worked the best. And in my opinion and in the opinion of, I 
think, many, 1997 was probably the year where the budget 
process worked the best. And if we harken back to that time, we 
remember that Senator Domenici and Congressman Kasich and many 
others began early in the process working to come up with a 
memorandum of agreement, with the President, with the Congress, 
in order to establish early in the process the aggregate 
numbers from which to work.
    And, so, as we look to the budget process, we looked toward 
1997 and we tried to put into law or into codification that 
which was part of 1997. We came up with eight principles that 
we felt were important: (1) It gives the budget the force of 
law; (2) it budgets for emergencies, something that just about 
every witness today has touched on and the Senators that have 
spoken as well; (3) it discloses the unfunded liabilities of 
the Federal insurance programs that we all know are not being 
adequately accounted for within our current budget; (4) it 
strengthens the enforcement of budget decisions; (5) it 
mitigates the bias in the budget towards higher spending with 
baseline budgeting; (6) it displays the unfunded liabilities of 
insurance programs; (7) it prevents government shutdowns; and 
(8) it increases the budgetary flexibility when there is on-
budget surpluses.
    Now, in order to walk you through this, I have put together 
some charts. Let me just walk you through how this budget 
process will work and direct you to the flow chart on the joint 
resolution for the budget.
    [The charts referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T4926.001
    
    [GRAPHIC] [TIFF OMITTED] T4926.002
    
    Mr. Nussle. Currently, of course, we have a concurrent 
resolution. It does not have the force of law. Congress passes 
it; the President does not sign it. What we are suggesting is 
early on in the process the President submits the budget and 
Congress passes a joint resolution, in other words, a bill that 
the President has to sign.
    In order to successfully do that, we have to almost copy 
the process that occurred in 1997. Senator Domenici and 
Congressman Kasich met early with the administration; that the 
Budget Committees, the leadership would meet early with the 
administration and talk and come up with an agreement that 
could be the force or the road map for the rest of the year.
    Once we were able to pass a budget resolution--and let me 
just refer to you what that budget resolution would look like. 
This is a current concurrent budget resolution. As you see it 
has a number of functions, and this is exactly what we would 
hope the new budget resolution would look like: very short, 
sweet, to the point, one page, total spending, revenues, the 
surplus, the deficit on-budget--and we will get to that I am 
sure in questions.
    With regard to taking Social Security off-budget, making 
sure that it is reserved only for Social Security, and that it 
would, in fact, be identified then as surpluses on-budget. Any 
debt, subject to limits, total mandatory, total discretionary, 
total non-defense discretionary, defense discretionary and 
total reserve fund for emergencies. As we indicated before we 
are going to begin, according to our proposal, budgeting for 
emergencies.
    Since we are on that subject, let me just turn to that real 
quick. This is our proposal for budgeting for emergency 
spending. Basically when we conducted our hearings, what we 
discovered was that even though they are unforeseen--that is 
what emergency is all about, it is unforeseen--even though we 
have had unforeseen expenditures we can almost guarantee you 
the amount that has been unforeseen in the last 10 or 15 years. 
It has been about $5, $6, or $7 billion dollars.
    And, so, while we do not know when the next hurricane will 
hit we know it is going to hit. While we do not know that there 
is going to be an earthquake, we know there may be. And if we 
do not budget for it, those emergencies will come up and bite 
us and we want to try and figure out a way to budget for that 
in the future. So, Congress and the President will develop 
guidelines for applying the definitions of emergencies.
    Now, interestingly enough based on what we have been able 
to discover, our bill is very similar to Senator Domenici's 
bill with regard to the definition of emergencies. We would 
submit, the President would submit his budget request and the 
amount for emergencies and the Director of FEMA, James Lee 
Whitt, who testified before our task force, suggests that they 
could come up with a very adequate number for that purpose and 
that they could give us on a 5-year rolling average what that 
number would be.
    Congress would pass the resolution. The President would 
sign it. The spending committee would report bills providing 
for budget authority for emergencies.
    Now, is the amount more or less than the reserve total? All 
right? And that is the reserve for emergencies. If it is not, 
the Budget Committee Chairman would increase the budget 
resolution allocations for that Committee; the bill would sail 
through and there would be no problem.
    If the amount of money requested is more than the reserve 
then the Budget Committee would amend the bill to exempt the 
emergency from PAYGO if, in fact, it was a legitimate emergency 
and the Budget Committee would exempt that emergency from 
allocations and the bill would go to the floor.
    So, basically what we are putting in here is a hurdle that 
the Budget Committee would act as a crossing guard, if you 
will, to make sure that the definition was enforced, to make 
sure that the aggregates were enforced and to try and, as a 
result of budgeting for emergencies, try and bring more 
accountability to that process. Those are the items that we 
covered in our task force.
    And I would just suggest to you that we did not in this 
process try and come up with substantive policy changes. In 
other words, we did not say that we want to be able to get a 
tax cut, so, let us come up with a budget process that allows 
us to do that. Or we want to be able to cut spending more 
easily, so, let us come up with a process that allows us to do 
that. We did not do that at all.
    In our deliberations we tried to remove ourselves from the 
current politics, from current policy discussions and just talk 
about the process, the decision making process that gets us to 
this point.
    And, again, I would suggest to you that as you look back, 
from today back to 1974, the year that it was the most 
successful was 1997 and our attempt in this bill is to codify 
the process that was used in 1997 as closely as possible, still 
allowing for flexibility; understanding that as Senator 
Voinovich mentioned, that you do not know from 1 year to the 
next, but it allows you to make those kinds of decisions early 
in the process so you try and take the end-game politics out of 
the bill, itself.
    That is my presentation. I have a statement I would like to 
submit for the record, Senators, but I would be happy to try 
and answer questions on my bill or anything else.
    Thank you.
    [The prepared statement of Mr. Nussle follows:]
                 PREPARED STATEMENT OF HON. JIM NUSSLE
    I want to thank Senators Domenici, Lautenberg, Thompson and 
Lieberman for affording me and my good friend and colleague, 
Representative Ben Cardin (D-MD), the opportunity to testify before 
this hearing of your two committees on the bipartisan budget process 
reform bill (The Comprehensive Budget Process Reform Act--H.R. 4837) we 
introduced in the waning days of the 105th Congress. I am encouraged by 
your actions on this important subject so early in the 106th Congress.
    Before I begin my testimony, I would be remiss if I did not point 
out that there are a number of Representatives who have worked equally 
as hard as Congressman Cardin and I have on this bipartisan bill. 
Specifically, Representative Porter Goss (R-FL), who chairs the Rules 
Subcommittee on Legislative and Budget Process, was instrumental in 
drafting this bill. I have enclosed testimony prepared by 
Representative Goss that I would ask be submitted for the record. 
Additionally, Chairmen Kasich and Dreier along with Representatives 
Minge (D-MN), Sununu (R-NH), Radanovich (R-CA) and Granger (R-TX) also 
played key roles in the development of this bill.
    In February of 1998, Chairman Kasich appointed a bipartisan task 
force on budget process reform to address such issues as the nature and 
structure of the budget resolution, the budgetary treatment of 
emergencies, budgeting for contingent liabilities, and baselines and 
budgetary projections. Chairman Kasich deserves much of the credit for 
this bill as he urged me to work with the Democrats on the Task Force 
and gave me the necessary support at critical junctures in the process 
to produce a bill.
    Going into this process, we all knew that Congressional budgeting 
practices could be improved. We also knew the Congressional Budget Act 
of 1974 needed to be examined with an eye towards an era of balanced 
budgets and ``surplus'' revenues. What we did not envision, however, 
were the difficulties experienced with the budget resolution for fiscal 
year 1999 or the manner in which the final spending bills were cobbled 
together.
    Our task force held a series of topical hearings on budget process 
reform in the spring of 1998. We heard a number of very good 
suggestions and ideas from outside experts in budget policy, such as 
the distinguished former Representative Tim Penny who co-chairs the 
Committee for a Responsible Federal Budget; Dr. James Lee Witt, 
Director of the Federal Emergency Management Agency (FEMA); Allen 
Schick, Visiting Fellow, Brookings Institution; Rudolph Penner, the 
former director of the Congressional Budget Office; and Susan Irving, 
the Director of Budget Issues of the General Accounting Office. Our 
task force also heard testimony from nine of our colleagues in the 
House who have a long-standing interest in budget process reform.
    During the summer and early fall we began drafting legislation 
based on the lessons learned from our hearings. We worked in a 
deliberate and bipartisan manner to craft this legislation over a 
period of almost 3 months. As a result of our efforts, we were able to 
secure the support of a majority of the members of the task force on 
both sides of the aisle. We also drew the attention of Representatives 
who do not serve on the Budget Committee and won the support of 
respected Members such as Representative Stenholm (D-TX), 
Representative Barton (R-TX) and Representative Castle (R-DE).
    I would also like to recognize the contributions of the many 
talented staff members who have logged numerous hours in this process. 
Jim Bates and Carl Christie of the Budget Committee Majority Staff as 
well as Richard Kogan of the Budget Committee Minority staff proved to 
be valuable resources and reliable counselors in this process. 
Additionally, David Koshgarian of Representative Cardin's staff and 
Rich Meade of my staff were also instrumental in the development of 
this legislation.
    Unfortunately, the fruit of our labor could not be harvested during 
the hectic closing days of the 105th Congress. Since we had crafted our 
bill in a bipartisan manner, we did not want it to become the object of 
a partisan attack from either side of the aisle.
    Our bill is based on the assumption that the following fundamental 
principles should be used while developing a new budget process. 
Congress should adopt and conduct a budget process that:

        (1) gives the budget the force of law;
        (2) budgets for emergencies;
        (3) discloses the unfunded liabilities of Federal insurance 
        Programs;
        (4) strengthens the enforcement of budgetary decisions;
        (5) mitigates the bias in the budget process towards higher 
        spending;
        (6) displays the unfunded liabilities of Federal insurance 
        programs;
        (7) prevents government shutdowns; and
        (8) increases budgetary flexibility when there is an on-budget 
        surplus.

    The following is an outline of the major provisions of the bill.
                        Joint Budget Resolution
    Perhaps the most important element of the Comprehensive Budget 
Process Reform Act is the conversion of the existing concurrent 
resolution into a joint budget resolution which would have the force of 
law when signed by the President. Under the current budget process, 
Congress and the President are required to agree on individual tax and 
spending bills but not the overall framework of the budget. Each year 
the President presents a detailed, programmatic budget and the Congress 
passes a concurrent resolution that establishes a common Congressional 
framework for the consideration of subsequent tax and spending bills. 
The only way that the President can affect total spending and revenue 
levels is by vetoing individual bills. Consequently, the budget process 
bogs down as the President may reject individual bills because he does 
not concur with the overall levels on which they are based.
    This dynamic was clearly in play in the 104th Congress when the 
President repeatedly vetoed appropriations bills in part because they 
were based on an overall level of discretionary spending that he found 
unacceptable. Finally in 1997, the Congress and the President committed 
to a common budgetary framework in a Memorandum of Understanding 
between the Congress and the President. The MOU essentially served as a 
joint budget resolution establishing the overall parameters for 
subsequent tax and spending legislation. In fact, Congress and the 
President have turned to such MOU's each time there has been a major 
budget agreement and the Congress and the President were controlled by 
different political parties.
    Our bill was developed with the hope that we can regularly repeat 
the great cooperation between Congress and the President that led to 
the historic Balanced Budget Act of 1997. That process worked because 
Congress and President Clinton agreed to basic principles and a 
framework at the beginning of the budget negotiations process, and 
weren't forced to negotiate under pressure of a deadline at the end of 
the budget process.
    If the President signs the joint budget resolution, Congress would 
move tax and spending bills, which would be governed by the spending 
limits established in the joint budget resolution. The President would 
still sign or veto each spending bill as it passed Congress. If the 
President refused to sign the joint budget resolution, Congress could 
quickly pass a concurrent budget resolution and operate in a manner 
similar to the current process.
    In order to focus initial negotiations on the broad framework of 
the budget, the Comprehensive Budget Process Reform Act would 
restructure the budget resolution. The bill replaces the 20 functional 
categories of spending in the budget resolution with seven categories 
of budget aggregates: Defense discretionary, non-defense discretionary, 
total discretionary, mandatory spending, revenue, debt, and a reserve 
fund for emergencies. The budget resolution would become a device for 
reaching an agreement on overall spending and revenue levels. Policy 
and distributional issues would be settled in subsequent negotiations 
over individual tax and spending bills.
                      Reserve Fund for Emergencies
    Another key element of the Comprehensive Budget Process Reform Act 
is its reform of the treatment of emergency spending. In recent years, 
emergency spending has increased dramatically, primarily as a 
consequence of devastating events such as the Northridge earthquake and 
Hurricane Hugo. However, higher emergency spending has also been driven 
in part by the fact that emergency spending does not count against the 
statutory spending caps under current budgetary rules, making it 
essentially ``free'' money.
    As was seen at the end of the last Congress in the Omnibus 
Appropriations Act, emergency spending is basically defined as whatever 
the President and Congress say it is. The Comprehensive Budget Process 
Reform Act sets forth clear, concise criteria as to what constitutes an 
emergency. These criteria, which are based upon the OMB definition of 
emergency spending adopted following the Gulf War, are that the 
spending must be for the prevention or mitigation of, or response to, 
loss of life or property, or a threat to national security; and is 
unanticipated. Unanticipated means that the situation is sudden, 
urgent, unforeseen, and temporary. I am pleased to note that the budget 
process reform legislation introduced by Senator Domenici includes 
similar emergency criteria.
    The more concise definition of emergency included in the 
Comprehensive Budget Process Reform Act should help curb some of the 
more flagrant examples of abuse. For example, while I agree with those 
who contend that the Year 2000 computer problem (Y2K) is a serious 
issue, it would not constitute an emergency under the definition 
included in this bill. Nor should Y2K be considered an emergency, we've 
known about the challenges the year 2000 will present for a number of 
years.
    The bipartisan Comprehensive Budget Process Reform Act would also 
reduce the incentives to mischaracterize spending as emergency spending 
by creating a reserve fund for emergency aid, and reserve that money 
exclusively for emergencies. By contrast, under current law there is no 
limit to how much money can be spent on emergencies. The bill would 
require Congress and the President to set aside an amount equal to the 
5-year historical average spending for emergencies. That money could 
not be spent unless the situation in question meets the criteria of 
emergency defined in the bill.
    I believe there is much to commend this approach. First of all, it 
provides a reasonable assurance that emergency spending will go to 
legitimate emergencies. Second, it preserves Congress's power over the 
purse because it is the Congress that determines whether a legitimate 
emergency exists. Third, it could relieve the Congress of the time-
consuming task of finding offsets for individual emergencies because 
the reserve would come out of the caps. Fourth, it is based on a tried 
and tested mechanism for augmenting the budget for bills that provide 
funds for specified purposes. Since the enactment of the Budget 
Enforcement Act in 1990, the Chairmen of the Budget Committees have 
adjusted committees' allocations for such factors as continuing 
disability reviews, arrearages, and land acquisitions. Finally, the 
beauty of the reserve fund concept is that if we set aside more money 
for disasters than is required, that amount simply increases the 
surplus, because the money actually never was appropriated.
                Accountability for Entitlement Spending
    Our bill would establish several procedures to curb the 
proliferation of new entitlement programs. Entitlements provide direct 
spending because, once they are authorized, the spending occurs 
automatically unless the underlying law is amended or repealed. The 
funding levels for these programs are determined by the number of 
eligible participants, the eligibility requirements and the benefit 
levels in the underlying law.
    Despite measures in the 1974 Budget Act designed to curb so called 
non-controllable spending, the number of new entitlement programs has 
dramatically increased. According to the General Accounting Office, 
there were 145 more mandatory programs in 1996 than there were 10 years 
earlier.
    The Comprehensive Budget Process Reform Act requires that any 
proposal for new entitlement spending, whether included in the 
President's budget or Congressional bills, include a justification for 
not subjecting the spending to annual appropriations. This will 
encourage those proposing new entitlement spending to at least take 
closer look at the programs and determine whether they really need to 
be entitlements.
    This bill also allows Members to offer amendments to subject 
proposed entitlement programs to annual appropriations. It limits the 
ability of the House to waive this right and makes any such amendment 
germane to the bill. To facilitate the conversion of entitlements into 
discretionary programs, the bill holds the Appropriations Committee 
harmless for new discretionary spending that is offset by designated 
reductions in direct spending.
                   Sunsetting and Expanded Oversight
    The bill includes a series of small but enforceable steps towards 
requiring all committees to systematically re-authorize all Federal 
spending programs. I take as an operating premise that no program, 
however important, should be immune from Congressional oversight.
    The bill requires all committees to submit a plan for re-
authorizing all programs, both mandatory and discretionary, at least 
once every 10 years. The House is prohibited from considering the 
expense resolution of any committee that fails to submit a 
reauthorization plan.
    The bill prohibits the consideration in the House of any bill that 
creates a new program that is not sunset within 10 years. Any bill that 
authorizes a program for more than 10 years would be subject to a point 
of order. Significantly, this requirement would only apply to new 
programs, and neither new nor existing programs would automatically 
sunset if they were authorized for a shorter period.
                    Automatic Continuing Resolution
    We take the bold step of agreeing to an automatic continuing 
resolution in order to prevent future government shutdowns. Our bill 
would provide for an automatic interim appropriation for any program, 
project or activity for which an appropriations bill is not enacted by 
the beginning of the fiscal year. Funding would continue at the prior 
year's level indefinitely, or until Congress and the President are able 
to reach agreement on the appropriate spending levels.
    I believe that an automatic CR will take away from both the 
President and Congress the incentive to refuse to negotiate in good 
faith on appropriations bills on the assumption that one side or the 
other will bear the wrath of the public for shutting down the Federal 
Government.
    I was pleased to find out that Senator Domenici included a similar 
automatic continuing resolution in the budget process reform bill he 
introduced several weeks ago.
                         ``Baseline'' Budgeting
    The bill takes a small step towards changing the baseline mentality 
that contends that any attempt to slow down the growth in spending 
constitutes a cut. Drawing from a House-passed bill offered by 
Representatives Stenholm and Penny during the 103rd Congress, our bill 
requires that Presidential budget submissions, budget resolutions, 
appropriations reports, and cost estimates compare proposed spending 
and revenue levels with the actual spending levels of the prior year.
    We also try to shed light on the sources of projected growth in 
entitlement spending which is expected to explode early in the next 
century. The bill requires both the Office of Management and Budget and 
the Congressional Budget Office to periodically report on such sources 
of projected growth in mandatory spending as inflation, changes in 
medical technologies, and program enrollment.
                   Budget for Contingent Liabilities
    During the Task Force hearing and discussion with GAO, CBO, and 
OMB, it became clear that existing cash-based, short-term budgeting and 
accounting procedures do not capture the contingent liabilities and 
other long-term programmatic costs of Federal insurance programs. 
Accordingly, this bill provides for a shift to accrual budgeting for 
Federal insurance programs, as well as other measures intended to 
capture the medium-term costs of proposed legislation and the long-term 
budgetary implications of current and proposed budget priorities.
    Currently, the budget shows the short-term cash flows for such 
Federal insurance programs as deposit, pension and political risk 
insurance. Frequently, the premiums paid into the insurance programs do 
not reflect the program's long term costs to the Federal Government. 
Not surprisingly, policy makers have little incentive to take measures 
that would minimize the financial risk posed by these programs over the 
long term. There is a strong incentive for policy makers to embrace 
policies that provide short-term budgetary relief but exacerbate 
financial problems over the long run.
    Building on the principles of credit reform for loans and loan 
guarantees, this bill requires OMB, CBO and Federal agencies to 
estimate the expected loss from Federal insurance programs instead of 
short term cash flows. Congress and the President would ultimately be 
required to budget each year for the expected losses from new and 
expanded insurance programs.
    Additional changes are made in the budget process to capture other 
long-term costs that are not reflected the budget. Most importantly, it 
extends the horizon for the cost estimates of proposed legislation from 
5 to 10 fiscal years. Additionally, it requires OMB and CBO to 
periodically report on long-term budgetary trends under current law and 
as proposed by the President.
                 ``PAYGO'' Requirements and the Surplus
    We were even able to find common ground on permitting the surplus 
to be used for tax cuts and other initiatives if the budget is in 
balance without counting Social Security surpluses. Under existing 
PAYGO requirements, tax and entitlement legislation must be offset by 
entitlement cuts or tax increases. Our bill permits tax cuts without 
offsets so long as the Federal Government is running an on-budget 
surplus. Notwithstanding our agreement on this element of the bill, we 
may very well disagree on what the surplus should be used for whether 
further PAYGO reforms are in order.
                     ``Lock-Box'' for Spending Cuts
    Our bill establishes procedures to lock in savings from floor 
amendments to increase the surplus. The provision is similar to lock 
box provisions that have passed the House with bipartisan majorities. 
Under the lock-box, both the caps and appropriate levels in the budget 
resolution are automatically reduced by the amount of a floor amendment 
that reduces an appropriation line-item. This mechanism effectively 
prevents the Appropriations Committee from reprogramming savings from 
floor amendments to other programs in the same or another subcommittee 
allocation.
    The lock-box is not an entirely new concept to the Senate--the Line 
Item Veto Act of 1996 (P.L. 104-130) included a lock box mechanism 
that, among other things, reduced the caps by the amount of savings 
resulting from rescissions. Unfortunately, the Line Item Veto was 
struck down last year by the Supreme Court for unrelated reasons.
    I again commend your committees for turning your attention to this 
important subject at the outset of the 106th Congress. I firmly believe 
that the further we get into the budget cycle, the more difficult it 
will be for Congress and the Administration to agree on budget process 
reform.
    While there are only a few of us on either side of the Capitol who 
can get excited about this subject, reforming our budgetary process is 
vitally important. The budget and spending bills for fiscal year 1999 
should be reason enough for Congress to move quickly on comprehensive 
budget process reform legislation such as the bipartisan bill 
Congressman Cardin and I introduced last year.
                               __________
             PREPARED STATEMENT OF CONGRESSMAN PORTER GOSS
    Any American that witnessed the frantic endgame politics that 
accompanied the close of the 105th Congress knows that the way we 
budget and spend taxpayer dollars here in Washington is badly in need 
of reform. I am pleased that these two august committees have hit the 
ground running with substantive hearings to find a workable solution.
    On the House side, the two committees of jurisdiction--Budget and 
Rules--have also been working closely to devise a workable alternative. 
I would like to commend in particular the leadership of Budget 
Committee Chairman Kasich, Budget Process Task Force Chairman Nussle, 
former Rules Committee Chairman Solomon and our current Chairman, Rep. 
Dreier. I would also like to call attention to the work of Rep. Cardin 
who, as Ranking Member of the Budget Committee's Task Force, provided 
both exceptional insight into the problems plaguing the current system 
and a willingness to work across party lines.
    As Chairman of the Subcommittee on Legislative and Budget Process, 
I have long been interested in reforming our antiquated budget process 
and I am proud to announce that our efforts in the House have paid off 
with a common sense, bipartisan plan. The ``Comprehensive Budget 
Process Reform Act'' is not a quick fix solution to last year's 
problems, but rather a realistic effort that borrows heavily from the 
good work and ideas of many Members, budget experts and citizen groups.
    The current system provides too many incentives for partisan 
confrontation, rather than serious negotiation. For that reason, the 
cornerstone of our legislation is a joint budget resolution, which 
would enable the White House and Congress to reach agreement on the big 
numbers at the beginning of the process, rather than at the end of the 
fiscal year. The key is that the joint resolution, because it is signed 
by the President, would have the force of law. Comity and 
bipartisanship cannot be legislated, but some of the obstacles to those 
goals can be removed.
    Another problem is the lack of accountability in the way we pay for 
emergencies. In last year's infamous Omnibus Appropriations bill alone, 
we spent more than $20 billion on ``emergency items,'' many of which 
clearly do not fall under any American's reasonable definition of the 
term. Under our bill, Congress and the President would have to budget 
up front for emergencies. True disaster assistance would be expedited 
but the exercise of using the ``emergency'' label to avoid paying for 
items would be curtailed.
    Having served on the bipartisan Kerrey Commission, I know that 
reforming our budget process will mean little if we ignore the very 
real problems in our entitlement programs. For that reason, our bill 
adopts the Commission's most important budget process recommendation. 
Originally authored by Senator Kerrey, the provision requires the 
President and the CBO to provide reports on long term budgetary trends. 
As a fellow ``graduate'' of the Kerrey Commission, Chairman Domenici 
understands the need for a wider budgetary snapshot when it comes to 
our entitlement programs, to make the right choices for next week and 
beyond and not merely tomorrow.
    Finally, I would like to touch on some of the specific changes in 
House rules we have included to improve the process. We have imposed a 
sunsetting requirement, to require committees to reauthorize all laws, 
programs and agencies in their jurisdictions at least every ten years. 
Budget compliance statements will require committees to state whether 
reported bills are within the budgetary levels set forth by the budget 
resolution. Similarly, requiring ten-year cost estimates will deter 
committees from moving budget-busting legislation whose costs explode 
in the ``out years.'' Finally, but perhaps most importantly, we repeal 
Rule 23 (formerly Rule 49) , commonly referred to as the ``Gephardt 
Rule,'' to require the House to vote each time it increases the limit 
on the public debt. Each of these measures would restore some overdue 
accountability to the way we consider legislation in the House of 
Representatives.
    We do not pretend to have all the answers, or a perfect package. I 
certainly appreciate the internal jurisdictional issues at play and 
understand that this is a work in process. I also understand that there 
will be some honest differences between the two Houses. However, this 
bill is the product of the two committees with jurisdiction over the 
budget process in the House and I think a good first step. I look 
forward to moving our bill through the process, hopeful that we will be 
able to reach common ground and enact significant budget process 
legislation in this Congress.

    Chairman Thompson. Thank you very much, Congressman Nussle. 
You reminded me that the 1974 Budget Act was one of the so-
called Watergate reforms, that we are now trying to improve. As 
Senator Domenici pointed out, the idea had been around for some 
time. But, with President Nixon's weakness during that period 
of time, it was able to pass and, of course, kind of place 
Congress in the ascendancy in some people's eyes. Now, we are 
trying to figure out a way to do it much better.
    Just one question. As you know, biennial budgeting has 
enjoyed strong interest among Senators for some time. It passed 
the Governmental Affairs Committee 13-to-1 in the last 
Congress. But over in the House it seems to me like we have got 
a very practical problem and that is the Appropriations 
Committee situation.
    It is an exclusive committee in the House. If you sit on 
the Appropriations Committee, as I understand it, you do not 
sit on any other committee, unless you obtain a waiver.
    So, what are our prospects in the House? Are people going 
to look at this as a diminution of the authority of the 
appropriators; is there any way we can make this more palatable 
for them, so that we have a better chance of getting the 
biennial budget passed, not only in the Senate, but also in the 
House?
    Mr. Nussle. My reaction is that particularly with the 
appropriators you would have a difficult time with biennial 
budgeting and I think it is a practical matter more than 
anything else. When you have only 2 years in your term, I think 
you tend to take a much shorter approach, much shorter view on 
the process than you would if you have 6 years. I think that is 
a practical matter.
    I jokingly said to my staff yesterday, maybe we ought to 
trade you for a 4-year term. We will give you 2-year budgets 
and a 4-year term. But I am not sure that we are here to 
negotiate that today. But I think it will meet with that 
concern, particularly from the appropriators.
    I think there have been some other items, however, that 
have been mentioned that do concern me as a budgeter and, 
particularly, in the area of supplementals. It has been 
suggested that with a biennial budget that you almost guarantee 
more supplemental appropriations. I am not sure that is 
necessarily the case but I think it is a legitimate concern 
that has been raised.
    Most of what we have tried to accomplish with budgeting for 
emergencies, with some of the other safeguards and 
accountabilities we have put into our bill is to try and shy 
away from the proliferation of these kinds of supplemental 
bills. So, I would suggest that biennial budgeting would come 
against some opposition, some strong opposition in the House, 
and my guess is, on the Budget Committee today, that it would 
not have the majority of support.
    Chairman Thompson. Senator Domenici, do you have anything?
    Chairman Domenici. Yes. Thank you, Mr. Chairman.
    First, I want to say to you, Congressman Nussle, with 
reference to emergencies I personally welcome your suggestions. 
I do not know if we could end up agreeing to them precisely as 
you recommend but you surely make a point and there have been a 
number of Senators who say, why do we not allocate based upon a 
5, 6, or 7-year average?
    You have added to that an interesting concept to budget for 
emergencies with funds over and above the caps on spending. You 
would still be recognizing the budget impact of an emergency as 
it is defined now.
    I just want to tell you about a concern of some people and 
that is every penny of your emergency reserve will be 
appropriated. If you put $7 billion in it, Congress will find 
$7 billion worth of emergencies. I do not know that. That is a 
concern submitted to us by those who have watched things around 
here.
    Mr. Nussle. That is part of the reason, if I might 
interject, why when Mr. Cardin answered Mr. Lautenberg's 
question that we do not allow it to carry over in a rolling or 
roll-over because it would be spent if it was allowed to roll 
over.
    Chairman Domenici. Let me make just two other points. 
Frankly, I think you know that the idea of a joint resolution 
is not new. Let me just think back to when it was first 
introduced as a measure. I think it was a bill introduced by 
Senator Domenici and Senator Bennett Johnston 12 or 14 years 
ago. That does not say that it has not matured and in the 
process become better.
    But essentially it is--if you want to change the entire 
concept of what a budget is and the budget process then you go 
to a joint resolution. We have in our proposal here that you 
ought to know, we have streamlined the budget somewhat as you 
are recommending in your joint resolution in terms of what is 
included in it, because that is all that would end up being 
binding anyway and we get ourselves in a huge argument with 
reference to detailed programming which is not the prerogative 
of the Budget Committee.
    My last observation, and I would very much like in due 
course to share with a number of House members: We have a very 
large array of appropriators who are now for 2-year 
appropriations and 2-year budgeting. And I think we will try to 
come over and talk with all of you and give you our best shot 
at this.
    I would just submit to you that I do not believe that 
appropriators--and I am one--I do not believe they should 
dictate the processes of this government. I think we all have 
to look at whether this process is working.
    You are thinking that this might help make it work better. 
I am convinced that if you look at the history we cannot 
produce 13 appropriations bills every year. When we did not 
have a budget resolution we did not do them on time. We changed 
the time to allow more time, we did not get them done. We have 
a budget process and we do not get them done.
    And I think there is an inordinate amount of leverage 
currently available to the Chief Executive under those 
circumstances and I think they catch us every single year.
    I guess I come to the conclusion that maybe they ought to 
catch us once every 2 years and we ought not have to put up 
with the leveraging that goes on. I am not saying who is right, 
but the leveraging occurs in an incredible manner because we 
are short of time, we are running out of time, and we face 
closing down government.
    And, second, I think we need to continue to ask the 
departments of this government how much better would government 
be served if they did not have to produce a budget every year. 
I have done that in the past.
    You would be startled as to the savings and the receptivity 
on the part of those who participate in government. We finally 
finish the budget for a year, have a Christmas recess holiday, 
and they start the process again, come January, to produce 
another submission.
    That is just too much for a government this size and, 
frankly, that is why we are tying ourselves in knots. So, I 
would like at some point, as you have done here, to bring a 
group of Senators and try to talk about the need to look at 
some streamlining.
    Mr. Nussle. Well, we would welcome that. If I could just 
point out, too, Senator, Congressman Cardin and I stand on the 
shoulders of many who have come before us with regard to reform 
and the budget. I think of not only yourself with regard to the 
joint resolution, but Congressman Cox and Barton in the House; 
Porter Goss, who has worked on this, so many people that have 
provided proposals and ideas.
    So, I get to be the guy to sit here today and wrap them all 
in a package and present them but, clearly over the years, many 
years, there have been many that have done that.
    Second, with regard to the end-game or the shutdown 
scenario, we have put in another appropriation controversial 
item in our bill which is the automatic continuing resolution 
which would suggest that if you do not or are not able to or 
cannot or do not want to do an appropriation on an annual basis 
that it would, in fact, carry over with an automatic continuing 
resolution at that. And we do not put in any kind of penalty. 
We do not automatically game it to the negative or to the 
positive. We suggest that that appropriations would continue at 
that year's level.
    That is one of the agreements that Congressman Cardin and I 
worked on very carefully because we know there is within the 
system those of us who are conservative budget-cutters, we 
wanted there to be a penalty if you could not get to an 
appropriation. There were those on the opposite side who wanted 
there to be an automatic baseline increase.
    So, we came up with this automatic, even number to try and 
meet that but we would certainly be interested in working with 
the Senate on budget process reform and would welcome a group 
of Senators to work together on this.
    So, thank you.
    Chairman Domenici. Thank you, Mr. Chairman.
    Chairman Thompson. Thank you very much.
    Senator Lautenberg.
    Senator Lautenberg. No questions.
    Chairman Thompson. Senator Voinovich.
    Senator Voinovich. I have no questions.
    Chairman Thompson. Senator Grams.
    Senator Grams. I cannot let this go by, Congressman Nussle, 
I thank you for coming. One question, a couple I had, but first 
having the President sign a joint budget resolution, are we 
interjecting the President too early in the process? In other 
words, Congress controls the purse-strings; bringing him in and 
at this early date I know we could maybe face a standoff here 
rather than in October. But is there a purpose why you would 
have the joint resolution have to be signed by the President?
    Mr. Nussle. Well, the whole purpose of--and, first of all, 
to answer your question, if he does not sign it, we move 
immediately or may move immediately to concurrent resolution 
which is our current process. So, there is nothing to suggest 
that the process could be stopped by the President early in the 
process.
    However, what we are suggesting is that, again, looking 
back at a model that was not necessarily anywhere in law but a 
model of 1997, what seemed to work in 1997 is that the 
aggregate numbers, basically that which I showed you on that 
chart which we would come up with as a joint resolution, the 
aggregate numbers is what we came up with in 1997 as a 
memorandum of agreement.
    Now, it was binding on the good faith of the parties that 
the budget agreement, we would always roll that out, we agreed 
to this early on. All we are suggesting is, fine, if it is 
going to be done in that fashion make it law. So, that there is 
no discussion, there is no question about whether or not it is 
binding. It is binding. And then from there it would drive the 
rest of the process.
    But in no way are we suggesting that if the President 
decides not to negotiate in good faith or, for that matter, if 
the Congress decides not to negotiate in good faith the regular 
concurrent budget process and concurrent resolution budget 
process would continue.
    Senator Grams. OK. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Thompson. Congressman, thank you very much for 
your leadership. We look forward to continuing to work with you 
on this.
    Mr. Nussle. Thank you, Mr. Chairman.
    Chairman Thompson. Finally, we turn to our third panel of 
witnesses. Tim Muris is a professor at George Mason School of 
Law. Mr. Muris was a key staffer at OMB during the Reagan 
Administration.
    Martha Phillips serves as Executive Director of the Concord 
Coalition. She formerly served as a Republican Staff Director 
for the House Budget Committee. I understand Ms. Phillips is 
spending part of her birthday with us today. Happy Birthday.
    Dr. Van Ooms is Vice President of the Committee for 
Economic Development. Dr. Ooms has worked for the Democratic 
Staffs of the House and Senate Budget Committees and worked at 
OMB during the Carter Administration.
    We are pleased that you could join us. Without objections, 
your written statements will be made a part of the record.
    Any opening comments that you would care to make will be 
heard now. Who would like to go first?
    Mr. Muris.

 STATEMENT OF TIMOTHY J. MURIS, PROFESSOR OF LAW, GEORGE MASON 
                    UNIVERSITY SCHOOL OF LAW

    Mr. Muris. Thank you very much, Senator Thompson and 
Members of the Committees.
    Let me make a few brief points.
    First, I want to look at recent budget history. One of the 
interesting points is on page 2 of my testimony, giving CBO's 
projections from July 1981, which showed the budget moving into 
massive surpluses. By 1996, there was going to be a surplus of 
over $200 billion. In those days people talked about GNP 
instead of GDP, and it was going to be 4.3 percent of GNP. 
Reality was just a little bit different. There was a deficit of 
over $200 billion.
    The point of this little tour of budget history is two-
fold. One, humility for all involved in the budget process is 
in order. The three most important events in the rise and fall 
of the recent large deficits were all unforeseen. One was the 
recession of the early 1980's, which was the worst recession 
since the Great Depression. The second was the end of the Cold 
War, and the third was the recent massive revenue surge. Each 
of these events was unforeseen.
    My second point is that the budget process has become 
inflexible. Before the mid-1970's, large deficits appeared 
occasionally--deficits of the size, for example, of 2 percent 
of GDP. But they quickly disappeared. By the mid-1970's, 
however, even before the large deficits of the early 1980's, we 
had a period when in 6 of the 7 years before 1982 the deficit 
was already greater than or equal to 2 percent of GDP.
    A major reason for that inflexibility is what I call the 
balkanization of spending authority. For most of our history 
the appropriators controlled the vast majority of the spending. 
When the appropriators have had control over all the spending 
we have not had a deficit problem.
    We have had a few relevant episodes in our history. In the 
late 19th and early 20th Century, the appropriators lost 
control. What followed were increases in spending and 
significant deficits. In the 1920's, the appropriators got 
control again. The deficits were eliminated and we ran 
surpluses.
    Starting in the 1930's the appropriators began to lose 
control again. Mandatory spending became a very large chunk of 
the budget by the mid-1970's. It is not an accident that the 
deficit problems began when this balkanization problem began.
    We have what economists call a common pool problem. The 
idea is if you have a lake and no one owns the fish in the lake 
you will have too much fishing. If someone owns the lake, we 
will have the appropriate amount. That is why they call it the 
common pool problem.
    I have written an article with another economist testing 
these ideas on State budgets. We found, indeed, that in States 
with balkanized spending authority, spending grew faster.
    Let me now turn to more current problems with the budget 
process as it exists today. The Nussle-Cardin bill, Senator 
Domenici's bill, and the other bills address some of them.
    One of the problems is so-called baseline budgeting. Over 
the last 20 years politicians and budget professionals of all 
stripes have transformed budget terminology into Orwellian 
Doublespeak. Increases in spending are labeled cuts; taxes paid 
to the government reduce spending; and laws that continue a 
policy about to expire are said to cut spending.
    The specific problems with this system are several. One is 
that some people think the baseline is so-called current 
services. Current services attempts to measure what today's 
government will cost tomorrow. The technicians quickly realized 
that they could not measure current services. Instead, the 
baseline measures something else. If you take the Medicare 
baseline, for example, historically over 50 percent, most has 
been increased services, not current.
    Let me turn briefly to the BEA. We have had problems with 
the discretionary caps for a couple of reasons. One is that the 
caps do not measure all forms of budgetary resources. The major 
loophole here is user fees. User fees are exploded because they 
are free under the caps. Much of the regulatory state is funded 
now through user fees. For example, I worked in the Federal 
Trade Commission in the antitrust and consumer protection 
areas. The RTC and the antitrust division of the Department of 
Justice are funded now almost entirely by merger filing fees 
because the money is free under the caps.
    Second, we have loopholes that increased the size of the 
caps. You have taken some steps to close them by eliminating 
the budget authority cushion and the inflation adjustment. 
There are still problems with emergencies, however. Senator 
Domenici's bill does a good job in addressing that problem.
    Finally, in terms of PAYGO, there are a few issues. 
Allowing the on-budget surplus to be applied for tax cuts is a 
good idea. PAYGO only applies to so-called policy changes; this 
is too narrow. It should be applied, particularly, to technical 
changes as well.
    Thank you.
    [The prepared statement of Mr. Muris follows:]
                 PREPARED STATEMENT OF TIMOTHY J. MURIS
I. INTRODUCTION
    Thank you for inviting me to discuss the Federal budget process. I 
begin by briefly describing some relevant budget history, particularly 
concerning the rise and fall of the recent large deficits. Because the 
budget process at the least exacerbated these problems, I then turn to 
flaws in the process, beginning with the balkanization of spending 
authority. Finally, I discuss other flaws in the current process, 
including those with the Budget Enforcement Act.
II. SOME BUDGET HISTORY
    It might seem that in this new era of projected surpluses, the 
budget process is no longer an important concern. The reason for the 
rise and fall of large deficits, and the role of the budget process in 
those changes, should give us pause, however. Before the mid-1970s, 
large peacetime deficits were a temporary phenomenon. Thus, the large 
(by the standards of the time) deficits in 1959, 1968, and 1971-72, 
when the deficit exceeded two percent of GDP, quickly disappeared.\1\ 
The budget was either in a small surplus (1960 and 1969) or a small 
deficit (1974).
---------------------------------------------------------------------------
    \1\ Unless otherwise indicated, all years are fiscal.
---------------------------------------------------------------------------
    Change occurred in the mid 1970s however. In the seven budgets from 
1975 to 1981, the deficit was at least 2.6 percent of GDP in every year 
except 1979 (when it was 1.6 percent). Something had changed to prevent 
rapid elimination of large deficits. In the summer of 1981, however, 
better times appeared to be on the horizon. This, in July of 1981, 
CBO's Budget Baseline Projections for Fiscal Years 1982-1986 were 
released, and are reprinted in Table 1.


                                                          TABLE 1--BASELINE BUDGET PROJECTIONS
                                                                 Deficit (-) or Surplus
                                                                       (by years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            1982             1983             1984             1985             1986
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projections (In Billions of Dollars)...............................          -30               18               76              138              209
As a Percent of GNP................................................         -0.9              0.5              1.9              3.1             4.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CBO--July 1981

    According to CBO, the budget would not only be balanced by 1983, it 
would thereafter run massive surpluses. These CBO estimates assumed 
both a strong economy and that the laws in place would not change. CBO 
was not alone in the former assumption, as the Administration and most 
economists in mid-1981 pronounced the economy as strong. As Table 2 
summarizes, the consensus forecast, represented by the Blue Chip 
estimates, was optimistic.

                                          TABLE 2--BLUE CHIP HEADLINES:
                                                 March-July 1981
----------------------------------------------------------------------------------------------------------------
                      Month
----------------------------------------------------------------------------------------------------------------
    March                                     ``1981 Economic Consensus Inches Upward''
    April                                     ``1981 Full Year Consensus Forecast Continues to Pick-up Steam''
    May                                       ``1981 Consensus Forecast Tilts Up Again''
    June                                      ``The Recovery Continues''
    July                                      ``Economic Exuberance Envisioned For 1982''
----------------------------------------------------------------------------------------------------------------

    We now know the folly of these projections. In July, 1981, the 
economy was about to enter the worst recession since the Great 
Depression of the 1930s. But this fact would not be known for 
months.\2\ It was this unforeseen event that was the major cause of the 
large deficits that followed. Taxes were cut and defense spending 
increased. Both policies enjoyed wide support in 1981, however, 
although the particulars were hotly debated. Moreover, both contributed 
to important policy goals--economic growth and victory in the Cold War. 
Because the deficits of the preceding seven years had persisted, this 
unforeseen recession increased already substantial deficits. By the end 
of the Reagan years, the situation had returned to where it started, 
with the 1989 deficit (2.8 percent of GDP) virtually identical to the 
1980 and 1981 deficits (2.7 and 2.6 percent of GDP, respectively).
---------------------------------------------------------------------------
    \2\ Thus, the record does not support the view that the Reagan 
Administration used a ``rosy scenario'' to hide the effects of its 
first budget. A comparison of the forecasts and assumptions used by the 
Administration finds that, in the aggregate, they did not differ 
dramatically from those of CBO or the private sector. What does stand 
out is the degree to which the administration, CBO, and private 
economists understated the chance and degree of a major recession. See 
Muris, The Rise of Large Deficits: What Really Happened in 1981 
(working paper available from the author).
---------------------------------------------------------------------------
    Because the events of the 1990s are more recent and thus more 
familiar, I will not recount them in as much detail. A mild recession, 
the S&L bailout, and unforeseen technical changes in projected tax 
receipts and in Medicare and Medicaid spending increased deficits once 
again, to 4.7 percent of GDP by 1992. The resumption of the strong 
economy, a drop in S&L outlays, the end of the cold war, and the 1990 
and 1993 tax increases reduced the deficit again. When the Republican 
control of the Congress began four years ago, however, CBO was 
projecting $200 billion deficits well into the future.\3\ Even 
President Clinton's proposed budget for 1996, released in early 1995, 
projected deficits of this magnitude.
---------------------------------------------------------------------------
    \3\ Because the economy would grow, deficits as a percent of GDP 
were projected to decline slowly.
---------------------------------------------------------------------------
    Then, the unforeseen intervened again. Deficits ended, defying the 
prognosticators, as revenue growth exploded well beyond expectations. 
Although higher than predicted economic growth contributed to the 
deficit fall as did a slowdown in the growth of mandatory spending, the 
bulk resulted from unanticipated other factors, such as the strong 
stock market. Without major legislative action, we moved from an era of 
deficits to one of projected surpluses.
    What are we to make of this brief history? At least two lessons for 
current budgeting can be discerned. First, humility is in order. The 
most important events in the recent rise and fall of large deficits 
were all major surprises--the length and depth of the early 1980s 
recession, the end of the cold war,\4\ and the revenue surge of the 
late 1990s. Second, the budget process has lost its flexibility to 
respond quickly to unforeseen events, at least to unpleasant ones. 
Because we cannot control the unforeseeable, let me turn to problems 
that we can influence, in this case the current budget process.
---------------------------------------------------------------------------
    \4\ The contribution of lower defense outlays to deficit reduction 
has been dramatic, falling from 6.3 percent GDP in 1986 to 3.4 percent 
in 1997.
---------------------------------------------------------------------------
III. THE BALKANIZATION OF LEGISLATIVE CONTROL \5\
    During the period of large deficits, two views were most often 
advanced for failure to end them. The first was that the problem was 
one of political gridlock: the Republican (or Democrat) majority in 
Congress and the Democrat (or Republican) President could not agree on 
the mix of spending and tax policies necessary to solve the problem. 
The second view was that logrolling among legislators and rent seeking 
by special interests combined to produce spending higher than would 
exist in a world with lower information costs. For example, 
transportation projects benefit concentrated interests who care 
intensely about the project's benefits (reduced congestion and local 
jobs), while the costs are widely dispersed among taxpayers. 
Participating in the political process is not free, and opposing 
inefficient programs is simply not worth the time and effort for most 
individuals. For many, concerned about maintaining their jobs and 
supporting their families, collecting enough information to participate 
effectively in the political process is simply too difficult.
---------------------------------------------------------------------------
    \5\ This discussion draws heavily on the work of John F. Cogan, 
``The Dispersion of Spending Authority and Federal Budget Deficits, in 
The Budget Puzzle: Understanding Federal Spending, eds. Cogan, J.F., 
Muris, T.J. & Allen Schick (Palo Alto: Stanford University Press, 1994) 
and, for empirical support, on W. Mark Crain and Timothy J. Muris, 
``Legislative Organization of Fiscal Policy,'' 38 Journal of Law & 
Economics 311 (1995).
---------------------------------------------------------------------------
    Although there is significant truth to these two views, they do not 
tell the whole story. Changes in the institutional structure within the 
Congress and in the budgetary framework in which Congress operates have 
combined to create the incentives and the means for the deficit to grow 
and become difficult to control. Regarding institutions, the 
balkanization of legislative control over spending has led to increases 
in spending. Moreover, the consolidation within committees over both 
revenue and spending authority for entitlement programs has fueled the 
growth of specific programs. Two key institutional changes made during 
the 1930s were critical in producing a bias in the process toward 
deficits. The first and most important was to transform jurisdiction 
over expenditures from a highly centralized committee structure to one 
in which various committees had spending authority.
A. The Dispersal of Spending Authority
    For most of our nation's first century, a single committee in each 
house controlled almost all spending authority. This institutional 
arrangement persisted until 1877; in rule changes over the next nine 
years, the House stripped the Appropriations Committee of its authority 
over eight of the 14 appropriations bills. In each instance, 
appropriations authority was transferred to the legislative committee 
that had authorizing jurisdiction over the programs contained in the 
appropriations bill. By 1885, the House had transferred almost one-half 
of all non-mandatory appropriations to various legislative committees. 
In 1899, the Senate followed suit, dividing appropriations 
jurisdiction.
    An upward surge in spending followed the dispersal of 
appropriations jurisdiction. During the seven years following the House 
decision, spending grew at a rate unprecedented in U.S. history. By 
1893, program spending was 50 percent larger than it had been in 1886. 
Expenditures continued upward following the Senate's decision to divide 
appropriations jurisdiction, rising 45 percent between 1900 and 1916.
    As a result of this rapid growth in spending, calls for budget 
process reform increased throughout the years preceding World War I. In 
October 1919, a select committee on the budget was established and 
recommended that the House consolidate the authority to report all 
appropriations in one committee. This recommendation was approved in 
1920. In 1922, the Senate amended its rules to provide that all 
appropriations also be considered by one committee. Consequently, the 
U.S. budget was in surplus for the eleven year period 1920-1930, the 
longest streak of consecutive budget surpluses since spending authority 
was dispersed in the House.
    Unfortunately, the process of spreading spending jurisdiction among 
committees began anew in 1932 when the Reconstruction Finance 
Corporation was created and financed outside normal appropriations 
channels. Decentralization accelerated during the next four decades, 
particularly between 1965 and 1975. By the mid 1970s, most substantive 
Congressional committees had authority to report legislation to the 
floor committing funds from the U.S. Treasury. In 1932, the 
Appropriations Committees controlled 89 percent of outlays through the 
annual Federal budget process. By 1992, fewer than 40 percent of 
Federal outlays resulted from decisions under the Appropriators' 
control.
    This balkanization of spending authority creates a ``common pool'' 
problem. When no one owns a common resource, such as the fish in a 
lake, there is an incentive for too much fishing, depleting the 
population. With the budget, the common resource is general-fund 
revenue. As the Appropriations Committee controls less and less 
spending, and, correspondingly, other Congressional committees control 
more and more, no one committee has the incentive to restrain spending 
because the total level of spending is no longer the responsibility of 
any one committee. To the contrary, the resulting competition among 
committees to spend results in more spending than would otherwise 
occur, increasing deficit spending.
B. The Movement Towards Tax Financed Trust Funds
    The creation of tax financed trust funds, most predominately Social 
Security and, later, Medicare Hospital Insurance, and the placement of 
jurisdiction over them in the tax-writing committees was the second 
institutional change contributing to the increase in general fund, and 
hence total, deficits.
    Unlike general fund taxes, trust fund revenues are dedicated to 
specific programs. Moreover, general fund taxes are generally raised 
under the jurisdiction of a committee that does not control how the 
money is spent, unlike trust funds which are raised by the committee 
responsible for the specific fund. Since World War II, general fund 
revenues have decreased as a percentage of gross domestic product (GDP) 
with a corresponding increase in trust fund receipts. In the early 
1950s, trust fund receipts amounted to little more than 1 percent of 
GDP, and general fund receipts equaled 16 percent of GDP. By the mid 
1990s, trust fund receipts had increased to nearly 7 percent of GDP, 
while those of the general fund decreased to about 12 percent.\6\ The 
rise in trust fund revenues seems to be crowding out general revenues.
---------------------------------------------------------------------------
    \6\ The recent surge in revenues has increased general fund 
revenues to over 13 percent. Despite this surge, the non trust fund 
budget was still in deficit through 1998.
---------------------------------------------------------------------------
    Significantly, trust fund programs have not run deficits. Although 
spending for such programs has increased dramatically, trust fund taxes 
have increased to pay for that spending. Increased Federal deficits 
have thus occurred in areas in which the committee in charge of raising 
the taxes does not control the spending.
    Important implications arise from the merging of the tax and 
spending authority. In particular, if one committee controls all taxes 
and benefits, we might expect that both will increase at a relatively 
higher rate. This conclusion follows because raising taxes, a 
politically painful step, is made less painful when those who raise the 
taxes directly obtain the benefit of the increase, through political 
support from the beneficiaries of the spending. All members of the 
legislature ultimately vote on taxes and spending, and thus share in 
the credit and blame. But because committee members exert more 
influence over the legislation than do noncommittee members, they can 
more easily tailor spending to increase the credit they receive.
C. Econometric Testing
    Dr. Mark Crain of George Mason University and I studied the 50 
State legislatures to test the thesis that the dispersal of spending 
authority among various committees results in significantly greater 
spending than when one committee controls spending. We also attempted 
to assess the significance of rules that combine or separate the 
committees overseeing revenue and spending decisions.
    States that have only one committee with appropriations authority 
should have more control over spending than states with appropriations 
authority dispersed among committees. Consolidating control within one 
committee is an institutional means to overcome the common pool 
problem; it establishes a mechanism to contain spending pressures. By 
contrast, states that have balkanized spending authority should 
experience relatively higher spending, resulting from over-use of the 
common resource, the state's total revenue. Spending pressures are less 
controllable, absent an institutional mechanism to internalize spending 
accountability.
    The results reveal that states with centralized appropriations 
authority have more control over spending than states with 
appropriations authority dispersed among several committees. As 
predicted, states that centralize spend less, on average, than states 
that decentralize spending authority. The difference is about 6 
percent, holding other factors equal.\7\
---------------------------------------------------------------------------
    \7\ We used regression analysis, a statistical technique designed 
to sort out the relative impact that several independent variables 
(such as centralized or decentralized committee structure) have on the 
dependent variable (here state expenditures per capita). Our results 
are significant at the .01 percent level.
---------------------------------------------------------------------------
    The second aspect of our analysis tested the effect on state 
revenues of combining spending and taxing committees. When these 
functions are combined into one committee, the legislators who initiate 
revenue decisions have the most control over how those funds are spent, 
the taxers are the spenders. When the legislators controlling revenues 
are not the appropriators, the revenue committee members cannot capture 
as fully the political benefits of their labors, because spending 
programs are more likely to be designed to benefit the constituents of 
the appropriators. Thus, the tax committee is less likely to take the 
politically costly step of raising taxes if there is no offsetting 
benefit. We would expect that where taxing and spending authority are 
merged, taxes would be higher.
    As predicted, states that merge spending and taxing authority into 
a single committee have higher revenues than those that separate these 
responsibilities among multiple committees. On average, states with 
merged committees have higher revenues, per capita, by 28 percent 
(again all other things equal).
IV. OTHER FLAWS IN THE BUDGET PROCESS
    Recognizing that it was losing control over the budget, Congress 
created a new budget process in 1974. Rather than directly address the 
central problem of the balkanization of spending authority, Congress 
instead created a new process with only a weak capability to control 
budget totals or various budget programs. (Of course, returning more 
power to one committee was, and is, a politically difficult step.)
    The new process does have some advantages over the period prior to 
1974. In particular, the current process facilitates the development of 
large deficit reduction plans, such as the one Congress passed in 1995. 
Nevertheless, despite numerous such efforts, the deficit problem 
persisted for two decades. Besides the failure to rest real control in 
one committee, the new process has several flaws that exacerbate the 
deficit problem. The first involves the use, or more appropriately 
misuse, of baseline budgeting. Moreover, the much praised, most recent 
effort to ``strengthen'' the budget process, the Budget Enforcement Act 
(BEA) of 1990, is itself flawed.
A. Baseline Budgeting \8\
    The budgetary framework in which Congress operates further biases 
policy in the direction of increased spending. Over the last twenty 
years, politicians and budget professionals--Democrats and Republicans, 
liberals and conservatives--have transformed budget terminology into 
Orwellian doublespeak. Increases in spending are labeled ``cuts,'' 
taxes paid the government ``reduce'' spending, and laws that continue a 
policy about to expire are said to ``cut'' spending. Politicians can 
announce ``cuts'' that satisfy the public's general desire for reduced 
government spending and deficit control, while increasing spending for 
most programs, thus assuring themselves the support of special interest 
groups. Moreover, all these claims seem legitimate to many policy 
analysts and are too often accepted uncritically in the press.
---------------------------------------------------------------------------
    \8\ I discuss these issues at greater length in Timothy J. Muris, 
``The Uses and Abuses of Budget Baselines,'' in The Budget Puzzle; 
Understanding Federal Spending, eds. Cogan, J.F., Muris, T.J. & Allen 
Schick (Palo Alto: Stanford University Press, 1994).

    1. Origins of the Baseline
    Throughout most of U.S. history, the base used to compare 
alternative budget proposals was either the levels in the previous 
year's budget or those proposed by the President. Beginning with the 
Congressional Budget Act of 1974, more elaborate bases, called 
baselines, came into play. The Act required a baseline that continued 
current programs at ``the same level as the current year without a 
change in policy.'' Such a baseline, it was felt, would be better for 
assessment of the fiscal impact of new proposals than the cruder 
measures previously used.
    How to define the baseline was unclear, however, and the 
legislative history gave no precise guidance. Alternative definitions 
developed. One is to measure a constant level of government services to 
determine if a proposed change would increase or decrease government. 
This view uses as a baseline ``current services.'' This baseline was 
intended to provide a policy-neutral method to project accurately what 
it would cost in the future to continue government as it exists today. 
Such a baseline, it was felt, would allow better assessment of the 
fiscal impact of new proposals than the cruder measures previously 
used.
    Another definition focus on the words ``without a change in 
policy.'' Under this approach, the baseline puts the government on 
``automatic pilot,'' determining how much it would cost to fund it in 
the future if no new legislation were passed. This view is called 
``current policy.'' A third alternative is called ``current law.'' It 
differs from ``current policy'' in not including adjustments for 
inflation of discretionary spending. The current policy baseline has 
been the most frequently used measure for evaluating and reporting on 
budget proposals.

    2. The Baseline Used Does Not, and Could Not, Measure Current 
Services
    Any baseline that projects the cost of the current level of all 
government activities into the future is an illusion. There are two 
major problems. First, events outside the Congressional spending 
process can change the funding level needed to hold government services 
constant. In other words, because of events outside its control, 
tomorrow's government can require more or less money than today's to 
provide the same services.
    An example of an event exogenous to Congressional spending 
decisions is the accomplishment of a program's objectives. To hold 
government activity constant, sensitivity to the purposes of programs 
is required. If the original purpose of a program is achieved, yet 
spending continues for a new purpose, then government involvement in 
the economy has increased, not remained constant. For example, early in 
the Carter administration, Congress increased job-training funding to 
help alleviate the impact of a recession. Once the recession ended, 
continuing the program meant a change in its purpose, not a mere 
continuation of past efforts.
    The second problem is that, even ignoring for such exogenous 
events, determining what amount will be necessary to fund government at 
a constant level is a complex matter. Simple formulas such as adjusting 
all discretionary programs for inflation can fail to measure accurately 
a constant level of government. Many variables can influence the 
calculus, and even when current services for a particular program are 
carefully calculated, experts may reasonably disagree over the correct 
estimate, thus undermining the supposed policy neutrality and 
objectivity of the current services baseline. For example, defense 
experts disagree over the level of funds needed to support any given 
force structure.
    In any event, it is clear that the baseline used does not measure 
current services. Consider Medicare. CBO annually divides projected 
growth into three parts--increased caseload, price inflation, and 
greater use of services. The first two should be part of any effort to 
define true current services, i.e. how much it will cost tomorrow to 
fund today's program. But the final category--greater use of services--
obviously represents more, not current, services. It is this last 
category that accounts for the bulk of the projected increase in 
Medicare spending--over 60 percent. Despite the fact that most of 
Medicare growth has been in excess of true current services, in the 
last decade public debate of the program has been dominated by 
discussion of ``cuts.''

    3. Impact of the Baseline
    Proponents of the baseline approach both argue its necessity and 
maintain that ``objections [to the baseline system] have more to do 
with form than substance. . . . In the end, the budget totals are the 
same whichever approach is used.'' \9\ Yet, any system that 
fundamentally alters how the public understands political action 
influences outcomes. Indeed, this pattern continued in the budget 
negotiations of 1990, 1993, 1995, and 1997. The rhetoric that dominated 
the process was of extreme pain, yet in 1990 Congress expanded Medicare 
and Medicaid significantly and continued the large increases in 
domestic discretionary spending that began in the last year of the 
Reagan administration. The reality of substantial new spending hardly 
matched the harsh rhetoric of severe restraint.
---------------------------------------------------------------------------
    \9\ U.S. Congress, Congressional Budget Office, A Profile of the 
Congressional Budget Office, at p. 32-33 (Sept. 1990).
---------------------------------------------------------------------------
    The rhetoric of the budget is biased toward increased spending. 
This claim can be reduced to a simple proposition: In dealing with the 
press and public, would an advocate for a program prefer that built-in 
increases above the previous year's level be characterized as 
``current,'' so that a restraint in growth leaving expenditures well 
above last year's would be presented as a ``cut''? Or, would he or she 
prefer to have the debate be over the, for example, 10 percent increase 
assumed in the baseline, or a mere 8 percent increase over last year's 
spending levels? Particularly given the short time one often has to 
make a point--in many cases a 10 second ``sound byte''--it would be a 
rare program advocate indeed who did not prefer the current policy 
language of ``cut'' to the alternative of defending an annual increase.
    The defenders of the current Medicare and Medicaid programs provide 
many excellent examples. In 1995, for example, the Congress made a 
serious attempt to slow the growth of Medicare. Nevertheless, the 
annual growth rate was still projected to be in the six to seven 
percent range, depending upon which plan and whose estimates were used. 
Yet, because of the rhetoric of the baseline, most Americans thought 
that the Congress was actually attempting to reduce spending below the 
1995 level.
    Even when the proposed reform is more modest, critics of the reform 
use the baseline to devastating effect. On January 5, 1987, for 
instance, then President Reagan's budget for 1988 was released, and 
proposed to restrain the growth in Medicare from 63 percent (10 percent 
annually) in the administration's five year, current policy baseline to 
46 percent (8 percent annually). The next day, the American Association 
of Retired Persons, the American Hospital Association, the American 
Medical Association, the American Nurses Association, and the 
Federation of American Health Systems ran the following full-page 
advertisement in the Washington Post.
    The ad featured a large picture of an elderly woman and a young 
soldier embracing. The following appeared above the picture:

                      During the past five years,

                     more than $30 billion has been

                    cut from Medicare and Medicaid.

                         Now the administration

                     wants to cut $50 billion more.

    Below the picture, the ad asked:

                        Isn't it time we started

                       defending the home front?

    The body of the ad appears to compare yearly increases in defense 
spending with ``cuts'' in medical programs. Against the current policy 
baseline, Medicare and Medicaid had been cut. Yet, in absolute numbers, 
national defense outlays grew by 110 percent from 1980 to 1987 ($134 
billion to $282 billion), while Medicare and Medicaid increased by 123 
percent, from $48 billion to $107 billion. Thus, the medical programs 
actually grew by a greater percentage than defense. By claiming that 
defense was increasing while Medicare and Medicaid were being cut, 
however, the ad effectively used the current policy baseline to protect 
large growth in the medical programs.
    The misleading use of ``cut'' is not the baseline system's only 
fault. The system has been manipulated, often producing ``savings'' 
dubious even under the baseline's peculiar logic. The manipulation of 
the baseline exacerbates this bias in favor of spending. When, as in 
the 1990 budget summit, $17 billion can be claimed as ``cuts'' simply 
by extending current law (and even allow for paying hospitals a higher 
percentage for capital than previously), when $9 billion can be claimed 
as savings over three years by limiting pay increases to 4 percent, 
when paying hospitals a higher update than they previously received is 
the largest ``cut'' in the 1987 budget summit category of entitlement 
``savings,'' and when money can simply be shifted to the next fiscal 
year to claim savings, a large package of ``reductions'' can be enacted 
with little or no impact on actual spending or the deficit. Even in the 
1995 Reconciliation Act, which clearly is more ambitious than past 
efforts, almost one-third of the ``savings'' needed for Medicare can be 
obtained simply by extending expiring provisions and continuing current 
policies.
    One of the biggest games is what I call ``The Perpetual Motion 
Machine of Expiring Spending Cuts.'' A program is categorized as being 
``cut'' if a policy designed to reduce costs relative to the previous 
policy is scheduled to expire and then extended. Because the previous, 
higher-cost, policy is ``in'' the baseline for the years after the 
lower cost policy expires, extending the ``saver'' once again 
``reduces'' costs. Repeated extension of the Medicare Part B premium at 
twenty-five (25) percent of program costs is a notorious example.
    A closely related practice occurs when programs are annually 
increased. By having the baseline assume an annual increase higher than 
the one usually paid, large savings can be claimed. Medicare again 
provides an example, with the long-standing practice of assuming a high 
payment increase to hospitals in the baseline and then increasing 
payments annually by less than the assumption. Beginning in 1984, 
Congress began requiring hospitals to be paid under the prospective 
payment system (PPS) based on the diagnosis of the patients' illness, 
not on the services they actually receive. Each year, the PPS payment 
scale is increased or ``updated.'' This update, once set by the 
Secretary of Health and Human Services, is supposed to be based on 
several variables, including input inflation (called the ``market 
basket''), hospital practice patterns, and hospital productivity.
    Initially, both practice patters and productivity were used to keep 
the update below the market basket. But after a few years Congress 
mandated that the baseline assume an update at the full market basket. 
Congress then legislated the update below the market basket, claiming 
budget savings each time, although in fact the outcome was identical to 
the intent of the system.
    These ``games'' have become an established part of our budget 
system. The budget process has focused too much on producing a 
respectable number of ``cuts''; if the cuts merely manipulate the 
baseline, the political pain, which is greater when programs are 
actually cut than when they are increased, is lessened. More important, 
some of these cuts are then used to offset real spending increases or 
to protect other programs from real spending restraint. Congress 
frequently pays for new initiatives, which can dramatically increase 
outlays, by ``cuts'' from the baseline. In this way, ``soft'' savings 
offset ``hard'' increases.
    Created to give policy makers a better handle on budgetary 
decisions, in practice the current policy baseline has given rise to a 
charade divorced from fiscal realities. It should be scrapped.
B. The Budget Enforcement Act
    1. The Discretionary Caps \10\
---------------------------------------------------------------------------
    \10\ For more details on how to measure domestic discretionary 
spending, see John F. Cogan and Timothy J. Muris, ``Changes in 
Discretionary Spending During the Reagan Years,'' in The Budget Puzzle; 
Understanding Federal Spending, eds. Cogan, J.F., Muris, T.J. & Allen 
Schick (Palo Alto: Stanford University Press, 1994).
---------------------------------------------------------------------------
    Proponents of the BEA have claimed that the limits on discretionary 
spending have been a resounding success in achieving their goal of 
restraining budgetary growth. The BEA placed ceilings, or ``caps,'' on 
the levels of annually appropriated spending, providing separate limits 
for domestic, defense, and international spending through fiscal 1993 
and then one limit for major discretionary spending categories through 
1997. Defense has a separate cap for 1998 and 1999, and there are 
separate caps for certain smaller areas, such as violent crime and 
transportation programs. When the BEA was enacted, these ceilings were 
proclaimed as restraining domestic discretionary spending to the level 
of inflation, and were said to be particularly tight after the 
agreement's first year. So successful are they perceived to be that 
Congress has continued them.
    Reality, however, is far different. Properly measured, domestic 
discretionary, spending growth has exploded since 1988, two years prior 
to the enactment of the BEA, and 1998. Of course, defense spending has 
fallen since the end of the cold war, an event that can hardly be 
attributed to the BEA. Indeed, the effect of the 1990 budget deal was 
to increase short term defense spending above the level Congress was 
otherwise planning to appropriate.

    a. The Sources of Confusion
    There are two major reasons why reality and perceptions are so at 
odds. The first is that officially-reported budget authority and outlay 
figures do not measure the monetary size of programs accurately. The 
availability of means of financing programs other than direct 
appropriations, such as receipts from offsetting collections, 
obligation limitations, transfers from entitlement programs, and 
recoveries of prior year spending authority can all increase program 
size without being fully reflected in annual budget authority and 
outlay figures.
    A truer picture emerges if ``budgetary resources'' are used to 
gauge the monetary size of programs. Budgetary resources for a program 
are the total amount of funds made available for obligation by that 
program in a given year. This measure includes all the available means 
of financing listed above. Once this measure is developed, a true 
picture of changes in domestic discretionary spending can be seen.
    The second reason for the mismatch between reality and perception 
involves the caps themselves. Although the caps are a constraint, their 
impact on spending growth depends upon the level of the caps. In fact, 
for many reasons, particularly the level at which the caps were first 
set and adjustments that the 1990 law requires to be made to them, the 
caps have not restrained the growth of domestic discretionary spending.
    The failure to measure spending accurately and to understand the 
nature of the caps helps explain the rhetoric and commentary that has 
occurred each year about the level of domestic discretionary spending. 
Throughout the year, from release of the President's Budget through 
enactment of the appropriations bills, the dominant theme is how tight 
the caps are. Some commentators, pointing to measures of spending such 
as budget authority and outlays which, although incomplete, can capture 
the direction of spending changes, note that while the caps may have 
been generous in the past, they are now tight. Yet, when that past was 
the present, i.e., when the Congress was working on the appropriations 
now recognized as allowing generous growth, the dominant theme--severe 
restraint--prevailed. Because the caps are both adjustable and are 
incomplete measures of spending, the seemingly tight caps are revealed, 
long after the fact, to be not so tight after all. By this time, 
however, Congress is working on new appropriations, again bemoaning how 
severely it is restricted.

    b. Accurately Measuring Program Size
    In measuring the size of discretionary programs, reported outlays 
are frequently equated with total spending. This is incorrect. Outlays 
are recorded net of certain payments made to the government from the 
public. Moreover, outlays are recorded only when a check is issued, not 
when the government assumes an obligation. Outlays for many programs, 
therefore, occur years after the programs have been funded.
    Using appropriated budget authority to measure program size avoids 
the timing issue, but for some programs, this measure is irrelevant or 
only one method of financing. Particularly in the last 20 years, other 
methods have been used with increasing frequency to enable Congress to 
produce the appearance of budget cutting while the total amount 
available for spending has been maintained or increased.
    One such method is requiring the public to pay a fee for a 
particular service. Such fees, called offsetting collections, are 
excluded from reported outlay and budget authority figures, but the 
agency providing the service is frequently allowed to use the fees to 
cover some or all of its costs. By increasing the fee and reducing the 
amount of appropriated budget authority, Congress can increase the 
amount of money the agency has to spend while reducing the agency's 
budget on the government's books. The use of such fees has become 
increasingly common, and are funding more and more of the regulatory 
state.\11\
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    \11\ Indeed, as documented by CBO, offsetting collections grew 
rapidly even as deficits grew. Between 1980 and 1991, user charges 
classified as offsetting collections increased two and one-half times. 
User charges to fund regulatory agencies have increased even faster, by 
more than five times. See CBO, The Growth of Federal User Charges 
(August 1993).
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    Another type of budgetary resource that has not been included in 
calculations of budget authority are obligation limitations. Obligation 
limitations are used to control programs with trust or revolving funds. 
Highway programs, for example, are financed through a trust fund that 
receives money each year, mostly from taxes earmarked for that purpose. 
A limit on the amount in the fund that can be obligated for new 
spending, called an obligation limitation, controls program size. 
Obligation limitations thus serve the same purpose as appropriations do 
in other accounts, and are functionally equivalent to budget authority. 
Obligation limitations should be equated with budget authority to 
compute program size.
    There are other methods Congress can use to conceal the true level 
of spending on discretionary programs. For example, Congress has 
transferred money from entitlement programs to discretionary programs. 
Congress can also ``recover'' expiring funds to spend on new programs. 
This is money, usually budget authority, that was previously 
appropriated and obligated. Unless it is ``recovered,'' it will not be 
spent because it is no longer needed.

    c. Adjustments to the Caps
    As mentioned above, several adjustments to the caps have made them 
more generous than they originally appeared.

        i. Emergencies
    Under the budget rules, both as negotiated in the BEA and as 
reaffirmed in August 1993 and 1997, emergencies do not count against 
the caps. This loop-hole has added billions of dollars to discretionary 
spending.
    Until Appropriations for 1998, there was much self-congratulatory 
praise in past Congresses and the Executive Branch about how this 
provision has been limited to ``true'' emergencies, such as hurricanes 
and earthquakes. This praise was misplaced. The emergency exception is 
designed for unforeseen events, on the theory that no rational budget 
process could account for them. It is true that the particular 
emergencies that occur are unforeseen. In a nation as large as ours, 
however, the fact that there will be emergencies (almost) annually is 
foreseeable. Whether it is hurricanes, earthquake, riots, major floods, 
drought, or military emergencies, it is predictable that somewhere, in 
some fashion, nature or other forces will produce the need for 
``emergency'' spending.\12\ Rather than treat emergencies as acts of 
God for which the budget process should be held unaccountable, these 
events are, in the aggregate, predictable. An amount, based on past 
experience, should be set aside within the caps as a contingency to 
fund them. Moreover, these funds should be released only for true 
emergencies.\13\ Senator Domenici's bill will provide a useful check on 
abuse in this area.
---------------------------------------------------------------------------
    \12\ All years in this sentence are calendar years.
    \13\ OMB's definition--``sudden, urgent, unforeseen, and . . . not 
permanent''--is helpful here. See ``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, Executive Office of the President, 
Office of Management and Budget (June 1991).

        ii. The Outlay Cushion
    The drafters of the BEA recognized that a budget authority cap does 
not control all forms of spending. Although retaining the traditional 
treatment of offsetting collections, and thus allowed increases in such 
fees to fund programs without counting against the ceilings, the BEA 
attempts to control obligation limitations through an outlay cap. The 
cap was apparently calculated to provide outlays sufficient to fund the 
programs at the modest levels of growth implied by the budget authority 
cap. The original Budget Enforcement Act allowed for an additional $6.5 
billion in outlays, however, ostensibly as a cushion to provide for 
differences in estimating outlays between OMB and CBO.\14\ Although 
some estimating differences still exist for discretionary programs, 
they have largely been eliminated as, beginning with the Gramm-Rudman-
Hollings sequester report in 1986, the career staffs of both agencies 
have sought to narrow their differences.
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    \14\ For budgets since 1995, the special outlay allowance has been 
0.5 percent of the total discretionary spending limit on outlays. 
Although not a stated reason, the cushion also allow for some change 
toward a mix of programs that produce outlays faster than the mix 
allowed in the original BEA numbers. Budgetary resources produce 
outlays at different rates. If Congress changes the mix of appropriated 
budgetary resources toward programs that produce outlays quickly, then 
more outlays will be produced in the first year from the same amount of 
budgetary resources.
---------------------------------------------------------------------------
    The outlay cushion also serves another purpose, namely providing 
for additional growth in budgetary resources. The cushion provides some 
additional ability to increase obligation limitations and hence 
increase the total of budgetary resources. To the extent that the 
cushion is not needed for estimating differences or other reasons, 
every additional dollar of outlays available allows for the creation of 
greater than a dollar in budgetary resources if the programs funded 
produces outlays beyond the first year. In fact, the largest program 
funded via an obligation limitation, highways, produces less than 20 
cents in first-year outlays for every dollar of new budgetary resource.

        iii. The Budget Authority Cushion
    Like outlays, the original BEA provided for a BA cushion. Two cap 
adjustments were allowed. The first adjusted the domestic cap for 1992 
and 1993 by ``.1 percent of the sum of the adjusted discretionary 
spending limits on new budget authority for all categories for fiscal 
years 1991, 1992, 1993 (cumulatively) . . . .'' \15\ The second 
adjustment is ``the amount of new budget authority . . . [that] exceeds 
the discretionary spending limit . . . due to technical estimates made 
by the director of the Office of Management & Budget.'' \16\ Several 
billion dollars were added to the caps through these allowance 
adjustments. (Outlays from the BA cushion count against the outlay 
cushion as they accrue.) Like the outlay cushion, these adjustments 
allowed for some increase in budgetary resources above the level 
implied in the original caps.
---------------------------------------------------------------------------
    \15\ The quote is from Sec. 251(b)(2)(E)(i) of Gramm-Rudman-
Hollings, as amended by the BEA. This section was not included in the 
1997 agreement.
    \16\ Sec. 251(b)(2)(E)(iv). The quoted language covered 1994 and 
beyond, when there was only to be one discretionary cap. Para. 
251(b)(2)(E)(iii) contains an identical provision for 1992 and 1993, 
except that it provides for a separate adjustment for each of the three 
individual caps. Both sections limited the total BA cap adjustment 
allowed. For example, for 1994 and beyond, the statute defined the 
limit as ``.1 percent of the adjusted discretionary limit on new budget 
authority for that fiscal year.'' Sec. 251(b)(2)(E)(iv). These sections 
were not included in the 1997 agreement.

        iv. Inflation Updates
    The BEA originally provided for very modest growth in the domestic 
discretionary caps beyond 1991. The caps themselves were to be adjusted 
for a variety of factors, including inflation. If actual inflation was 
higher than the BEA anticipated, then the caps would increase; if 
inflation was lower, then the caps would decrease. In fact, actual 
inflation was below the BEA's projections, causing the caps to be 
lowered.
    For two reasons, however, these adjustments did not fully remove 
the impact of the mistaken projections; thus, to the extent the caps 
were set to grow with inflation, the adjustments allowed the caps to 
exceed this goal. First, neither the caps for the year in which the 
mistake occurred nor those for the year following were adjusted. For 
example, actual inflation for 1991 was not known until after fiscal 
1991 ended and most appropriations for fiscal 1992 had already 
occurred. Thus, only the caps for 1993 and beyond were lowered. Second, 
OMB read the BEA to force adjustments only for the nonpersonal accounts 
of discretionary spending. CBO and GAO argued that the adjustment 
should have applied to all accounts.\17\ OMB's position thus caused 
smaller decreases than a full adjustment would have.
---------------------------------------------------------------------------
    \17\ See, e.g., GAO, Budget Issues: Compliance With the Budget 
Enforcement Act of 1990 (Nov. 1992). This latest BEA does not contain 
an inflation adjustment.

    2. PAYGO
    As part of the 1990 BEA, Pay-As-You-Go (PAYGO) rules were adopted 
to insure that Congressional action on revenue and entitlement spending 
did not increase the deficit. PAYGO requires that, at least as long as 
the on-budget category is in deficit, new legislation increasing 
outlays or reducing revenues be deficit neutral. Thus, such legislation 
must include offsetting revenue increases or expenditure decreases. If 
Congress does not act, a sequestration of certain entitlement programs 
will occur.
    Although much praised, PAYGO has had a limited impact. PAYGO only 
applies to policy changes to existing laws. It does not reach mistakes 
because of inaccurate economic or technical estimates. Simply, PAYGO 
does not require cost ``overruns'' to be paid for if the excesses 
resulted from optimistic or mistaken projections.
    Consider the problems government and private forecasters had in 
estimating the effects of President Reagan's first budget, discussed 
above. The estimates of the administration, CBO, and private 
forecasters all greatly understated the deficits that would arise from 
the first Reagan budget. Similarly, the economic forecast accompanying 
the 1990 budget deal was highly inaccurate.
    Regarding technical re-estimates that increase the deficit, one of 
the best and most recent examples of this recurring problem can be 
found in the 1990 Budget Agreement. Congress and then President Bush 
claimed that they were ``cutting'' health programs by $35 billion over 
five years and ``saving'' $7.5 billion by extending the current policy 
regarding patient payment of premiums for Part B of Medicare. Since the 
1990 agreement, the Congressional Budget Office (CBO) reestimated the 
cost of these programs through 1995 (the last year covered by the 1990 
deal) numerous times. Although the number or size of the mistakes 
should be random, with as many overestimates as underestimates, the CBO 
has reported positive technical adjustments for Medicare and Medicaid 
that are many times the size of the claimed ``cuts.'' In other words, 
the ``progress'' made in restraining growth was eliminated by an 
actuary's pen--yet no one required additional restraint because of 
mistakes in the previous estimates.
    The fastest growing area of Medicare--post-acute care--provides 
specific examples of the problem. Consider home health care. In 1988, 
the estimate for total home health outlays in 1993 was $3.8 billion; 
the actual amount was $9.3 billion--two-and-a-half times the original 
estimate. Outlays for home health continue to explode after 1993. What 
happened? The primary reason behind the growth was an out-of-court 
settlement HCFA negotiated with provider and consumer groups after 
losing a court decision concerning limits on the amount of home health 
services Medicare allows. The settlement effectively eliminated the 
limits. HCFA's new policy was enacted independent of Congressional 
oversight and OMB review. Again, no penalty resulted.
    Similar rapid growth has occurred in the skilled nursing facility 
benefit, expenditures for which grew even faster than for home health. 
A key event that helped trigger the unexpected increase was the passage 
of the Catastrophic Coverage Act in 1988. That law repealed the 
previous requirement for a three-day hospital stay before Medicare 
would pay for skilled nursing care in a nursing facility. In the short 
period before the Act was repealed, the program's costs nearly tripled. 
Despite the repeal, expenditures did not return to previous levels and 
have continued to rise rapidly.
    The reasons for underestimation of the cost of certain government 
programs is not obvious. One major reason appears to be a consistent 
inability to foresee all of the myriad ways in which providers will use 
changes in the law to their advantage. Such lack of foresight is hardly 
surprising, given that there are thousands of highly intelligent people 
who specialize in obtaining additional money from the government, and 
that government estimators are largely unwilling to increase their 
estimate of specific program costs in the absence of hard evidence.
V. POSSIBLE SOLUTIONS
A. Eliminate, or at Least Reduce, Balkanization
    As in the 1920s, we should centralize spending control within one 
committee. The historical record and our research indicate that 
reestablishing a single committee control over spending authority would 
have significant effects on decreasing both the level of spending and 
the prospect of deficits. This proposal may be difficult for the 
Congress to implement because it greatly concentrates power over 
``pocketbook'' issues. However, recent voter disenchantment and the 
electoral upheaval in the 1990s should have put Congress on notice that 
control of key committees and the ability to direct favors to interest 
groups is no longer enough to protect incumbents from the voter's 
increasing desire to see progress on national problems.
    If full consolidation is impossible, several steps in that 
direction should be easier to adopt. Entitlement status should be ended 
for all programs except earned entitlements, such as Social Security. A 
new appropriations subcommittee could be created, with jurisdiction 
over the former entitlements and membership consisting of the 
committees with previous jurisdiction. At a minimum, all programs 
should be reviewed periodically, with future spending ended without 
reauthorization.
    Control could also be strengthened through a default rule that 
penalizes Congress and the Executive when they fail to achieve their 
goals. Although much maligned, Gramm-Rudman-Hollings (GRH) was better 
than what has replaced it. GRH was imperfect, in particular because the 
House in 1985 successfully removed numerous programs from its reach. 
But it did exert pressure to reduce the deficit, producing significant 
restraint, particularly in domestic discretionary programs in fiscal 
1986 and 1988. GRH died because of the unique S&L crises, which 
exploded deficit projections, and because it was mistakenly ended as 
part of the 1990 budget deal. It should be renewed, with its coverage 
expanded to remedy the problems discussed above.\18\ Moreover, we 
should require the use of multiple year targets, not just annual ones.
---------------------------------------------------------------------------
    \18\ Another useful step would be to follow the BEA and first 
sequester the individual areas that cause the deficit targets to be 
breached.
---------------------------------------------------------------------------
B. Scrap the Baseline System
    By assuming a continually growing level of spending, baseline 
budgeting makes it harder to consider ending programs. Further, it 
fundamentally alters how the public understands the budget process. 
Allowing continuous and large increases in programs to be classified as 
``cuts,'' it creates the impression of action when nothing significant 
has occurred. The greatest check on state power can occur only when the 
public respects and can fathom what the government is doing. Baseline 
budgeting does not allow either. A device created to promote good 
government has become instead an exercise in gamesmanship to justify 
politically expedient results.\19\
---------------------------------------------------------------------------
    \19\ As an adjunct to eliminating the current policy baseline, we 
should modify the reconciliation process. As discussed above, numerous 
program expansions were funded in past reconciliations. Indeed, one of 
the few benefits of the 1990 budget deal was that it eliminated the 
need for reconciliation, at least for a few years. The expansions 
stopped for a while. They should be barred from future reconciliation 
bills.
---------------------------------------------------------------------------
    Of course, the problems that led to the baseline system cannot be 
ignored. As now calculated, the current policy baseline does provide 
useful information for many programs, i.e., a knowledge of what 
spending would be in the absence of Congressional action. But for many 
other programs, notably discretionary ones, and those parts of 
mandatory programs that require frequent adjustments, there is no 
automatic pilot to measure. Rather than pretend to solve an insoluble 
problem, we should acknowledge that no good baseline is possible.
    Although all programs should be measured against the base of the 
previous year's spending, for those programs that automatically 
increase the underlying reasons should be understood and evaluated. 
Breaking down the increases in programs into their components would 
improve Congressional and public understanding of the dynamics of 
government spending. For Medicare, for example, the past year's 
spending could be presented along with the projected increase in 
beneficiaries, changes caused by the aging of the population, general 
inflation, medical inflation, increased volume and intensity of use, 
and the costs of phasing in expansions and expiring provisions. The 
technical display should be as neutral as possible.
    To be sure, such a procedure would be more complex than using the 
current policy baseline alone, but it would be a more accurate picture 
of reality. Medicare and many other government programs are not simple. 
Understanding and making intelligent decisions about those programs 
requires knowing why and how the program is growing. If the 
presentation of these programs oversimplifies a complex reality, it 
conceals important information and indirectly influences outcomes.
    No system of evaluating budget decisions will be entirely immune 
from distortion and gamesmanship, but abandoning the present system 
will make it easier to understand the impact of spending and tax 
decisions on the deficit. We should decrease the likelihood of claiming 
victories in the battle against deficits when they occur while steadily 
losing the war.
C. Modify The BEA
    The BEA should be changed, especially if the more significant 
changes discussed above are not adopted.

    1. Discretionary Programs
    First, the concept of budgetary resources should be substituted for 
the BA and outlay caps currently used. At the least, offsetting 
receipts should no longer be ``free'' under the caps. Second, the 
loopholes that allow the caps to be increased should be curtailed, 
especially that for emergencies.

    2. Mandatory Programs
    PAYGO rules should be adjusted to require the inclusion of 
adjustments for technical and economic errors. Although correct 
forecasting is a difficult mix of science and art, not correcting for 
mistakes means that they are simply being ignored. Given the degree to 
which mistaken assumptions are common and increase deficits, the 
country cannot afford to pretend they do not exist. Future deficits 
will be controllable only when responsibility for them is accepted. 
Requiring that mistakes be addressed does only this.

    Chairman Thompson. Thank you very much.
    Dr. Ooms, would you come up, please?

STATEMENT OF VAN DOORN OOMS, SENIOR VICE PRESIDENT AND DIRECTOR 
        OF RESEARCH, COMMITTEE FOR ECONOMIC DEVELOPMENT

    Mr. Ooms. Thank you very much, Mr. Chairman, and Members of 
the Committee. My name is Van Doorn Ooms, and I am Senior Vice 
President and Director of Research at the Committee for 
Economic Development. CED is a nonprofit, nonpartisan and 
nonpolitical research and policy organization of about 200 
business and education leaders.
    The CED trustees have not addressed directly the budget 
process reforms before you, so that CED does not have an 
official policy position on them. I am, therefore, offering 
this testimony in a personal and professional capacity. 
However, I should say that the central issue that I wish to 
address is entirely consistent with CED's longstanding policy 
position that our long-term fiscal policy should ensure that 
national saving and investment are sufficient to provide for 
the Nation's economic future.
    The issue that I address in these remarks, then, concerns 
the relationship between the budget rules governing changes in 
permanent fiscal legislation, the so-called PAYGO rules, and 
national saving, investment and economic growth. This issue is 
posed by the proposal in Title III of S. 93 which, as you know, 
would change the PAYGO rules.
    The current rules prohibit changes in tax or entitlement 
legislation that increase the unified budget deficit or 
decrease the unified surplus, thereby requiring that any 
revenue reductions or increases in entitlement spending be paid 
for with similar offsetting changes that make the overall 
budget effect deficit- or surplus-neutral.
    Title III would effectively modify these rules to allow 
reductions in revenues or increases in expenditures to be 
financed from surpluses in the non-Social Security budget.
    This proposal would change the implicit fiscal policy goal 
that we have been pursuing from preservation of the unified 
budget surplus to preservation of the Social Security surplus. 
Balance in the non-Social Security budget then becomes the 
appropriate accounting framework.
    In economic terms, this proposal says, in effect, that the 
future national saving and investment that will be created by 
the Social Security surplus will be sufficient; any additional 
prospective surpluses therefore may prudently and appropriately 
be used for private and public consumption. It is this 
presumption that I wish to discuss today.
    The first question: Why did we eliminate the deficit? The 
Congress and five administrations have just successfully 
completed a painful 17-year effort to eliminate the Federal 
budget deficit. No one played a more important role in that 
historic process than the Senate Budget Committee and Chairman 
Domenici. As you gentlemen know better than anyone, this was 
not fun. Why did you do it?
    Presumably, you did not eliminate the deficit simply 
because the ink on the accounting ledger was red rather than 
black. The Congress and the public recognized, at some level, 
the economic relationship between large, sustained deficits and 
the Nation's economic future.
    They understood, in general terms, that such deficits would 
reduce national saving, crowd out capital formation, and reduce 
the growth of productivity, incomes and the living standards of 
our children. They realized that we could ill-afford this 
neglect of our economic future just when the imminent aging of 
America dramatically increases our need for growth.
    My point here is simply that the economics of deficits and 
surpluses do not change when the ink on a Federal budget 
ledger, whether the unified budget or the non-Social Security 
budget, changes from red to black. Zero is a nice, round 
number, but it is not a magic number.
    Within some reasonable range, the economic rationale for 
preserving modest surpluses is exactly the same as that for 
eliminating modest deficits. In other words, an accounting 
construct cannot answer the basic economic question of whether 
our public saving is sufficient to provide for our future. In 
order to answer that question, we need first to look at the 
trends in national saving and investment, which are shown in 
Figure 1 in my prepared testimony.
    Our situation is not that of countries such as Japan or 
Italy, where private saving rates are very high. As Figure 1 
shows, we have experienced a long, steady decline in private 
saving over the last four decades. As widely publicized, 
personal saving, the largest component of net private saving, 
actually fell to zero in late 1998.
    Private saving is now extremely low, both by historical 
standards and a comparison with that in other countries. It is 
so low, as Figure 1 shows, that the extraordinary improvement 
in public saving in the last several years, by both the Federal 
and State and local governments, has still left the national 
saving rate at about 7.5 percent--far below the 9 to 11 percent 
range of the 1960's and 1970's. Put another way, we have 
recovered only about one-quarter of the collapse of our 
national saving between the 1960's and 1980's.
    Well, how much saving do we really need? There are no hard-
and-fast rules, but one can make informed judgments by looking 
at the requirements for the investment that are financed by 
that saving.
    CED, in a study that took these investment needs into 
account, estimated in 1997 that, to increase capital formation 
sufficiently to provide for the future, we should raise net 
national saving to its pre-1980 average of roughly 10 percent 
of national income. While this goal is only a rough order of 
magnitude, it is consistent with both estimates of our capital 
formation needs and our historical experience.
    The rest of my prepared testimony, Mr. Chairman, goes on to 
show what would happen to our potential national saving and, 
therefore, our potential for growth under two different policy 
scenarios--one in which we save the entire unified budget 
surplus, another in which we relax the PAYGO rules and save 
only the Social Security surplus.
    The critical point is that, during the next decade, fully 
two-thirds of the increase in potential Federal saving will 
come from growth in the non-Social Security surplus, which 
increases by about 1.6 percentage points of GDP. Growth of the 
projected Social Security surplus, by comparison, will provide 
only about one-third of the total.
    How much difference would this make to our national saving 
rate 10 years hence? Assuming that the combined saving rates of 
the private sector and of State and local governments remain 
near their current levels, saving the Social Security surplus 
would raise the national saving rate from 7.5 percent of 
national income in 1998 to about 7.9 percent--a significant and 
helpful increase, but one that would, nevertheless, leave us 
far short of the 9 to 11 percent average rates of the 1960's 
and 1970's.
    Saving the entire unified surplus, however, would raise the 
national saving rate to about 9.5 percent of national income, 
roughly the average rate during the 1960's and 1970's. Saving 
the unified surplus would offset the decline in private saving 
since the 1960's with a roughly equivalent increase in 
government saving.
    For these reasons, I believe that the prudent long-term 
fiscal policy in this era of low private saving is to save as 
much of the projected unified budget surplus as possible. To do 
this will require continued fiscal discipline. Removing the 
PAYGO protection of the non-Social Security surplus will make 
it far more likely that our national saving and investment will 
fall short of that needed to deal with the aging of America 
that lies just ahead.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Ooms follows:]
                  PREPARED STATEMENT OF VAN DOORN OOMS
    Mr. Chairman and Members of the Committees: My name is Van Doorn 
Ooms and I am Senior Vice President and Director of Research at the 
Committee for Economic Development (CED). Before joining CED in 1991, I 
worked on budget issues for a number of years as the Chief Economist 
for the Senate Budget Committee, the Office of Management and Budget, 
and the House Budget Committee.
    CED is a nonprofit, nonpartisan, and nonpolitical research and 
policy organization of over 200 business and education leaders. Its 
purpose, pursued throughout its 57 year history, is to propose policies 
to produce economic growth, higher living standards, and equal 
opportunity for all American citizens. In line with this concern about 
our national economic growth, CED produced a series of reports during 
the 1980's and 1990's recommending measures to raise national saving 
and investment by reducing the Federal budget deficit: Strengthening 
the Federal Budget Process: A Requirement for Effective Fiscal Control 
(1983); Fighting Federal Deficits: The Time for Hard Choices (1985); 
The Toll of the Twin Deficits (1987); Battling America's Budget 
Deficits (1989); Restoring Prosperity: Budget Choices for Economic 
Growth (1992); and Growth With Opportunity (1997).
    CED's Trustees have not addressed directly the budget reform 
proposals before you today, so CED does not have an official policy 
position on them. My testimony is therefore offered in a personal, 
professional capacity. However, my views concerning the central issue I 
wish to address are entirely consistent with CED's long-standing policy 
position that our fiscal policy should ensure that national saving and 
investment are sufficient to provide for the Nation's economic future.
    The issue I address in these prepared remarks concerns the 
relationship between the budget rules governing changes in 
``permanent'' fiscal legislation--the so-called PAYGO rules--the 
national saving, investment, and economic growth. This issue is posed 
in Title III of S. 93, ``The Budget Enforcement Act of 1999.'' Although 
I will confine my prepared testimony to this issue, I will be happy to 
address some of the other budget process issues before you in the 
question period.
The Central Issue
    As you know, the current PAYGO rules effectively prohibit changes 
in tax or entitlement legislation that increase the unified budget 
deficit (or decrease the unified surplus), thereby requiring that any 
revenue reductions or entitlement spending increases be ``paid for'' 
with offsetting revenue increases or entitlement reductions that make 
the overall budget effect ``deficit/surplus neutral.'' Title III of S. 
93 would effectively modify these rules to allow reductions in revenues 
or increases in entitlement expenditures to be financed by ``using'' 
prospective surpluses in the ``non-social security budget.''
    This proposal would change our implicit fiscal policy goal from 
preservation of the unified budget surplus to preservation of the 
social security surplus. Balance in the non-social security budget then 
becomes the relevant accounting framework. In economic terms, this 
proposal says, in effect: ``The future national saving and investment 
that will be created by the social security surplus will be sufficient 
for the Nation's future needs. Any additional prospective surpluses 
therefore may prudently and appropriately be used for private and 
public consumption.'' It is this presumption that I wish to discuss 
today.
Economics and Accounting: Why Did We Eliminate the Deficit?
    The Congress and five successive administrations have just 
successfully completed a painful 17 year bipartisan effort to eliminate 
the Federal budget deficit. No one played a more important role in that 
historic process than the Senate Budget Committee and Chairman 
Domenici. As you gentlemen know better than anyone, it wasn't fun. Why 
did you do it?
    Presumably you did not eliminate the deficit simply because the ink 
on the accounting ledger was red rather than black, even though the 
debate occasionally seemed to frame the issue in that way. The Congress 
and the public recognized, at some level, the economic relationship 
between large, sustained deficits and the Nation's economic future. 
They understood in general terms that such deficits would reduce our 
national saving, crowd out private (and public) capital formation, and 
thereby reduce productivity, economic growth, and the living standards 
of our children. And they realized that we could ill-afford this 
neglect of our economic future just when the imminent ``aging of 
America'' dramatically increases our need for economic growth. They 
sensed that, without such growth, the provision for our booming elderly 
population could put unacceptable economic and political strains on the 
working population and our society.
    My point here is simply that the economics of deficits and 
surpluses do not change when the ink on our Federal budget ledger--
whether the unified budget or the non-social security budget--changes 
from red to black. Zero is a nice, round number, but it is not a magic 
number. Within some reasonable range, the economic rationale for 
preserving modest surpluses is exactly the same as that for eliminating 
modest deficits. In other words, an accounting construct cannot answer 
the economic question of whether our public saving is sufficient to 
provide for our future. To make that judgment, we must examine the 
outlook for our national saving and investment in light of the demands 
that will be placed on our economic capacity.
Trends in National Saving and Investment
    The saving that finances the Nation's private and public 
investments flows from the saving decisions both of households and 
businesses in the private sector and of the Federal, State, and local 
governments. Our national saving is the aggregate of this private and 
public saving (or dissaving) and is the lifeblood of economic growth.
    If our private saving rate were high, as it is for nations such as 
Japan and Italy, the additional public saving produced by protecting 
the unified budget surpluses might not be required to keep our total 
national saving at an adequate level. In these circumstances, the 
social security surpluses alone might well prove sufficient, and a 
modified PAYGO rule such as that of Title III would support adequate 
national saving and investment. Indeed, we might even find that such an 
arbitrary accounting rule was too restrictive, and that deficits on the 
non-social security budget were appropriate in some circumstances. The 
Japanese have recently experienced the problems posed by excessive 
fiscal restraint in an environment of very high private saving.
    But this is not our situation. As Figure 1 shows, we have 
experienced a long, steady decline in the private saving rate over the 
last four decades. As widely publicized, personal saving, the largest 
component of net private saving, fell to zero in late 1998, perhaps in 
response to increases in financial wealth from the unusually strong 
stock market. Whatever the reason, U.S. private saving is now extremely 
low, both by historical standards and in comparison with that in other 
nations. It is so low that (as Figure 1 shows) the extraordinary 
improvement in public saving in the last several years by both the 
Federal and State and local governments has left our national saving 
rate at only 7\1/2\ percent--far below the 9-11 percent range of the 
1960's and 1970's. Looking back over the past four decades, we have 
recovered only about one-quarter of the collapse of national saving 
that occurred between the 1960's and the 1980's.\1\
---------------------------------------------------------------------------
    \1\ Figure 1 is based upon the saving and investment data in the 
National Income and Product Accounts (NIPA). The NIPA budget data 
differ slightly from the unified budget data for conceptual and 
technical reasons, but these small differences do not affect the 
analysis here.
---------------------------------------------------------------------------
How Much National Saving Do We Need?
    There are clearly no hard and fast rules that can tell us the 
``optimal'' amount of saving for the Nation. Saving may be invested 
wisely or it may be squandered. New technology may make investments 
highly productive, or innovation may lag. Our education and training 
system may or may not deliver the skilled workers required to use new 
capital most productively. And, ultimately, a value judgment is 
required about how the living standards of our grandchildren should 
relate to our own.
    Nevertheless, we can make a rough but informed judgment about our 
saving needs by considering the functions of the investment financed by 
that saving. We know that some investment will be required to replace 
capital that wears out or obsolesces, a requirement that rises rapidly 
when technology advances as swiftly as it has recently in information 
technology equipment. Additional capital will be needed just to equip 
additions to our labor force, but much more will be required for the 
``capital deepening'' that provides more and better equipment for all 
workers--upon which higher productivity and living standards depend. 
Finally, our analysis must recognize that each future worker will have 
to produce for more retirees, in addition to his or her own family, 
which will require an extra margin of productivity gains.
    Taking all these investment needs into account, CED estimated in 
1997 that to provide for the Nation's future, we should raise net 
national saving to its pre-1980 average of roughly 10 percent of 
national income.\2\ While this goal is only a rough order of magnitude, 
it is consistent with both estimates of the capital formation needed 
for the purposes just described and historical experience. During the 
1960's and 1970's, labor productivity grew at an annual average rate of 
2.6 percent, roughly twice the recent rate. Raising our saving and 
capital formation towards the rates that characterized that period of 
strong productivity growth seems a sensible, albeit ambitious, goal.
---------------------------------------------------------------------------
    \2\ Research and Policy Committee, CED, Growth With Opportunity 
(1997), p. 5.
---------------------------------------------------------------------------
The Budget and Saving Outlooks and the PAYGO Rule
    Several years ago the prospect of raising our national saving and 
investment rates back to the 9-11 percent range of the 1960's and 
1970's appeared very remote. On the basis of then-current economic and 
budget projections, it would have required large expenditure reductions 
and/or tax increases that seemed to most observers politically 
unattainable and to some economically unwise. Indeed, CED's 
recommendations were criticized as being unrealistically ambitious on 
just these grounds.
    Today the Federal budget outlook has dramatically improved, thanks 
to an extraordinarily long economic expansion, unexpectedly large 
government revenues, and continued fiscal discipline. Similarly, State 
and local budgets are in the best shape in many years. As a result, we 
now have an unprecedented opportunity to use the policy tool of public 
saving to enhance our national saving and investment, notwithstanding 
the shortfall in private saving.
    While up-to-date official budget projections are not yet available, 
the staff of the Senate Budget Committee has made some preliminary, 
unofficial estimates. By these estimates, the unified budget surplus 
will increase by 2 percentage points of GDP during the coming decade--
from slightly less than 1 percent of GDP in fiscal year 1998 to 2.9 
percent of GDP in 2008. The largest part of this increase, however, 
occurs in the non-social security part of the budget. By the end of the 
decade, just over two-thirds of the projected increase in saving within 
the Federal unified budget will come from growth in the non-social 
security surplus.
    Clearly it will make a large difference to our national saving 
rate--and therefore to our national investment and economic growth--
whether we try to save the entire unified budget surplus over this 
period or only the social security surplus. Figure 2 illustrates the 
difference between these two policies in terms of the potential 
increase in national saving that each might produce by 2008.
    Assuming that the combined saving rates of the private sector and 
of State and local governments remain near their current levels, saving 
the social security surplus would raise the national saving rate from 
its current 7.5 percent of national income to about 7.9 percent--a 
significant and helpful increase, but one that would nevertheless leave 
us far short of the 9-11 percent average rates in the 1960's and 
1970's. Saving the entire unified surplus, however, would raise the 
national saving rate to about 9.5 percent of national income, almost 
equal to the 9.8 percent average rate during the 1960's and 1970's. 
Saving the unified surplus would, in effect, offset our decline in 
private saving since the 1960's with a roughly equivalent increase in 
government saving.\3\
---------------------------------------------------------------------------
    \3\ It can be argued that both these estimates of increased saving 
are somewhat too high, since expectations of higher public saving may 
reduce private saving. However, since private saving in 1998 was at 
historically low levels, with personal saving near zero, the argument 
that private saving will fall still further appears less than 
compelling.
---------------------------------------------------------------------------
    These, of course, are not forecasts of actual outcomes but 
illustrations of the potential for using fiscal policy to raise our 
long-term saving and investment. There are many reasons for believing 
these projections too optimistic. Economically, they do not incorporate 
possible shocks to the economy and may make insufficient allowance for 
the budgetary effects of a possible recession. They are based upon 
projections of discretionary spending levels that may be too low to 
meet our national security or domestic needs. And they do not, of 
course, accommodate the inevitable strong political pressures to 
``use'' surpluses for spending increases or tax cuts--pressures 
deriving from an accounting rather than economic perspective, as noted 
above. The 9.5 percent national saving rate consistent with saving the 
entire unified surplus is no doubt a ``best case'' scenario.
    Added to these uncertainties and difficulties is the unpleasant 
fact that the budget outlook will deteriorate sharply after 2008, which 
just happens to be the year in which the first baby-boomers turn 62 and 
the retirement avalanche begins. As the budget pressures from public 
health and retirement programs intensify, the surpluses of both the 
social security and non-social security budgets will diminish rapidly. 
The fact that these pressures lie a decade and more in the future 
should not be reassuring. To raise incomes several decades hence, the 
saving and investment must begin today. The fruits of economic growth 
take time to ripen.
    For all of these reasons, I believe that the prudent long-term 
fiscal policy in this new era of an aging population and low private 
saving is to save as much of the projected unified budget surplus as 
possible, consistent with our most urgent near-term budget needs. To do 
this will require political restraint and continued fiscal discipline. 
Removing the PAYGO protection of the non-social security surplus will 
make it far more likely that our national saving and investment will 
fall short of that needed to provide for the aging of America that lies 
just ahead.
[GRAPHIC] [TIFF OMITTED] T4926.003

    Chairman Domenici [presiding]. Thank you very much.
    Martha, I want to join in wishing you a happy birthday.
    Ms. Phillips. Thank you very much.
    Chairman Domenici. I have to admit, however, that I must 
leave for a caucus. Senator Lautenberg has graciously agreed to 
stay on for a while.
    Could I just ask Mr. Muris one question, and then you can 
proceed.
    Mr. Muris, you know you have gone through and looked at the 
effect or the ramifications, some unintended, some, if you have 
an exquisite mind like you do, you could predict some of those 
results. But I wonder, do you know if anybody has done a review 
of the impact on laws of the land that has come about because 
of omnibus reconciliation bills being almost the order of the 
day and almost doing one every year?
    Does anybody have a trend as to what that has built into 
the law that was not there before, do you know?
    Mr. Muris. I do not think anyone has measured the aggregate 
impact. The Ways and Means Green Book covers many of the 
changes in Medicare, for example. The problem is the phenomenon 
of building in increases for the years beyond whatever the 
budget horizon is.
    Chairman Domenici. That is being dealt a little bit short 
shrift by the new rules.
    Mr. Muris. Yes. The process has gotten better.
    Chairman Domenici. It used to be bound by 1 year, and they 
would load the out years and use a reconciliation bill to do 
that.
    Mr. Muris. That is correct. Alan Schick says that any 
measure short of infinity is not long enough because people 
continue to back load expansions. Congressman Waxman, for 
example, was a genius at loading the increases beyond the 
budget horizon. We have gotten better at prevention for the 
reasons that you have stated.
    Because we have not done long-term projections until just 
the last few years, no one has done the sort of study you 
desire. Unfortunately it would probably show that one of the 
impacts of many reconciliation bills, in the long term, has 
actually been to make things worse.
    Chairman Domenici. And it seems to me that we have tried 
diligently to button that up with rules like the Byrd Rule, 
etc., that came late, and we had an era before that--it seemed 
like an era--when you could just load up the out years. Now it 
is a little more difficult, and you could put on a lot of 
superfluous legislation. We have kind of stopped that too.
    But there are many unintended consequences from 
reconciliation. You would agree with that, right?
    Mr. Muris. Yes, sir.
    Chairman Domenici. Martha, would you proceed.

 STATEMENT OF MARTHA PHILLIPS, EXECUTIVE DIRECTOR, THE CONCORD 
                           COALITION

    Ms. Phillips. Thank you, Senator Domenici.
    I am appearing here today on behalf of the Concord 
Coalition, which is a nationwide, grassroots, bipartisan 
organization. Its co-chairs are two former Senators, Warren 
Rudman and Sam Nunn.
    Concord's mission is to build a political climate that 
encourages political leaders, and even gives them permission to 
make the tough choices, such as those that you have made over 
the years, that are required to balance the budget, keep it 
balanced in the near term and, most importantly, keep it 
balanced when the Nation begins aging dramatically and Social 
Security and Medicare costs become a problem.
    In that regard, I would like to associate myself with Van 
Ooms's comments about the importance of saving and point out 
that that was really the underlying rationale for the formation 
of the Concord Coalition in 1992.
    We are heartened at the recent progress made in closing the 
gap between spending and revenue levels, though I have to say 
we were extremely dismayed at the glut of so-called emergency 
spending at the close of the 105th Congress. That dismal 
performance confirmed that the politics of surplus are, if 
anything, more difficult than the politics of deficit.
    And from Concord's perspective, what was particularly 
dismaying was that, despite the newspaper headlines and 
political rhetoric, we did not have a budget surplus last year. 
You would read that there was a surplus of $70 billion, but in 
reality the on-budget accounts last year were $29 billion in 
deficit.
    If Congressmen and Senators, Presidents, and newspaper 
people had been talking about a $29 billion deficit, I doubt 
that we would have seen quite so large a glut of emergency 
spending. And, therefore, one of the most important budget 
process reforms that you could help make is one that does not 
require any legislation at all. You could change the terms of 
the debate by changing your language; the language you use to 
describe our current status on the budget. If you could focus 
on the on-budget accounts, that would go a long way towards 
bringing some reality to the situation.
    It would help remove from people's minds the notion that 
there is money to burn in Washington; that we have got a lot of 
spare change and that makes people ask, ``Why can I not have my 
share of it?'' People need to understand we are not there yet.
    A number of specific legislated budget process reforms 
being reviewed here today would also be of help, and the 
Concord Coalition is very supportive of making these changes. 
We think a 2-year budget process is a great idea. For one 
thing, it would cut in half, literally in half, the 
opportunities for fiscal mischief.
    Some previous opponents of 2-year budgeting suggested that 
if you had a budget only every 2 years you would give up half 
your opportunities to reduce the deficit. Now that the 
situation has changed, you give up half your opportunities to 
reduce the surplus, and we think that is a good idea.
    A 2-year budget would be an extension on a continuum of a 
lengthening budget process. The budget cycle has already 
lengthened considerably. A few budget veterans, and I see 
several of them in the room, remember that the first version of 
the Congressional budget process began with two annual budget 
resolutions, and that was not enough. Generally, the second 
resolution, after it was passed, was then subsequently revised.
    In 1976, I guess Congress simply could not get enough of a 
good thing. There were three Congressional budget resolutions 
that year, and then they revised the third one. So there were 
actually four bites out of the apple or, perhaps, maybe they 
just could not get it right.
    In any event, by the early 1980's, this idea of two and 
three Congressional budget resolutions every year had gotten to 
be quite a rat race, and the second budget resolution became a 
pro forma affair. They essentially deemed that they had passed 
the second resolution. Gramm-Rudman legislation dropped the 
requirement for a second budget resolution entirely.
    Last year marked the first time Congress failed to pass any 
budget resolution, and some cynics commented that maybe that 
was our first experience with a 2-year budget cycle. However, 
it certainly was an unsatisfactory experience, and the 1998 end 
game demonstrated the problems of driving a tough bargain when 
Congress does not have the budget enforcement backing of a 
budget resolution.
    The Concord Coalition strongly supports anything you can do 
to tighten emergency spending procedures. Requiring a 60-vote 
point of order is a good idea to encourage emergency 
designation only for spending that is truly necessary, sudden, 
urgent, unforeseen, and temporary.
    We also think it is worth exploring the possibility of 
reserving an adequate amount of room within the discretionary 
caps for the seemingly inevitable floods, droughts, hurricanes, 
tornadoes, earthquakes, fires and what have you. It is rare 
that a year goes by without at least one of these unfortunate 
disasters.
    If you go to a 2-year budget cycle, you can be pretty sure 
that sometime over 2 years you are going to be visited by one 
of these catastrophes. It is foolish to allocate a full 2 
years' worth of discretionary spending without making some 
reasonable room within that allocation for emergency spending. 
We would not want to set up anything like a trust fund, where 
interest was coming into it. As was commented before, if you 
put the money out there, it will be spent, and you do want to 
reserve it for true emergencies.
    The Concord Coalition does not oppose tax cuts. What we 
oppose are deficit-financed tax cuts, particularly during 
periods of peacetime prosperity. There simply is no excuse for 
doing that. And, again, as Van Ooms pointed out, our real 
problem is finding a way to increase net national savings.
    However, we do think that, now that we seem to be entering 
a new era of on-budget surplus, it is a legitimate debate as to 
whether on-budget surpluses should be used for tax cuts, 
spending increases--if you consider spending increases, we 
would urge they be for things, if you can manage it, that would 
increase economic growth--or for debt reduction.
    The Concord Coalition very much prefers the last option. We 
think debt reduction is the best thing to do. However, it is a 
legitimate debate, and if you want to amend PAYGO scorecard to 
make those adjustments, we can appreciate why you would do 
that.
    We have two cautions, however. First, tax cuts tend to be 
forever, and the surpluses may not last as long as we hope or 
as long as our official projections indicate.
    Second, we have to remember that the baby boomers are 
poised to begin retiring in about a decade. People are living 
longer than ever, and our Nation is aging rapidly. It is going 
to be a dramatic aging process. The number of seniors will 
double. We have huge unfunded future liabilities in the 
Medicare program. We have not yet dealt with Social Security.
    And on-budget surpluses could help our Nation prepare for 
the transition as we deal with these problems. It could help us 
strengthen the economy so that we can afford to have such a 
large percentage of our population in retirement. So we would 
move very cautiously on the idea of using the entire on-budget 
surplus for tax cuts.
    Concord is concerned about another PAYGO issue that is not 
on your list. We favor retaining the current discretionary 
caps, though we have been fairly skeptical of the ability of 
Congress to do it. In fact, when the 1997 budget agreement was 
passed, Concord said, ``Hip, hip,'' but no ``Hoorah'' because 
we were skeptical that you would be able to hold to the caps.
    And, in fact, because of the emergency spending last fall, 
you are going to need to make close to $30 billion of 
reductions in order to adhere to the caps for the current year 
that we are in, the next-year budget year. And by 2002, even 
with today's modest inflation rates, the caps require a 9-
percent real reduction. You might not be able to do that. If 
you give way on those caps, we would urge that it be offset on 
the PAYGO scorecard because that discretionary spending stream 
is just as likely to be permanent as any entitlement increase 
that you would enact.
    Thank you.
    [The prepared statement of Ms. Phillips follows:]
                 PREPARED STATEMENT OF MARTHA PHILLIPS
    I am appearing today on behalf of 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 two 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 permits and encourages elected 
officials to make the tough choices required to balance the Federal 
budget and keep it balanced during times of peacetime prosperity.
    Although Concord is heartened to see that, at least on a unified 
basis, the budget has achieved balance, our members remain concerned 
that the rhetoric of the press, politicians and the public focus on 
this surplus even though on-budget accounts remain in deficit. In 
fiscal year 1998, while newspaper headlines were trumpeting a $70 
billion surplus, on-budget accounts were $29 billion in deficit. Only 
the $99 billion Social Security surplus brought the unified total up to 
$70 billion surplus.
    Concord is also eager to go beyond merely achieving short-term on-
budget balance. We advocate using 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 our nation's population. These deficits threaten to undo the 
hard work and fiscal discipline of recent years and undermine our 
potential for future economic growth.
    Given this mission and set of concerns, it should be readily 
apparent why the Concord Coalition is interested in establishing tight 
fiscal discipline procedures and observing them scrupulously. That is 
why we are pleased to endorse the proposed set of budget process 
changes that are the subject of today's hearing.
    As the closing weeks of the 105th Congress revealed, the politics 
of surplus are as tough, and perhaps even tougher, than politics of 
deficit. Attached to my statement is Concord's Quarterly Report Deficit 
Report, which reviews this dismal history and awards Washington 
policymakers a near-failing grade.
    Rather than commenting on the particular details and small print of 
specific legislative proposals, I will address the generic concepts 
that have been suggested.
Biennial Budgeting
    The Concord Coalition is on record in support of moving to a two-
year budget process. Putting the President's Budget, the Congressional 
Budget Resolution, ap-

propriations and oversight on a 2-year cycle that coincides with 
sessions of Congress makes excellent sense for a number of reasons.
    The most important, from Concord's perspective, 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.
    With budget deficits nearly erased, there is no longer the need for 
an annual reconciliation bill, or for a Congressional Budget Resolution 
requiring it.
    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. Indeed, 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 oversight and improving government performance. Far too 
much of the Legislative Branch's time and energy goes into 
repetitiously renewing or disputing ``decisions'' that often have been 
made ``final'' only a few months earlier.
    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 multiple-year 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.
    Would the priorities established in the first year will 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 
provide a workable guide for a two-year period, particularly during the 
current era of extraordinary peacetime prosperity. 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 
machinery for urgent 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 
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. 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.
Emergency Procedures
    The Concord Coalition supports requiring a 60-vote point of order 
in the Senate on any emergency spending bill and on any non-emergency 
provision in an emergency supplemental appropriations bill. Concord 
also supports the proposal that the President's request and the 
Congressional committee's report analyze whether a proposed emergency 
expenditure or tax change meets five criteria:

        Necessary expenditure--Lan essential or vital expenditure, not 
        one that is merely useful or beneficial;
        Sudden--quickly coming into being, not building up over time;
        Urgent--a pressing and compelling need requiring immediate 
        action;
        Unforeseen--not predictable or anticipated as a coming need; 
        and
        Not permanent--the need is temporary.

    These criteria were developed by the Office of Management and 
Budget in 1991 to provide guidance in determining what constitutes an 
emergency expenditure. They are still relevant today. For the most 
part, they did not govern the emergency spending provided at the close 
of the 105th Congress.
    Making some sort of reasonable exception to tight budget discipline 
for compelling emergencies is a necessary safety valve. The problem is 
keeping emergencies to a minimum. If our government moves 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. 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 105th Congress 
was 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 $20 billion 
to leak away.
    Should the five criteria constitute a reporting requirement or 
provide a point of order? Concord leans toward requiring a point of 
order. The risk in the case of a reporting requirement is that, like so 
many other requirements, compliance with them could become routine 
boiler plate. Report after report could attest that a proposed 
expenditure met all the requirements even though common sense would 
dispute this. A point of order would be a stiffer requirement. However, 
it would require the parliamentarian to make the determination whether 
the proposed expenditure indeed met the five criteria. In some 
instances this would be a judgment call, and in borderline cases, 
Congress might disagree with the parliamentarian's ruling, in which 
case the ruling of the chair could be appealed. But what's important is 
that the point of order would establish a higher hurdle than only the 
reporting requirement.
    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 funds 
could be rolled into future years for possible appropriations should 
the need arise.
Pay-As-You-Go Changes Regarding Tax Cuts:
    The Concord Coalition does not oppose permitting on-budget 
surpluses to be used for tax cuts. Concord favors balancing the on-
budget accounts. It is opposed, therefore, to deficit-financed tax 
cuts. But if there are truly on-budget surpluses, then Concord believes 
it is entirely legitimate to debate how best to allocate them among the 
three possible uses: tax cuts, spending increases, debt reduction, or 
some combination. Concord's preference among these options would be to 
reduce the debt, but other allocations of on-budget surplus funds are 
also legitimate, particularly if they devote the resources to 
increasing national savings or otherwise investing in future economic 
growth.
    If PAYGO rules are amended to permit on-budget surpluses to be used 
for tax cuts, however, we would urge Congress and the White House to 
keep in mind that the surpluses are not likely to be permanent unless 
steps are taken to address the long term deficits in entitlement 
programs for the elderly, and in particular, the Medicare program. Tax 
cuts usually last forever, and permanently diverting a portion of the 
surplus to tax cuts means that it will no longer be available to 
address the fiscal problems that will accompany the aging of our 
population.
Pay-As-You-Go and Discretionary Caps:
    Concord suggests an additional PAYGO change. Even though we support 
retaining the discretionary caps at their established levels, it is 
becoming obvious that great pressure is building to increase them to 
accommodate both defense and non-defense spending. Back-loaded 
appropriations in last year's omnibus legislation means that almost $30 
billion in reductions from current levels will be required this year in 
order to comply with the caps. And despite modest current inflation 
rates, real reductions of 9 percent will be required in discretionary 
spending between now and 2002.
    It's unlikely that these reductions will be made. Indeed, when the 
1997 budget agreement was adopted, Concord cheered, ``Hip, hip but no 
hurrah'' because we did not believe at the time that the caps were 
sustainable.
    In the process of revising the caps to higher levels, Concord would 
urge that the increases be offset on the PAYGO scorecard. PAYGO was 
established to deal with the permanent aspects of the budget: taxes and 
entitlements. It has become apparent that the caps have also become a 
permanent part of the budget process. It is extremely unlikely that 
discretionary spending will be reduced; if the caps change, the 
direction will almost certainly be upwards. Therefore we believe that 
it would be good for long-term budget discipline to require that any 
increases in the caps be scored under PAYGO.
    We would not favor the reverse. One-time reductions in 
appropriations to bring totals temporarily beneath the allowable caps 
are extremely unlikely to be permanent. Therefore we would oppose 
permitting discretionary cuts to offset tax cuts on the PAYGO 
scorecard. Tax cuts are forever, but discretionary cuts could disappear 
with the next supplemental.
Automatic Continuing Resolution
    An automatic CR is another budget process change that Concord has 
long favored. We support making a CR automatic at the lower of the 
President's requested level or the previous year's appropriated level.
    While this change would undoubtedly alter the leverage points 
during the end-game period at the close of a session of Congress, this 
change would be for the good. The leverage has tended to favor 
agreements to increase spending rather than to force tough bargaining 
to trade increases and reductions within the agreed-upon limits.
Attachment: Concord's Quarterly Deficit Report follows:
[GRAPHIC] [TIFF OMITTED] T4926.004

[GRAPHIC] [TIFF OMITTED] T4926.005

[GRAPHIC] [TIFF OMITTED] T4926.006

[GRAPHIC] [TIFF OMITTED] T4926.007

    Senator Lautenberg [presiding]. Ms. Phillips, does that 
about wrap up your testimony?
    Ms. Phillips. That is it.
    Senator Lautenberg. Thank you very much.
    Unfortunately, we are beset with matters all over this 
place, and both of our groups--Republicans and Democrats--are 
having meetings to which we are urgently called.
    I thank each one of you for your testimony. We will take 
the liberty of reviewing it further and submitting any 
questions that we have in writing.
    We are determined, and I think I speak for Chairman 
Domenici, as well as myself, when I say that we are determined 
not to live in the same fashion as we did last year or for the 
current year's budget: Without a budget resolution, with 
everything crammed into the last minute. Now, both Senator 
Domenici and I are members of the Appropriations Committee, and 
there is, as you might have guessed, some tension between the 
appropriators and the authorizers, and that has to be dealt 
with.
    But I come out of the corporate world. I ran a fairly large 
corporation--a company that was in the computer business. As a 
matter of fact, we are, this year--I hate to give my age away; 
I had a birthday Saturday--but we are going to celebrate our 
50th anniversary at a company called ADP, which I was one of 
the founders of. And so budgets and financial matters, 
accounting, and so forth are very much in my background and 
training.
    The questions are so often raised about why not accrual 
accounting? Why are we on a cash basis? Well, it is easy to 
salute these things until you get into the result of that kind 
of a change, and then you have to scratch your head a little 
bit and say, ``Well, wait. Wait a second.''
    When it comes to biennial budgeting, I do not know whether 
each of you were here when Senator Gorton said that the biggest 
change they made in the Washington State legislature, when he 
was serving there, was to go from biennial to annual budgeting.
    There are not a lot of corporations, if any, that I can 
imagine that have 2-year budgets; that do not operate on an 
annual budget because, though the situation in the corporate 
world is different in so many ways, it is in some ways 
parallel, in that you have to respond to changing situations. 
The problem is that, once the cash drawer is open, everybody 
likes to take a few bucks out. In business, the controls are 
often more direct.
    So we have a lot of things to think about, and your 
comments--all of them--have been very, very helpful. This 
subject is not new, but neither has the solution arrived yet. 
This will be a good year, I think, to deal with it in whatever 
fashion we are able to develop a consensus.
    The PAYGO rules have, I think, been helpful to us. The 
emergency rules, I think, have to be tightened up. Chairman 
Domenici has a lot of experience with government budgeting, and 
his knowledge is that that few here have.
    But we agree on lots of things. We agree on the need to 
work together. We do not always agree on what it takes to get 
that to happen. But we are determined, with the help of our 
very capable staffs here on both sides, to try to make a 
difference this year to get a more orderly process out of this, 
and your help counts.
    So we thank you very much.
    Unless Senator Voinovich has anything that he wants to 
say----
    Senator Voinovich. I would thank you for being here today.
    As I have listened to this testimony today, I could not 
help but think that, even if the Senate does pass this 
legislation, we are going to have a difficult time in the House 
of Representatives.
    It seems to me that two areas need to be highlighted; one 
is how the present system has contributed to, I think, fiscal 
irresponsibility and, two, the issue that--and perhaps I differ 
with Senator Lautenberg in terms of the management of 
government agencies--our biennial budget in Ohio was almost $39 
billion, and we recognized that, with that kind of large 
budget, that the 2-year biennial budget led us to better manage 
government.
    And I think the thing that is appalling to me in this 
Federal Government is the lack of oversight. It seems that 
people just have not got time; directors of Federal agencies. 
And it would be wonderful if we could get some former 
Secretaries of departments to talk about the nightmare of this 
annual budgeting and how it interfered with them from doing the 
job that they were supposed to be doing, that the President and 
the country has asked them to do.
    I think we need to get into that and, also, to talk about 
the fact that many of the committees here in Congress who 
should be spending a lot more time on oversight just have not 
got the time to do that job.
    The last comment I would like to make is that I strongly 
believe we must convey to the American people the issue of this 
fraudulent surplus that we've been talking about now for the 
last couple of years.
    It appalled me to see both the leadership of Congress and 
the President celebrate this surplus when, in fact, it was not 
a surplus. It was the money in the Social Security account that 
was covering up the fact that we still had on-budget deficit.
    And I would be really interested to see if there is some 
language that we could--legislation that we could pass that 
would clarify this issue so that people are not under the 
impression that there is just a whole lot of money here in 
Washington. And I would really be interested--I know we have 
been in contact with the Concord Coalition to come up with 
that. You originally had some criticism of Congressman 
Livingston's idea, but we need help.
    Ms. Phillips. Well, what we pointed out to Congressman 
Livingston was that we entirely support changing the language 
used to describe the budget, but the Social Security surplus, 
by legislation signed into law by the President, has been 
removed from the Federal budget three times. It was done three 
times. Take no chances. Put a stake through its heart. Yet, 
people still talk as if it is part of the unified budget which, 
of course, it is and, for economic analysis purposes, sometimes 
it makes sense to look at that figure.
    But for political purposes and for deficit control or 
surplus control purposes, it makes more sense to focus on the 
on-budget accounts. But it has already been taken out of the 
Congressional budget resolution. The only Social Security money 
in the budget resolution are the administrative funds. It is in 
a separate part of the budget of the United States, and we have 
done everything, I think, legislatively that we can do. And so 
it is really time to change the way we talk about it, and I 
think if the political rhetoric, the political symbolism, could 
be changed, that would go a long way towards changing people's 
perception and their behavior.
    Senator Voinovich. Well, I would like to congratulate the 
Concord Coalition for helping to make that happen, and we thank 
you for being here today.
    Senator Lautenberg. You are the shortest-serving Senator to 
achieve the chairmanship of a joint committee---- [Laughter.]
    Thank you very much.
    Senator Voinovich [presiding]. Well, I would just like to 
say thank you for being here today.
    [Whereupon, at 11:23 a.m., the joint Committee hearing was 
adjourned.]
                            A P P E N D I X

                              ----------                              


  RESPONSES OF SENATOR JOHN McCAIN TO QUESTIONS FROM SENATOR VOINOVICH
    Question 1. As a freshman Senator, I did not have the opportunity 
to participate in consideration of the Fiscal Year 1999 Omnibus 
Appropriations bill last year. Would you please provide your thoughts 
on how this bill came to pass, as well as any outcomes--positive or 
negative--you would like to highlight?

    Answer: This bill came to pass because as usual, we did not 
complete work on the annual appropriations bills on time. As a result, 
this monstrous bill passed because Congress was forced to either pass 
it, or face another government shutdown.
    The negative outcomes of this bill are startling. This bill not 
only provided more than a half-trillion dollars to fund 10 Cabinet-
level Federal departments for the fiscal year that had started 21 days 
earlier, but it also changed the law on a huge number of areas.
    Further, the bill exceeded the budget ceiling by $20 billion for 
what is euphemistically called emergency spending, much of which is 
really everyday, garden-variety, special-interest, pork-barrel spending 
projects. Sadly, these projects were paid for by robbing billions from 
the budget surplus--a surplus that we say should be used to shore up 
Social Security, pay down the $5.6 trillion national debt, and provide 
much-needed tax relief to the American people. This was not just a bad 
appropriations bill, it was a legislative abomination. In short, the 
omnibus bill made a mockery of Congress' role in fiscal matters.
    The Omnibus bill funded many well-deserving meritorious programs. I 
am not condemning the merit of these programs. I am condemning the 
process which we spent $5.5 trillion in such a short period of time. In 
regards to budget process, it is difficult to find positive outcomes 
resulting from the Omnibus bill, except that it drove home the point 
that it is time to change our flawed budget process.
    This monstrous bill passed because Congress was forced to either 
pass it, or face another government shutdown. I and others introduced 
the Government Shutdown Act of 1999 again this year to put in place a 
mechanism to continue funding for any department or agency whose 
regular appropriations bill is not enacted by the beginning of the 
fiscal year. Our bill, S. 99, would make it more difficult for 
opportunistic politicians to put the American public at risk by 
threatening to shutdown essential government functions if Congress 
cannot agree on spending priorities and policies. Instead, because 
funding would be provided under an automatic continuing resolution to 
keep the government open, the Congress would be able to resist the 
pressure to throw everything into a last-minute spending bill just to 
get a deal and prevent a shutdown.
    We cannot let the threat of another government shutdown force us to 
adopt another fiscal debacle like the FY 1999 Omnibus Appropriations 
bill. The Government Shutdown Act is an important first step toward 
repairing our flawed budget process, and preventing another fiscal 
nightmare like the Omnibus bill.

    Question 2. You spoke at length regarding the effect annual 
budgeting has on spending. I would be interested in your thoughts as 
well on how biennial budgeting could improve Congressional oversight of 
government programs and, ultimately, management practices at the 
Federal level.

    Answer. Biennial Budgeting will require the President to submit and 
Congress to enact 2-year authorization and appropriations bills. In 
contrast, annual budgeting encourages budgeting by brinkmanship, where 
we scramble at the end of each fiscal year to complete a new budget and 
avoid a government shutdown.
    Biennial budgeting would allow us to focus attention on fiscal 
matters during the first full year of a Congress, then turn to other 
pressing matters of national policy the second year. We spend the 
majority of our time every year deciding how we are going to fund the 
government in the annual appropriations bills. This is a tremendous 
waste of resources. There is an endless list of policies and issues we 
should be dealing with, such as education, homelessness, military 
readiness, foreign policy, and so forth. But these issues are given 
short shrift because our time is consumed with the budget process.
    In short, biennial budgeting will improve Congressional oversight 
by providing more time for Congress to address long-term planning, and 
greater oversight of government programs.

                               __________
    RESPONSES OF MARTHA PHILLIPS TO QUESTIONS FROM SENATOR VOINOVICH
    Question: I understand that on three occasions Congress has 
prohibited in law the practice of counting Social Security Trust Fund 
surpluses when calculating the government's overall economic picture. I 
further recognize that many elected officials find political utility in 
continuing to portray our Federal budget as if in surplus, even though 
the surplus is only attributable to the Social Security Trust Fund. I 
applaud the Concord Coalition for your willingness to educate the 
public and Members of Congress on this issue. Martha, can the Concord 
Coalition offer ideas to prohibit, once and for all, this deceptive 
accounting practice?
    Response: Members of the Concord Coalition share your frustration 
at the continuing use of unified budget totals rather than on-budget 
totals by government officials and members of the news media. In the 
past, this practice has made budget deficits look smaller. Last year 
and this year, this practice makes budget deficits appear to be 
surpluses. Before long, it will make budget surpluses seem larger.
    But whether the deception deals with red ink or black, the problem 
is the same. Incorporating the large off-budget Social Security 
surpluses into the overview picture of how we are doing gives 
everyone--political leaders, the press, and the public--a misleadingly 
benign picture of our fiscal balance sheet. The more surplus dollars 
policy makers and those who elected them think there are, the greater 
the pressure will be to use up every penny.
    Because enacting laws to put Social Security off-budget and take it 
out of the Congressional Budget Resolution have not stopped the 
practice of talking, thinking and reporting in terms of unified 
balances, Concord believes that rather than another legal change, a 
behavioral change would be more effective. Congress could lead the way. 
The budget resolution adopted this year, committee and floor debate, 
press releases and public speeches should all be expressed in terms of 
on-budget totals. When House and Senate leadership, members and staff 
begin using only on-budget totals, the press would pick up on this 
quickly, and in turn, would help change public perception. Changing the 
terms of the debate would change the options raised for consideration.
    Many people have discovered that the only way they can save--for 
retirement, their children's education, or buying a house--is to have 
money automatically deducted from their paychecks and put into a 
savings account. They then tell themselves that only the money that 
shows up in their checking account is available for spending and they 
budget accordingly. Their ``off budget'' savings is not part of their 
day-to-day thought process. Without enacting legal changes, Congress 
could do the same thing through its practices and procedures; by 
focusing on the on-budget accounts, and taking the off-budget Social 
Security program out of their collective decision making process.

                               __________
  RESPONSES OF CONGRESSMAN NUSSLE TO QUESTIONS FROM SENATOR VOINOVICH
                     Congress of the United States,
                                   House of Representatives
                                                    March 19, 1999,
The Honorable George Voinovich,
Committee on Governmental Affairs,
340 Senate Dirksen Office Building,
Washington, DC.

    Dear Senator Voinovich: Thank you for writing to further inquire 
about my thoughts on budget process reform. I appreciated the 
opportunity to testify before your Committee recently, and I am pleased 
to answer your additional questions.
Opposition to Biennial Budgeting
    You inquired about opposition to biennial budgeting in the House of 
Representatives, and how S. 92 and S. 93 could be made more acceptable 
to the House. One possible option to gain support among House members 
would be to develop a mechanism that allows either House to trigger the 
consideration of an annual budget resolution. The House might be more 
inclined to agree to a process that allows biennial budgeting if they 
knew that they would have the discretion to insist on an annual 
resolution. Ultimately, the default should be annual resolution.
    A second option would be to authorize biennial budgeting on a trial 
basis--perhaps two Congresses. Another possibility would be to require 
a super majority to consider unauthorized bills to show that the Senate 
is serious about using the authorizing process to increase oversight in 
the odd years.
Differences between House and Senate Versions
    The House bill puts more emphasis on accountability and the Senate 
bill on efficiency. House provisions on joint resolution, lock-box, 
subjecting new entitlements to annual appropriations, and sunsetting 
are designed to increase policy makers' scrutiny of, and hence 
accountability for, Federal spending. In contrast, some might be 
concerned that the Senate's proposed restrictions on floor amendments 
and requirement that the Congress budget on a biennial basis may reduce 
accountability in the name of greater efficiency.
Balance of Power
    You inquired about my thoughts on how biennial budgeting would 
affect the balance of power between the Executive and Legislative 
Branches, as well as the balance of power between the House and the 
Senate. First, in view of our ability to anticipate funding needs 12 
months out--let alone 24 months--the Congress would be forced to 
provide broader discretion to the President. Secondly, biennial 
budgeting would give the Senate the upper hand in budgetary 
negotiations because House members tend to serve for a shorter period 
(i.e., competitive districts, self-imposed term limits).
Omnibus Appropriations Act
    You asked for my thoughts on the Fiscal Year 1999 Omnibus 
Appropriations Act, and how it came to pass. As I mentioned during my 
testimony, I believe last year is the ``poster child'' for budget 
process reform. The budgeting breakdown can be summarized in five 
points.

        1. LBudgetary discipline was generally undercut by the arrival 
        of surpluses 5 years earlier than expected.

        2. LThe existence of an automatic adjustment in the caps for 
        emergencies fueled a bidding war between the House, Senate and 
        Administration. This gave cover to all sides to exceed the caps 
        that were established only 19 months earlier.

        3. LBoth sides took advantage of the absence of a definition of 
        emergency and limitation on emergency spending by designating 
        spending for situations that were clearly anticipated and posed 
        no threat to life, property, and national security.

        4. LThe Administration, knowing that any government shutdown 
        would be blamed on Republicans, were able to force the Congress 
        to breach the caps as the price of ``getting out of town.''

        5. LFinally, the absence of any vehicle for agreeing on 
        budgetary totals delayed conflict on the budget to the Omnibus 
        Appropriations bill. In view of the unresolved differences 
        between the Congress and the President on the budget, the 
        President and the Congressional Leadership took the path of 
        least resistance and increased spending on everything.
Conclusion
    It is my hope that these answers clarify some of the points I 
touched on during my testimony before you Committee. I look forward to 
working with you and your Senate colleagues on the important issue of 
budget process reform.

                                         Jim Nussle
                                 Member of Congress

                               __________
  RESPONSES OF CONGRESSMAN CARDIN TO QUESTIONS FROM SENATOR VOINOVICH
    Question 1. As a freshman Senator, I did not have the opportunity 
to participate in consideration of the Fiscal Year 1999 Omnibus 
Appropriations bill last year. Would you please provide your thoughts 
on how this bill came to pass, as well as any outcomes--positive or 
negative--you would like to highlight?

    Answer: The 1999 budget and appropriations process was marked by a 
complete breakdown in the legislative process. For the first time since 
the current Congressional budget procedures were adopted 25 years ago, 
Congress completely failed to approve a budget resolution. The lack of 
a fiscal blueprint for the year, coupled with a failure to achieve an 
early agreement between the Congressional leadership and the 
administration, resulted in the need to adopt a massive catch-all 
spending bill.
    At the end of the year the process was driven by a general sense of 
the importance of avoiding another government shut-down, as we had in 
1995. The legislative work product lacked the scrutiny that is imposed 
on the regular appropriations bills when they are considered in the 
normal course of legislative business. With less accountability and 
review, the final bill only added to the frustration and 
dissatisfaction the American people feel with the Federal budget 
process.

    Question 2. You spoke at length regarding the effect annual 
budgeting has on spending. I would be interested in your thoughts as 
well on how biennial budgeting could improve Congressional oversight of 
government programs and, ultimately, management practices at the 
Federal level.

    Answer. We have not included a proposal for biennial budgeting in 
the legislation we introduced in the House. The proponents of biennial 
budgeting argue that by designating extended blocks of time for 
Congressional oversight of Executive Branch agencies, improvements in 
management efficiencies could be achieved. On the other hand, recent 
experience with the need for supplemental spending bills and changes in 
economic conditions suggest the value of an annual appropriations 
cycle. In either case, I believe we should seek to bring consultation 
between the executive and legislative decision-makers earlier in the 
process, and devise systems for reducing the threat of brinksmanship in 
the budget and appropriations processes.

                                  
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