[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

                         FEDERAL BUDGET PROCESS
                           STRUCTURAL REFORM



                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


             HEARING HELD IN WASHINGTON, DC, JULY 19, 2001


                           Serial No. 107-14


           Printed for the use of the Committee on the Budget

  Available on the Internet: http://www.access.gpo.gov/congress/house/

74-174                     WASHINGTON : 2002

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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            C O N T E N T S

Hearing held in Washington, DC, July 19, 2001....................     1
Statement of:
    Bill Frenzel, Co-Chairman, Committee for a Responsible 
      Federal Budget.............................................    48
    Hon. Robert L. Livingston, Member of Congress (retired)......    52
    Robert D. Reischauer, President, the Urban Institute.........    56
    Barry B. Anderson, Deputy Director for Federal Budget 
      Analysis, General Accounting Office........................    78
    Hon. Christopher Cox, a Representative in Congress from the 
      State of California........................................    84
    Susan J. Irving, Director for Federal Budget Analysis, 
      General Accounting Office..................................    87
Prepared statement of:
    Chairman Nussle..............................................     2
    Hon. Charles F. Bass, a Representative in Congress from the 
      State of New Hampshire.....................................     3
    Mr. Frenzel..................................................    49
    Mr. Livingston...............................................    54
    Mr. Reischauer...............................................    58
    Mr. Anderson.................................................    80
    Ms. Irving...................................................    89
    Committee for a Responsible Federal Budget: ``Recommendations 
      for Reform''...............................................   108



                         THURSDY, JULY 19, 2001

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:25 a.m. in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee) presiding.
    Members present: Representatives Nussle, Sununu, Gutknecht, 
Toomey, Culberson, Granger, Spratt, McDermott, Thompson, 
Bentsen, Price, Clement, Moran, and Moore.
    Chairman Nussle. Good morning. This is the full committee 
hearing on the budget with regard to the Federal budget process 
structural reform. We have three panels today to discuss the 
very exciting topic of budget process reform. I know it's 
exciting because the world press is here, led by Bud Newman, 
and waiting with bated breath for exactly what we will decide 
and what we will discuss here with regard to budget process 
    Obviously, I am saying that tongue in cheek, because for 
many people the process of the budget is probably one of the 
most frustrating, least understood, easily disregarded and 
driest topics that you can possibly want to know about. But I 
can tell by the Members that are present here today, as well as 
the interest on the part of our panelists, that there are quite 
a few people who are interested in the way the process of our 
budget works--in some instances, does not work.
    For the past 15 years, Congress has made a few attempts to 
improve the process with limits on spending and other budgetary 
controls, but there are still weaknesses that remain within 
this process. Some of the most common criticisms that you hear 
about the budget process are inherent weaknesses within the 
Congressional budget controls, the ``emergency'' loophole that 
remains within the process, the insufficient attention to long 
term obligations within the budget, unrealistic spending 
levels, lack of control over special projects or pork barrel 
spending--you hear a number of weaknesses and criticisms from 
just about every corner of the Congress and every corner of the 
    Despite widespread complaints about these weaknesses, 
Congress has really had very few opportunities to consider 
structural reforms. This committee is fulfilling its 
responsibility to remedy that. It's up to the Budget Committee, 
who has primary jurisdiction over this issue, to make these 
decisions and to review this and provide oversight of that 
    Just a couple of weeks ago, we held a hearing, as an 
example, to examine budgetary enforcement tools such as 
discretionary spending caps and Pay-As-You-Go rules. Today, 
we're hoping to build on that by examining ways that you can 
improve how we make budget decisions. Our aim today is to 
identify the basic weaknesses in the current budget process and 
examine various ways to strengthen and improve it. We're going 
to look at some specific structural reforms of the budget 
process, such as joint budget resolution, emergency reserve 
funds and super-majority requirements for waiving budget rules.
    We're also going to look at and assess some of the problems 
posed by doing what we might refer to as ad hoc reforms that 
would, for example, change the frequency with which Congress 
makes budgetary related decisions but not the process by which 
those decisions were made.
    I take the job as chairman of this committee very 
seriously. I know that members, all members on the committee 
take the role and responsibility of looking at our process very 
seriously. We are all committed, including Ranking Member 
Spratt and all the members of this committee, to fixing and 
repairing the budget process, making it the strongest, most 
honest, most realistic process that we have possible.
    I don't believe that one reform in and of itself can fix 
what ails us. I think that, I believe the best way to approach 
these reforms is to look at a number of reforms, try and 
package them in a realistic vehicle and then attempt to move 
them through the process.
    I will report to you that the administration, in its budget 
submission, as we may remember, in a title in the budget that 
was probably the easiest to overlook, because most pored over 
the numbers themselves, the administration is interested in 
moving budget reforms through the Congress. Having had the 
opportunity to meet with and work with Senator Domenici during 
the first part of this year, I know he has been interested in 
this. And in my recent conversations with Senator Conrad, he 
also is aware of and willing to consider reforms in the Senate.
    So we have some fertile ground. It may not be the most 
fertile ever, but it's ground that we have to work with and we 
should make some attempts.
    With that, let me turn it to Mr. Price for any comments 
that he would like to make on behalf of Ranking Member Spratt.
    [The prepared statement of Chairman Nussle follows:]

Prepared Statement of Hon. Jim Nussle, Chairman, House Committee on the 

    The Federal budget process has been widely criticized as 
unenforceable, inefficient, and preoccupied with the short term.
    Over the last 15 years, Congress has made a few attempts to improve 
the process with limits on spending and other budgetary controls but 
weaknesses remain.
    Some of the most common criticisms of the budget process are:
     Inherent weakness of congressional budget controls
     ``Emergency'' loopholes
     Insufficient attention to the long term
     Unrealistic spending levels
     Lack of control over pork-barrel spending.
    Despite widespread complaints about these weaknesses, Congress has 
had very few opportunities to consider structural reforms.
    This committee is fulfilling it's the responsibility remedy that.
    Just a couple of weeks ago we held a hearing to examine budgetary 
enforcement tools like discretionary spending caps and PAYGO rules. 
Today, we are hoping to build on that by examining ways we can improve 
how we make budget decisions.
    Our aim today is to identify the basic weakness in the current 
budget process and examine various ways to strengthen and improve it.
    We're going to look as some specific structural reforms of the 
budget process, such as a joint budget resolution, emergency reserve 
funds, and supermajority requirements for waiving budget rules.
    We're also going to assess the problems posed by ad hoc reforms 
that would, for example, change the frequency with which Congress makes 
budget-related decisions but not the process by which these decisions 
are made.
    I take my job as chairman of this committee very seriously and I 
know the ranking member, Mr. Spratt shares that feeling. We are both 
committed to making the budget process the strongest, most honest 
possible process.

    Mr. Price. Thank you, Mr. Chairman. I don't have an opening 
statement and Mr. Spratt will be along shortly.
    But I want to commend you for convening these hearings and 
for helping the institution take account of how the budget 
process is working and how it might be improved. I think it's 
useful to look with an open mind at a wide range of proposals 
that have been made. I also think maybe one of the main uses of 
a hearing like this could be to point out some of the 
shortcomings of reform proposals.
    You know, we're sometimes tempted to think that a little 
tinkering of the rules here and there will work wonders. The 
fact is that we need to write the best rules we possibly can 
for this process, but we also need to execute those rules 
responsibly. There's no substitute for responsibly carrying out 
our duties. I think it's an evasion often, to think that 
endless tinkering with the rules will be a substitute for that.
    So we'll no doubt discover some of the possibilities and 
some of the limitations of reform, and I think we all should 
welcome that.
    I also want to add a personal note of welcome to our former 
colleagues, Bob Livingston and Bill Frenzel. Great to have you 
here. And also Bob Reischauer, who certainly qualifies as a 
veteran of the Congressional budget wars. Welcome to all of 
you, we look forward to your testimony.
    Chairman Nussle. I ask unanimous consent that members be 
given 7 days to submit written statement for the record. 
Without objection, so ordered.

    Prepared Statement of Hon. Charles F. Bass, a Representative in 
                Congress From the State of New Hampshire

    Mr. Chairman, thank you for convening this hearing today, and I 
thank the witnesses for taking the time to appear before us.
    Many might quip that budget process reform is the best legislative 
remedy for insomnia, but in fact it is central to our very role as 
Members of Congress. Responsible budgeting is the single most important 
job of Congress, and an effective, efficient budget process is vital to 
accomplishing that job.
    There are several important reform proposals before this and other 
committees, and the House will have an opportunity to debate them later 
in this Congress.
    But in my view and the view of many of my colleagues, there is no 
more important reform than biennial budgeting, moving to the adoption 
of two-year budget and appropriation bills.
    The case for biennial budgeting is solid:
     It will remove the bulk of budget and appropriations work 
from election years, thereby reducing runaway spending and political 
     It will encourage more responsible and long-term budget 
planning by Congress and Federal agencies.
     It will significantly reduce the time wasted on routine 
and repetitive appropriations work for both Congress and executive 
agencies, thereby increasing time for better and more detailed review 
and oversight by Congress, and time for other substantive work by both 
Congress and Federal agencies.
     Finally, it will provide greater budget stability for 
Federal agencies and programs, as well as the states.
    As I have already noted to the Chairman, I am concerned that the 
array of witnesses today and the preparation for this hearing might not 
result in a fair and balanced attempt to discuss biennial budgeting. In 
an attempt to bring better balance, I am including with my statement 
some testimony and related materials from a series of hearings before 
the Rules Committee last year.
    I look forward to the debate on budget process reform during this 
Congress, and look forward to taking important steps forward.
    Attachments: Selected testimony and related materials from 
``Biennial Budgeting: A Tool for Improving Government Fiscal Management 
and Oversight'', hearings before the House Committee on Rules, February 
16 and March 10 and 16, 2000.

                          PURPOSE OF HEARINGS

    The purpose of these hearings is to examine proposals from various 
Members of Congress, the Executive Branch and outside experts on 
establishing a two-year budget and appropriations cycle in an effort to 
develop consensus legislation that will streamline the budget process, 
enhance programmatic oversight, strengthen the management of government 
programs and bureaucracies, and reform Congress.
    Most biennial budgeting proposals would require the President to 
submit a two-year budget and Congress would consider a two year budget 
resolution and 13 two-year appropriation bills during the first session 
of a Congress. The second session would be devoted to consideration of 
authorization bills and for the programmatic oversight of government 
    The Rules Committee's effort reflects the growing, bipartisan 
interest among members of the House and the Senate in streamlining and 
consolidating the annual budget process, reducing the number of 
duplicative votes and allowing more time for programmatic oversight and 
management to determine whether taxpayers resources are being put to 
their best use. Interest in biennial budgeting extends beyond the 
Congress, including the administration and a wide range of outside 
    The Rules Committee intends to hold several hearings on this topic 
prior to developing a legislative proposal for House consideration 
later this year.


The case for biennial budgeting
    Since its inception with the Congressional Budget and Impoundment 
Act of 1974, the Congressional budget process has revolved around an 
annual ritual of development of a non-statutory budget resolution and 
subsequent enactment of appropriation bills. In some years, mandatory 
spending and revenue changes have also been pursued through 
reconciliation, driven by the budget resolution.
    The process of Congressional review of the programs and agencies 
that comprise the Federal Government is designed to function in 
distinct stages meeting specific deadlines, including: the submission 
of a budget by the President at the beginning of a session of Congress; 
development of the budget resolution by the Congress in the early 
Spring; passage of 13 appropriation bills by both Houses of Congress 
before September 30; and, if required in a given year, completion of 
reconciliation legislation to effectuate changes in mandatory spending 
programs and revenues. As an overlay to this set of actions, the 
process envisions that authorizing committees will conduct rigorous, 
ongoing oversight of Federal programs, embodied in completion of annual 
or multi-year authorizations.
    The reality in recent years, however, has been much less methodical 
or organized. During the 26 year history of the Budget Act, the 
deadline for completion of the budget resolution has been met only four 
times. Since 1950, the requirement for enactment of 13 appropriation 
bills prior to the beginning of the new fiscal year has been met only 
three times (1988, 1994 and 1996). As the calendar has wound down each 
year toward the September 30 deadline, legislation has been cobbled 
together to ensure funding for agencies and programs at a frantic pace 
that has crowded out the legislative schedule, preventing orderly 
consideration of authorization measures and sowing mistrust and 
confusion among the public.
    Likewise, the annual process of developing budgets and 
justifications has kept Federal agencies on a perpetual budget cycle 
treadmill, leaving little time to step back and review the management 
and effectiveness of the programs they run. Executing an annual budget 
requires nearly three years of combined effort by the Congress and the 
administration. The Federal Government expends an enormous effort to 
prepare, review, submit and ultimately legislate the budget. The 
process begins with the President's budget submission, a document that 
comprises six volumes and more than 2,000 pages. This budget is in turn 
supported by individual budget justifications for each agency and 
program, which adds exponentially to the sheer weight and magnitude of 
the paperwork associated with the budget. For example, the civil works 
program of the Army Corps of Engineers has a budget of roughly $3.7 
billion, which makes up only 0.2 percent of the total Federal budget. 
The annual budget justification for the Corps alone makes up eight 
volumes of more than 2000 pages.
    With regard to the competition for Members' time and attention, as 
well as floor time, the annual budget process places great constraints 
on the workings of Congress and its committees. As a result, the 
authorization process has suffered--leaving large portions of the 
discretionary Federal budget unauthorized each year. This means that 
programs which receive taxpayers' dollars to function each year are not 
receiving the careful scrutiny they should get from the committees in 
Congress with the greatest expertise. Every year the Congressional 
Budget Office (CBO) generates a thick report identifying the programs 
that are operating without current authorization. In fiscal year 2000, 
$121 billion in appropriations were provided for 137 Federal programs 
whose authorizations had expired.
    Whereas most of the uncertainty in the Federal budget lies in the 
area of mandatory spending and revenues, the discretionary accounts for 
most agencies and programs is actually remarkably stable from year to 
year. A 1999 CBO analysis indicates that only 4.7 percent of 
discretionary spending in FY 1998 ($24 billion of the $531 billion 
appropriated) actually required annual funding as a result of 
unpredictable funding patterns. From 1997 to 1998, 70 percent of the 
872 spending accounts that comprise the discretionary portion of the 
budget saw change of less than 10 percent.
    Proponents of biennial budgeting cite all of these trends and facts 
as overwhelming arguments in favor of making a fundamental change in 
the way the Federal budget is developed and implemented. Members on 
both sides of the aisle, in both Houses of Congress have concluded that 
the year-end ``train wrecks'' and gamesmanship that have characterized 
nearly every September and October in recent memory are damaging to the 
National and the institution and are unnecessary.
    On the other hand, those who do not support biennial budgeting have 
argued that no process change will alleviate these problems. Further, 
some have expressed concern that biennial budgeting could actually 
weaken Congress' control over and oversight of Federal agencies. In 
addition, the argument has been made that biennial budgeting would 
disadvantage members of the House with respect to their colleagues in 
the Senate, providing House members with only ``one bite at the apple'' 
of allocating Federal funds during their two-year terms. Lastly, 
concern has been made about the ability to accurately predict economic 
conditions for two years, raising the possibility that the current 
annual process will simply be replaced by a biennial process in name 
only, as additional supplementals and budget revisions will be 
necessary during the second year of the biennium.

Legislative history
    Ever since the enactment of the Budget Act biennial budgeting 
proposals have surfaced. The first actual legislative proposal was 
introduced in 1977 by then Representative Leon Panetta of California 
(H.R. 9077). Since then, more than 50 different variations have been 
introduced, 10 biennial-budget related provisions have been reported by 
a Congressional committee, seven such provisions have passed either 
chamber and four have been enacted into law. The four that were enacted 
during the 1980's included directions for submission of plans for 
implementation of biennial budgeting and an effort to try biennial 
budgeting in certain areas of the budget like the Department of Defense 
and the Internal Revenue Service. In addition, Congress has adopted 
two-year funding cycles for committee funding resolutions--the Senate 
in 1990 and the House in 1995.
    More than 40 Congressional or Special Committee hearings have 
addressed the topic of biennial budgeting, which has over the years 
been endorsed or received recommendations for further study by the CBO, 
OMB and at least five different special task forces or committees. 
Biennial budgeting was also a key recommendation of the 1993 Joint 
Committee on the Organization of Congress and the Vice President's 
National Performance Review in 1993.
    In the 106th Congress, several variations have been offered 
including: H.R. 232 by Representative Ralph Regula (R-OH); H.R. 493 by 
Representative Cliff Stearns (R-FL); H.R. 2985 by Representative 
Charles Bass (R-NH) and H.R. 3586 by Representative Callahan (R-AL). In 
addition, Senate Budget Committee Chairman Pete Domenici (R-NM) has 
introduced S. 92, which has been discharged by the Senate Budget 
Committee and reported by the Senate Governmental Affairs Committee.
    In addition, Rules Committee Chairman David Dreier (R-CA) garnered 
245 cosponsors (200 Republican, 44 Democrat and 1 Independent) on H. 
Res. 396, a resolution expressing the Sense of Congress that a biennial 
budget and appropriations process should be enacted during the second 
session of the 106th Congress.
    President Clinton recommended biennial budgeting in his FY 2001 
budget submission. ``The administration anticipates that Congress will 
continue efforts to reform the budget process during the coming months 
and urges Congress to consider two budget process changes in 
particular--biennial budgeting and expedited rescission authority . . . 
. Biennial budgeting. Reaching agreement on budget priorities for two 
years would provide greater predictability and planning certainty for 
program administrators and beneficiaries. Making appropriations that 
cover two fiscal years would also permit congressional committees to 
perform their oversight functions in the off-year with less 

The State experience
    While the nature of the Federal budget is considerably different 
than that of state budgets, the experience of state governments can be 
informative in this area. In 1940, forty-four states practiced biennial 
budgeting. In 1987, nineteen states practiced biennial budgeting. 
Twenty-three states currently use a biennial budget cycle, including 
two that employ a combination of biennial and annual cycles (Kansas and 
Missouri). The twenty-three states include Arizona, Arkansas, 
Connecticut, Hawaii, Indiana, Kansas, Kentucky, Maine, Minnesota, 
Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, 
North Dakota, Ohio, Oregon, Texas, Virginia, Washington, Wisconsin and 
Wyoming. Nebraska and Connecticut adopted two-year budgeting in 1987 
and 1991 respectively and the idea has recently been under 
consideration more recently in Michigan, California and New Jersey.
    Of the 23 biennial budget states, including most recently Arizona, 
13 have legislatures that meet every year. In these states, the 
legislature may open the budget for review and revision in the non-
budget year. Twelve states have a biennial enactment of two annual 
budgets: Arizona, Arkansas, Connecticut, Hawaii, Kentucky, Maine, 
Montana, Nebraska, Nevada, Ohio, Virginia, and Wisconsin. Nine states 
have a biennial enactment of one biennial budget: Indiana, Minnesota, 
New Hampshire, North Carolina, North Dakota, Oregon, Texas, Washington, 
and Wyoming. Kansas enacts an annual budget but budgets biennially 
through two annual budgets for 20 regulatory agencies. Missouri has an 
annual operating budget and a biennial capital budget. Twenty of the 
twenty-three biennial budget states allow for some form of ``rainy 
day'' or emergency contingency fund. Only Arkansas, Kansas and Montana 
do not. The average number of appropriation bills states use ranges 
from one bill in about a third of the states to 500 bills in Arkansas. 
Ten states have either two or three individual bills.
    Since World War II many states have shifted from biennial budgeting 
as their legislatures transformed from biennial to annual sessions. 
Furthermore, states have also moved away from biennial budgeting due to 
the unpredictability of Federal funding for many programs that are 
joint ventures between state and Federal budgets. However, over the 
last 10 years states have again begun to examine shifts to biennial 

The Defense Department experiment
    The Defense Authorization Act for Fiscal Year 1987 mandated that 
the President submit a biennial defense budget for fiscal years 1988-
1989 and that the Secretary of Defense report ``on the implications of 
moving to a two-year budget.'' At the time, a two-year budget cycle--
authorization and appropriation--for the Pentagon was endorsed by 
Secretary of Defense Caspar Weinberger, the Congressional Budget 
Office, leading research institutions, and Senators Sam Nunn, Ted 
Stevens and Dan Quayle as well as Representatives Les Aspin and Ike 
Skelton The Congress and the President both favored the change, albeit 
for different reasons. The major issues that prompted support for 
biennial budgeting were the large amount of time consumed by the annual 
budget process; the perceived redundancy in the defense authorization 
and appropriation processes; the perceived lack of general defense 
policy review; and the perceived need for more effective oversight of 
Department of Defense programs.
    As required, the Reagan Administration submitted a biennial defense 
budget in 1987. However, despite the support of both branches, Congress 
subsequently authorized only part of the two-year budget and 
appropriated only one year of it. The two year budget that the Pentagon 
submitted in January 1987 became enmeshed in a partisan struggle 
between the Democratic Congress and the Republican President over 
national priorities. This struggle led to a budget summit in the Fall 
of 1987 which led to the single year defense appropriation bill for 
fiscal year 1988.
    While Congress did not avail itself of the opportunity to 
experiment with the implications of a biennial defense budget, the 
Pentagon did prepare and submit a two year budget. Dr. Robert J. Art, 
Herter Professor of International Relations at Brandeis University and 
a research associate at Harvard's Center for International Affairs has 
produced the only academic evaluation of the Federal experiment with 
biennial budgeting and its adoption in the Defense Department (``The 
Pentagon: The Case for Biennial Budgeting,'' Political Science 
Quarterly, 1989). Art called this experiment a ``half success.'' Since 
Congress refused to authorize and appropriate funds on a biennial 
basis, agency stability was not enhanced. Nevertheless, Pentagon 
comptrollers and service programmers unanimously agreed that biennial 
budget preparation was beneficial. Art found that the two-year schedule 
reduced problems associated with overlapping budget cycles and enabled 
the introduction of analyses, evaluations, and plans widely viewed as 
having improved agency operations. He wrote that biennial budgeting 
allowed Department of Defense officials time ``to do things they should 
have been doing but never could do because of the rat race of annual 
    Art further contended that, although specifying dollar amounts in a 
biennial plan is difficult, gains associated with better evaluation and 
planning are not trivial. Biennial budgeting's procurement savings are 
much more easily calculated--per unit savings could be 50 percent or 
greater for some weapon systems. In his view, better-quality decisions 
and more efficient resource utilization are the ultimate benefits of 
biennial budgeting.

  Prepared Statement of Congressman J. Dennis Hastert, Speaker of the 

    Mr. Chairman, Mr. Moakley, and Members of the Rules Committee--
Thank you for asking me to open your important hearings on biennial 
    First I would like to commend the Members of this Committee for 
their diligent service to the House in moving bills to the floor on an 
almost daily basis. I understand the committee has strange hours, and 
you are sometimes tempted to just lock the door, but the House is 
grateful for your service.
    As the House was concluding the appropriations cycle at the end of 
last year, you Mr. Chairman, along with Chairman Young of Florida, and 
other members of this committee on a bipartisan basis, introduced a 
resolution calling on the Congress to enact a biennial budget process 
in the second session of the 106th Congress.
    Mr. Chairman, I commend you for initiating this inquiry and 
beginning a public dialogue on this subject. The current budget process 
is broken, and we need to fix it.
    Since I became Speaker last year, I have emphasized the need for 
Congress to do its job under the Constitution. The public respects us 
when we get our work done on time and in a credible fashion.
    When I came to Congress, I was not sure if I would ever see a 
balanced budget in this town. We are fortunate to live now in a time of 
budget surpluses. These budget surpluses have been created by hard-
working Americans, investors, and are also the result of positive 
legislation enacted by the Congress and the President in recent years. 
However, despite the positive budget forecasts, we continue to do 
business under antiquated budget rules and procedures.
    It has become clear that we can't do our jobs with the current 
cumbersome budget system in place. Every year, the appropriations 
process consumes a great deal of our time, with numerous and lengthy 
debates, and often repetitive votes.
    Appropriators are obviously consumed with grinding their bills 
through committee, the floor, the Senate, and seemingly never-ending 
conferences with the other body.
    All too often, these conferences in particular are consumed with 
non-budget, non-appropriations policy issues. This, of course, soaks up 
the time of congressional leaders, executive branch budget experts, 
appropriators, and of course, authorizers whose laws these amendments 
often effect.
    A biennial budget process would free up more time an the calendar 
for thorough consideration of authorizing measures.
    Under House rules, appropriations bills must conform to authorizing 
legislation. But all too often, we dispense with those rules because 
the authorization bills don't get enacted. We need to restore the power 
and the purpose of the authorizing committees.
    Mr. Chairman, I served on authorizing committees in the House and I 
have observed first hand the difficulty of moving bills through the 
House and getting them considered in the Senate. It is frustrating and 
hard work. I am sure most authorizing chairmen are used to hearing the 
phrase, ``get in line behind the appropriators'' when they ask the 
leadership for floor time in both the House and the Senate.
    If we have a biennial budget process, the authorizing committees 
won't have to get behind the appropriators anymore.
    The House through its committee system must also do a better job of 
conducting programmatic oversight and management of the vast accounts 
of the U.S. government. One of the powers of Congress is the power of 
the purse, and we need to ensure that we have a system in place, which 
allows us to carefully scrutinize the programs we fund.
    Programmatic oversight is a critical feature of Congress funding 
and lawmaking process. In a bipartisan manner, it allows us to shine 
the spotlight on how and where the executive branch is spending the 
money we appropriate.
    Biennial budgeting would give congressional committees the ability 
to devote more time and resources to programmatic oversight. This must 
be a thorough and ongoing process, and I have found that it is most 
successful when conducted in a bipartisan manner.
    Mr. Chairman, another area that a biennial budget process would 
improve the current system would be in the area of budgeting for 
emergencies. I am sure many of the Members here remember the 
catastrophic Mississippi River flood from 1993, and the difficulty of 
moving the supplemental appropriations for flood relief through the 
Congress. Other natural disasters occur, and create pressure to move 
expensive legislation quickly. Unanticipated military operations, such 
as our intervention in Kosovo last year, also create the need for 
supplemental appropriations bills during the fiscal year. Biennial 
budgeting would force the Congress and the President to plan ahead for 
unanticipated needs.
    Mr. Chairman, the U.S. government should follow the model of 23 
states who have a biennial budget cycle,
    The President's budget, just two weeks ago, recommended that the 
Congress enact biennial budgeting. Your sense of congress resolution in 
support of biennial budgeting has garnered the support of 244 Members 
of the House, which spans the ideological spectrum and includes 
authorizers and appropriators.
    I urge you to use your expertise in the rules and procedures of 
Congress, work with the House Budget Committee and with the Senate, 
continue to work in a bipartisan fashion, and produce a biennial budget 
package for the House to consider.
    Mr Chairman, thank you for the opportunity to appear before your 
committee today.''

           Prepared Statement of Congressman C.W. Bill Young

    Mr. Chairman, it is a pleasure to appear before your panel to give 
you my thoughts on biennial budgeting.
    The fiscal year 2001 budget is the 27th budget I will have worked 
on since I began serving on the Appropriations Committee. During nearly 
every one of those budgets, my committee was either rushed for time or 
was late in completing its work or both. We receive the budget in early 
February. By this time, over one-third of the fiscal year is gone, and 
we have less than eight months to get all the appropriations bills 
    My committee is supposed to receive its overall allocation against 
which we mark up our appropriations bills by April 15th. I am not going 
to provide the history of how many times the Congress has been able to 
do that, but the record is very bad. The reason is that it's hard to do 
a budget resolution given the conflicting priorities that are inherent 
in the effort and the fact that we have had a divided government for 
most of the recent past. Even if we got a budget resolution completed 
by April 15th, we have less than five and one-half months left to get 
our work done.
    This year we are trying to get the budget resolution done by March 
15th. As you can see by the calendar, that would leave still only six 
and one-half months for appropriations. This would be better, but may 
not be enough.
    I think we need more time than this to develop and enact 
appropriations bills. This is why we should take a look at how biennial 
budgeting might help us.
    I believe that any biennial budgeting legislation should be 
developed to provide additional time for Congress to consider 
appropriations bills. Whether this might mean moving the date for 
budget submission back, shortening the time for development of a budget 
resolution, or moving the beginning of the fiscal year ahead or a 
combination of all of these, I don't have a preference. I just feel 
that we need more time for the appropriations process.
    While doing this might seem like we're taking more time on 
appropriations rather than less, which is one of the assumed goals of 
biennial budgeting, we would really be freeing up legislative time. 
This is because even though we need more time during a year for 
appropriations, we would only have a major appropriations effort every 
other year. The off years would be devoted to oversight and authorizing 
work plus some fine tuning of the appropriations bills we passed the 
year before.
    While my main reason for looking at biennial budgeting is to get 
more time for the appropriations process, one of the stated reason of 
others I have heard has been to give more time for oversight and 
authorizing activities. One of the reasons appropriations takes so much 
time is because so many programs are unauthorized at the time we 
consider appropriations for them. The controversial legislative issues 
get inappropriately included in appropriations bills rather than 
authorizing bills. I strongly believe that any biennial budgeting 
legislation should not only address the budget schedule of the 
Congress, but also the authorization process. If all that biennial 
budgeting achieves is a two year appropriations cycle, we will be as 
bad off with the two year appropriations bills as we are with the one 
year bills.
    We need multi-year authorizations, and we need them in advance of 
the consideration of appropriations bills in order for biennial 
appropriations to work. While biennial budgeting will give additional 
time for oversight by authorizing committees, they must develop and get 
enacted authorizing legislation with this extra time.
    I want this committee to know that the Appropriations Committee 
also does a lot of oversight. We will continue to do a lot under a 
biennial budgeting calendar. I think it would be good for the 
authorizing committees to do more, too. But, they need to use the 
information they learn to review and modify the permanent legislation 
that's on the books and to pass authorizations to appropriate. 
Requirements to bring this about should be included in any biennial 
budgeting legislation.
    I have also heard that biennial budgeting legislation might become 
the vehicle for other budget process reform. I want to make sure this 
committee understands that we need reform that will serve the American 
taxpayer better. I would urge you to be very careful not to load up any 
biennial budgeting legislation with other controversial budget process 
legislation. Support for and the success of any biennial legislation 
may well be contingent on what else, if anything, might be included in 
this legislation.
    For the reasons I outlined, I believe that now is a good time to 
look at implementing biennial legislation. I urge the committee to hear 
from a broad range of experts on the matter. Listen to their concerns 
and see if we can improve the budget and appropriations process.
    Thank you for the opportunity to testify.
    I would be happy to answer any questions you may have.

                   Prepared Statement of Jacob J. Lew

    Mr. Chairman, and Members of the Committee, I am pleased to be here 
this morning to discuss biennial budgeting and other budget reform 
    This administration has strongly supported many reforms to improve 
the efficiency and effectiveness of the Federal Government. Beginning 
with the Vice President's National Performance Review in 1993, the 
administration has sought to reinvent the Federal Government, so that 
it will work better and cost less.
    We have already seen a number of successes. For example, since 
President Clinton took office, the number of Federal, executive branch 
civilian employees has dropped by over 360,000 to the lowest level in 
39 years. In addition, when the administration took office, the Federal 
budget routinely ran deficits of well over a hundred billion dollars 
per year, deficits then projected to continue into the indefinite 
future. This trend has been decisively reversed, with the Federal 
budget running a surplus in the last two fiscal years--FY 1998 and FY 
1999. Prior to these surpluses, the last balanced budget had been in 
fiscal year 1969, and the last time that the Federal Government had two 
consecutive balanced budgets was in fiscal years 1956 and 1957.
    The fact that we are running a surplus does not mean, however, that 
fiscal discipline is no longer needed. To the contrary, fiscal 
discipline is essential to protect Social Security and strengthen 
Medicare, so that both will be there in the years ahead. Reducing the 
accumulated Federal debt will help us to protect these important 
programs, improve our ability to respond to future fiscal problems or 
crises, lower both interest rates and Federal interest costs, and 
encourage continued strong economic growth. Accordingly, the 
Presidents' Budget for Fiscal Year 2001 proposes a new framework for 
the budget process that includes tools for ensuring continued fiscal 
discipline. These tools include a Social Security Solvency Lockbox to 
ensure that Social Security surpluses are not used for other purposes, 
as well as measures to strengthen Medicare and reduce the publicly held 
debt. In addition, the framework proposes to extend to 2010 both the 
``paygo'' and discretionary spending caps enforcement mechanisms.
    In this context, the administration continues to believe that 
biennial budgeting offers a management tool with potential to 
contribute to the enhanced performance of the Federal Government. In 
1993, Vice President Gore's ``Report of the National Performance 
Review'' proposed moving to biennial budgeting. The potential benefits 
of biennial budgeting were also outlined in testimony presented by two 
of my predecessors as OMB Director--Leon E. Panetta and Franklin D. 
Raines--in their testimony before the House Governmental Operations 
Committee (in 1993), the Senate Rules Committee (in 1994) and the 
Senate Governmental Affairs Committee (in 1997).
    Most recently, the President's FY 2001 Budget states that 
``Reaching agreement on budget priorities for two years would provide 
greater predictability and planning certainty to program administrators 
and beneficiaries. Making appropriations that cover two fiscal years 
would also permit congressional committees to perform their oversight 
functions in the off-year with less distraction.''
    In their testimony in support of biennial budgeting, OMB Directors 
Panetta and Raines focused on its potential benefits. I would like to 
first reiterate the substantial advantages of biennial budgeting. In 
addition, given the serious consideration being given to biennial 
budgeting this year, it is particularly important to discuss some of 
the practical considerations for biennial budgeting to succeed.
    The potential benefits from biennial budgeting can best be 
appreciated by considering what happens nearly every fall under the 
current process. During the months of September and October, Congress 
and the administration are typically negotiating final appropriations 
levels for the new year and reaching agreement on one or more 
continuing resolutions. Simultaneously the agencies and departments of 
the Executive Branch are beginning the new fiscal year operating under 
continuing resolutions while also expending great amounts of time 
developing their budget requests for the subsequent fiscal year.
    The current process does not serve us well. It is very inefficient, 
and the task of budgeting consumes a great deal of time and energy that 
could be better devoted--by the Congress, the President, and the 
agencies--to addressing programmatic issues from a longer-term and more 
in-depth perspective. In sum, the primary potential benefit from 
biennial budgeting is that, by concentrating budget decisions in the 
first year of each two-year period, time would be freed up in the 
second year that could be redirected to management, long-range 
planning, and oversight.
    These are familiar arguments that have helped build the growing 
interest in biennial budgeting. By contrast, many of the criticisms of 
biennial budgeting focus on concerns about how it will function in 
practice. These important concerns must be kept in mind when crafting 
legislation. Because of growing support for biennial budgeting, I want 
to spend time on problems that could arise under it, and the challenges 
that the Congress and the Executive Branch will have to address to 
ensure that it succeeds.
    First, for biennial budgeting to work, the two branches in the 
first year of the biennium will have to negotiate, and reach agreement 
on, appropriations that span two years instead of only one. This will 
be difficult. The problems with the current process result from the 
difficulties that Congress and the Executive Branch have encountered in 
negotiating, and reaching agreement, on appropriations that cover one 
year. Having to negotiate and reach agreement on two years of 
appropriations will inevitably be more complex.
    As a result, the two branches will have to exercise discipline in 
carrying out negotiations, to ensure that they reach a successful 
conclusion within about the same time frame as we now do for the 
thirteen appropriation bills. If the negotiations drag on into November 
and December, then the time that is saved in the second year of the 
biennium comes at the expense of having to devote more time to 
budgeting in the first year. Alternatively, if the two branches give up 
and enact only annual appropriations, then we will have essentially 
created a more time-consuming version of the current process.
    Second, the two branches would have to ensure that, during the 
second year of the biennium, the Federal Government remains able to 
respond to changing and unforeseen circumstances, as well as evolving 
priorities. It is not reasonable to expect that appropriations could be 
proposed, and decided upon, in the first year of the biennium, with no 
changes needed during the next two years. Under biennial budgeting, a 
midcycle review would have to occur and necessary corrections made. 
Thus, there will be a need for the President to have the opportunity to 
propose orderly changes, and for Congress to provide updates. Should 
the supplemental become thirteen appropriations bills, the efficiencies 
of biennial budgeting would be lost. There will also be a need to 
provide agencies with additional flexibility in how they use their 
funding, to enable them to address changing conditions and evolving 
priorities without the need for a legislative change in each and every 
    We should not expect the answer to this challenge to be immediately 
obvious. It will likely take the two branches some period of time, as 
they implement biennial budgeting, to learn how the benefits of 
biennial budgeting can be realized without sacrificing necessary 
Government flexibility. We should endeavor to meet this challenge. 
Biennial budgeting will not work if the process either becomes too 
inflexible or too open-ended. On the one hand, the Federal Government 
will not be able to carry out its responsibilities properly if it finds 
itself locked into long-term appropriations that are open to review and 
revision only once every two years. On the other hand, the potential 
benefits from biennial budgeting--namely, the time that can be saved 
and redirected to longer-term reviews and initiatives--will not be 
realized if in place of the current system with structured annual 
budget reviews, we produce a system in which the two branches become so 
accustomed to considering and passing supplemental bills that the task 
of budgeting becomes an unstructured and unending process.
    For biennial budgeting to work, then, the two branches will have to 
avoid these extremes, and find the proper balance under which the major 
task of budgeting is carried out once every two years. Furthermore, 
mid-course corrections should be limited to those changes needed to 
address changing and unforeseen circumstances, as well as significant 
changes in priorities. That balance will require cooperation between 
the branches. Supplemental appropriations bills will require both 
congressional and presidential action. I would anticipate that 
additional flexibility for agencies will be accompanied by appropriate 
congressional consultation and notification requirements. Efforts 
should be made to avoid a process that enables single parties to block 
agency activities at a very low level of detail.
    Finally, there will also have to be an appropriate transition 
period before the Federal Government converts over to biennial 
budgeting. It must be recognized that biennial budgeting will 
constitute a very fundamental change in how the Federal Government 
operates. A conversion to biennial budgeting will have to take into 
account the magnitude of the change that would be required, both in 
terms of the need to make necessary conforming changes to those laws 
that presume the proposal and enactment of annual appropriations, as 
well as in terms of the need for Congress and the Executive Branch to 
develop and implement new practices for proposing, considering, and 
enacting biennial budgets. For example, we will need to ensure that an 
incoming President has sufficient time, upon taking office, to prepare 
a budget proposal that will cover two years rather than one. Additional 
time may be necessary for the administration to prepare the first 
biennial budget proposal as well as for Congress to pass the first set 
of biennial appropriations bills. We can expect a challenging process 
in the first year, and the legislation should allow for that.
    In order to realize the many potential benefits of biennial 
budgeting, we must think through carefully how it would work in 
practice, so that we can successfully meet the challenges that will be 
involved in carrying out the transition and in implementing the new 
system. Indeed, careful attention must be devoted to crafting biennial 
budgeting legislation to ensure that the adoption of biennial budgeting 
will work in practice, with the intended results.
    As I have explained, biennial budgeting has the potential to enable 
the Congress and the Executive Branch to save time that can be devoted 
to more in-depth and longer-term reviews and initiatives. By itself, 
however, biennial budgeting cannot remedy all of the shortcomings of 
the existing budget process. In order to strengthen the budget process 
and maintain the fiscal discipline that has brought us so far, we need 
to also address the budget process proposals presented in the 
President's Budget.
    As I noted earlier, the President's Budget for FY 2001 proposes a 
new framework for the budget process. The reforms that the 
administration has proposed will protect Social Security, strengthen 
Medicare, and ensure continued fiscal discipline. Establishing budget 
protections for Social Security and Medicare, along with other budget 
reforms such as extending paygo and the discretionary caps, will 
strengthen the framework for fiscal discipline for the long term and 
ensure our continued success in getting our fiscal house in order.
    It is also important that biennial budgeting not be used as a 
vehicle to make other potentially damaging changes in the budget 
process, such as ending the paygo requirements for tax cuts and new 
mandatory spending. Finally, it should be noted that points of order 
can be used to block non-conforming action, but not to compel 
agreements on a two-year cycle. It will take cooperation and 
constructive negotiations to reach a two-year agreement.
    Carefully crafted biennial budgeting legislation, particularly if 
it is combined with the budget process reforms in the President's 
budget, can be an important tool to improve management of our 
Government. I look forward to working with you in that process and 
would be pleased to respond to your questions.

 Submitted Questions and Answers--The Honorable Jack Lew, Director of 
                  the Office of Management and Budget

    1. One of the concerns that has been raised with biennial budgeting 
is the difficulty of projections. In your prepared testimony you 
mention the need for the President to do a mid-cycle review and to have 
the opportunity to propose orderly changes and for Congress to have the 
opportunity to respond. Could you elaborate on how both the President 
and Congress could do this?
    I believe that the mid-cycle review could be largely based on the 
existing mechanisms that the Executive and Legislative Branches have 
for identifying areas where spending revisions need to be made, to 
respond to changing circumstances or evolving priorities. Having 
enacted appropriations for each year of the biennium, Congress and the 
President would not need to revisit the entire Budget, as we do now 
each year. Instead, in the mid-cycle review, the two Branches could 
focus on those areas where change is needed.
    A formal process for a mid-cycle review could serve to help address 
the increase in supplemental requests and appropriations bills or the 
need for rescission proposals that would likely result from a shift to 
biennial budgeting (a concern raised in question 10). Of course, 
additional supplementals and rescissions could still be considered 
outside a mid-cycle review, just as they are under the existing annual 
process. But a mid-cycle review could create an orderly process to 
minimize the increased burden.
    I believe that this would allow both Branches to devote the proper 
attention to ensuring that the Budget responds to changing 
circumstances and evolving priorities, while still saving a substantial 
amount of time that is currently devoted to budgeting and which could 
be redirected to longer-term planning and management initiatives.
    2. In testimony before the Senate Governmental Affair's Committee 
in 1997, OMB Director Frank Raines with respect to biennial budgeting 
legislation (S. 261) stated:
    ``If there is any one area that I have found, since I have been in 
this job, to be lacking, it is time for the senior managers in the 
government to focus on actually implementing the laws that Congress has 
passed. This bill, I believe, would go a long way to focusing the 
attention of managers on actually performing, as opposed to planning 
and looking forward to the budget process in subsequent years.'' 
    Do you agree that biennial budgeting would allow program managers 
more time and resources to devote to actually managing programs in the 
short run and planning for programs in the long run? 
    Yes, I do believe that biennial budgeting has the potential to 
allow program managers to spend less time on budgeting, and to devote 
the time that is saved to longer-term planning and management 
    3. Can you describe the steps involved in the process for 
developing a President's budget? Congress seems to be constantly 
working on the budget. Are the agencies and OMB also constantly working 
on the budget?
    Yes, OMB and the agencies are always working on the budget. In 
fact, we are always--or almost always--working on three budgets at the 
same time: (1) We are executing the enacted appropriations acts, other 
spending laws, and revenue laws in effect for the current fiscal year; 
(2) we are working with Congress as it drafts and passes such laws for 
the upcoming fiscal year; and (3) we are working on the President's 
budget for the fiscal year following the upcoming fiscal year.
    Here, briefly, are the steps that are involved in developing the 
President's Budget: (1) in the spring before the President submits the 
Budget to Congress, OMB--working with other Presidential advisors and 
within general budget and fiscal policy guidelines established by the 
President--develops planning guidance for the agencies, to be used in 
developing their budget requests, which the agencies submit to OMB in 
September; (2) in the spring and summer, each agency carries out an 
internal budget process to develop their budget requests; (3) during 
the summer, OMB and the agencies have a continuing dialogue on budget 
issues; (4) in September, agencies submit their budget requests to OMB; 
(5) during the fall, OMB conducts an intensive review of the agencies' 
requests, resulting in OMB ``pass-backs'' to the agencies, and the 
resolution--in coordination with the President and his senior 
advisers--of the agency appeals of the ``passbacks,'' with final 
decisions reached usually by late December; and (6) in December and 
January, OMB and the agencies carry out the intensive work required to 
produce the budget documents that are transmitted to Congress on the 
first Monday in February.
    4. One of the perceived benefits of biennial budgeting is the 
ability of the executive branch to devote more time and resources to 
the management of programs. As you know, under the current annual 
budget process, agency heads are required to provide OMB with periodic 
data updates during the course of a year. Under biennial budgeting how 
would you envision these internal control mechanisms operating?
    If biennial budgeting legislation were enacted, OMB and the 
agencies would have to review our procedures, to determine what changes 
to our budgetary reporting procedures would be necessary or desirable. 
That is among the reasons why a transition period is needed before 
biennial budgeting becomes fully effective. At the present time, I 
would expect that OMB would generally maintain the existing internal 
control mechanisms in their current form.
    5. Do you think that under the current budget process there is a 
preoccupation with budget projections and resources allocation as 
opposed to actually running programs and reviewing how they are 
    I would not say that there is a ``preoccupation'' with budget 
matters as opposed to program management and review. Making budgetary 
decisions is a very important governmental responsibility--and so is 
program management and review. To be effective, the Government needs to 
do both well. I do believe, though, that budgeting does take up a 
substantial amount of time, and that the time which has to be devoted 
to budgeting appears to be increasing over the years. It would be 
desirable if we could reduce the amount of time that is devoted to 
budgeting, and redirect this saved time to program management and 
    6. As you know, the current budget process only accounts for 
changes in mandatory spending and revenues that result from legislative 
action. OMB and CBO hold the budget harmless for changes in spending or 
revenue levels caused by administrative, economic or technical changes. 
Do you think it would be possible and advisable to utilize this 
existing mechanism (or a modification thereof) as a way of handling 
such changes in the budget under a biennial process?
    I believe that the existing ``paygo'' system could, and should, 
continue to be used under a biennial budgeting process. One of the 
issues that will need to be addressed as biennial budgeting legislation 
receives further consideration is whether any technical revisions are 
needed to the paygo system so that it will reflect a biennial budgeting 
    I do not believe, however, that a conversion to biennial budgeting 
would require that any substantive changes be made to the paygo system. 
Any proposals for making substantive changes to the paygo system need 
to be addressed on their own merits.
    It is true that administrative, economic, or technical changes are 
likely to have a greater impact during a two-year period than during 
one year. A mid-cycle review could help Congress and the administration 
address those concerns, as well as changes in discretionary programs.
    7. In your prepared testimony, you state that a conversion to 
biennial budgeting will need to take into account ``the need to make 
necessary conforming changes to those laws that presume the proposal 
and enactment of annual appropriations, as well as in terms of the need 
for Congress and the Executive Branch to develop and implement new 
practices for proposing, considering, and enacting biennial budgets.'' 
Which exact laws are you referring to here and what new practices for 
the Executive Branch did you have in mind?
    In terms of the conforming changes to laws that will need to be 
made to adjust to a biennial budgeting process, three such laws are the 
Congressional Budget Act, the provisions of Title 31 of the U.S. Code 
that address the budget process, and the Government Performance and 
Results Act. A review will also need to be made of the Budget 
Enforcement Act to determine whether any conforming changes are 
    In terms of the new practices that will have to be developed and 
implemented, I believe that this area will be a principal focus of the 
Legislative and Executive Branches during the transition period from 
annual budgeting to biennial budgeting. The existing practices are the 
product of annual budgeting for over two hundred years. It will take 
some time to ``reinvent'' these processes so that they will work 
effectively for a biennial budgeting process.
    8. During the hearing there was a detailed discussion of the need 
for a thorough and well thought out transition plan to be included in 
any legislative vehicle implementing biennial budgeting. There are a 
couple of follow up questions on that topic: 
    How long of a ramp up period do you think is necessary to ensure 
that both the executive and legislative branches are ready to implement 
this new process?
    Specifically, now long will it take agencies to obtain the ability 
to prepare, propose and manage two year budgets? 
    Would you suggest that biennial budgeting be phased in over some 
set time period with certain portions of the budget moving to a 
biennial schedule one year followed by others? If not, would you 
advocate not moving any budget submissions to a biennial schedule until 
the entire budget is ready to proceed in that direction? If so, would 
the Department of Defense be the most likely first candidate for such a 
    If biennial budgeting legislation were enacted this year, I believe 
that a transition period would be necessary under which the complete 
transition to biennial budgeting would not occur until the third year 
of the incoming administration. As I testified, it is a substantial 
enough task for an incoming administration to develop and submit a one-
year Budget proposal soon after the President takes office. It would be 
too much to expect any incoming administration, upon taking office, to 
have to develop and submit the Federal Government's first-ever biennial 
Budget proposal. In addition, to convert from annual to biennial 
budgeting, OMB and the agencies will need some time to develop and test 
new procedures, and I expect that the Congress will also need some time 
to do so as well.
    A phase-in will be necessary if the transition to biennial 
budgeting is to be successful. One possible approach would be to 
convert certain parts of the budget first, with other parts of the 
budget converted later. If this approach were adopted, however, it 
should involve not only the President proposing a biennial budget for 
the first wave of agencies, but also the Congress passing biennial 
appropriations for those agencies. Although biennial budgeting has been 
required for the Defense Department, and the President has proposed 
biennial budgets, Congress has continued to pass only one-year 
appropriations. We do not believe that continuing this approach makes 
sense, and that is why the administration has proposed the repeal of 
this agency-specific biennial budgeting requirement for the Defense 
    Another approach for a phase-in is the non-binding, ``notional'' 
second-year budget I discussed in my testimony. This would involve a 
``notional'' budget for the second year of the first two-year cycle, 
even though funds for that cycle would continue to be provided on an 
annual basis. During the budget process for that second year, OMB, the 
agencies, and Congress could compare the notional budget to what is 
actually happening in the ``real'' process for that year.
    A third option would be to begin full-fledged biennial budgeting in 
the third year, without using selected agencies or another type of 
formal phase-in. Congress, OMB, CBO, and the agencies could use the two 
year transition period to prepare their internal budgeting systems and 
    There are likely other approaches to the transition to biennial 
budgeting that merit careful consideration. Determining the best 
approach and ensuring a smooth transition will require extensive 
discussions between OMB, the agencies, Congress, and the CBO. These 
discussions will be necessary both as we develop and consider biennial 
budgeting legislation and after its enactment.
    9. What role would you envision reconciliation playing under a 
biennial process specifically in the off year?
    Reconciliation has come to be used to make substantive changes in 
mandatory spending and revenue laws, in conjunction with appropriations 
acts and as part of an overall budget plan. Ideally, under a biennial 
budgeting process, such changes would be made in the same year that the 
biennial appropriations are enacted. The Legislative and Executive 
Branches could devote the second year of the biennium (the off-year) to 
undertaking a closer programmatic examination of these programs and 
    However, it is no more realistic to assume that we will never want 
to make changes in mandatory spending and revenue laws in the second 
year of a cycle than it is to assume that we will never want to 
consider supplemental appropriations or rescissions in the second year. 
If a mid-cycle review suggests the need for changes in mandatory 
spending or revenue laws in the second year, then reconciliation could 
be an appropriate vehicle for such changes, just as it is today.
    10. There has been concern expressed that a biennial budget process 
would yield more and larger supplemental spending bills in the non-
budget years, as Congress and the administration sought to make 
corrections or changes to the budget laid out in the prior year. Do you 
share this concern? What if any procedural technical provisions should 
we be considering to ensure that the supplemental spending process does 
not spiral out of control?
    As I noted in my testimony, there will be a need for supplemental 
appropriations during the second year of the biennium. However, 
supplemental appropriations will need to be addressed in an orderly 
manner, so that we don't end up adopting an essentially disordered and 
endless budgeting process--which would not be an improvement over the 
current process. One approach that would assist the Branches in 
reaching this balance would be to have the President submit a mid-cycle 
budget proposal--in which the President would propose, in a 
consolidated manner, the changes that he believes need to be made to 
address changing circumstances and evolving priorities. It will require 
more than procedural changes, however. To make biennial budgeting work 
effectively, both Branches will have to proceed in a spirit of comity 
and will have to be sensitive to the need to ensure a balance between 
having a budgeting process that is too rigid, on the one hand, and a 
budget process that becomes endless or chaotic, on the other. This kind 
of ``cultural'' approach cannot be legislated or imposed through 
    11. Some people consider the issue of biennial budgeting to be one 
of institutional concern, arguing that by giving up annual action on 
appropriations the Congress would be ceding power to the Executive 
branch. What is your assessment? Do you think that agencies would be 
less responsive to Congress under a biennial budget process?
    While I respect the concerns of those who believe that biennial 
budgeting will shift power between the two Branches, I do not share 
this concern. I have spent nearly two decades working in the 
Legislative and Executive Branches. Based on this experience, my belief 
is that Executive Branch officials are very responsive to Congress. I 
do not believe that, under biennial budgeting, Executive Branch 
officials would become less responsive to Congress. That is because 
biennial budgeting would not alter the fundamental reality that, under 
the Constitution, Congress has ``the power of the purse.'' Rather than 
reducing the power of Congress, biennial budgeting could make agencies 
even more responsive to Congress, because Congress could devote the 
time that is saved during the second year to increased programmatic 
review and oversight. Moreover, mid-course corrections would continue 
to require cooperation between the Legislative and Executive Branches.

                  Prepared Statement of Dan L. Crippen

    Mr. Chairman and Members of the Committee, thank you for giving me 
the opportunity to testify on the idea of converting the annual budget 
process to a two-year cycle. Under the major proposals for biennial 
budgeting, the first session of each Congress would be devoted to 
budget action--the President's budget, the budget resolution, and 
appropriation and reconciliation bills. The second session would focus 
on oversight of Federal programs, authorizing legislation (laws that 
set underlying policies for Federal programs and that are generally a 
prerequisite for appropriations under House and Senate rules), and 
legislation needed to adjust budget laws for changing conditions or 
unforeseen events.
    Biennial Federal budgeting is a relatively long-standing idea 
(specific proposals date back to the late 1970s), and the battle lines 
over whether it should be adopted have been clearly drawn for some 
time. Proponents are convinced that devoting a separate session of 
Congress to authorizing and other nonbudget legislation would improve 
oversight of Federal programs and ease the stresses under which 
lawmakers labor to complete action on the budget--especially 
appropriation acts. Opponents are as firmly convinced that a biennial 
budget cycle would lead to the use of large supplemental appropriation 
bills and other ad hoc measures to deal with unforeseen budget and 
economic changes and would shift the balance of budgetary power to the 
    My testimony this morning will make the following points:
     The success of a biennial budget cycle would depend on 
whether lawmakers were able to separate budget and nonbudget issues in 
the way that proponents envision. Various practical hurdles could make 
separating the two types of issues difficult.
     Biennial budgeting could make two major improvements to 
the budget process. First, it might give lawmakers and agency officials 
time to evaluate Federal programs more effectively and help them carry 
out the requirements of the Government Performance and Results Act of 
1993 (GPRA). Second, it could help ease the annual logjam of budget 
legislation that has contributed to recent difficulties in the annual 
appropriation process.
     A biennial budget cycle would not come without costs. 
Members would need to weigh the potential gains from more time for 
oversight and a more efficient appropriation process against the 
potential drawbacks of weakened Congressional control of the budget, 
less accountable Federal agencies, and a budget process that might be 
less responsive to changing conditions.


    The idea that Congressional oversight and the budget process will 
improve under a biennial cycle rests largely on the assumptions that 
public policy issues can be divided into budget and nonbudget 
components and that each can be confined to a single session of 
Congress. A number of practical hurdles could make it hard to separate 
the two types of issues and thus could jeopardize the benefits of 
shifting to a two-year budget cycle.
    All of the major proposals for a biennial process distinguish 
between budget and nonbudget issues by specifying a timetable of budget 
actions in the first session of each Congress. Those actions--
submitting the President's budget, adopting the budget resolution, and 
enacting appropriation and reconciliation acts--would generally 
parallel the current yearly schedule. The second session would be 
reserved for authorization laws and for legislation making any 
necessary adjustments to budget laws enacted in the first session or in 
earlier years. To enforce the separation between the budget and 
nonbudget sessions, some proposals would also bar the Congress from 
considering any authorizing legislation or nonreconciliation (free-
standing) revenue measures during the first session until it had 
finished acting on the budget resolution, all regular (biennial) 
appropriation acts, and any reconciliation legislation.
    Although distinguishing between budget and nonbudget legislation in 
that way sounds straightforward, it could be confusing and might create 
new difficulties in the budget process. For example, authorizing 
legislation can sometimes include significant amounts of mandatory 
spending. In addition, tax legislation is often considered in the form 
of free-standing bills outside the reconciliation process. Legislation 
in those categories raises certain questions. For example, should those 
types of measures, even if they include significant spending or revenue 
effects, be confined to the nonbudget session? If the budget effects of 
such legislation are offset, so there is no net change in the deficit 
or surplus, should the legislation be considered budgetary or 
    The rules governing reconciliation in the Congress raise additional 
issues. In general, reconciliation is a process for changing permanent 
spending and revenue laws to make them conform with the budget 
resolution. The rules of that process are intended largely to ensure 
that reconciliation bills are consistent with the directives in the 
resolution and to expedite their consideration. Those rules, especially 
in the Senate, make reconciliation bills important legislative vehicles 
for changing Federal programs and revenue laws. But they may also limit 
the extent to which broad, structural reforms in Federal programs (such 
as those dealing with long-term imbalances in Federal retirement or 
health care programs or certain proposals to reform the tax code) can 
be made through the reconciliation process. Such reforms may have 
significant budget effects. If that type of reform legislation may not 
be included in a reconciliation bill, should it be considered budgetary 
or nonbudgetary under a biennial budget cycle?
    In part, the difficulty of distinguishing between budget and 
nonbudget issues may be related to the nature of the legislative 
process. Legislation is divided among Congressional committees with 
jurisdictions that do not fall neatly into budget classifications. 
Because biennial budgeting relies on distinguishing between budget and 
nonbudget issues, lawmakers should carefully evaluate the possible 
unintended consequences of making that distinction. One possible 
outcome is that the legislative and budget processes could become more 
rigid if rules to enforce the distinction were put in place.


    Proposals for biennial budgeting have been prompted largely by 
Members' understandable frustration about the extent to which budget 
issues have come to dominate the annual legislative agenda. 
Increasingly, Members worry that budget matters are crowding out other, 
equally important duties, such as Congressional oversight. As a result, 
they say, the Congress either ignores those other duties or conducts 
them as part of its annual action on appropriation bills. But in their 
view, the rigors of annual budgeting tend, first, to make oversight 
conducted at that point more ad hoc and less effective and, second, to 
bog down appropriation bills with unrelated and controversial issues 
that ought to be considered carefully, systematically, and separately.

                          IMPROVING OVERSIGHT

    Some evidence appears to support the view that Congressional 
oversight by authorizing committees has suffered. Over the past five 
years, the total amount of unauthorized appropriations (appropriations 
for which the applicable authorization law has expired) has averaged 
about $100 billion annually. That amount-which represents nearly one-
fifth of total discretionary budget authority--is spread over some 100 
different laws covering the jurisdictions of nearly every authorizing 
    Several factors are likely to have contributed to the problem of 
unauthorized appropriations. Prominent among them is the difficulty 
that lawmakers face in reaching a consensus about the controversial 
issues that often arise during Congressional action on expiring 
authorization laws. A biennial budget cycle would not make it any 
easier to reach a consensus on those issues. But it might make it 
easier for lawmakers to separate policy and funding decisions and thus 
increase opportunities for authorization laws to be enacted in a timely 
    The Government Performance and Results Act adds an important 
element to the debate about possible improvements to Congressional 
oversight under a biennial budget. Under GPRA, Federal departments and 
agencies are required to establish strategic goals, performance plans, 
and performance measures for Federal programs. Law-makers are supposed 
to use that information to evaluate those programs and to allocate 
Federal resources in the budget process. A governmentwide performance 
plan has been included in the President's budget for the past three 
years. By March 31, 2000, Federal agencies are required to submit the 
first reports that evaluate their progress toward meeting the 
performance goals set out in their 1999 performance plans.
    With the GPRA framework of reporting and other requirements nearly 
phased in, lawmakers now face the issue of how best to integrate that 
information into the budget process. One question involves whether the 
annual budget cycle provides the best setting for making effective use 
of GPRA performance data. Although the law's ultimate goal was to have 
performance data used routinely in the budget and appropriation 
processes, lawmakers may find it easier to employ that information if 
they have a session of Congress devoted principally to oversight and 
evaluation. In addition, authorizing committees have an important role 
in evaluating and using agency performance data and may be better able 
to apply that information in a nonbudget session as they craft 
authorizing statutes.


    In some respects, biennial budgeting would not depart significantly 
from current practice. Although lawmakers act on the budget annually, 
most spending (principally for entitlement programs and net interest) 
and revenues flow from laws that are either permanent or remain in 
effect for more than one fiscal year. In the appropriation process, 
however, lawmakers both act and provide funds one year at a time. Thus, 
a biennial budget cycle would be likely to have its greatest effect on 
that process.
    Lawmakers have grown increasingly concerned about the difficulties 
and delays that accompany the appropriation process, particularly 
during the past two years. Congressional action on most of the 
appropriation bills for 1999 and 2000 occurred behind schedule, with 
final action completed well after the beginning of the fiscal year. 
Most of the major appropriation bills for those years were incorporated 
into a single consolidated appropriation act, which included numerous 
authorization and policy provisions generally unrelated to the routine 
and ongoing appropriations for most Federal agencies.
    Those problems are not new. As with the difficulties in enacting 
authorization laws, other factors--especially underlying political 
disagreements--may be the root cause. But a biennial cycle of regular 
appropriations could give lawmakers and other officials enough time to 
resolve those disagreements and could make the appropriation process 
smoother and more efficient.
    In particular, biennial budgeting could have two broad benefits for 
the appropriation process. First, if lawmakers were successful in 
separating budget and nonbudget sessions and in enacting authorization 
laws in a timely fashion, they might be less likely to add 
controversial policy riders to appropriation measures. Second, 
oversight during the appropriation process might actually improve. For 
example, the appropriations committees could focus more closely in the 
nonbudget session on how appropriated funds were being spent, which 
could help them prepare for the next two-year appropriation cycle.


    Acting on the budget every other year would have drawbacks. Members 
would need to weigh the potential gains described above against a 
potential decline in Congressional control of the budget, the effect of 
using outdated budget information, and a less responsive budget 
    Although biennial appropriations might have payoffs in improved 
planning for Federal agencies and more time for Congressional 
oversight, they might also diminish Congressional control of spending 
because lawmakers would have half as many opportunities to adopt 
regular appropriation bills. Moreover, Congressional oversight that is 
divorced from the purse strings may be less effective than oversight 
that is conducted through annual appropriation hearings linked to 
agencies' funding requests.
    Certain appropriated programs with stable or predictable funding 
patterns might be good candidates for two-year appropriations. But the 
current annual process already accommodates multiyear appropriations. 
Also, the benefits to the executive branch of having more time to plan 
and prepare appropriation requests could be offset by the uncertainty 
of making those requests for a longer period. Consequently, agencies 
might be more likely to need or request supplemental appropriations.
    Although most spending and revenue laws cover multiyear periods, 
annual action may be needed to ensure the use of up-to-date budget and 
economic information. If the economic and technical assumptions 
underlying the two-year budget were not revised before the end of the 
biennium, the information and estimates that policymakers used would 
become less reliable. Consequently, budget enforcement procedures and 
cost estimates for pending legislation would be distorted. That problem 
could be alleviated by including procedures in the budget resolution 
that would allow budget totals and allocations to be updated 
automatically for changing conditions. But if conditions changed 
significantly, such an automatic process might lead to far different 
budget outcomes than the resolution originally recommended.
    Considering budget matters every other year could also make the 
budget process less responsive. For example, if disagreement about 
budget policies produced a stalemate beyond the first year of a 
biennium, the Congress and the President would have no formal mechanism 
for carrying on the budget debate the following year. Policymakers, 
knowing they were acting under a two-year cycle that called for budget 
action only in the first session, might be more inclined to resolve 
budget conflicts before that session ended. But if they did not resolve 
those conflicts at that time, they would have to pursue the budget 
debate in the next session in an ad hoc manner. A budget process that 
is less responsive could be particularly problematic in a period of 
rapid changes in the budget and economic outlook--such as those that 
have affected projections of budget surpluses for the past three years 
or so.
    Finally, it is unclear whether the root cause of the problems cited 
by proponents of biennial budgeting is the annual budget timetable or 
other factors that would be largely unaffected by a switch to two-year 
budgeting. For most of the past two decades, the administration and the 
Congress have been controlled by different political parties, making 
basic agreement on major issues, including budget issues, difficult to 
reach. That disagreement, not the budget cycle, may be the biggest 
hurdle to smoother budget deliberations in the Congress.


    Supporters of biennial budgeting are increasingly concerned that 
the requirements of the annual budget process are overwhelming 
policymakers and public officials. They argue that the seemingly 
incessant demands of that process detract from other functions of 
government--such as long-range planning and oversight--that are 
equally, if not more, important. If budget and nonbudget issues can be 
separated in the legislative process, biennial budgeting could help 
ease those problems, improve oversight, and relieve the pressures on 
the appropriation process. However, potential gains from changing to a 
two-year cycle could be offset by the loss of Congressional control 
over the budget and by the effects of changing conditions on the budget 

Dan L. Crippen, Director, the Congressional Budget Office, Responses to 
    1. ``How would a biennial budget process impact upon the work done 
by CBO? What changes would need to be made in order to ensure that CBO 
could provide proper support to Congress in a biennial process?''
    In general, a biennial budget cycle is unlikely to have a major 
effect on CBO's duties, responsibilities, or workload. CBO's work is 
closely tied to that of the Congress; as long as the Congress continues 
to meet and consider legislation annually, our workload would not 
change appreciably. For example, CBO would continue each year to 
prepare its annual budget and economic outlook report and would 
continue to update that report in the summer. CBO would also continue 
to prepare cost estimates on all reported legislation, scorekeeping 
reports of legislative action affecting the budget, and analyses of 
various budget and program issues as requested.
    Moreover, although the Congress would adopt a budget resolution 
only in the first session, it would probably consider revisions or 
adjustments to the resolution during the second session that could 
require substantial assistance from CBO. CBO would also continue to 
review and evaluate the administration's budget submissions, including 
any midcourse budget proposals or reestimates.
    In sum, it does not appear that a biennial budget process would 
necessitate any changes at CBO to ensure that the agency continued to 
support the Congress in its budgetary deliberations.
    2. ``Taking your point about the potential difficulty in separating 
budget and non-budget issues to fit the cycles of a biennial budget 
process, what specific criteria and enforcement mechanisms would you 
suggest should be adopted to ensure that a biennial system could be 
made to work in practice?''
    If most lawmakers were firmly committed to a biennial budget 
process, additional rules to ensure that it worked would not be 
necessary. One potential benefit of a biennial budget cycle is that it 
could help smooth the appropriation process by providing additional 
time for lawmakers to consider separately and enact the authorizing 
legislation and other matters that have sometimes delayed consideration 
of major budget legislation, especially appropriation bills. If 
lawmakers choose not to use a biennial budget process in that way, 
additional rules seem unlikely to force that separation or to make the 
legislative process smoother.
    3. ``Some critics of biennial budgeting have suggested an interim 
step of applying the two-year process to only certain agencies or 
programs as a sort of `pilot' project. Do you see any value in taking 
this incremental approach? What would be the pros and cons of 
implementing biennial budgeting on a case-by-case basis?''
    A pilot-project approach to biennial budgeting is unlikely to yield 
the benefits sought from a complete conversion to a two-year budget 
cycle. If the budget process remains on an annual cycle generally, then 
two-year appropriations for certain programs would essentially provide 
regular appropriations for the first year and advance appropriations 
for the second year. Lawmakers would continue to consider budget and 
appropriation legislation for most other activities on an annual basis.
    Such an experiment might garner useful information from executive 
branch agencies about the advance planning needed under a two-year 
system. But it might not give the Congress the additional time it is 
seeking for program oversight and review.
    4. ``There has been concern expressed that a biennial budget 
process would yield more and larger supplemental spending bills in the 
non-budget years, as Congress and the administration sought to make 
corrections or changes to the budget laid out in the prior year. Do you 
share this concern? What if any procedural/technical provisions should 
we be considering to ensure that the supplemental spending process does 
not spiral out of control?''
    Whether lengthening the budget cycle to two years would cause 
greater reliance on supplemental appropriations is not clear. On the 
one hand, appropriating for two years at a time increases the chances 
that unforeseen events and demands on spending from other sources will 
overtake appropriations enacted over a year earlier. Those factors make 
supplemental appropriations a routine part of the annual appropriation 
process and are likely to be even more prevalent in a longer budget 
cycle. On the other hand, a two-year appropriations cycle might improve 
the ability to plan and to manage resources, thereby enhancing 
efficiency and spending control.
    There are other factors unrelated to the length of the budget cycle 
that may also create conditions that give rise to supplemental 
appropriations. For example, in recent years the size of supplemental 
appropriation acts may have been influenced by the relatively 
restrictive limits on total discretionary appropriations set forth 
under the Balanced Budget Act of 1997. Those limits have prompted 
lawmakers to rely increasingly on emergency appropriations, which are 
effectively exempt from the limits, to maintain higher levels of total 
appropriations than the limits would have allowed. Substantial amounts 
of those emergency appropriations have been included in supplemental 
appropriation laws.
    In making procedural changes to control supplemental 
appropriations, whether in a biennial cycle or in the current annual 
process, lawmakers should be careful to balance the need to respond 
quickly to genuine emergencies or other unexpected events with the need 
to control spending. One possible method for controlling such 
appropriations would be to create a strict statutory definition of 
``emergency'' that could be used to certify the types of provisions 
that may be deemed emergencies. Of course, that change could be 
implemented in either a biennial or an annual cycle of appropriations.
    5. ``Some people consider the issue of biennial budgeting to be one 
of institutional concern, arguing that by giving up annual action on 
appropriations the Congress would be ceding power to the Executive 
branch. What is your assessment? Do you think agencies would be less 
responsive to Congress under a biennial budget process?''
    It seems unlikely that agencies would be less responsive to the 
Congress simply because they would be requesting regular appropriations 
every other year. Also, a biennial budget cycle, by setting aside time 
for Congressional action on oversight and authorizing legislation, 
might relieve the appropriation process of time-consuming debates on 
substantive policy issues, which could actually improve Congressional 
control of spending.
    6. ``As a budget technician, you are in a good position to judge 
whether there would be tangible savings in terms of time and effort on 
the part of the people whose job it is to put together budgets and 
implement them. Do you subscribe to the view that biennial budgeting 
would save significant time and resources which then could be applied 
to better program management and long-term efficiency?''
    Yes, savings of time and resources are likely under a biennial 
budget process, although the extent of those savings is unclear. 
Although the duties of CBO are unlikely to change significantly, the 
resources used for budget preparation in the Executive branch could be 
reduced dramatically. Those savings would be partially offset by the 
need to monitor spending, revise budget estimates, and modify budget 
proposals and laws as conditions change during the two-year cycle. 
However, if a two-year budget cycle enabled program managers to devote 
more attention to reviewing and evaluating Federal programs, 
programmatic cost savings or other efficiencies could also be achieved.
    7. ``In your prepared testimony you raised the issue of updating a 
two year budget for changing economic and budget conditions. You 
suggest that the problem could be alleviated by including procedures in 
the budget resolution that would allow budget totals and allocations to 
be updated automatically for changing conditions. Would you elaborate 
more on what type of procedures you are suggesting?''
    Such procedures could be patterned after the so-called reserve fund 
provisions now used to revise the budget resolution under specified 
circumstances. In general, reserve fund provisions empower the Chairmen 
of the House and Senate Budget Committees to revise budget resolution 
totals and spending allocations to committees under certain 
conditions--for example, when legislation is reported in a particular 
policy area or for updated budget projections. In some cases, the 
extent to which the Congress may consider certain spending or tax 
initiatives is contingent on those reserve fund adjustments. Such a 
process might be useful for updating a two-year budget resolution for 
new budget estimates or other changes.
    8. ``As you know, the current budget process only accounts for 
changes in mandatory spending and revenues that result from legislative 
action. OMB and CBO hold the budget harmless for changes in spending or 
revenue levels caused by administrative, economic or technical changes. 
Do you think it would be possible and advisable to utilize this 
existing mechanism (or a modification thereof) as a way of handling 
such changes in the budget under a biennial budget process?''
    A biennial budget cycle could be meshed with the current mechanisms 
and practices for ensuring that budget legislation is consistent with 
the budget levels and other requirements that are enforced in the 
budget process. However, in a biennial budget cycle, it might be 
advisable to allow the underlying baseline used for budget enforcement 
to be adjusted for current economic and technical data in the second 
year of the cycle. Otherwise, spending or revenue legislation 
considered in the second session of a Congress would be based on less 
timely information and estimates of the legislation's budgetary effects 
could be less accurate.
    9. ``During the hearing, there was a detailed discussion of the 
need for a thorough and well thought out transition plan to be included 
in any legislative vehicle implementing biennial budgeting. There are a 
couple of follow up questions on that topic:
    How long of a ramp up period do you think is necessary to ensure 
that both the executive and legislative branches are ready to implement 
this new process? Specifically, how long will it take agencies to 
obtain the ability to prepare, propose and manage two year budgets? 
Would you suggest that biennial budgeting be phased in over some set 
period with certain portions of the budget moving to a biennial 
schedule one year followed by others? If not, would you advocate not 
moving any budget submissions to a biennial schedule until the entire 
budget is ready to proceed in that direction? If so, would the 
Department of Defense be the most likely first candidate for such a 
    The major proposals for biennial budgeting call for the President 
to submit a budget and for lawmakers to act on budget legislation 
during the first session of each Congress. If a biennial budget process 
were to become law at the end of the 106th Congress, it might be 
advisable to use the 107th to phase in the new cycle, delaying its full 
implementation until the beginning of the 108th. During the 107th 
Congress, agencies could begin preparing budgets, especially 
appropriation requests, for two-year periods. (For example, they could 
include second-year requests for planning purposes in the budget 
submitted during the second session of the 107th Congress.) At the same 
time, Congressional committees could begin to identify any problems or 
issues involved in fully implementing two-year budgets and 
appropriations and start to modify the cycle of expiring authorization 
laws to make them conform to a two-year budget cycle that would begin 
with each new Congress.
    10. ``What role would you envision reconciliation playing under a 
biennial process specifically in the off year?''
    All of the major proposals for a biennial budget call for any 
reconciliation legislation to be enacted in the first session of each 
Congress. Because such legislation is a major vehicle for carrying out 
the policies reflected in the Congressional budget resolution, it would 
seem to make sense to consider reconciliation legislation as soon as 
possible after the resolution is adopted. However, if Congressional 
action on reconciliation legislation was pushed back into the second 
session to spread out the budget workload facing the Congress--or if it 
was simply delayed until that time--the budget baseline and the budget 
resolution levels, amounts, and reconciliation instructions would need 
to be adjusted for current economic and technical budget data.

            Prepared Statement of the Honorable Lee Hamilton

    Mr. Chairman, Mr. Moakley, Members of the Rules Committee--thank 
you for giving me this opportunity to offer you my thoughts on biennial 
    First, let me commend you for holding these hearings. I believe 
biennial budgeting holds real promise for improving the operations of 
government. I am pleased that its potential is being examined closely 
by this committee. I am also encouraged by the support that has been 
given by Members on both sides of the aisle to Chairman Dreier's sense 
of the House resolution in support of biennial budgeting.
    In 1993, I served as co-chairman with Chairman Dreier, as well as 
Senators David Boren and Pete Domenici, on the Joint Committee on the 
Organization of Congress. One of the main recommendations we made for 
reforming the Congress was to adopt biennial budgeting. Although that 
recommendation was not then adopted by Congress, I believe that it 
remains sound.
    There are both pluses and minuses to biennial budgeting, but 
overall I think it would improve government operations--primarily 
because of its potential to free up Members' time for important work 
that is now being squeezed out by competing pressures. Biennial 
budgeting is not a cure-all for every obstacle to the efficient 
functioning of government. We must not have exaggerated expectations of 
what it can do. However, moving to biennial budgeting would create 
greater budget and program stability, strengthen programmatic oversight 
and promote more long-range strategic thinking.
    By not having to pass a new budget every year, Congress would have 
more time to review how laws are working, and the executive branch and 
state and local governments would have a more stable budget environment 
to plan and carry out their programs. During the second year of a two-
year budget cycle, Congress would still have to spend some time 
adjusting or supplementing the budget for changing conditions or 
unforeseen events, but overall it would be able to focus more on 
identifying problem areas in government operations and looking ahead to 
the policy needs of the next biennium and beyond.
    The current appropriations process is too cumbersome and time-
consuming. Senate Majority Leader Lott has estimated that Congress is 
now spending two-thirds of its time on the budget and appropriations. 
That is simply too much. It seems Congress is in a perpetual budget 
cycle, with budget crises nearly every year. The deadlines for the 
budget process are rarely met--Congress has met the deadline for 
completion of the budget resolution only four times during the 26 year 
history of the Budget Act--and appropriations bills end up being dumped 
into enormous omnibus bills which are, from the standpoint of good 
process, if not content, abominations. The authorization committees are 
often simply bypassed. Members also have little time for non-budget 
activities because Congress is working a reduced schedule, with most 
congressional business taking place only between Tuesday and Thursday 
for much of the year. This process does not serve the American people 
    Biennial budgeting would help remedy some of these problems. It 
would allow the authorizing committees--where the greatest policy 
expertise lies--to regain some of their lost influence. It would give 
Congress more time in the second year to resolve policy differences, 
fostering a smoother budget process in the subsequent year and 
potentially reducing the number of controversial policy riders attached 
to appropriation measures. These changes could markedly improve the 
effectiveness and efficiency of Congress.
    For the executive branch and state and local governments, biennial 
budgeting would mean more budget predictability and program stability, 
enabling them to use their funding more efficiently, focus more on 
program implementation and plan farther in advance. The levels of the 
vast majority of Federal funding are predictable. They do not change 
dramatically from year to year. Biennial budgeting would reduce the 
amount of documents agencies must produce and the number of times 
administration officials must testify to justify their budget requests.
    Some opponents of biennial budgeting argue that it would take 
control over programs away from the Congress in the second year and 
thereby reduce government accountability. But Congress would retain the 
capacity to enact supplemental spending measures in the non-budget year 
to deal with unforeseen problems. This flexibility would allow Congress 
to react to new developments and remain in control of the purse 
strings. Moreover, if oversight is performed rigorously, Congress will 
be monitoring the operations of government agencies and programs more 
closely than it currently does.
    So let me turn to two of the most important reasons for adopting 
biennial budgeting: to strengthen congressional oversight and encourage 
long-term strategic thinking.


    Oversight of how effectively the executive branch is carrying out 
congressional mandates is an enormously important function of Congress. 
It is at the very core of good government. Congress must do more than 
write the laws; it must make sure that the administration is carrying 
out those laws the way Congress intended.
    That is why I was frequently frustrated during my years in Congress 
by the small amount of time available for conducting oversight. On many 
committees I served on, I would have liked to do much more oversight, 
but we simply did not have time for it because of the various other 
demands of the job. As the pressures of fund-raising, media attention, 
and working out the budget and appropriations have increased over the 
years, programmatic oversight has declined. Biennial budgeting would 
not take away all of these competing pressures, but it would give 
committees more time overall to pursue rigorous oversight of programs 
and agencies. Congress would be able to focus greater attention on how 
Federal funds are being spent.
    Oversight has many purposes:
     to make sure programs conform to congressional intent;
     to ensure that programs and agencies are administered in a 
cost-effective, efficient manner;
     to ferret out (in the oft-heard phrase) ``waste, fraud, 
and abuse'';
     to see whether programs may have outlived their 
     and to compel an explanation or justification of policy.
    Oversight can sometimes get off-track--becoming excessively 
partisan and focused on personal investigations and possible scandals 
rather than programmatic review. But when done properly, oversight is 
one of the most important and effective tools of Congress.
    Oversight can protect the country from the imperial presidency and 
from bureaucratic arrogance. It can expose and prevent misconduct, and 
maintain a degree of constituency influence in an administration. The 
responsibility of oversight is to look into every nook and cranny of 
government affairs, uncover wrongdoing and put the light of publicity 
to it.
    Congress needs a large number of oversight methods to hold agencies 
accountable because different methods have their own strengths and 
weaknesses. Periodic reauthorization, personal visits by Members or 
staff, review by the General Accounting Office or inspectors general, 
subpoenas, and reports from the executive branch can all be useful. The 
authorization, appropriations, and governmental affairs committees, as 
well as special ad hoc committees, can all play important roles in 
    In many ways Congress underestimates its power in oversight. 
Agencies start to get a little nervous whenever someone from Congress 
starts poking around, and that is probably to the good overall. Federal 
bureaucracies do not stay on their toes unless they expect review and 
oversight from Congress.
    My personal belief is that conducting oversight is every bit as 
important as passing legislation. President Woodrow Wilson thought that 
``the informing function of Congress should be preferred even to its 
legislative function.'' Our founding fathers clearly recognized that 
``eternal vigilance is the price of liberty''.
    A strong record of congressional oversight--of ``continuous 
watchfulness''--will do a lot to restore public confidence in the 
institution. It will show that Congress is taking its responsibilities 
seriously and is able to work constructively to improve government 
    That is why I am encouraged by the efforts of Speaker Hastert, 
Chairman Dreier and others to have the House return to its traditional 
programmatic oversight functions.
    Moving to biennial budgeting would give oversight a significant 
boost by freeing up the committee workloads over the two-year cycle.

                           STRATEGIC THINKING

    Biennial budgeting would also free up time that could be used by 
Congress and the executive branch to focus more on long-term strategic 
thinking--examining the challenges our country will face over the 
coming decades.
    Some years ago a careful observer of Congress advised me that the 
worst thing about congressional service was that Members never have 
time to put their feet on their desks, look out the window, and think 
about the long-range needs of the country. I have come to appreciate 
the wisdom of that remark.
    The Federal Government simply does not do enough long-term 
thinking. It may be unavoidable that policymakers focus mainly on 
urgent problems, headlines and crises, but far too little attention is 
given to challenges that lie just over the horizon. Federal programs 
that involve long-term investments--for infrastructure, research and 
development, and education--are dwarfed by Federal spending for current 
needs and consumption. In contrast to the strategic, long-term planning 
of most businesses, there is typically little systematic discussion in 
Congress of the most important long-term challenges facing our 
    These challenges are numerous: What are our long-term national 
security needs? How can we maintain a prosperous and open economy well 
into the future? How can we make sure Americans will have the skills 
they need to succeed in that economy? What long-term environmental 
challenges--both domestic and international--will we face? What 
problems will be posed by the growth of information technology, 
biotechnology and genetic engineering? How can we ensure that we will 
continue to have adequate food and energy supplies? What will America's 
changing demographic make-up--which, 25 years from now, will include a 
much higher proportion of older Americans, Latinos and other 
nonwhites--mean for our political, economic and social life? What will 
be the consequences of continued or growing global economic inequality?
    Certainly some work is done by Congress--and done well--on long-
term issues. Committees hold hearings on topics ranging from human 
cloning to the babyboomer Social Security crunch to future terrorist 
threats. But overall, I believe Congress should be doing much more. If 
we fail to adequately address these long-range questions, we may miss 
opportunities and overlook steps we should be taking today that could 
make tomorrow's problems far more manageable.
    Looking carefully at the challenges of the future is not esoteric 
speculation or crystal ball-gazing. Many future challenges are 
predictable. I recently met with one of our country's top demographers, 
who laid out a variety of changes that are likely to flow from the 
increased immigration of recent decades. The CIA, recognizing the 
importance of looking at future challenges, is now working to free up 
more of its analysts' time for future studies, and is reaching out to 
tap the long-range thinking of more academics and private sector 
    Congress does have some stipulations for long-term thinking. Since 
1974, the House has required committees to ``undertake futures research 
and forecasting'' on matters within their jurisdiction. The 
Congressional Research Service and the General Accounting Office are 
authorized to undertake anticipatory research.
    But Congress remains predominately focused on short-term needs, in 
part because the one-year budget cycle leaves congressional committees 
with little time to look ahead.
    To bolster long-range strategic thinking, it might be helpful to 
require committees to report regularly on their work looking at 
emerging trends and long-term challenges. It might also be helpful to 
require the President to report every few years on the critical 
challenges facing the Nation in future decades.
    One of the initiatives I have begun at the Wilson Center is to 
develop a coordinated focus on examining future domestic and 
international challenges. As we launch this initiative, we will be 
recruiting scholars to help identify the emerging challenges most in 
need of attention and the top thinkers and practitioners who can 
propose approaches and solutions to them. The Center would be pleased 
to be of help to Members and congressional staff on these issues in any 
way it can.
    I also encourage Congress to make use of the great resources of the 
Congressional Research Service, which can provide excellent forecasts 
of future trends and challenges. [Attached to this testimony as an 
example of this kind of forecast is a copy of an outstanding report on 
future trends written by Walter Oleszek of CRS in 1998.]
    The point of this kind of long-term thinking is not that the 
Federal Government could, or should, resolve all of America's long-term 
problems, but that we should at least be considering these issues and 
examining how best to deal with them.
    Moving to biennial budgeting would allow Congress to focus on 
America's future challenges much more than it currently does.


    Biennial budgeting will not resolve all of the problems in the 
budget process and the operations of government, but I believe it will 
improve the effectiveness of government by providing a more stable 
budget environment and allowing for a greater focus on oversight and 
long-range thinking.
    I look forward to answering any of your questions.
    Thank you.

 Submitted Questions and Answers--The Honorable Lee Hamilton, Director 
                      of the Woodrow Wilson Center

    As I mentioned in my testimony, I strongly believe that moving to 
biennial budgeting would give oversight a significant boost by freeing 
up the committee workload over the two-year cycle.
    Oversight of how effectively the Executive Branch is carrying out 
congressional mandates is an enormously important function of Congress. 
Congress must make sure that the administration is carrying out laws 
the way Congress intended.
    Biennial budgeting would also free up time that could be used by 
Congress and the Executive Branch to focus more on long-term strategic 
thinking--examining the challenges our country will face over the 
coming decades. Congress' efforts in long-term thinking in the off-year 
could be significantly aided by requiring the President to submit a 
report every few years on the long-term challenges facing the country.
    In these two ways, biennial budgeting could improve the 
effectiveness of government by providing a more stable budget 
environment and allowing for a greater focus on oversight and long-
range thinking.
    1. Is the current lack of time the reason for inadequate oversight 
or is it that Members aren't interested in doing oversight regardless? 
Are additional process changes needed to remedy this?
    Time is only part of the problem. The key is leadership and the 
will of individual Members. Structural reforms can be helpful, but for 
oversight to really work it takes a clear message from congressional 
leadership that oversight is a priority and that it will be done in a 
bipartisan, coordinated, systematic way. The key role of the House 
Speaker, the Senate Majority Leader and the Minority Leaders cannot be 
    The will of individual Members to do oversight will ultimately 
depend on incentives and rewards to do the necessary work. Perhaps a 
better coordination between party and committee leaders on the existing 
oversight agenda requirement would produce more meaningful agendas that 
are more the result of a committee process. The more Members feel they 
are part of the larger project and play a role in devising it, the more 
they will be inclined to make it succeed.
    2. Will biennial budgeting degenerate into a more ad hoc annual 
process with frequent revisions and more supplementals? Are there 
procedural changes that can prevent this from happening?
    Any new process can produce unintended consequences. Though it is 
tempting to limit the number of supplementals, this would defeat the 
purpose of truly emergency supplementals needed to deal expeditiously 
with unexpected needs resulting from disasters, war, etc. It is clear 
that supplementals are increasingly being used for nonemergency matters 
and to circumvent the spending caps. Leadership controls and 
presidential veto threats remain the best safeguards against allowing 
these trends to get out of control.
    3. How can the problem of revised projections be effectively 
integrated into a biennial system?
    Ideally, if you are going to plan on a supplemental in the second 
session, the President's revised estimates should be sent to Congress 
no later than June 1 so that any supplemental spending could be acted 
on by the July or August recesses.
    4. What role would reconciliation play under a biennial process, 
especially in the off-year?
    Reconciliation should not be done in an off-year unless it is 
needed for emergency purposes. In election years, too many games will 
be played with it to either increase entitlement spending and/or cut 
taxes. It should be dealt with as a follow-on to the budget 
resolution's implementation, in the first session.
    5. What role does the authorization process currently play in the 
budget process and should that role change? Will a changing role for 
authorizing committees improve programmatic oversight?
    Generally, I favor an increased role for authorization committees, 
which under the present system are often simply bypassed. Under 
biennial budgeting, authorizers could submit their estimates to the 
budget committee for the upcoming biennium. The real problem will be 
projecting what the need will be three and four years into the future. 
While authorizers will be forced by biennial budgeting to think three 
and four years out, they will also be able to spend less time guessing 
at authorizing ceilings and more time focusing on how well existing 
polices and programs are designed and being implemented. The need for 
fine tuning and for occasionally passing new program in odd-years will 
decrease if authorizers focus more on devising far-sighted authorizing 
policies based on better policy oversight and long-range thinking. An 
increased role for authorizing committees should improve programmatic 
oversight because they possess the greatest expertise and capacity to 
rigorously monitor and oversee various government programs.

                Prepared Statement of Charles J. Whalen

    Mr. Chairman and Members of the Committee, thank you for inviting 
me to contribute to your hearing on the possibility of establishing a 
two-year Federal budget and appropriations cycle. I have followed 
discussions and research on this issue for more than a decade. My 
remarks build on previous Senate testimony and an article written for 
Policy Studies Review.\1\)
    Highly divergent views have been expressed on this issue. Some 
argue biennial budgeting would be a ``dramatic improvement in the way 
Congress does business'' and promises a more efficient and responsive 
government. I hope this proves to be the case, but there is certainly 
no guarantee. Others warn of a ``collapse'' of the budget process. At 
worst, however, budgeting would be biennial in name only--a condition 
that would undoubtedly lead to the eventual return of our present 
system. My prior writings have suggested, primarily on the basis of 
state experience, that biennial budgeting could have significant 
benefits if adopted at the Federal level. I continue to hold that 
position. What follows is some of what we know about biennial 
budgeting, in addition to my analysis of some of the major issues.


    There seems to be consensus in Congress that its Members suffer 
from what Senators Robert Byrd and Pete Domenici call ``fractured 
attention''--an overwhelming schedule that prevents important issues 
from receiving sufficient consideration. Last month, for example, more 
than a dozen Members of Congress offered statements at a hearing 
regarding the budget process (February 16). Their statements suggest 
widespread agreement not only that budgeting consumes enormous amounts 
of time but also that there is insufficient time for oversight, 
authorization, policy reform, or even a thorough review of spending 
measures. Even Congressman David Obey, who is uncomfortable with the 
biennial budgeting idea, observes a lack of oversight and a budget 
process that is ``a mess.'' \2\
    Given the aforementioned problems, a central question is whether 
biennial budgeting would streamline the budget process--that is, would 
it reduce Legislative Branch and/or Executive Branch time devoted to 
budgeting in a two-year period? To answer this question, one would like 
to examine international experience. But the almost universal use of 
annual budgeting by other nations makes that impossible. Still, an 
international perspective on this issue generates two findings worth 
noting. One is that legislators devote considerably less time to 
budgeting in parliamentary democracies--interminable budgeting is 
largely an American phenomenon. The other finding is that annual 
budgeting is a product of custom and tradition, not fiscal theory.
    Turning to examine the very limited Federal experience with 
biennial budgeting, one finds only a single academic study--on the 
Department of Defense's formation of a biennial budget for Fiscal Years 
1988 and 1989.\3\ In that article, Professor Robert J. Art of Brandeis 
University indicates there were various reasons for the Congress, 
President and Pentagon to experiment with a two-year budget. Some were 
attracted by the perceived opportunity to avoid spending cuts, insulate 
the Department from the 1988 election, and ``get Congress off their 
backs.'' Others saw the biennial budget as a chance for Congress and 
Pentagon managers to conduct more effective program oversight, 
evaluation and planning.
    Professor Art concludes the experiment was a ``half success.'' He 
writes: ``Biennial budgeting yielded no payoff for program stability 
but a great deal of programmatic and policy oversight. The vagaries of 
deficit reduction and electoral politics subverted the former [i.e., 
Congress authorized only part of the two-year budget and appropriated 
only one year of it]; the free time provided by the off year made 
possible the latter.'' \4\
    Pentagon comptrollers, service programmers and civilian managers 
agreed that biennial budget preparation was beneficial. The two-year 
schedule reduced their problems related to overlapping budget cycles, 
and enabled analysis, evaluation, database updating, and planning. 
Services chiefs collaborated on the shared problem of pilot retention. 
The Navy conducted long-range studies on anti-submarine warfare, future 
ship operating characteristics, and naval aviation needs. Planning for 
withdrawal from Panama was also begun. Art reports that biennial 
budgeting allowed Defense Department administrators ``the time to do 
the things they should have been doing but never could because of the 
rat race of annual budgeting.'' \5\
    In short, even as a ``half success,'' biennial budgeting at the 
Pentagon saved time relative to annual budgeting.
    Recognizing that states provide natural ``laboratories of 
democracy,'' many studies have examined state experiences in search of 
insights relevant to Federal biennial-budgeting discussions. There is 
disagreement about looking to the states for lessons on this issue. On 
the one hand, some observe that biennial budgeting is found primarily 
in small states. On the other hand, the executive director of the 
National Association of State Budget Officers argued in 1986 that many 
state budgets are ``every bit as complex'' as the Federal budget.\6\ In 
my view, an examination of state experience is warranted, especially 
since other forms of evidence are scarce.
    It is often argued that the state-level trend is toward annual 
budgeting. This was true from 1940 through 1986. Since 1986, however, 
there have been four changes--all in the direction of two-year 
budgeting. Table 1 identifies states that currently employ two-year 
budgeting. States changing their budget process since 1986 are noted 
along with the year of the change.
    Biennial-budgeting states devote one year (or a portion thereof) to 
budgeting and appropriations, and the following year to oversight, 
planning and evaluation. In my 1996 article, ``Biennial Budgeting for 
the Federal Government: Lessons from the States,'' I reviewed seven 
studies of state budgeting published between 1972 and 1995.\7\ The 
studies, including examinations of states changing from one budget 
length to another, reveal that biennial budgeting is less time 
consuming and expensive than annual budgeting. In other words, even 
after mid-term adjustments are taken into consideration, two-year 
budgeting eases budgetary burdens on the legislature and public 
agencies. As for the possibility of a correlation between biennial 
budgets and increased reliance on supplemental appropriations and 
rescissions, evidence from older studies is mixed while the two most 
recent studies (published in the mid-1990s) find no correlation.
    Concrete estimates of time saving are hard to find. But estimates 
provided by state budget officers in both the 1970s and 1990s suggest 
that off-year budget work is about one-third as time consuming as 
annual budgeting. Estimates of direct cost savings, meanwhile, range 
from a few thousand dollars to half the price of an annual budget.\8\

                         enactment of       Biennial       Mixed budget
                          two annual     enactment of a       cycle
                           budgets      two-year budget
Annual legislative     Arizona (1999),  Indiana,         Kansas Missouri
 session.               Connecticut      Minnesota, New   (1994) (In
                        (1991),          Hampshire,       Kansas, 20
                        Hawaii, Maine,   North            regulatory
                        Nebraska         Carolina,        agencies are
                        (1987) Ohio,     Washington,      budgeted via
                        Virginia,        Wyoming          two annual
                        Wisconsin.       (Wyoming's       budgets; in
                                         legislature      Missouri, the
                                         meets 20 days    operating
                                         in the non-      budget is
                                         budget year.).   annual while
                                                          the capital
                                                          budget is
Biennial legislative   Arkansas,        North Dakota,
 session.               Kentucky,        Oregon, Texas.
Total................  12.............  9..............  2
Source: National Council of State Legislatures.


    Streamlining the budget process might help reduce the ``fractured 
attention'' problem mentioned earlier. But is this change likely to 
make the U.S. Government more effective? If the experience of the 
Defense Department and the states is any indication, the answer is yes.
    According to the aforementioned study of the Defense Department's 
experiment, biennial budgeting produced better evaluation of policy 
execution and more effective long-range planning. The study's author 
adds that such results can have significant budgetary consequences, 
since gains in the realms of evaluation and planning can improve the 
future allocation of resources. Thus, the ultimate benefits of biennial 
budgeting are better-quality decisions and greater government 
    While Professor Art does not provide an estimate for the total of 
potential indirect cost savings, he insists they can be sizeable--
especially as a result of lower procurement and weapons-production 
costs. His report suggests that biennial budgeting could help reduce 
the unit cost of some weapons by over 50 percent.
    State-level experience, meanwhile, suggests that biennial-budgeting 
states give greater attention to legislative oversight, agency 
management, analyses of program outcomes, and long-term planning.\9\ 
While it is too early to evaluate Arizona's recent move to a two-year 
budget, Governor Jane Hull's recent mid-biennium report indicates her 
budget office and other agencies have already devoted more time to 
program evaluation.\10\ According to the studies of state experiences, 
there is widespread belief in the states that this non-budget work 
improves government performance.\11\
    In addition to promoting increased program effectiveness, biennial 
budgeting at the Federal level could enable Congress to give closer 
scrutiny to particular outlays, especially in the difficult realm of 
``mandatory'' spending. Two-year budgeting also permits changes to be 
imposed gradually--and without an automatic annual revisiting of 
decisions. Although some have suggested that biennial budgeting will 
cause agencies to seek greater spending cushions (i.e., budget 
``padding''), published examinations of state budgets do not support 
this contention.


    As in the states, biennial budgeting at the Federal level would 
require provisions allowing for changes in response to major 
unanticipated developments and emergencies. But even with such 
provisions, state-level studies find that biennial budgets promote 
increased stability and certainty. This is clearly advantageous to 
agencies--and compatible with the objective of enabling public managers 
to focus on improving program results. Yet government contractors, 
grantees and program recipients also benefit.
    In 1997 testimony before the Senate Committee on the Budget, Dr. 
John McTague discussed the benefits of enhancing predictability with 
respect to investments in science, technology and capital-intensive 
projects.\12\ More than a decade earlier, Dr. Alice Rivlin went further 
and suggested the increased continuity of biennial budgeting would 
benefit all Americans.\13\ I agree with Dr. Rivlin that we can prevent 
often-costly disruptions of public and private activity by minimizing 
unexpected changes in tax and spending policies.
    Some say biennial budgeting would seriously weaken Legislative 
Branch control over the budget and the Executive Branch. Others 
disagree by maintaining ``the grounds [for this belief that control 
will be lost] are quite shaky'' and suggesting that Congress would 
retain its authority by using two-year budgeting as an opportunity to 
intensify oversight.\14\ My position falls in the middle. On the one 
hand, the appropriations process ``provides a helpful hammer;'' \15\ on 
the other hand, annual use of that hammer seems to contribute greatly 
to the problem of fractured attention.\16\

                         SUMMARY AND CONCLUSION

    Taking the problem of fractured attention as my starting point, I 
have examined available Federal and state evidence and suggested that 
biennial budgeting would streamline the budget process, enabling both 
the Executive and Legislative Branches an opportunity to make 
government more effective. I have also argued that a two-year budget 
and appropriations cycle could enhance economic stability through 
increased policy continuity and the gradual imposition of major 
    Biennial budgeting will not make budget decision-making easier. And 
its success will depend on Congress' ability to engage in vigorous 
agency oversight during non-budget years. But such budgeting can 
complement the Government Performance and Results Act and other recent 
initiatives that demand attention be given to measures of outputs and 
impacts, not just dollars spent. I hope you find this information 
useful as you consider the challenges of the current budget 


    \1\ Charles J. Whalen, ``Prepared Statement'' before the Committee 
on Governmental Affairs, U.S. Senate, S. 261--Biennial Budgeting and 
Appropriations Act (Washington, DC: U.S. Government Printing Office, 
1997); and ``Biennial Budgeting for the Federal Government: Lessons 
from the States,'' Policy Studies Review 1996 (vol. 14, nos. 3-4, pp. 
    \2\ It should be noted that views similar to those heard on 
February 16, 2000 can be found in the record of numerous hearings held 
since the mid-1970s.
    \3\ Robert J. Art, ``The Pentagon: The Case for Biennial 
Budgeting,'' Political Science Quarterly 1989 (vol. 104, no. 2), pp. 
    \4\ Ibid., p. 208.
    \5\ Ibid., p. 206.
    \6\ Gerald H. Miller, quoted in Jonathan Rauch, ``Biennial 
Budgeting Taking Root,'' National Journal, September 27, 1986, p. 2318.
    \7\ This article is cited in footnote 1 above.
    \8\ New Jersey Office of Management and Budget, ``Biennial 
Budgeting Survey,'' February 1995.
    \9\ See, for example, my ``Biennial Budgeting for the Federal 
Government: Lessons from the States,'' and General Accounting Office, 
Current Status and Recent Trends of State Biennial and Annual Budgeting 
(GAO/AFMD-87-53FS, July 1987).
    \10\ State of Arizona, `` The Executive Mid-Biennium Update: Fiscal 
Years 2000 and 2001,'' January 2000.
    \11\ Consistent with this finding is the February 16, 2000 
testimony (before the Committee on Rules, U.S. House of 
Representatives) of the following Members of Congress--all former 
legislators in biennial-budgeting states: Hon. Charlie F. Bass, Hon. 
Doc Hastings, Hon. Bill Luther, Hon. Karen McCarthy, and Hon. Robert W. 
    \12\ John P. McTague, ``Statement'' and ``Written Questions and 
Responses,'' in Concurrent Resolution on the Budget for Fiscal Year 
1998 [February 13, 1997--Biennial Budgeting]. (Washington, DC: U.S. 
Government Printing Office, 1997), pp. 110-114.
    \13\ Alice M. Rivlin, quoted in Congressional Record--Senate 
(November 24, 1981), p. 28954. See also her related article: ``Congress 
and the Budget Process,'' Challenge (March-April 1981), pp. 31-37.
    \14\ Roy T. Meyers, ``Late Appropriations and Government Shutdowns: 
Frequency, Causes, Consequences, and Remedies,'' Public Budgeting and 
Finance 1997 (vol. 17, no. 3), pp. 25-38.
    \15\ Louis Fisher, ``Biennial Budgeting in the Federal 
Government,'' Public Budgeting and Finance 1997 (vol. 17, no. 3), p. 
    \16\ It is worth noting that agency managers also experience 
fractured attention under annual budgeting. In his article on the 
Defense Department, Art writes ``The Department cannot both budget and 
review annually, or, if it does, . . . [it does] both poorly.''
    \17\ This statement was prepared for delivery at ``Biennial 
Budgeting: A Tool for Improving Government Fiscal Management and 
Oversight,'' Committee on Rules, U.S. House of Representatives, March 
16, 2000. The author is Senior Institute Economist, Institute for 
Industry Studies, Cornell University.

   Submitted Questions and Answers--Professor Charles Whalen, Senior 
Institute Economist, Institute for Industry Studies, Cornell University

    1. In your prepared testimony you state that ``an international 
perspective on this issue generates two findings worth noting. One is 
that legislators devote considerably less time to budgeting in 
parliamentary democracies--interminable budgeting is largely an 
American phenomenon. The other finding is that annual budgeting is a 
product of custom and tradition, not fiscal theory.'' Can you elaborate 
more on these two findings?
    (i) Parliamentary democracies feature a more unified government 
structure. Critical budget decisions are negotiated within the cabinet; 
parliaments usually debate and enact a budget in only one or two 
    Moreover, reliance on a parliamentary structure is not the only way 
other nations achieve budgetary stability. Nearly all employ multiyear 
budgets for certain expenditure categories such as military spending. 
In addition, some nations, such as Sweden, place annual budgets in the 
context of multiyear budget frameworks [see, for example, Allen Schick, 
The Capacity to Budget (Washington, DC: Urban Institute, 1990, p. 220]. 
(ii) The roots of annual budgeting are not found in economic or 
political theory. Rather, this fiscal period was initially employed 
because it corresponds with a full cycle of nature's seasons. The 
practice of annual budgeting may have considerable merit in an agrarian 
society. It loses much significance, however, in a highly industrial 
    At the state level, trends in fiscal practices moved from an 
initial heavy reliance on annual budgeting to almost exclusive use of 
biennial budgeting (and biennial legislative sessions) by the early 
Twentieth Century. After World War II, many states reverted back to 
annual budgeting. Since 1986, four states have turned once again toward 
biennial budgeting. Today, 23 state budgets have at least some biennial 
    2. You discussed the Defense Department experience. Since the 
Defense Department continues to be required by law to submit a biennial 
budget request, would the Pentagon be a good first candidate for a 
transition from an annual to a biennial process? Also, since this 
submission requirement still exists, has any of the benefit of this 
preparation remained for the Department even though they have received 
annual appropriations?
    In the mid-1980s, Representative Les Aspin and Senator Sam Nunn--
respective chairs of the House and Senate Armed Services Committees--
concluded that a two-year defense budget could help their committees 
focus less on the details of budgeting and more on defense oversight, 
direction-setting and policy analysis. Defense Department managers also 
saw biennial budgeting as an opportunity to devote greater attention to 
program evaluation and agency planning. (See Robert Art, ``The 
Pentagon: The Case for Biennial Budgeting, Political Science Quarterly, 
    According to research by Professor Robert Art (cited above), the 
Defense Department's submission of biennial budgets yielded benefits in 
the form of increased agency evaluation, better planning and reduced 
procurement costs--despite the continued reliance on annual 
appropriations (see my testimony and the Art study for further 
details). A study that takes an updated look at the Defense Department 
experience would indeed be worthwhile.
    Two comments are warranted in response to the question of whether 
the Pentagon's budget would be a good first candidate for a transition 
to biennial budgeting. On the one hand, oversight and planning needs 
seem to make the Defense budget a good candidate--and there are 
certainly many highly predictable elements within the defense budget. 
On the other hand, overall defense spending is widely considered one of 
the most difficult items to place on a two-year cycle, since some 
military expenditures are often neither predictable nor deferrable.
    3. You suggest that government contractors, grantees and program 
recipients will benefit by program managers having more resources and 
ability to devote to focusing on improved program results. Could you 
give some specific examples of how this would be the case?
    Contractors, grantees and program recipients benefit from greater 
certainty with respect to funding over time. As indicated in Professor 
Art's study, contractors ``can strike more advantageous deals'' with 
subcontractors and parts suppliers--and thus reduce procurement costs--
when operating with a multi-year time horizon. Moreover, instability of 
weapons-system production also increases costs for both the government 
and its contractors.
    In my testimony, I make reference to remarks offered by Dr. Alice 
Rivlin. On this topic, she writes: ``Transfer payments, especially for 
the elderly, need to be predictable, so that people's lives are not 
disrupted. Military capability suffers if signals change too 
frequently. . . . Moreover, service delivery--whether roads, schools, 
health, or whatever--requires planning time. Frequent change and 
uncertainty of funding are costly and disruptive. Annual review of 
research grants increases the ratio of proposal writing to actual work. 
Indeed, almost all programs would work better if authorizations and 
appropriations were enacted for several years. Exceptions would appear 
to be few: natural disasters; military actions; and counter-cyclical 
programs where triggering mechanisms are not appropriate'' (Challenge, 
March-April 1981, p. 36).
    4. In your prepared testimony you state that ``as for the 
possibility of a correlation between biennial budgets and increased 
reliance on supplemental appropriations and rescissions, evidence from 
older studies is mixed while the two most recent studies (published in 
the mid-1990s) find no correlation.'' Can you elaborate more on the 
findings of these studies?
    In 1972, a report by the Council of State Governments indicated 
legislators in states that switched to annual budgeting identified a 
need for fewer emergency appropriations as one reason for keeping the 
new system (Annual or Biennial Budgets?, p. 15). A 1984 study, 
conducted by researchers at Texas A&M University, interviewed officials 
and observers in states that moved to annual budgeting. That study 
reported no discernible link between the budget period and the need for 
supplemental appropriations (Annual versus Biennial Budgeting?, section 
3, pp. 13-14).
    A 1987 General Accounting Office (GAO) report provides mixed 
results on the basis of interviews conducted with state legislative and 
executive officials. ``No strong pattern'' on the use of budget 
adjustments emerged from the interviews. Nevertheless, the report did 
find ``a slight indication'' that some states which moved to annual 
budgets experienced fewer adjustments while some which moved to 
biennial budgets experienced an increase in adjustments (Budget Issues: 
Current Status and Recent Trends of State Biennial and Annual 
Budgeting, pp. 14, 19, 25).
    Another GAO report with information relevant to this question was 
released in 1993. After stating that 49 states must keep their budget 
balanced, the report indicated 85 percent of annual budgeting states 
took action to close a budget gap in the prior budget period, while 
only 47 percent of biennial budgeting states did so. (See Balanced 
Budget Requirements: State Experiences and Implications for the Federal 
Government; percentages based on Tables 3.1-3.3.)
    According to a 1994 report by Ronald Snell of the National 
Conference of State Legislatures, supplemental appropriations since 
1989 have been driven by unpredictable national economic developments 
that affected all states regardless of the budget period employed 
(Annual and Biennial Budgeting: The Experience of State Governments, p. 
    5. In your testimony you point to the need for ``provisions 
allowing for changes in response to major unanticipated developments 
and emergencies.'' Could you elaborate on what these ``provisions'' 
might look like?
    Supplemental appropriations and rescissions should be permitted 
each year. Just as the current process permits budget adjustments 
during the fiscal period, so to should biennial budgeting.
    6. One argument against biennial budgeting is that it would 
exacerbate the need for supplemental spending bills, which can tend to 
balloon as they move through the process. Do you have any suggestions 
for the Committee about how to control the supplemental process to 
ensure that we do not slide back into a defacto annual process should a 
biennial budget be implemented?
    Avoiding over-use of the supplemental appropriation process 
requires minimizing the need for ``must-pass'' supplemental bills and 
controlling legislators' ability to attach extraneous amendments to 
such bills. One way to avoid the need for ``must-pass'' supplemental 
bills is to create ``rainy day'' funds for certain events such as 
natural disasters. (Representative Obey has even taken this idea a step 
further and suggested creating a system by which states could ensure 
themselves against such disasters.) Dan Crippen, Director of the 
Congressional Budget Office, suggests another alternative worth 
considering: including procedures in the budget resolution that would 
allow budget totals and allocations to be updated automatically for 
changing conditions.
    7. You state in your testimony that you agree with Dr. Alice Rivlin 
in a conclusion that, under a biennial budget model, we should 
``minimize unexpected changes in tax and spending policies.'' Does this 
mean that you would argue that the process should seek to prevent the 
consideration and enactment of reconciliation bills in the non-budget 
    Reconciliation bills should generally be passed in the budget year. 
Freestanding revenue measures and authorization legislation would be 
considered in the non-budget year--and their changes would become 
effective (except in extraordinary cases) at the start of the next 
    8. As you note in your remarks, a major argument in support of 
biennial budgeting is that it would free up the Congress and its 
committees to focus on more in-depth oversight during the non-budget 
year. We have plenty of evidence that under the current system, major 
portions of the budget go from year to year without authorization. Do 
you think that we need to make additional process changes, in 
conjunction with enacting a biennial cycle, to strengthen the 
authorization process?
    There are presently a number of ways to circumvent House rules that 
were designed to ensure authorization precedes appropriation. With 
biennial budgeting, it may be desirable to make such circumvention more 
    9. Some have suggested that biennial budgeting will cause agencies 
to seek greater spending cushions for the second year of a biennial 
budget. You discussed this in your written testimony and stated that 
``published examinations of state budgets do not support this 
contention.'' Could you comment further on the findings of these 
examinations in this area?
    In 1984, Texas A&M researchers conducted interviews with officials 
and budget observers in states that had moved from biennial to annual 
budgets. They report ``no agreement among the respondents as to the 
effects of [a switch to] annual budgets on the need for agency 
cushions'' (section 3, pp. 13-14).
    In 1994, Ronald Snell of the National Council of State Legislatures 
(NCSL) considered whether the budget period affects state spending. In 
particular, he examined evidence summarized in a prior NCSL report and 
a more recent academic study. The prior NCSL report, which reviewed the 
Texas A&M research and four additional studies, produced the conclusion 
that the budget period does not have any clear effect on state 
spending. Snell added that the more recent study ``failed to find 
strong evidence on either side of the issue'' (Annual and Biennial 
Budgeting: The Experience of State Governments, 1994, p. 8). [Snell's 
references: Barbara Yondorf, Annual versus Biennial Budgeting: The 
Arguments, The Evidence, NCLS, 1987; Paula Kearns, ``State Budget 
Periodicity: An Analysis of the Determinants of the Effect on State 
Spending,'' unpublished paper, Department of Political Science, 
Michigan State University.]
    10. What role do you see the authorization process currently 
playing in the budget process and do you think that role should change? 
Do you think changing or strengthening its role would improve the role 
and condition of programmatic oversight?
    I would agree with former Representative Lee Hamilton, who recently 
argued that oversight is currently underused and its value is often 
underestimated. The two-stage authorization-appropriation process makes 
sense only if authorization committees engage aggressively in 
oversight. Biennial budgeting provides an opportunity for congressional 
committees to conduct such oversight--and to introduce more long-term 
thinking into policymaking.
    Biennial budgeting enables Congress to make full use of agency 
performance data required by the Government Performance and Results 
Act. A legislative session devoted primarily to oversight, evaluation 
and authorization is consistent with the bipartisan goal of devoting 
greater attention to measures of program outputs and effectiveness. In 
short, biennial budgeting is consistent with the goal of making 
government more efficient.

                  Prepared Statement of Roy T. Meyers

    Thank you, Mr. Chairman Dreier and members of the committee, for 
the invitation to testify on biennial budgeting. Twelve years ago, when 
I was working for the Congressional Budget Office (CBO), I wrote a long 
paper on this topic that was published by the Senate Governmental 
Affairs Committee. Discontent with the budget process was then at its 
peak, as was the deficit. Now, deficits are only a vanishing memory, 
yet complaints are still raised about the budget process. Some are as 
perennial as the daffodils that grace Washington this month: ``the 
budget process is too time-consuming,'' ``deadlines are usually 
missed,'' and ``budget decisions are often repetitive.''
    In my opinion, such discontent is sometimes misdirected. A budget 
process that allocates one-fifth of the Nation's gross domestic product 
cannot run as smoothly as the Swiss train system. That would also be 
undesirable, for democracies work only when elected officials argue 
about how government spends, taxes, and borrows. To paraphrase the 
wisdom of Finley Peter Dunne's fictional Mr. Dooley, ``budgeting ain't 
beanbag.'' I suggest that we should celebrate that.
    Yet the budget process does have serious flaws, and the Congress 
should consider how to improve it. Twelve years ago, my paper used the 
typical ``on the one hand, on the other hand'' approach of the CBO, but 
on balance it suggested that biennial budgeting had serious 
disadvantages. In contrast, my testimony today is somewhat more 
favorable, because budgeting has changed in two significant ways: there 
is much less interest in using the budget for discretionary 
macroeconomic stabilization, and multiyear budget agreements have 
become common practice.


    Opponents of biennial budgeting often argue that it would prevent 
the Congress from responding quickly to unanticipated events. Since 
this is implausible regarding national security crises, the typical 
specter is a recession hitting hard in the second-year of the biennium, 
with the Congress having to wait a year to respond. But think back to 
1993, when the Congress rightly killed the President's so-called 
``economic stimulus'' bill. That proposal was minuscule in amount and 
offset by deficit reduction proposals, poorly targeted, and timed too 
late in the recovery from the recession. In fact, the long record of 
discretionary counter-cyclical fiscal policy is dismal; economists 
showed long ago that relying instead on the budget's automatic 
stabilizers is a preferable response, and most elected officials now 
agree. If biennial budgeting would further deter the Congress from 
displacing the Federal Reserve's critical role in stabilizing the 
economy, this is a strong argument for its adoption.
    Note in this regard that some opponents of biennial budgeting also 
observe that more states have switched from biennial budgeting to 
annual budgeting than in the reverse direction, in part to provide 
maximum flexibility to meet the states' balanced budget rules during a 
recession. From the macroeconomic perspective, however, state balanced 
budget rules are strongly procyclical and therefore dysfunctional for 
stabilization. State balanced budget rules should not serve as a model 
for the Federal Government. Nor is it likely that most Members of 
Congress would want to copy a typical mechanism for state fiscal 
flexibility--many governors have impressive powers to cut authorized 
spending without legislative involvement; should the President have 
such powers as well?


    The second reason that biennial's time may have come is that the 
country now has enough experience with multiyear budget agreements to 
understand how long they should last. You may remember the harsh 
argument in 1995 and 1996 about whether 7 years or 9 years was the 
right time frame for a balanced budget agreement. In retrospect, the 
extraordinary economic performance of the past few years makes this 
dispute seem a bit overdone. Nevertheless, that many-year agreement was 
preferable to a one-year agreement, because it acknowledged the 
political need for a fiscal glide path. But now that deficits have been 
eliminated, a biennial period may provide even greater political 
realism than a many-year period. The two-year electoral cycle for the 
House is the timing belt for our political system; comprehensive 
political agreements do not usually last much longer than the next 
    Biennial agreements may also be more realistic from the economic 
perspective. Budget experts have long cautioned that the annual budget 
is myopic, so it is good that budget proposals now project effects for 
five, ten or more years. However, it is clear that a desire for good 
budgeting is not the only cause of this practice; assuming a strong 
economy over a long period provides more-than-enough resources to 
finance many proposals. The problem is that the great sensitivity of 
these long-run projections to some critical assumptions is being 
ignored. When projections are too optimistic, the government can 
approve too much spending and cut taxes too much, quickly frittering 
away the fiscal discipline that has been purchased at high cost. Using 
long-run forecasts poorly may be worse than the myopia of the annual 
budget; biennial budgeting's implicit focus on the next two years may 
be more prudent than current practice.


    If biennial budgeting would promote budgetary planning over the 
medium-term, it is still unlikely to make budgeting timely. It is human 
nature to postpone difficult decisions until a deadline approaches. 
Since a two-year budget would require more decisions than a one-year 
budget, biennial budgeting threatens to increase the problem of missed 
    Now it is true that a single-issue bill is sometimes more difficult 
to pass than an omnibus bill. And it's possible to imagine that some 
legislators would oppose a one-year budget because their projects 
weren't included, but would support a two-year budget which added their 
projects in the second year of the biennium. The second budget year 
would permit the budget's managers to make commitments that are more 
credible than ``wait until next year.'' However, it is doubtful that 
this benefit would exceed the costs of negotiating another year of 
budget allocations.
    Expecting a biennial schedule to speed up budgeting forgets that 
legislatures are deliberative bodies--they usually take time to reach 
conclusions. You may know that a very significant percentage of health 
care spending occurs in the last week of a typical person's life, even 
if that person has had good preventative care. Similarly, legislatures 
make many important decisions the week before sine die--not earlier, 
regardless of good intentions.


    Predicting other potential effects of biennial budgeting is more 
difficult. Some of the claimed effects--both positive or negative--
appear overstated to me. This is because the biennial bills would make 
no changes to other aspects of the process, or more importantly, to 
critical incentives faced by Members, Senators, or the President.
    The most popular approach to biennial budgeting would use odd-
numbered calendar years to pass a budget resolution and appropriations 
bills, both of which would cover the next two fiscal years. In even-
numbered calendar years, the Congress would turn to oversight, 
authorizations, and campaigning. However, unanticipated situations 
would surely require the Congress to spend part of the even-numbered 
calendar year adjusting some of the appropriations made in the previous 
year. The risk is that some would be turned into most. A nearing 
election day, and the desire to take popular positions just before it, 
would stimulate many Members and the President to propose significant 
budget amendments in hopes of catching the last train. Consequently, 
there is a very real potential for a huge supplemental that would 
dominate the spring and summer of the even-numbered calendar year. 
Therefore--and I hesitate to suggest this because of the budget process 
is already overburdened with rules--the committee should consider 
supplementing any biennial budgeting bill with the part of H.R. 853 
that dealt with emergency spending.

                        A JOINT BIENNIAL BUDGET

    Another proposal in H.R. 853--converting to a joint budget 
resolution--should also be considered in conjunction with biennial 
budgeting. The concurrent budget resolution was invented with the hope 
that the Congress could plan as well as enact budgets, but history has 
shown that planning is a more demanding task for the Congress than it 
is for the executive branch. Similarly, while the traditional view of 
appropriations bills is that they are ``must-pass vehicles'' which 
equalize the bargaining positions of the Congress and the President, I 
understand that many in the Congress now feel otherwise. One reason the 
Congress has great difficulty passing the budget resolution and the 
appropriations bills is that the Congress does not seek and reach an 
early accord with the President over the budget's general parameters. I 
will admit that a joint budget resolution process would not guarantee 
that the branches could reach such an accord, but there is little risk 
in trying. It may be overly ambitious for the Congress to go it alone 
for a two-year budget.


    A final hope for biennial budgeting is that it would enable the 
Congress to better design programs and oversee agency performance. 
These would be extremely valuable outcomes, but they will not be 
produced simply by reducing the time spent on budgeting. In fact, as 
Members of the Appropriations Committee have correctly pointed out to 
your committee, authorizing committees are not the only committees that 
oversee agencies, and appropriations bills are powerful message senders 
to agencies.
    Members of the Rules Committee know better than anyone on Earth the 
institutional disadvantages of turfing between authorizing and 
appropriations committees and between different authorizing committees. 
The logical implication is that some committee overlaps should be 
reorganized out of existence, as Chairman Dreier has suggested in the 
past. A more radical approach would be to combine authorization and 
appropriation activities within committees specialized by functions of 
government. This would help the Congress link plans, performance 
measures, and budgets as envisioned by the Government Performance and 
Results Act (GPRA). It would also better connect committee allocations 
in the budget resolution to the resolution's consideration of 
priorities among budget functions. While I understand the huge 
political barriers in the way of this proposal, I submit that moving to 
a logical committee structure would more likely improve policy design 
and oversight than would changing the budget schedule.
    Advocates of biennial budgeting often complain that excess time 
spent on budgeting reduces oversight activity in the Congress. While 
the Congress is actually the world leader in quality legislative 
oversight, there is no question that it can improve oversight of agency 
performance, and also its earlier authorization of programs. Again, 
GPRA provides a logical framework for increasing the clarity and 
consistency of agency goals, measuring how well agencies attain these 
goals, and connecting goals and performance to budget allocations.
    Some of the biennial budgeting bills would adjust GPRA by linking 
two-year availability of funds to two-year performance reports. While 
this is a necessary condition for success, it is insufficient. At least 
as necessary is good faith between the branches. Over the past few 
years, the Congress has released some critical reports of agency plans 
and performance measures. In many cases, the complaints were justified. 
From the agency perspective, however, Congressional complaints would be 
more credible if the Congress spent less time stuffing appropriations 
and authorizing bills and reports with earmarks that are guaranteed to 
reduce agency effectiveness and efficiency. Members naturally want to 
deliver benefits to their individual districts, and to some degree, it 
is useful for the Congress and the country when they succeed. But if 
self-restraint is the only major barrier to earmarking, the practice 
can get out of hand. If the Congress wants to promote better program 
authorizations and oversight, it needs to make earmarking much more 
difficult. Without that easy option, more legislators will develop the 
expertise in programs and agencies that is essential for our democratic 
system to function well. A simple change to the timing of the budget 
process may help promote oversight, but it is more important to create 
the conditions under which oversight is highly valued by both Members 
and their constituents.


    In conclusion, the committee should seriously consider biennial 
budgeting. Multiyear budgeting can properly focus attention on the 
controllable medium-term, but passing a simple biennial budgeting bill 
will not ensure this. Any shift to biennial budgeting should be 
coordinated with other complementary changes to the budget process, and 
a modified H.R. 853 would be a good starting point for such an omnibus 
bill. Biennial budgeting could also better connect decisions about 
budget allocations to related decisions about program goals and agency 
performance. However, it is unlikely that biennial budgeting will have 
this effect unless the Congress revisits the question of whether 
committee jurisdictions and responsibilities should be modified.
    Thank you, and I'd be glad to answer any questions you might have.

   Submitted Questions and Answers--Roy Meyers, Associate Professor, 
  Department of Political Science, University of Maryland, Baltimore 

    1. As you know, the current budget process only accounts for 
changes in mandatory spending and revenues that result from legislative 
action. OMB and CBO hold the budget harmless for changes in spending or 
revenue levels caused by administrative, economic or technical changes. 
Do you think it would be possible and advisable to utilize this 
existing mechanism (or a modification thereof) as a way of handling 
such changes in the budget under a biennial process? Is this a way to 
address part of the difficulties with long term projections?
    A biennium is a relatively short time compared to the period used 
in long-term budget projections--typically 10 years for the aggregate 
budget and up to 75 years for selected programs like Social Security. 
Budget projections made over such long time periods tend to be quite 
inaccurate, for two reasons. First, the projections are highly 
sensitive to changes in underlying assumptions (e.g., the rate of wage 
growth). Second, the ebb and flow of political forces in society, and 
the responsiveness of our political leaders to these forces, cause 
strong demands each year to adjust budgetary policies.
    Reducing the first difficulty would require better data and better 
modeling. However, because extensive data is already collected and 
budget forecasters are already quite professional, a significant 
reduction in long-run forecasting errors is unlikely. The major 
difficulty in this regard is to convince political decision-makers to 
take seriously the fact that estimates are likely to be wrong. An 
automatic adjustment procedure for a many-year budget agreement may 
prevent that agreement from becoming wildly unrealistic. On the other 
hand, the availability of such an adjustment procedure may also 
encourage political decision-makers to extend budget agreements for 
longer periods than are politically realistic. Elections always shift 
the balances of partisan power within the Congress and between the 
branches. Because elections occur every two years, any budget agreement 
planned to last for more than 2 years is likely to be challenged 
successfully. Biennial budgeting therefore would establish a more 
realistic time frame for negotiating budget agreements than would 
current practice.
    2. In your prepared testimony you state that ``biennial budgeting 
may be more realistic from the economic perspective.'' Would you 
elaborate on how this may be the case?
    In my testimony, I argued that many-year budget agreements 
implicitly expect budget forecasts to be highly accurate for much 
longer than two years. When those forecasts are made at the peak of the 
business cycle, as is the current experience, they show large amounts 
of uncommitted financial resources. Some political decisionmakers have 
responded by proposing to allocate, in just this year, all of those 
resources that are expected to materialize over a much-longer period. 
Yet there is a significant risk that those expectations are overly 
optimistic. This risk receives little mention in public debate, which 
is probably due in part to the fact that official estimates made in the 
early-to-mid 1990s were overly pessimistic.
    I am not arguing that the Congress should neglect what might happen 
in the outyears beyond the biennium. Far to the contrary, for much of 
what the Federal Government does in the budget has long-term impacts, 
whether as capital investments, loan obligations, tax provisions, debt 
burdens, or benefit commitments. The most realistic approach to 
budgeting would attempt to project the long-term effects of these 
decisions while taking uncertainties into account through the use of 
sensitivity analyses. A focus on the biennium would be second-best to 
this approach, compared to the even worse approach of assuming that the 
U.S. has entered a new golden eon of economic growth.
    3. You discuss the issue of which of the two years should be 
devoted to consideration of budget-related legislation. You raise 
concerns about using the odd-numbered year for consideration of such 
bills. Do you think the even-numbered year would be a better approach? 
Could you elaborate more on these concerns?
    If one purpose of biennial budgeting is to require that most budget 
decision-making take place in one calendar year of a Congress, then the 
odd year should be the preferred year. The odd year follows the 
election, enabling quicker legislative action in response to an 
electoral mandate than would the even year. The odd year also allows 
more time for legislative action than the even year does, because of 
the practice in the even year to adjourn a month before the November 
election and the associated pressure on individual Members during their 
primary elections.
    However, it is unrealistic to expect all budgetary actions to be 
completed in the odd year. Every legislature on earth tends to postpone 
some major decisions until shortly before sine die adjournment. Some 
budget issues would therefore be delayed until the even year. In 
addition, unanticipated events would likely create a need for even-year 
amendments to the budget that was just enacted in the odd year. And 
last, but certainly not least, an upcoming election would tempt Members 
to propose budget amendments in order to help them campaign 
    If the Congress is to budget biennially, it needs rules that would 
prohibit most nonemergency budget amendments from being adopted in the 
even year. At the same time, it would also have to use flexible 
scorekeeping to allow selected, major legislative proposals with 
budgetary impacts to be considered during the even year. A current 
example of the latter might be the possibility of enacting a 
prescription drug benefit in Medicare.
    4. What role do you see the authorization process currently playing 
in the budget process and do you think that role should change? Do you 
think changing or strengthening its role would improve the role and 
condition of programmatic oversight?
    Based on rate of passage of authorizations bills, the process has 
significantly weakened over several decades. I also suspect that the 
authorizations process has become worse in its review of the ``big 
picture''--the attention to strategic direction called for by the 
Government Performance and Results Act (GPRA)--and consequently, in the 
connection of the oversight of administration to statutory goals.
    Unfortunately, improving the authorizations process would require 
more significant changes than simply reserving more time for 
authorizations committees to draft bills and for the floor to consider 
these bills. I suggested in my testimony that the crucial needed change 
is a commitment by Members to emphasize this responsibility; this is 
out of the range of Rules Committee influence. However, I do suggest 
that organizational restructuring could make it more likely that the 
authorizations function could be carried out much better.
    In practice, appropriations bills ``must pass'' if agencies are to 
operate. In theory, authorizations bills also ``must pass'' if 
appropriations are to be enacted without facing a point of order. 
However, in practice, this requirement is waived so often, or made 
irrelevant by permanent authorizations, that the appropriations process 
has captured much of the importance intended for the authorizations 
process. Those practices are partially justified by the tendency of 
negotiations over authorization bills to reach impasses over sticking 
points. For example, a President might safely assume that disagreeing 
with an authorizing committee will not prevent an appropriations 
committee from enacting an unauthorized appropriation.
    My suggestion for improving on this situation is to end any 
separation of authorizing and appropriating responsibilities. 
Committees with mandatory spending jurisdiction already combine these 
functions. The separate authorizing and appropriations committees on 
the discretionary side of the budget could be similarly combined. In 
practice, this would require a redistribution of authority between 
different committees. For example, the irrational split of jurisdiction 
for health programs could be realigned within a health committee. 
Though the political barriers to this reform are immense, it is also 
the case that the Congress faces a continuous challenge to its capacity 
if it refuses to improve on an internal structure that encourages 
excessive conflict.
    It might be argued that one of the dangers of combining authorizing 
and appropriating functions within one committee is that budgeting 
would drive out other activities. Of course, from the perspective of 
some authorizing committees, this is already the case. When the two 
responsibilities are combined, each committee would be able to 
determine the proper balance of budgetary and other activities. 
Moreover, the message of GPRA is that the two activities are 
inextricably linked.

                 Prepared Statement of Robert L. Bixby

                             1. BACKGROUND

    Mr. Chairman and members of the Committee, thank you for inviting 
me to appear today to discuss Federal Government biennial budgeting. I 
am here representing 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 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 for eight years since the 
organization's founding by Paul Tsongas, Warren Rudman, and Peter G. 
Peterson in 1992 to help build a political climate that encourages 
elected officials to make the tough choices required to:
     Balance the Federal budget
     Keep it balanced on a sustainable basis, and
     Strategically deploy any budget surpluses that develop to 
prepare for the fiscal and economic challenges that will occur as the 
Nation's population becomes sharply older in coming decades.
    Given these objectives, The Concord Coalition is greatly heartened 
by the dramatic improvement in the Federal Government's fiscal 
condition over the past several years. When the 1990s began the Nation 
was mired in large and growing deficits. The budget process was 
primarily aimed at reining in and ultimately eliminating the deficit. 
The Budget Enforcement Act of 1990 established caps on discretionary 
spending, and a pay-as-you-go limitation on mandatory spending and 
revenues. By helping to constrain spending these budget enforcement 
mechanisms made a direct contribution to the more favorable fiscal 
position we now enjoy.
    The lesson to be learned from the overall success of the BEA is 
that budget process reform, while not everything, can be an important 
tool in achieving strategic long-term goals.
    Today, for the first time in a generation, the budget is in 
surplus. Indeed, fiscal year 1999 marked an important milestone as the 
budget was balanced without using the legally ``off-budget'' Social 
Security surplus--the first such ``on-budget'' surplus since 1960. Debt 
held by the public has declined for two years running, and a further 
reduction is expected in the current fiscal year. Not coincidentally, 
the 1990s was a decade of accelerating economic growth.
    So why doesn't the Concord Coalition declare victory and go home? 
Its because our goal has never been to achieve a balanced budget for 
one, two, or even three years, but to help bring about fiscal policies 
which can be sustained over the long-term in a much changed demographic 
climate. In that regard, there is much work remaining to be done. 
Unfortunately, today's prosperity, welcomed as it is, has not repealed 
the coming age wave. Nor has it erased the projected growth in age-
related entitlement programs such as Medicare, Social Security, and 
Medicaid. Nor does it signal an end to the need for fiscal discipline 
and careful scrutiny of the manner in which taxpayer dollars are spent.
    As the General Accounting Office and the Congressional Budget 
Office continually remind us all, the challenges of an aging society 
include fiscal pressures which cannot be remedied simply by assuming 
that projected budget surpluses will bail us out. The inevitable growth 
in spending on age-related entitlement programs will put pressure on 
discretionary spending, revenues, and public debt. Unless we are 
prepared to accept a permanent level of government spending and 
revenues as a percentage of the economy (GDP) that we have not 
experienced, other than temporarily in times of war, tough choices will 
need to be made to avoid burgeoning public debt in the future.
    Given this set of concerns, it should be readily apparent why the 
Concord Coalition is interested in establishing tight fiscal discipline 
procedures and observing them scrupulously. While no amount of process 
reform can substitute for the hard policy choices you face as the 
demographic tidal wave approaches, The Concord Coalition believes that 
moving the budget to a biennial cycle would help shift the emphasis 
from the immediate, and often repetitious, year-to-year battles over 
budget resolutions and appropriations bills to the broader questions of 
strategic planning, oversight, and reform.
    Just as the budget process was reformed to respond to the deficit 
challenges of the late 1980s and 1990s it is now appropriate to 
consider new reforms which will help you prepare for the challenges of 
the early 21st Century--wise management of our surpluses, a thorough 
examination of the role and scope of the Federal Government and careful 
scrutiny of the programs deem worthy of a commitment of taxpayer 


    The Concord Coalition has always favored moving to a two-year 
budget process. Putting the President's Budget, the Congressional 
Budget Resolution, appropriations and oversight on a two-year cycle 
that coincides with sessions of Congress makes excellent sense for a 
number of reasons.
    To begin with, the Congressional Budget Resolution is as much a 
political statement as a management tool (the same is true, of course, 
with the President's budget.) As such, it makes sense for each 2-year 
Congress to adopt a single such statement, use it for guidance 
throughout the remainder of the session and change it only if economic 
or political events make it completely unworkable. Overall decisions on 
how much defense and non-defense spending to permit, how much 
entitlement expansion or reduction to permit, and how tax policy should 
be changed are matters that should not alter much within any given 
session of Congress. And, with budget deficits at least temporarily 
erased, there is no longer the need for an annual reconciliation bill, 
or for a Congressional Budget Resolution requiring it.
    Indeed, from Concord's perspective, one of the most attractive 
features of biennial budgeting 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.


    Another advantage of biennial budgeting is that it would enhance 
the opportunities for congressional oversight. 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. Ideally, the 
first session of each Congress would be spent on setting priorities and 
establishing funding levels, and the second session would be devoted to 
long-term planning and oversight.
    Granted, the work of oversight is a more painstaking, and perhaps 
not as immediately rewarding, task than appropriating. And, as many of 
your prior witnesses have noted, moving to a biennial cycle would not 
guarantee that time would be made available for oversight or that 
oversight would be any more thorough than it is now.
    But perfection should not be made the enemy of the good. The key 
question in this regard is whether biennial budgeting, if successfully 
implemented, would improve the current situation. Perhaps one of the 
strongest arguments in favor of biennial budgeting is that so many 
members of Congress have come to believe that the annual, repetitive, 
tussle over the budget makes it impossible to engage in any meaningful 
oversight. Evidence in support of this perception is the fact that 
according to CBO some $121 billion worth of FY 2000 appropriations were 
made for programs and activities with expired authorizations.
    In the final analysis, you are the experts on whether biennial 
budgeting will free up a meaningful amount of your time. If in your 
experience you believe that biennial budgeting will give you more time 
for oversight and planning, then The Concord Coalition is prepared to 
take you at your word.
    It is also important to note that the potential benefits of 
biennial budgeting are not limited to congressional oversight. 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 
improving government performance.
    Another relevant consideration, involving both the congressional 
and executive branches, is how you can best make use of the Government 
Performance and Results Act of 1993. You will now be receiving a wealth 
of material to absorb in monitoring the performance of government 
agencies. Adequate time must be made available to properly integrate 
the GPRA results into your decision making. In that regard, biennial 
budgeting makes great sense. It would be far better to free up time to 
absorb the new information provided under GPRA than to continue the 
amount of time and energy that now goes into repetitiously renewing or 
disputing budgetary ``decisions'' that often have been made ``final'' 
only a few months earlier.


    Now that the budget process need not be focused exclusively on 
deficit reduction, you have a window of opportunity to do some weeding 
out, modernizing, and updating of government programs before the 
demographic and fiscal pressures of the baby boomers' retirement hit. 
If there was ever a time to ``reinvent'' government, now is it. In 
Concord's 1993 Zero Deficit Plan we suggested that you look to 
     Programs that are no longer needed
     Programs that don't work or are inefficient
     Programs we can no longer afford
     Subsidies to narrow interests
    The Comptroller General recently gave the Congressional Budget 
Committees a similar list of suggestions. And, last week the 
Congressional Budget Office released its annual Budget Options book 
containing some 250 spending and revenue options. In short, there is a 
general recognition that simply achieving a ``zero deficit'' does not 
mean that there is no further need for fiscal discipline. It does not 
mean that we should continue to fund programs that are no longer 
needed, or that are inefficiently run, or that return little public 
benefit for the amount of dollars committed to them, or that provide 
subsides to narrow interest.
    If biennial budgeting results in Congress having more time to 
engage in oversight, then American people should expect to see a more 
productive government in which performance counts, and programs are not 
simply continued from year-to-year simply because no one has the time 
to ask whether or not they are still needed.
    While I have no polling data to back this up, I firmly believe that 
the American people would support your moving to a biennial cycle. 
Doing so would send a powerful signal to your constituents that you are 
at least as interested in monitoring and, if necessary, reforming the 
way in which taxpayers dollars are spent as you are in simply 
determining how much is spent.


    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.


    In considering biennial budgeting, it is fair to ask whether the 
priorities established in the first year would 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 to 
provide a workable guide for a two-year period, particularly during the 
current era of extraordinary peacetime prosperity. While there is 
always uncertainty in budgetary forecasts, the greatest danger in this 
regard is in using long-range surplus projections to ``pay for'' 
entitlement expansions, or revenue reductions. The existence and size 
of any such surpluses is far too speculative to serve as a reliable 
source of financing for new permanent commitments. This danger exists 
whether we stay with an annual budget cycle or move to a biennial one.
    On the discretionary side of the budget, a biennial process would 
create the need for a mid-session ``corrections'' bill. But the usual 
fiscal ups and downs on a year-to-year basis should not be so great as 
to necessitate major changes. A larger surplus than expected could 
always be used to reduce the debt, or released for high priority items. 
A larger deficit than expected could be addressed through recissions, 
or if necessary, be absorbed until the next Session.
    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 point is that moving the discretionary budget to a 
biennial cycle would not be tantamount to putting the government on 


    Moving to a biennial system would mean that some regular mechanism 
for considering mid-course corrections would need to be established. 
The machinery for 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 for 
routine and unnecessary increases 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.
    Moreover, if you decide to move 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 
(i.e., emergency spending). 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 
past two years has been 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 $30 billion to leak away each year. In fact, the fiscal year 
2000 leakage is still an ongoing proposition.
    A key element of any transition to biennial budgeting would, 
therefore, be establishing a way to ensure, or at least protect, 
against the danger of ``death-by-supplementals.'' It should be made 
clear that the method of adjusting second-year spending levels would be 
through one mid-session correction bill, rather than through an ad hoc 
series of smaller, less scrutinized bills. Bipartisan cooperation at 
the leadership level (including the administration) would be required 
to keep the supplemental process from deteriorating.
    While there is always a danger that second year supplementals would 
get out of hand in a biennial cycle, this need not happen if:
     Realistic discretionary spending assumptions are used in 
the Congressional Budget resolution;
     Rosy economic assumptions are avoided; and
     A regular mechanism is put in place to consider the second 
session update.
    These elements would help prevent an avalanche of supplementals; 
something Concord believes should clearly be avoided.


    The Concord Coalition also agrees with Speaker Hastert and others 
who have argued that biennial budgeting would encourage Congress and 
the President to plan ahead for emergencies. 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 appropriation should the 
need arise.
    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.
    Mr. Chairman, it is clear that no amount of process reform will 
cure all of the perceived problems with the current system. But the 
fact that perfection will not be achieved should not deter you from 
trying to reform the system in a positive way that is responsive to the 
challenges ahead, and that addresses the frustrations so many of you 
have expressed with the current system.

                         THE CONCORD COALITION

    1. Could you explain your point of view with regard to the 
statement in your testimony that, in an era of surplus, reconciliation 
bills are no longer necessary? Reconciliation is a process designed to 
bring about changes in entitlement and revenue policies--changes that 
might not occur under the regular order, especially in the Senate. Your 
testimony appears to argue that without a deficit there would be no 
reason to want to seek to make such changes in law. Please elaborate on 
why do you believe that, in times of surplus, we should not be 
considering revenue changes that might include tax relief for the 
American people?
    In my prepared testimony, I noted that, ``with budget deficits at 
least temporarily erased, there is no longer the need for an annual 
reconciliation bill, or for a Congressional Budget Resolution requiring 
it.'' (emphasis added).
    The fact that we have projected surpluses, or that we may move to a 
biennial budget cycle, does not mean there would be no further need for 
reconciliation bills. Presumably, Congress would still use 
reconciliation as a vehicle for tax and entitlement changes. But any 
such changes as may be deemed appropriate could easily be handled 
through reconciliation bills enacted in the first year of the two-year 
cycle. Indeed, frequent changes to the tax code and in entitlement 
programs can be destabilizing and confusing both to the public and to 
the agencies charged with administering them.
    Moreover, it should be noted that there is a significant difference 
between an era of projected escalating deficits and projected 
escalating surpluses. In the former situation, there is a critical need 
for action to prevent a fiscal meltdown. Annual reconciliation bills 
provide the opportunity to take such action. In the later situation, 
there is not the same need for immediate action. Unlike deficits, 
projected surpluses are consistent with the new bipartisan consensus to 
truly wall-off the Social Security surplus, and to pay down the 
publicly held debt. Even with the longest economic expansion in our 
Nation's history the budget in fiscal year 1999 was in surplus, 
excluding Social Security, by just $704 million. Future surpluses are 
contingent upon continued strong economic growth, slow growth in health 
care costs, and fiscal discipline \3/4\ none of which is guaranteed. In 
Concord's view, a biennial budget cycle, including reconciliation 
bills, would provide ample opportunity to address needed changes in 
permanent law, while limiting the temptation to dissipate the surplus.
    2. You discuss the likelihood that, under a biennial process, there 
would be a need for a mid-session ``corrections'' bill. How likely do 
you feel it to be that procedural constraints could be enacted and 
enforced to keep the biennial process from degrading back into a 
defacto annual cycle?
    The benefits of biennial budgeting would be lost if the process 
were allowed to fall back into a defacto annual cycle with 13 
supplemental bills, or a like amount, replacing today's 13 regular 
appropriations bills. But there is no reason to assume that this will 
happen. Under the current annual cycle the administration and Congress 
routinely handle supplemental bills to deal with unforeseen 
emergencies, and in some cases, to reorder priorities. These bills can 
be contentious, but they do not require anywhere near the time it takes 
for full consideration of 13 annual appropriations bills. Thus, if the 
midsession corrections bill is treated more as a supplemental bill and 
not as a reopening of the basic budgetary framework agreed to in the 
first year of the session, it should be possible to prevent falling 
back into a defacto annual cycle.
    Of course, no one can guarantee that this will not happen. But the 
possibility of failure should never deter innovation. Obviously, any 
process reform, indeed any new idea, might not work. In this case, the 
question of success or failure largely depends upon the good faith 
effort of the people in the congressional and executive branches who 
will have to make it work. I am confident that if Congress chooses to 
adopt biennial budgeting it will not turn around and squander the 
benefits of this change by allowing the supplemental process to get out 
of control.
    In addition to good faith efforts, other process reforms might help 
make biennial budgeting work. One is the idea of converting the Budget 
Resolution from a Concurrent Resolution, which does not require the 
President's signature, to a Joint Resolution, which does. Bringing the 
President into the process at an earlier point, as would occur with a 
Joint Resolution, would help ensure that the framework established in 
the first year would hold up over the second year, with only minor 
    Another process reform that might help is setting aside a realistic 
amount for legitimate emergencies, particularly natural disasters. One 
major problem has been that not enough is appropriated through the 
conventional appropriations process to finance adequately the disaster 
relief programs. Scarcely a year goes by without a devastating fire, 
flood, drought, earthquake, tornado, or hurricane somewhere in the 
Nation. About the only things that are predictable about such disasters 
is that they will occur, and that Americans will willingly provide 
assistance to the devastated victims. Over time, the cost of responding 
to these tragedies is also roughly predictable. Although we never know 
what disaster or emergency lies ahead, it's safe to assume that there 
will be one. Yet, year after year, insufficient funds are appropriated 
through the basic 13 appropriations bills to finance even an average 
level of disaster spending. Instead, minimal amounts are appropriated 
for FEMA and the other disaster relief accounts, and the rest of 
discretionary funding is used up for other purposes. Then when disaster 
strikes, it's too late to say, ``we should have kept some funds in 
reserve,'' or, ``we should have originally provided more disaster 
funding.'' By then, spending limits have already been reached, and the 
only way to provide disaster relief is through emergency spending.
    A third factor that would help prevent supplemental bills from 
getting out of control would be the establishment of realistic 
discretionary spending caps. Much of the recent explosion in dubious 
emergency spending, and other budgetary gimmicks, stems from having 
discretionary spending caps set at an unrealistically low level. Tough, 
but realistic spending caps would help ensure that second year 
``corrections'' bills do not necessitate whole new budgets.
    3. Some have suggested possibly including a sunset provision for 
biennial budgeting. How long do you think it would take before we could 
assess whether a biennial process is working? What would be the 
criteria you would use to judge its success or failure? Do you have any 
thoughts on another suggestion that has been made that we should 
consider implementing biennial budgeting on a pilot basis just for 
certain segments of the budget?
    The Concord Coalition would prefer that biennial budgeting be 
adopted on a permanent basis for the entire budget. Doing otherwise 
would signal a lack of commitment to the concept, resulting in 
confusion, and potentially, reluctance to fully comply with the new 
procedures. As noted above, good faith cooperation will be required to 
make the biennial budgeting work. It can be anticipated that there will 
be implementation problems in first one or two cycles. If those opposed 
to the new system know there is a clock running, their temptation may 
be to run out the clock rather than figure out how to make the new 
system work. But, in any event, it is clear that Congress can always 
undo any process reform that turns out to be untenable. So, even 
without a sunset provision biennial budgeting would only survive if 
those who must abide by it find it to be an improvement over the 
current system.
    It is difficult to say how long it will take to assess whether 
biennial budgeting is working. At a minimum, I would allow three 
biennial cycles to make a fair test. The first cycle, almost by 
definition, will be experimental. Allowing two more cycles to work out 
the bugs and to see whether two-year agreements can hold up through a 
couple of election cycles will be important measures of success.
    There are probably no objective criteria to use in judging whether 
biennial budgeting works. But much of the desire for biennial budgeting 
comes from a sense that Congress has insufficient time for long-range 
planning and government oversight. Thus, one measure of success would 
be whether biennial budget actually frees up time for such activities, 
and whether Congress actually takes advantage of this time to engage in 
more effective planning and oversight. Other measures of success would 
be the extent to which budgetary gridlock is alleviated, particularly 
in the second year of the cycle, and whether the level of unauthorized 
appropriations comes down. It would also be important to receive 
feedback from the executive branch and the General Accounting Office on 
whether biennial budgeting results in better program management.
    Requiring separate cycles for different parts of the budget would 
be counterproductive. One of the perceived benefits of biennial 
budgeting is that it would help streamline the budget process. Putting 
the budget on two different cycles may well result in added confusion. 
If so, this would not be a fair test of biennial budgeting, which might 
be blamed for the added confusion. Such a pilot test might also provide 
the opportunity for new gimmicks, such as shifting funds between annual 
and biennial cycles. It would be best to set the same rules for the 
entire budget.

                Prepared Statement of Martin A. Regalia

    My name is Dr. Martin A. Regalia, and I am Vice President and Chief 
Economist of the U.S. Chamber of Commerce. The U.S. Chamber is the 
world's largest business federation, representing more than three 
million businesses and organizations of every size, sector and region. 
This breadth of membership places the Chamber in a unique position to 
speak for the business community. Mr. Chairman, we appreciate this 
opportunity to testify on behalf of biennial budget provisions, such as 
those contained in the Biennial Budgeting and Appropriations Act (S. 
92), introduced by Senator Domenici, and in several bills introduced in 
the House of Representatives (H.R. 232, H.R. 493, H.R. 2985, and H.R. 
3586), and we commend you for holding these hearings.


    Increasingly, the existing Congressional budget process is unable 
to produce a budget in a timely fashion. The system is fraught with 
wasteful repetition and duplication of effort, allowing inadequate time 
for oversight and management of government programs, suboptimal budget 
predictability and stability, and even more frenetic activity during 
election years. The Chamber believes that the adoption of a biennial 
budget cycle will alleviate some of these by-products of the Federal 
budget process.

                       BIENNIAL BUDGET PROPOSALS

    As provided in the proposals contained in current House bills and 
S. 92, a biennial budget would require the President to submit a two-
year budget, and would devote the first session of a Congress to 
developing a two-year budget resolution and attending to 13 two-year 
appropriations bills. A point of order would be established against 
consideration of appropriations legislation covering less than two 
fiscal years and consideration of authorization legislation during the 
first session until all action on budget-related legislation has been 
completed. The second session would have Congress concentrate on 
authorization activities and programmatic oversight of government 
agencies. If necessary, modifications to the appropriations would be 
handled through the mechanisms of supplementary appropriations or 
rescissions in the latter session.


Lack of timeliness
    Within the current budgetary framework, deadlines are repeatedly 
missed. The government regularly fails to timely enact all individual 
appropriation bills to fully fund the government by the beginning of 
the fiscal year. Since 1950, Congress has enacted all thirteen 
appropriation bills by the beginning of the fiscal year only three 
times. During the 26-year history of the Budget Act, Congress has met 
the deadline for completion of a budget resolution only four times. A 
timely completion of this year's budget resolution would mark the first 
time that Congress has met the April 15th statutory deadline two years 
in a row.
    The adoption of multiple continuing resolutions to keep the 
government in operation has become a commonplace event--the status quo. 
The threat of government shutdowns--and the occasional reality of 
actual ceasing of operations--is a very disruptive and disheartening 
aspect of our system of government. It's no wonder that many Americans 
have lost faith in their leaders, and feel that elected officials are 
``out of touch'' with their constituents. This annual quandary serves 
no one's best interests--regardless of political affiliation.
    This manner of conducting ``business as usual'' would not hold up 
to scrutiny in the business world. This is no way to run a business, 
and it is certainly no way to run a country. Adoption of a biennial 
budget system would help free the government from this threat of chaos 
and paralysis.

Wasteful Repetition
    Vast resources, both in terms of human and financial capital are 
wasted on repeating the budgetary process each year. The current 
budgetary process is very time and resource-intensive, requiring nearly 
three years of combined effort by the executive and legislative 
branches to produce and execute each annual budget. Immense amounts of 
time and manpower are required for budgetary preparation, review, 
submission and legislation. This, in turn, siphons these valuable and 
limited resources away from the tasks of managing and adjusting 
existing programs to keep pace with today's changing times, and from 
attending to other, non-budgetary matters. Congress often debates the 
same issues year after year, and seems to be mired in an ever-expanding 
pool of budgetary quicksand that swallows up its time and saps its 
energies. Agencies, too, are left drained by their continual engagement 
in hearings, markup sessions, conference reports, and planning for the 
following year's budgetary process. Biennial budgeting would streamline 
the budget process, reduce needless repetition of effort, and free 
Federal agencies and Congress to better attend to the interests of the 
American people.

Inadequate Time for Oversight and Management
    Congressional oversight is vital to maintaining the integrity of 
our country's fiscal health. Our system of checks and balances requires 
that Congress reviews, monitors, and supervises the executive branch's 
conduct of Federal programs and implementation of national policy. 
Oversight ensures compliance with legislative intent; improves the 
efficiency, effectiveness, and economy of government operations; 
evaluates program performance; reviews and determines Federal financial 
priorities; reviews agency rulemaking processes; and acquires 
information useful in future policymaking. Congress is charged with the 
power and responsibility to observe and control the government, so that 
it may rein in its excesses and correct its flaws. Effective oversight 
of Federal programs results in improved management, efficient 
evaluations of program goals and performance, and opportunities to 
remedy problems and prevent waste or abuse of resources.
    Unfortunately, the annual appropriations process is so time-
intensive that insufficient time remains for systematic and 
programmatic oversight of Federal programs. This results in the 
abbreviation of the authorization process, where most programmatic 
oversight is conducted.
    Lack of sufficient oversight has resulted in the squandering of our 
tax dollars on unauthorized programs. In fiscal year 1999, $101 billion 
was appropriated for 118 programs whose authorization had expired. 
Likewise, the Congressional Budget Office has reported that Congress 
provided another $120.9 billion for 137 unauthorized programs in fiscal 
year 2000.
    Adoption of a biennial budget system would allow the President and 
his administration more time for management of Federal programs and the 
Congress more time for programmatic oversight over the course of the 
budget cycle. Identification and elimination of wasteful and 
unnecessary Federal spending would thereby be facilitated, making our 
Federal budget process more effective and economically efficient. 
Furthermore, agencies would be better able to focus on executing their 
programs, due to less frequent preparation and justification of future 
year budgets.

Budget predictability and stabfift
    A biennial budget would provide more accurate predictability of 
funding streams for Federal programs and for state and local programs 
that rely on the receipt of Federal funds or represent joint ventures 
between state and Federal Governments. Because a biennial budget 
necessitates forecasting revenues and expenditures for a longer time 
frame, agencies and lawmakers will engage in longer-range planning. It 
is our hope and expectation that this will result in well-reasoned, 
better thought-out undertakings than those borne by annual budget-
    Agencies may spend less in the first year of a biennial budget 
cycle because their appropriation authority extends into the next year. 
There is no incentive to deplete funds at the end of that year because 
of that carryforward of funding. Furthermore, longerterm planning can 
be expected to increase governmental efficiency.
    Budgeting for the longer-term will entail greater uncertainties in 
forecasting revenues or projecting funding requirements of agencies or 
programs for the course of a budget cycle. However, supplemental 
appropriations and rescissions can compensate for these shortfalls, as 
well as for the need to adapt to changing economic and programmatic 


    In conclusion, adoption of a biennial budget process will greatly 
improve the efficiency and effectiveness of the Federal Government, and 
foster a new sense of trust in our elected officials and in our 
government institutions. We urge that Congress and the administration 
join together to enact biennial budget legislation that will achieve 
these goals. Thank you.

Submitted Questions and Answers--Dr. Martin Regalia, Vice President of 

     Economic Policy and Chief Economist, U.S. Chamber of Commerce
    1. As a representative of many businesses, both large and small, 
could you elaborate on your point that biennial budgeting increases 
budget predictability and stability for those served by Federal 
programs and those who receive Federal money such as research grants, 
    In any budget system, the providers and users of public goods and 
services are subject to two types of uncertainty: planning uncertainty 
and outcome uncertainty. The first arises because the authorizers and 
appropriators may change their minds, and the second arises when 
factors beyond the control of the authorizers; and appropriators change 
the economic environment. Clearly, a biennial budget cycle reduces the 
first type of uncertainty and should make it easier for both users and 
providers of public goods and services to plan ahead over the budget 
    2. One of the arguments against biennial budgeting is that the 
ability to make two-year projections is too unreliable. Do you have any 
thoughts on that contention?
    As I said in the answer to the first question, there are two types 
of uncertainty. This question refers to our ability to predict or 
adjust to the second type of uncertainty outcome uncertainty. Clearly, 
the farther ahead one attempts to forecast or predict the greater is 
the likelihood that conditions will change, and the poorer will be our 
forecast. The relationship between predictive accuracy and length of 
the forecast is not monotonic: for example, 10-year ahead forecasts are 
not simply twice as inaccurate as five-year forecasts. One must choose 
a degree of error that is acceptable given parameters, such as the 
political structure and the benefits of planning certainty. I believe 
that the benefits from reducing the planning uncertainty balance well 
against the somewhat higher predictive inaccuracy of a biennial budget, 
especially when one considers that we have a two-year political cycle.
    3. In economic theory and in the private sector, is there anything 
inherently superior in an annual cycle as opposed to a longer cycle? 
Alice Rivlin has pointed out that the longer the cycle and view in 
budgeting, the better the benefits, but realizes that our political 
system has place a limit on how long we can actually set the budget 
cycle on discretionary spending with our biennial elections. Could you 
comment on this as well?
    I would agree with Ms. Rivlin's assessment. As I said in my answers 
to the previous questions, the benefits from planning certainty, in my 
opinion, outweigh the problems in forecasting error when moving from a 
single year to a biennial budget cycle. I'm not sure that this would be 
the case if one were to go much beyond a two-year cycle to say a five 
or 10-year cycle. The fact that the two-year cycle coincides with an 
election cycle of the same length is an added benefit. The parties 
authorizing and appropriating projects in the first year will also be 
the same individuals reviewing and providing oversight in the second 
year of a biennial budget cycle, and I believe this would be a positive 

          Prepared Statement of The Honorable Leon E. Panetta

    Mr. Chairman and Members of the Committee, I am pleased to have 
this opportunity to discuss biennial budgeting and other budget reform 
proposals. While I regret not being able to be with you personally in 
Washington, I appreciate your willingness to do this by video.
    In my first term as Congressman from the 16th District in 
California during the 95th Congress, I had the honor to introduce the 
very first biennial budgeting bill in the House in 1978. I reintroduced 
the legislation in subsequent years, with over 40 cosponsors. I am 
pleased that some 20 years later, in the year 2000, the Committee on 
Rules and the House is now seriously considering this important reform.
    As you know, there have been a number of studies and hearings over 
the years on serious budget reform issues, including biennial 
budgeting. I personally participated in a number of hearings before 
both the Budget and Rules Committees. Reform Task Forces of the Rules 
Committee were headed up by our former colleagues--Congressman Butler 
Derrick and Congressman Tony Beilenson. I do hope that you and your 
staffs will take the time to analyze all of this previous good work in 
order to get both a sense of the history of this proposal as well as 
the various viewpoints of the Members.
    It suffices to say that one Member's reform is another's demise. 
Reform proposals are often viewed as threats to the status quo and 
Committee jurisdictions. But when the existing budget process is not 
working effectively or efficiently, it makes sense to consider possible 
improvements. The challenge for this Committee is to determine whether 
the reforms will give the Congress the opportunity to truly improve the 
way it does the business of the people, or whether continuing crisis is 
the only political alternative. While a biennial budget will not 
resolve all of the current budget problems, it will, in the very least, 
provide a more rational time frame for responsible budgeting. And after 
all, establishing a process for controlling spending is why the budget 
was established in the first place.
    The modern day budget process itself developed in the cauldron of 
political intrigue, disputes and concerns that produced the 
Congressional Budget and Impoundment Control Act of 1974. While the 
principal goal of the legislation was to restrict the President's 
ability to impound spending, Congress realized that it could not limit 
the President without taking steps to control its own spending habits.
    The original authors tried hard to bring some order to the 
Congressional decision-making process. They were hamstrung by the 
imperative to protect all existing centers of power and to make the new 
process appear as benign as possible. The drafters of the Budget Act 
knew the new process would have a difficult time working, but they also 
recognized that Congress could not continue to operate without any 
overall budget constraints.
    While the first budgets were the result of extensive negotiations 
between the leadership and the key Chairmen, as deficits continued to 
grow, it was obvious that stronger steps had to be taken. This dilemma 
was ultimately confronted through a series of legislative and 
negotiated agreements focusing on increased budget enforcement. Having 
participated in most of those early budget summits as a Member and then 
Chairman of the Budget Committee, the results of many of these changes 
are reflected in the existing budget process:
    The Balanced Budget and Emergency Deficit Control Act of 1985--the 
so-called Gramm-Rudman Law--established deficit reduction targets and 
enforcement procedures (sequestration); the 1987 Budget Agreement 
negotiated between Congress and the Reagan Administration produced 
further deficit reduction targets; the 1990 Budget Agreement negotiated 
between Congress and the Bush Administration established fixed 
discretionary caps and the pay-as-you-go requirement; the 1993 Omnibus 
Budget and Reconciliation Act extended discretionary spending caps and 
pay-go requirements through 1998; and the 1997 Balanced Budget Act 
further extended discretionary spending caps and pay-go requirements 
through 2002.
    The purpose of these reforms was very simple--it was obvious that, 
absent strong enforcement tools, the targets set for deficit reduction 
would never be achieved. There is no question in my mind that were it 
not for the reforms built into law by the various budget and 
reconciliation proposals over the years, we would have no balanced 
budget today.
    While it must be emphasized that reforms alone cannot substitute 
for the substantive decisions that have to be made on budget policy, 
they can assure that once those decisions are made, they will be 
carried out.
    The point is that reforms can make a difference to the efficiency 
and effectiveness of the budget process if they are carefully designed 
and implemented. Of course, any reform is only as good as a majority 
vote on the floor of the House. Since any requirement can be waived by 
the Rules Committee, supported by a majority vote of the Members, it is 
essential that for any reform to succeed, it must enjoy the support of 
the leadership, the key Chairmen and ranking Members of Committees, and 
a strong bipartisan crosssection of both parties.
    In addition, I do not have to remind you that there are no silver 
bullets in the budget process. For as long as I can remember, there 
have been Members searching for that one simple and elusive answer to 
all of the budget burdens that have to be confronted--a Constitutional 
amendment to balance the budget, the line item veto, the Gramm-Rudman 
law, and on and on. There has always been the hope that somehow the 
budget process could be saved with a single legislative act of some 
kind. That is not the case.
    The budget process is a legislative process, and in that reality 
lies both its strengths and its vulnerabilities. Nothing can replace 
the fundamental trust between Members that is essential to making any 
budget process work. When good members like Bill Gradison and Bill 
Frenzel were my ranking Members on the Budget Committee, we enjoyed and 
maintained a relationship of trust and confidence that no reform can 
replace. If somehow you can restore that kind of personal trust in the 
budget process, than there isn't a reform you can enact that will not 
work. In the absence of that trust, few if any reforms can succeed.
    But assuming that a better relationship can develop between the 
parties and the administration, I believe that biennial budgeting is 
one of those reforms that makes good sense for both the Congress and 
the Executive Branch for the following reasons:
    1. The present budget process is seriously broken. The present 
budget process is now driven by crisis. Each year, budget resolutions 
are often delayed past their statutory deadlines, with resulting delays 
in the appropriations process. When a budget resolution is finally 
enacted, the targets established are often so unrealistic that the 
appropriators have to delay the larger and more controversial bills 
till late in the fiscal year. The result is a continuing resolution, or 
several continuing resolutions, until a negotiated agreement is arrived 
at between the Congress and the President. The sad reality is that, in 
a government split by party, crisis has become the key ingredient to 
force budget decisions. The result is that more and more decisions are 
delayed well into the new fiscal year when spending is already 
occurring in many programs. Ongoing spending needs, rather than a 
careful evaluation of programs, is what drives decision making. While 
it may be too much to expect that a two-year budget cycle will 
eliminate all crisis in the first year, it will in the least confine 
the larger budget battles and negotiations to every other year, 
allowing both the Congress and the Executive Branch the time and the 
stability to better prepare and implement budget planning.
    2. Better budget planning and management. Too many budget decisions 
by both the Congress and the administration are made on a short-term 
basis. Rather than focusing on long-term funding needs, the crisis 
management approach to budgeting forces ad hoc spending decisions that 
are not based on any kind of long-range planning. As a consequence, the 
current process is very inefficient, and the task of budgeting consumes 
a great deal of time and energy that could be better devoted to 
addressing programmatic issues from a longer-term and more in-depth 
perspective. Not only is the Congress constantly in the crunch of 
making hit-and-miss budget decisions on programs, the Executive Branch 
is caught in the same turmoil. During the months of September and 
October, when Congress and the administration are typically negotiating 
final appropriations levels for the new year, the agencies and 
departments of the Executive Branch are beginning the new fiscal year 
operating under continuing resolutions while also expending great 
amounts of time developing their budget request for the subsequent 
fiscal year. The problem is that, until final decisions are made on the 
current spending year, it is impossible to determine what the spending 
levels should be for the next. Both the Congress and the Executive 
Branch need the time to more carefully evaluate current programs, and 
plan and manage the funding needs of existing programs. Clearly, a two-
year budget cycle would provide that needed time.
    3. Greater program oversight by both the Congress and the 
administration. The reality is that very few Committees of the Congress 
conduct the kind of thorough and essential oversight of existing 
programs that fall within their jurisdictions. It is only when a 
scandal occurs or a critical GAO audit is published that Committees 
take the time to review certain programs, but that's often too late. 
Most Committees will work on new authorizing legislation, but give 
little attention to the thousands of programs currently in the Federal 
budget. The additional year would allow for the Committees to spend the 
required time reviewing the effectiveness of programs that spend over 
$1.4 trillion. In addition, the various Appropriations Subcommittees 
which do their annual reviews of programs under their jurisdiction 
could do even more careful hearings and studies. The reality is that 
both the administration and the Congress have fallen into a pattern 
each year where the same testimony is presented, the same questions 
asked, and the same favorite programs funded. It would not hurt either 
the Members of the Committee or those testifying to be subject to 
greater scrutiny. The same oversight responsibilities could also be 
implemented within the Executive Branch. The Office of Management and 
Budget is supposed to be constantly reviewing the effectiveness of 
existing programs. But the year-to-year budget process makes this at 
best a hit-and-miss process. They could use the additional time to 
better fulfill their responsibilities as well.
    4. Improved economic projections make two-year budgets realistic. 
The reality is that the current state of economic and spending 
projections have improved, so that both the Congress and the Executive 
Branch have a pretty good idea of what a program can or cannot spend 
over a two-year period. Indeed, current budgets have gone beyond the 
five-year projections to ten-year projections. While that is not to say 
that projections that far out are exact, it is to say that two-year 
projections are well within the margin of error. It is important that 
Congress and the administration always maintain the right to make 
necessary adjustments. However, it is also important that revisions are 
limited and based on emergency needs, and not just on additional 
spending appetites. The one thing that could destroy the two-year 
budget is if a huge supplemental, covering all 13 appropriations bills, 
appears every other year. I realize the temptation to do this, but both 
the President and the leadership must ensure that any supplemental is 
limited to essential revisions and emergencies.
    As with all reforms, a biennial budget will take careful work and 
preparation. Like any reform, biennial budgeting will not work if the 
process either becomes too inflexible or too open-ended. For the 
process to work, the two branches will have to avoid these extremes and 
find the proper balance under which the major task of budgeting is 
carried out every two years. That balance will require essential 
cooperation between the branches.
    In addition, there will also have to be an appropriate transition 
period before the Federal Government and the Congress converts over to 
biennial budgeting. It must be recognized that this reform will 
constitute a very fundamental change in how the budget process 
operates. A conversion to biennial budgeting will have to take into 
account the magnitude of the change that would be required, both in 
terms of the need to make necessary conforming changes to those laws 
that presume the proposal and enactment of annual appropriations, as 
well as in terms of the need for Congress and the Executive Branch to 
develop and implement new practices for proposing, considering, and 
enacting two-year budgets.
    A biennial budget system, built around the two year life of each 
Congress, offers a better way for Congress to commit itself to 
continuing fiscal discipline and to better planning for the coming 
years. Besides improving budgeting and planning capabilities, such a 
system would allow sufficient time to examine programs and find areas 
within current-year budgets where responsible cuts, reductions, and 
funding increases can be made.
    The present system is not working. In the very least, this reform 
will provide the time necessary to move toward more sound, effective, 
and responsible budget making. Is there a risk involved in enacting 
this reform? Of course. Is it a risk work taking, considering the 
crisis of the present budget process? I believe it is. I would urge the 
Committee to support, and the Congress to adopt, a biennial budget 

    Chairman Nussle. I did not mean to suggest that our 
witnesses today are in and of themselves going to be boring. 
    Unfortunately, the topic that we've selected is one that is 
easily overlooked and one that is easily misunderstood. But we 
have three experts, both from practical, personal, political 
and technical expertise, to give us their thoughts on this 
topic. The way I describe it to folks back home when we talk 
about the rules of the budget process is, it's like opening the 
game Monopoly and looking on the back of the box to see what 
the rules are. Those are pretty important rules, and they help 
determine the outcome, in many instances, over some pretty 
dicey subjects, who gets Park Place, where the hotels go, etc.
    It's no different with our budget process. These rules are 
pretty important to determine the outcome, how well they work 
and how easily they are understood, how realistic they are is, 
I believe, very important in helping us have a smooth process.
    One other point I would make, or that I make with them back 
home is that the rules are fair for everyone, though. These 
rules should be objective. They are not meant to game the 
outcome substantively of the process. They should be objective. 
They should work equally for both sides philosophically and for 
both outcomes and allow for fair discussion and determination.
    The folks that we have here today have, as I say, some 
great ideas and expertise with regard to that. We have today 
former Member Bill Frenzel, former Member Bob Livingston and 
former Director of the Congressional Budget Office Reischauer. 
We welcome all three of you today. We're honored to have your 
    Your entire testimony will be placed in the record at this 
point, and you may summarize as you see fit. We'll begin with 
Mr. Frenzel. Welcome to the committee, welcome back to the 
committee, as an alumnus of the committee as well, we 
appreciate the fact that you would come and give us your 


                   STATEMENT OF BILL FRENZEL

    Mr. Frenzel. Thank you very much, Mr. Chairman, thank you, 
Mr. Price. And thanks to the whole committee for your attention 
to what to me is still a very important subject, even if, in 
the chairman's description, it is a bit boring. So I will drone 
on and try to push you into the proper form of somnolescence. 
    Mr. Chairman, The Budget and Anti-Impoundment Act was 
enacted in 1974. Before that, there was not much in the way of 
rules. It was the law of the jungle with respect to 
appropriation. In the 27 intervening years, we haven't done a 
great job of providing rules, or providing process.
    As we are seeing this year, it is still the law of the 
jungle. The budget resolution exceeds the caps, and so forth. 
We have emergencies that exceed all of our expectations. We 
have a process that still depends on the individual members and 
collective will if we are to have any discipline at all. For 
me, there never probably can be enough discipline.
    But suffice it to say that over the years, the Budget Act 
has not been forcing on the Congress. Congress has still done 
what it feels it wants to do. Whether we were into 
reconciliation, and I remember those glorious days in 1981 when 
we did do reconciliation, or whether we're into Gramm-Rudman, 
we never really bothered much about the rules. If we didn't 
like them, we simply wrote a new set of rules.
    Sort of the net of this is, no matter what rules you have, 
in a perfect budget process, they will not ensure a perfect 
budget outcome. The players still are going to be the ones, who 
make the decision. This is a political decision, and it should 
    I think the best we can expect is that we get a rational 
process that the public can understand, that the members 
understand, and it applies modest pressure on the members, 
although not forcing, to follow some kind of fiscal discipline.
    Congress is having as much trouble dealing with surpluses 
as it had dealing with deficits. The problems are different. 
Many of the structures or the restrictions that we tried to put 
into the process are designed to work against deficits, rather 
than for them, in a time of surplus. These things are going to 
require some major changes. As Mr. Price has suggested, a 
little tinkering isn't going to help much.
    But in the history of the budget process, we haven't been 
successful with a lot of tinkering. As I indicated in my 
statement, there are a number of things that really must be 
done. In the first place, your caps and your PAYGO expire in 
2002. That gives you an opportunity, while re-installing those 
restrictions to put some other things into the system that will 
help, too.
    As you know, I'm very strong for a joint budget resolution. 
I think that getting the President together with the Congress 
and having a national budget rather than competing budgets is 
good. It should happen as early in the process as is possible, 
rather than at the end, and then having a giant fist fight 
between the branches at the expiration of the fiscal year.
    I am satisfied with the biennial cycle, if that's to be a 
part of the solution. To me, that's the spoonful of sugar that 
may make some of the medicine go down. I hope that we will have 
some kind of an automatic CR included in the budget process as 
an incentive to appropriators to complete their job quickly.
    A number of you have suggested that we need some kind of a 
reserve for emergencies, or ``rainy day'' fund. I am always 
amused to see that at the end of the year, Congress is 
surprised to see that we've had some emergencies.
    We also need to work on our concepts. We have--oops, if 
you'll give me 30 seconds, Mr. Chairman, I think we've got to 
go back to improving the rescission system, since the line item 
veto was declared unconstitutional.
    It would be a good idea to have this committee, like its 
Senate counterpart, permanentized. I look around here and it's 
a fairly junior committee. In some respects, that's a good 
idea. You haven't got all those bad habits that we gain when 
we're around here for a long time. But it would help, I think, 
if we had more permanence here.
    And finally, one of the ideas that has come up a little 
more recently is that it would be a good idea to hold a pre-
conference between the House and the Senate, what I think we're 
now calling 602(b) limits. We used to call them 302s. The 
process has become a way to game the system, that is to gun up 
limits on appropriation subcommittee one through six in the 
House and seven through thirteen in the Senate. Then when the 
top members of all subcommittees are enacted, it is a surprise. 
The total is over the budget. I think that would be helpful in 
adding discipline.
    Mr. Chairman, if I had really known how to do it, you 
wouldn't be holding this testimony today, because I would have 
done it. But it ain't all that easy, I wish you lots of luck. I 
hope you are successful.
    Again, finally, let me say, I hope you build on the 
extension of PAYGO and the discrete caps and discretionary 
spending, and try to put in as much of this reform as you 
possibly can do, knowing that you're not going to be able to 
make any system that will make the herd here totally 
manageable. Congress is still going to do what it wants to do, 
and that's why it was invented.
    Thank you, Mr. Chairman, thank you, Mr. Spratt.
    [The prepared statement of Mr. Frenzel follows:]

   Prepared Statement of Bill Frenzel, Co-Chairman, Committee for a 
   Responsible Federal Budget, and Former Ranking Republican, House 
                        Committee on the Budget

    Mr. Chairman, Mr. Spratt, and members of the committee thank you 
for the opportunity to testify today. I would like to open with a quote 
from the 1967 President's Commission on Budget Concepts.
    ``The budget is the key instrument in national policymaking. It is 
through the budget that the Nation chooses what areas it wishes to 
leave to private choice and what services it wants to provide through 
government * * * Budget formulation is a highly political exercise in 
the American democratic system, and it should not be otherwise. It is 
therefore essential that the budget be understandable, at least in 
broad outline, to as many of the public and their elected 
representatives as possible.''
    Winston Churchill described the Soviet Union as a riddle wrapped in 
a mystery inside an enigma. The budget process is not that opaque. 
Neither, however, does it meet the standards of transparency and 
universality that should be hallmarks of good public sector budgeting 
practice. The current process is outcomes-driven, i.e., it is designed 
to reduce deficits and balance the budget. The process should be 
redesigned to make it more outcomes neutral and to promote political 
    The Committee for a Responsible Federal Budget published a report 
on budget process reform just over a year ago. We have provided copies 
of that report for all members of your committee and for the press. 
Anybody who wants more copies can get them from our offices. I shall 
not take time today to reiterate all that report says and recommends. 
Rather, I shall highlight our most serious concerns and summarize our 
group's recommendations.
    Comprehensive, honest budgets promote accountability. Sound budget 
process promotes fiscal discipline. When politicians cannot agree on 
policy they tend to fall back on budget process. But no process can 
compel consensus and no process is impervious to political leaders 
determined to avoid budget discipline.
    The Congressional budget process has succumbed to an all too human 
tendency. As soon as you write rules, people tend to bend and break 
them. When you build fences and fail to tend them, people will find 
ways to breach them. So many rules and concepts have been bent, broken 
or abused that the total damage to the process is greater than the sum 
of the parts. As a result, even well intention and, well-informed 
people have difficulty understanding the budget today and our broad 
public policy debates suffer as a consequence.
    There are two big problems in the current budget process.
    The first problem is caused by surpluses. Surpluses are not the 
problem. But a process designed to ensure that policy actions do not 
increase the deficit can be frustrating in the current surplus 
    The budget process must accommodate changing priorities. If it does 
not, eventually it will break down.
    The existing process is heavily biased toward deficit reduction. 
Barriers to amending enforcement provisions probably are higher than 
they ought to be. As the budget has shifted from deficits to surpluses 
some question the need for continued fiscal restraint. As surpluses 
grow, political leaders become frustrated with rules they perceive to 
be unrealistic.
    There are, however, problems unrelated to deficits or surpluses. 
For example, the use of creative definitions has hampered our ability 
to measure the size of the Federal sector relative to the overall size 
of the economy. Revenues are considered negative expenditures. Tax 
credits mask spending entitlements. Current definitions and budget 
concepts do not inform analyses, as they ought to do. Congress and the 
President seem to spend an inordinate amount of time on budget-related 
matters but they never agree on an overall fiscal policy plan for the 
national government.
    Since 1990, caps have acted as a reasonably effective constraint on 
discretionary spending. But Congresses and Presidents tend to brush 
aside caps that they consider to be unrealistic. Because entitlements 
have grown so rapidly, growing discretionary appropriations represent a 
shrinking part of the budget pie, thus whetting appropriators' 
appetites. PAYGO acts as a break on new entitlements and revenue 
reductions. But there is no effective limit on direct spending or 
revenue losses under existing laws and there can be no effective bar to 
Congressional majorities and Presidents determined to use part of the 
surplus for new/expanded tax cuts and direct spending.
    Tax expenditures that walk, talk and look like expenditure programs 
understate both revenues and expenditure. Refundable tax credits, on 
the spending side of the budget, are hard to distinguish from other 
entitlement programs. Netting, i.e., subtracting income from 
expenditures at the account level for selected programs and showing the 
net figure as programs outlays understates costs and distorts the 
budget picture.
    The Committee for a Responsible Federal Budget has made budget 
process a priority for the entire twenty years that we have been in 
business. In the last 5 years, we have worked closely with groups 
inside and outside government to develop specific recommendations for 
reform. The most important of those recommendations is a Joint Budget 
    Congress and the President should agree on fiscal policy goals, 
i.e., aggregate revenues, expenditures, surpluses or deficits, debt 
levels or debt reduction targets, etc, and incorporate those agreements 
in a Joint Budget Resolution (JBR). The JBR should include enforceable 
expenditure limits for discretionary and direct spending. If political 
leaders are unwilling to establish hard limits for entitlement 
spending, the JBR should at least contain targets for major direct 
spending categories. That would provide guidelines to judge whether and 
by how much actual outlays exceeded or threatened to exceed budget 
    Other recommendations for reform are spelled out at the beginning 
of our report. They include the following:
    PAYGO discipline should be maintained. The sooner new limits are 
enacted, the more disciplined the budget process will be. Congress and 
the President should include limits on the amounts of any projected 
surpluses available to offset new entitlements/revenue reductions. 
Legislation that would commit surpluses in excess of the amounts 
contained in the budget should be subject to PAYGO rules and, if 
enacted, trigger sequestration.
    We favor a biennial cycle for budgets, appropriations and revenue 
legislation. That could free up time for congressional oversight and 
serious attention to authorization legislation.
    An automatic continuing resolution, at or below the level of the 
caps contained in the most recently enacted budget resolution, should 
provide stop-gap funding in the event that Congress and the President 
fail to reach agreement on some or all regular appropriations bills. 
Automatic continuing resolutions should be very restrictive. If 
sufficiently restrictive, they could create compelling incentives for 
Congress and the President to agree on and enact regular appropriations 
    Notwithstanding the disposition of the President's recommended 
reserve funds this year, sound budget practice suggests that you set 
aside a ``rainy day'' fund. Regularly recurring emergencies surprise no 
one except the Congress. Coupled with reasonable limits on emergency 
spending, the ``rainy day'' fund could help make budgets more realistic 
and enforceable.
    This sounds obvious, but the budget should distinguish clearly 
between spending and receipts. There should be very strict limits on 
receipts scored as negative outlays. Activities that have all the 
characteristics of spending programs should not be scored as tax 
expenditures. There is a difference between spending and taxes and 
budgetary presentations should distinguish clearly between the two.
    You should enact enhanced rescission legislation to take the place 
of line item veto. The Supreme Court having declared item veto to be 
unconstitutional, Congress and the administration still should do all 
you can to strengthen the President's hand to curb wasteful and 
unnecessary spending.
    It is time for Congress and the President to revisit some basic 
budget concepts. We highly recommend that you set up a commission to do 
so. If you do not, we fear that you will find current concepts woefully 
inadequate when you move to consideration major reforms in huge 
programs such as Medicare and Social Security.
    For example, Medicare Part ``B'' premiums are treated as negative 
outlays in the budget. As a result, any Medicare reform that relies 
more heavily on private intermediaries than the current system will be 
sorely disadvantaged due to budget scorekeeping.
    A concepts commission is the best approach to resolve technical 
issues and address new issues as they arise. A new concepts commission 
should meet at regularly scheduled intervals-perhaps every 10 years or 
    We bring you two additional recommendations today that go beyond 
those included in our report.
    The House needs a permanent Budget Committee and the House and 
Senate Appropriations Committees should agree on subcommittee 
    Senate Budget Committee members stay on the committee and accrue 
seniority as they do on other standing committees. House Budget 
Committee members rotate. This puts the House at a disadvantage vis a 
vis the Senate.
    Senate Members develop institutional memory and loyalty to the 
committee and the process. House members do not. That can only hurt the 
House in conference. Changing to a permanent House Budget Committee 
would be good for the institution and it would tend to strengthen the 
budget process. We believe both are laudable goals.
    The Appropriations Committees are the only House and Senate 
committees with exactly similar jurisdictions and identical budget 
allocations. Also, they are the only committees that receive 
allocations every year for spending in the jurisdiction of several 
subcommittees and for many different purposes.
    Expenditure allocations to other committees almost always are for 
specific programs or purposes and everyone knows what they are. Even 
though allocations for the same program go to different House and 
Senate committees, therefore, there is little chance that the money 
will be divided differently to cover different purposes in the two 
    Not so with Appropriations. The House Appropriations Committee may 
give more money to subcommittees 1 through 6 and the Senate committee 
may give more to subcommittees 7 through 13. Each subcommittee (quite 
reasonably) believes that it can spend up to their allocation. The 
tendency, therefore, is for conferences between the two bodies to 
settle on amounts at least equal to the higher of the House or Senate 
subcommittee allocation. This tends to undermine budget discipline. It 
could be remedied by having the Appropriators conference their 302(b) 
allocations before they file with the Clerk of the House and the 
Secretary of the Senate respectively.
    Mr. Chairman, this concludes my testimony. I would be happy to 
address any questions that members of the committee may have.

    Chairman Nussle. Thank you.
    Next we will hear from Chairman Bob Livingston. I hope you 
understand, Mr. Chairman, that by being here today, the 
Appropriations Committee is finally acknowledging the presence 
of the Budget Committee. [Laughter.]
    Mr. Livingston. But you have to understand, Mr. Chairman, I 
am retired. [Laughter.]
    Chairman Nussle. Oh, well, I was close then. But we 
appreciate your presence here today and we welcome you to 
provide us with your thoughts on the budget process. Welcome.


    Mr. Livingston. Thank you very much, Mr. Chairman. 
Congratulations on your chairmanship, and members of the 
committee, it's a pleasure to be here, especially with my 
friend Bill Frenzel and Bob Reischauer.
    Five minutes is a short time to cover these subjects, but 
let me simply say that I have always had misgivings about the 
length of time that the Congress on the floor works on budget 
issues. I would like to see a much more compact, concise 
process, not to oversimplify what you do, because I think what 
you do is absolutely critical to the fiscal health of the 
government, and in turn, the fiscal health of the country.
    But I think it's the process, not the substance, that needs 
addressing and can be improved upon. And I congratulate you for 
holding these hearings. I would say also, that I quarrel with 
the premise that Congress needs to worry about the impact of 
any law 10 years out into the future. As you well know, Mr. 
Chairman, things change day to day around here. And Congress 
has the power, with the consent of the President, to change the 
law momentarily if we have a crisis. To project budget impact 
10 years from now, is frankly, a joke.
    I was opposed to it at 5 years, and then we went to 10 
years. Frankly, I think that was just an evolution because it 
meant something at some time that we've adopted as sacrosanct 
and I think it needs to be changed.
    Really, to do things realistically for this country, we 
need to project out two or 3 years. Do we need to know what's 
going to be the impact 20 or 30 years from now on Social 
Security or Medicare? Of course we do. But that doesn't mean we 
need to guide our daily fiscal affairs by projecting out to 
then. Because life is going to change. You've got to expect 
that. Let's keep our attention focused on what happens now and 
over the next couple of years.
    In addition, clearly the appropriations process needs 
adjustment. I think that in order to get to that adjustment, 
the Budget Committee should keep its process short and concise, 
give the Appropriations Committee their marching orders, set 
the cap we're going to have to serve under, and let them abide 
by it or not. If they don't, then we face the consequences 
later on.
    But today, you've got such a hair brained process; by the 
time you get through the 13 appropriations bills, continuing 
resolutions, omnibus spending bills, and emergency spending 
bills that come up that invariably break the caps anyway, 
there's no common thread of rationality in the process. And we 
really do need to bring about some sort of process that's not 
only understandable for the key Members of Congress, but to all 
Members of Congress, to all the public in general, so that 
there is credibility in running the fiscal affairs of the 
    There has been a phenomenon, Mr. Chairman, in the budget 
process, that needs to be addressed. If the gentleman over here 
will pull that first chart. What we don't recall is how things 
appear today versus how they were back in 1962. I used to walk 
around with my pie charts that illustrated this point, and I 
can't escape an opportunity to talk about them again, because 
it is a point that needs to be addressed.
    Mandatory spending in 1962, in the middle of Jack Kennedy's 
presidency, was 26 percent of the budget. Interest was 6 
percent of the budget, and discretionary spending, which we 
spend most of the year talking about in this Congress, then was 
68 percent of the budget. There was cause for spending time on 
the discretionary budget with all these multiple bills and 
conflicts that we have back in 1962.
    But if you'll pull that next chart; I don't have the pie 
chart for 2001, but this is it for 2000. Look at the changes, 
Mr. Chairman. Interest has grown from 6 percent to 12 percent, 
and I think we're addressing that, finally, by getting the 
surplus back after some 40 years. But mandatory spending has 
grown from 26 percent to 54 percent of the budget and 
discretionary spending has shrunk from 68 to 34 percent.
    Now, Congress spends all of its time accusing the 
appropriators of spending too much or spending too little. By 
the way, let me not lose this opportunity to say, you guys 
don't work long enough on regular days. How many people are 
here? Where are they? They're in other committee hearings. Why 
are they in other committee hearings? Because this is the only 
time you can hold a committee hearing; on a Thursday morning or 
a Wednesday morning, because Members don't come in until 
Tuesday night, and leave town on Thursday afternoon.
    Now, what other operation in the entire Nation operates 
that way? Mr. Chairman and Members, come and do what we used to 
do 20 years ago. Members of Congress should come to work on 
Monday afternoon, discuss things, have votes all day Tuesday, 
all day Wednesday, all day Thursday, leave Friday afternoon. 
Then you can get some committee hearings done. Once you have 
the committee hearings, then you can provide oversight. Because 
what is lacking in the Federal budget most of all, if you take 
all the rest of the stuff that we talk about and put it on the 
side, the one purpose that Congress has in the fiscal process 
of the United States is to provide oversight. And if we don't 
have time for oversight, if we don't have hearings for 
oversight, if we don't come to those hearings for oversight, 
then you can just talk all you want, because none of the rest 
of the process means anything and the buisness of Congress 
doesn't get done.
    In the final analysis, I would say that Congress needs to 
prioritize. We need to spend more money on the good programs, 
and eliminate or reduce the bad programs. And you can't do that 
if you don't have hearings. You can't do that if you don't come 
to hearings. You can't do that in a process that is not 
understandable. And you can't do it if you're wasting your time 
debating on issues that don't matter.
    So as I say, 5 minutes is a very short time. I would say 
simply that you've got to change the process, you've got to get 
the mandatory programs under control. If there is no oversight, 
no discussion, no attention to mandatory spending, which has 
now gotten to be 54 percent of the budget, except for a hearing 
on it once in a while, every few years.
    And what are we hearing now? ``Lockboxes'' are the 
solution. Thankfully, that's gone. I mean, that was a gimmick 
that didn't work. Now we're going to biennial budgets. What do 
biennial budgets do? Biennial budgets say, ``Well, we're not 
doing a good enough job paying all of our attention every day 
on appropriations every year, so we'll not do a good enough job 
paying not enough attention to the budget every other year.'' 
That's the ``Manana syndrome,'' Mr. Chairman. That means, we 
can't fix it doing the process today and tomorrow, so we'll 
just fix it tomorrow.
    The process needs attention. It needs common sense. It 
needs consolidation. And you've got to remember what the 
priority is. The priority is to spend more money on good 
programs and less money on bad programs and figure out how 
you're going to do that. If you're not going to do that, then 
Congress can set up shop back in their districts and tell 
people what a good job they're doing in constituent relations, 
because they might as well not be here.
    Thank you.
    [The prepared statement of Mr. Livingston follows:]

  Prepared Statement of Hon. Robert L. Livingston, Member of Congress 

    Mr. Chairman and members of the committee, it is a pleasure for me 
to return to these historic and familiar surroundings to appear before 
you on the issue of the budget. I deeply appreciate the invitation to 
appear, and welcome the opportunity to join my long time friend and 
colleague, Bill Frenzel, with a little insight into the mysteries of 
this all-important process.
    As a former Member of Congress for 22 years, a member of the 
Appropriations Committee for 19 of those years, and as the chairman of 
that committee for 4 years, I have some strong views on the process, 
some of which might be worth heeding, and others which likely belong in 
the circular files of other long forgotten testimony.
    But for whatever its worth, let me say that I have long felt that 
far too much attention is spent in a calendar year on the budget. I 
truly believe that the issue of the budget need not cover a span of 10 
years, or even 5 years, since conditions in the country change so 
rapidly, that predictions today are often overridden in 6 months, let 
alone 5 or 10 years. Analyses of tax bills and appropriations based on 
such long term outlooks are generally not worth the paper they are 
written on, since when things go awry, Congress can always rally and 
change the premise on which they are written in a matter of days, weeks 
and most certainly months, without regard to the rationale for previous 
legislation. Budgets should be projected for 2 or 3 years at the most; 
beyond that, nothing really matters.
    I have frequently joked that to set a budget for the government, we 
need only spend a couple of hours assessing: A) How much did we raise 
last year; B) How much did we spend; C) How much do we expect to raise 
this year; and D) How much of that (or more) do we want to spend? Then 
let the Ways and Means and Appropriations Committees confine themselves 
to the amounts expected of them, and be done with it. Now I realize 
that this is a gross simplification of the necessary process, but not 
that gross, and not really that far from reality.
    Assuming for the sake of argument that this will not be the order 
of process anytime in the near future, then there are some other rules 
that I think are worthy of consideration. One important one is the need 
for reconsideration of the whole process.
    Congress passes 13 appropriations bills, and some odd number of 
continuing resolutions, Omnibus spending bills, and emergency spending 
bills every year. The Budget Committee, the press, and the opposing 
political parties spend billions of man-hours condemning the 
Appropriators for either spending too much or too little.
    But when one considers that the appropriations process only governs 
the discretionary portion of the budget, and that that portion has 
shrunk from over 2/3 of the budget in the early 60's, to less than 1/3 
of what the government spends today, something is woefully wrong. 
Entitlements, those programs which have become for whatever reason, 
some good and some worthless, entrenched and eternally engraved in the 
process without review or diminution, are slowly consuming all 
available cash in the Federal budget. When the rest of the world argues 
over small portions of the discretionary budget, they are in essence 
quibbling about angels on the head of a pin, instead of striking at the 
heart of budget imbalances. The real threat to the long-term fiscal 
stability of the United States is not the Appropriated Discretionary 
Budget, which is shrinking as a percentage of the whole pie while it is 
interminably scrutinized every year, but rather those entitlement 
programs, which are locked in and are rarely if ever scrutinized or 
reigned in.
    That being said, the discretionary budget is not without it faults, 
and can most certainly be reduced in a bipartisan fashion, where 
Congress goes on a witch-hunt for truly inoperable, wasteful, 
unnecessary, unproductive, redundant programs. And they are everywhere. 
Do we really need 200 drug programs, or almost 500 education programs, 
or thousands of other programs, which do little for American citizens 
other than select special interests and lobbyists who support them? I 
think not, but it takes the collective will of Congress in bipartisan 
fashion to weed out those programs and eliminate them, or they will 
surely never be eliminated. That's too bad, because by their 
continuation, less money is available for the truly necessary, 
productive and helpful programs, of which there are many indeed.
    Cutting the budget across the board by restraining overall numbers 
is counter-productive to the growth and survival of truly necessary 
programs, since the good get cut with the bad. Conversely, raising 
spending limits without prioritizing the increases does nothing for 
efficiency, and again, the bad programs prosper, to the detriment of 
the good ones. I will not in this discourse single out programs which 
are good or bad to be cut by Congress, for that is the role of the 
Congress, with or without the concurrence of the President, since the 
Constitution endowed Congress with the power of the purse for the 
Nation. But without proper oversight of individual programs, whether 
discretionary or mandatory, adequate prioritization cannot be had, and 
efficiencies in the budget process are unattainable. Seek out the 
wasteful programs and repeal them! That is the only way to get the 
process under control!
    I have never been a proponent of gimmicks, like biennial budgets, 
lockboxes, and other gimmicks, which keep Congress from asserting 
priorities in the spending process. Biennial budgets are proposed by 
those who think we spend too much time on the appropriations process. 
But that process is one of oversight, and if we don't do it in one way, 
we'll have to invent another to do the same thing. By not appropriating 
every year, do we really think there won't be emergency supplementals 
to cover the additional costs incurred by a society as complex as our 
own? And if you make a process for appropriating every 2 years, what 
makes you think the Congress will hold the hearings that must be held, 
especially when there are no deadlines to meet. And if they don't hold 
hearings, how do they ever weed the productive programs from the 
nonproductive? The truth is that by trying to solve a much more complex 
problem by waiving a wand and saying that instead of working on it 
every year, we will work on it only every other year, Congress will be 
lapsing from indolence to wholesale irresponsibility. ``We can't fix it 
today, so we'll fix it tomorrow!'' is the quintessential ``Manana'' 
approach, and it won't work.
    The ``lockbox'' is another idea to avoid doing what is essentially 
the job of Congress to set priorities. Putting money aside in the midst 
of the appropriation process only prevents the negotiators in the 
appropriations process from exerting the leverage they need to confect 
deals that may in fact lead to curtailing spending.
    There is one major exception to this rule that I not only support; 
I helped start it. That's the concept of a ``lockbox'' for Social 
Security and Medicare. In effect, the ``lockboxes'' are meaningless, 
since there is no real tangible account into which money is poured to 
provide for benefits for our elderly populations. But from 1969 until 
the surpluses began in about 1997, the government had no concern for 
the IOU's it was racking up in these programs, and receipts from these 
programs were used to offset existing spending demands without regard 
to the future. Only in 1999, did the Congress say, ``Enough!'' and 
begin setting aside enough of the surplus so that programmatic receipts 
were no longer flowing in to the abyss of the Federal debt. Now, 
Congress is rightly concerned that those programs not be shoved further 
into the degree of insolvency they were facing only a few short years 
ago. But to hear some Members cry about the threat to the sanctity of 
the programs when for 30 years they were not especially concerned with 
the excessive spending habits of Congress and it's impact on those 
programs is somewhat amusing.
    In keeping with the sentiment for saying what I support, as well as 
what I oppose, let me say that I think it would be most helpful to 
change the budget blueprint from a concurrent resolution to a joint 
resolution which would require the President's signature. By having the 
President be a party to the annual overall budget plan, Congress would 
avoid the potential for vetoed bills and continuing resolutions. The 
process would require some strict limits against the President or 
Congress imposing too high a level of detail in the budget plan, but if 
set forth in general but definitive terms, and approved by both 
legislative and executive branches, the process would become binding, 
and the chances for subsequent disputes would be minimized.
    And, that brings me to the final, and I would think obvious point 
that unfortunately has proven the exception rather than the rule over 
the last 50 years. That is the simple dictate that Congress should to 
the best of its ability live within its means, and should in turn 
govern the country in like manner. In a budget running into the 
trillions of dollars, that has only been thought possible in the last 
few years, but we now see that it is possible, and in fact is 
happening. But it's terribly important to get the budget process under 
control through legitimate reform if we are to stay that way. If the 
process is not reigned in, we will be most certainly looking at 
billion, nay, trillion dollar deficits in the future. That would be 
disastrous for our children and their children, so I pray that does not 
happen, and I wish you all much luck. Thank you.

    Chairman Nussle. The Sergeant at Arms has been notified----
    Chairman Nussle [continuing]. And he is in the process of 
rounding up all the Budget Committee members for their 
compulsory attendance.
    Thank you. You were on a roll. I wasn't going to stop you, 
no way. We really appreciate your testimony. I'm sure members 
will have questions and you'll be able to amplify. Maybe that 
wasn't the right word, but----
    I appreciate your testimony and I, too, am frustrated by 
some of the quick fix ideas that are out there. I appreciate 
your dose of reality.
    Mr. Reischauer, see if you can top that.


    Mr. Reischauer. Well, I won't even try, Mr. Chairman. As I 
was listening to Bob Livingston speak, I realized that things 
were getting too animated and interesting for a process 
hearing. [Laughter.]
    So my challenge will be to bring us back down to the level 
which you led the audience to expect. I do appreciate the 
opportunity to participate in this hearing, and I'd like to 
commend you, Mr. Chairman, for the interest that you've shown 
over the years in the cause of rationalizing and strengthening 
the budget process.
    As Mr. Frenzel pointed out, some important components of 
the current procedures expire at the end of the next fiscal 
year, and therefore, Congress is going to have to decide soon 
whether to tune up and extend the process that we now have, or 
to come up with an entirely new set of procedures that involves 
some more fundamental reform. I for one would opt for the 
latter course in large measure because the current procedures 
were conceived of and implemented in an era of persistent and 
large deficits. They had as their stated objective balancing 
the unified budget and we achieved that a number of years ago, 
and in a sense, it's an irrelevant fiscal objective at this 
    We have entered into a new era, and it is an era in which 
few budget experts believed was it possible as recently as 4 
years ago. If you had come to me and tried to get a bet that we 
would balance the budget, the unified budget, let's say in 
1997, I would have given you pretty good odds against meeting 
that goal. If you had come to me and said, I think within the 
next 5 or 6 years, we're going to have balance in the non-
Social Security part of the budget, I would have given you the 
odds of the Maryland lottery.
    But here we are in a situation that no person outside of 
St. Elizabeth's would have thought possible 5 years ago. What 
we need is a budget process that reflects the budget reality 
that we live in right now, and that really requires, I think, 
some more fundamental reforms.
    I do believe that there are many elements of the 
Congressional Budget Act and the Budget Enforcement Act that 
should be retained and modernized. But we really do need more 
than simply an extension and updating of the discretionary 
spending caps, revision of the Pay-As-You-Go rules, and some 
redesign of sequestration. I've suggested in my prepared 
statement and elsewhere that budget process reforms should 
include two important steps.
    The first of those is a clear articulation of the fiscal 
goal that the process is designed to achieve. Are we trying to 
achieve or maintain balance in the unified budget, as was the 
case with the BEA and the Gramm-Rudman-Hollings procedures? Are 
we trying to maintain at least a balance in the non-Social 
Security portion of the budget? Or are we trying to achieve 
some more difficult objectives, like using Medicare and Social 
Security surpluses for debt repayment and balancing the 
remainder of the budget?
    Whatever fiscal goal Congress decides is appropriate, a 
second important component of a reformed budget process is the 
establishment of a set of procedures that relates to the 
disposition of resources that are in excess of the fiscal goal. 
If we decide that what we want to do is maintain a balance in 
the non-Social Security portion of the budget, what rules 
should govern the excess resources that are projected in the 
    I have suggested in my prepared statement that it might 
make sense to set an allowance for each incoming Congress that 
would consist of a declining percentage of the projected excess 
amounts, so that the current Congress would be able to pass 
legislation, tax and spending legislation, that would absorb 80 
percent of the excess surplus over the next 2 years, 70 percent 
of the surplus over the following 2 years, on down to the 9th 
and 10th year, for which 40 percent of the surplus would be 
available for disposition. When the Congress comes in 2 years 
from now, it would have a new allowance provided to it.
    Let me end by reiterating something that Congressman Price 
mentioned in his opening remarks, and that is that the budget 
process is a consensual set of rules that can't force members 
or parties to go against the political forces that they face. 
While we might have great visions of what a rational budget 
process might look like we have to temper those visions by the 
reality that this is a political process, embedded in a 
political institution, and the rules, if they deviate too far 
from that reality, will end up being ignored as they have in 
the last several sessions of Congress.
    I will end on that note. I'll be glad to answer questions 
relating to joint budget resolutions, biennial budgeting, 
automatic CRs and the like. Unlike Mr. Frenzel, I think 
virtually all of these reforms would not be a step in the right 
direction. Thank you.
    [The prepared statement of Mr. Reischauer follows:]

   Prepared Statement of Robert D. Reischauer, President, the Urban 

    Mr. Chairman and members of the committee, I appreciate this 
opportunity to discuss with you the need for structural reforms in the 
Federal budget process. For the past decade, Congress and the executive 
branch have been operating under a complex and confusing amalgam of 
procedures established by the Congressional Budget and Impoundment 
Control Act of 1974 (CBA), the Balanced Budget and Emergency Control 
Act of 1985 (Gramm-Rudman-Hollings or GRH), and the Budget Enforcement 
Act of 1990 (BEA). While these procedures have helped transform the 
large and seemingly intractable budget deficits of the past into 
significant surpluses, they have been abused, misused, ignored and 
circumvented in recent years.
    With the budget outlook better than it has been in generations and 
various provisions of the current process set to expire at the end of 
fiscal 2002, now is an appropriate time to review the efficacy of the 
current procedures. Should the expiring provisions be allowed to lapse, 
extended in their current form, or renewed in some revised 
configuration? Alternatively, would some entirely new procedural 
approach better serve the Nation's interests in the new budget 
    In an effort to help Congress address these questions, my 
     Describes a few of the major dimensions of an effective 
budget process;
     Discusses some limits on what we should expect the budget 
process to accomplish; and
     Lays out a new framework that, I believe, would better 
serve the needs of the Nation in the future.


    A well functioning budget process provides a framework for making 
decisions about the appropriate levels and allocations of scarce 
government resources, the ways in which those resources are raised, and 
the degree to which fiscal policy stimulates or restrains the economy. 
It should establish the order in which various participants act; set 
out the limits of their actions; provide mechanisms to enforce 
decisions once they have been made; and spell out clearly the 
circumstances under which the process can be waived.
    In democracies like that of the United States where the executive 
and legislative branches are elected independently, the budget process 
must command widespread support if it is to be effective. When it 
doesn't, one party, legislative chamber or branch of government can and 
will easily circumvent, paralyze, or game the process. This occurs 
because few outside the Beltway understand or care much about the 
process and so rarely do those who flout procedures pay a significant 
political price. Recently, we have experienced the consequences of an 
erosion in support for the budget process.
    An effective budget process must also be aligned with the Nation's 
fiscal policy goals. The objective which our current procedures were 
designed to achieve a balanced budget has been realized and, as a 
result, the process recently has become somewhat disconnected from 
reality. The difficulty lawmakers have had adhering to the 
discretionary spending caps established by the BEA illustrates the 
problems that can arise when a disconnect develops between the goals 
the process is designed to pursue and the fiscal reality.
    An effective budget process should also encourage transparency and 
honesty. Dollars, the metric of budgets, are malleable and elusive. 
Revenues, program costs and savings can be hidden or exposed, minimized 
or exaggerated, delayed or accelerated. As much as possible, the budget 
process should make it difficult to distort reality in these ways.
    Given the diverse scope of government activity, it is inevitable 
that dollars will be used to measure actions that have quite different 
fiscal consequences. A budget process must try to create a conversion 
system that strives for fiscal equivalency. Yet, such a system cannot 
be so divorced from the numbers used in day to day discussion that it 
becomes incomprehensible to all but the budget experts. The credit 
reform system adopted as part of the BEA represented a significant 
accomplishment of this sort.
    While budgeting is an annual process, the consequences of 1 year's 
budget decisions invariably extend far into the future. For this 
reason, an effective budget process must reveal, in as objective a 
fashion as possible, the most likely long-run fiscal impacts of current 
decisions. The process surrounding consideration of the Economic Growth 
and Tax Relief Reconciliation Act of 2001 was an egregious example of 
failure to follow this tenet.
    Because the environment in which budget decisions are made is fluid 
and unpredictable, flexibility is an essential characteristic of any 
sustainable budget process. The economic outlook can change abruptly. 
Elections, natural disasters, the weather, and international crises can 
suddenly cause significant shifts in National priorities. An effective 
budget process must be able to adapt to the unexpected while at the 
same time not appearing too malleable or capricious. But even an 
appropriately flexible budget process should be reviewed critically at 
least once a decade. While a flexible process may be able to evolve 
through incremental modifications to accommodate changing circumstances 
and new priorities, there may be some completely different approach 
that would better serve the Nation's interests.
    These and other characteristics of an effective budget process 
often are in conflict. Tradeoffs inevitably must be made. Simplicity 
and transparency sometimes must be sacrificed to obtain a greater 
degree of fiscal equivalency or equity. Flexibility can undermine 
discipline. And the desire for full discussion of the issues can 
conflict with the need for timeliness.


    Budget procedures are not laws of nature or constitutional 
strictures. They are the rules and conventions by which lawmakers agree 
to play when they consider the budget. They are the road markers and 
speed limits on the fiscal highway. As such, they will be violated when 
the benefits of doing so exceed the costs and when no one is paying 
much attention in other words, when budget issues are not in the center 
of the political debate.
    Because budget procedures are intended to guide the behavior of 
elected officials, it is important that they be compatible with the 
political pressures and constraints lawmakers face. No process can ask 
lawmakers to make decisions that will cost them their jobs. The budget 
process must also fit within, not attempt to change, the larger 
institutional structures within which lawmakers work.
    Because lawmakers have a very imperfect ability to control budget 
outcomes spending, revenues, and the budget balance the budget process 
should not hold them strictly accountable for budget outcomes. This was 
one fundamental flaw in the Gramm-Rudman-Hollings procedures which 
imposed sequestration if specific deficit targets could not be 
achieved, even if the failure was the result of a weather-induced surge 
in farm price supports or a revenue shortfall associated with a slowing 
economy, developments over which elected officials have no control.
    No budget process can force agreement. At best, procedures can 
facilitate and create an environment conducive to agreement and provide 
some political protection for those who must make the difficult 

                      TOWARD A NEW BUDGET PROCESS

    Congress must consider whether to tune up and extend the existing 
budget process or turn to some new approach for the future. I recommend 
that you develop a new approach, one which is specifically designed for 
today's improved fiscal environment, rather than the era of persistent 
    No matter which course is taken, the first challenge must be to 
agree on the fiscal goal for the procedures that will guide future 
budgeting. When the Congressional Budget Act was enacted, there was, at 
most, a very weak consensus that the budget should be balanced over the 
business cycle. Reflecting this ambiguity, the new process was 
structured to be neutral with respect to the fiscal outcome. It did not 
favor a balanced budget or any other fiscal result. Instead the 
objective of the process was to ensure that Congress both could 
evaluate the consequences of different fiscal outcomes and had the 
tools it needed to fashion a budget, independently of the executive 
branch, that would produce the fiscal result it wanted.
    In the 1980's when a bipartisan consensus developed that large and 
persistent deficits were a serious National problem, balancing the 
unified budget became the explicit objective of the budget process. The 
Gramm-Rudman-Hollings procedures launched a frontal, but unsuccessful, 
assault on the deficit by requiring annual decrements in the deficit 
until a balanced budget was attained in fiscal 2001. The Budget 
Enforcement Act's approach was more subtle. It placed procedural 
hurdles in the path of those who would renege on the spending cuts and 
tax increases that were embodied in the multi-year deficit reduction 
packages that Congress and the President agreed to in 1990, 1993, and 
1997. Nevertheless, the underlying objective of the BEA procedures was 
to achieve balance in the unified budget.
    When the unified budget first registered a surplus in fiscal 1998, 
the goal of the process was no longer aligned with the reality of the 
budget. Because the budget had gone from deficit to surplus so quickly 
and unexpectedly, there was no time for a consensus to develop around a 
new fiscal objective. Frozen by a sense of disbelief over the Nation's 
rapidly improving fiscal fortunes, paralyzed by partisan disagreements 
over priorities and constrained by the BEA's procedures, legislation 
that could have dissipated the emerging unified budget surplus was not 
enacted and an even more unexpected situation developed surpluses 
appeared in the government's on-budget accounts starting in fiscal 
    Looking ahead, Congress must now decide whether the budget process 
should have an underlying fiscal objective and, if so, what that goal 
should be. One option is to return to that of the pre-1985 process 
which was neutral with respect to fiscal outcomes. That process, which 
was formulated at a time when public debt amounted to only 24 percent 
of GDP and there was not full understanding of the burden that the baby 
boom generation would impose on the retirement programs, would probably 
not command much support today. Many would fear that the competition 
for votes in the current political environment, in which neither party 
has a firm or assured majority in either chamber, would lead to an era 
of fiscal profligacy if there were no clearly articulated fiscal goal.
    Another option is to reaffirm the goal underlying the current 
process which is to attain and maintain balance in the unified budget. 
This goal would accommodate the many priorities that the President and 
Members have advocated over the last 6 months including increased 
spending for defense, education, agriculture and Medicare prescription 
drugs; further reductions in taxes; and added resources to seed private 
accounts in a reformed Social Security system.
    A third option, one that has garnered the most support at the 
rhetorical level, is to establish as the goal of the process 
maintaining a fiscal balance in the government's operating budget while 
saving the annual surpluses generated by the retirement programs for 
which the Federal Government faces unfunded future liabilities. At a 
minimum, this involves using the Social Security surplus to pay down 
public debt; at the maximum, it involves using the surpluses in the 
Medicare Hospital Insurance (HI), military retirement, and civil 
service retirement programs to retire public debt.
    To the extent that there exists a consensus in Congress about the 
appropriate fiscal objective, it appears to include devoting both the 
Social Security and HI surpluses to debt reduction while attaining at 
least a balance in the government's other accounts. By overwhelming 
bipartisan majorities, the House of Representatives endorsed this 
position in each of the last 3 years (H.R. 1259, May 26, 1999; H.R. 
3859, June 20, 2000; H.R. 2, February 13, 2001). And some support for 
the Fiscal 2002 Budget Resolution was conditional on assurances from 
the managers in both the House and the Senate that the resolution did 
not violate this fiscal goal. The Bush Administration, however, has 
explicitly rejected this fiscal goal but has conditionally endorsed the 
goal of saving the Social Security surplus and maintaining a balance in 
the government's non-Social Security accounts.
    No matter what particular fiscal objective is adopted, any new or 
revised budget procedures should establish rules to govern actions when 
the fiscal objective has been exceeded or is projected to be exceeded 
in the future. This represents a new challenge. Few of the architects 
of the GRH and BEA legislation ever expected to live in an era of 
comfortable unified budget surpluses. However, that has been the 
reality for the past 4 years. And the January 2001 CBO projections 
clearly show that, under baseline assumptions, a long period lies ahead 
during which any of the fiscal policy objectives I have discussed would 
be exceeded. While the tax cut and the other promises made in the 
budget resolution and the weakening economy have changed the short run 
outlook, it is highly likely that policymakers will find that future 
budget projections show considerable fiscal flexibility five to 10 
years out.
    Considering this possibility, any reform of the budget process 
should address the question: When and how should amounts in excess of 
the fiscal goal be dissipated? There are two strong arguments for 
establishing procedures that sharply limit lawmakers' abilities to 
dissipate projected excess amounts. The first is the inherent 
uncertainty of budget projections, particularly projections that depict 
conditions more than two or 3 years in the future. If lawmakers enact 
tax cuts and spending increases now that absorb all of the excess 
amounts projected for the future, later on if the economy does not 
perform as expected or if entitlement programs grow more rapidly than 
projected they could be forced to choose between approving painful tax 
cuts or spending cuts or falling short of their fiscal goal. The second 
is an issue of equity. Even if budget projections were perfectly 
accurate, future Congresses should be given some say over the fiscal 
leeway that is projected to emerge on their watch. The priorities 
today's lawmakers see for the future will almost certainly not turn out 
to be the priorities of lawmakers and the public five or 10 years from 
now. Economic, social, and international conditions will be different 
in ways that we cannot predict today.
    For these reasons, it makes sense for the budget process to limit 
the extent to which lawmakers can commit, through legislative action, 
resources that are projected to be in excess of the fiscal goal in the 
future. I have outlined elsewhere a budget process reform which would 
allow each new Congress to encumber only a declining fraction of the 
resources that exceed the fiscal goal under the baseline projection. No 
more than 80 percent of the excess resources predicted for the first 2 
years would be available for commitment. For the next 2 year period the 
allowance would drop to 70 percent, for the subsequent period to 60 
percent, and so on until the 9th and 10th years of the projection 
period for which the new Congress would only be able to encumber 40 
percent of the resources that were projected to exceed the fiscal goal. 
When each new Congress convened, the Congress would calculate a new 
allowance using CBO estimates.
    This system would be enforced through variants of the pay-as-you-go 
and discretionary cap systems that are parts of the current process. To 
determine whether future allowances were likely to be breeched, all 
discretionary spending would be projected forward using the baseline 
projection methods. The future costs of newly enacted entitlement and 
tax legislation would be projected under the assumptions that all 
provisions were fully implemented by the seventh year and that no 
provisions expired or were cut back in the out years. These safeguards 
would ward off some of the gimmicks that have been used recently to 
minimize the apparent budget impacts of program expansions and tax 


    While many elements of the CBA, GRH, and BEA processes should be 
retained and, in fact, should form the core of the new budget process, 
more in the way of fundamental reform is also needed. It will not be 
enough to make some incremental changes in the discretionary spending 
caps, the pay-as-you-go system and the rules governing sequestration. 
Since our current processes were formulated, the budget environment has 
changed significantly in ways that no one could have predicted. A new 
set of procedures, one that reflects the new reality, is needed. While 
it may be too late to consider such reforms this year, time is short. 
Confidence in budget procedures has eroded markedly over the past 3 
years. Too often decision makers at both ends of Pennsylvania Avenue 
have viewed the process as an elaborate game through which to gain 
short run political advantage rather than a set of consensual 
restraints designed to further the common good and preserve some 
modicum of fiscal flexibility for the future.

    Chairman Nussle. Thank you. Let's begin, then, with joint 
resolutions, since you brought it up. I happen to be a 
proponent of that, as well as a number of other reforms. Again, 
as I stated in the outset, I don't believe that any one reform 
in and of itself will do the job. I am not advocating that a 
joint resolution or, in other words, making the budget a law in 
and of itself will require or will fix what ails us.
    My purpose in advocating a joint resolution as part of a 
package of reforms is to do two things. One is to make the 
process realistic and real up front, making that decision 
binding, as binding as you can make it. Certainly more binding 
than you have in this current process, and secondly, to bring 
the administration in earlier.
    Currently, the President has the ability, and we've seen it 
in some instances, to throw the budget on the table on February 
3rd and walk away until October and have very little to do with 
negotiations until it appears to be in their political best 
interest to join in the discussion or in the fight. And 
bringing the President and the administration earlier into the 
process, I believe could help that.
    There are some, however, who suggest that this gives the 
President too much authority and too much power. So the first 
question I would have for all three of you is, give me the 
pluses and minuses from your side of the table when it comes to 
a joint resolution. I'll begin, since you were bringing it up, 
Mr. Reischauer, I'll begin with you and we'll work across.
    Mr. Reischauer. I think you have laid out the plus side for 
a joint resolution. And I think a good argument can be made on 
that side.
    What I am concerned about is the possibility that wrangling 
between the Congress and the President, which now begins in 
September and lasts through October, might begin in March and 
end in October. I see a certain advantage to a system like the 
one we have now, which I would say, is one of sequential shame 
in the sense that the spotlight of press and public attention 
focuses first on one branch of Government, have you proposed a 
budget? Is the budget realistic?
    And there's a food fight over these issues. Then it focuses 
on the Congress; is the Congress doing gimmicks, is it doing 
its job in a timely fashion? Is it meeting the deadlines?
    When you have separation of powers but joint responsibility 
for an activity like putting together the joint resolution, it 
will be unclear who is responsible for the lack of forward 
progress. We have seen that when that is the case, the process 
can drag out interminably.
    Chairman Nussle. Chairman Livingston.
    Mr. Livingston. Mr. Chairman, I share your support for the 
joint budget process. I also share in the remarks of Mr. 
Reischauer. I would say, I would fear that there would be a 
tendency of such a degree of interaction between Budget 
Committee and the President, that each side would want to 
assert its priorities and start appropriating bills right from 
the beginning, and there wouldn't be any need for an 
appropriations committee. Lord knows I'd hate that.
    But apart from that, I think that if you focus on targets, 
and essentially say, ``Look, the last 5 years we've raised so 
much money through the Ways and Means Committee, and there's so 
much money available, and this is what we project this year; 
and for the last several years we've spent so much money, and 
this is what we project we need to spend this year,'' and set 
your targets accordingly.
    Then the President would give a thumbs up or down. If he 
wants more money, he can argue about it. If he wants less 
money, he can argue about it. But once it's signed, and the 
overall caps are locked, then that's it. That's a straitjacket. 
And Congress can't exceed or decrease that amount any 
significant degree.
    And I do think that sort of process would lead to a 
lessening in the divisiveness at the end of the process, fewer 
vetoed bills, fewer continuing resolutions and certainly fewer 
emergency supplementals.
    Chairman Nussle. So a joint resolution of the macro 
numbers, not the micromanagement?
    Mr. Livingston. Macro numbers. If you try to get down at 
the lower detailed level, I don't think it could possibly work.
    Chairman Nussle. Would that proposal help persuade you that 
that might work a little bit better, Bob Reischauer?
    Mr. Reischauer. No. And let me explain why. It's very easy 
for people to agree to grand principles or to the abstract. But 
what you deal with is the nitty-gritty in the appropriations 
process. And while the overall amount for defense or the amount 
for domestic discretionary might seem reasonable in March, when 
you aren't considering the sum of the line items, it won't seem 
reasonable in September and October. And given that, I think 
you will devise, as you have done in the past, gimmicks and 
ways around the limits that are imposed, even though they are 
    Mr. Livingston. I think they have more impact than current 
law. And right now----
    Mr. Reischauer. I have more faith in your ability to evade 
than Mr. Livingston.
    Mr. Frenzel. Mr. Chairman, I think you've heard most of the 
arguments that I would raise on either side of this. I like the 
idea of getting the President and the Congress together earlier 
rather than later. I think our untidiness at the end of the 
fiscal year is a real pain when we scrap over the last of the 
appropriations and have those kinds of fist fights. Maybe we 
can never get away from that.
    I also like the idea of having a budget that is a national 
budget. Right now, we have a President's budget, we have a 
Congressional budget, nobody knows which is which or 
understands them. Once the President signs your budget, then at 
least some of that confusion would be laid aside.
    I agree that a President or a Congress could stall those 
negotiations for a long time, and that it is conceivable in the 
range of possibilities or probabilities that it could be worse 
than the present system. There are some people who will tell 
you that this gives the President more power and causes a power 
shift between the Congress and the President.
    I don't believe that. I've never been a President, I have 
been a legislator. If I really believed that, I think I would 
not like that solution. But I believe Congress has the 
constitutional power of the purse, and it's pretty hard to pass 
it over to the President.
    Next, I think it's a good idea, but I think Mr. Reischauer 
has good arguments against it.
    Chairman Nussle. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman. Let me add my thanks to 
all the witnesses for some testimony that's actually more 
stimulating than budget discussions usually are. I think we've 
had some important issues opened up.
    I do think this idea of a joint budget resolution is a 
pretty good example of what a couple of you were referring to 
earlier. That is, the conflict that often arises between our 
aspirations, the way things look and are supposed to work on 
paper and political reality.
    We've already begun, I think, to explore some of the 
possible unanticipated consequences of the joint resolution 
format. I expect all of us would like to have the Executive 
engaged earlier in the process. We would like to have budget 
resolutions that mean something and that stick. And we'd like 
to have a cleaning up of the messiness of the end of session 
scramble to finish appropriations bills.
    Whether this particular remedy would do the trick is 
another question. And I think it was you, Mr. Reischauer, who 
suggested the effect might be, particularly under circumstances 
of a divided government, divided party control of the White 
House and Congress, simply to bring all that end of session 
conflict up to an earlier point and then make it even more 
difficult to get a degree of resolution that would let us 
proceed with the appropriations bills. I think we have to 
acknowledge how that could happen and how that could be an 
unanticipated result of this.
    Let me move to the question of biennial budgeting. Some of 
you touched on this. I think it's striking. I think Mr. Frenzel 
referred to biennial budgeting as the spoonful of sugar that 
might make some less popular proposals go down, which indicates 
this is a proposal that has a good deal of support, at least 
superficially. A number of people think that it would be nice 
to go through the entire appropriations process not every year, 
as messy as that has become, particularly in the latter months 
of the session.
    Presidents of both parties tend to support biennial 
budgeting. In fact, the last four Presidents, are on record as 
supporting this, including the present President and President 
Clinton. I guess my own suspicion is, if that suggests biennial 
budgeting isn't a sharply partisan issue, it should suggest it 
may be an institutional issue. And we'd better think about the 
institutional implications of passing our budget and our 
appropriations bills in the first few months of a 2-year 
Congress and then being fiscal lame ducks thereafter.
    I don't want to show my own hand so much, though. I'd like 
to hear your remarks on that. What are the institutional 
implications of biennial budgeting? And I put it that way 
deliberately. What are the implications for the power, the 
responsibilities, the place in the overall constitutional 
scheme of things of the U.S. Congress of biennial budgeting?
    Mr. Frenzel. Well, I'd be glad to start. I have to confess 
as I did in my testimony, that I am not the most ardent 
advocate of biennial budgeting. I became a supporter at a time 
when certain Members of Congress who didn't like any other 
reforms thought that was a pretty good one. So I thought that 
made a nice sugar coating, if nothing else would work.
    I don't see that it is an institutional matter. I guess I 
would say, judging from what my appropriator colleague 
suggests, is that it might give the Congress a little more time 
to think about what it's doing, and do the oversight. Although 
I have never been a real believer that Congress really wants to 
do oversight at all. But again, maybe some kind of a process to 
perhaps not compel but at least give some incentives for more 
    I think that would make the legislative branch stronger, if 
that in fact would work. But to tell you the truth, I don't see 
that as a down side, and I do not see that it is complicating 
in ventures at all.
    I'm with Bob Livingston, 10 years is absurd, and we'll all 
be living on the moon in 10 years--or dead or something. On the 
other hand, that's not a problem for this House, that's a 
problem for the other body.
    But I don't see institutional ramifications, or at least 
ramifications that would lead me to believe that it would 
diminish the legislature's role in any of these processes.
    Mr. Price. Mr. Livingston?
    Mr. Livingston. Thank you, Mr. Price. I appreciate the 
    If biennial budgeting were proposed, would it reduce the 
workload on Congress? Yes. But I think the responsible workload 
would be reduced and not necessarily some of the stuff we just 
waste time on.
    First of all, if it were passed, you'd have it in year one 
and year three and you wouldn't have it in year two. What 
happens in year two? Well, the argument is, that's more time 
for oversight. I daresay that Congress will display, in its 
innate wisdom, the same tendency it displays in every other 
instance, and that is, well, we don't really have to do it now, 
so we can do it later. And they'll be running up to the wall, 
and invariably, the oversight hearings aren't going to be held, 
because Congress is going to find other things to do.
    We've got 270 million hard working people out there, and 
they have immediate needs. So, to think that there's not going 
to be an appropriations process in year two is a pipe dream. 
You're going to go through the same process, you're just going 
to call it something else. But you're going to only be dealing 
with the emergencies, and the oversight hearings are going to 
be shoved to the side, and they're not going to happen.
    And I think the better recommendation is that Congress 
comes to work on Monday afternoon and leaves on Friday 
afternoon. That way you'll get things done.
    Mr. Price. Of course, what the appropriators do is itself 
probably the most careful oversight we engage in around here. 
Without being tied to the actual power to appropriate, you 
might lose some of the incentives and some of the teeth that 
oversight now has.
    Mr. Livingston. I agree with you. Frankly, again, it's what 
you have to do. Look, oversight is a function of every 
committee in this Congress. But I daresay that you can find 
committees, and I don't want to point fingers, but you can find 
committees that don't do much of it. And why? Not because they 
don't have the time, because they've got other things to do.
    I think if you go to a biennial budget process where the 
Appropriations Committee really doesn't have to, so they can 
but they don't have to provide oversight, they're not going to.
    Mr. Price. Mr. Reischauer.
    Mr. Reischauer. I agree strongly with the points that have 
just been made. I'm a believer, unlike Mr. Frenzel, that 
inevitably, a biennial process would lead to a strengthening of 
the Executive over Congress. In every State that has biennial 
budgeting, the Governor or somebody under the Governor's 
control has considerable discretion to adjust budgeted amounts 
during the biennium. Some flexibility of that sort inevitably 
would have to be granted to the executive branch.
    I think it is a pipe dream to expect that this will speed 
up the process or reduce the amount of time that is spent on 
budgeting. If we're going to make these decisions once every 2 
years, the stakes are going to be a lot higher, and the 
combatants are going to fight a lot harder because this could 
be it for 2 years, and after a lower appropriation has been in 
place for two years, it looks like history and it might be in 
there forever.
    So I can see this bringing about, in fact, tremendous 
gridlock. If that isn't the case, the other alternative will be 
what Mr. Livingston pointed out, which is large supplementals 
in the off years. Those supplementals will be less visible, 
they will be decided by smaller groups of legislators and they 
won't have the full consideration of the Congress. I think that 
would definitely make things worse.
    I also agree that oversight is something that is often 
carried out most effectively through the appropriation 
process--through the appropriators having strings through which 
they can get agencies to answer specific questions. 
Furthermore, a 1-year time frame, while it might be 
inconvenient for those in the agencies, is not wrong for a 
world which is changing very rapidly and in very unpredictable 
    Finally, let me point out that we should just look at what 
has happened over the last 6 months to realize the rapidity 
with which conditions that affect budgeting change. The world 
looks very different now than it did 6 or 8 months ago. If we 
were making decisions in March basically for the next 2 years, 
we might find ourselves making decisions that didn't meet the 
Nation's needs.
    Mr. Price. Thank you.
    Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman.
    I'd like to ask two questions and have each of you respond 
to both, if possible. The first is about institutional change, 
not necessarily legal reform or process reform. Congressman 
Livingston mentioned the potential value of quite literally 
changing the structure of our work week and improving 
oversight. I have from time to time thought about another 
similar change in the institutional structure, which is to have 
Members serve on fewer committees. We have Members who serve on 
two and three committees.
    It's outstanding that they've expressed interest in those 
areas, but it can be incredibly time consuming. To have a 
Member serve exclusively on a single committee, for better or 
for worse, forces them to put an extra effort into developing 
an expertise and devoting time and resources to making a 
difference on that committee. I do think that leads to better 
    But my first question is, are there any other institutional 
changes that we haven't talked about yet, that any of you might 
think would lead to better oversight? The second question is 
about emergency powers, emergency appropriations and the 
process for funding emergencies; what kind of changes or 
improvements to that process do you think might be possible, 
recognizing that at the end of the day, even if it's just a 
matter of having the votes, any process or law you have in 
place, that we have the votes to waive that law or overcome it 
in the appropriations process, that the will of the House or 
the Senate will prevail?
    Why don't we start with Congressman Frenzel.
    Mr. Frenzel. Thank you. With respect to institutional 
change, oversight, budget process, etc.----
    Mr. Sununu. Very specifically oversight, changes related to 
oversight, because I agree very much that it's an enormous 
    Mr. Frenzel. I have to say that my colleague Bob Livingston 
had that about right when he suggested it would be nice to put 
in a full week of work here, and schedule accordingly. But with 
respect to your suggestion about fewer committees, I did get 
involved in a lot of reform efforts, for jurisdictional reform 
and committee assignments and so on. I broke my pick there even 
worse than I did on budget reform.
    It is really difficult to get Members to give up anything 
that they now enjoy in favor of a rational alignment of the 
talents of 440 people into a couple dozen committees where 
everyone has one good one, or one and a half good ones, and 
puts his or her heart and soul into it. That would be the right 
way to do it. But I don't see how you get there from here.
    And if that were the case, I would agree with your thesis 
that that would be likely to produce better oversight work. But 
to me, it is another one of those lost causes that's just too 
    With respect to emergency appropriations, we will always 
have emergencies. I believe that, however, we can plot pretty 
clearly what we spend on so-called emergencies. And we can plan 
that we are going to spend ``X'' dollars in fiscal year 
whatever for emergencies. And the fact that we don't plan, 
means that we spend all the money available on other things, so 
the emergencies get piled on top. It simply means that we spend 
more of the people's money.
    We're never going to neglect emergencies. But I believe in 
planning ahead for them we can at least get a more rational 
allocation of assets to other expenditures and then if we have 
some extras on top, it won't be as large as it is now when we 
declare everything an emergency. So called ``rainy day'' funds 
that are reserved for emergencies are a very important part of 
budget discipline, and I hope you do something about it.
    Mr. Livingston. Just to follow up on that, I think they 
would be very helpful. Our experience in setting up ``rainy 
day'' funds over the last years has been that somebody always 
found out about and spent the money. I don't know how you 
structure it. I agree in principle it's got to be done, it 
would be helpful if you have it. You're always going to have 
natural disasters, frankly, that bring about the need for the 
``rainy day'' fund. But there's invariably somebody out there 
with his eye on that pot of money, who finds another use for 
it, and you're back where you started.
    In answering your second question first, Mr. Sununu, I 
would say that one thing that was in my written statement that 
I didn't mention is a process that has already been undertaken 
by this Congress that I think is probably one of the most 
significant accomplishments of modern times in the fiscal 
world. And that is, apart from the fact that we have a budget 
surplus versus a budget deficit, we put together a setaside and 
said we're not going to spend the current receipts of the 
Social Security trust fund, and the Medicare trust fund.
    From 1969, when President Johnson had to pay for the 
Vietnam War, we abandoned that principle, and we stayed off of 
that principle for some 30 years, until just about 3 years ago. 
Frankly, I take a little credit at awakening people that we 
could do this, and the Congress is now doing it. I am very, 
very pleased at that, because at the very least, while we won't 
have Social Security coverage forever, we're gradually setting 
aside the surplus revenues and designating them as sacrosanct 
for the Social Security and Medicare trust fund. We are 
ensuring that the deadline when those programs ultimately go 
broke, even if we don't address the fundamental problems will 
be pushed further and further into the future.
    And that's a very significant change. So I hope Congress 
will stay on track with that particular change.
    As far as your question of the committees is concerned, I 
look around here and counted, I think, 56 members on the Budget 
Committee. I bet you don't need that many members. I bet the 
Appropriations Committee doesn't need 64 members or whatever 
they have. I bet the Infrastructure Committee doesn't need the 
82 members that it has.
    That phenomenon has existed in increasing numbers every 
year and gets worse with each close election and it ultimately 
has to be changed. But you will not change it now, or after any 
close election. The only way you're going to get it under 
control is to have one party blow out the other. That's the 
only way it's going to happen.
    Then the new Speaker for the Majority party has to say, 
``These committees are too doggone big, and they have to be 
reduced. And by the way, the losing party, you're out of luck, 
because you're going to have a lot fewer seats!'' The sitting 
party simply will not replace the seats that have been lost. 
That way you'll get the committee sizes down.
    Why is that important? It is important because as you say, 
you can't be in every place at once. I think every Member ought 
to have two committees, and that anything more than two 
committees is unworkable. You ought to have a limit on the 
number of subcommittees, four, five or six, to each Member. 
Four is probably a good number. Then Members can do their work. 
Otherwise, they're just shooting the breeze.
    Chairman Nussle. We're working on that blowout reform that 
you're speaking of and will get back to you.
    Mr. Livingston. Notice, Mr. Chairman, those were non-
partisan comments.
    Chairman Nussle. We noticed that. Mr. Moore.
    Mr. Moore. I appreciate the testimony of each of the 
distinguished panelists here. I think this is anything but 
boring, too.
    I had a proposal last year that would have, and I guess I'm 
talking to Congressman Livingston here, because he mentioned 
the smoke and mirrors, I guess, of 10 year budgets, and really 
the difficulty in projecting what's going to happen 10 years 
from now. I had an amendment, a proposed amendment, last year 
that would have gone back to a 5-year budgeting process, and 
also an instruction to the Ways and Means Committee that any 
change to revenue reducing laws would be phased in over 5 
years. I'm going to point my finger at everybody on this side 
and three fingers back at me, because I voted for the tax cut 
bill as well.
    But we passed a tax cut law that essentially says, we're 
going to repeal the estate tax. And what we did was phase in a 
repeal over 10 years and finally repeal it in the eleventh year 
beyond the 10 year budget window, and then sunset it the next 
year, which is highly deceptive to the people in this country. 
I just don't think we as an institution should be doing that. 
When we've set these 10 year windows out, we're just tempted to 
try to do that to make this $1.35 trillion tax cut fit within 
that 10 year period.
    And by the same token, what we said was, we're going to fix 
or repeal the marriage penalty tax, and in essence what we did 
was do that, but we waited until 2005 to even start addressing 
    So I think we need to, as an institution, and again, I'm 
being critical of myself, not just you, us in Congress, I 
think, need to start being more honest with the people in this 
country in terms of the budget process and in terms of the 
appropriations process, especially the budget process. I'd like 
to see us on that.
    I told Mr. Livingston the first time I met him that right 
after I was elected in November 1998, I read in the Kansas City 
Star that he had proposed, he was going to be the next Speaker 
of the House, to take Social Security out of the unified 
budget. I told my staff--my meager staff at that time, I was 
just starting to hire--I want to sign on that bill, that's a 
good idea, I don't care if it's a Republican idea or Democrat 
idea, it's a good idea and it should be the law.
    So when he unfortunately didn't stay in Congress and I 
couldn't call him Mr. Speaker, I had to put my name on his 
proposal. I learned very quickly that being a member of the 
minority party, sometimes your legislative proposals don't go 
far. It would have been law had he still been in Congress.
    But my point is, I think, and I guess I'd just like to ask 
the question very briefly to each of you, to comment on going 
back to a 5-year budget. I sort of heard Mr. Livingston talk 
about this. But it just seems to me, I guess, that it's a lot 
more honest, a lot more workable, and very quickly, I want to 
read one thing here.
    The first 10 year projections made in 1992 predicted a 
deficit of $407 billion for fiscal year 2002. In January of 
this year, CBO projected a fiscal year 2000 surplus of $313 
billion, which is a disparity of over $700 billion. I think 
that just to me at least points out the difficulty in trying to 
project out 10 years from now what's going to be happening in 
our country in terms of the economy. So I guess I'd just like 
to hear your comments briefly, each of the panelists, if I can, 
on a 5-year budget process.
    Mr. Reischauer.
    Mr. Reischauer. I guess I'm at a bit at a disadvantage, 
because I'm one of the fellows who brought you the 10 year 
process. We started it at the Congressional Budget Office for a 
very particular reason, and that was that in 1990, Congress 
passed a deficit reduction act, many provisions of which 
expired at the end of 1995. And had we stopped the projections 
at 5 years, it would have given the false impression that we 
were home free. Of course, the economy didn't turn out as 
expected, so that was not the case, anyway.
    But it was an attempt to point out that temporary measures 
adopted by the Congress would have to be renewed and added to 
if you wanted to maintain a balanced budget.
    I share your concerns about the uncertainty of budget 
projections. But that doesn't mean, I think, that we should 
close our eyes to the best estimates. Whether we should have 
enforceable procedures that carry out 10 years is another 
matter. But before I went along with a 5-year budget window, I 
would want a rule that said, all legislation must be fully 
implemented by year three and not sunsetted in year four or 
    Mr. Livingston. Thanks, Mr. Moore. Obviously, I do feel 
that it ought to be shortened. I would even shorten it lower 
than the 5 years. On your comment about the tax cut, obviously 
I would support the tax cut and any others that you happen to 
be able to pass, the sooner the better.
    But I have to tell you just a little story about a former 
colleague, friend of perhaps all of ours, who told me recently 
regarding the point that was made about the estate tax. He 
said, ``You know, I'm getting on up there.'' He's 74 years old. 
He said, ``I look at this tax code, and I realize, I've got to 
die in 2010.'' He said, ``if I don't, my kids are going to kill 
me.'' [Laughter.]
    Mr. Frenzel. I think that Bob Reischauer has a very good 
point. We do need analysis, you have to know what the costs 
are. The reason we went to five years and ultimately to ten, it 
seems to me, was we had all these wonderful authorizers, not 
appropriators, who built these back-end loaded programs that 
exploded in the out years. In those days it wasn't the tax 
problem, it was an expense problem.
    But we had the same trouble in taxes. I can remember, I 
served on the Ways and Means Committee. Every year we would let 
certain taxes expire for budget purposes. Everybody knew, that 
certain tax credits, particularly the RD&E credit, were going 
to be extended, but because they fit the budget that way, we 
let them go appear to expire annually.
    So you need to have the information. Whether you decide 
five or ten is the right number of years, my understanding is 
that the problem is with the Senate. They got a Byrd Rules 
problem if you don't do 10 years. So you have to go over to the 
Senate and make your case over there if you want to get it back 
to five.
    I still think it's valuable to know what happens in those 
out years, as Bob has suggested. Because everybody, whether 
it's taxes or spending, every smart Congressman is going to 
back-end-load his program if he can get away with it.
    Chairman Nussle. Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman. I want to thank 
staff and particularly our distinguished panel for coming in 
today and sharing some of their insight.
    Mr. Frenzel, I think you were fortunate, as I was, to serve 
in the State legislature back in Minnesota. Talking about 
legislative reform, it strikes me how we seem to be able to get 
things done in the State legislature in a much shorter period 
of time. I apologize, I've been in and out, because I have an 
Agriculture Committee meeting that's going on at exactly the 
same time this committee was meeting.
    In the State legislature, this was before computers, they 
figured out that if you served on the tax committee you 
couldn't also serve on the regulated industries committee, 
because they both met at 8 o'clock. Then at 10 o'clock there 
was another set of committees that met, then at noon or 1 
o'clock we went into full session. If you needed additional 
hearings, they had them in the evening.
    Now, occasionally you'd have two hearings going on in the 
evenings. But it was just amazing how much work we could get 
done under that regimen. And as I say, that was done before 
they even had computers. This was all figured out by staff that 
if you were on regulated industries, you couldn't be on taxes, 
or if you were on--I can't even remember the names of all the 
committees now.
    But in some way we got it all done. And I do agree with 
what Mr. Livingston said, we do need legislative reform. I 
think the way this system works here in Washington leaves a 
whole lot to be desired, and we could learn a lot from the 
    Mr. Frenzel, would you want to comment on that? I think you 
had some experience just a few years ago.
    Mr. Frenzel. I would agree with you. We didn't have 
computers. A scratch pad and a lead pencil worked just fine to 
figure out that you couldn't put a person on six or eight 
committees and expect the person or the committees to do any 
    And if the States could figure that out, certainly one 
would think the Federal Government could as well. The 
difficulty of course is that people get slotted on committees, 
they think that's a big deal and they don't ever want to give 
up one that they're assigned to. If they have two, they want 
three, and if they have three, they want four. Like everything 
else in this world, a little discipline is required.
    But you mentioned the legislature. Let me go back to the 
point that somebody raised, that in the second session of a 
biennial session, a Governor would have great powers. Minnesota 
is known as a legislative State. While we do allow the Governor 
and some legislative leaders to make changes in the second year 
of the biennium, or did, nobody ever accused the Governor of 
controling the money or doing the legislature's job.
    So yes, there's a way to do it. It takes discipline, it 
takes a willingness to make the assignment. That's as tough as 
changing jurisdiction on committees.
    Mr. Gutknecht. It seems to me, I really believe that you 
could be very helpful in maybe moving this, the whole thing 
    Mr. Frenzel. You'll have the Livingston-Frenzel vote.
    Mr. Gutknecht. That sounds good to me. But one of the real 
problems we're potentially going to face this year, have faced 
in previous years and in some respects, gives the chief 
executive enormous bargaining authority, at least it has in the 
past, over the budget negotiations in the ``end game,'' is the 
now threat of a Government shutdown. And I'm sorry if I missed, 
and I certainly don't ask you to be redundant, I can read it in 
the record.
    But we would appreciate any advice that particularly you 
would have what we can do between now and September 15th to 
begin perhaps some kind of reforms that preempt the notion that 
we're going to hold a gun to the heads of all the Federal 
employees and say, if we don't get our way, we're going to 
shoot this one in the head. Because that's essentially what 
    I see my time has almost expired, so you have 1 minute to 
deal with that very important issue.
    Mr. Livingston. Thank you, Mr. Gutknecht. I understand, and 
I just learned this morning, that if you don't pass or comply 
with the Budget Act because of the tax bill provisions that you 
may be many billions, perhaps as many as $78 billion, short at 
the end of the year.
    I would urge you and Congress to go ahead and meet that 
responsibility now rather than later because at the end of the 
year if you are $70 billion out and you say ``Take it out of 
discretionary,'' you are going to have a very hard time.
    But apart from that, and more institutionally, I would 
suggest to you that the prospect of government closure is not 
all bad, not because I want to see government shut down, but it 
is the Sword of Damocles that hangs over the head of every 
Member of Congress to get the job done.
    When you don't have to meet the deadlines, you don't meet 
the deadlines. It goes back to my business about biennial 
budgeting. Congress collectively procrastinates. It is no one 
person; it is just collective procrastination, and Congress is 
not going to do the job until they absolutely have to.
    You can look at one committee after another. They basically 
don't pass bills until they absolutely have to do it. In the 
appropriations process, that is especially true. If you see 
that old Sword of Damocles, focus the attention of Members of 
Congress, and the attention of the President, they will come to 
the table, and finish their business.
    One of the big objections I have had with that propaosal to 
``never close government services,'' I have forgotten what it 
was called, but one of our Members offers it all the time. But 
it is to say, ``Oh, we are never going to close down 
    What that means is you never have to reach a resolution on 
appropriations and you just operate the government on a 
continuing resolution year after year after year. I think that 
is an abdication of responsibility. It is a refusal to 
prioritize between good programs and bad programs. It is just 
    Accept the fact that if you don't do your job, the 
government will shut down. Then you will get the job done.
    Mr. Frenzel. I do think its right that CRs are worse than 
shutdowns. I like to have a little pressure out there building 
for Congress and the President. There is no way to bulletproof 
yourself against a shutdown.
    Pretty clearly, if you get the appropriations to the 
President in a timely way, you are going to lessen any 
possibility. The problem is when you are sitting here with a 
five-vote majority in the House and a no-vote majority in the 
Senate, it is pretty hard to move stuff along.
    I don't know how, in that kind of environment, how you can 
do it. I served the Minority for a long time. The Democrats had 
very large majority. By passing their bills promptly, they 
could sustain vetoes by the President and even vetoes that were 
sustained by the Congress and then re-pass them later with 
small changes made.
    I remember President Ford vetoed six appropriation bills in 
a row. Every one of them was sustained. Every one of them was 
re-passed very promptly, a couple after the turn of the fiscal 
year. The Congress had to cut some spending, but the enacted 
bills were very similar to the vetored bills.
    If you can get the process moving you will do it better and 
of course part of it depends on you, how quickly you get your 
budget resolution passed so the appropriators can get back to 
work. But that is the only way I know.
    To tell you the truth, before President Clinton stuffed the 
Republicans in 1995, the general conventional wisdom around 
here was that a potential closing of government put more 
pressure on the President than on the Congress. Unfortunately, 
Clinton proved to be smarter than we were. But it works both 
    Chairman Nussle. Mr. Moran.
    Mr. Moran. I want to thank our three witnesses for taking 
the time out to share their thoughts with us today and 
especially for their candor.
    I was a Senate Appropriations staffer under the chair of 
the Senate Appropriations Committee in the early 1970's when 
the Budget Act legislation that created the Budget Committee 
was established. What Senator Magnuson predicted then, I think, 
is about to come around full circle.
    I do want to ask the former chair of the Appropriations 
Committee and the former chair of the Budget Committee what 
they feel about the language that was in the most recently 
passed budget resolution giving the chairs of the Budget 
Committee the ability to second-guess or determine the 
definition of emergency spending even if their definition is at 
odds with the Appropriations chairs. Chairman Nussle can 
reinterpret that, but that is the way it is seen, I think, the 
way it is intended to work. As we speak, the supplemental 
appropriations bill is being considered. Most of it is 
classified as emergency spending. Much of it is anything but. 
Much of the reform efforts that have transpired over the last 
generation would lead you to become fairly cynical.
    They have had very marginal improvement on the process, 
although I think the PAYGO mechanism has been acting as 
something of a break and has subjected some greater sense of 
fiscal responsibility.
    But I think in large part we are focusing on trees without 
looking at the forest. I think the paradigm really has changed 
and I want to refer to the charts that Chairman Livingston has 
shown here because they do illustrate the reality that much of 
what we talk about in the budget process and the appropriations 
process, particularly, is become moot. Of the mandatory 
spending, including interest on the debt, it is now two-thirds 
of the budget. It should also be recognized that of the third 
of the budget that is left, 95 percent of the appropriations 
governing that are incremental.
    The one aspect of it that is not incremental are the so-
called special projects that we get beaten up in the newspapers 
for, but those actually are a reflection of what individual 
Members priorities are. They are not incremental. One of them 
is the Wilson Bridge, for example, which is considered a pork 
project, but it would stop the interstate commerce along the 
east coast if we don't get that money. So, I think that some of 
the efforts and the alleged deeds for reform are a bit 
    With regard to biennial budgeting, it would require the 
budget to be put together 30 months in advance. I don't 
understand. I can't imagine how we could responsibly expect the 
executive branch to under take that effort.
    The reality is that if we do it right under good leadership 
and particularly in a constructive, cooperative attitude 
between both parties, we can get the appropriations bills done 
on time. If we are going to exercise oversight, the only way to 
get the executive branch to really pay attention to it is to 
hold up the funding capability. Otherwise, it is an exercise 
for media attention, but little else.
    If it is within the context of the appropriations process 
and it can actually cost them if they don't comply with the 
intent of Congress and particularly the appropriators, then 
oversight means something and it works.
    So, those are some comments. I guess the only real question 
that I would want to get from Mr. Reischauer--because he has 
been very much involved in this process--is whether you think 
there may not be a clash coming between the budget and the 
appropriators instigated by the ability in the last budget 
resolution to determine on the part of the budget chairman what 
is emergency spending.
    I think Chairman Livingston's, Speaker Livingston's 
comments might be most critical given your most recent 
perspective as chair of the committee.
    Mr. Livingston?
    Mr. Livingston. Thank you, Mr. Moran. I think that is a 
real issue for Congress to hash out. I don't think that there 
is any one answer. I think the answer is in the collective 
wisdom of Congress, reached with all of the partisan debate 
that comes to the floor.
    ``Emergency spending'' can clearly be misused, and can be 
put on anything that you don't want to encompass within the 
budget. That is a way to evade the budget caps. So, you declare 
it emergency spending.
    Both parties can be equally culpable, depending on who is 
calling the shots on what day. But the only way to hash it out 
is for you to meet and let the majority win.
    Mr. Moran. What would you do if you were still chairman?
    Mr. Livingston. I would probably do the same thing you 
would, I mean, I would say my projects are emergencies.
    But you made another point that I mentioned and I didn't 
highlight it, but you highlighted it very well. By the time you 
eliminate the mandatory spending of interest and all the 
entitlements that we have thrown into process that we rarely 
review and realize that of discretionary spending, half of 
which is defense, which we are always raising whenever we can, 
even though since 1962, defense it has gone from half of the 
budget to less than one-sixth.
    By the time you start realizing what programs you are 
actually going to be adusted up or down with new priorities you 
are talking about 1 percent of the budget, only 1 percent. That 
illustrates, I think, more clearly than anything else, that the 
budget really is out of control.
    We are spending time year-round on the floor on 
appropriations bills and the Budget Act, only to change 1 
percent of the budget, more or less? Something is wrong here. 
We need to prioritize.
    When I say we need to assess priorities, I mean the whole 
budget, not just that 1 percent.
    Chairman Nussle. We have two votes on the floor or a series 
of votes. So, as a result, we are going to have to end this 
panel. But before we do so, before we go and vote, I know Mr. 
Toomey and Mr. Clement have been here a long time.
    Let us go to Mr. Toomey first for a question or two and 
then we will see if there are any others before we go vote.
    Mr. Toomey. I think I can do this in less than my allotted 
time. I wanted to start with a statistic that I have. If you 
include what is in the Budget Resolution for 2002, it is my 
understanding that during the 4 years before the surplus 
emerged, say in 1993 through 1997, total discretionary actually 
declined about 2.2 percent.
    Over the 4 years since the surplus emerged, discretionary 
spending has increased about 24 percent. We could quibble about 
the exact numbers. But the point is, I think this is extremely 
interesting and I think it reflects that prior to the emergence 
of the surplus there was at least some degree of consensus that 
one of the priorities of the budget process ought to be to 
reach a balance, to eliminate the persistent deficits and that 
we ought to find a way to do that.
    I think arguably previous budget process measures enacted 
before I got here had that bias sort of built into them, to 
find a way to bias the system in the direction of a balance.
    It seems to me that now that we have crossed this threshold 
into the era of surpluses, we don't have a consensus on what to 
do with the surplus. Some of us want to cut taxes massively. 
Some of us want to spend more on entitlements; others on 
discretionary and others to pay down debt.
    My question is, absent a consensus on what to do with the 
surplus, can we really reach meaningful budget process reform 
that is going to work? Is that an important precondition or 
    Mr. Reischauer. Yes, I think you can. The issue is not what 
you do with the surplus. It is what you define the surplus to 
be. Then the legislative process, the process with the 
executive branch, will involve fighting out each year what you 
do with the resources that you think are excess in a sense.
    Do you give them back as a tax cut? Do you save them for 
some future investment? Do you spend them on some discretionary 
needs that are in front of the Nation now? That is what the 
budget process is all about. The first thing, as I suggested in 
my testimony, that you need to do is to define what fiscal 
objective you want to achieve. We have one now which is 
balancing the unified budget but that is irrelevant because we 
are so far beyond that goal at this point. That is what is 
causing the problem.
    We have a process that was designed to achieve something 
that we are way beyond at this point.
    I would just like to say one thing about the emergency 
process. I think a lot of people have slammed the misuse and 
abuse of the emergency process inappropriately over the last 
few years. That abuse and misuse is a reflection of the fact 
that the discretionary spending caps have been unrealistic and 
this is the safety valve. This is the flexibility.
    I agree completely with Mr. Livingston that what is a 
emergency should be in the eye of the Congress as a whole and 
the President because the President has to designate an 
activity to be an emergency, too.
    What we really are saying is that there is a political 
consensus behind this designation, even if the Webster's 
dictionary would never define the particular activity as a true 
    Chairman Nussle. Mr. Clement.
    Mr. Clement. Thank you panel for being here today. You have 
been very helpful to all of us. I want to ask a question first 
of Mr. Livingston, my neighbor. I am one of those attracted to 
biennial budgeting simply because of oversight, which I think 
is really lacking now.
    We are always trying to prioritize how much time we have to 
spend on appropriations so why shouldn't we have biennial 
    Mr. Livingston. Mr. Clement, we did touch on it. But I 
agree with you, prioritization is the number one responsibility 
of Congress when it deals with the budget, absolutely. One 
would think that you could have plenty of time to do that. But 
what I have come to believe in my cynical old age is that 
Congress won't do anything unless it absolutely has to.
    If they don't do it, if they don't provide the oversight, 
if we don't have the hearings, if we don't spend the time to 
have those oversight hearings, which I don't think that we 
will, then you have just wasted time. Congress might as well be 
back in their districts, because the job is just not going to 
get done.
    I would like to think it was going to be done, but with 
this schedule that Congress is engaged in, coming in Tuesday 
night and leaving Thursday afternoon, it is impossible. You 
can't have the hearings; there is no time for them.
    If you wanted to come in four and a half days a week and 
say we are definitely going to have oversight hearings and this 
is the way it is going to be, then I would have more faith it 
would get done. Otherwise, I think you are just putting off the 
inevitable every other year.
    I believe that you have to provide oversight all the time. 
Everything Congress does should involve oversight and 
prioritization. It is a constant process. The country is so 
complex that it needs attention year in and year out, day after 
    With a biennial budget, you can push off the tough 
decisions next year.
    Mr. Clement. As you know, the argument also, on behalf of 
some like Howard Baker and others in the past is that we ought 
to meet half the time, you know, have a part-time Congress.
    Mr. Livingston. Well, you can make an argument for that, I 
don't know how much you will get done.
    Mr. Frenzel. Mr. Clement, I have some similar feelings. I 
am in technical support of a biennial budget. One of the 
reasons for having it is that it would allow time to do 
oversight in the off year. Like Bob, however, I have been 
around here long enough and waited in vain for any oversight, 
particularly from authorizing committees.
    My own judgment is that it only gets done in the 
Appropriations Committee anyway. So I am not really optimistic 
that alleged virtue of the biennial budget would work. But, I 
will pray heartily for it.
    Chairman Nussle. I appreciate members allowing us to 
accomplish this before the votes.
    Panelists, thank you very much for your time and testimony 
today. We look forward to your continued interest in this.
    The committee will stand in recess subject to these votes. 
Then we will take up the hearing as soon as the votes are 
completed on the floor.
    Chairman Nussle. I call the hearing back to order and to 
resume. We are now at a combined Panel 2 and 3. It is actually 
somewhat poetic that we need to do this because it falls right 
in line with the counsel that was given to us by the witnesses 
on the first panel, that there is just too much going on around 
    We are bringing Members from all sorts of committees, 
dividing their time and their concern. As a result, we had 
Members that were going to be testifying today, the very 
distinguished Ranking Member of the House Appropriations 
Committee is in the middle of a markup, as is appropriate this 
time of year.
    Mr. Obey caught me on the floor last night. He is very 
passionate about budget issues and budget reform. He offered if 
it can't be done at some official hearing, he would love the 
opportunity to just talk to the Members at some time. I know 
that will occur.
    Chris Cox is in a markup as well. He will be back. When he 
gets here we will try to fit him in because I know he has 
votes. I do not suggest that our other witnesses don't have 
time constraints. They do. They are very busy and we very much 
appreciate their attendance.
    Barry Anderson carried the ball for the Congressional 
Budget Office earlier this year and did an expert job. We 
really appreciate not only your work at that point in time in 
getting our budget ready for my first go at it, I appreciate 
that personally as well.
    Susan Irving, who is the Director of the Federal Budget 
Analysis from the General Accounting Office, has always been a 
real partner with the Budget Committee and with the House in 
total, but particularly with the Budget Committee. We very much 
appreciate the work that GAO continues to do on behalf of the 
    We are here, as you know, talking about Federal budget 
process, structural reform. You have some good ideas, I know, 
from your testimony. Your testimony will be in the record in 
total and you may summarize as you would like.
    We will begin with you, Mr. Anderson. Welcome.



    Mr. Anderson. Thank you. Thank you very much, Chairman 
Nussle and Congressman Price. Thank you for having me here to 
testify today on structural reform of the Federal budget 
    Next year, as you know, the major provisions of the Budget 
Enforcement Act will expire. That law has provided the basic 
enforcement framework for lawmakers' budgetary deliberations 
for the past decade.
    As lawmakers consider whether or how it should be extended, 
they should also consider other changes in the budget process 
and in the fundamental budget concepts that would address 
broader concerns that have surfaced over the years.
    Today in my testimony I would like to concentrate not on 
what the others have testified before me. That is, I would not 
like to spend time on the BEA framework of discretionary 
spending limits and PAYGO and the enforcement mechanisms and 
other changes related to that.
    Instead, I would like to spend some time talking about a 
reevaluation of the broad budget concepts on which the Federal 
budget process is based. Budget concepts were last reviewed 
comprehensively in 1967 as part of President Johnson's 
Commission on Budget Concepts.
    During the intervening years, changes in the Federal budget 
and modern legislative proposals affecting the budget have 
raised significant issues about appropriate budgetary treatment 
that are not covered by the commission's recommendations.
    This suggests that a new budget concepts commission or some 
other form of consensus is really important. So, in addition to 
extending the BEA enforcement mechanism and considering changes 
to the budget process, I suggest that lawmakers should, as part 
of any structural reform, revisit the framework of fundamental 
budget concepts and accounting principles.
    Although the guidelines of the 1967 commission continue to 
apply broadly to the budget process, they do not accommodate 
many of today's complex budget proposals and institutions.
    For example, lawmakers and budget scorekeepers now face 
four fundamental questions: One, what is the appropriate scope 
of the budget? The commission's recommendations that the budget 
should include all Federal activities provides little or no 
guidance on how to treat areas and entities such as Amtrack.
    Two, what should be classified as spending or as an offset 
to taxes? The line dividing Federal spending and revenues has 
become blurred as shown by the increasing use of so-called 
refundable tax credits and certain fees as devices for 
expanding budgetary resources for spending programs.
    Three, does the use of trust funds for tracking earmarked 
revenues confuse lawmakers and the public, or does it do more 
fundamental good? The proliferation of Federal trust funds, 
which now exceed over 200, raises important questions about the 
extent to which these and other earmarked devices in the 
Federal budget may distort overall budgetary choices that 
lawmakers make each year.
    Four, how do we accurately measure the Federal Government's 
effect on the economy? The purchase and sale of non-Federal 
debt and equities, important components of many proposals to 
reform Social Security raise thorny issues about budgetary 
treatment that are important for estimating the costs 
associated with those proposals.
    Let me address each of these questions in turn very 
briefly. First of all, with respect to budget coverage, as the 
1967 commission recommended, the Federal budget should 
encompass the full scope of programs. It suggested certain 
broad criteria to make such determinations. For example, who 
owns an entity? Who selects the managers? Do the Congress and 
the President have control over the entities programs and 
budget or are its policies set primarily in response to private 
owners and not to accomplish some broader purpose?
    It is these kind of fundamental questions that need to be 
addressed when looking at such arrangements as we have now, for 
example, with Amtrak. Do we own and control Amtrack in any 
sense or through its preferred stock?
    In addition, to use the example of Amtrak, which has not 
earned profits in its more than 30-years of existence, is that 
the kind of company that really could exist outside the rubric 
of the Federal Government?
    Next, I'll address the line between spending and revenues. 
Over the 30-plus years since the Budget Concepts Commission, 
that line has become more muddled, particularly with the 
creation of refundable tax credits. Right now we have tax 
credits for alternative fuels or reforestation or education for 
income support. The generous use of tax credits understates the 
size of government and distorts information about Federal 
spending priorities.
    Third, with respect to trust funds, the Federal Government 
accounts for activities through two broad categories of funds; 
Federal funds and trust funds. Trust funds are generally 
created to earmark receipts for specific programs and purposes.
    The General Accounting Office has stated that there are 
currently over 200 trust funds. But trust funds differ 
fundamentally in the Federal Government than those in the 
private sector.
    For one thing, claims against private trust funds are 
limited by the value of the assets in the trust. That is not 
true with Federal trust funds. They are mere accounting 
mechanisms that track the amount of fees and collections and 
the amount of associated expenditures.
    In addition, when trust fund receipts exceed expenditures, 
the government books show trust fund balances. However, those 
balances are claims on the Treasury that, when redeemed, will 
have to be financed either by raising taxes, cutting spending, 
or borrowing from the public.
    The existence of trust fund balances in the Federal 
Government is much different from the existence of balances in 
the private sector.
    Furthermore, the beneficiaries of private trust funds own 
the trust fund's assets. That is not true for Federal trust 
funds. The beneficiaries of Social Security or Medicare do not 
own the assets. The benificiaries do posses the Federal 
Government's obligation to them to pay certain benefits, but 
they do not own the assets.
    The last point I want to talk about is, the budgetary 
treatment of government investments in private securities. 
Government purchases of private securities, including corporate 
bonds and equities, pose an interesting and unprecedented 
dilemma for the Federal budget.
    Should those purchases be part of the Federal Government 
expenditures? Right now we treat government purchases of 
financial securities the same way we treat purchases of non-
financial assets, as a cash outlay. But there is an argument 
that because the purpose of financial assets is different from 
that of non-financial assets, they should not be treated as an 
    If we were to not treat them as an outlay however, we would 
disguise the extent to which the Federal Government intervenes 
in the economy, and this treatment. That would be counter to 
one of the major principles of the 1967 Budget Concepts 
    These are four important issues that I think need to be 
addressed, consistent with the review that the committee is 
doing now on the extension of the Budget Enforcement Act.
    There are implementations for trust fund accounting in 
general and particularly for State reform that are very 
important. Also important is that I don't think it is 
appropriate for the Congressional Budget Office, the General 
Accounting Office, the Office of Management and Budget or 
scorekeepers to address these issue unilaterally.
    We need the guidance of the Congress and the President on 
how to treat these fundamental budget concepts. Thank you very 
    [The prepared statement of Mr. Anderson follows:]

Prepared Statement of Barry B. Anderson, Deputy Director, Congressional 
                             Budget Office

    Chairman Nussle, Congressman Spratt, and members of the committee, 
thank you for inviting me to testify today on structural reform of the 
Federal budget process. Next year, the major provisions of the Budget 
Enforcement Act of 1990 (BEA) will expire. That law has provided the 
basic enforcement framework for lawmakers' budgetary deliberations for 
the past decade. As lawmakers consider whether or how it should be 
extended, they could also consider other changes in the budget process 
and in fundamental budget concepts that would address broader concerns 
that have surfaced over the years.
    My testimony today will make the following major points:
     Despite recent difficulties, the BEA framework of 
discretionary spending limits and Pay-As-You-Go (PAYGO) enforcement has 
generally promoted budget discipline. Also, broader changes in the 
budget process, such as certain changes proposed in the Nussle-Cardin 
budget reform legislation of the 106th Congress (H.R. 853), could help 
to improve that process.
     It is time to reevaluate the broad budget concepts on 
which the Federal budget process is based. Budget concepts were last 
reviewed comprehensively in 1967, by the President's Commission on 
Budget Concepts. During the intervening years, changes in the Federal 
budget and in modern legislative proposals affecting the budget have 
raised significant issues about appropriate budgetary treatment that 
are not covered by the commission's recommendations. This suggests that 
a new budget concepts commission, or some other forum for reaching a 
consensus on those issues, may be needed.


    Lawmakers enacted the Budget Enforcement Act as part of a multiyear 
agreement to reduce deficits. That law amended the Balanced Budget and 
Emergency Deficit Control Act of 1985, replacing its regimen of fixed 
deficit targets with a new system of procedures for controlling 
deficits. The BEA established statutory limits on discretionary 
spending and a PAYGO requirement for new mandatory spending and revenue 
laws. In general, the BEA disciplines now scheduled to expire at the 
end of fiscal year 2002 were intended to ensure that new spending and 
revenue laws did not increase projected deficits. The discretionary 
caps and PAYGO requirement (like the deficit targets before them) are 
enforced by sequestration, a process that imposes automatic, generally 
across-the-board cuts in spending if those disciplines are not met.
    As the Congressional Budget Office (CBO) testified before the 
committee last month, the BEA framework has provided a solid foundation 
for budget discipline for most of the past decade. From 1991 through 
1997, the law's limits on discretionary appropriations and its PAYGO 
requirement helped to control deficits. The growth of total 
discretionary outlays was held well below the overall rate of 
inflation. (Within that total, however, growing appropriations for many 
nondefense discretionary accounts were offset by a steep decline in 
defense spending in the aftermath of the cold war.) New mandatory 
spending and revenue laws enacted during the period did not increase 
net deficits.
    With the emergence in 1998 of large and growing surpluses, however, 
the fiscal environment changed. Yet the BEA framework, which had been 
recently extended through 2002 by the 1997 Balanced Budget Act, 
remained in effect. Surpluses put increasing pressure on lawmakers to 
circumvent the discretionary spending caps and the PAYGO requirement, 
making those disciplines much less effective.
    In 1999 and 2000, lawmakers enacted record levels of emergency 
appropriations which are effectively exempt from budget enforcement 
procedures and used other funding devices to boost discretionary 
spending well above the caps set in 1997. Although lawmakers set higher 
caps for 2001, CBO's baseline estimates of total discretionary spending 
for 2002 exceed the adjusted caps, which lawmakers have not yet reset, 
by more than $100 billion (for both budget authority and outlays).
    Despite recent experience, the underlying philosophy of the Budget 
Enforcement Act that appropriations should be enacted within 
enforceable limits, and the estimated costs of new mandatory spending 
and tax legislation should generally be offset has proven to be 
effective. It could continue to be an important component of overall 
budget discipline. Even in a period of surpluses, maintaining an 
effective framework of budget discipline is an important hedge against 
uncertain budget projections and political pressure to increase 
    As lawmakers consider extending the BEA, they may also want to make 
changes to improve its framework. For example, they may want to add 
specific criteria in law that would set out the purposes for which the 
emergency spending designation should be used. In 1991, as part of a 
mandated report on the costs of certain emergencies in that year, the 
Office of Management and Budget identified several criteria used in the 
executive branch for deciding the type of provisions that would qualify 
for emergency appropriations.\1\ The criteria specify that the 
emergency designation should be used only for spending that is 
necessary, sudden, urgent, unforeseen, and temporary. They were never 
codified, and in the past few years lawmakers have chosen to disregard 
them. Formal guidelines codified into law would help to inform the 
debate over emergency spending and to minimize abuses of the emergency 
spending designation.
    \1\ Office of Management and Budget, 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 (June 1991).
    Lawmakers may also wish to adapt the BEA framework to an 
environment of surpluses. Many lawmakers have expressed their 
commitment to preserving off-budget surpluses for debt reduction. The 
BEA framework could be modified to enable lawmakers to enact 
legislation that would use some portion of the projected on-budget 
(non-Social Security) surpluses for new spending or revenue policies, 
while protecting the off-budget surpluses using the BEA's sequestration 
    Because the context for the coming debate about extending the BEA 
is likely to differ considerably from the context in earlier years, it 
may also prompt a wider look at the budget process. Indeed, last year, 
the House considered legislation that would have changed the process in 
ways that could help to improve budgetary decisionmaking. That 
legislation (H.R. 853) was developed by the Task Force on Budget 
Process (the Nussle-Cardin task force) of the House Budget and Rules 
    For example, a number of lawmakers worry that the budget process is 
too complex and confusing; they would like to make it simpler, easier 
to understand, and more efficient. They contend that excessive 
complexity in the budget process, among other factors, has led to 
delays in enacting budget legislation especially appropriation laws. 
They favor converting the annual budget cycle to a 2-year timetable, 
providing for automatic continuing appropriations, and turning the 
Congressional budget resolution into a joint resolution signed by the 
President (proposals that were considered during the debate on H.R. 
853). Although those proposals may help to ease delays and reduce 
complexity, no procedural changes can guarantee agreement on budget 


    In addition to extending the BEA enforcement mechanisms and 
considering other changes to the budget process, lawmakers should, as 
part of any structural reform, revisit the framework of fundamental 
budget concepts and accounting principles that underlies their annual 
deliberations over the Federal budget.
    The basic accounting rules generally followed in the modern budget 
process are set forth in the 1967 Report of the President's Commission 
on Budget Concepts.\2\ Although the report has no legal status, it 
remains to this day the most authoritative statement on Federal 
budgetary accounting concepts and principles. The commission's most 
important recommendation was for a comprehensive Federal budget. It 
recommended that the budget cover the full range of Federal activities 
and that even borderline activities and transactions be covered unless 
there were compelling reasons to exclude them.
    \2\ President's Commission on Budget Concepts, Report of the 
President's Commission on Budget Concepts (October 1967).
    Although the commission's guidelines continue to apply broadly to 
the budget process, they do not accommodate many of today's complex 
budget proposals and institutions. Lawmakers and budget scorekeepers 
now face fundamental questions:
     What is the appropriate scope of the budget? The 
commission's recommendation that the budget should include all Federal 
activities provides little or no guidance on how to treat various 
public/private partnerships such as Amtrak and similar hybrid entities.
     When should a program be classified as spending rather 
than an offset to taxes? The line dividing Federal spending and revenue 
law has become blurred, as shown by the increasing use of so-called 
refundable tax credits and certain fees as devices for expanding 
budgetary resources for spending programs.
     Does the use of trust funds for tracking earmarked revenue 
confuse lawmakers and the public? The proliferation of Federal trust 
funds, which now exceed 200, raises important questions about the 
extent to which those and other earmarking devices in the Federal 
budget may distort the overall budgetary choices that lawmakers face 
each year.
     How do we accurately measure the Federal Government's 
effect on the economy? The purchase and sale of non-Federal debt and 
equities, important components of some proposals to reform Social 
Security, raise thorny issues of budgetary treatment that are important 
for estimating the costs associated with those proposals.
    Those questions are examined in more detail below.

                            BUDGET COVERAGE

    As the 1967 Commission recommended, the Federal budget should 
encompass the full scope of Federal programs and entities. It suggested 
certain broad criteria to help make such determinations. For example, 
who owns an entity and selects the managers? Do the Congress and the 
President have control over an entity's program and budget, or are its 
policies set primarily in response to private owners and not to 
accomplish some broader public purpose?
    Despite the broad scope of the commission's guidelines, they do not 
clarify the appropriate budgetary treatment of certain partnerships 
between the Federal Government and the private sector that appear to be 
largely Federally-controlled. For example, the business operations of 
Amtrak are generally excluded from the Federal budget, but Amtrak's 
board members are appointed by the President, its preferred stock is 
owned by the Department of Transportation, and the Federal Government 
controls the routes that Amtrak uses. In addition, Amtrak has not 
earned any profit in its more than 20 years of existence. Our economic 
system would not permit any truly private entity to continue under 
those conditions. Other examples of hybrid, public/private entities 
include the Metropolitan Washington Airports Authority and agricultural 
marketing boards.
    If lawmakers determine that the budget should continue excluding 
such entities, then perhaps a new or more complete list of criteria 
should be developed to better distinguish between Federal and non-
Federal entities for budgetary purposes.


    Over the past 30-plus years, the division between taxes and 
spending has become muddled. Maintaining a consistent and clear 
distinction in the budget between spending and taxes would give 
lawmakers and the public a more accurate picture of the size of the 
Federal Government and the amount of budgetary resources it committed.
    For example, the tax code has been changed extensively in recent 
years to grant taxpayers credits against their tax liability for a 
diverse array of public policy goals. Those tax credits generally are 
classified as affecting receipts, but in many cases they establish 
benefits that may be completely unrelated to the amount of taxes 
otherwise due or that exceed a taxpayer's liability. Known as 
refundable credits, tax credits that exceed a taxpayer's liability 
appear to resemble spending for public policy purposes rather than 
    Tax credits now exist for such diverse activities as the production 
of alternative fuels, reforestation, education, and income support. The 
generous use of tax credits understates the true size of the government 
and distorts information about Federal spending priorities. Also, the 
Congress may be more willing to create a new tax credit than a new 
spending program.
    In addition, the distinction between revenues and offsetting 
collections, which are treated as offsets to spending, is also a 
concern. Offsetting collections from the public typically are linked to 
a business-type activity or service provided to the public by a Federal 
agency. In the budget process, they are distinguished from revenues 
collected under the Federal Government's sovereign power to tax or 
regulate. Over the years, laws have been enacted that classify certain 
revenues as offsetting collections. However, revenues that are 
improperly classified as an offset to spending provide a distorted 
picture of government finances.
    A prominent example is fees collected by the Securities and 
Exchange Commission (SEC). Normally, those fees would be classified as 
revenues, not as offsetting collections, in part because they are not 
associated with a business-type transaction but rather collected, as 
are other taxes, under the government's sovereign powers. However, laws 
have been enacted requiring some of those fees to be counted as 
offsetting collections credited to the appropriation account for SEC 
salaries and expenses, while some existing SEC fees are recorded as 
governmental receipts (that is, revenues). Without such laws directing 
the budgetary accounting, all SEC fees would be counted as general 

                              TRUST FUNDS

    The Federal Government accounts for its activities through two 
broad groups of funds: Federal funds and trust funds. In general, trust 
funds are created in law to earmark receipts for specific programs and 
purposes. The General Accounting Office has identified over 200 trust 
funds in the Federal budget, although fewer than a dozen account for 
the vast majority of trust fund receipts and spending.\3\
    \3\ General Accounting Office, Federal Trust and Other Earmarked 
Funds: Answers to Frequently Asked Questions, GAO-01-199SP (January 
2001), available at www.gao.gov.
    Federal trust funds differ significantly from private-sector trust 
funds. For example, claims against private trust funds are limited by 
the value of the fund's assets. By contrast, Federal trust funds 
function as accounting mechanisms that record tax receipts, user fees, 
and other credits and associated expenditures. When trust fund receipts 
exceed expenditures, the government's books show trust fund balances. 
However, those balances are claims on the Treasury that, when redeemed, 
will have to be financed by raising taxes, borrowing from the public, 
or reducing benefits or other expenditures. The existence of large 
trust fund balances, therefore, does not by itself have any impact on 
the government's ability to pay benefits.
    Further, the beneficiary of a private trust fund usually owns the 
fund's income and often owns its assets. The trustees of the fund also 
have a fiduciary responsibility to manage the fund on behalf of its 
beneficiaries and cannot make unilateral changes to the provisions 
governing the trust. In contrast, Federal trust funds generally are 
owned by the Federal Government. They are created in law, and lawmakers 
can change those laws or repeal them.
    Those and other distinctions between Federal and private trust 
funds create confusion among lawmakers and the public and cause some 
people to argue that the spending and revenues credited to Federal 
trust funds should be treated differently in the budget process. That 
puts pressure on lawmakers to favor those trust funds in their annual 
budgetary deliberations and potentially limits their flexibility in 
setting broad budget policies and priorities for the budget generally.


    Government purchases of private securities, including corporate 
bonds and equities, pose an interesting and unprecedented dilemma for 
the Federal budget. Such purchases are a part of certain major 
proposals to reform Social Security.
    Under current budgetary guidelines, purchases of private financial 
securities are recorded as cash outlays; the sales of the securities 
and returns such as dividends and interest payments are recorded as 
offsetting receipts. The budgetary treatment is the same for 
investments in private financial securities as it is for investments in 
nonfinancial assets.
    On the one hand, important distinctions exist between financial and 
nonfinancial assets. In general, financial assets are acquired to 
generate a flow of income rather than to provide public services such 
as national security, health care, or recreation. This suggests that 
government purchases of private equities should be treated differently 
in the budget than purchases of nonfinancial assets. On the other hand, 
if equity purchases were not counted as outlays, the budget would not 
accurately reflect the level of the Federal Government's ownership and 
control of the private sector. That would seem to violate one of the 
fundamental principles of the 1967 Commission that the budget should 
reflect the true extent of the government's interactions with the 


    On balance, the BEA framework has improved budget discipline. 
Extending that framework, under the right circumstances, would 
contribute to continued budget discipline. As lawmakers consider 
extending the BEA, they may wish to add criteria for the emergency 
spending designation and make changes that would adapt the BEA to a 
period of surpluses. Other changes in the budget process, such as some 
of those recommended in the Nussle-Cardin bill, may help to address 
lawmakers' broader concerns about the budget process.
    As important as those concerns, however, is the issue of the status 
of the fundamental budget concepts that underlie the Federal budget 
process. Those concepts have not been comprehensively reviewed since 
the President's 1967 Commission on Budget Concepts. The 1967 guidelines 
leave unanswered a number of thorny questions about the budgetary 
treatment of modern budgetary legislation.
    The answers to those questions have significant implications for 
certain major budget policy proposals, including Social Security 
reform, and how those proposals should be accounted for in the Federal 
budget. Consequently, they should not be left to budget technicians and 
scorekeepers to resolve. One approach would be to create a new budget 
concepts commission that could sort through the various options and 
make appropriate recommendations, much as the President's Commission 
did over 30 years ago. Such an approach would help lawmakers to review 
conceptual issues comprehensively and may help to promote a consensus 
on how those issues should be resolved.

    Chairman Nussle. Thank you.
    If you are prepared, Congressman Cox, I don't mean to rush 
you, but I also understand your time constraints.


    Mr. Cox. Well, as you know, Mr. Chairman and Mr. Price, I 
was happy to be here for the morning's hearing, even as my own 
markup was proceeding and I barely made the vote on final 
passage, but missed about six recorded votes.
    It was worth it because the testimony here was very, very 
illuminating. I learned a lot. I want to congratulate you for 
doing this. I know, Mr. Chairman, that you have invested a lot 
of intellectual energy as well as physical time in this 
    I was very happy to see our former colleagues here to help 
in that process, as well as an alumnus of the Congressional 
Budget Office.
    I think it is appropriate to turn to former Members because 
of their unique perspective. In that spirit of looking to 
experience, I went back into the archives of the Policy 
Committee, which I currently chair. In 1975, Representative 
Barber Conable was the chairman of the House Republican Policy 
Committee. He is now a member of the History of the House 
Advisory Board, by the way.
    On April 29, 1975, in the wake of the enactment of the 1974 
Budget Act and on the threshold of the floor debate on the 
first resolution on the budget, the first in both senses. It 
was literally the first. In this committee you unanimously 
approved a prescient statement which I have made available to 
you. It should be on your desk. I will just read from the first 
paragraph of that statement and then its conclusion, if I 
    ``Last year,'' which would have been 1974, ``Congress 
undertook a major overhaul of the budget process. Instead of 
considering each spending measure separately on its merits and 
then adding them all up at the end of the year to find out the 
total, Congress, under the new procedure, is supposed to set 
spending and revenue totals in advance and then discipline 
itself to see that individual spending and revenue measures 
adhere to the overall plan.''
    So far, so good. That is what the 1974 Act was supposed to 
do. It is saying simply ``Budget first and spend second,'' a 
sound discipline when one adheres to it.
    In 1975, however, things didn't turn out so well. The 
statement concluded as follows:
    ``The Budget Committee's first resolution comes just in 
time to reveal a government out of control and sliding into a 
state of fiscal disaster. Major legislative efforts are needed 
to rein in 'uncontrollable items,' and to establish a new 
pattern of legislative authorizations and appropriations. The 
new budget procedure is no panacea.
    ``The first resolution on the budget makes it clear that 
our whole legislative process must be rededicated to a will to 
    So, at the inception what they saw is that procedures not 
withstanding, it was going to take sheer political will in 
order to exert any budget discipline. That, a quarter of 
century later, is where we find ourselves.
    We have a process that is well designed to the extent that 
it encourages us to have a budget first and spend second. But, 
because it utterly lacks in enforcement, we still need to rely 
on sheer political will to get the job done.
    Congress approved a record deficit in 1975, but the budget 
resolution itself didn't even predict just how bad things would 
get that year, how much spending would be over the limits set 
in that budget.
    President Carter remarked--and you remember his Budget 
Director Burt Lance said so as well--that the new law actually 
stripped the President of powers to participate in the budget 
process and to exert fiscal discipline.
    When President Reagan came to office he certainly had the 
political will to rein in spending, but he couldn't control it 
either and spending growth continued unabated.
    To sustain a rate of government spending growth that has 
far surpassed the Nation's economic growth, the Federal 
Government today takes more from the national economy in taxes 
than at any time in our peacetime history, as you on this 
committee are well aware.
    The fact that Congress has balanced the budget for 4 years 
in a row, the first time that this has happened in over 70 
years, is actually a representation of what an oddity it is and 
how aberrational it is.
    What we need to do is make it institutional and not 
aberrational. We need, in short, enforcement of the budgets 
that you on this committee enact. An effective budget process 
reform will make enforcement a centerpiece so that we will 
require ourselves to live within a budget.
    Otherwise, the budget that you adopt here, the work of this 
committee and all of its members will amount to so much sound 
and fury, signifying nothing.
    The budget resolution, it is an odd term because this 
flaccid and weak resolution is utterly lacking in resolution. 
It is not resolute. It is sort of Orwellian to think of it that 
    The bill that this committee worked with in the 106th 
Congress contained a lot of the items that were discussed 
today. But I want to emphasize among all of them what I believe 
is the most important, and that is enforcement. A super-
majority vote to break the budget that Congress enacts by 
majority vote by choice will require that we commit ourselves 
in a solemn way to living within a budget.
    If you can get out of the budget simply by breaking it in 
some other legislative enactment, as easily as you passed the 
budget in the first place, then there is no such thing as 
budget discipline.
    I would also give the President line item reduction; not 
line item veto, but the opportunity to pare back the budget 
levels jointly agreed upon in a joint resolution as many of the 
panelists have discussed earlier today, the levels of spending 
originally stipulated by a majority of the Congress and signed 
into law by the President.
    Lastly, biennial budgeting is certainly a big part of the 
discussion. Biennial budgeting of itself doesn't provide budget 
discipline, although it can. The fact that it was rejected on 
the floor on a nearly even split vote last year I think 
reflects the ambivalence that is felt about it among Democrats 
and Republicans alike.
    This committee knows full well that if you double the 
period of time that you are forecasting, that the emergencies 
that come up will be just that much more and that the excuses 
and the reasons will actually be much better--who could have 
    Therefore budget by supplemental will become the order of 
the day unless you exert a discipline on supplementals that is 
just as sturdy as anything that we would enforce within the 
budget itself.
    Coupled with super-majority votes and the line item 
reduction, a biennial budget, therefore could, in fact, enhance 
budget discipline.
    I want to thank you for the time that you are spending on 
this. The President has said that budget process reform is 
important to him. He has made it a part of his own budget 
    Your leadership and your focus on this means that the stars 
are now aligned to get something done. We have a legacy to 
preserve. We have these four consecutive balanced budgets that 
I hope we can extend. But every day brings news that we may dip 
into the Social Security or Medicare trust funds. Avoiding that 
calamity is, in the first instance, the job of this committee. 
The men and women on this committee stand to thwart that 
calamity. You can prevent it from happening through the 
exertion of spending discipline.
    But sheer will, sheer political will won't be enough. You 
have to turn from a system that relies exclusively on that to 
one of the institutional enforcement.
    So if I can leave you with any thought at all, it is that, 
enforcement, enforcement, enforcement.
    Thank you, Mr. Chairman.
    Chairman Nussle. Thank you, Chairman Cox.
    As one of our most consistent advocates for budget process 
reforms, we appreciate your willingness to come here to 
testify. We understand that you have other scheduling 
constraints. So, if you need to leave, we understand that. We 
appreciate your flexibility in your schedule to come and 
testify today.
    Mr. Cox. Well, Mr. Chairman, I observe that there are only 
two members to ask questions, so I would be happy to stay if 
you have any.
    Chairman Nussle. Sounds good.
    Ms. Irving, thank you very much for your attendance. Again, 
your entire testimony will be in the record and you may 
summarize as well.

                  STATEMENT OF SUSAN J. IRVING

    Ms. Irving. Thank you, Mr. Chairman and Mr. Price. Mr. Cox, 
it is always intimidating to be on a panel with someone who 
actually has to live in the fray that those of us who work for 
you talk about.
    First of all, I would like to dissent from the idea that 
process conversations always have to be boring. It is a little 
like the complaint that the budget debate takes too much time. 
Let us stand back a minute.
    The budget debate is a debate about how much of the wealth 
produced in this country shall be taken by its representatives 
to be used collectively. It is hard to believe that there is 
something more important to be debating, given that we are 
lucky enough to not be at war.
    The real complaint is that we can get focused on the wrong 
thing. In a way I think it is quite fortuitous that this is the 
year the BEA expires because you have a process that was 
designed with the goal of getting rid of a deficit, and that is 
not the same process you will use for managing a surplus.
    It is important to step back and recognize that the process 
itself need not be aimed at a specific outcome. Think about 
what drove the 1974 Act. It was designed to reassert Congress' 
role in the fiscal policy debate. That it is important and 
worth restating when you look at some of the proposals that 
appear to be designed to let Congress take a back seat in its 
    Prior to 1974, Congress was clearly a junior player in 
fiscal policy and in the debate about overall allocation across 
mission. So, the fact that the budget process has not worked 
perfectly as envisioned doesn't mean it hasn't made a major 
step forward in asserting Congressional control. As a 
legislative staff member, I care about that.
    I am happy to answer questions on some of the specific 
issues you raised, but I first would like to look at some 
broader principles.
    You cannot ask the process to determine the decisions you 
make--not the answers you come up with. You can ask the process 
to surface the right questions so that your energy and time are 
focused on the right issues, the important issues.
    It is important that a budget process be designed to let 
you look at the important big macro questions, both near-term 
and long-term. Previous witnesses and Members talked about the 
uncertainty of 10-year and long-term projections, and they are 
right. Barry, who has to be in the business of making them--he 
wouldn't put a certainty estimate on his 10-year number.
    But if you don't have a sense about what looms beyond the 
five- and even the 10-year horizon, you are not able to deal 
with your obligation to the future.
    You want to think differently about the 2-year numbers, the 
5-year numbers, the 10-year numbers which are essentially just 
for enforcement, the kind of situation Mr. Reischauer 
    But I would suggest you are also going to have to look 
longer than that. In a way you already do. The fight today 
about how much of the surplus should be used for tax cuts, for 
spending increases or for debt reduction is in part driven by a 
recognition that the long-term budget outlook looks a lot worse 
than the next 10 years.
    You would like a budget process to help you allocate 
priorities across mission areas, to think about how much you 
want to spend on defense, on education, on income support, etc. 
You would like the process to help you pick tools by what works 
better rather than by jurisdiction. Should a goal be addressed 
through the tax code or through a spending program or a credit 
program? You want to be able to determine that in some analytic 
sense based on what you think will work best, not where the 
legislation originates.
    Of course, you would like a process to provide for, 
enforceability, which I think is driven in part by 
accountability. In fact, one of the BEA's great strengths is 
that by separating the world into discretionary and PAYGO, you 
made accountability easier.
    Let me just focus for a minute on the long term issue, in 
part because, as you know from the work we have done for you 
and some of your predecessors, that is a particular concern of 
the General Accounting Office and our head, Mr. Walker.
    Again, I say that with Social Security and Medicare, the 
problem is not that the process has not told you there is a 
problem. The process has not told you how to fix it. I don't 
know that any process will force you to come to grips with 
Social Security and Medicare. Maybe if you are willing to set 
targets for how much of the economy you think those programs 
should take up or how much you would like their rate of growth 
slowed, the process can be used to create speed bumps.
    But there are a lot of other programs where the budget 
today gives you the wrong signal. There are other programs 
which have long term cost implications. I would suggest you 
think about extending BEA and revising its structure, you think 
about improving the structure and process to include better 
information on the long-term cost implications of some of these 
programs. At the time you create, renew or expand an insurance 
program, it would be good to have some idea of what you are 
committing the government to in the future.
    What about government pension programs? What about a 
retiree health? Today the government's budget doesn't reflect 
all of the long-term cost commitments made by the Federal 
    In my written testimony I include more about issues in the 
expiration of the caps and their design. I think I would be 
about the sixth witness here today to say that caps don't work 
when they are unrealistic. You need an emergency escape hatch, 
but it is going to be broadened more the less realistic the 
caps are.
    If you choose to extend PAYGO, you need to think about how 
to design it. It is entirely unrealistic to assume that none of 
the surplus will be used to respond to needs of society.
    Finally, I think that Barry is right, that you need to 
think about how you want to make the concepts, the scoring and 
the structure match the issues that confront you today. The 
forum in which you want to do that I think is really an issue 
for you all to decide. But I think the issues are important.
    I would be happy to answer any questions.
    [The prepared statement of Ms. Irving follows:]

    Prepared Statement of Susan J. Irving, Director, Federal Budget 
              Analysis, U.S. Government Accounting Office

    Mr. Chairman, Mr. Spratt, members of the committee, it is a 
pleasure to join you as you think about how to extend and adapt the 
Budget Enforcement regime. The discretionary spending limits and Pay-
As-You-Go (PAYGO) mechanism established by the Budget Enforcement Act 
(BEA) will expire in fiscal year 2002.\1\ Perhaps this timing is 
appropriate; although most of us would argue that some controls are 
necessary even in a time of surplus, the details will be different in a 
time of surplus than a time of deficit.
    Among the issues your staff asked me to cover is whether--and if so 
how--the budget process can be designed to help avoid what has been 
described as the year-end ``train wreck.'' Later in this statement I 
will talk about some of the particular ideas that have been proposed in 
this area. First, however, I'd like to talk a bit about what a process 
can and cannot do. A process can surface important issues; it can seek 
to focus the debate on the important choices. But it is not a 
substitute for substantive debate--no process can force agreement where 
one does not exist.
    We ask a great deal of our budget process. We use it to determine 
aggregate fiscal policy and to allocate resources across different 
claims. We use it to drive program management. In the context of the 
Government Performance and Results Act of 1993, we turn to the budget 
to tell us something about the cost of obtaining a given level of 
results. Asking the process to take on the job of avoiding a ``train 
wreck'' may be more than can reasonably be expected.
    A year-end ``train wreck'' is the result of failing to reach 
agreement--or at least a compromise acceptable to all parties--earlier 
in the year. Although it is possible that reaching agreement on some 
broad parameters early on could facilitate a smoother process, it is 
not clear that such an agreement will always prevent gridlock--it may 
just come earlier. The details of implementing broad agreements are 
often the subject of heated debate.
    BEA, when first developed and later when it was extended, was a 
process established to enforce a previously reached substantive 
agreement. As we move from seeking to reduce the deficit to debating 
how much of the surplus should be used, agreement on a broad fiscal 
policy posture might help. How much of the surplus should be used to 
meet demands for tax cuts and/or spending increases and how much for 
debt reduction? The Congress and the President seem to have reached a 
tacit agreement that the Social Security surplus should be used for 
debt reduction. While this agreement sets the outside parameters for 
the budget debate, it does not settle either the distribution between 
tax cuts or spending increases or the allocation of either one. It is 
already evident that, by itself, this broad framework is unlikely to 
make for smooth sailing.
    While an orderly process may be important, and avoiding a ``train 
wreck'' desirable, I believe there are other important issues to 
consider in designing the budget process. As I have testified before, 
the budget represents the decisions made about a large number of often 
conflicting objectives that citizens want the government to address. We 
should not be surprised that it generates controversy. As BEA expires 
and you move from fighting current deficits to prudent management of 
surpluses, you face a wealth of options and choices. I appreciate the 
invitation to talk about some of these today. Some of these points are 
discussed more fully in our recent BEA compliance report\2\ that we 
prepared at your request, Mr. Chairman.


    In the past, we have suggested four broad principles or criteria 
for a budget process.\3\ A process should:
     provide information about the long-term impact of 
decisions, both macro-linking fiscal policy to the long-term economic 
outlook--and micro--providing recognition of the long-term spending 
implications of government commitments;
     provide information and be structured to focus on 
important macro trade-offs--e.g., between investment and consumption;
     provide information necessary to make informed trade-offs 
between missions (or national needs) and between the different policy 
tools of government (such as tax provisions, grants, and credit 
programs); and
     be enforceable, provide for control and accountability, 
and be transparent, using clear, consistent definitions.
    The lack of adherence to the original BEA spending constraints in 
recent years, the nearing expiration of BEA, and the projection of 
continued and large surpluses in the coming years suggest that now may 
be an opportune time to think about the direction and purpose of our 
Nation's fiscal policy. In a time of actual and projected surpluses, 
the goal of zero deficit no longer applies. Rather, discussion shifts 
toward how to allocate surpluses among debt reduction, spending 
increases, and tax cuts. Only then can limits on subcategories of 
spending be set. Will the entire Social Security surplus be ``saved''? 
What about the Medicare Part A surplus? In our work on other countries 
that also have faced the challenge of setting fiscal policy in times of 
surplus, we found that as part of a broad fiscal policy framework some 
countries adopted fiscal targets such as debt-to-gross domestic product 
(GDP) ratios to serve as guides for decisionmaking.
    Complicating the discussion on formulating fiscal policy in a time 
of surplus is the fact that the long-term picture is not so good. 
Despite current projections that show surpluses continuing over the 10-
year budget window, our long-term budget simulations show a resumption 
of significant deficits emerging after the anticipated demographic 
tidal wave of population aging hits. These demographic trends serve to 
emphasize the importance of the first principle cited above--the need 
to bring a long-term perspective to bear on budget debates. Keeping in 
mind these principles and concerns, a number of alternatives appear 


    There is a broad consensus among observers and analysts who focus 
on the budget both that BEA has constrained spending and that 
continuation of some restraint is necessary even with the advent of 
actual and projected surpluses. Discussions on the future of the budget 
process have primarily focused on revamping the current budget process 
rather than establishing a new one from scratch.
    Where discussion has moved beyond a general call for continued 
restraint to specific control devices, the ones most frequently 
discussed are:
    (1) Extending the discretionary spending caps, (2) extending the 
PAYGO mechanism, and (3) creating a trigger device or a set of rules 
specifically designed to deal with the uncertainty of budget 
projections. A new budget process framework could encompass any or all 
of these instruments.


    BEA distinguished between spending controlled by the appropriations 
process--``discretionary spending''--and that which flowed directly 
from authorizing legislation provisions of law--``direct spending,'' 
sometimes called ``mandatory.'' Caps were placed on discretionary 
spending--and the Congress' compliance with the caps was relatively 
easy to measure because discretionary spending totals flow directly 
from legislative actions (i.e., appropriations laws). There is broad 
consensus that, although the caps have been adjusted, they have served 
to constrain appropriations. This consensus combined with the belief 
that some restraints should be continued has led many to propose that 
some form of cap structure be continued as a way of limiting 
discretionary appropriations. However, the actions in the last 2 years 
have also led many to note that caps can only work if they are 
realistic; while caps may be seen as tighter than some would like, they 
are not likely to bind if they are seen as totally unreasonable given 
current conditions.
    Further, some have proposed that any extension of BEA-type caps be 
limited to caps on budget authority. Outlays are controlled by and flow 
from budget authority--although at different rates depending on the 
nature of the programs. Some argue that the existence of both budget 
authority and outlay caps has encouraged provisions such as ``delayed 
obligations'' to be adopted not for programmatic reasons but as a way 
of juggling the two caps. The existence of two caps may also skew 
authority from rapid spendout to slower spendout programs, thus pushing 
more outlays to the future and creating problems in complying with 
outlay caps in later years. Extending only the budget authority cap 
would eliminate the incentive for such actions and focus decisions on 
that which the Congress is intended to control--budget authority, which 
itself controls outlays. This would be consistent with the original 
design of BEA.
    Eliminating the outlay cap would raise several issues--chief among 
them being how to address the control of transportation programs for 
which no budget authority cap currently exists, and the use of advance 
appropriations to skirt budget authority caps. However, agreements 
about these issues could be reached--this is not a case where 
implementation difficulties need derail an idea. For example, the 
fiscal year 2002 budget proposes a revision to the scorekeeping rule on 
advance appropriations so that generally they would be scored in the 
year of enactment. If the Budget Committees and CBO agree, this change 
could eliminate the practice of using advance appropriations to skirt 
the caps. The obvious advantage to focusing decisions on budget 
authority rather than outlays is that the Congress would not spend its 
time trying to control that which by design is the result of its budget 
authority decisions--the timing of outlays.
    There are other issues in the design of any new caps. For example, 
for how long should caps be established? What categories should be 
established within or in lieu of an overall cap? While the original BEA 
envisioned three categories (Defense, International Affairs, and 
Domestic), over time categories were combined and new categories were 
created. At one time or another caps for Nondefense, Violent Crime 
Reduction, Highways, Mass Transit, and Conservation spending existed--
many with different expiration dates. Should these caps be ceilings, or 
should they--as is the case for Highways and Conservation--provide for 
``guaranteed'' levels of funding? The selection of categories--and the 
design of the applicable caps--is not trivial. Categories define the 
range of what is permissible. By design they limit trade-offs and so 
constrain both the Congress and the President.
    Because caps are phrased in specific dollar amounts, it is 
important to address the question of when and for what reasons the caps 
should be adjusted. This is critical for making the caps realistic. For 
example, without some provision for emergencies, no caps can be 
successful. At the same time, there appears to be some connection 
between how realistic the caps are and how flexible the definition of 
emergency is. As discussed in last year's compliance report, the amount 
and range of spending considered ``emergency'' has grown in recent 
years. There have been a number of approaches suggested to balance the 
need to respond to emergencies and the desire to avoid making the 
``emergency'' label an easy way to raise caps. In the budget resolution 
for fiscal year 2001 [H. Con. Res. 290], the Congress said it would 
limit emergencies to items meeting five criteria: (1) necessary, 
essential, or vital (not merely useful or beneficial), (2) sudden, 
quickly coming into being, and not building up over time, (3) an 
urgent, pressing, and compelling need requiring immediate action, (4) 
unforeseen, unpredictable, and unanticipated, and (5) not permanent, 
temporary in nature. The resolution further required any proposal for 
emergency spending that did not meet all the criteria to be accompanied 
by a statement of justification explaining why the requirement should 
be accorded emergency status. The fact that this provision was ignored 
during debates on fiscal year 2001 appropriations bills emphasizes that 
no procedural hurdle can succeed without the will of the Congress. 
Others have proposed providing for more emergency spending--either in 
the form of a reserve or in a greater appropriation for the Federal 
Emergency Management Agency (FEMA)--under any caps. If such an approach 
were to be taken, the amounts for either the reserve or the FEMA 
disaster relief account would need to be included when determining the 
level of the caps. Some have proposed using a 5- or 10-year rolling 
average of disaster/emergency spending as the appropriate reserve 
amount. Adjustments to the caps would be limited to spending over and 
above that reserve or appropriated level for extraordinary 
circumstances. Alternatively, with additional up-front appropriations 
or a reserve, emergency spending adjustments could be disallowed.\4\
    Even with this kind of provision only the commitment of the 
Congress and the President can make any limit on cap adjustments for 
emergencies work. States have used this reserve concept for 
emergencies, and their experiences indicate that criteria for using 
emergency reserve funds may be useful in controlling emergency 
spending.\5\ Agreements over the use of the reserve would also need to 
be achieved at the Federal level.
    This discussion is not exhaustive. Other issues would come up in 
extending BEA. Previously, we have reported on two issues--the scoring 
of operating leases and the expansion of user fees as offsets to 
discretionary spending; because I think they need to be considered, let 
me touch on them briefly.
      miscellaneous discretionary challenges: leases and user fees
    We have previously reported that existing scoring rules favor 
leasing when compared to the cost of various other methods of acquiring 
assets.\6\ Currently, for asset purchases, budget authority for the 
entire acquisition cost must be recorded in the budget up front, in the 
year that the asset acquisition is approved. In contrast, the 
scorekeeping rules for operating leases often require that only the 
current year's lease costs be recognized and recorded in the budget. 
This makes the operating lease appear less costly from an annual 
budgetary perspective, and uses up less budget authority under the cap. 
Alternative scorekeeping rules could recognize that many operating 
leases are used for long-term needs and should be treated on the same 
basis as purchases. This would entail scoring up front the present 
value of lease payments covering the same period used to analyze 
ownership options. The caps could be adjusted appropriately to 
accommodate this change.
    Many believe that one unfortunate side effect of the structure of 
the BEA has been an incentive to create revenues that can be 
categorized as ``user fees'' and so offset discretionary spending--
rather than be counted on the PAYGO scorecard. The 1967 President's 
Commission on Budget Concepts recommended that receipts from activities 
that were essentially governmental in nature, including regulation and 
general taxation, be reported as receipts, and that receipts from 
business-type activities ``offset to the expenditures to which they 
relate.'' However, these distinctions have been blurred in practice. 
Ambiguous classifications combined with budget rules that make certain 
designs most advantageous has led to a situation in which there is 
pressure to treat fees from the public as offsets to appropriations 
under BEA caps, regardless of whether the underlying Federal activity 
is business or governmental in nature. Consideration should be given to 
whether it is possible to come up with and apply consistent standards--
especially if the discretionary caps are to be redesigned. The 
administration has stated that it plans to monitor and review the 
classification of user fees and other types of collections.

                      EXTENDING AND REFINING PAYGO

    The PAYGO requirement prevented legislation that lowered revenue, 
created new mandatory programs, or otherwise prevented direct spending 
from increasing the deficit unless offset by other legislative actions. 
As long as the unified budget was in deficit, the provisions of PAYGO--
and its application--were clear. The shift to surplus raised questions 
about whether the prohibition on increasing the deficit also applied to 
reducing the surplus. Although the Congress and the executive branch 
have both concluded that PAYGO does apply in such a situation, any 
extension should eliminate potential ambiguity in the future.
    This year, the administration has proposed--albeit implicitly--
special treatment for a tax cut. The budget states that the President's 
tax plan and Medicare reforms are fully financed by the surplus and 
that any other spending or tax legislation would need to be offset by 
reductions in spending or increases in receipts. It is possible that in 
a time of budget surplus, the Congress might wish to modify PAYGO to 
permit increased direct spending or lower revenues as long as debt held 
by the public is planned to be reduced by some set percentage or dollar 
amount. Such a provision might prevent PAYGO from becoming as 
unrealistic as overly tight caps on discretionary spending. However, 
the design of such a provision would be important--how would a debt 
reduction requirement be specified? How would it be measured? What 
should be the relationship between the amount of debt reduction 
required and the amount of surplus reduction (i.e., tax cut or direct 
spending increase) permitted? What, if any, relationship should there 
be between this calculation and the discretionary caps?
    While PAYGO constrained the creation or legislative expansion of 
direct spending programs and tax cuts, it accepted the existing 
provisions of law as given. It was not designed to trigger--and it did 
not trigger--any examination of ``the base.'' Cost increases in 
existing mandatory programs are exempt from control under PAYGO and 
could be ignored. However, constraining changes that increase the cost 
of entitlements and mandatories is not enough. Our long-term budget 
simulations show that as more and more of the baby boom generation 
retires, spending for Social Security, Medicare, and Medicaid will 
demand correspondingly larger shares of Federal revenues. The growth in 
these programs will increasingly restrict budgetary flexibility. Even 
if the Social Security surpluses are saved and used for debt reduction, 
unified deficits are projected to emerge in about two decades, and by 
2030 Social Security, Medicare, and Medicaid would require more than 
three-fourths of Federal revenues.\7\
    Previously we suggested some sort of ``lookback'' procedure to 
prompt a reexamination of ``the base.'' Under such a process, the 
Congress could specify spending targets for PAYGO programs for several 
years. The President could be required to report in his budget whether 
these targets either had been exceeded in the prior year or were likely 
to be exceeded in the current or budget years. He could then be 
required to recommend whether any or all of this overage should be 
recouped--and if so, to propose a way to do so. The Congress could be 
required to act on the President's proposal.
    While the current budget process contains a similar point of order 
against worsening the financial condition of the Social Security trust 
funds,\8\ it would be possible to link ``tripwires'' or triggers to 
measures related to overall budgetary flexibility or to specific 
program measures. For example, if the Congress were concerned about 
declining budgetary flexibility, it could design a tripwire tied to the 
share of the budget devoted to mandatory spending or to the share 
devoted to a major program.
    Other variations of this type of tripwire approach have been 
suggested. The 1999 Breaux-Frist proposal (S. 1895) for structural and 
substantive changes to Medicare financing contained a new concept for 
measuring ``programmatic insolvency'' and required congressional 
approval of additional financing if that point was reached. Other 
specified actions could be coupled with reaching a tripwire, such as 
requiring the Congress or the President to propose alternatives to 
address reforms or, by using the congressional budget process, 
requiring the Congress to deal with unanticipated cost growth beyond a 
specified tripwire by establishing a point of order against a budget 
resolution with a spending path exceeding the specified amount. One 
example of a threshold might be the percentage of GDP devoted to 
Medicare. The President would be brought into the process as it 
progressed because changes to deal with the cost growth would require 
enactment of a law.


    In previous reports we have argued that the Nation's economic 
future depends in large part upon today's budget and investment 
decisions.\9\ In fact, in recent years there has been increased 
recognition of the long-term costs of Social Security and Medicare.\10\
    While these are the largest and most important long-term 
commitments--and the ones that drive the long-term outlook--they are 
not the only ones in the budget. Even those programs too small to drive 
the long-term outlook affect future budgetary flexibility. For the 
Congress, the President, and the public to make informed decisions 
about these other programs, it is important to understand their long-
term cost implications.
    While the budget was not designed to and does not provide complete 
information on long-term cost implications stemming from some of the 
government's commitments when they are made, progress can be made on 
this front. The enactment of the Federal Credit Reform Act in 1990 
represented a step toward improving both the recognition of long-term 
costs and the ability to compare different policy tools. With this law, 
the Congress and the executive branch changed budgeting for loan and 
loan guarantee programs. Prior to the Credit Reform Act, loan 
guarantees looked ``free'' in the budget. Direct loans looked like 
grant programs because the budget ignored loan repayments. The shift to 
accrual budgeting for subsidy costs permitted comparison of the costs 
of credit programs both to each other and to spending programs in the 
    Information should be more easily available to the Congress and the 
President about the long-term cost implications both of existing 
programs and new proposals. In 1997 we reported that the current cash-
based budget generally provides incomplete information on the costs of 
Federal insurance programs.\11\ The ultimate costs to the Federal 
Government may not be apparent up front because of time lags between 
the extension of the insurance, the receipt of premiums, and the 
payment of claims. While there are significant estimation and 
implementation challenges, accrual-based budgeting has the potential to 
improve budgetary information and incentives for these programs by 
providing more accurate and timely recognition of the government's 
costs and improving the information and incentives for managing 
insurance costs. This concept was proposed in the Comprehensive Budget 
Process and Reform Act of 1999 (H.R. 853), which would have shifted 
budgetary treatment of Federal insurance programs from a cash basis to 
an accrual basis.
    There are other commitments for which the cash and obligation based 
budget does not adequately represent the extent of the Federal 
Government's commitment. These include employee pension programs, 
retiree health programs, and environmental cleanup costs. While there 
are various analytical and implementation challenges to including these 
costs in budget totals, more could be done to provide information on 
the long-term cost implications of these programs to the Congress, the 
President, and the interested public. At the request of this committee, 
we are continuing to address this issue.


    As the budgeting horizon expands, so does the certainty of error. 
Few forecasters would suggest that 10-year projections are anything but 
that--projections of what the world would look like if it continued on 
a line from today. And long-term simulations are useful to provide 
insight as to direction and order of magnitude of certain trends--not 
as forecasts. Nevertheless, budgeting requires forecasts and 
projections. Baseline projections are necessary for measuring and 
comparing proposed changes. Former Congressional Budget Office (CBO) 
Director, Rudy Penner, suggested that 5-year and 10-year projections 
are useful for and should be used for different purposes: 5-year 
projections for indicating the overall fiscal health of the Nation, and 
10-year projections for scorekeeping and preventing gaming of the 
timing of costs.
    No 10-year projection is likely to be entirely correct; the 
question confronting fiscal policymakers is how to deal with the risk 
that a projection is materially wrong. This year some commentators and 
Members of the Congress have suggested dealing with this risk by using 
triggers. Triggers were part of both Gramm-Rudman-Hollings (GRH) and 
BEA. The GRH triggers were tied to deficit results and generally 
regarded as a failure--they were evaded or, when deficits continued to 
exceed the targets, the targets were changed. BEA triggers have been 
tied to congressional action rather than to deficit results; sequesters 
have rarely been triggered--and those were very small. This year the 
discussion of triggers has been tied specifically to the tax debate and 
to whether the size of the tax cut in future years should be linked to 
budget results in those years. There could be several variations on 
this trigger: actual surplus results, actual revenue results (this with 
the intent of avoiding a situation in which spending increases can 
derail a tax cut), and actual debt results. There is little consensus 
on the effectiveness of any triggers.
    Although the debate about triggers has been tied to the tax debate 
in 2001, there is no inherent reason to limit the discussion to taxes. 
Some might wish to consider triggers that would cause decision makers 
to make proposals to address fiscal results that exceed some specific 
target, such as debt or spending as a share of GDP.
    Former CBO Director Robert Reischauer suggested another way of 
dealing with the fact that forecasts/projections become less certain 
the further they go into the future. Under his proposal, a declining 
percentage of any projected surplus would be available--either for tax 
cuts or for spending increases. Specifically, 80 percent of the surplus 
would be available to legislators in years 1 and 2, 70 percent in years 
3 and 4, 60 percent in years 5 and 6, until reaching the 40-percent 
level in years 9 and 10. The consequence of not adhering to these 
limits would be an across-the-board sequester. When a new Congress 
convenes, it would be given a new budget allowance to spend based on a 
new set of surplus projections.


    Others have suggested that mechanisms such as a joint budget 
resolution and/or an automatic continuing resolution could avert the 
year-end disruption caused by an inability to reach agreement on 
funding the government. Biennial budgeting is also sometimes suggested 
as a better way to budget and to provide agencies more certainty in 
funding over 2 years. Let me turn now to these ideas.
    Since agreement on overall budget targets can set the context for a 
productive budget debate, some have suggested that requiring the 
President's signature on budget resolutions would facilitate the debate 
within such a framework. Proposals to replace the Concurrent Resolution 
with a Joint Resolution should be considered in the light of what the 
budget resolution represents. Prior to the 1974 act only the President 
had a budget--that is, a comprehensive statement of the level of 
revenues and spending and the allocation of that spending across 
``national needs'' or Federal mission areas. Requiring the President to 
sign the budget resolution means it would not be a statement of 
congressional priorities. Would such a change reduce the Congress' 
ability to develop its own budget and so represent a shift of power 
from the Congress to the President? Whose hand would it strengthen? If 
it is really to reduce later disagreement, would it merely take much 
longer to get a budget resolution than it does today? It could be 
argued that under BEA the President and the Congress have--at times--
reached politically binding agreements without a joint budget 
    The periodic experience of government ``shutdowns''--or partial 
shutdowns when appropriations bills have not been enacted has led to 
proposals for an automatic continuing resolution. The automatic 
continuing resolution, however, is an idea for which the details are 
critically important. Depending on the detailed structure of such a 
continuing resolution, the incentive for policymakers--some in the 
Congress and the President--to negotiate seriously and reach agreement 
may be lessened. What about someone for whom the ``default position'' 
specified in the automatic continuing resolution is preferable than the 
apparent likely outcome? If the goal of the automatic continuing 
resolution is to provide a little more time for resolving issues, it 
could be designed to permit the incurrence of obligations to avoid a 
funding gap, but not the outlay of funds to liquidate the new 
obligations. This would allow agencies to continue operations for a 
period while the Congress completes appropriations actions.
    Finally, you asked me to discuss proposals for biennial budgeting. 
Some have suggested that changing the appropriations cycle from annual 
to biennial could (1) provide more focused time for congressional 
oversight of programs, (2) shift the allocation of agency officials' 
time from the preparation of budgets to improved financial management 
and analysis of program effectiveness, and (3) enhance agencies' 
abilities to manage their operations by providing more certainty in 
funding over 2 years. Given the regularity with which proposals for 
biennial budgeting are made, I believe that at least some will consider 
the upcoming necessity to decide whether to extend BEA as an 
opportunity to again propose biennial budgeting.
    Whether a biennial cycle offers the benefits sought will depend 
heavily on the ability of the Congress and the President to reach 
agreement on how to respond to uncertainties inherent in a longer 
forecasting period, for there will always be uncertainties. How often 
will the Congress and the President feel the need to reopen the budget 
and/or change funding levels?
    Budgeting always involves forecasting, which in itself is 
uncertain, and the longer the period of the forecast, the greater the 
uncertainty. Our work has shown that increased difficulty in 
forecasting was one of the primary reasons states gave for shifting 
from biennial to annual cycles.\12\ The budget is highly sensitive to 
the economy. Economic changes during a biennium would most likely 
prompt the Congress to revisit its decisions and reopen budget 
agreements. Among the issues that would need to be worked out if the 
Congress moves to a biennial budget cycle are how to update the CBO 
forecast and baseline against which legislative action is scored and 
how to deal with unexpected events. The baseline is important because 
CBO scores legislation based on the economic assumptions in effect at 
the time of the budget resolution. Even under an annual system there 
are years when this practice presents problems: in 1990 the economic 
slowdown was evident during the year, but consistent practice meant 
that bills reported in compliance with reconciliation instructions were 
scored based on the assumptions in the budget resolution rather than 
updated assumptions. If budget resolutions were biennial, this problem 
of outdated assumptions would be greater--some sort of update in the 
``off-year'' likely would be necessary.
    In any consideration of a biennial budget, it is important to 
recognize that even with annual budgets, the Congress already has 
provided agencies with multiyear funding to permit improved planning 
and management. As you know, it is not necessary to change the 
frequency of decisions in order to change the length of time funds are 
available. Nearly two-thirds of the budget is for mandatory programs 
and entitlements on which decisions are not made annually. Even the 
remaining portion that is on an annual appropriations cycle is not 
composed entirely of 1-year appropriations that expire on September 30 
of each year. The Congress routinely provides multiyear or no-year 
appropriations when it seems to make sense to do so. Thus, to the 
extent that biennial budgeting is proposed as a way to ease a budget 
execution problem, the Congress has shown itself willing and able to 
meet that need under the current annual cycle.
    If BEA is extended in conjunction with biennial budgeting, a whole 
host of technical issues needs to be considered. Would biennial 
budgeting change the timing of the BEA-required sequestration report? 
How would sequestrations be applied to the 2 years in the biennium and 
when would they occur? For example, if annual caps are continued and 
are exceeded in the second year of the biennium, when would the 
Presidential Order causing the sequestration be issued? Would the 
sequestration affect both years of the biennium? Would forecasts and 
baselines be updated during the biennium? These are just of few of the 
many questions that would need to be resolved.
    Regardless of the potential benefits, the decision on biennial 
budgeting will depend on how the Congress chooses to exercise its 
constitutional authority over appropriations and its oversight 
functions. We have long advocated regular and rigorous congressional 
oversight of Federal programs. Annual enacted appropriations have long 
been a basic means of exerting and enforcing congressional policy. 
Oversight has often been conducted in the context of agency requests 
for funds. A 2-year appropriation cycle would change--and could 
lessen--congressional influence over program and spending matters since 
the process would afford fewer scheduled opportunities to affect agency 
programs and budget.
    Biennial budgeting would bring neither the end of congressional 
control nor the guarantee of improved oversight. It would require a 
change in the nature of that control. If the Congress decides to 
proceed with a change to a biennial budget cycle--including a biennial 
appropriations cycle--careful thought will need to be given to 
implementation issues.


    To affect decisionmaking, the fiscal goals sought through a budget 
process must be accepted as legitimate. For many years the goal of 
``zero deficit''--or the norm of budget balance--was accepted as the 
right goal for the budget process. In the absence of the zero deficit 
goal, policymakers need an overall framework upon which a process and 
any targets can be based. Goals may be framed in terms of debt 
reduction or surpluses to be saved. In any case, compliance with budget 
process rules, in both form and spirit, is more likely if end goals, 
interim targets, and enforcement boundaries are both accepted and 
    Enforcement is more successful when it is tied to actions 
controlled by the Congress and the President. Both the BEA spending 
caps and the PAYGO enforcement rules were designed to hold the Congress 
and the President accountable for the costs of the laws enacted each 
session--not for costs that could be attributed to economic changes or 
other factors.
    Today, the Congress and the President face a different budgetary 
situation than in the past few decades. The current budget challenge is 
not to achieve a balanced unified budget. Rather, budgeting today is 
done in the context of projections for continued and growing surpluses 
followed over the longer term by demography-driven deficits. What 
process will enable policymakers to deal with the near term without 
ignoring the long term? At the same time, the challenges for any budget 
process are the same: What process will enable policymakers to make 
informed decisions about both fiscal policy and the allocation of 
resources within the budget?
    Extending the current BEA without setting realistic caps and 
addressing existing mandatory programs is unlikely to be successful for 
the long term. The original BEA employed limited actions in aiming for 
a balanced budget. It left untouched those programs--direct spending 
and tax legislation--already in existence. Going forward with new 
challenges, we believe that a new process that prompts the Congress to 
exercise more foresight in dealing with long-term issues is needed. The 
budget process appropriate for the early 21st century will have to 
exist as part of a broader framework for thinking about near- and long-
term fiscal goals.
    Mr. Chairman, this concludes my statement. I would be happy to 
answer any questions that you or the Members of the Committee may have.


    1. Although the overall discretionary spending caps expire in 2002, 
the Highway and Mass Transit outlay caps established under 
Transportation Equity Act for the 21st Century (TEA-21) continue 
through 2003, and the conservation caps established as part of the 
fiscal year 2001 Interior Appropriations Act were set through 2006. In 
addition, the sequestration procedure applies through 2006 to eliminate 
any projected net costs stemming from PAYGO legislation enacted through 
fiscal year 2002.
    2.Budget Issues: Budget Enforcement Compliance Report (GAO-01-777, 
June 15, 2001).
    3. For a fuller discussion of these criteria, see Budget Process: 
Evolution and Challenges (GAO/T-AIMD-96-129, July 11, 1996), Budget 
Process: History and Future Directions (GAO/T-AIMD-95-214, July 13, 
1995), and Budget Process: Comments on H.R. 853 (GAO/T-AIMD-99-188, May 
12, 1999).
    4. The administration's fiscal year 2002 budget submission included 
a proposal to set aside a reserve for emergency needs in the annual 
budget and appropriations process, arguing that this would limit the 
need for emergency supplementals to extremely rare events.
    5. Budgeting for Emergencies: State Practices and Federal 
Implications (GAO/AIMD-99-250, Sept. 30, 1999).
    6. Budget Issues: Budget Scorekeeping for Acquisition of Federal 
Buildings (GAO/T-AIMD-94-189, Sept. 20, 1994).
    7. Long-Term Budget Issues: Moving From Balancing the Budget to 
Balancing Fiscal Risk (GAO-01-385T, Feb. 6, 2001).
    8. 2 U.S.C. 632 (i), and Medicare Reform: Issues Associated With 
General Revenue Financing (GAO/T-AIMD-00-126, Mar. 27, 2000).
    9. See Budget Process: Evolution and Challenges (GAO/T-AIMD-96-129, 
July 11, 1996) and The Deficit and the Economy: An Update of Long-Term 
Simulations (GAO/AIMD/OCE-95-119, Apr. 26, 1995), among others.
    10. Budget of the United States Government, Fiscal Year 2002, OMB, 
Apr. 9, 2001; The Budget and Economic Outlook: Fiscal Years 2002-2011, 
CBO, Jan. 2001; GAO-01-385T, Feb. 6, 2001; and Medicare: Higher 
Expected Spending and Call for New Benefit Underscore Need for 
Meaningful Reform (GAO-01-539T, Mar. 22, 2001).
    11. Budget Issues: Budgeting for Federal Insurance Programs (GAO/
AIMD-97-16, Sept. 30, 1997).
    12. Since the mid-1960's, 18 states have changed their budget 
cycles: 11 from biennial to annual, 2 from annual to mixed, 4 from 
annual to biennial, and1 from biennial to annual and back to biennial.

    Chairman Nussle. Thank you very much, all three of you, for 
your testimony.
    Let me ask you, Chairman Cox, a question because it came up 
this year and I see it in your outline. Actually, looking 
through your outline, you mention spending. ``Before a budget 
Congress should be prevented from considering spending bills in 
committee or on the floor without first passing a budget.''
    I think I understand where you are heading with this. 
Number one, doesn't that slow down the process? That is number 
    Number two, would you also apply that to the Ways and Means 
and Finance Committee with regard to consideration of tax 
    Mr. Cox. Well, you are right to point out that--I think you 
are pointing out--that at present this is a procedure we 
observe. In recent years we have not been bringing spending 
bills to the floor without having a budget.
    But as you know from past experience, this is a problem. In 
some years, notwithstanding the outline of the 1974 Budget Act, 
Congress has turned to spending first and budget second. That 
is simply out of order.
    The Ways and Means Committee dealt recently with the issue 
of whether or not they could bring a tax bill to the floor 
without a budget. As you know, we settled that with some fine 
attention to detail. But I think the principle is the same. We 
ought to have a budget in place before we appropriate or before 
we tax for future years.
    Chairman Nussle. I am not questioning whether or not the 
Ways and Means Committee could have considered that. I mean, we 
did. I am on the committee. I was one of the ones who was on 
the hot seat at the time. I am not suggesting that we should 
not have done it. Technically, we could.
    I am just wondering, because you are suggesting, I think, 
an active provision that would preclude that, whether or not 
you would also include tax bills.
    Mr. Cox. My concern is much more, I should say, on 
controlling the spending process because what we are mixing in 
a certain sense is apples and oranges when we put together our 
budget forecast. Congress actually controls appropriations. We 
decide how much to put on the check.
    But Congress doesn't control revenues. There are a lot of 
external effects and variables that we don't control. So, we 
are just trying to estimate that figure. It is very, very 
important for us to tightly control our spending process.
    Chairman Nussle. We are considering marking up a budget 
enforcement act legislation here in the committee. Just to get 
your advice on the caps and PAYGO, would you extend both of 
them, or either one of them? And if so, for how long would be 
your advice and are there any other reforms that you think are 
so definitely and drastically needed that they should be 
included immediately in the bill that we produce out of this 
committee in the near future?
    As you know, we are running up against a caps issue this 
year and there will also be a PAYGO issue. So, we have to do 
something. If we don't do it, someone else will do it for us.
    Mr. Cox. Well, our budget caps are a little bit like our 
immigration policy. There are millions of illegal, undocumented 
people living in America. We have immigration laws that say 
that that can't happen.
    Likewise, we have budget caps that we do because there has 
to be law and order in this Congress when it comes to spending, 
but we have all sorts of spending that is not anywhere within 
the caps.
    I think it is time that we recognize the wasted motion 
involved and come up with a budget, whether you call the budget 
figures caps or not, come up with a budget that we mean and 
then come up with a way to live within it. We don't do that 
    Anything short of that, I think, short changes the whole 
process in the whole country.
    With respect to PAYGO specifically, it is weaker than it 
should be. PAYGO shouldn't apply only to part of the budget, 
the entitlement part. It should apply to the whole budget. That 
would strengthen PAYGO. It would also rationalize our choices 
because right now, for example, if one wants to consider a 
change in tax rates, you have to offset it only through the 
entitlement part of the budget.
    Why is that? There isn't any good policy for that. As a 
matter of fact, most people would stipulate that we would be 
less inclined to want to cut Social Security or Medicare for 
example. Yet, does that mean that we can never change tax 
policy? It ought not to. The PAYGO discipline ought to operate 
against the entire budget. I would extend it on that basis.
    Chairman Nussle. Mr. Price.
    I have questions for Barry and Susan as well, but I want to 
stay within my time.
    Mr. Price. Thank you, Mr. Chairman. Let me also focus on 
Mr. Cox and reserve some of the other questions until the 
second round.
    Mr. Cox, we appreciate your being here and we appreciate 
your patience this morning.
    Let me just pick up on a couple of points that the Chairman 
has already raised. I, too, have been looking at your specific 
recommendations for a better process.
    As you said, the simple, straightforward notion that 
Congress should be prevented from considering spending bill 
without first passing a budget, that, of course, is the concept 
at the heart of the budget process as it now stands, although 
it is often honored in the breach.
    If that is to hold though, if we are to return to that as 
our standard, there are a couple or requirements, aren't there? 
First of all, the budget resolution should not be simply a 
political document or a campaign bumper sticker. It should be a 
realistic estimate based on sound estimates of revenue and the 
likely demands on the appropriations process. It should be a 
realistic number that accommodates our needs and isn't just out 
there as a political symbol that then won't allow the necessary 
appropriations bills to be passed in a timely fashion.
    Secondly, it seems to me it is going to require some degree 
of agreement with the Executive. Of course, that is what you 
are getting at in your fifth point, that there been a budget in 
the form of a law with the President's approval.
    I wonder, though, if maybe those conditions don't at least 
threaten to contradict one another, especially under the 
conditions of a divided government. This was discussed by the 
first panel.
    If you are working out the problems, the conflicts between 
the Executive and the Congress at the stage of this budget 
resolution, does not that threaten to not only move all that 
conflict forward in the process, but actually delay the passage 
of a budget resolution, make it even more difficult to keep our 
spending bills and our tax bills within the constraints of the 
budget resolution?
    Might we not delay and confuse that process even further?
    Mr. Cox. Well, I did appreciate the discussion on the first 
panel. This was the point that was touched upon by Bob 
Reischauer. If you move the whole kit and caboodle to step one, 
then it will collapse of its own weight.
    So, what you have to do if you are trying to have a budget 
in the form of a law that puts the Executive and the Congress 
on the same page to begin with is to simply the task. Don't ask 
them to do everything in step one. Ask them to do something in 
step one.
    I believe if you go back and read the testimony and the 
responses that Bob Reischauer gave this morning, he said, 
almost exactly this. He said, ``It is very easy to agree at a 
high level of abstraction on how much money to spend on defense 
and so on. But the difficult choices come when you figure out 
how much you need for 'X' and how much you need for 'Y' and so 
    The budget resolution that is agreed upon between the 
Executive and the legislative in the form of a law should be a 
highly abstract document. It should be in the aggregate because 
that facilitates agreement, even between warring political 
    It is much easier to recognize what are appropriate totals 
by function, than it is to decide whose program is better and 
so on. I would ask only that of the process at that point. 
Insofar as getting realistic numbers for those aggregates is 
concerned, that is the best justification that I can think of 
for having this committee being a year-round committee and for 
having the Appropriations Committee be a year-round committee.
    Of course, CBO and OMB are year-round, as are the staffs of 
the other Cabinet departments and legislative committees of the 
House and the Senate. So, we have the capacity, providing we 
are paying attention to a newly designed process, to come up 
with a new idea of the aggregates early on and then get to the 
more difficult choices within that budget.
    But something that Bob said troubled me a great deal. He 
almost implied that before we come up with the aggregate 
number, we should figure out everything we want and total it. 
To me, that is like you and I moving into an apartment on 
limited student budgets and deciding we need new drapes, 
refrigerator, TV set and we go through our whole wish list and 
then we total it up.
    We would never do that in real life. We would say, ``Well, 
you and I have $500. So how shall we spend it?''
    That is what the government has to do.
    Mr. Price. Yes, I thought that was an interesting comment. 
I thought his point also was, though, that if you do bring the 
President into the process in a definitive way at that early 
point, then you are escalating those discussions and you are, 
almost by definition, importing into the budget resolution 
discussions a great many matters that could be finessed or 
could be left in less resolved form if the budget resolution 
did not have that status.
    Mr. Cox. That is true. The world is divided into people who 
are over-prepared and the people who are procrastinators and 
some variation in between. I think our process has been skewed 
toward procrastination for far too long and everybody here on 
both sides of the aisle with the management of both Republicans 
and Democrats in Congress has seen too many October firsts and 
sometimes January firsts with unresolved issues.
    The Civil Service, if anyone else, would be thrilled if we 
were a little bit more organized and did our work up front.
    Mr. Price. Let me just quickly make one final comment. I 
was interested in your response to the chairman on the question 
of whether the tax bills ought also to be prevented from being 
considered until the budget resolution is in place.
    It is true, of course, there is an estimating procedure 
that applies to the revenue bills, whereas the appropriations 
bill, as you say, are a matter of simply writing a check.
    But entitlement expenditures, of course, are also 
estimates. Those bills are going to be paid, whatever they end 
up being. Wouldn't you agree that given the equivalent 
comparable impacts on the budget, that all three categories 
ought to in some sense be subservient to the budget process and 
fit within the budget process: discretionary spending, 
entitlement spending and revenues?
    Mr. Cox. Yes, I agree with that. That is what I meant to 
say to Chairman Nussle. I only added that there are differences 
and that if I had to prioritize the importance of aiming this 
discipline at some part of it, I would aim it at that over 
which we all understand we have plenary control. We ought to 
have control, by the way, over a bigger slice.
    I have been staring at these charts all morning. I am sure 
it is high on your mind that these are Bob Livingston's charts. 
That slice that is labeled ``mandatory,'' whoever gets to apply 
the labels in political debate tends to win.
    Once it is mandatory, we have absolved ourselves of 
responsibility because we have to do it. But, of course, that 
is not true. It is not just Social Security or Medicare that 
are so-called entitlement programs that are permanent, 
indefinite appropriations.
    There are a lot of things on the list of permanent and 
indefinite appropriations. We ought to take a look at those and 
pare them back, put as much as possible the budget under 
Congress' routine control and under this committee's control, 
which I am sure you wouldn't object to.
    Mr. Price. I don't have any more questions for you, 
Chairman Cox.
    Mr. Cox. I very much appreciate it. I will now go and do 
the things that I have to do instead of this, which I would 
like to do.
    Chairman Nussle. For our other two witnesses, Barry, I am 
very interested in your budget concepts commission and the 
structure. One of the questions I would have for you is, is 
this a macro or micro concepts examination? How big 
conceptually can we discuss it? Is this so in the weeds that we 
want to send you off for a few years or whatever it is and let 
you guys talk about it without any influence from the 
    In other words, can you help us with a commission like this 
on some of these bigger picture items such as joint resolution 
biennial budgeting or are you in the weeds when it comes to how 
tax credit affect it and all those kinds of things?
    Mr. Anderson. Well, I believe that a budget concepts 
commission should look at broader things than just a joint 
resolution or just biennial budgeting. In fact, I think that a 
joint resolution, biennial budgeting, emergency definitions, 
and a lot of the items discussed this morning are more things 
that can be handled right now by the Congress, by the Budget 
Committees getting together with the executive branch, perhaps, 
than the larger things that I tried to address.
    So, I think a commission should look at more fundamental 
things. One is this fundamental concept of how we treat equity 
purchases by the Social Security system if they ever do come 
    There was a proposal by President Clinton to treat the 
equity purchases for the first 10 years as they are treated 
now, as outlays. But then beyond that, do not treat them in 
that way. Well, that is a fundamental decision that I don't 
think ought to be unilaterally made by either OMB or CBO. I 
think it involves a commission that would be very broad, very 
    The impacts on the economy of that kind of decision are as 
broad as can possibly be. So, at the same time that you might 
be looking into biennial budgeting or the emergency definition 
or things like that, a budget concepts commission, for example, 
or perhaps another group made up of Budget Committee, OMB, CBO, 
and GAO folks could sit down and try and address these larger 
global issues. One is narrow and one is global, I guess, is how 
I would look at it.
    Chairman Nussle. There are many complaints that Members 
have, Mr. Cox certainly is one of them. We have members on the 
committee who have been very frustrated about scorekeeping, 
dynamic versus all sorts of things. Is that another kind of 
area that could be considered under this commission format?
    Mr. Anderson. Yes. Congressman Cox has mentioned 
scorekeeping a number of times. He has mentioned the baseline. 
We have recently had information or have been asked for 
information on how to redefine the baseline.
    From CBO's perspective, first of all, the first thing we 
want is as much guidance as we can get from you. We don't like 
to make up the rules ourselves. We prefer to be told what the 
rules are and then implement them.
    For example, lately some have been saying, the baseline 
ought to be revised to disregard the expirations of the 
recently passed tax law. Well, that is not a decision we are 
going to make. We are going to clearly do the baseline in 
August and next January taking into account the current rules 
that say, ``If a law expires, we allow it to expire.''
    Yet another trend that Congressman Cox mentioned is talk 
about discretionary spending. There have been some people who 
have been saying that the baseline for discretionary spending 
ought not to be just the enacted level, or the enacted level 
plus inflation, but the enacted level plus inflation and 
population growth.
    Well, again, we will do it however you tell us to. However, 
if we do it that last way, enacted plus inflation plus 
population, then we have really eliminated the distinction 
between mandatory and discretionary spending. Maybe that is 
appropriate. Maybe that is the goal. But that is what the 
result would be.
    So, certainly looking at dynamic scoring, looking at the 
baseline, looking at several of the other things that 
Congressman Cox mentioned are the more fundamental, broader 
issues that are appropriate for a commission.
    Chairman Nussle. Well, this is not to suggest or imply that 
anybody's intentions are wrong. But the frustration I have 
always had about the way the issues come up is when somebody is 
bit by a CBO score, then all of a sudden they get on the 
bandwagon because they didn't like the score. That is what 
precipitates the reform, because they didn't like the outcome.
    It is not done in a vacuum where it is done objectively and 
where it is discussed soberly about how this actually should be 
done. It is when they get bit and they do something.
    That is what concerns me about all of these reforms, that 
they shouldn't be done in order to determine an outcome that 
somebody pre-determines is what they want. It ought to be done 
fairly so that we can start predicting this stuff.
    I know you are as frustrated about this stuff as I am. But 
even what is going to happen here in August you know, I am new 
to this position of having to be in the hot seat, but it is 
amazing to me that from May to August, you know, the numbers 
can be that different. How is it possible? How can you make 
decisions based on that?
    I don't think anybody would fault a decision that you make 
in February or that you make in May, but my gosh, it looks like 
a crazy way to do business if your projections can't even last 
that long.
    I am not faulting. I am just saying that if based on that 
we come rushing in and saying, ``Well, my gosh, your 
projections are wrong,'' therefore Congress politically decides 
because we didn't like the outcome to make some grandiose 
reform telling you how to change your rules. I don't think that 
makes sense either.
    That is why I like your budget concepts idea. I would be 
interested in anything further you have on that at the 
appropriate time because I think it is something worth 
    When was the last one?
    Mr. Anderson. In 1967.
    Chairman Nussle. Well, maybe things have changed since 
then. In 1967 I was 7 years old. Things have certainly changed 
for me. I know that.
    Susan, the question I had for you had to do with long-term 
obligations. I totally agree with you on the whole issue. We 
have a number of obligations out there. Whether it is the way 
we do our accounting, how it is portrayed in the budget, you 
mentioned a couple of them.
    You mentioned a couple of them. I would be very interested 
in whether it goes hand in hand with Barry's concepts. Maybe 
that is the place for this discussion to occur. Are there ways 
that in the short term we can add a reform to the way we do 
budgets to more fairly and more accurately which is the issue 
here, I think they depict the obligation and how the impact 
will affect the obligations of the Federal Government.
    That is my question. I am not sure how to phrase it. But I 
am interested in how do you fix it and maybe even where do you 
fix it?
    Ms. Irving. I guess this sounds like a cop-out answer, but 
maybe the answer is both. I think you have enough information 
to do some things now. For loans we have already gone to 
showing the subsidy cost accrual so that we could put direct 
loans and loan guarantees on the same playing field.
    We already have enough information to begin to provide 
additional information in the budget about retiree health, 
about government pensions. I would argue to begin to provide at 
least supplemental information on Federal insurance programs 
and maybe even to begin to provide additional information on 
environmental liabilities.
    Now, on some of those you are not at a point where you are 
ready to leap all the way to where you went on credit reform 
and say, ``OK, I am going to put it in the budget totals.''
    But, just because you can't go all the way yet, doesn't 
mean you should be operating in a vacuum where it appears that 
a reasonable way to offset the costs of GATT was to broaden 
PBGC coverage and the PBGC premium when in fact that increases 
the liability.
    I think you need to begin to explore ways at a minimum to 
create a supplemental column in the budget. You don't need to 
have to begin having points of order and scorekeeping and all 
of that right now. Right now you all operate in the dark when 
you extend an insurance program. I believe OMB is going to 
propose moving to some improved cost accounting in the budget 
where you begin to, at least at the agency levels, improve the 
budgeting for retiree health and for pensions.
    On the others, you will have to keep studying it.
    Chairman Nussle. In part, that is when Mr. Cardin and I 
wrote our reform bill a couple of years ago on the rule. Part 
of the reason we had to keep watering it down and watering it 
down is because everyone found out that if you actually put it 
in there it actually showed some bad news. Heaven forbid we put 
bad news into the budget.
    Ms. Irving. But your timing in a way is really fortuitous 
because you know you are going to have to raise the caps this 
year. So, when you raise them, you may want to think about what 
are you going to raise them to cover more of? Are you just 
going to raise them to recognize you already got to balance, or 
are you going to say, ``No, I want to put more emergency 
spending under the cap.''
    Some emergency spending is going to be unforeseen. But you 
can put more under the cap this year. This is the year you can 
raise the caps.
    Chairman Nussle. Mr. Price?
    Mr. Price. Well, let me just follow up. You stressed in 
your statement at some length the need to grapple with these 
long-term commitments and to do what we can to reduce the 
uncertainty of these projections.
    There has been a great deal of discussion around here, as 
you know, concerning the 10-year timeframe that has been used 
of late. It is too long for some purposes and too short a 
timeframe for others.
    You mentioned in your testimony in a neutral fashion Mr. 
Reischauer's proposal that the 10-year timeframe be dealt with 
in a more cautious fashion than is now our practice, that there 
been rules which dictate that no more than 80 percent of excess 
resources predicted would be committed for the first 2 years. 
For the next 2-year period, 70 percent and then 60 percent and 
so on until the 9th and 10th years of a budget projection.
    Have you done much thinking about the possibility or the 
desirability of imposing such constraints on the disposition of 
the surplus, assuming that one of our major jobs here is to 
rethink this process in an era of, we hope, continuing 
surpluses as opposed to the economic conditions when the budget 
process was first formulated?
    Ms. Irving. Well, like a lot of Bob's ideas, I think it is 
really intriguing and worth studying. It would be hard to find 
a more thoughtful observer.
    I think you would be foolish to get rid of 10-year numbers, 
but you also don't want to treat them like they are as certain 
as 5-year numbers. So, there is a lot to be said for designing 
a system that allows you to recognize the increasing 
uncertainty as you go out in the projections.
    I have not given the amount of thought to Bob's specific 
proposal that would let me walk through how I think you could 
actually make it work or enforce it if you chose to. I don't 
think either of us would want to hang our hat on the particular 
    It is worth erring on the side of caution when you are 
working with outyears. If it turns out you under-guessed and 
the economy performs even better than you expected, and you 
have more surplus--whatever you are defining as the available 
surplus--you can always come back and use it. It is harder to 
take it back.
    Recognizing uncertainty when you enact laws is a really 
good idea. In addition, a look-back, where you have targets and 
you periodically re-evaluate progress, can help. Because the 
only thing you really do know about 10-year numbers is that 
they are probably going to be wrong. How wrong is a different 
    Mr. Price. Well, thank you.
    Mr. Anderson, let me turn to you. The aspect of your 
testimony that interested me most--I think, partly because it 
is a complex and rather explosive issue--is the treatment of 
trust funds.
    I just want to make sure that I understand where you are 
going with that discussion. It is a brief discussion. I don't 
want to put more weight on it than it will bear. You will 
notice here the significant difference between Federal trust 
funds and private sector trust funds.
    For example, claims against a private trust fund are 
limited by the value of the fund's assets. The fact that the 
beneficiary for a private trust fund usually owns the fund 
income and often owns it assets, where that is not true with 
the Federal trust funds.
    It does seem to me, though, that the discussion tends to 
under-estimate the constraints that surround these trust funds. 
You say they are created by law and lawmakers can change those 
laws or repeal them. That sounds pretty cavalier. I don't think 
most of us feel that way about the trust funds, nor would we 
dare act that way with respect to the trust funds.
    You talk about pressure on lawmakers to favor the trust 
funds. What do you mean? Are those salutary pressures or not? I 
am just not clear what we are to conclude from these 
distinctions that you are drawing between Federal trust funds 
and private trust funds, what implications you are drawing in 
terms of the way that we should handle these in the budget 
    Mr. Anderson. Congressman Price, I have been in budgeting 
for over 20 years. During that time, as has been mentioned 
earlier today, there has been a lot of complexity and the 
complexity has grown.
    I talk to a lot of people, not only media people and people 
from academia, but also citizens who call CBO, understandably, 
for an explanation. There is no subject that we get more 
confused questions about than trust funds.
    Mr. Price. Let me just interject that that confusion 
extends far as wide. How many times have we heard ``raiding the 
trust fund'' when that really isn't what we are talking about?
    Mr. Anderson. Yes. I believe, and that is why I put it in 
my testimony, that one of the fundamental reasons for this 
source of confusion is that people understandably think of 
trust funds in the sense that they know of, that is in a trust 
fund that they set up for their children or a trust fund that 
they set up for their retirement or something like that.
    I am not trying to criticize the purpose of the Social 
Security trust funds. For example, I think Social Security was 
the first trust fund, set up in 1935, and it has been a 
government success program. It has accomplished many if not 
most of the things that the government set out to do in 1935 
and has continued those goals through the succeeding decades.
    But nevertheless, we have this source of confusion about 
what a government trust fund is and what it is not. For 
example, as we are sitting here I believe other committees are 
taking a look at changing the Medicare trust fund, either 
through the Patient's Bill of Rights legislation or through the 
legislation to provide new drug benefits. Both of those would 
impact the Medicare trust fund.
    Their impact won't necessarily be only in the direction of 
adding new benefits. Some of those provisions are cutting back 
some portion of the benefits in order to finance additional new 
    So, it is not a trust fund in the same sense as that fund I 
have set up for my little grandchild who was just born recently 
because for that trust fund I control the assets. What my 
grandchild is going to draw out of that trust fund is going to 
depend on how well I succeed in making investments and how well 
that corporation, or whatever it is I invest in, pays off.
    In the case of Medicare, it is not a function of the 
current balances in the HI or SMI or other trust funds. It is 
really a function of what the Congress and the President 
    That is not to criticize the fact that the Congress and the 
President have made obligations to the elderly or to civil 
servants or to the population in general for Social Security 
benefits. But the mechanism or the words we use to describe 
those obligations I fear mislead more than they educate and 
that is the reason for what I said in my testimony.
    In particular, I think they mislead in the Social Security 
context because the whole concept of Social Security from the 
very beginning and still today is an inter-generational 
transfer. It is not a store of assets for future use, but 
rather I pay now so that the generations before me can draw 
money and live better. They paid for the generations before 
    I am hoping my children and grandchildren will be able to 
pay for me. But this intergenerational transfer is a 
fundamentally different concept than what the public perceives 
most of all when it looks at a trust fund. So, that is what I 
was trying to get across.
    I think there is a benefit to addressing this issue in a 
larger sense in a budget concepts commission. The benefit may 
well be educational more than anything else.
    Mr. Price. Mr. Chairman, I think this would be the subject 
of another week of hearings. I don't want to prolong it. But 
let me make this comment, and ask for your reaction.
    It does seem to me that the corollary of our scolding our 
colleagues for the overly-loose use of terms like ``raiding the 
trust fund,'' the corollary of that is that we do take the idea 
of a trust fund seriously and that we regard those assets as 
held, for example, by the Social Security trust fund as a 
solemn obligation of this government--that we don't engage in 
the kinds of comments that unfortunately I think our Secretary 
of Treasury has been inclined to make of late, talking about 
mere IOUs, mere paper sitting there in that trust fund, as 
though it didn't constitute that sort of solemn obligation or 
it wasn't really comparable to other kinds of Treasury 
securities in terms of their worth and their safety and 
    It is, in fact, a trust fund which is holding $1 trillion 
worth of assets, which we are going to have to make good on 
when the cash flow in Social Security reverses in 15 years. Is 
that not true?
    Mr. Anderson. You used the phrase ``solemn obligation'' I 
believe, Mr. Price. I much prefer using phrases like that 
because the Federal Government has made an obligation to the 
beneficiaries of Social Security and Medicare.
    I would much rather deal with talking about the obligations 
the Federal Government has made to those beneficiaries than 
talking about, as former CBO Director Rudy Penner called it, 
the accounting device of the trust fund.
    I am not saying that the trust fund as we set it up with 
its assets in Treasury securities does not have value. On the 
contrary, I believe that if properly presented, use of the 
statistics that we have for the trust fund has real value, real 
value not only to us here in Washington in terms of making 
public policy, but also value to the public.
    My point is that there is just this fundamental confusion 
between what a private trust fund is and what a public trust 
fund is. The confusion, I fear, is growing.
    Ken Apfel, who used to work at OMB in the office right next 
to me and was the Commissioner of the Social Security 
Administration, sends out a statement once a year to everybody. 
You take a look at that statement and you get the feeling that 
it is the kind of trust fund very similar to the trust fund I 
have set up for my grandkids.
    Well, there are some benefits to that statement. I am glad 
he is sending it out. But there is also a downside. The 
downside is that sometime in the future, maybe in the near 
future and maybe in the longer future, the Congress and the 
President may have to look at those long-term obligations and 
change them, as they have done in the past.
    For example my mother is drawing a Social Security benefit, 
and she started drawing at the age of 65. I cannot. I will have 
to wait until the age of 67 to draw full benefits. That is 
because of changes that the Congress made in 1983, I believe it 
    Well, we need to make sure those fundamental points are 
gotten across and that the statements that come out from Social 
Security or the words we use here don't confuse, but educate 
    Mr. Price. Well, all I would say is I appreciate the 
distinctions you are making and I appreciate your testimony. I 
would hope, though, in drawing these quite legitimate 
distinctions that we don't send the wrong signals, either in 
terms of the obligations that we as office holders have to the 
commitments that we have made via these trust funds, that we 
not compromise that nor do we compromise the confidence our 
citizens have that those assets are there to be drawn upon when 
they are needed.
    Thank you, Mr. Chairman.
    Chairman Nussle. Ms. Irving, do you want the last word? We 
will give you the last word for the hearing today.
    Ms. Irving. Mr. Chairman, I would like to go back to 
Barry's first statement about trust funds, about the fact that 
there are 200 of them in the budget.
    In part in response to all of this confusion, we produced a 
question-and-answer document on earmarked funds, because it is 
too easy to let the trust fund discussion be dominated by the 
biggest, most salient, most important trust fund that we have, 
Social Security.
    But beyond Social Security this is an issue. There are 
funds in the budget that are labeled trust funds and there are 
other funds in the budget that are labeled special funds. If I 
showed them to you without the label I would defy you to tell 
which is which. They walk, talk and quack exactly the same, 
except that the Congress put the word ``trust'' in the label 
for one fund and not for the other.
    I think if you are talking about cleaning up the budget and 
reducing confusion, you may in fact want one set of rules for 
Social Security and Medicare or for the ones that represent 
long-term commitments.
    But you might want to think about whether you want to get 
rid of a term that is so misunderstood and so misused. For 
example, today you have two funds with simalr purposes--EPA's 
Hazardous Substance Superfund (a trust fund) and Department of 
Engergy's Nuclear Waste Fund (a special fund).
    Well, I don't know why one is a trust fund and one is a 
special fund. That is some of what we talk about as confusion.
    Mr. Price. You are also talking about political resistance, 
anything that appears to weaken the commitment. I understand 
your point. I think it is well taken.
    Ms. Irving. I will bet the special fund people think they 
are just as big a deal.
    Mr. Price. Try to change them and you would soon find out. 
Try to change them and you will see the defenders come out of 
the woodwork, perhaps.
    Thank you. That is a helpful clarification. Thank you both 
for very helpful testimony.
    Chairman Nussle. I will also add my word of thanks. Thank 
you, Mr. Price, for sticking this out here with me today and 
working through some of these issues. I appreciate that.
    I think you are right, Ms. Irving. I have to say on second 
glance today I am pretty excited by the hearing and pretty 
excited about the discussion I heard today. I am going to smile 
a little bit better when I talk about budget process reform.
    Hopefully, between the two of us we can get people more 
ginned up, more excited about these concepts as we work through 
them. We will do the best we can at least.
    Ms. Irving. Well, we stand ready to help, of course.
    [The report ``Recommendations for Reform'' by the Committee 
for a Responsible Federal Budget follows:]

           Federal Budget Process: Recommendations for Reform
         Committee for a Responsible Federal Budget, March 2000

                          RECOMMENDATIONS \1\

    Joint Budget Resolution--Congress and the President should agree on 
fiscal policy goals, i.e., aggregate revenues, expenditures, surpluses 
or deficits, debt levels or debt reduction targets, etc., and 
incorporate those agreements in a Joint Budget Resolution.
    Exependiture Limits--Joint Budget Resolutions should include 
enforceable nominal dollar limits for both discretionary \2\ and direct 
    Pay-As-You-Go (PAYGO) \4\--Discipline should be maintained. Joint 
Budget Resolutions should include limits on projected surpluses 
available to offset new entitlements/revenue changes without PAYGO 
    Biennial Budgets, Appropriations and Tax Cycles should free up 
significant resources for other more productive purposes.
    Automatic Continuing Resolution--An automatic continuing resolution 
at or below the level of the caps contained in the most recently 
enacted Joint Budget Resolution should provide stop-gap funding in the 
event Congress and the President fail to reach agreement on some or all 
regular appropriations bills. Automatic continuing resolutions should 
be very restrictive. They could create compelling incentives for 
Congress and the President to agree on regular appropriations bills.
    Rainy Day Fund--``Emergencies.'' Joint Budget Resolutions should 
include reasonable reserves against emergencies and other unforeseeable 
contingencies. ``Emergencies'' should be carefully and narrowly 
defined. There should be strong rules to govern expenditure of such 
funds. This could help to limit the number and frequency of very large 
so-called emergency appropriations.
    The Budget should distinguish clearly between spending and 
revenues. There should be strict limits on any receipts scored as 
negative outlays. Activities that have all the characteristics of 
spending programs should not be scored as tax expenditures. There is a 
difference between spending and taxes and budgetary presentations 
should make clear distinctions between the two.
    Enhanced rescission should be enacted to take the place of line 
item veto.
    Budget concepts commission--It is time for another Budget Concepts 
Commission. A concepts commission is the best approach to resolve 
technical issues and to address new issues as they arise. A new 
concepts commission should meet at regularly scheduled intervals of not 
less than 10 years.

                           EXECUTIVE SUMMARY

    The budget should provide an accurate reflection of policies 
proposed and adopted. Comprehensive and honest budgets promote 
accountability. Sound budget process promotes fiscal discipline. When 
politicians cannot agree on policy they tend to fall back on process. 
But no process can compel decision-makers to reach consensus. 
Policymakers may be tempted to resort to ``blue smoke and mirrors'' 
rather than admit that they cannot reach agreement on hard choices. 
Perversely, therefore, policy stalemates and effective budget process 
can combine to make it difficult to keep the budget comprehensive and 
    The Congressional Budget process evolved in an era of persistent 
record high peacetime deficits and debt. For all the criticism here and 
elsewhere, the process helped to frame decisions that produced current 
surpluses. The Budget Enforcement Act (BEA) in particular was a 
significant first step toward cooperation between Congress and the 
Executive branch to achieve specific goals. In many respects, the 
recommendations contained in this report build on the successes of the 
    The Congressional budget process has succumbed to an all too human 
tendency. When we write rules, people tend to bend and break them. When 
we build fences and fail to tend them, people will find ways to breach 
those barriers. So much has happened, so many rules and concepts have 
been bent or broken that the total damage to the process is greater 
than the sum of the parts. As a result, even well intentioned, well-
informed people have difficulty understanding the budget today and our 
broad public policy debates suffer as a consequence.
    Current budget process debates revolve around two distinctly 
different kinds of problems.
    The first is caused by surpluses. Surpluses are not the problem. 
But a process designed to ensure that policy actions do not increase 
the deficit can be frustrating in the current surplus environment.
    For example, in 1990 PAYGO was designed to prevent Congress from 
adding to the deficit. It seemed clear to almost everyone involved in 
the 1990 budget debate that adding to the deficit (which was 4 percent 
of GDP and rising) would have been downright dangerous. PAYGO now makes 
it difficult to reduce the projected surplus. Reducing the surplus is a 
policy issue. It may or may not be desirable. But there is no broad 
consensus that spending increases and/or tax cuts that reduce deficit 
projections are dangerous to the economy or the Nation.
    Budget process must accommodate changing priorities. If it does 
not, eventually the process will break down. The existing process is 
heavily biased toward deficit reduction. Barriers to amending 
enforcement provisions probably are higher than they ought to be. As 
the budget shifts from deficits to surpluses, some question the need 
for continued restraint.
    Political leaders are becoming more frustrated with rules they 
perceive to be unrealistic as surplus projections grow.
    There are, however, budget process problems unrelated to deficits 
or surpluses. For example, our inability accurately to measure the size 
of the Federal sector relative to the overall economy would be a 
problem in any fiscal environment. Traditional definitions and budget 
concepts have become so blurred that they do not inform analysis, as 
they ought to do.
    The budget process is the product of a series of compromises over 
25 years. It is complicated, some would say convoluted. There is so 
much duplication and overlap that no decision ever seems to be final.
    Though Congress and the President seem to spend an inordinate 
amount of time on budget-related matters, they never reach agreement on 
an overall fiscal policy plan for the national government.
    Since 1990 nominal dollar caps have acted as a reasonably effective 
constraint on discretionary expenditures, but the more restrictive caps 
became the less effective they proved to be, and discretionary 
appropriations represent a shrinking piece of the budget pie.
    PAYGO acts a brake on enactment of new direct spending legislation. 
But there is no effective limit on direct spending that results from 
laws already on the books.
    The Federal budget includes a number of terms and presentations 
that are unusual, misleading or employed in unusual ways. Examples:
     Tax Expenditures that walk, talk, look and act like 
expenditure programs. The current lexicon frequently labels such items 
``targeted tax cuts''. Examples include the higher education tax 
credits enacted as part of the 1997 Balanced Budget Act and tax credits 
for corporations that build plants and employ people in ``empowerment 
zones''. Decisionmakers are drawn to such devices to avoid budgetary 
and political restraints. The effect often is to understate both 
expenditures and governmental receipts.
     Refundable Tax Credits, on the spending side of the 
budget, are indistinguishable from other entitlement outlays. For 
example, the refundable portion of the Earned Income Tax Credit (EITC) 
is the second largest welfare program in the budget--and four times 
greater than revenue losses for that program.
     Netting, i.e., subtracting income from expenditures at the 
account level for selected programs and showing the net figure as 
program outlays understates costs and distorts the budget picture.
     There is a serious need to revisit some basic budget 
concepts. Transparency and Universality are recognized as hallmarks of 
sound systems for public sector budgeting.
     Transparency refers to budgets that are easy to penetrate 
and understand.
     Universality means simply that all governmental financial 
transactions should be reflected in the budget.
    The budget has become less universal and less transparent over time 
as policy makers tried to avoid hard choices and/or escape 
accountability for the choices that they made. Too many decisions are 
made at the end of congressional sessions, in small rooms, with few 
participants. Too few Members of Congress fully understand the import 
and impact of such decisions. Too few feel invested in the outcomes of 
such deliberations. There is very little accountability when decisions 
are reached in this manner.
    Thus the budget process is unsatisfactory in several ways. It 
places both too little and too much restraint on fiscal policy 
decisions. It does not produce an accurate picture of the government's 
financial condition and activities. It does little to hold Members of 
Congress accountable to constituents.
    Historically, impetus to enact and amend the congressional budget 
process was essentially reactive.
    In the 1970's, two overriding concerns led to enactment of the 
Congressional Budget and Impoundment Control Act. There was backlash 
against President Nixon's impoundments of funds contained in 
appropriations bills he had signed into law; and many Members of 
Congress were frustrated that they had no mechanism to articulate a 
coherent alternative to the President's Budget.
    Subsequent amendments to the process were driven by two concerns 
that very often clashed. On the one hand there was a need to control 
and ultimately eliminate record peacetime deficits. On the other hand, 
many Members resented the modest restraint that the budget process 
imposes on congressional prerogatives.
    The current impetus for reform also is reactive but the specific 
stimuli are different. After 25 years of amendment and interpretation, 
many are disappointed with the process. Some problems are common to 
most public sector budgeting. For example, accountability, 
enforceability, measurement and the question of how to frame future 
     Bias. There is a legitimate question whether the process 
ought to be biased at all, and if so toward what goal(s).
     The role budgeting should play in the overall decision-
making process is an open question. Should it simply provide a 
framework to keep track of receipts and expenditures, deficits or 
surpluses, and debt? Should the process provide a mechanism through 
which Congress and the President set priorities, make choices and 
enforce fiscal policy limits once a budget is adopted? Should it do 
    Should the two policy branches of government reach agreement on one 
budget or should they continue to work on separate tracks?
     Definitions. ``Offsetting receipts,'' ``tax 
expenditures,'' ``net'' receipts and outlays have been so stretched as 
to defy definition and distort budget presentations.
     Timing, e.g., annual or biennial budgets;
     Scope, i.e., 20 functions versus broader categories such 
as discretionary, direct spending, receipts, etc. versus some other 
aggregation and/or different aggregations in different years to reflect 
topical concerns;
     Enforcement. What to enforce and how to enforce it?
     Emergencies, Contingencies and other exceptions to regular 
budget rules.
     Technical issues unique to U.S. Budget. Technical issues 
may take on political importance as they affect decisions regarding 
popular programs or activities.
    Technical issues include, but are not necessarily limited to the 
     Accrual Accounting for certain categories of receipts and/
or expenditures;
     Taxes versus mandates--For example, the Congressional 
Budget Office labeled proposed premium mandates in President Clinton's 
health care reform proposal taxes.
     Capital Budgeting and Trust Funds. The President's 
Commission to Study Capital Budgeting made major contributions to the 
debate about this topic and they also recommended a Budget Concepts 
    The next Congress and the new President almost certainly will have 
to address budget process reform and fashion a more workable framework 
for debates on fiscal policy for the future.
    We hope that this report will be of use to them and to that 
process. We thank the ``Big Five'' accounting firms for their support. 
Without that support, we could not have completed this project.

                       EVOLUTION--A BRIEF HISTORY

    The Congressional Budget and Impoundment Control Act was born of 
frustration over President Nixon's exercise of impoundment authority. 
Also, in 1973 Democrats controlled Congress. Congress believed that the 
President's budget gave the administration an incredible advantage: The 
President could describe economic goals and an entire legislative 
program in context, in one document. Congress had no vehicle similarly 
to describe alternative goals, policies and programs. Congressional 
leaders believed that a congressional budget could diminish if not 
eliminate the administration's advantage in this regard.
    Congressional desires to put stringent limits on Presidents' 
ability to withhold appropriated funds provided powerful impetus to 
passage of the Budget Act. Ironically the Federal courts effectively 
eliminated presidential impoundment authority before the Act could 
become law. But the great impoundment debate is a good example the law 
of unintended consequences at work.
    For nearly two hundred years, Presidents determined not to spend, 
i.e., impounded, appropriated funds. President Nixon's 1974 budget 
impounded funds for 102 programs. The President maintained that those 
programs were wasteful. Previous impoundments generally had been 
accepted, but this time States and local governments, and other 
potential recipients of the impounded funds sued in Federal court.
    The President took the position that congressional authorizations 
and appropriations provided authority to the executive to spend money 
but did not mandate expenditures. Plaintiffs held otherwise. Few cases 
were tried. In all but one (HUD) plaintiffs prevailed. (The court 
rulings became known as the ``Ash'' decisions after Roy L. Ash who was 
OMB Director when the suits were filed.)
    None of the decisions reached the Supreme Court. Nobody knows how 
the Court would have ruled. But the plaintiffs might have thought twice 
before filing their suits had they anticipated the evolution of budget 
rules under the Congressional Budget Act. Congressional leaders might 
have left well enough alone if they had foreseen budget caps, Pay-As-
You-Go rules, reconciliation and sequestration.
    Dick Bolling, John Rhodes, Ed Muskie and others who helped to write 
the 1973 Act said that Congress passed the law primarily because they 
thought it would put an end to impoundments. The Drafters of the Act 
knew it would not work. We know because they told us so. But none of 
them anticipated the evolution of the budget process as it actually has 
    Prior to the Act, Congress received the President's budget and for 
all practical purposes disassembled it. The parts were referred to 
relevant committees.
    Appropriations Committees acted on requests for discretionary 
funding in at least thirteen separate bills each year. (Congress 
generally passed one or more supplemental bills as well).
    Authorizing Committees dealt with proposals for new direct spending 
or for changes to existing entitlements. They wrote laws describing 
program designs and rules and authorizing appropriations to carry out 
discretionary programs and activities.
    Tax Committees acted (or didn't act) on revenue proposals.
    The parts of the Budget never were reassembled. As a result of this 
piecemeal approach, Congress could not gauge the aggregate fiscal 
policy impacts of their spending and revenue decisions until after the 
end of the fiscal year when Treasury reported actual receipts, outlays, 
deficits or surpluses and debt. Periodically Congress acted to increase 
the debt limit, but debt limit votes simply recognize and accommodate 
spending and revenue decisions taken in the past.
    The process described in the Congressional Budget and Impoundment 
Control Act of 1973 was fundamentally flawed. It was designed more to 
keep track of Congressional decisions than to enforce them. Final 
decisions were not supposed to be made until the end of the process--
just before the beginning of a new fiscal year and after Congress 
disposed of most spending and tax legislation.
    There were too many budget resolutions and Congress was supposed to 
budget 1 year at a time.
    The first budget Congress adopted each year did not really count. 
Reconciliation came at the end of the process. If invoked it would have 
reversed work that had consumed much of the congressional session. But 
Congress never implemented the reconciliation process as it was 
described in the Act. Congress first passed reconciliation instructions 
in the spring of 1980. That effectively ended the two-budgets-a-year 
regime; but they did not change the law to eliminate the Second Budget 
Resolution until the Gramm-Rudman-Hollings Act in 1985. (Reconciliation 
instructions are included in budget resolutions. They tell specific 
committees to report by a date certain changes in laws to reduce 
spending, raise or lower taxes by specified amounts.) The original Act 
contained no effective enforcement mechanism. Budget committees had no 
legislative jurisdiction and no real power.
    The process was supposed to be outcomes neutral. But large deficits 
overshadowed all other fiscal policy concerns for nearly two decades 
and Members soon sought to bias the process toward deficit reduction.
    A series of deficit reduction initiatives failed to produce 
advertised outcomes. Consequently, there was increasing focus on 
enforcement. For the first half of the 1980's Congress used the 
``elastic clause'' \5\ in the Budget Act to make the process more 
responsive to topical concerns.
    In 1985, 1987, 1990, 1993 and 1997 Congress passed, and the 
President signed, laws formally to amend the Act and change the 
    Eventually Congress and the President achieved the desired goal. In 
Fiscal 1998, the consolidated budget was in balance for the first time 
in thirty years. In Fiscal 1999, there was an on-budget surplus.
    There is a legitimate debate about whether the budget process ought 
to be outcomes neutral or whether it should be biased in favor of 
specific fiscal policy outcomes.
    A biased process presupposes broad agreement around desired 
outcomes. For a quarter century, there was such a consensus around the 
goal of deficit reduction and budget balance. Now that the budget is in 
balance, the absence of consensus around appropriate fiscal policy 
goals impedes both budget formulation and budget process reform.

                         Basic Budget Concepts


    To say that budgets are transparent is to describe our ability to 
look inside them and understand what we see. Citizens of average 
intelligence, willing to spend a reasonable amount of time to follow 
public policy debates, should understand the amount politicians propose 
to raise in taxes and how they would spend the money. In addition, 
citizens should be able to weigh competing policy proposals without 
attending a seminar or taking a tutorial.
    The 1967 Budget Concepts Commission contributed significantly to 
the Budget process. For two decades following enactment of the Budget 
Act, historically high peacetime deficits dominated budget debates.
    The budget picture got bleaker. Choices became more difficult. The 
Budget Act demanded disclosure of a great deal of information that 
previously was not generally available.
    Administrations of both parties abandoned traditional budget 
presentations. Administrations and Congresses resorted to complex 
accounting, shifting baselines and old fashioned ``blue smoke and 
mirrors'' to obscure budget options and outcomes. Transparency was a 
major casualty.
    Today, it takes a real expert, a great deal of time, and access to 
considerable unpublished data to pierce the fog that shrouds most 
budgetary presentations. This is unhealthy.
    Representative governments depend on the consent of voters for 
their legitimacy. Citizens need and deserve to know from where 
government gets revenue and how our tax dollars are spent. The polling 
booth is supposed to function as a market clearing mechanism. The 
political marketplace depends on transparency to function effectively. 
Thus, it is impossible to overstate the importance of transparency to 
the fundamental health of representative governmental systems.


    Universality means that all financial transactions of the 
government should be reflected in the budget. We play games with 
ourselves when we take Social Security, the Postal Service, Highway 
Trust Funds and other programs ``off-budget''.
    Taking something ``off-budget'' does not take it ``off 
government''. There are legitimate issues around the use of dedicated 
receipts;,but we should be able to answer those concerns and recognize 
the aggregate impact of all financial activities of government in the 
    Given current and projected surpluses, Social Security Trust Fund 
surpluses serve as convenient proxy for a more analytic approach to 
determine minimum amounts that will be devoted to debt reduction. This 
example illustrates that it may be politically attractive, even useful, 
to treat certain pots of money as special. Most economists agree that 
using budget surpluses to retire public debt is prudent policy. Debt 
reduction increases savings available for productive private investment 
and thus contributes to productivity and economic growth.
    Thus, debt reduction can help the country meet the challenges that 
will arise as the baby boom generation retires. But there is no 
empirically correct amount of debt reduction. Social Security Trust 
Fund surpluses serve as a convenient ``line in the sand''.
    There is no logical relationship between the size of the trust fund 
surplus and the amount of debt reduction that makes sense in a broader 
fiscal policy context.
    Politics may compel decision-makers to dedicate 100 percent of 
those trust fund surpluses to debt reduction. Earmarking trust fund 
surpluses for that purpose probably will produce greater debt reduction 
than would be the case in the absence of that policy.
    But in the final instance, the size and scope of government 
matters. A decision to raise or cut taxes or benefits for one program 
inevitably impacts on other areas of the budget. That is why it is 
important to include all governmental financial transactions in one 
comprehensive consolidated budget.
    That is why the administration and Congress continue to report 
consolidated receipts, outlays, deficits and surpluses, and debt--
notwithstanding the fact that they have taken Social Security ``off-
budget'' several times.


    Bias is a value laden word to describe the tendency of processes to 
produce certain kinds of outcomes. It is difficult, if not impossible, 
to design completely unbiased processes. Thus it is worthwhile to ask 
ourselves what kinds of outcomes we prefer--all else being equal--and 
take those preferences into account as we consider the biases that 
specific reforms may produce. In 1973 liberals argued successfully that 
the budget baseline should take into account current year spending, 
projected obligations, inflation, demographic changes and other factors 
to hold programs and service levels constant throughout the forecast 
    Conservatives have argued ever since to exclude from the baseline 
inflation and other factors--except as required by law. They say 
current spending should be the departure point for comparisons.
    Neither baseline projections nor previous years' policies are the 
best starting point for formulating future policy. Budgets should 
include planned expenditures and receipts for future years. Budget 
debates should make comparisons to current levels, planned levels and a 
current policy baseline. Combined, the three tell us how much spending 
and receipts are going up or down, whether the changes were 
contemplated in the last budget cycle and whether planned or projected 
changes will result in increased or decreased program levels.
    If Congress and the President budget to phase out the xyz program, 
that activity is best described in future years as adhering to plan--
not as a cut. If decision-makers plan a series of spending increases 
for a specific function, subsequent budgets should describe such 
changes as ``according to plan''.
    The actual and current policy comparisons are useful, but tracking 
progress based on past budget decisions could interject a level of 
political accountability that is absent from current budget debates.
    Discretionary caps currently require Congress and the 
administration to compare proposed and projected spending to past 
budget decisions. Notwithstanding so-called ``emergency'' 
appropriations that evade the caps, those statutory limits have proven 
to be more effective than any other approach to discipline the Federal 
budget process.
    In the current debate over changing ``PAYGO'' rules we see an odd 
juxtaposition of liberal and conservative positions. By and large, 
liberals argue to maintain the current Pay-As-You-Go rules, or relax 
them as little as possible, even though that could impede passage of 
entitlement expansions they support.
    Some fear a large tax cut that could reduce total resources 
available to meet public needs at the Federal level; and some fear the 
impact of growing entitlements and tax cuts on discretionary spending 
for activities such as education, the environment, transportation, etc.
    The budget process ought not to predetermine budget outcomes. But 
policy makers ought to consider the default option as they debate 
budget process reform.
    If we are wrong about policy outcomes, do we prefer the result to 
be more or less expansive fiscal policy? What happens if Congress and 
the President reach an impasse--if they do nothing at all?
    Political biases strongly favor expansive fiscal policy. Perhaps, 
therefore, process biases ought to be more restrictive. That could 
interject one more ``check and balance'' into the political system.

                       THE ROLE OF BUDGET PROCESS

    Should the budget be a mirror, reflecting societal goals and 
aspirations or should it be a fence or series of fences to place limits 
around political behavior?
    Adding up all the programs and policies you would like government 
to pursue may be an interesting and gratifying activity, but it is not 
    When government budgets, it first divides national incomes between 
the public and private sectors. Government can make this decision 
because it has theoretically unlimited taxing authority. Within the 
public sector, the Federal budget allocates resources among competing 
    The 1973 Congressional Budget Act articulated a process better 
suited to keep track of spending and revenue legislation than to frame 
or constrain decisions on fiscal policy legislation. Congress was to 
pass a draft budget in the spring. Then they acted on individual 
spending and tax bills. At the end of the process, Congress adopted a 
final budget. They were supposed to change spending and tax laws just 
passed to fit within the budget, or change the budget to accommodate 
enacted legislation.
    Not surprisingly, Congress changed the budget. In fact, Congress 
frequently adopted a second (amended) budget resolution in the fall--
and a third (further amended) resolution the following spring.
    Eventually, Congress did attempt to change spending and tax laws, 
i.e., reconcile them, to fit within the budget. But it was impossible 
to do so at the end of the year. Without changing the Act, Congress 
made the first budget resolution binding, effectively eliminated the 
second resolution, and institutionalized ``reconciliation''.
    The reconciliation process as we know it is to be found nowhere in 
the 1973 Act. Reconciliation rules and guidelines were written ``on-
the-job''--sometimes in budget resolutions, sometimes through 
consultation and negotiation in leadership offices, on the floor of the 
House or Senate, and sometimes through parliamentary challenges. 
Reconciliation rules have tended to be formalized, and incorporated in 
law, after the fact.
    It is neither desirable nor possible to go back to a budget process 
that forces no choices and contains no teeth. Any effective budget 
process will impose some constraint on the committees that have 
jurisdiction over specific spending and revenue policies. Members will 
take issue with that. But ``budget'' and ``restraint'' are nearly 
synonymous concepts.

                        DEFINITIONS AND CONCEPTS

    Definitions and concepts are easier to deal with than many other 
elements of the budget process. Labels neither determine, nor alter, 
the fundamental nature of a transaction, program or policy.
    The Health Care Reform debate in the first Clinton Administration 
illustrates this point. Calling that proposal an employment-based 
private system did not make it so.
    Calling taxes mandates did not fool anyone. It serves no useful 
purpose to kid ourselves about the nature of spending programs and tax 
policies. We ought not to label spending programs as tax cuts--nor tax 
receipts as ``fees''--nor label some revenues as ``negative outlays''.
    The revenue side of the budget should reflect all governmental 
receipts; the expenditure side should reflect executive branch 
authority to incur obligations on behalf of the Federal Government 
(budget authority) and actual expenditures (outlays).
    ``Offsetting receipts'', as defined by the 1966 Budget Concepts 
Commission, were supposed to account for ``revolving funds''.
    ``Netting'' repayments against disbursements in direct loan funds--
or user fees against outlays for related business-like activities and 
services of government was supposed to reveal the governmental cost of 
such activities, i.e., the cost to be charged to the tax base.
    ``User Fees'', as described in the report of the Budget Concepts 
Commission were supposed to be charges for business-like activities of 
government. For example, receipts from operations of House and Senate 
Restaurants, or from the sale/lease of mineral rights. FDA charges for 
expedited processing of applications for approval of new food and drug 
products would appear to be consistent with this definition. Fees 
should be scored as receipts. Offsetting receipts are scored as 
negative outlays. Royalties from drilling rights on the outer 
continental shelf offer an example of offsetting receipts. 
Administrations and Congresses, without respect to political party 
affiliation, have expanded the concepts of ``Offsetting Receipts'' and 
``user fees'' beyond recognition. There are two reasons for this. They 
hope to avoid the ``tax increase'' label; and they want to increase 
spending; but they do not want to increase the budget caps or bust 
    Today, user fees and offsetting receipts both are ``scored'' as 
negative outlays. Negative outlays make it possible to increase 
expenditures without reporting an increase in total Federal spending. 
User fees may be good policy but this scorekeeping convention distorts 
budget reporting and should be severely curtailed.
    The term Tax Expenditures describes revenue laws/policies that 
reduce, rebate or eliminate taxes that otherwise would apply to 
specific classes of individuals and/or activities. This may include 
deductions and credits that apply to millions of individuals and huge 
classes of activity, e.g., deductions for home loan mortgage interest 
and health insurance costs; it may describe provisions written vary 
narrowly to benefit a small group of people and/or uncommon activities.
    A number of tax expenditures seem more like spending programs than 
tax policy. Higher education tax credits might as well be grants to 
individuals from families that meet statutory income limits to pay for 
post-secondary education. Corporations may apply for certain tax 
credits if they set up shop in specific areas of specific towns and 
cities, employ people who meet statutory guidelines, and otherwise meet 
statutory criteria.
    Refundable tax credits actually are grants. Some people don't pay 
taxes. Many pay little or no income tax. Treasury writes a check for 
the amount of refundable credit, for which the taxpayer is eligible, in 
excess of his or her tax liability.
    The Earned Income Tax Credit is meant to offset some or all of the 
impact of FICA taxes for low-income workers. The refundable (grant) 
portion of the program has grown larger than regular Federal welfare 
costs. The more politicians attempt to subsidize the purchase of 
specific goods and services, e.g., education and health care, the more 
refundable tax credits we will see. Low-income families don't pay 
enough income taxes to take full advantage of credits large enough to 
meet all those social policy objectives.
    ``Net outlays'' distort the impact of governmental receipts and 
spending on incomes and the economy even more than scoring ``Offsetting 
Receipts'' as negative outlays.
    With offsetting receipts, we generally record separately 
expenditures (outlays) and receipts (negative outlays). This distorts 
bottom line outcomes but discloses the gross as well as net cost of a 
    Subtracting receipts from outlays, and recording only the 
difference in the budget may drastically understate the cost of a 
program. Indeed, exaggerating to make the point, we could report 
negative net outlays for the entire government this year. Treasury 
receipts will exceed total Federal expenditures, but that does not make 
government free. Government will spend nearly two trillion dollars.
    Budget process reform should examine the basic concept of ``net 
outlays'' and whether this convention is needed or desirable.
    The same holds true on the revenue side of the budget. There are a 
few programs, e.g., payments to states for their shares of offshore oil 
revenues, where we record net income in the budget, i.e., governmental 
receipts, less payments associated with those receipts.
    This is as deceptive as the practice of recording net outlays and 
should be subject to the same degree of scrutiny in budget process 
    Beyond being able to measure the size of government--beyond the 
potential to mislead--policymakers should be able to assess the likely 
efficacy of alternative approaches to meeting specific policy 
priorities. Treating expenditures and receipts as if they were fungible 
makes this task more difficult. Choosing among possible approaches to 
fund priorities based on political expediency is the antithesis of 
choice based on efficacy and efficiency, and the latter is most likely 
to deliver high-quality public goods and services.


    In the current environment, four principal factors drive debates on 
budget process reform.
    1. Frustration. Some who accepted restrictive rules such as PAYGO 
and discretionary caps, when that seemed necessary to reduce the 
deficit and balance the budget, resent restraints on the use of some or 
all projected on-budget surpluses to offset the cost of new programs 
and tax reductions.
    2. Complexity. The current budget process grew like topsy. It is 
ridiculously complex. Duplicative roles and overlapping 
responsibilities spawn redundancy and lead to conflict between and 
among those charged with disposition of the same issues at different 
points in the process.
    Many Members of Congress and their staffs believe that Congress is 
governed by arcane rules known to very few and subject to change almost 
without notice. Few outside government have the time, patience, or 
sufficient information to follow the budget process. This is one 
product of evolution. Some changes are codified in law. Others are 
buried in unanimous consent agreements. Some rules began as tacit 
understandings. That puts tremendous power in the hands of those who 
know the rules, but it also and inevitably irritates almost everybody 
    3. Disappointment. The process rarely produces outcomes consistent 
with the promises budget resolutions seem to make. Sometimes it seems 
that likely budget outcomes are no clearer at the beginning of the 
fiscal year than before the budget process was enacted. Congress and 
the President rarely complete a budget cycle on time. Fiscal policy 
decisions seem never to be final. Members tire of debating the same 
issues over and over again.
    4. Future Challenges. The U. S. population is aging. In little more 
than a decade, the baby boom generation's retirement, and a slower 
growing workforce, will put extraordinary demands on the budget and 
    Current and projected Surpluses could mitigate transition pressures 
in Social Security reform, Medicare reform, tax reform, etc., the very 
actions necessary to meet baby boomers' needs in retirement and to meet 
the public service needs of the rest of the population at the same 
time. If we squander current and projected surpluses, it will be much 
harder to deal with the pressures that like ahead. Thus, budget 
surpluses are good news in every way except the impact that they appear 
to have on fiscal discipline. And current budget rules do not lend 
themselves to debates on how best to use surpluses to address 
challenges that lie ahead.
    Discretionary caps may constrain somewhat the urge to spend--but 
``emergencies'' have become welcome events because they provide 
opportunities to increase spending above the caps. (Sometimes the only 
``emergency'' is an uncontrollable urge to spend money.)
    Legislation enacted in 1999 reversed some of the Medicare savings 
enacted in the 1997 Balanced Budget Act. It is not clear whether 
current rules permit the use of on-budget surpluses to offset the cost 
of such legislation; but that did not matter. Congress and the 
administration seem to have reached an informal agreement that anything 
goes, so long as they do not have to dip into Social Security Trust 
Fund surpluses to pay the bills.
    The budget process is a week bulwark against such pressures. It 
focuses on short-term priorities, not on longer-term challenges. The 
budget process advantages anything that is in the base, i.e., the 
baseline assumes that every program and tax policy on the books now 
will continue indefinitely into the future. Proponents must come up 
with offsets, i.e., cut an existing program or raise new revenue to pay 
for new priorities.
    For example, if Congress appropriated money last year to build a 
dam, eliminating the cost of that dam from the current budget 
inevitably will be described as a cut--even though we may not need to 
build another dam this year. If they want to build new prisons, those 
costs are described as increases. A proposal to transfer the dam money 
to pay for prisons may be twice cursed: first for cutting water 
projects; and second for proposing to increase spending.
    The bias in favor of the status quo is especially strong in the 
case of entitlement programs. Entitlement benefits continue until and 
unless Congress passes and the President signs a law to change the 
rules. And you can ask any lobbyist, it is much more difficult to enact 
a new law than to stop passage of any piece of legislation.
    All of these concerns argue for budget process reform today. We 
believe, however, that the budget process debate should be expanded to 
include all of the issues addressed in our recommendations.



    The Senate Budget Committee Chairman Pete V. Domenici, (R-NM), a 
majority of House Members, and many other experts believe the country 
and the Federal Government would be better served by biennial budget 
and appropriations processes.
    Proponents of annual budgeting argue that Congress and the 
President would give up too much flexibility to meet changing 
priorities if they changed to a biennial process.
    In any event, much of government remains relatively unchanged over 
time. Proponents of biennial budgeting say that a 2-year process would 
free up resources and encourage Congress to devote more time and 
attention to authorizations and oversight.
    Finally, some say that biennial budgets would reduce upward 
pressure on spending and bring more stability to governmental financial 


    The Congressional Budget and Impoundment Control Act of 1973 
deliberately set up budget functions different from appropriations 
categories. Government is managed departmentally. Thus it is 
appropriate to ask how much should be appropriated to the Secretary of 
Education, or Defense, etc. But we plan functionally. The Department of 
Defense manages most national security programs, but the Department of 
Energy manages nuclear weapons research. Nuclear weapons research 
belongs in the national defense function of the budget--but the money 
is appropriated to the Secretary of Energy.
    Budgets are supposed to be broad fiscal policy plans. Over time, 
Congressional budgets have come to include specific assumptions at the 
sub-function or even program level-angering authorizers and 
appropriators and getting away from the basic idea of a budget.
    With the advent of discretionary budget caps and Pay-As-You-Go 
rules, it has become necessary to include ``mandatory'' and 
``discretionary'' totals in the budget. Many argue that functional 
detail is unnecessary. Should budgets contain 19 or 20 or more 
functions; or should the budget be limited to broader categories--e.g., 
direct and discretionary spending and such levels of detail as seem 
appropriate given current budgetary concerns?


    The President sends a budget to Congress every year. Most years, 
Congress passes a concurrent resolution on the budget or Congressional 
Budget. Congress rarely votes up or down on the President's Budget--and 
never in modern memory has adopted the President's Budget. The 
President does not sign and cannot veto concurrent resolutions. Thus, 
Congress and the President never do agree on a budget.
    The executive and legislature eventually do agree on appropriations 
for discretionary programs for the budget year, generally just before 
or after the beginning of a new fiscal year. Sometimes they agree on 
changes to specific direct spending programs or revenue laws.
    Many political leaders and budget experts agree that it is 
imperative for Congress and the President to agree on one plan.
    The existence of an agreed plan would diminish the importance of 
so-called ``baseline'' debates. Moving many of the big budget 
compromises forward would be conducive to more deliberate consideration 
of substantive tax and spending legislation and ultimately to better 
public policy.


    The most important enforcement mechanisms in the 1973 Act were:
     A point of order in the House and Senate against any bill, 
amendment, or conference report that would cause total budget authority 
and/or outlay amounts contained in the most recently enacted budget to 
be exceeded;
     Points of order against consideration of any legislation 
that would create new spending authority or reduce receipts first 
effective in a year for which no budget resolution had been adopted; 
     A requirement that new direct spending legislation be 
referred to the Appropriations Committees of the House or Senate, so 
they could comment on possible impacts on future discretionary 
    The point of order against breaching the aggregate spending limits 
in the budget did not work. Most often it lay against the last bill 
Congress considered.
    Frequently, the last bill was Defense Appropriations or other 
``must'' legislation. Congress could choose to waive the point of 
order, to cut bills recently enacted or force the last bill they 
considered each year to bear the brunt of aggregate budget overages 
throughout the year. Obviously, they almost always waived the point of 
    The rules have been amended to permit House consideration of 
appropriations beginning May 15, even if Congress has not adopted a 
budget by that time.
    Clearly, however, enforcement provisions contained in the 1973 Act 
were not equal to the deficit reduction task Congresses and 
administrations faced in the 1980's and into the 1990's.


    The Emergency Deficit Control and Balanced Budget Act of 1985, 
better known as Gramm-Rudman-Hollings or G-R-H for the authors, was 
Congress' first serious attempt to limit spending under existing laws 
and policies. Previous enforcement mechanisms had attempted to put a 
break on enactment of new budget busting legislation.


     First enacted as part of Gramm-Rudman-Hollings, 
sequestration is a system of automatic semi-across-the-board cuts, 
triggered by circumstances spelled out in law.
     Almost all discretionary spending is eligible to be 
sequestered. The President can protect Military pay. Some other 
programs/activities are protected wholly or in part by statute.
     Social Security cannot not be sequestered, but within 
limits Medicare can.
     The initial G-R-H statute relied on the Comptroller 
General, as mediator between the Office of Management and Budget and 
the Congressional Budget Office to determine whether sequestration 
would be triggered--and if so how large it should be. Members of 
Congress (led by Mike Synar (D-OK)) sued. The courts held that this was 
an unconstitutional delegation of executive authority to the 
Comptroller General who does not serve at the pleasure of the 
President. The courts upheld Synar.
     Subsequently, Congress amended G-R-H, giving OMB the final 
say on whether sequestration is triggered and how big any cuts would 
be. At the same time, Congress reaffirmed the sequestration that 
already had gone into effect lest the courts overturn that action based 
on the Synar decision.
    G-R-H failed for two reasons:
    1. It attempted to enforce deficit levels. That is the wrong target 
because deficits are derivative of expenditure and revenue levels, and 
because very minor changes in economic conditions and technical 
estimates can cause wide swings in the deficit.
    2. The limits established in law were unrealistic. Actual deficits 
were bound to be much higher than the limits contained in the law every 
year. There never was a real chance that actual deficit levels would 
conform to the statutory limits.

                       BALANCED BUDGET ACT (BBA).

    Twice having amended G-R-H, and having conjured up a fair amount of 
blue smoke and mirrors to limit or avoid sequestration, Congress and 
the President adopted a new approach to enforce the 1990 Balanced 
Budget Act. The Budget Enforcement Act was an important first step 
toward forging agreements between the executive and the legislature to 
achieve specific fiscal policy goals.
    Most of the committee's current recommendations for budget process 
reform are based on successes of the BEA.
     The BEA wrote nominal dollar expenditure caps into law--
separate caps for defense, international and domestic spending in the 
early years, aggregate budget authority and outlay caps in the last 3 
    Establishing a pattern that has obtained since that time, the caps 
were quite generous in the first year, becoming more restrictive with 
the passage of time.
    If discretionary spending is projected to cause one or more cap to 
be exceeded, sequestration reduces pro-rata all eligible programs and 
activities under that cap. It does not matter whether outlays derive 
from prior year budget authority or new legislation--or some 
combination thereof--any overage causes a sequester. (There is a fudge 
factor to keep a very small breach from triggering sequestration.)
     Pay-As-You-Go or ``PAYGO'' rules are designed to ensure 
that enactment of new legislation does not increase direct spending, 
reduce revenues, or widen the deficit. Entitlement increases or revenue 
reductions must be offset by reductions in entitlement spending or 
revenue increases.
    If spending under current laws and policies exceeds budget 
estimates nothing happens. If new legislation is enacted that widens 
the deficit due to increased direct spending or reduced revenues, 
sequestration is triggered and applies to all eligible direct spending 
    SINCE 1990, THE BEA HAS BEEN AMENDED TWICE--as part of the 1993 
Omnibus Budget Reduction Act, and in the 1997 Balanced Budget Act. Both 
times, existing discretionary spending caps went up a lot for the 
budget year but got tighter in subsequent years, contributing 
significantly to the savings and deficit reduction each bill was 
supposed to achieve. Both times, Congress and the administration 
tweaked the rules for adjustments to the caps and gave themselves a 
little wiggle room. The sequesterable base has expanded somewhat since 
    So-called ``emergency'' spending is not subject to the caps. 
Congress and the administration must agree to designate something an 
emergency. Otherwise, there is no real limit to what they can call an 
emergency. The outlay caps for 1999 and 2000 have been adjusted upward 
by $25-$30 billion \6\ for emergencies and other requirements, most of 
it for routine operating costs of government. (Only 8 states have total 
budgets in excess of $25 billion per year.\7\)
    In 1997, a bipartisan group of House Members attempted to amend the 
balanced budget act to require the President and Congress to agree on a 
Joint Budget Resolution, to add nominal dollar caps for entitlement 
spending (enforced by sequestration), revenue enforcement, and rules to 
close the ``emergency'' loophole.
    Elements of that amendment are reflected in most subsequent budget 
process reform legislation.


    The President's Budget last year raised the possibility of a joint 
budget resolution and argued the need to tighten controls over 
emergency spending. This year's Budget proposes to change the 
discretionary spending caps. It argues that the new caps should grow to 
keep pace with inflation. The Budget also supports enhanced rescission.
    The Senate Budget Committee maintains that paygo rules do not apply 
to legislation, the effect of which would be to diminish an on-budget 
surplus but not cause the government to incur an on-budget deficit.
    A number of bills have been introduced to codify the Senate Budget 
Committee position, including the Nussle-Cardin bill H.R. 853.
    Several bills (including Nussle-Cardin) would require Congress to 
pass a joint Resolution. (See diagram at page 42.)
    The Nussle-Cardin bill, reported from the House Budget Committee, 
addresses most of our Committee recommendations, with one major 
exception. The joint resolution would contain amounts for entitlement 
spending, but it would not include enforceable entitlement caps.
    Congressman John Spratt (D-NC), Ranking Democrat on the House 
Budget Committee, has introduced enhanced rescission legislation. It 
seems likely that the same majorities in both bodies that supported 
line item veto (since declared unconstitutional) will support enhanced 
rescission in its place.
    The Senate Budget Committee Chairman has introduced legislation to 
shift to a biennial budget and appropriations cycle. Two hundred forty-
five House members signed on to House Resolution 396 supporting 
biennial budgets and appropriations.
    Several bills and resolutions seek to ensure that Social Security 
Trust Fund surpluses cannot be used to pay for non-Social Security 
activities--and once again to ``take Social Security off-budget''.
    Heaven knows how many times Congress will pass such legislation, 
but the amount they spend for everything else ultimately will determine 
whether or not Social Security Trust Fund receipts are used to pay for 
other programs, activities and functions of government.
    Most of the legislation currently before congress is intended to 
scratch this year's itch, i.e., to rewrite (or clarify) paygo rules for 
an era of surpluses, to address in some fashion the embarrassment 
surrounding emergency spending, and/or to convert to a biennial budget 
    Most of these bills would not eliminate the duplication, overlap 
and redundancy in existing law nor truly reform the process to meet 
future needs. Most do not claim to do so.


    Decision-makers in democracies that have balanced budgets 
(including our own) by and large agree--the key to budget discipline is 
expenditure discipline. H.R. 853 would not establish limits on 
entitlement spending, but it moves in that direction--proposing to 
write into law direct spending targets.
    There is no objectively right level for Federal spending. The right 
level best is judged by taxpayer support expressed as a willingness to 
pay taxes sufficient to pay the bills. If political leaders reach 
agreement on how much government should spend, and keep spending within 
budgetary limits, we are unlikely to return to a regular regime of 
rising deficits and debt.
    The Committee for Responsible Federal Budget supports H.R. 853, but 
we believe that there should be caps for mandatory as well as 
discretionary spending. Caps should be expressed in nominal dollars. 
They should be adjustable for actual changes in economic conditions and 
demographics, where such factors affect spending levels, e.g., 
entitlement caps should go up to accommodate rising unemployment. 
Automatic changes to the caps should be rare and strictly proscribed in 
law. Congress and the President should be able to change the caps at 
any time--provided any Member of the House and Senate may demand a 
separate vote solely on that issue.
    The caps contained in the most recently enacted joint budget 
resolution should continue in force until new or amended caps are 
    Caps should be enforced through sequestration, and sequestration 
should operate to create incentives for committees to conform 
expenditures for programs within their jurisdictions to the limits 
contained in the budget. Thus sequestration should be triggered only 
when aggregate spending for a major category (discretionary or direct 
spending) exceeds the total cap. But once triggered, sequestration 
should reduce spending only for programs in the offending categories, 
i.e., categories that caused the overage.
    Sequestration should be triggered, at the beginning of the year, if 
spending is projected to exceed statutory limits. Sequestration should 
be triggered any time in the first three-quarters of a fiscal year, if 
new legislation is projected to cause an overage. If legislation 
enacted in the final quarter of a fiscal year is projected to cause an 
overage--or if actual expenditures for the fiscal year just completed 
exceed statutory limits--the caps for the new budget year should be 
adjusted downward to make up the difference.


    The foregoing enforcement section points out that so-called 
emergency spending is exempt from statutory caps that otherwise limit 
discretionary spending. The administration and many Members of Congress 
criticize the abuse of this provision. Most budget process reform 
proposals attempt to address the problem.
    Many would establish a contingency fund as part of the fix.
    With the advent of expenditure caps, however, another issue has 
arisen. The caps tend to become floors. Outlays from prior years' 
budget authority may crowd out current priorities. Caps have tended to 
become more restrictive, in the out-years, 3-5 years after adoption of 
the most recent revisions.
    Caps are the most effective expenditure mechanism ever attempted to 
place real limits on Federal spending and enforce the limits we set. 
But Members of Congress begin to feel as if there is no truly 
discretionary money in the budget at all.
    The question is: How to create room under the caps to fund new high 
priority programs and initiatives--or at least to put such new 
initiatives on equal footing with programs and activities that are ``in 
the base''?
    Should there be some sort of ``Sunset'' rule that requires Congress 
and the President to reauthorize all existing expenditure programs, on 
a rotating basis, over some period of time?
    Should there be a higher barrier than exists in current law, e.g., 
points of order or super-majority votes, to impede funding for programs 
that are not reauthorized on schedule?
    Is there a way to create a pot of truly discretionary money under 
the caps?
    How much is too much? Demand truly does appear to expand to subsume 
available resources--and in subsequent years seems to equal last year's 
spending, plus inflation, plus an allowance for new initiatives.
    Political pressures to increase spending are not new. What is new, 
or worse than it used to be, is the assumption that everything in the 
base is inviolable. Therefore, any new program, activity or priority 
must mean a real increase in government expenditure. It appears that 
part of the emergency problem is the desire to take credit for spending 
above the baseline for high priority initiatives.
    Is there a way to accommodate that demand within an expenditure-
limited environment and if so how?
    Is it possible to provide a real contingency fund--one that would 
not be expended as part of the regular annual appropriations process? 

                            TECHNICAL ISSUES

    Accrual Accounting. Government operates a number of insurance 
programs and accounts for them on a cash basis. The annual inflows and 
outflows of cash provide little indication of the long-run subsidies 
provided to the beneficiaries of those programs. The cash flows provide 
little warning of problems looming over the horizon. For example, the 
problems of the thrift industry and the consequent threat to the 
financial health of the government's deposit insurance fund were known 
long before the extent of the problem showed up in the fund's cash 
    If accounting for the fund had been done on an accrual basis, the 
Congress might have been induced to act more quickly, thus saving tens 
of billions of dollars.
    Similar problems afflicted the government's credit programs before 
the Credit Reform Act of 1990 (CRA).
    Cash accounting often made it appear as though a new loan guarantee 
program reduced the deficit because of the fees it charged.
    In actuality, those fees were not sufficient to cover the 
contingent liabilities created for the government in the long run. 
Conversely, direct loan programs looked far more expensive than they 
actually were in that the large cash disbursement occurring when the 
loan was made was recorded immediately, whereas loan repayments were 
reflected in the budget as funds were received.
    The CRA fixed the problem by accounting for credit programs on a 
present value basis. The excess of the present value of the outlays 
associated with a program compared to the present value of its receipt 
measures the subsidy provided to borrowers.
    Many advocate a similar approach to accounting for insurance 
programs. Estimating future liabilities may be more difficult than with 
credit programs, because insurance programs often insure against 
catastrophic events that have a very low probability; e.g. the 
explosion of a nuclear plant. Small changes in the analysts' estimate 
of the probability of a catastrophe can mean very large changes in the 
estimated cost of a program and the subsidy that it conveys. But 
underwriting, i.e., projecting risks and costs accurately, is the 
essence of insurance. The subsidy conveyed by many insurance programs 
is much easier to estimate; e.g. veterans' life insurance and mortgage 
insurance. It has been suggested that we start gradually with the 
easiest cases and further study how to deal with those that pose 
difficult conceptual problems.
    There also arguments for applying accrual concepts to the analysis 
of tax provisions that have long-run impacts that differ considerably 
from their short-run impacts, e.g., under reasonable assumptions 
traditional IRAs and Roth IRAs impose the same revenue loss over the 
long run. However, the truncated time horizons used by the budget 
process to evaluate tax changes makes the Roth IRA appear much cheaper.

                           CAPITAL BUDGETING

    Capital budgeting is a very popular concept with many individuals 
and groups for many reasons. On the one hand, proponents argue that the 
private sector, State and local governments use capital budgeting to 
match expenditures that have long-term benefits to streams of revenue 
to be realized over the useful life of physical assets. On the other 
hand, many experts fear that a capital budget for the Federal 
Government would create a privileged class of expenditure. They fear an 
overwhelming temptation to include high priority items, along with a 
lot of pork barrel spending, in the capital budget.
    Many differences derive from discussions of a Federal capital 
budget as if it applied only to the expenditure side of the budget. If 
it were necessary to identify and raise revenues to pay for capital 
expenditures--and budget for depreciation--the capital expenditures 
would appear as costly as any other budget outlays.
    Even if capital expenditures appeared as costly as other government 
programs, there is a risk that the label ``investment'' could create a 
cache and advantage expenditures included in that category.
    That leads to the problem of definitions. Reasonable people can and 
do disagree about just what constitutes capital expenditures in the 
Federal sector. Education is included as a capital expenditure in the 
Special Analysis that accompanies presidential budgets. Some experts 
say all defense spending--including hardware--should be scored as an 
operating cost to the government. Thus, they worry about the capital 
budget concept expanding to include inappropriate (but popular) 
    The President's Commission to Study Capital Budgeting report makes 
major contributions to this debate, especially in the area of 
definitions. That Commission reached the conclusion that the issue 
should be considered in broader context by a new budget concepts 
    The Federal budget already reflects ``budget authority'', 
``contract authority'', or ``new obligation authority'' in the year in 
which we commit to major long-term investments. Investment outlays are 
recorded as they occur. The budget impacts would not be much different 
if we had a capital budget.
    The real problems around Federal investment spending derive from 
competing priorities and presentation.
    Outlays from prior year commitments impinge on high priority 
spending in the budget year. Decision-makers may be tempted to lease 
rather than purchase physical assets to avoid very large commitments of 
budget authority up front and very large outlay tails.
    Leasing may prove counterproductive. Leases may impose a larger 
mortgage on future resources than purchases because the government will 
have to enter new agreements when the leases expire.
    Future costs are not reflected in the budget. The budget does 
record contractual commitments for as long as those commitments 
continue. Nonetheless, it is not at all clear that investment spending 
is disadvantaged in current budget debates.
    Spending for programs that create jobs and other visible benefits 
are very popular back home. Spending for highways and airports received 
preferential treatment in legislation before Congress last year, 
notwithstanding generally tight budgetary restraints.
    Capital budgeting is one of a series of problems around 
presentation and priorities posed by the current budget process. Reform 
should address all of those issues. Given the attention focused on 
capital budgeting in recent years, reformers probably should pay close 
attention to any bias against investment spending that may exist in the 
current or proposed budget processes.

                              TRUST FUNDS

    Experts and non-expert cynics both have remarked that there is no 
trust in Federal trust funds. That is unfortunate because such funds 
exist largely to assuage anxiety around very popular programs. The 
``trust fund'' nomenclature is familiar to most people and we think we 
know what it means. But Federal trust funds are subject to none of the 
rules and regulations intended to protect and maintain fiduciary 
responsibilities in private trust funds.
    Federal trust funds are an accounting device, generally intended to 
keep track of dedicated receipts and calculate obligations (implied or 
statutory) for government to deliver specific payments or services 
based on those payments.
    We probably ought to abolish the term trust fund from the budget 
vocabulary. But that would be very hard to do.
    Budget process reformers should consider creating substantial 
barriers to the establishment of new trust funds. To the extent 
possible a reformed budget process should more accurately describe 
trust fund programs in terms that describe what they are supposed to do 
and how they are supposed to work--in language most people can 
    When Congress and the President dedicate revenues from specific 
sources to pay for particular programs, they create a presumption with 
regard to appropriate expenditure levels. Sometimes they write those 
expenditure levels into law, in the form of entitlement benefits and 
formulae. If dedicated receipts fall short of amounts needed to fund 
planned expenditures, there often is tremendous pressure to make up the 
short-fall from general revenues.
    In the case of the Highway program, Congresses and Presidents have 
spent significant general fund resources on trust fund programs since 
the trust fund was established. Nonetheless, there is tremendous 
pressure to spend all trust fund collections on highway trust fund 
    The difficulty with this presumption about appropriate levels of 
expenditure for specific programs best can be illustrated by an extreme 
example. If we found ourselves in another World War, almost everybody 
would agree that we could cut back on trust fund programs, and redirect 
resources to fight the war. The principal also holds true in less 
extreme circumstances.
    Priorities change over time. Congresses and Presidents must be able 
to redirect resources away from lower priorities as new, higher 
priorities emerge. That is the difficulty with earmarking huge parts of 
the budget years into the future. And that kind of earmarking is the 
main point of most so-called trust funds in the Federal budget.
    Budget process reform should focus on ways to clarify the fact that 
those trust fund reserves held in the form of U.S. government debt are 
liabilities, not assets, on the government's balance sheet.
    A reformed process should disclose whether dedicated taxes likely 
would be sufficient to meet future commitments.
    The process should disclose future claims on general funds to meet 
trust fund obligations--and the implications for other programs, for 
future flexibility, the overall size of government, tax burdens and 
future borrowing.


    There are two major issues around mandates:
    1. Almost all economists, experts and analysts agree that political 
decisions to direct the use of resources toward public policy purposes 
ought to be transparent--that political leaders be accountable for such 
    2. There is a great deal of controversy within the economic/ 
analytic/ expert community about the budgetary treatment of mandates, 
i.e., when a mandate becomes a tax.
    The Clinton Administration proposed health care reform, and recent 
Social Security reform debates, illustrate dramatically the temptation 
to employ mandates to direct resources to specific public purposes 
without raising taxes. It is not always easy to determine exactly at 
what point a mandate stops being a mandate and becomes a tax. This may 
be a topic for a new budget concepts commission. In the meantime, it is 
imperative to make such distinctions based on the characteristics of 
the proposed activity--not on labels.

                      RELIANCE ON ``SCOREKEEPERS''

    Budget enforcement relies to an extraordinary extent on 
Congressional Budget Office and the Office of Management 
interpretations of budget concepts and scorekeeping conventions.
    Experts play a crucial role to inform the political debate. 
Policymakers ought to have the best possible estimates of likely 
impacts of proposed actions before they enact economic policy 
legislation. But the experts are most comfortable and effective when 
there exists broad consensus around concepts and clear definitions of 
    The professionals at CBO and OMB are not supposed to make policy. 
CBO and OMB are no more comfortable than their political masters when 
their decisions seem to direct rather than inform policy. Both 
policymakers and the professionals who serve them do best when there is 
wide understanding of and agreement about what ought to be reflected in 
the budget, how and why.


    1. Joint Budget Resolution. Congress and the President should agree 
on one budget for the country. So long as the two policy-making 
branches of government work from separate budgets, there really is no 
such thing as a budget or fiscal policy plan for the country.
    The Joint Budget Resolution should include fiscal policy goals--
aggregate revenues and expenditures, surpluses or deficits, debt levels 
and/or debt reduction targets.
    2. Expenditure Limits. Expenditure discipline is the key to budget 
    There is no objectively right level for Federal spending. The right 
level is the one we will pay taxes to support over a reasonable period 
of time. If political leaders agree on expenditure limits, and keep 
spending within the limits they set, we are unlikely to return to a 
regular regime of rising deficits and debt.
    There should be separate caps for defense, and non-defense 
discretionary spending--separate caps for large entitlement
    programs and a residual category for ``all other'' direct 
spending--and additional caps as needed. Caps should be enacted as part 
of the joint budget resolution.
    Caps should be enforced through sequestration. Sequestration should 
be triggered by a breach of the aggregate limit(s) for discretionary or 
mandatory spending. Automatic reductions ought to apply only to the 
categories that cause the breach.
    3. Pay-As-You-Go (PAYGO) discipline should be maintained. Joint 
Budget Resolutions should spell out the amounts of any projected 
surpluses available to offset entitlement increases and/or revenue 
reductions. Entitlement increases and revenue reductions, in excess of 
amounts contemplated by the budget, should be subject to Pay-As-You-Go 
    4. Rainy Day Fund--``Emergencies.'' Most States maintain ``rainy 
day'' funds as buffers against unanticipated budgetary pressures. 
Surprises almost always cost money. It is important to set aside a 
reasonable reserve against emergencies and other unforeseeable 
    Nothing can keep Congresses and Presidents from enacting so-called 
emergency spending in excess of any amounts set aside for 
contingencies. Coupled with strong rules governing the use of such 
funds, however, budgeting for contingencies could do much to eliminate 
the embarrassing, recurring pattern in recent years of very large so-
called emergency appropriations bills. Further to ease pressures for 
emergency appropriations, Presidents should not be permitted 
unilaterally to make loans to States to meet matching requirements, nor 
should they be able unilaterally to waive repayment for such loans.
    5. Biennial Budgets, Appropriations, and Tax Cycles. A biennial 
budget cycle should free up significant resources in the executive 
branch and on Capitol hill--resources that could be redirected to more 
pressing priorities.
    But biennial budgets coupled with annual appropriations and tax 
legislation almost certainly would prove to be unsatisfactory.
    There should be substantial barriers to enactment of spending and 
tax legislation in non-budget years, else Congresses and Presidents 
well might drift back toward an annual cycle as spending and tax 
legislation seems to be more compelling than authorizations and 
    7. Automatic Continuing Resolution. An automatic continuing 
resolution at or below the level of the caps contained in the most 
recently enacted budget should provide stop-gap funding in the event 
Congress and the President cannot agree on some or all regular 
appropriations bills.
    If there are no caps, the automatic continuing resolution should 
hold spending below the current level, to provide an incentive for 
passage of regular appropriations bills.
    8. Spending is spending and receipts are receipts. The Budget 
should distinguish clearly between outlays and revenues. There should 
be strict limits on offsetting receipts, user fees and other net 
outlays. ``User fees'', ``offsetting receipts'' and ``negative 
outlays'' have been sorely abused in recent years to make the 
government seem smaller, and spending seem lower, than actually is the 
case. There should be carefully crafted rules to define what 
constitutes a user fee, and what ought to be netted against program 
outlays, and those rules ought to be rigidly enforced.
    Programs that have all the characteristics of Federal grants should 
not be reflected in the budget as tax expenditures.
    9. Enhanced Rescission. The House and Senate Appropriations 
Committees should be required to report, and the leadership in both 
bodies should be required to schedule votes on presidential rescission 
proposals within a specific period of time. Otherwise, any Member of 
Congress should be able to offer a highly privileged, non-debatable 
motion to proceed immediately to consideration of the President's 
rescission proposal(s).
    11. Budget Concepts Commission. Basic budget concepts and 
definitions best may be addressed in a Budget Concepts Commission 
comprised of experts including, but not dominated by, representatives 
of the administration and Congress.
    Much has changed since the last Budget Concepts Commission in the 
1960's. The Committee believes that it is time for a new Commission.
    Moreover, the Committee believes that new Budget Concepts 
Commissions should meet at regularly scheduled intervals--perhaps every 
decade or every 25 years.
    A concepts commission is the best venue in which to address 
technical issues such as:
     A shift from strict cash accounting to accruals for 
insurance programs--and perhaps for a limited number of other 
governmental financial activities. For example, employees' full 
accruing retirement costs under the old military and civil service 
retirement systems could be charged as agency cost and recorded as 
budget authority. That is the way FERS is treated in the budget today.
     The distinction between mandates and taxes. There always 
will be political dimensions to any budget-related issue; but issues 
such as accrual accounting and what to include in the budget can seem 
downright arcane. Political discourse around such issues should be 
informed by expertise.
     How to account for or score Federal Government investments 
in private securities. There are a number of proposals currently under 
consideration for Treasury to make such investments. The 1967 Budget 
Concepts Commission never considered the issue. There is no consensus 
among experts regarding the proper budgetary treatment of such 
investments. The Committee believes that a Budget Concepts Commission 
can best address these issues.

                         ANOTHER POINT OF VIEW

    Robert Reischauer, President of the Urban Institute, a member of 
our Board and former Director of the Congressional Budget Office 
articulated the views of experts who disagreed with those of the 
Committee at the meeting we convened last fall to discuss these issues. 
We have invited Bob to summarize his comments here.
    1. Joint Budget Resolution. This sounds good in theory but it won't 
work. Congress and the President would wrangle over the contents of the 
JBR until August and it would become another source of delay. Messy as 
the Congressional Budget Resolution (CBR) may be, it reflects and is 
consistent with the system of divided government.
    In the 1980's I suggested a two-step process. The President would 
send a budget to Capitol Hill and Congress would pass a skeletal CBR 
containing economic assumptions, total revenue and spending (and 
dividing spending among defense, non-defense and mandatory categories).
    Once Congress passed the CBR, the President would prepare a second 
budget, conforming to the CBR plan. Then Congress would pass another 
concurrent resolution, containing committee allocations and 
reconciliation directions.
    Finally, Congress would pass, and the President could sign or veto 
appropriations and reconciliation legislation. That system would have 
been very cumbersome. At the time, however, we were facing huge 
deficits; Congress and the President seemed incapable of cooperation, 
and I thought my cumbersome system was preferable to Gramm-Rudman-
Hollings. Now I am not even sure about that.
    2. Expenditure Limits. Expenditure limits are fine for 
discretionary spending, providing they are set for no more than 5 years 
at a time. There must be a mechanism for revisiting the limits and 
there must be wiggle room such that provided by the emergency 
provisions in current law. I do not believe that there ought to be 
separate caps for defense and non-defense spending. Separate caps may 
preclude tradeoffs and that is unwise.
    I do not favor entitlement caps. They would undermine the basic 
reason for establishing certain programs as entitlements.
    3. PAYGO in some form is desirable. I favor redefining the part of 
the budget that is ``in play'' to exclude Social Security, Medicare and 
Unemployment Compensation surpluses. Having set aside those amounts, I 
believe the budget should divide remaining surpluses into three 
slices--on a year by year basis: one for tax cuts, one for changes to 
mandatory spending, and one for debt reduction.
    4. Rainy Day Funds don't make a lot of sense at the Federal level 
unless you want to count the ``debt reduction'' slice I suggest above 
as a rainy day fund. I always have been for amortizing emergencies 
voted in the current year over the next 5 years, unless an explicit 
stand-alone vote said that they could be treated as ``water over the 

          other experts' opinions--feedback from fall meeting
    Barry Anderson, Deputy Director, Congressional Budget Office, took 
advantage of this opportunity to make a strong case for a new budget 
concepts commission. He said that the environment today is similar to 
the environment that argued for a commission in the 1960's.
    In the 1960's confusion arose because the President's Budget 
contained three separate budget presentations: national income accounts 
budget, administrative budget, and consolidated cash budget. Today 
there is just as much confusion around on-budget, off-budget, and 
unified budget presentations. Congressional and public understanding of 
the budget is no better today than in the 1960's.
    In the 1960's technicians and policymakers were unhappy with 
accounting for loans, business-type receipts, and debt financing other 
than borrowing.
    Today their counterparts are concerned about budgetary treatment of 
tax credits and a large number of purely financial transactions 
including transfers of Treasury securities to trust funds and Federal 
purchases of private marketable securities.
    We continue to benefit from the legacy of the 1967 commission, 
especially the forceful case they made for a single Federal budget that 
comprises all Federal fiscal activity.
    But that was then and this is now. The budget process and the 
environment in which it functions have changed and today there is a 
real need for a new commission on budget concepts.
    In 1967, there was no explicit Congressional Budget Process and no 
BEA8. The country had not experienced runaway peacetime budget 
deficits. Uncontrolled mandatory spending was primarily an academic 
    Baby boomers were entering the labor force, not preparing to 
retire. The tax code and most Federal policies seemed much simpler 
    The case for a single comprehensive budget remains as compelling 
today as in the 1960's, but that does not answer questions about when, 
how and what Federal activities are to be scored in the unified budget. 
To illustrate that point, Barry offered a series of examples:
     What is the right budget horizon?
     Shift from cash to accruals--for what?
     Expenditures and Receipts--how to distinguish between 
     Seigniorage and coinage--similar activities should be 
treated similarly.
     Potential Arbitrage--how to treat gains and loses due to 
government borrowing at the risk-free rate and investing in risky 
     Probabilistic budget scoring.
     Assets acquired through long-term leasing.
     Non-appropriated fund instruments, eg., military PXs.
    In conclusion, Barry pointed out that this is not an exhaustive 
list of issues--but that the list certainly is long enough and weighty 
enough to argue the need for a new commission. He said that public 
scrutiny of budgetary gimmickry is useful but no substitute for careful 
assessment of larger conceptual issues. What exactly is an outlay? What 
is a receipt? What is a trust fund? How should the budget recognize 
long-term commitments?
    Technicians cannot answer such important questions alone. The 
policy dimensions are too far-reaching.
    A new nonpartisan commission on budget concepts would greatly 
enhance and bring order to the current debate on reforming the budget 

                           ACCOUNTING OFFICE

    It is important to remember that the 1974 Act did not seek a 
specific result in terms of the deficit. Rather, it sought to assert 
the Congress' role in setting overall Federal fiscal policy and 
establishing spending priorities and impose a structure and timetable 
on the budget debate.
    Underlying the 1974 Act was the belief that the Congress could 
become an equal player only if it could offer a single ``budget 
statement'' with an overall fiscal policy and an allocation across 
priorities. Prior to 1974, the congressional budget was the cumulative 
result of individual pieces of legislation. The Congress did not 
examine or vote on overall spending or revenues.
    The Act was crafted in recognition of existing power structures in 
the Congress. It carefully avoided giving the budget committees 
anything like the power, or even the coordinating role, of OMB. Among 
its most important elements was the creation of CBO. This eliminated 
the Congress' dependence on OMB for numbers and analysis by giving 
Congress an independent source of budget numbers.
    It is not until the deficits of the 1980's that we see the budget 
process changed into a process designed to drive deficit reduction.
    It is not until 1985, and the law commonly referred to as Gramm-
Rudman-Hollings that the Act was amended to reflect the changing focus 
of the process--from increasing Congressional control to reducing the 
    Both the original GRH and the 1987 amendments sought to achieve a 
balanced budget by establishing annual deficit targets to be enforced 
by sequesters if legislation failed to achieve them. Measured against 
its stated objective, GRH failed.
    The perceived failures of GRH led to the Budget Enforcement Act 
(BEA). BEA seeks to limit congressional action and so to influence the 
    Unlike GRH, BEA holds Congress accountable for what it can directly 
control through its actions, and not for the impact of the economy or 
demographics, which are beyond its direct control. And on those terms, 
BEA has been a success.
    GRH showed us that no process could force agreement where one does 
not exist. In contrast, BEA established a process to enforce a 
previously reached agreement. One could argue that the recent 
experiences with the discretionary caps under BEA emphasize the first 
point. There no longer exists substantive agreement that the caps are 
realistic so there is greater use of exemptions.
    I would argue that the BEA succeeded on its own terms. The PAYGO 
mechanism succeeded in preventing either significant entitlement 
expansions or significant revenue reductions. For most of its history, 
the caps held. For most of its existence, the issue in BEA has not been 
whether it succeeded or failed but on the limitations of its ambition. 
BEA did not seek to trim existing entitlement programs--and it has not 
done so. What then about a budget process for the future?
    We ask a great deal of our budget process. We want it to surface 
the important choices in a way we can understand and focus on them. We 
use it both to determine fiscal policy and to drive program management. 
In the Results Act world, we turn to the budget to tell us something 
about the cost of obtaining a given level of results. We want to 
understand the full cost of choices when we make them.
    GAO has previously suggested some broad goals for a budget process. 
It should:
     Provide information about the long-term impact of 
decisions while recognizing the increased uncertainty that comes with 
long-term projections or simulations;
     Provide information and be structured to focus on the 
important macro trade-offs.
     Provide information necessary to make informed trade-offs 
between different tools; and
     The process must be enforceable, provide for control and 
accountability and be transparent.
    It is still an open question whether a budget process must be 
designed to advance a particular fiscal goal or whether it could be 
designed as a vehicle for Congress to assert a fiscal goal and its 
    It can be instructive to look at how other countries have thought 
about the advent of budget surpluses. In a report GAO issued last fall, 
we discovered that a number of industrial nations had found ways to 
look behind the immediate budget window and move beyond single deficit 
    They sought to adopt a new fiscal paradigm and a family of measures 
that included debt as a share of the economy.
    Clearly, the budget debate must find a way to deal with the near-
term and the certain knowledge that these surpluses, although welcome, 
will be overwhelmed by a demographic tidal wave unless there are 
changes in the structure of Social Security and Medicare. And these are 
not the only long-term cost pressures facing us.

                    REPRESENTATIVE JOE BARTON (R-TX)

    Congress passed bipartisan balanced budget agreements in 1982, 
1985, 1987 and 1990. None balanced the budget. The strong economy 
deserves more credit than anything Congress or the President have done 
to balance the budget and produce projected surpluses.
    Nonetheless, we learned from our earlier experiences: what matters 
in budget agreements is what Congress and the administration agree to 
enforce and how they enforce it.
    In 1995 and again during consideration of the 1997 budget 
agreement, Charlie Stenholm, David Minge and a lot of other Republicans 
and Democrats joined me to introduce budget process reform legislation 
based on effective expenditure limitation. We continue to believe that 
the budget process needs reform and we continue to work with other 
members and groups outside government toward that goal.
    Priorities for reform should include:
     Joint Budget Resolution. For all the reasons articulated 
in the discussion paper prepared for this meeting and by many of the 
speakers here, it is imperative for Congress and the President to agree 
on one budget for the country.
     Caps for both Discretionary and Entitlement Spending. 
There should be separate Defense and Non-Defense discretionary caps. 
There should be separate caps for big entitlement programs. 
Sequestration should be triggered by breech of the overall limit for 
discretionary or entitlement spending--but it should reduce only the 
categories that caused the overage. Caps should be adjusted for changes 
in actual economic conditions and numbers of human beneficiaries.
    Congress and the President could change the caps by simple majority 
vote. There should be no super-majority vote requirement. But congress 
should be forced to vote up or down on whether to increase spending 
over the amounts contained in the most recently enacted budget. That 
vote should not be buried inside a big omnibus bill.
    Establish a Rainy Day Fund and close the emergency loophole. I 
support the Nussle-Cardin bipartisan budget process reform bill. It 
does not go as far as I would like, but it would be a big step in the 
right direction.
    Biennial Budgeting is important to reduce the time and resources 
that the executive and legislative branches devote to budgeting, 
provide greater certainty to program managers and mitigate upward 
pressure on spending. But biennial budgets would not produce those 
desirable outcomes. Appropriations and tax legislation also would have 
to shift to a biennial cycle. Of course, a 2-year cycle would be most 
effective in concert with the other changes recommended above.


    With Representatives Nussle, Cardin and many others on both sides 
of the aisle, I have worked to produce a bipartisan approach to reform 
the budget process.
    More recently, the Rules Committee has focused on biennial 
budgeting. There is so much support for that idea that this Congress 
just might pass a law at least to test a 2-year budget cycle.
    As Chairman of the Subcommittee of the Rules Committee that has 
jurisdiction over congressional process, including the budget process, 
I am keenly aware that even H.R. 853 goes too far for some and does not 
go far enough for others.
    The most contentious items in the bipartisan bill are the automatic 
continuing resolution and the PAYGO rules. I am confident that we will 
work out something on those issues, to satisfy a majority of the House, 
and I expect that we will take up budget process reform in this 
    We look forward to working with all of you to enact sound budget 
process reforms. The current process is not working well. We have to 
fix it. I congratulate Jim Nussle, Ben Cardin and all the other Members 
who have worked so long and so hard to get the issue to this point. And 
I hope that all of you will work with us to help us write a good bill 
into law.

                    REPRESENTATIVE JIM NUSSLE (R-IA)

    The chart at page 41 illustrates the budget process under H.R. 853, 
the Comprehensive Budget Process Reform Act of 1999. That bill creates 
a joint budget resolution and a reserve fund for emergencies, a lock 
box to ensure savings from floor amendments actually reduce spending, 
and an automatic continuing resolution to avoid government shutdowns.
    It reaffirms the special budgetary status of Social Security, 
strengthens budget enforcement and accountability for Federal spending 
and the debt limit, lengthens the budget horizon to 10 years, improves 
budgeting for long-term liabilities, relaxes existing PAYGO rules and 
reforms the Byrd rule.


    Both of these Members stressed the difficulty of passing any budget 
process reform legislation. Representative Stenholm recalled that he 
worked on budget process reform legislation with the Co-Chairman of the 
Committee for a Responsible Federal Budget, Tim Penny, before Tim left 
Congress. More recently, he and Representative Joe Barton have worked 
on these issues. Representative Stenholm reiterated his support for 
extending expenditure caps to cover entitlements as well as 
discretionary spending--providing that sequestration if necessary 
affects only those categories of entitlements that caused the spending 
    Representative Minge reminded the group that many Democrats are 
very concerned about any change in PAYGO rules. He said Democrats seek 
to enforce revenue levels in the budget as well as direct spending. Mr. 
Minge emphasized that the Nussle-Cardin bill is a carefully crafted 
compromise, that more changes may yet need to be made before any bill 
can be written into law and asked the group to continue to work with 
them to enact good, strong budget process reforms.

    Budget process reform is inevitable. The current rules impose 
politically unrealistic limitations on Congress and the President given 
large and growing surplus projections. Further, existing rules do 
little to inform debates about long-term challenges such as Social 
Security, Medicare and tax reform.
    We hope that this project and this publication will prove helpful 
as Congress and the administration consider changes to the process this 
year and in the future.


    1. These are consensus views of our Board of Directors but do not 
necessarily represent the views of all directors on all issues. Neither 
do the recommendations necessarily reflect positions of the ``Big 5'' 
accounting firms that co-sponsored this project. For balance, we 
include with a fuller explication of the Committee's recommendations at 
the end of this report, the views of one of our Directors, Robert 
Reischauer. Dr, Reischauer disagrees with many of the Board's consensus 
    2. ``Discretionary spending'' comprises programs, projects and 
activities subject to annual appropriations.
    3. ``Direct Spending'' includes entitlements and other mandatory 
    4. Pay-As-You-Go'' or ``PAYGO'' rules require revenue increases or 
reductions in direct spending to offset new legislation that would 
reduce revenues or increase direct spending.
    5. Sec. 301 of the Act spells out (in subsection (a) ``Content of 
concurrent Resolution on the Budget''; and in subsection (b) 
``Additional Matters in Concurrent Resolution''. Sec. (b) (4), 
sometimes referred to as the ``elastic clause'', says, ``set forth such 
other matters and require such other procedures, relating to the 
budget, as may be appropriate to carry out the purposes of this Act.''
    6. The Budget and Economic Outlook, Fiscal Years 2001-2010. January 
2000, Congressional Budget Office.
    7. Statistical Abstract of the United States, The National Data 
Book, U.S. Department of Commerce, Economics and Statistics 
Administration, Bureau of the Census.
    8. The Budget Enforcement act, Title XIII of the Omnibus Budget 
Reconciliation Act of 1990, amended as part of reconciliation bills in 
1993 and 1997.

    Chairman Nussle. Well, thank you very much.
    With that, the hearing is adjourned.
    [Whereupon, at 1:30 p.m. the committee was adjourned.]