[Senate Hearing 114-628]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-628
 
          CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2017

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

                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               ----------                              

          February 3, 2016--SPENDING ON UNAUTHORIZED PROGRAMS

April 6, 2016--BUDGETING BLIND: THE UNRELIABILITY OF FEDERAL FINANCIAL 
                                  DATA

   April 13, 2016--BUDGETING FOR OUTCOMES TO MAXIMIZE TAXPAYER VALUE

April 20, 2016--TAP DANCING ON THE RAZOR'S EDGE: RESTORING STABILITY TO 
                         GOVERNMENT OPERATIONS

             April 27, 2016--BETTER BUDGETS, BETTER RESULTS

    September 14, 2016--OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE



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                                                        S. Hrg. 114-628

          CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2017

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

                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

          February 3, 2016--SPENDING ON UNAUTHORIZED PROGRAMS

April 6, 2016--BUDGETING BLIND: THE UNRELIABILITY OF FEDERAL FINANCIAL 
                                  DATA

   April 13, 2016--BUDGETING FOR OUTCOMES TO MAXIMIZE TAXPAYER VALUE

April 20, 2016--TAP DANCING ON THE RAZOR'S EDGE: RESTORING STABILITY TO 
                         GOVERNMENT OPERATIONS

             April 27, 2016--BETTER BUDGETS, BETTER RESULTS

    September 14, 2016--OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE
    
    
    
    

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                                ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

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                        COMMITTEE ON THE BUDGET

                   MICHAEL B. ENZI, Wyoming, Chairman

CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
JEFF SESSIONS, Alabama               PATTY MURRAY, Washington
MIKE CRAPO, Idaho                    RON WYDEN, Oregon
LINDSEY O. GRAHAM, South Carolina    DEBBIE STABENOW, Michigan
ROB PORTMAN, Ohio                    SHELDON WHITEHOUSE, Rhode Island
PATRICK TOOMEY, Pennsylvania         MARK R. WARNER, Virginia
RON JOHNSON, Wisconsin               JEFF MERKLEY, Oregon
KELLY AYOTTE, New Hampshire          TAMMY BALDWIN, Wisconsin
ROGER F. WICKER, Mississippi         TIM KAINE, Virginia
BOB CORKER, Tennessee                ANGUS S. KING, JR., Maine
DAVID A. PERDUE, Georgia

                 Eric Ueland, Republican Staff Director
                Warren Gunnels, Minority Staff Director











                                CONTENTS

                               __________

                                HEARINGS

                                                                   Page
February 3, 2016--SPENDING ON UNAUTHORIZED PROGRAMS .............     1

April 6, 2016--BUDGETING BLIND: THE UNRELIABILTY OF FEDERAL DATA     87

April 13, 2016--BUDGETING FOR OUTCOMES TO MAXIMIZE TAXPAYER VALUE   201

April 20, 2016--TAP DANCING ON THE RAZOR'S EDGE: RESTORING 
  STABILITY TO GOVERNMENT OPERATIONS ............................   297

April 27, 2016--BETTER BUDGETS, BETTER RESULTS ..................   367

September 14, 2016--OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE    437

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Enzi.................................1, 87, 201, 297, 367, 437
Senator Whitehouse.....................................6, 206, 301, 383
Senator Warner...................................................    90

                               WITNESSES

Barry Anderson, Former Acting Director, Congressional Budget 
  Office.......................................................374, 378
James C. Capretta, Senior Fellow, Ethics and Public Policy 
  Center, American Enterprise Institute........................384, 387
Stan Collender, Executive Vice President, QORVIS MSLGROUP......396, 398
Honorable Gene L. Dodaro, Comptroller General of the United 
  States, U.S Governmental Accountability Office.................92, 95
Honorable Keith Hall, Ph.D., Director, Congressional Budget 
  Office................................................9, 11, 439, 442
Kevin A. Hassett, Ph.D., Director of Economic Policy Studies, 
  American Enterprise Institute................................304, 306
Phillip G. Joyce, Ph.D., Professor of Public Policy and Senior 
  Associate Dean, University of Maryland School of Public Polic316, 318
Honorable Maurice P. McTigue, President of Outreach, Mercatus 
  Center, George Mason University..............................235, 237
Roy T. Meyers, Ph.D. , Professor of Political Science and 
  Affiliated Professor of Public Policy, University of Maryland, 
  Baltimore County.............................................260, 264
Norman J. Ornstein, Ph.D., Research Scholar, American Enterprise 
  Institute....................................................332, 334
Paul L. Posner, Ph.D., Director of Graduate Public Administration 
  Program, and Center on the Public Service, School of Policy, 
  Government and International Affairs, George Mason Un36, 38, 212, 214
James A. Thurber, Ph.D., Founder and Director, Center for 
  Congressional and Presidential Studies, School of Public 
  Affairs, American University...................................54, 56
Jessica Tollestrup, Specialist on Congress and the Legislative 
  Process, Congressional Research Center.........................25, 28

                         QUESTIONS AND ANSWERS

Questions and Answers.......................76, 178, 293, 353, 412, 468







                   SPENDING ON UNAUTHORIZED PROGRAMS

                              ----------                              


                      WEDNESDAY, FEBRUARY 3, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Ayotte, Perdue, 
Whitehouse, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; for 
the Minority: Joshua Smith, Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I will go ahead and call this hearing to 
order. Good morning, and welcome to all that are here.
    We are here today to talk about what I view as a 
fundamental breakdown in America's budget process, and it is a 
breakdown that has significant ramifications for not only 
Government but for our Nation. I mentioned a lot last year that 
we had 260 expired authorizations that we were still spending 
money on to the tune of $293.5 billion. I evidently mentioned 
it enough that we changed that from 260 down to 256. But we 
increased the spending from $293 billion to $310 billion. We 
need to be going back and looking at things and making sure 
that we know what we are spending our money on.
    It is essential to start with a premise of good government 
that we should authorize programs and activities before we fund 
them, and as the former Chairman of the Health, Education, 
Labor, and Pensions Committee, I strongly value the process by 
which programs are authorized and reauthorized. When Congress 
utilizes an authorization, it is creating a Federal solution to 
a perceived need. But over time, needs change, program flaws 
become apparent, technology evolves. And over time, inevitably 
Congress creates more programs, many of which are duplicative 
of existing programs, as the Comptroller General of the 
Government Accountability Office testified before this 
Committee last year.
    Congress must reexamine what we are actually funding in 
order to improve or eliminate Government programs not 
delivering results. By taking a closer look at these programs 
and activities, we would have more funding flexibility to boost 
important programs and priorities. This is also probably the 
best way to avoid creating new programs that duplicate those 
already being funded.
    In short, there are a slew of reasons why Congress needs to 
periodically review and reauthorize the very Federal programs 
and activities it initiates. But the problem is we are not 
doing it.
    Most of the big-ticket Federal entitlement programs like 
Medicare and Medicaid have permanent authorizations. Not 
surprisingly, they have proven to be particularly difficult to 
reform.
    On the discretionary side, defense authorization is 
reauthorized annually like clockwork via the National Defense 
Authorization Act. But the majority of nondefense discretionary 
spending is now unauthorized. We have a chart showing that last 
year, $310 billion of the roughly $543 billion in nondefense 
discretionary appropriations went to unauthorized programs and 
activities. Why are we spending less on the authorized ones 
than we are on the unauthorized ones?


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    We did not get there overnight. We have another chart using 
data compiled by the Congressional Budget Office showing that 
spending on unauthorized appropriations has been increasing 
over the course of the last three decades. It is a rising tide 
of unauthorized appropriations. It is also worth noting that 
most of the current $310 billion in unauthorized appropriations 
is funding programs whose authorizations has been expired for a 
decade or more. In fact, we continue to fund some programs 
whose authorization expired more than 30 years ago. That means 
we fund these initiatives whether they are accomplishing their 
goals or not.


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    Appropriations have become increasingly divorced from 
authorizations, despite the presence of rule regimes in place 
in both chambers of Congress intended to prevent unauthorized 
appropriations. Senate Rule XVI and House Rule XXI create 
points of order against unauthorized appropriations. But these 
rules are not comprehensive, they are not self-enforcing, and 
they are rarely used in actual practice.
    Consequently, the reauthorization of discretionary funded 
programs is itself becoming discretionary with the 
appropriations process increasingly blind to the authorization 
status of the various line items being funded. Instead of a 
bilateral system of authorization and appropriation with 
program funding contingent on both, we are moving toward a 
unilateral system. Again, I doubt it is coincidental that 
duplicative programs are proliferating along with the 
unauthorized appropriations. We are now funding 158 STEM 
education programs and nearly 700 renewable energy initiatives, 
according to the Government Accountability Office.
    To be clear, I am not arguing that every program whose 
authorization is expired does not merit funding. But if 
appropriations are in no way contingent on authorization, we 
relinquish our responsibility to regularly review and reform 
programs. It is not enough for authorizing committees to act 
only to avert crises. That essentially sets discretionary 
spending on the same autopilot mode to which we have already 
set the two-thirds of the budget that consists of entitlements 
and other mandatory spending.
    Ultimately, if we are going to cure our chronic 
overspending habit, we need to fix America's broken budget 
process, especially between the congressional authorization and 
the appropriation process.
    I should mention that these expired expenditures are only 
where they listed a specific expenditure, not such sums or 
other things. We have programs that would run that total up 
considerably if all of those programs were thrown in. I hope we 
can find the solution today.
    Senator Whitehouse.

            OPENING STATEMENT OF SENATOR WHITEHOUSE

    Senator Whitehouse. Thank you very much, Mr. Chairman, and 
thank you, Director Hall, for appearing before us today. I was 
looking forward to hearing your testimony last month on CBO's 
revised budget outlook, but the blizzard superseded that 
hearing. So I will make the most of your participation today by 
focusing a little on CBO's projections in my opening remarks.
    But, first, there is another matter that I would like to 
address. Director Hall is entitled to the benefit of the doubt, 
and he will have it. But a caution light blinks for many of us 
based on his background at the Mercatus Center, which the 
Washington Post described as a ``staunchly anti-regulatory 
center funded largely by Koch Industries, Incorporated.'' In 
her recent book ``Dark Money,'' journalist Jane Mayer wrote 
that Clayton Coppin, a professor at George Mason who reviewed 
Bill Koch's political activities, concluded Mercatus to be ``a 
lobbying group disguised as a disinterested academic program.''
    This caution acquires particular force for some of us 
because of the novelty of dynamic scoring and the discretion 
that CBO has been given in this area. Dynamic scoring can be 
used selectively, for instance, to ease the passage of 
legislation like large corporate tax cuts, while ignoring 
growth or savings that come from investments on the spending 
side. CBO has a longstanding reputation for independence and 
provides a critical function to Congress. It is important that 
that not be compromised. I will say no more, and I am sure 
Director Hall understands.
    I now want to turn to the budget outlook. As was widely 
reported last month, CBO projects the budget deficit will grow 
in 2016 for the first time since 2009. In describing a $130 
billion jump in its 2016 deficit calculation, CBO noted, ``That 
increase is largely attributable to legislation enacted since 
August, in particular, the retroactive extension of a number of 
provisions that reduce corporate and individual income taxes.''
    While I supported the omnibus bill, I believe the tax 
provisions which cost over $800 billion over 10 years, 
including interest costs, should have been paid for like any 
other spending increases. It is somewhat astonishing that 
Republicans insisted on offsetting the costs of $80 billion in 
sequester relief but supported $800 billion in tax spending 
with no offsets. Tax spending is real spending. As former 
Speaker John Boehner said, ``We need to acknowledge that what 
Washington sometimes calls `tax cuts' are really just poorly 
disguised spending programs that expand the role of Government 
in lives of individuals and employers.''
    Reagan economist Martin Feldstein agrees and noted, 
``Cutting tax expenditures is really the best way to reduce 
Government spending.'' I would add that tax spending is also a 
vector for big giveaways to special interests.
    In the budget outlook, CBO projects revenue as a share of 
GDP will hover around 18 percent for the next decade. The last 
time we had budget surpluses at the end of the Clinton 
administration, revenue hit 20 percent of GDP. If we truly 
believe the deficit threatens future prosperity and are truly 
serious about wanting to tackle it, we are going to need to 
acknowledge that tax spending is part of the problem. Much of 
that tax spending is an Ali Baba's cave of treasure for special 
interests, and unlike one-time appropriations earmarks, special 
interest tax spending lives on and on and on in Ali Baba's 
cave. These, too, are permanent authorizations.
    So far, Republicans have been unwilling to give up a single 
tax loophole in the cause of deficit reduction. Not a one. The 
super committee charged with replacing the harmful sequester 
cuts failed, in large part because Republicans refused to close 
any tax loopholes. Each time we have negotiated sequester 
relief, Democrats try to bring loopholes into the mix, and each 
time it is refused.
    As the Senate-passed fiscal year 2016 budget resolution 
noted, tax expenditures for 2016 will total about $1.5 
trillion. By 2025, tax expenditures will rise to over $2.2 
trillion. We will spend more money on tax expenditures this 
year than we will spend on all Federal health care programs 
combined. We will spend, for instance, $60 billion this year on 
the, shall we say, much discussed Obamacare insurance exchange 
subsidies. But 25 times that amount will go out the back door 
of the Tax Code.
    From the carried interest loophole for hedge fund managers 
to Tax Code subsidies for oil and gas giants, there is plenty 
of deficit reduction to be found in tax provisions designed to 
take care of wealthy and well-connected interests. Any sincere 
effort to cut the deficit must end egregious tax giveaways.
    Turning to the topic of today's hearing, unauthorized 
spending is a symptom of broader dysfunction in the budget 
process. When you look at how difficult it can be to 
reauthorize even popular programs like the Violence Against 
Women Act, it is no surprise the Senate cannot keep up and that 
authorizations lapse.
    Given institutional hurdles and partisan obstruction, we 
should consider whether it makes sense to have authorizations 
sunset or whether they should continue until repealed or 
replaced.
    Finally, as we continue to examine process reforms, Budget 
Committee members need to have a frank discussion about the 
relevance of this Committee. In a Senate that requires 60 votes 
on any major legislation, the 60-vote penalty for violating 
this Committee's budget is meaningless, both to the 
Appropriations Committee and to the body. And I think the 
negligible attendance that we see at Budget Committee 
proceedings is not a signal of the fact that we are up on the 
sixth floor but a signal of the fact that everybody recognizes 
we really do not count for much any longer.
    Mr. Chairman, I appreciate your leadership in exploring 
ways to improve the budget process and to revive the relevance 
of what should be an important Committee. As you contemplate a 
new budget resolution and budget process reforms, I encourage 
you to continue the spirit of open dialogue and of fostering 
bipartisan ideas, and I thank you.
    Chairman Enzi. Thank you, Senator Whitehouse.
    We know that the authorization process has been for many 
decades a key facilitator of programmatic oversight and reform. 
When we fund unauthorized programs, we keep the experts who sit 
on the committees of the authorization on the sidelines. We put 
too much of a burden on the shoulders of appropriators. We skip 
the budget. We become the sole arbiters of funding decisions, 
decisions often made under great duress after a fiscal year has 
already begun because the work did not get done timely. 
Congress should not abandon its fundamental responsibility to 
authorize and reauthorize what it funds. And I look forward to 
working with you on doing something about the budget process, 
too.
    Our first witness today is Keith Hall, who is the Director 
of the Congressional Budget Office. Some of the data I cited in 
my opening statement comes from the most recent version of 
CBO's annual report called ``Unauthorized Appropriations and 
Expiring Authorizations.'' CBO is required to issue this report 
each year under the terms of the Congressional Budget Act. 
Director Hall is the ninth CBO Director. He is an economist who 
formerly served as Commissioner of the Bureau of Labor 
Statistics, the Chief Economist of the White House Council of 
Economic Advisers and the Department of Commerce, and a senior 
international economist for the International Trade Commission.
    Dr. Hall, thank you for joining us today to inform our 
discussion on these unauthorized appropriations. Dr. Hall.

    STATEMENT OF THE HONORABLE KEITH HALL, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Mr. Hall. Chairman Enzi, Senator Whitehouse, and members of 
the Committee, thank you for the opportunity to testify about 
unauthorized appropriations. Since this is a technical subject, 
I will start with some background to make it clear to everyone 
what I will be talking about.
    Legislative practices long differentiated the laws that 
establish Federal entities or programs from laws that fund 
them. Authorizing legislation is the first component of that 
practice, and appropriation laws are the second. Specifically, 
once the authorizations for the agency's programs or activities 
are in place, annual appropriation laws separately provide 
funding for them.
    Authorizing legislation can take different forms. It can be 
organic or enabling legislation which broadly authorizes the 
creation and operation of an agency, program, or activity. Such 
legislation may or may not include an authorization of 
appropriations, which explicitly authorizes the funding for the 
agency program or activity.
    Authorizations of appropriations can specify the amounts 
that may be appropriated for certain fiscal years or for an 
unspecified period. They can also indicate that the amounts are 
indefinite, authorizing the appropriation of such sums as may 
be necessary. If an authorization indicates either specific or 
indefinite amounts, I will refer to it as an ``explicit 
authorization.'' Such authorizations are intended to offer 
guidance regarding the amount of funds necessary to carry out 
the authorized activities of an agency. Even when an explicit 
authorization of appropriations has expired, the organic 
legislation usually remains in place.
    With that background, I will now discuss CBO's analysis of 
unauthorized appropriations. Each year, we provide the Congress 
with a report titled ``Unauthorized Appropriations and Expiring 
Authorizations,'' as mandated by the Congressional Budget 
Impoundment Control Act of 1974. Last month, we published the 
most recent one known as the UAEA report covering fiscal year 
2016. Our UAEA report seeks to identify programs whose explicit 
authorization of appropriations has expired.
    For 2016, we reported that a total of $310 billion, about 
one-quarter of discretionary appropriations in that year, was 
provided for programs and activities whose explicit 
authorization of appropriations had expired and whose 
appropriations could be identified. More than half of those 
unauthorized appropriations were provided for programs whose 
explicit authorization expired more than a decade ago.
    I want to make four points about the UAEA reports.
    First, the law requires CBO to prepare an annual report 
that identifies all programs and activities funded during a 
fiscal year for which authorizations of appropriations have not 
been enacted for that year. Our report includes only those 
programs whose explicit authorization of appropriations has 
expired. CBO cannot identify programs or activities that are 
receiving an appropriation even though they have never had an 
explicit authorization of appropriations.
    Our report sometimes identifies a program whose explicit 
authorization of appropriations has expired but not the amount 
appropriated because the program's funding is part of a larger 
appropriation account. Quite a few of those amounts are 
probably small, and some may be part of appropriations listed 
elsewhere in the report.
    And, finally, even if the authorization of appropriations 
has expired, our report does not identify whether the organic 
or enabling statute governing a program or activity has 
expired. A permanent law may continue to set the policies and 
guidelines under which such appropriations are to be obligated. 
Identifying cases where enabling statutes never existed or have 
expired is not the focus of the law's requirement. To identify 
such cases among all programs and activities of the Federal 
Government would be virtually impossible.
    To give a concrete sense of what is behind the numbers in 
our report, here are some examples.
    When we issued our last report, the authorization of 
appropriations for several large agencies or programs had 
expired. This includes the National Institutes of Health, with 
appropriations of $31 billion for 2016; NASA, with 
appropriations of $19 billion for 2016. Even though the 
authorizations of appropriations for these programs have 
expired, organic legislation permanently authorizes the 
activities of those agencies. Those laws were most recently 
modified in 2007 for NIH, in 2010 for NASA.
    Some other large appropriations with expired authorizations 
of appropriations include the following: $27 billion for 
programs authorized in the Violence Against Women and 
Department of Justice Reauthorization Act of 2005; $26 billion 
for programs authorized in the Foreign Relations Authorization 
Act fiscal year 2003; and $26 billion for programs authorized 
in the Quality Housing and Work Responsibility Act of 1998.
    Expiration of authorizations for particular large agencies 
or large programs can significantly affect the changes from one 
year to the next in our report. For example, CBO reported that 
the total amount of unauthorized appropriations in 2008 was 
$167 billion, but has been noticeably larger since then, 
averaging close to $300 billion. That increase was attributable 
in part to the expiration of the 2009 authorizations of 
appropriations for both NIH and the programs in the Department 
of Justice that I just mentioned.
    On average, over the past decade, about one-fourth of total 
discretionary appropriations were provided for programs and 
activities whose explicit authorizations of appropriations had 
expired.
    I hope that you find this information helpful, and I am 
happy to answer any questions you have. Thank you again.
    [The prepared statement of Mr. Hall follows:]
    

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    Chairman Enzi. Thank you. I really appreciate the detail 
that you went into in this report. I think it will be very 
helpful. But one of the difficulties that we have around here 
is ever going back to look at anything we did in the past. We 
pointed that out with one hearing on old regulations, and these 
are old laws that we do not go back and revisit to see what 
changes need to be done. But I do appreciate the work that you 
and your staff did in this area. I think the findings are very 
illuminating.
    I do want to highlight that the report only hints at the 
extent to which we are losing control over annual spending. As 
you pointed out, besides the $310 billion, there are funds and 
activities that never received any explicit authorization.
    Now, when Senator Coburn was here, I do not think he let 
any bills go through that did not have an explicit one in there 
so he would know how much was anticipated to be spent on that 
item. So a lot of them that are not expired that have specific 
sums in them are the result of the work that he did. He really 
did not like the words ``such sums'' or ``funded at levels 
above authorized limits.''
    Is there a better way to measure the degree to which the 
annual appropriations are unchecked by the authorization 
process?
    Mr. Hall. Well, we write that one of the problems is that 
we have not been able to look at programs that have no organic 
or enabling authority to exist at all, and getting a 
comprehensive list of those is very difficult. For example, 
trying to establish the linkages between appropriation accounts 
and authorizing statutes for everything would take really quite 
a long time. We certainly could work with you some to try to 
improve this report and maybe try to include more of that. I 
think something like a census is very difficult. If you sort of 
think about it, if we take every program that has an 
appropriation, in a sense we are trying to prove a negative. We 
are trying to establish that there is no authorizing language. 
So we have to go through all the laws to try to establish that 
nothing exists and then to do that for every appropriation.
    So the perfect is probably impossible, but we certainly 
could do more to make this a better report.
    Chairman Enzi. Well, another thing we discovered through 
the process is it was 260 expired authorization laws, but I 
think it was over 1,200 programs, because each authorization, 
again, to expedite being able to get through the whole process, 
I think we combine them a lot. And that also allows us to hide 
some of the things.
    I am always looking for suggestions on how we can get 
Congress to go back and take a look at what we have done 
before. And we talk about such big numbers around here. I used 
to be a mayor, and on the city council, I know it took us 
longer to approve a shovel than it did street construction, and 
that is because everybody understood what a shovel was and how 
there are several different kinds of shovels, but they did not 
know much about street construction. So the street construction 
went right through, and the shovel took a long time. I suspect 
that is one of the problems with some of these things.
    Now, your report inventories programs and activities that 
are explicitly authorized to receive annual appropriations for 
a duration of time. The time periods lapse, yet the funds 
continue to flow.
    As a student of the political economy, do you find it 
troubling that the majority of the Government's nondefense 
discretionary spending funds programs and activities with 
lapsed authorizations? Should we just approve programs and let 
Appropriations decide all the priorities? Any suggestions?
    Mr. Hall. Well, to say as a citizen, I think the country 
would be well served if Government activities of all kinds--
discretionary spending, mandatory programs, and provisions of 
the Tax Code--were reviewed from time to time to make sure that 
they are being implemented effectively and to determine whether 
changes are necessary. I think going through a regular process 
of reauthorizing discretionary programs would certainly be one 
component of such a process, a useful component.
    Chairman Enzi. Thank you. We are going to be looking at the 
process a lot more this year, as Senator Whitehouse suggested, 
and as we have held some other hearings. I will yield back the 
balance of my time. Since Senator Whitehouse is not here, I 
will go to Senator Perdue.
    Senator Perdue. Well, thank you, Mr. Chairman. And----
    Chairman Enzi. Excuse me. Senator----
    Senator Whitehouse. No, no. Go ahead. Go ahead.
    Senator Perdue. No, please. Go ahead. I will yield to the 
Ranking Member.
    Senator Whitehouse. Well, that is kind of you.
    I would like to go back to the point that I ended my 
remarks with about trying to sort of revive the relevance of 
the Committee and that as a larger issue around it, which is 
reviving the transparency of our spending.
    When we are in crisis mode and our budgets are being worked 
out between the Speaker, the Majority Leader, and the 
President, then there is zero transparency in that. And I know 
from my perspective as a still somewhat junior Senator that 
trying to get the things you want to have a hearing in that 
conversation is virtually impossible. It is about as 
untransparent as you can, and things come in basically based on 
favoritism, clout, influence. I mean, it is kind of the worst 
of all possible worlds that we create for ourselves when there 
is not a proper process and there is just a crisis negotiation 
at the end.
    Second best behind that is having the Appropriations 
Committees work through all their stuff and then have no proper 
floor work on what the appropriators propose to us, so that 
gets jammed down the rest of the body's throat, which is great 
for the appropriators but not so great for the body. And we 
have basically been gravitating back and forth between those 
two models virtually for as long as I have been here in the 
Senate.
    And throughout all of that, the Budget Committee has been 
utterly sidelined because every appropriator knows that they 
are going to have to put a deal together that gets 60 votes. 
They cannot go forward until they have 60 votes. And once they 
know they have 60 votes, they know that there is nothing--it 
does not matter about our budget resolution. And then everybody 
else knows that as well. So when we do our budget resolution 
work, this room is empty but for the staff of the people who 
are condemned to be here and go through the exercise. And that 
is, I think, a pretty important signal that nothing important 
is happening here when nobody shows up for it in a town that is 
immensely curious about the exercise of spending and power and 
so forth.
    So I think that Chairman Enzi has done a really commendable 
service to this Committee by trying to open our aperture to 
focus on what our role is and how we can redefine ourselves. 
But whether it is entirely overlooking tax spending, having no 
transparent authorization--or very little transparent 
authorization process that is meaningful to the appropriators, 
and having appropriation run on cruise control even where there 
are no authorizations, it has really been a very dramatic 
collapse of the appropriating and funding function of this body 
into a very small group of people, and particularly at the 
crisis period, there is zero transparency.
    I will close with where I started. As somebody who has to 
try to fight to get attention for programs into that process, 
and it is all--you know, you are calling people on the phone 
saying, ``Can I get this in? Can I get this in?'' And nobody 
knows what my motivations are, nobody knows what the other side 
of the argument is. I mean, the process completely stinks once 
it is in crisis mode. And so I hope that you, Mr. Hall, can 
help lead us along with the Chairman, and I think there is 
going to be a lot of support for it on our side, to have a 
conversation about how we can use this Committee to facilitate 
a broader and more transparent process for funding this 
enormous enterprise of the United States Government, both on 
the spending spending side and on the tax spending side.
    Mr. Hall. Well, we are certainly happy to help in any way 
we can, and we are perfectly willing and we are----
    Senator Whitehouse. Do you concur generally with the points 
that I made about the lack of transparency and the lack of 
effective--the lack of transparency on the spending side and 
the lack of impact or import to our budgeting effort?
    Mr. Hall. Well, we constantly have some issues in our work 
where we are trying to be helpful and offer advice to 
committees in a confidential way. But then when things become 
public, a bill or a proposal becomes public, we have a very 
important transparency practice where we try to create a level 
playing field and make our estimates public.
    Senator Whitehouse. Yes.
    Mr. Hall. And we send it to both sides, and hopefully 
that----
    Senator Whitehouse. I think at this point your most 
valuable function, given the general lack of impact that this 
Committee has or import of this Committee, is that information-
providing function. And I think the transparency of that 
information and the reliability of CBO information has a very 
healthy effect throughout our process. But once you get past 
information into actually doing something, that is where I 
think it is down to either the four guys in the room during the 
crisis or the appropriators and particularly the cardinals in 
their appropriations process for an omnibus.
    Mr. Hall. Well, we certainly keep trying to do our best to 
create transparency in what we do and help further, if you 
like.
    Senator Whitehouse. Yes, I appreciate that.
    Chairman Enzi. Senator Grassley was here at the sound of 
the gavel, so we will go to him, and then Senator Perdue and 
then Senator Ayotte.
    Senator Grassley. First, before I ask questions, let me 
confess, as Chairman of the Judiciary Committee, I see on a 
list of committees that we are fifth or sixth with about $30 
billion of that figure of unauthorized. And as Senator 
Whitehouse and I have worked so hard on reauthorizing the 
Juvenile Justice Reform Act and getting that done in our 
Committee about 6 months ago and still do not have it through 
the Senate, it just seems like it is going to take a long time 
to get work done that ought to be done.
    But with that caveat, it seems to me that appropriators are 
really the only committees spending time reevaluating lots of 
these programs. So my question to you: Do appropriators 
evaluate programs at a level equivalent to what an authorizing 
committee should do if the authorizing committee did its job?
    Mr. Hall. Well, for me personally, I do not have enough 
experience to answer that. One of the things that we hope is 
that our report is a good starting point. It is imperfect, but 
it is a good starting point if you want to start looking at 
this issue of sort of matching authorizations and 
appropriations.
    Senator Grassley. Another question: Is there an argument 
here for biannual budgeting so that more time can be spent on 
oversight and reauthorization efforts?
    Mr. Hall. Well, I hesitate to offer advice on something 
like that. We certainly would be happy to accommodate whatever 
type of budgeting that you decide.
    Senator Grassley. Let me go to a rhetorical question, if I 
am asking you questions that you cannot give advice on. Our 
country is $19 trillion in debt. The 2016 deficit has been 
projected to increase that by $544 billion. What message are we 
sending to the American people that with this dire financial 
situation we cannot find the time to evaluate and scrutinize 
existing programs? If Congress does not do the necessary 
oversight that reauthorization requires, how can anyone trust 
that valuable fiscal resources are being used for the highest 
priorities? You surely can speak to that point.
    Mr. Hall. Well, sure, and this is where we hope our annual 
budget forecast is useful, because the exercise of looking at 
what the budget is going to look like, say, over the next 10 
years under current law and what sort of deficits that we are 
going to have I think is a useful thing. It is a useful thing 
to remind people that this is an issue. And something that CBO 
has said for a long time is that this is on a trend that is not 
sustainable. At some point the debt is going to get to a level 
where there are going to be real problems. It may not happen 
soon, but it is going to happen at some point unless there is 
some change.
    Senator Grassley. Since you have studied this issue that 
comes up with the $310 billion figure of programs unauthorized, 
and you have to look at the entire Federal budget programs of 
$3.6 trillion, I guess, would you categorize the $310 billion 
as essentially low-hanging fruit that we ought to be able to 
deal with? Or do you think it is more complicated than that?
    Mr. Hall. Well, it is low-hanging fruit in the sense that 
we know about it. You know, one of the real difficulties here 
is this idea of trying to match the authorizations and the 
appropriations because there is just so much law and there are 
so many things in the Federal budget. But these are things that 
hopefully this is useful to give you some idea of where there 
are issues and you can deal with these. We may not be able to 
give you a real feel for the overall size of the problem 
because this is not a comprehensive report. But it does give 
you a starting point, I think.
    Senator Grassley. Mr. Chairman, thank you, and I will yield 
back my time.
    Chairman Enzi. Thank you.
    Senator Perdue.
    Senator Perdue. Well, Mr. Chairman, thank you for holding 
this hearing, and, Dr. Hall, thank you for being here again. 
You know that--I said this the last time you were here--I am a 
big fan of your work. Thank you for all you are doing to 
enlighten us about our crisis.
    But I disagree on one thing, and I will come back to my 
point, and then I have a couple questions. I do not think this 
is going to hit us soon. I think it is here right now. And the 
bellwether of that is what happened in December. Just a quarter 
point increase in our Fed fund rate will indirectly lead to a 
potentially increase in our Federal interest of almost $50 
billion. So the question I have is, you know, what happens if 
interest rates go back to our 50-year average of just 5 
percent? We have all seen interest rates much higher than that, 
but we have lived in an arbitrarily flat interest world in the 
last 7 years. It is just not forecastable. We cannot assume 
that going forward.
    So we know that interest rates are going up. We know that 
our interest expense is going up. And yet we sit in an 
environment where last year we saw our Federal expenditures at 
$3.7 trillion, up from--just in 2000 in constant dollars it was 
$2.4 trillion. And you might say, well, we are spending more on 
military. Only $100 billion of that increase was military. The 
rest of it is growth in mandatory expense.
    So we have got a situation today where it almost feels to 
me like--and God help me, I have been here a long time. I 
finally found something that Senator Whitehouse and I agree on, 
and I absolutely agree that the process is broken. The 1974 act 
has only worked four times in 40 years. It has not worked. It 
is not working. It will never work. And I feel like sometimes 
we are sitting around here talking about the layout of the 
chairs on the Titanic. There is no question we have got 
redundant agencies, no question we have agencies that have not 
been authorized. But the system of budgeting, authorization, 
and appropriation by definition was never going to work. It is 
not working, and so we have got to change that fundamental 
process.
    Having said that, we saw a report from the Comptroller 
General of the GAO recently talking about redundant agencies. 
Have you worked and can you work with the GAO to help us better 
understand the priorities and maybe the overlap between those 
unauthorized agencies and the redundant agencies that have been 
identified?
    Mr. Hall. Sure, we are happy to contribute however we can.
    Senator Perdue. Okay, because I think, you know, the 
question is: How big of a Federal Government do we need? If we 
have redundant agencies, there is an opportunity. We talk about 
tax expenditures, but we raised $3.2 trillion last year in 
Federal revenue. That is the largest ever. And I do not 
disagree that there are issues around deductions and so forth 
where we have corporate welfare issues and that sort of thing 
that are affecting our ability to deal with this. But, 
honestly, until we get at this authorization process leading 
into an appropriation process that, frankly, is not working--it 
did not work last year; it led into an omnibus, just like it 
has in prior years--that increases our spending. Your own 
report shows that we are adding some $8.5 trillion to the debt 
over the next decade, if I read the report correctly.
    What should we be doing in terms of prioritizing our 
approach? You do the measurement for us, but you also can model 
and look at things. Where is the low-hanging fruit in terms of 
going after this absolute crisis that we have today?
    Mr. Hall. Well, one of the things we do certainly in the 
outlook is we want to give you some idea of what the problem 
is, you know, sort of what trend we are on. It is certainly 
sort of not our role to sort of recommend things, but we did 
produce--and we did produce near the end of last year a number 
of budget options to give you some idea of the different things 
that you can do to improve the deficit situation, some idea of 
what sort of impact it would have. So it is sort of a listing 
of things you can look at, tools that you have at your 
disposal. I think that is really worth looking at and getting a 
feel for what sort of options you have going forward.
    Senator Perdue. Well, do you work with GAO at all to model 
some of their recommendations and ideas?
    Mr. Hall. We do interact with GAO a bit. I do not know that 
we interact a lot on things.
    Senator Perdue. Well, Mr. Chairman, I just--I mean, I 
absolutely applaud what you are doing here in terms of looking 
at this authorization issue. And I know that we are moving down 
a road that is really a bipartisan effort. I agree with Senator 
Whitehouse. I mean, this is not about partisan politics. This 
is about a crisis that is threatening our very ability to 
defend our Nation. And it puts in jeopardy the very safety net 
programs that we all want. Social Security and Medicare, as we 
all know, absolutely their trust funds go to zero in 15 years. 
And yet we have not--I have been here a year. We have not had 
any salient conversations about how to save Social Security and 
Medicare. And those are the two things, as I look at your 
report, that are just exploding away from us in the next 10 
years. And if you go out 10 more years, it really gets to the 
point of being unmanageable. I contend that it is already 
unmanageable, and I look forward to further hearings like this 
and to actually move toward getting results.
    I will just end with this. There are four words that I have 
not heard up here in one year that I used to hear every day in 
business, and that is, ``We cannot afford it.'' We all do it in 
our personal homes. We do it in our personal lives. We teach 
our children to do it. And yet we run a Federal Government 
where we absolutely do not consider that.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    In our method of alternating, Senator Kaine will be next, 
then Senator Ayotte.
    Senator Kaine. Mr. Chairman, I would defer to Senator 
Ayotte to be next since I just walked in and am collecting my 
thoughts, unless she wants me to go first.
    Senator Ayotte. Thank you so much. I really appreciate it.
    Senator Kaine. Okay.
    Senator Ayotte. Thank you, Senator Kaine.
    Chairman Enzi. Very nice of you. Thank you.
    Senator Ayotte. Thank you, Chairman.
    You know, I am going to suggest something that is a heresy 
around here, actually, and I have suggested it before. But I 
serve on the Armed Services Committee, and every year we do a 
defense authorization. It is very bipartisan. We spend a 
tremendous amount of time going through each of the programs, 
each of the weapons systems, the pay and compensation for our 
troops, and we have consistently voted a bipartisan bill out 
and then got it to the Senate floor every year.
    But here is what happens. Then the Appropriations Committee 
takes it up, and they spend lots of money on things that were 
never authorized, were never supported, and we spent a ton of 
time working on it. So I have suggested this before--this 
always gets me in trouble, but I do not see how the dual system 
of authorizing and appropriating actually benefits effectively 
spending Federal dollars, because if the authorizing committees 
had to take responsibility for actually how the money went out 
the door, and they are specializing in these areas, I actually 
think there would be much more regular routine authorizations, 
there would be more oversight, because the two are totally 
disconnected. It is unbelievable. We do a whole hearing on a 
program that is absolutely--I remember this. I was new in here. 
It was called--I dubbed it ``the missile to nowhere.''
    No results, no money, we were pouring billions of dollars 
in something that we are not going to get a result on, and then 
it just gets slipped back in. We were unanimous in the defense 
committee after having, you know, lots of work done on it, and 
then it just gets slipped back in.
    So I guess you--one of the things that you identified in 
this report, as you were just testifying, it was hard for you 
to match the appropriations with the authorizations because we 
have this dual process. So I know that you probably cannot 
render an opinion on this, but I just want to say that as we 
look at fundamental reform around here, I know this is a very 
controversial thing to say, but this dual process is not doing 
a service to the American people in terms of oversight. Would 
you agree with me, though, you did have difficulty matching up 
the appropriations and the authorizations because the two 
almost--one is from Venus and one is from Mars?
    Mr. Hall. Well, yeah, that is right. And to some degree, we 
are picking the low-hanging fruit, to be honest.
    What we did not include is actually much harder to get a 
hold of.
    Senator Ayotte. Right. So now that I have gotten myself in 
a lot of trouble here, I want to also talk about the GAO 
piece--because I think this is really very important--that 
Senator Perdue talked about because this is something that I 
have been focusing on. I have a bill with Senator Manchin 
called the ``Duplication Eliminate Act,'' which would actually 
force the executive branch and the Congress to take up what the 
GAO is doing. Basically, the GAO since 2011 has issued an 
annual report on ways to reduce duplication, overlap, 
fragmentation in Federal Government. In their first five 
reports, GAO has identified about 500 opportunities to reduce 
duplication, overlap, and fragmentation, but yet only 29 
percent of GAO's recommendations have even been touched upon or 
addressed in any way. And they add up to a lot of money. Just 
as an example, addressing just one of GAO's recommendations on 
Medicare payment policy would have saved an estimated $3.2 
billion to $5.1 billion from 2010 to 2012.
    So to Senator Perdue's question, how do we get to this 
issue of actually taking up the work that you have done in CBO, 
aligning it with the work that GAO has done, and really 
actually getting to the work of implementing the GAO policies 
and having greater oversight and hopefully greater 
authorization work?
    Mr. Hall. Well, certainly we have a role in sort of 
evaluating proposals on how to do some things like this, and we 
are happy to help, and we are happy to do our usual sort of 
evaluation of things like that. We do not work too directly in 
GAO on this particular issue, but we certainly can help in the 
solution.
    Senator Ayotte. Well, I think it would be helpful if there 
was some alignment there, just because they have done a lot of 
good work. We need to get off our butts and take up more of 
their work, but also if CBO could also incorporate that work of 
ways we could save money and working together, I think it would 
be helpful to really getting us to focus on this more. And I 
hope that we do, because as we look at a lot of programs that 
not only have not been authorized, they have not been evaluated 
in years. There have not been any metrics or measures. There 
are lots of agencies doing the same thing. And it seems to me 
that this is an issue that is very bipartisan that we should be 
more effectively addressing.
    Thank you.
    Chairman Enzi. Very good. Thank you.
    Senator Whitehouse. Chairman, may I seek recognition at the 
conclusion of Senator Kaine's questioning of the witness in 
order to respond to Senator Ayotte's thoughts?
    Chairman Enzi. Sure.
    Senator Whitehouse. Thank you.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman, and thank you, 
Director Hall. It is good to have you with us.
    The change in the CBO's outlook from August to January have 
been significant based on your recent report. Some of this 
change is driven by economic trends, but a dramatic amount of 
the change, especially as it relates to the deficit, was driven 
by legislative changes at year-end. And if you look at this 
kind of on a percentage basis and affecting the deficit by our 
calculation, the bill that we passed in December was the fifth 
largest deficit-increasing bill since 1986.
    The amount of debate that we had about that bill was 
interesting. There were minimal spending increases which were 
largely, though not completely, paid for. But there was a tax 
extender package of tax expenditures that was not paid for at 
all. And so the pattern that I think is interesting--the title 
of this hearing is ``Spending on Unauthorized Programs'''--is 
that we have developed sort of an internal rule that we have 
got to pay for spending, but we do not have to pay for tax 
cuts. And I think that is problematic.
    I agree with the goal that we should be analyzing and 
reviewing and reauthorizing spending. I agree with that. Before 
the 1950s, the norm was not to reauthorize spending, put 
spending in the budget and it just stayed there. There were not 
the sunsets and the reauthorization periods. But after the 
1950s, we moved into at least the notion of reauthorization. 
Whether we did it or not, at least that was set up as a norm. 
But I do not think in the Tax Code we have yet developed an 
expectation that tax cuts, tax policies be reauthorized as 
well.
    Eighty percent of the deficit effect of the act we passed 
at year-end 2015 was on the tax expenditure side, not on the 
spending side. Eighty percent of the deficit effect. So I want 
to ask you, Director Hall, would it be fair--is there sort of 
good for the goose, good for the gander? If we are going to be 
in the reauthorizing business and the reanalysis business, 
shouldn't we treat a tax expenditure in the same way we treat a 
program expenditure and have a normal practice of reanalyzing 
and reauthorizing all of them?
    Mr. Hall. Well, we try to stay out of offering advice on 
things like that.
    Senator Kaine. You cannot blame me for trying, though.
    Mr. Hall. Right. But I appreciate the notion, and, you 
know, we do have a little information on the tax expenditure, 
information from the Joint Committee on Taxation in our report 
to give you some idea of how that changes from year to year.
    Senator Kaine. But, you know, is there any reason why from 
your standpoint, kind of a budget office standpoint, should we 
treat tax expenditures completely differently than program 
expenditures? Or shouldn't, you know, we be in the business, if 
we are going to be reanalyzing and reauthorizing, of looking at 
all of it?
    Mr. Hall. Well, again, I hesitate to offer advice.
    Senator Kaine. How about separate from the advice, is there 
an economic difference or a budgetary difference between a 
program expenditure and a tax expenditure that would warrant 
the need to, you know, continually reauthorize and reexamine 
program expenditure but not do that on the tax expenditure 
side?
    Mr. Hall. Well, certainly one of the points that we make 
and we have made for a long time on the outlook and all our 
budget forecasting is that, given the current trend towards 
increasing deficits, we need to either raise revenues, lower 
spending, or both. And something pretty significant needs to be 
done to stop the trend that we are on, and it needs to be 
something that is not small. It needs to be things that are 
large.
    Senator Kaine. I am going to associate myself with the ``or 
both'' category. I do not think you can deal with a balance 
sheet if you just put, you know, a blindfold on one eye and 
say, ``I am just going to look at one-half of the balance 
sheet.'' You just cannot do it. You cannot look at either half 
of the balance sheet in exclusion and deal with the challenges 
that we have. But I think we have kind of gotten into a pattern 
where we are just looking at one-half of the balance sheet. And 
so, you know, looking at the CBO's report about the deficit 
effect of the December action and digging into it further and 
finding that 80 percent of the deficit was driven by the tax 
expenditure side, not by the program spending side, I found 
that pretty sobering. And I think in terms of, you know, the 
kind of reform--I hope the Budget Committee can use this year 
where we did a 2-year budget to really be about some reforms, 
and I think a reform in this area would be very, very valuable.
    With that, thank you, Director Hall, and thank you, Mr. 
Chair.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman. I thought that 
Senator Ayotte's point was a particularly good one, and as I 
was thinking about it, it struck me, to my earlier point, that 
a budget point of order against an appropriations bill that 
blows through the budget that this Committee has gotten passed 
is a useless effort because it gets overcome by a 60-vote vote. 
And if the appropriators have lined up 60 votes, which they 
have now because everything has to pass by 60, then there is a 
null effect of the point of order that the budget has been 
broken.
    I suspect that the same is true of a point of order that 
they are appropriating authorized funds, and so I think there 
are colleagues of ours, particularly those who serve on the 
Appropriations Committee, who would object pretty violently to 
the proposal that the Appropriations Committee is no longer 
useful and we should have appropriations done at the 
authorizing level. Even if that were the right thing to do, it 
would be hard to convince some of our colleagues of it.
    But I do think that if we were to think about how we 
reimposed a penalty beyond the 60-vote margin--because the 
other thing that has happened in all of this is that the person 
who gets the 67-vote penalty is the President of the United 
States, because we would have to come up with 67 votes to 
overcome a veto.
    So when we cannot control it amongst ourselves because the 
appropriators control 60 votes and budgets authorizing, nobody 
else matters, the one person who then matters is the President. 
And that creates an enormous transfer of power from Congress to 
the Presidency. So particularly for those who decry the power 
of this particular President, we have actually really loaded 
him up with huge amounts of power by having the one--he being 
the one place where we have to get to 67, the one person who 
can be a check on appropriators.
    So it is a conversation I think we need to continue to have 
in this Committee, but I do think this question of there being, 
in effect, no penalty for violating authorizations and no 
penalty for violating budgets is a problem. And it is part of 
this process that has taken our spending and put it into a very 
dark hole. And the longer we wait and the bigger a crisis, the 
smaller number of people in the hole and the darker it is, and 
the more who knows what gets stuffed into the deal.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you, and this is the prime time to be 
talking about this. Right now what we are doing is defining 
that there is a problem, and we will get into some solutions, 
and the solutions could take effect at the beginning of next 
year, because none of us know what next year is going to be 
like. And so I think it will lead to us all being reasonable. 
That is my hope.
    On the programs, it is possible to do something about them. 
When I was Chairman of the Health, Education, Labor, and 
Pensions Committee, I discovered that we had 119 preschool 
programs--they were all named after some Senator--and there was 
a lot of duplication. So Senator Kennedy and I were able to get 
that down to 69. Since that time, we have been able to get it 
down to 45. And there are always proposals for additional 
preschool programs because there is evidence that they do good 
work.
    Senator Whitehouse. Does it help, Mr. Chairman, when the 
Senator who it is named after retires?
    Chairman Enzi. They still come to see you. [Laughter.]
    What helps is if you can get them to go take a look at what 
has happened with their program and find out that instead of an 
education program, it is a babysitting program. That is an 
important program, too, but it is a different expense. So we 
need to do some things.
    Thank you, Dr. Hall, for your help today and particularly 
for your great document, which I hope we can make good use of 
to make some great changes for Government.
    So while we are setting up the next panel, I will introduce 
the witnesses that will be appearing.
    We have Jessica Tollestrup, who joins us from the 
Congressional Research Service, CRS, which is the research arm 
of this Congress. Ms. Tollestrup is an analyst on Congress and 
the Legislative Process for CRS. She has authored several 
recent papers concerning the history of the authorization and 
the appropriations processes and the internal rules the 
Congress has created to police its own funding of unauthorized 
appropriations.
    Paul Posner is a professor of public policy at the George 
Mason University, where he founded and directs the Center on 
Public Service. Dr. Posner is a recognized Federal budget 
policy expert. He formerly served as the Director for Budget 
Issues in the Accounting and Information Management Division of 
the Government Accountability Office.
    And James Thurber is the University Distinguished Professor 
of Government and founder and director of the Center for 
Congressional and Presidential Studies at American University 
here in Washington, D.C. I should note that Dr. Thurber has 
served in this body at the staff level, including as a 
legislative assistant for the late Senator Hubert Humphrey.
    So if we can have you take your places at the table there, 
and we will begin with Ms. Tollestrup. Did I get the name 
right?
    Ms. Tollestrup. Yes.
    Chairman Enzi. Thank you.

STATEMENT OF JESSICA TOLLESTRUP, SPECIALIST ON CONGRESS AND THE 
      LEGISLATIVE PROCESS, CONGRESSIONAL RESEARCH SERVICE

    Ms. Tollestrup. Mr. Chairman, Ranking Member, and members 
of the Committee, my name is Jessica Tollestrup, and I am a CRS 
Specialist on Congress and the Legislative Process. Thank you 
for inviting me to speak with you.
    I would like to start by briefly stating four main points 
from my written testimony that I will expand on in my remarks 
today.
    First, authorizations of appropriations are a tool that the 
authorizing committees have developed in recent decades to 
engage in legislative oversight and better influence 
appropriations decisionmaking.
    Second, those authorizations of appropriations may lapse 
for a number of reasons that are not directly related to 
whether that purpose should continue to receive funding.
    Third, the prohibition on unauthorized appropriations in 
Senate rules applies only to floor amendments. It does not 
apply to reported appropriations bills or committee amendments.
    Fourth, addressing expired authorizations through 
consequences that are felt in the appropriations process has 
inherent challenges, but so, too, does approaching this issue 
as part of the authorization process.
    I also want to start by clarifying that there are two types 
of authorizations:
    First, there are authorizations that establish the 
authority for Federal Government activities. Those 
authorizations provide a sufficient basis for Congress to later 
fund those activities.
    Second, such authorizations are also occasionally 
accompanied by another type of provision, an explicit 
authorization of appropriations. If this second type of 
provision lapses, the legal requirement that the Federal 
Government undertake the activity is generally still in effect. 
However, appropriations for those activities would usually be 
regarded under congressional rules--but not for legal or 
constitutional purposes--as being unauthorized.
    Now for my first point. The purpose and form of 
authorizations has changed in a number of important ways over 
the past 100 years. During the 19th and early 20th centuries, 
authorizing laws generally provided broad grants of authority 
on a permanent basis and usually did not include specific 
amounts to be appropriated. After the 1920s, the authorizing 
committees began to alter these practices and increasingly 
included two components in authorizing laws: the authority for 
the activity and also language that essentially recommended a 
funding level for that activity through an explicit 
authorization of appropriations.
    Later, those committees began to conduct reviews and 
periodically enact revisions to certain authorizations. While 
the timing of these revisions often coincided with the need to 
reauthorize appropriations, these revisions also provided an 
occasion to conduct legislative oversight and make needed 
programmatic changes.
    While the proportion of agencies and programs that were 
subject to periodic reauthorization expanded significantly 
during the mid-20th century, variation has continued an 
approach in practice. Many agencies and programs are still 
authorized on a permanent basis, and others have experienced 
different reauthorization schedules at different times. Also, 
in an increasing number of instances, periodic authorizations 
of appropriations have lapsed or not been renewed in a timely 
manner. This occurs for a variety of potential reasons.
    For example, a lapsed authorization of appropriations could 
indicate that the authorizing committee has decided that no 
programmatic changes are needed at this time. Another 
possibility is that Congress has not yet achieved consensus as 
to what changes should be made. This presents a challenge when 
Congress attempts to assess the meaning of expired 
authorizations of appropriations, especially when the primary 
procedural avenue to address them is part of the appropriations 
process.
    Although both House and Senate rules prohibit unauthorized 
appropriations, these rules are primarily enforced for floor 
amendments. While this procedural mechanism has the potential 
to encourage the timely enactment of reauthorizations, one 
challenge is that addressing expired authorizations themselves 
is not within the control of the Appropriations Committees.
    In addition, this framework can effectively set up a choice 
between delayed appropriations and funding unauthorized 
programs. As a result, this mechanism's effectiveness is 
limited when appropriations are unauthorized for reasons that 
are not directly related to whether that purpose should be 
funded.
    Attempting to address this issue through the authorization 
process is also challenging. There are no congressional rules 
that govern the form of authorizations, and the responsibility 
for authorizations is divided among a number of committees.
    In addition, a committee may choose its approach to an 
authorization based on a number of factors, including its 
assessment of the current needs of the program, historical 
practices, and the legislative environment.
    On the one hand, this lack of chamber rules gives 
committees the flexibility to structure each authorization to 
meet their particular needs. On the other hand, this 
flexibility makes addressing expired authorizations on a 
widespread basis more difficult.
    Thank you, and I would ask that the full text of my 
prepared statement be submitted for the record.
    [The prepared statement of Ms. Tollestrup follows:]
    

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    Chairman Enzi. It will be. Thank you.
    Dr. Posner.

STATEMENT OF PAUL L. POSNER, PH.D., DIRECTOR OF GRADUATE PUBLIC 
   ADMINISTRATION PROGRAM, AND CENTER ON THE PUBLIC SERVICE, 
SCHOOL OF POLICY, GOVERNMENT AND INTERNATIONAL AFFAIRS, GEORGE 
                        MASON UNIVERSITY

    Mr. Posner. Thank you, Mr. Chairman and Senator Whitehouse. 
I appreciate your hearing today. I think this is a very 
important issue, and it is something that usually is not the 
primary topic on the evening news, but oversight is important. 
And it is important to institutionalize it more than we are 
doing.
    There is no question that the budget process is broken. 
There is a consensus on that. I am co-chairing a National 
Budgeting Roundtable with Stuart Butler, Maya MacGuineas, and 
people like Alice Rivlin and Rudy Penner and other long experts 
in the budget process, and we all have agreed on one thing: 
that the budget process has largely failed to meet the broad 
vision that was created in 1974. And among those things was the 
fact that budgeting would be more than just setting a top-line 
number for appropriators, that the budget process would provide 
Congress with a vehicle to take a holistic look at the budget 
and rank relative priorities across competing claims. As one 
Budget Director said, the point of budgeting is not to go after 
weak claimants but to go after weak claims. And the budget 
process is a vehicle to potentially do that.
    We have seen--and I do not need to repeat--how the budget 
process itself has disintegrated in the face of gridlock and 
polarization. There are tremendous limits on the kinds of 
tradeoffs that can happen across these walls we have created 
between discretionary, mandatory, tax expenditures and the 
like. And Congress does not have the vehicle to take a holistic 
look, a comprehensive look at broad areas of policymaking, 
whether it is low-income housing, higher education assistance, 
drug policy, or food safety.
    So I think this is an important issue, and I am glad you 
brought it up and raised it to the level of a hearing. And I 
agree that unauthorized programs are an issue, and they are 
symptomatic of the same fragmentation and gridlock that has 
afflicted the broader budget process. I think it really 
inhibits the Congress' capacity to budget and ability to 
budget.
    Ideally, you would like to have oversight of broad programs 
from many perspectives. The appropriations have one that is 
focused on finance and line items in some cases. The program 
experts are in the authorizing committees, and you need to have 
them weigh in periodically. If they are not, I think it is a 
limit to our process. And as I will say in a minute, the Budget 
Committees are the one Committee that has been largely missing 
in action in the oversight project, and I am going to suggest 
an opportunity there for the Budget Committees themselves.
    As much as we all will decry the kind of lapsing 
reauthorizations and the like, fixing the problem is another 
issue itself. As was said earlier, the authorization process is 
highly decentralized. The reasons for lapsed reauthorizations 
have something to do with gridlock and something to do with a 
lot of other idiosyncratic effects. Designing one-size-fits-all 
reforms are difficult in this environment, and it requires, I 
think, possibly the adoption of somewhat of a pilot process 
where this Committee perhaps works with authorizers and 
appropriators on a policy area to phase in a new set of 
incentives to encourage authorizers to come more to the table 
on this. We can talk about that later, but I think that may be 
the way to go here.
    Most importantly, the notion of program-by-program 
authorization, while it is something we all can agree on, is 
really not in sync with how the Federal Government impacts 
broad outcomes. Basically, the actions of individual programs 
are really not as important as the actions of groups of 
programs combined, what I call ``portfolios of programs.'' So 
if we look at higher education or we look at food safety or we 
look at low-income housing, we can examine in depth down to the 
level of the lowest provider the impact of each program. But to 
really get a sense of what impact the Federal Government is 
doing, you have to look at them together in some way. You have 
to look at what I call the ``portfolio of Federal programs,'' 
not only the spending side, not only mandatories and 
discretionaries, but tax expenditures.
    In low-income housing, for example, the low-income housing 
tax credit is the largest Federal spending program in housing, 
and yet it is completely off the table in all of the things 
that the agencies do. HUD takes no ownership of it, for 
example, and, frankly, neither does the IRS.
    The Budget Committees were set up to look holistically 
through a series of budget functions and subfunctions that you 
use to craft the budget resolution, but then they are 
completely forgotten. I am suggesting in the testimony that we 
need to resurrect that. I have illustrated how that can work in 
higher education where we could take a holistic look across tax 
and spending, and look at the synergies and the disconnects 
between the programs across the board. This Committee has an 
opportunity to be the steward of that process, recognizing that 
is not the easy thing to do, as Senator Whitehouse said. This 
Committee does not have the power and the leverage. I think we 
really need to rethink the role of this Committee and the 
composition of this Committee, and if we are going to have this 
Committee fulfill what I consider its oversight role to be the 
steward of the cross-cutting programs of Government, we need to 
think about this Committee becoming more of a leadership 
committee and stocking it with the key leaders of the various 
committees. This Committee then would be in a position to drive 
policy change and oversight in a real meaningful way.
    [The prepared statement of Mr. Posner follows:]
    
    
  
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    Chairman Enzi. Thank you.
    Dr. Thurber.

STATEMENT OF JAMES A. THURBER, PH.D., UNIVERSITY DISTINGUISHED 
   PROFESSOR OF GOVERNMENT, FOUNDER AND DIRECTOR, CENTER FOR 
   CONGRESSIONAL AND PRESIDENTIAL STUDIES, SCHOOL OF PUBLIC 
                  AFFAIRS, AMERICAN UNIVERSITY

    Mr. Thurber. Thank you for having me here today, Mr. Chair 
and members of the Committee. This is the first hearing that I 
know of on unauthorized appropriations. There have been 
hearings on process reform to try to improve the budget 
process, but this is very narrow and important.
    The discussion today is really about how to improve the 
process to a great extent, and let me remind you very briefly 
from the legislative history what the goals were of the 
original act. I was working for Senator Hubert H. Humphrey in 
1974, and I also worked for the temporary Select Committee to 
study the Senate Committee System (Stevenson-Brock Committee) 
that reorganized the Senate committee system in 1976. The 
Committee considered combining the authorization and 
appropriations committees. It was not very popular, but we had 
a hearing on proposal which was very controversial and received 
no support.
    Let me remind you the goals in the Budget Act. The Act 
stated that Congress would complete appropriations, tax policy, 
and budget decisions in a timely and transparent fashion, to 
control budget deficits and debt, to limit growth of Federal 
spending; to improve ways priorities get set among different 
types of spending, defense and domestic; to set congressional 
fiscal policy; to improve the information and knowledge of the 
budget decisions, (creating CBO, which has worked); to 
establish a procedure to overcome Presidential impoundments, 
(which has worked); and to compete more effectively with the 
President and executive branch over the Federal budget. I think 
that the process has not met those goals in almost everything 
but impoundments and CBO.
    Unauthorized appropriations, the topic of the hearing, in 
my opinion are a symptom of political polarization and gridlock 
in Congress. Changing the process will not change the will of 
the members nor the extreme polarization in Congress and in the 
Electorate.
    The number of unauthorized programs that are funded and the 
amount of spending on them has gone up directly as polarization 
has increased. My new book called ``American Gridlock'' from 
Cambridge University Press, published last December, reveals 
that in 1974 about a third of the House and the Senate voted 
together. That was the common ground for governing. It is now 
down to 4 percent. If you change the rules in the Budget and 
Appropriations process, you are not going to change the 
incentive for Members to be polarized on the left and on the 
right.
    What are the solutions to polarization and the inability of 
Congress to pass authorizations and appropriations in a timely 
fashion?
    One is it takes time and special leadership in committees 
and on the floor to build consensus. We have seen that with the 
Defense Authorization Act. We have seen it most recently with 
Senator Alexander and Senator Murray on The Every Student 
Succeeds Act of 2015. We have seen it with the Toxic Substance 
and Chemical Act that was recently passed. We have seen it with 
the ``doc fix.'' We have seen it with the transportation bill. 
We have seen it with the cyber information sharing bill. We 
have seen it with the funding of DHS.
    These legislative successes take people who are willing to 
work in a bipartisan way in Committees. This Committee--and I 
wrote an article about it--at the very beginning was an 
incubator of comity and civility with Senators Muskie and 
Bellmon. For 5 years, they worked together closely and did a 
much better job than the House of Representatives, which was 
highly politicized. This Committee could do that again. Party 
leaders are structuring debate in recent years that promote 
rather than deter partisanship. As a result, the chambers are 
more partisan and deadlocked than at any time since 1860. We 
have a way to measure that in terms of Senators voting together 
in 1860, prior to the Civil War and now. About 4 percent of 
Senators voted together in 1860 and 2015. They were polarized 
then and now.
    We need to improve lawmaking through legislative procedural 
reforms, return to the regular order--you have heard this 
often--have more deliberation, more transparency, limit 
restrictive rules, decision making and improve protection of 
the minority. Crisis drives out deliberation--that is a 
problem.
    Congress also needs to return to the real post enactment 
conference committees that are transparent to the public and 
fair to the parties.
    Also, there are too many committees and committee 
assignments. I looked at the number of Committee assignment by 
members of this Committee. On average, you all have four to 
five committee assignments. It is difficult to keep up with the 
work of all those committees and resultant subcommittees. There 
is duplication in committee jurisdictions. There is 
fragmentation. There needs to be a realignment of jurisdiction 
and reduction in the number of committees so you can all work 
more effectively.
    This is summarized in my statement. We need to require 
members of both chambers to spend more time doing their job, 
less time going back to town meetings, hustling after campaign 
funds. Senator Tom Daschle recently said he thinks Members of 
the Senate spend more time fundraising than they do working in 
Congress. I call for other reforms in my testimony that will 
help the Senate do its job of authorizing and appropriating in 
a timely fashion. Congress needs to get back to work, to do 
rigorous oversight, timely authorizations, and thoughtful 
deliberation. The American people will be a little more 
supportive of the institution if these are done. You are in the 
cellar in terms of people thinking you are doing a good or 
outstanding job. It has been that way for years. I think one 
way to gain support from the public is to go back to the work 
of the Senate in a bipartisan way--it does not mean that you 
have to agree on everything--and move legislation in timely 
manner.
    Thank you. I ask that my testimony be put into the record.
    [The prepared statement of Mr. Thurber follows:]
    
 
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    Chairman Enzi. For all three of you, your entire testimony 
will be in there. We will also try and do hopefully a good job 
of summarizing it and getting that out to the Senators. And 
also the hearing stays open at the completion so that people 
can submit questions that we hope that you will also answer in 
a timely manner. People have until tomorrow night to get their 
additional questions in.
    We will start the questioning then. I will start with Dr. 
Posner. Representative David Price testified before this 
Committee recently that the most careful and effective 
oversight Congress conducts is through the annual 
appropriations process. But I wonder if the annual 
appropriations process should be the sole arena for regular 
programmatic oversight. As a former Director of the Government 
Accountability Office, the legislative branch's watchdog agency 
that conducts audits and program review of Federal agencies, do 
you believe Congress is abandoning its oversight 
responsibilities in not reauthorizing its funds each year?
    Mr. Posner. Yes, I think you need more than one committee 
to be involved, and appropriators do a remarkable job with a 
huge set of issues. They have a certain orientation. They are 
operating against a fixed target.
    They focus quite a bit on the line items and the specific 
personnel and positions and the like. I think authorizers are 
the program experts, and they have kind of the ability and the 
vantage point of focusing on the broader outcomes that we are 
expecting in these programs. They can look at evaluations and 
the like, and they do not have to do it every year for the most 
part, although some of them do it annually, as was said before.
    So I think you need both perspectives to be applied in this 
process. If they conflict, I do not think that is unhealthy 
necessarily.
    Chairman Enzi. Thank you. I mentioned in my opening 
statement that the Government Accountability Office has 
identified a frightening amount of program duplication across 
the executive branch, with multiple agencies essentially 
running parallel program operations like the STEM education 
program. I am concerned that instead of going back to review 
what we are spending money on, we are busy creating new 
programs. We get more credit for new programs and new money, 
and the new programs may be replicating activities done by the 
existing ones.
    In each and every funded program, if each had to be 
reauthorized in order to receive appropriations, would we see 
less program duplication?
    Mr. Posner. Well, I think the best way to handle that is to 
start moving toward what I have called the ``portfolio 
review,'' taking groups of related programs and looking at them 
together and bouncing them off against one another. We have 17 
food safety programs. What is the relative cost effectiveness 
of the different ones? Are there economies of scale that we can 
use to move to a unified approach like we see in many other 
nations, for example? You know, we have programs in housing 
that are scattered across the tax and spending codes that 
sometimes work at cross-purposes.
    For higher education, you cannot really understand the 
impact that higher education has on students, parents, and 
universities by looking at each program separately. You have to 
look at how they all work together or do not work together, and 
many of these subsidies, for example, work at cross-purposes. 
You become eligible for one, you become ineligible for another.
    And so I think only these more holistic reviews can really 
connect with the American people and their expectations for 
what Government should deliver. They do not have the time to, 
nor should they have to, parse out and unpack the byzantine 
program structure we have. We should be looking at the broader 
interface that Government has with them and have an oversight 
process that can get that done.
    Chairman Enzi. Thank you. That reminded me that when we 
were doing those preschool programs, the big problem we ran 
into is that a bunch of them were not under our jurisdiction, 
which is why we could not eliminate duplication there. Our 
structure, as Dr. Thurber mentioned, is sometimes confusing and 
ineffective.
    Ms. Tollestrup, in your testimony you describe the 
provisions in the Senate rules and House rules designed to curb 
unauthorized authorizations. These provisions have not been 
very useful in stemming the rising tide of unauthorized 
appropriations. We adopt hundreds of billions of dollars, as we 
have mentioned. Do you know how often these points of order 
have actually been invoked? And how could these points of order 
be given more teeth?
    Ms. Tollestrup. Senator, it is important to point out that 
Senate rules that prohibit unauthorized appropriations only 
apply to floor amendments, so only when those floor amendments 
are under consideration can such points of order be raised. The 
most recent instance that I am aware of was during the 
consideration of the fiscal year 2007 Department of Defense 
appropriations bill.
    It is difficult to say what the length of time between this 
example and now means. It is possible that the rules are, in 
fact, deterring unauthorized appropriations from being offered 
as floor amendments, and so there were no other opportunities 
to raise points of order. It is also possible that there were 
opportunities, but those points of order were not, in fact, 
raised at that time.
    In terms of options, CRS does not take a position on 
whether Rule XVI should be changed or what those changes should 
be. That is for Congress to decide. But if you were to look at 
amending Rule XVI so that it would potentially apply in more 
circumstances, having it apply to more than just individual 
amendments, such as committee amendments or bill text, or 
requiring that an authorization be enacted into law in order to 
for it to count for the purposes of the rule would both be 
possibilities.
    Chairman Enzi. Thank you. My time has expired. I will come 
back with some more questions in a bit, and I will go to 
Senator Whitehouse.
    Senator Whitehouse. Thank you very much, Chairman. Let me 
stay with Ms. Tollestrup for a minute, and let me focus on the 
Senate, because I will start from the proposition that the 
rules in the House do not matter because whatever bill comes 
out, comes out with a rule that the Speaker's Rules Committee 
has put into play and that trumps everything else. But on the 
Senate side, we do not have that, the majority does not have 
that power. It is one of the blessings, I think, over here.
    But as I understand your testimony, you are saying that if 
an expenditure is baked into an appropriations measure as it 
comes out of the Appropriations Committee, there is no rule 
that would provide a point of order with respect to an 
unauthorized expenditure that is in that bill. It would have to 
be a floor amendment for there to be a procedure of any kind to 
challenge it.
    Ms. Tollestrup. That is correct. The prohibition on 
unauthorized appropriations only applies to individual floor 
amendments, so both the Appropriations Committee might offer a 
committee amendment containing an unauthorized appropriation, 
and unauthorized appropriations in the base bill text also are 
not subject to that prohibition.
    Senator Whitehouse. So if you are on an authorizing 
committee and the appropriators put funding towards a program 
either whose authorization has expired or they just invent it, 
there was never an authorization in the first place, as long as 
your first shot at it is on the Senate floor and as long as the 
Appropriations Committee got it into the measure that comes to 
the floor so it is not coming to the floor as an amendment, you 
are stuck, there is nothing that an authorizing committee 
person can do other than make noise, there is no rule?
    Ms. Tollestrup. So while there is no point of order that 
could be raised, that is correct, offering an amendment to take 
out the appropriation that is unauthorized would still remain 
an option.
    Senator Whitehouse. Yes, but then you would need 60 votes 
going your way, and it would not be there if they did not have 
60 votes going their way. So good luck with that.
    That is not a practical option from my view on the floor.
    Dr. Posner, I was fascinated with your idea about changing 
the composition of this Committee a little bit. It may make 
sense to try to have the Finance Chair and Ranking and the 
Approps Chair and Ranking here so that they are a little bit 
more bought into this. I would hate to have it be all other 
folks because I think that Senator King's perspective--he is 
here--has been phenomenal. And as a former Governor, he has 
dealt with a lot of this and the fact that he is not senior 
enough to be in that little group, and I am sitting in what 
would be Senator Sanders' seat, and God knows he has got a 
perspective that has been noteworthy here in the Committee. So 
I would hate to see it turn into a pure leadership device, but 
leadership representation would be a very interesting idea.
    I would also note that in other committees, bipartisanship 
can be a prerequisite for certain things, like a quorum, and 
because of that you cannot even get a subpoena out of a 
committee without bipartisanship. And yet we can get the entire 
budget of the United States out of this Committee without 
bipartisanship. So there is another angle that we could be 
looking at, that it is simply not in order for the Committee to 
produce a budget unless it has bipartisan support of some kind.
    To your point about portfolios, we are not going to be able 
to jump in and do this without having tested the waters a 
little bit. It would be rash to do that and problematic. Is 
there an area that you would recommend to us as a particularly 
promising one for us to take a look at running the portfolio 
analysis that you described that would be small enough for us 
to actually bite it off and give it a whirl and that would 
potentially yield the opportunity for some significant reforms 
and consolidation of tax and spending policies?
    Mr. Posner. That is a good question. With the caveat there 
are no areas of low-hanging fruit in the budget, as you know, I 
think there are areas which lend themselves--higher education 
is one that I illustrated in my testimony, $110 billion of 
Federal subsidy, 35 in the Tax Code, 70 through spending, 
through grants and loans and the guarantees and the like, as 
well as research and development.
    I think one of the things that would be essential, of 
course, is forming a partnership with the authorizers. It makes 
some sense to think about the authorization schedules as they 
are, as thinking about how this might work as a prelude to the 
next authorization.
    This Committee has actually taken some small steps in this 
direction. With Chairman Domenici, the Committee worked back in 
2000 to create four task forces of the Senate Budget Committee 
to focus on broader policy areas. One was education that 
Senator Frist chaired. Another was foreign assistance. They 
took the entire 150 account, as they say downtown, the 
subfunction on international assistance, and did some broad 
oversight hearings on that function. I think Senator Sarbanes 
was involved with that. We had one on Social Security and one 
on another area. And several of them were productive of 
potential legislation, including the education one in 
particular.
    So it is not a sure thing. It was the first time they tried 
this. It was during a time of surplus when, you know, the 
fiscal demands on the Committee were not as great and they 
could start to, you know, spread their wings.
    I was hopeful that this might start getting the ball 
rolling, but it did not. But, nonetheless, there are ways that 
that could happen. I am struck when I look at legislatures----
    Senator Whitehouse. My time, Dr. Posner, has well expired, 
so let me--if you want to follow on with a written response for 
the record, I would be very interested in what your thoughts 
are.
    Mr. Posner. Sure.
    Senator Whitehouse. And that will give you a chance to 
deliberate even more. Thank you.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Dr. Thurber, I have one word to describe my 
emotion in response to your testimony this morning, and that 
is, ``Hallelujah.'' I have been here just 1 year, but I have 
not heard anybody else come up here and talk about one of the 
fundamental problems of this body. And you have today, and I 
want to echo that.
    Our Committee structure is just never going to work. It is 
not conducive with good stewardship of these issues. There are 
a lot of reasons why. I have gone back to 1946, looked at 1976, 
all the things in between in terms of how we got here. But when 
one Senator--and look at this Committee. I would argue that 
this topic right here addresses indirectly the number one 
crisis our country faces. It really does. These are all well-
meaning men and women here on both sides of the aisle. And here 
we sit, because they are at another Committee at this very 
moment that they deemed was as important today. I have three 
myself at 10 o'clock, we all do, 10 o'clock this morning. This 
cannot continue. It does not work. It will never work.
    The second thing, Dr. Posner, I know you have written 
several things, and I look forward to hopefully working with 
you and some of your organization about how to change this 
process. But I have a quick question, and that is, when you 
look at a budget--and I know Senator Kaine and Senator King and 
others have Governor experience, I come from business, where 
you look at the entire budget. And yet we spend $3.7 trillion 
as a Federal Government, but we deal with $1.1 trillion in this 
Committee. That is the first issue.
    So the question I have is: How do you respond to my 
observation that, hey, wait a minute, why aren't we talking 
about all of it? My argument is heretofore when there were 
trust funds for Medicare and Social Security, I get it because 
they take care of themselves. Now they are not taking care of 
themselves, and we have line items on our budget that are 
supplementing both of those entities. So I would argue that 
gives us purview to bring all of the above spending into this 
Committee.
    The second question that ties in with that--and I would 
love to hear your thoughts on this. First of all, the current 
process, I said with the other panel, it is set up for failure. 
Number one, it is a budget resolution. As Senator Whitehouse 
has said, the majority can cram down the throat of the minority 
any budget they want. And it is a political statement. We all 
know that. Even last year, this budget we produced was mostly a 
political statement. We crammed it down the throat of the 
minority. It did not get one vote. And then we go to 
authorization, and we find out, well, okay, some of those can 
get authorized, some cannot. But we get the appropriation, and 
now we really see the problem.
    We can appropriate in the Committee, but the minority 
leadership has no incentive, Republican or Democrat, to ever 
let one of those appropriation bills get to the floor of the 
Senate. Why? Because the minority can drive an omnibus formula 
where they will get most of what they want. And guess what 
happens as a part of that process? We all spend more. Now, 
whether we think it is justified or not, that is the equation. 
It will never work. I have been sitting here for a year. I have 
been looking at for 3 years trying to figure out how well-
intentioned and talented people end up spending money like we 
are spending, and now I get it. It is the process.
    I applaud the Chairman and the Ranking Member, and I know 
Senator Whitehouse and Senator King have spoken out on this, 
among others. But I would love to get your thoughts about what 
keeps us from bringing all that in. And then is it not time 
that we throw the 1974 act out and take a start at this from a 
clean page perspective? I would like to get you and Dr. Thurber 
on that as well.
    Mr. Posner. I think it is an important question because we 
now focus on 30 percent of the total.
    Senator Perdue. Exactly.
    Mr. Posner. And we need to have regular ways to bring them 
all together, which is why I suggested this portfolio approach. 
You would bring the whole thing together regardless of the 
character.
    Senator Perdue. That would include mandatory----
    Mr. Posner. Exactly. Mandatory and discretionary and tax 
expenditures. Part of this process is that this Committee 
legislates the whole, sometimes there is tension with the 
specific committees. For instance, it is very tempting to 
articulate symbolic 302(a)s that are completely incapable of 
ever being implemented. And I think that is why having a 
leadership presence on this Committee might help temper that 
process. Bringing more players into the process of formulating 
the whole might help the budget be more realistic and more 
grounded.
    In our National Budget Roundtable, we have some questions 
that we are starting to look at about how you budget for 
entitlements. Can we bring them into play more regularly? You 
do not put a cap and do them every year, but can there be 
meaningful targets that are adjusted every 5 years with some 
points of order around it?
    Senator Perdue. Dr. Thurber.
    Mr. Thurber. A couple of comments. One, on an earlier 
comment that you made about the committee system, I want to 
remind you that there are 109 committees and subcommittees 
dealing with homeland security; there are 58 dealing with 
energy and environment. One of the toughest things that you can 
do is to realign jurisdictions. It is like playing Monopoly, 
and the Chair of Appropriations and Finance have Boardwalk and 
Park Place. No one wants to give up jurisdiction. Jurisdiction 
is power and power is a very difficult thing to give up. 
Committee reform needs to be done on a regular basis because of 
program duplication. Multiple overlapping jurisdictions is a 
major source of conflict and dysfuntion on the Hill. And it is 
not the executive branch's fault. It is the growth in the 
number of committees and subcommittees.
    Senator Perdue. But therein lies the dysfunction in the 
Federal Government, in my mind. I understand the balance of 
powers between the branches, but we see the rise of the 
regulatory side right now that does not have that encumbrance. 
They are much more productive in producing rules that have a 
dramatic impact on our lives, whereas we get stumped here 
trying to fight through this maze to get any change. I am sorry 
to interrupt, but----
    Mr. Thurber. Congressional gridlock shifts power to the 
executive branch.
    Senator Perdue. That is what we have done. That is what 
Senator Whitehouse said, and I agree.
    Mr. Thurber. Putting leadership, Ways and Means and 
Appropriations, on this Committee, as they do in the House is a 
good idea. It is a good idea to have that representation on 
this Committee to help bring senators together before you go 
forward with a concurrent budget resolution.
    Senator Perdue. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator King.
    Senator King. Thank you, Mr. Chairman. I want to thank you 
for calling this hearing because I think we have really had 
some provocative and important testimony.
    Dr. Thurber, before we get into the substance of budget, I 
was fascinated by your research about partisanship and partisan 
divide going back to 1860. I would like to request that you, as 
much as possible, correlate that to the esteem in which the 
institution is held. It would be very interesting to line those 
up. I suspect you would see that there is a direct correlation 
between partisanship and low esteem.
    Mr. Thurber. If I might answer immediately?
    Senator King. Sure.
    Mr. Thurber. I do not want to push my book that just came 
out, ``American Gridlock,'' but in it we show a relationship 
there between support as measured by Gallup and others and the 
amount of polarization. I blame the polarization on both 
parties. There is nobody in the middle anymore.
    Senator King. If you did not push your book, you would be 
the first witness in a congressional committee not to do so. I 
welcome that.
    The issue, it is not 30 percent, David. It is more like 20 
percent, because tax expenditures are part of this, too. My 
numbers are 1.1 on discretionary, about 2.6 on mandatory, 1.4 
on tax expenditures. Tax expenditures are the granddaddy of all 
unauthorized programs. They are authorized once. The efficacy 
is never tested. The need is never tested. The relevance is 
never tested. And they are there forever, and we extended a 
bunch of them forever just this past December without regard to 
its impact on the long-term budget. The tax expenditures now 
exceed the actual tax revenues. So if we are going to talk 
about this, Mr. Chairman, I think we need to talk about the 
whole budget, I think it is $5.1 trillion. My mother used to 
have a wonderful saying. She said, ``You are straining at gnats 
and swallowing camels.'' And by focusing all our attention on 
the funding for Head Start or whether or not to buy an aircraft 
carrier, we are missing a much, much larger picture.
    Mr. Posner, I thought your idea about reviewing programs as 
a group is very insightful and important. But the question is--
and it gets back to the discussion we have been having--who 
does it? Is it this Committee? Is it the authorizing 
committees? Is it the Appropriations Committee?
    Maybe we ought to have a new committee called ``Oversight'' 
whose sole responsibility it is to do that. It would not be a 
very glamorous one. But your thoughts on--you know, I think 
your insight is accurate, but who does it?
    Mr. Posner. That is, obviously, the big question. I think 
this Committee could do it. This is why I suggested this be 
anchored as a leadership committee because then it would be 
easier to orchestrate. I think it also could become a joint 
committee in its initiative, possibly, and it would have to be 
something the leadership would have to bless, and it would have 
to be something that would be a high priority even with the 
President to support it.
    So I think there are several different avenues for that, 
but this Committee was intended to take a look at the broad 
missions of Government through the budget function, 19 of them. 
And there are 96 subfunctions, and they cut across all the 
programs, not including tax expenditures. That is the way the 
resolution was supposed to be allocated, and those figures are 
nice and analytic, tidy little sums in the resolution, but they 
are never used you the Congress to budget or manage or oversee.
    What I am saying is let us give life to those concepts 
because they are sorely needed as Government has grown and 
become more fragmented. And, obviously, the question is raised: 
Which committee does that? And I think it probably has to be 
several working together in some way. But, I think this 
Committee needs to lead it.
    Senator King. Mr. Thurber, do you have thoughts on that?
    Mr. Thurber. Yes. Under the rules of the House and the 
Senate, when committees go forward to get funding, they are 
supposed to produce an oversight calendar, and that should be 
one of the criteria for funding committees. Leadership could be 
involved to make sure that committees are working together in 
their oversight on that calendar. It is very hard to enforce. 
It really is not being enforced. One possibility is to have two 
or more committees coordinate their oversight calendars. They 
could plan Joint Oversight to improve deliberation and 
lawmaking. And if they cooperated, they could get an 
appropriation for their committee.
    Senator King. I think you made a very important point, and 
I have talked about this at home in Maine about how to overcome 
this partisanship. A lot of it comes down to people. It is no 
coincidence that Lamar Alexander and Patty Murray were the 
Chair and Ranking Member of that Education Committee that got 
the major education bill through. I believe that a lot of it is 
the individuals that are in the seats and whether they are 
inclined to try to work things out. The Chairman of this 
Committee has had that same kind of experience.
    Mr. Thurber. I agree with that. I hate to go back to 
ancient history when budget chair Muskie and ranking member 
Bellmon got along very well, but it is a good example. They 
were former Governors, by the way, that knew how to put budgets 
together, which helped in bipartisan collaboration. Their 
cooperation and their personalities really launched the Budget 
Impoundment Control Act of 1974. The budget process was 
successful during their tenure as a result of their leadership.
    Senator King. I think you and I may have served together. I 
was on the staff here from 1973 to 1975.
    Mr. Thurber. Yes.
    Senator King. It is quite an experience to come back 40 
years later as a Senator, having seen the differences.
    Again, Mr. Chairman, thank you. I think this is so 
important, and we have got to continue to talk about this. And 
we also have to continue to talk about why is it, even in good 
times--we are in relatively good times now. Why is it that we 
cannot balance the budget? But we cannot balance it entirely on 
that 22 percent of the budget.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    You pushed your button. Did you want to make another----
    Senator Whitehouse. No. I was just going to blame Senator 
King for how bad things have turned since 1975 when he left. 
[Laughter.]
    Everything just went straight downhill. But luckily he is 
back now to help straighten this out.
    Senator Perdue. Mr. Chairman.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Would you indulge me with one last question 
before we----
    Chairman Enzi. Sure.
    Senator Perdue. I apologize. I would love to get all your 
responses to no matter what the process is, there are de dates 
and accountability, but there is no accountability here. If we 
do not do a budget by April 15th, if we do not fund the 
Government and pass all the appropriations by September 30th, 
there are too many easy release valves. You can do a CR. You 
can do an omnibus, minibus, all these combinations. Only four 
times in the last 4 years have we really operated this thing 
responsibly. So I know the process is wrong. But even within 
that, there is no consequence for nonperformance.
    Have you guys looked at--and there are best practices 
around. I mean, States do this all the time. Many States have a 
balanced budget law. They have control of this. They get their 
budgets done. And, by the way, most of them do it in 45 days or 
less. My question is: Have any of you looked at the types of 
consequences that other entities like this use to enforce 
performance?
    Mr. Posner. I can start that off. The States have something 
that we do not. They have aggressive bond markets that 
vigilantly oversee them. The constitutional requirements aside 
for balanced budgets, they have aggressive bond markets.
    Senator Perdue. We have the Federal Reserve.
    Mr. Posner. Well, we have generous bond markets at this 
point. So from that standpoint--and the States do, in fairness, 
as we see in Illinois now and other States, extend deadlines 
when they cannot reach agreement as well. But I think the 
overall constraints bearing on States or other countries which 
I have studied are far more impressive to policymakers than 
they are to our policymakers at this point.
    Senator Perdue. Well, some of those States--Illinois is not 
one of them--actually have a balanced budget law.
    Mr. Posner. Yeah.
    Senator Perdue. So that really is sort of an end 
consequence that you--it is a law, and you have got to adhere 
to it.
    Mr. Posner. Yeah, yeah, enforced by the bond markets. 
Right.
    Mr. Thurber. Let me say that since the 1974 budget act was 
passed and fully implemented in 1976, we have changed the 
budget process every few years. So you have asked, Are there 
mechanisms to force people to make decisions? Well, we tried 
with the original act, with Gramm-Rudman-Hollings I and Gramm-
Rudman-Hollings II, and then we tried with the 2011 act where 
if you did not act in time (the super committee did not deliver 
in a certain amount of time) budgeting and appropriations 
became an automatic ``meat-axe'' approach through 
sequestration.
    If you do not change the will of the members to cooperate--
your reforms will not have a major impact. That means you have 
to go back to the way people are elected. The polarization of 
the American voters, the polarization of the media, the 
polarization of interest groups, the polarization of State 
legislatures as well as this body undermine bipartisanship and 
cooperation, necessary for the congress to function. I do not 
see any immediate magical ways to change that polarization and 
gridlock. If you cannot do that, then instituting a new Budget 
and Appropriation process may not work.
    Senator Perdue. You may have just gotten outside the scope 
of this Committee just a bit.
    Mr. Thurber. I did.
    Chairman Enzi. Nothing is outside the scope of this 
Committee. [Laughter.]
    Mr. Thurber. I apologize for that, Senator.
    Senator Perdue. No, no. You are fine.
    Ms. Tollestrup. So while I am not able to speak today to 
balanced budget and those kinds of requirements that exist in 
different entities, I can talk a little bit about what 
mechanisms Congress does have to encourage timely legislative 
review when it comes to how the laws are put together.
    The focus of this hearing has been expired authorizations 
of appropriations, and those provisions expiring can provide an 
occasion for legislative review and for new laws to be enacted. 
But if those provisions expire, they do not themselves 
terminate the program. They simply terminate the authorization 
of appropriations.
    There are other kinds of provisions in laws that can expire 
and also provide occasion for legislative review. For instance, 
mandatory or revenue-related provisions, authorities for user 
fees, those are the sorts of things that encourage legislative 
review when it comes to laws like surface transportation, the 
farm bill, programs like that.
    Essential authorities also can expire, including 
authorities that relate to how a program will function. For 
instance, certain investigative authorities under the PATRIOT 
Act expire on a certain calendar, and that encourages 
legislative review on that schedule.
    And then also Congress does have the option of sunsetting a 
program and having a sunset built into the law. So as is the 
case with the Export-Import Bank, with terrorism risk 
insurance, there are different ways that Congress has 
approached trying to sunset programs on a schedule in the past.
    Senator Perdue. Yes, I am less concerned about the 
programs. I know that was a focus, and that is a great answer. 
I really am asking the question that, you know, if we cannot 
fund the budget by the deadline, I mean, what consequences are 
there? And we found too many release valves that give us a way 
out of the box, and the release valve is more spending. And 
that is the reality that we have got.
    Mr. Chairman, I am sorry. I have overstayed my time. Thank 
you.
    Chairman Enzi. Well, I want to thank the witnesses. I have 
got to go back through pages and pages of notes that I have 
made as a result of what you have suggested. I think there are 
a lot of good suggestions there, and I have asked Senator 
Whitehouse to share with me any inspirations that he has.
    The one comment that I made was that we require the 
President to give us his budget by a specific time. In my 20 
years here, the only use that I have seen for that is for one 
party to beat up on the President's budget and the other party 
to proclaim the intelligence of that budget. And the budget 
format is not even in the same format that we use, so what he 
gives us is not usable. I am hoping that it is usable from a 
management standpoint, from an administrative standpoint, but 
somehow the two of us, the two bodies, need to get together on 
making that more effective one way or another.
    The oversight process I think creates some problems because 
it usually results in taking money away, and we are much more 
excited about giving money away than stealing money. The 
consequences are considerably different.
    So thanks for all of your suggestions and for your 
outstanding testimony, and we will be trying to--we will be 
getting some more information out to members of the Committee 
that were not here.
    Thank you. Excellent panel. The hearing is adjourned.
    [Whereupon, at 11:47 a.m., the Committee was adjourned.]
    

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      BUDGETING BLIND: THE UNRELIABILITY OF FEDERAL FINANCIAL DATA

                              ----------                              


                        WEDNESDAY, APRIL 6, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Johnson, Ayotte, 
Wicker, Perdue, Warner, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; 
Peter Warren, Senior Budget Analyst and Director of Oversight; 
for the Minority: Joshua Smith, Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning, and since we are here, I will 
go ahead and call this hearing to order.
    Today we are going to begin a series of hearings that will 
discuss budget process reform in what I anticipate will be a 
positive, productive, and bipartisan manner. I think this is 
one of the few times that we can do that. It is an opening once 
every 4 years, and the reason it is an opening every 4 years is 
right now we do not know who the majority is going to be next 
year; we do not know who the President is going to be next 
year. So I anticipate that both sides can work in a very 
reasonable way to make a process that will be better than what 
we have had before.
    So we begin today with an assessment of the Government's 
overall financial condition. The lens through which we will 
assess that condition is the Government Accountability Office's 
recent audit of the Federal Government's financial books.
    As you know, I believe the congressional budget process is 
fundamentally broken. Only one budget resolution has been 
adopted by Congress in the past 6 years, and only nine budgets 
have been adopted in the past 18 years. Even when we do adopt a 
budget, it often fails to become a governing document. The 
broken budget process has contributed to spiraling levels of 
overspending and debt. But it is important to understand that 
the budget process is just one part of a broader cycle of 
Federal financial management.
    The cycle is shown on the slide that you can see on the 
screen. As you can see, this continuous cycle proceeds from 
budgeting through budget execution to accounting and on to 
auditing. All the elements are interrelated. Judging from 
testimony we will hear today from the Government Accountability 
Office, the budget process is not the only part of this cycle 
that is broken. The government-wide financial statements that 
GAO audits tell us what came into the Government's coffers and 
what went out, what the Government owns and what it owes, and 
if the operations are financially sustainable.


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    But can we trust the information in the financial 
statements? GAO's audit calls into question the reliability of 
the underlying financial data. The sketchiness is such that GAO 
remains unable to even issue an audit opinion on the 
Government's books. If a publicly owned company on the stock 
market received such a disclaimer, investors would run away 
from it. But we cannot run away from a Government in which we 
are all stakeholders. This is an enterprise in which we and our 
children are all invested.
    It would be disastrous for a publicly owned company to be 
unable to prove to auditors that it had a handle on how much 
inventory was held in its own warehouses, what condition its 
property was in, or the extent to which it is on the hook for 
potential liabilities. But these are exactly the sort of 
weaknesses GAO found in the Federal Government books. The 
situation has implications for budgeteers because it means we 
may not have the most reliable data when we embark on the 
budgeting stage of the financial management cycle.
    This is how GAO puts it in its report: ``To make difficult 
decisions to address the Federal Government's fiscal 
challenges, Congress, the administration, and Federal managers 
must have ready access to reliable and complete financial and 
performance information. Our report underscores that much work 
remains to improve Federal financial management, and these 
improvements are urgently needed.''
    The tendency in Congress is to focus on all the wonderful 
things that new spending and new programs might accomplish. 
There is not enough interest in looking at what happens with 
the money we are already spending. That is where the audits 
come in. Every budget should be informed by knowledge about 
what happened with the money that already went out the door. To 
wisely allocate new resources, we need to be using reliable 
information about what we bought, what we own, where we stand. 
and the sustainability of the current policies.
    Ultimately, I hope this hearing will encourage better 
stewardship by the financial managers within the executive 
branch. As Congress works to fix its broken budget, it is clear 
the administration has its own work to do in getting its 
financial house in order.
    Senator Warner.

              OPENING STATEMENT OF SENATOR WARNER

    Senator Warner. Well, thank you, Mr. Chairman. Thank you 
for holding this important hearing.
    Comptroller Dodaro, it is great to see you again. I am 
looking forward to your testimony.
    I think there is some self-selection going on in terms of 
who showed up. We have got your background as an accountant, 
Mr. Chairman, and Senator Grassley's interest. We have got 
three former business guys who decided to show up this morning. 
While this is not necessarily an area that gets a lot of 
attention, it is extraordinarily important, and I agree with 
the Chairman on this.
    We have made some progress. You know, back in 2010, working 
with your offices, we passed GPRA, the first effort to try to 
modernize the management process, where we looked at trying to 
isolate the actual priorities for agencies, looking at cross-
cutting goals across agencies, looking at consolidation.
    In 2014--and, again, I appreciate your comments, Mr. 
Dodaro, about the DATA Act, at least a first step. Rob Portman 
and I and Darrell Issa put the DATA Act in place to try to 
start consolidating so we can have that kind of clarity around 
financial information. I do hope this Congress goes ahead and 
invests the $53 million that the President has called for to 
actually implement it. It does not do any good to pass this 
legislation if we cannot implement its processes.
    You know, I think one of the things in your testimony, we 
are talking about both improving Federal finances both in the 
long term and financial management. An issue that many of us 
share a great deal of concern on is, obviously, our national 
debt, which is approaching $19 trillion. A data point I always 
like to use is at interest rates go up, just 100 basis points, 
1 percent, that adds $120 billion a year in just additional 
debt service. That is more than we spend in Federal DOE and DHS 
combined. I know the Chairman of the Homeland Security 
Committee is here.
    Another issue I think you pointed out and something that we 
have been working on as well is the unrecognized financial risk 
posed by the ongoing Government conservatorship of Fannie and 
Freddie. This is an area that has not garnered a lot of 
attention, but as we have seen potential for either one of 
those entities to dip back in and ask the taxpayer, again, we 
have got to--our job is to make sure that we resolve those 
entities.
    I would point out to Treasury and the OMB, I think there 
are challenges with this administration, but the requirement to 
put in place a consolidated financial report has been part of 
the law since 1994. And, unfortunately, as your report points 
out, we still do not have good systems in place, particularly 
around the issue of intergovernmental transfers. So if we 
cannot follow the money, as the Chairman has pointed out, we 
are not going to be able to do our job in terms of oversight.
    In 2012, a GAO report found that the Pentagon alone 
maintains more than 2,200 systems to manage finances, HR, 
logistics, property, and weapons acquisition. I have run an 
enterprise before. Obviously, DOD is the largest in the world, 
but 2,200 separate systems? That is crazy.
    One last comment I want to make in terms of another area 
that I know the Comptroller General has pointed out is around 
cyber. I think this is going to be a growing concern, public 
and private. But our failure at times to actually invest in, 
improve our legacy IT systems, we are now seeing a new 
vulnerability not only in terms of inability for these systems 
to work, but as we patch upon patch upon patch, all we are 
doing is creating more vulnerabilities in terms of this new 
domain around cyber.
    I would simply point out, finally, that if we are going to 
make sure that we do the kind of oversight and review when we 
get to program integrity, we have got to make sure we fund 
those initiatives. These return in many cases $8 to $10 in 
savings for every $1 invested, and I worry at times when we go 
through things like sequestration, which makes no regard for 
good programs or bad programs, program integrity initiatives, 
because they fall within the discretionary bucket, are all 
subject to those kinds of caps and those kinds of cuts.
    So, Mr. Chairman, I am grateful for your focus on this 
issue. It is something I think there is bipartisan consensus 
on. My hope would be we could get more members of the Committee 
to participate, and I look forward to the proceeding and the 
testimony of our witness.
    Chairman Enzi. Thank you, and thank you for your work on 
the DATA Act. And I thank you and Senator Kaine and Senator 
Johnson and Senator Perdue and a number of people for talking 
about the need for separating out the capital budget from the 
normal expenditures and seeing what things we borrow for.
    I am glad we are doing this hearing today because we are 
used to looking at Federal finances through the lens of the 
budget resolution. This hearing gives us a different 
perspective. It is not often, for instance, that we look at the 
actual balance sheet of the Federal Government. One thing that 
jumps off the page for me in viewing that balance sheet is the 
growth of Federal banking operations. The Government's largest 
asset class is its $1.2 trillion loan portfolio. That is 38 
percent of everything the Government owns. The student loan 
portfolio alone is nearly $1 trillion, and that is more than 
the combined value of all Federal property, plant, and 
equipment.
    Our witness today is Gene Dodaro, the Comptroller General 
of the Government Accountability Office. GAO is statutorily 
responsible for auditing the consolidated government-wide 
financial statements. He is the eighth Comptroller General of 
the United States. He was confirmed in December of 2010 after 
serving as Acting Comptroller General since March of 2008. He 
has been with the GAO for more than 40 years. He served 9 years 
as the Chief Operating Officer, the number two leadership 
position at the agency. Prior to that, he headed the GAO's 
Accounting and Information Management Division, which 
specialized in financial management, computer technology, and 
budget issues. He testified before this Committee last year on 
the topic of duplicative programs.
    I thank you for joining us again today to discuss GAO's 
most recent annual audit of the Government's books. Mr. Dodaro.

STATEMENT OF THE HONORABLE GENE L. DODARO, COMPTROLLER GENERAL 
  OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman, Senator 
Warner, Senators Johnson, Grassley, and Crapo. Good morning to 
all of you. I am very pleased to be here to discuss the audit 
that we perform on the Government's financial report.
    As has been pointed out in the opening comments, the 
financial report does not get anywhere near the attention that 
the budget does, but it is really needed to provide a total 
perspective on the Government's financial condition and 
position.
    First of all, it provides a good insight into the 
accountability over the money that has been spent already and 
the proper stewardship over assets that the Government owns. It 
provides more insights into fiscal exposures and insurance 
programs and environmental liabilities that are not included in 
the budget process. And since sustainability financial 
statements have been added, it provides a long-term perspective 
on the Federal Government's current fiscal path, which I think 
is an important area to focus on, and I will talk a little bit 
about that in my comments this morning.
    There are just four basic points I would like to make in my 
opening statement.
    Number one, there has been some progress in improving 
financial management in the Federal Government over the past 20 
years; however, significant problems remain. There are three 
major impediments to our ability to give the Government 
financial statements an audit opinion. Serious financial 
management problems at DOD, which reportedly has assets that 
are about 30 percent of the total Government assets and about 
15 percent of its net costs. These are serious, longstanding 
problems that need to be addressed.
    Secondly, Treasury cannot eliminate, along with the other 
agencies, the intragovernmental transactions that Senator 
Warner pointed out in his comments among Federal agencies. 
These are hundreds of billions of dollars in transactions, so 
you really do not have good accountability on how the Federal 
agencies take the appropriations from the Congress agency by 
agency, but then carry out business activities among 
themselves, and there needs to be a proper accounting for that 
money.
    And, finally, there are problems compiling the financial 
statements. Most of the individual Federal agencies are able to 
get unmodified or clean opinions, and that has been a 
significant improvement since 1996 when the federal government 
first started producing audited financial statements for all 
the major departments and agencies in the Federal Government. 
In 1996, only six departments and agencies could get unmodified 
(clean opinions); most recently 21 of 24 have been able to do 
that. But some of the big agencies like DOD have been 
problematic.
    Secondly, the financial report and audit shines light on 
some significant government-wide financial challenges. Number 
one is improper payments. Since Congress has required the 
reporting on the estimates of improper payments in 2003, the 
amount of improper payment estimates now exceed $1 trillion. 
This is a significant problem. In the last 3 years alone, the 
annual figures have grown, from $105 billion to $124 billion to 
$136 billion. It is a pervasive problem across Government; 121 
different Federal programs and 22 Federal agencies are 
reporting improper payments. The most significant improper 
payments are in Medicare and Medicaid, two of the fastest 
growing programs in the Federal Government's inventory. So this 
is something that I believe really needs to have attention.
    On the other side of the equation, while we have some money 
going out the door that perhaps should not be going out the 
door, we have a net tax gap of taxes that are owed under the 
current system but not being paid. The latest estimate is $385 
billion. So there is a significant amount of money under the 
current laws and programs that we do not have proper 
accountability over and we are not properly collecting all the 
revenues due to the Federal Government.
    The third major point that I would make is that, while 
there has been some progress in the past few years in reducing 
the annual deficit, the Federal Government remains on a long-
term unsustainable fiscal path. The debt-to-GDP ratio right now 
is at 74 percent. That is the highest it has been since World 
War II when we had a record 106 percent of debt held by the 
public as a percent of gross domestic product. And we are on a 
path to exceed those historical numbers in 15 to 25 years 
absent fiscal policy changes. Key drivers are demographics and 
rising health care costs, and eventually net interest. As net 
interest accumulates, compound interest works against us when 
we are borrowing, not for us as it would when saving.
    The last point I would make is that the current approach to 
setting a debt ceiling for the Federal Government in my opinion 
needs to be revised. The concerns about whether the Congress 
will raise the debt ceiling has caused the Treasury markets to 
take actions. Market participants are actually avoiding 
purchasing Treasurys that might mature during the debt ceiling 
impasse and it is causing liquidity problems in the secondary 
market, and it is adding to the interest that the Federal 
Government has to pay on the debt. Our latest estimate for the 
2013 debt ceiling impasse was the Federal Government paid 
anywhere from $38 to $70 million in additional interest costs 
just because people were concerned. Some of the market 
participants that we talked to basically said that they might 
take more severe action in the future.
    So we have recommended that Congress change the approach 
for setting the debt ceiling. It could be done as part of the 
budget resolution process, but it needs to be brought closer to 
where the actual spending decisions are made by the Federal 
Government. Under the current approach, raising the debt 
ceiling authorizes Treasury to borrow money to pay bills that 
the Congress has already authorized to be paid. It does not 
control anything with regard to the revenue or spending 
activities of the Federal Government.
    So I would encourage this Committee, as you consider budget 
process reforms, to include in that discussion alternative ways 
of setting the debt ceiling for the Congress.
    I appreciate the opportunity to discuss GAO's work on these 
issues, Mr. Chairman, and I would be happy to answer any 
questions that you and other members of the Committee may have.
    [The prepared statement of Mr. Dodaro follows:]
    

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    Chairman Enzi. Thank you for your testimony and for the 
documents that you provide during the year and now. And this is 
really an exciting hearing for an accountant. [Laughter.]
    But we are going to have a little bit of an interruption--
well, we are going to try to not have an interruption. At 11 
o'clock there is a vote, so I am going to turn over the chair 
to Senator Johnson, who is the other accountant here, and he 
can ask his questions during the time that I go vote, and then 
I can relieve him while he votes. And as such, I will pass on 
my questions for the moment and allow the Ranking Member to go, 
and then Senator Johnson will follow him as the Chair while I 
vote.
    Senator Warner. Well, thank you, Mr. Chairman.
    I want to get right into the nitty-gritty, and, again, 
Gene, thank you for your good work. I want to get a couple 
questions in on the DATA Act. For my colleagues who have not 
followed all that closely, the DATA Act was an effort to try to 
make sure that we had at least common definitions. You cannot 
find any kind of level of transparency if you do not at least 
have common definitions about what spends are and what 
transfers are and what is a cost and what is not a cost.
    In your January report, you highlighted the need for 
Treasury and OMB to issue more complete and timely guidance to 
agencies. I want to make sure that the agencies are moving 
forward on this. Later today, I will be sending a letter to the 
heads of 37 agencies and departments who submitted DATA Act 
implementation plans to OMB last fall. My goal is to gently 
noodge them--or maybe not so gently noodge them--to make sure 
that they understand the importance and benefit of financial 
transparency and to make sure they prioritize the 
implementation of this law. It will require additional 
resources. Again, I think it is so critical that Congress funds 
the $50 million that is going to be required to set up these 
new systems. And, again, I would remind my colleagues this was 
very bipartisan. Senator Portman and Congressman Issa were 
leaders as well on it.
    Your report said that the DATA Act holds ``great promise to 
improve Government financial management.'' But in January, you 
said there was a lack of clear guidance from both Treasury and 
OMB on how agencies should report their standardized spending 
data under the DATA Act, and that could hurt agencies' efforts 
to prepare for the full 2017 implementation.
    Do feel like that report has spurred change? And how do you 
evaluate the status of implementation of this law?
    Mr. Dodaro. I believe that OMB and Treasury understand our 
point, but they have yet to issue the guidance that we have 
called for, in two respects:
    One, as you mentioned, concerns the reporting guidance on 
how to report on the data standards. They have issued the data 
standards, they are out there. But more is needed regarding how 
agencies should report. Based on our experience in the Recovery 
Act, particular areas of reporting such as place of where the 
activity takes place, the award descriptions, exactly what was 
done--those things need additional guidance. Otherwise, you 
will get information that will not be helpful.
    Secondly, the DATA Act, as you know, requires machine-
readable, downloadable information, and you need to have 
technical standards to be able to report that. Those technical 
standards in the Schema have not been set yet. Both of these 
issues are giving agencies pause, and they will not be able to 
finalize their implementation plans. So I am hopeful that the 
guidance on both these issues will be issued as soon as 
possible and be stabilized. The concern I have is that they not 
continue to revise things; otherwise, the agencies will have a 
legitimate excuse not to be fully prepared to meet the schedule 
under the DATA Act.
    Senator Warner. So appropriate guidance, would you say that 
falls into your category as we look at the litany of challenges 
between now and May of 2017 for full implementation?
    Mr. Dodaro. Yes, there----
    Senator Warner. Do you want to list some of the other 
issues?
    Mr. Dodaro. Yes. First, there is appropriate guidance. 
There is also a need to have a governance structure for the 
full cycle of setting and revising data standards. They have 
set up a temporary structure. They issued the initial data 
standards. But I am very concerned about the fact that the act 
will be implemented in the transition of two administrations, 
and there are huge opportunities here for loss of momentum, 
lack of clarity and guidance, and so I am encouraging them to 
put a permanent data governance structure in place.
    Third, I am disappointed that they continue to defer the 
definition of ``program'' and to come up with a program 
inventory of the Federal Government. That has been continually 
deferred since the Government Performance and Results 
Modernization Act. They have said that they will do it under 
the DATA Act now. They have said it will be several years after 
the DATA Act is implemented before that would be in place. That 
is going to inhibit the ability to link the spending to 
programs which is one of the major objectives of the act. So I 
am very concerned about that deferral.
    Senator Warner. And would you also agree, when you pointed 
out in your report close to $1 trillion--that was more on 
improper payments.
    Mr. Dodaro. Right.
    Senator Warner. On the improper----
    Mr. Dodaro. Well, but this would help on improper payments.
    Senator Warner. This would help on improper payments and 
intergovernmental transfers.
    Mr. Dodaro. It provides more transparency and more 
accountability, and you could do better tracking. The other----
    Senator Warner. Let me just get--because my time is about 
run out. On improper payments, any comments you want to make 
about Government integrity programs, which seem to have a 
pretty good record of being able to actually show dollar 
invested ends up resulting in $8 to $10 of savings?
    Mr. Dodaro. Yes, there needs to be more invested--probably 
in program integrity efforts, but the agencies really need to 
do a better job identifying the root causes of the problem. I 
do not think they have really done that much yet. I have asked 
for additional resources for GAO to help in identifying those 
things as well. But there needs to be more analysis of what is 
actually causing the problems. There are some disputes 
associated with it.
    But the other point I did not make in my opening comments--
I will take this opportunity--is that these huge figures that I 
have quoted, over $1 trillion, these estimates are not yet 
complete. There are no estimates for the managed care portion 
of Medicaid or the Temporary Assistance for Needy Families 
program. Other estimates are not complete or reliable. So this 
gives you an order of magnitude, but I think the problem is 
even bigger.
    Senator Warner. Well, I am going to vote at some point and 
get back for a second round. Thank you, Mr. Chairman.
    Senator Grassley. Mr. Chairman, could I have just one 
minute out of order?
    Senator Johnson [presiding]. Absolutely.
    Senator Grassley. Because I want to compliment this agency 
for something dealing with the report that they are giving to 
us on financial management at the Department of Defense. So we 
passed a law, let us say, 6 or 7 years ago that the Defense 
Department services are supposed to be auditable by 2017. So 
then they start with the Marine Corps audit because it is the 
smallest, and there are all sorts of shenanigans going on over 
a period of 2 or 3 years to make sure that they are certified 
to be auditable. Well, it was--I do not know what adjective to 
use. It was just a fraud. And I asked this agency to look into 
it, and because of their hard work, they made the Defense 
Department withdraw the Marine Corps audit until it gets right 
so it can be audited. So I want to thank you for your work of 
exposing that fraud in the Defense Department.
    Senator Johnson. Well, Senator Grassley, I certainly share 
your commendation of the GAO for doing that, but we have to 
commend you as well. I have to commend. You are the one that 
was a bulldog on that, so----
    Senator Grassley. Well, I gave a speech on it a year ago, 
but nobody reads your speeches.
    Senator Johnson. It did always amaze me that, you know, 
rather than just do the audit, they, you know, went through the 
process of preparing for the audit. And I would say, you know, 
just cut to the chase and get right to the audit.
    Mr. Dodaro, thanks for coming here today. I want to go to 
the exhibit that is actually the balance sheet, and I want to 
get to the sustainability measures. Let us first start out, 
though, because in your testimony you talked about how Treasury 
cannot eliminate transactions, how they are not very good at 
compiling.
    A question I have asked of Government witnesses now eight 
times--this will be the ninth--has to do with the Social 
Security Trust Fund, which I have not looked at the most recent 
figure, but back the last time I asked, the trust fund had 
about $2.7, $2.8 trillion of U.S. Government bonds. So that is 
an asset to the trust fund. What is a U.S. Government bond to 
the Treasury?
    Mr. Dodaro. Pardon me?
    Senator Johnson. What is the U.S. Government bond to the 
Treasury? It is a liability, correct?
    Mr. Dodaro. Right, right.
    Senator Johnson. So if we consolidate the books of the 
Federal Government, you have got a $2.7, $2.8 trillion asset in 
the trust fund, you have got a $2.8 trillion liability in the 
Treasury. What does that net out to?
    Mr. Dodaro. Zero.
    Senator Johnson. Zero. So the trust fund to the Federal 
Government has no financial value. Is that a correct statement?
    Mr. Dodaro. The only thing----
    Senator Johnson. Your microphone.
    Mr. Dodaro. I am sorry. The only thing that gets reported 
on the financial statements is the debt held by the public 
because the trust fund is an intragovernmental transaction.
    Senator Johnson. But, again, if the Government is relying 
on the trust fund to fund the Social Security benefits, it is 
going to have to borrow that money again.
    Mr. Dodaro. Yes.
    Senator Johnson. The transaction financially nets to zero. 
So my question is: On the sustainability measures, exactly what 
is this--is this an unfunded liability? What is the calculation 
here? Is this coming right out of the Trustees' reports?
    Mr. Dodaro. It is usually in some of the Trustee reports, 
but also alternative assumptions, particularly for Medicare, 
for example, because even the Trustees do not believe that all 
the cost containment efforts under Medicare are going to hold 
over a period of time. So there is a difference of about $8.9 
trillion between the baseline estimates and the alternative 
estimates for Medicare.
    But basically it is a projection of net present value of 
expected revenues and expenditures for the Federal Government, 
non-interest expenditures over the period of time, to show what 
the gap would be. And the gap is huge.
    Senator Johnson. Right. So, basically, what you have got in 
Social Security, somewhere around $13 trillion net present 
value, unfunded liability, and in Medicare you have got about 
$28 trillion. Correct?
    Mr. Dodaro. Right. That is correct.
    Senator Johnson. Do we by any chance have my one-page 
income statement on the screen? This is something that--and, 
actually, Senator Warner was a cosponsor, asking CBO to come up 
with kind of a one-page income statement describing the 30-year 
deficit. One of my problems when I came here as a business guy, 
you know, these unfunded liabilities, the public does not 
really understand net present value, and it just was not 
particularly relevant. So, actually, in discussions with the 
White House, I decided to describe the problem or define it as 
a 30-year demographic bubble, you know, what is--and I asked 
colleagues, what is the deficit over the next 30 years?


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    Well, CBO actually does calculate this in projections, but 
they do it as a percent of GDP, so we converted these to 
numbers. And here are the stark results in a one-page income 
statement over 30 years. You have got a deficit--in other 
words, we are going to pay out more benefits in Social Security 
than we take in the payroll tax, about $14 trillion, which kind 
of relates to the $13 trillion unfunded liability.
    Mr. Dodaro. Right.
    Senator Johnson. In Medicare, it is about $34 trillion. 
Okay? And then the remainder of that--by the way, the deficit 
over the next 30 years projected by CBO is $103 trillion, about 
$10 trillion the first decade, $28 trillion the second, $65 
trillion the third. It is comprised of $14 trillion in Social 
Security, $34 trillion in Medicare, and the rest is interest on 
the debt.
    Mr. Dodaro. Right, right.
    Senator Johnson. And, again, that is what we are trying to 
show here with the balance sheet, and these numbers are just 
incomprehensible.
    Mr. Dodaro. Right.
    Senator Johnson. So how do we convey in a more 
understandable way what you testified to, that this is 
completely unsustainable?
    Mr. Dodaro. Right. We have a graph in our testimony 
statement.
    Mr. King. Page 31.
    Mr. Dodaro. Page 31, Senator, I believe illustrates the 
problem. Thank you, Senator King. Right on time. These are our 
simulations of the long-term Federal Government's fiscal path. 
This shows under the baseline simulations that are under 
current law. This also has two important benchmarks: the 
historical average post-World War II of how much debt the 
government held as a percent of gross domestic product, 43 
percent on average. Right now we are at 74 percent. We are very 
heavily leveraged in debt.
    Under current law--this shows us hitting the historic high, 
the highest in the United States Government's history of debt 
held by the public as a percent of gross domestic product was 
1946, right after World War II. We are on mark to hit that in 
the next 15 to 25 years.
    The alternative number at the top here assumes that the 
cost controls for Medicare basically do not hold over that 
period of time and health care costs go higher.
    So we believe this illustrates that debt will continue to 
rise--these projections go to 200, 300 percent, and even 
higher, of debt held by the public as a percent of gross 
domestic product. We are going to owe more than our entire 
economy is producing, and by definition, this is not 
sustainable.
    Senator Johnson. Right. Well, again, our total debt is 
about $19 trillion. Tack on over the next 30 years $103 
trillion. I think that is the very definition of unsustainable.
    Mr. Dodaro. My basic point, Senator, is that you show it 
this way, you show it OMB's way in the financial report, you 
show it our way, you show it CBO's way, it all shows the same. 
It is unsustainable, and it needs to be addressed.
    Senator Johnson. As I am turning it over to Senator Kaine, 
let us just put the 30-year deficit chart up there, which is a 
little more graphic. By decade, I think it is $103 trillion, 
talking probably net asset base of America by comparison, I 
think it says 116. I do not have my contact in.


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    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and thank you, Mr. 
Dodaro. We are really pleased to have you here. It is funny 
that Senator King pointed you to page 31, because I want to ask 
you about page 30 of your testimony in the same area, the same 
topic, really, long-term fiscal challenges, this pretty blunt 
quote: ``Over the long term, at the Federal level, the 
imbalance between spending and revenue that is built into 
current law and policy is projected to lead to continued growth 
of debt held by the public as a share of GDP. This situation--
in which debt grows faster than GDP--means the current Federal 
fiscal path is unsustainable.''
    I am interested in kind of getting your opinion on this 
issue, because it has puzzled me coming here, having been a 
mayor and a Governor, that we had debt policies in the city of 
Richmond and in the Commonwealth of Virginia. The number was 
not the issue. So I know trillion sounds like, oh, we cannot 
have a debt of a trillion. We never worried about the number, 
just the total amount of debt. What we worried about was two 
ratios, and the ratios were: debt to State GDP; and then also a 
very important one, which is interest payment as a percentage 
of the annual State budget. Those were the two ratios. And in 
both the city and the State, we managed to those ratios, and 
that is how, when we went up New York and talked to the bonding 
agencies, how are you doing with respect to your basic 
management. So they did not worry about the raw number. They 
worried about the ratio.
    I have been interested, being on the Committee here, that 
we do not have an agreed-upon ratio. Obviously, if you have a 
ratio, there is plenty of grounds for difference of opinion 
about how to get there. So do you get there for more revenue. 
Do you get there through expense cutting? So there is plenty of 
play for policy differences, but we had a bipartisan consensus 
in both bodies about what the two ratios would be that we would 
manage to, and then over time we managed to that.
    We had a hearing about a year ago in this Committee that 
was called ``America's Dangerous Debt,'' and I asked each of 
the three witnesses, ``What level of debt is dangerous?'' And 
none of them would give me an opinion. They all just assumed we 
have dangerous debt, but they would not give an opinion. And I 
said, ``Well, gosh, maybe no wonder that, you know, Congress 
does not have an agreed-upon policy about ratios we will manage 
to if the experts that appear before us will not even give us 
an opinion.''
    Now, you in this paragraph talk about debt to GDP average 
post-World War II, 46 percent. Of course, much of the post-
World War II average was before Medicaid and Medicare, the 
programs of the 1960s that we have supported over the years.
    Mr. Dodaro. That is correct.
    Senator Kaine. And yet, nevertheless, the historic average 
can be really important. I would be kind of curious as to what 
would be the historic average post the adoption of Medicaid and 
Medicare. That might be more relevant. But we can get into that 
in a minute.
    Do you think it would be a good idea for Congress to have a 
debt management policy that would be focused on equivalent 
ratios, debt to GDP, and the percentage of income in a given 
year that we are putting to debt service.
    I always look at the debt service payment as, you know, we 
are paying this sort of for decisions in the past, and it is 
taking away from what we can do in the future. Now, that was 
definitely the case in the city and State where you only used 
debt for capital expenditures. We did not use debt for 
operations. So some of debt payments is for current operations, 
but when you pull debt service payment out, it is restricting 
what you can do currently, and I still kind of look at it that 
way.
    Would there be a way, you know, from an economist's 
standpoint or an accountant's standpoint, to come up with 
ratios that would be meaningful in a budget like--a Federal 
budget that has a printing press, that has monetary policy? Or 
is that a concept that, frankly, is more meaningful for a State 
government and not so meaningful for a national budget?
    Mr. Dodaro. No, I think it makes a lot of sense for the 
Federal budget, and I would encourage Congress to do this. You 
know, the debt management issues at the Federal level have 
never really been modernized at all. Prior to 1917--and I was 
not in my job then. [Laughter.]
    Senator Kaine. It sometimes feels like it.
    Mr. Dodaro. Yes, right. But Congress approved every debt 
issuance, but in 1917, World War I came, and then it became 
impractical. So the government moved to the current approach of 
setting a debt limit, but that is way too late. It is after the 
spending decision has already been made.
    Senator Kaine. Yeah, and the debt limit, again, is a raw 
number, and no smart fiscal manager uses a raw number as a 
check.
    Mr. Dodaro. Right, right.
    Senator Kaine. You use a ratio as a check.
    Mr. Dodaro. Right, you use the ratios. I think it would 
have to be a policy decision on the ratios. I think you would 
have to allow for exigent circumstances.
    Senator Kaine. Right, time of war.
    Mr. Dodaro. Time of war, economic downturns, whatever you 
want to put in there. But you would have something to manage 
to. Right now there are not ratios to manage to from the debt 
standpoint. We manage on how much spending that we want to have 
on an annual basis, but that really does not deal with the 
long-term circumstances.
    These numbers we have been showing, by the way, do not 
include any potential expenditures for disasters, for economic 
downturns, for any other emergencies that may come up. And so I 
think it makes eminent sense, and we have looked at some other 
countries. I think Sweden and some of the other countries do 
set limits. They do set debt-to-GDP ratios that they manage to 
as a country. So it makes sense on a national level.
    What we have now does not make sense, so we need to do 
something different. I think that offers a good alternative.
    Senator Kaine. Well, that is good encouragement. Thank you. 
And I will return it to you, Mr. Chair.
    Chairman Enzi [presiding]. Thank you. And I think Israel 
probably has that formula, too. I think they have shared that 
with us.
    Senator Ayotte.
    Senator Ayotte. Thank you, Chairman.
    I want to thank you, Mr. Dodaro, for all your important 
work, and I wanted to ask about the improper payment issue 
because, as I look at your report, you say in the report on 
page 20, ``In fiscal year 2015, agencies reported improper 
payment estimates totaling $136.7 billion,'' and I believe in 
your testimony you highlighted it could be as much as $1 
trillion as we look at improper payments. Is that true?
    Mr. Dodaro. It is over $1 trillion that has been reported 
since 2003.
    Senator Ayotte. Oh, since--okay.
    Mr. Dodaro. That is the cumulative amount. The 136, is the 
latest annual reported amount.
    Senator Ayotte. Okay. I am glad you clarified that. But I 
think one of the biggest things we could be concerned about--I 
mean, obviously, that is a huge amount of money, $136 billion. 
Do you know what we could do for that in terms of the defense 
and the military? We are actually giving pink slips to our 
members in our army right now, the threats we are--whatever 
your issue is in this Congress, it seems to me this should be 
something we would focus on, whatever you think Federal 
spending should be, and obviously dealing with our debt.
    So I wanted to ask you, you said in the report on page 20 
that essentially this has been a ``significant increase'' in 
2015 of improper payments, over $12 billion, mainly due to an 
increased error rate in Medicaid--from the prior year's revised 
estimates.
    So if you could tell me what you think is the source of 
that driver in the increased error rate in Medicaid, but also, 
I was very interested on the same page you said that 76 percent 
of our improper payments are made up from improper payments for 
Medicare, Medicaid, and the Earned Income Tax Credit. So what 
do you think is driving the increase in Medicaid, number one? 
Is it the Affordable Care Act and also the fact that there has 
been all kinds of issues in terms of people's income 
verification and the inability to determine in some ways, you 
know, who is eligible and who is not and clearly communicate 
that with taxpayers? That is certainly an issue I have 
addressed in other committees.
    And then also, as I look at Medicare, Medicaid, and the 
Earner Income Tax Credit, what should we be doing? This is a 
huge, huge amount of money. If we just focused on this issue, 
we could save billions of taxpayer dollars.
    Mr. Dodaro. Yes, first on Medicaid, what is primarily 
driving it is the amount of changes that have been made in the 
programs, and the States do not have the systems yet put in 
place to verify eligibility and to include changes. Some people 
move from the exchanges to the Medicaid program and back, and 
so that is a big problem.
    But I would also point out on Medicaid, this improper 
payment rate does not even measure the managed care portion of 
Medicaid in the States. We have encouraged and CMS is going to 
now audit. The only thing they look at now is whether the State 
is paying the Medicaid managed care provider properly, not 
whether the provider is actually making payments that are 
consistent with the rules and techniques.
    We have also been trying for a decade to get CMS and they 
finally have agreed--to take the Social Security numbers off 
Medicare cards. This prevents identity theft and easy 
identification.
    Senator Ayotte. Right.
    Mr. Dodaro. Congress fortunately passed a law, gave CMS 
funding, but it may take them, according to their estimates, 2 
or 3 years to have that happen. They are also not analyzing 
post-payment claims where they go in afterwards and identify 
problems and patterns and share that among the contractors, 
embedding it to try to prevent improper payments from occurring 
in the first place.
    Also, they are allowing providers to enroll but not always 
determining whether they are legitimate providers by using all 
potential methods to do that.
    Senator Ayotte. Yeah, they are not using even all the 
publicly available data, are they?
    Mr. Dodaro. That is correct. For example, physicians who 
might have had license censures in other States, they are not 
sharing that information properly.
    So we have made lots of recommendations on how this can be 
improved. The programs that you mentioned there, particularly 
the health care ones, are the fastest growing Federal programs. 
Unless we get on top of this, in my opinion, this problem could 
potentially get worse before it gets better.
    Senator Ayotte. And it is huge right now. It is 
unbelievable. The other issue is that the right hand often is 
not talking to the left in terms of our ability to share 
information for eligibility across programs within our own 
Government. Isn't that still lacking?
    Mr. Dodaro. Yes.
    Senator Ayotte. So, for example, I may be eligible for one 
Federal program, but not for the other, and we are not sharing 
that information.
    Mr. Dodaro. That is correct. And, in fact, we have asked 
for special legislative authority. There is what is called the 
``New Hire Database'' that HHS maintains for child support 
enforcement, and they will not share that information with us, 
and they will not share it with other agencies as well. And 
that database includes some of the most recent wage 
information. So programs that are based on income eligibility 
could use that information.
    Senator Ayotte. So you need our legislative authority to do 
that? That is what you need?
    Mr. Dodaro. Yes. We believe we have it. The agency believes 
that----
    Senator Ayotte. But the agency does not believe you have 
it?
    Mr. Dodaro. Does not believe we have----
    Senator Ayotte. So we need to clarify that.
    Mr. Dodaro. Yes.
    Senator Ayotte. Okay. Thank you.
    Mr. Dodaro. Yes, that would be very helpful.
    Senator Ayotte. Thank you very much.
    Chairman Enzi. Thank you. I am sorry that I missed part of 
this, but I will go back and gather information from that. I 
have been trying to get a capital budget since I got here, and 
we have come close a couple of times, but close does not do it 
in budgeting. The Federal budget process, of course, treats the 
capital investments the same as any other kind of spending. I 
guess you could call it ``cash accounting'' for huge 
infrastructure. It creates a bias against capital spending 
since its full costs are recognized up front, but the benefits 
are over time. Therefore, some would like to see at least an 
element of capital budgeting injected into the budget process.
    Unlike States and localities, the Federal Government owns 
only a small fraction of its capital investments, and these 
items are considered Federal capital. On the financial 
statement GAO reviewed, the Government reports owning property, 
plant, and equipment valued at $894 billion. To have an 
effective capital budget, you need to know what you own, its 
condition, and its deferred maintenance needs. It appears from 
your audit, though, that we lack reliable information about 
what the Government owns and what condition it is in.
    Isn't the unreliability of the Federal property inventory 
one of the reasons GAO did not deliver an unqualified audit 
opinion? Do you agree we need a reliable accounting of what we 
own and its condition so that we can have an effective capital 
budget for the Federal capital?
    Mr. Dodaro. Yes, definitely. It was one of the reasons that 
we were unable to give an opinion, largely as a result of the 
property, plant, and equipment, and inventories at the Defense 
Department.
    The other thing I would point out, Mr. Chairman, is that 
since 2003 we have had Federal real property management as a 
high-risk area across the Federal Government. There is a lot of 
bad information that is not only in the Defense Department but 
in the civilian agencies about what we own, where it is, what 
condition it is in, and how it is being utilized. And so this 
remains a high-risk area across the Government, and it needs to 
be dealt with.
    Chairman Enzi. Thank you. Among other material weaknesses 
with the financial statements, you cite concerns regarding the 
tax collection activities. I quoted earlier, and I will quote 
again, ``Due to the financial system limitations as well as 
errors in taxpayer accounts, the Federal Government's records 
did not always reflect the correct amount of taxes owed by the 
public to the Federal Government. Such errors may cause undue 
burden and frustration to taxpayers who either have already 
paid taxes owed or who significantly owe lower amounts.''
    Can you talk a little bit about the extent of this problem, 
how the taxpayers' accounts are impacted, how the situations 
are resolved? Does the IRS have a process when it attempts to 
identify and correct the errors on its own?
    Mr. Dodaro. Basically, they have a process to make 
assessments. They do not have a subsidiary ledger for every 
taxpayer with exactly what they owe, and that is part of the 
problem. So in order to come up with this, they have to do 
statistical samples. But, basically, if there is an error in a 
taxpayer account, the burden is on the taxpayer to deal with 
the IRS to resolve the issue.
    IRS had to make, in order to get a reliable number, about 
$9 billion in adjustments to their receivables number. They 
need to have better systems in place, and we have encouraged 
them and recommended that over the years. But for right now, 
they do not have at the ready accurate information on 
individual taxpayers to the point that you really need to in 
order to efficiently and effectively manage the system, and it 
puts an undue burden on the citizens.
    Chairman Enzi. I think in this electronic age that that is 
something that could be taken care of. Are they on any kind of 
a track to do that?
    Mr. Dodaro. They have system plans to do it, but their 
track record has been a little spotty over the years on whether 
they can actually bring those changes to fruition. But we 
continue to monitor that. I would be happy to provide some 
additional information on that for the record.


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    Chairman Enzi. The financial statements you audited contain 
data concerning the Government's long-term fiscal 
sustainability. I suspect that Senator Johnson asked some 
questions about that and had a few slides. He is really 
concentrated on the long term. Your reports show that the 
Federal Government under current law is in a $41.5 trillion 
hole over the next 75 years with regard to Social Security and 
Medicare, with two-thirds of that total relating to Medicare. 
That $41.5 trillion is the present value of the future 
expenditures in excess of future revenue dedicated to these 
programs. But according to the GAO audit report, the $41.5 
trillion may understate the crisis because it is based on 
uncertain reductions in future Medicare cost growth.
    Do the financial statements give an indication how much 
deeper the Government would be in the hole with respect to 
Medicare if the anticipated reductions in cost growth assumed 
under current law are not achieved? Is there any speculation on 
that? What does your report tell us about----
    Mr. Dodaro. Yes, there is disclosure in the financial 
report about an alternative projection that shows, if those 
Medicare costs are not contained over time, what the additional 
costs would be. It is $8.9 trillion. That is on top of the $27 
trillion that is already included in the baseline estimate. So 
it is significant.
    Chairman Enzi. Yes. It is much easier to talk about 
trillions than it is billions. They do not sound like nearly as 
much. I have been trying to get people to relate to a trillion 
being a thousand billion. It sounds like more.
    Mr. Dodaro. Right.
    Chairman Enzi. Thank you.
    Senator King is back. Senator King.
    Senator King. Yes, thank you, Mr. Chairman.
    One of the issues you note in the report is the cost of the 
debt limit process or non-process around here. You estimated it 
cost between, I think, $38 and $70 billion.
    One of the alternatives to the process that we have now, it 
seems to me, is some variation of what is called the ``Gephardt 
rule,'' which used to be the case in the House where, if 
Members of Congress vote for a tax cut or an expenditure that 
has an effect on the debt, the debt limit is automatically 
extended in order to cover that change, because the process we 
have now allows us to have it both ways. We can vote for the 
expenditure, vote for the tax cut, and get all that political 
credit, and then vote against the debt limit and call ourselves 
conservative.
    Thoughts on improving the debt limit process?
    Mr. Dodaro. Yes. One of the issues Senator Kaine discussed 
that I would mention about managing the debt would be to set 
some potential ratios on debt held by the public as a percent 
of gross domestic product as a target that you work against. So 
you can improve the current process, and we have some ways to 
do that. You can link it to the budget resolution process so at 
the time spending and revenue decisions are made by the 
Congress, there is a recognition that there is a gap and there 
is going to have to be money borrowed, just the way you would 
in your household budgets.
    You could allow the executive branch to borrow the money 
necessary and submit a resolution; the Congress would have to 
disapprove the borrowing.
    You could allow the administration to borrow whatever is 
needed in order to effectuate decisions that the Congress has 
made.
    But you could also, in terms of managing the cost of 
borrowing for the Federal Government, set some limits on debt 
as a percent of gross domestic product as a target to work 
against.
    Senator King. Or debts in the States. In our State, the 
number we looked at was debt service as a percent of the budget 
or debt service as a percent of GDP.
    Mr. Dodaro. Right. You could do that. Senator Kaine 
mentioned that, too. So there are a couple measures that could 
be used. Other countries use those measures.
    Senator King. Well, in terms of your auditing and trying to 
make sense of the Federal budget, one of the things that 
strikes a person who is sort of new to this process is that 
there is no capital budget. There is no distinction between 
paying a park ranger and buying a building or a 40-year 
submarine. It seems to me that that would be a reform that 
would clarify the accounting, because we are paying for capital 
assets the same way we pay for current operations, and it 
obscures the true picture of where we are.
    Some part of this debt is justified as long-term capital 
investments. The part that is not justified is the debt that we 
are taking on in order to pay operating expenses. Your thoughts 
on that?
    Mr. Dodaro. I think there are definite advantages to the 
unified budget approach that we have in place, and so I would 
want us to maintain that because it gives a total picture on 
the debt ceiling.
    Senator King. Right.
    Mr. Dodaro. But within that--and we have done some analysis 
of alternatives--there could be an investment component. Now, 
that could include not only capital assets, but the Federal 
Government also makes a lot of investments in both human 
resources and in other areas where there are economic benefits 
as opposed to initial outlays to provide services to people. So 
you could construct within a unified Federal budget an 
investment component that would allow for more discrete 
decisionmaking about the types of spending that the Federal 
Government is going to have and what the expected outcome would 
be and what could be done in order to better manage this.
    For example, we have made recommendations that I will 
provide for the record here on how the Federal Buildings fund 
could be used better in order to effectuate these types of 
decisions.
    Senator King. Let me interrupt because I am limited on 
time. Your chart on page 31 that shows the projected debt 
limit, the heading is ``Debt Held by the Public.'' That does 
not include the Social Security Trust Fund obligation back to 
the Federal Government. Is that correct?
    Mr. Dodaro. Well, it shows the cash flows for revenues 
going back and forth. So, the mechanics of it is that the 
Treasury securities held by the Trust Fund would have to be 
redeemed, as they have been since 2010 on Social Security, 
because the outflows are more than the payroll taxes coming in. 
So it would assume--it would account for----
    Senator King. That assumes the payment of those debts.
    Mr. Dodaro. Yes. Plus it assumes continued payments.
    Senator King. Do you know what GDP growth assumptions are 
in this?
    Mr. Dodaro. I think it is roughly 2 to 3 percent.
    Senator King. Okay.
    Mr. Dodaro. But I will provide the details for the record.
    Senator King. But I would also point out that there is 
another deficit that is not shown on this chart, which is the 
infrastructure deficit. As a Governor, I used to go and talk to 
the rating agencies about trying to get a lower interest rate, 
and one of the analysts made the point to me that if you are 
not fixing your infrastructure, that is a form of debt just as 
if it is debt on the books. And if we are not maintaining our 
infrastructure and focusing strictly on these numbers, we are 
missing an even larger number that is part of our overall debt 
burden.
    Mr. Dodaro. Yes, that is exactly right, because you are 
going to have to fix it at some point, anyway.
    Also, what is not in here is planning for natural 
disasters, and economic downturns. But in relation to 
transportation, we have had financing the Nation's 
transportation infrastructure on our high-risk list for many 
years now because we do not have a means of doing it. It could 
be a component of this investment approach that you could have 
within the budget.
    Senator King. Mr. Chairman, I am over my time, but one, I 
think this could be a 10-second answer. How much Federal 
revenue is not collected each year under the tax system?
    Mr. Dodaro. The latest estimate from IRS--annual figure 
based on a 2006 analysis is a $385 billion net tax gap between 
taxes owed and taxes collected. We have about an 83-percent 
voluntary compliance rate right now in our country.
    Senator King. But I would point out, of the $385 billion, 
it is very close to the total of our current deficit. If we 
just collected the taxes owed, we would almost eliminate the 
current deficit.
    Mr. Dodaro. Well, yes. I mentioned we also have $136 
billion in improper payments made last year as well, payments 
that should not have been made or that were made in the wrong 
amount. So, it is not going to solve our problems, but it would 
make it a lot easier if we only paid the correct amount and we 
collected everything that we were supposed to.
    Senator King. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Perdue has returned, so he will be 
next, and then Senator Warner and then Senator Johnson.
    Senator Perdue. Well, thank you, Mr. Chairman. I am not an 
accountant, but I will agree with you that this is an exciting 
meeting. I did serve on several audit committees of large 
public corporations, so I know how important it is when you are 
making business decisions to have accurate information, and I 
applaud you, Mr. Dodaro, for what you are doing. I think this 
is so critical to us as we start looking at the process and try 
to get a long-term strategy to bring this debt more under 
control.
    I agree with Senator Warner and Senator King. We have had 
these conversations before, and this is not a partisan issue. 
That is the encouraging thing about it. This is not about how 
you spend money or how you cut expenses or whatever. This is 
about getting an accurate reading of what we are doing.
    And so my observation--and I have got a couple of questions 
I would love to get your thoughts on, because it is going to be 
an ongoing dialogue here. This is not something we are going to 
have a hearing on and then forget about it, because I am 
absolutely committed, as is the Chairman and other people, you 
can see that you have got people who have been sitting here for 
2 hours or over an hour and a half now trying to move this 
thing forward.
    But since the Government Management Reform Act of--it was 
22 years ago, and 20 years ago the first publication of the 
consolidated financial statement, we are sitting here today--
and this is not a critique on you. It is the systems. You 
mentioned DOD. We still do not have an accurate balance sheet 
that would stand up to audit.
    Mr. Dodaro. Right.
    Senator Perdue. I find that remarkable. And our goal should 
be to solve that as soon as possible, and I am going to have a 
question, then I want to come back. But I just look at 
redundant agencies, improper payments, and taxes not paid. You 
know, my math is that is $500, $600 billion. You add this up, 
pretty soon you are talking about serious money. Well, I do not 
know why we do not shut the trains down going to the Capitol. I 
do not know why we do not just shut everything else and focus 
on--this is not about cutting Social Security or doing anything 
else. This is just prudent, responsible stewardship of taxpayer 
money. This is not a small thing. And I know you know that. You 
are preacher for that. I am just voicing one person's--and I 
think I speak for a few other members here--support to try to 
help you get there.
    I am worried about accrual accounting versus cash 
accounting, and therein lies another disparity of almost $100 
billion of difference between the GAO estimate of an annual 
deficit and other estimates of the annual deficit. There is no 
capital budget. I think Senator King talked about that, and I 
agree 100 percent with Senator King that if you do not 
maintain--it is like deferred maintenance. If you do not spend 
that money on maintenance every year or on infrastructure, that 
is a future unfunded liability, is the way I look at it. And so 
we do not talk about that as well, but that is the second step.
    DOD, right now DOD is somewhere around $600 billion. People 
say, well, that is just too large to audit. Well, Wal-Mart is 
not much smaller than that. As a matter of fact, it is pretty 
close to being about the same size. Imagine if Mike Duke or any 
of the other leaders down there came to the SEC or the IRS and 
said, ``Boys, I am sorry. We are just too big to be audited. We 
will defer next year.'' I do not think that would work very 
well. And so I am over this ``too large to be audited'' thing, 
and so it is time we get a real accounting of that. Long-term 
debt, it is just unsustainable. It is the reason we are 
starting this process.
    So the question I have is: What do we have to do to help 
you break through the impediments to get a consolidated balance 
sheet that can stand up to audit?
    Mr. Dodaro. Well, I think there are two other things. You 
mentioned DOD, but there are three main impediments to us 
giving an opinion on the consolidated financial statement of 
the U.S. government.
    Senator Perdue. But it is much bigger than DOD, though.
    Mr. Dodaro. Pardon me?
    Senator Perdue. It is much bigger than DOD. I mean, they 
are one of the largest culprits, but there are other large 
agencies as well.
    Mr. Dodaro. Well, actually, that is the bright spot in this 
picture. When we first started in 1996, that was the first year 
that all 24 major departments and agencies had to prepare 
statements and have an audit. So we went 200 years of our 
history without an audit. Even though the Federal Government 
used to not give the State and local governments money unless 
they had an audit, but that is a different story.
    Right now, this past year, 21 of the 24 CFO Act departments 
and agencies have been able to get a clean opinion.
    Senator Perdue. You said that, yes.
    Mr. Dodaro. The two, aside from DOD, that did not get a 
clean opinion, HUD and Agriculture, have had clean opinions in 
the past. So they have had some recent problems. The Department 
of Homeland Security was an outlier for years, but for now, the 
last 3 years, they have had an unqualified opinion. So, really, 
when you look at the major departments and agencies, DOD is the 
one, is the only one.
    Senator Perdue. That is encouraging.
    Mr. Dodaro. But they hold about 30 percent of all the 
Government's assets and about 15 percent of its net costs.
    The other problems are at the Treasury Department working 
with the agencies where there are hundreds of billions of 
dollars of activity among the Federal agencies that cannot 
properly be eliminated. Right now, because of that, there is a 
very polite line in the statement that says unmatched 
disbursements and transactions. Basically, it is a plug figure 
for things that they cannot account for properly to make the 
statements balance. But it is not accurate, and so that is a 
big problem. And there are still problems in compiling the 
information from the audited financial statements of the 
agencies with Treasury's process. So DOD really is the main 
obstacle along with these other processes.
    Now, Treasury has a good plan----
    Senator Perdue. Sorry, I am out of time.
    Mr. Dodaro. Yes, go ahead.
    Senator Perdue. But I want to ask you, I understand there 
is a problem. My question is: What can we do to break through 
the impediment to get a balance sheet that will stand up to 
audit?
    Mr. Dodaro. Yes, I think you have to help us hold DOD 
accountable for making progress.
    Senator Perdue. They are working on it right now.
    Mr. Dodaro. They are working on it, but they are not really 
fixing the underlying problems. They have a good plan for the 
first time. You know, right now, the last year, in 2015, the 
only audits they had of Army, Navy, and the Air Force were 1 
year's budget activities, and they were not able to pass the 
test of an audit on 1-year budget activity at the Department. 
The financial requirements are for a multi-year budget audit. 
They have not even started on a balance sheet or net cost 
statement as well.
    The auditors this year made over 900 specific findings and 
recommendations for things that need to be fixed. That is on 
top of everything GAO and the IGs have said. They have to fix 
the underlying problems. They do not have necessarily all the 
talent that they need and experienced people. Congress could 
help there. They need to be held accountable for their system 
investments. They continue to make system investments that do 
not produce better systems. But they are not fixing the 
internal control problems. They cannot reconcile their balance 
between what they say they have and what Treasury says that 
they have. They are not estimating environmental liabilities 
properly, and they have a huge potential exposure there in 
addition to the Energy Department.
    So there are fundamental problems. They have anti-
deficiency violations. They have had about $1 billion of anti-
deficiency violations, where they were spending money that they 
should not have been spending in those areas. So this should be 
of concern to every member of Congress. We could use your 
support in helping them get the resources and the incentives 
necessary to make the necessary changes.
    Senator Perdue. Well, thank you, and I look forward to 
working with you on this.
    Thanks, Mr. Chairman.
    Chairman Enzi. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. I just want to 
follow up on, I think, a very good line of questions Senator 
Perdue made. The DATA Act that we passed is not going to solve 
the whole problem, but if you do not even have common 
definitions, the ability to come in and do an audit is 
basically moot. So, you know, the DATA Act was as bipartisan as 
you can get. If we strangle off the $50 million of 
implementation money, we are not going to make sure that this 
gets done.
    Now, we can argue, you know, should you be able to do it 
within the existing budget lines, but, you know, $50 million 
compared to what we spend normally to actually get a common set 
of definitions and some more financial transparency, you shine 
a little sunlight on this with a common defined definitions, 
and I think you are going to have a lot more pressure.
    So I would urge anybody who wants to join on the letter I 
am sending to all the 37 agencies to say get your plans, make 
this a high priority. GAO has been great at being the watchdog 
on this, but we are going to miss an opportunity here. And as 
the Comptroller General has said, this is not going to be fully 
implemented under this administration. Let us make sure that it 
actually continues to be a priority. And I really appreciate, 
Gene, again, your work in helping us at least get through the 
definitions and some more transparency. Two hundred and twenty 
different financial systems just in DOD, that is crazy.
    I think we have got a lot of common agreement here. I think 
we have almost all said capital budgets--Senator Kaine has 
mentioned it. I support it. Former Governors, we ought to see 
what we can do there. I would argue that--and I know Senator 
Johnson has talked about this in even a broader scope than I 
have at times. You know, we can debate about what was the 
causation of the deficit on an annual basis. It is coming down 
a little bit. But I think the problem is, although it is about 
to ramp right back up, we should at least acknowledge that the 
total aggregate debt both parties have got their hands on. And 
whether we call it at $18 trillion or $19 trillion at this 
point, you know, this is totally being masked in terms of its 
effect on our economy and the Federal Government operations 
because of unprecedented low interest rates. The factoid of a 
1-point increase in interest, $120 billion, yeah, that is a 
linear equation. It is actually a little bit on the low side 
because the debt rolls over. That is a safe estimate from even 
an accountant's standpoint. And that, you know, spends us a ton 
of dough, and we really need to look at that and, you know, 
remind ourselves that, as we all applauded ourselves getting 
out of town at the end of the year, to Senator King's comments 
about not paying for expenditures we put into law, many of them 
good provisions, $600 billion of permanent tax cuts totally 
unpaid for wiped out most of the benefits we got from 
sequestration.
    I would love to get some specific examples. We all know 
around improper payments and failure to share information 
between particularly in the health and welfare side. Give us 
guidance on how we can--Senator Ayotte was talking about this--
what legislative items we need to do. I know there are HIPAA 
issues and other privacy concerns. But I really hope you give 
us some at least low-hanging fruit about sharing that 
information, not just with you but also that we ought to have 
access to.
    My question is, you know, one of the areas of domain that I 
think is going to get exponentially worse is cyber. And, you 
know, I have got a lot of Federal employees, but the amount of 
angst and anguish still around the OPM data breach is just 
enormous. And I would like you, Mr. Dodaro, to comment a little 
bit. You know, GAO pointed out this around information security 
back in February 1997 before cyber became a big issue. You 
know, I would argue a lot of this is because we have got legacy 
IT systems that we never replace, that we simply patch one time 
after another, making more vulnerability.
    I would also commend everybody's review, there is a group 
that has been stood up called ``18F,'' kind of a SWAT team of 
folks that came from the Valley that are looking about how you 
do acquisition and development of IT systems the way the 
private sector does, particularly, you know, if you think about 
the large enterprises--Senator Perdue mentioned Wal-Mart. You 
know, Wal-Mart has got as complex of IT systems and purchasing 
as any entity in the Federal Government. They do not have--they 
have got some of the same vulnerabilities, but they can renew 
their systems in ways that the Government cannot, and we ought 
to look at that.
    Can you speak for a moment about--my understanding is that 
when you go in and look at information security, you do manual 
audits. You have got kind of qualitative questionnaires. You 
kind of do one-off items. What can we do to help give you more 
tools around the whole information security, cybersecurity 
area?
    Mr. Dodaro. Well, in the last year, Congress passed about 
four different bills on cybersecurity. Here is the fundamental 
problem, though. As you pointed out, we raised this as a 
government-wide issue. It is the first time we ever said 
anything across the entire Federal Government is high risk and 
we did it in 1997. We worked with the Congress to pass the 
Federal Information Security Management Act, and recent changes 
were just made to that act. But Congress has to hold the 
agencies accountable. They do not have in place agency-wide 
information systems that provide the proper amount of security, 
risk assessments, how to mitigate risk, and how to provide 
awareness to their employees.
    A lot of the risks are employees accidentally clicking on 
links that they should not that downloads malware, or they bite 
on phishing expeditions by hackers and give up information. The 
agencies do not have good risk mitigation approaches in all 
cases--or remediation plans for how they are going to fix the 
problems, contingency plans, and also deal with the legacy 
systems.
    Some of these legacy systems are decades old, and we are 
producing a report right now. We are working on an audit where 
we are listing the longest, oldest systems in the Federal 
Government. It will be a great surprise to a lot of people in 
terms of how old these systems are. This was before security 
was brought in, built in up front into these systems. Agencies 
also need continuous diagnostic and monitoring efforts. DHS is 
giving them some additional tools and techniques. They need 
additional talent in the agencies. The personnel classification 
approaches for cybersecurity analysis is not contemporary and 
up to date in order to make it easy to hire some of these 
people, and they may need some additional authorities.
    But it is a management problem. There are technical issues, 
but it is largely a management problem.
    Senator Warner. My time is up, but Chairman Johnson did a 
good job in terms of taking some ideas that we had from the 
intel community to give on the dot-gov regime DHS the same 
ability to enforce that NSA has on the dot-mil side. I mean, 
one of the remarkable things that came out after OPM was a lot 
of the Federal agencies had basically ignored any of the advice 
from DHS.
    Mr. Dodaro. Right, and we had suggested that that be 
clarified. And one point I might make, if I can, Mr. Chairman, 
on the issue about working on a bill on the national hire 
database to share information, we have been working with 
Senator Tester and Senator Sasse. So if anybody wants to work 
with them, we would appreciate it.
    Chairman Enzi. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    You know, part of the problem is GAO does great work, 
issues all these reports. The Inspectors General do great work, 
issue all these reports. OPM had those studies on their 
information technology systems, how high risk they are, and 
they just ignored it. And that is part of the problem.
    The solutions in terms of management, providing 
information, you know, instituting controls, like Senator 
Perdue was talking about, Wal-Mart has got to have an audit. 
They have financial systems that work. So these things are 
available. We are just not accessing them in the Federal 
Government. That is certainly what drives me nuts.
    Something else that drives me nuts, every time I hear that 
Congress has the power of the purse, I want to talk to you a 
little bit about that, because that is one of the controls that 
we have given away.
    Last year, 62.3 percent--no, 68.3 percent of the Federal 
Government expenditure was mandatory. It is not appropriated; 
it just is mandatory. So less than a third of the Federal 
budget is actually appropriated and under some level of 
control, but even then, we noticed when the Government shut 
down in October, did you ever do any study in terms of exactly 
how much the Federal Government actually shut down when we were 
supposedly shut down?
    Mr. Dodaro. Yes. Yes, we did.
    Senator Johnson. So how much actually shut down?
    Mr. Dodaro. Well, a good bit of it, but it was not as big 
of an impact as I think people estimated it to be because some 
agencies were reinstated during the shutdown. There were some 
disruptions with grants and contracts and other things.
    Senator Johnson. But, again, you have got more than two-
thirds mandatory that got spent. The Department of Defense, 
because it is essential, that continues to go, the Department 
of Homeland Security. The agency spending tied to the 
mandatory, there have been decisions that say that is also 
spent. So, you know, I have always thrown out probably less 
than 10 percent of the Federal Government actually shut down. I 
know there were some wayside rests in Wyoming that they chained 
off. We shut down the World War II Memorial.
    So the bottom line is we do not have that control anymore 
because we do not have the budget really on budget. We have so 
much off budget.
    Wouldn't that be also one of those common-sense reforms in 
terms of management to put the Federal budget on budget so that 
everything has to be appropriated every year?
    Mr. Dodaro. I would certainly think that that would be a 
way to exercise better control. Offhand, I do not see any 
downside to doing that. I think it would impose greater 
discipline on some of these other programs, but I also think 
that the Congress should set some policies on how much 
borrowing collectively we should do as a Nation and then from 
there allocate the resources.
    And I agree, even on Medicaid, for example, right now the 
CMS at HHS is approving waiver demonstrations to allow States 
to experiment. Almost a third of the spending now on Medicaid 
went around the Congress because of that. And these 
demonstrations were supposed to be budget neutral, but they 
were not when we looked at them.
    So I think there is not adequate control by the Congress on 
a great deal of these activities.
    Senator Johnson. Have we discussed multiple-year budgeting 
here? I know I was out for votes. I think another excellent 
idea is a 2-, maybe even a 3-year budget. This is such a 
massive entity. Certainly if we bring more things on budget, 
you need a little bit more time to thoughtfully appropriate and 
then really go back and audit and do those types of controls.
    I did want to get to the tax gap just quickly. Do you have 
a basic breakdown of that $385 billion tax gap? Where is it all 
coming from? Is it individual? Corporate?
    Mr. Dodaro. It is across the board. It is all the taxes, 
individual, corporate, estate taxes, payroll taxes.
    Senator Johnson. Do you have a basic breakdown?
    Mr. Dodaro. The basic breakdown is that 84 percent of it 
comes from underreporting, and most of the underreporting is in 
individual income taxes, mostly for self-owned businesses, 
partnerships, and others. Most of the gap occurs in all taxes 
where there is not withholding at the income source. Generally 
speaking, where you have withholding at the income source, you 
do not have problems. But in these other areas, you do have 
problems. Ten percent of it comes from people who are properly 
assessed, but they just do not pay. And then about 6 percent of 
it is from people who do not file at all.
    Senator Johnson. Okay. A last point, going back to the 
Department of Defense. You did talk about things like estimates 
of environmental liability, anti-deficiency, you talked about 
$1 billion. Do you have some sort of sense of the close to $600 
billion defense budget, how much is actually accounted for and 
what percent really are some of these other issues that end up 
providing a qualified opinion?
    Mr. Dodaro. Very little. I mean, the military pensions can 
pass the test of an audit. They have in the past. Some of the 
smaller components, I think the Corps of Engineers and a couple 
others, offhand I would say it is less than 10 percent.
    Senator Johnson. That is----
    Mr. Dodaro. That are passing an audit.
    Senator Johnson. Okay, so, yeah, it is a massive problem.
    Mr. Dodaro. Yeah, it is a big problem. None of the major 
services have ever been able to pass an audit. So it is not 
anywhere near close to being solved.
    Senator Johnson. Among many things, coming from the private 
sector, that I find unbelievable in Government, that certainly 
ranks right up there at the top. Like Senator Perdue was 
saying, if Wal-Mart can do it, why not the Department of 
Defense?
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Do either of you wish another chance here? Senator King.
    Senator King. Again, following up on the question about 
unpaid taxes, do you have any estimate of what it would cost to 
collect those unpaid taxes? In other words, for $1 of 
additional enforcement or accounting or whatever in the IRS, 
what would we collect?
    Mr. Dodaro. Well, the IRS has estimates. I think it is $5 
for every $1 put into an enforcement program. But, we think 
they could do a better job with the resources they currently 
have and how they allocate them. They do not really have good 
return on investment information about the different 
enforcement techniques that they have, like correspondence 
audits versus detailed audits. We have encouraged them to get 
better information.
    But here are a number of things we have suggested where 
Congress could help. One is we think Congress ought to pass 
legislation to allow IRS to regulate paid tax preparers. A lot 
of people rely on paid tax preparers. We found problems in 
limited studies that we have done, like we have sent undercover 
agents to 19 paid tax preparers. Only two gave us the right 
answer. And some of the other ones were so far off it would 
have cost, you know, penalties and interest. IRS data show that 
the paid tax preparers make errors in the earned income tax, 
which leads to some of the problems in improper payment in that 
program as well.
    We think Congress could give IRS better math authority 
where they could match against administrative records and fix 
things right away without having to do an audit, without having 
to impose burdens.
    Electronic filing could help as well. We suggest Congress 
lower the threshold of required businesses to provide 
information electronically to IRS. They could use third-party 
information a lot more effectively to match against the records 
to collect better tax information.
    So we have a long list of----
    Senator King. If you could supply that list for the record, 
I would appreciate it.
    Mr. Dodaro. I will do that.
    Senator King. Thank you.
    I think one of the points--and you have made this in your 
chart, again, going back to page 31, the alternative is health 
care. Most of that upward line is health care. And we can argue 
about who should pay it. In other words, should it be all 
Medicare? Or should it be partially? You know, there are all 
these proposals. But the bottom line is unless we deal with the 
underlying growth of the cost of health care, that is going to 
eat us up. It is going to eat up the whole rest of the budget. 
If you assume--if you see these numbers going up and you assume 
we cannot tolerate that level of debt, something is going to 
have to give, which is going to be the discretionary budget at 
the bottom end. We need to be thinking, as the largest consumer 
of health care in the country--I am sorry, not consumer but 
payor. We need to be thinking about how to get better value for 
the dollars that we are spending in terms of maybe more dollars 
for prevention and those kinds of things. But health care is 
the big driver here.
    Mr. Dodaro. No question about it. Health care, along with 
the demographics. The demographics are accentuating the--you 
know, on average now between 2029 and today, on average, over 
about 10,000 people in the United States turn 65 every day. And 
so that steady drumbeat of the retirement of the baby-boom 
generation, combined with health care costs, are really the key 
drivers, long-term health care, because eventually the 
demographics will even out.
    Senator King. I noted there were a couple of places in your 
testimony where you used the word ``talent,'' ``insufficient 
talent.'' And, again, it could well be a management problem of 
allocating talent and the personnel in the right and proper 
way. But in many cases, we do not have the people to do the 
necessary processing and work to adequately account or control 
expenditures or collect revenues.
    Mr. Dodaro. Right.
    Senator King. I think we shortchange this whole process by 
saying, well, we are going to reduce the size of the Federal 
Government. But in reality, it is costing us money because we 
do not have the personnel to keep up with the demands.
    Mr. Dodaro. Yeah, I am very concerned about the Federal 
workforce. We have had it on our high-risk list since 2001. 
There are critical skill gaps in many different areas--finance, 
cybersecurity, acquisition. You know, we are not getting our 
dollars on procurement deals properly returned to us. And with 
the impending retirement of the baby-boom generation, I think 
it is going to make the skill gap even potentially more 
difficult.
    Now, it presents a good opportunity if the agencies are 
ready to hire people with the necessary skills, because the 
need has changed over time.
    Senator King. Right.
    Mr. Dodaro. We have gone to using more contractors, but we 
have not adjusted to make sure we have the people that can 
manage and oversee the contractors. We are using more 
information technology, but we are not, you know, adjusted 
there as well. We have imposed requirements for financial 
audits but do not have the people--you know, a lot of people in 
the Defense Department have never been through a set of audited 
financial statements to know how to be able to do this.
    So the workforce is a big concern to me, and I think you 
are going to see potential other Government breakdowns unless 
there is proper attention to this over the next 5 to 10 years 
in particular.
    Senator King. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. I just have one observation and one quick 
question. Thank you again for your forbearance today.
    My experience with the system question goes back to the 
1990s, and as a CEO, I have watched this for the last 20 years 
or so of my career, that with the explosive nature of the 
capability in the IT area, you get what you pay for, but at the 
same time, you can do a lot more than people think they can do 
with existing--and let me just give you an example.
    I do not buy for a minute that we have not spent the 
money--or did not have the opportunity to spend the money 
inside the Federal Government to have world-class control 
systems. I am sorry, but I will give you one example. The State 
Department--and this is not a partisan comment because this 
goes back through three Presidencies. But if you look at the 
year 2000, we were spending about $20 billion a year on State 
Department only, and that includes USAID, everything. The last 
few years, we are spending $54 billion. Now, a lot of that 
increase happened during the Bush administration, so this is 
not a partisan comment about the current administration.
    You cannot convince me that inside $54 billion that 
organization could not have the absolute best, world-class IT 
systems available. It is not a priority. And that is a question 
of management throughout--across several Presidencies. That is 
just an observation.
    Secondly, I would like to get your estimate right now what 
you think our net assets are in the Federal Government, just 
ballpark. I know they are not auditable. But what do you think 
the net assets are, all in?
    Mr. Dodaro. I think on the financial statements it is 
about--what is it, about $3 trillion?
    GAO Staff. Net deficit is 20----
    Mr. Dodaro. Not the deficit. The assets.
    Yeah, it is $3 trillion, $3.2 trillion.
    Senator Perdue. $3 trillion.
    Mr. Dodaro. Right.
    Senator Perdue. And our net liabilities, if you were to 
take just the 30-year amortization of our future unfunded 
liabilities, what would that ballpark number be? I know Senator 
Johnson has done a good bit of work with, I think, CBO.
    Mr. Dodaro. Right.
    Senator Perdue. Maybe even GAO has got some estimates.
    Mr. Dodaro. Right. Well, the financial statements show, you 
know, $21 trillion. We have many more liabilities than assets.
    Senator Perdue. No; I understand. But I am a little 
confused, because if you just look at the Social Security and 
Medicare liabilities over 30 years, it is much bigger than $21 
trillion.
    Mr. Dodaro. Yeah. There is a separate statement of social 
insurance in the financial statements. The amounts for Social 
Security and Medicare are not considered liabilities because 
the Congress can change those processes. But if you add 
everything--that is why we have the statement of social--you 
know, sustainability over time that shows that basically, you 
know, you have a huge gap, a fiscal gap.
    Our simulations show that if you wanted to hold--this is 
the best way I know how to explain the magnitude of this issue. 
If you wanted to hold debt held by the public as a percent of 
gross domestic product at 74 percent, which it is now, which is 
much higher than the post-World War II----
    Senator Perdue. The problem is that what is held by the 
Government is growing faster than what is held by the public. 
And so I would argue that is kind of a moot point, that is a 
side----
    Mr. Dodaro. Well, no, but that--the intergovernmental trust 
funds are going down, intergovernmental holdings, because we 
are spending the money out of the Social Security Trust Fund to 
keep it going.
    Senator Perdue. I understand.
    Mr. Dodaro. But if you wanted to just hold that and stay at 
the debt held by the public that we are right now, you would 
have to increase revenues by 35 percent on average every year 
for the next 75 years or cut expenses by 26 percent under the 
current----
    Senator Perdue. Right. But this is my--and I will just 
submit this. I think the characterization that $3 trillion in 
assets and $21 trillion in liabilities is not the full picture 
based on what you just said, but I do not know whether the 
number is 100--I have seen numbers over $100 trillion, $125 
trillion in terms of future unfunded liabilities, and I do not 
think many people would argue with that directionally being 
correct.
    Mr. Dodaro. Right.
    Senator Perdue. I would then argue that the assets are much 
bigger than $3 trillion, if you look at what the United States 
Government actually owns--lands, resources, all that--and I 
have never seen an estimate of what that could be. And, 
honestly, I think one of the things that is missing here is we 
talk about this from a cash accounting point of view and an 
income statement point of view, and not a balance sheet 
perspective in terms of dealing with debt. Debt to me has 
always been a balance sheet issue. You fund it and service it 
through your income statement, but you actually deal with it on 
the balance sheet.
    So this goes back to today's whole hearing, and I thank you 
so much, Mr. Chairman. You know, I just think we have got to 
get a picture of this. So I would encourage us all to have a 
much more rigorous understanding of what our net assets are and 
what our--pick a year--30-year summary of total liabilities are 
so we can actually see whether we are insolvent or not. I mean, 
if it is 3 and 21, if that were the real number--which I do not 
think either one of those is right--it just highlights how 
serious this problem is.
    Mr. Dodaro. Yeah, well, if you look at the total set of 
financial statements in the audit, those are just the accrual 
base balance sheet. That is why we added the statement of 
sustainability over time.
    Senator Perdue. Right.
    Mr. Dodaro. There you get a clear picture that things are 
not sustainable over a period of time and what the magnitude of 
the fiscal gap is and the structural imbalance between revenues 
and expenditures.
    Senator Perdue. So if I were to bring you a public 
corporation that had assets of $3 trillion in liabilities and 
21, if those numbers were correct--which we have already agreed 
they are not. But if they were and you got an annual loss of 
revenue on your--or income, profit on your income statement, 
let us just take today's number of $450 billion. And we know--
the Senator is right--that these numbers are going up 
dramatically, projected. The CBO projects that we will add 
another $9 to $10 trillion to the Federal debt over the next 10 
years. Would you argue that that is in a crisis situation?
    Mr. Dodaro. Yes. I have said it is unsustainable.
    Senator Perdue. I know.
    Mr. Dodaro. We are on a fiscal path that is unsustainable, 
and the sooner you take action, the better in terms of allowing 
people to adjust over time and adjustments to the economy over 
time. I mean, I think this is a very serious problem. I have 
said that for a number of years. And it will get more serious 
as time passes.
    Senator Perdue. So it is bigger than just the accounting 
issue, and I think you have called that out in this Committee 
before.
    Mr. Dodaro. Right.
    Senator Perdue. And I applaud you for doing that.
    One last thing. You were the first agency, I think, to 
really get a handle on redundant agencies. A few years ago, you 
put this great report out. Senator Coburn took it and went to 
work on it, and I have not heard a lot of updates on that. But 
I remember the number being as high as somewhere between $300 
and $400 billion of redundant agencies.
    Has your agency, has the GAO had an update on that in the 
last year or two?
    Mr. Dodaro. Yes, we have had annual updates, and we are 
coming out next week with our sixth report.
    Senator Perdue. Okay. That was my question.
    Mr. Dodaro. That will be out next week.
    Senator Perdue. So what is the answer?
    Mr. Dodaro. The answer is so far enactment of our 
recommendations and our last update was about $100 billion that 
has been saved so far or will be saved. But there is more on 
the table.
    Senator Perdue. No, I know. That is the question I am 
asking.
    Mr. Dodaro. Yeah.
    Senator Perdue. So good on you and good on the Federal 
Government to get $100 billion out.
    Mr. Dodaro. Right.
    Senator Perdue. What is remaining?
    Mr. Dodaro. Well, there is tens of billions. I mean, it 
depends on what the Congress does. It is at a minimum an 
additional $70 billion, and it could be more, likely more.
    Senator Perdue. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you. I appreciate everybody's 
participation in this. I particularly want to thank Mr. Dodaro 
for his expert testimony. Of course, your full statement will 
be a part of the record, and we hope that you will be open to 
answering some written questions as well. The questions for the 
record would be due by 6:00 p.m. with a hard copy delivered to 
the Committee clerk in Dirksen 624, if anyone wants to do that.
    I would note that one of the things that I have discovered 
as I have been going through this budget process is that the 
budget and the appropriations and the President's budget and 
Treasury's accounting all use different formats. And what I 
have also found out is that that is intentional. It makes it a 
little harder to follow the money. Somehow we have got to solve 
that. But I want to thank you for all of the suggestions that 
you included in your testimony. We will go through those as 
well.
    Thank you, everybody, for your participation. If you have 
any suggestions on budget reforms, get them to me. We are going 
to have three more hearings this month yet, and then hopefully 
have some kind of a bill that we can hopefully get through in a 
bipartisan way. As I mentioned before, this is the time to do 
it, when nobody knows who the majority will be or who the 
President will be, so we can all be responsible.
    Thank you. The meeting is adjourned.
    [Whereupon, at 12:04 p.m., the Committee was adjourned.]
    
    
 
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           BUDGETING FOR OUTCOMES TO MAXIMIZE TAXPAYER VALUE

                              ----------                              


                       WEDNESDAY, APRIL 13, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:31 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Ayotte, Perdue, 
Whitehouse, Stabenow, and Kaine.
    Staff Present: Eric Ueland, Republican Staff Director; 
George Everly, Chief Counsel; for the Minority: Joshua Smith, 
Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call to order this 
hearing. It is the second hearing in a series this Committee is 
holding on America's broken budget process.
    Everyone here already knows what the problems are. Our 
congressional budgets are no longer governing documents and are 
increasingly ignored, leaving the country without a long-term 
plan. When we actually do our appropriations bills, they are 
months late, increasing uncertainty for agencies and 
businesses, and 70 percent of the budget is operating on 
autopay and will eventually bankrupt the country if Congress 
does nothing.
    It is long past time for a serious, constructive 
conversation about how we fix our broken budget process. I am 
looking forward to working together to explore new and 
innovative approaches to how we allocate our Government's 
limited resources.
    Last week, we heard from the Comptroller General that the 
Federal Government cannot even tell us all the assets we own. 
Congress rarely, if ever, actually looks at what happened to 
the money we have already spent. Instead, we are constantly 
focused on how to spend this year's new money.
    When Congress spends money on a program, it should also 
spend time understanding how effective that program has been in 
the past and what resources are devoted to that goal with an 
eye to successful outcomes and the highest value for taxpayer 
dollars.
    Today we will discuss different approaches to budgeting and 
oversight that inject this much needed information into 
Congress' resource allocation decisions. Unfortunately, our 
current budget process encourages incremental, isolated 
decisionmaking that focuses on spending rather than results.
    Our main budget tool is a baseline that locks in current 
policies. This forces an incremental approach to budgeting that 
results in only marginal changes to funding levels. Congress 
frequently ends up debating how much more or less funding a 
particular program should receive compared to the baseline 
rather than whether the funding that program has already 
received leads to the desired outcome.
    The budget process also lacks a mechanism to prioritize 
funding for policy goals across different Government programs. 
The Government Accountability Office, GAO, has been warning us 
for years about the growing number of duplicative, overlapping, 
and fragmented Government programs. Many of the problems 
highlighted by the GAO stem from the fact that our budget 
decisions are made within silos within Federal agencies and 
congressional committees whose jurisdictions overlap. This has 
led to an unmanageable mess of competing programs and 
bureaucratic inefficiencies.
    Take international food aid, for example. The Federal 
Government spends billions of dollars each year on programs 
intended to reduce world hunger by providing food commodities 
and educating local and regional farmers in low income 
countries. Instead of reforming existing programs, the 
Government creates new ones, more of them, increasing 
inefficiencies, increasing duplication and fragmentation within 
and across agencies.
    If you look at the chart on the screen, you will see how 
the Federal Government has approached its goal of reducing 
world hunger. The blue circles show 12 different Federal 
agencies that work toward this goal. The green circles 
represent the 16 different Federal programs with its own source 
of funding, all meant to reduce global hunger. That is 12 
agencies controlling 16 different programs, all trying to 
accomplish the same goal.


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    Oxfam America estimates that 59 cents of every dollar meant 
for food goes to outdated regulations and program 
inefficiencies, wasting up to $471 million each year. A better 
budget process would have streamlined these programs by 
focusing on the overall goal, thereby cutting waste and 
achieving better outcomes.
    Another example of duplication and overlap is Federal 
housing assistance. The chart on the screen shows you 20 
Federal entities that oversee 160 different housing programs 
and tax preferences devoted to promoting homeownership and 
affordable rental housing. The blue circles represent all the 
different agencies that are devoting resources to this goal. 
The programs are not included because there are so many of 
them, we could not fit them on the screen. These initiatives 
cost the Government $170 billion in 2010. GAO found that many 
of these 160 programs overlap and that money could be saved by 
consolidating and streamlining them. Agencies could be doing 
more with less, helping more people to purchase their first 
home or to find their family a better place to live. But by 
acting inefficiently and spreading its resources across so many 
programs, each of which, of course, needs managers and 
assistants and secretaries and so on, the Government is not 
maximizing the good it intends to do. By changing the way we 
think about budgeting, we can make Government more effective 
and efficient and better able to serve our constituents.


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    Finally, the budget process does not set goals or ask 
whether Federal funding accomplished what it was supposed to. 
We budget by looking at the inputs for each individual program 
rather than all the resources devoted to achieving a particular 
goal. So, essentially, Congress does not even have a good way 
of knowing whether the money it previously spent was effective 
at achieving the policy goal.
    This problem has been exacerbated by the growing share of 
mandatory funding in the budget. Mandatory programs operate on 
autopay without the need for congressional review. So there is 
absolutely no connection between funding decisions and program 
performance. Given that this spending often continues in 
perpetuity, there should be a formal mechanism to ensure that 
taxpayer money is being spent wisely. There really ought to be 
some kind of criteria, too, for why we make a program 
mandatory. One of those criteria might be that it has its own 
source of revenue, such as Social Security.
    Our budget process should help us allocate taxpayer 
resources to produce desire policy goals effectively and 
efficiently. To make these decisions, Congress and the agencies 
need to know at least two things:
    First, we must have a detailed accounting of all of the 
resources that are being devoted to a particular policy goal 
and how those resources interact with each other. In other 
words, a decision to fund a certain program should be informed 
by all the other programs and resources already devoted to that 
goal.
    Second, decisionmakers need to know whether programs are 
performing effectively and whether they are achieving the 
desired outcomes. The program with the best performance should 
receive more funding, and poorly performing programs should 
receive less or maybe none at all. The Government Performance 
and Results Act, as recently amended, provides a good starting 
point for this analysis, but the information provided under 
that act needs to be connected to congressional and executive 
decisionmaking.
    This Committee has an opportunity to fundamentally 
reexamine the way Congress and executive agencies allocate 
resources. It is time for a better budget process, one that 
maximizes values received from taxpayer dollars. And I look 
forward to working with my colleagues. I think that this is the 
only time in the next 4 years we are going to be able to make 
the kind of changes that we need to make, and that is because 
at this point in time no one knows who the next President is 
going to be and no one knows who the majorities are going to be 
in Congress. So both sides should be willing to act and to act 
reasonably, and I look forward to working with that, and I look 
forward to working with my colleagues to explore these new 
ideas on how to make our budget work more effectively and 
efficiently.
    Senator Whitehouse.

            OPENING STATEMENT OF SENATOR WHITEHOUSE

    Senator Whitehouse. Thank you, Chairman Enzi, and I 
appreciate your comments. I would say that there may be valid 
reasons why some programs are separated out. You used the 
example of housing programs. In Rhode Island, we have a problem 
of veterans' homelessness that I think we share around the 
country. When you are dealing with veterans, I think you are 
probably actually better off working with veterans' 
organizations and working with veterans' funding and working 
with the Veterans Administration. So the fact that there is a 
special program for housing for veterans to me is not a sign of 
weakness, necessarily, and I think as we look at this, we need 
to bear those common-sense distinctions in mind.
    I appreciate very much your attention, Mr. Chairman, to 
budget process reforms, including proposals such as portfolio 
budgeting, which is the focus of today's hearing. With major 
policy areas such as higher education and oceans and coastal 
resiliency spanning the jurisdictions of multiple Senate 
committees, the Budget Committee may be able to play a valuable 
role in offering big-picture recommendations to improve 
outcomes and make Federal investments more efficient. I look 
forward to hearing on that subject from our witness panel.
    I know also that the Chairman has been working hard on his 
own proposal to move to a biennial budget process, a reform 
that has long garnered bipartisan interest. While many 
Democrats, including myself, would be open to a budget 
resolution that spans 2 years, I believe there is far less 
support for shifting to a 2-year appropriations cycle, 
particularly among appropriators.
    I also want to note that Democrats on this panel would 
likely oppose any proposals that would put defense 
appropriations on a different schedule from the bills that fund 
education, housing, health care, veterans' benefits, and other 
vital domestic programs.
    I hope this Committee will be able to craft bipartisan 
biennial budgeting legislation that considers these concerns. 
Given that it does not seem our Committee will produce a budget 
resolution this year, we could use this time to evaluate budget 
reforms that could make the process smoother in future years.
    In addition to biennial budgeting, there are a number of 
other proposals I outlined earlier this week in a letter to the 
Chairman, which I would ask unanimous consent to put into the 
record.
    Chairman Enzi. Without objection.
    [The letter follows:]
    
    
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    Senator Whitehouse. This has largely transpired because the 
Senate has moved from being an ordinary majority vote body to 
being an ordinary super majority vote body in which, as 
Majority Leader McConnell has said, if it is important, it 
needs 60 votes. Well, the budget is important, and the 
appropriations bills are important, and they tend to need 60 
votes, which makes the 60-vote penalty threshold for violating 
the budget a complete moot penalty. And it disables the effect 
of this Committee, and that is one reason that we always meet 
here with lots of empty chairs, and everybody knows the 
Committee really does not matter much any longer.
    So here are some suggestions to help us run a little 
better.
    First, we could tighten up the reconciliation process to 
ensure that this procedural shortcut can only be used to 
actually reduce the deficit. In 2009 testimony before this 
Budget Committee, the late Senator Robert Byrd said, ``The 
reconciliation process was designed to facilitate legislation 
to reduce deficits. Instead, the process has been used to enact 
multi-trillion-dollar tax cuts that led to record deficits over 
the last 8 years.'' With a short and simple clarification, we 
can ensure that reconciliation will focus on the deficit.
    We could also review Budget Act points of order to ensure 
that they are working as intended to enforce the budget 
framework. I have seen potential Budget Act points of order 
hold up non-budgetary legislation over de minimis violations. 
Budget enforcement tools are important, but they should be used 
to maintain discipline on deficit spending, not to hamper 
legislation generally.
    We could also improve the transparency of the Committee's 
budget resolution by requiring proposed spending cuts or 
increases in our budget to be assigned to specific committees 
of jurisdiction, or perhaps in some cases even to actual 
programs. If a budget proposes deep spending cuts, the American 
people could better understand what that would actually mean.
    Another area that I believe is ripe for bipartisan 
legislation is the debt ceiling. According to GAO, last minute 
debt ceiling brinkmanship can be costly. The agency estimates 
that just the threat of default increased borrowing costs 
during the 2013 impasse by tens of millions of dollars. Leader 
McConnell crafted a thoughtful solution to this problem, a 
temporary version of which allowed President Obama to avoid a 
debt default, subject to a congressional vote of disapproval. 
We could work on a bill to make the McConnell rule permanent, 
perhaps tying it to the deficit numbers in the budget 
resolution.
    Finally, if we are interested in a smoother budget process, 
we could address the foolishness of the annual budget vote-a-
rama and its pandemonium of late-night voting. Any number of 
reforms could help bring some sanity to the process while still 
protecting the rights of the minority party.
    For instance, each side might be permitted roll call votes 
on a fixed number of amendments, say ten amendments each, with 
an additional five side-by-sides. With a fixed number of votes, 
floor managers might be able to spread them throughout the 
week, assuring Senate consideration of the budget resolution at 
a reasonable time and in a reasonable manner. The budget 
process need not every year devolve into partisan pandemonium.
    These are, of course, just a few reforms we might consider 
pursuing in what is shaping up to be an unofficial off-year 
without a budget resolution.
    I once again commend Chairman Enzi for his attention to 
process reforms, and I look forward to working with him on 
bipartisan legislation.
    Chairman Enzi. Thank you, Senator Whitehouse.
    I think we all agree there are some serious problems the 
way Congress exercises its tax and spending powers, and fixing 
America's broken budget system needs to require some innovative 
approaches and tough decisions, and you just named a number of 
them. So I am confident that there are some solutions out there 
that we can work together on.
    Senator Whitehouse. And I am confident that there are 
others as well that other members of the Committee would be 
happy to share.
    Chairman Enzi. And that is what I am hoping will happen, 
partly as a result of the hearings, and that is why the 
hearings we are having this month will be designed to find out 
more about what is being done and what could be done. And I 
think we have some great people here today that will help us 
with that.
    We have Dr. Paul Posner, who is the Director of the 
Graduate Public Administration Program for George Mason 
University and leads the university's Center on Public Service. 
He is the past president of the American Society for Public 
Administration and is a board member for the National Academy 
of Public Administration. He is also currently co-chair of the 
National Budget Roundtable.
    Ambassador Maurice McTigue is a vice president of the 
Mercatus Center at George Mason University. He is a former 
cabinet minister and Member of Parliament in New Zealand. That 
is one of my favorite countries because it is usually 
abbreviated as ``NZ''. [Laughter.]
     I have some ties that have that on them.
    He pioneered innovative approaches to budgeting that helped 
reform his country's public sector. He also served as advisor 
to the Office of Management and Budget during the Clinton and 
Bush administrations on issues of accountability and 
transparency and has consulted with legislators and Governors 
in more than 30 States.
    Our third witness is Dr. Roy T. Meyers. He is a professor 
of political science and public policy at the University of 
Maryland, Baltimore County. He worked previously for the 
Congressional Budget Office and is currently a fellow at the 
National Academy of Public Administration.
    I thank all of you for joining us today. One of the things 
that we also traditionally do, partly because members have a 
number of obligations and sometimes are not here, I appreciate 
the testimony that you presented that we can all look over. 
Sometimes more can be absorbed by reading than by listening. We 
are not known for our listening. And at the conclusion of this, 
I will be announcing that they can turn in written questions, 
which we would appreciate you answering as promptly as possible 
as well.
    So, Professor Posner.

STATEMENT OF PAUL L. POSNER, PH.D., DIRECTOR OF GRADUATE PUBLIC 
   ADMINISTRATION PROGRAM, SCHOOL OF POLICY, GOVERNMENT, AND 
         INTERNATIONAL AFFAIRS, GEORGE MASON UNIVERSITY

    Mr. Posner. Thank you, Mr. Chairman, Senator Whitehouse, 
Senator Perdue. I am pleased to be here to share my views on 
the way to move to a more strategic way to allocate resources 
within the congressional budget process. You have testified far 
more eloquently than I can about the broken budget process. 
What I want to do is focus today on what I think is the role 
the budget process can play in changing our focus in budgeting 
away from the line items and the like to a broader view of what 
is the purpose for which we are allocating resources. How could 
we make those allocations in a way that is more mindful of the 
outcomes we are trying to achieve?
    Today, for the most part, in the budget process we have a 
variety of programs that are located in different committees, 
in different sectors of the budget. Tax expenditures, spending, 
regulations, and like--all of them are walled off from one 
another. There is no comprehensive way to compare claims in 
areas like food safety, job training, and the like where there 
are so many programs that compete for funding.
    In my statement today, I provide a vision for beginning to 
deliver on what was the original promise in the 1974 act, which 
was to try to provide a more comprehensive prioritization of 
limited resources for the Nation. I do this knowing that it is 
going to be very difficult for any reform in this Congress, or 
any Congress, really, to go through. But I do this knowing that 
at some point we are going to have to make hard choices again. 
Perhaps not today but at some point in the future, knowing the 
long-term projections of CBO, GAO, and others, we are going to 
make hard choices, and it is better to have approaches to 
rationalize those choices on the shelf that have been discussed 
in forums like this rather than to do so in the heat of a 
crisis.
    And basically what I am suggesting is Congress dip its toe 
in the waters of prioritization through what I and my co-author 
of the concept here, Steve Redburn, call ``portfolio 
budgeting.'' This is not zero-based budgeting where we put 
everything on the table and try to make sense of it all at 
once. It is not even performance budgeting where everything 
gets measured. It is more selective and focused, and it kind of 
embodies the spirit of what David Stockman used to say: 
Budgeting should be about ferreting out weak claims, not weak 
claimants. Compare comparable programs in different areas and 
make the wisest choices based on which programs are the most 
cost-effective way to use resources.
    Essentially what we are doing is what other nations in the 
OECD call ``program review.'' Almost every nation does it. 
Australia, New Zealand, Netherlands, Canada do a selective 
review of portions of the budget focused on common goals. In my 
testimony, I talk about higher education and housing as two 
case studies where each area is rife with subsidies from the 
tax and spending side across different committees and programs 
that have really never been pulled together and rationalized to 
address common issues. And that is the kind of thing that I 
think the promise of portfolio budgeting gives us.
    It is very difficult to look at any program and find that a 
single program encompasses the sum of Federal activities. For 
almost everything the Federal Government does, there are many 
different programs that are fragmented across the board. And so 
portfolio budgeting gives the opportunity to take a look at 
those systematically, weed out the ones that are most 
inefficient, identify programs that are contradictory of 
redundant, and reprioritize.
    One example of that would be the flood insurance programs 
and disaster relief where, on the one hand, we are trying to 
get people to ensure properties for flood; on the other hand, 
we are being so generous, we are letting people occupy 
hazardous lands that eventually set us up for extraordinary 
costs in disaster relief. So it is a way to kind of take stock 
of our programs.
    In some ways, the portfolio budgeting process is a way for 
Congress to seize the high ground from the executive, which 
frequently looks at policy reviews. The program rating tool 
that the Bush administration used, for example, looked at every 
program in the budget, and they applied a common tool to 
assessing how well those programs were doing. That was a very 
exhaustive way to do this process, but it did not really group 
programs together against common objectives, and that is, I 
think, what we are talking about here.
    It may seem that what we are asking Congress to do here 
might be high-minded but very difficult to do, and certainly it 
is. But I have seen this Committee use task forces before. In 
2000, Senator Domenici was Chair. There were four task forces 
that were formed to look in-depth, deep dives on areas like the 
international assistance account or elementary and secondary 
education.
    I think we can think about that kind of process here again 
with the Budget Committee. To me, the Budget Committee is the 
perfect Committee to look across the different programs and 
tools at these portfolios and do some selective reviews that 
could then be integrated into the budget process. We might call 
it a ``performance-related reconciliation process,'' where we 
take a savings target and we provide it to a task force that is 
looking at higher education assistance, for example, which we 
now fund at $130 billion a year. And we expect that committee 
to come up with some improvements in the program and policies 
as well as some dollar savings that flow from those 
improvements.
    That is the kind of process I have in mind. This Committee 
probably, arguably, should do this in concert with the 
authorizing committees. Ultimately, it may be important for 
this Committee to reconceptualize its role as a leadership 
Committee and stock itself with members, from other committees 
that are leadership committees such as Finance and even some of 
the authorizing committees, to really bring about a holistic 
approach to this problem.
    Thank you.
    [The prepared statement of Mr. Posner follows:]
    
 
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    Chairman Enzi. Thank you.
    Honorable McTigue from New Zealand.

 STATEMENT OF THE HONORABLE MAURICE P. MCTIGUE, VICE PRESIDENT 
FOR OUTREACH, MERCATUS CENTER, GEORGE MASON UNIVERSITY; FORMER 
   CABINET MEMBER AND MEMBER OF PARLIAMENT, NEW ZEALAND; AND 
   FORMER ADVISOR TO THE U.S. OFFICE OF MANAGEMENT AND BUDGET

    Mr. McTigue. Good morning, Senator Enzi, and good morning, 
Senator Perdue. And, Senator Enzi, given your name, we may well 
be able to organize for you complimentary citizenship. 
[Laughter.]
    I am honored to have been asked to testify before you 
today. The subject of this hearing is about the options for 
changing the budget process to produce better outcomes.
    Two important themes immediately come to mind when 
considering budget process reform, and they are transparency 
and outcomes. This morning I will comment on three issues 
relevant to reforming budget processes: first, the effect of 
process change; budgeting to outcomes; and then overseas 
experiences.
    Changing budget procedures can significantly change the 
incentives that members are subjected to as the budget process 
proceeds. Procedural change would be extremely effective if it 
was to institute a clear linkage between expenditure and 
outcomes. I applaud the passing this week of the new initiative 
on evidence-based policymaking. This is certainly a step in the 
right direction where decisions should be based upon evidence 
rather than on history.
    Process changes will not bring about better budget outcomes 
on their own. Congress needs to make the hard decisions that 
are highlighted by a better budget process.
    Government departments suffer from mission creep, and 
mission creep often is the cause of much duplication. Mission 
creep is a natural dynamic in organizations, and it leads to 
them spreading their activities outside from their core 
business.
    With this mission creep, there is no rigorous comparison of 
the activities targeting the same outcome. That means that the 
budget is buying many services focused on the same outcome with 
varying results, varying costs, and probably denying the public 
an additional benefit that would come from investing in the 
best of those activities.
    A good initiative would be to put a team of the best 
corporate restructuring specialists in the world into every 
department with the express purpose of returning each 
department to its core business and then shifting the 
inappropriate activity to where it belongs, or if it did not 
perform better than other activity, to terminate it. This is 
very much what Professor Posner has just recommended to you 
with his concept of portfolio budgeting.
    Reforms within the legislature should restructure the 
budget accounts and the Budget Committees to align with sectors 
of the economy so that all decisions on a particular outcome 
are taken in the same place.
    There should also be a consequence for not getting the 
budget done. My experiences in parliament and parliaments 
around the world, when you do not get the budget done, there is 
a new election immediately. That certainly means that budgets 
get done.
    Speaking to outcomes, in 1993 Congress initiated a powerful 
reform with the Government Performance and Results Act. The 
purpose of that law was for governments to make budget 
decisions based on results or outcomes. At the Mercatus Center, 
we evaluated every one of those reports from the 24 major 
departments for the first 10 years of GPRA, and we ranked them 
according to the quality of their results disclosure. By the 
end of that period, departments were producing good, actionable 
information on their effect on public outcomes. The sad fact is 
that performance information did not become a tool of the 
appropriation process. The return of departments to their core 
business would greatly aid results accountability.
    Looking at overseas trends, many countries overseas have in 
recent years tried to define ``fiscally responsible behavior'' 
and have then legislated to embed that definition in law. The 
definition differs by country, but the intent is the same in 
every case, and that is, to rein in irresponsible spending and 
taxing and to make transparent to the people the behavior of 
their governments.
    In most instances, the reform of these countries separates 
the budget strategy and policy from the budget numbers 
documents by releasing a strategy and policy document some 6 
months ahead of the budget numbers document, allowing comment 
on strategy and decisions on strategy and policy before the 
numbers come before the legislature. This process, while 
retaining annual budgeting, produces 3- to 4 year out-numbers 
that are firm so there is greater certainty about medium-term 
spending.
    The most dramatic example right now of the effect of 
fiscally responsible behavior is in Brazil where the current 
president is under impeachment for having breached the fiscal 
responsibility law of Brazil. Her breach was that she 
understated the deficit that the nation would face. That 
certainly is bringing a consequence to the process.
    The other case of interest is Ireland where their fiscal 
responsibility law sets up the independent Irish Fiscal 
Advisory Council. The council's job is to comment publicly on 
whether the government is acting in a fiscally responsible 
manner.
    In the case of my own country, New Zealand, after the 
passage of the Fiscal Responsibility Act of 1994, the 
government went from 23 years of deficits to 16 years of 
surpluses. For those countries that have tackled the challenge 
of being accountable for fiscally responsible behavior, there 
seems to be a change in culture.
    Mr. Chairman and members of the Committee, I applaud the 
work that you are doing, the initiative in attempting to reform 
budget procedures, because the evidence shows that much good 
can come from such an initiative.
    Thank you.
    [The prepared statement of Mr. McTigue follows:]
    

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    Chairman Enzi. Thank you.
    Dr. Meyers.

   STATEMENT OF ROY T. MEYERS, PH.D., PROFESSOR OF POLITICAL 
 SCIENCE AND AFFILIATED PROFESSOR OF PUBLIC POLICY, UNIVERSITY 
                 OF MARYLAND, BALTIMORE COUNTY

    Mr. Meyers. Thank you, Chairman Enzi and the Committee, for 
the invitation to testify and particularly for holding this 
hearing. It is a very important topic. I am just going to 
summarize my written testimony, but I want to start by agreeing 
completely with the main point in your opening statement, that 
we need to think about how the budget process can help us 
design, fund, and oversee the programs so that they will 
improve the lives of American citizens.
    So how well is the budget process currently structured to 
do that is the next question, and there are actually some good, 
positive attributes to the current process. We have the 
executive budget. We have used GPRA to increase the level of 
performance management in the executive branch. You are able to 
draw on the expertise of staff, including CBO and GAO. And, in 
addition, you are legislators. You go back home, and you listen 
to your constituents, and you can use those experiences to try 
and understand what their goals are and how they evaluate the 
programs themselves.
    But there is one main barrier to using the process to 
allocate resources to the programs that you want to fund, and 
that is the features of the Congressional Budget Act, in 
particular the segmentation of discretionary and mandatory and 
tax spending from each other. So most of my testimony focuses 
on that.
    You deal with those situations when you try to enforce the 
budget process. Last year, for example, you rightly tried to 
control phony savings from CHIMPs. But, on the other hand, when 
you think about it carefully, you want to be able to have a 
competition between discretionary and mandatory spending, and 
between those types of spending and tax spending. So this is 
why I think the portfolio approach proposed by Redburn and 
Posner should be adopted, and you should experiment with it 
very seriously over the next couple years.
    But I think that is actually only part of the puzzle, that 
you also have to look at how the Congress is structured to be 
able to utilize those performance reviews if they give you good 
information about which programs should be continued and which 
should be stopped.
    Imagine, for example, if you received a portfolio review 
about the foreign aid programs or the housing programs that you 
put on display at the beginning of this session. How would you 
deal with those performance reviews? Could you use a budget 
resolution to tell the committees to rationalize those 
programs? And I think the clear answer is no, the budget 
resolution process is too weak to be employed to force those 
savings. And for that matter, it should not be just about 
savings. It should be about trying to find programs that work 
so that American citizens' lives will improve.
    So then the question is: What could be done to improve this 
process? And I think you are going to have to consider non-
incremental reforms to really make a big difference. I think 
biennial budgeting is actually a very interesting topic and is 
worth considering seriously, but I think it is going to have 
relatively little effect unless you make some other changes.
    So I am going to propose two non-incremental reforms. First 
of all, though, I want to acknowledge that the problems that we 
have with the budget process are not simply because of the 
flaws in the budget process itself. When you are budgeting, you 
are making very difficult decisions, and you have very big 
differences on policy between the parties, and actually 
sometimes within the party. When there is very little trust 
between the parties, that is a big problem.
    So, that is something you just have to acknowledge, but you 
also need to use the budget process to allow you to express 
those differences. This is a democratic system, and you need to 
be able to reflect your constituents' different wishes.
    You can go overboard on that, however. In other words, you 
can continually express their wishes in opposition to each 
other and then not pass bills on time and not eliminate 
wasteful spending and move the money towards more useful 
spending.
    So what in particular I think you should do is, first of 
all, have a serious conversation about how the Committee 
structure in Congress could be revised. And, in particular, 
that would mean collapsing the appropriations and 
authorizations process so that there would be a committee with 
expertise on each sector of the budget--each sector of 
Government policymaking. In other words, you would eliminate 
the Appropriations Committee, but everybody would be an 
appropriator. All the authorizing committees would be 
appropriating in their area of expertise for discretionary and 
mandatory spending and also jointly with the Finance Committee 
on taxes.
    Think about the budget problems that we face now. If you 
look into the medium term, it is the health budget that is the 
most scary, right? There is excess cost growth. That is 
continuing. And we also have very low quality health outcomes 
in this country compared to how much we spend.
    We could have a better way of dealing with that challenge 
of health spending if we had a Health Committee, a committee 
that had jurisdiction over discretionary and mandatory spending 
and tax expenditures.
    Now, of course, there are massive political difficulties in 
moving to that approach, but on occasion, Senators are brave 
enough to propose it. The last time it was considered really 
seriously was in 1993 when Senator Kassebaum, a moderate 
Republican, put together a proposal, and I think you should 
return to that bill, look at it again, and consider it 
seriously. In fact, if you do, I think you would realize that 
it has some potential to deal with some of the problems you 
have described in previous hearings, such as expired 
authorizations and regulatory issues, because, for example, 
that Health Committee would have jurisdiction over regulatory 
policy for health, and it could figure out how those 
regulations relate to mandatory and discretionary spending and 
tax preferences.
    One other point that Senator Kassebaum made back in 1993 
was to rename your Committee the ``Committee on National 
Priorities.'' I think you should take that title and you should 
take that as your mission. And when you think about it, 
sometimes in budgeting we focus far too much on costs without 
thinking about the outcomes of costs or why we are actually 
spending money.
    In the case of the portfolio approach that Posner and 
Redburn proposed, they realized that the executive branch is 
far ahead of the legislative branch in doing this kind of work, 
they would give a push to the executive branch's ability to 
rationalize programs. But your job is also to create value for 
American citizens by accurately assessing conditions in the 
country and the world and by setting goals for programs that 
would seek to improve them.
    So I want to give you one example that I think illustrates 
the limitations of what we do now in both the executive branch 
and the legislative branch, and I am glad that Senator 
Whitehouse is here because it relates to climate change.
    The Obama administration, if you look at the priority goals 
for climate change, is focused on reducing the Federal 
Government's greenhouse emissions.
    We all know that the Obama administration has a much more 
aggressive goal for the whole country to deal with climate 
disruption. Personally, I think that is a great idea, and I 
really appreciate Senator Whitehouse's eloquent and persistent 
advocacy on this issue.
    But whatever you think about climate disruption, that 
should be a big issue that you should be considering when you 
are writing a budget. You should not be wasting your time 
fighting over CHIMPs and lots of points of order on the budget. 
You are the corporate board of America in some sense. You are 
supposed to be setting policy and overseeing how the executive 
branch carries it out, instead of, for example, debating on the 
vote-a-rama or creating a very long list of reserve funds that 
we all know are symbolic.
    So if you want to live up to your image as the world's 
greatest deliberative body, I think you need a better way of 
identifying the goals you have for the country. And I want to 
give you one example of how you could do that.
    I would suggest that you ask the executive branch to 
compile an annual report that you would call ``The State of the 
Nation.'' It would take data about what conditions are like in 
this country, and then with that report, you could evaluate the 
claims and promises made in the State of the Union speech.
    In fact, some States already do something like this. I am 
glad Senator Kaine is here. Virginia Performs, I would 
encourage you to look at that website. It is an excellent 
website that describes the nature of life in Virginia, where 
things are getting better, where things are getting worse, and 
it provides useful input to their own budget process.
    After that report would be released, I think you should 
have a debate about it. Right now you get views and estimates 
reports from the different committees. You can find them on the 
Internet, but it is not very clear that they are used well. So 
I think instead it would be useful to have a couple weeks of 
debate prior to the consideration of the budget resolution 
which would be about the true state of the Nation.
    And, of course, that debate would highlight your partisan 
disagreements. Good. But it also might highlight some 
agreements that are the potential base for a budget resolution.
    For example, President Obama proposed this year a big 
increase in funding for cybersecurity. I have not heard anybody 
say that is a bad idea--or maybe I should rephrase that. I have 
not heard anybody say that we do not have to worry about 
cybersecurity. That should be the kind of debate that you have 
before a budget resolution, and then you can think about what 
policy tools, using discretionary and mandatory spending, and 
tax spending, could help address the goal of improving 
cybersecurity problems.
    So I want to conclude by saying that at this stage of the 
budget process, setting priorities across sections of the 
budget is always going to be your most difficult task. You are 
on the Committee that has the hardest job. There is no question 
about it. And in part because there is not a convenient metric 
for comparing guns and butter, you have to rely on politics to 
resolve some of those differences, and I think that is a good 
idea. Voting is a good idea. Lobbying is a good idea. Elections 
are great. Partisanship, ideology, they are all necessary to 
help set the course of the country. But what we have now is a 
bad politics. We are not--let me rephrase that. We do not have 
a structure in Congress to allow you to make the politics as 
helpful as possible to make allocations across the budget.
    So thank you for giving me the opportunity to testify, and 
I would be glad to answer any questions.
    [The prepared statement of Mr. Meyers follows:]
    

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    Chairman Enzi. Thank you, and, again, thank you for the 
written testimony that all of you have given. That will be a 
part of the record as well.
    I am going to defer to Senator Whitehouse, and that way 
Senator Perdue can have an opportunity to speak before he has 
to leave for a different committee.
    Senator Whitehouse. Would he like to go now? I am perfectly 
happy to yield. Okay.
    First of all, Dr. Meyers, thank you for the compliment. I 
appreciate it. I was just asked to resign--or apologize to the 
fossil fuel industry by a witness in another committee--you can 
hardly imagine which one, I am sure--today, so to have your 
kind words is sort of an offsetting principle. Somewhere in the 
middle I suppose is the truth.
    Your point about cybersecurity I think is significant 
because one of the things that has frustrated the executive 
branch about dealing with Congress on cybersecurity has been 
the fact that the cybersecurity issue touches on--I think they 
used to say to me 38 committees and subcommittees. How do you 
possibly mollify 38 committees and subcommittees as you try to 
make change?
    So if we are going to go into in some fashion the business 
of setting budget parameters based around issues, we may find 
that we have a better case to make against rival committees and 
jurisdictions if we confine ourselves to those issues where the 
substance of the issue is so spread across so many committees 
that it is very hard for anybody to claim that they really have 
guidance over it. I think that concern is one we will have to 
get into gradually.
    The other point that Chairman Enzi has made is that where 
there are multiple programs, we might be a force for trying to 
bring a little bit of more common-sense regularity to them and 
streamline them. And I think in principle that makes sense, but 
as I said about the veterans, there are circumstances where 
doing things through different agencies actually makes 
considerable sense, and I think that is an example. So we would 
have to be watchful about that, and I would be interested in 
the comments of the witnesses on where they feel that--or by 
what standards would you judge what is a sensible 
differentiation versus just duplication and waste? And are we 
on the Budget Committee actually the ones best suited to do 
that?
    The last thing I will say--and then I will give the 
witnesses a chance to respond to that point--is that I thought 
it was very important that the witnesses agreed that you have 
to look at our spending on a more unitary basis, that if you 
look only at budgeted spending and do not look at mandatory 
spending and do not look at tax spending, then you are dealing 
with only a very small subsection of the problem. And I would 
say for my purposes the tax spending is particularly 
overlooked, but also a particularly ripe area for oversight, 
because if you are a wily special interest, you do not go to 
Appropriations to fight for an appropriation every year. That 
is sucker's work. You go to the Tax Code, and you get your 
special interest exception baked in. And once it is in, it is 
there forever, and all you have to do is defend it. And so we 
now have more money going out the back door of the Government 
revenue house through tax spending than we do going out the 
front door through regular cash spending. And we really need, I 
believe, to get our arms around that.
    But in my remaining time, I would ask if any of the 
witnesses have any thoughts about that conundrum of how we pick 
apart on Chairman Enzi's screen which of the 40 programs should 
or should not be. Is that something we have hearings on? What 
are your thoughts on the limitations on just trying to unify 
all these Federal programs?
    Mr. Posner. I will take that first, I think there are a 
couple things.
    One, ideally it would be good, assuming we do not reach the 
restructuring that Dr. Meyers talked about, for this to be a 
concerted initiative between the Budget Committees and the 
authorizers, recognizing that the Budget Committees bring 
something the authorizers do not. You see the whole picture. 
You technically have jurisdiction over tax expenditures, 
regulatory programs, discretionary and mandatory programs. I 
think that is an important thing to look at, whether you are 
looking at higher education, housing, community assistance, 
economic development assistance, any area that really cuts 
across so many committees. I mean, this is the one Committee 
that can at least lay claim to starting. The other thing I 
think----
    Senator Whitehouse. Let me cut you off there.
    Mr. Posner. Yes, go ahead. Sure.
    Senator Whitehouse. Because my time has expired. I am going 
to stay until the end, so we can continue this conversation 
once all the other Senators have had a chance to say their 
piece. But I do not want to cut unduly into Senator Perdue's 
time, so let me ask you to suspend, and I will yield, and we 
can follow the conversation later at the end of the hearing.
    Senator Perdue. Well, thank you for that courtesy. I will 
be brief.
    Dr. Posner, you have given testimony before, and I could 
not agree with each of you more. And I want to commend our 
Ranking Member today, Senator Whitehouse. We are on different 
sides of several issues, but on this issue I think we are 
aligned. I think he has offered up some very thoughtful and 
productive recommendations, and I think this is a process that 
we have got to start.
    Dr. Meyers, I agree 100 percent with you. We have got to go 
big at this point, given the size of the financial crisis and 
the irresponsibility we have seen up here over the last 20 
years--among both parties. This is not a partisan problem. We 
both created it.
    I have two questions, really. I would like to get you to 
speak more about Senator Kassebaum's idea back in 1993 about 
the combination of and the benefits of streamlining this 
process. One of the problems I think we have is that we have a 
budget resolution now that is not a law. It is a resolution. We 
pass it with 51. So the majority crams it down the throat of 
the minority. Then we go to an authorization process, which is 
at 60 votes in the Senate, and an appropriation that is at 60. 
So the minority party is always protected and can just do 
nothing and push us into a non-funding situation at the end of 
the year. This is structural. I understand that. But I know 
that in 1993 they talked about potentially combining that 
among--focusing on the policy committees where most of the 
understanding of the day-to-day oversight of these departments.
    The second piece of that is reorganizing that around the 
outcome that you want to achieve. Mr. McTigue, I know you have 
written about that as well. In your experience in New Zealand, 
you actually achieved that. So would you respond to that?
    Then, also, the constraint around--the Article II 
constraint that we have, where the executive branch here is not 
a participant, basically, according to the Constitution. When 
you look at other performing governments, State governments, 
foreign governments, even corporations, you have got one 
commonality, and that is a strong executive participation in 
the budget and the spending process. We have a limitation 
constitutionally. Can you guys speak--I would love all three of 
you to speak to that quickly, if you can, in the time 
remaining. And thank you, Senator Whitehouse, for your 
courtesy.
    Senator Whitehouse. My pleasure.
    Mr. Meyers. So those are very important points, and we do 
not have time to discuss all the fine details of them. But 
regarding the lack of Presidential involvement, that is 
particularly true at the budget resolution stage, and 
periodically there has been serious consideration of the idea 
of a joint budget resolution, which, in my opinion, would not 
hurt Congress' Article I power of the purse but, rather, just 
realize that the President is an equal player. Obviously, he 
has the ability to veto appropriations bills and can set 
limits, just as you can. I would be glad to talk to you more 
about that later.
    The point about Kassebaum's approach and of the general 
idea of committee restructuring is--there are two, actually, 
two advantages. One is you would be able to rely on the 
committees to make major decisions. Those committees would be 
representative of the floor from both parties, but they would 
be the experts. You actually have, of course, a great deal of 
expertise now in the committees, but sometimes they are 
organized in a way that is redundant, somewhat similar to the 
GAO studies that you cite repeatedly. I watched your expired 
authorizations hearing, and I remember Senator Ayotte saying, 
why are we passing a national defense authorization and a 
defense appropriations bill that are almost indistinguishable 
in their content. And since you seem to have a great difficulty 
coming up with floor time to address big issues, it seems a 
normal idea would be to say let us take a concerted look at the 
Department of Defense once every year, rather than twice every 
year. If we did it once every year--in other words, that the 
Armed Services Committee would have a subcommittee on 
appropriations that would deal with the 1-year's funding; then 
you would free up time on the floor for dealing with other big 
issues.
    Clearly, what that means is that you are doing away with a 
committee that has been in existence since right after the 
Civil War. But there are a lot of other things that we had in 
place during the Civil War that are somewhat out of date, and 
we have modernized them. And, yes, people on those 
Appropriations Committees would have to undergo a difficult 
transition, but they would all be placed on committees where 
they would have significant say over major parts of the budget. 
And then you would be setting the limits and setting the major 
goals, in, of course, negotiation with those committees.
    Senator Perdue. I am out of time, so I think we will submit 
this in writing, if you guys--I would love to have a response 
to that by the other witnesses, Mr. Chairman, if you do not 
mind. Thank you.
    Senator Enzi. Of course, that is twice now that Ambassador 
McTigue has not gotten to speak, so I would give little bit of 
latitude to give him an opportunity to address either of those 
before we move on to Senator Kaine.
    Mr. McTigue. So, very quickly, Senator Whitehouse, you are 
absolutely right in that tax spending never gets the same 
attention as normal spending. And part of the reforms in my 
country abolished all tax spending and put all of that spending 
on the spending side of the budget, so there were no back doors 
for people to get through. It also meant that you are much 
better able to target particularly social spending at the thing 
that you needed most.
    And, Senator Perdue, your comment about outcomes and some 
of the experience on outcomes, one of my portfolios was to be 
the Minister of Employment, and when I became Minister of 
Employment, I inherited 34 programs. And when we audited those 
programs to see how good they were at putting people into work, 
we found that four worked really well and the others were 
mediocre to total failures.
    So what we did was that we decided that we would terminate 
30 of those programs and concentrate on the 4 because they 
showed the best outcome results. In year one, we got 300 
percent more people into work for 40 percent less money. This 
is not an unusual order of magnitude change.
    Now, what we are really talking about there is maximizing 
the public benefit with the money available, and you cannot do 
that unless you line up all of the programs together and check 
one off against the other and say here is the best, that is 
where we should make our major investment.
    Chairman Enzi. Thank you.
    Dr. Posner, did you want to complete--again, if Senator 
Kaine does not mind waiting just a moment.
    Mr. Posner. I would just say in some respects, what the 
budget process was, was an experiment, the 1974 act. Can 
Congress maintain a shadow committee that does things a 
holistic way, that has as totally different orientation to 
spending? And I would say right now the answer is probably not. 
And I guess what I am urging in this testimony is to test the 
system, and let us test that proposition. Can the Budget 
Committees become a catalyst to organize Congress in a 
different way around these reviews? And if not, then maybe it 
is time to think about taking the blueprint out and 
restructuring the whole thing, which obviously has lots of 
questions and issues.
    But that is the proposition that Congress put forth in the 
1974 act and did some useful things, like creating CBO and 
ultimately reconciliation. But we never really tested whether 
this Committee can do program review and oversight in a 
holistic way. That is what I think we could do.
    Chairman Enzi. Thank you.
    Senator Kaine, thank you for your patience.
    Senator Kaine. Well, this is very interesting to me, and I 
have got two George Mason faculty members with a connection to 
Virginia, so I am not going to be rude to them. I am going to 
be very selective----
    Mr. Meyers. Uh-oh. [Laughter.]
    Senator Kaine. Let me just say thanks to all the witnesses, 
two George Mason connected, and the Maryland guy mentioned one 
of my gubernatorial initiatives, Virginia Performs. So I am 
glad to listen for a long time.
    Just on George Mason, my father-in-law, when he was 
Governor, signed the charter to create George Mason as a 
separate university. It had been part of the University of 
Virginia. And there was a ceremony yesterday on the campus to 
name a quadrangle there after my father-in-law, who is now 93. 
And he was there and very proud, so he feels great connection 
with the university.
    I really appreciate the way the Chair has put sort of 
reform ideas on the table for us to grapple with. I have 
enjoyed being on this Committee as a new Senator because I 
think, admitting all the challenges of the budget process, it 
is a great Committee to be on when you come into the Senate to 
kind of get a holistic view, a little bit of the big-picture 
view, and yet the process has problems.
    Yesterday in Foreign Relations, Chairman Corker just kind 
of went off on the budget process, you know, because he is a 
member on Budget as well, and just how disconnected it is when 
you have budget and authorization and appropriation.
    But we have had a couple of, I think, very good discussions 
here about reforms. Biennial budgeting--I would acknowledge 
that is an incremental, not a, you know, dramatic improvement. 
But I was with the National Park Service employees Monday in 
one of our biggest national parks, Shenandoah National Park, 
and they were saying, ``Thanks for the 2-year budget.'' Even 
with a 1-year appropriation, a 2-year budget gives some 
certainty. Once that first-year appropriation is done, you kind 
of understand the range where you will be for year two, even 
though it is not a second-year appropriation. But I thought it 
was interesting that NPS leadership--and I have heard the same 
thing from military leadership serving on Armed Services, 
``Thanks for the 2-year budget.'' Compared to the CR or the 
sequester or the furlough or the no-budget, the idea of a 2-
year budget, even with 1-year appropriations, is something that 
they appreciate the certainty. And I think it helps us on the 
private sector side, too.
    I wish we had a debt management product. Nothing is more 
annoying, I know, to Senators than people who come in and they 
have been mayors and Governors and they think they know how to 
run things. But every city and county and every State has a 
debt management policy that usually is we do not worry about 
the debt number, the raw number, we worry about ratio of debt 
to GDP or debt service payment to the entire annual outlay in a 
budget, and we do not have an agreed-upon debt management 
policy.
    In Virginia, and other States, there is an agreed-upon 
policy. And then there is vigorous partisan debate about how to 
get there. Do you cut expenditures? Do you raise revenues? What 
do you do? You end up with all the room for the vigorous 
argument between the parties that you have. But you kind of 
have a bull's eye that you are shooting at, and we do not have 
that at the Federal level, and the hearings that we have done 
here have elucidated that.
    Then, finally, the issue of performance data, which is 
covered by some of your testimony, and, Dr. Meyers, your point, 
Virginia Performs, we basically just decided when I was 
Governor to create a website that just tracked the key 
performance measures about whether the State was succeeding or 
not--not State agency missions, you can drill down to get into 
it, but unemployment rate, you know, graduation rate in high 
school, maternal health, infant mortality. And every measure, 
we put arrows. You know, it is an up arrow if it is getting 
better. It is a flat arrow if it is not changing. It is a down 
arrow if it is getting worse. That drove a lot of our spending 
decisions. When we had more money to spend, we looked at that 
to decide where to spend. And when we had to cut, sadly, we 
also--and my 4 years was all cutting. We looked a lot at that 
to determine where would we cut, that we were really cutting 
for tomorrow than today. And I think the idea of incorporating 
more performance data and caring about performance as part of 
budgeting is key.
    On the idea of portfolio budgeting, I am kind of a 
certainty freak because I just think the more certainty we 
provide, the better off everybody is going to do. And I 
actually think the American economy is pretty strong, but there 
is still uncertainty, and Congress has been one of the great 
generators of uncertainty, because if it is not clear whether 
we are going to have a budget or a CR, is there going to be a 
shutdown of Government? Is there going to be a sequester, 
partial sequester, full sequester, sequester relief? Are we 
going to furlough employees or not? That not only creates all 
kinds of challenges within the organization, and it takes 
Pentagon planners who should be planning what to do about, you 
know, a North Korean nuclear program and makes them spend time 
running five budget scenarios instead, but it also creates a 
lot of angst out in the private sector, which is the big part 
of the economy.
    So talk to me about how portfolio budgeting could enhance 
the certainty effect. I want us to provide more certainty, not 
less. Talk about portfolio budgeting and certainty.
    Mr. Posner. Well, I think the point is that Congress needs 
to step up to the plate and have a budget resolution and an 
agreement and appropriations. I mean, that is the bottom line. 
I think portfolio budgeting helps Congress better find ways to 
express policy preferences without loading it all on to 
discretionary. The political debate is focused on discretionary 
as a proxy for the size of Government. Well, the size of 
Government is determined by mandatory spending and how many tax 
preferences you have in that Tax Code, which collectively now 
equals more than discretionary spending. We have $1.6 trillion 
of tax preferences. The discretionary process just collapses, 
and we end up with these, you know, terrible funding hiatuses.
    So I think if you could think about budgeting like the 
States do, that everything is in play. You reach agreement at 
the front end about some big pieces you are going to go after 
every year, I think that would start to structure the debate 
better and take some of the burden off of the discretionary 
side.
    If I can add one more thing about debt, before I came to 
George Mason, I led GAO's work on the Federal budget for 15 
years, and we did some studies in New Zealand and places like 
that and looked at a different way to think about debt limit, 
because we thought the debt ceiling is a horrible way to do 
business. It is an after-the-fact thing that is always destined 
to fail. And New Zealand came up with, I think, a better 
mousetrap, which is they articulate the debt as a share of GDP 
as a target, and at least when we were there, for a good 10 
years, all political parties observed that target as kind of a 
line they would not cross. And I thought that was the kind of 
thing we should be looking toward--because that is a 
prospective target that guides future policy. The Committee for 
a Responsible Federal Budget issued a report back in 2010, that 
included a long-term debt target that we should be striving for 
as a matter of policy.
    Senator Kaine. Well, if I could--and I am going to ask a 
question, but just back to the Chair--and I am sure that your 
city, when you were mayor, you had exactly the same thing. 
Well, you had a no-debt policy, if I remember correctly. We had 
a debt policy. We were a double-A city. We were a triple-A 
State. We want to maintain double-A and triple-A, so there were 
bonding agencies to answer to. But we had, you know, basically 
two measures: debt as a percentage of State or local GDP and 
debt service payment as a percentage of the annual budget.
    What is interesting, it was not a mandate. There was not a 
law that says it can never exceed. It was just an agreed-upon 
framework, this is what we are going to try to have. And if we 
needed to go over it for some reason, well, we better have a 
real good reason. But we usually did not. But it preserved all 
kinds of room for partisan debate about how to get there. But 
it is very challenging to--and the debt ceiling is so 
artificial in so many ways, it is looking backward. And it is a 
raw number, and the raw number means nothing. It is the ratios 
that have economic value, not the raw number. I mean, if you 
say $17 trillion, of course, people go, ``Oh, wow, that is 
incredible.'' But $17 trillion could be the perfectly 
appropriate level of debt, depending on the size of the 
economy. So the raw number is meaningless, and yet we use that 
instead of really having a meaningful policy.
    I am going to look at that paper because I would like to 
see, you know, how you might approach that. And we will have 
plenty of room to argue about how to get there, but not even 
having a target to shoot at I think is challenging.
    So good testimony and a good hearing. Thank you, Mr. Chair.
    Chairman Enzi. Thank you. I should correct, we did have 
debt. It was debt for infrastructure. But it had to have a 
dedicated revenue source before we could enter into that.
    Also, I would mention that I do not do any town hall 
meetings. I only do listening sessions. That means I go to a 
town, somebody introduces me, and we have a microphone, and I 
do not make any comments. People come up to the microphone one 
at a time and tell me what I need to know. And I take notes as 
they are doing that, and if I see something or hear something 
that I really think is significant, I circle it so it will be a 
little easier for me to find in my notes. And then when the 
listening session is over, I answer some of the questions that 
people raise, but they do not get rebuttal at that point, and 
there is not any further testimony that gets to do a rebuttal 
on it either. But I mention some of the ones that I have 
circled as great ideas that I want to haul back to Washington 
again. And I have got to say that that is still the way that I 
take notes, and I cannot believe how many things I have circled 
today because of your testimony and because of your answers to 
questions that have been posed today. And Senator Whitehouse's 
opening speech had a number of things that I circled as well. I 
think there is a lot of common ground for a common country that 
we need to achieve.
    So I do have some questions, and I will start with 
Ambassador McTigue. The Government Performance and Results Act, 
as it has been amended, already requires the agencies to 
produce data that measures programs' effective in relation to 
desired outcomes. How could we change the process to improve 
the use of this information?
    Mr. McTigue. The simplest change in my view would be that 
at the time of making the appropriation you added another 
paragraph that described what benefits you would have received 
from this appropriation a year from now or 2 years from now, 
and then oversight would look at that number and decide whether 
or not you did well.
    Now, if you missed the targets, it might be that you are 
buying the wrong programs, you are making investments in the 
wrong tools. Or it might be that you just need to put more 
resource into it, but it does give you something that you can 
actually use and you can make progress.
    The second thing that it does is it also tells you some of 
these tools do not do anything to touch the outcome. I will 
just give you a very brief description.
    If somebody is hungry and I feed them, that is a good thing 
to do. And if I feed them tomorrow and the next day and so 
forth, it becomes a less good thing to do because I am not 
looking at the real problem, which is their dependency. Why are 
they hungry? And I have got to address those things that are 
making them hungry to be able to get a successful conclusion. 
Maybe they cannot read or write. Maybe they do not speak the 
language. But at the same time as feeding them, I should 
address those things so that at some stage I will not need to 
feed them anymore.
    So that is what outcomes do, in my view. It enables you to 
actually see whether or not you are using the right tools and 
you are making the right kind of progress.
    Chairman Enzi. As kind of a follow-up to that, sometimes we 
fall into the trap of thinking about this program performance 
and efficiency as an excuse to cut. But spending more on 
ineffective programs does not help, and we are perhaps hurting 
the beneficiaries, as you just explained.
    When you implemented the outcome-based budgeting reforms in 
your country, what effect did that have on the benefits that 
were provided?
    Mr. McTigue. It made us do a lot of things differently. So, 
for example--I will use an example that Senator Whitehouse 
referred to before about homelessness. So we used to measure 
homelessness in terms of how much low-cost accommodation we had 
put together and where we had distributed it and everything 
like that. But when we actually went back and saw what happened 
to homelessness, we found that the proportion of homeless 
people was not diminishing.
    So we went back and did what we should have done the first 
time, and that is, research it properly. And when we researched 
it properly, we found that 70 percent of homelessness is caused 
by mental health problems, not the unavailability of 
accommodation. When we addressed that issue, we found that 
within a year homelessness had dropped by 30 percent and then 
dropped by another 15 percent the following year. So that is 
outcomes telling you that you are using the wrong tool, and I 
think that is incredibly valuable information to have. 
Otherwise, you are guessing.
    Chairman Enzi. Thank you. I will have some follow-up 
questions with some more detail, but I will do that in writing 
so you can respond to it.
    Dr. Posner, I have introduced legislation to do a biennial 
appropriations process. There are several proposals that way. 
Mine puts six appropriations bills each year, but they are for 
a 2-year period. Then the most difficult ones follow an 
election, and the easiest ones are just before an election, 
thinking that we might be able to get through them that way.
    Would moving to a biennial appropriations process make it 
easier for the Budget Committee to work collaboratively when 
they are authorizing and the Appropriations Committee is doing 
portfolio reviews? What do you think about a biennial 
appropriations process? Even the appropriators like a biennial 
budget process, and we can probably go to that pretty easily.
    Mr. Posner. Well, let me just say that, obviously there are 
lots of other things at stake. I always used to say, because I 
was at GAO for 30 years, I am an Article I guy, and I get very 
concerned about delegating more power to the Executive. But, 
nonetheless, I think it certainly could accommodate a biennial 
process with this Committee and others doing portfolio reviews 
during the off cycle, say in certain of those appropriations 
that you are talking about. That is the way it worked in 
Arizona. At GAO we did a study of State performance budgeting 
back 15 years ago. Arizona had just moved to biennial 
budgeting, and the leadership agreed to have legislative 
committees focus oversight on several cross-cutting issues in 
that biennium. One was juvenile justice, juvenile delinquency 
program, and several others. And that focused the committees 
doing oversight to a great extent.
    Now, that sounds too neat to be true, certainly may be too 
neat to describe the Congress, but, nonetheless, that is how 
you might draw that one up.
    Having said that, I think the portfolio process could also 
accommodate itself into an annual appropriations cycle as well, 
as witnessed by this Committee's brief use of task forces in 
2000. So I think it--but certainly I can see how biennial would 
help promote that.
    Chairman Enzi. Thank you. My time has expired. I will go 
back to Senator Whitehouse, and we will do another round here 
if people are interested.
    Senator Whitehouse. Thank you.
    I guess this is a little bit in the nature of suggestions, 
but I think if we put together some combination of the 
McConnell rule, which spares us the debt ceiling crisis, and a 
debt target of some kind, and some form of consequence, 
depending on which side you were of the debt target, not 
necessarily a catastrophic consequence--because as soon as you 
create a catastrophic consequence, you can bluff your way 
through it because people really are not willing to pull the 
trigger on it, and it becomes, like the debt limit, an 
opportunity for finger pointing rather than an opportunity for 
work.
    So I think that is an area that if we pulled those things 
together, we might be able to actually create incentives, 
targets, systems that work on an ongoing basis.
    I also think that if we are to start looking at portfolio 
areas, we might want to think about just agreeing amongst 
ourselves to pick an example or two and try it out, see how we 
do, see what we bump into, see whether there are things we 
learned about what we chose that made it a good or bad choice. 
I think as I said earlier about cyber, if something is spread 
across 38 committees, that may be an easier area and more 
responsible area for us to engage in than if it is defense 
appropriations that is pretty well squared down into, you know, 
basically two committees.
    So I am open to--and I am sure other members would be--
trying to figure out how we might go about doing that. But that 
takes me back to the question that I left Dr. Posner with, 
which is what guidance--and this would be for all three of you. 
What guidance would you have about where and when, given that 
we cannot look at all the portfolios of the Federal Government, 
where and when should we direct our first efforts if we are 
going to embark on first efforts at this kind of portfolio 
budgeting theory? And I cut you off in mid-question, so let me 
go back to Dr. Posner.
    Mr. Posner. Well, one of the areas I have talked about here 
in the Committee before is food safety. We have 15 agencies 
administering 30 laws. So when there was the salmonella 
outbreak with eggshells affecting 500 million eggs, it turns 
out that jurisdiction over eggshells is split, incredibly, 
between Agriculture and FDA. So FDA monitors the eggshells; 
Agriculture monitors the young chicks. FDA monitors the feed 
that is given to the young chicks; Agriculture monitors the 
transportation. It is an incredibly Byzantine process and one 
that our agencies heroically try to deal with. Many other 
nations--and GAO called for a unified food strategy agency, as 
other nations, long have had a unified food strategy program. 
Most European nations do. That is an example of one, I think, 
where--so one of the hallmarks is agreement on goals. Nobody 
disagrees that we want the most effective food strategy program 
we can.
    There are a lot of areas of policy that are like that. 
Homeland Security has 16 homeland security grants--the UASI 
grant, the State homeland security grant, transport security--
and, apparently, notwithstanding some previous agreement by the 
agency, Congress has never been able to see its way clear to 
bring those together in some sensible way.
    So I think there are lots of areas that are target rich 
where there is broad agreement that you could take--nothing is 
low-hanging fruit, of course, but I would think to what extent 
are the broadly shared goals would be a first criterion.
    Senator Whitehouse. Ambassador McTigue.
    Mr. McTigue. Thank you, Senator Whitehouse. Just very 
briefly, another area that might be interesting to look at in 
terms of a first portfolio might be all of those programs that 
touch the environment and look at those and see whether or not 
the have--some have better outcomes than others or they are 
even measuring the right kind of things.
    Can I just go back to what you were speaking about with 
regard to debt? And it also cross-references to what Senator 
Kaine had to say.
    Senator Whitehouse. I would not mind that, but as my time 
is going, let me turn to Dr. Meyers to answer my question, and 
then we can come back to you if the Chairman will permit that.
    Mr. McTigue. Okay. Certainly.
    Mr. Meyers. In the paper that Dr. Posner wrote with Steve 
Redburn, they suggested housing and higher education. Well, 
since I am a professor, maybe I would say leave us alone. 
[Laughter.]
    But my preference actually would be for health because I 
think it is such an important area and it does illustrate some 
of the challenges with moving across discretionary, mandatory, 
and tax expenditure.
    But I think it is important to realize that in one sense 
you already have portfolio reviews at some level--you have 
authorizations on a multi-year schedule for some areas of the 
budget--ag, transportation, and so on. And those could provide 
a clue for how you might envision moving from an experimental 
portfolio to a new or regular order, which would be for each 
sector of the budget you would have a sunset schedule, and 
every, say, 4 years or so, you would have a reauthorization, 
and it would be supported by having a QXR, as I would call it, 
a quadrennial review for that sector of the budget given to you 
by the executive branch that would help you structure things.
    The other relevant point, I think, is that there are some 
programs you do want to put on autopilot or at least close to 
it, like Social Security. You want to review that program 
periodically, not every year. And there are other areas where 
you want to keep the agency on a short leash every year. So, in 
fact, you want diversity in terms of the frequency in which you 
evaluate programs with a fine-tooth comb. But you also do want 
some diversity within each sector because, you know, America is 
a diverse country; we do need to reduce overlap and redundancy, 
but in most areas it is hard for me to imagine that there would 
be a one-size fits-all program that would be satisfactory to 
all Senators and Representatives.
    So, take advantage of our diversity, but figure out a new 
structure in which you can promote that diversity and get rid 
of unnecessary overlaps. You can think about what is the need 
to keep some programs on a short leash, evaluating them 
frequently, and then how can you look periodically at those 
long-term commitments that are central to our policy and 
society, to make sure that they do not get out of control.
    Senator Whitehouse. Thank you.
    Chairman Enzi. Senator Kaine, do you have some more 
questions?
    Senator Kaine. No.
    Chairman Enzi. Okay. Ambassador McTigue had some additional 
comments, which is the direction I want to go with my next 
questions, too.
    Mr. McTigue. Okay. The comments from two or three sources 
about how you manage debt and whether or not you should manage 
debt, well, the worse results come from a process where debt is 
an accident of the decisions made in the budget, and you can 
see that in many countries around the world.
    One of the innovations that I think is very interesting is 
places like the United Kingdom and New Zealand, they take 
budget strategy and budget policy out of the numbers part of 
the budget, and they issue the documents on that 6 months ahead 
of the budget. And that deals with things like debt policy. So 
what are going to be the targets looking a long way forward? In 
2012, New Zealand set a debt target of being under 20 percent 
of GDP by 2020, and it will be there. And the United Kingdom 
set one of having a budget surplus by 2020, and it looks like 
it will be there. So that strategy being set ahead of the 
budget numbers I think gives better resolutions.
    The other thing is that those countries also, while they 
have annual budgeting, they give firm numbers for the out-
years. So when the British budget comes down, you know what the 
numbers are going to be for the next 4 years as well. So that 
gives the certainty that Senator Kaine was talking about. In 
New Zealand, you are 3 years--3 years are firm numbers. You get 
a projection for 10 years, and you get a speculation for 20 
years out.
    Now, nobody really gets held to the 20 years ago, but 
sometimes if you look that far ahead, it shows you the 
consequence of a decision that you have just made when it 
gathers full momentum, and that can have consequences that you 
did not expect unless you have a very long term view looking 
forward.
    Chairman Enzi. Thank you. Continuing on the ways to handle 
the debt, does anybody have a formula that factors in the cost 
of interest? This is kind of a worry to me because right now at 
1 percent we are spending $230 billion a year for our debt, and 
the norm is 5 percent. But if we happen to go to 5 percent, we 
would be spending $50 billion more than we get to make 
decisions on right now, which means no defense, no ag, no 
commerce, no education, no everything that we do--unless, of 
course, we dip into the mandatory programs. And, of course, we 
have gone from 30 percent mandatory to 70 percent mandatory, 
and I have even suggested maybe we need to go to 100 percent 
mandatory. Then we would actually have to make some decisions, 
and people would realize the impact of the mandatory things. Or 
we could go the other way and make nothing mandatory. But 
probably neither of those is going to work.
    But does anybody have a factor in--of how the interest 
would work in this debt management formula?
    Mr. McTigue. A very brief comment. Part of the debt 
management strategy looks not just at the total quantity of the 
debt, but the cost of maintaining that debt and what it will be 
over time. And that triggers the decisions about how much of it 
you are going to pay down in the medium and the longer term so 
that you are in a position to be able to withstand shocks when 
they occur. And I think most of the world has become very much 
aware of if you are living right on the edge of the cliff and 
you have something like the Great Recession, you have terribly 
big problems. And getting back from the edge of that cliff 
quickly is a prudent strategy. That needs to be part of the 
budget process, and I do not think there are too many 
discussions about that here in Congress at the moment.
    Mr. Meyers. In its annual outlook report to you from CBO, 
that information is presented to you. It shows the interest 
increases that would result from one budget path as opposed to 
the other. So that information is available. There are two 
difficulties: One, comparing the U.S. to New Zealand is that we 
are too big and rich to make debt worrisome to us until it 
becomes too late. In New Zealand's case, they made those big 
changes because they had serious problems in their balance of 
payments. So we have this exorbitant privilege, as Barry 
Eichengreen, the Berkeley economist, calls it.
    But the other issue is; how do you connect that medium-term 
debt target, which I think we all agree is a good idea, to 
specific policy choices that you make? And that question is one 
reason why biennial budgeting or some longer-time perspective 
is useful. Not only does biennial budgeting give certainty, if 
it is at the appropriation level, to agencies, since you really 
do not expect their needs to go up and down too much from year 
to year, but it also allows you to have a medium-term glide 
path towards that macro policy result that you want.
    But, again, that gets back to the central point of this 
hearing: How can you structure your budget process so that you 
can sift through those programs, get rid of the unneeded ones, 
and also throw money at the ones where there are a lot of 
promising ways of making America's lives better, that is 
consistent with your budget targets? This was the challenge 
that was faced in 1974 when Congress passed the initial 
Congressional Budget Act, and actually, there were some good 
years in that history. You and the President made progress 
during the 1990s.
    So now you are faced with this difficulty. You are 
absolutely right that debt increases are worrisome over the 
long run, and I think a lot of people are looking to you for 
leadership, to come up with new ideas for how we can address 
that problem more fruitfully than we have in the last decade or 
so.
    Chairman Enzi. Dr. Posner.
    Mr. Posner. The Canadians at one point singled out the 
interest. They had a target called ``interest bite,'' and they 
were concerned because their debt ultimately grew to 100 
percent of GDP. And it was the interest, of course, that shows 
up in the annual budget and crowds flexibility.
    And so that became a big issue in public policy and whether 
that is something that could be highlighted.
    On Ambassador McTigue's point, I want to suggest that the 
main point of the budget resolution was to force Congress to go 
on record about something they had not been on record before, 
which is the size of the deficit, the size of the surplus, 
whatever it is going to be. But that is obviously not the only 
thing that matters, and I think what Dr. McTigue is pointing 
out here is that thinking more about the long-term targets and 
how they might be reflected in the budget resolution is also 
something that is worthy of your consideration. And, again, in 
the 2010 report that we did with the Committee for Responsible 
Federal Budgeting--I think it was called ``Getting to Black''--
we talked about how the budget resolution could be a vehicle 
for Congress to articulate what its debt target as a share of 
GDP might be. So going beyond just annual deficits, which is 
very limiting, forcing Congress to think more long term is part 
of this prospect.
    Chairman Enzi. Thank you.
    Do you have some other questions you would like to ask?
    Senator Whitehouse. I just wanted to thank you, Mr. 
Chairman, for leading this Committee into this area. I think we 
have an enormous amount of work to do, and I think we have to 
be very prudent about what we set before ourselves so as not to 
be overwhelmed either by jurisdictional concerns from other 
committees or leadership concerns or other such things. But I 
think the prospect of a better-run Committee, a less foolish 
vote-a-rama, a longer perspective that drives us towards a more 
responsible management of our debt, and some opportunity for 
being a portfolio reviewer are all very useful and valuable 
things, and I am confident that there would be good bipartisan 
support for working towards those.
    I think you and I probably agree that if we are going to 
pick portfolio areas, they should be less hyper-charged than 
environment and health care are right now. But maybe the day 
will come when those would be areas we could look at. But I 
think right now we would step into food fights that we do not 
need to step into. And with that, I again thank you very much 
for your leadership.
    Chairman Enzi. Thank you. Thanks for your participation and 
good suggestions, and I particularly like your suggestion that 
maybe we needed to try one or two areas of portfolio first to 
show that it works. Then we can get into the more controversial 
ones. And I think they can work, too. Neither side is going to 
get 100 percent. I have got this 80-percent rule that I have 
worked under where there is usually common ground of about 80 
percent. But there is 10 percent on each side that we are going 
to fight to the death on, and, unfortunately, the fight to the 
death winds up with the issue dying, not the people--well, 
fortunately, I guess. [Laughter.]
    But that 10 percent on each side are going to be around. 
What we need to find is that middle ground of the 80 percent, 
and we can get it done. And I think this is an opportunity for 
us to do some major things here. As you know one of the things 
I have been disturbed about for the whole time that I have been 
here, not just recently, is that the President's budget really 
is not looked at by anybody, but the pages are about that 
thick. And I know that there are 535 copies distributed to the 
Members of Congress and the Senate. But I think there are 
several copies that are delivered to the staff as well, and 
anybody else who wants one, although I am wondering if anybody 
has ever looked through all of those pages. It would be real 
helpful if it were on a disk so it would be searchable, but one 
of the things that was mentioned here today is making us a 
committee on national priorities and getting an annual report 
on the true state of the Nation. That would really be helpful 
by a President.
    Another suggestion that we have had here is something that 
goes for 4 years. Well, the only thing that we have that goes 
for 4 years is the President, because the House goes for 2 and 
the Senate goes for 6, but the President goes for 4. And the 
President has a huge influence. He is one third of our 
structure of Government, and so when he comes into office, he 
ought to be presenting us with what he wants to get done during 
that 4-year period. And then we as the Budget Committee can set 
some national priorities and hopefully some formulas for what 
kind of target we are going to have on debt and get the 
committees to work from that standpoint.
    But those are all very major changes, and any change around 
here is difficult. We are supposed to be the inventors of 
everything, and we are really the continuers of everything.
    I was going to ask some questions about unauthorized 
programs because that has been a pet peeve of mine. My first 
year as the Chairman, I discovered we had 260 programs that had 
expired that we were spending $293.5 billion a year on. And I 
hammered on that enough, obviously, that there was some 
attention paid to it, because we have gone from 260 of them 
down to 256 now. But we have increased the spending to $310.4 
billion. So our priorities are not working out real well. And I 
will have some more technical questions for our people on that.
    I was also intrigued with the comments we had on the 
reconciliation instructions, and they need to be a bit more 
effective and not just a tool for pushing through the 10 
percent that one party or the other cannot get done any other 
way. And we also need to have the President involved earlier in 
the budget process so that we do not wait until November to 
force an issue and disregard what we did--well, not totally 
disregard, but almost totally disregard what we did. So we have 
got to find it to be an effective tool, and we have had a lot 
of good suggestions here today, and hopefully other members of 
the Committee will submit some questions. But above that, I 
hope they will just read the testimony that you have already 
presented. It was well put together, and I appreciate all the 
effort that went into that.
    So thank you, and we hope we can call on you again as we 
develop some of these ideas to see if you think they have got 
any merit or if they ought to be revised some way.
    So thank you very much, everybody. Thanks.
    Senator Whitehouse. Thank you, Chairman.
    Chairman Enzi. The meeting is adjourned.
    [Whereupon, at 12:05 p.m., the Committee was adjourned.]
    

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  TAP DANCING ON THE RAZOR'S EDGE: RESTORING STABILITY TO GOVERNMENT 
                               OPERATIONS

                              ----------                              


                       WEDNESDAY, APRIL 20, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Ayotte, Corker, 
Perdue, Murray, Stabenow, Whitehouse, Baldwin, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; 
George Everly, Chief Council; for the Minority: Joshua Smith, 
Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning, and welcome to our latest 
hearing in a series that this Committee is holding on America's 
broken budget process.
    For a country that is exceptional in so many areas, it is 
simply inexcusable that our budget process has devolved to its 
current state. There is growing consensus that our Government 
needs to change the way it makes funding decisions, and this 
Committee and its members have a unique opportunity to lead 
that effort.
    As we have seen, the current process is designed to fail. 
It is time to make the process fit the problem. Even small 
changes can begin to reform the budget process so that it will 
have a better chance to succeed. Such improvements can in turn 
help our country succeed in addressing runaway federal spending 
and our exploding national debt.
    Budget process reform is not a cure-all. It will not fix 
all our budget problems. But that does not mean we should 
resign ourselves to muddling through under a budget process 
that predetermines failure. I would like to work with my 
colleagues to propose fixes that encourage transparency, 
accountability, and an effective and efficient Government.
    Last week, expert witnesses explained that the budget 
decisionmaking process does make a difference. Fragmented 
decisionmaking has caused duplication and waste that actually 
diminishes the value of the public services provided to our 
constituents. Today we will hear about other costs resulting 
from budget dysfunction and, more importantly, explore 
solutions that might inject stability into the process.
    When Congress fails to establish predictable tax and 
spending policies, Federal agencies, State and local 
governments, private organizations, and constituents all pay 
the price. Nearly every aspect of the current budget process is 
riddled with uncertainty.
    For example, the annual budget resolution could serve as a 
long-term planning document that signals to stakeholders how 
Congress will allocate the country's limited resources. 
Instead, it currently bears little relation to the tax and 
spend decisions Congress must make every year.
    The annual appropriations bills are chronically late and 
have not passed through under regular order in over 20 years. 
The chart on the screen shows how timely the appropriations 
process has been since the Budget Act of 1976 took effect.
    The green bars represent the four times that Congress has 
completed appropriations on time in the last 40 years. The red 
bars represent progress toward that goal. You notice that zero 
appropriations bills have been enacted on time in the last 6 
years.


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    I commend Leader McConnell's effort to move the fiscal year 
2017 appropriations bills under regular order this year. But it 
is a challenge working against a system that in its current 
form makes it nearly impossible to accomplish the task.
    There is also significant uncertainty generated by the 
Government's future overspending. The Congressional Budget 
Office says the Government's continued overspending will add 
$11 trillion, which is 11 thousand billion, in additional debt 
in the next 10 years as entitlements begin to take over the 
budget. If that is not alarming enough, the annual interest 
costs on our debt alone will total $839 billion per year in 
just 10 short years, and that is even using a very conservative 
interest rate.
    We simply cannot continue on this course, whether the 
result is huge tax increases, drastic spending cuts, or some 
combination of the two. Somebody is going to pay the price. 
Without a long-term enforceable budget and predictable fiscal 
policy, Congress is forcing this future uncertainty onto public 
and private organizations that are trying to plan for the 
future.
    The statutory limit on Government debt should be a warning 
to Congress of the irresponsible decisions we are making and 
the country's growing mountain of debt. But this important tool 
is completely disconnected from our tax and spending decisions. 
Instead, it occurs well after the fact and serves only to 
rattle financial markets and increase uncertainty across the 
economy.
    Whether it is the unenforceable budget, whether it is late 
appropriations, whether it is growing deficits, whether it is 
impending debt limit showdowns, the uncertainty created by our 
broken budget process carries severe and indirect costs. Budget 
dysfunction causes wasteful spending, disrupts Government 
operations and planning. It also affects the private sector, 
reducing productive investment and hiring.
    Effective solutions will reduce flashpoints for crisis 
politics and encourage certainty in the budget process. An 
effective long-term budget would signal future tax and spending 
levels. It would enforce long-term spending discipline so that 
the agencies, the businesses, and the constituents can plan 
accordingly. And it would bring the President into the process 
so that veto and shutdown threats are less common.
    Senator Heller recently sent a letter to this Committee 
asking us to consider legislation that would prevent Members of 
Congress from being paid if we fail to adopt a budget 
resolution and all 12 appropriations bills on time. He is right 
to focus on incentives and consequences. When Congress or 
agencies do not act in a fiscally productive manner, there 
ought to be consequences--not necessarily the consequences in 
the Heller bill, but there ought to be consequences.
    At the agency level, Government managers should be held 
accountable for performance. Of course, that would require 
stated, measurable goals. Inadequate results should trigger 
increased scrutiny and program review. Real consequences for 
poor performance will improve outcomes for constituents, as we 
discussed last week. A longer appropriations cycle will also 
reduce uncertainty. If Congress enacted 2 years of funding and 
appropriations bills, agencies could plan for 2 years rather 
than 1 year, and they could spend less time formulating new 
budgets and worrying what Congress will do in the next fiscal 
year. And that is without even talking about continuing 
resolutions that go beyond the beginning of the year when they 
do not know what they are going to be able to spend.
    Members on this Committee have other ideas on how to 
improve certainty and reduce crisis budgeting. For example, 
Senator Portman has introduced legislation that would prevent 
Government shutdowns by creating an automatic continuing 
resolution that would take effect when no appropriations have 
been enacted. And it would encourage Congress to do its job on 
time by automatically reducing spending until all full-year 
appropriations are enacted.
    No change is easy here in Washington, D.C., so fixing a 
congressional budget process that has been in place for 40 
years may seem like a Herculean task. But this election year 
gives us an opportunity to consider proposals that do not favor 
one party or the other. Nobody knows who will be in charge of 
the Government next year, so our solutions can focus on 
creating a transparent, accountable, reasonable, and 
predictable budget process.
    Senator Whitehouse.

            OPENING STATEMENT OF SENATOR WHITEHOUSE

    Senator Whitehouse. Thank you very much, Chairman, and 
thank you for your continued focus on how to revive the Budget 
Committee into a meaningful body here in the Senate. I 
appreciate the return of Dr. Hassett and Dr. Joyce and Dr. 
Ornstein, all of whom have been before this Committee before to 
help guide us through this conversation.
    The topic today is budgeting by crisis, and I would suggest 
that budgeting by crisis happens when obstruction becomes the 
rule, and obstruction tends to become the rule when people and 
politics seek to use leverage to gain things that they could 
not achieve through regular order, essentially budget 
ransomware.
    That problem, which has been our problem for a number of 
years, is compounded by the 60 votes problem, which is that the 
threshold that has to be met if you depart from the budget is 
60 votes. And particularly since Majority Leader McConnell came 
to the leadership of the Republican Party, 60 votes have really 
been the rule in the Senate. So if 60 votes is the rule for 
anything meaningful in the Senate, then 60 votes is going to be 
the rule for appropriations in the Senate, and that means you 
have got your 60 votes for your appropriations, so you do not 
care what the Budget Committee did. You are through the 
firewall that violation of the budget was intended to create.
    The third point that I will mention is that when the budget 
is disaggregated from the appropriations accounts, it tends to 
lend itself more to theater if you actually had to take a 
budget and start to drill it down and at least show how it 
would work across the accounts. Obviously, we could not bind 
the appropriators. But if you actually had to walk through the 
consequences of a proposed budget, I think that would help take 
some of the theater out of this exercise.
    The last thing I will say is that we are proceeding this 
year without a budget. The Committee is not going to act on a 
budget. I think there is a reason for that, which is that we 
have an overarching agreement. One of the things that happens 
when you are budgeting by crisis is that a little group of 
people go into a little room, and it is the White House and it 
is the leadership of the Senate and it is the leadership of the 
House, and they cut some deal, and who ever knows what side 
deals were cut to make that other deal possible, and it is not 
transparent, and this Committee has no role in it, and it is 
not a good way to do business. However, once the deal is done, 
it is the deal, and it does, to a significant degree, moot the 
job of the Budget Committee.
    So we had to listen to Leader McConnell saying that if he 
were in charge, we would be passing a budget every year. The 
law says pass a budget.
    We had to listen to Senator Cornyn saying, ``When 
Republicans regain majority in the Senate, we will pass a 
budget.''
    We had to listen to Senator Grassley saying, ``We have been 
hitting the Democrats for 3 years that they have not adopted a 
budget.''
    Senator Blunt bemoaned a Senate with no budget.
    Again, Senator Johnson said not passing a budget is a 
``national scandal,'' ``hopefully the American people 
understand what a national scandal this is.''
    Senator Portman chided us Senator Democrats for neglecting 
one of our most basic responsibilities.
    Senator Ayotte said we were incredibly foolish, the Senate 
Democrats, that we did not want to do the basics for our 
country.
    Senator Toomey said we were failing in our statutory 
obligation and an obligation based on decency to do a budget.
    And Senator Byrd said, ``If Congress cannot pass a budget, 
then we should not be paid.''
    So there was a lot of drama when under similar 
circumstances the Democrats did not pass a budget. I am not 
going to repay the favor at this point because I do not think 
that, frankly, we are doing much wrong when we do not pass a 
budget when we actually are operating in a year in which the 
budget has already been agreed to.
    I think what we need to do is to look back at the process 
by which that global budget was agreed to. And very few good 
things happen in Washington in crisis, under pressure, in a 
room in which there is no transparency, and in which the rest 
of us as Senators, at the end of that, it is brought out to us 
and said, ``Here is the deal, up or down vote.'' And, by the 
way, there is no down vote here. There is no alternative. We 
are just handed the thing.
    So rather than revile each other over not passing a budget, 
I think the sensible thing to do is to look back at how we make 
this process work. And the only transparent way you get to a 
budget is through this Budget Committee. So if this Budget 
Committee is a nothing, which it more or less is right now, 
then we are not going to have transparency. And the 
appropriators are going to run the show, and they are going to 
make the decisions. And they will roll through any budget 
because they will have the 60 votes, and that is going to be 
what continues.
    So the Chairman's focus on this to try to remedy the 
process behind it I think is commendable and I think puts us in 
a better position than pointing fingers at each other, whether 
we did or not pass a budget in a circumstance in which the 
budget was already agreed to.
    So thank you, Chairman.
    Chairman Enzi. Thank you. And I think one of the challenges 
for this Committee, we have a little card that is here that 
outlines some of the points of order that can be taken against 
things as they come up, which, of course, as you point out, 
only takes 60 votes to overcome it. But my hope is that we can 
stay with the November deal. I think there will be a lot of 
opportunities to violate that, and that is going to be my major 
task this year--well, that is going to be my secondary task 
because my major task is to come up with some reforms that we 
can agree on that will actually do what you said: provide the 
transparency and make this a very meaningful Committee that 
will help to set some national priorities.
    Senator Whitehouse. And I would note for the record that 
under the Chairman's leadership there has been considerable 
bipartisan support and interest. We do not have agreement 
exactly on what, but there is certainly significant agreement 
that something needs to be done and that in good faith there is 
a lot that we can do together. So thank you.
    Chairman Enzi. Well, I think we are progressing toward 
coming up with the solutions and then getting together and 
seeing what we can actually accomplish.
    Senator Whitehouse. Yes, sir.
    Chairman Enzi. The sources of the budget dysfunction are 
not new. Both parties are guilty of adding additional 
uncertainty, so it is ripe for abuse. And the process is not a 
substitute for good policy, but a functional process would be a 
constructive venue for us to start with. And I am pleased that 
we have these witnesses today to help us a little further along 
down the road.
    We have Dr. Kevin Hassett, who is the director of economic 
policy studies at the American Enterprise Institute. He is a 
senior economist on the Board of Governors of the Federal 
Reserve System and an associate professor of economics and 
finance at Columbia University Business School. He also served 
as a policy consultant to the U.S. Department of the Treasury 
during the George H.W. Bush and the Bill Clinton 
administrations.
    Dr. Philip Joyce is the senior associate dean and a 
professor of public policy at the University of Maryland School 
of Public Policy. He has 12 years of experience in public 
service, including 5 years at the Congressional Budget Office. 
In 2012, he published a report entitled, ``The Costs of Budget 
Uncertainty.''
    Our third witness is Norman Ornstein, a resident scholar at 
the American Enterprise Institute. He is also a contributing 
editor and a columnist for National Journal and The Atlantic.
    So I thank you for joining us today to share your expertise 
on this important subject, and, of course, at the conclusion of 
the day, those who are not here and those who are can also 
submit questions that we hope you will answer. I try to save 
some of my accounting questions for doing them in writing.
    So thank you for being here. Dr. Hassett.

  STATEMENT OF KEVIN A. HASSETT, PH.D., DIRECTOR OF ECONOMIC 
         POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE

    Mr. Hassett. Thank you, Mr. Chairman and Senator Whitehouse 
and other members of the Committee. It is really an honor to be 
back here.
    I have been working on one aspect of this problem for most 
of my career, and the focus of much of my academic research has 
been trying to quantify policy uncertainty and then investigate 
what the impact of policy uncertainty might be. My testimony, 
which, as I am wont to do, often is much longer than I could 
possibly discuss in 5 minutes, and so I will summarize the main 
points briefly.
    I think that there has been an explosion recently in 
academic work that has found that policy uncertainty is a big 
negative for the economy, and in my testimony, I discuss some 
of the evidence and also try to make it intuitively appealing 
so that folks can understand why it happens.
    Uncertainty can basically go up in any setting if the odds 
of different things happening move towards 50/50. So if it is a 
100-percent chance that something is going to happen, it is not 
that uncertain; if it moves towards 50/50, then it can be very 
uncertain.
    Uncertainty can go up if the set of things that might 
happen get farther and farther apart, so imagine if, you know, 
one party wins, then the tax rate is going to be really high; 
if another party wins, the tax rate is going to be really low. 
And the disagreement about the tax rate goes up over time so 
that the tax rates that might happen if there is an election 
get farther and farther apart.
    Those are the kind of things that can drive up uncertainty, 
and if you watch the political climate in the U.S. and how it 
has evolved over the 17 years that I have been at AEI and a 
colleague of Norm's, then one of the things that we have seen 
is that the parties have gone pretty efficiently towards having 
a 50/50 chance of winning quite often. And it seems to me that 
often their policy positions have grown farther apart. And so 
that the impact of policy uncertainty is something that one 
should really take seriously.
    In the literature, we find that the heightened policy 
uncertainty that we see is a big, identifiable negative effect 
on the economy, and on page 4 in my testimony, if you have it 
with you--otherwise, I could just walk through it--I show some 
of the evidence from the literature where some University of 
Chicago and Stanford economists have developed a measure of 
uncertainty. In my chart, I show how the policy uncertainty 
evolves over the political cycle. It tends to peak in a 
Presidential election year--go figure--and has a really big 
statistically significant negative effect on risk spreads. And 
so if you are a somewhat risky borrower, then it costs you a 
lot more to borrow money, and equity prices tend to go down 
with policy uncertainty is high as well.
    That chart actually helps you understand what policy 
uncertainty does, how it affects the economy, because suppose 
that you wanted to borrow money to do something at a time when 
spreads are wider, well, then, it is going to cost you more, so 
you might do less of it. But there is another factor in the 
literature that is equally or maybe more important, and that is 
that when there is a lot of uncertainty, then people who maybe 
are deciding to buy a car or build a factory tend to want to 
wait and see. And so if you are thinking about whether you are 
going to expand your business right now, you might really be 
worried about doing it until you see what happens in November. 
And so you could see capital spending dropping a lot when 
political uncertainty is high.
    That is kind of where the effects come through, and I talk 
about that in my testimony. And in the end of that section, I 
also talk about the fiscal cliffs and debt limits. We have got 
a little bit of evidence on those and show that the risk spread 
effect that we see over the Presidential election cycle is 
actually a little bit magnified near big budget showdowns.
    And so this policy uncertainty is something that you could 
have an effect on. If we knew that policy was going to be 
pretty much set going forward and that there were not going to 
be fiscal cliff showdowns, then risk spreads would go down. 
There would be more investment. And it would be less likely 
that somebody might wait to get across a threshold in order to 
do their investment.
    But if we are in this world where we are having a fiscal 
cliff every other year and policy might swing willy nilly, 
depending on what happens at the election, then you are going 
to see a lot of waiting to see what happens in the next 
election. And so almost every other year, economic activity 
could be very much suppressed because of policy uncertainty.
    In the last part of my testimony, I talk about long-run 
policy uncertainty, and, again, this circles back to, Mr. 
Chairman, your main point here, which is, What could we do to 
address policy uncertainty both in the short and the long run? 
And there is a lot of evidence that if you have a fiscal 
consolidation--so that right now we all know that looking out 
40 or 50 years that we are not really looking at sustainable 
fiscal policies. If you have a fiscal consolidation, something 
that makes long-run policy sustainable, then you reduce a lot 
of long-run uncertainty. Right now you are probably not rushing 
out to invest in a new factory in Greece because you do not 
know how that government is going to work it out. We are not 
Greece yet. But if you look off into the future, then maybe 
people will start to think about it that way, too.
    The evidence is that if you fix long-run situations, then 
you do not necessarily have the negative effect you might 
expect from tax increases and spending cuts, and I think that 
the main reason that probably happens is that uncertainty, the 
reduced uncertainty, offsets those effects.
    And so near-term uncertainty tends to be something that is 
related to fiscal cliffs. Long-term uncertainty is something 
that is related to big, unsustainable shortfalls. I think that 
if this Committee could take the lead in addressing both, the 
economic benefits could be significant.
    Thank you.
    [The prepared statement of Mr. Hassett follows:]
    

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    Chairman Enzi. Thank you.
    Dr. Joyce.

STATEMENT OF PHILIP G. JOYCE, PH.D., PROFESSOR OF PUBLIC POLICY 
  AND SENIOR ASSOCIATE DEAN, UNIVERSITY OF MARYLAND SCHOOL OF 
                         PUBLIC POLICY

    Mr. Joyce. Thank you, Mr. Chairman, Senator Whitehouse, 
members of the Committee. I first want to congratulate the 
Committee for deciding to highlight the subject of the 
apparently invisible, yet insidious, effects that budget 
uncertainty creates for both Federal agencies and recipients of 
Government funds. My comments are going to be informed by 25 
years of participating in and watching the budget process, but 
also, as you noted, Mr. Chairman, a report that I wrote in 2012 
for the IBM Center on the Business of Government. I also would 
recommend to you some work that was done by GAO in 2009 which 
also documents some of these effects.
    You have already done a very good job of talking about the 
failings of the current budget process, so I will not talk 
about that. But I will say that my main point is that 
Government shutdowns get all the press, but Government by 
continuing resolution is perhaps more harmful because it is 
more routine.
    Budgeting is about planning for the future. Any 
organization, whether it is the Federal Government, State and 
local government, or business, needs to have some notion of the 
funds that it will have available and when those funds will be 
available in order to effectively manage.
    My testimony talks about some negative effects on people 
who get money from the Federal Government, but in my oral 
statement, I would like to focus on some of the main 
consequences for Federal management and for the cost of 
providing services.
    First, budget uncertainty disrupts service delivery. 
Agencies engage in hiring freezes. That robs high-priority 
programs of staff because employee turnover does not occur 
equally throughout an agency. Further, there are often 
furloughs. Furloughs lower morale. Lower morale encourages 
employees who have other options, who are the ones that we 
least want to lose, to leave Government, which robs us of some 
of our best employees.
    Second, CRs freeze priorities in place. Agencies have 
difficulty responding to new threats and problems and are 
required to keep funding outdated or ineffective programs.
    Third, CRs may require governments to engage in short-term 
contracting as agencies have to often squeeze 12 months of 
contracting work into perhaps less than half a year. Moreover, 
it is widely believed that many contractors dealing with the 
Federal Government include what I would call a ``risk premium'' 
in the rate that they charge for contractual services because 
they cannot negotiate reliable multi-year commitments without 
some fear of funding interruption.
    Fourth, agencies spend a lot of time preparing for 
potential Government shutdowns and CRs and then complying with 
them after the fact. In my view, this is a complete waste of 
time.
    Finally, agencies defer investments in either people or 
physical assets, which I think compromises their effectiveness 
and leads to higher future costs. For example, there have been 
in the past measurable reductions in training in the Department 
of Defense because they are operating under CRs and do not know 
how much money they are going to have or when they are going to 
have it.
    What to do then? I would first say that many of the same 
people who decry waste in Government are themselves 
contributing to that waste by failing to provide a predictable 
funding stream for Federal agencies and recipients of Federal 
funds. When State and local governments have funding delays--
and we do not have to look any further than the States of 
Illinois and Pennsylvania right now, which went most of this 
fiscal year without a budget--it results in lower bond ratings, 
increased borrowing costs, and likely political fallout. There 
is no evidence that these market signals work in the case of 
the Federal budget process.
    The obvious point then is that the best thing that could be 
done would be to enact appropriations on time. That seems 
particularly unhelpful to stop there, so I have a few 
recommendations of things that might be done if we have to live 
with continuing resolutions.
    First, I think the Congress should give agencies more 
flexibility in spending. The first way to do this would be by 
increasing the percentage of money that is available on a 
multi-year or no-year basis, which would especially assist 
those agencies with lots of grant and contract funding. I also 
think the requirements imposed on some agencies to have 
spending plans approved by congressional committees are a 
costly luxury when appropriations are 3 or 6 months late.
    Second, I would make it harder to pass continuing 
resolutions than it is to pass regular appropriations bills. 
This may seem like an odd recommendation as it increases the 
probability, at least theoretically, of a Government shutdown. 
My point is that perhaps if there was more urgency in enacting 
appropriations, it would increase the odds of them being 
enacted sooner. And as I suggested earlier, Government by 
continuing resolution routinely might be worse than a 
Government shutdown.
    Third, if we are to have CRs, I think they should be 
limited to only one or two per year that do not extend past the 
end of the calendar year. All CRs are not created equal. It 
matters how many there are, and it matters how long agencies 
have to operate under them. Problems created by multiple CRs--
and there have been as many as 21 in a single year--or CRs last 
4 months or 6 months are well documented.
    So in the end, funding delays have costs. Those are 
financial costs and costs felt through compromised Government 
effectiveness. Either way, these are completely self-inflicted 
wounds, and I congratulate the Committee for thinking about 
what it is that we might be able to do to reduce their effects.
    Thank you.
    [The prepared statement of Mr. Joyce follows:]
    

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    Chairman Enzi. Thank you.
    Dr. Ornstein.

   STATEMENT OF NORMAN J. ORNSTEIN, PH.D., RESEARCH SCHOLAR, 
                 AMERICAN ENTERPRISE INSTITUTE

    Mr. Ornstein. Thanks so much, Mr. Chairman. It is a real 
privilege to appear in front of this Committee and with a group 
of people, some of whom I know quite well, who are always 
working to be a part of the solution and not just a part of the 
problem.
    As my colleagues have said, this is not simply a failure of 
process and deadlines. There is real damage to the economy and, 
just as important, to effective governance. We take our Federal 
managers basically, and it is like putting bags over their 
heads and handcuffs behind their backs when you cannot even 
begin to operate knowing whether you are going to be shut down 
or open or whether you are going to have money for the next 
month, much less for the next year.
    Now, I come to you as a scholar who has also worked inside 
the Senate on reform issues over many decades with Senators of 
both parties. In fact, 40 years ago, I was a staff director for 
a committee that reorganized the Senate's committees, one whose 
formal name still makes me cringe: The Senate Select Committee 
to Study the Senate Committee System. [Laughter.]
    And I worked with Adlai Stevenson, with Gaylord Nelson, 
with Barry Goldwater, Bill Brock, Pete Domenici, all absolutely 
wonderful people. And we had some success. We streamlined the 
system. We reduced the number of committees and assignments and 
modernized the information systems. But I have to say, as I 
look around the Senate, it is not as if this is now a 
wonderful, efficient body working on all cylinders. And that 
experience, along with some others in the reform world, left me 
with at least some level of skepticism about the limits of 
reform. And we have talked some--and Professor Joyce in his 
excellent paper and long testimony as well--that, of course, 
back when we did the Budget Impoundment and Control Act, we 
changed the fiscal year from July 1 to October 1 because we 
were not getting appropriations done on time and figured the 
extra few months would make all the difference. And as you can 
see from the chart that you put up, Mr. Chairman, it did make a 
difference. It made it worse. Having the extra time was not 
effective in a political process where everything would come 
down to end-game negotiations. So that is a cautionary note, at 
least.
    As Senator Whitehouse said, we could go on about the impact 
of doing or not doing budget resolutions. I am less concerned 
about that right now. But to get to a point now where a broad 
bipartisan budget deal like the one we recently enacted--you 
recently enacted is held hostage in the House by a small 
ideologically driven faction is simply cringe-worthy for anyone 
who wants to see a functioning legislative process making 
rational decisions.
    So let me talk about a few things that might be done or 
might not be done, and I want to offer one other cautionary 
note, which is looking at the process that created the 
sequester. This is one that was done so that you could have an 
alternative so horrific that we would never even possibly 
consider doing it and force action in the real world by 
avoiding catastrophe.
    Well, we have catastrophe right now, and that suggests to 
me that we need to be a little bit careful, and that is why, 
while I agree very much with many of Professor Joyce's 
recommendations, including especially if we are going to do 
continuing resolutions they ought to have inflation adjustments 
built into them, things that would push for action because the 
alternative would be horrific are not necessarily going to 
work. A few recommendations.
    The first, and one I would emphasize most, is we have got 
to do something about the debt ceiling debacle that we keep 
going through over and over again. I was especially disturbed 
last year when CNN reported that Representative Jason Chaffetz, 
who was then running to be Speaker of the House, said in an 
interview that Republicans should be prepared to see a debt 
default and a Government shutdown in order to pursue their 
party's agenda. Playing games with a debt ceiling is playing 
with nuclear weapons, and I strongly recommend that you use the 
McConnell rule, as it was called, twice used before, and 
institutionalize it finally, and let the President have 
responsibility for increasing the debt ceiling and have 
Congress with the ability to disapprove it with a resolution 
that could be vetoed. Take this issue off the table, because we 
are playing with fire with a global economy.
    Now, one other recommendation that I would make is that we 
consider going back--this is the one effective reform that it 
seemed to me worked extraordinarily well in the 1990s and it 
was pay-as-you-go budgeting. When we had a process where, if 
you increased spending, you had to find an offset with revenues 
or with other spending, it worked, and it worked well. Taking 
it off the table was one of the worst things that Congress has 
done, and I strongly urge you to bring it back.
    And then, finally, let me say the problem we have here has 
structural elements, but it is not a structural problem. It is 
a problem of the norms of governing that we have right now. And 
now you have a perfect chance with a good, constructive 2-year 
budget deal. I wish that in that small room the ``White House'' 
who had been there was Senator Whitehouse. But the fact is you 
have got a good deal. And if the House cannot do what it is 
supposed to do, if the Senate moves and stays within the 
boundaries of that deal, you are setting an example, and maybe 
you can begin to change the norms of behavior around here, 
which is the real problem in our political process.
    Thank you.
    [The prepared statement of Mr. Ornstein follows:]
    
 
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    Chairman Enzi. Thank you. I thank all three of you for your 
comments and for your written testimony, and your entire 
written testimony will be a part of the record, and I 
appreciate the items that are in there as well.
    Senator Whitehouse and I have agreed to defer on our 
questions so that those of you who showed up can have an 
opportunity here, so we will begin with Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. I do that a lot on 
the Foreign Relations Committee. And I appreciate, first of 
all, your leadership on focusing on budget reforms, and I 
appreciate the opening comments of Senator Whitehouse, who 
generally agrees that we need to figure out a way to reform the 
process. And I want to thank David Perdue, a new Member of the 
Senate, for his efforts on both sides of the aisle to try to 
create a process that works, and then say that I lobbied to be 
on this Committee. And after being on it, I have to say our 
budget process is the biggest hoax cast upon the American 
people and Congress that I have ever been a part of. And to 
vote for a budget challenges one's integrity and certainly 
one's intellect.
    The fact is we say grace over about 30 percent, 33 percent 
of the spending each year. We put in place assumptions that are 
never going to be reality and have no policies whatsoever to 
back them up.
    So I thank the Chairman for his leadership in changing that 
because, again, it is a shame that the American people even 
believe there is a budget process that has something to do with 
fiscal discipline. As a matter of fact, because it is a 
political document--and when Republicans are in charge, we 
stress Republican priorities, and when Democrats are in charge, 
they stress Democratic priorities--we actually spend more. It 
actually causes us to spend more. So I want to thank all 
involved for the process.
    Let me just ask the panel, you know, right now the budget 
is a resolution. It is not a law. Not a law. So we are never 
forced to make the difficult decisions that need to be made 
where both sides have to come together. Whoever is in charge 
just passes a budget with no real input from the other side.
    Would the three of you agree that we would be much better 
off if the budget was an actual law that forced the two sides 
to have to get together and make difficult decisions about the 
future of our country?
    Mr. Joyce. Let me start by saying that I agree that if the 
budget had more teeth, it would be a better thing. My concern 
about making the budget resolution a law is that we already 
have enough trouble getting the House and the Senate to agree 
on a budget resolution. If we involved the President, it might 
just increase the chances that you would end up without a 
budget resolution.
    Senator Corker. Would it not make sense for everybody on 
the front end to agree to the tough decisions? There is no 
forcing mechanism right now. None. The fact is we spend money 
we do not have. Angus King and I had dinner once, and he was 
asking me if a tax decrease when you have a deficit is really a 
tax decrease. It is really not. It is a tax increase on future 
generations.
    So, in essence, there is no forcing mechanism to force the 
two sides into making tough decisions, and so as long as it is 
a resolution, it has no real impact. We have budget waivers.
    What is the forcing mechanism? What is the forcing 
mechanism around here to force Congress to deal with the fact 
that when this meeting ends, our Nation is going to be less 
well off than it was, it is going to be a weaker Nation because 
we do not have the forcing mechanism--or maybe it is courage--
to actually address the issues that we need to address? Name a 
forcing mechanism.
    Mr. Ornstein. Well, reconciliation in some ways is the 
forcing mechanism. It is a very, very, very bad one, an 
imperfect one. But I think, you know, the problem, if you make 
it a forcing mechanism, is that it is then going to be a law 
that will have to go to the President. And that can be vetoed, 
and you are going to have some difficulties.
    And what I would suggest, Senator Corker, is really go back 
and think about the pay-as-you-go mechanism that we had in the 
1990s. Study it and look at it, because that was a forcing 
mechanism. And it was--if you want to increase spending in one 
area, you are going to have to find an offset.
    Now, it was taken out because the offset included the 
ability to increase revenues to make that offset and not just 
cut spending in another area. But the fact is it brought 
forcing a discipline to the process.
    Senator Corker. Well, let us talk about that----
    Mr. Ornstein. There is a way to do it, and not necessarily 
with a budget resolution.
    Senator Corker. Well, first of all, thank you and I 
appreciate your many contributions in so many areas and the way 
you have worked with our office. Let us talk about PAYGO. So 
you spend money for 1 year on something, and you pay for it 
over 10. Now, is that rational? That is the way PAYGO works. It 
is a hoax.
    We should be ashamed--ashamed--that the way we deal with 
Americans' money--but let us go back. Again, PAYGO, is that a 
sane process where we are going to spend $10 billion this year, 
but we will pay for it over 10--by the way, with a bunch of 
gimmicks. But is paying for money you spend in 1 year over 10 a 
sane way of doing business?
    Mr. Ornstein. I am very happy to cut a deal where you pay 
for it the same year that you----
    Senator Corker. I could not agree more. I could not agree 
more.
    Mr. Ornstein. And that would be just fine. So it was 
imperfect the way it was done, but it did bring discipline.
    Senator Corker. My time is up. I appreciate the testimony.
    Chairman Enzi. Thank you.
    Senator Murray.
    Senator Murray. Thank you very much, Chairman Enzi. Thank 
you to Senator Whitehouse for standing in as Ranking Member 
today.
    I also want to thank all of our witnesses who are here 
today, but before I ask my questions, I think it is important 
to put this hearing in some context. It was not too long ago 
that Congress was pushing our country from one crisis to 
another, one artificial cliff to the next, debt limit scares, 
threats of across-the-board cuts. And then as we all know, in 
2013 a minority of Republicans pushed us into that 16-day 
Government shutdown that hurt the economy, disrupted the 
Government's ability to serve families across our country, and 
made a lot of our constituents doubt that Congress could work 
together to do the job that we were elected to do.
    So I am very proud that after that Government shutdown 
ended, then-House Budget Committee Chairman Paul Ryan and I 
were able to sit down in a conference and work to get our 
budget process back on track. We knew we were not going to be 
able to solve every one of our budget challenges then, and we 
knew there were some deep partisan divides over core budget 
issues that we were not going to bridge right away. But we both 
agreed we owed it to our constituents and to our country to 
find a way to work together, make some compromises, and reach 
an agreement. And with the help of many of our colleagues here 
on this Committee, now-Speaker Ryan and I reached that 2-year 
budget deal that prevented another Government shutdown. It 
restored investments in education and health care and research 
and defense jobs and other middle-class priorities and really 
showed the people across the country that their Congress can 
work together and get something done.
    Now, after that 2-year budget deal ended, we built on it at 
the end of 2015 with another bipartisan agreement that once 
again restored the across-the-board cuts and allowed the 
Appropriations Committee to now do their work. So we are in a 
better place than we were just a few years ago, but there are 
significant challenges ahead of us.
    Some members of the Republican Party, especially in the 
House, now want to ignore that bipartisan deal of a few months 
ago and force additional massive cuts that we know will hurt 
our workers and our families and the economy, and there is no 
so much disagreement between Republicans in the House and 
Senate, they may not even pass a budget this year--I would say 
despite sending many messages when Democrats were in charge 
about how important it was to pass a budget every year. I just 
have to say this: ``No budget, no pay'' came from Republicans. 
Now that you are in charge, we do not hear that. But I 
understand. It is always easier to be in the minority than the 
majority around that.
    But, still, given the dysfunction that we are seeing this 
year, it is not surprising we are here to talk about the budget 
process as if the process is somehow responsible for the Tea 
Party and the Freedom Caucus.
    But a lesson I took from my deal with Speaker Ryan is that 
we need more than process changes to get this budget back on 
track. We need Members of Congress to understand that the only 
way we can work for our constituents is by working across party 
lines and actually trying to get something done. Partisan 
budgets that make those dramatic cuts on paper to appease one 
side or the other have no basis in reality of making sure 
Government actually works for the families we serve, and it is 
the wrong approach. We need to take the lessons from what has 
worked and work together to put families and the economy before 
politics and partisanship.
    But as we are here today to discuss these process issues, I 
am going to be very focused on making sure we do not make 
changes that actually hurt the ability to invest in non-defense 
priorities or call on the wealthiest Americans or largest 
corporations to pay their fair share. And I believe that even 
though our 2-year budget deals show how multi-year budgets 
could work to encourage bipartisan agreements and avoid 
artificial crises and increase certainty in policymaking, we 
should not set aside the important oversight role that Congress 
does play through the annual appropriations process and the 
ability for Congress to use the power of the purse each year to 
examine and to challenge and to reassess the needs of our 
agencies and our programs.
    So I just have a few seconds left. I am sorry. But I want 
to just start with Dr. Ornstein. What can Congress, and 
specifically this Committee, do to build on the foundation laid 
down by the Murray-Ryan budget deal 2 years ago?
    Mr. Ornstein. I really commend you for that deal, which 
really was an extraordinarily constructive act that you and 
Speaker Ryan did.
    Let me say first the no-budget, no-pay idea is one of the 
stupidest things I have ever heard, even though it actually 
came from Senator Corker's colleague and my friend, Jim Cooper, 
first. But the idea that you do collective punishment and give 
enormous leverage to the wealthiest Members of Congress who do 
not care if they do not get paid just does not make a lot of 
sense.
    But it seems to me that what we need in that case is not a 
structural change so much as it is right now a massive 
commitment, from not just the Senators in this room but 
everybody else, that you are going to take the model there and 
the model from this new deal and you are going to put through 
appropriations bills on time that fit the budget framework and 
send them as quickly as possible over to the House. And then we 
can put public and other pressure on the House to do what it is 
supposed to do.
    This is a breach of norms as much as anything else. These 
other structural changes, we should be thinking about making 
them, but right now, in the short run, it is that.
    Senator Murray. Okay. And I am out of time, and I 
apologize, Mr. Chairman. But I look forward to hearing your 
responses in writing, so thank you.
    Chairman Enzi. I thank you for your comments and took from 
that a suggestion that we do biennial budgeting.
    Senator Murray. As I said, I want to be very careful that 
we look at the appropriations process and recognize that the 
oversight work we do each year in Committee and evaluate 
whether, you know, we have got an appropriations bill with a 
program that, you know, should not be funded anymore, we do not 
lose sight of that in a 2-year budget deal, that we have the 
ability every year to analyze this, Members of Congress, 
whether something is working, and eliminate it or add to it, if 
we all agree to.
    Chairman Enzi. One of the suggestions we had last week was 
that we become a National Priorities Committee instead of a 
Budget Committee and concentrate more on that oversight area 
where people are not doing it.
    Senator Perdue.
    Senator Perdue. Well, Mr. Chairman, you know, in these 
hearings, I am amazed. I continue to be just absolutely 
dumbfounded.
    First of all, I want to congratulate you and Senator 
Whitehouse. There is something going on here that I want to 
comment on very positively, and that is, I sense a sense of 
bipartisanship in this Committee. I look at the members who are 
here. Most of them who are here are generally at these hearings 
about changing the budget process. I want to applaud Senator 
Murray for her prior work and focus on this. And, Senator 
Whitehouse, God help me, it sounds like he and I are agreeing 
on a lot of things in the last few meetings about how to move 
forward. [Laughter.]
    Senator Whitehouse. You better go check with your staff.
    Senator Perdue. Yeah, really. [Laughter.]
    But having said that, I want to make a couple comments.
    First of all, there is $6 trillion not in this economy 
right now because of our malfeasance--$2 trillion sitting 
overseas in unrepatriated tax; $2 trillion on bank balance 
sheets--we could argue why it is there, but it is there, the 
largest history; and $2 trillion on Russell 1000 balance sheets 
because of the uncertainty you gentlemen talk about.
    I am just a dumb business guy, but I can tell you, it is 
real. I would not invest in this environment. And they are not. 
And that is a huge drag on this economy. We have got two 
Governors sitting right across from us, and they both have run 
great governments and in fiscally responsible ways.
    What we are doing right now, we have no planning, no 
capital budget, no balance sheet. We have cash accounting and 
accrual accounting in different parts of our Government. We 
have a DOD which is the single largest budget, I think, outside 
of the mandatory expenditures. We cannot even audit it.
    Call Wal-Mart and explain to them it is okay to call he SEC 
next year and, say, ``By the way, we are too large to be 
audited. We will see you next year.'' It cannot happen, right?
    This is unbelievable. We have a budget process that has 
only worked four times in 40 years. That is not a partisan 
statement. Four times in 40 years. I apologize, Dr. Ornstein. I 
know you were part of that. But honest to God. I have read 
every word of this a couple of times. I cannot see how this 
could ever work. And it only worked four times in 40 years.
    It is time that we do, I believe, a clean-page approach to 
this. This is not about tweaking around the edges. This has a 
fundamental flaw, and that fundamental flaw is this: We have a 
budget resolution that requires 51 votes.
    Now, I have got to tell you, both sides are guilty of doing 
this, and it is going to continue. It is not going to stop by 
somebody's good behavior. I think we have to change that from a 
budget resolution to a budget--so what happens with 51? The 
majority crams down the throat of the minority every year a 
budget. Then we go to authorization. When was the last time, 
Mr. Chairman, we authorized anything in this Senate? I cannot 
remember. In 13 years, we have not been able to get a State 
Department reauthorization. I know that fact.
    So then we push it to an appropriation. Why would a 
minority ever let the majority cram down an appropriation in 
its entirety when it can wait and get a CR and go into an 
omnibus conversation that Senator Whitehouse just perfectly 
described? Why would a minority ever do that? We did not do it 
when we were in the minority. The Democrats do not do it when 
they are in the minority.
    Look, Madison did a great job of protecting the minority. 
He did a great job. Here is one problem where we have got to 
change that, in my opinion. And I could not disagree more with 
the idea that there are not severe consequences to the people 
in this room and the people in the United States Senate if we 
do not fund the Government. This is not a budget process. It is 
a funding process.
    We get confused here this year thinking we have--I have 
heard leaders of the Senate talk about we are in a budget 
process because of the appropriation process that we are about 
to start. That is not it. Budget authorization appropriation 
really does not work. It is the only institution I can find in 
the world that basically does those three steps in a discrete 
manner. We have looked. And what I think has to happen is that 
we have got to have severe consequences for not funding the 
Government in an appropriate amount of time. I think the fiscal 
year does need to be changed. I can make a large argument right 
now that every new Congress starts 3 months behind. And we have 
got an appropriation process that takes too long, too much 
calendar time with the rules of the Senate to do 12 individual 
bills.
    This, gentlemen, I want to submit it to the record. This is 
what we have right now from a Committee structure. It has been 
changed over the years, but we have about 16 authorizing 
committees that do not authorize, and we have 12 Appropriations 
Committees over here--and, by the way, there are very few--I 
cannot see but one--well, there is not one. There is not a one-
to-one relationship between any funding committee and any 
authorizing committee. Not one. Now, that is wrong.
    We have got to start somewhere, and I really believe that 
what we have an opportunity to do right now this year, because 
of what the Chairman has said--Senator Murray alluded to it. 
Senator Whitehouse said it a week ago in another hearing, and 
he repeated it today. I think we need to have a nonpartisan 
conversation about a party-neutral process to fund the United 
States Government.
    I see heads shaking. I know you have tried to do that. But 
the thing that breaks down here is that we want to put issues 
on it like spending caps. I agree, we need to have that debate. 
We need to have things about discretionary spending. I agree 
100 percent. There are programs we have got to protect. We have 
got to get mandatory into the conversation. How can we call 
ourselves funding the Government if we do not talk about every 
dollar that the Federal Government spends?
    So these are fundamental guiding principles that I believe 
we can find commonality if we keep the party partisanship out 
of here. And my question to you guys is basically--Dr. 
Ornstein, I respect your work so much. I have read much of it. 
All of you have great pieces of work, great thoughts in here, 
and have made huge contributions. We need your help. You do not 
have time to answer this question, but I would love to have you 
respond to this question in writing. Give us a one-pager of 
your priorities of a clean-page approach that could help us--
you know we are going to have partisanship here. There is no 
way to get around that. We are going to have a majority; we are 
going to have a minority. We are going to have all the human 
frailties. But sooner or later, we have got to have a process 
where we can fund the Government.
    I apologize. I really had some really good questions, but 
this is the one I would love for you to respond to: How would 
you approach a clean-page approach? I would love to have that 
for the record. Thank you.
    Senator Perdue. Sorry, Mr. Chairman. Thank you.
    Chairman Enzi. And we will allow you to submit your other 
questions as well or stay around for a second round.
    Senator Perdue. Thank you, sir. I appreciate it.
    Chairman Enzi. Sure. Thank you.
    Senator King.
    Senator King. Well, I first want to begin by associating 
myself with Senator Perdue's comments. I think he has outlined 
the problem magnificently and dismally. It is not a happy 
picture.
    I also want to take off on what Senator Corker mentioned. 
When you include tax expenditures, we are really only fighting 
here about one-fourth of the budget. We are spending all of our 
time on really one-fourth of the Federal budget when you 
include mandatory expenditures and tax expenditures, which most 
economists consider the same as expenditures. And that really 
makes the process even more sort of puzzling that we are--my 
mother used to say we are straining at gnats and swallowing 
camels. And that is essentially what we are doing. So that is 
number one.
    Number two, it seems to me that whatever process we devise 
has to be forward-looking in terms of long-term impacts and 
long-term trends. If you project out current expenditures in 
the mandatory area, it basically squeezes out all of the 
discretionary budget over the next 20 to 30 years, particularly 
if you maintain a tax cap, what amounts to a tax cap.
    PAYGO I think did work, largely, in the 1990s. I do think 
if it is going to be applied, it has got to be applied both 
ways. It has got to apply to both expenditures and tax cuts. 
Otherwise, you end up in the same kind of hole that we are in 
now.
    On the debt ceiling, I have always thought that there 
should be a kind of automatic debt ceiling extender in spending 
bills because right now we are allowed to have it both ways. We 
can vote for spending bills and brag about the consequences 
back home and all the good spending that we brought home to the 
local airport or sewer plant, and then vote against the debt 
ceiling and call ourselves fiscal conservatives. If you vote 
for the expenditures, you ought to be at the same time voting 
for an extension of the debt ceiling, because that is what you 
are doing when you make those expenditures. As we all know, the 
debt ceiling is an easy issue to confuse people about. The debt 
ceiling is to authorize the borrowing to pay bills that we have 
already incurred, that we have already spent. So when we do the 
spending, it seems to me that is when we ought to do that, and 
it would take that nuclear weapon off the table and I think 
improve things significantly.
    Norm Ornstein, you have nodded several times. Do you agree 
on PAYGO, that it has to work both ways?
    Mr. Ornstein. Absolutely. It does not work unless it works 
in every direction. And I agree with Senator Corker that you 
cannot basically manipulate it so that you are spending in 1 
year and then you are taking 10 years and stretching it out and 
using all kinds of gimmicks. But it has got to work with taxes 
as well as it does with spending.
    Senator King. I was amazed when I got here that somehow, 
when you get inside the Beltway, the law of net present value 
does not apply. There is no concept of net present value. A 
dollar saved 10 years from now is equal to a dollar spent 
today, which, of course, any businessperson or economist will 
tell you is absolute nonsense. But that is something that we 
really ought to be talking about, is applying net present value 
concepts to this whole PAYGO idea. I think PAYGO ought to be a 
year-to-year deal.
    Mr. Ornstein. And in an ideal world, you would not even 
have to have a debt ceiling debate or issue. It is absolutely 
something that you build into spending or into--as we actually 
did for a few years with what was called the ``Hoyer rule'' in 
the House, where it was automatically extended when you did a 
budget deal, because you are making those decisions.
    There are some things that could be done here that would 
make a difference, and I cannot think of anything that would 
make more of a difference than if you devised a PAYGO package 
that was honest and real and disciplined. And I do not think it 
is impossible to do that.
    Senator King. And if you did that, you would not be 
necessarily in a balanced budget because it would depend on the 
baseline you started with, but you at least would not be making 
things worse. Then we need to talk about--and I hear no talk 
about this: How do we deal with the $18 trillion debt? I mean, 
balancing the budget would be nice, but we have still got an 
$18 trillion debt. And somehow we need to start talking about 
how that is reduced, and I do not know whether--I do not know 
what the mechanism is, but--perhaps economic growth is the 
answer. But we have got to be dealing with that problem in 
addition--I mean, getting the deficit to something close to a 
balance is ceasing to dig the hole. But it does not deal with 
the depth of the hole that we have already dug over the last 25 
years.
    Thank you, Mr. Chairman. I yield the floor.
    Chairman Enzi. Thank you.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and thanks for holding 
this hearing. And to the witnesses, I appreciate your 
scholarship and your insights. And I have got to give a special 
praise to Dr. Joyce. When you have a University of Maryland 
professor who is spending as much time helping Arlington 
County, Virginia, as you do, with the school board and other--I 
have got to note that, and thank you for helping my 
Commonwealth.
    A story. So last Monday I decided to go and shine a 
spotlight on the National Park Centennial, and I went up to 
Shenandoah National Park to go on a hike with employees there. 
And I sat and had coffee with them for a while, went on a hike, 
and then had lunch with a bunch of community leaders. When the 
superintendent of the park stood up, he said, ``Not only is Tim 
Kaine a great friend of the parks''--and I do a lot of things 
in the parks. He said, ``But, Senator Kaine, thank you for that 
2-year budget. Thank you for two 2-year budgets in a row. You 
have given us some certainty that we need.''
    We have done two 2-year budgets in a row. Now, they have 
got a lot of warts on them. It was kind of painful getting 
there. The first one only came after a shutdown of the 
Government, and the second one, arguably, required the 
retirement of a Speaker to get done. I am not sure we can count 
on that every year, on those kinds of cataclysms. But we have 
done two 2-year budgets in a row that have provided some 
certainty, and I am hearing it when I talk to the DOD on my 
Armed Services billet. When I talk to the Park Service, our 
internal folks are saying, ``You have given us some 
certainty.'' And when I talk to my outside community, the 
private sector community, they say, ``Stick with the 2-year 
budget deal because you have given us some certainty.'' And it 
looks like that we are kind of on track to stick with the 2-
year budget deal. The allocations have been handed out to the 
various Subcommittees on Appropriations, and it looks like we 
are going to try to stick with the deal, which is great.
    You know, any Governor, mayor, we are kind of certainty 
fanatics. We want to give people some certainty, and they are 
not going to like everything they see. They are going to argue 
with us about all the line items. But they would rather have a 
line item that they did not like than have a big asterisk or a 
question mark.
    So I think part of what we need to do on the reform side is 
we are taking baby steps towards certainty, and we still have a 
lot of problems, but let us keep doing that. And I will say to 
Senator Murray's point--she is gone--that that thank you from 
the NPS to me, they recognized we have done a 2-year budget and 
it is still single-year appropriations. But they are okay with 
that because they kind of get, once the first-year 
appropriation is done, as long as we stick with the budget 
deal, the second-year appropriation will be kind of range of 
reason, and that gives them enough to be able to predict about. 
So we can make this work.
    Here is a certainty thing I am interested in, and I am 
curious as to your thoughts about this. What is the forcing 
mechanism? I will tell you what the forcing mechanism is when 
you are a mayor or a Governor. I have been both, and I have had 
the same forcing mechanism both times, and it was simple. It 
was an agreement upon a debt management policy.
    The whole notion of debt as just a dollar amount is 
ridiculous. It is ridiculous. And that we have a debt ceiling 
thing set at a dollar amount, it is economically so 
unsophisticated. You have a debt management policy that is 
usually around total debt as a percentage of local, State, or 
national GDP and debt service payment as a percentage of the 
annual outlay. That is how we managed it as mayor; that is how 
we managed it as Governor.
    And the interesting thing was this was a bipartisan 
consensus. It was not a law. It was not a requirement. If we 
violated it, we were going to get downgraded in our bond, so 
that was sort of the umpire we were trying to kind of look at. 
But we agreed on the policy, and that left so much room for 
normal partisan debate. There is a policy. That is fine. How do 
you get to the policy? Then the Dems would argue we have got to 
have more revenue. The R's would argue, no, you have got to cut 
more. We would come up with an answer, but nobody questioned 
the basic policy.
    So I was quite surprised to get here as a Senator and find 
that there is really no debt management policy. We had a 
hearing about a year ago that the Chairman called, and the 
title of it was ``America's Dangerous Debt.'' And when I asked 
all three of the witnesses, majority and minority, ``Okay, 
America's dangerous debt, what level of debt is dangerous? You 
tell me.'' None of them would even give an opinion about what 
the metric should be to determine the line between acceptable 
and dangerous debt. We do not have a debt management policy.
    If you have a policy, you can provide plenty of room to 
argue, partisan or otherwise, about how to get there. But if 
you do not have a policy, it really means there is not a 
forcing mechanism. We would be much better off having a debt 
management policy expressed as ratios and scrapping the whole 
debt ceiling thing in terms of dollars. Because when we say to 
the American public we have $18 trillion in debt, they are 
going to freak out because that is a big number. But you can 
imagine the size of an economy where that level of debt would 
not be dangerous. Or you can imagine an economy where $1 
trillion of debt would be super dangerous. The raw number is 
meaningless, but that is part of the hoax that we are 
perpetrating, we are managing by a meaningless number and 
refusing to develop meaningful measures.
    So I would be curious. States and Feds are different 
because States only use debt for capital, and Feds use, and 
should, national governments use debt for capital plus 
operations. But I think maybe I am just going to ask this for 
the record because I would like your considered thought: Could 
we have a Federal debt management policy? And in your expert 
opinion, what would it look like? And I am out of time, but I 
am going to ask that question for the record, and I would love 
to see your answers.
    Senator Kaine. Thank you, Mr. Chair.
    Chairman Enzi. Thank you. What a great bunch of suggestions 
and ideas. I have got a lot to kind of digest through the rest 
of the day and the week as we work toward next week. But I have 
got a few questions, too.
    Dr. Joyce, you mentioned in your testimony that late 
appropriations produce significant costs, and many of the 
Members of Congress, both Democrats and Republicans, have 
suggested moving to a 2-year budget cycle to provide certainty 
and stability in the appropriations process.
    Now, what we have actually talked about is a 2-year 
budgeting process, not a 2-year appropriations process. I want 
to make that distinction. What do you think that a 2 year 
appropriations cycle would do to affect the uncertainty? Do you 
think that would be a possibility based on your previous 
experience and study?
    Mr. Joyce. Well, I would say that, you know, as you noted, 
I was at CBO for 5 years, and during the 5 years I was CBO, I 
probably wrote ten testimonies on biennial budgeting. So this 
is an idea that has been around for a while. And I have 
testified a couple times on biennial budgeting since then.
    I would say that on the topic of this hearing, which is 
certainty, there is no question that, as Senator Kaine 
suggested, knowing what your number is for more than 1 year is 
something that is beneficial in terms of the management of 
Federal agencies. I think that the question that one has to ask 
is whether what is a biennial appropriations process on paper 
will end up being an annual process in fact. That is, will 
there be such big changes in what is theoretically the non-
budget year, you know, that it sort of offsets the effect of 
that improvement in certainty.
    In terms of the biennial budget resolution, you know, you 
have to admit that it would be an improvement over what we have 
now because we do not even do a budget resolution every other 
year. So if you really sort of stuck to it, it would be a good 
thing.
    I do think that while we are in budget disequilibrium, as 
we are now, you have to admit that it would cost you the 
opportunity every other year to use the reconciliation process 
if you thought that is what was necessary in order to try to 
come up with whatever the big deal was that would bring the 
budget back into equilibrium.
    Chairman Enzi. Thank you. Of course, one of the suggestions 
was that reconciliation only be used for debt reduction, and 
the appropriators have all said, ``It would be good to have a 
biennial budget, but do not make us do biennial 
appropriations.'' And that is because everybody likes to give 
away money every year, and that is a part of the problem.
    Another part of the problem, of course, is if we go to 
biennial budgeting, probably the best time to do it would be 
right after an election. Right before an election, people are 
all concerned about whether they will get reelected if they are 
really tough on spending or taxes or anything. The difficulty 
with doing it right after an election is that every 4 years it 
will have just--a President will have just been elected who 
will not have had the Office of Management and Budget working 
for him and so will wind up with a document--it is about 2,500 
pages, which I am not sure anybody ever looks at--that that 
President would not have put together. I am not even sure 
whether any President has looked at all of those pages that 
have been put together for him by the Office of Management and 
Budget.
    Senator Whitehouse. Ever.
    Chairman Enzi. Ever, right. So getting the President into 
the process, one of the things that was suggested was having 
the President, instead of presenting all the numbers, present 
what he wants to achieve over his 4 years, and instead of 
budgeting for 10 years, budget for 4 years, and see how many of 
those priorities can be worked in there, both additions and 
subtractions, to get a PAYGO over a 4 year period, which would 
be more beneficial than a 2-year period.
    Would either of the other two of you care to comment on any 
of those comments?
    Mr. Ornstein. I wrote a couple of things a few years ago on 
2-year appropriations and a 2-year budget, partly at the urging 
of Pete Domenici, who was so ardent in this area, and he was 
such a good person that I decided I would do it, but with 
misgivings, especially about 2-year appropriations.
    I do not think 2-year appropriations ultimately will work 
because they just do not fit into the political needs of 
members. And you end up with the end games that we always end 
up with, which is why changing the fiscal year, nice as it 
might be, is not going to effectively do very much. And the 
longer you extend those, the more games are going to be played 
with them, and the more adjustments will be made along the way.
    But having said that, I think what Senator Kaine said is 
powerful. And I would add, Mr. Chairman, if you do not mind, I 
really think we have to focus on how we can make the Government 
that we have work effectively and efficiently, and there are 
too many members who want to blow the whole damn thing up. And 
this goes beyond giving managers some certainty so that they 
can plan ahead. It also gets to how we are now cutting out 
every ability for people to do continuing education and 
training. We are cutting their pay or freezing it for years at 
a time. I think we have to have an even broader focus.
    Whatever size of Government you want--and we are going to 
have differences, all of us, as all of you will--what we have 
should work well. And there, 2-year planning clearly is a 
better idea if we can make it work somehow.
    Mr. Hassett. Mr. Chairman, I would like to go back to what 
Senator Kaine said. My view is--and Norm knows this is 
something that I have been pushing for a while--that the right 
thing to do is to have an argument or a debate about what is 
the appropriate--what would a reasonable budget look like? What 
is the appropriate level of Government spending to GDP? What is 
the appropriate level of taxes to GDP? What is an appropriate 
trajectory for the deficit? And then you would--of course, we 
would not agree about the point estimates for that, but we 
might agree about a range. Like we do not want to have debt to 
GDP exploding. Maybe if it is above X percent of GDP, if it is 
above 20 percent of GDP, the spending, then that is something 
that I would not like. Or we could argue about it. But once we 
set those parameters, if the budget that you pass meets them, 
then it ought to be that continuing resolutions and debt limits 
happen automatically.
    I think that that is the way I would construct it, not lean 
on PAYGO, because then you guys could decide what you think is 
a reasonable budget, and then if a budget is passed that is 
reasonable, then all the things that we are worried about--
again, we are talking about 2 years as opposed to 1 year, in 
part because we want to avoid the cliffs and the shutdowns and 
the games of chicken. But if the budget process basically has a 
debate, an honest debate, lots of hearings about what does a 
reasonable budget look like, and then you guys decide this is a 
reasonable budget, and if we meet those parameters, then we are 
not going to have those shutdowns, then I think that we will 
have improved the process.
    Chairman Enzi. Thank you. My time has greatly expired.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    Let me make just a couple of points, and I think what we 
are trying to do is build a record here for us to get together. 
So if you will respond not only to the other questions but to 
these points, the first one with respect to the concern about 
continuing resolutions, if the appropriators are free to 
appropriate when authorizations either do not exist or are 
expired, then the CR becomes a very easy thing to manage 
around. And so what the heck? So appropriations discipline 
should have some pushback into making continuing resolutions 
less awkward. On the other hand, if you are going to have to 
live by continuing resolution, it is practical to have the 
appropriators make those adjustments as you continue to bring 
kind of zombie programs over and over again through time.
    I assume you gentlemen know what the size is of the 
national debt.
    [Witnesses nodding heads.]
    Mr. Joyce. Yes.
    Senator Whitehouse. Give the number.
    Mr. Hassett. I have got it right here in the chart I just--
--
    Senator Whitehouse. Give the number for the record.
    Mr. Hassett. The debt held by the public as a share of GDP 
at this exact moment is about 78 percent--I am looking at a 
chart, a graph.
    Senator Whitehouse. In dollars?
    Mr. Hassett. Excuse me?
    Senator Whitehouse. In dollars? In trillions of dollars?
    Mr. Hassett. Oh, now we are testing me a little. Yeah, so--
--
    Senator Whitehouse. I have it as 19----
    Mr. Ornstein. $18 trillion, I think? It is somewhere around 
$18 trillion.
    Senator Whitehouse. Yeah, $18, $19 trillion. Okay.
    Mr. Joyce. That is the gross debt, yes.
    Senator Whitehouse. That is the gross debt, exactly.
    Now, we budget here on a 10-year budget cycle. How much 
money goes out the back door of the Tax Code through tax 
spending over a 10-year budget cycle? If you do not know, it is 
about $20 trillion, which means that if we could manage our tax 
spending better, we could have a very big mechanism for getting 
rid of the debt. The total national debt is less than goes out 
the back door of the Tax Code every single 10-year budget 
cycle.
    So part of what we need to do, I think, in budget is make 
sure we are addressing that, because it is way bigger than the 
traditional expenditure, the non-mandatory expenditures. So I 
think we need to have our budget process look at that side.
    I think we also should consider having our budget process 
look at mandatories, because I do think there are areas in 
which you can address things without having to create enormous 
rows. And I will make one proposal. I recall that if you looked 
at what CMS is obliged to pay per capita State by State and you 
look at, if my recollection serves, Minnesota and Mississippi, 
they are paying twice as much per capita in Mississippi as they 
do in Minnesota. What is going on? Why is it that some States 
are allowed to run programs that are wildly expensive compared 
to the norm? And what could we do to make States look more like 
Minnesota in terms of their per capita expenditure? And maybe 
if you put a little bit of a belt around the mean so that 
States that were really grievous outliers on the bad side 
simply did not get that money, that would focus the mind of 
those Governors, those State medical associations, those State 
hospital associations very considerably into how you deliver 
better care, because I think most people would argue that the 
care in Minnesota is better than the care in Mississippi; and, 
indeed, that better care is very often associated with lower 
cost as a general principle.
    So there are areas for looking at where you are not just 
going in and saying we are going to have to cut that benefit, 
we are going to have to, you know, do sort of Civil War 
medicine on the health care programs, when, in fact, just the 
very ability among the States shows what the room is for 
improvement on the part of certain States.
    And I will close with this comment, which is that if this 
Committee does not produce something that is bipartisan, then 
game over. At that point you are just part of the bipartisan 
fighting here. And that has its role, and I understand that. 
But one of the things that we stand a possibility of doing is 
putting something together that has significant bipartisan 
support in this Committee. And if we do, that will be a very 
significant set of gravity for the Senate at large. And that is 
something I think many of us would like to work on.
    So, again, I will close by thanking the Chairman for his 
leadership into this area. I think it is a very wise and good 
place to be directing our attention in this period of not doing 
a Budget Committee budget because we do not need to, because we 
have a budget already agreed to. And I look forward to the very 
terrific witnesses contributing in writing their thoughts to 
what I hope will be a meaningful review of how we budget for 
this great country.
    Thank you, sir.
    Chairman Enzi. Thank you. And you will be pleased to know 
that I just asked CRS for an updated tax expenditure report so 
we would know where they came from, what they do, how much they 
cost. I had a whole series of questions regarding that, to ask 
them to update that.
    Senator Whitehouse. Yes.
    Chairman Enzi. I saw an old list of it, but I have not seen 
any----
    Senator Whitehouse. And, of course, some of it is, you 
know, pretty good stuff that American families count on, like 
the home mortgage tax deduction. But some of it smells to high 
heaven and was snuck in by lobbyists at midnight and has real--
I mean, it is the kind of thing that makes people go out and 
get mad as hell in the voting booth. And we should clean it up. 
It is a swamp.
    Chairman Enzi. So we will not only have to take on the 
appropriators, we will have to take on the Finance Committee 
when we start to get into taxes, too.
    Senator Whitehouse. That is right.
    Chairman Enzi. I look forward to some meaningful 
discussions with you, and I have some more questions, but I 
will submit those in writing as well, and I am sure there will 
be others on the Committee.
    Chairman Enzi. There is getting to be more interest in 
doing this, as they think that maybe it is a possibility. We 
had a lot more show up today than we have had in the past. But 
I have been sharing some of the results of what we have come up 
with before with them.
    So with that, I will adjourn the hearing. People can turn 
in questions until 5 o'clock today. Thank you.
    [Whereupon, at 11:48 a.m., the Committee was adjourned.]
    

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                    BETTER BUDGETS, BETTER RESULTS

                              ----------                              


                       WEDNESDAY, APRIL 27, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:32 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Ayotte, and 
Whitehouse.
    Staff Present: Eric Ueland, Republican Staff Director; 
George Everly, Chief Counsel; for the Minority: Joshua Smith, 
Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will go ahead and call to 
order this meeting of the Senate Budget Committee and welcome 
everyone to the fourth hearing in a series the Committee is 
holding to fix America's broken budget process.
    The Democrats are having a caucus, as I understand it, 
right now. I imagine it might have something to do with the 
appropriations bill that we are doing right now. But as soon as 
Senator Whitehouse shows up, we will have him give his opening 
statement. But we will go ahead and proceed because we have a 
noon vote today to work in as well.
    Over the hearing arc, we are beginning to see increasing 
support and acknowledgment from both sides of the aisle that 
our budget process is broken, and now is the time to fix it. 
Instead of the current budget process, which is designed to 
fail both Congress and our constituents, it is time to put 
forth a budget process that is designed to succeed. Our 
spending decisions are fragmented across multiple committees 
and Federal agencies. Dysfunctional annual appropriations 
create uncertainty that negatively affects agencies, 
businesses, and individuals. And mandatory spending is 
literally surging out of control, driving future deficits and 
debt to unsustainable levels.
    Congress also fails to review its past spending decisions 
and results after the funds have been spent. GAO's Comptroller 
General told us that his agency is unable to properly audit the 
Government because it cannot keep track of all of the assets 
and because of different definitions between agencies. This 
means Congress does not know whether previous Federal spending 
has been effective because program performance data is 
completely disconnected from congressional spending decisions, 
and good performance is not rewarded and bad performance has no 
consequences.
    And it is clear from our previous hearings that even if we 
have not yet agreed on a particular path forward, we all agree 
that something must be done. There have been many good ideas 
presented on how to fix the process. We have heard big, 
comprehensive ideas that fundamentally change the way Congress 
and the executive branch of Government allocate resources. And 
we have heard more narrow and targeted ideas that could at 
least begin to improve the current process.
    Today we will hear more reform thoughts from our panel of 
experts. This hearing is critically important because it 
focuses on the actual budget documents created during the 
annual budget process. The President's budget submission and 
the congressional budget resolution are supposed to serve as 
unifying documents that set forth serious, comprehensive fiscal 
plans for the Government. But both have become increasingly 
meaningless as tools to govern and bear little relation to the 
actual tax and spending decisions made by Congress.
    The President's budget is a massive undertaking that 
consumes over 2,600 pages. While some of the information 
provided is useful, many of those pages are full of spin, 
talking points, and proposals that everyone knows are dead on 
arrival. The document is so huge that it limits its usefulness. 
In many ways, this document has become, through several 
administrations, a giant press release focused on messaging 
rather than as a serious plan to address the challenges facing 
the state of our Union.
    The statutes governing the content and structure of the 
President's budget result from a patchwork of legislation 
pieced together over the past century. And the current format 
of the President's budget is largely based on a plan developed 
in 1912 during the Taft administration. The structure of the 
President's budget was not planned but evolved, and no matter 
how far it has evolved, one thing is clear: This document is 
not 21st century budgeting.
    The President must have a more constructive role in the 
budget process. If not, his only recourse is to veto large tax 
and spending bills, creating showdowns, shutdowns, and crisis 
deals negotiated behind closed doors, usually after the fiscal 
year starts. This undermines the fiscal discipline and 
financial future of our Nation. Involving the President early 
in the negotiating process will allow Congress to develop a 
clear path forward for budgeting and passing over regulation 
and legislation.
    My concerns are not just with the President's budget. The 
congressional budget resolution has also been similarly 
irrelevant. In theory, it should serve as a fiscal blueprint 
that coordinates revenues and spending and that connects 
congressional priorities with committee legislation. And it is 
the only tool that Congress has to control runaway mandatory 
spending.
    As you can see in the chart on the screen, this portion of 
the budget has grown to 70 percent and will bankrupt the 
country if nothing is done. It is not working. Seventy percent 
of Government spending is not regularly reviewed by Congress, 
and that does not include expired programs we still fund. In 
practice, its limits on discretionary spending have been 
superseded by statutory caps, and its limits on mandatory 
spending are routinely ignored or put aside because it only 
takes 60 votes--the same amount required to end debate on 
legislation.


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    One of Washington's dirty little secrets is that the amount 
our Government spends in a given year almost never matches the 
amount the budget resolution contains. But even that ``let us 
pretend'' process is falling apart.
    In the last 15 fiscal years, Congress failed to pass a 
budget resolution more than half of the time, as shown in this 
graphic. Prior to 1997, it had never failed to pass a budget. 
The congressional budget should provide predictability and 
certainty, the limits it establishes should be enforceable, and 
the tax and spending measures Congress passes should adhere to 
the budget.


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    The Federal Government's budget should be a long-term, 
enforceable plan that provides predictability, transparency, 
and accountability. Members of this Committee know that our 
current process by design fails to do that. No one can 
guarantee which party will win the Presidency this fall or who 
will be in the majority. We all know that voters have a way of 
upending expectations.
    So now we have a unique opportunity--and it probably will 
not happen again for another 4 years--to fix America's broken 
budget process so that it can matter once again. I especially 
appreciate the willingness of my colleagues to engage in a 
constructive and bipartisan manner on one of the most important 
and serious challenges facing this country. And I have 
appreciated the ideas from both sides of the aisle that have 
been put forward on this, many of which I think can be included 
in a document.
    So I look forward to a positive and elevated conversation 
with our witnesses today which matches the seriousness of the 
purpose to which we are engaged.
    Since Senator Whitehouse is not here yet, I will go ahead 
and introduce the witnesses and I thank our witnesses for being 
here today. The tradition in all of the committees, of course, 
is that people that are not there, and even ones who are there, 
can submit questions up until 5 o'clock today, which we hope 
you will also respond to. Often what is in writing is more 
helpful because it is more detailed usually than what we cover 
in the public part of the hearing.
    Mr. Barry Anderson has extensive experience dealing with 
Federal budgeting in the United States Federal Government as a 
senior career official at the Office of Management and Budget 
and as the Deputy Director and then the Acting Director of the 
Congressional Budget Office. He was on both sides. He also has 
experience dealing with the budgets of other nations. Mr. 
Anderson has been the head of the Budgeting and Public 
Expenditures Division in the Organization for Economic 
Cooperation and Development, OECD, in Paris. He has also served 
as a budget adviser at the International Monetary Fund. And, 
finally, he has served as the Deputy Director of the National 
Governors Association.
    Mr. James C. Capretta is a Mercatus Center Affiliated 
Scholar, a senior fellow at the Ethics and Public Policy 
Center, and a visiting fellow at the American Enterprise 
Institute. He has served in senior positions in the executive 
and legislative branches of the Federal Government for 16 
years. He previously worked at OMB and on the staff of the 
Senate Budget Committee and on the staff of the House Ways and 
Means Committee.
    Our third witness, Mr. Stanley Collender, currently serves 
as the executive vice president of communications at Qorvis. 
Mr. Collender has worked for three Members of the U.S. House of 
Representatives and on the staff of the House Ways and Means 
Committee and on the staff of both the House and Senate Budget 
Committees. As a member of the House Budget Committee staff, he 
served as administrator of the Task Force on State and Local 
Government. For the Senate Budget Committee, he was responsible 
for analyzing defense spending. He is also the author of 
``Capital Gains and Games,'' a blog published by Forbes.
    So I want to thank all three of you for joining us today to 
share your expertise, and I appreciate the written testimony 
that you have already provided. The entire testimony will be a 
part of the record.
    So, with that, we will go ahead and get the testimony. I 
will begin with Mr. Anderson.

     STATEMENT OF BARRY ANDERSON, FORMER ACTING DIRECTOR, 
CONGRESSIONAL BUDGET OFFICE, AND FORMER SENIOR CAREER OFFICIAL, 
                OFFICE OF MANAGEMENT AND BUDGET

    Mr. Anderson. Thank you, Chairman Enzi, and to the members 
of the Committee for the opportunity to appear before you to 
discuss proposals to reform the President's and congressional 
budgets.
    As you have mentioned, Chairman Enzi, I have had a very 
long career in budgeting--30 years at the Federal level at OMB, 
CBO, and GAO; 5 years at the international level at the OECD in 
Paris; 5 years at the State level at the National Governors 
Association; and 2 years at what I call the ``supra-national 
level'' at the International Monetary Fund.
    Over the years, I have seen budgeting from many 
perspectives, and believe it or not, I think that the 
foundations of our Federal budget system are sound. These 
foundations include: the separation of powers; the use of 
obligational (as opposed to cash or accrual) budgeting; 
generally transparent information on revenues (including tax 
expenditures), on credit programs, on performance assessments; 
even on our elaborate budgetary enforcement mechanisms such as 
the Anti-Deficiency Act and sequestration. That said, there is 
undoubtedly much room for improvement.
    But my testimony today concerns only one aspect of our 
Federal budgetary system: proposals to reform the President's 
budget. I have three recommendations focused on changes that 
would make the President's budget more relevant to the process 
of setting a Federal budget:
    Number one, bring back the Citizen's Guide to the Federal 
Budget. The latest President's budget--the fiscal year 2017 
budget--has seven different documents totaling over 2,600 
pages. ``Spin''--or the political promotion of the President's 
proposals--is everywhere. Perhaps that is to be expected. It 
is, after all, the President's budget proposals. But for many 
years previous Presidents also submitted a short--30 pages or 
so--easy-to-read, fundamentally factual description of the 
Federal Government's fiscal status that was originally called 
``The Budget in Brief'' but in the 1990's was renamed ``A 
Citizen's Guide to the Federal Budget.'' Sure, it contained a 
summary of the President's proposals, but the summary was only 
a few pages, not several hundred. By making the increasingly 
complex budget easier to understand, the Citizen's Guide helped 
the public, the press, and politicians frame their views on the 
difficult budgetary decisions that must be made every year. In 
other words, it made the President's budget more relevant to 
the larger budgetary process.
    The acceptance of a budget's proposals varies from 
President to President and from year to year, but whatever the 
reaction to the President's budget, the Citizen's Guide in the 
past has helped both the opponents and proponents of the 
President's proposals understand the country's current and 
projected fiscal status, and by so doing the reasons behind the 
President's proposals, whether they agreed with them or not. 
Bringing back the Citizen's Guide is in no way a solution to 
the fundamental political differences that currently divide our 
country, but a factual presentation that helps the public, the 
press, and politicians understand the President's proposals as 
well as the country's underlying fiscal status can surely help 
bridge our differences and make the President's budget more 
relevant.
    Number two, emphasize long-term budget projections. The 
current fiscal status of the United States Government is not 
the fiscal problem of greatest concern. Projections of our 
fiscal status over the long term is. Capital markets, both 
domestic and international, are currently providing the money 
we need to finance our ever-growing debt at low interest rates, 
and despite near universal recognition that out deficits and 
debt will continue to grow, the difficult status of other 
international borrowers and the level of savings looking for 
``safe'' investments as the world ages mean that we can 
probably continue to finance our growing debt at relatively low 
INT rates in the near future.
    But our population is also aging rapidly, and baby boomers 
like myself are retiring in the thousands every month. These 
demographic pressures coupled with generous programs for the 
elderly, infrastructure needs, man-made and natural disaster 
risks, and the public's natural reluctance to support tax 
increases result in a very grim fiscal future indeed. Yet 
despite the widespread recognition of this grim forecast and 
despite the widespread recognition that certain actions taken 
today can significantly improve our long-term fiscal future, 
the fiscal year 2017 budget does not provide a discussion of 
the long-term fiscal budget outlook until well into the 418-
page Analytical Perspectives document.
    The importance and impact of today's policies over the long 
term demands that long-term projections be made an integral 
part of the President's budget. Long-term projections under 
current policies and how those projections might change under 
the President's proposals should be displayed and discussed 
along with short- and medium-term projections.
    Recognizing that the longer the projections, the more 
uncertainty is involved means that it is even more important to 
be fully transparent about the assumptions behind the 
projections as well as to display the sensitivity analysis 
about the major factors that influence the projections. Despite 
these uncertainties, it is far superior to display and discuss 
the potential long-term fiscal impacts of the President's 
budget proposals than to pretend that they do not exist by 
ignoring them. In sum, the President's main budget document 
should display and discuss the potential impacts of its policy 
proposals on its long-term projections in the same manner that 
it displays and discusses the potential impacts of policy 
proposals on short- and medium term projections, not hide them 
in some technical document.
    Number three, revise the content and presentation of the 
President's budget documents. I have mentioned above that 
bringing back the Citizen's Guide would help increase the 
relevance of the President's budget. And revising the content 
and presentation of the remaining budget documents could also 
help. Let me mention the four main major documents.
    The Main Budget Document, which is about 200 pages. The 
President presents his budget proposals in this document, and 
it should remain the primary place for political arguments 
supporting the President's proposals. Adding long-term 
projections to the document and, perhaps, some of the political 
chapters currently in the Analytical Perspectives, which I will 
mention next, are the only changes I would make to this 
document.
    Next is the Analytical Perspectives Document, which is 
about 400 pages. Years ago, this was called ``special 
analyses,'' and then it was condensed into the Analytical 
Perspectives document, and it was solely a technical document. 
It should be brought back to that. It now has technical 
presentations on economic assumptions, on Federal borrowing and 
debt, and on tax expenditures. But in the last couple of years, 
presentations that belong in the Main Budget document have been 
added. These include strengthening the Federal workforce and 
Federal budget exposure to climate risk. Incorporating these 
political presentations into the Main Budget document--if the 
President deems them to be important--would cut the size of the 
Analytical Perspectives by roughly a quarter and make both 
documents more focused.
    The third is the Historical Tables, about 400 pages. During 
my long career at OMB, I frequently heard that this was the 
most useful budget document--a true reference source of 
valuable data available nowhere else. So why is it now 
available only online? The printed version should be restored 
immediately.
    Lastly is the Appendix Document, about 1,400 pages. This 
document is prepared primarily for the Appropriations 
Committees. They need it, and OMB and the agencies need to 
prepare it to make sure that the budget numbers are both 
comprehensive and internally consistent, but there is no need 
to print it for anyone other than the Appropriations 
Committees.
    With respect to these changes, I recommend that a better 
way than putting them in legislation is to use the confirmation 
process, Mr. Chairman, for the OMB Director. Getting the 
agreement of the President's nominee for OMB Director during 
the confirmation process can provide a personal commitment that 
members can cite if the changes are not made.
    If I can close with one last point, it is time for a new 
budget concepts commission as former CBO Director Rudy Penner 
and I wrote last January. The basic concepts underlying the 
U.S. Government's budget are in disarray. Consider that there 
is no generally accepted practice about how to deal with such 
things as what the budget should include, how spending and 
revenues are defined, or how the budget should be displayed to 
show the economic impact of different kinds of spending.
    The 1967 Report of the President's Commission on Budget 
Concepts addressed some of these issues and led to some 
reforms, such as the unified budget. But many issues remain to 
be resolved, and it is time to create a new commission to 
address some of these, including:
    The scope of the budget. Some programs are on budget, some 
programs are off budget. Moreover, the way the budget should 
treat Government-sponsored enterprises and other Government-
private partnerships needs to be detailed.
    Defining spending and revenues. The distinction between 
taxes and spending has become muddled and needs to be 
addressed. For example, ``tax expenditures'' and ``offsetting 
collections'' should to be defined more precisely and their 
placement in the budget reconsidered.
    Thirdly, the economic impact of different types of 
spending. A new commission needs to recommend better ways of 
showing the impact of such things as Government purchases of 
securities, trust funds, capital investments, and loans or 
guarantees.
    Although the topic of budget concepts may seem dry and 
technical to most Americans, and even lawmakers, almost all of 
these issues are important economically and have an important 
political dimension. How the budget is organized and its 
components defined and represented gives a particular 
impression about how much money the Government raises and 
spends and what it does with the money. So clarifying the way 
the budget is arranged and defining budget terms has important 
implications. I urge the Committee to work with the President 
to form a new Budget Concepts Commission.
    With that, Mr. Chairman, I would be happy to answer any 
questions members of the Committee might have.
    [The prepared statement of Mr. Anderson follows:]
    

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    Chairman Enzi. Thank you. And the Ranking Member is here 
now, so I will call on Senator Whitehouse for his comments.

            OPENING STATEMENT OF SENATOR WHITEHOUSE

    Senator Whitehouse. Thank you, Chairman. Let me again 
express my appreciation to you for the focus we have here on 
reforms that could improve our budget process and increase the 
relevance of this Committee. The hearings this month have been 
insightful, and I look forward to the rest of today's panel.
    Setting aside the relative merits or demerits of a 
President's annual budget request, let me just take a moment on 
the document itself.
    For as long as I have been a Senator, the President's 
budget has been a set of volumes, the first and the shortest of 
which is a summary that presents the President's policy vision. 
This is something of a political document, and I do not fault 
Republicans for viewing it at this time as dead on arrival. We 
did the same with the last two budgets sent up by President 
Bush.
    While the first document can be viewed as a political or 
partisan publication, the other volumes include a wealth of 
information useful to all Members of Congress. These volumes 
include detailed, line-by-line tables of program spending at 
every agency, analyses of select policy issues, and historical 
tables listing budget information going back to the founding of 
the Republic.
    At a recent hearing, the Chairman questioned whether anyone 
reads the entirety of the President's budget request. Probably 
not, but we should view most of the budget request as an 
annually updated encyclopedia of data on the Federal 
Government. Appropriators, authorizers, CRS, CBO, researchers, 
and academics all rely on this annually updated data and in 
many cases use language drafted by the administration and 
included in the budget request for appropriations and 
authorizing bills.
    On the topic of the President's budget request, let me 
reiterate the dismay of Senate Democrats that the Chairman 
chose to break with tradition and not hold hearings on the 
President's fiscal year 2017 request. Congress may not always 
like the President's proposals, but for four decades, since the 
Budget Act's first passage, this Committee had never before 
denied the President the courtesy of hearing the administration 
out. Democrats heard out Republicans when we held the majority 
in the final 2 years of the Bush Presidency, and I hope the 
majority next year will restore this tradition, no matter who 
is President and no matter which party controls the Senate. It 
is an unprecedented and disorderly discourtesy.
    Budget rules are only useful if we follow them, and this 
Committee is only relevant if we want it to be.
    Last week, I had a useful and interesting conversation with 
the Chairman's friend, former Chairman Kent Conrad, where he 
described the respect that this Committee enjoyed during his 
early years in the Senate. According to Senator Conrad, it was 
not the rules that were different back then so much as simply 
that Senators actually took the budget and the budget process 
seriously, as we have not done for some time.
    As we consider budget reform legislation, I would encourage 
the Chairman to bring in former Committee leaders, including 
Senators Conrad and Gregg, to get their takes on potential 
reforms. This could be in the form of a private meeting with 
members so that the conversation can be more open and less 
inhibited. I do think it would be useful to hear from the 
Senators who have sat in these seats in the past, and I do 
believe that we do need to make reforms in the way this 
Committee operates, whether it is to simply disable it and let 
the appropriators take over and the President and the 
leadership, or to turn it over to an ex officio committee of 
the Chairs of Finance and Appropriations and leadership and so 
forth, or whether to actually look at how this Committee works 
and revive it in more or less its current modality. But I do 
think that there are things that can be done, and I look 
forward to working with you. I think the bipartisan agreement 
in this area is very promising, and so thank you for that, Mr. 
Chairman.
    Chairman Enzi. Well, thank you.
    Senator Whitehouse. I yield back to the witnesses.
    Chairman Enzi. If I were trying to avoid criticism, I would 
never have had held this hearing. I think it is important and 
can bring out a lot of things that have been going on for 
actually decades. And if we cannot make it better, the country 
is in trouble. And we have to make it better together.
    Mr. Capretta.

   STATEMENT OF JAMES C. CAPRETTA, SENIOR FELLOW, ETHICS AND 
      PUBLIC POLICY CENTER, AMERICAN ENTERPRISE INSTITUTE

    Mr. Capretta. Thank you, Mr. Chairman and Senator 
Whitehouse and the other members of the Committee. I am glad to 
be here. Thank you for inviting me to participate.
    In my testimony today, I will discuss three aspects of the 
current process that require attention and reform: the 
uncontrolled growth of mandatory spending, the importance of 
keeping focus on long-term fiscal policy, and the absence of a 
process for facilitating legislative and executive agreement on 
the budget.
    The fundamental problem with the Nation's finances is the 
runaway expense of mandatory spending programs. In 1962, the 
Federal Government spent 4.7 percent of GDP on benefit 
transfers and other automatic spending programs. By 2013, 
spending on these programs had risen to nearly 13 percent of 
GDP.
    Instead of forcing policymakers to confront this problem, 
the current budget process shifts financial pressures off of 
these programs and onto other portions of the budget. As 
entitlement spending programs have gone up rapidly, funding for 
annually appropriated, discretionary accounts has fallen 
precipitously.
    The next problem is the Nation's long-term fiscal policy. 
The Nation's fiscal position has deteriorated significantly in 
recent years, with large deficits and mounting debt. But the 
most significant threat is not short term but mid- to long 
term. According to the Congressional Budget Office, Federal 
debt will never again return to the post-war norm of below 
around 50 percent of GDP. Instead, the national debt will rise 
inexorably and exceed 100 percent of GDP in 2040. The primary 
cause, again, is rapidly growing entitlement spending.
    Policymakers need to keep their eyes on the long run and 
the steps necessary to begin closing the immense gap between 
expected revenue and expected spending. It would be truly 
unfortunate if Congress and the President pursued a short-term 
fiscal plan without also thinking about what needs to be done 
over the longer term. The result could very well be a temporary 
reduction in the budget deficit that is quickly overwhelmed by 
long-term trends.
    A related problem is that the executive and legislative 
branches of our Government have parallel budget processes that 
do not necessarily result in a consensus plan.
    Congress expresses its views, when it does, on the budget 
in the congressional budget resolution. Congressional budget 
resolutions are not laws. Rather, they are concurrent 
resolutions, which means they are relevant only for the 
Congress. Presidents are in no way bound by them. Similarly, 
the President produces his own budget, and the Congress is not 
bound by it.
    The parallel budgetary processes are a reflection of our 
constitutional structure. The co-equal branches each have a 
substantial role in the process, but there is no legal 
requirement that they ever come to an agreement. Indeed, with 
some exceptions, it can be said that the Federal Government 
never truly operates within a budget because the legislative 
and executive branches rarely agree on one.
    A possible, partial antidote for budgetary drift, rising 
mandatory spending, and neglect of the long term might be found 
with a joint budget resolution.
    Unlike a congressional budget resolution, a joint 
resolution must be agreed to by the President and, therefore, 
is a law. It thus has the potential, depending on its design, 
to facilitate, and perhaps even pressure, the legislative and 
executive branches into coming to an agreement.
    There are numerous ways to provide for the consideration of 
a joint budget resolution, but the most straightforward option 
would be to build upon the current process. This can be 
accomplished by amending the current Budget Act rules to allow, 
at the Congress' discretion, an optional joint budget 
resolution to be spun off of a concurrent resolution, upon the 
agreement to it by both the House and Senate. It would then get 
sent to the President, and its contents, depending on what is 
in it, could be binding in certain ways on total discretionary 
spending, allocations for mandatory programs, revenues, 
deficits, and debt. The President could then either approve or 
veto a joint budget resolution.
    A joint budget resolution covering the full budget would 
have the capacity to adjust the caps on discretionary spending, 
and I might note that this might be a place to start as an 
interim first step. A joint budget resolution could cover the 
whole panoply of things that are in the Federal budget, but it 
might be useful for the Congress to consider starting with 
adjustments just to the discretionary caps. At that point, when 
the Congress passed a congressional budget resolution, it would 
have the potential of automatically sending a law to the 
President, legislation to the President, adjusting the 
statutory caps, bringing into sync both the executive and 
legislative approaches to controlling discretionary spending. I 
offer that up as a potential first step.
    I realize my time is about to run out here, so I am going 
to jump quickly to the long-term budget.
    While a joint budget resolution with sensible enforcement 
would be a significant improvement over the current process, it 
will not by itself solve inattention to the long term. An 
important first step toward addressing that problem would be to 
get agreement between the legislative and executive branches on 
how to measure the long-term fiscal obligations of the Federal 
Government. That could be done by, first, starting with those 
known programs, the big ones--including Social Security and 
Medicare, but beyond that, the big Federal retirement and 
health benefit programs--measuring their unfunded liabilities 
over a period of time and getting agreement between the two 
branches of the Federal Government on exactly the methodology 
for making that calculation.
    Once a common measure is established, it could be used to 
assess legislation in Congress and perhaps also be incorporated 
into a joint budget resolution. For instance, the budget 
process could be amended to require CBO assessments of how 
significant new budgetary legislation would alter the unfunded 
liabilities calculation.
    Further, the congressional budget resolution might even 
allow the committees of jurisdiction to be reconciled for 
reductions in these unfunded liabilities, establishing a new 
way of using an expedited process to begin addressing the 
Government's long-term liabilities.
    There are many other complications associated with 
reforming the process in these ways. I will stop now, and I 
would be happy to answer any questions. Thank you.
    [The prepared statement of Mr. Capretta follows:]
    
 
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    Chairman Enzi. Thank you.
    Mr. Collender.

 STATEMENT OF STAN COLLENDER, EXECUTIVE VICE PRESIDENT, QORVIS 
                            MSLGROUP

    Mr. Collender. Thank you, Mr. Chairman, and let me 
apologize in advance for a cough that does not seem to want to 
leave. So if I cough, I am not dying.
    Chairman Enzi. Okay. I think it is the pollen in the air.
    Mr. Collender. As a former intern and staff member of this 
Committee from back when it began more than 40 years ago, and 
as someone who has devoted much of his career to the Federal 
budget, I am, of course, delighted to provide the Committee 
with my views on improving the congressional budget process. 
But I cannot start my testimony with the standard line of 
commending the Committee for holding this hearing.
    How is it possible that the Senate Budget Committee that 
earlier this year flatly refused to invite the Director of the 
Office of Management and Budget to testify, and in so doing 
helped render the Obama 2017 budget irrelevant, is now holding 
a hearing to discuss, in part, whether the President's budget 
is irrelevant and should be changed?
    How is it possible that the same Senate Budget Committee 
that so far has refused to develop and vote on a budget 
resolution for the coming year is now holding a hearing to fix 
the budget process it refuses to follow?
    To me, this hearing comes close to supplanting Leo Rosten's 
explanation of the word ``chutzpah.'' Rosten said that chutzpah 
was when a man who is convicted of murdering his parents then 
begs for mercy from the court because he's an orphan.
    Today this Committee is the fiscal policy equivalent of 
this man. After first preventing the budget process from being 
implemented this year, the Committee is now demanding the 
process be changed so it can implement it. That is chutzpah.
    My response to the big question you are asking--How should 
the congressional budget process be changed?--is simple: Do not 
do it. The changes you make will have little positive impact on 
Congress' ability and willingness to develop and implement an 
annual budget. The budget process will be at least as 
inefficient and as infuriating with the changes you are 
considering as it is now.
    In fact, Congress does not need a budget process at all. 
The U.S. Constitution gives the House and Senate all the power 
they need to develop, adopt, and implement a budget for the 
coming year. Congress can do whatever its wants right now. The 
problem is that the Senate Budget Committee, the full Senate, 
and Congress as a whole cannot figure out what they want to do.
    So as this year's almost nonexistent budget debate amply 
shows, nothing happens. The country goes without a budget, 
without a fiscal policy that except by accident is relevant to 
the current and projected economy, without appropriations, and 
without many authorizations. Instead, we get shutdowns, 
threatened defaults, fiscal cliffs, and totally ignored 
deadlines. Instead of tinkering with the process, you should be 
trying to develop an overall consensus about what the budget 
process should do.
    In fact, every previous congressional budget process was 
agreed to only when that type of consensus existed. In 1974, 
the Congressional Budget and Impoundment Control Act was 
adopted because there was an overwhelming agreement that 
Congress needed a process. The new process was outcome neutral; 
it could be used to increase or decrease the deficit and debt, 
and any combination of revenue and spending cuts and raises was 
acceptable.
    Several years later, that outcome-neutral process was 
changed when there was a new consensus that reducing the 
deficit should be the goal. That deficit reduction process was 
itself revised when a consensus developed that Congress should 
only be held responsible for those parts of the budget within 
its immediate control. That is when we got PAYGO.
    If you develop that missing consensus, it will be easy to 
design an effective budget process. Without it, any changes 
will be totally meaningless, uselessly symbolic, and a cynical 
hoax.
    My prepared testimony includes comments on four specific 
budget process changes the Committee has recently mentioned: 
the need for authorizations, making the President sign a 
budget, doing away with the President's budget, and 2-year 
budgeting.
    In the time I have left, I would like to discuss just this 
last idea, the plan to do a 2-year budget that supposedly will 
give Congress time to get everything done.
    We have ample, direct precedent for knowing this will not 
work. In 1974, the Congressional Budget and Impoundment Control 
Act changed the start of the fiscal year from July 1 to October 
1 to do exactly what you now say you want to do: give Congress 
enough time to get all of its work done and avoid continuing 
resolutions. But the only thing that this actually accomplished 
after the 1974 act went into place was to create a legislative 
rush in late September instead of late June. And continuing 
resolutions are even more prevalent now than they were back 
then.
    My biggest fear, however, is not that the budget work in 
Congress will expand to fill the amount of time 2 years 
provides. It is that Congress at the same time will change the 
start of the fiscal year to January 1. If that January 1 start 
is after the election and there is a 2-year budget, Congress 
will never adopt a budget or be held accountable for passing 
one before voters go to the polls. That would be contrary to 
one of the major reasons the congressional budget process was 
established more than four decades ago. And it will be a 
political travesty.
    I urge this Committee to stop any consideration of one-off 
process changes. Instead, focus on developing the consensus 
that today is completely absent from the budget debate. Until 
you do, hearings like this, sadly, will continue to be nothing 
more than diversions.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Collender follows:]
    

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    Chairman Enzi. Thank you. I hope this does not just turn 
out to be a diversion. And since it has been raised several 
times, I did not do a hearing on the President's budget, but so 
far I have been able to prevent a vote on the President's 
budget, which the previous 6 years we have had. And, sadly, the 
President's budget total over the 6 years got one vote in 
favor. I thought that was an embarrassment. So like I say, I am 
trying to prevent the normal charade from continuing, and 
that's why we're all here today.
    The idea with this is to wind up with something that helps 
to prioritize and move our country forward. I know that the 
President negotiated a grand budget--we passed a budget the 
previous year. But the President negotiated a grand deal in 
November, and that is different than the budget we agreed to. 
And so it does emphasize the point that the President needs to 
be involved at some point earlier.
    Of course, this budget that he did present, which was 3 
months after the grand deal, exceeds the grand deal that he 
made in November. So that presents a few difficulties of its 
own, and the discussion of those would probably not be really 
helpful because we are in another process here of trying to 
figure out how we can set some priorities for our country.
    Mr. Capretta, the congressional budget resolution is not 
signed by the President, as you pointed out, and he is not 
directly involved in the budget negotiations, at least not 
until the need for a grand deal. As you pointed out, this leads 
to disagreement between the legislative and the executive 
branch on the priorities and creates crisis negotiations.
    Can you explain a little more how the congressional budget 
resolution and that spinoff joint budget resolution might 
provide some kind of a long-term framework?
    Mr. Capretta. Well, one could imagine that the--for 
instance, around the total level of discretionary spending, let 
us assume that the congressional budget resolution did allow 
for a spinoff bill to go to the President on the level of total 
spending in those bills--in the resolution that would go to the 
President and adjust the caps, perhaps for a multi-year period. 
If that were the case, suddenly the congressional budget 
resolution would take on a lot more importance from the 
executive branch's perspective because the caps--the bill that 
would be sent down to the President for signature or veto would 
be real and binding on the executive branch. It would not be 
just something to not take seriously and ignore and maybe in 
many ways, you know, criticize and denounce is not adequate, et 
cetera. And so that would make the congressional budget 
resolution, at least on that aspect of it, very real and very 
pertinent, and I think would probably in certain circumstances 
lead to a discussion, negotiation, and give-and-take earlier in 
the year.
    Now, I would like to say that Mr. Collender's points about, 
you know, process not preceding policy I think is basically 
right. I have in my written testimony--I was not able to say it 
in my oral presentation--I do not think process can be a 
substitute for political disagreement. If there is just no 
agreement between the two parties and the two branches, no 
process is going to make them agree. The only thing that makes 
them agree is the fact that you have to fund the Government at 
some point, the possibility of a shutdown. And so that is the 
precipitating event in recent years, and that would still be 
the case even under this.
    There is no reason--you know, the President could always 
veto a joint budget resolution. So there is nothing necessarily 
in this that would make agreement a requirement.
    On the other hand, if you just look at today's process, 
there is nothing that is set in motion to even allow an early 
agreement. And so this at least would have the possibility, if 
the two sides were so inclined, to come to an agreement earlier 
rather than later.
    Chairman Enzi. Thank you.
    Mr. Anderson, you pointed out that the national debt is 
projected to exceed GDP by 2040 and the President and Congress 
face a unique challenge in addressing this issue because 2040 
is outside of any 10-year budget window that we use to measure 
the spending and revenues. And so you have argued also for a 
long-term budget projection.
    How would an emphasis on the long-term budget proposal 
impact the budgetary decisionmaking? And what are some key 
elements that should be included in that proposal?
    Mr. Anderson. Mr. Chairman, in your introductory 
statements, you had a slide that indicated how much of current 
spending is now mandatory. I believe it was 70 percent is 
mandatory, 30 percent is annual discretionary. I go back many 
years, Mr. Chairman, and back when I first started out in 
budgeting, it was almost exactly the opposite; that is, we had 
close to 70 percent in annually appropriated funds and only 30 
percent in mandatory spending. But the situation you painted 
accurately now does not portray what is going to happen in the 
future; that is, that portion of the mandatory spending is 
going to grow even further, shrinking the importance of the 
discretionary spending.
    With this in mind, I think there are five fundamental 
principles one should look to towards long-term budgeting:
    First, that long-term fiscal sustainability is necessary to 
promote long-term economic growth and better standards of 
living for the country. If you want a good example of that 
internationally, it is Japan. They do not have long-term fiscal 
sustainability, and they have had now two, going on three 
decades of low, if not declining economic growth.
    The second principle is that, in order to obtain long term 
fiscal sustainability, long-term projections are necessary. 
Certainly they should be transparent and have sensitivity 
analysis, but it is absolutely necessary to have them.
    The third is that, in order to obtain long-term fiscal 
sustainability, you do need some kind of constraints. I happen 
to believe that the PAYGO mechanism is inferior to caps on 
spending and that my experience with Sweden and a few other 
countries indicates that caps on spending can work. And, in 
fact, right now we have some kind of caps on tax expenditures. 
One is called the alternative minimum tax and the other is the 
Pease limitation on Schedule A itemized deductions. But we do 
not have any caps on the other major drivers of our long-term 
fiscal insustainability, the health programs and Social 
Security.
    Fourth is that simplicity matters. The complexity that we 
have just is so hard to explain when it is all wrapped in spin, 
and, therefore, a simple presentation matters.
    And, lastly, the effort of the Congress and the President 
and the public ought to be to concentrate on what works. We 
have too little attention on the effectiveness of programs and 
too much attention on how much spending is going into them or 
the input as opposed to the output or outcome.
    So that is how I would change the long-term presentation.
    Chairman Enzi. Thank you. My time has expired.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    I take somewhat to heart Mr. Collender's warning that the 
problem is that the Senate Budget Committee, the full Senate, 
and Congress as a whole cannot figure out what they want to do 
and no one is willing to compromise. He draws the conclusion 
from that changing the procedures here will not have an effect, 
and that is where I must say I differ. I do think that there 
are ways in which by empowering process, ideas and individual 
leadership can be brought to the fore in healthier ways than 
the present process permits.
    The United States Constitution is a process document. Then 
came the Bill of Rights, which moved a whole lot of more 
substantive rights into the equation. But the original 
Constitution was a process document. I believe process matters, 
and I think we can do a lot better.
    There are a couple of areas that I would like to ask the 
witnesses to consider, and please do not--we are not going to 
have time for you to consider these right here in the hearing, 
but we are trying to build a record of ideas, so please do get 
back to us. I will make these questions for the record.
    I think the simplest thing we can do is solve the problem 
of vote-a-rama. When the budget process for every Senator is 
associated with tiresome mischief and nonsense, it is hard to 
undo that association and say, ``Okay, now we are serious.'' So 
removing the tiresome mischief and nonsense from the very 
undignified vote-a-rama process I think is something that we 
actually can agree on. Is that a big achievement? No. But I 
think it is an important start.
    The second thing I think that we should think about--and, 
again, this is all in terms of--we would like to have your 
responses. I think it helps if we actually push down a little 
bit further in the budget so that any budget that we have to 
come up with here gets applied to accounts within the 
appropriations level. Obviously, it is not going to be binding 
on appropriators. They can do whatever they please. But if a 
budget is pure hypothetical theater, at the most macro level, 
and nobody is responsible for applying it to every account, 
then what you end up with is people meeting with advocacy 
groups saying, ``I am for you. Do not worry. We will protect 
you.''
    Well, no, because they say that to every single group that 
comes in, but none of that is true in the context of the 
overall proposal that has been made. So you have got to--it is 
a measure of accountability to have the budget actually connect 
to appropriations accounts so people have to own what they are 
proposing one way or the other.
    A third is that, for me, the ideal goal would be that we 
could agree on three things. Thing 1 would be that we could 
find a way to agree on what an appropriate debt-to-GDP ratio 
is. And if we can agree on what an appropriate debt-to-GDP 
ratio is, we would then need to agree on a glide slope to get 
to it without too much of a brute shock to the economic system. 
And if we can agree on a debt-to-GDP ratio and a glide slope to 
get from where we are to that, then we would need to build 
fences so that there would be consequences of failure. If we 
can do those three things, I think that markets and Congress 
would take some assurance that, okay, we have got some degree 
of method for solving this problem rather than having it just 
be a free-for-all in which a lot of political posturing takes 
the place of policy development.
    The last point is that if we are going to do this, we 
cannot do it just looking at the expenditure discretionary 
piece of our budget picture. We have to look at tax 
expenditures. They are enormous. And we have to look at the 
cost of our social programs. And the thing that comes most 
readily to mind is the importance of health care costs, which 
witness after witness after witness after witness has said is 
what is really driving all of this. So we can get by okay, but 
health care cost is going to just go crazy. The projections are 
alarming, and where do we go? I think we are up 100 times on 
national health care costs just in my lifetime. It is a big 
number.
    So how do we do that? I think if you are planning ahead, 
there are ways to look at health care savings and think 
systemically of how you make a health care system that is not 
the world's outlier for cost per capita by a huge margin 
compared to very well developed OECD countries that have robust 
and healthful health care systems. If we wait until the last 
minute and then the only tool we are left with is cutting 
benefits for seniors on Medicare, well, that is not going to go 
anywhere. We have got to have a way of looking at this as a 
systemic problem.
    So I think if we can work our way through some of those 
things, I am actually pretty optimistic that we can get this 
done. I think a lot of people in the Senate want it to get 
done, and I think that we have an opportunity through reforms 
to make that environment more hospitable so that people who 
want to lead in this area and can bring their colleagues away 
from brinkmanship have a means for doing so, because right now 
the means is the President, the Republican leadership in the 
House and Senate, the Democratic leadership in the House and 
Senate all go in a room someplace, and they wheel and they 
deal, and God knows what side deals are cut to make people 
happy, and the rest of us get presented something, there it is, 
you have 3 days to look at it, or 3 hours to look at it, and 
then we are all going to vote on it. I think there is a huge 
majority of Members in the House and Senate who think that that 
is a really crummy way to do business and that their voices and 
their constituents' voices are completely eliminated in that 
process.
    So I see a pretty significant motivation to get this done, 
and I am more positive than Mr. Collender, I would say. Your 
concerns and cautions are notable, and your experience here is 
laudable. I just wanted to let you know I am a little bit more 
optimistic.
    Chairman Enzi. And I appreciate your optimism, but I think 
it is backed by the ideas that you presented there. Of course, 
the devil is always in the details.
    Senator Whitehouse. Yes.
    Chairman Enzi. And we need to get to some of those details 
and see how to do them. I am optimistic for our country, and I 
feel serious enough about this that I volunteered to eliminate 
the Budget Committee if it is irrelevant.
    Senator Whitehouse. Yes.
    Chairman Enzi. We do not need more steps in our process. We 
need more effective steps in our process.
    Senator Whitehouse. That should be one of the options that 
we consider.
    Chairman Enzi. Continuing on with questions, Mr. Capretta, 
the congressional budget resolution has not been effective in 
controlling any mandatory spending. I think one of the reasons 
we had it as part of the comprehensive budget before was 
because it was generating revenue for the rest of the things 
because we had more money coming into Social Security than was 
going out. But that is not the case anymore. The budget is 
enforced through procedural points of order that only require 
60 votes to waive. As I mentioned before, it is the same as 
required to end debate, and offsets to new spending often do 
not result in real savings. So automatic mandatory spending has 
grown to this 70 percent.
    What enforcement mechanisms should Congress implement to 
enforce the mandatory spending levels in the budget resolution?
    Mr. Capretta. Well, it would have to be done in conjunction 
with the President, so an enforcement mechanism that was inside 
just the Congress could only be a rules based approach. 
Prohibiting the consideration of any legislation that might 
increase spending on any entitlement programs until such time 
as the spending was brought in line with the budget plan, that 
would be one thing you could do. But that is not nearly as 
effective as something that would have the agreement of the 
executive branch and would bring about real consequences unless 
some new legislation was passed to reform the program and bring 
it into conformity with a budget plan.
    In terms of enforcing that, that is the million-dollar 
question because it is highly, highly controversial. How do you 
keep spending on programs that are automatically occurring in 
line with a budget that is below a projected baseline? 
Obviously, that will entail a lot of political controversy.
    I think the easiest things to do are to cancel future 
increases in spending until such time as new legislation comes 
in to bring a program in line with its budget. You could apply 
an across-the-board spending cut. When those have been designed 
in the past, large chunks of mandatory programs get exempted 
from it through the political process establishing the 
sequester. And then you end up with a very narrow base and a 
very large cut, and that ends up being not very effective.
    So I grant that this is the most difficult part of a more 
enforceable budget plan. It requires a lot of bipartisan 
patience to work through it all. I think the goal should be as 
I outlined in my testimony: cancellation of future spending 
increases first, broad-based, as much as possible, spending 
reductions so you do not exempt a lot of programs. You are 
going to have to exempt some for very vulnerable populations, 
but targeting the budget also in a way that is realistic and 
consistent with a prudent approach to reining in future 
spending growth.
    Chairman Enzi. Thank you.
    One of the suggestions that I have been working on is that 
maybe mandatory programs ought to be limited to those that have 
a source of revenue that covers their costs annually, and 
everything else would come under the jurisdiction of budget and 
appropriations.
    While I have Mr. Anderson here and he has experience with 
other countries, I did want to see what he has seen from 
experiences with the budget processes in other countries that 
would contain features that might help us in our process.
    Mr. Anderson. Thank you, Mr. Chairman. I want to answer in 
three different ways.
    First of all, with respect to Senator Whitehouse and his 
ideal goals, we have a very good example of how those ideal 
goals do not work in Europe. The European Monetary Union--that 
is, the countries that use the euro--includes almost all the 
Western European countries except the U.K., Denmark, Sweden, 
Norway, and Switzerland. They set up a process similar to what 
Senator Whitehouse just described; that is, they started with a 
politically established debt-to-GDP ratio. Then they set up a 
glide path how to reach it. But what they did not do--and what 
Mr. Capretta just mentioned--was build effective enforcement 
mechanisms, and a result you can see not just from their debt 
or deficits but also from their economic performance.
    I would like to mention two other countries, one is Sweden. 
Sweden suffered in 1995 a financial downturn even worse than 
what we have suffered in the past 10 years. And what they did 
was vastly reorganize their budgetary status and processes. 
Again, they are part of the European Union, but not members of 
the European Monetary Union. They do not have the euro there.
    One of the things they did was set up 27 different 
categories of spending. That included every element of 
spending, including mandatory spending. Then they set up 
enforcement mechanisms. The enforcement mechanisms were the 
equivalent of ``lookback sequesters.'' They do not call them 
that, but they looked back in the next year at whether the 
targets were met or not.
    What they did not do in the beginning, however, was include 
tax expenditures. They realized what a mistake that was.
    Senator Whitehouse. What a mistake it was not to include 
them.
    Mr. Anderson. Tax expenditures are a relatively new concept 
in budgeting. We in the U.S. are the ones who created it, I 
think, about 30 years ago. Sweden had them and did not realize 
that they needed to control them. Once they set limits on these 
27 different categories of spending then they realized that 
they had to control tax expenditures.
    In one sense we are lucky here. We already have a modest 
type of caps on tax expenditures. They could be improved 
considerably. That is, through the alternative minimum tax and 
the hair cut that one needs to take on the Schedule A 
deductions, there is some modification of the amount of tax 
expenditures. It might need to be improved. But what we do not 
have is any kind of limit at all on the other three major 
drivers of our long-term unsustainable fiscal outlook: 
Medicaid, Medicare, and Social Security. In response to your 
question, Mr. Chairman, Sweden does, and they have had a very 
good result from it.
    Lastly, I would like to mention Australia. Australia 15 
years ago established long-term budget projections that go out 
for 40 years. And they use them in their budget process. Every 
couple of years, they look at what their original projections 
were and how the new projections are different and what are the 
reasons for those changes. They then try to understand the 
reasons for those changes in order to modify future 
legislation.
    So in the Committee's consideration of budget process 
changes, keep in mind the European Monetary Union, Sweden, and 
Australia is what I would recommend.
    Chairman Enzi. Thank you. My time, again, has grossly 
expired.
    Senator Whitehouse.
    Senator Whitehouse. I guess the last point that I would 
emphasize for your written comments, or if you have anything 
you urgently want to say, please feel free to do that now, is 
this problem of health care cost. There are two graphs that I 
think of all the time when I think about health care cost. One 
is the one I referred to earlier of all of the OECD nations, 
and the Y axis is life expectancy, and the X axis is per capita 
cost of health care. And the United States is a crazy, wild 
outlier on per capita cost in health care, miles from the most 
inefficient other OECD country in the world. And you would 
think, ``Okay, cool, that is great. That means that we are 
spending all this money, but, wow, are we healthier. We must be 
living super long lives. America is great.'' And then you dial 
back and look where we are on the Y axis, and we are like 
Croatia or Greece. We are not leaders of the pack by any 
stretch. We are barely holding our own in the middle of the 
pack. So that is, to me, a signal that there is an opportunity 
for cost savings in health care that do not require benefit 
cuts, which is sort of Civil War medicine applied to a much 
more complicated problem.
    The second is the distribution of cost per capita for 
Medicare State by State, and that is all over the place. And 
you can draw more or less a midline through that, and you could 
even draw a little bit of a safety belt bandwidth around the 
midpoint, and then I think you could start to look at the 
outliers and say, ``Why is it that we are paying this State 
this much money for Medicare and Medicaid when they are costing 
significantly more per capita than other States?'' We know you 
can do better because other States are doing better. It tends 
to be the Northern States that do better--I do not know why--
and Hawaii, and it tends to be the Southern States that are 
vastly more expensive than the Northern States. But if you make 
that a State problem, it seems to me, by saying, okay, 
everybody gets a hair cut to the extent that you are outside of 
our bandwidth, every practitioner, every hospital, every 
doctor, everybody--we are not going to do it right now. We are 
going to give you 3 or 4 years to prepare yourself for this. 
But you can bet that the medical society in that State, the 
hospital association in that State, the Governor of that State, 
the health director of that State are all going to start 
looking around in a new way and saying, Damn, why are we so 
bad? Why are we the McAllen, Texas, to use Atul Gawande's 
example, compared to El Paso or someplace else in Texas that is 
way cheaper? And the doctors in the cheaper places are going to 
look down at the McAllen doctors and say, Hey, you clowns, 
knock it off, you are costing us money now; this is not just 
fun and games.
    And so I think that there are real opportunities to put 
pressure on these outliers and bring our outlier OECD status 
back in. And one of the happy things about pursuing that 
strategy is that over and over and over it has been shown that 
when you bring down the cost of care by improving quality, you 
actually have happier patients and better care and better 
outcomes and all of that. It is an unusual win-win-type 
virtuous circle if you can get yourself into it. But there has 
to be really an incentive to get people into it because the 
power of the status quo is very strong.
    So I emphasize that I do think there are things that can be 
done within the context of the big social programs that we have 
to reduce their cost that do not end up with us pointing 
fingers at each other over who is trying to cut benefits for 
the elderly. There are plenty of ways we can do it better. We 
are just beginning to learn it. The way we pay for health care 
is going to have a lot to do with how we make that happen. But 
I do not think that it is conceptually beyond the scope of the 
Budget Committee to say, based on solid testimony and good 
bipartisan support, you know, we think this really can be done. 
And we are going to put some caps out there, and we are going 
to demand that the authorizing committees and the appropriating 
committees drive towards it. And, by the way, if you cannot 
come up with something yourself, here is the way we can offer 
you that we think will help work. If you can do better, you are 
the authorizers. If you can do better, you are the 
appropriators. Great. Go for it. But if you cannot, if you are 
going to continue to muddle along like this, we have got a 
backstop, and here is our backstop.
    So I think there are some ways to address even those very 
difficult and challenging areas without getting into the usual 
partisan knife fights over them.
    So thank you again, Chairman, for the hearing. I do think 
that the witnesses have been very helpful to us. I look forward 
to their commentary back. As I said, at least on our side, and 
I think on the Chairman's side as well, he has notes that he 
takes, and then he goes back, and when he thinks something is 
particularly good, he draws circles around them. He has 
described that process before, and hands them off, and I think 
we are doing a deliberate job of trying to put a book together 
of ideas and strategies so that we can have a really productive 
conversation as a Committee and decide where to go. And I think 
do not feel that you are sending these things to be put on a 
dusty shelf someplace with most of the other Federal written 
product, never read again. I think we will--you have our 
attention, and we appreciate it.
    Chairman Enzi. And we have a tentative comment by the 
Majority Leader that at the conclusion of the 12 
appropriations, he will allow us to consider whatever we come 
up with.
    Senator Whitehouse. That would be very good.
    Chairman Enzi. So we have got some incentive to get it 
done--and, again, before the elections when nobody knows what 
the outcomes are going to be. And I feel real bad, Mr. 
Collender. You have not had another opportunity to speak. I 
would love to give you an opportunity to talk about anything in 
the budget process that you would like to. I do appreciate your 
testimony even though it felt a little directed. [Laughter.]
    Mr. Collender. Please do not take it personally, Mr. 
Chairman. It was written with a great deal of respect and 
appreciation for your efforts. But I just felt a need to get it 
out of my system.
    Chairman Enzi. Sure.
    Mr. Collender. The one thing that I would urge you both is 
to understand that our 40 years of experience with the 
congressional budget process shows conclusively--and not just 
the budget process but every budget commission that we have put 
together--that you cannot take the politics out of the 
budgeting process. In fact, the budget is the most political of 
all the things that Congress does. If there was enough money to 
do everything that everybody wanted to do, you would not need a 
budget process. You would just need a check writer. Once you 
decide that there is not enough money or you are not willing to 
provide enough money for everything that everybody wants to do, 
the question is: How do you decide? And in this environment, 
particularly these days, with relatively narrow majorities and 
hyper-partisanship, all of the procedural changes you have 
discussed will never be implemented. That is, you will put 
together a budget process that may pass and will then be 
ignored within seconds.
    As a quick example, in 1974, the budget process came 
together. It was done for a point in time. It was eventually 
implemented starting in 1976. The first year it was 
implemented, Congress balked at doing it. Members who voted for 
the budget process--and it passed unanimously in the Senate and 
with six dissenting votes in the House--a year earlier all of a 
sudden realized, ``Oh, my God, I have got to vote for the 
deficit for the first time,'' and they said, ``No, I am not 
going to do it.'' Had it not been for the intervention of the 
leadership--at the time in the House, it was Dick Bolling, 
Chairman of the Rules Committee and Tip O'Neill as Speaker--the 
budget process would have died the year after it was created.
    The same thing is true with virtually every other budget 
process; it is good when it is passed because it solves a 
political problem at that particular moment. But then it starts 
being changed or people start having plans for it to change 
within seconds. Gramm-Rudman-Hollings was revised 2 years after 
it was put in place. And then the revised Gramm-Rudman-Hollings 
was revised 3 years after that.
    Forgive me, but it is a little naive to think that you can 
put together a budget process that will last for all time. You 
would be lucky to get it through for just one session of 
Congress. And forgive me for being disrespectful.
    Chairman Enzi. Well, you are not, and I appreciate your 
comments. I have to tell you, though, that in order to serve in 
the United States Senate, you have to be an ultimate optimist. 
[Laughter.]
    Because, otherwise, after you bang your head against the 
wall for years on one topic, you might finally get it done. And 
if you give up earlier than that, it does not get done. So you 
have been working on this health care for a long time, and 
hopefully we will listen now.
    Senator Whitehouse. Yeah.
    Chairman Enzi. I think it would have made a huge difference 
in what we have, had you had some of those things.
    Senator Whitehouse. Yeah.
    Chairman Enzi. And to your comments on they always fail, I 
have done a lot of research on the previous processes and the 
changes that we have made, and I started doing it because I 
noticed that the format that we have the budget in and the 
format that Appropriations uses and the format that the 
President presents his budget in are all different. And through 
my research, I found out that it was intentional. It is so that 
you cannot follow the dollars, so that there is more 
flexibility, more capability to avoid any kind of constraints. 
And I think that Senator Whitehouse has come up with a good 
list, and we have got a good list from other members of the 
Committee. We will have to see if we can plug in details that 
will work. And as the ultimate optimist, maybe we can get one 
that they will actually listen to.
    So I appreciate the testimony of all three of you. Your 
whole statements will be a part of the record and be shared, 
and people have until 5 o'clock today to turn any other 
questions in that they want to have answered. So thank you very 
much. The hearing is adjourned.
    Senator Whitehouse. Thank you, Chairman.
    [Whereupon, at 11:44 a.m., the Committee was adjourned.]
    

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              OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE

                              ----------                              


                     WEDNESDAY, SEPTEMBER 14, 2016

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 3:31 p.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Toomey, Johnson, Perdue, 
Whitehouse, and King.
    Staff Present: Matthew Giroux, Deputy Staff Director for 
the Majority; for the Minority: Joshua Smith, Budget Policy 
Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I will go ahead and call this hearing to 
order. I am not expecting a huge turnout.
    Last year, the Senate Budget Committee conducted its first 
hearing in more than 30 years to provide oversight for the 
Congressional Budget Office. At that hearing I announced that 
we were resetting our oversight relationship with the CBO and 
we would faithfully execute Section 102(a) of the Congressional 
Budget Act. This provision gives the Senate Budget Committee 
the duty to review on a continuing basis the conduct of the 
Congressional Budget Office and its functions and duties.
    When our last oversight hearing was held, Dr. Hall was on 
the job as CBO's Director for less than 2 full months, so it 
probably was not fair to have it then. But, again, I was trying 
to follow the law. Dr. Hall has now been at the helm for over a 
year and has seen CBO through an entire Federal budget cycle. 
This means he has been able to oversee CBO's work on its 
recurring projections, thousands of formal and informal 
estimates of legislation, and then special reports requested by 
Members of both the House and the Senate.
    In conducting the day-to-day operations of this Committee, 
I find CBO reports and estimates to be of great assistance, 
particularly in my role as the Senate scorekeeper on budgetary 
issues. I look forward to hearing what experience you have had 
thus far and the goals you have for CBO under your leadership 
to continue the agency's reputation for providing objective and 
insightful information to Congress.
    We on the Committee as interested in where things stand 
with the goals you identified from our last hearing. We are 
particularly interested in your efforts meant to increase 
transparency of CBO's analysis and operations, which you stated 
was one of your primary objectives.
    During our most recent work period, CBO released its latest 
round of projections this year, the update to the Budget and 
Economic Outlook: 2016 to 2026. What this report heralded was 
not a surprise to anyone. Whether under the leadership of Dr. 
Hall or his predecessor, CBO has continually showed in recent 
years that we are on the wrong fiscal track, and America's 
current budget path is simply unsustainable.
    We have been having some hearings on that throughout the 
year to see what sorts of things could be done to change it. We 
have a list that there seems to be some agreement across the 
aisle on that could make a huge difference for America. But the 
August report has revealed that this fiscal year we will 
overspend by $590 billion. That is up $152 billion from last 
year's deficit.
    There is no end in sight to this overspending. CBO tells us 
the deficits will hit the $1 trillion mark or, to say it 
differently, $1,000 billion mark in 2024 and continue their 
upward trajectory. By the end of CBO's projection window, 2026, 
our Nation's mammoth debt will reach more than $28 trillion, or 
nearly a 50-percent increase from today's level. Clearly, we 
have a problem.
    This Committee has spent the year holding numerous hearings 
and evaluating ways to fix our broken budget process. That work 
continues, but it is clear to me that when we are finally able 
to get this process back on track, CBO will be a critical 
element in getting our fiscal house in order. Its independence 
and nonpartisanship will be essential to get both sides of the 
aisle together to confront our budget realities. As such, the 
Committee remains invested in ensuring CBO has the policies, 
practices, and personnel in place to continue to fulfill its 
core mission of providing Congress the information it needs to 
make knowledgeable budget and economic policy.
    As part of the Committee's ongoing efforts to make sure CBO 
is able to continue supplying Congress with accurate 
information in the most complete way possible, I was proud to 
include several provisions in the last budget resolution to 
require CBO to take into account the real-world effects that 
legislation would have on our budget. Most notably, Section 
3112 of S. Con. Res. 11, the concurrent resolution on the 
budget for fiscal year 2016, which requires CBO to estimate the 
macroeconomic effects of major policy changes. This has come to 
be known as ``dynamic scoring,'' but in my view, it should be 
known as ``honest accounting,'' and that should be our goal.
    Now that CBO has had several opportunities to conduct this 
macroeconomic analysis, the Committee is interested in hearing 
what you have learned about this approach, what you view as the 
next steps in integrating this approach into CBO's operations, 
and how you plan to maintain transparency with your 
methodologies. Just as CBO will continue to be a crucial 
component in the Federal budget process, so, too, must this 
Committee's oversight of CBO. I look forward to fostering this 
constructive relationship, both in today's hearing and in the 
future.
    Would you like to make any statement?
    Senator King. Mr. Chairman, I was looking forward to Dr. 
Hall's testimony, and I will have some questions. Thank you.
    Chairman Enzi. Okay. And if Senator Sanders or Senator 
Whitehouse come, we will give them time for a statement as 
well. But especially since we are starting late, I want to 
continue on so that we do not take more of your valuable time.
    I would imagine that everybody here knows exactly who Dr. 
Hall is, or they probably would not be here. But at any rate, 
he is the ninth Director of the Congressional Budget Office. He 
is no stranger to this Committee, having served as CBO Director 
since April of last year. Since that time he has appeared 
before this Committee to discuss CBO's work as a congressional 
support agency and its projections of the Nation's ever-
worsening fiscal situation. Dr. Hall has over 25 years of 
experience in various Government positions, including serving 
as the Chief Economist and Director of Economics at the 
International Trade Commission. He was the Chief Economist for 
the White House Council of Economic Advisers, and he was Chief 
Economist for the Department of Commerce. He has held several 
academic posts. He has earned his Ph.D. and M.S. in economics 
from Purdue University.
    This afternoon, Dr. Hall will be talking with us about 
CBO's work over the last year and the goals he has set out for 
his critically important agency, and we look forward to 
receiving your testimony.
    With that, Dr. Hall, I turn it over to you. Thank you for 
being here.

 STATEMENT OF KEITH HALL, DIRECTOR, CONGRESSIONAL BUDGET OFFICE

    Mr. Hall. Chairman Enzi and Members of the Committee, I 
appreciate the opportunity to discuss the work of the 
Congressional Budget Office. CBO's mission is an important one: 
to provide nonpartisan budgetary and economic analysis that is 
timely and carefully thought out in order to support the work 
of the Committee and the Congress as a whole as you address the 
critical issues facing the Nation.
    To that end, CBO is committed to providing information that 
is: objective, representing the consensus and diversity of 
views of experts from around the country; insightful, applying 
the best new evidence and innovative ideas as well as the 
lessons of experience; timely, responding as quickly as 
possible to the needs of Congress; and clearly presented and 
explained so that policymakers and analysts understand the 
basics of our findings and have the opportunity to question the 
analysis and methods used.
    All of CBO's estimates and reports are reviewed internally 
for objectivity, analytical soundness, and clarity. And in 
releasing our results, we are committed to maintaining a level 
playing field, ensuring that our work is made widely available 
to Congress and the public.
    Just as the Budget Committees rely on us for sound and 
timely advice, we rely on you as well to explain and 
communicate to others in the Congress what CBO's role is, to 
provide constructive feedback on how we can best serve the 
Congress, and to provide guidance on what legislative 
developments are occurring and what the Congress' priorities 
are. We are very grateful for that support and guidance, which 
are key to our success.
    Since I last testified about CBO's work before you in May 
2015, we have continued to work diligently to carry out our 
mission, emphasizing five areas of work that are of particular 
interest to the Committee: preparing cost estimates for 
legislation, enhancing the transparency of our work, refining 
our methodology for dynamic analysis, developing greater 
capacity to analyze trade agreements, and continuing to build a 
high-quality staff.
    First, to respond to the needs of the Budget Committees, 
CBO has prepared a multitude of cost estimates, both formal and 
informal, to support the Committee's role in budget enforcement 
as well as in the development of a budget resolution. Last 
year, we produced more than 600 formal cost estimates and 
mandate statements, as well as thousands of informal estimates 
to aid committees in crafting legislation. In 2016, the pace of 
our work is much the same.
    Second, CBO continues to make its analysis transparent. Our 
publications go well beyond simply presenting results. Indeed, 
we work hard to explain the basics of our findings so that 
members of Congress, their staff, and outside analysts can 
understand the results and methodologies we used. For example, 
we supplemented some reports with working papers presenting 
details about our methodology. We also made a number of 
enhancements to the website, including displaying in one place 
the spread sheets that show budget and economic projections 
prepared in various years and displaying in another a 
collection of the detailed baseline projections for selected 
major programs.
    Third, CBO has emphasized dynamic analysis. For example, in 
response to the requirement for certain dynamic analysis 
specific in the budget resolution for fiscal year 2016, CBO--in 
collaboration with the staff of the Joint Committee on 
Taxation--completed several such estimates in the past year, 
and we have devoted significant effort to developing and 
enhancing the analytical tools we need to assess the 
macroeconomic effects of fiscal policies. And in selected 
reports, CBO has provided estimates of the effects that 
significant changes in Federal spending and tax policies would 
have on the overall economy. We also solicited extensive 
feedback on our methods so that we could continue to refine and 
enhance our modeling approaches.
    Fourth, CBO has devoted significant resources to analyzing 
trade agreements and improving our capability to model their 
effects. We continue to prepare to analyze potential 
legislation related to the Trans-Pacific Partnership, and we 
anticipate this will be the first time that we provide any 
dynamic analysis of a trade agreement.
    Finally, CBO continues to devote resources to attracting 
and retaining talented people and developing their skills. 
Among the notable staffing changes, Mark Hadley became the 
agency's Deputy Director in June, and two new Assistant 
Directors--one for macroeconomic analysis and the other for tax 
analysis--joined the agency this year.
    In focusing for the upcoming year, CBO will aim to further 
explain its analytical capability with an emphasis on 
macroeconomic analysis, health care issues, and modeling 
capabilities. We have already shifted some resources to bolster 
our work on dynamic analysis and have requested funding for 
additional staff to work on such analyses.
    In the health area, more data will become available about 
the costs of expanded health insurance coverage under the 
Affordable Care Act, which will further our understanding of 
potential effects of changing that law.
    We are also in the process of analyzing various aspects of 
our health care system and enhancing our capacity to assess the 
effects of future legislation on that system and on the Federal 
budget. To enhance the transparency of our work in this area, 
we will publish working papers explaining our updated and 
enhanced model of the health insurance system. We are also 
continuing to expand our capacity to analyze energy and 
environmental issues and to enhance our access to important 
sets of data.
    We look forward to continuing to support this Committee as 
it carries out its important responsibilities by providing the 
Congress with budget and economic information that is 
objective, insightful, and timely, and by presenting and 
explaining the methodology and results of CBO's analyses also 
as clearly as possible.
    Thank you for your attention. I would be happy to answer 
any questions.
    [The prepared statement of Mr. Hall follows:]
    

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        Chairman Enzi. Thank you for your testimony.
    I will yield to Senator Johnson, then Senator King, then 
Senator Perdue before I ask my questions.
    Senator Johnson. Thank you, Mr. Chairman. Welcome, Dr. 
Hall.
    Mr. Hall. Thank you.
    Senator Johnson. You mentioned doing more and more work in 
terms of health care. It just so happens in my Committee, the 
Homeland Security Committee, tomorrow we are going to be 
holding a hearing on the current state of affairs in terms of 
the exchanges.
    One of my concerns when I first came to the Senate and was 
on the Budget Committee, looking at what information we had in 
terms of potential cost implications of the Patient Protection 
and Affordable Care Act, it just never seemed like there was a 
specific line item, that tracking the ongoing costs of that act 
was going to be extremely difficult. Can you tell me with a 
little more specificity where CBO is at in terms of 
accumulating on an annual basis, you know, exactly what are you 
publishing, the exact costs of the health care law?
    Mr. Hall. Well, sure. One of the things that we have done--
and this is to your point about separating out the effects of 
the Affordable Care Act from other things--is we will be 
producing every spring the cost of health care and the 
subsidies for health care that will include the ACA as part of 
that. And we are going to continue to try to detail that as 
much as possible. And we really are anticipating getting some 
real data as we go forward and being able to use that data to 
talk about things, and this is going to be an important part to 
us of transparency. And a key for us, too, is adapting what we 
are doing to the realities of actually what happens in 
exchanges and elsewhere with health care.
    Senator Johnson. So I tasked my staff this morning with 
giving me the current figures. Historically, since the ACA has 
been implemented, do you have that information? Again, I wish I 
knew whether we actually had it at our disposal or not. In 
other words, are they going to be able to give me a figure when 
I leave this hearing room?
    Mr. Hall. Well, yes. I can tell you that right now we--just 
this March, we got some new data, and we have adapted our 
estimate of the number of people receiving health care through 
exchanges. We now think there are about 11 million people 
receiving health care through exchanges, and about 9 million of 
those are subsidized. That is actually a downward revision of 
about a million people from our previous estimate earlier this 
year.
    And then we have got a new estimate of the subsidies. We 
now think there are about $43 billion worth of subsidies this 
year, and that is going to be up about $5 billion from last 
year. So those are the latest numbers based on data.
    Senator Johnson. So last year, we had about $38 billion 
in--how does that track with what the original estimate was for 
the health care law?
    Mr. Hall. Well, I think our original estimate was a little 
high, a bit high. That was in large part, I think, because 
there was such an increase in getting medical help through 
Medicaid at the State level, that that sort of--that was much 
higher than we thought, and the exchanges was a bit lower than 
we thought. And then, of course, our estimate of the average 
price of premiums was a bit high early on, and we have adapted 
that, where we still expect that price to go up over time.
    Senator Johnson. The number of people expected to receive 
subsidies was initially forecast to be far higher than what we 
are looking at here, correct?
    Mr. Hall. That is correct.
    Senator Johnson. So on a subsidy per person--again, I do 
not have the figures. I would think the subsidy per person is 
higher than was originally estimated. Is that true or----
    Mr. Hall. You mean the spending per person?
    Senator Johnson. Yeah.
    Mr. Hall. I would have to follow up on that. That sounds 
like that is right, the logic. But I do not know for sure.
    Senator Johnson. Do you know exactly how much lower the 
subsidies, that $43 billion, is versus the original forecast?
    Mr. Hall. Not offhand. I will have to follow up. I am 
sorry. I do not know that.
    Senator Johnson. Okay. I will be asking my staff that, so 
maybe--but you believe you have--CBO publishes that 
information, I will be able to get that for the hearing 
tomorrow?
    Mr. Hall. Oh, yes. Yes.
    Senator Johnson. Okay. I really have no further questions. 
Thank you.
    Chairman Enzi. Senator King.
    Senator King. Thank you, Mr. Chairman. Dr. Hall, thank you 
for your good work.
    I note that the budget of the Congressional Budget Office 
has essentially been frozen since 2010, even adjusting for 
inflation. Are you adequately funded to perform the functions 
that you are being asked to do?
    Mr. Hall. Well, we have asked for a little bump up because 
we need it, in large part because----
    Senator King. You asked for $1.7 million additional this 
year, I think?
    Mr. Hall. Yeah. Yeah, it was--yeah, it was a few million. 
It was not very--we are looking to add at least basically three 
positions to help with the macro modeling in the health care 
work. We will still function fine without the money, but it 
really would help our move towards transparency and some other 
things.
    Senator King. Good. Dynamic scoring, very interesting 
economic theory. When you attempt to score something on a 
projected basis based upon effects on the macro economy, do 
expenditures get the same kind of dynamic scoring--in other 
words, an investment in education, which is expected to return 
higher taxes in the end by the people earning more money? Are 
expenditures dynamically scored as well as tax provisions?
    Mr. Hall. We do try to do that. That is correct. To be 
honest, it is somewhat harder to do that, and we have been 
doing a bit more research so we can get better at that aspect 
of it. But that certainly is part of our plans, to be able to 
do that sort of work.
    Senator King. So it works both ways, in other words?
    It is not just here is the positive effect of a tax cut. It 
is also here is a positive effect of an investment in education 
or highways or bridges or whatever infrastructure.
    Mr. Hall. That is right. In fact, just this spring, maybe 
this summer, we produced a report on Federal investment, and 
what we have done is we have looked at the research and 
summarized what we think is the likely impact of Federal 
investment. We find that the research is pretty thin, 
unfortunately. But we have got a summary of that, and we are, 
in fact, doing some work to try to advance that.
    Senator King. Well, that was going to be my next question. 
The concept of dynamic scoring has been around for quite some 
time, and a lot of discussion.
    Mr. Hall. Right.
    Senator King. Is there sort of actual versus projected 
studies that show whether the dynamic scoring works, whether it 
is accurate? The Chairman mentioned--he has called it ``more 
accurate budgeting.''
    Mr. Hall. Right.
    Senator King. But I wondered if there was any data to 
underlie that assertion.
    Mr. Hall. There is a little bit on the Federal investment 
side, like I said, but that one is a bit thin.
    One of the troubles on the spending side is the amount of 
time it takes for things to affect the budget. For example, if 
you look at education, well, that is not something----
    Senator King. Maybe a 30-year----
    Mr. Hall. Exactly. That is one of the challenges.
    Senator King. I would argue, for example, that the GI bill 
is one of the most cost-effective programs in history, but the 
results did not come in for some years.
    Mr. Hall. Right. And we have looked at the idea of trying 
to get a better handle on that, not so much in our scoring, 
because that is a different time frame, but in terms of 
research.
    Senator King. How about on the tax side? Are there any 
studies about the effect--the accuracy of dynamic scoring of 
tax changes?
    Mr. Hall. Well, it is not specifically in dynamic scoring, 
but there is a bit more literature on the effect of taxes on 
economic growth. In fact, that is part of why we are more 
comfortable, I think, on the tax side in terms of our 
estimates. And that is guided, that is very much guided, our 
actual estimates, is what the literature actually says about 
this. But, again, just like anything else, we will have to keep 
looking at the literature and seeing if we are being correct in 
things.
    It is really hard to specifically estimate the effects of 
dynamic scoring, specifically on what we do, because the 
changes often are not that big to sort of find an impact on 
GDP.
    Senator King. Now, when you are doing this scoring, are we 
presented with two sets of figures--one is here is the actual 
loss to the Treasury, and here is the analysis based upon a 
dynamic assumption of economic growth? Do we get both numbers 
now?
    Mr. Hall. You do. We made the decision that every time we 
did a cost estimate that had dynamic elements to it, we would 
give you both numbers. So we would give you the estimate 
without the dynamic and the macroeconomic effects, and we would 
give you the estimate with the macro effects so you can 
actually see the different parts of that.
    Senator King. And it seems to me over a course of time we 
will have some data built up to see whether the projections 
under the dynamic scoring model are accurate.
    Mr. Hall. I think that might be right. I think that is 
correct. We certainly look at how accurate our revenue 
estimates are and our spending estimates are on the Federal 
budget as a whole, and we have a plan to continue to look at 
how well we are doing there.
    Senator King. One of the problems with the whole concept is 
that it is not a single-factor analysis. In other words, the 
economy, as you know, is so complicated.
    Mr. Hall. Yes.
    Senator King. We could have a dynamic score of a tax cut 
and say we should produce X, but then there is a housing crash 
or a terrorist attack that affects the economy, the economy 
does not grow, and it is impossible to point and say this did 
this and this did that. How do you account for that kind of 
uncertainty?
    Mr. Hall. Well, it is hard to, and it is hard to in any 
kind of forecasting. If we just forecast the macro economy, we 
have exactly that issue. By putting the dynamic element into 
our cost estimates, I think it makes it more accurate, I 
believe it makes it more accurate; otherwise, we would not do 
it. But it does probably introduce some more uncertainty in our 
estimate than is already under our regular----
    Senator King. My only concern as a policymaker is that we 
not be seduced by the rosy projections that never manifest 
themselves.
    My time is up, but for the record, I would really 
appreciate it if you could supply some studies of the dynamic 
effect of tax policy. You know, do tax cuts increase economic 
growth? That is what I am interested in seeing.
    Mr. Hall. Sure, and I believe we do have some significant 
research papers on that.
    Senator King. That would be helpful. Thank you very much. 
Thank you, Doctor.
    Chairman Enzi. Excellent questions. If you have some more, 
I can give you a little more time. We are not that--okay.
    Senator King. We have plumbed the shallows of my knowledge. 
[Laughter.]
    Chairman Enzi. I know that that is not true. And in regard 
to one of the comments that you made, I know that forecasting 
is a lot easier if it was not about the future.
    Last year, in your testimony you mentioned several goals 
that you had. One of them was, ``The transparency of our work 
is very important and enhancing it is one of my prime 
objectives.'' What actions have you taken since you made that 
statement to increase the transparency? And how does that 
compare to efforts of the agency in previous years? I know you 
remain committed to increasing transparency. Do you have any 
new targets that you are working on that we ought to be aware 
of?
    Mr. Hall. Sure, well, I have actually got a number of 
things I would like to mention. First of all, throughout our 
entire range of publications, we had an increased effort to be 
more transparent and be more open about the basis for our 
analysis and the methodology used. Part of that has been some 
serious training and establishing some best practices, 
especially on cost estimates for our budget analysts to use and 
sort of describing more clearly how they arrived at their 
estimates. And, of course, here the basic goal is that we want 
to open ourselves up to feedback on how we are doing things.
    The second thing is we produce a number of supplemental 
reports which are follow-ups intended to provide transparency. 
One example was last year we did produce an estimate of the 
removal of the Affordable Care Act with the macroeconomic 
effects included. We followed that up with a research paper 
describing the labor market effects of the Affordable Care Act, 
and that was the primary macro effects in that result. And so 
in that we detail exactly how we got to that number on the 
labor market, and hopefully we will get some feedback on that.
    And something similar, I guess, on the--we also looked at 
the effect of potential increase in hurricane damage, and we 
also have--not only did we produce that likely effect over the 
next 30 years of increased hurricane damage, but we then 
produced a follow-up paper detailing the model exactly that we 
used so folks can imitate that.
    In addition to our regular assessment of how our economic 
forecasting is doing, we compare ourselves to OMB and private 
sector forecasters just to see sort of how well we are doing. 
We have just done one on revenue projections, and we are 
working on one right now on spending projections. So we are 
going to have these regular reports to sort of tell you how we 
are doing in our forecasting. As you say, forecasting the 
future is difficult, but we are doing our best to sort of 
figure out how we are doing.
    We have done a number of things with our website. We have 
got several spots--I would say at least four different spots on 
our website now where we are collecting things to increase 
transparency. For example, we have a home page on our website 
now that is dedicated to dynamic analysis. So on there, we are 
putting on all our research papers on dynamic analysis, and we 
will continue to populate that as we do more research and adapt 
our methods.
    We have got a second page on health insurance, health care, 
so we are going to do the same. We have got some of our 
estimates, and we have got some presentations we have made to 
increase transparency. They are all there in one spot.
    We also got a spot on the website that has spread sheets 
that show our baseline budget and economic projections 
historically. That makes it very easy for you to sort of see 
how we have forecasted things in the past as well as in the 
current.
    And then we are providing a fourth spot that has a lot of 
detail on our baseline projections. You can see at a much more 
detailed level where our baseline projections are at any point 
in time, and we separated out some selected programs.
    And then last, but not least, we are looking hard at one of 
our most important models where we are modeling health 
insurance coverage. That has been a real work horse for us. But 
the problem with that has been it is not very well documented. 
So what we have done, we are now working on a second-generation 
model, and part of why we are doing this is we want to be able 
to incorporate actual data. It is not just the theoretical 
model. But as we are producing the model, we are going to be 
stopping and producing research papers and supplementary data 
to document the model as we go along over the next year.
    So if you look at our output over the next year, you will 
see several papers coming out which, when the year is done, you 
will be able to stick them together, and we have got a 
documented model that people will be able to see, sort of see 
exactly how we are modeling the insurance markets.
    Chairman Enzi. I am sure that will be helpful not only to 
us but to other people that are affected, too, so I appreciate 
your effort on that.
    I know that many of the budget concepts that you use to 
estimate the costs of legislation and that the Budget Committee 
uses to enforce fiscal discipline, are decades old. It looks to 
me like most trace back to the President's Commission on Budget 
Concepts in 1967. How critical is it that the accounting rules 
and budgetary concepts be reviewed often and kept up to date? 
And is there anything we need to do to see that that happens?
    Mr. Hall. Well, as you say, that document has been and 
continues to be very important for us. It is used a lot. It has 
some important recommendations. But it has been a long time, 
and there have been a significant number of issues that have 
arisen since 1967, and we have sort of dealt with that on a 
case-by-case basis. So I absolutely do think that something 
like a new budget concepts commission or some other format for 
reaching a consensus on a lot of these new issues that have 
popped up over the past almost 50 years I think would be very 
valuable to us and very helpful.
    Chairman Enzi. Good suggestion. Thank you.
    Now, over the last year, we have seen some errors in the 
CBO reports such as mistakes in the calculations of the Social 
Security replacement rates, in your long-term projections and 
cost estimates, also in the Water Resource Development Act in 
which the PAYGO score went from an estimated savings of $6 
million to a deficit of $300 million once it was corrected. We 
just had that debate on the floor. To your credit, these errors 
have been publicly acknowledged and promptly corrected. 
However, it does raise the question about the review process.
    Can you explain how decisions are made, particularily on 
whether you seek outside review? What is done to get the cost 
estimates correct? How do you find out that there has been 
mistakes?
    Mr. Hall. Sure. Well, let me say I have been at a number of 
places in the Federal Government now, and CBO probably has the 
most extensive review process for analytical reports that I 
have seen. We have a great deal of internal review, and we are 
focusing on objectivity and analytical soundness and clarity in 
those things. But in analytical reports, in terms of external 
review, almost any time we have got enough time, we get 
external review. And it is targeted for outside experts with a 
wide variety of views on things, so we sort of get several 
things from that. We make sure that we are objective. We make 
sure that we are somewhat in the middle of the profession on 
topics. And hopefully folks help us catch errors, if there are 
some errors in there, as we go along. That is an important 
thing. We will continue to do that.
    Also, it so happens that the last few months we have, in 
fact, been looking at our review process on analytical reports 
and thinking about adapting that somewhat. And we are getting 
fairly close to enacting some of that, so we will do that, and 
I do think that we will probably make sure that we look at the 
issue of errors, not just, you know, the objectivity and 
soundness and clarity, but make sure that what we are doing is 
actually correct. But we are human, and that happens.
    On cost estimates, that is actually a different process, 
and one of the issues for us with cost estimates is, frankly, 
you guys are often in a real hurry. And the most often phone 
call I get is questions about, ``When will you be done?'' So we 
actually always have this issue of we want to be thorough in a 
cost estimate, we want to be balanced and correct, and we want 
to be accurate, and sometimes you all are in a hurry. So we 
continue to worry about that balance on things.
    Actually, in that area I think we have been remarkably 
accurate. With the 114th Congress so far, we have actually 
produced almost 1,400 formal cost estimates, and a very small 
handful have involved errors where we have had to submit a 
revision. In fact, we count only about four of those.
    Nevertheless, we actually have been actively exploring ways 
to improve our review process. Part of it is for increased 
transparency. Part of it is because of the heavy workload for 
our managers. But part of it will be ways to sort of increase 
the accuracy of what we do.
    Chairman Enzi. Thank you, and I have run quite a bit over. 
I still have more questions, but I appreciate Senator 
Whitehouse being here. I have enjoyed working with him on 
trying to get some budget reform that we still need to do, and 
so I will turn the time over to Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman. I concur that we 
still need to do that, and I look forward to continuing to work 
with you on that issue. I think it is very important, and 
working with you on it has been a pleasure. And for the record, 
let me say that I have just come in, so the Chairman, in going 
over his time, was not inconveniencing me or anybody else. He 
was having a discussion in a room in which nobody was champing 
at the bit for their turn. So I appreciate him yielding now so 
that I could ask a question or two.
    First of all, welcome, Dr. Hall. Thank you.
    Mr. Hall. Thank you.
    Senator Whitehouse. One of the recurring issues that we 
have to deal with on the Budget Committee is the cost of health 
care, particularly the projections into the outer years, which 
tend to dominate the conversation about our national debt.
    We have seen since the Affordable Care Act the budget 
projections that CBO has put out for Medicare, Medicaid, and 
other health programs drop pretty substantially. For example, 
you guys look forward to the 2017 to 2026 period and identify 
it as a time horizon in which to make projections. And now you 
are projecting for that time period $2.9 trillion less in 
health care spending than CBO was projecting back just in 2010. 
So that is a very big move, a $3 trillion move in a 10-year 
period over the 6 years that have taken place since then. It is 
about 60 percent of the $5 trillion that we are projected to 
spend on Medicaid, so it is a big, big number. And I am 
interested in exploring with you ways in which we can try to 
get whatever policy signals we should be getting out of that 
change.
    I am, as I think most people on this Committee know from my 
perennial remarks on this subject, kind of a maven of delivery 
system reform. I continue to remark on the inefficiency of our 
health care system compared to the OECD countries and the 
rather parlous life expectancies that Americans have with 
respect to their OECD neighbors.
    You have said that CBO, and I will quote here, ``has found 
no direct link between the recession and slower growth in 
spending for Medicare.'' So if there is not a direct link with 
the recession, then presumably other things did have that 
effect. I am hoping that what had that effect is the increased 
focus on that quality and cost nexus that we are seeing out 
there in a great deal of the privacy that is driven or rewarded 
to a certain degree by the ACOs but that has its own momentum 
going, and there are groups like Intermountain and Geisinger 
and Gundersen Lutheran that are private sector leaders in all 
of that.
    So if you could comment on that a little bit, I would be 
grateful to you.
    Mr. Hall. Sure. In the past, and certainly we will in the 
future, we based our forecasting on historical rates, to a 
large degree, and certainly what has happened is in recent 
years health care spending has grown more slowly than 
historical rates would suggest, and we have adapted to that. We 
have lowered our estimates.
    One of the things that is tricky for us, of course, is we 
did just come out of the Great Recession, so it is hard to 
separate temporary versus more permanent effects from that. And 
I think that is going to be one of the things that we are going 
to continue to try to focus on to try to get that right and 
make sure that we identify some sort of permanent slowdown that 
is there.
    Senator Whitehouse. So can you kind of back up a step and, 
rather than comment on the phenomenon itself, comment briefly 
on what you think the most prudent steps would be for CBO to 
undertake to try to tease out of all that information what 
seems to be working and what does not seem to be working? Are 
there things you could look at that would provide a model that 
would allow you to back out some of the projection savings or 
otherwise adjust for this? And what are you doing to achieve 
that?
    Mr. Hall. Well, certainly one of the things that we are 
doing--I mentioned a little bit a minute ago when we were 
looking at a large model for health insurance that we are doing 
a second generation of that, and the goal there is to make it 
something that takes on actual data. One of the difficulties 
for us, of course, before this is we had no real data to base 
forecasts on the ACA, that we were just applying some theory. 
And now we are going to be getting data and looking at real 
data, and so we are setting ourselves up so we can take that on 
board.
    We have also spent some time trying to talk about gaps in 
what we know. We have used a blog several times now to--which I 
kind of think of as invite the research community to help us 
out and do some research on some things that are gaps in our 
knowledge that would be helpful to us.
    Senator Whitehouse. My time has expired, I am sorry to say. 
I thank you, and I look forward to continuing our discussion.
    Thank you, Chairman.
    Chairman Enzi. Thank you.
    Senator Grassley.
    Senator Grassley. I just have a couple questions.
    In your testimony, you outlined work that CBO is doing to 
fulfill Congress' request that it incorporate macroeconomic 
effects into the cost estimates for major legislation. You 
mentioned that macroeconomic analyses requires complex modeling 
and takes a great deal of time. As a result, you have only been 
able to provide a dynamic analysis a small number of times.
    Several think tanks and universities--to name a couple, 
Brigham Young, Wharton School--have developed their own dynamic 
models. I think there are others that have as well. So my 
question is: Has CBO reviewed these efforts to determine how it 
might improve its own models and increase transparency?
    Mr. Hall. Sure. We have, and one of the limitations a 
little bit for us is those particular models you mentioned are 
focused on the tax side of things, and the Joint Committee on 
Taxation does the tax side modeling for us. So we actually are 
not as active on that side of things. We focused on the other 
side.
    But, yes, we have looked at that, and I think we are going 
to continue to try to work with JCT to sort of understand what 
they are doing. And a big part of transparency to me, I think, 
is for us to be clear about how we are doing modeling and how 
the modeling is being done so we can get feedback from experts 
like the folks that you mentioned. It is sort of inviting 
criticism, but I think as long as it is in a constructive way, 
that is really helpful for us.
    Senator Grassley. Okay. Then my last question deals with 
Federal regulations and how they affect small businesses, 
farmers, and families. It has grown significantly in recent 
years, or at least the burden of it has. The cost of these 
regulations is surely impacting the entire country and our 
economic growth, and I notice that the CBO's latest economic 
outlook does not incorporate the estimated impact of the cost 
of regulations into its discussion of the long-term economic 
outlook.
    Has CBO considered incorporating the cost of regulation on 
economic performance in your future economic forecasting?
    Mr. Hall. We have not explicitly, because we have looked at 
sort of the historical performance of the economy and the 
historical performance of the budget, it is very hard to pull 
out the effects of regulation. It gets to be a little bit off 
our main focus on budgetary effects and on budget issues.
    That being said, we have increased our look at regulation 
and regulatory effects with the eye to sort of see if there is 
something more that could be done to sort of help Congress in 
understanding regulatory burden going forward. But we do not 
explicitly take it into account in our modeling, and I think 
that would be quite difficult to do.
    Senator Grassley. Could I follow up then because of your 
words ``difficult to do''? There are organizations that I am 
not sure I can name that put some cost on a certain regulation 
or a lot of regulations and stuff like that. You are saying it 
is difficult. Would you say that from an intellectually 
accurate standpoint we should not believe too many of the other 
people that say regulations cost--a specific regulation or 
maybe a mountain of regulations is costing the economy a 
certain amount?
    Mr. Hall. I do not mean to suggest that their work is not 
accurate and not a best estimate. The difficulty is for us to 
take this on as a burden, is the problem, I think, when I say 
it is very difficult. We would----
    Senator Grassley. Does that mean a personnel problem that 
you have to do it?
    Mr. Hall. That is right. We are not geared up for that.
    Senator Grassley. Okay. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Certainly.
    Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman.
    Director Hall, thank you very much to you personally and 
your entire team. You and your colleagues work with my office 
on a regular basis, and it is a very helpful and constructive 
ongoing dialogue that we have, and I appreciate the work that 
you do.
    I wanted to ask you a little bit about fair value 
accounting and the methodology that CBO uses as compared to the 
methodology that perhaps should be used. But to start with, I 
would just like to understand the current methodology, which my 
understanding is you are required not to use fair value 
accounting but, rather, when discounting a promised cash flow, 
the systematic approach of CBO is to discount that cash flow 
using a Treasury rate that roughly corresponds in term. Is that 
correct?
    Mr. Hall. That is correct.
    Senator Toomey. Is that the standard methodology?
    Mr. Hall. Yes.
    Senator Toomey. So if you use that methodology for 
different borrowers, is it fair to say that that methodology 
fails to capture the different credit quality of different 
borrowers?
    Mr. Hall. That is right. The biggest difference I think in 
looking at fair value versus the so-called FCRA one is that 
market risk is not included, and because market risk is not 
included, there are things, there are elements of risk that are 
not being captured by that, that even the Federal Government 
would be exposed to, even the taxpayer would be exposed to. So 
the fair value we think is a bit more comprehensive estimate of 
the present value.
    Senator Toomey. So an illustration for a layman to 
understand the flaw of using a single Treasury rate to discount 
projected case flows--correct me if I am wrong. I want to 
understand this.
    Mr. Hall. Sure.
    Senator Toomey. If you have a loan that is made or 
guaranteed by the Federal Government through a vehicle like the 
Ex-Im Bank or more directly, and you have two loans, identical 
in all terms, but in one case the borrower was a large 
multinational AAA corporation, and in another case the borrower 
is a small undercapitalized startup in a politically unstable 
Third World country, would you use the same discount rate to 
discount those identical cash flows from those very different 
borrowers?
    Mr. Hall. I am not sure you would use the same rate for 
those two. Obviously, if they are borrowing from private 
markets, they have got to pay the market rates for borrowing. 
Yeah, I am not sure. I think those would like be different.
    Senator Toomey. Under what basis? I mean, under a fair 
value accounting method they certainly should be discounted at 
different rates to reflect the very different risks.
    Mr. Hall. Right.
    Senator Toomey. And failure to do so would absolutely 
mislead about the nature of those risks. But in the absence of 
fair value accounting, what is the guiding principle that would 
allow you to distinguish, and what rates would you use? How 
would you do that?
    Mr. Hall. Okay. Yeah, I am sorry to be a little vague in 
this. Finance is not my main area, so I am----
    Senator Toomey. Okay. I would be happy to get a follow-up 
answer.
    Mr. Hall. That would be good.
    Senator Toomey. But I am concerned that we do not have an 
adequate mechanism, and I think CBO's hands are tied, is my 
understanding, into a methodology that does not sufficiently 
take into account the different range of credit risks that we 
take as a government. And to the extent that we do not take 
that into account, we understate the risk.
    And, therefore, in the form of these assets, when they are 
loans, we are overstating the value of some, and we are kidding 
ourselves about our finances to the extent that we do that.
    Now, as a general matter, my understanding is you and your 
colleagues have been supportive of moving to a fair value 
methodology because it does more accurately reflect all the 
risks.
    Mr. Hall. That is correct.
    Senator Toomey. But you cannot, you are not permitted to do 
that under existing law.
    Mr. Hall. Well, we are required to do the FCRA accounting, 
but we often can do the fair value accounting in addition.
    Senator Toomey. Right. And you provide that often as an 
addition, but it is just informative, right?
    Mr. Hall. That is right.
    Senator Toomey. And that is helpful, but it is not the 
official score from CBO on a given piece of legislation.
    Mr. Hall. That is correct.
    Senator Toomey. So there is a systematic risk that we are 
underestimating the risks of the assets that we are claiming.
    Mr. Hall. That is the nature of our--we have been pretty 
consistent for a while now in saying that the fair value is 
more comprehensive because it includes more of the risk that 
the taxpayer really bears on----
    Senator Toomey. Exactly. Well, thank you very much.
    Mr. Chairman, I do think this is a really important item 
that I would like for us as a Committee to take up, if we 
could, simply in the interest of having a more accurate 
portrayal and understanding and accounting of the risks that 
taxpayers takes.
    Chairman Enzi. Thank you, and I will have some follow up 
questions on that, too.
    Senator King.
    Senator King. Thank you, Mr. Chairman. One follow-up 
question.
    The Congressional Budget Office issued a study in December 
of 2015--and I think you mentioned it in your testimony--on 
labor market effects of the Affordable Care Act. That was 
widely reported as the Affordable Care Act will cost 2 million 
jobs or something like that.
    As I read it, though, what you really found was it was the 
labor supply that you were analyzing, not people losing their 
jobs but people choosing not to stay in a particular job 
because they could have health insurance. Is that not correct?
    Mr. Hall. That is right. It is one of the limitations. What 
we calculated was the idea of full-time equivalent, so we 
reduced hours equivalent to 2 million. That does not mean it 
was actually 2 million jobs. That is exactly right. It is a mix 
maybe of lower hours and maybe some job loss.
    Senator King. But both effects were based upon people's 
choices that they were likely to make not being bound to their 
job by their employer-supplied health insurance.
    Mr. Hall. That is exactly right. So it is on the labor 
supply, so that is exactly right, people's incentive to work.
    Senator King. I think that is an important point, because 
there was a lot of talk at the time that CBO says ACA will cost 
2 million jobs, and that is really not accurate.
    Mr. Hall. That is correct, that we are talking about----
    Senator King. Have you done any analysis of the economic 
effect of people being freed from their employer based health 
insurance and, therefore, able to begin their own businesses, 
for example? I know anecdotally of people who have said that, 
``I have wanted to do this for 20 years. Now that I have health 
insurance, I can start my own business.'' Any studies of that?
    Mr. Hall. We have not seen any, and that would be an 
interesting topic perhaps as time goes on and we get a little 
more experience with the ACA.
    Senator King. Thank you. Thank you, Dr. Hall.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Whitehouse, did you have some other questions you 
wanted to ask?
    Senator Whitehouse. If you do not mind, I did want to ask 
one other thing.
    Dr. Hall, your CBO June report, ``Potential Increases in 
Hurricane Damage,'' assigned--first of all, it projected 
significantly higher increases in hurricane damage costs, and 
the report attributed about half of the growth to the effects 
of climate change and the other half to more development and 
more value in the way of the increase.
    Mr. Hall. Yes.
    Senator Whitehouse. That focuses on hurricane damage 
specifically. Can you tell me about how CBO is including those 
climate change projections into your fiscal projections for 
other weather-sensitive programs, like the National Flood 
Insurance Program, which is probably going to be dramatically 
affected by the combination of storm growth and sea level rise, 
and various measures that either depend on sea level rise, like 
what do we do about Norfolk Naval Station if the sea level 
rises 3 feet, coastal resiliency, and then our disaster relief? 
That is often off budget, comes in as an emergency, but it is 
still a big expenditure. How are you evaluating those areas?
    Mr. Hall. Well, we certainly tried to include as much of 
that as we could and the budgetary effect, going from the GDP 
effect to the budgetary effect.
    Senator Whitehouse. I am sorry. PDP?
    Mr. Hall. GDP. I am sorry.
    Senator Whitehouse. GDP. Got it. I misheard you.
    Mr. Hall. The effect on economic growth.
    Senator Whitehouse. Yeah, yeah. I thought you said ``PDP,'' 
and that was not an acronym I recognized. GDP I know.
    Mr. Hall. I am sorry. I am an economist. I do that. I 
apologize.
    We did, in fact, try to look at as much of that as we 
could, Federal insurance and some things like that. To be 
honest, I am not sure about how much of all those things that 
you mentioned are included in that, but we did focus on the 
budgetary effect, and we did find that that was certainly a 
measurable significant effect over the next 60 years.
    Senator Whitehouse. Okay. Thanks very much.
    Thank you, Chairman.
    Chairman Enzi. Thank you.
    Senator Grassley touched a little bit on the regulatory 
impact analysis and regulatory budget. That came up in some of 
our hearings that we had earlier, and I wondered if you had 
worked on developing a plan for how that could be done. I 
understand that you and your staff have had some discussions 
about the role that CBO might play in assessing regulatory 
costs of proposed rules and proposed legislation, and that you 
are in the process of conducting some more research into what 
infrastructure might be needed for the CBO to engage in this 
work? How is that moving forward?
    Mr. Hall. Sure. Well, primarily what we focused on is the 
idea of how Congress can have more impact on regulatory studies 
and more impact on assessing the burden of regulation. And the 
role that CBO could play certainly it really depends upon what 
Congress decides they want to do, how much involvement they 
want.
    For example, if Congress is looking for an organization to 
do complete studies on the effect of proposed regulation, that 
can take a long time, and that can be a really big deal. That 
would be tough to do something like that at a place like CBO, 
for example.
    If you are looking at a place that would assess executive 
branch, assessment of a regulation, regulatory changes, and 
sort of look at it as is this something similar to what OIRA 
does but just something for the legislative branch, that sort 
of thing makes more sense.
    So what we have tried to do is we have tried to focus on 
some of the different options Congress may have to get more 
involved in regulation and thinking that that is sort of the 
first step before we think about CBO's involvement.
    One of the things that comes to my mind, for example, is if 
there is a large involvement, if Congress wants to get involved 
in a more active way, I spent some time at a place called the 
U.S. International Trade Commission, which is an independent 
commission that focuses on trade issues, and it is set up, you 
know, with Commissioners from both parties, and it is set up 
to--and it is fairly large, and it is set up to do not just 
assessment of trade but also particular studies on trade that 
Congress wants. Something like that would be an option, for 
example. That would be an organization that could be as big as 
CBO. Something smaller we could certainly take on.
    One of the things that we would have to think about, of 
course, is if we took on almost anything, we are not geared up 
to do it under current staffing. So even if we did even fairly 
modest help, we would have to think about what sort of skills 
we would need to add to our skill set and maybe add some 
resources to that.
    Chairman Enzi. Okay. Thank you.
    I think this might be an area where Senator Toomey was 
going, because I had recently written a joint letter to the 
Secretary of Education about the Department's plan to issue a 
final rule on Federal student loans. That rule would amend 
existing guidelines concerning interpretation and 
implementation of the defense to repayment provision in the 
Higher Education Act. The Department estimated that its 
proposed rule issued in July would increase the cost of the 
Federal student loan programs by somewhere between $2 billion 
and $43 billion over the next decade. That is a pretty big 
range. How does CBO approach a matter like this when projecting 
costs in the next baseline? Is the Department of Education's 
estimate of value, or will you have to use a separate estimate 
to incorporate it in the baseline?
    Mr. Hall. We will, and we always perform our own estimates. 
So we would probably take a look at what they have done, but we 
would perform our own analysis and come to our own conclusions 
about the likely impact and whether that--and discuss about 
incorporating that into the baseline if it is not already 
there. That is something that we wind up doing all the time as 
it is, and we always do our own independent analysis of things 
like this.
    Chairman Enzi. To get back to what Senator Toomey was 
asking about, would that have some of these risk factors in it 
as well? Or does that fit within what CBO does?
    Mr. Hall. You mean the risk factors are in how much 
uncertainty there is and----
    Chairman Enzi. On different student loans, whether they 
will be repaid or not.
    Mr. Hall. Oh, yes, yes. Certainly we try to take the risk 
factor, obviously, into account. I am not sure we do a present 
value sort of analysis of this, but we would probably come up 
with a point estimate and revisit it as experience allows and 
try to communicate somewhat the uncertainty, the risk involved 
in the estimate.
    Chairman Enzi. One proposal that I have heard out there--
and I do not know who it was from--was that if students 
complete their college degree and there is not a job in that 
field, they should be able to sue the Federal Government for 
forgiveness of their loan. That would be a new risk factor, I 
assume.
    Mr. Hall. Well, that is right, and we would try to forecast 
that.
    Chairman Enzi. Yes. So would you have to look at what 
majors they have? [Laughter.]
    That is not a fair question. I do not have any more 
questions. Senator Whitehouse, do you have any other questions?
    Senator Whitehouse. Nor do I. Thank you, Chairman.
    Chairman Enzi. Thank you, Dr. Hall, for being here and for 
your answers. And if anybody has any additional questions they 
want to submit, they can do that, but they should be turned in 
by 5 o'clock tomorrow night, and we would appreciate it if you 
would answer those, plus there were a few that we needed 
follow-up on from the questions that were given already.
    Mr. Hall. Absolutely. Thank you.
    Chairman Enzi. Thank you very much. This hearing is 
adjourned.
    [Whereupon, at 4:31 p.m., the Committee was adjourned.]
    
    

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