[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
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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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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