    [Senate Hearing 116-153]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 116-153

              CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2020

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

                                    HEARINGS

                                   before the

                            COMMITTEE ON THE BUDGET
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   ----------

    JANUARY 29, 2019--CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2019-
                                      2029

      FEBRUARY 27, 2019--THE BUDGET CONTROL ACT: A REVIEW OF CAP-ADJUSTED
                                    SPENDING

        MARCH 13, 2019--THE PRESIDENT'S FISCAL YEAR 2020 BUDGET PROPOSAL

       APRIL 9, 2019--THE DEPARTMENT OF DEFENSE FISCAL YEAR 2020 BUDGET
                                    REQUEST

    MAY 14, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: PERSPECTIVES
                             OF TWO FORMER CHAIRMEN

      JUNE 19, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: LESSONS
                                FROM THE STATES

     JUNE 26, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: SECURING
                           THE NATION'S FISCAL FUTURE

     OCTOBER 30, 2019--THE CHIEF FINANCIAL OFFICERS ACT OF 1990: ACHIEVING
                                   THE VISION

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

             CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2020

                                                            S. Hrg. 116-153

              CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2020

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

                                    HEARINGS

                                   before the

                            COMMITTEE ON THE BUDGET
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

    JANUARY 29, 2019--CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2019-
                                      2029

      FEBRUARY 27, 2019--THE BUDGET CONTROL ACT: A REVIEW OF CAP-ADJUSTED
                                    SPENDING

        MARCH 13, 2019--THE PRESIDENT'S FISCAL YEAR 2020 BUDGET PROPOSAL

       APRIL 9, 2019--THE DEPARTMENT OF DEFENSE FISCAL YEAR 2020 BUDGET
                                    REQUEST

    MAY 14, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: PERSPECTIVES
                             OF TWO FORMER CHAIRMEN

      JUNE 19, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: LESSONS
                                FROM THE STATES

     JUNE 26, 2019--FIXING A BROKEN BUDGET AND SPENDING PROCESS: SECURING
                           THE NATION'S FISCAL FUTURE

     OCTOBER 30, 2019--THE CHIEF FINANCIAL OFFICERS ACT OF 1990: ACHIEVING
                                   THE VISION

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 _________

                     U.S. GOVERNMENT PUBLISHING OFFICE

      39-734                 WASHINGTON : 2020

                            COMMITTEE ON THE BUDGET

                       MICHAEL B. ENZI, Wyoming, Chairman
    CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
    MIKE CRAPO, Idaho                    PATTY MURRAY, Washington
    LINDSEY O. GRAHAM, South Carolina    RON WYDEN, Oregon
    PATRICK TOOMEY, Pennsylvania         DEBBIE STABENOW, Michigan
    RON JOHNSON, Wisconsin               SHELDON WHITEHOUSE, Rhode Island
    DAVID A. PERDUE, Georgia             MARK R. WARNER, Virginia
    MIKE BRAUN, Indiana                  JEFF MERKLEY, Oregon
    RICK SCOTT, Florida                  TIM KAINE, Virginia
    JOHN KENNEDY, Louisiana              CHRIS VAN HOLLEN, Maryland
    KEVIN CRAMER, North Dakota           KAMALA D. HARRIS, California
                 Elizabeth McDonnell, Republican Staff Director
                    Warren Gunnels, Minority Staff Director

                                C O N T E N T S

                                  ----------

                                    HEARINGS

                                                                       Page

    January 29, 2019--CBO's Budget and Economic Outlook: Fiscal Years
      2019-2029......................................................     1
    February 27, 2019--The Budget Control Act: A Review of Cap-
      Adjusted Spending..............................................    45
    March 13, 2019--The President's Fiscal Year 2020 Budget Proposal.    81
    April 9, 2019--Department of Defense Fiscal Year 2020 Budget
      Proposal.......................................................   159
    May 14, 2019--Fixing a Broken Budget and Spending Process:
      Perspectives of Two Former Chairmen............................   199
    June 19, 2019--Fixing a Broken Budget and Spending Process:
      Lessons from the States........................................   245
    June 26, 2019--Fixing a Broken Budget and Spending Process:
      Securing the Nation's Fiscal Future............................   295
    October 30, 2019--The Chief Financial Officers Act of 1990:
      Achieving the Vision...........................................   399

                        STATEMENTS BY COMMITTEE MEMBERS

    Chairman Michael B. Enzi ........... 1, 45, 81, 159, 199, 245, 295, 399
    Ranking Member Bernard Sanders............................. 47, 83, 194
    Senator Mike Braun...............................................   155
    Senator Tim Kaine................................................   246
    Senator Patty Murray.............................................   156
    Senator Chris Van Hollen.........................................   201

                                   WITNESSES

    Bebout, Hon. Eli, Wyoming State Senator..........................   248
        Prepared Statement of........................................   251

    Conrad, Hon. Kent, Former United States Senator, Senate Budget
      Committee Chairman.............................................   222
        Prepared Statement of........................................   225

    Dodaro, Hon. Gene L., Comptroller of the United States, U.S.
      Government Accountability OfficeOffice...................... 297, 401
        Prepared Statement of .................................... 300, 404
        Questions and Answers (Post-Hearing) from:
            Senator Kevin Cramer.................................. 393, 468
            Senator Charles E. Grassley..............................   387
            Senator Pat Toomey.......................................   470
            Senator Chris Van Hollen.................................   473
            Senator Mark R. Warner...................................   477
            Senator Sheldon Whitehouse............................ 380, 483

    Gregg, Hon. Judd, Former United States Senator, Senate Budget
      Committee Chairman.............................................   214
        Prepared Statement of........................................   218

    Gullo, Theresa, Assistant Director for Budget Analysis,
      Congressional Budget Office....................................    49
        Prepared Statement of........................................    51
        Questions and Answers (Post-Hearing) from:
            Ranking Member Bernard Sanders...........................    76
            Senator Charles E. Grassley..............................    77
            Senator Pat Toomey.......................................    80

    Hall, Hon. Keith, Ph.D. Director, Congressional Budget Office....     3
        Prepared Statement of........................................     6
        Questions and Answers (Post-Hearing) from:
            Ranking Member Bernard Sanders...........................    25
            Senator Kevin Cramer.....................................    27
            Senator Charles E. Grassley..............................    30
            Senator Tim Kaine........................................    33
            Senator Rick Scott.......................................    34
            Senator Pat Toomey.......................................    34
            Senator Chris Van Hollen.................................    36
            Senator Mark R. Warner...................................    37
            Senator Sheldon Whitehouse...............................    38

    Hicks, John, Executive Director, National Association of State
      Budget Officers................................................   262
        Prepared Statement of........................................   264
        Questions and Answers (Post-Hearing) from:
            Senator Charles E. Grassley..............................   293

    Norquist, Hon David L, Performing the Duties of the Deputy
      Secretary of Defense, Department of Defense....................   161
        Prepared Statement of........................................   163
        Questions and Answers (Post-Hearing) from:
            Ranking Member Bernard Sanders...........................   190
            Senator Kevin Cramer.....................................   185
            Senator Charles E. Grassley..............................   186
            Senator Chris Van Hollen.................................   193

    Orr, Benjamin, Executive Director, Maryland Center on Economic
      Policy.........................................................   271
        Prepared Statement of........................................   273

    Vought, Hon. Russell T., Acting Director, Office of Management
      and Budget.....................................................    87
        Prepared Statement of........................................    89
        Questions and Answers (Post-Hearing) from:
            Chairman Michael B. Enzi.................................   121
            Ranking Member Bernard Sanders...........................   145
            Senator Kevin Cramer.....................................   119
            Senator Charles E. Grassley..............................   125
            Senator Jeff Merkley.....................................   129
            Senator Patty Murray.....................................   137
            Senator Sheldon Whitehouse...............................   151

           CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2019-2029

                                  ----------

                           TUESDAY, JANUARY 29, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:31 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Crapo, Toomey, Johnson,
    Perdue, Braun, Kennedy, Cramer, Whitehouse, and Kaine.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Joshua Smith, Minority Budget Policy Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. The hour of 2:30 has arrived, so good
    afternoon and welcome to the first hearing of the Senate Budget
    Committee in the 116th Congress. We have some new faces joining
    the Committee for the first time this afternoon, and while they
    are not all here yet because of other Committee meetings, I
    would like to formally welcome to the Senate Budget Committee
    the newest members: Senator Braun of Indiana, also Senator Rick
    Scott of Florida, and Senator Kevin Cramer of North Dakota. I
    look forward to their contributions as we tackle our Nation's
    pressing fiscal challenges in the years ahead.
        We begin our work this year by examining the Congressional
    Budget Office's annual update of the budget and economic
    outlook. Our witness today, of course, is Dr. Keith Hall, who
    is the Director of the CBO and has probably appeared before
    this Committee more than any other Director. I would like to
    welcome him and the members of his team accompanying him. We
    look forward to your testimony.
        In my review of this report, what strikes me most is how
    few surprises there really are. As has been the case since
    2002, the Federal Government spends more than it collects. In
    fiscal year 2018, the Federal Government collected more than
    $3.3 trillion in revenue, but it spent more than $4.1 trillion,
    which means the Government overspent by $779 billion.
        Beginning in 2022, the Federal Government is projected to
    begin running deficits of more than $1 trillion each year.
    Total overspending for the next 10 years will reach more than
    $11.6 trillion under this forecast, which assumes no other
    changes to tax or spending laws currently on the books. And
    that is the way that it has to be done. It is an unlikely
    outcome, but one that CBO is required to project.
        As CBO's report shows, spending over the next 10 years will
    grow from $4.4 trillion in 2019 to $7 trillion in 2029. What is
    causing the spike in spending? CBO tells us that three-quarters
    of that $2.6 trillion growth is attributed to Social Security,
    Medicare, and interest payments. Just those three things:
    Social Security, Medicare, and interest payments. While
    interest costs are tied to debt accumulation and rising rates,
    cost growth in Social Security and Medicare is a matter of
    demographics and ever growing per beneficiary health care
    costs. The number of people 65 years or older is double what it
    was 50 years ago and is forecast to increase by a third in the
    next 10 years. For years, we have known this was coming, and I
    welcome CBO's additional emphasis on this issue in this year's
    report.
        According to CBO, between 2019 and 2029, revenues will grow
    by about 5 percent per year. This revenue growth will result in
    receipts to the Government that hover around the 50-year
    average and then spike upwards following expiration of certain
    provisions of the 2017 tax law. While revenue growth will be
    strong, it will be outpaced by non-interest mandatory spending,
    which will grow 5.5 percent per year, and interest payments
    will grow 9 percent per year on average. In just a few short
    years beyond the current forecast, there is no doubt that 100
    percent of revenue--that is every penny the Government
    collects--will go towards mandatory spending and interest
    payments.
        Funding for national security, border security, education,
    and health research will be fully financed by the Nation's
    credit card. We are becoming a Nation of credit cards. Year
    after year, CBO's data show that our mandatory spending
    programs that operate on autopilot continue to grow faster than
    the revenue that pays for them can support. For example, over
    the next 10 years, the Medicare program will spend nearly $5.6
    trillion more than the program collects in payroll taxes and
    beneficiary premiums. Trillion dollar deficits are within
    sight. They are real. It is time for us all to have an honest
    conversation as to how we are going to address them. I believe
    that most of us agree that when you have $22 trillion in debt,
    which is forecast to grow to nearly $34 trillion in 10 years'
    time, Congress needs to start putting solutions on the table.
        The fact that interest rates are rising only makes the need
    to act soon more pressing. Something has to change. Lurching
    from deal to deal under the threat of a Government shutdown
    only leads to more spending, more deficits, and ultimately more
    debt.
        Congress must implement foundational and structural policy
    changes if we are to ever achieve fiscal sustainability. While
    this Committee will be focused on leading the way to a better
    fiscal path, I also intend topress ahead on the Committee's
    ongoing spending process reform and oversight work. As the Nation and
    its leaders continue to grapple with the effects of the longest
    Government shutdown in American history, it is clear that we need to
    work together to improve the process by which our country budgets and
    spends money.
        Last year, some members of this Committee, along with
    members of the House of Representatives, worked to develop
    solutions to America's broken spending process. I salute their
    efforts and intend to build on their work and the previous work
    of this Committee. I think we will do a hearing on that.
    Additionally, I intend to have this Committee provide continued
    oversight of Federal spending, ensuring programs deliver the
    results they were promised. There must be accountability for
    the expenditure of all taxpayers' dollars. Whether it be the
    Department of Defense or the Department of Health and Human
    Services, all spending should be reviewed. As we kick off a new
    Congress, I welcome and I long for the constructive input of my
    fellow Committee members regarding areas ripe for oversight.
    There is no more appropriate topic for this Committee's first
    hearing than receiving an update on the Nation's budget and
    economic outlook.
        Dr. Hall, thank you for joining us today. I look forward to
    hearing from you today and working with my colleagues on this
    Committee to strengthen our economy, to reduce overspending,
    and to put our Nation on a more sustainable fiscal path.
        At this point we would usually hear from somebody on the
    Ranking Member's side. If they show up and wish to make a
    statement, we will interrupt for that.
        Our witness this afternoon, as I mentioned, is Dr. Keith
    Hall, who is the Director of the Congressional Budget Office.
    We appreciate your work and look forward to receiving your
    testimony.
        For the information of colleagues, Dr. Hall will take up to
    7 minutes for his opening statement, followed by questions. And
    we have a specific order for the questions, which I will go
    over as soon as he finishes.
        Dr. Hall.

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

        Mr. Hall. Thank you. Chairman Enzi, Ranking Member Sanders,
    and members of the Committee, thank you for inviting me to
    testify about the Congressional Budget Office's most recent
    analysis of the outlook for the budget and the economy, which
    we released yesterday.
        I would like to draw your attention to important
    information in that report about the amount of debt that the
    Federal Government will incur if we continue on the current
    budgetary path. I am going to focus on four questions.
        First, how large does CBO project that debt will become?
        Second, why is debt projected to become so large?
        Third, what would happen if the economy grew more quickly?
        Fourth, what are the consequences of high and rising debt?
        The first question: What does CBO project? Federal debt is
    already large, and budget deficits over the next decade and
    beyond are projected to keep pushing it up in relation to the
    size of the economy. Eventually, debt as a share of economic
    output would reach its highest level in our Nation's history.
    Let me highlight a few key numbers.
        At the end of last year, the amount of debt held by the
    public was equal to 78 percent of gross domestic product. In
    CBO's projections, debt equals 93 percent of GDP by 2029 and
    about 150 percent of GDP by 30 years from now. Even at its
    highest point ever, just after World War II, debt was far less
    than that, at 106 percent of GDP.
        Second question: Why does debt become so large in CBO's
    projections? Now, we provided you a summary of the report, a
    visual summary, if you have it handy. You can see the answer in
    the summary of the report which we just provided you. We have
    summarized things in a new way to sort of help make things a
    little easier to digest.
        If you look at the chart on the first page at the bottom,
    you will see that the page indicates why debt grows. Federal
    spending and revenues both grow through 2029, yet the gap
    between them persists.
        On the spending side, growth is driven by benefits for
    older people and by interest costs. Outlays for Social Security
    and Medicare increase significantly in CBO's baseline
    projections. As members of the Baby Boom generation age, the
    number of people at least 65 years old--who are the main
    beneficiaries of that spending--is expected to grow by about
    one-third, and their health care costs will continue to rise.
    Interest costs are also projected to rise, primarily because of
    increases in Federal borrowing and higher interest rates.
        As for revenues, they too are projected to increase through
    2029, partly because of the scheduled expiration of some tax
    cuts at the end of 2025. However, that growth in revenues is
    not enough to keep deficits from becoming significantly larger
    than they have been over the past 50 years.
        In CBO's projections, the average deficit over the next 10
    years equals 4.4 percent of GDP. That is shown on the front of
    your handout if you look at the very first graph. That average
    deficit is not only large but also unusual for times of low
    unemployment--in contrast to times of high unemployment, when
    the Government sometimes implements policies aiming to
    stabilize the economy, causing deficits to be larger.
        Third question: What would happen if the economy grew more
    quickly? If GDP grew more quickly than it does in CBO's
    projections, revenues would increase more than spending would,
    and deficits would be smaller than projected. If economic
    growth was fast enough, deficits would actually shrink, and
    debt would stabilize or even fall as a percentage of GDP rather
    than continuing to grow.
        But such an outcome is unlikely. In 2018, the real growth
    rate of the economy--that is, the growth with the effects of
    inflation removed--was 3.1 percent, the highest rate since
    2005. Nevertheless, the deficit equaled 3.8 percent of GDP, and
    debt increased as a percentage of GDP.
        Furthermore, this year the boost that the recent tax
    legislation gave to business investment wanes in CBO's
    projections. Also, Federal purchases drop sharply under current
    law, starting in the fourth quarter of this year. As a result,
    economic growth is projected to slow in 2019. And over the long
    term, output growth is projected to be lower than its long-term
    historical average because the working-age population is
    expected to grow more slowly than it did in the past. Real GDP
    grows only by an average of 1.8 percent per year in CBO's 10-
    year projections. In short, the economy is not likely to grow
    quickly enough to shrink the budget deficit.
        We have posted an interactive workbook on our website that
    lets you specify different economic scenarios and see the
    results. For example, if productivity growth turned out to be
    half a percentage point higher in every year than CBO currently
    projects, real GDP would grow by 2.4 percent per year instead
    of 1.8 percent. Deficits would still average 3.7 percent of GDP
    instead of 4.4 percent of GDP. And debt would stabilize at
    roughly 80 percent of GDP by 2029. Such economic growth is
    possible, but it is not likely under current law.
        CBO aims for its projections to be in the middle of
    potential outcomes, so there is about the same chance that
    productivity growth would turn out to be half a percentage
    point lower than CBO projects. If that happened, real GDP
    growth would average 1.1 percent over the next decade, average
    deficits would be 5.2 percent of GDP, and debt would swell even
    more than it does in our projections.
        Fourth question: What are the consequences of high and
    rising debt? If debt rose to the amounts that CBO projects,
    there would be troubling consequences.
        First, as interest rates continued to rise towards levels
    more typical than today's, Federal spending on interest
    payments would increase--surpassing the entire amount of
    defense spending by 2025 in our baseline projections, for
    example.
        Second, because Federal borrowing reduces national saving
    over time, the Nation's capital stock would ultimately be
    smaller, and as a result, productivity and total wages would be
    lower than would be the case if debt were smaller.
        Third, lawmakers would have less flexibility than otherwise
    to use tax and spending policies to respond to unexpected
    challenges.
        And, fourth, the likelihood of a fiscal crisis in the
    United States would increase.
        In closing, I will emphasize that debt is on an
    unsustainable course in CBO's projections. To put it on a
    sustainable one, lawmakers will have to make significant
    changes to tax and spending policies--making revenues larger
    than they would be under current law, making spending for large
    benefit programs smaller than it would be under current law, or
    adopting some combination of these approaches.
        I am happy to answer your questions.
        [The prepared statement of Mr. Hall follows:]
        [GRAPHIC] [TIFF OMITTED] T9734A.001

        [GRAPHIC] [TIFF OMITTED] T9734A.002

        [GRAPHIC] [TIFF OMITTED] T9734A.003

        [GRAPHIC] [TIFF OMITTED] T9734A.004

        [GRAPHIC] [TIFF OMITTED] T9734A.005

        Chairman Enzi. Thank you, Director. And I also want to
    thank you for the product that your staff put out on some
    possible spending changes that we can make, and they are
    designed on a sliding scale, and I have everybody looking
    through those, I hope.
        Now we will turn to questions, and normally I would ask
    questions first, but I am going to be here for the whole
    hearing, and we have a vote scheduled. But I will explain the
    process to Committee members before we start. Each member will
    have 5 minutes for questions, usually beginning with me and
    with the Ranking Member. Following the two of us, we would
    alternate questions between Republicans and the minority. All
    members who were in attendance when the hearing started, at the
    sound of the gavel, will be recognized in order of seniority.
    For those who arrived after the hearing began, you are on the
    list in order of arrival. If it is your turn to be on the list
    to be recognized and you are not available, then you move to
    the bottom of the list and we turn to the next Senator on that
    side of the aisle to ask questions.
        Okay. With that, I will turn to Senator Johnson, who was
    here at the sound of the gavel.
        Senator Johnson. Thank you, Mr. Chairman. Dr. Hall, by the
    way, I did appreciate your summary. It is the charts and graphs
    that I was picking out of your larger product, so I appreciate
    that.
        I want to focus on page 4 of the main report. What you said
    in your testimony, you talked about the increasing number of
    retired individuals. You state it a little bit differently in
    your report. You say, ``We are going to experience slower
    growth primarily because the labor force is expected to grow
    more slowly than it has in the past.'' The same type of thing.
        One of the things we are debating is immigration. How many
    people should we grant permanent legal residency per year? I
    have been in manufacturing for 30 years. It has been difficult
    to hire people in manufacturing for at least 20 of those years.
    As long as I have been a Senator, there is not one
    manufacturing plant in Wisconsin that can hire enough people.
    The same way in terms of dairy farms.
        So can you expand a little bit more? You know, from my
    standpoint, economic growth requires human capital plus
    financial capital. Just talk about the demographics that we are
    facing in terms of lower birth rates. You know, Senator Perdue
    and I earlier talked about what should be the number of people
    we allow into this country in terms of legal immigration and
    how should we structure that as opposed to just family
    unification versus targeted toward employment.
        Mr. Hall. Sure. Well, let me start with stating clearly
    what I think the challenge is. When we talk about long-term
    potential growth being only something like 1.8 percent, there
    is a really simple recipe. If you look at productivity growth,
    if we assume something like 1.3 or 1.4 percent productivity
    growth, that is something in the range that we normally have.
    We have had bigger at time.
        Senator Johnson. And, again, that is the financial capital
    aspect.
        Mr. Hall. Exactly. That depends on the capital stock. That
    is the sort of thing that, for example, the tax bill addressed.
        The other part is the labor force. We only see the labor
    force growing about half a percent a year. So if you take 1.3,
    add it to 0.5, you get the 1.8, and it is almost that simple.
        So those are sort of the two ingredients for getting long-
    term growth. That 1.5 percent is a real challenge because of
    our aging population. We are getting more people who are over
    65. The number of people who are over 65 are getting older, and
    the labor force participation rates of younger folks just are
    not actually keeping up with the Baby Boomers. So we are going
    to see a drop in labor force participation. That is a big part
    of why this labor force growth is slowing.
        Senator Johnson. So, again, the numbers are pretty simple.
    I think our labor force is approximately 150 million people. Is
    that----
        Mr. Hall. Right. That is right.
        Senator Johnson. Okay. So if we want to grow faster than
    that--right now you are saying it is going to grow by half a
    percent.
        Mr. Hall. Yes.
        Senator Johnson. That is about 750,000 people per year,
    correct?
        Mr. Hall. That sounds about right.
        Senator Johnson. So if we want to grow another half
    percent, we need to increase our labor force by another
    750,000. If we want to grow by 2 percent, we would have to
    really grow our labor force by about 3 million people per year.
    That is just off the top of my head. But, I mean, those are the
    types of numbers we are talking about. We grant legal permanent
    residency to about a million people.
        Mr. Hall. Right.
        Senator Johnson. What are you----
        Senator Perdue. But.
        Senator Johnson. Yeah, but it is primarily about family
    unification as opposed to putting them to work. What are you
    seeing in your demographics in terms of just natural birth rate
    and our own population growth? And what shortfall do we have
    there? So fill in the blanks on the 500,000 you are basically
    talking about.
        Mr. Hall. Right, well, let me mention one thing about
    immigration really quickly. Specific proposals on immigration
    policy would have different effects. It in part depends upon
    who you are allowing in on immigration. The level of education
    and skills do make a difference. So if you are getting people
    with high education levels, there actually is evidence that
    those people, not only do they add to your labor force; they
    actually add to productivity. If you add folks who are less
    skilled and more basic, they do not add to productivity like
    that, and there is some issue of whether or not they suppress
    wages for low-income folks as well. So the mix matters.
        Senator Johnson. Sure.
        Mr. Hall. But the basic formula is if you just allow
    immigration, you increase your labor force and you increase
    growth. Historically, we have had pretty high labor force
    growth rates in part because we have had fairly high
    immigration. One of the things that you see is recent
    immigrants actually typically have higher birth rates than
    others do. So actually we get an extra--we have gotten an extra
    little kick in the past and adding to the labor force with
    that.
        Senator Johnson. But, again, just base numbers, you are
    looking at a labor force increase of about 750,000 people per
    year.
        Mr. Hall. Right, right.
        Senator Johnson. Your projections.
        Mr. Hall. Right. Now, let me just say, when we were really
    going gangbusters in economic growth in the late 1990s, it was
    more than immigration. It was also that women's labor force
    participation was rising to historical levels. And so women
    closed that gap, so we actually had this extra boost in the
    labor force. And from what we have seen since then, that gap is
    now closed, and it is now pretty constant. So we do not really
    expect that to close any more in the future, so you do not have
    that additional growth in the labor force.
        Senator Johnson. Okay. Thank you very much. Very helpful.
        Chairman Enzi. Thank you.
        Senator Perdue.
        Senator Perdue. Well, thank you. I did not know we would
    have an unilateral debate going today in the Committee, but,
    first of all, Dr. Hall, I really appreciate your focus on the
    debt. This has been a consistent message that you have
    delivered each year that you have come here, and I want to
    thank you personally for that. I personally believe it is the
    number one crisis we have in America.
        But I want to level-set this a bit. You talk about the
    public debt being 78 percent. If we were to include in the
    nomenclature the debt that we hold in the Social Security and
    Medicare trust funds, it is actually over 100 percent of
    current GDP if that were all included. Correct? So it is a
    matter of really how you level-set that.
        Mr. Hall. Right, right.
        Senator Perdue. I want to come to another question, though,
    particularly the growth of this. To go from $22 trillion
    projected at the end of 2019, from $21 trillion today to $32
    trillion next year, the largest growth in that is Social
    Security, Medicare, and interest on the debt. But we have also
    got pension benefits for Federal employees, Medicaid, and this
    interest I want to talk about.
        Right now, it is projected that in the next 10 years it
    will go--from 2019 net interest outlays, from $383 to $928
    billion by 2029 of this. So can you elaborate a little bit on
    the impact of the growth of interest? And we are still assuming
    a low relative interest rate compared to historical interest
    rates of about 5.5 percent.
        Mr. Hall. That is right. In fact, we do have interest rates
    going up, and that is a big part of this. And the trouble, of
    course, with interest rates going up is we already have a big
    debt. So when we start to add to the debt, in large part the
    things you mentioned are all typically related to the aging
    population.
        Senator Perdue. Right.
        Mr. Hall. When you add that to it, you get this sort of
    double hit with interest rates and high debt combining on
    things. But you are right; we have debt--we have interest rates
    going up to what is a more normal range. We are still at the
    low end of the normal range, and that makes a big difference.
    If interest rates were just a percentage point higher than we
    forecast, then we are talking about an extra $2 trillion in
    debt over the next 10 years.
        Senator Perdue. Yes, you projected in an earlier report
    that by 2023 we would be spending more on interest on the debt
    than we are on our military.
        Mr. Hall. Right, and that is----
        Senator Perdue. All defense spending.
        Mr. Hall. And that is still in our projection. At the end
    of 10 years, the spending on net interest is greater than all
    defense spending.
        Senator Perdue. So let me move to the two things that are
    going up the fastest because of the aging population: Medicare
    and Social Security.
        Mr. Hall. Right.
        Senator Perdue. You know, total spending is at an all-time
    high as a percentage of GDP. But when we look at Social
    Security, the trust fund of Social Security actually--
    disability goes to zero as projected, you project, by 2027. And
    I think the retirement part goes by 2032.
        Mr. Hall. Right.
        Senator Perdue. I do not think the public fully appreciates
    the weight of that observation, so what really happens when
    they go--and, by the way, we are subsidizing this year Social
    Security by about $100 billion and I think Medicare by about
    $380 billion right out of the current account. So if those two
    trust funds actually were allowed to go to zero, then the only
    way to continue paying benefits at 100 percent is to take that
    deficit or that shortfall out of the current Federal income
    tax, which is something that we really never, ever projected to
    do.
        So, in your mind, what is the impact of this? And, frankly,
    if we do not address that, no matter how the economy grows, how
    you cut expenses, or what you do with the budget process or
    what you do with health care, you really cannot bring the debt
    curve back down to some reasonable percentage over any length
    of time without addressing those pieces of it. Would you agree?
        Mr. Hall. Well, yeah, the part I agree about is not to
    recommend particular things, but you need to find big changes.
    You need to find big sources of big cuts in spending or big
    increases in taxes or both. You cannot look at the small things
    and get there.
        Senator Perdue. Agree. But when you are spending $1.3
    trillion in discretionary and over $3 trillion in mandatory,
    wouldn't you agree that the only way really to bend this curve
    is to attack all the costs? You cannot do it--you cannot get to
    solving a $1 trillion deficit by going after $1.3 trillion of
    expenses on discretionary spending. That just is not going to
    work. You cannot really raise revenue fast enough to do that.
    You really cannot cut enough spending out of discretionary
    spending. So the only way to go is to save Social Security and
    save Medicare. By ``save,'' I mean avoid either trust fund
    going to zero.
        Mr. Hall. That is reasonable logic. I think the
    discretionary spending is not a big bucket, but it by itself
    would not solve the problem.
        Senator Perdue. Right. Thank you. Again, thank you so much
    for the executive summary. This is so helpful. And I encourage
    you to continue to do that. It is very, very helpful.
        Mr. Hall. Thank you.
        Senator Perdue. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Braun.
        Senator Braun. Thank you, Chairman Enzi. And, Dr. Hall, we
    had a get-together in my office, and I had a few questions for
    you then, and you got me good answers.
        Most people would not look forward to being on a Budget
    Committee when I have learned how we have worked so hard, you
    know, to try to tell the truth. I know in the State of Indiana,
    you know, we passed a balanced budget amendment. That certainly
    makes it easier. You know, we have done it out of practice.
    Being on a school board 10 years, being the CEO of my own
    business, it would be laughable if in any of those gigs that
    you would run the operation like that.
        I am going to take a little different tack here, and great
    presentation in terms of the facts and figures. The other side
    many times indicates that we can raise income to offset our
    troubles here in the budget. And I asked you a few particular
    questions, and I was amazed at the answer that came back, and I
    am going to start with this one. To eliminate a deficit, you
    came back with the answer: ``Taxes would have to go up across
    the board 33 percent.'' I want to make sure that that was
    correct because that is a huge number, and that is just a great
    example of how far we are out of kilter. You said one-third.
        Mr. Hall. Well, you know, you go up by one-third, if you
    raise the tax rate, the tax rate would have to go up by 10
    percent across the board.
        Senator Braun. Okay. So that is good to clarify that. That
    is a huge tax increase. And then I think you also, when I was
    looking at the higher income brackets, the highest single
    bracket is $510,000, and the one just taxed at two percentage
    points lower is $204,000. And then the married equivalents
    would be 408 and 612. And let me understand this correctly. Did
    you say if you taxed fully through those brackets, meaning at
    100 percent, it would not generate enough revenue?
        Mr. Hall. That is right.
        Senator Braun. Okay. If you taxed all income over $204,000
    and $408,000 for married couples, you could not raise enough
    revenue to pay for our deficit. That to me is appalling. I am
    going to try to couch terms in ways that people will understand
    it, and we have just got to do a better job than that. That
    would be--and I was disappointed when I got here and heard that
    several times we have tried to address spending bills and
    cannot get those ever to catch stride. But it looks like it
    would nearly be impossible if you did what many claim out there
    in terms of very top rates, you just could not generate enough
    income for us to balance our budget.
        So I think you do not need much more than an eighth grade
    education to understand the arithmetic here. Politically, some
    think that you could tax your way out of it. We have got to me
    what appears to be a spending problem that has been
    accumulating over many years. Revenues are currently rising
    faster than the growth of the economy. Is that true?
        Mr. Hall. That is right.
        Senator Braun. Okay. So you could not tax incomes at 100
    percent and still cover the deficit. We are generating more
    income faster than the rate of the growth of the economy. It
    looks to me that the answer is simple, and it is more about
    backbone and fortitude, and we are going to have to start
    addressing the mandatory spending and doing things that are
    kind of across the board if we are ever going to cut into this
    issue that has not snuck up on us.
        Mr. Hall. I will pass on agreeing because we do not comment
    on policy, but----
        Senator Braun. I understand, and I will yield the rest of
    my time.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman. Doctor, thanks
    for being here today.
        What would be the impact on our GNP if America adopted a
    so-called merit immigration policy like Canada or Australia?
        Mr. Hall. We would have to look at that. I am not sure
    exactly how that is different. We would have to--I would not
    want to try to guess. We would have to look at it carefully and
    analyze it carefully.
        Senator Kennedy. Well, would it cause it to go down?
        Mr. Hall. I am afraid I am just not that familiar with the
    Canadian system.
        Senator Kennedy. Well, the Canadian and Australian systems
    basically admit folks to their country based on their potential
    economic contribution as opposed to our system; we basically
    admit people who have family.
        Mr. Hall. Right.
        Senator Kennedy. Would you look at that for me?
        Mr. Hall. Sure, sure. I can say, which is a relevant
    statistic, I think, the evidence is that people with higher
    levels of education as immigrants do contribute to productivity
    growth as well as their work. So that has sort of a different
    effect than others who are less skilled.
        Senator Kennedy. What role, briefly, does the labor force
    participation rate play in GDP?
        Mr. Hall. It is a very important role. It is a really key
    part of getting GDP growth.
        Senator Kennedy. And what is our labor force participation
    rate, about 0.62, something like that?
        Mr. Hall. Yeah, it is a little under 63 percent right now,
    and we see it going down, unfortunately, as the Baby Boomers
    age and start to retire. So right now it has been--actually,
    the rate has actually been holding for a little bit, but we
    expect it to start to decline, and that is starting to be a
    burden on growth going forward.
        Senator Kennedy. If Government social programs paid more
    than one could earn through an entry-level minimum wage job,
    would that have an impact on GDP?
        Mr. Hall. Well, let me just say in general we look at the
    marginal tax on labor. You know, when things happen, for
    example, even the income tax, there is a marginal tax on labor.
    So when the marginal tax on labor goes up, we think labor
    supply goes down.
        Senator Kennedy. Well, let me put it another way. If you
    add up all of our welfare programs--TANF, Medicaid, food
    stamps, et cetera--they pay someone more than the minimum wage
    in 35 States. Does that sound right?
        Mr. Hall. Yeah, that sounds right, but I do not----
        Senator Kennedy. They pay more than $15 an hour in 13
    States. In my State, one parent and two children would make
    $27,000 tax-free. You cannot do that in a minimum wage job.
    That discourages people from joining the workforce, does it
    not?
        Mr. Hall. Again, that sort of thing contributes to a high
    tax rate on working in our marginal tax----
        Senator Kennedy. That discourages people from joining the
    labor force, does it not?
        Mr. Hall. It could have an impact. I hesitate to say
    because we have not done the analysis, and we try to be really
    careful about when we talk about things that we have actually
    looked at specifics.
        Senator Kennedy. All right. I want to ask you about the
    shutdown. Nobody wanted the shutdown. Nobody is for a shutdown,
    and I do not want you to construe my remarks as implying
    otherwise. Can we agree that the American economy, our gross
    national product, is about $20 trillion a year?
        Mr. Hall. That is right, yes.
        Senator Kennedy. That is like 12 zeroes, right?
        Mr. Hall. Yes.
        Senator Kennedy. Okay. And I understand--maybe they are
    your numbers--that the shutdown cost $11 billion. Is that
    right?
        Mr. Hall. That was our estimate, yes.
        Senator Kennedy. But we are going to recover $8 billion,
    right?
        Mr. Hall. That is right.
        Senator Kennedy. That leaves $3 billion that we are out,
    right?
        Mr. Hall. Yes.
        Senator Kennedy. Do you happen to know what--did you look
    at what percentage $3 billion of $20 trillion is?
        Mr. Hall. It is not a big percentage.
        Senator Kennedy. It is about 0.02 percent of 1 percent.
        Mr. Hall. That sounds about right.
        Senator Kennedy. Okay. So how come so many economistsare
    saying the world is going to spin off its axis? We are talking about--I
    am not defending the shutdown. I am just trying to understand basic
    math. You are talking about 0.02 percent of 1 percent.
        Mr. Hall. Right.
        Senator Kennedy. Am I right?
        Mr. Hall. That is right, and I do not want to defend
    somebody else's analysis. But we did produce these numbers that
    you are quoting.
        Senator Kennedy. All right. I am out of time. Thank you for
    coming, Dr. Hall.
        Chairman Enzi. Thank you.
        Senator Cramer.
        Senator Cramer. Thank you, Mr. Chairman, and I am honored
    to be on the Committee. And I want to follow up with what
    Senator Kennedy is talking about because maybe there is more to
    it than simply a linear number, and I suspect there is.
        But let us go to the next step. Let us say that we were
    able to reform our process so that we could institutionalize a
    prohibition, if you will, basically on any future Government
    shutdowns. Would there be a way to score that, the value of
    that, of never having to worry about one again? And, you know,
    it would not just be Federal workers who would be guaranteed a
    paycheck but, you know, the economy that requires and depends
    on those Government services to keep going along. Would there
    be some way to add a value to that?
        Mr. Hall. That would be a challenging estimate. We would
    struggle with that.
        Senator Cramer. I will bet it would be, because it seems to
    me, as we talk about all these pieces of this formula, economic
    growth is the one that we have had some--that we have been
    fairly good at. It also seems to me that as the economy grows,
    there should be less need for Government, not more need, except
    for maybe infrastructure or things like that.
        I want to go back to the earlier discussion, though, about
    immigration because we have such a generous immigration policy,
    and the workforce shortage is real, and it does stifle economic
    growth. I believe all of that. Is there any way, sort of
    tagging on again to maybe what Senator Kennedy was talking
    about, is there any way to score say 100 percent of the million
    legal immigrants per year if they were all merit-based, in
    other words, all of them had a skill set, whether it is an H-
    2A, you know, seasonal farm skill set, or an H-1B software
    engineering skill set, is there any way to determine how--the
    contribution that would make to the economy, thus to revenue
    and less demand for Government service?
        Mr. Hall. I think that is something that, if we spent a
    little time, we could get a handle on.
        Senator Cramer. I think it would be valuable to do that as
    we are having these discussions, particularly the immigration
    discussion, apart from border security, but immigration policy.
    It seems to me comprehensive immigration reform has become the
    hardest thing in this town to do, and yet when I look at all
    the pieces of it, while each one of them has its own
    complexities, there is plenty of reason for us to do it. And we
    get caught up in numbers; we get caught up in caps; we get
    caught up in, you know, per country caps. We get caught up in
    all of these things, and yet I do not know anybody that could
    not be convinced of a benefit if we had a good economic score
    on what--in fact, let me even back up further. I would even
    submit to you that the number of immigrants that we allow per
    year is not even relevant if we allow the right type of people
    with the right skill sets and education that would fit the
    economic demands and workforce demands of our economy. And I
    would love to see CBO, or anybody else for that matter, do a
    real thorough analysis of what that might be, because I can
    think of some of my skeptical friends that might be convinced
    of, you know, a different argument.
        Mr. Hall. Yeah, one of the things we could do in--I do not
    know if anybody else has done some research like that. We can
    look at it a little bit, and if you would like to follow up, we
    would like to sort of tell you what we have found in terms of
    current evidence.
        Senator Cramer. I would be interested in that. I think it
    would be--it would be helpful to me, I know, and I think it
    could be fascinating otherwise.
        I think, Mr. Chairman, with that I will just yield back,
    and thank you.
        Chairman Enzi. Thank you, and thanks for being here, and
    thanks for choosing this Committee. I appreciate it.
        Senator Cramer. It chose me. [Laughter.]
        Chairman Enzi. Dr. Hall, when you exclude intergovernmental
    transfers, which is just the Federal Government moving money
    from its right pocket to its left pocket, spending on Social
    Security and Medicare will exceed their dedicated revenues by
    $8.3 trillion between 2020 and 2029. Are these programs
    fiscally sustainable?
        Mr. Hall. The trust funds are going to be exhausted.
        Chairman Enzi. Without legislative action, what year do you
    project that the Social Security Disability Insurance Trust
    Fund and Medicare's Hospital Insurance Trust Fund will be
    exhausted? And what happens when they are exhausted?
        Mr. Hall. Well, the Disability we think will be exhausted
    in 2027, and under current law that would meanthen that the
    benefits paid out would be constrained by the amount of money in the
    trust fund. So right away that would lower the benefits by about 10
    percent right after that was exhausted. The Hospital Trust Fund, that
    ends in 2026, and there is a similar effect. Under current law the
    outlays would have to decline to match the incoming money for the trust
    fund, and that would decline like 14 percent the first year.
        Chairman Enzi. Thank you. I am also deeply troubled, as a
    number have already mentioned, by the national debt.
        Some have suggested, however, that the economic costs of
    debt are small or even that the debt does not matter at all.
    Can you elaborate on the potential consequences of our high and
    rising Federal debt? What about the claim that we do not need
    to worry about debt because the Federal Government can always
    print more money?
        Mr. Hall. Well, let me mention what we think the potential
    consequences are.
        First, as interest rates rise to more typical levels,
    Federal spending and interest payments will take more and more
    of the Federal budget. And that is why I like to point out that
    Federal spending on interest payments in 10 years is going to
    be about 3 percent of GDP. That is going to be higher than all
    defense spending. It is also going to be higher--or it is also
    higher than all discretionary nondefense spending. So interest
    rate payments are going to be a bigger and bigger part of the
    budget.
        Second, Federal borrowing reduces the capital stock over
    time, so we get slower productivity, lower productivity, which
    means lower economic growth and lower wages for folks.
        Third is lawmakers have limited flexibility in bad times.
    If you look at that visual summary that we gave out, there is a
    nice graph, the very first graph on it, that has the debt. It
    has circled deficits level year by year. And you can just see
    recessions here. In 1980, you see the deficits go up, in 1990,
    2001, 2008. They all start from a relatively low-ish level and
    get significantly higher.
        Right now we have a really high deficit at 4.4 percent. If
    we run into another business cycle, it is really going to go up
    from that, and it is going to limit policymakers' ability to
    deal with another recession. And, of course, the likelihood of
    a financial crisis would increase, and by that really we mean
    interest rates spiking over where they are now over our
    projection. We have got a really nice rule of thumb. If they
    increase by, say, a percentage point, we are talking about $2
    trillion in debt over 10 years. So it is a really significant
    thing.
        Now, those that claim that we should not worry about debt,
    we disagree with that. We think that continued borrowing--and
    this is based on past experience--continued borrowing, interest
    rates are going to go up. They are going to go up to normal
    levels. They will not stay down. And we believe that printing
    more money to accommodate that will lead to higher inflation
    and higher interest rates.
        So we do not think that will work; although it is an
    interesting theory, we will try to follow that. But the fact is
    that our view of past experience is that that will not work
    going forward.
        Chairman Enzi. Thank you.
        Senator Kaine, did you vote? It is not your turn yet, but--
    --
        Senator Kaine. Yes, I voted.
        Chairman Enzi. Okay. 2018 was a good year for the U.S.
    economy. CBO estimates that the economy grew 3.1 percent last
    year, the fastest annual growth since 2005. And while CBO
    predicts growth may not be as high going forward, the new
    report makes it clear that the 2017 Tax Cuts and Jobs Act will
    continue to have a positive effect on the economy over the next
    decade.
        Director Hall, can you expand on how the new Tax Code is
    expected to improve incentives to work, save, and invest over
    the next several years?
        Mr. Hall. The important impacts on growth from the tax bill
    are, one, there was a reduction in the effective marginal tax
    rates on labor income. This is primarily the lower individual
    income taxes. We think that will stimulate workers entering the
    labor force. We think the labor force will be bigger. We think
    the labor force will average about 600,000 more on average over
    the next 10 years because of the Tax Act, and we think that
    workers will work more hours. And the hours will be the
    equivalent of about another 800,000 workers, so that will not
    be trivial. That will be higher GDP growth and, importantly,
    higher potential GDP growth.
        The second effect was higher effective marginal tax rates
    on capital income, and that is primarily from lower tax rates
    and business income. That means higher capital, higher
    productivity. And the bottom line in both these things, we
    think real GDP over the next decade will be about seven-tenths
    of a percent higher than it would have been without the Tax
    Act.
        So the effects we think are measurable, and our earlier
    estimate, about a year ago, we are still comfortable with. We
    still think this will be the impact of the Tax Act going
    forward.
        Chairman Enzi. Thank you.
        Senator Kaine.
        Senator Kaine. Thank you.
        Dr. Hall, let me just ask, while we are on the taxbill,
    before the Chairman's question to you about the growth effect, you were
    talking about negative aspects of a debt and deficit effect.
        Mr. Hall. Right.
        Senator Kaine. Have you netted out your thoughts about the
    tax bill's impact on growth with the negative effects of its
    impact on the debt and deficit?
        Mr. Hall. Yeah, that is a tough judgment to make. In fact,
    that is sort of above our pay grade. But I can tell you that we
    did not estimate that the Tax Act would generate so much growth
    that it would pay for itself. We do think the growth will
    result in higher revenue, but the higher revenue is maybe about
    30 percent of the cost of the tax bill. So, you know, you have
    heard the line, ``Will the tax bill pay for itself?'' By our
    estimate, it will be able to pay for about 30 percent of itself
    through the higher growth.
        Senator Kaine. And then depending upon these other economic
    factors and then how big a burden our debt turns out to be, if
    we enter a down cycle and because of debt we are not able to
    use some of the tools we have used in the past to deal with the
    down cycle, then you would start to see more of the real impact
    of the debt number that is occasioned by the tax bill.
        Mr. Hall. Right, we certainly think the high debt level and
    rising debt level does create some risk for the economy.
        Senator Kaine. Let me ask you this: So I have been seeing
    reports recently about a dramatic slowdown in the housing
    market, you know, 19 to 18, and some real significant concerns
    there. Did you deal with that at all in the economic outlook
    that you put into this report?
        Mr. Hall. Yes, actually, we do forecast the housing market
    as part of our forecast, and so we do adjust that every year.
    We sort of look at the recent data and see where we think that
    is heading.
        Senator Kaine. And do you share the--I mean, I have been
    reading in sort of common trade publications, Business Insider,
    Wall Street Journal, housing trade publications, slowing
    housing market. Do you also in your predictions see a slowing
    housing market as sort of a likely reality in the next year or
    two?
        Mr. Hall. I think that is right. I would have to double-
    check with our housing analysts, but I think that is right. I
    do not think we are being surprised by anything at this point.
        Senator Kaine. And do you have thoughts about the causes of
    that? Is it rising interest rates? Is it overbuilding,
    overcapacity? You know, is there a tax bill effect on SALT
    deductibility or home mortgage interest deductibility? You make
    a projection. Do you attribute it to factors?
        Mr. Hall. Yeah, I mean, the mortgage deductibility part we
    do think is going to have an effect, and that is in our
    forecast. A lot of the general slowdown, though, we think is--
    the stimulus from the tax bill is still in place, but it is
    waning over time, and that is a big part of what the slowdown
    is, we think. In fact, you know, this is where we get into
    beyond this year we think it will actually slow down to below
    potential for a little while as we readjust to that lack of
    stimulus at some point.
        Senator Kaine. One thing that I do not think you put into
    your projection, because hopefully we would not need to put it
    into our projection, deals with the upcoming decision that
    Congress might have to make about the debt ceiling. I am
    assuming in your factoring in you do not include some chance
    of, you know, Congress running up against some default on the
    debt ceiling or precipitous action on the debt ceiling of the
    type that led to a downgrading of U.S. credit in 2011. Am I
    correct that you are not making an assumption that we would do
    something stupid about the debt ceiling?
        Mr. Hall. That is correct.
        Senator Kaine. And so your advice to us, although I know
    you are giving us analysis rather than advice, is do not do
    something stupid about the debt ceiling.
        Mr. Hall. Well, I will try not to give advice, but the
    stupid--if I were going to give advice, I would say something
    like that.
        Senator Kaine. Because doing something stupid about the
    debt ceiling could have a significant negative impact on the
    economy, correct?
        Mr. Hall. Well, you know, we would have to think it
    through. I do not want to project something like that. You
    know, actually I think there are some who differ a little bit
    as to how much impact that would have, so I do not want to----
        Senator Kaine. Explain that. You know, as a former Governor
    and a Senator, to me anything that, you know, suggests that you
    are close to default or, you know, we are not good for the
    promises that we have made, those would have been--my financial
    advisers when I was Governor, for example, said that would be
    cataclysmic to do something like that, do not do that; or when
    I was mayor, you know, you are getting the bond rating, it
    would be really stupid for your costs of borrowing for you to
    suggest any unreliability over matters of being good on your
    debt.
        What would the argument be that maybe flirting with the
    debt ceiling may not be so difficult?
        Mr. Hall. Well, in a lot of ways, there still remainsa
    great deal of trust in the Federal Government as a borrower. As long as
    people trust that the Government is a safe place to loan money to, then
    the U.S. Government is not going to have a premium on when they borrow.
    So it is probably likely that we are pretty far from having really
    concerns about whether there is a loss of faith in the Federal
    Government's ability to pay back its debts.
        Senator Kaine. But anything that would contribute to any
    decline in confidence could have some negative impact, and it
    might be significant, depending upon how catastrophic or how
    irrational the actions of Congress or the administration would
    be.
        Mr. Hall. Yeah, and that is sort of why we talk--when we
    talk about an extreme, we talk about a financial crisis, we are
    really talking about a severe drop in the faith of the Federal
    Government's ability to pay things back. And as we have talked
    about, having the U.S. Government have to pay a premium on its
    borrowing is not a good thing, not only for the budget but also
    probably for economic growth.
        Senator Kaine. Right, and your point----
        Chairman Enzi. Senator Whitehouse.
        Senator Kaine. Okay. Thank you. Thank you.
        Senator Whitehouse. Thank you, Chairman. Welcome, Dr. Hall.
    I appreciate you being here. I wanted to ask you about two
    things. The first is health care spending.
        I keep showing you this graph that is one of my most
    interesting puzzles, which indicates that in the 2019 to 2029
    period, compared to extension of your projection for this
    period based on the same terms that we project here, you end up
    with a net savings in that 10-year period of $4.7 trillion in
    total Federal health care spending. About this much is actual,
    and then on it goes to projection. But, clearly, something has
    happened in there. I believe there have been estimates that
    about $400 billion of this $4.7 trillion has to do with the
    changes in the individual mandate. But that still leaves $4.3
    trillion.
        So I would ask you again to please work with us to try to
    understand what on Earth is going on. It could be that all your
    boffins with their algorithms do not actually know, but I would
    like to get a better understanding of it, because if you can
    lower in a 10-year period our health care spend by $4.3
    trillion without really hurting anybody, whatever happened, we
    want to do more of it. So will you pledge to work with us and
    try to understand that better?
        Mr. Hall. Yeah, and one thing, you know, we have limited
    ability to do our own research, so we rely on outside research
    much more than we do on our own research. We do what we can. So
    a lot of what we are lacking is just somebody's research.
        Senator Whitehouse. Well, if you could task--figure out who
    it is that you could task in that outside research to explain
    this, it would be helpful. And we will follow up separately.
        Mr. Hall. Okay.
        Senator Whitehouse. The second thing I wanted to ask you
    about goes back to your answer to a question for the record by
    Ranking Member Sanders on April 6, 2017, a very simple
    statement that climate change may affect the Nation's economic
    output.
        Now, since that date, we have seen two pretty serious
    warnings emerge, economic warnings, related to climate change.
    The first is probably best exemplified by Freddie Mac saying
    that they expect a coastal property values crash or at least a
    coastal property values crash is possible, which in its
    economic impact and scale would match the economic impact and
    scale of the 2008 mortgage meltdown, which we lived through and
    do not want to have to go through again. So that is out there,
    and a lot of people have written and talked about it. But
    Freddie Mac is probably the biggest and most non-
    environmentally specific organization with a lot of expertise
    that has made that warning. So that is one.
        The second one is that the Bank of England is warning about
    a carbon asset bubble crash, and they use the term to define
    the impact of that crash ``systemic risk.'' Do you know what
    the Bank of England means when it says ``systemic risk''?
        Mr. Hall. Well, I know what the term generally means, but I
    am not familiar with this--their view on that.
        Senator Whitehouse. Well, generally, I describe it as the
    blandest term that is the most terrifying two words
    economically one can think of. It basically means global
    economic collapse or significant slippage. Correct?
        Mr. Hall. Right.
        Senator Whitehouse. It means that the problem goes beyond
    the carbon companies and out into the general economy, the same
    way that the 2008 crash went beyond the mortgage companies and
    out into the generally economy. Correct?
        Mr. Hall. Yes.
        Senator Whitehouse. So those two things are now out there
    as warnings. Have you looked at either of those warnings,
    either on the merits or to see, were they to come true, what
    would that mean for your projections?
        Mr. Hall. Sure. One of the things that we have done, and I
    think it is worthwhile mentioning, we do have a report from a
    couple years ago looking at the effect of increased hurricane
    frequency and intensity.
        Senator Whitehouse. Yeah, on the Flood Insurance Program,
    emergency spending, all that.
        Mr. Hall. Exactly. And that is certainly relevant to the
    property part from Freddie Mac.
        Senator Whitehouse. Although just to be clear, this is
    actually quite different, because it is not an evaluation of
    the immediate impact of sea level rise or offshore storms or
    whatever. It is an evaluation of what happens to confidence in
    coastal property values when banks will not give you a mortgage
    because they do not know that the property is going to be there
    30 years from now and you cannot get insurance because you do
    not know what the tail-end risk is if you are the insurer,
    which makes it really hard to sell coastal property, which
    creates the meltdown long ahead of and independent of any
    particular storm.
        My time has run out, so let me follow up with questions for
    the record to make sure that we are on record.
        Mr. Hall. Okay.
        Senator Whitehouse. And I would love to follow up and get
    answers from you in those three areas.
        Mr. Hall. Sure.
        Senator Whitehouse. Thank you.
        Chairman Enzi. I want to thank Dr. Hall for his testimony
    today. Your full statement will be entered in the record.
        Information to all Senators: Questions for the record are
    due by noon tomorrow with a signed hard copy delivered to the
    Committee clerk at Dirksen 624. Under our rules, our witness
    will have 7 days from receipt of the questions to respond with
    answers.
        With no further business before the Committee, this hearing
    is adjourned.
        [Whereupon, at 3:28 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                            THE BUDGET CONTROL ACT:
                       A REVIEW OF CAP-ADJUSTED SPENDING

                                  ----------

                          WEDNESDAY, FEBRUARY 27, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:30 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Toomey, Braun, Kennedy,
    Sanders, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Warren Gunnels, Minority Staff Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I will call to order this meeting of the
    Senate Budget Committee for a hearing on the Budget Control
    Act's spending caps and adjustments, something everybody
    understands in detail, I am sure.
        Welcome to today's hearing on the cap-adjusted spending
    under the Budget Control Act of 2011, known as the BCA. It is
    my hope that this hearing will help to focus members of this
    Committee and Congress on a category of Federal spending that
    often lacks sufficient scrutiny and for which Congress has
    appropriated nearly $1 trillion since 2012. This includes
    discretionary spending that is not constrained by the BCA's
    base spending caps, such as spending on overseas contingency
    operations, on emergencies, on disasters, and certain program
    integrity initiatives.
        It does not include increases to defense and nondefense
    spending limits that have been legislated through a series of
    2-year budget agreements.
        Our witness today is Teri Gullo, who is the Assistant
    Director for Budget Analysis at the Congressional Budget
    Office. I would like to welcome her to the Committee, as well
    as her colleague, Dave Mosher, the Assistant Director of CBO's
    National Security Division, who is here to answer questions
    members may have related to defense spending.
        Ms. Gullo, we look forward to your testimony and appreciate
    your being here to shed light on this issue.
        As my colleagues know, the Budget Control Act was enacted
    in 2011 as a compromise to raise the Nation's debt limit in
    exchange for significant reductions in Federal spending. The
    law placed caps on discretionary spending through fiscal year
    2021 that are intended to reduce spending by more than $900
    billion. It also created a Joint Select Committee that was
    charged with coming up with additional deficit reduction and
    provided enforcement procedures to reduce spending levels
    automatically if the Select Committee failed to meet its
    target. These procedures were meant to be the stick to ensure
    the Committee's success.
        As we know, the Select Committee failed, setting in motion
    a series of automatic reductions to both mandatory and
    discretionary spending, including lower discretionary spending
    limits for fiscal years 2014 through 2021. While the primary
    objective of the BCA was deficit reduction, the law also allows
    for several cap adjustments to increase spending for specified
    purposes without triggering a breach of statutory spending
    limits. It is these adjustments which have grown in number in
    successive spending deals that we are focused on today.
        The largest cap adjustment utilized since the enactment of
    the BCA is known as OCO, which stands for overseas contingency
    operations. Congress provides tens of billions of dollars
    annually through OCO, which is not constrained by the BCA's
    spending caps. Since fiscal year 2012, $650 billion in OCO
    defense spending has been appropriated. The existence of this
    unlimited cap adjustment has created an incentive to shift
    budgetary resources for the Departments of Defense and State
    from their base into OCO, contrary to the BCA's intention.
        Nonetheless, year after year this practice has been
    utilized to evade the discretionary spending caps and make room
    for spending on other defense and nondefense priorities.
        Another heavily utilized cap adjustment is the emergency
    designation, which has been used to provide nearly $180 billion
    since 2012. Like OCO, this designation is uncapped, meaning as
    long as Congress and the President can agree, there is no limit
    on the amounts that can be appropriated. The vast majority of
    spending is provided for real emergencies and often in response
    to natural disasters. I am interested in hearing from our
    witness this afternoon whether there may be better ways to plan
    and budget for inevitable emergencies.
        Other cap adjustments in the BCA are limited either by
    formula or as otherwise dictated in statute. These adjustments
    include disaster relief and program integrity adjustments.
    Program integrity includes continuing disability reviews and
    determinations, health care fraud and abuse control, and re-
    employment services and eligibility assessments.
        Since 2012, about $70 billion has been provided for
    disaster relief and $11 billion for various program integrity
    efforts. Cap adjustments are often necessary, but I also
    believe Congress must be diligent in providing oversight of
    their use. Without a doubt, some of these adjustments have been
    abused in the past. I truly believe that if Congress put as
    much effort into trying to abide bythe caps as they do trying
    to evade and mitigate them, our Nation's fiscal outlook would be less
    severe.
        I recognize this review of cap-adjusted spending under the
    BCA will inevitably draw attention to the discretionary
    spending limits to 2020 and 2021, which is what we are working
    on. Congress has acted three times to increase the base
    discretionary caps by a total of $439 billion, including a $300
    billion increase that was enacted just last year. That is in
    addition to the $1 trillion in cap adjusted spending we are
    focused on today.
        Before Congress rushes to add billions more to the
    taxpayers' tab, we must carefully consider our fiscal outlook.
    According to CBO, mandatory spending is the primary driver of
    our debt. In 2018, the Federal Government spent $2.5 trillion
    on mandatory programs like Medicare, Medicaid, and Social
    Security. That accounted for 12.5 percent of gross domestic
    product. Without further congressional action, CBO projects we
    will spend $4.6 trillion on these programs in 2029. That will
    be nearly 15 percent of GDP.
        CBO also projects that as spending increases over the next
    decade, interest payments on the national debt will also grow,
    from 1.6 percent of GDP in 2018 to 3 percent in 2029. We must
    get a handle on this. To do so, Congress should thoroughly
    review all Federal spending, mandatory and discretionary. This
    hearing today is one small step in reviewing the more than $4
    trillion the Federal Government spends every year.
        I want to again thank Ms. Gullo for joining us this
    afternoon and Mr. Mosher for joining us, and before turning it
    over to her for her testimony, I would recognize Senator
    Sanders for his opening remarks.

                  OPENING STATEMENT OF SENATOR SANDERS

        Senator Sanders. Thank you, Mr. Chairman. Welcome, Ms.
    Gullo and Mr. Mosher.
        You just mentioned the need to review our budget, and I
    absolutely agree with you. I think from top to bottom we need a
    review of what our national priorities should be as a Nation.
        As you know, if we do not lift the caps, nondefense
    programs will be cut by $55 billion in fiscal year 2020
    compared to this year--$55 billion. And if you look at the
    enormous needs facing working people in this country--a child
    care system which is dysfunctional, hundreds of thousands of
    our young people are unable to afford to go to college, many
    leaving college deeply in debt, an infrastructure which is
    crumbling, 34 million people without any health insurance, half
    of older Americans having nothing in savings as they approach
    retirement, not to mention the need to transform our energy
    system away from fossil fuels--we have enormous needs out
    there. And I think the time is right to be looking at issues
    like income and wealth inequality, whether we think it is
    appropriate that three people in this country own more wealth
    than the bottom half; that we have major corporation after
    major corporation--Amazon and General Motors being just two
    recently--make billions in profit, do not pay a nickel in
    Federal taxes. Not a nickel in Federal taxes.
        So I do think we need to take a hard look at what our
    priorities are, and one of the concerns that I have is that as
    a Nation we are now spending some $700 billion a year on the
    military--$700 billion. We now as a Nation--and, by the way,
    you held a hearing on this issue. We have a huge military
    budget, and yet as I understand it--correct me if I am wrong--
    the Defense Department is the only department of Government not
    to have passed a clean audit. So we are spending money hand
    over fist with the Defense Department.
        We are seeing huge profits in the military-industrial
    complex. And you have veterans sleeping out on the street and
    children in America going hungry.
        In terms of the Defense Department, we are now spending as
    much on our national defense as the next 11 countries in the
    world combined. Okay? So we have kids who cannot afford to go
    to college. We have a crumbling infrastructure. We are not
    addressing climate change. But we are spending as much money on
    defense as the next 11 countries in the world combined, and
    that includes Russia and China as well as many of our top
    allies like United Kingdom, Japan, and France.
        Despite this fact, in 2018 Congress passed, over my strong
    objection, a $165 billion increase in the Pentagon's budget
    over 2 years, including an $85 billion increase this year.
        Now, you will hear people, my Republican colleagues,
    talking about the need to cut Social Security, the need to cut
    Medicare, the need to cut Medicaid. But when it comes to the
    budget, there is not a lot of worry about massive spending on
    the military.
        Let me just go over some interesting facts.
        The $85 billion increase in defense spending could have
    made every public college, university, and trade school in
    America tuition-free and substantially reduced student debt in
    America. So, Mr. Chairman, when you talk about, you know, the
    need for a top-to-bottom review, I agree.
        My own guess is that the American people would prefer to
    make public colleges and universities tuition-free rather than
    spend another $85 billion on the military.
        We have got to also understand what is, I think, very
    interesting in that we are throwing so much money at the
    Pentagon that they literally do not know what to do with it.
        Kids go hungry in America. Veterans sleep out on the
    street. Kids cannot afford to go to college. But the Pentagon
    does not know what to do, given the enormous amount of money we
    are throwing at it.
        According to the Government Accountability Office, since
    2013 the Department of Defense returned over $80 billion in
    appropriated funding back to the Treasury, including more than
    $16 billion in 2018 alone.
        So it seems to me, Mr. Chairman--and I think your point is
    well taken--we need a thorough review. We need to argue about
    what are the priorities. Do we give the Defense Department more
    money than they can spend after we are spending more than the
    next 11 countries combined? Or do we, in fact, address the
    massive social needs facing working families in this country?
    And I think the majority of the people in this country will
    demand that we get our priorities right, protect the needs of
    working families, not just the 1 percent and not just the
    Pentagon.
        Mr. Chairman, I am going to have to apologize because I
    have to get to another meeting, but thank you very much for
    calling this meeting.
        Chairman Enzi. Thank you for your comments.
        Next we will have some comments from our witness, and then
    that will be followed by questions. Ms. Gullo.

       STATEMENT OF THERESA GULLO, ASSISTANT DIRECTOR FOR BUDGET
      ANALYSIS, CONGRESSIONAL BUDGET OFFICE; ACCOMPANIED BY DAVID
        MOSHER, ASSISTANT DIRECTOR, NATIONAL SECURITY DIVISION,
                      CONGRESSIONAL BUDGET OFFICE

        Ms. Gullo. Thank you. Chairman Enzi, members of the
    Committee, thank you for inviting me to testify today about
    discretionary appropriations under the Budget Control Act of
    2011. There are four main points I hope you take away today.
        First, although discretionary spending increased in real
    terms--that is, adjusted for inflation--from 1999 to 2018,
    trends differed dramatically during the first and second halves
    of that period, rising in real terms over the first half of
    that period, but since the BCA took effect, falling by almost
    17 percent. Much of that decline resulted from other factors.
        Second, despite those spending declines, discretionary
    appropriations have been consistently greater than the annual
    cap amounts specified in the BCA for two reasons: because the
    Congress has provided substantial funding for activities mostly
    related to defense and emergency requirements that
    automatically result in cap adjustments; and because cap levels
    have been increased statutorily.
        Third, because no changes have been enacted to the caps for
    fiscal years 2020 and 2021, funding constrained by the caps is
    scheduled to drop significantly after 2019.
        Fourth, in deciding what to do for fiscal year 2020, the
    Congress will face several issues, including overall cap
    levels, their relation to total discretionary spending amounts,
    and how any net changes in spending might change the outlook
    for deficits and the debt.
        Let me take each of these points in turn.
        First, on real declines in spending, from 1999 to 2018,
    discretionary spending more than doubled in nominal terms, by
    121 percent. Defense discretionary spending increased by 126
    percent and nondefense by 116. In real inflation adjusted
    terms, all categories of discretionary spending rose, but they
    did so by roughly half the nominal rates.
        Trends during the two halves of that period, however,
    differed dramatically. From 1999 to 2010, spending rose in real
    terms, peaking in 2010, shortly after the end of the Great
    Recession. Since the BCA took effect, however, such spending
    has fallen substantially by 17 percent--defense by 21 percent
    and nondefense by 12. Much of that decline was caused by a
    sharp drop in war funding as the U.S. withdrew forces from
    military operations in Iraq and by the fading effects of
    spending attributable to the American Recovery and Reinvestment
    Act of 2009.
        Second, exceeding the BCA limits. Despite that decline in
    discretionary spending, discretionary appropriations, or
    funding, have consistently been greater than the annual
    statutory caps, and all discretionary funding over the 2012-
    2019 period has been larger than the BCA's lower or post
    sequester cap levels by a total of $1.4 trillion, about 17
    percent. Most of that amount, 70 percent, or $984 billion, has
    been the result of adjustments to the caps triggered by certain
    types of appropriations.
        BCA and provisions in the 2018 appropriations will allow
    cap adjustments to accommodate appropriations for four types of
    activities, namely, overseas contingency operations, or OCO;
    emergency requirements; disaster relief, including beginning in
    2020 wildfire suppression; and program integrity activities.
    But two of those adjustments for OCO and emergency requirements
    are unlimited and have accounted for 92 percent of the
    adjustments since 2012. Some of that OCO funding was for
    routine activities of the Defense Department rather than for
    war-related activities.
        The remaining 30 percent, $427 billion, stems from
    legislative changes made to the caps themselves. Most of the
    legislative increase, about $300 billion, result from the
    Bipartisan Budget Act of 2018, which altered the limits for
    fiscal years 2018 and 2019.
        Third, on the caps for fiscal years 2020 and 2021, no
    changes have been enacted to the caps for those 2 years,
    thelast covered by the BCA. Without legislation to increase them, CBO
    estimates that funding constrained by the caps in fiscal year 2020 is
    set to drop by $126 billion, or 10 percent.
        Fourth, what issues lawmakers will face in the future. The
    Congress will confront a number of issues related to the caps
    and to the statutory adjustments that could be made to them,
    including whether to raise the caps next year and, if so,
    whether Congress, as it has in the past, will maintain some
    kind of parity between defense and nondefense programs. There
    will also be the question of whether to offset any increases
    with deficit-reducing measures as all previous legislative
    increases have done, at least in part, by reducing mandatory
    spending, including extensions of the mandatory sequester or by
    increasing revenues.
        Another important issue will be how so-called spending
    outside the caps or those adjustments we are talking about
    should be managed, specifically how cap adjustments, especially
    for the unlimited categories, OCO and emergencies, should be
    made and for what purposes.
        Finally, in making choices about discretionary funding, the
    Congress will have to consider how such changes might alter the
    outlook for deficits and the debt. Deficits in CBO's baseline
    average 4.4 percent of GDP over the 2020-2029 period. That is
    high by historical standards. Over the past 50 years, annual
    deficits have averaged 2.9 percent of GDP. And, importantly,
    deficits in periods of low unemployment have been even smaller.
        Large deficits over the next decade could cause debt held
    by the public to rise steadily. CBO's baseline projects debt at
    78 percent of GDP in 2018, growing to 93 percent by 2029. At
    that point, Federal debt would be higher as a percent of GDP
    than at any point since just after World War II.
        In closing, I want to emphasize that CBO aims to provide
    you with whatever information it can to assist you as you
    confront these and other issues. My colleague Dave and I would
    be happy to answer any questions you have.
        [The prepared statement of Ms. Gullo follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you for your testimony.
        Let me explain to the Committee members before we start
    that each member will have 5 minutes for questions, beginning
    with myself and the Ranking Member, if he is here. Following
    the two of us, we will alternate questions between Republicans
    and the minority. All members who were in attendance when the
    hearing started will be recognized in the order of seniority of
    those who are here. And for those who arrive after the hearing
    began, they will be on the list in their order of arrival. If a
    person's turn comes up to be recognized and they are not
    available, then they move to the bottom of the list, and the
    next Senator will get to ask questions.
        So that brings me to my questions. Ms. Gullo, according to
    your testimony, Congress has appropriated hundreds of billions
    of dollars for emergencies and natural disasters. Are there
    ways we can better anticipate or better budget for these
    expenses? Are there any lessons we can learn from the States,
    particularly those with balanced budget requirements?
        Ms. Gullo. There are some other approaches--oh, sorry. I
    apologize. You could just make emergency funds compete with all
    other funding needs, or you could require spending for
    emergencies to be offset. You could retain the designations but
    require a super majority vote. In other words, there are lots
    of different ways to consider how emergency spending fits
    within the overall budget.
        Another option--and this is similar to something that the
    States do--is you could establish a reserve fund for
    emergencies. But it is important to understand that a reserve
    fund is not a panacea. Basically, States face the same
    uncertainties that the Federal Government faces in the face of
    a disaster. And even though most States have reserve funds or
    disaster funds, those funds are primarily used to provide a
    fairly standard small amount of money up front for them to get
    going in addressing emergencies. But just like the Federal
    Government, when there is a catastrophic unexpected emergency,
    they either have to make a decision to provide supplemental
    funding, or if they request and the President declares an
    emergency, then they turn to the Federal Government, and the
    Federal Government provides them with money.
        So there is some indication that stabilization funds and
    emergency reserve funds have helped States provide some money
    to get started with emergencies. When you are talking about
    unexpected large emergencies, they basically face the same
    problems the Federal Government faces.
        Chairman Enzi. Thank you.
        We talked a little bit about the cap adjustment for
    disaster relief because it is based on a formula based in
    statute. The Consolidated Appropriations Act of 2018 changed
    the calculation, significantly increasing the amount of the
    adjustment. Can you talk about those changes and their impact?
        Ms. Gullo. Sure. The basic change made by the Consolidated
    Appropriations Act increased the amount of money that would be
    provided specifically under the disaster relief adjustment
    itself. But, truthfully, I do not know that it will make much
    difference in total because when Congress has chosen to provide
    money for disaster relief, even if they have hit the cap for
    disaster relief, that additional money ends up getting funded
    through the emergency requirements, which does not have a
    limit.
        So with that in mind, the current formula for calculating
    the disaster makes a couple of changes. It allows all unused
    carryover from previous years to be available indefinitely for
    future spending. It also adds amounts to the formula that had
    been previously provided through the emergency designation, so
    it is trying to move a little bit of money that historically
    has been provided through the emergency designation into the
    disaster so that you have a little bit more certainty on more
    money provided through that one designation.
        But I think it is important to explicitly recognize the
    interaction between those two cap adjustments--the disaster and
    the emergencies.
        Chairman Enzi. Thank you. I will try one more here.
        In CBO's December 2018 report on OCO funding for
    international affairs activities, it states that, ``On average,
    non-base appropriations accounted for a larger share of
    activities' total funding in the years after the BCA was
    enacted than they did during the period of large scale
    operations in Iraq and Afghanistan.'' CBO's report also showed
    significant variation in amounts of non-base funding provided
    as a share of the total international affairs appropriations.
        Can you explain that variation in the BCA's effect on non-
    base funding for the international affairs?
        Mr. Mosher. Certainly, Senator. You are correct. There has
    been a fair amount of variation, and I want to step back for a
    minute just to make the point that OCO funding in the
    Department of Defense versus OCO funding for international
    affairs has had very different effects on those two activities.
    And what has largely happened, particularly since the BCA has
    been passed, in the international affairs account is that the
    top line for international affairs, OCO plus base, has changed
    very little over that time. What has happened is the OCO amount
    has gone up, and that largely has served as a substitute for
    what often would have been base budget activities.
        So, for example, there have been wide variations in some
    accounts that were never funded with OCO and in 2014 or 2015
    all of a sudden got 50 percent or more of their funding through
    the OCO mechanism.
        As to the ratios, what happened to the budget, over the
    first decade after 9/11, if you will, spending was about 15
    percent of the top line for international affairs came from the
    OCO accounts. And after the BCA, it has gone up to about 24
    percent.
        Chairman Enzi. Thank you. My time has expired.
        Senator Kaine.
        Senator Kaine. Thank you, Mr. Chair.
        Ms. Gullo, I want to make sure I heard the last bit of your
    testimony correctly. The debt-to-GDP ratio calculations that
    you suggested, I think it is 78 percent in 2019, and the
    projections you testified to, 93 percent in 2029. Is that
    correct? I want to make sure I understand the assumptions on
    that.
        So for purposes of preparing those debt-to-GDP ratios, I am
    assuming that since we have not done a deal to lift the BCA
    caps in 2020 and 2021, your debt-to-GDP assumes that those caps
    are in place?
        Ms. Gullo. So we assume the caps stay in place through
    2021, and then for discretionary spending, we inflate off that
    2021.
        Senator Kaine. So that is important.
        Ms. Gullo. That is right.
        Senator Kaine. So for 2020 and 2021, if we do not do
    legislation to increase the caps, funding constraints is set to
    drop by $126 billion.
        Ms. Gullo. For 2020, correct.
        Senator Kaine. For 2020, and then there would be an
    additional drop in----
        Ms. Gullo. Well, then it would actually increase by 2
    percent.
        Senator Kaine. Oh, that is right. That is right.
        Ms. Gullo. Right.
        Senator Kaine. That would be--okay. It would increase by 2
    percent. But then, because the BCA caps expire at the end of
    2021, the way you do the debt-to-GDP calculation from 2021
    through 2029 is you are assuming that the budget is growing by
    an inflation adjuster.
        Ms. Gullo. Correct, which is what the Budget Control Act
    requires CBO to assume in doing the discretionary projections.
        Senator Kaine. So, obviously, two decisions we are going to
    have to make. We are going to have to make Decision A about
    whether we do a deal and adjust the caps in 2020 and 2021. And
    then we will have to decide as Congress do we just want to let
    the entire BCA cap architecture go away, or do we want to do
    something different or similar? So we have some big decisions
    to make with respect to that.
        Ms. Gullo. Correct.
        Senator Kaine. I want to ask you about OCO, Mr. Mosher,
    because I think the testimony is pretty interesting on this. I
    am a member of the Armed Services Committee, and we get into
    it.
        ``Since 2012''--I am looking at page 6 of the written
    testimony--``Congress has provided a total of $723 billion in
    funding for OCO, which accounts for 73 percent of all cap
    adjustments allowed by the BCA over the 2012-2019 period.'' And
    your testimony about the State side of this sort of hinted at a
    topic I want to get at, and that is the way that we often use
    OCO to just fund base activities, both in the defense side but
    also in the nondefense. ``OCO funding has increased defense and
    nondefense funding in different ways. For defense, OCO funding
    has added 14 percent to the [DOD's] total funding since 2012 to
    cover a variety of activities outside of DOD's base budget.''
        Jumping to the end of the paragraph, ``Although OCO funding
    has paid for the temporary costs of DOD's overseas contingency
    operations, CBO estimates that since 2012 such funding has also
    included an average of about $50 billion . . . each year to
    cover the costs of enduring activities--including funding
    explicitly identified for base-budget activities. . . . Those
    enduring activities have accounted for almost 60 percent of OCO
    spending since the BCA was enacted.'' So that would suggest
    that once the BCA was enacted, we have really shifted to use
    OCO as a means of funding enduring activities, 60 percent
    enduring activities, 40 percent what we would truly consider
    contingencies.
        And then further, on page 7, ``Funding enduring activities
    in the OCO budget rather than in the base budget tends to
    understate the actual costs of implementing U.S. national
    security strategy and foreign policy. For example, if DOD's
    regular base budget had incorporated the enduring activities
    funded through OCO, it would have been about 9 percent higher
    per year, on average. . . . Furthermore, the practice of
    funding overseas conflicts outside of the base budget departs
    from historical norms. For example, during the Korean and
    Vietnam Wars, DOD's base budget rose rapidly each year to
    incorporate almost all of the funding for those conflicts.''
        What this suggests to me is that we are basically overusing
    OCO and sort of using OCO contrary to historic norms probably
    just as a way of getting around the BCA budget caps. Would you
    think that that is a fair interpretation?
        Mr. Mosher. I cannot comment about the appropriate or
    inappropriate use of OCO, but I will say that what we are doing
    since 9/11 was a significant departure from historical norms,
    that in the Korean War, for example, OCO accounted for more
    than half of the base budget in that first year, and in the
    second year basically the base budget rose to that level and
    even higher.
        Senator Kaine. Let me ask you this. It is not a question
    about propriety but just kind of a budget theory. As a general
    matter, would it be better to fund enduring activities in the
    base budget than in an OCO account that suggests it is about
    contingencies? Would you agree with me there?
        Mr. Mosher. Well, we point out in our report--we did the
    report in October from which that piece of the testimony is
    drawn--that there are some--you create some problems when you
    fund enduring activities in some sort of non-base budget. Part
    of it is you get distortions within the base budget in planning
    and programming, the sort of process the DOD does every year to
    develop their 5-year plan. Certain activities that are high
    priority might get bumped into the OCO accounts, and so lower
    priority, maybe expensive or non optimal solutions or programs,
    might be included that would not otherwise have been. Or even
    if you kept the top line, you know, you raise the top line to
    include the enduring amount, that would at least bring all
    those resources into the normal planning and programming
    process. That would be the biggest advantage of bringing it in
    the top line.
        Senator Kaine. That is helpful. Thank you.
        Thanks, Mr. Chair.
        Chairman Enzi. Senator Braun.
        Senator Braun. Thank you, Mr. Chair.
        When I wrap up here, I am going to refer back to what
    struck me as most compelling when we had Director Hall in here.
        Stop me if I am incorrect in terms of getting a few things
    out here that are simple for the public, I think, to
    understand. We just hit $22 trillion in debt, and we are
    roughly running trillion dollar deficits annually. I believe
    that from 2011 to 2018 discretionary spending has actually
    dropped by 17 percent and would have dropped more had the caps
    not been bypassed in 2013, 2015, and 2018. Is that true?
        Ms. Gullo. So the only thing I would say is that the debt
    held by the public, which is what we use when we calculate
    debt-to-GDP ratios, is about $16 trillion.
        Senator Braun. It is 22 when you are referring to----
        Ms. Gullo. Is the total debt, that is right.
        Senator Braun [continuing]. Intragovernment debt.
        Ms. Gullo. That is right. But all the spending numbers
    seemed okay.
        Senator Braun. Okay, good. And the fastest-growing part of
    our budget would be in mandatory spending, and with the rate of
    inflation that we have had--and I think I read here, and I
    cannot recall if you mentioned it--is going up roughly 6
    percent a year?
        Ms. Gullo. Right.
        Senator Braun. I mean, that is astounding. Most people
    would not know that, and that is something that is on
    autopilot.
        And then interest on our debt, of course, now that interest
    rates have risen, will about equal defense spending down the
    road soon, and that in a way is kind of mandatory spending
    because unless you are going to default, you have got to pay
    it.
        Ms. Gullo. Right.
        Senator Braun. Okay.
        Ms. Gullo. We do not consider that discretionary.
        That is right.
        Senator Braun. Okay. And the Ranking Member, before he
    left, cited that we need to do a whole lot more through
    Government, and for the Ranking Member and others that think
    that that needs to be the case, I would say if you are
    interested in doing that down the road, you better look for a
    healthier institution to maybe conduct what spending you want
    to do. And this idea of trying to pile more and more
    responsibility onto the Federal Government that is $22 trillion
    in debt or 16, depending on how you look at it, running annual
    trillion dollar deficits, do you think that is prescription for
    anything working out well when it comes to Government finances?
        Ms. Gullo. No, I mean, I think CBO has said multiple times
    in the past that we think that the debt is on an unsustainable
    path and that Congress is going to have to confront some hard
    choices about some combination of increases in revenues or
    decreases in spending. Given how high the debt is getting, it
    is hard to imagine easily doing that on any one side of the
    budget.
        Senator Braun. Very well put from an expert, and I would
    agree 100 percent.
        I do not think any of this conversation can be had in the
    vacuum of not talking about revenues, and implicit in
    everything I hear on the other side is that there is a ton of
    capacity to increase revenues. And I think in places where it
    might be fairer to do it, you look and you talk about it. But I
    asked Director Hall in the last hearing, if you taxed 100
    percent of income in the top two brackets, you could not close
    the gap on our current deficits. I do not know you have looked
    at that, but, you know, he did say that that would not do the
    trick.
        In looking at revenue enhancement, it is difficult for me
    to find any model where there is not avoidance, there is less
    enterprise to where you even get close to 20 percent of the
    current deficit. Have you looked at that yourself? And would
    you care to issue an opinion on that?
        Ms. Gullo. No, that is not my area of expertise.
        Senator Braun. Okay.
        Ms. Gullo. But I am happy, if you want, we can get some of
    our tax experts----
        Senator Braun. I have asked my staff, and I would love for
    you to do the same thing, because until this is going to really
    sink in, and what dire straits we are in, I think you have got
    to point out that you cannot solve it through revenue. We are
    in an intransigent, stubborn deficit that we have not felt the
    pain of yet. That will start happening when the interest rates
    tick up another percent or two and you add another $200 to $300
    billion to what we currently pay in interest. So I am going to
    bring to the Committee here and I would ask you to do some work
    on the counter argument of what could happen with revenue so
    you can clearly make the case that this is a spending issue, we
    bypass caps, and until we get it in line, you know, we are
    going to pay huge consequences down the road.
        Thank you.
        Chairman Enzi. Thank you.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. I thank both
    of you for your service and testimony.
        I want to pick up on the OCO issue, which has kind of
    become Washington-speak for a big slush fund that is used by
    the administration and some previous administrations as well to
    shift base defense spending into the overseas contingency
    account, which, as the name suggests, is supposed to be used
    for overseas contingencies.
        Mr. Chairman, I hope this will be a bipartisan issue. It
    was in the House. I would just like to read into the record
    what the former Chairman of the House Budget Committee said at
    a time I was Ranking Member of the House Budget Committee. This
    is Paul Ryan in fiscal year 2015, and this was in the report
    from the House Budget Committee: ``Abuse of the OCO cap
    adjustment is a back-door loophole that undermines the
    integrity of the budget process. The Budget Committee will
    exercise its oversight responsibilities with respect to the use
    of the OCO designation in the fiscal year 2015 budget process
    and will oppose increases above the levels the administration
    and our military commanders say are needed to carry out
    operations unless it can be clearly demonstrated that such
    amounts are war-related.''
        That was 2015. My colleague in the House, now the Acting
    Chief of Staff in the Trump administration, Mick Mulvaney, and
    I offered amendments in the House that passed the House to
    address this abuse of OCO. And, in fact, just last year, when I
    asked the DOD Comptroller David Norquist about this issue,
    March of 2018, he said, and I quote, ``Consistent with your
    previous discussions with Director Mulvaney''--he is now
    referring to Mick Mulvaney as Director of OMB--``you will not
    be surprised to know that in out-years he would like to shift
    those categories so even fewer of them will count as OCO and
    more of it as base. And only the most incremental of the costs
    show up, which would dramatically reduce the size of the OCO.''
        For our witnesses, have you seen the speculation that the
    Trump administration plans to submit a budget which will fund
    all of their DOD request above the cap through OCO?
        Mr. Mosher. Yes, we have certainly seen the reports and the
    budget.
        Senator Van Hollen. And that would be a dramatic departure
    even by previous years' levels from what we have done before,
    would it not?
        Mr. Mosher. Well, certainly even this administration in
    last year's budget proposal did sort of exactly what Director
    Mulvaney, I guess at the time, was proposing where much of the
    spending that is what we would title ``enduring,'' and I guess
    he would agree, would be folded back into the base budget, that
    the caps--well, it was not about caps, but that the DOD base
    budget would rise by about $45 billion a year and keep about
    $20 billion a year in OCO or whatever it needed for the
    marginal cost, if you will, of conflicts.
        That was the plan last year to do that. They did a little
    in 2019. They would do it in 2020 through 2023. If the
    reporting of what the administration may propose when the
    budget comes out would reverse that, then obviously it is a
    change in their policy on that.
        Senator Van Hollen. And I would just, Chairman, quote from
    the administration's budget request from last year on this
    topic where they said, ``In fiscal year 2020 and the out-years,
    the administration proposes returning to OCO's original purpose
    by shifting certain costs funded in OCO to the base budget
    where they belong.''
        That was the administration's budget language last year. It
    appears from reports that not only are they not heading in this
    direction, but they made a major U-turn in the other direction.
    And, you know, I think as the Chairman knows, the purpose of
    this, of course, is to try to avoid the kind of negotiations
    that we have had in the past over the balance between our
    investment in defense as well as nondefense areas like
    education and other really important national priorities. And I
    hope that this Committee will stick to what had been a
    bipartisan consensus in the past, which is that OCO funds
    should be used for truly overseas contingencies and not used to
    simply backfill into the base budget. And if we can start with
    agreement on that, we will still have tough budget
    negotiations, but at least we will be on the same page that we
    have been for the most part in the past. And I thank you
    because, again, we do not know if the reports are true, but as
    you indicated, if they are true, this is a major reversal in
    the administration's own position.
        Thank you.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman. Let me apologize
    to our witnesses. I am sorry, I was in another Committee, so I
    missed the pleasure of hearing your opening statements, but I
    will read them later.
        There has been some discussion lately about budget
    deficits, of which, of course, budget caps are related, and
    some of my colleagues have suggested that budget deficits do
    not matter as long as people will loan us money. Do you agree
    with that?
        Ms. Gullo. I think it is risky to continue to run large
    deficits that add to a debt that could at some point put the
    United States Government in the position of not being able to
    respond quickly to emergencies or problems because so much of
    the money that the Federal Government spends goes to interest
    and paying for that debt. So I think it is risky. I do not know
    that I would ascribe to the idea that deficits do not matter. I
    think we--CBO believes we are on an unsustainable path in terms
    of the continued increase in the debt, and that has mostly to
    do with the ability of the Federal Government to respond when
    it needs to.
        Senator Kennedy. Yes, Mr. Mosher?
        Mr. Mosher. This is not my area at all, so I defer to the
    experts.
        Senator Kennedy. So you do not have an opinion one way or
    the other about whether deficits matter?
        Mr. Mosher. Well, I mean, I run the National Security
    Division at CBO, so I focus more on defense issues. I can just
    restate what Teri says, that the institution has a position
    that current projected debt levels will be unsustainable long
    term.
        Senator Kennedy. Well, the budget caps are, of course,
    symptomatic of the larger problem that we talk a lot about,
    spending and how we need to live within our means and do
    better. I have only been here 2 years, but my experience is
    that everybody is for fiscal restraint and fiscal
    responsibility. But when you get around to doing something, it
    is kind of like everybody wants to go to heaven but nobody is
    ready to make the trip.
        You do not have to answer this if you do not want to, but
    now is your chance. If you were king or queen for a day and
    wanted to have the most immediate impact on our budget deficits
    as well as our longer-term debt, what would you do?
        Forget the politics.
        Ms. Gullo. Well, the first thing I would do if I was queen
    for a day is have Bryce Harper sign with the Nationals again.
    [Laughter.]
        Senator Kennedy. Fair enough.
        Ms. Gullo. But in terms of the debt and deficit, I think
    the largest and growing problem that we face is with mandatory
    spending, and so I think that the solution--part of the
    solution to addressing the deficit problems I think has got to
    come from taking a look at mandatory programs. They are the
    largest and the fastest-growing part of the budget.
        Senator Kennedy. Yeah, I think I read--tell me if I have
    this wrong. I read an analysis that you did. CBO is predicting
    that over the next 10 years, discretionary spending is going to
    increase about 3 percent a year, mandatory spending with
    interest about 9 percent. Does that sound right?
        Ms. Gullo. That sounds like the basic ball park, yes.
        Senator Kennedy. Okay. So it will double, basically, over
    the next 10 years. I am working my way through--I think CBO did
    the analysis of ways to save money.
        Ms. Gullo. Yes.
        Senator Kennedy. The Chairman gave me a copy.
        Ms. Gullo. Budget options, yes.
        Senator Kennedy. It is very interesting. Do you have an
    opinion on that?
        Mr. Mosher. It is a great volume. Thank you.
        Senator Kennedy. I am sorry?
        Mr. Mosher. It is a great book. We all work on it very hard
    at our agency.
        Senator Kennedy. All right. Can you give me in my last 10
    seconds a suggestion in terms of discretionary spending, the
    most flagrant abuses, the obvious waste?
        Ms. Gullo. So I do not think many people would disagree
    that there is waste, and improper payments and fraud, I think
    most IGs or many IGs have pointed that out at agencies. GAO has
    pointed that out.
        Our analysis in looking at legislation to deal with things
    like improper payments indicates that those types of things are
    not a very large portion of most budgets, and that while you
    might be able to get to a point of having fewer improper
    payments, for example, that could come at a very steep price,
    and in many cases things like improper payments have to do with
    the paperwork was not filled out correctly, somebody did not
    sign something. So even if yousolve those problems, it is not
    clear that you are going to reduce the deficit or save very much money.
        Senator Kennedy. May I, Mr. Chairman?
        Improper payments are about $144 billion a year, so if you
    cut that in half--I take your point--it is a very good one--
    about filling out paper wrong. But sending checks to dead
    people, pretty blatant, and even scarier is they are being
    cashed.
        Ms. Gullo. Absolutely, and I do not mean to suggest that
    those sorts of things should not be addressed or that dealing
    with some of those things would result in fewer outlays.
        Senator Kennedy. Or the IRS signing hundreds of millions of
    dollars of consulting contracts with people who owe taxes, not
    just allegedly but there is a final judgment against.
        Ms. Gullo. That one I do not know much about, but----
        Senator Kennedy. I have gone way over. I am sorry.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you. I have some additional questions,
    so you can have some additional ones as well if you wish.
        During the 1990s, Congress rescinded just under $52 billion
    to help offset supplemental appropriations. Was there a
    requirement that such funding be offset? Can you discuss the
    trends in offsetting both supplemental appropriations and
    legislation to increase the BCA's discretionary spending caps?
        Ms. Gullo. Sure. You are correct that some of the
    supplemental appropriations that were provided in the 1990s
    were offset. Those were predominantly non-emergency funds that
    were provided in supplementals, and the requirement to offset
    those was for the purposes of not exceeding the caps that were
    in effect in those days. Emergency funding was not required to
    be offset, even in the 1990s. So it kind of depended on what
    sort of spending you were talking about.
        In the 2000s and the 2010s, you have virtually none of the
    supplemental money being offset--very, very small amounts of
    money, so the trend has been toward fewer and fewer offsets in
    supplemental appropriations bills.
        Chairman Enzi. Some of those offsets went far into the
    future, I think.
        Ms. Gullo. Right. That is right, and sometimes those
    offsets will be with--will offset budget authority, but they do
    not necessarily result in many outlay savings.
        Chairman Enzi. Right, especially not in the immediate
    future.
        Ms. Gullo. Not early, that is right.
        Chairman Enzi. In the distant future, trying to--a way to
    spend money from the tenth year of the budget in the first
    year.
        Ms. Gullo. Right.
        Chairman Enzi. That is something we will have to guard
    against as well. Something we may have left out of the
    discussion is what happens if the caps are exceeded. The
    general public probably does not understand that. We have been
    through it once.
        Ms. Gullo. Yeah. So there is a sequestration process.
        If the caps are exceeded, the sequestration effectively
    works to bring overall discretionary spending back to the cap
    levels, and it does that through across-the-board cuts in those
    accounts.
        Chairman Enzi. There is an added complication----
        Ms. Gullo. Including OCO, actually. Dave makes a good
    point. Even though OCO is not counted for the caps when it--do
    you want to explain that?
        Mr. Mosher. Even though OCO is not--there is an adjustment
    of the cap for OCO, once the sequestration process starts, then
    let us say there is a 3-percent cut across the board, the OCO
    accounts would be cut by the 3 percent as well.
        Chairman Enzi. Well, there is another complication, though,
    that we noted with the one time that the sequestration was put
    into effect, because we had continuing resolutions through most
    of the year, which meant that everybody got to spend their
    previous year's amount to that point. And so it got down to the
    last quarter, and if it is a 1-percent cut in the last quarter,
    it is only one-fourth of the funds.
        Ms. Gullo. Right.
        Chairman Enzi. So it becomes like a 4-percent cut, which is
    a lot more difficult. I do not think that when the budget caps
    were put in place that the anticipation was that any of the
    sequestration would take place in the first month, and
    succeeding months, not at the end of the year when it could for
    a small appropriation maybe use up everything that was left.
        Ms. Gullo. Yeah, it would be really big.
        Chairman Enzi. I think that was left out.
        I think my colleagues would be surprised to learn that
    nearly $1 trillion in spending has been provided through cap
    adjustments since 2012. That does not include the discretionary
    cap increases that have been made through three Bipartisan
    Budget Acts for an additional $439 billion.
        Can CBO speak to any other efforts that have been utilized
    to effectively circumvent the discretionary spending caps?
        Have we attempted to quantify those efforts?
        Ms. Gullo. So one thing that is used pretty consistently
    year after year are Changes in Mandatory Programs, or CHIMPS.
    In the appropriations process,sometimes the appropriators can
    make changes to a mandatory program that will save money, and when that
    gets credited to the appropriations bill, that actually creates
    additional room under the caps. And I think--Adam, if I am--correct me
    if I am wrong, Adam--about $17 billion a year on average has been--
    CHIMPS have been used to create that amount of extra room under the
    caps. So off the top of my head, that is the one thing I can think of
    that is another way that spending can occur that is not controlled by
    the caps.
        Chairman Enzi. We also do some interesting things with the
    Crime Victims Fund.
        Ms. Gullo. That is one of the major examples. I think that
    accounts for at least half of that CHIMPS savings.
        Chairman Enzi. My time has expired again. Senator Braun,
    did you have more questions?
        Senator Braun. One quick comment and a comment from you on
    it. We did not get to the numbers awhile ago, but on mandatory
    spending, we discussed interest is kind of like mandatory
    spending. If you do not pay it, you default.
        Currently it is a little over 70 percent of our total
    spending. Is that roughly correct?
        Ms. Gullo. Discretionary----
        Senator Braun. Mandatory, which is kind of on autopilot.
    Looking at what it will be in 2026, it looks like it is going
    to be over 80 percent. So the trajectory in terms of how all
    this looks in the short span of 7 to 8 years gets to where we
    are spending more and more, and mandatory spending again is
    made up of Social Security, Medicare, and Medicaid, and then
    depending how you classify interest, which to me that is
    somewhat mandatory, it is getting to where discretionary
    spending is becoming such a small part of what we do that
    obviously it has very little impact on changing the trajectory.
        So where would you--and I think just for the sake of the
    public again hearing what the main variables would be when it
    comes to mandatory spending, could you talk a little bit about
    what they are--because it seems like no one here wants to--and
    lay out kind of the arithmetic and, you know, what the options
    would be? And avoid getting political with it, but just stick
    with the arithmetic.
        Ms. Gullo. So you are correct, 60 percent of current
    spending is mandatory, and most of that is Social Security and
    Medicare. But you also have Medicaid, you have nutrition
    assistance programs, you have farm programs. So there is a host
    of different programs that are mandatory spending, meaning they
    do not require annual appropriations. They operate
    automatically based on the provisions of underlying law. But by
    far the largest two programs that account for mandatory
    spending are Social Security and Medicare.
        Senator Braun. And then, really to be honest, until we
    tackle that, we are not really affecting the trajectory of
    actually lowering deficits. So that is the hard discussion that
    we need to have here.
        Ms. Gullo. I think it is going to be hard to solve the
    problem without looking at mandatory spending. It is such a big
    part of the picture.
        Senator Braun. Very good, and I think that it is all of our
    responsibility here on this Committee to have the backbone and
    fortitude to start doing that because, otherwise, you know, I
    think we are deceiving the American public. That does not get
    talked about often enough, and we need to roll up our sleeves
    and at least be honest about what the options are.
        Thank you.
        Chairman Enzi. And at the same time, we avoid those
    mandatory ones except in new bills that come out. And there are
    several that have been put in this year, you know, dropped in,
    reported out, but not out of Committee yet, that make more
    money mandatory instead of the ability to take a look at it or
    even being forced to take a look at it.
        Senator Kennedy. Microphone.
        Senator Kennedy. The Senator is absolutely right about
    mandatory in terms of bending the curve. But it seems to me we
    can also save money on the discretionary side. I just find it
    extraordinary that Social Security has a Death Master File and
    they do not share it with anybody. I just find that
    extraordinary. And I find it extraordinary that agencies that
    are responsible for sending out checks do not bother to inquire
    whether the recipient is dead. And I have a hard time
    explaining that to my constituents. And I understand it takes
    time, and I understand the rights of privacy. But I also
    understand the way that the taxpayer who is putting up all this
    money looks at that. That is pretty basic. Do not pay dead
    people money. That is about as basic as you can get.
        You know, the bonus payments, the year that we had so much
    trouble with our Veterans Administration--not to suggest that
    things are well now, but I think they are better. But the year
    we had so much come to light about the inefficiencies in the
    delivery of health care to our veterans, we paid $100 million
    bonuses over there. The year that people at the IRS were caught
    obviously making decisions on the basis of somebody's political
    beliefs, A, nothing happened to them--nobody ever gets fired
    around here--and, number two, they got $100 million on bonuses.
        Now, that is all discretionary, and, yeah, the mandatory
    matters, but so does the discretionary. Maybe if we could warm
    up and just try on the discretionary side, the other would get
    easier. I do not know. But that has been--and I think part of
    it is that those who want to reduce the spending are often
    told, ``Well, it cannot pass, so why try? We have to put
    together something that will pass''--which inevitably means
    spending more money.
        That is not a question. That is just an observation. But it
    is very frustrating, and it is very frustrating to explain to
    constituents who, even after a cursory look at some of the
    decisions we make, you know, they think we all parachuted in
    from another planet. And I cannot much blame them.
        But I do want to thank you for the work you do. It is very
    helpful. I am about halfway through your book in terms of
    suggested savings, and I did not know something like that
    existed. So I thank you for your work.
        I read another study CBO did, and I am not denigrating our
    Federal employees, but a study I think you did for us from 2011
    to 2015. You took all the public sector jobs in the Federal
    Government and compared them to the same jobs in the private
    sector. It really was an apples-to-apples comparison. And we
    pay salary, benefits, everything, about 17 percent more on
    average in the public sector. I am not saying people do not
    deserve it, but the numbers are the numbers. You say, well, 17
    percent, that is not bad. That is $34, $35 billion a year.
        Ms. Gullo. Yeah, and I think that is overall. I think it
    varies depending on the job categories.
        Senator Kennedy. That is true.
        Ms. Gullo. Right.
        Senator Kennedy. We actually underpay for professionals.
        Ms. Gullo. Correct. That is right.
        Senator Kennedy. But we overpay for people with a B.A. or
    less compared to the private sector. Anyway, thank you, Mr.
    Chairman.
        Chairman Enzi. Thank you.
        I have a couple more questions. Congress appropriates
    billions of dollars for emergencies or disaster relief, for
    immediate relief and recovery from natural disasters. In some
    cases, these funds take many years to spend. It is my
    understanding that we are still spending funds on expenses from
    previous hurricanes such as Katrina. Can you elaborate on why
    that is? Does Congress ever rescind the appropriated dollars of
    unspent during a given period?
        Ms. Gullo. So it is true that oftentimes when funding is
    provided after a disaster, it can take years to spend. But
    there is a real difference between--depending on what the money
    is provided for, so some funding that is provided for rescue
    operations, emergency shelters, that type of thing, those spend
    pretty quickly. But a fair amount of the money that is provided
    through emergencies after a catastrophe like Hurricane Katrina
    are for longer-term things like infrastructure reinvestment,
    and those can take a long time. And I think you are correct,
    there is still some unspent Katrina money. I do not know off
    the top of my head how much, but there is some money that has
    not spent. So emergency money, generally speaking, has a very
    long tail. There is some money that takes a long time to get
    either obligated or spent.
        There is some money that has been provided that people have
    suggested that gets rescinded mostly for the purposes of
    offsetting costs in some other proposal. The challenge that you
    face is that because that money was provided as an emergency
    and, therefore, did not count when it went into the budget, the
    question is should it count as an offset when you try to
    rescind it? That is a decision that is an enforcement decision,
    not a decision we make. We can give you the numbers of how
    much, but when you get out that far, quite frankly, and you
    have got unspent money, the odds are it is not ever going to
    spend, so rescinding it may not give you any real outlay
    effects.
        Chairman Enzi. And something I will follow up on other
    places is to find out how we bank that excess money since we
    really do not have any bank accounts out there. I am not sure
    that we do not spend it now and then assume--put bonds in a
    drawer just like we do for Social Security.
        Ms. Gullo. Right, yeah. That is a good--I do not know the
    answer to that.
        Chairman Enzi. I do not either, but it is one that I will
    pursue.
        Another question. Rural communities across the Nation
    depend on healthy national forests for recreational activities,
    reliable jobs, a lot of things in their local economy. As your
    testimony mentions, a cap adjustment for wildfire suppression
    activities will come into effect in fiscal year 2020. Can you
    talk about how this new adjustment will help end the fire
    borrowing and the effect it will have on wildfire funding in
    general?
        Ms. Gullo. Sure. I am happy to explain the way this new cap
    is going to work. I think it may very well contribute to
    helping prevent the need to borrow. I do not know that it will
    eliminate it, but I think it could help.
        So the way the new cap works is a 10-year average based on
    what the 10-year average was in 2015, which was $1.4 billion,
    will continue to be funded through the regular disaster cap.
    And once that is provided, then levels above that amount will
    be funded through this new fire suppression cap adjustment. And
    I think those amounts range from $2 billion to $3 billion,
    beginning in 2020, and it goes through 2027. And the affected
    agencies are primarily the Forest Service and the Department of
    Interior.
        Chairman Enzi. Thank you. Thank you for the wealth of
    information that both of you have shared and the daily work
    that you do. Unless Senator Kennedy has more questions, that
    will conclude the hearing. Adjourned.
        [Whereupon, at 3:40 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                THE PRESIDENT'S FISCAL YEAR 2020 BUDGET PROPOSAL

                                  ----------

                           WEDNESDAY, MARCH 13, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:30 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Crapo, Toomey, Perdue,
    Braun, Scott, Kennedy, Cramer, Sanders, Wyden, Stabenow,
    Whitehouse, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Warren Gunnels, Minority Staff Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I call to order the Senate Budget Committee
    hearing on the President's fiscal year 2020 budget request. I
    note that Senator Braun is here and Senator Grassley is here
    and Senator Cramer. Senator Perdue was here early studying. But
    I know that Senator Braun and Senator Grassley have to go to a
    meeting at the White House now, so they will be back for
    questions later.
        Good morning, and welcome to the hearing on the President's
    budget request for fiscal year 2020. I want to thank Russell
    Vought, the Acting Director of the Office of Management and
    Budget, for being here to discuss the White House's budget
    request.
        While we would normally receive the budget submission in
    early February, the Government shutdown delayed this process. I
    have been an outspoken advocate for reforming the Federal
    budget process and will continue to seek improvements, but this
    afternoon, we will focus on the President's plan for putting
    our country on a more sustainable fiscal path.
        The President's annual budget proposal is the first step in
    the Federal budget process. This submission provides the
    administration an opportunity to cast a vision for the future
    and provide important programmatic information to Congress and
    the American people. I call it a ``list of pretty good
    suggestions,'' or at least ``suggestions.''
        Budgets reflect spending and revenue priorities. Our
    hearing this morning will allow us to consider how the
    President's budget's priorities align with the priorities of
    Congress. In nearly every hearing held by this Committee, I
    shine a spotlight on our country's fiscal challenges.
        It is no secret the Federal Government spends more than it
    takes in and will soon produce annual deficits exceeding $1
    trillion. That is the equivalent of $1,000 billion--a figure
    that is too large to truly comprehend.
        Rising deficits add up to rising debt, and debt as a
    percentage of the economy is expected to surge in the coming
    years. According to the Congressional Budget Office, debt held
    by the public is expected to reach $16.6 trillion later this
    year, or 78 percent of the gross domestic product. By 2029,
    this debt is projected to grow to $27.8 trillion, or 93 percent
    of GDP. Considering the 50-year average is 42 percent of GDP,
    we are clearly headed in an ominous direction.
        This problem did not arise overnight. For decades we have
    known of the budget pressures we face as the baby-boom
    generation aged. Autopilot spending--that is, mandatory
    spending--now represents more than two-thirds of what the
    Federal Government spends each year and grows with programs
    that are not even reauthorized. And there are always more
    efforts to make more items mandatory. In my opinion, nothing
    should be mandatory unless it has its own source of revenue
    sufficient for the years.
        The growth in mandatory spending means that a smaller share
    of Federal expenditures goes to so-called discretionary
    spending that is funded through the annual appropriations
    process and is made up of defense and nondefense programs that
    both sides of the aisle care about.
        Yes, 70 percent is mandatory and growing; discretionary is
    borrowed money. We are in a credit card Congress. More and more
    I have been hearing people claim that debt and deficits do not
    matter. This unconventional view is not only misguided; it is
    dangerous.
        Jerome Powell, Chairman of the Federal Reserve, recently
    testified that the U.S. debt is growing at an unsustainable
    pace and that it would be a huge mistake to let that continue.
    Mr. Powell noted, ``The idea that deficits do not matter is
    just wrong.'' That is a quote.
        Larry Summers, the Treasury Secretary under President
    Clinton and Economic Adviser under President Obama, noted that
    the theory behind the idea that deficits do not matter is being
    oversimplified and exaggerated by fringe economists who hold
    these ideas out as offering the proverbial free lunch--the
    ability of the Government to spend more without imposing any
    burden on anyone. We also heard CBO disagree with this view in
    our last two hearings.
        Make no mistake. Both sides share in the blame of the
    rising deficits and debt, and both sides must work together to
    address these issues. Just as these problems did not arise
    overnight, they are not likely to be solved overnight. That is
    why in the coming weeks I am hoping to put forward a budget
    resolution with a reasonable, achievable deficit reduction
    target as a first step in turning the tide of red ink. Ignoring
    the problem is not an option. I would ask that as colleagues
    review the President's budget and as wework together to craft a
    fiscal year 2020 budget resolution done by Congress, we are clear-
    headed about the challenges we face.
        Again, I thank our witness for being here, and I look
    forward to his testimony and to working with the administration
    and my colleagues to put our Nation on a more sustainable path.
        Senator Sanders.

                  OPENING STATEMENT OF SENATOR SANDERS

        Senator Sanders. Mr. Chairman, thank you very much for
    holding this hearing. Mr. Vought, thank you very much for being
    with us today.
        Let me be as clear as I can be. This budget is an absolute
    disaster. It is an insult to the working families of this
    country, and I have to say it really does expose Donald Trump
    for the fraud that he is.
        Over and over again, Candidate Donald Trump, when he was
    looking for votes, promised the American people that he would
    be a different type of Republican--I think we all remember that
    rhetoric--that he would be a champion of the working class,
    that he would not cut Medicare or Medicaid or Social Security.
    I remember those speeches like it was yesterday.
        On May 7, 2015, Mr. Trump tweeted--this was during the
    campaign: ``I was the first and only potential GOP candidate to
    state there will be no cuts to Social Security, Medicare, and
    Medicaid.''
        August 10, 2015, another tweet from Mr. Trump: ``I will
    save Medicare, Medicaid, and Social Security without cuts. We
    have to do it. People have been paying in for years, and now
    many of these candidates want to cut it.'' Donald Trump.
        That is what Mr. Trump said during the campaign, but now
    that he is President, the tune he is singing is very, very
    different.
        On page 32 of the briefing book of his budget, Donald Trump
    proposes cutting $1.5 trillion from Medicaid, $845 billion from
    Medicare, and $25 billion from Social Security. And, Mr.
    Chairman, I ask unanimous consent to insert this page into the
    record.
        Chairman Enzi. Without objection.
        Senator Sanders. Thank you.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Sanders. Mr. Chairman, let us just very briefly
    take a look at what these cuts do to the working families of
    this country at a time when millions and millions of families
    are struggling economically today.
        As I think most of us know, Medicaid pays for more than
    two-thirds of all of the nursing home care in our country in
    addition, of course, to providing health care for millions of
    lower-income families. The question is: What happens to senior
    citizens in this country who are struggling with Alzheimer's
    and other serious illnesses who have their nursing home
    coverage paid for by Medicaid if that program is cut by $1.5
    trillion? If you are a working-class family and your Mom is in
    a nursing home dealing with Alzheimer's, massive cuts to
    Medicaid, what happens to your Mom? Or what happens to the
    ability of your family to take care of their basic needs now
    that you are going to have to pay an arm and a leg for nursing
    home care?
        But it is not just seniors. Today Medicaid covers millions
    of children with special needs. We are the only major country
    on Earth, embarrassingly, not to guarantee health care to all
    people as a right. But this budget makes a bad situation worse
    and would throw millions of children with special needs off of
    the health insurance they have.
        We have an opioid epidemic from one end of this country to
    the other, but when you slash Medicaid by $1.5 trillion, you
    make it infinitely harder for communities and States to deal
    with this terrible crisis.
        But it is not just Medicaid. In terms of Medicare, the
    Federation of American Hospitals tells us, and I quote--this is
    not me. This is the Federation of American Hospitals: ``The new
    White House budget imposes arbitrary and blunt Medicare cuts to
    hospitals who will care for the Nation's most vulnerable. The
    impact on care for seniors would be devastating.''
        During the campaign President Trump told the American
    people that he was going to provide, and I quote, ``health
    insurance for everybody with much lower deductibles.'' That is
    what he said during the campaign. Let us talk about what he is
    doing now that he is President.
        President Trump's budget would end the Affordable Care Act
    and throw an estimated 32 million people off the health
    insurance they have right now. Now, how in God's name can you
    talk about being a friend of working people and then propose to
    throw tens of millions of people off the health insurance they
    have? And at the same time, this budget would substantially
    raise premiums for older Americans and allow States to
    eliminate or substantially weaken protections for preexisting
    conditions like cancer, diabetes, or asthma.
        This is a budget which will make it harder for our children
    to get a decent education, harder for working families to get
    the health care they need, harder to protect the air that we
    breathe and the water that we drink, and harder for the elderly
    to live out their retirement years with dignity and respect.
        This is not a budget, as Candidate Donald Trump talked
    about, that takes on the political establishment. That was his
    rhetoric during the campaign. This is a budget of the political
    establishment, of the 1 percent, of corporate America, of the
    wealthiest people in this country. This is a budget which
    practices the Robin Hood principle in reverse. It takes from
    the poor and working families and gives to the very wealthy.
        As a candidate, Donald Trump said he understood the pain
    that working families across the country were feeling.
        This is not a budget that Candidate Donald Trump talked
    about that takes on the political establishment. This is a
    budget that does very much the opposite.
        Mr. President, you do not help working families when your
    budget would eliminate financial aid to more than 1.5 million
    low-income college students. It is really quite incredible to
    me that people could prepare a budget when hundreds of
    thousands of kids in this country cannot afford to go to
    college, when millions of people are struggling with student
    debt, and this budget makes it harder for young people to go to
    college.
        Mr. President, and I would say also that it is unacceptable
    to me coming from a cold-weather State--and I see some of my
    other colleagues here coming from cold weather States--that it
    would eliminate the LIHEAP program.
        Seniors in Vermont stay warm because of LIHEAP. This budget
    eliminates that.
        But I should say that at a time when we are now spending
    more on the military than the next ten countries combined, this
    budget would expand military spending by $861 billion.
        Now, for the working families of this country, for the
    middle class, this is a disastrous budget. But I must confess
    there are some good things in it for the wealthiest people in
    this country. After passing a nearly $2 trillion tax break that
    mainly benefitted the top 1 percent and large profitable
    corporations a little over a year ago, the Trump budget would
    provide another $1 trillion tax break that would, you guessed
    it, primarily benefit the wealthiest people in this country.
    Think about it. Cuts to education, throwing millions of people
    off the health care that they have, cuts to programs that keep
    seniors warm in the wintertime--again, more tax breaks for the
    wealthiest people in this country.
        Mr. Chairman, last year, Amazon, Netflix, General Motors,
    and IBM--all very profitable corporations--not only paid
    nothing in Federal income taxes; they actually received a tax
    refund from the IRS. They do not need another tax break when
    families in this country are struggling to keep their heads
    above water economically.
        Mr. President, this is a budget that should be discarded
    immediately, and a serious budget should be put together that
    protects working families and not just the 1 percent.
        Thank you.
        Chairman Enzi. Thank you, Senator Sanders, for your
    remarks.
        Our witness this afternoon is Acting OMB Director Russell
    Vought. Director Vought was confirmed to his position as OMB
    Deputy Director by the Senate in February of last year, and he
    oversaw the final development of the President's fiscal year
    2020 budget submission this year.
        We appreciate your work, and we look forward to receiving
    your testimony on the President's vision for the Nation.
        For the information of colleagues, Director Vought will
    take up to 7 minutes for his opening statement, followed by
    questions.
        Welcome, Director Vought. Please begin.

    STATEMENT OF THE HONORABLE RUSSELL T. VOUGHT, ACTING DIRECTOR,
                    OFFICE OF MANAGEMENT AND BUDGET

        Mr. Vought. Thank you, Mr. Chairman.
        Chairman Enzi, Ranking Member Sanders, members of the
    Committee, thank you for this opportunity to testify on
    President Trump's fiscal year 2020 budget.
        On Monday, I submitted my full statement for the record;
    however, in my oral testimony today, I just want to hit a few
    key points.
        Over the past 2 years, President Trump has unleashed the
    American economy through his pro-growth agenda, resulting in a
    return to prosperity for the American people.
        Working alongside many of you on this Committee, President
    Trump signed historic tax reform into law, marking the first
    time in 30 years that our Nation's Tax Code was updated and
    improved. It provided much needed relief to all Americans,
    especially the middle class.
        Throughout his administration President Trump has
    implemented a robust regulatory reform agenda, resulting in
    small businesses and the American economy saving more than $33
    billion in burdensome regulatory costs.
        However, these great achievements will be challenging to
    maintain if we do not get our fiscal house in order.
        Annual deficits are continuing to rise and will exceed $1
    trillion a year, and interest payments on the national debt are
    projected to double. Interest payments on the national debt are
    projected to exceed military spending by 2024. The national
    debt nearly doubled under the prior administration and is now
    more than $22 trillion. This level of debt is unsustainable and
    threatens the prosperity and economic freedom of future
    generations.
        The President's commitment to fiscal responsibility has
    been outlined in his previous budgets, and again today he is
    requesting more reductions to both discretionary and mandatory
    spending than any other President in history.
        Yet each time this President has called for fiscal
    restraint and spending reform, he has been blatantly ignored.
    Instead, those opposed to decreasing Washington spending have
    called for massive tax increases as a means to reduce the
    deficit. However, not only would this punish taxpayers, destroy
    jobs, and slow America's economic engine, but it also would
    ignore the reality of our current fiscal situation. Contrary to
    fearful predictions before the passage of tax reform, revenues
    are increasing and are in line with 50-year historic averages.
    The problem is not that Americans are taxed too little; it is
    that Washington spends too much.
        This budget is yet another fiscally responsible and common-
    sense spending plan from President Trump. I look forward to
    working with members of this Committee and Congress and remain
    hopeful we can prove to the American people that their
    Government is capable of passing budgets and balancing the
    budget by prioritizing efficient and effective spending.
        Thank you for your time. I look forward to hearing your
    questions.
        [The prepared statement of Mr. Vought follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you.
        Now we will turn to questions. Let me take a moment to
    explain the process for all the Committee members before we
    start. Each member will have 5 minutes for questions, beginning
    with myself and then--somebody. Following that, we will
    alternate questions between the Republicans and the minority.
    All members who were in attendance when the hearing started
    will be recognized in order of seniority.
        For those who arrived after the hearing began, you are on a
    list in order of arrival. If it is your turn on the list to be
    recognized but you are not available, we will move to the
    bottom of the list and turn to the next Senator on the list to
    ask questions. With that, I have a few questions.
        Director Vought, the President's budget requests a large
    increase in overseas contingency operations funding to provide
    a total of $750 billion in defense spending in fiscal year
    2020. Can you walk us through the thought process on this
    approach and what seems to be a change in the administration's
    position on use of the overseas contingency operation
    designation to the fund base requirements?
        Mr. Vought. Thank you for the question, Mr. Chairman.
        We, as you mentioned, do propose $165 billion into the OCO
    account. This is the money that we believe is necessary to
    continue the rebuild of the military in excess of what the
    current cap level for defense of $576 billion would be to
    arrive at a number of $750 billion when you also factor in $9
    billion in military construction funding.
        Our view is that we need to move away from the types of 2-
    year caps deals that are largely unpaid for in which we
    increase spending for nondefense discretionary spending, and
    the current paradigm is to have $1 of nondefense spending
    increase for every $1 of defense spending increase. We believe
    that paradigm needs to go in a different direction.
        We believe that it is important that we actually make
    choices. We are now in a time of $22 trillion in national debt,
    trillion-dollar deficits. We need to be able to say to the
    American people we can afford to continue to spend money on the
    military and rebuild it to what the Commander in-Chief believes
    is necessary to secure the country, and we are going to
    identify dollars to nondefense spending programs that we can no
    longer afford.
        We have gone through a process to identify programs that we
    believe can receive less money and still perform the functions
    that they were either set up or can be reformed.
        But it is vital from our standpoint that we move away from
    these 2-year caps deals that really do not allow us to set
    choices.
        And I just would make one last point, and I know you have
    other questions. As it pertains to the mandatory reforms that
    people often talk about that are attached to these 2-year
    deals, we have seen less and less mandatory reforms with each
    of these cap agreements since 2011. And when you look at the
    fine print, they are often not mandatory reforms that will lead
    to fundamental change of our fiscal situation. They are often
    extending user fees or extending laws that are currently set to
    expire. But they rarely have the types of reforms that actually
    lead to the lowering of the cost curves that we talk about as
    it pertains to mandatory spending.
        Chairman Enzi. Thank you. The President's budget proposal
    supports the currently authorized level of spending for the
    Highway Trust Fund through fiscal year 2020. When the Fixing
    America's Surface Transportation Act, the FAST Act, expires,
    OMB's baseline appears to reduce Highway Trust Fund spending to
    match revenue levels beginning in 2021.
        Is this a realistic assumption on the future spending for
    the Highway Trust Fund? Does the administration support any
    policy options maintaining transportation spending at FAST Act
    levels after its expiration?
        Mr. Vought. Well, let me first start by saying what a
    priority infrastructure spending is for this President. It is
    one of the reasons why we included a $200 billion investment
    into infrastructure that is not meant to just be surface
    transportation, and that is one of the reasons why it is
    considered outside of the trust fund. So this President is very
    committed to that.
        In terms of the question that you asked, we reflect current
    law with this, and so we think it is a more accurate baseline.
    That said, we do recognize that there is about a $150 billion
    shortfall in the trust fund that needs to be addressed, and we
    are willing to work with Congress along those same lines.
        Another point I would like to make on infrastructure is we
    do have less detail on our infrastructure plan this year as it
    pertains to the first two budgets. That is intentional. It is
    because we recognize that Congress had concerns with our first
    two proposals, and we want to pass a law--or we want to enact a
    law that you all are able to send us. And so we are trying to
    work with you all, and we are in wait-and-see to be able to
    identify ways that we can work with you all to be able to put a
    bill on the President's desk.
        Chairman Enzi. Thank you, and my time has almost expired,
    so I will move on to Senator Stabenow.
        Senator Stabenow. Thank you very much, Mr. Chairman. And
    welcome, Mr. Vought.
        First of all, we have a maternal and infant health crisis
    in this country. Mr. Vought, can you explain to me why the
    administration eliminates funding--eliminates funding--for more
    than half of the maternal and child health programs at the
    Health Resources and Services Administration?
        Mr. Vought. We believe that we have put forward a top line
    at Health and Human Services that will be able to fund the
    programs that we think work, that we can with a good faith
    effort say are putting resources where they can do the most
    good----
        Senator Stabenow. Okay. Let me, just in the interest of
    time, so we have seven programs zeroed out. Could you name
    those?
        Mr. Vought. I do not know which programs you are
    specifically referring to, but I would be happy to comment.
        Senator Stabenow. Sickle cell demonstration program, autism
    and other developmental disorders, heritable disorders,
    universal newborn hearing screening, emergency medical services
    for children, pediatric mental health care access grants,
    screenings and treatment for maternal depression. This
    category, seven programs, has a subtotal of $144 million. And I
    am wondering, do you know where the U.S. stands in infant
    mortality rates among the top 35 wealthiest countries?
        Mr. Vought. I do not have that fact in front of me.
        Senator Stabenow. 32. 32. Only Mexico, Turkey, and Chile
    are worse than the United States of America, and you are
    proposing to cut more than half of the maternal andchild health
    programs when we have a crisis for moms and babies.
        We are also one of only 13 countries in the world where the
    rate of maternal mortality is worse than it was 25 years ago.
    Is that acceptable?
        Mr. Vought. One of the things that we find unacceptable,
    Senator, is the fact that with a $1 trillion deficit and $22
    trillion in debt, that when it comes to identifying programs
    that we believe we can look and move away from----
        Senator Stabenow. You are not seriously saying that money
    is more important than the lives of babies and moms? Is that
    what I am telling--that is what you are telling me, that----
        Mr. Vought. Absolutely no, Senator----
        Senator Stabenow [continuing]. Screening and treatment for
    maternal--that pediatric mental health care, autism, that these
    things are less important in your eyes than, frankly, the
    Republican tax cut that passed last year that really created
    the deficit?
        Mr. Vought. I am saying that when we look at budgets and
    when we try to identify which programs work and we eliminate
    programs, it is done because we do not think that they are
    effective.
        Senator Stabenow. So you believe these programs are not
    effective? I would like a follow-up from you, an analysis on
    each of these seven programs and what is not effective.
        Mr. Vought. I am happy to work----
        Senator Stabenow. Let me go on, because it is even worse
    when you look at the President's Medicaid cuts, $1.2 trillion--
    $1.2 trillion, that is a lot of zeroes. And I am wondering if
    you are aware that Medicaid covers nearly half of all the
    births in our country.
        Mr. Vought. I am aware of that.
        Senator Stabenow. Okay. These cuts would be catastrophic,
    and to top it off, the budget doubles down on harmful policies
    to expand junk insurance plans and take away coverage for
    preexisting conditions by eliminating the Affordable Care Act.
    And I just want to note that, prior to the Affordable Care Act,
    three out of four health plans in the non-group insurance plans
    did not cover delivery and inpatient maternity care. I fought
    very hard and got that included as a member of the Finance
    Committee, and so now it is covered, until recently, with the
    new junk plans, where none of them cover maternity care. So
    talk about a double whammy on moms and babies--moms and
    babies--at a time when we are 32nd among the wealthiest
    countries in the world, and we have this outrageous budget in
    front of us.
        So the administration may claim to care about women and
    children's health. There is no way, obviously, that that is
    true.
        So let me just say also that, with the time left, Mr.
    Chairman, I am not even sure where to go with Medicare cuts,
    Medicaid cuts, what you are doing to our Great Lakes, which is
    90 percent of the country's fresh water, eliminating 90 percent
    of the support for that.
        When I look at agriculture, when we just passed a farm bill
    with the largest bipartisan vote in the history of the country,
    it was a great bipartisan effort, and your budget cuts 31
    percent of the agriculture programs, the rural development for
    small towns, and food programs in addition to 15 percent of the
    USDA budget to implement programs. I do not even know where--I
    do not even know where to begin with all of this. I would
    suggest that we throw it out the window, Mr. Chairman.
        Thank you very much.
        Chairman Enzi. Would you like a chance to respond?
        Mr. Vought. Yeah, just briefly. I just want to say that we
    do not cut Medicaid in this budget. We do not cut Medicare in
    this budget.
        Senator Stabenow. Please.
        Mr. Vought. I am happy to walk you through the numbers,
    Senator.
        Senator Stabenow. You are happy to walk----
        Mr. Vought. There is one point--I know that you think there
    is $1.4 trillion in Medicaid reductions. We then provide money
    in the form of State health block grants consistent with the
    Graham-Cassidy approach to repealing and replacing Medicare.
        Senator Stabenow. Right.
        Mr. Vought. That leads to only 271 savings in Medicaid in
    the State health care block grant. Those two line items will
    continue to increase each and every year, and as a result, we
    do not--we are not cutting Medicaid or those programs. We think
    that we are actually reforming it to be able to address the
    populations that Medicaid was founded----
        Senator Stabenow. You are putting block grants in place
    that are----
        Chairman Enzi. Senator Perdue.
        Senator Stabenow [continuing]. Not required to even be used
    on health care----
        Senator Perdue. Thank you, Mr. Chairman----
        Senator Stabenow [continuing]. So we have a bigger debate.
        Thank you, Mr. Chairman.
        Chairman Enzi. Senator Perdue.
        Senator Perdue. You know, I find this really interesting.
    You know, in 2000--let's just talk about the realities here,
    instead of the emotion. In 2000, this Government had $6
    trillion of debt. At the end of President Bush's 8 years, we
    had $10 trillion of debt. At the end of 2016--we know what
    doesn't work because we had 8 years of the lowest economic
    output in U.S. history. We had added more debt as a Government
    than all prior Presidents before. We doubled the debt in 8
    years. And now we want to hide behind the tax bill that made
    our corporations more competitive with the rest of the world,
    created 5 million jobs over the last 2 years, eliminated this
    outrageous--the only country in the world that still had a
    repatriation tax to free up some $2 or $3 trillion to get back
    and invest in American manufacturing again, and the CBO said if
    you grew the economy less than half a percent--I think it was
    0.4 percent--it more than paid for it. Well, we are doing more
    than that. It has grown over 3.1 percent in the latest quarter.
        If you look at the last year, we have got the highest
    median income in U.S. history, lowest unemployment in about 50
    years. There is no question we know what didn't work for 8
    years and what is beginning to work now.
        Here is the problem: Right now we have a $1.1 trillion
    deficit. That did not start this year or last year. The problem
    is we spend--discretionary is $1.4 trillion. If I understand
    this right, in 2020, mandatory is about two point--and here
    comes the punchline. Because of the $22 trillion of debt,
    interest goes up over $100 billion just in 2 short years. By
    2023 or 2024, you are saying we will spend more on interest
    than we do on the military at current interest rates.
        The problem is right now we have about--we subsidize--this
    is the crisis that we are facing here. Nobody wants to talk
    about it. We are losing the right to do the right thing.
    Everybody wants to do everything that everybody wants to do.
    The problem is--and I have a question coming here real quick,
    but I want to set this ground. Social Security right now is
    bankrupt. That trust fund was never supposed to go to zero. It
    goes to zero in 12 years by CBO's estimate, not my estimate.
    Medicare goes to zero in 8 short years. These things have to be
    saved. Medicare right now--Medicaid, we are paying that out
    right now at the level of $400 billion a year. So right now we
    have got a $1 trillion issue right there that can be solved.
    Both sides have solutions on it. I think there are compromises
    that we can do.
        My question here is: Given the reality that discretionary
    spending is lower now than it was in 2009, and it is actually
    where it was back in the 1960s, and that discretionary spending
    as a percentage of GDP has been declining for the last 50 years
    except for a few blips. We know the problem over the next 20
    years is all in mandatory. Is this budget that we are looking
    at a first step toward a long-term plan of dealing with
    something that neither side has wanted to deal with here for
    the last 20 years? And that is the explosive crisis and the
    fact that Social Security and Medicare will--those trust funds
    are going to go to zero. At that point I would like to see
    people on both sides of the aisle talk about how they are going
    to explain to their constituents they can't pay out the
    benefits that we have been promising them for the last 100
    years.
        Would you address the long-term implications of how this
    budget addresses that long-term issue?
        Mr. Vought. Sure. As it pertains to mandatory spending,
    which is the money, the spending that is on autopilot each
    year, this budget proposes more mandatory spending savings
    reductions than any President's budget in history other than
    the first two President's budgets of this administration. So we
    believe that for those, including this administration, that
    recognize the problems with the escalating costs on the
    mandatory side, we believe this budget is a very good-faith
    effort, quite frankly, a historic effort, to address those
    concerns.
        Our Medicare reforms push out the trust fund expiration
    date by 8 years. Again, there is no----
        Senator Perdue. Can you say that again?
        Mr. Vought. Our Medicare reforms in here that provide
    savings to lower seniors' drug pricing costs and attempts to
    make other program integrity reforms, they push out the
    expiration data of the Medicare trust fund by 8 years.
        Senator Perdue. That means the trust fund--well, you have
    extended by 8 years the crisis that I just mentioned.
        Mr. Vought. Correct.
        Senator Perdue. To your knowledge, did any budget presented
    by President Obama attempt to do that?
        Mr. Vought. I do not recall what his----
        Senator Perdue. I can't find it----
        Mr. Vought [continuing]. Expiration dates were. He did
    include many of the same mandatory reforms as it pertains to
    Medicare that is causing concern on this side of the aisle.
        Senator Perdue. Yes. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Wyden.
        Senator Wyden. Thank you, Mr. Chairman.
        Mr. Vought, I will tell you, when I look at your budget, it
    offers up almost an inexhaustible supply of bad ideas for
    working families, for seniors, for the vulnerable. And as the
    ranking Democrat on the tax-writing Finance Committee, I know
    that many of these ideas are paid for, certainly in part,
    through borrowed dollars that were generated by a tax bill
    stacked in favor of the 1 percent.
        And just so we are clear on this point, Mr. Vought,Graham-
    Cassidy, which you touted, tanked in the Senate Finance Committee
    because Republicans saw that it hurt so many vulnerable people, they
    could not even bring it up. So you are recycling a proposal that was
    already exposed as a mess for the vulnerable, as evidenced by the fact
    that Republicans in the Senate Finance Committee, where I and Senator
    Whitehouse and, in fact, Senator Enzi, we all serve, Republicans could
    not even bring it up.
        Here is my question. One of your particularly ill advised
    ideas that affects my part of the world is to once again try to
    sell off the Bonneville Power Administration. Now, this is a
    plan that basically steals from Oregonians, from our
    businesses, from our families. It was unacceptable when George
    Bush tried to do it. It has been unacceptable year after year
    after year. And yet you still seem to be hunting and pecking
    for a way to advance this idea that would be so harmful to the
    American people. And the people it is going to hurt are the
    folks who are on an economic tightrope. They balance their food
    against their fuel and their fuel against their medical care.
        Could you just explain to me--because I am going to have
    town hall meetings Friday. I am going to basically be flying
    most of the night to get home to small communities in rural
    Oregon where Bonneville Power is enormously important. Can you
    tell me how the administration's proposal to sell off
    Bonneville Power will be in the best interests of families in
    rural Oregon where I am going to be in less than 48 hours?
        Mr. Vought. Sure. As you noted, we do propose to sell the
    transmission lines and the many electrical assets of the
    Bonneville Power Administration. Most of the electricity
    generation, transmission lines across this country are owned
    currently by the private sector. We believe that that can work
    in this situation as well and that from the standpoint of
    Federal taxpayers, including the people of Oregon, that they
    can benefit from $5.7 billion that is reducing the deficit and
    allowing us to save some money so that we do not have to make
    reductions elsewhere.
        So from the standpoint of your constituents, we do not
    think that there is going to be adverse impact, and we want to
    move away from the fact that when the private sector is not in
    charge of being able to make capital investments without the
    Federal Government being backing behind that, it is not the
    most efficient allocation of resources. And that is what we are
    trying to move away from in this budget.
        Senator Wyden. Well, you finally exposed the heart of this
    ideological agenda. We have not actually had somebody do that
    as far as I can remember. You used the word ``privatize.'' What
    your agenda now--and I will make sure that folks in rural
    Oregon know about that this weekend. Your agenda is to
    privatize Bonneville. I have not even heard other conservatives
    say that. They have talked about market-oriented reforms. But
    you have said you wanted to privatize it.
        I will tell you, this is a loser. It is a loser for the
    families I represent. Senator Murray, my seat mate from
    Washington State, very much shares the view. And I will just
    wrap up by giving you extra points for candor, because you are
    going somewhere where the far right has not really gone, and
    that is to, in effect, say you are for thorough privatization
    of Bonneville Power. And I guarantee you that is going to hurt
    a lot of people in our part of the world, and I hope you will
    rethink it.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Scott.
        Senator Scott. First off, Mr. Vought, thank you for your
    hard work. I started 8 years ago as Governor with a $4 billion
    budget deficit and a prior administration that had raised
    taxes, increased debt, and made it very difficult. We lost jobs
    and our economy was down. And so I know how difficult it is to
    allocate dollars and try to get a return on all the dollars
    that Government spends. I went through a lot of this. I think
    in Florida we had about 4,000 lines to our budget, and we were
    trying to get a return on each item.
        One of the things that is important to me in your budget
    that surprised me, though, was the dike at Lake Okeechobee, a
    Federal project. I had to put up State money even though it was
    a Federal project to try to push it along to get it done. It
    was causing harmful algae blooms in local waterways. And we
    worked with Congress and President Trump to get the funding
    last year to finish the dike by 2022.
        Congress has been spending over $200 million on Everglades
    restoration, and Senator Rubio and I requested $200 million
    this year. The Federal Government, going back 25 or 30 years
    ago, committed to be a partner with us in Everglades
    restoration. They have not been. They are about $2 billion
    behind us. But rather than $200 million, you funded the South
    Florida Ecosystem Restoration at $63 million. Can you explain
    why and the thought process behind this? Have you looked at
    this and do you think your position is going to change?
        Mr. Vought. Thank you for the question, Senator. As it
    pertains to the Army Corps and the Everglades restoration, it
    is certainly a priority of this administration. If you look at
    our budget, the amount that we provide for that important work
    is the most that weprovide for any ecosystem project in the
    country. We think it reflects well on what we think about that project.
        Also, we are also cognizant that Florida has received $1.6
    billion when you add up all the disaster money that is in the
    circulation as well. We set a top line for Army Corps that
    caused us to make tradeoffs. We have some overall concerns with
    the pace of work at Army Corps, and we want to be able to
    ensure that they work on the stuff that is already in--the
    projects that are already in the pipeline. But we are certainly
    willing to work with you on an ongoing basis, and we do
    recognize that Congress provided more money than we would have
    liked in the Army Corps budget during the appropriations
    process, and that as a result last year the Everglades project
    went higher than what we proposed in the budget and ended up at
    $100 million.
        So we will certainly work with you if Congress appropriates
    more than our budget and working through that important work.
    And I know that you have had many conversations with the
    President about the important work of restoring the Everglades,
    and you know that we have stood by the commitments we have made
    with regard to those projects.
        Senator Scott. And the dike money that was appropriated
    last year, there is no interest in trying to redirect any of
    that. Is that right?
        Mr. Vought. I am not aware of that idea, but I am happy to
    work with you and talk with about it further.
        Senator Scott. Okay. It is significant, because, you know,
    if we have any significant rainfall, the Corps has said they
    have to discharge water to make sure they do not have a break
    in the dike, and so I just want to make sure. We have put a lot
    of effort in 8 years to try to get the dike funded, and I do
    not want it to change. I am still disappointed that there is
    not more money for Everglades restoration.
        Mr. Vought. Understood.
        Senator Scott. But thanks for your hard work, and I know
    having to do something similar for 8 years, it is very
    difficult to allocate the dollars.
        Mr. Vought. Thank you.
        Chairman Enzi. Senator Kaine.
        Senator Kaine. Thank you, Mr. Chair, and thanks to the
    witness.
        The claim that the President is interested in fiscal
    responsibility is sort of undercut by the fact that this budget
    does not reach balance until year 15. We have been in a track
    record here where Presidents of both parties have been
    submitting budgets that try to hit balance within 10 years,
    whether or not we get there or not. So the President saying,
    ``Well, we will hit balance within year 15,'' completely
    undercuts the pretense to fiscal responsibility.
        I want to ask you about funding on education. Page 135 in
    the budget blueprint suggests that the congressional
    appropriation in fiscal year 2019 was $70.5 billion in the
    education accounts, and in 2020 the President's request is $62
    billion, a reduction of $8.5 billion, a 12-percent cut. Are we
    just spending too much money on education?
        Mr. Vought. We believe that it is important to identify
    programs that work and programs that do not work.
        Senator Kaine. Which do not work?
        Mr. Vought. Well, for instance, we look at the 21st century
    community center program. It is about a billion and a half,
    $1.2 billion program. We look at the evidence, and we find that
    students only stay for about 30 days in the program, and the
    majority of them do not improve at all in reading or math.
        Senator Kaine. So you propose to eliminate that?
        Mr. Vought. We do.
        Senator Kaine. And what other programs do you think we
    should not spend money on?
        Mr. Vought. We propose to eliminate large block grants as
    it pertains to teacher development because the amount of money
    is so diffuse that it does not lead to results. We propose to
    eliminate the Title IV block grant because, again, it ends up
    being a transfer to schools and localities in which we--the
    amount, the dollars, ends up being $30,000 per school district,
    and it does not lead to achievable results for students.
        But that said, our vision of education spending, Senator,
    also is reflected in the fact that we have $50 billion----
        Senator Kaine. Yeah, let me come to that. I want to ask
    about that now. I think it is interesting. The overall cut to
    education is $8.5 billion. It is a 12-percent cut. Some of the
    programs you mentioned you do not think they are valuable. Your
    Secretary, who is not a champion of public education, does not
    think they are valuable, but public educators actually do think
    they are valuable.
        But you do something very interesting. You have an
    Education Freedom Scholarship, so you are cutting $8.5 billion
    a year out of public education money, and you are promoting $5
    billion a year as a tax credit for individuals or corporations
    that want to give money for private school vouchers. I want to
    talk about that one for a minute, the tax credit, and I believe
    it is a dollar-for-dollar tax credit.
        Right now, if I want to write a charitable contribution to
    one of the schools, a good private school, so they can help
    kids afford to go there, I get a tax deduction. I have to be
    generous. But then I get a benefit from the Tax Code by being
    generous--not a dollar-for-dollar benefit, but abenefit. And I
    get that benefit if I write a contribution to a public school, to my
    Jesuit Catholic high school, to a private school that would be
    interested in vouchers.
        We have an across-the-board policy as long as it is an
    educational institution that is a 501(c)(3) if I contribute--I
    do have to put a little skin in the game. I have to show that I
    am generous. But then the Federal Government will give me a tax
    deduction.
        I am not aware of other big programs of this kind where you
    do not get the tax deduction but you get a dollar-for dollar
    tax credit. If you get a tax credit, it means I do not have to
    be generous at all. I contribute a dollar, and then I get to
    reduce my tax liability by a dollar, so I do not have to be
    generous at all. You have completely removed generosity from
    the equation. And I think it is interesting that the proposal
    would suggest that we would prefer contributions to private
    school voucher programs and put those in a preferred place to
    any other educational contribution. Giving to my local K-12
    school does not get a tax credit. Giving to a public or private
    college or community college does not get a tax credit. Giving
    to a parish, a parochial school does not get a tax credit. You
    only get a tax credit if you are supporting vouchers.
        What evidence, since you are interested in evidence, what
    evidence makes you conclude that private school vouchers should
    be educationally preferred from a tax standpoint over any other
    form of education that is offered in this country?
        Mr. Vought. Well, first of all, the tax credits would be
    able to be used for public school choice and private school
    choice. They would be designed at the State level. They would
    be able to not just go to private schools.
        That said, we think that parents and families have a say in
    which are the effective schools in their communities. We think
    that they vote with their feet, or we would like them to be
    able to vote with their feet and be able to have the resources
    that are necessary to have scholarships available and to be
    able to make those decisions for themselves. That is a vision
    difference that we believe is reflected in this budget in that
    we want parents and families and local communities to have more
    of a say in how their children are educated than the Federal
    Government doing that.
        Senator Kaine. I think that is a significant philosophical
    difference to elevate one form of education with a tax credit
    that eliminates the need to be generous. If you get a tax
    credit dollar for dollar, you do not have to put any skin in
    the game. And to say that private schools that offer voucher
    programs are such that they should be preferred in that way
    when you do not get that tax credit for contributing to your
    local public school or your university strikes me as exactly
    the wrong way to go.
        Thank you, Mr. Chair.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman. Thank you for
    being here, Mr. Vought.
        I assume in your job, Mr. Vought, you receive a salary?
        Mr. Vought. I do.
        Senator Kennedy. And your family has a fixed amount of
    income every year?
        Mr. Vought. We do.
        Senator Kennedy. How long would your family last
    financially if every month you just charged more and more to
    your credit cards and paid the minimum?
        Mr. Vought. We would face ruin financially because at some
    point people would start to collect on what we would owe them,
    and we would not be able to pay those bills, and they would
    come asking for our house.
        Senator Kennedy. Well, I mean, at some point the amount of
    interest that you would be paying on the credit card would take
    up most of your disposable income, would it not?
        Mr. Vought. It would.
        Senator Kennedy. The Federal Government is kind of in that
    shape right now, aren't we?
        Mr. Vought. We are.
        Senator Kennedy. I saw a statistic the other day that we
    borrow $1 million a minute, $1.4 billion a day. Since we have
    been talking, we just borrowed $2 million to run this place. I
    want to thank you for trying to save taxpayer money.
        We have a legislative auditor in Louisiana who goes in and
    does an audit of all of the State programs. Our auditor did an
    audit of our Medicaid program. I will read you the incomes of
    some of the people on Medicaid in Louisiana that he found:
    Recipient No. 1 on Medicaid makes $155,840. Recipient No. 3
    makes $311,069.
        Here is an oldie but a goodie: Recipient 13 makes $390,968.
    Recipient No. 8 makes $124,227.
        You know what happened to those people? Nothing.
        Mr. Vought. Nothing.
        Senator Kennedy. Nothing. And you are a mean old man for
    trying to save taxpayer money.
        Do you believe that there is a single, solitary, fair
    minded person in America who did not just parachute in from
    another planet who does not believe there is waste in the
    Federal budget?
        Mr. Vought. I have yet to meet one of the average-day
    Americans.
        Senator Kennedy. And it is their money. I mean, you can
    laugh if you want, but it is inappropriate.
        I want to ask you about an article I read. Are you familiar
    with the expression ``Use-it or lose-it spending''?
        Mr. Vought. I am.
        Senator Kennedy. What does that mean?
        Mr. Vought. It is, some would say, a practice in which if
    you are at the end of the fiscal year and your spending is
    going to lapse, there is an incentive to spend that money so
    that you do not have it sitting as an unobligated balance that
    would then cause us when we write budgets to say you do not
    need additional money the next year.
        Senator Kennedy. Are you aware that at the end of last
    fiscal year the Department of Defense at the last minute spent
    $4.6 million on lobster tail and crab?
        Mr. Vought. I am aware of that report, and we are looking
    into it.
        Senator Kennedy. Somebody else bought a Wexford leather
    club chair for $9,241. Another agency spent $53,004 on china
    tableware; $673,471 on golf carts. That is a disgrace. That is
    just a disgrace.
        Do you know how much Americans spend of their hard earned
    money in America every year trying to help people less
    fortunate than they are?
        Mr. Vought. Pardon? What is your question, sir?
        Senator Kennedy. Do you know how much--sorry. I am not
    being clear. Do you know how much Americans spend of their
    hard-earned money every year, tax dollars, to help people less
    fortunate than they are?
        Mr. Vought. They are very generous. I do not have a
    specific figure.
        Senator Kennedy. Try $1 trillion. That is 12 zeroes. So I
    just think people are mistaken when they suggest that if you
    are trying to save money, that somehow makes you a cold,
    heartless person. And I wanted to thank you for your efforts to
    try to help us save taxpayer dollars.
        Mr. Vought. Thank you, Senator.
        Chairman Enzi. Senator Whitehouse.
        Senator Whitehouse. I guess it would kind of depend on what
    money you are trying to save before you could make that moral
    judgment. If you are trying to prevent a family from getting
    health insurance and at the same time trying to make sure that
    a big corporation does not pay any taxes at all, then I come
    down a little bit on the other side of Senator Kennedy, as much
    as I appreciate and share the concern about lobster tails and
    fancy china and golf carts. But I do not think we are here
    about lobster tails and fancy china and golf carts.
        Do you anticipate, Mr. Vought, any knock-on economic
    effects from cutting 31 percent of the Army Corps budget either
    generally or in the localities where projects would be ended or
    not funded?
        Mr. Vought. We have not done an assessment specifically as
    it pertains to the Army Corps. That said, we do think that----
        Senator Whitehouse. How about highways----
        Mr. Vought [continuing]. Infrastructure----
        Senator Whitehouse [continuing]. A proposed 22-percent cut
    to the highway discretionary budget? Have you done any
    estimates of what knock-on economic effect that would either
    have nationally or in the localities where major projects would
    be delayed, closed, or unfunded?
        Mr. Vought. We believe that our economic growth numbers,
    which project 3 percent growth in the years ahead, they do
    reflect the administration's policies, including infrastructure
    investment. So when we talk about a $200 billion investment in
    infrastructure----
        Senator Whitehouse. Yeah, I get that. That is like you are
    saying that is the--we put it all in there, and we spit out
    this number at the end. What I am asking you is there are a
    number attributable to the 31-percent cut in Army Corps
    spending or the 22-percent cut in highway spending that you
    propose.
        Mr. Vought. Again, I think the last figure that you talked
    about with regard to the year-over-year with the Department of
    Transportation needs some context. We had a very large----
        Senator Whitehouse. I am just asking a really simple
    question. Have you done any analysis to show what the knock-on
    economic effects are of cuts of that magnitude in those
    construction and infrastructure programs? And I do not know why
    that is such a difficult question to answer. Could you please
    give it another try?
        Mr. Vought. From a line-item perspective, we have not done
    a specific analysis as it pertains to the various reductions
    that you are referring to. That said, in totality of this
    budget and the infrastructure spending that it calls for, we do
    think that we are investing in infrastructure, and we do think
    it will lead to economic growth.
        Senator Whitehouse. I would love to have you and Candidate
    Trump debate this infrastructure number, because I think
    Candidate Trump would tear you to pieces over your
    infrastructure investment considering the promises that he made
    on the campaign. This was one of many that have evaporated
    since then.
        Let me ask you about something else. Let me ask you about
    climate change. What do you anticipate the effects are of
    climate change with respect to Department of Defense bases,
    particularly bases located near sea level risecoastal bases--
    Norfolk Naval Station and others like that I mention with Senator Kaine
    here--and operating costs?
        Mr. Vought. We do not have any assumptions along those
    lines.
        Senator Whitehouse. What do you propose in your budget
    regarding climate change with respect to domestic ports and
    infrastructure and needs through the Army Corps or other
    infrastructure development protecting our coastal ports and
    infrastructure?
        Mr. Vought. We have analyzed our investments in ports along
    the seaboard as something that is based on the need in those
    areas. We have not done it on the basis of climate change.
        Senator Whitehouse. How about the Federal Flood Insurance
    Program? Have you baked in any estimates to your Flood
    Insurance Program liability numbers that relate to climate
    change and sea level rise?
        Mr. Vought. We have not.
        Senator Whitehouse. And with respect to FEMA disaster
    dollars, have you baked into your--I know that it tends to come
    in off budget because it comes in as emergency spending. I do
    not know if you have incorporated that in your numbers. Let me
    ask you that question first.
        Mr. Vought. We have not.
        Senator Whitehouse. So it is not in there at all, emergency
    spending is not in there at all?
        Mr. Vought. No. There is emergency spending that is
    reflected in this budget. We continue to make the request for
    what is necessary----
        Senator Whitehouse. So even though it is so-called off-
    budget here in Congress, you have emergency spending in the
    President's proposed budget?
        Mr. Vought. We do. From a standpoint----
        Senator Whitehouse. And it incorporates nothing with
    respect to sea level rise and climate change?
        Mr. Vought. Correct. Our emergency spending from our
    perspective----
        Senator Whitehouse. Thank you. My time is up.
        Mr. Vought [continuing]. Is not off-budget.
        Chairman Enzi. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. Welcome, Mr.
    Vought.
        Wasteful spending would be a bad thing, regardless of what
    Federal agency it was in, right?
        Mr. Vought. Yes.
        Senator Van Hollen. Okay. And isn't it true that the
    Defense Department has been the major Federal Department that
    for years could not pass an audit or even complete an audit?
    Isn't that true?
        Mr. Vought. Not until this administration.
        Senator Van Hollen. No, but in past years. Isn't that true?
        Mr. Vought. They have not done the audit as required by
    Congress.
        Senator Van Hollen. That is right. And this year, they did
    an audit, but they did not pass the audit, right?
        Mr. Vought. They completed the audit----
        Senator Van Hollen. They completed the audit. They did not
    pass the audit, right? They realized they had a lot of work to
    do to figure out----
        Mr. Vought. They did realize they have a lot of work to do.
        Senator Van Hollen. And that did not stop you from putting
    more money into defense, did it?
        Mr. Vought. It did not.
        Senator Van Hollen. Right. So, obviously, we want to root
    out wasteful spending wherever it is, no matter what agency,
    but just because there is an increase in a budget does not mean
    that everything else in that budget is somehow wasteful.
        I also was interested in your response to Senator Stabenow.
    You said that the reasons for cuts to programs was they were
    ``not effective.'' Is that right?
        Mr. Vought. With regard to which one?
        Senator Van Hollen. Because they were ``not effective.'' I
    thought you said that----
        Mr. Vought. I did say that. I was trying to remember what
    you were referencing.
        Senator Van Hollen. Not effective. NIH investment, is that
    an effective investment for the taxpayer?
        Mr. Vought. We do think that NIH is an effective
    investment, and as a person, as a father of a child that has
    cystic fibrosis, many of the life-saving drugs that she
    benefits from have been developed based on research at NIH.
        I will also tell you that the levels that we are providing
    NIH resources at are above the fiscal year 2017 levels and
    that----
        Senator Van Hollen. That is true, Mr. Vought, and that was
    a decision made by Congress. We actually increased the Trump
    administration's proposal. You have cut it. I just hope--you
    have got to get your stories straight with the agency heads
    because I serve on the Appropriations Committee, and when we
    asked them about why programs were cut, they usually do not say
    it is because they were ineffective. They usually say that,
    ``OMB told us we had to make tradeoffs.'' That is the reason
    they give us. And I am going to follow up on Senator Stabenow's
    question. All these programs that are cut because you say they
    are ineffective, I would like the backup as well where there is
    a finding of ineffectiveness.
        Now, I have a question on the Department of Transportation.
    I see that you cut the Department of Transportation budget by
    about $5 billion for 2020. That includes cuts to the capital
    investment grants--those are a primary source of Federal
    assistance to transit programs--cutting other capital projects
    within the Department of Transportation. It is $5 billion this
    year. Since we do not have the tables yet for the out-years and
    since you are reducing the caps in the out-years for nondefense
    domestic spending, can you tell us, is it going to be a more
    than $5 billion a year cut for the Department of Transportation
    in those out-years?
        Mr. Vought. Again, I think it is important to provide
    context for the Department of Transportation's funding level.
    As you know, our first two budgets had very different levels in
    terms of what we proposed. We proposed as a result of Congress
    saying we are going to spend more, we are going to have a
    higher nondefense cap level, we wanted a significant amount of
    that to go towards infrastructure to reflect our shared
    priorities on that front. We asked for a huge investment to be
    put forward as it pertains to infrastructure in the
    discretionary side.
        Senator Van Hollen. Okay, yes.
        Mr. Vought. That is why we do not go all the way--when we
    show a reduction, we are saying we are still above the fiscal
    year----
        Senator Van Hollen. But you are not--you are--okay. I
    appreciate the commentary, but you are cutting by $5 billion
    Department of Transportation. I asked you if that cut went
    right through the 10 years of your budget. I suspect it does.
    We do not have them yet. Usually when we have a budget hearing,
    we actually get the full budget. So that would be $50 billion
    minimum. And to pick up on what Senator Enzi pointed out, when
    you look at what you did with respect to the Highway Trust
    Fund, you essentially cut it by $146 billion. Now you say you
    are just following current law, right?
        Mr. Vought. Right.
        Senator Van Hollen. Now, you did not follow current law in
    your baseline when it comes to extending the tax cuts for
    wealthy people, did you?
        Mr. Vought. No. We had a proposal.
        Senator Van Hollen. You had a proposal there. You had a
    policy proposal there, and you could have done the same exact
    thing when it came to transportation funding. So the reality
    is, when you look at your policy proposals, you are cutting
    $146 billion under the Highway Trust Fund; you are cutting
    about $50 billion at least in the Department of Transportation.
    And then you come up and say you have got a $200 billion
    infrastructure plan because the President says it is a
    priority.
        I net this out. It looks like you are underwater. It looks
    like it is net under 200. At best, you are even in terms of
    your infrastructure investments. When you add in the cuts to
    water infrastructure and your rural infrastructure programs,
    you are not even close.
        So how can you say this is a priority for the President,
    then come out with a budget that, on net, cuts infrastructure?
        Mr. Vought. Senator, we think that we have put forward a
    budget that includes significant investments. We are----
        Senator Van Hollen. You put it in one pocket, and then with
    the other hand, you take it away. So it is a great shell game,
    but the reality is, on net, your budget is cutting
    infrastructure.
        Mr. Chairman, could I have one question on Federal
    employees?
        Chairman Enzi. You have run over your time.
        Senator Van Hollen. All right. Are we going to have a
    second round for those of us who are sticking around?
        Chairman Enzi. Go ahead and ask your question.
        Senator Van Hollen. I appreciate it. So on Federal
    employees, a quick question, because it is not clear here. Your
    budget, as I see it, projects a 2.3-percent increase in the
    CPI. Is that right?
        Mr. Vought. Yes.
        Senator Van Hollen. Okay. Do you include a cost-of living
    pay increase for civilian Federal employees?
        Mr. Vought. We do not, but we have a proposal in the budget
    to ensure that performance is rewarded at Federal agencies so
    that high performance can get raises, can be retained. We think
    it is an important aspect of this budget, because when we look
    at the Federal employee surveys that come in, only about 25
    percent of workers think that their pay is any way based on
    performance. And then we also look at the fact that, overall,
    Federal employees receive more compensation than their private
    sector counterparts----
        Senator Van Hollen. As you know, Mr. Vought, that is true
    for some sectors of Federal employees. That is not true for
    lower-wage Federal employees, is it? Do you know what the
    starting wage for a TSA employee is?
        Mr. Vought. Off the top of my head, no.
        Senator Van Hollen. It is $32,000. Do you think that
    sounds--does that sound way out of whack to you?
        Mr. Vought. There is certainly a universe of individuals
    where they are underpaid and those who are overpaid.
        Senator Van Hollen. And I appreciate that. But for those
    that are underpaid, you are not giving them even a cost-of-
    living increase. In fact, you are cutting--this ismy last
    question. You are effectively cutting their pay, and here is why. You
    have a proposal in here to increase the contribution that every Federal
    employee has to give to their pension without increasing their pension
    by one penny. Isn't that true?
        Mr. Vought. We do have a proposal to balance what----
        Senator Van Hollen. No, you----
        Mr. Vought [continuing]. The employee pays along with what
    the agency pays to be able to save money.
        Senator Van Hollen. You are asking the employees, all of
    them, to put in more, right?
        Mr. Vought. They will have to put in more.
        Senator Van Hollen. And they are not getting a penny more
    in pension, right? Isn't that right?
        Mr. Vought. Not necessarily, Senator, because they could be
    eligible for----
        Senator Van Hollen. No. For the money they put in, they are
    not getting any additional----
        Mr. Vought. True, but in terms of----
        Senator Van Hollen. So when you are taking money out of a
    current paycheck and not providing any increased retirement
    benefit, that is a pay cut, pure and simple.
        Mr. Vought. If they are high performers, they can be
    eligible for bonuses and incentive payments.
        Senator Van Hollen. But if you are a $32,000-a-year
    starting TSA employee, you are getting a pay cut.
        Thank you, Mr. Chairman.
        Chairman Enzi. Yes, you used up a second turn as well.
        Senator Sanders.
        Senator Sanders. Thank you, Mr. Chairman.
        Mr. Vought, when your budget or the President's budget
    proposes $1.5 trillion in cuts to Medicaid and $845 billion
    cuts to Medicare, when you propose that, you obviously studied
    how many people would die as a result of lack of access to
    health care. What conclusion did you reach? How many thousands
    of people do you think will die because of massive cuts to
    Medicare and Medicaid?
        Mr. Vought. Senator, those numbers that you cited are not
    accurate. We do not cut Medicare by $850 billion. What that
    does not account for is the fact that we take things outside of
    Medicare such as uncompensated care to non-Medicare
    beneficiaries. We move that outside of Medicare. We are going
    to still spend money on uncompensated care for non-Medicare
    beneficiaries. But when you adjust for the things where we put
    it back in other parts of the budget, there is, A, no cut at
    all because Medicare is going up each and every year, and also
    there is 517 in savings instead of the number that you cited.
    And there is a similar story----
        Senator Sanders. Well, it is going up every year in nominal
    dollars. I understand that. But you will concede that health
    care inflation is higher than general inflation. So if you are
    not even keeping up with health care inflation, it, in fact, is
    a real health care cut. I mentioned earlier the very alarming
    concern that hospitals have about the devastation these cuts
    will do for senior citizens. And when you cut a trillion and a
    half--you are also not including in your calculations the fact
    that there are more people who will be in the Medicare program.
    I suspect Medicaid, despite the administration's effort, will
    continue to expand.
        But you did not answer my question. There are studies out
    there that would suggest that many thousands of Americans die
    every single year because they do not get to a doctor when they
    should. Did you in your calculations about massive cuts to
    Medicare and Medicaid come up with any numbers as to how many
    Americans will die or maybe get sicker because they do not have
    the health care that they need?
        Mr. Vought. We do not think any of those scenarios will
    result. In fact, we look at the current situation, and we look
    at a tragic scenario where a young boy in 2007, 2008, Deamonte
    Driver, died because of the fact that he had a toothache
    because of the wait lines----
        Senator Sanders. That is right.
        Mr. Vought [continuing]. Within Medicaid, and we say that
    is a fundamentally broken system. We want a different system.
    We want States to have more control over----
        Senator Sanders. With less money. You want to throw--look,
    you know, this President tried to throw millions of people off
    of Medicaid. Giving a block grant to a State with less money
    means massive cuts in Medicaid. Let us be honest about what you
    are doing.
        Let me ask you this question: President Trump campaigned
    about not cutting Medicare, not cutting Medicaid, and he is
    making massive cuts to Medicare and Medicaid. What should the
    American people think about that?
        Mr. Vought. This budget's title is ``Promises Kept,
    Taxpayers First,'' and it is for a specific reason. The
    President kept his promises to the American people in this
    budget. We do not cut Medicare, we do not cut Social Security,
    and we do not cut Medicaid.
        Senator Sanders. All right. I would respectfully suggest
    that is a dishonest answer. I think that is absolutely
    inaccurate. It is unfactual. And you will have to explain to
    somebody, not to me, why the hospitals in this country are
    scared to death about the impact that your budget and President
    Trump's budget will have on them.
        Please tell me why it is a good idea to extend tax breaks
    for the wealthiest people in this country who are already doing
    phenomenally well and then cut back on theability of kids to
    get a college education or senior citizens in this country to stay warm
    in the wintertime. What is your logic about that one?
        Mr. Vought. We think it is important that families be able
    to keep more of what is their own money, that the philosophical
    difference----
        Senator Sanders. What percentage--the tax breaks that you
    guys passed last year, 83 percent of those benefits went to the
    top 1 percent. In fact, millions of Americans paid more in
    taxes. So what you are doing here is giving tax breaks to the
    wealthiest people who are doing phenomenally well. Then you are
    cutting back on education, making it harder for kids to get a
    college education. You are cutting back on nutrition programs.
    Do you really not have a conscience? Do you know that people
    all over this country, children, seniors----
        Mr. Vought. We are not cutting back on nutrition programs.
        Senator Sanders. Oh, you are not cutting back on the SNAP
    program?
        Mr. Vought. We have reforms in the SNAP----
        Senator Sanders. Oh, reforms.
        Mr. Vought. Work requirement, a harvest box. We are not----
        Senator Sanders. How much are you cutting back on these
    programs?
        Mr. Vought. We have about $200 billion in savings from----
        Senator Sanders. Oh, savings. I see. To listen to these
    hearings, fellow Americans, you need to get a dictionary.
    ``Savings''' means ``cuts.'' ``Reform'' means ``massive cuts.''
        Let us be clear what this budget is. This is a budget that
    benefits wealthy campaign contributors. This is a budget that
    goes to war against the working families of this country. This
    really is, in fact, a disgraceful budget, and I am happy to say
    that there are going to be very few people, even Republicans,
    who will vote for this terrible budget.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you. And I want to thank the witness
    for being here to testify.
        Again, I would mention that you have to go through this
    even though we just consider a President's budget to be
    suggestions. We hold the purse strings. We have to make the
    decisions. And your input has been helpful, and I thank you for
    coming.
        Mr. Vought. Thank you, Mr. Chairman.
        Chairman Enzi. There is an opportunity for those Senators
    that were at other places to submit questions that I hope you
    will answer promptly. They have to have them in by tomorrow
    night at 5:00 p.m., and so any additional questions can be
    submitted.
        Thank you. Adjourned.
        [Whereupon, at 3:44 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

           THE DEPARTMENT OF DEFENSE FISCAL YEAR 2020 BUDGET REQUEST

                                  ----------

                             TUESDAY, APRIL 9, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 3:00 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Perdue, Braun, Scott,
    Kennedy, Wyden, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Ethan Rosenkranz, Minority Senior Budget Analyst
    for National Defense.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. Good afternoon, and welcome to the Senate
    Budget Committee's hearing on the Department of Defense budget
    request for fiscal year 2020.
        We are joined by David Norquist, who is the Comptroller and
    Chief Financial Officer of the Department of Defense. Today he
    is also performing the duties of the Deputy Secretary of
    Defense.
        Before we hear from our witness, let me first emphasize
    that there is no greater duty than defending our Nation from
    the threats that face us abroad. But one of the gravest threats
    to our country is our growing fiscal imbalance, which, if left
    unaddressed, could have long-term implications for our ability
    to provide adequately for our national defense.
        Our national debt stands at more than $22 trillion. The
    Congressional Budget Office projects that if current laws
    remain unchanged, deficits in excess of $1 trillion will return
    by 2022, establishing a new norm, much of it caused by
    mandatory spending. Lawmakers have known this day was coming
    for a long time as an aging population and rising health care
    and interest costs have put more pressure on the Federal
    budget. Getting a handle on our fiscal situation means that all
    aspects of the Federal budget must be carefully scrutinized,
    including defense spending.
        This Committee recently heard from the Acting Director of
    the Office of Management and Budget on the President's fiscal
    year 2020 budget request. As part of the request for $750
    billion in defense spending, the administration proposes a
    large increase in overseas contingency operations funding,
    which, as my colleagues know, is not constrained by statutory
    budget caps. I look forward to learning more from our witness
    about this request and how the Department determined the total
    level of resources necessary for national defense activities.
        Recently, the Senate Budget Committee reported out its
    fiscal year 2020 budget resolution, which adheres to the Budget
    Control Act caps for fiscal year 2020 and 2021, as required by
    law, and includes $67 billion in funding for overseas
    contingency operations in fiscal year 2020. Our budget
    acknowledges the looming funding cliff between the fiscal year
    2019 spending levels and the fiscal year 2020 statutory cap
    levels. Given the likelihood that Congress will act to raise
    the statutory caps, as it has three times previously, our
    budget does include provisions to accommodate a fiscally
    responsible cap agreement to provide additional defense
    resources up to $750 billion, the spending total requested by
    the President.
        As I have mentioned before, any such deal must include
    permanent mandatory spending reforms as offsets. I also believe
    cap negotiations should base funding decisions on actual needs,
    not on an arbitrary insistence on parity between defense and
    nondefense spending. I understand the budget request before us
    today aims to ensure the readiness of our armed forces, support
    technological innovation to help reach and maintain a military
    advantage, invest in cyber and space capabilities, and instill
    greater business performance and accountability enterprisewide.
    I welcome discussion on these priorities.
        As a Senator representing Wyoming and the F.E. Warren Air
    Force Base, one of only three strategic missile bases located
    inside the United States, I remain concerned about the state
    and future of our nuclear triad and strategic missile
    deterrent. I look forward to discussing the status and future
    of these issues this afternoon.
        Last year, this Committee heard from our witness about the
    status and outlook for the Pentagon's departmentwide
    consolidated audit. While not resulting in a clean opinion, I
    am pleased the Department completed its first ever
    departmentwide audit in fiscal year 2018. Our Committee would
    like an update on the status and timeline for when Congress can
    expect a clean audit. I will also ask for an update on the
    efforts to fix issues discovered during the audit related to
    security modernization and interoperability issues with the
    Department's financial tracking information technology
    programs.
        It is my hope that the lessons that are learned from the
    audit will translate into improved business operations and
    financial management, better fiscal decisionmaking, and more
    effective and efficient operations.
        Congress has a duty to our brave servicemen and -women as
    well as hardworking taxpayers to ensure that the hundreds of
    billions of dollars appropriated annually to provide for our
    defense is well spent.
        I thank our witness for joining us today and look forward
    to continuing our discussion.
        Senator Sanders will not be able to be here. Since there is
    no one else from that side present, we will go ahead and go to
    the testimony of the witness.
        As I mentioned, our witness this afternoon is David
    Norquist, who is the Comptroller and Chief Financial Officer
    for the Department of Defense, and today he is performing the
    duties of the Deputy Secretary of Defense. Mr. Norquist was
    sworn in as the Under Secretary of Defense (Comptroller) and
    Chief Financial Officer on June 2, 2017, and serves as the
    principal adviser to the Secretary of Defense on all budgetary
    and financial matters, including the development and execution
    of the Department's annual budget of more than $680 billion. We
    appreciate your work and look forward to receiving your
    testimony on the Department's budget request for fiscal year
    2020.
        For the information of colleagues, Mr. Norquist will take
    up to 7 minutes for his opening statement, and that will be
    followed by questions under the usual procedure.
        Mr. Norquist.

     STATEMENT OF THE HONORABLE DAVID L. NORQUIST, PERFORMING THE
     DUTIES OF THE DEPUTY SECRETARY OF DEFENSE, UNDER SECRETARY OF
        DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S.
                         DEPARTMENT OF DEFENSE

        Mr. Norquist. Thank you, Mr. Chairman.
        Chairman Enzi, distinguished members of the Committee, I
    appreciate the opportunity to testify in support of the
    President's fiscal year 2020 budget request for the Department
    of Defense.
        I would like to note that this is not my first time in
    front of this Committee. Last year I testified on the DOD's
    first departmentwide full-scope financial statement audit, and
    I would be more than happy to answer any questions you might
    have. We have since completed that audit and have already
    initiated our second.
        I would like to also thank the members of this Committee
    for your support for the Department of Defense. I look forward
    to working with you to ensure the men and women of the Armed
    Forces have the resources they need to execute their mission.
        The fiscal year 2020 defense budget is a strategy-driven
    budget. As described by the National Defense Strategy, the
    erosion of our competitive edge against China and Russia
    continues to be DOD's ``central problem,'' and to preserve
    peace we must be prepared for the high-end fight against near-
    peer competitors. While counterterrorism will continue as a
    core challenge, in the future, conventional conflicts with
    other nations will likely be radically different than the short
    conventional wars we have fought since the collapse of the
    Soviet Union.
        The world has changed dramatically since then. After the
    first Gulf War, the United States reduced defense investments
    and restructured its military to fight violent extremist
    organizations, while China and Russia studied the capabilities
    that gave the United States overmatch in Desert Storm and built
    militaries to counter them, dramatically reducing our
    advantage.
        In recent years, China has fielded its first aircraft
    carrier; demonstrated the ability to shoot down satellites;
    continued to field short-, medium-, and long-range missiles;
    successfully tested hypersonic glide vehicles; and modernized
    and expanded its nuclear capabilities.
        As these developments indicate, wars of the future will be
    waged not just on the land, in the air, and at sea, but also in
    space and cyberspace. For example, we must anticipate
    multidimensional attacks not just against our military forces,
    but on critical infrastructure at home.
        In order to deter these future conflicts, we need a
    military capable of winning them. The National Defense Strategy
    is our road map to get there.
        At the beginning of 2017, the Department had suffered from
    unstable budgets and devastating sequestration cuts that had
    eroded readiness and exacerbated our challenges. Over the past
    2 years, this administration, with Congress' support, has made
    investments to undo this damage, and we are already seeing
    significant benefits to readiness across the military services.
    As we move forward, we must work together to protect these
    gains while building a military to meet the challenges of the
    future.
        The President's 2020 budget request, $750 billion for
    national security, with $718 billion for the Department of
    Defense, executes the NDS by increasing our investment in four
    areas: first, sustaining our force and building on our
    readiness gains; second, modernizing capabilities in the air,
    maritime, and land domains, including $14 billion to modernize
    and recapitalize all three legs of our nuclear triad, and $13.6
    billion for missile defense; third, developing our emerging
    space and cyber warfighting domains to include increasing our
    investment in space by 15 percent and in cyber by 10 percent;
    and, fourth, accelerating innovation and technology such as
    artificial intelligence, hypersonics, autonomy, and directed
    energy.
        It is the largest RDT&E request in 70 years, the largest
    ship-building request in 20 years. It includes a 3.1-percent
    military pay raise, the largest in a decade, and it increases
    our total end-strength by roughly 7,700 servicemembers--all
    this with defense spending remaining near a record low of 3.1
    percent of GDP, down from 4.5 percent in 2010, and at 15
    percent of the Federal budget, down from 21 percent in 2007.
        The stakes are clear. If we want peace, our adversaries
    need to know there is no path to victory through fighting us.
    Military superiority is not a birthright. Each generation must
    actively sustain it. I appreciate your support, and I look
    forward to answering your questions.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Norquist follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you. We appreciate you being here, and
    now we will turn to questions, and we will do that in the usual
    format of those who were here at the sound of the gavel, but
    alternating between the two sides. And I will defer my
    questions until later because I will be here for the whole
    hearing.
        Senator Perdue.
        Senator Perdue. Well, thank you, Mr. Chairman, and I guess
    Mr. Secretary today. Thank you for being here again.
        First of all, I want to call out that under your--some of
    your predecessors had told this Committee over the last few
    years that an audit was virtually impossible because they did
    not have the system, it was too large, it was too complex, and,
    therefore, that was why over 30 years we have not had a DOD
    audit. And I want to applaud you guys and your teams that in
    November of last year, you gave us the first ever audit in the
    history of the United States, so thank you for that. And in the
    findings--and I have two questions related to that--it is
    evident from that 2018 audit that there are some deficiencies,
    identified, you know, in various parts of the defense
    organization, but some of these include failure to monitor
    sensitive user activities, access rights not being restricted
    based on work responsibilities, user access not being
    terminated in a timely fashion after employees left the
    organization, and lack of controls to identify unintentional
    unauthorized changes to application or database.
        Some of these are not necessarily financially related, but
    they are security related, which is also included in the audit.
        What efforts are you and your Department and the new CMO
    undertaking to address these deficiencies?
        Mr. Norquist. So as you rightly point out, one of the
    advantages of the audit is that while it is focused on the
    financial, it extends well into our financial systems and our
    other business supporting system, logistics and others, and it
    was our single most common finding which related to IT systems.
    And of particular concern to us were those IT security ones
    that you have just described.
        So what we are doing is working very closely with the CIO.
    We have regular meetings with each of the service CIOs as well
    as their financial management folks to go through the issues,
    the Notice of Findings and Recommendations, the NFRs, issued by
    the auditor to ensure that they have developed Corrective
    Action Plans and have come with tools to remediate them.
        Now, not all systems are the same, so I look to the CIO and
    others to prioritize what of those vulnerabilities are the most
    serious and what require the most urgent action. But we are
    going to carefully track the closure of those and work with
    them to address those issues.
        Senator Perdue. Good. In that light, you have noticed in
    the report are a lot of short-fallings, and part of that is an
    outline of Corrective Action Plans, and they are developed to
    address the Notifications of Recommendations and Findings, NRFs
    and CAPs. The army right now has a ratio of one CAP for, I
    think, every 3.5, 3.3 NRFs, and the Navy has one Corrective
    Action Plan for every notification--or 1.7 Notification of
    Recommendations and Findings.
        You know, as a business guy, I know it takes coordination,
    and this is a very complex organization. Give us an update on
    how that coordination is going between the services and your
    fight to eliminate the redundancies not only in expenditures
    but also in these corrective actions.
        Mr. Norquist. So what we have done is we first set up a
    database in advance of the very first audit. One of the lessons
    learned I brought from being CFO at Homeland Security was it is
    going to be very hard to know progress if you do not track
    this. And so we set up a database at the very beginning where
    all of those findings, as you mentioned, are loaded into the
    database, provided to us by the auditor. So this is not our
    evaluation. It is their description of our challenge.
        We got all the services to agree that we would record it
    there, and the services have begun recording theirCorrection
    Action Plans in that database.
        Now, in some cases, you have one Corrective Action Plan for
    findings; in some cases, all the same findings need the same
    solution, so you have a combination.
        What we have done in order to increase the efficiency in
    the Department is we will have a set of meetings just on the IT
    findings with all the services and their CIOs to look for what
    are the common issues, and segregation of duties, the ability
    to access is one of those cost-cutting challenges about user
    identification.
        We have a second one just on facilities and inventory, the
    logistics aspect, and our Under Secretary's office for that
    comes and attends those meetings.
        And we have a third on the pure financial, and each one of
    those is designed to get the right set of people in the room,
    identify common issues. The IG attends every one. They are
    always welcome to our meetings. What we are trying to do is
    find efficient solutions to these common cost-cutting
    challenges.
        Senator Perdue. Right. Thank you. I am almost out of time,
    but I would be remiss if I did not allow you to respond to this
    question. I think I know how you will respond. Continuing
    resolutions are the bane of the military. Over the last 45
    years, we have had 187 continuing resolutions. The last 2 years
    we have not, and in the middle of recap and building our
    readiness, those 2 years have gone a long way in the DOD to
    help rebuild their readiness, which they were at all-time lows
    2 years ago.
        Can you help us understand in the Committee here--I know it
    does not have that much to do directly with the budget, but it
    does, because inherently built in here are additional costs
    that are incurred because traditionally we have had so many
    continuing resolutions. Can you speak to that and help us
    understand how damaging those are, continuing resolutions?
        Mr. Norquist. Absolutely. One of the challenges you have
    with the continuing resolution is, first, you cannot do new
    starts and you cannot increase production quantities. So even
    when Congress has directed us, ``Increase your investment in
    hypersonics, increase your production of this asset,'' we
    cannot.
        One of the challenges--it used to be a lot of activity, a
    lot of those initiatives were started in the fall. So many CRs
    have occurred that a lot of those naturally move to the spring.
        Senator Perdue. Which is the beginning of the new fiscal
    year.
        Mr. Norquist. Right, and so they have moved them 6 months,
    so effectively we have built in a 6-month delay. So even when
    we want to move out on a new technology, the system is now so
    used to waiting that it builds the 6-month delay in, and that
    is--telling the bureaucracy to go slow is not one of the
    messages we want to be signaling.
        So when Congress enacts it on time, the stability that
    provides to military families to be able to understand and
    project, the stability it provides to a depot or facility that
    works on providing services where they get paid for that, all
    of those things have a benefit through the cost and efficiency
    of the Department, as well as the disruption it creates
    politically with Congress and everything else. But it really is
    a huge improvement, and it has been a major factor in our
    readiness.
        Senator Perdue. Yes, sir. Thank you.
        Mr. Norquist. Thank you, Senator.
        Chairman Enzi. Senator Wyden.
        Senator Wyden. Thank you very much, Mr. Chairman.
        Mr. Chairman, thank you for holding this hearing. This is
    an important subject.
        Mr. Norquist--I am just going to call you ``Mr. Norquist''
    because I gather you have multiple titles now and Acting this
    and DOD Comptroller. Look, you have certainly exceeded your
    predecessors with respect to this audit situation. The
    Department under your management went under audit for the first
    time in its history. Good thing. As you know, I have been
    calling for this a long, long time. And, obviously, there is a
    long way to go here.
        I asked you last year when Oregonians ought to expect clean
    opinions, and you said, ``At least 10 years.'' Is that still
    your opinion?
        Mr. Norquist. So I would clarify that by saying if you are
    looking--the Department's audit is broken into 24 pieces.
    Several of those already have clean opinions. I would expect
    others, Army working capital fund or others, to start to get
    clean opinions in the next 3 to 5 years.
        The Department as a whole will not until every single
    organization does, so it may be faster than 10, but we are
    going to end up getting it at the rate of the slowest of those
    24 audits, and that makes me cautious about predicting when the
    entire Department gets a clean opinion.
        Senator Wyden. So it would be fair to say you think a fair
    amount of the audit work will be completed in 3 to 5 years, but
    you are not going to go beyond that because of the fact that
    some parts of the Government are going to take longer?
        Mr. Norquist. Correct.
        Senator Wyden. Okay. Why shouldn't the Congress withhold
    funding from parts of the military that fail to get clean
    audits more expeditiously?
        Mr. Norquist. So I think the important thing is that the
    funding the Department receives should be based on
    therequirements, the size of the force that Congress thinks is
    appropriate for the mission we perform and the salaries to pay it. We
    believe that if the mission is increased, the funding should be
    increased. If the mission goes down, you do it accordingly.
        The audit is a part of our responsibility to be good
    stewards, and we need to do that whether or not the budget is
    going up or down based on the military requirements.
        Senator Wyden. Now, you have had a year of audit data under
    your belt. In your view, what part of the Defense Department as
    of today has the furthest to go in terms of passing a clean
    audit?
        Mr. Norquist. The furthest to go would be the three large
    services, and that is partly their size and their scope. And
    they have made progress, but they are the ones that are the
    furthest. The ones who made it over the line the soonest, for
    example, the Corps of Engineers already has a clean opinion, so
    if you see them, give them kudos. But the three services will
    probably take the longest.
        Senator Wyden. Boy, that is a pretty expansive territory.
    Can we narrow it a little bit to----
        Mr. Norquist. Sure.
        Senator Wyden [continuing]. Get a sense of something--in
    other words, if I stood up at a town hall meeting this weekend
    where people ask me these kinds of questions, and I said I
    asked Mr. Norquist, and he has been constructive and positive,
    and he is working on this, which part of DOD has the furthest
    to go, and I said the three services, people would say, you
    know, what the heck does that mean, Ron? Can you give us a
    little bit more of a----
        Mr. Norquist. So each of the services actually is broken
    into two audits, so the Army has a general fund and a working
    capital fund. The working capital fund functions like a
    business. It takes in revenue and expenses. The general fund is
    the side that is funded with appropriated. Within each of the
    services, I think, for example, if I have it right, the Army
    working capital fund may get to a clean opinion before the Army
    general fund. So even within the services, there will be a
    piece of them that gets to a clean opinion sooner. But what we
    do is we send a ranking report to Congress--and I will provide
    you a copy--where we rank them based on how far along we think
    they are. And so, Senator, I can provide you a copy of that
    report.
        Senator Wyden. Could you in something resembling English
    tell me, say, within, you know, 10 days which parts of the
    Defense Department have the furthest to go in terms of passing
    a clean audit? Because if I stand up and say it is the capital
    account, this account and that account, people, you know, they
    think in terms of personnel and they think in terms of weapons
    systems, this kind of thing. Okay? Ten days?
        Mr. Norquist. Sure. Absolutely, Senator.
        Senator Wyden. Great.
        One last question. So if you really thought this through,
    it would seem to me there is still a fair number of people at
    DOD who think auditing the Pentagon is a low priority, not a
    big deal.
        You, to your credit, you do not think that. But the fact
    is, you know, people come and go, the Chairman, myself, all of
    us here. What are you doing to lock in specific changes so that
    future officials cannot go back to the days before you decided
    you were going to break with your predecessors and get serious
    about this?
        Mr. Norquist. So I think there are two things that will be
    the most helpful. The first is we have already contracted for
    the audits, and they will continue every year. It would take a
    significant amount of work for a future team to come in and try
    and turn those audits off, and I suspect the Congress and
    others would have a very strong reaction to them trying to
    cancel those contracts. So they will constantly be getting
    reports.
        If they choose not to spend time on it, they will get
    reports that show the exact same problems they had the year
    before versus progress.
        We have also set up a database from which we will produce
    reports to you that show who has made progress and who has not.
    So you will be able to see which of the services, which of the
    agencies has done the most and whichare the ones that after a
    year or 2 years or 3 years have not shown meaningful progress. That
    will allow you to focus your feedback on those groups. But both of
    those make it harder for someone else to walk away from this process.
        Senator Wyden. My time is up, and I thank the Chair for the
    extra minute. The point is what you are saying is that if you
    are hands-on from here on in, you should not lose sight of the
    fact that we are now getting serious about these audits.
        Mr. Norquist. Correct.
        Senator Wyden. You have got to be hands-on. You have got to
    be back at people regularly, look at the progress that has been
    made, and come back again and again so that there is some real
    accountability.
        Mr. Norquist. Absolutely.
        Senator Wyden. Okay. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Braun.
        Senator Braun. Thank you, Mr. Chair.
        I want to echo what the Chairman did say earlier, that, in
    my opinion, the bigger picture is that, regardless of what the
    Defense Department wants and regardless of what many want on
    the domestic side, I do not think we have been in a more
    perilous point as a country financially when you are doing all
    of this, regardless of the arguments that you are making or the
    arguments the other side is making, when it is in the context
    of running $850 billion deficits. The thing I fear the most and
    I think what would make more of an academic discussion on
    either point of view is the fact that we are reaching, to me, a
    perilous tipping point that we have got to be careful about the
    big picture. And anything that we do here I think cannot
    dismiss--as far out as you can see, we do not have anything
    really addressing in a serious way. Our budget process has
    devolved to where it is, continuing resolutions, and I think
    the reason we have not yet addressed it is due to the fact that
    we have not been accountable for it and felt the pain of it.
        I want to focus on something you said earlier, aircraft
    carriers. You mentioned that the Chinese have just invested in
    building their first aircraft carrier. Is that true?
        Mr. Norquist. Correct.
        Senator Braun. And then how many aircraft carriers do we
    have, roughly? Because I do not expect you to maybe know
    exactly. Maybe you do.
        Mr. Norquist. About a dozen.
        Senator Braun. About a dozen, okay. How many aircraft
    carriers does Russia have?
        Mr. Norquist. It depends on the size. I will have to get
    you that number for the record.
        Senator Braun. Would it be closer to two or three? A half
    dozen?
        Mr. Norquist. Not on the same scale as we do.
        Senator Braun. Okay. And then how many aircraft carriers
    would there be among the entirety of the EU, including Great
    Britain?
        Mr. Norquist. Typical countries have either one or two, if
    they have one at all.
        Senator Braun. Okay. So that is maybe, of course, not going
    to be representative of forces being ready and so forth, but I
    am also looking at the trend of spending on defense, and now
    that we have drawn down from the Gulf Wars, you know, basically
    if you take the hump out that was there during the peak of
    them, you know, it has been somewhere around 3 to 3.5 percent,
    maybe 4. I would argue that that is probably the baseline we
    need to look at, and wanting your opinion on what you see the
    EU doing in terms of their share, which I love the President
    bringing that up as a topic. Do you think they should do more?
    And for those of us that do not know the particulars, what are
    they doing?
        Mr. Norquist. So those are a couple of good points you
    brought up, Senator. Let me address them.
        The first one is you talked about GDP somewhere between 3
    and 3.5 percent. Currently, we are at about 3.1. If you look at
    the numbers we are projecting in the out-years, that will
    actually start to drop a little bit before 3 percent. Part of
    that is this administration understands and shares your concern
    that security and solvency are tied together and that you need
    to have both. And so if we want to have a strong defense, we
    need to recognize that that is tied to the strength of the
    economy. And as the economy grows, that is even better. Defense
    takes a smaller share of GDP, go down to a smaller share of the
    Federal budget. As long as we can perform our mission, that is
    good in terms of trying to help with the other issues you have
    talked about.
        With regard to NATO and our European allies, there is about
    $41 billion that they have increased on their spending as a
    result of the actions taken over the last several years. We
    expect that to go up to about $100 billion. So we have seen
    them respond to the request for----
        Senator Braun. In terms of additional expenditures?
        Mr. Norquist. Additional. Additional.
        Senator Braun. And what is that on? How much in total
    currently? It raised $41 billion, and it is intending to go up
    $100 billion. What is their baseline?
        Mr. Norquist. I will have to get you their baseline.
        Senator Braun. That would be interesting to know because I
    think collectively it is a large economy than ours when you
    throw all of theirs together.
        Mr. Norquist. It is, and the other thing they provide in
    terms of it is basing and access and the real estate thatgoes
    with it. But we are willing to work with our allies. We are willing to
    work through and support them. But this is not a charity. It is not a
    business. We are in there to work with them and to make sure everyone
    plays as part of the team. The cost for everyone goes down if we all
    chip in.
        Senator Braun. I think that would be good to, push that
    proposition. I know when I was running, there was a continuing
    resolution that did reenergize the defense sector, I think
    taking it from--where was it?--in the high, like $590 billion
    and added almost $100 billion to the expenditures. And I now
    see here we are wanting to go. And I also remember the
    President saying that was the last time he would agree to
    something like that. It looks to me like we are back into the
    same old rut of, you know, we push what might be important on
    our side to accommodate what the other side wants to do on
    domestic spending. Is that just a recent memory that has been
    lost? Or does the administration still intend to stick with
    what it said, that that would be the last time they would join
    in kind of a ``kumbaya'' with the other side just to get
    defense spending across the finish line?
        Mr. Norquist. So I will leave it to the White House and OMB
    to work in terms of how to settle on the nondefense piece of
    this. We just work in terms of building up the requirements so
    everyone has visibility.
        Senator Braun. I am over my time. If we do another round of
    questioning, I would have one or two. Thank you.
        Chairman Enzi. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. Thank you, Mr.
    Norquist.
        So as we discussed I think the last time you were here, I
    have had long-time concerns over the use of OCO money, overseas
    contingency operations money, use as a slush fund to avoid
    putting things in the base defense budget. That concern was
    shared when I served in the House with Mick Mulvaney, who was
    the OMB Director, now Acting Chief of Staff. In fact, we passed
    legislation back in the day to try to guard against that.
        When you were here in March of last year, I asked you about
    it. Here is what you said: ``Consistent with your previous
    discussions''--referring to my discussions--``with Director
    Mulvaney, you will not be surprised to know that in the out-
    years, he''--Mulvaney--``would like us to shift those
    categories so even fewer of them count as OCO and more of it is
    in base, and only the most incremental of the costs would show
    up, which would dramatically reduce the size of OCO.''
        So I have a simple question. Look at your budget. You have
    gone the total opposite direction. You have gone all out,
    putting lots of normal base budget functions into OCO. What
    happened? Why did you flip-flop from the direction you told us
    you were going to go last year?
        Mr. Norquist. So what we have is that we are still
    operating within the realm of the BCA, and so when we put
    forward our requirements, the direction we received and how to
    present them, as you talked about, had this large OCO for base.
        When you look in the out-years and the point of our budget
    where we are past the BCA, you will see we go to what we have
    talked about in the past, which is reducing the size of the OCO
    to just the most incremental direct war costs. But as long as
    we have----
        Senator Van Hollen. Well, I understand that, but you could
    have just proposed lifting the defense cap and not used OCO,
    right?
        Mr. Norquist. That is not something we do in the Department
    of Defense. That is the guidance we get and how we build it
    according to the directions from----
        Senator Van Hollen. But that would be the sort of honest
    budgeting way to do it, right?
        Mr. Norquist. That would be one way of presenting it, yes,
    Senator.
        Senator Van Hollen. Well, I do appreciate the Chairman's
    budget, which does not make use of this OCO slush fund. I
    understand Senator Perdue asked you about the costs and the
    downside of going to a continuing resolution. I share those
    concerns about continuing resolutions. Of course, as long as we
    are under the BCA, it is not just the continuing resolution
    that we might get to, but it would be subject to a sequester,
    correct?
        Mr. Norquist. Correct.
        Senator Van Hollen. All right. And if we do not lift that
    sequester cap, which we have to affirmatively do, what would be
    the impact on defense?
        Mr. Norquist. So you would have two things. You drop $71
    billion below what was last year's enacted, and if you just
    walk through the different segments of the defense budget, the
    first part is pay it to the force. And so the only way to be
    able to reduce costs there is you start reducing bringing
    people in and you start to hollow out the force. The second is
    you start delaying acquisition of replacement equipment. We
    have a number of programs that are aging and they need their
    replacement, and then you affect most immediately, because it
    is the first to touch, the readiness and the training. That
    dramatically offsets the investments that Congress has made
    over the last 2 years to restore readiness. So the destruction
    would be quite severe.
        Senator Van Hollen. Right. And I think it would have severe
    negative consequences.
        Mr. Norquist. Absolutely, Senator.
        Senator Van Hollen. So let me ask you a couple questions
    about the nuclear program budget. I think you referenced that
    earlier, because just last January, this past January, CBO
    released its biennial projection of the 10-year costs of the
    nuclear modernization program. The last estimate projected that
    the United States would spend half a trillion dollars over the
    next 10 years a 23-percent increase from the 10-year forecast
    conducted just 2 years ago in 2017. That is a big price tag and
    a big increase.
        So have you looked at the CBO estimate? And do you agree
    with their conclusion?
        Mr. Norquist. So we used the estimates produced by CAPE,
    which is our independent cost-estimating group, and we require
    the services to comply with that. I think your point you made
    is quite accurate, which is this is an expensive initiative,
    but nuclear deterrence has been a bedrock of our security for
    70 years, and the triad has been reaffirmed by every President
    since Truman. So it currently costs about 3 percent of our
    budget. It will cost us at a peak about 6.5 percent of the
    budget when it is fully fielding. But it is a necessary
    investment.
        Senator Van Hollen. Well, with respect--and I support the
    modernization of the triad, but there are lots of new additions
    you are making beyond simply modernizing the force, as you
    know. So if you could get back to me and let me know how much
    of the increase is a result of moving forward with the low-
    yield warhead on submarine-launched ballistic missiles, how
    much relates to the nuclear arms sea launch cruise missile, and
    how much relates to the pit production infrastructure, I would
    be interested in you breaking that out, if you could do that
    for us.
        Mr. Norquist. Absolutely, Senator.
        Senator Van Hollen. Thank you.
        Mr. Norquist. I would be happy to do that.
        Senator Van Hollen. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman. Thank you for
    your service, Mr. Secretary.
        Let me preface my question with--I listened to your
    comments and your opening statement, and I agree with you. How
    many years have you worked in Federal financial management?
        Mr. Norquist. About 30 years, Senator.
        Senator Kennedy. Okay. Within the subject area of defense
    and the Department of Defense, give me just a quick list of
    your titles.
        Mr. Norquist. So inside the Department of Defense, I have
    been--I have performed the duties of the Deputy Secretary. I
    have been the Chief Financial Officer. I have been a Deputy
    Under Secretary of Defense in the CFO's office. And earlier on,
    I was a budget analyst, program budget analyst for Army
    Intelligence, including being a director at a field site.
        Senator Kennedy. So you understand the budget.
        Mr. Norquist. Yes, Senator.
        Senator Kennedy. Our budget right now is roughly, what,
    $700 billion?
        Mr. Norquist. It is currently about $700 billion; 718 is
    the request.
        Senator Kennedy. Okay. Is there any waste in that budget?
        Mr. Norquist. There are inefficient processes that create
    those types of challenges, yes.
        Senator Kennedy. Well, let me put it another way. I mean,
    we can wait for an audit. I do not know if you and I will still
    be here. And that assumes that, of course, anybody will act on
    an audit. It may just be a big yawn-a thon. You know the
    Department of Defense budget probably as well as anybody else,
    and we both agree that weakness invites the wolves.
        Mr. Norquist. Correct.
        Senator Kennedy. We will remain free so long as we remain
    strong. But let us suppose the President called you in
    tomorrow, Mr. Secretary, and he said, ``David, look, we have
    got to do something about this deficit.'' I am not looking for
    an audit. We do not have time. I am not looking for, you know,
    a committee meeting. I am not looking for politically correct
    statements. You know this budget. I want you to--before I add
    money to this budget, I want you to go into the Department of
    Defense budget and find me $35 billion that is being wasted.
    You can do that, can't you?
        Mr. Norquist. I could find the types of programs andwe are
    finding the types of programs that, if you changed the way we run them,
    we will save billions of dollars over time, yes.
        Senator Kennedy. And could you do that at the Department of
    Homeland Security where you also worked?
        Mr. Norquist. We could do that at the Department of
    Homeland Security. It was a little harder because the agency
    had just been stood up at the time.
        Senator Kennedy. I understand. So why don't we do that?
        Mr. Norquist. So we are doing that. One of the challenges,
    as you go to implement these, is some of those reforms take
    time. Some of those reforms upset somebody who has an interest
    or a function in an area. But there are changes underway, and I
    will talk just to give an example. Some of it depends on the
    better data that we get through the audit. When we buy things,
    for example, just pick--in some of these, the challenge is they
    are micro examples, but they add up.
        Senator Kennedy. Yeah, but before we get to specifics, Mr.
    Secretary, I want to stay on process for a second, because this
    is something we really do not talk about around here very much.
    We certainly do not do anything about it. CBO says that--I know
    everybody says, well, the problem is mandatory spending. But
    CBO says that discretionary spending is going to grow 3 percent
    a year for each of the next 10 years. I mean, that is not as
    much as mandatory spending, but that is not chopped liver.
        And I suspect there are people like you--and you could
    probably name another 20 people you have met through your
    career--who know where the waste is. You can call it
    ``inefficiencies,'' and you are more comfortable doing that. I
    call it ``waste.'' And why can't we go in and identify those
    and write them in plain English so we can defend them and go in
    and try to save some money?
        Mr. Norquist. So there are individuals who do exactly this,
    and they identify areas for reform, and they put together plans
    that will do them. And the challenge is it takes time and it
    takes support. I mean, just think about how many years the
    Congress was pushing on the audit to get it to go forward, but
    you needed that process underway.
        I will just give an example. There are places where we have
    changed the process, and usually what you find is it is a
    process where we have layered it down with oversight and
    controls that are well outside the cost of the function itself.
    So we used to do contracting, and even the smallest transaction
    went through a full contracting process. When we switched to
    having a certain set done through the equipment credit card----
        Senator Kennedy. Let me stop you, Mr. Secretary----
        Mr. Norquist [continuing]. It freed up tons of money.
        Senator Kennedy [continuing]. Because I am going to go over
    here.
        I do not understand why, though--I will be quick, Mr.
    Chairman. This is not directed at you, but you cannot use
    bureaucrat-speak. I do not know why the President--you and your
    colleagues cannot go to the President and say, ``Mr. President,
    here are ten Government programs''--that you can explain in
    English in one paragraph--``that we can live without. We are
    better off saving the money and spending it over here.'' As
    opposed to the study and the reform and a committee meeting--
    well, you get my point.
        You know, every major corporation knows how to modernize
    and downsize, or they die. And we need to try it.
        Mr. Norquist. So, for example, the Army this year did what
    it called ``Night Court'' where they brought in each program,
    and the eliminated $2.5 billion worth of programs and
    reinvested that in higher-priority areas. So they are going on.
    They often do not get the attention, but it is the process of
    identifying lower-priority projects and stopping them, or in
    some cases fixing the process and reinvesting in the higher-
    priority activities.
        Senator Kennedy. Thank you. I am sorry I went over,
        Mr. Chairman.
        Chairman Enzi. The 2020 budget request proposes to increase
    defense discretionary spending by just under 5 percent. Can you
    explain how the administration arrived at its top-line request
    level and what the primary threats are that it seeks to address
    through the increased funding?
        Mr. Norquist. Absolutely, Mr. Chairman. So, first of all,
    it is a strategy-based budget, and it was based off the
    recognition that the world had been changing, that whereas we
    had been spending a great deal of time in counterterrorism,
    counterinsurgency operations, the long term strategic threat to
    the United States came from the rise our near-peer adversaries
    such as Russia and China, folks capable of fielding modern
    aircraft, long-range missiles, the types of high-end fights for
    which we needed to change the way we prepared to face.
        And so we went through the budget. We looked at the size of
    the force, and we added some small increases there, about 7,700
    to fill out the units. We then looked at readiness and with the
    Congress' help in the past and then continuing we have ensured
    that we have got that.
        But we particularly looked at the research and development.
    In this budget request, that is where the significant increase
    is, in hypersonics, artificial intelligence, directed energy,
    cyberspace. These are the new domains that other countries have
    invested in, that if we do not, will put the United States at a
    significantdisadvantage in a future conflict, akin to being the
    country without an air force in a land battle if you lose control of
    the skies or the cyber.
        So those are the things we built on. We built the dollar--
    the requirement bottoms up to get to the 750. The Congress did
    a bipartisan National Defense Strategy Commission. That
    produced a recommendation of 3 to 5 percent real growth. We are
    close to--we are a little under their recommendation, but it
    gave us a point of comparison. But it was a strategy-based
    budget based on the change to the high-end threat.
        Chairman Enzi. Thanks. Something that I have always
    wondered about is, you know, how long does it take to build a
    ship? Is it all allocated in one year? You mentioned the
    capital funds that you have. Can you explain briefly to me how
    that works?
        Mr. Norquist. Sure. So most of our ship programs, the cost
    of the ship, for instance, a destroyer, is put into a single
    year, and that is the year we count as the year we purchased
    the ship. In some cases, there is a year before where we do a
    small amount of advanced procurement, and those are for long
    lead items that you want to have ready for when you produce the
    ship.
        Some assets are sufficiently large, like a carrier, that
    you cannot put all the money in one year without horribly
    distorting the budget, and those are spread over 5, sometimes a
    few more years, as a way of incrementally funding the larger
    asset because of its disruptive effect.
        The only other exception is the first year for research and
    development. Often the first ship is not bought at a single
    time. It takes several years to build ships. The larger the
    ship, the longer the timeline.
        Chairman Enzi. I have been pushing for capital budgeting
    for a long time. I found out that we do not even know what we
    own, let alone how old it is and when it needs to be replaced
    and what the cost of the replacement would be versus the cost
    of repair. And I think that is the case with the armed services
    as well, isn't it?
        Mr. Norquist. It is, though with the audit we are getting
    valuations on our plant, property, and equipment. We are at
    $2.6 trillion, and the auditors are testing that for accuracy
    and completeness. And so each year you are going to get closer
    and closer to being able to make those types of choices if
    Congress wanted to do that, Chairman.
        Chairman Enzi. I would like for all of the Federal
    Government to do it, not just the Department of Defense. But
    you make the best example because an aircraft carrier cannot be
    built in one year; some of the submarines cannot be built in
    one year. I suspect that many of the ships cannot be built in
    one year.
        Mr. Norquist. That is correct, Mr. Chairman.
        Chairman Enzi. And I have always wondered what happens to
    the money that--when you are building a ship and it cannot be
    done in one year, what happens with the extra money?
        Mr. Norquist. So what happens, Mr. Chairman, say you have a
    ship that costs $1.6 billion. Congress will authorize and
    appropriate that $1.6 billion, but it will give us 5 years to
    put it under contract and another 5 years to make payments to
    the vendor. So that gives us time to negotiate the contract,
    monitor the progress, and make payments.
        The money stays at Treasury the whole time, so until it
    goes out the door as a valid payment to a vendor, it stays in
    the Treasury.
        Chairman Enzi. I wish. [Laughter.]
        I am still trying to figure out what to do with the trust
    funds of the United States so that there is actual money there,
    which will affect retirements at some point in time.
        My time is almost up. I have some more questions, but I
    will let Senator Braun ask some more first.
        Senator Braun. Thank you.
        So I think we have heard today that we are discussing all
    of this in the context of a dire budget trajectory that I
    really believe is the most important thing that we need to get
    a grip on here because I think everything else kind of comes
    from it.
        I think we do need to ask our allies to carry their fair
    share. I like the administration at least talking about it
    where others have not, and I think Senator Kennedy is right on
    that especially across Government and maybe even more so within
    military, find efficiencies.
        One point I think that is also true and it is hard to
    quantify what is looming, you know, the Chinese economy I think
    is maybe 60, 65 percent our size. They are building their first
    aircraft carrier. I think they are really out there leading on
    stuff that we have not been maybe focusing on in the
    technological realm.
        My question is going to be: Where do you think they are
    going? What is your best assessment of what their long term
    strategy is? They would scare me more than any other variable
    out there that is much and unknown, because they may have the
    ability soon to be the size of our economy, decades down the
    road where they would dwarf ours. And I think we need to get
    that understanding of what their intentions are and
    capabilities out there and maybe quantify it in some fashion.
    So as much as you know about them, in a few minutes give me
    your best assessment of what they are up to.
        Mr. Norquist. Absolutely. So as you pointed out, China has
    a very large population and a growing economy. These things are
    fine. We are happy to engage in friendly, free market type of
    competition. The challenge is that the Chinese have done two
    things.
        One is it is an authoritarian regime that does not provide
    the freedom to its population that other countries do. The Vice
    President has spoken passionately about the challenges that
    creates.
        The other is they are not competing in the way that the
    rest of the international community does. Their actions in the
    South China Sea, occupying islands without recognizing the
    freedom of the seas or without working through that with the
    dispute over control of those, those types of actions raise a
    concern that rather than simply just being another country with
    a sizable economy, you have a country whose attempt is to
    disrupt the free trade, the free markets, and the systems, and
    to not play by the same rules as everyone else. That is very
    disruptive. That can be very destructive.
        Our goal in the long run is to not have a conflict. We want
    competition, but we do need countries to participate and comply
    with the international free trade and other rules to be able to
    have that type without impinging on the rightsof other
    countries.
        Senator Braun. One final question. Do you feel through our
    intelligence that we will have plenty of heads up on the things
    that they are doing to where none of this would sneak up on us,
    you know, in a fashion that we would not be prepared? What is
    your confidence level there?
        Mr. Norquist. So I have great confidence in the
    intelligence community, but I think even the intelligence
    community would say that if you are counting on not being
    surprised, you are making a mistake, that we always have to
    allow for the fact that there are things we do not realize and
    we have to be prepared for those types of surprise challenges.
    We have known enough of those in the course of our history that
    you want to make some allowance in your planning to not be
    taken by surprise.
        Senator Braun. I think that is a good point of view. Thank
    you.
        Mr. Norquist. Thank you, Senator.
        Chairman Enzi. Thank you.
        We have talked a lot about the audit and some of the
    difficulties with it, the timeline for it, but I want to ask
    maybe a more basic question than that. How has the financial
    audit improved the processes of the Department and helped
    identify waste, fraud, and abuse through the enterprise?
    Judging from the results, would you say the Department spends
    money wisely and judiciously? And what have you learned from
    it?
        Mr. Norquist. So we have had a number of improvements
    already as a result even of the first-year audit. One of the
    areas that we made a priority was inventory, and the services
    have been going out and doing 100 percent inventory, what we
    call ``book to floor, floor to book.'' Is what is in the system
    what I have in the warehouse? Is what is in the warehouse in
    the system?
        The Navy has recovered $80 million worth of equipment that
    it had that was not recorded in its inventory, and so it has
    moved it back in. That makes it available for them to use so
    they do not have to go and buy it, so that saved them $80
    million.
        The Air Force at Hill Air Force Base had uninstalled
    missile motors that were incorrectly labeled as
    ``unserviceable.'' As part of the audit, they check the
    condition of the equipment, and this condition was, in fact,
    serviceable. That was $53 million worth of engines that were
    available to the Air Force.
        Now, I bring this up. What we also discovered was there are
    some places, for example, Osan and Kadena Air Base, 14,000
    munitions worth $2.2 billion. No exceptions. Auditors went
    through. And we have got other bases with that type of result
    as well.
        So there are places and facilities that have done this
    well, and there are others where we are seeing millions of
    dollars worth of recovery by bringing them up to the same types
    of standards.
        So I am very pleased with the type of progress that
    generates. I think it demonstrates that the emphasis that this
    Committee and others have made in the audit is well founded.
        To answer your other question, I think that individuals and
    organizations are definitely committed to making the best use
    of the funds that they have and trying to make sure they are
    put against the highest priorities. But many are functioning in
    inefficient processes, and being able to fix those so that we
    do not waste money in that direction is absolutely essential to
    our stewardship.
        Chairman Enzi. I appreciate that. The things that you
    mentioned, a lot of those are just one-time discoveries, aren't
    they?
        Mr. Norquist. Some of those are, but, for example, when we
    eliminate unneeded items and close out a warehouse, that is a
    savings in perpetuity. When we take an interface that is manual
    where people have to hand-enter and we discover that is
    generating errors, so we build an automated link between the
    two, you never have to rebuild that. That savings then
    generates year after year.
        So there are a number of these where the savings is
    continual, and that is part of the value.
        Chairman Enzi. You also mentioned some kind of a dollar
    figure on munitions?
        Mr. Norquist. Oh, so the munitions I was talking about is
    when each of the bases, they go and--we have stewards of
    munitions. They do just a count, and they check what is there,
    and the accuracy of those counts at Osan and Kadena and other
    bases has been 100 percent. So I gave you the 2.2 just to show
    the sheer volume of the value of the munitions that they were
    storing, but we recognize the role leadership plays in the
    accuracy of the inventory at each base, and that has been part
    of driving the change.
        Chairman Enzi. Good. I appreciate that.
        Of course, I am from Wyoming, and we have F.E. Warren Air
    Force Base, so I am interested in the nuclear triad and its
    credibility, particularly the ground-based leg. How important
    is it to pursue a strategy to modernize all three legs with a
    corresponding updated command and control structure?
        Mr. Norquist. It is absolutely essential. The triad has
    been an important part of our strategic deterrent. The fact
    that we have three different ways of delivering nuclear weapons
    greatly complicates an adversary's planning. Each one is their
    strength. Ballistic submarines are the mostsurvivable. The
    bombers are the most visible. But the ICBMs are the most responsive and
    have the most robust capabilities. And to talk about those for a
    minute, we are replacing the aging Minuteman III ICBMs that were
    fielded in the 1970s, and so the importance for us of knowing that we
    can rely on the deterrent, you cannot allow it to get to the age to the
    point where they are questionable. You need to replace it. We have a
    program to do that, and I think it is valuable to fund all three legs
    for the same reason it has been the right answer for the last several
    decades.
        Chairman Enzi. Thanks. I recently got to watch part of an
    Iron Dome exercise, and it is incredible, these young people
    that are monitoring the missiles that could be incoming and
    able to calculate or--well, with their equipment are able to
    figure out at what point it should be shot down so that the
    debris does not fall on anything.
        But then I heard about the Russians having hypersonic
    missiles. I hope that we are developing that, too, and I know
    that you could not discuss it if you did know.
        Mr. Norquist. Well, we can discuss it at the highest level,
    and the answer is yes, we are investing in that technology in
    this budget, precisely because of the differences it gives you
    in capability. And we will make sure that there is not a
    disadvantage there.
        Chairman Enzi. Good. That gets into my final question: How
    does the 2020 defense budget request align with the National
    Defense Strategy that prioritizes this competition between the
    near-peer adversaries like Russia and China and calls for this
    technological modernization? How does the budget request fit
    with that?
        Mr. Norquist. So I think you will see it in a couple of
    ways. First and foremost is the emphasis on research and
    development. This is the largest RDT&E request by the
    administration, and it reflects the fact that we are concerned
    about our ability to keep pace and protect our leads in certain
    areas. You will see the investment in space and cyber because
    what we have recognized is you have moved from three
    warfighting domains to five. And so much of our enormous
    economy is based on access to space, the very activities we
    routinely do, from banking to using your cell phone to guidance
    directions in your car, that loss of access to those satellites
    or disruptions of those through a cyber attack, you do not have
    to have a fleet off the coast of the United States to do that.
    You can do that from anywhere in the world. And we need to be
    able to deter in that domain and compete in that domain to
    protect America's interest.
        This budget invests in that with the idea of being able to
    deter that type of high-end challenge from both the Chinese and
    the Russians, and we have adjusted our Navy program for the
    types of challenges and fights we expect to have potentially in
    the Pacific in order to meet those types of risks and
    challenges.
        Chairman Enzi. I thank you for your knowledgeable and
    concise answers and all the progress that has been made, which
    I know is a lot under your direction. And I think part of the
    reason that we had--there are a lot of conflicts always for
    Senators to show up, but I think part of it is the confidence
    in what you are doing with both the planning and meeting the
    audit requirements. So I thank you for being here to testify.
        If anybody has written questions that they want to turn in,
    they will have to have those in by tomorrow night. And we will
    send those on to you and hope for speedy answers on those, too.
        Mr. Norquist. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you very much. Adjourned.
        [Whereupon, at 4:01 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    FIXING A BROKEN BUDGET AND SPENDING PROCESS: PERSPECTIVES OF TWO FORMER
                                    CHAIRMEN

                                  ----------

                             TUESDAY, MAY 14, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:42 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Johnson, Perdue, Braun, Scott,
    Cramer, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Warren Gunnels, Minority Staff Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I will go ahead and call to order this
    hearing of the Senate Budget Committee. The title of it is,
    ``Fixing a Broken Budget and Spending Process: Perspectives of
    Two Former Chairmen.''
        Good afternoon, and welcome to today's hearing. Over the
    course of the next several weeks, the Senate Budget Committee
    will hear from a variety of experts on ideas to reform and
    improve this process. My hope is that these hearings will
    inform the Committee's work as we look to advance bipartisan
    solutions to the problem.
        Today I am especially pleased to welcome two former Senate
    Budget Committee Chairmen, Senators Judd Gregg and Kent Conrad,
    to share their perspectives. We had them here 4 years ago to
    talk about a very similar thing. This time they are hoping we
    will actually take action. So, Senators Conrad and Gregg,
    welcome back to the Committee.
        Every day American families and small businesses make tough
    decisions regarding how to balance their budgets. They work
    hard. They manage their money responsibly. And if they fail to
    live within their means, they face real world consequences.
    They hope that Congress is conscientious with the taxpayers
    dollars they send to Washington, but as we all know, too often
    that is not the case.
        Since the Federal budget framework was established in 1974,
    there have only been 4 years in which Congress passed all of
    the annual appropriations bills on time. The last time this
    happened was in 1997, more than 20 years ago, and in the 40
    years that we have been operating under the current budget
    framework, our Government has had 20 funding gaps of varying
    durations. This figure does not include the 21 times Congress
    has passed funding measures to renew budget authority 1 day
    after it had expired.
        The dysfunction surrounding Congress' inability to pass
    annual spending bills on time gets a great deal of attention,
    but the problems are actually much worse and more damaging in
    the long term. On the mandatory side of the ledger, autopilot
    spending continues to grow almost entirely unchecked. Fifty
    years ago, such spending comprised 36 percent of the total
    spending. Today the figure is approaching 70 percent and,
    according to the Congressional Budget Office, will reach nearly
    80 percent in 10 years' time.
        Despite increasingly dire warnings that our country is on
    an unsustainable fiscal course, there is little congressional
    scrutiny or effective controls over spending. In fact, we think
    that emergencies do not count, but that money gets added to the
    debt, where it counts towards the creditability of our country.
        Clearly, we have a problem. Congress cannot keep avoiding
    its basic duties or ignoring the real impacts of our debt.
    Among the first steps toward action must be framing the scope
    of the problem and highlighting where we agree.
        First, I think most would agree that the current budget and
    spending framework is not working as intended. There is little
    buy-in from members for a system that was created in the 1970s.
    The world has changed a lot since then, so it is fitting for us
    to rethink how we approach budgeting and spending.
        Second, I think we can agree the process is incredibly
    complex. Nobody understands it. Talking to somebody about the
    differences between budget authority and outlays causes eyes to
    glaze over. Telling someone that they can use one offset
    because it is a receipt but not use another offset because it
    is a revenue only causes inquisitive looks. I do not even want
    to start talking about deficit-neutral reserve funds or CHIMPs.
    If we are going to be successful in our reform effort, we must
    have a process everyone can understand and follow.
        Third, lots of us find it concerning that there are no
    immediate repercussions to Congress' inability to keep our
    fiscal house in order. Congress time and again does not meet
    its deadlines to pass spending bills, putting off the tough
    decisions voters expect us to make. When budget agreements are
    made, they are ignored within weeks with barely the bat of an
    eye. I am hoping that today's hearing will help us to focus on
    meaningful solutions to address these problems, and we are
    fortunate to hear from two of our distinguished colleagues who
    were intimately familiar with this process and the challenges
    we face. They are thoughtful, seasoned leaders who come from
    different political parties. I am hopeful the ideas presented
    will set us on a bipartisan path toward real and lasting
    solutions. I think this could be the most important and the
    best witnesses that we may have all year.
        With that, I very much look forward to hearing what
    Chairman Gregg and Chairman Conrad have to say today. I know
    their insight will prove to be invaluable as we think about
    reform efforts and the best way to go about enacting them.
        Senator Van Hollen.

                OPENING STATEMENT OF SENATOR VAN HOLLEN

        Senator Van Hollen. Thank you, Mr. Chairman. Thank you for
    holding this hearing. It is great to see Senators Conrad and
    Gregg. I thank both of you for your service in this body, and
    thank you for your many contributions to the debate over how we
    can most effectively approach our budget challenges. I look
    forward to hearing your testimony. And I am always open and
    interested in ideas for how we can better design the budget
    process.
        In my experience, at the end of the day we can try to build
    a better budget mousetrap, but it really does come down to the
    political will. You need Senators who have as their priority
    fiscal discipline. That means looking at the spending side of
    the equation, and it requires looking at the revenue side of
    the equation. And this is a little bit like, as Yogi Berra
    said, deja-vu all over again. But maybe, Mr. Chairman, we will
    be able to come up with at least some recommendations that at
    least slightly improve the process. But, again, there is no
    substitute for political will. I have seen lots of budget rules
    that are waived routinely when they become inconvenient.
        I will just end on some sad news I just heard, which is
    Alice Rivlin apparently just passed away, and all of us who had
    the honor of working with Alice know that she was always
    someone who walked the walk when it came to budget issues and
    was bipartisan or nonpartisan in her approach, both as the head
    of CBO, the head of OMB, and a member of the Board of Governors
    of the Federal Reserve. So I think we are all going to miss
    her, but maybe we can carry on and make some progress in her
    spirit.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Our witnesses this afternoon are Senators Judd Gregg of New
    Hampshire and Kent Conrad of North Dakota. We appreciate both
    of them being here, and we look forward to their testimony.
        First, I would like to take a minute to introduce Senator
    Gregg. Senator Gregg has spent a lifetime in public service--
    well, not quite yet. [Laughter.]
        Senator Gregg received his bachelor's degree from Columbia
    University and his law degree from Boston University. He was
    elected to Congress in 1980 and served in the House of
    Representatives until he was elected Governor of New Hampshire.
    In 1992, he was elected to the United States Senate and served
    three terms. Importantly for our purposes today, Senator Gregg
    chaired this Committee during the 109th Congress. Also, Senator
    Gregg sponsored the Deficit Reduction Act of 2005 and served on
    the Simpson-Bowles Commission and passed out of this Committee
    a comprehensive budget and spending process reform bill. Thank
    you for being here, Senator Gregg.
        Before I turn to Senator Cramer to introduce Senator
    Conrad, I ask unanimous consent to submit two summaries of
    Senator Gregg's bill into the record. Without objection, so
    ordered.
        [The summaries follow:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Now I recognize Senator Cramer to introduce
    our second witness, Senator Conrad.
        Senator Cramer. Thank you, Mr. Chairman, and I thank both
    of you for being here. You are both way too young to read in an
    obituary, so I am grateful that you retired at a young enough
    age to continue serving in new capacities. It is great to have
    both of you here, and it is a special honor to introduce
    Senator Conrad.
        I was telling him as we came in, the last time I introduced
    him, I was the tourism director. He was a Senator, and I
    introduced him to be the keynote speaker at the grand opening
    of a tourism information center in Washburn, North Dakota, the
    Lewis and Clark Center. So it has been a long time. Lucy was
    very concerned then, too, Senator. But it is great to have you
    here, and we really could not hear from two better people.
        Senator Conrad is from Bismarck, where my wife and I live
    now. After graduating, he went to Stanford where he received
    his bachelor's degree and then received an MBA at George
    Washington University, and then went back home with a heart of
    service and went to work in the tax commissioner's office where
    Commissioner Byron Dorgan saw potential, evidently, and he
    worked for Commissioner Dorgan, who eventually became his
    colleague in the United States Senate.
        Senator Conrad does have a distinction in that he--both
    Senator Hoeven and I are in the lineage of the Conrad seat. He
    held both U.S. Senate seats from North Dakota--not at the same
    time, of course, but I consider it an honor. During his 20
    years, Kent was well known for being concerned about the budget
    and lived it out every day in this place, lived it out at home,
    always with North Dakota at the forefront of his concern and
    consideration, but was the real budget hawk that a lot of
    people turned to from both parties. And we are grateful for
    that legacy, Senator, and it is why, of course, you are here.
        So, with that, I am not going to go through all the
    incredible things he has done. He is going to give some great
    testimony I have already read. Thank you for that. And thanks
    for being here and for your service to our State for all those
    years.
        Thank you.
        Chairman Enzi. With that, we will begin the testimony. We
    will start with Senator Gregg.

      STATEMENT OF THE HONORABLE JUDD GREGG, FORMER UNITED STATES
               SENATOR, SENATE BUDGET COMMITTEE CHAIRMAN

        Senator Gregg. Thank you, Mr. Chairman, and it is a great
    honor and privilege to be here and to be sitting on this side
    of the table. It is a unique experience and I suspect will be
    very enjoyable.
        I want to thank the Chairman for inviting me and also
    inviting Senator Conrad, obviously, and I want to thank the
    members of the Democratic Party who are here and the members of
    the Republican Party who have taken the time to participate in
    this hearing.
        I want to congratulate Senator Enzi on the budget that he
    brought forward. I thought it was a very responsible budget, by
    the way.
        Also, it is a great pleasure to be here with Senator
    Conrad. He and I were Chairman/Ranking or Ranking/Chairman for
    many years, and we had some contests. We had some
    disagreements. But we viewed our role as partnerships. We were
    both directed in the same way. In fact, it was Senator Conrad
    who coined the phrase ``The debt is the threat.'' And that was
    basically the theme that guided both of our approaches.
        And so we did have some disagreements, and I suffered
    through too many charts over the years to even mention them.
    But we always were on the same path of trying to get the budget
    process to work right and, by working right, that means it
    manages our budget so that it is affordable for the American
    people.
        We are obviously in the throes of a very significant
    problem. The debt is now at $22 trillion. The debt-to-GDP is
    over 70 percent. We are looking at over trillion-dollar
    deficits as far as the eye can see right now, which is just
    inconceivable. We will probably hit 100 percent of debt-to GDP
    before the end of the next decade, which puts us in the same
    room with Greece and Ireland and Iceland and other nations
    which have gone bankrupt.
        We have, obviously, the advantage of being the currency of
    the world and the place where people think we can get things
    done and solve problems, and so the people give us great
    running room. But Senator Conrad and I served on the Simpson-
    Bowles Commission together, and one of Erskine Bowles' comments
    that I always remember was, when asked why our debt was not as
    big a problem as it had been for other nations which had the
    same debt situation, he said, ``Well, we are the best horse in
    the glue factory.'' And that is the simple fact. We are in the
    glue factory as a nation.
        So the first step to getting this under control is to get
    the budget process to work, and the budget process obviously is
    not working. And as Senator Van Hollen said,in the end it is
    about people and the willingness to take leadership and make the tough
    decisions. But there does need to be a framework which allows the
    Senate and the Congress to accomplish that.
        The problems with the budget process have to be addressed
    in order to fix the budget process, and the problems are a few.
        The first is that it is a hyperpartisan piece of
    legislation. The budget historically, in fact, has always
    passed on a pure party line vote, and it is partisanship in the
    extreme. The minority opposes it, the majority supports it, and
    there is very little constructive effort across the aisle, even
    with Senator Conrad and I, who basically worked very hard to
    make it a working process but still recognize that it was a
    highly partisan process. So there is always significant
    systemic opposition to the budget from the minority party,
    whichever it is.
        The second problem as I see it is--or this may not be as
    much of a problem today as it was when Senator Conrad and I
    were active--is that the Budget Committee is considered to be a
    threat by at least two of the major committees in the Senate:
    the Finance Committee and the Appropriations Committee. And
    they think that the budget is interfering with their turf, and
    there is really not a whole lot of enthusiasm on either of
    those committees, certainly from the staff but also from the
    leadership, to be a constructive player in the budget process
    at the level that you need it if you are going to get things
    done effectively.
        The third issue is that it does not address the budget. I
    mean, the budget is 27 percent of spending of the Federal
    Government; 73 percent of the Federal Government spending is
    not even addressed in the budget. It is incredible that we
    would have such an appropriations-centric budget when the
    appropriations process is so limited in its size and basically
    locked into its size. I mean, you are not going to be able to
    change defense by more than a percentage point or two, and you
    are not going to be able to change discretionary spending.
        So we need to address that, and we need to figure out a way
    to bring into play the rest of the items in the budget and have
    a comprehensive system.
        My view is that there are a lot of ways you can tinker
    around the edges and so substantive work around the edges. And
    Senator Conrad has proposed a whole series of those, but I am
    going to try to take a little different tack. I am suggesting a
    complete revamp of the budget process. I know it is not going
    to happen, but I want to throw it out just to get the
    discussion going.
        First off, we need to reconstitute the Budget Committee. It
    should be made up of the senior members of the Finance
    Committee, the Appropriations Committee, and the membership
    generally--one-third Finance, one-third Appropriations, one-
    third general membership, with the Chairman of the Committee
    being picked by the majority party.
        It should also be a bipartisan Committee--I mean a purely
    bipartisan Committee. It should be a 50-50 membership so that
    everybody has to buy into the final product. All the
    fingerprints are going to be on the final product. And if you
    do that, then both sides are going to have to take
    responsibility for not having a budget, and both sides are
    going to be able to take responsibility for getting a budget.
        Now, you are going to say to yourself, ``Well, how can we
    possibly do that because there is such a partisan difference?''
    Well, I think you put in an enforcement mechanism that makes it
    virtually impossible and extremely punitive not to pass a
    budget. And the enforcement mechanism I have thrown out would
    effectively not allow an appropriations bill to come to the
    floor, including an omnibus bill, until there is a budget. And
    if there is not a budget and there is not an omnibus
    appropriations bill, then you have to reduce spending by 5
    percent on the discretionary accounts and 5 percent on the
    major entitlement accounts, and you have to increase the tax
    liability on FICA and the HI tax by 5 percent. As soon as those
    things kick in, you will get a budget because people will not
    tolerate that type of a draconian event.
        Now, you can think of other draconian events, but I think
    that one is a pretty good one to force action on the
    Committee's part.
        There also needs to be an approach which looks at the three
    largest Federal entitlements. At least two of these cut across
    a lot of jurisdictional lines because they involve health care,
    and there ought to be a restructuring of how we approach those
    entitlements. And reconciliation is a club, but it is a very
    ineffective club, in my opinion, in the sense that it is not
    really structured to be targeted and be able to be flexible.
    And so you need to restructure how you address those three
    major entitlement programs in order to accomplish the goals.
        Lastly, there needs to be a capital budget. It should be a
    2-year budgeting process. And the point-of-order structure
    should be graded so that the threshold for crossing a point--
    for rejecting a point of order brought by the Chairman of the
    Budget Committee goes up as the number goes up that it might
    affect to a 67-percent point of order when you have got a
    really big number coming at you.
        These are very significant approaches in the sense that
    they are different and they are changes that are fundamental,
    but I actually think if we put in place a new budget process
    like that, we would actually get a budget.
        Thank you.
        [The prepared statement of Senator Gregg follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you.
        Senator Conrad.

     STATEMENT OF THE HONORABLE KENT CONRAD, FORMER UNITED STATES
               SENATOR, SENATE BUDGET COMMITTEE CHAIRMAN

        Senator Conrad. Thank you, Chairman Enzi and all those on
    the ranking side--Senator Van Hollen serving as the Ranking
    Member today.
        I would first like to take a moment to observe that
    Chairman Enzi will be missed in this body when he retires. My
    wife and I had a chance to travel to Africa with Senator Enzi
    and Diana to visit AIDS orphanages and AIDS clinics. I remember
    before we left, I told my wife, ``Do I really have to go?'' I
    thought it was going to be the most depressing thing I had ever
    experienced, but I can tell you it was really inspiring. And I
    learned a lot about Senator Enzi on that trip, and I learned
    that he is a person of rare character and decency, and we need
    more of that in this country. So he will be sorely missed in
    this body.
        I appear before you today as a former Chairman and Ranking
    Member. Senator Cramer, thank you for that kind introduction.
    When I was first here, I was in your position. I was at the end
    of the line. I was the 100th in the chamber in seniority, and I
    was at the bottom in seniority on this Committee. And at the
    end I was sitting where Senator Enzi is, the Chairman of the
    Committee. And I served as Ranking Member with Senator Gregg,
    and we developed not only a respect but a real friendship,
    which endures to this day.
        It was a very, very different place at that time. The
    budget process was taken very seriously when I came here.
    Markup could last as long as 2 weeks, and I will tell you, it
    was a serious business. I remember spending hours and hours
    preparing for markup, preparing amendments, preparing debate
    with amendments that were being offered. And always when a
    budget resolution passed the Committee--and it always did--it
    went to the floor for amendment and debate and a vote. Now that
    rarely happens.
        Let me share a story that illustrates how very much things
    have changed. Once when I was Chairman, I had a budget on the
    floor, and a senior Republican had an amendment pending that,
    if voted on, would have passed and, when passed, would have
    killed my budget. It was an amendment that would have sharply
    reduced farm program payments to large farmers that especially
    affected cotton and rice. And so I knew if that amendment
    passed, my budget was dead because no Democrat from the South
    could then vote for a budget with that amendment included.
        My best friend in the Senate, my colleague Senator Dorgan,
    happened to be the cosponsor of that amendment. I called him, I
    said, ``Byron, you are about to kill my budget.'' He said,
    ``Well, what do you want me to do?'' I said, ``I want you to go
    to the Republican sponsor and ask if he will withdraw the
    amendment. Explain the situation.'' He said, ``Boy, that is
    going to be a tough sell. This is something he has worked years
    on. He knows when we offer it, it is going to pass. He is going
    to accomplish something he has been trying to get done for a
    long time. But I will do it.''
        He called me back an hour later. He said, ``Our Republican
    colleague will withdraw his amendment,'' even though he knows
    he was going to kill my budget if he offered it, even though he
    knew he was going to win.
        Think about that. Could that happen today? But it happened.
    And this was a tough Republican partisan. You all know him. I
    am not going to call him out because what he did was really
    quite extraordinary. So things have really changed here.
        Let me tell one other story, and that is about Senator
    Gregg and I, we were on a trip to Central and South America.
    Our wives and we were seated together during that entire trip.
    And Judd is quite right. We have different views about how to
    solve the problem. But one place we were truly joined at the
    hip was we believed the debt facing this country was a serious
    and is a serious threat. And we believed we needed to take
    action.
        And so during this trip, we came up with the idea of a
    grand compromise. We came up with the idea of a special
    commission that became Simpson-Bowles. And we talked about the
    need to, yes, cut spending and raise revenue and reform
    entitlements to get America back on track.
        My greatest regret is that Simpson-Bowles never passed. We
    got 60 percent of the members of the Commission to support it,
    but it took a super-super majority to get a vote on the floor
    of the Senate. We never had that opportunity.
        We then had a group of six, some of whom are still here. We
    worked on it for several years trying to get it in a shape to
    present to our colleagues, but that never passed. I truly
    believe we could have made major strides of getting the country
    back on track had we passed Simpson-Bowles or something close
    to it.
        It is critical that America has a budget. Our gross debt,
    as Senator Gregg indicated, is $22 trillion. Our gross debt is
    already more than 100 percent of our gross domestic product.
    Social Security faces insolvency by 2034 Medicare by 2028, and
    that is according to the Trustees of the programs. When
    interest rates rise, the pressure on all other Federal spending
    and income will be intense.
        So Congress and the administration need to act, and it
    starts here. We need a functioning budget process. But we all
    know what has happened. The Federal budget process is little
    more than a charade.
        The leaders know that if the Budget Committee takes action,
    even if the budget never goes to the floor, it blocks any other
    member from offering a resolution that would require
    consideration by the whole membership.
        So because leaders of both parties want to shield their
    members from tough votes, they do not permit a budget
    resolution to be considered by the full Senate. And America is
    denied the opportunity to have a budget for the country.
        Meanwhile, we will be running trillion-dollar deficits when
    economic times are good, unemployment is low, inflation is low,
    economic growth is reasonably strong. And we are running
    trillion-dollar deficits? Really? What possible sense does this
    make? We can do better.
        I know it is now fashionable to believe for some on both
    sides that deficits and debt do not matter. I would say to
    them: Ask the people of Greece. I have been there. I met with
    their Finance Minister, their Prime Minister, under a crushing
    debt load. I tell you, it affects everyday people every day of
    their lives. Ask the people of Venezuela, ask the people of
    Chile, and, yes, ask the people of Germany before World War II
    whose currency so inflated they had to have carts and
    wheelbarrows full of money to go buy a pair of shoes.
        Deficits and debt matter when you reach a tipping point. No
    one knows for sure where that tipping point is, but it is clear
    we are racing towards it.
        So the first thing I would do is say if the Budget
    Committee's concurrent resolution does not come to the floor
    for a vote within 10 legislative days of passage in the
    Committee, any member could offer a budget resolution and it
    will be treated in the same way as a resolution from the
    Committee itself.
        That would put enormous pressure on any leader to bring a
    Budget Committee resolution to the floor for consideration. But
    that will not be enough. Let me quickly outline some other
    ideas that might make a difference.
        Reform ``vote-a-rama'' by establishing a filing deadline
    and a limit on the number of amendments.
        Make the budget process more efficient by adjusting the
    Federal fiscal year to match the calendar year.
        Amend the debt ceiling to lessen the likelihood of default
    and couple it to revenue and spending levels in the budget
    resolution.
        Prevent or reduce the likelihood of Government shutdowns by
    implementing automatic CRs.
        Prohibit lawmakers from using reconciliation to increase
    the deficit within the 10-year budget window.
        Curtail gimmicks by requiring all budget resolutions to use
    the CBO baseline and require all mandatory spending and revenue
    changes to be shown.
        Compel lawmakers to take a distinct floor vote to waive any
    Budget Act or PAYGO point of order.
        Include tax expenditures and mandatory spending within the
    normal budget process, something Senator Gregg referenced.
        Create a requirement that Presidential and congressional
    budgets include estimates of budgetary impacts for 20 years.
        For all estimates of legislation by CBO, require interest
    to be included in the cost.
        And implement multi-year debt-to-GDP benchmarks to shrink
    debt relative to GDP.
        Once again, thank you, Chairman Enzi and Ranking Member Van
    Hollen and all the members of this Committee. It is an honor to
    be here. Let me say I have confidence in the ability of this
    chamber to lead to get us to higher ground.
        I thank the Chair.
        [The prepared statement of Senator Conrad follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. I thank you and Senator Gregg. I want to
    thank you for having worked hard together to try and push a
    bipartisan commission to tackle the debt. And at one point you
    had enough cosponsors to make that possible, and then we lost a
    few. I was one of the cosponsors. I was one of the ones that
    stayed and voted for it. But I know that you spent some trips
    going to the White House to convince the President then to do
    what we were not able to do legislatively. And that happened,
    and it was called the ``Simpson-Bowles Commission,'' and you
    were both on it. And it had a debt reduction plan that was
    based on a model of bipartisan compromise. I look back and
    think what would have happened had that passed. We would be in
    pretty good shape right now.
        Looking back, what do each of you think worked and what did
    not about the Commission's efforts? How could we translate some
    of the Commission's approach into the Committee's future
    operations? Senator Gregg?
        Senator Gregg. Well, the Commission, as Senator Conrad
    mentioned, was an idea that we worked on together, and the
    theme of it was that the regular order simply was not working
    in the Congress. And so what we wanted was a group of people to
    come together who were basically players in the Congress and
    the President to have his say in it by putting his membership
    on it, have it be equally divided between Republicans and
    Democrats and between the House and the Senate. And I think the
    key leverage point of the Commission was that if the Commission
    reached an agreement, it had to be voted up or down without
    amendment, much like the BRAC situation is with the base
    closure bills, so that people could not hide behind amendments
    that they offered and lose. That is what happens. People will
    offer an amendment. They know they are going to lose it. They
    lose it and then they say they cannot vote for the final
    product. So it was an up-or-down vote on the Commission.
        And the positive of it was that it had extraordinary
    leadership in Alan Simpson and Erskine Bowles, and they decided
    very early that they were going to go big and that they were
    going to try to bring everything into play.
        We also structured the understanding--we reached an
    understanding where three-fourths of the deficit reduction
    would come from spending and one-fourth would come from
    revenues. We did this, and we also tied the decisions to GDP so
    that we were aiming at debt-to-GDP targets, which I think is
    very important, which is the way I think the basic budget
    should be structured. And when we did the tax side, all the
    Republicans in the Senate voted for it, and they were some of
    the most conservative--myself, Mike Crapo, who is still here,
    and Tom Coburn--because we recognized that it was a legitimate
    approach. We basically eliminated all the deductions and
    expenses in the tax law, which gave us $1.1 trillion, took $1
    trillion and reduced the tax rates, and we took $100 billion
    each year and reduced the debt.
        The overall package produced a $4 trillion savings over 10
    years, and if that had been put in place, the debt-to-GDP ratio
    would have stabilized at about 70 percent, and would still be
    there, I think, actually.
        It was a good approach, but once again, as Senator Van
    Hollen said, it came down to leadership. And the leadership did
    not want to push the package across the floor because they got
    flak from the left over the Social Security reform. We made
    that solvent for 75 years. And they got flak from the right
    over the tax bill, the tax part of the package, and the
    President also did not want to do it in the end, I think,
    although Senator Conrad can speak to that better than I can.
        Chairman Enzi. Senator Conrad.
        Senator Conrad. So I largely agree with Senator Gregg's
    description. The greatest regret I had serving here 26 years, I
    think people on the left did not fully appreciate how good it
    was in terms of the revenue it raised. I think people on the
    right did not like it because it raised revenue. We gored a lot
    of oxes. As I told my staff, I will never forget meeting with
    them before I voted and asked them for their advice, and many
    of them told me vote no. And I told them the only thing worse
    than being for this is being against it, so I am going to vote
    yes.
        And I said this is our opportunity to get this thing back
    on track. I think if people really examined the revenue, taking
    in mind the difference between various baselines, if they
    really examined the spending savings, they would see we would
    have largely accomplished what needed to be done to get the
    country back on a sound footing.
        You know, I do not know if that time will come again. I
    think it will, because here we are. We are headed for a
    circumstance in which Social Security is going to be insolvent
    by 2034. What does that mean? That means everybody is going to
    take a 23-percent cut. And, by the way, it is not going to be
    2034. I am here to predict today it will be quite a bit earlier
    than 2034. I have seen other modeling that says by 2029 we are
    going to be in this circumstance in Social Security, Medicare
    even earlier. So we are playing with fire.
        The one thing we know for certain is that if we act sooner,
    the changes will have to be less draconian. The sooner we act,
    the better. It is a mathematical certainty the longer we wait,
    the tougher the solution is going to have to be.
        Senator Gregg. May I follow up on that? Let me explain the
    tax side of this because it is important that those of us on
    our side of the aisle understand what the tax approach was.
        We essentially took the Reagan approach on tax. The 1986
    Tax Act, we essentially took that. And we took all the
    revenue--all the deductions and exemptions out, and then we
    took the top individual rate down to 25 percent. So it was a
    hugely positive event in the sense of creating economic growth.
    And we took $100 billion every year and moved it to revenue
    deductions--moved it to deficit reduction.
        Then on Social Security, which certainly had a lot of
    people upset but certainly I think from the other side of the
    aisle it was a major concern, the adjustments we made in Social
    Security made it solvent over 75 years, but we did not affect
    anybody who was on the system. And, in fact, we benefitted
    people who were on the system who were single parents, single
    women, widows mostly. The age, we scaled the age up, but we
    took 60 years to scale it up so people had plenty of time to
    plan for it. But it was attacked as being an immediate effect--
    having an immediate effect on Social Security, as things often
    are.
        So that framework I actually think, if you are going to get
    something done in a reasonably prompt period of time, is still
    a very viable framework.
        Chairman Enzi. Thank you.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. And I thank
    both of you for your testimony and a lot of the ideas you
    brought to the table. I think this is an important discussion.
        I remember after the Simpson-Bowles framework never went
    forward and got a vote, we, of course, had something called
    ``the Biden group,'' headed up by Vice President Biden. I
    served on that. It was a bipartisan group. What came out of
    that was the effort to build a budget mousetrap structure to
    force action. It became known as the ``Super Committee.'' I
    served on what is now known as the ``not so Super Committee.''
        I will say there were lots of good ideas, and, you know,
    people, members from both sides, discussed these issues in good
    faith, and the lever there was going to be the sequester,
    right? The Super Committee was incentivized to come up with a
    plan to address mandatory spending and deal with revenues, and
    if we did not come up with a plan, you would hit the sequester.
    Well, we are now 8 years into the sequester, and Congress, of
    course, year by year, you know, tries to take off the rough
    edges of that.
        So that was my experience with trying to set up a system,
    and it did create some pressure. At the end of the day it did
    not achieve, obviously, most of its goals. And I wish I was as
    optimistic as you, Senator Conrad. I think, again, people do
    come together in good faith, but it is just the incentives--I
    hope we can find a way to make it work.
        But let me ask you this: the Conrad rule. We used to have a
    rule called the ``Conrad rule.'' It was in place from 2007 to
    2013. Can you just remind us what the Conrad rule was? It was
    pretty straightforward with respect to reconciliation.
        Senator Conrad. Yeah, you could not use it to increase the
    debt. You know, reconciliation, as I read it, was designed for
    only one purpose, and I tell you, knowing Senator Byrd as I
    did, I have had this conversation with him. Reconciliation was
    designed for deficit reduction--not to increase deficits, to
    reduce them. That is the only reason--and I can assure you
    Senator Byrd made very clear to me the only reason he accepted
    reconciliation as a process, which, as you know, takes away the
    ability to filibuster, which is a critically important power of
    any Senator. It is taken away under reconciliation, and the
    only reason he accepted that was the whole premise was that it
    would be used for deficit reduction. That has been stood on its
    head, and now reconciliation is used to increase deficits. So
    it is----
        Senator Van Hollen. Right, that was in place, and you can
    love or hate the Affordable Care Act or something in between,
    but when you passed the Affordable Care Act, you did it under
    the Conrad rule, right?
        Senator Conrad. We did. Now, one of the things, I was
    Budget Committee Chairman, I insisted that it be paid for.
        Senator Van Hollen. Yes.
        Senator Conrad. And I will tell you, it made me very, very
    popular.
        Senator Van Hollen. No, no. Exactly. But that rule that was
    in place, it did force some of the decisions. The Affordable
    Care Act was paid for. The Conrad rule was eliminated in 2015,
    and so we just had a tax cut bill. And, again, I am not going
    to get into the merits of the tax cut bill, but as you said,
    the purpose of reconciliation as originally envisioned was to
    reduce the deficit. And, in fact, as we know, it dramatically
    increased the deficit, according to the Congressional Budget
    Office--not in the last 10 years where you are still supposed
    to have deficit neutrality, but in the first 10 years.
        And then we had a backup plan, too, right? What was the
    backup plan? The backup plan was statutory PAYGO. So under the
    tax bill, we increased the deficit $1.5 trillion, but there was
    a law in place, statutory PAYGO, which, Mr. Chairman, would
    have had an across-the-board cut to mandatory spending, the
    kind of spending you just talked about.
        What happened to the mandatory PAYGO after the 2017 tax cut
    bill was passed? It was put into a must-pass--the elimination
    of the waiver of statutory PAYGO. It would have been across-
    the-board mandatory spending, the kind of spending that we are
    here about.
        So, again, I am sorry for my frustration. I appreciate the
    hearing. I hope somebody can come up with an idea that will
    better incentivize efforts to reduce the deficit. But the
    Conrad rule was in place to do that. So if you wanted to have a
    tax cut, fine, but you had to pay for it. But the Conrad rule
    was eliminated.
        So I am sorry for my little bit of skepticism here, Mr.
    Chairman, not about these two gentlemen. I think some of the
    discrete items that you mentioned, some of them, you know, are
    at the margins improvement. I look for a big mechanism, too,
    Senator Gregg, if we can--if people can get together. As you
    pointed out, the challenge with something like that is getting
    the negotiation in the first place. I mean, the Biden
    Commission, instead of sequester, there was a proposal to have
    on the one hand cuts, on the other hand automatic revenues. You
    proposed increases in Medicare taxes and other things. We could
    not get that as part of the mechanism. So it is almost as
    difficult to structure the mechanism. So it is almost as
    difficult to structure the mechanism as it is to get the
    result.
        Thank you, Mr. Chairman, and I appreciate your being here.
        Senator Conrad. Can I just say in response that I share
    your skepticism? It is really what led me to leave this chamber
    because after years of almost constant budget negotiations with
    Bowles-Simpson and then the Group of Six and on and on, I
    actually reached the conclusion nothing is going to change
    until there is a crisis. And I hope very much I am wrong, but
    that is the conclusion I came to. And at the end I just could
    not really want to be a part of it.
        But I tell you, a grand compromise is going to happen
    because it has got to happen, and I think the thing that is
    going to drive it is when you approach Social Security, cutting
    everybody 23 percent--that is what is going to happen; that is
    the law. Can you imagine you are going to cut everybody 23
    percent? When Medicare is insolvent--it is coming very soon,
    less than a decade, years according to the Trustees. So a
    crisis is coming.
        Senator Van Hollen. Just for the record, some of us have
    put forward proposals on Social Security. People may not like
    them, but others should put theirs on the table as well.
        Thank you.
        Chairman Enzi. Did Senator Gregg want a last comment, too?
        Senator Gregg. Well, I agree with Senator Conrad that this
    Government functions very well in crisis, having been through
    the 2008 banking meltdown. And I suspect we will have a crisis.
    I am not so sure it is going to be driven by Social Security. I
    think it will be a dollar crisis where our currency comes under
    attack because people who have been lending us money will
    suddenly realize they cannot get their money back, all that
    they lent us. And when the world takes that position and loses
    confidence in the American currency, then you will have a real
    significant fiscal crisis. You can avoid that by putting in
    place mechanisms like--I hate to go back to Simpson-Bowles
    because it is so old and so distant to most people today. But
    if that mechanism had been put in place where you had a set
    plan for how you were going to--a glidepath for how you were
    going to get the deficits under control, you were not going to
    eliminate them, but you were going to get them under control,
    and that would be manageable, but then you will not have a
    currency crisis because the world will look at the currency and
    say the country has done what needed to be done.
        Chairman Enzi. Thank you.
        Senator Perdue.
        Senator Perdue. Well, thank you both for being here. This
    is not your first time on that side of the table. I remember in
    a very informal setting 2 years ago, 3 years ago maybe, you
    guys were here, and it was very helpful. It actually initiated
    a conversation that led to a Joint Select Committee last year
    where we had eight guys on our side, eight guys from the other,
    House and Senate, bicameral, we agreed on four or five things.
    We just could not pass a comprehensive bill. I am not going to
    spend any of my 5 minutes telling the record about how bad this
    crisis is, but I will say this: The debt crisis is why I ran
    for the Senate. I had no purpose to be here at all. The debt
    crisis is as real as you are describing it. I agree with you,
    Americans always deal well in a crisis. We are always one of
    the slowest to recognize we are in one. Well, we have been in
    one for the last 15 years, in my opinion.
        In 2000, we had $6 trillion of debt. The ratio to our GDP
    was very workable. Even by 2010, it was still somewhat
    workable. And we could debate how we got to $20 trillion, but
    now we are at 22. Here is the problem: We cannot cut our way
    out, we cannot tax our way out, we cannot grow our way out. It
    has got to be a combination of all of the above.
        We have been working for 4 years in a bipartisan way.
    Senator Kaine, Senator King, Senator Whitehouse on that side in
    this Committee have been part of--and we have 12 Republicans in
    a very informal way in the last 3 or 4 years. It is uncanny
    that it is easy to attract ex-Governors into that debate,
    right? And that mention right there, two ex-Governors on their
    side kind of get it, because by law Senator Kaine had to
    provide a balanced budget and had to live with it.
        You know, 44 States have that law, by the way. And, oh, by
    the way, I want to go to the question of--my first question is
    this--we could argue about the semantics and all this, but I
    agree, both of you have said this, we do not produce--the
    budget is not a law. Therefore, the majority crams it down the
    throat of the minority. It becomes a totally political thing.
    And all that we talk about, reconciliation, the Conrad rule,
    the Byrd rule, all this, are Band-Aids on top of a 1974 budget
    law that is the worst piece of writing I have ever seen in my
    life. It was never going to work. It is a disaster. And how it
    has taken 45 years for us to be here to try to get this fixed,
    we need your help. You are not running for office. You can tell
    us what you would do. We need to act on that. It was never a
    law. It was only dealing with discretionary, 25 percent of what
    we spend, and there were no consequences.
        In State governments, 44 States, if you do not pass the
    budget, you do not go home. It is as simple as that. And guess
    what? Until 2000--or until 1913, that was kind of the story in
    the United States Congress. It was the primary purpose that we
    were here. Now we go through these machinations, and we have a
    release valve called the ``CR.'' This, as we are learning now,
    is so devastating.
        Since the Budget Control Act, we have cut discretionary
    spending. Discretionary spending is not the problem. It is the
    mandatory side, and it goes back in history all the way back to
    1965, even in the 1930s when some of these things were built.
    This thing was never supposed to be bankrupt. It was supposed
    to be sustainable, the Social Security Trust Fund and the
    Medicare Trust Fund.
        My question for you is: Aside from the semantics--and I
    agree, I think, Senator Gregg, you said this, and, Senator
    Conrad, you have echoed some of it. Tax expenditures need to be
    discussed. It is an expense item. It is like anything else,
    including entitlements. We do not do a capital budget. I mean,
    how in the world can we build aircraft carriers and not have a
    capital budget?
        My question for you, very simply, both of you, is: How do
    we build--what type of consequences--besides sequestration,
    even the 5 percent, with due respect, we have proven that that
    draconian thing of 10 percent should never have happened, but
    it did. It took 25 percent out of our military spending over a
    decade and caused a readiness crisis honestly, so that is not
    the answer in my opinion. The answer is the lack of performance
    on our side. I agree so much with Senator Van Hollen. It does
    come down to human performance, but we have proven over 45
    years we cannot rely on that. Only four times in 45 years did
    that work.
        So my question to you is: How and what consequences and how
    would you implement it on the back of some of the systemic
    changes that you are both recommending? And you can throw a
    blanket over both of yours. I would take any combination of
    that. It would be better than what we have now. But both will
    fail unless we have some type of consequences on the body,
    including OMB and the White House, who are charged with coming
    up with an approval spending plan that keeps us out of this
    kind of disaster?
        And, by the way, it is not just a trillion dollars a year.
    A trillion dollars a year goes to $2 trillion really in the
    very short period of time we are looking at here. And so the
    economy is growing at a rate now where we could argue that it
    has lowered--not only did it not increase 16 expenses. It
    actually even lowered the debt curve by about $3 trillion,
    according to the OMB, who said that it pays for itself if you
    only grow 0.04 of 1 percent. And we are doing more than that
    now. Again, the question is: How would you build a consequence
    that would be meaningful, that would assure that the
    recommendations that you are proposing here would get us to a
    budget that would include mandatory and discretionary spending?
    Senator Conrad, do you want to start?
        Senator Conrad. I do not know.
        Senator Perdue. It is a question of our time.
        Senator Conrad. Honestly, I have spent so many hours
    contemplating this. I do not have an answer for you, Senator
    Perdue, on what leads people--I will tell you what I believe
    after being here 26 years. If people are not seriously
    committed to making it work, any system you construct will
    fail. And what is happening now is a perfect example. I mean,
    we have had a budget--as defective as it is, we have had it
    work in the past.
        Senator Perdue. But only four times, with due respect, only
    four times in 45 years.
        Senator Conrad. Well, four times. Four times is not
    nothing. So it has worked. But I do not know of any system that
    you construct that people will not figure out a way to waive,
    amend, defer, delay. So, you know, somehow it has got to be
    leadership. It has got to be people really committed to making
    it happen. Yes, we need these process reforms. You know, the
    one I raised I really feel strongly about, because, you know,
    the way it works, every leader knows that if a budget does not
    come out of the Budget Committee, any member can go to the
    floor and put forward a budget resolution, and it is treated as
    though it came from the Committee.
        Senator Perdue. Right.
        Senator Conrad. So the problem is, what has happened?
        We are passing them in the Budget Committee on both sides.
    Both sides do this. They pass it in the Budget Committee, so
    that locks out any member from going to the floor and putting
    out a resolution. I say take that protection away. I would love
    to see what would happen if an individual member could put
    forward a budget resolution because the budget resolution did
    not come to the floor because the leader held it up. Boy, I
    will tell you, we would be back to having budget resolutions, I
    think.
        Senator Perdue. Chairman, I am over my time, but could
    Senator Gregg respond to that? Sorry.
        Senator Gregg. Well, I think the essence of what Senator
    Conrad said I agree with, which is that there is not a clear
    path. If there were, somebody would have probably put it in
    place. I have suggested a mechanism in here that I think is
    reasonably draconian, extremely draconian, more draconian than
    the sequester exercise that would force hopefully action on the
    budget. But I honestly think that if you are going to really do
    it, you have got to go back to thinking outside the box, and
    you have got to recognize that regular order does not work any
    longer in the Congress, and you have got to have a structure
    like Simpson-Bowles. I hate to beat a dead horse, but I do not
    think it is dead. I think if you put together a Simpson-Bowles
    Commission again and you put on it the right players from both
    sides, both parties, and it had no amendment language and it
    had a charge to get to a certain percent of GDP, debt-to-GDP
    ratio, you would get a pretty good package that would come out
    of that group. It works with base closure. I guess you are
    going to do another base closure bill? Did I see that
    somewhere? It worked. Base closure went through, what? Five
    times we went through base closure?
        Senator Conrad. Yeah.
        Senator Gregg. You guys in Virginia certainly remember
    that. We in New Hampshire do, too. But you have got to go
    outside the box, because regular order simply is not going to
    work, and set up a structure that allows action to occur and
    then requires the Congress to either vote the action up or
    down.
        Senator Perdue. Thank you.
        Thank you, Mr. Chair.
        Chairman Enzi. Thank you.
        Senator Kaine.
        Senator Kaine. Thank you, Mr. Chair, and thanks to the
    witnesses. There are so many questions I would like to ask you,
    but I think I will just ask you one because I would like to
    kind of get into details with you, and that is debt-to-GDP
    ratios.
        As a former mayor and Governor, I conclude that it was less
    the balanced budget requirement than it was consensus around
    debt ratios that enabled us to manage our finances. And it was
    interesting, especially as Governor, very partisan environment.
    I am a Democratic Governor. I have two Republican Houses for 2
    years and I have one each my second 2 years. But we had an
    agreement, largely driven by going to the bonding houses and
    trying to keep our AAA bond rating, but we had an agreement
    about the debt-to-State-GDP and debt service as a percentage of
    budget outlays. And it was interesting. We had targets, and
    Democrats and Republicans, we accepted the targets, and we
    fought like heck about how to reach the targets. We need to cut
    more expenses. No, we need more revenue. Okay, we need to do a
    little bit of both.
        So when you have those targets, it does not take away
    partisan fighting that can actually even be productive as you
    are trying to find the right path. But we had targets that we
    stuck to. That was what surprised me coming to the United
    States Senate, that we had no targets. Not only do we have no
    targets, but it is a little bit hard to get people to even
    venture an opinion about targets. We have had the Fed Chair
    here before, and I said, ``What debt-to-GDP ratio do you guys
    use?'' We had a hearing once that the Chair called, I think it
    was, ``America's Dangerous Debt.'' And so I asked the witnesses
    the question: What level of debt is dangerous? Talk to me about
    ratios, debt-to-GDP, debt service payment as a percentage of
    budgetary outlay. And no one would give me what they thought
    right targets would be, maybe because they were sitting in
    positions where, at the Fed or something like that, if they
    said here is the target and they are already over it, something
    might happen.
        You guys are experts. You have been on this Committee, and
    you are not going to make the stock market go crazy one way or
    the other by venturing an opinion. So I would be curious if we
    were trying to set debt-to-GDP or debt service payments and
    budgetary outlay targets, what would you suggest to us? Or how
    would you suggest we approach questions like that?
        Senator Gregg. Well, I absolutely think this is the
    gravamen of a responsible approach to the budget, if you switch
    from numbers to debt-to-GDP ratios on both spending and
    revenues, and I think you pick the number by going to the
    historical band. The historical band is that spending is
    between 20 and 21.5 percent of GDP.
        Senator Kaine. And are you talking historical band since
    1965 when we added Medicaid and Medicare in, or would you----
        Senator Gregg. Yes.
        Senator Kaine. Okay.
        Senator Gregg. And the historical band on the revenue side
    is between 18 and 19.5 percent GDP. So that you have a
    historical deficit that is very manageable of under 2 percent.
    And those are very defensible. The only issue and the reason
    Simpson-Bowles went to 22 percent of GDP, I believe is where we
    ended up, is because we acknowledged the fact that the Baby
    Boom generation was retiring and we were going from 35 to 70
    million retired people.
        Senator Kaine. Living longer.
        Senator Gregg. And they live longer. The largest, fastest-
    growing demographic group in America is people who are over 100
    on a percentage basis. But also there are just so many more,
    and the biggest entitlement programs benefit those folks. So
    you are probably going to have to have a higher number than
    historically we had there. But that is a very manageable
    number, 22 percent, even if you went to that number, or
    something in-would do a band versus a specific.
        Senator Kaine. Senator Conrad.
        Senator Conrad. I entirely agree with Senator Gregg. I
    mean, we spent a lot of time, the two of us, talking about this
    as a predicate to Simpson-Bowles. I think it is absolutely
    essential that there be targets, that it should be based on
    percentage of GDP. And it is entirely doable. What he described
    is exactly right. In Bowles-Simpson, we concluded 22 percent.
    We had a lot of debate, a lot of discussion around that number,
    and it is entirely manageable.
        Senator Kaine. And was the Bowles-Simpson 22 percent all
    spending, including Social Security spending that was
    separately sort of financed or Social Security Trust Fund, you
    just took all spending and said it should be at this percentage
    of GDP?
        Senator Gregg. That is correct.
        Senator Kaine. And the same thing on the revenue side?
        Senator Conrad. Yes.
        Senator Gregg. That is correct. And just for the record, I
    want to point out everybody is talking--I think Senator Conrad
    is right--that Social Security will go insolvent before 2034.
    But it goes cash negative next year. And when it goes cash
    negative, that is going to hit our debt very aggressively
    because it is going to all have to come out of their operating
    accounts. Cash flow negative.
        Senator Kaine. Great. I appreciate it.
        Thanks, Mr. Chair.
        Chairman Enzi. Thank you.
        Senator Braun.
        Senator Braun. Thank you, Mr. Chair.
        I am new to the Committee, and Senator Scott and I do have
    a no-budget, no-pay bill. But in the short time I have been
    here, I have been amazed at how resourceful the body is of,
    when we do a budget--or how we outwit whatever is in place. And
    I heard Senator Van Hollen talk about political will. I have
    not seen much of that here like I would in the great State
    government I came from in Indiana or being the CFO and CEO of
    my company for 38 years. It just astounds me how you can come
    here, the biggest business in the world, and it gets run like
    this.
        I think when I look at how do you come to the table, I
    think there is implicit on the other side that there is revenue
    capacity. All I can say is that as a Main Street entrepreneur,
    I have never seen a hotter economy where we may be at the sweet
    spot of revenue generation. I have got my staff looking keenly
    at how would we ever raise revenue. I personally think there is
    some room for high liquid incomes, but I cannot see how you
    move revenue in any way that even makes up a small percentage
    of what the deficit is.
        So I think as long as there is a belief on one side that
    there is revenue capacity--and if there is, I think it is so
    small to be insignificant--we are going to do--and I hope we
    are lucky it is a series of smaller calamities and not a huge
    crisis. And my background in economics and understanding what
    the mention was earlier about if somebody else would ever
    become a reserve currency, it would cascade into a dilemma
    then. You know, that almost happened with the euro until they
    cropped up not being healthy; China would ever liberalize their
    economy, people might start parking funds there. Then it would
    start cascading.
        I think I would like your opinion, do you think that there
    is any room on the revenue side to bridge the gap in any
    fashion that would not jeopardize what in my opinion we have
    kind of found the sweet spot? Because when we look at what has
    happened since tax reform went in, I think it is going to be
    closer to revenue neutral, and, clearly, I believe it is what
    is behind 3 to 3.2 percent growth, payroll taxes being at an
    all-time high.
        Comment on that, and then if there is anything else other
    than a crisis, how we can set guardrails without then
    outmaneuvering them in some fashion like we do perennially.
        Senator Conrad. I would just say my final speech on the
    floor of the Senate was directed at both sides. To my side, I
    said those who say we cannot have savings--and I talked about 2
    percent of GDP. People say we cannot do that. Sure we can. We
    can do that. And on the other side, those who say we cannot
    have 2 percent more GDP on the revenue side, to say we cannot,
    yeah, we can. We have done it in the past. We can do it again.
        It is fascinating. If you go back to the Clinton years, we
    balanced the budget. We balanced the budget. We increased
    revenue, we cut spending. We were actually on a course to pay
    off the national debt. Remember that? I had the Chairman of the
    Federal Reserve come and see me and say that would be a bad
    thing. I said, ``Hold up.'' I said, ``Let us get a little
    closer to actually doing it before we become worried about the
    dangerous of paying off the debt.'' And, of course, we never
    did pay off the debt because, you know, the siren song was we
    have got to have money that is being borrowed for the Federal
    Reserve to be stable.
        So I just disagree with you completely that there is not
    revenue capacity. I disagree completely with my side that says
    you cannot cut any spending. I think you can do both. We have
    in the past. It worked. I think it would work again. And I do
    not think you are going to have any choice because if there is
    going to be an agreement, you are going to have to get both
    sides in on it. It is not going to happen on one side of the
    aisle. I spent 26 years here, and one thing I am absolutely
    certain of, it will not happen if it is just going to be one
    side.
        Senator Braun. And on the revenue side, do you think we can
    do that, which would be $300 to $400 billion, I think, in a
    rough calculation, around 2 percent, without impacting the
    economy and then hurting revenues due to the fact that you are
    not growing as fast as we are? Because we definitely got out of
    the zone of mediocrity and sluggish growth with the dynamic
    that was in place where taxes were before, LLCs and sub-S's
    being taxed nearly 40 percent, C corps probably did not need to
    go as low, but I do not think we can maintain 3 to 3.2 percent
    growth if you start doing much on the revenue side, especially
    not $300 to $400 billion.
        Senator Conrad. Look, on either the revenue side or the
    spending side, if you cut spending, you affect growth. If you
    raise revenue, you affect growth. The problem is if you do not
    have some balance between the two, your debt explodes, which is
    what is happening and which has, unfortunately, already
    occurred, and we are just adding to it.
        To me, we are racing towards a reckoning, and it will be a
    reckoning, a debt reckoning. Senator Gregg may be entirely
    correct. I would not be shocked either if it becomes a question
    of a value of the currency. And I will tell you, then we will
    see people sober up real fast.
        Senator Braun. Senator Gregg.
        Senator Gregg. Well, it is a good question, especially from
    our side of the aisle.
        Senator Braun. Yeah.
        Senator Gregg. I think you have to understand or take a
    position on how seriously you wish to address the debt and
    whether you think that the debt requires a balanced approach to
    address it. And by ``balanced,'' I would use the agreement,
    again, we reach in Simpson-Bowles, which is three-fourths of
    the debt is being caused by spending and one-fourth by lack of
    revenue.
        So I happen to believe that you can put in place a balanced
    approach, and you can do it with a revenue structure built off
    of the Reagan model, which essentially takes rates down to the
    mid-20s for income tax, and that will create a huge generation
    of economic activity, by eliminating deductions and expenses
    and expenditure and exemptions, which in my opinion should be
    eliminated because they pervert the marketplace. Money flows to
    the deduction, money flows to the exemption instead of money
    flowing to a person's pocketbook which they can then make an
    investment, which is a much more efficient use of dollars.
        So I think if you create a more efficient tax law, you can
    generate a lot more revenue, and in the process help reduce the
    deficit. And it will be--you know, one of the reasons Simpson-
    Bowles did not go forward was because Grover Norquist's group
    came out and said it was a tax increase. Another reason it did
    not go forward was because the AARP said it was an attack on
    Social Security. Well, in both cases they could make that case
    if you looked at it in static terms. But if you looked at it in
    terms of how you got the deficit under control, how you created
    a significant economic event by getting the deficit under
    control, and you are going to generate a much more efficient
    tax law by having a tax law that has much lower rates so the
    people can invest more efficiently, and you made Social
    Security solvent for 75 years, I think the tradeoff is worth
    it. You just have to be able to make those tough calls.
        I agree 100 percent with Senator Conrad. You are not going
    to do this on one side of the aisle. This has to be a
    bipartisan exercise. And if it is going to be bipartisan, by
    definition both sides are going to have to give some, and both
    sides are going to have to step on the toes of the people who
    do the most shouting in their parties.
        Senator Braun. Thank you very much.
        Chairman Enzi. Thank you.
        I still have some questions, so I am not going to pass up
    the chance when I have this kind of a brain trust here.
        Each of us as Chairmen have had the opportunity to look at
    a President's budget and say that is dead on arrival. When we
    are thinking of possible ways to reform the budget, what role
    do you think the executive branch ought to play in it? Senator
    Gregg?
        Senator Gregg. That is a good question. Should it be made a
    law and should the President have to sign or veto the bill is
    the issue. I think it is probably worth having him engaged at
    that level, or her, on the theory that the entire Government is
    engaged in spending the money and raising the taxes. So the
    executive branch is a big player in it, and, therefore, they
    should have skin in the game. And so I do think it should
    probably be a law subject to the signature of the President or
    his veto or her veto.
        Senator Conrad. So I am in the other camp. I think the
    power of the purse resides with the Congress. Certainly the
    President has a role because he has got to approve
    appropriations bills that flow as a result of whatever budget
    is agreed on. But I would like to see it remain as is, not a
    law, a resolution. And the product goes to the President where
    he has the ability to veto or not. That gives him enormous
    influence in the process, obviously. I never was in a situation
    in which I did not get signals from the White House about what
    they would want to see in a budget, and that is appropriate.
    But I do think should retain the power of the purse string.
        I am increasingly concerned about power flowing to the
    administrative branch. I think this is a place that has
    happened under both sides. Power has just flowed inexorably
    from the legislative branch to the administrative branch, and I
    think that is a dangerous thing for this country.
        Chairman Enzi. Well, one of the things I have discovered as
    Budget Chairman is that the President's budget is not the same
    format as the Budget Committee's format, which is not the same
    format as the appropriators' format,which is not the same as
    the way Treasury handles outlays.
        I have also come to the conclusion that that this construct
    is intentional. Nobody can follow the money. One of the ideas
    that I had, related to ``sequesters'', which is a really ruined
    term even though it could have some outstanding benefits, is
    not feasible but not when we do continuing resolutions. That is
    the difficulty we ran into in the one instance when we actually
    had to do it. We did continuing resolutions through three-
    quarters of the spending year, and then we had to put a
    sequester in place where they had to take all of that money out
    of their last quarter's budget. Nobody could do that. The
    military made a bigger deal out of it than anybody else and
    were probably more affected than anybody else. But we have got
    to find some way to make sure that we do things earlier.
        One of the ideas that I have had is a biennial budget, but
    to make it simpler so we do not have to cover all of those
    dollars in one year is to split it up so that we do the six
    tough bills right after an election, and the six easy ones just
    before an election. We were actually able to pass five last
    year, and we were close on about two or three more that should
    have made it through the process. And that convinced me even
    more that maybe staggered biennial budgeting would help
    agencies know 2 years in advance what they were going to get to
    spend. There are some difficulties in transitioning that, but
    if you have an opinion on that, I would be interested in it.
        Senator Conrad. I strongly support it. I think your idea is
    a good one. I think it would help enormously. I think it would
    also help oversight because then there would be some time in
    the off year to do oversight. So I think you are right on
    target.
        Senator Gregg. I think it is a good idea also, but I would
    put one corollary on it, which is that you would create some
    sort of a fiscal Committee which in the off year would have the
    ability to adjust the budget if something--during certain
    specific events that would require adjustment so you would not
    have to restart the process again to get an update if there was
    something that occurred, like the banking breakdown, banking
    system breaking down or there being a major event of some sort.
        Chairman Enzi. Yeah, I am sure that would have to be a part
    of it, too. Of course, I think that we have our committees
    names wrong. We are called the ``Budget Committee,'' but we
    really do not do the budgeting. The appropriators do the
    budgeting. And so I would like to change their name to be the
    Appropriation and Budget Committee. I am trying to think of a
    new name for this Committee, which in light of the ratios that
    we were talking about might be the ``Debt Control Committee,''
    and do some revenue estimating on what different changes could
    be made. But it also occurred to me during that process that--
    and during the sequester, that it is really the authorizers
    that could really influence all of this. I would move
    everything to the discretionary side that does not have a
    sufficient revenue flow at the present time to cover it
    forever. That is a better way than saying that even Social
    Security ought to be included because there is nothing that we
    have that the revenue covers the outflow of it. So we are
    having to steal from different places, and that makes PAYGO
    really tough because where are you going to get the revenue?
    But the people that can probably solve this might be the
    authorizers. But they have a different format than the Budget
    Committee, and Senator Perdue drew a map once showed all of the
    interconnections, and it looks more like a puzzle than it does
    a line chart of any kind.
        I also think this is the right time to do budget reform,
    because right now nobody knows who is going to be the President
    after the next election, nobody knows for sure who the majority
    is going to be after the next election. We worked on that
    before the last Presidential election and made some real
    progress in this Committee. We had 13 hearings. You were part
    of that. And we came up with a list of several things that we
    thought we could pass in a bipartisan way by unanimous consent.
    But that process got bogged down with some of the returning
    Presidential candidates. So I hope we can try that again.
        I really appreciate the lists that you both gave with
    suggestions, and I will see that those get circulated to
    everybody on the Committee. As we go through the process, I
    would appreciate it if you would chime in on any viewpoints
    that you have on whether it will work, whether it will not
    work, what we need to do to tweak it. Nothing is ever perfect
    right out of the box, and you are two of the best people that
    have worked this problem, and so I would appreciate the help on
    that.
        Senator Gregg. Mr. Chairman?
        Chairman Enzi. Yes?
        Senator Gregg. I am intrigued by this idea of renaming the
    Committee to the ``Debt Management Committee,'' whatever title
    you want that includes the issue of debt in it. I think that is
    a very intriguing idea if you at the same time restructure how
    this Committee can influence the entitlement exercises, which
    is the authorizing committee. I think your proposal on the
    Appropriations Committee probably is doable. But if you did the
    same thing on the authorizing side and this Committee had the
    capacity to somehow manage that within the context of debt,
    that is an intriguing idea and worth, I think, following to a
    logical conclusion, which would be a much strong Committee and
    a much more aggressive effort to get at the deficit and debt
    issue.
        Chairman Enzi. Thank you. I think we could get pretty good
    revenue estimates, and then from the authorizing committees we
    could get maybe an indication of what they thought they could
    do oversight on and maybe make some corrections on it. So,
    yeah, weigh in anytime you have an idea for us. I appreciate so
    much you coming today to present and your testimony. You know,
    everybody has that, but I am going to emphasize some parts of
    that testimony, too. And I do have to express some surprise.
    Where were the charts, Kent? [Laughter.]
        I do not think I ever----
        Senator Conrad. They took my chart machine away, Mr.
    Chairman.
        Chairman Enzi. Oh. I think at one of your last sessions,
    Senator Gregg brought more charts than you did just to make a
    point out of that.
        Thank you both for your testimony, and that concludes this
    hearing. If anybody wants to submit questions, they have until
    5 o'clock tomorrow to turn them in. We are adjourned.
        [Whereupon, at 3:59 p.m., the Committee was adjourned.]

        FIXING A BROKEN BUDGET AND SPENDING PROCESS: LESSONS FROM STATES

                                  ----------

                            WEDNESDAY, JUNE 19, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:31 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Mike Enzi,
    Chairman of the Committee, presiding.
        Present: Senators Enzi, Crapo, Johnson, Braun, Scott,
    Kennedy, Stabenow, Whitehouse, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Joshua Smith, Minority Budget Policy Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I call to order this hearing on ``Fixing a
    Broken Budget Process: Lessons from States.''
        Good afternoon. Today we continue our series of hearings on
    how to fix our broken budget and spending process, and this
    time, we are going to look at State budget innovations. States
    are often referred to as ``laboratories of democracy,'' and
    today we will examine how their budget processes work and
    whether some State practices could be successfully applied to
    the Federal level.
        I want to thank our panel of witnesses for being here
    today. I am especially pleased to welcome Senator Eli Bebout,
    the Chairman of the Wyoming Senate Appropriations Committee,
    who I will introduce later. The way Wyoming budgets and spends
    could provide important lessons for Congress on fiscal
    responsibility. I look forward to hearing from Senator Bebout
    today, including about Wyoming's experience with appropriating
    for 2-year periods.
        Forty percent of the States appropriate on a biennial
    cycle, which is a concept, I believe, should be applied at the
    Federal level. Moving to a 2-year funding cycle would give
    Congress more time to spend to attend to executive branch
    oversight and policy development, and reduce the potential for
    Government shutdowns. It would also create some needed
    predictability for Federal agencies and the Americans who rely
    on those services.
        Another important lesson to be learned from the States is
    fiscal responsibility. Our Nation is now $22 trillion in debt.
    Carrying over even a small deficit from year to year is rare at
    the State level. Forty-six States have constitutional or
    statutory requirements to balance the budget, and four States,
    without such a requirement, functionally balance their budget
    every year.
        Even more impressive, they finish these spending bills on
    time, something Congress has not done in more than 20 years.
    States are also innovators when it comes to planning for
    economic downturns or emergencies. My home State of Wyoming has
    one of the largest rainy day funds in the Nation and, according
    to Pew Charitable Trusts, could sustain solely off of these
    reserve funds for an entire calendar year. Congress should take
    a lesson from this approach, starting with planning and paying
    for natural disasters and other emergency spending.
        I hope that today's hearing will help shed new light to
    guide us as we construct a better budget and spending process,
    one that focuses on the long-term fiscal health of the Nation,
    is smarter about when and how we make budget decisions, plans
    and pays for natural disasters and other emergencies, and holds
    decision-makers more accountable.
        An effective budget and spending process will ensure that
    fiscal priorities are established and member are held to them
    by the public. It will also give Americans a better
    understanding of what their Government actually does while
    providing them with the confidence that their tax dollars are
    being wisely spent.
        Working together, this Committee will produce bipartisan
    solutions this year. I want to thank all the witnesses for
    being here, and I look forward to your testimony.
        And now I want to recognize the Acting Ranking Member,
    Senator Kaine.

                   OPENING STATEMENT OF SENATOR KAINE

        Senator Kaine. Well, thank you, Mr. Chairman, andthanks to
    the witnesses for coming. I applaud Chairman Enzi for having a set of
    hearings about budget process reforms, and it is certainly my hope that
    we will be able to make reforms that will improve the Federal budgeting
    process and do it in a bipartisan way.
        I think there is some solid common ground for agreement
    already, and we will discover more as we have this discussion
    today.
        I was a mayor and governor before I came to the Senate, and
    so local and State budgeting is something I am very familiar
    with. And I certainly believe that there are lessons from local
    and State budgeting that we could incorporate here.
        I was amazed to get to the Senate and find that there was
    no Federal debt management policy. We have a debt ceiling
    limitation, which is a raw number, but no town, city, or State
    would use a raw number. We use ratios of debt service to total
    budgetary outlay or total debt to GDP, and we use that with
    some sophistication to draw a line between what is an
    acceptable level of debt and what is not. We do not have a debt
    management policy of that kind at the Federal level, which is a
    little bit shocking.
        At the local and State level, I am familiar with a
    budgeting process that begins with consensus revenue
    forecasting. When I was governor, I had a revenue advisory
    board that included members of both parties in both houses of
    the legislature and leaders in key industry sectors around
    Virginia, and we began the budgeting process with a revenue
    forecast that we would all agree to live with. And then that
    set the framework for the discussions within the legislature
    about how to allocate that revenue, how to deal with the
    expenditure side, but at least we started with a common
    starting point on the revenue forecast. And that was a
    longstanding tradition.
        States use 2-year budgets. States tend to have capital
    budgets that are separate from operating budgets, so there is a
    whole series of things.
        Now, there are differences as well. It has long been
    accepted that the Federal Government will use debt
    countercyclically to deal with economic cycles in a way that
    States do not, and that is an important thing to do at the
    Federal level. But there are certain strong lessons, I believe,
    from local and State government that we should be able to
    absorb, and the one that is the most important to me--and the
    Chair has heard me say this over and over and over again--is
    certainty.
        I think what we owe to the public, what we owe to our own
    government agencies and planners, what we owe to the private
    sector is certainty. Budgets that provide certainty, you might
    like or not like a line item, but you can adjust around that
    line item, even if you do not like it.
        Too often at the Federal level, we have used things like
    continuing resolutions or shutdowns or furloughs or budget caps
    or things that create uncertainty, where the line item is not
    written in, in pen, and you can count on it. But, instead, it
    is put in with a question mark, and you cannot count on it, or
    we use gimmicks like OCO funding to bulk up a defense budget
    instead of honestly discussing what the base Federal budget
    should be. If we can come up with some bipartisan reforms that
    will increase our ability to, on time, produce a budget with
    some certainty that everybody can then adjust around, we will
    have done good work.
        And I applaud the Chair for bringing in folks representing
    the State budgets and giving us the opportunity to ask
    questions and learn from you today.
        Thanks, Mr. Chair.
        Chairman Enzi. Thank you.
        I would mention that some of the members are at an Iran
    confidential briefing, which seems to be making headlines these
    days, so I thank those of you who are here.
        Our first witness this afternoon is Senator Eli Bebout. As
    I mentioned in my opening remarks, Senator Bebout is the
    current Chairman of the Wyoming Senate Committee on
    Appropriations. He has previously served as both the President
    of the Wyoming Senate and the Speaker of the Wyoming House. He
    has more than 25 years of service in the Wyoming State
    legislature. I served some of those with him. It is truly a
    pleasure to have him here today, and I know how many hours of
    being on planes and airports it takes, so thank you very much
    for coming.
        Joining Senator Bebout is John Hicks, the Executive
    Director of the National Association of State Budget Officers,
    or NASBO. Mr. Hicks and his organization track the development
    of State budgets and assess State budget procedures and
    processes, and he has served on the State level as well.
        I would now like to recognize my colleague, Senator Van
    Hollen, who will introduce the third witness.
        Senator Van Hollen. Thank you, Mr. Chairman, and thank you
    for inviting three distinguished witnesses to the Budget
    Committee today, one from your State of Wyoming and another
    from the State of Maryland.
        And I would like to introduce to the committee, Benjamin
    Orr, who is the founder and Executive Director of the Maryland
    Center on Economic Policy. That is a nonprofit, nonpartisan
    organization that works in Maryland to advance innovative ideas
    to foster broad-based prosperity and help make Maryland a
    standard bearer for responsible public policy, and I would
    point out the State of Maryland has had a AAA bond rating for
    as long as I can remember.
        From 2011 to 2013, Mr. Orr was the interim director and
    policy analyst for the Maryland Budget and Tax Policy
    Institute, a very well-respected organization, and he also
    worked at the Brookings Institution under the tutelage of Alice
    Rivlin, who was somebody who contributed a great deal to our
    country in terms of thought on economics and on budget issues.
        So we welcome you here, Mr. Orr.
        Chairman Enzi. Thank you for doing that introduction, and
    we will get right into this because there is going to be a vote
    this afternoon, and we do not want that to impinge on getting
    the information that we need.
        So welcome, Senator Bebout. Please begin.

     STATEMENT OF HONORABLE ELI BEBOUT, WYOMING STATE SENATOR; AND
           CHAIRMAN, WYOMING SENATE APPROPRIATIONS COMMITTEE

        Mr. Bebout. Thank you, Mr. Chairman and members of the
    committee. It is a real pleasure to be here and have an
    opportunity to share with you some of the ideas and things we
    do at the State of Wyoming.
        As I am sitting here, it is a lot different being on this
    side of the table versus where you all are up there, and I like
    the idea where you are elevated a little bit, looking, and
    maybe we need to incorporate that in the State of Wyoming when
    I am conducting my budget hearings.
        But, anyway, before I begin, one of the things about
    Wyoming--and a lot of you are probably familiar. Many of your
    States are the same. But we are truly a citizen legislature,
    which I think is very important for the State level to do that,
    and we all have our families. We all have our businesses. We
    conduct our lives, and we do that. We serve at the pleasure of
    our electorate when we go to Cheyenne.
        Part of that, as you know, is what we have in terms of our
    credibility, and we have the Code of the West. Senator Enzi is
    very familiar with that and something we live by, and there is
    a lot of parts of that. I will not get into it.
        But what I would like to do is talk to you a little bit
    about the history of Wyoming and then get into some of the
    specifics about our budgeting process.
        Clearly, Wyoming has always had a biennial budget. For 85
    years, we only met once every 2 years. So, obviously, you are
    going to have a biennial budget, unless you have a special
    session; which we do not like and we do not have.
        Then in about the mid-1970s, we changed the constitution
    and said we should meet every 2 years, which we do now, but no
    more than 40 days in any one session. We divided it up into two
    sessions, one being the budget session and one being a general
    session, which has a lot of benefits.
        In the budget session, we deal with the budget, and in the
    general session, we deal with all of the other bills we have to
    deal with plus a supplemental budget, if it might occur. With
    this process the earlier bills received more favorable
    treatment for funding than the later bills. The last budget
    bill received their proper allocation of money and so we
    decided to go with mirrored bills. We would start two bills out
    the same. Both bills are the same, work one in the Senate, work
    one in the House, and go through the process, and it is a
    process that has really worked.
        I would like to talk a little bit about some of the reasons
    that I really support a biennial budget, and it is really
    important. And I think the process is working.
        Senator Kaine, I am very familiar with Virginia, which you
    talked about, and you mentioned certainty. Certainty is one of
    the things we deal with. We start with the governor's budget.
    Constitutionally, he has to have it balanced, and he presents
    that to the members of the Joint Appropriations Committee,
    which I co-chair. We go through that process for about a month.
    Then we take it to the full legislature. We work both bills on
    both sides of the body, and by doing it that way, we really
    have a sense of what is going on in both bodies.
        The thing that really drives our budget is not what we want
    to spend but the revenues that are available to us. We have a
    Consensus Revenue Estimating Group as well, and that group
    provides us with updates throughout the year. It is comprised
    of members of the executive branch, the legislative branch, and
    other people that come in from the industry to tell us what
    their current revenue projections are.
        Wyoming is very volatile with our reliance on mineral
    productions. We start with the CREG estimate for our revenue
    streams. From there, we work our budgets. We look at it and
    develop it as we go through the entire budgeting process.
        Some of the things that are really important is we
    concentrate on the budget. We are not getting involved in a lot
    of other issues, and you all have all kinds of issues. We
    concentrate on the budget. That again provides certainty. I
    think it provides staff from not only the executive branch,
    from the legislative branch, to be able to work on those issues
    and come up with ways to develop our budget.
        The next thing we talk about is it is a long-term planning
    method for us. It is 2 years, and we really believe in a 2-year
    budget. We have a supplemental budget for emergencies. It
    really should be for emergencies. If it does not pass that
    litmus test, we do not deal with it.
        It also allows people to have a perspective in terms of
    what we are doing with the revenue and the volatility of it.
    With us being so dependent on minerals, we need to have an idea
    of what goes on, and the bottom line is it just allows us in
    the general session to deal with other issues. There are four
    very important reasons to deal with a budget in a biennial
    process.
        As I was thinking about coming here and testifying in front
    of you and talking about our Federal Government--and I have got
    my own opinions, and I can certainly say those today, and I
    will say that I think that there is a lot of work that needs to
    be done to the Federal budgeting process.
        First, I cannot imagine what it is like to have an
    authorization and then you cap it, and then you have got to
    come back and appropriate. We appropriate. That is what we do,
    and to me, that is the way it should be without an authorized
    level.
        Second, I think if you could incorporate some of those
    ideas and you could limit it and start with what revenues are
    available, it might really be beneficial.
        Third, performance is a good part of what we try to do. We
    have ways of determining performance. We ask people and
    agencies to be held accountable, and if they are not, we do not
    allow them to have the money.
        Fourth, the last thing is how do we deal with emergencies.
    That is in the biennial. We have vehicles set up to allow the
    governor to be able to take care of--like we have forest fires,
    whatever it might be. We have available funding sources within
    the budget to be able to handle unknown contingencies and
    emergencies.
        It really works. It is a great process. We work together,
    and we work with the minority party, with the majority party,
    the House and the Senate. At the end of the day, we just cannot
    have a continuing resolution. We do our work, we finish, we go
    home. We declare victory, and it really works.
        I would love to see you all try to get a little bit more
    like Wyoming and other States do, and it is a pleasure to be
    here.
        Mr. Chairman and members of the committee, I will be glad
    to answer any questions.
        [The prepared statement of Mr. Bebout follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you. We will have questions later.
        Mr. Hicks.

         STATEMENT OF JOHN HICKS, EXECUTIVE DIRECTOR, NATIONAL
                  ASSOCIATION OF STATE BUDGET OFFICERS

        Mr. Hicks. Chairman Enzi, Acting Rank Member Kaine and
    Governor, and distinguished members of the Senate Budget
    Committee, thank you for inviting me to discuss State budget
    processes.
        My association's membership consists of the State and
    territories' executive branch budget offices. I want to walk
    through some of the primary differences between State and
    Federal Government budget processes.
        Number one is the balanced budget requirements, as the
    Chairman mentioned.
        Secondly, States use revenue estimates. Half of the States
    use a consensus revenue forecast to determine the top-line
    spending limits and budget totals, and they work within that
    unless there are policy changes in the tax bills.
        Thirdly is the governor's line item veto. Forty-four States
    require a super-majority legislative vote in order to override,
    so that brings the executive into the back end of the process.
        Capital budgets. All States adopt a capital budget as well
    as an operating budget.
        Debt limits and debt management. States have legal and
    policy implications on the amount of the bonds they include in
    their budgets, and those are subject to the metrics that
    Senator Kaine mentioned.
        Biennial budgeting, which I will address further in a few
    minutes, almost all spending in State governments are subject
    to legislative appropriation. Tax policy changes and program
    authorizations are usually done contemporaneously with
    appropriation decisions, and typically, authorization bills do
    not include dollar values.
        All 50 States have established reserve funds, or rainy day
    funds, to assist with economic downturns and to fund
    emergencies.
        A few remarks about biennial budgeting. There have been
    many instances where Federal budget process reform proposals
    have advocated the Federal Government change into biennial
    budgets.
        Today I want to give you several attributes that the 20
    biennial budget States consider to be most compelling.
    Embedding a longer-term planning horizon into public
    policymaking decisions by providing the ability to plan for the
    phase-in and ramp-up of changes and spending and tax policy and
    to provide better understanding of out-year budget impacts.
        It provides greater budget certainty, stability, and
    predictability, which benefits agencies, programs, and their
    beneficiaries, smoothing the highs and lows of annual budgets;
    an ability for the legislative body to use the off budget year
    to focus on non-budget legislation and oversight
    responsibilities which holds greater emphasis for part-time
    legislatures and those with shorter legislative sessions.
        Performance evaluation cycles between biennial budgets
    provide more time and information to that effort, and biennial
    budget periods are often synchronized with legislative election
    cycles.
        One governor recently stated, ``Biennial budgeting is
    needed to remove the incremental cost increases that creep into
    base budgets simply due to the fact that the budget is created
    annually.''
        Like the Federal Government, States have to reach agreement
    between the legislative chambers and often the governor to
    complete the budget process. Over the last 8 years, States have
    adopted on-time budgets 93 percent of the time, and almost half
    of the late budgets have occurred in unified governments in
    those 8 years.
        Circumstances common with late budgets in States are non-
    budget-related disagreements, marginal small-dollar issues, and
    tight fiscal times. Getting to agreement is required compromise
    to ensure a budget was adopted before fiscal year begins.
        States use several budgetary means for emergencies and
    natural disasters. The majority of States have separate funds
    or accounts, including the rainy day funds, and make
    appropriations to those accounts for those purposes.
        Some States provide non-sum-specific appropriation of fund-
    shifting authority to the governor in the interim, and States
    may also pass supplemental appropriations.
        One longstanding but greatly accelerating trend in States
    is the use of performance information, data, and evidence in
    their budget and program evaluation processes. In the budget,
    it is primarily being used to target funding within
    departments, institutions, and programs. Its use in the
    operations of government programs will continue to be more
    prominent than in the resource allocation decisions.
        So, in summation, State budget processes are effective
    institutions. They can and do work. They have shown to be
    durable among differing political environments. Beginning of
    fiscal year or a biennium with an on-time enacted budget is a
    State budgeting norm.
        States have constructed a set of budgetary rules and
    practices that achieve these ends, adherence to a revenue
    estimates; compliance with debt and spending limits; concurrent
    actions on tax changes, authorization legislation, and their
    appropriations, subjecting all spending to appropriations
    within a unified budget and setting up reserve funds with
    definitive rules on their usage.
        Thank you.
        [The prepared statement of Mr. Hicks follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you.
        Mr. Orr.

    STATEMENT OF BENJAMIN ORR, EXECUTIVE DIRECTOR, MARYLAND CENTER
                           ON ECONOMIC POLICY

        Mr. Orr. Chairman Enzi, Acting Ranking Member Kaine, my own
    Senator Van Hollen, Honorable members of the committee, thank
    you for inviting me to speak today about Maryland's budget
    process.
        As Senator Van Hollen said, the Maryland Center on Economic
    Policy is a nonprofit, nonpartisan think tank that believes all
    Marylanders should be able to achieve their full potential in a
    healthy economy that offers a widely shared and rising standard
    of living.
        My remarks today are based on the work we do to inform
    Maryland's budget and tax policy. They are also informed by the
    work of my colleagues and independent sister organizations in
    43 States, jointly called the State Priorities Partnership,
    including many of the States represented on this committee.
        I would like to begin by offering you a brief overview of
    Maryland's budget process. As Senator Van Hollen, who ably
    served in Annapolis for a number of years, knows, Maryland has
    perhaps the strongest executive-driven budget process in the
    Nation. Maryland's constitution stipulated that only the
    governor may propose increased spending in the State budget.
        So the budget for our next fiscal year, which starts July
    1st, is about $46.6 billion, including $13.2 billion in Federal
    funds.
        Similar to Wyoming and other States, we have a board of
    revenue estimates, which is a mix of elected and appointed
    officials, led by professional staff, which analyzes trends and
    provides revenue estimates in September, December, and March.
        In late fall, a joint legislative committee sets non-
    binding targets for the next budget, and in early January, the
    governor introduces their operating budget.
        Per our State constitution, this proposal must be balanced,
    though that may include drawing down or transferring funds.
        In Maryland, as in every other State, this balanced budget
    requirement only applies to the operating budget. We have a
    separate capital budget to fund infrastructure that relies on
    borrowing through the bond market.
        The legislature, of course, reviews testimony and analysis
    from the nonpartisan Department of Legislative Services, our
    version of the CBO, and State agencies and advocates, and again
    the legislature is only allowed to make cuts to the governor's
    proposed budget. They can mandate funding levels for future
    budget years, such as through the State's education funding
    formula, but cannot increase spending in the budget under
    consideration.
        Our State constitution requires that the legislature pass a
    balanced budget, operating budget by early April. If the two
    chambers cannot come into an agreement, then they go into
    special session or extended session, and once passed, the
    budget becomes law without the governor's signature. And the
    governor does not have veto powers. However, the governor may
    go to the three-member Board of Public Works, which they chair,
    and ask for line item modifications of up to 25 percent.
        In addition to the requirement to balance the operating
    budget, Maryland's finances operate under two additional
    constraints. Our debt service must not exceed 8 percent of
    State revenues, and our rainy day fund must hold the equivalent
    of at least 5 percent of general fund revenues.
        While this process is messy, Maryland policymakers have
    made it work for more than nine decades. We may wish for some
    reforms to increase budget flexibility around shared
    priorities, but the fact of the matter is that we have made it
    work. The proof is in our economic data. As Senator Van Hollen
    alluded to, Maryland is one of the wealthiest States in the
    Union per capita and maintains a AAA bond rating for as long as
    any of us can remember.
        Reflecting on Maryland's fiscal realities, I would like to
    briefly make three points relevant to this hearing. The first
    is that given the near universal requirement that States
    balance their budgets annually, it is vital, as Senator Kaine
    said, that Congress retain its flexibility to respond quickly
    to economic shifts. States rely heavily on the Federal
    Government's ability to ramp up spending during economic
    downturns when States must cut spending or increase revenues to
    account for budget shortfalls and increasing needs.
        This also means that a federal balanced budget amendment is
    a very bad idea. It would unnecessarily worsen recessions and
    cause dramatic increases in economic pain at the State and
    household level, even during economic expansions.
        Federal and State budgets are simply different. State
    balanced budget rules only apply to operating budgets. States
    have separate capital budgets, and States have rainy day
    reserves.
        The second point that I would like to make is that
    credible, nonpartisan data, research and analysis is vitally
    important to the budgeting process. Whether it is the Maryland
    Department of Legislative Services, the Congressional Budget
    Office, the Census Bureau, independent sources of information
    are crucial to understanding the challenges and opportunities
    we face. While we may disagree about what course of action to
    take, we must be able to clearly see what the situation is.
        Finally, and perhaps most importantly, something we at the
    Maryland Center on Economic Policy emphasize is an explicit
    focus on how budget decisions affect people in communities.
    Budgets are moral documents. What are our values as a State or
    as a Nation, and are we living up to those values?
        Increasingly, policymakers from places like Washington
    State and Iowa and all the way to Maryland are using a racial,
    ethnic, and gender equity lens as one way to better understand
    the tradeoffs involved in policymaking. We have found that the
    public better understands budgets when we focus more on our
    values and the effectives of our choices than on the specific
    dollars involved. Have we reduced hunger? Are our communities
    safer? Are our children prepared to enter the 21st century
    economy and lead? Regardless of process, how we answer those
    questions will determine the course of our Nation in the coming
    decades.
        Thank you.
        [The prepared statement of Mr. Orr follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you.
        We will now begin a round of questions, 5-minute questions,
    beginning with myself and then Senator Kaine and alternating
    back and forth in order of arrival. So I will begin.
        Both Senator Bebout and Mr. Hicks, what are some of the
    mechanisms that the State uses to enforce spending limits and
    keep members of the legislature accountable?
        Mr. Bebout. Thank you, Mr. Chairman, members of the
    committee.
        We do not have any specific items that we do legislatively.
    Our constitution certainly requires that we have a balanced
    budget, and the governor is required as well that when he
    submits a budget to us that it is to be balanced. And that is
    obviously a limitation.
        But what we do in the reality of it at the Joint
    Appropriations Committee and consistently with the years I have
    been in the legislature is we look at spending in terms of how
    we develop our budget. So if our CREG estimates show us we have
    X amount of money, then that is the goal we use to work for.
        We have a rainy day fund--we call it LSRA, Legislative
    Stabilization Reserve Account--that we ensure money is there.
        We also have spending policy amounts we have with our
    funds. Wyoming is blessed to have around $22 billion in our
    reserve accounts from mineral production as well as our school
    lands, and we monitor that very well and very carefully. In
    that, we have spending caps on the amount of money we can take
    from that. Those funds are inviolate, but yet we can utilize a
    certain percentage of those. And we shift that policy,
    depending on what we think the revenue stream would be. It
    might be 2.5 percent of the revenues would go in terms of our
    gross receipts that we would utilize for that or different
    amounts, depending on what we see.
        So it is all the process that we work within that we have
    the ability to set these goals internally with our committees.
    Leadership does it, and we work from there. And it works. It
    really does work.
        The fact that we also have side boards on our rainy funds,
    so if we do get in a bind--and Wyoming is struggling right now,
    no question about it with what is going on with commodity
    prices--we have these side boards that said, ``Okay. We are
    going to use our rainy day funds but only to a certain
    extent.'' Discipline, discipline, discipline, and provide
    certainty.
        Chairman Enzi. Thank you.
        Mr. Hicks.
        Mr. Hicks. Mr. Chairman, in terms of enforcement of
    spending limits, all of the States enact appropriation bill or
    bills, and within those bills are the line items, are the
    actual both amounts and language that must be adhered to by the
    executive branch and the judiciary as well as the legislative
    branch. And so there is a set of budget control mechanisms that
    is basically enforced by our members, the Executive Branch
    Budget Office, assuring that State agencies, executive branch
    primarily, adhere to the requirements of the appropriations
    bills.
        Even further, the management of the budget that is done by
    the executive on a 12-month-a-year basis also goes deeper than
    the budget appropriations act does in some cases to assure an
    appropriation utilization of management strategies, and the
    timing of spending is also controlled, so that a midyear
    revenue shortfall does not result in having spent 80 percent of
    the budget by that time.
        But very importantly, the legislative branch plays a
    critical area. There are times in which budget adjustments need
    to be made within the authority granted, but in most cases,
    that it is either overseen by the legislative body or in some
    cases acted on by the legislative body, particularly full-time
    legislatures. There are a number of States that have something
    like a budget board, which is comprised of both legislative
    members and the governor or executive branch members, and they
    jointly act on some of these budget adjustment measures.
        So the enforcement mechanisms are very rigid, controlled,
    and transparent.
        Chairman Enzi. Thank you.
        Mr. Orr, what kind of controls does the State have to make
    sure that the appropriation bills get done on time?
        Mr. Orr. There are several deadlines set out. The actual
    deadline for the legislature to pass the budget is about a week
    before the general session, the legislative session ends, so
    there is some warning as they are getting close.
        Then, as I said, if they--sorry. I did not turn my mic on.
    So they have this week where they kind of have a sense of
    whether or not they are going to--if they have missed that
    initial deadline, but they still have a week before the end of
    session. And then they are forced to go into extended session
    if they do not pass it.
        During that extended session, the budget bill is the only
    thing they can work on. They are not allowed to work on
    anything else.
        We had one example a couple years ago where we were making
    a number of adjustments to spending and revenue, and the
    legislature passed a budget bill that essentially has two
    budgets in it. Because there was a separate bill that would
    have changed some of the mandates and requirements, we have a
    Budget Reconciliation Act that includes the legalchanges that
    are included. That is separate from the budget bill, and if that did
    not get passed, then the sort of disaster budget would have been in
    play, whereas they did eventually pass that. And so the budget they
    actually wanted to pass was the one that was enacted on July 1st.
        Chairman Enzi. Thank you. My time has expired, but I will
    mention that I hope all of you would be willing to answer any
    written questions that anybody that is here or that cannot make
    it here can submit to you later.
        Mr. Orr. Absolutely.
        Chairman Enzi. Appreciate that.
        Senator Kaine.
        Senator Kaine. Thank you.
        I want to ask about two State-level practices that are
    common and have you talk about whether you think they could be
    applicable here. The one that I am not going to get into is
    biennial budgeting. I think we could definitely make that work
    here, and it would be salutary. Every once in a while, we have
    reached 2-year deals on appropriations that have provided a
    level of certainty that people like. That one, we can do.
        I want to ask you about debt management policies and
    revenue estimating. Maybe I will ask them in the reverse order.
        So revenue estimating, in my State, the governor would sit
    down with economists and develop some basic format but then
    present to a board--elected, industry leaders, bipartisan,
    bicameral, mayors, et cetera--some options on revenue estimate.
    Once we would fix upon an option, that would then be the source
    of the governor's introduced budget. And we would have all the
    arguments about it, but we would come up with a consensus that
    would then not be challenged that would serve the basis. So you
    would not have a different top line coming out of a House or
    the Senate or the administration. We are all on the same page.
        Here is an interesting quirk of the Virginia budget on
    revenue estimates. What if you make more money than you
    estimated? A governor could not spend a penny without getting
    permission of the legislature. What if you made less money than
    you estimated? The legislature was perfectly happy for the
    governor to make those cuts without a legislative imprimatur,
    thinking that when we came back next year, if we really hated
    him, we could obviously change.
        Could we use a revenue process like that? Would that be
    helpful at the Federal level? And then I will just extend it on
    the debt management.
        We have debt management policies, again, two basic ratios,
    debt service to budgetary outlay, total debt to, say, GDP. We
    would manage by those ratios.
        Now, in both the revenue estimate and in the debt
    management policy, plenty of room for a lot of partisan
    argument on the revenue estimate. How do we spend the money?
    Democrats would feel differently than Republicans about it. So
    we would have plenty of argument, but the top line was set.
        Similarly, on the debt management policy, how do we get to
    the ratios? Is it increasing revenue? Is it decrease in
    spending? We would have a great partisan argument about how to
    do it, but we would not argue about the ratios themselves.
        It seems like having that target really helped us exercise
    some discipline at the State level in both those areas.
        As you look at State budgets that you deal with, can you
    see how debt management policies and better revenue estimation
    that would reach us--that would get us to a consensus point
    could be implemented at the Federal level?
        Mr. Bebout. Well, I will take a shot at that, Mr. Chairman
    and Senator Kaine.
        The Consensus Revenue Estimating Group is, to me, where you
    start. That is the most important part of it, and the way we do
    it in Wyoming, it is comprised of, I believe, nine people, and
    then it is both the executive, the legislative branch, as well
    as industry people. And we have a very sophisticated system
    analyzing our revenues. Of course, in Wyoming, our revenues
    come from primarily sales tax. We have no corporate or personal
    income tax. So it is sales tax. It is the income we get off our
    permanent funds and our property tax, derived mostly of
    minerals.
        So we have a sophisticated process. Like I mentioned, we
    put these amounts together. So we have a good idea, and we
    developed a history to be able to determine that amount of
    money. And what we do is we have that profile. We do it twice a
    year officially, where they come out with what we call the
    ``CREG estimates.'' We do it in October, so the governor has an
    idea when he does his budget, what the revenue streams are, and
    we update it in January before we go into the session.
        We have a very good idea of what exactly the money is
    available. We know what our LSRA account, our rainy day account
    is. We know all of that information. So we base everything
    based on that level, and we really stick to it. The governor
    presents a budget. That is a top line, as we work through our
    budgeting process and do the JAC work, Joint Appropriations
    Committee. We continue to monitor that and keep it at that
    level. It really works, and that is how we do it.
        Like I mentioned, the side boards on our rainy day
    accounts, we can sometimes go in there. The governor can
    dothat, but at the end of the day, it is balanced. And we live within
    those revenue streams.
        As far as debt service and those things, Wyoming is very
    blessed. We have no debt. So we do not have anything in place
    that talks about we are going to have only debt limitations. We
    have it constitutionally, we can have no more debt than 1
    percent of the previous sales tax revenues. That is in our
    constitution, but in terms of anything we do in statutes, we
    just have no debt.
        I think there is one bond that we might have for $20
    million, and there is a reason we are ranked very high with the
    rest of our States in terms of our fiscal responsibility,
    because of the concerted nature we take when we put our budgets
    together based on not how much we want to spend, but the level
    of revenues we do have.
        Senator Kaine. I will say Virginia has been AAA in all
    bonding agencies since they started ranking, and we have a lot
    of debt. But we just have a strategy for managing it. So there
    is different ways to be AAA. Not having debt would be one, but
    you can manage debt well too.
        How about other ideas, Mr. Orr, Mr. Hicks, on these
    questions, mindful that I am almost out of time?
        Mr. Hicks. Particularly around debt management, most States
    not only have debt limitations, some of the metrics that you
    mentioned, but they have debt affordability policies, which
    means periodically, annually or biennially, they produce a
    whole set of information about what has been--the debt that has
    already been issued, the debt that has not been issued,
    economic forces that are happening because it affects the
    revenue side, but a whole suite of not only what the debt has
    been approved by the legislature, but what debt has been
    executed and the timing and interest rate cost and the changes
    that have occurred since the appropriations process. And so it
    is very highly managed.
        The timing of debt issuance is a real important issue in
    States. When you need the money is the most important thing in
    terms of--because we issue debt for capital projects, these
    multiyear projects that have a construction period of multiple
    years, and so it is very important that you time your debt in a
    certain way.
        States have adopted debt policies, which is essentially
    debt service divided by revenue availability or, as you said,
    total debt to State economic indicators, whether it is personal
    income or gross State product.
        Not all are in statute, but most are. And those that are
    not in statute have been policies that have been adhered to by
    both the executive and legislatures.
        Senator Kaine. Could I ask Mr. Orr--is that okay,
        Chairman Enzi--if you would want to address it quickly?
        Mr. Orr. I will try to be brief. Thank you.
        So I mentioned that we have a board of revenue estimates.
    Just to flesh that out slightly, the professional staff makes
    recommendations looking at revenue collection trends, looking
    at economic trends. The committee is actually made up of the
    comptroller, the treasurer, and the secretary of the budget. So
    the executive, the legislature, and the people all have a
    representative there because the comptroller is elected
    directly.
        I mentioned our spending affordability process, which set
    nonbinding goals for the next year's budget. We have a similar
    debt affordability process, which is led by the governor, and
    he sets some goals. And those goals often are below what is
    actually mandated in our constitution, those two limitations
    that I mentioned in my testimony.
        So like Virginia, with our AAA bond rating, we have about a
    billion dollars roughly in annual debt that we approve each
    year, and because we have the AAA bond rating, we get discounts
    for that. But it is a similar process to what has been
    described.
        Senator Kaine. Great. Thank you very much.
        Chairman Enzi. Thank you.
        Senator Braun, followed by Senator Kennedy and Senator
    Johnson.
        Senator Braun. Thank you, Mr. Chairman.
        In the time I have been here, I have noticed what we have
    been most resourceful at and creative is how we have come up
    with gimmicks and artifices to actually escape any of the
    things we have just talked about that we do at the State level.
        I was part of an Indiana State legislature for 3 years on
    Ways and Means and also Roads and Transportation, and back in
    '17, of course, we passed a constitutional amendment to balance
    our budget. Statutorily, we did it, and we did it naturally as
    a State that I think believes in the general rules of
    accountability.
        Being a CEO of a company where you had to earn your
    revenues along with controlling your expenses, it takes a whole
    idea of budgets even to a new level, and I can tell you that
    the accountability portion is harsh and merciless. If you would
    perform in any fashion like we do here, you would be out of
    business quickly.
        Senator Kaine mentioned responsibly managing debt, and we
    in Indiana have some debt. We have a AAA bond rating too. We
    would be up there with that of Maryland. But I think that all
    works because we have got guardrails and things that keep us
    within guidelines, so that it really never becomes a problem.
        There are some States more spendthrift than others and seem
    to have issues more similar to the Federal Governmentthan what
    the typical State would have.
        What do you think about the idea--can that--can we ever
    manage debt here without--Mr. Orr referred to it does not make
    sense, balanced budget amendments when you are trying to use
    economic policy in a countercyclical way.
        And I am going to start with Mr. Orr. Would you be willing
    to promote a balanced budget here in years of good economic
    activity? Let us just do half the equation. Do you think that
    would be sensible? Because I do not know that we ever get to a
    better place here unless we have some restrictions on how we
    operate. What about that idea?
        Mr. Orr. So I do not know that I would make a policy
    recommendation one way or another.
        I certainly remember when we did something similar in the
    late '90s.
        The larger point that I would make, though, is that the
    Federal Government budget is very different from State and
    local budgets, and also that corporations and households and
    States take on debt, just like the Federal Government. So you
    very much have to think about operating and capital together,
    and it is not ever as clear-cut as a balanced budget amendment
    would make it out.
        Senator Braun. I would like you to go into a little more
    detail because we typically talk about that back in Indiana,
    and it gets laughed at here, that there is a big difference.
    There is a day of reconciliation if you keep doing what we are
    doing.
        I remember the conversation the Chairman and I had the last
    time we got together as to what would be the trigger point,
    whether it is the depletion of the Medicare trust fund or
    whether it is the fact that when interest rates fully hold us
    accountable, being such a debtor nation in the sense of how we
    run our business here, will it be interest rates and the
    inability to sell our debt and place it. Why would you not,
    knowing that it is different and that we are the ultimate
    source of being able to borrow money--and we do have the
    ability, figuratively, to print it--why would not we want to
    use it as an example of how it should work here, other than the
    fact that we do not have to? And we find all the ways to get
    around it.
        I never could understand why we would not be out there with
    that as a model of a way to run a place like this. If you care
    to elaborate further?
        Mr. Orr. I think that it depends on how you--the problem is
    that the framing of the question, I have an issue with the
    framing of the question, as it exists in the larger world, not
    necessarily the way you framed it.
        But that the idea that we are in trouble because of
    increased spending and, therefore, need to make spending cuts
    ignores the fact that deficits at the Federal level have grown
    significantly, primarily because of revenue, lack of growth and
    revenue, and not so much in growth of expenses. So that would
    be the point that I would make in response to that question.
        Senator Braun. I am out of time, and I am hoping we have
    another round of questions because I will have several.
        I would like to cite that we here at the Federal level are
    generating record revenues--record revenues--and that the Tax
    Cuts and Jobs Act of 2017, as a mainstream entrepreneur, has
    got the sweet spot of revenue generation for this place, and
    that we are almost closer to revenue neutral than what the CBO
    forecasts. So I think that is a classic flaw that would be used
    here in the analysis of how we make things work.
        Thank you very much.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman, and thanks to you
    gentlemen for being here today.
        Senator, does our Chairman really know how to catch fish,
    or is it just putting us on? [Laughter.]
        Senator Kennedy. He has these fish in his office. Did he
    really catch them, do you think?
        Mr. Bebout. Well, Mr. Chairman, I expected a lot of
    questions. That was not one of them.
        Senator Kennedy. You do not have to answer.
        Mr. Bebout. Yes, he is a very good fisherman. There are
    some great places in Wyoming.
        Senator Kennedy. I know that.
        Mr. Bebout. If you have not been there, we would sure love
    to have you.
        Senator Kennedy. I am still trying to get over that Wyoming
    has no debt. I am still trying to get my mind around that.
        I want to use my time to ask each of you. You have observed
    the circumstances we find ourselves in at the Federal level. If
    you were each King for a Day--forget the politics and the
    personalities--what suggestions, what changes would you make to
    try to help us get control of our spending and our debt? Mr.
    Chairman and then we will go to each of the directors.
        Mr. Bebout. Well, thank you, Mr. Chairman and Senator
    Kennedy.
        I think we ought to have a balanced budget amendment.
        I suppose that, and even in Wyoming where we do have it
    constitutionally, I wonder if we did not have it if we would
    have the political will to not do what happens at our level
    here at Congress and the United States. So I support that.
        I think that is a--to me, as a businessman, as a member
    thathas to--I sign the check on the front and the back in my
    business, and I have revenues. And when I am having difficulty in my
    business, I simply cannot raise my rates. I have to make it work.
        So I support a balanced budget amendment. There are some
    quirks in it and some things that have to happen, and I get
    that.
        In Wyoming, one of the things that drives our budget more
    than anything is the courts dictating and mandating to us how
    we spend money on education, and if there is one area in
    Wyoming where it is automatic and ``escalators,'' if you want
    to call them that, that drives our funding, it is in education.
    That is one of the most difficult things to try to bring
    responsible spending to that level. Education is so important,
    but to try to be able to control it with those escalators, it
    is difficult. And yet we have a balanced budget.
        But what you see happening is all of the other programs in
    State government that are so important have their own
    constituency. The money shifts to education, and so to me, if
    we did not have that balanced budget in our constitution, it
    would be very, very interesting to see how we would operate,
    even in Wyoming, that we might not looking at spending more
    than really our revenue streams would generate.
        Last session, we spent almost a billion more dollars than
    we had in ongoing revenues. One of the situations that happened
    is we have one-time money, and one-time money is like capital
    gains. And we do not recognize capital gains until they are
    realized. People want to realize unrealized capital gains and
    spend the money before we get it, similar to what may happen
    here. We do not do that, nor will we do that.
        Senator Kennedy. That is a good point. That is a very good
    point.
        Mr. Bebout. And we are not going to spend money we do not
    have. So I like the fact that we have to--by constitution, have
    to have a balanced budget.
        Senator Kennedy. Mr. Director.
        Mr. Hicks. Senator, I as an individual had the opportunity
    to be a part of a Federal budget examination project that was
    hosted by Convergence. It was called Building a Better Budget
    Process, and some of those recommendations came out about
    aligning better the Federal budget process with electoral
    cycles; for example, to have a national 4-year plan that might
    be coincident with the presidential election cycle, and then a
    2-year budget plan that coincides with at least congressional
    election cycles, and that has some of the benefits of the
    biennial budgeting that the Chairman and the Ranking Member
    have mentioned. Those are two items.
        And continuing to strengthen the institutions, like Mr. Orr
    said, such as the CBO, so that facts are not in dispute among
    the members, and that there are existing situations that are
    clearly understood. And then it is discretion and choices and
    tradeoffs there.
        One other thing that I think--and it has been mentioned in
    past Federal budget reform is--the notion--and the Senator from
    Indiana was asking about debt. One of the things that States--
    States issue debt primarily for capital assets. Assets is going
    to live for a long period of time, and if we start borrowing
    for operating, the rating agencies smack us. So there is an
    enforcement mechanism kind of through the market for that.
        One of the things that the Federal Government does not do
    as well is separate operating expenses from capital expenses.
    Even if that did not change the budget process, it would be
    more knowledge and information available to use decision-makers
    to the citizenry about understanding how much debt are we
    having because we are building something versus how much debt
    would we have because----
        Senator Kennedy. Excellent point.
        Mr. Hicks [continuing]. Other reasons for spending. So
    those are a couple of ideas.
        Senator Kennedy. Mr. Director.
        Is that okay, Mr. Chairman, that we hear the other
    director.
        Chairman Enzi. Yes, sure.
        Mr. Orr. So, briefly, I agree with Mr. Hicks.
        But I think that the process--I think the legislators can
    make whatever process work. We need good inputs. We need good
    information.
        But Maryland's process is really kind of funky and quirky
    and odd, and yet we still make it work. So I would say process
    is sometimes overemphasized. It is important, but it does not
    solve the problem if you cannot come to a consensus, so thank
    you.
        Senator Kennedy. Thank you, gentlemen. Thanks for being
    here.
        Chairman Enzi. Senator Johnson.
        Senator Johnson. Thank you, Mr. Chairman. Thanks for
    holding this hearing.
        I do not think we look to the States enough to learn their
    practical solutions to some of these problems.
        One of the big problems we have in the Federal Government
    is mandatory spending. It exceeds the extent of our budget,
    whether it is the dedicated revenue stream is not adequate to
    pay out all the benefits.
        So let me just ask: Do any of you know the breakdown on
    average with all 50 States in terms of what you maybeconsider
    mandatory spending versus discretionary spending in the States or at
    least in your own State?
        I will start with you, Mr. Orr.
        Mr. Orr. So I do know about my State. I do not know about
    other States.
        Maryland, because we have this quirky situation where only
    the governor can add, the legislature relies more on mandates
    than other legislators, I believe. So we have about 87 percent
    of our general fund is mandated, but that is because that is
    the only tool the legislature really has. And through the
    Budget Reconciliation Act every year, they do make adjustments
    to those formulas. So it is not that those are locked in stone.
    There is adjustment. So it is a little bit different than
    mandated----
        Senator Johnson. Yeah. Your mandatory expense is actually
    on budget; ours is not.
        Mr. Orr. Yeah. So that is the difference between the
    Federal--and I think most States that have mandate spending,
    they are more like Maryland in that respect. They may not have
    quite as high a percentage, but----
        Senator Johnson. So it is mandatory, but it is not on
    automatic pilot like the Federal Government.
        Mr. Orr. Correct. That is a big difference.
        Senator Johnson. Mr. Hicks.
        Mr. Hicks. I would add that very point. There is a whole
    lot of mandatory spending. K-12 education in every State is a
    mandatory expenditure. It is just how much is not a mandatory
    thing. So States do not have a dollar value that is required.
    They have mission and purposes that are required.
        Senator Johnson. I would not call that mandatory spending
    in the same way. Anything close to what we have here, which is
    just mandatory, automatic pilot, you spend it, no matter what?
    And if somebody qualifies for it, they get it?
        Mr. Hicks. And States do not have that, and the reason is
    that most States, all spending is subject to the appropriations
    by the legislature, even if it is--debt service, for example,
    we are not going to repudiate our debt at States. We are going
    to pay our debt service, but it still has to be appropriated.
        In some cases, we have general obligation bonds in which
    the voters have approved. In that sense, there is a mandate,
    but still, it is subject to appropriations.
        Senator Johnson. Senator, do you want to add to that quick?
        Mr. Bebout. I would be glad to. Mr. Chairman and Senator
    Johnson, the thing that we do in Wyoming and the only thing
    that I would consider escalators occur primarily in education,
    where through the Supreme Court and the courts being involved
    in telling us what to do, which by the way I do not think is
    the way to do it, but anyway, that is what we have to live
    with. So there are escalators in that.
        Our retirement funds, they are built in things. We try to
    be actuarially sound, around 80 to 85 percent. We struggle with
    that.
        The last thing is the real thing that really determines our
    budget and one of the critical unknowns is Medicaid and how
    much and what level the Federal Government allows us to have to
    spend in our department of health, which is 40 percent of our
    State budget. And of that, the driver in that is Medicaid, and
    that is a volatile thing. That is one of the things we have to
    deal with.
        Senator Johnson. And, of course, that is Federal
    Government.
        Let us switch to just the one component, appropriation. We
    just passed out of my other committee, the government affairs
    portion of our committee, an End Government Shutdown Act. There
    have been all kinds of ideas to provide some discipline to the
    appropriation process.
        What we decided on is if you do not pass appropriation
    bills, you have basically an automatic funding mechanism at the
    current level. There is no increase in spending, no decrease in
    spending, and Members of Congress basically cannot go home on
    taxpayer or campaign dime. You kind of discipline that process.
    You have to move right to the appropriation process, basically
    what it sounds like a number of States are doing.
        Again, I described that very quickly. I think you
    understand the process because I think you have something
    similar in the States. My question is do you see any downside
    to that, or can you see any improvements in terms of what you
    would recommend the Federal Government do, similar to what the
    States--to discipline that appropriation process? So at least
    we end the dysfunction. We never have Government shutdowns
    anymore.
        We will start with you again, Mr. Orr.
        Mr. Orr. Certainly. I do appreciate the discipline that
    requiring legislators to stay in Annapolis and stay on topic
    provides.
        I worry a little bit when we talk about just continuing on
    as before when the Federal Government--when Congress does not
    pass a budget because, depending on how long that process goes,
    it quite easily could lead to automatic cuts and services if
    there is not some sort of inflation adjustment or health care
    costs are rising faster than----
        Senator Johnson. But it beats a shutdown.
        Mr. Orr. Well, I do not know that that is necessarily true
    of the long term.
        Certainly, Maryland is uniquely exposed to shutdowns inways
    that--Virginia and Maryland are uniquely exposed to shutdowns in ways
    that some other States are not, but even with that being true, I still
    am concerned about the long term impact.
        I worry that it would replace, that that automatic
    extension would replace the regular order in a way that I am
    sure you do not intend.
        Senator Johnson. Okay. As long as the Chair is not paying
    any attention, Mr. Hicks. [Laughter.]
        Mr. Hicks. I think the downsides to the idea are mostly
    political in that regard or institutional in the sense that the
    Congress is not adjudicating the claims that a budget does in
    which you are making choices and tradeoffs. So, in that extent,
    that might be the downside.
        There are a number of States--I think your State is one of
    them--that in the event that they did not pass a budget on
    time, there is already an existing statute that does, as you
    just said, the existing level of appropriation continues until
    a new budget is.
        California, for example, by June 15th if the legislature
    did not kind of finish their budget, they were not paid any
    longer. Well, they finished their budget by June 15th----
        Senator Johnson. We include that as well.
        Mr. Hicks [continuing]. The other day.
        And then there are other issues such as think of the State
    of Illinois who went 2 years without a budget, and by court
    decisions and other requirements, a whole lot of spending
    continued. And there was a minimal amount but an important
    amount that did not. So, in some cases, the implications really
    were not fully felt.
        Senator Johnson. Thank you.
        It is up to the Chairman if you want to let the Senator
    answer that.
        Chairman Enzi. Certainly.
        Senator Johnson. Okay. I figured you might. [Laughter.]
        Senator Johnson. Senator.
        Mr. Bebout. Thank you, Mr. Chairman and Senator Johnson.
        A couple of things that really drive us--and the question
    is would we do it if it was not, but it is our constitution. We
    can only meet 60 days. So we go into a session understanding,
    and we set up a schedule moving into it, what we are going to
    do on certain days and how we work the bills, what we do, which
    agencies we hear, and it is all planned out. We do meet that
    deadline. If we did not have that deadline, I am not so sure we
    would not continue to do that.
        As far as continuing resolutions to extend and we do not
    have money if something happens, we build in those emergency
    funds so the governor has latitude, and we set up for us, which
    has a small budget, about 40- to $60 million in case something
    happens.
        We also allow agencies to transfer money internally. Like
    within the department of health, if there is a Medicaid thing
    that comes out and there is a $10 million hiccup we did not
    realize, they have the latitude to transfer that. It is called
    a ``B-11 process.'' The governor authorizes it, but they do
    that.
        Then we can do 5 percent from agency to agency, like
    department of health to department of ag. So we have got a
    pretty good process that covers this when we are out of town.
        Senator Johnson. Thank you.
        Thanks, Chairman.
        Chairman Enzi. Thank you.
        Senator Whitehouse.
        Senator Whitehouse. Thank you, Chairman. Much appreciate
    this hearing.
        Mr. Bebout, welcome. Delighted that you are here. Do we
    call you ``Mr. President''?
        Mr. Bebout. Well, Mr. Chairman, I have been called a lot
    worse, but ``Senator'' is fine, Senator.
        Senator Whitehouse. We just made the change in the Rhode
    Island State Senate also. So the leader of the Senate is now
    called the ``president of the Senate,'' whereas before it was
    the majority leader, like here in Rhode Island. So I have
    gotten used to it a little bit.
        But welcome, and thank you for sending Mike Enzi and John
    Barrasso here. They have been great to work with on a whole
    variety of issues, and one of the reasons we are here is that
    the Chairman is trying to lead reform of our budget process,
    which I think has failed for a variety of reasons, not the
    least of which is that when it was designed, we usually passed
    our appropriations measures with a simple majority. In fact,
    all sorts of even very contentious bills passed in the Senate
    with a simple majority. That was just the standard operating
    practice.
        Dianne Feinstein describes how her guns bill was allowed to
    pass by a simple majority. I think they got 57 votes, and that
    was clearly a contentious issue. So it was a different time,
    and in that era, if you did not meet the budget committee's
    levels, you could not pass your appropriations with a regular
    50-vote majority. You had to kick up and acquire a 60-vote
    super majority, and what has happened since then in the Senate
    is that we basically have agreed we are not going to do
    anything except with a 60-vote threshold.
        So the fence line that the budget committee had around its
    proposed budget is basically a floor-level fence, and a floor-
    level fence is no fence at all. So the appropriators who have
    understood for some time that they are going to have to do 60
    votes, our budget could not be less significant to them. There
    is zero consequence for the appropriators varying from the
    budget that we put together.
        But, as you can appreciate, it makes it kind of awkward to
    enforce anything we do here.
        Do you have a capital budget in Wyoming?
        Mr. Bebout. Mr. Chairman, yes, sir, we do. That is a
    separate part of our budgeting process. When I talk about what
    the Joint Appropriations Committee works on in terms of
    budgeting, that is the operating budget for the State, just
    like these two gentlemen talked about in other States. Then we
    have a separate capital budget. We break that down into two
    distinct areas. We have State capital construction budget
    relative to building whatever deals with the State, and then we
    have our school, K through 12, capital construction budget.
    Those are separate items that we deal with.
        Senator Whitehouse. So it is pretty clear to everybody what
    belongs in the capital budget, and there is not a lot of
    gamesmanship about stuffing things into the capital budget that
    ought ordinarily be in the appropriating budget.
        Mr. Bebout. Yes, sir, Mr. Chairman. It is very clear, and
    those budgets are separate. They work through the process
    separately, and that is by design.
        Senator Whitehouse. You have to meet a constitutional
    requirement that your budget balances, correct?
        Mr. Bebout. Mr. Chairman, yes, sir, we do.
        Senator Whitehouse. And that does not count the capital
    budget other than the debt service and so forth on that? That
    is to the side? The budget that has to balance is your
    appropriations and whatever is required to service the loans on
    the capital budget?
        Mr. Bebout. Mr. Chairman, no. Our budget is
    constitutionally to be a balanced budget and that includes our
    capital expenditures. It is all one package based on our
    revenues. We have to provide that balanced budget, which
    includes capital construction and capital spending.
        Senator Whitehouse. So the year-to-year spending on a
    particular building is right in the constitutional budget?
        Mr. Bebout. Yes, sir, Mr. Chairman, and what we do, if we
    are going to build a building in Wyoming--we just completed a
    $300 million renovation of our capital--is we use previously
    accrued funds. We started about 10 years ago setting aside
    money so we would have the funds. The capital project set
    aside, and typically what we try to do is when we decide we are
    going to build something, we have the cash in the bank, so to
    speak, to do it. Therefore we do not get into a negative
    balance scenario. Then when we work out budgets, we already
    have the money set aside for capital construction. It is there
    as part of it. It is balanced, and then we work from the
    operating budget.
        Senator Whitehouse. And how often is there bipartisan
    agreement on budgets?
        Mr. Bebout. Mr. Chairman, we have a bipartisan process,
    although Wyoming is overwhelmingly Republican. You have
    probably seen that. We are one of the most Republican States in
    the Country.
        I was in the minority party before, at one time, and it has
    always worked that we work together. It really is a bipartisan
    effort, especially on the capital construction project side of
    it. There are differences on our spending, especially the
    entitlements, given the nature of politics, and we have that.
    But, all in all, we work well together.
        Senator Whitehouse. I appreciate that sentiment because
    Chairman Enzi has been trying to lead us towards a more
    bipartisan process here at least that there should be some
    bipartisan avenue for progress, and Senator Braun, who is here,
    has been one of the best advocates for that and is a cosponsor
    of the legislation that would create a bipartisan bypass, if
    you will, around what is otherwise here often a very partisan
    and loggerheaded process.
        So it is good to hear from you that bipartisanship works
    because we are trying to make it work here as well, and I
    appreciate you being here.
        And I thank the Chairman for this hearing.
        Mr. Bebout. Yes. And, Mr. Chairman, just to take off on
    that topic--and I appreciate those comments. As former
    president of the Senate, I wanted to work in a bipartisan way
    because we all want the same outcome at the end of the day, the
    best that we can provide for our citizens, and we work
    together.
        Senator Whitehouse. Some person in business once told me
    something that has completely stuck in my mind, which is in
    business, debt does not matter until it matters, and then it is
    the only thing that matters. And I think we do not want to get
    to the situation where it is the only thing that matters.
        Thank you. Thank you, Mr. Chairman.
        Senator Whitehouse. Thank you.
        Chairman Enzi. Did you have a quick question here?
        Senator Braun. Yes, I do. Thank you, Mr. Chairman.
        Mr. Orr, what is the average annual increase in revenues
    for the State of Maryland roughly over the last 5 years?
        Mr. Orr. I do not have the numbers off the top of my head,
    but it is in the neighborhood of about 3 or 4 percent.
        Senator Braun. Okay. That is a good increase that many
    other States might not have the advantage of it. So I was just
    curious to see how your revenue stream was moving, which would
    enable you to maybe have a little leg up on other States.
        Mr. Orr. As I said, we are one of the wealthier States per
    capita.
        Senator Braun. Yep.
        Mr. Orr. At the same time, our expenses are rising faster
    than our revenues. We do have a structural deficit issue about
    5 years out where we have got like a--I think the last number I
    saw was a $1.2 billion shortfall between revenues and expenses
    5 years out based on projections about our population growth
    and the aging of our population and education funding formulas,
    those sorts of things.
        And the legislature is constantly grappling with that. That
    story has been true in the decade I have been working on
    Maryland budgets, and every year, we still manage to pass a
    balanced budget.
        Senator Braun. That is good, admirable.
        Mr. Orr. Whether it is through revenue increases or cuts to
    expenditures, we pass a balanced budget.
        Senator Braun. And finally for all three witnesses, top two
    recommendations for the Federal Government if you would have
    them, so I can write them down and see what your thoughts might
    be.
        Mr. Orr. I would just reemphasize the importance of good
    data and also emphasizing the values that are in our budget. I
    think that is really how people understand budgets is when we
    express them in human terms, and so that would be my
    recommendation.
        Senator Braun. Thank you.
        Mr. Hicks.
        Mr. Hicks. That is a tough question. I would say the ideas
    that I had mentioned earlier about the prospect of a longer
    time horizon in terms of both planning and in budgeting, I
    think, is something that would serve the Federal Government
    well.
        I think a greater understanding of the distinction between
    operating and capital expenses is a transparency question. The
    citizens need to know better what is in the Federal Government,
    what are our tax dollars getting, and that is a helpful way, I
    know at the State level, that describes the things that are one
    time and the things that are ongoing.
        Senator Braun. Thank you.
        Mr. Bebout. Yes. Mr. Chairman and Senator Braun, what I
    would suggest is that you spend within your means and try to
    figure out what your revenue streams are on the front end, and
    that way, you know what you have rather than having the
    spending side of it drive it.
        You talked about all of the different things that are
    mandated. I would take a hard look at that. I think that is
    very important.
        Then the last thing that I would recommend is I think a
    balanced budget amendment really does make a lot of sense to
    talk about and move in that direction, and the transparency
    part of it will always help in those kind of situations.
        But the other thing I would leave you with is try a
    biennial budget. It really is the right thing to do, and I
    think it would help you.
        Senator Braun. Thank you very much. Great testimony, and
    Senator Van Hollen, who left earlier, I will never forget said
    the thing we lack most is political will, and I would agree
    with that.
        Thank you so much.
        Chairman Enzi. Thank you, Senator Braun.
        I want to thank everybody that was here today. It is a much
    bigger turnout than we normally have, but we usually do not
    have such great practitioners, people that actually have kind
    of gotten their hands dirty on the issues that we are working
    on. You are all three truly a brain trust on budget, and this
    has been very helpful. I have taken pages of notes here, and as
    I mentioned, we will allow people to submit questions until
    five o'clock tomorrow. And we will get those to you. If you
    would be willing to answer any of those, we would appreciate
    that.
        I think what you have already said has made a difference,
    and I think it is a bipartisan difference.
        Of course, anything that you want to add, feel free to give
    us any suggestions in writing anytime, but it would be helpful
    if it came with any answers that you submitted to us. We can
    make a difference. We need to make a difference, and you are
    the start of it. Thank you.
        Adjourned.
        [Whereupon, at 3:42 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      FIXING A BROKEN BUDGET AND SPENDING PROCESS: SECURING THE NATION'S
                                 FISCAL FUTURE

                                  ----------

                            WEDNESDAY, JUNE 26, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 3:27 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Mike Enzi,
    Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Johnson, Braun, Scott,
    Whitehouse, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Joshua Smith, Minority Budget Policy Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I will go ahead and call to order this
    meeting of the Senate Committee on the Budget. There will be
    more Senators arriving. We were finishing a vote, and there was
    some doubt as to whether the fifth one would be voted on. They
    decided it would be delayed somewhat. I do not know what
    ``somewhat'' means, but I know it means that we can go ahead
    and start on our hearing.
        Today we continue a series of hearings on how to fix our
    broken budget and spending process with a focus on securing our
    Country's fiscal future.
        I am pleased to welcome back to the committee, Gene Dodaro,
    the Comptroller General of the United States and the head of
    the U.S. Government Accountability Office. He has made many
    appearances here before. He has given us a lot of great advice.
        I particularly appreciate the somewhat lengthy testimony
    you provided for today. I looked at it, underlined it. Good
    stuff. I am going to be encouraging all of the committee to
    read that, and then, of course, you had an appendix too that
    covers a number of things that could be done, not necessarily
    by this committee, but that show the problems that this
    committee needs to solve with housing, transportation, Pension
    Benefit Guaranty Corporation, overlap and duplication
    everywhere, improper payments, Medicare payments, Medicaid
    supplemental waivers and oversight, unpaid taxes, which is
    called the ``tax gap'' in here, and tax expenditures and
    defense-related resources. Very thorough, very helpful, and
    hopefully, we can do something really meaningful with it.
        In April of this year, GAO issued its third annual update
    on the Nation's fiscal health. The report concluded that the
    Federal Government is on an unsustainable fiscal path with the
    debt-to-GDP ratio on track to surpass its historical high of
    106 percent within the next 13 to 20 years.
        Just yesterday, the Congressional Budget Office released
    its long-term budget outlook, which provided a similarly bleak
    outlook. CBO projects that if current laws do not change over
    the next 30 years, debt as a percentage of GDP will soar from
    78 percent of GDP to 144 percent and continue growing
    thereafter.
        CBO warns that failing to confront our rising debt will
    mean a future of slower economic growth, higher interest rates,
    and a greater risk of a fiscal crisis. I think that is pretty
    much guaranteed.
        Of course, none of this should be news to lawmakers. Our
    Nation faces a fiscal storm driven largely by demographics. For
    decades, nonpartisan authorities like the Government
    Accountability Office and the CBO have warned that as members
    of the baby-boomer generation age and retire, mandatory
    spending will rise sharply and drive deficits and debt to
    unsustainable levels. We know that the longer we wait to
    address this situation, the more drastic the changes will be,
    and yet too often in Washington, we govern by crisis, waiting
    until the last minute to make the thorny decisions that
    everyone knows needs to be made. This will be the thorniest
    ever.
        We will not solve all of our fiscal problems through budget
    process reform, as some reform is not a substitute for
    political will. I am hopeful, however, that this committee will
    be able to produce bipartisan proposals that would allow us to
    confront these issues in a more reasoned and responsible and
    timely way than we do now.
        One area that I have been particularly interested in is the
    creation of enforceable long-term fiscal targets or fiscal
    rules. Many on this committee have suggested establishing long-
    term debt-to-GDP targets.
        At our hearing last week, there was talk about a revenue
    estimating committee, and we do not even address how much
    revenue we are going to have to work with.
        Credible fiscal targets could guide fiscal decision making
    and improve the way Congress budgets and spends. Most
    important, such targets could encourage Congress to focus less
    on near-term spending battles and more on long term fiscal
    health of our Country.
        Another area I have been concerned with is how we budget
    for disasters. I note that according to the witness testimony,
    since 2005, Federal funding for disaster assistance has totaled
    at least $450 billion. And while we regularly appropriate
    funding for FEMA's Disaster Relief Fund as part of the annual
    appropriations process, according to the Congressional Research
    Service, more than 85 percent of net appropriations for
    disaster relief are provided through supplemental
    appropriations on an ad hoc basis. Clearly, we can do better.
        I look forward to hearing more from the Comptroller General
    regarding how other countries have utilized fiscal rules to
    manage their debt and deficits as well as other steps we can
    help secure our Country's fiscal future by doing.
        I hope that members today will pay attention to the urgent
    message from Congress' nonpartisan watchdog. Our current
    Federal fiscal situation is unsustainable, and we must act
    before it is too late.
        I want to thank Comptroller Dodaro for being here. I look
    forward to your testimony.
        Senator Kaine, I think, will be standing in for Ranking
    Member Sanders. When he gets here at a convenient point, if he
    has a statement to make, we will do that.
        But the main purpose of the hearing, of course, is to build
    a record of what we can do and how we can do it, and we can go
    ahead and get started on building that record. There will be
    questions by any Senators that come and then the right to ask
    questions other than that.
        I apologize to Comptroller General for the votes being
    scheduled. This committee does not have anything to do with
    that, or we would have done it quite differently. We would have
    impinged on a different committee, as there are committees
    meeting all day.
        In fact, we had a markup that both Senator Braun and I were
    at with Health, Education, Labor, and Pensions earlier today,
    where we put out a bipartisan health care bill that could help
    to bring down costs.
        So, with that, I will go ahead and introduce our witness.
    No stranger to this committee, our witness this morning is Gene
    Dodaro, the head of the Government Accountability Office and
    the Comptroller General of the United States.
        Mr. Dodaro testifies frequently before Congress, and I am
    pleased to have him back to this committee. 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 2008.
        Mr. Dodaro has been with the GAO for more than 40 years. He
    served for 9 years as Chief Operating Officer, the number two
    leadership position at the agency. Prior to that, he headed
    GAO's Accounting and Information Management Division, which
    specialized in financial management, computer technology, and
    budget issues.
        Comptroller General, please begin.

     STATEMENT OF HONORABLE GENE L. DODARO, COMPTROLLER GENERAL OF
      THE UNITED STATES AND HEAD OF THE GOVERNMENT ACCOUNTABILITY
       OFFICE, ACCOMPANIED BY CRISTINA CHAPLAIN, CONTRACTING AND
       NATIONAL SECURITY ACQUISITIONS, GOVERNMENT ACCOUNTABILITY
      OFFICE, AND SUSAN IRVING, SENIOR ADVISOR TO THE COMPTROLLER
    GENERAL AND CHIEF OPERATING OFFICER, GOVERNMENT ACCOUNTABILITY
                                 OFFICE

        Mr. Dodaro. Thank you very much, Mr. Chairman. It is a
    pleasure to be here this afternoon. Senator Braun, Senator
    Johnson, good afternoon to both of you.
        I am very pleased, Mr. Chairman, that you asked me to
    appear at this hearing. I am very concerned about the fiscal
    future of our Nation.
        The debt-to-GDP ratio right now is the highest it has been
    since World War II. We are heavily leveraged in debt by
    historic norms. Currently, the debt-to-GDP ratio is 78 percent
    compared to 46 percent on average from 1946, and we are heavily
    leveraged going into a period of time when we will have to
    confront a number of major challenges, including the
    demographic trends that you outlined earlier.
        We are on track to add approximately $10 trillion to an
    already existing $22 trillion debt over the next 10 years. As a
    result, the debt-to-GDP ratio will continue to escalate, and as
    you pointed out, both Treasury Department and CBO, and GAO, all
    our projections show that it will exceed the historic high of
    106 percent of debt-to-GDP ratio within the next 13 to 20
    years.
        Even more worrisome is that it will continue to escalate
    beyond that to up to two to five times the amount of GDP if
    left unchecked during this 75-year period of time, unless there
    are changes in fiscal policy. This is very concerning.
        Now, the main drivers of the debt are health care costs and
    net interest. Health care costs are rising due to increased
    enrollment, as our society ages, and it is not just the baby
    boomers in the long term because of increased life expectancy
    and a low fertility rate. The percent of people in our country
    over 65 will be almost 22 percent on 2048, and this will cause
    the normal financing arrangements we have set for our
    retirement and health care systems in a different perspective
    than it has been up to this point in time.
        Net interest is on track to be the largest single
    expenditure by the Federal Government. This is a situation that
    I think has dangerous consequences.
        Also, over the next 10 years, many fiscal pressures are
    going to come to bear against this backdrop of already
    escalating debt.
        Number one is by 2025, the multi-employer pension planof
    the Pension Benefit Guaranty Corporation is expected to be insolvent.
        By 2026, the Medicare Hospital Trust Fund will only have 91
    cents to pay on the dollar, and at that time, Medicare will hit
    $1 trillion a year in expenditures. The Social Security system
    will hit $1 trillion this year in 2019. Net interest on the
    debt is on track to hit $1 trillion a year by 2030, and then
    shortly after that, by 2034, the Social Security system is
    projected for the Old Age and Survivors' Insurance Trust Fund
    to only have 77 cents on a dollar to make payments.
        These are significant issues that will confront the
    Congress, and those are known issues at this point.
        There are also a lot of unknown issues that could occur
    that are not budgeted for at all, and Congress would have more
    limited flexibility to deal with events, including economic
    downturns, natural disasters, and any major policy changes in
    the international scene that would require additional funding
    for national defense as well.
        I recognize that the Congress and the administration need
    to make sure that there is sustained economic growth and that
    national priorities are addressed in the short term, but this
    needs to be accompanied by a long-term plan.
        If left unchecked--and right now there are really no checks
    and balances in our budgeting process that would prevent this
    from occurring. The debt-to-GDP ratio will continue, in my
    opinion, to spiral out of control, leaving Congress and the
    Country in a very difficult situation down the road unless it
    is dealt with.
        This fiscal plan, I believe, could include the fiscal rules
    and targets that you talked about, Mr. Chairman. We are
    studying this issue right now at your request. Other countries,
    more than 70 countries around the world, according to the
    International Monetary Fund, set rules and have more than one
    fiscal target and fiscal rules to help constrain growth in
    those areas.
        The other major element of the plan, in my opinion, is we
    need to change how we deal with the debt limit. Right now, the
    current approach does nothing to control the debt. It raises
    interest costs if there are concerns about the limit being
    raised on time, and it has distorted the secondary market for
    Treasuries, affecting liquidity. And I believe that we have
    come dangerously close to not raising it on time and therefore
    could affect the full faith and credit of the Federal
    Government.
        I think this would have disastrous consequences, and I urge
    the Congress to consider the recommendations GAO has made about
    options for how to deal with the debt limit so that decisions
    about debt are made spending and appropriation decisions are
    made and revenue estimates are made to deal with the debt limit
    that way. That is one option that we have given. There are
    other options for dealing with it.
        But I think with the current approach, we are on a perilous
    path, and I am concerned about that very much.
        So again, I appreciate the opportunity to discuss these
    very important issues to our Country. I pledge GAO's support to
    helping the Congress deal with these issues in the days and
    years ahead.
        So thank you very much, Mr. Chairman. I would be happy to
    answer any questions.
        [The prepared statement of Mr. Dodaro follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you.
        I will be here for the whole hearing. So I will go ahead
    and defer to Senator Braun to ask questions.
        Senator Braun. Thank you, Mr. Chairman.
        I have been to several Budget Committee meetings so far,
    and you would think the things you just talked about would
    create alarm or get folks to at least get agitated about it.
        I have been impressed by how unalarmed most people are here
    about what you just described.
        All the things that we have looked at that should be done
    that any business would do, I really do not see that happening
    beyond what we are currently doing.
        Look at the attendance in what I think ought to be the most
    important committee in the Senate, and yes, there are some
    other things going on. But this is not too unusual for
    committees in general in this place, and I think that is kind
    of sad too. That is what we are here for.
        I want you to maybe go into some things that might describe
    what happens--because the other day we talked about will it be
    an interest rate and debt placement crisis first. Will it take
    us to get to 2026 when we are 91 cents on the dollar in a trust
    fund capability in the Medicaid Trust Fund?
        So I would like to ask you two things. Since we do hardly
    anything here preemptively, where you would in any other
    business, State government, whatever it would be--you would
    take these signs and do something about it before you had the
    hard accountability that always occurs.
        Why do not you describe what would happen if we do not do
    anything, because I think there is a good chance that come '24,
    2025, we are still going to be talking about it.
        You mentioned full faith and credit of the government. How
    would that end up working--and I am sure you have thought about
    it--if we just have to start cutting programs?
        I think at some point, that is a more likely cure to what
    ails us here than us fixing it before we get there.
        I think there is going to be plenty of time for another
    round of questions, so I want to talk about the income side of
    the ledger. I will do that on a second round.
        So why do not you describe for us and the public how that
    would happen, and would it be that catastrophic in the sense if
    were forced to, because we could not borrow the money, starting
    making the decisions then that we should be making now?
        Mr. Dodaro. I think that the longer you wait to make these
    decisions, the more draconian the changes will have to be made.
    I will give you a couple examples that are right around the
    corner.
        In the multi-employer portion of the Pension Benefit
    Guaranty Corporation, that is about 11 million Americans, and
    by 2025, that fund is going to be insolvent, which means if
    their companies go bankrupt, the Government will only be able
    to step in and give them a pension, an annual pension of about
    $2,000, hardly adequate. So those people are at risk, high
    risk, and the Government would fail them.
        When the Medicare situation hits in the Hospital Trust
    Fund, that will have enormous repercussions, and that fund was
    supposed to operate on a self-funded basis over time. And this
    is something that has been known well in advance, but it will
    have consequences for people on Medicare.
        And every day in this Country, 10,000 people a day on
    average turn 65. So every day more and more people are being
    added to Medicare. So I think it will affect millions of
    Americans.
        Social Security would require a 23 percent cut, and many
    Americans, particularly low-income people, rely almost
    exclusively, if not primarily, on Social Security. That would
    be disastrous to them and to the economy.
        The federal government is not managing the debt situation
    well. The United States gets great credit ratings by the bond-
    rating agencies in the international market area because of the
    strong economy, and that the United States is able to honor our
    debts and has never defaulted on a debt payment of any
    significance. And so this is very important. The U.S. dollar is
    the world's reserve currency. The United States has the deepest
    and most liquid Treasury markets in the world and that helps in
    world finance. I think the consequences of this, by the way,
    will not be just limited to the United States. I think it will
    have global consequences if the United States ever defaulted on
    the debt payments, just as the same as when the United States
    did not deal with the Fannie and Freddie Mac and other things
    during the last global financial crisis in enough advance
    notice. That is a good example of what can happen.
        Interest rates is another area, if they spike. The United
    States has been extremely fortunate that interest rates have
    been low. If interest rates spike--it could precipitate a
    crisis in confidence in the Government's ability to manage its
    affairs. I think could lead to a fiscal crisis at that point.
    CBO has alluded to this and others as well, and I think that if
    things happen there, they will happen fast.
        Because the debt base is so huge and it has to be
    refinanced every year, it is not just new debt that would be
    affected. It is old debt that has to be refinanced, and a lot
    of it is short-term debt. So at any one point in time, we not
    only have to come up with a trillion dollars for new debt, we
    have to refinance anywhere from an additional seven, eight
    trillion dollars.
        So the interest rate exposure is enormous, and this could
    precipitate a crisis.
        And the bond-rating agencies are keeping an eye on this, by
    the way. I mean, Standard & Poor's already lowered, back in
    2011, the Federal Government's bond rating to AA+ from AAA.
        Now, Fitch and Moody's have not done that yet, but they
    have signaled that they are paying attention to this.
        If that happens, investors will demand more interest to
    purchase government debt, and that could precipitate those
    events that you talk about.
        Senator Braun. We are out of time here, and for my benefit
    and other members of the committee, I get the feeling you might
    be able to put together a chronology and what these events
    might be that you mentioned once we did get to the point where
    we either did not increase the debt limit or where these
    automatic cuts would kick in. Is that something your office
    could kind of put together to the ability of ``got to do it''?
        Mr. Dodaro. Yes. In fact, we have a little bit of that in
    our prepared testimony. We could add some additional things.
        Now, you would have to make some assumptions, obviously.
        Senator Braun. Make some assumptions, and I would like the
    top 10 list of what would go.
        Mr. Dodaro. Yes.
        Senator Braun. I think that is going to be the way we
    simply sell this to other members of the body and to the public
    in general.
        Mr. Dodaro. Yes.
        But I do not think people understand the significance of
    the gap that we have right now. If you wanted to just stay at
    the 78 percent of gross domestic product--the debt-to-GDP
    ratio, you would have to cut expenditures by 27 percent now and
    keep that over the next 75-year period, or conversely, if you
    just dealt with the revenues, you would have to raise revenues
    37 percent now and keep that over that period of time.
        Those things are not palatable right now, but the extent to
    which the debt-to-GDP ratio grows, that is the magnitude of the
    changes that we are dealing with. And that does not even
    consider natural disasters, economic downturns, et cetera,
    other policy issues that would come up.
        So this is a very significant situation that I believe
    requires Congress' attention now.
        Senator Braun. Thank you.
        Chairman Enzi. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman, and thank you,
    Comptroller General, for your work.
        And I will just pick up where you left off, talking about
    the debt-to-GDP ratios, because when we are looking at the
    exposure we have got as a country to rising debt, you would
    agree that that is the best measure, right? That looking at the
    debt-to-GDP ratio rather than looking at the nominal number,
    that is a much better gage, is it not?
        Mr. Dodaro. Yes. That is used as a country's ability to
    repay its debt.
        Senator Van Hollen. Right.
        Mr. Dodaro. It is pretty much an international standard.
        Senator Van Hollen. Yeah. And when you are looking at sort
    of macro trends over time, it also makes sense, does it not, to
    look at expenditures, Federal expenditures as a percentage of
    GDP, and Federal revenue as a percentage of GDP?
        Mr. Dodaro. That is correct.
        Senator Van Hollen. And as you said, the equation on
    deficits and debt, of course, on the one side, you have got
    expenditures, and on the other side, you have revenues,
    correct?
        Mr. Dodaro. Yes.
        Senator Van Hollen. So I just want to go over a couple sort
    of facts here. If you look back not long ago in the scheme of
    things, we had a series of tax cuts. We had tax cuts under
    George W. Bush. We, of course, had the 2017 Trump
    administration tax cuts. We had the Iraq War. We had the Great
    Recession.
        Do you know if you go back to look at the last time we
    actually had a balanced budget, that was in the year 2000?
        Mr. Dodaro. Right.
        Senator Van Hollen. Do you know what our revenues as a
    percent of GDP were, roughly?
        Mr. Dodaro. I think it was about 18 percent.
        Senator Van Hollen. I think my figures--and I would like
    you to confirm them--actually we were closer to 20 percent,
    okay?
        Mr. Dodaro. Okay.
        Senator Van Hollen. And the reason I mention that is that
    today I believe they are around 16.5 percent of GDP. Does that
    sound right to you?
        Mr. Dodaro. Yes.
        Senator Van Hollen. So when you are looking at the outlays
    of GDP, as we said earlier, outlays and revenues as presented,
    it really does make sense to look at those percentages over
    time. And I just think it is important for the committee to
    note--this is the Budget Committee--that we have dropped
    significantly in terms of revenue as a share of GDP, and you
    would agree that is a better way to measure it than nominal
    revenue, tax dollars.
        Mr. Dodaro. Yes.
        Senator Van Hollen. Yeah. Because we often hear from our
    colleagues that we have nominal revenues coming in at an all-
    time high, but is it not kind of obvious that as the economy
    grows over time, even at a given tax rate, you are going to get
    more dollars in absolute terms?
        Mr. Dodaro. Yes.
        Senator Van Hollen. So I hope, Mr. Chairman, for the same
    reason, I agree with you we should look at our debt as a
    percentage of GDP, that the committee needs to measure both
    expenditures and revenues as a percent of GDP if we are going
    to have a logical conversation, because the fact that we happen
    to have more absolute dollars in revenues is simply a function
    of the fact that the economy grows over time.
        Mr. Dodaro. I think, Senator Van Hollen, this problem is so
    big, you cannot solve it by just doing expenditures alone or
    revenues alone. Both have to put everything on the table, and
    you have to deal with entitlements as well as discretionary
    spending. So I think everything needs to be considered in a
    proper proportion.
        Senator Van Hollen. Look, I believe you have to look at
    both parts of the equation too.
        I mean, I would point out that when it comes to health
    care, prescription drug costs are through the roof, and many of
    us have talked about ways we can reduce the Medicare component
    of prescription drug costs, whether it is Medicare or Medicaid.
    So I do believe there are ways to address those expenditures as
    well.
        The GAO recently released its annual assessment of our
    Country's missile defense programs, and this year's addition
    paints a particularly bleak picture of the state of our missile
    defense activities. It notes that the Missile Defense Agency,
    quote, ``did not meet its planned goals,'' unquote, and only
    completed 65 to 70 percent of its planned deliveries and tests
    for Fiscal Year 2018. For the most part, the GAO report amounts
    to a catalog of failures, technical snags, cost overruns, and
    cancellations of entire programs.
        So based on the GAO report's finding and conclusions, the
    Missile Defense Agency, is it following, in your view, fiscally
    sound policies and sound acquisition measures?
        Mr. Dodaro. They have gotten better over time, but they are
    not following it to the extent that we think they need to.
        I would call to the table Ms. Cristina Chaplain, who is our
    expert in the missile defense area, to give you a little bit
    more details on it.
        But they have a tough job because they are pressured to get
    things done quickly; however, they are making their job more
    difficult by not following all sound procedures. And we have
    made many recommendations in this area.
        Cristina.
        Ms. Chaplain. Yes. Some of the areas they can really
    improve in are producing realistic schedules, not overlapping
    acquisition with other key acquisition activities.
        You always hear about that ``fly before you buy,'' and they
    kind of do the reverse over and over again.
        Seeking more robust input from the intelligence community,
    the warfighters, we often find that some of the concerns
    expressed are not heeded.
        And testing the missile defense system more rigorously and
    being sure not to fly targets when they are brand-new--do not
    test them in the middle of a huge complex test. So there is a
    lot of progress that still needs to be made.
        Senator Van Hollen. I appreciate that. I think it is the
    difference between following the science and engineering and
    trying to meet a political target, which are often
    unrealistically set.
        I thank you.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Johnson.
        Senator Johnson. Thank you, Mr. Chairman.
        General Dodaro, your knowledge range is pretty impressive
    here, but I appreciate you putting together this report.
        On page 9 of your report, figure No. 5, I was surprised by
    this. It talks about the daily average number of people turning
    65.
        My impression always has been that we had a baby-boom
    bubble, and after 30 years--if we can get through the 30 years
    in terms of the entitlements for baby boomers, we are in better
    shape. This shows just the opposite. If anything, it dips a
    little bit, but then it grows by 2045 to over 11,000 a day. Can
    you just explain that?
        Mr. Dodaro. That is primarily due to the fact that life
    expectancy is growing longer. [Clarification: Also the portion
    of the population age 65 or older relative to the portion under
    age 65 is increasing due to lower fertility rates.] But it is
    mostly life expectancies.
        Senator Johnson. But again, this is the number of people
    turning 65.
        Mr. Dodaro. Right.
        Senator Johnson. So our population is growing large enough,
    even with the lower birth rate? Still 11,000 people are going
    to turn 65?
        Mr. Dodaro. Yes. We are going to a point where we will have
    about one in five people in the United States will be 65 or
    older by around 2030.
        I asked the same question when I saw it. I was under the
    same impression you were, and the team explained to me, no,
    these are the statistics.
        Senator Johnson. One thing that has always baffled me,
    particularly in this almost decade of historically low interest
    rates, I think we have lengthened the maturity profile of our
    debt but not all that dramatically. Is there a reason for that,
    and would you recommend that we really start buying longer
    bonds and locking in interest rates over a long period of time?
        Mr. Dodaro. We have looked a little bit at that issue. We
    are having current work done right now.
        I have raised the same questions myself. I mean, there are
    two big questions I have. One is, Who is going to lend the
    United States all this money in the future? At what rates? And
    then what should be the mix of types of debt instruments? So we
    are studying that issue right now. I do not have an answer for
    you now, but we will.
        Senator Johnson. Right now, when people are literally
    investing and getting a negative interest rate, my guess is
    there is a fair amount of capacity for even trillions of
    dollars' worth of debt.
        So yeah. If you can complete that study, I think it would
    be very helpful.
        Mr. Dodaro. I agree.
        Senator Johnson. Obviously, if you go to the market and you
    try to buy more long bonds, the interest rates might bump up,
    but again, you have got a great deal of demand for security and
    safety right now. And I think we could do a far better job of
    lengthening that maturity rate.
        In the remaining time I have, I would kind of like to just
    go through the scenario. I have been, quite honestly, shocked.
    I ran in 2010 because we were $14 trillion in debt, and now we
    are over 22. I would have thought something had to give, but it
    has not.
        We are still the world's reserve currency. So my concern is
    China continues to grow. Certainly, China and Russia and Brazil
    and India, they talk about that basket of currencies starting
    to replace or supplant the dollars of the world's reserve
    currency. Is not that what is keeping us going right now? You
    can say this could collapse very quickly or interest rates
    spike very quickly. Can you just kind of go through that
    scenario?
        Mr. Dodaro. Yes. Well, I think one of the reasons,
    everything is relative in this standpoint. The European Union,
    for example, is having their difficulties at this point in time
    because, at one point, they were supposed to be on the ascent
    in that area.
        China has its issues that it is dealing with.
        So I do not think the United States can always count on the
    fact that it will have the most robust economy in the world
    just because other people are having trouble. The United States
    is able to be more resilient and have better credibility and
    political stability and a lot of confidence in the marketplace.
        The issue right now is--the scenario that I am concerned
    about is a spike in interest rates suddenly for the reasons I
    mentioned to Senator Braun and for what you said because a lot
    of the debt has to be refinanced every year.
        It will have an immediate effect on the United States'
    ability to be able to do this.
        The other thing is that the United States has become fairly
    dependent on foreign investors to buy its debt. Forty-one
    percent of the debt now is held by foreign sources, largely by
    China and Japan. Now, given renegotiations with other countries
    right now on a wide range of issues, there could be some
    spillover effect as well into who is purchasing the debt and
    why and what their strategy would be going forward in a more
    global diplomatic sense.
        Senator Johnson. Well, thank you, Gene.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Whitehouse.
        Senator Whitehouse. Thank you, Mr. Chairman.
        Welcome, Mr. Dodaro.
        The Select Committee on Budget Process and Appropriations
    Reform unanimously adopted an amendment that would have changed
    our Senate budget process to allow for what I call a
    ``bipartisan bypass,'' leaving the existing process in place.
    But if you could get bipartisanship providing a route for that
    to travel and it had a number of characteristics, one is that
    your target was a debt-to-GDP ratio, and I gather from your
    testimony today that you think that is the right target.
    Whatever the number is, that is the right metric, correct?
        Mr. Dodaro. Yes, that is correct.
        Senator Whitehouse. And the second is an element of time
    because whatever debt-to-GDP ratio you choose as your target,
    we are probably, I think you will agree, not going to get to in
    a year?
        Mr. Dodaro. That is correct. I mean, depending on your
    target, but I think time is an element of this.
        Right now there is no target.
        Senator Whitehouse. But the goal is to establish a target
    and establish a glide slope to that target----
        Mr. Dodaro. Yes.
        Senator Whitehouse [continuing]. And then establish some
    alarm bells that ring along the way when you get off that glide
    slope.
        And I would add that we have also observed on the Select
    Committee quite unanimously that the elements of the debt or
    the deficit arithmetically are health spending and appropriated
    spending and tax spending and revenues, and that unless you are
    looking at all of those elements--I am setting Social Security
    deliberately aside.
        Mr. Dodaro. I understand.
        Senator Whitehouse. But less you are looking at all of
    those elements, you are not even arithmetically able to
    calculate debt and deficit.
        So it sounds to me like from what you have said here in the
    hearing that you are in general agreement with all of those
    principles?
        Mr. Dodaro. That is exactly right.
        And right now the tax spending you mention or tax
    expenditures is not reviewed by anybody----
        Senator Whitehouse. Correct.
        Mr. Dodaro [continuing]. On a regular basis, and that is,
    the last estimate, somewhere around----
        Senator Whitehouse. That is by special interest of
    themselves. You do not have to come back every year to have
    your appropriation renewed. You bake it into the Tax Code and
    walk away a winner.
        Mr. Dodaro. Right, right.
        And what controls we have in place right now through the
    Budget Control Act from 2011 focused primarily in discretionary
    spending, it is too narrow.
        Senator Whitehouse. Yeah. Well, that is good to hear.
        The second thing is that under the leadership of Chairman
    Enzi, we are trying to work towards an agreement in this
    committee on which of those voluntary elements from the
    bipartisan bypass could actually become part of the actual
    required process, the standard process of this committee.
        So, if you do not mind, I would like to have you suggest to
    us what your recommendations would be in those specific
    categories, setting aside the bipartisan bypass. I think we
    have agreement in terms of an actual change in the basic budget
    process of this committee. Would you recommend targeting a
    debt-to-GDP ratio? Would you recommend a glide slope to that,
    that that would be part of what is fixed? Would you recommend
    that there be warnings so that people know when we have gotten
    off the glide slope, and if so, what those warning bells might
    look like, what you would recommend? And finally, confirm that,
    in your view, health spending, tax spending, appropriate
    spending, and revenues are the necessary parts of any factual
    and arithmetically correct calculation.
        Mr. Dodaro. Yes. No, I am in agreement with all four of
    those areas that you mentioned.
        Senator Whitehouse. Okay. That is great.
        Mr. Dodaro. The warning signs and bells and things, I can
    give some additional thoughts.
        In fact, the work we are doing now for Chairman Enzi----
        Senator Whitehouse. Could I ask you to give those in
    writing?
        Mr. Dodaro. Yes.
        Senator Whitehouse. That would be helpful.
        Mr. Dodaro. The work we are doing now, we are looking at
    the fiscal rules used by other countries, and most of them use
    multiple indicators along the lines that you have mentioned,
    both in the guide for revenues and expenditures, and allow for
    exceptions, and so----
        Senator Whitehouse. Let me turn to another topic because my
    time is winding down.
        Mr. Dodaro. Sure. All right.
        Senator Whitehouse. GAO has written a report. I am quoting
    from an article about your GAO report: The Government
    Accountability Office found that the increasing frequency in
    scale of disasters as well as the Federal Government's role in
    funding recovery and flood and crop insurance make climate
    disaster a high risk for Federal fiscal exposure. GAO reported
    the Federal recovery efforts alone have cost nearly half a
    trillion dollars since 2005. To put that spending in context,
    it represents approximately $4,000 out of the pockets of every
    American family, and that leads on to the conclusion that
    addressing climate change is not only an environmental
    imperative, it is critical to our Nation's economic security.
        In the report that was thus described, you were looking
    primarily at the risk to those specific Federal programs; is
    that correct?
        Mr. Dodaro. It would be the overall risk from economic
    issues as well, but it is mostly Federal Government fiscal
    risk. So it is the risk to those programs, flood insurance,
    property insurance.
        Senator Whitehouse. Where you have to rebuild things----
        Mr. Dodaro. Yes, right.
        Senator Whitehouse [continuing]. Would be another one.
        Mr. Dodaro. Right. But also--go ahead.
        Senator Whitehouse. There are two risks that are floating
    around out there.
        This will be my last question. I am sorry to go over.
        There are two risks that are floating around out there that
    are getting a fair amount of attention. One is the risk of a
    coastal property value crash as the threat of sea level rise
    basically backs into the rear end of a 30-year mortgage, and
    the owner cannot sell because the next buyercannot get a 30-
    year mortgage.
        And Freddie Mac and insurance publications and a whole
    variety of people who are not in the environmental community
    are starting to raise warnings about that risk.
        The other is the carbon asset bubble, that the fossil fuel
    industry has not accurately disclosed what its asset--what its
    reserves are and which ones are truly recoverable in a carbon-
    constrained world. And there, you have got the Bank of England
    and the Bank of Canada and I think 30 other national banks and
    Mercer and Standard & Poor's. It is a whole variety of very
    expert--again, not environmentalists--people who are risk
    evaluators.
        Have you looked at those two specific risks, coastal
    property value crash a la what Freddie Mac talked about or the
    carbon asset bubble that Mark Carney and the Bank of England
    have been so energetic on?
        Mr. Dodaro. No, not yet.
        Senator Whitehouse. Okay. I will ask you to do that, then,
    and I thank the Chairman for his time.
        Chairman Enzi. Thank you. Thanks for your participation and
    coming up with some answers on these things.
        I would mention that I met with Senator Kaine, and he is
    vigorously working on the debt-to-GDP and other measures to fit
    into a glide slope and was very excited about that.
        Senator Whitehouse. He is one of our cosponsors.
        Chairman Enzi. Yes, yes.
        What has the GAO found regarding the efficacy of fiscal
    rules with other countries--you touched on that just a moment
    ago--to meet their long-term fiscal challenges. Have you
    discovered any that are particularly effective at this point?
        Mr. Dodaro. Not yet. Our research has just been initiated.
    We are looking at that, and it is going to require us to take
    some time to ferret it out because in almost all cases,
    Senator, there are multiple factors that each country uses.
    Most countries use at least two or more different rules as part
    of their fiscal targets, fiscal rules regime. European Union
    uses three or four different ones. So we are going to have to
    figure out which ones are the more effective ones, and it may
    be that there is a package that needs to be suggested. But
    also, we need to look at whether or not what other countries do
    can work in this political system and in this economy. So we
    are going to look at those issues.
        We will have more specific recommendations, but the most
    important things that are clear right now is that it is used
    primarily to contain the growth of additional debt down the
    road and that several factors are important.
        One is to pick the right factors to focus on. In other
    words, you have got to figure out what your objective is. Is it
    to control the debt and annual deficit? Is it to control
    revenues or expenditures or a combination of those factors?
        Second thing that is important is an adherence to whatever
    the targets are over time because you can pick the right
    targets, but if you do not, you make too many exceptions.
        Now, they all have what they call ``escape clauses,'' so
    that if something dramatic happens, you can use some
    flexibility, but adherence to whatever the rules are is
    important. Many of them have outside independent commissions
    that provide advice on their ability to hit those targets over
    time.
        And so those are the things we know right now, but we will
    know more when we finish our research.
        Chairman Enzi. Is Israel one of the countries that you are
    looking at? I had an interesting meeting with them where they
    laid out some formulas that they use that they have to meet.
        Mr. Dodaro. Well, we will consider talking to them.
        Chairman Enzi. Okay. Last year the Convergence Center for
    Policy Resolution published a number of interesting proposals
    for improving our broken budget process. One of the
    recommendations was to have GAO conduct periodic long-term
    reviews of major programs and spending portfolios. These
    reviews would evaluate the performance of different programs
    with a shared policy goal and determine which were the most
    effective and which need to be improved. What do you think of
    that proposal or any refinements that you----
        Mr. Dodaro. Yes. Well, I would be happy to entertain a
    request to do that. It would be a very time- and resource-
    intensive request because many Federal programs have not been
    evaluated at all, as I have discussed with you before in this
    committee.
        I do think what they are suggesting is a management
    responsibility, because the agency should be doing that for
    individual programs and activities. Individual federal
    agencies, however, would not be able to look at it on a
    portfolio basis because, as you pointed out, there are 160-some
    housing programs across multiple agencies. OMB really does not
    have the capacity to do this.
        So I would be willing to consider, particularly doing a
    pilot, to see how we could go about doing this, but we are
    going to need help from the Congress in getting the agencies to
    comply with already existing statutory requirements. There is
    no comprehensive program inventory right now. Many programs
    have not been evaluated, despite the Government Performance and
    Results Act. Also, Congress has passed theevidence-based policy
    requirements now that would be helpful if they are implemented
    effectively.
        So we are willing to tackle this issue, but we will need
    congressional help, and we will need to pilot the approach. But
    I think it needs to be done. I think it is a great idea.
        Chairman Enzi. Who would you suggest would be the best to
    compile this inventory of programs? I am very intrigued by
    that.
        Mr. Dodaro. Well, the Congress has already given a
    statutory responsibility to OMB, and they just have not done
    it.
        Chairman Enzi. We will continue to press on that, then. I
    think that is one of the biggest things that we can do.
        My time on the first round has expired, so I will go back
    to Senator Braun.
        Senator Braun. Thank you.
        Senator Johnson mentioned reserve currency. I think he is
    right on, and you talked about it a little bit as well. I think
    if that ever changed--and the euro was headed to be a reserve
    currency--we would be feeling the pain currently. We would not
    have as much maneuverability.
        Senator Van Hollen and the other side always brings up the
    idea of income. I am interested in that as well. I think you
    have got to be careful. I think the Tax Cuts and Jobs Act did
    get close to the sweet spot, since our revenue, I think, has
    been better than what it was forecast by the CBO. February, we
    actually generated more in '19 than we took in, in '18, which
    is a good sign.
        Have you done any income modeling? Because that is the
    other side of the equation. In my opinion, high liquid incomes
    have the capacity to pay more taxes. They are currently lumped
    in with passthrough entities, which are the productive part of
    our economy, Sub S's, LLCs. They create all the jobs.
        Have you done any work on seeing what we could generate in
    income without tanking the economy or at least starting the
    impacted? I think that is an honest discussion we have to have.
        Mr. Dodaro. Yes. I agree with you. No, we have not been
    asked to do that and would be happy to figure out what would be
    appropriate to us. Typically, it could be either CBO or the
    Joint Committee on Taxation.
        Senator Braun. I have asked the CBO, and they did not seem
    like they had much interest in it or capability to do it.
        Mr. Dodaro. Well, it is a high-risk endeavor to take on the
    project.
        Senator Braun. I would not hold you accountable at all. I
    just wanted to know if you had an idea.
        Mr. Dodaro. Yes. Let me give some thought to how we could
    do it, and I would be happy to do anything I think would be
    helpful to deal with this situation.
        Senator Braun. Think about that in terms of true----
        Mr. Dodaro. I will make a deal with you. I will think about
    that, but help us address the tax gap that is already in place.
    There is over $400 billion a year that should be coming in that
    is not. The United States is only 83 percent compliant. Before
    you ask people to pay more, Congress should make sure that
    people are paying their fair share now under the current tax
    laws.
        We have asked Congress to regulate paid tax preparers right
    now. According to our analysis, the paid tax preparers----
        Senator Braun. What was that gap again? How much?
        Mr. Dodaro. $406 billion a year.
        Senator Braun. So almost half of the deficit?
        Mr. Dodaro. The deficit, right. And you have improper
    payments going out that are $151 billion in fiscal year 2018,
    and that, I believe, is a conservative estimate.
        So there is a lot of money, a lot of leakage, money going
    out that should not go out and a lot of revenue that should be
    coming in that is not.
        If you did require more electronic filing of returns,
    third-party information reporting, gave IRS math error
    authority and regulate--give them the authority to regulate tax
    preparers, I think you could make a major dent.
        Our analysis of IRS data shows that returns prepared by
    paid tax preparers have a higher error rate than people
    preparing their own return. So I think----
        Senator Braun. Is that across all tax brackets, or is that
    isolated in the----
        Mr. Dodaro. I would have to look and give you an answer, a
    specific answer on that.
        Senator Braun. I would be interested to know that too.
        Mr. Dodaro. Okay.
        [The information follows:]
        [GRAPHIC] [TIFF OMITTED] T9734A.214

        Senator Braun. And then along with it, I think it would be
    real valuable if you could come up with an easy-to-understand
    chart that as you raised taxes within each category, how much
    would that actually generate, because I think you mentioned a
    36 percent increase----
        Mr. Dodaro. Yes.
        Senator Braun [continuing]. Or either a 25 percent cut was
    what you would need now, which is politically not palatable.
        Mr. Dodaro. Right.
        Senator Braun. But I asked the CBO to do the same thing as
    well and the Tax Foundation to give me some easy information
    that shows as you would raise rates within brackets, what that
    would do. I think that is another way, along with the
    chronology on the top 10 hits that the budget will take, once
    you get to the threshold of automatic cuts would be the other
    side of the equation to depict the reality of what revenue
    generation would be about.
        Everybody talks about it abstractly here. Nobody is
    explaining it particularly.
        Mr. Dodaro. Okay. We will look at it.
        Senator Braun. Thank you.
        Mr. Dodaro. We will go give it the old college try.
        Senator Braun. Thank you.
        Mr. Dodaro. You're welcome.
        Chairman Enzi. Senator Whitehouse.
        Senator Whitehouse. Thank you, Chairman.
        I read from an article during my time with Director Dodaro,
    and I just wanted to follow the proper protocol and ask to have
    the article put into the record, and I want to also thank your
    staff for the courtesy of being willing to take care of that if
    I could not get back in time.
        Chairman Enzi. Without objection.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Whitehouse. Thank you, sir.
        That is all I have.
        Chairman Enzi. Oh, okay. Thank you.
        Earlier there was a question about the percentage of
    revenue when the budget balanced back in '97, '98, whenever
    that was. When they did that, was the revenue from the excess
    Social Security money counted as part of that revenue that
    balanced the budget?
        Mr. Dodaro. That is a good question, Senator Enzi.
        I do not--it was?
        Ms. Irving. By budget----
        Mr. Dodaro. This is Sue Irving, our budget expert.
        Ms. Irving. In 1969 when we went to the unified budget,
    they decided to count all money that comes in and all that is
    paid out, so yes that revenue was counted. Because the
    transfers are within the Government, at the time of the
    balanced budget, revenues in 2000 of about 20 percent, and in
    2001, 18.9 percent. The Budget did include both the revenues to
    the trust fund and the spending from it.
        Chairman Enzi. And where are we now on those excess
    revenues?
        Ms. Irving. Well, there are no excess revenues to the
    Social Security Trust Fund. Indeed, the trust fund also
    receives revenues from the income tax since if you, like I, pay
    income tax on your Social Security benefits, that income tax
    does not go to the general fund. It goes into the Social
    Security Trust Fund.
        Chairman Enzi. Thank you. Thank you for that answer.
        We have talked before about trying to get the executive
    agencies to list their programs, but another thing that I think
    you have mentioned before is eliminating some of the material
    weaknesses in the internal control over financial reporting.
        What kind of challenges will the executive agencies need to
    overcome to have reliable financial statements? Have you
    identified any opportunities for Congress to help?
        Mr. Dodaro. Yes. First, I am very pleased with the
    progress. Right now the largest 24 agencies in the Federal
    Government, 22 have an unmodified or clean opinion, which is a
    far cry from when we started back in 1996. Only 6 of the 24
    could get an unmodified or clean opinion at that point in time.
    So now it is 22 out of 24.
        Of the two that are not there yet, one is the Housing and
    Urban Development Department--they had a clean opinion at one
    point. They had to take on a portfolio of difficult loans
    during the global financial crisis, and they are having
    difficulties accounting for those. And so there are some
    problems, but I am working with them to try to get them on a
    proper path.
        The other big challenge, Mr. Chairman--I am sure will be no
    surprise to you--is the Defense Department, but I am very
    pleased with their progress. They have greater leadership
    commitment than I have seen since the CFO Act was passed in
    1990. They have a good team working on this.
        The DoD-wide audit for '18 was the first time the entire
    Department had been under audit since the requirement was in
    place. There are lots of findings. They now have implemented
    our recommendation to track the findings, which is important to
    monitor to fix the problems.
        What Congress can do is continue to have oversight hearings
    in this area. I think Defense understands the budget context
    they are operating in, and that, they need to become more
    efficient.
        Through the financial audit so far, they have saved
    millions of dollars by finding items that were not in their
    inventory records. In Jacksonville, in the Naval base down
    there, they discovered they had purchased items, $280 million,
    that were not on the books. So once they put them on the books,
    they were able to avoid reordering some items that would save
    about $81 million. They found motor parts in Utah in an Air
    Force base that were listed to be unserviceable, but they
    really were in good shape. So then they avoided purchasing $53
    million more in missile motor parts. So these are the kind of
    things that can help them if they have better accountability
    over their assets and their property as well as their spending.
        Chairman Enzi. Good. I know of some extra parts that are in
    Greybull, Wyoming, too, where they did not get to complete the
    contract that they were on.
        I want to switch to natural disasters. That is one of the
    fiscal risks that we have, and I watched it go from $13 billion
    at the beginning of a week to $19.1 billion by the end of the
    week. And none of that, of course, is paid for.
        As was mentioned earlier, we have appropriated nearly half
    a trillion dollars for these since 2005. How do you think the
    Federal Government can improve the way that it handles these
    fiscal risks to curtail some of that future spending?
        Mr. Dodaro. Yes. First, we need a better threshold to
    determine when the Federal Government should be involved in a
    natural disaster.
        The current approach is based on a per capita income figure
    for the States. That figure was set initially in 1986 and was
    never adjusted for inflation until 2000. So right now it is
    $1.50 on a per capita basis. If it had been adjusted for
    inflation, the Federal Government, just on inflation alone,
    would not have been involved in about 40 percent of the
    disasters that occurred during a period of time (2004-2011),
    and if it is adjusted for per capita income, it would be
    higher.
        So Congress has now finally required FEMA to come up with a
    new, better measure of a State and local capacity to deal with
    disasters on their won. These obviously are not major
    disasters, but there are quite a few disasters that happen.
        So, number one, to limit the Federal Government's fiscal
    exposure, we should have a better measure to know which ones
    the Government should be involved with or not.
        This will also prevent FEMA from being stretched so thin
    when there are multiple disasters. So that is number one.
        Number two would be to have more focus on investing and
    building resilience in beforehand, rather than always after the
    fact. Now, Congress took a step forward in this. I was very
    pleased with the Disaster Response Reform Act of 2018, which
    set up a program to allow some of the money Congress
    appropriates for disasters to be used for resilience building
    because if you only build to the way it was before, which has
    been the Federal Government approach to this, it is still
    vulnerable as opposed to raising the height on buildings or
    moving the buildings or doing other things.
        For example, some of these bridges that were flooded during
    Hurricane Katrina, they built them 2 or 3 feet higher to allow
    for better protections for future flooding in those areas, so
    that is important.
        FEMA is supposed to have that program in place by 2020, but
    Congress needs to stay on top of this. There is no national
    strategy for mitigation. We have made that recommendation. FEMA
    has a draft one that has not been finalized yet, but this is
    the issue.
        The Institute for National Building Information Sciences
    estimates for every dollar spent, you could save about $11 by
    building in resilience up front over time. So limiting the
    number of disasters the Federal Government is involved with,
    building resilience in, and then we have also recommended that
    Congress undertake comprehensive reform for the Flood Insurance
    Program, Mr. Chairman.
        Right now that program owes over $20 billion to the
    Treasury, and that is after the Congress, a few years ago,
    2017, I believe, forgave $16 billion in debt to that program.
    The program is not actuarially sound. It does not pay for
    itself the way Congress intended, and fully risk-based premiums
    are not being charged in those areas.
        Chairman Enzi. Thank you.
        Did you have additional questions?
        Senator Braun. Every time I ask a question, it creates more
    homework for the Comptroller General. So I am going to not ask
    another question.
        I want to do a little wrap-up, and I want to thank youfor
    giving intelligence testimony that I think whoever is watching out
    there ought to take seriously. We have talked about three particular
    things that will happen if we do not change the trajectory.
        Pension benefits will be cut significantly in 2025.
        We will have completely depleted the Medicare Trust Fund in
    2026, I think only able to pay 91 cents on the dollar at that
    point for whatever benefits are out there, assuming that it
    does not get more expensive and we do not add to it.
        Then in 2034, we deplete the Social Security Trust Fund.
        That is not that far away. I have only been here 6 months.
    We have known this years, actuarially. I think until we keep
    repeating it enough, hopefully it is going to sink in with the
    American public, and they ask all of their Representatives and
    Senators what is going on.
        Whether we get there and look into the abyss of that stuff
    happening or we are preemptive and make the hard decisions that
    need to be made to mandatory spending, there is not enough
    discretionary left to really impact it with simple eighth grade
    arithmetic. I do not think that is overdramatizing it.
        Thank you for that stuff you are going to put together for
    me, and I intend to use that down the road to talk about the
    income side of the equation and show how painful that would be
    to where we simply need to do what almost all other households,
    State governments, anybody else would do. They would make the
    decisions.
        We had the ability to vote on a bill called the ``Pennies
    Plan,'' and 2 percent cuts across the board, which in the
    business world or anywhere else would not be the end of the
    world. It actually starts balancing a budget in 5 to 6 years,
    meaning that if you just froze or had somewhere in between, you
    could fix all this so future generations would not have to
    worry about a calamity on their doorstep.
        Thank you.
        Chairman Enzi. Do you think if we actually made some cuts
    that that would boost confidence in the United States and
    overseas?
        Mr. Dodaro. It is always the perspective of where you sit.
    So I think it is prudent to make certain selected cuts.
        I certainly pointed out a number of areas and recommended
    to the Congress where reductions could be made in Federal
    spending that would not affect anyone.
        Chairman Enzi. Yeah. I am going to congratulate you on your
    reports on overlapping, duplicative, and fragmented programs.
        We have the information. Do you have any suggestions on how
    you could encourage us to actually consolidate those programs,
    particularly the ones that span several agencies?
        Mr. Dodaro. Yes. Actually, Mr. Chairman, this goes to your
    point on fiscal rules and adhering to fiscal rules. Actually,
    after the Budget Control Act of 2011--we first started putting
    out those reports in 2010, 2011-time frame, and when Congress
    was sticking to those caps, we actually got more movement on
    our recommendations than the last 4 years when the caps had
    been raised.
        I am not suggesting a position on that particular point. I
    am just making the point that fiscal rules and targets, if they
    are adhered to, can create behavior changes that are put in
    place, and as a result, over half of our recommendations were
    implemented. And that saved about $262 billion already.
        Now, we have many other recommendations that could save
    tens of billions of dollars, would not adversely affect the
    programs or the American people, and I want to encourage
    Congress to take those up. But there has to be an incentive to
    do it because there is a constituency for every Federal program
    and every activity, and somebody will complain. But it is up to
    the Congress to make those judgments, and we give our best
    advice and have given you plenty of opportunities, both within
    defense as well as in the health care, which are the two
    biggest spending areas.
        I think the Medicaid program, especially, I am very
    concerned about because half of the expenditures, those in
    managed care, are not audited by anyone. I am trying to work
    with the Administration to get State auditors more involved in
    auditing those monies because every Medicaid program is
    different for the States.
        But right now, there is a $36 billion estimate in improper
    payments for Medicaid. That only accounts for largely the fee-
    for-service portion of it, which is about half of the
    expenditures.
        So there is a lot of room for tightening our belts in these
    areas. It is not going to solve the overall fiscal problems.
    That is a fiscal policy decision. But it will make it a lot
    easier, and it will make a lot more palatable if the Federal
    Government is not making as many improper payments and more
    people are meeting their tax obligations.
        Chairman Enzi. Thanks. I am going to shift gears one more
    time. I want to find out how you feel about expanding the use
    of accrual accounting in the budget. Would the measures provide
    a more accurate measure of our long-term situation? What do you
    think the effect would be?
        Mr. Dodaro. I think it makes a lot of sense. We recommended
    that Congress consider this, particularly for insurance
    programs, and also another area would be environmental
    liabilities.
        The reported total number of environmental liabilities in
    the last financial statements for the Federal Government is
    getting close to half a trillion dollars, and that is not a
    complete estimate yet. And even though the Federal Government
    spends tens of billions of dollars to try to clean up these
    environmental issues, that liability keeps growing.
        But what accrual concepts in the budgeting process would do
    was give you more idea at the time you make the decisions about
    what the long-term consequences would be of some of these
    programs. Right now a lot of things look appealing but until
    you look down the road as to what the implications would be.
    That is particularly true for insurance and other liabilities
    and some of the compensation programs for veterans or Federal
    employees and others.
        So I think it makes sense. It is not always easy to
    implement, but there are some areas that are easier than
    others. But if you do not ask for it, you are not going to get
    any improvements in the reporting.
        Chairman Enzi. Right. I am having enough trouble just
    selling capital budgeting, let alone accrual accounting.
        I remember one time when I was on the Banking Committee, we
    had all of the living chief financial officers of the SEC, and
    I got to ask them all kinds of accounting questions. It was
    very exciting for me.
        But my staff, who is watching, noticed that the way the
    camera works, it kind of fans out toward the back of the crowd
    of the person answering, and the person answering and I were
    the only two awake. [Laughter.]
        Chairman Enzi. So some of the questions we could ask are
    better not asked at a hearing.
        Mr. Dodaro. Well, I have high standards for the GAO people
    behind me. So I hope that never occurs.
        Chairman Enzi. They have done very well, but I have not
    gotten into the real questions. [Laughter.]
        Chairman Enzi. One thing I noticed in our markup that we
    had earlier today is that more things are being moved to
    mandatory, and I have not figured out how to stop that
    escalation. I have shown the figures on the amount of mandatory
    and how much revenue they generate, and it is pitiful. But
    every time we move something there, we show that we can pay for
    it for the first 5 years, although that is by borrowing money
    from the tenth year to move it back into it. So, yes, we have a
    lot of progress to make.
        And I really appreciate all of the effort that you go to
    and your staff go to every day to give us answers. We will see
    if we can use the answers instead of just chewing on the
    covers, but plenty of work for us to do. And I think it will
    fit in. You can sense, I think, that we do have a desire to do
    some bipartisan changes to make this an effective committee. I
    want to change the name of it to something like ``Fiscal
    Control Committee'' and have the debt ceiling be a part of that
    process too. As long as we are meeting the goals, the debt
    ceiling can be whatever it is, but if the goals are not met,
    then we have got to do some surgical cuts.
        I think we are getting--and a step-by-step process, some
    ideas that might work, and you play a critical role in
    providing that. And I will make sure that more people take a
    little closer look at the testimony that you have provided
    today as well as the appendix. Both of them are well done, and
    I really appreciate you and your staff for getting that
    together and the other questions that you are working on for
    us.
        And if anyone from the Senate Committee wants to submit
    questions, they can have until tomorrow night at five o'clock
    to submit their questions. We appreciate your answers, as we
    always do.
        Thank you. With that, this hearing is adjourned.
        Mr. Dodaro. Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        [Whereupon, at 4:39 p.m., the committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         THE CHIEF FINANCIAL OFFICERS ACT OF 1990: ACHIEVING THE VISION

                                  ----------

                          WEDNESDAY, OCTOBER 30, 2019

                                  United States Senate,
                                       Committee on the Budget,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 2:01 p.m., in
    Room SD-608, Dirksen Senate Office Building, Hon. Michael B.
    Enzi, Chairman of the Committee, presiding.
        Present: Senators Enzi, Grassley, Johnson, Braun, Scott,
    Kennedy, Whitehouse, Warner, Kaine, and Van Hollen.
        Staff Present: Elizabeth McDonnell, Republican Staff
    Director; and Mike Jones, Minority Acting Staff Director.

                   OPENING STATEMENT OF CHAIRMAN ENZI

        Chairman Enzi. I will go ahead and call this hearing to
    order.
        I want to thank Senator Warner for being here. He was one
    of the co-requesters of this particular hearing and
    information, and we appreciate the information that we have. To
    tell you how bipartisan this is, I am going to be doing the
    opening statement for both sides. [Laughter.]
        So today the Budget Committee will examine the Federal
    Government's effort to meet the requirements of the Chief
    Financial Officers Act of 1990. I am pleased to welcome back to
    the Committee our witness, Gene Dodaro, the Comptroller General
    of the United States and the head of the Government
    Accountability Office, known as GAO.
        When the CFO Act was signed into law by President George
    H.W. Bush nearly 30 years ago, it laid a new foundation for
    Federal financial management. It established a financial
    management leadership structure, provided for long-range
    planning, and required audited financial statements as well as
    strengthened accountability, reporting, and other reforms.
        Since enactment of the law, we have seen substantial
    improvements in the Federal financial management. Today
    agencies have CFOs in place to provide leadership and
    accountability over financial operations, and most receive
    clean audit opinions on their annual financial statements. With
    the law's 30th anniversary approaching, last year Senators
    Johnson, Warner, Harris, and I requested that the Government
    Accountability Office review the Federal Government's efforts
    to meet the requirements of that CFO Act and provide
    recommendations to further improve governmentwide financial
    management.
        I look forward to hearing today GAO's assessment of what
    the Federal Government is doing well in terms of Federal
    financial management and what opportunities exist for further
    improvements.
        Financial management system limitations remain a persistent
    barrier to financial and program management. Many agencies are
    unable to integrate their financial and performance data and
    lack comprehensive metrics when making decisions for planning,
    programming, budgeting, and especially execution.
        In many cases, the Government is unable to show the
    relationship between dollars spent and results achieved.
    Further, while agency-level financial reporting has improved,
    the Federal Government cannot produce auditable governmentwide
    financial statements. The Government Accountability Office
    performs an annual audit of the Government's consolidated
    financial statements, which the Department of Treasury prepares
    in coordination with the Office of Management and Budget.
        Since audits began in 1997, GAO has been unable to render
    an opinion, citing serious financial management problems,
    particularly at the Department of Defense. Addressing these and
    other challenges requires long-term planning and careful
    monitoring of progress. To provide for this, the CFO Act
    requires the Office of Management and Budget to annually
    develop an executive branch financial management status report
    and a governmentwide 5-year financial management plan.
        Despite this requirement, it has been 10 years since the
    Office of Management and Budget last published such a status
    report and plan. A financial management plan is essential to
    developing a comprehensive approach with milestones and
    estimated implementation costs. I am concerned that, without
    it, oversight efforts may not be strategic or effective.
        Anniversaries afford us opportunities both to reflect on
    our achievements and to look ahead to the future. I look
    forward to hearing more from our witness on what has been
    accomplished in the nearly 30 years since the CFO Act's passage
    as well as what we might do in order to fully achieve its
    vision. I believe that better financial management will lead to
    more efficiency, more accountability, more data, and ultimately
    better budgets.
        I thank Comptroller Dodaro for being here again and look
    forward to his testimony. And I will go ahead and introduce our
    witness so that we can hear his testimony and then get to
    questions.
        Our witness this afternoon, as we are now very familiar
    with, is Gene Dodaro, who is the head of the Government
    Accountability Office and Comptroller General of the United
    States. He testifies frequently before Congress and
    particularly before this Committee. I am pleased to welcome him
    back.
        Mr. Dodaro 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. Mr. Dodaro has
    been with the GAO for more than 40 years. He served 9 years as
    Chief Operating Officer, the number two leadership position at
    the agency. Prior to that, he headed GAO's Accounting and
    Information Management Division, which specialized in financial
    management, computer technology, and budget issues.
        Comptroller General Dodaro, please begin.

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

        Mr. Dodaro. Thank you very much, Mr. Chairman. Good
    afternoon to you, Senator Warner, Senator Johnson, Senator
    Kennedy. It is very nice to be back here again. I appreciate
    the invitation to talk about the 30 years' progress in
    implementation of the Chief Financial Officers Act.
        Substantial progress has been made since the passage of
    this legislation. It is due to the collective efforts of the
    Chief Financial Officers and their organizations across
    Government. The IGs have been definitely involved as well as
    Independent Public Accounting (IPA) firms that are under
    contract with many of the IGs to perform the annual financial
    statement audits. The Department of Treasury, OMB, and GAO have
    all collectively been working hard to make sure this
    legislation is successfully implemented.
        There are many achievements. I will single out a few.
        First, it was very important to have a leadership structure
    in place, and now, as you pointed out, Mr. Chairman, there are
    CFOs and Deputy CFOs in career positions, in each of the major
    agencies. There is a governmentwide Controller position at OMB.
        Secondly, there is a comprehensive set of accounting
    standards for the Federal Government that is set by an
    independent body, the Federal Accounting Standards Advisory
    Board. Fifty-seven standards have been issued, and,
    importantly, those standards include not just looking at the
    classic set of accrual-based financial statements which are
    similar for financial statements of companies and entities at
    the State and local level, but they have a forward-looking
    standard that focuses on the fiscal sustainability for the
    Government over a long period of time. And as this Committee
    well knows, I was here in June talking about the long-term
    unsustainable fiscal condition of our Federal Government. These
    standards illuminate that for Congress and policymakers.
        The federal government also has more reliable financial
    information as of fiscal year 2018; 22 of the 24 largest
    departments and agencies were able to receive an unmodified or
    clean audit opinion. That is up from six in 1996 when the
    federal government first started a process of preparing and
    having annually audited financial statements.
        The United States largely went, at the Federal Government,
    for a couple hundred years without having that fiscal
    discipline in place, and it took a while to get it well
    established, and it is taking hold. But there is more to do.
        Importantly, also, the audits that have been conducted
    uncovered the full range of improper payment issues in the
    Federal Government. Before the audits started, there was no
    information about the size and scope of improper payments in
    the federal government. The last governmentwide estimate is
    over $150 billion. And so that is an issue.
        And then, lastly, I will point out another early warning
    system that the audits provided, which first started surfacing
    through the financial audits, the problems with computer
    security in the Federal Government back in the 1990s. And that
    is what led me to designate computer security across the entire
    Federal Government as a high-risk area in 1997. So the audits
    provided early warnings on internal controls. And internal
    controls are much better now than they were before the federal
    government had the fiscal discipline in place under the CFO
    Act. Thousands of weaknesses have been corrected by the
    agencies that have been pointed out by auditors and their own
    self-assessments over time.
        Now, there is a great deal of work remaining to be done to
    have all the vision of the CFO Act fully realized, as you
    pointed out, Mr. Chairman. There are several areas that we
    commend to this Committee's attention for refinements in the
    law.
        One is that the CFO positions vary in their
    responsibilities across the agencies. All CFOs do not have the
    full range of responsibilities that I believe you would want in
    a modern CFO. So refreshing and updating the responsibilities
    of the CFOs for a more modern role I think would be very
    important.
        Secondly, the Deputy CFOs can be positioned better to step
    in when there is inevitable turnover in the CFO positions. CFOs
    are political positions in most agencies, so there is going to
    be turnover. It is built into the federal system. And the
    Deputy CFOs should be ready to step in so there is not a lapse
    in efforts to deal with issues that occur over a period of
    time.
        Thirdly, there needs to be a governmentwide plan. I have
    been very disappointed that OMB has not issued a comprehensive
    financial management plan for the last 10 years as you pointed
    out, Mr. Chairman. Now, in all fairness, they have produced the
    President's Management Agenda. They include information in the
    audited financial statements of the Federal Government in the
    management discussion and analysis section. So they have put
    forth plans, and they have a lot of good ideas that I am
    supportive of. But without a detailed implementation plan,
    Congress has no ability to hold people accountable to measure
    progress over time or know what kind of resources are needed
    over a period of time.
        Now, as a potential compromise, we suggest perhaps, rather
    than have a yearly plan, that it be done every 4years like the
    Government Performance and Results Act requires for strategic plans,
    but that there be an annual status report on that plan to help minimize
    what they perceive to be the burden of preparing that plan.
        Also, more information needs to be done to link costs with
    the levels of performance across the Government. One of the
    goals of the CFO Act was to better manage the costs of
    Government as it relates to developing better performance
    measures and better cost data. Some efforts have been made in
    this area, some progress has been made, but much more needs to
    be done.
        We also need to have more metrics to hold the agencies
    accountable for financial management. Right now the main metric
    is do they have a clean opinion or don't they have a clean
    opinion. But there are other areas like total internal control
    deficiencies, improper payment rates, and the number of anti-
    deficiency Act violations which can also be used as metrics. We
    are suggesting that a scorecard be developed of the limited set
    of performance metrics that could be used to better gauge the
    overall financial health of the agencies as well.
        Financial systems still need a lot of attention. Over 75
    percent of the systems, according to the Treasury Department,
    need upgrading. Thirty of the 39 agencies where the Treasury
    has been tracking their financial management systems are due to
    be at the end of their useful life within 5 years without
    vendor support. So there is a great deal of effort that needs
    to be made to modernize the systems and perhaps use more
    centralized systems. Technology has advanced dramatically since
    30 years ago when the CFO Act was passed. So the system
    standards should be updated as well in terms of requirements.
        And then, I will mention the workforce area. There are
    still skill gaps. The federal government needs a modern
    financial management workforce. You need people with more
    skills in the technology area, particularly as you look to the
    future with the prospect of artificial intelligence and other
    high end technologies that can do a lot of the transaction
    processing. You want your financial managers to be in a
    position to help in the management of the agency, guide
    performance, spend more time on risk management and other
    activities.
        So this is a great opportunity that you are taking here to
    modernize the CFO Act to help ensure a more modern, progressive
    financial management for the Government.
        Also, lastly, I would point out when the CFO Act was
    passed, I am not sure exactly what the budget of the Federal
    Government was, but it was nowhere approaching what it is right
    now, in terms of $4.5 trillion, and a lot of the challenges
    associated with it. So you have to size the capabilities of
    financial management with the size of our enterprise at the
    Government level.
        So thank you again for the opportunity to be here today,
    and I would be happy to answer questions.
        [The prepared statement of Mr. Dodaro follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Enzi. Thank you for your testimony and for the
    fuller version that you presented us with and just for all of
    the valuable information you presented, not just at this
    hearing but at all the hearings that you have done.
        We will now have a round of questions, and we will
    alternate back and forth in the order that people arrived. I
    will begin the questions.
        The CFO Act envisioned Federal financial management systems
    that would allow easy access to integrated budget cost and
    performance data, allowing us to compare what we budgeted to
    what we spent and whether what we spent got the outcome we were
    hoping for. Why has it been so challenging to develop and
    maintain the integrated accounting and financial management
    systems and standards? What can be done to address those
    challenges? You touched on it briefly.
        Mr. Dodaro. Yes. I'll start with a few things. First, one
    of the areas which would be helpful is to give the CFOs within
    the departments and agencies the full range of responsibilities
    needed because many of them do not have access to all the
    information to begin to assemble the linkages necessary. They
    need to have both budget formulation and execution
    responsibilities. The CFO Act originally talked about budget
    execution, not budget formulation.
        Secondly, we know from the work that we have been doing on
    overlap, duplication, and fragmentation in the Federal
    Government and monitoring implementation of the Government
    Performance and Results Act, many programs and activities do
    not have evaluations. The Congress just passed the Evidence-
    Based Policy Act. You cannot link something if it is not there
    to begin with, and there is not a lot of good, hard evaluative
    evidence of the performance of Federal programs and activities.
    So that act needs to be implemented well.
        Now, in the Senate, Senator Lankford has been introducing
    the Taxpayer Right-to-Know Act, and that would link the
    performance with the budgeting and the accounting process. So I
    have supported consideration of that legislation as well, and
    that may be something that you want to entertain as part of the
    CFO Act initiative as well.
        But all those things could help. And the cost data, some
    agencies are doing activity-based costing, but there really is
    not good cost information. This is particularly a problem at
    DOD because of their inability to get reliable data to begin
    with. But it is a problem throughout Government.
        Chairman Enzi. Thank you. On a little different topic,
    since the enactment of the CFO Act, we have seen a
    proliferation of narrowly focused chief officers in the agency
    management. For example, some agencies now have Chief Risk
    Officers, Chief Data Officers, and Chief Evaluation Officers. I
    have heard concerns that this has created a fragmented
    environment where functions that could reside under the CFO
    umbrella are siloed into separate offices.
        How do you think the creation of these offices has affected
    the process?
        Mr. Dodaro. We have not fully studied it since some of
    these positions are relatively new, particularly the Evaluation
    Officers and the Risk Officers. And my experience has been,
    before that, there were Chief Information Officers, Chief
    Procurement Officers, Chief Human Capital Officers. All were
    well intended because there was a problem in all these areas
    across Government, and to some extent there still is a problem,
    and there was nobody focused on it.
        I think if you modernize the CFO Act, you can rationalize
    some of these positions, because then somebody would have clear
    responsibility and accountability for the functions.
        The reason Congress defaults to creating these positions is
    because the problem persists over time, and no one seems
    accountable in the agency. So all the legislation then says
    this is what the legislation is intended to do, and here is who
    will be held accountable. But it needs to be better
    rationalized within each department and agency, and so I think
    there are opportunities to do that.
        But the CFO position is a logical locus, particularly for
    risk management and integrating performance with cost data. If
    it does not happen at that level, it is not going to happen,
    and fragmentation will continue in the Government because of
    the inability to integrate data. And if you do not have your
    data integrated to the CFO side, you are at a serious
    disadvantage in meeting any of the objectives of these other
    laws.
        Chairman Enzi. Thank you. I will yield the balance of my
    time, and the next two people to ask questions will be ones
    that asked for this hearing and evaluation. Senator Warner.
        Senator Warner. Well, thank you, Mr. Chairman, and I know
    Senator Johnson will say as well that we appreciate the fact
    that you made this request to the Comptroller General. I know
    you have got the two business guys and the accountants who are
    trying to drive this, but even though we may have somewhat
    different views on how we get there, I think we share a lot of
    the same goals. We have got to start with good data.
        And, Gene, for all the years I have been here, thank you
    for your great work and the work you did on this CFOreport. I
    think, you know, 30 years later, there are improvements that you have
    spoken to.
        You mentioned a couple of bills that I was very pleased to
    have a role in getting passed, the DATA Act and GPRA. I think
    again about the DATA Act, which was the first open data piece
    of legislation to try to give taxpayers better insight into how
    their tax dollars were spent. And echoing what the Chairman
    said, the performance of Federal programs, I think we have a
    great aspiration. I am not sure the implementation fully has
    gotten us where we need to be.
        So how can we better link performance metrics--you have
    spoken of performance metrics here a little bit--with the data
    that the agencies are already reporting? And are there specific
    things, as we upgrade the CFO Act, that we might fold those
    improvements into the CFO Act?
        Mr. Dodaro. I think, first of all, you have to hold
    agencies accountable for producing better data and showing the
    performance of Federal programs and activities. When we looked,
    for example, there were over 200 science, technology,
    engineering, and math programs. Two-thirds of them had never
    been evaluated. Some of them were too small even to evaluate.
    So you need to rationalize that, but you need to hold agencies
    accountable for that.
        We looked at 47 employment and training programs. Only four
    had had an evaluation over a period of time.
        Congress has the ability to change the incentives. Right
    now, all the onus is on somebody trying to stop a Federal
    program. The onus is not on people who want more money to
    continue the program to prove that it is working well. And so
    that through the budget and appropriation process and through
    better oversight I think needs to be a starting place right now
    because you are missing a whole component of what you want to
    link. The budget data is fairly good. Cost data is weak. And
    performance data is very lagging and missing in most cases. So
    Congress has to provide better oversight and hold people
    accountable for the components of the linkage.
        Then I think you could strengthen the CFO position to be
    the locus of responsibility for managing the linkages.
        Senator Warner. Well, I hope you would work with us as we
    get into some of those details. One of the things I know the
    Chairman, along with Senator Whitehouse, has been proposing
    is--I have been supportive in the past and look forward to
    fully reviewing your new legislation that would move us at the
    Federal level to a 2-year budget cycle. I do not want to speak
    for my friend and fellow Virginia Governor Tim Kaine, but, you
    know, we did a 2-year budget cycle. It still allowed
    appropriation changes to be made on an annual basis. But it did
    not--we do not even do the existing 1-year process that well
    here, but having that extra year to really dig into the
    evaluation component I think is so, so important and I hope we
    are able to see, Mr. Chairman, your legislation become law.
        I want to move off subject for my last minute. One of the
    things that I appreciate that you guys are looking into--and,
    again, I think I am speaking for my colleague Senator Kaine as
    well on this--is GAO looking at the military program of
    privatized housing. You know, my belief was this was a decision
    made back in the late 1990s that may have had short-term budget
    savings. But when we give folks a 50-year lease and very little
    oversight of how that lease is implemented, you end up now--and
    I think we have seen this at military installations all around
    the country--with our servicemen and women not getting the kind
    of quality care and the Federal Government not having the
    leverage that we need to have. And I hope you are still going
    to be able to get that report to us by December. Is that what
    we are hoping?
        Mr. Dodaro. Yes.
        Senator Warner. That is a quick yes. I will take that and
    go in my last 7 seconds.
        Mr. Dodaro. But I----
        Senator Warner. Let me just get my last comment in so the
    Chairman does not cut me off. I also want to thank you--I know
    you have been working with us from your financial side. This is
    more on the private sector side. But I think there may be--I am
    still unsure, but there may be some merit in the private
    sector's move towards ESG type reporting. But there is not much
    there in terms of standards. I really look forward to working
    with you on that, and the Chairman will give you the discretion
    to answer, make your other comment.
        Thank you, Mr. Chairman, for having the meeting.
        Mr. Dodaro. The military privatizing of housing is a
    classic example where the Government is making short-term
    decisions without thinking through the long-term implications
    of this, because if you stop to focus on what the long-term
    implications are of who is going to take ownership of this
    after the lease and what is the incentive to make investments
    to keep the property up to standards, you could logically have
    predicted some of the problems that we are having now up front.
    But it is always a rush to make a short-term decision without
    thinking through the long-term implications, and these things
    are coming home to roost now.
        But, to me, that is a classic case of where the federal
    government needs to change the horizon of its thinking because
    most of the things that it gets involved with are long-term
    efforts, and you need to have a framework for makinglong-term
    decisions and trade-offs up front before embarking on these efforts.
        Chairman Enzi. We did that on other housing programs, but
    we did not learn from them.
        Senator Johnson.
        Senator Johnson. Thank you, Mr. Chairman. First of all,
    thank you for holding this hearing. Thank you for your
    dedicated efforts on all things financial management. I am a
    bean counter, and let us face it, numbers generally do not lie.
    You can probably do something with them, but facts are hard
    things to argue with, and that is what is so important about,
    you know, really the work that Gene does day in and day out,
    and everybody that works for the Government Accountability
    Office is providing that information so we can make smart
    management decisions within Government.
        I would like to take this opportunity to let you know I
    have looked at your Congressional Budget Reform Act, and I
    would ask to be an original cosponsor before you introduce
    that, if you do not mind, also recognizing that what you are
    contemplating here, updating the CFO Act, will come under my
    Committee's jurisdiction. I want to work very closely with you
    and your budget staff because, again, you have been so
    dedicated and with Gene and his staff.
        Since I have been here 9 years, I have seen probably the
    best bipartisanship really congeal around studies that the GAO
    does. Again, it is hard to refute those facts. And when the GAO
    lists recommendations, they are very hard to argue with, and we
    can just kind of wrap those into a piece of legislation and
    hopefully pass them pretty easily.
        So I would hope that we can work together, this Committee,
    your Government Accountability Office, and our Committee of
    jurisdiction to update the CFO Act. These are great
    recommendations, you know, consolidating some of these other
    chiefs under what in business really is the Chief Financial
    Officer--those functions should go under there--provide these
    management reports, but that is really my question, because we
    have not issued a management report since I have been here. I
    have never really looked at one.
        So can you just briefly explain, what is the difference
    between that and the general budget process? Just like of
    letting me know.
        Mr. Dodaro. The plan that we are talking about that has not
    been prepared would lay out what the overall goals would be for
    financial management for the Federal Government. It could
    include goals on doing the linkages that we are talking about.
    More importantly, it needs to include how to develop the
    systems necessary in order to generate reliable, timely data.
    We have good data now on most agencies, but it is one point in
    time at the end of the year for the financial statements. We
    are not assured to have timely, reliable information at any
    point during the year for timely decisionmaking. That needs to
    be done. The technologies are available now, but the government
    does not have a good plan.
        There are some great ideas Treasury has, and OMB, to try to
    centralize some of that, to go to more shared services, common
    standards, and data. Those ideas need to be laid out in the
    plan with milestones and resource estimates. You also would
    have a better gauge on the status of controls in the Federal
    Government. There are a lot of material weaknesses that occur,
    which means that they could represent situations where there
    could be material misstatements to the financial statements and
    not be noticed on a timely basis. How are those being corrected
    over time? Some of them get fixed, but many of them go years
    and years before they are corrected. So a plan and status
    reports would provide more accountability for that, and it
    would raise additional issues to the Congress' attention and
    give the Congress an ability to say, well, this is not in your
    plan, we would like you to include this in the plan.
        Right now there is no dialogue. There is no consultation.
    The plan would be a way to have consultation with the Congress
    so that you can get the information you want from the agencies
    as well. It is not just leaving it up to them to decide what
    they want to manage. That is important and essential. But they
    are producing this information for you and the American people,
    and you represent the people. And so I think that has been a
    missing dialogue, and----
        Senator Johnson. It really is divorced from numbers. It
    really is what it says it is, financial management planning.
        Mr. Dodaro. Yes.
        Senator Johnson. How do you manage all these functions?
    That is where I think it really would be a good idea to have
    this--not on an annual basis. I really do not think there is a
    need to do it, particularly because it has not been being done,
    anyway.
        Mr. Dodaro. Yes.
        Senator Johnson. But spread that out a little bit longer,
    then you have a longer term to implement that, come back and do
    oversight. So 2 years might even be too short a period.
        Mr. Dodaro. Yes, we are suggesting four.
        Senator Johnson. So once every 4 years, and then with
    that--okay.
        Mr. Dodaro. And you have status reports every year so you
    can check on the progress, but you do your strategic planning
    every--4 years and have it coincide with the development of
    strategic plans in the agencies under the GovernmentPerformance
    and Results Act. So you would say here is what we are planning to do as
    our business, and here is the financial system management system we
    need to support our business, and then you have a means to make sure it
    is integrated.
        Senator Johnson. It makes perfect sense. I look forward to
    working with both you and Chairman Enzi and his staff on making
    this a reality. Thank you.
        Mr. Dodaro. Thank you, Senator.
        Chairman Enzi. Thank you. And with your permission, Senator
    Kaine, I will call on Senator Grassley next.
        Senator Grassley. Well, Mr. Comptroller, I have tried to do
    diligent oversight for a long period of time here in the
    Senate. Government agencies do not seem to be very cooperative.
    If you consider the Department of Defense where I have often
    noted it is hard to get transparency and financial
    accountability. In fact, we had a hearing right here in this
    room with the CFO. I asked that person four simple questions
    for the record. We are still waiting for answers.
        I appreciate your recommendations how to make further
    progress in the spirit of the CFO Act, including better
    measurement and more uniformity. But even with better measures,
    we do not assurances that agencies will be responsive to
    questions that we ask about those measures.
        Could you talk a little bit about whether anything you
    recommend would lead to more transparency and responsiveness by
    these agencies?
        Mr. Dodaro. Yes. To talk about the Department of Defense,
    one of the things that we recommend is that they have a
    centralized tracking system to report to the Congress on a
    regular basis how they are fixing all the problems that are
    being identified by their auditors. That would give you an
    ability to track progress and to hold them accountable for
    results.
        For example, the audits that were done at DOD in 2018,
    there were 2,400 items reported by the auditors that needed to
    be fixed. Now, from what we can figure out so far, DOD as of
    October had fixed about 350 of them, something like that, and
    there should be more fixed by the end of the year. So you
    should have the ability then to identify how they fixed them,
    particularly the material weaknesses, the big weaknesses over
    at DOD. This would give you a scorecard on how well DOD is
    doing compared to other agencies, and right now there is not
    transparency, as you point out, Senator. And I know you have
    been very diligent on these matters, and I appreciate that very
    much because it has enabled us to make greater progress because
    of the questions that you ask and the probing that you do. But
    this would give you more visibility and transparency.
        Senator Grassley. The problem of not getting certified
    audits in Defense is a very disappointing thing but not
    surprising. Again, for decades I have pressed the Department to
    fix its broken accounting system, get wasteful spending under
    control, and produce a clean audit and the Department has spent
    hundreds of millions of dollars on an audit and billions over
    the years trying to fix its accounting system with little
    success. Without proper accounting, an audit turns out to be
    nothing but wasteful.
        So you may have just responded a little bit to this
    question, but I think it takes a broader answer about what are
    your views on the changes the Department needs to make to solve
    its accounting and finance problems. And how and when do you
    think changes would be implemented to get these clean audits?
        Mr. Dodaro. Yes. First of all, we have noticed that the
    audits are starting to produce some good results for them,
    particularly in identifying the status of their property. For
    example, in the 2018 audit, they identified in Jacksonville
    over $280 million of equipment supplies they bought that was
    not entered into their accounting system. So they put it in the
    system. Then they avoided repurchasing about $81 million.
        They found missile motors that on their records showed that
    they were unserviceable, when they were actually in good
    condition based on the audit. They have saved $53 million by
    not reordering the missile motors.
        They are starting to make some tiny steps toward
    improvement in identifying issues, but I think they have a long
    way to go. But the fact that they are now doing departmentwide
    audits for 2018 and 2019 for the first time since the CFO Act
    was passed, I think the administration and the Congress, quite
    frankly, gave them a pass for many years that were wasted along
    the last 30 years. And now they are trying to hold them
    accountable. I think they have the best plan they have ever
    had. I have been involved in this since the act was passed.
    This is the best plan they have had. But they have to fix the
    problems.
        Now, I have been a little concerned--the previous DOD
    Controller has now been appointed Deputy Secretary--that they
    are going to lose some momentum in that area. So I am planning
    to meet with the Deputy Secretary of Defense to try to get his
    assurance he is going to stay focused on these issues, Senator.
    We are definitely on the case in this area, and I think that
    the investment that they are making in the audit will pay off,
    but only if they fix the problems that the auditors identified.
    And that is what I think can be done, and we will regularly
    report to the Congress whether they are fixing the problems
    that have been identified. That will give you a good gauge.
        Senator Grassley. Thank you.
        Chairman Enzi. Thanks.
        Senator Kaine.
        Senator Kaine. Thank you, Mr. Chair.
        Mr. Comptroller, I am going to just pick up right there. Am
    I right that the next DOD audit information is due in mid-
    November?
        Mr. Dodaro. That is correct.
        Senator Kaine. And so that will be--I am on the Armed
    Services, and we put in place in 2014--and we should have had
    it done in 2014 given how long delayed this was, but in the
    NDAA in 2014 we basically said by fiscal year 2018 you will be
    producing this audit, and then we will have some data fairly
    soon about how they took the audits from last year and
    addressed problems and whether they are improving. And I am
    very, very anxious to get that, and when we do, I would be very
    anxious to hear your guys' perspective on the progress that
    they have made.
        Mr. Dodaro. Yes, we will definitely do that.
        Senator Kaine. And whether that is in a formal hearing here
    or whether we get you into the office, I think it would be
    helpful, and I would probably want to invite other Armed
    Services colleagues to come and be part of that as well.
        Mr. Dodaro. Yes.
        Senator Kaine. There was a nomination hearing yesterday for
    somebody who is going to be working directly with Deputy
    Secretary Norquist on management, and we asked her about the
    audit, and she is very focused on continuing forward progress
    on this.
        You gave some examples to Senator Grassley about, even in
    the first iteration, some of the problems that are being
    discovered, and I really am interested in audits in terms of
    what is the action item. I hope that we would have continuous
    improvement as an action item. Senator Warner and I, when we
    were Governors, we put this thing in place called ``Virginia
    Performs'' that is just a dashboard that basically looks at the
    key indicators of what would success look like to a Virginian.
    And we track it, you know, whether it is unemployment rate or
    third grade reading scores or infant mortality. We track
    Virginia against neighboring States. We track Virginia against
    national averages, and every year in those areas we give an up
    arrow if we are getting better, a down arrow if we are getting
    worse, or a sideways if we are holding steady. And that gives
    citizens the ability to look and see how their State is doing,
    and then within each of those data categories, we connect it to
    programs. And so I certainly would not say we are doing a good
    job at evaluating all of our programs, but we are not just
    doing programs and forgetting about them. And I think that is
    obviously what we want to shoot for at the Federal level.
        DOD is kind of late to the party, but tell us how the audit
    requirements of Federal agencies have not just produced audit
    reports but have actually--give us some good examples of how
    the audits have produced improvements in the way citizens are
    served, because it should be about efficiency, but I like
    effectiveness even more than efficiency.
        Mr. Dodaro. Yes. I think one very noticeable example was
    identifying these improper payments. These are payments made to
    people that are not eligible or in the wrong amounts, and
    actually we started developing, along with the IGs, ways to
    determine--to quantify how much improper payments were made.
    That then led to legislation where Congress agreed with us that
    that is a management responsibility, and now there has been a
    series of legislative efforts to require agencies to estimate
    improper payments.
        In 2018, there were 79 programs or activities that were
    estimated to have improper payments. The total amount of
    estimated improper payments was $151 billion, and that is not a
    complete estimate. We still do not believe the Government has a
    reasonable basis to know the full extent and have taken
    appropriate actions. But some of those payments have been
    rectified. This is done through statistical sampling.
        Senator Kaine. Right.
        Mr. Dodaro. But you have a scorecard now that you did not
    have before, and a lot of this results in monetary loss to the
    Government. Every year----
        Senator Kaine. I mean, this is such a great testament.
        I would love to know the 79 programs that you evaluated--it
    is not a comprehensive list; there may be others--and which
    among the 79 programs has taken it seriously to reduce it and
    which are just still coasting. That would be a really helpful
    thing for Congress to know. We would like to praise the ones
    that are getting on it, and we would like to kick the ones that
    are not getting on it.
        Mr. Dodaro. Yes, and my concern is the two largest ones are
    Medicare and Medicaid, and they are the fastest growing
    programs we have.
        Senator Kaine. Yes.
        Mr. Dodaro. And unless you get on top of this--and the
    Medicaid estimate right now does not really seriously look at
    the managed care portion of Medicaid, which has grown about 40
    percent.
        Senator Kaine. And it is growing quickly.
        Mr. Dodaro. And this is the classic case how you can use
    the financial audit to hold people accountable for results.
        Senator Kaine. Sometimes people fear this because they feel
    like, you know, if you find that something is beingspent wrong,
    you will take it away from me. But the DOD had this testimony
    yesterday. Their attitude is efficiency for lethality. If we spend any
    cent on the wrong thing, it is a cent that is out of the right thing,
    and we want to find spending on the wrong thing and reprogram it to
    spending it on making our Nation more secure.
        Medicaid and Medicare, I mean, these are programs that
    vulnerable people depend upon, and we grapple with are they
    solvent or not. If we could reprogram money spent on wrong
    purposes within those programs to shore up things, it would
    make everybody who is vulnerable and depends on those programs
    feel more confident that the programs will be there for them.
        One of the aspects of your testimony that I want to go a
    little farther on deals with the workforce. You talk about, you
    know, how to--steps we could take for the financial management
    workforce in the Federal Government. What about workforce
    effects on this workforce more generally, things like sequester
    and, you know, Government shutdown and CR? Good financial
    professionals have other alternatives, and they could go
    elsewhere. So are you worried about the consistency of a
    workforce when there has been budgetary--and certainly on the
    congressional side that might make people decide they want to
    do something else?
        Mr. Dodaro. I am very concerned about the status of our
    Federal workforce. The uncertainty in the budget process, as a
    manager of a Federal agency myself, is a complicating factor,
    and it makes it very difficult to plan, to hire the people that
    you need, when you do not know what your appropriation is going
    to be for the year. I have stopped all hiring right now until I
    know. And it is not clear when that is going to happen, so it
    does have effects.
        But on the workforce, we designated that a high-risk area
    across the entire Federal Government for the entire workforce.
    There are huge skill gaps right now. Of the 35 areas on our
    High-Risk List, 16 of them are on there in part because of
    skill gaps, whether you are talking about VA doctors, you are
    talking about aerospace engineers at NASA, you are talking
    about cost estimators at DOD and acquisition personnel. A huge
    percentage of the Federal workforce is eligible to retire on
    top of these skill gaps. While this is an opportunity to
    reshape the workforce, but only if you can effectively recruit
    and hire people.
        Senator Kaine. I am significantly over my time.
        Mr. Dodaro. I am sorry.
        Senator Kaine. But I appreciate that answer, and that gives
    us a direction we need to focus on.
        Thank you, Mr. Chair.
        Chairman Enzi. Thank you.
        Senator Kennedy.
        Senator Kennedy. General, these are your colleagues behind
    you here, I assume?
        Mr. Dodaro. Yes.
        Senator Kennedy. I want to thank all of you for your good
    work. I know it gets frustrating sometimes.
        I want to follow up on Senator Kaine's questions about
    improper payments. You mentioned 79 agencies, and last time I
    looked, it was about $144 billion a year. That is not a 10-year
    estimate. That is per year.
        Mr. Dodaro. Yes.
        Senator Kennedy. And I agree with you, and I think we have
    done a good job, you have done a good job in terms of
    understanding the extent of the problem. What more do we need
    to do to try to make agencies take it seriously? And let me
    tell you what really frustrates me. I understand making a
    mistake in terms of a payment. But we are paying dead people,
    for God's sakes. And they have been dead a long time. Now, I
    have seen dead people vote but never cash a check. It is
    obviously fraud. And yet the Social Security Administration has
    a Master Death File. How hard can it be to check?
        Mr. Dodaro. First of all, we have recommended that the
    Congress address that Social Security will not share their full
    death file with the Treasury Department. You and I had this
    exchange previously.
        Senator Kennedy. Yes.
        Mr. Dodaro. It still has not happened.
        Senator Kennedy. I know.
        Mr. Dodaro. I have asked Congress to give the Social
    Security Administration----
        Senator Kennedy. I am trying to get a bill passed. I have
    got all kinds of people objecting to my bill.
        Mr. Dodaro. It is one Federal agency to another, and the
    objections are privacy, but it is costing the Federal
    Government a large amount of money. I cannot believe anybody
    would not--the average citizen would not agree that it makes
    sense to do that.
        Senator Kennedy. I cannot believe there are people
    objecting--I mean, I am not trying to be unfair to any of my
    colleagues, but who can be for paying a dead person? That is
    hard to sell back home.
        Mr. Dodaro. Yes. You will not find any takers from GAO on
    that either. But it baffles me, to be honest with you. And the
    other thing is under the law, if an agency has an improper
    payment rate of over 10 percent for 3 straight years, they are
    supposed to provide a plan to the Congress to come into
    compliance with the law. But I cannot for the life of me think
    of when an oversight hearing was held on these agencies that
    are out of compliance with the law tosay, ``When are you going
    to fix this?''
        Now, I have testified in the past on some of these.
        The problem is overall, though, it is a cultural problem in
    the Government. The only time people in the agencies get into
    trouble is for not paying somebody. If somebody is not paid or
    they are not paid on time--there are incentives are to deal
    with that, not to make sure you double-check eligibility and
    that you match records and things of that nature. So we are
    trying to shift the culture by highlighting the issue. And a
    number of agencies say, part of it is a documentation problem;
    we just do not have the papers.
        My point to that is, look at the IRS, if you do not have
    documentation for your tax exemptions, the Government will take
    your money. But you are going to turn around and spend somebody
    else's money without proper documentation?
        So this needs congressional oversight in a big way,
    Senator, and the administration is trying, but they need help,
    and we could use your help, too.
        Senator Kennedy. Well, another example, and this to me is
    low-hanging fruit, and I know you see it as well as I do. Our
    Internal Revenue Service--and I know they get beat up on, and I
    want to try to be fair here. But when they are--we assume that
    they know, the IRS, who is paying taxes and who is not. And
    when I see them hiring consultants that owe them money in a
    final judgment--not a tax dispute, there is a final judgment,
    and they are contracting with them without offsetting the
    amount owed the taxpayers. I do not understand it.
        Mr. Dodaro. We have issued reports on that. It is not just
    IRS.
        Senator Kennedy. I know.
        Mr. Dodaro. Other agencies hire contractors who owe the
    Federal Government money, tax debt. And Congress has taken some
    action, but more can be done in that area. We have
    recommendations on that. But there is just not--the focus on
    responsibility and ownership--that is why you do not have much
    of this happening in the private sector because it is their own
    money.
        Senator Kennedy. I have about convinced--I am not going to
    go too far here, but I do not want to be unfair to anybody, but
    it is easier to divorce your spouse than fire somebody around
    here. And it just seems to me within the parameters of the law
    that some people ought to be fired over this. I mean, how can
    you defend paying a dead man? It is pretty basic.
        Thank you, Mr. Chairman.
        Chairman Enzi. Thank you.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. Thank you, Mr.
    Comptroller General, for your service.
        I am going to be submitting for the record some questions
    related to the idea that came out of OMB for a capital
    revolving fund. Some of us came from State government where we
    had capital budgets and operating budgets, and it appears the
    Federal Government could save quite a bit of money,
    potentially, if we set aside a capital fund for the purchase of
    Federal Government buildings instead of leasing these
    buildings.
        Do you agree that is something we might want to look at to
    save money?
        Mr. Dodaro. Definitely. It has been on our High-Risk List
    for many, many years, mostly because of the overreliance on
    leasing. So I would endorse looking at that issue.
        We have been asked recently to look at the specific
    proposal from the administration, so we will be starting work
    on that soon.
        Senator Van Hollen. I would like to work with you on that.
        Mr. Dodaro. Definitely.
        Senator Van Hollen. If it requires any legislation, because
    right now, as we know, agencies have to put the entire cost of
    a building in an annual budget, and they are reluctant to do
    that because that squeezes out other priorities, and so they
    lease it so they just have a little slice per year.
        Mr. Dodaro. Yes.
        Senator Van Hollen. So it makes much more sense if we would
    allow them to have a capital fund. So that is one question.
        The second relates to Federal employees. My understanding
    is the level of Federal employees, total Federal employees in
    the Federal Government, has remained pretty constant for the
    last 10, 20 years. Is that right?
        Mr. Dodaro. Yes.
        Senator Van Hollen. But Federal contract employees, we
    really do not know how many there are, do we?
        Mr. Dodaro. No.
        Senator Van Hollen. All right. Because I have heard
    estimates of 3.7 million. Does that make sense to you? Paul
    Light, who is a professor at NYU----
        Mr. Dodaro. Right.
        Senator Van Hollen [continuing]. Has talked about that.
        Mr. Dodaro. I know Paul very well. And you just do not
    know. There is no----
        Senator Van Hollen. So I would like to work with you. It
    seems to me that as we work to get a better handle, as you are,
    on the Federal budget--and the Federal budget, of course,
    includes payments to contractors, but it would be useful to
    know just how much work is going outside the Federal
    Government, because there are some things that, in my view,
    properly belong within the scope of Federal employees, and we
    should not be contracting out a lot of governmental functions
    that are inherently governmental. So I am going to also ask you
    about that.
        Mr. Dodaro. I agree with that. For many years, we have had
    a recommendation to DOD in particular to figure out what is the
    proper mix of their workforce.
        Senator Van Hollen. Yeah.
        Mr. Dodaro. For some areas, it may make more sense to have
    Federal employees do it where you want continuity and you want
    to build up institutional knowledge.
        Senator Van Hollen. Absolutely.
        Mr. Dodaro. The classic example is where in the 1990s when
    the acquisition workforce was cut back; then all of a sudden
    the United States was in Afghanistan and Iraq, and the
    government did not have the people to support it.
        Senator Van Hollen. Very good example. We lost our
    professional Federal Government procurement team, and as a
    result, we probably wasted a lot of money on----
        Mr. Dodaro. Yes, short-sighted, just like leasing.
        Senator Van Hollen. So I want to work with you on that,
    too.
        Mr. Dodaro. Okay.
        Senator Van Hollen. I want to ask you about the Impoundment
    Control Act because GAO plays a very important role in that,
    right?
        Mr. Dodaro. That is correct.
        Senator Van Hollen. And as we know, we have a very recent
    example of this administration withholding funds specifically
    for Ukraine, $400 million, until the very end. And GAO wrote an
    opinion back in December of last year, ``Subject: Impoundment
    Control Act--Withholding of Funds through Their Date of
    Expiration,'' where, as I understand your opinion, it would be
    illegal, unauthorized for the executive branch to withhold
    money at the very last minute. Can you just talk briefly about
    that? And then I have a follow-up.
        Mr. Dodaro. Yes, sure. Under the law, which was passed in
    1974 to resolve the dispute between President Nixon and the
    Congress on rescinding money, the President can propose to the
    Congress to rescind the money, and the only way that that would
    hold is if Congress said, ``Yes, we agree.'' And Congress has
    45 days in order to act. And if they do not act, then one of
    our responsibilities is to make sure the money is released. And
    if not, we are authorized to go to court to represent the
    Congress in getting the money released from the administration.
    We have only had to do that once, but HUD released the money
    beforehand.
        What this opinion says is if you try to withhold the money
    and not give Congress the 45 days and the money expires toward
    the end of the year, that is not a proper rescission. It is not
    contemplated under law to operate that way.
        Senator Van Hollen. And this was within the 45 days. As you
    know, the Ukraine money was not released within those 45 days,
    and maybe you can get back to me on whether GAO told the
    administration they were in dangerous territory.
        Mr. Chairman, I would like to put in the record an article
    from Lawfare, ``The Role of OMB in Withholding Ukrainian Aid,''
    and an article from Just Security entitled ``White House
    Ignored Pentagon Warning on Ukraine Funding.''
        Chairman Enzi. Is there objection?
        [No response.]
        Chairman Enzi. Without objection.
        [The articles follow:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Van Hollen. My question is: In this article, the
    Pentagon was pushing really hard to get these funds released,
    as was a bipartisan group in Congress. The Internet says that
    even if they withheld and ended up spending the funds, the
    failure to notify Congress would be a violation. If you can
    just get back to me on whether you agree, and, number two, what
    is our recourse at the end of the day as a Congress if they do
    not do it?
        Senator Van Hollen. Thank you, Mr. Chairman.
        Chairman Enzi. Senator Scott.
        Senator Scott. Sure. First of all, I have been up here just
    a few months, and I think the reports you put out are really
    outstanding. They are really good, so I want to thank you and
    your team for doing it.
        What Federal agencies have actually listened to you?
        Mr. Dodaro. Actually, 77 percent of our recommendations get
    implemented over time. Probably the two agencies that have the
    lowest historic rate of implementation of the recommendations
    are DOD and HHS, the Center for Medicare & Medicaid Services.
    But I am working with both of them. Every year I send a letter
    to each major department and agency prioritizing open
    recommendations from GAO. That is prompting more action. We are
    often here talking about what has not been implemented, but a
    lot has. Last year, as a result of the agencies implementing
    our recommendations, we saved $214 billion on behalf of the
    Federal Government, which is a good return on GAO's investment.
        So a lot of agencies have been listening to us, but there
    is more that could be done. Tens of billions of dollars could
    be additionally saved by implementing our recommendations. I am
    trying to work with the agencies and with Congress to get
    attention to those matters.
        Senator Scott. Are you familiar with the low-income program
    that comes up through CMS at some of the States?
        Mr. Dodaro. Just generally.
        Senator Scott. I think Senator Van Hollen has got--I have
    got the same issue that he just had on something else. I had a
    situation--I just finished being Governor--where the last
    administration withheld $1 billion because we did not do
    Medicaid expansion. Could you look and just let me know, is
    that something that is proper? Do they have the authority to do
    that?
        Mr. Dodaro. Okay. We will look into that.
        Senator Scott. When you say that, you know, some of the
    agencies have done it, you know, almost $150 billion a year in
    improper payments, how much is that thing going down on an
    annual basis?
        Mr. Dodaro. It is not. Some individual programs it has gone
    down, but the governmentwide number is going up, not down,
    including the amount that has been reported as actually
    monetary losses as opposed to errors and documentation issues.
        Senator Scott. And there is no Federal law that requires
    anybody to focus on that or the other issue that you just
    brought up of Federal agencies sharing information with other
    Federal agencies, there is just no requirement to do it or no
    enforcement mechanism?
        Mr. Dodaro. The interpretation by the agencies, in this
    case on Social Security full death information, is they cannot
    share it. Congress told them not to share it with anybody. We
    are saying, well, Treasury is just not anybody. We know you are
    supposed to protect the information, but they--and that is why
    we asked Congress to clarify the law to say, yes, Social
    Security, you can provide it to the Treasury Department to be
    able to do it.
        There is a law, improper payment legislation, that requires
    agencies to do estimates, to report to the Congress, and if
    they do not bring the rates down within 10 percent--now, 10
    percent is a pretty generous figure in an error rate to begin
    with. But within 3 years if it is still over 10 percent, they
    are supposed to report to the Congress. Some of the agencies
    have not been reporting promptly, and then when they do, there
    is not much action on the congressional front, to be honest
    with you. And I am trying to spur more attention there.
        Senator Scott. And the executive branch never enforces it
    against their own agencies?
        Mr. Dodaro. No.
        Senator Scott. Why?
        Mr. Dodaro. Well, some of them are in mandatory programs.
    You have Medicare, Medicaid. The law says if somebody is
    eligible, you got to pay them. And so they are originally
    determined to be eligible, and it is only after the fact that
    you find out that they are not.
        And so what we are trying to do, like on Medicare, for
    example, we think--and they have been experimenting with this
    in part because of our recommendations. You ought to have some
    prior authorization in some cases, and it could be done in a
    timely manner so nobody is withheld services that they need.
    But they are not doing that as much as we think they should.
        So we have made a lot of recommendations. I met with the
    Administrator from CMS, and so they are, beginning to listen to
    our recommendations. They made some good moves in the Medicaid
    area where they were approving demonstrations in States that
    were supposed to be budget neutral, but they really were not.
    It was costing the Federal Government tens of billions of
    dollars, and so they have renegotiated those demonstration
    arrangements and have already saved over $100 billion so far.
        So they are taking action. They are trying to do this.
        Part of the problem is unless you prevent these payments
    from being made in the first place, you have a problem because
    it is hard to recover. About $20 billion gets recovered every
    year on average, but that is not anywhere near compared to the
    magnitude of the problem. But you have to prevent them in the
    first place, so we are trying to get them to use better
    diagnostics to do more matching, particularly on eligibility
    requirements. I have been trying to get the State auditors more
    involved, particularly on Medicaid, because as you know, for
    some States, it is one third or 40 percent of their entire
    budget. And while the Federal Government covers a great deal of
    that cost, the States have skin in the game on it, too. And so
    the State auditors are getting more involved now.
        There was actually a prohibition of them testing
    beneficiary eligibility determinations in the OMB compliance
    supplement that gives them guidance on how to audit Federal
    programs. So I worked to have that rescinded, so they are able
    now to go in. Nobody has been checking the eligibility on
    beneficiaries on Medicaid since 2014 when the Affordable Care
    Act was in place. So I got that changed. They are moving in
    that direction. But this is fertile ground for a lot of
    oversight and reducing unnecessary costs.
        Senator Scott. Would you like me to tell you some numbers
    in Florida? When I finished, with 22 million people, 61,000
    people on unemployment, 71,000 people on TANF; we added 1.7
    million jobs. In that eight years, I have doubled the number of
    people on Medicaid to over 3 million and doubled the number of
    people on food stamps, because the Federal Government would not
    crack down on any fraud. Would not even look at it. How could
    it double?
        Mr. Dodaro. I have been trying to get the focus on this,
    and I could use congressional support.
        Senator Scott. Yes. Thank you.
        Mr. Dodaro. Sure.
        Chairman Enzi. Senator Whitehouse.
        Senator Whitehouse. Two things. First, I would be
    interested in a question for the record, and that would be what
    recommendations you might have as to ways in which, following
    up on Senator Van Hollen's questions, Congress can better
    protect its legislative function from executive manipulation
    and interference. We appropriate, but at this point the
    disbursement of those funds is entirely housed in the executive
    branch, and the disbursement is--at this point it seems that
    this administration views that it is optional as to whether
    they follow the law that Congress actually passed.
        So what might you suggest by way of a mechanism by which
    Congress could retain at least so much of the disbursement
    function that if we do not believe the funds are going out
    consistent with the law, we have an opportunity to say so and
    to have some effect? At the moment we just sort of shout into
    the wind, and there is, to my knowledge, no mechanism for
    Congress to enforce its power to tax and spend and to see that
    its appropriations are adhered to. So that is the question. I
    know it is a long and complicated one, so if you would take it
    for the record and get back to me, I would be grateful.
        Mr. Dodaro. Sure.
        Senator Whitehouse. The only other thing I want to say is I
    want to say a word of appreciation to the Chairman. He and I
    have been through a great many of these budget hearings and
    budget meetings in which we have heard each other rail about
    the inefficiency and dysfunction of the Budget Committee, not
    because of any of its members but because of the way in which
    it is structured. It is like a cannon that is pointed in the
    wrong direction, and even if you fire it, it is not going to
    hit the target because it is not properly designed to do its
    tasks. As a result, we have a United States Senate in which no
    committee is tasked in any functional way to look at debt,
    deficit, borrowing, or any of the financial consequences of the
    way in which we go about our business. And I think we have
    heard each other rail about this long enough that we began to
    discover that there was considerable overlap, and with the
    Chairman's support, I was able to serve on the Select Committee
    for Appropriation and Budgeting Reform, and a proposal that
    would be directed towards the Senate Budget Committee was
    adopted in full unanimous, bicameral, and bipartisan fashion in
    that select committee, which I think gave us a good signal that
    maybe there was some hope to solve this.
        In the meantime, Chairman Enzi continued working forward
    with his efforts to try to reform this Committee and make it
    functional again, and I think we are at a point where, with any
    luck, we will be able to announce having something very shortly
    that we agree on.
        I do not think it is the end of the story. We obviously
    have appropriators and leadership and people out there who have
    very strong interests in how this works and very important
    prerogatives to defend. But I think we have a very significant
    beachhead in a bipartisan proposal to get back to having the
    Budget Committee be meaningful and to have it be a forum where
    we can take a responsible look at how the major elements of the
    budget--appropriated spending, tax spending, health care
    spending, and revenues--combine and how to get from the result
    they currently present to a debt-to-GDP ratio that is
    sustainable over a reasonable period of years and with
    significant warning lights and flashers and safeguards so that
    we know when we are off the glide slope.
        So I think there has been a lot of progress that has been
    made. I am very excited about it. I know that the Chairman has
    been working very hard in this area for a long time, and I just
    wanted to take this opportunity to express my appreciation to
    him and to his staff for the work that they have done and that
    we have done together.
        Chairman Enzi. Thank you. And thanks for your efforts on
    that, both before we started working together and since we
    started working together, and I think we have got a product
    that I think has some good possibility of passing.
        It will not solve all the problems, but I think it will
    show where the next steps have to be.
        Senator Braun.
        Senator Braun. Thank you, Mr. Chairman.
        One thing that might address what Senator Whitehouse was
    talking about is Representative Brady and I have introduced the
    MAP Act which pegs the size of our Government to potential GDP.
    I do not know if you have looked at that or not, but I think
    that would go a long way towards talking about his issue, which
    to me is not the real issue. That is accepting debt as being
    something that you are going to manage as opposed to how much
    you are spending, and we will not have time to go over that
    today, but he mentioned it.
        I want to make sure--an exercise in simple arithmetic here:
    $141 billion in improper payments in 2017. Is that correct?
        Mr. Dodaro. Yes, that is right.
        Senator Braun. Okay. So on $4.3 trillion, that is a little
    over 3 percent of everything we pay for here is an improper
    payment, and I am trying to equate that to my own business.
    And, you know, you would not even have that reach into the
    hundredth of a percent until the whole place would be in an
    uproar. And, of course, you would find it immediately, and you
    would make a fix, and it never occurs again. It kind of begs
    the question. If we do put out a field fire and fix something
    here, where does all this stuff keep coming from to where you
    get more and more improper payments when, you know, it looks
    like we do get some of them--you said maybe $20 billion a year.
    But it seems like that would put the quietus on and would fix,
    you know, what that current issue is. It is like we are growing
    them here out of the nature of the beast.
        Mr. Dodaro. Yes, well, there are two problems. One, while
    you calculated the overall number, some programs are over 10
    percent improper payments, 14 percent in fee-for service for
    Medicaid, according to the last calculation. The reason it is
    growing is that the higher improper payment rates are in the
    larger programs--Medicare, Medicaid--and they are growing at
    about 5, 6 percent a year. So, by definition, unless you make
    more headway, you are going to have improper payments.
        Now, there is better estimating, better reporting. It is
    still not perfect. And so part of it is that. But it is really
    the nature of the growth in the programs.
        Senator Braun. And would it be where you remediate and then
    they would fall back to whatever was causing it in the first
    place? Or are they coming up with a new way to make an improper
    payment? It seems like you would run out of bad things to do.
        Mr. Dodaro. Both things are possible. Sustained improvement
    in the Federal Government is rather elusive, and so you have
    got to keep working at it over time to make sure that you do
    this. And you have different schemes that come up. I had a
    higher opinion of human nature before I took this job, and I
    think the----
        Senator Braun. I will second the motion.
        Mr. Dodaro. The creativity of people to game the system is
    endless, and so you have to be on top of things.
        Senator Braun. Senate bill 375, with cosponsor Senator
    Johnson and myself, Carper and Peters on the other side, is
    held up in the House. It is called the ``Payment Integrity
    Information Act of 2019.'' A fancy title for improper payments.
        Mr. Dodaro. Yes.
        Senator Braun. Have you been paying attention to that? And
    I know that--I think OMB is sitting on some detail there that
    they do not like about it, and it seems like they would love
    everything about it. Is that something you could take the time,
    weigh in on, and see if we could resolve that, put pressure on
    the House to get it across the finish line?
        Mr. Dodaro. Yes, well, I have supported that legislation,
    and I am not sure exactly which provision is problematic. I
    have a good guess, and I think it goes to the definition of
    ``improper payment'' where there is a dispute about whether
    insufficient documentation should be categorized as an improper
    payment. The law would make sure that that stays that way,
    which is the way it has been.
        This is of some concern. I do not think this is a problem
    that you want to define away. You want to meaningfully solve
    it. And so I do not think Congress should give on that point.
        Now, I will work with the House as well to make sure that
    they know I am supportive of the legislation as passed by the
    Senate.
        Senator Braun. And will you get a hold of OMB to see what
    that particular thing is and kind of weigh in on it?
        Mr. Dodaro. I have tried that already. This is the last
    resort of my efforts to have those discussions, and it was to
    work to get it in law so that they did not have the
    flexibility.
        Senator Braun. We will jump on the wagon and see what we
    can get done.
        Mr. Dodaro. Thank you.
        Senator Braun. Thank you.
        Chairman Enzi. Thanks. I have got some other questions that
    did not get asked today that I want to ask.
        Maintaining a strong internal control over the financial
    reporting protects the integrity of the agencies' financial
    data. A recent change to OMB guidance removed a requirement for
    agencies to have in place a rigorous process to separately
    assess internal control over financial reporting. How will this
    change affect the agencies' internal control assessments? And
    is GAO concerned it could lead to less reliable financial data?
        Mr. Dodaro. I am very concerned about the change. We have
    stated our concern. I think the quest to try to expand internal
    control concepts to enterprise risk management is a very worthy
    objective, but it should not be at the sacrifice of internal
    control over financial reporting, particularly when there are
    so many existing weaknesses in the Government.
        What I am afraid of, Mr. Chairman, is that all the fiscal
    discipline that has been built over the past several decades
    will be lost because the attention, proper attention, will not
    be given to financial reporting at a time where more accurate
    reporting is needed more than ever before to deal with our
    fiscal problems that we have talked about at length here in
    this Committee. So this is not the time to want to relax the
    focus on the accuracy of financial reporting. So I am very
    concerned about that.
        Chairman Enzi. Thank you. A technology question. It has
    automated many of the tasks that financial managers used to
    carry out, such as transaction processing, and many agencies
    now use shared service providers for functions like payroll and
    travel processing. How have the responsibilities of financial
    managers shifted in light of changes like these? And what can
    we do to ensure our financial management workforce has the
    skills and experience that are necessary?
        Mr. Dodaro. Yes, I think the shift toward more automation
    has not fully affected the financial management community as
    much as it could yet because of the Government's poor track
    record in implementing information technology modernization
    efforts. It has great potential to reduce the manual efforts, a
    focus on transaction processing, and free up the CFOs and their
    organizations to do more strategic thinking and focus on these
    linkage issues that we talked about today and performance and
    cost and risk.
        Almost everybody we talk to in the CFO community is
    concerned about the future of the Federal workforce in their
    area of responsibility, and so I think this is an area that is
    going to require constant attention, by the Congress, and this
    is one area that should be in the plan that we talked about, in
    the 4-year plan: What are you doing to determine what skills
    you need in the workforce driven by your business plans and how
    you are going to automate and how that will change the mix of
    skills and what you will do to close the gap in those skills?
    That is what I do at GAO. Every year we look at our strategic
    plan. We have a workforce plan to say this is the work we plan
    to do; these are the skills that we need to do the work; and we
    change the mix of hiring, re-skilling, training. I know this is
    on their agenda in the administration, but they need more
    detailed planning and more effort put into this in order to be
    successful, in my opinion.
        Chairman Enzi. Thanks. The final question, and this is one
    where I have long called for better budgeting for disasters.
    Our current approach often entails waiting for a major disaster
    to strike and then rushing to approve billions of dollars in
    addition that does not actually go against the budget.
        Has GAO found evidence that this strategy introduces
    challenges for the agency CFOs and financial managers that
    could decrease accountability or transparency? And do you know
    of anything we could do?
        Mr. Dodaro. Yes. First of all, Congress recognized the
    challenges to CFOs, and when the supplementals are approved for
    major disasters, there was a requirement for the agency CFOs to
    develop internal control plans necessary in order to maintain
    effective oversight over those funds because many of them need
    to be spent in a rapid manner or spent over time. And we found
    that the guidance by OMB was not specific enough, and those
    plans were not developed the way that they should have been
    developed. That is number one.
        Now, the budgeting for disasters area, I have long said a
    couple things. One, the Federal Government is involving itself
    in a lot more disasters than probably it needs to, and the
    method on which we decide whether it is a disaster the Federal
    Government is going to weigh in or not is an antiquated measure
    based on a per capita income figure that was determined in 1986
    and has not even been fully indexed to inflation over time. So
    we estimated if you had indexed that amount to inflation over
    time, the Federal Government would have been involved in 40
    percent less disasters. And so we have recommended that the
    administration come up with a better measure to determine State
    and local governments' capabilities to handle some of these
    smaller disasters--not the major catastrophic ones. Of course,
    the Federal Government needs to be involved there. But, being
    involved in every flood is not necessary. It is stretching FEMA
    too thin, and it is spreading the Federal Government's
    resources. Plus I am concerned that it is creating a
    disincentive for State and local governments to build
    resilience into planning so that they could mitigate some of
    the effects of these disasters and reduce overall federal cost
    over time.
        So there are many recommendations we have made in the
    budgeting for disaster areas. We would be happy to give all the
    details to your staff, sir.
        Chairman Enzi. Thank you. And thank you once again for
    outstanding testimony over a wide variety of issues.
        As information to all Senators, questions for the record
    are due by close of business tomorrow, Thursday, October 31st,
    a signed hard copy delivered to the Committee clerk in Dirksen
    624. Under our rules, witnesses have 7 days from the receipt of
    the questions to respond. The answers, you have been very good
    at that.
        With no further business to come before the Committee, the
    hearing is adjourned.
        [Whereupon, at 3:22 p.m., the Committee was adjourned.]

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following submitted questions were not asked at the
    hearing but were answered by the witness subsequent to the
    hearing:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               [all]