[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:]
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    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:]


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                        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:]

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            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:]

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    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:]

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    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:]


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       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:]
    
    
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    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:] 
    
    
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    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:] 
    
    
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    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:] 
    
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    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:] 
    
    
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    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:] 
    
    
    
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    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:] 



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