[Congressional Record Volume 142, Number 112 (Friday, July 26, 1996)]
[Senate]
[Pages S8989-S8990]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself and Mr. Reid):

  S. 1993. A bill to require certain expenditures by the Federal 
Reserve System to be made subject to congressional appropriations, to 
prohibit the maintenance of surplus accounts by Federal Reserve banks, 
to provide for annual independent audits of Federal Reserve banks, to 
apply Federal procurement regulations to the Federal Reserve System, 
and for other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.


         The Federal Reserve Fiscal Responsibility Act of 1996

  Mr. DORGAN. Mr. President, today Senator Reid and I are introducing 
legislation to eliminate the kinds of budgetary excesses and 
accountability lapses at the Federal Reserve Board that were recently 
uncovered by the General Accounting Office [GAO]. At a time when many 
Federal agencies are downsizing and making tough choices about their 
spending priorities, the Federal Reserve ought to be tightening its 
belt too. Regrettably, however, the opposite appears to be the case at 
the Federal Reserve.
  During the past several years, Congress has embarked on a historic 
and painful path toward deficit reduction. Since 1993, the Federal 
deficit has been slashed by more than one half.
  The Federal Reserve Board's Chairman, Alan Greenspan, has been one of 
the loudest cheerleaders for deficit reduction. But a one-of-a-kind GAO 
report about Federal Reserve expenditures between 1988 and 1994 shows 
us that Chairman Greenspan apparently hasn't been practicing what he 
preaches.
  A few weeks ago, the GAO released the final version of its 
comprehensive report about the management of the Federal Reserve 
System. This report, which took the GAO over 2 years to assemble, 
uncovers disturbing financial practices and management failures within 
the Federal Reserve System. The report is packed with examples where 
the Fed could substantially trim costs, and makes specific 
recommendations for changes in Fed operations. Unfortunately, the 
Federal Reserve has already dismissed most of the GAO's recommendations 
as irrelevant or unnecessary.
  The GAO report shows that during the late 1980's and early 1990's 
that Federal Reserve expenditures jumped by twice the rate of 
inflation. While Fed employee benefits and travel costs are out-pacing 
inflation, the rest of the Federal Government has been downsizing. For 
example, between 1988 and 1994, Federal Reserve employee benefit costs 
skyrocketed by nearly 100 percent--as compared to about 60 percent for 
the Federal Government--according to the GAO report.
  The report also reveals that over 120 Federal Reserve employees 
actually make more than Chairman Greenspan. In fact, overall personnel 
cost increases at the Federal Reserve represented over 70 percent of 
the total growth in the Fed's operating expenses during the years 
examined by the GAO. This runaway spending is remarkable given Chairman 
Greenspan's rhetoric about the need for belt-tightening in the rest of 
the government.

  Inexplicably the Federal Reserve also keeps a $3.7 billion cash 
surplus account of taxpayer's money to protect against losses, despite 
the fact that the Fed hasn't suffered a loss for 79 consecutive years.
  Senator Reid and I are introducing legislation today to address these 
problems. Our bill, the Federal Reserve Fiscal Responsibility Act of 
1996, includes many of the changes recommended by the GAO. It would do 
the following:
  First, the GAO, in consultation with the Federal Reserve, will 
identify and report to Congress a list of the Federal Reserve System 
activities that are not related to the making of monetary policy. After 
the report is completed, all nonmonetary policy expenditures, as 
identified by the GAO, would be subject

[[Page S8990]]

to the congressional appropriation process. We do not intend to inject 
politics into monetary policy with this provision. However, over 90 
percent of the Fed's operations have nothing to do with interest rate 
policy according to the GAO. And there is simply no good reason why the 
Fed's nonmonetary expenditures are immune from the same kind of 
oversight and review required of other Federal agencies.
  Second, the Federal Reserve is required to immediately return more 
than $3.7 billion of taxpayer's money that has unnecessarily 
accumulated in its surplus account to the Treasury. In addition, the 
bill asks the GAO to determine the extent to which any of the Fed's 
future net earnings should be transferred to the general fund of the 
Treasury each year.
  Third, the regional Federal Reserve banks will be subjected to annual 
independent audits. This provision merely codifies what the Federal 
Reserve has been doing for the most part in recent practice.
  Finally, the Federal Reserve will be required to follow the same 
procurement and contracting rules that apply to other Federal agencies. 
These rules should help to prevent the kinds of favoritism highlighted 
in the GAO report and increase competition among contract bidders with 
the Fed. This requirement ought to substantially reduce procurement 
costs on a system-wide basis.
  I invite my colleagues to join us as cosponsors of this much-needed 
legislation.
  Mr. REID. Mr. President, I rise today with the Senator from North 
Dakota to introduce legislation which we believe will improve fiscal 
management within the Federal Reserve System.
  In September 1993, Senator Byron Dorgan and I requested a General 
Accounting Office [GAO] investigation of the operations and management 
of the Federal Reserve System [Fed]. We were concerned because no close 
examination of the Fed's operations had ever been conducted before. As 
Congress scrutinizes each Federal expenditure in an attempt to balance 
the budget, it is imperative that we be well informed on all activities 
that affect the Government's finances. Surprisingly, this GAO study was 
the very first look into the internal operations of the Fed and, to 
date, there has never been an annual, independent audit of the Nation's 
central banking system. Further, because of its self-financing nature, 
the Fed's operating costs have largely escaped public investigation. It 
was high-time we opened the door and examined the workings of this 
large and influential public entity.
  The landmark GAO report, issued in June 1996, raises serious 
questions about management within the Fed. One of the most astonishing 
findings of this comprehensive, 2-year study was that the Fed had 
squirreled-away $3.7 billion in taxpayer money in a surplus fund, which 
it claims is needed to cover system losses. In its entire 79 year 
history, however, the Fed has never operated at a loss. The GAO report 
indicates that this fund could be safely reduced or eliminated and 
returned to the Treasury Department, as is standard practice with 
surplus revenues. It is nonsensical for this cash to be sitting idle at 
the Fed instead of being used to reduce the deficit.
  While the rest of the Federal Government has tightened its belt and 
down-sized, the GAO report revealed that the Fed has enjoyed enormous 
growth in its operating costs and highly questionable growth in its 
staffing. The GAO study found that operating costs at the Fed have 
grown 50 percent between 1988 and 1994, a rate twice that of inflation 
and much greater than overall Federal discretionary spending. The study 
also uncovered salary growth at a rate of 44 percent between 1988 and 
1994. During the same time period, personnel benefits skyrocketed 
nearly 90 percent. Further, the GAO report revealed nonuniform travel 
policies and an excessive 66 percent increase in travel expenses.
  The picture the GAO report paints of the internal management of the 
Fed is one of conflicting policies, questionable spending, erratic 
personnel treatment, and favoritism in their procurement and 
contracting policies. The report makes it clear that the Fed could do 
much more to increase its fiscal responsibility, particularly as it 
urges parsimonious practices by all other Federal agencies.
  The compelling evidence offered by the GAO report indicates that many 
of the practices of our Nation's central bank should change, especially 
when their budgetary excesses represent a direct cost to taxpayers. The 
surplus fund, along with increasing bloat, perks, and benefits begs 
greater accountability. For these reasons, I rise today with my 
colleague from North Dakota, Senator Dorgan, to introduce the Federal 
Reserve Fiscal Responsibility Act of 1996. This measure follows some of 
the recommendations of the GAO report and seeks to improve the Fed's 
fiscal management.
  The Federal Reserve Fiscal Responsibility Act of 1996, requires the 
Comptroller General of United States, in cooperation with the Fed 
Board, to identify the functions and activities of the Board and of 
each Fed bank which relate to U.S. monetary policy. After September 30, 
1997, all nonmonetary policy expenses of the Federal Reserve System 
will be subject to the congressional appropriations process. 
Surprisingly, the monetary policy expenses represent less than 7 
percent of the Fed's annual expenses. Our bill would subject the Fed to 
the cost reduction pressures that affect other public agencies, and 
ensure congressional oversight over the Fed's questionable spending of 
taxpayer money.
  Further, the Federal Reserve Fiscal Responsibility Act addresses the 
disturbing matter of the surplus fund. It requires the transfer of all 
Fed surplus funds to the Secretary of the Treasury for deposit in the 
general fund of the Treasury. This would occur 30 days after enactment 
of the legislation. Annually thereafter, the Comptroller General of the 
United States will determine what percentage of the net earnings of the 
Federal Reserve banks should be deposited back in the Treasury. This 
provision would free-up this money for use in deficit reduction.
  Our bill also will apply regular Federal procurement procedures to 
the Fed Board and to each Federal Reserve bank. This will eliminate the 
possibility of favoritism and conflict of interest in procurement and 
contracting policies.
  Finally, and perhaps most significantly, our measure would require an 
annual, independent audit of the Fed. An annual audit is fiscally sound 
policy which would instill greater public confidence in our banking 
system.
  I want to make it very clear that I am not attempting to interfere 
with, or impugn, the monetary policy of the Fed. I am merely seeking 
greater accountability in the operating expenses and internal 
management of one of our most influential institutions.
  I look forward to greater discussion of this issue by Congress, and 
encourage the committee to give favorable consideration to our 
legislation.
                                 ______