frequently enough. A second nonstructural issue that may be of interest to the Joint Committee involves the coverage of the budget itself--whether the budget should include (or exclude) a different combination of revenues and spending than those that are currently included. Third, the Committee might focus on budgetary accounting--the nature of the information that is provided to decision-makers in the budget process--and the incentives that are created by this information for effective budget action.

1. The timing of budget decisions could be changed in two primary ways. The first would be through the adoption of biennial budgeting. Adopting such a system could entail developing two-year budget resolutions, two-year authorizations, and/or two-year appropriations. Most commonly, proposers have focused on formulations that would place all budget legislation in the first year of a cycle, and non-budget matters such as oversight in the second. Another biennial budgeting proposal would stretch the current budget process out over two years. A second type of proposal to change the timing of decisions would require all programs to be reauthorized every few years according to an established schedule; programs not reauthorized would "sunset", or cease to exist.

2. The coverage of the budget has been the subject of vigorous debate. President Johnson's Commission on Budget Concepts (1969) advocated that the budget include all activities of the Government, a practice that has generally been followed ever since. More recently, however, some activities (such as the Postal Service and the Social Security trust funds) have been placed statutorily off-budget. Proposals have arisen to move other programs (particularly those financed through earmarked revenue sources) out of the budget. Others argue that the budget should cover activities that are currently excluded, including the contingent liabilities associated with government-sponsored enterprises and the costs passed on to state and local governments or the private sector through mandates or regulation.

3. The information that is provided in the budget, as manifested through budgetary accounting practices, can create incentives that influence the behavior of budgetary actors. Proposals along these lines usually focus on correcting tendencies perceived to exist in the current process that unduly favor certain actions over others. For example, the Federal Credit Reform Act of 1990 converted budgetary accounting for credit programs from a cash basis to an accrual basis in order to correct a perceived bias toward loan guarantees and against direct loans. Similarly, a change to accrual accounting has been suggested for other types of activities in the budget, including deposit insurance and pension insurance. Other perceived biases have occasioned calls for reforms such as capital or investment budgeting, or generational accounting.

III. Tentative Schedule

Most potential witnesses for hearings about budget process reform could comment on a diverse range of specific issues and proposals. As a result, the Joint Committee's hearings in this area will not be structured around specific reform areas. Instead, all of the key actors in the budget process have been invited to testify and those willing to appear will be grouped by their role in the process.

The first hearing occured on Thursday, March 4. Robert Reischauer, Director of the Congressional Budget Office, testified about budget process reform issues in general. On Thursday, March 11, Chairman Natcher of the House Appropriations Committee will appear. On Tuesday, March 16, authorizing committee chairmen and ranking minority members will provide testimony about their role in the process. Depending on the number of committee leaders who want to testify about budget process reform, an additional day of hearings in mid-March may be scheduled.

On Thursday, March 18, Members of Congress who have proposed reforms of the budget process will be invited to appear. On Tuesday, March 23, the Joint Committee will receive testimony from panels of scholars and public interest groups.

The chairs and ranking minority members of the House and Senate Budget Committees have been invited to close this sequence of hearings by participating in a session scheduled for Thursday, March 25. Invitations to appear before the Joint Committee also have been sent to Treasury Secretary Bentsen, OMB Director Panneta, and Laura D'Andrea Tyson, chair of the Council of Economic Advisors. We have not received final word from them about whether they will be able to testify before the Joint Committee.

IV. Conclusion

Many of the reform issues and proposals mentioned above, particularly those that focus on committee structure and functions, overlap with other reform areas that the Committee may consider. And unlike many of the reforms that have been the focus of budget process debate over the last ten years, most of the proposals mentioned in this memorandum do not focus primarily on deficit reduction. Rather, they deal more with the organization of the budget and the budget process and the information provided to decision-makers. A more sustained treatment of each of these issue areas will be provided in the detailed memoranda about specific proposals that are under preparation.

The Role of the Budget Process in Reducing the Deficit

The role of the budget process in the overall effort to reduce the deficit has been a matter of substantial debate for most of the last decade. Some people believe that the budget process is integral to forcing the actions that are necessary to reduce the deficit. They generally propose that targets be set, either by statute or in the Constitution, that will serve to limit future actions on the budget as a whole or spending in some portion of it. Such outcome-oriented rules and procedures have been put in place by the Balanced Budget and Emergency Deficit Control Act of 1985 (popularly known as Gramm-Rudman-Hollings), and are included in proposed reforms such as a balanced budget amendment to the Constitution or caps on mandatory spending.

But a review of experience with budget procedures over the past decade indicates that while the budget process has an important role to play in any effort to reduce the deficit, that role is a limited one. In particular, although budget procedures are not substitutes for policy actions to address the deficit (nor are they sufficient to force such actions), they can effectively enforce actions that have already been agreed to. This is the approach taken by the Budget Enforcement Act of 1990 (BEA), which set up procedures to enforce the actions resulting from the budget summit agreement of that year.

I. Budget Deficits and the Budget Process - Recent History

Frustration with large deficits led to the enactment in 1985 of GrammRudman-Hollings, which grafted additional rules on top of existing budget procedures. The act established fixed annual deficit targets that declined each year, and required a balanced budget in 1991. It also established a mechanism intended to ensure that the targets were not exceeded: if the estimated deficit at the beginning of a fiscal year exceeded the target for the year, automatic across-theboard cuts in spending for most discretionary and some mandatory programs (called a sequestration) would reduce the deficit to the targeted amount. The targets were amended in 1987, and the goal of a balanced budget was pushed back to 1993.

Although Gramm-Rudman-Hollings may have held deficits below what they would otherwise have been, it clearly did not lower the deficit to anywhere close to the targeted level. The original deficit target for 1990, the last year the GrammRudman-Hollings procedures were fully in place, was $36 billion. The revised 1990 target, established in 1987, was $100 billion. The actual deficit for that year was $220 billion.

In 1990, the Gramm-Rudman-Hollings procedures were largely replaced by the BEA, which resulted from the budget agreement adopted that year. Enacted in conjunction with a legislative package that provided deficit reduction of almost $500

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billion over five years, the BEA set up separate enforcement mechanisms for discretionary spending and for mandatory spending and revenue actions. These mechanisms--a limitation on discretionary spending and a pay-as-you-go requirement for mandatory spending and revenues--replaced the previous focus on fixed deficit targets with a concentration on limiting legislative actions that would increase the deficit. The BEA permitted adjustments to deficit targets for circumstances beyond the control of policymakers, such as the performance of the economy.

The BEA has been generally successful in its first two years in enforcing the deficit reduction actions that resulted from the 1990 budget agreement. The discretionary spending caps are holding; the appropriations committees and the Congress lived within their limits for 1991 and 1992 and actually reduced spending to a level below the caps in 1993. The pay-as-you-go process has discouraged major efforts to increase entitlement spending or cut taxes or both. Nonetheless, the deficit has not come down since the BEA was enacted. The factors that have led to an increase in the projected deficit since 1990 have largely to do with the deterioration of the economy and technical reestimates of revenues and spending, especially for Medicare and Medicaid, not from the policy actions that were the focus of the enforcement process enacted by the BEA.

II. Lessons Learned From These Past Processes

The past seven years have provided an experiment in the efficacy of two very different approaches to using the budget process to reduce the deficit. Although neither Gramm-Rudman-Hollings nor the Budget Enforcement Act has resulted in the hoped-for deficit reduction, important lessons emerge from the actual results under each regime.

The primary lesson learned from these past attempts to reduce the deficit is that budget procedures are much better at enforcing deficit reduction agreements than at forcing such agreements to be reached. Gramm-Rudman-Hollings was enacted because the President and the Congress could not agree on policies that would reduce long-term deficits to the levels prescribed by the targets. But agreement could not be reached on enough real, permanent deficit reduction to lower the deficit to the statutory level. The experience under Gramm-RudmanHollings demonstrated that if the President and the Congress are unwilling to agree on a painful deficit reduction package, it is unlikely that any budget procedure can force them to agree. Instead, budgetary legerdemain (such as using overly optimistic economic assumptions) will likely be used to meet the letter of the law, and the hard decisions that would achieve real, permanent deficit reduction will still be avoided. Any budget procedure that establishes fixed deficit targets represents an attempt to force future agreements and is subject to this problem.

Conversely, if the President and the Congress agree on and enact a package of spending cuts and tax increases to reduce the deficit, budget procedures that