1

10. Provision for authorizations (except in unusual circumstances) at least one year in advance should be required.

Such a provision would probably be the single most effective step to obtaining appropriations at, or near, the beginning of the fiscal year to which they relate.

11. The committee recognizes that the study of the subject of impoundments is an important part of its assignment. The subject will be examined carefully, and recommendations will be included in the final report.

III. BASIC PROBLEM BEFORE COMMITTEE

A. General Statement of the Problem

The basic problem with which the committee is concerned is the lack of congressional control over the budget. This is illustrated by Appendix Table 1 which shows that in the 54 years (including the current year) since 1920, the budget of the Federal Government has been in a deficit position 37 times.' In 32 of these years, the budgets were submitted to Congress with a deficit.

Of the 16 years in which there were surpluses, 10 occurred before 1931. Since that time there have only been 6 years of an administrative budget surplus: 1947, 1948, 1951, 1956, 1957, and 1960. Based upon the unified budget basis, 1969 would also be added to this list.

In addition, apart from the World War II years (when the deficit in three years exceeded $50 billion each), the largest deficits have occurred in recent years. In 1968, the deficit was $28 billion; in 1970, it was $13 billion; in 1971, it was $30 billion; in 1972, it was $29 billion; the 1973 estimate is $34 billion; and the 1974 estimate is $28 billion. (On a unified budget basis, the deficits were in 1970, $3 billion; 1971, $23 billion; 1972, $23 billion; 1973 estimate, $25 billion; and 1974 estimate, $13 billion.) The increasing size of the deficits illustrates the need for Congress to obtain better control over the budget. Appendix Table 2 shows the deficits and surpluses in the unified budget, Federal funds and trust funds, from the fiscal year 1960 to date.

The Joint Study Committee believes that the failure to arrive at congressional budgetary decisions on an overall basis has been a contributory factor in the size of these deficits. The present institutional arrangements in many cases appear to make it impossible to decide between competing priorities with the result spending is made available for many programs where the preference might have been to make choices and also spending reductions.

The fact that no legislative committee has the responsibility to decide whether or not total outlays are appropriate in view of the current situation appears to be responsible for much of the problem. Perhaps still more critical for the process is the distribution of committee jurisdictions over components of the budget among several different congressional committees. As a result, each spending bill tends to be considered by Congress as a separate entity, and any assessment of relative priorities among spending programs for the

1 This is based upon the administrative budget or Federal funds budget. The unified budget concept which has been used from 1969 on, although decreasing the size of the budget deficit, would differ only in showing the year 1969 in surplus.

most part is made solely within the context of the bill then before Congress.

Despite its institutional problems, Congress has in recent years shown that it can make reductions in spending authority presented by the various administrations. In each of the last 20 years, for example, Congress has enacted appropriation bills which in total have provided less money than was requested by the executive branch. This is shown in Appendix Table 3. As indicated subsequently, however, this table does not take into account the spending effects of some of the legislative measures other than appropriations bills where increases have occurred.

Despite the difficulty of comparing the relative funding merits of different programs, the Federal Government has managed to shift relative priorities in the budget during the past several years. Beginning with 1965, education and manpower, health and income security have increased in relative importance among the functional categories in the budget. Relative declines have also taken place in other categories including national defense and international affairs and finance. This is indicated in Appendix Table 4. Moreover, to some extent, as is indicated in Appendix Table 5, Congress has modified the relative priorities presented in the executive budgets.

B. History of Development of Division of Legislative Budgetary Authority

Until shortly after the Civil War, each House of Congress had single committees which were in a position to consider budgetary matters on an overall basis. The spending and taxing activities initially were under the jurisdiction of one committee of each House-the Ways and Means Committee in the House of Representatives and the Finance Committee in the Senate. For the first seventy-five years of the Federal Government, there was no change in this arrangement. The change came as a result of the heavy burden of financial activity during the Civil War which placed extraordinary burdens upon the two committees. In 1865, two committees with separate jurisdictions were formed from the House Committee on Ways and Means. Taxation and the problem of raising money to finance the Federal Government remained the jurisdiction of the Ways and Means Committee, but control over spending became the jurisdiction of the newly created Appropriations Committee.2

During the floor debate about this action, opponents as well as proponents of the change expressed misgivings about separating the two spending and taxing functions, but the change was made because of the desire to reduce the workload of the Ways and Means Committee. Two years later, in March 1867, the Senate also separated the two functions and established the Appropriations Committee as a separate entity from the Finance Committee. The jurisdiction of the Banking and Currency Committee was separated from the Finance Committee in 1913, at the start of the 63rd Congress.

In 1885, the House Appropriations Committee lost its exclusive jurisdiction over spending to several legislative committees. By the beginning of this century, the authorization and appropriation func

2A third committee was also formed with another transfer of jurisdiction from Ways and Means. This other new committee was the Committee on National Banks and Currency, the predecessor of the present House Committee on Banking and Currency.

tions were combined in the case of the Committees on Military Affairs, Agriculture, Naval Affairs, Foreign Affairs, Indian Affairs, Post Offices and Post Roads, and Rivers and Harbors. Parallel changes also occurred in the Senate. Thus, not only were spending and taxes not considered together, but also there was no overall consideration of various expenditure programs. This meant there was no way at the congressional level for making a choice among competing expenditure

programs.

The Budget and Accounting Act of 1921, for the first time, created the concept of an executive budget, and the Bureau of the Budget (now the Office of Management and Budget) became the focal point for executive control over the budget. At the same time, the Congress restored to the appropriations committees all authority over appropriations.

Since the action in 1921, although control over appropriations, for the most part, has remained with the Appropriations Committees, other devices, known as "backdoor" or mandatory spending actions (discussed in section D below), have in effect again divided the control over spending among numerous committees. It is estimated that today the Appropriations Committees have effective control over less than 50 percent of the budget (which in turn is restricted by the factor of uncontrollability described below). In addition, coordination of expenditure control of this portion of the budget has been limited because of the practice of separate consideration by the Congress of each of the various annual appropriation bills.

C. Limited Overall Budget Consideration

The budget and its fiscal policy implications receive careful consideration by the Congress, in separate and independent actions. Congress does not, however, examine extensively the whole budget with the purpose of passing judgment on whether the totals are satisfactory or whether the relationship of the various parts, one to the other, is satisfactory.

The budget as a whole is reviewed in three contexts. For several years the House and Senate Appropriations Committees have opened each session of Congress with hearings by the full committees on the President's budget recommendations. The Secretary of the Treasury, the Director of the Office of Management and Budget and the Chairman of the Council of Economic Advisers appear before the House and Senate committees to explain and defend the budget and the fiscal policy it embodies. This hearings record is printed. The chairman of the House committee and its ranking minority member have reported their individual evaluations of the budget after completion of the hearings on the floor of the House of Representatives, but the committee does not issue a report with its overall evaluation of the budget. Budget totals, especially receipts, are reviewed by the Ways and Means and Finance Committees at least annually when they act on the public debt limit. (Debt limit bills have been passed in all but two years since 1954, and each of those years was covered by an adjustment in the limit that was designed to carry through more than one fiscal year.) Budget totals are reviewed in this consideration to determine as accurately as possible what the gap between spending and receipts will be. Generally, these committees operate on the judgment that Congress already has made the spending decisions

and this is not an appropriate time to force revisions in spending decisions. However, on occasion relatively "tight" limits have been set, or limits have been set only for a short period of time, in order to encourage reduced spending by the executive department.

The Joint Economic Committee holds hearings on the President's economic report, the budget recommendations and the fiscal and monetary policy decisions that must be made with respect to the year at hand. A second review is made after the fiscal year has been completed. The JEC submits a report to the Congress in which it evaluates the executive department's proposed fiscal and monetary policies in view of the economic situation. The report undoubtedly is given serious consideration by some, but it has no direct effect upon congressional decision-making because it is not a part of the legislative program, procedure or requirements.

D. Splintering of Appropriation Process

As has been suggested, the splintering off of spending authority from the Appropriations Committee has been a substantial factor in Congress' loss of overall budgetary control. For example, of the spending estimate in the budget for fiscal year 1974, only 44 percent is associated with the items to be considered in the appropriation bills. Even some of these funds are approved on what for all practical purposes is a pro-forma basis because the authorizing legislation in fact required the appropriation. "Backdoor" or mandatory spending has evolved in many different forms in the past 50 years. The forms discussed below, however, represent the principal forms this authority has taken in recent years. Generally, the term "backdoor" authority is used to encompass any spending authority which is provided other than through appropriations considered by the Appropriations Committees of the two Houses.

One form of this "backdoor authority" which is handled by legislative committees is "borrowing authority". This is authority to obligate and spend from funds obtained by borrowing from the general public by either the Secretary of the Treasury or by a Federal agency or corporation. For example, authority to borrow from the Treasury and from the public in indefinite amounts has been provided to back up student loan guarantees. This authority remains available indefinitely, and no appropriation limitation is provided for it.

A second type of "backdoor authority" is "contract authority". This is authority granted to the executive department to enter into contracts involving the direct obligation of Federal funds. Technically this authority requires subsequent action in appropriation bills to liquidate the obligations, but there is little or no real control at this point as obligations incurred under the basic legislation must be met. Numerous examples could be cited where contract authority has been used in this manner. One example is the extension of low rent public housing for the fiscal year 1973, which increased annual Federal contract commitments by $150 million. Another example involves the water pollution bill in which, for a 3-year period, $18 billion was provided by contract authority ($11 billion available in the fiscal year 1973).

A third type of "backdoor authority" is represented by "permanent appropriations". Here direct appropriations are provided in the basic legislation providing funds either for a specified period of time either

in a definite or an indefinite amount. In this case also, no further appropriation is required. Interest on the public debt. Social Security benefits and general revenue sharing are three examples of permanent appropriations. The interest permanent appropriation is indefinite both as to time and amount, while revenue sharing provided a specific amount each year for a 5-year period.

Classified as backdoor spending or "mandatory spending" are payment levels established in basic legislation which constitute a binding obligation on the part of the Federal Government or one of its social insurance trust funds. In these cases, although appropriations are required to finance the program, there is, in fact, little or no discretion in the appropriation process. Public assistance, black lung benefits, veterans benefit payments and general blue collar wage board increases are examples of this type of spending commitment. In practice, commitments of this type are as binding in effect as appropriations, since in most cases court action can be obtained to require payment.

Backdoor or mandatory spending in recent years has proved in practice to be more difficult to control than spending through the regular appropriation process. As shown in Appendix Table 6, in the last five fiscal years, for example, Congress, in its action on appropriation bills, reduced the requests of the administration for budget authority by approximately $30 billion. However, during this same five-year period, Congress approved in legislative bills other than appropriations bills budget authority which exceeded the budget estimates by slightly over $30 billion.

Some of the items characterized as "backdoor" spending while showing substantial increases in recent years, have also been accompanied by tax increases of approximately equal amounts. The Social Security and other trust funds so financed, for example, have not led to larger deficits in the long run because they have been accompanied by tax increases. In fact, surpluses in trust funds of this type have in large part accounted for the fact that deficits in the unified budgets in recent years have been much smaller than is true of the Federal funds budgets.

E. Effect of Uncontrollable Expenditures

The budget document refers to categories which are "relatively uncontrollable" under present law. Uncontrollability in this context refers to the inability of the Federal Government to make current adjustments in a program's level of spending.

The uncontrollability of expenditures has grown over time both in terms of absolute amounts and also as a percentage of the total Federal budget. As indicated in Appendix Table 7, relatively uncontrollable budget outlays have grown from $100 billion in the fiscal year 1967 to an estimated $202 billion in the fiscal year 1974. This represents a growth from 63 percent of the total budget in 1967 to 75 percent in 1975.

Programs which are relatively uncontrollable include the social insurance trust funds which cover old age and survivors insurance benefits, medicare payments and unemployment benefits. Uncontrollable programs which are not in trust funds include interest on the public debt, farm price support payments benefits and public assistance payments.