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BUDGET PROCESS: TESTIMONY FROM DR. ROBERT D. REISCHAUER, DIRECTOR, CONGRESSIONAL BUDGET OFFICE

THURSDAY, MARCH 4, 1993

UNITED STATES CONGRESS,
Joint COMMITTEE ON THE ORGANIZATION OF CONGRESS,

Washington, DC.
The committee met, pursuant to notice, at 10 a.m. in room SC-5,
The Capitol, Hon. Lee H. Hamilton (co-chairman of the committee)
presiding.
Chairman HAMILTON. The joint committee will come to order.
OPENING STATEMENT OF HON. LEE H. HAMILTON, A U.S.

REPRESENTATIVE FROM THE STATE OF INDIANA Chairman HAMILTON. This morning the Joint Committee on the Organization of Congress will begin 7 days of hearings which will examine how the Federal budget process might be reformed.

Today we hear from Dr. Robert Reischauer, the director of the Congressional Budget Office, who will testify about budget process issues in general. Dr. Reischauer, of course, is very well known to members of this committee and to Members of Congress. After helping Alice Rivlin set up the Congressional Budget Office, he served at various points as assistant director, deputy director, and now director of the Congressional Budget Office. He is a nationally known practitioner and scholar of Federal budget policy and he is an excellent witness for the joint committee to begin its hearings about the budget process reform.

The budget process is one of the most complex reform areas on the agenda of the joint committee. Over the next several weeks we will hear about a diverse range of reform proposals from multiyear budgeting to improving the quality of the information used in the budget process. These issues are highly complex. Indeed, this is one of the problems with the current budget process. Very few people can understand it.

As a result, I believe that the members of the joint committee should lay out a few simple premises to provide some structure and perspective for thinking about specific proposals for reforming the budget process. My view is that we should give particular emphasis to three principles as we evaluate how current budgetary procedures and structures might be improved.

First, the budget process should allow ordinary people, to the extent possible, to discern who is responsible for budgetary policy. Second, the budget process should promote consideration of long

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term as well as short-term concerns. And third, decisions about the budget should be honest and, to the extent possible, based on reliable information and assumptions. Thus, I am particularly interested in proposals to reform the budget process that would help citizens hold their representatives in both Congress and the Executive Branch responsible for budget outcomes, promote long-term thinking in the budget process, and put an end to the rosy scenarios and the manipulation of budget information for partisan political gain.

I want to thank Dr. Reischauer for his willingness to appearwith all of the other things that he has to do before this joint committee. We look forward to his testimony.

I will ask if either of my colleagues have a comment.
Senator Stevens?

OPENING STATEMENT OF HON. TED STEVENS, A U.S. SENATOR

FROM THE STATE OF ALASKA Senator STEVENS. Mr. Chairman, I thank you for recognizing me. I want you to know that I concur in your outline as to what this committee should cover.

I would like to throw in the possibility of thinking about whether Congress ought not to take the lead in the budget process and at the end of a session of Congress deliver to the President its estimate of what the ongoing programs will cost and have some guidelines set down in the budget process for the Executive Branch for the coming year.

It does seem to me that we carp and criticize, but we really don't give much real thought to the future as we deal with the coming year in our budget and appropriations process. I would throw out for consideration that perhaps the Budget Committee ought to have the duty to also, once we get into the reconciliation process, projecting for the Executive Branch and giving some guidance to the Executive as to what the priorities of Congress are for the following year and the next session of Congress. That way, we would share part of the burden and also have an opportunity to outline our priorities.

So often people talk about the line item veto in the sense of removing the changes that Congress makes in the Executive budget, which is still within the overall top limit of spending agreed to by both the Executive and Legislative Branches. I don't think the Members of Congress have enough input into the budget process looking out into the future.

I welcome your comments about long-term as well as short-term reaction to the budget process.

Chairman HAMILTON. Thank you very much, Senator Stevens.

If there are no more comments from my colleagues, Dr. Reischauer, we look forward to your testimony. You may proceed. STATEMENT OF DR. ROBERT D. REISCHAUER, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE Mr. REISCHAUER. Thank you, Mr. Chairman and members of the committee.

I appreciate the opportunity to discuss the budget process with you here this morning. I have a prepared statement which I will submit for the record and I will summarize what that statement has to say about three different topics.

First, two roles the budget process has been asked to play in recent years; second, what recent experience has taught us about what can and cannot be expected of the budget process; and third, the advantages and limitations of a few of the many structural changes that have been proposed throughout the years for the budget process.

The traditional role the budget process has played has been to prescribe the general rules and procedures that govern the presentation of the budget by the President and the deliberations on the budget by the Congress. The Budget Accounting Act of 1921 and the Congressional Budget and Impoundment Control Act of 1974 lay out these rules and procedures. The latter formalized and strengthened Congress' role in the budget process immeasurably. It required an annual concurrent budget resolution, which gave the Congress a mechanism for explicitly considering the budget as a whole. It also gave Congress a means of coordinating its various budget-related activities.

In addition, the Congressional Budget Act beefed up and centralized Congress' budgetary capacity by creating two budget committees and the Congressional Budget Office.

But the new process was neutral with respect to budget outcomes. In other words, it didn't require a certain budgetary outcome. This neutrality, of course, ended when it became apparent that the large budget deficits of the early 1980s were structural and were likely to persist. A new role was to find for the process at that time namely that of forcing deficit reduction. This role was codified in the Balanced Budget and Emergency Deficit Control Act of 1985, popularly known as Gramm/Rudman/Hollings, and the Budget Enforcement Act of 1990.

We have now lived 7 years under laws that have tried to use the budget process to reduce the deficit. I think several useful lessons have been learned from this experience. The first of these is the importance of structure and information to rational deficit reduction.

While there are many critics of the current system, imagine what the deficit reduction effort would have been like under the pre-1974 system when the Congress had no capacity to focus comprehensively on budget totals and never had to vote on overall spending or overall revenues. Because it has to vote on the whole and on the deficit, the Congress has been forced to make trade-offs among conflicting priorities.

Moreover, even though the Budget Act has complicated the legislative process, it also has provided the Congress with important capacities that previously did not exist. For example, the independent information that the Congress has needed to operate its budget process has allowed it to evaluate not only the Administration's but also its own deficit reduction proposals in an objective manner. The caliber of this information I think has enhanced the credibility of the Congress and improved the quality of its decisions.

A second lesson that comes out of our recent experience is that budget procedures are much better at enforcing compliance with previous decisions than at forcing predetermined goals. The experience under Gramm/Rudman/Hollings demonstrated that if the President and the Congress are unwilling to agree on painful deficit reduction measures, no budget procedure is likely to force them into some agreement.

However, if the President and Congress can agree on and enact a painful package of spending cuts and tax increases, budget procedures that highlight and penalize deviations from that agreement can be highly effective. This has been shown by our experience with the Budget Enforcement Act.

This lesson I think has relevance for those who argue that a constitutional amendment requiring a balanced budget or caps on mandatory spending might be an effective way to address the deficit problem.

A third lesson we have learned is that the viability of the budget process depends crucially on the extent to which it is perceived as fair, and on the flexibility it affords participants to respond to changing conditions. The Gramm/Rudman/Hollings Act with its fixed deficit targets had little flexibility. When the deficit was estimated to exceed the fixed targets, it was virtually impossible to identify who or what was responsible.

Numerous factors, including ones not directly under control of any of the budget participants

and example would be slower than expected economic growth-could be to blame for missing the deficit targets. Furthermore, the punishment of sequestration was inflicted on all eligible programs, even those that might have already been cut in an effort to meet the targets.

I short, the process was not perceived as being fair. This is one of the reasons why it failed.

In contrast, the Budget Enforcement Act, which set specific targets or goals for different segments of the budget, makes it easier to identify those responsible for departures from the budget agreement. It applies sequestration more precisely to those who have contributed to the problem. It is fairer and therefore has been more viable.

With respect to flexibility, the Federal Government must respond to serious economic downturns and other emergencies such as natural disasters or international crises that can cannot always be anticipated. The budget process must recognize these realities.

The Budget Enforcement Act has done this by establishing explicit exceptions for discretionary appropriations, mandatory spending, and taxes that the Congress and the President both designate as emergencies. This flexibility, as you know, has been used with respect to the Desert Storm spending, with respect to assistance to Kurdish refugees, to react to domestic natural disasters such as hurricanes and earthquakes, and to respond to civil disorders.

Let me turn now and say a few words about several changes in the budget process that have been proposed over the past few years. One category of reforms would alter the timing of some budget decisions in an effort to rationalize the process and save legislative time. Biennial budgeting is a prime example of this type of reform.

While proponents of biennial budgeting argue that it would free up the Congress to concentrate on non-budgetary issues, such as oversight, during the non-budgetary year, it also might make agreements more difficult to achieve since the stakes would be higher. Furthermore, as one who knows how uncertain budget estimates are, even for 1-year out, I shudder at the thought of budgeting for a 2-year time period, especially when the budget is in severe disequilibrium.

Under a system of biennial budgeting much of the off-year might be spent making adjustments to the decisions that were made in the budget year to account for the unexpected changes that undoubtedly would occur in economic conditions and political situations.

Another group of reform aims to increase the President's role in the budget process by making the budget resolution a joint resolution requiring the presidential signature, or by granting increased authority for the President to veto individual items in appropriation bills. Proponents of a joint resolution believe that this will encourage agreement on the broad outlines of the budget, thus eliminating the need for budget summits toward the end of the congressional session.

It is equally possible, however, that a joint resolution could promote increase conflict and stalemate at an even earlier stage of the process, making it even more difficult to reach agreement on a congressional budget. Further, a joint budget resolution would expand the importance of the budget resolution relative to later committee actions, which would shift the balance of power within the Congress, which of course is a concern of this committee.

Advocates of the line item veto and its statutory relatives believe that the President, as the chief representative of the general interests, should have the power to strike provisions that serve only narrow interests. However, such proposals would shift power to the Executive Branch and may do little to reduce the deficit. One reason for this is that these measures would apply only to discretionary spending which represents less than 40 percent of the budget, and in recent years has been a shrinking proportion of the total.

It should be remembered also that discretionary spending is currently controlled through the Budget Enforcement Act spending caps, so the impact of a line item veto, enhanced rescission, or some relative thereof might be relatively small. Furthermore, presidents may use their new powers not to reduce spending, but rather to bargain for congressional approval of their own spending priorities, which seems to be the experience of the States.

It is also worth noting that a line item veto or its statutory substitutes could increase the congressional workload if the Congress was periodically having to address these issues.

There are, of course, a lot of other reforms that focus on coverage of the budget and on the information provided to decisionmakers, proposals to remove the Federal trust funds for the budget, to increase the coverage of the budget to include Government-sponsored enterprises, the costs the Federal Government shifts onto State and local governments or onto private businesses, the notion that we should adopt capital budgeting, or we should expand accrual accounting fall into these categories of reform. ` All have their strengths and all have their limitations.

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