courthouse, that dollar for those pencils is counted exactly the same as the construction cost of the courthouse. The dollar that you put into filling a Federal vehicle up with gasoline is exactly the same according to the Federal budget as a mile of highway that that car will drive over. And so for these reasons, I think it is vital that we have a capital budget. Mr. Chairman, I am talking critical about physical infrastructure. Some have-would argue perhaps that job training, research and development, that that might go into a capital budget. That is an argument for another day, but I think that you need to limit it to physical infrastructure. I believe that many recognize the need for some type of accounting for investment. The GÃO, while not embracing capital budgeting, does talk about a separate investment account so that you can look at how much you are investing. Indeed, our own unified budget process has certain procedures in it so that we can try to separate investment from simply consumption. But a capital budget would permit us to get about the business of building the roads, the bridges, the infrastructure, the water, the sewer systems that are so vital and put us in line incidentally with every-with I believe every State, with every city, with every business, and certainly with every family. You will borrow, you and I will probably borrow for our homes, for our children's education. We know we better not be borrowing when we go to the grocery store and that is the spirit of the capital budget. We think this is a good time to press for it, because I think while we may have great differences on some of the proposed cuts that are coming up to get to a balanced budget in the year 2002, I suspect that everyone in the Chamber can agree on the need for growth as being a central element of getting to a balanced budget, and capital budgeting permits us to distinguish and invest in longterm investments that bring us that growth and eventually guarantee that we will get to a balanced budget, and will do it with a growing economy, not with a contracting one. And I thank the committee for taking its time. [Mr. Wise's prepared statement follows:] PREPARED STATEMENT OF HON. BOB WISE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA Mr. Chairman, members of the committee, I want to thank you for the opportunity to testify before you today about budget reform and the importance of moving toward a Federal capital budget. But before I begin, let me commend this committee for focusing on budget reform as a part of comprehensive congressional reform. As a Member, I have served 6 years on the House Budget Committee and I am a veteran of several balanced budget debates where I have offered amendments with a capital budget component. I have come to believe that many of the budget problems facing this Congress, particularly the shift in recent years from public investment toward consumption spending, have as much to do with the budget process as with decisions made or not made by the Congress. Perhaps the greatest, and to me the most mystifying, problem with the current system is the fact that the Federal Government's unified budget makes no distinction between money spent on investments and money spent for consumption. Highways, Federal salaries, health benefits and foreign aid, which are all examples of Federal programs that are paid for through taxes and borrowing, are all accounted for in basically the same way. But all borrowing is not created equal. Borrowing for physical infrastructure can be justified if it pays for itself in the long run by increas ing the Nation's wealth and capacity for future economic expansion. Borrowing to meet the day-to-day expenses of government cannot. This year I have reintroduced legislation that would divide the Federal unified budget into an operating budget and a capital budget. Under my bill the operating budget would include all programs that meet the immediate obligations of running the Government. The capital budget would include long-term, tangible investments in infrastructure. This legislation would direct the operating budget to be balanced but would allow the Federal Government to borrow money for certain investments in infrastructure that increase the national wealth and contribute to economic growth. Money borrowed for those infrastructure investments would be paid back over the life of the road, bridge, sewer system or other infrastructure investment. Over 30 of our colleagues in the House from both parties have cosponsored this budget reform legislation. The concept of a Federal capital budget is not new. The budget was expanded in the 1950's to include information on investment spending. Reform in the 1980's required even more investment information in the unified budget. Many other industrialized countries employ a capital budget, and businesses and most State and local governments have investment budgets that separate long-term capital investments from year-to-year operating costs. Individuals and groups as diverse as former OMB Director Richard Darman, the General Accounting Office and the Progressive Policy Institute have endorsed distinguishing between investment and consumption spending in the budget. As a recent GAO report on the harmful effects of the deficit points out: A new [budget] decisionmaking framework is needed, one in which the choice between consumption and investment spending is highlighted throughout the decision process, rather than being displayed for information purposes after the fact. Businesses know the difference between borrowing to consume and borrowing to invest. Borrowing is a smart move when the money is used to finance productive investments that help a business modernize its equipment, expand and become more profitable. But borrowing money to pay salaries or executive bonuses or to send employees to expensive conferences rather than to modernize would be foolish. I believe the Federal Government should make this same distinction in its budget. By borrowing for current expenses the Government is asking future generations of taxpayers to pay for the cost of running the Government today. But borrowing to invest is different. If the Government passes part of the cost of building a road to future taxpayers, it also gives them something in return-a new highway that will encourage economic development, facilitate commerce and increase growth for years to come. Instituting a capital budget would force policymakers to decide whether or not each investment is worth borrowing money to finance. In addition, the public would benefit from knowing that the Government's current costs are being paid for and that any borrowing is for investments in the future rather than paying for the present and saddling future generations with bad debt. All of us agree that the United States must make investments that are critical to future economic growth while balancing the budget. Rather than going from crisis to crisis, the Federal Government should have an institutional system of long-term investment planning. Adopting a Federal capital budget would provide such a mechanism. Mr. Chairman, members of the committee, this is a time of fundamental change in the way government serves the people. In order to be more responsive to taxpayers' needs and more responsible with taxpayers' money, I believe the Federal Government should reform its budgeting to distinguish between consumption and investment. Adopting a capital budget would begin to effect this critical change and I hope you will seriously examine and ultimately endorse this important budget reform. [A section-by-section summary of the Capital Budgeting Act of 1993, submitted by Representative Bob Wise follows:] The Capital Budgeting Act of 1993 Section-by-section summary Section I: Short Title Section II: Statement of Findings and Purpose Section III: Establishes Capital and Operating Budgets Requires that the budget submitted by the President be a unified budget comprised of an operating budget and a capital budget. -- Limits the capital budget to major activities, projects and programs that support the acquisition, construction, alteration, and rehabilitation of physical infrastructure that produces services or benefits for more than five years and has an initial cost of at least $500,000. -- Restricts expenditures from the capital budget to: roadways and bridges; airports and airway facilities; mass transportation systems; waste water treatment systems; water distribution delivery and related systems; water resource projects; medical facilities; resource recovery facilities; public structures; space and communication facilities and strategic petroleum reserves and mineral stockpiles. Section 4: Review of capital expenditures - Requires the Comptroller General to review and report to Congress to ensure that those investments included in the capital budget adhere to the criteria set out in this act. Section 5: Balancing the operating budget - Requires the Budget Committee to submit to the House proposed legislation to establish additional deficit targets that require the eventual elimination of deficits in the operating budget. Section 6: Evaluation of capital investments Directs the Government Operations Committee to report legislation directing the Comptroller General to evaluate the value and usefulness of actual and proposed investments in the capital budget. Section 7: Implementation of capital budget -- Directs the Rules Committee to report legislation establishing rules to enforce this act. Section 8: Reports to the House and the Senate - Transportation: Requires the Secretary of Transportation to report on capital investments in roadways and bridges, airports and airway facilities and mass transportation systems. --Water pollution: Requires the Administrator of the Environmental Protection Agency to report on capital investments associated with waste water treatment, water distribution delivery systems and related facilities. - - Water resources: Requires the Assistant Secretary of the Army for Civil Works to report on capital investments associated with water resource projects. -- Public buildings: Requires the Administrator of the General Services Administration to report on capital investments associated with public buildings. Mr. Goss. I assure you we thank you for you taking your time. You mentioned Mr. Clinger, we indeed have invited him and we know that he is gracious Mr. WISE. Is he presently occupied. Mr. Goss. We understand that, and unfortunately he couldn't be here. That doesn't mean we aren't going to have further hearings. We are, in fact, as I have announced, and we are going to be pursuing it. This is one of the areas that we are certainly going to look into and, obviously, there are some strong pluses. There are also some suggested minuses. Whenever we get into talking about consumption and infrastructure, I always think about beach renourishment. And I don't care which it is as long as it is the thing that gets the money. Those are the kinds of problems we come into when we talk about this-that everybody asks. I am not sure that we have got all of the problems worked out, but I think that most people who have ever managed a budget understand the difference between a capital account and an operating account and there is value in that. And if you can get to that, we can all agree with the definition is then I think we are ahead. But I am a little nervous about just saying capital budgeting, and capital budget is a great idea, unless I know what it is. Mr. WISE. Certainly. And that is why the legislation directs that the Government Reform Committee and others be involved in framing that definition. And also as we move towards, hopefully, tax simplification, it seems to me that between GAO and the IRS, we ought to be able to figure out depreciation schedules, life of assets, those type of things since they are doing it already, that that problem, I know you have been in business before, that as you are able to reach those decisions and to define what capital is, so should the Federal Government. Mr. Goss. I agree. We should at least think about it. Thank you very much for your testimony. Mr. WISE. Thank you, Mr. Chairman. Mr. Goss. I apologize for keeping you waiting. Mr. Stenholm, apologize for keeping you waiting. Without objection your written testimony is accepted. I guess we saved the best for last. Mr. STENHOLM. I hope so, but I am not sure about that. Mr. Goss. I am not sure you are going to be last because Mr. Emerson may come in. Mr. STENHOLM. I appreciate the opportunity. I assume my entire statement would be made a part of the record. Mr. Goss. It will without objection. Mr. STENHOLM. I will attempt to summarize it. STATEMENT OF HON. CHARLES STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS Mr. STENHOLM. As a Member of Congress first elected in 1978, I have seen many, many changes go through. I don't believe the process has looked the same or done things the same in any one year of the 161⁄2 that we have been there. And there are many that might be arguing to you now just leave the act alone and stop mucking up the process, that the budget is working just fine just like it is. But I think it can be improved. My conclusion is that of course the tough choices always will have to be made, but the process by which we make decisions and the way that we talk about the choices we face have a tremendous impact on the outcome of policy. The budget process should be more comprehensible to the average American. You know, we have so much terminology, it is so difficult to understand for the general, average American, and I suggest if that is true, it may also be difficult for Members of Congress to understand, and that may be one of the problems, and maybe making it a little more simpler might be-might be helpful. In that vain, I believe there is married an idea such as baseline budgeting reform, the budget treatment of Social Security trust funds, truth in legislating. I do commend the current House leadership for endorsing some of these ideas at the beginning of the 104th Congress by changing House rules, and I was happy to support those changes. I believe these efforts could be reinforced in statute. The budget process also should hold Members more accountable. The fact that we even have spending categories which we call uncontrollable is a statement of our failure in the area of accountability. I believe we should pursue several measures, including entitlement caps along the lines which was proposed on the House floor last year. A 10-year window on PAYGO so that games cannot be played in the out-years, which we are again doing this year in this year's budget, and we have done it in almost every year that I can remember. |