had some informal briefings, and we are trying to at least understand all the acronyms and the alphabets involved, to say nothing of the numbers.

We clearly have a wealth of expertise in this committee on this important subject. We hope not to reinvent any wheels, but rather to build on what has been done in previous years in the context of the historic 104th Congress and our absolute commitment to bring balance to our Nation's budget.

David Dreier, the vice chairman of the Joint Committee on the Organization of Congress, also the vice chairman of the Rules Committee, also the chairman of one of the subcommittees here today

Mr. DREIER. I sound important.

Mr. Goss. He is a busy man-has spent countless hours in the last Congress reviewing-I think it should say countless days in the last Congress reviewing testimony and proposals on many issues involving the structure and workings of the House, including the budget process, and developing recommendations for reform. And so reform is very much one of the perspectives we proceed from.

In addition, our friend, Tony Beilenson, who I hope will show up soon, chaired an important bipartisan task force on the budget process in 1984, which made a major contribution to the evolution of our budget process.

Martin Frost and James Quillen have spent many years researching and studying these issues as well, and our committee chairman, Jerry Solomon, who has come in right on cue, has for years devoted his boundless energy to seeking meaningful ways to strengthen and improve our budget process to lead us to balance as soon as possible, most recently with a rather spectacular bill.

The most important thing we do around here is to manage the Nation's finances. The budget is the meat and potatoes of this place, some call it the pork and beans. I think we better stick with meat and potatoes, because that is what this is about. Many people have concluded that since the adoption of the 1974 Budget Act, we have indulged in far too much of the pork on that diet.

With this year's historic adoption of a budget blueprint for bringing our budget into balance, it is crucial that we make sure we have the most effective procedures in place to meet and maintain that goal, that is, the machinery. Unfortunately, too many Members and Americans looking at the workings of the current congressional budget process think it is like looking into a black hole.

Critics say it is too complicated, too cumbersome, and too much is out of our direct control. Members of Congress say that, too. There is general frustration and that is one of the reasons why we are here. We felt it important to begin with the large context to ensure that we understand where we have been so that we can more precisely chart where it is we want to go.

We have chosen three very broad questions to frame our starting point for this review today, mindful that the big picture will eventually lead us to examine specific proposals for reform. Certainly, the most frequently mentioned complaints about the process yield a host of suggestions for quote, "fixing the process," ranging from

some minor tinkering around the edges to dramatic overhaul of the system.

It is our intent to move from today's very broad discussion into a similar type of conversation with some of our highly knowledgeable House Members next week. We hope it will be next week; if not, shortly thereafter. If there appears to be interest in pursuing change, we would then proceed to a review of specific proposals.

For today, we have asked our witnesses to speak to three very broad questions, as I said. First, what are the objectives of the 1974 Congressional Budget Act. I guess that will be somewhat retrospective; which of those objectives are relevant in today's fiscal environment; and should the budget process be redesigned or will the tinkering around the edges suffice?

We are delighted to welcome our guests. We have a very majestic array, I think, of talent in front of us, and we appreciate them being here. Director O'Neill of the CBO, Susan Irving from GAO, and our friend and former colleague Bill Frenzel, now at Brookings, and Stephen Moore from Cato. We thank you all for coming, look forward to hearing your words of wisdom. I would now turn to Chairman Dreier, who will then turn to Chairman Solomon.

OPENING STATEMENT OF HON. DAVID DREIER, CHAIRMAN OF THE SUBCOMMITTEE ON RULES AND ORGANIZATION OF THE HOUSE

Mr. DREIER. Thank you very much, Mr. Chairman, Mr. Chairman, Mr. Chairman, and we all-our only regret is that we didn't call Bill Mr. Chairman, but we can call him Mr. Chairman now. Let me say that it is nice to be-we left these chairs 9 hours ago, and it is wonderful to be back this morning.

As you illustrated in your statement, Mr. Chairman, this is not the first time that our Rules Committee has attempted to either justify or overhaul the Congressional Budget Act, and it probably won't be the last. As you said, Tony Beilenson tried in the 1980's and our Joint Committee on the Organization of Congress looked extensively at the issue of budget process reform and several of our witnesses testified before that panel which had 37 hearings, Porter, and 243 witnesses.

Mr. Goss. I should have said months.

Mr. DREIER. Yes, right. But I have a sense that this time may be a little different. We passed a budget resolution taking us on a glide path to a balanced budget, and it was noted yesterday at our informal briefing that this is the first sincere effort to achieve a balanced budget since the Congressional Budget Act was adopted in 1974. Resolutions have been passed as was said by Mr. Keith, but clearly there is a sense that there is a real confidence in this

one.

We already are witnessing, however, the fact that the path to a balanced budget is rough and has many obstacles to it. In both a real and imaginary sense our colleagues will point to the budget process itself as one of those impediments to a balanced budget. I think part of the problem is that we have a layered process.

Instead of one coherent process, we have rules, procedures, and timetables stacked up one upon another, all established to address a particular problem at a particular point in history. Little of it

makes sense in today's dynamic fiscal and institutional environment, so I think we need to reevaluate the full process, and we also need to be prepared to respond to the criticisms that will inevitably arise as we attempt to make the budget resolution a reality. That is the purpose of this morning's hearing, and I, too, look forward to our witnesses.

I am sure that they will be able to make some sense of this process. I hope we will be able to work in a bipartisan way with Chairman Solomon, Chairman Goss, former Chairman Beilenson, and other members of the committee to make some sound and very rational recommendations for budget process reform, and I am happy to be now enveloped by two chairmen.

Mr. Goss. Mr. Solomon, Chairman Solomon.

Mr. DREIER. And a vice chairman.

Mr. Goss. And a vice chairman. We have been joined by Mr. Diaz-Balart of Florida, our colleague.

Mr. SOLOMON. It takes a couple of chairmen on either side of Mr. Dreier to keep him under control.

First, let me apologize for running off here in a few minutes, we have a second rule on the interior appropriations bill, and we have to make sure that runs smoothly today.

Mr. DREIER. You better stay here.

OPENING STATEMENT OF HON. GERALD B. H. SOLOMON, CHAIRMAN OF THE COMMITTEE ON RULES

Mr. SOLOMON. But we will see. First, I want to commend the two subcommittee chairmen for holding the hearing, and we look forward to the testimony, and I want to thank certainly Dr. O'Neill for her work.

I have here in front of me a document called H.R. 1923, and it is 1,700 pages of scored budget spending cuts, and as I look down through the other witnesses, including the GAO, the Brookings Institute, Cato Institute, all of them were instrumental in providing us with many various recommendations that we can give in this bill to the appropriators and to other Members of Congress on just how we can go about bringing about some fiscal responsibility to this Federal Government. What we have done with this document, as you know, was made it the basis for our budget which the three of us voted for, that 5-year balanced budget, last year, this year, and the year before. We have given this to all the Members of Congress so they can use it for further cutting the unnecessary spending and restructuring the Federal Government, so I just want to thank all the witnesses for all of your input that helped us do that, particularly CBO, because it couldn't have validity if it was not scored properly, and it was a very difficult job, and we appreciate the great effort you put into it. Having said all that, I am going to go downstairs and will try to join you shortly thereafter. We thank all of you.

Mr. Goss. Thank you, Mr. Chairman. I hope you are able to report back a successful vote.

Lincoln, did you wish to say anything at the beginning of this? Mr. DIAZ-BALART. Unfortunately, I can't stay long, Mr. Chairman, but I wanted to come by for as long as I could, and I am here to learn. Thank you.

Mr. Goss. Thank you. Appreciate you being here.
Dr. O'Neill, the floor is yours. Thank you.

STATEMENT OF JUNE E. O'NEILL, DIRECTOR,
CONGRESSIONAL BUDGET OFFICE

Ms. O'NEILL. Chairman Goss, Chairman Dreier, members of the subcommittee, thank you for inviting me to testify today on the budget process. I will submit my prepared statement for the record and summarize the three topics discussed. They are the evolving role of Congress in the budget process, lessons from recent experience with budgeting, and finally criticisms and proposed reforms of the current process.

For many years the Congress has participated in the budget process by prescribing general rules and procedures concerning the presentation of the President's budget and the enactment of spending and tax laws.

The general rules of the budget process are contained in two laws, the Budget and Accounting Act of 1921 and the Congressional Budget and Impoundment Act of 1974. The Congress has also played a key role in the control of both spending and the size of the budget deficit or surplus.

Three decades ago, when discretionary spending accounted for nearly 70 percent of budget outlays, the control of spending fell largely to the Appropriations Committees. Over time, however, the composition of the budget and the nature of budget control have changed dramatically. In the current year, that is 1995, discretionary spending is expected to make up only 36 percent of total outlays, falling to 30 percent by the year 2000.

Growth in entitlement spending has outpaced both discretionary spending and revenues, leading to unanticipated large deficits. Further, such growth occurs without congressional action and is highly responsive to economic conditions and other factors that are often difficult to predict.

Although the budget process has had some success in controlling discretionary spending, controlling entitlement spending presents a much tougher challenge. The growth in entitlements and the large budget deficits of the 1980's have brought new challenges to the budget process. The primary focus of the process has shifted to the development of rules specifically intended to reduce the deficit.

That role is manifested in two major laws, the Balanced Budget and Emergency Deficit Control Act of 1985, popularly known as Gramm-Rudman-Hollings, and the Budget Enforcement Act of 1990, the BEA. Gramm-Rudman-Hollings had a single goal, to reduce the size of the deficit to specified levels each year until expenditures were in balance with revenues. But the deficit did not come down.

Instead of enacting the changes in laws governing revenues and spending necessary to reduce the deficit, the President and the Congress were able to avoid the intent of the act by changing the deficit targets and by basing budget estimates on overly optimistic forecasts.

The BEA created a very different process than that established by Gramm-Rudman-Hollings. Its purpose was not to force the attainment of a specific deficit level. Rather, it attempted to control

spending and prevent legislative actions that would cause the deficit to increase. The Congress and the President have lived within the BEA's constraints.

Although the deficit outlook deteriorated just after the 1990 budget agreement, that turn of events did not result from evading the stricture set up by the BEA. Rather, the deterioration of the economy and the open-ended nature of entitlement programs, such as Medicare and Medicaid, were largely responsible for increasing the deficit over the 1990 projections. Virtually nothing of the darkening deficit picture after 1990 resulted from policy actions that were controlled under the BEA.

Some tentative lessons can be drawn from the past 20 years of experience with congressional budgeting. First, the 1974 Budget Act created an infrastructure for budgeting that has proved to be of lasting value. The budget committees, the timetables and rules of procedure, and the information systems put in place by this legislation afford the Congress an expanded capacity to frame a budget in a systematic and informed manner in addition to providing it with the means to pursue an explicit fiscal policy role. Thus, the essential elements for effective budget control by the Congress have been put in place.

The second lesson we have learned is that there is a limit to what the process alone can accomplish. The budget process ultimately is not really a substitute for specific policy decisions required to produce a desired result. The budgeting process has no magical powers. At best it can provide opportunities for the Congress to make informed decisions that will result in desired out

comes.

Third, in designing budget procedures, control mechanisms should focus on those things that can be controlled directly. That lesson comes from the contrasting experiences with Gramm-Rudman-Hollings and the Budget Enforcement Act. Gramm-RudmanHollings explicitly attempted to reduce the deficit without specifying how that was to be accomplished; thus, it suffered from the absence of a direct link between the object of control and those variables that the Congress can control.

The relative success of the BEA stems in part from its confinement to controllable legislative actions. That is particularly apparent in the case of discretionary spending, which has been consistently declining as a percentage of gross domestic product.

Inevitably, the BEA's changed emphasis has come at a price. By focusing on legislative action through the PAYGO rules, the BEA does not force enactment of measures to reduce the deficit further. Under the BEA, entitlements can still expand considerably because of changes in population, inflation, utilization rates, and in the case of health programs, because of changes in technology that enhance the quality of benefits.

Many observers are dissatisfied with the current process, and they have proposed changes. I will comment briefly on some of the major criticisms and suggestions for reform. One broad area of concern is that the process is too complex, too time-consuming, and too rule-bound.

Critics argue, for example, that if the budget was enacted less frequently, as would be the case under such proposals as biennial