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Testimony of


Chairman, Subcommittee on Budget Concepts and Processes

of the

Committee for Economic Development

Mr. Chairman and Distinguished Members of the Committee:

The need for a truly comprehensive federal budget and a strong

and honest federal budget process has been of key concern to me over many years. I served in the United States Bureau of the Budget for more than 20 years, holding the position of Deputy Director under Presidents Truman, Eisenhower, Kennedy and Johnson. I was appointed Comptroller General of the United States in 1966 and completed my 15-year term in March 1981. I also served as a member of the Commission on Budget Concepts whose 1967 report provided the basis for the introduction of the unified budget. As Comptroller General I testified in strong support of the Congressional Budget Act of 1974. Today, I am appearing in my capacity as a trustee of the

Committee for Economic Development (CED) and chairman of the subcommittee which developed the CED policy statement Strengthening the Federal Budget Process: A Requirement for Effective Fiscal Control that was issued in June of this year. With your permission, I would like to submit an Executive Summary of that statement for the record. Accompanying me is Frank W. Schiff, Vice President and Chief Economist of CED and project director for the budget study.

CED is a non-partisan, nonprofit organization of 200 business and educational leaders who develop reports and recommendations on major public policy issues on the basis of careful discussion and research. In preparing its recommendations, CED can typically draw on a great deal of relevant expertise among its own members. Thus,

the Subcommittee on Budget Concepts and Processes which I chaired

included among its members and advisers three former budget directors

and four former Cabinet members.

The central theme of the CED report is that an effective budget process needs to be based on full and clear information and

that this in turn calls for a comprehensive, unified budget on which Congressional debates and votes can focus. The relevant section


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of the report dealing with this issue is attached. In particular, the

report states that

"We strongly believe that continued adherence to a
comprehensive unified budget is essential to the
effectiveness and credibility of the budget process.
A unified budget that includes all activities by
federally-owned entities is necessary to allow the
Executive and Congress to make informed decisions
on the overall fiscal and financial impact of
federally-owned activities and to serve as a
framework for tradeoffs among competing claims
on federal fiscal resources.

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While the approach advocated by CED is in line with the

recommendations of the 1967 Budget Concepts Commission and the

consequent introduction of the unified budget, the comprehensiveness of the budget has in recent years unfortunately been compromised through the use of off-budget outlays. In fiscal year 1984, according to CBO's latest estimates, net off-budget spending is expected to total $16 billion. off-budget outlays have been attributable to the Federal Financing Bank and particularly its ability to convert federal loan guarantees

Generally, between 80 to 90 percent of these


into off-budget direct loans.

The CED policy statement on the budget

process therefore recommended that


"To make the unified budget more fully comprehensive,
activities now classified as off-budget should
be incorporated in the unified budget. In particular,
this should include the lending activities which are
financed by the Federal Financing Bank.'

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The major feature of the bill you are considering here today S.1679, the Honest Budgeting Act of 1983 is precisely in line Bringing the lending activities financed

with CED's recommendations.

by the Federal Financing Bank into the unified budget would indeed make for more honest budgeting. It would allow a more accurate assessment of the overall impact of federal spending and lending operations on financial markets. Moreover, because the budget effects of the lending activities involved would be charged to the responsible federal agencies, Congress would be in a much better position to make informed decisions about priorities among the full range of federal lending programs.

I personally also feel that other key provisions of the bill, while not specifically taken up in the CED report, are desirable and, indeed, necessary to assure that CED's recommendations can be effectively implemented. Thus, it makes sense to require that loan assets of the type now being sold to the Federal Financing Bank by federal agencies for conversion into direct off-budget loans must

1/ This occurs when an agency extends the guarantee to the Federal Financing Bank rather than to private lenders and the Bank then extends direct loans to private borrowers on the basis of this guarantee.

also be offered for sale or guarantee to the Bank in the future, even though the resultant direct loans become "on-budget." Otherwise, there would be an incentive for federal agencies to evade budget process control of these transactions through sales of their securities in the

open market.

I also approve of the provision that loan asset sales by federal agencies be treated as a means of financing rather than as negative outlays that can be used to reduce total budgetary spending chargeable to such agencies. The practice of treating the sales of loan assets by federal agencies as offsetting receipts has long been a major element of distortion in federal budgetary accounting and has often led to serious understatement of the actual volume of credit

extensions by federal agencies.

I do, however, have a question regarding the bill's coverage. The bill is limited to guarantee programs of a type financed by the Bank between October 1, 1981 and September 30, 1984. Does this choice of dates mean that some relevant programs would not be covered? I certainly hope that nothing in the bill could be interpreted as providing exceptions from the basic CED recommendation for bringing into the unified budget all off-budget credit activities that have the character of direct loans. I am not suggesting that all government-sponsored credit activities be counted in full as unified budget outlays. There are strong reasons, for example, not to include the full amount of VA loan guarantees, which facilitate financing transactions that are largely

private in character. (These guarantees, however, are properly included in the so-called credit budget that seeks to assess the overall impact of government-assisted credit programs on financial markets.) Precisely where to draw the line on what credit programs should or should not be included in the unified budget involves difficult decisions. These decisions, however, should be made on a rational and logically

consistent basis.

Certainly, the budget should include all programs

that are comparable to the direct loans now counted as part of the unified budget.

The CED report recommends the establishment of a new Budget Concepts Commission, composed of representatives of the President, Congress and the public, that would consider ways of strengthening the conceptual and informational underpinning for budget decisions and enforcement. I strongly support this recommendation and believe that a key concern of such a Commission should be the development of precise criteria for determining the types of credit programs that should be counted in the unified budget.

I would also like to make one additional suggestion. Even if the proposed legislation were enacted and if a new Budget Concepts Commission were to provide further clarification of what should and should not be included in the budget, there are likely to be continuing questions as to whether future legislative provisions or administrative interpretations are in fact consistent with basic requirements for comprehensive federal budget coverage. It would be worth exploring

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