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the idea of setting up an independent outside review board that might include both public and private sector members to monitor budget coverage and accounting practices on a continuing basis, somewhat along the lines in which private accounting practices are monitored by the Financial Accounting Standards Board.

Finally, Mr. Chairman, I would like to stress that bringing off-budget lending activities into the regular unified budget is only a first step toward more rational and effective budgetary treatment of federally-assisted credit activities. For the longer run, the CED report recommends a comprehensive approach in this area that is outlined in the section on "Controlling Federal Credit Activities." With your permission, I would like to submit a copy of this section

for the record.


As an ultimate solution, the CED report envisages a two-tier First, to permit improved budget process control over the total impact of federal credit programs on financial flows and markets, the report recommends that the credit budget be permanently made subject to most of the budget control procedures now applicable to direct spending. In particular, there should be a formal requirement that budget resolution ceilings on total new loan extensions and on loan guarantee commitments be made binding.

Secondly, to allow improved resource allocation decisions within the unified budget, the CED policy statement recommends greater experimentation with budget procedures that involve direct comparisons

between regular expenditures and the subsidy elements of credit programs. As a possible long-run solution, CED recommends careful exploration of

a proposal to put all federal credit and guarantee activities in a national lending fund that would not be allowed to subsidize transactions

or take risks on its own account but would receive reimbursement from

government agencies equivalent to the cost of providing subsidized loans or guarantees on behalf of these agencies.

While these proposals are not of direct relevance to the

legislation being discussed here today, I hope that they will receive

careful consideration by your Committee in the future.


The Federal
Budget Process:

A Requirement
For Effective
Fiscal Control

This executive summary is based on a statement on national policy by the Research and Policy Committee of the Committee for Economic Development

June 1983


Executive Summary

Budget deficits and the budget process have moved to the center of national concern. This statement examines the evolution of the process Congress and the President use to formulate the federal budget. Its basic conclusion is that it is in the best interest of both the government and the nation to preserve, improve, and strengthen the basic elements of the Congressional budget process. We believe that not only is it possible to bring order to national fiscal affairs, but that it is vital for this nation to do so. The report recommends strengthening key budget concepts and improving the information needed to allow policy makers to make reasonable budget choices. It also calls for specific improvements in the way budget decisions are made and enforced.


Unless the nation is able to bring about sharp reductions in projected budget deficits, the prospects for a sound recovery will be impaired. Failure to come to grips with the budget problem, moreover, would seriously threaten the long-term prospects for the future health of the economy and for the kinds of productivity gains that are needed to provide adequate employment and living standards for this country's citizens.

Success in bringing the budget under control rests fundamentally with the political process the will of the people and the actions of their elected representatives. However, a strong federal budget process is essential to the effective functioning of political decision making in the areas of revenue and spending. Abandoning the basic budget process, the report concludes, would hinder rather than help efforts to bring the budget under control.


The enactment of the Congressional Budget and Impoundment Control Act of 1974 instituted a series of wide-ranging budget reforms. Before this time, no procedure required Congress to consider federal expenditures and revenues in combination.

The new law required Congress to vote twice each year, at two specific dates, on both the entire budget and major spending categories. The act also prescribed detailed timetables for all phases of the Congressional budget process, established budget committees in both the House and Senate, and founded the Congressional Budget Office to serve as Congress' principal source of fiscal information.

Even with the real improvements that have been made, Congress does not yet have a truly effective means of controlling actual budget expenditures and revenues. There is concern about the long delays that have become common at virtually every stage of the process. There is dissatisfaction with available budget information and with uncertainties about the budget's general meaning and scope. There is also the sense that the budget process is overloading Congress with money matters at the expense of substantive issues.


We strongly support continuation of the basic elements of the present budget process and believe that strengthening the process is vital for sound and effective economic policies.

To assure full consideration of needed improvements, we recommend the establishment of a new Budget Concepts Commission composed of members appointed by the President, Congress, and the public to study the concepts that underpin the federal budget. In addition, we recommend the establishment of a bicameral Congressional study group drawing on leaders of both the House and the Senate to deal explicitly with improvements in Congressional budget procedures.


Congress should have the best possible information when making budget decisions. We believe that if Congress is to make optimal budget decisions, the budget needs to be both fully comprehensive and clearly understandable.

Budget Presentation. We believe that continued adherence to a comprehensive unified budget is essential. To make the budget more comprehensive, activities now classified as "off budget' should be moved back into the unified budget. We oppose the scheduled removal of Social Security from the unified budget and urge Congress to reverse recent actions calling for such removal by fiscal year 1993.

Economic Assumptions and Analysis. Reasonable and consistent economic assumptions are critical to the budgeting process. We favor requiring that both the House and Senate budget committees agree on a common set of economic assumptions for budget resolutions.

Both the Executive Branch and Congress should continue to make active use of the high-employment budget, or a similar concept, in analyzing budget developments. The high-employment budget concept, originated by CED in 1947, helps to distinguish between the impact of the budget on the economy and the effects of the economy on the budget.

Controlling Federal Credit Activities. Federal credit programs should be subject to most of the budget-control procedures now used in connection with direct spending. There should be a requirement for budget-resolution ceilings on total new-loan extensions and guarantees to be binding.

Congress and the Administration should develop means of allowing direct comparisons as well as trade-offs between direct-spending programs and the subsidy element of credit programs serving similar goals. In this connection, the report

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