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The days of argument about "crowding out" are over. This summer the minority staff of the Senate Budget Committee responded to a Treasury report that claimed deficits didn't matter. The Budget Committee makes it very clear that deficits matter in a critical way. For one thing, the Committee study showed that the federal deficit is currently eating up 97 percent of all net savings in the United States. That, Mr. Chairman, is the superlative form of "crowding out". It's the kind of crowding that denies private borrowers access to credit, and overprices what remains by driving up interest rates. So deficits really do matter.

The Senate Budget Committee showed us something else. In the 1960's when the federal deficit accounted for 0.8 percent of the Gross National Product, interest rates were at four percent. Between 1980 and 1982, when the deficit rose to 2.5 percent, interest rates shot up to 12.1 percent. If Congress is unable to enforce the budget we've already passed, the deficit will surge to 6.3 percent of GNP in the immediate future. You can imagine what that will do to interest rates if history is any guide.

Yes, deficits matter, and fighting those deficits matters even more. I believe S.1679 will help give us a true picture of federal deficits, painful though that picture may be.


Even so, we don't really have much hope of addressing the

deficit problem in an effective way without an accurate picture

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now by passing this bill and enforcing our budget, the economic

recovery will stop moving altogether.

As a final comment, Mr. Chairman, I would like to join with Senator Domenici in suggesting a small change to Section 2 of S.1679 as it pertains to the Rural Electrification


Under a broad interpretation of Section 2, REA which is an off-budget entity by separate statute, would be brought on-budget, thus overturning the provision of the Rural Electrification Act that currently excludes REA from the unified budget. I do not believe that particular change is integral to this bill, and would not be wise at this point in time. I would therefore recommend that section 2 be revised to clarify that it does not affect the current status of REA.

Senator TRIBLE. Senator Proxmire?


Senator PROXMIRE. Chairman Domenici, I want to thank you very much for coming before the committee. I realize it's Monday morning, right off the bat. Your coming in and giving us your time, showing your concern, and support of this approach, this legislation is appreciated-it's a fine statement. The only part of it that troubles me is the part that I disputed to some extent with Senator Gorton also. That is on page 7, where you point out that you would, in my judgment, pretty much exclude the Rural Electrification System, apparently for reasons of political realism. I certainly greatly admire the REA. There is no agency that has done more for our farmers.

On the other hand, the table that Mr. Penner gave us shows that of the $14 billion in FFB outlay, $4 billion of that, or about 30 percent, is for the REA. That would make this bill the "70-Percent Honesty in Budgeting Act," rather than 100-percent honesty in budgeting act. I just wonder if that's logical, and the difficulty is that we were excluding this, in my judgment, because of the political realism and because of the pressure by political groups, because of the fact the Agriculture Committee wanted to take a look at this, and so forth.

I understand all of that, of course, but it seems to me it's going to make it very, very hard for us to maintain the integrity of this legislation because I think other groups will say: Look at the REA. They get an exception. Why shouldn't we?

Senator DOMENICI. Well, Senator, I don't think I can do any better in explaining it than I did in the written remarks. You have them before you.

I guess what I would say is it is better to get a large portion than to get nothing, in terms of this effort. I do believe unless you are willing to send this bill to Agriculture, which clearly wrote the substantive law with reference to REA, I don't believe you can achieve your goal in a rather quick and expeditious manner. I do believe REA historically has had the treatment that it now has. It isn't a new thing that occurred because of the FFB. Some of the others

are new.

Because of the way we have treated the FFB financing, they were never intended-clearly, REA was the opposite. It was not intended to be part of the unified budget. That's the only answer I can give you.

Senator PROXMIRE. It was not intended to be in the unified budget? Do you think the original intention is right?

Senator DOMENICI. Well, let me just-at one point, I said to you that there is nothing miraculously perfect about the unified budget.

For instance, I think it's time we start looking at capital improvements in the unified budget. I don't know how we have to. I surely don't want to look at them in terms of the way some people want to look at them: to make it a lot easier to debt finance capital improvement and not count the debt.

But clearly, we can't accomplish everything we would like with reference to this budget, and the REA was never intended to be on. But many of these other programs were. There is not a great deal of difference, however, in the final analysis, to answer your question.

Senator PROXMIRE. Let me give you an analogy that might illustrate the difficulty here. What would be the effect on tax revenues if the Finance Committee allowed the other standing committees to write tax subsidy laws for the programs under their jurisdiction? Senator DOMENICI. It would be devastating.

Senator PROXMIRE. That's exactly what I am afraid of here. I share your strong support. I think all of us feel strong support for the REA. Anybody who has watched that development must agree that a marvelous job was done for our farmers.

But again, I apologize for bringing this up, because I think your statement generally is an excellent statement, and I am very, very pleased that you have come before the committee. I think you do make a strong point. If we can get 70 percent, that's better than getting nothing.

Senator DOMENICI. Please don't concern yourself by asking me about it. I get asked about all of these things all of the time. [Laughter.]

Senator TRIBLE. Pete, we thank you very much for being with us this morning.

Senator DOMENICI. Appreciate it.

Senator TRIBLE. Next, Mr. Harry Havens, Assistant Comptroller General, General Accounting Office.


Mr. HAVENS. Good morning, Mr. Chairman.

Senator TRIBLE. Good morning, Mr. Havens. Pleased to have you back with us again.

Mr. HAVENS. Thank you, Mr. Chairman. I apologize in advance. My voice cracks at various points.

Senator TRIBLE. We have a glass of water before you. Take your time. We don't want you to expire before the Banking Committee. It would be the first time that occurred.

Mr. HAVENS. Thank you, sir.

We appreciate the opportunity to testify on the budget treatment of FFB and specifically on your bill, S. 1679. This bill would require that the receipts and disbursements of the FFB be included in the Federal budget and charged to the program agency.

We support this objective. It will increase the visibility of the Government's credit activities and will make the budget reflect more accurately the activities of the Government.

I will skip over some of the background, if I may, in the interest of time, because it's been covered by prior witnesses and by ourselves on previous occasions.

We favor the principal objective of the bill, but we believe certain changes would help accomplish the desired result. As presently written in S. 1679, loan guarantee amounts financed by the FFB shall not exceed amounts of budget authority provided to the Fed

eral agency for such purposes. However, the statutory definition of "budget authority," as stated in section 3(a)(2) of the Congressional Budget Act of 1974, specifically excludes loan guarantee amounts from "budget authority." Attached to my statement is a suggested revision which we believe would resolve this possible statutory conflict.

We also suggest that the legislative history of the bill make it clear that "means of financing" refers to agency borrowing from the FFB which affects the agency balance sheet by increasing cash and increasing liabilities. Transactions treated as a means of financing do not reduce outlays and budget authority as do transactions treated as the sale of an asset.

Finally, the last major provision would provide that if agencies used the FFB between October 1, 1981, and September 30, 1984, then in the future they must also utilize the FFB. We agree with the objective of this provision, to assure that agencies continue to use the FFB, where appropriate. We note, however, that the provision might be interpreted as being applicable only to agencies which used the FFB during that particular period. We suggest that the legislative history make it clear that the provision is applicable, for example, to a new agency-created after 1984-if that agency issued, sold, or guaranteed obligations of a type currently financed by the FFB.

We also note that the regulatory powers vested in the executive branch are quite strong. We suggest that you monitor the implementation of the bill to assure consistency with congressional intent.

With the changes we have suggested, and with the additional items of legislative history, we would recommend enactment of the bill. That completes my prepared statement.

I would be happy to try to answer any questions you have. Senator TRIBLE. Mr. Havens, thank you very much. I am interested in defining the regulatory authorities as narrowly as possible to achieve budgetary purposes set forth in this measure.

I am struck by your words, that the regulatory powers in S. 1679 are quite strong, and suggesting that they be monitored by this committee. What is it that you are attempting to say there?

Mr. HAVENS. Well, our point is that the language of the FFB Act as added by section 3 of the bill, says that the Secretary of the Treasury shall issue regulations to carry out provisions of the subsection. The subsection addresses who is subsequently required to operate through the FFB.

Now, I think it would be very difficult to write legislation which would be more specific than is currently there. When you say obligation of a type which was, during a particular period, issued, sold, or guaranteed and financed through the bank, that is subject to substantial ambiguity or interpretation, and I think necessarily so, in order to achieve the objective you're after. But the Secretary is going to have to define what that is, and will have to apply those regulations in particular instances. Now, given a Secretary who is carrying out the ministerial functions, approaching them in a ministerial fashion, I don't think there's a problem, but regulations frequently get interpreted in ways that are more than ministerial,

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