Continuing efforts to improve the budget process

As expected, the Senate passed the Bipartisan Budget Act last week. The vote was 67-28, with 5 senators not voting. Rollcall, 8/1/19.

Only hours after the vote, which took place around noon, members of the Senate headed for the exits like students on the last day of school. Senate leaves for five-week August recess, Jordain Carney, thehill.com, 8/1/19.

The president quietly signed the BPBA into law the next day (there probably weren’t enough members of Congress left in DC for a signing ceremony). Trump signs spending hike, Stephen Dinan, Washington Times, 8/2/19.

This legislation will (1) permit higher discretionary spending for Fiscal Years 2020 & 2021 (to the tune of $320 billion over two years, which will predictably be fully utilized in the appropriations bills to follow), and (2) suspend the debt limit until 8/1/21 (when it will resume at the then existing debt level). On the plus side, the BPBA will provide a welcome boost to defense spending and minimize the risk of a government shutdown before the 2020 elections.

For those who support smaller, more focused, less costly government, these results are disappointing, as was amply expressed in last week’s entry. Latest budget deal: faster process, similar results,
7/29/19.

Ditto for big government fans who believe arrangements should be made to pay for it. [Sen. Tom] Carper statement on budget caps deal, 8/1/19.

. . . I remain very concerned about our country’s fiscal outlook. Unfortunately, there is a lack of the political courage needed, on both sides of the aisle, and certainly also in the White House, to put this country on a fiscally sustainable path. While I support many of the important spending priorities addressed in this deal and want to ensure that we avoid default, I cannot in good conscience keep voting again and again to add billions of dollars to our country’s skyrocketing deficit with no plan to tackle it.

So, why did things work out this way? In a nutshell, most Americans aren’t worried about the government’s level of spending as they have come to believe – however erroneously - that someone else will wind up paying the tab.

Our political leaders realize the financial system will collapse at some point, but no one knows when disaster will strike and the tendency is to hope it won’t happen on their watch. Trump and Pelosi team up for bigger government, deeper debt, Terry Jeffrey, townhall.com.,
7/24/19.

There is one interest that almost all elected officials in Washington, D.C., share. It does not matter what state they come from. It does not matter what party they belong to. It does not matter whether they serve in the House, Senate or White House. They want to be reelected.

Some players have not given up, however, including Senate Budget Committee members who at least aspire to improve the current system. Sen. Mike Enzi (R-WY), the SBC chair, announced last week that four process improvement bills have been drafted and are being circulated for comments. Discussion follows.

A. Background – Members of the SBC have a jaundiced view of the current budget system, and their appetite for budget guidance from administration officials is limited – or so we gathered from the SBC’s 3/13 hearing on the president’s budget proposal for fiscal year 2020. Whither BP-2020, section A (Senate), 3/25/19.

The hearing took place before (1) all the OMB budget documents had been provided to Congress, and (2) an adequate time to review the president’s budget proposal had elapsed. Less than half the SBC members were present, and the interrogation of the acting director of the Office of Management and Budget lasted only 75 minutes. Democratic members seemed dismissive or hostile; Republican members provided limited support.

B. Issues – A subset of SBC members have been meeting more recently for the purpose of exchanging ideas on how to improve the budget process. Here’s a recap of one of the sessions, which struck us as encouraging. Fixing a broken budget and spending program: Securing the nation’s fiscal future, Senate Budget Committee, video (1 hr, 39 min, starting at 26 min), 6/26/19.

Present: Five members of the SBC (three Republicans, all of whom later voted against the BPBA, and two Democrats who voted for it), plus the comptroller general and several members of the General Accountability Office staff.

Discussion was informed and collegial. Attendees seemed well aware that the fiscal problem is serious and genuinely interested in potential solutions. Herewith some highlights from the discussion:

MIKE ENZI (R-WY) – The SBC chair introduced Gene Dodaro, who took the helm at GAO in 2008 after David Walker moved to the Peterson Foundation (see this
7/14/08 entry, scroll down) and was appointed comptroller general in 2010.

GENE DODARO (GAO) – Debt to GDP ratio is at its highest level since the end of World War II. Government is on track to add another $10T to the debt in the next 10 years, so ratio will keep rising barring major changes in fiscal policy. Prime drivers are healthcare costs and interest expense. Several trust funds are dwindling and will be exhausted within the next 15 years: multi-employer pension plans (2025); Medicare, Part A (2026); Social Security (2034).

Bleak as this outlook seems, unforeseen developments – e.g., a financial crisis, war [an obvious possibility even though it wasn’t mentioned], or major natural disaster – could make things far worse. RX – a long-term plan to deal with the fiscal problem, to be executed as soon as possible because the longer we wait the more painful the solutions.

At SBC’s request, we’re getting started on a review of the budget systems and rules of numerous other countries. Also, something needs to change re how the debt limit is enforced so as to ensure there can never be a default.


MIKE BRAUN (R-IN) – I’ve been in the Senate for six months now. It seems most people are “uninvolved” in the fiscal problem – look at the [low] attendance today – that would never happen in a “for profit” business.

What will happen if we don’t do anything until there is a crisis, e.g., make-up payments to beneficiaries of multi-employer pension plans that have gone under must be cut when the trust fund is exhausted in 2025? Could GAO develop a recap of future problems and when they will hit. Also, please confirm that to freeze the debt/GDP ratio at current level, it would be necessary to (1) raise revenues by 36% over the trend-line, or (2) cut spending by 25%. I plan to use these inputs in talking to people about the fiscal problem.

2nd round: Could GAO provide an analysis of how much added revenue could be raised without tanking the economy? Dodaro’s response: Yes, if you help us to close the gap (1) of taxes that are due but aren’t being collected ($400B/yr.), and (2) improper payments ($150B/yr.).


CHRIS VAN HOLLEN (D-MD) – Sought Dodaro’s agreement that measuring spending, revenues and debt against GDP is more meaningful than nominal value numbers. He also referenced a series of tax cuts over the years and observed that revenues/GDP percentage was higher in 2000, when the budget was last balanced, than it is now. So what if revenues in nominal dollars are currently at an all-time high?

RON JOHNSON (R-WI) – Expressed surprise at statement on page 9 of the GAO handout that the number of Americans over 65 is rising by 10K per day and that this trend will continue even after all the Baby Boomers have retired. Dodaro attributed this result to rising life expectancy.

Asked whether Treasury Department should be taking advantage of currently low interest rates to issue more long-term/less short-term debt. Dodaro said he has asked the same question.


Fiscal problem or no, the US dollar is still the world’s reserve currency But what will happen if this changes, and how quickly would the Dollar be demoted to just another currency? GAO hasn’t worked up a scenario, but can try to do so.

Noted that 41% of debt is held by foreign governments & investors, which seems to give them considerable power over us.

SHELDON WHITEHOUSE (D-RI) – Clearly the fiscal problem is serious. To attack it (1) establish targets, (2) establish “glide path” to targets, and (3) establish “alarm bells” in the event of slippage so adjustments can be made. Model should include healthcare spending, appropriated (aka discretionary) spending, tax spending, and revenues. It’s necessary to consider all of these elements, not just focus on one or two of them. Dodaro agreed.

Under Chairman Enzi’s leadership, we’re trying to relate these various categories to the budget process of this committee. Enzi commented to the effect that it might be appropriate to rename the committee.

Finally, Whitehouse is concerned about promoting awareness of the potential harm from sea-level rise and global warming, e.g., economic losses for coastal property owners and fossil fuel companies. He is hopeful that the GAO staff will be available to evaluate these issues.

MIKE ENZI – Asked how the GAO was coming on reviewing budget rules of other countries in search of best practices that the US might be able to emulate. Dodaro said this was a big job and they were just getting started. Two aspects are commonly involved: (1) set budget goals, and (2) limit exceptions, which often provide an excuse for not meeting the goals.

Another project is to create a complete inventory of government programs (there are thousands of them) including ratings of how effectively the programs are being managed. Apparently, neither CBO nor OMB has been anxious to take on this study. Dodaro said this task may be a management responsibility of the various organizations involved, although perhaps GAO could add a portfolio perspective. GAO would need agreement from the top for such a project, support (funding?), and time to work on it.

Status of departmental audits? There has been major improvement in this area; only HUD and the Defense Department are not currently in compliance and they are making progress. Furthermore, significant savings have been achieved, e.g., a Defense audit turned up usable assets that the military units didn’t realize they had and purchase orders were substantially reduced as a result.

What about controlling outlays for natural disasters, which have resulted in federal outlays of roundly $500 billion since 2005? Dodaro said Congress should raise the threshold for “major” disasters that qualify for federal support, thereby reducing the number of aid requests to which FEMA must respond. Also, it’s high time to reform the flood insurance program and ensure adequate premiums are being charged.

Ironically, said Dodaro, departments/agencies were paying more attention to GAO recommendations when they were under pressure to comply with spending caps than they are now that the pressure to cut spending is being relaxed.

Would there be benefits in making more use of accrual versus cash accounting? Yes, said Dodaro, in certain cases, notably tracking insurance and environmental clean-up programs.

Capital budgeting? Maybe, but not right away.

Moving government programs from discretionary to mandatory spending category, thereby avoiding annual appropriations? Enzi is concerned about this trend, but lamented that he hasn’t figured out a way to stop it.

This discussion struck us as more results-oriented than the joint select committee sessions on improving the budget process that took place (without any resulting changes) in 2018, and the GAO perspective on the fiscal problem seemed solid as well. Good show!


C. Proposed fixes – On July 30, Sen. Enzi announced that four bills have been drafted to implement some budget process improvement ideas that he and colleagues have come up with. Enzi shares plans to revamp budget process, 7/30/19. Here’s a recap of what we understand is envisioned, with our comments in contrasting font.

#Congressional budget resolutions would continue to be “concurrent resolutions,” meaning adopted by Congress without the president’s signature and therefore lacking the force of law. However, passage of such a resolution could [
would?] “automatically generate a joint resolution that would set discretionary spending caps and extend the debt limit for two years.” If the president chose to sign the joint resolution, it would become law and OMB would enforce the spending caps.” It is suggested that the resulting “spin off of regular legislation setting budget limits from a budget resolution” might encourage the principals to “reach agreement early in the budget process.”

In other words, we gather, Congress would offer a budget deal, which the president could either accept or not accept. Offer/acceptance is a time-tested principle in contract law, so this sounds like a workable approach. But what incentive would a president have to “reach agreement early” on a budget resolution developed without his (her) participation after the president’s budget proposal had been dismissed as “dead on arrival"?

With all due respect, we doubt the budget will ever be brought under control without presidential leadership. Sure, Article I of the Constitution vests the power to approve spending and impose taxes in Congress, but the 535 members of two separate legislative bodies, elected to represent states/districts with varying outlooks and issues, have demonstrated little aptitude for reaching consensus on complex issues. Said another way, the president serves as the accelerator in our federal government whereas Congress acts as the brakes.

Reference to the debt limit serves to work mandatory spending into the budgetary equation versus focusing on only 1/3 of the government’s outlays, which is fine, but we regard the debt limit as an ineffective control. Why not simply set limits for total spending by category and abolish the debt limit? In this vein, see the Maximizing America’s Prosperity Act on which Sen. Mike Braun and Rep. Kevin Brady have reportedly been working. Here’s a promising plan to finally get a grip on federal spending, Romina Boccia & Benjamin Paris, dailysignal.com,
7/25/19.

What happens in situations when the two houses of Congress can’t agree on a budget resolution, e.g., because they are controlled by different parties with vastly different ideas? This has happened more often than not in recent years. One possibility might be that the president’s budget proposal would become the budget by default if Congress failed to adopt a budget resolution within, say, 3 months.


#Budgeting and appropriation bills would both be moved to a 2-year cycle.”

A 2-year cycle for budgeting resolutions (which comes down to setting spending limits by major categories) sounds fine, but others have argued persuasively that detailed appropriations should be reviewed on an annual basis.

#Rename Budget Committee, which would become the Fiscal Control Committee; add (as nonvoting members) the chairs and ranking members of the Finance and Appropriations committees.

OK, but there are 21 members on the SBC already, many of whom don’t show up at the meetings. Perhaps there should be fewer rather than more voting members, and any other senators with an interest in the meetings should be encouraged to attend.

#Abolish filibuster for appropriation bills. Amen!

#Establishing a debt-to-GDP ratio in the budget resolution which, if not achieved, would lead to a reconciliation bill in the second year to reduce the deficit. Traditional reconciliation that does not require deficit reduction would remain an option.

Rather than redefining the debt limit, we would favor abolishing it. Fiscal results can be better controlled by setting specific goals for outlays, revenues, and the budget bottom line (surplus or deficit). All of these goals could be expressed in dollars and/or percentages of GDP – dollars would probably be more understandable when talking about the results of a two-year period.

If the filibuster was eliminated for appropriation bills, we would think the reconciliation process could be abolished as well. Surely there could be some more understandable sanction for budget slippage than a new version of the reconciliation process ( very few people outside of the Capitol Hill community comprehend traditional reconciliation, let alone the nuances of two versions of this procedure).

For example, if the deficit in year one exceeded budget by 2% or more, then discretionary outlays for year 2 could be automatically reduced by a corresponding amount. Exemption from such a reduction would require legislation approved by 2/3 of both houses and the president.


#Switching from the issuance of two CBO baselines or projections of spending early in the year — in January and March — to a single baseline early in the year. OMB would be required to provide CBO with budget data earlier to allow construction of the baseline.

OK, providing OMB agrees. Did anyone ever ask them?

#Requiring CBO to make public its cost estimates for appropriations bills.

Not sure what’s involved here, as the authorized dollar outlays would seem to be obvious. Isn’t the real problem a lack of effective cost vs. benefit analysis for the many activities and programs of government? See, e.g., Obstacles to spending taxpayer money responsibly, 6/17/19.

Filling this void would be a tall order, which the CBO would seem ill-equipped to tackle. OMB or the GAO might be a more logical candidate, and in any case the executive branch should be involved in deciding how to meet this requirement.

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