Reviewing the government's budget process

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Results of the government’s budgeting in recent years have been deeply flawed, leading some to characterize the budget process as “broken.” When a Joint Select Committee on Budget and Appropriations Process Reform (JSC) was authorized by the Bipartisan Budget Act (BPBA) with a Nov. 30 reporting deadline, however, we expressed doubts about the likely outcome. More shutdown drama, mediocre results, 2/12/18.

•A joint select committee created in 2011 to propose $2.1 trillion in deficit reductions over the ensuing decade had deadlocked because Republicans weren’t willing to talk about tax increases and Democrats weren’t willing to discuss spending reductions. This time there wasn’t even a clear statement of the problem to be solved.

•The balanced JSC membership (budget committees v. appropriation committees, Republicans v. Democrats, House v. Senate) would favor maintenance of the status quo.

•A constructive outcome would probably require presidential leadership, yet there were no executive branch representatives on the JSC.

•It seemed to be assumed that the budget process could be fixed by changing the congressional budget rules, but what if the real problem was the failure of members of Congress to comply with said rules?

•Perhaps a constitutional amendment was needed, e.g., to require a balanced budget or give the president a line item veto, not just a tweak to the budget rules. The idea of a line item veto would subsequently be mentioned by the president in his “never again” remarks about the omnibus spending bill for fiscal year 2018. Rebooting the budget process,
4/9/18.

•Suppose the root problem was the Senate filibuster rule, which had created a supermajority requirement for legislation to shrink the deficit. As spelled out in the BPBA, approval of the JSC’s recommendations would require 60 votes in the Senate so it didn’t look like this issue would be addressed.

Viewing the fiscal problem as a matter of substance versus process, SAFE subsequently outlined an aggressive response. DC braces for another legislative deadline,
3/19/18.

Set a clear goal: balance the budget as soon as possible and thereafter keep it that way – make targeted cuts in discretionary spending (see hit lists of the president’s budget staff, Citizens Against Government Waste, Heritage Foundation, etc.) – push for a systematic overhaul of the government’s entitlement programs so they will be affordable over the long haul – if necessary, Republicans should “go nuclear” and abolish the Senate filibuster rule.

Shorter term, we have also suggested that Republicans could improve their prospects in the mid-term elections (while coincidentally advancing the SAFE agenda) by pushing for all appropriation bills for FY 2019 to be enacted before the October 1 deadline. Political straws in the wind,
5/7/18.

Get serious about completing the appropriation bills for fiscal year 2019 by Oct. 1, and “go nuclear” in the Senate to get it done. Some conservative priorities could be built into these bills, e.g., more funding for a border wall and defunding of Planned Parenthood.

We also plan to follow the progress of the JSC, both in case it does suggest some meaningful process reforms and because the discussions may shed more light on the obstacles to progress. To this end, here’s a recap of the first public session featuring the testimony of two expert witnesses. Video (2h, 26 min), youtube.com,
4/17/18.

The session began with 5-minute opening statements from each of the members who were present plus the witnesses (both of whom had submitted written statements before the meeting). Then each member was given an additional five minutes to dialog with the witnesses.

Witnesses are placed first (they actually spoke after the JSC members) and the opening statements/ questions of the members are merged. The names of House and Senate Budget Committees members are identified as (
budget); other members serve on appropriations committees or, in a few cases, have no relevant committee assignments.

1. Witnesses

#Martha Coven, JD, is a visiting professor at Princeton’s Woodrow Wilson School. She previously served for six years in the Obama administration (several positions) and before that in the nonprofit sector and congressional staff positions. bio

Ms. Coven’s initial point (in her oral comments; we couldn’t locate her written statements on line) was that the JCP should avoid tearing up the existing budget rules before “you have something better.” She went on to offer three concrete suggestions. (A) Redefine the federal fiscal year as the next calendar year, which would provide an additional three months to complete appropriation bills, while providing for binding limits on discretionary spending levels to be negotiated and enacted at an earlier point. (B) Stop the debt limit exercise, which hasn’t been contributing much to the decision-making process. (C) Limit the budget reconciliation process to the politically difficult task of deficit reduction versus cutting taxes (as was done by the GOP in 2016) or approving spending programs (as was effectively done by Democrats, although she didn’t say so, when adopting GovCare in 2010).

#Dr. Douglas Holtz-Eakin is president of the American Action Forum. He began his career as an economics professor at Columbia Univ. and then Syracuse Univ., was President Bush’s chief economist from 2001-02, headed the Congressional Budget Office for several years, and then served on John McCain’s presidential campaign team. bio

As Dr. Holtz-Eakin sees it, the current budget system is a mess (chronic deficits, soaring debt). The federal government does not have a fiscal “policy.” Instead, it has fiscal “outcomes.” Written statement,
4/17/18.

The JSC could propose fundamental reforms, which would adjust the responsibilities of the various institutions involved in the process, or alternatively focus on more modest procedural reforms. The latter approach might be more likely to produce positive results, if only by avoiding the economic disruption associated with periodic budget showdowns. Either way, process improvements can’t solve the fiscal problem; hard decisions will also be required.

Fundamental reform options: (1) Eliminate the distinction between mandatory and discretionary spending, so that the continuation of “mandatory” programs like Social Security, Medicare, etc. would not be automatically assumed (effectively exempting some 2/3 of the total budget from annual review). (2) Require the president’s signature on the budget resolution, which would give it the status of legislation versus a nonbinding proclamation. (3) Change the role or makeup of the House and Senate budget committees

Modest reform options: (1) Adjust the ground rules for base line projections, which currently assume that all significant spending programs will continue indefinitely (with an add-on for assumed inflation) while counting any extension of an expiring tax cut as a tax increase. (2) Seek to improve compliance with budget process deadlines, e.g., cancel the August recess if Congress is running behind schedule or conceivably tie congressional pay raises to completion of the process. (3) Upgrade the role of the budget committees in tracking revenues and outlays after the budget process is completed.

2. Members

#Rep. Steve Womack (R-Arkansas) (co-chair) (budget): In his opening statement, Rep. Womack observed that the congressional budget system has been malfunctioning for a long time and needs to be overhauled. He described the role of the members of Congress as “keeping the government’s lights on.” While respecting the role of other branches, e.g., the president, the JSC should focus on making the congressional budget process better. And why wait until the Nov. 30 deadline to get the report done, let’s do it sooner.

Womack later observed that Congress isn’t really doing a budget because the budget resolution is purely advisory. However, would a joint budget (signed by the president) undercut the congressional role or would it be ignored too?

What about an automatic continuing resolution (CR) if the appropriation bill deadline wasn’t met (as it hasn’t been in a number of years)? The witnesses both opposed this idea, which would undercut the role of appropriations committees.

Afterwards, Womack summed up the results in the following terms. JSC press release,
4/17/18.

Having a functioning framework by which to decide budgetary outcomes is not a partisan issue. The most important Constitutional duty entrusted to Congress is the power of the purse, and affirming that distinct role of the legislative branch is central to our work in this select committee. Regardless of what party holds the majority, Congress should have a process that works for the American people. I am encouraged by our discussions so far and grateful for the insights we gleaned today from outside experts. I am hopeful that our panel can identify and recommend significant reforms to make the budget and appropriations process functional.

#Rep. Nina Lowey (D-New York) (co-chair): Budget process isn’t the basic problem - missed deadlines and in some cases shutdowns have resulted from deep political divisions - but process improvement might help. It would be nice to have “much earlier agreement” on “top line totals,” and some way to make budget resolutions “more meaningful and useful.” Also needed: a better way of handling the debt ceiling.

Lowey later noted that both witnesses had suggested process reforms should be policy neutral and asked them to elaborate on this theme. The responses were along the lines that (1) the JSC wasn’t tasked with assessing policy results, and (2) there wouldn’t be any buy-in for process changes that were tailored to produce a specific outcome, e.g., fixed targets for deficit reduction such as the JSC on deficit reduction had deadlocked on in 2011.

Having reserved some time, Lowey spoke again at the end of the session. She noted among other things that she had enjoyed frequent contacts with the OMB director during the Obama administration, but rarely heard anything from the current director, Mick Mulvaney.

Here are Lowey’s post-session comments. JSC press release,
4/17/18.

This morning the Joint Select Committee had a good initial hearing, with helpful insights from two expert witnesses and a thoughtful discussion about ways to help make the budget process function better. The discussion also underscored my concern that while some worthwhile improvements can be made to the process, we also need to find ways to overcome the deep policy disagreements and a lack of political will that are the root cause of many of our difficulties in acting on budgets and appropriations.

#Sen. David Perdue (R-Georgia) (budget): In support of his view that the budget proposal is “totally broken,” Sen. Perdue noted that the budget resolution for fiscal year 2019 was already late and he doubted that “we’ll see one” this year. The pattern of recent years has been no budget resolutions at all, or budget resolutions to satisfy the requirements for use of the reconciliation process.

Article II of the Constitution gives the executive branch no role in appropriating money to fund government operations, so there is no reason for the president to sign the budget resolution. But what about switching to zero-based budgeting (aka clean sheet of paper) versus the budget baseline approach that is currently being used?

Later comments: What we need is a budget process that functions without all the drama. Also, the divergent approval levels in the Senate between the budget resolution (51%) and appropriation bills (60%) fuels irreconcilable differences.

#Sen. Sheldon Whitehouse (D-Rhode Island) (budget): “I hope we can do our duty,” Sen. Whitehouse began. He favors two-year budgets, maybe even two-year appropriation bills with a staggered cycle (e.g., group A in even years, group B in odd years), and ending the use of budget for the reconciliation process (which should be available, but only with bipartisan agreement). The budget should encompass “tax expenditures” as well as spending.

The current fiscal path is unsustainable, but that’s not going to be fixed overnight. What we need is to get the government on a “glide slope” to a “sustainable debt to GDP ratio” (never mind balancing the budget). There is no excuse for the current debt ceiling, it’s like setting a bear trap in the bedroom before you turn in for the night.

Whitehouse later reprised the glide slope meme and suggested that “many years” would be required to achieve a sustainable debt/GDP position.

#Rep. Jodey Arrington (R-Texas) (budget): The budget process is broken, and we have a bipartisan/bicameral interest in fixing it. This will be a herculean task, but we can do it. Each of us has our list of national priorities, but if there is a sovereign debt crisis every item on every list will suffer. We must be prepared to make sacrifices, and to put the interests of others on a par with our own. Will we have the collective will to do this, and what incentives can be provided for doing the right things?

Arrington later attributed the culture of fiscal irresponsibility to a lack of oversight, such as requiring a binding budget resolution or spending levels before the appropriation committees began their work. He wanted to direct a question to Sen. Whitehouse, but the latter had left the room.

#Rep. John Yarmuth (D-Kentucky) (budget): The JSC was committed, Rep. Yarmuth began, and in a bipartisan way. Never mind the familiar analogy of family members sitting around the kitchen table deciding how to spend their income, “this is not our budget – it belongs to the American people.” All concerned should remember that there is no way to detach revenue from the budget process, and he for one was encouraged by the tone of the discussion.

Yarmuth later expressed his support for using “sticks” (as opposed to “carrots”) to motivate compliance with the budget process, e.g., “no budget/no pay” or “no budget/no recess.” He wasn’t a fan of requiring the president’s signature on the budget resolution, but perhaps it would make sense to replace the House and Senate budget committees with a bicameral budget committee.

#Sen. Jodi Ernst (R-Iowa): The budget process was dysfunctional, said Sen. Ernst, and unsurprisingly had produced poor results. The disruption of military spending by budget disputes was particularly pernicious. She was delighted to be part of this effort to improve the system.

Ernst later expressed cautious approval for the ideas of cancelling weekends and/or recesses if Congress was falling behind on budget work. But the JSC should make sure that the “sticks” to be used would impact members of Congress versus the general public.

#Sen. Michael Bennet (D-Colorado): Unfortunately, said Sen. Bennet, Congress had “excelled at taking the path of least resistance.” No process reforms were likely to stop the bickering and fix the lack of political will. That being said, he was in favor of two-year budget. Also, the debt limit had been weaponized; this control should either be abolished or modified to calm the troubled waters.

#Rep. Rob Woodall (R-Georgia) (budget): How bad it had been, recalled Rep. Woodall, when the JSC on deficit reduction in 2011 failed to agree on any ideas to move the ball forward. This committee can and will do better. However, he wanted to say a word in favor of the current procedures for raising the debt ceiling that might not have occurred to senatorial members of this committee.

In the Senate, minority members can exercise some influence on what gets done thanks to the filibuster rule – which effectively imposes a supermajority (3/5) requirement for legislative matters. In the House, minority members are outnumbered so their votes rarely count. One of the few times that anyone listened to them was when the distasteful need to raise the debt ceiling rolled around and they could seek concessions in return for their support.

Woodall later raised the subject of how the Congressional Budget Office (CBO) scores the fiscal effect of legislation, suggesting that the results had often been manipulated by adjusting the details of a bill or “asking the right questions.” Thus, consider how GovCare was scored as a deficit-reducing measure although that was neither the intent nor effect of this legislation.

#Rep. Derek Kilmer (D-Washington): Congress departs from the budget process in order to avoid making tough choices. There is no stigma or effective penalty for not following the rules. I don’t think we can put the government on a path to balancing the budget, but there are improvements that could be made. Someone needs to call the balls and strikes, so the CBO should be insulated from political interference. And let’s look for incentives (carrots vs. sticks) for getting the budget work done on time.

Kilmer later asked the witnesses whether it would be a good idea to get the president’s budget staff (Office of Management and Budget) out of the budget process. Holtz-Eakin opposed the idea on grounds that “competition is a good thing.” Coven said that OMB has more information about many subjects than the CBO by virtue of its position in the executive branch.

#Sen. James Lankford (R-Oklahoma): Personally, said Sen. Lankford, he was in the “early, optimistic stage” about this study. He suspected that when the JSC moved from problems to solutions, however, the situation would not look as bright. And there would be members saying “things are going in fine,” which was not a realistic view of the situation. As an example, consider the practice of claiming phony savings from CHIMPs (Changes in Mandatory Programs) and using them to offset above-cap budgeting of defense programs and other discretionary spending.

Lankford later suggested that automatic CRs might be in order if budget deadlines were missed. Making CRs truly automatic was a bad idea, responded Holtz-Eakin. It would be better to empower a designated individual(s) to make the necessary arrangements.

Lankford also reiterated his concern about budget gimmicks, including not only CHIMPs but also pension smoothing (permit companies to reduce otherwise required current pension contributions, thereby accelerating tax payments in the short term) and using the Overseas Contingency Operations (0CO) fund to circumvent limits on regular defense funding.

#Sen. Brian Schatz (D-Hawaii): We can’t fix this problem in a matter of months (a reference to the JSC’s Nov. 30 deadline), said Sen. Schatz, ongoing efforts would be required. The debt ceiling is a trap for ourselves. The division of the fiscal process between budgets and appropriations is “uniquely bad.” What is needed in the Senate is not new rules, but new patterns of behavior.

#Sen. Roy Blunt (R-Missouri): “We’re all saying the same thing,” said Sen. Blunt, “this really has to stop.” And at the end of the road, when the CRs produced the need for an omnibus spending bill, a very small group was deciding exactly what would go into the massive package published shortly before the “must pass” deadline

#Rep. Pete Sessions (D-Texas): Improving the budget process, said Rep. Sessions, was basically a matter of common sense. Set goals and mean them – raising the debt ceiling should be a “huge stop sign” – recognize cost of chaos (especially for the defense budget) – get the defense appropriations done first – do what’s necessary to balance the current budget - then start working to cover unfunded liabilities.

#Rep. Lucille Roybal-Allard (D-California): No opening statement as she had arrived too later, but Rep. Roybal-Allard did pose some questions for the witnesses. How can the OMB be prevented from eliminating popular programs to make the president’s budget proposal look good, knowing full well that the funding will be added back by Congress? Same question for duplicative programs. She also complained about the increasing use of riders designed to force policy changes that had nothing to do with the budget.

#Sen. Mazie Hiron (D-Hawaii): Not present.

**********FEEDBACK**********

#As I understand the current budget/appropriations process [how it actually works, never mind how it is supposed to work], the leaders gather bill writers and pork requests and such and change things from the top with most of the members being kept in the dark until the omnibus spending bill is published just before the deadline. Money is power and pork is power in constituencies. Who would let go of that power? – SAFE director

# Not one legislator of either party suggested the (to me) obvious means of balancing the budget, one that every householder who does not have a central bank or a taxing power, knows and carries out automatically: DISCUSS AND PASS A SPENDING BILL BEFORE YOU DISCUSS AND PONTIFICATE ABOUT TAXES. Recall what Milton Friedman said, and every ordinary economist knows: EVERY DOLLAR THE GOVERNMENT SPENDS ON ANYTHING IS, PERFORCE, TAXED BY SOME MEANS OR OTHER. The government has almost NO productive resources; it serves as a major obstacle to ordinary productivity in the private sector. – SAFE member (Georgia)

These comments confirm our skepticism that the government’s fiscal track record can be materially improved by tinkering with the budget/appropriations process. Interestingly, a somewhat similar effort is currently underway in Delaware. State panel pitches budget limits, Scott Goss, News Journal, 5/16/18.


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