Transcript Can the Federal Budget Process Be Fixed? Mercatus Capitol Hill, 1/22/09 Roy T.

Can the Federal Budget
Process Be Fixed?
Mercatus Capitol Hill, 1/22/09
Roy T. Meyers
Professor of Political
Science, UMBC
[email protected]
Sections of my talk
The current budget situation
 Problems with the current budget process
 Why these problems exist, and what it
might take to change the process
 Pros and cons of alternative reforms
 Qs and As

These slides available at:
http://userpages.umbc.edu/~meyers/merc
atusmeyers.ppt
 Supporting paper (“The Ball of Confusion
in Federal Budgeting”) can be found at:
http://userpages.umbc.edu/%7Emeyers/abf
mfridayplenary.pdf
This paper will be published in March 2009
Public Administration Review

I. The current budget situation
FY09
 10 year budget projections
 The recession
 The stimulus

FY09 budget projection
Current estimate of deficit = $1.2 trillion
 8.3% of GDP, highest since 1945. . .
 Projection does not include effects of
stimulus bill
 Includes risk-adjusted accrual estimates
for TARP (>$180B) and Fannie/Freddie
($238B)
 Borrowing requirement (addition to debt
held by public) about $200B > deficit

Realistic 10 year projections
show continued problems
Budget law requires perhaps unrealistic
assumptions for baseline projections
 Adjusting baseline to “current policy”
means:

no scheduled tax increases
 continued war spending
 discretionary growth that matches GDP
growth rather than inflation


Result: deficits that average > 5% of GDP
The deep recession justifies a
huge stimulus
Financing even more borrowing is
feasible because of the “flight to safety”
 But investors will not forever accept
“return-free risks”
 Fact: we shopped, now we’ve dropped
 Potential consequence: exploding debt
dynamics threaten even the U.S.
 We must be disciplined—starting now

So even the stimulus bill
deserves scrutiny
Will tax cuts be spent, or saved?
 Will funds spend out as rapidly as
promised?
 Will jobs be created, or bottlenecks
occur?
 Were projects previously unfunded
because they offered lower benefits?
 Will new spending be temporary, or be
built into base?

II. Commonly-asserted budget
process problems
Hasn’t produced sustainable outcomes
 Is too complicated and often misleading
 Takes too long; at times, unfinished
 Encourages excessive partisanship

“Haircut” deficit projection by
GAO/Fiscal Wake Up Tour
Too complicated and often
misleading


“The content of an actual budget resolution is
notoriously useless for almost any user”--SBC
Republican staff, 3/13/08
Scoring practices are hard to understand and
subject to gimmickry--e.g., non-urgent
emergencies; PAYGO benefit shelves and
unlikely offsets
Too long; at times, unfinished


Budget resolutions were not passed for fiscal
years 2003, 2005, 2007--all election years
Late appropriations bills are the rule rather than
the exception


even though this ensures inefficient budget
execution by agencies and grantees
Why were appropriations not finished for FY09?
Excessive partisanship



Blaming the other side has taken priority over
solving policy problems
“Democrats are calling for the largest tax
increases in history”–though Republicans were
unwilling to score the full cost of tax cuts
“Republicans have spent nearly $1 trillion on
the war”--though many Democrats voted to
authorize that war and its appropriations
III. Questions about institutional
explanations and possibilities
Do strong parties help or hurt?
 Are deficits too tempting under unified
government?
 Are American political institutions more
generally inimical to fiscal responsibility?
 Where are the missing institutionalists?
 Will President Obama deliver on the
signature phrase of his inaugural: a “new
era of responsibility”?

Don’t strong parties promote
accountability?





Because the voters know who to blame
Remember Tom DeLay? Leadership became
more influential; chairs chosen not by seniority
Unified party control 2001-6: large tax cuts and
large spending increases replaced Republicans’
balanced budget rhetoric
Does such “irresponsible party government”
makes divided government look good in
retrospect?
But didn’t divided government produce the
1995-6 shutdown and gridlock?
Are the temptations facing
unified government too great?
Are our political institutions
more generally to blame ?
Large legislatures are too decentralized to
budget responsibly
 Frequent elections motivate legislators to
concentrate on parochial concerns
 Interest groups fund campaigns, and then
demand subsidies
 Many voters are uninformed and myopic
 Presidents can fail to lead (“43”)

So perhaps the problem is not
the budget process itself?




“The process is not the problem; the problem is
the problem”--Rudy Penner, CBO Director,
1983-87
A useful corrective to those who unrealistically
thought a constitutional amendment to balance
the budget would automatically reduce the
deficit
Yet in Washington, many people think very
carefully about how processes generate
specific results
A flawed budget process protects the budgetary
status quo
Those who can solve that
problem: “institutionalists”
Willing to forgo actions that would bring
temporary personal and partisan
advantages but that over the long run
would hurt the institution
 Work tirelessly to promote norms, and to
design organizational structure and
procedures, so that the institution’s
members will cooperate and thus make
better decisions

Will anyone in today’s Congress
emulate Bolling and Dirksen?


Some committees of jurisdiction have been
relatively inactive: e.g., H Rules--only 5
(nonproductive) hearings in last 8 years; none
since 2005
Other committees have been quite partisan



2006 SBC SOS Act reported 12-10, but not
considered on floor
2008 HBC budget resolution: 10 Republican budget
process amendments, defeated by party-line votes
Not enough centrists anymore?

‘45 to ‘74 included abnormal number of
conservative Democrats and liberal Republicans
Will Obama change the tone?



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“Post-partisan” rhetoric of “hope” and “change”
rhetoric was more uniting than dividing. . .
But campaign promises would increase deficit
significantly
Has appointed centrist deficit hawks, promised
to hold “fiscal responsibility summit,” reform
entitlements, and eliminate spending that
doesn’t work
Can he manage the transition from “hope” to
“nope”?
Is the time ripe for reform?
On the tax side, expiring legislation in
2011 could force action
 Previous budget process reforms were
stimulated by:

Aggressive Presidents (signing
statements=impoundments?)
 Low approval ratings of Congress (led to
1974 Act)
 Weak economy (1987 crash led to 1990
BEA)

IV. Alternative approaches to
budget process reform
Increase transparency
 Change the schedule
 Prevent actions
 Force actions
 Connect to macroeconomic goals
 Count differently
 Emphasize priority-setting
 Scrutinize spending and tax preferences

Earmark reform





Many deficit hawks hate the recent emphasis
on earmarks: “chump change”
Most pork busting amendments have failed
Pork-busting hypocrisy is rife: e.g., 11
Republicans who voted to kill the “Woodstock”
earmark had 13 earmarks in the same account
Transparency may increase the “personal vote”
through certification of credit-claiming
Revealed disparities in earmark allocations may
increase demand
But pork-busting has worked a
bit

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
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Number and amount of earmarks have declined
Recent rules change limit ability to airdrop
earmarks in authorization conference reports
Recent pledges by Inouye-Obey: reduce
earmarks to 50% of previous total, require web
posting of requests
Reformed procedures better than alternatives?

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Line-item veto requires a constitutional amendment
Expedited rescissions would lengthen the process-just what we need!
My modest proposal

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
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Cap total earmarks each year in the budget
resolution
Distribute earmarks equally by district and
state--aka “District Dollars” or “State Dollars”
Allocation of individual earmarks would be by
legislator (as now), or ceded to district/state
officials (like General Revenue Sharing)
BUT earmarked funds would be available only
when all 12 appropriations bills are presented to
President by 9/30

creates a collective good incentive to pass
appropriations bills on time
Increase transparency for more
than earmarks


Presidential campaigns, and later budgets, now
include too much propaganda
A popular budget report (like those released
periodically in our past) could explain the basics
of budget projections and alternatives to voters


could be certified by a team from CBO, GAO, and
private sector
The next step: replicate Australia’s “Charter of
Budget Honesty”

requires the Treasury/Finance to cost out
candidates’ election promises prior to a general
election
Change the schedule

But not through biennial budgeting


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Could free up time for concentrated review of
programs through authorizations and oversight?
But it is unlikely that Congress would not budget in
the would-be “off year”
Instead, try a joint budget resolution (JBR)—
budget resolution signed by the President


fear that a JBR would shift power to the President
ignores reality--the President already has veto power
if it was expected that the President and Congress
would agree on aggregates early, then they might
Prevent actions: the Budget
Enforcement Act, version 2.1

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Discretionary spending caps
Limits on discretionary emergencies
Reconciliation must save minimum amount
Tougher PAYGO

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but recent rules changes: exemptions for war,
terrorism, natural disaster, sustained low economic
growth; multi-bill offsets
All of these will work, unless they won’t--that is,
it’s up to Congress to refuse to waive such rules
Such rules (e.g., Senate supermajority/points of
order) are already numerous and confusing
Force actions

Soft trigger for general revenue funding of
Medicare requires Presidential proposal of
solution and expedited consideration


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45% trigger level is arbitrary
House rules change this year: no expedited
procedures
Hard triggers (fixed deficit targets; automatic
“across-the-board” cuts”) would resemble
Gramm-Rudman-Hollings
Bipartisan Task Force for
Responsible Fiscal Action
Suggested by Senators Conrad and
Gregg
 Proposals considered on fast-track, but
3/5 support required in each house
 Wouldn’t absolve legislators from blame if
entitlement spending is cut or taxes
increased
 Many legislators would refuse to cede
their authority—before or after

Connect to macroeconomic
goals

A possibly more realistic commission
approach: Pew-Peterson, self-appointed


Broad enough composition, open minded
about alternatives, taken seriously?
Could consider discretion vs. fiscal rules:
Ceiling for public debt
 Budget balanced over business cycle
 Surplus to finance entitlements
 Deficits to finance public investments

Count differently--baseline and
scoring
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
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There are no easy answers here; how to treat
expiring provisions is not the only question
The 1967 Budget Concepts Commission
created the unified budget and overemphasized
the cash deficit—witness TARP, etc. scoring
A new Commission could examine accruals,
capital, and many other complicated issues not
well addressed in existing scorekeeping rules:
http://userpages.umbc.edu/~meyers/cboconference.pdf

We especially need to think comprehensively
about public AND private health care spending
Emphasize priority-setting
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Budgeting now focuses on the aggregates (e.g.,
deficit) and the details (appropriations)
The “missing middle” of the budget process is
priority-setting

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budget resolution debates, functional allocations,
and “reserve funds” do not help set priorities
budget functions are misaligned with committee
jurisdictions--if the greatest budget challenge we
face is health, shouldn’t there be a health
committee?
GAO’s call for national indicators to inform
budget debates is sensible and doable
Priority-setting requires radical
changes

Realignment of committee jurisdictions:


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Periodic “sectoral reviews” that review goals
and results for major policy concerns

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to better match budget functions
combining authorizations and appropriations
already done well in leading Westminster countries
(UK, Canada, Australia, NZ)
While few talk about such proposals on the Hill,
other countries view our system as archaic
Through the World Bank and IMF, we now
require poor countries to set explicit priorities

should we do as we say others should do?
Scrutinize spending and tax
preferences

GPRA performance measures and PART
analyses provide much useful information for
determining what we can’t afford

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though PARTs are aptly named--they ignore tax
expenditures, but shouldn’t
Bush Administration didn’t sufficiently explain how
performance affected budget requests
Obama administration shouldn’t start from scratch
How can legislators learn that using such
information isn’t electorally dangerous?

That’s your challenge!
Qs and As
Fire away!
 I would be happy to meet with
Members/Senators and staff to discuss
these and other budget process reform
issues

410-455-2196
 [email protected]
