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Can the Federal Budget Process Be Fixed? Mercatus Capitol Hill, 1/22/09. Roy T. Meyers Professor of Political Science, UMBC Sections of my talk. The current budget situation Problems with the current budget process

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can the federal budget process be fixed mercatus capitol hill 1 22 09

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

Roy T. Meyers

Professor of Political Science, UMBC

sections of my talk
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
These slides available at:
  • Supporting paper (“The Ball of Confusion in Federal Budgeting”) can be found at:

This paper will be published in March 2009 Public Administration Review

i the current budget situation
I. The current budget situation
  • FY09
  • 10 year budget projections
  • The recession
  • The stimulus
fy09 budget projection
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
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
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
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
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
too complicated and often misleading
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
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
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
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
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 our political institutions more generally to blame
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
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
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
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
Will Obama change the tone?
  • “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
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
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
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
  • Transparencymay increase the “personal vote” through certification of credit-claiming
  • Revealed disparities in earmark allocations may increase demand
but pork busting has worked a bit
But pork-busting has worked a bit
  • 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?
    • Line-item veto requires a constitutional amendment
    • Expedited rescissions would lengthen the process--just what we need!
my modest proposal
My modest proposal
  • 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
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
Change the schedule
  • But not through biennial budgeting
    • 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
Prevent actions: the Budget Enforcement Act, version 2.1
  • Discretionary spending caps
  • Limits on discretionary emergencies
  • Reconciliation must save minimum amount
  • Tougher PAYGO
    • 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
Force actions
  • Soft trigger for general revenue funding of Medicare requires Presidential proposal of solution and expedited consideration
    • 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
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
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
Count differently--baseline and scoring
  • 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:
  • We especially need to think comprehensively about public AND private health care spending
emphasize priority setting
Emphasize priority-setting
  • Budgeting now focuses on the aggregates (e.g., deficit) and the details (appropriations)
  • The “missing middle” of the budget process is priority-setting
    • 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
    • similar processes exist in leading states: VA, OR
priority setting requires radical changes
Priority-setting requires radical changes
  • Realignment of committee jurisdictions:
    • to better match budget functions
    • combining authorizations and appropriations
  • Periodic “sectoral reviews” that review goals and results for major policy concerns
    • 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
Scrutinize spending and tax preferences
  • GPRA performance measures and PART analyses provide much useful information for determining what we can’t afford
    • 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
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