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

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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
• meyers_at_umbc.edu

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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

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These slides available at

• http//userpages.umbc.edu/meyers/mercatusmeyers.p
  pt
• Supporting paper (The Ball of Confusion in
  Federal Budgeting) can be found at
• http//userpages.umbc.edu/7Emeyers/abfmfridayplen
  ary.pdf
• This paper will be published in March 2009 Public
  Administration Review

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I. The current budget situation

• FY09
• 10 year budget projections
• The recession
• The stimulus

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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
  (gt180B) and Fannie/Freddie (238B)
• Borrowing requirement (addition to debt held by
  public) about 200B gt deficit

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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 gt 5 of GDP

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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 weve dropped
• Potential consequence exploding debt dynamics
  threaten even the U.S.
• We must be disciplinedstarting now

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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?

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II. Commonly-asserted budget process problems

• Hasnt produced sustainable outcomes
• Is too complicated and often misleading
• Takes too long at times, unfinished
• Encourages excessive partisanship

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Haircut deficit projection by GAO/Fiscal Wake
Up Tour
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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

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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?

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Excessive partisanship

• Blaming the other side has taken priority over
  solving policy problems
• Democrats are calling for the largest tax
  increases in historythough 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

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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?

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Dont 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 didnt divided government produce the 1995-6
  shutdown and gridlock?

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Are the temptations facing unified government too
great?
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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)

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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

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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 institutions members will cooperate and thus
  make better decisions

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Will anyone in todays 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

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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 doesnt
  work
• Can he manage the transition from hope to
  nope?

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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 statementsimpoundm
  ents?)
• Low approval ratings of Congress (led to 1974
  Act)
• Weak economy (1987 crash led to 1990 BEA)

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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

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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

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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!

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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

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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 Australias Charter of
  Budget Honesty
• requires the Treasury/Finance to cost out
  candidates election promises prior to a general
  election

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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

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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 wont--that
  is, its up to Congress to refuse to waive such
  rules
• Such rules (e.g., Senate supermajority/points of
  order) are already numerous and confusing

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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

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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
• Wouldnt absolve legislators from blame if
  entitlement spending is cut or taxes increased
• Many legislators would refuse to cede their
  authoritybefore or after

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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

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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
  deficitwitness 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.pd
  f
• We especially need to think comprehensively about
  public AND private health care spending

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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, shouldnt there be a health
  committee?
• GAOs call for national indicators to inform
  budget debates is sensible and doable
• similar processes exist in leading states VA, OR

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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?

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Scrutinize spending and tax preferences

• GPRA performance measures and PART analyses
  provide much useful information for determining
  what we cant afford
• though PARTs are aptly named--they ignore tax
  expenditures, but shouldnt
• Bush Administration didnt sufficiently explain
  how performance affected budget requests
• Obama administration shouldnt start from scratch
• How can legislators learn that using such
  information isnt electorally dangerous?
• Thats your challenge!

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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
• meyers_at_umbc.edu