Budget Process and Rules
Yesterday evening, Treasury Secretary Jack Lew indicated that the extraordinary measures Treasury is using to avoid breaching the debt limit will run out on about November 5, sooner than previously thought.
In the spring, we published a paper through our Better Budget Process Initiative making recommendations to improve the debt limit, and in July the Government Accountability Office released proposals for reform.
Last week, the Government Accountability Office (GAO) released a new report to Congress on the debt limit, showing that the failure to raise the debt limit in a timely fashion in 2013 had costs for the federal government. The report also contains proposals for reforming the debt limit. The Better Budget Process Initiative (BBPI) released a paper this spring with proposals for debt limit reform that mirror and answer some of GAO's options and concerns.
The debt limit technically returned in March of this year, though “extraordinary measures” that the Treasury can take will delay the ultimate deadline until late fall. As possibly the most disruptive fiscal speed bump facing the country, it’s important to look into ways that the debt limit can be used to bring attention to our unsustainable debt path while limiting unproductive brinksmanship. The GAO report found that the delay in passing an increase in the debt ceiling during the 2013 government shutdown very much concerned investors. These concerns translated into some financial firms being unwilling to hold Treasuries with expirations immediately after the end of the Treasury department’s ability to continue “extraordinary measures” (we noted an increase in the one-month Treasury yield at the time). GAO found that this increased borrowing costs for the government by between $38 million and just over $70 million. GAO’s communications with investors indicate those investors are prepared to take similar measures if policymakers drag their feet again this fall.
In addition to the analysis on the increased costs, GAO provided recommendations of policy changes to reduce the damage from a future debt limit debate. The proposals include: linking action on the debt limit to the budget resolution, providing the administration with the authority to increase the debt limit subject to congressional disapproval, and delegating broad authority to the administration to borrow as necessary. In March, our BBPI paper “Improving The Debt Limit” put forward several detailed proposals that were consistent with broad recommendations in the GAO report or were variations on the GAO recommendations.
In recent years, lawmakers have frequently used budget gimmicks to get around rules designed to maintain budgetary discipline -- if they pay attention to them at all. Whether through sleights-of-hand to comply with rules on paper only or simply ignoring rules all together, lawmakers have undermined the integrity of budget enforcement regimes. Today the Better Budget Process Initiative released a paper entitled "Strengthening Statutory Budget Enforcement" that recommends several ways to close loopholes in budget rules and make it harder for lawmakers to ignore them.
The report has 8 specific recommendations:
Strengthening enforcement of existing rules
1. Establish a separate point of order against provisions to exclude costs from PAYGO
2. Prohibit legislation blocking any sequester enforcing statutory PAYGO or discretionary caps
Restrict the use of phony offsets
3. Prohibit the use of spending cuts with no real savings
4. Restrict the use of timing gimmicks to claim savings within the budget window
5. Prevent the use of artificially inflated baselines to claim savings
6. Prohibit double-counting of increased revenues and spending cuts involving trust funds
Ensure all costs are subject to budget discipline
7. Limit the use of Overseas Contingency Operations as a slush fund
8. Expand the deficit-neutrality requirement in PAYGO to apply to debt service
Over the past few years, we have seen many attempts by lawmakers to wriggle out of budgetary discipline by resorting to budget gimmicks. A new CRFB chartbook and one-pager highlight many of these gimmicks, including when they have been used and just how they work.
The one-pager, in particular, focuses on four of the most-frequently used gimmicks in recent years.
This week, Representatives John Carney (D-DE) and Jim Renacci (R-OH) introduced a bipartisan bill to improve the budget process. The Budget Integrity Act of 2015 contains many changes similar to the recommendations we have made in our Better Budget Process Initiative papers Improving Focus on the Long Term and Improving the Debt Limit.
The bill would make five main reforms:
1. Require Long-Term Cost Estimates for Legislation with a Significant Fiscal Impact – As we proposed in our paper, Improving Focus on the Long Term, the Budget Integrity Act would require more long-term scoring of select legislation. Specifically, it would require the Congressional Budget Office (CBO) estimates to include an analysis of the 30-year impact of legislation with a projected gross budgetary impact of at least 0.25 percent of Gross Domestic Product ($45 to $69 billion) in any year this decade. This is similar to the provision included in the conferenced budget resolution that we've written about.
2. Codify Rules Objecting to Legislation That Would Increase Long Term Deficits – As we mentioned in our paper, Improving Focus on the Long Term, Senate rules currently include a point of order against legislation that increases the deficit by more than $5 billion in any of the four decades beyond the 10-year budget window; 60 votes are required to wave this point of order. The Budget Integrity Act codifies this rule into law so it cannot be repealed or changed by a new Senate rule, and also applies this point of order to legislation in the House.
3. Require CBO and Office of Management and Budget (OMB) Reports on Revenue, Deficits, and Debt over 40 Years – The Budget Integrity Act proposes specifying that CBO and OMB should report 40-year budget outlooks with their normal 10-year projections. It also requires these reports to include long-term projections for both current law and current policy.
In our recently released plan, The Road to Sustainable Highway Spending, we propose a variety of measures to support the Highway Trust Fund (HTF), including providing fully offset funding for previous commitments, raising the gas tax, making sure we spend within our means in the future, and creating a "fast track" plan for tax reform to provide alternative financing. Additionally, we propose a few new reforms that will fix the inconsistency within the budget process that effectively exempts highway spending from budget discipline.
As we've explained before, the budget has a hybrid system for the HTF that treats contract authority (akin to budget authority in this case) as mandatory spending while treating outlays as discretionary spending. This nuance allows increased HTF spending to bypass both the Budget Control Act (BCA) caps on discretionary budget authority and pay-as-you-go (PAYGO) rules on mandatory outlays, permitting Congress to approve additional infrastructure investment without providing the means to pay for it. In addition, under existing budget rules, the Congressional Budget Office is required to assume that highway spending continues at inflation-adjusted levels in the baseline, even after the trust fund is depleted. As a result, Congress can enact legislation increasing spending for highways without increasing revenues and can make general revenue transfers to cover the inevitable shortfalls in the trust fund without paying for the added costs.
During the consideration of the FY 2016 budget, we continually wrote about the budget process provisions in the major budget resolutions as well as previewing the budget process issues heading into conference. As we noted in our initial analysis of the Good, the Bad and the Ugly in the conference report, the final budget resolution includes some useful budget process and enforcement improvement. Unfortunately, some of the better provisions were dropped or watered down from earlier versions, and some provisions that move budget process in the wrong direction made it into the final conference report.
The budget begins to limit phony savings from Changes in Mandatory Programs (CHIMPs) used to pay for real increases in discretionary spending, although these limits were watered down relative to those in the Senate budget resolution. The conference report freezes the amount of CHIMPs that don't produce real savings at the FY 2015 level of $19 billion for 2016 and 2017, and then it gradually reduces the limit to $15 billion by 2019. The conference report also limits capping spending from the Crime Victim's Fund as an offset. However, a related provision prohibiting the use of mandatory spending rescissions with no outlay savings as an offset was dropped. An appropriations bill that exceeds the new limits on CHIMPs would be subject to a point of order in the House and Senate, with 60 votes required to waive the point of order in the Senate. For more information on CHIMPs, see our recent blog, complete with the requisite use of puns.
With the budget conference complete, it is now up to each chamber of Congress to pass the FY 2016 concurrent budget resolution. We've already written about the House and Senate budgets in detail, and the final budget resolution aims to find compromise between the two.
As CRFB President Maya MacGuineas said in a press release today:
Congress should be commended for actually having a budget this year and for proposing to put the debt on a sharp downward path relative to the economy. Unfortunately, the budget fails to give lawmakers the tools to accomplish this important goal, and in some areas actually facilitates higher deficits.
Below we take a more detailed look at the good, the bad, and the ugly of the final product.
With the House and Senate preparing to go to conference to work out the differences between their budget resolutions, we published a paper Tuesday outlining the various budget process measures contained in the respective resolutions as well as our recommendations about which should be kept. Both budget resolutions contain several items that could help or hurt the process, and we suggest that the conference committee hammer out these differences in line with the recommendations we've made in the Better Budget Process Initiative. We also published a blog and press release containing some recommendations not related to budget process.
Both budgets tackle process reform by enacting provisions to address the lack of accountability, transparency, and long-term focus in current budgeting.
The House and Senate will soon appoint a formal conference committee to iron out differences between their two budgets, even though press reports indicate the Chairmen of the House and Senate Budget Committees have already started negotiating. In addition to agreeing to the total spending levels (by function) within the budget, a number of important issues must be agreed upon. Specifically, the conferees will have to decide how broadly to write reconciliation instructions, whether to limit use of the OCO designation to spend in excess of statutory caps, how to address potential sequester relief, and whether to include other budget enforcement provisions cracking down on budget gimmicks. This blog summarizes these issues and our views on them.
Provide reconciliation instructions broadly
The House budget included instructions for all committees with mandatory spending to produce legislation achieving at least nominal savings in mandatory programs within their jurisdiction. The Senate only had reconciliation instructions for the Finance and Health, Education, Labor, and Pensions (HELP) committees.
Given the very real need to slow the growth of entitlement spending, the budget conference should adopt the House’s approach, providing instructions for every committee with jurisdiction over mandatory programs. Doing so will offer opportunities to enact the mandatory savings assumed in the budget resolution, or at least a smaller set of savings with the potential for broader support.
The House budget also included provision allowing the Chairman of the Budget Committee to publish guidelines to supplement the nominal savings instructions currently included, which could be used to provide guidance for reconciliation legislation with a significant amount of mandatory savings. Our hope is that the budget committee and the relevant committees will work together to produce a reconciliation bill with, at minimum, enough savings to offset the spending increases Congress is likely to approve, including costs associated with the Medicare Access and CHIP Reauthorization Act of 2015 and sequester relief. For further reading on reconciliation in the two budgets, see our blog "Reconcila-What?"