Budget Process and Rules
Biennial budgeting was the subject of a recent Senate Budget Committee hearing, the second in a series on budget process. Testifying were Senator Johnny Isakson (R-GA), Senator Tom Carper (D-DE), and Representative David Price (D-NC), as well as Mr. William G. Batchelder, the former speaker of the Ohio House of Representatives, and Mr. Robert L. Bixby, the Executive Director of the Concord Coalition.
CRFB generally supports the concept of biennial budgeting, although it is not a substitute for the difficult policy choices that must be made to address the long-term debt. CRFB President Maya MacGuineas has testified on multiple occasions before Congress on the matter. This past spring, she published a letter praising legislation introduced by Rep. Reid Ribble (R-WI) and Rep. Kurt Schrader (D-OR). Rep. Ribble will testify when the House Budget Committee holds a hearing on biennial budgeting on Wednesday.
Recent press reports indicate that the ongoing budget negotiations between Congressional leaders and the White House may lean on the use of the Overseas Contingency Operations (OCO), or war funding, account to boost defense spending. Doing so would allow them to spend above the defense budget caps without offsetting the cost.
As policymakers work toward a plan to offset the cost of sequester relief, they should resist the temptation to make their job easier by relying on the OCO gimmick. We recognize that there is significant pressure to increase defense spending above the caps. Indeed, over 100 House Republicans signed a letter insisting on at least $38 billion above the Fiscal Year (FY) 2016 cap for defense, or $561 billion total.
As Congressional Quarterly reported (paywall) recently, the author of the letter, Rep. Michael Turner (R-OH) said:
“We would be willing to do OCO . . . As long as we get the aggregate amounts of spending, I think we’re comfortable that we will have funded our national security,” Turner said.
The Senate Budget Committee held a hearing this week, the first in a series, on the need to reform the federal budget process. Testifying were Michael Peterson, President and CEO of the Peter G. Peterson Foundation, Douglas Holtz-Eakin, President of the American Action Forum and former Congressional Budget Office (CBO) Director (2003-2005), and Deborah Weinstein, Executive Director for the Coalition on Human Needs.
Chairman Michael Enzi (R-WY), began the hearing pointing out the many problems with our country’s current budget process and how it has failed taxpayers. He highlighted how a well-managed budget process is supposed to strengthen democracy by giving citizens a better idea of government’s role and ensuring that their tax dollars are being spent wisely.
Enzi noted that prior to this year’s balanced budget resolution, the last time one was passed was in 2001. He further explained that once the budget resolution establishes the top spending levels, Congress must pass 12 annual spending bills before the start of each Fiscal Year, but in the past 40 years, the appropriations bills have been done on time in only four years. Enzi noted:
In most years, Congress didn’t even come close to enacting all annual spending bills, in 15 of them, not even one appropriations bill was enacted on time. Instead, there were 173 short-term spending bills (CRs) to prevent government shutdowns, funding the government for an average of 186 days per year, more than half of the year.
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.
The Senate Appropriations Committee earlier this week posted a draft bill that would extend government funding until December 11 and avert a government shutdown. Unfortunately, it also uses the war spending account as a budget gimmick to provide a backdoor increase in defense spending above budget caps. There are no offsets for the additional spending.
The draft did contain language removing funding from Planned Parenthood, which drew a veto threat from the President, but that version did not receive the 60 votes necessary to proceed in the Senate. Press reports indicate that the same continuing resolution (CR) without the section defunding Planned Parenthood will be voted on Monday.
Regardless of the politics on Planned Parenthood, the bill sets regular discretionary levels at the previously-approved levels of $1.017 trillion. It does so by taking the spending levels for Fiscal Year (FY) 2015, which totaled $1.022 trillion after certain one-time savings in the FY 2015 appropriations bills are excluded, and applied a reduction of 0.5 percent (of which about 0.2 percent was an across-the-board reduction and the remaining is from net reductions fromcuts reffered to as "anomalies"). Colloquially, "the sequester" is back in full effect; the sequester refers to the reduced discretionary spending caps mandated after the 2011 "Super Committee" failed to produce savings.
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.