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Backgrounder #1358 on Federal Budget

April 12, 2000

How Congress Can Save Now, Plan for Tomorrow, and Still Achieve aFiscally Responsible Budget

By

Congress is at a crossroads in the battle to restrain the size of the federal government, pay down the national debt, and return Washington's tax windfall to the American people. Its choice is simple: It can abandon its commitment to fiscal discipline or take short- and long-term steps to rein in spending, realize savings now, and reform the budget process responsibly for the future.

The Clinton Administration seems to assume that a surplus--the amount American workers have overpaid in taxes to a ravenous federal bureaucracy--means that it has unlimited resources to spend as it pleases. President Bill Clinton demonstrated this attitude by submitting a fiscal year (FY) 2001 budget request that includes $622 billion in discretionary spending--$62 billion more than he agreed to spend when he forced the balanced budget agreement on a reluctant Congress in 1997, and 12 times greater than the first-year reduction in revenue that would have resulted from the tax relief legislation he vetoed last September. While the President's failure to honor his agreement with Congress may surprise few in Washington, the apparent readiness of the Republican-led Congress to acquiesce and provide at least $600 billion in discretionary spending--and to pass a $12.7 billion supplemental appropriations bill laden with pork--should be deeply troubling.

As Chart 1 shows, Congress relented on its 1997 commitment to the American people to demonstrate fiscal discipline in each of the three previous budget cycles, and it appears poised to repeat this mistake again. Its inability to restrain federal spending and stop the rapid growth in the size of the federal government will have serious consequences for Americans. The federal debt already exceeds $5 trillion. The Social Security trust fund contains nothing more than IOUs, which must be paid by raising taxes in the future. And while the federal government continues to allow federal employees and military personnel to accrue their promised retirement benefits, it funds the retirement trust fund with IOUs rather than real dollars. Even if the Social Security and retirement trust funds were filled with real dollars instead of IOUs, they would not contain enough money to pay all the promised benefits in full. No amount of creative bookkeeping can prevent the coming crisis.

Washington may boast about the surplus in the short term, but the availability of surplus revenue in the future is highly uncertain. Yet, rather than adopt fiscally responsible policies to avoid a budget train wreck down the road, Washington continues to create and fund feel-good programs such as AmeriCorps and the Community Builders, Land Legacy, and New Markets initiatives. A more prudent approach would be to use the surplus revenue on hand to create and establish private retirement accounts for Americans to reduce the government's long-term Social Security obligations.

One reason Congress has been unable to control spending is that it relies too heavily on the overly complicated budget process to make decisions. The off-budget accounts hide the true cost of government, the mandatory programs limit Congress's ability to cut spending, and the so-called pay-go provisions restrict its ability to provide tax relief.

There are both immediate and longer-term steps that Congress should consider to get spending under control. This year, Congress must act to ensure that the programs it funds are held accountable for real results and that those that are wasteful, duplicative, or obsolete are eliminated. To plan for the future, Congress must simplify the budget process and establish a long-term fiscal strategy for reforming the nation's major entitlement programs. Unless such steps are taken, Congress will find it increasingly hard either to rein in an administration's reckless penchant for spending or to limit the amount of tax dollars the federal government consumes to pay for it.

TAKING IMMEDIATE ACTION

In 1998, Congress abandoned the discretionary spending limits negotiated with President Clinton in the Balanced Budget Act of 1997 in order to avoid a government shutdown. But this short-term reaction had the effect of raising the spending baseline, which then made it more difficult for Congress to restrain spending in 1999. The budget resolution Congress passed in April 1999 restated its commitment to the 1997 spending limits but then was abandoned less than six months later to avoid yet another shutdown. This raised the spending baseline still higher, precluding any possibility that Congress could honor the 1997 agreement this year.

Unless Congress rejects additional supplemental spending for FY 2000, holds down FY 2001 spending, and keeps the appropriations process short, simple, and tightly focused, its narrow emphasis on avoiding short-term problems will raise the spending baseline yet again, jeopardize the surplus, and make Congress's job next year--and for years into the future--significantly more difficult.

Specifically, in the near term Congress should:

  1. Reject supplemental appropriations.

The Senate is under pressure from the House, the chairman of the Senate Appropriations Committee, and President Clinton to enact a $12.7 billion "emergency" supplemental appropriations bill for FY 2000, even before it begins considering the budget for FY 2001.1 If it complies, it would effectively abandon any pretense of financial responsibility. Not one of the many line items included in the recent House-passed supplemental bill (H.R. 3908) qualifies as an "emergency," even as that is defined by the White House Office of Management and Budget (OMB).2 Moreover, Congress could have anticipated most of the items in this legislation when it prepared the FY 2000 budget.3 Clearly, it could and should consider the small number of unanticipated requests during the normal FY 2001 budget process.

Emergency spending has become little more than a poorly disguised mechanism for avoiding fiscal discipline. (See Chart 2.) According to the Congressional Budget Office (CBO), in FY 2000, $30.8 billion was designated as emergency funding.4 Yet the Senate Budget Committee's Budget Bulletin reports that the "one-time only" spending level was $18 billion.5 This discrepancy means that either the Senate anticipated ongoing emergencies totaling over $12.8 billion, or Congress misdesignated an equal amount during the last budget cycle. Accounting gimmicks are no substitute for fiscal responsibility. Congress should reject supplemental appropriations requests that are not true emergencies, firmly close the books on FY 2000, and begin serious consideration of FY 2001 appropriations.

  1. Hold down FY 2001 spending.

Whether Congress is expanding a program, such as the Earned Income Tax Credit, the Climate Change Technology Initiative, or the Salmon Habitat Restoration project, or creating a new one, such as the Rural Internet Administration patterned after the Rural Electric Administration,6 ultimately it is expanding the number of people who will feel "entitled" to taxpayer support in the future. And although it is easy to reverse a tax cut (the tax reductions enacted in 1981 and 1986 were offset by tax increases in 1983, 1984, 1987, 1990, and 1993), it is almost impossible to eliminate new and/or expanded entitlement programs.

Last year, the 106th Congress committed to saving Social Security, paying down the national debt, and cutting taxes. It must honor this pledge. If its pledges to pay down the debt and cut taxes are not to be viewed cynically by ordinary Americans, the first thing Congress must do now is limit discretionary budget authority for FY 2001 to the levels it approved for FY 2000.

Experience demonstrates that if Congress opens the spending door, special interests reap the benefits, not ordinary Americans, and efforts to prune waste or introduce long-overdue reforms are swept away in a deluge of pork. Consequently, raising discretionary spending above the levels approved for FY 2000 will spell disaster for every American who desires a federal government that is reasonably efficient and carries out only its appropriate functions.

  1. Keep the appropriations process short, simple, and tightly focused.

The most effective way to limit federal spending in FY 2001 is to work quickly and keep the appropriations process tightly focused on national priorities. In 1999, although Congress passed a budget resolution just before its self-imposed April 15 deadline, it failed to meet any of the appropriations deadlines it established and did not complete the appropriations process until seven weeks into the new fiscal year. Most of the delay was unnecessary. Progress on several of the appropriations bills had stalled because of needless debate on non-germane riders and earmarks, many of which were later rejected by the Administration.

The most easily correctable cause of the delay in 1999 was simple inactivity. Out of 261 weekdays, Congress was in session for only 139.7 But even this number exaggerates the amount of time Congress devoted to the appropriations process. Often, congressional sessions were pro forma, and the House usually worked a Tuesday-to-Thursday schedule. A simple commitment to spend as much time as possible on the job prior to the established deadlines would allow Members of Congress to spend more time in their districts after the work was completed.

DEFINING A LONG-TERM BUDGET STRATEGY

There is only one fiscally responsible long-term strategy for Congress: Reform the budget process and develop a long-term plan to spend smart. This will mean eliminating waste and reforming the major entitlement programs, which face serious problems when the first baby boomers begin to retire around 2010.8 These steps would make little or no difference to this year's budget, but they would prevent future Congresses from becoming overwhelmed by long-term entitlement spending and a budget process that promotes gridlock, rewards spending, and punishes fiscal responsibility.

The good news is that federal bloat is neither an untreatable nor an incurable disease. As the private sector demonstrated long ago, world-class organizations achieve excellence by focusing on a few areas rather than settling for mediocrity in many. Washington can do the same by having a sound system in place to determine America's priorities and the federal government's areas of competence.

Congress's long-term strategy, therefore, should include the following steps:

  1. Reform the budget process.

Congress has created a patchwork budget process that is slow, cumbersome, and filled with opportunities to feed special interests. For example, Members of Congress enacted the Congressional Budget and Impoundment Control Act; the Gramm-Rudman-Hollings Sequestration Act of 1987; and Balanced Budget agreements in 1990, 1993, and 1997. They created rescission and deferral procedures, deficit targets, spending caps, sequestration rules, pay-go provisions, mandatory categories, discretionary categories, on-budget accounts, off-budget accounts, reconciliation instructions, forward-funded appropriations, and directed scorekeeping.

Fundamental reform would provide Congress and the President with tools that enable them to control federal spending. For example:

  • Both houses of Congress should require that all votes on financial legislation, including amendments, be recorded by roll call and that line-item programs be approved by a separate vote. This requirement would shine a bright light on the budget process so that taxpayers would know the specific programs that their representatives supported or opposed.

  • Congress should align the appropriations and authorization committees for each Cabinet-level department's and independent agency's budget function area to reduce confusion and simplify oversight. It is not uncommon under the current system for agencies to administer multiple programs in multiple function areas that receive funding from different appropriations subcommittees and answer to multiple authorizing committees.

  • In its budget resolutions, Congress should clearly state the maximum spending levels for each appropriations subcommittee, and a supermajority vote in both houses should be required before either house can exceed those levels.

  • A supermajority vote in Congress should be required to consider any conference report that appropriates funds for line items not previously funded by at least one chamber or for any program at a level greater than that previously approved by at least one chamber.

  • Committee reports that accompany appropriations legislation should contain a summary of each agency's Government Performance and Results Act report for the previous year, as well as a list of specific measurable objectives that each program is expected to meet in the year being funded. If Congress were required to establish and measure performance for each program funded, it very likely would authorize fewer programs.

  • Congress should restore the President's authority to impound agency funds, a power it removed in 1974 by passing the Congressional Budget and Impoundment Control Act (P.L. 93-344).9 With this authority, Presidents could restrict excessive congressional spending by ordering executive branch agencies to withhold, and not spend, what the President believed were excessive funds. History shows that limiting this authority has opened the floodgates to a plethora of pork. Restoring this authority would have an effect similar to that of the line-item veto. It would allow the President to limit his agencies from spending as much as Congress appropriated.

The budget process should provide current and accurate financial information that clearly links the decisions and the decisionmakers with specific results. Members of Congress would have to accept, rather than dodge, responsibility for their decisions. Voters and taxpayers would be able to hold their elected representatives accountable. Such reforms also would ensure that the Presidents and Congresses of tomorrow have powerful tools at their disposal with which to control federal spending. Unfortunately, they are not likely to be adopted in time to serve the current Congress.

  1. Develop a long-term plan to spend smart.

Chicago Mayor Richard M. Daley voiced the frustrations of many policymakers and Americans when he observed, "When government tries to be everything to everybody, it becomes nothing to anybody."10 Many state officials have found that

when governments downsize, they usually do it the easy way, by cutting staff and expenses across the board. Each department is asked to perform the same tasks but with fewer personnel [and less money]. Such cutbacks are usually undone as soon as tax revenues begin flowing back into government coffers. Just as the effects of many diets disappear as soon as they are declared successful and abandoned, such short term reductions usually have little long term benefit. What is required is a lifestyle change.11

Before attempting to reform waste, fraud, and abuse in federal programs, Congress must first ask: Should the federal government be operating these programs at all?

Reducing what government does--focusing on core tasks--is essential to improving how government operates. Low priority programs drain away resources and distract public managers from their central duties.12

The tools to identify waste and develop long-term plans to control federal spending exist within the federal government's own documentation, specifically in the Government Performance and Results Act agency reports, U.S. General Accounting Office (GAO) reports, and in Budget Committees' files. If Congress would study and learn from the successful government reinvention efforts taking place at the state and local levels, it could apply those lessons to the federal government. A long-term plan to spend smarter, rather than spend more tax revenue, would result in the elimination of programs that are clearly wasteful or duplicative and move Washington forward with major entitlement reforms that empower, rather than subsidize, Americans.

Specifically, this long-term plan should include efforts to:

  • Eliminate programs that are clearly wasteful or duplicative.
    A host of "corporate pork" programs continue to receive funding because of the narrow but vehement business interests that support them. An example is the Advanced Technology Program, which uses taxpayers' money to offset the research costs of corporations such as General Electric, Ford, and General Motors.

Other examples of spending that clearly is wasteful include the $9,000-per-employee furniture costs at the proposed new U.S. Patent and Trademark Office.13 Still others duplicate private activities or federal programs that could be consolidated or eliminated. The U.S. Department of Energy's national laboratories, which, as the GAO reports, duplicate much private-sector research, are a good example.14 Such programs reflect neither the needs of ordinary Americans nor the political philosophy or agenda of either party. They should comprise the "A" list of programs that congressional lawmakers of both parties who are serious about creating an efficient government should pledge to eliminate.

Congress has more than enough evidence to identify the wasteful programs that consistently fail to yield any benefits to taxpayers. This evidence can be found, for example, in departmental and agency performance reports compiled in accordance with the Results Act. The GAO has identified 24 areas as "high risk" because of bad management and poor financial controls. The House Budget Committee lists numerous examples of waste, fraud, and abuse on its Wastebusters Web site, which could serve as a good starting point for oversight hearings.15

Addressing the inappropriate or inefficient role of the federal government in these and other areas would yield large savings and redirect federal agencies to carry out functions that are more appropriate. Congress could start the process of reform by conducting a series of public hearings that highlight the most egregious examples of inappropriate federal spending and then scheduling the programs thus exposed for privatization or elimination.

  • Move forward with major entitlement reforms through management and design improvements.
    Effective control of entitlement spending, particularly Social Security and Medicare, is essential to any long-term plan to spend smarter rather than more.

Heritage Foundation analysts have produced over four dozen papers on the need to introduce real competition in Medicare and to create private retirement accounts. Numerous analysts at think tanks ranging in policy orientation from the Bookings Institution to The Heritage Foundation and the Hoover Institution, as well as many government reports, have concluded that long-term fiscal control is not possible without fundamental reform of intergenerational entitlements. Yet, despite the overwhelming body of evidence pointing to the need for reform, Congress continues to avoid introducing fiscal responsibility into the entitlement programs, which consume the largest segment of the federal budget.

It may be too late for the 106th Congress to institute significant reforms of such sensitive programs as Medicare and Social Security. Nevertheless, it can highlight efforts to reform them. Senator John Breaux (D-LA) and Representative William Thomas (R-CA), for example, introduced bipartisan legislation based on the views of a majority of the members of the National Bipartisan Commission on the Future of Medicare,16 who recommended that senior citizens be allowed to choose between competing private-sector health care plans as well as the traditional Medicare plan.

In addition, many Members of Congress of both parties support efforts to achieve Social Security reform by establishing personal retirement accounts funded with a portion of each worker's payroll taxes.17 In the meantime, Congress should reject President Clinton's proposals to shift IOUs from one trust fund to another or to raid general tax revenues while avoiding genuine reform.18

CONCLUSION

The battle to restrain the size of the federal government, pay down the national debt, and return Washington's tax windfall to the American people--especially families that have been paying more in taxes than Washington has needed for some time--is far from won. Yet Congress appears on course to fail to achieve any of these goals.

Rather than rush headlong into funding the President's new spending programs, Congress should take steps to limit FY 2001 budget authority to levels approved for FY 2000; initiate a simple, short, and tightly focused appropriations process; and devote the time it saves to conducting oversight hearings and exposing waste. Congress clearly has an opportunity to save now, plan for tomorrow, and still achieve a fiscally responsible budget for the future.

Peter Sperry is a former Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


1. Robert Gravely, "Republicans Look to `Plan B' for Supplemental," CQ Daily Monitor, April 5, 2000, p. 1.

2. "In 1991, the Office of Management and Budget drafted the following five criteria to use in deciding whether funds should be designated as an emergency requirement: Necessary expenditure--an essential or vital expenditure, not one that is merely useful or beneficial; Sudden--quickly coming into being, not building up over time; Urgent--a pressing and compelling need requiring immediate action; Unforeseen--not predictable or anticipated as a coming need; and Not permanent--the need is temporary." See Congressional Budget Office, "Emergency Spending Under the Budget Enforcement Act: An Update," June 1998.

3. Peter Sperry, "Time for the Senate to Unmask `Emergency' Spending," Heritage Foundation Executive Memorandum No. 667, April 5, 2000.

4. Congressional Budget Office "Current Status of Discretionary Appropriations," at http://www.cbo.gov/showdoc.cfm?index=1896&sequence=0&from=7, table entitled "Fiscal Year 1999 Baseline, CBO Estimate of the President's Fiscal Year 2000 Request, and Estimated Impact of Current Discretionary Appropriation Action for Fiscal Year 2000" (April 5, 2000).

5. Amy Call et al., "Informed Budgeteer: Holiday Edition," December 13, 1999, p. 1.

6. A proposal sponsored by Senator Byron Dorgan (D-ND).

7. Library of Congress, at http://thomas.loc.gov/home/ds/  (March 8, 2000).

8. Those born in 1945 will reach age 65 in 2010.

9. Specifically, Title 10 of the Congressional Budget and Impoundment Control Act.

10. William D. Eggers and John O'Leary, Revolution at the Roots (New York: Free Press, 1995), p. 23.

11. Ibid., p. 27.

12. Ibid., p. 26.

13. U.S. Patent and Trademark Office, "Business Cost Analysis of Space and Facilities Management," prepared by Deva and Associates, Virginia, May 14, 1998.

14. U.S. General Accounting Office, Uncertain Progress in Implementing National Laboratory Reforms, GAO/RCED-98-197, September 10, 1998, pp. 1, 2.

16. See Stuart M. Butler, Ph.D., "Reorganizing the Medicare System to Ensure a Better Program for Seniors," Heritage Foundation Backgrounder No. 1294, May 27, 1999.

17. David C. John, "Kolbe-Stenholm: A Firm Foundation for Social Security Reform," Heritage Foundation Backgrounder No. 1279, May 10, 1999.

18. OMB's report, "Analytical Perspectives," which accompanies the President's FY 2001 budget request, contains a 16-page discussion of federal trust funds (pp. 343-349) which clearly states that trust fund balances are IOUs that will have to be redeemed with "an exchange of government financial securities for private sector resources" (p. 346).

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