February 15, 2000

The Honorable John R. Kasich
Chairman
Committee on the Budget
309 Cannon House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

I am pleased to transmit the views and estimates adopted by the Rules Committee regarding the President's Fiscal Year 2001 budget.

As you know, the Committee on Rules does not have legislative jurisdiction over specific spending or revenue measures required by section 301(a) of the Congressional Budget Act of 1974 to be included in a budget resolution. However, section 301(c) of the Budget Act does grant the Rules Committee sequential referral authority over any matter or procedure included in a budget resolution which has the effect of changing any rule of the House. Moreover, as required by clause 3(i) of rule X of the Rules of the House, the Rules Committee has played and will continue to play a proactive role in reviewing and studying the congressional budget process, and reporting its findings and recommendations to the House as necessary.

As in past years, the President's budget includes a discussion of several process tools that are currently under review by the Rules Committee. Last year, our committees favorably reported H.R. 853, a comprehensive and bipartisan restructuring of the budget process. Although several elements of that legislation proved controversial, the underlying goals of streamlining, simplifying, and strengthening the process enjoy broad support in the House. The Rules Committee appreciates the Clinton Administration's recognition of the seriousness with which Congress approaches this issue, and shares the President's desire for Congress to continue its efforts to improve the process.

The Committee is especially encouraged by the Administration's endorsement of biennial budgeting. Specifically, the President's budget stated that, "[r]eaching agreement on budget priorities for two years would provide greater predictability and planning certainty for program administrators and beneficiaries. Making appropriations that cover two fiscal years would also permit congressional committees to perform their oversight functions in the off-year with less distractions." We agree with this assessment. In fact, we believe that biennial budgeting could lead to the most significant government-wide fiscal management reforms of the last quarter century.

The Rules Committee believes that a two-year budget and appropriations cycle will streamline the budget process, enhance programmatic oversight and the management of government programs and bureaucracies, and reform Congress. Congress now struggles to complete an almost impossible task: to annually budget, authorize and appropriate for all programs of the Federal government. The result is missed deadlines, continuing resolutions, unauthorized programs, government shutdowns and meager oversight. The record speaks for itself. During the 26 year history of the Budget Act, Congress has met the deadline for completion of a budget resolution only four times. Congress routinely funds unauthorized programs. For fiscal year 2000, $121 billion in appropriations were provided for 137 programs whose authorization had expired. Since 1950, Congress has failed to enact thirteen individual appropriation bills to fully fund the government by the beginning of the fiscal year for every year except three: 1988, 1994 and 1996. This annual struggle to complete the budget, authorization and appropriations process results in all three processes falling short. The solution is not to eliminate one of these processes because each serve an extremely important function. Instead, we should do them less often.

The annual rush to complete action on budget, authorizations and appropriations items not only produces a poor budget process, it also comes at the expense of careful deliberation on matters that are not related to the budget. Executing an annual budget requires nearly three years of combined effort by the Administration and the Congress. The federal government expends an enormous effort to prepare, review, submit and ultimately legislate the budget. The process begins with the submission of the President's budget, a document that comprises six volumes and over 2,000 pages. This budget is then supported by individual budget justifications, which are very lengthy documents on their own. The civil works program of the Army Corps of Engineers has a budget of roughly $3.7 billion, 0.2 percent of the total Federal budget. The annual budget justification for the Corps alone comprises 8 volumes, amounting to 2,005 pages.

The Committee also believes that annual budgeting leads Congress and the Administration to a preoccupation with resource allocation at the expense of managing and overseeing Federal programs.

Finally, the Committee believes that biennial budgeting will also strengthen fiscal management. With the recent enactment of the Government Performance and Results Act, the Chief Financial Officers Act, the Government Management Reform Act, and the Information Technology Management Reform Act, a biennial budget process would be a logical next step in promoting long-term planning, and improving the efficiency of government and the use of taxpayer dollars.

The Committee disagrees with the contention that there is too much uncertainty in the budget to make projections for a two year period. A 1999 Congressional Budget Office analysis indicates that only 4.7 percent of discretionary spending in FY 1998 ($24 billion of the $531 billion appropriated) required annual funding due to unpredictable funding patterns. Those few programs that do change (most of which relate to international or emergency activities) can be accommodated during the normal supplemental appropriations process. Additionally, from 1997 to 1998 (the last time period for which data is currently available) 70% of the 872 discretionary spending accounts changed less than 10%. Furthermore, if a biennial budget and appropriations process is married with a mechanism to budget up front for emergencies, such changes can be responded to in an efficient and stable manner.

Most of the uncertainty in the budget has to do with mandatory spending and revenues. These categories of the budget are governed by permanent law and are not established annually in the budget. Moreover, the current budget process only accounts for changes in mandatory spending and revenues that result from legislative action. OMB and CBO hold the budget harmless for changes in spending or revenue levels caused by administrative, economic or technical changes. The actual experience is that the Federal government does not actually change laws affecting mandatory spending and revenues on an annual basis. Generally, Congress only addresses these programs through reconciliation legislation and moves comprehensive reconciliation legislation every two to five years.

Due to the compelling arguments in favor of moving to a two year budgeting and appropriations process, the Committee intends, on a bipartisan basis, to actively advocate such reforms in the coming weeks and months.

The Committee also agrees with the Administration's statement that a strengthened process would be "a useful tool for the President and Congress in their efforts to ensure the effective use of taxpayer dollars." The Committee remains committed to strengthening the existing rescission process (as outlined in Title X of the Budget Act) and developing a workable "expedited rescission" model designed to promote greater accountability and fiscal discipline. Under such a model, rescission proposals submitted by the President would have to be considered by the Congress, whereas current rules allow for Presidential proposals to languish without Congressional action.

Several versions of expedited rescission legislation have been introduced in the House during the 106th Congress, with bipartisan support. The Subcommittee on Legislative and Budget Process has held one general hearing on this topic, and intends to consider legislation meeting the goals of the Line Item Veto legislation without running afoul of the guideposts established by the Supreme Court.

Overall, the Rules Committee intends to continue to work closely with the Budget Committee to maintain fiscal discipline in the congressional budget process as Congress considers various spending and revenue measures for fiscal year 2001 and beyond.

Sincerely,           

DAVID DREIER

VIEWS AND ESTIMATES DEMOCRATIC LETTER

Although we question the value of switching from annual to biennial budgeting, we accept the wisdom of devoting only one out of every two years studying a new budget reform proposal. The majority on this committee hold that “biennial budgeting could lead to the most significant government-wide fiscal management reforms of the last quarter century.” They mistakenly blame the annual cycle for three failures:

1. Congress’ failure to meet budget deadlines,
2. Congress’ failure to authorize programs,
3. Congress’ failure to perform serious oversight.

The experience of the states -- the laboratories of democracy - tell a different story. The lessons from state experiences support annual budgeting:

• 44 states had a two-year budget cycle in 1940. Today, only 21 states practice biennial budgeting. Although Arizona and Connecticut shifted from annual to biennial cycles in the 1990's, the trend is clearly to abandon biennial.
• States with biennial budgets tend to have small or middle-sized budgets. Only one of the top ten state budgets, Ohio, is biennial. In the off-years, in Ohio, a joint, bipartisan committee - the Controlling Board - transfers funds between items and across fiscal years and allocates funds from an “unforseen contingencies” appropriation.
• States with annual budgets tend to spend less per capita than states with biennial budgets.
• States that shifted from biennial budgeting to annual budgets significantly reduced the need for supplemental appropriations. Biennial states still perform substantial annual reviews to balance their budgets or cede powers to others to make budget decisions in the off-year.
• Biennial budgeting has not led to state executives doing more performance evaluations nor state legislatures doing more oversight.

  The problems cited by the majority are real. What we dispute is that a two-year cycle for budget decisions will alleviate any of those problems.

  Moving to a biennial budget cycle will not help us pass budget resolutions on time nor will it make us less reliant on continuing resolutions. Like most people, Members of Congress are driven to act by deadlines. We reach consensus and compromise only at the last moment. When the fiscal year began in July, Congress finished the appropriations cycle about one working month later, just before or just after the August recess. So the start of the fiscal year was pushed back to October 1 in the late 1970's. We now finish our work on average in November, still about one month after the deadline. If we were to give ourselves two years to agree on a budget, it would probably take two years and one month to reach those agreements. The Congressional Budget Office in its July 1996 testimony before the Senate Governmental Affairs Committee remarked, and we agree, “Given that the underlying cause of current budgetary pressures is the ongoing conflict over priorities, simply providing for budgetary action every other year is unlikely to relieve those pressures.”

  Biennial budgeting will increase the number of supplemental appropriations bills enacted. Supplemental appropriations are not a model of fiscal discipline. Instead Members see them as Christmas-trees to be filled with emergency ornaments and other delights. As Louis Fisher notes, in his Fall 1997, Public Budgeting and Finance essay, “Biennial Budgeting in the Federal Government,” “compelled to estimate spending for an additional year, agencies are apt to hedge their bets by including funds to cover unforseen expenses. The problem of agency padding would be more pronounced under biennial budgeting.” It is not surprising that states with biennial cycles tend to spend more per capita than states with annual cycles.

  There are serious questions about the accuracy of annual revenue and spending projections and the economic forecasting upon which they are based. The Congressional Budget Office, in its January 2000 Budget and Economic Outlook, devotes an entire chapter to the uncertainties of budget projections. CBO underestimated revenues by more than 5% in the projections produced in 1996 through 1998. The forecasts CBO produced in two recession years, 1990 and 1991, overestimated revenues by the same proportion. If annual projections present such a challenge, will it be any easier in a two-year cycle? Based on the root mean square error of CBO and OMB one-year and two-year forecasts, from 1977 through 1998, of growth rates for national output there is a significant difference for one-year and two-year revenue projections: on average, one year revenue projections will deviate in either direction by about $33 billion but the second year projection will deviate by almost $100 billion.

  Many ascribe the difficulties in last year’s budget negotiations to discretionary caps that were based on outdated projections of the economy. The biennial budget cycle will guarantee a repeat of last year’s problems. According to the General Accounting Office, in its July 1996 study “Issues in Biennial Budget Proposals,” “increased difficulty in forecasting was one of the primary reasons states gave for shifting from biennial to annual budget cycles.”

  There are many reasons Congress fails to enact authorizations and perform serious oversight but none of them have to do with the budget cycle. For decades, Congress has had difficulty enacting authorizations. The House has moved away from making permanent authorizations to re-authorizing programs and agencies annually or periodically. More important, the policy issues that the authorizing committees must decide are the most divisive politically, require mediating among many engaged interests, and are of a highly technical and complicated nature. It takes time to work through the issues, balance all the interests, and forge a consensus. The banking, securities, and insurance industries were sharply divided over the direction that financial modernization legislation should go; it took many years of work, under both Democratic and Republican leadership, as well as the changing dynamic in the market, before the issues were ripe to be resolved. In some areas, such as foreign policy, it is notoriously difficult to forge a consensus and move a bill. Changing the timing of budget and appropriations decisions will do nothing to make it easier to strike a careful balance or persist through the obstacles and knotty problems until the time is ripe for resolution.

  The argument that biennial budgeting will help pass authorization bills is based on the premise that scarce floor time is devoted instead to budget and appropriations bills each year. The premise is false. Budget bills do not crowd out authorizations. Ample floor time, often under open rules, has always been provided for every authorization bill reported from committee. Moreover, it is difficult to speak of scarce floor time when we are now in the sixth week of the second session and we have spent 11 days in formal session.

  The fact is, biennial budgeting doesn’t save time. States with biennial budgets spend nearly as much time in the off-year making budget decisions. Either the legislature performs substantial annual reviews to balance their budgets or the executive branch (or a control board) has the discretion to make the necessary budget decisions in the off-year.

  There are also many reasons that Congress fails to do serious oversight. It is hard work to do the investigations and hearings that constitute serious programmatic review. Serious oversight -- the regular, on-going scrutiny of how our laws are implemented and how taxpayer dollars are spent - is not sexy. It rarely receives media attention and even more rarely wins political points at home for the Members who perform the hard work. A biennial budget cycle will not make the work easier nor the rewards higher.

  In fact, biennial budgeting will make it more difficult to do serious oversight. We agree with the Director of the Congressional Budget Office who said, in her April 1997 testimony before the Senate Governmental Affairs Committee, “converting to a biennial budget cycle would have drawbacks for the budget process related to a loss of budgetary control and accountability, and might actually weaken oversight.” Biennial budgeting would increase the power of executive branch bureaucrats giving them a longer leash and two years worth of money to spend. Giving up the annual appropriations evaluation of agencies will dramatically weaken congressional control and the ability to do regular review. Agencies respond to congressional requests and demands in part because of the threat of annual appropriations action. Biennial budgeting will actually inhibit oversight.

  Biennial budgeting doesn’t encourage long-term planning. According to Ronald Snell, National Conference of State Legislatures, “evidence from states that have changed from annual to biennial budgeting over the past thirty years fails to support the contention that biennial budgeting favors long-term planning.” If biennial budgeting is not the panacea it is held out to be, why do it?

  There are still far too many unanswered questions about how a biennial budget process would work on the national level. Is it wise to shift our entire budget to a biennial cycle? We respectfully think not.

  John Joseph Moakley                                                                                                                        Martin Frost

  Louise Slaughter