Albany Union Times | Sept. 30, 2009

Thursday marks the beginning of the new fiscal year, and while there are achievements to celebrate, we have a serious failing to fix. Indeed, we may require a new fiscal year resolution.

To start, we can look back and appreciate the professional judgment, perhaps aided by a bit of good fortune, that enabled the Federal Reserve, Treasury, FDIC, two presidents and Congress to act boldly to mitigate the effects of the financial meltdown

on the U.S. and world economies.

However, we did so by digging a much deeper fiscal hole. The extraordinary measures adopted by federal agencies and the fiscal stimulus legislation were layered on top of policies that already had the country on an unsustainable path. Under the combined new and old policies, we added $1.4 trillion, or more than $4,500 per person, to the public debt in the last fiscal year alone.

As the economy begins to revive and the stimulus winds down, the outlook for debt gets worse, not better. The public debt as a share of national income is projected to rise from 41 percent in 2008 to 68 percent in 2019. This will happen, even if the economy recovers fully, no new spending programs are enacted, the Bush tax cuts are permitted to expire, and no new crises occur. Beyond that, current policy will push up future deficits as a share of national income for as far as the eye can see.

Unconstrained growth in public debt could trigger more financial instability. This could happen, for instance, if foreign investors lose confidence in the credit quality of the dollar. As the current crisis shows, financial market shocks affect our lives in fundamental ways: lost wages, unrealized education plans and family disruption.

Continued deficits also undermine our ability to deal with future adversity, including climate change, the next economic shock or health pandemic.

We urgently need to break the federal fiscal habit of increasing spending and borrowing to pay for it. Like the family that discovers its debts are growing faster than income, we need to adopt a new year's fiscal resolution. But it needs to be one we can sustain.

Experience tells us some types of resolutions are easier to keep than others. We know that the more specific and measurable our goals, the more likely we will reach them.

One action each of us could take would be to urge Congress to adopt legislation now to stabilize the public debt as a share of national income by an established future date. Such a goal would be specific, measurable, and feasible. The process of adjustments could begin now.

But as citizens, we need to recognize that in asking the government to adopt a fiscal diet for our nation's health, we would also be asking Congress to take away our punchbowl and cookies. Lower federal spending and higher taxes today may be a necessary sacrifice if we are to sustain our resolution.

The Peterson-Pew Commission on Budget Reform, a nonpartisan group of federal budget experts, has been working since January to develop recommendations that would foster long-term fiscal stability.

It is too soon to speculate about the specific content of their recommendations, but it is natural to expect their proposals will attempt to rebalance fiscal resources with spending. If their recommendations are to be effective, they inevitably will require us to reduce our demands on government to levels that we are willing to pay for.

New Year’s resolutions are usually about correcting our overindulgences and are rarely pleasurable. But we know that making and keeping them is in our best long-term interest.

Marvin Phaup is director of Pew Charitable Trust's Federal Budget Reform Initiative.

Copyright 2009, Albany Union Times

On September 16, the Peterson-Pew Commission on Budget Reform hosted its first public event -- Beyond PAYGO. Five panelists discussed recent proposals to gain control over mandatory spending and put the budget on a sustainable path. (See the webcast of the event below).

The Commission also issued its first policy paper at the event, “A Closer Look at the President’s FY 2010 Budget Process Reform Proposals.” The "Closer Look" paper examines in detail how the administration's first budget takes a few initial steps toward establishing a more fiscally responsible and credible budget process. In addition, it describes the deficiencies and significant omissions in the administration's budget, including the PAYGO exceptions, its complexity, and lack of caps on discretionary spending.

The overflow event was headlined by a star-studded cast of policy wonks with expertise in budget policy and process (yes, there is such a thing as a group of star-studded policy wonks). Panelists included former heads of CBO and OMB, leaders of prominent D.C. think tanks, and former members of Congress. Moderator Morton Kondracke, executive editor of Roll Call, kicked things off by reminding everyone of the predictions that the federal budget will soon be almost entirely eaten up by the cost of a few entitlement programs, and that will mean drastic cuts elsewhere in the budget, large tax increases, or a return to the dark ages.

Unfortunately, as Kondracke and many panelists noted, budget reform isn’t the type of thing that gets people – or politicians – worked up. Ross Perot has been the only recent politician on the national platform to make the subject his true focus.  And though a handful of politicians, including President Obama, have urged legislative action and made compelling statements about the need to change our spending patters before we drown in a sea of red ink, it isn’t an issue that tends to stir voters.

There was pretty broad agreement that we are, as so many have been cautioning, in a big fiscal hole that’s getting deeper. After that, though, few panelists expressed much hope that Congress would do much about it anytime soon. Panelist Jim Nussle, a Commission member and former Chairman of the House Budget Committee, pointed out that politicians are really good at saying yes, but not so good at saying no. Everyone agreed that the path to reform means everyone has to have some “skin in the game” – that both spending cuts and revenue (tax) increases have to be on the table. Neither option is politically popular.

The panel discussion was spirited but pessimistic. There was one note of optimism from Robert Greenstein: He declared that for once, he was not the lone pessimist on the panel, and argued that, “you can see some glimmers of hope,” including the administration’s submission of a legislative proposal to reinstate a statutory pay-as-you-go (PAYGO) rule.

Many of the skeptics – both on the panel and in the audience-- voiced the opinion that the Commission’s work, and its larger report on budget reform due to be released later this year, will contribute to the debate by bringing public notice to the problem and by pressuring Congress to re-gain control over spending. They all agreed that any solutions have to be bi-partisan.

Participants

Moderator
Morton Kondracke
Roll Call

Featured Speakers
Robert Reischauer
Former CBO Director
The Urban Institute
Peterson-Pew Commission on Budget Reform

Jim Nussle
Former OMB Director and House Budget Committee Chairman
The Nussle Group
Peterson-Pew Commission on Budget Reform

Rudolph Penner
Former CBO Director
The Urban Institute
Peterson-Pew Commission on Budget Reform

Tim Penny
Former Member of Congress
Peterson-Pew Commission on Budget Reform
Co-chair, Committee for a Responsible Federal Budget

Robert Greenstein
Center on Budget and Policy Priorities

This paper examines the Obama administration budget reform proposals and evaluates how (and if) they would improve the budget process and restore fiscal responsibility. In particular, the paper examines the administration’s proposed changes to the calculation of the budget baseline and its reintroduction of a statutory pay-as-you-go (PAYGO) framework.

With the retirement of the baby boom generation drawing closer, concerns about the sustainability of current policies have become critical elements of the budget process. The seriousness of this problem should prompt us to reexamine the concepts and goals underpinning the budget process and find ways to focus budget decision-makers on the long-term implications of our current policy paths. This paper reviews some of these challenges and recommends ways they might be addressed.

Are the rules of thumb and categories we have explicitly and implicitly established in our budget process for resource allocation appropriate and aligned with our overarching fiscal, programmatic, and political goals? Do they establish the right incentives? Or do they create distortions? This paper looks at the bias in favor of mandatory over discretionary spending, tax expenditures, and capital budgeting.

This paper reviews the classes of information included in the budget resolution. It then examines potential changes to the contents in an attempt to focus deliberations and debate on core budgetary and fiscal questions. This paper also includes a discussion of current practice and budget principles. A more detailed discussion of fiscal information is included in a separate paper.

This paper lays out a model for converting the concurrent budget resolution into a joint resolution. It includes a description of the model and a discussion of its key advantages and disadvantages. Particular attention is devoted to how it would impact budget enforcement, both in terms of how budget limits would be enforced and the processes used to implement, comply with, or modify the limits.

Ripon Forum | April 21, 2009

 
This past February, four months after the beginning of the fiscal year, Congress passed the last bill needed to fund the government.

But what it finally passed was more than just late — it was sloppy. Instead of offering separate appropriation bills that could be debated thoughtfully and with undivided attention, Congress lumped them into one, gigantic 225-page “omnibus” bill, and hurriedly passed it on the floor.

Does anyone think this bill got the scrutiny it deserved?

Moreover, at a time of near-universal recognition that our entitlement and tax policies are unsustainable, Congress has made no improvements in these areas for the next fiscal year. Our national conversation on this broken system is long overdue. And if we are serious about changing the situation, then budget reform will have to mean reforming the process by which Congress considers, passes, and evaluates its annual budget.

In theory, the federal budget process is straightforward.

First, the President submits his “budget,” which is actually just a recommendation that reflects the administration's own priorities. After the President’s budget, Congress creates a blueprint for itself called a budget resolution. This resolution is developed through the legislative process, but is not presented to the President and hence doesn’t reflect the consensus of both the Congress and the Executive branches. What it is supposed to do is provide a framework for subsequent spending and tax bills. Congress then considers twelve separate appropriations bills, together with any tax and entitlements bills on its legislative agenda that will become law once they are signed by the President.

Our current budget process is the product of several major reforms -- the last was in the 1970s --but in recent times it has failed us in all the most important places.

The first — and most basic — criticism of the budget process is that it doesn’t produce a simple, realistic framework for how government intends to spend in the short term, plan for entitlements, or impose taxes. The President's budget and Congress' budget resolution are both just preliminary steps in the passage of a budget. They can and often do get kicked aside in the scuffle between the appropriations, authorization, and tax writing committees, all of which create different pieces of legislation that combine to form the big fiscal picture.

Moreover, both the President’s budget and the budget resolution make a variety of unrealistic assumptions that render them largely useless. For instance, the president’s fiscal year 2008 budget accounted for negligible spending on the wars in Iraq and Afghanistan, and made the unlikely prediction that Congress would soon allow expiring tax breaks to place billions of dollars in additional tax burden on the middle class.

Nor does the budget process focus efforts on the biggest drivers of deficits and the debt: long-term entitlement spending. Almost everyone knows that in the coming decades, we will be unable to sustain our entitlement commitments and tax policies, but the budget process doesn’t focus on the level of entitlement growth in existing law or, for changes to existing entitlement law, growth that occurs outside of a narrow window of time. Existing budgetary limits are easily evaded by pushing polices outside this budget window or pretending that they will expire when they likely will not. In the end, most of Congress’ time is spent on the 38 percent of the budget that makes up discretionary spending, with barely any formalized oversight on the mandatory side.

“Almost everyone knows that in the coming decades, we will be unable to sustain our entitlement commitments and tax policies, but the budget process doesn’t focus on the level of entitlement growth…”

Step back for a moment and think about what budgets are supposed to do. We’d all like to spend as much as we want, but budgets show us our limits by bringing all of our obligations and revenue sources into one unified picture. An ideal budget would encourage policymakers to take a look at entitlement spending when they adjusted discretionary spending (and vice-versa), weigh the importance of one tax break against other tax breaks, adjust revenue to compensate for new spending, and generally make real tradeoffs across all categories.

The bottom line is that if something is important enough for the government to do, it is important enough to pay for either by raising taxes or cutting other spending. But our budget process is missing this fundamental connection between the parts. Instead, we foster compromise at the level of individual appropriations bills, where the question is simply how to spend money within a narrowly defined area of appropriations. In practice, lawmakers are actually encouraged to stick with their party when they vote on the budget resolution, but then vote with their Districts or States when it comes to the appropriations bills.

Finally, the “teeth” of our budget process — enforcement — have proved themselves largely ineffective. The original pay-as-you-go rules had the force of law and were enforced by automatic spending cuts. The current rules are not legally binding and easily circumvented, whether through waving budget rules, designating phony emergencies, or pushing costs outside the budgetary window.

There has to be a better way to do things.

An improved budget should meet a few basic criteria. It has to be simple and realistic enough to set credible limits on spending and tax bills. The budget process should provide incentives for lawmakers to engage openly in the inherent trade-offs of real budgeting. And they should work within a framework that takes the country's entire fiscal picture into account: entitlements, discretionary spending, and taxes all have to be on the table. And perhaps most importantly, to ensure that we don't make decisions that endanger our country's fiscal health down the road, the budget should give ample consideration to the long-term ramifications of entitlement and tax policies. Finally, a good budget process has to be backed up with tough enforcement mechanisms: whether through enforceable limits on expenditures, some form of PAYGO, or a new mechanism, lawmakers must be held accountable for their budgetary decisions.

To address this critical issue, the Committee for a Responsible Federal Budget, working with the Peterson and Pew Foundations, has assembled a bipartisan team of experts for a budget reform commission. This effort is modeled after a noted 1967 budget concepts commission that laid the foundation for today’s consolidated budget. As our government spends trillions to pull the country back from recession, the crisis in the economy has spilled over into the budget. And once we begin to repair this budgetary damage, we will be hit by a long-term structural imbalance between spending and revenue that requires even harder choices. The need for serious and thoughtful reform has perhaps never been greater.

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Jim Bates is the Project Director for the Peterson-Pew Commission on Budget Reform at the Committee for a Responsible Federal Budget. He previously served as Chief Counsel, Deputy Staff Director, and Staff Director of the Committee on the Budget for the U.S. House of Representatives.

Copyright 2009, Ripon Forum

The budget resolution should prompt debate about the implications of budgetary choices and aggregate totals for fiscal and economic policy, both near- and longer-term. This memo discusses options for increasing this focus through the development of better metrics, assessments of the macroeconomic implications of various budget plans, and the possible adoption of fiscal goals and targets. It also suggests ways to improve the budget process.

How could the current budgetary decision-making process be improved? This paper looks at the current process and how the concurrent budget resolution, authorization process, and appropriations process interact to establish a budgetary framework, allocate resources among competing priorities, and generate sufficient revenue. It also examines five reform proposals.