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United States General Accounting Office: 
GAO: 

Testimony: 

Before the Committee on the Budget, House of Representatives: 

For Release on Delivery: 
Expected at 9 a.m. 
Thursday, April 25, 2002: 

Budget Process: 

Extending Budget Controls: 

Statement of Susan J. Irving: 
Director, Federal Budget Analysis: 

GAO-02-682T: 

Mr. Chairman, Mr. Spratt, Members of the Committee: 

It is a pleasure to join you today as you think about how to extend and 
adapt the Budget Enforcement Act (BEA) regime. The discretionary 
spending limits and pay-as-you-go (PAYGO) mechanism established by BEA 
will expire this year.[Footnote 1] 

Last summer when I appeared before this Committee, we were discussing 
what kind of process and controls made sense in a time of surplus. 
Today—for a variety of reasons—we face a different outlook. The events 
of September 11 impose a new set of demands on the federal budget. At 
the same time, the pent-up demands kept in abeyance during years of 
fighting deficits remain. The question before you is what kind of 
process and controls will permit Congress and the president to respond 
to the needs of today while keeping in mind the need to deal with the 
budgetary challenges looming over the horizon. 

Later in this statement I will talk about some particular elements and 
ideas that have been proposed for adapting and extending budget 
enforcement mechanisms. Before doing that, however, I would like to 
step back and talk a bit about what a budget process can and cannot do. 

A budget process can surface important issues; it can seek to focus the 
debate on the important choices. But it is not a substitute for 
substantive debate—no process can force agreement where one does not 
exist. 

We ask a great deal of our budget process. We use it to determine 
aggregate fiscal policy and to allocate resources across different 
claims. We use it to drive program management. In the context of the 
Government Performance and Results Act, we turn to the budget to tell 
us something about the cost of obtaining a given level of results. 

BEA, when first developed and later when it was extended, was a process 
established to enforce a previously reached substantive agreement. Last 
year, given 10-year projections showing fairly sizable surpluses, there 
was a good deal of discussion about how much of the surplus should be 
spent (or used for a tax cut) and how much of it should be used for 
debt reduction. At that time, Congress and the president seemed to have 
reached a tacit agreement that the Social Security surplus should be 
used for debt reduction. While this did not eliminate disagreements 
about tax or spending policy, it did provide a fiscal target to replace 
“zero deficit” or “balanced budget.” It set the outside parameters for 
the budget debate. 

As I have testified before, the budget represents the decisions made 
about a large number of often conflicting objectives that citizens want 
the government to address. We should not be surprised that it generates 
controversy. As BEA expires, you face a wealth of options and choices. 
I appreciate the invitation to talk about some of these today. Some of 
these points are discussed more fully in the BEA compliance report 
[Footnote 2] that we did last year at your request, Mr. Chairman. 

Principles for a Budget Process: 

In the past, we have suggested four broad principles or criteria for a 
budget process.[Footnote 3] A process should: 

* provide information about the long-term impact of decisions, both 
macro—linking fiscal policy to the long-term economic outlook—and 
micro—providing recognition of the long-term spending implications of 
government commitments; 

* provide information and be structured to focus on important macro 
trade-offs—e.g., between investment and consumption; 

* provide information necessary to make informed trade-offs between 
missions (or national needs) and between the different policy tools of 
government (such as tax provisions, grants, and credit programs); and 

* be enforceable, provide for control and accountability, and be 
transparent, using clear, consistent definitions. 

The lack of adherence to the original BEA spending constraints in 
recent years and the expiration of BEA suggest that now may be an 
opportune time to think about the direction and purpose of our nation’s 
fiscal policy. The surpluses that many worked hard to achieve—with help 
from the economy—not only strengthened the economy for the longer term 
but also put us in a stronger position to respond to the events of 
September 11 and to the economic slowdown than would otherwise have 
been the case. Going forward, the nation’s commitment to surpluses will 
be tested: a return to surplus will require sustained discipline and 
difficult choices. It will be important for Congress and the president 
to take a hard look at competing claims on the federal fisc.[Footnote 
4] A fundamental review of existing programs and operations can create 
much needed fiscal flexibility to address emerging needs by weeding out 
programs that have proven to be outdated, poorly targeted, or 
inefficient in their design and management. Last October, you and your 
Senate counterparts called for a return to budget surplus as a fiscal 
goal.[Footnote 5] This remains an important fiscal goal, but achieving 
it will not be easy. Much as the near-term projections have changed in 
a year, it is important to remember that even last year the long-term 
picture did not look rosy. These long-term fiscal challenges argued for 
continuation of some fiscal restraint even in the face of a decade of 
projected surpluses. The events of September 11 reminded us of the 
benefits fiscal flexibility provides to our nation’s capacity to 
respond to urgent and newly emergent needs. However, as the comptroller 
general has pointed out, absent substantive changes in entitlement 
programs for the elderly, in the long term there will be virtually no 
room for any other federal spending priorities—persistent deficits and 
escalating debt will overwhelm the budget.[Footnote 6] While the near-
term outlook has changed, the long-term pressures have not. These long-
term budget challenges driven by demographic trends also serve to 
emphasize the importance of the first principle cited above—the need to 
bring a long-term perspective to bear on budget debates. 

There is a broad consensus among observers and analysts who focus on 
the budget both that BEA has constrained spending and that continuation 
of some restraint is necessary both in times when near-term deficits 
are accepted and when we achieve surpluses. These views have been 
articulated by commentators ranging from Federal Reserve Chairman Alan 
Greenspan to former CBO Director Robert Reischauer, the Concord 
Coalition, and President Bush. Discussions on the future of the budget 
process have primarily focused on revamping the current budget process 
rather than establishing a new one from scratch. 

Where the discussion focuses on specific control devices, the two most 
frequently discussed are:(1) extending the discretionary spending caps 
and (2) extending the PAYGO mechanism. 

Recent History of Budget Enforcement Rules: 

The Budget Enforcement Act of 1990 (Title XIII of P.L. 101-508) was 
designed to constrain future budgetary actions by Congress and the 
president. It took a different tack on fiscal restraint than earlier 
efforts, which had focused on annual deficit targets in order to 
balance the budget.[Footnote 7] Rather than force agreement where there 
was none, BEA was designed to enforce a previously reached agreement on 
the amount of discretionary spending and the budget neutrality of 
revenue and mandatory spending legislation. The law was extended twice. 

While there is widespread agreement among observers and analysts of the 
budget that BEA served for much of the decade as an effective restraint 
on spending, there is also widespread agreement that BEA control 
mechanisms were stretched so far in the last few years that they no 
longer served as an effective restraint. In part, recurring budget 
surpluses undermined the acceptance of the spending caps and PAYGO 
enforcement. 

Figure 1 illustrates the growing lack of adherence to the original 
discretionary spending caps since the advent of surpluses in 1998. The 
figure shows the original budget authority caps as established in 1990 
and as extended in 1993 and 1997, adjustments made to the caps, and the 
level of actually enacted appropriations for fiscal years 1991 through 
2002. As we reported in our last three compliance reports, the amounts 
designated as emergency spending for fiscal years 1999 and 2000—$34.4 
billion and $30.8 billion respectively—were significantly higher than 
in most past years.[Footnote 8] In addition to the larger than normal 
amounts, emergency appropriations in both 1999 and 2000 were used for a 
broader range of purposes than in most prior years.[Footnote 9] 

Figure 1: Discretionary Outlay Caps and Enacted Appropriations: 

[See PDF for image] 

This figure is a combination stacked vertical bar and line graph. The 
stacked vertical bars represent original statutory caps and final 
adjusted caps. The line represents final enacted appropriations. 

Note: Data for fiscal year 2002 are current as of February 4, 2002. 

Source: Office of Management and Budget. 

[End of figure] 

Emergency spending designations have not been the only route to 
spending above the discretionary spending caps. For fiscal year 2001 
Congress took a different approach—one that also highlights the 
declining effectiveness of the BEA discretionary spending limits. The 
Foreign Operations Appropriations Act (P.L. 106-429) raised the 2001 
budget authority cap by $95.9 billion, a level assumed to be sufficient 
to cover all enacted and anticipated appropriations. Also, in January 
2001, CBO reported that advance appropriations, obligation and payment 
delays, and specific legislative direction for scorekeeping had been 
used to boost discretionary spending while allowing technical 
compliance with the limits.[Footnote 10] In 2002, Congress once again 
raised spending limits to cover enacted appropriations. The Department 
of Defense and Emergency Supplemental Appropriations Act for 2002 
[Footnote 11] adjusted the budget authority caps upward by $134.5 
billion. 

Nor has PAYGO enforcement been exempt from implementation challenges. 
The consolidated appropriations acts for both fiscal years 2000 and 
2001 mandated that OMB change the PAYGO scorecard balance to zero. In 
fiscal year 2002, a similar instruction in the Department of Defense 
and Emergency Supplemental Appropriations Act eliminated $130.3 billion 
in costs from the PAYGO scorecard. Both OMB and CBO estimated that 
without the instructions to change the scorecard, sequestrations would 
have been required in both 2001 and 2002. 

Extending Caps on Discretionary Spending: 

BEA distinguished between spending controlled by the appropriations 
process—“discretionary spending”—and that which flowed directly from 
authorizing legislation—“direct spending,” sometimes called 
“mandatory.” Caps were placed on discretionary spending—and Congress’ 
compliance with the caps was relatively easy to measure because 
discretionary spending totals flow directly from legislative actions 
(i.e., appropriations laws). As I noted above, there has been broad 
consensus that, although the caps have been adjusted, they did serve to 
constrain appropriations. This consensus, combined with the belief that 
continuing some restraints is important, has led many to propose that 
some form of cap structure be continued as a way of limiting 
discretionary appropriations. However, the actions discussed above have 
also led many to note that caps can only work if they are realistic; 
while caps can work if they are tighter than some may like, they are 
unlikely to hold if they are seen as totally unreasonable or 
unrealistic. If they are set at levels viewed as reasonable (even if 
not desirable) by those who must comply with them, spending limits can 
be used to force choices. In the near term, limits on discretionary 
spending may be an important tool to prompt reexamination of existing 
programs as well as new proposals. 

Some have proposed changes in the structure of the caps by limiting 
them to caps on budget authority. Outlays are controlled by and flow 
from budget authority—although at different rates depending on the 
nature of the program. Some argue that the existence of both budget 
authority and outlay caps has encouraged provisions such as “delayed 
obligations” to be adopted not for programmatic reasons but as a way of 
juggling the two caps. The existence of two caps may also encourage 
moving budget authority from rapid spend out to slower spend out 
programs, thus pushing more outlays to the future and creating problems 
in complying with outlay caps in later years. Extending only the budget 
authority cap would eliminate the incentive for such actions and focus 
decisions on that which Congress is intended to control—budget 
authority, which itself controls outlays. This would be consistent with 
the original design of BEA. The obvious advantage to focusing decisions 
on budget authority rather than outlays is that Congress would not 
spend its time trying to control the timing of outlays. 

However, eliminating the outlay cap would raise several issues—chief 
among them being how to address the control of transportation programs 
for which no budget authority cap currently exists, and the use of 
advance appropriations to skirt budget authority caps. However, 
agreements about these issues could be reached—this is not a case where 
implementation difficulties need derail an idea. For example, the 
fiscal year 2002 budget proposed a revision to the scorekeeping rule on 
advance appropriations so that generally they would be scored in the 
year of enactment. Such a scoring rule change could eliminate the 
practice of using advance appropriations to skirt the caps. The 2002 
Congressional Budget Resolution took another tack; it capped advance 
appropriations at the amount advanced in the previous year. This year 
the Administration proposed that total advance appropriations continue 
to be capped in 2003 and the president’s budget assumed that all 
advance appropriations would be frozen except for those that it said 
should be reduced or eliminated for programmatic reasons. 

There are other issues in the design of any new caps. For example, for 
how long should caps be established? What categories should be 
established within or in lieu of an overall cap? While the original BEA 
envisioned three categories (Defense, International Affairs, and 
Domestic), over time categories were combined and new categories were 
created. At one time or another caps for Nondefense, Violent Crime 
Reduction, Highways, Mass Transit and Conservation spending 
existed—many with different expiration dates. Should these caps be 
ceilings, or should they—as is the case for highways and 
conservation—provide for “guaranteed” levels of funding? The selection 
of categories—and the design of the applicable caps—is not trivial. 
Categories define the range of what is permissible. By design they 
limit tradeoffs and so constrain both Congress and the president. 

Because caps are defined in specific dollar amounts, it is important to 
address the question of when and for what reasons the caps should be 
adjusted. This is critical for making the caps realistic. For example, 
without some provision for emergencies, no caps can be successful. In 
the recent past it appears that there has been some connection between 
how realistic the caps are and how flexible the definition of emergency 
is. As discussed in both our 2000 and 2001 compliance reports, the 
amount and range of spending considered as “emergency” has grown in 
recent years.[Footnote 12] There have been a number of approaches 
suggested to balance the need to respond to emergencies and the desire 
to avoid making the “emergency” label an easy way to raise caps. The 
House Budget Resolution for fiscal year 2002 (H. Con. Res. 83) 
established a reserve fund of $5.6 billion for emergencies in place of 
the current practice of automatically increasing the appropriate levels 
in the budget resolution for designated emergencies. It also 
established two criteria for defining an emergency. These criteria 
require an emergency to be a situation (other than a threat to national 
security) that (1) requires new budget authority to prevent the 
imminent loss of life or property or in response to the loss of life or 
property and (2) is unanticipated, meaning that the situation is 
sudden, urgent, unforeseen, and temporary. 

In the past others have proposed providing for more emergency spending 
under any spending caps—either in the form of a reserve or in a greater 
appropriation for the Federal Emergency Management Agency (FEMA). If 
such an approach were to be taken, the amounts for either the reserve 
or the FEMA disaster relief account would need to be included when 
determining the level of the caps. Some have proposed using a 5-or 10-
year rolling average of disaster/emergency spending as the appropriate 
reserve amount. Adjustments to the caps would be limited to spending 
over and above that reserve or appropriated level for extraordinary 
circumstances. Since the events of September 11—and the necessary 
responses to it—would undoubtedly qualify as such an “extraordinary 
circumstance,” consideration of new approaches for “emergency” spending 
should probably focus on what might be considered “more usual” 
emergencies. It has been suggested that with additional up-front 
appropriations or a reserve, emergency spending adjustments could be 
disallowed. No matter what the provision, only the commitment of 
Congress and the president can make any limit on cap adjustments for 
emergencies work. States have used this reserve concept for 
emergencies, and their experiences indicate that criteria for using 
emergency reserve funds may be useful in controlling emergency 
spending.[Footnote 13] Agreements over the use of the reserve would 
also need to be achieved at the federal level. 

This discussion of issues in extending the BEA caps is not exhaustive. 
Previously, we have reported on two other issues in particular—the 
scoring of operating leases and the expansion of user fees as offsets 
to discretionary spending. I would like to touch briefly on these. 

Miscellaneous Discretionary Challenges: Leases and User Fees: 

We have previously reported that existing scoring rules favor leasing 
when compared to the cost of various other methods of acquiring assets. 
[Footnote 14] Currently, for asset purchases, budget authority for the 
entire acquisition cost must be recorded in the budget up front, in the 
year that the asset acquisition is approved. In contrast, the 
scorekeeping rules for operating leases often require that only the 
current year’s lease costs be recognized and recorded in the budget. 
This makes the operating lease appear less costly from an annual 
budgetary perspective, and uses up less budget authority under the cap. 
Alternative scorekeeping rules could recognize that many operating 
leases are used for long-term needs and should be treated on the same 
basis as purchases. This would entail scoring up front the present 
value of lease payments for long-term needs covering the same time 
period used to analyze ownership options. The caps could be adjusted 
appropriately to accommodate this change. Most recently this issue has 
arisen in authority provided to the Air Force to lease 100 Boeing 
aircraft to be used as tankers for up to 10 years when the underlying 
need for such aircraft is much longer—in fact, the need would likely 
encompass the aircraft’s entire useful life. Changing the scoring rule 
for leases would be in part an attempt to have the rules recognize the 
long term need rather than the technical structuring of the lease. 

Many believe that one unfortunate side effect of the structure of BEA 
has been an incentive to create revenues that can be categorized as 
“user fees” and so offset discretionary spending—rather than be counted 
on the PAYGO scorecard. The 1967 President’s Commission on Budget 
Concepts recommended that receipts from activities which were 
essentially governmental in nature, including regulation and general 
taxation, be reported as receipts, and that receipts from business-type 
activities “offset to the expenditures to which they relate.” However, 
these distinctions have been blurred in practice. Ambiguous 
classifications combined with budget rules that make certain designs 
most advantageous has led to a situation in which there is pressure to 
treat fees from the public as offsets to appropriations under BEA caps, 
regardless of whether the underlying federal activity is business or 
governmental in nature. Consideration should be given to whether it is 
possible to come up with and apply consistent standards—especially if 
the discretionary caps are to be redesigned. The Administration has 
stated that it plans to monitor and review the classification of user 
fees and other types of collections. 

Extending and Refining PAYGO: 

The PAYGO requirement prevented legislation that lowered revenue, 
created new mandatory programs, or otherwise increased direct spending 
from increasing the deficit unless offset by other legislative actions. 
As long as the unified budget was in deficit, the provisions of 
PAYGO—and its application—were clear. During our few years of 
surpluses, questions were raised about whether the prohibition on 
increasing the deficit also applied to reducing the surplus. Although 
Congress and the executive branch both concluded that PAYGO did apply 
in such a situation—and although the question is moot currently, it 
would be worth clarifying the point if PAYGO is extended. Last year the 
Administration proposed—albeit implicitly— special treatment for a tax 
cut. The 2002 budget stated that the president’s tax plan and Medicare 
reforms were fully financed by the surplus and that any other spending 
or tax legislation would need to be offset by reductions in spending or 
increases in receipts. Ultimately, the Department of Defense and 
Emergency Supplemental Appropriations Act for 2002 eliminated the need 
to offset any of the PAYGO legislation by resetting the 2001 and 2002 
scorecard to zero. While this action was undertaken for a number of 
reasons, when surpluses return and Congress looks to create a PAYGO 
process for a time of surplus, it might wish to consider the kinds of 
debt targets we found in other nations.[Footnote 15] For example, it 
might wish to permit increased direct spending or lower revenues as 
long as debt held by the public is planned to be reduced by some set 
percentage or dollar amount. Such a provision might prevent PAYGO from 
becoming as unrealistic as overly tight caps on discretionary spending. 
However, the design of such a provision would be important—how would a 
debt reduction requirement be specified? How would it be measured? What 
should be the relationship between the amount of debt reduction 
required and the amount of surplus reduction (i.e., tax cut or direct 
spending increase) permitted? What, if any, relationship should there 
be between this calculation and the discretionary caps? 

While PAYGO constrained the creation or legislative expansion of direct 
spending programs and tax cuts, it accepted the existing provisions of 
law as given. It was not designed to trigger—and it did not trigger—any 
examination of “the base.” Cost increases in existing mandatory 
programs are exempt from control under PAYGO and could be ignored. 
However, constraining legislative actions that increase the cost of 
entitlements and mandatories is not enough. GAO’s long-term budget 
simulations show that as more and more of the baby boom generation 
enters retirement, spending for Social Security, Medicare, and Medicaid 
will demand correspondingly larger shares of federal revenues. 
Assuming, for example, that last year’s tax reductions are made 
permanent and discretionary spending keeps pace with the economy, 
spending for net interest, Social Security, Medicare, and Medicaid 
consumes nearly three-quarters of federal revenues by 2030, leaving 
little room for other federal priorities, including defense and 
education. 

The budget process is the one place where we as a nation can conduct a 
healthy debate about competing claims and new priorities. However, such 
a debate will be needlessly constrained if only new proposals and 
activities are on the table. A fundamental review of existing programs 
and operations can create much-needed fiscal flexibility to address 
emerging needs by weeding out programs that have proven to be outdated, 
poorly targeted, or inefficient in their design and management. It is 
always easier to subject proposals for new activities or programs to 
greater scrutiny than that given to existing ones. It is easy to treat 
existing activities as “given” and force new proposals to compete only 
with each other. However, such an approach would move us further from, 
rather than nearer to, budgetary surpluses.[Footnote 16] 

Previously we suggested some sort of “lookback” procedure to prompt a 
reexamination of “the base” in entitlement programs. Under such a 
process Congress could specify spending targets for PAYGO programs for 
several years. The president could be required to report in his budget 
whether these targets either had been exceeded in the prior year or 
were likely to be exceeded in the current or budget years. He could 
then be required to recommend whether any or all of this overage should 
be recouped—and if so, to propose a way to do so. Congress could be 
required to act on the president’s proposal. 

While the current budget process contains a similar point of order 
against worsening the financial condition of the Social Security trust 
funds,[Footnote 17] it would be possible to link “tripwires” or 
“triggers” to measures related to overall budgetary flexibility or to 
specific program measures. For example, if Congress were concerned 
about declining budgetary flexibility, it could design a “tripwire” 
tied to the share of the budget devoted to mandatory spending or to the 
share devoted to a major program. 

Other variations of this type of “tripwire” approach have been 
suggested. The 1999 Breaux-Frist proposal (S. 1895) for structural and 
substantive changes to Medicare financing contained a new concept for 
measuring “programmatic insolvency” and required congressional approval 
of additional financing if that point was reached. Other specified 
actions could be coupled with reaching a “tripwire,” such as requiring 
Congress or the president to propose alternatives to address reforms. 
Or the congressional budget process could be used to require Congress 
to deal with unanticipated cost growth beyond a specified “tripwire” by 
establishing a point of order against a budget resolution with a 
spending path exceeding the specified amount. One example of a 
threshold might be the percentage of gross domestic product devoted to 
Medicare. The president would be brought into the process as it 
progressed because changes to deal with the cost growth would require 
enactment of a law. 

Improving the Recognition of Long-Term Commitments: 

In previous reports we have argued that the nation’s economic future 
depends in large part upon today’s budget and investment decisions. 
[Footnote 18] In fact, in recent years there has been increased 
recognition of the long-term costs of Social Security and Medicare. 
[Footnote 19] 

While these are the largest and most important long-term commitments— 
and the ones that drive the long-term outlook—they are not the only 
ones in the budget. Even those programs too small to drive the long-
term outlook affect future budgetary flexibility. For Congress, the 
president, and the public to make informed decisions about these other 
programs, it is important to understand their long-term cost 
implications. A longer time horizon is useful not only at the macro 
level but also at the micro-policy level. I am not suggesting that 
detailed budget estimates could be made for all programs with long-term 
cost implications. However, better information on the long-term costs 
of commitments like employee pension and health benefits and 
environmental cleanup could be made available. New concepts and metrics 
may be useful. We developed them before for credit programs and we need 
to be open to expanding them to cover some other exposures. I should 
note that the president’s fiscal year 2003 budget has taken a step in 
this direction by proposing that funding be included in agency budgets 
for the accruing costs of pensions and retiree health care benefits. 

The enactment of the Federal Credit Reform Act in 1990 represented a 
step toward improving both the recognition of long-term costs and the 
ability to compare different policy tools. With this law, Congress and 
the executive branch changed budgeting for loan and loan guarantee 
programs. Prior to Credit Reform, loan guarantees looked “free” in the 
budget. Direct loans looked like grant programs because the budget 
ignored loan repayments. The shift to accrual budgeting for subsidy 
costs permitted comparison of the costs of credit programs both to each 
other and to spending programs in the budget. 

Information should be more easily available to Congress and the 
president about the long-term cost implications both of existing 
programs and new proposals. In 1997 we reported that the current cash-
based budget generally provides incomplete information on the costs of 
federal insurance programs.[Footnote 20] The ultimate costs to the 
federal government may not be apparent up front because of time lags 
between the extension of the insurance, the receipt of premiums, and 
the payment of claims. While there are significant estimation and 
implementation challenges, accrual-based budgeting has the potential to 
improve budgetary information and incentives for these programs by 
providing more accurate and timely recognition of the government’s 
costs and improving the information and incentives for managing 
insurance costs. This concept was proposed in the Comprehensive Budget 
Process and Reform Act of 1999 (H.R. 853), which would have shifted 
budgetary treatment of federal insurance programs from a cash basis to 
an accrual basis. 

There are other commitments for which the cash and obligation-based 
budget does not adequately represent the extent of the federal 
government’s commitment. These include employee pension programs, 
retiree health programs, and environmental clean-up costs. While there 
are various analytical and implementation challenges to including these 
costs in budget totals, more could be done to provide information on 
the long-term cost implications of these programs to Congress, the 
president, and the interested public. We are continuing to analyze this 
issue. 

Conclusion: 

To affect decision making, the fiscal goals sought through a budget 
process must be accepted as legitimate. For many years the goal of 
“zero deficit”— or the norm of budget balance—was accepted as the right 
goal for the budget process. In the absence of the zero deficit goal, 
policymakers need an overall framework upon which a process and any 
targets can be based. When the deficits turned to surpluses, there was 
discussion of goals framed in terms of debt reduction or surpluses to 
be saved. As difficult as selecting a fiscal goal in times of surplus 
is, selecting one today may seem even more difficult. You must balance 
the need to respond not only to those demands that existed last 
year—demands kept in abeyance during many years of fighting 
deficits—but also demands imposed on us by the events of September 11. 
At the same time—in part because of the demographic tidal wave looming 
over the horizon—the events of September 11 do not argue for 
abandonment of all controls. 

Whatever interim targets Congress and the president agree on, 
compliance with budget process rules, in both form and spirit, is more 
likely if end goals, interim targets, and enforcement boundaries are 
both accepted and realistic. 

Enforcement is more successful when it is tied to actions controlled by 
Congress and the president. Both the BEA spending caps and the PAYGO 
enforcement rules were designed to hold Congress and the president 
accountable for the costs of the laws enacted each session—not for 
costs that could be attributed to economic changes or other factors. 

Going forward, new rules and goals will be important to ensure fiscal 
discipline and to prompt a focus on the longer-term implications of 
decisions. The federal government still needs a decision-making 
framework that permits it to evaluate choices against both today’s 
needs and the longer-term fiscal future that will be handed to future 
generations. What process will enable policymakers to deal with the 
near term without ignoring the long term? At the same time, the 
challenges for any budget process are the same: what process will 
enable policymakers to make informed decisions about both fiscal policy 
and the allocation of resources within the budget? 

Extending the current BEA without setting realistic caps and addressing 
existing mandatory programs is unlikely to be successful for the long 
term. The original BEA employed limited actions in aiming for a 
balanced budget. It left untouched those programs—direct spending and 
tax legislation—already in existence. 

Today’s situation may argue for an interim step in extending and 
modifying BEA. However, going forward with new challenges, we believe 
that a new process that prompts Congress to exercise more foresight in 
dealing with long-term issues is needed. The budget process appropriate 
for the early twenty-first century will have to exist as part of a 
broader framework for thinking about near- and long-term fiscal goals. 

This concludes my statement. I would be happy to respond to any 
questions you or other Members of the Committee may have at this time. 

Contacts and Acknowledgements: 

For future contacts regarding this testimony, please call me at (202) 
512-9142 or Christine Bonham at (202) 512-9576. Jennifer Eichberger 
also made key contributions to this testimony. 

[End of section] 

Footnotes: 

[1] Although the overall discretionary spending caps expire in 2002, 
the Highway and Mass Transit outlay caps established under the 
Transportation Equity Act for the 21st Century (TEA-21) continue 
through 2003, and the conservation caps established as part of the 
fiscal year 2001 Interior Appropriations Act were set through 2006. In 
addition, the sequestration procedure applies through 2006 to eliminate 
any projected net costs stemming from PAYGO legislation enacted through 
fiscal year 2002. 

[2] U.S. General Accounting Office, Budget Issues: Budget Enforcement 
Compliance Report, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-
777] (Washington, D.C.: June 15, 2001). 

[3] For a fuller discussion of these criteria see U.S. General 
Accounting Office, Budget Process: Evolution and Challenges [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-96-129] (Washington, D.C.: 
July 11, 1996), Budget Process: History and Future Directions, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-95-214] 
(Washington, D.C.: July 13, 1995), and Budget Process: Comments on H.R. 
853, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-99-188] 
(Washington, D.C.: May 12, 1999). 

[4] See U.S. General Accounting Office, Homeland Security: Challenges 
and Strategies in Addressing Short- and Long-Term National Needs, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-160T] (Washington, 
D.C.: Nov. 7, 2001); Congressional Oversight: Opportunities to Address 
Risks, Reduce Costs, and Improve Performance, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-96] (Washington, D.C.: 
Feb. 17, 2000) and Budget Issues: Effective Oversight and Budget 
Discipline are Essential—Even in a Time of Surplus, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-73] (Washington, D.C.: 
Feb 1, 2000). 

[5] House and Senate Budget Committees, Revised Budgetary Outlook and 
Principles for Economic Stimulus (October 4, 2001). 

[6] U.S. General Accounting Office, Budget Issues: Long-Term Fiscal 
Challenges, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-467T] 
(Washington, D.C.: Feb. 27, 2002) and Long-Term Budget Issues: Moving 
From Balancing the Budget to Balancing Fiscal Risk, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-01-385T] (Washington, D.C.: Feb. 
6, 2001). 

[7] For more on history, see [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/T-AIMD-96-129]. 

[8] See U.S. General Accounting Office, Budget Issues: Budget 
Enforcement Compliance Report, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-99-100] (Washington, D.C.: Apr. 1, 1999); Budget 
Issues: Budget Enforcement Compliance Report, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-174] (Washington, D.C.: 
May 31, 2000) and [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-
777]. 

[9] Additional information on issues related to emergency spending can 
be found in the Congressional Budget Office report Emergency Spending 
Under the Budget Enforcement Act, issued in December 1998, the update 
to that report issued in June 1999, the CBO report Supplemental 
Appropriations in the 1990s, issued in March 2001, and U.S. General 
Accounting Office reports Budgeting for Emergencies: State Practices 
and Federal Implications, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-99-250] (Washington, D.C.: Sept. 30, 1999) and 
Emergency Criteria: How Five States Budget for Uncertainty, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-156R] (Washington, D.C.: 
Apr. 20, 1999). 

[10] For a slightly longer discussion of these issues, see [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-01-777]. 

[11] The full name of the act is the Department of Defense and 
Emergency Supplemental Appropriations for Recovery from and Response to 
Terrorist Attacks on the United States Act, Public Law 107-117, 115 
STAT.2230 (2002). 

[12] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-174] 
and [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-777]. 

[13] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-250]. 

[14] U.S. General Accounting Office, Budget Issues: Budget Scorekeeping 
for Acquisition of Federal Buildings, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-94-189] (Washington, D.C.: 
Sept. 20, 1994). 

[15] See U.S. General Accounting Office, Budget Surpluses: Experiences 
of Other Nations and Implications for the United States, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-23] (Washington, D.C.: 
Nov. 2, 1999). 

[16] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-467T]. 

[17] 2 U.S.C. 632 (i), and U.S. General Accounting Office, Medicare 
Reform: Issues Associated With General Revenue Financing, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-126] (Washington, D.C.: 
Mar. 27, 2000). 

[18] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-96-
129] and U.S. General Accounting Office, The Deficit and the Economy: 
An Update of Long-Term Simulations, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD/OCE-95-119] (Washington, D.C.: April 26, 1995), 
among others. 

[19] OMB, Budget of the United States Government, Fiscal Year 2002, 
April 9, 2001; CBO, The Budget and Economic Outlook: Fiscal Years 2002-
2011, January 2001; [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
01-385T]; and U.S. General Accounting Office, Medicare: Higher Expected 
Spending and Call for New Benefit Underscore Need for Meaningful 
Reform, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-539T] 
(Washington, D.C.: March 22, 2001). 

[20] U.S. General Accounting Office, Budget Issues: Budgeting for 
Federal Insurance Programs, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-97-16] (Washington, D.C.: Sept. 30, 1997). 

[End of section] 

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