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TESTIMONY OF
JACOB J. LEW
DIRECTOR
OFFICE OF MANAGEMENT AND BUDGET
BEFORE
THE COMMITTEE ON RULES
UNITED STATES HOUSE OF REPRESENTATIVES
RE: BUDGET REFORM
March 10, 2000
Mr. Chairman, and Members of the Committee, I am pleased to be here
this morning to discuss
biennial budgeting and other budget reform proposals.
This Administration has strongly supported many reforms to improve
the efficiency and
effectiveness of the Federal Government. Beginning with the Vice
President's National
Performance Review in 1993, the Administration has sought to reinvent the
Federal Government,
so that it will work better and cost less.
We have already seen a number of successes. For example, since
President Clinton took office,
the number of Federal, executive branch civilian employees has dropped by
over 360,000 to the
lowest level in 39 years. In addition, when the Administration took
office, the Federal budget
routinely ran deficits of well over a hundred billion dollars per year,
deficits then projected to
continue into the indefinite future. This trend has been decisively
reversed, with the Federal
budget running a surplus in the last two fiscal years -- FY98 and FY99.
Prior to these surpluses,
the last balanced budget had been in fiscal year 1969, and the last time
that the Federal
Government had two consecutive balanced budgets was in fiscal years 1956
and 1957.
The fact that we are running a surplus does not mean, however, that
fiscal discipline is no longer
needed. To the contrary, fiscal discipline is essential to protect Social
Security and strengthen
Medicare, so that both will be there in the years ahead. Reducing the
accumulated Federal debt
will help us to protect these important programs, improve our ability to
respond to future fiscal
problems or crises, lower both interest rates and Federal interest costs,
and encourage continued
strong economic growth. Accordingly, the President's Budget for Fiscal
Year 2001 proposes a
new framework for the budget process that includes tools for ensuring
continued fiscal discipline.
These tools include a Social Security Solvency Lockbox to ensure that
Social Security surpluses
are not used for other purposes, as well as measures to strengthen Medicare
and reduce the
publicly-held debt. In addition, the framework proposes to extend to 2010
both the "paygo" and
discretionary spending caps enforcement mechanisms.
In this context, the Administration continues to believe that
biennial budgeting offers a
management tool with potential to contribute to the enhanced performance of
the Federal
Government. In 1993, Vice President Gore's "Report of the National
Performance Review"
proposed moving to biennial budgeting. The potential benefits of biennial
budgeting were also
outlined in testimony presented by two of my predecessors as OMB Director
-- Leon E. Panetta
and Franklin D. Raines -- in their testimony before the House Governmental
Operations
Committee (in 1993), the Senate Rules Committee (in 1994) and the Senate
Governmental
Affairs Committee (in 1997).
Most recently, the President's FY2001 Budget states that "Reaching
agreement on budget
priorities for two years would provide greater predictability and planning
certainty to 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
distraction."
In their testimony in support of biennial budgeting, OMB Directors
Panetta and Raines focused
on its potential benefits. I would like to first reiterate the substantial
advantages of biennial
budgeting. In addition, given the serious consideration being given to
biennial budgeting this
year, it is particularly important to discuss some of the practical
considerations for biennial
budgeting to succeed.
The potential benefits from biennial budgeting can best be
appreciated by considering what
happens nearly every fall under the current process. During the months of
September and
October, Congress and the Administration are typically negotiating final
appropriations levels for
the new year and reaching agreement on one or more continuing resolutions.
Simultaneously the
agencies and departments of the Executive Branch are beginning the new
fiscal year operating
under continuing resolutions while also expending great amounts of time
developing their budget
requests for the subsequent fiscal year.
The current process does not serve us well. It is very inefficient,
and the task of budgeting
consumes a great deal of time and energy that could be better devoted -- by
the Congress, the
President, and the agencies - to addressing programmatic issues from a
longer-term and more in-depth perspective. In sum, the primary potential
benefit from biennial budgeting is that, by
concentrating budget decisions in the first year of each two-year period,
time would be freed up
in the second year that could be redirected to management, long-range
planning, and oversight.
These are familiar arguments that have helped build the growing
interest in biennial budgeting.
By contrast, many of the criticisms of biennial budgeting focus on concerns
about how it will
function in practice. These important concerns must be kept in mind when
crafting legislation.
Because of growing support for biennial budgeting, I want to spend time on
problems that could
arise under it, and the challenges that the Congress and the Executive
Branch will have to address
to ensure that it succeeds.
First, for biennial budgeting to work, the two branches in the first
year of the biennium will have
to negotiate, and reach agreement on, appropriations that span two years
instead of only one.
This will be difficult. The problems with the current process result from
the difficulties that
Congress and the Executive Branch have encountered in negotiating, and
reaching agreement, on
appropriations that cover one year. Having to negotiate and reach
agreement on two years of
appropriations will inevitably be more complex.
As a result, the two branches will have to exercise discipline in
carrying out negotiations, to
ensure that they reach a successful conclusion within about the same time
frame as we now do for
the thirteen appropriation bills. If the negotiations drag on into
November and December, then
the time that is saved in the second year of the biennium comes at the
expense of having to
devote more time to budgeting in the first year. Alternatively, if the two
branches give up and
enact only annual appropriations, then we will have essentially created a
more time-consuming
version of the current process.
Second, the two branches would have to ensure that, during the
second year of the biennium, the
Federal Government remains able to respond to changing and unforeseen
circumstances, as well
as evolving priorities. It is not reasonable to expect that appropriations
could be proposed, and
decided upon, in the first year of the biennium, with no changes needed
during the next two
years. Under biennial budgeting, a mid-cycle review would have to occur
and necessary
corrections made. Thus, there will be a need for the President to have the
opportunity to propose
orderly changes, and for Congress to provide updates. Should the
supplemental become thirteen
appropriations bills, the efficiencies of biennial budgeting would be lost.
There will also be a
need to provide agencies with additional flexibility in how they use their
funding, to enable them
to address changing conditions and evolving priorities without the need for
a legislative change in
each and every case.
We should not expect the answer to this challenge to be immediately
obvious. It will likely take
the two branches some period of time, as they implement biennial budgeting,
to learn how the
benefits of biennial budgeting can be realized without sacrificing
necessary Government
flexibility. We should endeavor to meet this challenge. Biennial
budgeting will not work if the
process either becomes too inflexible or too open-ended. On the one hand,
the Federal
Government will not be able to carry out its responsibilities properly if
it finds itself locked into
long-term appropriations that are open to review and revision only once
every two years. On the
other hand, the potential benefits from biennial budgeting -- namely, the
time that can be saved
and redirected to longer-term reviews and initiatives -- will not be
realized if in place of the
current system with structured annual budget reviews, we produce a system
in which the two
branches become so accustomed to considering and passing supplemental bills
that the task of
budgeting becomes an unstructured and unending process.
For biennial budgeting to work, then, the two branches will have to
avoid these extremes, and
find the proper balance under which the major task of budgeting is carried
out once every two
years. Furthermore, mid-course corrections should be limited to those
changes needed to address
changing and unforeseen circumstances, as well as significant changes in
priorities. That balance
will require cooperation between the branches. Supplemental appropriations
bills will require
both congressional and presidential action. I would anticipate that
additional flexibility for
agencies will be accompanied by appropriate congressional consultation and
notification
requirements. Efforts should be made to avoid a process that enables
single parties to block
agency activities at a very low level of detail.
Finally, there will also have to be an appropriate transition period
before the Federal Government
converts over to biennial budgeting. It must be recognized that biennial
budgeting will constitute
a very fundamental change in how the Federal Government operates. A
conversion to biennial
budgeting will have to take into account the magnitude of the change that
would be required, both
in terms of the need to make necessary conforming changes to those laws
that presume the
proposal and enactment of annual appropriations, as well as in terms of the
need for Congress
and the Executive Branch to develop and implement new practices for
proposing, considering,
and enacting biennial budgets. For example, we will need to ensure that an
incoming President
has sufficient time, upon taking office, to prepare a budget proposal that
will cover two years
rather than one. Additional time may be necessary for the Administration
to prepare the first
biennial budget proposal as well as for Congress to pass the first set of
biennial appropriations
bills. We can expect a challenging process in the first year, and the
legislation should allow for
that.
In order to realize the many potential benefits of biennial
budgeting, we must think through
carefully how it would work in practice, so that we can successfully meet
the challenges that will
be involved in carrying out the transition and in implementing the new
system. Indeed, careful
attention must be devoted to crafting biennial budgeting legislation to
ensure that the adoption of
biennial budgeting will work in practice, with the intended results.
* * * *
As I have explained, biennial budgeting has the potential to enable
the Congress and the
Executive Branch to save time that can be devoted to more in-depth and
longer-term reviews and
initiatives. By itself, however, biennial budgeting cannot remedy all of
the shortcomings of the
existing budget process. In order to strengthen the budget process and
maintain the fiscal
discipline that has brought us so far, we need to also address the budget
process proposals
presented in the President's Budget.
As I noted earlier, the President's Budget for FY2001 proposes a new
framework for the budget
process. The reforms that the Administration has proposed will protect
Social Security,
strengthen Medicare, and ensure continued fiscal discipline. Establishing
budget protections for
Social Security and Medicare, along with other budget reforms such as
extending paygo and the
discretionary caps, will strengthen the framework for fiscal discipline for
the long term and
ensure our continued success in getting our fiscal house in order.
It is also important that biennial budgeting not be used as a
vehicle to make other potentially
damaging changes in the budget process, such as ending the paygo
requirements for tax cuts and
new mandatory spending. Finally, it should be noted that points of order
can be used to block
non-conforming action, but not to compel agreements on a two-year cycle.
It will take
cooperation and constructive negotiations to reach a two-year
agreement.
Carefully crafted biennial budgeting legislation, particularly if it
is combined with the budget
process reforms in the President's budget, can be an important tool to
improve management of
our Government. I look forward to working with you in that process and
would be pleased to
respond to your questions.
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