Present: Representatives Dreier, Goss, Linder, Pryce, Diaz-Balart, Hastings, Myrick and Sessions.

Recently several committees in the House have begun to explore new proposals to address budgeting uncertainties resulting from tight spending constraints. A proposal of concern to the Rules Committee is one that seeks to enforce a minimum level of spending through points of order in the House.

For a little over a year, the House has had a guaranteed spending point of order in its rules. The Transportation Equity Act, last year's highway reauthorization bill, contained a point of order that guarantees specific levels of funding for highway and transit programs. Because the point of order was included in the conference report and not in the House-passed bill, there is no legislative history to help the Rules Committee better understand how the point of order will be applied in various circumstances.

There are a number of specific concerns that I hope can be addressed by this hearing. First is the concern that guaranteed spending rules create super-strong entitlement-like programs. Because such rules establish a floor on spending, they turn discretionary programs into entitlement programs, though still labeled discretionary spending, that have more protection than Social Security

Should it be the policy of the House to lock in spending for one worthy program to the potential detriment of other worthy programs? It is a question we have to address.

A second concern is that such rules complicate the offering of amendments. In general, guaranteed spending points of order make it extremely difficult, if not impossible, to shift funding from program to program within a protected funding area, to reduce funding, or to shift funds to areas of greater need

It is my hope that the testimony today will shed more light on these concerns as well as other questions about the application of guaranteed spending points of order and their effects on the budget process.

[The statement of Mr. Dreier follows:]

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The Chairman. And while I guess we do now have a quorum, I have been informed by the Minority staff that we could proceed, as I know a number of our witnesses are under time constraints.

So I would like to first recognize our panel consisting of the distinguished Chairman and Ranking Minority Member of the Transportation Infrastructure Committee, Chairman Shuster and Mr.  Oberstar. Please come forward, and I suspect that you both have prepared statements, and those will appear in their entirety in the record, and you can proceed as you see fit.

The Chairman. Mr.  Chairman.

STATEMENT OF HON. BUD SHUSTER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

I must say respectfully, having read the memos leading up to this, we believe that this is an attempt to undo the overwhelming will of the House as passed in TEA 21 last year overwhelmingly, 297 to 86 in the House and 88 to 5 in the Senate.

The importance of this point of order under discussion today, as far as we are concerned, the trust fund point of order is simple. It is what ensures that TEA 21 is carried out so that the Highway Trust Fund taxes are used for their intended purposes. Now, this was not our preferred way of providing that insurance. Our preferred way of providing that was to make a Transportation Trust Fund, the Highway Trust Fund, take it off budget, but as a result of a notion, we had to compromise, and so we find ourselves instead in a situation where the only way, given the constraints of compromise in which everybody was involved, the various committees, we find that the point of order really became the only way that we could ensure that the Highway Trust Fund taxes be used for their intended purpose.

Now, TEA 21 ended nearly three decades of abuse of the Highway Trust Fund. Since its incorporation in 1969 into the unified budget, the Highway Trust Fund had been borrowed from to mask and finance other general fund spending. This was a fraud, and it was wrong, and our committee went through a 3-year effort to end this shameful practice and restore integrity into the Highway Trust Fund, which culminated in the passage of TEA 21. That law is now in place, and it is working well, and the linchpin is the point of order.

And while there may or may not be other committees expressing interest in having such points of order, there is a fundamental difference between trust fund and general fund spending. Also, there is a fundamental difference between not having reached an agreement which overwhelmingly passed the Congress and was part of the deal. Specifically I am referring to the fact that as this was structured with the Speaker, with Chairman Solomon and other members of the leadership in our various meetings, it was structured in a way that we would be able to unlock and spend the money in the trust fund.

The problem, of course, over the years I think we have been aware of, the people paying their gas taxes and the money not being spent for the intended purpose, and indeed, the 1997 balanced budget agreement worsened the problem because with ISTEA, the previous highway bill, expired. My primary goal during reauthorization of ISTEA was to end the abuse and ensure that Highway Trust Fund tax revenues were spent on highway and transit infrastructure.

The 1997 balanced budget agreement held that the highway and transit spending was $12 billion below the tax revenues coming in to the trust fund during the periods of 1998 to 2002. The budget was being balanced in part by using Highway Trust Funds. We believe that is just fundamentally wrong.

And when the budget resolution implementing the balanced budget agreement came to the House floor, Congressman Oberstar and I offered a substitute budget resolution. It increased spending levels out of the Highway Trust Fund by $13 billion, and indeed, our amendment, our substitute, failed by only two votes and only after an extraordinary lobbying effort by the leadership and the administration.

On TEA 21, beginning in January 1998, the Speaker convened a task force to determine the proper treatment of the Highway Trust Fund in the context of the overall budget. The purpose of the task force was to reach a unified Republican position. All the relevant House Members were included. Republican leadership, myself, subcommittee Chairman Petri, Budget Committee Chairman Kasich, Appropriations Committee Chairman Livingston and subcommittee Chairman Wolf, Ways and Means Committee Chairman Archer, Rules Committee Chairman Solomon, Republican Conference Chairman Boehner and other Members and all of their relevant staffs participated in these discussions and these notions.

Now, some Members may not like the outcome, but everybody participated, and indeed, out of that came a decision, a very fundamental decision. Our committee's top concern was in reforming the trust fund to ensure that the gas tax revenues were spent as they should be spent. The Appropriations Committee's concern, I believe, was that they continue to be part of the annual oversight process.

After several months of meetings, Speaker Gingrich determined several principles that would guide House consideration of the Highway Trust Fund. These were, first, that the gas tax was inviolate; second, the bill would ensure that the tax revenues paid into the Highway Trust Fund would be spent; third, the House would take the Highway Trust Fund off budget, which was the House position, but would fall back to the firewalls in conference; any spending over the baseline to accomplish these goals would have to be fully offset.

The point of order was a fundamental part of this compromise, and indeed, as I emphasized, it wasn't our idea to have the point of order. We preferred to much more simply take the trust fund off budget, but out of these notions came a compromise, and the point of order was fundamental to it.

Firewalls were the suggestion, in fact, of the Appropriations Committee. They opposed taking the trust fund off budget or creating any additional mandatory spending. They preferred firewalls since the firewalls would reserve outlays for the highway and transit programs, but would keep these programs as discretionary spending and as part of the annual budget and appropriations process

Our committee was concerned that firewalls themselves would not ensure that the tax revenues coming into the trust fund would be spent. While the firewalled spending was set aside, there was no mechanism to ensure that the funds would actually be appropriated and at these levels since they were part of the overall discretionary spending.

The Speaker listened to our concern and directed that the offset spending levels for highway and transit needed to be guaranteed. That was the purpose of the point of order, and we are not here today to argue for or against similar points of order for general fund spending. We are here simply to say this was the deal, and this was the deal that passed overwhelmingly in the Congress.

The Speaker's directive was made in a large meeting attended by at least 20 Republican Members and 50 staff members.

During the conference with the Senate on TEA 21, there were many proposals for how to implement these proposals, particularly the firewalls. Our committee's priority remained the same. That was reforming a process to ensure that the Highway Trust Funds money would be spent as it was intended

During the final negotiations, our committee made three key concessions that made this point of order necessary. First, we ultimately agreed to keep Highway Trust Fund programs on the discretionary side of the budget ledger. Our preference was that the increased spending necessary to ensure that tax revenues were spent would be made mandatory. This would make them guaranteed, with no need for a point of order. That was our preference. This approach was objected to by the House and the Senate Budget Committees, which opposed any new mandatory spending. If the spending had to be discretionary, a point of order in the House was the only way to accomplish a guarantee.

Second, we agreed to levels of overall spending that were lower than spending tax receipts each year. Each year obligations, rather than outlays, would be equal to the prior year's actual tax receipts. This amount was fully offset

And third, we agreed that in return for ensuring that the trust fund would not be borrowed from in the future, we no longer credited the trust fund with interest and eliminated most of the cash balance. Let me emphasize this. This was a key part of our concession. In order to get the firewall so we could spend the trust fund money in the future, we agreed to write off, in effect, the interest money coming in and agreed to write off, in effect, most of the balance in the trust fund. What we would do would be simply from that date forward, an enormous concession when you consider we are talking about $20  billion

Contrary to some assertions, the point of order was not added in the dead of night. It was part of a painstakingly negotiated compromise in a process that included everyone invited to this hearing today. Now, some may not like the outcome, but everybody was involved, and this is an effort, in our judgment, to simply undo the overwhelming will of the Congress.

A point of order enforces trust fund integrity. In sum, while the process to get the point of order was long and complex, the principle behind the point of order is simple. TEA 21 reformed the Highway Trust Fund and ensured that tax receipts would be spent. Any additional spending would be fully offset. The point of order was added to ensure that these promises would be kept. Without this point of order, we would be right back battling over efforts to raid the trust fund for other purposes.

In general, the point of order is working well. It amended rule XXI, clause 3 of the rules of the House to provide: It shall not be in order for the House to consider a bill, joint resolution, amendment or conference report that would cause obligation limitations to be below the levels for any fiscal year set forth in section 8103 of TEA 21 as adjusted, for the highway or mass transit category, as applicable

Its operation is simple. Section 8103 of TEA 21 contains a level of outlays for each year that is estimated to be equal to the prior year's tax receipts. Those levels are adjusted to account for actual changes in tax receipts. Any legislative action that does not ensure that these levels can be obligated is subject to a point of order.

The overall TEA 21 levels are easy to identify and calculate. The Appropriations Committee has been able to report bills at these levels for the past 2  years. Much time and effort has been expended looking at one small part, that is, whether amendments may be offered that limit particular highway or transit projects, and it has been asserted that they may not.

This is not accurate. Any Member may offer any amendment as long as the total obligation does not fall below the prior year tax receipts. There are lots of ways to do this which we would be happy to go into in more depth, but in any event, the types of projects that this issue affects represents less than 5 percent of the overall highway and transit programs

This is the equivalent of the flea wagging the tail wagging the dog. Any problems that have cropped up are extreme examples, and we are ready today to work with all the parties to help work them out.

Again, I want to thank you for the opportunity to present this and hopefully put it in focus as to what the agreement was and what resulted in the will of the House. The vote was 297 to 86 and in the Senate was 88 to 5, and I believe we would be right back in the middle of this battle all over again if we undo this critical point of order which is an essential part of the bargain of the agreement which we reached with regard to TEA 21. And I emphasize again what other committees may be interested in doing is certainly not something we are here today to either support or oppose.

[The statement of Mr. Shuster follows:]

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The Chairman. Well, thank you very much, Mr.  Shuster. I sense you are less than enthusiastic to be here before us

Mr. Shuster. I am always enthusiastic about appearing before you, sir, and having the opportunity to state our views

The Chairman. I appreciate that. Let me say, I do believe that it is clearly our prerogative to raise questions. Speaker Hastert at the outset of the 106th Congress talked about the importance of programmatic and policy oversight, and I believe that it is this committee's responsibility to look at an issue which is questioned. I was among those 297 people. I have voted for your bills in the past, and I think it is fair for us as a committee to raise questions.

The Chairman. Mr.  Oberstar.

STATEMENT OF HON. JAMES L. OBERSTAR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Our preference was for total off-budget status. We compromised, as the Chairman said, and in the process highway users gave up $40 billion, a $29 billion surplus in the Highway Trust Fund at the outset of last year plus $11 billion of interest that would accrue on Treasury notes purchased by gas tax receipts over the 6  years of the TEA 21 legislation. That is real consideration. In addition to that, there were offsets, as the Chairman rightly noted, and I will not repeat his statement

Three points I want to make are that the history, not all taxes are the same, and not all spending is the same. I started here as legislative assistant to my predecessor John Blatnik in 1963. Seven  years earlier the Highway Trust Fund and the interstate highway program had been initiated, enacted in 1956, in spring, May of 1956. Six weeks later the Department, then the Bureau of Public Roads, had regulations issued. States began spending gas tax receipts by September in the realization that they had a guaranteed revenue stream, that they could make long-term commitments for projects that would take years to design, engineer, require right of way, and this is prior to environmental impact statements, and get underway with construction. They needed the guaranteed revenue stream. States would not have committed with the partnership with the Federal Government had we not established the principle of a guaranteed revenue stream. That was the Highway Trust Fund.

It was not in the unified budget of the Federal Government. It had a separate status because these were user taxes. You use the highway, you pay a special tax to build the road that you expect to drive on or the bridge, and that worked just fine. Every year the Appropriations Committee approved the funding. There was no limitation on outlays until 1968. In that year the Office of Management and Budget proposed to President Lyndon Johnson that all of the trust funds of the Federal Government be included in the unified budget of the Federal Government. The Bureau of the Budget argued this would make for better accountability of all the revenues and insisted, with our committee, that it would not change the investment from the trust fund into the highway program.

A second occurrence changed the future, and that was a recommendation by the Council of Economic Advisers that in order to slow down inflation as the Vietnam war was building up, that the President withhold spending from the highway program. It was the biggest single engine of economic growth. So if you want to do guns and butter, you got to slow down some of the butter side was the argument, and President  Johnson held back the amount of $902 million. By the next year it was a billion dollars. President Nixon continued the policy, President Ford continued, President Carter and on through every successive President, until we had a buildup of $29 billion in surplus in the Highway Trust Fund. Every time you buy a gallon of gasoline, the gas tax goes into the Treasury, purchases Treasury notes. Those Treasury notes pay interest to the Highway Trust Fund. They are redeemed when call is made on them.

But by having this large surplus, it was very convenient for every President and for President Johnson to claim that his last budget was in balance, when, in fact, there was close to a billion-dollar deficit, but it looked in balance because now the Highway Trust Fund was on budget

What we attempted to do in years since then is to restore that unique status of the trust fund and did not succeed in accomplishing it until TEA 21.

Second point I want to make is why is such a mechanism necessary? Can't reasonable people do things reasonably? Can't we just trust the Appropriations Committee to do the right thing? Can't we trust the Office of Management and Budget to do the right thing and keep faith with the driving public? Well, let me share my experience as Chair of the Aviation Subcommittee in 1990 when, along with then Member Newt Gingrich and later Bill Clinger, we worked to increase investment from the Aviation Trust Fund into our Nation's airports and our air traffic control system modernization.

There was at that point a $7.5 billion surplus in the Aviation Trust Fund and a huge need to modernize air traffic control and a great shortage of runway space. There were 14 million hours of delay in the aviation system nationwide. O'Hare had just reached 100,000 hours of delay, Atlanta was just behind with 92,000 hours of delay, Denver with 85,000 hours of delay, and 30 other airports with more than 20,000 hours of delay. The National Business Traveler's Association, every organization in America said invest the Aviation Trust Fund.

A few years earlier, before my chairmanship, there had been an initiative by our committee with the Appropriations Committee that if a certain percentage of the AIP program was not invested in AIP, that is, airport construction, that none of those dollars could be used for the operations account. So AIP dollars had been used, trust fund dollars had been used for operating the air traffic control system. What we said in this trigger mechanism was if you don't spend at least 50 percent of AIP on airport construction, then you can't use these dollars for operations. The trigger mechanism operated to slow down both operation funding and AIP.

So Newt Gingrich, later Bill Clinger and I brought OMB, Appropriations Committee, then Bill Layman was Chairman of the transportation appropriations, and we worked out an agreement. We will authorize over 3  years a reasonable level that can be spent by the FAA and that you think can be accommodated within the confines of the budget so that we draw down the trust fund over a 3-year period. We will then increase the amount of AIP money that can go into operations up to 75, up to 80 percent, and we will get these authorized dollar amounts in to AIP and the F&E account.

It worked for 2  years. The good faith agreement broke down. First the Office of Management and Budget recommended far lower levels of spending than we had agreed upon and that we had authorized and that the Congress, House and Senate, had voted. By the time we got to last fiscal year, the capital investment was only 42 percent of the total FAA budget. Where was the trust? Where was the fairness? Where was the gentleman's agreement? It all went out the window.

So when Chairman Shuster said, how can we avoid that kind of failure in the highway program, we have got to take it off budget totally, or we have got to have some mechanism that is inviolate. Firewalls was part of that agreement, and the offsets in yielding the balance in the Highway Trust Fund and the future interest payments is part of that understanding.

So my third point is learning from history, what we have done in this bill, TEA 21, is keep trust, keep faith with highway users, still agree to be taxed for a very, very specific purpose. We have paid for the increased revenues out of the trust fund both by giving up interest and capital that is built up in the Highway Trust Fund surplus, and third, we have in exchange for that a mechanism, so-called firewalls, and the point of order that are key to enforcing this agreement.

And as the Chairman said, we do not make a case for any other programming, any other revenue source. We are dealing only with the Highway Trust Fund, and now we have -- the House has passed the aviation legislation with a very similar -- but without a point of order to it. So I think what we have is a very carefully balanced and well-crafted agreement here to invest in America's future.

[The statement of Mr. Oberstar follows:]

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The Chairman. Well, thank you both for very interesting testimony. I know we have a number of questions we want to raise, and I just have one quick one in hearing about all these negotiations that have taken place in the past. I can only assume that the Rules Committee will be an active participant in any negotiations that take place over the AIR 21 provisions in the future as we proceed with that

Mr. Shuster. I would certainly expect so, but, of course, that would be up to the Speaker

The Chairman. Well, I sit here out of the kindness of the Speaker, as do all members of this committee in the Majority, and I certainly know he would want us to participate

Mr. Shuster. We are happy with AIR 21 as it passed in the House, which does not have a point of order, nor does it need a point of order

The Chairman. Just as I said, though, as you know, I voted for it, but as we continue to have discussions on this overall issue, I just can only assume that we would be involved in that

Mr. Shuster. That would certainly be my hope

The Chairman. Mr. Goss 

Mr. Goss. Thank you very much, Mr.  Chairman. First of all, I want to thank you very much for what has been informative testimony, forcefully stated, and I do congratulate you on the way you handle your portfolio. You do a fabulous job

There is a problem for some of us in that Florida, as you know, has been a mega donor State, and we refer to the trust fund as the distrust fund, and Florida, as a result, we are not particularly happy with the way the formula has worked, but we certainly very much think that your effort to honor the obligation of a, quote, trust fund, of people who are using and getting some kind of a direct relationship -- and what has happened, I think, in the trust fund is we have gotten away from what I would call the court-sanctioned view of distinction between a tax and a fee.

A user fee has direct application and has to show some kind of a response, and what happens through the process in Washington, through this whole process that you have accurately described, is that the directness of the application of the benefit for the payor gets lost somewhere in the translation. There is a percentage taken for administration. The road is not built in his part of the country, it is built someplace else, and he or she will never see it. There are all kinds of problems like that

So my question to you is, not to go back and in any way challenge anything you said, because I think the history as presented has been very informative and useful, and I think you have discharged your responsibility to bring it, and I am sincere in my congratulations in that I am equally sincere and regret that Florida as a growth State has not been able to make its waste lower in changing the formula so that growth States get a better shake and more directness of the fees, but having said that, you both testified to the fact that not all taxes are the same and not all spending is the same, and one of the things this committee is charged with doing in our portfolio is looking into the question of much process reform.

I would like very much to honor the objectives you have espoused, that you are trying to do it, but I would like to do it through some budget process reform, and I would like to have the assistance of your committee and yourselves, who are both very important leaders in this institution, to understand what those distinctions are and accommodate them in true budget process reform. That is where I am coming from in this hearing, and I just want you to know that

Mr. Shuster. May I respond to your comment about Florida? In TEA 21 Florida had one of the largest increases of any State because Florida, as you so accurately stated, was not treated fairly. Florida was at about 70 percent, and it went up to 90.5 percent, and a very, very substantial increase for Florida

Mr. Goss. We appreciate that. We would have liked to be in the Massachusetts position, I think, rather than the Florida position

Mr. Oberstar. I don't think you would have wanted to be in Massachusetts

Mr. Shuster. Understand that the Massachusetts thing is not really accurate the way it is portrayed. Massachusetts got a lot of money in the past for the so-called big D up there, but Massachusetts actually took a cut, and when you set aside the big D, which is there is no more going to that, the money now going to Massachusetts is a cut. In fact, Massachusetts is one of the few States that gets less money

Mr. Goss. We would agree that it is about time to equalize that, and nothing against Massachusetts, but the point I am trying to make, we appreciate what you did for Florida to try to get us up to equity. We still think we have got a ways to go, and we haven't gotten entirely over the concern we had even when we were the worst donors in this situation

Mr. Shuster. Mr.  Chairman, the staff is telling me I have got another hearing to go chair. May I be excused?

The Chairman. Before you leave, any questions?

Thank you very much, Mr.  Chairman

Mr. Goss. Mr.  Shuster, would you help us with budget process reform? That is the direct question I would ask

Mr. Shuster. I think the budget process badly needs reform. The devil is in the details

Mr. Goss. Thank you very much. We appreciate your assistance on that with those details

The Chairman. Mr.  Linder

Mr. Linder. No questions

The Chairman. Ms. Pryce

Ms. Pryce. No questions

The Chairman. Mrs.  Myrick.

Mrs. Myrick. None

The Chairman. Mr.  Sessions

Mr. Sessions. No questions

The Chairman. Thank you very much, Mr.  Oberstar. We appreciate your being here

Mr. Oberstar. If I might, just one comment. Mr.  Goss raised a very important matter, and that is, trying to define a fee. We grappled with this extensively in trying to find alternate funding for the Aviation Trust Fund over several years of developing a system of fees that would replace the ticket tax so that the funding for aviation would not be subject to Appropriations Committee and their vagaries, and so that we could fund the entire operations of Congress out of the fee system. But every time we crafted a fee, the Office of Management and Budget found a little nit to pick with it. Those people just don't level with you. As you work on budget reform, call that crowd in here and browbeat them a bit

Mr. Goss. I thank you, and I accept your response. I will tell you that I will go back to my old days in local government with my local government hat and say the most successful thing we ever did in terms of infrastructure building in my community was to install tolls on the bridges, many bridges over our coastal area. As a result, we basically have looked out very well for our own infrastructure, and we have a direct application of the user fee, and you know, it is court-sanctioned and court-accountable, and the beautiful part of it is we don't have a lot of overhead, and Washington is not involved in this at all, and we are basically building roads and bridges and providing good opportunity for people to travel out around in a growth State, and without that we would really be in trouble. It is bad now, but it would be horrible without it

Mr. Oberstar. There are some merits to that, but I would say to my good friend from Florida that is an old system. It was first instituted in 13th century England when each castle owner was required to maintain the  --

Mr. Goss. Highway robbery came from that

Mr. Oberstar. -- The paths in front of its way and to fill the ruts as the carriages rolled past. It didn't work very well, and we did have a national system of highways, and some parts of the country are going to benefit, and some are going to get a little bit less than they contribute in. It is kind of like an insurance program, but the aviation is far more of a national system than our highway program is

Mr. Goss. I agree, and there are different applications, as you pointed out, and I don't want to be argumentative, Mr.  Chairman

Mr. Oberstar. I think this is a very useful discussion

Mr. Goss. It is an important discussion, and I would say that the idea of a new technology is coming in with these e-passes and electronic things you put on your windshield I think are going to revolutionize the way to give money to somebody for something, as we have seen, and I understand the government is going to be waiting there eager to receive the money. What I am not so sure is the money goes back to the application of where that money is being actually charged, point of charge, and I think that is a very critical question of fair play that you are championing

Mr. Oberstar. The proof of the TEA 21 is that on average every 30 miles across this country this year there is a construction zone on our highways

Mr. Goss. I know it is hard to get anywhere

The Chairman. Thank you very much, Mr.  Oberstar. We appreciate you being here and for your very helpful testimony. The Chairman. Our next panel consists of the Chairman of Appropriations Committee and the distinguished Ranking Minority Member. Unfortunately, Mr.  Young is in a meeting right now with his Speaker, is unable to be here. I assume he is going to be very well-represented by a very good friend from Wisconsin, Mr.  Obey, and you are welcome to file any prepared text that you have for the record. Without objection, it will appear there, and any summary you would like to offer us would be more than welcome.

STATEMENT OF HON. DAVID R. OBEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Let me say, first of all, that I very much appreciate the fact that you are doing this. I think it is a public service to the institution, and it is a pleasure to be before this committee on something that has absolutely nothing to do with partisan politics and has a lot to do with how this institution supposedly works.

I take a back seat to nobody in my support for highway legislation. When I was in State legislature, I was a Democratic point man on every single highway item that came up for 7  years, but I do think that we have, all of us, an obligation to look at our broader responsibilities, and I would simply, before I make my comments, just give you three quick responses to some things I heard the previous witnesses say.

First of all, you heard reference to the necessity to protect the integrity of the Trust Funds. I don't differ with that at all, but I think it is more important to protect the integrity of the budget process because the budget process deals with everything that we provide money for, not just some trust fund accounts

Secondly, with respect to aviation, I would point out that in addition to what is paid for through aviation taxes, we have generally provided about $3 billion a year in general fund money on top of that for aviation programs. So I hardly think that they are being short-sheeted when it comes to aviation by the normal appropriations process

Thirdly, I have heard them say that you have a need to plan long term. I understand that. Lots of people make that argument, everybody from NIH to as recently as yesterday when the Clinton administration was arguing that they wanted 3-year funding for the Middle East package responding to the Wye agreement. Sonny Callahan, I think, has rightly said, let us do as much planning as we can, but we should not be providing 3 and 4-year obligations to anybody because conditions can change overnight. You are going to have a war overnight and wish to God you never made some other long-term commitments

Fourthly, Mr.  Shuster said that TEA 21 had been paid for. I would remind you how. It was paid for by reductions in benefits. It was paid for by Title 20 block grant reductions for the poorest people in this country and by scoring gimmicks which required, among other things, that we follow OMB scoring on several items rather than CBO.

Having said that, let me explain why I am here. I am not here on behalf of the Appropriations Committee, although Mr.  Young and I certainly, I believe, share the same views, but I detest looking at this in terms of committee jurisdiction. Dick Bolling, who hangs up there on the wall, used to say that the worst thing about Congress is when people engage in jurisdictional battles, which he referred to as dung hill politics, and I agree with his views. I think committees are here to serve the House, not the other way around. And I look at this issue, or tried to, because I used to serve on the Public Works Committee before I went to appropriations, and I try to look at this from the standpoint of what the House needs from both committees rather than what both committees want out of the House. This ought to be a question of we rather than me, and I hope everybody will look at it that way

I think the proper question is not whether this gets in the way of somebody's jurisdiction, but is the process of the national interest, and does it strengthen or weaken the ability of this institution to balance off all of its obligation in a fair manner, and I think that the provisions that we are discussing here today fail to meet that test

First of all, I think they add to the complexity of the budget process. I think we all know that there are not 10  percent of the Members of the Congress who really have a detailed understanding of that budget process. There are parts of it I don't understand, and I have only worked with it since its inception. I think that we have made the budget process so confoundedly complicated that it takes eight Philadelphia lawyers a week of Sundays to figure out what in God's name some of the provisions mean, and this makes it simply more difficult, and to the extent it becomes more difficult for us, you can imagine people trying to penetrate this gibberish to figure out they can affect it from the outside. Almost impossible.

Secondly, I think it is fiscally irresponsible, and I find it ironic, because for years the appropriation process provided a built-in edge, which I think is justified for people who wanted to limit rather than expand spending. God knows, we have enough pressures for expanding spending around here, and so we have traditionally, for instance, allowed limitation amendments to be in order on the floor when they simply cut back on spending. We have not allowed similar amendments which add to spending, and there is a very good reason for that, and I think these two provisions get in the way of that healthy bias that we have had in the past. What these provisions really do is to guarantee a minimum level of funding, which turns what is supposed to be a discretionary account into an entitlement or near entitlement, and I find that ironic because for the past two decades we have heard about the evils of back-door spending.

I remember George Mahon used to regularly, even before the passage of the budget act which was supposed to stop back-door spending -- even before that budget act was passed, we heard warnings about it

I also think that this begins to unravel fiscal discipline in the place. All you have to do is to look at the other folks coming after us now for the same kind of treatment. Supporters for NIH, including the Director, have talked to me and many other people in this place about setting up a trust fund for NIH. Then you have take a look at what is happening with the nuclear -- I have forgotten the exact title  -- the nuclear waste bill, which is out of committee right now, LAWCON. George Miller and others are talking about how to convert Atlanta water conservation funds into an entitlement, and you literally have 20 or 30 groups around you trying to do the same thing, and I don't think we should be encouraging that

I know the public works committee says that the trust funds have to be protected in their integrity. I would point out there is a difference between a Social Security Trust Fund, which provides a guaranteed benefit so that individuals, many of whom have no other source of income, can have some long-term understanding of where they are going to stand, but there is a difference between that and trust funds that are meant to simply guarantee a specific source of revenue. There was never, to my knowledge, any understanding that that trust fund was going to be both a dedicated revenue source and a guarantee of a specific level of Federal spending. We cannot afford that. We have vastly different conditions if the inflation is 2 percent versus if it is 20 percent, and when it is 20 percent, we have got some obligations to try to find every way we can to slow down an overheated economy so that we don't lose control and run off the track as we did in the late 1970s

And I think also it distorts priorities. Is highway spending, is airport spending really more important than national defense? Is it really more important than education or what we provide for the National Institutes of Health or environmental cleanup? To some it may be. To me I think it deserves an equal call on resources, but not first call, and I think that is a problem, and if you look at the results, ISTEA has taken us from 21.8 billion in 1998 to 28.1 billion in the year 2000. That is a $6.2 billion increase, a 29 percent increase. Transit funds have gone up over 20 percent in that period, and yet total discretionary caps have gone up 1 percent. That is a warp, in my view.

Then you have the Air Trust Fund which has added $39 billion in 4 years to off-budget items. That will take us up 61 percent by the year 2004. That means 75 percent of our transportation budget is going to be on automatic pilot. Do we really think that makes any sense? I don't believe so. If you take a look at the current caps and extend them for 10  years, what that means is that domestic discretionary will wind up -- by the time you exclude defense and exclude transportation is -- clearly defense isn't going to be cut -- you wind up looking at probably cuts approaching 31 percent in real terms over that 10-year period. Meanwhile highways and transit would rise by 4 percent. I think that is a huge warp substantively which needs to be dealt with

We also have some procedural problems with respect to interpretation of rules. That rule is clearly intended to prevent the House from considering any measure that has the effect of altering the guaranteed spending levels of TEA 21, and I think that can have some rather foolish consequences. For instance, if Mr.  Goss wanted to offer a $200 million reduction in one area of transportation, say in transit, and transfer that to the Coast Guard, you wouldn't be able to do this even though that is a perfectly legitimate debate to have. It could prevent an amendment reducing the administrative expenses of a transit agency that falls under the firewalls, even if they had been spectacularly wasteful. I don't think that would make any sense

The rule would block consideration of a continuing resolution if it departed in any way, even on a short-term basis, from the numbers in TEA 21, and lastly, it places into the law, into the statute books, matters which relate to House rules, and I think that is virtually always of dubious value. It seems to me that the House ought to be able to change its rules based on what the House believes. It shouldn't have to get permission of the President of the United States to change its internal rules, but this provision implies that that is what we would have to do.

I would simply say I doubt very many Members knew that that provision was in the bill, the point of order provision, when it was adopted. They were focusing on their project. They were focusing on their State formulas. I mean, frankly, Wisconsin for years was a donor State until 5  years ago when Tom Petri and I worked together to help get that corrected. Public Works Committee was bragging about the fact that donor States were made whole. It ain't hard to do if you bring a lot of States up to the norm if you are going to raise overall spending by 20 or 25 percent. I mean, that may be convenient for an individual State, but to provide a guaranteed level of income for one program like that I don't think is sensible or rational in the long run.

So I just think that there are some fundamental changes that need to be made in the budget process, and when you reach the time when you want to talk about them, I would be happy to come back and talk about them

The Chairman. Thank you very much, Mr.  Obey.

[The information follows:]

******** COMMITTEE INSERT ********

The Chairman. It is difficult to imagine that your staff could have provided a more kind or generous statement than the one you have just given us here, and I appreciate your bringing up my predecessor and Mr.  Mahon and others. As you know, we are in the midst of working on budget process reform, and Mr.  Goss is chairman of our legislative budget process subcommittee and is doing an excellent job there, and we have yet to move that measure forward, but we are hoping that we will at some point be able to bring that about.

One question that I would throw out is that I wonder, you participated in most of the House-Senate conference, and I wonder if you have a perspective at all as to whether or not the point of order in the TEA 21 bill has created a problem in dealing with those conferences in which Members participated

Mr. Obey. Well, let me put it this way. Because this point of order lies in one House, that means, for instance, that if you have a House Member from New York who objects to spending on a project in his own district, he can't move, knock it out of the House. The Senator from the same State can move to knock it out and yet the conference of the House can't bring it back. Now, that is a matter in legitimate disagreement between two Houses, and yet because of the rules of one House, the other House is precluded from participating as a coequal branch of the Congress. I just don't think that makes any sense

The Chairman. Very good point.

Mr.  Goss.

Mr. Goss. No. I very much appreciate the comprehensive list of points you made. I think they are all extremely important to the debate and to be here is a larger debate, and you have participated helpfully many times in the past and I project in the future and with budget process reform, which I would very much love to have your support and momentum for perhaps when we get to the appropriations process, because I do think it is getting -- it is horse-and-buggy stuff we are using for very highly technological aid, and I don't think we are keeping up very well with our responsibility. I think you understand that better probably than most Members

Mr. Obey. To me the biggest problem with the budget process is that it has a generic debate which is totally disconnected from the people who have the real obligation in the institution to get the job done. It rewards Presidential press releases and congressional press releases. It penalizes people who are serious about making compromise.

The fundamental problem you have with the budget process, in my view, is that Congress made a mistake 100 years ago or more when it split the Ways and Means Committee and Appropriations Committee. I think it is ludicrous to have spending authority in one hand and the taxing authority in the other hand. I mean, we have created this huge Rube Goldberg process, established another whole committee, another whole layer of procedure on top of the authorizing and appropriations process because the Congress didn't do what it should have done, in my view, which was to merge Ways and Means and Appropriations and move all nonbudget and nontax jurisdiction into other committees. To me that would be the fundamental change that is needed. There is some other, I think, less drastic changes that could help, and I would be happy to talk to you about it any time you want

Mr. Goss. We are interested in that. I think we are going to take smaller bites than something as drastic as trying to talk to the gentlemen involved

Mr. Obey. But there are ways you could force the two committees to produce a common product

Mr. Goss. That is why we are trying to use the budget process.

On the Budget Committee, some people ask what exactly is it that they do. I think it is a good question, and I think therein lies the answer to maybe creating that incentive perhaps for those two committees to work more closely

Mr. Obey. Well, Dick Bolling, when he decided what the makeup of the Budget Committee would be, we had a long talk about that, and he told me that he essentially had two choices. You could put the leadership of the committees with direct spending responsibility on the committee, or you could put other Members who did not have those responsibilities on the committee. He said, I would opt to do the latter because, he said, I think you have to rely on party leadership in each party to make this process work, and he said, if they are serious, it will work.

The mistake he made was assuming that party leadership, and I mean both parties, would ask Members to be less political rather than more, and to me, the way to solve that problem is to simply say, okay, take the Chair and the Ranking Member of every committee with direct spending authority, and you put them on the Budget Committee, and then you put the right ratio of Majority and Minority people from Appropriations and Ways and Means on the committee so that the people who issue the original institution press release, the budget resolution, are the same people who have to implement the blasted thing 3 months later. You have a much closer matching of reality to political problems with that kind of makeup on the Budget Committee than you do today, and by this I do not mean any disrespect to people who occupy the chairmanship or any other position on the Budget Committee, but once they pass their budget resolution, they don't have a committee responsibility to then implement the legislative requirements of that resolution, and by changing the makeup of the budget committee, you could correct that problem

Mr. Goss. Well, I can tell you that from my perspective on the Intelligence Committee, usually the bridges you are talking about does work, and it is possible to have a bipartisan committee that does not get carried away by partisanship, but it is rare, and I think it would be hard to do, but I think it is worth trying.

Anyway, I appreciate all you have done, and you have got much more to do

The Chairman. Thank you very much, Mr.  Obey, and without objection, I am going to ask unanimous consent to include in the record the statement of the distinguished Chairman of the Committee on Appropriations, Mr.  Young.

[The statement of Mr. Young follows:]

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The Chairman. And we are pleased to recognize our next panel, which consists of the Ranking Minority Member of the Budget Committee Mr.  Spratt, and he looked as if he was to be joined by the Chairman from Georgia Mr.  Chambliss. He is not here, but we would like to have you proceed

Mr. Spratt. I don't have the requisite number of copies. I don't have anybody to blame but myself

The Chairman. We don't need copies. We understand that

Mr. Spratt. I will have you enough copies to put in the record

Mr. Goss. I can understand. He has been spending so much time in the Rules Committee later

The Chairman. That is right. It looks like you have got some copies there. That is okay. We will just listen to you. That is fine.

STATEMENT OF HON. JOHN M. SPRATT, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH CAROLINA

Both TEA 21 and AIR 21 have provisions that restrict the ability of the Appropriations Committee or the Budget Committee to set priorities, and that is our basic function. Those provisions change the rules of the House, the Congressional Budget Act and the procedures by which the President enforces agreed-upon spending targets. When you consider that these changes didn't fall in the jurisdiction of the Transportation Committee, but in the jurisdiction of the Budget Committee and this committee, the Rules Committee, they are indeed extraordinary changes in our rules.

TEA 21, first of all, legislated an increase in the total caps on discretionary spending. It also, within the total inquiries, carved out amounts for highways and mass transit by establishing two new categories of discretionary spending. TEA 21 further provided an automatic adjustment in the caps to account for increases or decreases in gas tax revenues. TEA 21, in addition, exempted the new highway category and the new mass transit category from control by the Budget Enforcement Act. It did this by providing that if highway or mass transit spending exceeded the so-called caps, instead of a sequestration of highway or mass transit funding to offset the excess, the excess would count in the general purpose category. In other words, if too much highway money was appropriated, the excess would be spent on highways, but they would be offsetting sequestration of Head Start or military personnel or education aid and so forth

Finally, TEA 21 established a new House rule against any appropriations bill that funded highways or mass transit at less than the authorized level.

AIR 21 has taken a somewhat different but equally convoluted approach to achieve similar results.

Now on their face, TEA 21 -- just looking at them, you can see from the description of these that they are far-reaching. They are also problematic for several reasons. First of all, they seriously diminish the ability of the appropriations process to make trade-offs among discretionary programs within the overall cap. It is useful and appropriate for Congress to decide each year, or at least from time to time, the relative importance of highways and mass transit versus veterans, medical research, child care, education, national parks, defense pay and personnel, FBI and so on. All of these functions are important, highways, mass transit, but all the others, too, and their relative importance varies over time.

Congress should be able to decide by majority vote which are the most important in any given year. Certain programs can enjoy a presumptive claim to funding without having an overwhelming advantage, or trump card as it were, over other programs. In the end, funding should turn on the substantive merits, and advocates of one program should be able to gain more for their program if the strength of their arguments warrant it

In contrast, under TEA 21 and AIR 21 all programs are equal, but some programs are more equal than others

Second objective, the annual budget resolutions, which my committee produces, are instruments from which Congress has an opportunity as a whole to make some choices and to make some trade-offs. The appropriations process basically takes a fixed pie and divides it up different ways. The budget process can deal with broader questions, and that is more than a piece of the pie: Should we enlarge the pie with more revenues, cut entitlements, add benefits because of unmet needs, cut taxes? Should we reduce the deficit or increase the surplus or dispose of the surplus? What would an immediate change in the surplus do to the economy? These things more or less fall outside the scope of the Appropriations Committee but within the scope of the Budget Committee, and they can be addressed more easily and equitably if certain programs, particularly programs like highways and not mass transit, are simply put off the table and made totally untouchable.

Third, the degree of special protection given to highways and mass transit under TEA 21 exceeds that bestowed on any other program. It is really pretty phenomenal when you look at it. Let me give you a couple of examples.

Let us compare it to unemployment insurance and Social Security. I don't think anyone would dispute they are very important programs, critically important. People depend on them both for entitlement, both are financed by a trust fund from earmarked taxes, and both are exempt from sequestration under the Budget Enforcement Act. UI and Social Security are privileged, as I said, because they are important, critically important. Yet neither one of these programs enjoys anything like the degree of protection provided by TEA 21 for highways and mass transit

First of all, unemployment insurance is subject to reconciliation. The Budget Committee can decide that it should be cut. The Ways and Means Committee can respond to the reconciliation directive by cutting it. Furthermore, under the budget rules, the Appropriations Committee can use limitations to cut UI benefits, and if it chooses, the savings can be made available to meet the overall discretionary caps or to cover the cost of other discretionary funding. Finally, the administrative costs of UI can be cut by the Appropriations Committee, and the savings can be used also to meet the caps or to cover the cost of other programs.

Social Security cannot be included in the budget resolution or in a reconciliation bill, and that gives it very high protection indeed, but even Social Security benefits can be cut by legislation from the Ways and Means Committee or cut by an appropriations limitation, and the administrative costs of Social Security can be cut by the Appropriations Committee, and the savings derived from that cut can be used to meet the caps to cover the other costs of the other programs, even though these moneys come out of the trust fund.

In contrast, TEA 21 would require action by the Transportation Committee, the Budget Committee and the Rules Committee all together to make direct cuts in the program, and it prohibits by point of order any cuts accomplished just by the Appropriations Committee.

Now, my arguments for having trade-offs and facilitating trade-offs between and among competing programs, if you took them to their logical conclusion, would suggest that all programs should be discretionary, but I think some programs should be entitlements that should have special protection that status affords. But I don't think that even TEA 21 and AIR 21 rise to that level. Let me just briefly say why.

First of all, we have entitlement programs partly because they provide countercyclical benefits for individuals, such as food stamps and unemployment insurance, grow rapidly during economic slowdowns, shrink quickly when the economy picks up. These programs are countercyclical, so they make recession smaller, shorter, and less frequent

Secondly, equity calls for some individual benefit programs to be entitlements. Veterans compensation needs to be uniform across the country and not made State by State according to where people live

And thirdly, the need for long-run planning for individuals and companies and firms of the whole economy requires that some things have a certain permanence to it, certain stability to it. Social Security benefits certainly fall within this category. Highway, mass transit, aviation programs are important, but not this important. It just doesn't have these characteristics which would call them to special entitlement status

So the argument that some programs are more equal than others doesn't mean that any program should be entitled to claim special treatment. Still, we have to be sympathetic to the argument that when a special tax is imposed for a special purpose, the revenues raised should be used for that purpose. After all, this is simply a way of saying that promises ought to be kept and representations upheld. Often we sell the idea of a gas tax on the basis, to build more highways, that the people who are going to pay it are going to use the highway and draw the benefit from the taxes they pay, and if that argument is used, it ought to be upheld and followed.

But there is a countervailing situation. I hate to go back and forth, but it is true you have got lots of promises to keep in the Congress. We promise far more than one goal, and old promises over time can become less compelling as new needs arise.

In 1990, a portion of the gas tax increase was enacted explicitly to reduce the deficit. In that case, a promise of deficit reduction overrode the notion that all amounts dedicated to the Trust Funds should eventually be spent on the trust fund purposes.

On a number of occasions in the 1980s and 1990s, a majority of the House voted for constitutional amendments to require balanced Federal budgets. A lot of Members would have said in voting for this they wanted the constitutional imperative to balance the budget to override everything, if necessary, to keep the budget balanced, including highway and mass transit spending if necessary.

In 1990 and 1993, transportation programs and a number of budget documents and all the deficit reduction bills we considered during that period were identified as discretionary programs. They were to be enforced by discretionary caps. Members who voted for these bills -- both of them were enacted into law -- can sensibly argue that they wanted these programs to be subject to these caps, subject, like everything else, to overall restraint

Recently the House voted overwhelmingly in favor of new measures that would militate against any measures to use the Social Security Trust Fund for anything other than reducing the Federal debt, the debt held by the public. Some people called this saving Social Security first. One can imagine circumstances in which fully funding TEA 21 might compete with this commitment, this promise to use Social Security surplus only to retire public debt.

My purpose isn't to diminish the promises that are implied by the trust fund, but just to point out that some promises apply to the budget as a whole, and they, too, have weight, and sometimes more compelling weight than competing promises applicable to the Trust Funds. It is the duty of Congress, our sworn duty, to weigh each such promise against others continually. Special procedures that insulate promises to certain programs, like transportation, conflict with promises made to other programs, and it also conflicts with and interferes with the free competition and continual examination of programs in the budget process, which I think is required

So for all these reasons I have real problems with what we have done to the AIR 21 or what we are about to do with AIR 21 and what we did with TEA 21. If we want to give more sanctity to the trust fund and ensure the earmarked revenues are used for their intended purposes, the surplus offers us an opportunity. According to CBO, their trust fund balances are, excluding Social Security, about $50 billion. Most of these surpluses derive from the Civil Service and military retirement and railroad retirement, and as you know, as we rethink how the Social Security Trust Fund is used, we probably ought to be rethinking just how these trust funds are used, too. The rest of the trust fund surpluses are relatively small, and if the increasing budget surplus is not totally committed to tax cuts, we can in time, fairly short time, begin fully paying out these trust funds without impinging on other non-trust fund discretionary spending

And I think that ought to be one of the objectives of the budget process as opposed to giving special, insulated and enormously ironclad protection to a few certain programs. Thank you very much

The Chairman. Well, thank you very much, Mr.  Spratt. We appreciate your very thoughtful and helpful testimony.

[The statement of Mr. Spratt follows:]

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The Chairman. I sit here and muse a little. It is not often that I have both the Ranking Minority Member on appropriations or Ranking Minority Member on budget testify before us and have virtually total agreement with the very eloquent arguments that have been made. I don't have any questions

Mr. Goss. I don't either, John. Thank you very much for your testimony. It is very helpful. It certainly parallels much of the thinking that we are doing. There is sort of a further statement; that promise question is somehow or other we create these new words here, create more a sense of wellbeing apparently for our constituents, but I have noticed the trust funds go broke occasionally, too, and I think it is  -- somebody is not going to create a supertrust fund or a safe trust fund. That will be the next thing, but it will go broke, too.

There is a basic question in actually how we handle people's money, and this is the people's money. I think that is what we are trying to do is simplify it so you don't have to get down in the weeds in the Beltway to understand what is going on, first of all, and we can be reasonably assured of getting what you need, appropriate for government to do and a relatively fair shake, and I think we have gotten pretty far away from that, and I think your testimony helps us refocus on some of those points

The Chairman. Thank you very much for being here, John

Our final panel consists of Susan Irving from the General Accounting Office. Welcome. We appreciate your patience as we have gone through the other panels here. We will put your prepared remarks in the record, and if you wish to provide us with a summary, we would greatly appreciate it.

STATEMENT OF SUSAN IRVING, GENERAL ACCOUNTING OFFICE

Ms. Irving. Thank you. I feel a little bit out of my league here sort of on following Members of the Congress, but I appreciate being invited back again to talk with you about the budget process

The Chairman. You are, in the eyes of many Americans, heads and shoulders above most of Members of Congress

Ms. Irving. I am not one of those Americans who thinks that. I am not brave enough to run for office and wouldn't be good. I sometimes think I join some of you in being one of the few people who enjoy talking about the budget process, and I certainly enjoyed working with your staffs in the years about budget process.

I thank you for putting the statement in the record, and in that written statement, I cover some general points about the budget structure, the outlook and control regime that you face as you enter the world of surpluses, the potential implications of guaranteed spending levels, and what I think is the analogous pay-go side question, which is mandatory funds and permanent appropriations.

I think it is worth noting before I go to the specifics of thinking about guaranteed funding levels that the unified budget was created after the Budget Concepts Commission which reported in 1967 with the idea that it didn't really matter whether the tax you sent to Washington had a red dot or a green dot on it, it was still money you sent to Washington. It was still money collected from individuals and businesses in this country to be used collectively, and that, therefore, if you wanted to look at the role of the Federal Government in the economy, how much it went into the credit markets to borrow, you needed to add the red dots and the green dots together and recognize that.

It also was designed to permit something that both Mr.  Obey and Mr.  Spratt talked about, which is the freedom for Congress and the President to more easily make trade-offs across the entire budget. Now, sometimes we do that under the mystical belief that all rational human beings can look at an infinite number of choices and balance them all against each other. Clearly you make decisions about categories and committees and allocations to limit the range of choices, but you make those and can change them from year to year, and they are easier if you get to look at the entire budget

Prior to the unified budget, there were, of course, Federal funds and trust funds, but over there in the Federal funds area were these little things called special funds. Special funds walk, talk and quack like trust funds, except that in the legislation that creates them, someone left out the word "trust." So they are called a special fund, and they are considered part of the Federal funds portion of the budget. They were not with trust funds before the unified budget. Otherwise you would be hard put to find the difference between a trust fund and a special fund, and indeed, we have some work going on where we are trying to itemize them, and it is hard

The current budgetary regime which you are living under was created, as you all know, in 1990 when the Budget Enforcement Act divided the whole world into two pieces, and in effect, I would guess, started the issue that you all have been trying to grapple with when you have something whose revenues are on the pay-go side of the budget, and spending is clearly under the design of Congress under the discretionary side of the budget.

There have been since 1991 periodic changes in the design of the caps. You may remember that in 1991 there was defense, nondefense and international. Those caps and all subsequent changes until 1998 were designed to limit the range of trade-offs. You could not increase defense at the expense of, in the early days, international or nondefense, nor vice versa. They did not require you to spend the full amount under the tax. If Congress and the President chose to do so, they could leave room under the caps, and that went to deficit reduction. It couldn't be used by another cap area, but there was no problem with underspending

Now, in 1997, the balanced budget amendment extended and modified the caps and ran them through the year 2002 with the idea that was the year you would achieve balance in the unified budget. Through a combination of hard choices and good luck in the economy, you got in a little early, and now you all and your friends in the Appropriations Committee face this sort of ticklish situation of having to comply with extremely tight caps where, unless you have been under a rock, you know there is a budget surplus, and it is a difficult situation, and I don't envy you.

But in 1998, the caps were further changed, as you know, by creating a separate carve-out for highway and mass transit. These caps were different in form or nature from previous caps, since they gave you both a limit to trade-offs, but also required you spend the full amount. There is, as you know, a point of order which in effect binds both the House and the Senate because although it does not apply in the Senate, since it applies to conference reports, I suspect the Senate feels somewhat bound by that, so that TEA 21 introduced a new version of a cap, which is both a cap and a floor.

Your staff asked me to talk a little about what I would call the arithmetic of carve-outs and various minimum spending levels, and at one, since one of the pieces of the budget process is quite basic arithmetic, which is if you give program X a guaranteed level of funding, you have one of two choices. You can carve that out of the total cap, in which case total permissible spending does not go up, but everybody else competes for a smaller pie, or you can add that on top of the cap. You can say, well, caps are just fine, but we are going to give program X a bump up. Maybe for everybody else that is pretty good, because now they got program X out of the way, and they are competing, but total permissible spending just went up, which means either the possible deficit went up or the surplus shrank.

TEA 21 did both. The caps were lowered to make up for the movement, but not by the same amount of the bump-up. So both everybody else competed for a smaller pie, and there was a small increase in the amount permitted.

There is an interesting twist in the structure. All the other caps expire in 2002. The special caps for highway and mass transit are the carve-outs, and the guarantees go on through 2004. AIR 21, as it passed the House, as you know, does not provide a point of order or have a guaranteed minimum funding level. It does, however, remove that trust fund from the budget, so one might assume that the full amount would be spent. By removing it from the budget, one assumes that OMB will lower the caps in 2000. The bill requires that the caps be lowered in 2001 and 2002, but thereby meaning everybody else competes for less. Obviously, the decision on which pieces of the Federal Government's activity are so important that they should be carved out and given special treatment is a decision that is entirely yours and the President's to make. It is a matter about relative spending priorities for the American people, but only one of two things can happen from it. Either total spending goes up, or everybody else competes for less.

That concludes my summary. I would be happy to answer any questions.

[The information follows:]

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The Chairman. Well, actually I had a couple of what I thought were extremely thoughtful and incisive questions to pose to you, and you already answered them, so I won't burden you with a challenge of repeating them. It had to do with the size of the pie and the priorities you have just outlined, so I appreciate that well

Mr. Goss 

Mr. Goss. I think your last sentence summed it up very well. What I want to know is what happens when the cap is below the floor, or cap should be below the floor and the ceiling, you get an upside down process. It is not just a hypothetical question. I can see that happening under certain circumstances. It is not likely to happen

The Chairman. We are trying to get it there

Mr. Goss. And then you have the conflict. I think it is not a well-thought-out process to use as a standard process for this institution. I think it is understandable how a portfolio manager can come up with a pretty good gimmick to take care of his and her portfolio for a predictable number of years, and I tell you people congratulations are in order for people who do that thing.

Our job is different. Our job is to find an institutional solution so that we basically have a norm in ground rules that everybody is playing with. Rather than relying on gimmicks, they are relying on the norm, and I think that is the message we need to send here, and that is at least what I am trying to do. I am not sure what the Chairman is trying to do, but that is what I am trying to do through the budget process reform, and I don't think this is the standard that we want to encourage other chairmen to come forward with and say, my program is special, it gets protection, because pretty soon everybody will be in a most favorable trading status here, and we will have most favorable nations, most favorable committees, most favorable programs, and we won't have anything but jumbo sizes. You won't be able to get regular size anymore. You will only be able to get jumbo, mega super jumbo, and that is the trail we are going down here, and it seems wrong to me. I gather it does to you

Ms. Irving. I think that when Congress creates funds that receive earmarked revenues, Congress clearly makes a decision about which of those funds are to be revolving funds with the right to spend without appropriations or not to be, and for whatever reason, when Congress set up the Transportation Trust Funds, it made a decision to consider them discretionary in the sense of to permit Congress to adjust the spending to require appropriations, and the budget control regime is designed around whether, you know, sort of not the source of your funds, but what Congress has decided about how to control your outlays

Mr. Goss. It is a different part of the puzzle, I agree, and the thing is some things are more discretionary than others, and that creates the incentive for clever and imaginative people to go out and find other ways to basically beat the rules, change the rules or whatever it is. So why the Rules Committee? Why have rules? If there is going to be a free-for-all, let us have a free-for-all, and I don't think we want to do that. I think it is difficult enough to explain what we do here now, and I would prefer that we had a little more order in it

The Chairman. Difference between the two bodies

Ms. Irving. No rules, you would be the Senate

The Chairman. That is exactly right. Thank you very much

Ms. Irving. Thank you, sir

The Chairman. We appreciate you being here, and thanks for your thoughtful testimony, and with that, the committee stands adjourned.

[Whereupon, at 11:30 a.m., the committee was adjourned.]