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Wendell H. Ford, chairman of the committee, presiding. Present: Senators Ford and Cochran. Staff Present: James O. King, staff director; William McW. Cochrane, senior adviser; John L. Sousa, chief counsel; Gail S. Martin, chief clerk; Albert L. McDermott, Republican staff director; Carole J. Blessington, assistant chief clerk; and Mark C. Mackie, Republican counsel. OPENING STATEMENT OF HON. WENDELL H. FORD, CHAIRMAN, @ COMMITTEE ON RULES AND ADMINISTRATION  ? The CHAIRMAN. Good morning, ladies and gentlemen. The hearing this morning is on the biennial budgeting provisions of the Legislative Reorganization Act of 1994. As many of you know, I have long been an advocate of 2-year budgets. Before coming to the Senate, I had the pleasure and honor of serving as Governor of Kentucky where I gained firsthand familiarity with the advantages of a 2-year cycle for planning and implementing budgets. Here in the Senate, we have gained some real experience with 2-year budgeting for committees. This committee instituted a 2-year funding cycle for committees in 1989. I can report to you that the response from committee chairmen has been favorable, and we have saved additional money by virtue of the fact that they did not try to spend the money all at the end of each year cycle. It was carried over, and we returned money to the treasury. I would also note that our experience with budget summits and the multi-year agreements with the executive branch serve as positive examples of what multi-year budgets can accomplish. They have shown us a way to avoid repetitive floor debates on budget priorities and allowed us to complete our work in a timely manner. Now the Joint Committee has recommended that Congress move to a biennial budget process, including adopting a 2-year cycle for budget resolutions and appropriations, and prohibiting authorizations for periods of less than 2 years.h)0*0*0*ԌSome believe to move to biennial budgeting at this time could impede our progress in reducing the deficit. We will hear testimony to that effect this morning. None of us wishes to slow that progress. We have made significant strides and want to continue. With that awareness, we will approach the biennial budgeting and appropriation proposals with diligence and caution. Our witnesses this morning all hold positions in which they are intimately involved in the budget process. Their insights and experience should serve us well as we consider these recommendations of the Joint Committee. I look forward to hearing their comments on this biennial budget proposal. I want to submit a statement in support of the biennial budgeting or 2-year budgeting cycle and ask that it be included in the record at this point. [The prepared statement of Senator Ford follows:] STATEMENT OF HON. WENDELL H. FORD, CHAIRMAN, @ COMMITTEE ON RULES AND ADMINISTRATION I am pleased to welcome everyone to today's hearing on the subject of recommendations made by the Joint Committee on the Organization of Congress with regard to biennial budgeting, and am very interested in hearing today's testimony. As many of you know I have long been an advocate of 2-year budgets. Before coming to the Senate I had the pleasure to serve as Governor of Kentucky where I gained first hand familiarity with the advantages of a 2-year cycle for planning and implementing budgets. Today, I remain convinced that we could benefit from the experiences of States such as Kentucky. In fact, 19 states operate with 2-year budgets. Biennial budgeting has been an idea with staying power. While it has not yet met with sufficient support for full implementation, it has had significant backing. Mr. Panetta is credited with submitting the first biennial budget proposal back in 1977 when he was a Member of the House. That same year CBO issued a report on advance budgeting which dealt with the feasibility and advisability of 2-year appropriations. That report concluded that many agencies could be shifted to 2-year appropriations, and recommended that: X . . . the Appropriations Committees establish standards acceptable to themselves for the identification of programs amenable to a 2-year appropriations cycle, and assign to a legislative agency, in conjunction with OMB, the task of preparing a list of programs so amenable, and a plan of shifting them to 2-year appropriations, to be submitted to the Congress for its consideration.  In the early 1980's, the idea of a 2-year budget began to gather momentum. Several House and Senate Committees heard testimony on the subject, and by the mid-eighties, it was widelyh)0*0*0* discussed, both inside and outside of Congress, as a major reform proposal. In 1987, we went so far as to pass sense of the Senate language stating that we should experiment with 2-year appropriations for selected accounts, although we have never carried through on it. However, our experience with multiyear budgeting has not all been rhetorical. Here in the Senate we have gained some real experience by providing funds for committees on a 2-year basis since 1989. The response from committee chairmen has been favorable, and I believe that applying this experience to the entire Federal budget would meet with a similarly favorable response. In addition, our experience with budget summits, especially those in 1987, 1990 and 1993, has been widely discussed as a positive example of what multiyear budgets can accomplish. These multiyear agreements with the executive branch have made budgeting in subsequent years smoother. By agreeing to broad spending and tax guidelines, Congress has been able to expedite consideration of the various measures necessary for implementation. These experiences have shown us a way to avoid repetitive floor debates on budget priorities, and allow us to complete our work in a timely manner. In total, our experience with biennial budgets should have taught us that if we make better decisions we can make them less frequently as well. Now the Joint Committee has come to these same conclusions. One of the chief recommendations of the Joint Committee is a comprehensive shift to a biennial budget, including adopting a 2-year cycle for budget resolutions and appropriations, and prohibiting authorizations for periods of less than two years. In discussing the budget cycle we should also keep in mind that there is nothing magical about annual action. When we first passed the Congressional Budget Act back in 1974 we had two budget resolutions each year. Some people though it was a good idea for us to review our decisions about the general thrust of fiscal policy twice a year. That proved to be impractical so we cut the frequency to once a year. I see no reason why we couldn't cut the frequency further. Although we make adjustments from year to year, the overall shape of Federal budget policy is very consistent. Cutting the frequency of considering budget resolutions would allow us more time to implement them and to review their impact. I have said before, and I will say again, that the current process is unrealistic. The pretense of acting as though we will be able to make every budgetary decision every year cost us dearly not only in terms we can measure, but also in terms that we cannot easily identify: the cost of poor decisions made in haste, made with inadequate consideration of the need or the consequences. The time has come for us to accept the reality that in our complex modern society, the Federal Government cannot complete the process of planning, budgeting, appropriating, and review in such a compressed period of time. We cannot expect to make decisions abouth)0*0*0* how to allocate one and a half trillion dollars each year without sufficient time to consider their impact. I believe that biennial budgeting would give us a better time frame. One of the most obvious improvements we could achieve under biennial budgets is to reduce the frequency with which executive branch officials are required to testify on budgetary matters. Some agency officials must prepare for three or more appearances each year before both the Senate and the House. This should be unnecessary. The time devoted by these officials to multiple justifications of their budget requests could be better spent implementing and managing budgetary decisions. A 2-year budget would also give executive branch officials sufficient time to conduct compliance reviews, ultimately making it easier for Congress to conduct oversight. Planning could also be improved. By giving Federal programs a higher degree of predictability, recipients of funding, particularly State and local Governments, would be better able to plan for their future if they were less uncertain about how much money they would receive in a given year. In addition, by highlighting the future budget implications of our actions, it would encourage longer-term thinking, both by Congress and the executive branch. However, not all of the benefits would be imparted to the recipients of funds. Congress would also experience benefits through a greater presumption in favor of carefully considered, timely decisions, and through better allocation of time for both budgeting and oversight. By establishing a timetable with a budgetary year and a nonbudgetary year, we would be able to provide the opportunity to spend more time on the review of program operations, and to shift the focus away from contentious budget battles. This effect would certainly be of great value here in Washington, where the seemingly endless cycle of budget resolutions, authorizations, and appropriations forces us to deal with many of the same divisive questions year after year, diverting us away from what we could accomplish. Separating authorizing action and appropriations into different years would also allow us to better coordinate them. Under the current annual system we are often confused as to which decisions are made through the authorization process and which are made through appropriations. Regardless of where you sit in the Senate, Democrat or Republican, appropriator or authorizer, you have to realize that any abatement of tensions in this area would be good for the entire process. As for the argument that biennial budgeting would reduce the role of appropriators, I would suggest that requests for supplemental appropriations or transfer authority would afford appropriators sufficient opportunity to use their capabilities even in nonbudgetary years. There will always be the need for adjustments, but I do not believe that they are so great that weh)0*0*0* need to go through the entire process for every program every year. As I have stated in the past, biennial budgeting is not a panacea for our Federal budgetary problems, but it is a way for us to operate more efficiently and effectively. A 2-year cycle would allow stable programs to avoid the burdens of repetitious budgeting, and impart greater stability to the rest. Better planning should enable us to achieve significant savings. I believe that the overall effect will be to give Congress and the President a management tool for getting our fiscal house in order. Some observers believe that a move to biennial budget resolutions and appropriations could impede our progress against the deficit; that we need annual review of the budget to find savings wherever and whenever we can. I can understand that and support its intent; none of us wish to stand against these efforts. We have made significant strides to reduce the deficit, and we wish to keep that going. With that in mind, we will approach this issue with the diligence and caution it deserves. Nevertheless, it is my firm belief that biennial budgeting is an idea whose time has finally come.  ? The CHAIRMAN. Many Senators went to California yesterday for the funeral of former President Nixon and did not get in until 3 or 4 o'clock this morning, so we are a little short on Senators here. I am delighted that Senator Sasser is here this morning. Senator, we look forward to your statement, and I appreciate your coming. pTESTIMONY OF HON. JIM SASSER, A U.S. SENATOR FROM THE STATE OF TENNESSEE  ? Senator SASSER. Well, thank you very much, Mr. Chairman. As you indicated at the outset, I am going to have to leave and go to a conference on the budget resolution very shortly, but I do appreciate the opportunity to appear here this morning and give the committee the benefit of my views, such as they may be. I also want to ask unanimous consent that the statement of the ranking member of the Budget Committee, Senator Domenici, be included in the record.  ? The CHAIRMAN. Without objection, that will be placed in the record. I believe he supports the 2-year budget with some reservations.  ? Senator SASSER. I think that is correct.  ?`" The CHAIRMAN. I thank the Senator.  ?# Senator SASSER. Mr. Chairman, again, thank you for inviting me to address the committee this morning on S. 1824, the Legislative Reorganization Act of 1994. Now, S. 1824 proposes a significant package of reforms in the way that we do business here in the Senate. And I support the overall thrust of these reforms, and I join with many other Senators in urging Congress to enact this particular bill.h)0*0*0*ԌAs confirmed by dozens of studies and public opinion polls, the American people are frustrated by the Government's slow pace in the face of enormous economic and social problems that range from the budget deficit to the persistence of violent crime and the need for health care reform. Our citizens want Congress to join with the President to solve the problems facing our Nation. They are tired of partisan bickering and infighting. In sum, they want a little less talk and a lot more action. Unhappily, the United States Senate has become a place where talk is plentiful and action is difficult. Senators have perfected the filibuster and have raised obstruction to a fine art. According to data compiled by the Congressional Research Service, the Senate has seen more filibusters in the 12 years from 1981 through 1992 than it did for the first 63 years of the filibuster rule from 1917 through 1980. So, plainly, delaying tactics have gotten out of hand here in the Senate. Now, S. 1824 would address this delay in several meaningful ways. First, S. 1824 would reduce the number of separate times that Senators can filibuster a single bill as it moves up for consideration by the Senate. Under S. 1824, the Senate would have 2 hours to debate a motion to proceed to a piece of legislation when the majority leader makes such a motion. Senators would still have the right to unlimited debate on the legislation itself. They just could not delay the Senate from beginning consideration of the legislation in the first place. Secondly, S. 1824 would provide that if a conference report is printed and available the day before the Senate takes it up, then the Senate need not listen to a reading of all of its contents. In this era of detailed laws crafted to cover a very complex world, the requirement that the Senate drop everything it is doing to listen to the reading of a conference report upon the demand of a single Senator is an anachronism, at best. Perhaps our colleagues will recall one evening recently we shared together here on Capitol Hill. The particular evening of which I am thinking just happened to fall during the debate on the budget resolution. That particular day, one Senator demanded that the conference report on the Goals 2000 bill be read in its entirety. For the next 5 hours, we, in effect, returned to the 18th century when Senators learned about the contents of legislation through hearing it read. Actually, I cannot say that we fully returned to the 18th century, because barely three Senators at any one time appeared on the floor during the reading of the bill. What really happened is that a minority of one Senator was capable of shutting down the Senate for an extended period of time. It was the politics of gridlock, pure and simple. Now, I think all sides would agree in retrospect that this was really a terrible sight for the American people to behold. It wash)0*0*0* also cruel to the Senate staff. If the clerks had been talking horses instead of people, the Humane Society would have taken the Senate to court for what occurred. Their arduous duty was interrupted only occasionally by the request of the Senator from Minnesota, Mr. Wellstone, that further reading of the report be dispensed with. Of course, the unfortunate junior Republican Senator whose bad luck it was to have drawn the duty to object was there. Senator Wellstone acknowledged this. After his consent request had been objected to, he said, and I quote, ``I just wanted to make sure my colleague was alert.'' Now, at the end of the day, what was accomplished through all these maneuvers? Absolutely nothing except to hold the Senate up to ridicule. Senators merely had the pleasure of sharing each other's company in the hours between 1:00 and 3:00 a.m., doing business that we could very easily have done at a decent hour that evening had there not been a request to read the conference report. S. 1824 would make a number of other changes that will expedite the Senate's work and help the Senate to get about the business of this Nation. S. 1824 would thus go some way toward reducing the gridlock that too often blocks the Senate from moving forward. The Rules Committee, I think, should take care, though, not to embrace everything that someone has labeled with the term ``reform.'' Certainly we are all in favor of reform. No one wants to be branded an anti-reformist. We are all particularly in favor of reforming Congress in the abstract. But among the provisions labeled as reform in the legislation before the committee today are at least a few of what I would characterize as wolves in sheep's clothing. Take, for example, the prohibitions on proxy voting. Now, that sounds tame enough. But let's give this prohibition on proxy voting some thought. The effect of prohibitions on proxy voting is merely to provide yet another opportunity for obstruction"for the politics of gridlock. I am very familiar with the prohibition on proxy voting. On the Budget Committee, we have a very strict proxy rule. The rules of the Budget Committee of the United States Senate prohibit the use of proxies altogether during deliberations on the budget resolution. But I cannot truthfully tell this committee that the attendance at the Budget Committee is any better during deliberations on budget resolutions than at other committees on which I sit which have no anti-proxy rule. The effect of the no-proxy-voting rule is merely to delay the point at which the Budget Committee can vote or to force us to stack votes to a time mutually convenient to 20 busy Senators. I would say to you, Mr. Chairman, that it is a very difficult proposition, indeed, to find a time that is mutually convenient toh)0*0*0* 20 busy Senators to stack maybe 15 or 20 votes on a budget resolution. So, as with many committee work products that are this complex and far-reaching, S. 1824 includes some proposals with which I shall take issue if they come to the Senate floor. As chairman of the Budget Committee, I shall pay particular attention to the recommendations affecting the congressional budget process. The Senate will need to rethink some of these recommendations if they are to survive committee consideration. I will not use this forum here today, chaired by my great and good friend, the senior Senator from Kentucky, a long and ardent and persuasive proponent of 2-year budgeting, to argue with the proposal for 2-year budgeting. Nor shall I engage in a detailed discussion of the Byrd rule on extraneous matter dealing with reconciliation with this committee on which the Senator sits who gave the rule its name. I do, however, want to remind the committee of the pitfalls of attempting to change the budget process on a bill such as this. As Senators know, Section 306 of the Congressional Budget Act of 1974 prohibits considering any legislation dealing with any matter within the jurisdiction of the Budget Committee unless it is a bill that the Budget Committee has reported or it has been discharged from the Budget Committee or it is an amendment to such a bill. Under the standing order on referral of budget process legislation of 1977, legislation affecting the congressional budget process is a matter within the jurisdiction of the Budget Committee. It takes an affirmative vote of 60 Senators to waive Section 306 of the Congressional Budget Act. In sum, if you want to give any Senator the ability to torpedo this reform bill moving through this committee unless there are 60 votes in favor of the reform bill, then go ahead and include budget process changes in the committee-reported bill. But I think this would be a mistake. I am not suggesting that I will raise a point of order. What I am suggesting is that any Senator can do it, and there is bound to be enough controversial matter in this bill that some Senator will feel the need to attack it. As a consequence, Mr. Chairman, my strong recommendation to the Rules Committee is that the better part of valor would be to forgo making budget process changes in the bill that you report out of the committee. The heavy anchor of budget process changes should not be allowed to weigh down the many worthwhile improvements to the Senate's efficiency that S. 1824 recommends elsewhere. Let us move forward with this important legislation and get about doing what the public sent us here to do; that is, to deal with the public's business in an expeditious fashion. Mr. Chairman, I thank you for allowing me to appear here this morning and testify before your committee.h)0*0*0*Ԍ ? ԙThe CHAIRMAN. Thank you very much, Senator. I hear your warning and have never wanted to put an anchor on this bill. But after 8 years, almost 10, I am tempted to maybe try it. I may have some questions that I will send to you and ask that you answer them in writing for the committee, and I wish you well in your conference with the House.  ?x Senator SASSER. Thank you, Mr. Chairman.  ? The CHAIRMAN. I appreciate your testimony very much. [The prepared statement of Senator Sasser follows:] STATEMENT OF HON. JIM SASSER, A U.S. SENATOR FROM THE x! STATE OF TENNESSEE Chairman Ford, Senator Stevens, Members of the Committee on Rules and Administration, thank you very much for inviting me to address the Committee this morning on S. 1824, the Legislative Reorganization Act of 1994. S. 1824 proposes a significant package of reforms in the way that the Senate does business. I support the overall thrust of these reforms and join with other Senators in urging the Congress to enact this bill. As confirmed by dozens of studies and public opinion polls, the American People are frustrated by the Government's slow pace in the face of enormous economic and social problems that range from the budget deficit to the persistence of violent crime and the need for health care reform. They want Congress to join with the President to solve the problems facing our Nation. They are tired of partisan bickering and infighting. In sum, they want a little less talk and a lot more action. Unfortunately, the Senate has become a place where talk is plentiful and action is difficult. Senators have perfected the filibuster and have raised obstruction to a fine art. According to data compiled by the Congressional Research Service, the Senate has seen more filibusters in the 12 years from 1981 through 1992 than it did for the first 63 years of the filibuster rule from 1917 through 1980. Plainly, delaying tactics have gotten out of hand. S. 1824 would address this delay in several meaningful ways. First, S. 1824 would reduce the number of separate times that Senators can filibuster a single bill. Under S. 1824, the Senate would have 2 hours to debate a motion to proceed to a piece of legislation, when the Majority Leader makes such a motion. Senators would still have the right to unlimited debate on the legislation itself. They just could not delay the Senate from beginning consideration of the legislation in the first place. Second, S. 1824 would provide that if a conference report is printed and available a day before the Senate takes it up, then theh) 0*0*0* Senate need not listen to a reading of all of its contents. In this era of detailed laws crafted to cover a complex world, the requirement that the Senate drop everything it is doing to listen to the reading of a conference report upon the demand of any single Senator is an anachronism. Perhaps Senators will recall one evening we shared here recently on Capitol Hill. The particular evening of which I am thinking just happened to fall during debate on the budget resolution. That day, one Senator demanded that the conference report on the Goals 2000 bill be read in its entirety. For the next 5 hours, we returned to the 18th century, or whenever it was, when Senators learned about the contents of legislation through hearing it read. Actually, I cannot say that we fully returned to the 18th century, because barely three Senators at any one time appeared on the floor during the reading of the bill. What really happened is that a minority of one Senator was capable of shutting down the Senate for an extended period of time. It was the politics of gridlock, pure and simple. I think all sides would agree in retrospect that this really was a dreadful sight. It was truly cruel to the Senate staff. If the clerks had been talking horses instead of people, the Humane Society would have taken the Senate to court. Their arduous duty was interrupted only occasionally by the request of the Senator from Minnesota, Mr. Wellstone, that further reading of the report be dispensed with. Of course, the poor junior Republican Senator whose bad luck it had been to draw this duty had to object. Senator Wellstone acknowledged this. After his consent request had been objected to, he said, I just wanted to make sure my colleague was alert. At the end of the day, what did the Senate accomplish through these maneuvers? Nothing. Senators merely had the pleasure of sharing each other's company in the hours between 1 and 3 a.m., doing business that we could very easily have done at a decent hour that evening, had there not been a request to read the conference report. Now, S. 1824 would make a number of other changes that will expedite the Senate's work and help the Senate to get about the Nation's business. S. 1824 will thus go some way toward reducing the gridlock that too often blocks the Senate from moving in any direction. The Rules committee should take care, though, not to embrace everything that someone has labelled with the word reform. Certainly, we are all in favor of reform. We are all particularly in favor of reforming Congress. But among the provisions labelled as reform here today are at least a few wolves in sheep's clothing. Take, for example, the prohibitions on proxy voting. Sure,h) 0*0*0* that sounds tame enough. But give it some thought. The effect of prohibitions on proxy voting is merely to provide yet another opportunity for obstruction, for the politics of gridlock. We in the Budget Committee have a very strict proxy rule. The rules of the Budget Committee prohibit the use of proxies altogether during deliberations on the budget resolution. Yet I cannot truthfully say that attendance at the Budget Committee is any better during deliberations on budget resolutions than at other committees on which I sit. The effect is merely to delay the point at which we can vote, or to force us to stack votes to a time mutually convenient to 20 busy Senators. As with many committee work products that are this complex and far-reaching, S. 1824 includes some with which I shall take issue if they come to the Senate floor. As Chairman of the Budget Committee, I shall pay particular attention to the recommendations affecting the Congressional budget process. The Senate will need to rethink some of these recommendations if they survive committee consideration. I shall not use this forum here today, chaired as it is by my good friend, the Senior Senator from Kentucky, a long and ardent proponent of 2-year budgeting, to argue with the proposal for 2-year budgeting. Nor shall I engage in a detailed discussion of the Byrd rule on extraneous matter in reconciliation with this Committee, on which sits the Senator who gave that rule its name. I do, however, want to remind the Committee of the pitfalls of attempting to change the budget process on a bill such as this. As Senators know, section 306 of the Congressional Budget Act of 1974 prohibits considering any legislation dealing with any matter within the jurisdiction of the Budget Committee unless it is a bill that the Budget Committee has reported, it has been discharged from the Budget Committee, or it is an amendment to such a bill. Under the standing order on referral of budget process legislation of 1977, legislation affecting the congressional budget process is matter within the jurisdiction of the Budget Committee. It takes the affirmative vote of 60 Senators to waive section 306 of the Congressional Budget Act. In sum, if you want to give any Senator the ability to torpedo your bill unless you have 60 votes, then go ahead and include budget process changes in the Committee-reported bill. This is not a threat. I'm not suggesting that I will necessarily raise this point of order. Any Senator can do it. And there's bound to be enough controversial matter in this bill that some Senator will feel the need to attack it. As a consequence, my recommendation to the Rules Committee is that the better part of valor would be to forgo making budget process changes in the bill that you report out of the Committee. The heavy anchor of budget process changes should not beh) 0*0*0* allowed to weigh down the worthwhile improvements to the Senate's efficiency that S. 1824 recommends elsewhere. Let us move this important legislation forward and get about doing what the public sent us here to do. @PARA4 = [The prepared statement of Senator Domenici follows:] STATEMENT OF HON. PETE V. DOMENICI, A U.S. SENATOR FROM THE STATE OF NEW MEXICO Mr. Chairman and members of the Committee, thank you for once again allowing me to appear before your committee regarding the Legislative Reorganization Act. Among our objectives in developing the Legislative Reorganization Act, we worked to reduce the problem of what Senator Byrd has referred to as fractured attention and to make Congress a more accountable, efficient, and responsible institution. Today, I would like to focus on the two major budget process proposals included in our legislation: the biennial budget and some clarifications of the ``Byrd rule.'' !BIENNIAL BUDGETING Under our bill, the President would submit a budget and Congress would consider a budget resolution and 13 appropriation bills for a 2-year period during the first session of Congress. The second session of a Congress would be reserved for consideration of authorization bills for the subsequent bienniums and for oversight. The current annual authorization, budgeting, and appropriations does not serve us well. Our current budget process, in which the Congress tries to hold hearings, markups, and floor action annually on authorization, budget, and appropriations legislation contributes to our ``fractured attention.'' Besides putting enormous demands on Senators to attend markups, hearings, and make floor votes, the current process is redundant and inefficient. The Senate at times has the same debate and votes on the same issue three times a year: once on the budget resolution, again on the authorization bill, and finally on an appropriations bill. Looking at the past couple of years, the Senate now devotes roughly 40 percent of its time debating budget resolutions, reconciliation, and appropriation bills. In addition to the time-consuming nature of the budget process, Congress regularly misses its own deadlines and guidelines, which generates cynicism about this great institution. Just a couple of facts with respect to the authorization, budget, and appropriations process: *` ` In the 20-year history of the Budget Act, weh) 0*0*0* have met the statutory deadline to complete a budget resolution only three times. This year, we have consumed a huge amount of Senators' time on a budget resolution, which will fail to meet the April 15 deadline, all for a budget resolution that will make no major change in fiscal policy.x` *` ` For FY 1994, one-fifth, or $58 billion, of appropriations for non-defense programs was not authorized.x` *` ` Since 1968, Congress has met the fiscal year deadline just once for enactment of all thirteen appropriations bills. The FY 1989 budget did not require a continuing resolution (CR). Every other year has required a CR.x` Although the annual process does not serve us well, over the past several years my review indicates that Congress can effectively govern under a biennial process. In 1987 during the appropriations hearings, I asked 50 agencies about their views on the biennial budget. Thirty-seven agencies supported a biennial budget. None opposed it. The agencies generally responded that they could operate under a biennial budget and it would save money for their operations. Just last year, I asked CBO to review accounts of government to determine those accounts that require annual authorizations and appropriations because of unpredictable funding patterns. Based on CBO's review, only 4 percent of discretionary funding, or $18.5 billion of the total amount appropriated in FY 1993, required annual funding because of unpredictable funding patterns. Congress already provides multi-year authorizations for many programs. For those programs that are annually authorized, CBO could find no obvious budgetary reason why any of these programs could not operate under a multi-year authorization. Even though the vast majority of discretionary funding patterns are predictable, I also had a hunch that Congress does not really change funding for these programs that much. So this year I asked CBO to review how much funding changed from year-to-year for all discretionary accounts of government. Of the 725 discretionary accounts funded in FY 1993, 63 percent changed by less than 10 percent from the previous year's level. Many use the States' experience to argue for and against the biennial budget. For those in opposition, they claim that since World War II the States have been moving away from a biennial budget. I decided to take a closer look at the States' experience and I found that many States did indeed move to an annual cycle in the 1960's and 1970's. However, over the past 10 years three states have moved back to a biennial budget. During this period only Wisconsin has moved to an annual budget and it switched back to ah) 0*0*0* biennial budget in 1989. Finally, if we have a 2-year process we can deal with another concern we heard from Senators last year; that the Congress does not spend enough time reviewing the operations of the federal government. And, the limited oversight we are doing, is frankly not very good. The authorizing committees must start doing more oversight and they need to become better at it. With our legislation, we are trying to create an atmosphere that encourages and rewards better oversight. The entire second year of any Congress will be devoted to authorizations and oversight. We require the General Accounting Office to make it a priority to help communities with oversight during the second session. We require committees to file oversight agendas with this Committee when they come before you at the start of each Congress for their funding. Those agendas must include plans for the coming year as well as a summary of the oversight conducted in the year before. This Committee can then take that information into account when considering budget requests. Now, it is said that a 2-year budget cycle will reduce the ability of the Appropriations Committee to do oversight. Well, I serve on that Committee and I would agree that we do the most oversight. But, what we do is a far cry from what should be done. We do not do systematic oversight, we do crisis oversight. The crisis hits, and then we look at it. We do not do good, effective oversight today. Our legislation is designed to foster the opportunity for oversight, and to give your committee the stick to prod those committees who seem reluctant to get started. $THE BYRD RULE The Budget Act's reconciliation procedures have been abused to enact provisions of law that have nothing to do with reducing the budget deficit. The Budget Act's reconciliation procedures trample the deliberative nature of the Senate by abrogating two basic rights of Senators: the right to amend and the right to unlimited debate. While the Byrd rule was originally adopted in 1985, Senator Byrd recognized the dangers of reconciliation to the Senate when he stated in 1989: X . . . And so it is with sorrow that some of us have seen what has been happening on reconciliation. It is a process which has gotten out of hand and, if continued, it will undermine the deliberative nature of the institution.  He went on to say that reconciliation ``is a process by which committees of the Senate may dictate to the Senate. You take whath)0*0*0* we give you.'' The Byrd rule has made great improvements to reconciliation, but I believe it still is abused, particularly by conference committees. Our bill makes three clarifications with respect to the Byrd rule: *` ` it makes clear that the Byrd rule is permanent;x` *` ` it closes a loophole that was used to include extraneous provisions such as the provision in last year's reconciliation bill dealing with bovine growth hormone's regulation; and,x` *` ` it reinstates a portion of the Byrd rule that says a reconciliation conference report cannot contain provisions that increase the deficit if committees fail to meet their reconciliation instructions.x` %CONCLUSION Mr. Chairman, I want to close with two observations. First, for this Senator, I think a number of other budget process changes are needed, but these recommendations represent the consensus that the Senate members of the Joint Committee agreed to. Second, while I do not believe that budget process changes alone can correct our fiscal problems, I believe these changes will make the Senate more orderly, our Congress more efficient, and our decisions more transparent.  ? The CHAIRMAN. The next witness will be the Director of the Office of Management and Budget, our good friend Leon Panetta. I like Honorable or something else. Mr. Director, I am not sure I like that. So, Leon, go ahead and give your testimony this morning. TESTIMONY OF HON. LEON E. PANETTA, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET  ?! Mr. PANETTA. Thank you, Mr. Chairman. I appreciate the opportunity to appear here. I would ask that my testimony be made part of the record, and I will summarize.  ?% The CHAIRMAN. Without objection, it will be included in the record as if given.  ?' Mr. PANETTA. Thank you. As you know, there are a number of provisions here that areh)0*0*0* not related to the budget process. In addition, there are a lot of provisions in S. 1824 that relate specifically to the Congress. As I told my former colleagues over on the House side when I testified there, if you want to have a drink sometime, I will be happy to exchange some thoughts about changes on the congressional side. But for purposes of this testimony, I am going to restrict it to the provisions that affect the executive branch.  ?@ The CHAIRMAN. May I say to you, my friend, that I understand your narrow concern here this morning as it relates to the 2-year budget and your position as the Director of the Office of Management and Budget, and we need your thoughts and input. But you also had a long and distinguished career in the House, and you have seen some of the pitfalls and some of the changes. I would hope as one of those who would like to leave this place a little better than I found it, that if you would let your thoughts be known in a different avenue or a letter to some of us, I would appreciate that. Even though as I say we have a narrow decision here this morning, I would welcome"welcome with a capital W"any thoughts you might have as it relates to making this a better place.  ?h Mr. PANETTA. I appreciate that. I would be more than happy to share that with you.  ? The CHAIRMAN. I know your time is valuable, but sometime between 2 and 4 o'clock in the morning, if you have a great thought, let me have it.  ? Mr. PANETTA. That is the open time I have. [Laughter.]  ? The CHAIRMAN. I understand well.  ? Mr. PANETTA. Mr. Chairman, as you know, I am a very strong supporter of the biennial budgeting provision, and I would like to focus primarily on that. One of the first bills I introduced when I came to Congress in 1977 was a bill that provided for a 2-year budgeting process. And I know that you are a leader on the Senate side on exactly the same kind of proposal.  ? The CHAIRMAN. I do not know how many cosponsors you had, but I have five, and one of them thought we were asking for a study. [Laughter.]  ?# Mr. PANETTA. I did not have a hell of a lot, but I found out that the appropriators were not about to join me in that effort at the time. But it was something that did attract attention because I think everybody shared the frustration that we were trying to address, and as a consequence, it began to attract a lot more attention. I think it made sense then. I think it even makes greaterh)0*0*0* sense now to move with this proposal. The Vice President's National Performance Review, as you know, has also recommended that the President, as well as the Congress, move to 2-year budgeting. Obviously, if the Congress decides that it is going to move in that direction, you can rest assured that you would have the strong support of the administration and that we would, in fact, work with you in establishing an executive branch 2-year budget as well that we would propose to the Congress. You know, we have made some very important strides towards better budget discipline. The 5-year agreements that we worked out, the budget summits, the various reconciliation measures that we have put into place have tried to establish a path for where we were heading, not just for savings the first year but what we wanted to do over the next 2, 3, 4, or 5 years. And that is exactly what we did in the economic plan. The disciplines that are part of that are very effective; a hard freeze on discretionary spending, a 5-year plan that sets the numbers in place over these next 5 years, the various tools that were part of that agreement to implement the right kind of discipline. So we have made some advances here in terms of trying to establish budget discipline. The problem is that the budget process itself does not necessarily adjust to the kind of changes that we are trying to make in these agreements. We established long-term agreements. We are trying to establish greater stability. The problem with the budget process is that, by its very nature, it is not a process that is stable. As a matter of fact, it is unstable. It does not allow for the kind of oversight that we should have on programs. It does not allow for the kind of predictable funding levels that we ought to be providing to agencies as well as State and local governments. It is a process that I think has not really gained the full confidence of the American people, and that is really why I am here to advocate the importance of a 2-year budget process. I know there are no silver bullets here. If there is anything I learned in 16 years in the Congress, I learned that there are no simple procedural answers to the problems that we deal with. On the other hand, I also learned that there are better ways to do things that at least can create the right incentive to try to establish a better""  ?`" The CHAIRMAN. Leon, I have a very important call I have to take. If you want to go ahead, it will not take me but about 60 seconds. I will be right back. I apologize to you.  ?% Mr. PANETTA. I will wait for you. [Recess.]  ?( The CHAIRMAN. I might just say publicly that it was a budgetary problem. I apologize again to you, Leon, but no one is here to doh)0*0*0* it. You may proceed.  ? Mr. PANETTA. Thank you, Mr. Chairman. Let me stress the key points that I point out in my testimony as to the reasons why I think biennial budgeting makes sense. First is to try to provide greater stability in the budget process. Right now, as you know, we appropriate and budget on an annual basis, and no sooner do we end the debate"as a matter of fact, usually while we are still in the debate on the existing budget, then we are starting to work on next year's budget at the same time. Rarely have all 13 appropriations bills been completed on time, although obviously we have had, I think, a better record in the last few years on this issue. Even last year, 1993, we completed the budget resolution in record time. I think we had completed it by April 1. Normally it is supposed to be done by April 15th, at the latest May 15th. We did it by April 1. Even then, with that kind of record completion of the budget resolution, we had the appropriations process still demand a continuing resolution at the end of the process. In the executive branch, we are in the same bag. Right now we do not have a budget resolution in place for 1995. Obviously, Jim Sasser and Martin Sabo on the House side are working hard to try to achieve that, but we still have not got a budget resolution in place for 1995. We still have not begun the first markups in appropriations on the House side for the 1995 budget. That will begin after the budget resolution passes and they do their 602(b) allocations and then they proceed. Even at this point in time, just because of the nature of the process and what is demanded, I have already sent out guidance to every major department and agency with regard to the 1996 budget. So I have had to tell them essentially what are the numbers we are looking at in 1996. So at the same time I am beginning the process now of working on the 1996 budget, I have got to track what is happening in the 1995 budget resolution and what is happening in the Appropriations Committee and make sure that we can at least win those battles even as we prepare for the next battle. And I think the same thing is true for the Congress. The Congress will spend all of its time fighting these battles out, and not focus, I think, on the long term in that process. Now, one of the concerns has always been, well, what if there are year-to-year changes, year-to-year needs that have to be met? I have always felt that if we have to do that, there is no question that we can do a major supplemental. Right now we do supplementals. We did four supplementals in 1993. We did four supplementals in 1992. We did three supplementals in 1991. I am not arguing that supplementals are a good thing, but on the other hand, it also points out that even with year-to-year budgets we still do supplementals.h)0*0*0*ԌI think you can make the kind of adjustment you need to make with a supplemental. That would provide, I think, the vehicle to address the major changes that need to be made. And we can do rescissions, and you can do it within the budget so that you can make the adjustments. What you do not need is to do, every year, 13 full-fledged appropriations bills in order to try to deal with the budget. So I think you can stabilize it. I think you can make it a much more rational process, and that is a major reason why I think we ought to move in that direction. Secondly, it is just better management. There are two ways that we can really improve management with 2-year budgets. The first is just the amount of time and manpower that we spend on budgeting in the executive branch. I gave you an example of that. Right now we are already starting the 1996 process. We have departments, we have agencies, we have people that are already starting to work on the 1996 budget. And the fact is that we could make better use of their time and manpower in the executive branch if we had some give here, some room to try to focus on the programs themselves and on how they are managed and how efficient the programs are that are in place. So as I said, I think we could have a better use of time and manpower, certainly in the executive branch, if we were able to have 2-year budgets. Secondly, 2-year budgeting gives managers the time to think about their programs and to put new policies in place. What happens on the year-to-year budget process is that there is a natural inclination not to make waves from year to year. We are now in a situation where we have to come up with numbers for 1996. The natural tendency is to basically just let it be business as usual. The natural tendency is just to carve, make a few adjustments here, make a few adjustments there. But in terms of major reforms, in terms of the kind of programmatic changes that need to be made, in terms of the kind of dramatic innovations that you could put in place, the natural instinct of the budget process right now is to discourage that kind of innovation, because you are basically struggling to come up with"gee, we have got to come up with next year's budget, we have got to do next year's budget. I am not going to screw around with this thing in any dramatic fashion; I would rather just not make waves. I am just going to recommend the programs that we had last year. So there is a natural tendency in the year-to-year budget process basically to continue the process without looking at the programs themselves. You just basically make the adjustments on the numbers. So I think there would be a better incentive to try to properly manage Government if we had that additional room. Oversight is obviously a part of this as well. As you know and as I saw in the Congress for 16 years, our tendency in the committees was basically to review programs and wind up having hearings when there are crises, when something has gone wrong. Andh)0*0*0* the responsibility of both the executive branch and the Congress is to oversee programs not so much just because something has gone wrong or because there is a crisis, but we have got to do a better job asking the question: Is this program working right now? Just because it has not made the Washington Post headlines is no reason why we should not ask the question is the program working right. Those are the kinds of questions we need to ask, particularly in a tight budget, particularly with tight resources, and particularly when we are trying to make government work better. You have to have better oversight of these programs. We need to take more time to look at these programs and ask: How are they working? How are they serving people? Are they doing the job? Are we making the best and most efficient use of personnel? We have got to cut 272,000 Federal employees. If we are going to do that, this is a great opportunity to try to improve management at the same time, try to improve the way Government delivers services. Predictability is another very important point. As you know, when we are in these situations where we do not have all the appropriations bills done, it creates tremendous unpredictability. I mean, here we are in the 1996 process trying to develop the numbers for next year. We do not know what we are going to get in 1995 yet because we have not seen all the numbers yet. They are backed up. For a State and local government out there that is waiting to see what kind of funds they are going to get, they have got to adjust their budget. They do not know what they are going to get. Particularly in the education area, we have heard this time and time again. So it certainly would create greater predictability if, in fact, you established a 2-year time frame and they knew generally what they were going to get from year to year. Lastly, I think there is no question that when you have more appropriations bills, bills every year, it creates greater opportunities for waste. That is just the name of the game. I do not come here in any kind of derogatory fashion because, frankly, as a Member of the Congress, I used that opportunity, just like every other Member. But I also think it creates a temptation that the more you have it there, the more you try to use that vehicle to basically try to fund the kind of things that otherwise we might not fund, just because of the nature of the oversight process itself. So those are the main reasons I support biennial budgeting. I think Alice Rivlin, my Deputy, said it best of all when she said, ``The managers of Federal programs and the recipients of Federal grants could plan programs more effectively if they could assume funding for a longer period. They could spend more time managing and less time preparing and defending budgets and adjusting to funding changes. And Congress, relieved of the annual budget battles, could devote more attention to long-run issues and more careful oversight of Federal programs.'' I think that best statesh)0*0*0* the case for biennial budgeting. Let me just mention a couple other things very quickly that were in the National Performance Review that are reflected in S. 1824. You provide for a review of legislative branch activities with a goal of reducing FTE's. Here I strongly encourage that. Obviously we have begun that process in the administration with the passage of the various proposals to cut FTE's. Incidentally, I would like to use this opportunity to stress the need to defeat an amendment on the House side which is looking to actually now protect one area of FTE's, create a floor on FTE's for one particular area. You and I might think that that is important to do because it is an important area when it comes to something like VA health. Nobody disagrees with that. But as soon as we start establishing floors protecting FTE reductions in one area, make no mistake about it, it is going to create a terrible precedent in terms of other areas. Why shouldn't we do the same thing for the WIC program? Why shouldn't we do the same thing for Head Start? Why shouldn't we do the same thing for education programs? Why shouldn't we do the same thing for FDA? If we are going to implement these kinds of reductions, we absolutely have to have the flexibility to do it without having our hands tied.  ?P The CHAIRMAN. It interferes with health care reform also.  ? Mr. PANETTA. That is correct. The second provision that you have is a provision that relates to reports that are required of the executive branch by the Congress. We are working very closely with both Senators Levin and Glenn to try to reduce those numbers of reports. Again, when I was a Member of Congress, particularly on the Agriculture Committee, when in doubt you always ask for a report from the executive agency. The problem is it creates a tremendous burden on the executive agency. We have literally hundreds upon hundreds of reports that we have to do. Some are just outdated now, and we just need to review those and try to cut back on the number of those reports. And as I said, we are making a successful effort to try to develop legislation to do that. Lastly, on the Printing Office proposal, something you have had a great interest in, I think we are making some progress in working with you to try to develop an approach on that issue as well. There are other provisions that relate to the House bill. I am not going to take your time on that. You can review them in the testimony. I think it suffices to say, Mr. Chairman, that this is a great opportunity to try to implement this kind of reform. I think we are really in a transition period. We have established good discipline on the budget. There is a greater emphasis onh)0*0*0* better management, particularly with the National Performance Review. This is a very opportune time for Congress to say let's try to stabilize this process and devote more time to oversight, to devote more time to trying to stabilize the budget process so we can, in fact, implement better management of Government. Thank you. [The prepared statement of Mr. Panetta follows:] STATEMENT OF LEON E. PANETTA, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET Mr. Chairman, thank you for inviting me to testify on the elements of S. 1824, the Legislative Reorganization Act of 1994, which pertain to the budget process. As you know, S. 1824 contains numerous provisions not related to the budget process. In addition, there are some proposals that relate solely to the rules of the Congress, and I do not believe it is appropriate for me to comment on such proposals. Therefore, I will comment primarily on biennial budgeting, which is the only budget-related provision of S. 1824 that would have a direct impact on the Executive Branch. !BIENNIAL BUDGETING As you know, Mr. Chairman, I am a strong supporter of biennial budgeting. One of the first bills I introduced when I came to Congress in 1977 was to create a 2-year budgeting process. It made sense then, and I think it makes sense now. The Vice President's National Performance Review has also recommended that the President and the Congress move to 2-year budgeting. If Congress decides to move toward biennial budgeting, you will have the strong support of the Administration. Today, the budget process does not work as it should. The annual appropriations process is rarely completed on time. Too many programs go on year after year with inadequate oversight by Congresses and by Administrations. And agencies seeking to manage programs efficiently and effectively face unpredictable funding levels. Unfortunately, the process has not inspired the confidence of the America people. By its nature, budgeting is not always an efficient process. We must allocate scarce resources to a vast array of competing priorities. In a democracy, that will never be easy. But we can make the process more rational and more conducive to the fundamental goal of budgeting"the effective targeting of limited tax dollars. Two-year budgeting can make a big difference in that regard. It would improve the way government works at both ends ofh)0*0*0* Pennsylvania Avenue. The five most significant ways are: greater stability and rationality, improved management, better oversight, more predictability, and less incentive for wasteful spending. Stability First, stability and rationality. Today, we appropriate on an annual basis. No sooner do we end the debates and battles over contentious budget issues each year, than we move into the same battles all over again with a new budget. Rarely are all 13 appropriations bills completed on time. Even last year, when Congress completed the budget resolution in record time, a continuing resolution was needed at the beginning of the new fiscal year. But even as we were resolving issues relating to the 1994 appropriations bills, the Office of Management and Budget (OMB) and departments and agencies were devoting a substantial amount of time and resources to the development of the President's 1995 budget. That budget contains some important new initiatives and it continues some of our existing ones. And we have had to make very significant spending cuts. But the reality is that despite the significant changes in some accounts, changes from one year to the next in hundreds of other accounts are relatively small and predictable. Surely, these smaller changes can be decided for 2 years at a time, saving enormous time and effort. Even many of the more significant changes can be decided for 2 years. If, because of changing circumstances, funding adjustments cannot be delayed until the next budget, they can be addressed in supplemental appropriations and rescissions requests much as they are today. For example, during fiscal year 1993, Congress adopted four supplemental appropriations bills. In fiscal 1992, Congress adopted four supplemental appropriation and rescission bills. In fiscal 1991, Congress adopted three supplementals. And this year there has already been one supplemental adopted. There will always be changing circumstances which require supplemental appropriations or rescissions. We routinely have at least one. And we frequently have more in reaction to emergencies and other unforeseen circumstances. But there is simply no way that whatever few additional supplementals might occur will come close to the burden on the Administration and on the Congress of a full set of appropriations bills. The fact is that 2-year budgeting would introduce far greater stability and rationality into the process. By the end of the first year of the process, we would essentially be done with the heavy lifting of the budget process, and would be prepared to concentrate on the many other issues the American people send us here to address. Better Managementh)0*0*0*ԌThe second benefit of biennial budgeting is better management, which we take very seriously at OMB. There are two ways that 2-year budgets would improve management. First, the amount of time and manpower spent by the Executive Branch on budgeting is enormous. That time and manpower is largely taken away from the actual management of programs. Biennial budgeting would undoubtedly reduce the amount of resources put into budgeting. Perhaps more important, though, is the longer time line that 2-year budgeting gives to managers to think about their programs and put new policies in place. Year-to-year budgets make it very difficult to execute the fundamental reforms that are sometimes necessary to adjust programs to new realities, to correct malfunctioning programs, and to incorporate new ideas for making good programs even better. That is what management is all about, and the year-to-year focus is discouraging it rather than encouraging it. Management of the bureaucracy and of Federal programs has been far from ideal in recent years. Improving management is a very high priority for this Administration. Biennial budgeting would free more of the resources we need to manage programs better. Oversight The third advantage of biennial budgeting is also important: the increased ability of both Congress and the Executive Branch to carry out oversight of existing programs. Today, the appropriations committees have little time to conduct real oversight of the programs they fund each year. Programs endure. Sometimes they change. Rarely do they end. Likewise, with the Executive Branch involved every year in the appropriations battle, agencies end up working with Congress on one budget, working within the Executive Branch on the next budget, and not having the time or manpower to scrutinize their programs. Two-year budgets would give both Congress and the agencies the time they need to step back and examine programs. It would enable both authorizing and appropriations committees to consider changes, to consider new ideas, to consider what might no longer be effective or needed. The legislation's requirement that Committees submit committee review agendas near the beginning of each Congress would help to formalize this process. The legislation would enable all of us to make more intelligent decisions about the future of programs and about how to achieve the goals of those programs. Predictability The fourth benefit of 2-year budgeting is predictability " predictability for those served by government programs and forh)0*0*0* those who administer them. Today, Federal managers never know from year to year what they will have to spend on their programs. Indeed, they are planning budgets for 2 years down the road while they are working with the Congress on the budget for the coming year. As a result, they cannot do the kind of planning that would lead to more effective and efficient allocation of resources. Likewise, state and local governments, private organizations, and others who receive funds from Federal programs do not know from year to year what resources will be available to meet program goals. That makes no sense. Two-year budgeting will provide greater predictability for those who administer programs and those who depend on them, and that will enable both to maximize the effectiveness of Federal programs. Less Waste Finally, biennial budgeting could improve the budget process by reducing opportunities to enact wasteful spending. Call it special projects, call it wasteful spending, call it anything you want. The reality is that too often the way things are accomplished in this town is by funding projects that are not really needed. That phenomenon will never be eliminated entirely. But the annual appropriations process is clearly the most common vehicle for such spending. With one budget process every 2 years, the opportunities and the imperatives for that kind of trading would be cut nearly in half. I won't suggest that biennial budgeting would cut the amount of wasteful spending in half, but it would curb it by curbing the number of opportunities for it. No single budget process change can solve all the problems of budgeting. We still need to decide how much money to raise, how much to spend and how to spend it. But if we can make the process more rational, we will help ourselves and, more importantly, the American people, who depend on us to manage their money and their country wisely. Perhaps one of the best authorities on this subject is my Deputy Director at OMB and the former Director of the Congressional Budget Office, Alice Rivlin. In between those two assignments, she described the advantages of a 2-year budget: X The managers of federal programs and the recipients of federal grants could plan programs more effectively if they could assume funding for a longer period. They could spend more time managing and less time preparing and defending budgets and adjusting to funding changes. And Congress, relieved of annual budget battles, could devote more attention to long-run issues and more careful oversight of federal programs . . .  Mr. Chairman, biennial budgeting is an idea whose time hash)0*0*0* come. I hope it will be approved by this Committee and by the Congress. NATIONAL PERFORMANCE REVIEW In addition to biennial budgeting, there are at least three provisions of S. 1824 which relate to recommendations made by the National Performance Review (NPR), and I would like to mention them here. The first provides for a review of legislative branch activities with the goal of reducing FTEs. As you know, Mr. Chairman, we have been in the process of streamlining the executive branch, first at the recommendation of the NPR and more recently under a congressional mandate. This is a very high priority for the Administration, so it is heartening to see the Congress considering a similar course of action. The second provision would sunset any law requiring an executive agency to report to Congress after 5 years. The Congress requires numerous reports from the Executive branch. Many make sense. Some do not. Some outlive their usefulness over time, but since the requirement has not been repealed, agencies must continue to submit the report. The NPR recommended that the burden be reduced. While this provision would do that in no uncertain terms, I believe a targeted aproach to elimination of specific unnecessary reports is more appropriate. OMB is currently working with Senators Levin and Glenn on legislation to eliminate several hundred reports which will be introduced later this spring. I hope the Committee will support this effort. Finally, S. 1824 contains provisions relating to the Government Printing Office (GPO). S. 1824 represents a good starting point for the reform of printing in the Federal government. We welcome the work of the Senate in this area. My staff in the Office of Information and Regulatory Affairs has been working with staff of this Committee to build on the excellent start that has been made here. The NPR also is supportive of this work. I would also like to comment on provisions of the companion bill of S. 1824 in the House, H.R. 3801, which are not contained in S. 1824. #BUDGET CONTROL H.R. 3801 would codify the entitlement spending targets which the President established by Executive Order 12857 on August 4, 1993. The Administration supported this provision when it was adopted by the House last year as part of the reconciliation bill, and we support it now. The Executive Order has itself provided the first serious check on entitlement growth that is not the result of specific legislative action by the Congress. Writing the entitlement targets into law would provide them with even greaterh)0*0*0* authority. There is one small change which has been made in the proposal which raises some concerns. The measure adopted by the House last year gave the President flexibility as to what kind of spending cuts, or revenue increases, he could propose if he chose to recommend a means of offsetting the unforeseen increases in entitlement costs. However, H.R. 3801 would prevent the President from recommending use of discretionary spending savings to offset any part of the overage. Growth in entitlement spending is certainly the primary contributor to projected spending increases in future years. However, I do not believe it makes sense to establish an artificial limitation on the means by which the President could recommend we meet unexpected increases in entitlement spending. While only increases in entitlement spending could trigger action, there may be circumstances in which cuts in discretionary spending would be appropriate in addition to cuts in entitlements. If the President made such a recommendation, the Congress would still be able to make changes, if it opposed cuts at that time in discretionary spending. When it comes to the deficit, it rarely makes sense to take major areas of the budget off the table. l ADDITIONAL BUDGET PROCESS CHANGE There is one other budget process provision in H.R. 3801 on which I would like to comment. It requires two things: *Xthat the Economic Report of the President include a ``GNP budget analysis'' " a statement of broad economic policy objectives for the next 10 years and an analysis of how the objectives would affect national output; and  *Xthat, 7 days after the Economic Report is issued, the President transmit a separate report with ``long-term budget and fiscal policy goals'' and ``a 10-year projection of Federal revenues by source, outlays by function, and the Federal budget deficit'' with international comparisons.  The ``GNP budget analysis'' idea has been considered in academic and policy circles for some time. There is a point to this idea. We want to be sure that we consider the resources that the private sector is devoting to, say, health care, when we consider or evaluate a public program toward the same general end. However, the degree to which the public sector can steer private resources in the economy is easily exaggerated; and our ability to project such figures into the distant future, 10 years hence, is strictly limited. In fact, it is almost certain that the most important reallocations of our national output over the next 10 years will be  ?' those that we cannot now predict, rather than those that we can. Furthermore, attempting such a detailed analysis would be a heavy additional burden on the small staff of the Council of Economich)0*0*0* Advisers. So we would urge caution in considering this provision. Regarding the proposed following report, I do not believe a separate report is necessary or advisable. Every budget provides long-term budget and fiscal policy goals, and if a new report were to be required, it would make far more sense to include it in the President's budget submission. As to whether such a report should be required, it probably makes sense to provide 10-year estimates. As you know, Mr. Chairman, the farther out we project economic and specific budget details, the less reliable our projections become. That does not mean we should not make them, however. We do have to rely on our best estimates of the future to carry out our budgeting responsibilities. Still, even if there were a requirement for 10-year projections, the level of detail proposed in the legislation could make those projections much less useful. The ability to produce reliable, detailed 10-year estimates of Federal revenues by source and outlays by function is very questionable. Except for Social Security and the health trust funds, year-by-year projections beyond five years are not made currently, and there is no generally accepted methodology to make them. A requirement to produce forecasts at this level of detail would probably result in estimates using simple mechanical procedures such as applying inflation growth forecasts to the previous year's estimates. Although it would meet the requirements of the legislation, it would not necessarily provide useful information. On the other hand, projections using the categories established by the Budget Enforcement Act can be produced with greater confidence. These categories include total discretionary spending, mandatory spending, interest, deposit insurance, and revenues. Additional detail could be provided for Social Security, Medicare, and Medicaid, if desired. At this level of aggregation, more confidence could be placed in projections that use aggregate economic forecasts. If this approach were taken, the Administration would not object to such a requirement. With regard to international comparisons, it is my understanding that the available information on the future budget plans of other countries is rather limited. However, to the extent that such information were available, the Administration would not object to including it in a long-term report. Again, Mr. Chairman, thank you for this opportunity to discuss these reforms. As we have discovered in the Executive branch, reforms are difficult to achieve but you cannot achieve without reforms. We wish you the best in this effort. I will be happy to answer questions from you and the other Members. h)0*0*0*Ԍ ? The CHAIRMAN. Thank you very much. I couldn't help but think back to a few years ago and reminisce a little bit when Adlai Stevenson, then Senator from Illinois, had his reorganization of the Senate. One of his recommendations happened to be the elimination of the Air and Space Committee. We referred to it as the Space Committee. There was some moaning and groaning by senior Members of the Senate at the time because they put me on that committee and I did not want it, you know. Like those Senators, my grandfather used to fuss at me because I spent a nickel on a Buck Rogers funny book back when I was a kid. He always said some crazy fellow wrote them. But, anyhow, I wound up on the Space Committee. Lo and behold, in 2 years I would have been chairman of the Space Committee because every member of the committee was a chairman of another committee. There sat this freshman, still wet behind the ears, you know, and he was going to have 50 employees and be chairman. I came to that same table and testified to do away with it. Now it is part of the Commerce Committee. Some Senators could not understand; their mouths were open, because I had come and testified to give away something, and I would have been chairman of that committee. It has worked very well in the Commerce Committee. I went through the throes of that reorganization, and it was very tough. Leon, I have watched and watched and watched, and as you have said so adequately, we are losing our time to oversee the operation of the Government, and that is our fault. You are now in the throes of the 1996 budget. We are trying, as you know, to get some kind of agreement on the 1995 budget. Having been a governor, understanding a little bit about how the States react to the Federal Government and programs that have been instituted, and not knowing after October 1st how much money is available, there is uncertainty. We had a continuing resolution last year, but we do not know what to do for the coming year. So within 30 days or 60 days, we will find out, maybe. Maybe. Then we try to institute that program after the fact. So if governors knew what the next 2-year funding is, States could make a better judgment cents-wise"c-e-n-t-s"because they would know how much they could spend this year. They could make a contract this year, finish it in the next year, and under those circumstances probably get a better bid. They could save money and do more for their constituents. That is one of the reasons I have been so anxious for this proposal. When we implemented the 2-year budget for the committees, every chairman liked it. I do not know a chairman who is opposed to making the budget every other year. This year we did not have chairmen at the table. We did not take weeks of their staffs' time trying to figure out their budgets so that we could substantiate an increase. They have been able to carry over whatever surplus they have into the second year, and they haven't been trying to spend it all in the first year to prove that what they asked for is whath)0*0*0* they needed. So we have saved money. The proof is in the pudding. I understand that the Armed Services Committee is doing a 1.75 budget, and that other 25 percent is something, a reduction or increase, whatever it might be. But Chairman Nunn is trying awful hard to get into the 2-year budget for the military. I understand seniority, and I understand authority, and I understand wanting to hang on to the ability. But they could really make a name for themselves if they could find out how well funds are being managed. You come up here, and you tell us what is going on. We set you certain priorities, and you come back in 6 months and report on that, and we look at it. It may be a program we want to get rid of, and we will not do it. It is a process we need to encourage more since it can really produce results. We can shift the money, if necessary. You and I speak the same language here, and I hope that we can improve management. I have never seen any organization's budget that you could not reduce more than 10 percent. But you have to be in a position to make a judgment about what 10 you want to cut or what 10 you want to reduce. I am grateful to you, my friend, for your position and your stand. If we live long enough, maybe we will see it. I just want to ask one question, and I get this a little bit because I said it in my opening statement that the deficit reduction efforts require a 1-year budget. Do you feel that our deficit reduction efforts require an annual action, or could they be adapted to a 2-year cycle?  ?8 Mr. PANETTA. I think we have the tools in place to be able to assure that we stick to the deficit reduction targets without having to worry about the need to do it on a year-end, year-end basis, and I will just tell you very simply why. On a hard freeze"we have a hard freeze in place.  ? The CHAIRMAN. Five years.  ?@ Mr. PANETTA. Five years. What we spend in 1993 is what we are going to spend in 1994, 1995, 1996, 1997, and 1998. If the Congress exceeds that cap, I am obligated under the law to cut everything across the board to meet that cap. So if, in factand I assume the argument must be based on the fact that you are going to do a supplemental, you may try to break through the ceilings. But if that happens, I am obligated to cut across the board. Secondly, if we do supplementals, you have to seek rescissions to basically pay for it. Even right now the mood of the Congress, both the House and the Senate side, is that we ought to pay for supplementals. When we send supplementals up here, we have got toh)0*0*0* do a good job of trying to find rescissions to pay for them. And we would have to do that if we made any major adjustment in supplementals in the off years. In addition to that, obviously on the pay-go side, which does not relate to the year-to-year discretionary budgets, but on the pay-go side for entitlements and revenues we still have the requirement that any new entitlement has to be fully paid for or it is subject to a point of order on the Senate side. And if they ever passed an entitlement that was not paid for, I would be obligated to cut entitlements across the board to make sure that we pay for it. So we have got some very strong tools in place. They are good tools. I helped design them when we did the 1990 budget agreement. We incorporated many of those in the 1993 agreement. And I think for that reason we can move to a 2-year budget with the confidence that the tools for making sure we do not increase the deficit are in place. And, very frankly, let me tell you something else. If the other argument is, well, we need year-to-year reconciliation in order to do greater deficit reduction, the fact is we do not do reconciliation every year. We should not do reconciliation every year. I do not think the process can handle reconciliation every year. We did not do reconciliation this year. We did a major reconciliation bill last year. So if there is a need to do additional deficit reduction in the context of reconciliation, every 2 years is more than sufficient to try to deal with it. I do not think the process can handle more than that, very frankly. So I do not see the biennial budget as being a negative with regard to deficit reduction. As a matter of fact, I think it is going to help us because if we do better oversight on existing programs, we will find the recommendations for savings that we need. And you will find committees proposing either greater consolidation or elimination as a result of that kind of oversight. And that is what we need.  ?@ The CHAIRMAN. Mr. Director, we thank you and appreciate it. Sorry we had to put more pressure on your day.  ?! Mr. PANETTA. That is all right.  ?(# The CHAIRMAN. But I know you are used to 18, 20 hours every day and little sleep. Thank you, sir. I look forward to working with you.  ?' The CHAIRMAN. Next is the Deputy Director of CBO, James Blum. Jim, where are you? There you are. TESTIMONY OF JAMES L. BLUM, DEPUTY DIRECTOR,h)0*0*0*Ԍ CONGRESSIONAL BUDGET OFFICE  ? Mr. BLUM. Thank you, Mr. Chairman. I appreciate this opportunity to be here this morning. Our director, Robert Reischauer, would have liked to have been here this morning, but as it turns out, he at this hour is testifying before Senator Glenn's committee on unfunded mandates. So we were faced with a choice. We drew straws, and I won this assignment to talk to you today about""  ? The CHAIRMAN. Well, we will see later on whether you won or lost. [Laughter.]  ? The CHAIRMAN. If you want to highlight your statement, that would be fine. We will place it in full in the record if you wish, Mr. Blum.  ? Mr. BLUM. I would like to do that. Let me just speak generally.  ? The CHAIRMAN. Without objection, then, your total statement will be included in the record as if given.  ? Mr. BLUM. Thank you, sir. My testimony, the prepared statement, focuses on the Joint Committee's proposal to move to a 2-year budget cycle. I will present, with perhaps some hesitation after the strong testimony by Director Panetta and your own views on the subject, some of the arguments on the other side.  ? The CHAIRMAN. Don't worry about that. We just bark; we never bite.  ? Mr. BLUM. Well, I must observe that the Congressional Budget Office (CBO) once supported biennial budgeting, but two things have happened in the meanwtime. For one, Alice Rivlin, who was the first director of CBO, left that position and is now with the Administration, and her views on the subject remain unchanged. The other thing that happened was that, beginning in the early part of the 1980's, the budget deficit went out of control, and we entered a period of triple-digit deficits. So at this point, we are no longer as sanguine as we were about the possible benefits of a change to a 2-year budgeting cycle, largely because the deficit has become such a major problem. As long as large budget deficits persist, we believe that the Congress and the President should face them on an annual basis and decide each year whether additional deficit reduction efforts are warranted. While under the current system major deficit reduction efforts are not undertaken each year, as Director Panetta and yourself observed, the pressure to do something about our continuing large deficits nonetheless remains very great. We feel that moving to a 2-year budget cycle at this juncture may be the wrong step to takeh) 0*0*0* toward achieving a balanced budget. I would have to observe that a 2-year budget cycle also does not seem consistent with the desire to control entitlement spending. The President last year issued an executive order that calls for an annual review of entitlement spending in relation to some targetsif entitlement spending exceeds those targets, the President is bound to propose some changes, and the Congress would have to respond. This type of situation could easily arise in the second year of a 2-year budget cycle, for example; yet you would still have to undertake a major budgeting effort, perhaps with a reconciliation bill, in the offyear. Biennial budgeting could also hinder efforts to reorder funding priorities in response to changing domestic and international needs. Because the economy and world conditions can and frequently do change rapidly, a large number of budget adjustments are likely to be needed in the second year of a 2year cycle. If so, then from our reckoning, the presumed gains from biennial budgeting in reduced legislative review time and approval efforts might not be achieved. Director Panetta observed, for example, as one of the arguments for biennial budgeting, that if we had a 2-year budget cycle, we would have a greater chance of making major reforms. I might respond by observing that, perhaps in the end, greater progress can be made in reordering priorities by taking smaller steps each year as opposed to trying to take major steps every 2 or 4 years. Sometimes when you try to make these major efforts, the stakes are much higher and make such steps much harder to accomplish. Reference is often made to the experience of the States with biennial budgeting, and you yourself, Mr. Chairman, observed that Kentucky follows a biennial budgeting cycle. I think the arguments can go both ways here. For example, we have 19 States that have a biennial budgeting system. Seven of those States"and Kentucky is one of them"have biennial legislative sessions and really have no choice about how they are going to put together their budget. Nonetheless, 12 States have both an annual legislative system and a 2-year budget cycle. The counter-argument is, however, that if you look over time, the trend at the State level has been toward annual budgets, largely because of the sensitivity of State budgets to the economic cycle and the need to make mid-course corrections in budgets for policy reasons. In 1940, for example, 44 States had 2-year budget cycles; 50 years later, 25 fewer States now practice biennial budgeting than once did. It has been suggested that the annual appropriation cycle, for example, could be retained while the country moved to a 2-year cycle for Presidential budgets and budget resolutions. After all, that would not be a great departure from the present practice, ash)!0*0*0* Director Panetta has observed, of adopting multi-year budget agreements every few years and undertaking major reconciliation efforts every 2 or 3 years. Furthermore, the budget resolutions adopted in the year or two following a major budget agreement have usually adhered quite closely to the fiscal targets that were set earlier. A conversion, therefore, to a 2-year budget resolution cycle would serve simply to ratify current practice. Failing to revisit the budget resolution each year, however, would have certain drawbacks that I want to call to your attention. It is quite likely that the economic and programmatic assumptions that underlie a budget resolution would, over time, turn out to be inaccurate, particularly for the second year of the resolution. Generally speaking, forecasting errors become larger as the projections extend farther into the future. Just to give you an idea about the possible magnitude of changes that could be made in the budget outlook because of changed economic and technical assumptions, I reviewed the changes that we made to the Congressional Budget Office's baseline budget projections for fiscal year 1993, which would have been the second year of a biennium. Between January 1991 and January 1992, we raised our deficit projections for fiscal year 1993 by over $100 billion because of revised economic and programmatic conditions. Now, changes are not always of that magnitudethis is just an illustration to show that they can be quite largebut there are always changes. And these types of changes in the conditions affecting the budget could present quite serious problems for enforcing the provisions of a 2-year budget resolution, particularly in the second year. The reason is that legislative proposals are scored against the economic and technical assumptions that underlie a budget resolution. If these assumptions become out of date, our cost estimates for legislation being considered by the Congress could become quite unrealistic. Bills that would increase spending under updated assumptions might appear to have very different costs if we had to use the outofdate, inaccurate assumptions of the budget resolution. We have encountered this problem even with 1-year resolutions, but it could be much worse under a system of biennial budget resolutions. Finally, the suggestion"I know it is not one being considered hereof combining biennial Presidential budgets with annual appropriations does not seem promising. It is quite likely that the President and Federal agencies would want to make adjustments for the second year of the biennium based on the appropriation decisions that were made for the first year. There do seem to be advantages in moving away from annual authorizations as a way of freeing up legislative time for otherh)"0*0*0* activities, and this is one of the provisions in S. 1824. Furthermore, there are alternative methods for achieving the greater predictability in funding levels for various programs that both you and Director Panetta spoke about this morning. Examples of ways other than biennial budgeting to give greater predictability to the States and other recipients of Federal assistance include forward funding, which is a practice for providing aid to elementary and secondary education, and advance appropriations, which are used in selected program areas. In the defense area, multi-year funding has been used for certain procurement programs to achieve management savings. Finally, biennial appropriations might be used selectively for technically predictable and politically stable programs in which longer-term planning would be useful. In conclusion, Mr. Chairman, as long as large deficits persist, we believe that the biennial budgeting as proposed by the Joint Committee and the National Performance Review could hamper efforts to reduce the deficit. Once the deficit problem is in the past and the budget is more in equilibrium, biennial budgeting may be beneficial. But as long as there are pressures for changes in funding priorities or a desire to adopt an active short-term fiscal policy, biennial budgeting in the end would probably yield few benefits. Thank you, Mr. Chairman, for hearing the other side of this issue. [The prepared statement of Mr. Blum follows:] STATEMENT OF JAMES L. BLUM, DEPUTY DIRECTOR, CONGRESSIONAL BUDGET OFFICE Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify on the budget process recommendations of the Joint Committee on the Organization of Congress included in S. 1824, which Chairman Boren and Vice-Chairman Domenici recently introduced. Although the Joint Committee recommended several smaller changes that would affect the budget process, I will focus in my testimony today only on what is by far the most significant recommendation in this area"the proposal to move to a 2-year budget cycle. Both the Senate and House recommendations of the Joint Committee advocate moving to a system of biennial budget resolutions and appropriations and multi-year authorizations. Under this proposal, the first biennium would begin October 1, 1995, covering fiscal years 1996 and 1997. The President would also submit a full budget only every 2 years; the first biennial budget would be submitted in February 1995, at the beginning of the 104th Congress. In nonbudget years, the President would submit amendments only in exceptional circumstances. Vice President Gore's National Performance Review (NPR) hash)#0*0*0* also recommended that the Congress establish biennial budgeting, including all of the aspects contained in the Joint Committee bill. The NPR, however, would envision a different timetable than the Joint Committee, with the budget submission, budget resolution, and appropriations occurring in the second session of each Congress, rather than the first. My testimony will make the following points in evaluating the effects of biennial budgeting: *XBecause budgets have had to conform to requirements contained in multi-year agreements, biennial budget resolutions represent a relatively small change from recent practice. But they could increase the likelihood that budget decisions would be based on less accurate information, and consequently they may hurt efforts to reduce the deficit.  *XBiennial appropriations should be viewed primarily as a trade-off between the Congress's flexibility to make frequent changes in the budget and the ability of executive branch agencies and recipients of federal aid to plan for the future and manage programs. Other factors, however, call into question whether biennial appropriations would yield the benefits that their proponents cite.  *XBiennial budgeting is proposed as a reform that will decrease the time the Congress devotes to budgeting and increase Congressional oversight. These changes, if they occur, are likely to be considerably less than what some proponents advertise.  BIENNIAL BUDGET RESOLUTIONS Under the Joint Committee's proposal for biennial budgeting, the budget resolution would be adopted every other year. Since 1987, the Congress and the President have experimented with multi-year budget agreements"for 2 years in 1987, and for 5 years in 1990 and again in 1993 (the 1990 agreement was revised after 3 years). In an era of multi-year budget agreements, setting out aggregate targets in budget resolutions every other year should not represent a substantial change since the broad outlines of the budget are already established for two or more years. In recent practice, the budget resolution in the year or two following the adoption of a large deficit reduction package has usually restated the policies underlying that package. A conversion to a 2-year budget resolution would serve in this sense to ratify current practice. Failing to revisit the budget resolution each year, however, would have certain drawbacks. Putting a requirement for biennial budget resolutions into law would make it more likely that budget decisions would be based on economic and technical assumptions thath)$0*0*0* turn out to be inaccurate. Generally speaking, forecast errors become larger as projections extend farther into the future. Even in the current annual process, forecasters are required to project changes in the economy and the baseline budget 21 months before the end of the fiscal year. A biennial budget resolution would increase this period to 33 months for the second fiscal year of the biennium. Furthermore, problems may occur in enforcing the resolution, particularly in the second year of the biennium. The budgetary effects of a bill are currently estimated using the economic and technical assumptions underlying the budget resolution. As those assumptions became more out of date, the enforcement process would be strained: bills that would increase spending under updated assumptions might have very different costs under the assumptions of the budget resolution. We have encountered this problem even with 1-year resolutions, but it could be much worse under biennial budgeting. Biennial budget resolutions may also actually hinder further efforts to reduce the deficit, since a biennial system is designed to confront budget decisions less frequently. As long as large deficits persist, the Congress and the President should face them on an annual basis and decide whether additional action is warranted in that year. To some extent, multi-year agreements already vitiate annual reexamination. Biennial budgeting, however, hardens the denial of annual review, which seems undesirable in a world with $200 billion deficits. It is certainly true that the President and the Congress have not opted to attack the deficit every year, but it is also true that major deficit reduction efforts have not followed a neat 2-year cycle. Under the Joint Committee proposal, the normal budget resolution and reconciliation procedures would be unavailable every other year. The Congress might be able to overcome this impediment. But given the difficulty of enacting deficit reduction legislation under the best of circumstances, additional hurdles may be unwise. If and when the deficit has been brought under control, the Congress may want to return to using the budget resolution to carry out a more active fiscal policy. A biennial budget would make it more difficult for the budget resolution to be used once again to set short-term fiscal policy. In the first years following the passage of the Congressional Budget Act of 1974, such active policy was the norm, but over the past decade attention has focused on longer-term deficit reduction. Biennial budgeting is inconsistent with such a longer-term viewpoint. BIENNIAL APPROPRIATIONS Decisions on appropriations are now made annually; that is, appropriation bills covering virtually all discretionary budget accounts are enacted each year. This process provides the Congress with ample opportunity to review program operations and to makeh)%0*0*0* changes in resource allocations. But biennial appropriations could potentially allow federal government agencies and recipients of federal aid to manage their resources better. This was in fact the major reason that the Vice President's National Performance Review advocated that such resolutions be coupled with biennial appropriations. Therefore, biennial appropriations are best viewed as a trade-off between the ability of agencies to manage programs flexibly and recipients of federal aid to plan for the future, on the one hand, and the ability of the Congress to control the budget and to make more frequent changes in it, on the other. Without question, the main beneficiaries of biennial budgeting would be executive branch agencies and recipients of federal assistance. Executive agencies would benefit because the proposal for biennial appropriations would enable managers to focus their time and attention more effectively on managing their programs. The NPR report, for example, argued that agency managers are forced each year to spend a great deal of time justifying programs that are routinely funded at stable levels and could be considered less frequently. Biennial budgets would allow agency managers to spend more time evaluating the effectiveness of programs and doing long-range planning. In addition, contracts between the federal government and private contractors might be negotiated at terms more favorable to the government and at a pace that better ensures good management practice if more stable funding could be guaranteed. Furthermore, states, local governments, and other recipients of federal money would be better able to plan for the future under a biennial system. Currently, recipients of federal aid must in many cases face uncertainty about how much money they will receive in a given year, which is a major impediment to planning state and local budgets. A biennial system would decrease this uncertainty. Even though the Congress would consider appropriations comprehensively only every other year, the improvements in management and planning for agencies in a biennial system would probably be accompanied by an increase in the number and size of supplemental appropriations enacted by the Congress in the nonbudget year. Programs that are currently prone to supplemental appropriations"emergencies such as disaster assistance, programs tied to changes in the economy, and hard-to-predict foreign assistance programs"would probably be even more likely to require supplemental funding in a biennial regime. In addition, the Congress might seek to revise budgets for other programs in the nonbudget year for policy reasons. For example, recent changes in the world might have resulted in reductions in the defense budget in nonbudget years even if a biennial system had been in place. If the time and attention of the Congress were diverted away from nonbudgetary issues to supplemental appropriations and other changes in the budget, the benefits of biennial budgeting in saving time for the Congress would be reduced accordingly. Consider, for example, what would happen if the biennial process were not adheredh)&0*0*0* to. The result would be to substitute for the current process one with biennial appropriations and routine omnibus supplemental budget bills in the second year. That is certainly not an improvement. If a biennial system was followed, the benefits that would accrue to agencies would come at the expense of some reduction in the Congress's current annual control and oversight of programs through the appropriation process. Some Members of Congress might view that as a shift in power from the legislative to the executive branch. The stakes would increase in the appropriation process as well; agreements on appropriation bills, both within the Congress and between the Congress and the President, might be more difficult to achieve under a biennial regime. The experience of the states offers some support for the contention that biennial systems are harder to live up to than to design. States have tended to move away from biennial budgeting in recent years"44 states followed the practice in 1940, compared with only 19 today. One important reason for the move to annual budgeting in the states is that many more state legislatures meet annually today than in the past. Another reason has been the increased sensitivity of state budgets to economic cycles, largely because states are relying more on the income tax as a revenue source. Frequently, because of large (and unanticipated) budget deficits, the states have had to revise their budgets in the second year of the biennium. The regularity of these revisions has led some states to convert formally to annual budgeting, which was the form that they were following in a de facto manner. If the Congress does not wish to make as great a change as biennial appropriations would require, it could embrace biennial appropriations selectively"for technically predictable and politically stable programs, for example. In fact, the Congress has already found it desirable to provide more planning certainty for some programs funded in the appropriation process. To cite two such programs, it has in some cases provided multi-year funding for defense procurement and forward funding for education programs. Other programs for which a similar consensus exists, and that would benefit from long-term planning, might also have some annual controls removed without embracing biennial appropriations in their entirety. Because this middle ground exists between biennial budgeting and the current process, the Congress should consider the distinction between the frequency with which budget decisions are made and the length of time for which funds are made available. The Joint Committee's recommendations would primarily affect the timing of budget decisions"that is, decisions would be made only every other year. But, as noted above, the largest benefits of biennial budgeting for federal agencies may come from permitting funds to be spent over a longer period of time. The Congress could lengthen the time period for which funds were available without abandoning the current annual process.h)'0*0*0*ԌAnnual authorizations are inconsistent with biennial appropriations, as is reflected in the Joint Committee's recommendation that authorizations cover more than 1 year. For many programs, multi-year authorizations are already the norm. There are few obvious budgetary reasons for annual authorizations, but the Congress may pursue them for other reasons"for example, to give committees a vehicle for exercising frequent oversight of a particular program. Obviously, oversight could be maintained or increased in other ways as well. EFFECT OF BIENNIAL BUDGETING ON CONGRESSIONAL WORK LOAD Agencies currently spend a lot of time on the budget, but the budget claims substantial Congressional time and attention as well. Furthermore, the explosion of the budget deficit and attempts to bring that deficit under control have kept the budget near the top of the Congressional agenda. Increasingly, Members of Congress and Congressional committees have faced constraints imposed by the budget process at every turn. For this reason, their frustration with the budget process is understandable, as is their desire to see less emphasis placed on budgeting. Indeed, many Congressional supporters view the major benefit of biennial budgeting to be that it would permit more time to be spent on other legislative activities, including oversight. A biennial process might have less benefit in this area than advertised, however, for two main reasons. First, the increases in time available rest on the assumption that the biennial timetable is adhered to. Yet the likelihood of more supplemental appropriations and other changes in budget policy in nonbudget years could easily eat into that time. Second, it is not clear how much the process of making budget allocations has crowded out authorizing legislation and oversight. The two types of activities tend to be carried out by two separate types of committees: budgeting tends to be the province of the budget and appropriations committees, and authorization/oversight is the responsibility of authorizing committees. In the House, where appropriations is an exclusive assignment, time available for authorizations and oversight would increase only if the current budget timetable interfered with the work of the authorizing committees or if that oversight was exercised by the appropriations committees in nonbudget years. In the Senate, however, many Members serve on both types of committees, and appropriating every 2 years would give those Senators more time to spend on authorizations. %CONCLUSION Biennial budgeting may, as discussed above, hamper efforts to reduce the deficit. Once the deficit problem is in the past, biennial budgeting may be beneficial, but only if all participants adhere to the system. If they do, some of the improvements"primarily, increased certainty and improved management opportunities for agencies and state and local governments"may beh)(0*0*0* worth the costs of having less frequent Congressional attention to budget policy. But if the Congress does not believe that the biennial budgeting system will hold"that is, if the system will revert to its counterpart annual system because of the necessity or desire to make budget policy annually"then disrupting the current system by making such a change would probably yield few benefits. @PARA4 =  ?@ The CHAIRMAN. Thank you, Mr. Blum. I appreciate that. You are not really all on the other side. You talk about doing away with authorizations, and if you would agree, we would not have to authorize anything. We would just have to appropriate. Now we appropriate waiting on authorizations. We already have one bill out there. I think we have already appropriated funds, and we are waiting on the authorization now. I think that is in the clean water area or water systems. I am not sure exactly. There are a lot of things going on, and we find a way to get around most of those. You made a statement that is significant; you say that you would pick and choose, but you would give multiple-year budgets to save money, for savings. I think you said that. We can go back and check the record if you want to, but I do not understand why that would not apply with a broad brush. You just pick and choose what you could do. As a State executive, I would like to have the ability to make a 2-year decision"maybe just with annual appropriations in my State. But I would like to make a decision based on knowing basically what I would get. Right now chief executives of any State are not sure, even with an annual budget, what they are going to get from up here. Until recently, we have been able to meet the deadline of October 1st, but we still had the continuing resolutions. It is at the same level as last year. You do not know whether you are going to have an improvement or it is going to be cut. But if you had a 2-year budget and it was stable, at least we could make a contract in the first year knowing it would go over into the second year, and we could make a contract based on income for 2 years rather than just one. You kind of gave me a little support on the basis of a multi-year budgeting for savings, and I think we can make savings. Am I wrong in what you said?  ?! Mr. BLUM. No, Mr. Chairman. I think you are quite eloquent.  ?(# The CHAIRMAN. Thank you very much. You will go far. [Laughter.]  ?H& Mr. BLUM. The point I was trying to make was that, in selective areas, I think there are programs that could well benefit from multi-year funding. Certainly, there seem to be a number of programs at the Federal level that are technically predictable; they essentially do the same thing year in and year out. They areh))0*0*0* not under attack politically as something that the Federal Government should not be doing. Clearly, in some of these instances, biennial budgeting could be beneficial. In the end, where I would come out is that both the benefits and the costs of biennial budgeting may, in fact, be somewhat overstated by its proponents and opponents. Nonetheless, I think there are some areas in which savings could be achieved, and alternative means of achieving predictability without going all the way to a 2-year budget cycle for everything.  ? The CHAIRMAN. You have 19 States, I think you stated, that have a biennial budget, but 12 of those had annual sessions?  ? Mr. BLUM. That is correct.  ? The CHAIRMAN. So it has not been a problem with the States with the annual budget and a 2-year"annual legislative session and a 2-year budget. Mr. Blum, I am wondering how many of the States that moved from a 2-year budget cycle to a 1-year budget cycle did so to get in step with the Federal Government.  ? Mr. BLUM. I think what has probably happened over time at the State level is that more and more States have adopted the annual legislative cycle. Also, because of the problems of forecasting State revenues and the requirement of States to live within a balanced budget, for the most part"  ?p The CHAIRMAN. Well, we do that here. Our Constitution in Kentucky says the number one magistrate, which happens to be the Governor, must balance the budget. If it is predicted that it is going to have a shortfall, he then must make the cuts. We have that now"that if we go over the caps, the Office of Management and Budget is directed to make the cuts. I believe I am correct in that. Am I right, Thad?  ? Senator COCHRAN. I do not know.  ?@ The CHAIRMAN. I think that is right. Automatically, it triggers"I see some heads"that the cuts must be made. So what we have done here now is the same thing that I was required to do under the Constitution of our State. I do not see much difference if you trigger the cut as the Constitution says it or we do it on the Federal level.  ?$ Mr. BLUM. The cuts at the Federal level are in response to legislative or policy actions on the part of the Congress, whether as direct spending legislation or receipt""  ?' The CHAIRMAN. I think it is going to be awfully difficult to remove that from"" h)*0*0*0*Ԍ ? Mr. BLUM. I am not arguing about that. I was just simply observing that that kind of procedure does not apply to the budget when, for example, revenues fall as the economy slows in its growth or entitlement program spending increases because of increased needs at the local level. There is no mechanism to bring the budget back on course at the Federal level as there is at the State level. You are quite correct that at the State level many Governors do, in fact, have much greater power than the President to ensure that State budgets live within""  ? The CHAIRMAN. The power is the Constitution of the State. That is pretty powerful, as I understand it. I would not want to do anything as Governor that was unconstitutional, at least not knowingly.  ? Mr. BLUM. Well, under the U.S. Constitution, the President does not have the same power.  ? The CHAIRMAN. Oh, I understand that, but we as a Congress do. As of the moment, we have given the Director of the Office of Management and Budget, I think"and I will go back and review that"the responsibility of making the cuts when we exceed the expenditures of the cap, whereas he stated earlier we have a hard freeze now, for 5 years, and that we will not be able to spend more in dollars than we spent before. So we have to have the ability to move. One of the things that he and I both agree on"and he made the statement"is that if we have a 1-year budget cycle that we must prepare for 2 years, we have that second year for oversight. He says that in order to make Government more efficient, we should have better management. His problem is that he is already asking for 1996 budget recommendations from the Federal executive agencies, and we have not even decided on a budget conference yet. So he does not know what our numbers are going to be, and so it makes it very difficult for him in order to try to make this thing work. Now, it seems to me that we should look at the decision we made in this committee"my friend here on my right knows about it. In 1989, we made the decision to put the committees on a 2-year budget. There is not a chairman, in my opinion"and I said this earlier"that dislikes that 2-year budget. We can make changes within that budget. We left a cushion in case something unfortunate arrived. We had the RTC that the Banking Committee needed help with. We also added funds for the Armed Services Committee that needed some one-time funding in this budget period. We have been able to make the adjustments that are necessary. The committees did not spend weeks"weeks, now"putting together a budget so that they could present it to us, and we did not spend weeks trying to get it out of here, and the Senate did not spend the time on the floor debating it. That was done every year. It was not done this year. It will be done next year. So they have time toh)+0*0*0* spend in other places, get better work from their staff, or more work from their staff, because they are not derailed to do other things. I think that is what we are trying to say. You know, you have a lot of smart people, me excluded, in the United States Senate. They are good people, hard-working people, and they do not have time for the oversight that we think is needed"or that I think is needed, let's put it that way, in order to have better management. We are getting ready to reduce by 272,000 Federal employees, and that is going to be a tough decision. We are trying to work toward that. Now, better management will offset the loss of employees, in my opinion. We ought to have the opportunity to have oversight. Senator Sasser had to leave here to go to conference. He could not stay. He had to go to conference on a 1-year budget. They are hassling over there, and they have been weeks trying to get that put together. Well, you can do that once every other year, and Director Panetta said that you can change by supplemental. There is no problem. We had four last year and three the year before. And we are looking for ways of paying for it now, which is a different attitude up here than we have had, and I think that is right, either by rescissions or whatever it might be. So I just have got a real thing. I wish Alice Rivlin was back in charge. She is for the 2-year budget. [Laughter.]  ?8 The CHAIRMAN. We got rid of her. Now you have a new Director, and he is not for it. Mr. Blum admitted that up front, that change in directorship. But she is over at OMB, and she made a right strong statement. I will not delay this anymore. Everybody knows how I feel, for the last 8 years. I was telling them that Leon Panetta introduced the first one"and you may have been in the House"in 1977. I introduced mine in 1984. I got five cosponsors, and one of them thought it was a study. [Laughter.]  ?`" The CHAIRMAN. I apologize for taking so long.  ?# Senator COCHRAN. Just a comment or two, Mr. Chairman, if I may. I agree with you that the 2-year budget resolution exercise is to be preferred over the annual congressional budget resolution. It seems to me"and the current situation is evidence of it, I think"that we sometimes get bogged down with controversy and may prolong the entire budget and appropriations process unnecessarily. So I sympathize with the chairman. And I have been a cosponsor of his legislation and introduced legislation of my own in earlierh),0*0*0* Congresses on this subject. I am curious to know what your reaction would be, though, to Item No. 15 in Title III, dealing with quarterly deficit reports. There is a suggestion by this Joint Committee on the Organization of the Congress that the Congressional Budget Office should submit to the Congress quarterly budget reports comparing the annual budget figures with the projected revenue spending and deficit assumptions included in the most recently enacted congressional budget resolution. What is CBO's reaction to that? Is that something you support or disagree with?  ?` Mr. BLUM. Senator Cochran, that would not present a problem to us. We now, in effect, present to the Congress such reports for at least two out of the four quarters. Each year, when we present new economic assumptions in January, we also provide our baseline budget projections; as part of that, we are giving you our most recent estimate for the fiscal year that by then has been under way for one quarter. Then, in the summer, we also report to the Congress, updating our economic and budget projections. What remains to be done, really, is to fill in the gaps in between. Right about now, for example, I am prepared to tell you where the fiscal year stands. We have completed 6 months of fiscal year 1994. In terms of the budget resolution that is in place for this fiscal year, the budget resolution target for the deficitor estimate of the deficitwas slightly over $250 billion. I am happy to report that, based on actual receipts and spending through the first 6 months of the year, I can confidently predict that the budget deficit will come in on September 30 at a much lower level, closer to $200 billion than to the over $250 billion contemplated in that budget resolution.  ? Senator COCHRAN. One thing you said struck a chord of curiosity in me, and that was that you and the Director of CBO seemed to agree that the deficit problems are so severe that we need to have a congressional resolution on the budget every year. I do not recall a budget resolution having much of an impact on reducing the deficit. The numbers you cite, for example, are totally irrelevant as to whether we have had a resolution or not, whether Congress has engaged in the resolution process as a way to reduce the deficit. Here the deficit is coming in at $50 billion less than projected, and Congress is in a mess trying to figure out what the Exon-Grassley provision will do and whether the votes are there to support a resolution with that provision in the resolution. Don't we overestimate the impact of the resolution process on deficit reduction?  ?' Mr. BLUM. To the contrary, Senator. I think the budget resolution that we are living under nowthe 1994<196>1998 budget resolutionput into place the instructions for that bigh)-0*0*0* reconciliation bill that you enacted last year. It was that budget resolution that established the budgetary policy of achieving a major deficit reduction. That policy, in fact, was carried out. Not only did that budget resolution lead to legislative steps that markedly improved the deficit outlook, but we got lucky this time, and the amount of deficit reduction that is going to be achieved will be even greater than we estimated a year ago. What has been happening is that receipts have been coming in at a somewhat stronger pace than we anticipated and the growth in spending has not been as great as we were projecting a year ago.  ?` Senator COCHRAN. Well, if we do not enact a congressional budget resolution this year, if the conferees cannot agree or the votes are not there to pass the resolution they agree upon as a conference report, do you suggest that the deficit is going to get worse because that resolution is not enacted? I do not know of any suggestions, for example, in this resolution that there be a round of reconciliation or that there be a reconciliation bill and that legislative committees be called upon to change eligibility for Government benefits or anything of the kind, as was contained in last year's process. Just because you have a resolution does not mean you are going to reduce the deficit, does it? That is the question I am asking.  ? Mr. BLUM. No, that is true. This year, the budget resolution is keeping in place the fiscal policy that the Congress adopted last year. And if the resolution were not to be adopted this year, as you mention, what would remain in place would be the pay-as-you-go procedures for considering direct spending and receipt legislation; those appropriation caps would also remain in place.  ? Senator COCHRAN. As a matter of fact, I think that if we did not enact a resolution and those pay-as-you-go requirements remained in effect, we would come closer to reducing the deficit even further or guard against increasing spending for health care or some other programs that might otherwise be permitted to occur.  ?x Mr. BLUM. One problem that I noted earlier that applies to not adopting a budget resolution this year and that would also apply to a 2-year budget resolution is that, in the second year of the biennium, the likelihood is rather high that the underlying economic and programmatic assumptions in that resolution would be out of date. They would have become unrealistic. Now, in giving cost estimates to the committees and to the Congress for bills, CBO's practice has been to use for those estimates the economic or programmatic assumptions that underlie the most recently adopted budget resolution. In other words, we are scoring bills against a budget resolution. If that resolution has not been updated with a more recent economic outlook and does not take account of other changes and conditions that affect spending and receipts, the likelihood is that our scoringour costh).0*0*0* estimates of legislationwill be unrealistic. We have already experienced such effects under 1-year budget resolutions. We refer to these as baseline games, which, unfortunately, committees of the Congress sometimes take advantage of. A good example is the agriculture programs. We have to make assumptions far in advance about agricultural conditions in terms of supply and demand for all the various farm commodities for which the Federal Government provides price support. We have to make these assumptions at the beginning of the year, but, obviously, weather conditions are unpredictable and can affect supply and demand, and other factors can change. Thus, we may come to a situation in which assumptions that we made for a budget resolution are wildly out of date. We have seen attempts to try to take advantage of that in proposed legislation. In effect, if we were to use the most current, up-to-date assumptions, the legislation would add to spending, but measured against the outdated assumptions that we have in the budget resolution, the legislation appears not to increase spending at all. Now, that is a problem, and perhaps there are ways of fixing it. But I did want to draw to the committee's attention that under biennial budgeting there could be some very serious problems in adhering to the discipline of the budget process.  ? Senator COCHRAN. Would we be well advised to make some change, at least in definitions, in the budget process so that we could understand better what the deficit situation really is? For example, this President is often referring to spending as investment, and some people are confused by that, thinking he is talking about capital investment or capital costs as compared with operating costs, for example. Would it be helpful so that the American people and Members of Congress and others could understand the condition of the Federal Government from a financial standpoint if we established a category of investment spending, in fact, that would be well understood to mean capital investments, plant and equipment investment, or spending to purchase or to build tangible assets rather than operating costs, paying the light bill, paying payroll expenses and the like? President Carter made a proposal when he was here which I thought made good sense, and most Republicans accused him of trying to hide the deficit with this new suggestion. But I thought it was a contribution toward a better understanding of the financial condition of the Government. What is the attitude that you might have about that? And would we be well advised as a part of this reform effort to try to define and persuade this administration to agree upon some new definitions of investments as compared with spending?  ?h) Mr. BLUM. I guess that, in keeping with my role this morning,h)/0*0*0* I would urge caution in this regard as well. There have been many proposals for the Federal Government to adopt a capital budget. Again, examples are often given of how the States put together their budgets and have separate funds for capital-type projects separatefunds separate from the operating budget.  ? The CHAIRMAN. In Kentucky, it is Section 4 of our budget process.  ? Senator COCHRAN. Almost every State has that understanding.  ? The CHAIRMAN. That is right"capital construction. You can either say a flat amount, which the Governor then controls, or you can list them.  ? Mr. BLUM. Having a capital budget makes all the sense in the world for local governmentstheir capital investments tend to be quite lumpy in the sense that they do not make capital investments year after year. If one year a city decides it has to have a new city hall, it makes sense to approach the cost of that city hall on a capital basis"to borrow the money for it and to spread those costs over time in the budget. But as you move up the ladder of Government operations, the lumpiness of these types of investments diminishes, and here at the Federal level we are making capital investments almost constantly. We have a constant flow year after year after year. So it is not quite the same situation as for the local government, and the argument for capital budgeting is weaker. I would also point out that we would have some concern about how tightly you could define the investments. It is one thing if such investments could be confined to so-called bricks and mortarFederal buildings, for example. But it gets harder and harder to think about how you would define investments. For example, would you include major defense weapons systems? And how about the arguments that are frequently made that we ought to include research and developmentbecause surely that is an investment for the futureand education and training programs and so forth? I think, particularly if investments were somehow given a favored status, that it would be very difficult to keep a tight rein on what would get into this investment category. I would even observe that what this administration has labeled investments makes up a very broad category indeed and would go far beyond the narrow accountant's view of what would constitute an investment.  ?$ Senator COCHRAN. Thank you very much, Mr. Chairman.  ?H& The CHAIRMAN. May I ask a question to follow up on Senator Cochran's? He has whetted my appetite here a little bit, which sometimes is good and bad.  ?h) Senator COCHRAN. Sometimes dangerous.h)00*0*0*Ԍ ? ԙThe CHAIRMAN. Dangerous, that is right. The administration announced they wanted to spend a billion dollars to support American industries so that they might get in competition. I cannot remember exactly what that is.  ? Senator COCHRAN. It is in GATT.  ?@ The CHAIRMAN. That is right. But it seems to me that that is an investment, but it is not in material things. It is support of American business, and that is an investment, but it is not called capital construction. I guess capital"I guess it is. You refer to that as capital if you are helping an individual through funding. He has the capital to proceed, and capital is dollars then. That is what I would think. Am I incorrect in that?  ? Mr. BLUM. No, you are quite correct, Mr. Chairman. I think that is a good example of the problem that I was alluding to in defining what constitutes an investment. If the investment category became a favored categoryif somehow it was all right, for example, to borrow to fund investment spendingthen we would not have to worry about deficits anymore. The deficit could just be combined with the operating""  ?P The CHAIRMAN. Yes, we don't take any assets. I do not have any further questions. Do you have any?  ?p Senator COCHRAN. I have no others.  ? The CHAIRMAN. I am sorry we did not have more Senators here to question you, Mr. Blum, but I am sure you have had about all you want today. [Laughter.]  ? The CHAIRMAN. We thank you for coming, and we may be asking you some questions. Maybe some Senators who did not attend may have some questions, and they will send those to you in writing. I would hope you will respond in a timely manner.  ?! Mr. BLUM. We would be happy to respond.  ?(# The CHAIRMAN. A statement has been received for the record from GAO, and it will be included in the record. [The prepared statement of Ms. Irving is included in Additional Statements.]  ?' The CHAIRMAN. This hearing is adjourned. [Whereupon, at 11:12 a.m., the committee was adjourned.]h)10*0*0*Ԍ20*0*0* ` ADDITIONAL STATEMENT SUBMITTED FOR THE RECORD STATEMENT OF SUSAN J. IRVING, ASSOCIATE DIRECTOR, BUDGET ISSUES, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE #BUDGET PROCESS ` Biennial Budgeting for the Federal Government Mr. Chairman and Members of the Committee: I am pleased to present our testimony on the budget process changes contained in S. 1824, specifically the proposal to change the budget process from an annual to a biennial cycle. This change has often been suggested as a way to streamline the budget process and, by providing funding for a longer period of time, enhance agencies' ability to manage their operations. While these are laudable goals, shifting the entire annual budget cycle to a biennial one is not necessary to achieve them. Certainly everyone involved in the budget process shares some frustration with it and wishes it could be shortened or less frequent. The public finds it confusing and executive branch agencies find it burdensome and time-consuming. Members of the Congress say the annual budget process seems too lengthy, with its many votes on authorizations, the budget resolution, reconciliation, appropriations, and the debt limit. And, too often, the results are not what was expected or hoped for. In one sense, nothing could be more important than debates about the budget. It is through the budget process that the Congress and the President reach agreement on the fiscal policy stance of the government"that is, the relationship between spending and revenues"and determine what the federal government will be involved in and the form that involvement will take. Because the decisions are so important, we expect a great deal from our budget and budget process. We want the budget to be clear and understandable. We want a process that presents the Congress and the American people with the framework needed to understand the significant choices and the information necessary to make the best-informed decisions about federal tax and spending policy. This is not easy. Although there is virtually universal agreement that the current process has problems, changes must be carefully considered. In fact, the current process is, in part, the cumulative result of many changes made to address previous problems. The challenge is to design solutions to existing problems without creating new ones. Last June, in a letter to the Joint Committee on theh)30*0*0* Organization of the Congress, we provided some ideas that could lead to a more streamlined budget process. In October 1993 and March 1994, I testified on proposals for biennial budgeting made by the National Performance Review (NPR) and by the House Members of the Joint Committee on the Organization of the Congress. Today I am pleased to elaborate on our views of biennial budgeting, including those aspects which could work well for the federal government"among them, 2-year binding budget resolutions"and an aspect which we believe will cause a shift in congressional control and oversight"biennial appropriations. Before discussing biennial budgeting for the federal government, however, let me briefly discuss state experiences with biennial budgeting. STATE EXPERIENCES WITH BIENNIAL BUDGETING MAY BE RELEVANT TO THE FEDERAL GOVERNMENT Advocates of biennial budgeting often point to the experience of individual states. Overall, however, the states present a mixed picture. Although 19 states currently have a biennial budget cycle, 8 of those states have biennial legislative cycles and hence could not have an annual budget cycle. Of the 42 states with annual legislative cycles, only 11 have biennial budgets. Even these do not present a uniform picture. Nine of the 11 adopt two 1-year budgets every other year, while 2 adopt a single budget for the biennium. Translating state budget laws, practices, and experiences to the federal level is always difficult. As we noted in our review of state balanced budget practices, state budgets fill a different role, may be sensitive to different outside pressures, and are otherwise not directly comparable. In addition, governors often have more unilateral power over spending than the President does. However, even with those caveats, the state experience may offer some insights for your deliberations. First, and perhaps most significant, the trend in state budget process changes has been away from biennial budgeting. Our most recent analysis of this, a 1987 study, showed that of the 31 states with annual budget cycles, 24 had at one time used biennial budgeting. During the 20-year period from 1968 to 1987, 15 states changed budget cycles; 12 moved from biennial to annual while only 3 moved from annual to biennial. According to representatives from the 12 states that changed to annual budgeting, reasons for doing so included @8PT -2 BULLET = gaining greater accuracy in estimating revenues and financial needs, @8PT -2 BULLET = improving legislative control over budgetary matters, and @8PT -2 BULLET = being better able to respond to rapid changes in revenues and program needs. In analyzing the state experiences for lessons relevant to the federal government, the second significant piece of information is that most states with biennial budgets are small and medium sized. Of the 10 largest states in terms of expenditures, Ohio is the onlyh)40*0*0* one with an annual legislative cycle and a biennial budget. BIENNIAL BUDGETING AT THE FEDERAL LEVEL Like the NPR and H.R. 3801, S. 1824 proposes that the entire budget cycle be shifted from annual to biennial. Under this system, the President would submit budgets every 2 years. Authorizations would be for 2 years or longer. Budget resolutions would be adopted, and appropriations enacted, every 2 years. We believe that this need not be seen as an all-or-nothing proposal. Budget agreements, authorizations, budget resolutions, and appropriations need not cover the same time period. Multiyear fiscal policy agreements and multiyear authorizations make a great deal of sense, but they do not require changing the appropriations decision cycle from annual to biennial. While biennial appropriations could save time for agencies, they would result in a shift in congressional control and oversight. Proposals to change the process should be viewed partly in the context of their effect on the relative balance of power in this debate. MULTIYEAR AUTHORIZATIONS AND BIENNIAL BUDGET RESOLUTIONS MAKE SENSE We have previously supported the use of multiyear authorizations for federal programs. There seems to be little reason to reexamine and reauthorize programs more often than they might actually be changed. Furthermore, multiyear authorizations help both the Congress and the executive branch by providing a longer term perspective within which a program may operate and appropriations can be determined. This is the normal practice for most of the non-defense portion of the budget. We also agree that a 2-year budget resolution makes sense. In our June 1994, letter to the Joint Committee, we suggested that 2-year binding budget resolutions be used with 2-year reconciliation instructions. Since the Budget Enforcement Act (BEA), which focuses on a 5-year period, already sets the framework for congressional budget resolutions, the annual budget resolution has become less important. While changes in the world and difficulties in projecting budget estimates over long time periods would, from a practical standpoint, render 5-year binding budget resolutions unworkable, 2-year binding budget resolutions could reduce the burden on the Congress and provide more stability for congressional committee planning. This change would still permit periodic revisions of budget totals and allocations without unduly binding future Congresses or reducing congressional oversight. Traditionally, biennial budgeting has been advocated as a way to advance several objectives: (1) to shift the allocation of agency officials' time from the preparation of budgets and justifications to improved financial management and analysis of program effectiveness, (2) to reduce the time Members of the Congress must spend on seemingly repetitive votes, and hence permit increased oversight, and (3) to reduce uncertainty about longerh)50*0*0* term funding levels and allocations and hence improve program management and results. However, shifting the entire cycle"authorizations, budget resolutions, and appropriations"to a biennial one may not be necessary to achieve these objectives. As I noted earlier, biennial appropriations can be considered separate from biennial budget resolutions because the two raise quite different questions. Let me turn now specifically to that issue. THE CURRENT ANNUAL APPROPRIATION CYCLE PERMITS FLEXIBLE PERIODS OF FUND AVAILABILITY In considering whether the federal government should shift to a biennial budget, it is important to recognize the critical distinction between how often budget decisions are made and how long the money provided for agency use is available. Biennial budgeting proposals seek to change the frequency with which decisions are made"from annual to biennial budget decisions. Too often, however, the idea is discussed as though it were necessary to change the frequency of decisions in order to change the length of time funds are available. However, as you know, this is a misconception. The federal budget today is not composed entirely of annually enacted appropriations of 1-year moneys. Thus, not all funds expire on September 30 of each year. Because budget decisions about mandatory programs and entitlements are not made annually, the debate about annual versus biennial appropriations deals with less than half of the budget. Annually enacted appropriations apply to that portion of the budget known as discretionary spending"about 39 percent of federal outlays in fiscal year 1993. Even within that 39 percent of the budget on an annual budget cycle, not all appropriations were for 1-year funds. The Congress has routinely provided multiple-year or no-year appropriations for accounts or for projects within accounts when it seemed to make sense to do so. Indeed, about two-thirds of the accounts on an annual appropriation cycle contained some multiple-year or no-year funds. For these accounts, some prior year and/or current year authority was available for obligation beyond September 30, 1993, without further congressional action. The federal government has had some experience with biennial budgets. The 1986 Defense Authorization Act directed the Department of Defense (DOD) to submit a biennial budget for fiscal years 1988 and 1989 and every 2 years thereafter. DOD submitted 2-year budgets for fiscal years 1988 and 1989, 1990 and 1991, and 1992 and 1993. However, the authorization committees have not approved a full 2-year budget, and thus the appropriation committees have not provided appropriations for the second year. We have previously reported that if the Congress decides to implement a 2-year budget at the appropriation account level, ith)60*0*0* should proceed cautiously by testing it on a limited basis. Good candidates for a limited test would be organizations or programs which are relatively stable and for which there are no obvious impediments. Impediments would be activities that hamper the forecasting of budgetary needs for the 2-year period, such as a major reorganization or major changes in financial management systems. The Congress is currently considering or may be asked to consider major changes in the scope and methods of delivering government services. The very magnitude of the changes the NPR envisioned, for example, raises questions about whether a shift to biennial appropriations could or should be made at the same time. The Congress needs to consider the relationship between massive organizational change"such as realigning field offices or functions or combining functions"and appropriations cycles. POTENTIAL EFFECTS OF BIENNIAL APPROPRIATIONS For agency officials"both agency budget officers and program managers"the arguments for biennial budgeting may seem quite strong. Currently, agency budget officers spend several months every year preparing a from-the-ground-up budget with voluminous written justifications. Much of this work is repetitious. In contrast, requests for supplemental appropriations are handled on an exception basis. Only those agencies requesting supplemental appropriations prepare and present justifications, and those justifications are less complex than for the annual budget. If, under a biennial appropriations process, the off-year updates, amendments, or adjustments were treated like supplemental appropriations, the savings in agency time could be significant, even if the Congress required"as seems reasonable"that agencies submit audited financial and spending reports every year. Would agency time and energy be shifted to improved financial management or better program evaluation? I suspect that would depend on the President and the agency's leadership and on what the Congress demanded of the agencies. For agency program managers, the interest in biennial budgets is slightly different. Although preparation and analysis for the annual budget preparation and submission process is time-consuming and burdensome for program managers, they are likely to have a greater interest in how long money is available for use. Especially in some programs, such as defense procurement and education programs, multiyear appropriations tend to smooth program functioning. However, as noted above, many of these programs already receive some multiyear funding. While a shift of the entire cycle would ease planning and increase predictability for all program managers, multiyear or advance funding could be provided for those programs for which 1-year money seriously impairs program effectiveness without that shift. Regardless of the potential benefits to agencies, the decision on biennial budgeting will depend on the Congress's choice about how it wishes to exercise its constitutional authority overh)70*0*0* appropriations and its oversight functions. Annually enacted appropriations have long been a basic means of exerting and enforcing congressional policy. A 2-year appropriation cycle could lessen congressional influence or control over program and spending matters, largely because the process would afford fewer scheduled opportunities to affect agency programs and budgets. X%CONCLUSIONS We support the portions of S. 1824's biennial budgeting proposal related to multiyear authorizations and biennial budget resolutions. We believe that multiyear fiscal policy agreements and multiyear authorizations make a great deal of sense, but they do not require changing the appropriations decision cycle from annual to biennial. While biennial appropriations could save time for agencies, they would also result in a shift in congressional control and oversight. Proposals to change the process should be viewed partly in the context of their effect on the relative balance of power in this debate. While budgeting always involves forecasting (which itself is uncertain), the longer the period of the forecast, the greater the uncertainty. Increased difficulty in forecasting was one of the primary reasons states gave for shifting from biennial to annual cycles. Dramatic changes in program design or agency structure, such as the Congress is considering in many areas, will make budget forecasting more difficult. Moving from an annual to a biennial appropriations cycle at the same time may not be wise, given that there may be program changes which could in turn create the need for major budgeting changes in the second year of a biennium. If this happens, biennial budgeting would exist only in theory. Biennial appropriations would be neither the end of congressional control nor the solution to many budget problems. The questions for the Congress are, how does it wish to exercise its constitutional authority over appropriations and in what forum will it conduct its oversight responsibilities? Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions you or Members of the Committee may wish to submit for the record.