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[109 Senate Hearings]
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S. Hrg. 109-7
TRANSFORMING GOVERNMENT FOR THE
21ST CENTURY
=======================================================================
HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 16, 2005
__________
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Tom Eldridge, Senior Counsel
Don Bumgardner, Professional Staff Member
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
David Berick, Minority Professional Staff Member
Amy B. Newhouse, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator Collins.............................................. 1
Senator Lieberman............................................ 3
Senator Coburn............................................... 5
Senator Lautenberg........................................... 6
Senator Pryor................................................ 21
WITNESS
Wednesday, February 16, 2005
Hon. David M. Walker, Comptroller General of the United States,
U.S. Government Accountability Office.......................... 8
Prepared statement........................................... 29
Appendix
Charts submitted by Mr. Walker................................... 62
Responses to questions for the Record for Mr. Walker from:
Senator Collins.............................................. 67
Senator Lieberman............................................ 75
TRANSFORMING GOVERNMENT FOR THE
21ST CENTURY
----------
WEDNESDAY, FEBRUARY 16, 2005
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Committee, presiding.
Present: Senators Collins, Lieberman, Coburn, Lautenberg,
and Pryor.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. The Committee will come to order. Good
morning.
This Committee often holds hearings exposing wasteful or
even fraudulent government spending as part of its oversight
responsibility.
Today, however, we are taking a broader look at what
government should do and how government should deliver services
in the 21st Century.
As the title of this hearing--Transforming Government for
the 21st Century--indicates, we are not here to look at where
we are or where we have been. This is about where we need to go
and how to get there. It is about questioning the very premises
of programs that have often changed very little from when they
were first launched decades ago. It is about accountability and
effectiveness.
All of us here can easily remember a time not very long ago
when mention of the 21st Century evoked images of a future that
was either dazzling or depressing. Now that we are in the 21st
Century, we find that it is neither the Jetsons nor the Matrix.
The great changes we must deal with, the new threats that
have emerged with the end of the cold war, the globalized
economy, demographic trends, and the advancement of technology
were underway long before Y2K.
The key to this hearing then is not the phrase 21st Century
but the word ``transforming,'' one of the most dynamic words in
our language. The great changes of recent decades and the
myriad other changes they draw in their wake have been
accumulating and accelerating over many years. In response,
government has all too often moved at what can charitably be
described as the speed of government.
The GAO report we will discuss today is an excellent place
to begin this transformation and I want to commend the
Comptroller General and his staff for embarking upon this
study. Like this Committee, the GAO is going beyond its
customary role by opening this important discussion.
The title of the GAO report that we are releasing today is
``21st Century Questions: Reexamining the Base of Government.''
\1\ This report is not an exercise in imagining the future. It
is the direct result of the GAO's fiscal oversight duties and
the sobering realization that our government's current fiscal
policies on both the spending and the revenue sides of the
ledger cannot be sustained in the future we have entered.
---------------------------------------------------------------------------
\1\ A copy of the report, ``21st Century Challenges: Reexamining
the Base of the Federal Government,'' GAO-05-325SP, February 2005, is
retained in the files of the Committee, or may be obtained through the
U.S. Government Accountability Office.
---------------------------------------------------------------------------
Baby boomers' retirement, health care, homeland security,
national defense, environmental protection and the increasing
demands in such areas as energy, transportation, and education
are but a sampling of the forces that are relentlessly leading
our Nation to mounting deficits.
As this report observes, the concern is not with deficits
that result from extraordinary events such as terrorist attacks
or short-term economic downturns. The concern is with long-term
escalating and persistent deficits that will diminish the
standard of living and the security of Americans for
generations to come.
This report is presented in the form of questions. They
cover virtually every function of the Federal Government. They
range from broad policy objectives to specific inquiries. For
example, how best to allocate resources across our increasingly
integrated yet still discrete Armed Forces? Can transportation
grant programs be restructured and consolidated to encourage
the creation of efficient intermodal systems? Given the great
advances in communications, are regional offices still the best
way for Federal agencies to serve the public? Is having 44 job
training programs spread across 9 agencies the best way to help
our workers adapt to the changing economy? These are just some
of the questions that GAO raises.
This question format is appropriate because it is Congress
and the administration that must provide the answers. There are
more than 200 questions and they cover a lot of territory. But
the overall issues can be summed up by these three questions:
First, what kind of government would we create if we were
starting from scratch today? Second, since we cannot ignore
existing obligations, needs, programs and systems, how can we
transform government without disrupting its ongoing functions?
And third, and perhaps the most perplexing question of all, how
can we change government in spite of the entrenched interests
that are committed to resisting any change?
All of this sounds daunting. We should be encouraged,
however, because we have done it before. The structure of our
military today could not have been imagined during World War II
and yet it has been transformed dramatically. Program
reexamination and restructuring are nothing new, Social
Security in 1983, tax reform in 1986, and welfare reform in
1996 are just a few examples. In the aftermath of September 11,
we consolidated 22 Federal agencies into the Department of
Homeland Security. And more recently, enacted sweeping
intelligence reforms.
It is time we applied our proven ability to innovate and
our knowledge of transferring the government to the entire
spectrum of government itself.
If you type the words ``challenges of the 21st Century''
into an Internet search engine, you will get tens of thousands
of results. From hospitals to the hospitality industry, from
the news media to art museums, from the governments of great
economic powers to rural school boards. It seems that every
organization is reexamining what it does and how it does it in
the light of this new millennium.
Look a little closer and it is clear that there is nothing
intrinsic about the dawn of the 21st Century that makes
reexamination necessary. The striking new look our calendars
took on 5 years ago was merely a reminder to many that a
reexamination is long past due.
One of the great thinkers on the subject of organization
and management is Peter Drucker, a Presidential Medal of
Freedom recipient in 2002. His pre-millennium book,
``Management Challenges of the 21st Century,'' includes a
chapter entitled ``Creating Change: The Leader's Task.'' Here
is a quote from that: ``Innovation,'' he said, ``is not a flash
of genius. It is hard work.''
So today we are embarking on the hard work of the
innovation and transformation. This hearing and this report
will get us started. And again, I want to commend the
Comptroller General for undertaking this vitally important
task.
Senator Lieberman.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thanks very much, Madam Chairman, for an
excellent, thoughtful opening statement. A great one line
there, not your most substantive point, but that the 21st
Century turned out to be neither the Jetsons nor the Matrix. I
thought that was good.
Mr. Walker, welcome. This is a very important hearing and I
thank the Chairman for convening it. The truth is the room
ought to be packed and the Nation ought to be watching. Maybe
some are watching through that camera.
But you are playing a role as a kind of a Paul Revere. And
this time it is not the British that are coming. It is genuine
fiscal failure of the American Government, which will make the
future of our children and grandchildren, and those of us who
are lucky enough to be alive, in the not too distant future,
much less than we want it to be.
Today Mr. Walker, who has done such an extraordinary job at
the helm of the now quite appropriately renamed Government
Accountability Office, is going to take us beyond the day to
day, which is to say the kinds of reviews of ongoing Federal
programs that GAO does such a great job at, to look over the
horizon at the enormous fiscal, social and national security
obligations that the Federal Government will face and, on the
current path, will not be able to handle.
This stuff is riveting. Madam Chairman, I had the
opportunity--it is hard to describe it as an opportunity--to
hear Mr. Walker do something like this to another group a while
back. I was just grateful when it was over that all of us were
still able to rise from our chairs and leave the room because
honestly, it goes at the heart of America's normal optimism and
particularly hopefulness about the future.
Maybe part of what it says to us is that we have been
really optimistic and hopeful about the future, but we have not
figured out how to pay for it. As a result, some of the
consequences are startling. These charts that Mr. Walker will
show us soon, says to us that by 2040, which is not that far
from now, 35 years, just on the current path that we are on,
and not extending the current tax provisions, including tax
cuts, the revenue that at the Federal Government is likely to
generate will cover net interest on the debt, Social Security
and most of, but not all, of Medicare and Medicaid. Nothing for
what is the rest of the Federal Government, and a lot of stuff
that a lot of people really care about: Education,
environmental protection, and, I should have started at the
beginning, national security, homeland security--the first
responsibility of government--to provide for the common
defense.
And as startling as that is, and I feel like we should be
screaming this out, if you extended the otherwise expiring tax
provisions, when we get to 2040, 35 years from now, with the
revenue that will produced, all we are going to be able to pay
for is the projected interest on the debt. I laugh with a
certain sense of alarm. No money for Social Security, Medicare,
Medicaid, or any of the rest of the Federal Government.
The only way we are going to begin to deal with these is by
beginning to deal with them, and as soon as possible. We are
going through, with the President's leadership if you will, he
is challenging us to do something about Social Security because
it is not sustainable in the long run.
What Mr. Walker's statement to us today says, is that the
Federal Government, as we know it, is not sustainable in the
long run. As much as we all care about Social Security,
Medicare and Medicaid, which we surely do, and we have to deal
with the enormous looming gaps in funding for those programs
that are so critical to the quality of life of tens of millions
of Americans, we also care about the rest of the Federal
Government--national security, homeland security, and
education. I repeat housing aid, environmental protection, and
national parks. You could go on and on.
We have to face this and we have to tighten our belts.
Obviously, one of the consequences of not doing so is that we
continue to increase the amount of money we borrow. At some
point this puts us in real jeopardy in terms of our fiscal
credibility, perhaps leading to a precipitous slide of the
dollar with all of the adverse consequences that we will have
for our economy ultimately and probably leading to the loss of
an enormous number of jobs in our country.
But also, of course, we become beholden to foreign
purchasers of our debt. And in some sense, thereby lose some of
the independence and authority that we gain as a result of our
extraordinary American military.
The final point that I wanted to make is that all of this
reminds us, I hope it does, that our budget process has broken
down here in Congress. A series of checks that were set up to
try to limit spending, or to put it another way, to make sure
that spending and revenues balance, have just collapsed. There
is not a lot of rational focused review of spending as we all
know. The last 3 or 4 years we have had big omnibus
appropriations acts come through that frankly do not receive
much of attention from individual members. We need to get back
to a better system.
I say this with a certain grain of salt, but I have felt
that we ought to go to a system of present value accounting so
we can get a real long-term sense of what our obligations are
as businesses do. I say that with a grain of salt this morning
because just going to 2040 is alarming enough and ought to
generate action.
I go back to what I said at the beginning, David Walker is
extremely credible for all that he has done for our government.
He is now saying to us, this country is in danger. We have met
the enemy and it is us. Therefore, it is up to us to do
something about it.
President Bush, in his State of the Union address recently
said, ``we will not deny, we will not ignore, we will not pass
along our problems to other Congress', other presidents, and
other generations.''
And now, we all need to honor that promise and work
together to make sure that the events that Mr. Walker projects
this morning do not happen. Because if we continue on our
current path, they will happen and America, this beloved
country of ours, will be much less than we want it to be for
our children, our grandchildren, and for the world. Thank you.
Chairman Collins. Thank you, Senator. Senator Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Madam Chairman, and Mr. Ranking Member, I
apologize for being late.
I just came from the Indian Affairs Subcommittee meeting
where they are talking about budget items. There are 10 times
as many people there protecting the turf as there are here
looking at the long run. I must associate my remarks with
yours. Most of what you just said is what I ran on just 4
months ago. I think it is really important and I am so pleased
to have the opportunity to chair a Subcommittee. And I hope
both our Chairman and Vice Chairman, as ex-officio Members of
that Committee, will be involved. We have to do something.
My heartache is that things will continue as they have
been. It does not matter whether it is Democratic leadership or
Republican leadership. The powers that be, to protect
themselves and their interests, deter effective oversight. And
we have not done it. We have not lived up to our responsibility
as a Congress to do the right oversight in each and every area.
I am reminded back: The Grace Commission stipulated that
over 20 percent of everything that the government spent was
either defrauded, wasted or abused. And yet, of all of the
recommendations that were brought forth by that independent
commission, two out of every three that were recommended were
never even looked at by Congress, never even considered by
Congress.
Also, looking at the chart, and having read a book which I
think both of you are familiar with, ``Running on Empty,'' by
Peter Peterson, and a lot of his numbers come from your office,
sir. The time to do something is now, not later. The time to be
aggressive is now, not later.
As I look at the numbers that are spent on Medicare and
Medicaid--as we see that number from today triple--one out of
every three dollars that is going to be spent on Medicare and
Medicaid in 2040 is going to be related to diabetes. And yet,
the administration is not leading on that. Nobody is leading on
prevention. We know that one of two people who will ultimately
get diabetes could be precluded from that by just a change in
the exposure to the foods they eat as a child. High fructose
corn syrup now has been held in two different separate studies
to double your lifetime risk for diabetes, unrelated to
obesity. And yet we have no leadership in our country on
prevention. Prevention is the thing that is going to bring
those numbers down.
We are starting to see some leadership in terms of best
practices in terms of Medicare and Medicaid, but it is very
minimal and not aggressive enough.
I look forward to your testimony. I believe it is incumbent
upon us, if we really care about the future, and if we want to
honor the heritage that was given to us, that we fulfill our
responsibility of being aggressive in terms of oversight. I
hope to be a part of that. Thank you.
Chairman Collins. Thank you very much.
I think we should address you as Dr. Coburn in addition to
Senator Coburn. I was just saying to Senator Lieberman that I
founded the Diabetes Caucus in the Senate several years ago.
And at that point, one out of four Medicare dollars were being
spent treating diabetes. I remember bringing up that issue at
Tommy Thompson's confirmation hearing because an initiative in
that area would clearly translate not only in improved human
health and lives but a substantial reduction in health care
dollars. So I appreciate knowing of your interest in that area.
Senator Lautenberg.
OPENING STATEMENT OF SENATOR LAUTENBERG
Senator Lautenberg. Thank you, Madam Chairman and I
apologize for my lateness. I should have played follow the
leader. I saw Senator Lieberman going to another committee that
we both sit on, and he had advance notice that that was not
going to be held for 2 more weeks. It took me awhile to
discover that I was the only one in the room.
Senator Lieberman. Senator Lautenberg, when I told him
that, said he would still go there to sit down so he could be
the first to speak when the hearing started. [Laughter.]
Senator Lautenberg. In any event, Madam Chairman, we have
done a fair number of things together after we got through the
getting used to your kind of start. But in any event, important
matters come before this Committee and I am pleased to see your
leadership on yet another important matter.
Holding this hearing on government accountability, it
causes us to look at things, I think, in kind of a different
way. The telltale, if you will, is the budget. I have listened
carefully to Senator Coburn's comments, having the background
that he has as a physician, has special resonance.
But when we look at the cost increases in programs like
Medicare and Medicaid and what might happen with Social
Security if we do not deal with the problems there. And I think
of the number of people who are so dependent on these programs.
And those numbers obviously have grown, much to my personal
delight as one can attest to.
My father died when he was 43, having contracted cancer in
an occupational position that was dangerous to his health. But
my father, who was 43 when he died, took 13 months to die. My
mother was 36 years old when he finally passed away. In
addition to the grief that came from losing a loved one, the
enormity of the bills that were owed, doctors, hospitals, you
name it. There were not the sophisticated chemicals or drugs
that we have today to help him get through. But the costs
mounted.
I had enlisted in the Army with not very good prospects in
sight, and my ability to go to Columbia University at a cost
that was reasonable for even this little family of ours meant
an awful lot. I am not sure all of my Republican colleagues
would agree that this was a benefit to the country but here I
am, having created a business and an industry, the outsourcing
industry. I am credited with being a pioneer in that industry.
I look at the benefits of those programs and the
embarrassment that my dad had when he had to take a job with
WPA. His dignity was hurt but not so much that he could resist
the few dollars a week that he could make and help my mother
and my little sister and me.
We want to do these things and get them into line. But I
think the starting point has to be examining the programs fully
and realistically and kind of understand where the government
fits. As I look at some of the commentary that has been
available to us, the statement from Grover Norquist who is
President of Americans for Tax Reform. And he said their goal
is to shrink government to the size where it can be dragged
into the bathroom and drowned in the bathtub.
When I think of the people who are dependent on Medicaid or
disability payments from Social Security, what a terrible thing
it would be to eliminate those programs when we consider, Madam
Chairman, the fact that my good fortune in business got me to a
point where I can afford to take good care of my family and
certainly did not need a tax break.
If that tax break comes at the cost of eliminating someone
from Medicaid or a disability program, someone who desperately
needs medical attention and health care, and we start looking
at the budget first and saying OK, I think we have to look at
the thing in its entirety.
I commend you for bringing the question up, and Mr. Walker
for his exceptional and balanced service to the country. We are
glad to have you here and to be able to discuss this.
Sorry I was late and sorry I ran over time here.
Chairman Collins. Thank you.
I would now like to welcome our distinguished witness to
the hearing. David M. Walker became the seventh Comptroller
General of the United States and began his 15 year term on
November 9, 1998.
As all of my colleagues have indicated, we have worked very
closely on this Committee with the Comptroller General. He has
done an outstanding job in leading the Government
Accountability Office and in producing fact-based, nonpartisan
reviews of government programs and operations. So we very much
look forward to hearing your testimony today.
Thank you, Mr. Walker.
TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL OF
THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Walker. Thank you, Chairman Collins, Ranking Member
Lieberman, and other Senators for being here today.
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\1\ The prepared statement of Mr. Walker appears in the Appendix on
page 29.
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I appreciate the opportunity to unveil GAO's latest report:
21st Century Challenges: Reexamining the Base of the Federal
Government.\2\ I understand that each of you have a copy of the
report. It is being unveiled at this hearing.
---------------------------------------------------------------------------
\2\ A copy of the report, ``21st Century Challenges: Reexamining
the Base of the Federal Government,'' GAO-05-325SP, February 2005, is
retained in the files of the Committee, or may be obtained through the
U.S. Government Accountability Office.
---------------------------------------------------------------------------
I want to thank this Committee, and the Chairman and
Ranking Member in particular, but all of the Members of the
Committee for your support of this effort and for your
recognition of the strategic importance of the issue which we
are going to discuss today.
It is somewhat ironic, as one of you mentioned, there are a
number of competing hearings going on right now. And they all
involve important players and topics of varying importance. But
they are all focused on the here and the now. There is not
enough focus about the future.
I would respectfully suggest that the contents of this
report and the subject of this hearing is of more strategic
importance and long ranging significance to this country than
probably any other hearing that will go on today in either body
of the Congress.
So I want to thank all four of you for being here and maybe
others will come and join us from time to time.
The good news is that this is just the beginning. This is
the first step of what is likely to be a long road involving
this Committee, other committees, and various other parties
over many years in order to address our current situation.
As you know, Senators, the GAO is in three lines of
business: Oversight, insight, and foresight. Today's topic is a
foresight topic, with significant oversight and insight
implications.
I would like to note that it is important to know at the
outset why we produced this report and why we produced it at
this time. First, as you know, while most of our work is
oversight and insight, we have been doing more foresight
related work in order to help the Congress be in a position to
address current and emerging trends and challenges before they
reach crisis proportions.
In doing that, we have drawn upon the extensive amount of
work that we have done for the Congress over the years, over 90
percent of which is either mandated by the Congress or
requested by the Congress. We also looked at our strategic plan
for serving the Congress, which is prepared in conjunction with
the Congress.
And candidly, the reason that we are doing it now is that
if you look at the results of the financial statement audit for
the U.S. Government for September 30, 2004, fiscal 2004 was a
very bad year. We increased our liabilities and unfunded
commitments by over $13 trillion in 1 year. They went up from
$30 trillion to over $43 trillion in 1 year, largely due to the
Medicare prescription drug benefit. And we had a large unified
deficit, of which less than 25 percent had anything to do with
Iraq, Afghanistan, and incremental homeland security costs. And
yet, we had the strongest economic growth of any major
industrialized Nation last year, and have not been in a
recession for several years.
But as Chairman Collins mentioned, the important point is
not as much what happened last year or what is going to happen
this year. The important point is where are we headed? I think
that this report makes it very clear that, based upon our work,
we are headed for very troubled waters if we continue our
current course. As a result, we must change course or risk
doing irreparable harm to our ship of state as well as to the
future security, standard of living and choices that will be
made available to our children and grandchildren.
If I can, what I would like to do is show you some of the
highlights in the report. I would respectfully request,
Chairman Collins, that my entire written statement be included
in the record, if it is OK with you.
Chairman Collins. Without objection.
Mr. Walker. Thank you.
Understand at the outset, before I go through this, the
report notes that we are on an unsustainable fiscal path. We
must fundamentally review and reexamine what the Federal
Government does, how the Federal Government does business, and
in some cases who does the government's business. It must be
comprehensive, involving discretionary spending, mandatory
spending and entitlement programs, as well as tax policies.
That is the premise.
It is also important to note that a significant majority,
if not a vast majority, of the Federal Government, is based
upon conditions that existed in the 1950's and the 1960's. Most
current Federal Government policies, programs, functions, and
activities have never been subject to fundamental review and
reexamination since they were initiated. We have been layering
and layering and layering with the presumption that the base is
OK. Not only is it not OK, it is unsustainable. It is important
to recognize that reality.
If I can, this is the first chart.\1\ I understand that all
of these have been provided to you. They are also contained in
the report.
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\1\ The charts submitted by Mr. Walker appear in the Appendix on
pages 62 to 66.
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The first one is based upon CBO's baseline protection. We
do not compete with our sister agency. They do a very good job
with what they are asked to do. It is also based upon the best
estimates of the Social Security and Medicare Trustees--of
which I used to be one from 1990 to 1995--regarding what the
cost of these programs will be.
But there are three key assumptions that underlie CBO's
projection and are used as an input into this first GAO
simulation, that I would respectfully suggest are totally
unrealistic. First, no new laws will be passed. Second,
discretionary spending will grow by the rate of inflation. And
third, that all tax cuts will sunset. And actually, let me add
a fourth one, that AMT, the alternative minimum tax, will not
be fixed. Those are four key assumptions which, by the way, CBO
is required by law to make. And I would respectfully suggest
those are unrealistic assumptions and so this is an optimistic
scenario.
But even under this optimistic scenario, you can see that
we face large and growing structural deficits due primarily to
known demographic trends and rising health care costs.
If we can, let us take the next chart.
Senator Lieberman. Excuse me, for a quick question. What
kind of economic growth do the CBO numbers assume for the
country over that period of time?
Mr. Walker. On the out years they assume economic growth, I
think, of about 1.8 to 2 percent real GDP growth. However, I
will provide the exact number for the record. The reason,
primarily, is because of slow work force growth, because we
have a significant reduction in work force growth that is
expected to continue. The bottom line is, let us hope we can
get better economic growth than that. But I think you will see
from the next chart, there is no way we are going to grow our
way out of this problem, reinforcing the importance of today's
report.
The next chart. There are only two differences between this
simulation and the last one, as Senator Lieberman touched on.
Discretionary spending grows by the rate of the economy rather
than inflation. And, that all tax cuts are made permanent.
I am not saying that is good, bad, or indifferent. I am
just giving you the numbers. The fiscal future on this scenario
is that the Federal Government will be able to do little more
than pay interest on our large and mounting Federal debt. In
fact, the simulation model blows up in the 2040's under this
scenario.
These are obviously both unacceptable paths. A likely
scenario is probably somewhat in between these two bookends.
Both of which are unacceptable and unsustainable. We need to do
something about it. Next chart please.
This report attempts to take the strategic themes that are
in our strategic plan for serving the Congress, which have been
developed in conjunction with the Congress. These are themes
that have no geopolitical boundaries. They are global trends.
They are trends affecting the Federal, State, local
governments, the public sector, private sector, and not-for-
profit sector. Long-range fiscal challenges, I have shared with
you some of those. Changing security threats in a post-cold war
environment and increasing global interdependence. The changing
nature of the economy, moving to a knowledge age rather than an
industrial age. Demographic shifts, rapid changes in science
and technology and a variety of quality of life issues, such as
education, work, family, the environment, and urban sprawl.
Also changing governance structures where more and more issues
have to be handled on a global basis like fighting infectious
diseases, and protecting the homeland. These have to be fought
on a global basis, not just here at home. As well as more and
more issues have to be dealt with Federal, State and local as
well as public, private, and not-for-profit sector involvement.
Next chart please.
We build off of our strategic themes because they are
grounded in our work for the Congress and in our strategic plan
that has been accepted by the Congress. We have a number of
generic questions in the report.
Such things as when did we create this program or policy?
Why did we create this program or policy? What were the
conditions that existed at the time? What were we trying to
accomplish? How do we measure success on an outcome basis? Are
we successful based upon such measures? How has the world
changed since then? Should the program be reviewed,
reconsidered, revised, reengineered or eliminated even based
upon those changes? What priority is it for today and tomorrow?
Are we using best practices?
These are very basic questions but I would respectfully
suggest they have not been asked and answered for a vast
majority of the Federal Government.
And it is not just the spending side. It is also tax
preferences. In many years, the total cost of tax preferences
exceeds total discretionary spending. And yet, they are off the
radar screen. Total tax preferences in many years exceed total
discretionary spending, the biggest and the fastest-growing tax
preference being health care. Next chart please.
We then look at these themes, which are on the horizontal
axis, and we looked at a vertical axis--such as defense,
education, transportation--these are self-explanatory, to see
how these trends converge with the different departments and
agencies and functional areas within the Federal Government.
Typically, committees are structured on the vertical axis
rather than from a horizontal dimension. This Committee,
fortunately, has a lot of horizontal responsibility and
authority.
Then, next chart, what we then attempted to do is to pull
the vertical and horizontal dimensions together to show how
they interrelate. For example, when you are talking about
demographics, you have to talk about things like Social
Security, the labor force, private pensions, disability
programs, and health care. Next chart please.
When you are talking about increasing global
interdependence, you have to talk about such issues as
financial regulation, domestic subsidies, and the structure of
our tax system. Next chart please.
When you are talking about a knowledge-based economy on
which our competitive posture and economic growth is based upon
having the best people, we cannot compete on wages. We have to
compete based upon productivity, quality, and innovation.
On this dimension, you have to look at immigration policy
and workforce policy and retraining, research and development
and whether or not we are generating enough personal savings to
be able to finance our own needs. As you know, and I think
Senator Lieberman was the one that mentioned it, we are relying
to an increasing extent on foreign investors to finance our
consumption and our deficits. To a certain extent, we cede part
of our own destiny by doing that. That is not risk-free, by
doing that. Next chart please.
Changing security threats and defense resource allocations.
What type of force do we need? What type of footprint do we
need? What type of information sharing must we have in order to
maximize deterrent and respond to adverse events? Next chart
please.
And then from a governance standpoint, issues like the need
for national performance indicators. Believe it or not, this
country does not have a strategic plan. It does not have a
performance plan. And it does not even have a set of key
national indicators to measure where we stand, how we are doing
over time, and how we compare with others. Economic, security,
safety, social, and environmental indicates. We do not have
them.
We are working with the National Academy of Sciences and
the OECD to try to help further the development of such
standards. They could help to inform a strategic plan, enhance
performance and accountability reporting, and provide a basis
for this much-needed fundamental baseline review and
reassessment of the Federal Government.
In summary, there is little low hanging fruit here. But
there is tough work that needs to be done. No one single
approach will address all of our challenges. Many players will
have to be involved over a number of years in order to address
them.
I would respectfully suggest this could take as long as a
generation to effectively address all of the questions. But we
must start now because time is working against us. And unlike
investments, where the miracle of compounding works for you,
the miracle of compounding is working against us right now
because debt on debt is not good.
And last, I would respectfully suggest that our country,
children and grandchildren are counting on us to not just focus
on today but to also be good stewards for tomorrow. And that
ultimately, it is not about numbers. It is about values. What
type of country do we want to have in the future? What type of
country do we want to hand over to our children and
grandchildren? What choices do we want them to be able to make
as to what they feel the proper role of government should be in
the future? How much flexibility are we going to provide them?
I would conclude by saying, Chairman Collins, that you
mentioned a very important word. And I think there are three
that are going to be really important here as we move forward,
both for the Legislative Branch and the Executive Branch.
First, courage. the courage to take on these issues. There are
a lot of people who are vested in the status quo. Change is
really tough, especially for a monopoly like government that
does not change very much.
Second, integrity. People with integrity who speak the
truth, state the facts, and tell it like it is. People who want
to find out what is working and what is not working in order to
make informed choices.
And third, innovation. We are going to have to think
outside the box. What are we trying to accomplish? How best to
accomplish it? What is the proper role for the Federal
Government? Where should the Federal Government be involved
because the private sector cannot or will not do it, the other
levels of governments are not doing it and therefore we are in
a unique position or there is a need for us to be able to do
it? And how can we partner more? And how can we focus more on
achieving positive results and concrete outcomes? Because in
many cases, we do not know what results and outcomes we are
getting, from the tax preferences, for the discretionary
spending, or the mandatory spending.
As you know, more and more of the budget is on autopilot.
Over 60 percent of the budget is on autopilot and it is going
up every year.
Thank you, Madam Chairman. I appreciate you allowing me a
little bit of extra time because this is an important topic.
Chairman Collins. Thank you so much for an excellent
statement and overview.
I think most Members of Congress are keenly aware of the
fiscal challenges that you describe, although when you see the
charts, it is even more startling in the out years. And in many
ways, we are like a person who knows that he needs to go on a
diet and yet just cannot seem to start.
That makes me wonder whether we need changes in the budget
process to help us exercise the kinds of fiscal discipline and
make the hard choices that need to be made.
Could you comment on whether or not there are some specific
changes to the budget process that GAO believes would help
impose the kind of fiscal discipline that is lacking now?
Mr. Walker. Yes, I can. And I think that is an excellent
point. Many of the controls and safeguards that existed in the
budget process have now expired. Some of the things that we
believe that the Congress needs to consider include reasonable
spending caps, PAYGO rules that apply on both sides of the
ledger, meaning on the spending side and the tax side.
Realistically, if you are trying to address the bottom line,
you should not exempt one side of the ledger.
Having also some type of triggers for mandatory spending
programs. Being able to get a better handle on the total
commitments that we have already. For example, I mentioned to
you the $43 trillion number. That is the estimated total
liabilities and commitments as of September 30, 2004. Let me
compare that number to another number that might shock you. The
total estimated net worth of every American, Bill Gates down,
including home equity is $47 trillion. And we currently have
total liabilities and commitments of $43 trillion in current
dollar terms.
We are obviously not going to be able to deliver on all of
our current promises. We are going to have to restructure.
We need to think about the discounted present value cost of
major spending and tax proposals before they are enacted into
law. And as a supplement to or a substitute for the cash flow
items that we get right now for 1 year, 5 years, and 10 years.
We also need to try to get a sense as to what the
intergenerational impact of some of these burdens might be. As
you know, right now there are a lot of things in the budget, a
lot of things in the law right now whose costs escalate right
beyond the 5 or 10 year horizon on both the spending side and
the tax side. And because of known demographic trends, we need
to think about the longer-term affordability and sustainability
of existing policies and programs.
There are other things that I think should be considered,
as well. Some people have advocated biennial budgeting. That is
not a panacea by any means. Some people believe that if you had
biennial budgeting, that you would spend more time on
oversight. I would like to think that is the case, but I would
not want to bet a whole lot of money on it.
Frankly, we have been doing supplementals every year, and
are likely to do supplementals for the foreseeable future. So
that provides a safety valve to be able to deal with issues if
you go to biannual budgeting.
So these are some of the areas, but I absolutely agree,
Madam Chairman, that we absolutely have to do something with
regard to the budget process. It is fundamentally broken.
Chairman Collins. I want to switch to one of the specific
issues that you have highlighted in your report and that is the
fractured approach that the Federal Government applies to job
training programs. I believe GAO indicated that there are some
44 job training programs spread across nine different agencies.
This matters to a State like mine, which has lost a lot of
manufacturing jobs in the past decade. I know there has been
some frustration about the delivery of job training programs in
my State.
On the other hand, we passed the Workforce Investment Act
to try to coordinate those programs. Did that not work? What is
your assessment?
Mr. Walker. I think that was a positive step in the right
direction but I think there is more work that needs to be done.
Candidly, job training is just a subset of a much bigger
challenge. For example, you properly point out that we have
noted that there are 44 different programs among a number of
different agencies. I recently found out, for example, there
are over 20 Federal agencies involved in financial literacy. We
recently had a related forum over at GAO. We invited a number
of people. Many of them did not even know they were in the
business.
One of the things that we have to do is we have to get
better visibility horizontally. In other words, take particular
areas, job training, food safety, financial literacy, you name
it. How many different players do we have on the field? What
are they doing? Why do we need this many? Are they doing things
consistently and in a nonduplicative and integrated fashion?
I think one of the things that we look forward to working
with this Committee and others on is how can we start looking
at things not just vertically, which government has done for
years and always will, but also horizontally?
Chairman Collins. Let me just quickly ask you one final
question for this round.
As I read your report and the 200 questions, it is almost
overwhelming to know where to begin to tackle the programs and
policies that you outlined. Your report is a great help in
giving us the overview. But as a follow up, I wondered if GAO
would be willing to apply the reexamination criteria that is
set out in Table 1 of your report to the programs within the
Federal Government and respond back to us with a list of
programs that you believe should be reexamined first? If you
could help us narrow the universe of programs that might be
most fruitful for us to examine in-depth. Would that be a
project that GAO would be willing to undertake?
Mr. Walker. I would be happy, along with the other GAO
professionals, to work out something with your staff that can
be done within a reasonable amount of time. As you might
imagine, trying to apply those criteria to all Federal programs
is something that would take years to do.
So I think what we might be able to do is to take
particular areas that you and other Members might have
particular interest, like homeland security information
sharing. To what extent do we have multiple programs across
government dealing with the same type of issue? What about
regions? Do we need as many regions as we have? And other
topics, and to try to come back with something for your
consideration.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks, Madam Chairman.
I want to go back, Mr. Walker, to something you said at the
end of your opening remarks, which is that more than 60 percent
of the spending of the Federal Government is currently on
autopilot. That is a reality that is clearly not understood or
known by most of the American people. I would dare say that a
lot of Members of Congress have not focused on that reality.
It struck me last year, when once again we were unable to
complete, because of the breakdown of the Congressional budget
process, each of the separate 13 appropriations bills. So it
was all lumped together in an omnibus bill at the end. It came
to somewhat over $800 billion. That is a lot of money,
obviously. But it turns out to be about a third of the full
spending of the Federal Government because the rest is interest
on the debt, Social Security, Medicare, and Medicaid,
particularly.
It speaks to our problem, and why the focus in this session
on the sustainability of Social Security over the long run is
just the beginning, and why it is so important that we figure a
way together to deal with that, to give both the public, the
financial markets and ourselves the confidence that we can go
on and deal with some of the longer-term problems of broader
Federal Government sustainability that you talk about.
Deficits in the Federal Government are nothing new. So my
first question to put this in the context, because you, in
previous years, and other comptrollers general, have come
before Congress and warned about impending long-term
unsustainability.
To the best of your knowledge, is the circumstance we are
in today, that you have portrayed, just a little worse than it
has been for a long time? Or is something much more grave
occurring?
In other words, is this the worst ever as a Comptroller
General looks forward to the fiscal future health of the United
States?
Mr. Walker. I do not know that I would be in a position to
say is this the worst ever. What I would be able to tell you is
that fiscal 2004 was a very bad year. With a $13 trillion
increase in liabilities and unfunded commitments in 1 year,
going from $30 trillion to over $43 trillion in 1 year. And the
large current deficit, which obviously is not the primary
problem. Where we are headed is the primary problem. But with
the current deficit, less than 25 percent of it had to do with
Iraq, Afghanistan, and incremental homeland security costs. And
yet, we had strong economic growth and we have not been in a
recession since November 2001. So those are warning signals.
I am a member of the Sons of the American Revolution. Both
my wife and I have family members who fought and died in the
Revolution. I remember Washington's words of wisdom, ``the most
important personal attribute is courage. And the most important
institutional attribute is fiscal responsibility.'' We need to
heed Washington's words of wisdom.
Senator Lieberman. Let me ask you about some of the
responses institutionally. As you know, I have been interested
in present value accounting for the Federal Government
activities. I suppose, in one sense, people would ask why,
because the news is bad enough with cash value accounting. But
we ask businesses under ERISA to use present value accounting.
Social Security trustees are now using it.
I believe I know you are supportive of this, but I wonder
if you could just talk about why it would help to go to present
value accounting as a supplement to cash value accounting?
Mr. Walker. First, we have present value accounting for
financial reporting. Unfortunately, not enough people look at
the financial statements of the U.S. Government.
I would respectfully suggest that while they were issued in
record time this year, they were issued on December 15, only 76
days after the end of the fiscal year, which is record time,
which is a real accomplishment, not many people have probably
read those financial statements, including the disclaimer of
opinion by GAO because of the poor state of financial records
at DOD and elsewhere. But also because the emphasis paragraph
that I put in, noting that we are on an unsustainable fiscal
path.
But we have present value accounting for financial
statements. And the numbers that I gave, the $43 trillion, you
can get those out of the annual report. The problem is you have
to look in several different places and pull them together.
And so I am working with the Secretary of the Treasury, the
Director of OMB, and the Federal Accounting Standards Advisory
Board to enhance financial reporting.
But in addition, on the budgeting side, which I believe you
are touching on, I think as a supplement to--not a substitute
for--the cash flows, we need present value numbers for big
ticket spending and tax items to be considered by the Congress
before it acts. You did not have that when you passed the
Medicare prescription drug bill. The debate was about whether
it was going to cost $395 billion, which is what CBO said, or
$534 billion, which is what the Medicare's Chief Actuary said?
Roughly 3\1/2\ months after Congress passed that bill, the
Medicare trustees came out and said $8.1 trillion in current
dollars. That number should have been on the table. It should
have been discussed and debated because I think a lot of people
are shocked by it today.
Senator Lieberman. My time is up but I look forward to a
second round.
One thing that number would have probably inhibited is the
number of people who described the Medicare proposal as cheap.
In other words, too cheap, that it did not cover enough. It
just suggests what the cost is of the commitments that we make.
And we do this all with good intentions. This is another
part of the American character. We are good people. We want to
take care of each other.
But one of the great traditional American values also was
to pay your bills. The Federal Government is not paying its
bills.
Thank you, Madam Chairman.
Chairman Collins. Senator Coburn.
Senator Coburn. Madam Chairman, I think one of the great
traditions of Congress is fixing the wrong problems. And I
think that is what they did with the Medicare drug bill. That
happens to be my personal opinion and I was not here at the
time.
Following on what Senator Lieberman said, the real problems
we face, because of the lack of discipline in Congress--and see
if you agree with me--we have a demographic shift, aging
population. We have an unsustainable population birth rate. In
other words, it is below reproduction of our population. We
have exported a vast majority of our basic manufacturing tasks.
Fourth, is we have not restrained spending.
Whether you want to talk about tax cuts greater or less
than 19 percent of consumption or 22 percent consumption of
GDP, the fact is that with those basic demographic changes, if
they are not changed, we will not fix the problem.
We are not going to change the aging. It is doubtful we
will have much influence on the birth rate. So we have really
two options. One is to do what you suggest and really have a
systematic review. The other is to look at the export of our
manufacturing that we seem to be wanting to give to the rest of
the world through our open trade but nobody else's open trade
policies.
How much of our financial problem has to do with the
undermining of our basic manufacturing industry in this
country, in terms of jobs? Much as the Chairman has lost,
Oklahoma, I think, lost 60,000 manufacturing jobs in the last 6
years.
If we want to try to tackle this problem, and I think right
now you can see the number of people here, there are not many
people interested in this problem. So, is it realistic to think
the Congress is going to address it? And, if we decide to
address it, how do we leverage that? How do we expand? You're
talking about a generation. We can't wait a generation to fix
these problems.
Mr. Walker. Several comments. First, a number of the items
that you mention are real issues. They are real problems. There
are others, but those are real problems.
Second, someone said demographics are destiny. And
demographics are a major factor contributing to our long-range
problem. Those are known. They are not going to change very
much. We need to recognize that reality. And the baby boomers
are eligible for early retirement beginning in 2008. That is
going to start to crunch the budget because the Social Security
surpluses are going to start to go down in 2008. That will
start putting pressure on the rest of the Federal budget, and
ultimately it is only going to get worse over time. As you
know, Medicare is a much bigger problem than Social Security
but it is going to take much longer to solve.
Manufacturing, that is an issue. But I think one of the
things we have to keep in mind is while obviously one has to
look at trade policy, I think the other thing one has to keep
in mind is we are truly in a global economy. More and more
corporations are multinational corporations. And multinational
corporations do not have duties of loyalty to countries. They
have duties of loyalty to their shareholders. To the extent
that there are other countries that can end up producing things
that are not high value and a lot cheaper than us, we are never
going to be able to compete on wages.
All the more important that we have to recognize we have to
have education systems, retraining systems, and technologies
that enable us to compete based on productivity, innovation,
quality, those types of factors in order to maintain our
standard of living and improve it.
As far as Congress, I would respectfully suggest that there
are at least a couple of committees that are of strategic
importance. This one, because of the scope of this Committee.
You have the authority to deal with all of government
operations and look at the effectiveness of government
programs. And second, the Budget Committee. Others are very
important, do not get me wrong.
But I think those two committees can help lead the way. And
I also think this is something that needs visibility in both
caucuses because I do not think that many members really
understand the true nature, extent, magnitude, and potential
implications of this, in part because of how we keep score, as
Senator Lieberman mentioned. The way we keep score does not
provide a full and fair view of where we are and where we are
headed. It does not allow you and your colleagues to make a
fully informed decision on really important things. That has
got to change.
But I am confident that we can rise to this challenge. I am
just concerned about when we are going to get started and I
hope today is the beginning of that effort.
Senator Coburn. Let me go back and ask you, based on the
history of oversight of the Congresses of the last 10 years,
why are you confident that Congress is going to do that?
Mr. Walker. Because some people are starting to pay
attention. When I came into my office this morning, and Madam
Chairman, I don't know if you all saw this. I just saw it this
morning, and had no idea this was coming out.
Merrill Lynch took out a full-page ad today in the Hill
that says GAO to Congress, long-term fiscal policy on
unsustainable course. They took that money out of their pocket
and their shareholders pocket. I knew nothing about this.
This tells me that Wall Street is watching and that
investors and lenders are now starting to get concerned about
it. And they should be. And by the way, the dollar has taken a
big hit in the last couple of years and that is a shot across
the bow. We need to take that seriously.
Senator Coburn. So let me go back. Do you have any ideas,
if Congress would decide they want to tackle this, how do we
leverage that out so it does not take a generation to do? How
do we leverage the ability of this Committee to look both
horizontally and vertically and to do assessments and reviews
based on some of the outlying characteristics? How do we
leverage that to get it done in less than a generation?
Mr. Walker. First, I think we have to leverage it within
the Congress and also elsewhere. For example, the Executive
Branch. I would respectfully suggest that since the Executive
Branch is the management part of government, and since they
have the responsibility for managing the various programs that
exist, that they need to look at these generic questions that
we have, that apply to every major program, policy, function,
and activity. They need to look at the other illustrative
questions that we have raised. And they need to start focusing
on those, answering those questions. OMB needs to develop a
strategic plan and a government-wide performance plan.
In addition to that, I believe that Congress and all of the
committees of Congress, should take a look at the contents of
this report and consider it as they deem appropriate in setting
their agenda for oversight, in considering budget requests that
come before the Congress, in considering legislative proposals.
So I think that this is a framework that can and should and
must be considered by both the Executive Branch, both career
and non-career, as well as the Congress in basically thinking
about how it goes about doing its ongoing business on a day-to-
day basis. It has to integrate it into the ongoing business
operations.
Chairman Collins. Thank you. Senator Lautenberg.
Senator Lautenberg. Thank you again, Madam Chairman.
Your presentation is excellent and we would expect nothing
less, Mr. Walker, knowing you over these years. But I do think
that the cart is running ahead of the horse here in terms of
how do you solve these problems?
The first thing I would do would extend the terms of U.S.
Senators and say maybe you can only serve one 12-year term. And
then we would start thinking about the long-range implication
of decisions that we make. These are unfortunately tied into
political decisions, as you know.
There are some natural factors. When you talk about the
implication that some of government record-keeping is a little
bit shoddy, is this an Enron we are looking at? Or is it a
Fannie Mae or something like that? If you do not have the
confidence that you ought to have in what we are producing,
then that is a mechanical thing.
I think that we are way beyond that in terms of what the
problems are. There is a book around and I commend for my
colleagues and general reading. It is called the ``End of Work:
The Decline of the Global Labor Force and the Dawn of the Post-
Market Era.'' It is written by Jeremy Rifkin. And since I grew
up in the technology business in my business career, one of the
biggest things that we are looking at is the technological
opportunities to replace manual labor. As a consequence, there
is an actual shrinkage of the workforce that is taking place in
front of us.
One of the things, among several that we have to look at,
you cannot have low wages with higher standards of living. And
that is axiomatic, in my view. So if we want to go to
Bangladesh, or whatever countries, where people live in huts
and they will knit and push machines for 15 cents an hour and
want our American workers to compete with that, then we are
saying what is going to have to happen is our standard of
living is going to have to go down substantially. Because you
cannot say to them OK, you live in the huts and you run with
the diseases that your kids have, high infant mortality in many
cases, and then have us with high wage employees and reasonable
standards of living and say that well, we have to match up.
Once the marketplace became global, there was enormous change.
I don't mean to give a lecture here but last night Chairman
Collins and I saw a film on disaster portrayed in the event of
an attack in London using chemicals and radiation. It was a
horror. I was forced as I viewed things--and I served in World
War II--on a comparative basis the world had a lot fewer
casualties for the numbers engaged directly in combat than we
see later on.
An observation that I made was that the theater of war,
Senator Lieberman, was extended substantially. America itself
is now included in the theater of war. That is what happens.
Because with technology and madness, any part of our country is
susceptible. And therefore, if we have to spend the money
necessary to defend ourselves in a theater of war, then the
costs are considerable.
It is a lot easier to think of war over there someplace,
away from our borders. But we learned on September 11 that we
are included. When I was a kid in the Army, in World War II, I
saw the first of unmanned missiles. One was a jet bomb, one was
a rocket bomb sent by the Germans, unmanned. It was the
beginning of a terrible gain in technology. And now that they
have been able to compact these weapons, nuclear bombs are
small, have them carried by one or two persons willing to
conspire, give up their lives to take others. So what is the
cost of that?
I submit, without getting too esoteric here, that there is
enormous sociological change that we have to examine. The
increased longevity, for which I am grateful because otherwise
I would not be here, but the fact of the matter is all of these
factors come into play. And how we relate the numbers, frankly,
is a secondary thing because we want to promote good health and
we want to promote not only long life but energy and vitality,
as well. And all of these things have enormous costs.
But then what happens to our budgeting?
As you know, Mr. Walker, a financial statement is comprised
of two principal parts. One is the revenue side and the other
is the expense side. You cannot have a balanced report unless
the revenues somehow or other, either through direct production
or loans or borrowing, at least equal your expenses. Not
indefinitely.
So we are in a peculiar position. I think you did a real
service this morning and I thank Senator Collins and Senator
Lieberman for promoting this discussion. The question of how
you really get to the bare bones is something that we are
unwilling to attack with the political events as we see them.
Everyone knows that we get closer and closer to encouraging our
reelection when the previous one is complete. As a consequence,
it is hard to put the longer range things on the table because
there is no impact felt right away.
And with that I don't offer you any solutions but I offer
more things to be concerned about, I think, and looked at.
Thank you.
Chairman Collins. Senator Pryor.
OPENING STATEMENT OF SENATOR PRYOR
Senator Pryor. Thank you, Madam Chairman.
Mr. Walker, again, thank you for your time and attention to
this. This is all very important, and of special long-term
importance. The work GAO has done on this subject matter has
been a very valuable tool for Congress.
Also, you have a great reputation and you have always
impressed me as a straight shooter. We need more of that around
here, folks that will get through all of the rhetoric and just
get down to the facts.
The first question I have is about GAO itself. You have
been in operation since the 1920's?
Mr. Walker. Nineteen hundred and twenty one.
Senator Pryor. I am curious about GAO's track record in
making predictions. Have you ever looked at yourself and tried
to go back and see how accurate you have been over the years in
making projections?
Mr. Walker. I have not had that done. We can go back and
see whether or not it has been done before and also maybe take
a look at what has happened in recent years.
I will tell you this, that having been a trustee of Social
Security and Medicare for 5 years, and having been part of the
process of projecting out for 75 years for those programs, and
knowing that the trustees come up with three estimates, high
cost, low cost and best estimate, which we are using for this
simulation, in general over the time actual results have been
between the best estimate and the high cost estimates.
I know that since I have been Comptroller General, which is
a little over 6 years now, that the long-range budget
simulations have generally gotten worse over time. The reason
that they have generally gotten worse is because we are not
necessarily thinking about the long-term cost, affordability
and sustainability of current decisions on both the spending
side and the tax side of the ledger.
Senator Pryor. I agree with what you are saying sitting
there.
I know that as a Member of the Senate, and just as a Member
of Congress generally, I think that we all should continually
look at the programs we have for the Federal Government and
evaluate them and reevaluate them. I like the areas where you
touched on going back to the basics. How long has this program
been around? What was the goal of it, etc.? I think that is a
very healthy exercise that we should all do.
But I would like to hear your thoughts on a practice that
Congress does, and that is we sunset legislation. When we often
sunset legislation or we have to reauthorize it at a certain
time, is that helping or hurting us in our examination and
reform effort to try to make government run more efficiently?
Mr. Walker. It is a concept that has conceptual merit but
quite frankly, many times Congress does not reauthorize
programs and yet they are funded. And so that system is not
working as anticipated, as well.
I do think that one of the things that has to be done is
that there needs to be mechanisms to periodically review and
reconsider what is in the base and whether or not Federal
programs and policies are achieving their intended objectives
and whether or not they are as high a priority today and for
tomorrow as it has been in the past.
Senator Pryor. Do you have a recommendation on that? Are
you saying that Congress should be the one that does the
reevaluation? Or should Congress somehow get blue ribbon panels
or whatever to go and review programs? How should we do that?
Do you have a recommendation on that?
Mr. Walker. One of the things that we have in chapter 3 of
this report, or what I would refer to as the way forward, is we
have a number of different mechanisms that could potentially be
used in order to address these and other questions, some of
which need to be embedded in the normal process that Congress
deals with, the budget process, the appropriations process, the
oversight process, and the reauthorization process.
I do believe, Senator, that it is a shared responsibility.
I believe that the Executive Branch should be focusing on these
issues, these generic questions as well as the other
illustrative questions. I also believe the Congress, as part of
its regular legislative, oversight, and appropriations
responsibilities, needs to be focused on these issues. So we
need both. I do not think we can rely on one or the other. I
think both have to play a major role.
Senator Pryor. So as we are talking about reforming Social
Security and at some point reforming Medicare and Medicaid, do
you think we need to reform Congress as well?
Mr. Walker. As you know, the Congress is my client. I will
tell you this, I do not believe that either the Executive
Branch or the Legislative Branch is well-positioned to deal
effectively with all of these challenges that we are facing.
Realistically, the Executive Branch is probably going to change
before the Congress. But ultimately, I think the Congress is
going to have to change in some ways as well to maximize its
effectiveness.
Senator Pryor. One thing that you touched on that Senator
Lieberman picked up on is that 60 percent of government
spending is on autopilot. Basically, you are talking about the
entitlement programs or the mandatory spending categories,
whatever we want to call them. Do you have any recommendations
on how we address those and how we can make those less
expensive and a smaller part of the budget overall?
Mr. Walker. First in 1964, Congress got to decide how two-
thirds of the budget would be spent every year. Now it is down
to less than 40 percent and it is getting less each year based
upon known demographic trends and a variety of other factors.
We have a number of suggestions in the report but some of
the ones that I would touch on would be that we need to start
getting some things on the radar screen that are off the radar
screen. To a great extent, a lot of this mandatory spending is
off the radar screen. We are just letting it go. We are not
even focusing on it. That is not just on the spending side, it
is on the tax side, too.
As I mentioned, in many years the total cost of tax
expenditures exceeds total discretionary spending. And yet, tax
expenditures are off the radar screen. We are really not
focusing on them.
I think looking at the commitments that have been made,
being able to consider triggers, engaging in a fundamental
review and reassessment of existing mandatory programs.
I saw this morning, for example, that there is a proposal
to extend TriCare to all Reservists and Guard members, even if
they are not on active duty. That would cost a tremendous
amount of money. Given the fact that employers are looking to
get out of the health care business, let me assure you that
that would just be an excuse for every member of the Guard and
Reserve and their family to go on to the Government TriCare
program, which in 1-year cost, or the 10-year cost may not look
that bad. But the discounted present value cost would be
shocking.
Senator Pryor. Thank you.
Chairman Collins. Thank you.
Mr. Walker, the OMB has put forth a number of proposals to
encourage Congress to evaluate Federal programs, and if they
are ineffective to terminate them. For example, there already
is the OMB Program Assessment Rating Tool, the PART program.
Last year, Congress funded all but one of the 13 programs that
OMB concluded were either ineffective or had results not
demonstrated.
I think the PART program may not be the best tool for
evaluating the worthiness of programs, but I think OMB has a
point about how difficult it is to terminate programs once they
have been enacted.
This year, the administration has proposed a Results
Commission and a Sunset Commission to try to put into place
some sort of action forcing mechanism to force Congress to make
affirmative decisions to extend programs that the commission
may have found are ineffective.
What is your general view on the PART program and on the
administration's proposals for these two commissions?
Mr. Walker. I think the PART program, the Program
Assessment Rating Tool, has conceptual merit. It is basically
the administration's recognition that you need to review the
base of government and to try to ascertain whether and to what
extent programs are achieving real outcome-based results. And
if not, why not? And the ones that are more successful,
hopefully, would receive better treatment, at least as it
relates to the President's proposal. And the ones that are not
demonstrating results, then presumably they would not receive
as favorable treatment through the President's proposed budget.
I believe that PART is a step in the right direction. By no
means is it perfect. I think you also have to recognize, as you
do I'm sure, that any administration is associated with a
particular president and a particular party and therefore is
not necessarily viewed with the same degree of merit on both
sides of the aisle. And that there could be some skepticism, no
matter which administration it is, as to what their proposals
might be.
And so I think it is important to have GAO and others, as
appropriate, doing evaluations that are professional,
objective, fact-based, nonpartisan, nonideological, and
hopefully fair and balanced as a supplement to what the
administration might do.
I also believe that there needs to be more consultation. I
believe the administration has done some good things, but their
consultation with key stakeholders has not always been very
effective. And working in partnership over a period of time
would significantly increase the likelihood of success.
Reasonable people can and will differ in these areas. No doubt
about it, especially with all the vested interests. But I think
there needs to be significant process improvement.
As far as the Results Commission and the Sunset Commission,
I have not seen the details. As you know, Senator, titles of
things can be misleading. Therefore, I will reserve judgment on
what they are proposing until I see the details.
Chairman Collins. Let me do just a follow-up, knowing that
you would want to get back to us on that issue.
As I understand the administration's proposal for the
Sunset Commission, it would review some 1,200 government
programs over a 10-year period. So that the concept is that a
program's managers would have to justify its continued
existence once every 10 years, or at least once every 10 years.
From what you are saying, however, if we take that kind of
approach we should look at the other side of the ledger. We
should be looking at tax preferences and whether they should be
continued. Is that a fair judgment?
Mr. Walker. Absolutely. I think we have to look at
mandatory spending, including entitlement programs,
discretionary spending and tax policy, including tax
preferences. The gap is too great to grow our way out of the
problem. You are not going to solve the problem just by looking
at one dimension. We need to look at all three.
Chairman Collins. Let me ask you one final question today,
and that is in the area of health care. If you look at your
charts, the fastest-growing part of the Federal budget is the
Medicaid and Medicare programs. It is going to be a tremendous
challenge for government to tame the cost.
What should Congress and the administration begin to tackle
in what is the fastest-growing part of our budget?
Mr. Walker. First, one of the things I was pleased to see,
although not without controversy, is the President's Budget
incorporates a number of GAO recommendations. One example is
that there is some gaming going on with regard to Medicaid
reimbursements. There has also been some practices that have
been engaged in by various other parties where the government,
we believe, is paying more than it should and more than was
intended. So that is a positive step.
Second, with regard to Medicare, I think some of the things
we are going to have to look at is such things as, in the
short-term, is there an opportunity to be able to develop some
standards of practice that would improve quality, reduce costs,
enhance consistency, improve equity, also potentially reduce
litigation risk?
Third, is there an opportunity to engage in large case
management practices? A significant percentage of Medicare's
cost, and Medicaid's too, are incurred by a relatively small
percentage of the covered population. In the private sector and
even some State and local governments, there are large case
management practices that are being engaged in to try to get a
better handle as to what people are doing and what the costs
are. Sometimes you find yourself, you have people taking 16
prescription drugs, which is dangerous, or they are working
counter to each other. That is another example.
A fourth one might be how can you leverage the government's
considerable purchasing power?
But in the final analysis, Senator, Medicare by itself is
eight times greater than Social Security. Medicaid is on top of
that. It is going to take fundamental reform on an installment
basis over many years, not just of these programs but also the
entire health care system.
And that is why I think it is important that the Congress
consider moving now rather than later on Social Security
reform. The reason being is that while Social Security is only
$3.7 trillion of that $43 trillion problem, you have an
opportunity to reform Social Security in a way that will exceed
the expectations of every generation of Americans--and I will
be happy to comment on that if you want. You can get a win and
improve credibility in the markets, improve confidence within
the public and within the Congress to be able to deal with
issues before they reach crisis proportions because quite
frankly the heavy lifting is going to take a lot more time and
you are not going to exceed the expectations of any generation
of Americans, I would respectfully suggest.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks, Madam Chairman.
Mr. Walker, earlier on in your testimony you mentioned a
series of steps that Congress could take to try to get us back
in balance. And look, we are proving, unfortunately, that we
are incapable of just doing it in the normal process, that we
have got to create some parameters here, some fences around the
holes we are falling into. I am going to list the ones:
Spending caps, PAYGO rules, triggers, and biannual budgeting.
One of our colleagues has a Constitutional Amendment on a line
item veto, which we passed some years ago and then was struck
down by the Supreme Court. So this is his attempt to try to
bring it back.
Of those, and this Committee--and I appreciate the
Chairman's leadership in calling this hearing and beginning the
process--this Committee is in a position to try to take the
lead in offering some legislative parameters to self-
discipline. What would be your favorite among those, or a
couple of favorites, and just talk about the details of why you
chose them?
Mr. Walker. We would be happy to work with your staff and
other Committee staff further, but on a preliminary basis what
I would say is some spending caps and PAYGO on both sides of
the ledger. In addition, to consider, as a supplement to and
not a substitute for, the current information Congress gets,
the discounted present value dollar cost of major tax and
spending proposals before they are enacted into law.
There are others but those would be a few off the top of my
head.
Senator Lieberman. That is helpful.
Can I take you back and ask you just to talk a little bit,
and I would welcome your input or your staff's, on spending
caps? Just describe in general terms how we might best do that?
Mr. Walker. Realistically, I think there are probably a
couple of different approaches. One is you may want to take a
look at what type of target or cap you might have, not just
with regard to discretionary spending. But I also think that
you have to think about whether or not you have certain
triggers or mechanisms that deal with mandatory spending, where
you are on autopilot, that forces some type of review and
reconsideration, rather than just automatically assuming we are
going to continue the status quo.
I think you also have to think, and I am talking off the
top of my head here, Senator, a little bit, brainstorming with
you. I think we have to think about what are we going to do on
the tax preference side. That cannot be off the radar screen,
either.
For example, one of the things that I noted in the
President's budget is there is a proposal for additional tax
preferences for health care. It is already the largest tax
preference in the Internal Revenue code. And yet we are
proposing additional ones. What about reconsidering the
existing one?
So I think that somehow we have to consider the tax side
too, because in the final analysis we are talking about the
bottom line. And the bottom line is a function of revenues and
expenditures. And therefore you need to consider both.
Senator Lieberman. How about PAYGO. PAYGO is the basic
idea, as the name suggests, that if you adopt a spending
program or a tax cut you have to pay for it.
Mr. Walker. I think it needs to apply on both sides of the
ledger because we are talking about the bottom line.
Senator Lieberman. What are your thoughts about a line item
veto, leaving aside whether it is significant enough to amend
the Constitution?
Mr. Walker. That would involve a significant change in
authority between the Legislative Branch and the Congress, who
I and GAO work for, and the Executive Branch. So I hesitate to
say more on that at this time, Senator.
Senator Lieberman. That was well done. But let us continue
to work on that.
Let me ask you a very different kind of question, although
related to the general subject, and bring you to where Congress
is focused today, which is on trying to make Social Security
sustainable. One of the things that bothers me about the
current proposal, insofar as we understand it, for privatizing
accounts, and I am really trying hard, as a lot of members are,
to keep our minds open. As I said at the outset, the President
has forced us to confront the long-term unsustainability of
Social Security. So one or another may argue about what his
response is, but he put it on the agenda.
One of the questions that I have asked myself is on the
privatizing, which requires transition costs and borrowing to
achieve them--and that goes into the trillions, as Vice
President Cheney said a few weeks ago, over the decades to
come. How do we measure whether that indebtedness really begins
to affect our international financial credibility to the point
where the dollar loses value, interest rates have to be raised,
business is stifled, people lose jobs?
What standards can we apply to that? I guess I will stop
there and I may have a quick follow-up.
Mr. Walker. Senator, I would guess, one of the things we
have to be careful about in the debate about Social Security is
the words that we use. I would respectfully suggest that just
as a crisis may not be an appropriate word, privatizing may not
be either. Because in effect, what is being talked about with
individual accounts is whether or not there should be
individual accounts. If so, as part of a broader proposal.
Because by themselves they will not deal with the solvency and
sustainability problem. In fact they could exacerbate it.
Senator Lieberman. That is a real important point. There
may be a value to those private accounts for a lot of other
personal and macroeconomic reasons, but they themselves do not
deal with the system.
Mr. Walker. That is exactly right, Senator. The question is
are they a carve-out? In other words, are they part of the
existing payroll tax? Are they an add-on? Are they voluntary?
Are they mandatory?
I will say this, we need to consider, I believe, in any
reform proposals not just the cash flow implication but also
the discounted present value dollar implication of whatever
reform package is being considered. We are consistent at GAO.
We say we think you need to consider both, on the tax side, on
the spending side, as well as part of major reform proposals.
I think the other thing that we have to consider is that
not all promised benefits under Social Security are funded. If
you want to deliver on all promised benefits under Social
Security, it is going to cost several trillion dollars to be
able to do that at some point in time. The question is when?
So one last thing I would mention on this is if you look at
the financial statements of the U.S. Government, you will not
find a liability to the trust funds of Social Security and
Medicare, shockingly. The reason that you will not find a
liability is because the left hand owes the right hand. That is
something I think that needs to be reconsidered. Why? Because
after the government took the people's payroll taxes, it spent
the people's payroll taxes, and it put an IOU in the so-called
``trust funds.''
Senator Lieberman. Which we are going to have to start
paying.
Mr. Walker. Correct. You are going to have to start paying.
The IOU's are guaranteed as to principal and interest. The
bonds are backed by the full faith and credit of the U.S.
Government. That has legal, political, and moral significance,
but no economic significance whatsoever. Social Security is
going to start to constrain the budget in 2008, as the surplus
starts to go down. It is going to get worse over time.
At the same time, when you go from implicit debt, which is
the unfunded gap, to explicit debt------
Senator Lieberman. Which we will have to deal with, either
by cutting current government spending or raising more revenue.
Mr. Walker. Correct. Or you can go out to the market to
borrow it. You either have to raise revenues, cut expenses or
increase debt held by the public.
If you do that, then you are competing with other capital
needs. The question is what interest rates are you going to
have to pay? Part of the issue is how much credibility does the
reform package have in the market because, on the one hand, it
is good news if Congress is able to handle a known problem
before it absolutely has to, which is what it did in 1983. In
1983, the checks were not going to go out on time! So the
market would presumably give you some credit for handling a
known problem before an absolute crisis was on your doorstep.
On the other hand, you are going to be competing for
capital and it is to be determined what impact that might have
on interest rates.
Senator Lieberman. Thank you. Thanks very much. It has been
a very important morning.
Chairman Collins. Thank you very much, Senator Lieberman,
for your participation in this important hearing.
Mr. Walker, thank you so much for the great work that GAO
is doing in this area.
Mr. Walker, I think this is extraordinarily important work,
as your first comments implied to us. We look forward to
continuing this process with you, in helping us identify more
precisely where we should begin focusing and tackling some of
these issues.
And also, on the possible budget reforms, which I really
think could be key in getting control and imposing fiscal
discipline.
The hearing record will be held open for 15 days for the
submission of questions and additional materials.
I again want to thank you and your staff, and I want to
thank our Committee staff for their hard work.
This Committee is now adjourned.
[Whereupon, at 11:42 a.m., the Committee was adjourned.]
A P P E N D I X
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