OMB Blog

Hammer Misses the Mark

In today’s Washington Post, Charles Krauthammer calls into question the integrity of the Social Security trust fund and the integrity of statements I have made recently about the program. Let’s examine his charges.

First, Krauthammer says that I am making a “preposterous claim that Social Security is solvent for 26 years.” This is not a “claim.” This is the projection of the independent Social Security Trustees, who report that even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund surplus will continue grow until 2025, and will have adequate resources make full and timely benefit payments through 2037.

Second, Krauthammer argues that the White House believes that there is “no need to fix it because there is no problem [italics his].” But in the State of the Union, the President explained that “To put us on solid ground,” the President said, “we should also find a bipartisan solution to strengthen Social Security for future generations.” And in my recent USA Today op-ed that Krauthammer cites in his column, I stated: “Strengthening Social Security is an important, but parallel, issue that needs to be addressed as quickly as possible [italics mine].”

Third, Krauthammer’s explanation of the Social Security trust fund and its interaction with the rest of the budget is off base.

Social Security benefits are self-financing, paid for with payroll taxes collected from workers and their employers throughout their careers. To prepare for the retirement of the Baby Boom and to keep Social Security solvent, I was part of the bipartisan effort in 1983 that built up trust fund balances to pay benefits owed to current and future beneficiaries.

Krauthammer is correct when he writes that there is no “lockbox” that keeps the money sent in by workers for until they retire. By design, when more taxes are collected than are needed to pay benefits, funds are invested in Treasury bonds and are held in reserve for when revenue collected is not enough to pay the benefits due. Yet these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are, making them anything but ”worthless IOUs” as Krauthammer suggests. The government has just as much obligation to pay back the bonds in the Social Security trust fund as we do to any other bondholders.

Responsibly honoring that obligation – one that we planned for and always knew was there –entails undertaking fiscal policies that would make it easier, not harder, to meet these obligations. When I last was OMB Director at the end of the Clinton Administration, the Congressional Budget Office estimated $5.6 trillion in budget surpluses over the next decade because of fiscally responsible measures that Democrats and Republicans, working together, had taken.

We are now in a very different fiscal position. When I returned to government at the start of the Obama Administration, the country faced projected deficits of more than $8 trillion over the next decade. These deficits primarily were the result of specific decisions made by the previous Administration and Congress to spend money on initiatives without finding a way to pay for them, notably the tax cuts of 2001 and 2003 and the Medicare prescription drug benefit.

This is the most important point: the problem is not with Social Security, but in the near term the mismatch between what we take in and what we spend in the rest of the budget. Working people had payroll taxes taken from their salaries to pay for future benefits, and instead the money was used to pay for tax cuts and other initiatives. It is hardly fair now to say that those working people caused the problem just when they are ready to collect benefits.

Krauthammer’s argument is inside out. We should not blame Social Security for our current fiscal problems when it is the irresponsible fiscal behavior of the past that has presented the country with future challenges to fund our commitments, including Social Security over the next two decades.

That is why in the short term, we have to honor the legal and moral obligation to keep the promises made to Social Security to repay those surpluses. Doing that entails getting our fiscal house in order. That is why the 2012 budget the President proposed includes more than $1 trillion in deficit reduction over the next decade and makes tough choices that will put the country on a sustainable fiscal path by the middle of the decade.

Looking to the long term past 2037, we have a pressing need to replenish the trust funds and make sure Social Security is on sound footing for generations of workers. The sooner we act the better as it is always easier to give people many years to adapt to any changes in the program (as we saw with the reforms made in 1983 that are still being implemented today).  That is why I have repeatedly called for quick action, and have spent most of the last 30 years helping to make the tough decisions to do so.

Jack Lew is the Director of the Office of Management and Budget

Progress for the Partnership

Making sure that taxpayer dollars are not wasted lies at the heart of the stewardship obligations we have as public servants. When the country is facing serious fiscal challenges as it is now, it becomes even more important that we take aggressive action to make sure government is effective and efficient. That is the thinking behind the President’s Accountable Government Initiative , and it is what is behind OMB’s Partnership Fund for Program Integrity Innovation. The Fund supports projects that bring all levels of government together to test creative ways to reduce red tape, cut improper payments, and improve how eligible beneficiaries receive services.

I am pleased to announce that we have funded our first pilot project: an effort at the Department of the Treasury to test new methods of working with states to significantly improve the integrity of payments made under the Earned Income Tax Credit (EITC), reduce errors and provide assistance to those in need.

Tackling the long standing problem of improper payments is a top priority for the President and his Administration and we are aggressively exploring new technologies and analytics to significantly reduce errors and crack down on fraud.  The EITC program provides needed financial support to low and moderate income workers and helps directly reward work.  However, the program is also challenged by an unacceptably high error rate that both wastes money and leaves many individuals underserved.  If successful, this new innovation could help the government avoid more than $100 million per year in improper payments.

This is just the first of many grants the Partnership Fund plans to make. In the past year, the Partnership Fund has received more than 100 ideas from stakeholders including Federal, state, and local government agencies; nonprofits; the private sector; academics; and engaged citizens. 
In addition, the Partnership Fund is taking steps to get the best ideas from those on the frontlines since stakeholders, whether state administrators or community partners, often have the best ideas about how to streamline and strengthen programs.  To draw on this expertise, an open, self-directed group called the Collaborative Forum holds regular virtual meetings to design the most effective pilots from the most promising ideas. In addition, the newly redesigned Partnership Fund web site, partner4solutions.gov, makes it easier to learn about the program, submit an idea, or become more involved. The Partnership Fund has an important role to play in defining the most efficient and effective practices for 21st century government.

The Partnership Fund is just one of many ways we are working to get government to work better for the American people. We will highlight other efforts in the months ahead.
 

Jack Lew is the Director of the Office of Management and Budget.

The 2012 Budget

Today, the President sent to Congress his budget  for the 2012 fiscal year. This document is built around the simple idea that we have to live within our means so we can invest in the future. Only by making tough choices to both cut spending and deficits and invest in what we need to win the future can we out-educate, out-build, and out-innovate the rest of the world.

This is the seventh Budget that I have worked on at OMB, and it may be the most difficult. It includes more than $1 trillion in deficit reduction – two-thirds from spending cuts -- and puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will no longer be adding to our national debt as a share of the economy and will be paying for what it spends – and will be able to sustain that for many years afterwards.  

The President has called this budget a down payment because we will still have work to do to pay down the debt and address our long-term challenges. But it is a necessary and critical step for we cannot start to move toward balance and to cutting into the size of our debt until we first stop adding to it – and that is what this Budget does. 

Turning the Tide on Contract Spending

“Buying less” and “buying smarter” are simple ideas to understand, but history tells us that these basic principles of fiscal responsibility are not as easy to implement as one might think.  Since 1997, and in 18 of the past 20 years, total spending by the federal government on contracts has increased – and at a near break-neck pace of 12 percent per year between 2000 and 2008.  During this eight-year period, annual procurement budgets grew from $200 billion a year to more than $500 billion a year. 

This Administration is doing what has been so elusive in the past:  cutting wasteful spending on contracts and getting better value for the taxpayer dollar.  For the first time in 13 years, we have reduced spending on contracting and agencies have stopped the costly upward spiral in contract growth.  In FY 2010, agencies spent nearly $80 billion less than they would have spent had contract spending continued to grow at the same rate it had under the prior Administration. 

A new sense of fiscal responsibility is taking hold.  Agencies are thinking more carefully about what they buy and how they buy it. They are ending contracts they cannot afford or no longer need.  They are taking greater advantage of buying strategies that are more appropriate for the world’s largest purchaser – pooling their buying power to negotiate better prices and deeper discounts.  And, after years of inattention, they are rebuilding the capacity and capability of the acquisition workforce to achieve and sustain better acquisition outcomes and improved government performance. 

In his State of the Union address, President Obama said that, “we can’t win the future with the government of the past.” Instead, he said we must reform the way we do business in Washington and give the American people a government that’s not only more affordable, but also more effective and more efficient. This principle has been the cornerstone of our work on contracting and across the Accountable Government Initiative. From reforming and cutting costly IT systems, implementing unprecedented transparency and reporting efforts, buying in bulk, establishing a government-wide Do Not Pay list, or moving toward electronic government payments, we’re making real progress in changing the way government does business.

Here is more information about how we are saving money, cutting waste, and getting better results from our acquisitions. We are turning the tide, but there is still more to be done. OMB’s Office of Federal Procurement Policy will continue to work closely with agencies to build on their accomplishments to date and explore new opportunities for saving so that every taxpayer dollar is spent wisely.

Jack Lew is the Director of the Office of Management and Budget.

Health Care Reform Check-Up

Today, the House Budget Committee is holding a hearing about the fiscal impacts of the Affordable Care Act (ACA), which the President signed into law last year and has already given Americans new freedoms and protections. It’s important to get the facts straight about what impact the Affordable Care Act has on our deficits and long-range fiscal situation.

Rising health care costs are the biggest driver of our long-term deficits, and getting them under control is crucial if we want to grow the economy, create jobs, compete in the world economy and win the future. The Affordable Care Act helps us achieve that goal.

As the Congressional Budget Office (CBO) made clear in a letter sent earlier this month to the Speaker of the House, repealing the Affordable Care Act would increase the budget deficit by hundreds of billions of dollars over the next decade. The CBO letter notes that “over the 2012–2021 period, the effect of H.R. 2 [the repeal of ACA] on federal deficits … is likely to be an increase in the vicinity of $230 billion.”  And in the decade after that, we will save more than $1 trillion thanks to the new law.

Celebrating MLK Day with City Year

Today, I am joining hundreds of volunteers at Intermediate School 292 in Brooklyn as part of City Year’s celebration of the Martin Luther King, Jr. holiday. I look forward to seeing the hundreds of energetic and idealistic City Year corps members who are always an inspiration.

I helped to launch City Year New York after September 11 as part of our City's healing, and was honored to chair its board. MLK day at City Year always brings together hundreds of people eager and excited to give something of themselves, not just to honor Dr. King, but also to improve their community.

Advancing the idea that MLK day should be a "day on" doing service rather than just another "day off", more than 20 members of the Cabinet are at schools, homeless shelters, and other community service organizations pitching in.

New Year, New Estimate, Same Result

The new year starts with a renewed focus on the Affordable Care Act (ACA), which the President signed into law last year and has already delivered a host of consumer protections and benefits to millions of Americans.

Yesterday, the House Republican leadership introduced a bill to repeal the ACA. Today, the Congressional Budget Office (CBO) sent a letter to the Speaker of the House giving its assessment of the budgetary effects of a repeal: it would increase the budget deficit by hundreds of billions of dollars over the next decade. The CBO letter notes that “over the 2012–2021 period, the effect of H.R. 2 [the repeal of ACA] on federal deficits … is likely to be an increase in the vicinity of $230 billion.”  This result is not surprising since CBO scored the ACA as reducing the deficit by more than $100 billion through 2019 and by more than $1 trillion in the decade after that.

To be fair, CBO is clear that this is a preliminary estimate that does not take into account a host of changes in the economy, technical matters, and the effects of the implementation to date. But even after a more comprehensive analysis, we should expect the same outcome: the deficit would increase substantially if ACA were repealed. As CBO Director Elmendorf wrote in his blog today, “those developments will probably not have a major effect on the overall budgetary impact of repealing the legislation.”

For those in both parties who care about the deficit and our future fiscal course, the repeal of the ACA should concern them deeply. Rising health care costs are the biggest driver of our long-term deficits, and getting them under control is crucial for the fiscal health of the nation and to keep our economy growing, creating jobs, and competing in the world economy. Beyond that, we need to keep in mind that repealing the ACA also would roll back what the bill already has done to help millions of Americans -- from the families benefitting from the end to lifetime dollar limits on essential benefits to the young people now able to join their parents’ policies and the seniors who now are able to afford their prescription drugs. And repeal would deny an estimated 32 million American citizens health insurance in years to come.

Jack Lew is the Director of the Office of Management and Budget

Tightening Our Belts

As I wrote last week upon my return to the Office of Management and Budget, the fiscal and economic situation we face today is very different than the projected surpluses we left behind the last time I served as OMB Director in the 1990's. After years of fiscal irresponsibility, President Obama inherited a $1.3 trillion projected deficit and the worst economic downturn since the Great Depression.

The President and his economic team worked quickly to address the crisis, and we are seeing our economy recover – albeit more slowly than anyone would like. Families and businesses are still hurting, and too many who want to work are not able to find a job. Our top priority must be to do what we can to help boost economic growth and spur private sector job creation.

But to lay the foundation for long-term economic growth and to make our nation competitive for years to come, we must put the United States back on a sustainable fiscal course. And that’s going to require some tough choices.

Today, the President made one of those: proposing a two-year pay freeze for all civilian federal workers. This will save  $2 billion over the remainder of this fiscal year, $28 billion in cumulative savings over the next five years, and more than $60 billion over the next 10 years. The freeze will apply to all civilian federal employees, including those in various alternative pay plans and those working at the Department of Defense – but not military personnel.

We are announcing this move today because tomorrow is the legal deadline to submit to Congress the President’s decision about locality pay, a key component of overall federal worker pay.  In addition, we are in the midst of the 2012 budget process, and need to make a decision about pay to develop the 2012 budget. Simply, the time to decide about pay for those two years is now.

Make no mistake: this decision was not made lightly.

Like everyone honored to serve in the White House or the Cabinet, we work with extraordinarily talented public servants every day. Throughout my career in the Congress, at  the State department, and here at OMB, I have met federal workers who have sacrificed more lucrative jobs and hours with their families - -and, in some cases, put their lives in harm’s way -- in order to serve their fellow Americans.  Indeed, anyone who has flown safely, enjoyed our national parks, received a Pell grant to go to college, or relied on a Social Security check to retire in dignity has benefited from the service of federal workers.

This pay freeze is not a reflection on their fine work. It is a reflection of the fiscal reality that we face: just as families and businesses across the nation have tightened their belts, so must the federal government.

Already, the Administration has taken a number of steps in this regard  as part of its Accountable Government Initiative from the President freezing the salaries for all senior White House officials and other top political appointees upon taking office to his efforts to get rid of $8 billion of excess federal real property over the next two years, reduce improper payments by $50 billion by the end of 2012, and freeze non-security spending for three years – which will bring non-security discretionary spending to its lowest level as a share of the economy in 50 years.

Moving forward, we will need to make many more tough choices to construct a plan to pay down these deficits and put our nation on sound fiscal footing. Later this week, the Fiscal Commission will release its report laying out its approach, and I look forward to working with people from across the spectrum on this challenge in the weeks to come.

Jack Lew is the Director of the Office of Management and Budget.

Driving IT Reform: An Update

Tackling the information technology gap  between the public and private sectors is one of most effective ways we can make government work more effectively and efficiently for the American people. IT has been at the center of the private sector’s productivity gains, but for too long Federal IT projects have run over budget, behind schedule, or failed to deliver what on their promise. That’s why fixing IT is a cornerstone of the President’s Accountable Government initiative.

This effort began in earnest  this summer when we undertook a three-part strategy to reform how the federal government purchases and uses IT – cutting waste and saving money.

First, Chief Information Officer Vivek Kundra launched detailed reviews of the highest priority IT projects across the Federal Government; these are critically important IT modernization projects that have not yet delivered. Since then, we’ve held dozens of TechStat review sessions, resulting in faster deliverables, terminations of projects that didn’t work, and most importantly turned around projects that were in trouble.

Second, since far too many financial system modernization projects were running behind schedule and over budget, we halted all new work on those projects pending review and approval by OMB. Across the government, over 30 financial systems projects, with budgets totaling $20 billion, were affected by this policy.  

Our review of 20 agencies’ projects is now complete, and I am proud to report that we have taken steps to save $1.6 billion on these projects.
 
Through our reviews, we determined that half the projects were basically on track. Of the half that were not, we took the following actions:

• At two agencies – the Department of Housing and Urban Development and the Environmental Protection Agency  -- we pulled forward meaningful functionality, resulting in almost $230 million in budget reductions.

• At two agencies – the Department of Veterans Affairs and the Small Business Administration –  we canceled their projects as a result of the review, resulting in over $500 million in budget reductions.

• At three agencies – the Departments of Homeland Security, Justice, and Health and Human Services, we are moving forward with plans to decrease the scope of and improve their financial system projects, resulting in reduced costs and a greater focus on critical business needs.  This revaluation of these projects resulted in over $680 million in budget reductions. 

• An additional $200 million in budget reductions was identified in various agencies, with more to come.

While this is great progress toward getting these IT systems online and working for the American people, we also recognize that it’s better to get them right from the get-go. 

Third, we were tasked with developing a new strategy to fundamentally change how the federal government purchases and uses IT, which I discussed in a speech to the Northern Virginia Technology Council today: 

• Aligning the Budget and Acquisition Process with the Technology Cycle. Between increasing budget flexibility and speeding up acquisitions, we’re going to eliminate the structural disconnect between the government’s process and the technology cycle. To start, we’ll work with Congress to identify a dozen pilot projects where we can develop a framework for increased budget flexibility and greater oversight.

• Strengthening Program Management. We’re creating a formal career track for professional program managers and we’ll only green light IT projects with effective program management teams hardwired into the agency’s organizational structure.

• Streamlining Governance and Increase Accountability. We’re going to revamp the Investment Review Boards along the TechStat model – bringing senior executives to the table armed with the right information and expertise to provide meaningful oversight and drive interventions and decision making on specific projects.

• Increasing Engagement with the IT Community. We’ll be launching a “myth busters” campaign to promote greater engagement with industry and remove barriers to communication that are hurting our productivity. We’ll also develop mechanisms for sharing best practices and solutions between agencies and IT community on a regular basis.

• Adopt Light Technologies and Shared Solutions. We are reducing our data center footprint by 40 percent by 2015 and shifting the agency default approach to IT to a cloud-first policy as part of the 2012 budget process.  Consolidating more than 2,000 government data centers will save money, increase security and improve performance.

Changing how we invest the $80 billion we spend each year on IT and making sure what we buy is helping us deliver better results at a cheaper price is a big challenge. But the hard work of many people throughout the agencies shows that it can be done, and we will work with our colleagues across the government and partners in the tech and business communities to build on these successes in the months to come.