 A year ago, the Peterson-Pew Commission on Budget Reform, working in partnership with the Committee for Responsible Federal Budget presented a comprehensive set of recommendations to reform the federal budget process in a report that was entitled, Getting Back in the Black. Today we have the opportunity to hear from a number of presenters who will provide further ideas for budget process reform and, in fact, will set out today four separate papers that we will hear presentations about. We want to thank the Peterson Foundation and the Pew Charitable Trust, not only for their support but for their courage to take on this issue, to step out and to be leaders. Our group, our commission, has worked over two years. It's made up of a lot of has-beens, as we like to call ourselves. People who used to be this and used to be that. We used to be chairman of this super committee right here, the Budget Committee. Some of us were CBO directors. Some of us were OMB directors. Some of us just spent a lot of our careers in Congress worrying about fiscal issues before it was cool. We made up the Pew-Petersen-Pew Commission to look at this. I'd suggest that this has been a very practical group. There are some groups around town that look at it from a very academic, look at budget process reform from a very academic standpoint. I would suggest to you that the conversations that we had at our commission meetings were based on people who knew how to get the job done, who did get the job done in many instances, and really wanted to make this work for the members who matter. Members of Congress and the current members who have to solve this problem. I'd suggest to you that these are examples of things that should be able to work in the real world. We're going to hear from some real exceptional people today. One has joined us already, so I'm going to yield my time now to my friend and colleague, Tim Penny, for an introduction. Thank you, Jim. I'm out of practice. I haven't been at a congressional dais for a few years. I didn't press the green button. I'm delighted to introduce the ranking member of the budget committee, Congressman Chris Van Hollen. Chris, since 2003, has represented Maryland's eighth district, which is much of Montgomery County and parts of Prince George's County, just in the suburban area around Washington. Prior to that, he served four years in the Maryland House and eight years in the Maryland Senate. He has throughout his public career been a chief advocate for education. In more recent years, he was instrumental in the Democratic leadership in moving President Obama's health care access bill to passage. He has, based on his family background and his own travels, extensive expertise in the foreign policy arena. As we all know, in the very recent past, he was a member of the super committee, which worked diligently for several months, only to come up. Unfortunately, I think he would agree a bit short in reaching an agreement on long-term deficit reduction. But he is the ranking Democrat on the budget committee, and along with the budget committee chairman, Paul Ryan, who will speak in just a few moments as well, they are crafting some budget reforms, as I understand it, a line item veto reform that they have brought forward in a bipartisan fashion. And that is the topic of the day, and we welcome you and would be glad to have any opening remarks you might want to make. Well, thank you very much. And as you know, everything's unpredictable around here. They just had a vote. Chairman Ryan, as he's spoken, or did he go vote? And OK, I'm happy to wait or make a few remarks now, whatever you. No, I think we're OK going out of order. Normally the chairman speaks first and the ranking member takes his turn. But we're going to keep this on track so you can go first. Well, thank you. And let me start by thanking all of you members of the Pew Peterson Commission for your work and to both those individuals for putting this hearing together and more importantly, the larger work that you're doing on budget process reform and budget issues generally. And it's great to have many of our former members of Congress back. And I see right across from the former chairman of the committee, John Spratt. So we welcome all of you here and look forward to the input that you're going to be providing later today. I'll be I'll be very brief in my comments. I think we all recognize that we have to get our fiscal house in order. And that's going to require some important measures, going to require some important bipartisan compromise to the extent that we can reform the budget process to help move that effort forward. I think we should explore every possibility. And I look forward to hearing more about the ideas that have been advanced by the commission. As you mentioned, the chairman and I, Paul Ryan and I have introduced a piece of legislation, the legislative line item veto, expedited rescission bill patterned, Mr. Spratt, after something you had introduced in the past and has also been introduced on a bipartisan basis in the past. And I hope we can get that measure through. One of the things we think it will do is make members of Congress think twice before they ask for a certain spending provision in the appropriations bill, because what it does is allow the president to identify items which the president considers to be unnecessary spending. And instead of those recommendations for cuts being put in the drawer of a committee chairman, they will now be voted on in the light of day, up or down by members of Congress. And we think that accountability and transparency will both discourage members from asking for things that are not absolute priorities. And two, if they if they do will have a mechanism for eliminating what may be unnecessary spending items. So I do think they're important budget process reforms that can be made. That being said, I think every member of this panel recognizes that at the end of the day, difficult political decisions have to be made, regardless of what budget process you have. And many of folks on this panel have served up on other commissions. We've got, of course, Simpson-Bowles, Rivlin Domenici. I think the common thread running through all those other commissions was that if we're going to tackle our budget in a serious, credible and balanced way, we have to look at all sides of the budget equation. And ultimately, we can have a good budget process. But unlike stop signs and speed bumps, which are enforced by the cop on the street, congressional rules are enforced by members of Congress, and they're only as strong as members of Congress are willing to back them up and enforce them, which means at the end of the day, it does come down to political will and making the tough budget decisions. I hope that this Congress will be able to do that. It was I was I was disappointed that the super committee was unable to accomplish that goal. But I hope that some of the information and ideas that you present today can help guide us in the right direction. So thank you all very much for being here. Again, thanks to the Pew Peterson organizations for pulling us together today. And I thank you. Chris, thank you so much for your for your comments. We now have the the opportunity to hear from from the chairman of the committee. And I'm honored that that I have the opportunity to to introduce Paul Ryan, who is who is the current chairman of the budget committee. There he is. Good. Paul. I I had this very long introduction written out and but I will cut to the chase. The words I wrote down was trying to figure out, you know, what what I could write down, Paul. And courageous came to mind, smart, creative. But the one thing that, yeah, well, but all those are true. The one thing that I wanted to make sure that that I had the opportunity to say, though, is that one thing that has impressed me most about Paul is that he is not enamored by his own verbosity. He is he's someone who has kept to his roots from Jamesville, Wisconsin and someone who has who is the same, I believe the same person today as the person who showed up in Congress those many years ago and sat on this committee as a as a new member. So I'm honored to to introduce the current chairman of the budget committee, Paul Ryan. You have to push your green button, Mr. Chairman. Push and hold it for 10 seconds. Yeah, I've spent a lot of time in this room with you. I used to sit I sat there and then I sat over there and then over here. So, John Spratt, great to see you. Wow, you look refreshed. You look relaxed. You look you look happy. So it's really nice to to be here. And I want to thank the Peterson Pew Foundation for sponsoring this event. Chris, did you already speak? Again, we just had a vote, so that's why we're kind of staggered. It's great to see you guys, Tim, as well. I would simply say we have all dealt with these issues. The process is broken. We want to fix the process. But even if we get the process whipped into shape that it's perfect, it's the ideal budget process that we could ever have dreamt of. It is not a substitute for actually just doing our jobs. It is no substitute for actually having the will to tackle the drivers of our debt and actually passing the reforms that will prevent us from having a debt crisis in this country. We know what it looks like if we don't get this right. Europe and then so we have to get this right. The way we see it here is the sands of the hourglass are now dropping and time is of the essence. And so what we can do here in the Budget Committee to get us pointed toward action on process and on actually fixing the drivers of this problem are all to the good. And so we have all spent so much time in this space. I am really cautiously optimistic that we're going to get this done. It's because what Winston Churchill said, the Americans can be counted upon to do the right thing only after they've exhausted all other possibilities. And we're coming to that point. We're coming to the point where we will acknowledge that the set is closed unsustainable, that the process is broken and that we have to fix it if we want to keep our prosperity and keep our commitment to the people who've organized their lives around these critical programs and to have a safety net in this country. And so I just want to thank you all for coming and doing this. And I'm happy to have such great people here who have done so much work on this issue. So welcome and thank you for that. Thank you very much, Mr. Chairman. Paul, we appreciate it. Chris, thank you so much. And we'd also like to acknowledge both Austin Smythe and Tom Kahn, who we know you know do a fantastic job. But the American people don't always get a chance to, they get to see you. They don't get to know the great work that goes on behind the scenes by your staff. And we appreciate their help in pulling all this together. I've had a chance to work with both of them and they're both, they're both characters. But boy, I'd want them on. I'd want them both on my team. If I was going into a budget knife fight, I'd tell you that much. They're both very, very capable and their entire teams are as well. We have some other folks that have joined us here. Jim Cooper, welcome. Thank you for joining us. Representative from Tennessee, we appreciate it. We also have some others, some who are hanging on the wall. There is, as you will probably note, we're not as good looking as the current chair, but we hang there nonetheless. Jim Jones, welcome Chairman. Thank you, John Spratt. You're not, we need to figure out how to get you up here on the wall. We haven't done that yet. But Chairman Spratt, welcome. Thank you for being here. Bill Frenzel, welcome. And as the Chairman of the Committee for Responsible Federal Budget, and all of these folks, members of the Peterson-Pew Commission, we want to thank you for your participation in this as well. So with that, let me turn it back to Steve, and he's going to be the moderator for our papers and the presentation here today. Okay. Thank you both for joining us. I know that you've got very busy schedules, so if you'd like to depart now, we'll understand. We'll pause for just a minute, and then we'll have our conversation. Thank you very much. We've got to push those guys over, so... So we're all here because we think there's a chance that the budget process can be reformed and that the right set of reforms will help us deal with our huge fiscal challenges. We may have hoped that a device like the Super Committee would be a shortcut to a solution, but that did not work out. So even if a big deal had been developed by the Super Committee and been enacted, it might not have been sustained thereafter in the face of the inevitable continuing reign of urgent demands of the moment for new spending, for tax cuts, unless there was in place a farsighted discipline regular budget process. So we're here to look at the possibilities for reforming the regular budget process. And as Jim noted, the commission a year ago presented a comprehensive set of proposals to reform the federal budget process. The people who will be speaking next have spent the last year further developing some of those options and ideas. And we're going to turn now to very brief summaries of the four papers and then we'll have a discussion of those ideas on the panel and then we'll open it up to the audience of interested informed people that sitting out there some distance away from the panel. First, let me introduce our consultant, Phil Joyce, is the principal author of the paper that you will be hearing about on multi-year budgeting. Marvin Faub has helped develop the ideas for budgeting for emergencies. Phil, I should say, is a professor at the University of Maryland, those who don't know, and author of the definitive history of the Congressional Budget Office, which is just published this year by I think Georgetown University Press. Really an outstanding piece of work, which I'm sure you all want to buy. And Marvin is a veteran of the Congressional Budget Office. It's hard to imagine how the budget process and the Congressional process would work without a Congressional Budget Office. It must have worked somehow without it. Without them keeping score, it's really hard to envision how it would work today. And Marvin is also a colleague of mine at George Washington University's Trachtenberg School of Public Policy. So he will present that paper. Paul Posner is the head of the George Mason University program and graduate program in public administration and formerly, for many years, head of strategic studies at the Government Accountability Office, GAO. So let me begin by summarizing the first of these papers, which deals with fiscal rules and their uses. And I worked on this with my colleague on the staff of the commission, Damien Moore, who's here. As Odysseus, I'm sure you'll remember the Odyssey, as Odysseus and his crew approached the Isle of the Sirens, he told his crew to bind him to the mast and ignore his cries to release him. And he also had them put wax in their ears so they couldn't hear the cries of the sirens. Thus he could hear but not succumb to the irresistible siren song and avoid the ship's destruction on the rocks. A fiscal rule serves a similar function for leaders in a democracy. It's a rule that guides more detailed choices to make sure that they add up to a sustainable budget. It can be a limit on debt, on deficits, on spending or on revenues or combination. An effective rule is widely understood. It has to be widely understood to be effective. And it represents a prior consensus on what is fiscally proper and prudent. So a fiscal rule is a vow. As noted in the paper, leaders have used fiscal rules in many countries, I think 80 countries now have some form of formal fiscal rule. To good effect, to discipline themselves. Elected leaders vow to pursue a sustainable fiscal course in the face of short-term expedience and ask voters to hold them accountable at the polls if they break their vow. That's how it works. The U.S. does not presently have a fiscal rule in that sense. It once did, at least implicitly. It was based on a consensus the budgets ought to balance and that too much debt was a bad thing. So consider, for the first 120 years or so, the U.S. balanced its budget two thirds of the time, really every year except when there was, virtually every year except when there was a war or other emergency. And it did so without anything like the elaborate budget process and requirements and procedures that we have today without really a central executive process or a central congressional process. And it did so because there was a widely shared if not universal understanding that budgets had to be sustainable and that debt was a bad thing and that too much was a bad thing. If we still had such a strong consensus, other procedures would matter much less. For many reasons, the social consensus that supported balanced budgets has evaporated. Someone famously said a decade ago that deficits don't matter. That was not a statement of an economic judgment or a fiscal policy statement. It was more of a political judgment. The thesis of this paper on fiscal rules is that such rules do matter, that they can help policymakers do the right thing by giving them political support to resist the sirens of short-term demands that conflict with the sound public policy. So the paper asks what would be a good fiscal rule for the U.S. in the present circumstances? The paper goes into that in some detail. A balanced budget amendment to the constitution is an instance of a fiscal rule. It's impractical now, both because we lack a consensus about the particular form of such an amendment and because there are a lot of practical questions about the design of such a rule so that it doesn't become a drag on the economy, it doesn't become pro-cyclical. So in any case, we're so far from balanced that the commission has proposed for the medium term a different form of a fiscal rule requiring that submitted and enacted budgets move us on a path that stabilizes the publicly held debt within a decade or so. So for the medium term, that would be the fiscal rule the commission advocates. If we can achieve that in the medium term then in the longer run, the commission would advocate a rule that aligns revenues and spending closely to bring the debt down gradually to a safer percentage of the gross domestic product. So we can discuss later on during the session how these and other versions of a fiscal rule can help. But next, let's look at how the budget process can be reformed to build on and help enforce a debt target once it has been agreed on. And I'm gonna turn to Phil Joyce to talk about that paper and that idea on multi-year budgeting, Phil. Thank you very much, Steve, and I'm very happy to be here. This paper which is called Eyes on the Horizon multi-year budgeting and its role in the federal budget process. I first want to say what the paper is not about and what the paper is not about is biennial budgeting which is a separate reform which we can talk about later. But this is more about the idea that the budget should be thought of not in terms of a single year but in terms of its effect over multiple years. There's consensus not just domestically but in international practice that an effective budget process focuses not just on the next year or the next month. That is, it's forward-looking, it's future-oriented. This does not describe the current federal budget process. It will not describe anyone in this room or not surprise anyone in this room that we don't have a budget process that's focused even on the next three to five years much less the next 10 or 20. But we probably have a problem that it's going to take 10 or 20 years to solve. We instead have a process that in practice moves from just one short-term crisis to the next and the Budget Control Act was itself a product of such an ad hoc, crisis-driven process and the collapse of the process that was created by the Budget Control Act is another example of how the process at least in practice has not worked very well. However, there's something else that might be a surprise which is that the process that we have at least on paper is actually a pretty good multi-year process. The budget resolution when there is one focuses on five to 10 years as does the President's budget. CBO does 10-year budget projections and 10-year cost estimates. The problem is that we ignore the spirit of the process created in 1974 not that the process created in 1974 was fundamentally a bad process were not future-oriented. What, however, if the demise of the process established by the Budget Control Act became an opportunity that is an opportunity to think about how we could get the process to focus on multiple years and led to establishing a target for stabilizing the publicly held debt and enforcement process to ensure that this and further deficit reduction is achieved and a credible forward-looking process. That's the argument of this paper. The argument of this paper is that we should take this as an opportunity to think about the budget in multi-year terms. So the first thing, and this is consistent with the getting back to the Black Report that the Peterson-Pew Commission issued more than a year ago, we should enact a sustainable debt act. And the sustainable debt act would represent a future debt path with enforceable targets if that path is not met. The argument here, as is suggested by Steve when he talked about fiscal rules, is that there should be a goal and that goal should be agreed to and there should be consequences such as broad spending cuts and tax increases for failing to meet that goal. But that's just the goal. The question is what happens after that point? And this is really the meat of the paper. The meat of the paper says the nation should enact a series of deficit reduction bills that will make the necessary changes in order to meet that goal. The first of these could happen in 2012 or if you think that's not likely to happen, could happen in 2013, but it would only be the first of what would undoubtedly be multiple deficit reduction laws over as many as the next 20 years in order for the debt to be brought down and maintained at sustainable levels. What might such a law look like? Well, the Congress might use the Congressional Budget Act's reconciliation procedures, which if you go back to the 1990s were actually used to great effect to try to get a handle on the deficits that had occurred at that period of time. And the bill would include policy changes affecting mandatory spending and revenue, covering at least 10 years, if that's the length of time covered by the reconciliation bill. Extending or lowering the caps on discretionary spending, the Budget Control Act already includes caps on discretionary spending. They could be extended for a longer period of time and they could be actually lowered and made stricter. And budget enforcement procedures, not only the caps on discretionary spending, but the existing statutory PAYGO system could be strengthened by, for example, broadening the base used for sequestration. This was the approach that was used to great effect in the 1990s. That approach was first we agree on a goal and then we use the budget process in order to enforce adherence with that goal. Now because this deficit reduction legislation would have the force of law, it would remain in place until and unless subsequent legislation was enacted. It's likely that even if we had a bill that lasted for 10 years on paper, it would not last for 10 years in practice because things change, circumstances change. The budget reconciliation bills that were enacted in the 1990s usually lasted either three or four years. That's less important than the fact that we need to have a continuing series of these deficit reduction bills and we need to be taking a long view. And the important thing is that whatever multi-year agreement we had in place should remain in place and should be enforced until a subsequent one is enacted. Thus, if we think about these two things, the Sustainable Debt Act and Deficit Reduction legislation together, there would be two levels of enforcement. First, there would be triggers that would encourage the development of deficit reduction legislation. That's the recommendation that was in the Peterson-Pew report. Absent the passage of specific deficit reduction legislation that met the targets, there would be a sequestration of spending and there would be automatic tax increases. The second level of enforcement, given enactment of this deficit reduction legislation would be a more traditional discretionary cap and pay-go process. Third, the normal budget process, that is presidential budget submissions, budget resolutions, subsequent legislation should focus on the detailed policies that reinforce the achievement of a sustainable level of debt over multiple years. Presidential budgets going forward and budget resolutions would be prepared in a way that would reinforce both the Sustainable Debt Act and the current deficit reduction regime. That is when the president puts his budget together, when the budget committees put the budget resolution together, they would already have a path in place that they were trying to meet. We wouldn't be arguing about that. We'd be arguing about the specific policies in order to achieve those goals. Now let's say we actually are successful in doing this and we're looking at the budget process going forward after another 20 years. What do we do after that? Well, I would argue that we still need to have an effective multi-year budget regime that has some kind of a statutory underpinning. One idea would be that in the first session of each Congress, there would be a new statutory bill that would pass say using the budget resolutions reconciliation procedures that would set the path for that particular Congress. I would argue that the most important thing that we lack at present is the agreement on a direction and the agreement on specific goals. But even after that, we have to make the hard choices and we have to have a presumption that we will stick to them. All of this though has to be considered within a framework that is explicitly multi-year in its focus. I think the biggest failing of the current budget process is again, we just move from one crisis to another and we don't have our eyes on the big picture. So the argument here is that practically speaking, having your eyes on the big picture is going to involve both setting these goals and then also having a number of separate multi-year deficit reduction bills that enforce compliance with those goals. Thanks very much. Thank you Phil for developing further and helping us develop further the commission's idea for a reformed federal budget process. This really would be the core or the spine of a new more disciplined, more farsighted process. Any process, no matter how well designed of course can be subverted and one of the ways that people have found to get around the current budget process has to do with emergencies. So the commission gave a lot of thought to how to budget for emergencies and Marvin Faub has helped further develop the ideas of the commission along those lines. So Marvin, do you wanna present those? Well, thank you Steve. I guess the green light did come on. I actually, I didn't have to develop it very much because I think emergencies is a real practical topic. This was the Peterson Pew Commission was a very practical group, people experienced with budgeting and emergencies are real phenomenon that have a legitimate claim as a special sort of thing that the budget committees have to deal with. And at the same time, the commission was fully aware of the potential for abuse of emergency. So the commission recognized, clearly right at the beginning that because emergencies and the spending requirements that they impose on the Congress and on the government are so unpredictable, they're hard to deal with that you can kind of get an idea of what they're gonna have to be but for any particular year, you don't know what outlays are gonna be for emergencies. And at the same time, those needs imposed by unanticipated events are real and certainly a responsibility of government under existing law. So unfortunately in the past, the default option for dealing with emergencies had been pretty much to ignore them. In as much as you can't predict them year by year and if you've got a year by year focus, then you don't really know what to do with them except wait till they occur and then you've pretty much allocated all the resources that you've committed to spend that year and you end up borrowing them. So borrowing dollar for dollar for every dollar of emergency. And the difficulty with that is that means then that if you've got targets for debt and deficits and outlays, you're gonna miss them every year because you've got this unaccounted for emergency spending that's gonna have to occur. At the same time, as Mr. Nussle said, the committee was well aware of the abuses because an emergency is not an objectively defined event but people have to agree on what is an emergency. An emergency can be a very soft idea and things that you might not regard not everyone would regard as an emergency yet to be defined as emergencies when resources are really tight and there are needs that are unmet, there's an inclination to expand the definition of emergencies. And in fact over time, emergencies have really grown from something that we usually think about as natural disasters, hurricanes and earthquakes to include things like wars as well as economic downturns. These kinds of spending for those purposes were in fact defined as emergencies by members of Congress as was appropriate in their view at that time. The committee however, as Phil has emphasized, once they began to buy into this notion of a multi-year period for budget planning and the fact that when you're putting together a budget, you're dealing, everything is uncertain to some extent. They became, they got pretty quickly more comfortable with the idea that one way to deal with emergencies is not try to predict how much there's gonna be an outlays in any particular year or budget authority in any particular year but what is it like to be over 10 years? What is the average level of spending for emergencies likely to be? And if we could recognize that average level of spending for emergencies in the budget upfront and carve it out of whatever caps or targets have been established, then life would be easier. First of all, we would certainly not miss our targets every year and the notion of everything that we don't have money for is an emergency could be addressed in a more disciplined way. So essentially what the committee recommended, what the Peterson Pew Commission recommended was that each year some technical authority could be CBO, estimate what the annual average over some period, 10 or 20 years of outlays or budget authority is likely to be for emergencies, to put that in the budget and score it according to whatever constraint is binding. Maybe it's budget authority, maybe it's outlays, maybe it's the deficit, but in any case, to score it right upfront. The purpose for doing that is then you're paying for it in advance. You're not waiting until there's been a disaster, all the resources have been allocated and now you have to go back and solve for what we are going to cut in order to pay for this. So the notion was to budget forward from the beginning, budget forward upfront and put it in the budget resolution. Then there's some accounting mechanics that we can go through, but probably unnecessary at this level. What was I think really shocking to me listening to the commission deliberations was how big emergency spending had gotten to be during the 90s. Someone had earlier come up with an estimate that well, emergency spending for disasters is probably about 10 billion a year, but total spending for emergencies during the 90s averaged $200 billion a year. So in that sense, the commission recognized that a big chunk of federal resources was being unbudgeted, unplanned, and it just happened. And that one way out of this was to think about the longer term, take a ten year view of how much is gonna be spent, get some credible estimate of the expected value. Of course, some years you will over budget for emergencies, others years you under budget, but the notion is that on average, you won't drift too far. There were a lot of other problems that the commission dealt with that I'll refer to in the paper such as how to prevent the abuse of this. If you create a fund and you already have recognized that you're gonna spend it or that you've already committed to spending that there will be unanticipated uses found for this money. And the commission came up with a number of recommendations including that one enact into statute at least a fairly objective definition of emergencies and that has happened and that in addition, these annual average amounts expected for emergency spending be recognized in the budget, scored against whatever caps or limits that are in place and enforced by the rules. It's a simple idea. I'm sure that there's a lot of details yet to be worked out, but it seems absolutely essential if you wanna have an effective budget process. I'm just repeating the commission. So I didn't have much work to do. Thank you, Marvin. So those two papers deal with the budget process and now we're gonna hear about the final paper which deals more with information and its use. That is the kind of information that budgeters, policymakers can use to budget more effectively as we enter a long period of budget austerity and constraint becomes more and more important to consider information not just about cost but about what we're getting for what we spend and Paul Posner's gonna talk about that set of ideas. Paul. Thank you, Steve. I think you framed it well. The other papers really try to get the nation to kind of more firmly commit to a path of fiscal discipline and lower deficits as we, that's gonna entail hard choices and it is entirely appropriate to ask as we make those hard choices, how do we do so in a way that ensures we get the biggest bang for the diminishing federal bucks. One former budget director, I think said it best at this time, a good credo for budgeting is to cut weak claims and not weak claimants. That person by the way was David Stockman, President Reagan's budget director. This paper seeks to explore how the federal government can institutionalize kind of an approach to link the relative performance of competing claims, competing programs in the budget process. And what we mean by this is not some autopilot where we take politics out of budgeting and some technocratic dream, what we mean is a process to introduce performance measures in a compelling way so that they have a standing alongside the other things that we legitimately consider in budgeting like priorities and needs and equity issues and the like. This is a lot more difficult than it sounds. It's difficult to establish a credible supply chain of information on evaluating all the different programs in the federal budget, comparing them against one another and the like. But even when such data is produced and we've been successful in producing more of it, the supply has to be met by demand, by demand by decision makers here in the Congress and down in the White House and OMB and the like. And so it takes both sides of supplying the demand to produce this kind of greater focus on performance in budgeting. There have been some federal initiatives in recent years that have made a valiant attempt in the past 20 years. We had the veritable language of GPRA, the Government Performance and Results Act, passed in 1993. The program assessment rating tool was President Bush's tool to evaluate nearly every program in the budget and then this administration, the Obama administration has a series of priority performance goals that it has the agencies dealing with. And each of them has made advances, certainly. Now there's much more data available and much more data in budget presentations, but we really haven't succeeded in systematically enforcing accountability by both agencies in the Congress for the performance goals that we're trying to seek. And ultimately, the kinds of progress we need to make in the future is establishing performance-based targets for major programs and policies in the budget. And establishing some kind of accountability for achieving those targets or providing explanations why we can't. And then providing a periodic and selective review of major programs in the federal budget to see how well they stand up to the test of program evaluation and policy analysis. Now this is not just a kind of tilting at windmills. This is what we have in mind here actually has happened and really produces a real payoff. And some federal agencies, for example, the Department of Veteran Affairs and their health programs have achieved real sustainable reductions in cardiac surgery outcomes because they studied the best practices of the health centers that had the best records and replicated those records throughout their whole VA hospital system. The Coast Guard, the National Highway Traffic Safety Administration and others have made real definable impact on improving the outcomes of federal programs by using a performance analysis approach. Other nations have done the same. Canada and the Netherlands, for example, have done something they call program review where they look at selective high priority programs. They look at them in concert with other related programs of trying to achieve the same goals and they've achieved real savings over time. Netherlands has been doing this since 1981 on a selective basis and has achieved real sustainable budget savings as a result. Well, where we go from here, here in the United States and this is where the commission has some important, I think, recommendations for the future. First of all, we make no pretence that this is an easy task. This is a very difficult task. If assessing the relative performance of programs assumes that you have a budget process that stacks up competing claims against one another for comprehensive review. Yet we know that the federal budget process is very fragmented. We make appropriations decisions over here and mandatory entitlement decisions in other committees and yet a third set of committees deals with tax expenditures, often all achieving the same, trying to achieve the same kinds of goals. So it's not surprising that we have programs that are not only inconsistent but often work across purposes. The GO's report earlier this year on duplication overlap found extensive fragmentation in federal programs. For example, we have 15 federal food safety programs with lots of potential for improved effectiveness if we could find a way to bring those more together. We have higher education subsidies across tax credits and various other kinds of tax savings vehicles, federal loans and federal Pell grants, among others, that are confusing to parents and students alike and not only provide for higher administrative costs but lower upgrades of participation. We have one side of the healthcare reform equation that's trying to reduce our galloping costs and another side in the tax expenditure system, the tax exclusion for health benefits that arguably increases those costs. We have a disaster relief that funds federal programs all the while and sending people to locate and harm's way with flood insurance that are overly generous in the view of many people in certain areas. Well, the point is we have a stovepipe decision-making process and the question is if we're really gonna make sustainable improvements in how we think about program claims and performance, we need to find a way to bring some of these things together in a more focused way. And what we've talked about in this report is what we call a portfolio budgeting process where we would try to transcend the focus on individual agencies and programs to look at outcome areas like food safety, like childcare, like improving women and child's health and things like that and look at all the related programs from the tax side, the spending side and the like that have a bearing on those programs. Again, we've seen this in other countries. We think this has a lot of promise in the executive branch and we think OMB should make a commitment to really do that on a selective basis. We also think Congress needs to play a role here as well and obviously this is very difficult with all the different committees and the like but committees, particularly the budget committees which is ideally tailor-made to do these kinds of reviews. They already use the budget functions which and sub-functions which are cross-cutting ways to encompass all the different programs across major mission areas. The budget committees have kind of the overview that you need to kind of bring this off and we think that on a pilot basis initially that the budget committees can do something that we call kind of a performance-based budget resolution where the budget resolution would include a performance component to encourage not only the budget committees but the other committees in Congress to focus on particular areas of the budget in reviewing the performance of all the competing claims or affecting those outcomes. Congress did pass a bill earlier this year, the GPRA Monetization Act that makes a start down this road that requiring the president and OMB to do a cross-cutting review of selected areas for the first time. We'll see what fruit that bears next year and obviously we have a long way to go but this is at least the vision for how it might work. Thank you Paul, there in four nutshells is the essence of the four papers presented today. These are just some of the ideas that are part of that comprehensive set of reform proposals that the commission has been working on for the last two and a half, three years and we have now two co-chairs of the commission with us to comment, make any comments you like really on the work of these four papers and other recommendations of the commission that you think you wanna elaborate on. Okay Steve, thank you, I think I'll kick this off but I do invite John Spratt, the former chairman of this committee and now a member of our committee for responsible federal budget and Bill Frenzel who is a ranking member on this committee when he served in Congress to jump in as well, we want this to be an inclusive discussion. I just wanna offer a few observations to give some historical context because we're not reinventing the wheel here, we're simply building on what we've implemented in the past and trying to adjust for problems that we have encountered with previous budget reform efforts. So from that standpoint, it's not radical but we clearly have learned over time that the best process legislation often has gaps or unintended consequences. Back in 1974 when the Budget Act was first enacted, we didn't anticipate deficits of the magnitude that we're experiencing in recent years and we didn't anticipate that we were ever gonna reach a stage where the totality of the nation's debt was a threatening and frightening prospect. We simply wanted to give the Congress more of a role in budgeting and to make some sense in the congressional process and to equalize the, I guess the strength that the administration has in preparing and developing budgets with equal strength on Capitol Hill. So we now have 30, almost 40 years of experience with that act but what we do know is that it was a different time, a different climate and not too many years after this act was passed, we did face a potential crisis in the social security system. We didn't really use the normal budget process for that. We set up an outside group to come up with recommendations but the mindset was that we needed to address that issue. We couldn't leave that problem fester. We did not want the program to go into the red and so a fix was brought forward and that speaks to I think a different sort of a political will at that time that didn't necessarily even need a budget process to tell us to fix social security. It was just a bipartisan consensus that it was an issue that needed to be addressed. I think what we've learned in the ensuing 40 years is that we're now at a point with more polarization in the process, more polarization in terms of the options that each party is willing to consider that we need the process to sort of encompass some principles that require action which 40 years ago was almost automatic. Secondly, when we did get into the middle 1980s we created the Graham-Rodman process which is not unlike what we proposed here except that we did a couple things then that proved not to be the best way of implementing that deficit reduction strategy. One was that we used as our measure the annual deficit. We were trying to reduce the size of the deficit year to year. And the deficit can be affected not only by spending and taxing decisions but by economic upturns and downturns. We found it was really the wrong measurement. And so now we're talking more about a longer term goal of stabilizing the debt as a more reasonable way of looking at a framework. The other thing is that when we imposed the threat of sequestration back in the 1980s with Graham-Rodman Hollings we didn't put enough items on the chopping block. And it made, we allowed that ax to fall once but it really wasn't as threatening an ax as it needed to be in order to keep everyone at the table. All the players serious about the consequences of no action being across the board cuts that would do damage to programs that people in both political parties care about. Then we got into the 1990s and we implemented the first Bush budget which included caps on spending and pay as you go. That policy was essentially extended by President Clinton and Congress in his first budget. And I think the lesson we learned there was highlighted by Marvin when he talked about emergencies is it was fine and helped us to control any growth in entitlement spending. It helped us to ward off any unfunded tax cuts, in other words tax cuts that would add to the deficit. It helped us to put a lid on domestic and discretionary spending for a number of years but it put no lid on emergency spending which is why that increasingly became the vehicle for the extra spending that wasn't allowed under the rigors of that PAYGO system. So what I wanted to do by offering this historic context is just give you a few examples of what we learned then and are trying to address now with the reforms that have come forward from the Pew Peterson Commission. Do you wanna offer your comment? Mine are I think more questions of the, I mean Tim's done an excellent job of laying out that history and I think as I was listening to you, I mean the bottom line for me is that it's getting politicians to do things they are not predisposed to do naturally. Somebody said this isn't heroic but it's also not natural. I mean many of the, many of the it may seem that way to our constituents from time to time that gee, wouldn't it just be easy to do this or that or sometimes they have a unfortunately out of context view of what needs to be done. All you need to do is cut foreign aid and it's all taken care of as an example or all you need to do is raise taxes on the wealthy and it's done or all you need to do is cut social security or whatever the panacea of the day is the bottom line is that all of these are very difficult choices for politicians when they go home and have to explain this to their constituents, particularly when they want to be re-elected. And so the rules that we're setting up are trying to get people to do things that they're not naturally persuaded politically to do. And I think the three or four that have been laid out here today are excellent. And my question, I have one for each area but one in particular if I might, Steve on the multi-year in particular that's one that I think is fascinating in that. First of all, it is the thing businesses do. It's the thing families do. It's what everybody does. They look forward. They don't just look a week ahead, a month ahead, even a year ahead. If you've got any sense about you, you know that this is, you're in this for a much longer haul and we as a country certainly are in that context. Do you find any, for instance, state that does this well? I mean, looking to the laboratories of the 50 states or for that matter, OECD or whatever, wherever you're looking, where do you find this well done in a government setting as opposed to a business type of setting? If I might, Phil? Yes, so thanks for the question. I think that, I think there are a number of states. In fact, I would say the majority of states, even though they are required to have annually balanced budgets in terms of their operating budgets, it doesn't mean that all they care about is next year. And one of the things that the states have, in a sense, going for them, they would also view it as a constraint that maybe is less true at the federal level is that the states have the bond markets that are disciplining them in a sense that the bond markets care less about what the budgetary balance is in a given year. And they care more about is this a state that can actually manage its finances over the long term? So they look at things like, is the amount of debt that they have sustainable? And any state that made a judgment that made this year better but made the next few years a lot worse, that would be immediately transparent. And it would cost them in terms of their bond ratings. That's not the kind of discipline that we have seen here before, although we might see it here. In terms of other countries, there are a lot of countries that under the leadership of the IMF and the World Bank, for example, have been encouraged to adopt what are called medium term expenditure frameworks. And a medium term expenditure framework is a sort of rolling set of goals over multiple years. And the assumption behind that is that they remain in place until and unless the next one kicks in. And that's very consistent with what I'm suggesting here, which is that what we need is to plan over a number of years, and we need to assume that that remains in place and is enforceable until we decide to change that instead of engaging in more year at a time budgeting or increasingly even, I suppose we could say month at a time budgeting. Great. For Marvin, if I could ask, emergencies have been one of my frustrations since I came to Congress, and I had my first experience of voting against my own district during the great Mississippi flood of 1993, and it ended up being fine. I survived, I had a reelection that year, but it was nip and tuck because I tried to wave the flag that so many others have waved about, you need to plan for it, you need to pay for it, you need to anticipate it. In your paper, you seem to include more emergencies in discussing the longer term tenure than I would have liked. For instance, you had wars in there. I would argue that wars shouldn't be, maybe the initial conflict when you're attacked or you have to deal with a certain situation, maybe that initial conflict is off-budget or emergency, but if you know you're going to be in this conflict and you can anticipate you should include it in your budget, I argued that even against my own party and my own President, President Bush, as well as Katrina as an example, which is you could argue so big that you wouldn't possibly want to include it in a route, what I would say is routine emergency experiences. So did you look, as you looked at this, is there a way to, I don't know if the right word is segregate this or make part of it routine and part of it that you just can't possibly put into the emergency effects of your paper, how would you categorize those and how would you recommend the Congress consider budgeting for them? Great question, Mike. Oh, you need to use your microphone. Yeah, really good questions. I think we took the easy way out in one sense, the impossible way at the same time. Because we weren't absolutely clear on one thing, there's no question that the big problem is that it was just too convenient to be able to declare things emergencies and therefore get them out of the budget. I wanted to, I did want to answer your question about emergencies that you put to feel. I think the reason Steve asked me to write this paper is that before there was a Peterson Pugh Commission, Barry Anderson asked me to write one for the OECD on budgeting for emergencies and budgeting for disasters. And he wanted to know what was the experience of OECD countries? Were they good at budgeting for emergencies or not? And so we looked at it for a long time for about a year and decided that it was really impossible to tell. The one good thing about the way the US budgets for emergencies is it's transparent. We're gonna borrow it. And I mean, except for a few objectors, the intention is that it's just gonna be an add-on to the deficit, an uncontrolled level of borrowing. So I think it's really hard to find cases where you can understand what other countries are doing and they're doing it well. I think the Peterson Pugh Commission recommendation really is at the cutting edge. And there's plenty of room to define a really effective budgeting for emergency proposal. And maybe we aren't quite there yet. And then, Paul, if I could ask about yours with regard to performance budgeting, my frustration with the, with for instance, President Bush's example of the program assessment rating tool was that while the administration went through this arduous process of coming up with it, it would go to Congress and Congress said, yeah, but that's fine. I shouldn't make it a blanket, but there were many in Congress, particularly at the appropriations level, that said, look, this is what we told you to spend it on, spend it on it. We're maybe not quite as interested in the performance. This is what we wanted. How is there a way you see that we can have within this context a better partnership with the Congress with regard to these, how can we get the Congress to use the rating tools or the performance evaluations? How can they be in on the front end of this as opposed to feeling as though the administration is telling them your idea was silly because it obviously didn't perform correctly, which is not our fault from the way we administered, yet it was your idea in the first place, which seems to obviously fly in the face of what Congress wanted. So is there a way that that could be done during the procedural part that can take away some of the sting and therefore make it more effective? Yeah, I think that your question really does is productive there because I do think that Congress generally did not use the part assessments, not withstanding their breadth and systematic nature. And I think the reason is they had no ownership. And I think part of the, to make something like this work, I think we have to figure out a way to have some real institutional reform on both sides. I talked about the budget committees, I think have to play a stronger role because they're the one committee with the government oversight committees that have a truly kind of synoptic view of the whole government. And that's really in some ways what they were, and I think OMB also has gotta change some of its ways. OMB has a strong tradition that when the President's budget is on the table being considered, it's all pre-decisional and nobody's led into the process. And I think that diminishes the ability of OMB as an institution to in fact engage in the kind of collaboration that sometimes you need to do in this town. We do it after the President's budget comes out, then we go up to the Hill and there's a lot of negotiations for nine months, 12 months and whatnot. But somehow we have to find a way to get some key members of Congress if we're gonna do this like we did before in at the front end to define what areas are promising for looking at the performance and to use OMB and the executive branch as considerable resources to really assess those areas and produce some kind of ownership. And I think that's what was missing. You're absolutely right. You know, I think Paul in your comments about the review and where that review might occur within Congress that this committee, the Budget Committee is probably the best equipped because you draw membership from across a whole range of committees. It's the committee that has the look at the totality of the budget. It's a committee that does its work by focusing on categories of the budget and those categories cut across all types of programs in all sorts of agencies, including entitlement and discretionary. But my frustration is that whether it's the GAO's recent report on duplication and redundancy or the Inspector General's Orange Book reports on all sorts of performance or underperformance of programs in our bureaucracy, there's nothing that requires that any of that get picked up. You would think that whether it's the Budget Committee or the Authorizing Committee that every time an Orange Book comes out that that would lead to some sort of legislative review, consideration, and hopefully action. I think that's why all of our papers fit together because I don't think that there was gonna be that incentive to look at those until we really face these hard choices and have these declining fiscal targets. I think that could give us here the incentive. I also think somehow Congress has gotta figure out a way, again, to make this work, to empower the Budget Committees, to work more effectively in the leadership of those kinds of reviews. And the Budget Committees exist alongside other committees that are very jealous of their prerogatives. I don't need to tell you that. And I think we need to do some major rethinking of the role of this committee. And in the Peterson Commission Report, we said the Budget Committee should be reconstituted as a leadership committee to have the leaders of all the committees on that at this dais together so that they all have an ownership stake. We're gonna open up shortly to the audience to join us in this conversation and ask to get your questions ready. I wanna first give an opportunity, if they'd like to take it, to the two former members who are on the dais. Bill Frenzel may have a few observations as a co-chair of the Peterson Pew Commission. And I'd like to ask Chairman Spratt also if he has something he'd like to add. What's the first yield to Mr. Frenzel? The yield's to you to go first, Bill. I push a green button. No wonder I never put that. It's been a great discussion. It seems to me that all of this of course requires a precedent action by the Congress. Somehow they have to agree on the grand scheme, those targets, whether they're intermediate or long term. Then you can start applying all of these processes to help them reach the target. But process unfortunately brings neither wisdom nor gut. It can lead you in those directions. But the group is going to have to solve its own problems first. And that's sort of the thought that struck me through these whole discussions. We have to get off the dime and then all of these wonderful ideas. Thank you. All of these wonderful ideas will help the Congress achieve that goal that it, we hope that it will set for itself. But I think we've got a good discussion going. And after Chairman Spratt, I know that there will be people in the audience who would like to raise a question or two. So that would take care of my comment for now. Thank you. If I can jump in before Chairman Spratt jumps in. There are four of us. Congressman Stenholm, Jim Nussel myself and Bill Frenzel who are currently co-chairs of the Committee for Responsible Federal Budget. And as such, each of us take turns with different responsibilities that grow out of the committee's work. But I do want to give Bill Frenzel the lion's share of the credit for the leadership he provided in developing the Pew Peterson recommendations. And with that, John Spratt. Well, Tim, thank you very much. And thank you for the opportunity to just sit here and observe this from a desk. If I'd known you were going to pay me this on, I would have worn a tie for the occasion. But I'm delighted to be here. And I thank you right on in looking at process issues as part of the solution. That was not always the subtle opinion of those particular process proposals and no less than an expert or then Chairman Greenspan said at that witness table, at least twice as I can recall and said, I'll be honest with you. I watched you pass these process rules in 86 and 85 and 90 and 91. And I thought it was all a dodge that you were doing this as a way of avoiding the hard decisions you needed to make about substantive policy changes. But Greenspan said, I'm now convinced that process changes are critically part of the solution. They are, they're not the entire solution by any means, but given the intractable deficits that we have today, they are needed now more than ever before. Just a couple of observations about emergencies, for example. You've got two problems. From number one, there should be, there could be too much appropriate for emergencies that would accumulate over time. Number two, there could be too little. Too little, for example, when Hugo blew through the South Carolina and devastated the coastal region of our state. I think Hugo had, I think of the FEMA had to its credit, unexpended balances of less than $100 million at that point in time. It ended up, the hurricane cost $5 billion to correct. And Chris Highlands from the appropriation committee on the other side of the building was able to get $4 billion to a CR that took care. I'm not sure that's the best way of doing it. But when you've got something as devastating as that, you'll take it any way it comes. That's going to be a problem, I would think. And secondly, is a different problem, but nevertheless a problem in this institution. That is, as it builds balances in this account, unexpended balances due to the fact that we have fewer and fewer than typical or normal emergency situations. You'll get something built up there that will be a terrible temptation to see, to levy upon to pay for something. I assure you that'll happen. And I think that some refinements along those lines probably would strengthen your recommendation if you put something in that would assure that in both cases there would be remedies that would help take care of the proposal you're putting forth. But all in all, I've read your stuff before and I think it's very good. I think it's very pertinent right now. And I hope we can see some of these things initiated, particularly PECO, a stronger PECO rule, a clearer PECO rule. It works. It's one solution to dealing with entitlement increases and we should give it great attention. And there can always be refinements in the caps and limits we impose on discretionary spending. That's clearly one way to go that we need to keep refining so that can become part of a bigger solution someday. Thank you for your effort. I think it's extremely well done and very timely. Thank you, Mr. Chairman. We're honored to have you join us. Could you offer us your observations about those two problems that could be too much or it could be too little? The commission did just think about that. So let's consider a case where there was really a once in a 200 year storm hit South Carolina, for example, and it was just devastating. There was insufficient money had been appropriated for that. One of the provisions they had or they talked about, wasn't in the report, was that you would give, you have the authorizing legislation and you would give the Administrating Agency's authority to borrow from Treasury if the fund was insufficient to meet those needs. The notion being that if they were right on average over a hundred years in the end, they would be able to, the funds would be able to repay Treasury in years in which there was too much money available. So there was automatic, automatic permanent and indefinite authority to get the money to comply with the authorizing legislation to provide benefits to everyone who was qualified for, who met the requirements for those benefits. But the notion was that you actually wouldn't score the extra money that they borrowed from they borrowed over and beyond that there's sort of a whole harmless for that. That the intention was merely to recognize what the expected cost would be without him stringing the Congress in a case where there were insufficient funds and trying to, if you had an unbiased estimate, repaying that borrowing over time with excess amounts that were appropriate to the account. The other problem, what do you do about opportunistic legislative proposals that take advantage of cash that has been set aside for one purpose? And I guess we fall back on the will, the political will to not do that or to do it as the case may be. I mean, it's hard. I don't know how you constrain a legislative body from doing it. It's a very war-powered resolution. Everyone in voting upon it knows it's something. A war-powered resolution, everyone knows and passing it a voting upon it that their passage would likely mean substantial outlays which can be approved in that year, in that instance, as emergencies. But if you look at Iraq and Afghanistan, these emergencies have the habit of becoming long-term commitments. And there aren't emergencies any longer. There aren't surprises for which there was no provision made. What do you think we should do with war-powered resolutions and the provision of foreseeable expenditure to support the missions we're authorizing? I would turn to you for an answer for that. I was just surprised. I don't have an answer. Well, it shows you how tough these problems are when you really put them in the real world. Thank you. I think just to chime in, I think one way of dealing with that might be if we were to amend these recommendations to deal with the war costs as one-time emergency. And then after that, you build it into the normal budget process. I think that would be one way of addressing that eventuality. Okay, we're good. Thank you very much. We're gonna open this up to questions. I see a question here. There is a microphone available, so wait for the mic and then ask your question. The name is Rick. You identify yourself. Yeah, name is Rick. And you're asking the question too. Wouldn't 19% federal spending relative to the economy be a good compromise? We're 24 now, obviously. If you use the OMB historical tables and you go back to 1930, the average is 18.97. And that's only using one decade of relatively low spending, the 1930s itself. To be really fair, if one should go back to 1900 and then you get like 16%. So why don't we just do 19% within three years or so? I think we may have to treat that as a rhetorical question. Since that's not a budget process issue, that's more of a substantive policy choice that should emerge from the budget process. Tim? But I do think getting specific to the Pew Peterson report, the way we come at it is to look at it differently rather than arguing about the percent of our economy that ought to be in the federal budget. And even without arguing about the annual size of the deficit, what we're trying to do is, as Phil mentioned in his remarks, is to look at a longer view of where we want to manage that debt so that we don't grow beyond a certain level and then kind of work back from that with annual budget decisions that help us to meet that target. So it's a different way of coming at it and we are a diverse group. As Jim mentioned, former CBO, OMB, GAO directors are on this committee for responsible budget which comprised the Pew Peterson commission. And that was the one area that we all congealed around because the debt issue is becoming such an immediate threat that we at least want to start there. It doesn't preclude politicians from doing more or setting other targets if they wish, but this is sort of the minimum that we think needs to be addressed and this process can get us there. Yeah, I would just add, this is certainly not a game. This is a very serious conversation but putting it into a game format, what we tried to look for were rules that did not determine the outcome of the game that could be played so that the contest over spending, over taxes, revenue, entitlements, whatever it might be, could be done within a context where it did not necessarily determine the outcome of the substance. There would be those who, to your comment about spending who may say, well, should taxes also conform to 19% of GDP in order for us to have a balance? And probably just as many on one side would say hell no to that comment as they would hell no to the spending comment. So therein lies the contest of substance but making sure that the rules of the contest and of the deliberation don't predetermine the outcome but allow there to be an outcome of which now we're close to, I don't know, a thousand, almost a thousand days without anyone making a determination about a budget on either side and that's a game that's not played at all and those rules obviously are dysfunctional. So that's just another way of saying what Tim said. We didn't want to show our stripes in the outcome of the rules, in the substantive outcome of the rules. We wanted the rules to be able to determine the outcome based on the will of the Congress and their determination at the time. Next question, I see questions here in the front. Couple of people, this gentleman with microphone. There you go. Identify yourself please. Sure, Roman Bueller. I was a counsel to the Committee on House Administration for 14 years, most of that time for Bill Thomas and Congress is an extraordinary institution but it tends to avoid pain and to postpone pain and we see now the doc fix, which of course was supposed to rain and spending but every year we manage to postpone the pain a little bit longer. And my question to both the panelists and to the members of the Pew Peterson Commission and the commentators is, is there a role here for writing one or more of these rules into the Constitution? And obviously there needs to be some flexibility because you can't predict what's gonna happen but on the other hand even Odysseus managed to chain himself to the mast and he forbade his crew from unchaining him whereas Congress of course by law cannot bind future Congresses so if Odysseus had relied on a law he probably would still be on the rocks of the Siren Island. The other advantage of a constitutional limit is that members of Congress are acutely aware that they will lose their elections if they raise taxes for some or cut entitlements for others but state legislators who presumably would have to propose a constitutional amendment if it didn't come from Congress only get the credit for reducing the debt. They don't have to take the blame for the very very difficult and painful and often deadly political choices that they will impose on members of Congress. So your thoughts on whether some form of constitutionals restraint or at least the threat of it might be appropriate is or would be very interesting I think. Others may wanna answer this question. I just wanna preface any other answers by saying that the process for amending the U.S. Constitution is designed to ensure that unless there is a very broad consensus for some fiscal rule that it will not become part of the Constitution and since we lack that, that's for the moment at least an insurmountable barrier chairman. I don't think we make the budget process more workable or more efficient. Certainly not something more simple by making the Supreme Court a party to it. By making the Supreme Court a party to the process which is basically what you're doing because they're bound to be constitutional questions now. Not practical questions but constitutional questions of what certain language means in this abbreviated form in an amendment to the Constitution. So I think it would be a recipe for more gridlock not less and secondly we have proved in the 90s draw on that experience that we don't have to amend the Constitution, we can bring the budget to balance and indeed put it in substantial surplus that the will is there. We don't have to have a Constitution but these process rules definitely help and their flexibility, their refinement, the ability to refine them as we go along and try them in practice and see what works and what doesn't work and what needs to be refined is part of their merit. The commission did not make a recommendation specifically on this, we all hold our individual views and I would agree with Chairman Spratt that in the 1990s having voted for a balanced budget amendment and it not passing was part of a broad bipartisan consensus that said let's just go do it and I think just doing it was much more effective than just voting for a constitutional amendment and assuming that that would be enough in order to accomplish it. I think that's the concern I have about where we stand now and Steve mentioned it as well even if we passed a constitutional amendment to balance the budget at this point it'd be pretty difficult to accomplish that in any near term effect without some very dramatic impact on the short term economy of our country. So I observe that, I think the individual steps to get to a balanced budget at this point in time are more important than the end result and right now we're obviously observing the fact that the Congress is currently not showing a capability to do those individual steps. I don't think we need to belabor the balanced budget amendment since it's clearly not something that the commission is recommending but like Jim, I voted for an amendment when I was in Congress but I said then and it's important to remind ourselves now that that doesn't fix things for us, that doesn't make the budget decisions for us, that doesn't create a new budget act that sets the rules of engagement. So the other thing to recall is that even if you go that path it's two thirds of the house, two thirds of the Senate, three quarters of the states that have to put that in place and you'd still have to come back to put in place the kind of budget process reforms that we're recommending here to you're in and you're out help us meet that objective. So again here with the passage of a law we can get these things done, that's a majority vote in both chambers and I think that's why the commission took the view that this is step one, this is the important work that needs to be done. Next question. Tony. Tony McCann used to be chief financial officer for HHS and the VA and clerk of the Labor HHS subcommittee in the house. My experience has been that there are many factors that undermine caps, both 302A and B caps and overall caps but the worst one is the fact that the authorizing committees continue to authorize new programs and reauthorize programs at rates that are much higher than the appropriated level. So as a question what would be wrong with a amendment to the budget act that did two things? Number one, it required over a period of two or three years that all such sums appropriations, authorizations be eliminated in favor of specific dollar authorizations and that secondly a 302A like allocation be given to the authorizing committees that they had to meet and that that 302A allocation had to be roughly equivalent to the agreed upon caps that are applied and are going to be applied in the future to the appropriations process. Phil, do you want to try and answer that? Okay. I mean, I don't think there would be anything wrong with that on the other hand and you probably know better than I do but on the other hand it seems to me that when the authorizers provide for funding that is in excess of the 302A allocation or the 302B allocation that's provided now the appropriations committees are not compelled to provide that higher level of funding. It may be uncomfortable for the appropriations committees because there may be people out there that are arguing well fully funding X program, whatever it is would mean providing this much money. So I think that's sort of inherently part of the problem when you have separate authorizations and appropriations processes. Now I know that the Peterson Pew Commission did not take on the question of whether we ought to have separate authorizing and appropriations committees but obviously that would be something that would solve that problem if you combine the two processes into one that's a bigger problem than I think or a bigger issue than I think the Peterson Pew Commission or anyone else so far would want to take on. The idea of pushing this back to the authorizing committee has a certain appeal and it ties in in my view to the remarks that Paul Posner made because we have categorical, we make these budget decisions at the budget committee on a categorical basis and if you could define the healthcare spending or the job training spending or some of the other categories in a way that translates back to that committee's jurisdiction and just give them the categorical number then they've gotta look at their whole myriad of programs and make some judgments about how best to spend that number and I think they may be better equipped to do that than the appropriators because that's the role of the authorizing committee is to determine the need, determine the options and then to create programmatic activity but I defer to Paul on that point. Thank you Tony. I am sympathetic with what you're talking about. I think we have to be careful and essentially when you're talking about a three or two way cap for the authorizers, you're talking about capping entitlements. So you're saying, you know, ways and means, oh discretionary caps, well that's yeah. Well then you have to, that may be a different point but still you still say that it's up to the appropriators ultimately to finally authorize the use of federal funds. So I do think there's Tim's point that the notion of right now the only committees that are constrained by budget resolutions are appropriations committees and how do you get kind of a broader part of the whole Congress involved in kind of setting these targets and doing something about them? Well the only time we do that is when we have reconciliation instructions. We have savings targets for each committee. I think we have to really think seriously about some broader budget process that does that. Yeah I mean Tony, sign me up. I'd add a couple of things to it. I'd like to see, I mean we did have, Phil is right, we did not take a position on it but that's not to say we didn't have long arguments over coffee and I think a couple of times it even went to beer in order to try and get to resolution on this. There's no question in the committee process that the functionality of Congress in this regard is confusing at best. There are members of Congress who come through here and after a 20 year career can leave and not know the difference between outlays authority and authorized levels of spending. I would add one potential reform and that is we ought to consider if we do this that appropriators cannot appropriate to programs that have not been authorized. That would be another way to continue to put a fence around this. But the point is is that the functionality of Congress and the way we make decisions is what we're talking about today and whether we get into the granularity which we decided not to do because it has a lot of fish hooks that we decided not to do other than to say we really believe that the budget process should have at the table the key players in the Congress who can go back to their committees such as the Appropriations Committee Chairman or the Ways and Means Committee Chairman or the leadership and can go back to those committees and say, look folks, this is what we decided. This is the fence we determined. We've got to stick within this fence as we go forward and to have that buy-in as opposed to more junior members of a committee trying to foist that on more senior leaders of the House and Senate is a much more complicated process and that's why we came to the conclusion that I think we did. But it's a good, I like your suggestion. Here we have time for more questions. Teresa, in the front row here. Let's get the mic. First let me thank the Commission for all the work and the panelists today for some very interesting presentations and some very good papers. Sorry, my name is Trice Kerstein. I'm from the IMF and prior to that I worked for the OECD. I want to pick up on what Phil was talking about a medium-term budgetary framework. I personally I very much support this idea for the US and among OECD countries the majority of them have a medium-term budget framework. I'd say probably about three-quarters. Good examples are the Netherlands, Sweden, Australia. Now what I'd say is what we've learned about that is one of the basic criteria is in setting up a medium-term budget framework and the key success factors is having an annual budget process that works well. That is getting your budget passed and getting your budget passed on time. And the US among OECD countries is a total outlier in terms of this not happening. And I'm wondering what the Commission has suggested or what they'd recommend in terms of addressing this point. And it is quite fundamental to address this before moving down the medium-term budget road, I should say. I'm happy to start and I'm saying this, I was not a member of the Peterson Pew Commission. I can tell you that I personally think it's probably the best example of how dysfunctional a process we have, quite independent of whether the process is used to get a handle on our debt or not, the fact that by my calculation only four times in the last 37 years have all the appropriations bills been passed and signed into law before the beginning of the fiscal year is a big problem. And it's not just, in my mind, it's not just a problem that's sort of a cute thing that's just the way the US government works. It causes big problems for federal agencies in terms of their planning. It causes problems for everyone who's a recipient of federal funds. And so I'm just gonna reinforce your point that getting the regular budget process to work effectively and in a timely manner is a very important thing quite in a sense independent of whether we want to use the budget process to get a handle on the debt or not. That was a good point. Any other questions? Yes, sir. Excuse me, my name is John Neubull. I was CFO of HUD and been in and out of government. Started out working for Dr. Kissinger as a young lieutenant commander in the Navy. Had a phone call, little anecdote if I might because there's a relevance here. From a friend up in Wall Street, so there's gonna be an energy crisis. This was February of 73. A man who was professor now at Columbia and Mr. Peterson was one of the few as secretary of commerce that was onto this. We got involved in the NSC staff. And lo and behold, in August of 73, you gentlemen probably know what happened. We came onto the world market with a 15% increase in world oil demand. Let go of the two million barrels a day import quotas. The price went from $2 to $12 a barrel to $40 a barrel from 1973 to 1980. We had an embargo, there was fighting in the streets and we had a misery index at the end of that decade of 10% of unemployment and of inflation. My point is that I'm not sure we're getting it in terms of the degree of urgency that's required and how fragile the system we're operating under is. And we can test this and I hope we don't. I mean, one illustration, I got vacuumed out of the Navy into the new department of energy and was working for Mr. Simon and I came home one night about 10. My wife said, I wish you'd go back to your submarine because at least I knew where you were and I didn't have to wait up at night and have dinner with you. My point is that things can come off the train pretty quickly. All you want, I couldn't have more admiration for what you're doing, but I'm wondering if somebody hasn't done, couldn't do, I'm thinking of doing it myself, if I, a scenario analysis of how, what happens if? We're both sitting on the edge of a canoe going broadside towards Niagara Falls, seemingly arguing over how we got here. That's the end of my question. I know Joe Minerick down at the committee of economic development has done scenario analysis. It's called This Way Down. There's a recent analysis of the degree, of the relationship between the rates of economic growth of countries throughout the world and the debt to equity ratios. And it shows that there is, as you collect more and more interest and tax more and more to pay that interest, there's a dissent of impact on the capability of the government and the economy to grow, not the government to grow, the economy to grow because of the disadvantage effect of taxing for which you get nothing but paying back debt. So I just ask you to consider that. I think we're really maybe not quite understanding how vulnerable we are. And I look back to that experience in the energy issue way back when, and it's the last, the only thing I can refer to as a good model, but you gotta multiply that by 10 to get the order of magnitude. And there's some articles that have been written in foreign affairs on these issues. And so I commend you what you're doing, but I really think we need to be scared straight. Thank you. Yeah, my only suggestion while we're waiting for the scenario analysis is to just pay attention to what's happening in Greece and Italy. I mean, I realize there are people who look at that and they say, well, that's not the United States. I mean, you can't possibly compare, but I think you'd agree that those are, maybe they're not exact, but they're probably as close to a scenario analysis by case study than anything we can come up with. And I would agree with you that there were many on the commission who had conversations about the unfortunate, I guess, maybe it's more realization that it may take, it may take putting a tire over the ditch once or twice before anyone wakes up to those scenarios and the need to change. Unfortunately, I think we heard a lot of people in August, members of Congress and others, who because we did not see the brink, assume that there isn't one because it was avoided in August with the debt crisis, the debt ceiling crisis. And I think you're on to something. And so while we wait for the scenario analysis, I think just pay attention to what's happening in Italy and Greece and Europe. Yeah. We have time for, thank you, John. Good to see you. Time for a couple more questions. There's one here, he's had his hand up for a while. Center. Hi, I'm Joshua Green. I am a part-time college professor. I think one of the outcomes of the failure of the super committee is that disagreement about how to deal with a budget ceiling runs the risk of actually sinking a particular process. And I'm wondering if any of the authors would want to comment on how a proposal to reach, for example, a particular debt ceiling can be crafted in such a way so that members of Congress who might have their own favorite restrictions. In other words, I'm willing to cut the debt provided we don't touch A or we don't touch B. How you can draft such a proposal that would get around that type of problem. Thank you. Phil or Paul, you want to take that on? Either one? You want to take first, Phil? No, please. I mean, I think you're stating the problem in a nutshell and I don't, when you have political choice and political conflict, I'm not sure I can think of a, you know, process fixes can help encourage decision makers that want to come to agreement, to come to agreement, they can't force agreement. And I think that's the question. And I mean, I think ultimately if we're talking about the debt ceiling, I think the other thing about the debt ceiling that is my personal view, not necessarily the commission, so I think it's a really anachronistic indicator. I mean, it really is refusing to pay the credit card bills when you get the bill in the mail. The point is you need to intercept the credit card bills when they're being created and that's what the debt target does. And I think that's why the commission formulated the debt target because it's a way to kind of be more and at the time you're creating the obligation to really make those political choices that you're talking about. Okay, the last question over here, this gentleman with a... Thank you, I'm Pete Shetley from Brookings. A question seems to be incentives. Presently the incentives on members facing a difficult vote in the budget committee is to give it up, to not vote, to not accept some kind of a budget resolution that goes against their political or party interests. So my question, and I hope this doesn't sound silly, but my question is suppose the cost of not passing a budget resolution by the due date April 15th or maybe some other time is to stop the salaries of members of Congress and maybe a month later to stop the, of the committee and maybe a month later of the entire Congress and maybe a month later of all the staffers, sort of a step-by-step tightening of the budget squeeze. It sounds a bit silly, but there's an incentive. And present incentives haven't worked and I don't know if that one will, but it's just a thought. Sure, yeah, I can... Well, if you thought it was gonna be tough to pass any of these reforms, I think you just put one... No, look, this is, you're right, this is about incentives. Regardless of whether it's the incentive that you're suggesting or any of the incentives, I think you're exactly right, what are the incentives? That's why as we tried to come up with these recommendations, we tried to look at it practically from the standpoint of what would first, what would be the incentive to pass this and then what would be in the incentive to use them and keep them. And because that's really what this is about and going to the point just before, I mean, it's the reason why I brought this up from the very first question of the day. If, and John Spratt and I had this disagreement, it was a perfect case study of this when Pago expired. Both sides perceived that the other side, and I don't wanna speak for you, but I'm trying to be objective about this, both sides perceived that the other side was using it to determine a substantive outcome. And when that occurs, you're done. It's a party line vote and it's all over because one side is trying to get their advantage, the other side is trying to get their advantage. Again, you can paint it any way you want, but if that's the perception, you lose. And so, whether or not you can come up with the perfect incentive, I guarantee you that one perfect disincentive is when a policy or substantive outcome seems to be the reason for the reform in and of itself. And I think what the Peterson Pew Commission has tried to do is to, just like the back of the box from the monopoly game, you turn it, you open it up, you look on the back of the box and the rules are the same for everybody. And if you play the game fairly, it's determined by the political will of the nation through its representatives and that's it. And I think when you have those kind of rules, you're in a much better situation than when rules are incentivizing some kind of policy outcome. So. Two quick reactions. One, on a less serious level, even though I personally have some affinity with your recommendation. We had a government shutdown in Minnesota this last summer. And I took the view then that we shouldn't pay legislators for not doing their job or the governor for that matter. But the court ruled that they were among the essential services that had to be funded during the shutdown. But I guarantee you that had your policy been in place in Minnesota last summer, we would have had a three day rather than a three week shutdown. So it has a certain appeal. But I think in terms of a budget process reform that can be applied over time and to keep the pressure on everyone to play the game, what we've come forward with is sort of a no exceptions rule on sequestration. The failure that we experienced, Bill was there, I was there, John was there in the 1980s is that there were too many items left out of that sequestration to really make it as threatening as it needed to be. And the commission has basically said, well, if everyone has a skin in the game, then everyone's gonna stay at the table. And so in terms of our substantive reforms, that's the direction we've gone. Two other quick items before we adjourn. First, anyone who is interested in seeing the papers that didn't get a copy today or any other information about the commission's ideas on budget reform, you can find them on the commission's website, which is budgetreform.org. And finally, I'd like you to join me in thanking all of the people on the dais, including Chairman Spratt especially and Bill Frenzel. Thank you very much. Thank you for coming.