April 25, 1978
Page 11426
Mr. CRANSTON. Mr. President, as one involved from the start in helping create and implement the congressional budget process, I believe that now is a good time to examine some of its strengths and a few of its weaknesses.
Under the very strong leadership of the Senator from Maine (Mr. MUSKIE) and the Senator from Oklahoma (Mr. BELLMON), this process developed from tentative beginnings in fiscal year 1975 to become a serious exercise in congressional fiscal discipline.
It has attempted to link that discipline to an appropriate economic policy to insure a moderately paced recovery, while avoiding the rekindling of double-digit inflation.
Over these years, this process has often successfully turned back attempts to spend additional taxpayers' dollars totaling billions by rejecting proposals to authorize or appropriate more than the congressional budget would permit.
While many of us occasionally have played significant roles in assisting the budget process to achieve its objectives, no single force has been more important than the force and fervor brought to the Senate floor debates on these matters by the distinguished and dedicated chairman of the Senate Budget Committee.
He has done an outstanding job and I applaud him for it.
We have all learned much over these several years.
Each year, largely as a result of the statutory scheme of the Congressional Budget Act of 1974, we have seen new refinements in the process.
This year, for example, the budget includes an expanded number of spending categories so as to identify more precisely the national priorities for which funds are to be spent. These categories, for the first time, are divided into "missions," to point up the objectives of Federal spending within each category.
But in my view not all of this year's alterations are progressive.
One change is a series of projections — extending 5 years into the future — for each budget function and the missions within it.
Supposedly, these numbers give us some idea where the budget will be 5 years from now.
But one great lesson we have learned from our experience of the past several years is the variable quality of the numbers upon which the whole budget process depends.
When, for example, someone proposes to cut $5 billion from the defense budget next year, we now know enough to ask, "From which defense budget?"
This year's Presidential budget? This year's congressional budget? Next year's current policy estimate? Next year's current law estimate? The previous administration's budget projection for next year?
We have learned about "reestimates," which start the day after a budget is prepared — either by the President or by the Congress — and continue until the end of the fiscal year to which the budget applies.
We have observed the tactics Presidents use to keep their budget deficits lower — and the countertactics that congressional committees use so as not to be outdone by the President.
And we have learned about some of the incredible number of assumptions staff must make to provide us with any usable numbers at all.
The use of 5-year projections is premised on the admirable desire to avoid committing Congress to approval of multiyear programs with sizable future-year costs, after examining the cost implications only for the first year.
I, too, believe strongly in nailing down the tent flap, lest what appears to be the camel's nose probing under the tent turns out to be a large camel.
Of course, we should take into account the long-term consequences of our legislative and budget decisions, using the best information available at the time.
But after we have done so, we should beware giving our rough estimates a standing or credibility they do not merit, or using them as standards for actions the Senate will consider later.
I believe there are grave dangers in giving undue formal recognition to these 5-year estimates.
If taken too seriously, they may lead us into fiscally irresponsible or politically absurd postures, and thus discredit the whole budget process.
I raised some of these points in committee and in a letter to the chairman, published in the committee's report.
Mr. President, I submit for the RECORD my letter of April 12, 1978, to Chairman MUSKIE regarding 5-year projections.
LETTER FROM SENATOR CRANSTON TO SENATOR MUSKIE
U.S. SENATE,
Washington, D.C.,
April 12,1 978.
Hon. EDMUND S. MUSKIE,
Chairman, Committee on the Budget,
Washington, D.C.
DEAR ED: As I mentioned during the Committee mark-up session the other day, I am very concerned about the weight the Committee intends to give to the five-year projections we have been using.
Before we commit ourselves too deeply to the procedures suggested by the staff, I want to comment on them.
It is, of course, very appropriate for this Committee to try to understand the long-term consequences of our one-year budget decisions.
The Congressional Budget Act itself provides for, and encourages that kind of procedure as to the major functional categories themselves; and I support the notion of having long-term, five-year projections available for informational purposes as we consider the fiscal year 1979 figures.
But, I think it may be a mistake to give undue formality to five-year projections — as though they were real — without a thorough understanding and complete disclosure and discussion of how these numbers are derived, what assumptions go into them, to what extent those assumptions are controversial, and how likely all these estimates are to be accurate.
For the five-year projections properly to be included in the budget resolution, I believe that the Committee and then the Senate would have to consider carefully all of these factors individually, and vote to adopt not only figures but also assumptions for fiscal years 1980 through 1983.
To attempt this necessary formal consideration and adoption of five-year projections is too unwieldy and too time consuming. I believe they should be identified in the report as CBO projections of out-year implications and the underlying assumptions should be expressly stated.
Let me quickly explain why I am concerned.
Estimates by OMB and CBO often differ by hundreds of millions of dollars in a single program — not over several years, but in one year's budget. When these differences are projected out five years, they can become multi-billion dollar differences.
Assumptions have been made in all of the entitlement programs, such as veterans' programs, about the "Participation Rate" — the predicted number of eligible persons who, in the forthcoming budget year, will take advantage of the program.
Assumptions have been made about the "Suction Effect" — that is, by what increment an increase in benefits will supposedly induce a higher rate of participation. These assumptions are speculative at best.
Assumptions have been made about the unemployment rate — about the inflation rate, not only of the economy in general but of particular segments of it.
In many functions, we make assumptions about "Substitution Rates" — about interest rates — about investment rates — about spend-out rates — about the ability of agencies to implement new or old programs — about the mix of kinds of housing we expect — about the number of natural disasters we will have — about the market prices of commodities (which fluctuate daily) — and even about the weather (in the agriculture function, to name one) .
The uncertainties inherent in assumptions like these and in estimating techniques make it extremely difficult to make reliable estimates even for one year. And in each subsequent year the problems become geometrically more difficult.
Finally, we are making hypothetical assumptions about legislative actions and future policy directions we cannot presume to know. The one thing we know for certain when we project current law or current policy for five years is that we will be wrong!
Thus, I have two serious problems with the five-year projections.
First, I don't see any reason to give them such credibility that we should debate them and vote on specific figures. Let me say emphatically that I think this Committee has a fine, dependable staff.
And I am particularly impressed by the quality of the economic advice we have received over the past four years.
I just don't have any faith in the ability of economics or any other science to predict with any reasonable degree of accuracy the elements and the state of our economy five years in the future, based as it is on such unmeasurable elements as the state of business and consumer confidence. No person or profession can have that ability.
This problem is compounded by the non-economic assumptions which are hidden in these numbers. In the past two years, we have missed accurately predicting the rate of Federal outlays — presumably the most controllable of all the uncertain assumptions I have mentioned — by $12 billion and by $8 billion respectively, creating our so-called "shortfall."And these were the result of one-year — not five-year — projections.
The "pressures" created on the Budget by these out-year numbers are misleading and false. There is adequate pressure created by the real competition among programs and budget functions for the dollars we can afford to spend in any year.
Second, this Committee, the Senate, and, ultimately, the Congress, as a whole, is charged, under the Budget Act, with adopting the budget.
That is not a responsibility that can be delegated to our staff, or to the staff of CBO.
Moreover, a few instances — of which the Committee's staff are aware — have surfaced of CBO-supplied numbers which contained hidden assumptions reflecting a bias of the analyst who prepared them, as to whether a congressionally approved program would work, and in what way.
Once published, our numbers acquire a life of their own — no matter how often we explain or revise them. Often they are used as a standard against which our future work is evaluated.
While even our one-year numbers need to be constantly revised and re-estimated, the estimating errors compound themselves over a five-year period to make the resulting numbers extremely tenuous and render them of little utility as formal standards for judging present decision making.
In summary, I believe it a serious mistake to give these numbers more credibility than they deserve. I, therefore, urge they be identified as CBO or Committee staff projections and that the underlying assumptions be fully and expressly stated, differentiated from the current budget year numbers.
I request that this letter containing my views be included in the Committee's report.
Cordially,
ALAN CRANSTON.
Mr. CRANSTON. Mr. President, in essence, my letter reaches two main conclusions:
First, that so many assumptions, both economic and non-economic, are built into these future-year projections that their inaccuracy is virtually guaranteed.
Second, that neither the Senate as a whole, nor even the Budget Committee, has the time, patience or fortitude to examine each debatable assumption, determine its accuracy or applicability, and resolve the various policy questions implicit in choosing one set of numbers over others. Yet, without such detailed scrutiny, the Senate will not see the policy implications hidden in the future-year numbers, or insure that these numbers reflect the Senate's intentions.
I am well aware that this year the future-year numbers are not in budget resolution, but merely in the committee's report. I, for one, hope they never show up in the resolution. But once these numbers have been printed, they acquire a life of their own, against which the Senate's future performance will be measured.
Yet no Senate committee — not even the Budget Committee, and certainly not the Senate as a whole — will have determined whether these future-year numbers are soundly based.
Five-year projections are difficult, if not impossible to validate. Yet a Senate which simply accepts them as reasonable budget estimates lends itself to being misled by invisible judgments involving assumptions which may be inaccurate, biased or ill-conceived.
The Budget Committee adopted lump sum cumulative totals, allocated by mission but not by year, for the period fiscal year 1980-83. But in the committee report "committee recommendations" appear for each year fiscal year 1980-83.
My understanding of the cumulative totals on which the committee voted without significant discussion was that they were projections supplied by staff to reflect the considered judgments which the committee made for fiscal year1979.
Yet when the "committee recommendations" — which the committee neither considered nor made — are closely scrutinized, it is apparent that they do not conform with the policies implicit in the fiscal year 1979 budget figures.
For example, in function 700 (veterans' affairs and services) mission 3 (hospital and medical care for veterans), the committee recommended a total slightly above current policy for fiscal year 1979, but the totals for each future year fall below current policy significantly, apparently based on some invisible policy judgments which the committee neither discussed nor made. Certainly, nothing in the record of the committee deliberations supports severe cutbacks in the level of funding for veterans' hospital and medical care that these out-year numbers would require.
All of these assumptions are built into calculations to produce a single set of numbers which the committee believes is better than no numbers at all. I am not sure that belief is well-founded. And I am deeply troubled by the possibility of having imputed to me, as a member of the Budget Committee, assumptions and recommendations with which I disagree, and which the committee never made.
Systematic reductions of future-year estimates produces what has been called "pressure on the numbers".
It is my belief that taxpayer concern about high Federal spending, and our own desire to be bound by appropriate fiscal discipline and economic policy, create sufficient "pressure on the numbers" to eliminate any need for artificially created pressure. I'm sure there is a need for other means to reduce the budget. I just question this artificial numbers game.
While there are, as I have noted, certain judgments that I believe ultimately belong to the Senate and not to the staff, I cannot leave this subject without mentioning the tremendous job I believe the staff of the Budget Committee has done over these several years, and particularly this year, in preparing materials for the consideration of the committee and the Senate, and in helping to make this budget process work. There are many very talented people on the staff of the committee who have made a major contribution to this process. I deeply appreciate that contribution.
One final point, Mr. President, it is not "fiscal extravagance" to propose alternatives to the Budget Committee's recommendations, as though the committee's actions were definitive on how the priorities of the budget should be arranged.
There are fiscally responsible alternatives. I was somewhat dissatisfied with many of the functional totals arrived at by the committee — and my votes in committee reflect that.
But to have different priorities is not to be fiscally irresponsible. My own recommendations would reflect the totals I supported in committee and a slightly deeper tax cut than the committee recommends, and still provide for a lower deficit than the one specified by the resolution before us.
My own preferences include small increases in a number of other functions of the budget where I believe the Budget Committee's recommendations would do injustice to particular programs.
Our fiscal policy can be maintained by offsetting these increases with what I believe is an appropriate decrease:
I do not support the level of military spending endorsed by the Budget Committee — which is $11.6 billion more than the generous amount of budget authority provided for fiscal year 1978 and $1.4 billion higher than the President's request for fiscal year 1979.
That kind of increase in a year of strict budgeting and peace is my idea of fiscal irresponsibility. For that reason, I have supported the McGovern transfer amendment, and other responsible attempts to reduce the defense budget this year.
To the extent that the Senate as a whole takes the time to refine the work product of the Budget Committee to reflect the will of the Senate, the budget process will continue to provide a fiscal discipline with which the Senate can live.
That is an objective well worth achieving..