Budget Process Reform Options

With the appointment of the Joint Select Committee on Budget and Appropriations Process Reform, focus is rightfully on how to fix our broken budget process. The bipartisan, bicameral committee will have until the end of November to propose recommendations to reform the budget process. 

The current process has five major failures that the Committee should address:

• Lack of transparency – Many parts of the process are opaque and confusing.

• Lack of accountability – Deadlines are often missed, and budget rules are often waived without penalty or repercussion.

• Lack of focus on the long term – The process emphasizes heated debates over short-term issues, focusing primarily on just the 30 percent of spending that is annually appropriated and 0 percent of revenue.

• Lends itself to crisis moments – Crisis moments undermine the public trust and can lead to worse outcomes.

• Increasingly terrible fiscal outcomes – Our debt is at the highest level as a share of the economy since World War II, and in recent months lawmakers have passed large deficit-financed tax and spending bills that only worsen the situation.

The Committee for a Responsible Federal Budget has worked extensively on ideas to improve the budget process, including participation in the Peterson-Pew Commission of Budget Reform (more below), and our recent work combating budget gimmicks, including our new paper Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks.

Our Better Budget Process Initiative has also made recommendations to improve the budget process. Below we have consolidated all 44 recommendations across five papers. Each option is linked to the relevant page of the corresponding paper where it is discussed.

Setting the Benchmark: Reforms to Budget Baseline Rules

1. Treat temporary provisions consistently
2. Assume enforcement of trust fund limitations in the baseline
3. Compare discretionary appropriations to the prior year’s levels
4. Provide information on sources of growth in mandatory spending
5. Remove emergency spending from the baseline
6. Separate the budget enforcement baseline and budget projections

Strengthening the Budget Resolution

Change the process for adopting a budget resolution

1. Make the Budget Committee a leadership committee
2. Change to a joint budget signed by the President
3. Divide the budget resolution in two parts: fiscal goals and an enforceable legislative framework
4. Implement a biennial budget with off-year amendments
5. Provide for more informed consideration of amendments to the budget resolution

Strengthen enforcement of the budget resolution

6. Enforce deficit reduction assumptions in the budget resolution through reconciliation
7. Make it harder to consider legislation violating spending or revenue levels in the budget resolution

Modify the contents of the budget resolution

8. Include enforcement provisions in the text of the budget resolution
9. Reinforce pay-as-you-go rules
10. Link the debt limit to the budget resolution
11. Include Social Security in the budget resolution
12. Provide for long-term savings targets
13. Limit the use of reserve funds
14. Show all budgetary resources in budget functions and committee allocations

Strengthening Statutory Budget Enforcement

Strengthening enforcement of existing rules

1. Establish a separate point of order against provisions to exclude costs from PAYGO
2. Prohibit legislation blocking any sequester enforcing statutory PAYGO or discretionary caps

Restrict the use of phony offsets

3. Prohibit the use of spending cuts with no real savings
4. Restrict the use of timing gimmicks to claim savings within the budget window
5. Prevent the use of artificially inflated baselines to claim savings
6. Prohibit double-counting of increased revenues and spending cuts involving trust funds

Ensure all costs are subject are subject to budget discipline

7. Limit the use of Overseas Contingency Operations as a slush fund
8. Expand the deficit-neutrality requirement in PAYGO to apply to debt service

Improving the Debt Limit

Link changes in the debt limit to achieving responsible fiscal targets

1. Presidential authority to suspend the debt limit if fiscal targets are met
2. Presidential authority to increase the debt limit if accompanied by a plan to put debt on a declining path as a share of GDP
3. Suspend the debt limit automatically if fiscal targets are met

Incorporate the debt limit into Congress’s fiscal targets

4. Automatically increase the debt limit upon passage of budget resolution
5. Require reconciliation instructions to increase the debt limit to accommodate debt levels in the budget resolution
6. Require legislation with significant net costs to include an increase in the debt limit

Apply the debt limit to more economically meaningful measures

7. Subject debt held by public instead of gross debt to the debt limit
8. Index the debt limit to GDP growth, effectively capping debt-to-GDP

Replace the debt limit with limit on future obligations

9. Apply the debt limit to future liabilities and unfunded obligations
10. Replace the debt limit with a “debt cap”

Improving Focus on the Long Term

1. Require long-term estimates for significant legislation
2. Codify rules prohibiting legislation from increasing long-term deficits
3. Allow long-term savings targets for reconciliation
4. Establish a second-five-year test for PAYGO
5. Require annual budget documents to include long-term information
6. Expand the use of accrual accounting where appropriate

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The Peterson-Pew Commission laid out and set the outlines for needed fiscal changes in their report Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt. The commission expanded upon their recommendations and included process reform in their paper Getting Back in the Black. The comprehensive reform list is below:

Adopt a Sustainable Debt Act

1. Establish a medium-term debt target to stabilize the debt
2. Establish annual debt targets to provide a path to the medium term debt target
3. The medium-term fiscal target would specify when, and at what level, the public debt would be stabilized as a percentage of the GDP

Create a Credible Multi-Year Budget Plan

1. The President's budget would be required to meet the statutory targets
2. Congress would adopt a budget resolution with detail for directions to committees to meet the fiscal target
3. The multi-year budgets would remain in place unless or until further adjustments are required
4. Reform budget committee membership to include House and Senate leaders and the chairs and ranking members of both the appropriations and revenue committees and other key authorizing committees

Enact Strong Enforcement Mechanisms

1. If the fiscal targets were missed, automatic triggers would reduce spending and increase taxes (and limit gimmicks to circumvent the targets)
2. Create multi-year discretionary spending caps and strengthen PAYGO
3. If an enacted budget deal does not meet the target, the President could propose rescissions to help meet it

Increase Focus on the Long Term

1. Create a long-term goal after the medium target is met and set new multi-year targets
2. Adopt an aspirational goal of maintaining budget balance over the business cycle
3. Adopt policy changes to deal with longer-term drivers of the debt
4. After long-term plans are in place, create new caps and triggers for drivers of the debt

Increase Transparency

1. Display proposed program changes from current-year levels as supplemental information
2. Require the President to report to Congress on the effects of enacted budget legislation and on progress toward the debt targets
3. Have OMB and CBO increase the prominence of the long-term outlook, and report progress toward meeting the statutory fiscal goals, and whether proposed budgets can be sustained
4. Require OMB to publish an analysis of fiscal exposures in each year’s budget
5. Change the process of budgeting for emergencies based on the average cost of previous emergencies
6. Move to accrual accounting for retirement, pension, and long-term insurance programs
7. Use fair-value accounting when estimating the costs and obligations of federal programs that extend financial guarantees and loans or that hold risky assets
8. Explicitly show in the budget the cost of guarantees to government-sponsored enterprises
9. Fully incorporate tax expenditures into the annual budget process and treat them as equivalent to other entitlements
10. Use budget objectives as the core organizing device for the President’s budget
11. Charge GAO with assessing effectiveness of programs against their policy goals and reporting to the budget committees on opportunities to reallocate resources to more efficient uses
12. Devise a system of national indicators to be used in conjunction with the President’s budget to place budget decisions in a broad performance context