	Principles for a More Transparent and Effective Budget Process

Before turning to enforcement in particular, I will discuss some broad  principles of budget process since it is the framework within which  enforcement mechanisms exist. No process can force choices Congress  and the President are unwilling to make. Having an agreed-upon goal  justifies and frames the choices that must be made. A budget process can  facilitate or hamper substantive decisions, but it cannot replace them. While no process can substitute for making the difficult choices, it can  help structure the debate. The budget structure can make clear  information necessary for important decisions or the structure can make  some information harder to find. The process can highlight trade-offs and  set rules for action. In our past work, we have identified four broad principles or criteria for a  budget process that can help Congress consider the design and structure  of future budget enforcement mechanisms. A process should  1.  provide information about the long-term effect of decisions, both  macro—linking fiscal policy to the long-term economic outlook—and  micro—providing recognition of the long-term spending implications  of government commitments  2.  provide information and be structured to focus on important trade-offs  such as the trade-off between investment and consumption spending. 3.  provide information necessary to make informed trade-offs between  the different policy tools of government (such as tax provisions,  grants, and credit programs), and   4.  be enforceable, provide for control and accountability, and be  transparent, using clear, consistent definitions. First, selecting the appropriate time horizon in which the budgetary  impact of policy decisions should be measured is not just an abstract  question for analysts. If the time horizon is too short, Congress may have  insufficient information about the potential cost of a program. In addition,  too short a time horizon may create incentives to artificially shift costs  into the future rather than find a sustainable solution. At the same time, we need to also understand the longer- term effects of policy decisions. As the first agency to do long-term  simulations for the federal budget as a whole, we are well aware of the  fact that the further out estimates go, the less certain are the numbers. This concern has led us to  propose improved recognition of the government’s long-term “fiscal  exposures”—which may not be explicit liabilities. Second, the structure and rules can determine the nature of the trade-offs  surfaced during the budget process. Consumption may be favored over  investment because the initial cost of an infrastructure project looks high  in comparison to support for consumption. Distinguishing between  support for current consumption and investing in economic growth in the  budget would help eliminate a perceived bias against investments  requiring large up-front spending. The third principle focuses on the method through which the federal  government provides support for any federal goal or objective. The budget and budget  process should provide the information necessary to permit looking across  federal agencies and policy tools—which means across committee  jurisdictions—to make an informed choice. For federal  insurance programs, however, the budget offers a misleading picture  about the nature and size of the government’s exposure. Lastly, and perhaps of most interest given the focus of this hearing, the  budget process should be enforceable, provide for control and  accountability, and be transparent. Finally, the process should be transparent,  that is, understandable to those outside the process. Moving forward this is a major gap: it is the underlying structure  of the budget that is driving the long-term fiscal imbalance. By design they limit  trade-offs and so constrain both Congress and the President. While changing our long-term fiscal path requires looking down the road,  we should start now. Conclusion

The budget process is the source of a great deal of frustration. To change the fiscal path requires  hard decisions about what government will and will not do and how it will  be funded. A process may facilitate the debate, but it cannot make the  decision.
Why GAO Did This Study

As Congress considers the role and design of appropriate budget enforcement mechanisms in changing the government's fiscal path, this testimony outlines some elements that could facilitate debate and contribute to efforts to place the government on a more sustainable long-term fiscal path. Budgeting is the process by which we as a nation resolve the large number of often conflicting objectives that citizens seek to achieve through government action. The budget determines the fiscal policy stance of the government--that is, the relationship between spending and revenues. And it is through the budget process that Congress and the President reach agreement about the areas in which the federal government will be involved and in what way. Because these decisions are so important, we expect a great deal from our budget and budget process. We want the budget to be clear and understandable. We want the process to be simple--or at least not too complex. But at the same time we want a process that presents Congress and the American people with a framework to understand the significant choices and the information necessary to make the best-informed decisions about federal tax and spending policy. This is not easy. Since our first simulations in 1992, we have continued to report on the nature and drivers of the long-term imbalance and on mechanisms to help address the challenge. Focusing on the long term does not mean ignoring the near term. While concerns about the strength of the economy may argue for phasing in policy changes over time, the longer action to change the government's long-term fiscal path is delayed, the greater the risk that the eventual changes will be more disruptive and more destabilizing. Starting on the path to sustainability now offers many advantages. Our increased awareness of the dangers presented by the long-term fiscal outlook leads to a focus on enforcement provisions within the budget process that can facilitate the debate and contribute to efforts to put the government on a more sustainable long-term fiscal path.

What GAO Found

The budget process is the framework within which enforcement mechanisms exist. No process can force choices Congress and the President are unwilling to make. Having an agreed-upon goal justifies and frames the choices that must be made. A budget process can facilitate or hamper substantive decisions, but it cannot replace them. While no process can substitute for making the difficult choices, it can help structure the debate. The budget structure can make clear information necessary for important decisions or the structure can make some information harder to find. The process can highlight trade-offs and set rules for action. In our past work, we have identified four broad principles or criteria for a budget process that can help Congress consider the design and structure of future budget enforcement mechanisms. A process should 1. provide information about the long-term effect of decisions, both macro--linking fiscal policy to the long-term economic outlook--and micro--providing recognition of the long-term spending implications of government commitments, 2. provide information and be structured to focus on important trade-offs such as the trade-off between investment and consumption spending, 3. provide information necessary to make informed trade-offs between the different policy tools of government (such as tax provisions, grants, and credit programs), and 4. be enforceable, provide for control and accountability, and be transparent, using clear, consistent definitions. First, selecting the appropriate time horizon in which the budgetary impact of policy decisions should be measured is not just an abstract question for analysts. If the time horizon is too short, Congress may have insufficient information about the potential cost of a program. In addition, too short a time horizon may create incentives to artificially shift costs into the future rather than find a sustainable solution. Second, the structure and rules can determine the nature of the trade-offs surfaced during the budget process. Consumption may be favored over investment because the initial cost of an infrastructure project looks high in comparison to support for consumption. Distinguishing between support for current consumption and investing in economic growth in the budget would help eliminate a perceived bias against investments requiring large up-front spending. The third principle focuses on the method through which the federal government provides support for any federal goal or objective. The budget and budget process should provide the information necessary to permit looking across federal agencies and policy tools--which means across committee jurisdictions--to make an informed choice. Lastly, the budget process should be enforceable, provide for control and accountability, and be transparent.