In recent years, the Nation has turned to Washington in the Fall, wondering if the Government will shut down because Republicans and Democrats cannot agree on a budget. And following each year's chaos and brinkmanship there are cries for budget process reform to prevent repetition of the spectacle. Important changes can be made, but the heart of the problem lies not in the integrity of the budget process, but in the deterioration of Congress' adherence to existing rules.

This past year was typical. As Congress failed to meet its deadlines and legislation piled up at the end of the fiscal year, Washington made hasty decisions simply to keep the Government running under the imminent threat of a Government shutdown. Congress enacted 21 temporary funding laws to keep the Government open while President Clinton and Congress negotiated an agreement on a huge omnibus spending bill. That omnibus measure comprised nine separate bills, totaling 2,080 pages, and was finally signed into law on December 21st, nearly three months after the beginning of the fiscal year.

The end product exceeded Congress' budget by $36 billion and the President's Budget by $13 billion for 2001 alone. It contained over 6,000 earmarks, or unrequested projects, for a total cost of over $15 billion.

To provide for a more orderly and responsible budget process and to wrest waste out of the Federal budget, the President proposes immediate and structural reform measures.

Immediate Action:

• Restore an atmosphere of order and respect for the legally established process. In addition to the reforms outlined here, the ultimate reform the President calls for is responsibility in the conduct of the people's business;

• Abide by the budget. Once Congress agrees to a budget, it should abide by the limits established therein. Ultimately, the President proposes that the resolution be a law, requiring his approval. Until that time, the President wants to work with the Congress to adopt and abide by a budget that contains total spending within a reasonable limit determined in advance;

• Establish a National Emergency Reserve fund to budget for true emergencies;

• Eliminate advance appropriations except where clearly justified;

• Complete action on appropriations bills in an orderly and timely fashion to avoid Government shutdowns; and

• Curtail congressional earmarking, especially for special interest spending.

Structural Reforms:

• Enforce and extend limits on spending and the "pay-as-you-go" (PAYGO) requirement.

• Convert the annual budget and appropriations process to a biennial cycle.

• Make the current non-binding budget resolution a binding law.

• Restore the President's line-item veto authority.

In addition to the these initiatives, the President would support legislation to create a bipartisan commission to eliminate pork barrel spending and legislation to create a sunset review board to review agencies and programs periodically.

Spending Limits and Pay-As-You-Go

In 1990, Congress enacted the Budget Enforcement Act (BEA) with specific dollar limits on discretionary spending—amounts provided in annual appropriations acts—and a PAYGO requirement for all other legislation. The PAYGO requirement prohibits decreases in a surplus resulting from enactment of new laws that change mandatory spending—spending not controlled by appropriations acts—or receipts. Under this provision, legislation to create or expand an entitlement program (such as unemployment benefits) or to reduce taxes would have to be offset by other legislation to reduce mandatory spending or increase receipts. From 1990 until 1998, these budget enforcement mechanisms provided an effective means to restrain the growth in Federal spending.

With the arrival of budget surpluses in 1998, however, President Clinton and Congress began to skirt these budget enforcement mechanisms. In 2001 alone, Federal spending is projected to exceed the spending limit by $95 billion. Congress and the previous Administration also waived the PAYGO requirement for $17 billion in spending. The failure to stick to these limits has caused the surplus to be reduced by roughly $2 trillion for 1998–2011. If spending continues at the same rate as in recent years, the surplus will be reduced by another $1.4 trillion over the next 10 years. (See Chart VIII–1.)

The past three years demonstrate that the greatest threat to the surplus and debt reduction is unrestrained growth in spending. To ensure that the Federal Government continues to pay down the debt, the President proposes limits that would allow discretionary spending to grow with inflation over the next five years. Budget limits and restraints have and can continue to limit the growth in Government, protect surpluses when needed, and achieve debt reduction.

At this stage, the Administration believes that capping the growth of discretionary spending provides more than adequate resources for the Government. Even so, the Administration recognizes that these caps may need to be modified in the future. In fact, the President's Budget sets aside a reserve for additional needs and contingencies that could provide, if justified, additional resources for discretionary spending.

The President also proposes to extend the PAYGO requirement for entitlement spending and tax legislation. The President's Budget sets aside the Social Security surplus and additional on-budget surpluses for debt reduction and contingencies. These levels ensure the President's tax plan and his Medicare Helping Hand and modernization reforms are fully financed by the surplus. Any other spending or tax legislation would need to be offset by reductions in spending or increases in receipts.

Budgeting for Emergencies—The National Emergency Reserve

Emergency supplemental bills provided $28.6 billion more than was originally provided in the annual appropriations processes for 1997 through 2000. By definition, emergency appropriations are intended to cover unforeseen events or large domestic disasters. However, emergencies have become a recurring part of the budget process, and they have become magnets for special interest, non-emergency spending.

When Congress and the previous Administration could not find the resources to pay for the 2000 census, they designated a portion of the funding for the census as an "emergency." Other examples of items that clearly were not emergencies include: a Great Lakes icebreaker, a Treasury law enforcement training facility in West Virginia, the purchase of the Douglas Tract on the Potomac River, and funding for the 2nd Avenue subway in New York City.

Four programs make up a large part of the Federal Government's response to domestic disasters:

• Federal Emergency Management Agency's disaster relief fund;

• Department of Agriculture's fire fighting program;

• Department of the Interior's fire fighting program; and

• Small Business Administration's disaster loan program.

This budget proposes a strategy that will ensure adequate funding in the regular budget and appropriations process for the programs listed above, and will limit supplemental appropriations to extremely rare events by setting aside a reserve for emergency needs. The reserve will supplement the four programs when extreme conditions arise, and also supplement other Federal programs to the extent that domestic disasters occur where such programs must respond.

The budget includes adequate funding for a normal year for the four programs listed above, which covers base operations and routine disaster requirements (the request for new appropriations will take into consideration the availability of resources provided in previous years).

In addition, the National Emergency Reserve is intended to cover such large, extraordinarily events as Hurricane Andrew, the Midwest floods, and the Northridge earthquake. The amount of the reserve ($5.6 billion) will be based on the historical annual average of these large disasters.

• The release of resources from the reserve will need to be approved by both the President and Congress.

• Programs will be supplemented from the reserve fund only if the following conditions are met: first, the amount appropriated for the year in which the event occurs are equal or exceed the amount requested in the President's budget; second, the cost of the event exceeds the regular resources available to the program.

• Funding for emergencies should be limited to expenditures that are sudden, urgent, unforeseen, and not permanent.

Reversing Abusive Use of Advance Appropriations

An advance appropriation becomes available one year or more beyond the year for which the appropriations act is passed. From 1993 to 1999, an average of $2.3 billion in discretionary budget authority was advance appropriated each year. In 1999, advance appropriation funding totaled $8.9 billion, an increase of $5.8 billion from the previous year. Most of this increase was due to $4.8 billion in additional advance appropriations for the Education for the Disadvantaged account in the Department of Education.

While advance appropriations can be a legitimate funding practice to reflect and guarantee the full cost of construction or procurement for large capital programs, too often in recent years advance appropriations have been used to hide true spending levels by crediting them to other years. This budget practice distorts the debate over Government spending and misleads the public about spending levels in specific accounts.

In 2000, advance appropriations increased by $14.6 billion to over $23.4 billion. Increases in advance appropriations from the previous year included the following: the Department of Education ($6.2 billion); the Department of Housing and Urban Development ($4.2 billion); the Department of Labor ($2.5 billion); and the Department of Health and Human Services ($1.4 billion).

The 2001 Congressional Budget Resolution attempted to address this misuse of advance funding by including a cap on advance appropriations equal to the amount advanced in the previous year. In order to expand discretionary spending in 2001, certain advance appropriations were reduced and other advances were increased. This did not change the total amount that was forward funded, but did allow for growth in 2001.

The Administration proposes to reverse the misleading budget practice of using advance appropriations simply to avoid spending limitations. This proposal would not affect advance appropriations enacted for programmatic reasons, such as those funding multi-year construction programs.

Biennial Budgeting and Appropriations

Only twice in the last 50 years has the Congress enacted all 13 appropriation bills by the beginning of the fiscal year. According to the Congressional Budget Office, roughly one-third of domestic discretionary programs are operating under authorization statutes that have expired. Because Congress must enact 13 appropriations bills each year, it cannot devote the time necessary to provide oversight and resolve problems in other programs. The preoccupation with these annual appropriations bills frequently precludes review and action on the growing portion of the budget that is permanently funded under entitlement laws.

In contrast, a biennial budget would allow lawmakers to devote more time every other year to ensuring that taxpayers' money is spent wisely and efficiently. In addition, Government agencies would receive more stable funding, which would facilitate longer range planning and improved fiscal management.

Under the President's proposal for a biennial budget, funding decisions would be made in non-election years to help de-politicize the process. Moreover, lawmakers could devote more time to finishing the appropriation bills on time because the next year would be free for other legislative business.

Joint Budget Resolution

The budget process should allow the President and Congress to determine the overall fiscal course for the Federal Government. But under current law, neither the President's Budget nor the congressional budget has the force of law. As a result, the existing process discourages cooperation and encourages posturing.

The Congress currently develops the broad outlines of the budget through the adoption of a concurrent resolution that does not require the President's approval. The President is precluded from this first step of the process that implicitly ignores his power to sign and veto laws. There is little incentive for the President and Congress to reach early agreement on the broad outlines of a budget package, thus increasing the chance of a "train wreck" at the end of the process.

In contrast, a joint budget resolution would recognize that these two branches of Government must cooperate. A joint resolution requires the President's signature and has the force of law. This joint budget resolution would set the overall level of appropriations, mandatory spending, taxes, and debt reduction in a simple document. It would bring the President into the process at an early stage and, together with biennial budgeting, would help restore order to the budget process.

In the past, Congress and the President have at times used ad hoc negotiations at the beginning of the budget process to ensure there is agreement on broad fiscal issues before Congress begins moving individual appropriations, entitlement, and tax bills. A joint budget resolution would formalize this process at the beginning of the year.

Government Shutdown Prevention

For 19 out of the past 20 years, Congress and the President have not finished their work by the October 1st deadline, the beginning of the new fiscal year. This past year, only two of the 13 appropriations bills were enacted by the beginning of the year. When Congress and the President fail to gain enactment of all 13 appropriations bills, the Congress frequently funds the Government through "continuing resolutions" (CRs), which provide temporary funding authority for Government activities at current levels until the final appropriations bills are signed into law. This past year, for example, Congress had to enact 21 separate CRs to keep the Government operating.

Congress must pass a CR and it must be signed by the President to provide funding for agencies. Absent enactment of a CR, the Federal Government is shut down. In the 1980s and 1990s, the Government has experienced shutdowns. Some have argued that the Clinton Administration regularly used the threat of a Government shutdown to extract spending increases from the Congress. These annual, often cynical rituals were destructive of public confidence and reflected poorly on all parties to the debate.

Important Government functions should not be held hostage simply because Washington cannot cut through partisan strife to pass temporary funding bills. In the responsible process the President envisions, appropriations bills would pass on time as the law requires, but a back-up plan to avoid the threat of a Government shutdown is a good idea. Under the President's proposal, if an appropriations bill is not signed by October 1 of the new fiscal year, funding would be automatically provided at the lower of the President's Budget or the prior year's level. The President's proposal would remove incentives for the President or the congressional leadership to use the leverage of "shutting down Government" to achieve spending objectives or to attach extraneous measures they could not otherwise obtain through the normal appropriations process.

Line-Item Veto

A perennial criticism of the Federal Government is that the annual budget contains too many special interest or "pork-barrel" spending items. The persistence of these special interest items erodes citizen confidence in Government. With the arrival of huge budget surpluses, there has been an explosion in spending and special interest spending.

Because appropriations bills must be enacted annually to fund the Government, they attract spending items that could not be enacted on their own. Particularly at the end of the congressional session, it is not uncommon for bills to move through the appropriations process quickly, often with little scrutiny. It is the rare Member who will challenge questionable spending for fear that provisions important to him or her will be challenged in return.

The result of this logrolling is that the President is left with an all or nothing proposition. He must either sign the entire appropriations bill with special interest projects or veto the entire bill and invite a potential Government shutdown.

The President proposes that the Congress correct a constitutional flaw in the Line Item Veto Act enacted in 1996. From the Nation's founding, Presidents have exercised the authority to decline to spend appropriated sums. However, this authority was curtailed in 1974, when Congress passed the Impoundment Control Act, which restricted the President's authority to decline to spend appropriated sums.

The Line Item Veto Act of 1996 attempted to give the President the authority to cancel spending authority and special interest tax breaks. The U.S. Supreme Court found that law unconstitutional.

The President proposes a line-item veto linked to retiring the national debt. This proposal would give the President the authority to decline to spend new appropriations, to decline to approve new mandatory spending, or to decline to grant new limited tax benefits (to 100 or fewer beneficiaries) whenever the President determines the spending or tax benefits are not essential Government functions and will not harm the national interest. All savings from the line-item veto will be used to retire the national debt.