Let’s Decipher the ABCs of CBA, GRH and BEA

Posted July 6, 2009 at 2:28pm

You don’t have to try very hard these days to get those involved in the federal budget process to talk about how it should be changed. Over the past few weeks there have been hearings and conferences devoted to that subject. Task forces and working groups have been studying ideas, developing their plans and drafting reports. And now that the president has proposed a new version of the sometimes admired but often maligned pay-as-you-go concept, it once again is being both highly recommended and heavily criticized.

[IMGCAP(1)]We should applaud all of this activity. The discussion is healthy and much needed. But applause doesn’t mean we’re close to a new process being put in place.

Federal budget processes are generally intended to do two things that frequently are incompatible. The first is to establish a procedure to develop and adopt a budget for the coming year. This process could be outcome-neutral. In 1974, the Congressional Budget Act made it possible for the White House and Congress to put a budget in place but didn’t specify what that budget should do. Higher or lower deficits or surpluses were allowed as long as the procedures were followed.

The process could also be outcome-specific. For example, the Balanced Budget and Emergency Deficit Control Act of 1985, which is much better remembered by the names of its principal Senate sponsors — Phil Gramm (R-Texas), Warren Rudman (R-N.H.) and Fritz Hollings (D-S.C.) — was based on the policy that the deficit should be eliminated. Five years later, Gramm-Rudman-Hollings was replaced by the Budget Enforcement Act, which reconfirmed the deficit elimination requirement and, after the GRH failed to live up to expectations, put a supposedly stronger procedure in place to make it happen.

The other reason a new federal budget process is adopted is to send a message of some kind. The CBA, for example, was intended to show the world that, after continued criticism from the Nixon administration, Congress had its act together and was now in control of fiscal policy. The House and Senate Budget committees, the Congressional Budget Office and a detailed timetable with specific deadlines supposedly made that clear. It was adopted with almost no dissenting votes.

Eleven years after the CBA was enacted and the federal red ink had grown to what at the time was an unimaginable level, the GRH shouted “deficit reduction— from the top of the Capitol. The BEA then told everyone that the deficit reduction that had been promised but not delivered by the GRH was an even higher priority.

The problem comes when the two purposes of a new budget process collide. The CBA promised an orderly process that would get the appropriations enacted by the start of the fiscal year, but only accomplished that the first year the law was in effect. The GRH may have shouted deficit reduction as loudly as it had ever been shouted from Capitol Hill, but the actual procedures it put in place fell far short of the decibels.

This conflict between what a new federal budget process does and the message it sends is very likely to be one of the main problems Congress will have in agreeing to anything new in the months ahead.

In theory, the White House and Congress shouldn’t be constrained by a process but instead should be free to decide what fiscal policy will be most appropriate when the budget is implemented. As we’ve repeatedly seen the past few years, Congress and the president need flexibility to deal with an economy that no longer seems to follow the old computer models and is less predictable and forecastable than ever.

But in the current environment, good economic decisions typically take a back seat to political maneuvering, and the procedures needed to override preset fiscal outcomes are far too damaging and onerous to be used. That means a budget process that allows the flexibility needed today would likely be impossible to enact because, at best, it would be characterized as an abrogation of fiscal responsibility. In other words, another CBA almost certainly is not in the cards anytime soon.

Reducing the federal deficit so the national debt can be paid down seems to be what’s on many people’s minds. But, as has already become obvious from the totally over-the-top criticism of the president’s PAYGO proposal, that’s anything but a universally accepted goal. For some, a process that reduces the deficit by allowing tax increases would be as bad or worse an outcome as no deficit reduction at all. Others would be just as adamantly against such a process if it means that the one spending program or area of the budget they care about would be put in jeopardy. That probably kills another GRH or BEA as well.

That means the only process that may actually be acceptable in the months ahead is one with the ultimate conflict. The first section would make reducing the deficit mandatory. The second section would make it impossible for most spending cuts and revenue increases to be used to make that happen. It would, in other words, send a very strong message that would then be immediately contradicted.

The disconnect between what people say they want to do on the budget and the process they are willing to agree to is real, and ongoing. It means that, rather than another CBA, GRH or BEA, this year at least we’re far more likely to end up with SDW (that is, Something That Doesn’t Work).

Stan Collender is a partner at Qorvis Communications and author of “The Guide to the Federal Budget.— His blog is Capital Gains and Games.