Here’s What Real Fiscal Reform Looks Like

Today, the bipartisan Joint Select Committee on Budget and Appropriations Process Reform is considering a bill to reform how we fund the federal government. In Congress these days, we rarely pass a budget, rarely appropriate on time, and have created an unprecedented situation in which deficits continue to skyrocket even as the economy grows and unemployment falls.

We have a lot of work to do to get America’s fiscal house in order, and I appreciate the seriousness with which Committee members have worked to improve our broken process for budgeting and appropriations. With that said, I worry that our efforts will fall short of the real reforms our fiscal situation requires.

For that reason, I am putting forward a comprehensive plan — the Fiscal Reform Act of 2018 — to overhaul our broken system for budgeting and appropriations. Below is a brief history of the irresponsible budgeting I’ve witnessed in Washington, the principles that I believe should underpin future reforms, and a short summary of my plan. I hope you will let me know what you think about this proposal and share ideas for how we can improve it.

Although it is unlikely the Fiscal Reform Act passes today, I hope it will inform future efforts to return us to a place where Washington budgets without the toxic partisanship, brinkmanship, and delay that have characterized my last decade in the Senate. Today should mark the beginning of our work, not the end.

The Fiscal Reform Act of 2018

Colorado U.S. Senator Michael Bennet’s Comprehensive Proposal to Reform the Budget and Appropriations Processes

I. The Broken Budget and Appropriations Processes Fail to Meet Their Goals

Since I arrived in the United States Senate nearly ten years ago, I have not once seen the budget and appropriations processes accomplish their intended goals:

1. Appropriations Goal: To facilitate Congress properly funding and overseeing national priorities in a timely manner through the annual appropriations process, without unnecessary continuing resolutions (CRs), shutdowns, or other brinkmanship.

2. Fiscal Goal: To place federal finances on a sustainable long-term path by making difficult tradeoffs across the entire budget — mandatory spending, discretionary spending, revenues, and tax expenditures — that better align federal spending and revenues.

As many of the Joint Committee members and hearing witnesses have acknowledged, we have failed miserably at both of these goals. Since I joined Congress in 2009, our government has operated under 39 CRs. In the nine full fiscal years I’ve been a Senator, our government has been wholly or partially under a CR for 1,288 days — or nearly 40 percent of the time. In 2013, we endured a mindless two-week government shutdown in service of a deeply unpopular and unrelated partisan political vanity exercise that sought to deny health care to millions of Americans and to eliminate protections for Americans with preexisting conditions.

This year’s Senate Appropriations process offers a glimmer of hope — as Senators Shelby and Leahy have worked with the entire Committee to pass appropriations bills on time without unnecessary drama, poison pill riders, or delays. Were it not for President Trump’s ridiculous demands for a border wall, we’d potentially have an executive branch with all or almost all of its appropriations completed before the new fiscal year began. This shows what simple bipartisan good faith can accomplish, even under the current, flawed process. That said, the true test of whether this good faith will last is if Republicans once again return to appropriations brinkmanship in Congress when a Democratic President is in office.

With the exception of the 1990s — when Congress worked with Presidents George HW Bush and Bill Clinton to cut the national debt and build a projected $5.6 trillion ten-year surplus by 2000 –we have failed to address our fiscal challenges in a responsible manner since the Budget Act passed in 1974. We’ve only passed a Budget as intended six times in 44 years. And even when they’re considered, budgets often have nothing to do with real legislating to cut deficits and debt. Today, budget resolutions realistically serve two partisan purposes:

1. Partisan Press Releases. When Republicans control Congress, budgets act as partisan press releases, with made-up numbers pulled out of thin air to solve a political imperative to “balance” in some arbitrary period. As Chairman Obey pointed out in his testimony to the Joint Select Committee, no Congress — even the deeply conservative Tea Party Congress of 2011 and 2012 — has the fortitude to cut spending to the levels spelled out in these documents. Democrats don’t even bother to pass budgets at all, as little is gained in trying to make the math work out without any real chance of bipartisan bills passing that reflect those tradeoffs, while the resolutions themselves are easily pilloried by partisans.

2. Partisan Reconciliation Vessels. The only real function of modern budget resolutions is to act as a vessel for partisan reconciliation instructions — used repeatedly by Republican Congresses to pass deficit-financed tax cuts and in one instance by Democrats to get the Affordable Care Act over the finish line in 2010. Theoretically, reconciliation instructions could also be used to do the fiscally responsible work of cutting spending or raising taxes (or some combination of the two) on a partisan 51-vote basis, but the political will does not exist for one party to bear the brunt of the bad politics of those paths alone. And realistically, politically painful changes are unlikely to be sustained if passed on a partisan basis.

Both of these functions are inherently partisan, driven by the fact that passing a concurrent budget resolution only requires 51 votes in the Senate. Meanwhile, we are asking our partisan budget resolution to do bipartisan things — set levels of discretionary spending that can earn 60 votes on appropriations bills in the Senate and set savings targets for reasonable, difficult, bipartisan policy tradeoffs that achieve fiscal responsibility. Our budget resolution faces an identity crisis — it’s a partisan document attempting to solve challenges that require bipartisanship.

Recent Appropriations Experience

In recent years, appropriators have had to wait — often well into a fiscal year — for a bipartisan, two-year agreement on the 302(a) topline discretionary spending levels to pass before they even know the target they are trying to hit with their overall appropriations. Much of the important bipartisan work to appropriate cannot be done until the topline funding level under which those tradeoffs are made is clear. Many in Congress have suggested there is a lack of time available (both on the floor and in committee) to deal with the full 12 appropriations bills individually in the Senate before a new fiscal year is upon us. While this has some truth to it, and bundling appropriations bills into minibuses of three or four at a time may help, the concern is imprecisely expressed. The reality is that Congress could easily complete the appropriations process well before September 30 if the Appropriations Committees had a real, bipartisan topline amount to which they could appropriate early in the fiscal year and if the demands for partisan poison pill riders were dropped. The problem is not the total amount of calendar time available before the end of a fiscal year, but rather that partisans feel the need to wait until the last minute (or even past the deadline for a CR) before agreeing to anything to feel like they’ve exerted their maximal partisan leverage on the process.

Timely appropriations would be possible if we do the following: 1) Set a realistic, bipartisan topline target early in the fiscal year, 2) work in good faith, and 3) reject using the appropriations process as leverage to make partisan demands. Any process reforms should nudge Congress toward this kind of an outcome.

Recent Fiscal Experience

Despite our failure in 2011 to pass a bipartisan fiscal agreement, we brought deficits down by about two-thirds as a share of the economy after their 2009 peak, from a high of nearly 10 percent of GDP to about 3 percent of GDP in 2016 — a level at which federal debt is stable. However, our inability to deal with longer-term challenges meant that deficits and debt were projected to gradually rise again over the next decade if we do nothing, driven predominantly by the retirement of the baby boomers, the rise in health care costs, and insufficient revenues to invest in the next generation while meeting the obligations we have to our seniors, veterans, and the most vulnerable.

Instead of addressing these challenges in a bipartisan manner, this Congress has made them much, much worse. First, we passed partisan tax cuts that will increase projected deficits by about $2 trillion over the next ten years (and more than $2.5 trillion if they are made permanent) and then we passed bipartisan, unpaid-for discretionary spending increases that will add hundreds of billions more to the debt. All told, if this Congress’s policies were expressed as permanent changes without sunsets and other gimmicks, debt will be $5 trillion higher than it otherwise would have been by 2027. Debt would rise to 104 percent of GDP, as opposed to 86 percent of GDP. That’s an extraordinary amount of additional damage perpetrated in a short amount of time.

We now face an unprecedented situation in which the longest streak of private sector job growth in history continues — which should yield more tax revenues and less spending on safety net supports, and therefore lower deficits — and yet, deficits are exploding upwards past $1 trillion again next year. We’re living in the house and asking our kids to pay the mortgage. What a shameful legacy to leave to the next generation.

Recent Debt Limit Experience

The most dangerous moment I’ve seen since joining the Senate was when we nearly destroyed the good faith and credit of the United States in 2011 because a minority of partisans brought us to the brink of default over a standoff involving the debt limit. At the time, partisan zealots argued that the uncertain but inarguably significant effects of unsustainable long-term deficits were such an existential threat to the country that it was just and righteous for them to threaten the certain near-term catastrophe of default to address them. Nonetheless, in this Congress, many of those same Obama-era deficit hawks presided over a breathtaking Trump-era binge of tax cuts and unpaid-for spending increases. Fortunately, after the near-default that led to a recession-like collapse in consumer confidence, higher borrowing costs, a hit to 401(k)s, and an increase in deficits, it seems a bipartisan consensus has emerged that the threat of default should not be on the table and the debt limit should be eliminated or, at the very least, de-weaponized.

Where to Go from Here?

Even the perfect process will not succeed in the face of the larger problem we are dealing with in our Congress, an amplification of the deepest and most fundamental upstream political challenge in our country: the problem of hyperpartisanship. Bad faith partisanship has infected too much of our current budget process that, though imperfect, would work just fine in a world where good faith bipartisanship that put country before party was valued and real leadership by individual members was on display. That said, I believe that process reforms that acknowledge our current reality but attempt to reward bipartisan, pragmatic compromise could help lead to better outcomes.

II. Principles & Assumptions Behind Real Bipartisan Budget and Appropriations Reforms

Following are a mix of principles and reality-based assumptions that should underpin any realistic bipartisan approach to budget and appropriations process reforms:

1. Process Can’t Force Upon Congress the Political Will to Deal with Long-Term Fiscal Challenges: No process (or process reform) can force the necessary political will to deal with our long-term fiscal challenges. We imposed the discretionary spending caps and sequester upon ourselves through 2021 as an alternative to a catastrophic default in 2011. Since then, we’ve removed the sequester and gone above the cap levels because neither reflected real, thoughtful, bipartisan support for underlying policies that would lead to spending at those levels. However, a better process can make working constructively easier when the political will is present.

2. Grand Bargains > Small Chunks: Congress is very unlikely to solve our fiscal challenges in small chunks; we’ll only solve them with grand bargains that involve both revenue increases and spending cuts totaling in the trillions of dollars. Difficult votes are easier when they solve big problems (e.g., Social Security reforms in 1983), and my experience suggests that Congress will only occasionally (maybe once a decade) muster the will to take tough votes on fiscal issues. In the meantime, we should not add to the problem and make incremental progress where we can.

3. Bipartisan Fiscal Path to “Do Hard Stuff” Needs to be Better than Status Quo: We should offer good faith partners a new bipartisan pathway that lowers the barriers and reduces the steps needed to do the hard work of achieving a grand bargain to address our fiscal challenges when the political will is there, while ensuring that the product doesn’t get tainted by partisanship as it proceeds toward passage. This must be a better procedural option than partisan reconciliation or typical legislation.

4. Leadership Buy-in Needed: A grand bargain on fiscal issues is unlikely to pass without leadership support, so a bipartisan path should ensure the buy-in of leadership on both sides. When we negotiated the Gang of Eight immigration bill in the Senate in 2013, which received overwhelming bipartisan support — 68 votes — it was clear that part of the reason was that leadership on both sides of the aisle provided room for negotiators to do their work. Conversely, I have seen bipartisan efforts in other areas scuttled by a lack of buy-in from leadership on either or both sides.

5. Vote on a Grand Bargain Bill (Not Resolution) Needed: The vast majority of Republicans won’t vote for reconciliation instructions with unspecified revenue increases in the hundreds of billions or trillions of dollars. The vast majority of Democrats won’t vote for reconciliation instructions with unspecified entitlement cuts in the hundreds of billions or trillions of dollars. The time and substantive distance between the first expressions of bipartisan support and final vote on a grand bargain fiscal package has to be small. The bill should be public for long enough prior to a vote as to digest its effects and have a real debate on the approach but not so long as to allow special interests and extreme partisans to undermine a courageous, bipartisan approach.

6. Few Will Publicly Support a Grand Bargain that Won’t Get a Fair Vote: Nobody should be expected to sign onto a grand bargain that raises hundreds of billions or trillions in revenues and makes hundreds of billions or trillions in spending cuts without the assurance that it will receive a vote in both houses of Congress (i.e. there can’t be many steps between agreement and passage, when the package can be picked to death).

7. Appropriations Shouldn’t Be Held Hostage to Long-Term Fiscal Inaction: We should no longer hold the annual appropriations process hostage to partisan budget resolutions or inaction on a broader budget resolution. We have to appropriate every Congress, even when we lack the political will to make progress on our fiscal challenges.

8. Appropriating Annually Has Value: Annual appropriations are a valuable tool for Congress to oversee federal government agencies. Without the purse strings at stake, Congress would have a harder time exerting its oversight responsibility on the agencies.

9. The Debt Limit Should be De-Weaponized: Threatening to default on the debt by breaching the debt limit is not an appropriate or viable means for achieving deficit reduction. The debt limit does not serve any meaningful purpose in controlling our deficits and debt; it merely presents a risk that we make a historic mistake by failing to pay bills already incurred. It also distracts from the actual process of controlling debt — which happens when revenue and spending levels are set, not when the bill comes due. The debt limit should be eliminated or, at the very least, de-weaponized so the threat of default is no longer available.

III. Summary of the Fiscal Reform Act of 2018

My proposal for budget and appropriations process reforms addresses the shortcomings I’ve seen during my decade in the Senate and reflects the above principles. The following are the components of the Fiscal Reform Act of 2018:

· Eliminate Budget Committees: As many on the JSC have argued — including Budget Committee members themselves — the Budget Committee should either be empowered to do the hard work of budgeting or it should be eliminated. In a separate amendment, I propose reconstituting the Budget Committee to better equip it to do its job. The Fiscal Reform Act would instead eliminate the Budget Committees in both houses of Congress and empower a separate Joint Select Committee on Fiscal Responsibility to take on the difficult bipartisan work needed to achieve deficit reduction. Other more narrow Budget Committee responsibilities would be reallocated to other Committees. For all responsibilities not specifically enumerated in the legislation, the two-year transition to the new process in 2021 will be a period during which committees — including the Budget Committees — will report back their recommendations for reallocating responsibilities in anticipation of bills and/or rule changes to reassign those responsibilities.

· Create new Permanent Joint Select Committee on Fiscal Responsibility: The Fiscal Reform Act would create a Joint Select Committee on Fiscal Responsibility to address our long-term fiscal challenges in a bipartisan manner.

o Membership: Membership would be appointed by leadership early in the first year of each Congress for the full two years of that Congress, without term limits. Much like the JSC on Budget and Appropriations Process Reform, the Committee would include four voting members from each party in each house of Congress — a total of 16 — at least one of whom from each party would be drawn from each of the House and Senate Appropriations Committees, as well as one each from Senate Finance and House Ways and Means. The “Big Four” (i.e. the Majority and Minority Leader in Senate and the Speaker and Minority Leader in House) would serve as ex-officio, non-voting members. Other Chairs and Ranking Members could also serve as ex officio, non-voting members, as agreed to by both parties’ leadership.

o Charge/Minimum Savings Target: The Committee’s charge would be — in consultation with relevant committees of jurisdiction — to produce a comprehensive fiscal plan to reduce deficits by looking at the entire budget: revenues, tax expenditures, mandatory spending, and discretionary spending. That plan must achieve savings that exceed at the very least a minimum Fiscal Target of 5 percent of GDP in debt reduction by end of decade, relative to baseline projections by the Congressional Budget Office (CBO).

o Voting: Any legislation with majority support from each party’s membership that meets or exceeds the minimum fiscal target savings could be taken up by a majority in each house and would get an up-or-down vote without amendment.

o Privileged Consideration: The privileged procedures granted to legislation that receives bipartisan support is based on a modified version of the Joint Select Committee in the 2011 Budget Control Act. If the Fiscal Bill does not receive bipartisan support sufficient to meet the standard but gets majority vote, the bill gets referred to appropriate committees in each house, but loses privilege.

o Content: If the Fiscal Bill receives bipartisan support, as outlined above, all Byrd Rule restrictions on content would not apply — except for the restriction on changes to Social Security (which would be dealt with through a separate bill, described below) and restrictions against increasing the deficit in the long-term beyond the ten-year budget window.

o Deadline: The JSC is charged with producing recommendations by the end of odd-numbered calendar years, with an option for extending the deadline by up to 90 days by simple majority vote of the members of the JSC.

o Social Security Bill: This Committee may also choose to address Social Security in a separate bill, which, if it also receives majority support from each party’s membership, would be subject to the same privileged procedures as the Fiscal Bill. However, this bill would have a 60-vote threshold for final passage.

o Staffing: Staffing would include, but not be limited to, consolidating the total current staff of the current Budget Committees in both houses.

· Reconciliation reforms: The Fiscal Reform Act includes two changes to the existing reconciliation process:

o Reinstate the Conrad Rule: The Fiscal Reform Act would reinstate the “Conrad Rule” to prohibit reconciliation from being used to increase deficits or reduce surpluses in the ten-year budget window. It would also maintain Byrd Rule protections that prohibit increased deficits outside of the budget window.

o Create New Reconciliation Resolution: The Fiscal Reform Act eliminates the concurrent budget resolution process (i.e. the partisan press release Congress occasionally passes and calls a so-called “budget.”) In its place, it creates a new, pared-down reconciliation resolution that would preserve the option for leadership to bring to the floor reconciliation instructions for a vote of the full Congress, with all amendment procedures equivalent to current process. This process would be based on S.Con.Res 9 in 1981, used by Senator Domenici to amend the reconciliation instructions in the previously passed budget resolution.

· Appropriations Reforms: The Fiscal Reform Act includes the following changes to foster greater bipartisanship and predictability in the appropriations process:

o Two-Year Topline Appropriations Levels: The House and Senate Appropriations Committees are each charged with setting two-year discretionary spending limits (i.e. two-year 302(a)s) and then appropriating annually within those limits. The Appropriations Committees must approve two-year 302(a)s by May 1 of the first year of the Congress by a vote of the Committee. The Committee must then approve subcommittee allocations (i.e. 302(b)s) by June 1.

o Allocation Resolution Fallback: If the Senate Appropriations Committee fails to approve two-year 302(a)s and one-year 302(b)s by May 1 in year one, any Senator or Representative may introduce a simple 302(a) and 302(b) allocation resolution (similar to the process for introducing a full budget resolution after May 15 under current law.) The simple allocation resolution would only be allowed to contain dollar amounts for 302(a) and 302(b) levels for one or two years (i.e. could include two years’ worth of 302(b)s or just one year, but must include both years of 302(a)s.) An allocation resolution would require 60 votes to pass in the Senate.

· Change Fiscal Year to Align with Calendar Year: The Fiscal Reform Act would change the fiscal year to align with the calendar year, starting in 2021. It would include one transitional quarter in the fourth quarter of calendar year 2020, as was done in 1976. During the two-year period between now and 2021, the bill charges the executive branch — all agencies, coordinated by OMB — with submitting recommendations for timing changes for their statutorily-required reporting to better align them with the new fiscal year, by September 1, 2019. It would also require the current Budget Committees to submit recommendations for reallocating responsibilities not enumerated for the new Joint Select Committee on Fiscal Responsibility or other Committees in the bill text.

· Debt Target Report: The legislation requires CBO to annually issue a Debt Target Report showing what levels of annual and aggregate deficit reduction are needed to meet a variety of debt targets, consistent with a report CBO developed for members of the Joint Select Committee on Budget and Appropriations Process Reform.

· Eliminate the Federal Debt Limit: The Fiscal Reform Act would eliminate the debt limit, which serves no purpose other than to keep a looming threat of default hanging over our political system and our economy.

· Effective Date: All reforms above would be effective January 1, 2021, except for elimination of the debt limit, which would be effective upon passage.

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