HOW CONGRESS WON THE BUDGET WAR
By Ronald D. Utt, Ph.D.
Senior Fellow
The Heritage Foundation
F.Y.I. No. 109
June 17, 1996
(264K)
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Table 1: Comparing this Congress with Clinton's and Reagan's Selected Spending Cuts
INTRODUCTION
Last winter's budget battle between Congress and the President was seen by most observers as a victory for the President and a defeat for fiscal conservatives in Congress who were attempting to make major reductions and reforms in government spending programs. But when the smoke cleared and the fiscal year (FY) 1996 budget process finally came to a close, it was apparent that while a rhetorical battle was lost, the budget war was won by the fiscal conservatives. And the victory was unprecedented in scope.
How complete was the victory? The 104th Congress:
Reduced year-over-year discretionary spending for the first time since 1969.
Reduced the number of bureaucrats at 29 of the 39 major government offices between 1994 and 1996.1
Eliminated over 270 programs, agencies, offices, and projects.
Helped reduce the deficit to the lowest level in 14 years. Only President Reagan's FY 1982 budget deficit was lower.
Enacted into law more privatizations in just one year than occurred during the entire eight years of the Reagan Administration.
Forced a national debate on structural welfare reform and encouraged states to continue to overhaul their welfare systems. Since taking office, Wisconsin's Governor Tommy Thompson has effectively reformed his state's welfare program and reduced caseloads by 40 percent-- reducing the demand for federal as well as state dollars. The 104th Congress included as part of welfare reform legislation much of the Wisconsin plan. Unfortunately, President Clinton chose to veto the bill.
Deregulated the agriculture and telecommunications industries. Congress passed a 1996 farm bill that begins to bring an end to costly Depression-era agriculture programs by getting government out of the business of telling farmers what to grow. This was the most sweeping reform in 60 years. Farmers increasingly will be able to grow to meet the demands of the market rather than the federal government. In addition, the Telecommunications Act of 1996 eliminates decades worth of outdated rules and restrictions on the telephone, cable, and broadcast industries. It will expand job and export opportunities within the industry, lower the cost of basic communications services, and free consumers to choose between competing providers of service.
WHAT BUDGET DEFEAT?
Although many in Congress have come to believe that they lost the budget war, the facts indicate otherwise. As the final FY 1996 budget reveals, this Congress accomplished an unprecedented reduction and elimination of unneeded federal programs, federal bureaucrats, and federal spending. To be sure, Congress did not close any of the four Cabinet departments -- Commerce, Education, Energy, Housing and Urban Development -- it targeted. Nor did it see its ambitious national reforms in welfare, Medicaid, and Medicare signed into law. But the hundreds of reforms it did accomplish were comprehensive and far-reaching. Indeed, many of its accomplishments were far bolder than even the intentions of the early Reagan Administration, which until now have served as the benchmark for ambitious fiscal restraint.
In the discretionary budget accounts alone, FY 1996 discretionary spending will experience its first decline since 1969 as a result of program terminations and major cuts. More than 270 separate programs, offices, agencies, projects, and divisions were eliminated completely. These include the Pennsylvania Avenue Development Corporation, the Office of Travel and Tourism, the Institute of American Indian and Alaska Native Culture and Arts, the Office of Technology Assessment, the Interstate Commerce Commission, the Bureau of Mines, the Administrative Conference of the United States, and hundreds of other programs throughout the government.
And whereas Congress fell short in its efforts to terminate such targeted programs as the Appalachian Regional Commission, the Department of Housing and Urban Development, the National Endowment for the Arts, and the Legal Services Corporation, it cut their budgets substantially and forced them to curtail activities. Indeed, even by early Reagan-era standards, the reforms are unprecedented. Examples:
The first Reagan budget proposed to cut the National Endowment for the Arts by 27 percent, but achieved a 17 percent reduction. This Congress cut the Endowment by 38 percent.
Reagan wanted the National Endowment for the Humanities cut by 23 percent in his first budget, but achieved 20 percent. This Congress cut it by 36 percent.
Reagan proposed to cut mass transit subsidies by 10 percent; this Congress cut them by 43 percent.
Congress cut the Appalachian Regional Commission by 39 percent and the Legal Services Corporation by 33 percent. Both agencies were slated for termination by the Reagan Administration and by this Congress, but both survived, albeit with significant reductions in funding.
HUD's budget was cut by $2.6 billion -- or by 10 percent compared with spending for the previous year.
Both this Congress and the Reagan Administration failed in their plans to eliminate the Corporation for Public Broadcasting, which once again demonstrated its impressive skills at self-preservation, but this Congress made a real and deep cut. Reagan proposed a 25 percent cut, but CPB's budget rose $10 million in his first year. This Congress substantially reduced CPB's spending last year through the rescission process, cutting planned spending by $37 million in 1996 and $55 million in 1997.
As a result of these and hundreds of other cuts, freezes, and terminations, this year's budget deficit is expected to total $146.3 billion, in contrast to the $193.8 billion expected for this year by President Clinton as part of his budget plan in 1993, and the $196 billion projected in the FY 1996 baseline. Importantly, three-quarters of this deficit improvement is due to the spending reductions enacted by the 104th Congress. As noted earlier, FY 1996's projected deficit will be the lowest since President Reagan's FY 1982 budget.
HOW CLINTON HAS TRIED TO STOP ENTITLEMENT REFORM
Obviously, the deficit would have been much lower had Congress been as successful with the federal entitlement programs as it was with the discretionary spending accounts. Unfortunately, multiple vetoes by the President of repeated congressional efforts to enact reforms in major entitlement programs like welfare, Medicare, and Medicaid have left federal spending higher than it could have been and rendered future reform efforts more difficult.
But in welfare, at least, the congressional emphasis on welfare reform, including its passage by the House as part of the Contract with America, has encouraged many states to press the White House for waivers of current rules to enable these states to reform their welfare systems along the lines proposed by the House and Senate. President Clinton, fortunately, has agreed to many of these waiver requests.
As a result of these reforms, and despite the lackluster national economy, the number of Americans on welfare has fallen by 1.3 million between 1993 and the present, for an overall decline of 9 percent. 2 Since taking office, Wisconsin's Governor Tommy Thompson has effectively reformed his state's welfare program and reduced caseloads by 40 percent.Unfortunately, President Clinton has blocked the rapid expansion of successful state programs like Wisconsin's to the rest of the nation by vetoing federal welfare reform legislation that would have removed the need for cumbersome waiver requests.
PRIVATIZATION FINALLY MOVES FORWARD
Perhaps in no other area was the difference between past and present performance as dramatic as it was in the 104th Congress's success in privatizing government-run enterprises. Spurred forward by the House Speaker's appointment of Representative Scott Klug (R-WI) to head up the House's privatization effort, numerous privatizations have been successfully concluded, often with bipartisan support and White House cooperation.
The Reagan Administration was able to privatize only Conrail and the National Consumer Cooperative Bank, because of intense congressional opposition during the 1980s. But in one year, this Congress has enacted legislation to privatize four major government programs. Although first proposed and developed in the mid-1980s by the Reagan Administration, it took this Congress to pass the legislation (which the President signed into law) to privatize the U.S. Enrichment Corporation, the Naval Petroleum Reserve, and the Alaska Power Marketing Administration. Passed by the House and awaiting action in the Senate is legislation to privatize the government's National Helium Reserve in Texas. Although final transfer prices remain to be determined, the estimated revenues to the federal treasury from these four sales will be several billion dollars.
In addition to these asset sales, this Congress has initiated many contracting out opportunities which will allow the government to provide better services at lower costs. During the first session, for example, Congress enacted legislation to contract out the Internal Revenue Service's debt collection efforts, the General Services Administration's commercial real estate brokerage functions, the special forecasting functions of the National Weather Service, and selective map-making functions throughout the federal establishment. Perhaps encouraged by the more favorable privatization environment in Congress, the Clinton Administration dusted off and improved a Reagan Administration proposal -- called Fed Co-Op -- to set in motion an employee buyout of the background investigations functions previously provided by the U.S. Office of Personnel Management.3 Involving approximately 700 federal employees, and structured as an employee stock ownership plan with a projected 90 percent employee ownership share, the transfer is scheduled to take place in mid-July. Unfortunately, there are concerns that some House lawmakers may attempt to thwart it in an effort to preserve the civil service status quo.
More generally, Congress included in this year's defense authorization bill (Section 357 of P.L. 104-106) language that mandates a more systematic appraisal of contracting opportunities within the Department of Defense (DOD). Although Defense has been one of the few government agencies to take advantage of contracting opportunities, much more could be done. DOD estimates that its cost savings through contracting have averaged 31 percent on contract competitions between 1978 and 1994, and that the savings now total nearly $1.5 billion per year. 4
OTHER POLICY CHANGES
Both the telcommunications and agriculture sectors of the economy were the targets of significant legislative reforms that will place more responsibility and decision making in the hands of private participants operating in the competitive marketplace. And just getting underway in Congress are a series of efforts to overhaul the federal government's involvement in virtually all facets of America's national and local transportation systems. Perhaps indicative of the shape this effort will ultimately take are some innovative pieces of legislation that have been or soon will be introduced in Congress. These include prospective legislation that would devolve much of the federal highway program to the states, as well as existing legislation that would privatize the airports, transfer Amtrak responsibilities to regional compacts created by the states, and remove the trouble-plagued Federal Aviation Administration from the Department of Transportation.
THE UNFINISHED BUSINESS
As impressive as this Congress's performance was, it has only made a dent in the massive waste and redundancy that pervades the federal government. As noted earlier, largely untouched were the costly entitlement programs for welfare, Medicaid, and Medicare. These should be revisited during the FY 1997 budget process and should be campaign issues at all levels of government.
Furthermore, opportunities for extensive and cost-saving privatization remain, with the four power marketing administrations prime candidates for commercialization and self-sufficiency. Potential revenues to the government from their sale have been estimated at between $8 billion and $20 billion.5 Other areas for privatization include all facets of government's role in the transportation sector, including airports, air traffic control, highways, mass transit, and Amtrak. And building on the progress described earlier, Congress and the Administration should be more aggressive in seeking contracting opportunities to improve service at reduced costs. As noted in a Heritage study published last year, budgetary savings of at least $9 billion per year could be achieved through contracting.6
Finally, and notwithstanding the impressive reforms made in the thousands of discretionary government programs, much more could and should be done. Savings of an additional $20 billion should be the goal of the FY 1997 budget. As a casual reading of the hundreds of reports produced by the government's Inspectors General reveals, waste and mismanagement are still pervasive throughout the federal establishment and have largely survived the first round of budget cuts. Indeed, there is recent evidence to suggest that in response to budget cuts, government bureaucracies have engaged in the traditional "Washington Monument" ploy -- cut services to the public instead of making efficiencies in program overhead.
For example, the National Park Service has been highly resistant to the use of contractors to provide routine services such as entrance fee collection, janitorial work, and campground management, preferring instead to use more costly uniformed personnel to perform these services. As a result, and in response to limits placed on the growth of its budget, the Park Service has announced a series of service cutbacks in the form of reduced hours and closed campgrounds just as vacation season is getting underway. Such bureaucratic games should not be tolerated by Congress. Lawmakers should require the Park Service to seek savings through management efficiencies rather than service cutbacks.
CONCLUSION
The record of the last year's budget battle clearly demonstrates that, although the tactical victory may belong to the President, the strategic victory belongs to the 104th Congress. Many of its members, particulary the freshmen, arrived in Washington with an electoral mandate to cut the budget. It was a mandate they honored, and in doing so they accomplished the first reduction in discretionary spending since 1969.
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