21 the first round and then in the second round, when they make it final, come up with some wild things to avoid a sequester. Chairman ROTH. I suppose the economic factors were not as important in the first go around Senator DOMENICI. True. Chairman ROTH [continuing]. Because of the specific directions written into the legislation. Senator DOMENICI. The chairman is correct. Chairman ROTH. But certainly, there is some substance to the question that there could be a wide variance, as there have been in the past, as to how fast the economy is going to grow. I don't say that that is fatal, but I think that is a problem. Senator DOMENICI. Mr. Chairman, if OMB's discretion is the biggest of the problems, then maybe that issue singularly, in terms of the second go around by OMB, could be dealt with in some way that is constitutional. I don't have it at present, but there some may be some way. Senator Chiles may have one. Chairman ROTH. Let me just throw out a suggestion, one possibility that I referred to. Again, I have taken no position on any of these, but one possibility of correcting the constitutional problem might be to create a new office and to arrive at some ad hoc or informal agreement with the President that Chuck Bowsher, who I think a lot of people have confidence in, would wear a second hat. We will ask the constitutional experts what problems, if any, they see there. Would you care to comment on that as an approach? Senator DOMENICI. Mr. Chairman, I have heard the statement and listened to the thought that perhaps a new entity ought to be created to do it. I think that we have to have this outside effective mechanism. I think it is so important that rather than lose it, we ought to do anything reasonable to keep it. On the other hand, I have a couple of observations. This is so technical in terms of budget authority to outlay ratios, economic assumptions, spendout rates in the programs which would become kind of an exercise in some kind of expertise, that I would surely say if we are going to do it, let's not put some new entity in that doesn't already have the knowledge, because we are just inviting trouble. GAO does have the knowledge. It may very well be that you could structure that. If you can, you won't find any objection from the Senator from New Mexico. I just don't know how you do it. You would have to borrow GAO's expertise, but I don't see where that creates any constitutional issue. It is a question of creating the office itself. Chairman ROTH. As a practical matter, such a new office could borrow staff from GAO. It is also true that GAO, under its present authority, was contracting for outside talent. Senator DOMENICI. Yes. Chairman ROTH. Thank you. Senator DOMENICI. Thank you very much. Chairman ROTH. Any other questions, Senator Rudman? Senator RUDMAN. Just a very brief question to be certain that I understand the distinguished chairman's testimony. There are really two issues that have been involved with any discussions leading to this proposed amendment as they relate to OMB power. Senator DOMENICI. Yes. 22 Senator RUDMAN. The first one has to do with estimating the size of the deficit. The second one has to do with implementing the order. If I understand the distinguished Budget Committee chairman, he is saying that there remains a chance, although slim, of the OMB Director, after being part of the process, in making the final estimate, making a deviation. That is something that the chairman believes is not probable but possible. Do I understand the chairman correctly? Senator DOMENICI. I say that is, indeed, a possibility and that no matter how small one wants to make the word possibility seem, it becomes a political problem that you and those who are sponsors and advocates of the reimposition of a valid triggering mechanism have to consider. Senator RUDMAN. Would you like to venture a guess? Would the Director of the OMB go? Would he make the deficit higher or lower? Senator DOMENICI. Well, historically, I would assume no reason to make any change. They want to make it lower. Senator RUDMAN. I would agree with that. One other question, and that is the second part of my question. I want to make sure that I understand the testimony of the chairman clearly. I believe there is general agreement that the Congress has the absolute authority to write the guidelines not only in terms of the 50/50 allocation, but in terms of the Levin amendment, the program activity language, that there would be virtually no discretion in moving the numbers around within the cut itself, and that if we believe that ought to be made stronger, I believe the chairman of the Budget Committee would agree there is no constitutional problem with that. That is the Congress' authority. Senator DOMENICI. I don't believe there are any problems with that. Let me say, Senator, let me just give a couple of examples, aside from economics, because I don't know that the economic assumptions are the only issue. Let's assume advanced deficiency payments. There is a statute on the books. This is a $4.3 billion outlay item in fiscal year 1987 that is why I bring it up. That is a big item. That is almost the amount by which the Subcommittees on Appropriation in their first go around exceeded the budget resolution. Now, CBO would interpret the law as an expenditure, even though it is discretionary, because we just did it, and they see no reason why we won't do it again. OMB is sitting there representing the President. They say: We are the ones that decide that. After all, the discretion is with whom? Our boss. We aren't going to count it. Now they have their first go around, and they get locked up, and CBO wins. OMB, in their fiscal report, says: No, you don't win, we overrule you. There is a $4 billion savings item. If it comes back into the top, for OMB to do it over again, they are going to say $4 billion, and I don't mind savings, if they are real. The problem is that 3 months later, when you are through with this process and Congress gets up against the deficiency payments, they are probably going to say: If you didn't do it, Mr. President, we are going to do it for you. There goes the $4.3 billion. 23 Senator RUDMAN. I thank the chairman very much. I think the great fear that many people have, is that the OMB Director could sit down and somehow reallocate these cuts in a way that had a particular slant toward what this administration wanted against those things that it didn't want. I think that the chairman agrees with all of us who are working on this that the way this is written, that can't be done in any substantial way. Senator DOMENICI. I would respond there is a high probability that they couldn't and a very high probability that they wouldn't as compared with the the use of possibilities in my testimony here. Senator RUDMAN. I thank the chairman very much. If anybody deserves a prize around this town for taking a lead in this fight, it is the Senator from New Mexico. Chairman ROTH. Senator Domenici, I think Senator Chiles has a question. Senator CHILES. Do you have a minute, Pete? Senator CHILES. We are talking about possibilities now and not necessarily probabilities. It seems to me that there is certainly the power there the possibility is there-that if OMB wanted to they could use a high B.A./outlay ratio for domestic programs and a low B.A./outlay ratio for defense programs. For example, if $20 billion in outlays were to be sequestered, OMB could assume a 1 to 1 ratio for defense and a 3 to 1 ratio for domestic programs, which would mean you would sequester $10 billion in budget outlay in B.A. for defense and up to $30 billion dollars in domestic programs. It certainly seems to me that this power is there. Of course, whether we can or will want to restrict that is unclear. The power is there. You would agree with that? Senator DOMENICI. I would agree with that, and I also say they could have done it this last time. That one was not governed by the fact that we didn't need economics because the number was fixed. They still had to decide how many billions in budget authority they would cut in defense as mandated. They would have been overruled, perhaps, by GAO, but I believe they arrived at a pretty logical conclusion. Senator CHILES. Under this, they would also have the power to make the estimate of the base spending levels for programs, and we know, of course, that can certainly affect— Senator DOMENICI. That is correct. Senator CHILES [continuing]. The programs. Then, of course, the third power they have is the using of economic assumptions. If they wanted to assume very optimistic economic assumptions, they could well differ from what CBO and the GAO would say would be the economic assumptions. Senator DOMENICI. Let me say, Mr. Chairman, for those of us that have been working in this field, and some people think budgets are like we do at home, that this law and our national budget frequently borders on being esoteric. Instead of a budget, we all knew these problems that the distinguished ranking member of the Budget Committee said were there when we said: OMB and CBO, you all sit down and do it. We were absolutely amazed that in a very short period of time, they could resolve the issues that they 24 I am not suggesting that he is wrong. The Senator is raising the issues; he is right, and I have answered them forthrightly. But frankly, there has to be a willingness to make this work. Senator CHILES. There is one other difference that I have some concern about, and that is when they made those original differences, they knew they had GAO as the impartial arbiter. Now, if you don't know that you have an impartial arbiter, you have got a different situation. Senator DOMENICI. I agree. Thank you very much. [The prepared statement of Senator Domenici follows:] PREPARED STAtement of Senator DomeniCI Mr. Chairman, let me start by thanking you and the distinguished members of your committee for this opportunity to discuss with you the implications of various proposals to change the Balanced Budget and Emergency Deficit Control Act, or Gramm-Rudman. We are here today because the Supreme Court has declared unconsitutional the operative provisions of the automatic sequester process. In many ways it is a sad commentary on our modern day legislative and budget process that we are here today having to discuss an automatic procedure affecting our country's future and present fiscal policy. For while I support efforts to correct the errors identified by the Court, it is my fervent hope that these automatic procedures need never be used. The theory underlying Gramm-Rudman is that the threat of automatic across-theboard cuts would be so politically galvanizing as to force Congress and the President to make prioritized cuts beforehand in order to avoid a sequester order. I believe that putting the teeth back into sequestration by overcoming the constitutional flaw will help to keep up that much-needed pressure. Hopefully Gramm-Rudman will work as intended, and we will all play our parts on the budgetary stage to reduce the deficit. However, I have some ancillary concerns that I would like to share with you. There is no guarantee that Congress will adopt so-called "Gramm-Rudman II", though I hope it will. Furthermore, I fear there is no guarantee such an amendment, if adopted, will pass constitutional muster, though, again, I hope it will. If we don't fix it, or if the fix is held to be unconstitutional, Gramm-Rudman will continue to operate through the fallback procedures set forth in section 274(f) of the Act. As we saw last week, the fallback procedure has some serious flaws. It is intended to provide expedited, protected consideration of legislation which provides acrossthe-board sequestration. But in certain circumstances, the procedures are ill-timed, clumsy, and inappropriate. The major problems are the schedule, the inability of the Temporary Joint Committee to affirm a sequester that is already in place, and the confusion over whether the Temporary Joint Committee can be discharged from introduced legislation. First let me discuss the schedule. As it currently exists, the Act provides that OMB and CBO take their snapshot of the fiscal year 1987 deficit on August 15 and sent it to the TJC on August 20. If the joint resolution reported by the TJC is enacted, the President is to issue his initial order on September 1, and it goes into effect October 1. On October 5, OMB and CBO take their second snapshot and sent it to the TJC. If the joint resolution is enacted, the President issues his final order on October 15, and it is effective immediately. The problems with this schedule are obvious. It does not mesh with the normal August recess period. This very year, for example, Congress is not scheduled to be in session between August 20 and September 1. In fact, we are not due to return from the Labor Day recess this year until September 8. Even through the TJC will not receive the OMB/CBO report until that date, and we could enact a joint resolution shortly thereafter, there is no authority for the President to issue the initial order on any day other than September 1. Moverover, the TJC is not scheduled to receive the second OMB/CBO report until October 5, while Congress is scheduled to adjourn sine die on October 3. I think it would be advisable to collapse the fallback schedule significantly, and to change what are currently specific dates to floating requirements, so that each step takes place within a certain length of time after the prior step, rather than on a date certain. 25 What I have in mind is this: OMB and CBO take their first snapshot on August 15. They transmit their report to the TJC on the first subsequent day that both Houses are in session. The TJC has one calendar day to report the joint resolution. The chambers must vote on it within two days of session after it is reported. The President issues his initial order within two calendar days of signing the joint resolution or of our veto override. The initial order goes into effect October 1. OMB and CBO take their second snapshot and transmit their report to the TJC on October 2. The TJC has one calendar day to report the joint resolution. The chambers must vote on it within one calendar day. The President issues his final order, effective immediately, within one calendar day of enactment or veto override. This revised schedule will ensure that the process is completed by October 5, at the latest. I suggest reducing the number of days for TJC action and floor consideration because extended deliberation in the TJC is made unlikely because we cannot amend the report, and because floor debate is limited to two hours in each House, with no amendments in order. I realize that this collapsed schedule will be difficult to follow at certain stages. But I believe it will work more efficiently, particularly in election years. The second issue is retroactivity. We dealt with this last week. The fallback, as it currently exists, does not take into account a situation where an order is issued pursuant to a mechanism which is later invalidated. Last week, the TJC faced the question of ratifying an order that had been in effect for over four months. But the TJC could not report a joint resolution to do this. The TJC could only report a joint resolution affirming the January 15 report from OMB/CBO. However, that report did not reflect what the February 1 order did, because of intervening changes made by GAO. Because Congress' desire was to ratify the status quo, including changes made by laws enacted after February 1, we had to pass a separate concurrent resolution which directed the enrolling clerk to change the joint resolution in order to fulfill our intentions. This problem may arise again if the so-called "Gramm-Rudman II" fix is enacted, resulting in a presidential order, and the Supreme Court subsequently invalidates the new automatic procedure. This situation can be taken care of by providing the TJC with the authority to report legislation retroactively ratifying a presidential order. Another issue concerns the discharge of the TJC should a joint resolution to affirm the Directors' report be introduced in either chamber and referred to it. In the Senate, such a discharge is inferred because of the deadline set for the Committee's action. This is not the case in the House. It seems to me that members of both chambers should be able to further the sequester process by introducing legislation and ensuring a discharge, so that even if the TJC is not able to act, the full Congress could exercise its will and vote on the joint resolution. This problem can easily be taken care of by inserting in the statute langauge which specifically provides for such discharge in both chambers. Let me conclude by saying again that I intend to do everything I can to make sure that neither automatic sequester procedures nor the fallback need ever be used in future years. But since we have these procedures, it behooves us to try to make them work as they were intended. I thank the Committee for the effort expended in discussing these issues. These hearings are essential in determining the best response to the Supreme Court decision, and I commend the Committee for its foresight. Chairman ROTH. At this time we are very glad to have as our next witnesses Senator Gramm and Senator Hollings to speak to us about legislative answers to the Supreme Court rule. I think all members of the committee received last night the latest scoop, the most recent copy of their proposed Balanced Budget Emergency Deficit Reduction Act. So we look forward very much, Phil, to you and Fritz, to present your proposal. Please proceed. TESTIMONY OF HON. PHIL GRAMM, U.S. SENATOR FROM THE STATE OF TEXAS; AND HON. ERNEST F. HOLLINGS, U.S. SENATOR FROM THE STATE OF SOUTH CAROLINA Senator GRAMM. Mr. Chairman, thank you very much for holding these hearings. We are obviously talking about a subject that is |