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some other engagements, and I also regret that a number of the Senators are no longer here. We have some questions for him for comments from other Senators.

Jim, why don't you put your statement in the record, if you would, and just proceed to comment as you will.

TESTIMONY OF HON. JAMES C. MILLER III, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET

Mr. MILLER. Thank you, Mr. Chairman. I am pleased to be here. Let me just summarize a couple of points here and then get right to the meat of what I think is on the minds of the committee at this point, or what I understand to be on your minds.

The first point I want to make is that the 1986 Gramm-RudmanHollings sequester seems to have gone pretty well. The agencies have adjusted pretty well; there are no significant adverse effects on personnel or on the services. However, I think that a sequester for fiscal year 1987 would cause considerable disruption and considerable pain. Along with many in Congress, we in the administration are very hopeful that we can avoid that, that the Congress and the President will work together, and that we will have an appropriations process that will result in our being able to estimate the deficit to be less than the trigger amount, certainly below $154 billion, and hopefully, hit the $144 billion mark.

Second, I would like to make the point that we are going to be issuing the so-called Mid-Session review the first week of August. The reason for our delay past July 15 is that we were unable to incorporate changes made in the urgent supplemental, and we needed to do that before we make the report. Second, we needed to incorporate the effects of the release of the data of yesterday, the data on the GNP, the revised first quarter, and so forth.

So we do now expect that to be out in the week of August 4. However, that report will be based on some modified Presidential policy or modifications in the President's budget reflecting actions by Congress over the year, maybe a few policy changes at this point, and we will estimate the deficit there. We will also indicate how we would anticipate, as is required by law, how we would anticipate making up the deficit in order to hit the $144 billion target.

A couple of weeks later, on August 20, we will be issuing another report pursuant to Gramm-Rudman-Hollings, but the baseline for that report will be very different from the baseline of the August 4 report. That baseline will be the so-called Gradison baseline, for Bill Gradison in the House. Basically, it says for any appropriated amounts for which there is no appropriation for fiscal 1987, for the full year fiscal 1987, you have to count the amount of the 1986 appropriations.

So as you can see, overall, appropriations for 1986 are less than for 1987, and so just for that reason alone, we would anticipate the number being different.

I just want to alert everybody that you are going to have reports coming out 2 weeks apart and the deficit numbers are going to be

3 See p. 103 for Mr. Miller's prepared statement.

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different, but they are going to be different primarily because of different baselines and the baselines are written into law, which requires these to be different baselines.

Those are the two points that I wanted to make, and then let me just address one final issue. As you know, Senators Gramm, Rudman, and Hollings have proposed to amend Gramm-RudmanHollings by placing ultimate responsibility for the estimates with the Director of the Office of Management and Budget. Specifically, their proposal would continue to have OMB and CBO report to GAO, but rather than having GAO issue the final report to the President, the GAO would now report to OMB, and OMB would then report to the President and Congress. So the Presidential order of sequester would be based on that report.

We support efforts to improve Gramm-Rudman-Hollings in light of the Synar decision by the Supreme Court. The promise this law makes to the American people, we feel, should be fulfilled. As we understand the proposed amendment, it would correct the constitutional problem the Supreme Court found.

The final report would be issued by an official serving at the pleasure of the President, namely, the Director of the OMB. Moreover, the Director would not be legally required to use the legislative branch numbers in its final report, either by averaging or otherwise. However, he or she would be subject to the same restraints as the Comptroller General was under the original version of Gramm-Rudman-Hollings.

That really completes my statement, Mr. Chairman, and I will be glad to address any questions that you or your colleagues might have.

Chairman ROTH. Earlier, there was a great deal of discussion on the procedures proposed under Gramm-Rudman II, if enacted, with respect to the discretion that is imposed on OMB.

Let me ask you, to what extent would you feel bound by the advisory opinion from GAO? Under the legislative proposal, OMB is supposed to give due regard to the recommendations of the GAO. Ât the same time, you are required under the legislation to make your projections of the budget at the first step. There are, sometimes, very broad differences between the executive branch and the Congress or between the Comptroller General as to where the economy is going.

Does it give you any problems if you make one projection at the first stage and then the GAO makes its advisory opinion somewhat differently? Where does that put you as the ultimate arbiter?

Mr. MILLER. Let me say, Mr. Chairman, first of all, I would view my job as a very narrow, technical one of answering the questions: What is the deficit likely to be? That will be based on what the assumptions are about economic growth.

Chairman ROTH. Who makes the assumptions on economic growth?

Mr. MILLER. Under this, I would have to make, draft those assumptions.

Chairman ROTH. Is that a clerical or a very narrow or technical matter?

Mr. MILLER. Well, it is a technical matter, as you indicated, subject to a great deal of differences among experts. I mean, I dare

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say, if you got 10 economists in a room, you would get different an

swers.

Chairman ROTH. Exactly.

Mr. MILLER. You see that easily in a publication called Blue Chip Economic Indicators. You have all of these various forecasting groups indicating what their estimates are, and they tend to differ. Let me say with respect to the several things: First, we believe, and our Justice Department, White House lawyers, OMB lawyers, believe that whoever has that role to play, whether it is the Director of OMB or some other person, must be serving at the pleasure of the President, and second, must have discretion to choose those numbers. That is, they would not be completely bound by the GAO report.

Let me say second, as you pointed out, the law requires the Director of OMB to give due regard to the GAO report and also to justify, to explain any differences that the OMB would conclude or would have with the General Accounting Office.

Third, it is going to be, assuming this legislation is approved, it will be a very public, if a sequester were required-and as we agree, I think, we want to avoid a sequester-but it would be a very public process. That is, OMB and CBO would make their recommendations to GAO, and by the time it got down to the OMB to make its final decision, these issues would be aired very openly.

Let me say that although the timeframe is fairly short, it may well be that I or any other OMB Director would be persuaded on the basis of discussions with CBO and the discussions with GAO that the original assumptions and the original figures were incorrect. And I would be very open to reviewing those, and I would anticipate having good reason to justify any differences between my final report and that of GAO. But I think it is clear that to be constitutional, the person, namely, the Director of OMB, would have to have some latitude to make those final choices, or else one simply would be back in the woods.

Chairman ROTH. I understand you, and I agree with much of what you are saying, but at the first level, let's assume you are more optimistic, for a good reason. There are broad differences by economists, and it has been known in the past for there to be great differences in projections between the Congress and administrations, whether Democrat or Republican.

So let's assume that the administration is more bullish than the Congress and it comes up to you, and you still feel your original projections are correct. Would you feel compelled to adhere to the GAO advisory committee or

Mr. MILLER. No, no, I would not, and if I would say so, I think I would be saying that my reading of the law would be unconstitutional. I would feel, as I think I indicated, compelled to have good reason to deviate from the GAO report, but I feel that I would have the discretion to deviate accordingly.

I think it would be very surprising to me that if, for example, I, we went through this process and there were differences and that I simply said, "I have looked at this other material, and I think that I was right the first time," and just simply adopted that. The process of discussion with colleagues often reveals, suggests differences.

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But, I think to be constitutional, I would have to say that I would have to have some discretion in terms of choosing those final numbers. Again, it is a very public process. Some people have suggested, you know, it would be open for abuse. I just think, as I was quoted accurately in the paper this morning, I think someone would be crazy to try and abuse the system as the provision is here. But you are right, Mr. Chairman. Experts do differ.

One other thing, let me emphasize, going back to what I said earlier. Projections made are fairly well circumscribed in that I would anticipate, frankly, that we will not have appropriations in all areas, so we will have it folded into the continuing resolution and we will be looking at 1986 levels of spending for most things, extrapolating on the entitlement programs.

As you may recall, in January 1986, OMB and CBO estimated the deficit for fiscal 1986, and it was more coincidence than anything else, but we came inwithin $1 billion of each other. I am not suggesting that we would be that close when we make our report on October 5, whether we make it to GAO or directly to the Congress, but I wouldn't be surprised if it was reasonably close.

Chairman ROTH. The administration, in its brief before the Supreme Court argued that it is not unconstitutional for a subordinate officer to issue a command to the President. I think two of our constitutional scholars will testify on this matter later.

While it may not be a major constitutional issue, might it not be preferable to impose a duty making the final excess deficit estimates on the President rather than ŎMB?

Mr. MILLER. I would have no objection to having the President make those final determinations, rather than the OMB Director, then reporting it and then transmitting those to the President.

I think the Solicitor's argument before the Supreme Court went to the question posed by Mr. Cutler-the remedy proposed by him that would make the Comptroller General no longer removable by the Congress for cause. That would leave, frankly, the Comptroller General in a limbo situation, very much like a judicial officer or, with respect to reporting and accountability, just as a judge, removable essentially only by impeachment, and we do not believe that would be appropriate.

Our reading is that if a subordinate serves at the pleasure of the President, then this language is constitutional; it is acceptable.

Chairman ROTH. Senator Eagleton requested that I ask a question on his behalf. It is sort of a modified version of the fallback provision, what he called "semiautomatic cuts," which would work as follows.

The Comptroller General would draft a sequestration order in exactly the manner now provided for under Gramm-Rudman-Hollings. But, rather than presenting the order directly to the President, as the act prescribes, the amendment would require, instead that it be submitted simultaneously to both Houses for ratification and presented to the President for signature or veto.

The process would take place no later than 3 legislative days after the draft order is received; there would be no amendments. It would be a privileged matter; 1 hour of debate. If the President should veto, a similar expedited schedule would apply to the veto override vote.

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He would like to hear your comments on that.

Mr. MILLER. My response to that, based on what you have said, if I understand you correctly, is that that would be constitutional. That is really not very much different from the fallback position we have now, whereby CBO and OMB would report to the Congress. This would have, I guess, the additional step of CBO and OMB reporting to the Comptroller General and the Comptroller General would report to the President and to the Congress, and then you have an expedited procedure for the presentation of the joint resolution to the President.

That seems to me constitutional, but just a variant on the present fallback position.

Chairman ROTH. I think it is his feeling that in a way, this is a political matter, and that by using this procedure of getting the GAO's recommendations provides a certain amount of shield or protection to Congress, and for that reason, might be more acceptable and more realistic than the current backup.

Jim, you said that the "impeachment only" proposal would not be appropriate. Does the administration believe it to be unconstitutional, and if so, why?

Mr. MILLER. Well, it believes it to be unconstitutional. The nearest analogy I can think of is if someone is removed-the only people that are removed only by impeachment are Federal judges, and in a sense, this would make the person analagous to being a member of the Judiciary. That separation of powers-it's the same argument as before, except the person-▬

Chairman ROTH. We have the President, of course, and Vice President.

Mr. MILLER. Surely, but they are elected officials, and they are listed in the Constitution of the United States, and they are the executive branch of Government. They are the leaders of the executive branch of Government. But if the person is not accountable to the President, directly accountable to the President of the United States, I don't see how they could be part of the executive branch of Government, and in Synar, the determination in Synar, I believe, clearly indicated that the person who made these kinds of decisions, we believe, would be serving at the pleasure and certainly would be a part of the executive branch of Government.

Chairman ROTH. Senator Levin?

Senator LEVIN. Thank you, Mr. Chairman. Mr. Miller, relative to the economic assumptions that you make and the CBO makes, do you use the same guidelines and criteria in arriving at those assumptions or making those assumptions as the CBO does?

Mr. MILLER. I don't think-it probably would not be correct to say they are guidelines. Basically, they are economic data out there. We all read the same kind of data. We receive Commerce Department reports and other official statistics, and we plot our regressions. But then essentially, it all goes into a black box, where we discuss it and come up with some answers. Rudy's technique is not dissimilar to ours. We simply look at all the data, what the pundits were saying, the Blue Chip was saying, and we run our models, and we forecast the different component determinants of revenues and of expenses and then draw our conclusions.