The latest budget malady: gold rush fever

The latest budget malady: gold rush fever

scollender@njdc.com

One of the things I try to impress on the graduate school class on the budget I teach each summer is that a red flag should go up whenever a number in a presidential or congressional budget statement does not quite make sense or seems out of place. Longer budget projections are being used because that is the only way significant money appears to be available to do anything.

If every program is compared to 1998 but one proposal is compared to 1996, for example, there must be some reason the different comparison is being made. I tell my students that the best way to figure out what is happening (and why) is to make the comparison themselves to see whether the stated result still holds. Invariably, of course, the different comparison is used to put the proposal in a far better light than if it were compared the same way as everything else.

This little lecture leads directly to the question at hand. Why have White House and congressional budgeteers started to use 10- and 15-year budget forecasts when the norm up to now has been five years? The definitive answer was not provided until the past five days, when first the Congressional Budget Office and then the Office of Management and Budget released their latest estimates and set off what is the federal budget equivalent of the California gold rush.

Basically, longer budget projections are being used because that is the only way significant money appears to be available to do anything. For example, while the 10-year CBO numbers members of Congress have been citing show a consolidated budget surplus of nearly $2.6 trillion and a non-Social Security surplus of almost $800 million, the five-year forecast shows a total budget surplus of only $934 billion and a non-Social Security surplus of a mere $165 billion. With the common political wisdom being that only the non-Social Security surplus can be safely used for anything, using the more or less customary and far more accurate five-year projections reduces what many see as the way to pay for their initiatives by almost 80 percent.

Not surprisingly, the OMB numbers tell much the same story. While the president has been talking about a 15-year total surplus of more than $4 trillion, the five-year estimates aren't nearly so rosy. Between fiscal 2000 and 2004, OMB is projecting a total budget surplus of $828 billion and a non-Social Security surplus of only $114 billion. Once again, using five-year forecasts instead of the much more-likely-to-be-wrong 15-year estimates virtually eliminates the amount available to pay for tax cuts or spending increases.

To be fair, there is nothing magic about five-year forecasts. The 1997 budget agreement between the Clinton Administration and Congress used seven-year projections, and CBO and OMB have both been providing longer and longer estimates in recent years.

In addition, five-year forecasts have not always been part of the federal budget process. When one-year estimates proved too easy to evade with proposals whose impact was limited in the first year, projection of two, three, and eventually five years became the norm.

The best way to judge whether the current, much longer projections are appropriate is to ask yourself whether they would be as popular if deficits rather than surpluses were being forecast and the longer estimates showed a bigger problem than the shorter-term numbers. That, in fact, is what happened in the 1980s when continuing deficits were anticipated. Almost no one talked about the longer-term implications of current policies -- the outlook was far too bleak. As a result, five-year estimates were what were usually used. This only started to change when budget surpluses started to be possible and there was a desire to show them in the estimates.

So what would I tell my class about all of this? Forget about the 10-year and 15-year numbers and do the five-year comparison yourself. It shows that the budget outlook has indeed improved, but not nearly as much as many are claiming. This means that, contrary to the mentality currently emerging, there is not as much budget gold in them thar hills as some people are saying. And it makes far more sense to go slow with new spending and taxing programs than to rush out and stake a claim.

Question Of The Week

First, some unfinished business.

Congratulations to Hester Grippando of the Congressional Budget Office for correctly answering the question of the week from Jan. 12 by guessing that the color of the Clinton fiscal 2000 budget would be black. Hester, who works in CBO's revenue estimating shop, gets an "I Won A 1999 Budget Battle" T-shirt to wear while analyzing the president's proposals over the next few weeks.

Last Week's Question. There were many suggestions about an appropriately named federal budget ride in a theme park, but many are unprintable on a family-oriented Web site. The judges selected three winners of an all-new "I Won A 1999 Budget Battle" T-shirt. They are George Hager of The Washington Post for his suggestion of an extremely steep budget roller coaster, David Allton of Madison, Ala., for a virtual reality ride called the "Great Surplus," and Chris Granberg of the Fraternal Order of Police for his "Last Omnibus to Utopia"--a ride for all those groups not mentioned in this year's State of the Union Address.

This Week's Question. Special thanks to Martha Phillips, who has just become the Concord Coalition's first former executive director and who gets a T-shirt for suggesting the following killer question. Congress used to be required to pass two budget resolutions each year. When was the last year it actually passed two? Send your responses to scollender@njdc.com and you could join the ranks of the budget elite with your own "I Won A 1999 Budget Battle" T-shirt.

Correction

Thanks go to CBO Deputy Director Jim Blum for pointing out an error in the Jan. 20 column. Jim correctly noted that the next CBO director will be the organization's fifth rather than fourth. The only defense I can offer is that I usually deal in billions and therefore have problems with small numbers.

As The Budget Turns

This is your last chance to sign up for "As The Budget Turns," a half-day executive briefing on what this year's budget debate will bring and how you should prepare for it. This vitally important executive briefing will be held on Feb. 10 at the Willard Hotel in Washington and will be conducted by "Budget Battles" columnist Stan Collender. Don't miss this fun and informative briefing, which will be presented as if you were listening to a live broadcast of an old-fashioned radio soap opera. For a full agenda and much more information click here or call Beverly Campbell at (202) 828-9712.

NEXT STORY: Budgets in brief for key agencies

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