The Congressional Budget Office: Honest Numbers, Power and - PowerPoint Presentation

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The Congressional Budget Office: Honest Numbers, Power and Policymaking

Philip G. Joyce

Maryland School of Public Policy

August 30, 2011Slide2

Created by the Congressional Budget and Impoundment Control Act of 1974

Goals of 1974 Budget Act

Make Congress a stronger player in budget processEncourage Congress to look at overall fiscal policyCBO’s Role in ThisProvide an alternate economic and budget forecastInform the Congress on the impact of economic and budget decisionsDo cost estimates of legislationAll of this is to happen in a nonpartisan manner

The Congressional Budget OfficeSlide3

Director Chosen by Congressional Leadership

8 directors since creation

Four nominal Democrats and four nominal RepublicansFirst director was Alice RivlinCBO OrganizationBudget Analysis Division—budget baseline, cost estimatesMacroeconomic Analysis Division—economic forecastPolicy Analysis Divisions—do longer term studies

Total of approximately 250 employees

How Is CBO Organized?Slide4

Rivlin

made something ambiguous into something concrete

Leadership was key to developing and sustaining cultureKey events, mostly related to Presidential proposals, solidified CBO’s role and reputationCBO has tended to keep executive branch (OMB) honestCBO Role in Clinton v. Obama health reform I. Lessons from CBO’s PastSlide5

Statute said director and staff appointed “without regard to political affiliation”

Rivlin

clarified that into nonpartisan BEHAVIOR, and no recommendationsShe also made it clear that CBO would to an alternate economic forecast and baselineKey initial event was March 1975 meeting where three goals set:Agency highly respected and nonpartisanInitiative kept within CBOMajor written products “in a form readable by Congressmen”

Ambiguity, then ClaritySlide6

Initially

Rivlin

and other leaders establishing cultureDrilling ethic of nonpartisanship into employeesUncompromising (stubborn?) in sticking to vision, in spite of efforts by some in CongressSubsequent directors reinforced that visionPenner-”a Republican Alice Rivlin”

O’Neill—resisted the pressure to gut the organization

Crippen

and Holtz-

Eakin

(even coming from Bush administration) on dynamic scoring

Importance of LeadershipSlide7

Initial Carter budgets and Carter energy policy

Reagan budget proposals in 1981

Gramm-Rudman and “rosy scenarios”Health reform 1994Health reform 2009/10Default debate 2011Without exception, these involved Presidential proposalsKey Events Shaping CBO’s CredibilitySlide8

Formally

Economic and budget forecast

During some periods, had to compare estimatesInformallyOMB forecasts moderated by knowledge that CBO will weigh inGive support to OMB career staff arguing for the “right” analysisCBO has replaced OMB as the source of “honest numbers”Keeping the Executive Branch HonestSlide9

SimilaritiesWidely understood that CBO role important

Focus on deficit effects

President elevated CBOWH interested before the factInfluence not “grabbed” but “given”Support by Budget CommitteesDifferencesClinton “all or nothing”; Obama iterativeObama: Advance signals from CBO on scoring, budget treatment issuesCongress v. President (Clinton); House v. Senate (Obama)Big public event (Clinton); lots of smaller milestones (Obama)CBO better positioned analytically for ObamaComparing CBO Role in Clinton and Obama Health ReformsSlide10

How does the agency organize to integrate policy analysis and budget analysis?

When does skepticism become bias?

When is nonpartisanship just an excuse for conservatism?How does it stay in the mainstream of economic thought?Can CBO have influence when no one is listening?How high a profile should CBO maintain?How does CBO maintain credibility of its estimates? (Why should we trust CBO?)II. Key Challenges for CBOSlide11

Crucial initial decision—separating policy analysis from budget analysis

Important because BAD could protect the program divisions and allow them to cultivate clients

Fear was that organizing by function would lead to budget analysis forcing out budget analysisChallengesResisting stovepipes where the two “sides” of CBO do not communicatePolicy analysis can be disconnected from the calendarBudget analysis can fail to account for most recent thinkingBudget Analysis and Policy AnalysisSlide12

Budget office are skeptics

There is good reason for this, since people ARE trying to get a free lunch

Holtz-Eakin--CBO’s null is not that CBO is right; it’s that you are wrongThis means, however, that CBO is potentially biased against innovative ideasIt may be that this is just an effective counterbalance against fuzzy thinkingIt opens agency up to, at a minimum, lots of frustrated clientsSkepticism, or Bias?Slide13

Norm of nonpartisanship preserves CBO’s influence

Manifests itself in “on the one hand, on the other”

But sometimes there is no credible argument on the other hand Might nonpartisanship become an excuse for saying nothing? (like the Fed)Particular challenge—budget process and concepts changesReischauer—BBA is a “cruel hoax” (as opposed to “supporters say” and “opponents say”)Nonpartisanship, or Conservatism?Slide14

Macro--CBO Tries to Stay in the Mainstream

Panel of Economic Advisers

Informal checks--Blue Chip Forecast, executive forecastTax Estimates Not Done by CBODynamic ScoringHave always included behavioral effectsBut how far do you go?Estimates of Bush budget in 2003 found little economic feedback effectsAgain, bias is toward the middle of the mainstream

CBO and

Economic AssumptionsSlide15

Analysis is just analysis

CBO directors have sometimes tried to exercise influence more informally

Rivlin with Carter energyVarious directors and the mediaGood example of CBO warnings going unheeded was analysis of GSE risksCBO warnings began almost 20 years before the eventual takeoverCBO not alone here—GAO, OFHEO, Fed ignored as wellThis is a particular problem for policy analysis productsIn case of cost estimates, Congress has to listen

When No One is ListeningSlide16

Problem from the beginning (1977 House report on support agencies led with statement that CBO “maintains too high a profile”)

Substantial attention, from the beginning, to quality of work

Key unanticipated role of CBO has been public education, through mediaHow Public a Role?Slide17

A lot of this is just attention to nonpartisanship

In addition, it is crucial for CBO to maintain an internally consistent set of rules (may be more important than “accuracy”)

It is challenging when the baseline lacks credibilityCBO can be more transparent about its forecasting record than its cost estimating recordShould more effort be made (and can it) to evaluate and publicize cost estimating successes and failures?How Does CBO Maintain Credibility?Slide18

Does political system support independent legislative budget authority?

Is there a need for keeping the numbers “honest” and what is the best structure for that?

Does the analytical capacity exist?Are there other reforms that are more important?III. What About Other Countries?Slide19

U.S. by Design, has separate and equal branches

Is that a good idea?

In other countries?Even in the U.S.?Difficult to have legislative independence without independent analytical capacityDoes this rob essential institutions (MOF)?Independent Budget AuthoritySlide20

Is a tendency for governments to produce self-serving numbers

An independent fiscal institution can offset that tendency

Does this create unnecessary confusion?Is a CBO-type organization the only option for maintaining honesty?What are other possible means?Keeping the Numbers “Honest”Slide21

Necessary analytical capacity

Macroeconomic forecasting

Budget (cost) analysisPolicy analysisAre there universities producing such expertise?Does an independent fiscal agency simply dilute the available capacity? Does the Analytical Capacity Exist? Slide22

There may be MUCH larger problems than the lack of an independent fiscal agency

Possibilities

Economic and budget forecastingAccounting systemsTreasury managementCapital planning and budgetingProgram evaluationAny country should establish priorities for reformAre Other Reforms More Important?