After the Line Item Veto: Tools for Controlling Spending

Mr. Chairman, I appreciate the opportunity to discuss proposals to strengthen the rescissions process as an instrument of spending control. In assessing proposed changes, it is important to look back at how the process has evolved, and why the original presidentially-originated rescissions process has been largely displaced by one centered in and controlled by Congress. The discussion must be framed in the context of prolonged friction between the President and Congress over budget policy, as well as in the context of the caps on discretionary spending that have been in place since 1991. Rescission would be a very different process today if instead of fighting over budget policies and priorities, Congress and the President were of the same mind on budget issues. Rescission also would work very differently if instead of the spending caps, Congress were free to appropriate at whatever level the House and Senate majorities wanted.

The table below, drawn from data prepared by the General Accounting Office, summarizes the history of rescissions by presidential administration, beginning with President Gerald Ford, the first President to exercise the power to propose rescissions under the Impoundment Control Act of 1974. Each President’s record on rescissions is a measure of his budgetary policy and of his influence in Congress. Between 1974 and 1997, presidents submitted more than $75 billion in rescissions to Congress, but almost 60% of total rescissions were initiated by President Ronald Reagan. The high-water mark for rescissions came during the first two years of the Reagan presidency, in 1981 and 1982, when the new President proposed more than $23 billion in cancellations and Congress rescinded more than $15 billion. Excluding the Reagan Administration, presidents have proposed an average of only $2 billion in rescissions a year. Over the years, Congress has enacted only one-third of the rescissions proposed by the President. With 1981 and 1982 excluded, the rescission approval rate would drop below 20 percent. With these years excluded, Congress has rescinded less than $500 million a year on presidential initiative. Clearly, presidential rescissions now play an insignificant role in controlling federal spending.

Rescission Trends, by President (dollars in millions)

But the data presented here show another side to the rescission story. Congress frequently rescinds funds on its own initiative-without waiting for a presidential request-simply by passing a bill canceling previous appropriations. These rescissions are often enacted in regular or supplemental appropriations acts. In fact, for every dollar rescinded by Congress pursuant to the President’s impoundment request, it has rescinded four dollars by initiating legislation. Although congressional procedures vary, once enacted, there is no legal distinction between a rescission implemented in a special rescission law or in a regular appropriations act.

At first glance, Congress’ behavior appears to be puzzling. Why would Congress take the initiative and rescind funds it had previously appropriated? Why, if it does not like rescissions initiated by the President, has it been so active on its own? The puzzle evaporates when we recognize that Congress initiates rescissions either to thwart the President or to make room within the discretionary spending caps for other expenditures.

Rescissions stir conflict between the President and Congress. Every rescission requested by the White House is a demand that Congress cancel resources that it previously appropriated. By implication, and sometimes by press release as well, proposed rescissions make the point that Congress erred when it appropriated the money. This is not a message that appeals to legislators, especially when it comes from a President from the other party who has different budget priorities. In this contest, Congress has the advantage because the President must release the money if it refuses to pass a rescission bill. Over the past quarter of a century, presidents have been compelled more than $50 billion of the $75 billion they wanted rescinded.

Some have argued that expedited budget procedures which ensure an up or down vote on each proposed rescission would provide for a more effective and balanced rescission process. While I favor an expedited rescissions, I doubt this change would breathe much new life into the moribund presidential budget process. As long as government is divided, as it has been for 26 of the past 31 years, and as long as budget priorities divide the two parties, as has been the case throughout the 1980s and 1990s, the rescission process will languish. Strengthening his rescission power would not do much to control federal spending, but it might give the President a club which to verbally beat up on Congress when the two branches are warring over budget policy.

Although it has not followed the President’s lead on rescissions, Congress has incentive to cancel some old appropriations when the budget appears tight and it wants to make room for additional spending. In some years, Congress has rescinded funds to pay for supplemental spending without exceeding the discretionary caps; on others, it has used rescissions as “earnest money” to show that even though it has appropriated more than the President requested, the additional amount has been offset by canceling some old money. Understandably, the tighter the discretionary caps, and the greater the pressure to spend, the greater the incentive to find offsets. The best offsets have been of dormant or inactive funds, such as for weapons systems that have been delayed by technical problems or housing funds that have been reserved for future use. Depending on one’s preferences, these offsets can be viewed as escape hatches which weaken spending control or as safety valves that enable Congress and the President to continue to operate within the spending caps.

Current practices raise two issues concerning both the presidentally and congressionally initiated rescissions. One is whether the funds saved by canceling past appropriations should be locked away for debt reduction, the other is whether rules governing spending offsets should be tightened. Both questions are relevant to the issues before the Subcommittee because the extent to which Congress rescinds funds depends on how the savings are treated.

The line item veto law which was ruled unconstitutional by the Supreme Court had a lockbox provision. In effect, the discretionary caps were reduced dollar for dollar by the amount rescinded. It is not clear to me, however, that combining lockbox with expedited rescission procedures would build support in Congress for more rescissions. Clearly, some Members might be more favorably disposed to vote for rescission is they knew the savings were applied exclusively to reduce the public debt. Other Members, however, might support more active rescission only if the savings enabled more spending on other programs.

In my view, budget rules work best when they are supple, and when they can accommodate different fiscal conditions and changes in the relationship between Congress and the President. On this basis, I would prefer a flexible rule which would have the initiator of a rescission proposal specify how the savings were to be applied. Both the President and Congress would have the option of providing for rescinded funds to be locked up or to be spent on other programs. In voting on rescissions, Members would allow their preferences on these matters to influence their vote.

A fair assessment of the use of rescissions (and other resources) as spending offsets suggests that there has been some stretching of the rules to accommodate additional spending. When money which will be spent substitutes for money that will not be spent (at least not this year or next) the ploy should be scored as a spending increase. While I subscribe to this view, it must be recognized that scoring has come under enormous pressure, and this pressure is likely to escalate the longer the caps are in place. I do not like some of the gimmicks used as offsets, but it is not certain that enacting elaborate rules would help much. My preference is for two rules changes that would ease the pressure on politicians to evade the caps. One would make clear that emergency spending does not have to be offset; the other would introduce criteria for determining whether spending is indeed emergency. Together, the two rules changes would reduce the incentive to fabricate rescissions in order to spend more.

I would like to conclude by urging the Subcommittee to assess these and other rules changes affecting rescissions in the light of congressional-presidential relations. What is at stake here is not just the amount spent but the power balance between the two political institutions of national government. For generations, impoundment has been a battleground between the President and Congress. Pretending that the issue is only one of budgetary procedure will not diminish hostilities, nor will it buy budgetary peace. Because the current rescission rules were devised during the Watergate-Vietnam era, they rein in presidential power. Some have argued that the President’s hand should be strengthened by forcing Congress to vote up or down on every requested rescission. Congress still would have the last word, but in contrast to the current arrangement, it would not be able to prevail by inaction. But inasmuch as the prevailing rules favor Congress, it may be unwilling to alter the rescission procedures. Perhaps we will have to wait until Congress and the President are controlled by the same party before this issue is addressed.