The Congressional Budget Office: Honest Numbers, Power and Policymaking

1. The Congressional Budget Office: Honest Numbers, Power and Policymaking Philip G. Joyce Maryland School of Public Policy August 30, 2011

2. The Congressional Budget Office • Created by the Congressional Budget and Impoundment Control Act of 1974 • Goals of 1974 Budget Act • Make Congress a stronger player in budget process • Encourage Congress to look at overall fiscal policy • CBO’s Role in This • Provide an alternate economic and budget forecast • Inform the Congress on the impact of economic and budget decisions • Do cost estimates of legislation • All of this is to happen in a nonpartisan manner

3. How Is CBO Organized? • Director Chosen by Congressional Leadership • 8 directors since creation • Four nominal Democrats and four nominal Republicans • First director was Alice Rivlin • CBO Organization • Budget Analysis Division—budget baseline, cost estimates • Macroeconomic Analysis Division—economic forecast • Policy Analysis Divisions—do longer term studies • Total of approximately 250 employees

4. I. Lessons from CBO’s Past • Rivlin made something ambiguous into something concrete • Leadership was key to developing and sustaining culture • Key events, mostly related to Presidential proposals, solidified CBO’s role and reputation • CBO has tended to keep executive branch (OMB) honest • CBO Role in Clinton v. Obama health reform

5. Ambiguity, then Clarity • Statute said director and staff appointed “without regard to political affiliation” • Rivlin clarified that into nonpartisan BEHAVIOR, and no recommendations • She also made it clear that CBO would to an alternate economic forecast and baseline • Key initial event was March 1975 meeting where three goals set: • Agency highly respected and nonpartisan • Initiative kept within CBO • Major written products “in a form readable by Congressmen”

6. Importance of Leadership • Initially Rivlin and other leaders establishing culture • Drilling ethic of nonpartisanship into employees • Uncompromising (stubborn?) in sticking to vision, in spite of efforts by some in Congress • Subsequent directors reinforced that vision • Penner-”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

7. Key Events Shaping CBO’s Credibility • Initial Carter budgets and Carter energy policy • Reagan budget proposals in 1981 • Gramm-Rudman and “rosy scenarios” • Health reform 1994 • Health reform 2009/10 • Default debate 2011 • Without exception, these involved Presidential proposals

8. Keeping the Executive Branch Honest • Formally • Economic and budget forecast • During some periods, had to compare estimates • Informally • OMB forecasts moderated by knowledge that CBO will weigh in • Give support to OMB career staff arguing for the “right” analysis • CBO has replaced OMB as the source of “honest numbers”

9. Comparing CBO Role in Clinton and Obama Health Reforms • Differences • Clinton “all or nothing”; Obama iterative • Obama: Advance signals from CBO on scoring, budget treatment issues • Congress v. President (Clinton); House v. Senate (Obama) • Big public event (Clinton); lots of smaller milestones (Obama) • CBO better positioned analytically for Obama • Similarities • Widely understood that CBO role important • Focus on deficit effects • President elevated CBO • WH interested before the fact • Influence not “grabbed” but “given” • Support by Budget Committees

10. II. Key Challenges for CBO • 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?)

11. Budget Analysis and Policy Analysis • 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 analysis • Challenges • Resisting stovepipes where the two “sides” of CBO do not communicate • Policy analysis can be disconnected from the calendar • Budget analysis can fail to account for most recent thinking

12. Skepticism, or Bias? • 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 wrong • This means, however, that CBO is potentially biased against innovative ideas • It may be that this is just an effective counterbalance against fuzzy thinking • It opens agency up to, at a minimum, lots of frustrated clients

13. Nonpartisanship, or Conservatism? • 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 changes • Reischauer—BBA is a “cruel hoax” (as opposed to “supporters say” and “opponents say”)

14. CBO and Economic Assumptions • Macro--CBO Tries to Stay in the Mainstream • Panel of Economic Advisers • Informal checks--Blue Chip Forecast, executive forecast • Tax Estimates Not Done by CBO • Dynamic Scoring • Have always included behavioral effects • But how far do you go? • Estimates of Bush budget in 2003 found little economic feedback effects • Again, bias is toward the middle of the mainstream

15. When No One is Listening • Analysis is just analysis • CBO directors have sometimes tried to exercise influence more informally • Rivlin with Carter energy • Various directors and the media • Good example of CBO warnings going unheeded was analysis of GSE risks • CBO warnings began almost 20 years before the eventual takeover • CBO not alone here—GAO, OFHEO, Fed ignored as well • This is a particular problem for policy analysis products • In case of cost estimates, Congress has to listen

16. How Public a Role? • 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 media

17. How Does CBO Maintain Credibility? • 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 credibility • CBO can be more transparent about its forecasting record than its cost estimating record • Should more effort be made (and can it) to evaluate and publicize cost estimating successes and failures?

18. III. What About Other Countries? • 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?

19. Independent Budget Authority • 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 capacity • Does this rob essential institutions (MOF)?

20. Keeping the Numbers “Honest” • 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?

21. Does the Analytical Capacity Exist? • Necessary analytical capacity • Macroeconomic forecasting • Budget (cost) analysis • Policy analysis • Are there universities producing such expertise? • Does an independent fiscal agency simply dilute the available capacity?

22. Are Other Reforms More Important? • There may be MUCH larger problems than the lack of an independent fiscal agency • Possibilities • Economic and budget forecasting • Accounting systems • Treasury management • Capital planning and budgeting • Program evaluation • Any country should establish priorities for reform