January 26, 1998
MEETING OF THE PRESIDENT'S COMMISSION TO STUDY CAPITAL BUDGETING
Meeting of December 13, 1997
The co-chairs of the Commission, Kathleen
Brown and Jon Corzine, began the meeting at 10:05 a.m. on Saturday, December
13, 1997. All Commissioners were present at this time or shortly thereafter,
except for Laura D'Andrea Tyson, who gave prior notification that she could
The meeting was held in the Truman Room
of the White House Conference Center, 726 Jackson Place, Washington, DC,
and was open to the public. Sitting at the table with the Commissioners
were Barry Anderson, Executive Director for the Commission and Assistant
Director for Budget at the Office of Management and Budget (OMB); Maynard
Comiez, Designated Federal Official from the Department of the Treasury
under the Federal Advisory Committee Act (FACA); Gene Sperling, Assistant
to the President for Economic Policy and Director of the National Economic
Council; Robert Damus, General Counsel for OMB; Joshua Gotbaum, Executive
Associate Director for OMB, and Joseph Minarik, Associate Director for
Economic Policy for OMB. Mr. Sperling and Mr. Damus left shortly after
their presentations. As required by FACA, the meeting had been announced
in the Federal Register 15 days in advance on Friday, November 28.
Four items were distributed or available
at the meeting:
Summary of Decisions at the December 13 Meeting
copies of the material in the briefing binder sent to the Commissioners
a proposed agenda prepared by the co-chairs;
a list of Commissioners with a brief statement about each; and
a statement, "Questions on FACA Issues."
The Commission is seeking the views of all interested groups and individuals
concerning capital budgeting.
Barry Anderson, Assistant Director for Budget at OMB, agreed to be Executive
Director for the Commission.
The Executive Director should move quickly to establish a website and E-mail
The Commissioners should send the Executive Director the names of groups
and individuals, including those in Congress, who can help broaden the
Commission's knowledge and understanding of budgeting in general and capital
budgeting in particular.
The Department of the Treasury was invited to have its attorney present
at each meeting if the Department felt this would help clarify legal issues.
The Commission agreed to the following proposed schedule:
January 30 (Friday) and January 31 -- Washington
Friday morning -- an educational session
Friday afternoon -- meet with Congressional representatives and perhaps
Saturday morning -- Commission meeting to discuss "strawman" paper
March 6 (Friday) and March 7 -- San Francisco [Location changed
to Washington DC]
April 24 (Friday) and April 25 -- Chicago
June 5 (Friday) and June 6 -- New York City
August 3 (Monday) -- Washington, DC
Later sessions are to be scheduled as needed.
Discussion During the Meeting
[Note: The following notes are generally chronological, as the Commission
addressed different topics through the day. Some observations, however,
have been shown under common headings in order to include in one place
all the observations on a particular topic.]
The co-chairs distributed a proposed
agenda for the day's meeting.
Ms. Brown asked the Commissioners to
introduce themselves and say a few words about their background and interest
in capital budgeting. Each Commissioner spoke briefly.
Remarks by Gene Sperling, Assistant to the President for Economic
Policy and Director of the National Economic Council
Ms. Brown introduced Gene Sperling, who
gave some background on the issue from the perspective of the Administration.
He said that in the 1992 Presidential campaign Mr. Clinton had expressed
great interest in increasing both private and public investment in order
to increase the capacity for growth. In the primary campaign, Mr.Clinton
spoke of the notion that not all Government spending should be viewed in
the same light and that capital and consumption spending should be treated
differently. During the election campaign, he proposed to increase both
public and private investment and to cut the deficit by half in four years.
The Administration has kept its promise of stimulating economic growth
by cutting the deficit and increasing Federal investment spending.
In 1994 the Administration reviewed the
capital budget idea, starting from scratch. Mr. Sperling said he began
as a true believer in a capital budget but, when he tried to make the case,
found the cons much stronger than he had thought and became a skeptic.
It was clear that people had very different ideas about the right way to
budget and the meaning of investment. Many people in the Administration
thought that investment included spending for technology and people. Others
felt that it meant applying notions of depreciation and returns to infrastructure.
The review indicated that once programs such as Head Start were included,
one went down a slippery slope and would never be able to go back. Everybody
was wary that some spending might be included in the investment category
just to reduce the restrictions on it.
Another consideration in 1994 was that
they had passed a budget deficit reduction package the year before. There
was skepticism over whether the Administration was serious about eliminating
the deficit and concern that any effort to redefine the deficit would be
criticized as a way to sneak in more spending. In the next two years, 1995-96,
there was the budget "war" that led to the Government shutdown.
Now that the budget is on a path toward
balance, the discussion has turned from how to get the deficit down to
what to do with the surplus. This is a good time to return to the issue.
Mr. Sperling said he is wondering again what is the correct way to budget
and whether a capital budget is workable. He wants to see how the Commission
This is not a case where the Administration
is looking for a Presidential commission to provide political cover or
to put off a decision until later. He made reference to the recent Social
Security Advisory Council chaired by Edward M. Gramlich, whose members
split over its recommendations. Despite the lack of agreement, the Commission
has nevertheless been very helpful in defining and informing the debate
on long-term Social Security issues. Whether or not the work of the Commission
to Study Capital Budgeting leads to a change in law, Mr. Sperling hoped
that the Commission's report will be looked on as the definitive work on
capital budgeting and that people will want to read it for many years to
He closed by saying that the President
and Vice President were thrilled at the impressive group of people who
had agreed to serve on the Commission. The Commission could call on him
for help, including feedback or setting up meetings with Congress. Mr.
Sperling had to leave, and the co-chairs thanked him for his remarks.
Ms. Brown and Mr. Corzine then said they
came to the issues before the Commission with a blank slate and wanted
to collect as much information and as many views as they could before coming
to a conclusion. In doing this, they wanted the Commission to operate as
informally as possible. Ms. Brown said that she would like the Commission
to provide a document that is as much a touchstone on this issue as the
report by the President's Commission on Budget Concepts was a touchstone
on budget concepts thirty years ago.
The co-chairs referred to the agenda
they had distributed and said they would like to address certain housekeeping
issues, including issues of ethics as they related to the Commission.
Federal Advisory Committee Act (FACA) and Ethical Issues
Maynard Comiez, Designated Federal Official
(DFO) from the Department of the Treasury under FACA, addressed the Commission.
He said that this was a Treasury commission and that the Secretary of the
Treasury was very interested in its work. Hethen reviewed some of the requirements
under FACA: (1) the Commission must be guided by FACA; (2) the Commission
has a charter, which has been filed with GAO and Congress as the law requires;
(3) the Commission must follow the mandate outlined in the Executive Order;
(4)meetings must be open to the public unless there is a legal justification
under FACA for them to be closed; (5) all meetings must be announced in
the Federal Register 15 days in advance; (6)minutes are required and must
be made available to the public; (7) informal notes are being taken for
this meeting but stenography or taping will be arranged for future ones;
(8) the DFO maintains the minutes of the meetings and the financial records;
(9) the DFO approves or calls the meetings, must be present at all meetings,
and can adjourn a meeting if it is in the public interest; and (10) a "meeting"
does not include one commissioner inviting another to dinner.
Mr. Comiez announced that he was retiring
and E. William Dinkelacker of the Department of the Treasury would be his
replacement as the Designated Federal Official.
Robert Damus, General Counsel for OMB,
then discussed ethical questions and possible pitfalls. There was discussion
and questions from the Commissioners. Mr. Damus made several main points:
Insofar as a person is on the Commission he or she is a Government employee,
and failure to observe this principle can cause problems.
Persons not on the Commission, or employed by the Government, should not
be part of the deliberations. Commissioners can talk to anyone but should
not discuss internal deliberations with outsiders unless the discussion
is made public generally.
The work of the Commission is so general that there would probably not
be a conflict of interest between their normal activities and their work
on the Commission. No action of the Commission would cause a direct predictable
effect on one industry or individual.
All papers received from the public by the Commission become official records
of the Commission and should be sent to the Executive Director for subsequent
distribution to the Commission.
Internal drafts or other documents shared among Commissioners do not have
to beprovided to the public.
A Commissioner's individual staff are not staff of the Commission and should
not be used as such. They are permitted to prepare a paper or do other
work for an individual Commissioner, but not the work of the Commission
itself. Only Federal employees maybe staff for the Commission. Persons
outside the Federal Government may not do volunteer staff work for the
Commission, but the Commission can enter into contracts or hire people
who are not currently Federal employees.
Subcommittees are permitted and subcommittee meetings are not required
to be open to the public, but they can only report back to the Commission
in a meeting open to the public.
The Commissioners should feel free to call Mr. Damus with questions. In
answering questions, he would be representing the Government and the conversations
would be privileged.
Mr. Corzine asked whether they should have
a counsel at every meeting to be sure there were no grey areas. Mr. Comiez
said he would try to have a person from the Treasury Department's Office
of General Counsel present at future meetings.
Mr. Anderson introduced OMB staff who
would be helping him as Executive Director and emphasized that Government
employees from other agencies, including GAO and CBO, were sought as staff
members as well. He wanted this to be a very inclusive staff effort.
Replies to Letters
Replies to letters from the public should
be handled through Mr. Anderson.
The Commission discussed how it should
interact with the press. The co-chairs expressed the view that it would
be best if statements to the press were coordinated through them. It was
very important to reserve judgment about the Commission's work.
The Commission expressed great interest
in meeting early with the appropriate members of Congress to advise them
of the Commission's interest in receiving views of everyone and specifically
inviting appropriate members of Congress to testify before the Commission.
Budget Enforcement Act
There was some discussion of the Budget
Enforcement Act(BEA). Some felt it would be important to understand the
BEA better because it was central to how the Federal budget is developed
and enacted. Others felt that this was too much into the nuts and bolts
of the budget process and that the Commission should look at bigger and
longer-term issues. Mr. Anderson said he thought that the BEA concepts
were critically important to the Commission but at a high level of generality.
Capital Budgeting Issues
The Commissioners discussed a number
of capital budgeting issues. Their major comments follow:
Should there be a budget decision rule, such as that the operating budget
be balanced and capital spending be financed by borrowing?
Is capital investment constrained by being included in a unified budget
that should be balanced every year? If so, the Commission should consider
whether that is a reasonable view of the budget in the first place.
What would be the underlying purpose for separating operating and capital
If operating expenditures were constrained but not capital expenditures,
would the budget be loaded up with pork?
If the budget has a bias with regard to capital spending, what is its direction?
Related budget concepts can be re-thought, if they bear upon the questions
the President has asked.
The Commission should look at the dynamics of the relationships among different
types of spending.
The Commission has been asked whether some types of expenditures have future
returnsrather than being a transfer payment to the public.
Should the Commission investigate how the budget document might make more
sense, using transparency and simplicity as guides?
The context in which the budget is formulated makes a difference. The budget
might best be constructed differently in Brazil, where there is great concern
over developing infrastructure and the capacity of the private sector.
The Commission should look at the distortions in the budget process caused
by the timing of spending and taxes. The issues are similar.
The Commission should distinguish between the role of the budget as a source
of information and its role in the decision making process for allocating
resources (including its role as something the Congress votes on).
The budget documents already include some information relevant to a capital
budget. The question is whether the budget should be changed so that a
formal capital budget would be made part of the current decision making
Should the budget be doing something differently from what it is doing
It would not be useful to study the States as a guide to Federal budgeting.
Two books by members of the Commission might be helpful: Herbert Stein,
Governing the $5 Trillion Economy (Twentieth Century Fund, 1989),
which proposed a new type of high-level budgeting; and Stanley Collender,
Guide to the Federal Budget (published annually for many years), which
explains the present budget and budget process.
The briefing book appears very large but five of the papers answer many
of the questions raised: #10 (memo from working group to NEC), #11 (memo
from NEC to President),#13 (conclusions of President's Commission on Budget
Concepts), #19 (OMB paper on bias), and #25 (OMB principles of budgeting
for capital asset acquisitions).
The budget should be designed to inform the political process so that it
can make rational decisions about priorities.
The group broke for lunch about 12:15.
A lunch was provided to the Commission members, who continued discussions
in the meeting room while they ate.
The Commissioners discussed whether it
would be useful to develop a "strawman" paper, which the Commission could
react to. After a discussion about what the paper should cover, it was
felt generally that the paper would be one view of how the report might
be designed, with suggestions for other options as appropriate. The Commissioners
could react to the "strawman" paper, deciding if they agreed or disagreed
with certain sections, or thought some sections should be dropped and others
added, and so forth. It was agreed that such a paper would be prepared
in advance for discussion at the January 31 Commission meeting.
Testimony and Hearings
The Commission then discussed how to
solicit views of others in testimony and how to advise others of the Commission's
interest in receiving their views in hearings or in writing. Among the
groups suggested, in addition to Congress, were: highway users, defense,
information technology, NASBO (National Association of State Budget Officers),
Business Roundtable, AICPA (American Institute of Certified Public Accountants),education
groups, and leaders for urban issues. It was agreed that Commissioners
should send to the Executive Director the names of groups and individuals,
including those in Congress, who can help inform the Commission and might
be invited either to testify or to submit their views in writing.
Mr. Anderson said he would set up a Web
site to post and receive information.
Final Thoughts Before Closing
Before adjourning, each Commissioner
was invited to express an interest in particular issues before the Commission.
The issues that the Commissioners identified included: the definition of
capital; whether capital could be defined in a way that would not be politicized;
measuring rates of return on public capital; whether some kinds of Federal
expenditure enhance economic activity more than other kinds; how other
countries have approached the issue of a capital budget; whether there
should be a general decision rule for thinking about the budget deficit;
the distinction between capital budgeting in the sense of making a decision
on a particular project and how to account for capital expenditures in
the "big picture" budget; intangible or human capital issues; capital budgeting
and fiscal responsibility, or prudence; what if any impact a capital budget
would have on the economy that would be different from the impact of the
current unified budget; whether a capital budget is doable in a political
context; the budgeting rules that would be set up for a capital budget;
how a capital budget would be made to work between an executive budget
and the budget enacted by the legislature; macro rules for budgeting; and
The meeting adjourned at 3:10 p.m.
President's Commission to Study Capital