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Staff Summary of Testimony to the PCSCB: Domenici, Senate Budget Committee

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        Senator Pete V. Domenici (NM) (appearance on January 30, 1998)

Sen. Domenici did not appear before the Commission. A summary of his written statement on capital budgeting follows.

Written Testimony: Sen. Domenici does not support a separate capital budget because it would erase the current Federal fiscal discipline, make it more difficult to measure the effects of the Federal Budget on the economy, and further complicate the budget process. He offered two points in support of this view: 1) the Federal government has many unique characteristics that make it inappropriate to adopt the budget practices of a State or a private company, and 2) current Federal budget practices represent a sophisticated approach to match the unique needs of the Federal government.

Unlike businesses whose primary function is to make a profit, the Federal government must undertake many activities without regard to the rate of return in order to fulfill its Constitutional missions. In addition, the question of ownership of many of the items the Federal government funds, combined with the problem of defining investment and depreciation, makes implementing private-sector accounting difficult at the Federal level. The Federal government also has two important powers - the power to tax and to print money - businesses and States do not have, which makes a Federal balance sheet uncomparable to a State's or business's. While he recognizes under-funding of public investment as worrisome, Sen. Domenici argues that the Federal government's unfunded liabilities is a much more serious problem.

In relation to the appropriateness of the current Federal budget process, Sen. Domenici explains that the process has evolved into a refined system which effectively measures and enforces the impact of Federal budget decisions. The unified budget allows Congress and the President to weigh the relative priorities of spending for all Federal programs. Separating spending for capital items in a capital budget would make the current process more inflexible and complicated and reduce accountability. He also points to the importance of the unified cash budget in measuring the economic effects of the Federal Budget. In addition, a cash-based system allows for relatively simple cost estimation and leaves less room than a capital budget to manipulate cost estimates.

Sen. Domenici notes that the Federal government has made certain modifications to the budget process to provide a more long-term analysis of legislation's impact on the Federal Budget. For example, the 1990 Budget Enforcement Act lengthened the time frame of budgeting decisions from one to five years. That same year the treatment of Federal credit activities was changed from a cash to an accrual basis to better account for the long-term costs of credit obligations. In 1993, the Senate instituted a "pay-as-you-go" budget rule to measure the budgetary effect of legislation over ten years. Finally, he explains that through various initiatives, such as the Chief Financial Officers Act and the Government Performance and Results Act, the Federal Government has moved to provide supplemental requirements to improve performance and budget decisions.

President's Commission to Study Capital Budgeting

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