The Congressional Budget Office (CBO) plays a critical role in informing Congress about the fiscal state of the nation, and the agency’s legislative cost estimates have an outsized impact on shaping program details. This week, the House Committee on the Budget will convene a “Hearing on Creating a Culture of Fiscal Responsibility: Assessing the Role of the Congressional Budget Office.”
We can think of at least six reforms that would enhance the CBO’s role in ensuring transparency and accountability in federal budgeting. But first, what’s at stake?
Why CBO Matters a Lot
As an independent, nonpartisan agency, the CBO aims to provide Congress with objective, impartial, and timely analyses of the federal budget and the economy. CBO reports shed light on the short‐ and long‐term effects of current and alternative fiscal policies on the federal budget and the economy, confronting legislators with the challenges and trade‐offs involved in policy decisions. CBO scores, or cost estimates, are used to measure the budgetary effects of proposed legislation. They help Congress to enforce fiscal rules or targets, such as the statutory limits on discretionary spending and the pay‐as‐you‐go (PAYGO) rule, and in executing the reconciliation process. CBO scores regularly influence the design and content of legislation.
Members of Congress will often seek to limit the fiscal impact of a policy change by adjusting programmatic details such as beneficiary eligibility guidelines and other implementation parameters, including expiration clauses, to manipulate CBO scores.
As the House Budget Committee reviews current CBO policies and procedures, we recommend that legislators consider the following reforms to enhance transparency and accountability in federal budgeting:
Require CBO to include projected interest costs in legislative cost estimates. The CBO should include debt service costs in all legislative cost estimates. Doing so would ensure that Congress considers the time value of money when authorizing new spending or reducing tax revenues without offsetting spending reductions. This change would improve accuracy in congressional scorekeeping by ensuring lawmakers make an apples‐to‐apples comparison when considering spending proposals against the budget baseline. It could also help to reduce reliance on budget gimmicks, such as “spend now, save later,” whereby legislators try to offset immediate spending increases with uncertain, future spending reductions or revenues. With interest costs now a major and rapidly rising budget category, accounting for them in legislative cost estimates is particularly important.
Remove emergency spending from the budget baseline. Under the current CBO baseline, temporary “emergency” provisions are treated as permanent and growing expenditures if they apply to discretionary appropriations. Excluding emergency appropriations from the CBO’s baseline projections would help to reduce the bias toward higher spending and better reflect that emergency spending should respond to necessary, sudden, urgent, unforeseen, and not permanent situations. If Congress continues to rely on emergency spending on a regular basis, the CBO should provide an alternate estimate of budget projections that retains the inclusion of emergency spending for informational purposes only. Legislative cost estimates, which determine whether Congress is increasing or decreasing spending compared to the previous year’s levels, should rely on the non‐emergency baseline.
Report regularly on emergency designations. The CBO does not typically release historical data on emergency designated spending, despite this spending composing, at times, a large and now increasing share of the budget. This obscures how emergency designations contribute significantly to the US fiscal challenge. The CBO should report regularly on emergency‐designated spending, including by providing historical data in relevant CBO reports.
Make appropriations scores publicly available. Members of Congress and the public deserve to receive complete and easily digestible information about what’s included in appropriations bills before they are enacted. More transparent reporting is critical as Congress has fallen into the bad habit of relying on budget gimmicks, from changes to mandatory programs and inappropriate emergency designations to evading agreed‐upon spending limits. The CBO already produces detailed reports for appropriations bills, but they are only available to a limited audience, including leadership and select committees. Making these reports publicly available would enhance transparency and allow for greater accountability in the service of fiscal restraint. Alongside account‐level and aggregate budget authority and outlays, the CBO should also include information about changes in mandatory programs (CHIMPs), emergency designations, and other exclusions to enforceable spending allocations.
Require the use of fair‐value accounting for federal credit programs. The current approach to reporting the financial impact of government‐sponsored enterprises and other federal credit programs fails to properly account for the market risk of default, distorting the federal government’s fiscal picture. Congress should require the CBO to analyze federal loan and credit programs using the same method as the private sector. The CBO is already performing a valuable service by producing informational reports that compare estimates based on Treasury yields and market yields. Congress should amend the Federal Credit Reform Act of 1990 to formally incorporate fair‐value estimates in accounting for federal credit programs.
Require CBO to produce legislative cost estimates based on a more realistic alternative baseline scenario. The current law baseline makes unrealistic assumptions not based on historical experience, such as assuming that time‐limited tax cuts will be allowed to expire. The CBO should produce a more realistic alternative baseline that would paint a more accurate fiscal picture and reduce the tendency to use temporary provisions or gimmicky offsets to minimize the perceived fiscal impact of policy changes. Relying on an alternative baseline provides better estimates of actual congressional intent from which to assess the future fiscal situation and score policy changes.
Improving Fiscal Governance
Debt and deficits are approaching record highs as the nation’s fiscal health deteriorates. Promoting a more realistic, accurate understanding of the budget will be a necessary step in building consensus around a sustainable fiscal future. Greater transparency and accountability in the scorekeeping process can help achieve this goal by ensuring lawmakers make informed budgetary decisions. Improving fiscal governance should be a nonpartisan priority.