How the Balanced Budget and Deficit Reduction Act of 1985 (GRH) Was Supposed to Work

Following regular budget procedure, failure to agree on a budget as a whole, or on any part of it, merely ratified the status quo. In order to bring the deficit center stage, Gramm-Rudman-Hollings transforms inaction into a form of action for bringing the budget into balance over a five-year period. Perhaps the most important decision was retaining the principle of fixed targets. Congress chose the Gramm targets for FY87–FY91 ($144 billion down to zero), adding a FY86 target of $171.9 billion—the figure in the budget resolution. Keeping a fixed schedule made the targets a clearer promise to public, media, and financial markets; more explicit rules are harder to break.

The sequester for FY86 accommodated the House's desire for a smaller dry run of the procedure; it hoped both to show everybody how senseless the sequester would be and to make Senate Republicans pay in the 1986 election for any pain inflicted. Thus, the sequester was set at a maximum of $11.7 billion to occur on March 1, 1986, because that was roughly the amount by which Domenici and Chiles expected FY86 reconciliation and appropriations action to fall short of the budget resolution targets for deficit reduction.^[92]

The sequester, if enforced, would be the last stage in a new budgeting schedule. The president would submit his budget by the first Monday after January 3. Congress would pass its yearly budget resolution by April 15, its reconciliation legislation by June 15, and the House would pass appropriations by June 30. To force budget committees to act and to give appropriations committees a chance, appropriations bills could be considered in the House on May 15, even if no budget resolution had

passed. To force House passage of appropriations by June 30, GRH created a point of order against Independence Day recess. But even the Congressional Quarterly Almanac called that rule "quixotic," and so it proved—in 1986 a motion to suspend the rule prohibiting adjournment whizzed by in two minutes flat.

The Deficit Reduction Timetable

The Gramm-Rudman process would be invoked if, and only if, the preexisting process failed to meet the annual deficit reduction targets—from $171.9 billion in 1986 to $144 billion in 1987 and so on to zero in

1991. Except in the first and last years, a $10 billion cushion is allowed above the target figure before the sequestration procedure is invoked.

On August 15 OMB and CBO would issue a "snapshot" estimating revenue and expenditures—and, also, the gap between them at that moment—for the fiscal year beginning October 1. OMB and CBO would also estimate economic growth for each quarter of the current year and for the last two quarters of the preceding year. Two consecutive quarters of negative growth would allow sequestration's suspension. By August 20, the directors of OMB and CBO would submit their joint report to the comptroller general. It would estimate revenues and expenditures for the fiscal year and state for the record whether the difference plus the allowable $10 billion were larger than the maximum deficit amount (MDA). If the target figure were breached, the joint report would specify the reductions necessary in each Program Project and Activity (PPA) to reach that MDA level.^[94]

The comptroller general's authority here was a Senate provision. Congress did not trust OMB; it was clearly unconstitutional for CBO to take such a role; and a joint OMB/CBO role raised the issue of what to do if they disagreed. Some said "split the difference," but sophisticated budgeters realized that meant OMB might skew its numbers to shape the average, and, by having to anticipate OMB's maneuvers, CBO's analytic neutrality, the heart of its position, would be destroyed. The comptroller general, then, would review the OMB/CBO calculations, explain differences between their report and his, and issue his own independent calculations. On August 25 he would issue a report detailing how much authority should be sequestered from each PPA.

The base for sequestration included around 40 percent of total spending. The exclusions were the price of the inclusions; in order to agree on sequential, across-the-board reductions it was necessary to leave out what a majority of Congress cared most about. Some things, as we have said, would not be touched—interest, social security, AFDC, WIC, child nutrition, medicaid, veterans' pensions and compensation, food stamps, the Earned Income Tax Credit (EITC). The list is the House Democrats' short list, plus medicaid and EITC. Senate acquiescence to these exclusions reflected the belief by moderates as well as liberals that it was wrong to subject the poor to automatic cuts. The list was virtually identical to the list of programs protected in the FY86 budget resolution (that was supposedly so unreasonable). Because the decisions had been made by the very same people, this should have surprised no one. But its meaning was missed: GRH had not changed the nature of distributional preferences, even if it stressed concern about the deficit.

After excluding much spending, step one of the sequester allowed small cuts in certain programs. Payments to doctors and other providers—under

medicare, community and migrant health centers, and veterans' and Indian health programs—could be cut under sequestration no more than 1 percent the first year or 2 percent for the remaining four years.

Step two was the bulk of the sequestration; half would come from defense and half from domestic programs. This was the key compromise: rather than determining a formula for the cuts and wondering how it would affect defense vis-à-vis domestic, the distributional issue was settled first. If, say, $36 billion was needed, $18 billion would come from defense and $18 billion from domestic. This made conflict over which social programs to exclude simpler: excluding a social program would hurt only other social programs, not the military.^[95]

Because the balance of defense spending equaled 60 percent of what was not excluded and because defense would have to take only half the cut, the defense sequester percentage would be smaller than the cut applied to domestic programs. But much of the domestic budget was already excluded.

Conferees resolved the relation between budget authority and outlays in the sequester by inventing a new category, "budgetary resources." The solution compromised between cutting defense procurement and personnel, while giving the president, after the first year, as little discretion as possible.^[96] The terms allowed sequestering contracts under conditions that most negotiators thought highly unlikely but on which Gramm, representing the administration, insisted. Judging from our interviews, even the participants were not quite sure what was going on right up to the very last discussions after midnight on December 10. To us, the final terms look pretty clever, but the sequester still seems fraught with trouble. How do you cut 10 percent of an aircraft carrier?

GRH calls for quite possibly dumb, from a program perspective, arbitrary, percentage cuts across many programs. But it would be false to conclude, as many have, that the act is mindless in the sense of lacking a strong sense of priorities. Indeed, in its inclusions and exclusions, GRH contains the clearest expression of national priorities of any single act ever passed : clearly, what cannot be cut has priority over what can.

Under GRH the president would issue an initial sequestration report on September 1 telling Congress he had followed the rules; he then could suggest an alternative budget quite outside these rules, providing it met the MDA. If Congress passed that or any other plan in the time between September 1 and October 15, the sequester might not be invoked. But if the sequester did take place, its uniform percentage reductions were calculated at such a detailed level that the president could not choose either to protect what he considered more important programs

or to advantage new ones with small bases, compared to large ones with large bases that could better withstand cuts.^[97]

GAO's final sequestration report, binding on the president, would be due October 10. This binding character led the Reagan administration to join in the challenge to the constitutionality of the provision, a challenge upheld by the Supreme Court.^[98] If Congress and the president had not agreed on an alternative, sequestration would occur on October 15. A month later the comptroller general would issue a report evaluating the degree to which sequestration had been carried out according to statute.

The act provided a backup procedure in case the courts invalidated the GAO's role. This bone, for those who wanted most to ensure that GRH have some effect, if only to force a bargain, balanced another provision allowing an expedited court test of GRH's constitutionality. Special provisions allowed first a special District Court panel and then the Supreme Court to rule on a suit, so the matter would be settled by July 1986. Even supporters had to admit that to have GRH operate for a while and then be ruled unconstitutional would not do much for the legitimacy of the government.

The backup procedure allowed for the joint CBO/OMB report to go to a temporary joint committee on deficit reduction made up of the entire membership of House and Senate budget committees. Within five days this Temporary Joint Committee would report a sequestration proposal to both houses. Then, however, it was subject to tactics of obstruction or, ultimately, to presidential veto. If the GAO oversight role were ruled illegal, seemingly GRH would lose all its force. That, however, was not quite correct; sequestration, not the heretofore unmentioned changes in budgetary procedure, would be lost.