Orrin Hatch

Mr. HATCH

Mr. HATCH. I appreciate the courtesy of the Senator. I ask unanimous consent that when the Senate resumes Senate Joint Resolution 1 on Thursday at 11 a.m., Senator Graham of Florida be recognized to offer his amendment regarding public debt; I further ask unanimous consent that there be 90 minutes for debate equally divided in the usual form, and following the expiration or yielding back of time, the Senate proceed to a vote on or in relation to the Graham amendment.

Mr. HATCH. Well, I think the Senator raises a very good point, which is that there are some who say that we ought to balance the budget like the States. Well, there are 44 States that have balanced budget amendments. First, that is a difference there. We don't have a balanced budget amendment in the Constitution; they do in theirs. Second, some States do have capital budgets and, therefore, are different. But the reason they are different is because States don't print the money. We print the money. We have a huge budget. They have to live within certain constraints. So it isn't exactly alike, there is no question. What we are requiring here is the Federal Government--I mentioned in my remarks that in the fiscal 1998 budget are some $20 billion-plus, less than 1.6 percent of the total budget, that would be used for capital budgets. The Federal Government has such a massive budget that it doesn't need capital budgets. Most budgeteers will say don't do it to the Federal Government, for a wide variety of reasons. Let me read from this because I think it applies directly to what my friend has raised. He always raises good questions, and this is certainly a good one. This book is entitled ``Analytical Perspectives: Budget of the United States Government, Fiscal Year 1998,'' prepared by the administration. In one section here, it says: State borrowing to finance investment, like business borrowing, is subject to limitations that do not apply to Federal borrowing. Like business borrowing, it is constrained by the credit market's assessment of the State's capacity to repay. Furthermore, it is usually designated for specified investments, and it is almost always subject to constitutional limits or referendum requirements. We are not subject to referendum requirements. We are not subject to constitutional limits. If we had the amendment of the Senator from New Jersey and that became part of this constitutional amendment, we would not have the same designated, specified investment routine. You could do almost anything you wanted to do with the language in that amendment. Of course, there is no bond rating that can rate the Federal Government. I think that is why we don't have the same free market or even economic marketplace ideas that literally would constrain the Federal Government. I have to also say that the amendment of the distinguished Senator from New Jersey literally opens up the door to anything. You could call anything capital budgeting, including perhaps even physical welfare matters which, of course, when you think of capital budgeting you think of roads and bridges. Frankly, you could just put anything in there. That is why this language is so broad that it can't be put into the Constitution because there is no definition. It could be used in any way that the proponents of more spending want to use it. There would be no limitation of restraint. There are no referendums that you could use to stop impropriety and excessive spending and vesting, if you will.

Mr. HATCH. On Mr. Torricelli's time.

Mr. HATCH. I will, because I know how much time--how much time do I have left?

Mr. HATCH. Will you mind if we do it for just a limited period of time?

Mr. HATCH. I yield 2 minutes.

Mr. HATCH. I am not saying that.

Mr. HATCH. Will the Senator yield on that point?

Mr. HATCH. Where do all money bills have to originate under the Constitution?

Mr. HATCH. Will the Senator yield?

Mr. HATCH. That's what I said.

Mr. HATCH. Mr. President, we have before us an amendment that contains three separate changes to the balanced budget amendment. I do not believe that any of these three changes would be appropriate. I don't think they are wise or necessary, and so I have to oppose Senator Torricelli's amendment. Let me add that all of these things, at least in concept, have already been rejected by the Senate. There is no reason to adopt them now. The first change in the amendment would allow for a waiver of the balanced budget rule by a majority vote in any year where the United States is in a period of economic recession or significant economic hardship. Mr. President, this portion of the Torricelli amendment is similar to the Durbin amendment that the Senate defeated by an overwhelming 64 to 35 vote just 2 weeks ago. The reasons it was rejected apply to the Torricelli amendment as well. In fact, they may apply with greater force, as this language is more permissive and less clear than was the Durbin amendment. The terms used in this amendment are undefined. The determination of ``an economic recession,'' or ``significant economic hardship,'' could easily be manipulated by a spendthrift Congress as a way to avoid the discipline of the balanced budget amendment. Nearly anything could be seen as a significant economic hardship if considered from a certain point of view. It is important to note that even during times of national economic prosperity, some regions may experience localized downturns. This proposal could allow such regional hardships to justify waiving the balanced budget amendment and giving the country deficits at the exact time it should be running surpluses. Thus, the amendment, I am sorry to say, would create a huge loophole, a giant loophole, that would swallow the balanced budget rule. It is also important to note that if the balanced budget amendment is waived for a session, it is waived for all spending in that year. In other words, the amendment would permit deficit spending for any number of projects that are in no way related to the so-called significant economic hardship. Just remember President Clinton's 1993 attempt to push through a multibillion-dollar emergency stimulus boondoggle under the guise of trying to end a recession which had, in fact, already ended. Mr. President, if you take your finger out of the hole in the dike, then the whole town can be flooded. One of the arguments made in favor of this proposal is that without it, the balanced budget amendment will somehow inhibit the functions of the so-called automatic stabilizers. I have spoken extensively on this issue, and I think it is clear that the importance of automatic stabilizers has been overstated and, in any case, the balanced budget amendment will not inhibit their functioning. Moreover, this amendment does not respond to the concerns raised about the automatic stabilizers. It simply allows Congress to avoid the balanced budget by a lower threshold. Put simply, this proposal is a loophole and should be rejected, as I hope it will be, just as a similar proposal was overwhelmingly rejected a couple of weeks ago. The next change this amendment would make to the balanced budget amendment would be to permit a waiver by a simple majority when the United States ``faces an imminent and serious military threat to national security.'' If this proposal sounds familiar to my colleagues, it is because it is the same amendment that Senator Dodd proposed about 2 weeks ago. That amendment was discussed thoroughly and soundly defeated by a vote of 64 to 36. This provision would permit a waiver if the United States merely faces a threat. I understand what military conflict is. It involves shooting. But the notion of a mere threat is far more pliable. Indeed, ever since the advent and proliferation of nuclear weapons, it could be cogently argued that the United States ``faces an imminent and serious military threat to national security'' every minute of every day. Thus, anyone who seeks refuge from the tough choices necessary to balance the budget could invoke this threat and waive the balanced budget rule if this provision is incorporated into this balanced budget amendment. In short, Mr. President, this proposal is another huge loophole, or would create a potentially huge loophole. Its effect is to weaken and confuse the standard by which the balanced budget amendment may be waived and, thus, it would weaken the balanced budget amendment. It should be rejected, as it was before. The third change that the amendment of my friend from New Jersey would make would be to exempt spending on capital items from the balanced budget rule. Similar proposals were contained in the Feinstein amendment that the Senate just rejected only a few moments ago. One part of this proposal is that the definition of receipts, instead of excluding all funds derived from borrowing, would now exclude only those derived from ``net borrowing and the disposition of major public physical capital assets.'' Outlays still include repayment of debt principal, but also would exclude ``those dedicated to a capital budget.'' While I am not entirely clear on the purpose or full ramifications of the net borrowing provision from its placement, it appears to take account of depreciation of the current year's capital or economic income of an item in the capital budget. It might perhaps have other effects. In any event, it might artificially make receipts seem higher, as a matter of accounting, than they really are. That, in turn, could allow future Congresses to avoid a three-fifths vote in some years where there is a deficit by manipulation of the net borrowing provision of this amendment. I expressed concerns about this language when my colleague from New Jersey proposed it in the Judiciary Committee. Those concerns have increased now that he has expanded the exception from what it was in his committee amendment. Depreciation is a highly malleable concept which could allow substantial gaming of this provision. Additionally, this proposal would not count the proceeds from the sale of capital assets. I do not understand why we would limit commonsense flexibility in this way. The next change this amendment would make would be to exclude ``investments in major public physical capital that provides long-term benefits'' from the definition of outlays. Mr. President, what does this mean? How big must an investment be to be considered major? How far into the future must benefits be realized for the investment to be considered long term? Is a health program for children physical because children are an asset? I could go on for hours on the interpretation, or the potential interpretations, this huge loophole would make and allow. Exempting capital budgets from the balanced budget amendment opens up a tremendous loophole in the amendment. There would be powerful incentives for Congress and the President to balance the budget by redefining more programs as capital expenditures. A gimmick capital budget exemption could actually endanger capital investments, as fake investments crowd out real capital investments. The most basic problem with that is that all discussions of capital accounts are that there is no clear standard definition of a capital budget. So no one knows what expenditures will fall within that definition. Attempts to limit the reach of the capital budget definition are largely exercises in futility, because the terms are inherently malleable. Creative budgeters can find a way to get more spending into that capital category. Just yesterday the President recognized these activities and created a Capital Budget Commission to study whether the Federal Government should implement a capital budgeting procedure, since many in his administration, including the Secretary of Treasury, think it would be horrible to implement a capital budget procedure from the Federal standpoint. One of the primary duties of this Commission will be to report on the appropriate definition of capital budgets including ``use of capital for the Federal Government itself or the economy at large; ownership by the Federal Government or some other entity; defense and nondefense capital; physical capital and intangible or human capital; distinctions among investments in and for current, future, and retired workers, capital to increase productivity and capital to enhance the quality of life; and existing definitions of capital for budgeting.'' Gee, that covers everything. It just means that the balanced budget amendment would be a worthless piece of paper--with this amendment, it would become a worthless piece of the Constitution. This list of possible items to be included certainly suggests the difficulties in defining capital budgets and limiting the exceptions to the balanced budget amendment. Yet, today we are asked to enshrine some form of capital budgets in the Constitution before this Commission has even started its work. To be honest with you, nobody should be deceived. I think we are going through what we went through before when they needed a vote and formed a Commission to get that vote, and then totally ignored the findings of the Commission afterward. There is nobody in this administration that really believes in capital budgets for the Federal Government, or at least I do not know of anybody. And I have seen plenty of evidence that they do not believe in the use of capital budgets and that it is inappropriate to use them for the Federal Government. So it is just another attempt to try to defeat the balanced budget amendment by the White House. And I do not think anybody fails to understand that who has been around here for any period of time. The definitional problems inherent in capital budgeting are made clear in President Clinton's proposed fiscal year 1998 budget. In it, the OMB, that is, the Office of Management and Budget, lists four broad categories of programs that may or may not be considered capital expenditures, ranging from physical assets owned by the Federal Government to social investment including nutrition programs, health care, and drug rehabilitation, among other social welfare spending. That is taken from the ``Office of Management and Budget, Analytical Perspectives, Proposed FY 1998 Budget,'' at page 101. Even within those four broad categories, there are questions about which programs should be included. It is particularly inappropriate to place capital budgeting in the Constitution when there is no agreement on what constitutes a capital budget. Nor is there likely to be agreement after the so-called suddenly created Commission does its work. This concern has been echoed by the Congressional Budget Office in the testimony of Robert Hartman before the House Subcommittee on Economic Development in 1993. He stated the following: Establishing a capital budget imposes a significant risk of increasing Government consumption by reducing budget discipline and encouraging the reclassification of operating expenditures as investment. Now, put another way, capital budgets are a loophole which could reduce budgetary discipline. The very last thing our children need is for us to have less budgetary discipline. Mr. Hartman continued his criticism of capital budgeting by noting that the Federal Government is not constrained by the normal disciplinary factors that face most potential borrowers. Most people who want to borrow must demonstrate to the bank a reasonable likelihood that the investment will pay off, so that the bank can judge the risk of the investment. [T]he Federal Government--with the sovereign power to tax and create money--faces little discipline from lenders, who are assured of being repaid independent of the productivity of the Government's investment. The restraint that does exist is almost entirely internal and must be self-imposed. That was Robert Hartman. You know, we have seen, Mr. President, what happens when Congress tries to discipline itself. I think the best illustration I could give is standing right here, 28 straight undisciplined, unbalanced budgets. The fact is, these two stacks represent 28 solid straight years of unbalanced budgets. Yeah, we have people coming in here and saying, we can just do this. All we have to do is vote. This is the kind of discipline that we have without the balanced budget amendment. I tell you this. If we do not pass a balanced budget amendment, these two stacks are going to go to the ceiling of this Chamber and beyond because there is no way that there is going to be the fiscal discipline that really is needed. We have 28 straight years of unbalanced budgets. In the absence of external discipline, borrowing choices may not be made on economic grounds. Borrowing can instead become a source of seemingly unlimited money from which Congress could fund any special interest with sufficient political clout. It is exactly these types of perverse incentives that have gotten us into $5.3 trillion of debt. Building on the testimony of Robert Hartman, CBO has noted that: [The Federal Government] Unlike private investment that is guided by market considerations, political factors may dominate the choice of public investment projects. That is a nice way of saying what financial markets expert David Malpass stated as part of his testimony before the Judiciary Committee last month, regarding a Federal capital budget exemption: One person's capital investment is another person's pork- barreling. The Washington Post was even less diplomatic in an editorial that was highly critical of capital budgeting when the idea was floated during the Reagan administration. This is what the Washington Post said about capital budgets: The concept of a capital budget, applied to the Federal Government, is pure fakery. It is the resort of an administration that, finding the realities of the budget intractable, wants to fuzz up the numbers. . . . To introduce capital budgeting into the Federal accounts would create such wide realms of discretion, and such sponginess of the figures, that a diligent budget director could bring the deficit out at any number he chose. Well, as you can see, the Clinton administration joined the consensus against debt-financed capital budgeting when it stated in the President's 1998 budget document: . . . the rationale for borrowing to finance . . . investment is not persuasive. . . . A capital budget is not a justification to relax current and proposed budget constraints. The proposed budget constraints in the balanced budget amendment most certainly should not be relaxed. They further suggested that the Government borrowing crowds out private use of that capital which has offsetting negative effects on the overall economy and the return of the Government's investment. Let me add, that the Capital Budget Commission that the President announced yesterday specifically did not authorize the consideration of deficit-funded capital budgets. The administration clearly appears to be opposed to such proposals. But that is exactly what my friend from New Jersey's amendment encourages. I may not object to having a capital budget that is funded out of annual tax receipts, but it would be a risky gimmick to have debt-funded capital budgets which nearly everybody agrees should not be enshrined into our beloved Constitution. Mr. President, the nonpartisan General Accounting Office has also found fault with the notion of debt financing of capital budgeting. In a 1992 study by the GAO, entitled ``Prompt Action Necessary to Prevent Long-term Damage to the Economy,'' the GAO on capital budgets said: The creation of explicit categories for governmental capital and developmental investment expenditures should not be viewed as a license to run deficits to finance these categories. In the short run, both consumption and investment goods use economic resources, and deficit financing for either will absorb resources that would otherwise be available for private investment. Deficits also raise Federal interest costs, regardless of the source of the deficit . . . the choice between spending for investment and spending for consumption should be seen as the setting of priorities within an overall fiscal constraint, not as a reason for relaxing that constraint and permitting a larger deficit. In other words, capital expenditures should be kept inside the balanced budget role of the amendment, something that my friend's amendment would not do. Now, Mr. President, OMB, GAO, and CBO have all expressed serious reservations about implementing a debt-financed capital budget in even a statutory manner. Yet this amendment would enshrine it in the Constitution. Proponents of capital budgets have suggested that because States rely on capital budgets to finance depreciable investment expenditures, the Federal Government should likewise be able to account for such expenditures separately from its main operating budget. The simple fact is, Mr. President, that the Federal budget, unlike State budgets, is sufficiently large to handle capital expenditures. The Federal budget for fiscal year 1997 is projected to exceed $1.6 trillion. Of that we will spend approximately $21 billion in direct Federal outlays for what the President's budget defines as nondefense, physical capital investment, the category most analogous to State government or private capital budgets. That is a mere 1.3 percent of the total Federal budget for that year. There is no reason why these relatively small investment expenditures cannot compete with other budget priorities under the stricture of the balanced budget amendment. The fact is that the Federal Government does not need capital budgeting as much as smaller entities because it commands such a large budget. The analogy to capital budgeting by businesses or States is inept because the Federal Government is not subject to the same checks as either private businesses or State and local institutions or governments. Private businesses are disciplined by markets. State and local government capital budgeting is subject to bond ratings. These checks on the abuse of capital budgets will not exist under a Federal capital budget, making it far more likely that a Federal capital budget would be abused. CBO has observed, and let me just quote them, The main difficulty with relying on Government investment spending is that unlike private investment that is guided by market considerations, political factors may dominate the choice of the public investment projects. Now, Mr. President, all three proposals in the amendment of my friend from New Jersey have already been debated, all have been rejected during this debate, two of them in stand-alone amendments. The last thing we need to do is weaken the rules requiring a balanced budget. We have 28 years of unbalanced budgets here to show that. Under the Torricelli amendment, we would absolutely be expecting more of the same. There is no question about it. I know the distinguished Senator from New Jersey, and I know that he wants to get spending under control. I know that he is sincere in bringing this amendment forth. Literally, it would open up so many doors to violating the balanced budget rule that I have to oppose it, I reluctantly have to oppose it. What we need is a straightforward amendment like we have, like Senate Joint Resolution 1, the amendment that most of us are fighting for so hard, an amendment without risky gimmicks and without loopholes. Senate Joint Resolution 1 is such an amendment. It has been carefully drafted over many years and represents a balanced, bipartisan, bicameral approach, and it is the only way that we can return fiscal responsibility and sanity to this Government. I am convinced of that, and I think there is no question the vast majority of our Senators are convinced of it. The question is, can we get 67 votes in order to pass? I believe we can. I have faith that we can. I think this is the last chance. This is the only amendment that has any chance of passage for the Congress. It is the last chance to do it, and it really is coming down to just one vote. Now, I pray with all my heart that we will be able to pass it here. I do not know what they will do in the House. I suspect if we pass it here, it will have momentum going to the House, and I expect it to be passed there. I expect to pass it here. I do not want to spend any more time on this amendment. I have done the best I can to explain why I cannot support it and why I am asking my colleagues not to support it. Yet I understand that it is a serious amendment, and I appreciate the seriousness of my colleague from New Jersey. He is on our committee. He played a significant role during the debate of this matter in the committee, and I respect him. With that, I yield the floor.

Mr. HATCH. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. HATCH. I ask unanimous consent that immediately following the vote on the Dorgan amendment today, the Senate resume consideration of Senator Boxer's amendment No. 16 relating to a disaster exemption, and the amendment be limited to 30 minutes of debate equally divided in the usual form, with a vote occurring on or in relation to the Boxer amendment at the expiration or yielding back of any debate time. I further ask unanimous consent that on Thursday, immediately following the disposition of the Graham amendment, the Senate resume consideration of Senator Feingold's amendment No. 13 under a 30-minute debate limitation equally divided in the usual form, and following that debate, the Senate resume debate on Senator Feingold's amendment No. 14 under a 40-minute time limitation equally divided, after which both Feingold amendments will be temporarily set aside, and the Senate will then begin 2 hours of debate equally divided on the Kennedy amendment No. 10. I finally ask unanimous consent that immediately following the expiration or yielding back of that debate time, the Senate proceed to a vote on or in relation to the Kennedy amendment No. 10, to be followed by 1 minute equally divided for debate, then a vote on or in relation to the Feingold amendment No. 13, to be followed by 1 minute equally divided for debate, and a vote on or in relation to the Feingold amendment No. 14. I further ask unanimous consent that following those votes, the Senate begin 2 hours of debate equally divided on the Bumpers amendment No. 12, with a vote occurring on or in relation to the Bumpers amendment at the expiration or yielding back of time.

Mr. HATCH. I reserve the remainder of my time. Mrs. BOXER addressed the Chair.

Mr. HATCH. I suggest the absence of a quorum.

Mr. HATCH. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. HATCH. I yield 15 minutes to the distinguished Senator from Tennessee.

Mr. HATCH. Mr. President, I yield 3 minutes to the distinguished Senator from Wisconsin.

Mr. HATCH. Could the Senator from New Jersey yield additional time, because I have some other speakers coming.

Mr. HATCH. All right.

Orrin Hatch

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