>> he feels really deeply, which is why it's translated into me different ways in the administration which i'm proud of. and it is sort of had we pulled out altogether. i welcome any ideas, too. feel free to send them in. >> i'm afraid that will have to be the final word because we're out of time. that would truly terrific.

we learned a lot about what you're doing and because some good advice which everybody takes to heart, i think that i want to thank you very much for spending your time with us this afternoon. >> thank you. that's great. [applause] >> and i also want to thank all of you for coming, and to let you know we'll be singing you a link to the video if you want to relive the wonderful afternoon. also, that are complementary copies of the atlantic. i want to echo what elizabeth said. the article on how old you can be to have a child is really, really interesting. but there's a lot of other interesting pieces in the magazine, so take a look. thank you very much. >> thank you [inaudible conversations] >> one, i think they serve as a window on the path to what was going on with american women at any given time in our past history. so if you look at a first lady's

life, you get a view of what's going on with women. the other thing that i find very interesting from a women's history standpoint is that it's the conjunction of the public and private lives of women, which is a topic that many scholars are very interested in. and i think first lady's just epitomizes the coming together of the public and private life in an individual. >> our original series of first ladies, includes an image examines the public and private lives of these women and their influence on the presidency. watch the encore presentation from martha washington to ivan mckinley weeknights starting next week at nine eastern on c-span. >> coming up on c-span2, former lawmakers talk about some of the challenges in the federal budget process. the senate is back in at

9:30 a.m. eastern and will work on judicial nominations and continue debate on transportation spending for 2014. >> acting irs commissioner daniel warfel testifies before the house ways and means committee this morning about the implementation of the new of care law. he will be joined by the deputy administrator. watch live coverage starting at 10 a.m. eastern on c-span3. >> mark twain was a very young man when he was here in carson city. born in 1835, so he arrived in 1861, do the math, he's 25, 26. it's a very formative period in his life. the experiences he has your, all the things he does come at them for things he writes and then the notoriety that he gets beginning in san francisco and new york city.

this laid the foundation to the man who would become one of the greatest writers in american history. i would argue that without the carson city experience, the virginia city experience, the nevada territorial experience, samuel clemens never could've been mark twain. >> more about samuel clemens is booktv and american history tv look at the history of array life of carson city, nevada. saturday at noon eastern on c-span2 and sunday at five on c-span3. >> lawmakers and agency heads met this week to talk about some of the current challenges facing the federal budget process. we will hear from former senate budget committee chairman kent conrad and don nickles. also joined the discussion, david obey to lead the house appropriations committee. and former wisconsin governor tommy thompson, republican. the bipartisan policy center and george mason university hosted

this event. >> okay, good morning. welcome to the session which we're calling "budgeting on the brink," cosponsored by the bipartisan policy center and george mason university center on public service. i'm paul posner, director of the programs at george mason. this session is part of the longer-term multimedia project which we are undertaking at george mason to probe the history and federal budget over the past 40 years. the past decades have not been

uneventful for budgets swinging from deficit to surplus back to deficits again. and while today economic tides are slowly lifting us out of the recession into deficits, government leaders are mired with unprecedented gridlock seems to threaten the appropriations and continuity of government itself. it's no wonder why we call the session "budgeting on the brink." mark twain once said the history doesn't repeat itself but it rhymes. we are committed to the proposition that it's useful for you to click to look back in order to move forward. today's challenge is truly novel, do they resemble previous battles? what can we learn from previous battles and previous issues to inform our current seemingly untouchable budgets? that's really the focus of this meeting. we did our first session together in november 2012, and

was on the 1990 budget agreement, and we issued a report back in the room where we brought together people like tom foley, white house staff director at the time john sununu, senator domenici and others to reflect back on the lessons learned from achieving the grand bargain of yesterday and what application it might have to today. one constant over the years, past several decades in recent has been the progressive paralysis in our collective ability to make decisions on annual budgets and appropriations. while i'm talking about the allusive grand bargain to come talking about the monday and actions to provide funding for ongoing operations and programs of the government. the consequences of gridlock for budgeting is very different than the consequences of gridlock for immigration and social security. we don't pass those programs, we live to see another day. we don't pass the budget, we shut down. and so fundamentally, these

issues about how you achieve agreement on whose terms are vital to everything government does, and along these lines over the past 37 years, university of maryland has kindly that we've only had full appropriations for the budget year starts in four of those past 37 years. with that agencies have learned to cope with a variety of temporary measures we and call continue resolutions and in many cases five or six a year so the increase in a government grantees and contractors are on a short term lease. the uncertainty that is from this has become the new normal in washington and throughout the country. and this degree of uncertainty has been ratcheted up to new levels with the current budget sequester. a device that cuts across programs universal regardless of whether they were effective or

ineffective. agencies were literally caught in the middle between the president and congress vying for public support. planning was one of the victims of these high profile battles over sequester and agencies never really knew for sure whether the ax would fall on them and how. this session will revie review w policymakers and agency alike are coping with this incredible conflict that has befallen the budget process. as the budget process, how do leaders in the congress and in the white house and had agencies adapt. we are really fortunate to assemble a wonderful light of penniless today. both political leaders from recent past as was budgetary experts who can make the system really work. i'm going to now turn the program over to our first and second panels. the first one is being led by bill hoagland with the bipartisan policy center. he needs no introduction to veterans of the budget process. having served as staff director

and assistant to the senate majority leader. he is going to introduce his panel as we get to go for. the second panel which will continue after this one will be moderated by jonathan who is a longtime senior management staff at omb and director of the ibm center on the business of government. so with that let me hand the moderator over to bill hoagland, and we will get started. >> thank you, paul. good morning, everyone and welcome to the bipartisan policy center. it's a pleasure to be cohosting this discussion with the george mason university. some wise person once said that the further back you look, the further you can see. as paul indicated, part of this forum was to be an oral history looking back on the budget with folks that have lived the history of it. but i've a feeling we'll be looking ahead a lot more here than looking back as we go forward to unfortunately we are

restrained by time and we have five very distinguished public servants who have labored in these vineyards federal, state and local budgeting over decades. so rather than take the time to introduce each one of them here, you have their bios. i will introduce them briefly as i ask them the first round of questions. looking back on their history. we will then have time for a second round of questions looking forward, what they might see coming this fall. and time permitting then within an hour or so, we will have an opportunity for you to ask questions of them yourself. so ladies first. jane garvey. jane garvey was the first ever woman to administer the fha. she was appointed by president clinton in 1997, and very

bipartisan as she continued to serve under president george w. bush until 2002. before being given a straight to fha shows both -- shows both actintheacting deputy administrf the federal highway administration. she was the logan airport in boston manager and she currently heads the u.s. public-private partnership at jpmorgan. most importantly she is past chairman of the bipartisan policy center board of directors here and continues to be a board member with us. so in 1997, ms. garvey, when you first took over as they a, the agency was spending about $9 billion. and shortly before you arrived, the agency itself estimated you would need 10 billion annually to make growing, passenger usage and also for of course protecting the safety of the flying public. and yet as i recall, the budget resolution that your were only

going to provide you about 7a half billion, or two and a half billion dollar gap. further complicating your job as you were coming in, and assessment of the agency was mandated by 1996 agency reauthorization act, and it concluded there and i quote, faa had no system to account for its costs, and the faa managers generally could not manage money properly. so simply stated, how did you successfully transform the faa while managing a $10 billion budget? and when you left in 2002, that figure had really grown to 13 billion, and today the agency is about $22 billion agency. >> thank you. you make it sound so appealing. i'm wondering why i took the job. let me start by saying you're exactly right. the ig and congress and gao were

very critical of the faa, and they could not really understand your cost system. we don't know where the money is going. so the first thing i'd do is put a very sophisticated cost accounting system in place. very tough to do. we had to bring in a lot of outside experts to consult with many of our colleagues in the private sector. but we were able with a very talented cfo and staff to roll out over a series of months and years a cost accounting system that it think it gave us a very good handle on where money was being spent. and more important where we might even be able to save money. but one of the critical questions going forward for the faa in 97 was really building up some credibility. we had some issues around, i'm just going to miss you -- issue -- mentioned three. one was labor-management. we really stuck. congress had given us the ability to negotiate contracts with controls but we've had a

logjam. we took that very seriously and felt if we really want to move forward we have to first of all resolve the labor-management issues. we were able to do that. again, i will say it was not without its challenges. we were criticized by some who thought we'd given the controllers too much, but from the management respective we secured productivity gains and most importantly they became very full partners in moving the modernization program forward. so that was really critical for us in the five years. the second issue is really the issue with the airlines. again, modernization was something they felt intellectually committed to, but they were skeptical of the faa's ability. and so we reversed course of it. we work with the airlines and those also in keeping with the budget when you were going to have. we said what are the investments we need to make over three to

five years that are strategic and important and will move modernization forward. so i came up with a program called preflight. i think possibly because went to congress, we went to the administration with the airlines, with our workforce. we were able to secure the budget to move forward. and the last issue that i just wanted to mention was the safety agenda. we had come off to very horrible accidents, twa and valujet. and the challenge for us was how could we create confidence in the american public, how can we create a program that again that with some of the safety issues. and working with nasa, working with a number of our colleagues in the industry, we created a data program that really identified precursors, trends to deal with some of the safety issues. i think that's worked very well and i have to give credit to the faa that have through the years

and subsequent administrators really taken that to the next level. so i think the really accounts for the extraordinary safety program, record, that the faa has. so in the broader strokes i was identifying at agenda that with your stakeholder consultation with stakeholders, identifying that agenda that is achievable in the short term as well as the long-term. those are certainly some of the approaches that we took to building a budget. you always leave these jobs thinking there's so much more you could do but i think we were able to move forward during those five years. >> thank you very much. governor tommy thompson, governor tommy thompson was the 42nd governor of wisconsin, the longest-serving governor in that state's history. he was chairman of amtrak when senator nickles and i try to limit subsidies. and, of course, he was secretary of department of health and

human services from 2001-2005. he was appointed by president george w. bush. most recently, just for the record also, the governor has joined the bipartisan policy center as a senior advisor, and welcome them very much your to our organization. governor, the budget for hhs when you took over in 2001 was about $380 billion, by my record here, and along with social security, the administration then, that was the largest and is the largest still today of the domestic agencies. when you left at the end of 2004, it had grown 200 alien dollars to over $580 billion agency. during your tenure, you were hit with a slew of emergencies. anthrax post and -- anthrax,

post-911, avian flu, and the need to stockpile smallpox vaccine. but you also cleared a backlog of waivers and state plans to help expand health insurance coverage to low-income americans. so when i look at you budget, and i know we're supposed to talk about constrained budgets, but one might conclude you had no budget constraints on your agency. i kind of doubt that, but only in the and barry anderson sure to give you a budget topline. how did you go about setting priorities when you submit your budget to capitol hill? and that congress, and particularly mr. obey's committee, place restraints on your discretion of budget that you had not anticipated? >> well, i'll tell you, being the conservative that i am, it was an interesting period of time. you've got to understand the time and why the department grew

like it did to the department the first you i was there, nine months into, 9/11 happened. up until that time the budget office was very much trying to control spending at the department of health and human services. of the truth of the matter was, 9/11 came and everybody was looking for who is going to be able to pick up these pieces. the first thing, the first tremendous emergency was smallpox. it was on at the time that i took over 12 million doses of smallpox vaccine available in order to protect the american public. we were lucky enough. were asked the pharmaceutical comes to look in the reserves to see if there's any chance that they might be able to find some. one company found 62 million doses of smallpox that was in a lockbox three times in the company been changed three times and they found. we found out that the smallpox vaccine that had been

manufactured in 1952 was still capable of vaccinating americans. in fact, it was so good you could reap produce a 41 pixel in the vaccine by the way because of that. and so that was able to take care of that problem. the next problem was that nobody really knew how to handle the protection of health in america. we had -- been a governor, only nine months prior to that time, i saw a tremendous opportunity, and omb really didn't care that much about what i was doing over the department. so they gave me a lot of flexibility to build the local and state public health system. so we put a tremendous amount of money and the. and anthrax game and then, of course, everybody was worried about the threats came. and since homeland security had not been created yet, department of health and human services was the place to go. so everybody gave us pretty much

a blank check to develop the public health system, the vaccine system. would not spent any money on food safety. and if you ever correctly, i was very passionate about try to protect our food safety because i figured that was the next place. we're only spending about $200 billion on food safety all over america. and we are supposed to protect, we had 80% of the food coming in that was under our jurisdiction. so you can see a tremendous possibility for threat. and also for any kind of terrorist action. so we would put a lot of money into that. and then we also had vice president by the name of dick cheney who felt that it was absolutely necessary to ratchet up all the protections we possibly could. and so it was pretty much put the money and the department of health and human services, and it was from the time and omb said you can't spend. i would go to dick cheney and dick cheney said i will take care of it.

so we were able to have a very strong voice in the oval office who was always the same, go ahead, spend the money, protect america. that was the call. so it was a preserving the money as much as making sure you developed a tremendous, very robust state health care system, and protect american public. then we decided to get into basra and set a bar do so we could encourage small companies that didn't have the money to put money in to start products and get them to the marketplace. and that was another big thing. and then i get very active with colin powell into the aids movement and women to africa several times. we put it commits amount of money into aids. we were the ones, my department with the national institutes of health was able to set the program. the millennium fund. we took it to the president and the president agreed to take it

over as well as the global fund which i chaired and is able to convince president bush to put the first one into the global fund. and that increase the amount of money and as you know, the president's number one program that he refers to know is the millennium fund, and that was started in the department. it was our idea. i never got credit but it was ours. that's what happens when you do it. but basically it was a time that we are not able to constrain the budget since there was not home at security. congress gave us to pass to do whatever was necessary and that's why the department of health and human services was for public safety was the recent. in regards to congressman obey, i served with them. i knew him when his only a lowly state legislator from wausau. so that a tremendous amount of respect and come right with david obey. without a fight. i guess everybody goes have been there fight with david obey has

had a fight with one time or another it is always been good and he was extremely good to me. senator conrad was, and i've got to stop talking because one is in the green room about three minutes ago, don nickles reach over and he said listen, to senator conrad can use the 20 most an osprey 20 mr. to let those other people worry about the other 20 minutes. so i've got to get done because i'm getting the i from senator nickles. but it was a great time and a great opportunity to grow and agency, and actually protect america. that was the clarion call we were able to do. >> i would point out, governor, at least during 1998, 1999, into 2000 we were running a surplus in the federal budget. so it does make a little difference. i did not necessarily plan it this way, but another badger state alumni, congressman obey, was also, he was the longest serving member of either house is in the wisconsin, in

wisconsin's history. he was first elected to congress in 1969, but most importantly for this discussion, he was the chairman of the powerful house appropriations committee twice, 1994-95, and 2007-2011. when he retired from congress. now, with some trepidation that i ask this question. as a budget year, i know when the congressional budget control act was enacted in 1974 yet some real concerns about the act, and thought that the new budget committees, and remember, you are pigeonholed by two budget committee chairmen, would be captured by conservatives. now looking back on history, you have gone through many a c.r. government shutdowns. in fact, i counted them up this

morning. there were 110 days while you were chairman more during her time on the appropriations committee that we have a government shutdown but, of course, the worst being 1995-96 when we had 21 days of government shutdown. and even you went through a sequester. i guess the question is with some trepidation, is there anything good you to say about the budget process and helping agencies manage their operations in times of constraint? >> well, let me simply say that when the budget act was passed i circulated a nine page memo to every member of the democratic caucus, laying out my concerns about it. and i wish i had the impression enough -- [inaudible] in the future. we only had nine pages worth. in fact, we wound up having even more problems. i went back last night and took a look at the initial speech

that dick bollinger gave who was the father of the budget act, and was my mentor in the house. and this is what dick said in his first statement during the budget, during the debate in the budget act. he said the objective of budget reform should be to make congress informed about and responsible for its budget actions, not to take away its power to act. second, he says budget reform must not be an instrument for reprinting congress from expectant -- expressing its will on spending policy. i invite all of you to ask yourself how successful the budget committee has been and how successful the congress has been in meeting those warnings raised by dick bolling. i'm always amused when people talk about one of the answers to the budget problems are being we

should move to a two-year budget. i think history shows we would be very lucky to be able to move to a three month budget, given all of the delays and sequestration fancy ours and shutdowns that we have had. we did have government shutdowns in those days, but they were for reasons that were far out beyond the reach of any of the committees involved. in fact, the first year i was chairman we finish every single appropriation bill before the end of the fiscal year. that didn't happen because david obey was smart but it happened because i had a cooperative ranking member named joe, republican, and i became chairman i sat down with joe and i said whenever going to agree on the details of the appropriation bills. but why don't we at least have a

bipartisan allocation to each of these subcommittees, so at least we agree on how much in each of these bills? and joe agreed, and that key decision is why we able to finish every single bill. on time. i think the problem with the budget act is, first of all, it has made it harder for the congress to do its principal job of passing appropriation bills. second, without adding more months to the calendar, it has consumed a huge amount of time with a whole new additional process, which has been largely politicized and polarized as it has been considered by the congress. and i would also say that is failed to accomplish its main goal, which was to reduce deficits. we've had deficits larger as a percentage of gdp after the

budget act passed than we did before it passed. so i don't see what goals it is accomplish. the one good thing is that it created the congressional budget office, something which was sorely needed if you want me to find one good thing about the budget process, that's it. i think there's a fundamental flaw in the way the process works. the way it works is the budget committee, flying at 30,000 feet, will lay out what they want the macroeconomic numbers to be, what they want from revenues come what they want for direct spending, what they want for foreign entitlements. but then the appropriations committee has to than actually implementing that process. so they have to make the hundreds and hundreds of detailed decisions. at the problem is the system is warped the. because the way it's working

today the budget produces its macroeconomic dream, but it's not balanced by what that means on a program by program basis. and so when the appropriations am is not how rogers or patty murray's fault that we can get appropriation bills passed but the problem is that there's a huge difference in judgment about what is achievable on the part of the budget committee. and then that same judgment produces a different result in a appropriations and ways and means committee but i think that the fundamental flaw which has to be dealt with. i also think that process alone is not the problem. my friend, archie the cockroach, said once, he said it's not, he said what matters is not the system you have the what matters is what you do with whatever system you happen to have.

and i can tell you if tommy thompson and i were running these committees today, i know what we would do because i know what we did in the good old days back in madison. in madison in those days we would fight like hell from nine till five. and then at 5:00 when we adjourned, we would go over to the congress bar at the democrats would sit at one table and republicans was said at one table, and the reporters was sit at the bar with their typewriters and they would type their stories bigger come over to our tables and ask as what was going on and what was our response to it. the other guys just said. we would work it out. today, because we've seen the passion of the world war ii generation, in my view, there is much less of a sense of duty to the whole picture is much less a sense that yeah, i disagree with him but we've got to get this worked out for the good of the order. politics is supposed to define differences and then it is supposed to find a way to

resolve it. and the problem is that politicians have gotten very good at defining the problem, and the system does not help in finding ways to resolve them. >> thank you. thank you, mr. chairman. there are three chairman's i have to be careful. let's go to another chairman. senator nickles. he served his home state of oklahoma in the u.s. senate for over 24 years, from 1987-2005 -- >> eighty-one. >> okay the you took off a term. >> he looks young, you know, because he is. he was the youngest republican ever elected to the u.s. senate at the age of 32, i believe. 31? >> thirty-one. >> just under the constitution ideas. he was assistant senate republican leader from 1996-2003, with trent lott. term limited. he became the chairman of the

senate budget committee in his last two years, 2003-2005. senator, when you took over the senate budget committee in 2003, the federal deficit in the previous year stood at $160 billion. when you left, it exceeded $400 billion. 3.4% of gdp in both cases. now, it's unfair you to look at only those two years, but congress did pass the medicare modernization act, part d prescription drugs. and you were instrumental in the passage of president bush's 2003 tax reform that reduced capital gains and corporate dividends to 15% but and i should say round is as sure of the economy actually increased until the next chairman here came along in 2007. i know you were and remain a

strong advocate that reduced tax rates, result in increased economic growth, and they do not entirely disagree. but i guess the question is the reverse of the proverbial starve the beast approach to force spending restraint but if revenues grow, if the deficit of a share of the economy comes down, as it is now, what pressure exists on congress and the executive to constrain public budget and to eliminate maybe wasteful difficult spending? >> before i had to your question i want to revise a little history. you mentioned the deficit was 160 billion in 2002. i became chairman in 2003, but as you said you marked up about 20 some budgets, i was chairman 2003, we were working on the 2004 budget. 2003 is already in play. the 2003 deficit was 377, happen to look it up and you're right,

two years and it was about 400. but we made significant progress because, in my opinion because of the tax bill. because revenues are really flat but if you go back in history at that time, really from the year 2000, you my room and the year 2000 you had a market collapse during the campaign year and so when. but nasdaq was at 5000 at one point ne2000. it was 2000 in december of that year. so anyway, markets collapsed, revenues collapsed. deficit were exploding. 2001, two and three. 2003 we passed the tax bill and all of a sudden gdp took off. gdp in the year 2003 was 10 trillion. three years later it was 13 turn to quit significant economic growth during that period of time. about three at -- 3.5% gdp for those years. so revenues went. i decided to look it up, ma

revenues went from a 16.2% to 18.2% in 2006. revenues as a percent of gdp with gdp growing significantly, revenues grew as well. in spite of the fact that we did the tax code. we did cut cap gains and corporate taxes on corporate dividends, and revenues from both of those went up dramatically. not by inflation. they went up in multiples. so by reducing capital gains rate and reducing the rate on corporate distribution, the profits, revenues significantly increased to the government. to answer your question though, what happens now when you have some, i'm going to say sort of good economic news, the deficit is declining somewhat from 1.2 trillion to 700 billion commute the president made a speech last week, look, i was excessive, we reduced deficit

spending, now it's down $400 billion from where it was last you. never had such a big deficit reduction. he is patting itself on the back, this year the midsession review just announced a reduction in the deficit for this year of $219 billion, just did this, a week or so ago. the president is taking credit. most of that was gses, fannie and freddie. and the other biggest chunk of it was revenues. and a whole lot of the revenues were because people were hit during up to do deals in the fourth quarter last year because cap gains rate last year was 15%. this year it's 23.8% as result of the tax increases that were enacted in january. capital gains rate went from 50% for higher income people, to 23.8. that's 58% increase in capital gains taxes. a whole lot of deals were done.

and now we're showing up because people wanted to hurry up and proud those in at the lower rate. so you have a big explosion and revenues, about 65 billion of the 200 billion came from increased revenue. what he didn't say in that same midsession review was the deficit goes up over the ten-year period, another 500 some billion dollars. he left that out. and so the big problems exist remain, continue and to get worse. the president proposed a budget but if you look over his tenure cycle it has a trillion dollars in new taxes, new revenue. and as a trillion dollars in new spending. doesn't do anything on the deficit. i don't think he cares one iota about the deficit. and i think that's the biggest problem. you have a big effort in bipartisan policy center has been leaders in this but i can't let you for it. our friends alan simpson and erskine bowles have been doing

fantastic work. big people looking at this in a big macro sense saying we can't continue with the outlook with explosion of a lot of entitlements in the out years because demographics primary the we're all getting old and we're all going to be on these benefits and will not be as many people contributing. so the outlays is not really sustainable. the deficit are not sustainable in the longer. the president has provided new leadership and we've had very little leadership from the congress. and that's very regrettable. and so it curtails of the ability to do significant deficit reduction it certainly curtails, didn't have a budget for three or four years. unlikely, i hope they get it budget conference agreement deal done towards the end of the year, but they're a long way apart. today, harry reid wants have a trillion dollars of new revenue over the 10 years. he's telling max baucus don't to

taxable unless you get there. the chances of that happening are zero. so it's, it's, it is more than chilling. it's very regrettable, in my opinion because it's just not going to happen. that kind of tells you there's not going to be a grand bargain. is not going to be an ability to make significant solutions towards solving these long-term problems that are only going to get worse if they are ignored. >> thank you. they have some differences been here i see coming up. so the last panel member to lead us to leave public service for senator kent conrad. i know the senator to be as concerned and going about the country as fiscal outlook, and one who worked tirelessly to try to get something done before he left the senate last year. chairman of the senate budget committee from 2007-2013, this last year leaving.

and let's admit during an extremely difficult time for our financial system. our economy and, of course, our federal budget. again, in fairness, deficit stood at 160 billion when you took over, about 2% of gdp. when you took over the gavel in 2007. when the final figures came in for last year, 2012, of course the deficit was 1.1 trillion, 7%. having said that though, senator, a softball, looking back over your career did we not do enough to constrain spending? should we have been hard on david obese committee and agency budgets? is budging at the brink with crs, secretaries, sequesters, really work, or are they merely nuisances that are putting off

real and painful constraints to come as we have seen in europe and detroit last week? >> you know, you find this all very well, bill. i think it's so important, as tommy said, to put things in context. when i go back to those years, it was an extraordinary time in american fiscal history. i will never forget being called to an emergency meeting in the fall of 2008 to the majority leader's office. i was the last to arrive because i didn't chairing a meeting on energy and another part of the capitol complex. and i walked in, and there were maybe 16, 17 people in the room, leaders of the house and senate, republicans and democrats. the chairman of the federal reserve and the sector of the treasure of the bush administration. and it was about 6:00 in the

evening. they actually posted a guard at the door and close the door. it was very unusual, as you know. and i knew something dramatic was afoot. and i sat down, and the meeting began. secretary of the treasure in the chairman of the federal reserve told us they were taking over aig, the large insurance company the next day if they made very clear they were not there to seek our advice or approval. they were there to inform us they were taking these steps. and they told us that if they did not do it, they believed would be a financial collapse within days. that gets your attention. and they then went into some considerable detail as to why a financial collapse would occur. and they name specific companies that would go under, companies that were so important to the american economy that i think

sent a shudder, collective shudder through that room. and it became clear we were in the midst of a financial crisis unlike anything since the great depression. i believe if the steps that were taken subsequently by the bush administration in the final days of their time, and the steps that were taken during the obama administration, and the steps i the federal reserve, if those steps collectively have not been taken, i believe we would've gone into a depression. so i think it's a small price to be paid, the additional debt that was taken on, as much as i hate debt. and i do have a very big problem. the thing that brought me to public life was a consent about the debt that was occurring when i was first elected back in 1986.

i was deeply concerned about the trajectory the country was on then, headed for record deficits and debt. with respect to domestic spending, that's really not the problem. 1968-69, we were at almost 14% of gdp on domestic discretionary spending. by 1998, that was down to 6%. so domestic discretionary spending was dramatically reduced. 2012, that was back up to just over 8% of gdp. so nowhere close to where it was back in 68 or 69. and under the budget control act we're going to go down to 5% of gdp by 2022, a record low. so that's not how it's not in the appropriate accounts in my judgment where the problem exists. the problem exists, in my judgment, in the parts of the

federal government that are growing. and primary health care accounts picking, we were at 1% of gdp in the health care accounts back in 1970. we are headed on the trajectory we are on for 12% of gdp in the health care accounts by 2037-2040. so that's where the explosion and spending is occurring. it's in the health care accounts but on the other side of the equation, is the revenue. and this is where i do have differences with some of my republican colleagues, because they say it's just a spending problem. well, if you look at the chart of spending and revenue over the last 60 years, three years ago we were at a 60 year low on revenue, and a 60 year high on spending.

60 year low on revenue, 60 year high on spending. no wonder we had record deficits and additions to the debt. so in my judgment, when some of our friends say it's just a spending problem, they've got it half right. yeah, we have a spending problem. a spending, that was necessitated to avoid a depression. a revenue problem exacerbated by tax cuts that we could not afford that went too far that took our revenue base to a 60 year low. so my judgment, we've got to work both halves of this equation. on the spending side without question, we've got to impose more discipline, especially on the parts of spending that are growing. that is not the domestic accounts that david was responsible for. it is the entitlement accounts, primarily the health care

accounts. and we've got to work on the revenue side of the equation as well. we are still not back where we need to be on revenue, if we look at the historic record to if we look over the last 60 years, five times we have balanced. revenue has been at about 20% of gdp. we are going to be at a 17.5% of gdp on revenue this year. so well short of where we've been the last five times we have balanced. under the revenue stream that we have now, by 2015 we're expecting revenue to get a 19.3% of gdp. that's still somewhat short of where we have been the last five times we have balanced. so i just say this, i am honored to be a part of this bill. i just want to say, senator nickles, i served with and. he and i have disagreements. don nickles, when he gives you his word, it is good. and that is a very important

thing. he also is somebody that was ready to work together to get something done. we have disagreements, but we worked together productively. congressman obie, i tell you, you never question were david was on an issue. he made very clear. and tommy was a joy to work with. i must say. he was an absolute joy to work with. because he had an orientation. did we agree in everything? know we did not. but there was an attitude. let's get results. that is the thing. it's not the process together, a process to me as not the problem. the problem is the problem. and the problem is, people who are unwilling to get a result. and it's not just on one side of the aisle i might add. i wish it were a it would make things a hell of a lot easier. we've got problems on both sides of the aisle, people don't have

an attitude, let's get some things done. >> i segue to kind of our rapidfire, real quick around here, open it up for them to respond. tomorrow, the department of commerce will release its preliminary second quarter gdp figures. this may from what i can tell to be a very confusing gdp figure with three s. was going for. it may be difficult to figure it all out tomorrow, but some analysts expect that the growth in the second quarter could even be less than 1%. that comes out tomorrow as congress is planning on leaving, going home for the august recess the end of this week. when they return there will be less than nine legislative days before the new fiscal year begins at and at this point, there have been no 2014 appropriation bills sent to the president. the senate and house have not

agreed to even go to conference on the budget resolution passed by both chambers way back in march. and those two budget resolution, house and senate, or 10 a $91 billion difference between the senate and the house appropriation, $91 billion. unbelievable. and out own estimates are at the budget, at the bipartisan policy center is that we will reach the statutory, we will run out of cash and reach the end of our rope on the statutory debt limit sometime between the end of october and mid-november. and secretary lew has made it very clear this week that the administration will not negotiate on the debt limit increase. we have a 2% sequester on mandatory programs that will begin in october, and a much larger one for mr. o.b.'s accounts beginning in january. and even at the a's -- after a

could face furloughs again. there is talk still of an acting fundamental tax reform this session. we have seen some green shoots of bipartisanship in the senate. not clear we've seen in the house of representatives. i think it is there to say we're budgeting at the brink once again. you've all been there. what should we, what should we come are more important, the american public, anticipate how this fall is going to turn that? i will just open it up for anybody to take that on. >> well, it doesn't look likely that congress is going to get a big deal. that the statement that mr. lew made and the president said, welcome he won't negotiate on the debt limit extension is ridiculous, because i've been through a lot of debt limit extensions and negotiations, and

lots of times they have riders on them. administration may not like them, but they have to sign the bill or veto the bill. spent include the elimination of a funding for the affordable care act. >> i doubt it would include that, but i wouldn't be a bit surprised if it had some things i. i mean, trying to remember. i think we passed the congressional review act as part of the debt limit. that was one of the bills i worked on. harry reid was the principal sponsor but anyway, congress has the right to write legislation. and the president can sign it or veto it. and so they can try to say that they don't want any riders on it, but congress has to pass. the house has to be mindful if they say, well, we want to defund the affordable care act, they have to have something that will get through the senate. congress has to pass the debt limit extension at some point. but they are running into, i

won't say a significant the limit. it takes leadership, it takes leadership from the congress and it takes leadership from the white house to avoid the train wrecks. and i think, as i said before, i don't think this president is really interested in deficit reduction or curbing entitlements. entitlements. >> that might be a good segue to something i hinted to, chairman of the. i guess the president is meeting tomorrow with democrats in both the house and the senate. chairman o.b. and chairman conrad and democrats, what should the president expect we meet with congress tomorrow, democratic members of? >> let me say, i was born in oklahoma. that's the last thing i have in common with the -- [laughter] but let me, don just said it was

ridiculous for the president to say he wouldn't negotiate on the debt ceiling. what is ridiculous is this issue is being joined on the debt ceiling. that is what is ridiculous. because it puts that fundamental risk the economic welfare, the economic strength and the leadership capability this country worldwide. that's what's ridiculous. secondly, what's ridiculous is we've had this fight about mathematics over the past three years. which misses the big problem. the big problem, and again what is ridiculous is report nation's to ignore it. the big problem is the fact that we had a huge transfer of income up the income scale the last 30 years. meanwhile, that is financed largely by the eroding the pocketbook earnings of average middle-class families. we ought to be having both parties working together trying to figure out how you can attack that problem on a bipartisan

basis, rather than having another silly debate on accounting. and the problem i think, there is one problem and process that really bothers me. i think that one of the reasons that these issues have become so politicized is because congress is never at work anymore. they coming year, when i was there, when i started we started the session monday afternoon, and it went until friday morning. today, they come in tuesday at 6:30. they vote on a few meaningless issues. they're in town for a full day on wednesday. thursday by noon they are going heading for the plane. as a result they never have the time to learn the substance of an issue. and so if they don't have time to learn the substance of an issue, what do they do? they fall back on the politics on the issue and it becomes more and more polarized.

to me, if you, and the other problems that members then have to spend so much time writing for dollars, being glorified telemarketers raising money for the campaign, that they have had very little time to work out and to understand these substantive differences. i really believe that you're not going to get these problems solved into we develop a higher degree of confidence in the other guy's personality, the other guys concern. and until we learn all over again in the congress how to work together when people did differ with one another. it takes time, you need to get to know the human chemistry of the people you're dealing with. and that's missing out on the hill. >> chairman conrad, what's going to happen this fall speak with you know, i'm a little more optimistic. but, you know, i'm always overly

optimistic i guess. i'm scandinavian. [laughter] i see some kind of hopeful signs. i saw it in immigration. i saw it interesting enough on the farm bill. in the senate. i'll be quick to add that's in the senate. but, you know, things have got to start somewhere. if we look at the deficit reduction, if this is what i disagree with my colleague, senator nickles. i think the president does care about deficits. i think he is had to prioritize averting a depression over deficits. that was come in my judgment, a wise prioritization. but that the deficit is coming down quite a markedly. $1.1 trillion last year. they are now expecting down to $340 billion by 2015. down to about 2% of gdp. that is a very dramatic

improvement. the problem is, a long-term has not been dealt with but this is where i would agree. the failure, collective failure, has been an inability, an unwillingness to deal with our long-term prospects. i think there is at least a chance, we won't have the grand bargain, but we could have an additional increment of deficit reduction, which i think would help economic confidence. i think would help economic growth. ..

>> the fact is, to get an agreement on a debt limit extension there are going to have to be some larger concessions. and i think they're going to have to be around a long-term discall trajectory. and there's an opportunity here to get some additional revenue not by raising rates, i don't think that's the right way to raise revenue. i think we can raise revenue without raising rates. but also with some long-term entitlement reform. not the grand bargain, but another step. and remember, budget control act, people said we didn't have a budget. well, we didn't have a budget resolution, but we had a budget law called the budget control act. it cutted -- it cut $900 billion out of domestic spending and coupled that with the dreaded sequester which cuts another 1 pbtd -- 1.2 trillion.

if we'd get another $2.2, $2.3 trillion of adjustment over the next ten years, we'd be on a much sounder track. >> i want ms. garvey and the governor to have the last kind of word on this before we open up for some questions from the audience. but i would point, and you know this, mr. chairman, that, of course, that deficit coming down is because the sequester stays in effect in those estimates. and, jane, that means that there's potential for another sequester and another issue as it relates to faa if you weren't working at faa, how would you be planning and, governor, how would you plan this fall? >> i think there are two issues that are critical for any agency facing sequester. first of all, it's really to understand what the scenarios are, you know? what are the various scenarios. and then the real difficult

issue will be policyish shy -- issues. do you furlough employees? do you hold back on some of the modernization programs and not furlough employees? those are very tough policy decisions that have to be made, and i would certainly urge the faa -- and i'm sure they are doing it d looking at those questions very, very seriously. i think the real concern is not so much 2014 because they may get by. it won't be easy, but they may get by. it is, as others have suggested, the longer term imply cases. you'd like to think it's an opportunity for some consolidation and some changes that may have been difficult in surplus times, but that's difficult too. but those are the policy issues that have to be laid out and laid out, i think, in a very transparent way. >> governor, last word before we open it up for questions to the audience. >> i always refer to questions

like that as what the sur date judge in new york said: if you like good sausages and good laws, it is best that you don't see either one being made. and the truth of the matter is, is that our democracy has always been not as tidy as we would like. we look at situations, you know, as business people we've got a problem, we solve it. but the government and the democracy is not like that. every one of us would like to be able to look at it and say, you know, make the adjustments now, rationally sit down, have a as dave obey and i used to do and make things happen. but the congress of america today usually refers and reacts very effectively to emergencies. i look back even in the '50s to sputnik, you know? we were way behind the russians. all of a sudden america came together, we put the first man on the moon. the 9/11, we were way behind. we were, america was wide open.

we never thought we could have an attack on america's soil. we came together. there has not been an attack on america since then. there's been attempts, but we've been very successful. the financial thing that senator conrad said, we were, had our backs against the wall. i didn't like the results, fest to say that -- first to say that. but i was not there. they came up and made a solution. the budget control act that dave obey was talking about. well, you know, there are a lot of problems with it, but it had some good to it. and senator nichols, of course, he came in with a tax cut, and the revenues started going. you can argue about whether they're good enough, i think they are, but that's a partisan difference. the government in an emergency always comes to work. i'm absolutely certain america will come together. we are not going to allow this country to go down just because we can't get along. we're going to fight like hell,

but at the 11th hour somehow we always come together, and i'm absolutely certain the same thing will happen again. >> welcome to the bipartisan policy center. [laughter] >> i like that. perfect end. >> allison has a microphone. we have a few minutes here for some questions and, please, identify yourself and your association. >> thank you. my name is dave kitross, i'm with lrp publications, and my question is pretty basic. we've talked a lot about sort of the longer term, but for members of the panel do you believe that there will be some kind of at least continuing resolution, or do you believe there will be a government shutdown in october? and, secondly, same with the debt ceiling. i mean, do you believe that we're going to get to the point where an agreement will not be reached until after the ceiling technically is reached and agencies have to take steps?

>> i'll just touch on that briefly. no, i don't think there'll be a shutdown. i think the cr will ultimately pass. i think the, you know, the house will pass a continuation. my guess is the house will pass a continuation, the question is how long. my guess is the initial one will be short, so it'll put some added interest on all sides to come to an agreement, hopefully to avert the sequester and to come up with a bigger package. i met with chairman camp. they want to do a deal. they want to come up and address entitlements. they want to do something that long-term will help put us on a real, stable financial future. and you can raise revenues in some areas and reduce rates in other areas and make the economy grow more. and the government can make more money in the process. i know that can happen. there's a lot of income that's not taxed. you can tax it. and as a result, you can reduce

rates. but marginal rates are too high. my marginal rate is 50%, over 50 president. government gets over half of every additional dollar i make. that's counterproductive. and you don't have to be at a very high income level for that to happen, incidentally. matter of fact, you can have adjusted gross income of measure 90,000, and if you're working yourself, you're working for the government more than yourself. >> chairman conrad? >> this is one place where we have some agreement, not complete agreement. i'd say this: i was part of bowles-simpson, part of the group of six, and we proposed raising revenues not by raising marginal rates. i happen to agree with chairman nickels on this point. i think you can raise revenue, i think you can lower marginal rates that exist today. i think you could put together a package that would raise

revenue, that would lower marginal rates somewhat, that would give additional lift to the economy. you know, we've got -- i've shown many times on the floor of the senate a little fife-story building in the caymans called eglin house. it claims to be the home of 18,000 companies. they all say they're doing business out of this place down in the cayman islands. now, they're not doing business, the only business they're doing is tax avoidance business in the united states. and this is costing us about $100 billion a year. does anybody seriously think that's a tax increase if those people start paying what the rest of us are paying? i don't. >> any other questions out here? here's one over here, allison. there's one over here too. >> my name is dennis mcdonald, i'm an independent consultant. this is a question for

ms. garvey. you were talking about the process of the difficult policy discussions that have to take place, and you made a statement about making that more transparent. could you be more specific about what you mean by making it more transparent? since that does seem to fly in the face of the sausage-making comment that your colleague just made. >> right, right. well, i think, i think when you're laying out a number of those options, it's very good to have the stakeholders in in whatever form is available, lots of forms available with the faa, i mean, the airlines certainly care a lot about that, manufacturers care a lot about that, airports care a lot about that, the consumers care a great deal about that. i think there are lots of opportunities and there should be opportunities to really lay out these are the options. maybe all the debating doesn't occur in the public, but certainly laying out those options so people do understand. and first and foremost, i think it's discussions as others have

said here with congress so that there really is a full understanding of what are the trade-offs. i think sometimes that's missing in this discussion, people aren't fully clear on what exactly the trade-offs are and how, you know, what are the considerations that an agency is giving, given to certain decisions? so i think you can do that in a pretty transparent way. >> if i think we have time for two more questions. i. >> brian alexander, i'm writing a dissertation on political science at george mason university -- [laughter] and been following these constitutions for a long time -- discussions for a long time. had a question about sequestration and in the runup to sequestration, there were a lot of dire forecasts and predictions. now that we've seen it in effect and we're going up toward another round, i'm wondering with an open question to the panelists. >> where did some of the, in your views, where did some of the forecasts, what are some of

the -- work out worse and maybe where did some of the forecasts work out better than what you thought? sort of an update on the state of sequestration and how bad is it hour maybe how bad has it not been? >> well, i would just say this, i think sequestration as a policy really doesn't make a whole lot of sense because it is 1.2 trillion of cuts all out of the domestic accounts that are already going down. so we are cutting the part of the federal budget that is already in decline. we are not addressing the part of the federal budget that is growing dramatically. so just as a policy matter, to me, it doesn't make a lot of sense. it was put in place, as you know, to try to persuade congress to work on the other parts of the equation that do need fixing; the long-term spending in the mandatory accounts and the revenue side of

the house. sequester was put in place to try to provide an incentive for congress to act. instead, we couldn't reach conclusions. so here we are. it has not had as adverse an effect on the economy as some predicted, although i think i'll see in the next growth numbers that it is starting to bite. you know, you expect about 1% of gdp, to cost you about 1% of xdp. and, you know, we could avert that. >> anybody else? >> yeah, i -- anybody here think it's a good idea to cut cancer research or to cut research on parkinson's or alzheimer's or huntingtons? you name it. i think that's one of the worst examples of sequestration. second thing that bugs me, i remember going into vice president biden's office before simpson-bowles got together, and everybody around the table was saying, oh, it's not domestic

discretionary that's the problem. it's the other parts of the budget. everybody agreed with that. every year everybody agrees with that, but with every year when the results come up, they go after that part of the budget, because it's the easy one to grab, and it's the one that you have to pass every year unlike other pieces of the budget. that's why it's backwards. >> another -- last question, and we've got to move on. >> hi. i'm stan. this has been a wonderful panel. in 1983 alan greenspan chaired the commission to reduce social security. we similarly in 1990 had the base closure commissions, and the whole theory was you hold hands and jump together. my question is, what's different today? why doesn't that work, or alternatively, how can we do something like that? >> you know, having been deeply

involved in bowles-simpson, senator gregg and i proposed the commission approach for those very reasons. we became convinced the only way this happens is you all jump together. i still believe it's the only way it happens. and so at the end of the day, we've got to find a way. biggest problem is public opinion. because if you go out and poll the american people, they will say don't touch revenue, don't touch medicare, don't touch social security, don't touch defense. the only things they are willing to touch are foreign aid and taxing the rich. and while, you know, i would say we're going to have to ask those who aren't paying their fair share -- which may be wealthy we may have a lot of wealthy who are paying a very hefty share, there are some who are not. there are some who are middle class who aren't paying their

fair share. i mean, we've got a tax code that makes almost no sense at all. and so, look, i think you've got an opportunity here to do something that would really advance the country and strengthen our economy. we still have that opportunity. >> want to thank the panelists for today but also for all of their long public service. i really appreciate them taking the time to come over here this morning. thank you very much, and let's give them a round of applause. [applause] [inaudible conversations]

>> all right, we're going to begin. this panel is going to explore the management implications of budget brinksmanship. as most of you know, the hey lifting of actually applying sequestration to program activities happens in the agencies. the decisions about who gets funded and who doesn't are made at the program, project and activity or ppa level as specified in appropriations or company reports. we're going to hear from several seasoned budget pros who once were in the trenches making these kind of decisions, and they're going to offer their insight into how agencies go about making what are very technical estimation and decision making that's necessary to actually meet the requirements of sequestration. how do agencies actually cope

with budget uncertainty. i'm going to begin with barry anderson who's on my left here. barry has been at omb, been at cbo to, been at the national governors' association now and overseas with the oecd. and he has an incalculable government-wide perspective on these matters. you once administered the first sequestration in 1986 and subsequent ones through 1991. we -- sequestration wasn't then and isn't now everybody's first choice. how does it work, and what, you know, did it work out as you expected? >> i'm glad you mentioned the history of sequestration, because a lot of people don't go back 23 years and don't realize that there were actually, i

think, four or so sequestrations that went into effect in the late '80s and early '90s, and many more that were anticipated that didn't go into effect because of last minute deals. and so when this sequestration came around eventually on the 1st of march this year, it surprised me how difficult it was from -- different it was from those we implemented back in the late '80s and early '90s. your statement that nobody wanted it to go into effect is absolutely right. back then too. sequestration, remember, wasn't a policy goal, it was an enforcement mechanism trying to achieve other results. that was as true back then as it is now. and, in fact, it's good to keep in mind that we have sequestration in place right now for the fiscal year 2013, but in 2014 we have caps. that is the people in the

congress have a limit on to which they are to reach appropriations. i don't know that there's anybody on either party, on either house that likes the limits in particular, but they have limits. there's not a sequestration that will happen on the first of october or in fiscal year 2014 unless the caps are exceeded. but getting back to the sequestration that we did now, the fundamental differences are really very large to me and, as i said, i was one of the team that implemented them back then. the biggest difference is that the strategy on the part of the administration was that they could take actions to avoid or waive or replace the sequestration. and because of that, they didn't do planning planning for it. and because of that come march 1st when the sequestration actually went into effect, all of a sudden you had furloughs.

were there furloughs back in the '80? no. did the white house tour shut down back in the '80s and '90s? no. was it difficult to implement? yeah. but the planning that was done in anticipation of the sequestration might occur and did occur in the '80s and '90s was so different than the strategy on the part of the administration now. they managed to win big on new w year's eve and get the sequestration delayed for two months. i knew they thought they were going to win and get it waived or postponed or delay canned or replaced in march, too, but they didn't. but as a result, the actions on the part of the agencies were much different than what occurred. the haas point i want to -- the last point i want to put out is if you look at what happened on march 1st, there's a difficult difference between -- fundamental difference between agencies who responded to the administration's goals of getting to waive the

sequestration and those that weren't quite so sure that the administration was going to be successful. that is almost all of the legislative branch agencies, gio, cbo, most of the congressional committees and many of the independent agencies never furloughed anybody. why? because they don't have to be as rigid in terms of adhering to the administration's guidance. so they withheld money, they made some planning. come march 1st when the sequestration did take effect, they were able to do it without furloughs. meanwhile, those executive branch agencies who are tied closer to the administration were told basically don't worry about it because they're going to get it waived, they're the ones who had to furlough the most. so fundamental differences between the sequestrations in the '80s and early '90s than what we have now. >> scott lilly, you're another person with particularly some government-wide perspective

here. you're a senior fellow with the center for american progress. you've been a clerk and an earlier staffer to the house appropriations committee. you've come at this with a knowledgeable background. the july 1 washington post carried a story, an article titled "budget cuts but no chaos." and it suggested that the sequester was much milder than everyone was forecasting. and it said so many predictions fell short because the administration and congress did what it was supposed to do, what was supposed to be impossible. they undid many of the sequestration's scariest reductions. what do you think are the real impacts of sequestration? is it true that it undid many of the scariest reductions, and how

are the agencies managing to this rather alarming situation without scaring everyone? >> well, there are basically four big things that happened that made sequestration a lot less than it would have been otherwise. the first thing was that they found some revenues and score keeping in the new year's eve deal that cut sequestration from about 110 billion to about 82 billion. so we ended up with a sequestration that would have been 8-9% for domestic agencies ended up around 5, 5.5. so that was the first thick. thing. the second thing is that sequestration kind of has two phases. a lot of government programs run month to month, they spend about one-twelfth of their budget each month. those are the agencies that were in real trouble, at least in the beginning. other agencies are basically grants and contracts.

they tend to work all year and then put out the grants and contracts toward the end of the year. those agencies you were never going to see very much until the end of the year on what happened. the congress went back and fixed a lot of the month-to-month budget agencies. they gave the defense department much more latitude in the defense appropriation that was passed in february. and i know dave can talk a lot more about that. but they also did a special fix for meat inspection which would have been a huge problem. they did the famous faa fix where they transferred money out of the airport improvement fund. and they also gave an extraordinary sweetheart deal to the justice department in which they basically allowed them to take money that had lapsed and recycle that money which no other agency can do and use that

to stop the furloughs. the justice department would have been the single biggest problematic area, because it's made up of the salaries that are paid every two weeks to law enforcement agencies, u.s. attorneys, prison guards, people that we have to have on the job and who would have been laid off. so they did a lot of things to fix that. but i think where that story is really off base is in terms of the impact on grants. the, all of the education money that goes out -- there's about $50 billion that we pump out in grants to local school districts -- that money is all going to have about a 5% cut which is going to be about $2.5 billion less going out to local school districts. we've talked before about the national institutes of health.

they have a $30 billion budget, they're going to lose a billion and a half which is going to come directly out of research, investigation, ro-1 grants. we're going to have the lowest number of those grants to universities and hospitals that we've had in decades. and it's going to have a real impact on -- you're going to have laboratories shutting down. and i think the consequence of all of this is -- i was doing some research recently on a question that the earlier panel was talking about in terms of how does level of taxation affect economic growth. and i went and looked at the international examples of that. oecd data -- barry may have been involved with it. a percentage of gdp as part of taxes. so this is a big range. goes from three countries under

28% -- japan, switzerland, the united states -- two countries over 48%. huge variation in level of taxation. the last two decades two of the three countries with the highest level of taxation were the fastest growing of all 20 countries, and the united states, japan and sweden were all in the bottom half -- i mean, switzerland were in the bottom half. switzerland was 18th, and japan was 20th. so you don't find a very big correlation between what portion of gdp is taken in taxes and what's spent. in terms of growth. in fact, it seems to be somewhat negative. the thing that i think is important is not the portion of taxes that we get in gdp, but how well we spend it. and i don't think we could come up with a dumber plan than this

sequestration. government is, by its very definition, an entity that does things that the private sector can't do. we put men and material in space which the private sector's only now trying to come to terms with. it takes a long time to build that capacity. we have the find ways of eliminating nuclear waste from underground leaking storage tanks. that takes a lot of time. we have to learn how to do research on the human genome. if you start creating that capacity and then you turn around and destroy it and then you come back the next year and try to recreate it, you are going to be a government that invests very poorly, and you are going to be contributing to economic decline in the process. >> all right. well, marcus, i'd like to ask you the next question. marcus has worked at omb, he's worked at epa and was deputy administrator and most recently was with the senate budget

committee. what do you see, taking all those together, what do you see as the agency's flexibility in managing towards sequester? do they use reprogramming or transfer authority? what are the flexibilities and means of getting at sequester? >> well, it obviously depends on the agency or activity that you're working at. i, you know, people put these sort of why is disks on their cars, and i've noticed recently a lot of cars have it. it says wag more and bark less. a little print underneath. and sequestration, if you needed a bumper sticker for sequestration, it's the opposite of that. it's been park more, wag less. and so you've had a lot of agencies barking, particularly the smaller agencies that have really just labor costs, and haven't seemed to have the

flexibility that they wanted to transfer, reprogram or otherwise fix the sequestration problem. but i go back to what barry was talking about. if you were told today that a year from now, a year from now you had to cut your spending 3% to 10%, you would start planning for that. if there was a possibility of that happening. and what generally happened is that agencies did not do that. and we could talk about the reasons for that. but you did have cbo, gao who have gone through this without any furloughs. it wasn't easy. and you had, actually, some executive branch agencies that for whatever reason i think started thinking earlier and dealing with this, opm, commerce department if you take noaa out. but for the vast majority of the agencies, that was not the case. they started thinking about this late, and they've had much more difficulty. it takes time to reprogram a transfer funds. you have to ask permission to do it, you have to plan to do that. so those tools may not even be available to you if you wait too

late. at the extreme you have some agencies, and i'll put faa among them and once again i can talk about the motivations which thought about about this very late. told the -- came up with furlough plans telling the airlines and other folks affected by the air traffic system what sort of interruptions were going to happen. this some ways you could say they dealt with it the worst, yet as scott pointed out, at the end of the day they got a pass. now, from my point of view as a manager of an agency or a program, you could argue they were the least responsible. and yet in the end, they almost were rewarded more than everyone else. and, i mean p i look at that, and that seems to me to be a perverse outcome and something that's worth considering the next time we start thinking about sequestration and how agencies should plan. my own mind based on my own experience, i mean, i really think omb should have been played a much stronger role in getting agencies to think early

about planning for this. i now that was difficult from a political standpoint because you have your president who's arguing this should not happen at all and then have your budget agency at the same time trying to get agencies to plan for something that the president is arguing this is not going to happen, it shouldn't happen seems to be inconsistent. but just from an operating government standpoint, it seems irresponsible for me to have waited as long as they did at so many agencies. >> david morrison, you've, you've had an interesting career. you've worked in the house for the defense committee appropriations, you've been in the senate on the same committee over there, the appropriations committee in the defense area. you've spent time at omb first as an examiner and you came back as a senior dad on the budget side for national security. so you've flip-flopped

between -- >> that's put nicely, jon. >> okay. [laughter] looking at the defense department, secretary hagel is asking for a 20% cutback in terms of the brass and the top tier at the the pentagon. they're forecasting riffs in d rifts in 2014. tell us a little bit about what you see is the defense department's coping strategies? how are they managing and handling these cuts? >> >> yeah. thanks for asking. i'm glad this is on the record, by the way, so we don't all have to take our batteries out of our cell phones. thank you, general alexander, right? to understand how the pentagon deals with fiscal uncertainty and she questionsers and -- sequesters and crs, like other agencies they have things that they will protect. and be the three biggest things

the pentagon will protect are military pay and benefits to start with. the active duty, it's maintaining the morale of the active, the all-volunteer force. and so it's exempt from sequester, as we all know. the president will continue to headache that decision because -- make that decision because he has no choice really. second is the deploying and deployed forces. those that are in combat now, they'll get, they'll try and keep them the pointy edge of the spear be, those that are getting ready to go, the funds will flow to them. so they'll be protected. there are some things in the defense department where the risk-reward calculation is just too hard to make. these are unassailable forces like the nuclear forces. some special operations, some intelligence activities, policy-driven things like regional presence, having a carrier in the med or the persian gulf, flex.

those things will be -- no matter what happens throughout this long or short run of fiscal uncertainty, those forces will be protected. they also, thirdly, they try to protect those good-performing procurement and investment programs. now, as goes the defense top line, so goes procurement. it's interesting. the variable part of the defense budget is not the operational side, but it's actually the investment side of the house. and that is where the uncertainty will get can us in the long run. so given that's the framework -- those are the priorities they have, here's what they do. first of all, unlike other agencies the pentagon has a bit more financial flexibility because it's more capital intensive. last year's sequester dod at 2013 was $37 billion, the department of defense had $62 billion in unobligated and unexpended balances laying around.

they were probably laying around mostly for good reasons. principally because they didn't spend them yet. but what that allowed the pentagon to do was protect its investment programs. so 50% of the sequester that came out of the investment side was a near term advantage that they have. so financial, prior year funds, also supplementals. i think most people understand this, though i've been told -- i don't know for certain -- that a congress will move money out of the base budget into the supplemental to relieve pressure on the base budget. it's a relief valve, and it'll continue to be there. until the bottom falls out of support for something else because the troops come home. financial side, on the programmatic side, they'll start

cutting back on lower priority operations. 60% of the sequester last year came out of the o&m accounts, o&m, operations and may not -- maintenance, only accounts for 40% of the budget. cut the grass every three weeks as opposed to two weeks, i'll do the plumbing myself come hell or high water, right? as opposed to hiring it out. services will be cut back, communications, i.t., all that sort of good stuff. and then finally, they'll cut back on the lower priority, procurement programs, those ones that aren't performing well. bears go after the young and the sick to start with, and so that's what will happen on the investment side of the house in the pentagon. lastly, lastly to cope with it the most politically difficult, unlikely in the near term are functional and structural cuts.

things like closing bases, things like doing in -- now, the army's going to do an 80,000 worth of units. they're doing it in the most horrendous way. they're taking units out of every base which creates, of course, excess capacity at the bases, other time the costs increase -- over time the costs increase to maintain the level of readiness of those troops. these are all short-term solutions to deal with it. over the long term what happens is that flexibility goes away. their ability to make choices to protect those forces become harder, and you'll get readiness that decreases significantly in the home stations, in the training base. you'll get a bathtub effect which means the readiness goes lower for those forces at home, and it's harder to get them ready to go. you'll have more and more cuts to long-term procurement and investment programs. so you'll get what happened to

the army at the start of the iraq war at the end of this fiscal uncertainty which was the army went to war, and they realized they were short some 54,000 trucks. so david obey approved, along with other folks, massive increases in an account called other procurement army. it used to be a $2 billion account. it was nothing to buy things like humvees and radios and so on and so forth. and so, you know, you say, okay, humvees, radios, ultimately what that translate into -- and the correlation is difficult to make -- is it translates into people's well being for the military. and so that's what we're looking for in the long term. but in the near term, defense department has enough tools to be able to minimize some of the impacts of sequestration and uncertainty.

>> dennis williams, you're representing, in a sense, the domestic side here. >> [inaudible] >> the bread and the butter. all right. [laughter] and omb's asking for fy-2015 budgets to have a 10% cut. what tools did you use in hhs when you were there -- let me recap, dennis, you were budget officer for how many years? >> 16 years. >> yeah, a long period in the '80s. you moved to hrsa, the health resources administration, where you were -- >> deputy administrator. >> and then came down to run recovery act for the secretary until just fairly recently. what tools do you have in hhs that are any different or

similar to what david described? be how does hhs deal as the largest nondefense agency with these problems, with programs like head start, with programs like nih? how do you go about trimming the sails? >> so, first of all, let me say we're not just the largest nondefense agency, we're the largest agency in the federal government. so it's, we're a big part of the budget pie. and as this discussion i think shows, a lot -- the answer to your question, a lot of the answers to your question, it depends on what omb is interested in. in 2012 we're 848, $850 billion budget. if omb wants to cut our budget by 10%, that's $85 billion, that's roughly the sequester for 2013 for the whole federal government. so that's a lot of, that's a lot of money.

the department's budget is 90% mandatory, 10% discretionary. so medicare and medicaid loom large in our budget. if you want to cut 10% out of the total budget, then your going to have to -- you're going to have to go after our mandatory programs, medicare and medicaid, that takes legislation. and although this is a lot of money there -- there's a lot of money there, you can ask to change that. you can propose legislation to the congress to reduce the costs of those programs, but in the short term you're not going to get much savings. the 2014 budget has about $400 billion worth of mandatory savings in the department, but that's over ten years. the first year you're going to get about 5, you know, $6 or $7 billion. so the save $85 billion in one year in a program like hhs is really hard to do. so my guess is omb's not asking

for 10% against our total budget, they're probably asking as sequester and other approaches tend to indicate, they're really looking at 10% of our discretionary budget which is a relatively small amount of money. so $80 billion discretionary spending, 10% of that is 8 billion, you're in a more manageable area. but some of the tools that you have, the department has to try to do that are like some of the fixes to the sequester. there are various pots of money around that could be used to be eliminated. you can shift costs. fda is funded half by user fees from drug companies. you could increase those fees to drug, by drug companies or go after food companies and ask

them to pay more of the costs of our costs of regulating them. that reduces the federal cost. you could reduce costs. we have a lot of programs aimed at program integrity to try to make sure that our mandatory programs don't waste money. that takes some investment, but they do produce lower costs. that's another area. you can actually reduce programs in the 2014 budget, the low income home energy assistance program, block grant are programs that are actually proposed for not elimination, but reduction, i think, primarily. and then there are other tools like the child health insurance program roped into the budget,

into the legislation. it's been proposed to rescind some of those bonuses. depending on the ground rules which omb sets for its savings, if you counted those, there'd be other sources of money. but a lot depends on the sequestration side, a lot depends on the business model of the agency. if you're primarily a savings and -- salaries and expense account like faa, you don't have a lot of choices. this is scott's -- you spend money 12 months of the year. but if you're more mandatory, hhs is not particularly affected by sequester. 90% of our budget is either exempt or, like medicaid, or the amount of sequestration is limited -- 2% in the case of medicare. that's a lot of money, but it's small. so 10% of our budgeted,

really -- budget, really, is fully exposed to sequester, so it doesn't loom as large as it might in faa or some of the other budgets. >> well, continued resolutions are become the norm these days. agencies seem to become accustomed, in fact, to managing with a cr, and you can say that you want to be careful at doing what you seem to be good at, because if you show your wife, for example, that you can empty the dishwasher and do it well with no problem be, you may be asked to do it again and again and again. so for any of you, do any of you see any relief from crs, and what's going on here? is this a perpetual problem that we're going to have? >> yeah. although i'll be the contrarian. it may be because, as you point out, it's become the norm. it used to be difficult to manage with a cc because you

didn't know if you were going to have a cr or the bill that had been drafted and was in the pipeline. but as you pointed out, it's become the norm. so you can almost expect if you're running an agency budget, that's what you're going to have come october. you may not know how long you have it. but there's a flipside to this which actually may benefit agencies along with an appropriations bill comes report language which you're expected to follow. some of it can be rather constraining or rather detailed. and as time goes by in a cr, some of that report language starts to fall by the wayside which actually gives you more freedom, not less freedom, to spend the money that your receiving in a continuing resolution. so there may be some aspects, depending on what the report language is, that it actually may benefit agencies. there's a power purchase, if you will -- transfer, if you will, from the congress to the agency. and i know some budget offices

there may be some crocodile tears simply because they actually get more rather than less flexibility. >> i've asked this question from my current role as nga about the states, and the states largely with respect to most of the grant programs -- not medicaid, the states are very worried about medicaid, but as dennis be said, medicaid is exempt from sequester -- but with respect to the grant programs, the states are now used to it. i mean, this is not new, the fact that the federal government doesn't know how much money they're going to get and, therefore, the states don't know how much money they're going to get. there are some years that are better, some years that are worse. the states basically have grown to adjust to it. but i do want to say something here that most of the conversation both on panel and the other panel are sort of concentrated on the current situation. congressman obey mentioned the

budget act of 1974 and the one thing he thought good was the creation of the congressional budget office. i'd like to suggest there may be one other thing that is important for the discussion we're having now. it was that act that got the u.s. off one-year budgeting. back when i started in this town, every budget was for the budget year only. the omb documents would have the past year, the current year and the budget year but almost nothing beyond that. that act started in sort of a provision that wasn't paid much attention to, and it didn't go in effect right away to start to get us to think about three years and then eventually five years. and now we're talking about 10, 20 and 25 years. and i can tell you from my role at both imf and oecd, i was promoting to other cubs, and other countries are looking at it more now.

that's good in some sense because some of the things we're talking about, maybe the -- i'm not trying to make conclusions -- maybe the current caps for fiscal year 2014-2021 are far too low. maybe they are. but now we have the ability to look at what numbers are and trade-offs. as was said on the first panel, health, the health programs are really the things that are in the long term leading to our fiscal unsustainability. maybe we should be taking a look at sort of a bargain that trades off long-term reductions in the growth of health care costs for some relief on the, in the interior. on the curve numbers. -- current numbers. and so one of the things i looked at from that law is it allowed us to at least have some idea what these trade-offs would entail. >> i would like to say i think, i think if congress fully understood what happened inside of agencies when they put them

on a continuing resolution, they would feel much greater pressure to act expeditiously and in a timely way. and in some cases it doesn't have so much, it really depends on the program. but anytime you have an agency that's involved with procurement and they don't know how much they're going to get, they cannot go through the cycle that you should go through to do a prudent procurement that gets the taxpayer the value that he deserves out of it. if the congress does not pass funding and an agency doesn't know what his budget is going to be until march or april of the fiscal year, that means that that a procurement process that should take 12 months to get all of the ideas in on what is the

best thing to buy and what kind of specifications you should have, to advertise it in the federal registry, to go out and get the bids in a truly competitive manner and to award the bid and obligate the money by the end of the year, that's the way the process should work. if you get the money in march and april, you can't do that. so you get into all of these truncated procurement processes where the government doesn't really know what they're buying, hasn't been able to explore what the best options are for procurement, and you have a waste of money. and you need to get back to where the government puts together its budget, lets agencies know what their workload is for a year and give them the full year to do that work. >> i want to say something that's rather abhorrent for an appropriator at omb, but -- >> oh, good. [laughter] >> i think we need to be willing

to think that we're, to believe that we may be seeing a paradox shift on how the congress operates. and it's because of what chairman obey said on the first panel. the systemic trends that are occurring in the body politic and the institution that we know and love up on capitol hill. doing cr and sequesters avoids all the difficult political decisions for a variety of different reasons can't be made or are not being made. i agree with scott's assessment. if folks knew what a cr did to the agency, they would think twice about it. and then they would do a cr. [laughter] and then they would do a she sequester. the last thing a good appropriations staffer wanted to do was to propose to the chairman and the ranking member an across-the-board cut because that was an abdication of your responsibility. it frustrated the constitutional

imperative of setting priorities by the congress, and it robbed the congress of applying and exposing its intent for how funds would be spent. but that's exactly what's happening. and so maybe we need to think about how we do that in a situation normal as opposed to a situation abnormal with crs and sequesters. maybe congress needs to get more creative about how it registers intent. maybe it needs to be more explicit about or come up with different processes in order to establish priorities. do readiness crs or, i mean, readiness supplementals which we did during the clinton administration. just do a cr to support readiness, i mean a supplemental, as opposed to the shell game we play now.

things like that. so i wish it weren't thus, but i don't want see what the healthy alternatives are to the current situation. >> just a grace note on that, this does overlay not just the budget process, but over legislation. and there are a number of reasons for it. chairman obey talked about just the lack of time the members spend together anymore even in a social setting to get to know each other. i also think there's the extent congress now both in the house and senate, with this 50/50 split we have in the nation, the minority regardless of who's in power too often see that is the next election year could be the chance that they become into the majority and results in two things. one, it results in the minority not messily wanting to compromise -- not necessarily wanting to compromise. but secondly, the majority -- you see this particularly in the senate -- trying to protect vulnerable members from votes. so you, which frustrates the minority from, for instance,

bringing up amendments that may be difficult to vote on. and this is particularly acute in the budget process where any amendment can be brought up when a budget resolution's on the floor which is one reason i think we've seen too few budget resolutions on the floor in the senate over the years. so until this problem regarding the comity -- not the comedy, but the comity -- of the congress is solved, it may continue to be a very wet blanket that lies over the entire process. >> with i agree with barry that one should look over the longer term to see what's available, where we're going and try to make some choices about the moving pieces out there. senator conrad, i thought, was pretty eloquent about some of those choices. but those choices are very -- even when they're laid out clearly, they're very, very difficult politically. that's why you get a sequester. takes away responsibility. you can cut things, and you don't see the result very much. people talk about those results,

but you don't see them very well. but if you look at the total budget, hhs, social security, defense be, that's two-thirds of the federal budget. the rest is a variety of things, but those three things really account for the bulk of what we do. and so what do we want to do with health care in the future for both, for the elderly? a lot of people are going to be retiring over the next few years. the low income pop rations -- populations, disabled. what do you want to do for retirement for the work force? social security's totally exempt from sequester. maybe that's a priority. and then defense. what are we going to do with defense? when i started out as a budget officer in 1985, defense was like, i don't know, 25, 26% of

the budget. it's now 18%. hhs in 1985, excluding social security, was like 12% be of the budget, and now hhs is 24, 25% of the budget. a growing part of the budget, but maybe health care is a value also. so it's not just a numbers game. you have to -- and this is what gets difficult. the society has to decide what does it value, what does it want to do with the resources available to it? health care is growing, and it's a big part of the budget, but maybe that's a good value for the society. that's what the congress and others need to wrestle with, i think. >> well, what happens next? you know, where do we go from here? how do you see all this ending, or at least, you know, near term what do you think congress and the agencies are going to do

with the next round that they're about to face? >> well, i think, i think this really kind of gets down to how far the house is going to go. and i think, i think they have a very difficult decision. if you looked at "the wall street journal"/nbc poll last week, you saw really an explosion of anger toward the congress and ratings of the republican majority in the house in particular. but one part of that poll said do you think that the republicans are being too inflexible, and 56% said, yes. but among republicans a third said that they thought they were too flexible. and so i think you've got a speaker who is dealing with