affected by such legislation are not necessarily bad programs. In fact, they are undoubtedly good programs, but they have a lower priority than other good programs.

This is the principal reason why the difficulty in proposing cost savings legislation and in gaining its enactment has been so amply demonstrated in recent years. Hard political choices are required, because for every program for which reductions are proposed, beneficiaries will oppose the reductions.

You have also asked my thoughts on procedures that the Congress might use to accomplish cost savings through legislation. The Congress has already, in the Congressional Budget Act, curtailed the practice of back-door spending, that is, the practice of authorizing the obligation of funds without making that authorization contingent upon the enactment of appropriations.

In addition, the mechanism of the budget resolution helps the Congress to recognize the difficulty in restraining the budget by requiring that recommendations for each of the functional categories be fitted within an appropriate total.

There has also been an increased awareness by the Congress as to the degree to which existing law dictates Federal spending. Finally, the Congress in its deliberations on the 1980 budget resolution is considering the implications of the actions it is taking in 1981 and 1982. Additional steps the Congress might take include enactment of sunset legislation that would increase the amount of the budget that comes under periodic review. Potentially, it could save significant amounts through the elimination of programs that become outmoded.

Congress should also continue the practice begun this year in the budget resolution of looking beyond the fiscal year at hand. I would also like to offer my thoughts on what the Congress should not do. I do not believe that the Congress should make across-the-board reductions that reduce programs regardless of their merit. While it may appear to be simpler to make general reductions, the approach is inequitable and unjustifiable in a programmatic sense. Across-the-board reductions can work unintended but nevertheless real hardships on recipients of needed benefits and can also make efficient program administration extraordinarily difficult.

In concluding, I want to reiterate that legislative cost savings proposals are an integral part of the budget process. The process cannot be simply the addition of new programs or increases in existing programs. We must continually reevaluate existing programs as a part of the process. We should be careful not to consider cost savings legislation as an isolated technique or process. I would be happy to answer questions.

[The prepared statement of Mr. Cutter follows:]

PREPARED STATEMENT OF W. BOWMAN CUTTER

Mr. Chairman and members of the task force, the area of cost-savings legislation is one of the most difficult, and yet one of the most important of the elements involved in proposing, enacting, and controlling the Federal budget. I welcome this opportunity to be here today to discuss my views on the need for such legislation, the processes used to develop it for the President's budget, and the procedures that the Congress may employ to accomplish legislative savings.

The motivation for proposing and enacting cost-savings legislation is found in the necessity to adapt the budget to changing needs. To meet changing needs, the Federal Government may either spend more money (if the resources are available),

or change some of the ways it formerly spent money. The difficulty with spending more money is obvious in times like the present, when restraint is needed. What is less obvious is that changing the pattern of most Federal spending is also very difficult. About three-quarters of Federal spending will be relatively uncontrollable-from the President's perspective-in 1980, and over half of the remainder must be for defense programs. The major cause for this lack of flexibility in adapting the budget to changing times is the huge funding required by substantive law.

Outlays resulting from entitlement legislation and other laws that require expenditures have increased tremendously-particularly in the last 10 years. Since 1970, the percentage of total budget outlays made for open ended programs and fixed costs (excluding interest on the public debt) has increased from 33 percent to 47 percent. These outlays, which include social security and other major benefit programs, have increased by 286 percent during this period, while the budget as a whole has increased by 170 percent. Expenditures for open ended programs and fixed costs have grown two and one-half times faster than the rate of inflation. There is no question that these programs are essential to our national well-being. For example, programs that help to meet the needs of the elderly, the disabled, the unemployed, and the poor are vitally important. No one should consider seriously elimination of programs that are so fundamental to considerations of equity or justice. But, a need exists for both the executive and the Congress to search for ways to change or eliminate specific provisions in law affecting these and other programs that require excessive, inefficient, or irrational spending.

There is no single process for deciding what spending is inefficient, excessive, or irrational. Proposals often result from studies conducted by the agencies, OMB, or interagency working groups. The proposal to eliminate the 1-percent "kicker" in civil service retirement benefits (which was enacted by the Congress) is an example of a cost-savings proposal developed as a result of a detailed study by OMB.

It should be noted that proposals for cost-savings legislation are reviewed in essentially the same manner as other budget options-such as proposals for new programs, program increases, or reductions not requiring legislation. Moreover, the priority of legislative proposals is considered against those other options.

Regardless of the basis for the decision to propose cost-savings legislation, difficult choices must be made. It is not easy to achieve significant cost savings without affecting programs that have some benefits and that address some demonstrable need. The programs that would be affected by such legislation are not necessarily "bad" programs. In fact, they are undoubtedly "good" programs, but they have a lower priority than other "good" ones. This is the principal reason why the difficulty in proposing cost-savings legislation-and in securing its enactment-has been so amply demonstrated in recent years. Hard political choices are required because for every program for which reductions are proposed, beneficiaries will oppose the reductions no matter how logical they may be.

Finally, the task force has indicated that it would welcome my thoughts on procedures that the Congress might use to accomplish cost savings through legislation. The Congress has already-in the Congressional Budget Act-curtailed the practice of "back-door" spending; that is, the practice of authorizing the obligation of funds without making that authorization contingent on the enactment of appropriations. In addition, the mechanism of the budget resolution helps the Congress to recognize the difficulty in restraining the budget by requiring that recommendations for each of the several functional categories be fitted within an appropriate total for the entire budget. There has also been an increased awareness by the Congress of the degree to which existing law dictates Federal spending. Finally, the Congress, in its deliberation on the 1980 Budget Resolution, is considering the implications of the actions it is taking now on spending in 1981 and 1982. That, too, is an encouraging sign.

Additional steps that the Congress might take include enactment of "sunset" legislation, which would increase the amount of the budget that would come under routine, periodic review. Potentially, such legislation could save significant amounts through the elimination of programs that have become outmoded or that are no longer needed. The Congress should also continue the practice begun this year in the budget resolution of looking beyond the fiscal year at hand.

I would also like to offer my thoughts on what the Congress should not do. I do not believe that the Congress should make across-the-board reductions that reduce programs regardless of their merit. While it may appear to be simpler to make general reductions, that approach is inequitable and unjustifiable in a programmatic sense. Across-the-board reductions can work unintended but nonetheless real hardships on recipients of needed benefits, and can also make efficient program administration very difficult.

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In concluding, I want to reiterate that legislative cost-savings proposals are an integral part of the budget process. The budget process cannot be simply the addition of new programs or increases in existing programs. We must continually reevaluate existing programs as a part of the process. We should be careful not to consider cost-savings legislation as isolated proposals.

This concludes my remarks. I will be happy to answer any questions that you might have.

Mr. PANETTA. Thank you for your testimony. Thank you for adding your views to the body of the record of this hearing.

Obviously, the role of OMB is very important to this whole process, because in effect you have been implementing the effort at legislative savings within the administrative branch itself. One of the concerns I have is that the President's budget, with regard to legislative savings, year after year out of OMB have appeared some of the same legislative savings that we have seen before.

Examples are impact aid, wage board reform that show up time and time again. Legislative savings provide an easy way to simply trot out the same savings, in order to appear to be cutting the budget, when in the end the reality is that many of these legislative savings are ignored.

I have always had the impression that some of these legislative savings are in fact used as a vehicle to then ask for additional increases, because you know that not only are you not going to get this program reduced, but you are very likely to get this increase, so that in the end while it may appear that you are not involved in that much additional expenditure the end result is to do that.

Is there focus on this in the executive branch in terms of really pushing for these legislative savings, or in fact how do you make sure that HEW or HUD or any of the other agencies are not simply using this as a vehicle to increase spending in other programs? Mr. CUTTER. You raise a difficult problem. Let me give a different point of view before I answer the question directly. The point which was made to me by Mr. McOmber, the Assistant Director for the Budget Review Division of OMB, the senior civil servant in OMB and one of the finest men with whom I have ever worked. He said to me on the first day that I was at OMB, redoing the 1978 Ford budget, that this is the President's budget. When we propose a cost-saving piece of legislation or even a reduction that does not require legislation, we are saying that, as an administration, it is our judgment that this expenditure should not be undertaken relative to other expenditures.

We are saying that we have discussed this as an administration, that the President has agreed to it, and that we are willing to expend time and political capital not to make this expenditure-in order to make some other one.

It seems to me that it is not simply a rote exercise to do that, even though Congress may well-for the last 15 years in a row, have undone that recommendation by successive administrations. We cannot simply allow the express preferences of Congress to allow us to say, "Well, all costs are basically imbedded in the budget and we have to add new moneys."

I will give you a couple of examples of failures and successes. We have proposed every year I have been in OMB either reduction or termination of the beekeeper's indemnity fund, which is a standard budget joke. We have never succeeded, but as long as I have

anything to do with the budget, the administration is not going to say that the beekeeper's indemnity fund should have money allocated to it. I just think it is a waste of money.

More importantly, we have proposed changes in impact aid every year. In the 1978 budget, we proposed doing away entirely with section b payments. In successive years we have proposed phasing out, and ending particular pieces, and we have been successful. Last year we actually got some money out of the impact aid program, with the help of important parts of the Congress. This year we will get more, I suspect.

The success with which we deal with cost savings, whether they are legislated or simply result from lower appropriations, depends a great deal on the strength with which we propose them and also on the times. If the concern about expenditures and about balanced budgets had not been so great, we would not have been able to build the momentum to achieve some of the savings which we will in fact achieve this year. That is the one side of the issue.

It is the President's budget, and the President has a right to say to the Congress, "I don't think these expenditures are worthwhile." The Congress then has a right to say that "Despite your view in that, we are going to enact them anyway."

However, we do have to make certain that OMB is not gamed by the agencies-"we" being OMB-that we are not proposing legislation or legislative changes that lack programmatic merit or that will make us look foolish; we must avoid taking those savings in a false sense and attributing them somewhere else. We walk a line there.

I know that we propose savings that have been proposed in past years and which have not been successful and we will continue to propose them, but we also do ask that question. We ask the question, "Can we make a programmatic argument for this saving? Can we argue it with a straight face?" And we just have to balance those considerations.

Mr. PANETTA. I think there is merit to that, because obviously in the area of legislative savings, you are dealing with issues that are not very popular, and there are built-in constituencies that will oppose them, and the only way you begin to make a move at those savings is to gradually peck away at it by continually raising them, continually raising the weaknesses of the program areas that are being addressed, and constantly pushing, so that eventually the public and the Members of the Congress become sensitive to that issue.

I think that has happened with regard to impact aid, as an example, where this has been an issue continually raised ever since the Johnson days, and finally because the administrations have continually raised it, there has begun to be some movement in that direction.

One of the things we have tried to do in the budget resolution, particularly on the House side, is to highlight the legislative savings through a separate section that says to the Members of the Congress these are the legislative savings we are targeting. They total roughly $4 billion. The programs we are trying to get through, we alert the committees to that effect, and try to create some kind of separate focus in this area.

In the past, the OMB has had a special table as well in the back of its budget, laying out the legislative savings, and that no longer was a part of your budget appendix. I am wondering if it would not be helpful if you could help us by perhaps highlighting your legislative savings in the context of your budget?

Mr. CUTTER. We are willing to do that with some qualification as to precisely how we state it and how we do it. To be frank, there isn't any question about the kind of technical value of putting such a table in, or the highlighing value to you. We swing back and forth between two different senses. One is that it is better to put it in. The other is that it is better to show the proposals as we did in last year's budget throughout the whole budget, and highlight it in the functional descriptions and wherever else it is appropriate. The argument there in a sense goes back to the whole question of why these are so difficult.

I have found that frequently when we propose a saving, it is attacked on the basis-in addition to whatever programmatic basis people choose to attack it on-that it is merely a budget cutter. Well, I do not agree with that sentiment. My general judgment is that "merely a budget cutter" means that we are making the priority decision that one expenditure rates higher to us and to the President than does another, and that that is not a "merely." That is an important aspect of the budget process, but because it is a fact of life that they are attacked on that basis, we have swung between saying, "All right, here they are," and saying, "We won't say, 'here they are. We will build them into our programmatic descriptions, and not give quite as much basis for attacking them.' This is not an effort to hide them. There has been an ambivalence about what is the best way to argue for them.

Mr. PANETTA. I understand that. It would be helpful to us, as we put together our targets, helpful to have kind of an outline of what those are, and indeed also build them into the areas that at least we have a focus, particularly with a task force up here it gives us an opportunity then to wade through it, to be able to pinpoint which are your priorities between legislative savings. I would hope you would look at that aspect.

Mr. CUTTER. We will.

Mr. PANETTA. One of the problems we have also had in the legislative savings area is the problem of having the proposals made by the administration to the Congress, and then in fact not having the backup legislation for those proposals come up in some instances until September. Do you have an approach, a plan in the administration, or at least some target dates, that gets the proposals out and to the Hill within a reasonable time frame, so that the Congress can in fact implement it? Do you have these targets? Mr. CUTTER. We do have a process. It does not always work, obviously. Indeed, I think you are being gracious. You said that the last proposals came up in September. I think in fact there were some last year that did not come up at all.

Mr. PANETTA. That is right.

Mr. CUTTER. That is another area that I would be happy to talk about. Our process within OMB is that after the President decides on the budget and all budget decisions are locked in, in early January after the budget is printed, we inform the agencies as to