JAN PAUL ACTON PROFESSIONAL EXPERIENCE Jan joined the Congressional Budget Office in the summer of 1991 as Assistant Director, heading the Natural Resource and Commerce Division. The Division deals with issues in energy, environment, agriculture, financial institutions, infrastructure, and science policy. Prior to that he was a Senior Economist and Director of the Regulatory Policies Program at RAND. He also served as a Co-Editor, The RAND Journal of Economics and was a Member of The RAND Graduate School faculty, teaching microeconomic theory in Ph.D. policy analysis program. Dr. Acton's research fields include the economics of energy and natural resources, industrial organization and regulated industries, health economics, and benefit/cost analysis and public finance. His recent research activities include environmental issues, policies for cleaning hazardous waste sites, and the effects with the liability system on private activities. He has appeared as an expert witness in the U.S. and Canada and served as a Consultant to the Treasury of New Zealand regarding deregulation of energy supplies. EDUCATION 1971, Ph.D., Economics, Harvard University 1966, B.A. (with highest honors), Economics (with distinction), San Mr. FAZIO. Thank you for your comments. We hope that Polly will spread the word to the other budget officers that the example has been set and help us keep them under control. THE BASELINE FOR CBO I guess Mr. Zimmerman is here to take credit for having made all those savings. Our interest in trying to continue to understand how scorekeeping and how the baseline is constructed leads me to ask whether you think the 6 percent you have asked for over the last year is in keeping with that, in general, for our branch of government. How does it measure up? Mr. REISCHAUER. I believe the baseline for our agency would rise 5.7 percent; so we are very close to the baseline. How rapidly the baseline would increase agency by agency depends in part on the personnel component of their budgets. As you know, CBO is largely people. Eighty percent of our budget is devoted to people, and Mr. FAZIO. Which is not unusual for our branch of government. Mr. REISCHAUER [continuing]. That makes the baseline, as we discussed last year, increase considerably faster than a mere inflation adjustment, which would be somewhere between 3 and 4 percent. Mr. FAZIO. That is our frustration. While that is only threetenths of 1 percent, it can, in some agencies, turn out to be a lot of money. Nobody could ask you to do a tougher scrub job on your budget than you have done, particularly at this point in the process. It is indicative of the problem we face. You have only been able to make a few modest enhancements in your program. You wouldn't have been able to do it without the savings in the data processing area. Mr. REISCHAUER. The other thing to keep in mind is that a good chunk of our nonpersonnel budget is money that, in fact, goes to other government agencies: the Government Printing Office, House Information Services, the Library of Congress. Mr. FAZIO. Which is, again, not unusual. Mr. REISCHAUER. We have $4.8 million in our nonpersonnel budget. Of that, $2.7 million-56 percent-goes into our budget and out to some other agency. Mr. FAZIO. Ninety-seven percent of your budget increase is for mandatory items. Mr. REISCHAUER. Right. Mr. FAZIO. I am not sure what Mr. REISCHAUER. This subcommittee is going to have a difficult time. Our estimate of the caps suggests that the domestic side of the budget has to be cut 3 percent below what an inflation adjustment level would require. Mr. FAZIO. Ed is saying we may be in the 2 to 3 percent range, depending on what our Committee is able to do for us apart from its other problems. You know, if some sort of across-the-board approach is taken, that is clearly where we would be. If we come in higher than that and go to the Floor, we get slaughtered for giving ourselves more flexibility than other-much larger, albeit agen You have given us a very tight budget and yet we may have to reduce it. Mr. REISCHAUER. Don't make up your mind yet. Mr. FAZIO. I won't. Anywhere from 2 to 4 percent, probably, to get it within the range that would allow us to come out of here with a total. And yet, as so often is the case in the Legislative Branch when there are major policy initiatives around, our agencies get more work, not less. When we are trying to find savings we work you, we work GAO, and all the other agencies we rely on to help us cut spending. We have to do more. Thank God you didn't have another budget summit or you wouldn't have been able to provide all the input on the other major policy issues that have been festering. Your budget submission really does document for us sometimes how difficult our task and your task is, and how counterproductive sometimes our resolution of that problem is. Mr. LEWIS. Mr. Chairman. Mr. FAZIO. Yes. ANALYSIS OF THE POTENTIAL COST OF THE PERSIAN GULF WAR Mr. LEWIS. Bob, I would like to pursue that in a little different way. I am curious about your description of an analysis of the potential cost of the Persian Gulf war. I am sure that analysis must have taken place as a result of requests coming from either committees or Members of Congress. Mr. REISCHAUER. Committees. Mr. LEWIS. It would be interesting to see a modeling of that request and what it did to your budget; that is, if travel was required, what kinds of travel and what was the cost? If questions were answered, what were the questions that were asked, and what did it cost to produce those answers as a mechanism for evaluating the relative value of that expenditure for what it produced in the process, either for the committee or otherwise. Because, clearly, if we were going to be entering a theater that involved war, to say the least it is difficult to project what your costs are going to be. For Congress' purposes, we were certainly not about to say, hey, wait a minute; don't spend that much. I am just wondering what the relative value was. Mr. REISCHAUER. The way we and most government agencies operate is that we are given an appropriation for the year. And during the year, we are not going to get add-ons or reductions-it works both ways when the workload goes up and down. We can't increase our staff beyond the limits that have been placed on us. When we get a request to do a study in a very short period of time, we take the people who are working on other projects that the Congress has asked for, and we say, stop that. The leadership or the committees have decided that this is a more important question. Put that other stuff aside. We are putting all of you folks on a forced march to get the answer to this question because we have to shed some light on the subject over the next month or so. But, unless it required extraordinary new computer runs or travel, which it really didn't, there would be no additional cost. tion like this in a shorter time than it takes to send a team out to the Gulf to inspect and come back and analyze. We got this on Friday, and a month later we were to come up with an answer. Mr. LEWIS. I am wondering how you make those judgments as to how you react to such a question or such a request? Mr. REISCHAUER. It is very hard to do, especially when one committee or the leadership is asking for something. And we aren't doing anything for either at present, because what we are doing is redirecting resources from one request to another. That is a difficult issue that we generally play by ear. Mr. FAZIO. You seem to get by without getting a lot of negative feedback. Mr. LEWIS. I am wondering out loud whether we have a mechanism to evaluate any negative feedback? Seldom do I question whether what an economist tells me is useful or not. CBO STUDIES AND REPORTS Mr. FAZIO. I think I know the reason. Mr. REISCHAUER. Our studies and reports have different gestation periods. Some take a month, some six months, some a year and a half. What you are doing is taking the people at work on longerterm projects and saying, don't spend the 20 percent of your time you told me you were going to spend on that longer-term project. Devote it to this immediate one instead. As a result, the one-year project often becomes the year-and-ahalf project. Mr. LEWIS. I am, among other things, Bob, a new member on the Subcommittee on Defense Appropriations. I am quite curious about the relative value of that one project. I wonder if someone on your staff could bring that to my personal attention. Mr. REISCHAUER. I would be glad to. Mr. LEWIS. And give it to the Chairman, too. Mr. FAZIO. I want to know how much more did we make on this war. Mr. REISCHAUER. You probably don't want to know. Mr. FAZIO. I will submit a question on Operation Desert Shield/ Desert Storm for the record. [The question and response follows:] CBO ANALYSIS OF WAR COSTS Question. Please explain why CBO did a cost estimate of Operation Desert Shield/ Desert Storm for the Congress last year. Answer. In late 1990, CBO undertook an analysis of the costs of Operation Desert Shield/Desert Storm at the request of the Chairman of the Senate Committee on the Budget. The results were made publicly available in mid January of 1991, shortly before the outbreak of armed conflict. As the analysis itself noted, political and moral factors that had to be considered in reaching decisions about war or peace clearly outweighed budgetary costs. Nevertheless, by late 1990 concerns were being raised about the effects of the Operation Desert Shield/Desert Storm on the federal deficit. Moreover, a very wide range of estimates of the potential cost of a war began to enter the public debate, including some extreme estimates that put the bill at many hundreds of billions of dollars. To avoid suggesting that it had decided to go to war, the Administration declined to make any cost estimates or to comment on those made by others, no matter how extreme. Explaining the great uncertainties inherent in estimating the costs of a war, the |