Address by' the Comptroller General of the United States, Elmer 8. Staats, to the Commonwealth Club of California, Sheraton-Palace Hotel, San Francisco October 1, 1971 yd P I \ . FEDERAL SPENDIW.G-IS IT OUT OF CONTROL?3 I 1 I k . i I a$preciate the invitation to speak befo-re this distinguished group. The Commonwealth Club of- California is well known for the contributions it has made over many years. Your secretarjl has asked me to speak on the subject "Federal Spending--Is It Out of Control?" I hasten to say that I cannot give you a definitive answer. And even if I attempted to do so, I doub,$ that many of you would agree y/ith my answer, 2;_. The reason is bisic and simple: The .ans!r!er depends on your philosophy of government-whether taxes are too high, whether e inflation is the paramount issue, hether the Vietnam war could be brought to a close more rapidly than the President's plans con$emp7 ate ) or whether you think the needs of our inner cities-- sy~ribol of our irwense social probiems--have been neglected by the Federal Guvern~rnt. Perhaps I should state. both nv disqualification and qualification to speak on the subject. Your fellok/ Californian, q//f caper Wei nberger, Reputy Director of the Offic: or' 14anay2rr?ent 2.7 / and Gudgct and a fctmer speaker before this forum, and George Shultz, the Dfiw.tor of that Office, are the key personai i t-ies presently invalved in advising the President on cur-rent and future budget policies. 60th are able!, entrcted with this highly important and complex role. After serving more than 20 years in the Bureau of-the . i Budget, I have been concerned, for the past 5 years as Comp- i itroller General, with advising the Congress on how well the executive branch agencies have spent the money appropriated to them. Some call the General Accounting Office, which I head, theVIWatchdog .for the Congress," Having this respon- sibility and having played a personal part--as Deputy Direc- torof the Budget-- in assisting four Presidents in the prep- aration of 14 budgets for the Federal Government, T have-- quite naturally-- retained an active interest in and concern with the subject of Federal spending. A decade age, when John Kennedy became President, the Federal budget&as approximately $98 billion, Ten years , later, . in .1970, the budget had almost doubled at $197 bil- lion. The 1972 budget, now before + the Congress, calls f-or expenditures of &$232 billion, In this lo-year period, 1961 through 1970, we have had a budget surplus in only 1 year and have had cumulative deficits totaling more than $60 bil- l?on. Perhaps I should update these figures for fiscal year 1971 and the current estimates for 1972, The actual deficit for 1971 was $23.2 bill3on-- sharply upward from earlier es- timates, largely Secause of the downturn in the economy. The President's budget for fiscal year '72, submitted last \ january, estimates a deficit of $11,6 billion. Currently the expectation is that the deficit w-ill climb to a much higher figure-- some estimate as high as $25 to $28 billion-- primarily due to two considerations: the proposed tax re- duction that is a part of the President's Na.7 Economy 8 2 _._ ._-__._- ._..-_ __.._-. - 0 a Program and increases in the President's budget to approxi- '#ately $3 billion due to added expenditures by the Congress fo appropriation bills acted upon to date, Thus-there ,iS a possibility that in 2 fiscal years we will add deficits totaling almost as much as .those accumulated during the pre- vious 10 fears. -. The President's current budget requests new spending authority totaling nearly $250 billion which, added to the $260 billion authority of previous years, provides the execu- tive branch with spending authority of over $500 billion--to be spent in the years ahead. THE BUXET IN THE FUTURE The Feder$ budget for future years is further compli- cated . by 1the. fact that many of our commitments have become "fixed, " "built in," or, as some-a would call it, "uncontrol- lable" --the-very word in the .topic selected for today's discussion. To be sure, much of our budget has increased as the result of population growth, inflation, an increasing number of veterans, and an increasing number of beneficiaries entitled to social security and other pensions, President Nixon, in transmitting his 1972 budget, pointed out that, during the next 4 years, economic growth should increase Federal receipts by $86 billion. But, he hastened to add, the built-in or uncontrollable costs in the budget will limit severely the ability of any President s to alter this figure over the next 5-year period. He stated that: Less than ten percent of the receipts that our current tax system is expected to produce in 1976 will be available for all the new programs to be in:roduced between now and then. 3 --..--.______.__ ^_.,_-.-.-.-..---.- ,“__ ... ._-~.-.---.---.. -. -- ._.. . . . . ._. - - ., This is a direct quote from the budget statement in which he further estima.ted that about l-percent of calendar year 1975's .eeonomic resources would be available for new programs. - Perhaps some of you will conclude that I already have answered th& question pos.ed in today's subject, namely, that Federal spending is out of control and that I could stop right here and not belabor the subject: further. But the issue is not that simple. Whether Federal spending is too high or too low must be judged on many counts. It must also be related to the growth of the economy and the need~s which Gawernment will be called upon to supply if we are to have a stable sc$ety and if our economy is to continue to prosper and grow‘. TKF, HJDGET'AND THE ECONOMY - It is a truism that the budget is affected by, and has a sizable impact on, economic conditions. The 1971 budget deficit, for example, was increased by nearly $6 billion because the economy did not perform as anticipated. At the same time a sluggish economy has placed more people on wel- fare rolls, illustrated by the fact that in February of this year 14.2 percent of,the population here in San Fran- cisco were receiving public assistance. A sluggish economy also has resulted in higher payments for unemployment com- pensation, lower agriculture prices requ iri;ig more money for price supports, and higher interest rates which boosted the Govekment's cost for borrowing money. A major step was taken by President Nixon this year to . relate his economic forecast or goals to the level of the budget and the budget surplus or deficit forecast. He used the term "full employment surplus." *_ -, 0 0 This means that, although the budget, in absolute terms; shows a deficit of $11*.6 billion, it would show a small i surplus if the economy were to perform at a level required to reduce employment to about 4 percent. In the language of the economist, the budget was calculated to have a stim- ulating eff'ect on the economy and to serve the objective of bringing economic growth back to an acceptable level. In more specific terms, the downturn in the economy has-con- tributed to spending programs for emergency employment as well as expanding welfare costs, to which I have already re- -ferred. Viewed in the perspective of the gross national product . (GNP), the Fed&? budget picture is quite different, Dur- ing.the W-year period 1961-70, which I have taken as my point of reference, the Federal budget, as a percent of GNP, increased only slightly--from 19.3 percent to 20.6 percent-- while the Federal debt held by the public actually declined from 47 percent of the GNP to 30 percent, Of course I am talking only about the Federal Govern- ment. State and local government debts, as well as ex- penditures, have increased much more rapidly. Indeed, one .. of the reasons for the in&ease in Federal expenditures, overall, was the need to provide increased assistance to State and local goverrments, Federal grants- now represent approximately 20 percent of the total State and local rev-. enues , This year grants-in-aid represent nearly 15 percent of the total Federal budget, or about $30 billion. 5 1 1 i - : . e e c One writer has recently-remarked, facetiously, that the mayors of the cZties *facing .financial crisis are besieging their Governors for funds, In turn, these Governors, whose States also are facing financial crisis, are spending their time besieging the Federal Government for funds, The Fed- eral Cove&men-t2 in turn, is facing a $25 billion deficit. FINANCIAL ASSISTzMKE TO STATE AND LOCAL GOVEFXHENTS . The national debate now taking place on grants-in-aid and revenue shargng is of special concern, particularly be- cause of the question of accountability of these--your-- tax dollars. The 1972 bud&et states that "this year promises to be a turning point+n the history of our Federal system" and notes that the President's proposals for financial assis- tance to State and local governments, including revenue shar- ing for fiscal year 1972, tota1+$38.3 billion, an $8 billion increase in 1 year. The basic question focuses on the primary purpose of such assistance. Is the primary purpose to support programs for specific na~tZona1 needs, financed, -- in substantial part, with -- national revenues and accounted for to the National Government? Or is theiqprimary purpose .equalization of the tax burden under a system of federally collected, lo- cally admtinister~d revenues? The President, in his February 4 mesiage to the Congress on general revenue sharing, pointed out that many people believe that the best way to hold Government accountable to the people is "to be certain that the taxing authority and m e Will special interests--those concerned, for example, with -- child care, aid to the mentally retarded, or water pollution control --be satisfied to allow the need for these programs to be determined by the State and local governments? Whichever way the issue turns,_our attention has been _ focused sharply on the capability of State and local govern- ments to audit programs and to evaluate their effectiveness. 'One of the arguments made for revenue sharing is that it would place greater responsibility on local governments to determine how governmental programs should be carried out l It is difficult to argue with the principle of decen- tr,alization. I believe that this issue should be looked R at from the standpoint of whether general revenue sharing may not actually weaken one of the incentives to consolidate or modernize local government structure. ‘THE COMMITTEEFOR ECONOMICDENELOP"1ENT STUDY In its recent report the Committee for Economic Devel- opment pointed out that nearly two thirds of our entire pop- ulation today are concentrated in 233 metropolitan areas, compared with only 55 percent in those areas in 1940. Yet in 1967 the metropolitan areas contained nearly 21,000 units of local government, or Zn average 91 local governments for each metropolitan area. The extremes are represented by the Chicago metropolitan.area with 1,.113 local‘ governments, Philadelphia with 871, Pittsburgh with 704, aEd New York with 551, contrasted with 20 other metropolitan areas with less than 10 local gosernments each, 8 ----- .-. - Perhaps this audience is aware ,of the large number of Government entities in the San Franc,isco Bay area. The nine counties in the bay area include 9.2 cities, 100 school dis- tricts, 300 water and sewer districts,'12 special regional districts, and some 800 special districts, s for a total of. more than l=,300 entities, Of particular interest is the fact that this figure does not include 2,200 additional spe- cial -districts which-have legal status but which currently are inactive. The report of the Committee for Economic Development concluded that "the existing system of overlapping local governments results in a poor match between needs and re- sources and perp?ctuates waste, inefficiency, and confusion? The report noted that the States had been very slow in ad- justing boundaries of local governments to meet the needs of metropolitan areas and recom&nded that both State- and Federal-aid systems be used as incentives to reduce the num- ber of local governments and stimulate local government re- organization. a WHAT ABOUTTHE VIETNAM "DIVIDEND"? You may ask whether my analysis overlooks the savings that will be achieved as the planned withdrawal from Vietnam takes place. It is true that the phasedown will result in lower costs than would otherwise be the case, but provision has to be Lade for increas-ed costs of defense as we move toward a volunteer army, as inflation takes its toll on weapons systems costs, and as we provide for needs of the Defense Department'that have been deferred because of Viet- nam war expenditures, But the principal answer to the disappearance of the so-called fiscal dividend is to be found in the growth of programs designed to deal with increased social and environ- mental concerns--education, 1 manpower training, health, wel- fare, crime control , pollution control, 1 and so on, The list is almost >endless. The Federal budget this year for human resources programs will be greater than that for defense, Almost 50 percent of the 1972 budget will be devoted to so- cial and envirolnmental programs, and the end is not in sight, This is i-ndicated by the titles of some of the bills pending before the current session of the Congress, National Water Qualit; Standards Act Universal Child Care and Child Development Act Urban Education I~mprovement Act . Comprehensive Community College Act <Clean Waters Commitment Act Economic Opportunity Act Extension State and Local. Government Modernization Act Health Security Act 1 L I . 0 Amendments to the Social Security Act (including family assistance) ./ ,/ -Emergency Employ-r&t Act" i School Children Assistance Act , This is perhaps why one of the White House assistants remarked, npt too long ago, that the Vietnam dividend is as "evanescent as the fog at San Clemente." CONTROL OF FEDEPAL SPEBJDING--WHAT DO WE m? So we return tc the basic question of priorities in our society: How much should Government do? and, more particularly, How much should the Federal Government do? Again, we cannot answer this question in absolute terms. We must ask: In relation to what? Compared with-what? What are we doing'that can be dispensed with? Can the pri- va.te. sector do more? I can hear someone answer the question: llCompared with taxes that I can afford to pay; I am taxed to death already." That is certainly one test and a practical one. But we must also look at our needs as a society in.relation to our personal and family needs; our needs for new housing, new business plants and equipment, better transportation, betterlawenforcement; and, of course, the noisy concern 0 about pollution and environmental controls that is evident on all &sides, Unless we meet the basic needs in these areas, business cannot prosper and our tax'burden will in- crease. 9 11 . ._._. .,...._“- _.-- - I hope that up to now none of you listening to my dis- cussion of Federal spending 1 feel like the man who went to see a lawyer about getting a divorce, 'Why do you want a divorce?" the lawyer asked, t'Because my wife talks all the time." What does she talk about?" the lawyer then- asked. "I'hat"s the trouble; she never says." And that's the trouble--or difficulty--with our elastic subjekt today. Qne can talk a-lot about it, but can things be said that are encouraging or helpful? In-summary of what I have tried to say thus far, we would be incorrect to c-on- elude, given the broad perspective of the Nation's demands and needs, that F$deral spending is out of control; nor are there substantiv&reasons for anticipating that the volume of Federal,spending will be reduced; indeed, nearly all the pressure curves are upward. That+ does not mean, however, that the money the President requests,. and the Congress-+ap- propriates, is spent as efficiently as it ought to be; much is -being done to improve Federal management and administra- tion; much more can be done and must be done, So let us now turn from the overview of Federal spending to specifics. P ./ When we begin to e-xamine into Federal spending in specific a arsLas, such as Medicare or Medicaid, or by the big departments, 1 such as Defense--where we have had some serious cost problems--we find situations where particular aspects of Federal spending have not been contkolled properly. CONGRESS -- AND -----SPENDING it is proper to ask at this point about the role of the Congress, Doesn't the Congress have the final word as to how much money is to be spent?--and for what? The answer is in the affirmative--although there should be heavy underscoring of the fact that many, if not all, of the uncontrollab@s--such as the increasing costs that I have alregdy mentioned for interest, welfare, priie supports and so on-- which face the President in the budget are also facts of life for the Congress. Within the area which is subject to discretion from year to year-- about one third of the total--the record of the Congress in maintaining tight reins on the budget is a good one. To be sure, the Congress has been in the forefront in pushing for increases in Federal spending far special purposes, 'such' as elementary and secondary education, and for medical research. Overall, however, the congres- sional record in dealing with spending authority over the lo-year period has been one of bofding the line; in fact, the trend is toward reduiing, rather than increasing, the President's budget. The Adxinistration's 1977 request PIas reduced by $1.6 billion. As evidence of growing congressional scrutiny, the Mil- .I itary Procurement Authorization Act for 1972 has been under debate for the past 2 weeks. Here is the schedule of debate of last Wednesday, as reported in the Congressional Record. --A 2,hour debate on an amendment to reduce funds for the Navy's F-14. aircraft ;pcogram, i % i --A l-l/2-hour debate on an amendment barring funds for >. deployment of the ABM system. 1 . 3 --A 2-hour debate on an amendment limiting research ,; and development funds for the Army's main battle tank and a proposal requiring the Department of De- fense to provide the Congress with a 5-year projec- tion on defense costs, The decisions to accept or reject these amendments are less important for o&r discussion today than the fact that these amendments are debated at all. Only a few years ago, the entire defense budget would have-been acted upon in a single afternoon with virtually no change.or challenge. There are a good many signs, currently, that the Con- gress is increasingly restive as to whether it has the capa- bility to exercise these oversight responsibilities. There are those who would say that the Congress almost has an in- feriority complex, Members of Congress feel that the knowl- edge,. the information, &d the data on the Government's op- erations are in the executive branch, They are not always certain that they have the capability to review, react to, and pass on the data and the recorLmendations coming from the executive branch. The fact that the executive branch is in the control of one party and the Congress is in the control of another plays a part in this, although I think it goes much degper than that--to some of the concerns I already have meationed. .i The growing size of the budget3 the increasing concern about taxes across the'country, the doubling of the number of/persons on welfare in 10 years, and ,the plight of the -. cities and the States in terms of being able to raise funds to carry out their responsibilities--all these have piayed a part. A recent congressional reorganization act--The Legis- lative Reorganization Act of 1970--was, in part, an effort to imcrove the machinery of the Congress, because there are those who feel that the Congress could do a great deal more and could do its job better if the members could improve the functioning of the legislative branch itself. THE ROLE OF GAO We at GAO a& a part of this, in the sense that we have .the largest professional staff available to the Congress: about 3,100 employees, most of whom are located in the field, where operations are being carried on. GAO has 15 regional offices, including one in San Francisco, and five offices. I overseas. The staff in the Washington area is decentralized I I and located at operating agency sites. We do this to have ! IL better access to information, to enable our staff to get i b.etter acquainted with the persons in the operating agencies, !f * and to obtain a better un&erstanding of the Government pro- j About 40 percent of our grams and activities that we audit. 1 auditing staff work on Department of Defense programs; about I i 50 percent work with the civil agencies; and about 10 percent I work-on international programs. That's a rough breakdown. I Although GA0 has an independent status and has its own charter and the right'to review pr'ograms at its own discre- tion, nevertheless it also serves as an arm of the Congress. We are required, by law and by practice, to try to help not only the Congress as a whole but also its committees, subcom- C -mittees, and even indivi-dual members of Congress on matters involving Federal operations. 'More and more we are giving help to the Armed Services Committees and the Appropriations Committees,, as well as to other committees, so that today about 25 percent of our over- all effort, in professional-staff terms, is in response to s.pecific congressional requests, In the most secent fiscal year--19?1--GAO&ent to the Congress 187 reports, most of which described 1 . needs for improvements in the management of agency programs or activities, We also made 287 reports, made specifi~cally at their request, tb c.ommittees or members of Congress. NEED FOR ACCOUmfiBILITY You might ask: How does GAO decide what areas it gets into? I am speakin ig here of matters that GAO undertakes on its own initiative. We try to anticipate where problems are developing. For example,' soon after the Medicare program started in 1966, we sensed that the cost estimates were being exceeded very rapidly. We undertook at that1 point a number of studies, in both Medicare and Medicaid, designed to as- certain what ways we could suggest for reducing the cost of medical care, I am glad to say that we came up with what can be described as truly enormous sax?ings in this area. We have attempted the same thing in the manpower-training field, . 16 GAO is shifting more and more of its emphasis toward / social programs, because they. are becoming an increasing i area of Government expenditure. -By their very nature, these programs are difficult to examine, particularly when- we try to assess c the accomplishments or benefits and to as- certain whether established objectives really are being achieved. We feel that both GAO and the agencies are going to be' handicapped, particularly in the social welfare fields, until we get better criteria for evaluating program effectiveness. WEAPONS PROCUREMENT To improve accountability in weapons procurement, about which you have I-&ard so much in the past 2 years, GAO has begun to make special reports on major weapons procurement to help the Congress determine @at is happening in this costly area. The first two reports will cover not only cost growth but also variations in performance from original specifications and any important slippages in time sched- ules. Over the past year or so, the-office of the Secretary of Defense and the military services have been engaged in a substantial effort to ide?itify and solve problems that have affected, adversely, the acquisition of major weapons systems in terms of performance, delays' and increased. costs. Gen- erally the newer weapons procurements are following a slower development pace, Procurement practices are more conserva- tive than those of the earlier periods. The new areas of prototyping and of parallel development, including shifting the form-of contracting, are desirable moves. Because many . 17 of the current programs are in early stages of acquisition, evidence is not yet available to adequately assess the re- i su,lts of changed concepts. The Department is not yet out of t& wdods, Closely associated with, and perhaps even implied by, the -question of rðer the Federal Government has control over its spending is, I believe, the disturbing fact that inthe present period there appears to be growing distrust . of government--at all levels--in the United States. The twin problems of need for a strong economy and need for confidence in government go hand in hand, For the country to concentrate on meeting the needs of the reordered priori- ties, these two bssic problems--too much inflation and too - ZI I little confidence --will require mitigation as soon as pos- 'siblk and golution within some foreseeable period. I believe that a strong economy is not attafinable without a renewal of confidence by the American people in their National Government. Such a challenge could not come at a more difficult time. The new priorities are largely in areas where neither Gov- ernment nor private enterprise as yet has had nv!ch experience. Someone has observed rightly that it is easier to get a man on the moon using a technical program largely dependent on machines than it is to devise a welfare program for millions of persons that cm be managed adequately and administered effectively. 18 : . 0 I find myself in agreement with the observations of a member of the Board df Editors of Fortune, Max Ways; that the overriding challeng, e of the. seventies will be that of improving the quality of government. To agree that there has been 5 decline in the reputation of government-is not to concede that there has been deterioration in government. The administration of government has become more difficult in recent years, because government is trying to provide a far wider variety'of services than ever before, many of them more or less in full public view, COi~CLUS-ION The focus of my remarks today has been directed almost exclusively to--t&he responsibilities of the Government in im- proving its controls of, and accountability for, Federal spending and in achieving better+management to that end, LPl_reto the short time .available, I have been obliged to rel frain from any meaningful discussion of the increasing,-but related, responsibilities of business management in the con- trol of Federal spending. In the larger sense the control rests with the electorate and the leaders in business, fi- nancial, industrial, and professional endeavors, who have important contributions to make, What is the future going to cost? WC do not know. We need to do everything we can, in all sectors of our society, to be as fully prepared as possible to make the best judg- ments for the programs--private and public--we undertake, to meet changing need-s and changing values designed to achieve the new goals which o-ur changing values have thrust upon us, If we do so, we will retain control of Federal 0 spending and remain masters of our opin house. qii.11 It was a pleasure for me to be here today and to talk to and meet with you. Thank you all very mch,
Federal Spending--Is It Out of Control?
Published by the Government Accountability Office on 1971-10-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)