The meeting was held in the Truman Room of the White House Conference Center, 726 Jackson Place, Washington, DC, and was open to the public. Sitting at the table with the Commissioners were Barry Anderson, Executive Director for the Commission and Assistant Director for Budget at the Office of Management and Budget (OMB); Maynard Comiez, Designated Federal Official from the Department of the Treasury under the Federal Advisory Committee Act (FACA); Gene Sperling, Assistant to the President for Economic Policy and Director of the National Economic Council; Robert Damus, General Counsel for OMB; Joshua Gotbaum, Executive Associate Director for OMB, and Joseph Minarik, Associate Director for Economic Policy for OMB. Mr. Sperling and Mr. Damus left shortly after their presentations. As required by FACA, the meeting had been announced in the Federal Register 15 days in advance on Friday, November 28.

      Four items were distributed or available at the meeting:

• copies of the material in the briefing binder sent to the Commissioners in November;
• a proposed agenda prepared by the co-chairs;
• a list of Commissioners with a brief statement about each; and
• a statement, "Questions on FACA Issues."

1. The Commission is seeking the views of all interested groups and individuals concerning capital budgeting.

 
2. Barry Anderson, Assistant Director for Budget at OMB, agreed to be Executive Director for the Commission.

 
3. The Executive Director should move quickly to establish a website and E-mail address.

 
4. The Commissioners should send the Executive Director the names of groups and individuals, including those in Congress, who can help broaden the Commission's knowledge and understanding of budgeting in general and capital budgeting in particular.

 
5. The Department of the Treasury was invited to have its attorney present at each meeting if the Department felt this would help clarify legal issues.

 
6. The Commission agreed to the following proposed schedule:

 

January 30 (Friday) and January 31 -- Washington

• Friday morning -- an educational session
• Friday afternoon -- meet with Congressional representatives and perhaps others
• Saturday morning -- Commission meeting to discuss "strawman" paper

 
March 6 (Friday) and March 7 -- San Francisco [Location changed to Washington DC]

• Friday -- public hearing
• Saturday -- Commission meeting

 
April 24 (Friday) and April 25 -- Chicago

• Friday -- public hearing
• Saturday -- Commission meeting

 
June 5 (Friday) and June 6 -- New York City

• Friday -- public hearing
• Saturday --Commission meeting (Commission to provide instructions to staff on the preparation of the first draft of a Commission report)

 
August 3 (Monday) -- Washington, DC

• Meeting -- review first draft of report (mailed to Commissioners prior to the meeting)

 
Later sessions are to be scheduled as needed.

[Note: The following notes are generally chronological, as the Commission addressed different topics through the day. Some observations, however, have been shown under common headings in order to include in one place all the observations on a particular topic.]
 
Introduction

      The co-chairs distributed a proposed agenda for the day's meeting.

      Ms. Brown asked the Commissioners to introduce themselves and say a few words about their background and interest in capital budgeting. Each Commissioner spoke briefly.

Remarks by Gene Sperling, Assistant to the President for Economic Policy and Director of the National Economic Council

      Ms. Brown introduced Gene Sperling, who gave some background on the issue from the perspective of the Administration. He said that in the 1992 Presidential campaign Mr. Clinton had expressed great interest in increasing both private and public investment in order to increase the capacity for growth. In the primary campaign, Mr.Clinton spoke of the notion that not all Government spending should be viewed in the same light and that capital and consumption spending should be treated differently. During the election campaign, he proposed to increase both public and private investment and to cut the deficit by half in four years. The Administration has kept its promise of stimulating economic growth by cutting the deficit and increasing Federal investment spending.

      In 1994 the Administration reviewed the capital budget idea, starting from scratch. Mr. Sperling said he began as a true believer in a capital budget but, when he tried to make the case, found the cons much stronger than he had thought and became a skeptic. It was clear that people had very different ideas about the right way to budget and the meaning of investment. Many people in the Administration thought that investment included spending for technology and people. Others felt that it meant applying notions of depreciation and returns to infrastructure. The review indicated that once programs such as Head Start were included, one went down a slippery slope and would never be able to go back. Everybody was wary that some spending might be included in the investment category just to reduce the restrictions on it.

      Another consideration in 1994 was that they had passed a budget deficit reduction package the year before. There was skepticism over whether the Administration was serious about eliminating the deficit and concern that any effort to redefine the deficit would be criticized as a way to sneak in more spending. In the next two years, 1995-96, there was the budget "war" that led to the Government shutdown.

      Now that the budget is on a path toward balance, the discussion has turned from how to get the deficit down to what to do with the surplus. This is a good time to return to the issue. Mr. Sperling said he is wondering again what is the correct way to budget and whether a capital budget is workable. He wants to see how the Commission comes out.

      This is not a case where the Administration is looking for a Presidential commission to provide political cover or to put off a decision until later. He made reference to the recent Social Security Advisory Council chaired by Edward M. Gramlich, whose members split over its recommendations. Despite the lack of agreement, the Commission has nevertheless been very helpful in defining and informing the debate on long-term Social Security issues. Whether or not the work of the Commission to Study Capital Budgeting leads to a change in law, Mr. Sperling hoped that the Commission's report will be looked on as the definitive work on capital budgeting and that people will want to read it for many years to come.

      He closed by saying that the President and Vice President were thrilled at the impressive group of people who had agreed to serve on the Commission. The Commission could call on him for help, including feedback or setting up meetings with Congress. Mr. Sperling had to leave, and the co-chairs thanked him for his remarks.

      Ms. Brown and Mr. Corzine then said they came to the issues before the Commission with a blank slate and wanted to collect as much information and as many views as they could before coming to a conclusion. In doing this, they wanted the Commission to operate as informally as possible. Ms. Brown said that she would like the Commission to provide a document that is as much a touchstone on this issue as the report by the President's Commission on Budget Concepts was a touchstone on budget concepts thirty years ago.

      The co-chairs referred to the agenda they had distributed and said they would like to address certain housekeeping issues, including issues of ethics as they related to the Commission.

Federal Advisory Committee Act (FACA) and Ethical Issues

      Maynard Comiez, Designated Federal Official (DFO) from the Department of the Treasury under FACA, addressed the Commission. He said that this was a Treasury commission and that the Secretary of the Treasury was very interested in its work. Hethen reviewed some of the requirements under FACA: (1) the Commission must be guided by FACA; (2) the Commission has a charter, which has been filed with GAO and Congress as the law requires; (3) the Commission must follow the mandate outlined in the Executive Order; (4)meetings must be open to the public unless there is a legal justification under FACA for them to be closed; (5) all meetings must be announced in the Federal Register 15 days in advance; (6)minutes are required and must be made available to the public; (7) informal notes are being taken for this meeting but stenography or taping will be arranged for future ones; (8) the DFO maintains the minutes of the meetings and the financial records; (9) the DFO approves or calls the meetings, must be present at all meetings, and can adjourn a meeting if it is in the public interest; and (10) a "meeting" does not include one commissioner inviting another to dinner.

      Mr. Comiez announced that he was retiring and E. William Dinkelacker of the Department of the Treasury would be his replacement as the Designated Federal Official.

      Robert Damus, General Counsel for OMB, then discussed ethical questions and possible pitfalls. There was discussion and questions from the Commissioners. Mr. Damus made several main points:

1. Insofar as a person is on the Commission he or she is a Government employee, and failure to observe this principle can cause problems.

 
2. Persons not on the Commission, or employed by the Government, should not be part of the deliberations. Commissioners can talk to anyone but should not discuss internal deliberations with outsiders unless the discussion is made public generally.

 
3. The work of the Commission is so general that there would probably not be a conflict of interest between their normal activities and their work on the Commission. No action of the Commission would cause a direct predictable effect on one industry or individual.

 
4. All papers received from the public by the Commission become official records of the Commission and should be sent to the Executive Director for subsequent distribution to the Commission.

 
5. Internal drafts or other documents shared among Commissioners do not have to beprovided to the public.

 
6. A Commissioner's individual staff are not staff of the Commission and should not be used as such. They are permitted to prepare a paper or do other work for an individual Commissioner, but not the work of the Commission itself. Only Federal employees maybe staff for the Commission. Persons outside the Federal Government may not do volunteer staff work for the Commission, but the Commission can enter into contracts or hire people who are not currently Federal employees.

 
7. Subcommittees are permitted and subcommittee meetings are not required to be open to the public, but they can only report back to the Commission in a meeting open to the public.

 
8. The Commissioners should feel free to call Mr. Damus with questions. In answering questions, he would be representing the Government and the conversations would be privileged.

Staff

      Mr. Anderson introduced OMB staff who would be helping him as Executive Director and emphasized that Government employees from other agencies, including GAO and CBO, were sought as staff members as well. He wanted this to be a very inclusive staff effort.

Replies to Letters

      Replies to letters from the public should be handled through Mr. Anderson.

Press Relations

      The Commission discussed how it should interact with the press. The co-chairs expressed the view that it would be best if statements to the press were coordinated through them. It was very important to reserve judgment about the Commission's work.

Congressional Relations

      The Commission expressed great interest in meeting early with the appropriate members of Congress to advise them of the Commission's interest in receiving views of everyone and specifically inviting appropriate members of Congress to testify before the Commission.

Budget Enforcement Act

      There was some discussion of the Budget Enforcement Act(BEA). Some felt it would be important to understand the BEA better because it was central to how the Federal budget is developed and enacted. Others felt that this was too much into the nuts and bolts of the budget process and that the Commission should look at bigger and longer-term issues. Mr. Anderson said he thought that the BEA concepts were critically important to the Commission but at a high level of generality.

Capital Budgeting Issues

      The Commissioners discussed a number of capital budgeting issues. Their major comments follow:

1. Should there be a budget decision rule, such as that the operating budget be balanced and capital spending be financed by borrowing?

 
2. Is capital investment constrained by being included in a unified budget that should be balanced every year? If so, the Commission should consider whether that is a reasonable view of the budget in the first place.

 
3. What would be the underlying purpose for separating operating and capital spending?

 
4. If operating expenditures were constrained but not capital expenditures, would the budget be loaded up with pork?

 
5. If the budget has a bias with regard to capital spending, what is its direction?

 
6. Related budget concepts can be re-thought, if they bear upon the questions the President has asked.

 
7. The Commission should look at the dynamics of the relationships among different types of spending.

 
8. The Commission has been asked whether some types of expenditures have future returnsrather than being a transfer payment to the public.

 
9. Should the Commission investigate how the budget document might make more sense, using transparency and simplicity as guides?

 
10. The context in which the budget is formulated makes a difference. The budget might best be constructed differently in Brazil, where there is great concern over developing infrastructure and the capacity of the private sector.

 
11. The Commission should look at the distortions in the budget process caused by the timing of spending and taxes. The issues are similar.

 
12. The Commission should distinguish between the role of the budget as a source of information and its role in the decision making process for allocating resources (including its role as something the Congress votes on).

 
13. The budget documents already include some information relevant to a capital budget. The question is whether the budget should be changed so that a formal capital budget would be made part of the current decision making process.

 
14. Should the budget be doing something differently from what it is doing now?

 
15. It would not be useful to study the States as a guide to Federal budgeting.

 
16. Two books by members of the Commission might be helpful: Herbert Stein, Governing the $5 Trillion Economy (Twentieth Century Fund, 1989), which proposed a new type of high-level budgeting; and Stanley Collender, Guide to the Federal Budget (published annually for many years), which explains the present budget and budget process.

 
17. The briefing book appears very large but five of the papers answer many of the questions raised: #10 (memo from working group to NEC), #11 (memo from NEC to President),#13 (conclusions of President's Commission on Budget Concepts), #19 (OMB paper on bias), and #25 (OMB principles of budgeting for capital asset acquisitions).

 
18. The budget should be designed to inform the political process so that it can make rational decisions about priorities.

      The group broke for lunch about 12:15. A lunch was provided to the Commission members, who continued discussions in the meeting room while they ate.

Strawman Paper

      The Commissioners discussed whether it would be useful to develop a "strawman" paper, which the Commission could react to. After a discussion about what the paper should cover, it was felt generally that the paper would be one view of how the report might be designed, with suggestions for other options as appropriate. The Commissioners could react to the "strawman" paper, deciding if they agreed or disagreed with certain sections, or thought some sections should be dropped and others added, and so forth. It was agreed that such a paper would be prepared in advance for discussion at the January 31 Commission meeting.

Testimony and Hearings

      The Commission then discussed how to solicit views of others in testimony and how to advise others of the Commission's interest in receiving their views in hearings or in writing. Among the groups suggested, in addition to Congress, were: highway users, defense, information technology, NASBO (National Association of State Budget Officers), Business Roundtable, AICPA (American Institute of Certified Public Accountants),education groups, and leaders for urban issues. It was agreed that Commissioners should send to the Executive Director the names of groups and individuals, including those in Congress, who can help inform the Commission and might be invited either to testify or to submit their views in writing.

      Mr. Anderson said he would set up a Web site to post and receive information.

Final Thoughts Before Closing

      Before adjourning, each Commissioner was invited to express an interest in particular issues before the Commission. The issues that the Commissioners identified included: the definition of capital; whether capital could be defined in a way that would not be politicized; measuring rates of return on public capital; whether some kinds of Federal expenditure enhance economic activity more than other kinds; how other countries have approached the issue of a capital budget; whether there should be a general decision rule for thinking about the budget deficit; the distinction between capital budgeting in the sense of making a decision on a particular project and how to account for capital expenditures in the "big picture" budget; intangible or human capital issues; capital budgeting and fiscal responsibility, or prudence; what if any impact a capital budget would have on the economy that would be different from the impact of the current unified budget; whether a capital budget is doable in a political context; the budgeting rules that would be set up for a capital budget; how a capital budget would be made to work between an executive budget and the budget enacted by the legislature; macro rules for budgeting; and macroeconomic implications.

      The meeting adjourned at 3:10 p.m.