On February 4, Arizona House Federalism & Fiscal Responsibility Committee held a hearing on the Compact for a Balanced Budget under Article V of the U.S. Constitution. Legislators heard from experts and citizens who are concerned about the nation’s growing debt.
Attorney for the Goldwater Institute; Nick Dranias, told the Legislators that they had a “historical opportunity to fix the nation’s debt.” Dranias explained that a broken system is producing a deficit that is unsustainable.
“Looking to Washington is not the solution,” testified Dranias.
“Washington never changes its behavior they can appear to tie their own hands but somehow they find that a way around it. Right now we don’t even have the protection of the statutory debt limit in Washington,” said Dranias. “We know that Washington has deliberately borrowed far more than they actually need for government just so they could ensure that the new debt limit would much higher than necessary.”
“So looking at Washington is not the solution. There’s a reason for that. It is the unchecked concentrated power to incur limitless debt in Washington. Think about it. Washington is an outrageously bankrupt debtor. What does the current system allow for? It allows for it that debtor to write his own credit limit. This is insane concentration of power. It should not be any surprise that you see the exponential growth curve.”
“How could it be any other way? Dranias asked. “It is a systems problem. It is a system problem because it enables elected officials to buy votes, in essence; because they can provide all the benefits with all the spending that they want and shift all of the cost to non-voting future generations.”
The Compact has slowly won over many skeptics. The hearing room was filled to capacity.
Candidate for the Arizona House in Legislative District 11, Mark Finchem and Vince Leach came out in support of the proposal. Finchem, a small business owner in Arizona told the panel, “Past performance is the best predictor of future success. Congress has proven itself incapable of fiscal management and now it falls upon the people of the states, and our guardians of freedom, you our legislators. If not now, when? If not here, where? And if not us, who?”
• According to the Goldwater Institute, The Compact for a Balanced Budget is an agreement among the states that quickly and safely advances a powerful federal balanced budget amendment under Article V of the United States Constitution.
• The Compact for a Balanced Budget allows the member states to agree in advance in a single piece of legislation to all components of the constitutional amendment process that the states control—from the application to Congress, to the text of the proposed amendment, to delegate selection and instructions, to convention logistics and rules, to the ultimate ratification.
• Using this “Compact for America” approach to Article V, a federal balanced budget amendment originating from the states can be proposed and ratified within the span of a single session year and with a grand total of 39 legislative actions.
Written testimony, presented to the Arizona House Federalism & Fiscal Responsibility Committee on the Compact for a Balanced Budget, on February 4, 2014:
My name is Ilya Shapiro. I am a senior fellow in constitutional studies at the Cato Institute and the editor‐in-chief of the Cato Supreme Court Review. I am also a member of the Advisory Council for Compact for America.
Before joining Cato, I was a special assistant/advisor to the Multi‐National Force in Iraq on rule of law issues and practiced international, political, and commercial litigation. I have provided testimony to Congress and state legislatures and, as coordinator of Cato’s amicus brief program, have filed more than 100 “friend of the court” briefs in the U.S. Supreme Court. I lecture regularly on a variety of constitutional issues on behalf of the Federalist Society and other groups, am a member of the Legal Studies Institute’s board of visitors at The Fund for American Studies, was an inaugural Washington Fellow at the National Review Institute, and have been an adjunct professor at the George Washington University School of Law. Before entering private practice, I clerked for Judge E. Grady Jolly of the U.S. Court of Appeals for the Fifth Circuit. I hold an A.B. from Princeton University, an M.Sc. from the London School of Economics, and a J.D. from the University of Chicago Law School.
I am an ardent support of the compact approach to Article V constitutional change because this method of constitutional amendment makes the path to to state‐initiated constitutional reform quicker, easier and more legally certain. It allows states to agree in advance to everything they control in the amendment process in a single bill passed once by the state legislatures. It allows Congress to fulfill its entire role in the amendment process in a single resolution passed once. When time is of the essence and the country is in peril, this approach would allow constitutional change to occur within one legislative year. I know of no other approach to Article V that can do this with the certainty, efficiency and safety that is offered by the compact approach.
Above all, I believe the compact approach actual serves to minimize the risk of litigation, because only this method of constitutional amendment requires that state legislatures and Congress agree on all aspects of the process up‐front. It is also important to me that the compact is able to address each and every one of the concerns that have been raised over the past 30 years by the Eagle Forum.
I have previously written about my support of the Balanced Budget Amendment that is the payload carried by the Compact for a Balanced Budget. Unlike the recent and continuous brinkmanship spurred by the statutory debt limit, the Compact for a Balance Budget is designed to force Washington to prepare a budget that makes the case for more debt long before the midnight hour arrives. It requires the president to start designating impoundments when spending exceeds 98% of the debt limit and then requires Congress to override those impoundments within 30 days with alternative cuts if it disagrees. By forcing both the executive and legislative branches to show their cards long in advance of the constitutional debt limit, this compact‐turned‐BBA would ensure that no game of chicken holds the country hostage. Because our debt problem is primarily a spending problem, the CBB would also require a two‐thirds vote of both houses of Congress for any general tax increase.
The proposed amendment would thereby ensure that any new tax burden assumed to pay down the debt would make our tax code flatter, fairer, and far more conducive to economic growth – which is the best way to prevent both debt spending and tax increases in the long run. The Compact for a Balanced Budget could permanently and structurally bridge future fiscal cliffs with a principled compromise that has been poll‐tested to get at least 38 states on‐board.
Thank you for giving this very important matter your attention. I also thank you for this opportunity to provide testimony to the committee.
My name is Byron Schlomach. I am the Director of the Center for Economic Prosperity at the Goldwater Institute in Phoenix, Arizona. After earning my bachelors and doctorate degrees at Texas A&M University, I entered public policy work at the Texas Legislature and then served as Chief Economist at the Texas Public Policy Foundation before coming to the Goldwater Institute. I have worked in public policy for 20 years. Much of the transparency movement originated with my efforts in Texas starting in the late 1990s. I was instrumental in the passage of a public/private partnership law for roads in Arizona, helped lead the way in resistance to establishing ObamaCare exchanges around the country, was instrumental in passage of a law to more easily privatize Arizona state parks, and have studied state budgets in both Arizona and Texas. Many of my recommendations for spending reductions in Arizona during the financial crisis were adopted.
I have been a student of economics for over 30 years and a student of state policy as well as federal policy for nearly as long. The mounting debt of the federal government has long concerned me. Having seen how federal money is spent at the state level as well as the federal, it is not as if the $17 trillion debt was accumulated to win a war that threatened our existence. It was not accumulated in order to build roads, bridges, dams, and pipelines. The big spending has been in programs that have encouraged people to become dependent and irresponsible.
Ultimately, the mounting federal debt must end with the collapse of our nation’s finances as debt has historically done‐in Argentina, Germany, Greece, and Spain, just to name a few. The only prop for us now is our currency’s status as the world’s reserve currency, but the still‐growing debt and the eventual release of bank reserves will devalue the dollar and eventually cause its rejection as a reserve currency. When that happens, inflation in the U.S. will skyrocket and our economy will be sent reeling. Our only chance is to stop debt accumulation and allow economic growth to catch up with our money printing.
The founding fathers wisely rested ultimate responsibility for the nation in the collective action of state legislatures by allowing them to amend the Constitution. Congress and the President have demonstrated their inability to control the federal fiscal budgetary process. They are marching us to oblivion. State legislators are all that currently stand in their way. You are the cavalry that must ride in to save the day.
Even in the face of long odds, the Compact for a Balanced Budget provides a winning strategy for passage of a constitutional amendment that will impose discipline on the federal government. Some are frozen by fear and risk. But the risk of doing nothing is much greater. We have reached a threshold. Will future generations look back at this one and wonder, if we’d had the courage, would their lives be better? Or will they look back with wonder at our courage and foresight. State legislators, it is up to you!
Thank you for this opportunity to provide written testimony to the committee.
Byron Schlomach, Ph.D. (Economics)
My name is Sven Larson. I am an economist and a senior fellow with the Wyoming Liberty Group, a think tank in Cheyenne, Wyoming. I am also a member of the Compact for America Advisory Council. I received my BA in economics and philosophy from the University of Stockholm, Sweden and my PhD in Economics from Roskilde University in Denmark. My research is primarily focused on the role of government in the economy and on the effects of fiscal policy and deficits on government services. My most recent research contribution is a book wherein I present tangible reform ideas for key entitlement systems, including Social Security, welfare and health care, while taking into account the factors that contributed to the European crisis and their implications for the United States.
I accepted the invitation to join the Advisory Council for the Compact for America because of the urgency of our nation’s debt crisis and because the amendment proposed by the Compact for a Balanced Budget provides the best path to a balanced budget of all proposals that I have studied.
Not too long ago our debt grew larger than our GDP. At that point, global investors started paying more attention to us. We saw this happen in several European countries: investors are worried, and worry‐driven attention means investor bias. They start looking for reasons why we may default on our debt. As a consequence, the cost of our debt starts going up. We are already at a point where we pay higher interest rates on ten‐year Treasury Bonds than some European countries.
As the Federal Reserve tapers off its quantitative easing, and interest rates continue to rise with our growing debt, Congress will have to divert more and more tax revenues to paying interest on our debt. This rapidly leads to challenging priority conflicts. It is not far‐fetched that Congress, in a situation of fiscal panic, starts making drastic cuts to federal aid to states. This would perhaps temporarily ease the debt crisis at the federal level, but it would do so by transferring the crisis to the states. State legislators would be left with gaping holes in programs such as Medicaid, public education, welfare and transportation, and an obligation to find a way to fill them with new in‐state revenue.
There are not many ways to prevent this fiscal‐panic scenario from unfolding, but the balanced‐budget amendment proposed by Compact for a Balanced Budget is a good example of how it can be done. It is, in fact, to the best of my scholarly judgment, the best balanced‐budget amendment ever proposed ‐ not because it immediately brings about a balanced budget ‐ but because of its dynamic properties. Its strength lies in that it creates a pathway to that balanced budget, a pathway that is predictable, inevitable and transparent. The pathway allows us to close the federal budget gap without the risk of fiscal panic. It will not only change for the better how Congress manages taxpayers’ money, but it will also send a strong signal to global investors that the United States is now serious about solving its debt problems.
I thank you for this opportunity to provide testimony to the committee.
Sven R. Larson, Ph.D.
My name is Kevin Gutzman and I am Professor and Director of Graduate Studies in the Department of History at Western Connecticut State University. I received my Master of Public Affairs from the Lyndon B. Johnson School of Public Affairs at the University of Texas, my Juris Doctor from the University of Texas School of Law, and my Master of Arts and Doctor of Philosophy in American history from the University of Virginia. My area of scholarly expertise is American constitutional and intellectual history. I have published scholarly articles in several of the leading history journals, two best‐selling books in constitutional history, and two books on the American Revolution and Early Republic‐most recently, James Madison and the Making of America.
I enthusiastically endorse the Interstate compact approach to a balanced budget amendment. Not only is this endeavor a moral imperative, but it is entirely in keeping with the Founding Fathers’ understanding of the way that American constitutionalism would work.
Presently, the Federal Government’s debt tops $17 trillion. More ominously, estimates of the Federal Government’s unfunded obligations range between $50 trillion and $222 trillion. While I am more prone to accept the latter figure, I am certain that anything in this range represents coming calamity. Reasonable people on both sides of the aisle recognize the urgency of this issue. Still, Congress seems unable meaningfully to tackle, or even to consider, this problem. James Buchanan’s Public Choice Theory, for which he won the Nobel Prize in Economics, tells us that without a change to the system, we can expect the system to continue to produce similar results. In short, if we want an end to the profligacy, we need to amend the Constitution. We need to rein in Congress. Experience has revealed a flaw in our constitutional system, precisely as the Founding Fathers expected it would, and that is why they thought amendment would occasionally be necessary.
Congressional failure to address its own misbehavior is precisely the problem with which George Mason intended to deal when he insisted In the Philadelphia Convention that Article V of the Constitution includes a provision enabling the states to initiate the amendment process. An interstate compact is the best mechanism for the states to ensure that the convention they call will address and vote on precisely and only the measure the states have in mind for the convention to adopt. This is entirely In keeping with the explanation of the amendment process given by prominent Federalists during the ratification process in 1788.
In my judgment, passing this measure is a moral imperative. Thank you for hearing me.
Kevin R.C. Gutzman, MPAff, JD, PhD
My name is Harold R. DeMoss, III, and I currently reside in Houston, Texas. I am the President of Compact for America, Inc., and a member of the Board of Directors. I have been a CPA for over 30 years, and am currently active in the business of financing new technologies in the energy sector. I am also the son of Senior Judge Harold R. DeMoss, Jr., who currently sits on the U.S. Fifth Circuit of Appeals. Judge DeMoss is also a member of the Compact for America Advisory Council. You can find expanded bios on both of us at: http://www.compactforamerica.org/about‐2/.
This bill uses an interstate compact to allow the States to agree in advance to everything they control in the Article V amendment process in a single bill passed once. In essence, this “Compact approach” is a “turn‐key approach” to Article V amendments that has been designed to greatly simplify the amendment process by combining all the steps required of the state legislatures to safely, efficiently, and effectively propose and ratify the Balanced Budget Amendment. A counterpart congressional resolution, in turn, allows Congress to fulfill its entire role in the amendment process, including approval of the terms and conditions of the Compact, in a single resolution passed once by simple majorities.
As you will note, my father, Judge DeMoss has joined in the recent publication entitled “Using a Compact for Article V Amendments: Experts Answer FAQs”. This is a comprehensive legal and historical analysis showing that the Compact approach to Article V Amendments is not only a safe and effective breakthrough technology for advancing state‐originated constitutional amendments, but is completely constitutional.
In addition, just over a year ago, Judge DeMoss authored a separate paper entitled “In My Judgment – Why the Time is Right for Compact for America”. Judge DeMoss has authorized me to attach his paper as part of my written testimony. I would like to direct your attention to one of his final thoughts on page 4, specifically where he writes about why you, our elected state legislators, are so important to the process of making the necessary course correction for our country, where he writes:
“Our nation’s borrowing habit has become unsustainable. There has to be a process to prevent more unnecessary debt from being added on top of what is in the outstanding government debt right now.
That can only come from a decision‐maker and a process that is removed and not controlled by the historic politics in the U.S. Congress.”
Thank you for this opportunity to provide this testimony before the committee.
Harold R. DeMoss, III
IN MY JUDGMENT – WHY THE TIME IS RIGHT FOR COMPACT FOR AMERICA
By Judge Harold R. DeMoss, Jr.
January 12, 2013
Judge Harold R. DeMoss, Jr. is currently a senior federal appellate judge and sits on the US Fifth Circuit Court of Appeals. He was appointed to the court in 1991 by President George H. W.Bush, and took senior status in 2007. Judge DeMoss is also a member of the Compact for America Advisory Council. Judge DeMoss graduated from Rice University in 1952 and the University of Texas Law School in 1955. The opinions stated herein are solely the personal opinions of Judge DeMoss and should not be read or construed as indicating the opinion of any
other judge on the Fifth Circuit. For more information, visit www.CompactforAmerica.org.
There has been a dramatic decrease in the willingness of the average party official and office holder to recognize that there is some common ground that we ought to try to define and pursue, and to stay away from the extremes that both the right and the left contend are the only solutions we have for the problems that face our nation. There have been time and time again efforts to define a balanced budget amendment that could pass the two-thirds vote of Congress…and it has never happened. In my judgment, the reason these efforts have failed is because the interests of the individual members of the U.S Senate and the House of Representatives are simply so entangled in the question that we can’t expect them to decide on something that will mean that their power, their influence, and their control has to be limited.
The use of an interstate compact agreement has the advantage that it gets the decision-making away from the tangle of political intrigue and everything else that is the present situation in the U.S. Congress. It shifts the decision-making to the state legislatures – a totally separate group of people who hopefully could look at the situation and recognize that there are common aspects that would be beneficial to the country as a whole that we ought to be able to agree on as the text of the balanced budget amendment.
If we don’t make some fundamental structural changes in the system under which the U.S. government and the states function, we are destined to get swallowed up and drowned in the inability to pay for what we have said we want to do. It is sad that most of the promises that we have made are promises that have good reasons for them. But what we cannot do is to promise to pay for something if we don’t have any money and where having to pay for it really doesn’t mean very much. This is where we have gotten lost, in my judgment, where every time members of Congress want to talk about spending, they focus on earmarks and special events that will help them get reelected in their home district, rather than focusing on resolving the nation’s annual deficit and outstanding debt obligations.
The concept that our framers decided upon in the beginning was a republic in which the national government would have specific and limited powers and the state governments would continue to do all of the responsibilities of government that they were then doing at that time.
Certainly, in 240 years, many of the aspects of our lives have changed dramatically. The federal government has, for good or for bad, assumed a whole set of powers that are not specifically enumerated in the Constitution under the powers of the Congress or the Article I Powers. So we have accommodated in some ways the change in the lifestyle that we all live under through this silent amendment of the Constitution. But the ultimate power to amend the Constitution is unquestionably in the people. It is not in the federal government, not in the Supreme Court, not in the U.S. Congress, and not in the President.
Article V of the Constitution defines the process for amending the Constitution. The primary method for amending the Constitution is the decision by a two-thirds vote in both the Senate and the U.S. House as to the text of a proposed amendment. When that two-thirds vote is adopted, then the proposed amendment is submitted to the states for ratification.
There is an alternative method for proposing amendments which involves the application by two-thirds of the states for a convention to consider and possibly propose an amendment or amendments to the Constitution. There have been some preliminary efforts at putting such a convention together, but it has never actually developed. All amendments to our Constitution that have been ratified to date have resulted from the two-thirds vote in both the Senate and the House as the initiating method.
Now, the problem we have today in Washington is, in my judgment, that it would be impossible for either side to develop a two-thirds vote in both the Senate and the House. I say this given that the leadership is split between the two parties and given the level of partisanship that has developed and continues to cause more and more instances in which the parties are pushing each other to ultimate limits and showdown positions. So if structural change is what is needed, then we must take advantage of the other way to initiate the process of amending the Constitution.
That other way is one that arranges, solicits and gets 34 states, or two-thirds of the states, to apply to Congress to call a convention of the states for the purpose proposing amendments.
The difficulty in that, and the difficulty that people have run into in trying to pull that together, is that we end up with many, many different efforts going on at the same time to accomplish the purpose of applying for a convention, and more importantly, to accomplish the purpose of drafting desired amendments. Without structure and purpose, in my judgment, it is highly unlikely that such a convention to propose amendments could be organized, developed and pulled together to generate meaningful reform in any reasonable timeframe. That is why it is now time to consider an interstate compact agreement to solve this problem.
Historically, there have been interstate compacts relating to a wide range of topics. The most frequent one has been the question of state boundaries and there many compacts between one, two, or three states that define in detail the boundaries that separate the state governments.
There have also been interstate compacts dealing with circumstances where there is mutual desire to regulate ports. For instance, one of the first compacts was the compact between New Jersey and New York for managing and operating the Port of New York. Interestingly, a number of current interstate compacts have over forty member states, including compacts for education, detainers of prisoners, driver license reciprocity, emergency management assistance, probation and parole monitoring, and child placement. So this concept of an interstate compact, an agreement among the states to work together to solve a common problem, has many, many examples in which it has proven helpful and beneficial.
The advantage of the interstate compact is that we have better control and definition of what is we want to achieve. It is true that in order to have an effective interstate compact, the two legislative states that are joining the compact must each adopt identically the same provisions.
So the question of the content of the interstate compact itself, and the question of the content of the proposed amendment, will have to be negotiated, hammered out, compromised, and argued back and forth. The result would hopefully be a set of text that it is reasonable to expect that, in the case of this specific Compact for America, 38 states would say yes, we want to have a convention to adopt this proposal, and simultaneously say yes, we want to ratify this amendment if it is so adopted at the convention. So the use of the compact would compress into one simple process what would otherwise involve an awful lot of communication, negotiation and wrangling back and forth over a number of years.
The opportunity that this presents is to focus the attention of the decision-makers on a need that is specific. In this particular instance, we as a nation need to define some limits as to when, where, and how we spend our money and also when, where and how we borrow our money.
The circumstances requiring the need for a balanced budget seems to me to be almost inherent in any intelligent discussion on how we should run the nation’s money affairs. That is certainly what we as individuals have to live with and it is what many of the states have had to live with in terms of balancing their own individual budgets. In concept, I don’t think there are very many people that would say, “Oh no, we don’t want a balanced budget amendment.” What we run into is the individual ideas that many people on the left and many people on the right say have to be in a balanced budget amendment or else they will not vote for it. Those things that they want to stick in inherently create opposition in the other side, so nobody does anything because they cannot get the necessary votes.
The work that Compact for America has done in trying to flesh out the text of the balanced budget amendment is a very, very good exercise. Hopefully, it will have something that would appeal to the wild progressives on the left and something that will appeal to the Tea Party conservatives on the right. In other words, a broad consensus that would recognize that for the good of all we need to have some Constitutional limits on spending and some Constitutional limits on borrowing.
I truly don’t know whether the concept of a balanced budget amendment would be sufficiently attractive that we can get 38 states to join the interstate compact that would set forth in specific detail the circumstances of this specific amendment process. It may well be that our economic system has changed so dramatically and the popular vote is so difficult to educate in a way where they too would interpret this in the same way that I see things, that it is possible this exercise will prove futile. But it is worth the effort to make the attempt because, in my judgment, if we don’t do anything to put structure and limits on the nation’s financial affairs, we will end up with the circumstances of Greece or some of the other countries that have had massive runaway inflation, massive borrowing and the resulting crushing negative impact on both the average citizen and the government itself.
The current role of the governors in this process is a matter of Compact for America’s own planning and definition, but there is precedent for such consideration. In the typical case, an interstate compact arises in instances where the executive branch of a state government recognizes that they must have agreements in place to address situations in which more than one state has an interest in how something works. It is by reason of the action of the executive branch of the state – the governor – that the compact is initiated. And in most cases, party or house leaders on the floor will then carry the compact legislation forward on behalf of the governor. So the involvement of the governors in the typical interstate compact is inherent, normal and inevitable.
Now there is nothing in the language contained in Article V of the U.S. Constitution that refers to the role of the governors. However, I am persuaded that designating a leading role for the state governors is the way we ought to go because it is certainly the typical way in which most interstate compacts get put together. And using the governors greatly simplifies the process of organizing and pulling together and getting the necessary actions by the individual states.
Once the governors are able to bring 38 or more states together to join the Compact for America, we can then say to the U.S. Congress – in a complete package – here you are friend. 38 states have joined this interstate compact. They have adopted it through their legislatures.
They have indicated their concurrence in the text of the balanced budget amendment that will be proposed at the convention. And they have also indicated their concurrence that they intend to ratify the balanced budget amendment when the convention adopts the proposed amendment.
The process of ratification of amendments is what has helped our system of government to maintain itself and accommodate itself to the many, many changes in our lifestyle. Just in my own lifetime, we have moved from the Model T Ford to the U.S. Space Shuttle and the International Space Station. What we are wrestling with, in my judgment, is the need for a different set of decision-makers to address the appropriateness of this contention that we are making, which is that we must find a way to live within the revenues that we can generate. Our nation’s borrowing habit has become unsustainable. There has to be a process to prevent more unnecessary debt from being added on top of what is in the outstanding government debt right now. That can only come from a decision-maker and a process that is removed and not controlled by the historic politics in the U.S. Congress.
We are at the point, in my judgment, where if we don’t do something dramatic to change the structure, we will end up buried in debt. And more than the decision-makers right now, which includes my generation, and the generation behind me, the burden is going to end up on the next generation’s children and grandchildren. So I always come back to my contention that the worst thing for us to do is to do nothing. It may well be that the text of any balanced budget amendment will have things in it that some people will say shouldn’t be there. But the balanced budget amendment set forth by Compact for America will be far better than the nothing we have right now.