Budget Issues

1991 Budget Estimates: What Went Wrong Gao ID: OCG-92-1 January 15, 1992

GAO is very concerned that the $268.7 billion budget deficit for fiscal year 1991--the largest in the nation's history--was almost triple the original estimate of the Office of Management and Budget. Some of this underestimation may be attributed to events that could not be anticipated, such as the full consequences of U.S. involvement in the Persian Gulf war, but the estimate would have been more accurate had better estimating procedures been followed. This report analyzes some of the factors contributing to the underestimate for 1991 and makes recommendations for improving future projections. The accuracy of budgetary projections must be improved if the government is to make greater progress in straightening out its fiscal affairs.

GAO found that: (1) the FY 1991 OMB baseline deficit estimate varied from $100.5 billion in January 1990 to $310.3 billion in February 1991, with an actual deficit of $268.7 billion; (2) the $168.2-billion increase was the result of changes in estimated receipts from a number of sources and changes in estimated outlays in a number of programs; (3) decisions to reduce Department of Defense (DOD) funding below the baseline level and allied contributions to Operation Desert Shield/Storm caused the decrease in estimated DOD outlays; (4) $70.4 billion of the increase was due to the deteriorating economy; (5) deposit insurance estimates were the most volatile component of the FY 1991 budget; (6) virtually all the variation in the deposit insurance estimates appeared in the Resolution Trust Corporation, Federal Deposit Insurance Corporation Bank Insurance Fund, and the Federal Savings and Loan Insurance Corporation Resolution Fund; (7) tax receipt estimates were consistently reduced from the initial forecast of $1.125 billion to $1.068 trillion; (8) new legislation and regulations produced $30.7 billion in budgetary savings; (9) reestimates that are not directly attributed to legislation, regulations, or explicit changes in economic assumptions accounted for $94.4 billion of the increase; and (10) Medicaid outlays increased from $45 billion to actual outlays of $52.5 billion.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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