Budget Issues
Budget Enforcement Compliance Report Gao ID: GAO-02-794 June 14, 2002The Balanced Budget and Emergency Deficit Control Act of 1985 requires that the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) issue sequestration reports annually to Congress. Overall, GAO found that OMB and CBO substantially complied with the act in fiscal year 2002. However, as in previous years, some of the required OMB and CBO reports were issued late. Further, GAO identified a total of 19 items where differences of over $500 million existed between CBO's and OMB's scoring of discretionary budget authority and/or outlays for enacted laws.
GAO-02-794, Budget Issues: Budget Enforcement Compliance Report
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United States General Accounting Office:
GAO:
Report to the Chairman, Committee on the Budget, House of
Representatives.
June 2002:
Budget Issues:
Budget Enforcement Compliance Report:
GAO-02-794:
Contents:
Letter:
Results in Brief:
The Future of Budget Enforcement:
Appendixes:
Appendix I: Background and Scope and Methodology:
Discretionary Spending Limits:
PAYGO Enforcement:
Scope and Methodology:
Appendix II: Implementation Issues:
Although There Are Many Discretionary Scorekeeping Differences, Neither
OMB Nor CBO Call for Sequestration:
Scoring Differences:
PAYGO Scoring Issues:
Cap Adjustments:
Appendix III: Future of Budget Enforcement Rules:
Recent History of Budget Enforcement Rules:
Trends in Adherence to the Discretionary Spending Caps and PAYGO
Constraints:
Principles for a Budget Process:
Alternatives for Improving the Budget Process:
Extending Caps on Discretionary Spending:
Miscellaneous Discretionary Challenges: Leases and User Fees:
Extending and Refining PAYGO:
Improving the Recognition of Long-Term Commitments:
Dealing with the Uncertainty of Projections:
Conclusion:
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: Sequestration Reports and Due Dates:
Table 2: Discretionary Spending Categories by Fiscal Year:
Table 3: CBO and OMB Estimates of Fiscal Year 2002 Appropriations
Compared to End-of-Session Discretionary Caps:
Table 4: Provisions with More than $500 Million Difference between OMB
and CBO Estimates:
Table 5: Comparison of OMB and CBO PAYGO Scoring for the Air
Transportation Safety and System Stabilization Act:
Table 6: Comparison of OMB and CBO PAYGO Scoring for the Insurance
Provisions of the Air Transportation Safety and System Stabilization
Act:
Table 7: Comparison of OMB and CBO PAYGO Scoring for the Tax Payment
Extension Provision of the Air Transportation Safety and System
Stabilization Act:
Table 8: Comparison of OMB and CBO PAYGO Scoring for the Victim
Compensation Provision of the Air Transportation Safety and System
Stabilization Act:
Table 9: Comparison of OMB and CBO PAYGO Scoring for the Investor and
Capital Markets Fee Relief Act:
Table 10: Comparison of OMB and CBO PAYGO Scoring for the National
Defense Authorization Act for Fiscal Year 2002:
Table 11: Comparison of OMB and CBO PAYGO Scoring for the Medical Care
Provision of the National Defense Authorization Act for Fiscal Year
2002:
Table 12: Comparison of OMB and CBO PAYGO Scoring for the Economic
Growth and Tax Relief Reconciliation Act of 2001:
Table 13: Comparison of OMB and CBO PAYGO Scoring for Title I, the
Individual Income Rate Reductions Provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001:
Table 14: Comparison of OMB and CBO PAYGO Scoring for Title V, the
Estate, Gift, and Generation-Skipping Transfer Tax Provisions of the
Economic Growth and Tax Relief Reconciliation Act of 2001:
Table 15: Comparison of OMB and CBO PAYGO Scoring for the Title II, Tax
Benefits Relating to Children of the:
31
Figure:
Figure 1: Discretionary Outlay Caps and Enacted Appropriations:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
June 14, 2002:
The Honorable Jim Nussle:
Chairman:
Committee on the Budget:
House of Representatives:
Dear Mr. Chairman:
This report responds to your request that we assess compliance by the
Office of Management and Budget (OMB) and the Congressional Budget
Office (CBO) with the requirements of the Balanced Budget and Emergency
Deficit Control Act of 1985 (DCA), as amended. [Footnote 1] Our
assessment covers OMB and CBO reports issued for legislation enacted
during the 1st session of the 107th Congress, which ended on December
20, 2001.
According to CBO‘s final sequestration report issued on January 15,
2002, fiscal year 2002 discretionary outlays for all spending
categories combined are estimated to fall beneath the adjusted spending
limits. OMB‘s final sequestration report, issued on January 31, 2002,
also estimated that no sequestration of discretionary spending would be
required for fiscal year 2002. Both OMB and CBO estimated about $130
billion in net pay-as-you-go (PAYGO) costs for 2001 and 2002 combined,
which would have required a PAYGO sequestration. However, the
Department of Defense and Emergency Supplemental Appropriations Act for
Recovery from and Response to Terrorist Attacks on the United States,
2002 (P. L. 107-117) required OMB to reset the 2001 and 2002 PAYGO
balances to zero, thereby avoiding a PAYGO sequester. Nevertheless, OMB
estimates in its 2002 final report that a total PAYGO scorecard balance
of $505.8 billion remains for fiscal years 2003 through 2006.
To assess compliance with the DCA, we reviewed OMB and CBO
sequestration reports issued under the act to determine if they complied
with all of the act‘s requirements. In addition we reviewed the
scorekeeping reports issued by OMB and CBO to (1) identify major scoring
differences and (2) determine the timeliness of the reports. Appendix I
contains greater detail on our scope and methodology, as well as
background information on DCA.
Our work was conducted in Washington, D.C. from August 2001 through May
2002 in accordance with generally accepted government auditing
standards. We provided a draft of this report to OMB and CBO officials
for their review and comment. OMB and CBO officials agreed with our
presentation of their views and the facts as presented. We incorporated
their comments where appropriate.
Results in Brief:
Overall, we found that OMB and CBO substantially complied with the act.
However, as in previous years, some of the required OMB and CBO reports
were issued late. The DCA sets a specific timetable for issuance of OMB
and CBO sequestration reports, as shown in table 1.
Table 1: Sequestration Reports and Due Dates:
Report: Preview report;
Due date: CBO: 5 days before President‘s budget submission;
Due Date: OMB: President‘s budget submission.
Report: Update report;
Due date: CBO: August 15;
Due Date: OMB: August 20
Report: Final report;
Due date: CBO: 10 days after end of congressional session;
Due Date: OMB: 15 days after end of congressional session.
[End of table]
Although OMB met the timing requirement for the sequestration preview
report, the update report was issued 2 days late on August 22, 2001,
and the final report was issued 27 days late on January 31, 2002. CBO‘s
preview and update reports were issued on time, but the final report
was issued on January 15, 2002, 16 days late.
As has been the case for the past 5 fiscal years, OMB issued most of its
fiscal year 2002 scorekeeping reports late, with over 80 percent of the
reports issued late. For fiscal year 2002, OMB issued a total of 5
discretionary scorekeeping reports (covering 15 pieces of enacted
legislation) and 21 PAYGO reports. [Footnote 2] Of this total of 26
scorekeeping reports, only 6 of the PAYGO reports were issued on time.
All of the discretionary reports and 15 of the 21 PAYGO reports were
issued later than the legal requirement of 7 working days after
enactment of the relevant piece of legislation. The average tardiness
for fiscal year 2002 discretionary spending and PAYGO reports (for
legislation with significant budgetary impact) was 17 working days
late. In comparison, the 4 fiscal year 2001 discretionary reports were
issued an average of 23 days late and the 51 PAYGO reports (for
legislation with significant budgetary impact) were issued an average
of 9 days late.
While CBO does not have a timing requirement for its PAYGO or
discretionary scoring reports, DCA requires CBO to issue estimates ’as
soon as practicable“ after Congress completes action. On average, CBO
issued both its fiscal year 2002 appropriations scoring reports and its
PAYGO reports about 11 working days after congressional action was
completed.
As you requested, we also looked beyond compliance to some
implementation issues. In appendix II, we further discuss the major
appropriations and PAYGO scoring differences between CBO and OMB,
including a difference caused by OMB changing its baseline for receipts
to the Airport and Airway Trust Fund while CBO did not. DCA does not
specifically address whether or not this is permissible.
We identified a total of 19 items where differences of over $500 million
existed between CBO‘s and OMB‘s scoring of discretionary budget
authority and/or outlays for enacted laws. Of the 15 outlay differences
greater than $500 million, 13 were due to differences in outlay rates
and 2 were due to differences in how funds were allocated to accounts.
The 4 remaining differences relate to the treatment of budget authority
by OMB and CBO in P.L. 107-38, the Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States, 2001. These items are discussed in greater detail
in appendix II.
CBO and OMB differed substantially in PAYGO scoring for four pieces of
enacted legislation. First, the Air Transportation Safety and System
Stabilization Act (P.L. 107-42) provides compensation to the victims of
the terrorist attacks of September 11 and contains several provisions to
stabilize the air transportation industry. The total net difference
over the period 2001 through 2006 was $470 million. This difference
occurs in the scoring of the provision that provides assistance to
airlines for their insurance costs.[Footnote 3] There were significant
differences (ranging from $600 million to $1,133 million) in individual
years due to differences in estimates for the tax deadline extension
provision and the outlay rates for the victim compensation provision;
however, these differences completely offset each other over the 2001
through 2006 period. In addition there was a difference of $1,000
million in cost estimates for the loan guarantee subsidy provision of
the law, but since this was considered emergency funding it was not
subject to PAYGO procedures.
Second, the Investor and Capital Markets Fee Relief Act (P.L. 107-123)
adjusted the fees and assessments that the Securities and Exchange
Commission (SEC) is authorized to collect for transactions,
registrations, and mergers of securities. OMB estimates for this law
exceeded CBO‘s by $1,203 million over the 2002 through 2006 period.
This difference resulted from the different economic and technical
assumptions in the models used by each agency.
Third, the National Defense Authorization Act for Fiscal Year 2002 (P.L.
107-107) contains numerous provisions that either increased or decreased
outlays from direct spending, including provisions affecting health
care for certain retirees of the uniformed services. The CBO and OMB
cost estimates for P.L. 107-107 not only differed by $1,159 million
over the 2002 through 2006 period but also disagreed as to whether the
bill saved money or cost money. In that period, OMB estimated that the
act would save $883 million while CBO estimated a cost of $276 million.
Almost all ($1,060 million) of the total net difference is due to
scoring of sections 701 and 707 of the law, which require the
Department of Defense (DOD) to change the way it administers and pays
for its skilled nursing and home health care benefits. CBO scored only
$294 million in savings over the 2002 through 2006 period for these
provisions, while OMB scored a savings of $1,354 million. OMB‘s savings
for this provision were large enough to offset the costs from the other
provisions affecting direct spending in P.L. 107-107, while CBO‘s
savings estimates were less than the costs of the remaining provisions.
Finally, CBO and OMB differed substantially in both their outlay and
revenue estimates of the Economic Growth and Tax Relief Reconciliation
Act of 2001 (P.L. 107-16). Almost all of the cost estimates for this
legislation were provided to CBO by the Joint Committee on Taxation and
to OMB by the Department of Treasury. Over the 2001 through 2006
period, CBO estimated outlays of $40,308 million while OMB estimated
outlays of $28,085 million”a difference of $12,223 million. For this
same period, CBO estimated revenue costs of $510,815 million while OMB
estimated $502,074 million in revenue costs”a difference of $8,741
million. The net difference in estimates for this law was $20,964
million. Since these estimates come from elaborate models consisting of
different economic and technical assumptions, neither agency identified
specific reasons for estimated differences. The one exception is the
outlay scoring differences in 2001 that result from the advance refund
mechanism. Additionally, we found the provisions with the largest
differences were those that reduce individual income tax rates; provide
for a phased reduction of the current estate, gift, and generation-
skipping taxes; and increase the child tax credit.[Footnote 4] These
PAYGO scoring differences are discussed in greater detail in appendix
II.
In addition, our analysis of required cap adjustments made by OMB and
CBO found significant differences between the estimates of the final
fiscal year 2002 outlay spending caps for the Overall Discretionary
category. The OMB 2002 final sequestration report shows spending limit
differences between OMB and CBO of $3,375 million in outlays for 2002.
As described in detail in appendix II, this difference results largely
from differences by CBO and OMB in their outlay rate estimates of, and
therefore the cap adjustments for, the $22.2 billion in emergency
appropriations enacted this year.
The Future of Budget Enforcement:
BEA was designed to ensure lower deficits with the goal of a balanced
budget, and there is widespread agreement that for much of the past
decade it was successful in restraining fiscal action by Congress and
the President. Given the forthcoming expiration of the BEA enforcement
regime, Congress and the President need a new overall framework upon
which a process and interim targets can be based. A budget process that
is part of a broader fiscal framework can help policymakers make wise
fiscal choices and meet upcoming challenges. Recognizing the need to
manage the budgetary challenges the country faces both in the short and
long term, now is an important time to comment on the future of budget
enforcement mechanisms. We discuss this more in appendix III and in our
recent testimony.[Footnote 5]
We are sending copies of this report to The Honorable Mitchell E.
Daniels, Jr., Director, Office of Management and Budget; The Honorable
Dan L. Crippen, Director, Congressional Budget Office; Representative
John Spratt, Representative C.W. Bill Young, Representative David R.
Obey, Senator Kent Conrad, Senator Pete V. Domenici, Senator Robert C.
Byrd, and Senator Ted Stevens in their capacities as Chair or Ranking
Member of appropriate Senate and House Committees on Budget and
Appropriations. Copies will be made available to other interested
parties on request. Please contact me at (202) 512-9142 if you or your
staff have any questions. Major contributors to this report are listed
in appendix IV.
Sincerely yours,
Signed by:
Susan J. Irving:
Director, Federal Budget Analysis:
[End of section]
Appendix I: Background and Scope and Methodology:
The Balanced Budget and Emergency Deficit Control Act of 1985 (DCA), as
amended,[Footnote 6] established statutory limits on federal government
spending for fiscal years 1991 through 2002 by creating:
* annual adjustable dollar limits (spending caps) on discretionary
spending funded through the regular appropriations process;
* a pay-as-you-go (PAYGO)[Footnote 7] requirement for direct spending
[Footnote 8] and receipts legislation, and;
* a sequestration [Footnote 9] procedure to be triggered if (1)
aggregate discretionary appropriations enacted for a fiscal year exceed
the fiscal year‘s discretionary spending caps or (2) aggregate PAYGO
legislation is estimated to increase the combined current and budget
year deficits.
To track progress against the budget enforcement requirements and to
implement any needed sequestration, DCA requires the Congressional
Budget Office (CBO) and the Office of Management and Budget (OMB) to
score (estimate) the budgetary effects of each appropriation action and
each piece of PAYGO legislation. As soon as practicable after Congress
completes action on an appropriation or on PAYGO legislation, CBO is
required to report to OMB the estimated amount of new budget authority
and outlays provided by the legislation. Within 7 working days after an
appropriation or PAYGO legislation is enacted, OMB must report its
estimates for these amounts, using the same economic and technical
assumptions underlying the most recent budget submission. It must also
include the CBO estimates and explain any differences between the two
sets of estimates. If there are significant differences between the OMB
and CBO estimates, OMB is required to consult with the budget committees
prior to issuing its scoring report.
DCA also requires CBO and OMB to submit a series of three sequestration
reports at specified times during each year, as shown in table 1 in the
letter. CBO and OMB reports include a discretionary sequestration
report that adjusts the discretionary spending caps and a PAYGO
sequestration report that displays the net decrease or increase in the
deficit or surplus for enacted PAYGO legislation. Because OMB‘s reports
control for purposes of sequestration, CBO uses estimates from OMB‘s
most recent previous sequestration report as the starting point for
each of its reports.
Discretionary Spending Limits:
Annual discretionary spending limits for budget authority and outlays
are set forth in DCA. The Budget Enforcement Act of 1997 amended DCA to
establish three separate categories of discretionary spending for 1998
and 1999: (1) Defense, (2) Nondefense excluding Violent Crime Reduction
spending, and (3) Violent Crime Reduction spending. For fiscal year
2000, Defense and Nondefense were combined resulting in two categories”
Violent Crime Reduction spending and Other Discretionary spending.
[Footnote 10] The Violent Crime Reduction category was eliminated for
fiscal years 2001 and 2002 and associated appropriations were included
in the Other Discretionary category.
The spending cap structure was altered again in the Transportation
Equity Act for the 21st Century (TEA-21). Two new outlay caps that apply
separately to highway and mass transit programs were established for
1999 through 2003.[Footnote 11] Because these programs previously had
been included under the Nondefense cap, both the Nondefense cap for
1999 and the Other Discretionary caps for 2000, 2001, and 2002 were
reduced. Since the new caps on highway and mass transit outlays
exceeded the reductions in the other caps by about $15.4 billion, the
amount of total discretionary outlays permitted under all of the caps
was increased for each year from 1999 through 2002.
The ’Conservation spending“ category was established by The Department
of the Interior and Related Agencies Appropriations Act for Fiscal Year
2001 (P.L. 106-291). The new spending limits were established for fiscal
years 2002 through 2006 even though the DCA caps expire after 2002. The
law also established six distinct subcategories under the Conservation
category. The subcategories are (1) federal land and state land water
conservation fund, (2) state and other conservation, (3) urban and
historic preservation, (4) payments in lieu of taxes, (5) federal
deferred maintenance, and (6) coastal assistance. Table 2 summarizes
the various caps for fiscal years 1998 through 2002.
Table 2: Discretionary Spending Categories by Fiscal Year:
1998:
Violent Crime Reduction;
Defense;
Nondefense.
1999:
Violent Crime Reduction;
Defense;
Nondefense;
Highway;
Mass Transit.
2000:
Violent Crime Reduction;
Other Discretionary;
Highway;
Mass Transit.
2001:
Other Discretionary;
Highway;
Mass Transit.
2002:
Other Discretionary;
Highway;
Mass Transit;
Conservation.
2003:
Highway;
Mass Transit;
Conservation.
Note: The Highway and Mass Transit categories were formerly included in
the Nondefense category. Similarly, spending in the Conservation
category was formerly included in the Other Discretionary category.
[End of table]
In addition to creating categories of spending and establishing spending
limits, provisions in these laws define certain required adjustments to
the spending limits. DCA directs that adjustments be made to the
discretionary limits for (1) changes in concepts and definitions, (2)
emergency appropriations, (3) funding for continuing disability
reviews, (4) funding for International Monetary Fund increases, (5)
international arrearages funding through fiscal year 2000, (6) the
earned income tax credit compliance initiative, (7) adoption incentive
payments, and (8) a special outlay allowance to cover technical scoring
differences between OMB and CBO.
TEA-21 added adjustments for the two transportation caps (Highway and
Mass Transit). The Highway caps were set at specific annual funding
levels on the basis of projected receipts to the Highway Trust Fund.
OMB is required to revise the Highway spending limits in each year‘s
sequestration preview report for changes in actual receipts and revised
projections of trust fund revenue, relative to the receipt levels
assumed in TEA-21.[Footnote 12] TEA-21 also requires that both
transportation caps be adjusted each year to reflect any changes in
technical estimates of the outlays that will result from the TEA-21
funding levels. Finally, the law establishing the Conservation category
specified that the amount, if any, by which appropriations for this
category for a given fiscal year fall below the limit for that year
will be added to the limit for the following year.[Footnote 13]
In addition to the standard adjustments described above, the Department
of Defense Appropriations Act for Fiscal Year 2002 (P.L. 107-117)
raised the budget authority limit for fiscal year 2002 to $681.4
billion and the fiscal year 2002 outlay limit to $670.2 billion for the
Overall Discretionary spending category, increases of $134.5 billion
and $132.8 billion, respectively. In addition, this legislation raised
the cap on Conservation outlays by $241 million. These adjustments were
at a level sufficient to cover all enacted appropriations in 2002. In
fiscal year 2001, a similar adjustment was included in the Military
Construction Appropriations Act for 2001 (P.L. 106-246). P.L. 107-117
also allowed OMB to adjust the 2002 limit on budget authority upward by
amounts in excess of the spending limits, up to a limit of .12 percent.
In response, OMB increased the Other Discretionary budget authority
limits by $308 million.[Footnote 14] Appendix II describes these
adjustments in more detail.
The spending limits are to be enforced by sequestration should budget
authority or outlays exceed the statutory limits. CBO estimated in its
fiscal year 2002 final sequestration report that total discretionary
outlays for all categories combined are below the adjusted caps for
2002 and thus concluded that no discretionary sequestration was
required. OMB‘s final sequestration report drew the same conclusion.
In addition, the law specifies that for a fiscal year in progress, if an
appropriation enacted between end-of-session adjournment and July 1 of
that fiscal year causes any of the spending limits for the year in
progress to be exceeded, CBO and OMB must issue within-session
sequestration reports 10 and 15 days, respectively, after enactment. On
the same day as the OMB report, the President must issue an order
implementing any sequestration set forth in the OMB report. If
appropriations causing a breach within any category for the fiscal year
in progress are made after June 30, the limits in that category for the
next fiscal year will be reduced by the amount of the breach. On July
24, 2001, the President signed P.L.107-20, the Supplemental
Appropriations Act, 2001. OMB estimated $6.5 billion in budget
authority and $4.9 billion in outlays in 2001 for this bill. Even with
this additional spending, total budget authority and outlays for 2001
fell under the adjusted spending limits. The President requested
supplemental appropriations for fiscal year 2002 on March 21, 2002. The
President designated his request as an emergency requirement, and the
resulting cap adjustment will be for the amount of any emergency
appropriations actually enacted. Any additional non-emergency spending
over $2 million will exceed the caps.
PAYGO Enforcement:
PAYGO enforcement covers all direct spending (also known as mandatory
spending) and receipts legislation. CBO and OMB maintain a ’scorecard“
showing the cumulative deficit/surplus effect of PAYGO legislation to
track progress against the PAYGO requirements. If, at the end of a
congressional session, cumulative legislated changes enacted in direct
spending and receipts result in a net cost, a sequester of nonexempt
direct spending programs is required to offset the cost. In determining
the need for sequestration the estimates for the budget year and any
for the current year that were not included in the current year‘s final
sequestration report are combined. Effective on its enactment, BEA-97
set the scorecard balance to zero for the then-current year and for
each subsequent year through fiscal year 2002. This prevented any net
savings achieved by legislation enacted prior to the enactment of BEA-
97 from being used to offset deficit-increasing legislation enacted
through 2002. Although BEA expires in 2002, the sequestration procedure
applies through 2006 to eliminate any projected net costs stemming from
PAYGO legislation enacted through fiscal year 2002.
In the final sequestration reports, OMB and CBO calculate the net change
in the deficit or surplus due to PAYGO legislation. However, the OMB
report is the sole basis for determining whether an end-of-session
sequestration is required. If OMB determines that sequestration is
required, the President must issue an order implementing it. OMB
estimated that the cumulative effect of legislation subject to PAYGO
procedures enacted through the end of the first session of the 107th
Congress totaled $130.3 billion. Similarly, CBO‘s estimate of net costs
was $129.1 billion. However, Congress included a provision in the
Department of Defense and Emergency Supplemental Appropriations Act for
Recovery from and Response to Terrorist Attacks on the United States,
2002 (P.L.107-117) that required OMB to remove from the PAYGO scorecard
any balances for fiscal years 2001 and 2002, thus eliminating the need
for a PAYGO sequester for fiscal year 2002. A similar provision was
used last year to prevent a PAYGO sequester. Absent this year‘s
requirement to reset the scorecard to zero, a sequester of $130.3
billion would have been required.
September 30, 2002, will be the last day for which the estimated
budgetary effects of mandatory legislation will be recorded on the
PAYGO scorecard. Any balances remaining for 2003 through 2006 that
increase the deficit (or reduce the surplus) could lead to a PAYGO
sequester through 2006. OMB estimates in its 2002 final report that the
total PAYGO scorecard balance for fiscal years 2003 through 2006 is
$505.8 billion. CBO estimates a $499.2 billion balance for the same
time frame.
Scope and Methodology:
To determine whether the OMB and CBO reports complied with the
requirements of DCA as amended by BEA and other legislation, we
reviewed the OMB and CBO preview, update, and final sequestration
reports to determine if they reflected all of the technical requirements
specified in DCA, such as (1) estimates of the discretionary spending
limits, (2) explanations of any adjustments to the limits, (3)
estimates of the amount of net deficit increase or decrease, and (4)
the sequestration percentages necessary to achieve the required
reduction in the event of a sequester.
We reviewed all applicable OMB and CBO appropriations scoring reports
for regular, emergency, and supplemental appropriations enacted since
OMB‘s 2001 final sequestration report and issued as of January 23, 2002.
We also examined the OMB and CBO PAYGO scoring reports for mandatory
spending and receipts legislation enacted during the first session of
the 107th Congress. We compared each OMB and CBO report and obtained
explanations for differences of $500 million or more in estimates for
the PAYGO reports. For discretionary spending, we compared OMB and CBO
scoring reports and obtained explanations for any differences of $500
million or more in budget authority or outlay estimates. We examined OMB
and CBO adjustments to the discretionary spending limits for the
preview, update, and final sequestration reports. During the course of
our work, we also interviewed OMB and CBO officials.
Our work was performed in Washington, D.C. from August 2001 through
May 2002 in accordance with generally accepted government auditing
standards. We provided a draft of this report to OMB and CBO officials
for their review and comment. OMB and CBO officials agreed with our
presentation of their views and the facts as presented. We incorporated
their comments where appropriate.
[End of section]
Appendix II: Implementation Issues:
We examined three areas in which the Office of Management and Budget
(OMB) and the Congressional Budget Office (CBO) often have differed in
the past: (1) discretionary scoring, (2) pay-as-you-go (PAYGO) scoring,
and (3) discretionary spending cap adjustments. We compared OMB and CBO
discretionary and PAYGO scoring reports and obtained explanations for
estimates of individual items or report totals that differed by $500
million or more. Additionally, we examined OMB and CBO adjustments to
the discretionary spending limits for the preview, update, and final
sequestration reports.
Although There Are Many Discretionary Scorekeeping Differences, Neither
OMB Nor CBO Call for Sequestration:
The CBO and OMB final sequestration reports agreed that there was no
need for discretionary sequestration in fiscal year 2002. As shown in
table 3, OMB and CBO estimated budget authority in all categories and
outlays in all categories as below or meeting the caps. The overall
difference between the CBO and OMB estimates is accounted for by many
scorekeeping differences; the largest of these are detailed in the
following discussion.
Table 3: CBO and OMB Estimates of Fiscal Year 2002 Appropriations
Compared to End-of-Session Discretionary Caps (Dollars in millions):
Overall Discretionary: Enacted appropriations;
OMB Budget authority: $704,548;
OMB Outlays:$692,752;
CBO Budget authority: $704,240;
CBO Outlays: $688,064.
Overall Discretionary: End-of-session caps;
OMB Budget authority: $704,548;
OMB Outlays:$696,092;
CBO Budget authority: $704,240;
CBO Outlays: $692,717.
Overall Discretionary: Difference;
OMB Budget authority: $0;
OMB Outlays:-$3,340;
CBO Budget authority: $0;
CBO Outlays: -$4,653.
Highway: Total enacted appropriations;
OMB Budget authority: n.a.
OMB Outlays:$28,489;
CBO Budget authority: n.a.
CBO Outlays: $28,489.
Highway: End-of-session caps;
OMB Budget authority: n.a.
OMB Outlays:$28,489;
CBO Budget authority: n.a.
CBO Outlays: $28,489.
Highway: Difference;
OMB Budget authority: n.a.
OMB Outlays:$0;
CBO Budget authority: n.a.
CBO Outlays: $0.
Mass Transit: Total enacted appropriations;
OMB Budget authority: n.a.
OMB Outlays:$5,272;
CBO Budget authority: n.a.
CBO Outlays: $5,275.
Mass Transit: End-of-session caps;
OMB Budget authority: n.a.
OMB Outlays:$5,275;
CBO Budget authority: n.a.
CBO Outlays: $5,275.
Mass Transit: Difference;
OMB Budget authority: n.a.
OMB Outlays:-$3;
CBO Budget authority: n.a.
CBO Outlays: $0.
Conservation: Total enacted appropriations;
OMB Budget authority: $1,758;
OMB Outlays:$1,473;
CBO Budget authority: $1,758;
CBO Outlays: $1,392.
Conservation: End-of-session caps;
OMB Budget authority: $1,760;
OMB Outlays:$1,473;
CBO Budget authority: $1,760;
CBO Outlays: $1,473.
Conservation: Difference;
OMB Budget authority: -$2;
OMB Outlays:$0;
CBO Budget authority: -$2;
CBO Outlays: -$81.
Total for all spending categories: Total enacted appropriations;
OMB Budget authority: $706,306;
OMB Outlays:$727,986;
CBO Budget authority: $705,998;
CBO Outlays: $723,220.
Total for all spending categories: End-of-session caps;
OMB Budget authority: $706,308;
OMB Outlays:$731,329;
CBO Budget authority: $706,000;
CBO Outlays: $727,954.
Total for all spending categories: Difference;
OMB Budget authority: -$2;
OMB Outlays:-$3,343;
CBO Budget authority: -$2;
CBO Outlays: -$4,734.
Note: Highway and Mass Transit categories were created by TEA-21 and
include outlay caps only.
Source: OMB and CBO 2002 final sequestration reports.
[End of table]
Scoring Differences:
Although there were many discretionary scorekeeping differences between
OMB and CBO, most were relatively small. In the discretionary
scorekeeping reports issued by OMB and CBO, we identified 19 differences
that were greater than $500 million”4 in budget authority and 15 in
outlays.
The four differences in budget authority all are in P.L. 107-38, the
Emergency Supplemental Appropriations Act for Recovery from and
Response to Terrorist Attacks on the United States, 2001. Of the 15
outlay differences greater than $500 million, 13 stem from different
outlay rates and 2 reflect differences in the allocation of outlays for
violent crime reduction.
A separate spending limit for budget authority and outlays was first
established for the Violent Crime Reduction Trust Fund (VCRTF) by the
Violent Crime Control and Law Enforcement Act of 1994 (P.L. 103-322) and
was continued by the Budget Enforcement Act of 1997. The acts provided
that specified amounts of budget authority be transferred to the trust
fund from the general fund in each fiscal year from 1995 through 2000.
Since the VCRTF‘s authorization expired at the end of fiscal year 2000,
the account used to track those programs funded by the VCRTF has not
had new appropriations since the fiscal year 2000 Commerce, Justice,
and State, the Judiciary, and Related Agencies Appropriations Act. CBO
continues to score outlays from prior-year authority in this account
and estimated $922 million in outlays for 2002. In contrast, OMB
includes the outlays from violent crime reduction programs in what they
consider the ’parent accounts,“ primarily the state and local law
enforcement assistance account and to a lesser extent the community
oriented policing services (COPS) account. OMB describes this as a way
to avoid unnecessary administrative issues. The effect is the
appearance of a significant difference between OMB and CBO estimates in
the violent crime reduction and parent accounts, when in actuality the
funds are merely accounted for in different locations and the
differences nearly offset each other.
The provisions with the remaining 17 largest differences in budget
authority or outlays are shown in table 4.
Table 4: Provisions with More than $500 Million Difference between OMB
and CBO Estimates[A] (Dollars in millions):
Act: Differences in Outlay Rates: Supplemental Appropriations Act, 2001
(P.L. 107-20);
Provision: Defense Health Program;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: $1,010;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: -842.
Act: Differences in Outlay Rates: Supplemental Appropriations Act, 2001
(P.L. 107-20);
Provision: Operations and Maintenance, Navy;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: $679;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: -$546.
Act: Differences in Outlay Rates: Department of Defense Appropriations
Act, 2002 (P.L. 107-117);
Provision: Defense Health Program;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $568.
Act: Differences in Outlay Rates: Department of Defense Appropriations
Act, 2002 (P.L. 107-117);
Provision: Operations and Maintenance, Army;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: -%654.
Act: Differences in Outlay Rates: 2001 Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States (P.L. 107-38);
Provision: Department of Defense-Operations and Maintenance, Defense
Emergency Response Fund;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: $20;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: -$1,095.
Act: Differences in Outlay Rates: Emergency Supplemental Appropriations
Act for Recovery from and Response to Terrorist Attacks on the United
States, 2002 (P.L. 107-117);
Provision: Department of Health and Human Services-General departmental
management;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $751.
Act: Differences in Outlay Rates: Emergency Supplemental Appropriations
Act for Recovery from and Response to Terrorist Attacks on the United
States, 2002 (P.L. 107-117);
Provision: Federal Emergency Management Agency-Disaster Relief;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $1,525.
Act: Differences in Outlay Rates: Departments of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations
Act, 2002 (P.L. 107-73);
Provision: Federal Emergency Management Agency-Disaster Relief,
contingent emergency;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $525.
Act: Differences in Outlay Rates: Departments of Labor, Health and Human
Services, Education, and Related Agencies Appropriations Act, 2002
(P.L. 107-116);
Provision: Department of Health and Human Services-National Institutes
of Health;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $840.
Act: Differences in Outlay Rates: Departments of Labor, Health and Human
Services, Education, and Related Agencies Appropriations Act, 2002
(P.L. 107-116);
Provision: Department of Labor-Employment and Training Administration,
Training and Employment Services;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: $1,008.
Act: Differences in Outlay Rates: Department of Transportation and
Related Agencies Appropriations Act, 2002 (P.L. 107-87);
Provision: Adjustment for TEA-21;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: [B];
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: -$1,2179.
Act: Differences in Budget Authority: 2001 Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States (P.L. 107-38);
Provision: Department of Defense-Operations and Maintenance, Defense
Emergency Response Fund;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: -$9,456;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: 0.
Act: Differences in Budget Authority: 2001 Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States (P.L. 107-38);
Provision: Department of Housing and Urban Development-Community
Planning and Development, Community Development Block Grants;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: -$700;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: 0.
Act: Differences in Budget Authority: 2001 Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States (P.L. 107-38);
Provision: Executive Office of the President, Emergency Response Fund;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: $12,358;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: 0.
Act: Differences in Budget Authority: 2001 Emergency Supplemental
Appropriations Act for Recovery from and Response to Terrorist Attacks
on the United States (P.L. 107-38);
Provision: International Security Assistance, Economic Support Fund;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Budget authority: -$600;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2001,
Outlays: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Budget authority: 0;
Difference between OMB and CBO estimates (OMB-CBO), Fiscal year 2002,
Outlays: 0.
Note: Positive numbers indicate provisions where CBO estimates were
lower than OMB estimates. Negative numbers indicate provisions where
CBO estimates were higher than OMB estimates.
[A] Differences due to account allocation are not included.
[B] Only fiscal year 2002 budgetary impacts were reported.
[End of table]
For these provisions, the differences between the OMB and CBO estimates
can be grouped into the following categories:
* Different outlay rate estimates:
Outlay estimate differences greater than $500 million existed in two
programs, the Defense Health Program and Operations and Maintenance,
Navy, funded in the 2001 Supplemental Appropriations Act (P.L. 107-20).
Since P.L. 107-20 was enacted in late July 2001, CBO lowered its first-
year outlay rates because it estimated that few outlays would occur
before the end of the fiscal year. OMB did not reduce outlay rates
because it believed the need for these funds was identified well in
advance of the appropriation. Both of these programs also received
funding in the Department of Defense Appropriations Act, 2002 (P.L. 107-
117). Here again, we found significant outlay differences for the
Defense Health Program. Both OMB and CBO estimated outlay rates of
roughly 79 percent for new budget authority. However, OMB had a higher
total estimate of outlays resulting from higher outlay rate estimates
for prior-year budget authority balances, based on Department of
Defense (DOD) reports.
The $654 million difference in the $22.3 billion Operations and
Maintenance, Army account results primarily from a difference in first-
year outlay rates. CBO has a rate of 73 percent while OMB has a 69
percent rate. Similarly, for fiscal year 2002, the $1,095 million
difference in outlays in the DOD, Defense Emergency Response Fund
results because CBO used an outlay rate of about 74 percent and OMB
used a rate of roughly 68 percent for the $13.7 billion provision. In
both these cases, the large budget authority amounts mean that an outlay
rate difference of 6 percent or less leads to significant differences
in the estimates.
The general departmental management account of the Department of Health
and Human Services (HHS) received $2.64 billion in supplemental
appropriations in P.L. 107-117. CBO explained that HHS used these funds
for various activities intended to respond to the events of September
11, such as purchasing smallpox vaccines and upgrading security
measures at the Centers for Disease Control and Prevention. For these
activities, on which there is no historical evidence to base outlay
rate estimates, OMB estimates $751 million more in fiscal year 2002
outlays than does CBO.
In 2002, the Federal Emergency Management Agency (FEMA) disaster
relief account received $8.5 billion in total appropriations from three
bills: $4.3 billion from P.L. 107-117, $2 billion from P.L. 107-38, and
$2.2 billion from P.L. 107-73 (the VA/HUD appropriation act).[Footnote
15] Significant differences in outlay estimates for this account in
P.L.107-117 and P.L. 107-73 stem from different assumptions about which
of the funds will be used first. OMB assumed a 35 percent outlay rate
for all three of these funding sources. CBO, however, estimated that
none of the $4.3 billion in budget authority in P.L. 107-117 would be
spent until 2003 because it believes that the funding from the other
two sources will be spent first. Thus, OMB estimates $1,525 million
more in outlays for P.L. 107-117 than does CBO. In the VA/HUD bill, the
$2.2 billion in funding was divided into $1.5 billion in contingent
emergency funds and $661 million in non-emergency funds for disaster
relief. CBO believed that large prior-year balances in budget authority
would be spent before any new budget authority and therefore
approximated there would be no outlays of the emergency budget
authority in 2002. OMB‘s assumption of a 35 percent outlay rate for
both emergency and non-emergency funding resulted in $525 million more
in emergency outlays for 2002 than did CBO. However, its estimate of
non-emergency outlays was $373 million lower than was CBO‘s. Because
these differences partially offset each other, the aggregate outlay
difference for emergency and non-emergency outlays for FEMA disaster
relief funding in the VA/HUD bill was only $152 million.
Differences in the estimates for the National Institutes of Health (NIH)
and the Employment and Training Administration result largely from
differences in estimates of prior-year balances. For the NIH, OMB
estimated $505 million more in outlays from prior-year budget authority
than CBO and $335 million more in outlays from new authority. CBO
reasoned that the large increases in budget authority received by NIH in
2001 and 2002 would result in slower outlay rates for two reasons.
First, since 80 percent of NIH‘s obligations are extramural grants paid
on a quarterly basis, the large increases in budget authority received
in 2001 and 2002 might cause a slower outlay rate as the grant
administration burden increases. Second, in both those years
appropriations were delayed, pushing spending to later in the fiscal
year. In the Employment and Training Administration account, OMB
estimated $753 million more in outlays from prior-year authority and
$255 million more in outlays from new authority. In this case, CBO
reported that its rates reflect the lower than expected outlay rates
over the past several years for programs funded by the Workforce
Investment Act, the primary authorization for this account. OMB did
not adjust its estimates to reflect this recent actual experience.
Pursuant to DCA, any outlays in the Highway and Mass Transit categories
exceeding the levels established in TEA-21 are considered part of the
Overall Discretionary category. In both our 2000 and 2001 Budget
Enforcement Compliance reports, we reported significant differences
between CBO and OMB for outlay estimates in the Highway and Mass
Transit categories. In 2002, CBO again estimated higher outlays than
OMB, most of this from estimates of outlays for the Highway category.
* Differences in budget authority:
The OMB and CBO scorekeeping reports for the 2001 Emergency
Supplemental Appropriations Act for Recovery from and Response to
Terrorist Attacks on the United States (P.L. 107-38) contain four
significant differences in scoring of budget authority. All four stem
from different treatment of funds appropriated to the Emergency
Response Fund (ERF). P.L. 107-38 was signed by the President on
September 18, 2001, and appropriated $20 billion to ERF. For its
estimate, CBO subtracted from the $20 billion ERF any budget authority
that had been released to a receiving account after the bill was signed
into law and scored it as budget authority in that receiving account.
In its January 23, 2002, report, OMB scored those funds transferred or
obligated from the ERF to receiving accounts by the end of fiscal year
2001 the same way. However, budget authority transferred or obligated
after that point was scored as transfers of unobligated balances, not
as budget authority; the result was that only the outlay effects of
those transfers were apparent in the receiving account.
PAYGO Scoring Issues In its final sequestration report, CBO reported
that balances on the PAYGO scorecard are $76.4 billion for 2001 and
$52.7 billion for 2002”a total of $129.1 billion. OMB estimates in its
final sequestration report net PAYGO costs of $75.3 billion in 2001 and
$55.0 billion in 2002”a total of $130.3 billion. The majority of these
costs are a result of the Economic Growth and Tax Relief Reconciliation
Act of 2001. In accordance with BEA, the PAYGO balances for 2001 and
2002 are to be combined to determine whether a PAYGO sequestration is
necessary for 2002. However, the Department of Defense and Emergency
Supplemental Appropriations Act for 2002 requires OMB to reset the
total PAYGO balances for 2001 and 2002 to zero, thereby avoiding a
PAYGO sequestration.[Footnote 16]
During its first session, the 107th Congress enacted 23 pieces of PAYGO
legislation with estimated budgetary impact greater than $500,000.
[Footnote 17] We analyzed those scorekeeping reports for which OMB and
CBO estimates differed by $500 million or more either in any single
year or over the 5-year period 2002 through 2006. Four pieces of
legislation met this criterion: (1) the Air Transportation Safety and
System Stabilization Act (Public Law 107-42), (2) the Investor and
Capital Markets Fee Relief Act (Public Law 107-123), (3) the National
Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107),
and (4) the Economic Growth and Tax Relief Reconciliation Act of 2001
(Public Law 107-16). They are discussed below.
Air Transportation Safety and System Stabilization Act:
This law, enacted September 22, 2001, contains several provisions to
respond to the terrorist events of September 11, 2001, and is designed
to stabilize the air transportation industry and to provide
compensation to the victims of the terrorist attacks. It provides
insurance assistance to airlines, establishes a fund to compensate
victims of the terrorist attacks, and makes changes in the timing of
excise, payroll-related, and withheld income tax payments by airlines.
The costs of these provisions are included on the PAYGO scorecard. The
act also provides $5 billion in grants and $10 billion in loan
guarantees to air carriers. Since both of these provisions are
designated as emergency spending their costs are exempt from the PAYGO
scorecard. Table 5 illustrates CBO and OMB‘s estimates for the PAYGO
costs of this law over the 2001 through 2006 period.[Footnote 18] OMB
scores a PAYGO cost of $6,130 million while CBO scores a cost of $6,600
million. The difference over 6 years is $470 million with the largest
individual year difference, $1,463 million, occurring in 2002.
Table 5: Comparison of OMB and CBO PAYGO Scoring for the Air
Transportation Safety and System Stabilization Act (Dollars in
millions):
Agency: OMB;
Fiscal year 2001: $267;
Fiscal year 2002: $1,063;
Fiscal year 2003: $3,000;
Fiscal year 2004: $1,800;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $6,130.
Agency: CBO;
Fiscal year 2001: $1,400;
Fiscal year 2002: -$400;
Fiscal year 2003: $2,400;
Fiscal year 2004: $2,400;
Fiscal year 2005: $800;
Fiscal year 2006: $0;
Fiscal year Total: $6,600.
Difference (OMB-CBO):
Fiscal year 2001: -$1,133;
Fiscal year 2002: $1,463;
Fiscal year 2003: $600;
Fiscal year 2004: -$600;
Fiscal year 2005: -$800;
Fiscal year 2006: $0;
Fiscal year Total: -$470.
[End of table]
The difference in these estimates is a result of differences in how each
agency scored individual provisions of the act. These individual
provisions, their estimated costs by each agency, and an explanation of
the differences in estimates are discussed below.
CBO and OMB PAYGO costs for the insurance provisions differed by $470
million over 6 years; CBO estimated a cost of $600 million while OMB
estimated a cost of $130 million. Table 6 provides a breakdown of the
differences for these provisions. OMB estimated lower insurance costs
than CBO because OMB officials were aware of policy decisions to provide
insurance benefits to airlines over a shorter time period than assumed
by CBO. The act provided insurance assistance to air carriers through
two measures. First, the government reimburses carriers for the cost of
the surcharge imposed by private insurers to cover liabilities for risks
associated with terrorism or war. A second measure allows the
government to provide the airlines with additional insurance above the
$50 million available from private insurers to cover liabilities to
third parties for damages due to acts of terrorism or war. OMB
estimated that the first measure would cost $62 million while CBO
assumed expenditures of about $200 million. OMB assumed the additional
insurance permitted by the second measure would cost $68 million while
CBO assumed a cost of $400 million. OMB assumed 1 month of surcharge
payments and 2 months of insurance coverage, while CBO assumed 6 months
of surcharge payments and 1 year of insurance coverage.
Table 6: Comparison of OMB and CBO PAYGO Scoring for the Insurance
Provisions of the Air Transportation Safety and System Stabilization
Act (Dollars in millions):
Agency: OMB;
Fiscal year 2001: $0;
Fiscal year 2002: $130;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $130.
Agency: CBO;
Fiscal year 2001: $0;
Fiscal year 2002: $600;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $600.
Difference (OMB-CBO):
Fiscal year 2001: $0;
Fiscal year 2002: -$470;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: -$470.
[End of table]
Both CBO and OMB estimated that the provision that extends by 180 days
the deadline for certain tax payments by airlines will have no cost
over the 2001 through 2006 period. However, as shown in table 7, they
differed in the amount of tax receipts to be shifted from 2001 to 2002.
Because the legislation was enacted on September 22, 2001, both CBO and
OMB show a shift of receipts from 2001 to 2002. OMB shows $267 million
in receipts shifting from 2001 to 2002 while CBO shows a shift of $1.4
billion.
Although the act pushes back the deadline for collection of excise
taxes, payroll-related taxes, and withheld income taxes, OMB estimated
a shift of excise tax revenue only. OMB stated that the shift for the
payroll-related and withheld income taxes was already assumed in its
baseline because the Internal Revenue Service already had issued
regulations allowing the delay in payment of these taxes, leaving only
the excise taxes to be included in its estimate. CBO shifted all three
types of taxes in its estimate.
OMB also changed its baseline estimates of excise tax receipts to the
Airport and Airway Trust Fund to take into account the effect on air
travel of the September 11 terrorist attacks, including the order by the
government to ground all air traffic. Because CBO did not make any
adjustments to its baseline to account for anticipated changes in air
travel that might result from these attacks, its estimate of the act‘s
effect on the timing and volume of receipts differs from OMB‘s. DCA
does not specifically address on-going changes to the baseline.
According to OMB and CBO officials, OMB and CBO have, on occasion, made
changes to their baselines.
Table 7: Comparison of OMB and CBO PAYGO Scoring for the Tax Payment
Extension Provision of the Air Transportation Safety and System
Stabilization Act (Dollars in millions):
Agency: OMB;
Fiscal year 2001: $267;
Fiscal year 2002: -$267;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $0.
Agency: CBO;
Fiscal year 2001: $1,400;
Fiscal year 2002: -$1,400;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $0.
Difference (OMB-CBO):
Fiscal year 2001: -$1,133;
Fiscal year 2002: $1,133;
Fiscal year 2003: $0;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $0.
[End of table]
OMB and CBO also differed in their estimates of the government‘s payment
rate for the victims compensation fund. This fund provides monetary
compensation for the economic and non-economic losses (including pain,
suffering, and loss of companionship) of individuals who were injured
and the families of those killed in the attacks of September 11, 2001.
As table 8 shows, OMB assumes a quicker payout rate, but the overall
total for both agencies is the same--$6,000 million.[Footnote 19] OMB
assumed that most claims filed between December and May would be paid
in fiscal year 2002 and that fiscal year 2002 outlays would be 20
percent of the total. As of early March, the Department of Justice
(DOJ) had received 352 claims, about 10 percent of the estimated total,
and OMB believed it reasonable to expect that at least 20 percent of
all claims would be received by the end of May. OMB based this
assumption on the fact that DOJ program regulations were designed to
facilitate the prompt filing, review, and payment of claims and the
belief that the Special Master‘s public comments had consistently urged
victims to take advantage of the program‘s expedited process,
particularly the ’advance payments“ on potential awards. CBO‘s estimate
took into account its judgment that victims‘ families would delay
collecting from the fund because they would want to assess the
possibility of compensation through civil litigation.
Table 8: Comparison of OMB and CBO PAYGO Scoring for the Victim
Compensation Provision of the Air Transportation Safety and System
Stabilization Act (Dollars in millions):
Agency: OMB;
Fiscal year 2001: $0;
Fiscal year 2002: $1,200;
Fiscal year 2003: $3,000;
Fiscal year 2004: $1,800;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: $6,000.
Agency: CBO;
Fiscal year 2001: $0;
Fiscal year 2002: $400;
Fiscal year 2003: $2,400;
Fiscal year 2004: $2,400;
Fiscal year 2005: $800;
Fiscal year 2006: $0;
Fiscal year Total: $6,000.
Difference (OMB-CBO):
Fiscal year 2001: $0;
Fiscal year 2002: $800;
Fiscal year 2003: $600;
Fiscal year 2004: -$600;
Fiscal year 2005: -$800;
Fiscal year 2006: $0;
Fiscal year Total: $0.
[End of table]
Investor and Capital Markets Fee Relief Act:
This law adjusts the fees and assessments that the Securities and
Exchange Commission (SEC) is authorized to collect for transactions,
registrations, and mergers of securities. Previously, SEC fees were
collected and, depending on the type of fee, recorded in the budget
either as revenues or as offsetting collections credited against
discretionary appropriations for the SEC. In fiscal year 2000, SEC
collected fees that far exceeded its operating costs. Under this act,
all SEC fees and assessments are reclassified as offsetting collections
and the fee rates are lowered. CBO and OMB estimates for this act
differed increasingly from 2003 through 2006. Over the 5-year period
shown in table 9, CBO estimated a revenue loss to the government of
$9,518 million. Over the same 5-year period, OMB estimated a revenue
loss of $10,721 million, or $1,203 million more than CBO.
Table 9: Comparison of OMB and CBO PAYGO Scoring for the Investor and
Capital Markets Fee Relief Act (Dollars in millions):
Agency: OMB;
Fiscal year 2002: $1,455;
Fiscal year 2003: $1,947;
Fiscal year 2004: $2,174;
Fiscal year 2005: $2,429;
Fiscal year 2006: $2,716;
Fiscal year Total: $10,721.
Agency: CBO;
Fiscal year 2002: $1,261;
Fiscal year 2003: $1,804;
Fiscal year 2004: $1,984;
Fiscal year 2005: $2,152;
Fiscal year 2006: $2,317;
Fiscal year Total: $9,518.
Difference (OMB-CBO):
Fiscal year 2002: $194;
Fiscal year 2003: $143;
Fiscal year 2004: $190;
Fiscal year 2005: $277;
Fiscal year 2006: $399;
Fiscal year Total: $1,203.
[End of table]
Neither OMB nor CBO explained these differences. Both said that baseline
estimates for the fees collected are driven by a number of factors
including economic assumptions like gross domestic product (GDP) and
interest rates and technical assumptions like volume growth for the
different types of transactions. The forecast for volume growth takes
into account the stock market activities both on and off exchanges over
a number of business cycles. Because the fee estimates depend on
numerous economic variables and are produced by complex estimating
models, OMB and CBO noted that it is difficult to identify the specific
reason(s) for differences in estimates between them.
National Defense Authorization Act for Fiscal Year 2002:
This legislation authorizes fiscal year 2002 appropriations for
Department of Defense (DOD) programs, authorizes a military pay raise
and other military benefits, provides for a round of base closures and
realignment in 2005, authorizes closure of the Navy live-fire training
facility in Vieques, Puerto Rico, authorizes fiscal year 2002
appropriations for Department of Energy national security programs, and
makes other modifications to national security and related programs.
Over the course of the 5-year period 2002 through 2006, CBO scored a
direct spending cost of $276 million. OMB scored $883 million in
savings over the same period, creating a 5-year difference of $1,159
million. Table 10 provides a breakdown of each agency‘s estimates.
Table 10: Comparison of OMB and CBO PAYGO Scoring for the National
Defense Authorization Act for Fiscal Year 2002 (Dollars in millions):
Agency: OMB;
Fiscal year 2002: $86;
Fiscal year 2003: -$234;
Fiscal year 2004: -$208;
Fiscal year 2005: -$253;
Fiscal year 2006: -$274;
Fiscal year Total: -$883.
Agency: CBO;
Fiscal year 2002: $146;
Fiscal year 2003: -$221;
Fiscal year 2004: $156;
Fiscal year 2005: $92;
Fiscal year 2006: $103;
Fiscal year Total: $276.
Difference (OMB-CBO):
Fiscal year 2002: -$60;
Fiscal year 2003: -$43;
Fiscal year 2004: -$364;
Fiscal year 2005: -$345;
Fiscal year 2006: -$377;
Fiscal year Total: -$1,159.
[End of table]
The bulk of the difference in the estimates lies in each agency‘s
scoring of the medical care provisions of this law”sections 701 and
707” which affect the Tricare for Life program. Section 701 requires
DOD to restructure its skilled nursing and home health care benefits
such that it will not pay for skilled nursing unless the beneficiary
has been hospitalized before receiving that care and will not pay for
home health care in excess of the allowable benefit under Medicare.
Section 707 requires DOD to set maximum allowable charges for skilled
nursing and home health care, which will lower the cost of providing
those benefits. The estimates for these provisions are shown in table
11. After a slight increase in direct spending in 2002 of $3 million,
CBO scored savings of $297 million for 2003 (for a total of $294
million) while OMB scored savings of $1,357 million from 2003 through
2006 (for a total of $1,354 million). The difference between the two
agencies over 5 years is $1,060 million. This large difference exists
because the provisions as included in prior law were administratively
optional but not legally required. Under prior law, DOD had the
authority to make those changes and CBO estimated the agency would do
so by fiscal year 2004 and thus would begin to see savings in direct
spending at that time. However, P.L. 107-107 mandated that these
changes take effect in fiscal year 2002, roughly 3 months after its
enactment on December 28, 2001. Consequently, CBO estimated that after
a year, as the program approached full participation, direct spending
savings would begin in fiscal year 2003. Since CBO had assumed that DOD,
beginning in fiscal year 2004, would implement the administrative
changes described above, it showed savings only in fiscal year 2003
because savings in subsequent years would occur without further
congressional action. Alternatively, OMB had not assumed implementation
of this option in its baseline and so included all savings in its
scoring of P.L. 107-107, which mandated the changes.
Table 11: Comparison of OMB and CBO PAYGO Scoring for the Medical Care
Provision of the National Defense Authorization Act for Fiscal Year
2002 (Dollars in millions):
Agency: OMB;
Fiscal year 2002: $3;
Fiscal year 2003: -$306;
Fiscal year 2004: -$329;
Fiscal year 2005: -$350;
Fiscal year 2006: -$372;
Fiscal year Total: -$1,354.
Agency: CBO;
Fiscal year 2002: $3;
Fiscal year 2003: -$297;
Fiscal year 2004: $0;
Fiscal year 2005: $0;
Fiscal year 2006: $0;
Fiscal year Total: -$294.
Difference (OMB-CBO):
Fiscal year 2002: $0;
Fiscal year 2003: -$9;
Fiscal year 2004: -$329;
Fiscal year 2005: -$350;
Fiscal year 2006: -$372;
Fiscal year Total: -$1,060.
[End of table]
Economic Growth and Tax Relief Reconciliation Act of 2001:
This law amends numerous provisions of the tax code to reduce taxes. It
reduces individual income tax rates, increases the child tax credit,
eliminates the estate tax, reduces the marriage penalty, expands
education Individual Retirement Accounts (IRAs), and makes several
other changes to provisions of the tax law. Because of their expertise
in revenue estimating, the Department of Treasury and the Joint
Committee on Taxation provided OMB and CBO, respectively, with almost
all of the estimates for the many provisions in this law.
Over the period 2001 through 2006, OMB scored increased outlays totaling
$28,085 million, while CBO estimated $40,308 million in outlay costs”a
difference of $12,223 million. On the revenue side, OMB estimated
$502,074 million in decreased revenues and CBO scored reductions in
revenue of $510,815 million”a difference of $8,741 million. In total,
OMB scored $20,964 million less in net costs to the government than did
CBO over the 2001 through 2006 period. Table 12 provides a breakdown of
outlay and revenue costs by agency.
Table 12: Comparison of OMB and CBO PAYGO Scoring for the Economic
Growth and Tax Relief Reconciliation Act of 2001 (Dollars in millions):
Agency: OMB;
Outlays, Fiscal year 2001: $0;
Outlays, Fiscal year 2002: $4,451;
Outlays, Fiscal year 2003: $5,729;
Outlays, Fiscal year 2004: $5,724;
Outlays, Fiscal year 2005: $5,218;
Outlays, Fiscal year 2006: $7,413;
Outlays, Fiscal year Total: $28,085.
Agency: CBO;
Outlays, Fiscal year 2001: $3,600;
Outlays, Fiscal year 2002: $6,425;
Outlays, Fiscal year 2003: $6,599;
Outlays, Fiscal year 2004: $7,006;
Outlays, Fiscal year 2005: $7,081;
Outlays, Fiscal year 2006: $9,597;
Outlays, Fiscal year Total: $40,308.
Difference (OMB-CBO):
Outlays, Fiscal year 2001: -$3,600;
Outlays, Fiscal year 2002: -$1,974;
Outlays, Fiscal year 2003: -$870;
Outlays, Fiscal year 2004: -$1,732;
Outlays, Fiscal year 2005: -$1,863;
Outlays, Fiscal year 2006: -$2,184;
Outlays, Fiscal year Total: -$12,223.
Agency: OMB;
Revenues, Fiscal year 2001: -$65,501;
Revenues, Fiscal year 2002: -$31,240;
Revenues, Fiscal year 2003: -$80,670;
Revenues, Fiscal year 2004: -$100,183;
Revenues, Fiscal year 2005: -$101,112;
Revenues, Fiscal year 2006: -$123,368;
Revenues, Fiscal year Total: -$502,074.
Agency: CBO;
Revenues, Fiscal year 2001: -$70,208;
Revenues, Fiscal year 2002: -$31,145;
Revenues, Fiscal year 2003: -$83,736;
Revenues, Fiscal year 2004: -$100,415;
Revenues, Fiscal year 2005: -$100,021;
Revenues, Fiscal year 2006: -$125,290;
Revenues, Fiscal year Total: -$510,815.
Difference (OMB-CBO):
Revenues, Fiscal year 2001: $4,707;
Revenues, Fiscal year 2002: -$95;
Revenues, Fiscal year 2003: $3,066;
Revenues, Fiscal year 2004: -$232;
Revenues, Fiscal year 2005: -$1,091;
Revenues, Fiscal year 2006: $1,922;
Revenues, Fiscal year Total: $8,741.
[End of table]
In general, OMB and CBO agreed that the scoring differences for this
legislation resulted from (1) different economic assumptions, and (2)
technical estimating differences attributable to the use of different
baselines and estimating models. Since the estimates for almost all of
the provisions depend on numerous economic variables, such as wages and
salaries, corporate profits, and GDP, and are produced by elaborate
estimating models, neither OMB nor CBO could identify the specific
reason or reasons for differences in estimates, with one exception.
The one exception is for the outlay scoring differences in 2001
resulting from the scoring of the advance refund of the individual
income rate reduction. CBO scored roughly 10 percent of the refund as
outlays because it estimated that this amount would exceed the
taxpayers‘ liability for calendar year 2001 based on calendar year 2000
liability. Since the taxpayer will not be required to repay the
difference, CBO believed that the difference represents a payment in
excess of liability and should be classified as an outlay. CBO
estimated that 95 percent of the outlays will be paid in 2001 and the
remaining 5 percent will be paid in fiscal year 2002 to taxpayers who
filed their tax returns with an extension. OMB did not believe this
distinction would be crucial so they classified the entire advance
refund as a loss in receipts in 2001 and 2002.
Shown below are the breakdowns of the three titles of the act with the
greatest differences in estimates:
* Title I, Individual Income Tax Rate Reductions Provisions;
* Title V, Estate, Gift, and Generation-Skipping Transfer Tax
Provisions;
* Title II, Tax Benefits Relating to Children.
Table 13 provides a breakdown of the estimates for Title I, the
individual income tax rate reductions provisions, which among other
things create a regular income tax bracket with a rate of 10 percent
and reduce the four highest income tax rates over the 2001 through 2006
period . For these provisions, CBO showed a loss of $391,416 million
from 2001 through 2006, while OMB showed a total loss of receipts of
$365,724 million, or $25,692 million less than CBO, over that same
period.
Table 13: Comparison of OMB and CBO PAYGO Scoring for Title I, the
Individual Income Rate Reductions Provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 9Dollars in millions):
Agency: OMB;
Fiscal year 2001: -$38,995;
Fiscal year 2002: -$49,515;
Fiscal year 2003: -$54,672;
Fiscal year 2004: -$65,373;
Fiscal year 2005: -$70,310;
Fiscal year 2006: -$86,859;
Fiscal year Total: -$365,724.
Agency: CBO;
Fiscal year 2001: -$40,191;
Fiscal year 2002: -$54,521;
Fiscal year 2003: -$61,479;
Fiscal year 2004: -$68,385;
Fiscal year 2005: -$72,975;
Fiscal year 2006: -$92,865;
Fiscal year Total: -$391,416.
Difference (OMB-CBO):
Fiscal year 2001: $1,196;
Fiscal year 2002: $5,006;
Fiscal year 2003: $6,807;
Fiscal year 2004: $4,012;
Fiscal year 2005: $2,665;
Fiscal year 2006: $6,006;
Fiscal year Total: $25,692.
[End of table]
Table 14 shows a breakdown of the estimates by each agency for the
Estate and Gift Tax provisions. OMB estimated a total loss in receipts
of $43,432 million over the 2001 through 2006 period, while CBO
estimated a loss of $24,852 million over the same period. CBO showed
$18,580 million less in lost receipts than OMB for this provision.
Table 14: Comparison of OMB and CBO PAYGO Scoring for Title V, the
Estate, Gift, and Generation-Skipping Transfer Tax Provisions of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (Dollars in
millions):
Agency: OMB;
Fiscal year 2001: -$89;
Fiscal year 2002: -$3,424;
Fiscal year 2003: -$11,100;
Fiscal year 2004: -$10,054;
Fiscal year 2005: -$10,951;
Fiscal year 2006: -$7,814;
Fiscal year Total: -$43,432.
Agency: CBO;
Fiscal year 2001: $0;
Fiscal year 2002: -$105;
Fiscal year 2003: -$6,993;
Fiscal year 2004: -$5,590;
Fiscal year 2005: -$7,594;
Fiscal year 2006: -$4,570;
Fiscal year Total: -$24,580.
Difference (OMB-CBO):
Fiscal year 2001: -$89;
Fiscal year 2002: -$3,319;
Fiscal year 2003: -$4,107;
Fiscal year 2004: -$4,464;
Fiscal year 2005: -$3,357;
Fiscal year 2006: -$3,244;
Fiscal year Total: $18,580.
[End of table]
Table 15 below provides a breakdown of the estimates by OMB and CBO
for Title II, which provided tax benefits relating to children,
including: increasing the child tax credit from $500 to $1,000 over 10
years; increasing the portion of the child credit that is refundable;
changing the treatment of personal credits under the alternative
minimum tax; and changing the treatment of adoption tax credits,
dependent care tax credits, and the credit for childcare facilities
provided by an employer. OMB estimated a total of $55,930 million in
lost receipts over the 2001 through 2006 period, while CBO estimated a
loss of $64,713 million over the same period, a difference of $8,783
million.
Table 15: Comparison of OMB and CBO PAYGO Scoring for the Title II, Tax
Benefits Relating to Children of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Dollars in millions):
Agency: OMB;
Fiscal year 2001: -$317;
Fiscal year 2002: -$8,451;
Fiscal year 2003: -$9,397;
Fiscal year 2004: -$9,804;
Fiscal year 2005: -$11,345;
Fiscal year 2006: -$16,616;
Fiscal year Total: -$55,930.
Agency: CBO;
Fiscal year 2001: -$518;
Fiscal year 2002: -$9,390;
Fiscal year 2003: -$10,562;
Fiscal year 2004: -$11,415;
Fiscal year 2005: -$13,634;
Fiscal year 2006: -$19,194;
Fiscal year Total: -$64,713.
Difference (OMB-CBO):
Fiscal year 2001: $201;
Fiscal year 2002: $939;
Fiscal year 2003: $11,665;
Fiscal year 2004: $1,611;
Fiscal year 2005: $2,289;
Fiscal year 2006: $2,578;
Fiscal year Total: $8,783.
[End of table]
Cap Adjustments:
Section 251(b)(2) of the DCA requires specific adjustments to the
spending limits. While both CBO and OMB are required to calculate how
much the spending limits should be adjusted, OMB‘s adjustments control
for the purposes of budget enforcement, such as determining whether
enacted appropriations fall within the spending limits, whether a
sequestration is required, and, if so, how much. CBO‘s adjustments are
advisory and are adjusted in each subsequent sequestration report to
match the previously reported OMB limits. In their 2002 final
sequestration reports, both CBO and OMB made adjustments to Overall
Discretionary budget authority and outlays limits for emergency
appropriations, continuing disability reviews by the Social Security
Administration, adoption incentive payments, and the earned income tax
credit (EITC) compliance initiative. In addition to these annual
adjustments, Division C of the 2002 Department of Defense
Appropriations Act incorporated two additional ones-- a discretionary
budget authority technical estimating difference adjustment allowance of
up to .12 percent and $134.5 billion and $132.8 billion increases in the
spending caps for budget authority and outlays, respectively. The OMB
2002 final sequestration report showed spending limit differences
between OMB and CBO of $308 million in budget authority and $3,375
million in outlays for 2002 for the Overall Discretionary category.
There are no differences this year in the final spending limits for the
Highway, Mass Transit, and Conservation categories.
In its final report, OMB adjusted budget authority limits using a
provision in P.L.107-117 that allowed OMB to adjust the 2002 limit on
budget authority for the discretionary category upward by any amounts
in excess of the spending limits, up to .12 percent. This allowance,
which was enacted to account for appropriations act scoring differences
between OMB and CBO, added $308 million to the OMB‘s budget authority
limits for the Overall Discretionary category. CBO reflected this
adjustment in its sequestration preview report for fiscal year 2003.
For outlay spending limits, OMB estimated $3,375 million more than did
CBO, largely the result of differences in adjustments for emergency
outlay estimates. The emergency appropriations contained in P.L. 107-
117 had over $3,200 million in outlay scoring differences between OMB
and CBO. As described above, the FEMA disaster relief account in this
bill accounted for $1,525 million of that difference and the general
departmental management account, HHS accounted for another $751
million. OMB also had higher estimates of emergency outlays in some of
the regular appropriations acts. The higher estimates by OMB are
partially offset by an $800 million higher estimate of emergency
outlays by CBO for P.L. 107-38. As discussed in detail in the previous
section on discretionary scoring differences, these estimates differ
due to different outlay rates used by OMB and CBO. There were also
small differences in outlay estimates for the EITC compliance
initiative, continuing disability reviews, and the adoption incentive
payments adjustments.
[End of section]
Appendix III: Future of Budget Enforcement Rules:
The discretionary spending limits and pay-as-you-go (PAYGO) mechanism
established by the Budget Enforcement Act (BEA) expire this year.
[Footnote 20] While the fiscal year 2001, 2002, and 2003 budgets
supported extending the discretionary caps and the PAYGO enforcement,
to date no such legislative action has been taken. There is widespread
agreement that for much of the past decade BEA was successful in
restraining fiscal action by Congress and the President. However, there
is also general acknowledgment both that the spending caps for the last
couple of years were unrealistically tight when they were set and that
the emergence of budget surpluses undermined the acceptance of BEA
enforcement mechanisms that had been designed to reach budget balance.
Given the forthcoming expiration of BEA enforcement regime and the need
to deal with the budgetary challenges the country faces both in the
short and long term, now is an important time to comment on the future
of budget enforcement mechanisms.
Recent History of Budget Enforcement Rules:
The Budget Enforcement Act of 1990 (Title XIII of P.L. 101-508) was
designed to constrain future budgetary actions by Congress and the
President. BEA took a different tack on fiscal restraint than earlier
efforts, which had focused on annual deficit targets in order to
balance the budget.[Footnote 21] BEA sought to reach budget balance by
limiting congressional actions. The process was designed to enforce a
previously reached agreement on the size of discretionary spending and
the budget neutrality of revenue and mandatory spending legislation
(PAYGO). In 1993, the discretionary spending limits and the PAYGO rules
were extended through fiscal year 1998; the 1997 Budget Enforcement Act
(Title X of P.L. 105-33) again extended the discretionary spending caps
and the PAYGO rules through 2002.
Trends in Adherence to the Discretionary Spending Caps and PAYGO
Constraints:
In the last several years with budget surpluses, adjustments to the
spending caps were much larger than in most prior years.[Footnote 22]
Figure 1 illustrates the increasing lack of adherence to the original
discretionary spending caps since the advent of surpluses in 1998. The
figure shows the original budget authority caps as established in 1990
and as extended in 1993 and 1997, adjustments made to the caps, and the
level of enacted appropriations for fiscal years 1991 through 2002.
In fiscal years 1999 and 2000, emergency spending designations were used
by Congress to permit spending above the discretionary caps. The
amounts designated as emergency spending ”$34.4 billion and $30.8
billion, respectively”were significantly higher than in most past
years.[Footnote 23] In addition to the larger-than-normal amounts,
emergency appropriations in those years also addressed broader purposes
than in most prior years. [Footnote 24]
Figure 1: Discretionary Outlay Caps and Enacted Appropriations:
[See PDF for image]
This figure is a combination stacked vertical bar and line graph
depicting discretionary outlay caps and enacted appropriations. The
stacked vertical bars represent original statutory caps and final
adjusted caps. The line represents final enacted appropriations.
Note: Data for fiscal year 2002 are current as of February 4, 2002; the
final amount after the end of the fiscal year may be higher depending
on the enactment of any supplemental spending.
Source: Office of Management and Budget.
[End of figure]
Emergency spending designations have not been the only route to spending
above the discretionary spending caps. In fiscal year 2001 Congress
included a provision in the Foreign Operations Appropriations Act (P.L.
106-429) that raised the 2001 budget authority cap by $95.9 billion, a
level assumed to be sufficient to cover all enacted and anticipated
appropriations. In 2002, Congress took similar steps and once again
raised the spending limits to a level sufficient to cover enacted
appropriations. The Department of Defense and Emergency Supplemental
Appropriations Act for 2002[Footnote 25] adjusted the budget authority
caps upward by $134.5 billion. In addition to the two approaches
described above, the Congressional Budget Office (CBO) has reported
that advance appropriations, obligation and payment delays, and
specific legislative direction for scorekeeping have also been used to
boost discretionary spending while allowing technical compliance with
the limits.[Footnote 26]
Advance appropriations have provided a way for Congress to pass
appropriations that are scored, or counted, in subsequent fiscal years
rather than the year in which they are enacted. The Office of Management
and Budget (OMB) has advocated limiting this type of funding to its use
as a way to fully finance capital projects and ameliorate the problem
of budget spikes caused by funding the entirety of a large capital
project in 1 fiscal year. However, advance appropriations can and have
also been used to avoid spending limitations and/or to mask true
spending levels by crediting appropriations to other years.
For fiscal year 2000, provisions of law that delayed certain
obligations and payments pushed outlays from certain appropriations
into the next year. CBO reported that while these and the other
techniques mentioned are not new, they were used in different ways or
to a greater extent than in past years.[Footnote 27]
Directed scoring occurs when the budget committees instruct CBO to use
an estimate for an appropriation action that is different from the one
that CBO would otherwise use. In 2000, CBO reported that the committees
directed it to use such estimates for a wider variety of programs than
had been the case in previous years and that these directions lowered
CBO‘s estimates of budget authority by $3 billion and of outlays by
about $19 billion.
Nor has PAYGO enforcement been exempt from implementation challenges.
The consolidated appropriations acts for both fiscal years 2000 and
2001 mandated that OMB change the PAYGO scorecard balance to zero. In
fiscal year 2002, a similar instruction in the Department of Defense
and Emergency Supplemental Appropriations Act eliminated $130.3 billion
in costs from the PAYGO scorecard. Both OMB and CBO estimated that
without the instructions to change the scorecard, sequesters would have
been required in both 2001 and 2002.
Principles for a Budget Process:
On the eve of BEA‘s expiration, Congress has myriad options available
for consideration as it begins crafting a new budget process. In the
past, we have suggested four broad principles or criteria for a budget
process.[Footnote 28] The process should:
* provide information about the long-term impact of decisions while
recognizing the differences between short-term forecasts, medium-term
projections, and longer-term simulations;
* provide information and be structured to focus on important macro
trade-offs;
* provide information necessary to make informed trade-offs between
missions and between the different tools of government; and;
* be enforceable, provide for control and accountability, and be
transparent.
The lack of adherence to the original BEA spending constraints in recent
years and the expiration of BEA suggest that now may be an opportune
time to think about the direction and purpose of our nation‘s fiscal
policy. The surpluses that many worked hard to achieve”with help from
the economy”not only strengthened the economy for the longer term but
also put us in a stronger position to respond to the events of
September 11 and to the economic slowdown than would otherwise have
been the case. Going forward, the nation‘s commitment to surpluses will
be tested: a return to surplus will require sustained discipline and
difficult choices. It will be important for Congress and the President
to take a hard look at competing claims on the federal fisc.[Footnote
29] A fundamental review of existing programs and operations can create
much needed fiscal flexibility to address emerging needs by weeding out
programs that have proven to be outdated, poorly targeted, or
inefficient in their design and management.
Last October, the House and Senate Budget Committees called for a return
to budget surplus as a fiscal goal.[Footnote 30] This remains an
important fiscal goal, but achieving it will not be easy. Much as the
near-term projections have changed in a year, it is important to
remember that even last year the long-term picture did not look rosy.
These long-term fiscal challenges argued for continuation of some
fiscal restraint even in the face of a decade of projected surpluses.
The events of September 11 reminded us of the benefits fiscal
flexibility provides to our nation‘s capacity to respond to urgent and
newly emergent needs. Absent substantive changes in entitlement
programs for the elderly, in the long term there will be virtually no
room for any other federal spending priorities”persistent deficits and
escalating debt will overwhelm the budget.[Footnote 31] While the near-
term outlook has changed, the long-term pressures have not. These long-
term budget challenges driven by demographic trends also serve to
emphasize the importance of the first principle cited above”the need to
bring a long-term perspective to bear on budget debates. Keeping in
mind these principles and concerns, a number of alternatives appear
promising.
Alternatives for Improving the Budget Process:
There is much agreement among experts that there is a need for the
continuation of some type of budget process to restrain spending.
Discussions on the future of the budget process have primarily focused
on revamping the current budget process rather than establishing a new
one from scratch. Where the discussion focuses on specific control
devices, the two most frequently discussed are (1) extending the
discretionary spending caps and (2) extending the PAYGO mechanism. In
addition, past discussions have suggested a third element”a set of
rules or a ’trigger device“”that could be included to deal with the
uncertainty of budget projections.
Extending Caps on Discretionary Spending:
BEA distinguished between spending controlled by the appropriations
process”’discretionary spending“”and that which flowed directly from
authorizing legislation provisions of law”’direct spending,“ sometimes
called ’mandatory.“ Caps were placed on discretionary spending”and
Congress‘ compliance with the caps was relatively easy to measure
because discretionary spending totals flow directly from legislative
actions (i.e., appropriations laws). As noted above, there is broad
consensus that, although the caps have been adjusted, they have served
to constrain appropriations. This consensus, combined with the belief
that some restraints should be continued, has led many to propose that
some form of cap structure be continued as a way of limiting
discretionary appropriations. However, the actions taken to avoid the
spending caps in the last few years have also led many to note that
caps can only work if they are realistic; while caps may be seen as
tighter than some would like, they are not likely to bind if they are
seen as totally unreasonable given current conditions. In the near
term, limits on discretionary spending may be an important tool to
prompt reexamination of existing programs as well as new proposals.
Some have proposed that any extension of BEA-type caps be limited to
caps on budget authority. Outlays are controlled by and flow from budget
authority”although at different rates depending on the nature of the
program. Some argue that the existence of both budget authority and
outlay caps has encouraged provisions such as ’delayed obligations“ to
be adopted not for programmatic reasons but as a way of juggling the two
caps. The existence of two caps may also skew authority from rapid
spendout to slower spend-out programs, thus pushing more outlays to the
future and creating problems in complying with outlay caps in later
years. Extending only the budget authority cap would eliminate the
incentive for such actions and focus decisions on that which Congress
is intended to control”budget authority, which itself controls outlays.
This would be consistent with the original design of BEA. The obvious
advantage to focusing decisions on budget authority rather than outlays
is that Congress would not spend its time trying to control the timing
of outlays.
Eliminating the outlay cap would raise several implementation issues”
chief among them being how to address the control of transportation
programs for which no budget authority cap currently exists, and the
use of advance appropriations to skirt budget authority caps. However,
agreements about these issues could be reached. For example, the fiscal
year 2002 budget proposed a revision to the scorekeeping rule on advance
appropriations so that generally they would be scored in the year of
enactment. Such a scoring rule change could eliminate the practice of
using advance appropriations to skirt the caps. The 2002 Congressional
Budget Resolution took another tack; it capped advance appropriations at
the amount advanced in the previous year. This year the administration
proposed that total advance appropriations continue to be capped in 2003
and the President‘s budget assumed that all advance appropriations would
be frozen except for those that it said should be reduced or eliminated
for programmatic reasons.
There are other issues to consider in the design of any new caps. For
example, for how long should caps be established? What categories should
be established within or in lieu of an overall cap? While the original
BEA envisioned three categories (Defense, International Affairs, and
Domestic), over time categories were combined and new categories were
created. At one time or another caps for Nondefense, Violent Crime
Reduction, Highways, Mass Transit, and Conservation spending existed”
many with different expiration dates. Should these caps be ceilings, or
should they”as is the case for Highways and Conservation”provide for
’guaranteed“ levels of funding? The selection of categories”and the
design of the applicable caps”is not trivial. Categories define the
range of what is permissible. By design they limit tradeoffs and so
constrain both Congress and the President.
We have previously reported that the BEA process has not facilitated
making decisions on activities intended to promote long-term economic
growth.[Footnote 32] In the past we have suggested consideration of an
’investment component“ within the discretionary caps; this would cover
funding for physical infrastructure, research and development, and
education and training (investment in human capital). Such a structure
could help Congress and the President make more informed decisions
about the balance between federal funding of investment activities and
federal funding for other activities.
Because caps are phrased in specific dollar amounts, it is important to
address the question of when and for what reasons the caps should be
adjusted. This is critical for making the caps realistic. For example,
without some provision for emergencies, no caps can be successful. At
the same time, there appears to be some connection between how
realistic the caps are and how flexible the definition of emergency is.
As described in both our 2000 and 2001 compliance reports, the amount
and range of spending considered as ’emergency“ has grown in recent
years.[Footnote 33] There have been a number of approaches suggested to
balance the need to respond to emergencies and the desire to avoid
making the ’emergency“ label an easy way to raise caps. The House
Budget Resolution for fiscal year 2002 (H. Con. Res. 83) established a
reserve fund of $5.6 billion for emergencies in place of the current
practice of automatically increasing the appropriate levels in the
budget resolution for designated emergencies. It also established two
criteria for defining an emergency. These criteria require an emergency
to be a situation (other than a threat to national security) that (1)
requires new budget authority to prevent the imminent loss of life or
property or in response to the loss of life or property and (2) is
unanticipated, meaning that the situation is sudden, urgent, unforeseen,
and temporary.
In the past others have proposed providing for more emergency spending
under any spending caps”either in the form of a reserve or of a greater
appropriation for the Federal Emergency Management Agency (FEMA). If
such an approach were to be taken, the amounts for either the reserve or
the FEMA disaster relief account would need to be included when
determining the level of the caps. Some have proposed using a 5- or 10-
year rolling average of disaster/emergency spending as the appropriate
reserve amount. Adjustments to the caps would be limited to spending
over and above that reserve or appropriated level for extraordinary
circumstances. Since the events of September 11”and the necessary
responses to those events”would undoubtedly qualify as such an
’extraordinary circumstance,“ consideration of new approaches for
’emergency“ spending should probably focus on what might be considered
’more usual“ emergencies. It has been suggested that with additional up-
front appropriations or a reserve, ’traditional“ emergency spending
adjustments could be disallowed. No matter what the provision, only the
commitment of Congress and the President can make any limit on cap
adjustments for emergencies work. States have used this reserve concept
for emergencies, and their experiences indicate that criteria for using
emergency reserve funds may be useful in controlling emergency
spending.[Footnote 34] Agreements over the use of the reserve would
also need to be achieved at the federal level.
This discussion is not exhaustive. There are other issues that would
come up in the design of caps. In the next section, we note two of
these issues.
Miscellaneous Discretionary Challenges: Leases and User Fees:
If the discretionary caps are to be extended, consideration should be
given to addressing areas where attempts to ’expand“ resources under
the caps can lead to distortions: the scoring of operating leases and
the expansion of user fees as offsets to discretionary spending.
We have previously reported that existing scoring rules favor leasing
when compared to the cost of various other methods of acquiring
assets.[Footnote 35] Currently, for asset purchases, budget authority
for the entire acquisition cost must be recorded in the budget up
front, in the year that the asset acquisition is approved. In contrast,
the scorekeeping rules for operating leases often require that only the
current year‘s lease costs be recognized and recorded in the budget.
This makes the operating lease appear less costly from an annual
budgetary perspective, and uses up less budget authority under the cap.
Alternative scorekeeping rules could be considered that would treat
operating leases used for long-term needs in some other way to more
closely recognize the likely period of use. For example, scoring up
front the present value of lease payments for long-term needs covering
the same time period used to analyze ownership options would permit
direct competition between leases and purchases. The caps could be
adjusted appropriately to accommodate such a change.
Many believe that one unfortunate side effect of the structure of BEA
has been an incentive to create revenues that can be categorized as
’user fees“ and so offset discretionary spending”rather than be counted
on the PAYGO scorecard. The 1967 President‘s Commission on Budget
Concepts recommended that receipts from activities which were
essentially governmental in nature, including regulation and general
taxation, be reported as receipts, and that receipts from business-type
activities ’offset to the expenditures to which they relate.“ However,
these distinctions have been blurred in practice. Ambiguous
classifications combined with budget rules that make certain designs
most advantageous has led to a situation in which there is pressure to
treat fees from the public as offsets to appropriations under BEA caps,
regardless of whether the underlying federal activity is business or
governmental in nature. Consideration should be given to whether it is
possible to come up with and apply consistent standards”especially if
the discretionary caps are to be redesigned. The administration has
stated that it plans to monitor and review the classification of user
fees and other types of collections.
Extending and Refining PAYGO:
The PAYGO requirement prevented legislation that lowered revenue or
increased direct spending (e.g., by creating new mandatory programs)
from increasing the deficit by requiring that it be offset by other
legislative actions. As long as the unified budget was in deficit, the
provisions of PAYGO”and its application”were clear. During the nation‘s
few years of surpluses, questions were raised about whether the
prohibition on increasing the deficit also applied to reducing the
surplus. Although Congress and the executive branch both concluded that
PAYGO did apply in such a situation”and although the question is moot
currently, it would be worth clarifying the point if PAYGO is extended.
In its 2002 budget the administration proposed”albeit
implicitly”special treatment for a tax cut and for some Medicare
provisions. It stated that the President‘s tax plan and Medicare
reforms were fully financed by the surplus and that any other spending
or tax legislation would need to be offset by reductions in spending or
increases in receipts. Ultimately, the Department of Defense and
Emergency Supplemental Appropriations Act for 2002 eliminated the need
to offset any of the PAYGO legislation by resetting the 2001 and 2002
scorecard to zero.
When surpluses return and Congress looks to create a PAYGO process for a
time of surplus, it might wish to consider the kinds of debt targets we
found in other nations.[Footnote 36] For example, it might wish to
permit increased direct spending or lower revenues as long as debt held
by the public is planned to be reduced by some set percentage or dollar
amount. Such a provision might prevent PAYGO from becoming as
unrealistic as overly tight caps on discretionary spending. However,
the design of such a provision would be important”how would a debt
reduction requirement be specified? How would it be measured? What
should be the relationship between the amount of debt reduction
required and the amount of surplus reduction (i.e., tax cut or direct
spending increase) permitted? What, if any, relationship should there
be between this calculation and the discretionary caps?
While PAYGO constrained the creation or legislative expansion of direct
spending programs and tax cuts, it accepted the existing provisions of
law as given. It was not designed to trigger”and it did not trigger”any
examination of ’the base.“ Cost increases in existing mandatory programs
are exempt from control under PAYGO and could be ignored. However,
constraining legislative actions that increase the cost of entitlements
and mandatories is not enough. Our long-term budget simulations show
that as more and more of the baby boom generation enters retirement,
spending for Social Security, Medicare, and Medicaid will demand
correspondingly larger shares of federal revenues. Assuming, for
example, that last year‘s tax reductions are made permanent and
discretionary spending keeps pace with the economy, spending for net
interest, Social Security, Medicare, and Medicaid consumes nearly three-
quarters of federal revenues by 2030, leaving little room for other
federal priorities, including defense and education.
The budget process is the one place where we as a nation can conduct a
healthy debate about competing claims and new priorities. However, such
a debate will be needlessly constrained if only new proposals and
activities are on the table. A fundamental review of existing programs
and operations can create much-needed fiscal flexibility to address
emerging needs by weeding out programs that have proven to be outdated,
poorly targeted, or inefficient in their design and management. It is
always easier to subject proposals for new activities or programs to
greater scrutiny than that given to existing ones. It is easy to treat
existing activities as ’given“ and force new proposals to compete only
with each other. However, such an approach would move us further from,
rather than nearer to, budgetary surpluses.[Footnote 37]
Previously we suggested some sort of ’lookback“ procedure to at least
cause a reexamination of ’the base.“ Under such a process Congress could
specify spending targets for PAYGO programs for several years. The
President could be required to report in his budget whether these
targets either had been exceeded in the prior year or were likely to be
exceeded in the current or budget years. He could then be required to
recommend whether any or all of this overage should be recouped”and if
so, to propose a way to do so. Congress could be required to act on the
President‘s proposal.
While the current budget process contains a similar point of order
against worsening the financial condition of the Social Security trust
funds,[Footnote 38] it would be possible to link ’tripwires“ to
measures related to overall budgetary flexibility or to specific
program measures. For example, if Congress were concerned about
declining budgetary flexibility, it could design a ’tripwire“ tied to
the share of the budget devoted to mandatory spending or to the share
devoted to a major program.
Others have suggested variations of this type of ’tripwire“ approach.
The 1999 Breaux-Frist proposal (S. 1895) for structural and substantive
changes to Medicare financing contained a new concept for measuring
’programmatic insolvency“ and required congressional approval of
additional financing if that point was reached. Other specified actions
could be coupled with reaching a ’tripwire,“ such as requiring Congress
or the President to propose alternatives to address reforms. Or the
congressional budget process could be used to require Congress to deal
with unanticipated cost growth beyond a specified ’tripwire“ by
establishing a point of order against a budget resolution with a
spending path exceeding the specified amount. One example of a
threshold might be the percentage of gross domestic product devoted to
Medicare. The President would be brought into the process as it
progressed because changes to deal with the cost growth would require
enactment of a law.
Improving the Recognition of Long-Term Commitments:
In previous reports we have argued that the nation‘s economic future
depends in large part upon today‘s budget and investment decisions.
[Footnote 39] In fact, in recent years there has been increased
recognition of the long-term costs of Social Security and Medicare.
[Footnote 40]
While these are the largest and most important long-term commitments”
and the ones that drive the long-term outlook”they are not the only ones
in the budget. Even those programs too small to drive the long-term
outlook affect future budgetary flexibility. For Congress, the
President, and the public to make informed decisions about these other
programs, it is important to understand their long-term cost
implications.
While the budget was not designed to and does not provide complete
information on long-term cost implications stemming from some of the
government‘s commitments when they are made, progress can be made on
this front. The enactment of the Federal Credit Reform Act in 1990
represented a step toward improving both the recognition of long-term
costs and the ability to compare different policy tools. With this law,
Congress and the executive branch changed budgeting for loan and loan
guarantee programs. Prior to the act, loan guarantees looked ’free“ in
the budget. Direct loans looked like grant programs because the budget
ignored loan repayments. The shift to accrual budgeting for subsidy
costs permitted comparison of the costs of credit programs both to each
other and to spending programs in the budget.
Information should be more easily available to Congress and the
President about the long-term cost implications both of existing
programs and new proposals. In 1997 we reported that the current cash-
based budget generally provides incomplete information on the costs of
federal insurance programs.[Footnote 41] The ultimate costs to the
federal government may not be apparent up front because of time lags
between the extension of the insurance, the receipt of premiums, and
the payment of claims. While there are significant estimation and
implementation challenges, accrual-based budgeting has the potential to
improve budgetary information and incentives for these programs by
providing more accurate and timely recognition of the government‘s
costs and improving the information and incentives for managing
insurance costs. This concept was proposed in the Comprehensive Budget
Process and Reform Act of 1999 (H.R. 853), which would have shifted
budgetary treatment of federal insurance programs from a cash basis to
an accrual basis.
There are other commitments for which the cash and obligation-based
budget does not adequately represent the extent of the federal
government‘s commitment. Although detailed budget estimates cannot be
made for all programs with long-term cost implications, better
information on the long-term costs of commitments like employee pension
programs, retiree health benefits, and environmental cleanup could be
made available. The President‘s fiscal year 2003 budget took a step in
that direction by proposing that funding be included in agency budgets
for the accruing costs of pensions and retiree health care benefits.
While there are various analytical and implementation challenges to
including these costs into budget totals, more could be done to provide
information on the long-term cost implications of these programs to
Congress, the President, and the interested public. At your request, we
are continuing to address this issue.
Dealing with the Uncertainty of Projections:
Early last year, given 10-year projections showing fairly sizable
surpluses, the budget debate focused on how much of the surplus should
be used for tax cuts, debt reduction, and spending increases. By the
fall of 2001, for a variety of reasons, the debates of how to use the
surpluses had quickly turned to predictions of short-term deficits and
discussions of the defense and homeland security needs of the country
and the forms of government spending that should be used to help
improve the economy. This quick turnaround in the economic outlook
served to highlight the fact that although budgeting requires forecasts
and projections, they can be inexact even in the short term. As the
budgeting horizon expands, the certainty of error grows. When
establishing a new budget process, it makes sense to think about
including a mechanism to deal with the uncertainty of projections,
especially with the expectation of a return to surpluses.
Few forecasters would suggest that 10-year projections are anything but
that”projections of what the world would look like if it continued on a
line from today. And long-term simulations are useful to provide
insight as to direction and order of magnitude of certain trends”not as
forecasts. Nevertheless, baseline projections are necessary for
measuring and comparing proposed changes. Former CBO Director Rudy
Penner has suggested that 5-year and 10-year projections should be used
for different purposes: 5-year projections should once again be used
for the budget resolution horizon while 10-year projections should only
be used to identify the budgetary impact of tax and entitlement phase-
ins beyond the 5-year budget window. He adds that the forecasts would
not be used to plan comprehensibly for total spending, taxes, or the
budget balance beyond 5 years. It has been suggested that today the 10-
year window is most misleading since it ends just before the baby boom
bulge.
No 10-year projection is likely to be entirely correct; the question
confronting fiscal policymakers is how to deal with the risk that a
projection is materially wrong. Last year some commentators and members
of Congress suggested dealing with this risk by using triggers.
Triggers were part both of Gramm-Rudman-Hollings (GRH) and of BEA. The
GRH triggers were tied to deficit results and generally regarded as a
failure”they were evaded or, when deficits continued to exceed the
targets, the targets were changed. BEA triggers were tied to
congressional action rather than to deficit results, but were still
designed mainly to lower deficits until a balanced budget was attained
and did not contemplate the scenario of a surplus. Sequesters were
rarely triggered and when they were, they were very small. As deficits
turned to large surpluses and debate turned to the need for a tax cut,
the discussion of a different type of trigger mechanism emerged,
specifically, a trigger mechanism that would link the size of the tax
cut in future years to budget results in those years. However, there
could be other variations on a trigger: actual surplus results, actual
revenue results (this with the intent of avoiding a situation in which
spending increases can derail a tax cut), or actual debt results. Some
might wish to consider triggers that would cause decision makers to
make proposals to address fiscal results that exceed some specific
target, such as debt or spending as a share of GDP. However, there is
little consensus on the effectiveness of any triggers.
Former CBO Director Robert Reischauer has suggested another way of
dealing with the fact that forecasts/projections become less certain as
they go further out in time. Under his proposal, a declining percentage
of any projected surplus would be available”either for tax cuts or for
spending increases. Specifically, 80 percent of the surplus would be
available to legislators in years one and two, 70 percent in years
three and four, 60 percent in years five and six, until reaching the 40
percent level in years nine and ten. The consequence of not adhering to
these limits would be an across-the-board sequester. When a new
Congress convenes, it would be given a new budget allowance to spend
based on a new set of surplus projections.
Conclusion:
To affect decision making, the fiscal goals sought through a budget
process must be accepted as legitimate. For many years the goal of
’zero deficit“” or the norm of budget balance”was accepted as the right
goal for the budget process. In the absence of the zero deficit goal,
policymakers need an overall framework upon which a process and any
targets can be based. When the deficits turned to surpluses, there was
discussion of goals framed in terms of debt reduction or surpluses to
be saved. As difficult as selecting a fiscal goal in times of surplus
is, selecting one today may seem even more difficult. Congress and the
administration must balance the need to respond not only to those
demands that existed last year”demands kept in abeyance during many
years of fighting deficits”but also demands imposed on us by the events
of September 11. At the same time”in part because of the demographic
tidal wave looming over the horizon”the events of September 11 do not
argue for abandonment of all controls.
Whatever interim targets Congress and the President agree on, compliance
with budget process rules, in both form and spirit, is more likely if
end goals, interim targets, and enforcement boundaries are both
accepted and realistic.
Enforcement is more successful when it is tied to actions controlled by
Congress and the President. Both BEA spending caps and the PAYGO
enforcement rules were designed to hold Congress and the President
accountable for the costs of the laws enacted each session”not for costs
that could be attributed to economic changes or other factors.
Going forward, new rules and goals will be important to ensure fiscal
discipline and to prompt a focus on the longer-term implications of
decisions. The federal government still needs a decision-making
framework that permits it to evaluate choices against both today‘s needs
and the longer-term fiscal future that will be handed to future
generations. What process will enable policymakers to deal with the
near term without ignoring the long term? At the same time, the
challenges for any budget process are the same: what process will
enable policymakers to make informed decisions about both fiscal policy
and the allocation of resources within the budget?
Extending the current BEA without setting realistic caps and addressing
existing mandatory programs is unlikely to be successful for the long
term. The original BEA employed limited actions in aiming for a
balanced budget. It left untouched those programs”direct spending and
tax legislation”already in existence.
Today‘s situation may argue for an interim step in extending and
modifying BEA. However, going forward with new challenges, we believe
that a new process that prompts Congress to exercise more foresight in
dealing with long-term issues is needed. The budget process appropriate
for the early 21st Century will have to exist as part of a broader
framework for thinking about near- and long-term fiscal goals.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Christine E. Bonham, (202) 512-9576:
Acknowledgments:
In addition to the person named above, Brendan Culley, Carlos E. Diz,
Jennifer A. Eichberger, and David S. Nicholson made key contributions to
this report.
[End of section]
Footnotes:
[1] The Balanced Budget and Emergency Deficit Control Act of 1985 as
amended by the Budget Enforcement Act of 1990 (BEA), the Omnibus Budget
Reconciliation Act of 1993 (OBRA 93), and the Budget Enforcement Act of
1997 (BEA-97). In addition to being known as DCA, it is sometimes
called Gramm-Rudman-Hollings or GRH. It is also referred to as BEA
since that legislation amended GRH in 1990 by adding the current
discretionary spending caps and PAYGO procedures.
[2] Although CBO issued scorekeeping reports on 47 PAYGO bills enacted
during this session of Congress, OMB no longer issues PAYGO
scorekeeping reports for legislation where OMB and CBO estimate zero or
negligible budgetary impact.
[3] CBO estimates $663 million more in spending for this provision (and
this legislation) over the period 2002 through 2006, but for purposes
of assessing cost estimate differences between CBO and OMB, the scoring
reports show estimates over the 6-year period, 2001 through 2006.
[4] This is a general, not comprehensive, description of the provisions
found in Titles I, II, and V of P.L. 107-16.
[5] U.S. General Accounting Office, Budget Process: Extending Budget
Controls, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-682T]
(Washington, D.C.: Apr. 25, 2002).
[6] DCA was amended by the Budget Enforcement Act of 1990 (BEA), the
Omnibus Budget Reconciliation Act of 1993 (OBRA 93), and the Budget
Enforcement Act of 1997 (BEA-97). In addition to being known as DCA, it
is sometimes called Gramm-Rudman-Hollings or GRH. It is also referred
to as BEA since that legislation amended GRH in 1990 by adding the
current discretionary spending caps and PAYGO procedures.
[7] DCA requires that the aggregate effect of new legislation that
increases direct spending or decreases receipts be deficit neutral
(that is, not increase the deficit). Such legislation is often referred
to as PAYGO legislation. OMB and CBO have interpreted the PAYGO
requirement as applying to surpluses as well; the aggregate effect of
new legislation must not decrease the surplus.
[8] Direct spending (commonly referred to as mandatory spending) means
entitlement authority, the food stamp program, and any budget authority
provided by laws other than appropriation acts.
[9] Sequestration is the cancellation of budgetary resources.
[10] CBO refers to the spending category that encompasses all other
discretionary spending as Overall Discretionary while OMB refers to it
as Other Discretionary.
[11] Title VIII of TEA-21 (P.L. 105-178, enacted June 9, 1998) amended
DCA to add these two new caps. These caps continue for 2003 even though
DCA caps only exist through 2002.
[12] If actual and estimated tax receipts exceed the levels assumed in
TEA-21, the spending limits are increased. If the receipts are below
the levels assumed, the spending limits are revised downward.
[13] This adjustment applies to the six subcategories as well.
[14] CBO made this adjustment in its 2003 sequestration preview report.
[15] The Departments of Veterans Affairs and Housing and Urban
Development, and Independent Agencies Appropriations Act, 2002 (P.L.107-
73).
[16] Department of Defense and Emergency Supplemental Appropriations
Act for Recovery from and Response to Terrorist Attacks on the United
States, Public Law 107-117, Division C, section 102, 115 STAT. 2230,
2342 (2002).
[17] OMB announced in its 2000 sequestration preview report that it was
no longer issuing PAYGO reports on legislation where OMB and CBO
estimate zero or negligible budget impact, i.e., less than $500,000.
During the first session of the 107th Congress, OMB issued 21 PAYGO
reports. CBO issued 23 reports for legislation estimated to have
impacts greater than $500,000. For two laws that did not provide new
funding but merely changed the timing or purpose of expenditures, CBO
issued PAYGO reports while OMB did not.
[18] The breakdown for this law is provided over a 6-year period,
showing a net difference of $470 million between CBO and OMB estimates.
Over the 5-year period, 2002-2006, the differences net to $663 million,
so GAO considers it significant. A 6-year period is shown because there
is a significant difference in estimates in 2001.
[19] Both OMB and CBO revised their estimated totals to $5,400 million
as a result of revised fatality estimates available in December 2001.
[20] Although the Overall Discretionary spending caps expire in 2002,
the Highway and Mass Transit outlay caps established under the
Transportation Equity Act for the 21st Century (TEA-21) continue
through 2003, and the Conservation caps established as part of the
fiscal year 2001 Interior Appropriations Act were set through 2006. In
addition, the sequestration procedure applies through 2006 to eliminate
any projected net costs stemming from PAYGO legislation enacted through
fiscal year 2002.
[21] For more on history see U.S. General Accounting Office, Budget
Process: Evolution and Challenges, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/T-AIMD-96-129] (Washington, D.C.: July 11, 1996).
[22] The exception was fiscal year 1991, in which most of the large
adjustment was funding for Operation Desert Storm.
[23] See U.S. General Accounting Office, Budget Issues: Budget
Enforcement Compliance Report, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-99-100] (Washington, D.C.: Apr. 1, 1999); U.S.
General Accounting Office, Budget Issues: Budget Enforcement Compliance
Report, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-174]
(Washington, D.C.: May 31, 2000); and [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-01-777].
[24] Additional information on issues related to emergency spending can
be found in Congressional Budget Office report Emergency Spending Under
the Budget Enforcement Act, (Washington, D.C.: Dec. 1998); the update
to that report issued in June 1999; the Congressional Budget Office
report Supplemental Appropriations in the 1990s (Washington, D.C.:
March 2001); and the U.S. General Accounting Office reports Budgeting
for Emergencies: State Practices and Federal Implications, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-250] (Washington, D.C.:
Sept. 30, 1999), and Emergency Criteria: How Five States Budget for
Uncertainty, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-
156R] (Washington, D.C.: Apr. 20, 1999).
[25] Department of Defense and Emergency Supplemental Appropriations
Act for Recovery from and Response to Terrorist Attacks on the United
States, Public Law 107-117, Division C, section 101(a), 115 STAT. 2230,
2341-2342 (2002).
[26] Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2002-2011 (Washington, D.C.: January 2001).
[27] Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2001-2010 (Washington, D.C.: January 2000).
[28] For a fuller discussion of these criteria see [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-96-129], U.S. General
Accounting Office, Budget Process: History and Future Directions,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-95-214]
(Washington, D.C.: July 13, 1995), and U.S. General Accounting Office,
Budget Process: Comments on H.R. 853, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-99-188] (Washington, D.C:
May 12, 1999).
[29] See U.S. General Accounting Office, Homeland Security: Challenges
and Strategies in Addressing Short- and Long-Term National Needs,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-160T] (Washington,
D.C.: Nov. 7, 2001); U.S. General Accounting Office, Congressional
Oversight: Opportunities to Address Risks, Reduce Costs, and Improve
Performance, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-
00-96] (Washington, D.C.: Feb. 17, 2000); and U.S. General Accounting
Office, Budget Issues: Effective Oversight and Budget Discipline are
Essential”Even in a Time of Surplus, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/T-AIMD-00-73] (Washington, D.C.: Feb. 1, 2000).
[30] House and Senate Budget Committees, Revised Budgetary Outlook and
Principles for Economic Stimulus (Oct. 4, 2001).
[31] U.S. General Accounting Office, Budget Issues: Long-Term Fiscal
Challenges, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-467T]
(Washington, D.C.: Feb. 27, 2002) and U.S. General Accounting Office,
Long-Term Budget Issues: Moving From Balancing the Budget to Balancing
Fiscal Risk, GAO-01-385T (Washington, D.C.: Feb. 6, 2001).
[32] U.S. General Accounting Office, Budget Structure: Providing an
Investment Focus in the Federal Budget, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-95-178] (Washington, D.C.:
June 29, 1995) and [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-
AIMD-96-129].
[33] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-174]
and U.S. General Accounting Office, Budget Issues: Budget Enforcement
Compliance Report, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-
777] (Washington, D.C.: June 15, 2001).
[34] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-250].
[35] U.S. General Accounting Office, Budget Issues: Budget Scorekeeping
for Acquisition of Federal Buildings, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-94-189] (Washington, D.C.:
Sept. 20, 1994).
[36] See U.S. General Accounting Office, Budget Surpluses: Experiences
of Other Nations and Implications for the United States, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-23] (Washington, D.C.:
Nov. 2, 1999).
[37] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-467T].
[38] 2 U.S.C. 632 (i), and U.S. General Accounting Office, Medicare
Reform: Issues Associated With General Revenue Financing, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-126] (Washington, D.C.:
Mar. 27, 2000).
[39] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-96-
129] and U.S. General Accounting Office, The Deficit and the Economy:
An Update of Long-Term Simulations, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD/OCE-95-119] (Washington, D.C.: Apr. 26, 1995),
among others.
[40] Office of Management and Budget, Budget of the United States
Government, Fiscal Year 2002 (Washington, D.C: Apr. 9, 2001); CBO, The
Budget and Economic Outlook: Fiscal Years 2002-2011; U.S. General
Accounting Office, Medicare: Higher Expected Spending and Call for New
Benefit Underscore Need for Meaningful Reform, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-01-539T] (Washington, D.C.: Mar.
22, 2001); and [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-
385T].
[41] U.S. General Accounting Office, Budget Issues: Budgeting for
Federal Insurance Programs, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-97-16] (Washington, D.C.: Sept. 30, 1997).
[End of section]
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