    [Analytical Perspectives]
    [Budget Enforcement Act Preview Report]
    [12. Preview Report]
    [From the U.S. Government Printing Office, www.gpo.gov]

    ========================================================================

                             BUDGET ENFORCEMENT ACT

                                 PREVIEW REPORT

    ========================================================================

    [[Page 201]]

                               12.  PREVIEW REPORT

       The Budget Enforcement Act of 1990 (BEA) contains procedures designed
    to enforce the deficit reduction agreement of the Omnibus Budget
    Reconciliation Act of 1990. For 1991 through 1995, the BEA limited
    discretionary spending and established a ``pay-as-you-go'' requirement
    that legislation changing direct spending and receipts must, in total,
    be at least deficit neutral. These provisions were extended through 1998
    by the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), which
    became law on August 10, 1993. The Administration will propose to extend
    the BEA again, through the year 2002, and make other amendments to the
    BEA requirements. (See ``Proposals to Extend and Amend the BEA and Other
    Reforms to Strengthen the Budget Process'' below.)
       This Preview Report discusses the status of discretionary
    appropriations and pay-as-you-go legislation based on laws enacted as of
    March 1, 1996. In addition, it explains the differences between the OMB
    and CBO estimates of the discretionary caps.
       The OMB estimates use the economic and technical assumptions
    underlying the President's budget submission, as required by the BEA.
    The OMB Update Report that will be issued in August, and the Final
    Report that will be issued after the end of the Congressional session,
    must also use these economic and technical assumptions. Estimates in the
    Update Report and the Final Report will only be revised to reflect laws
    enacted after the Preview Report.
                        Discretionary Sequestration Report
       Discretionary programs are, in general, those that have their program
    levels established annually through the appropriations process. The
    scorekeeping guidelines accompanying the BEA identify accounts with
    discretionary resources. The BEA, as amended, limits budget authority
    and outlays available for discretionary programs each year through 1998.
    Appropriations that cause either the budget authority or outlay limits
    to be exceeded will trigger a sequester to eliminate any such breach.
       Adjustments to the limits.--The BEA permits certain adjustments to
    the discretionary limits--also known as caps. On January 18, 1996, the
    Office of Management and Budget submitted the Final Sequestration Report
    for 1996 required by the BEA. This report described adjustments
    permitted by the BEA as of the time the report was issued. The caps
    resulting from these adjustments are the starting points for this
    Preview Report. Included in this report are cap adjustments for
    differences between current and previous estimates of inflation, changes
    in concepts and definitions, and estimates of emergency spending. Table
    12-1 is a summary of all changes to the 1991 through 1998 caps
    originally enacted in law. Table 12-2 shows the impact on the caps of
    adjustments being made in this Preview Report. Table 12-2 displays both
    the General Purpose Discretionary Spending caps and the Violent Crime
    Reduction Trust Fund caps established by Public Law 103-322, the Violent
    Crime Control and Law Enforcement Act of 1994.

                                                                    TABLE 12-1.  SUMMARY OF CHANGES TO DISCRETIONARY SPENDING LIMITS
                                                                                         (In billions of dollars
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             1991    1992    1993    1994    1995    1996    1997    1998    1991-98
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                          TOTAL DISCRETIONARY

    Statutory Caps as set in OBRA 1990 and OBRA 1993..............................................  BA                       491.7   503.4   511.5   510.8   517.7   519.1   528.1   530.6   4,113.0
                                                                                                    OL                       514.4   524.9   534.0   534.8   540.8   547.3   547.3   547.9   4,291.4
    Adjustments for changes in concepts and definitions...........................................  BA                      ......     7.7     8.2     8.2     8.8    -0.6    -0.4    -0.5      31.4
                                                                                                    OL                      ......     1.0     2.4     0.6     1.0    -2.9    -2.6    -2.7      -3.1
    Adjustments for changes in inflation..........................................................  BA                      ......    -0.5    -5.1    -9.5   -11.8     1.0     2.6     4.2     -19.1
                                                                                                    OL                      ......    -0.3    -2.5    -5.8    -8.8     0.6     1.8     3.2     -11.6
    Adjustments for credit reestimates, IRS funding, debt forgiveness, and IMF....................  BA                         0.2     0.2    13.0     0.6     0.7     0.1     0.1     0.1      14.8
                                                                                                    OL                         0.3     0.3     0.8     0.8     0.9     0.0     0.0     0.1       3.3
    Adjustments for emergency requirements........................................................  BA                         0.9     8.3     4.6    12.2     7.7     3.4  ......  ......      37.2
                                                                                                    OL                         1.1     1.8     5.4     9.0    10.1     5.4     3.9     1.4      38.0
    Adjustment pursuant to Sec. 2003 of P.L. 104-19\1\............................................  BA                      ......  ......  ......  ......   -15.0    -0.1    -0.1  ......     -15.1
                                                                                                    OL                      ......  ......  ......  ......    -1.1    -3.5    -2.4    -1.5      -8.5
    Adjustments for special allowances:
      Discretionary new budget authority..........................................................  BA                      ......     3.5     2.9     2.9     2.9  ......  ......  ......      12.1
                                                                                                    OL                      ......     1.4     2.2     2.6     2.7     1.1     0.5     0.1      10.7
       Outlay allowance...........................................................................  BA                      ......  ......  ......  ......  ......  ......  ......  ......  ........
                                                                                                    OL                         2.6     1.7     0.5     1.0  ......  ......  ......  ......       5.7
                                                                                                                           -------------------------------------------------------------------------
         Subtotal, adjustments excluding Desert Shield/Desert Storm...............................  BA                         1.1    19.2    23.6    14.3    -6.7     3.8     2.2     3.7      61.3
                                                                                                    OL                         3.9     5.9     8.8     8.3     4.8     0.8     1.3     0.6      34.5
    Adjustments for Operation Desert Shield/Desert Storm..........................................  BA                        44.2    14.0     0.6       *       *  ......  ......  ......      58.8
                                                                                                    OL                        33.3    14.9     7.6     2.8     1.1  ......  ......  ......      59.6
                                                                                                                           -------------------------------------------------------------------------
    Total adjustments.............................................................................  BA                        45.4    33.2    24.2    14.3    -6.7     3.8     2.2     3.7     135.3
                                                                                                    OL                        37.2    20.8    16.4    11.1     5.9     0.8     1.3     0.6     102.5
                                                                                                                           -------------------------------------------------------------------------
    Preview Report spending limits\2\.............................................................  BA                       537.1   536.6   535.7   525.1   511.0   523.0   530.3   534.4   4,233.2
                                                                                                    OL                       551.6   545.7   550.4   545.9   546.7   548.0   548.7   548.5   4,385.4
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    AAALess than $50 million.

    \1\P.L. 104-19, Emergency Supplemental Appropriations for Additional Disaster Assistance, for Anti-Terrorism Initiatives, for Assistance in the Recovery from the Tragedy that Occurred at
      Oklahoma City, and Rescissions Act, 1995, was signed into law on July 27, 1995. Section 2003 of that bill directed the Director of OMB to make a downward adjustment in the discretionary
      spending limits for FYs 1995-1998 by the aggregate amount of the estimated reductions in new budget authority and outlays for discretionary programs resulting from the provisions of the
      bill, other than emergencies appropriations.

    \2\Reflects combined General Purpose Discretionary and Violent Crime Reduction Trust Fund Discretionary spending limits. For 1996-1998 Statutory limits, see footnote 2 in Table 12-2.

       OBRA 1993 extended the original discretionary caps through 1998 and
    it also requires OMB to adjust these caps for differences between the
    inflation estimates contained in the House Conference Report on the 1994
    Budget Resolution and those that are assumed in the President's Budget.
    The inflation estimates in the 1997 Budget are lower than those
    contained in the 1996 Budget and are computed on a different basis.
    Consistent with the new approach adopted by the Bureau of Economic
    Analysis this year (and followed by the Congressional Budget Office) for
    measuring inflation and real growth in the Gross Domestic Product (GDP),
    the inflation measure used to adjust the discretionary caps is on a
    chain-weighted rather than fixed-weighted basis.
       Because of this shift in measurement method, the inflation estimates
    in the economic assumptions for the 1996 Budget were, first, restated to
    a chain-weighted basis. Then, the difference between the restated 1996
    Budget inflation estimates and the comparable estimates for the 1997
    Budget were compared to produce the necessary inflation adjustment to
    the discretionary caps. The restated 1996 Budget inflation estimates for
    1996, 1997, and 1998 are 3.1 percent, 3.2 percent, and 3.3 percent,
    respectively. For the 1997 Budget, the comparable inflation estimates
    are 2.7 percent a year for 1996 through 1998. Thus, inflation estimates
    are lower in 1996, 1997, and 1998 by 0.4 percent, 0.5 percent, and 0.5
    percent, respectively. Adjusting the caps for these changes in inflation
    estimates reduces budget authority by $2.0 billion in 1996, $4.7 billion
    in 1997, and $7.3 billion in 1998. The estimated spendout of these
    reductions in budget authority reduces the outlays by $1.2 billion in
    1996, $3.3 billion in 1997, and $5.7 billion in 1998.
       Several cap adjustments represent changes in concepts and definitions
    resulting from legislative action that reclassified certain programs.
    These actions shifted programs between the mandatory (i.e., direct
    spending) category and the discretionary category. For instance, several
    1996 appropriations bills included provisions that modified mandatory
    programs. Since funding controlled by appropriations action is
    considered discretionary, the effects of these provisions are recorded
    as adjustments to the caps. The caps were also adjusted to reflect the
    proper classification of the National Service Trust Fund account under
    current law.
    [[Page 202]]
       Another adjustment is for certain programs in the Department of
    Transportation's Federal-aid highways account. Some Federal-aid highways
    programs are not subject to the obligation limitation imposed by the
    Appropriations Committee and, therefore, are not controllable through
    the annual appropriations process. The budget authority for these
    programs was already classified as mandatory. Outlays for programs that
    are exempt from obligation limitation are reclassified as mandatory.
    Adjustments are shown for 1994 through 1998 to provide a comparable
    basis for consideration of highway programs that are exempt from
    Appropriations Committee control.
       Other adjustments to the limits.--The BEA identifies other
    adjustments to the discretionary caps that can be made only after
    legislation has been enacted. For example, spending that is designated
    as emergency requirements by the President and Congress will result in
    adjustments to the caps. On February 21, 1996, the President submitted a
    1996 supplemental request for $620 million for Department of Defense
    operations associated with the NATO-led Bosnia Peace Implementation
    Force (IFOR) and Operation Deny Flight, and $200 million for civilian
    implementation of the Dayton Peace Accords. Table 12-2 displays
    estimated adjustments for these emergency appropriations. The actual
    adjustments to the discretionary caps to be included in the final
    sequestration report at the end of the current session of Congress
    cannot be determined until appropriations have been enacted.
       The Administration proposes to shift funding for the prevention of
    Medicare fraud and abuse from discretionary spending for this purpose in
    the Department of Health and Human Services and in the Justice
    Department to mandatory spending. The discretionary caps and baseline
    would be adjusted consistent with this shift.
       Table 12-2 also displays proposed adjustments to the caps to reflect
    the President's proposals to amend the BEA to reduce allowable
    discretionary spending. From 1996 through 1998, these adjustments reduce
    total budget authority by $79.3 billion and total outlays by $22.6
    billion. The President will also propose to extend the discretionary
    caps through 2002. The extended caps are displayed in Table 12-3. This
    table also compares the President's discretionary proposals to the
    proposed caps. If the President's proposed cap reductions are enacted,
    the caps and discretionary spending proposed by the President will be
    equal.
    [[Page 203]]
                                                                               TABLE 12-2.  DISCRETIONARY SPENDING LIMITS
                                                                                        (In millions of dollars)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             1994        1995        1996        1997        1998
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                         General Purpose Discretionary

    Total General Purpose Discretionary spending limits, January 18, 1996 Final Sequestration Report.......  BA                              525,146     508,546     520,713     529,845     536,087
                                                                                                             OL                              547,559     547,930     549,276     549,955     551,147
      Adjustments:
        Inflation..........................................................................................  BA                           ..........  ..........      -2,037      -4,656      -7,316
                                                                                                             OL                           ..........  ..........      -1,222      -3,303      -5,717
        Changes in concepts and definitions:
           Statutory and other shifts between categories...................................................  BA                           ..........  ..........  ..........         117          86
                                                                                                             OL                           ..........         -88         -61         211          17
          Transportation programs exempt from Appropriations Committee control.............................  BA                           ..........  ..........  ..........  ..........  ..........
                                                                                                             OL                               -1,708      -1,848      -2,302      -2,121      -1,860
        Contingent emergency appropriations release........................................................  BA                           ..........  ..........          17  ..........  ..........
                                                                                                             OL                           ..........  ..........          13           3           *
                                                                                                                                         -----------------------------------------------------------
          Subtotal, adjustments for the Preview Report.....................................................  BA                           ..........  ..........      -2,020      -4,539      -7,230
                                                                                                             OL                               -1,708      -1,936      -3,572      -5,210      -7,560
                                                                                                                                         -----------------------------------------------------------
    Preview Report General Purpose Discretionary limits\1\.................................................  BA                              525,146     508,546     518,693     525,306     528,857
                                                                                                             OL                              545,850     545,994     545,704     544,745     543,588
    Adjustments to Reflect Budget Reconciliation:
      Combating Medicare fraud and abuse (reclassification of discretionary to mandatory spending).........  BA                           ..........  ..........        -477        -476        -475
                                                                                                             OL                           ..........  ..........        -467        -472        -474
      Reduce discretionary limits to reflect President's proposals.........................................  BA                           ..........  ..........     -23,395     -28,559     -27,350
                                                                                                             OL                           ..........  ..........      -6,837      -6,328      -9,429
                                                                                                                                         -----------------------------------------------------------
    Revised Budget Enforcement Act Discretionary Limits....................................................  BA                              525,146     508,546     494,821     496,271     501,032
                                                                                                             OL                              545,850     545,994     538,400     537,945     533,685
                                                                                                                                         -----------------------------------------------------------
    Adjustments Under the Revised Budget Enforcement Act for Appropriations Committee Action:
      Emergency supplemental appropriations................................................................  BA                           ..........  ..........         821  ..........  ..........
                                                                                                             OL                           ..........  ..........         566         208          30
      Funding to Implement Welfare Reform Provisions.......................................................  BA                           ..........  ..........         110         510         475
                                                                                                             OL                           ..........  ..........         103         486         478
                                                                                                                                         -----------------------------------------------------------
    General Purpose Discretionary Spending Limits Including Further Adjustments............................  BA                              525,146     508,546     495,752     496,781     501,507
                                                                                                             OL                              545,850     545,994     539,069     538,639     534,193
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                Violent Crime Reduction Trust Fund Discretionary

    Total Violent Crime Reduction Trust Fund Discretionary spending limits, January 18, 1996 Final
     Sequestration Report..................................................................................  BA                           ..........       2,423       4,287       5,000       5,500
                                                                                                             OL                           ..........         703       2,334       3,936       4,904
    Preview Report Violent Crime Reduction Trust Fund Discretionary spending limits........................  BA                           ..........       2,423       4,287       5,000       5,500
                                                                                                             OL                           ..........         703       2,334       3,936       4,904
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Combined General Purpose and Violent Crime Reduction Trust Fund Discretionary spending limits..........  BA                              525,146     510,969     500,039     501,781     507,007
                                                                                                             OL                              545,850     546,697     541,403     542,575    539,097
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    AAA*Less than $500 thousand.

    \1\The discretionary spending limits shown in this table represent what the limits would be if the inflation adjustments and changes in concepts and definitions were made on a consistent
      basis. The reclassification of transportation programs and the changes in estimates of inflation would impact the 1996 discretionary spending limits as shown above if such adjustments were
      permitted under statute. However, the statutory adjustments can only be applied to the 1997 and 1998 limits. The statutory General Purpose Discretionary spending limits for 1996 through 1998
      are as follows (in millions of dollars):

                                                1996       1997       1998

      Budget authority.....................    520,730    525,306    528,857
      Outlays..............................    549,289    545,254    543,750

    [[Page 204]]
       The Administration also has proposed to adjust the caps for increases
    in discretionary spending by the Social Security Administration that
    will be necessary to implement the Administration's welfare reform
    proposals. The savings in mandatory spending--benefit payments--are
    expected to more than offset the increase in discretionary spending.
    Table 12-2 displays estimated adjustments for appropriations. The actual
    adjustments to the discretionary caps to be included in the final
    sequester report at the end of the current session of Congress cannot be
    determined until appropriations have been enacted.
       Sequester determinations.--Five days after enactment of an
    appropriations act, OMB must submit a report to Congress estimating the
    budget authority and outlays provided by the legislation for the current
    year and the budget year. These estimates must be based on the same
    economic and technical assumptions used in the most recent President's
    budget. In addition, the report must include CBO estimates and explain
    the differences between the OMB and CBO estimates. The OMB estimates are
    used in all subsequent calculations to determine whether a breach of any
    of the budget authority or outlay caps has occurred, and whether a
    sequester is required.
       Compliance with the discretionary caps is monitored throughout the
    fiscal year. The first determination of whether a sequester is necessary
    for a given fiscal year occurs when OMB issues its Final Sequestration
    Report after Congress adjourns to end a session--near the beginning of
    the fiscal year. The monitoring process begins again after Congress
    reconvenes for a new session. Appropriations for the fiscal year in
    progress that cause a breach in the caps would, if enacted before July
    1st, trigger a sequester. When such a breach is estimated, a ``within-
    session'' sequestration report and Presidential sequestration order are
    issued. For a breach that results from appropriations enacted on or
    after July 1st, reductions necessary to eliminate the breach are not
    applied to the budgetary resources available in the current year.
    Instead, the corresponding caps for the following fiscal year are
    reduced by the amount of the breach. A within-session sequester can only
    be caused by newly enacted appropriations. Reestimates of budget
    authority and outlays for already enacted funds cannot trigger a
    sequester.
       OMB reported in its most recent Final Sequestration Report to the
    President and the Congress that discretionary appropriations enacted for
    1996 were within the prescribed spending limits. Since that time, the
    President has signed the 1996 Foreign Operations Appropriations bill and
    the Ninth Continuing Resolution. Given the constraint on discretionary
    spending imposed by the Congressional Budget Resolution for 1996,
    neither OMB or CBO anticipate that subsequent appropriations for 1996
    will cause a sequester.

                                                                                      TABLE 12-3.  BUDGET PROPOSALS
                                                                                        (In millions of dollars)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            1996       1997       1998       1999       2000       2001       2002
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                           General Purpose Discretionary Spending

     Estimated Limits...................................................................  BA                               495,752    496,781    501,507  .........  .........  .........  .........
                                                                                          OL                               539,069    538,639    534,193  .........  .........  .........  .........
     President's General Purpose Discretionary Proposals................................  BA                               495,752    496,781    501,507  .........  .........  .........  .........
                                                                                          OL                               539,069    538,639    534,193  .........  .........  .........  .........
    President's Proposals Compared to the General Purpose Discretionary Limits..........  BA                             .........  .........  .........  .........  .........  .........  .........
                                                                                          OL                             .........  .........  .........  .........  .........  .........  .........
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                         Violent Crime Reduction Trust Fund Spending

     Estimated Limits...................................................................  BA                                 4,287      5,000      5,500  .........  .........  .........  .........
                                                                                          OL                                 2,334      3,936      4,904  .........  .........  .........  .........
    President's Violent Crime Reduction Trust Fund (VCRTF) Proposals....................  BA                                 4,081      5,000      5,500  .........  .........  .........  .........
                                                                                          OL                                 2,118      3,661      4,904  .........  .........  .........  .........
    President's Proposals Compared to the Violent Crime Reduction Limits................  BA                                  -206  .........  .........  .........  .........  .........  .........
                                                                                          OL                                  -216       -275  .........  .........  .........  .........  .........
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                Total Discretionary Spending

     Estimated Limits...................................................................  BA                               500,039    501,781    507,007    511,066    516,098    511,727    514,672
                                                                                          OL                               541,403    542,575    539,097    535,693    536,821    526,563    527,097
     Fiscal Dividend....................................................................  BA                             .........  .........  .........  .........  .........     34,341     55,282
                                                                                          OL                             .........  .........  .........  .........  .........     21,663     45,763
    Adjusted Estimated Limits...........................................................  BA                               500,039    501,781    507,007    511,066    516,098    546,068    569,954
                                                                                          OL                               541,403    542,575    539,097    535,693    536,821    548,226    572,860
    President's Discretionary Proposals.................................................  BA                               499,833    501,781    507,007    511,066    516,098    546,068    569,954
                                                                                          OL                               541,187    542,300    539,097    535,693    536,821    548,226    572,860
    President's Discretionary Proposals Compared to the Adjusted Discretionary Limits...  BA                                  -206  .........  .........  .........  .........  .........  .........
                                                                                          OL                                  -216       -275  .........  .........  .........  .........  .........
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    [[Page 205]]
                          TABLE 12-4.  COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   1996         1997         1998
    ----------------------------------------------------------------------------------------------------------------
                          General Purpose Discretionary

    CBO Preview Report limits:\1\
      BA.....................................................................      520,730      525,145      528,303
      OL.....................................................................      549,284      544,822      543,308

    OMB Preview Report statutory limits:
      BA.....................................................................      520,730      525,306      528,857
      OL.....................................................................      549,289      545,254      543,750

    Difference:
      BA.....................................................................  ...........         -161         -554
      OL.....................................................................           -5         -432         -442
    ----------------------------------------------------------------------------------------------------------------

                Violent Crime Reduction Trust Fund Discretionary:

    CBO Preview Report limits:\1\
      BA.....................................................................        4,287        5,000        5,500
      OL.....................................................................        2,334        3,936        4,904

    OMB Preview Report statutory limits:
      BA.....................................................................        4,287        5,000        5,500
      OL.....................................................................        2,334        3,936        4,904

    Difference:
      BA.....................................................................  ...........  ...........  ...........
      OL.....................................................................  ...........  ...........  ...........
    ----------------------------------------------------------------------------------------------------------------
    \1\CBO Preview Report limit estimates are preliminary.

       Sequester calculations.--If either the discretionary budget authority
    or outlay caps are exceeded, an across-the-board reduction of
    sequestrable budgetary resources would be required to eliminate the
    breach. The percentage reduction for certain special-rule programs would
    be limited to 2 percent. Once this limit is reached, the uniform
    percentage reduction for all other discretionary sequestrable resources
    would be increased to a level sufficient to achieve the required
    reduction. If both the budget authority and outlay caps are exceeded, a
    sequester would first be calculated to eliminate the budget authority
    breach. If estimated outlays still remained above the cap, even after
    applying the available outlay allowance, further reductions in budgetary
    resources to eliminate the outlay breach would then be required.
       Comparison between OMB and CBO discretionary limits.--Section
    254(d)(5) of the BEA requires an explanation of differences between OMB
    and CBO estimates for the discretionary spending limits. Table 12-4
    compares OMB and CBO limits for 1996 through 1998. Differences for 1996
    through 1998 are due primarily to the difference in forecast inflation
    and spendout rate differences for other adjustments to the caps.
                       Pay-As-You-Go Sequestration Report
       This section of the Preview Report discusses the enforcement
    procedures that apply to direct spending and receipts. The BEA defines
    direct spending as budget authority provided by law other than
    appropriations acts, entitlement authority, and the food stamp program.
    Social Security and the Postal Service are not subject to pay-as-you-go
    enforcement. Legislation specifically designated as an emergency
    requirement and legislation fully funding the Government's commitment to
    protect insured deposits are also exempt from pay-as-you-go enforcement.
       Current law requires that direct spending and receipts legislation
    should not increase the deficit in any year through 1998. If it does,
    and if it is not fully offset by other legislative savings, the increase
    must be offset by sequestration of direct spending programs. Net savings
    enacted for one fiscal year can be used to offset net increases in the
    subsequent year. The tables entitled Summary of Budget Proposals,
    Estimates of Mandatory Budget Proposals by Program, and Effect of
    Proposals on Receipts in the Summary Tables chapter of the Budget
    demonstrate that the President's budget meets the PAYGO requirement.
       Sequester determinations.--Within five days after enactment of direct
    spending or receipts legislation, OMB is required to submit a report to
    Congress estimating the change in outlays or receipts for each fiscal
    year through 1998 resulting from that legislation. The estimates must
    use the economic and technical assumptions underlying the most recent
    President's budget. These OMB estimates are used to determine whether
    the pay-as-you-go requirements have been met.
       The cumulative nature of the pay-as-you-go process requires
    maintaining a ``scorecard'' that shows, beginning with the 102nd
    Congress, the deficit impact of enacted direct spending and receipts
    legislation and required pay-as-you-go sequesters. The pay-as-you-go
    Preview Report is intended to show how these past actions affect the
    upcoming fiscal year.
       As of March 1, 1996, OMB had issued 308 reports on legislation
    affecting direct spending and receipts. Most of these (82 percent)
    either had no effect on the deficit or changed it by less than $10
    million in each year. Less than ten percent of the pay-as-you-go
    [[Page 206]]
    legislation had a deficit impact greater than $50 million in any one
    year.
       Table 12-5 shows OMB estimates for legislation enacted through March
    1, 1996. In total, pay-as-you-go legislation enacted to date has
    increased the combined 1996 and 1997 deficits by $2.4 billion. As
    required by Section 254 (d)(3)(c) of the Budget Enforcement Act, if
    legislation offsetting this increase is not enacted, a sequester of
    certain direct spending programs is required. This report projects a
    sequester of 1.1 percent of mandatory spending would be required to
    eliminate this increase. Any such sequester would take place after OMB's
    final sequester report for 1997 is issued. Table 12-6 shows the amounts
    that would be sequestered from major mandatory programs if legislation
    offsetting the deficit increase is not enacted in the current session of
    Congress.
       A pay-as-you-go sequester would apply solely to direct spending
    accounts. By law, most direct spending is exempt from sequestration, and
    there are special rules that limit the size of a sequester for several
    direct spending accounts. In 1997, total direct spending is estimated to
    be $863.1 billion. Of this, only $26.0 billion is subject to
    sequestration. Table 12-6 shows the composition of the direct spending
    sequestrable universe.

                                               TABLE 12-5.  PAY-AS-YOU-GO LEGISLATION ENACTED AS OF MARCH 1, 1996
                                                                     (In millions of dollars
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Change in the baseline deficit
       Report         Act number                                           Act title                                      ----------------------------------
       number                                                                                                               1996    1997    1998   1996-1998
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Legislation enacted in the 2nd session of the 104th Congress:

    302            P.L. 104-93       Intelligence Authorization Act:
                  H.R. 1655            Revenue effect                                                                      ......  ......  ......  .........
                                       Direct spending effect                                                              ......  ......  ......  .........
                                       Net deficit effect                                                                  ......  ......  ......  .........

    303           P.L. 104-96        Smithsonian Institution Sesquicentennial Commemorative Coin Act of 1995
                  H.R. 2627            Revenue effect                                                                      ......  ......  ......  .........
                                       Direct spending effect                                                              ......  ......  ......  .........
                                       Net deficit effect                                                                  ......  ......  ......  .........

    304           P.L. 104-104       Telecommunications Act of 1996:
                  S. 652               Revenue effect                                                                      ......     400   1,200     1,600
                                       Direct spending effect                                                              ......     404   1,205     1,609
                                       Net deficit effect                                                                  ......       4       5         9

    305           P.L. 104-105       Farm Credit System Reform Act:
                  H.R. 2029            Revenue effect                                                                      ......  ......  ......  .........
                                       Direct spending effect                                                                  -1      -1      -1        -3
                                       Net deficit effect                                                                      -1      -1      -1        -3

    306           P.L. 104-106       Defense Authorization Act:
                  S. 1124              Revenue effect                                                                      ......  ......  ......  .........
                                       Direct spending effect                                                                 315     609     852     1,776
                                       Net deficit effect                                                                     315     609     852     1,776

    307           P.L. 104-110       Extension of VA Medical and Housing Programs:
                  H.R. 2353            Revenue effect                                                                      ......  ......  ......  .........
                                       Direct spending effect                                                                  -3      -1  ......        -4
                                       Net deficit effect                                                                      -3      -1  ......        -4

    308           P.L. 104-111       Congressional Gold Medal for Ruth and Billy Graham:
                  H.R. 2657            Revenue effect                                                                      ......  ......  ......  .........
                                        Direct spending effect                                                             ......  ......  ......  .........
                                        Net deficit effect                                                                 ......  ......  ......  .........
                                    ------------------------------------------------------------------------------------------------------------------------
                                       Subtotal, enacted this session, as of March 1, 1996:
                                        Revenue effect...................................................................  ......     400   1,200     1,600
                                        Direct spending effect...........................................................     311   1,011   2,056     3,378
                                        Net deficit effect...............................................................     311     611     856     1,778
                                    ========================================================================================================================
                                         Total, legislation enacted:
                                          Revenue effect.................................................................  -1,432  -1,421    -999    -3,853
                                          Direct spending effect.........................................................    -404     -33   1,373       936
                                          Net deficit effect.............................................................   1,028   1,389   2,371     4,789
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    [[Page 207]]

      TABLE 12-6.  SEQUESTRABLE MANDATORY SPENDING AND POTENTIAL SEQUESTER
                                     AMOUNTS
                      (1997 outlays in millions of dollars)
    ------------------------------------------------------------------------
                                                     Subject
                                                        to       Projected
                                                    Sequester   Sequester\1\
    ------------------------------------------------------------------------
    Sequestration limited to automatic spending
     increases:
      Special milk program........................  .........  .............
      Vocational rehabilitation basic State grants         45           45
                                                   -------------------------
        Subtotal, automatic spending increases....         45           45
    Sequestration according to special rules:
      Federal Family Education Loan program.......         66           66
      Payments to states for foster care and
       adoption assistance........................          8            8
                                                   -------------------------
        Subtotal, special rules...................         74           74
    Medicare (maximum sequester of 4 percent).....      7,740        2,101
    Subject to across-the-board sequestration:
      Commodity Credit Corporation (incl.
       sequestrable 1988 amount)..................      3,988           43
      Social Services Block Grants................      2,520           27
      Family support payments to states...........      2,182           24
      Crop insurance corporation fund.............      1,117           12
      Justice activities financed by immigration
       and border fees............................        904           10
      Veterans Education and Readjustment Benefits        822            9
      Payments to States for AFDC Work Programs...        750            8
      Direct student loans program account........        531            6
      Payments to States for Mineral Leasing Act..        515            6
      Forest Service permanent appropriations.....        493            5
      Assets Forfeiture Fund......................        363            4
      Rehabilitation services and handicapped
       research...................................        266            3
      Customs salaries and expenses, unclaimed or
       abandoned goods............................        284            3
      Surcharge collections, sales of comissary
       stores.....................................        255            3
      Forest Service, Cooperative Work Trust Fund.        232            3
      Federal Unemployment Benefits and Allowances        211            2
      Lower Colorado River Basin fund.............        141            2
      Treasury Forfeiture Fund....................        121            1
      VA medical cost recovery fund...............        118            1
      Agricultural marketing service,
       miscellaneous trust funds..................         90            1
      Fees and expenses of witnesses..............         88            1
      Crime victims fund..........................         84            1
      Unemployment insurance extended benefits....         69            1
      Judiciary filing fees.......................         63            1
      Other sequestrable spending.................      1,862           20
                                                   -------------------------
      Subtotal, subject to across-the-board
       sequestration..............................     18,069          196

    Total, sequestrable mandatory outlays.........     25,928        2,417
    ------------------------------------------------------------------------
    AAA\1\ These are the amounts that would be sequestered based on
      legislation enacted as of 3/1/96. OMB's final determination of the
      need for a sequester will be made at the end of this session of
      Congress and will take into account legislation enacted during the
      current session.

     Proposals to Extend and Amend the BEA and Other Reforms to Strengthen
                               the Budget Process
       The Administration proposes to extend the BEA requirements generally,
    to reduce the discretionary caps below current levels, and to make other
    procedural changes to improve budget enforcement. In addition to the BEA
    changes, the Administration urges the Congress to complete legislation
    granting the President line-item veto authority.
       Extend the BEA's discretionary spending and ``pay-as-you-go'' (PAYGO)
    requirements.--The BEA has been an effective constraint on laws that
    would increase discretionary spending or increase the deficit. That is
    why, in 1993, the Congress and the President agreed to extend the
    requirements of the BEA through 1998. Now, the BEA requirements need to
    be extended again to support the goal of a balanced budget by the year
    2002. The Administration proposes to lower the discretionary spending
    caps for 1996 through 1998 and to enact caps for 1999 through 2002 that
    are below baseline discretionary spending levels for those years. The
    Administration proposes to extend, through 2002, the PAYGO requirements
    for offsets to legislation that would increase mandatory spending or
    reduce receipts.
       Cap adjustment authority for savings initiatives.--When the BEA was
    enacted in 1990, it authorized cap adjustments, within specified limits,
    for each of the years 1991 through 1995 in order to accommodate annual
    appropriations for an Internal Revenue Service compliance initiative.
    The Administration proposes that similar cap adjustment authority be
    provided to accomodate increases in discretionary spending by the Social
    Security Administration necessary to implement the Administration's
    welfare reform proposals. The savings in mandatory spending (benefit
    payments) are
    [[Page 208]]
    expected to more than offset the increase in discretionary
    spending.
       The Administration proposes to increase funding for the prevention of
    Medicare fraud and abuse. Rather than increase discretionary spending,
    legislation will be proposed to substitute increased levels of mandatory
    spending for the current levels of discretionary spending for this
    purpose in the Department of Health and Human Services and in the
    Justice Department. The savings in mandatory Medicare benefit payments
    are expected to more than offset the increase in mandatory spending.
    Alternatively, Congress could continue to provide discretionary funding
    for fraud and abuse prevention with increases accommodated through cap
    adjustment authority like that proposed for the welfare reform
    initiative.
       Amend the asset sale scoring rule.--The BEA's asset sale scoring rule
    prohibits scoring the proceeds from asset sales as offsets to
    discretionary spending or PAYGO legislation, even where there is general
    agreement that selling the asset is good policy. The rule was originally
    intended primarily to stop uneconomic loan asset sales, before the
    Credit Reform Act of 1990 effectively ended this practice.
       The Congress waived the scoring rule for purposes of the concurrent
    resolution on the 1996 budget. In the conference report on the budget
    resolution, the conferees said that the asset sale scoring prohibition
    should be repealed and consideration should be given to replacing it
    with a methodology that takes into account the long-term budgetary
    impact of asset sales. They said that assets should not be sold if such
    sale would increase the budget deficit over the long run. The
    Administration agrees and proposes to work with the Congress to develop
    a new scorekeeping guideline. At a minimum, the guideline should require
    that all losses of receipts and reductions in outlays resulting from the
    sale, as well as the immediate receipts from the sale, be taken into
    account in determining whether an asset should be sold.
       Establish ``fiscal dividend'' procedures.--The Administration
    proposes to establish procedures for dividing any ``fiscal dividend'' in
    2000 among tax cuts, spending increases, and deficit reduction in 2001
    and 2002. Under the Administration's proposal, a fiscal dividend would
    occur if the actual deficit in 2000 were below the deficit target for
    that year. The deficit target would be fixed at CBO's estimate in the
    1997 budget process of the deficit for 2000. The dividend would be
    applied in as many as three steps, depending on the whether the dividend
    were less than $20 billion, between $20 and $40 billion, or greater than
    $40 billion. To illustrate, if the deficit target were $100 billion,
    then any dividend would be applied as follows: