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


[[Page 229]]

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                         BUDGET ENFORCEMENT ACT

                             PREVIEW REPORT

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

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                           13. 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 ``Budget Process Reforms'' below.)

                                     

                                                                Table 13-1.  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     3.1      35.0
                                                                                                OL                      ......     1.0     2.4     2.3     3.0    -0.5    -2.6    -2.8       2.8
Adjustments for changes in inflation..........................................................  BA                      ......    -0.5    -5.1    -9.5   -11.8     3.0     2.6     0.0     -21.2
                                                                                                OL                      ......    -0.3    -2.5    -5.8    -8.8     1.8     2.3     0.9     -12.2
Adjustments for credit reestimates, IRS funding, debt forgiveness, IMF, and CDRs..............  BA                         0.2     0.2    13.0     0.6     0.7     0.1     0.2     0.1      15.0
                                                                                                OL                         0.3     0.3     0.8     0.8     0.9     0.1     0.3     0.1       3.6
Adjustments for emergency requirements........................................................  BA                         0.9     8.3     4.6    12.2     7.7     5.1     1.6  ......      40.4
                                                                                                OL                         1.1     1.8     5.4     9.0    10.1     6.4     5.4     1.7      40.9
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     7.5     4.0     3.1      66.2
                                                                                                OL                         3.9     5.9     8.8    10.0     6.8     5.5     3.7    -1.5      43.0
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     7.5     4.0     3.1     140.1
                                                                                                OL                        37.2    20.8    16.4    12.8     7.8     5.5     3.7    -1.5     111.1
                                                                                                                       -------------------------------------------------------------------------
Preview Report spending limits \2\............................................................  BA                       537.1   536.6   535.7   525.1   511.0   526.7   532.0   533.8   4,238.0
                                                                                                OL                       551.6   545.7   550.4   547.6   548.6   552.7   551.0   546.4  4,394.0 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* $50 million or less.                                                                                                                                                                          
\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 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.                                                                       

  This Preview Report discusses the status of discretionary 
appropriations and pay-as-you-go legislation based on laws enacted as of 
December 31, 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 be revised only 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 

[[Page 232]]

be exceeded will trigger a sequester to eliminate any such breach.
  The Administration is proposing that the Congress adopt a joint 
resolution on the budget covering each of the fiscal years 1998 through 
2002. This proposal is discussed in the ``Budget Process Reforms'' 
section of this report.
  Adjustments to the limits.--The BEA permits certain adjustments to the 
discretionary limits--also known as caps. On November 15, 1996, the 
Office of Management and Budget submitted the Final Sequestration Report 
for 1997 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 
13-1 is a summary of all changes to the 1991 through 1998 caps 
originally enacted in law. Table 13-2 shows the impact on the caps of 
adjustments being made in this Preview Report. Table 13-2 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.
  OBRA 1993 extended the original discretionary caps through 1998 and 
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 1998 Budget are lower than those 
contained in the 1997 Budget.
  The 1997 Budget inflation estimates were 2.7 percent per year for 1996 
through 1998. For the 1998 Budget, the comparable inflation estimates 
are 2.2 percent for 1996, 2.5 percent for 1997, and 2.6 percent for 
1998. Thus, inflation estimates are lower in 1996, 1997, and 1998 by 0.5 
percent, 0.2 percent, and 0.1 percent, respectively. Adjusting the caps 
for these changes in inflation estimates reduces 1998 budget authority 
by $4.2 billion. The estimated spendout of these reductions in budget 
authority reduces outlays by $2.5 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 
1997 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.

                                     

                                                                           Table 13-2.  DISCRETIONARY SPENDING LIMITS                                                                           
                                                                                    (In millions of dollars)                                                                                    
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                         1994        1995        1996        1997        1998   
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                
                                     General Purpose Discretionary                                                                                                                              
                                                                                                                                                                                                
Total General Purpose Discretionary Spending Limits, November 15, 1996, Final Sequestration Report.....  BA                              525,146     508,546     522,376     527,031     528,857
                                                                                                         OL                              547,559     547,930     550,400     547,055     544,078
  Adjustments:                                                                                                                                                                                  
    Inflation..........................................................................................  BA                           ..........  ..........  ..........  ..........      -4,154
                                                                                                         OL                           ..........  ..........  ..........  ..........      -2,492
    Changes in concepts and definitions:                                                                                                                                                        
       Statutory and other shifts between categories...................................................  BA                           ..........  ..........  ..........  ..........        -110
                                                                                                         OL                           ..........  ..........  ..........  ..........         -85
      Conversion of obligation limitations to discretionary budget authority...........................  BA                           ..........  ..........  ..........  ..........       3,687
                                                                                                         OL                           ..........  ..........  ..........  ..........  ..........
    Contingent emergency appropriations released.......................................................  BA                           ..........  ..........  ..........           5  ..........
                                                                                                         OL                           ..........  ..........  ..........           5  ..........
                                                                                                                                     -----------------------------------------------------------
      Subtotal, Adjustments for the Preview Report.....................................................  BA                           ..........  ..........  ..........           5        -577
                                                                                                         OL                           ..........  ..........  ..........           5      -2,577
                                                                                                                                     -----------------------------------------------------------
Preview Report General Purpose Discretionary Limits....................................................  BA                              525,146     508,546     522,376     527,036     528,280
                                                                                                         OL                              547,559     547,930     550,400     547,060     541,501
================================================================================================================================================================================================
Adjustments Under the Revised Budget Enforcement Act for Appropriations Committee Action:                                                                                                       
  Proposed Emergency Spending:                                                                                                                                                                  
    Emergency supplemental appropriations contained in the 1998 Budget.................................  BA                           ..........  ..........  ..........       2,098  ..........
                                                                                                         OL                           ..........  ..........  ..........       1,585         401

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      The Budget contains FY 1997 emergency supplemental requests for the National Transportation                                                                                               
     Safety Board and for the Department of Defense.                                                                                                                                            
                                                                                                                                                                                                
  Contingent emergency appropriations for unanticipated disasters contained in the 1998 Budget.........  BA                           ..........  ..........  ..........  ..........     (5,800)
                                                                                                         OL                           ..........  ..........  ..........  ..........     (2,320)
                                                                                                                                                                                                
      The Budget contains a request for contingent emergency appropriations for natural disasters of                                                                                            
     $5.8 billion. This emergency spending would be scored upon release by the President and the                                                                                                
     Congress.                                                                                                                                                                                  
                                                                                                                                                                                                
User Fee Proposals:                                                                                                                                                                             
                                                                                                                                                                                                
  Department of Health and Human Services                                                                                                                                                       
    Food and Drug Administration (FDA): FDA user fees..................................................  BA                           ..........  ..........  ..........  ..........         237
                                                                                                         OL                           ..........  ..........  ..........  ..........         237
                                                                                                                                                                                                
      The Budget proposes new user fees to finance FDA activities, including the review of prescription                                                                                         
     drugs and medical devices, approval of animal drugs, import inspections, food additive petition                                                                                            
     reviews, generic/over-the-counter drug applications and fees for post market surveillance of                                                                                               
     products.                                                                                                                                                                                  
                                                                                                                                                                                                
  Department of Labor:                                                                                                                                                                          
    Alien labor certification fees.....................................................................  BA                           ..........  ..........  ..........  ..........          25
                                                                                                         OL                           ..........  ..........  ..........  ..........          25
                                                                                                                                                                                                
      The Budget proposes new user fees to fund discretionary spending. Fees would be charged to                                                                                                
     employers who receive certification from the Labor Department of the admissibility of aliens to                                                                                            
     work in the United States.                                                                                                                                                                 
                                                                                                                                                                                                
  Department of State:                                                                                                                                                                          
    Immigration, passport, and other user fees.........................................................  BA                           ..........  ..........  ..........  ..........         455
                                                                                                         OL                           ..........  ..........  ..........  ..........         387
                                                                                                                                                                                                
      The Budget proposes to dedicate existing governmental receipts generated by consular activities                                                                                           
     toward support and improvement of State Department operations. Discretionary spending caps would                                                                                           
     be increased by the amount of estimated annual appropriations of the receipts.                                                                                                             
                                                                                                                                                                                                
    Machine readable visa fees.........................................................................  BA                           ..........  ..........  ..........  ..........         140
                                                                                                         OL                           ..........  ..........  ..........  ..........         119
                                                                                                                                                                                                
      The Budget proposes to correct the classification of existing receipts used to support the State                                                                                          
     Department's border security program. These fees were previously classified as offsetting                                                                                                  
     collections; they will now be classified as governmental receipts.                                                                                                                         
                                                                                                                                                                                                
  Department of Transportation:                                                                                                                                                                 
    Federal Aviation Administration (FAA) $300 million gross increase in user fees.....................  BA                           ..........  ..........  ..........  ..........         225
                                                                                                         OL                           ..........  ..........  ..........  ..........         198
                                                                                                                                                                                                
      The Budget proposes new user fees to fund discretionary spending for the FAA. Discretionary                                                                                               
     spending caps increased by amount of spending of increased governmental receipts.                                                                                                          
                                                                                                                                                                                                
  Department of Veterans Affairs:                                                                                                                                                               
    VA medical care cost recovery......................................................................  BA                           ..........  ..........  ..........  ..........       (440)
                                                                                                         OL                           ..........  ..........  ..........  ..........       (440)
      Existing user fees (offsetting receipts) are reclassified as discretionary with a PAYGO cost.                                                                                             
     Discretionary spending would be offset by user fees. No change in the discretionary spending caps.                                                                                         
                                                                                                                                                                                                
  Social Security Administration:                                                                                                                                                               
    Supplementary Security Income (SSI) user fee (administration of State supplementary payments)......  BA                           ..........  ..........  ..........  ..........        (40)
                                                                                                         OL                           ..........  ..........  ..........  ..........        (37)
      SSA currently charges States to administer the payment process. Discretionary spending would be                                                                                           
     offset by the proposed increase in SSI user fees (offsetting collections). No change in the                                                                                                
     discretionary spending caps.                                                                                                                                                               
  National Transportation Safety Board (NTSB):                                                                                                                                                  
    NTSB user fee......................................................................................  BA                           ..........  ..........  ..........  ..........           5
                                                                                                         OL                           ..........  ..........  ..........  ..........           5
                                                                                                                                                                                                
      The Budget proposes a new user fee to fund discretionary spending on commercial aviation accident                                                                                         
     investigations. Discretionary spending caps increased by amount of spending of increased                                                                                                   
     governmental receipts.                                                                                                                                                                     
                                                                                                                                                                                                
  Other Proposals Included in the Budget Affecting the Discretionary Spending Caps:                                                                                                             
    Funding for additional continuing disability reviews (CDRs)........................................  BA                           ..........  ..........  ..........  ..........         190
                                                                                                         OL                           ..........  ..........  ..........  ..........         175

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      Discretionary spending cap adjusted upward to reflect increased spending on associated additional                                                                                         
     continuing disability reviews (CDRs).                                                                                                                                                      
                                                                                                                                                                                                
  Welfare reform implementation........................................................................  BA                           ..........  ..........  ..........  ..........         100
                                                                                                         OL                           ..........  ..........  ..........  ..........          92
      Discretionary spending cap adjusted upward to reflect increased administrative spending                                                                                                   
     associated with implementation of changes to the Supplemental Security Income program in the                                                                                               
     welfare reform bill.                                                                                                                                                                       
                                                                                                                                                                                                
  State unemployment insurance cost containment proposal...............................................  BA                           ..........  ..........  ..........  ..........          89
                                                                                                         OL                           ..........  ..........  ..........  ..........          89
      Discretionary spending cap adjusted upward to reflect increased spending on integrity activities                                                                                          
     in this area.                                                                                                                                                                              
                                                                                                                                                                                                
  Financial Management Service's reimbursement to the Federal Reserve Board (FRB)......................  BA                           ..........  ..........  ..........  ..........         122
                                                                                                         OL                           ..........  ..........  ..........  ..........         122
                                                                                                                                                                                                
      The Budget includes increases for discretionary spending for payment to the Federal Reserve.                                                                                              
     Mandatory governmental receipts would increase in an equal amount as a result of this                                                                                                      
     discretionary increase.                                                                                                                                                                    
                                                                                                                                                                                                
  Exemption of Federal vaccine purchases from the payment of vaccine excise tax........................  BA                           ..........  ..........  ..........  ..........         -54
                                                                                                         OL                           ..........  ..........  ..........  ..........         -54
      Governmental receipts and outlays in the Medicaid accounts are reduced as a result of this                                                                                                
     proposal. This proposal does not affect services.                                                                                                                                          
                                                                                                                                     -----------------------------------------------------------
  Subtotal, Adjustments Under the Revised Budget Enforcement Act for Appropriations Committee Action...  BA                           ..........  ..........  ..........       2,098       1,534
                                                                                                         OL                           ..........  ..........  ..........       1,585       1,796
                                                                                                                                     -----------------------------------------------------------
  Proposed adjustment to offset restored PAYGO balances................................................  BA                           ..........  ..........  ..........      -6,236  ..........
                                                                                                         OL                           ..........  ..........  ..........      -6,236  ..........
                                                                                                                                     -----------------------------------------------------------
Preview Report General Purpose Discretionary Limits, Including Further Adjustments.....................  BA                              525,146     508,546     522,376     522,898     529,814
                                                                                                         OL                              547,559     547,930     550,400     542,409     543,297
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                
                            Violent Crime Reduction Trust Fund Discretionary                                                                                                                    
                                                                                                                                                                                                
Total Violent Crime Reduction Trust Fund (VCRTF) Spending Limits, November 15, 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 (VCRTF) 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     526,663     527,898     535,314
                                                                                                         OL                              547,559     548,633     552,734     546,345     548,201
                                                                                                                                                                                                
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                

  Another cap adjustment for changes in concepts and definitions is for 
the redefinition of certain obligation limitations as discretionary 
budget authority. For example, administrative expenses for the Social 
Security Administration (SSA) are controlled by a limitation on total 
funding from several financing sources including the Old-Age and 
Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. 
Prior to the 1998 Budget, the funding for administrative expenses 
attributable to these two sources had been classified as a discretionary 
obligation limitation, rather than discretionary budget authority. Thus, 
administrative expenses for the OASI and DI programs and expenses for 
other agencies' accounts with similar types of limitations on 
obligations were not covered by the budget authority caps or by the 602 
allocation contained in the BEA, although they were covered by the 
outlay caps and the 602 allocation contained in the BEA for outlays. 
This anomaly was corrected in the 1990 BEA for the Medicare trust funds, 
the Unemployment trust fund, and the railroad retirement trust funds. 
Beginning with the 1998 budget, obligation limitations enacted in 
appropriations acts will be defined as discretionary budget authority. 
The budget authority caps are increased for this conceptual change.
  Other adjustments to the limits.--
    Emergency appropriations. Spending that is designated as an 
          emergency requirement by the President and Congress would 
          result in an upward adjustment to the caps. The Budget 
          contains FY 1997 emergency supplemental requests for the 
          National Transportation Safety Board (NTSB) and 

[[Page 235]]

          for the 
          Department of Defense (DOD). The NTSB request would provide 
          funds for TWA Flight 800 accident investigation costs, 
          including fire and explosion testing, and overtime and command 
          center costs related to the investigation. In addition, funds 
          would be provided for assistance to families of victims of 
          aviation accidents. The emergency request for DOD would 
          support United States participation in the Bosnia 
          stabilization force (SFOR) and the continuation of enforcing 
          no-fly zones in northern and southern Iraq. Table 12-2 
          displays estimated adjustments for these emergency 
          appropriations. The actual adjustments to the discretionary 
          caps cannot be determined until appropriations have been 
          enacted.
    Contingent emergency appropriations. The Budget also 
          proposes the establishment of a contingent reserve (see the 
          ``Emergency Requirements for Disasters'' account in the Funds 
          Appropriated to the President chapter of the Budget Appendix) 
          to fund the unanticipated needs that arise from both natural 
          and man-made disasters. The reserve, which is described in the 
          ``Budget Process Reform'' section of this report, is intended 
          to avoid emergency supplemental requests and provide 
          flexibility in responding to disasters. The discretionary caps 
          would be adjusted when the President makes contingent 
          emergency funds available for use.
    User fee proposals. The Budget will include several 
          proposals to allow user fees, both existing fees and new fees, 
          to be used to finance discretionary spending. A change will be 
          proposed to the BEA to establish a procedure for such 
          proposals to be enacted and used to offset discretionary 
          activities. The purpose of this change is to promote the use 
          of appropriate fees by Federal Government agencies to support 
          and improve agency operations. This new treatment is designed 
          to be deficit neutral so that new discretionary spending is 
          financed by new user fees or by other offsets. Further 
          discussion of this proposal is included in the ``Budget 
          Process Reforms'' section of this report.
    Savings proposals. The Administration supports several 
          discretionary proposals that would result in additional 
          savings to be derived from administrative efficiencies in 
          benefit programs. These mandatory savings would more than 
          offset discretionary costs; however, the Administration is not 
          proposing to use these savings as offsets to other spending. 
          These proposals include:

            Cap adjustments that would be made under existing authority:
        --Funding for additional continuing disability reviews (CDRs).--
          CDRs are conducted to verify that recipients of Social 
          Security disability insurance benefits and Supplemental 
          Security Income (SSI) benefits for persons with disabilities 
          are still eligible. A cap adjustment would ensure that the 
          Social Security Administration (SSA) has sufficient funds to 
          increase CDRs to achieve the savings assumed in the debt 
          ceiling bill. Authority to make this cap adjustment was 
          originally provided in the debt ceiling bill.
        --Welfare reform implementation.--This cap adjustment would 
          ensure that the SSA has sufficient funds for administrative 
          expenses to carry out the implementation of changes made to 
          the SSI program in the welfare reform bill. Authority to make 
          this cap adjustment was provided in the welfare reform bill, 
          through a modification to the cap adjustment authority 
          provided in the debt ceiling bill described in the preceding 
          paragraph.
            Cap adjustment that would be made under proposed authority:
        --State unemployment insurance cost containment proposal.--In 
          addition to the two cap adjustments already mandated by 
          current law, the Budget proposes an additional cap adjustment 
          to reflect increased spending on program integrity activities 
          in the Labor Department's State Unemployment Insurance and 
          Employment Service Operations account (SUIESO). These would 
          include activities such as eligibility reviews and tax audits. 
          This additional spending is expected to result in reduced 
          overpayments and increased tax collections.
    Other changes. The Budget also contains additional cap 
          adjustments that would occur as a result of proposals included 
          in the Budget. These include changes in the treatment of the 
          Financial Management Service's reimbursement to the Federal 
          Reserve Board and the exemption of Federal vaccine purchases 
          from the payment of vaccine excise tax. The Federal Reserve 
          currently provides certain services on behalf of FMS, which 
          the Federal Reserve currently funds using a portion of its 
          earnings. The net profit is remitted to Treasury and is 
          recorded as revenue in the budget. The Budget requests 
          permanent appropriations to fund these expenses. This proposal 
          will have no net impact on the deficit, since the additional 
          discretionary spending will be offset by the increase in 
          Federal Reserve profits that are remitted to the Treasury. The 
          effect of the proposal is to make the funding more explicit in 
          the Budget. Instead of offsetting the spending against income 
          in the Federal Reserve's budget, the profits and spending will 
          be shown on a gross basis in the Federal budget.

              The Budget also proposes to exempt Federal vaccine 
          purchases from the payment of vaccine excise tax. Current and 
          projected vaccine excise tax receipts to the Vaccine Injury 
          Compensation Trust Fund far exceed current and projected 
          claims on the Trust Fund. The Budget proposes lowering revenue 
          to the Trust Fund by exempting Federal programs (which provide 
          free vaccine to 
[[Page 236]]

          low-income, uninsured, and under-insured 
          children) from payment of the vaccine excise tax in 1998.

              The Administration proposes to restore to the PAYGO 
          scorecard for 1997 the $6.2 billion in balances that were 
          removed pursuant to the Omnibus Consolidated Appropriations 
          Act of 1997. In order to offset the additional mandatory 
          spending accommodated by restoring the balances, the 
          discretionary caps for 1997 would be reduced by a like amount.
    Loans to the International Monetary Fund (IMF). The Budget 
          includes an appropriations request for the dollar equivalent 
          of 2,462 million Special Drawing Rights, scored in the Budget 
          as $3,521 million. This amount is needed to fully fund the 
          U.S. share of the New Arrangements to Borrow (NAB), which is a 
          set of individual credit lines to the IMF, modeled on the 
          existing General Arrangements to Borrow (GAB). Section 
          251(b)(2)(C) of the BEA of 1990 authorized a budget authority 
          cap adjustment only for a similar proposal because the U.S. 
          transactions with the IMF are not scored in the Budget as 
          outlays. However, because the total discretionary budget 
          authority is well within the caps established by the BEA, the 
          Administration is not requesting cap adjustment authority for 
          this increase. The Administration would seek a cap adjustment 
          for potential future appropriations for an IMF quota increase.
  The actual adjustments to the discretionary caps to be included in 
subsequent sequester reports cannot be determined until appropriations 
have been enacted. Table 13-3 compares the President's discretionary 
proposals to the proposed caps for 1997 and 1998. The estimates for 1997 
are based on BEA scoring of enacted appropriations bills and have been 
adjusted for a subsequent emergency release and Presidential proposals 
included in the 1998 Budget.

                                     

                                                              Table 13-3.  BUDGET PROPOSALS                                                             
                                                                (in millions of dollars)                                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                     1997        1998   
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
                                General Purpose Discretionary Spending                                                                                  
                                                                                                                                                        
Estimated Limits.....................................................................................  BA                            522,898     529,814
                                                                                                       OL                            542,409     543,297
President's General Purpose Discretionary Proposals..................................................  BA                            494,712     524,979
                                                                                                       OL                            534,305     542,579
President's Proposals Compared to the General Purpose Discretionary Limits...........................  BA                            -28,186      -4,835
                                                                                                       OL                             -8,104        -718
--------------------------------------------------------------------------------------------------------------------------------------------------------
                             Violent Crime Reduction Trust Fund Spending                                                                                
                                                                                                                                                        
Estimated Limits.....................................................................................  BA                              5,000       5,500
                                                                                                       OL                              3,936       4,904
President's Violent Crime Reduction Trust Fund (VCRTF) Proposals.....................................  BA                              4,683       5,500
                                                                                                       OL                              3,697       4,883
President's Proposals Compared to the Violent Crime Reduction Limits.................................  BA                               -317  ..........
                                                                                                       OL                               -239         -21
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Total Discretionary Spending                                                                                       
                                                                                                                                                        
Estimated Limits.....................................................................................  BA                            527,898     535,314
                                                                                                       OL                            546,345     548,201
President's Proposals................................................................................  BA                            499,395     530,479
                                                                                                       OL                            538,002     547,462
  President's Proposals Compared to the Limits.......................................................  BA                            -28,503      -4,835
                                                                                                       OL                             -8,343       -739 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The President's Proposals for FY 1997 reflect official BEA scoring and do not reflect current budget estimates.                                   

  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 re-

[[Page 237]]

sults 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 Final Sequestration Report to the President and 
the Congress that discretionary appropriations enacted for 1997 were 
within the prescribed spending limits.
  Sequester calculations.--If either the discretionary budget authority 
or outlay caps are exceeded, an across-the-board reduction of 
sequestrable budgetary resources is required to eliminate the breach. 
The percentage reduction for certain special-rule programs is limited to 
two percent. Once this limit is reached, the uniform percentage 
reduction for all other discretionary sequestrable resources is 
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 13-4 
compares OMB and CBO limits for 1997 through 1998. The differences for 
1998 are due primarily to the difference in forecast inflation. CBO's 
forecast for lower inflation in 1997 resulted in a change of $6.7 
billion in budget authority and $4.0 billion in outlays in 1998. OMB's 
forecast resulted in a lower change ($4.2 billion in budget authority 
and $2.5 billion in outlays) in 1998. 

                                     

  Table 13-4.  COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS  
                        (In millions of dollars)                        
------------------------------------------------------------------------
                                                    1997         1998   
------------------------------------------------------------------------
         General Purpose Discretionary                                  
                                                                        
CBO Preview Report limits:                                              
  BA..........................................      527,036      521,901
  OL..........................................      547,060      540,027
                                                                        
OMB Preview Report limits:                                              
  BA..........................................      527,036      528,280
  OL..........................................      547,060      541,501
Difference:                                                             
  BA..........................................  ...........       -6,379
  OL..........................................  ...........       -1,474
                                                                        
      Violent Crime Reduction Trust Fund                                
                 Discretionary                                          
                                                                        
CBO Preview Report limits:                                              
  BA..........................................        5,000        5,500
  OL..........................................        3,936        4,904
OMB Preview Report limits:                                              
  BA..........................................        5,000        5,500
  OL..........................................        3,936        4,904
Difference:                                                             
  BA..........................................  ...........  ...........
  OL..........................................  ...........  ...........
                                                                        
              Total Discretionary                                       
                                                                        
CBO Preview Report limits:                                              
  BA..........................................      532,036      527,401
  OL..........................................      550,996      544,931
OMB Preview Report limits:                                              
  BA..........................................      532,036      533,780
  OL..........................................      550,996      546,405
Difference:                                                             
  BA..........................................  ...........       -6,379
  OL..........................................  ...........       -1,474
------------------------------------------------------------------------

  CBO and OMB also differed on their estimates of the effect of 
discretionary changes made to mandatory accounts in fiscal year 1997 
appropriations bills, and, thus, the effect of those changes on the 
fiscal year 1998 discretionary spending caps. CBO assumed a net decrease 
to the caps of $220 million in budget authority and $9 million in 
outlays, while OMB assumed a downward cap adjustment of $110 million in 
budget authority and $85 million in outlays. Finally, CBO did not make 
an adjustment for the conversion of obligation limitations to 
discretionary authority. OMB adjusted the FY 1998 discretionary spending 
caps upward by $3.7 billion for this conceptual change.

[[Page 238]]

                   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 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. Under current law, 
the 1997 and 1998 deficit impact of legislation enacted this year would 
be combined with the balance to determine whether a sequester is 
neeeded. The Administration is proposing to extend the pay-as-you-go 
horizon and restore the 1997 balances that the Congress eliminated last 
year. As listed in Table 13-2, the discretionary cap for 1997 would be 
reduced by the amount of the balances restored. Table 13-5 summarizes 
the impact of the Adminstration's proposals on the pay-as-you-go 
balances.

                                     

                                      Table 13-5.  PAY-AS-YOU-GO PROPOSALS                                      
                                            (in billions of dollars)                                            
----------------------------------------------------------------------------------------------------------------
                                                                                    1997       1998     1997-98 
----------------------------------------------------------------------------------------------------------------
Pay-as-you-go proposals in the 1998 Budget:                                                                     
  Receipts.....................................................................       -1.6        6.9           
  Mandatory outlays............................................................        0.3       -0.1           
  Proposed discretionary cap adjustments funded by governmental receipts.......        0.0        1.0           
                                                                                --------------------------------
Total pay-go proposals.........................................................       -1.3        7.8        6.5
                                                                                                                
  Current pay-go balance.......................................................        0.0       -3.5           
  Restore pay-go balance (offset by reduction in discretionary cap)............       -6.2        0.0           
                                                                                --------------------------------
Proposed pay-go balances.......................................................       -7.6        4.3       -3.3
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                                                                                

  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 December 31, 1996, OMB had issued 391 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 
legislation had a deficit impact greater than $50 million in any one 
year.
  Table 13-6 shows OMB estimates for legislation enacted through 
December 31, 1996. In total, pay-as-you-go legislation enacted to date 
has reduced the combined 1997 and 1998 deficits by $3.4 billion. 

                                         Table 13-6.  PAY-AS-YOU-GO LEGISLATION ENACTED AS OF DECEMBER 31, 1996                                         
                                                                (In millions of dollars)                                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                1993     1994     1995     1996   1997 \1\    1998     1999     2000     2001     2002  
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, Pay-as-you-go legislation enacted:                                                                                                               
  Revenue impact of enacted legislation.....................    5,126    1,265    1,722   -1,227    -1,320   -1,889   -1,869    2,228     -729      -829
  Outlay impact of enacted legislation......................    2,430      785     -100   -2,458    -7,556   -5,355   -8,318   -6,242   -9,994   -11,908
                                                             -------------------------------------------------------------------------------------------
    Total deficit impact of enacted legislation \2\.........   -2,696     -480   -1,822   -1,231    -6,236   -3,466   -6,449   -8,470   -9,266   -11,078
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The Omnibus Consolidated Appropriations Act of 1997 (P.L. 104-208) removed the balances for 1997 from the pay-as-you-go scorecard. OMB is proposing 
  to restore the balances and reduce the discretionary cap by a like amount.                                                                            
                                                                                                                                                        
\2\ The balances shown above for 1997 and 1998 differ from those shown in OMB's Final Sequester Report. The Final Report balances for 1997 included     
  savings of $65 million that should have been included in 1998 instead. The balances shown above reflect this correction.                              

                         Budget Process Reforms

  The Administration is proposing several budget process reforms in 
conjunction with this budget, which are summarized here, and looks 
forward to working with the Congress on the details of implementation.

[[Page 239]]

  Joint resolution on the budget.--The President and the Congress share 
the goal of balancing the budget by 2002. In order to provide an overall 
budget framework for achieving this goal, the Administration urges the 
Congress to pass and present to the President for signature a joint 
resolution on the budget covering each of the fiscal years from 1998 
through 2002. It would include the elements of the concurrent resolution 
on the budget required by the Congressional Budget Act and some elements 
would be added. Like the concurrent resolution, it would include totals 
for federal revenue, budget authority, outlays, and the deficit. It 
would set limits on the appropriate levels of debt for each of the 
fiscal years covered by the resolution. It would be used as the budget 
resolution for all purposes of the Act. The joint budget resolution 
would include major economic assumptions for the 5-year period.
  Budget Enforcement Act.--The BEA, which will expire at the end of 
fiscal year 1998, has been an effective constraint on discretionary 
spending and laws that would increase the deficit. The Administration 
recommends that Congress extend it, with the proposed modifications 
described in this budget, through 2002.
  The ``pay-as-you-go'' (PAYGO) requirements for offsets to legislation 
that would increase mandatory spending or reduce receipts would continue 
to be a useful enforcement mechanism. The Administration proposes to 
extend the existing PAYGO requirements through 2002. In the course of 
extending the requirements, the Administration also recommends that the 
legislation restore to the PAYGO scorecard for 1997 the $6.2 billion in 
balances that were removed pursuant to the Omnibus Consolidated 
Appropriations Act of 1997. In order to offset the additional mandatory 
spending accommodated by restoring the balances, the discretionary caps 
for 1997 would be reduced by a like amount.
  Whether the BEA is extended in its current form or as part of a joint 
budget resolution approach, some aspects of the current rules should be 
changed. These are discussed in the following paragraphs.
  User fees.--It is sound budget policy to charge fees to users directly 
availing themselves of, or subject to, a government service, program, or 
activity, in order to cover the government's costs. However, under 
current BEA scoring rules, it is difficult to align user fees with the 
spending for agency operations that they are intended to support. This 
is because receipts usually are scored as PAYGO and the spending for 
agency operations usually is scored as discretionary spending.
  The Administration proposes a revised scoring rule that would avoid 
these problems. It would (1) employ a definition of user fees that is 
currently part of the House rules on jurisdiction, (2) support the 
longstanding practice of authorizing user fees in authorizing 
legislation, and (3) require the fees to be appropriated before they 
could be spent.
  The budget treatment of user fees should provide both government 
agencies and users an incentive to support user fees. For example, it 
may be appropriate to deposit the fees in a special fund of the 
Treasury, rather than the general fund, where the fees would be 
available only for appropriation to the collecting agency for 
administration of the program they are intended to support. This would 
create a direct link between the fee payments and the level of funding 
for the agency operations that affect them. Also, the agency's budget 
for administering a program should be dependent, at least in part, on 
the success of the agency's collections. In some existing cases, user 
fees are earmarked for and appropriated to an agency's program, but the 
program is guaranteed a funding level from the general fund whether the 
fees are collected or not.
  This budget applies the new scoring rule to several user fee 
proposals. These proposals are identified in the ``Discretionary 
Sequestration Report'' section of this chapter. The Administration 
intends to work with the Congress to identify other programs where the 
principle and revised scoring treatment should be applied.
  Emergency funding requirements for disaster assistance.--The current 
BEA permits the Congress and the President to jointly designate any 
discretionary spending measure as an emergency requirement that does not 
count under the limits on discretionary spending. The BEA does not 
define emergency spending.
  This budget proposes the establishment of a $5.8 billion contingent 
reserve for the emergency funding requirements for disaster assistance. 
This amount is the average annual emergency budget authority adjustment 
made to the discretionary spending caps under the existing rule. It is 
proposed that this amount be appropriated to the President for the 
purposes of the disaster relief activities of the Federal Emergency 
Management Agency, the wildland firefighting activities of the 
Departments of Interior and Agriculture, the flood control and emergency 
conservation activities of the Department of Agriculture, the emergency 
highway activities of the Department of Transportation, the disaster 
loan program of the Small Business Administration, and the flood control 
and coastal emergency activities of the Corps of Engineers.
  The regular budget request for each of those agencies includes 
discretionary appropriations for these activities at the higher of the 
1997 enacted amount or the 10-year average of nonemergency 
appropriations for each of the disaster assistance programs.
  The contingent reserve is an attempt to anticipate, to the extent 
possible, the annual cost to the government of sudden, urgent, and 
unforseen requirements for natural and man-made disasters, and to avoid 
the necessity of emergency supplemental appropriations. These funds 
would be available for obligation only after the President designates 
them as emergency requirements and not until 15 days after the President 
notifies Congress of the designation. This built-in constraint is 
designed to give the Executive Branch a mechanism to respond to pressing 
disaster situations in a timely fashion while allowing the Congress the 
time to consider the proposal and take appropriate action. The 
designated amount would be transferred to the appro-

[[Page 240]]

priate agency as needed. The appropriation language and budget presentation for this proposal is shown in the Funds Appropriated to the President chapter of the Appendix. The current emergency provision should be extended to 
cover emergency requirements that, in an extraordinary year, could 
exceed even the contingent amount.
  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 cap adjustment was authorized because increases in revenue were 
expected to more than offset the increase in discretionary spending. 
This budget includes similar initiatives and cap adjustment authority 
(see the ``Discretionary Sequestration Report''). However, rather than 
enact specific cap increase limits for specific purposes in the BEA, the 
Administration proposes a rule, similar to the current emergency 
requirements rule, that would allow the Congress and the President to 
designate appropriations as spending for savings initiatives and would 
require OMB to adjust the limits on discretionary spending (such as the 
previously enacted adjustments for continuing disability reviews). This 
would allow savings initiatives to be identified and funded as the 
opportunities arise and without needing to amend the BEA, when both the 
President and the Congress support the initiative.
  Amend the asset sale scoring rule.--A provision of the BEA prohibits 
scoring the proceeds of asset sales as offsets to discretionary spending 
or PAYGO legislation, even where there is general agreement that selling 
the asset is good policy. The Credit Reform Act of 1990 effectively 
ended this practice for loan assets by scoring them at their cost in 
present value terms. Thus, the rule currently applies solely to the sale 
of real assets. Repealing the rule could create a scoring incentive to 
sell real assets at less than the long-term value to the government, 
because the proceeds would be scored in the year of the sale, but the 
loss in future income to the government would be realized over a period 
of many years. Therefore, the Administration proposes to replace the 
current provision of law with a scoring rule that would allow the sales 
proceeds to be scored, on a cash basis, only if they exceed the present 
value cost of continued ownership and operation.
  Scoring capital asset acquisitions.--This Administration continues to 
work to improve planning and budgeting for the government's capital 
assets, including buildings, information technology, and a wide variety 
of equipment and other construction. These efforts are discussed in 
``Part II: Planning, Budgeting, and Acquisition of Capital Assets,'' of 
Chapter 6 of this volume. One of the principles stressed is full 
funding: budget authority sufficient to complete a useful segment of a 
capital project (or the entire project, if it is not divisible into 
useful segments) must be appropriated before any obligations for the 
useful segment (or project) may be incurred. In order to enforce this 
principle, the Administration proposes a new BEA scoring rule that would 
require an appropriations act to be scored for the estimated total 
budget authority necessary to complete a useful segment, even if the act 
actually provides only partial funding for a useful segment. The 
proposed rule is discussed in more detail in the Appendix to Part II of 
Chapter 6.
  Mechanism to ensure balance in 2002.--The budget includes a mechanism 
to ensure that the President's plan reaches balance in 2002 under OMB or 
CBO assumptions. If OMB's assumptions prove correct, as the 
Administration expects, then the mechanism would not take effect. If, 
however, CBO proves correct--and the President and Congress cannot agree 
on how to close the gap through expedited procedures--then most of the 
President's tax cuts would sunset, and discretionary budget authority 
and identified entitlement programs would face an across-the-board 
limit.