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

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

                             BUDGET ENFORCEMENT ACT
                                 PREVIEW REPORT

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

    [[Page 243]]

                               13. PREVIEW REPORT

      The Budget Enforcement Act of 1990 (BEA) was enacted as part of the
    Omnibus Budget Reconciliation Act of 1990. The BEA established, through
    1995, annual limits, or ``caps,'' on discretionary spending, and a pay-
    as-you-go (PAYGO) requirement that legislation affecting direct spending
    or receipts not result in a net cost. An across-the-board reduction of
    non-exempt spending, known as ``sequestration,'' enforces compliance
    with these constraints. The BEA has been extended several times, most
    recently by the Balanced Budget Act of 1997 (BBA), which extended the
    caps and PAYGO requirements through 2002.
      The BEA requires that OMB issue a report on the impact of each piece
    of legislation that affects spending or receipts. It requires three
    additional reports throughout the year on the overall status of
    discretionary and PAYGO legislation. This Preview Report, the first of
    the three required overall status reports, provides the status of
    discretionary appropriations and PAYGO legislation based on laws enacted
    as of the end of the second session of the 106th Congress. In addition,
    it explains the differences between the OMB and Congressional Budget
    Office (CBO) estimates of the discretionary caps.
      OMB estimates use the economic and technical assumptions underlying
    the President's 2002 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.

                        The President's Budget Proposals

    Discretionary Caps and PAYGO

      With the arrival of budget surpluses in 1998, Congress and the
    previous Administration began to skirt the budget enforcement
    mechanisms. In 2001 alone, appropriations exceeded the discretionary
    spending levels set in the BEA, requiring a $95.5 billion increase in
    the cap for that year to accommodate the increase. In 2001, PAYGO
    requirements for $17 billion in spending were also waived.
      Beginning in 2002, the Administration proposes to raise and extend the
    discretionary spending caps through 2005 to maintain their viability as
    a tool for fiscal discipline. This will allow for the continued
    reduction of the national debt, and at the same time provide enough
    growth for discretionary programs to keep pace with inflation over the
    next five years. The budget also proposes to change the scoring rules
    for advance appropriations and includes an allowance for a national
    emergency reserve. These changes will restore discipline to the budget
    process by making it more difficult to skirt the discretionary caps.
    Table 13-1 shows the Administration's proposals for discretionary
    spending limits through 2005. The budget also proposes to extend the
    PAYGO requirement for entitlement spending and tax legislation.

    National Emergency Reserve

      The budget includes a national emergency reserve allowance to ensure
    adequate funding for emergencies in the annual budget and appropriations
    process to respond to natural disasters. By setting aside a reserve for
    emergency needs, emergency supplementals should be limited to extremely
    rare events.
      Four programs make up a large part of the Government's response to
    natural disasters: the Federal Emergency Management Agency's disaster
    relief fund; the Department of Agriculture's fire fighting program; the
    Department of the Interior's fire fighting program; and the Small
    Business Administration's disaster loan program. The budget requests
    appropriations to provide adequate funding for these programs, based on
    historical funding levels and unobligated balances of appropriations
    provided in previous years. In addition, the budget includes an
    emergency reserve allowance (not a specific appropriation request) of
    budget authority and outlays, for 2002 and each year thereafter, based
    on the average annual spending over the last five years for
    extraordinarily large events, such as Hurricane Georges and the Midwest
    floods. In 2002, the reserve is $5.6 billion. It grows with inflation
    thereafter.

      To implement this proposal, the Budget Committees are asked to
    establish a reserve in the budget resolution. The reserve would be
    allocated to the appropriations committees upon a Presidential request
    designating the proposed funding as an emergency and the Committees'
    determination that the following criteria have been met: funding is for
    events that are sudden, urgent, unforseen, and not permanent; and,
    adequate funding for a normal year has been provided for the applicable
    program by the Appropriations Committees.
      The reserve could be used for programs other than the four listed
    above if the same criteria are met. If the reserve is not all allocated
    in a given year, the following year's emergency reserve would be
    increased by the unused amount.

    Advance Appropriations

      An advance appropriation becomes available one year or more beyond the
    year for which the appropriations act is passed. From 1993 to 1999, an
    average of $2.3 billion in discretionary budget authority was advance
    appropriated each year. In 1999, advance appropriations funding totaled
    $8.9 billion, an increase of $5.8

    [[Page 244]]

                    Table 13-1.  PROPOSED SPENDING LIMITS BY CATEGORY
                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                          2001 \1\    2002      2003      2004      2005      2006
    ----------------------------------------------------------------------------------------------------------------
    Original Balanced Budget Act Limits
       BA...............................................     542.0     552.8       1.9       2.1       2.2       2.4
       OL...............................................     595.8     594.7      35.9       2.0       2.2       2.4

    Spending in Excess of Original Caps
       BA...............................................      92.9     107.8  ........  ........  ........  ........
       OL...............................................      53.6      97.0  ........  ........  ........  ........

    Proposed Discretionary Spending Limits
       BA...............................................     634.9     660.6     685.1     702.7     720.1     737.9
       OL...............................................     649.4     691.7     711.8     731.2     754.5     770.4
    ----------------------------------------------------------------------------------------------------------------
    \1\ Data for 2001 is a current estimate and is not a proposed discretionary spending limit.

    billion from the previous year. In 2000, advance appropriations
    increased by $14.6 billion to over $23.4 billion. Increases in advance
    appropriations from the previous year included the following: Department
    of Education ($6.2 billion); Department of Housing and Urban Development
    ($4.2 billion); Department of Labor ($2.5 billion); and Department of
    Health and Human Services ($1.4 billion).
      Too often in recent years advance appropriations have been used to
    hide true funding levels by crediting certain appropriations to other
    years. This budget practice distorts the debate over Government spending
    and misleads the public about spending levels in specific accounts.
      The 2001 Congressional Budget Resolution attempted to address this
    misuse of advance funding by including a cap on advance appropriations
    equal to the amount advanced in the previous year. In order to expand
    discretionary spending in 2001, certain advance appropriations were
    reduced and other advances were increased. This did not change the total
    amount that was advance funded, but did allow for growth in 2001.
      The Administration proposes to reverse the misleading budget practice
    of using advance appropriations simply to avoid spending limitations.
    However, this proposal would not affect advance appropriations enacted
    for programmatic reasons. The budget proposes reforms where such
    appropriations were made in 2001 for 2002.

                       Discretionary Sequestration Report

      Discretionary programs are funded annually through the appropriations
    process. The scorekeeping guidelines accompanying the BEA identify
    accounts with discretionary resources. The BEA limits, or caps, budget
    authority and outlays available for discretionary programs each year
    through 2002. For 2000, the BEA divided discretionary spending into two
    categories: violent crime reduction spending and all other discretionary
    spending. For 2001 and 2002, the BEA specified a single category for all
    discretionary spending. The Transportation Equity Act for the 21st
    Century (TEA-21) (P.L. 105-178) established two additional categories
    for highway and mass transit outlays for 1999 through 2003. The Interior
    and Related Agencies Appropriations Act, 2001, (P.L. 106-291) added a
    new category for conservation spending with limits on budget authority
    and outlays for 2002-2006. In addition to specifying overall limits for
    the conservation category, the Act also specifies levels of spending for
    six subcategories
      OMB monitors compliance with the discretionary spending limits
    throughout the fiscal year. Appropriations that cause a breach in the
    budget authority or outlay limits trigger a sequester to eliminate that
    breach. The law does not require that Congress appropriate the full
    amount available under the discretionary limits, although it generally
    has appropriated at least the full amount. In recent years various
    means, such as emergency designations and advance appropriations, have
    been used to skirt the discretionary limits.
      Table 13-2 summarizes changes to the caps since 1990, and includes the
    new limits established for 2002-2006 by P.L. 106-291.
      Adjustments to discretionary limits.--The BEA permits certain
    adjustments to the discretionary limits. On January 16, 2001, OMB
    submitted the Final Sequestration Report for 2001 required by the BEA.
    This report describes adjustments permitted by the BEA as of the time
    the report was issued. The limits resulting from these adjustments are
    the starting points for this Preview Report. Included in the Preview
    Report are adjustments for changes in concepts and definitions,
    estimates of emergency spending released subsequent to the Final
    Sequestration Report, and adjustments to the highway and mass transit
    categories. Table 13-2 summarizes changes to the caps since 1990. Table
    13-3 shows the adjustments made in this Preview Report.

    [[Page 245]]

                                           Table 13-2.  HISTORICAL SUMMARY OF CHANGES TO DISCRETIONARY SPENDING LIMITS
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    1991     1992     1993     1994     1995     1996     1997     1998     1999     2000     2001     2002
    --------------------------------------------------------------------------------------------------------------------------------------------------------

          TOTAL DISCRETIONARY

    Statutory Caps as set in OBRA   BA              491.7    503.4    511.5    510.8    517.7    519.1    528.1    530.6    533.0    537.2    542.0    551.1
     1990, OBRA 1993, and 1997
     Bipartisan Budget Agreement..
                                    OL              514.4    524.9    534.0    534.8    540.8    547.3    547.3    547.9    559.3    564.3    564.4    560.8
      Adjustment to 1998 OBRA       BA            .......  .......  .......  .......  .......  .......  .......     -6.9  .......  .......  .......  .......
       limits to reach
       discretionary spending
       limits included in the 1997
       Bipartisan Budget Agreement
                                    OL            .......  .......  .......  .......  .......  .......  .......      6.8  .......  .......  .......  .......
      Adjustments for changes in    BA            .......      7.7      8.2      8.2      8.8     -0.6     -0.4      3.1     -0.2      2.8     -0.1     -3.3
       concepts and definitions.
                                    OL            .......      1.0      2.4      2.3      3.0     -0.5     -2.6     -2.8     -0.3      0.1     -0.1     -3.3
      Adjustments for changes in    BA            .......     -0.5     -5.1     -9.5    -11.8      3.0      2.6      0.0  .......  .......  .......  .......
       inflation..................
                                    OL            .......     -0.3     -2.5     -5.8     -8.8      1.8      2.3      0.9  .......  .......  .......  .......
      Adjustments for credit        BA                0.2      0.2     13.0      0.6      0.7      0.1      0.2      1.0     19.4      1.0      0.6  .......
       reestimates, IRS funding,
       debt forgiveness,
       Arrearages, EITC, IMF, and
       CDRs.......................
                                    OL                0.3      0.3      0.8      0.8      0.9      0.1      0.3      0.6      1.1      0.7      1.2      0.2
      Adjustments for emergency     BA                0.9      8.3      4.6     12.2      7.7      5.1      9.3      5.7     31.9     43.6      0.0      0.0
       requirements...............
                                    OL                1.1      1.8      5.4      9.0     10.1      6.4      8.1      7.0     22.9     35.8     19.8      6.0
      Adjustment pursuant to Sec.   BA            .......  .......  .......  .......    -15.0     -0.1     -0.1  .......  .......  .......  .......  .......
       2003 of P.L. 104-19 \1\....
                                    OL            .......  .......  .......  .......     -1.1     -3.5     -2.4     -1.5  .......  .......  .......  .......
      Adjustments for special
       allowances:
        Discretionary new budget    BA            .......      3.5      2.9      2.9      2.9  .......  .......  .......  .......  .......  .......  .......
         authority................
                                    OL            .......      1.4      2.2      2.6      2.7      1.1      0.5      0.1  .......  .......  .......  .......
        Outlay allowance..........  BA            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
                                    OL                2.6      1.7      0.5      1.0  .......  .......  .......      1.2  .......      0.8  .......  .......
          Subtotal, adjustments     BA                1.1     19.3     23.6     14.3     -6.7      7.5     11.6      2.9     51.1     47.4      0.5     -3.3
           excluding Desert Shield/
           Desert Storm...........
                                    OL                3.9      5.9      8.8     10.0      6.8      5.4      6.3     12.3     23.7     37.3     20.9      3.0
      Adjustments for Operation     BA               44.2     14.0      0.6        *        *  .......  .......  .......  .......  .......  .......  .......
       Desert Shield/Desert Storm.
                                    OL               33.3     14.9      7.6      2.8      1.1  .......  .......  .......  .......  .......  .......  .......
      Rounding Adjustment.........  BA            .......  .......  .......  .......  .......  .......  .......  .......  .......      1.1      3.2  .......
                                    OL            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
      TEA-21 Adjustment (Net) \2\.  BA            .......  .......  .......  .......  .......  .......  .......  .......     -0.9     -0.9     -0.9     -0.9
                                    OL            .......  .......  .......  .......  .......  .......  .......  .......      1.1      2.6      5.2      7.1
      Adjustment to reach spending  BA            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......     95.9  .......
       limits mandated in P.L. 106-
       429 \3\....................
                                    OL            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......     58.6  .......
      Adjustment for conservation   BA            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......      1.8
       limits established by P.L.
       106-291 \4\................
                                    OL            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......      1.2
                                   -------------------------------------------------------------------------------------------------------------------------
        Total adjustments.........  BA               45.3     33.2     24.2     14.3     -6.7      7.5     11.6      2.9     50.2     47.6     98.8     -2.4
                                    OL               37.2     20.8     16.4     12.8      7.9      5.4      6.3     12.3     24.9     40.0     84.7     11.3
                                   -------------------------------------------------------------------------------------------------------------------------
    Preview Report spending limits  BA              537.0    536.6    535.7    525.1    511.0    526.6    539.7    533.5    583.2    584.8    640.8    548.7
     \5\.
                                    OL              551.6    545.7    550.4    547.6    548.7    552.7    553.6    560.2    584.2    604.2    649.1    572.1
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    * $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 equal to the aggregate amount of
      reductions in new budget authority and outlays for discretionary programs resulting from the provisions of the bill, other than emergency
      appropriations.

    \2\ Sec. 8101(a) of P.L. 105-178, the Transportation Equity Act for the 21st Century (TEA-21), which was signed by the President on June 6, 1998,
      established two new discretionary spending categories: Highway and Mass Transit. Sec. 8101(b) of TEA-21 provided for an offsetting adjustment in the
      existing discretionary spending limits.

    \3\ Sec. 701 of P.L. 106-429, the Foreign Operations and Related Agencies Appropriations Act, FY 2001, included revised budget authority and outlay caps
      for FY 2001. In addition, this section provided for a budget authority rounding adjustment of 0.5 percent, and also prohibited OMB from making
      adjustments in the Final Sequestration Report for emergency requirements.

    \4\ Title VIII of of P.L. 106-291, the Interior and Related Agencies Appropriations Act, FY 2001, created a new conservation category with limits on
      budget authority and outlays for FY 2002-FY 2006.

    \5\ Reflects combined Defense Discretionary, Non-Defense Discretionary, Violent Crime Reduction, Highway Category, Mass Transit Category, and
      Conservation Category spending limits.

    [[Page 246]]

                                                           Table 13-3.  DISCRETIONARY SPENDING LIMITS
                                                                    (In millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             2000        2001        2002
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                VIOLENT CRIME REDUCTION SPENDING

    Final Sequestration Report Violent Crime Reduction Spending Limits.............................  BA                        4,500  ..........  ..........
                                                                                                     OL                        6,344  ..........  ..........
    Adjustments for the Preview Report:
      No Adjustments...............................................................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........  ..........
    Preview Report Spending Limits.................................................................  BA                        4,500  ..........  ..........
                                                                                                     OL                        6,344  ..........  ..........
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                        HIGHWAY CATEGORY

    Final Sequestration Report Highway Category Spending Limits....................................  BA                   ..........  ..........  ..........
                                                                                                     OL                       24,574      26,920      27,925
    Adjustments for the Preview Report:
       Technical outlay adjustment.................................................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........        -663
       Adjustment for revenue aligned budget authority.............................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........       1,227
                                                                                                    --------------------------------------------------------
        Subtotal, Adjustments for the Preview Report...............................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........         564
                                                                                                    --------------------------------------------------------
    Preview Report Highway Category Spending Limits................................................  BA                   ..........  ..........  ..........
                                                                                                     OL                       24,574      26,920      28,489
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                      MASS TRANSIT CATEGORY

    Final Sequestration Report Mass Transit Category Spending Limits...............................  BA                   ..........  ..........  ..........
                                                                                                     OL                        4,117       4,639       5,419
    Adjustments for the Preview Report:
       Technical outlay adjustment.................................................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........        -144
                                                                                                    --------------------------------------------------------
        Subtotal, Adjustments for the Preview Report...............................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........        -144
                                                                                                    --------------------------------------------------------
    Preview Report Mass Transit Category Spending Limits...........................................  BA                   ..........  ..........  ..........
                                                                                                     OL                        4,117       4,639       5,275
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                      CONSERVATION CATEGORY

    Final Sequestration Report Conservation Category Spending Limits...............................  BA                   ..........  ..........       1,760
                                                                                                     OL                   ..........  ..........       1,232
      Federal and State Land and Water Conservation Fund subcategory...............................  BA                   ..........  ..........         540
                                                                                                     OL                   ..........  ..........  ..........
      State and Other Conservation subcategory.....................................................  BA                   ..........  ..........         300
                                                                                                     OL                   ..........  ..........  ..........
      Urban and Historic Preservation subcategory..................................................  BA                   ..........  ..........         160
                                                                                                     OL                   ..........  ..........  ..........
      Payments in Lieu of Taxes subcategory........................................................  BA                   ..........  ..........          50
                                                                                                     OL                   ..........  ..........  ..........
      Federal Deferred Maintenance subcategory.....................................................  BA                   ..........  ..........         150
                                                                                                     OL                   ..........  ..........  ..........
      Coastal Assistance subcategory...............................................................  BA                   ..........  ..........         440
                                                                                                     OL                   ..........  ..........  ..........
      Unallocated..................................................................................  BA                   ..........  ..........         120
                                                                                                     OL                   ..........  ..........  ..........
    Adjustments for the Preview Report:
      No Adjustments...............................................................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........  ..........  ..........
    Preview Report Conservation Category Spending Limits...........................................  BA                   ..........  ..........       1,760
                                                                                                     OL                   ..........  ..........       1,232
    --------------------------------------------------------------------------------------------------------------------------------------------------------

    [[Page 247]]

                                                                  OTHER DISCRETIONARY SPENDING

    Final Sequestration Report Other Discretionary Spending Limits.................................  BA                      580,289     640,803     550,333
                                                                                                     OL                      569,224     613,247     539,513
    Adjustments for the Preview Report:
      Changes in concepts and definitions..........................................................  BA                   ..........  ..........      -2,359
                                                                                                     OL                   ..........         275      -2,064
      Discretionary changes in mandatory accounts..................................................  BA                   ..........  ..........      -1,029
                                                                                                     OL                   ..........  ..........        -889
      Release of contingent emergency appropriations...............................................  BA                   ..........  ..........  ..........
                                                                                                     OL                   ..........       3,985         531
                                                                                                    --------------------------------------------------------
        Subtotal, Adjustments for the Preview Report...............................................  BA                   ..........  ..........      -3,388
                                                                                                     OL                   ..........       4,260      -2,422
                                                                                                    --------------------------------------------------------
    Preview Report Other Discretionary Spending Limits.............................................  BA                      580,289     640,803     546,945
                                                                                                     OL                      569,224     617,507     537,091
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                  TOTAL DISCRETIONARY SPENDING

    Final Sequestration Report Total Discretionary Spending Limits.................................  BA                      584,789     640,803     552,093
                                                                                                     OL                      604,259     644,806     574,089
    Adjustments for the Preview Report.............................................................  BA                   ..........  ..........      -3,388
                                                                                                     OL                   ..........       4,260      -2,002
    Preview Report Total Discretionary Spending Limits.............................................  BA                      584,789     640,803     548,705
                                                                                                     OL                      604,259     649,066     572,087
    --------------------------------------------------------------------------------------------------------------------------------------------------------

      After consultation with the Congressional Budget Committees and CBO,
    OMB has agreed to several changes to budget classification of spending.
    First, OMB and CBO have agreed to reclassify the negative subsidy
    receipts generated by the Federal Housing Administration's mutual
    mortgage insurance program and pipeline safety fees collected by the
    Department of Transportation as discretionary. In addition, the
    administrative expenses of the national flood insurance program and the
    flood mitigation fund within the Federal Emergency Management Agency
    have also been reclassified as discretionary. In addition, certain
    benefit payments to severely disabled military personnel have been
    reclassified as mandatory.
      These reclassifications increase the outlay limits in 2001 by $0.3
    billion and decrease the budget authority limits by $2.4 billion and the
    outlay limits by $2.1 billion in 2002. In addition, OMB has changed its
    scoring of outlays for contingent emergency appropriations, to be
    consistent with Congressional scoring practices. OMB used to score
    outlays from contingent emergency appropriations when the President
    designated them as ``emergency requirements.'' OMB now scores emergency
    budget authority and outlays against appropriations acts that include
    contingent emergency funds. Since the actual outlays flowing from the
    use of contingent emergency funding is dependent upon a Presidential
    request, OMB will review the original estimates each year and may make
    subsequent adjustments based on the most up-to-date information.

       Table 13-3 includes a downward adjustment of $1.0 billion in budget
    authority and $0.9 billion in outlays in 2002, for the second year
    effect of provisions in the 2001 appropriations bills that modified
    mandatory programs. Under the BEA, the discretionary limits are adjusted
    by the amount of the savings or costs of these modifications.
      The caps have also been adjusted upward for contingent emergency
    appropriations (i.e., funding for amounts that the President designates
    as ``emergency requirements'' and that Congress so designates in law)
    that have been released since the transmittal of the Final Sequestration
    Report. This adjustment totals $4.0 billion in outlays in 2001 and $0.5
    billion in outlays in 2002. Funds designated as an emergency requirement
    include crop loss payments and costs associated with an above average
    fire season in the southwestern United States.
       TEA-21 requires two adjustments to the discretionary limits based
    upon changes in outlays within the highway and transit categories.
    Outlays within the highway category have been adjusted upward by $1.2
    billion in 2002 because of higher-than-anticipated receipts in 2000 and
    in 2002. This increase is partly offset by a downward adjustment of $0.7
    billion as a result of changes in technical assumptions. The mass
    transit category outlays have been adjusted downward due to revised
    technical assumptions. Table 13-4 shows how the adjustments to the
    highway and transit categories have been calculated.

    [[Page 248]]

                      Table 13-4.  ADJUSTMENTS TO THE HIGHWAY AND MASS TRANSIT CATEGORIES FOR CHANGES IN RECEIPTS AND TECHNICAL ASSUMPTIONS
                                                                    (In millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             2001        2002        2003
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                                      HIGHWAY CATEGORY

    Obligation Limitation Assumed in FY 2001 Preview Report.............................................................      30,216      27,767      28,233
       Adjustments:
         Difference Between Current and Previous Estimate of FY 2002
           Highway Tax Receipts.........................................................................................  ..........       2,760  ..........
           Difference Between FY 2000 Actual and Estimated Highway Tax Receipts.........................................  ..........       1,783  ..........
                                                                                                                         -----------------------------------
             Subtotal, Obligation Limitation Adjustment.................................................................  ..........       4,543  ..........

    FY 2002 Preview Report Obligation Limitation........................................................................      30,216      32,310      28,233

    Outlay Limits in FY 2001 Preview Report.............................................................................      26,920      27,925      27,621
       Adjustments:
         Increase in FY 2002 Obligation Limitation......................................................................  ..........       1,227       1,863
       Changes in Technical Assumptions:
         Reestimate of Outlays from Obligation Limitation level, Adjusted to Include Outlays from change in Obligation    ..........      28,489      29,100
         Limitation.....................................................................................................
         Reestimate of Outlays from Obligation Limitation level, Adjusted to Includes Outlays from change in Obligation   ..........      29,152      29,484
         Limitation.....................................................................................................
                                                                                                                         -----------------------------------
       Adjustment for Changes in Technical Assumptions..................................................................  ..........        -663        -384

    Total Adjustments...................................................................................................  ..........         564       1,479
                                                                                                                         -----------------------------------
    Outlay Limits in FY 2002 Preview Report.............................................................................      26,920      28,489      29,100
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    MASS TRANSIT CATEGORY

    Outlay Limits in FY 2001 Preview Report.............................................................................       4,639       5,419       5,910
       Adjustment:
         Changes in Technical Assumptions:
           Reestimate of Outlays from Obligation Limitation Using Current Technical Assumptions.........................  ..........       5,275       5,531
           FY 2001 Preview Report Outlays...............................................................................  ..........       5,419       5,910
                                                                                                                         -----------------------------------
         Adjustment for Changes in Technical Assumptions................................................................  ..........        -144        -379

    Outlay Limits in FY 2002 Preview Report.............................................................................       4,639       5,275       5,531
    --------------------------------------------------------------------------------------------------------------------------------------------------------

       The Administration has included several proposals in the budget that
    would result in cap adjustments upon their enactment. These adjustments
    are assumed in the proposed limits in Table 13-1 and are described
    below.
      Adjustments Included in Proposed Limits That Would be Made Under
    Existing Authority:
        Continuing Disability Reviews.--Funding for additional
              continuing disability reviews (CDRs) under the heading,
              ``Limitation on Administrative Expenses,'' for the Social
              Security Administration. The law limits adjustments to the
              budget authority and outlay estimates authorized in the BBA.
              CDRs are conducted to verify that recipients of Social
              Security disability insurance benefits and Supplemental
              Security Income benefits for persons with disabilities are
              still disabled. The budget includes a request of $433 million
              for CDRs in 2002.
        Earned Income Tax Credit (EITC) Compliance Initiative.--
              Funding for EITC compliance initiatives, including the
              detection and enforcement of EITC eligibility rules in order
              to reduce EITC overclaims. Adjustments are limited to the
              budget authority and outlay estimates authorized in the BBA.
              The budget includes a request of $146 million for EITC
              compliance in 2002.
        Adoption Incentive Payments.--The Adoption and Safe Families
              Act of 1997 authorizes bonus payments to States that increase
              the number of adoptions from the foster care system. The Act
              provides for a discretionary cap adjustment for appropriations
              up to $20 million annually for 1999 through 2003. It is
              assumed that the cost of adoption bonuses will be offset by
              reductions in mandatory foster care costs. The budget includes
              a request of $20 million for adoption incentive payments in
              2002.
      Comparison of OMB and CBO discretionary limits.--Section 254(d)(5) of
    the BEA requires this report to explain the differences between OMB and
    CBO estimates for discretionary spending limits. Table 13-5 compares OMB
    and CBO limits for 2000-2002. CBO uses the discretionary limits from
    OMB's sequestration update report as a starting point for adjustments in
    its end-of-session sequestration report.

    [[Page 249]]

                          Table 13-5.  COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                        2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------

                                Violent Crime Reduction

    CBO Preview Report limits:
      BA...........................................................................      4,500  .........  .........
      OL...........................................................................      6,344  .........  .........
    OMB Preview Report limits:
      BA...........................................................................      4,500  .........  .........
      OL...........................................................................      6,344  .........  .........
    Difference:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................  .........  .........  .........

    ----------------------------------------------------------------------------------------------------------------
                                    Highway Category

    CBO Preview Report limits:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................     24,574     26,920     28,889
    OMB Preview Report limits:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................     24,574     26,920     28,489
    Difference:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................  .........  .........       -400

    ----------------------------------------------------------------------------------------------------------------
                                 Mass Transit Category

    CBO Preview Report limits:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................      4,117      4,639      5,490
    OMB Preview Report limits:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................      4,117      4,639      5,275
    Difference:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................  .........  .........       -215

    ----------------------------------------------------------------------------------------------------------------
                                 Conservation Category

    CBO Preview Report limits:
      BA...........................................................................  .........  .........      1,760
      OL...........................................................................  .........  .........      1,232
    OMB Preview Report limits:
      BA...........................................................................  .........  .........      1,760
      OL...........................................................................  .........  .........      1,232
    Difference:
      BA...........................................................................  .........  .........  .........
      OL...........................................................................  .........  .........  .........
    ----------------------------------------------------------------------------------------------------------------
                                  Other Discretionary

    CBO Preview Report limits:
      BA...........................................................................    580,289    640,803    550,035
      OL...........................................................................    569,224    613,883    540,353
    OMB Preview Report limits:
      BA...........................................................................    580,289    640,803    546,945
      OL...........................................................................    569,224    617,507    537,091
    Difference:
      BA...........................................................................  .........  .........     -3,090
      OL...........................................................................  .........      3,624     -3,262

    ----------------------------------------------------------------------------------------------------------------

    [[Page 250]]

                          Total Discretionary Spending Limits

    CBO Preview Report limits:
      BA...........................................................................    584,789    640,803    551,795
      OL...........................................................................    604,259    645,442    575,964
    OMB Preview Report limits:
      BA...........................................................................    584,789    640,803    548,705
      OL...........................................................................    604,259    649,066    572,087
    Difference:
      BA...........................................................................  .........  .........     -3,090
      OL...........................................................................  .........      3,624     -3,877
    ----------------------------------------------------------------------------------------------------------------

      The outlay difference of $3.6 billion in 2001 is due primarily to the
    release of contingent emergency spending. CBO estimated $0.6 billion in
    outlays associated with the release of over $4.8 billion in contingent
    emergency funds provided in 2001 appropriations bills. OMB assumed
    outlays of $4.0 billion. In addition, OMB also made an adjustment of
    $0.3 billion to reflect the new scoring treatment of unreleased
    contingent emergency appropriations.
      For 2002, the $3.1 billion difference in budget authority is made up
    of several components, the largest of which is changes in concepts and
    definitions agreed to by the scorekeepers. The final decisions on
    reclassifications were made after CBO issued its report. As a result,
    the CBO Preview Report caps do not include the reclassifications of FHA
    negative subsidy, pipeline safety fees, flood insurance administrative
    expenses, and certain disability benefits for military personnel. OMB
    and CBO also have slightly different estimates of the second-year effect
    of discretionary changes to mandatory accounts, and of releases of
    emergency spending.
      The $3.9 billion difference in outlays is due primarily to the timing
    issue listed above, but also includes small differences in technical
    adjustments made to the highway and mass transit categories.

                           PAYGO 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 entitlement authority, the food stamp program, and
    budget authority provided by law other than in appropriations acts. The
    following are exempt from PAYGO enforcement: Social Security, the Postal
    Service, legislation specifically designated as an emergency
    requirement, and legislation fully funding the Federal Government's
    commitment to protect insured deposits.
      The BEA requires a sequestration to offset any net cost resulting from
    legislation enacted before October 1, 2002, that affects direct spending
    or receipts.
      Sequester determinations.--The BEA requires OMB to submit a report to
    Congress estimating the change in outlays or receipts for the current
    year, the budget year, and the following four fiscal years resulting
    from enactment of PAYGO legislation. The estimates, which must rely on
    the economic and technical assumptions underlying the most recent
    President's budget, determine whether the PAYGO requirement is met. The
    PAYGO process requires OMB to maintain a ``scorecard'' that shows the
    cumulative net cost impact of such legislation. This Report shows how
    these past actions affect the upcoming fiscal year.
      In recent years, the PAYGO constraints have been skirted. In enacting
    the 2000 budget, Congress and the previous Administration removed net
    costs totaling $12.7 billion over five years from the PAYGO scorecard.
    Last year, agricultural direct spending totaling $7.2 billion over five
    years was waived from the PAYGO requirement. In total, net costs of
    $10.5 billion were removed last year from the PAYGO scorecard for 2001.
      Table 13-6 shows OMB estimates for legislation enacted through
    December 31, 2000. The balances reflect the removal of $10.5 billion net
    costs for 2001 in last year's Final Sequester Report as required by the
    Omnibus Consolidated and Emergency Supplemental Appropriations Act,
    2001. For legislation enacted this year, the 2001 impact will be added
    to the balance for 2002 in the Final Sequester Report that OMB is to
    issue after the 1st session of the 107th Congress adjourns sine die. The
    current PAYGO scorecard shows net costs of $16.1 billion for 2002 and a
    total of $74.5 billion for 2002 through 2005.
      The President's budget sets aside the Social Security surplus and
    additional on-budget surpluses for debt reduction and contingencies.
    These levels ensure the President's tax plan and his Immediate Helping
    Hand and Medicare modernization proposals are fully financed by the
    surplus. The Administration will work with Congress to ensure that any
    unintended sequester of spending does not occur under current law or
    from the enactment of any other proposals that meet the President's
    objectives to reduce the debt, fund priority initiatives, and grant tax
    relief to all income tax paying Americans.

    [[Page 251]]

                                          Table 13-6.  PAY-AS-YOU-GO SCORECARD
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                             Total
                                                                2001     2002     2003     2004     2005   2002-2005
    ----------------------------------------------------------------------------------------------------------------
    Pay-as-you-go scorecard:
       Revenue impact of enacted legislation................  .......   -3,863   -3,920   -3,596   -3,820   -15,199
       Outlay impact of enacted legislation.................  .......   12,190   14,545   15,740   16,853    59,328
                                                             -------------------------------------------------------
         Total, net cost impact of enacted legislation......  .......   16,053   18,465   19,336   20,673    74,527
    ----------------------------------------------------------------------------------------------------------------