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



[[Page 281]]

                                     

                                     

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

                         BUDGET ENFORCEMENT ACT

                             PREVIEW REPORT

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

   

[[Page 283]]


 
                           14. 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. While the overall spending 
caps have expired, category caps still exist for transportation and 
environmental conservation activities. This report includes a 
presentation of those category limits in FY 2003, though it does not 
propose new overall discretionary caps beyond FY 2002.
  The BEA requires that OMB issue a report on the impact of each piece 
of enacted 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 BEA-required status reports, provides the status of 
discretionary appropriations and PAYGO legislation based on laws enacted 
as of the end of the first session of the 107th Congress. In addition, 
it explains the differences between the OMB and Congressional Budget 
Office (CBO) estimates of the remaining subcategory discretionary caps.
  OMB estimates use the economic and technical assumptions underlying 
the President's FY 2003 Budget submission, as required by the BEA. The 
remaining two BEA-required status reports, the 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 same 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.

                  I.  THE PRESIDENT'S BUDGET PROPOSALS

  In the first session of the 107th Congress, the President proposed and 
the Congress chose to enact 2002 appropriations well above the 
discretionary spending levels originally set by the BEA. Although the 
1997 statutory spending limits provided an effective incentive to slow 
the growth of government spending during a time of deficits, the growth 
in discretionary spending with the arrival of budget surpluses in 1998 
made these caps unrealistic. The Administration will work with the 
Congress during the next session to develop budget enforcement 
mechanisms, including future discretionary spending limits and a PAYGO 
requirement for entitlement spending and tax legislation that are 
consistent with the needs of the country.

                                                   Budget Process Reform

  The 2003 budget is being proposed during a time when our Armed Forces 
are fighting the War on Terrorism abroad and increased funding is needed 
to prevent future terrorist attacks at home; the economy is suffering 
the effects of the slowdown that was worsened by the terrorist attacks 
on September 11, 2001; budget surpluses for the short term have 
disappeared; and the general purpose discretionary caps and PAYGO 
requirements of BEA no longer apply. From the perspective of developing 
a 2003 budget, these are waters that have not been charted for many 
years, and prudent action will be required to avoid years of excess 
spending and deficits. A number of process reforms would enhance the 
Nation's ability to meet these challenges in a fiscally responsible 
manner.

A Joint Budget Resolution, Discretionary Caps, and PAYGO

  The Budget Enforcement Act's mechanisms for limiting discretionary 
spending and for constraining expansions in mandatory programs and 
reductions in tax receipts expire at the end of 2002, for most programs. 
The President's 2003 budget provides the funding necessary to win the 
War on Terrorism, stimulate the economy, and meet the Nation's ongoing 
public requirements.
  The Administration proposes a joint budget resolution to give the 
budget resolution the force of law. A joint budget resolution would set 
the overall levels for discretionary spending, mandatory spending, 
receipts, and debt in a simple document that would have the force of 
law. Under the current process, the Congress annually adopts a 
``concurrent resolution,'' which does not require the President's 
signature and does not have the force of law.
  A joint budget resolution could be enforced by sequesters requiring 
automatic across-the-board cuts by category to offset any excess 
spending, similar to the BEA. It would bring the President into the 
process at an early stage, require the President and the Congress to 
reach agreement on overall fiscal policy before individual tax and 
spending bills are enacted, and avoid

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the ``train wrecks'' at the end of the year that frequently occur under 
the current process.
  Alternatively, enforcement could involve extension of the BEA 
enforcement mechanisms. If the BEA is extended, the Administration would 
support discretionary caps that are consistent with the discretionary 
levels proposed in the 2003 budget and PAYGO requirements that would 
carry out the 2003 budget's proposals for mandatory spending and 
receipts.

Reserve for Fully Accruing Federal Employees Retirement

  The President's 2003 Budget corrects a long-standing understatement of 
the true cost of literally thousands of government programs. For some 
time, the accruing charge of the Federal Employee retirement system 
(FERS) and military retirement system (MRS) costs and a portion of the 
old Civil Service retirement system (CSRS) costs has been properly 
allocated to the affected salary and expense accounts, but the remainder 
(a portion of CSRS, other small retirement systems, and all civilian and 
military retiree health benefits) has been charged to central accounts. 
The full cost of accruing benefits should be allocated to the affected 
salary and expense accounts, so that budget choices for program managers 
and budget decision makers are not distorted by inaccurate, understated 
cost information.
  The Budget presents the amounts associated with shifting this cost 
from central accounts to affected program accounts, starting in 2003. 
The amounts associated with the proposal are shown on a comparable basis 
for program accounts in 2001 and 2002. Agencies will also, for the first 
time, be charged for the accruing cost of retiree health care benefits 
for all civilian employees. These are also shown on a comparable basis 
for 2001 and 2002. For military retirees health benefits, current law 
requires agencies to be charged for the accruing cost for over-age 64 
military retirees, and the budget proposes to extend this to under-age 
65 military retirees in 2004. These amounts are shown in the Budget, 
beginning in 2004.
  The proposal does not increase or lower total budget outlays or alter 
the surplus/deficit since the higher payments will be offset by receipts 
in the pension and health funds. The shift will reduce reported costs 
from central mandatory accounts and increase reported costs in the 
affected discretionary accounts. Consequently, these costs will be 
properly reported in the budget for the first time and considered as an 
annual cost of managing these programs, as they should be.
  The Administration will oppose any attempt to divert the additional 
funding from the intended purpose and instead use it to fund 
programmatic increases. Therefore, the Administration proposes that the 
additional funding be fenced or held in a reserve and only be made 
available to the committees of jurisdiction for the specific purpose of 
adjusting for the understatement of costs.
  This change in treatment of costs is the first in a series of steps 
that will be taken to ensure that the full annual cost of resources used 
including support services, capital assets and hazardous waste is 
charged properly in the budget presentation.

                                            Reviewing Mandatory Spending

  While the budget currently classifies spending that is subject to the 
annual appropriations process as ``discretionary'' and spending that is 
provided through permanent law as ``mandatory,'' the Constitution makes 
clear that all funding is at the discretion of Congress and the 
President through their power to make law. The terms ``discretionary'' 
and ``mandatory'' describe the process by which Congress provides 
funding and not the necessity of the spending.
  For example, the salaries and expenses for the President and the Vice 
President's offices, the two highest offices in the land, are subject to 
the appropriations process and classified as ``discretionary,'' while 
funding for a few selected federal agencies' administrative expenses is 
provided under permanent law and classified as ``mandatory.''
  Except for interest on the national debt, virtually all federal 
spending was subject to the annual appropriations process until the New 
Deal entitlement programs, including Social Security and agriculture 
subsidies, were created. Medicare and Medicaid, launched in the 1960s, 
lifted the share of mandatory spending to more than half of overall 
outlays by 1975. This year, sixty-four cents of every federal dollar 
will be not be subject to Congress' discretion under the annual 
appropriations process.
  Each time a program is added to the mandatory side of the budget, the 
Congress loses some of the flexibility necessary to respond to new 
priorities. During previous wars, when most of the budget was subject to 
the annual appropriations process, presidents had greater flexibility to 
adjust spending levels to meet the new demands of a war. Both Presidents 
Roosevelt and Truman reduced spending in other areas to meet the demands 
of World War II and the Korean War.
  With such a large portion of the budget exempt from the annual 
appropriations process, the 107th Congress and the President do not have 
the same flexibility. They must meet the new demands of a new war 
against terrorism in the annual appropriations process with much more 
limited options.
  Based on a review, the Office of Management and Budget identified a 
limited list of programs that Congress may want to put back under its 
annual review and control. This budget proposes to reclassify three of 
those programs. Several others that the Congress may wish to consider 
reclassifying are listed below. In total, these programs amount to only 
$8 billion, less than one percent of federal spending. If Congress 
shifted these or other programs from the mandatory to discretionary 
category, it would provide greater scrutiny and greater flexibility in 
meeting national needs.


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  Programs proposed to be reclassified from mandatory to discretionary 
in the President's 2003 Budget:

    Federal Direct Student Loan Fund Program, administrative 
          expenses;

    Corps of Engineers, Power Marketing receipts, offset to 
          discretionary spending; and

    FEMA Flood Insurance Premiums, offset to discretionary 
          administrative expenses.

  Administrative expenses classified as mandatory:

    Student loan subsidy for consolidation loan administration;

    Black Lung Disability Fund;

    Energy Employees Occupational Illness Compensation Fund;

    Pension Guaranty Benefit Corporation;

    Civil Service Retirement Disability Fund; and

    Social Security Administration, Benefits to Disabled Coal 
          Miners.

  Non-entitlement programs classified as mandatory:

    Maritime Administration Ocean Freight Differential;

    Vocational Rehabilitation Program;

    Child Care Entitlement to States; and

    Social Services Block Grant.

                                  Limiting Use of Advance Appropriations

  An advance appropriation becomes available one year or more beyond the 
year for which the appropriations act is passed. Budget authority is 
recorded in the year the funds become available, not in the year 
enacted. Too often, advance appropriations have been used to expand 
spending levels by shifting budget authority from the budget year into 
the subsequent year and then appropriating the BA freed up under the 
budget year discretionary cap to other programs. From 1993 to 1999, an 
average of $2.3 billion in discretionary budget authority was advance 
appropriated each year. In 1999, advance appropriations totaled $8.9 
billion, an increase of $5.8 billion from the previous year. They 
increased to $23.4 billion in 2000 and have essentially remained at this 
level.
  This budget practice distorts the debate over Government spending and 
misleads the public about spending levels in specific accounts. The 2002 
Congressional Budget Resolution addressed this misuse of advance funding 
by capping advance appropriations at the amount advanced in the previous 
year. The Administration proposes that total advance appropriations 
continue to be capped in 2003. Accordingly, the 2003 budget freezes all 
advance appropriations, except for those that should be reduced or 
eliminated for programmatic reasons.

                                                          Line-Item Veto

  A perennial criticism of the Federal Government is that the annual 
budget contains too many special interest spending items. The 
persistence of these special interest items erodes citizen confidence in 
Government.
  Because appropriations bills must be enacted annually to fund the 
Government, they attract spending items that could not be enacted on 
their own. Particularly at the end of the congressional session, it is 
not uncommon for bills to move through the appropriations process 
quickly, often with little scrutiny. It is the rare Member who will 
challenge questionable spending for fear that provisions important to 
him or her will be challenged in return. The result of this logrolling 
is that the President is left with an all or nothing proposition. He 
must either sign the entire appropriations bill with special interest 
projects or veto the entire bill and invite a potential Government 
shutdown.
  The President proposes that the Congress correct a constitutional flaw 
in the Line Item Veto Act enacted in 1996. From the Nation's founding, 
Presidents have exercised the authority to decline to spend appropriated 
sums. However, this authority was curtailed in 1974 when Congress passed 
the Impoundment Control Act, which restricted the President's authority 
to decline to spend appropriated sums. The Line Item Veto Act of 1996 
attempted to give the President the authority to cancel spending 
authority and special interest tax breaks, but the U.S. Supreme Court 
found that law unconstitutional.
  The President proposes a line-item veto linked to debt reduction. This 
proposal would give the President the authority to decline to spend new 
appropriations, to decline to approve new mandatory spending, or to 
decline to grant new limited tax benefits (to 100 or fewer 
beneficiaries) whenever the President determines the spending or tax 
benefits are not essential Government functions and will not harm the 
national interest. All savings from the line-item veto would be used for 
debt reduction.

                                   Biennial Budgeting and Appropriations

  Only twice in the last 50 years has the Congress enacted all 13 
appropriation bills by the beginning of the fiscal year. According to 
the Congressional Budget Office, roughly one-third of domestic 
discretionary programs are operating under authorization statutes that 
have expired. Because Congress must enact 13 appropriations bills each 
year, it cannot devote the time necessary to provide oversight and 
resolve problems in other programs. The preoccupation with these annual 
appropriations bills frequently precludes review and action on the 
growing portion of the budget that is permanently funded under 
entitlement laws.
  In contrast, a biennial budget would allow lawmakers to devote more 
time every other year to ensuring that taxpayers' money is spent wisely 
and efficiently. In addition, Government agencies would receive more 
stable funding, which would facilitate longer range planning and 
improved fiscal management. Under the President's proposal for a 
biennial budget, funding decisions would be made in non-election years 
to help de-politicize the process. Moreover, lawmakers could devote more 
time

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to finishing the appropriation bills on time because the next year would 
be free for other legislative business.

                                          Government Shutdown Prevention

  For 20 out of the past 21 years, Congress and the President have not 
finished their work by the October 1st deadline, the beginning of the 
new fiscal year. This past year, none of the 13 appropriations bills was 
enacted by the beginning of the year. When Congress and the President 
fail to gain enactment of all 13 appropriations bills, the Congress 
frequently funds the Government through ``continuing resolutions'' 
(CRs), which provide temporary funding authority for Government 
activities at current levels until the final appropriations bills are 
signed into law. This past year, for example, Congress had to enact 7 
separate CRs to keep the Government operating.
  Congress must pass a CR and it must be signed by the President to 
provide funding for agencies. Absent enactment of a CR, the Federal 
Government is shut down. In the 1980s and 1990s, the Government 
experienced shutdowns. Some Administrations used the threat of a 
Government shutdown to extract spending increases from the Congress. 
These annual, often cynical rituals were destructive of public 
confidence and reflected poorly on all parties to the debate.
  Important Government functions should not be held hostage simply 
because Washington cannot cut through partisan strife to pass temporary 
funding bills. In the responsible process the President envisions, 
appropriations bills would pass on time as the law requires, but a back-
up plan to avoid the threat of a Government shutdown is a good idea. 
Under the President's proposal, if an appropriations bill is not signed 
by October 1 of the new fiscal year, funding would be automatically 
provided at the lower of the President's Budget or the prior year's 
level. The President's proposal would remove incentives for the 
President or the congressional leadership to use the leverage of 
``shutting down Government'' to achieve spending objectives or to attach 
extraneous measures they could not otherwise obtain through the normal 
appropriations process.

                 II.  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. While the limits for overall discretionary spending 
expired in 2002, the highway and mass transit categories continue 
through 2003, while the conservation category does not expire until 
2006. This report examines how appropriations within the 2003 budget 
conform with the limits specified in the aforementioned categories.
  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, the Congress 
and the Administration have used various means, such as emergency 
designations and advance appropriations, to circumvent the discretionary 
limits.
  In 2002, for example, Division C, Section 101 of P.L. 107-117, the 
Department of Defense and Emergency Supplemental Appropriations for 
Recovery from and Response to Terrorist Attacks on the United States, 
2002, legislated an upward adjustment of $134.5 billion in budget 
authority and $132.8 billion in outlays to the other discretionary 
category to make room for increased spending above the original 
statutory limits. The Act also included a special BA adjustment 
allowance of up to 0.12 percent of total appropriations.
  Table 1 summarizes changes to the caps since 1990 and includes the 
limits established by for highways, mass transit, and conservation 
spending. It also includes the revised other discretionary limit for 
2002 established in P.L. 107-117.

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                                       Table 14-1.  HISTORICAL SUMMARY OF CHANGES TO DISCRETIONARY SPENDING LIMITS
                                                                (In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   1991    1992    1993    1994    1995    1996    1997    1998    1999    2000    2001    2002    2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
       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, 1997
 Bipartisan Budget Agreement,
 and TEA-21.....................
                                  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    34.6
  Adjustment to 1998 OBRA limits  BA                 N/A     N/A     N/A     N/A     N/A     N/A     N/A    -6.9     N/A     N/A     N/A     N/A     N/A
   to reach discretionary
   spending limits included in
   the 1997 Bipartisan Budget
   Agreement....................
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     6.8     N/A     N/A     N/A     N/A     N/A
  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     N/A
   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     N/A
  Adjustments for changes in      BA              ......    -0.5    -5.1    -9.5   -11.8     3.0     2.6     0.0     N/A     N/A     N/A     N/A     N/A
   inflation....................
                                  OL              ......    -0.3    -2.5    -5.8    -8.8     1.8     2.3     0.9     N/A     N/A     N/A     N/A     N/A
  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     0.6     N/A
   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     0.8     N/A
  Adjustments for emergency       BA                 0.9     8.3     4.6    12.2     7.7     5.1     9.3     5.7    31.9    43.6    20.0    22.2     N/A
   requirements.................
                                  OL                 1.1     1.8     5.4     9.0    10.1     6.4     8.1     7.0    22.9    35.8    20.5    31.7     N/A
  Adjustment pursuant to Sec.     BA              ......  ......  ......  ......   -15.0    -0.1    -0.1  ......     N/A     N/A     N/A     N/A     N/A
   2003 of P.L. 104-19 \1\......
                                  OL              ......  ......  ......  ......    -1.1    -3.5    -2.4    -1.5     N/A     N/A     N/A     N/A     N/A
  Adjustments for special
   allowances:
    Discretionary new budget      BA              ......     3.5     2.9     2.9     2.9  ......  ......  ......     N/A     N/A     3.2     0.3     N/A
     authority..................
                                  OL              ......     1.4     2.2     2.6     2.7     1.1     0.5     0.1     N/A     N/A     N/A     N/A     N/A
    Outlay allowance............  BA              ......  ......  ......  ......  ......  ......  ......  ......  ......  ......  ......  ......     N/A
                                  OL                 2.6     1.7     0.5     1.0  ......  ......  ......     1.2  ......     0.8     2.4  ......     N/A
                                 -----------------------------------------------------------------------------------------------------------------------
      Subtotal, adjustments       BA                 1.1    19.3    23.6    14.3    -6.7     7.5    11.6     2.9    51.1    47.4    23.7    19.8     N/A
       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    24.0    29.2     N/A
  Adjustments for Operation       BA                44.2    14.0     0.6       *       *  ......  ......  ......     N/A     N/A     N/A     N/A     N/A
   Desert Shield/Desert Storm...
                                  OL                33.3    14.9     7.6     2.8     1.1  ......  ......  ......     N/A     N/A     N/A     N/A     N/A
  Rounding Adjustment...........  BA                 N/A     N/A     N/A     N/A     N/A     N/A  ......  ......  ......     1.1     0.0  ......  ......
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A  ......  ......  ......  ......  ......  ......  ......
  TEA-21 Adjustment (Net) \2\...  BA                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A    -0.9    -0.9    -0.9    -0.9     N/A
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     1.1     2.6     5.2     7.1    -1.0
  Adjustment to reach spending    BA                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A    95.9     N/A     N/A
   limits mandated in P.L. 106-
   429 \3\......................
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A    58.6     N/A     N/A
  Adjustment to reach spending    BA                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A   134.5     N/A
   limits mandated in P.L. 107-
   117 \4\......................
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A   133.1     N/A
  Adjustment for conservation     BA                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     1.8     1.9
   limits established by P.L.
   106-291 \5\..................
                                  OL                 N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     N/A     1.2     1.9
                                 -----------------------------------------------------------------------------------------------------------------------
    Total adjustments...........  BA                45.3    33.2    24.2    14.3    -6.7     7.5    11.6     2.9    50.2    47.6   118.8   155.2     1.9
                                  OL                37.2    20.8    16.4    12.8     7.9     5.4     6.3    12.3    24.9    40.0    87.8   170.5     0.9
                                 -----------------------------------------------------------------------------------------------------------------------
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   660.8   706.3     1.9
 \6\.
                                  OL               551.6   545.7   550.4   547.6   548.7   552.7   553.6   560.2   584.2   604.2   652.2   731.3    35.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
N/A = Not Applicable.
* $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\ Division C, Section 101 of P.L. 107-117, the Department of Defense Appropriations Act, FY 2002, included revised budget authority and outlay caps
  for FY 2002. In addition, this section provided a budget authority technical estimating difference adjustment allowance of up to 0.12 percent of total
  appropriations.
\5\ Title VIII of of P.L. 106-291, the Interior and Related Agencies Appropriations Act, FY 2001, created a new conservation cagetory with limits on
  budget authority and outlays for FY 2002-FY 2006.
\6\ Reflects combined Defense Discretionary, Non-Defense Discretionary, Violent Crime Reduction, Highway Category, Mass Transit Category, and
  Conservation Category spending limits. FY 2003 figures include Highway, Mass Transit, and Conservation Categories only.


[[Page 288]]

  Adjustments to discretionary limits.--The BEA permits certain 
adjustments to the discretionary limits. The Final Sequestration Report 
for 2002 that OMB issued last month 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 to the highway, mass 
transit, and conservation categories. Table 2 shows the adjustments made 
in this Preview Report.

                                     

                                                       Table 14-2.  DISCRETIONARY SPENDING LIMITS
                                                                (In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         2001        2002        2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                    HIGHWAY CATEGORY
 
Final Sequestration Report Highway Category Spending Limits....................................  BA                   ..........  ..........  ..........
                                                                                                 OL                       26,920      28,489      29,100
Adjustments for the Preview Report:
  Technical outlay adjustment..................................................................  BA                          N/A         N/A  ..........
                                                                                                 OL                          N/A         N/A        -178
  Adjustment for revenue aligned budget authority..............................................  BA                          N/A         N/A  ..........
                                                                                                 OL                          N/A         N/A      -1,341
                                                                                                --------------------------------------------------------
    Subtotal, Adjustments for the Preview Report...............................................  BA                          N/A         N/A  ..........
                                                                                                 OL                          N/A         N/A      -1,519
                                                                                                --------------------------------------------------------
Preview Report Highway Category Spending Limits................................................  BA                   ..........  ..........  ..........
                                                                                                 OL                       26,920      28,489      27,581
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                  MASS TRANSIT CATEGORY
 
Final Sequestration Report Mass Transit Category Spending Limits...............................  BA                   ..........  ..........  ..........
                                                                                                 OL                        4,639       5,275       5,531
  Adjustments for the Preview Report:
    Technical outlay adjustment................................................................  BA                          N/A         N/A  ..........
                                                                                                 OL                          N/A         N/A         499
                                                                                                --------------------------------------------------------
      Subtotal, Adjustments for the Preview Report.............................................  BA                          N/A         N/A  ..........
                                                                                                 OL                          N/A         N/A         499
                                                                                                --------------------------------------------------------
Preview Report Mass Transit Category Spending Limits...........................................  BA                   ..........  ..........  ..........
                                                                                                 OL                        4,639       5,275       6,030
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                  CONSERVATION CATEGORY
 
Final Sequestration Report Conservation Category Spending Limits...............................  BA                          N/A       1,760       1,920
                                                                                                 OL                          N/A       1,473       1,872
 
  Federal and State Land and Water Conservation Fund subcategory...............................  BA                          N/A         540         540
 
  State and Other Conservation subcategory.....................................................  BA                          N/A         300         300
 
  Urban and Historic Preservation subcategory..................................................  BA                          N/A         160         160
 
    Adjustment for the Preview Report..........................................................  BA                          N/A  ..........          13
 
    Preview Report Urban and Historic Preservation subcategory.................................  BA                          N/A         160         173
 
  Payments in Lieu of Taxes subcategory........................................................  BA                          N/A          50          50
 
  Federal Deferred Maintenance subcategory.....................................................  BA                          N/A         150         150
 
  Coastal Assistance subcategory...............................................................  BA                          N/A         440         480
 
    Adjustment for the Preview Report..........................................................  BA                          N/A  ..........           2
 
    Preview Report Coastal Assistance subcategory..............................................  BA                          N/A         440         482
 
  Unallocated..................................................................................  BA                          N/A         120         225
 
  Adjustments for the Preview Report:
    Changes in Concepts and Definitions........................................................  BA                          N/A         -25  ..........
                                                                                                 OL                          N/A          -4  ..........
  Adjusment pursuant to BEA Section 251(b)(2)(H)(i)............................................  BA                          N/A         N/A           2
                                                                                                 OL                          N/A         N/A  ..........
Preview Report Conservation Category Spending Limits...........................................  BA                          N/A       1,735       1,922
                                                                                                 OL                          N/A       1,469       1,872
--------------------------------------------------------------------------------------------------------------------------------------------------------
 

[[Page 289]]

 
                                                              OTHER DISCRETIONARY SPENDING
 
Final Sequestration Report Other Discretionary Spending Limits.................................  BA                      660,803     704,548         N/A
                                                                                                 OL                      620,606     696,092         N/A
  Adjustments for the Preview Report:
    No Adjustments.............................................................................  BA                   ..........  ..........         N/A
                                                                                                 OL                   ..........  ..........         N/A
                                                                                                --------------------------------------------------------
    Subtotal, Adjustments for the Preview Report...............................................  BA                   ..........  ..........         N/A
                                                                                                 OL                   ..........  ..........         N/A
                                                                                                --------------------------------------------------------
Preview Report Other Discretionary Spending Limits.............................................  BA                      660,803     704,548         N/A
                                                                                                 OL                      620,606     696,092         N/A
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                              TOTAL DISCRETIONARY SPENDING
 
Final Sequestration Report Total Discretionary Spending Limits.................................  BA                      660,803     706,308       1,922
                                                                                                 OL                      652,165     731,329      36,503
 
Adjustments for the Preview Report.............................................................  BA                   ..........         -25  ..........
                                                                                                 OL                   ..........          -4      -1,020
 
Preview Report Total Discretionary Spending Limits.............................................  BA                      660,803     706,283       1,922
                                                                                                 OL                      652,165     731,325      35,483
--------------------------------------------------------------------------------------------------------------------------------------------------------
N/A = Not Applicable

  After consultation with the Congressional Budget Committees and CBO, 
OMB has included several changes in account classification in this 
year's budget. First, OMB has fixed a classification error and 
reclassified receipts generated by the National Defense Stockpile 
Transaction Fund as mandatory. Additionally, the Committees, OMB and CBO 
agreed to reclassify the Department of the Interior Services Charges, 
Receipts, and Forfeitures account as discretionary from mandatory, and 
the Department of the Interior Park Police Pensions account as mandatory 
from discretionary. Since there are no explicit overall discretionary 
caps for FY 2003, no adjustment is required for these reclassifications.
  OMB has also decided to consolidate all FY 2002 appropriations in the 
State Wildlife Grants account within the conservation spending category. 
To properly represent the effects of this consolidation, OMB has 
adjusted the FY 2002 enacted levels for conservation spending downward 
by $25 million in the budget and made a corresponding reduction of the 
same amount to the FY 2002 conservation category spending limits.
  Appropriations for conservation spending in FY 2002 fell below the 
overall limit for the category by $2 million. Pursuant to BEA section 
251(b)(2)(H)(i), the 2003 budget authority limits for conservation 
spending have been adjusted upward by that amount. Appropriations within 
two of the conservation spending sub-categories for FY 2002 also did not 
meet the established limits for those activities. Specifically, the 
Coastal Assistance sub-category received $2 million less than its limit 
of $440 million, and the Urban and Historic Preservation sub-category 
received $13 million less than its limit of $160 million. As a result, 
the amounts by which these appropriations fell below the conservation 
sub-category caps have been added to the appropriate FY 2003 sub-
category spending limits, as required by the BEA in section 
251(b)(2)(H)(ii).
  In addition, section 8101 of TEA-21 requires OMB to revise the highway 
spending limits for changes in actual and estimated federal gasoline tax 
receipts, relative to the receipt levels assumed in TEA-21. For example, 
if actual tax receipts exceed the TEA-21 assumed levels, OMB is required 
to increase the limit for the budget year. This adjustment permits 
funding to be consistent with the level of taxes that are collected and 
earmarked for highway spending. OMB has no discretion when making this 
adjustment; its role is purely ministerial. The highway category 
adjustments in this report are notable in that they break from the 
recent pattern of upward revisions to highway category spending limits.
  Over the past several years, actual and estimated gasoline tax 
receipts exceeded the levels assumed in TEA-21. Accordingly, OMB applied 
the formula as specified in the legislation and increased the highway 
category obligation limitations by $3.1 billion in 2001 and $4.5 billion 
in 2002. In 2003, however, the TEA-21 formula is estimated to produce a 
nearly -$5.0 billion downward adjustment in the highway obligation 
limitation. The resulting FY 2003 highway outlay limit is below the FY 
2002 outlay limit by -$0.9 billion. This is due both to actual gasoline 
tax receipts being lower than anticipated in 2001 and revised Treasury 
projections of gasoline tax receipts for 2003.
  The adjustment for the mass transit category captures changes in 
technical assumptions about the rate at which mass transit obligations 
will be spent. This

[[Page 290]]

report includes an upward adjustment of $0.5 billion dollars to the mass 
transit category limits due to these revised technical assumptions. 
Table 3 details the adjustments to the highways and mass transit 
category limits and how those adjustments have been calculated.

                                     

                  Table 14-3.  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 2002 Preview Report.............................................................      30,216      32,310      28,233
   Adjustments:
   Difference Between Current and Previous Estimate of FY 2003 Highway Tax Receipts.................................         N/A         N/A      -1,497
   Difference Between FY 2001 Actual and Estimated Highway Tax Receipts.............................................         N/A         N/A      -3,468
                                                                                                                     -----------------------------------
     Subtotal, Obligation Limitation Adjustment.....................................................................         N/A         N/A      -4,965
 
FY 2003 Preview Report Obligation Limitation........................................................................      30,216      32,310      23,268
 
Outlay Limits in FY 2002 Preview Report.............................................................................      26,920      28,489      29,100
   Adjustments:
     Decrease in FY 2003 Obligation Limitation......................................................................         N/A         N/A      -1,341
   Changes in Technical Assumptions:
     Reestimate of Outlays from Obligation Limitation level, Adjusted to Include Outlays from change in Obligation           N/A         N/A      27,581
     Limitation.....................................................................................................
     Reestimate of Outlays from Obligation Limitation level, Adjusted to Include Outlays from change in Obligation           N/A         N/A      27,759
     Limitation.....................................................................................................
                                                                                                                     -----------------------------------
   Adjustment for Changes in Technical Assumptions..................................................................         N/A         N/A        -178
Total Adjustments...................................................................................................         N/A         N/A      -1,519
                                                                                                                     -----------------------------------
Outlay Limits in FY 2003 Preview Report.............................................................................      26,920      28,489      27,581
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                MASS TRANSIT CATEGORY
 
Outlay Limits in FY 2002 Preview Report.............................................................................       4,639       5,275       5,531
   Adjustment:
     Changes in Technical Assumptions:
       Reestimate of Outlays from Obligation Limitation Using Current Technical Assumptions.........................         N/A         N/A       6,030
     FY 2001 Preview Report Outlays.................................................................................         N/A         N/A       5,531
                                                                                                                     -----------------------------------
   Adjustment for Changes in Technical Assumptions..................................................................         N/A         N/A         499
Outlay Limits in FY 2003 Preview Report.............................................................................       4,639       5,275       6,030
--------------------------------------------------------------------------------------------------------------------------------------------------------

  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. However, CBO was unable 
to supply OMB with its FY 2003 discretionary spending limit estimates by 
the publication deadline for this document. As a result, no comparison 
is included.

                    III.  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

[[Page 291]]

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. For 2002, 
net costs of $130.3 billion were removed from the PAYGO scorecard. Since 
1998, net costs totaling $176.2 billion have been either exempted or 
removed from the scorecard.
  Table 4 shows OMB estimates of current balances on the PAYGO 
scorecard. For legislation enacted this year, the 2002 impact will be 
added to the balance for 2003 in the Final Sequester Report that OMB is 
to issue after the 2nd session of the 107th Congress adjourns sine die. 
The current PAYGO scorecard shows net costs of $110.7 billion for 2003 
and a total of $505.8 billion for 2003 through 2006.

                                     

                                      Table 14-4.  PAY-AS-YOU-GO SCORECARD
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                         Total
                                                    2002      2003       2004       2005       2006    2003-2006
----------------------------------------------------------------------------------------------------------------
Pay-as-you-go scorecard:........................
Revenue impact of enacted legislation...........  .......    -86,866   -106,319   -107,744   -126,474   -427,403
Outlay impact of enacted legislation............  .......     23,828     23,538     22,827      8,224     78,417
                                                 ---------------------------------------------------------------
    Total, net cost impact of enacted             .......    110,694    129,857    130,571    134,698    505,820
     legislation................................
----------------------------------------------------------------------------------------------------------------