[Analytical Perspectives]
[The Presidentâs Budget Reform Proposals]
[14. The Presidentâs Budget Reform Proposals]
[From the U.S. Government Printing Office, www.gpo.gov]




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                 THE PRESIDENT'S BUDGET REFORM PROPOSALS

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ANALYTICAL PERSPECTIVES
14. THE PRESIDENT'S BUDGET REFORM PROPOSALS

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               14. THE PRESIDENT'S BUDGET REFORM PROPOSALS

  On September 30, 2002, the budget rules that had enforced fiscal 
restraint for most of the past decade expired. These budget constraints 
were especially effective in restraining Executive and Legislative 
Branch action in the initial years of the Budget Enforcement Act (BEA). 
For these enforcement mechanisms to continue to be effective, budget 
enforcement rules need to be consistent with current fiscal realities. 
The Administration will work with the new Congress to develop budget 
enforcement mechanisms that are consistent with the needs of the 
country, including future discretionary spending limits and a PAYGO 
requirement for entitlement spending and tax legislation.

                      Discretionary Caps and PAYGO

  The Administration proposes to extend the BEA's mechanisms for 
limiting discretionary spending for 2004 and 2005 with spending limits 
on net budget authority and outlays equal to the levels proposed in the 
2004 Budget. Table 14-1 displays the total levels of discretionary 
budget authority and outlays proposed for 2004 and 2005. Two years is a 
reasonable period for setting discretionary spending limits. It covers 
the term of the new Congress, but is not so long that the limits become 
obsolete in the face of a changing fiscal situation. In addition, 
reaching agreement on a two-year discretionary framework allows 
lawmakers and the President to plan more effectively and devote more 
time to other legislative business the following year.
  The Administration also proposes to extend the pay-as-you-go 
requirement for two years. The Administration would continue to score 
the five-year impact of any proposals affecting mandatory spending and 
receipts, but the enforcement mechanisms would be effective for the same 
two years covered by the discretionary limits. Table 14-2 displays the 
President's revenue and direct spending proposals. Legislation that 
exceeds the discretionary spending limits or the pay-as-you-go 
requirement would trigger a sequester of discretionary or direct 
spending as appropriate. As in the past, the 2004 Budget continues to 
label as ``PAYGO'' legislation that changes mandatory receipts or direct 
spending.

                                     

     Table 14-1.  PROPOSED DISCRETIONARY SPENDING FOR 2004 AND 2005
                        (In billions of dollars)
------------------------------------------------------------------------
                                                           2004    2005
------------------------------------------------------------------------
Proposed Discretionary Spending Before Adjustments:
   BA...................................................   780.7   811.5
   OL...................................................   817.2   848.0
     Potential Discretionary Cap Adjustments:
      Nuclear Waste Repository for Yucca Mountain \1\:
         BA.............................................  ......     0.5
        OL..............................................  ......     0.5

      SSA Program Integrity Activities (CDRs and
       redeterminations):
         BA.............................................     1.4     1.5
         OL.............................................     1.4     1.5

      EITC Compliance:
         BA.............................................     0.1     0.1
         OL.............................................     0.1     0.1
Total, Proposed for Discretionary Spending:
   BA...................................................   782.2   813.5
   OL...................................................   818.8   850.0
     Additional Cap Adjustment Assuming Enactment of
     Authorization of
      Retirement Accruals:
         BA.............................................    11.1    11.3
         OL.............................................    11.1    11.3
------------------------------------------------------------------------
\1\ This adjustment will be modified based on final 2003 appropriations.


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                                                                    Table 14-2.  PROPOSED REVENUE AND DIRECT SPENDING POLICY
                                                                               (PAYGO cost in millions of dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                2003      2004      2005      2006      2007      2008      2009      2010      2011      2012      2013    2004-2008  2004-2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revenue Policy..............................................    31,087   110,411   109,056   102,386    85,238    86,565    88,940    90,223   186,857   291,629   296,693    493,656  1,447,998
Medicare Modernization......................................  ........     6,000    10,000    33,000    38,000    43,000    46,000    49,000    53,000    58,000    64,000    130,000    400,000
Other Direct Spending Policy................................     5,467     8,130     3,738     5,192     6,053     7,368     3,293     2,772     3,638      -492    -4,281     30,480     35,410
                                                             -----------------------------------------------------------------------------------------------------------------------------------
     Total, President's Proposals...........................    36,554   124,541   122,794   140,578   129,291   136,933   138,233   141,995   243,495   349,137   356,412    654,136  1,883,408
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


Discretionary Cap Adjustments

  The Administration will announce a comprehensive discretionary cap 
proposal at a later date. Among its provisions, the proposal will 
include discretionary adjustments for spending above a base level of 
funding for certain programs, but not to exceed the amounts proposed in 
the 2004 Budget. These adjustments would reserve funds for specific 
purposes within the overall discretionary spending limits. These 
adjustments include the following:
    Costs associated with developing the nuclear waste 
          repository at Yucca Mountain for 2004 and 2005. The adjustment 
          would be equal to an amount that exceeds the 2003 enacted 
          level, up to a total funding level for the repository program 
          of $591 million in FY 2004 and $1,055 million in 2005. 
          Development of this facility is expected to continue into the 
          next decade; thus, the Administration would expect to continue 
          this adjustment with each BEA reauthorization until the 
          facility is complete.
    Social Security Administration Continuing Disability Reviews 
          (CDRs), SSI redeterminations, and overpayments workload for 
          2004 and 2005. The Administration will propose an adjustment 
          in 2004 of $1,446 million for these activities. In 2005, the 
          Administration will propose an adjustment greater than the 
          baseline amount not to exceed a total funding level of $1,473 
          million for these activities.
    Earned Income Tax Credit Compliance Initiative. The 
          Administration will propose cap adjustments in both 2004 and 
          2005 that would be equal to $100 million above the 2004 base 
          amount of $151 million.
    Reserve for Fully Accruing Federal Employees' Retirement. 
          Funds would be added upon adoption of the Administration 
          proposal of fully funding accruing federal employees' 
          retirement to correct for what has been a significant 
          understatement in the costs of federal retirement. A more 
          detailed discussion of this proposal is included below.

         Include Definition of Emergency Designation in the BEA

  When the BEA was created, it provided a ``safety-valve'' to ensure 
that the fiscal constraint envisioned by the BEA would not prevent the 
proposal or enactment of legislation to respond to unforeseen disasters 
and emergencies such as Operation Desert Storm, Hurricane Andrew, or the 
terrorist attacks of September 11, 2001. The BEA allowed the President 
and Congress to respond to emergency situations by granting a PAYGO 
exemption or adjusting the discretionary spending limits upwards by an 
amount needed to respond to emergencies effectively. Initially, this 
safety valve was used judiciously, but in later years its definition was 
expanded, in particular, to circumvent the discretionary caps by 
declaring spending for ongoing programs as ``emergencies.'' Declaration 
of the 2000 Census as an emergency requirement --despite being regularly 
required by the Constitution--was but one egregious example.
  The President proposes to include in the BEA a definition of 
``emergency requirement'' that will ensure high standards are met before 
an event is deemed an ``emergency'' and therefore exempt. This 
definition would include the following elements:
    necessary expenditure--an essential or vital expenditure, 
          not one that is merely useful or beneficial;
    sudden--quickly coming into being, not building up over 
          time;
    urgent--pressing and compelling, requiring immediate action;
    unforeseen--not predictable or seen beforehand as a coming 
          need (an emergency that is part of an aggregate level of 
          anticipated emergencies, particularly when normally estimated 
          in advance would not be ``unforeseen''); and
    not permanent--the need is temporary in nature.
  The Administration proposal would require that the President and 
Congress concur in designating each spending or tax proposal as an 
emergency. This would protect against the ``bundling'' of non-emergency 
items with true emergency spending. If the President determines that 
specific proposed emergency designations do not meet this definition, 
the specific provision would lose its emergency status under the BEA.

                 Limiting Use of Advance Appropriations

  An advance appropriation becomes available one or more years beyond 
the year for which the its 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

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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 and increased to $23.4 billion in 2000.
  Because this budget practice distorts the debate over Government 
spending and misleads the public about spending levels in specific 
accounts, the President's budget proposals and the 2002 Congressional 
Budget Resolution capped advance appropriations at the amount advanced 
in the previous year. This year, the Administration proposes that total 
advance appropriations continue to be capped in 2004 at the 2002 level. 
Accordingly, the 2004 Budget freezes all advance appropriations at their 
2002 levels, except for those that should be reduced or eliminated for 
programmatic reasons.

         Reserve for Fully Accruing Federal Employees Retirement

  The President's 2003 Budget proposed to correct a long-standing 
understatement of the true cost of 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, a portion of 
military health care and all civilian 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 (see also 
``Charging Full Annual Budgetary Cost'' in Chapter 1: ``Budget and 
Performance Integration'').
  The 2004 Budget re-proposes this and presents the amounts associated 
with shifting this cost from central accounts to affected program 
accounts, starting in 2004. In an effort to respond to the concerns 
highlighted by the House and Senate Appropriations Committees in their 
2003 appropriations bill reports, the presentation of this proposal is 
different this year. Unlike the 2003 Budget, where the data were 
included in the budget request numbers, the data are displayed as non-
add, memo entries and, therefore, are not included in the discretionary 
totals. The memo-entry amounts are shown on a comparable basis for most 
program accounts in 2002 and 2003, with the exception of the Department 
of Defense for which comparable data by account were generally not 
available at the time of the printing of this Budget.

                                Baseline

  The Administration proposes several changes to Section 257 of the BEA, 
which establishes the requirements for the baseline:
    Correct the overcompensation of baseline budgetary resources 
          for pay raise-related costs due to the requirement to 
          annualize pay raises. This requirement was originally intended 
          to compensate for 3-month delays of the pay raise from the 
          normal October 1 effective date to January 1. In that 
          situation, the current year appropriation would only include 
          BA for 3 quarters of the pay raise, so an extra quarter's 
          worth of pay-related BA had to be added to the inflated level 
          for the budget year, in order to provide a constant level of 
          services. However, this adjustment is no longer necessary 
          because the date for pay raises to take effect is now 
          permanently set by law as the first pay period in January. By 
          adding an extra quarter's worth of pay-related BA, the 
          baseline now overstates the cost of providing a constant level 
          of services.
    Remove Sections 257(c)(2) and 257(c)(3), which allow for 
          adjustments for expiring housing contracts and social 
          insurance administrative expenses. Most multi-year housing 
          contracts have expired and have been addressed since the BEA 
          was first enacted in 1990, so the adjustment is no longer 
          needed. The adjustment for social insurance administrative 
          expenses is also inconsistent with the baseline rules for 
          other accounts that fund the costs of administration and 
          should not be singled out for preferential treatment.
    Add a provision to preclude extending discretionary funding 
          for emergencies in subsequent years. Instead, under the 
          Administration proposal, the baseline would include emergency 
          funding only for the year in which it was enacted. The current 
          requirement is for the discretionary baseline estimates for 
          the budget year and the outyears to assume the current year 
          appropriated level, adjusted for inflation. This is reasonable 
          for ongoing programs, where the need is expected to continue 
          into the future. For emergencies, since the need should be for 
          a short duration, the baseline rules build unnecessary funding 
          into the baseline estimates for the years after the need has 
          been addressed and passed. In effect, the current rule biases 
          the baseline in favor of higher discretionary spending.

                         Reviewing Sequestration

  The BEA included a list of accounts that are exempt from 
sequestration. The Administration proposes this list be reviewed and 
updated for legislation enacted since the BEA of 1997. This is necessary 
to resolve a number of technical issues that have arisen in recent 
years, and to account for new programs added to the budget during this 
period.

                      Other Budget Reform Proposals

  Joint Budget Resolution.--A joint budget resolution would set the 
overall levels for discretionary spending, mandatory spending, receipts, 
and debt in a simple doc

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ument 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 considered, and avoid the ``train wrecks'' at the end 
of the year that frequently occur under the current process.
  Biennial Budgeting and Appropriations.--Only twice in the last 50 
years have all appropriation bills been enacted 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 
these 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 odd-numbered years, 
with even numbered years devoted to authorizing legislation. This 
proposal is also symmetric with the President's proposal for a two-year 
extension of the discretionary caps and PAYGO.
  Line-Item Veto.--A perennial criticism of the Federal Government is 
that the budget contains too many special interest spending items. The 
persistence of these special interest items diverts resources from 
higher priority programs and erodes citizen confidence in Government. 
Because appropriations bills must be enacted annually to fund the 
Government, they attract special interest 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.
  The President proposes that the Congress correct this imbalance that 
favors special interest spending by providing him with a constitutional 
line item veto. From the Nation's founding, Presidents have exercised 
the authority to not 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's proposal would correct the 
constitutional flaw in the 1996 Act.
  Specifically, the President proposes a line-item veto linked to 
deficit reduction. This proposal would give the President the authority 
to reject new appropriations, new mandatory spending, or limited grants 
of tax benefits (to 100 or fewer beneficiaries) whenever the President 
determines the spending or tax benefits are not essential Government 
priorities. All savings from the line-item veto would be used for 
deficit reduction.
  Government Shutdown Prevention.--For 21 out of the past 22 years, 
Congress has not finished its 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 new fiscal 
year. When Congress fails to enact appropriations bills, it 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.
  If Congress does not pass a CR or the President does not sign it, the 
Federal Government must shut down. 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, there should be a back-up plan to avoid 
the threat of a Government shutdown, although appropriations bills still 
should pass on time as the law requires. 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.