[Analytical Perspectives]
[The President’s Budget Reform Proposals]
[14. The President’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
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\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)
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004-2008 2004-2013
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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
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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
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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.