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

    [[Page 215]]

                           14. BUDGET REFORM PROPOSALS

      On September 30, 2002, the budget regimen that enforced fiscal
    restraint for most of the past decade expired. The Budget Enforcement
    Act of 1990, originally enacted to address budget deficits, was an
    effective constraint until budget surpluses surfaced in 1998. With
    growing surpluses, the Act's requirements were either circumvented or
    explicitly waived. The Administration will send the Congress a
    comprehensive budget enforcement legislative package shortly after the
    Budget is transmitted. This chapter provides an overview of the
    Administration's proposals.

                          Discretionary Caps and PAYGO

      Discretionary Caps.--The Administration proposes to set limits for
    2005 through 2009 on net budget authority and outlays equal to the
    levels proposed in the 2005 Budget. Legislation that exceeds the
    discretionary caps would trigger a sequester of non-exempt discretionary
    programs. Table 14-1 displays the total levels of discretionary budget
    authority and outlays proposed for 2005 through 2009. This approach
    would put in place a budget framework for the next five years that
    ensures reasonable, but modest growth in discretionary programs. The
    proposal discontinues separate caps for conservation programs and
    provides for a single, discretionary cap with separate firewalls for
    Transportation programs only. A single cap restrains overall
    discretionary spending growth, while providing the President and
    Congress the greatest flexibility for making decisions on the allocation
    of these resources.
      Within the discretionary levels, the Administration will propose an
    adjustment for spending above a base level of funding for Social
    Security Administration Continuing Disability Reviews (CDRs). Additional
    spending on CDRs has proven to reduce erroneous payments in this
    program. In the past, every $1 expended on CDRs has produced a $10
    return to the taxpayer. The Administration's proposed adjustment in 2005
    is $561 million for these activities. The Administration will support an
    adjustment above the baseline amount not to exceed a total funding level
    of $604 million in 2006 and $662 million in 2007 through 2009 for these
    activities.

                             Table 14-1.  GENERAL PURPOSE DISCRETIONARY CAPS AND ADJUSTMENTS
                                            (Amounts in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                           2005     2006     2007     2008     2009
    ----------------------------------------------------------------------------------------------------------------
    Proposed Discretionary Spending Categories:
      Discretionary Category:
        Budget authority...............................................    813.8    842.3    867.0    892.4    918.0
        Outlays........................................................    872.7    850.7    862.8    881.3    900.3

          Proposed Cap Adjustment:
            SSA Continuing Disability Reviews:
              Budget authority.........................................      0.6      0.6      0.7      0.7      0.7
              Outlays..................................................      0.6      0.6      0.7      0.7      0.7

      Total, Discretionary Category:
        Budget authority...............................................    814.4    842.9    867.6    893.0    918.7
        Outlays........................................................    873.3    851.4    863.5    881.9    901.0

      Highway Category:
        Outlays........................................................     33.2     33.9     34.2     34.5     34.7

      Mass Transit Category: \1\
        Outlays........................................................      7.5      7.0      6.7      6.5      6.6

    Total, All Discretionary:
      Budget authority.................................................    814.4    842.9    867.6    893.0    918.7
      Outlays..........................................................    914.0    892.3    904.4    922.9    942.3

    Project BioShield Category:
      Budget authority.................................................      2.5  .......  .......  .......      2.2
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes prior-year outlays from general fund budget authority provided in years prior to 2004. Outlays from
      general fund budget authority for 2004 and beyond are included in the Discretionary Category.

                      Table 14-2.  TRANSPORTATION GUARANTEE FOR HIGHWAYS AND MASS TRANSIT SPENDING
                                            (Amounts in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                     \1\2004   2005    2006    2007    2008    2009
    ----------------------------------------------------------------------------------------------------------------
    Transportation Guarantee:

      Highways:
        Obligation Limitations....................................     34.3     34.6    34.7    34.7    34.7    34.7
        Outlays...................................................     31.2     33.2    33.9    34.2    34.5    34.7

      Mass Transit: \2\
        Obligation Limitations....................................      5.8      6.0     6.0     6.0     6.0     6.0
        Outlays...................................................      7.6      7.5     7.0     6.7     6.5     6.6

    Memorandum:
      Discretionary budget authority for Mass Transit not under
       the Transportation Guarantee:
          Budget authority........................................      1.5      1.3     1.3     1.3     1.3     1.3
    ----------------------------------------------------------------------------------------------------------------
    \1\ 2004 is displayed to show the Administration's complete SAFETEA proposal for Highway and Mass Transit
      programs through 2009.
    \2\ Includes prior-year outlays from general fund budget authority provided in years prior to 2004. Outlays from
      general fund budget authority for 2004 and beyond are included in the Discretionary Category.

      Transportation Firewalls.--The Administration's proposal for
    discretionary caps includes separate firewalls for spending on Federal
    Highway and Mass Transit programs. The Transportation levels will be
    financed by dedicated revenues over a six-year period from 2004 through
    2009. This structure is consistent with the 2004 through 2009 estimates
    provided in the 2005 budget. As in the previous authorization, the
    Transportation Equity Act for the 21st Century, the Highway obligations
    would receive an annual adjustment reflecting updated revenue estimates
    beginning in 2006. Table

    [[Page 216]]

    14-2 displays the Administration's Transportation proposal.
      Project BioShield Category.--The Administration proposes to create a
    separate BEA category for budget authority (BA) for Project BioShield,
    which received an advance appropriation for 2005 of $2.5 billion and for
    2009 of $2.2 billion in P.L. 108-90, the 2004 Department of Homeland
    Security Appropriations Act. Because the success of this program in
    providing for the development of vaccines and medications for biodefense
    depends on an assured funding availability, it is critical that this
    funding not be diverted to other purposes. As a result, the
    Administration proposal to create a separate category will help ensure
    the funding for this program is not reduced and used as an offset for
    other discretionary spending.
      Pay-As-You-Go (PAYGO) Extension.--The Administration proposes to
    extend the pay-as-you-go requirement for mandatory spending only.
    Revenue legislation would not be subject to this requirement. The five-
    year impact of any proposals affecting mandatory spending would continue
    to be scored. Table 14-3 displays the President's direct spending
    proposals. Legislation that exceeds the pay-as-you-go requirement over a
    two-year period would trigger a sequester of direct spending programs.
    The 2005 Budget identifies as ``PAYGO'' only legislative proposals that
    change direct spending.
      In the case of the President's proposed health care credit, the Budget
    includes contingent offsets that would cover the estimated increases in
    mandatory spending that would result from this proposal. When the
    Congress moves legislation to implement the President's health care
    credit proposal, the Administration will work with the Congress to
    offset this additional spending.

                                                                  Table 14-3.  PAYGO PROPOSALS
                                                                  (Cost in millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               2004     2005     2006     2007     2008     2009   2005-2009
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    PAYGO proposals:
      Refundable Portion of the Health Care Tax Credit......................................  ......       82    3,760    5,041    6,388    7,133    22,404
      Contingent Offset for Refundable Portion of the Health Care Tax Credit................  ......      -82   -3,760   -5,041   -6,388   -7,133   -22,404
      Medicaid/State Children's Health Insurance Program Proposals..........................     175     -653     -891     -965   -1,022   -1,075    -4,431
      Extension of Bureau of Customs and Border Protection's Fees...........................  ......     -820   -1,391   -1,448   -1,507   -1,570    -6,736
      Reclassification of Nuclear Waste Disposal Fees as Discretionary......................  ......      749      754      757      767      767     3,794
      Extension of Spectrum Auction Authority and Authorization of Fees.....................  ......  .......      -50    1,850    1,700   -3,100       400
      Other Proposals.......................................................................       6     -597     -652      463     -614     -579    -1,975
                                                                                             ---------------------------------------------------------------
        Total...............................................................................     181   -1,321   -2,231      657     -676   -5,557    -8,947

        Total, 2004 and 2005................................................................  ......   -1,140  .......  .......  .......  .......  .........
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                             Advance Appropriations

      An advance appropriation becomes available one or more years beyond
    the year for which its appropriations act is passed. BA 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 and
    increased to $23.4 billion in 2000.

    [[Page 217]]

      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, excluding BioShield, continue to be capped in
    2005 through 2009 at the 2002 level so that increases in these and other
    programs will be budgeted and reflected in the year of their enactment.
    Accordingly, the 2005 Budget freezes all advance appropriations at their
    2002 levels, except for those that should be reduced or eliminated for
    programmatic reasons. To enforce these levels, the discretionary cap
    proposal provides that any advance appropriations provided in an
    appropriations act for 2005 through 2009 in excess of the advance
    appropriations provided in 2002 will count against the discretionary cap
    in the year enacted.

                     Include Stricter Standard For 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
    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. If the President and the
    Congress separately designated a spending or tax item as an emergency
    requirement, the BEA held these items harmless from its enforcement
    mechanisms. Initially, this safety valve was used judiciously, but in
    later years its application was expanded to circumvent the discretionary
    caps by declaring spending for ongoing programs as ``emergencies.''
    Declaration of the 2000 Census as an emergency requirement--despite
    being required by the Constitution--is but one egregious example.
      The Administration 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 should include the following elements: the requirement is a
    necessary expenditure that is sudden, urgent, unforeseen, and not
    permanent. These elements, all of which would be necessary for defining
    something as an emergency, are defined as follows:
        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 the average annual level of
              disaster assistance funding would not be ``unforeseen''); and
        not permanent--the need is temporary in nature.
      The Administration proposal would also require that the President and
    Congress concur in designating an emergency for each spending proposal
    covered by a designation. 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, he would not concur in the emergency designation and no
    discretionary cap adjustment or PAYGO exemption would apply.

                                    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 way in which these
              costs are inflated. The current requirement, which provides a
              full year's funding for pay raises in the budget year and
              beyond, was written when Federal pay raises were scheduled to
              take effect on October 1, at the start of each fiscal year.
              However, this requirement is now inappropriate because the
              effective date for pay raises is now permanently set by law as
              the first pay period in January. By treating pay raises that
              begin on January 1 as if they take effect for the entire
              fiscal year, the baseline overstates the cost of providing a
              constant level of services.
        Eliminate the adjustments for expiring housing contracts and
              social insurance administrative expenses. Most multi-year
              housing contracts have expired or 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.
        Assume extension of all expiring tax provisions in the
              Economic Growth and Tax Relief Reconciliation Act of 2001 and
              certain provisions in the Jobs and Growth Tax Relief
              Reconciliation Act of 2003. The BEA currently has inconsistent
              treatment for mandatory spending and revenues. In the case of
              major entitlement programs, the law assumes these programs are
              extended. In the case of 2001 and 2003 tax laws, however, the
              BEA does not provide for their extension. The BEA's treatment
              of revenues is also inconsistent. The BEA assumes taxes
              dedicated to trust funds that are scheduled to expire are
              extended, but does not assume tax reductions are extended. The
              provisions that will be extended were clearly not intended to
              be temporary.
        Add a provision to exclude discretionary funding for
              emergencies from the baseline. Instead, the baseline would
              include emergency funding only for the year in which it was
              enacted. The current requirement is for the discretionary
              baseline esti

    [[Page 218]]

              mates 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.

                              Scoring Rule Changes

      Federal Pell Grants.--The Pell Grant program provides grant aid to
    postsecondary students to help pay for their education. While Pell Grant
    funding is discretionary, if a Pell-eligible student enrolls in school,
    he or she is automatically eligible for a need-based award up to the
    maximum award set in appropriations (currently $4,050), regardless of
    the budget authority appropriated. Pell Grant cost estimates are based
    on the February Budget's technical and economic assumptions.
      The Administration proposes to score budget authority to the
    appropriators for the amount necessary to cover Pell Grant program costs
    in the upcoming award year, based on the February Budget's economic and
    technical assumptions. Currently, Pell Grant outlays are scored based on
    the full cost of the appropriations provisions (the maximum award and,
    in some cases, changes to eligibility requirements made in
    appropriations). However, Pell Grant budget authority is scored at the
    level specified in appropriations language. The Administration's
    proposed scoring rule change would remove any incentive to appropriate
    less than the estimated program cost for the Federal Pell Grant program,
    or to increase program costs (for instance, by increasing the maximum
    award) without providing the necessary budget authority.
      Pay Raises.--The Administration proposes a rule to enforce the annual
    pay raise for Federal employees in order to avoid the substantial future
    costs associated with higher pay raises. To accomplish this, the budget
    resolution would specify pay raises assumed for military and Federal
    civilian employees for the budget year. A point of order would lie
    against any provision containing a pay raise greater than that
    assumption.
      Long-term Unfunded Obligations.--The Administration proposes new
    measures to prevent enactment of legislation that worsens the long-term
    unfunded obligations of Federal entitlement programs. As discussed in
    Chapter 12 of this volume, ``Stewardship,'' spending by the Government's
    major entitlement programs, particularly Social Security and Medicare,
    is projected to rise in the next few decades to levels that cannot be
    sustained, either by those programs' own dedicated financing or by
    general revenues. The Administration's proposed measures would prevent
    further legislative increases in the long-run fiscal imbalance.
      First, the Administration proposes a point of order against
    legislation which worsens the long-term unfunded obligation of major
    entitlements. The specific programs covered would be those programs with
    long-term actuarial projections, including Social Security, Medicare,
    Federal civilian and military retirement, veterans disability
    compensation, and Supplemental Security Income. Additional programs
    would be added once it becomes feasible to make long-term actuarial
    estimates for those programs.
      Second, the Administration proposes new reporting requirements to
    highlight legislative actions worsening unfunded obligations. These
    requirements would require the Administration, as part of the
    President's budget, to report on any enacted legislation in the past
    year that worsens the unfunded obligations of the specified programs.
    The Congressional Budget Office would also be required to make a similar
    report in its annual publication on the economic and budget outlook.

                          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 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 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'' that occurred just prior to
    expiration of the BEA.
      Biennial Budgeting and Appropriations.--Only twice in the last 50
    years have all appropriation bills been enacted by the beginning of the
    fiscal year. 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. According to the Congressional Budget Office, the
    total amount of unauthorized appropriations in recent years has ranged
    from roughly $90-$120 billion annually.
      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.
      Line-Item Veto.--A perennial criticism of the Federal Government is
    that spending and tax legislation often contain provisions benefiting a
    relative few which would not likely become law if not attached to other
    bills.

    [[Page 219]]

      The President proposes that the Congress correct this state of affairs
    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, and could not be applied to other spending.
      Government Shutdown Prevention.--For 22 out of the past 23 years,
    Congress has not finished its work by the October 1st deadline, 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
    would 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.
      Reserve for Fully Accruing Federal Employees' Retirement.--Both the
    President's 2003 and 2004 Budgets proposed to correct a long-standing
    understatement of the true cost of thousands of government programs. For
    some time, the cost of benefits accruing under the Federal Employee's
    Retirement System (FERS) and Military Retirement System (MRS) and a
    portion of the accruing benefits of the old Civil Service Retirement
    System (CSRS) have 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 understated cost information. The
    Administration recommends that this be re-examined and proposes to work
    with the Congress to develop a solution that addresses the concerns with
    the Administration's previous proposals. The 2005 Budget includes a very
    limited proposal that would permit the Patent and Trademark Office, a
    fully fee-funded agency, to use the fees it collects to cover the
    current accruing cost of post-retirement annuities, and health and life
    insurance benefits.

    [[Page 221]]

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                           FEDERAL BORROWING AND DEBT

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