[Analytical Perspectives]
[Budget Reform Proposals]
[14. Budget Reform Proposals]
[From the U.S. Government Printing Office, www.gpo.gov]
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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Act of 1990, originally enacted to address budget deficits, was an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)
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2005 2006 2007 2008 2009
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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
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\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)
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\1\2004 2005 2006 2007 2008 2009
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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
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\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
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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)
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2004 2005 2006 2007 2008 2009 2005-2009
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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
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Total............................................................................... 181 -1,321 -2,231 657 -676 -5,557 -8,947
Total, 2004 and 2005................................................................ ...... -1,140 ....... ....... ....... ....... .........
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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.
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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
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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.
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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.
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FEDERAL BORROWING AND DEBT
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