[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Act of 1990, originally enacted to address budget deficits, was an 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)
----------------------------------------------------------------------------------------------------------------
                                                                       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

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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)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           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.

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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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