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

      In April of last year, the Administration sent to the Congress budget
    enforcement legislation in the form of the proposed Spending Control Act
    of 2004. The Administration plans to re-propose that legislation with
    appropriate revisions. This chapter provides an overview of that updated
    legislation, and describes other budget reform proposals supported by
    the Administration. Certain administrative steps are planned to require
    agencies to propose offsets for regulatory actions that would increase
    mandatory spending.
      In addition, the Administration requests that the Congress include the
    following budget enforcement proposals as part of its budget resolution:
        Discretionary caps that include separate defense,
              nondefense, highway and mass transit categories.
        Adjustments to the discretionary caps for program integrity
              activities.
        Limits on advance appropriations within the discretionary
              caps.
        A new scoring rule to ensure that funding shortfalls do not
              accumulate in the discretionary Pell Grant program in future
              years.
        A separate category for Project BioShield to ensure that
              funding is not reduced and used as an offset for other
              discretionary spending.
        A pay-as-you-go (PAYGO) requirement for all legislation that
              changes mandatory spending.
        A stricter standard for emergency designations and a
              requirement that the President and the Congress concur in
              those designations.
        Extension of expiring tax provisions in the 2001 and 2003
              tax cut bills in the budget resolution baseline.
        Exclusion of discretionary funding for emergencies from the
              budget resolution baseline.
        A point of order against legislation that worsens the long-
              term unfunded obligation of major entitlement programs.

                               Discretionary Caps

      The Administration proposes to set limits for 2005 through 2010 on net
    discretionary budget authority (BA) and outlays equal to the levels
    proposed in the 2006 Budget. Legislation that exceeds the discretionary
    caps would trigger a sequester of non-exempt discretionary programs.
    Table 15-1 displays the total levels of discretionary budget authority
    and outlays proposed for 2005 through 2010. This approach would put in
    place a budget framework for the next five years that ensures
    constrained, but reasonable growth in discretionary programs. For 2005
    through 2007, separate defense (Function 050) and nondefense categories
    would be enforced. For 2008-2010, there would be a single cap for all
    discretionary spending. In addition, a separate category for
    transportation outlays, financed by dedicated revenues, would be
    established for 2005 through 2009. The proposal discontinues separate
    caps established for conservation programs in 2001 through an amendment
    to the Budget Enforcement Act (BEA).

                             Table 15-1.  GENERAL PURPOSE DISCRETIONARY CAPS AND ADJUSTMENTS
                                            (Amounts in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                          2005 \1\    2006      2007      2008      2009      2010
    ----------------------------------------------------------------------------------------------------------------
    Proposed Discretionary Spending Categories:

      Discretionary Category:

        Defense Category (Function 050):
          Budget authority..............................     420.2     438.8     462.6        NA        NA        NA
          Outlays.......................................     463.5     444.3     446.1        NA        NA        NA

        Nondefense Category:
          Budget authority..............................     402.5     400.7     402.2        NA        NA        NA
          Outlays.......................................     427.1     435.5     429.1        NA        NA        NA

          Proposed Cap Adjustments:
            SSA Continuing Disability Reviews:
              Budget authority..........................        NA     0.189     0.203        NA        NA        NA
              Outlays...................................        NA     0.166     0.201        NA        NA        NA

            IRS Tax Enforcement:
              Budget authority..........................        NA     0.446     0.514        NA        NA        NA
              Outlays...................................        NA     0.415     0.509        NA        NA        NA

            Health Care Fraud and Abuse Control:
              Budget authority..........................        NA     0.080     0.120        NA        NA        NA
              Outlays...................................        NA     0.080     0.120        NA        NA        NA

    [[Page 236]]

            Unemployment Insurance Improper Payments:
              Budget authority..........................        NA     0.040     0.040        NA        NA        NA
              Outlays...................................        NA     0.034     0.040        NA        NA        NA

        Subtotal, Nondefense Category, with Adjustments:
          Budget authority..............................     402.5     401.5     403.1        NA        NA        NA
          Outlays.......................................     427.1     436.1     430.0        NA        NA        NA

        Discretionary Category:
          Budget authority..............................        NA        NA        NA     886.6     907.9     919.8
          Outlays.......................................        NA        NA        NA     889.3     905.6     971.4

      Highway Category:
        Outlays.........................................      32.1      34.4      34.9      36.0      39.3        NA

      Mass Transit Category: \2\
        Outlays.........................................       7.2       6.9       6.5       6.9       7.0        NA

    Total, All Discretionary Categories:
      Budget authority..................................     822.7     840.3     865.7     886.6     907.9     919.8
      Outlays...........................................     929.9     921.7     917.4     932.2     951.9     971.4

    Project BioShield Category:
      Budget authority..................................       2.5  ........  ........  ........       2.2  ........

    Memorandum: 2005 Hurricane Supplemental
      Budget authority..................................      11.9  ........  ........  ........  ........  ........
    ----------------------------------------------------------------------------------------------------------------
    \1\ The discretionary budget authority for Division B of the Military Construction Appropriations and Emergency
      Hurricane Supplemental Appropriations Act, 2005 (PL 108-324) and for emergencies in the Consolidated
      Appropriations Act, 2005 (PL 108-447) are displayed separately on a memorandum line.
    \2\ Includes prior-year outlays from general fund budget authority provided in years prior to 2005. Outlays from
      general fund budget authority for 2005 and beyond are included in the Discretionary Category.

      Program Integrity Cap Adjustments.--An improper payment occurs when
    Federal funds go to the wrong recipient, the recipient receives an
    incorrect amount of funds, or the recipient uses the funds in an
    improper manner. Approximately 92 percent of improper payments are
    overpayments. The Administration has made the elimination of improper
    payments a major focus. Federal agencies have begun to review Federal
    programs to evaluate the risk of improper payments, have developed
    measures to assess the extent of improper payments, and have initiated
    processes and internal control improvements to enhance the accuracy and
    integrity of payments. For the first time, agencies have reported the
    results of these efforts, pursuant to the Improper Payments Information
    Act of 2002 (P.L. 107-300).
      The results of the agency assessment have been aggregated into a
    government-wide report entitled Improving the Accuracy and Integrity of
    Federal Payments. (The full text of the report can be found at http://
    www.whitehouse.gov/omb/financial/fia--improper. html.) In 2004, the
    agencies reported a total of $45.1 billion in improper payments. This
    represents a 3.9 percent improper payment rate. Almost two-thirds of
    those improper payments are in four programs: Medicare, Unemployment
    Insurance, Supplemental Security Income, and Old-Age, Survivors, and
    Disability Insurance.
      In the context of the Administration's efforts to eliminate improper
    payments, the Administration is proposing adjustments for spending above
    a base level of funding within the discretionary levels for several
    program integrity initiatives, specifically those efforts for continuing
    disability reviews (CDRs) in the Social Security Administration,
    Internal Revenue Service (IRS) tax enforcement, the Health Care Fraud
    and Abuse Control Program (HCFAC) in the Centers for Medicare and
    Medicaid Services and Unemployment Insurance improper payments in the
    Department of Labor. These cap adjustments provide an effective way to
    ensure that limited resources are applied to activities that reduce
    error and generate program savings.
      In the past decade, there have been a variety of successful efforts to
    ensure dedicated resources for program integrity efforts. These efforts
    include cap adjustment funding for Social Security continuing disability
    reviews and integrity efforts associated with the Earned Income Tax
    Credit (EITC). These initiatives have led to increased savings for the
    Social Security program and an increase in enforcement efforts in EITC.

    [[Page 237]]

      Additional spending on program integrity initiatives has proven to
    reduce erroneous payments in these programs. For example, the Social
    Security Administration reports that every $1 expended on CDRs has
    produced a $10 return to taxpayers. The Administration's proposed
    adjustments for program integrity activities will total $755 million in
    budget authority in 2006 and $877 million in budget authority in 2007.
      Transportation Category.--The Administration's proposal for
    discretionary caps includes separate categories for spending on Federal
    Highway and Mass Transit programs. The Transportation levels will be
    financed by dedicated revenues over the six-year period from 2004
    through 2009. This structure is consistent with the estimates provided
    in the 2006 Budget. Table 15-2 displays the Administration's
    Transportation proposal. The proposal discontinues the annual adjustment
    reflecting updated revenue estimates that was in the previous
    authorization, the Transportation Equity Act for the 21st Century (TEA-
    21).

                       Table 15-2.  TRANSPORTATION CATEGORY FOR HIGHWAYS AND MASS TRANSIT SPENDING
                                            (Amounts in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                          2004 \1\  2005 \1\    2006      2007      2008      2009
    ----------------------------------------------------------------------------------------------------------------
    Transportation Category:

      Highways:
        Obligation Limitations..........................      34.6      35.2      35.9      37.3      39.8      45.9
        Outlays.........................................      30.7      32.1      34.4      34.9      36.0      39.3

      Mass Transit: \2\
        Obligation Limitations..........................       5.8       6.7       6.8       6.5       7.0       7.6
        Outlays.........................................       6.8       7.2       6.9       6.5       6.9       7.0

    Memorandum:
      Discretionary budget authority for mass transit
       not under the Transportation Guarantee:
        Budget authority................................       1.5       1.0       1.0       1.6       1.7       1.9
    ----------------------------------------------------------------------------------------------------------------
    \1\ The Administration's SAFETEA proposal for Highway and Mass Transit programs applies to 2004 through 2009.
    \2\ Includes prior-year outlays from general fund budget authority provided in years prior to 2005. Outlays from
      general fund budget authority for 2005 and beyond are included in the Discretionary Category.

      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 and not in
    the year of enactment. 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. The effect of
    these advance appropriations is to limit the amount of discretionary BA
    available in subsequent years, thereby reducing future funding options
    available to both Congress and the President. 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. By capping advance appropriations, increases in
    these and other programs can be budgeted and reflected in the year of
    their enactment. This year, the Administration proposes that total
    advance appropriations, excluding Project BioShield, continue to be
    capped in 2006 through 2010. Instead of capping total advance
    appropriations at the 2002 level, the Administration will propose a cap
    on advance appropriations of $22,602 million. This is the level of
    advance appropriations provided for 2007 in the President's 2006 Budget.
      In addition, the Administration will also score the second--year
    effect of appropriations language that delays obligations of mandatory
    budget authority as advance appropriations that count against the
    discretionary caps. Appropriations acts often include provisions that
    delay obligations of mandatory BA from one year to the next. The first
    year is appropriately scored as a discretionary savings because it is
    included in an appropriations act and it reduces spending in that year.
    However, this is usually a temporary delay, and the funds become
    available for spending in the second year. Under this proposal, the
    second-year impact would be treated as an advance appropriation and
    scored against the discretionary caps. This will correct an
    inconsistency in the current practice where savings are scored in the
    first year, but the second year impact is reclassified in the subsequent
    budget as mandatory and not scored against the discretionary caps.
      To enforce the level of advance appropriations, the discretionary cap
    proposal provides that total funding for advance appropriations
    (including obligation delays) provided in an appropriations act for 2006
    through 2010 that is in excess of the Administration's limit on advance
    appropriations of $22,602 million will count against the discretionary
    cap in the year enacted, not against the year the funds first become
    available.
      Federal Pell Grants.--The Pell Grant program provides grant aid to
    more than five million postsecondary students each year to help pay for
    their education. Pell

    [[Page 238]]

    Grant funding is discretionary and is provided through the annual
    appropriations process. If a Pell-eligible student enrolls in school,
    however, he or she is automatically eligible for a need-based award up
    to the maximum award set in appropriations (currently $4,050). Pell
    Grant cost estimates are based on the February Budget's technical and
    economic assumptions; the Budget includes both the cost estimate for the
    budget year and revised cost estimates for prior years. In recent years,
    Pell Grant appropriations have been insufficient to cover program costs,
    creating an estimated $4.3 billion funding shortfall through the 2005-
    2006 award year.
      In the FY 2006 Budget, the Administration is proposing a comprehensive
    package of reforms to the Federal student aid programs, including Pell
    Grants. In Pell, the Budget proposes to increase the $4,050 maximum
    award by $100 in FY 2006 and $500 over the next five years. The Budget
    also proposes to retire the estimated $4.3 billion funding shortfall in
    Pell through the 2005-2006 award year. The Budget requests mandatory
    budget authority for the additional funding from these Pell Grant
    proposals, which are offset by reforms to the Federal student loan
    programs that increase benefits to students while making these programs
    more cost effective. This mandatory funding for Pell Grants is
    contingent on adoption of the scoring rule discussed below, which will
    prevent future underfunding of Pell Grant program costs.
      The Pell Grant program would remain discretionary. With the exception
    of the proposed funding to increase the maximum award by $500 over the
    next five years, the Administration would oppose efforts to convert Pell
    Grants into a mandatory program. Discretionary funding would still be
    required to support the cost of a $4,050 Pell Grant maximum award.
    Additional discretionary appropriations would also be needed to support
    any cost increases in the base Pell Grant program--due to increased
    enrollment, maximum award increases provided in appropriations, or other
    policy changes.
      To ensure that funding shortfalls do not accumulate in the Pell Grant
    program in future years, the Administration is proposing to score
    appropriations at the amount needed to fully fund the award level set in
    appropriations acts, if the amount appropriated is insufficient to fully
    fund all awards. This amount would be increased to cover any funding
    shortfalls from previous years and reduced by any surpluses carried over
    from previous years. If the amount appropriated exceeded the estimated
    full cost, the amount appropriated would be scored against that year,
    and the surplus would carry over as a credit against the following
    year's cost estimate. The new scoring rule would only apply to Pell
    Grant costs beginning with the 2006-2007 award year. The existing
    shortfall would be funded as described above.
      The Pell Grant scoring rule is a necessary component of the
    Administration's student aid reforms. It will ensure that Pell Grants
    costs are fully funded each year, which means that funding shortfalls
    will be paid for and will not accumulate in future years. The
    Administration believes that mandatory funding should not be used for
    Pell Grants unless this new budget scoring rule is in place.
      Project BioShield Category.--The Administration proposes to create a
    separate BEA category for budget authority 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. The Administration's proposal to create a
    separate category will help ensure that 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 subject all legislation that changes
    mandatory spending to a pay-as-you-go requirement, so that such
    legislation, in total, does not increase the deficit. This proposal is
    modeled after the PAYGO requirement in the BEA, except that it does not
    apply to tax legislation. It also does not permit mandatory spending
    increases to be offset by tax increases. The Administration does not
    support increasing the tax burden on the American people and, therefore,
    proposes to remove tax legislation from the PAYGO calculation.
      The five-year impact of any proposals affecting mandatory spending
    would continue to be scored. Table 15-3 displays the President's
    mandatory spending proposals. Legislation that exceeds the pay-as-you-go
    requirement in the current year and the budget year would trigger a
    sequester of direct spending programs. The 2006 Budget identifies as
    ``PAYGO'' only legislative proposals that change mandatory spending.

    [[Page 239]]

                                              Table 15-3.  PAYGO PROPOSALS
                                        (Cost/Savings(-) in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                         2005     2006     2007     2008     2009     2010   2005-10
    ----------------------------------------------------------------------------------------------------------------
    Outlay Effects of Tax Proposals \1\...............  ......      -16    3,607    5,594    6,738    7,380   23,303
    Pension Benefit Guaranty Corporation Reform \1\...  ......   -2,195   -3,702   -3,495   -3,226   -2,916  -15,534
    Medicaid and State Children's Health Insurance         225    1,112   -1,549   -3,699   -4,214   -4,417  -12,542
     Program..........................................
    User Fee Proposals................................  ......     -824   -1,384   -1,482   -1,617   -1,593   -6,900
    Student Loan Reforms and Pell Grant Increase......     557   -1,172   -2,001   -1,752   -1,337     -986   -6,691
    Byrd Amendment Repeal.............................  ......   -1,608   -1,615   -1,624     -855     -865   -6,567
    Extension of Spectrum Auction Authority...........  ......  .......  .......    1,083   -2,156   -3,239   -4,312
    Commodity Credit Corporation and Crop Insurance...  ......     -587     -991     -982     -738     -674   -3,972
    Allowing Power Marketing Administrations to Charge  ......      -40     -157     -446   -1,145   -1,406   -3,194
     Market Rates.....................................
    Southern Nevada Land Sales........................  ......     -227     -418     -636     -641     -642   -2,564
    Temporary Assistance for Needy Families                100      277      329      352      361      357    1,776
     Reauthorization..................................
    Arctic National Wildlife Refuge, lease bonuses....  ......  .......   -1,201       -1     -101       -1   -1,304
    Other Proposals...................................     -62      -66       36      127      257      688      980
                                                       -------------------------------------------------------------
      Total...........................................     820   -5,346   -9,046   -6,961   -8,674   -8,314  -37,521

      Total, 2005 and 2006............................  ......   -4,526  .......  .......  .......  .......  .......
    ----------------------------------------------------------------------------------------------------------------
    \1\ Affects both receipts and outlays. Only the outlay effect is shown here.

         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, the series of hurricanes
    that struck Florida this fall, 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.''
      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 used 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.
      This definition codifies the criteria for an emergency that have been
    the standard for a number of years. It is designed to preclude funds
    from being declared an emergency for events that occur on an annual or
    recurring basis. For example, even though it is not possible to predict
    the specific occurrence of fires, tornados, hurricanes, and other
    domestic disasters, it is reasonable to assume that a combination of
    domestic disasters will occur in any given year that require funding
    equal to the five-year average for disaster relief. Funding at this
    five-year average, therefore, should not be considered an emergency
    under this definition. On the other hand, the five-year average for
    domestic disasters will not accommodate the level of funding necessary
    to address a large and relatively infrequent domestic disaster, like the
    series of hurricanes that struck Florida this past fall. Under this
    definition for emergencies, spending for extraordinary events could be
    classified as emergency funding. In the end, classification of certain
    spending as an emergency depends on common sense judgment, made on a
    case-by-case basis, about whether the totality of facts and
    circumstances indicate a true emergency.
      In addition, the Administration proposes that the definition of an
    emergency requirement also encompass contingency operations that are
    national security related. Contingency operations that are national
    security related include both defense operations and foreign assistance.
    Military operations and foreign aid with costs that are incurred
    regularly should be a part of base funding and, as such, are not covered
    under this definition.
      The Administration proposal also would 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.

    [[Page 240]]

                                    Baseline

      The Administration proposes several changes to Section 257 of the BEA,
    which establishes the requirements for the baseline:
        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. This proposal is consistent with
              the BEA baseline rules for expiring mandatory spending and for
              excise taxes dedicated to a trust fund. Except for a few
              relatively small mandatory programs, the BEA assumes that
              mandatory spending and excise taxes dedicated to a trust fund
              will be reauthorized and extends them in the baseline. The
              2001 Act and 2003 Act provisions were not intended to be
              temporary, and not extending them in the baseline raises
              inappropriate procedural road blocks to extending them at
              current rates.
        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 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.
        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. These programs should not be singled out for
              preferential treatment.

                         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 13 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.
      Congress has already acted to require a more comprehensive review of
    the Medicare program's finances and to require the Medicare trustees to
    issue a warning when general revenue Medicare funding is projected to
    exceed 45 percent of Medicare's total expenditures. The Budget proposes
    to build on this reform by establishing a new enforcement measure to
    analyze the long-term impact of legislation on the unfunded obligations
    of major entitlement programs and to make it more difficult to enact
    legislation that would expand the unfunded obligations of these programs
    over the long-run. These measures would highlight proposed legislative
    changes that appear to cost little in the short run but result in large
    increases in the spending burdens passed on to future generations.
      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.

                                 Line-Item Veto

      A perennial criticism of the Federal Government is that spending and
    tax legislation contain too many provisions benefiting a relative few
    which would likely not become law if considered as a stand-alone bill.
    The persistence of special interest items diverts resources from higher
    priority programs and erodes the confidence of citizens in Government.
    Appropriations bills, especially those considered at the end of the
    congressional session, often attract special interest spending items
    that could not be enacted on their own.

    [[Page 241]]

      The President proposes that Congress correct this state of affairs by
    providing him and future Presidents with a line item veto that would
    withstand constitutional challenge. From the Nation's founding,
    Presidents have exercised the authority to not spend appropriated sums.
    However, Congress sought to curtail this authority in 1974 through the
    Impoundment Control Act, which restricted the President's authority to
    decline to spend appropriated sums. Although the Line Item Veto Act of
    1996 attempted to give the President the authority to cancel spending
    authority and special interest tax breaks, 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 defer new spending whenever the President determines the spending is
    not an essential Government priority. All savings from the line-item
    veto would be used for deficit reduction, and they could not be applied
    to augment other spending.

                          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 it would give the budget resolution the force of law.
      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 fully address
    problems in Federal programs. The preoccupation with these annual
    appropriations bills frequently precludes review and action on
    authorization legislation and on the growing portion of the Budget that
    is permanently funded under entitlement laws. According to the
    Congressional Budget Office, the Congress has appropriated about $170
    billion for fiscal year 2005 for programs and activities whose
    authorizations of appropriations have expired.
      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.
      Government Shutdown Prevention.--For 23 out of the past 24 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 usually 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 of an impasse over 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
    the expectation is that 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
    raised by Congress and others with the Administration's previous
    proposals.
      The 2005 Budget included a very limited proposal that would require
    the Patent and Trademark Office (PTO), 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. Congress
    enacted this provision for 2005, and the 2006 Budget proposes that this
    PTO provision be made permanent. Similarly, the Postal Civil Service
    Retirement System Funding Reform Act of 2003 (P.L. 108-18) requires the
    Postal Service to cover the full accruing cost of post-retirement
    annuities for its CSRS employees. In addition, the 2006 Budget proposes
    to use the pension savings provided to the Postal Service by P.L. 108-18
    that would otherwise be held in escrow in 2006

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    and beyond, to put the Postal Service on a path that fully funds its
    substantial retiree health benefits liabilities.
      Results Commission/Sunset Commission.--The Federal government's
    ability to serve the American people is often hampered by poorly
    designed programs or uncoordinated, overlapping programs trying to
    achieve the same objective. Overlapping jurisdictions in the Executive
    Branch and Congress provide daunting hurdles to legislative remedies to
    the poor performance of duplicative programs. Because the potential for
    savings and productivity are great, the Administration is proposing two
    mechanisms for realizing the opportunity to improve performance and
    control cost in a systematic and expedited fashion.
      The Administration plans to propose legislation that gives the
    President the authority to propose Results Commissions. These
    commissions would consider and revise Administration proposals to
    improve the performance of programs or agencies by restructuring or
    consolidating them. Congress would approve individual Results
    Commissions to address single program or policy areas where duplication
    and the overlapping jurisdictions of Executive Branch agencies or
    Congressional committees hinder reform. Proposals approved by the
    commission would then be approved by the President and considered by
    Congress under expedited procedures.
      The Administration also proposes a Sunset Commission to provide a
    process by which programs undergo the regular scrutiny brought about by
    having to defend their existence. Programs would be reviewed according
    to a schedule enacted by Congress. The Commission would consider
    proposals to retain, restructure, or terminate programs. Programs would
    automatically terminate according to the schedule unless Congress took
    some action to reauthorize them.

                             Administrative Actions

      Budget Discipline for Agency Administrative Actions.--A significant
    amount of Federal policy is made via administrative action, which can
    increase Federal spending, often on the order of tens of billions of
    dollars in entitlement programs such as Medicare or Medicaid. Although
    known costs are incorporated into the Budget baselines of various
    programs, agencies frequently launch unplanned for and costly proposals.
    Often, these costs are not reflected in the baseline, or are not
    accompanied by other actions that would pay for the proposed change.
    This results in increased spending and deficits.
      Support for restoring a PAYGO requirement for mandatory spending is
    integral to the Administration's commitment to reducing the deficit and
    enforcing fiscal discipline. Toward that end, the Office of Management
    and Budget plans to establish an internal review process that requires
    agencies, when proposing substantial administrative decisions that
    increase mandatory spending, to propose other offsetting administration
    decisions that reduce mandatory spending.